Enlightened Individual

There are three important features to any strategy:
1)    Enter the market by early signals
2)    Leave the market by maximal profit or minimal loses
3)    Avoid false signals

Included is of course the importance of choosing a correct time frame.

Many choose only looking at signals given by graphs; and acting accordingly; much like software for automated trading would do. The best trades might sometimes be triggered by a news article you read, finding the correct signals that indicate its right; and waiting for a signal confirming the largest growth is over. Hence; the best trading strategies are more long term and based upon both knowledge and analytical skills. These are however often more long term.

As you might remember from previous; day trading and short term trading often contain more risks than long term. And be aware; some consider day trading as gambling as it’s really difficult to do successfully.

You might sometimes be successful by using knowledge on short time trading with technical analysis; however; it is difficult and requires a understanding of how news or situations might affect the currency; and you need a understanding of which signals to look for to confirm the knowledge you have is correct. By doing this you might develop your own, personal strategy helping you to earn money much quicker than other strategies that are pure analytical.

I do ask anyone wanting to do trading to educate themselves well to understand why they are making actions, how to control their own human greed, and how to successfully manage their money without risking all of it at once. There is nothing more important than knowledge to be successful within trading. After you understand yourself and economics is the right time to start looking at patterns and signals you find in the software; but the strongest knowledge is human behavioral and how business and politics affect the local currency. Having a strong knowledge will help you to create winning strategies that are not based on pure luck.

Again I empathize how important it is to not use money that are needed for bills or the family; only additional money you can afford to lose. IF you are successful you might not lose anything at all. But be careful with any investment, and do not believe you can get rich without hard work. Hard work and determination is what creates wealth and winners.

-Kentaki-

Previous in the FOREX tutorial for beginners we looked a bit on bid, asks and spreads. These are important words to the FOREX world.

Now we are going to look a bit on leverage; leverage is to lend, or use credits of the broker. It allows you to spend us$ 1000 to control us$ 100.000. To be able to do this the brokers offer different ways of trading:

The Spot Market: this involves a transaction from one currency to another currency. We do the exchange over two days; where the first day is called the “value date” which is the settlement days where you agree upon the exchange, while the “deal date” is the date you agree to do the exchange.

Other trading that you might be a part of is:
Forward and futures
Options
Contracts for differences
Spread betting

I will not cover all these sections right now; but they will be discussed in the future.

Now that you know a bit about the trading you might be thinking about deciding a platform for your trading; this typically includes deciding on a broker, and software to use. As I talked about previous; you should look at the pips rate, but more importantly you should make a research on the broker.

There are unserious actors as brokers; so make sure you read reviews; but also make sure they are attached to a real bank. You should also make sure they are registered with the Futures Commission Merchant (FCM), and regulated by the Commodity Futures Trading Commission (CFTC).

After you have narrowed down the list of brokers that might be suitable for you, you should request a free trial of their software to make sure they have a tool that is easy for you to use; and providing you with the information necessarily for you to use your preferred strategies. You should also evaluate which option is out there for automated trading while you are away. There might come a time where you want to start using automated tools; and you should have chosen a trading platform suitable for both manual and automated trading.  It might be too late to choose a good trading platform at a later stage without having to change broker and software; which is time consuming.

Most brokers also allow you to have a trial account where you can practice making trades without actually risking any money. Trial account and trial software should be one of the most important tools for the beginning FOREX trader.

-Kentaki-

Last we saw briefly on skills we should have before starting. We looked at knowledge; money management and psychology as some of the most important skills.

Now we are going to look at bid, asks and spreads. Bids are the price a seller asks for a currency; the price you have to pay for it. Asks are the price you are selling for. Keep in mind the bid and asks prices are not the actual value you from sell and buy prices. There is a small difference, which we call spread. This spread is what earns the broker money. They often sell for a value above the value, and buy for a price bit above the real value. The spread is often represented by the word pips (percentage in points). You often want to look for serious FOREX platforms and brokers offering low pips for transactions.

I hope this explanation wasn’t too clumsy; but you will shortly understand true meaning of words. There is always a true sale and buy price of a currency; but bankers or brokers earn money from the spread; or difference between what you pay and the true value. It’s not as complicated as it sounds like; but everyone wants to earn some money; and brokers and banks often earn some money by adding a small difference on the currency. You as a trader are mostly busy chasing profits from selling at a high price and buying at a low price.

Before you start using your money on the FOREX market you should be aware that short term investments; especially day trading is a risky business. You might come to many wins; but also suffer large losses. Hence; it’s important for any beginner to only trade spare money you can afford to lose.  The business of trading being risky is not reduced to intelligence; it’s hard to succeed with both if you are gifted, and if you aren’t gifted. You should also keep in mind currency exchange is more complicated and difficult to understand that trading stocks. To really have a good chance to do well you should read books and really educate yourself in economic, stock trading, microeconomics and macroeconomics. Some basic understanding of how political directions might affect a currency might also be a smart topic to understand. And as we discussed in a previous posting you should educate yourself in psychology and self understanding; and of course within money management.

-Kentaki-