The Forex Trading Tips
Foreign Exchange is the most competitive financial market in the world. Here are some key tips when trading Forex currencies. Never forget that confidence and skill can be built they can't be purchased.
Forex Trading Tip: Trade like a Big Shark not like a Little Penguin
There is a little secret that every rich person knows about. This secret is called Great-Reward-Investing. Most of Forex traders open positions with Reward/Risk ratio of 1:1 to 2:1, they trade like little penguins. If you trade using Reward/Risk 1:1 you need at least 60% winning ratio just not to lose your own money (given the transaction cost). On the contrary, big sharks select trades with Reward/Risk of 5:1 or even higher. If you trade with R/R 5:1, you may lose 3 of 4 your overall positions and still make a decent profit. This is a big deal. In order to profit from Great-Reward-Trades you need (a) to use tight capital leverage (max 20:1), and (b) to follow long-term trends as they can be visible in H4 and D1 charts. Let's examine that approach:
■ Find a strong trending market visible in the H4/D1 charts.
■ Confirm the trend continuation using the MACD histogram and chart patterns such as double tops and bottoms, pennants, flags, ascending and descending triangles.
■ Time your entrance using the M5/M15 charts and confirm it with RSI(21)
■ Run you profits
Forex Trading Tip: Trade only When the Time is Right
As a big shark sometimes said: Good investing is boring, if you have fun you are probably not making money. You can't trade as a hobby and you can't trade anytime you like, unless of course, you have a lot of money to give away. If you can't find good trading opportunities then close your computer and spend some time with your family and friends. Timing is everything in our life. Prefer to trade Forex between 10:00 – 17.00 PM (GMT) from Tuesday to Thursday when the liquidity booms. When liquidity increases you pay tighter spreads and currency pairs trend better.
■ Find more about Forex trading and timing at ForexExperts.net
Forex Trading Tip: Forex Trading as a Stepwise Process
Trading Forex successfully can not be taught intraday, instead, it is a stepwise process that needs several months of training and practicing. Beginners should always start trading in a demo account in order to get familiar with MetaTrader-4 and test their performance without any risk. After practicing on a demo account the next step should be opening a micro-lot account. This account type (micro) uses 1,000 USD as 1 lot and that means that you will not pay hard your mistakes. Next, traders should move to a mini-lot account and finally, they should open a standard lot account where 1 lot worths 100,000 USD. Confidence and skill can be built they can't be purchased.
■ Open Risk-Free Demo Accounts:
Forex Trading Tip: Limit Your Trading Cost
The cost when trading Forex is basically very tight and can be measured in a few pips. But as the capital leverage and the frequency of trading increases that tiny cost can become a huge issue. Professional traders mind their trading cost more than anything else. There are a few ways to limit your trading cost.
■ Select carefully your broker and avoid market makers (ECN/STP brokers are cheaper by rule).
■ Choose to trade only liquid Forex pairs and avoid trading during times when the market activity shrinks. The most active Forex hours are between 10.00GMT and 17.00GMT.
■ Enter a Forex Rebate Plan (it can shrink your trading cost up to 50%).
■ Find Forex trading rebates at ForexExperts.net
Forex Trading Tip: Select to Trade Trending Pairs
Forex pairs are either trending upwards / downwards or moving in range (oscillating). Trending means that the price of a financial asset moves in strong directional moves. These moves can be defined using the H4/D1 chart as it was explained before. A trending market offers great advantages for Forex traders. First of all following a strong trend offers exceptional Reward/Risk ratios up to 15:1. If your profits are running fast you don't have to close your positions based on fear, instead, you can apply a trailing stop order of let's say 50 pips and secure your profits. A ranging market is a market that trades within a specific range that is defined between an important support and an important resistance price level. You can trade these ranges using pending orders and trade in the direction of the trend until a price resistance or support is reached. Note that trending markets are much easier to trade.
Forex Trading Tip: Mind the Market Volatility and Avoid News Releases
Experienced currency traders know how to handle the Forex market volatility but beginners must be very careful. Beginners must always use low capital leverage and leave a lot of space for their stop-loss orders when they trade volatile currency pairs. Another important aspect regarding volatility is timing. If you trade during important news releases then you are exposed to extreme choppy market conditions. Non-professional traders should better avoid trading during news release (20 minutes before and 20 minutes after). In any case, if you trade during news releases use your stop-loss as your shield and keep your capital leverage low.
Forex Trading Tip: Mind the Interest Rate Differences
When you open a position on a currency pair you are exposed to two currencies, the one you buy and the one you sell. Forex currencies pay interest rates, and if the currency you buy pays more interest rate than the currency you sell then you are paid an overnight interest rate, that is called a positive SWAP value. On the contrary, if the currency you buy pays less interest rate than the currency you sell, then you are charged an overnight rate (negative SWAP value). On particular Forex pairs such is NZDUSD and AUDJPY this extra interest income can be accumulated in huge profits over time, this practice is called carry trade. Note also that on Wednesday at midnight the SWAP value triples (x3) in order to cover the weekend.
■ Find the best brokers for carry trading at ForexExperts.net
■ Forex Trading Tips