When it comes to trading, one of the most neglected subjects are those dealing with trading psychology. Most traders spend days, months and even years trying to find the right system. But having a system is just part of the game. Don’t get us wrong, it is very important to have a system that perfectly suits the trader, but it is as important as having a money management plan, or to understand all psychology barriers that may affect the trader decisions and other issues. In order to succeed in this business, there must be equilibrium between all important aspects of trading.
In the trading environment, when you lose a trade, what is the first idea that pops up in your mind? It would probably be, “There must be something wrong with my system”, or “I knew it, I shouldn’t have taken this trade” (even when your system signaled it). But sometimes we need to dig a little deeper in order to see the nature of our mistake, and then work on it accordingly.
When it comes to trading the Forex market as well as other markets, only 5% of traders achieve the ultimate goal: to be consistent in profits. What is interesting though is that there is just a tiny difference between this 5% of traders and the rest of them. The top 5% grow from mistakes; mistakes are a learning experience, they learn an invaluable lesson on every single mistake made. Deep in their minds, a mistake is one more chance to try it harder and do it better the next time, because they know they might not get a chance the next time. And at the end, this tiny difference becomes THE big difference.
Mistakes in the trading environment
Most of us relate a trading mistake to the outcome (in terms of money) of any given trade. The truth is, a mistake has nothing to do with it, mistakes are made when certain guidelines are not followed. When the rules you trade by are violated. Take for instance the following scenarios:
First scenario: The system signals a trade.
1. Signal taken and trade turns out to be a profitable trade.
Outcome of the trade: Positive, made money.
Experience gained: Its good to follow the system, if I do this consistently the odds will turn in my favor. Confidence is gained in both the trader and the system.
Mistake made: None.
2. Signal taken and trade turns out to be a loosing trade.
Outcome of the trade: Negative, lost money.
Experience gained: It is impossible to win every single trade, a loosing trade is just part of the business; our raw material, we know we can’t get them all right. Even with this lost trade, the trader is proud about himself for following the system. Confidence in the trader is gained.
Mistake made: None.
3. Signal not taken and trade turns out to be a profitable trade.
Outcome of the trade: Neutral.
Experience gained: Frustration, the trader always seems to get in trades that turned out to be loosing trades and let the profitable trades go away. Confidence is lost in the trader self.
Mistake made: Not taking a trade when the system signaled it.
4. Signal not taken and trade turns out to be a loosing trade.
Outcome of the trade: Neutral.
Experience gained: The trader will start to think “hey, I’m better than my system”. Even if the trader doesn't think on it consciously, the trader will rationalize on every signal given by the system because deep in his or her mind, his or her “feeling” is more intelligent than the system itself. From this point on, the trader will try to outguess the system. This mistake has catastrophic effects on our confidence to the system. The confidence on the trader turns into overconfidence.
Mistake made: Not taking a trade when system signaled it
Second Scenario: System does not signal a trade.
1. No trade is taken
Outcome of the trade: Neutral
Experience gained: Good discipline, we only need to take trades when the odds are in our favor, just when the system signals it. Confidence gained in both the trader self and the system.
Mistake made: None
2. A trade is taken, turns out to be a profitable trade.
Outcome of the trade: Positive, made money.
Experience gained: This mistake has the most catastrophic effects in the trader self, the system and most importantly in the trader’s trading career. You will start to think you need no system, you know better from them all. From this point on, you will start to trade based on what you think. Confidence in the system is totally lost. Confidence in the trader self turns into overconfidence.
Mistake made: Take a trade when there was no signal from the system.
3. A trade is taken, turned out to be a loosing trade.
Outcome of the trade: negative, lost money.
Experience gained: The trader will rethink his strategy. The next time, the trader will think it twice before getting in a trade when the system does not signal it. The trader will go “Ok, it is better to get in the market when my system signals it, only those trade have a higher probability of success”. Confidence is gained in the system.
Mistake made: Take a trade when there was no signal from the system
As you can see, there is absolutely no correlation between the outcome of the trade and a mistake. The most catastrophic mistake even has a positive trade outcome, made money, but this could be the beginning of the end of the trader’s career. As we have already stated, mistakes must only be related to the violation of rules a trader trades by.
All these mistakes were directly related to the signals given by a system, but the same is applied when getting out of a trade. There are also mistakes related to following a trading plan. For example, risking more money on a given trade than the amount the trader should have risked and many more.
Most mistakes can be avoided by first having a trading plan. A trading plan includes the system: the criteria we use to get in and out the market, the money management plan: how much we will risk on any given trade, and many other points. Secondly, and most important, we need to have the discipline to follow strictly our plan. We created our plan when no trade was placed on, thus no psychology barriers were up front. So, the only thing we are certain about is that if we follow our plan, the decision taken is on our best interests, and in the long run, these decisions will help us have better results. We don’t have to worry about isolated events, or trades that could had give us better results at first, but then they could have catastrophic results in our trading career.
How to deal with mistakes
There are many possible ways to properly manage mistakes. We will suggest the one that works better for us.
Step one: Belief change.
Every mistake is a learning experience. They all have something valuable to offer. Try to counteract the natural tendency of feeling frustrated and approach mistakes in a positive manner. Instead of yelling to everyone around and feeling disappointed, say to yourself “ok, I did something wrong, what happened? What is it?
Step two: Identify the mistake made.
Define the mistake, find out what caused the mistake, and try as hard as you can to effectively see the nature of that mistake. Finding the mistake nature will prevent you from making the same mistake again. More than often you will find the answer where you less expected. Take for instance a trader that doesn’t follow the system. The reason behind this could be that the trader is afraid of loosing. But then, why is he or she afraid? It could be that the trader is using a system that does not fit him or her, and finds difficult to follow every signal. In this case, as you can see, the nature of the mistake is not in the surface. You need to try as hard as you can to find the real reason of the given mistake.
Step three: Measure the consequences of the mistake.
List the consequences of making that particular mistake, both good and bad. Good consequences are those that make us better traders after dealing with the mistake. Think on all possible reasons you can learn from what happened. For the same example above, what are the consequences of making that mistake? Well, if you don’t follow the system, you will gradually loose confidence in it, and this at the end will put you into trades you don’t really want to be, and out of trades you should be in.
Step four: Take action.
Taking proper action is the last and most important step. In order to learn, you need to change your behavior. Make sure that whatever you do, you become “this-mistake-proof”. By taking action we turn every single mistake into a small part of success in our trading career. Continuing with the same example, redefining the system would be the trader’s final step. The trader would put a system that perfectly fits him or her, so the trader doesn’t find any trouble following it in future signals.
Understanding the fact that the outcome of any trade has nothing to do with a mistake will open your mind to other possibilities, where you will be able to understand the nature of every mistake made. This at the same time will open the doors for your trading career as you work and take proper action on every mistake made.
The process of success is slow, and plenty of times it is attributed to repeated mistakes made and the constant struggle to get past these mistakes, working on them accordingly. How we deal with them will shape our future as a trader, and most importantly as a person.
Tuesday, June 17, 2008
How to Quit Your Job
Do you to know without ending up on the street? In a nutshell, you need to avoid the self-employment trap, think like a business, and create multiple passive revenue streams.
Avoid the Self-Employment Trap
If you quit your job and hang up your own shingle, you might work harder for less money. You may enjoy working from home or choosing your own clients, but you might end up living from client to client without building any real wealth.
Many self-employed people I know suffer from feast or famine. They spend lots of time and money marketing their services and get lots of clients. They get really busy doing the work and stop marketing and then their prospective client pool dries up.
If you set up your business so that you do everything - marketing, sales, bookkeeping, operations, and fulfillment, then you are limiting your success potential from day one. You will spend lots of time on non-income generating activities and may get frustrated and burned-out in a short time.
The real key to successfully creating wealth outside of a job is to avoid the mistake of trading one boss for another boss. You need to stop trading your time for dollars. Stop thinking like a wage slave. Look beyond earned income.
Think Like a Business
There are many problems with earned income. The biggest one is that you are trading your time for money. If you stop trading your time, the dollars stop coming. This is a huge problem if you decide to have a baby, get sick, want to take an extended vacation, or are ready to retire.
The IRS penalizes self-employed people who operate as a sole proprietorship with a hefty self-employment tax. How can you avoid this? Well, I am not an accountant or CPA, so I am not giving legal or accounting advice, but I have learned to think like a business. Before you quit your job, interview local tax advisors to educate yourself on different business entities and tax strategies. Start thinking big.
Build a Company with Multiple Passive Income Streams
You need to build a company that works for you. My best advice on how to quit your job is to build a business that offers multiple streams of passive income in addition to your earned income. There are so many exciting ways to design your income portfolio. It requires imagination, courage and planning.
Structure your business so that your daily activities are fun and challenging. Identify the things that you don’t enjoy or are not good at and find other people to do these activities – outside partners, independent contractors, or employees.
How to Quit Your Job
My advice for how to quit your job is to avoid thinking that you have to do everything yourself to make your new enterprise run. Think big! Set up systems and structures that work for you so you don’t have to work so hard. Incorporate and make the tax system work for you. Design your work around multiple passive income streams to support your active work. And finally, have fun!
Avoid the Self-Employment Trap
If you quit your job and hang up your own shingle, you might work harder for less money. You may enjoy working from home or choosing your own clients, but you might end up living from client to client without building any real wealth.
Many self-employed people I know suffer from feast or famine. They spend lots of time and money marketing their services and get lots of clients. They get really busy doing the work and stop marketing and then their prospective client pool dries up.
If you set up your business so that you do everything - marketing, sales, bookkeeping, operations, and fulfillment, then you are limiting your success potential from day one. You will spend lots of time on non-income generating activities and may get frustrated and burned-out in a short time.
The real key to successfully creating wealth outside of a job is to avoid the mistake of trading one boss for another boss. You need to stop trading your time for dollars. Stop thinking like a wage slave. Look beyond earned income.
Think Like a Business
There are many problems with earned income. The biggest one is that you are trading your time for money. If you stop trading your time, the dollars stop coming. This is a huge problem if you decide to have a baby, get sick, want to take an extended vacation, or are ready to retire.
The IRS penalizes self-employed people who operate as a sole proprietorship with a hefty self-employment tax. How can you avoid this? Well, I am not an accountant or CPA, so I am not giving legal or accounting advice, but I have learned to think like a business. Before you quit your job, interview local tax advisors to educate yourself on different business entities and tax strategies. Start thinking big.
Build a Company with Multiple Passive Income Streams
You need to build a company that works for you. My best advice on how to quit your job is to build a business that offers multiple streams of passive income in addition to your earned income. There are so many exciting ways to design your income portfolio. It requires imagination, courage and planning.
Structure your business so that your daily activities are fun and challenging. Identify the things that you don’t enjoy or are not good at and find other people to do these activities – outside partners, independent contractors, or employees.
How to Quit Your Job
My advice for how to quit your job is to avoid thinking that you have to do everything yourself to make your new enterprise run. Think big! Set up systems and structures that work for you so you don’t have to work so hard. Incorporate and make the tax system work for you. Design your work around multiple passive income streams to support your active work. And finally, have fun!
Investing Stock Market ABC’s
While most folks today trust mutual funds and their professional managers with their investments, it’s still important to understand the basics of the stock market. Although investing in individual stocks may not be right for everyone, a basic understanding of the stock market is essential to understanding the workings of our economy and business sector.
A stock is a portion of ownership in a company. Commonly referred to as a share, it is a small percentage of the total ownership pool for the corporation. Shareholders are stock owners, or people who have an ownership interest in the corporation. Today, shares are usually tracked electronically, but in previous decades shareholders would actually receive a certificate stating their ownership.
Why own stocks? First, you are sharing in the company’s profits. When a corporation shows a profit, they will sometimes distribute these profits to each shareholder, based on how much stock they own. This distribution is called a dividend. Company’s can elect to pay out their profits or reinvest them in the company, but as a shareholder, each time a payout is made you will receive your proportionate share.
Also, the value of your stock will rise and fall based on the company’s perceived value in the stock market. If you buy a share at $10.00 and it rises to $11.00 a share, you’ve made a dollar for each share you own, and subsequently sell. However, with this opportunity comes risk as well. If the share price falls and you sell, you’ll lose money. The more volatile the stock, the more opportunity for risk or profit.
Most shareholders track their stocks using the stock table. These appear confusing and difficult to read, but they are actually easy to understand with a little practice.
Ticker symbol is listed first. This is the abbreviated symbol that the stock market uses to identify your company. For example, GE is General Electric, WMT is Walmart. Once you select a company, you’ll need to know it’s shorthand name to track its progress.
Second, the company’s name may be listed. Some tables omit the name to save space, others list it to make tracking stocks easier.
The third item is the number of sales in the last trading day. This is listed in the 100,000’s, so 256 means 256,000 shares were bought and sold on the last day that the market was open.
Next are the high and low price, in that order. The high price is the highest per share price that the stock sold for on the previous trading day. The low price is the lowest price for that day. Since the price of the shares moves all day long, this is a good reference to see how much the stock is changing in a day.
Next, the closing price is listed. This is the last price that the stock traded for as the market closed. This will also be the beginning price for the next trading day.
After the closing price, the table will list the change, or the amount that the stock changed when you compare yesterday’s closing price with the closing price for the day before. This will be listed as a positive number (the stock went up) or a negative number (the stock sold for less yesterday than the day before).
Stock tables are found in many places, but most people check their daily paper or the Wall Street Journal. There are many internet sites that track stocks as well.
Of course, you’ll have to select a stock. Choose carefully or consult a professional, and good luck!
A stock is a portion of ownership in a company. Commonly referred to as a share, it is a small percentage of the total ownership pool for the corporation. Shareholders are stock owners, or people who have an ownership interest in the corporation. Today, shares are usually tracked electronically, but in previous decades shareholders would actually receive a certificate stating their ownership.
Why own stocks? First, you are sharing in the company’s profits. When a corporation shows a profit, they will sometimes distribute these profits to each shareholder, based on how much stock they own. This distribution is called a dividend. Company’s can elect to pay out their profits or reinvest them in the company, but as a shareholder, each time a payout is made you will receive your proportionate share.
Also, the value of your stock will rise and fall based on the company’s perceived value in the stock market. If you buy a share at $10.00 and it rises to $11.00 a share, you’ve made a dollar for each share you own, and subsequently sell. However, with this opportunity comes risk as well. If the share price falls and you sell, you’ll lose money. The more volatile the stock, the more opportunity for risk or profit.
Most shareholders track their stocks using the stock table. These appear confusing and difficult to read, but they are actually easy to understand with a little practice.
Ticker symbol is listed first. This is the abbreviated symbol that the stock market uses to identify your company. For example, GE is General Electric, WMT is Walmart. Once you select a company, you’ll need to know it’s shorthand name to track its progress.
Second, the company’s name may be listed. Some tables omit the name to save space, others list it to make tracking stocks easier.
The third item is the number of sales in the last trading day. This is listed in the 100,000’s, so 256 means 256,000 shares were bought and sold on the last day that the market was open.
Next are the high and low price, in that order. The high price is the highest per share price that the stock sold for on the previous trading day. The low price is the lowest price for that day. Since the price of the shares moves all day long, this is a good reference to see how much the stock is changing in a day.
Next, the closing price is listed. This is the last price that the stock traded for as the market closed. This will also be the beginning price for the next trading day.
After the closing price, the table will list the change, or the amount that the stock changed when you compare yesterday’s closing price with the closing price for the day before. This will be listed as a positive number (the stock went up) or a negative number (the stock sold for less yesterday than the day before).
Stock tables are found in many places, but most people check their daily paper or the Wall Street Journal. There are many internet sites that track stocks as well.
Of course, you’ll have to select a stock. Choose carefully or consult a professional, and good luck!
All About Stock Market
A stock market simulation game is a great way to practice your investment skills before actually investing any "real" money in the stock market.
Simulation games are usually played on the internet, where people can experience the thrill of investing in the stock market without any risks, costs or any fear of losing money when and if they make a poor investment decision.
Many teachers and professors of banking and finance are now using stock market simulation games to teach their students about the rudiments of investing in stocks. Most stock market simulation games come with a fee to get started, but there are some that are free of any charge. One does not need have prior knowledge about the stock market to join.
This is how stock market simulation games usually work:
First, players must register. After registration, players are given an initial sum of "virtual" money to invest in companies of their choice. Players build a portfolio of stocks by buying and selling shares in companies. Most stock market simulation games use real-time market data.
The objective of most stock market simulation games is simple:
To increase the value of your portfolio of stocks so that it is greater than that of the other game players.
Below are some tips on choosing a stock market simulation game:
• Choose a stock market simulation game that is used and recommended by reputable colleges, high schools, middle school, investment clubs, brokers in training, corporate education courses and any other group of individuals studying markets in the U.S. and worldwide.
• Choose a stock market simulation game that is comprehensive and easy to implement in any Finance, Economics, or Investments class. A good stock market simulation game should feature trading of stocks, options, futures, mutual funds, bonds from the U.S. and many of the world's major markets.
• Choose a stock market simulation game that provides a valuable, reliable, and realistic trading simulation at a reasonable price to members and other individuals who are interested in learning more about investing and trading. The simulation game should also have some capability for testing a variety for investment strategies.
• Choose a stock market simulation game that has a toll-free customer service phone number and excellent e-mail support for members. The support function should be able to quickly answer any questions that members/players may have.
• Choose a stock market simulation game that is easy to use and easy to teach even to those who have never had any real hands-on investment experience.
Simulation games are usually played on the internet, where people can experience the thrill of investing in the stock market without any risks, costs or any fear of losing money when and if they make a poor investment decision.
Many teachers and professors of banking and finance are now using stock market simulation games to teach their students about the rudiments of investing in stocks. Most stock market simulation games come with a fee to get started, but there are some that are free of any charge. One does not need have prior knowledge about the stock market to join.
This is how stock market simulation games usually work:
First, players must register. After registration, players are given an initial sum of "virtual" money to invest in companies of their choice. Players build a portfolio of stocks by buying and selling shares in companies. Most stock market simulation games use real-time market data.
The objective of most stock market simulation games is simple:
To increase the value of your portfolio of stocks so that it is greater than that of the other game players.
Below are some tips on choosing a stock market simulation game:
• Choose a stock market simulation game that is used and recommended by reputable colleges, high schools, middle school, investment clubs, brokers in training, corporate education courses and any other group of individuals studying markets in the U.S. and worldwide.
• Choose a stock market simulation game that is comprehensive and easy to implement in any Finance, Economics, or Investments class. A good stock market simulation game should feature trading of stocks, options, futures, mutual funds, bonds from the U.S. and many of the world's major markets.
• Choose a stock market simulation game that provides a valuable, reliable, and realistic trading simulation at a reasonable price to members and other individuals who are interested in learning more about investing and trading. The simulation game should also have some capability for testing a variety for investment strategies.
• Choose a stock market simulation game that has a toll-free customer service phone number and excellent e-mail support for members. The support function should be able to quickly answer any questions that members/players may have.
• Choose a stock market simulation game that is easy to use and easy to teach even to those who have never had any real hands-on investment experience.
Emotions: A Trader's Worst Enemy; Get Rid of Fear and Greed - You'll be Glad You Did
You hear it over and over and over in books, forums, and chatrooms. Fear and greed, fear and greed, fear and greed. Emotions are a trader’s worst enemy. What are we supposed to do about it? We are human after all. Human beings have emotions. We can’t just throw a switch and suddenly behave like “Data” on Star Trek the Next Generation.
So what’s the answer for the aspiring trader?
It all boils down to 2 main components:
1. Having a plan
2. Having an appropriate trading style
You hear the first point often. Obnoxious little phrases like “Plan your trade, Trade your plan” are thrown around like it was really just that simple. But without the second part, the first part is useless. What good is a plan if you don’t know what type of plan is appropriate?
For example, you could plan your commute to work expecting to make the 30 mile trip in 20 minutes, but if you’re on foot that plan isn’t going to work very well is it? The plan was simply not appropriate for you in that situation.
There are an unlimited number of possible trading methods and styles, from chart reading to fundamental analysis, cycles to Fibonacci retracements, intra-day, Dogs of the DOW, Options, Futures, FOREX, Pork Bellies, Arbitrage – it can make you feel like your head will explode! But what you trade does not matter nearly as much as how, or perhaps why you trade.
Why do you trade?
Are you the sort who likes to play video games, loves fast action, and has no problem being glued to a screen all day? Then maybe intra-day trading 1 and 5 minute charts of high volatility equity options is for you.
Rather check your trades maybe every few days, or maybe once a week? Then perhaps swing trading currency pairs is more your style.
Prefer sleeping easy at all times, never worrying in the least about your trades because you knew up front that they would profit? Then my friend, arbitrage trading is calling your name.
Every style has its advantages and disadvantages, its risks and rewards, but most important is that the style must match the trader. If you jump into trading believing that just because someone else can do it this way, then so can you – you may be in for a very painful surprise.
Never trade someone else’s plan. Never trade someone else’s style. You absolutely must know your own temperament well enough to determine what you will trade, and exactly how you will trade it. Your money management rules, your tolerance for losses, i.e. costs, , your willingness to change the trade if your market opinion is proven wrong – these are the true secrets to trading that separate the novice from the veteran. With these in place, emotions can be reduced if not eliminated.
After all, which would put you most at ease? Driving through an unfamiliar city alone with no guidance, driving with a map, or driving with a full color street-level-detail GPS navigation system?
I’ll take the GPS, thank you.
So before you place your first, or next, trade, consider the following:
a. Do you understand what you are trading and why?
b. Do you know what you will do given any of the possible outcomes?
c. Are you ready and willing to admit you were wrong about the trade, and if so what will you do about it and when?
d. Are you comfortable with the thought of losing the money you are putting into the trade, and will your trading account survive to trade another day if you do?
These are all part of what you need to have in your plan. I urge you to have considered them thoroughly before risking the slightest amount of money in a real trade.
Emotions – “You can’t trade with ‘em, and you must trade without ‘em.”
So what’s the answer for the aspiring trader?
It all boils down to 2 main components:
1. Having a plan
2. Having an appropriate trading style
You hear the first point often. Obnoxious little phrases like “Plan your trade, Trade your plan” are thrown around like it was really just that simple. But without the second part, the first part is useless. What good is a plan if you don’t know what type of plan is appropriate?
For example, you could plan your commute to work expecting to make the 30 mile trip in 20 minutes, but if you’re on foot that plan isn’t going to work very well is it? The plan was simply not appropriate for you in that situation.
There are an unlimited number of possible trading methods and styles, from chart reading to fundamental analysis, cycles to Fibonacci retracements, intra-day, Dogs of the DOW, Options, Futures, FOREX, Pork Bellies, Arbitrage – it can make you feel like your head will explode! But what you trade does not matter nearly as much as how, or perhaps why you trade.
Why do you trade?
Are you the sort who likes to play video games, loves fast action, and has no problem being glued to a screen all day? Then maybe intra-day trading 1 and 5 minute charts of high volatility equity options is for you.
Rather check your trades maybe every few days, or maybe once a week? Then perhaps swing trading currency pairs is more your style.
Prefer sleeping easy at all times, never worrying in the least about your trades because you knew up front that they would profit? Then my friend, arbitrage trading is calling your name.
Every style has its advantages and disadvantages, its risks and rewards, but most important is that the style must match the trader. If you jump into trading believing that just because someone else can do it this way, then so can you – you may be in for a very painful surprise.
Never trade someone else’s plan. Never trade someone else’s style. You absolutely must know your own temperament well enough to determine what you will trade, and exactly how you will trade it. Your money management rules, your tolerance for losses, i.e. costs, , your willingness to change the trade if your market opinion is proven wrong – these are the true secrets to trading that separate the novice from the veteran. With these in place, emotions can be reduced if not eliminated.
After all, which would put you most at ease? Driving through an unfamiliar city alone with no guidance, driving with a map, or driving with a full color street-level-detail GPS navigation system?
I’ll take the GPS, thank you.
So before you place your first, or next, trade, consider the following:
a. Do you understand what you are trading and why?
b. Do you know what you will do given any of the possible outcomes?
c. Are you ready and willing to admit you were wrong about the trade, and if so what will you do about it and when?
d. Are you comfortable with the thought of losing the money you are putting into the trade, and will your trading account survive to trade another day if you do?
These are all part of what you need to have in your plan. I urge you to have considered them thoroughly before risking the slightest amount of money in a real trade.
Emotions – “You can’t trade with ‘em, and you must trade without ‘em.”
Financial Trading – so many markets, so little time
Would you like to make money from trading but don't know how to trade?
Have you heard of others making a killing on the markets and wished yourself in their position?
Trading covers a multitude of sins, or at least a multitude of markets. Mention “trading” to a non-trader and they’ll probably think of stock and shares but there are many other markets you can trade in. These include commodities, futures, indices, CFDs and options. They all have their pros and cons and some require specialized knowledge.
The most popular markets used by traders are stocks, commodities, futures, indices and forex. Some traders switch between markets, others stick to just one. Let’s highlight some of the similarities and differences between them.
Shares
In the USA there are over 40,000 shares so you have a lot of markets to choose from. You can’t deal in all of them so you need to home in on those that offer good trading opportunities using whatever trading methods you decide to use.
When buying shares you usually have to put up all the money at the time of sale. That might seem obvious but it’s not so with all markets. Some brokers offer a 50% margin with shares which means you can trade to the value of twice the amount in your account. This seems like a good deal but if your shares start to go down you’ll get a “margin call” and will either have to put more money in your account or sell the shares at a loss.
Shares are normally traded in lots of 100. If you want to trade an expensive share – and some shares are very expensive, particularly in the US markets – you need a considerable amount of money in your account.
It’s not easy to sell shares short. Selling short is a strange concept to many people who think of buying shares at a low price and selling then at a higher price. But it’s often easier to predict that a share will fall rather than rise so what you’d like to do is to sell it at a high price and then buy it back later at a low price. The net result is the same whatever the order of the deals – buy low, sell high.
However, you can’t sell something you don’t own so in order to sell shares short you must “borrow” them from your broker. This is not quite as straightforward as buying and not all shares are available for selling short.
Finally, share dealing takes place during market hours so if you don’t live in the country where they are being traded you must adjust your trading hours to suit.
Futures, commodities and indices
Commodities are goods such as corn, copper, crude oil, orange juice, oats, gold and wheat.
Technically, a futures contract is an agreement to make or accept delivery of a commodity on a certain day at a certain price. In practice this rarely happens unless you’re a manufacturer who actually wants the goods. The vast majority of futures traders are simply speculating on whether the price will go up or down and never take delivery of an item.
Futures contacts include commodities and also stock market indices such as the S&P 500, Dow Jones and the Russell. Indices are simply a composite of securities that provide an overall reading of the market or some section of it.
The S&P 500 (Standard & Poor’s 500) tracks 500 of the largest companies in the US market. The Dow Jones Industrial Average tracks only 30 of the largest and longest-established companies while the Russell 2000 is an index of smaller stocks.
Essentially, commodities and indices are futures and traded in much the same way although traders may use the terms interchangeably.
Unlike shares, futures can be sold short just as easily as they can be bought. Each futures contract has its own fluctuating price and many traders deal in just one lot contracts.
Brokers usually charge a flat fee commission per contract, often expressed as a “round turn” which is one buy and one sell transaction. This may be a few dollars, often less than the value of a point or two on the contract. If you’re trading a long time frame the commission is negligible but if you’re day trading and scalping for a few points here and there it becomes a considerable part of the cost.
Futures brokers usually offer a margin of around 20% of the value of the underlying instrument so you can control $10,000’s worth of a contract for maybe $2,000. However, the same rules apply – if you over-leverage your account you’ll receive a margin call or your positions will be closed at a loss. Margin and leverage are a two-edged sword.
Many brokers offer a demo account so you can get used to the trading platform and test your trading strategies before you put real money on the line.
Forex Currency Trading
Currency trading, foreign exchange or forex as it’s more commonly known, has fast become one of the most popular markets for private traders in recent years.
As its name suggests, it involves buying and selling foreign currency. The most commonly traded currencies are referenced against the US Dollar and are sometimes referred to as a “currency pair” even though you are only trading one instrument. For example, the GBPUSD is the UK Pound/US Dollar pair. A value of 1.7625 would mean that the one Pound is worth 1.7625 Dollars. Other popular pairs include the Euro (EURUSD), the Swiss Franc (USDCHF) and the Japanese Yen (USDJPY) although there are others.
So unlike shares and futures, you don’t have a mass of markets to choose from, but there is variety within forex currency trading to give you a range of markets to trade.
The value of each pair differs slightly but the minimum movement – called a “pip” – is worth approximately $10. The GBPUSD has been averaging 100-150 pips per day which would be $1000-1500. Many brokers let you trade half or even quarter-size lots which are useful when you’re starting out. Also, many brokers offer a demo account so you can practice before risking real money.
The total value of the forex market is worth trillions of dollars per day, far larger than shares or futures. It is also a truly international market with dealing taking place all around the globe 24 hours per day from Monday to Friday. You can, therefore, trade at any time of the day or night at times to suit you. It’s worth noting, however, that the bigger moves generally occur during the US and European trading sessions.
You can sell short forex just as easily as you can buy and brokers offer highly-leveraged accounts too – but the same warning regarding margins apply here as well.
Brokers tend not to charge a commission for trading forex and you will often see adverts for “commission free” trading. However, they make their money on the spread which is the difference between the buying price and the selling price. The spread is usually between 3 and 5 pips although some brokers may offer a 2 pip spread on some pairs, and some less-popular pairs may have a larger spread.
Paying on the spread is particularly useful when trading mini lots. A 3-pip spread on a quarter lot will be about $7.50 whereas on a full-size lot it would be $30. Again, the spread is more important when trading short time frames where you’re only aiming to make a few pips per trade. You need to build the spread into your trading system so you don’t overestimate the amount you might make per trade.
One interesting aspect of forex currency trading is that there is no central clearing house where absolute prices are quoted, unlike shares and futures. So it’s quite possible to see different brokers quoting slightly different prices for the same pair. As the market has become more efficient, this difference has reduced, in most cases, to a few pips but it highlights the importance of checking that the data you are using for analysis is the same – or close to – that used by your broker for placing your orders.
The market you decide to trade will depend on many things, not least of all, your budget, but also how many markets you want to look at and what hours you want to trade. There are trading vehicles to suit all preferences and pockets.
Have you heard of others making a killing on the markets and wished yourself in their position?
Trading covers a multitude of sins, or at least a multitude of markets. Mention “trading” to a non-trader and they’ll probably think of stock and shares but there are many other markets you can trade in. These include commodities, futures, indices, CFDs and options. They all have their pros and cons and some require specialized knowledge.
The most popular markets used by traders are stocks, commodities, futures, indices and forex. Some traders switch between markets, others stick to just one. Let’s highlight some of the similarities and differences between them.
Shares
In the USA there are over 40,000 shares so you have a lot of markets to choose from. You can’t deal in all of them so you need to home in on those that offer good trading opportunities using whatever trading methods you decide to use.
When buying shares you usually have to put up all the money at the time of sale. That might seem obvious but it’s not so with all markets. Some brokers offer a 50% margin with shares which means you can trade to the value of twice the amount in your account. This seems like a good deal but if your shares start to go down you’ll get a “margin call” and will either have to put more money in your account or sell the shares at a loss.
Shares are normally traded in lots of 100. If you want to trade an expensive share – and some shares are very expensive, particularly in the US markets – you need a considerable amount of money in your account.
It’s not easy to sell shares short. Selling short is a strange concept to many people who think of buying shares at a low price and selling then at a higher price. But it’s often easier to predict that a share will fall rather than rise so what you’d like to do is to sell it at a high price and then buy it back later at a low price. The net result is the same whatever the order of the deals – buy low, sell high.
However, you can’t sell something you don’t own so in order to sell shares short you must “borrow” them from your broker. This is not quite as straightforward as buying and not all shares are available for selling short.
Finally, share dealing takes place during market hours so if you don’t live in the country where they are being traded you must adjust your trading hours to suit.
Futures, commodities and indices
Commodities are goods such as corn, copper, crude oil, orange juice, oats, gold and wheat.
Technically, a futures contract is an agreement to make or accept delivery of a commodity on a certain day at a certain price. In practice this rarely happens unless you’re a manufacturer who actually wants the goods. The vast majority of futures traders are simply speculating on whether the price will go up or down and never take delivery of an item.
Futures contacts include commodities and also stock market indices such as the S&P 500, Dow Jones and the Russell. Indices are simply a composite of securities that provide an overall reading of the market or some section of it.
The S&P 500 (Standard & Poor’s 500) tracks 500 of the largest companies in the US market. The Dow Jones Industrial Average tracks only 30 of the largest and longest-established companies while the Russell 2000 is an index of smaller stocks.
Essentially, commodities and indices are futures and traded in much the same way although traders may use the terms interchangeably.
Unlike shares, futures can be sold short just as easily as they can be bought. Each futures contract has its own fluctuating price and many traders deal in just one lot contracts.
Brokers usually charge a flat fee commission per contract, often expressed as a “round turn” which is one buy and one sell transaction. This may be a few dollars, often less than the value of a point or two on the contract. If you’re trading a long time frame the commission is negligible but if you’re day trading and scalping for a few points here and there it becomes a considerable part of the cost.
Futures brokers usually offer a margin of around 20% of the value of the underlying instrument so you can control $10,000’s worth of a contract for maybe $2,000. However, the same rules apply – if you over-leverage your account you’ll receive a margin call or your positions will be closed at a loss. Margin and leverage are a two-edged sword.
Many brokers offer a demo account so you can get used to the trading platform and test your trading strategies before you put real money on the line.
Forex Currency Trading
Currency trading, foreign exchange or forex as it’s more commonly known, has fast become one of the most popular markets for private traders in recent years.
As its name suggests, it involves buying and selling foreign currency. The most commonly traded currencies are referenced against the US Dollar and are sometimes referred to as a “currency pair” even though you are only trading one instrument. For example, the GBPUSD is the UK Pound/US Dollar pair. A value of 1.7625 would mean that the one Pound is worth 1.7625 Dollars. Other popular pairs include the Euro (EURUSD), the Swiss Franc (USDCHF) and the Japanese Yen (USDJPY) although there are others.
So unlike shares and futures, you don’t have a mass of markets to choose from, but there is variety within forex currency trading to give you a range of markets to trade.
The value of each pair differs slightly but the minimum movement – called a “pip” – is worth approximately $10. The GBPUSD has been averaging 100-150 pips per day which would be $1000-1500. Many brokers let you trade half or even quarter-size lots which are useful when you’re starting out. Also, many brokers offer a demo account so you can practice before risking real money.
The total value of the forex market is worth trillions of dollars per day, far larger than shares or futures. It is also a truly international market with dealing taking place all around the globe 24 hours per day from Monday to Friday. You can, therefore, trade at any time of the day or night at times to suit you. It’s worth noting, however, that the bigger moves generally occur during the US and European trading sessions.
You can sell short forex just as easily as you can buy and brokers offer highly-leveraged accounts too – but the same warning regarding margins apply here as well.
Brokers tend not to charge a commission for trading forex and you will often see adverts for “commission free” trading. However, they make their money on the spread which is the difference between the buying price and the selling price. The spread is usually between 3 and 5 pips although some brokers may offer a 2 pip spread on some pairs, and some less-popular pairs may have a larger spread.
Paying on the spread is particularly useful when trading mini lots. A 3-pip spread on a quarter lot will be about $7.50 whereas on a full-size lot it would be $30. Again, the spread is more important when trading short time frames where you’re only aiming to make a few pips per trade. You need to build the spread into your trading system so you don’t overestimate the amount you might make per trade.
One interesting aspect of forex currency trading is that there is no central clearing house where absolute prices are quoted, unlike shares and futures. So it’s quite possible to see different brokers quoting slightly different prices for the same pair. As the market has become more efficient, this difference has reduced, in most cases, to a few pips but it highlights the importance of checking that the data you are using for analysis is the same – or close to – that used by your broker for placing your orders.
The market you decide to trade will depend on many things, not least of all, your budget, but also how many markets you want to look at and what hours you want to trade. There are trading vehicles to suit all preferences and pockets.
Day Trading – The Ultimate Work-From-Home Job?
Ever dreamt of giving up the daily grind? Want to strike out on your own and work from home, but don’t know what you could possibly do to make a living? Full time Nasdaq trader Harvey Walsh wondered just that, and now he asks “Is day trading the ultimate work from home job”?
We’ve probably all had the same thought at some time or another, as we trudge off towards another day at work – the same work we’ve been doing day in day out for years – “surely there has to be a better way?” Slaving away to make somebody else rich just doesn’t seem right somehow, but what alternative? Setting up a new business, or buying an established one, are both expensive and risky prospects. So how can the disenchanted employee ever hope to make the switch from wage-slave to total independence?
Those are thoughts I had almost every day, before I quit the safety of full time employment and decided to strike out on my own. I asked myself the same question day in and day out; surely there has to be a better way. What about the internet, I wondered, isn’t that supposed to be bringing new and exciting opportunities to all? I researched a lot of so-called work-from-home opportunities that promised untold riches, apparently mine for the taking just by sitting in front of my PC. Needless to say, in reality those schemes turned out to be about as fulfilling as, well, filling envelopes for a living. No, I knew there had to be another way – something real – something where I could be in control of my own destiny.
And then one morning on the train to work, I read about a couple of Wall Street boys who had struck it rich thanks to some huge bonuses, and were now going it alone setting up their own day trading shop. That was when I discovered day trading, and I realised that this was exactly the opportunity I had been searching for. I decided there and then that I was going to make a full time living from the stock markets, whatever it took to succeed.
The advantages of day trading as a job are numerous to say the least; there is no boss to answer to, no customers to satisfy, no suppliers to let you down, no waiting for invoices to be paid, I could go on. In fact, I will: trading is a location-independent activity – I can work from anywhere with an internet connection, which effectively means anywhere in the world with a telephone line. I regularly trade from my laptop whilst travelling. I can trade when I feel like it, and take time off when I like, which means I can spend quality time with my family.
Now let’s get this straight, trading can be a risky activity, there is no doubt about that. So is driving a car to work, but the risks of getting from A to B on four wheels are well understood and are managed accordingly, to the point where we don’t think twice about getting behind the wheel. And in the same way, provided a trader is disciplined in their approach to the job at hand, and understands the associated risks of the work, so those risks can be managed.
On the subject of risk, day trading is almost unique in that it can be learnt and practised with absolutely no financial risk at all, by means of paper-trading – that is - trading using freely available simulation software. Thus in the same way a trainee airline pilot won’t be let loose into the skies without having learnt and rehearsed their skills in a simulator, so a new trader can employ the same technique before they start trading real money. I “sim-traded” before I gave up the day-job; it made it easy to leave the safety-net of a monthly pay check knowing from my simulated trading sessions that I could already make money in the markets.
And that brings me to the most satisfying aspect of trading for a living; money. On an average day trading the Nasdaq, it is not unusual to make more money in a couple of hours than I used to make in a whole month working full time as a wage-slave. There are bad days of course, days where things just don’t work out, but they pale into insignificance over the course of a week or a month. It certainly took some intensive studying and a lot of practise before becoming a consistently profitable trader. But the end result of that hard work is an immensely valuable life skill that nobody can take away, and which allows for incredible freedom.
Since I first started trading, the learning curve has become even easier for the aspiring day trader, with a multitude of new websites, training courses, and books all covering the subject. I envy anyone starting out in this business today – they certainly have many more learning aids available to them than I had at the same point in my own career.
So is day trading the ultimate work-from-home job? No. I firmly believe it’s the ultimate work-from ANYWHERE job!
We’ve probably all had the same thought at some time or another, as we trudge off towards another day at work – the same work we’ve been doing day in day out for years – “surely there has to be a better way?” Slaving away to make somebody else rich just doesn’t seem right somehow, but what alternative? Setting up a new business, or buying an established one, are both expensive and risky prospects. So how can the disenchanted employee ever hope to make the switch from wage-slave to total independence?
Those are thoughts I had almost every day, before I quit the safety of full time employment and decided to strike out on my own. I asked myself the same question day in and day out; surely there has to be a better way. What about the internet, I wondered, isn’t that supposed to be bringing new and exciting opportunities to all? I researched a lot of so-called work-from-home opportunities that promised untold riches, apparently mine for the taking just by sitting in front of my PC. Needless to say, in reality those schemes turned out to be about as fulfilling as, well, filling envelopes for a living. No, I knew there had to be another way – something real – something where I could be in control of my own destiny.
And then one morning on the train to work, I read about a couple of Wall Street boys who had struck it rich thanks to some huge bonuses, and were now going it alone setting up their own day trading shop. That was when I discovered day trading, and I realised that this was exactly the opportunity I had been searching for. I decided there and then that I was going to make a full time living from the stock markets, whatever it took to succeed.
The advantages of day trading as a job are numerous to say the least; there is no boss to answer to, no customers to satisfy, no suppliers to let you down, no waiting for invoices to be paid, I could go on. In fact, I will: trading is a location-independent activity – I can work from anywhere with an internet connection, which effectively means anywhere in the world with a telephone line. I regularly trade from my laptop whilst travelling. I can trade when I feel like it, and take time off when I like, which means I can spend quality time with my family.
Now let’s get this straight, trading can be a risky activity, there is no doubt about that. So is driving a car to work, but the risks of getting from A to B on four wheels are well understood and are managed accordingly, to the point where we don’t think twice about getting behind the wheel. And in the same way, provided a trader is disciplined in their approach to the job at hand, and understands the associated risks of the work, so those risks can be managed.
On the subject of risk, day trading is almost unique in that it can be learnt and practised with absolutely no financial risk at all, by means of paper-trading – that is - trading using freely available simulation software. Thus in the same way a trainee airline pilot won’t be let loose into the skies without having learnt and rehearsed their skills in a simulator, so a new trader can employ the same technique before they start trading real money. I “sim-traded” before I gave up the day-job; it made it easy to leave the safety-net of a monthly pay check knowing from my simulated trading sessions that I could already make money in the markets.
And that brings me to the most satisfying aspect of trading for a living; money. On an average day trading the Nasdaq, it is not unusual to make more money in a couple of hours than I used to make in a whole month working full time as a wage-slave. There are bad days of course, days where things just don’t work out, but they pale into insignificance over the course of a week or a month. It certainly took some intensive studying and a lot of practise before becoming a consistently profitable trader. But the end result of that hard work is an immensely valuable life skill that nobody can take away, and which allows for incredible freedom.
Since I first started trading, the learning curve has become even easier for the aspiring day trader, with a multitude of new websites, training courses, and books all covering the subject. I envy anyone starting out in this business today – they certainly have many more learning aids available to them than I had at the same point in my own career.
So is day trading the ultimate work-from-home job? No. I firmly believe it’s the ultimate work-from ANYWHERE job!
How To Win In Futures Trading With This Simple Tactic
Surprisingly, many profitable speculators have success rates between 30% and 50%. Futures traders are not successful because they predict prices well. They`re winning because their profitable trades far exceed their losses. The truth of the matter is all Futures systems win and lose.
Psychologically, this can make following a system difficult. Futures market professionals achieve success in this environment by controlling risk with money management rules. But, controlling risk goes against our natural tendencies. Most Futures traders don`t want to manage risk, they want to be right. Despite the proven fact that money management is so important, when Futures traders first come to me, many of my clients focus their time looking for the perfect entry. It`s their search for the Holy Grail. They want a perfect Futures indicator.
Not only is this Futures indicator going to get them in right at the bottom of the trend, but it`s also going to tell them at the exact point at the top of the trend when to get out. Here`s the best part and about this indicator: apparently, it can guarantee success and it`s never, ever wrong.
Unfortunately, though I don`t like to disappoint my clients, I need to let them know the hard truth. It does not matter whether you are trading in the Futures or any other market, the simple fact is this; there is no perfect indicator. Instead, there are carefully set money management rules that will place you in control. With this control, you`ll be able to follow the two cardinal rules in your Futures trading – you`ll be able to let your profits run and cut your losses short.
Once these money management rules are in place your system can be set on autopilot. You won`t need to worry…
"Should I be holding this stock?"
OR
"Shouldn`t I be holding that type of stock?"
This uncertainty is what people are confronted with when they don`t have their rules set for the Futures market. The end result is that small losses end up being big losses.
To make matters worse, a few of these big losses strung together can have a detrimental effect on your Futures trading capital. Unfortunately, it`s much more difficult to trade to gain back money you have lost then it is to trade with profits that you already have in hand. If things go to the absolute extreme, you run the risk of wiping out your entire Futures trading float, as many traders do when they first get started. But, with your money management rules in place, you can ride out the ups and downs of every Futures trading system and succeed where many fail.
Psychologically, this can make following a system difficult. Futures market professionals achieve success in this environment by controlling risk with money management rules. But, controlling risk goes against our natural tendencies. Most Futures traders don`t want to manage risk, they want to be right. Despite the proven fact that money management is so important, when Futures traders first come to me, many of my clients focus their time looking for the perfect entry. It`s their search for the Holy Grail. They want a perfect Futures indicator.
Not only is this Futures indicator going to get them in right at the bottom of the trend, but it`s also going to tell them at the exact point at the top of the trend when to get out. Here`s the best part and about this indicator: apparently, it can guarantee success and it`s never, ever wrong.
Unfortunately, though I don`t like to disappoint my clients, I need to let them know the hard truth. It does not matter whether you are trading in the Futures or any other market, the simple fact is this; there is no perfect indicator. Instead, there are carefully set money management rules that will place you in control. With this control, you`ll be able to follow the two cardinal rules in your Futures trading – you`ll be able to let your profits run and cut your losses short.
Once these money management rules are in place your system can be set on autopilot. You won`t need to worry…
"Should I be holding this stock?"
OR
"Shouldn`t I be holding that type of stock?"
This uncertainty is what people are confronted with when they don`t have their rules set for the Futures market. The end result is that small losses end up being big losses.
To make matters worse, a few of these big losses strung together can have a detrimental effect on your Futures trading capital. Unfortunately, it`s much more difficult to trade to gain back money you have lost then it is to trade with profits that you already have in hand. If things go to the absolute extreme, you run the risk of wiping out your entire Futures trading float, as many traders do when they first get started. But, with your money management rules in place, you can ride out the ups and downs of every Futures trading system and succeed where many fail.
The 10 Golden Rules of Trading
1 Introduction
In this article we cover the few important rules that should never be broken in trading. If you can apply these rules consistently, and with discipline, you will be well on the way to being a profitable trader.
The rules we cover are:
• Have specific goals and objectives
• Be consistent and disciplined
• Let profits run
• Cut losses short
• Never add to a losing trade
• Don’t take too much risk
• Only trade positive expectancy systems
• Minimize all trading business costs
• Be well educated
• Don’t trade scared money
Each of the rules will now be discussed.
2 The Golden Rules of Trading
The following sections outline a set of rules that can significantly improve your chances of success if they are understood, practiced, and implemented consistently in your trading. These rules have been learned the hard way, by study, research, trial-and-error, and the inevitable mistakes that everyone makes when they start a trading business.
We hope that you can learn from the work we have done, and benefit from our experience. The rules will now be discussed.
2.1 Have specific goals and objectives
Few things are more important to your trading success than having set (i.e. written) goals and objective for what you are aiming to achieve. It is amazing to me how often we hit our targets, meet our objectives, and reach our goals only when we articulate them and write them down.
For any business to be successful it must have measurable objectives that are actually achievable. In trading (obviously) the primary objective is to make money, but it is important to have other objectives that are not purely cash-related. We must always remember that reward and risk go hand-in-hand in trading and that we cannot expect to achieve high returns without planning for high risk (i.e. draw-downs).
Your objectives and goals will be very specific to you, but they must have the following characteristics to be useful:
• Be measurable (in completion and timeframe)
• Be achievable
• Be worthwhile
• Be positive
As an example, here are some of our current objectives (this is only a partial list):
• Develop 2 new positive-expectancy trading systems each year
• Make fewer errors implementing our trading systems each year
• Achieve a return to maximum draw-down ratio of 1.5:1
• Take 2 weeks vacation each year
Note that only one of them is about making money, and that has a measurable objective that is relative to draw-down, not absolute (i.e. make 100% per year). If you know what you are trying to achieve, and when you are trying to achieve it, the whole business will be focused on meeting
your objectives and help guide you to only pay attention to things you really want to achieve with your limited time and resources. This will also give you a way to measure the success and progress of your trading. Generally traders with well-defined objectives will be much more successful than those that do not have pre-defined goals.
2.2 Be consistent and disciplined
In order to realize the full potential of your trading systems it is critical that you take every trading entry, adjust every stop, and close out every trade as and when your system says you should do. This takes extreme confidence in your trading systems, good robust reliable technology, and the mental discipline to stick to your trading plan whatever happens (assuming it is complete).
An underlying assumption about being consistent and disciplined is that you have a pre-defined plan for every situation you may face in your trading, so that you know how you are defining what being consistent is. Your plan needs to include at least the following items:
• All your trading rules for entering, adding to, and exiting positions
• What you will do if your trading computer, internet connection, broker, power, telephone
etc. fails
• What you will do if you are unable to trade
• What you will do if you lose X% of your account
• What you will do if all the markets are closed and you can’t exit your positions
Unless you write the answers down to all these issues, you cannot be consistent and disciplined in your approach to trading and if you lose money you will not know whether it is because you didn’t follow your plan, because your plan is incomplete, because your systems do not work, or simply because you are going through a losing period.
2.3 Let profits run
This simple rule is the key to being a successful trader. It is three simple words that are very hard to actually implement. When we get a profitable trade our natural fear of losing the unrealized cash kicks in and we truly want to close it out now and take the money. Most trading consists of long periods of small winners and losers followed by a few huge winners that make the difference between overall profitability and simply breaking even or losing due to trading costs(commissions, spread, and slippage).
It is our ability to let the huge winners become just that - huge - that determines how we will perform overall during the year. The key to letting winners run is to have trailing stops that are outside the daily noise of the market so that they are not tight enough to get stopped out during ‘normal’ trading. This means being prepared to give up a significant portion of a winning trade’s open profit and is the thing that makes this so hard to implement. In fact, we should be adding to a winner and widening stops rather than working out how tight our stops can be to capture maximum profit. The trade has already shown you that it intends to be a winner, and the chances are it is a low-risk idea to add to the position now rather than ‘strangle it’ with stops that are too tight.
It is very important that your position management rules allow for large winning trades, and that the rules are pre-defined and understood before you place the trade. This will allow you (if you have confidence in your method and discipline) to stick to your rules when you do get the big
winner.
2.4 Cut losses short
This is the sister rule to the previous one, and is usually just as difficult to implement (although it
is very easy to define). In the same way that profitability comes from a few large winning trades, capital preservation comes from avoiding the few large losers that the market will toss your way each year. Setting a maximum loss point before you enter the trade so you know before-hand approximately how much you are risking on this particular position is relatively straightforward. You simply need to have a exit price that says to you ‘this trade is a loser and I will exit before it gets any bigger’. Due to gaps at the open, or limit moves in futures we can never be 100%
certain that we can get out with our maximum loss, but simply having the rules, and always sticking to it will save us from the nasty trades that just keep on going and going against our position until we have lost more than many winning trades can make back.
If you have a losing position that is at you maximum loss point, just get out. Do not hope that it will turn around. Given that trades are either winners or losers, and this one is shouting ‘Loser’ at you, the chances that it will turn around and become a large winner is tiny. Why risk any more money on this losing trade, when you could simply close it out (accept the loss) and move on. This will leave you in a much better place financially and mentally, than holding the position and hoping it will go back your way. Even if it did do this, the mental energy and negative feelings from holding the losing position are not worth it. Always stick to your rules and exit a position if it hits your stop point.
2.5 Never add to a losing trade
One of the few trade management rules that we can state we never break is ‘Never add to a losing trade’. Trades are split into winners and losers, and if a trade is a loser, the chances of it turning right around and becoming a winner are too small to risk more money on. If indeed it is a winner disguised as a loser, why not wait until it shows it’s true colors (and becomes a winner)before you add to it.
If you do this you will notice that nearly always the trade ends up hitting your stop loss and does not look back. Sometimes the trade turns around before it hits your stop and becomes a winner and you can count yourself very fortunate. Sometimes the trade hits your stop loss and then
turns around and becomes a winner and you can count yourself unlucky. Whatever the result, it is never worth adding to a loser, hoping that it will become a winner. The odds of success are just too low to risk more capital in addition to the initial risk.
2.6 Don’t take too much risk
One of the most devastating mistakes any trader can make is risking too much of their capital on a single trade. One thing is certain in trading and that is if you lose all your capital you are out of the game. Why risk so much you could be prevented from continuing? There is a saying in
poker than going all-in (risking all your chips) works every time but once. This is true of trading.
If you risk all your account on every trade it only takes one loser to wipe you out (and no trading method is 100% accurate), so you will be out of the game at some point – it is only a question of time.
In general, we only risk 1-3% of the available capital allocated to a system on any individual trade. This is calculated using the size and, the difference between our entry price and our maximum stop price, and the amount of capital allocated to the system. With the win probability
and ratio of size of winning trades to losing trades we are almost certain never to lose all of our trading capital. In fact, the chance of us hitting our maximum drawdown for the year is tiny.
All trades should be of a size that almost seems insignificant. If you are worried about the size of a trade then it is too big and you should reduce the size immediately. Remember that longevity is the key to making money by trading – slowly over a long time with minimal risk, is always preferable to rapidly with too much risk.
2.7 Only trade positive expectancy systems
If you have a positive expectancy trading system, the only factors that determine how much money you will make per year are the number of trades the system generates, how much capital you allocate to the system, and how accurately you implement the trading signals. If you do not know whether your trading system is positive expectancy then why are you trading it? Expectancy is calculated using the profit or loss on each trade (net of trading implementation
costs) divided by the initial risk (using your stop loss) and then taking the average of this number of a series of trades. Systems that have positive expectancy will make money on average and those with negative expectancy will lose money.
Successful traders only trade systems where the odds of success are in their favor (i.e. the system is positive expectancy) so they know that making money is the result of accurately implementing the system and not just pure luck.
2.8 Minimize all trading business costs
Some trading systems have only marginal profitability, and trading implementation costs (commission, spread, and slippage) can be the difference between profitability and making a loss. With the easy availability of modern electronic brokers, and fully-automated trade processing and
execution, it is definitely worthwhile looking for a very low cost way to implement your trading system. High commission, wide spreads, and large amount of slippage can be reduced considerably simply by carefully choosing a broker. This can be the difference between a system
(especially a high frequency one) being useable or not. Paying too much for trade implementation is an avoidable way to lose money.
2.9 Be educated
In order to compete at the highest level in the trading business and be one of the few truly successful participants you must be well-educated about what you are doing. This does not mean having a degree from a well-respected university – the market doesn’t care where you were educated.
Being well-educated means that you have thoroughly researched and tested your trading ideas and know why your trading system worked in the past and is continuing to work now. It means understanding all the technology and applications that your system needs to perform accurately.
It means understanding your goal and objectives and how trading will achieve these. It means understanding yourself and how your personality affects your results. It means understanding the markets and instruments you trade.
In order to succeed you really need to become an expert in your own trading business to understand how it all fits together, when it is broken, and how it can be improved. As with all worthwhile endeavors, this takes commitment, hard work, dedication, and more hard work.
2.10 Don’t trade scared money
Lastly, no one ever made any money trading when they had to do it to pay the mortgage at the end of the month. Having a requirement to make X dollars per month or you will be financially in trouble is the best way I know to completely mess up all trading discipline, rules, objectives, and
leads quickly to disaster.
Trading is about taking a reasonable risk in order to achieve a good reward. The markets and how and when they give up their profits is not under your control. Do not trade if you need the money to pay bills. Do not trade if your business and personal expenses are not covered by
another income stream or cash reserve. This will only lead to additional unmanageable stress and be very detrimental to your trading performance.
3 Summary
In this article we have covered the rules that we believe should never be broken in trading. If you work on never breaking them, your trading should improve dramatically.
We sincerely hope this information has helped you to improve your trading performance.
Good luck in yout trading.
In this article we cover the few important rules that should never be broken in trading. If you can apply these rules consistently, and with discipline, you will be well on the way to being a profitable trader.
The rules we cover are:
• Have specific goals and objectives
• Be consistent and disciplined
• Let profits run
• Cut losses short
• Never add to a losing trade
• Don’t take too much risk
• Only trade positive expectancy systems
• Minimize all trading business costs
• Be well educated
• Don’t trade scared money
Each of the rules will now be discussed.
2 The Golden Rules of Trading
The following sections outline a set of rules that can significantly improve your chances of success if they are understood, practiced, and implemented consistently in your trading. These rules have been learned the hard way, by study, research, trial-and-error, and the inevitable mistakes that everyone makes when they start a trading business.
We hope that you can learn from the work we have done, and benefit from our experience. The rules will now be discussed.
2.1 Have specific goals and objectives
Few things are more important to your trading success than having set (i.e. written) goals and objective for what you are aiming to achieve. It is amazing to me how often we hit our targets, meet our objectives, and reach our goals only when we articulate them and write them down.
For any business to be successful it must have measurable objectives that are actually achievable. In trading (obviously) the primary objective is to make money, but it is important to have other objectives that are not purely cash-related. We must always remember that reward and risk go hand-in-hand in trading and that we cannot expect to achieve high returns without planning for high risk (i.e. draw-downs).
Your objectives and goals will be very specific to you, but they must have the following characteristics to be useful:
• Be measurable (in completion and timeframe)
• Be achievable
• Be worthwhile
• Be positive
As an example, here are some of our current objectives (this is only a partial list):
• Develop 2 new positive-expectancy trading systems each year
• Make fewer errors implementing our trading systems each year
• Achieve a return to maximum draw-down ratio of 1.5:1
• Take 2 weeks vacation each year
Note that only one of them is about making money, and that has a measurable objective that is relative to draw-down, not absolute (i.e. make 100% per year). If you know what you are trying to achieve, and when you are trying to achieve it, the whole business will be focused on meeting
your objectives and help guide you to only pay attention to things you really want to achieve with your limited time and resources. This will also give you a way to measure the success and progress of your trading. Generally traders with well-defined objectives will be much more successful than those that do not have pre-defined goals.
2.2 Be consistent and disciplined
In order to realize the full potential of your trading systems it is critical that you take every trading entry, adjust every stop, and close out every trade as and when your system says you should do. This takes extreme confidence in your trading systems, good robust reliable technology, and the mental discipline to stick to your trading plan whatever happens (assuming it is complete).
An underlying assumption about being consistent and disciplined is that you have a pre-defined plan for every situation you may face in your trading, so that you know how you are defining what being consistent is. Your plan needs to include at least the following items:
• All your trading rules for entering, adding to, and exiting positions
• What you will do if your trading computer, internet connection, broker, power, telephone
etc. fails
• What you will do if you are unable to trade
• What you will do if you lose X% of your account
• What you will do if all the markets are closed and you can’t exit your positions
Unless you write the answers down to all these issues, you cannot be consistent and disciplined in your approach to trading and if you lose money you will not know whether it is because you didn’t follow your plan, because your plan is incomplete, because your systems do not work, or simply because you are going through a losing period.
2.3 Let profits run
This simple rule is the key to being a successful trader. It is three simple words that are very hard to actually implement. When we get a profitable trade our natural fear of losing the unrealized cash kicks in and we truly want to close it out now and take the money. Most trading consists of long periods of small winners and losers followed by a few huge winners that make the difference between overall profitability and simply breaking even or losing due to trading costs(commissions, spread, and slippage).
It is our ability to let the huge winners become just that - huge - that determines how we will perform overall during the year. The key to letting winners run is to have trailing stops that are outside the daily noise of the market so that they are not tight enough to get stopped out during ‘normal’ trading. This means being prepared to give up a significant portion of a winning trade’s open profit and is the thing that makes this so hard to implement. In fact, we should be adding to a winner and widening stops rather than working out how tight our stops can be to capture maximum profit. The trade has already shown you that it intends to be a winner, and the chances are it is a low-risk idea to add to the position now rather than ‘strangle it’ with stops that are too tight.
It is very important that your position management rules allow for large winning trades, and that the rules are pre-defined and understood before you place the trade. This will allow you (if you have confidence in your method and discipline) to stick to your rules when you do get the big
winner.
2.4 Cut losses short
This is the sister rule to the previous one, and is usually just as difficult to implement (although it
is very easy to define). In the same way that profitability comes from a few large winning trades, capital preservation comes from avoiding the few large losers that the market will toss your way each year. Setting a maximum loss point before you enter the trade so you know before-hand approximately how much you are risking on this particular position is relatively straightforward. You simply need to have a exit price that says to you ‘this trade is a loser and I will exit before it gets any bigger’. Due to gaps at the open, or limit moves in futures we can never be 100%
certain that we can get out with our maximum loss, but simply having the rules, and always sticking to it will save us from the nasty trades that just keep on going and going against our position until we have lost more than many winning trades can make back.
If you have a losing position that is at you maximum loss point, just get out. Do not hope that it will turn around. Given that trades are either winners or losers, and this one is shouting ‘Loser’ at you, the chances that it will turn around and become a large winner is tiny. Why risk any more money on this losing trade, when you could simply close it out (accept the loss) and move on. This will leave you in a much better place financially and mentally, than holding the position and hoping it will go back your way. Even if it did do this, the mental energy and negative feelings from holding the losing position are not worth it. Always stick to your rules and exit a position if it hits your stop point.
2.5 Never add to a losing trade
One of the few trade management rules that we can state we never break is ‘Never add to a losing trade’. Trades are split into winners and losers, and if a trade is a loser, the chances of it turning right around and becoming a winner are too small to risk more money on. If indeed it is a winner disguised as a loser, why not wait until it shows it’s true colors (and becomes a winner)before you add to it.
If you do this you will notice that nearly always the trade ends up hitting your stop loss and does not look back. Sometimes the trade turns around before it hits your stop and becomes a winner and you can count yourself very fortunate. Sometimes the trade hits your stop loss and then
turns around and becomes a winner and you can count yourself unlucky. Whatever the result, it is never worth adding to a loser, hoping that it will become a winner. The odds of success are just too low to risk more capital in addition to the initial risk.
2.6 Don’t take too much risk
One of the most devastating mistakes any trader can make is risking too much of their capital on a single trade. One thing is certain in trading and that is if you lose all your capital you are out of the game. Why risk so much you could be prevented from continuing? There is a saying in
poker than going all-in (risking all your chips) works every time but once. This is true of trading.
If you risk all your account on every trade it only takes one loser to wipe you out (and no trading method is 100% accurate), so you will be out of the game at some point – it is only a question of time.
In general, we only risk 1-3% of the available capital allocated to a system on any individual trade. This is calculated using the size and, the difference between our entry price and our maximum stop price, and the amount of capital allocated to the system. With the win probability
and ratio of size of winning trades to losing trades we are almost certain never to lose all of our trading capital. In fact, the chance of us hitting our maximum drawdown for the year is tiny.
All trades should be of a size that almost seems insignificant. If you are worried about the size of a trade then it is too big and you should reduce the size immediately. Remember that longevity is the key to making money by trading – slowly over a long time with minimal risk, is always preferable to rapidly with too much risk.
2.7 Only trade positive expectancy systems
If you have a positive expectancy trading system, the only factors that determine how much money you will make per year are the number of trades the system generates, how much capital you allocate to the system, and how accurately you implement the trading signals. If you do not know whether your trading system is positive expectancy then why are you trading it? Expectancy is calculated using the profit or loss on each trade (net of trading implementation
costs) divided by the initial risk (using your stop loss) and then taking the average of this number of a series of trades. Systems that have positive expectancy will make money on average and those with negative expectancy will lose money.
Successful traders only trade systems where the odds of success are in their favor (i.e. the system is positive expectancy) so they know that making money is the result of accurately implementing the system and not just pure luck.
2.8 Minimize all trading business costs
Some trading systems have only marginal profitability, and trading implementation costs (commission, spread, and slippage) can be the difference between profitability and making a loss. With the easy availability of modern electronic brokers, and fully-automated trade processing and
execution, it is definitely worthwhile looking for a very low cost way to implement your trading system. High commission, wide spreads, and large amount of slippage can be reduced considerably simply by carefully choosing a broker. This can be the difference between a system
(especially a high frequency one) being useable or not. Paying too much for trade implementation is an avoidable way to lose money.
2.9 Be educated
In order to compete at the highest level in the trading business and be one of the few truly successful participants you must be well-educated about what you are doing. This does not mean having a degree from a well-respected university – the market doesn’t care where you were educated.
Being well-educated means that you have thoroughly researched and tested your trading ideas and know why your trading system worked in the past and is continuing to work now. It means understanding all the technology and applications that your system needs to perform accurately.
It means understanding your goal and objectives and how trading will achieve these. It means understanding yourself and how your personality affects your results. It means understanding the markets and instruments you trade.
In order to succeed you really need to become an expert in your own trading business to understand how it all fits together, when it is broken, and how it can be improved. As with all worthwhile endeavors, this takes commitment, hard work, dedication, and more hard work.
2.10 Don’t trade scared money
Lastly, no one ever made any money trading when they had to do it to pay the mortgage at the end of the month. Having a requirement to make X dollars per month or you will be financially in trouble is the best way I know to completely mess up all trading discipline, rules, objectives, and
leads quickly to disaster.
Trading is about taking a reasonable risk in order to achieve a good reward. The markets and how and when they give up their profits is not under your control. Do not trade if you need the money to pay bills. Do not trade if your business and personal expenses are not covered by
another income stream or cash reserve. This will only lead to additional unmanageable stress and be very detrimental to your trading performance.
3 Summary
In this article we have covered the rules that we believe should never be broken in trading. If you work on never breaking them, your trading should improve dramatically.
We sincerely hope this information has helped you to improve your trading performance.
Good luck in yout trading.
The Stock Trading Plan
that discipline contributed more to their success than their trading philosophy itself. Remember that the key to any plan is how well it holds over time.
2. There is no "sure thing", and there is no trading system that is 100% accurate. Your goal, as a trader, is to usethe tools available and try to develop an edge. Base your trades on sound fundamental and technical reasoning,
rather than on hunches and long shots. If you can develop an edge, however small, over time you will be successful.
3. A trader must be able to admit they have made a mistake. Do not become emotionally or financially committed to a losing trade. Avoid the pitfall of becoming emotionally involved with any trade.
4. An investing edge is only part of the equation. A trader should diversify sufficiently so that the growth in equity can be consistent and the likelihood of a catastrophic loss can be diminished. The lower the percentage of a traders' account dedicated to any one trade the greater the chance of the trader being successful.
Even if the trader has a perceived investing edge, it is unwise to run the risk of ruin, and bet it all on one trade. The goal is not only to make money, but also to be able to continue to make money consistently for an
extended period of time. A trader must learn the basic concepts and the importance of money management.
5. Lack of experience in the market causes many traders to make the mistake of taking small profits and letting losses run.
Fundamental trading wisdom dictates the exact opposite. When in a winning trade, be patient and fully capitalize on the success. The trading axiom is, "cut your losses short and let your profits run".
6. A trading system does not have to be difficult, time consuming, complicated and stressful in order to be profitable.
In trading systems, as in many other things in life, simple can be better
7. As a trader, be cautious, and never let greed take control of a winning position.
8. Be aware that declining volume usually indicates the market is not accepting higher or lower prices, and this could indicate a market turn.
9. Learn from your trading mistakes. Never make a trading mistake without asking yourself why.
10. Do not make trading decision based solely on margin requirements, and always trade within your capabilities.
Remain true to your trading plan and follow the trading style that works best for you.
11. Do not trade markets that you don't understand. Trade with confidence and conviction. Trade only with risk capital and be aware of the risk of losing. Divide your capital into 6 equal parts and never risk more than one-tenth of your capital on any one trade.
12. After a long period of success or a period of profitable trades, try to avoid the natural tendency toward increasing your trading activity. Conversely, use self-discipline when a trade goes against your position. Take your loss and wait for another opportunity. Never increase your trading after a loss.
13. Avoid getting into the market because you are anxious from waiting and/or out of the market because you have lost your patience. Never over trade and adhere to your risk management rules
14. Do not make a trading decision to buy just because the price of the stock is low or sell just because the price is high. Never change your position in the market without a good reason that is based on a fundamental or technical rule indicating a change in trend.
15. Trade the most active stocks and refrain from trading the slow moving markets. Trade "at the market" whenever possible and try to avoid a fixed buying and selling price.
16. When the market is moving with your position and you are using a stop loss order, then raise your stop loss so as to lock in your profit. Protect yourself against the possibility of turning a profit into a loss.
17. The "trend is your friend," and never buy and sell if you are insecure of the trend according to your fundamentals and technical rules. If you are in doubt, then exit the market. Only trade when you feel confident with your trading strategies.
18. Trade in five or six different stocks at a time, so as to avoid tying up all of your capital in any single stock.
19. A trader should establish a "surplus account" after a series of successful or winning trades. The goal is to retain the "surplus account" for times of emergency or panic 20. It is difficult to try and guess where the top and bottom of the market is, instead let the market prove its top and bottom.
2. There is no "sure thing", and there is no trading system that is 100% accurate. Your goal, as a trader, is to usethe tools available and try to develop an edge. Base your trades on sound fundamental and technical reasoning,
rather than on hunches and long shots. If you can develop an edge, however small, over time you will be successful.
3. A trader must be able to admit they have made a mistake. Do not become emotionally or financially committed to a losing trade. Avoid the pitfall of becoming emotionally involved with any trade.
4. An investing edge is only part of the equation. A trader should diversify sufficiently so that the growth in equity can be consistent and the likelihood of a catastrophic loss can be diminished. The lower the percentage of a traders' account dedicated to any one trade the greater the chance of the trader being successful.
Even if the trader has a perceived investing edge, it is unwise to run the risk of ruin, and bet it all on one trade. The goal is not only to make money, but also to be able to continue to make money consistently for an
extended period of time. A trader must learn the basic concepts and the importance of money management.
5. Lack of experience in the market causes many traders to make the mistake of taking small profits and letting losses run.
Fundamental trading wisdom dictates the exact opposite. When in a winning trade, be patient and fully capitalize on the success. The trading axiom is, "cut your losses short and let your profits run".
6. A trading system does not have to be difficult, time consuming, complicated and stressful in order to be profitable.
In trading systems, as in many other things in life, simple can be better
7. As a trader, be cautious, and never let greed take control of a winning position.
8. Be aware that declining volume usually indicates the market is not accepting higher or lower prices, and this could indicate a market turn.
9. Learn from your trading mistakes. Never make a trading mistake without asking yourself why.
10. Do not make trading decision based solely on margin requirements, and always trade within your capabilities.
Remain true to your trading plan and follow the trading style that works best for you.
11. Do not trade markets that you don't understand. Trade with confidence and conviction. Trade only with risk capital and be aware of the risk of losing. Divide your capital into 6 equal parts and never risk more than one-tenth of your capital on any one trade.
12. After a long period of success or a period of profitable trades, try to avoid the natural tendency toward increasing your trading activity. Conversely, use self-discipline when a trade goes against your position. Take your loss and wait for another opportunity. Never increase your trading after a loss.
13. Avoid getting into the market because you are anxious from waiting and/or out of the market because you have lost your patience. Never over trade and adhere to your risk management rules
14. Do not make a trading decision to buy just because the price of the stock is low or sell just because the price is high. Never change your position in the market without a good reason that is based on a fundamental or technical rule indicating a change in trend.
15. Trade the most active stocks and refrain from trading the slow moving markets. Trade "at the market" whenever possible and try to avoid a fixed buying and selling price.
16. When the market is moving with your position and you are using a stop loss order, then raise your stop loss so as to lock in your profit. Protect yourself against the possibility of turning a profit into a loss.
17. The "trend is your friend," and never buy and sell if you are insecure of the trend according to your fundamentals and technical rules. If you are in doubt, then exit the market. Only trade when you feel confident with your trading strategies.
18. Trade in five or six different stocks at a time, so as to avoid tying up all of your capital in any single stock.
19. A trader should establish a "surplus account" after a series of successful or winning trades. The goal is to retain the "surplus account" for times of emergency or panic 20. It is difficult to try and guess where the top and bottom of the market is, instead let the market prove its top and bottom.
Forex Trading Online - 7 Reasons You Should!
Forex trading online is a fast way to use your investment capital to it's fullest. The Forex markets offer distinct advantages to the small and large traders alike, making Forex currency trading in many ways preferable to other markets such as stocks, options or traditional futures. Here are seven reasons why you'll want to look into Forex Trading online.
1 - Forex is the largest market.
Forex trading volume of more than 1.9 billion, more than 3 times larger than the equities market and more than 5 times bigger than futures, give Forex traders nearly unlimited liquidity and flexibility.
2 - Forex never sleeps!
You can execute forex trading online 24/7, from 7AM New Zealand time on Monday morning, to 5PM New York time on Friday evening. No waiting for markets to open: they're open all night! This makes Forex trading online a very attractive component that fits easily into your day (or night!)
3 - No Bulls or Bears!
Because Forex trading online involves the buying of one currency while simultaneously selling another, you have an equal opportunity for profit no matter which direction the currency is headed. Another advantage is that there are only around 14 pairs of currencies to trade, as opposed to many thousands of stocks, options and futures.
4 - Forex Trading online offers great leverage!
You can make the most of your investment resources with Forex trading online. Some brokers offer 200:1 margin ratios in your trading accounts. Mini-FX accounts, which can typically be opened with only $200-300, offer 0.5% margin, meaning that $50 in trading capital can control a 10,000 unit currency position. This is why people are flocking to Forex trading online as a way to highly leverage their investments.
5 - Forex prices are predictable.
Currency prices, though volatile, tend to create and follow trends, allowing the technically trained Forex trader to spot and take advantage of many entry and exit points.
6 - Forex trading online is commission free!
That's right! No commissions, no exchange fees or any other hidden fees. This is a very transparent market, and you'll find it very easy to research the currencies and the countries involved. Forex brokers make a small percentage of the bid/ask spread, and that's it. No longer any need to compute commissions and fees when executing a trade.
7 - Forex trading online is instant!
The FX market is astoundingly fast! Your orders are executed, filled and confirmed usually within 1-2 seconds. Since this is all done electronically with no humans involved, there is little to slow it down!
Forex trading online can get you where you want to go quicker and more profitably than any other form of trading. Check it out and see what Forex trading online can do for you!
1 - Forex is the largest market.
Forex trading volume of more than 1.9 billion, more than 3 times larger than the equities market and more than 5 times bigger than futures, give Forex traders nearly unlimited liquidity and flexibility.
2 - Forex never sleeps!
You can execute forex trading online 24/7, from 7AM New Zealand time on Monday morning, to 5PM New York time on Friday evening. No waiting for markets to open: they're open all night! This makes Forex trading online a very attractive component that fits easily into your day (or night!)
3 - No Bulls or Bears!
Because Forex trading online involves the buying of one currency while simultaneously selling another, you have an equal opportunity for profit no matter which direction the currency is headed. Another advantage is that there are only around 14 pairs of currencies to trade, as opposed to many thousands of stocks, options and futures.
4 - Forex Trading online offers great leverage!
You can make the most of your investment resources with Forex trading online. Some brokers offer 200:1 margin ratios in your trading accounts. Mini-FX accounts, which can typically be opened with only $200-300, offer 0.5% margin, meaning that $50 in trading capital can control a 10,000 unit currency position. This is why people are flocking to Forex trading online as a way to highly leverage their investments.
5 - Forex prices are predictable.
Currency prices, though volatile, tend to create and follow trends, allowing the technically trained Forex trader to spot and take advantage of many entry and exit points.
6 - Forex trading online is commission free!
That's right! No commissions, no exchange fees or any other hidden fees. This is a very transparent market, and you'll find it very easy to research the currencies and the countries involved. Forex brokers make a small percentage of the bid/ask spread, and that's it. No longer any need to compute commissions and fees when executing a trade.
7 - Forex trading online is instant!
The FX market is astoundingly fast! Your orders are executed, filled and confirmed usually within 1-2 seconds. Since this is all done electronically with no humans involved, there is little to slow it down!
Forex trading online can get you where you want to go quicker and more profitably than any other form of trading. Check it out and see what Forex trading online can do for you!
Forex: Benefits of Trading the Forex Market
Trading the Forex market has become very popular in the last years. Why is it that traders around the world see the Forex market as an investment opportunity? We will try to answer this question in this article. Also we will discuss come differences between the Forex market, the stocks market and the futures market.
Some of the benefits of trading the Forex market are:
Superior liquidity.
Liquidity is what really makes the Forex market different from other markets. The Forex market is by far the most liquid financial market in the world with nearly 2 trillion dollars traded everyday. This ensures price stability and better trade execution. Allowing traders to open and close transactions with ease. Also such a tremendous volume makes it hard to manipulate the market in an extended manner.
24hr Market.
This one is also one of the greatest advantages of trading Forex. It is an around the click market, the market opens on Sunday at 3:00 pm EST when New Zealand begins operations, and closes on Friday at 5:00 pm EST when San Francisco terminates operations. There are transactions in practically every time zone, allowing active traders to choose at what time to trade.
Leverage trading.
Trading the Forex Market offers a greater buying power than many other markets. Some Forex brokers offer leverage up to 400:1, allowing traders to have only 0.25% in margin of the total investment. For instance, a trader using 100:1 means that to have a US$100,000 position, only US$1,000 are needed on margin to be able to open that position.
Low Transaction costs.
Almost all brokers offer commission free trading. The only cost traders incur in any transaction is the spread (difference between the buy and sell price of each currency pair). This spread could be as low as 1 pip (the minimum increment in any currency pair) in some pairs.
Low minimum investment.
The Forex market requires less capital to start trading than any other markets. The initial investment could go as low as $300 USD, depending on leverage offered by the broker. This is a great advantage since Forex traders are able to keep their risk investment to the lowest level.
Specialized trading.
The liquidity of the market allows us to focus on just a few instruments (or currency pairs) as our main investments (85% of all trading transactions are made on the seven major currencies). Allowing us to monitor, and at the end get to know each instrument better.
Trading from anywhere.
If you do a lot of traveling, you can trade from anywhere in the world just having an internet connection.
Some of the most important differences between the Forex market and other markets are explained below.
Forex market vs. Equity markets
Liquidity
FX market: Near two trillion dollars of daily volume.
Equity market: Around 200 billion on a daily basis.
Trading hours
FX market: 24hr market, 5.5 days a week.
Equity market: Monday through Friday from 8:30 EST to 5:00 EST.
Profit potential
FX market: In both, rising and falling markets.
Equity market: Most traders/investor profit only from rising markets.
Transaction costs
FX market: Commission free and tight spreads.
Equity market: High Commissions and transaction fees.
Buying power
FX market: Leverage up to 400:1.
Equity market: Leverage from 2:1 to 4:1.
Specialization
FX market: most volume (85%) is made on major currencies (USD, EUR, JPY, GBP, CHF, CAD and AUD.)
Equity market: More than 40,000 stocks to choose from.
Forex market vs. Futures market
Liquidity
FX Market: Near two trillion dollars of daily volume.
Futures market: Around 400 billion dollars on a daily basis.
Transaction costs
FX market: Commission free and tight spreads.
Futures market: High commissions fees.
Margin
FX market: Fixed rate of margin on every position.
Futures market: Different levels of margin on overnight positions than day time positions.
Trade execution
FX market: Instantaneous execution.
Futures market: Inconsistent execution.
All this makes the Forex market very attractive to investors and traders. But I need to make something clear, although the benefits of trading the Forex market are notorious; it is still difficult to make a successful career trading the Forex market. It requires a lot of education, discipline, commitment and patience, as any other market.
Some of the benefits of trading the Forex market are:
Superior liquidity.
Liquidity is what really makes the Forex market different from other markets. The Forex market is by far the most liquid financial market in the world with nearly 2 trillion dollars traded everyday. This ensures price stability and better trade execution. Allowing traders to open and close transactions with ease. Also such a tremendous volume makes it hard to manipulate the market in an extended manner.
24hr Market.
This one is also one of the greatest advantages of trading Forex. It is an around the click market, the market opens on Sunday at 3:00 pm EST when New Zealand begins operations, and closes on Friday at 5:00 pm EST when San Francisco terminates operations. There are transactions in practically every time zone, allowing active traders to choose at what time to trade.
Leverage trading.
Trading the Forex Market offers a greater buying power than many other markets. Some Forex brokers offer leverage up to 400:1, allowing traders to have only 0.25% in margin of the total investment. For instance, a trader using 100:1 means that to have a US$100,000 position, only US$1,000 are needed on margin to be able to open that position.
Low Transaction costs.
Almost all brokers offer commission free trading. The only cost traders incur in any transaction is the spread (difference between the buy and sell price of each currency pair). This spread could be as low as 1 pip (the minimum increment in any currency pair) in some pairs.
Low minimum investment.
The Forex market requires less capital to start trading than any other markets. The initial investment could go as low as $300 USD, depending on leverage offered by the broker. This is a great advantage since Forex traders are able to keep their risk investment to the lowest level.
Specialized trading.
The liquidity of the market allows us to focus on just a few instruments (or currency pairs) as our main investments (85% of all trading transactions are made on the seven major currencies). Allowing us to monitor, and at the end get to know each instrument better.
Trading from anywhere.
If you do a lot of traveling, you can trade from anywhere in the world just having an internet connection.
Some of the most important differences between the Forex market and other markets are explained below.
Forex market vs. Equity markets
Liquidity
FX market: Near two trillion dollars of daily volume.
Equity market: Around 200 billion on a daily basis.
Trading hours
FX market: 24hr market, 5.5 days a week.
Equity market: Monday through Friday from 8:30 EST to 5:00 EST.
Profit potential
FX market: In both, rising and falling markets.
Equity market: Most traders/investor profit only from rising markets.
Transaction costs
FX market: Commission free and tight spreads.
Equity market: High Commissions and transaction fees.
Buying power
FX market: Leverage up to 400:1.
Equity market: Leverage from 2:1 to 4:1.
Specialization
FX market: most volume (85%) is made on major currencies (USD, EUR, JPY, GBP, CHF, CAD and AUD.)
Equity market: More than 40,000 stocks to choose from.
Forex market vs. Futures market
Liquidity
FX Market: Near two trillion dollars of daily volume.
Futures market: Around 400 billion dollars on a daily basis.
Transaction costs
FX market: Commission free and tight spreads.
Futures market: High commissions fees.
Margin
FX market: Fixed rate of margin on every position.
Futures market: Different levels of margin on overnight positions than day time positions.
Trade execution
FX market: Instantaneous execution.
Futures market: Inconsistent execution.
All this makes the Forex market very attractive to investors and traders. But I need to make something clear, although the benefits of trading the Forex market are notorious; it is still difficult to make a successful career trading the Forex market. It requires a lot of education, discipline, commitment and patience, as any other market.
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