Common MetaTrader 4 Mistakes to Avoid: A Trader's Checklist
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James William, in General Board
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By San Anderson
Underlying every trading decision is a slice of data. Charts are the graphic presentation of that data, providing a visual way of gauging and interpreting price action over time. Traders rely on charts, for with them, the prices' movements, trends, and further potential are more directly brought out based on past data.
It would be next to impossible to tell at one glance whether an asset is trending higher or lower, becoming volatile, or heading towards major support and resistance levels without charts. To the day trader and the long-term investor, the art of reading the charts can make a difference between profit and loss.
Types of Trading Charts
Before diving into specific strategies and techniques, it is important to understand the various chart types available. Since each chart type will offer you a different perspective on market data, choosing the right type will be critical to your trading strategy.
1. Line Charts
The line chart is one of the simplest and best-known chart types. It draws a single line based upon an asset's closing price over a specified time period. Line charts are great to identify overall or big picture trends, but they do not have enough information for detailed technical analysis.
Pros:
Simplicity. It is easy to read and understand.
Gives a good overview of the direction of a trend.
Cons:
Does not depict intraday price movements like highs, lows, and opening prices.
Lack of depth in regard to advanced technical analysis.
2. Bar Charts
The bar chart, also referred to as the Open, High, Low, Close chart, is similar to a line chart but reflects open, high, low, and close of an instrument for chosen periods.
Each bar comprises:
The top of the bar: the highest price;
Bottom of the bar: the lowest price.
The horizontal tick to the left represents the opening price, and the horizontal tick on the right represents the closing price.
Advantages
Line charts provide more detailed price information compared to charts.
Due to their nature, they are very helpful for the activity of identifying market trends and patterns.
Disadvantages
Difficult to read for beginners because of the amount of information presented. 3. Candlestick Charts Candlestick charts are the most popular among traders in that they provide a complete representation of price action. Like bar charts, candlesticks show the open, high, low, and close of an instrument for a selected period. The only difference is in its appearance: the candlesticks have a "body" which is colored and it visually represents the area between the open and close price. If the close is higher than the open, then the body is usually colored green or white. If the close is lower than the open, the body is red or black.
Pros:
Visually attractive and easy to read.
Critical information is given in a compact form.
It's practical for the reversal and the continuation patterns.
Cons:
Mostly too much information for a complete beginner to digest.
3. Heikin Ashi Charts
Heikin Ashi charts are a form of candlestick chart that smooths the price action to identify the trend. Heikin Ashi candles are calculated with an averaging method other than that in traditional candlesticks, which makes them noisier and more oriented toward the main market direction.
Advantages:
Excellent for trading according to trend-following strategies.
Reduces market noise by not responding to fake signals.
Disadvantages:
Not efficient in perfect timing of trade compared to the usual candlestick chart.
Lags from price action due to averaging.
Renko charts are built by placing a brick in the next column when the price goes over a pre-defined value called the box size. It is also said that Renko ignores time and only gives importance to price movement; hence, Renko charts serve as very efficient trend-determination tools for filtering out market noise.
Pros:
Excellent in the identification of key trends and price levels.
Gets rid of little noise or choppiness in price.
Cons:
It can become challenging to understand for complete beginners.
It does not suit short-term or intraday traders.
Key Charting Tools and Indicators
While charts themselves give lots of valuable information, many traders use technical indicators to further enlighten themselves regarding market behavior. The indicators are mathematical calculations based upon the price, volume, or open interest applied to chart data with the view to predict probable movements in price. Some of the popular indicators used by traders follow:
1. Moving Averages
Moving averages are used to smooth out price data in a curve that makes it easier to determine the trend of the market. There are, in short, two major types:
Simple Moving Average: The average of the prices over a selected number of periods.
Exponential Moving Average: Similar to SMA, but weights recent prices higher, thus it is more responsive to new information.
How to Use Moving Averages:
Crossover strategy: When a short-term moving average crosses above a long-term moving average, this situation can be interpreted as a potential buying opportunity, or what is more commonly referred to as a bullish crossover. Conversely, when a short-term moving average crosses below a long-term moving average, this can be looked upon as a potential selling opportunity otherwise known as a bearish crossover. Support and resistance: Moving averages may also serve as dynamic levels of support or resistance. 2. Relative Strength Index (RSI)
One of the indicators belonging to the oscillator family of momentum is called the Relative Strength Index. It maps out the velocity and magnitude of change in prices. The velocities range from 0 to 100, with overbought readings occurring over 70 and oversold readings occurring below 30.
Using RSI:
Overbought/Oversold Conditions: When the RSI enters the overbought zone-that is, above 70-it could indicate that the asset is overvalued and due for a pullback. From another perspective, when the RSI slips below 30 and enters the oversold territory, this could indicate that the asset has become undervalued and may be presenting a buying opportunity.
Divergence: When the price creates a new high or low but does not get confirmed by the RSI, such a scenario creates RSI divergence and usually signals a potential reversal.
Bollinger Bands
Bollinger Bands consist of three lines: a simple moving average-the middle band-and two outer bands plotted two standard deviations away from the moving average. The bands expand and contract based on volatility. This characteristic makes them useful for determining either a time of low or high volatility.
How to Use Bollinger Bands:
Squeeze: When the bands come closer together, that means that volatility is low and may be ready to break out.
Mean reversion: The price often touches or violates the outer bands and then returns back to the middle band, providing potential entry or exit signals. 4. Fibonacci Retracement
Fibonacci Retracement: A study used to determine levels of support and resistance by drawing horizontal lines based on the Fibonacci series. Traders find these levels helpful because they serve as an indication of where to expect the market to pull back or rally.
How to Use Fibonacci Retracement:
Support and Resistance-Fibonacci levels can be used for support and resistance in trending markets during retracements.
Entry points: Traders regularly use Fibonacci retracements to measure likely entry points to trade in the direction of the whole trend.
Chart Patterns and Price Action
In addition to indicators, traders also use chart patterns as methods of determining what might occur with prices in the future. These are visual patterns that form on a chart because of price action and usually occur with potential breakouts or reversals in a trend or the continuations of trends themselves. A few common patterns include:
1. Head and Shoulders
It is a trend reversal pattern that signals a possible trend shift. It has three peaks-it consists of a middle peak known as the head, which is higher than the two other side peaks, referred to as shoulders. A break below the neckline (support level) confirms the pattern and suggests a trend reversal.
2. Double Top and Double Bottom
The double top is a bearish reversal pattern that occurs after an uptrend and is, for the most part, constituted of two peaks occurring around the same level. A penetration of the support line confirms the pattern. The double bottom is a bullish reversal pattern that forms after a downtrend and has two troughs formed at approximately the same level.
3. Flags and Pennants
Flags and pennants are a continuation pattern that reflects the consolidation of a brief nature before resuming into the previous trend. A flag comes out as a little rectangle against the slope of the trend while a pennant is a tiny symmetrical triangle.
Conclusion
Trading charts are a fabulous gadget for both amateur and accomplished traders. By first understanding chart types, indicators, and patterns, the trader can go on to make informed decisions and hopefully increase their chances of success in the markets. Charting is not an exact science; neither should it be used in isolation, but the art of reading a chart certainly forms a major ingredient of any trader's development. Whether this involves trading in stocks, forex, cryptocurrencies, or commodities, a full understanding of charting techniques will go a long way toward endowing a trader with a real edge in the intricacies of financial markets.
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By Kim
Cut Your Losses
All traders experience losses from time to time, so try not to panic if you make a bad trade. However, think carefully before trying to make back what you’ve lost. It’s easy to fall into the trap of trying to breakeven when you’ve made a loss but, more often than not, this mindset results in your compounding your losses. Instead, accept the odd loss and part and parcel of trading and focus on your long-term profitability, rather than an isolated loss.
Backtest Potential Strategies
Traders use a variety of different strategies when playing the markets but finding the right ones for your needs isn’t always as straightforward as you might think. Before you use a new plan on active markets, be sure to test them against historical data. Using backtesting software like Optionnet Explorer is an easy and accurate way to do this. Once you know how the strategy would have worked, you’ll be able to determine its efficacy and decide whether or not to use it going forward.
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Diversify Your Portfolio
Diversification can be an effective way to protect your capital. When you invest in stocks and shares or commodities that react differently to market events, you can offset potential losses and, to an extent, secure your capital. Similarly, investing in different companies or making various types of investments prevents you from ‘putting all of your eggs in one basket’ and can reduce the risk of major losses.
Reduce Commissions
Now that you can make trades yourself, without having to use a broker, trading can be much more cost-effective. However, even relatively low brokerage fees can eat away at your profits over time. By shopping around for reputable brokers or platforms, you can ensure that you’re not paying over the odds to make trades. After all, you’ll want to keep every cent of what you earn as a trader.
Show Commercial Awareness
You may not need to react to every piece of news, but it’s vital to be aware of what’s going on in the world if you want to be a successful trader. An environmental disaster, political unrest, or even new legislation can have a major impact on the markets, which means you need to be ready to react when necessary.
Planning Your Investments
As new opportunities come about and existing investments mature, you’ll want to be proactive about managing your trades. By thinking strategically about the level of risk you’re willing to take, you can identify the trading vehicles that are most likely to generate a return over the short, medium, and long-term, and, in doing so, you can maximize your returns in 2021.
This is a contributed post.
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By Kim
So when the going gets tough, you’ll need an answer for the above question - and you’ll need to meditate on it when you’re wondering whether to keep going.
The truth of the matter is that for traders who take their efforts seriously, it’s always going to be a process with high rewards and potentially high risks, too. Below, we’ll look into some ways that trading offers you a different experience from a 9 to 5 - and why that can be a very attractive prospect for anyone looking to make a better future for themselves.
You can work for yourself
Being your own boss isn’t essential when you’re getting into trading - there are plenty of trading firms who offer the chance to benefit from institutional knowledge and greater capital. With that being said, flying solo is the preferred end state for any trader who wants an element of control over what decisions they make, what trends they follow and which instincts they listen to. When you get into trading, a major part of the attraction has to be the opportunity for financial independence - and you’ll feel that independence earlier on if you’re working for yourself.
If you’re a solo trader and you quite simply don’t want to turn up one day, then you have that option. As long as you’ve got the appropriate instructions in place, or have no open trades at a given time, you can take some well-earned rest and enjoy the independence you have signed up for.
You can trade from anywhere (within reason)
Independence is all well and good, as long as you are actually putting it to use. Trading from home is a more attractive prospect than riding a packed train to sit in an office, and that sense of freedom can be expanded as far as you want to expand it. You don’t need to stick to the Dow Jones if you’re a trader in the US, or trade specifically on the FTSE if you’re in London. As the bulk of trading happens electronically, all you need is to be set up for remote trading, and you can do it from anywhere in the world.
It takes the correct software, of course: you’ll need the right trading platform and a suitable payment gateway for when you want to cash out. As long as you have established these necessities, you can spend part or all of a year in a beachside paradise while you trade the markets of one of the world’s financial hubs like London, New York or Tokyo.
Trading itself is a varied field
The world of stock trading can look absolutely impenetrable for anyone who isn’t used to it, and there is no doubt that it can be intimidating to the point where some people simply turn away from the idea. But if your belief is that trading is too pressurized, confusing and hostile to newcomers, then you may need to simply find your niche. Once you’re comfortable in one area you’ll find that a lot of concepts are transferable between types of trading.
It’s not such a long time ago that Forex trading became a household topic because of its popularity among people who would never have ordinarily even considered playing the markets. If you’re minded to follow international news anyway as a personal interest, then you can get a feel for how different stories such as election results can move the line, and can apply your knowledge to increase the chance of success. If, on the other hand, you’re trading the stock markets, you’ll get a feel for which ones have greater volatility at which times, and know how to react to that.
Trading is a varied life that offers little in the way of guarantees, but so much in the form of opportunities. Working at it will open up new worlds to you, and there aren’t many jobs out there that regularly offer the same level of variety - in the form of working days, challenges, and rewards. As long as you’re not expecting every day to be the same, it’s pretty obvious why so many people come to see trading as their passport to the financially secure future they want.
This is a contributed post.
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By Kim
This means that you do not actually take possession of the underlying currency. Instead, you are paid the difference between the market value and the strike price at the time of maturation.
If you want to trade currency options, you need an account with a broker or bank that allows access to this type of account. A forex broker is usually the best option if you are a retail trader. Banks often offer the same trading to institutional clients but only seldom offer it to retail investors.
Finding a forex broker is easy since there are a large number of well-established brokers on the market. Not all forex brokers offer options trading. Therefore, you should always verify that the broker you are considering opening an account with offers options trading before you open the account.
Options and binary options are not the same.
Please note that options and binary options are not the same things. They work in a similar way, but binary options limit your profits to a predetermined amount. You will always be paid that predetermined amount if the option matures in the money regardless of how much above or below the strike price the market value is at the time of maturation. A binary option will therefore limit your upside.
Binary options are also non-transferable once purchased. You are unable to buy and sell them as you can with a regular option. A regular option makes it possible to make a profit by trading with an option that ultimately does not end up maturing in the money. This is not possible with a binary option. I do not recommend binary options trading. Binary options are designed to make the broker money and are more like betting than it is trading.
Finding a broker
Below I will cover the most important things to consider when looking for a broker that allows you to trade forex options.
Forex options: Make sure that the broker features trading with forex options.
Regulatory body: You should always choose a broker regulated by a well-known regulatory body that offers strong investor protection. The risk of getting scammed is high if you choose an unregulated broker or a broker that is licensed by a low-quality regulator. Choosing a broker that is regulated by a strong regulator guarantees that the broker complies with best practices. Examples of strong regulatory bodies include the FCA, CySec, BaFIN and a number of other regulators. You can find a list of brokers regulated by trustworthy regulatory bodies by visiting daytrading.com.
Reputation: Choose a broker that has a good reputation in the market. Check reviews online and the broker's reputation on trader forums. Remember that no broker has a 100% positive reputation. There will always be unsatisfied traders. You should look for a broker where the majority of clients are happy with the service.
Feed and Commissions: Choose a broker with low fees and spreads. I recommend that you choose a broker that doesn't charge any account fees, only trading fees. High fees make it a lot harder to make money, and it is, therefore, very important to choose a broker with the lowest fees possible while still offering the features you need.
Platform: Make sure that the broker provides access to the platform you want to use if you want access to a certain trading platform, such as MetaTrader or Ninjatrader. If you are new to trading or if you do not have a preferred platform, then you can choose any broker since all reputable brokers provide access to decent platforms.
Demo account: A demo account is an account that you can use to make virtual trades without risking any real money. A demo account is a very powerful tool that you can use to learn how to trade and that more experienced traders can use to try out new strategies. You should always choose a broker that provides you with a free demo account.
Software: If you want to use other tools or software, then you need to ensure that the broker allows you to use these tools. An example of this is if you want to use auto trading platforms. Some brokers restrict the usage of auto trading software while others do not. Choose a broker that allows you to use the tools you want to use.
Mobile trading: The quality of the mobile trading platforms can vary a lot between different brokers. Choose forex brokers that provide access to a well-designed mobile platform if you want to trade on the go. Note that the desktop platforms will always be better and offer more features. I recommend that you trade on a desktop or laptop if you are able to do so.
Customer support: You should hopefully never have to contact customer support. But if you do, it is important that the broker offer good customer support when you need it. Choose a broker that is known for good accessible customer support.
Banking options: You should choose a broker that provides you with a banking option that is fast and easy for you to use. The broker should make it easy to deposit and withdraw money. The banking options should preferable be cheap to use so that you can deposit and withdraw money without paying a lot in fees. Many brokers offer banking options such as wire transfers, VISA, MasterCard and different e-wallets such as Paypal and Skrill. Choosing a broker does not have to be difficult. Plenty of good forex brokers offer everything you will need when first starting to trade forex options. Do not be afraid to choose the wrong broker. You will be fine as long as you choose an established regulated broker. If you do not like the broker, you can always switch to another broker later on once you have gained some experience and a better understanding of exactly what features you want from your broker.
This is a contributed post.
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By Kim
That level is opening your own space where you can conduct business your way with the clients who will make you the most money and you make them the most money. Here are a few things to keep in mind as you start the journey of opening your own trading office.
Partner Up
As much as you want to run the entire show on your own, you can’t do it all by yourself. Having someone to share some of the responsibilities with will be ideal for your mental health and will allow you to stay on top of the more important priorities as you get started. The ideal partner is someone who is already successful in the realm of financial trading and has an impressive Rolodex that will help bring you the network and connections you need to succeed. When you partner with someone who is as seasoned as yourself means that you can double your chances of making the most money you can.
It Takes a Village
Build a team that will get the job done. You and your partner are going to need help, and that help will come in the form of a support team that you trust. The best way to get everyone on the same page is to train them yourself. Take the time out of your setup process for a training session. Even though you are going to hire people who already know what they are doing, they are not going to know your way of doing things. Make sure you and your partner are pleased with the people you are bringin on board and mold them to your image so that everyone knows the exact way to conduct business without any mistakes or confusion.
Find a Great Office Space
You may not have the overhead necessary to rent or lease an entire floor of an office building or even a small office in a commercial space. There are other alternatives to finding real estate and shared office spaces are one of them. Places like Bond Collective offer memberships where you can use a luxurious office space at a fraction of the cost. Bond Collective membership options offer a range of deals that will best suit your needs. You can use these office spaces at will and whenever you choose, and you don’t have to worry about all the other headaches that come with having an office like bills and upkeep. Your membership will go towards that and you can spend your time worrying about important things like your clients and the work you are so passionate about doing.
Expand Your Knowledge
Make sure that you are up-to-date on all the happenings in the financial world. Working for major corporations sometimes gives you an inside scoop on all the things that are happening in the industry because you are surrounded by so many people. That pool of people is going to shrink once you strike out on your own. This means that you are going to have to make a concerted effort to know what is happening with trading and finance on a daily basis. This extra work will go a long way because you will appear more knowledgeable and better equipped to provide the service you need to provide for your clients. That kind of appearance will make you more trustworthy, helping you grow your client base.
Tell Everyone What You Are Doing
Once you are all set up and feeling good about what you know and who you know, it’s time to start telling everyone you are open for business. A lot of companies may not allow you to take your clients with you so that means you have to start from scratch. This is where your partner’s Rolodex comes in handy. Start getting the word out there that you are starting your own office and that you are ready to help make money with others. Use social media, friends, and word of mouth to get the news out there that you are open for business. Before long, you will be building one of the most successful trading offices in finance.
This is a contributed post.
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By capitalstreet_fx
WHAT IS A FOREX?
Forex is the marketplace where various world currencies are traded. The forex market is the largest and is the easiest to liquidate within the world, with trillions of dollars changing hands a day. there’s no centralized location, rather the Forex market is a network of banks, brokers, institutions, and individual traders Many entities, from financial institutions to individual investors, have currency needs, and should also speculate on the direction of a specific pair of currencies movement. They post their orders to shop for and sell currencies on the network in order that they can interact with other currency orders from other parties. The forex market is open 24 hours each day, five days every week, apart from holidays. Currencies should trade on a vacation if a minimum of the country/global market is open for business.
3 SIMPLE STEPS TO MAKE YOUR FIRST TRADE IN FOREX
Select a currency pair
When trading forex you are exchanging the value of one currency for another. In other words, you will always buy one currency while selling another at the same time. Because of this, you will always trade currencies in a pair.
Most new traders will start out by trading the most commonly offered pairs of major currencies, but you can trade any currency pair that we have available as long as you have enough money in your account. For this walkthrough, we’ll look at EUR/USD (Euro/ U.S. Dollar). Analyze the market
Research and analysis should be the foundation of your trading endeavors. Without these, you’re operating on emotion. This doesn’t typically end well.
When you first start researching, you’ll find a whole wealth of forex resources – which may seem overwhelming at first. But as you research a particular currency pair, you’ll find valuable resources that stand out from the rest. You should regularly look at current and historical charts, monitor the news for economic announcements, check indicators and perform other technical and fundamental analyses. We’ll talk more about specific types of research later on. Pick your position
If you’ve traded stocks, bonds, or other financial products, you know that you can usually only speculate on the one direction of the market: up.
Forex trading is a little different. Because you are buying one currency, while selling another at the same time you can speculate on up and down movements in the market.
WITH A BUY POSITION you believe that the value of the base currency will rise compared to the quote currency. If you’re buying EUR/USD, you believe the price of the euro will strengthen against the dollar. In other words, you believe the euro is bullish (and the US dollar is bearish).
WITH A SELL POSITION, you believe that the value of the base currency will fall compared to the quote currency. If you’re selling EUR/USD, you believe the price of the euro will weaken against the dollar. In other words, you believe the euro is bearish (and the US dollar is bullish). ADVANTAGES OF FOREX TRADING
A. Ability to go long or go short
While you’ll go short on other markets by using derivative products, like CFDs, short sale is an inherent part of trading forex. This is because you’re always selling one currency (the quote currency) to shop for another (the base currency). The price of a forex pair is what proportion one unit of the bottom currency is worth within the quote currency.
● For Instance:– within the forex pair GBP/EUR, GBP is that the base currency and EUR is the quote currency. If GBP/EUR is trading at 1.12156, then one pound is worth 1.12156 euros. If you think that the pound goes to extend against the euro, you’d buy the pair (going long). If you think that the pound will decrease in value against the euro, you’d sell the pair (going short). Your profit or loss will depend upon the extent to which you get your prediction right, meaning it’s possible to profit whichever way the market moves.
B. Forex market hours
The foreign exchange market is open 24 hours a day, five days a week – forex can be traded from 9pm Sunday to 10pm Friday (GMT). These long hours are because forex transactions are completed between parties directly, over the counter (OTC), instead of through a central exchange. And because forex may be a truly global market, you’ll always cash in of various active session’s forex trading hours.
It is important to recollect that the forex market’s opening hours will vary in March, April, October and November, as countries shift to sunlight savings on different days.
C. High liquidity in forex
The FX market is the most liquid market within the world, meaning there is an outsized number of buyers and sellers looking to form a trade at any given time. Each day, over $5 trillion dollars of currency is converted by individuals, companies, and banks – and therefore the overwhelming majority of this activity is meant to get a profit.
The high liquidity in forex means transactions are often completed quickly and simply, therefore the transaction costs – or spreads – are often very low. This creates opportunities for traders to speculate on price movements of just a few pips.
D. Forex volatility
The high volume of currency trades each day translates to billions of dollars every minute, which makes the price movements of some currencies extremely volatile. You can potentially reap large profits by speculating on price movements in either direction. However, volatility may be a double-edged sword – the market can quickly turn against you, so it’s important to limit your exposure with risk-management tools.
E. Leverage can make your money go further
CFDs are leveraged, which can make your money go further. Leverage in forex enables you to open an edge on the currency market by paying just a little proportion of the complete value of the position upfront.
The profit or loss you create will reflect the complete value of the position at the purpose it’s closed, so trading on margin offers a chance to form large profits from a relatively small investment. However, it also can amplify any losses, meaning losses could exceed your initial deposit. For this reason, it’s important to think about the entire value of the leveraged forex position before trading CFDs.
F. Trade a good range of currency pairs
Forex trading gives you the chance to trade a good sort of currency pairs, speculating on global events and therefore the relative strength of major and minor economies.
With IG, for instance , you’ll choose between over 90 currency pairs, including:
Major currency pairs, eg GBP/USD, EUR/USD, and USD/JPY
Minor pairs, eg USD/ZAR, SGB/JPY, CAD/CHF
Emerging currency pairs, eg USD/CNH, EUR/RUB and AUD/CNH
Exotic pairs, eg EUR/CZK, TRY/JPY, USD/MXN
G.Hedge with forex
Hedging may be a technique that will be wont to reduce the danger of unwanted moves within the forex market, by opening multiple strategic positions. Although volatility is a component of what makes forex so exciting, hedging is often an honest way of mitigating loss or limiting it to a known amount.
There is a spread of strategies you’ll use to hedge forex, but one among the foremost common is hedging with multiple currency pairs. By choosing forex pairs that are positively correlated, like GBP/USD and EUR/USD, but taking positions in opposite directions, you’ll limit your downside risk.
●For instance, a loss on a brief EUR/USD position might be mitigated by an extended position on GBP/USD.
Alternatively, you’ll use forex to hedge against loss in other markets, like commodities.
●For instance, because the USD/CAD generally has an inverse relationship with petroleum, it’s commonly used as a hedge against falling oil prices.
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By Kim
While a lot of information comes from real experience of people that have used a brokers’ services, some may have a hidden agenda of promoting the broker. Promoting a broker is OK, as long as it’s done in a transparent way. Let’s see the 5 ways to identify fake reviews:
Look at the site: if this officially a forex news site / education site, but the first thing that you see is a big list of forex broker reviews, then you can take the reviews with a grain of salt – the site’s sole purpose is to make money on affiliates and not necessarily have up to date news. So are the reviews genuine?
Check the link: If you see something like landingID=3 or affiliate=fxsite at the end of the link that leads from the review page to the broker’s site – this is definitely an affiliate link – the reviewer gets paid for referring clients to the broker. Getting paid for referrals is legitimate, but hiding the fact that the reviewer is paid for the service isn’t proper. For site owners, the solution is to write a disclosure about the affiliation. This way, the readers can judge for themselves if this genuine or not, having the knowledge about the affiliation deal.
Option to comment: If the site has an option to add your own comment on the review, actually your own mini-review on the broker, that’s a good sign of openness. But this may be tricky as well. Try commenting and see if your comment really appears on the site, or if it’s held for moderation forever. Sometimes comments are automatically posted, but are later deleted when they aren’t convenient. Such sites’ openness, but it’s fake.
Check the forum member: if a forum member posts a reply with a recommendation about a forex broker, even without an affiliate link, he could be associated with the broker. If he’s officially representing the broker, that’s like a full disclosure – you can judge him for yourself. But if he’s not? Well, check out what else he wrote on the forum. If he’s a regular participant, it could be genuine, but if his main agenda is promoting the same broker, don’t take his word. I must say the Forex Factory is doing a good job at getting such promoters out of the forums.
Search the web for negative commentary: A common check if to search for the name of the broker with the word “sucks” – this will easily bring you to negative reviews, and you can see how bad they are. Getting results for this search doesn’t mean the broker is necessarily bad, but this is how you’ll get some negative words as well. Do you have additional ideas about how to find false broker reviews?
This is a guest post from FXStreet, a leading provider of data, real time analysis and actionable tools for Forex traders.
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By Kim
Currency investing is essentially betting that one country’s economy will be stronger than another’s, and when done right, it’s a very effective strategy. If you are considering currency investments for the first time, here are a few important tips to help you improve your strategy and avoid any big losses.
Consider Using A Broker
The majority of trading happens on a day-by-day basis, which means that your success depends on your knowledge of different industries and assets. Currency trading or Forex trading is no different and investors are able to trade currencies 24 hours a day on weekdays, so there is the potential for some big profits.
However, you will only make those big profits if you have an in-depth understanding of the global market, which many people do not. Even if you have experience in other investment strategies, that doesn’t necessarily mean that you have the knowledge to successfully trade currencies, so you should consider a broker. Unless you are completely confident that you know what you are doing, you should find a Forex broker and have them handle the day-to-day trades for you.
When searching for a broker, make sure that you use a reliable one that is authorized. In the US, all reliable Forex brokers should be a member of the FINRA (Financial Industry Regulatory Authority) and they should also be registered with the Securities and Exchange Commission. There are so many brokers out there that claim to be legitimate but, unless they have these credentials, you shouldn’t hand your money over to them.
Stick To Major Currencies
New investors often make the mistake of investing in more volatile currencies because there is potential for a higher return. Argentina, for example, used to be a very popular trading currency but when an international crisis shut down the banking system in the 2000s, a lot of people lost their money. Although these volatile currencies may seem like an attractive prospect, the risk is not worth it and you are far more likely to lose big money. It’s much safer to stick to major currencies in countries that have a stable government. Political turmoil, international relations issues, and financial problems will all devalue a currency very quickly, so steer clear of any countries that are likely to experience any of these things. Instead, look at the biggest global economies that are seeing steady growth and are unlikely to experience any major financial issues in the near future. Although the returns on these currencies will be smaller, the risk is also far lower.
Invest For The Long Term
If you are looking for an investment opportunity with a quick turnaround, currency is not the best choice. In the short term, currency investments are one of the most volatile investment options. Things like inflation, GDP, unstable governments, corruption, employment rates, and nationalization can all have a big impact on the value of a currency and they tend to fluctuate a lot. If you want to make successful short term currency trades, you need to have an in-depth knowledge of international politics and economics, as well as an understanding of local factors in the countries that you are invested in. Your broker will be able to help with this to some extent but they are more likely to be focused on long term investments. If you are willing to invest for the long term and you set realistic expectations about your investments, the risk is reduced in a big way and you stand a much better chance of seeing any meaningful returns.
Consider An ETF Or Mutual Fund
ETFs and mutual funds are another effective way to reduce the risks involved with currency investing. ETFs or exchange traded funds group together a collection of different investments and trade on a daily basis, so their rates fluctuate throughout the day. You can buy and sell an ETF during the trading day, just like you would with stocks, but the main benefit is that all of the research is done on your behalf. You simply need to decide when to buy and sell your ETF and you can leave all of the specific currency trades to the experts.
A mutual fund adds your investment to a pool with a lot of other investors and makes various trades using that pool, with each investor taking their share of the profits. If you invest in mutual funds or an ETF, you can spread the risk and reduce the chance of making a loss in a big way. You can also let somebody else with more knowledge and expertise handle all of the hard work for you, so it’s a great option if you are new to currency investing.
Be Careful With Leverage Currency Investments
Many companies offer leverage currency investments, which essentially means that you borrow from your Forex broker to make your investment. This does allow you to make larger investments but, in most cases, it should be avoided. However, even though this strategy can amplify your profits in a big way, it can also amplify your losses. When trading in something like currency, which can be very volatile, this is a huge risk. If you can afford to absorb the losses and you are willing to take the risk, then you may consider this strategy. However, if you are not prepared to absorb large losses and you want a low risk, low reward currency investment, you are much better off going with a mutual fund or ETF, or investing directly through a Forex broker.
Currency investments are a popular way for investors to expand their portfolio and when done right, they can be very effective. However, successful currency investing requires a good knowledge of global economies and international relations, and short term trading can be very risky. But if you hire a reliable broker and invest for the long term, you should see some meaningful returns.
This is a contributed post.
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By Kim
This ease of entry doesn't mean everyone succeeds in forex trading. A multitude of issues can end your forex career quickly, so you must try to avoid them. Here are the eight most common mistakes new Forex traders make:
Don't go for the wrong broker
A broker can make or break your forex trading career. The selection of a broker is, perhaps, the most significant and most important decision you need to make since an unreliable one could potentially cause you to lose all your hard-earned capital.
To ensure you're not making the wrong decision, for starters, the brokers you're considering should be a part of the regulatory bodies of their respective countries. Luckily, many US forex brokers are registered with The National Futures Association (NFA) and the Commodities Futures Trading Commission (CFTC).
Choosing the right broker is a rigorous process, and you should spend a lot of time before you make a decision.
Never add more to a losing trade
Sometimes, when a trade is going wrong, traders are convinced that adding to their positions or averaging down, can help reverse the falling trend.
Despite its popularity, averaging down is a strategy that forex traders should avoid altogether. It's never a good idea to add more money to a losing trade and risk even more significant losses.
To avoid such circumstances, it's always better to have a stop-loss in place, so, in case the prices start going against you, the activation of the stop loss can end the trade at minimal damage.
Don’t keep trading if you keep losing
Every forex trader needs to keep an eye on two trading stats: the risk/reward ratio and the win-rate.
The risk/reward ratio is defined as the amount you win as compared to the amount you lose. On average, if your losing trades amount to $100 and your winning trades amount to $250, your risk/reward ratio is 2.5. You should at least aim to maintain your risk/reward ratio above one and ideally above 1.25 every day.
On the other hand, the win-rate indicates the number of trades you win as a percentage. If out of 200 trades, you win 140, then your win-rate is 70 percent. A trader should aim to maintain his or her win rate at above 50 percent every day.
A trader can continue to be profitable with a higher risk/reward ratio and lower win-rate or a lower risk/reward ratio and a higher win-rate. Ideally, though, both of these should be above the minimum range, and you should employ trading strategies that can help you achieve these numbers.
Always have a stop-loss in place
A stop-loss is essential every day you engage in forex trading. Even the most experienced traders aren't immune from losses in the forex market, and trading decisions can go wrong at any time.
Having a stop loss in place can help you get out of a trade when the price of a currency pair moves against your strategy by a specific amount. A stop-loss often acts as an insurance policy, and you should moderate your losses and use the amount to move on to the next trade.
Don't risk more than you can afford to lose
Risk management is a vital part of forex trading and determines how much capital you can afford to risk on every trade. On any single transaction, traders should never risk more than 1 percent of their capital. In case you're about to lose more than this amount, a stop-loss order prevents that.
A risk management strategy ensures that even in the case of losing multiple trades, you only lose a minimal amount of your capital. Similarly, if you manage to win 2 or 3 percent on every trade, you can recover your losses quickly.
Another essential part of an effective risk management strategy is managing daily losses. Even if you're risking a percent of your capital on every trade, but are engaging in several trades per day, you could potentially lose a large amount of your money.
In this case, it's crucial to have a daily stop-loss that prevents you from losing more than a specified amount every day.
Never go all in
Even with a risk management strategy in place, it's tempting to avoid it altogether and risk more capital than you're typically used to. Why one decides to make a decision such as this could be due to several reasons; you may want to recover previous losses or are feeling extremely confident about a specific trade.
Regardless of the reason, though, you should never defy your risk management rules. Risking more than the set amount can lead to mistakes, and these mistakes tend to grow one on top of the other. When a risk doesn't work in your advantage, you might end up canceling your stop-loss altogether in hopes that the trade will turnaround.
It's crucial to avoid such temptations in any circumstances and always abide by your risk management strategy.
Don't try to predict the news
Forex prices are highly susceptible to various political and economic news. Significant changes are likely to take place during scheduled news releases. It's easy to think you know which direction currency pairs will move and take a position based on those predictions.
However, this is never a good idea since price fluctuations during these times are incredibly likely, and prices are expected to move in both directions before settling into a stable course. This means you're likely to lose immediately after a news release.
While there are chances of that losing trade to turn into a winning trade, this losing trade may also remain a losing trade. Additionally, since the spread between the asking price and bid is more significant, the trade may not be liquid enough for you to get out of easily.
Hence, instead of predicting the direction in which the news will influence currency pairs, it's crucial to have a strategy in place that'll let you be part of the trade after the release. You can always profit from the price fluctuation without any blind risks.
Don't trade without a plan
A trading plan is a document that highlights your trading strategy. It covers multiple areas, including what, how, and when you will trade. This plan should be drafted in detail and needs to include what markets you'll be involved in and when. It should also cover the time you'll take out to analyze and make trades. Amongst other things, this trading plan should highlight your risk management strategy and how you'll enter and exit the trades (in winning and losing trades, both).
Trading without a plan is equivalent to a senseless strategy; without an idea of what you're planning on doing, you're bound to make mistakes. Hence, it's vital to create a trading plan and test it out on a demo account before you start risking your actual capital.
Conclusion
Forex trading is, undoubtedly, complex. It's a risky area that should never be entered without the right education and knowing what you should and shouldn't do. However, with the right mindset and the right commitment, you can easily succeed in forex trading by avoiding the mistakes that differentiate a novice trader from an experienced one.
What other mistakes should a forex trader avoid? Let us know in the comments below!
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By Kim
It is not pretty, but it could’ve been worse. Let’s get down memory lane.
Alexander Kuptsikevich, analyst at FxPro, goes back to doomsday, back in 2008, when the financial world got as close as imploding as we have seen in decades:
"My biggest failure was in Autumn 2008. I would like to remind that before the Lehman Brothers faced bankruptcy, the Fed and The Bank of England had bailed out several large banks. Those bailouts had ended up with relaxed financial conditions, which supported the market in general. The idea of separation was crucial as well. It was considered that problems in the USA and Britain made investments in Europe and developing economies more attractive.
This time the authorities got tired of acting like firefighters who rush from one fire to another. My bet was on AUDUSD rising and GBPJPY falling. The healthier the banking sector was and the farther it was from the epicenter, the better the currency felt, I thought. However, the AUDUSD swooped down as the world was taken over by the only idea – to go to liquid assets and to reduce leverage. That episode demonstrated that the connections within the financial world were strong and that investors could prefer liquidity to investment potential. It cost me a couple thousand of dollars. Not too much for the life lasting experience and a drop in the ocean in comparison to the consequences for the world economy."
Another popular mistake was the one Marc Chandler recalls, getting in the Short EUR train at the wrong time, the start of 2017:
“In my work, I have been able to make some big counter-trend calls because of long-term valuation, such as my call in my first book (Making Sense of the Dollar, 2009) for a sustained bull cycle for the dollar. However, in the beginning of 2017, with the euro 20 percent undervalued on OECD's PPP model, I chose to fade it, leaving me wrong-footed”
EUR/USD went from opening 2017 at 1.04 to closing it at 1.20.
But not all trading mistakes end up with catastrophic outcomes. If you are lucky enough, you can even get out of one hell of a bad trade with some profits. Bradley Gilbert, CEO at Traders4Traders, got that lucky bounce when he was about to get a margin call in an AUD/NZD trade:
"After I left the banks and started trading for myself, around the time of the peak of the GFC, I found myself trading a much smaller trade size than I was used to at the banks. I recall going long AUDNZD around 1.2650. It was only 5 lots and the range in AUDNZD for the past year had been 1.2600-1.2800. Big mistake, as it was the first day of the start of a fall in AUDNZD of 20 big figures. That’s right: 2000 points straight down and I didn’t have a stop in place.
Because the trade size was small I didn’t think I need to have a stop. By the time AUDNZD was trading at 1.0650 I was long 100 lots, my account of $200,000 was down to the last $20,000. It was the craziest and worst trade I had entered in 25 years and it all started with 1 crap trade that I totally underestimated. I recall getting a margin call from New York. If I didn’t put more cash in they were going to close the entire position out. I waited and didn’t add any cash.
Luckily the AUDNZD started to rally and closed the week around 1.0800. A little bit of breathing room if anything. Over the weekend a guarantee on the Australian banks was announced and AUDNZD jumped 800 points on the open. I closed the position out for a $220,000 profit. So I ended up with $20,000 profit from the whole experience but that in no way compensated the trauma and grief that position caused. I would gladly give back that $20,000 if I could delete that experience from my memory bank.
If anything it taught me one thing, never underestimate the market and always respect all positions, regardless of the size of the position. To this day I have never run a position as stupid as the one mentioned above. I got a lucky break and live to tell the tale, but many traders aren’t so lucky. This trade was an important part of my mantra “Plan the Trade, Trade the Plan”, and leaving nothing to chance!"
Ooof, that was close. And even if Bradley would give back that $20k profit to erase the pain caused by the experience, we guess it was worth it. Better to learn while winning than learning while losing.
This is a guest post from FXStreet, a leading provider of data, real time analysis and actionable tools for Forex traders.
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