By Forex Fraud:

Forex options can be exceptionally useful for a forex trader, but there’s no single way of using them in trading. You can use them as a kind of hedging mechanism, or to reduce the overall exposure of your account to a currency pair. You may use them to limit your downside. And you may use them for purposes unrelated to trading itself, as indicators of market sentiment and positioning, for completing the spot market data depicted by the forex trading software. But whatever you do with them, you’ll eventually find that implied volatility is one of the most important concepts that you should be knowledgeable about in order to make use of options.

Options pricing is a complex subject, and requires a degree of familiarity with derivatives, and calculus in general. But there is one simple fact about options that is easily understood and useful for trader’s purposes: it is that of all the items that contribute to the establishment of an option’s price according to the most common and popular models, implied volatility is the only one that is a prediction. All the other factors, such as the strike price, interest rates, and the term of the option are well-known at the moment the contract is written, but volatility is not, and that is why it is so important in any options pricing strategy.

IV (as implied volatility is often termed by market practitioners), is simply the estimate inherent in a option contract about the future volatility of the underlying. Let’s assume, for example, that there are two option contracts with exactly the same expiry data, and payout, but very different prices: the justification for this divergence is to be sought in volatility. Simply stated, a higher volatility will result in a higher likelihood of the strike price being hit, and will as such command a higher premium. If a trader expects volatility to be higher, he’ll be willing to pay the higher premium, and vice versa.

Implied volatility is an exceptionally important subject in options analysis, but it is also relevant for forex traders as well. Rising implied volatility over a theoretical continuation of the historic volatility, for instance, suggest that options traders are on the whole convinced that the market may keep driving the trend higher. Conversely, falling volatility may imply that a period of consolidation in a currency pair may ensue, possibly preceding a reversal.

Volatility is examined and studied by traders for a wide variety of strategies, and also for hedging purposes. The volatility smile, delta hedging, convexity, are some of the concepts that are intimately related to volatility, and can be exploited by forex traders for spot trading purposes.

So get your forex demo account, and try to test some of the assumptions of the options market in trading. Soon you too will have your own toolbox of great strategies based on the dynamics of the vast options market.

By Forex District -

This article outlines the process for executing precision entries.  The risk/reward ratio for this method is in the range of 1:10 to 1:50+ subject to position size, market conditions and the point at which the trader decides to take profit.

Managing risk effectively is a critical tool both for profit generation and for long term survival in this market.   Trading Forex is like attempting to catch a ride on the back of a wild animal.  The trader has several choices.  When you put the collar on (open a trade), you either

The last of the three, the precision entry method, is a means to effectively manage the high risk nature of trading Forex.  When properly executed, precision entries deliver much bigger returns while keeping risk absolutely minimal, regardless of whether the trader is position trading, swing trading, intra-day trading or scalping.

The process for precision entries is as follows –

The worst thing that can happen with the precision entry approach is that the trade is stopped out with absolute minimum risk with a very small pip loss.

The next best scenario is that the trade is stopped out at break-even or in very small profit on the re-test, giving the trader a chance to reassess without taking any damage.

The very best outcome of course, is that the trade continues to run in the direction you expect, the moment of entry picked to near perfection, the risk contained, muzzled, mitigated to the greatest extent possible.  The objective is for the animal to be immediately subdued and under tight leash control while you ride on its back, the profits racking up in your account until the take profit target hits.

There’s a saying about fickle creatures – “give it an inch and it will take a mile”.  Forex collects the prize for fickle at times.  It can also collect the prize for savage.  If the entry point isn’t correct, it isn’t correct.  Is there really any point arguing?  Why allow the animal to have any more rope than is absolutely necessary?  Traders often hang on to a losing trade, dwelling in hope that price will return, clinging to ego over evidence, hoping that their original decision was correct.  Contrary evidence is confronting.  Far better however, to be stopped on a 7-15 pip loss than to be stopped out on a 100+ pip loss or have to close after a 50 pip loss because by that late stage it is then obvious that the direction choice and moment of entry was wrong.

The precision entry system is a very successful and profitable approach (hit rate is around 4:1 wins to losses), but this is contingent upon four critical things –

1. The trader’s ability to wait for price to come to their entry level and to wait for
price to test before getting on board.
2. The trader’s sound judgement to weigh all other impinging factors accurately.
3. The discipline to not stretch stops.
4. Practise.

By Daniel Hoffner -

Before you consider purchasing a Forex Robot, you have to pick a Forex broker to work with, and a “platform” to use. Which trading platform to use? There are hundreds of brokers in the market, which means that you connect to them through the internet, and trade through them. Usually each broker has his own platform – how your screen looks, how to track of your funds, etc. When choosing a broker its important to pick a big, regulated company, so that one morning you won’t wake up to find that your company has gone bankrupt, together with your money.

It is preferable, but not a must to pick a broker who uses a “metatrader 4″ platform. Since it has become popular lately, many robots are written for it. Some brokers offer free money, but that doesn’t mean too much, as you can’t redeem it, but it lets you enlarge your margin. Pick
a broker that gives a margin of at least 100:1 (not more than 400:1). Since we’ll recommend later on working with intraday trades, therefore its important to pick a broker who uses tenths of pips. This decreases the spreads, which is meaningful in intraday trading.

Lastly, always when starting to work with a new broker using his demo platform. Mistakes made by unskilled fingers can cost a lot of money (I meant to buy not sell).

Forex robots (also called expert advisors) cost money. The ones that cost no money are usually worth that much. Robots can be very useful, especially for people who don’t have the time or patience to sit in front of the computer all day. Of course, they don’t profit 100% of the time, so its advisable to buy a robot which has a high percentages of wins, and a refund offer if you are not satisfied. My experience tells me that robots are better on opening the positions, than closing them. The best way, therefore is to let the robot open the position, then monitor the trade carefully, and decide for yourself when to close the position – if the robot hasn’t closed it yet.

There are all also mechanical systems that indicate to you exactly when you should buy/sell. But you have to be in front of the computer to do the trade, but you have more control.

When deciding manually to close your position, if you’ve reached your take profit level, let the position close. Don’t let the position remain open in the hope that it will continue in your favor, because many times the profit you could have earned will be wiped out. A bird in hand…

Even if you haven’t reached your desired profit, but the trading becomes wobbly over a time, that means that the trading can go against you, so its better to quit while ahead. This is especially true when all the trends/indicators that caused you to open the trade, have changed direction.

Three Types of Trends in Forex

By AboutCurrency.com

A trend reflects the average rate of change in price over time. Trends exist in all time frames and all markets. Forex Day traders may attempt to establish and take action in the short-term trends to within minutes.  Position and swing traders may attempt to establish and take action in the intermediate trends of days or weeks and the long-term investors watch trends that persist for many months or even years.

UP, DOWN or RANGE-BOUND trends can be found in Forex Trading. Some technical strategies try to locate TOPS and BOTTOMS, which are those points where a trend, rally or a decline, ends. Locating a top or a bottom can be especially difficult though a successful trade is often very profitable due to the high level of reward to risk.

However a well-known quote about trends advises, “The trend is your friend”. For traders, this wisdom teaches that you will have more success taking trading positions in the direction of the prevailing trend within chosen time scales than against it.

Up-Trend Forex Market

The price rallies often with intermediate periods of consolidation or movement against the prevailing trend. In doing so, it draws a series of higher highs and higher lows on the price chart. In an up-trend, there will be a POSITIVE rate of price change over time.

Trends tend to persist over time, therefore a price graph in an up-trend has a high probability of continuing to rise until some change in value or conditions occur and fulfil the possibility of a change in the trend.

Uptrending market example:

EUR/USD Daily Chart. The pair has been in an uptrend since April 2002. Higher highs and higher lows.

Down-Trend Forex Market

The price declines often with intermediate periods of consolidation or movement against the prevailing trend. In doing so, it draws a series of lower highs and lower lows on the price chart. In a down-trend, there will be a NEGATIVE rate of price change over time.

Study the above down-trend chart carefully and try and see what it has in common with the up-trend chart previously shown, other than the obvious we have already discussed.

Range-bound Forex Market

The Price swings back and forth for a prolonged period between easily seen upper and lower limits. There is no apparent direction to the price movement on the chart and there will be LITTLE or NO rate of price change.

Did you study the down-trend chart carefully and did you find anything significant in common with the up-trend chart. If you were sharp enough you may have seen they are one in the same. One chart is just the inverse scale of the other. Hard to see that they are the same chart unless you already knew. The point we are making is that, if you are not sure the market is trending or range-bound then turn the chart upside down and if it looks the same stay away and consider another time scale.

Compare the inverse scale of the range-bound chart and you will think you are looking at the same graph. It may sound silly but if it helps to avoid trading at the wrong time or using the incorrect strategy for prevailing market conditions than it is truly worth its weight in gold.

Inverse Range-bound Forex Market

By NoBrainerTrades -

The below list comprises a number of different observations of myself and others through experience working with traders of all shapes and sizes, and is equally relevant to all. Some of the information is rehashed and/or might sound cliche, but here it is:

They are experienced – Probably the most horrifying and worst myth shot out to anyone considering trading for a living is that you will compound millions in an extremely short amount of time. The only true way to make every day profitable comes through experience, and countless hours learning is crucial to longevity of success.

They know the damage they are capable of – Notice I didn’t say potential or profits here. The best traders I know of understand their limits, and seem to focus more on what can go wrong than what can go right. They are not easily convinced of lucrative outcomes, and have a very high sense of self-awareness.

They trade to make money, not to be right – They understand the strengths and possible pitfalls of what it is they do for a living, and use that knowledge to curb their emotional output.

They have an edge and know how to use it – They understand that without it they wouldn’t last long

They have a gameplan, and follow it explicitly – Each trade is planned and opportunities are scouted for before any trading takes place. They steer away from the killer of all killers: overtrading.

They manage risk – Regardless of how much conviction they have on a trade, they will still do what they can to avoid the potential of any losses and understand rule #1 about trading: anything can happen.

They work obsessively – They follow each turn, each piece of info that comes out in regards to their trade, and follow any underlying information relevant to failure or success.

They only access the best information – Information rules in trading, and having some of the best translates to money. Using the wrong information leads to failure.

They think about the trade, not the money behind it – Focusing on money can destroy your means to objectively assess the trade itself.

They are constantly learning – Just when you think you know it all about trading, a new curveball gets thrown your way, not to mention there are continued means and methods to be learned about making money. Even the most highly successful trader I ever knew, a multi-billion dollar portfolio manager, has a team of fundamentalists and technicians come in to train and retrain himself and his traders.

They are active – Activity sparks creativity, a very crucial part of trading.

They have patience – They understand that the money will come, but everything needs to be in place, first.

By Forex District – Retail traders tend to be quite independent souls. We like to make our own decisions, hit the trigger or not hit the trigger; long or short; which pair today; what position size; what strategy; do our own homework. Being in charge of our own coin, having the latitude to make our own decisions on when, where, and how to put our money to work for us is central to how retail traders operate.

Much ado was generated by the recent NFA rule changes on leverage, margin and hedging.  The less than warm reception these changes received seemed to reflect the fact that as adults and independent operators accustomed to making their own decisions, traders tend not to enjoy being patted on the head and told what is good for them. It did naturally enough, raise a question – has it perchance occurred to the CFTC or the NFA that retail traders might have their own wish-list for industry improvements?

Here’s a few personal favourites for the “slice ‘n dice, let’s rearrange it in order of priority” list -

Given that most new business in this industry originates via word of mouth from retail traders sharing the joy around with friends/family/colleagues, and that many retail traders prefer to take their advice from other retail traders, there do seem to be a few sound business reasons for the industry to look at including the client group in their planning, decision making and service delivery.  Harnessing client goodwill to one’s commercial advantage also happens to make a whole lot of common sense.

In the process, developing a business climate that enables trusting relationships between service provider and client (rather than caveat emptor in full-alert defensive mode as is currently the case) and setting the new trader on the path to success rather than defeat (e.g. losing money as a consequence of not having critical information and/or overloading new traders with too much non-information).

No trader enjoys being behind the game or losing money.  Levelling out the playing field first requires equity – genuine equity is achieved by getting retail traders themselves to the table, to enable fair participation both at an industry level and at a trading level.

Many benefits await – new traders brought up to speed quickly, given the tools they need to succeed from the outset instead of stumbling around in the dark for years trying to figure it all out; being able to take on a mentor, educator or trade signal service with some degree of assurance that those people are responsible professionals; traders having their own association for industry consultation, independent advice, accreditation and support purposes; increasing the volume of Forex business transacted; success breeding success.  Supporting traders to win, not lose, is just good horse sense.  Small initiatives to improve the experience of trading Forex, the credibility traction of the industry as a whole and potentially the commercial returns for all involved.

We all want the good oil on trading successfully.

Maybe it’s time the industry itself took some further responsibility for supplying the good oil that keeps the machinery ticking over in good style.

By FXLine -

Here’s some common mistakes forex traders make to get margin calls.

1. Not paying attention to the news
Die hard technical trading followers can get their account balance lowered to dangerous level if not wiped out totally during big fundamental changes that happen in the political and economic news. It is a must that you understand what is happening, also keep an eye on the economic calendar even if your trading is not based on it.

2. Trading too much
Many new traders trade too much: placing more trades than they can afford, not understanding when too much is too much. First master trading only one position at the time, then after you are more experienced add more positions.

3. Not trading systematically
To be a successful currency trader you need a systematic approach, you can back test your trading system first before committing any real money in to the market. Once you have a winning plan start small, and do not let your emotions get the best of you. A systematic trading approach gives you the tools to make you money. Without a great system, you will surely start loosing money.

4. Not using stops
Always you stops, not just mentally but also put them in the market, you do not know what’s going happen to your broker or your Internet connection. It takes many loosing trades before you can understand just where to place stop orders, hopefully you do now have to learn the hard way.

5, Poor or no money management
There are many great books written on this subject, money management is as important as your trading system. You will have to know when to take profits and when to cut your losses or your trading account could be wiped out too soon.

6. Trading against the trend
Unless you have millions of Dollars you can not afford to trade against the trend, sure the market is going to stop and reverse at some point in time but it is too risky to bet on it. Your trading system should identify the underlying market trend and trade in the direction of the prevailing market trend.

7. Not getting out of losing trade
Learning to get out of losing trade is one of the hardest things to master. Wishful thinking and dreaming will not help you in this matter. Big losing trades make it hard if not impossible to regain the money that was lost. Take your losses early and place some better trades next time.

By UberForex – The Foreign Exchange has become very popular and spread now as the people made sure its legal and real not a just a game fraud after being backed by the global leading financial institution.

People had different opinions concerning Forex, some think its just a risky gamble, some think it needs a lot of experience and mastering while others think its just too difficult to manage, to help you clear your mind here is a list of five steps for you to know how to use Forex:

Step one is about mastering the techniques of trading: if you are a beginner or a new trader (investor) you have to know all about the forex market and its economical terms.

Then you should know the differences between technical analysis and fundamental analysis, opening a demo account is crucial for you to get familiar with the process of placing a trade.

It’s just anything else in life, you should learn, then practice in order to reach the next level.

You should also get familiar with the most common and spread currency pairs, after doing all this you will be fully ready to enter the market with the right expectations and knowledge.

Step two: step two is all about learning the most important tool in forex which is the technical analysis, that means the ability of reading the chart which is the first step in calling yourself a trader, choose the most one or two methods you feel comfortable and familiar with to learn.

Step three: step three is about planning, plan how will you trade, will it be day trading or swing trading or a single click trading? Answering this question will be according to your available time, personality and level of patience.

Step four: step four is important for you to stand on the first step of being professional; it’s about developing your strategy by testing all covering situations and aspects.

This will be performed by visiting websites and different trading systems, reading more books and e-books, browse online for software and more info, to make sure that your strategy will work perfectly for you in the future.

Step five: step five is about execution: after getting the needed knowledge, creating a plan and drawing a good strategy its time for you to test your skills and strategy by starting with the forex trading in virtual money, observe your performance and if you do a great job and feel good about your performance then it’s the right time for you to enter the real world of forex with real money and start conquering that economical world in a great futuristic adventure, be prepared for all odds.

By Jade Gate / Forex District – Just like surfing the ocean waves, there is a right time of day to catch the incoming or outgoing Forex tide waves.  When the time comes and “the surf is up”, there is also an exact right moment to harness the maximum power of the individual wave as it approaches (on the cusp of breaking) and rushes in to shore.  This is what support and resistance is in Forex, why it is so important, and why knowing where these levels are, having them plotted on your charts and trading them, and only them, is critical to trading Forex successfully.

The 24 hour cycle in the trading day has very distinct moments of opportunity to profit due to higher liquidity (more market participants with deep pockets) than other times.  Arriving late to the wave breaking party is something a trader learns to avoid.  Arriving on time or just ahead of time has tremendous benefits, including reducing the risk of trade failure while simultaneously maximizing the potential to profit in full from a given move.  Catching the wave as it breaks and riding it in to profit shores is what makes money in this market.  Many other lesser waves may come and go.  A good surfer knows that it is worth by-passing the distractions while waiting for the best waves.

Forex traders often keep very strange hours due to the wave-trading windows of opportunity (especially the US East Coast traders, often up in the middle of the night US time to catch the London/Europe wave).

This article is a brief summary of the global trading sessions in approximate order of wave-trading priority. Also included are several of the regular special events in the currency calendar year.

In approximate order of priority –

New traders needing a free international digital time clock that can be set to 4 international time zones (e.g. London, Berlin, New York, Tokyo etc) can obtain one from here (scroll down for the free download version, very good)  Free Qlock

Special Regular Events

Non-Farm Payrolls (NFP). is the premier event in the Forex monthly calendar, reported on the first Friday of each month. It is often characterized by high volatility (100 pips +/-) that frequently goes in one direction first (on immediate data release) but often retraces with equal force in the other direction.  Potentially a very lucrative trading opportunity.  Check your broker spreads before trading, spreads often widen considerably during this event.

End of Year Closing of Books. Typically, in December of each year, institutional trading houses close out their books for the year to log profit.  This can generate extreme volatility in the currency market.  If the USD has put in a good year for example, this is the time of year when it will be sold down hard regardless of fundamentals.  Potentially very lucrative trading opportunities.

*Quad Witching

The day on which contracts for stock index futures, stock index options, stock options and single stock futures (SSF) all expire. Quadruple witching days occur on the third Friday of March, June, September and December.  Volatility in the currency market can result due to traders closing out or adjusting positions to meet cash contract obligations due that day or to re-position for the new contract period.  Something to note and forward schedule in your diary.

By Jade Gate

By Forex District – This article outlines the hidden issue in a strong trending market and provides trading “re-programming exercises” to assist with overcoming trending bias when market changes direction.

As all good traders know, the trend is your friend, right?  You bet! Catching the waves of momentum in the underlying trend direction following a pull-back especially, is one way to minimize risk and increases the chances of price pushing with force to your advantage. Just ride the wave to profit territory.  Excellent.

But wait.  There’s a little more to this than meets the eye.  Trading the trend has an evil twin. Not only does this evil twin exist, but this twin is definitely NOT your friend.  It is instead, your sworn enemy. This twin has a cursed multiple personality disorder, called Acquired Trend Trading Disorder (ATTD) consisting of 3 separate manifestations, as follows.

ATTD #1.  Neurological Imprinting

At the top of the bias curse list is the neurological imprinting or patterning of trend trading behavior on the brain.

One of the enormous difficulties traders often encounter is un-doing the patterning of a long or short trending bias that was occurring at the time the trader first entered the market and/or after a sustained period of trending bias in one particular direction (such as the long bias we currently have).

This early learning and the pattern of recent experience is often deeply imprinted.  Just like Pavlov’s Dog, the trader is rewarded repeatedly for trading a particular directional bias.  The reward program can be subconsciously set to automatic.

When counter-trend moves occur, for example, when a bull market goes into bear mode, these traders often struggle and incur frequent losses. The bullish bias is so deeply imprinted that the trader is constantly looking only for opportunity to trade their directional bias.  This can blind-side the trader to changed market realities. Trading behavior that is habitual can be extremely difficult to re-program.

Re-program Exercise 1: Subject to market conditions, trade only the opposite direction to your trending bias for “x” period of time.  No other trades allowed. Banning your usual trading bias for a period of time is an important brain work-out, because the trader needs to lay down a new set of rules, a new pattern, in the brain.  This can’t be accomplished if you are changing gear constantly and still clinging to your former bias.  It has to be jettisoned completely in order to put a new brain program in place.

Re-program Exercise 2: (Optional) Subject to market conditions and the time of the trading day, trade only twice a day, once long and once short.  Don’t change horses within minutes, allow space between directional changes to clear your mind of one directional bias before changing to the other, e.g. trade Euro bull (long) on Europe open or prior to Dow open, and then Dollar Bull (short) on US close or US open (subject to futures data).

ATTD #2.  Attachment to Open Positions.

Being already committed to a long/short bias in a position the trader currently has open generates an attachment to wanting to see market continue moving in that direction, regardless of the contrary signals market may be providing.   Emotional attachment to open positions can blind-side the trader to alternative scenarios.

Learning to “trade what you see, not what you expect”, is an important distinction.  Discounting or dismissing valid concerns because the trader is already committed to an open position is a common occurrence.  Recognizing this defensive inner dialogue when it occurs and responding to it with sound judgement is a skill that needs to be developed.

Re-program Exercise 1: Step back, ask yourself this question – “If I wasn’t in this position now, would I get in at this point?” If the answer is no, you have no business being in the trade.  When doubt prevails, lock in profits, reduce your exposure (e.g. take 80% off the table) and/or stay out.  Objectivity suddenly becomes much easier when you aren’t already (or so committed) to an open position.

Re-program Exercise 2: Try working on precision entries, use narrow stops (e.g. Euro 10 pips, Cable 15 pips, Swissy 10 pips, Cad, Aussie, Kiwi and Yen 5-7 pips) and obey them, don’t move or stretch your stops.  Cut losses off at the knees, keep the damage minimal.  Give yourself every chance to look at the market as objectively as possible.  Not holding an open position in drawdown helps to keep directional perspective in better balance.

ATTD #3.   Attachment to Your Country’s Currency.

Some traders (and some analysts) can hold a strong bias towards particular currencies, especially their own.  If the trader’s own sense of self-worth or national identity is wrapped up in seeing their own currency going north, this can be very counter-productive to sound judgement.

The Dollar Bear or Dollar Bull bias in traders (or analysts) is the kiss of death, because in this market, objectivity is everything.

Does it really matter if your country’s currency is going up or down?  Is that a matter of great personal importance to you?  If the answer is yes, then you have a directional bias that is very likely interfering in your trading judgement.  There is only one valid response to this type of attachment – Get Over It.  It will ruin you if you don’t.

The currencies need to be seen purely as a tool for generating money.  The only thing that matters is that they move, preferably with force, and that we as traders thereby make money and benefit.

Re-program Exercise 1: Make a mental or written list of reasons why your country’s currency should go in the opposite direction to it’s current trajectory. Become the devil’s advocate.  Grill yourself about your beliefs and put the counter-argument front and center.  Examine the list critically, objectively, as if you have no personal involvement at all. Become detached from the “fortunes” of your country’s currency.

Re-program Exercise 2: When valid opportunity to trade the contrary direction to your country’s currency present path occurs, trade it.  Reinforce with positive rewards for trading the opposite direction to your emotional attachment.

Summary

Trending bias is both a blessing and a curse. Trading habits, once laid down either in early learning or as a result of recent strong market moves, can be very hard to change. Recognizing the hidden curse in a strong trending market is the first step.  Using simple exercises to train yourself to trade the opposite direction with equivalent comfort and ease can assist to improve your repertoire of trading capabilities and your success rate.

Originally posted by Forex District, by Jade Gate