Controlling risk = successful trading

Controlling risk is one of the most important ingredients of successful trading. While it is emotionally more appealing to focus on the upside of trading, every trader should know precisely how much he is willing to lose on each trade before cutting losses, and how much he is willing to lose in his account before ceasing trading and re-evaluating.

Risk will essentially be controlled in two ways:
by exiting losing trades before losses exceed your pre-determined maximum tolerance (or "cutting losses").
by limiting the "leverage" or position size you trade for a given account size.

Cutting Losses
Too often, the beginning trader will be overly concerned about incurring losing trades. He therefore lets losses mount, with the "hope" that the market will turn around and the loss will turn into a gain.

Almost all successful trading strategies include a disciplined procedure for cutting losses.  When a trader is down on a positions, many emotions often come into play, making it difficult to cut losses at the right level. The best practice is to decide where losses will be cut before a trade is even initiated. This will assure the trader of the maximum amount he can expect to lose on the trade.

The other key element of risk control is overall account risk. In other words, a trader should know before he begins his trading endeavor how much of his account he is willing to lose before ceasing trading and re-evaluating his strategy. If you open an account with $2,000, are you willing to lose all $2,000?  $1,000? As with risk control on individual trades, the most important discipline is to decide on a level and stick with it.

Determining Position Size
Before beginning any trading program, an assessment should be made of the maximum account loss that is likely to occur over time, per lot. For example, assume you have determined that your worse case loss on any trade is 30 pips. That translates into approximately $300 per $100,000 position size.  Further assume that the $100,000 position size is equal to one lot.  Five consecutive losing trades would result in a loss of $1,500 (5 x $300); a difficult period but not to be unexpected over the long run. For a $10,000 account trading one lot, this translates into a 15% loss.  Therefore, even though it may be possible to trade 5 lots or more with a $10,000 account, this analysis suggests that the resulting "drawdown" would be too great (75% or more of the account value would be wiped out). 
Any trader should have a sense of this maximum loss per lot, and then determine the amount he wishes to trade for a given account size that will yield tolerable drawdowns.

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A Volatile Market: A Blessing or A Curse?

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Volatility is the main feature of the Forex market where trading takes place non- stop throughout the week except for the weekend. It is by far the biggest market on earth and is bigger than all the other markets combined. The daily turnover of the market stands at a figure exceeding four trillion dollars and this will give you an idea as to its trading volume.

This highly volatile market is the arena where millions of traders and investors risk their money in the hope of making a profit. If there was no volatility there would be no trading. In this sense it is truly a blessing that many traders capitalize on. Volatility is brought about by markets that trade erratically swinging between highs and lows. Where there is no market movement in currency prices you will see no volatility and thus no trading will take place in such an environment.

It is fact that the volatility in currency trading moves by pips and a closer look will tell you that this movement is indeed extremely small. This is why leverage is considered as necessary by currency traders, as well as signals. In a highly volatile market losses can be augmented by leverage and at times like this it is best to trade lesser amounts so that losses are also kept to a minimum.

Although a volatile market can be a blessing you should control your trading in such a market. This is easily by using tighter stops so that losses are cut off at the outset. The exact placing of the stop will depend upon the currency pair being traded. Volatile market conditions often tempt traders to invest more than normal in the hope of collecting profits. However, this can be dangerous as the risk faced in a volatile market is higher than at other times. A trader should stick to his planned trading at all times and during times of extreme volatility this is even more essential.

Keeping up with fundamental indicators and news in general will ensure that you know the cause for the high volatility in the Forex market. This knowledge will help you to make better trade decisions in the longer run as you face volatility in the market. When you trade carefully adjusting leverage so as to reduce any potential losses you can still win in a volatile market.

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Forex Trading - Should You Invest?

Forex trading was not available to the average person up until recently when technological advancements made trading currencies possible even with small amounts of capital. In the past, this was the monopoly of large financial houses, governments, central banks and multinational corporations that were in trading Forex to facilitate international trade. Now the market has changed allowing retail traders to take part even with a few hundred dollars and this has made this market the largest on earth with more than four trillion dollars in daily turnover.

The Forex market can be highly profitable if handled carefully with proper money management as well as risk management. Regular currency trading can be nerve racking and trading with a true picture of the potential of trading is the best. This can be achieved by studying the market (using the charts and the useful information they can provide) from as many angles as possible.

Another advantage with Forex trading that novices have is the ability to do a test run with a virtual currency account. Here, you can practice all that you have learned about Forex trading systems without having to risk any real money although all other aspects from trading signals to placing of orders can be real. After starting off with a demo account you can graduate onto a micro and then to a mini account which gives you the best opportunity to handling your money and optimizing investing even with a few hundred dollars. This is the training ground for many traders and by this time you will find out whether currency trading is actually your cup of tea.

After a mini account it is a matter of risk analysis, market analysis combined with the best investment opportunities to be found. The psychological aspect of trading is also important for traders as it determines how risk is handled by a trader and how much trading pressure he is able to handle. Patience is certainly a trait that will pay handsomely in the long run

A trader who is able to enjoy trading will definitely be more successful at it. The secret of being successful also depends on how much work goes into studying the market, trends and entry and exit points. Trading currencies has to be treated as a business where you are in it for the profits rather than a lottery or a get-rich-quick scheme.

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A Profitable Strategy for Trading the News

 Trading the news can only be done profitably if the news release in question triggers enough volatility in the currency pair affected by the news release.

Introduction:

Currency traders not only have to educate themselves on technical analysis but also they need to learn the fundamentals of fundamental analysis. This means that they should study over a period of several months the economic calendar and note the important economic events that occur on a monthly basis. They then need to observe the strength of the impact these events have on the currency trading pairs  and whether the impact has a positive or negative affect on their traded currency.

A Profitable Trading Strategy for Trading the News:

One of the news items that can have a major affect on the EUR/USD currency pair is the publication of the Retail Sales Report. In order to trade the report there needs to be enough deviation between the numbers expected and the numbers published. Historically the deviation that has the most effect on the EUR/USD currency pair is 20%.

If the retail sales number published is 20% worse than the consensus number then the dollar is impacted negatively so the strategy is to buy the Euro.

If the retail sales number published is 20% better than the consensus number then the dollar is impacted positively, so the strategy is to sell the Euro.

The strategy set up is as follows:

Check the economic calendar to see what the consensus number is for the retail sales. Decide on the percentage deviation that will activate a trade. Say the consensus number is 0.3% then a 0.1% change either up or down is sufficient to generate the volatility you require to trade.

Just before the retail sales number is published place a buy stop 15 pips above the current price of the EUR/USD currency pair. At the same time place a sell stop 15 pips below the current price of the EUR/USD currency pair. The 15 pip margin should take care of any slippage due to choppiness or extreme market noise. Also make sure you place your stop loss correctly. The best strategy is to place the stop loss on the buy side at the price of the sell order and the stop loss for the sell order should be the price of the buy order.

When the news is released you need to watch what the market does. If the market moves in the direction of your buy order then cancel your sell order and if it moves in the direction of your sell order than cancel your buy order. Exit the trade when the initial volatility has calmed down as it’s possible that the market could slip back to where it was before that news release.

This strategy is an excellent strategy for all news releases that have a strong effect on a currency pair. The only difference between the various news items is that you need to historically study the effect that the news items have on different currency pairs and what size of percentage deviation from the consensus number triggers a volatile market response either negatively or positively. The set up will be the same for any currency pair effected by the news item.

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Forex Trading Signals

Forex Trading Signals are signals to buy or sell trading instruments (currency, shares, CFD, precious metals, etc.), these are the signals for timely opening and closing positions. Trading Signals are very popular service on Forex market at the moment.

These signals suggest to a trader useful information - what currency and price is worth to make operation at, the moment for closing a position, better level to set stop loss, to avoid great losses in case you incorrectly predict the trend movements, or take profit for getting the maximal result etc.

Undoubtedly, signals play an important role for traders on Forex market, but the trader should not follow them fully and unconditionally. They are only assistants during the daily trading, once again, only assistants. Trader must make decisions according to the totality of factors, particularly, external environment (micro- and macroeconomic factors, i.e. fundamental analysis which is an analysis of economic indicators, social factors and government policy of a business cycle, can forecast price movement and trends of the market) and technical analysis and take into account non-market factors (political situation, different force-majour circumstances and etc.)

There are a lot of websites in the Internet, offering Forex signals, which guarantee a huge profit. (For example: If you use our Forex signals you will be able to get profit about 1000 - 1500 pips per month by 10 currencies, we also suggest fully automatic trading process.....) Don't believe it! Be attentive and extremely suspicious to such offers and trust reliable sources only, which have authority and reputation in the trading world.

You can check the quality of Forex signals by the following way: the comments of people you know (friends, colleagues, relatives who use the services of Forex signals provider) are the best indicator. Another way is to test the dynamics of executed transactions in a foreign exchange market. Such statistics is available for the clients, if it is not, you have to look for another Internet broker providing such information.

Forex Trading Signals may be considered as an alternative to trust management. In any case, carrying out transactions you rely on experience of other people or on the program algorithm, then analyze the market independently. In the first case, you pay a fixed sum for trading signal and independently execute transactions on a trading platform. In the second case, broker executes transactions on your behalf, but you share a part of your profit with it. In any case, if the situation in the currency market goes against you, only you take the loss risk.

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Market Makers

The participants of Forex currency market are divided into two groups by their activity and influence on currency rates: market makers and market users.

Market makers are large banks and financial organizations which determine the current level of a currency rate, owing to a significant share of their operations in a total volume of the world market. Market makers exercise a constant control of different trading instruments, and they also conduct trades with them. Market makers are market members providing liquidity of particular instruments, making buy or sell orders. These are big international banks and financial institutions, which run daily currency operations of buying or selling trading instruments for more than billions of US dollars. Every market has its own market makers. Similarly, every Forex broker has its personal market makers, the quoting rates of which are exploited by it and offered to its clients further on. Among the greatest market makers such as Deutsche Bank, Mizuho Bank, Barclays Bank, PBS, Citi Bank, Chase Manhattan Bank, Union Bank of Switzerland can be named. In order to define whether the organization is a market maker it is important to consider not only the size of a bank, but also its share in market operations and its capability to influence the market by setting a price policy.

As mentioned before, for a particular market there can be own market maker. Worth pointing out that for the USD/CHF trading instrument the main market makers are Credit Suisse Bank and Union Bank of Switzerland. For trading instruments comprising the Asian currencies the major market maker is the Standard Chartered Bank. As to the rouble instruments, here the top market makers are the International Moscow Bank and the Onexim Bank. The Central Bank of Russia can also play this role being one of the most active participants in setting up the quote rates of currencies vs. the rouble, making different currency interventions, if the rouble rate exceeds the regulated currency rate limits.

Market makers determine the current currency exchange rate by conducting trades with each other as well as with smaller banks, which are also market participants. That is the market makers who introduce quote rates to small banks, organizations and individuals. Thus, another notion emerges characterizing these participants - market users.

Market users are financial organizations, broker companies, small banks and individuals, who use the quoting rate set by market makers for their operations. Market users are not aggressive market players, though a total volume of their operations in the market can be significant, but the share of each one is minor. The role of small market users consists in either acceptance or not of the rates provided by market makers. Consequently, market makers make price and market users take it.

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