Saturday, April 05, 2008

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The FOREX Market- Trade with your head not your heart!

Sounds simple�right? In actuality, this is the number one reason why day traders lose their shirts. They let their emotions get the best of them and end up doing something real stupid. Trust me I�ve done it.

When trading currency, you need to take yourself away from the platform and look at your trades in actual bills not numerical values on a computer screen. For example, let�s say you short the USD/JPY for a 50 mini-lot right before a data release and it tanks. The USD/JPY goes down about 50 some odd pips and now you�re up $2500 in about thirty seconds.

Now, if you were smart, you would close the position and take your profit, but you�re not and you decide to let it ride. The market goes down about another 10 pips. So, now you�re up $3000 and you still won�t close it. You think that it�s going to keep tanking and that you could make 5-6k on this one trade�wishful thinking.

All of sudden the market retraces and shoots back up 20 pips, your still up about $2000, but now you tell yourself, I�ll wait until it goes back down a few pips and then close it. Too late, the market ignites and now you�re break-even and then you�re negative. In the end you take a $500 loser, which isn�t too bad, but considering you were up $3000 it�s like you lost $3500.

Now, let�s pretend you did this same trade with actual, physical dollar bills. Now or days most people trade from a three wide spread, so let�s say that you gave a trade booker $150 cash to place a short USD/JPY 50 lot. The data is released and this man keeps giving you $50 bills and before you know it you have $3000 in your hands. In order to keep this money all you have to say is close.

You decide to press your luck and wait and the market continues to trend down and now you have $3500 cash. All of sudden, the market begins to retrace and this nice young man starts taking $50 from you each pip it retraces. How many pips does the market have to retrace before you say close? Maybe, ten pips? Once you saw actual dollar bills being taken away from you, you would throw in the towel. So, how does one improve their money management skills?

First of all, realize that you are trading real money. I�m sure you realize that the money you are trading is real money, but do you conceptualize it? When you make a few hundred or a few thousand dollars trading, do you feel like someone just handed you cash? Of course not! Every time you�re trading, no matter if you are profitable or not profitable visualize and grasp the outcome. Don�t just watch your balance and equity fluctuate; you need to relate your loss and gains to every day life.

For example, let�s say you have a 10k account and in the first week you doubled that to 20k. You need to step back and understand what you just accomplished; you just made 10k in one week by sitting in front of your computer and trading currency. Now, let�s take that money and put it to everyday use. If you were handed a free 10k, what would you do with the money?

Would you pay of some debt, by a car, put money down on a home, go on a vacation, put it towards school, I think you get the gist. All I�m saying is that 10k is yours, you own it and there is no reason you have to keep in the FOREX. You are that 10% that succeeded this week, but the law of averages states that you are most likely to be the 90% next week. If not next week then the week after and if not then, eventually you will.

If you invest 10k and your account doubles to 20k, why would you pull out 15k leave in 5k and go for the gusto? If you lose your remaining 5k who cares you still made 5k in a week at your computer. Tell me another investment where I can make 50% on a 10k investment in one week. Turn around the following week pull my initial investment and my profit and still have 5k to play with. If I hadn�t experienced this first hand then I would have never believed it. DO NOT GIVE YOUR WINNINGS BACK TO THE MARKET! It�s not worth it.

Regards,

Brett Michael
www.myfxsecrets.com

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Activities by professional currency managers, generally on behalf of a pool of funds, have also become a factor moving the market. While professional managers may behave independently and view the market from a unique perspective, most, if not all, are at least aware of important technical chart points in each major currency. As major support or resistance levels approach, the behavior of the market becomes more technically oriented and the reactions of many managers are often predictable and similar. These market periods may result in sudden and dramatic price swings as substantial amounts of capital are invested in similar positions.
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Why should you worry about the price of oil if you're not buying and selling oil? If you're trading currencies, there's one very good reason. Many of the most important currency trading pairs rise and fall on the price of a barrel of oil. The price of oil has been a leading indicator of the world economy for decades, and experts predict that that won't be changing any time soon. The connection between the price of oil and the economy of many countries is based on a couple of simple facts:
- Countries with healthy supplies of crude oil benefit economy-wise from higher oil prices
- Countries who depend on imports for their energy needs benefit from lower oil prices and lose when oil prices rise
- When the economy of a country is strong, its currency is also strong in the forex market
- When the economy in a country takes a downturn, its currency loses value in the currency exchange rate.
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Currency prices are affected by a variety of economic and political conditions. The beginner trading forex currency should take note to probably the most important influences to the currency prices are interest rates, international trade, inflation, and political stability. Governments participate in the foreign exchange market to influence the value of their currencies. The governments flood the market with their domestic currency in an attempt to lower the currency price or conversely, buying in order to raise the price. This is generally known as central bank intervention. The beginner trading forex currency should be aware that large market orders can cause high volatility in currency prices. Due to the size and volume of the forex market its impossible for any entity to drive the market for any length of time.

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