Top 4 characteristics of successful forex traders

There are no single formula for being successful in trading. You need to have patience, resources, education, and a systematic approach to be successful trading forex. Here are the top 4 characteristics of successful forex traders.

Approach

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Before beginning to trade, you should align your goals with the instruments and markets. You should be careful about the time frame. If you trade off a five-minute chart, it will ensure that you are comfortable without any overnight risk. After choosing a timeframe, you need to systematically apply a trading methodology.

There are different approaches to trading. Some traders like to buy support and sell resistance; while others prefer buying or selling breakouts. Some rely on indicators like MACD and crossovers. You should choose a methodology and see whether it works or not and refine over time.

Attitude

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You should have a positive mindset when you are trading. You should have patience. You should wait for the prices to reach levels that your system shows. You should be disciplined.  You must have realistic expectations.  Sometimes the market makes a bigger move than you anticipate.

Discrimination

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Various instruments trade differently. This depends on the major players and the reason they are trading that particular instrument. Hedge funds are, for example, motivated differently than mutual funds. You should pick up some currencies or stocks and chart them in various time frames. You should then apply your methodology to all of them. Then observe which instrument and time frame is most responsive to your system. This is how you discover a personality match. Repeat this exercise regularly to adapt to changing market conditions.

Management

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The only way you can make a profit is by the proper management and execution of the trade. You should know how to control your risk.

Trading has no right or wrong method.  You must take small losses quickly and not wait for the bigger losses.

3 ways to invest your money in gold

Many ancient civilizations have used gold as currency.  Egyptian civilizations buried huge amounts of gold with the pharaohs after they died as they believed that they would be able to use them in the afterlife.  Up to 1944 prior to the Bretton Woods accord, the mighty US dollar was tied to a fixed quantity of gold held by the government.

From an investment perspective, Gold is usually a good hedge against inflation and depreciation of paper currencies. When the value of the dollar falls, the price of gold will generally rise.

Here are three methods you can use to incorporate gold in your investment portfolio.

Physical Gold Investment

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One tried and true method of investing in gold is directing holding gold in the form of bars or jewelry.  However, above a certain amount, storage and security can become an issue.

It is also a less liquid vehicle of investment meaning there will be certain delays when converting physical gold to cash.  It may be difficult to find willing buyers and transaction / transportation costs may degrade investment returns.  Given such frictions, the market price of gold could fluctuate significantly between the time you initiate and close a sale.

Derivatives: Futures and Options

 

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Most institutional investors will participate in gold trading and investment via derivatives.  In the United States, this can take the form of exchange traded futures and options.  This activity is regulated by the CFTC.  Outside of the US, retail investors can enter into contracts for differences (CFDs) with various brokers to speculate on the price fluctuations of gold.

Exchange-traded Funds and Mutual Funds

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A popular vehicle US retail investors use for gold investment and trading include Gold Exchange Traded Funds (ETFs) and mutual funds.  ETFs are financial instrument that trades on a stock exchange and represent partial ownership in a pool of assets.  The underlying assets of a gold ETF may consist of gold linked derivatives or physical gold bullion.  Some gold ETFs are also “short” funds that rise in value when the price of gold falls.

Another investment option for retail investors is gold mutual funds.  Some funds hold the portfolios of gold stocks. These are stocks of companies like Newmont Mining which mines gold. This is an indirect way of investing in gold.  Note the value of the funds is largely tied to the stocks of gold companies rather than the commodity price itself.  There are some periods where gold may rise but gold company share prices can fall.

Top 5 Mistakes New Forex Traders Make

 

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Trading is a tough business and it’s easy to make mistakes, especially if you are just starting out. In this article, we are going to discuss some of the most common mistakes made by new Forex traders.  We will look at five specific areas that novice traders are known to have trouble with and discuss how to avoid making these mistakes.

“Of course, if a man is both wise and lucky, he will not make the same mistake twice. But he will make any one of the ten thousand brothers or cousins of the original. The mistake family is so large that there is always one of them around when you want to see what you can do in the fool-play line.” Jesse Livermore

I have benefitted from the experience and wisdom and advice of many senior traders.  I’m  happy to pass along some of what I’ve learned to those starting out in this field.

Letting Losses Run Too Long

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One of the most common mistakes we always see is traders letting losses run too long. Sometimes it’s difficult to admit that you’ve made a bad trading decision even when the losses are staring you in the face.   It’s important to be able to step back, look at the data objectively, and react quickly in order to cut the losses as short as possible.

This is where stop-loss orders might come in. These are designed to limit an investor’s loss by automatically liquidating the positions when the stop level is hit.  It’s not easy to admit failure, but not all trades can be successful. It’s vital to be able to recognize a lost trade and exit with minimal losses. Letting losses run too long is one of the worst mistakes that can be made by a new Forex trader.

Trading With Emotions

The biggest obstacle to your financial success is not your head but your heart. Emotions tend to get in the way of cool logic. They can interfere with our ability to make a rational trading decision if we let them.

One of the major differences between a novice Forex trader and a pro trader is that the professional trader has experience and systems in place to take emotions out of the decision making process. They recognize those moments when emotions threaten to interfere in their trading decision and make a conscious decision to act based on facts and not feelings. A basic trading plan with simple trading rules will help you use your head rather than your heart.

Trading without a Plan

Another huge issue that the novice trader can have is not having a trading plan or not sticking to one. Trading is among the hardest and most demanding jobs in the world, and like any business you need to have a well-defined plan for success.

Most experienced traders will have a clear thesis for a trade, time frame, a profit target, and a stop level.  It is important to record this information in a trading journal as well to keep you honest.When you are in the heat of the trading battle, your trading plan will be the roadmap you can follow that will help you make the best trading decision.  A good trading plan is essentially in ensuring your profitability and longevity in forex trading.

Choosing the Wrong Forex Broker

One of the first steps you’ll take in your trading journey is choosing your Forex broker.  There are many different forex brokers, especially outside of the US.  There are many countries outside of North America and Europe which do not have strong forex regulation.  Newcomers can be subject to unscrupulous trade execution practices and even out right scams if they don’t know what to look for. Sites like ConnectFX.Org offer free information on broker regulation, as well as objective broker rankings and reviews.

Different forex brokers each which offer different types of instruments, markets, trading platforms, fee structures and services.  Some brokers will pass through your trades to large liquidity providers and act as an intermediary.  Others will be our direct counter party and act as a market maker providing you quotes from their own trading desk.

Leverage and margin terms can vary widely as well.  Some offer automated trading, social trading, managed accounts while others do not.  Levels of customer service can vary widely as well.  Some brokers will have 24/5 multi-lingual phone support and even personal account reps for large accounts.  Others only offer an online ticketing system.

Brokers offer a variety of trading software as well.  Although the industry standard trading software is Metatrader 4, it is probably not the best forex platform for beginners.  While Metatrader has a lot of advanced functionality, the user interface not very user friendly.   Beginners might be better off with simple user friendly web trader platforms instead.

Trading with Excessive Leverage

The sad reality is that 90% of retail Forex traders are not successful and most accounts are wiped out in under six months. The number one reason why the lifespan of a trader is so short is because of the use of excessive leverage.

Leverage is a double-edged sword as it magnifies both your gains and losses.  You can risk of losing your entire account if you use too much leverage.  If you trade with a lot of leverage, a slight downward movement can lead your broker to make a margin call.  If you’re unable to meet the margin call, your position will be liquidated.  If you use less leverage, your trading portfolio will be able to sustain a greater level of volatility in the long term.

How Do We Overcome Mistakes?

How do we move on after making some mistakes that have negatively impacted the trading business? The most important thing is to learn from mistakes made and avoid repeating them in the future. Trading can be a lucrative business as long as you’re willing to recognize and acknowledge your mistakes, learn from missteps, and try to avoid them next time. One of the most effective ways of doing this is by keeping a trading journal where you record and review daily trades. This will make it easier to track your progress and quickly identify mistakes.

Oil Markets Explained

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Oil prices have been extremely volatile in recent years. There are many factors explaining the price of crude oil and related commodities like natural gas, heating oil and gasoline.

Here is a great video explaining the basis of energy market dynamics.

The video states that oil prices are primarily influenced by the following factors:

  1. Demand from industrial and consumer applications including transportation, heating, agriculture, chemicals, manufacturing, etc…
  2. Cartels and multinational corporations influence over the production process and rent seeking behavior.
  3. Geo-political games including nationalization of oil production in certain countries.
  4. Renewable Energy Sources

Recent developments and dynamics include the following:

  • The OPEC cartel has been working to keep oil prices low by greatly increasing supply in a bid to hurt emerging competitors and securing its dominance over energy markets in future years.
  • In recent years, Russia has increase domestic production in times where OPEC has decreased production.
  • By contrast, China has worked to establish strong ties with African nations in exchange for drilling rights to secure its domestic supply.
  • The US has used fracking technology to increase domestic production to reduce dependence on OPEC
  • It will be difficult for renewable energy sources to flourish if oil prices are keep artificially low

 

Top 4 Reasons to Trade Forex

Currency trading has many real world applications and is essential to international commerce.  For example, if you want to buy cheese from France, you need to pay by euros. So, an importer from U.S. has to exchange the dollars to euros to complete the purchase.  Also, tourists who travel around the world have to exchange currencies all the time.

You will be surprised to know that currency trading volumes are close to USD 5 trillion per day nowadays, dwarfing other financial markets.  However, participation from retail investors is still fairly limited relative to equity and commodity markets.  Here are some reasons why retail investors might want to try trading forex.

  1. The market is open for 24 hours from Saturday 7:00 am (New Zealand) to 5:00 pm Est. So, you can still do this from home even after doing a full-time job. You can also trade in between your work time or after you come back home from the office.
  2. Daily forex volumes are close to $5 trillion.  The market is very liquid and this makes entering and exiting trades relatively easy and inexpensive. Unlike thinly traded stock markets, you won’t need to be worried about finding willing buyers and sellers.
  3. It is easy to express bullish and bearish views.  If you want to short a stock, you will first need to arrange to borrow the shares with your broker.  You may also need to pay stock loan fees as well.  However, if you want to short a currency pair, you can simply decide to sell rather than buy the pair in the forex markets.
  4. Leverage is widely available for forex trading.  Many brokers outside the United States and Japan will offer up to 200:1 leverage on forex majors.  This means you can put on $20,000 trades with only $100 of equity.  Leverage used correctly will help you magnify gains and grow your trading profits quickly.

Demo Accounts

One way to get started with forex trading is to open a demo account with a forex broker.  It’s free to do and you won’t risk any money.  Brokers will give you a practice account with somewhere around $10,000.  You’ll have the ability to put on and close out trades.  Even though the trades are fictitious they are executed with real market data.  You’ll get a chance to familiarize yourself with trading software and gain some real trading experience.

Basics of the Forex Market

Here’s a nice introductory infographic about forex trading brought to you by CMS Forex.

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