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Things You Should Know About Forex Trading

How difficult is it to make money trading the Forex market? How much time does it take to actually be able to make a living trading the Forex market? These and other important aspects of trading are to be discussed in this article.

Trading the Forex market has many benefits over other financial markets, among the most important are: superior liquidity, 24hrs market, better execution, and others. Traders and investor see the Forex market as a new speculation or diversifying opportunity because of these benefits. Does this mean that it is easy to make money trading the Forex Market? Not at all.

Forex brokers agree that 90% of traders end up losing money, 5% of traders end up at break even and only 5% of them achieve consistent profitable results. With these statistics shown, I don't consider trading to be an easy task. But, is it harder to master any other endeavor? I don't think so, consider musicians, writers, or even other businesses, the success rates are about the same, there are a whole bunch of them who never got to the top.

Now that we know it is not easy to achieve consistent profitable results, a must question would be, Why is it that some traders succeed while others fail to trade successfully in the Forex market? There is no hard answer to this question, or a recipe to follow to achieve consistent profitable results. What we do know is that traders that reach the top think different. That's right, they don't follow the crowd, they are an independent part of the crowd.

A few things that separate the top traders from the rest are:

Education: They are very well educated in the matter; they have chosen to learn every single and important aspect of trading. The best traders know that every trade is a learning experience. They approach the Forex market with humility, otherwise the market will prove them wrong.

Forex trading system: Top traders have a Forex trading system. They have the discipline to follow it rigorously, because they know that only the trades that are signaled by their system have a greater rate of success.

Price behavior: They have incorporated price behavior into their trading systems. They know price action has the last word.

Money management: Avoiding the risk of ruin is a primary subject to the best traders. After all, you cannot succeed without funds in your trading account.

Trading psychology: They are aware of every psychological issue that affects the decisions made by traders. They have accepted the fact that every individual trade has two probable outcomes, not just the winning side.

These are, among others, the most important factors that influence the success rate of Forex traders.

We know now that it is not easy to make money trading the Forex market, but it is possible. We also discussed the most important factors that influence the rate of success of Forex traders. But, how much time does it take to have consistent profitable results? It is different from trader to trader. For some, it could take a life time, and still don't get the desired results, for some others, a few years are enough to get consistent profitable results. The answer to this question may vary, but what I want to make clear here is that trading successfully is a process, it's not something you can do in a short period of time.

Trading successfully is no easy task; it is a process and could take years to achieve the desired results. There are a few things though every trader should take in consideration that could accelerate the process: having a trading system, using money management, education, being aware of psychological issues, discipline to follow your trading system and your trading plan, and others

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For any prospective traders, hope this is not in anyway a discouragement. Trading is a hard mind game and not everyone is suitable to be engaged in such a hard game. Most have neither frame of mind nor mental fortitude to survive in this hard game. Mastering TAs or numbers or options business are at best a first tentative step into the right direction with no guarantee to any success. Training a right frame of mind is the most difficult but absolutely necessary part for success and most are simply not ready to go through that hard stage of the learning process because it is a very painful process. Trading is essentially about pain-taking-process in the end although most do not realize it. The process of overcoming fear, greed and mastering tranquility of mind in this hard school of speculation.

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Yes, no liquidity and no conviction by players make the market look like a vagrant loitering in his usual area. Good forecasts and trades. Good sleep is essential for good trading but most of the traders I know of seem to sleep with one eye open
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The transaction costs are calculated in terms of pips. Profiting from FOREX fx is the greatest to the trader when the spread between the bid/ask is the lowest number of pips required per trade by the broker. By comparing pip spreads of a half dozen brokers or so will reveal different transaction costs.
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The Latest Forex News

Asian Morning Update 10th March 2008

Sun, 09 Mar 2008 18:41:42 -0500
Short Dollar positions are right … until proven wrong…

European releases overnight:

January Forecast Actual
German Industrial Production (MoM) +0.3% +1.8%
German Industrial Production (YoY) +4.6% +6.9%
Euro-zone Leading Index 98.0 (prior) 97.9

Good number from Germany but European officials aren’t getting carried away. Weber feels the markets are underestimating inflationary risks which are likely to persist for a long time and contrary to others doesn’t feel that a slowdown will dampen these pressures.

Wellink is uncertain of the final outcome of the global credit crisis while Noyer said that financial innovation may disrupt monetary policy.

Without a doubt Weber is correct. The inflationary pressures that are emerging now stem from a factor that is unlike previous inflationary cycles. Oil has already reached $106 pb and OPEC are ready to squeeze more out of the situation. The credit crisis will squash narrow credit margins and the result will be further price pressures.

The result may well be a fall out that could last several years before returning to a sense of normality.

States releases overnight:

January Forecast Actual
U.S. Consumer Credit USD 7.0bn 6.9bn

February
U.S. Change in Non-Farm Payrolls 30K - 63K
U.S. Unemployment Rate 5.0% 4.8%
U.S. Change in Manufacturing Payrolls - 25K - 52K

Friday’s unemployment data was as bad as we could have expected. The non-farm payrolls posted a -63K drop in which private hiring was down 101K. What is more the job losses were widespread which indicates that the subprime woes have stretched their impact to the rest of the economy.

It will be a big blow for the Fed which really requires a more stable employment environment to help boost spending. No jobs = no spending = a failed fiscal stimulus.

It of course sent the Dollar lower and this was rescued by the Fed which added $50 bn in term auctions to ease liquidity pressure after seeing an increase in the pace of deterioration over the prior days. It also announced that it would increase amounts in its Term Auction Facility auctions March 10 and March 24 to $50 billion each.

It may well prove to be a placebo within the broad spectrum of the issues facing the States right now. It may well smooth short term volatility but does nothing to solve the underlying problems.

An interesting comment from the Fed’s Fisher should also temper the market clamor for aggressive rate cuts after he warned that the markets should not expect repeat of January rate cuts. He explained that the Fed took deliberate action in January but markets should not expect a repeat.

In general Fed officials’ comments are becoming more pessimistic and almost suggest a sense of resignation that this is going to turn out to be a deep black hole that will take a long time to escape. Yellen: “The US economy is particularly exposed to downside risks from the unwinding of the housing bubble and disruptions in financial markets.”

The Wall Street Journal noted that hedge funds are getting squeezed as lenders get tougher and look to reduce the degree of leverage in investments. This has come out of losses seen in the value of mortgage-backed bonds and other investments.

Meanwhile the FT reports that Carlyle Capital Corp has missed some margin calls following the decline in mortgage-backed bonds and other investments.

While the Dollar recovered in late trading on Friday this morning’s open has seen steady selling of the Dollar again. The decline in the Dollar has seen virtually no significant correction over the past one month. The longer it goes, the more it seems there is the risk of a total collapse.

Technically there are signs of a slowing in the pace of the decline but these signals require confirmation and should there be any further losses below Dollar supports at 1.5472-00 Euro, 1.0110 Swissie and 101.00-20 Yen the next set of supports are some way lower.

Intervention is a possibility but the timing of such an event that cannot be predicted and will only have impact once seen. However, if there is any chance of a deeper pullback there is little wiggle room on the downside now before heavier losses are likely.

It really does appear to be a case of “Sell until someone proves it’s wrong.”

More later once the daily analysis has been done…

The following are economic releases from Asia due today:

Japan – January
Machine Orders (MoM) +2.6%
Machine Orders (YoY) - 4.5%

Japan – February
Money Supply M2+CD (YoY) +2.1%
Broad Liquidity (YoY) +3.5%
Eco Watcher’s Survey: Current
Eco Watcher’s Survey: Outlook

See Also

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