Here we are going to look at three popular Forex trading strategies which the bulk of all new traders use and they are all doomed to failure so make sure you avoid them or you will lose to, here they are.
Let’s take a look at all strategies which involve making no effort and buying the vast amount of Forex Robots and Expert Advisors.
1. Automated Predictive Software
How many cheap hundred dollar systems do you see online which tell you they can make you an income for life with no effort, because they have software that predicts the future? There are loads of them, they all lose and there predictions, always turn out as accurate as your horoscope.
You cannot predict markets in advance because humans are not predictable!
People are creatures of emotion and not logical, if you could predict the future there would be no market, as we would all know the price in advance. Avoid these cheap get rich quick systems, you don’t win in a market were 95% of traders lose by making no effort and spending the cost of a good night out.
2. Any Forex Scalping or Day Trading Strategy
Any system based on the above will lose long term – think about what you have to to win:
You have to decide what countless millions of traders will do in advance, all with different skills, aims objectives and emotional make up and to make it even harder you have to decide what they will do in a few minutes or hours.
All volatility in short term time frames is random therefore, you cannot get the odds on your side and you can’t win. Avoid these short term trading strategies.
3. Fibonacci Systems
This has to be one of the most amusing and dumb ways to trade Forex, this is no disrespect to Fibonacci but even he would be surprised how his theory has been hijacked by the far out investment crowd.
This theory had nothing to do with Forex and traders who trade it, give you mystical retracements you can buy into where prices are supposed to hold to some universal law – so do they work?
Sometimes but so will any percentage retracement. This theory is supposed to have found the hidden order of the universe but it hasn’t quite figured it out in Forex! Do not be taken in by people selling you systems, based upon this theory.
If you want to Win at Forex
Get a simple Forex trading strategy, based upon trading the odds which doesn’t predict but executes its trades on the reality of price change and you can enjoy long term currency trading success.
Copied from Futures Trading System
Thursday, September 02, 2010
Tips for people learning to trade the FOREX market from home
Demo trade before doing any live trading. Everyone says this, its true…. always test a new system or your first system using a demo account first. Demo is a good way to start. Be prepared for a shock when going to a live account using your hard earned money! Everything changes, losses hurt more, wins are way better, and the emotions can run away with you. Its another world compared to demo. The best thing to do is open a micro account with a few hundred bucks and trade pennies first. Get used to losing as well as winning, gain confidence before moving on to a larger account. And don’t move on until you are profitable using small amounts. Don’t get bored with pennies and try to jump ahead to make real money before you can turn a consistant profit first. It takes a lot of patience in the begining, being impatient can be expensive!
Don’t jump in to trades, you see the price action take off and think wow I want to get some of those pips! You jump in just as it reverses and heads the other way …. Arrrg! Happens way too often. Find or create a system and follow it. Don’t open a trade until your system shows a setup. There are lots of systems out there for free! The key is finding one that suits you and following it.
Don’t buy systems on eBay or websites! There are so many good free systems out there! The ones for sale are no better and some are very expensive! The same goes for education, there is so many free ways to learn trading… try them first! I have never heard anyone say “My system cost a lot but it was worth it!” Never! Its always the opposite! ” I spent alot of money and the system was no better or worse than some of the ones available for free!” They advertise stuff like “10,000 pips in 3 weeks!!” or something more incredible, grab your wallet and run the other way!! Training and education is the same also, be very wary of courses that sound great and are expensive. Most of the best training is available for free, and many forums have experienced traders who are happy to answer questions and post charts to study.
Be wary of EA’s or autotrading. Sounds great at first… let the EA (Expert Advisor in Metatrader…) do the trading! I can make money just letting the robot trader run… who needs to learn!! I fell into this trap! I was having a hard time learning manual trading, couldn’t seem to find the right system. Went with EA’s for awhile and lost quite a bit of my account! I still like them, but only on Demo for learning. Some of them can be very profitable if used properly. Also don’t buy them on eBay or anywhere else! There are lots and lots of them for free!
Risk Management is very important in trading. Each trade should be only a small percent of your trading account. This also requires using a Stop Loss… very important!! Nerver open a trade without a stoploss! Calculate how much you will lose if your stop gets hit. This should be a small amount, for example 3% of your account. This is your risk for the trade. So then do the math, if your system calls for a 30 pip Stop Loss, with a $10,000 account, 3% would be $300, so the amount of the trade would be $10 per pip. This should all be worked out before you enter the trade. When the trade goes in your favor a certain amount, move your stop to break even. Then your risk is zero! Always be aware of your risk, don’t let it get above a certain level by opening multiple trades either, say a 10% to 15% maximum for example, don’t open anymore trades until the risk level drops. I can’t stress this enough, risk management will save your account from a Margin Call, which is one of the worst feelings ever…. poof and your account is gone! I have done this and it is very painful. Risk management is key to successful trading.
Money Management is the twin to Risk Management. The key is “Cut your losses short and let your profits run” everyone says this also and its very true. Its hard to watch a trade go the wrong way and hit your stop, but its harder to see a lot of money piling up in a trade and let it continue! People tend to close early and grab the quick profit! Trouble is you will never make much money this way. The best thing to do is close a partial amount and take some profit, move the stop to breakeven and let the rest go. Risk management has a stop loss, money management has a Target! Before entering the trade your system should have a target, where price action should go before turning back. This should be farther than your stop loss, say your target is 50 pips and the stop is 30 pips away, This would be a good Risk / Reward ratio, almost 2 to 1. In this example we could enter this trade and after 25 pips in our direction we move our stop to break even, eliminating our risk. Then let the rest go to target and close it, or close half at target and let the rest continue, and move the stop up to say +25 pips. You could let the trade go and keep moving the stop up behind it. This sounds easy but actually doing it can be hard, price usually zig zags around and can make you want to close early to at least get a small win instead of a loss, so you close with a + 10 pip trade and are relieved… then price zigs back up and hits your target eventually… your +50 trade ended early with +10! Stand by your system and acccept the risk and let the trade go!
Copied from www.MykeFX.com
Don’t jump in to trades, you see the price action take off and think wow I want to get some of those pips! You jump in just as it reverses and heads the other way …. Arrrg! Happens way too often. Find or create a system and follow it. Don’t open a trade until your system shows a setup. There are lots of systems out there for free! The key is finding one that suits you and following it.
Don’t buy systems on eBay or websites! There are so many good free systems out there! The ones for sale are no better and some are very expensive! The same goes for education, there is so many free ways to learn trading… try them first! I have never heard anyone say “My system cost a lot but it was worth it!” Never! Its always the opposite! ” I spent alot of money and the system was no better or worse than some of the ones available for free!” They advertise stuff like “10,000 pips in 3 weeks!!” or something more incredible, grab your wallet and run the other way!! Training and education is the same also, be very wary of courses that sound great and are expensive. Most of the best training is available for free, and many forums have experienced traders who are happy to answer questions and post charts to study.
Be wary of EA’s or autotrading. Sounds great at first… let the EA (Expert Advisor in Metatrader…) do the trading! I can make money just letting the robot trader run… who needs to learn!! I fell into this trap! I was having a hard time learning manual trading, couldn’t seem to find the right system. Went with EA’s for awhile and lost quite a bit of my account! I still like them, but only on Demo for learning. Some of them can be very profitable if used properly. Also don’t buy them on eBay or anywhere else! There are lots and lots of them for free!
Risk Management is very important in trading. Each trade should be only a small percent of your trading account. This also requires using a Stop Loss… very important!! Nerver open a trade without a stoploss! Calculate how much you will lose if your stop gets hit. This should be a small amount, for example 3% of your account. This is your risk for the trade. So then do the math, if your system calls for a 30 pip Stop Loss, with a $10,000 account, 3% would be $300, so the amount of the trade would be $10 per pip. This should all be worked out before you enter the trade. When the trade goes in your favor a certain amount, move your stop to break even. Then your risk is zero! Always be aware of your risk, don’t let it get above a certain level by opening multiple trades either, say a 10% to 15% maximum for example, don’t open anymore trades until the risk level drops. I can’t stress this enough, risk management will save your account from a Margin Call, which is one of the worst feelings ever…. poof and your account is gone! I have done this and it is very painful. Risk management is key to successful trading.
Money Management is the twin to Risk Management. The key is “Cut your losses short and let your profits run” everyone says this also and its very true. Its hard to watch a trade go the wrong way and hit your stop, but its harder to see a lot of money piling up in a trade and let it continue! People tend to close early and grab the quick profit! Trouble is you will never make much money this way. The best thing to do is close a partial amount and take some profit, move the stop to breakeven and let the rest go. Risk management has a stop loss, money management has a Target! Before entering the trade your system should have a target, where price action should go before turning back. This should be farther than your stop loss, say your target is 50 pips and the stop is 30 pips away, This would be a good Risk / Reward ratio, almost 2 to 1. In this example we could enter this trade and after 25 pips in our direction we move our stop to break even, eliminating our risk. Then let the rest go to target and close it, or close half at target and let the rest continue, and move the stop up to say +25 pips. You could let the trade go and keep moving the stop up behind it. This sounds easy but actually doing it can be hard, price usually zig zags around and can make you want to close early to at least get a small win instead of a loss, so you close with a + 10 pip trade and are relieved… then price zigs back up and hits your target eventually… your +50 trade ended early with +10! Stand by your system and acccept the risk and let the trade go!
Copied from www.MykeFX.com
15 Ways To Avoid Losing Money Trading Forex
When trading Forex, it’s all about the basics – there are so many mistakes you can make that can easily be prevented by some advice from people who have made them and lived to tell the tale. So pay attention to these 20 tips for success and implement them into your trading and you can be a survivor also.
1 – Be careful with demo accounts. Though demo accounts are great for teaching you the ropes of Forex trading, they can be dangerous sometimes. Because they are not strictly realistic, they can give you unrealistic expectations or cause you to form impractical strategies.
2 – Keep a broad perspective. Focusing exclusively on short-term investments and trading plans may work for a while, but in the end you will end up losing money. You need to have a plan and a goal for the future, as well as plans for the present.
3 – Pay attention to technical conditions. You have to know if the market is over-extended short or over-extended long. Sudden changes or spikes usually occur during one of these extremes of conditions.
4 – Don’t be fooled by temporary luck. Forex trading is never about luck. If things are going good and your investments are yielding great profits, do not get cocky or overconfident. You have to acknowledge the fact that sometime you are bound to make mistakes and you must be always on the lookout to avoid them.
5 – Take you losses bravely. It is okay to be disappointed, mad, or sorry about a loss and a mistake, but don’t beat yourself up about it. And don’t sink into depression. Pull through it and continue trading. The best thing in the world to do is to examine your system and see where you went wrong so you can avoid doing it again in the future.
6 – Set aside time for trading. You can’t trade sporadically. You need to have the time to think through decisions, to analyze the market, and to prepare your trading plans.
7- Trade for the right reasons. Never trade just because you’re bored and there doesn’t seem to be anything else to do. If there is nothing else to do, that means that there is no smart trade to be done in the market. So just be patient.
8 – Make sure you have the right broker. Having the wrong broker will mess up everything in your Forex trading career. Make sure the broker you have is sufficient and will perform the task well.
9 – Focus on one currency at a time. It is very dangerous to trade many currencies at a time or right after one another. The more currencies you do, the less time you have to completely master them. It is best to focus on one or two and learn thoroughly and completely their details.
10 – Tough it out. Don’t give up easily just because you made a mistake or got bored with the market. Keep going and stick it out and you will find that it was worth it in the long run.
11 – Don’t act rashly. Jumping the gun will prove to be harmful and will cause you to lose. Stay calm and be patient!
12 – Beware of your pride. Pride and being afraid to admit that your were wrong after you’ve made a small mistake will only lead to more mistakes that will cost you more than your initial small blunder. So swallow your pride and reevaluate your system.
13 – Focus on what you are doing. Though being completely absorbed in the short-term can lead to long-term losses, the same is true of the reverse. Daydreaming about the future will only lead to missing opportunities and making bad decisions in the present. So keep your mind in the moment and trade smartly, with an idea for the future, yet a plan for the present.
14 – Don’t be too smart. This sounds ridiculous, but honestly it’s true! Don’t overanalyze your plans and make them so complicated and full of details. The more details you have the greater the odds are that something will go wrong. So keep it simple, clear, and reasonable.
15 – Be careful of overtrading. It is possible to trade too much at one time or on one day. Don’t procrastinate, but neither try to get it all done at once. Make a plan that follows a specific timeline and spread your trading out wisely, practically, and realistically.
In conclusion, there are a lot of mistakes you can make, but by following the guidelines that are laid out here, you can avoid many of them and move swiftly down the road of success.
Copied from Futures Trading System
1 – Be careful with demo accounts. Though demo accounts are great for teaching you the ropes of Forex trading, they can be dangerous sometimes. Because they are not strictly realistic, they can give you unrealistic expectations or cause you to form impractical strategies.
2 – Keep a broad perspective. Focusing exclusively on short-term investments and trading plans may work for a while, but in the end you will end up losing money. You need to have a plan and a goal for the future, as well as plans for the present.
3 – Pay attention to technical conditions. You have to know if the market is over-extended short or over-extended long. Sudden changes or spikes usually occur during one of these extremes of conditions.
4 – Don’t be fooled by temporary luck. Forex trading is never about luck. If things are going good and your investments are yielding great profits, do not get cocky or overconfident. You have to acknowledge the fact that sometime you are bound to make mistakes and you must be always on the lookout to avoid them.
5 – Take you losses bravely. It is okay to be disappointed, mad, or sorry about a loss and a mistake, but don’t beat yourself up about it. And don’t sink into depression. Pull through it and continue trading. The best thing in the world to do is to examine your system and see where you went wrong so you can avoid doing it again in the future.
6 – Set aside time for trading. You can’t trade sporadically. You need to have the time to think through decisions, to analyze the market, and to prepare your trading plans.
7- Trade for the right reasons. Never trade just because you’re bored and there doesn’t seem to be anything else to do. If there is nothing else to do, that means that there is no smart trade to be done in the market. So just be patient.
8 – Make sure you have the right broker. Having the wrong broker will mess up everything in your Forex trading career. Make sure the broker you have is sufficient and will perform the task well.
9 – Focus on one currency at a time. It is very dangerous to trade many currencies at a time or right after one another. The more currencies you do, the less time you have to completely master them. It is best to focus on one or two and learn thoroughly and completely their details.
10 – Tough it out. Don’t give up easily just because you made a mistake or got bored with the market. Keep going and stick it out and you will find that it was worth it in the long run.
11 – Don’t act rashly. Jumping the gun will prove to be harmful and will cause you to lose. Stay calm and be patient!
12 – Beware of your pride. Pride and being afraid to admit that your were wrong after you’ve made a small mistake will only lead to more mistakes that will cost you more than your initial small blunder. So swallow your pride and reevaluate your system.
13 – Focus on what you are doing. Though being completely absorbed in the short-term can lead to long-term losses, the same is true of the reverse. Daydreaming about the future will only lead to missing opportunities and making bad decisions in the present. So keep your mind in the moment and trade smartly, with an idea for the future, yet a plan for the present.
14 – Don’t be too smart. This sounds ridiculous, but honestly it’s true! Don’t overanalyze your plans and make them so complicated and full of details. The more details you have the greater the odds are that something will go wrong. So keep it simple, clear, and reasonable.
15 – Be careful of overtrading. It is possible to trade too much at one time or on one day. Don’t procrastinate, but neither try to get it all done at once. Make a plan that follows a specific timeline and spread your trading out wisely, practically, and realistically.
In conclusion, there are a lot of mistakes you can make, but by following the guidelines that are laid out here, you can avoid many of them and move swiftly down the road of success.
Copied from Futures Trading System
Forex Trading Traps – How You Can Avoid These 4 Top Frauds in Forex Trading
1. Doing Research: It is most important to thoroughly research Forex trading, and any companies you may be thinking of trading forex with, before making any kind of investments. Be sure to check out any claims made by a company, and make sure they are indeed members of one of these organizations, before even thinking of dealing with them. Some people just park their hard-earned cash with some forex trading organizations without first doing research on that company. It is a risk.
2. Stay Away From Promises That Sound Too Good to Be True: Those Get-rich-quick schemes, including those involving forex trading, tend to be frauds. There is no easy way of learning how to trade forex and earn consistent profits everytime. Always remember that there is no such thing as a “free lunch.”, you will really need to spend some time to learn forex basics. Some big investors invest with a large amount of funds, which are never to be seen again if deposited with those schemes.
3. Avoid Any Forex Company that Assures You Large Profits: Be extremely wary of those forex trading companies that guarantee profits. Nobody can offer sure guarantees where currency trading is concerned. In many cases, those claims are false. Learn to trade forex by yourself with a forex trading guide or ebook will be good enough, then slowly make your way up. The following are examples of statements that are most likely are fraudulent:
“Guaranteed to make a ROI of 40-50% within few days.”
“You will reach a million dollars fast in forex trading.”
“Make $5000 in forex trading every week!”
“You don’t have to learn how to trade forex, it’s all automated.”
“You will never lose again in forex trading.”
4. Avoid promises with little or zero risk trading: The guarantee of risk-free forex trading is another fraudulent claim. The fact that more than 90% of people failed in forex trading means there are risks in losing. the currency market is not the place to put any funds that you cannot afford to lose. No can will know how the markets will be performing in the future. Therefore, it’s either low risk or high risk trading, and NOT NO risk! Anyone who suggests that forex trading is risk-free is likely to be a liar or fraudster.
For those new in forex trading, you will find the contents in my free ebook very useful as there is free forex trading system for you. And for advanced traders, you will also find value added stuffs inside the ebook, so try not to be attracted to those claims which can make you a lot of money, learning and trading by yourself is the best.
Copied from Futures Trading System
2. Stay Away From Promises That Sound Too Good to Be True: Those Get-rich-quick schemes, including those involving forex trading, tend to be frauds. There is no easy way of learning how to trade forex and earn consistent profits everytime. Always remember that there is no such thing as a “free lunch.”, you will really need to spend some time to learn forex basics. Some big investors invest with a large amount of funds, which are never to be seen again if deposited with those schemes.
3. Avoid Any Forex Company that Assures You Large Profits: Be extremely wary of those forex trading companies that guarantee profits. Nobody can offer sure guarantees where currency trading is concerned. In many cases, those claims are false. Learn to trade forex by yourself with a forex trading guide or ebook will be good enough, then slowly make your way up. The following are examples of statements that are most likely are fraudulent:
“Guaranteed to make a ROI of 40-50% within few days.”
“You will reach a million dollars fast in forex trading.”
“Make $5000 in forex trading every week!”
“You don’t have to learn how to trade forex, it’s all automated.”
“You will never lose again in forex trading.”
4. Avoid promises with little or zero risk trading: The guarantee of risk-free forex trading is another fraudulent claim. The fact that more than 90% of people failed in forex trading means there are risks in losing. the currency market is not the place to put any funds that you cannot afford to lose. No can will know how the markets will be performing in the future. Therefore, it’s either low risk or high risk trading, and NOT NO risk! Anyone who suggests that forex trading is risk-free is likely to be a liar or fraudster.
For those new in forex trading, you will find the contents in my free ebook very useful as there is free forex trading system for you. And for advanced traders, you will also find value added stuffs inside the ebook, so try not to be attracted to those claims which can make you a lot of money, learning and trading by yourself is the best.
Copied from Futures Trading System
Forex Trading Tips – 5 Traps to Avoid if You Want to Trade the News in Forex
If you have been trading the currency market for a while, you’ll know that there is money to be made trading forex news. However, trading the news in forex does involve some risks and there are 5 major traps you must avoid before you can to trade the forex news successfully. We’ll discuss these 5 traps and provide some forex tips and forex trading strategies to use to counter these traps.
Trap #1: Strong Market Reaction.
Economic news releases and reports are forex indicators for future long-term movements for a currency pair. But for short-term trading, the actual results and the forecasted expectations may create big move opportunities.
Thus, when actual results came out the same as what the market expected, then there is high possibility that the market will not have a strong reaction. It is the big gap difference between the actual release and the market expectations that causes the market to have a breakout or big movement.
Trap #2: Generally Short-Lived.
Most of the time, breakout opportunities from the news release are not a long term trend as the movement may only last for few minutes to few hours. But still, it has to depend on the significance of the economic news release and the difference between the actual results and the forecasted expectations.
Most traders are either using forex scalping or day trading when they trade on news releases. One of the forex tips is to try not to trade during the release as the trade can turn against you in a short moment even after you caught a big initial move.
Trap #3: Quiet Market before a Big Movement.
The market may often poise for a huge movement when it is very quiet before some economic announcements or news releases. This is because the market is waiting for those before deciding on which direction it is going.
Traders are waiting for a right opportunity to jump into the market after the news reports are being released. Thus, you should not react to any forex trading signals 2 to 3 hours before the news are released as the signals may be false and misleading.
Trap #4: High Spread during News Releases.
During news releases, a trading broker may guarantee that your trade will be executed, but none of them will guarantee a normal spread for you. Forex brokers will widen the spread due to the lack of trading volume during the release. EUR/USD is one of the currency pairs with tight spread, but I have seen it turning it into a 10 pips spread from a normally 2 pips during a news release.
Trap #5: High slippage.
You might experience slippage when there is a big move during news releases. It means that your trade order will get filled at a different price instead of the price that you wanted. For example, you might have set a limit order at 1.3000.
But when the news release, the price shoot up 50 pips to 1.3050. So a slippage may occur and you will get your order filled at maybe 1.3020 instead of 1.3000. This is quite risky as the market may go against your trading plan.
The above forex trading guide will be very useful if you are using a forex day trading strategy to trade news. But in any case, I will not recommend news trading as it is very risky with the above considerations.
Copied from Futures Trading System
Trap #1: Strong Market Reaction.
Economic news releases and reports are forex indicators for future long-term movements for a currency pair. But for short-term trading, the actual results and the forecasted expectations may create big move opportunities.
Thus, when actual results came out the same as what the market expected, then there is high possibility that the market will not have a strong reaction. It is the big gap difference between the actual release and the market expectations that causes the market to have a breakout or big movement.
Trap #2: Generally Short-Lived.
Most of the time, breakout opportunities from the news release are not a long term trend as the movement may only last for few minutes to few hours. But still, it has to depend on the significance of the economic news release and the difference between the actual results and the forecasted expectations.
Most traders are either using forex scalping or day trading when they trade on news releases. One of the forex tips is to try not to trade during the release as the trade can turn against you in a short moment even after you caught a big initial move.
Trap #3: Quiet Market before a Big Movement.
The market may often poise for a huge movement when it is very quiet before some economic announcements or news releases. This is because the market is waiting for those before deciding on which direction it is going.
Traders are waiting for a right opportunity to jump into the market after the news reports are being released. Thus, you should not react to any forex trading signals 2 to 3 hours before the news are released as the signals may be false and misleading.
Trap #4: High Spread during News Releases.
During news releases, a trading broker may guarantee that your trade will be executed, but none of them will guarantee a normal spread for you. Forex brokers will widen the spread due to the lack of trading volume during the release. EUR/USD is one of the currency pairs with tight spread, but I have seen it turning it into a 10 pips spread from a normally 2 pips during a news release.
Trap #5: High slippage.
You might experience slippage when there is a big move during news releases. It means that your trade order will get filled at a different price instead of the price that you wanted. For example, you might have set a limit order at 1.3000.
But when the news release, the price shoot up 50 pips to 1.3050. So a slippage may occur and you will get your order filled at maybe 1.3020 instead of 1.3000. This is quite risky as the market may go against your trading plan.
The above forex trading guide will be very useful if you are using a forex day trading strategy to trade news. But in any case, I will not recommend news trading as it is very risky with the above considerations.
Copied from Futures Trading System
Trading Forex During Economic Releases by Alexander Nekritin
In this article I will talk about a popular trend that is taking place among forex traders in terms of taking advantage of inefficiency in the markets during economic news releases. Although this strategy is a bit risky I have seen some of our clients reap great rewards by utilizing it.
How Economic Releases Work
Certain organizations like the Federal Reserve Bank announce economic reports such as the non-farm pay roll, GDP, Consumer price index and more. You will usually be able to find an economic calendar on the internet, in fact our website forexyourself.com has one available. Another very popular one is forexfactory.com. It has been historically tested that various economic releases will impact the price of the currency pairs that are associated with them. For example the Non-Farm Payroll will usually effect the U.S. dollar.
A good economic calendar such as the one on ForexFactory states which currency pair will most likely be affected by a particular economic release. Although the long term price change of a particular currency pair is unpredictable, usually a short-term spike will take place. This spike is based on the divergence between the forecasted numbers (consensus) and the actual numbers released. Thus with this strategy a great deal of traders have created ways (which I will discuss later) to take advantage of the discrepancy between the consensus and the actual economic numbers.
Timing
For the most part there is a lag between when the economic information is released and the change in the price of a particular currency pair. It is because of this lag that many of our clients have been able to take advantage of this inefficiency. Usually only a limited number of agents of major news firms are allowed into the room where the economic numbers are released. After the release the agents must enter the data into news providing services such as Reuters or Bloomberg.
The key to success in terms of timing for the trader is getting into the trade before the spike begins. Prior to the announcement most of the smart money is backing away and not trading but as soon as the information hits they will trade. So what becomes important for the trader is the speed at which he can get his information. Therefore if a retail trader has a fast news feed and has software set up to provide him with the discrepancy between the consensus and the actual report, by being small and nimble he can get in as early as some of the professional banks.
For the most part, the banks are using the similar technology to some of the traders that are taking advantage of these situations. Now a lot of the dumber money are using slower news feeds and end up jumping on the spike later than players with these professional news services and end up driving the price up enough for the smart traders to get out of their positions.
Trading the Spike
In order to get in before the spike some technology is required. First you would need a fast data feed, and you can purchase Bloomberg or Reuters. Another option would be to sign up for a service that broadcasts signals during news. These types of services usually have numerous fast data feeds and broadcast buy and sell signals. These services are usually cheaper and easier to implement than actually paying thousands of dollars for the fast data feeds. The one drawback to these services is a lag due to broadcasting of the signal. The next step is to track the news consensus for the release that's about to come out. Some good places to find the consensus numbers is Briefing.com or FXstreet.com or forexfactory.com.
Now you will need to do some historic research and analyze how the market has reacted to the difference between the consensus and the actual result historically. Basically for each release you need to know how large a discrepancy has to be in order for you to act on the trade one way or the other. This takes a lot of research or you can sign up for a news trade call service which already does the research for you. Now that you have your triggers set, I recommend making a calendar for yourself of the economic releases that you will trade and trading during your releases.
It is very important to get in as quickly as possible if your trigger is met in order to get execution. Once in a trade I recommend moving your stop loss to break even after you have gained 10-15 pips (this varies from trade to trade and trailing your position with a trailing stop after you have generated a profit or 15-20 pips. Having a profit turn into a loss is one of the most demoralizing things that can happen in trading and I recommend avoiding it at all costs if you are trading discretionarily. However you must keep in mind that stop losses are not guaranteed and it is very possible for you not to be triggered to exit at a stop level especially in a fast market such as the one during news trading. So it's imperative that you watch your trade.
Execution
Since forex is an off exchange market usually the desks have to either take risk on a client's position or offset with a bank. Since everybody is trading only in one direction during the spike it becomes hard for the forex FCM's to offset the trades. Therefore they sometimes end up taking a hit during the news times. They do not like it at all, some will not allow news trading and some will re-quote or slip clients. One thing I recommend while trading with this approach is taking trades all the time and just slightly increase position size during the news trades.
I also recommend to let the FCM know what you plan on doing before hand so that they can tell you what size you can get away with. At forexyourself.com we have relationships established with many FCM's and will be able to advise you on what you can do at each place. Also a very important thing to keep in mind is the smaller you trade during these releases the more likely you are to get execution.
Risk Management
Because this strategy can make money quickly a lot of people like to swing for the fences with it, for example leveraging out a large portion of their accounts on it. This is a huge mistake for many reasons. On main reason is the bigger you trade the harder it is to get execution at the trading platforms. Also unexpected events can happen and if you are leveraged out fully you can get yourself into a lot of trouble. I recommend using stops with this strategy and never risking over 5% of your account on any of the news trades. With some of the spikes that can be caught it is possible to make some very decent gains.
Post News Trades
A close friend of mine used to trade on the CBOT. He says that the only way he will trade the release is the pull back. Many times a spike will happen and the price will pull back allowing a second opportunity to get in. This is what's called a post news trade. If the price spikes after the news and makes a slight pullback within 10 to 15 minutes it may be a good idea to get in with a fairly tight stop to catch the second leg of the move. Another way to trade some of the less volatile news announcements is a breakout strategy.
With this strategy you can take announcements regardless of the discrepancy wait until a range is created usually about 10 to 15 minutes and than take a trade in the direction of the range breakout. This is an effective way to capture 8-12 pips after the news trades. I recommend doing historical research or subscribing to a service that calls these trades out to determine your timing with precision.
By establishing a point A and B we are able to play the high probability break out trades. This is a trade we took on 9/29/06 USDCAD after the GDP announcement where we took 9 pips. Although this strategy has its drawbacks it allows the trader to get into some high probability trades. I recommend experimenting with different releases to see which one is a good fit. Please keep in mind that this strategy is risky since you are trading during extremely volatile times. Also it is critical to control your emotions and plan each trade with extreme precision.
How Economic Releases Work
Certain organizations like the Federal Reserve Bank announce economic reports such as the non-farm pay roll, GDP, Consumer price index and more. You will usually be able to find an economic calendar on the internet, in fact our website forexyourself.com has one available. Another very popular one is forexfactory.com. It has been historically tested that various economic releases will impact the price of the currency pairs that are associated with them. For example the Non-Farm Payroll will usually effect the U.S. dollar.
A good economic calendar such as the one on ForexFactory states which currency pair will most likely be affected by a particular economic release. Although the long term price change of a particular currency pair is unpredictable, usually a short-term spike will take place. This spike is based on the divergence between the forecasted numbers (consensus) and the actual numbers released. Thus with this strategy a great deal of traders have created ways (which I will discuss later) to take advantage of the discrepancy between the consensus and the actual economic numbers.
Timing
For the most part there is a lag between when the economic information is released and the change in the price of a particular currency pair. It is because of this lag that many of our clients have been able to take advantage of this inefficiency. Usually only a limited number of agents of major news firms are allowed into the room where the economic numbers are released. After the release the agents must enter the data into news providing services such as Reuters or Bloomberg.
The key to success in terms of timing for the trader is getting into the trade before the spike begins. Prior to the announcement most of the smart money is backing away and not trading but as soon as the information hits they will trade. So what becomes important for the trader is the speed at which he can get his information. Therefore if a retail trader has a fast news feed and has software set up to provide him with the discrepancy between the consensus and the actual report, by being small and nimble he can get in as early as some of the professional banks.
For the most part, the banks are using the similar technology to some of the traders that are taking advantage of these situations. Now a lot of the dumber money are using slower news feeds and end up jumping on the spike later than players with these professional news services and end up driving the price up enough for the smart traders to get out of their positions.
Trading the Spike
In order to get in before the spike some technology is required. First you would need a fast data feed, and you can purchase Bloomberg or Reuters. Another option would be to sign up for a service that broadcasts signals during news. These types of services usually have numerous fast data feeds and broadcast buy and sell signals. These services are usually cheaper and easier to implement than actually paying thousands of dollars for the fast data feeds. The one drawback to these services is a lag due to broadcasting of the signal. The next step is to track the news consensus for the release that's about to come out. Some good places to find the consensus numbers is Briefing.com or FXstreet.com or forexfactory.com.
Now you will need to do some historic research and analyze how the market has reacted to the difference between the consensus and the actual result historically. Basically for each release you need to know how large a discrepancy has to be in order for you to act on the trade one way or the other. This takes a lot of research or you can sign up for a news trade call service which already does the research for you. Now that you have your triggers set, I recommend making a calendar for yourself of the economic releases that you will trade and trading during your releases.
It is very important to get in as quickly as possible if your trigger is met in order to get execution. Once in a trade I recommend moving your stop loss to break even after you have gained 10-15 pips (this varies from trade to trade and trailing your position with a trailing stop after you have generated a profit or 15-20 pips. Having a profit turn into a loss is one of the most demoralizing things that can happen in trading and I recommend avoiding it at all costs if you are trading discretionarily. However you must keep in mind that stop losses are not guaranteed and it is very possible for you not to be triggered to exit at a stop level especially in a fast market such as the one during news trading. So it's imperative that you watch your trade.
Execution
Since forex is an off exchange market usually the desks have to either take risk on a client's position or offset with a bank. Since everybody is trading only in one direction during the spike it becomes hard for the forex FCM's to offset the trades. Therefore they sometimes end up taking a hit during the news times. They do not like it at all, some will not allow news trading and some will re-quote or slip clients. One thing I recommend while trading with this approach is taking trades all the time and just slightly increase position size during the news trades.
I also recommend to let the FCM know what you plan on doing before hand so that they can tell you what size you can get away with. At forexyourself.com we have relationships established with many FCM's and will be able to advise you on what you can do at each place. Also a very important thing to keep in mind is the smaller you trade during these releases the more likely you are to get execution.
Risk Management
Because this strategy can make money quickly a lot of people like to swing for the fences with it, for example leveraging out a large portion of their accounts on it. This is a huge mistake for many reasons. On main reason is the bigger you trade the harder it is to get execution at the trading platforms. Also unexpected events can happen and if you are leveraged out fully you can get yourself into a lot of trouble. I recommend using stops with this strategy and never risking over 5% of your account on any of the news trades. With some of the spikes that can be caught it is possible to make some very decent gains.
Post News Trades
A close friend of mine used to trade on the CBOT. He says that the only way he will trade the release is the pull back. Many times a spike will happen and the price will pull back allowing a second opportunity to get in. This is what's called a post news trade. If the price spikes after the news and makes a slight pullback within 10 to 15 minutes it may be a good idea to get in with a fairly tight stop to catch the second leg of the move. Another way to trade some of the less volatile news announcements is a breakout strategy.
With this strategy you can take announcements regardless of the discrepancy wait until a range is created usually about 10 to 15 minutes and than take a trade in the direction of the range breakout. This is an effective way to capture 8-12 pips after the news trades. I recommend doing historical research or subscribing to a service that calls these trades out to determine your timing with precision.
By establishing a point A and B we are able to play the high probability break out trades. This is a trade we took on 9/29/06 USDCAD after the GDP announcement where we took 9 pips. Although this strategy has its drawbacks it allows the trader to get into some high probability trades. I recommend experimenting with different releases to see which one is a good fit. Please keep in mind that this strategy is risky since you are trading during extremely volatile times. Also it is critical to control your emotions and plan each trade with extreme precision.
Three Strategies To Trade Forex During News by Tom Van Geert
In this article, I will discuss three ways how you can take advantage trading forex during economic news releases.
1) Trading the economic numbers strategy
Currency traders try to take advantage of the discrepancy between the forecasted and the actual economic number, you need a very fast news data feed such as Reuters or Bloomberg because you want to get in the trade before the move begins.
Steps to trade the economic data numbers:
1. Purchase a fast news datafeed at Reuters or Bloomberg
2. Track the news consensus and determine the significance of the economic news report being released, if it is not important, do not trade it.
You will be able to find all important data on a good economic data calendar
3. For each important news release you need to know how large a discrepancy has to be in order for you to act on the trade.
4. Finally, watch the news release using your fast datafeed and trade the numbers.
2) Straddle the News strategy
This strategy is very simple and consists of 2 limit orders, one to buy a few pips above the range high and one to sell a few pips below the range low, then wait for the price to breakout triggering one of your orders. Your stop loss order should be placed a few pips below the range low when buying, conversely, a stop loss order should be placed a few pips above the range high when selling.
3) Hedging the News strategy
What is hedging? Hedging enables a currency trader to simultaneously hold Buy and Sell positions in the same currency pair at the same time in one trading account.
1. To hedge, go both long and short at market price 30 min before the news release.
2. Add a protective stop loss order to both long and short positions 30 seconds before the news release.
3. Add a limit order to both long and short positions 30 seconds before the news release.
For more free tutorials, forex tools, free system downloads, news, forex calendar, forex product reviews and articles about forex trading, please visit us at Aboutcurrency.com | Forex
Article Source: http://EzineArticles.com/?expert=Tom_Van_Geert
1) Trading the economic numbers strategy
Currency traders try to take advantage of the discrepancy between the forecasted and the actual economic number, you need a very fast news data feed such as Reuters or Bloomberg because you want to get in the trade before the move begins.
Steps to trade the economic data numbers:
1. Purchase a fast news datafeed at Reuters or Bloomberg
2. Track the news consensus and determine the significance of the economic news report being released, if it is not important, do not trade it.
You will be able to find all important data on a good economic data calendar
3. For each important news release you need to know how large a discrepancy has to be in order for you to act on the trade.
4. Finally, watch the news release using your fast datafeed and trade the numbers.
2) Straddle the News strategy
This strategy is very simple and consists of 2 limit orders, one to buy a few pips above the range high and one to sell a few pips below the range low, then wait for the price to breakout triggering one of your orders. Your stop loss order should be placed a few pips below the range low when buying, conversely, a stop loss order should be placed a few pips above the range high when selling.
3) Hedging the News strategy
What is hedging? Hedging enables a currency trader to simultaneously hold Buy and Sell positions in the same currency pair at the same time in one trading account.
1. To hedge, go both long and short at market price 30 min before the news release.
2. Add a protective stop loss order to both long and short positions 30 seconds before the news release.
3. Add a limit order to both long and short positions 30 seconds before the news release.
For more free tutorials, forex tools, free system downloads, news, forex calendar, forex product reviews and articles about forex trading, please visit us at Aboutcurrency.com | Forex
Article Source: http://EzineArticles.com/?expert=Tom_Van_Geert
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