8 Important Components Of Currency Trading

September 26, 2012 By

8 Important Components Of Currency Trading

The currency trading business has always been, and will always be, a risky one! It does not matter whether the transactions are being conducted from the comfort of one’s home, or from a legitimate office–a study of market trends and organizations as well as the factors impacting prices, is advisable at the outset. After all, no one enters the trading arena with a desire to end up on the losing side!

Take a look at all the various components of currency trading–

(1) Names like Forex, Foreign Exchange, FX and Currency Exchange are quite familiar, but very few are aware of what they actually represent. To put it simply, they all deal with currency trading, that is, one currency being exchanged for another.

(2) Where the lending rate of a particular currency is concerned, it is decided by the central bank of that country. This is an overnight value. Should the interest rates go down, the currency’s value also lowers.

To counteract this, a process called “carry-trade” is put into action. Here, currencies going at lower interest rates are sold and currencies with higher interest rates are bought in their place. If the rate of interest is higher, naturally the value of a particular currency also goes up!

(3) The prices of various currencies are affected by different factors, a few of which can be inflation, industrial production and unemployment. These are known as macroeconomic factors. A poor economy leads to a high rate of unemployment. Along with depreciating the value of the currency, it also causes geopolitical events.

The trading community looks towards the economic data analysis to decide which market positions will bring in profits. So any information related to macroeconomic factors can be found from the analysis.

(4) The major people involved in currency trading include–financial markets, governments, financial institutions, multinational corporations, central banks and large banks.

A smaller percentage includes retail traders or small speculators. But they are not directly involved in this trade; they interact via banks or brokers. Unfortunately, they become the main targets whenever a Forex scam erupts!

Last, but not the least, are the individual investors. If they are not careful, they can be taken for a ride by people putting forward different trading schemes. They are easily taken in by the fact that foreign exchange markets promise great profits if handled properly.

(5) What does one do in currency trade?

The mechanics involved in FX are almost the same as those in other trade markets. It is actually quite a simple process, once the investor and trader get the hang of it.

Quote currencies are displayed in pairs, such as–EUR/USD, USD/JPY, and so on. The first listed currency (base currency) is the foundation for selling or buying. The second listed currency is the counter currency (quote).

To illustrate with an example, say the listed pair is EUR/USD. Euros are being bought while dollars are being sold–both at the same time. So if the value of the Euro goes up, the value of the US dollar is also bound to go up. What is to be kept in mind here is that foreign exchange takes place on the basis of lots, that is, 100,000 base currency units.

(6) There is another terminology that makes the rounds in this arena–trade volumes. The frequency with which any product is sold or bought, determines its liquidity in the market. This is what is meant by trade volumes.

(7) There are many reasons for currency trading to achieve this sort of popularity–

(a) This is the most liquid market in the world today, since it enables quick selling and quick buying of any particular item. Thus, major price rises or price falls cannot affect the commodity. Also, its own price will not fluctuate so much. FX is a reference to market liquidity. The biggest advantage is being able to conduct transactions via the Internet from home.

(b) If the trader is sharp enough, he/she can dispose off the currency pair that has the possibility of undergoing a reduction in value, before anything else. This ensures definite profits.

(c) FX has other features like–lengthened trading hours, going up to 24 hours a day on weekdays (weekends are not included); geographical dispersion; plenty of traders and varied types; and different factors that have an impact on exchange rates.

(8) As far as the trade business is concerned, a currency exchange or foreign exchange market is viewed as the largest global market; it trades cash values.

Currency trading is dependent on a set price that is named as exchange rate. It is beset with risks, but if the game is played correctly, can yield huge profits too! Ultimately, it all depends on the investor!

8 Important Components Of Currency Trading

8 Important Components Of Currency Trading

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Currency Trading Systems – Making Money from the Longer Term Trends

September 25, 2012 By

Currency Trading Systems – Making Money from the Longer Term Trends

Currency markets never sleep and several trillions dollars are traded everyday, making currencies the world’s biggest and most exciting investment market.

In recent years, mechanical currency trading systems, using technical analysis to predict trend movements have become increasingly popular as a way of locking into, and profiting from the longer term currency trends.

Making Money from the Longer Term Trends

Currency trading systems are ideal for making profits from longer-term currency trends, and they occur in all currencies.

The longer-term trends in FOREX markets reflect the health of the economy.

As economic cycles are relatively long and take years, so do the currency trends that reflect these cycles.

A good currency trading system can enable traders to lock into, and make profits from these longer-term trends.

When choosing currencies to trade, it is important to have good long-term trends, but just as important is liquidity, which enables traders to lock in profits and exit losing trades quickly.

Currencies that offer good trends and liquidity include:

· The US Dollar

· Swiss Franc

· Euro

· Japanese Yen

· British Pound.

Currency trading systems remove emotions from trading, which is the major reason the majority of traders end up losing.

Removing the Emotion from Trading with Systems

There has been plenty of material written about using currency trading systems, and the works below provides informative reading for anyone thinking of using a currency trading system.

Traders should try to read the following authors:

Edwin Lefeurve, Jake Bernstein, Larry Williams, Ken Roberts, Van Tharpe and Jack Shwager whose books “Market Wizards” and “The New Market Wizards” interview some of the most successful traders of all time, including the “turtles”. The Turtles are group of traders who had no prior trading experience, but went on to earn hundreds of millions of dollars, using very simple mechanical trading systems.

Currency Trading Systems that Make Money

The developments in recent years in computer software, the growth of the Internet, and online trading, has seen currency trading systems become more popular than ever.

Software Packages such as Tradestation, Supercharts, Omni trader, and many more, allow traders to back test systems, using a variety of technical indicators that include:

· Stochastics

· Bollinger bands

· RSI

· moving averages

· ADX

And many more.

The currency trading system picked can then be analyised, to see how it would have performed in the markets with commissions and slippage deducted.

Traders, who don’t want to develop a currency trading system, can buy systems off the shelf from vendors.

How do you Choose a Successful Currency Trading System?

If you are buying a currency trading system, there are several things to consider before parting with your hard earned cash:

1. Are you interested in being a day trader, or a trader looking for longer-term trends? You need to pick a system that you’re comfortable with and this is mostly down to personal preference. Some traders like the excitement of day trading others prefer a longer-term approach.

2. Do you want to have any input into the system, or do you want it to be totally mechanical?

3. Do you want to trade just one currency, or a basket of currencies? Using a currency trading system that trades just one currency can be more profitable but keep in mind, the converse is true, i.e losses and drawdowns can be larger.

4. When choosing a currency trading system you need to have confidence to trade with it, and follow the system through losing periods. To do this you should know the logic the system is based upon. If you understand the system and its logic, you will derive confidence and be more likely to follow it – in contrast to one where the logic is not revealed.

5. What are the average profits you can expect in relation to drawdowns? All currency trading systems will have periods of drawdown and losses. Generally the larger the profits the bigger the drawdowns tend to be over time – so pick a system that reflects your investment aims and risk tolerance.

6. When you are buying a currency trading system, check out the system seller’s experience, track record, customer support, – and whether they have a real-time track record, or a hypothetical one.

A real time track records means the system has performed in the market and made money, i.e it’s proven. Trading systems that simply rely on hypothetical track records mean they have been back tested, – and with the benefit of hindsight we can all make money!

While hypothetical track records should be treated with a degree of caution, you can find out a lot about whether the system is likely to make money, by knowing the logic the system is based on.

When considering a hypothetical track record, look for one where the logic is revealed and not a “black box” system where you have no idea how to system works.

In conclusion, you can make your own currency trading system, or you can buy one from a vendor – when choosing one from a vendor make sure you do your homework, and remember – if it looks too good to be true, it probably is!

Currency trading systems can, and do make money, and the effort you put into finding the system that suits your personality, risk tolerance, and profit objectives, will be time well spent.

Currency Trading Systems – Making Money from the Longer Term Trends

Currency Trading Systems - Making Money from the Longer Term Trends

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Currency Trading

September 11, 2012 By

Currency Trading

Currency

The currency market is one of the most popular markets for speculation due to the enormous size of currency trading and liquidity. Any currency has a value relative to all other currencies in the world. Currency trading has many real benefits over equity trading like the stock market. There are two reasons the relative value of a currency fluctuates. The first is as outside investors or visitors buy things within a country, they are driven to convert their domestic currency into the currency of the country they are buying within. The second force for currency fluctuation is speculation. This speculation can have extreme consequences on a nation’s currency and consequently on a country’s economy.

Trading

If you do not have experience in the field of currency trading, you need to at least have knowledge. The attraction to the currency trading market has led many people to look for currency trading courses. These types of course can help prepare you for the exciting world of currency trading. For a deposit of just $2,000 an investor can leverage $100,000 worth of foreign currency or $50 leverage for every $1 invested. The heavy buying and selling in the currency market can drastically impact the value of the currency itself. Trading currency allows traders to earn profits during rising and falling markets. Unlike stocks, there are no restrictions on short selling in foreign currency trading. The “ask” is the price at which a market maker will sell the base currency in exchange for the counter currency in which you can buy. The “bid” is the price at which a market maker is willing to buy the base currency in exchange for the counter currency in which you can sell. The spread is how the market maker and the introducing broker are compensated for their work. The spreads for currency trading are extremely low, making the cost to a trader very low as well. One of the most important differentials in currency trading is timing. As traders feel a given currency will perform strongly or weakly, they will buy or sell accordingly. However, most traders agree that the currency market is no place for beginners. An individual has to take into consideration technical and fundamental data and make an informed decision based on his perception of trading market sentiments and market expectations to become a profitable trader. Every trader has to be aware of the events going on in the market, and also has to understand the subtleties of the market to safely trade.

Conclusion

If you are seeking new opportunities why not investigate what currency trading has to offer? Once you have decided that currency trading is right for you, it’s just like learning to ride a bike. This type of trading is a challenging and profitable opportunity for developed and experienced traders. However, before choosing to engage in currency trading you should carefully consider your investment or trading objectives, level of experience and appetite for risk. But most significantly, do not trade money you cannot afford to lose.

Currency Trading

Currency Trading

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Learning About Currency Trading

September 8, 2012 By

Learning About Currency Trading

Currency trading is quite easy to learn about compared to share trading. The stock exchange is controlled by a central body, whereas currency trading is not, and this means no options or futures on the trading in this market. Similarly, no arbitration panel to handle disputes, and no clearing houses to guarantee trades. Trades in the currency market are carried out by credit agreement between trader and broker.

Currency trading is now the world’s largest market, with an estimated two trillion US dollars traded daily. You might find this difficult to understand if you are used to shares trading, but with a little practice the currency trading market works very well.

Stock exchange earnings are around fifty billion US dollars a day, so you can see that currency trading is larger than all other equity markets in the world together.

How does it work?

Quite simply, the currency trading market is buying and selling different currencies, usually in large amounts. The idea is to capitalize on shifts in relative currency values, and thus make a sizable profit. Every world currency has its value compared to other currencies, and if you are sufficiently well informed in these matters on a regular and timely basis, you can put this information to good use.

The first thing to learn about currency trading is the basic way that it works. If you don’t master the basics, you could get lost and make no profit. You need to understand how the buying and selling of world currencies works, before you start to carry out your own trades.

Which currencies are traded?

There are seven pairs of world currencies that are usually traded, although others can be traded as well. The four major pairs are as follows:

US dollar – British pound USD/GBP

US dollar – Euro USD/EUR

US dollar – Swiss franc USD/CHF

US dollar – Japanese yen USD/JPY

The remaining three pairs which are usually traded are these:

US dollar – Canadian dollar USD/CAD

US dollar – Australian dollar USD/AUD

US dollar – New Zealand dollar USD/NZD

Other combinations of these pairs are also traded, and together constitute around 95% of the total currency trading market. Even though the number of pairs which are actively used in currency trading is small, the income from them is sufficiently large to make this market overall more popular than the shares market.

It is important not only to know this basic information, but other details as well, in order to be successful in the currency trading business. With an understanding of the basics of the market you can then build up your knowledge on more complex matters such as:

* the psychology of trading

* the systems of Forex or currency trading

* risk management

Learning About Currency Trading

Learning About Currency Trading

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You Can Increase Your Income by Currency Trading

September 8, 2012 By

You Can Increase Your Income by Currency Trading

There are lot of business in the world from which one can make his good fortune. Currency trading is one of these businesses. You can earn a good income from this business. You need to be much conscious in the business and should know the basic characteristics of the currency trading.

In the past, only the financial giants and big multinational companies were allowed to trade currency. Now the technology innovations have made currency trading easy for all. You just need to be online and may start to trade currency.

Forex is the name given to this currency trade market in which powerful currencies of the selected developed countries are exchanged. These currencies include USD, GBP, EURO and a few others. You need not to stock any of these currencies for currency business.

The currency trade depends on the credit agreements. All the transactions in the trading market are regulated by the words of honor. All traders in the market honestly abide by these words of honor.

You should be well versed with the usual terms of this market before you start online currency trading. Sometimes you may face loss on your capital investment in this currency market due to lack of enough knowledge.

There are always ups and downs in the currency trade market. This fluctuation in the forex market is the basis of profits and is motivated by several factors. You will sell a currency with a lower rate of interest. This fund is to be used for buying another currency with higher interest rates. This difference in the rates of the interest fetches you the profits for which you are in the currency trading market.

The monetary value of a certain currency depends on its supply and demand. The foreigners visiting to your country will need the currencies of your country to buy goods and for other expenses.

Similarly the local residents of your country planning foreign tours will require the currencies of their destination countries. So the values of currencies fluctuate with the invasion of the foreign currencies in a certain country.

The market position of a currency is also responsible for the fluctuations in the currency’s value. People buy and sell the certain currencies based on the speculation in the currency trading market.

The market value of a certain currency also indicates about the health of economy of the country to which that currency belongs. The high value of the currency is an indication of sound economy of belonging country.

Let us sum up the benefits of trading currency. You need not to have a huge capital amount to start currency trading business, although the market was restricted to corporate investors in the past. You may earn huge gains even in a single deal when the market is in your favor.

If you have enough knowledge about currency trading then there is a minimal risk for you in trading currencies.

You Can Increase Your Income by Currency Trading

You Can Increase Your Income by Currency Trading

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Trading – Variations Between Futures And Options

September 7, 2012 By

Trading – Variations Between Futures And Options

Futures and options investing can be a high-risk business and must only be carried out with risk capital, which cannot change your way of life in case the investment is lost. The potential to earn profits is practically limitless, whilst the potential for loss is just as limitless. This would mean that when you’re on the losing side of a futures trade it is possible to lose even more funds than you have in the margin and will be accountable for the whole contract amount due to the highly leveraged dynamics of the investment. You have many approaches to limit your risk, for one you can use options like a hedge against the negative price movement from your position, be it on the short or long side.

Variations between trading on futures and options market

Premium versus margin

Options: Whenever you purchase an option you aren’t recommended to set up any margin as you are buying the option on a fixed price also called the premium. The premium can decrease over the lifespan of the option when the underlying price for the commodity moves towards your position or stays flat. In case the option is not exercised prior to the expiration date, you can lose the premium that was paid, plus the seller for the option can profit from the amount paid for the premium.

Futures: Whilst the premium for futures option can waste away over time the futures agreement will not. It is possible to consider the margin on the futures agreement as earnest money which will cause you to responsible for the entire amount on the futures agreement. This is extremely risky when an offsetting situation is not opened in order to help safeguard you from a negative movement in price.

Risk

When it comes to options the purchaser will only be limited by the amount that was paid for the premium, therefore the risk will be regarded as limited. For futures trading, regardless of whether you buy or sell a futures agreement you will be responsible for more than only the preliminary margin that you were instructed to make for the investment. This makes this kind of trade risk limitless.

Expiration Dates

The main difference between trading on futures and options would be the expiration date. In case you had been planning to exercise an option in order to control the underlying contract for futures, this must be delivered roughly 30 days prior to the underlying futures is arranged to be delivered. Note that this is applicable to the physical delivery of commodities and will not be the same for indices.

Trading – Variations Between Futures And Options

Trading - Variations Between Futures And Options

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Day Trading Success Tips – Do You Have the Mentality to Become a Winning Day Trader?

September 1, 2012 By

Day Trading Success Tips – Do You Have the Mentality to Become a Winning Day Trader?

Successful Day Trading Strategy is dependent on many variables, rather than just one “magic day trading pill.”

The day trader’s skill level, for example. Or his or her day trading experience level. Or the quality of the day trader’s training. But there is one variable that is often overlooked when people assess their overall day trading strategy, and/or try to figure out why they can’t seem to win a trade to save their lives.

There are many Traders out there, new and experienced, that have lost trades before they ever hit the “execute” button on their trading platform. These traders can’t seem to win trades consistently. Their losses far outpace their day trading success.

They’ve taken the time to learn day trading, and they have what they THINK should be a winning day trading strategy, but they still keep losing. But these day traders can’t figure out why (or, rather, why not).

They are doing everything right, following their day trading strategy to the “T”, charting their course.

So why is that some Day Traders are so successful, and other’s just aren’t?

There may be many reasons why, but there is one BIG reason that is responsible for the failure of many would-be day traders.

Here is a key day trading tip – Day trading is an art, not a science. An artist’s attitude and outlook is reflected in his art. If an artist has a negative attitude, a defeatists attitude, then that is reflected in his art.

Successful Day Traders have a Winner’s Mentality.

They go into a trade with a positive outlook, fully expecting to win that trade. Sure, they don’t win every trade. But they are mentally prepared for it when they do lose, and can overcome it, and get back on track for successful trading. But most importantly, they are mentally prepared BEFORE they ever enter a trade.

If you have a Defeatist attitude, you will lose far more trades than you win.

Why? Because your thoughts affect your actions.

Your Fear of loss will cause you to hesitate, and get into a trade too late, or miss it outright all together.

Your Fear of Loss will cause you to panic if a trade starts to go against you, and hit the EJECT button, locking in your losses, rather than trusting your day trading strategy.

Your defeatist attitude can even skew how you see the market’s behavior. If you have a defeatists attitude, you might see a positive indicator as negative, and enter a trade in the wrong direction. You might misinterpret what is happening leading up to your trade, causing you to execute poorly. And your Defeatists attitude will cause you to place sole blame on your day trading strategy, rather than on yourself where that blame belongs.

On the flip side, if you have a Winners Attitude, you won’t hesitate. You’ll KNOW what to do in every instance. Day Traders with a Winners’ Mentality also realize that day trading is an ART, NOT a Science. You don’t automatically get output “X” if you input “Y”.

By trading with a Winners’ Mentality, you’ll BELIEVE in your system. And most importantly, you won’t compound losses with losses. You know that trading is inherently risky, and that there exists the potential for real and substantial losses. But with a Winner’s Mentality, you can get past losses, and you can secure strong wins, much more easily than the Defeatists.

The Market presents opportunities to day traders to take advantage of. If you have a “Winner’s Mentality”, then you’ll be much more likely to take advantage of those opportunities and develop into a Market Dominating Day Trader. But if you continue to trade with a defeatists attitude, than your success as a trader has already been determined…and the outlook is grim.

Day Trading Success Tips – Do You Have the Mentality to Become a Winning Day Trader?

Day Trading Success Tips - Do You Have the Mentality to Become a Winning Day Trader?

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What is Currency Day Trading? Can You Handle the Risk?

September 1, 2012 By

What is Currency Day Trading? Can You Handle the Risk?

One of the biggest financial markets in our economy is the foreign exchange market, which involves a lot of currency day trading. The foreign exchange market and currency trading are not as complicated as they may sound but the rise in the number of people involved in this kind of short trading requires more of an explanation.

Day trading is when a trader buys and sells in a financial market and the trades take place the day that they are made. You can participate in a variety of types of such short-term trading including stock trading, stock option trading, commodity trading, and currency day trading. This is different from swing trading in which the stocks or other traded items are retained for a period of time instead of just for that one day.

People who participate in day trading buy and sell without retaining the stocks or other commodities overnight. You cannot participate in this kind of trades unless you are able to raise enough capital to purchase a minimum of 1,000 shares of stock in one day. If you are new to the idea of this short-term trading, you need to know that you should have about $25,000 in capital available and you should be willing to risk losing all this capital.

Successful day trading requires knowing when to cut your losses. You also have to be able to pick up on trends, go with market flow and to do all this without emotion. The best way to succeed in day trading is to purchase and sell the stocks that sell in higher volumes so you can sell them without problems.

How Is Currency Day Trading Different From Other Short Term Trading?

Currency day trading is different from most day trading because you can participate even if you are not able to raise $25,000 in capital. When you participate in this foreign exchange trading, you can do so with just a few hundred dollars in capital. You can open a mini account in the forex market with very little money.

The benefit to participating in this type of foreign exchange is that you can trade all day and night because the FX market never closes. That means no matter what your schedule, you will be able to find time for trading currency pairs.

You can easily buy and sell currencies all day long. You are able to trade with minimal capital, which means you are not going to lose a lot of money if you use stop losses and stick to your system. You can also use leverage to increase your trade amounts.

Should You Use Margins?

Normal day trading comes with a margin of 4 to 1. That means a $25,000 investment would allow you to trade up to $100,000. Currency day trading gives you a 50 to 1 margin so you can turn a little bit of capital into some great large trades.

You can use as much or as little leverage as you are comfortable with when you are participating in short term forex trades, sometimes called scalping forex, so you do not have to take risks you do not want to take. The FX market is always moving so there is a lot of liquidity. The number of currencies in the foreign exchange market is much less than the stocks in the regular market so you do not have as much to keep track of.

Day trading forex currency does have its risks, as well as its rewards. You have to be smart about your trading, though. The market is constantly changing so you have to watch for the ideal time to buy and sell. You can win and lose trades just like that so it is possible to earn big profits in a small amount of time. Currency day trading requires you to educate yourself about the market, the trends you may see and the best strategies for trading so you can maximize your profits.

What is Currency Day Trading? Can You Handle the Risk?

What is Currency Day Trading? Can You Handle the Risk?

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Day Trading Your Way To Success

August 28, 2012 By

Day Trading Your Way To Success

If you are interested in day trading you first need to know what it is all about and to understand the basics of day trading. For starters, a day trader is a person who is very active in the stock market and makes several trades a day in an attempt to make quick gains by buying and selling stocks in a short time span.

As the market is never the same day to day, no one particular day trading strategy will work each time. To be successful, you first need to understand how the market works and get a feel for the market.

This includes recognizing the stocks’ basic trend, the long and short setups, when to enter a trade, and where to place stops. Another very important basic is how to protect your profits and minimize losses.

Once you have learned the basics and are ready to try your first day trade, here are some tips and guidelines you should keep in mind that is essential to your success as a day trader.

Being a day trader requires a lot of time and practice before you get used to the everyday volatility in the market. Do not expect to become an expert day trader overnight. No matter how many books you have read or day traders you have watched, that will not make you an immediate expert.

There are day trading websites that simulate trading. Practice with their trading platform first before trying out the real thing. It could save you a lot of money and you will learn the ropes faster this way.

If you are ready for real live trading, do not be scared by the thought of losing money. There are ways to minimize your loss such as with stop orders.

If you lose money, do not worry, as some loss is to be expected. Just remember, with increased experience and sensitivity to the market, you will start turning a profit soon.

If you profit large sums of money, stop trading. Do not gamble it away by trying to gain even larger profits. You can always trade another day.

Sometimes the market will not perform as you expected. When you encounter this situation, it is best that you do not trade at all.

Once you gain more experience in day trading, you may be able to predict the direction of a stock price. However, try not to pick top stocks or bottom stocks. This is one of the most common mistakes of a beginner.

If you cannot predict where the market is heading, it is best if you stand aside and wait, or you can always go home and trade again another day.

It is a good idea to record all of your day trading results. This way you can learn what works and what does not, and be more effective in trading.

Observe good traders. Look at how and when they sell or buy. Generally, good day traders often buy on bad news and sell on good news.

Beginners often get emotional in their trades. Avoid this at all cost, stay emotionally detached and professional.

Learn to trust your instincts. Relying too much on analysis may mean letting a few good trades slip away from you.

As you gain experience, you will see that different day trading strategies are required on different days and required on different stocks. Be flexible.

Bad day traders often focus on too many stocks that are not manageable and often lose track on where each stock is heading. It is wise to limit your stocks in manageable numbers.

With patience and practice, you can be successful in day trading, and as your experience grows so do your profits. Everyday you can learn new day trading strategies in the market, which you can use to your advantage.

Day Trading Your Way To Success

Day Trading Your Way To Success

For a more in-depth look at day trading drop by Susan’s site at Day Trading Strategy [http://www.expert-daytrading.info/sitemap.php]. Susan also enjoys writing on a variety of topics at Health and Fitness Hub.

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Day Trading Psychology – An Unspoken Rational Approach

August 22, 2012 By

Day Trading Psychology – An Unspoken Rational Approach

If you put on a trade and your heart starts pounding, you are *not* ready to trade yet…Some people who aren’t ready to trade have other problems as well:

Pulling the trigger to get in

Staying with one trading strategy long enough to judge it

Letting good trades go bad

Day trading psychology plays a role in these issues, and books have been written to help traders deal with these problems, but most of them do not offer a practical solution.

In order to be successful at day trading support and resistance, you must have confidence in your trading strategy. Most traders with less than 2 or 3 years of experience, and for those who are just starting to learn day trading…well, they have nothing to be confident about. (But, there is a strategy that really helps inexperienced traders, so don’t be discouraged, we’ll talk about it in a minute.)

If your trading strategy isn’t making you money consistently, in “real time”, you can’t have confidence in it. But, how can you tell if your method is any good when you don’t yet have the nerve and discipline to trade it?

Day trading psychology involves building confidence, and consistent, profitable results will lead to confidence. Being a 27+ year veteran trader, my day trading advice for you would be to trade your strategy in simulation mode so that you can judge it rationally. The inexperienced trader (and even some traders with years of experience) has a difficult time thinking rationally when they are afraid of losing money, so take that fear out of the equation by utilizing simulation trading as a tool.

Some “professional” traders will tell you that simulation trading is useless or even, “the worst thing you can do.” But it depends on why and how you utilize simulated trading. If you choose a simulation strategy that has a defined number of setups, a fairly specific strategy for limiting losses, and you stick to that strategy like glue, never deviating from it – then simulated trading is a logical way of testing your method in real time and it will help you greatly.

Day trading psychology also involves self control. Cultivating good habits such as self control, and developing confidence while using a simulation method will help you when you’re ready to trade for profit.

Having confidence in a method you have traded in simulation mode is the most rational starting point for a new trader, or any struggling trader.

So begin the successful part of your trading career with a strategy that you personally have learned to trust through real-time trading (preferably simulated trading).

Not all trading strategies are alike when it comes to day trading psychology, and this is important to understand.

Any strategy that loses more than 60 % of the time (such as a trend-following system) will take enormous courage to trade, no matter what you do. These strategies demand a certain type of person (rich, with ice water in their veins).

Thousands of strategies force you to place a fixed stop and wait to see if it gets hit. These are difficult to trade with confidence – even IF you can find one that wins more than 65 – 70% of the time and makes money in the process. That’s a big IF. You can spend a career and thousands of dollars searching for success with this kind of strategy, most unfortunately end in failure.

My method for support and resistance trading is rarely talked about, but aside from making money for me on a consistent basis for more than 27 years, it just happens to have a rational approach to day trading psychology built in.

Here’s what I’m talking about…

The fear of trading is associated with the lack of control.

With most strategies you can control only a few aspects:

You can learn to control your entries through discipline and strict setups.

You can limit the size of each loss somewhat by using fixed hard stops.

You can control your overall chances of success by finding a strategy that works for you in simulated mode BEFORE you trade it with money.

You can control the days and times of day you trade.

You can control the number of contracts you trade, placing more money at risk on your highest-probability setups, and less on your lower-probability setups.

BUT…

Most traders day trading futures don’t know how to control the overall size of their losses. Learning how to do this is the most rational way of dealing with fear, greed, and other problems of day trading psychology, and it’s the main key to my own success as a trader.

Remember this simple rule that will build your trading confidence like nothing else:

** Exit any trade that doesn’t go your way immediately. **

Forget about the commission, forget about how many hours you waited for the setup, forget everything except this rule. I know it’s radical, but just do it.

Then YOU will be in control of the one factor that most traders don’t believe can be controlled – the downside outcome of the current trade you’re in.

The first rule is used in combination with the second rule…

** Every trade starts out as a scalp until proven otherwise. **

This means that if you get 2 or 3 ticks gain and the market pauses and moves a tick in the wrong direction, you get out immediately with 1 or 2 ticks gain…. No questions asked.

This simple rule gives you control over your gain/loss ratio, another thing that most traders believe is beyond control.

I trade around support and resistance levels because they are built in to every liquid market. They arise primarily from the day trading psychology of people who are trapped in a bad trade and want to get out at break-even as soon as possible. This feeling does not change from year to year or from one generation to the next, so day trading support and resistance can never become a strategy of the past.

I write a daily market report where I give tomorrow’s support and resistance levels, including my own trading plan, as well is intraday updates. Experienced, professional traders have used my RBI Trader’s Updates since 1996 because I’m accurate and my trading plan works over the long haul.

Day Trading Psychology – An Unspoken Rational Approach

Day Trading Psychology - An Unspoken Rational Approach

Mike Reed is author of TradeStalker’s Support and Resistance Updates. Mike began trading the Market in 1982. When he got his start as a trader, Mike was plotting prices on paper tape as the internet had not yet been “born” as we know it today. Years of experience have really given him a feel for Market action. His support and resistance numbers have been published on the internet since 1996. He has a wide readership that includes day traders, floor traders, locals and hedge fund managers. His nightly trading plan, along with his support and resistance zones, are specific and accurate. He offers an unlimited free trial of his nightly TradeStalker Updates.- Copyright 2010 Mike Reed and http://www.TradeStalker.com

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