The Forex Robot Blog

Forex or FX currency trading is a risky business. Many people go into it with high hopes of getting rich and quickly find that it is easier to lose money in the foreign exchange markets than to make it. Even if you are ideally financed and have the best system, robot or plan, you may discover the sad fact that the one thing holding many traders back from success is themselves.

So in this article we look at some of the major pitfalls of forex trading and how to avoid them.

1. System hopping

One surefire way to lose money with forex trading is trying a system for a few days and giving up on it because it made a loss or two. Before you even start using a system you should be as sure as a person can be that it is going to be profitable. You have to accept losses and stick with it.

Remember that if you bail out every time that you are losing, you never give your systems a chance to put you back into profit. You will lose your shirt for sure if you hop from one system to another without giving anything a chance to work.

2. Dwelling on ‘what might have been’

One of the worst temptations of trading is being drawn into wasting time and energy on thinking about how much we could have made if only we had acted differently. Often a situation will arise that does not quite meet the requirements of your system. You wait, and perhaps it turns out that you could have made a lot of money if only you had acted.

But thinking this way is dangerous. Another time the same situation will turn against you. We tend to remember all of the lost chances to win and forget that by keeping to the plan, we also miss a lot of losing situations.

3. Impatience

You will lose money if you do not have the patience to wait for the right trading opportunity. A short run of losses can make us feel desperate for a successful trade, but we must still wait for the right market signals. Do not be led into acting too soon by excitement or the fear of missing an opportunity.

4. Hesitation

On the other hand, it is also important not to hesitate too long. When the right moment comes along, act with conviction. Have your plan written down and keep it in front of you at all times so that you know exactly when the signs are right for your trade. Do not wait until you see a trend forming to start thinking about your position size, leverage or stop loss. Everything should be in place so that you can take advantage of a genuine opportunity.

5. Letting emotions drive your trading

We all know the danger of letting our emotions lead us in any trading situation, at least in theory. In practice it can sometimes be hard to tell the difference between fear and caution, or between profit maximizing strategies and greed. Having a written plan will help again here, as will training with a demo account where emotions will not be nearly so strong.

Some people find that they cannot make money with a demo account because they are getting into experimental trades, telling themselves that it does not matter because it is not real money. If they do then start trading with a real account they are completely unprepared for the emotional punch of real time trading and have not learned any discipline to help them handle it.

So whether you are trading in demo mode or for real, take it seriously. Be sure to avoid these traps if you want to make money with FX currency trading.

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Just as there are rules and guidelines for forex trading strategies when you are learning how to make money on the forex market, there are also tricks for dealing with personal factors and habits that undermine our success. Here are 5 golden rules for handling ourselves so that we can move smoothly from hesitant beginner to successful forex trader.

1. Keep Cool

Successful traders do not let their trading depend on their emotions or their emotions depend on their trading. They do not risk more because they are feeling lucky, they do not hesitate when the signs are right, or pull out of a trade too soon out of fear. Equally, they are unlikely to celebrate a gain, nor will they sulk, shout or kick the dog when they lose.

A person who is ruled by their emotions will not make it as a forex market trader. Self discipline can be learned but make sure that you have fully mastered your emotions on a demo account before you think of going live. If you are still taking unplanned risks you are not ready for real trading.

2. Think For Yourself

Different traders have different techniques. This means it there is limited value in getting advice from anybody else. In fact, unless you know that the person follows your system and techniques, their advice is probably worthless to you.

Do not copy somebody else’s system just because they seem to be making money with it. Do your own research and check everything that you are told. Even then, consider carefully before abandoning the system that you have chosen before. There may be factors that you have not taken into account. Something that works for somebody else will not necessarily work for you.

3. Keep Records

Keep a spreadsheet detailing every trade so that you can see patterns in your own results. You do not necessarily need to use it to change anything, but refer to it often to remind yourself of the many small trades that add up to success or failure.

What should you record? At a minimum, the currency pair, your position and the opening and closing prices. However, these bare facts will be much more informative if you can also add why you took the position. Did it fit the criteria of your system? What made you think that the trend would go your way? When you look back you will have a much better view of why your trading history is going well or not so well.

4. If In Doubt, Stay Out

Do not open a trade if you are hesitant or unsure about it, provided of course that you have a reason other than fear for your hesitation. A trade can only go one way or the other, so if it is not completely right, it is wrong. Wait. There will be plenty of better opportunities.

5. Limit Your Trades

Do not be drawn into thinking that you must never miss an opportunity. You do not have to be on top of a lot of different currency pairs and jump into every market regardless of what else you may be doing.

Limit the number of open trades that you have. It is not a good idea to have more than two open positions at the same time, and unless your first trade in the forex market is profitable you should not even consider opening a second.

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When you have read a few forex books or visited a few online currency trading forums, you will quickly realize that there are almost as many different forex trading strategies as there are traders. People have their own style; but more than that, in currency trading there are many different ways of making money.

So there is not one top forex system that you must follow to profit from foreign exchange trading. However, there are some guidelines that apply to the way in which you approach your trading and these are true for just about anybody. I call them the golden rules of trading.

1. Follow The Trends

Most forex trading strategies and systems focus on identifying trends and there is a good reason for that. Whether the trend shows a rise or a fall, get in to go long or short as appropriate and do not go against it. Bucking the trend will see you losing money fast.

2. Safeguard Your Funds

Risking too much on one trade has been the downfall of many a promising trader. Never risk a lot of money on a single trade, however strong your feelings may be that this one cannot go wrong. They can all go wrong.

So how much do you risk? It depends on your strategy and how much it matters to you if you lose all of your funds, but never more than 5% of your balance. 2% per trade is a safer option.

Some people maintain the percentage as their funds increase, so that they gradually risk more in real terms on each trade. That is up to you but consider carefully before you do this. When you have more money in your account, you will probably be more unhappy if it is wiped out, so you may want to keep the same position size (reducing your percentage risk) as your funds increase.

3. Set Goals For Each Trade

Have a clear profit goal for each trade, so that before you enter, you have already decided when you will take the profit and close. Do not get greedy and try to stay in there for more and more.

In the same way, if it turns bad, do not try to hold on in the hope that the market will turn back your way. Cut your losses and get out. Using stop losses to do this automatically is a very wise strategy.

Those are the first three golden rules of currency trading: the guidelines that can help you develop profitable forex trading strategies, whatever your system.

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Among the many types of technical analysis available to forex traders, the single most useful and popular are probably candlestick charts. These were originally developed in Japan during the 18th century by a prominent commodity trader who used them to chart the fluctuations in the price of rice. For this reason they are often known as Japanese candlestick charts, and many of the patterns that they form have Japanese names.

Simple line graphs plotting the price of a commodity at regular intervals in time had been used for centuries, but traders were in need of something that could plot more variables within a two dimensional graph. The bar chart showing the opening, high, low and closing prices of a commodity was useful and helped traders to predict future price movements in a more reliable way than line charts, but candlestick charts were even better.

They were introduced to the American stock market and from there to the worldwide financial markets by Charles Dow at the beginning of the 20th century. Dow was the founder of the Wall Street Journal and co-founder of the Dow Jones company.

Candlestick Formation

The chart is made up of a series of ‘candlesticks’ which typically have a chunky body with vertical lines stretching up from the top (the upper shadow or wick) and bottom (the lower shadow or wick). The different points measure the differential in prices over a certain period of time, which might be 5 minutes, 15 minutes or longer.

The top of the wick is the highest point reached during the time period and the lowest point of the lower wick is the low. The top and bottom of the body are the opening and closing prices. If price rose during the period the body will be white (or green or blue if colored). The bottom of the body marks the opening price and its top marks the close. If the price fell during the period the prices are the other way around and to show this at a glance the body will be black (or red if colored).

How To Use Candlestick Charts In Forex Trading

A chart showing 5 or 15 minute candles over a period of several hours can provide the forex trader with many patterns on which he can base a system for determining when a trend is developing. For example, when the candle body is white or green and higher than the preceding candles, it indicates that buyers are very bullish. When it is black or red and lower than the preceding candles, it indicates that buyers are very bearish.

Being able to see these implications at a glance is vital in the fast moving forex markets where trading decisions often need to be made in a split second. So candlestick charts are one of the most useful visual aids for any forex trader.

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Identifying and profiting from forex trends and patterns is the way that most forex traders make money. Your main aim when you are trading the foreign exchange market will be to identify a trend as it is forming and jump in so that you can profit from it.

Trends are very simple to see in hindsight when we look at a chart. A candlestick chart shows them most clearly but you can see them on any type of chart.

If you draw a line above the low points of the candlestick shadows while prices are generally rising you will see the slope of the uptrend. Similarly if you draw a line above the high points of the shadows while prices are generally falling, you will see the slope of the downtrend.

There are also sideways trends when the prices are fluctuating up and down between two points but not breaking beyond them. In this case the lines drawn above and below the shadows will be just about horizontal.

Where you have a horizontal line, you could expect a breakout going in one direction or the other eventually. Some traders will set up orders to enter the market when the price goes to a certain point either above or below the line.

Other traders will use sideways forex trends to indicate a change in the main movement of the prices. For example if the sideways pattern follows a pretty much regular upward movement, it may indicate resistance to the price moving any further. You could surmise that the upper line is a resistance line and a downturn will follow to bring the prices back within the band that is supported by the market.

Before using any of these methods to create a system, however, you should do extensive testing. Backtests will help you decide whether the system is worth investigating further. Then always run real time tests using a demo account before you back your system with real money. Remember that forex is very risky and even the best of systems have their failures or what may be called losing runs.

If trend lines are drawn correctly they can be just as accurate a way of predicting breakouts or major changes in the direction of price movements as any other method. However you have to be careful to be objective, especially when dealing with the real time market.

When we are waiting for certain conditions to be fulfilled so that we can place an order, it is tempting to jump the gun and assume that a pattern is forming when really it is too early to be sure. So watch out. When drawing lines for forex trends it is deceptively easy to draw what you want to have happen, instead of what is happening.

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There are basically two types of currency exchange trading: forex fundamental analysis and technical analysis. There is a lot of debate about which is better. In fact, both are important. The simplest way of looking at these two methods of analyzing the market is to say that fundamental analysis considers the world economy while technical analysis looks at charts. In this article we will consider the different fundamental or economic factors and how they can affect your trades.

It will be clear to anybody who has even the most rudimentary understanding of the currency markets that a nation’s economic status will have an effect on the value of that nation’s currency.  A healthy economy means a strong currency, just as a company’s stocks will rise in value when that company is doing well.

Any time that a major financial or economic report is due from one of the main players in the world economy, you can expect to see an effect on the foreign exchange markets. This includes reports of the country’s Gross Domestic Product, statements of the national debt, inflation, employment levels and trade deficits. Many of these reports are given out regularly at predetermined times and dates, and you will see a lot of volatility in the forex markets around those times.

It is very important to keep track of when these reports are due, not only in your own country but in all of the countries whose currencies you regularly trade. You cannot rely on national newspapers and television for this. They do not carry international economic news at a sufficiently detailed level. You need specialist publications. Many people use the internet for this purpose.

However, it is not only the economy that counts. Social and political forces also have a strong influence on a nation’s currency values. Events such as an election, civil unrest, or a natural disaster can cause fluctuations in values.

Some of these events are difficult or even impossible to predict, but you can still base trades around what is likely to happen after the event. You can use historical analysis to see what happened in the currency markets the last time there was a similar event.

If you want to base your trading around fundamental analysis of the forex markets you will need to be the type of person who enjoys following the financial, political and economic news.

The alternative is to use information about upcoming events to avoid trading at those times. People who prefer to rely mainly on technical analysis will do this. But you still need to know what is happening, in order to keep out of the market. So even for somebody who prefers basing their trades on charts, forex fundamental analysis is important.

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Forex, foreign exchange and fx trading are all different names for currency trading, where one currency is exchanged for another in the hope of making money when the exchange rates change. These rates are constantly changing due to market news, national events or a knock on effect from changes in the stock exchange.

At the most basic level, imagine you exchanged some US dollars for British pounds. You might give $100 to buy £65. Then the rate changes in your favor so you exchange them back again. Now with the new rate you get $102 for your £65. You just made $2 or 2% of your investment.

Currency traders do this kind of thing all of the time with the aim of increasing their funds through many small trades. They trade on margins so that they can control larger amounts with only a small investment. In the above example, you might only have to hold $10 in your brokerage account to make the purchase even though the amount is $100. The broker covers the rest on the assumption that the market is unlikely to change by more than 10% in a short time.

Forex trading has been around for over 30 years but until the rise of the internet it was almost entirely in the hands of banks and other institutions with large investment funds. These days ordinary people can get involved on their home computers although the financial institutions are still the major players. When I tell you that around US $4 trillion changes hands every day on the currency trading markets you will understand that only a small part of this belongs to ordinary people like you and me.

Foreign exchange is a worldwide market and because of the different time zones around the world you can trade almost any time. Sydney, Australia is the first currency exchange market to open each day, and by the end of the business day in New York the Sydney market is open again for the next day’s trading. So for 5 days per week this is truly a 24 hour market. It only closes on weekends.

You are not limited to dealing in your own country’s currency so if your national economy is in a very unpredictable state you can switch to trading two other currencies that are a little more stable. While it is
true that a volatile situation with big fluctuations can give you big profits in a short time, it is extremely risky to get involved in a currency that is experiencing a crisis.

These days brokers are going all out to attract the new type of home investor who does not have a lot of capital, so you can get started with just a few hundred dollars. They will provide you with software that
allows you to make trades on your account, and real time market information including charts to show you the direction of movement of the different currency pairs.

With so much money changing hands every day, foreign exchange is a high liquidity market. This means that your capital will not be tied up for the long term as it might be if you bought certain kinds of stocks.

Apart from some funds to invest, the main things that you need to get started with currency trading are good money management skills, self discipline, a profitable system to follow and perhaps a forex robot to apply your system for you. When you have these in place, currency trading can be fun and quite profitable.

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It is important to understand what a forex trading strategy is so that you get the right benefit from it. If you want a strong and lifelong foothold on this $1.5 trillion or more trading business you have to put in a bit of effort which will result in rewards later.

Don’t start trading without a proper strategy. Unless you acquire proper knowledge regarding the forex market your success maybe sporadic at best and tragic at worst! Without an effective trading strategy you are simply speculating on a market that can wipe you out in no time. If you are looking to invest in the currency markets long term then it is important to treat this as business rather than a poker game. 

In this article we will look at some simple forex strategies. To begin with we have to stress the fact that unless you make out the market or have in-depth knowledge about it success is not always guaranteed.

1 – You need to understand who all the players are in relation to the forex market including the banks, bankers, the brokers and every other thing in relation with forex.  It’s important to figure out who does what and how they will impact your trading efforts.

2 – You have to be acquainted with the language of  trading and know what things like pips, volume, buying or selling, going long or shorting means.

3 – Also become familiar with the terms Technical and Fundamental which are the two most popular means of analyzing charts.

Smaller or private traders tend to prefer technical analysis methods for their trading strategy. This means that they examine price structure and trends. On the other hand institutional investors tend to trust the fundamental examination method more.

4 – The choice of forex strategy is driven by the trader’s personality and the class of trader he is. So you have to identify the type of dealer you are and based on that you can select a strategy that you feel most comfortable with. A lot of this is to do with your appetite for risk and reward.

5 – A good forex strategy must at reducing your losses. Always try to deal in a higher volume of transactions rather than depending on any single transaction of a huge size. Waiting for the big one could wipe out your profits before you even get started.

6 – You must learn how to keep your finances under control and keep yourself focused and disciplined. This is very important because most people tend to leave this business very quickly as the rate of failure is quite high in forex trading.

7 – Once you have identified and selected a strategy, its now time to put things into practice. Start with paper dealing through brokers who allow such practice and this will let you gain good experience of the trade and your strategy without burning any of your capital.

Bonus tip – Make sure that you find a reputable and trustworthy broker so that your trading is executed safely.

Following these simple tips in selecting a forex trading strategy will make sure that you get off to a flying start in your forex career!

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A good forex trading strategy always helps in successful trading occupation. But to become good at implementing a forex trading strategy correctly you must spend some time learning about forex trading. Here, we will discuss about a valid, simple and good forex trading strategy that has worked for many traders and hopefully it will work for you too.

Remember that the forex market is full of surprises and sometimes these surprises won’t be pleasant at all. But still if you want success you have to depend on some strategy and the forex robots are also there to support you. Many people have adopted the strategy of legitimate breakouts for their forex trading.

Breakouts have an important role to play in forex trading. If you look at a chart and analyze it carefully then you’ll notice that there are trends. Breakouts are the starting point of important trends. To put this simply the breakout is a point of resistance or assistance that is stopped.

Here the price will now make a new rise or fall. This strategy states that you must work with only those breakouts which are valid and time tested. So you have to see that the tests have been done properly for at least three times. To name a system that proved to be effective and helped out many traders is that of ‘The 4 Week Rule.’ This system was created by the trading expert Richard Douchian.

The steps in this system are absolutely simple to follow but completely worthwhile. You have to close the short positions followed by taking a long position. Only do this when the price value exceeds the high of the earlier four weeks. After this you have to close the long situation and take the short position.

Do this when the price is falling below the lower level of the preceding four weeks. There is an easy way to face the uneven market situations. You can execute the strategy but reduce the time (one or two weeks) for leaving the position. At the next four weeks signal you can again carry on with this great forex trading strategy.

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