Trading education

If you are a beginning trader in the foreign exchange (FOREX) market, you may be initially mystified by the terminology associated with this type of investing. In some cases the terms utilized do not seem to be even remotely related with the concept involved. Let’s take a look at a couple of basic terms which may help you better understand the fascinating area of currency trading.

Going Long

After you have gained a proper trading education and formulated a well-tested trading plan via your demo account, you will begin walking down the serious path of trading real money. Eventually, you will take a position as determined by your strategy. One possible position involves going long. This means that you have decided to buy a particular currency based on your belief that the price of the same will increase, allowing you to make a profit when you close out the position. Going long, therefore, is the same as buying the currency.

Because currencies are traded in pairs, it is important to note that when you say that you are going long on the EUR/USD, for example, you are really saying that you are going long on the Euro rather than the U.S. Dollar. That is because the reference as to the position taken is made specifically to the base currency, i.e. the currency that appears in the first position of the pair, as does the Euro in this case. Incidentally, the currency occupying the second position in the pair is known as the quote or cross currency.

Going Short

This term is perhaps a bit more difficult to understand at first than the previous one. Fortunately, as you might guess, going short is the opposite of going long. Here, the trader is selling a particular currency. Confusion may occur here in trying to understand how you can sell something you haven’t previously purchased. One way to clear your thinking about this is to think of purchasing the “right” to sell as opposed to selling the actual currency you do not have in hand. Although not necessarily a perfect analogy, let’s borrow from the real estate investment arena, particularly regarding the technique of house-flipping. Many real estate investors involved in house-flipping may contract to buy a house, but before the actual purchase, an arrangement will be made with a new buyer to whom the house will be ultimately flipped or sold very quickly. In the FOREX market, the broker is responsible for facilitating the bringing of the buyer to the transaction in which you are simultaneously selling the same currency.

Trading Tip

In the event you utilize charts to view the movement of the currency pair you are trading, remember that when the line graph moves upward, the base currency is going up in value as against the cross or quote currency. Obviously, when the line goes downward the opposite is true. By way of example, if you go long on the EUR/USD and the graph line thereafter moves upward past your entry point, then you are in the profit zone. If you go short on the same pair and the line graph goes downward past your entry point, you are likewise experiencing profitability.

Sandy Robinson, J.D., Copyright 2007

By: Sandy Robinson, J.D.

There are many reasons why Forex traders often wipe out their accounts. In fact, there are so many factors that cause Forex traders to lose money, that only 10% of all traders are consistently profitable.

Almost all of these loss-causing factors, however, can be generally narrowed down to 4 basic reasons:

1. Not understanding what the Forex market is about

Many retail traders make the mistake of treating the currency markets the same way they treat other financial markets. I knew of a well-performing stock trader that lost more than $50,000 because he traded Forex the same way he traded stocks.

Even though the trading charts used in the stock and currency markets are similar (or even identical), the underlying natures of both markets are vastly different. To be able to trade profitably in the Forex market, you’ll have to first understand its characteristics and nature – don’t think that Forex trading is the same as other forms of trading!

2. Not understanding your position in the Forex market

There are many players in the Forex market, and each type of trader has different strengths and weaknesses. Many losing traders don’t realize that the trading strategies of one type of trader won’t work for the other types. For example, the trading strategies used by institutional traders will fail miserably for retail traders. This is because the strategies used by institutional traders are based on their strengths and weaknesses, which are very different from that of retail traders.

3. Not understanding the effects of greed, fear, impatience and pride on traders

This point is self-explanatory. Instead of using this knowledge as a tool to trade well, losing traders often fall into the habit of suffering from these emotional effects instead.

4. Listening to bad trading advice

It’s easy to find Forex trading information and advice on the internet today.

Unfortunately, most of this advice is provided by people who aren’t profitable traders themselves. While their advice is generally well-intentioned, the fact is that much of it is pure hogwash and cannot be practically implemented into any sustainable trading strategy. Be careful about where you learn about Forex trading from.

By: Harold Hsu

Here we are going to look at the 3 key points you must consider if you wish to achieve forex trading success. Fail in any of these areas and you will lose.

1. Get the Right Education

To make money at forex trading you don’t need to work particularly hard – but you do need to get the right knowledge and learn it. Most traders don’t and fall victim to common forex trading myths. Here is a list of them, believe any of them and you are guaranteed to lose.

- You can make money with forex day trading

- You can predict forex prices in advance

- You should buy low and sell high to make money

- You can trade off news stories

- You need a complicated forex trading strategy to win

- You can follow a simulated system from a vendor and make money

- Forex trading is easy

Believe any of the above and you can say goodbye to your equity.

If you want to get the right forex education and knowledge you need to spend some time learning the basics and developing a strategy you understand, because this leads onto the next vital ingredient for currency trading success:

2. Confidence

Most novice forex traders simply think they can make money following someone else or trading news stories. They have no idea how and why the markets move and when they hit a few losses, they have no confidence in what their doing and that’s the end of their forex career and their equity.

Now let’s look at the vital ingredient all traders need to succeed that flows from confidence:

3. Discipline

If you don’t have confidence in what you are doing, then you will never have the discipline to sit through a period of losses and wait for winning trades to return.

One of the biggest myths of forex trading is that you can earn a consistent living and a regular monthly income – its rubbish you can’t!

Even the best traders will spend weeks or months in periods of drawdown and you will to. Sure, you can make huge gains over the longer term – but there not spread evenly across the year.

If you don’t have discipline to take short term periods of drawdown and still keep trading, you don’t have a trading method at all.

If you want to win at forex trading the good news is:

If you work smart, you can learn to trade in just a few weeks.

If you have avoid the myths and get the right knowledge, you will be confident in what you are doing. From this understanding and confidence you will achieve discipline. You need the discipline to stay with your method through short term losses and stay with your system to achieve longer term success.

95% of traders lose and this group simply do not understand that to make big profits, you need to have a simple robust trading system; you have confidence in and the discipline to follow it.

If you understand the above you will be able to put the 3 building blocks together and achieve forex trading success – it really is that simple.

By: Kelly Price