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Forex Trading Philosophy
By Dries Cronje, Thu Dec 8th
FOREX Trading Philosophy By Dries Cronje (http://www.investing-smarter.com) Keen on starting FOREX trading? Why would you not be… Manybeginning FOREX traders are captivated by the allure of easymoney. FOREX websites offer 'risk-free' trading, 'high returns'and 'low investment' – these claims have a grain of truth inthem, but the reality of FOREX is a bit more complex. As withanything in life, what you put in will determine what you getout.
There are two common mistakes that many beginner traders make –trading without a strategy and letting emotions rule theirdecisions. After opening a FOREX account it may be tempting todive right in and start trading. Watching the movements ofEUR/USD for example, you may feel that you are letting anopportunity pass you by if you don't enter the marketimmediately. You buy and watch the market move against you. Youpanic and sell, only to see the market recover. This kind of undisciplined approach to FOREX is guaranteed tolose you money, and have you waste your time. FOREX traders needto have a rational trading strategy and not allow emotions torule their trading decisions. The two emotions prevalent in the above example is greed(entering the market immediately) and fear (selling when themarket temporarily moves against you). Investing and these twoemotions do not gel at all. Keep them out of your trading andyou will see results. To make rational trading decisions the FOREX trader must bewell-educated in market movements. He must be able toapply technical studies to charts and plot out entry and exitpoints. He must take advantage of the various types of orders tominimize his risk and maximize his profit. The first step in becoming a successful FOREX trader is tounderstand the market and the forces behind it. Who trades FOREXand why? Who is successful and why are they successful? Thisknowledge will allow you to identify successful tradingstrategies and use them as models for your own. There are 5 major groups of investors who participate in FOREX –Governments, Banks, Corporations, Investment Funds, and traders.Each group has varying objectives, but the one thing that allthe groups (except traders) have in common is external control.Every organization has rules and guidelines for tradingcurrencies and can be held accountable for their tradingdecisions. Individual traders, on the other hand, areaccountable only to themselves. If you do not keep yourself in check, nobody else will. Whyshould they worry if you aimlessly waste your money? This means that the trader who lacks rules and guidelines isplaying a losing game. Large organizations
Canadian dollar ends little changed; traders watch Greek talks
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<a href="http://ca.reuters.com/article/businessNews/idCATRE81728R20120208" style="font-size:1.2em">Canadian dollar ends little changed; traders watch Greek talks</a>
<br> <span style="color:#888888;">Reuters Canada</span> - <span style="white-space:nowrap">5 hours ago </span>
<div style="width:80%;">By Andrea Hopkins TORONTO (Reuters) - Canada's dollar ended little changed against its US counterpart on Wednesday with the currency stuck in a tight trading range as investors awaited resolution on a second Greek bailout and central bank meetings on ...</div>
<a href="http://www.euro-exchangerate.com/canadian-dollar-cad-08021365.html">Exchange Rate Partner Services</a> - <span style="color:#888888">Euro Exchange Rate News</span><br>
<a href="http://www.reuters.com/article/2012/02/08/markets-canada-dollar-bonds-idUSL2E8D8ENS20120208">CANADA FX DEBT-C$ ends little changed; traders watch Greek talks</a> - <span style="color:#888888">Reuters</span><br>
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Loonie Mixed After Canada's January Housing Starts Fell Less Than Expected
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<a href="http://www.thestreet.com/story/11408163/1/loonie-mixed-after-canadarsquos-january-housing-starts-fell-less-than-expected.html" style="font-size:1.2em">Loonie Mixed After Canada's January Housing Starts Fell Less Than Expected</a>
<br> <span style="color:#888888;">TheStreet.com</span> - <span style="white-space:nowrap">12 hours ago </span>
<div style="width:80%;">By DailyFX 02/08/12 - 09:32 AM EST By Trang Nguyen, Canadian housing starts unexpectedly retreated in the first month of 2012 as a result of considerable decline in urban single units and slowdown in multiples.</div>
<a href="http://www.forexpros.com/news/economic-indicators/canadian-housing-starts-fall-less-than-expected-230070">Canadian housing starts fall less-than-expected</a> - <span style="color:#888888">Forex Pros</span><br>
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British Pound Sterling: Currency set to Outperform EUR in 2012 suggest BarCap <b>...</b>
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<a href="http://www.euro-exchangerate.com/british-pound-vs-eur-currency-latest-08021364.html" style="font-size:1.2em">British Pound Sterling: Currency set to Outperform EUR in 2012 suggest BarCap <b>...</b></a>
<br> <span style="color:#888888;">Euro Exchange Rate News</span> - <span style="white-space:nowrap">14 hours ago </span>
<div style="width:80%;">Three factors matter for EUR/GBP: the risk from Greece; the UK's relative economic performance; and valuation. Looking at today's spot exchange rates, British Pound Sterling (GBP) in Euro (EUR): GBP/EUR is 0.17% lower at 1.1966.</div>
<a href="http://www.forexpros.com/news/forex-news/forex---usd-cad-in-tight-range-as-markets-await-greece-news-230073">Forex - USD/CAD in tight range as markets await Greece news</a> - <span style="color:#888888">Forex Pros</span><br>
<a href="http://www.bestsyndication.com/?q=20120107_forex_signals_trading_gold_silver_oil_prices.htm">Gold and Silver Prices Advance ? USD Up vs JPY but Down vs EUR ? Crude Oil Higher</a> - <span style="color:#888888">Best Syndication</span><br>
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Canadian Dollar (CAD) Technical Major Currencies (2012-02-08)
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<a href="http://www.ibtimes.com/articles/294887/20120208/canadian-dollar-cad-technical-major-currencies-2012-02-08.htm" style="font-size:1.2em">Canadian Dollar (CAD) Technical Major Currencies (2012-02-08)</a>
<br> <span style="color:#888888;">International Business Times</span> - <span style="white-space:nowrap">19 hours ago </span>
<div style="width:80%;">Trading has been very slow lately, moving within tight ranges however with a downside bias within the short term down trend. The main short term descending channel continues to confine trading and price is approaching the latest low at 0.9928, ...</div>
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Forex - USD/CAD erases gains on Greece deal speculation
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<a href="http://www.forexpros.com/news/forex-news/forex---usd-cad-erases-gains-on-greece-deal-speculation-230025" style="font-size:1.2em">Forex - USD/CAD erases gains on Greece deal speculation</a>
<br> <span style="color:#888888;">Forex Pros</span> - <span style="white-space:nowrap">Feb 7, 2012 </span>
<div style="width:80%;">By Forexpros | Forex News | Feb 07, 2012 02:36PM GMT Forexpros - The US dollar erased gains against its Canadian counterpart on Tuesday, as market sentiment was boosted by speculation that Greek officials were working on the final draft of an agreement ...</div>
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Canadian Dollar (CAD) Technical Major Currencies (2012-02-07)
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<a href="http://www.ibtimes.com/articles/294134/20120207/canadian-dollar-cad-technical-major-currencies-2012-02-07.htm" style="font-size:1.2em">Canadian Dollar (CAD) Technical Major Currencies (2012-02-07)</a>
<br> <span style="color:#888888;">International Business Times</span> - <span style="white-space:nowrap">Feb 7, 2012 </span>
<div style="width:80%;">The pair has been fluctuating with narrow ranges recently, within the descending short term channel shown on image, while MACD indicator continues to provide a bullish divergence over the four-hour timeframe, and momentum indicators are within oversold ...</div>
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Canadian dollar exchange rate (CAD) falls back vs USD as risk aversion takes <b>...</b>
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<a href="http://www.euro-exchangerate.com/canadian-dollar-cad-06021354.html" style="font-size:1.2em">Canadian dollar exchange rate (CAD) falls back vs USD as risk aversion takes <b>...</b></a>
<br> <span style="color:#888888;">Euro Exchange Rate News</span> - <span style="white-space:nowrap">Feb 6, 2012 </span>
<div style="width:80%;">The US dollar to Canadian dollar exchange rate (USD/CAD) is 0.54% higher at 0.9987. The euro Canadian dollar exchange rate (EUR/CAD) is 0.39% lower at 1.3018, the pound Canadian dollar exchange rate (GBP/CAD) is 0.22% higher at 1.5746.</div>
<a href="http://www.torfx.com/blog/the-gbp-cad-exchange-rate-showed-signs-of-a-revival-over-the-past-seven-days/11539/">Pound to Canadian Dollar Exchange Rate Forecast ? The GBP CAD exchange rate <b>...</b></a> - <span style="color:#888888">TorFX Foreign Currency Exchange (blog)</span><br>
<a href="http://www.dailyforex.com/forex-articles/2012/02/USDCAD-Daily-Outlook-Feb-7-2012/10802">USD/CAD Daily Outlook Feb. 7, 2012</a> - <span style="color:#888888">DailyForex.com</span><br>
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Canadian dollar exchange rates (CAD) are a big winner following strong Non <b>...</b>
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<a href="http://www.euro-exchangerate.com/canadian-dollar-exchange-rate-non-farm-03021348.html" style="font-size:1.2em">Canadian dollar exchange rates (CAD) are a big winner following strong Non <b>...</b></a>
<br> <span style="color:#888888;">Euro Exchange Rate News</span> - <span style="white-space:nowrap">Feb 3, 2012 </span>
<div style="width:80%;">Canadian dollar exchange rate: Global markets have been caught by surprise following the release of strong US Non-Farm Payroll data.</div>
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Canadian Dollar (CAD) Technical Major Currencies (2012-02-03)
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<a href="http://www.ibtimes.com/articles/292363/20120203/canadian-dollar-cad-technical-major-currencies-2012-02-03.htm" style="font-size:1.2em">Canadian Dollar (CAD) Technical Major Currencies (2012-02-03)</a>
<br> <span style="color:#888888;">International Business Times</span> - <span style="white-space:nowrap">Feb 3, 2012 </span>
<div style="width:80%;">The pair has been trading within a narrow range above the 200-days SMA; the pair is having difficulties breaching this support area around the average as see on chart, while price is clearly oversold as seen on Stochastic.</div>
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Canadian dollar exchange rate: CAD finds risk environment unconstructive <b>...</b>
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<a href="http://www.euro-exchangerate.com/canadian-dollar-exchange-rate-02021342.html" style="font-size:1.2em">Canadian dollar exchange rate: CAD finds risk environment unconstructive <b>...</b></a>
<br> <span style="color:#888888;">Euro Exchange Rate News</span> - <span style="white-space:nowrap">Feb 2, 2012 </span>
<div style="width:80%;">The CAD was not a participant in the overnight push up in risk currencies, with USD/CAD remaining well-entrenched in familiar ranges.</div>
<a href="http://www.forexpros.com/news/forex-news/forex---usd-cad-up-on-jobs-data-229907">Forex - USD/CAD up on jobs data</a> - <span style="color:#888888">Forex Pros</span><br>
<a href="http://www.actionforex.com/index.php?option=com_content&view=article&id=158866:mixed-reactions-in-the-us-dollar-to-the-non-farm-payroll&catid=191:daily-forex-technicals">Mixed Reactions in the US Dollar to the Non-Farm Payroll</a> - <span style="color:#888888">Action Forex</span><br>
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and educated tradersapproach the FOREX with strategies, and if you hope to succeedas a FOREX trader you must play by the same rules. That isstudying these strategies and rules before starting to trade isso important. FOREX Trading Philosophy - Money Management Money management is part and parcel of any trading strategy.Besides knowing which currencies to trade and recognizing entryand exit signals, the successful trader has to manage hisresources and integrate money management into his trading plan.Position size, margin, recent profits and losses, andcontingency plans all need to be considered before entering themarket. This may sound like Greek now! If it does, you have more reasonto get to know these terms. Knowledge will empower you on anyinvestment market, including FOREX. There are various strategies for approaching money management.Many of them rely on the calculation of core equity. Core equityis your starting balance minus the money used in open positions.If the starting balance is $10,000 and you have $1000 in openpositions your core equity is $9000. When entering a position try to limit risk to 1% to 3% of eachtrade. This means that if you are trading a standard FOREX lotof $100,000 you should limit your risk to $1000 to $3000 –preferably $1000. You do this by placing a stop loss order 100pips (when 1 pip = $10) above or below your entry position. As your core equity rises or falls you can adjust the dollaramount of your risk. With a starting balance of $10,000 and oneopen position your core equity is $9000. If you wish to add asecond open position, your core equity would fall to $8000 andyou should limit your risk to $900. Risk in a third positionshould be limited to $800. By the same principal you can also raise your risk level as yourcore equity rises. If you have been trading successfully andmade a $5000 profit, your core equity is now $15,000. You couldraise your risk to $1500 per transaction. Alternatively, youcould risk more from the profit than from the original startingbalance. Some traders may risk up to 5% against their realizedprofits ($5,000 on a $100,000 lot) for greater profit potential. As you can see, the novice needs to get through quite a bit ofeducation, understanding and planning before those 'risk-free'trading, 'high returns' and 'low investment' promises will comeinto play. What are you waiting for? Get yourself a decent FOREXTrading Education. If you need more information, feel free tovisit http://www.investing-smarter.com. About the author:Dries Cronje has a BSc (Actuarial Science)degree and iscurrently studying to be an actuary. He has worked as anActuarial Consultant for over five years. For more information visit http://www.investing-smarter.com.
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