“Stop Hunting” - a Simple FOREX Strategy
Tuesday, February 27, 2007 3:05 PM mistrack
by: Mia Millis
Today FOREX world is built around large leverage and constant use of margin, in equities, standard margin is set at 2:1, in options, the leverage increases to 10:1, in the futures market, the leverage factor is increased to 20:1, but in the FOREX market the leverage sets the highest bar by increasing to 100:1 ratio and can climb up to 200:1 meaning that you can invest $100 for a $20,000 value control! An experienced trader would limit his leverage to no more than 10:1.
Alongside leverage usage, or as in many FOREX rookies’ cases using too much leverage, comes the opportunity for either extremely profitable or extraordinarily dangerous and huge loses. You can double your account overnight or lose it all in a matter of hours if you make use of the full margin at your disposal. Considering that fact, most FOREX traders use “stops” order / “stop-loss” - they simply do not have the luxury of nursing a losing trade for too long because their positions are highly leveraged, and here you can step in and take advantage of this knowledge.
Stop order in a nutshell is a form of insurance or security measure that is given to buy or sell when a currencies' price surpasses a particular point. Using stop loss is critical for long-term survival. By setting a predetermined entry or exit price, investors usually use this system to minimize their loses when off for the business day or any other situation in which they are unable to monitor their portfolio for an extended period.
The main FOREX strategy which takes advantage of this knowledge is “Stop Hunting” , which attempts to force some foreign currency exchange investors out of their positions by driving the price of a currency pair to a level where many investors have chosen to set their stop-loss orders (aka “weak longs”), by understanding that the human mind naturally seeks order, most stops are clustered around round numbers ending in "00" (i.e. if the EUR/USD pair was trading at 1.1380 and rising in value, most stops would reside within one or two points of the 1.1400 price point rather than, say, 1.1417). Absorbing that fact alone is priceless knowledge (the price of a currency pair can experience sharp moves when many stop losses are triggered); professional traders place their stops at less crowded and more unusual locations. The possibility of profit from these unique dynamics of the foreign currency market is huge and proven.
The Start Line Of The FOREX Tradeology
Saturday, February 24, 2007 5:22 PM mistrack
by: Mia Millis
The foreign currency exchange market is available for people from all over the world. More and more people take their first steps in FOREX trading, contributing to its volume and making it viable and easy to use for the ordinary individual, in contrast to only a few years back when only pros, hedge funds, major banks and institutional traders used the FOREX market. The key explanation for this turn of events is the Internet which dramatically increased accessibility. Almost all firms are now offering, free or in return for signing-up, easy to operate software for online FOREX trading.
Traders’ essential goal in FOREX is to estimate which currency will increase in worth against a different currency, and so getting a hold of a method which helps you to foresee future movements can help you in gaining a nice fortune. Realizing the fact that you are always trading by a ratio between two currencies should clarify the cause for seeing these letters arrangements: EUR/USD, USD/JPY, and GBP/USD etc. The five most important and highly popular currencies are the US Dollar, Japanese Yen, British Pound, Euro and Swiss Franc.
The FOREX market is open 24 hours a day; major firms keep brokers working shifts uninterruptedly so people from all over the world can trade always. This is attributable to the fact that nowadays most trades are carried out through company brokers.
Fear not, you can rest well at nights and even enjoy a day off every once and a while without being logged-on the FOREX market 24/7. All you have to do is give your broker your “stop-loss” / “stop-orders” to buy or sell currency once they have reached a certain price, thus preventing major losses.
The FOREX is considered to be a solid market. Nothing like the stock market which is highly unstable, this market is friendly and easy to comprehend. Another plus is that it has high liquidity which grants you the prospects of getting your money in or out at any given time. Be careful though, even when the FOREX seems like a playground to you, please seek your broker or another pro-trader’s counsel before getting involved in this market unless you have a lot of money to spend that you don’t really need. The big boys of FOREX would not care too much about seeing you lose all your life savings.
A Synopsis Of What It Takes To Trade The Forex Market With Success!
This is the first article of a series whose purpose is both educational and practical.And above all they aim to be interactive meaning that any comments suggestions or ideas are more than welcome.
Lets start from the basics.The first thing someone needs is very good education.And this requires a lot of thorough research as there are many sources but not all are worth the money for their services.So in this sense an online forex course could be a good idea along with some books.But here comes the first major problem.Which course and which books,which aspects to cover?The technical analysis issue?The maxim go with the trend?The candlesticks analysis?And which system to use and follow?There are thousands of them!So before we even begin a trader is confused.And confusion is a very bad enemy but it can be arranged.How it can be arranged?With some simple steps.Such as simplicity.The more you know the better chances you have to succeed trading forex and it all comes down to probabilities.
Education is a must to all trading aspects from stocks to futures to forex.But forex has two unique features.High liquidity and extremely high leverage.And although the liquidity is a very good feature high leverage is not.At least not until you know what you are doing.Here we focus again on education.Besides a participation in a forex course either online or not,an amount that will be put away as an investment for education is the first thing a trader must do.Some ideas are to focus on analyzing the current conditions of the market and to have a bias for a specific currency pair.A system such as following the trend could be the core of a trading strategy.And a demo account with many virtual trades as many as possible for a long period of time is the next step.
Now the most important part of the trading action is to make a plan,stick to it and apply very strict money management rules because if the capital is finished and it very easy this to happen then our trading career will finish within a few days,months or even hours.
Lets face the truth that trading is not easy.It is unfortunately far more easy for someone to lose all his account rather than make wild profits beyond each expectation.That is because emotions and psychology are very crucial for success.Some of the most important emotions are fear,uncertainty,euphoria and revenge.Revenge comes into play very very often as when someone loses an amount wants desperately to get it back and often the outcome is that more loses come simply because the trader is on the wrong side of the trend!
Discipline and patience are virtues that distinguish a good trader from a mediocre trader.Without specific goals and a written procedure a trader is like a cargo ship that has sailed without any destination.Someday the fuel will be exhausted and many dangers from the weather to the potential physical damages may happen.Risks exist all the time.The point is how to deal with them.
One of the most useful phrases is taken from the movie Forrest Gump.Life is like a box of chocolates,you never know what you gonna get!
It is true.Be as prepared as possible.Do not let the brokers excite you promising very high returns and extremely high leverage.Do some very thorough research before opening an account funded with real money.Compare the bid-ask spreads and technical support to name only a few aspects.
Be very skeptical to previous results as offered from many signal services.The major aim should be to learn to trade and make your own decisions and not blindly follow some others decisions and opinions. Confidense and experience come with the passage of time.
So we mentioned simplicity before.Being realistic and having a controlled life balance is very important.One major goal should be consistency so as to have the ability to make profits each month and keep them.
Fundamental news are another important issue and in essence the technical analysis is the mirror of fundamentals.Expectations change rapidly and emotions also.And if you think about it emotions and expectations mainly move the forex market.Most times like the recent Fed rate hike decision a move is under way but the danger is when it will be finished and certainly not getting in at the wrong time after all the move is completed.
The best approach for a trader would be to set specific goals and if achieved then stop trading.The worst idea is to trade in a choppy market where random noise will make it difficult to get specific profits.
So a tested system with very precise rules such as entering exiting and having stop-loss orders may not be a holly grail but is surely one very good approach to start with and focus on it.Pivot points are such a system.At least it is a good start.They encompass education,discipline,strict criteria,targets and are a proven system that major players use.They are not foolproof always as nothing is certain but they deal with high probabilities and this is very important.
Also a very practical way is to act as organizes as possible.Meaning that :
1.Develop your own trading journal where you will be writing down your trades and a brief explanation of what made you place a particular trade so as to evaluate performance.Note each day the major economic releases if any because it is often wise to be out of the market before the release of the news and trade only after having a much clearer opinion of what price action may be.Remember it is all about high probabilities.
2.A risk/reward ratio of 1:2 meaning that you risk an amount to get at least the twice if all go well is suggested but sometimes it is best to be conservative and even apply an 1:1 ratio by applying very strict risk management risking no more than 2-3% of total capital per trade.Survival is everything.
3.It would be a good idea from time to time to have breaks from trading.Opportunities exist always so stopping trading when losses of 10-20% maximum of trading capital have accumulated is a good way to revaluate what is going on before a large amount of capital is lost.Trading is not gambling it is a way of investment.The philosophy should be to define realistic goals such as a number of pips per day and if achieved then stop trading.Greed is another bad enemy of traders.On the contrary the notion of compounding profits and retiring a portion of them each month is a good way to build a solid account and keep monitoring its growth.
So in this first article we touched briefly many ideas from education to psychology to a proven trading system etc.Each idea will have more in depth analysis in the very near future.Your comments and suggestions will help us a lot to focus on what you need or want to analyze.Above all interactive communication brings the best results.
Trading Techniques
Wednesday, February 21, 2007 9:41 AM mistrack
an your trade and trade your plan: You must have a trading plan to succeed. A trading plan should consist of a position, why you enter, stop loss point, profit taking level, plus a sound money management strategy. A good plan will remove all the emotions from your trades.
The trend is your friend: Do not buck the trend. When the market is bullish, go long. On the reverse, if the market is bearish, you short. Never go against the trend.
Focus on capital preservation: This is the most important step that you must take when you deal with your trading capital. You main goal is to preserve the capital. Do not trade more than 10% of your deposit in a single trade. For example, if your total deposit is $10,000, every trade should limit to $1000. If you don't do this, you'll be out of the market very soon.
Know when to cut loss: If a trade goes against you, sell it and let go. Do not hold on to a bad trade hoping that the price will go up. Most likely, you end up losing more money. Before you enter a trade, decide your stop loss price, a price where you must sell when the trade turns sour. It depends on your risk profile as of how much you should set for the stop loss.
Take profit when the trade is good: Before entering a trade, decide how much profit you are willing to take. When a trade turns out to be good, take the profit. You can take profit all at one go, or take profit in stages. When you've recovered your trading cost, you have nothing to lose. Sit tight and watch the profit run.
Be emotionless: Two biggest emotions in trading: greed and fear. Do not let greed and fear influence your trade. Trading is a mechanical process and it's not for the emotional ones. As Dr. Alexander Elder said in his book "Trading For A Living", if you sit in front of a successful trader and observe how he trades, you might not be able to tell whether he is making or losing money. That's how emotionally stable a successful trader is.
Keep a trading journal: When you buy a currency or stock, write down the reasons why you buy, and your feelings at that time. You do the same when you sell. Analyze and write down the mistakes you've made, as well as things that you've done right. By referring to your trading journal, you learn from your past mistakes. Improve on your mistakes, keep learning and keep improving.
When in doubt, stay out: When you have doubt and not sure where the market or stock is going, stay on the sideline. Sometimes, doing nothing is the best thing to do.
Do not overtrade: Ideally you should have 3-5 positions at a time. No more than that. If you have too many positions, you tend to be out of control and make emotional decisions when there is a change in market. Do not trade for the sake of trading.
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