Forex trading resources including analysis and news

Almost every forex broker offers a free practice account to new clients. This is used as a marketing gimmick by most of the brokers in order to entice new people to forex trading. All you need to do is to sign up with any good forex broker. The best way for new traders to get a handle on what currency trading is all about is to open a practice account.

Practice accounts give you the great chance to experience the forex market. You can see how the price changes at different times of the day. Practice accounts are funded with virtual money. So you are able to make trades with no real money at stake and gain experience in how margin trading works.

You can trade your practice account with real market conditions without any fear of losing money. How various currency pairs may differ from each other? How the forex market reacts to new information when major news and economic data is released.

You will also learn using different market orders on your practice account. Imagine using your real money trying to figure out how different market orders work. You will learn on your practice account how to manage an open position? This will improve your understanding of how margin trading and leverage works. You can also start analyzing charts and following technical indicators on your practice account. Without any fear of losing your money, you can experiment with different trading strategies and see how they work out in the real market conditions.

You can also test drive all the features and functionality of a brokers platform. However, one thing you will never be able to simulate on your practice account is the emotions involved in trading. Emotions will only come into play once you put your real money on the line. Controlling emotions is the thing to become a successful trader. Practice accounts are a great way to experience real forex markets.

You can use market orders like the limit orders or the one cancels the other orders. However, you can also trade the current price of the market using the click and deal feature of your brokers platform. There are many ways to pull the trigger in the forex market. Pulling the trigger means how to enter or exit a position.

Many traders like the idea of opening a position by trading at the market. Most prefer the certainty of knowing that they are in the market. They dont want to leave an order that may or may not get executed.

Most forex brokers provide live streaming prices that you can deal on with a simple click of your computer mouse. Just specify the amount that you want to trade. Click on the buy or sell button to execute the trade. The forex trading platform responds back within a second or two with a pop-up message either confirming or not confirming that the position was opened.

Attempts to trade at the market can sometimes fail in very fast moving markets. This happens when prices are adjusting quickly like after a data release or break of a key technical level or price point.

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High probability trading strategies for CFDs are highly desirable. These strategies are easier to trade because they provide more winning trades.

It is not necessary to endure long periods of losing trades, drawdown in account balances is less and the leverage of CFDs does not have the same impact on an account.

But beware of chasing high probability strategies as you may be looking for the key to successful trading in the wrong place.

Being Right and Making Money Are Different Things

The success of a trading strategy is dependent on two factors, how often the strategy wins and the risk reward of the strategy. It is the combination of these two factors that determines the results, not one of them in isolation.

Assuming you had developed a strategy that was right on 95% of the trades. When it won it made an average of $100. If you were to make 100 trades you would expect to make $9,500 on the winning trades. Do not forget the losing trades however.

On the losing trades if the average loss is $2,500 then overall it will lose $12,500 from 100 trades. This strategy is not profitable even with a win% of 95%. It is important to remember that both numbers, risk reward and win%, need to be considered together.

You Will Still Have Losses

The strategy that is often used to get high probability trading strategies is to use wide stop losses and small profit targets. One hot selling product is FAP Turbo, the forex trading robot, that uses this idea to achieve a hit rate of 95%.

So for a while the strategy appears to work well, until it gets hit with a number of very large losses. To reduce the size of the loss it is necessary to tighten the stop, but this typically reduces the success rate of the strategy.

It Is All About Balance

Back testing can be used to determine the optimal balance between risk and reward and the win%. Try testing a variety of different stop loss levels to determine the best outcome for risk reward and win%.

In my own trading I have tested a variety of chart pattern breakouts. The best trades breakout and keep going in the direction of the move. Because of this tight stops work ell with chart pattern breakouts as they improve the risk reward results. Profit targets on the other hand improve the win%, but actually reduced the overall profitability.

Make Money First, Be Right Later

Trend based trading strategies often have win% of just 30%, but the risk reward is usually 3 or more. The combination of a low success rate works if the average wins are big enough relative to the average loss to deliver a profitable strategy.

Scalping relies on a high win% usually 70% or more, but usually have a low risk reward where profits are equal to losses. This is another profitable strategy.

In the pursuit of being right and chasing high probability trading strategies, remember to ensure that trading is about making money, not being right.

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You should focus on the non-commercial participants rather than on the commercial participants when you look at the COT report. You would ask the reason for ignoring the commercial category. Commercial participants are mostly trading forex futures for hedging purposes. They keep on rolling on their positions from month to month for hedging even though they maybe taking losses. This way they are hedging the foreign exchange risk for their business transactions.

However, large speculators like the hedge funds and the banks trade the forex futures contract for speculation and capital gains only. Most will immediately close their losing position instead of rolling it over to the next month. Large speculators do not have any intention of taking delivery of the currency in cash like the commercial participants.

There is a close correlation between the forex futures market and the spot forex market. By gauging market sentiment in the forex futures market, you can also gauge the market sentiment in the spot forex market.

Near the maturity of the forex futures contract, the spot forex and the currency future prices converge. Prices become equal on maturity. Currency futures are basically spot prices adjusted for the forwards based on the interest rate differentials to arrive at the future delivery price.

Forex futures are traded on a Centralized Exchange Chicago Mercantile Exchange (CME). CME functions as a clearing house between the counter parties. The main difference between the spot forex market and the forex futures market is that the spot forex market is not a centralized market. It is an Over the Counter (OTC) market. So no volume and net position data is available for the spot forex market.

You should become familiar with the differences in price quotation system used in both the markets. When either the spot or the future price of the currency rises, the other also tends to rise and when either falls, the other also tend to falls. For example, if GBP futures price goes up spot price of GBP/USD goes up too. The spot and futures prices of a currency tend to move in tandem.

Calculate the net position of the non-commercial contract by subtracting the long position total from the short position total. Usually when a particular currency is trending up against the US Dollar, the non-commercials tend to register a net long position as the large speculators would like to continue riding the trend.

The opposite is also true when a particular currency is trending down against the US Dollar. When the market is trending down against USD, the non-commercials will have a net short position. By comparing the latest net positioning with that of the past few weeks or months, you can tell if the latest net positioning is skewing towards an extreme reading.

You can detect turning points in the spot forex market with the COT reports by keeping an eye on the net directional positioning and net contract volume in the non-commercial category. When the majority of the market is positioned incorrectly, dramatic price moves like the major turning points tend to occur.

You can use your COT report analysis to optimize your trading strategies. Entry and exit cannot be timed solely based on COT report but it can generate warning signals of a possible turn ahead in the spot forex market. What deters many traders from using the COT report is its raw organization of data. COT report is a treasure trove.

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You will want to know the factors that influence market sentiment. Trends in interest rates are one of the most significant factors influencing market sentiment. Interest rates play a major role affecting the supply and demand of currencies in the global financial markets.

Interest rates in each country are decided by the respective central banks. Every currency in the world has an interest rate attached to it. FED determines the interest rates in US. Reserve Bank of New Zealand determines the interest rates in New Zealand. Similarly the Bank of Japan determines the interest rates in Japan.

Some governments want more foreign investment. Those currencies will have a higher interest rate. Investors are always looking for a better interest rate yield on fixed income securities. These currencies will attract the most attention from the savvy international investors. Global movement of money also depends on the economic and geopolitical risks between countries.

What causes fluctuations in the interest rates? In simple terms, inflation! The value of money decreases when there is an upward revision of prices of most goods and services in the country.

Central banks are responsible for ensuring the price stability in the domestic economies. Central banks control inflationary pressures by increasing the interest rates. Monetary policy is an important tool for the central banks.

If the inflationary pressures are increasing in the economy, FED would raise the Federal Fund Rate. This is the rate the banks charge each other for overnight loans. When overnight rates are changed, retail banks will adjust their prime banking rates accordingly affecting businesses and individuals.

The most important way in which interest rates can affect the currencies is through the widespread practice of carry trade. A carry trade involves shorting of a low interest rate currency to go long on a higher interest rate currency in order to gain the difference between the two interest rates. This difference is known as the Interest Rate Differential.

So you can see currencies with higher interest rates are highly sought after by investors looking for a higher return on their investments. The carry trader is paid the interest rate on the currency on which he/she is long. He/she must pay the interest rate on the shorted currency.

Investors tend to shift their assets to higher interest rate currency from lower interest rate currency. They have to buy that currency for that transfer of funds and assets. This increased demand for the currency pushes the currency price relative to other currencies. As a general rule, rising interest rates tend to strengthen a currency relative to other currencies.

In 2005, Japan was offering almost zero interest rates on Japanese Yen deposits. The interest rates had been made almost zero to fight a decade long deflationary cycle and kick start the economy again. There was a lot of interest in Japanese investors to invest in New Zealand dominated assets. NZD was paying a higher interest rate as compared to the near zero interest rate being offered on JPY.

So in general rising interest rates should boost the market sentiment for that particular currency relative to other currencies. The opposite is also true and interest rates cut would result in bearish sentiments regarding the currency of that country relative to other currencies.

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Every trading strategy needs to take into account the upcoming news and data releases before the position is opened. You should know the schedule of all data releases and news events most likely to occur during the anticipated time horizon of your trading strategy.

You should have a good understanding of what the market is expecting in terms of event outcomes to anticipate how the market is most likely to react. One important thing that you should not lose sight of is that forex markets are highly integrated with the other financial markets.

You must know how gold prices are going to affect USD. There is a negative correlation between the gold prices and USD. Gold prices are on the rise. Gold has always been considered to be the ultimate hedge against the financial turmoil. You need to develop the habit of looking at whats going on in other markets. You should try to anticipate the fall out of other markets on the forex market. Forex markets function alongside other major financial markets like stocks, futures, commodities (particularly gold and oil), bonds, options etc. There are important psychological relationships between these markets and the currency market.

Look back over the whole process to understand what you did right and what you did wrong. How did you identify the trade opportunity? Was it based on technical analysis, fundamental analysis or a combination of the two? Evaluate your trading results after each trade, regardless of the outcome.

For example, if your winning trades are more as a technical trader, you should probably devote more energy to that approach. Looking at your trade this way will help you identify your strengths and weaknesses as a fundamental trader or a technical trader.

You should also ask yourself was the position size sufficient to match the risk and reward scenario or was it too large or too small. Could you have entered at a better level? What tools you might have used to improve your entry timing? Were you patient enough in your trade or did you rush to make hasty decisions?

Were you effectively able to monitor your trade after it was open and active? If so how? If not, why not? The answers to these questions will reveal a lot about how much time and dedication you are able to devote to your trading.

Evaluating your trading results on a regular basis is an essential step in improving your trading performance. Forex trading is all about getting out of it what you put into it. This will help you in maximizing your trading strengths, minimizing your trading weaknesses and refining your trading style. Ask yourself these questions. Their answers will reveal the role emotions play in trading. Controlling your emotions in trading is crucial to your long term success.

There are two approaches to learning currency trading. Practice the demo account a little and straight away jump into live action. Learn as you go. In other words, you can learn all these things on your real account by trading live. But you will have to go through the roller coaster of trying to control your emotions while blowing your account repeatedly. In my opinion, the best way to learn and experience all these things is on your demo account. Whatever trading plan you make or whatever trading strategy you like, first test it on your demo account. I keep on repeating myself. Only trade live, when you double your demo account three times in a row.

Give yourself at least three months to learn currency trading on your demo account. During those three months set the target of doubling your demo account three times in a row. It will give you the level of confidence and belief in you to make it big in the forex market. You cannot double your demo account three times in a row without going through all the above that I have pointed out.

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