Trading currency comes with a certain amount of risk. The prudent trader will always make sure, that he or she has enough resources to be able to withstand a period where there are more losses than there are gains. From that perspective, it is important to never risk more funds than you can reasonably do without. Examine the condition of your finances carefully, and determine the amount of your resources that can be comfortably involved in the process of currency trading without creating any financial burdens.

Keep in mind that the volume of your transactions will often come into play when it comes to purchasing currency. Simply put, the more you can afford to buy, the better rate you are likely to command. Your circumstances will of course dictate how much you can afford to invest in a single transaction. Individuals who are involved in currency trading will also have to keep in mind that there is the matter of that minimum margin deposit that you must be able to maintain. You may have to begin with smaller transactions that yield less return. But keep in mind that as you grow your revenue from your currency trading efforts, you will be in a position to go for the more lucrative deals.

It is a very good idea to begin developing your strategy well before you make that first trade. You can get a great deal of help developing that strategy by utilizing the various reports and other sources at your disposal to try some projections of your own. Set up some test runs by structuring a currency trade on paper and watch how things would have gone had you actually made the transaction. Learn from the outcome, whether it was a win or a loss. Either outcome can help you identify some valuable tools that will help you refine your basic strategy. You may find that you need to include more sources of information in your decision making process. Perhaps your simulated trades will teach you that there is a source or two that needs to be disregarded or replaced in your roster of informative sources. The point is to refine your strategy as much as possible before you go “live” with your currency trading.

Making money and having some fun in the process are what the trading is all about. When you perform due diligence before you ever begin you can ensure that your first Forex trade, will be a true example of what you are capable of accomplishing.

Mentally Prepare to Trade Forex

One of the first things you need to do before you place your first trade is to determine exactly what you want to achieve. Get out a piece of paper and write it down. Do you want to eventually live off your trading? Or are you just trying to outperform your 401k or Money Market account. Be as specific as you can and then pin this up by your computer.

When you sit down to trade each day take 4 or 5 minutes and review your goals before you start clicking that mouse. This will help you keep your goals in mind as you trade. It is easy to get wrapped up in the emotion of the moment and forget your larger picture. Taking a few minutes before the day starts will help you focus on your goals.

Be aware that when you start trading you may be confronted by negativity from your friends or relatives. They simply don’t understand what you are doing or the language you are now learning. Some people react to new situations with fear and frustration. You need to join a traders group, whether it be online or in person. Make sure you have friends and associates that understand the new language you speak.

Remain focused. Every new trader will hit a wall. Your actions at this stage of the game are going to help form what kind of trader you will grow to be. My advice for this situation is to lean on your fellow traders. Anyone who has been in the market for any length of time has been through this. This is what separates the men from the boys (so to speak).

If you are having emotional responses to your trades it is time to step back. Always stick to the trading rules. During these times, walk away from your computer if you can. When you lose your emotional detachment you have lost your perspective. You are now far more likely to place bad trades, second guess yourself and close out everything at a loss. Take a break, get out of the house, and come back when you can look at the charts and your account impassively.

Beware of greed. This is one of the seven deadly sins for a reason. Greed can cause you to act impulsively and irrationally. Set your goals for the trading session, achieve your goals and be grateful for another day of trading successfully.

Track your progress. As long as you can see that you are progressing down your projected path then you will continue to stick to your trading plan. This also gives you the confidence you need to see that you plan is working. Don’t deviate from your plan, remain steadfast and you can achieve your goals. Think slow and steady and you maintain your trading edge.

Technically Prepare to Trade Forex

Trading over the internet offers special opportunites, and is subject to special risks. Trading financial instruments is serious business. You must understand your risks, and you must develop procedures to mitigate them. This focuses on what you must understand and how to prepare for the unexpected, with an emphasis of preserving your capital.

If you are trading a Demo account, you still need to take heed, because you are training yourself for trading real money. Don’t train yourself wrong.

Risks

Connecting to a broker and executing trades is done over the internet. There are numerous potential points of failure. Some of them are:

• Failure of the broker’s server
• Failure of the broker’s internet connection
• Failure of the broker’s software
• Failure of any of the dozen or more routers between you and your broker
• Failure of your internet provider
• Failure of your internal network hardware or software
• Failure of your router
• Physical cut of any of your wiring
• Failure of your hardware or software
• Power Failure

Precautions

There are a number of precautions you can take.

I recommend that every trader have an emergency kit which should consist of:

• A battery backup system (UPS) to run your computer during a power outage. You should connect only your computer, monitor, modem and router to the UPS, these are all required to keep trading uninterrupted. Don’t connect anything that isn’t needed like printers or speakers.
• A Post-it note or other papers that includes your broker’s trading desk phone number, your account numbers and your passwords. Brokers allow you to do trading over the phone in emergencies. You probably shouldn’t open orders over the phone but you can modify and close orders.
• A cell phone. You can put your broker’s phone number in your speed dial

Comments on your trading setup

As I said, trading is a serious business. You wouldn’t be here otherwise. Ask yourself the question: “How well should I be equipped? Should it be the best it can be?”

I recognize that our traders come from all over the world and all walks of life, so when I say “the best” it means the best available to you.

Your computer should be up to date, robust and stable. Don’t ever trade on a computer that locks up or has errors. I suggest that while you can, choose Windows XP over Vista. Personally, I buy the CPU that is on the faster end of the scale, but just not quite the latest and greatest. If you can afford and want the latest and greatest, then go for it. A middle class $500-600 dual core machine will do just fine.

The best internet connection is a broadband connection. Choose cable over DSL if possible but either is fine. Using dialup is possible but will lead to erratic trading. Choose the connection you can get in this order: cable, DSL, satellite and dialup.

Whenever possible, avoid making any part of your connection wireless. Wireless connections of every kind are far less reliable than hard wired connections. Always go with wired unless wireless is the only possibility.

Trading Procedures

I will describe some procedures that you can use when trading. The principles of verification apply no matter what platform or broker you are using.

When you press the Buy or Sell button, you are attempting to place a trade. I say “attempting” because you still need to make sure what you wanted to happen, actually happened.

The first place you may wish to look is your open positions window. Review this as a step to verify that your trade was placed exactly the way you wanted.

Our procedure for opening a trade is this:

• Visually confirm that the Lot Size pull down menu is set for the number of lots you wish to trade.
• Click the Buy or Sell button.
• Now confirm that the open position is the trade you think you should have and for the size you think you should.
• Now adjust your trailing stop and take profit.
• Check the open positions window again to verify that your associated orders are correct.

I know exactly what happened and where I am in the market.

When I exit a position, I follow a similar verification process in the closed positions window.

If at any point in your trading you think you should be in or out of the market differently than your platform indicate, investigate immediately. If you still can’t verify that you are in or out of the market as expected, there are a couple of choices:

If you are trying to exit a position and cannot verify if that occurred, call your broker (only on real money accounts, never on Demo accounts).

All of these things you need to work out on Demo accounts. Know your procedures. Practice them.

Remember:

• There are multiple potential points of failure in internet trading so prepare yourself and your equipment.
• Get the best setup you can.
• Assemble your emergency kit and procedures.
• Verify your trades in and out.
• Always stick to the trade rules.

We wish you the best success and profit in your trading.

Preparing To Trade - Checklist

Any professional activity benefits from proper preparation and a warm-up before that activity commences. Apply this principal to your trading and you should begin to see positive results. These positive results will not all necessarily be in terms of financial profits - they will include an increase in your self confidence as a trader, your emotional and physical health as a trader and the integration of your trading activities into the rest of your life.

Before you trade :

1. Ensure that your intention is positive - tell yourself that you will trade safely and so be successful and profitable. If you do feel positive then trade - but consider your trades carefully and employ risk management (stop loss and take profit).

2. If you do not feel positive - do not start to trade. Instead think about recent trades - were they ill-conceived? Were you disciplined enough? Think about other aspects of you life - are there any distractions in your personal life which could be affecting your feelings about trading? How is your financial situation? Can you really afford to trade today - or are you risking money that is needed for essentials?

3. Is your brain clear? Are your thought processes sharp? Before trading you should have exercised and eaten properly so that you feel clear and fresh and focussed.

4. Times to trade - be very clear about this. Don’t just decide to open your account and trade because you have an hour free. Know, ahead of your trading session, exactly when you are going to trade and why. Your trading system and the other commitments in your life will dictate the best times for you to trade. Once you are clear about this you can check and apply points one, two and three above.

5. Fundamentals 1 - make sure that you are aware of any economic news that is due to be released and which may affect the pairs your are planning to trade. Inform yourself of the timing of this information and be realistic about your experience - is it enough to trade at enough to trade such times, or should you wait until the numbers have settled down again?

6. Fundamentals 2 - be aware of significant business or world news that may affect the markets. As with point 5 decide whether or not you are informed enough and experienced enough to benefit by trading at times of high volatility. If not - or if you are unsure - sit it out, or trade on your demo account only and learn from the experience.

Fundamentals are something that I personally find hard to interpret - mainly because there is so many financial reports and current affairs programs out there. I have used forex sites and blogs to follow fundamental analyses and have become aware of the sheer torrent of information that affects my trades. It is for this reason that I prefer to use technical analysis - which is great for scalping and day-trading but limiting if I really want to earn a decent income from forex.

7. Before you trade, take a few minutes to look at what has happened in the markets over the last few hours. This may affect your choice of currency pairs, for example, or you may see something unusual which makes you look at economic and business news. Knowledge is power in forex as elsewhere.

8. I think that this is the most important point - lecture yourself about your discipline. Remind yourself of the importance of using Stop Loss and Take Profit orders. Be aware of your weaknesses as a trader : do you have a tendency to over-trade? Do you have a problem sticking to your system? Do you get distracted easily? Know yourself and make realistic discipline commitments. Refresh these resolutions at the start of each trading session. List out those things that you commit to in terms trading discipline. e.g. I will only take trades on signals that my system gives me. Go through them before the trading day begins and refresh your resolution.

9. Take a look at the trades from your last trading session - this will refine your skills and increase you confidence in your system. If you had some losses you can make sure that there is no residual negative feeling as a result of those losses. Do not trade if you are feeling negative.

10. Read you trading journal - if you don’t yet keep a trading journal, consider starting one, it will be a great learning resource for you.

Developing a forex trading system

The Forex market is where trading currency takes place. A where Financial Intermediaries and other official institutions facilitate the buying and selling of forex currencies. Forex transactions involves one participant purchasing a set of one currency in exchange for paying a set of another currency. The Forex exchanges that we see today started evolving during the late 60’s where most conuntries and institute opted for a floating rate exchange system governed by demand and supply.

The market is now one of the most liquid financial exchange in the world, and includes trading between central banks, currency speculators, large banks, corporations, governments, and other institutions. The daily volume in the global forex market are growing the fastest out of all the asset classes where daily turnover is on average US3.2 Trillion as reported by the Bank Of international settlements. The main reason for the forex market is to provide a market where trade can take place between impoting and exporting countries.

Major Participants :

Banks

The bank market also called the interbank markets makes the majority of commercial revenue/turnover and speculative activity every day. A large bank usually trade billions of Euros/Sterling and Dollars on a frequent daily basis. Some of the activity is based on the private clients account however the majourity of turnover amounts to the banks private investment activity.

Commercial Entities

These are companies who import from abroad and export to foreign countries who need to pay for the goods or service by exchanging their base currency denomination. Commercial entities make up a small portion of the currency market compared to banks and speculators.

Central banks

Central banks hold substancial reserves of other countries currencies as well as their own, every central bank has a monetary policy that they use to control inflation, interest rates and other economic indicators and use their reserves to achieve their goals, ultimately the transactions that the central banks take part in can move the market, even a mere rumour about a upcoming change in monetary policy can be enough to move the Forex Markets.

Speculators % Hedge Funds

Upto 80% of the Forex market is made up of speculators and hedge fund managers that use Forex market to make money by soeculating on the direction of the move. They have no intention of taking delivery of the currency once the deal is done but instead wait for the favourable movement and offset the currency for gains. These speculators can often be a nuisance to central banks, George Soros’s activity on the GBP ultimately cost Britian their place in the Exchange Rate Mechanism in the early nineties and can play a havoc to monetary policy.

To become a successful forex trader you must know exactly how each of the major players in the market affect the currency pairs, you must be aware of when important news will be released and must keep on top of potentially large transactions that may be completed by the big players in the future. It is essential to follow the most significant contributers of the forex markets.

Forex Markets can be traded 24 hours a day. The main players in the forex markets are speculators, central banks, banks and commercial entities Over US$3 Trillion are traded daily on the Forex Market. Forex is the most liquid market in the world, you will always find a buyer and a seller quickley.

Why Trade Forex?

For an investor mostly familiar with stocks or mutual funds, trading alternative instruments such as currencies may seem too exotic or too risky. Before dismissing curency trading, give some thought to the following points:

• Due to the fact that there is no tradition of high commission charges and no centralized exchange to maintain, the costs of operating in the currency markets is far less than in any other market. This works to the advantage of the smaller player.
• Unlike other markets where big players can manipulate markets by virtue of their capitalization, the forex markets are too big for such tactics to work. Even world governments, with their huge reserves, have had a great deal of difficulty just slowing the natural trends in the forex markets.
• The wide variety of leverage choices available in the forex marketplace allows traders at any level of risk tolerance to tailor their approach to suit their own unique financial conditions and objectives.
• The value of a currency is derived from a large number of factors, including interest rates, political change, national economic policy, etc. As a result, forex rates tend to move in clearer trends than other instruments, with less “slop and chop.”

As you can probably see, there are a lot of good reasons to consider the interbank forex markets as a way of expanding and enhancing an investing strategy.

Application to Trading

Because the forex markets are active 24 hours a day, a lot of traders believe that they need to manage their accounts around the clock. This may be suitable for some traders but it’s not a requirement. Currency rates move in trends that can last for years at a time. If you’re using a system that can exploit these moves, such as the iSigma approach, once a day portfolio management is more than adequate. When a few hours’ movement results in a huge price shift, a stop order in the market will take care of damage control if the move is against your position. Also, many forex brokers will have guarantees on how your stop or limit orders are filled, protecting you from slippage in volatile situations.

All forex brokers offer leveraged accounts, making it possible to enhance the performance of a trading approach. This can be a double edged sword, as a highly margined losing trade can be very damaging, possibly resulting in a margin call from the broker. The key here is to use margin in a way that reflects a realistic evaluation of one’s tolerance for risk, in conjunction with a solid trading plan built to control risk.

Is Forex For You ?

While there is no one market perfect for all traders, we hope that you’ll give the forex market due consideration as a venue to enhance your trading plan. Forex trading offers minimal operating expenses, generous leverage choices and plenty of opportunities for profit.