How your thinking shapes your trading

Regular forex users are generally very well-versed in the different aspects of Forex trading.  One thing that many traders are not as aware of is how their individual way of thinking may impact their trading decisions for better or worse.  Knowing what sort of changes to expect when you begin trading will influence your trading psychology for the better.

Most people experience a slight change in how they perceive things once they begin trading.  There may be some degree of hesitation when you start trading in real life, especially if you have practised with demo accounts in the past.  This extra sense of caution that many people feel is justified, but it should not hinder one’s progress.

Another behavioural change that affects many people when they begin trading is becoming overly confident.  Sometimes traders take needless risks because they fail to keep the possibility of a loss in mind.  This can have negative consequences for anyone who trades for any amount of time if they do not reign in any compulsive tendencies.

Because one’s judgement is affected by either overconfidence or fear, it is important to fight against both of these problems.  A realistic expectation of possible profits, as well as recognition of possible losses, helps put things into their proper perspective.  A healthy degree of confidence can easily overcome both fear and overconfidence.

Using some sort of reliable trading plan helps remove the difficulties and problems that come with relying too heavily upon emotions.  One of the advantages of using a plan is that risk management becomes an integral part of it.  When you factor any possible losses into the decisions you make, it will greatly minimise the possibility of making reckless mistakes.  Trading with a plan in place will therefore always make things more profitable in the long run. 

How the Forex rates are determined

Forex trading is a very exciting investment activity, especially for Tradeforex users who enjoy learning more about world economic conditions.  There are several unique aspects that determine what prices the various currencies of the world trade at.  Understanding a little more about these different factors helps make price analysis much easier.

Many traders do not realise that there are trading algorithms that play a role in the process.  This is sometimes known as robot or computer trading.  As the market for Forex trades grows, electronic trading will play a larger role in prices.  Investors who use technical analysis will especially benefit from this.

The political situation in a country often has an influence on currency prices.  When there is a period of economic unrest in a particular country, this typically has a negative impact on its currency.  Those who prefer fundamental analysis make it a point to study the economic factors in order to better predict when this may possibly affect prices.

The economic situation in a country also plays a major role.  Detailed economic reports provide valuable insights into what is going on in a country economically.  Traders who have a solid knowledge of economics will also be able to make good choices based on indicators.  Like political factors, economic factors often have a role in whether prices rise or fall.

When traders look at all these factors overall, it is quite easy to see how variations in rates occur.  Understanding all of the different factors that influence the rates makes it easier for wise investors to make accurate predictions.  There is no single method to predict whether a currency’s price will rise or fall in a given day.  However, good analysis methods always make things far easier for traders, no matter what their experience level.  This combination of factors should always be carefully assessed.

Using forex signals for profitable trading

The main purpose of forex signals is to enable investors take advantage of more currency trading opportunities. A trader who monitors such signals has access to critical information that allows him or her to complete profitable transactions. To make the most out of using forex signal services, each trader must check that the service provider sends good-quality signals without delay. When looking for reliable signals it is advisable to use a demo account, which enables the investor to test the quality of a certain signal service prior to using it in ‘live’ trading.

Types of signals

There are two main types of signals, automated and manual. Automated signals are produced by software products, while manual signals are delivered by professional traders who sit in front of computer monitors looking for signals, before deciding when their clients should sell or buy currency pairs.

Automated signals versus manual signals 

To use automated signals, the investor must have access to a specific software product that is able to search for the latest forex news and trends. Obviously, the trader must have an in-depth knowledge of forex currency trading in order to set up the system correctly. After choosing specific functions, the system should be able to look for particular types of signals and automatically interpret them in a certain way. A great aspect about using this type of system is that it eliminates emotion and human error, providing objective and accurate reports.

Manual signals are more inexpensive than forex software products. Unfortunately, the professional traders providing these signals are unable to eliminate emotion when analysing specific forex rates and trends. Affecting financial judgement and triggering errors, emotions frequently prevent individuals from interpreting signals correctly. This may lead to a real financial catastrophe for many; however, a notable advantage of opting for manual signals, especially if they are provided by a reliable source, is that investors can use them even if they know nothing about forex online trading.

Understanding forex charts

Today, forex brokers use five types of charts to analyse currency trends. One of the great things about using forex charts is that they can help save time, money and effort.

Types of charts

One of the most common types of charts is the line chart. Plotted according to a certain time frame, this chart allows investors to choose a series of combinations that include the opening price, closing price, high price and low price. Based on the data obtained after combining these elements, traders can develop various strategies to achieve their personal goals.

Another type of chart is the candlestick chart. This type of chart might make it difficult for beginners to spot specific forex currency patterns, but it uses real-time indicators that enable experienced traders to make accurate predictions. This is the main reason why most investors prefer candlestick charts to any other tool. The American version of the candlestick chart is the bar chart and is the third category of charts used in forex trading.  

The Heikin-Ashi chart is usually used in conjunction with candlestick charts to achieve even more reliable results regarding trends on a forex platform. With the help of this chart brokers are able to more accurately predict future prices.

The last type of chart is the Renko chart. Since volume and time are not considered in this chart, it is plotted according to price changes only.    

Investors use all these types of charts to develop multiple strategies that they can test with the help of a forex demo account.

Should traders use free forex signals?

These days, many currency traders use free forex signals, but, are they effective and are they actually free? Most free signal services start as ads or forum topics that direct people toward a professional broker who offers free signals. Usually, the broker switches to private signal posting as soon as he or she has a steady customer base. After a very short period, the broker will require his or her customers to pay a small fee for the ‘free’ signals they receive.

Are free signals effective?

If an individual knows very little or nothing about fx trading, relying on inefficient signals is the worst possible thing that he or she can do. Unfortunately, most free signals are simply moving-average crossover signals, remaining active for very short periods, which means they are quite inefficient.

Additionally, there are situations when the broker providing the free signals acts against them without any warning. For instance, if a signal for USD/EUR recommends that investors buy at 1.4500 and sell at 1.5000, the next signal may inform them that the author has actually closed the trade at 1.4500 (break-even), while his or her followers were still waiting to sell their currency pairs. 

In some situations, brokers who use a forex system to offer free signals may also manipulate the pip counts to present successful results. To do this, authors increase the number of profitable pip counts, while reducing the number of negative pip counts.

Given all this, an investor who intends to use free signals should ponder his or her options carefully before making a final decision. While it is true these signals are free, it is also true that they can be a waste of time and money. Furthermore, free signals do not provide the complex reports that most paid signals do. This may prevent traders, especially novices, from learning to trade forex as thoroughly as they should.

Pros and cons of using automated Forex trading systems

Usually the limits of any single person’s ability to trade are determined by the time the trader can devote to his work, as well as his stamina.  It is physically and mentally impossible for anyone to work continuously round the clock.  There is a solution for the forex trader, however, and that is by using automated forex trading systems, otherwise known as a forex robot.

With automated trading systems the trader uses forex software when trading currency pairs.  This type of currency trading takes the strain off the trader’s shoulders as it continually scans market information.

Forex trading software will typically seek out market feeds, changes in price and forex charts, as well as being able to make very complex calculations based on historical data and market sentiment. Crucially, the software is able to spot trading opportunities and sends out what is known as a forex signal.

Forex signals are made when the system spots opportunities to buy or sell, based on the data picked up by the software. This is the biggest advantage for forex traders of using this kind of software and it has led to sizeable profits being made when trading.

While automated forex trading systems offer many ‘pros’ for those engaged in trading, there are potential disadvantages.  The biggest ‘con’ is choosing the wrong type of software.  There are various types of forex trading strategies so it is vitally important that the trader chooses the robot best suited to his own strategy.

Automated trading systems can also be expensive, so it is important that the costs are taken into account, particularly by industry newcomers.  Most automated systems use only a limited number of currency pairs and that can limit the scope of the trader’s FX trading opportunities.

Also, these forex robots can be complicated and the trader will need to develop some technical knowledge before utilising them.

The importance of money management for Forex traders

In forex, as well as with other forms of trading, risks are taken and there is always a chance that the trader will make losses.  One way to minimise the risk of trading losses is through money management.

There are many theories on what makes the best forex money management system, but all agree on one thing; no one involved in forex currency trading should risk more money than he or she is prepared to lose.  Keeping to that can prove difficult, particularly for the new trader who is eager to make his mark in the FX market as quickly as possible.  However, whether someone is new to trading, or is an experienced professional forex trader, it is very important that financial self-discipline is maintained and a money management plan is strictly adhered to.

One rule of thumb is that no trader should risk more than 2% of his capital in a forex account.  If, for example, someone new to forex trading has £20,000 available then only £400 of it should be used when opening a live forex account.  Once more experience has been gained, the trader may want to risk more of his cash, but even then it is still advisable to put only 5%, in this case £1,000, into the account.

It is absolutely vital that no-one who is eager to engage in currency trading goes into it with their eyes shut.  They need to be aware of the risks, meaning that a money management plan should be in place before opening that first live account.

Hands free Forex trading

The term ‘hands free’ is a bit of a misnomer, but with automated forex trading the hard decisions are taken over by forex software.

Automated forex trading systems offer many advantages.  Human beings have limitations.  They cannot work round the clock for sustained periods of time, they are also erratic and decisions can be made purely on emotions, rather than data.

Automated forex can operate 24/7 and continue trading even when the trader is resting or away from his desk.  The software can also deal with the vast amount of data needed to make properly considered trading decisions much more quickly than a human trader, increasing the likelihood of profitable trades.

The main advantage to be gained from using an automated forex trading system is speed.  The software either has pre-set parameters for trading, or the trader can set those parameters himself. This enables the program to analyse activity within the market and identify forex signals with the aim of picking potentially profitable currency trades.  Once the system is activated this happens automatically, allowing the individual to rest or perform other tasks.

Another advantage of automated trading is that it allows individuals that are engaged in currency trading to operate more than one account simultaneously.

There are many different types of automated trading systems available, so the trader should select the one which best meets his needs.  Whatever the type of program used, it is essential that it incorporates real-time monitoring to ensure that the data received is always up to date.

For the trader who works while on the move, a web-based automated forex trading platform may be advisable.  This means that no software will need to be downloaded, but an internet connection will be required to use it.

There are often costs involved when using the automated programs with providers charging trading commissions.  It may be worthwhile purchasing a system where a refund will be made after a trial period should it be found not to be suitable.

Forex and exposure to risk

Any form of trading leaves the trader exposed to risk.  Profits can be made and money can also be lost.  This, of course, also applies to people involved in the world of online currency trading.  Those who trade forex need to be aware of how much risk they are prepared to take and to be able to limit their exposure when necessary.

One of the key elements for those involved in online forex trading is to maintain a disciplined trading strategy.  This means capping losses by strictly adhering to Limit Orders and Stop/Loss Orders. These either force the system to exit a position when a set amount of profit has been gained, or alternatively to exit when the maximum amount of loss has been suffered.

Limit Orders and Stop/Loss Orders are crucial for successful online trading.  It takes all aspects of human emotions, including its irrationalities, out of fx trading performance.  It is, however, a personal decision by the trader on the limits to be set with these orders.  The best forex advice is that Stop/Loss orders are kept closer to the price at the opening position than Limit Orders.  This reduces the risk of unacceptable losses while still giving scope for profit taking.

Because of its very nature, forex trading does carry a high level of risk, and it important that those considering entering this particular market are aware of that.  By seeking independent advice and being aware that money can be lost as well as made, however, newcomers may well be able to limit their risk exposure. 

Forex factory a valuable resource for Forex traders

For people involved in currency trading to work effectively, they need to have a lot of relevant information to hand.  Fortunately much of this information is available online at websites such as Forex Factory.  Forex Factory is a valuable resource for those trading in this market.

The information and resources available on the website are essential for those wishing to enjoy success while trading forex.  Two important elements on Forex Factory are ‘Trades’ and ‘Trade Explorer’.  Trade Explorer allows traders to view and analyse performance of trades, analysed real-time with excellent graphics.  The Trades section provides an insight into real-time trading activity and is an important tool for those seeking to learn forex and develop market strategies.

The innovative Factory Forex Calendar provides minute by minute information on the daily factors affecting the relative values of currencies in tabular and graphic form, providing a major aid for traders.

A vital source of information for the online currency trader is forex news.  This news provides the essential information which affects the relative value of international currencies and is key to making trading decisions.  The Forex News provided by Forex Factory is published onsite around the clock ensuring traders are kept up to date with the latest developments.

Forex charts are another vital source of information for those trading in forex currency.  These are displayed in the website’s ‘Market’ section along with composite and broker quotes and sessions.
Other invaluable information provided by Forex Factory relates to brokers.  This comprehensive section displays the performances of authorised forex brokers around the planet and is a valuable guide for those seeking a new forex broker.

Being a forex trader can be a lonely professional experience, but the website provides the means to interact with fellow traders through its own range of forums relating to professional topics.