Posts tagged forex trading strategies

Knowing Your Limits as a Forex Trader

Jul 24th

Posted by Kelly in Investing / Stock Trading

1 comment



Everyone has mental limits.  Every forex trader needs to know where his limits lie when it comes to currency trading.  You are not boundless in your abilities.

The first step to making money in this market is understanding your own capacity to trade.  Let me give you an extreme example so you understand my point.  Let’s look at quants.

Quants are super intelligent geniuses who are hired by Wall Street trading firms to create extremely complex systems to trade.  They may find some unique method of trading that no one has discovered yet.  They may write software that automatically trades depending on certain signals that make money every time.  They may even build proprietary platforms that make money on fractions of a penny on trades.

These quants are brilliant people who devise brilliant ways to make money on the markets.  I can’t even hope in a million years to come close to their abilities.  That doesn’t mean I can’t make money in the markets.  But if I try to do what they do, figure out loopholes and highly intricate ways to trade, I will fail.

I once came across a forex blog of a guy who was like this.  He would put up tables of complex financial data every week that supposedly gave him indications on how he should trade the currency market.  I didn’t understand a word of anything he ever wrote.

The best way to discover your limits as a trader and stay within is to do forex demo trading.  Do it until you discover what kind of trader you are.  It’s the best place for self-discovery and self-assessment of your potential.

It’s also a great way to develop your own trading strategy.  Do it until you find the best forex trading strategies that fit your personality and style.  Every trader is different and you need to find your own voice if you want to find your stride.

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Benefit and Costs of Currency Options

Jun 22nd

Posted by Kelly in Investing / Stock Trading

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Options in the currency market works very similarly to those in the stock market.  You buy an option from either the writer or secondary seller.  It has a quantity, in the case of the forex market is in lots.  It also has a strike price, expiration date and a premium associated with it.

There are many uses of this strategy for currency traders.  You can use currency option trading to minimize risks when speculating or hedging an open trading position.  Here are some of the main benefits and costs associated with this strategy.

Benefits

The main benefit of foreign currency options trading is that you minimize risk and limit your losses.  Here’s how an option works.  You buy an option at a cost, called the premium.  The option has the strike price.  This is the price at which you, as the holder of the option contract, have the right but not the obligation to buy a set number of currency pair lots for a specific price.

If the actual price of a currency pair exceeds that strike price, you have the right to exercise the option to buy at the strike price, which in this case would be lower than the market price.  This is what’s known as being ‘in the money’.  You, the option holder, would then sell it back to the market for the market price and make a profit.

If the actual price of the underlying currency pair does not meet the strike price within the expiration date, than you lose the premium.  The good news is, you only lose the premium and nothing more.  If you had an open trading position instead, you would be at risk for losing as much as the price declines or as much as your margin account would allow before a margin call.

Costs

The main cost or risk factor is that you must be correct with your price movement predictions before the expiration date.  This is vitally important because if the option never gets in the money before the expiry date, you lose your premium.  The disadvantage is that you might be correct about where the price eventually lands, but you might run the risk of it hitting that point too late.

There are many more ways to use currency exchange options in your forex trading currency strategies.  You can use it to speculate or you can use it to offset any risks on any open trading positions you might have.

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Forex Trading Strategies – Which one are best?

Mar 3rd

Posted by Kelly in Investing / Stock Trading

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When you begin to trade you are confronted with a lot of different forex trading strategies to choose between.

You can drive yourself round the bend trying to figure out which one to choose and trade.Too many options will cause the dreaded “paralysis by analysis”

Some people will say – “Just give me a forex trading strategy that will make money”

Unfortunately it is not as clear cut and simple as that.When I started trading I was mentored by a very good trader that traded between 20 and 30 times a day!

He was a scalper and only took a couple of pips per trade,and made a very great deal of money.

No matter what I tried – I could not trade like him.It drove me crazy.I just could not get it right and was very uncomfortable trading that many times a day.

Finally I figured out I am good at picking the one or two biggest movements of the day , and that is my trading strategy and what I am good at

The point of all this is the following:

You have to figure out for yourself what kind of trader you are and what kind of trading strategies are best for you.

You have to be comfortable with the trading strategy you follow and make a success out of it.

You are probably wondering how will you figure out what king of forex trading strategy are the best for you?

I would suggest the following:

  • Get a good forex trading education that will teach you the basics of market movement

  • Try a lot of different forex trading strategies for a period of time. You will quickly figure out what you are comfortable with and more importantly – what kind of forex trading strategies you are not comfortable with.

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