Trading successfully is by no means a simple matter. It requires time, market
knowledge and market understanding and a large amount of self restraint.
ACM does not manage accounts, nor does it give market advice, that is the
job of money managers and introducing brokers. As market professionals, we
can however point the novice in the right direction and indicate what are
correct trading tactics and considerations and what is total nonsense.
Anyone who says you can consistently make money in foreign exchange
markets is being untruthful. Foreign exchange by nature, is a volatile market.
The practice of trading it by way of margin increases that volatility
exponentially. We are therefore talking about a very 'fast market' which is
naturally inconsistent. Following that precept, it is logical to say that in order to
make a successful trade, a trader has to take into account technical and
fundamental data and make an informed decision based on his perception of
market sentiment and market expectation. Timing a trade correctly is probably
the most important variable in trading successfully but invariably there will be
times where a traders' timing will be off. Don't expect to generate returns on
every trade.
Let's enumerate what a trader needs to do in order to put the best chances for
profitable trades on his side:
Trade with money you can afford to lose:
Trading fx markets is speculative and can result in loss, it is also exciting,
exhilarating and can be addictive. The more you are 'involved with your
money' the harder it is to make a clear-headed decision. Money you have
earned is precious, but money you need to survive should never be traded.
Identify the state of the market:
What is the market doing? Is it trending upwards, downwards, is it in a trading
range. Is the trend strong or weak, did it begin long ago or does it look like a
new trend that's forming. Getting a clear picture of the market situation is
laying the groundwork for a successful trade.
Determine what time frame you're trading on:
Many traders get in the market without thinking when they would like to get
out, after all the goal is to make money. This is true but when trading, one
must extrapolate in his mind's eye the movement that one expects to happen.
Within this extrapolation, resides a price evolution during a certain period of
time. Attached to this is the idea of exit price. The importance of this is to
mentally put your trade in perspective and although it is clearly impossible to
know exactly when you will exit the market, it is important to define from the
outset if you'll be 'scalping' (trying to get a few points off the market) trading
intra-day, or going longer term. This will also determine what chart period
you're looking at. If you trade many times a day, there's no point basing your
technical analysis on a daily graph, you'll probably want to analyse 30 minute
or hour graphs. Additionally it is important to know the different time periods
when various financial centers enter and exit the market as this creates more
or less volatility and liquidity and can influence market movements.
Time your trade:
You can be right about a potential market movement but be too early or too
late when you enter the trade. Timing considerations are twofold, an expected
market figure like CPI, retail sales or a federal reserve decision can
consolidate a movement that's already underway. Timing your move means
knowing what's expected and taking into account all considerations before
trading. Technical analysis can help you identify when and at what price a
move may occur. We will look at technical analysis in more detail later.
If in doubt, stay out:
If you're unsure about a trade and find you're hesitating, stay on the sidelines.
Trade logical transaction sizes:
Margin trading allows the fx trader a very large amount of leverage, trading at
full margin capacity (in ACM's case 1% or 0.5%) can make for some very
large profits or losses on an account. Scaling your trades so that you may reenter
the market or make transactions on other currencies is generally wiser.
In short, don't trade amounts that can potentially wipe you out and don't put all
your eggs in one basket. ACM offers the same rates regardless of transaction
sizes so a customer has nothing to lose by starting small.
Gauge market sentiment:
Market sentiment is what most of the market is perceived to be feeling about
the market and therefore what it is doing or will do. This is basically about
trend. You may have heard the term 'the trend is your friend', this basically
means that if you're in the right direction with a strong trend you will make
successful trades. This of course is very simplistic, a trend is capable of
reversal at any time. Technical and fundamental data can indicate however if
the trend has begun long ago and if it is strong or weak.
Market expectation:
Market expectation relates to what most people are expecting as far as
upcoming news is concerned. If people are expecting an interest rate to rise
and it does, then there usually will not be much of a movement because the
information will already have been 'discounted' by the market, alternatively if
the adverse happens, markets will usually react violently.
Use what other traders use:
In a perfect world, every trader would be looking at a 14 day RSI and making
trading decisions based on that. If that was the case, when RSI would go
under the 30 level, everyone would buy and by consequence the price would
rise. Needless to say, the world is not perfect and not all market participants
follow the same technical indicators, draw the same trendlines and identify the
same support & resistance levels. The great diversity of opinions and
techniques used translates directly into price diversity. Traders however have
a tendency to use a limited variety of technical tools. The most common are 9
and 14 day RSI, obvious trendlines and support levels, fibonnacci
retracement, MACD and 9, 20 & 40 day exponential moving averages. The
closer you get to what most traders are looking at, the more precise your
estimations will be. The reason for this is simple arithmetic, larger numbers of
buyers than sellers at a certain price will move the market up from that price
and vice-versa.
knowledge and market understanding and a large amount of self restraint.
ACM does not manage accounts, nor does it give market advice, that is the
job of money managers and introducing brokers. As market professionals, we
can however point the novice in the right direction and indicate what are
correct trading tactics and considerations and what is total nonsense.
Anyone who says you can consistently make money in foreign exchange
markets is being untruthful. Foreign exchange by nature, is a volatile market.
The practice of trading it by way of margin increases that volatility
exponentially. We are therefore talking about a very 'fast market' which is
naturally inconsistent. Following that precept, it is logical to say that in order to
make a successful trade, a trader has to take into account technical and
fundamental data and make an informed decision based on his perception of
market sentiment and market expectation. Timing a trade correctly is probably
the most important variable in trading successfully but invariably there will be
times where a traders' timing will be off. Don't expect to generate returns on
every trade.
Let's enumerate what a trader needs to do in order to put the best chances for
profitable trades on his side:
Trade with money you can afford to lose:
Trading fx markets is speculative and can result in loss, it is also exciting,
exhilarating and can be addictive. The more you are 'involved with your
money' the harder it is to make a clear-headed decision. Money you have
earned is precious, but money you need to survive should never be traded.
Identify the state of the market:
What is the market doing? Is it trending upwards, downwards, is it in a trading
range. Is the trend strong or weak, did it begin long ago or does it look like a
new trend that's forming. Getting a clear picture of the market situation is
laying the groundwork for a successful trade.
Determine what time frame you're trading on:
Many traders get in the market without thinking when they would like to get
out, after all the goal is to make money. This is true but when trading, one
must extrapolate in his mind's eye the movement that one expects to happen.
Within this extrapolation, resides a price evolution during a certain period of
time. Attached to this is the idea of exit price. The importance of this is to
mentally put your trade in perspective and although it is clearly impossible to
know exactly when you will exit the market, it is important to define from the
outset if you'll be 'scalping' (trying to get a few points off the market) trading
intra-day, or going longer term. This will also determine what chart period
you're looking at. If you trade many times a day, there's no point basing your
technical analysis on a daily graph, you'll probably want to analyse 30 minute
or hour graphs. Additionally it is important to know the different time periods
when various financial centers enter and exit the market as this creates more
or less volatility and liquidity and can influence market movements.
Time your trade:
You can be right about a potential market movement but be too early or too
late when you enter the trade. Timing considerations are twofold, an expected
market figure like CPI, retail sales or a federal reserve decision can
consolidate a movement that's already underway. Timing your move means
knowing what's expected and taking into account all considerations before
trading. Technical analysis can help you identify when and at what price a
move may occur. We will look at technical analysis in more detail later.
If in doubt, stay out:
If you're unsure about a trade and find you're hesitating, stay on the sidelines.
Trade logical transaction sizes:
Margin trading allows the fx trader a very large amount of leverage, trading at
full margin capacity (in ACM's case 1% or 0.5%) can make for some very
large profits or losses on an account. Scaling your trades so that you may reenter
the market or make transactions on other currencies is generally wiser.
In short, don't trade amounts that can potentially wipe you out and don't put all
your eggs in one basket. ACM offers the same rates regardless of transaction
sizes so a customer has nothing to lose by starting small.
Gauge market sentiment:
Market sentiment is what most of the market is perceived to be feeling about
the market and therefore what it is doing or will do. This is basically about
trend. You may have heard the term 'the trend is your friend', this basically
means that if you're in the right direction with a strong trend you will make
successful trades. This of course is very simplistic, a trend is capable of
reversal at any time. Technical and fundamental data can indicate however if
the trend has begun long ago and if it is strong or weak.
Market expectation:
Market expectation relates to what most people are expecting as far as
upcoming news is concerned. If people are expecting an interest rate to rise
and it does, then there usually will not be much of a movement because the
information will already have been 'discounted' by the market, alternatively if
the adverse happens, markets will usually react violently.
Use what other traders use:
In a perfect world, every trader would be looking at a 14 day RSI and making
trading decisions based on that. If that was the case, when RSI would go
under the 30 level, everyone would buy and by consequence the price would
rise. Needless to say, the world is not perfect and not all market participants
follow the same technical indicators, draw the same trendlines and identify the
same support & resistance levels. The great diversity of opinions and
techniques used translates directly into price diversity. Traders however have
a tendency to use a limited variety of technical tools. The most common are 9
and 14 day RSI, obvious trendlines and support levels, fibonnacci
retracement, MACD and 9, 20 & 40 day exponential moving averages. The
closer you get to what most traders are looking at, the more precise your
estimations will be. The reason for this is simple arithmetic, larger numbers of
buyers than sellers at a certain price will move the market up from that price
and vice-versa.
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