Another way of looking at exit strategies in Forex trading

Another way of looking at exit strategies, or stops, is by classifying them according to what kind of trade you're making or what stage you are at in the trade. Under this classification the main kinds of stop are initial stops, break-even stops, take profit stops or trailing stops.

1. Let's look at trailing stops first. A trailing stop is a stop that moves in the direction of the trade - that is, up for a long or buying trade and down for a short or selling trade. By placing a trailing stop you are aiming to allow room to move and thus allow the profits to run, but ensure you can exit the trade when it does turn against you.


2. An initial stop may or may not be the same as your trailing stop, depending on the system you are trading. The idea is to get you out of the trade if it turns against you at an early stage, and thus to limit your losses. By definition it will be closer to the entry price than the trailing stop.


3. A break-even stop is where your trailing stop is moved to the point where the exit price is equal to the entry price. You will want to use this in a very volatile market where the prices fluctuate so much that you will keep exiting at your trailing stop unless you use a break-even stop.


4. If you are using a take profit stop, you determine your target profit in advance - for example, a certain number of pips. This protects your profit if the market then suddenly turns the other way. There is nothing to stop you having a trailing stop as well as a take-profit stop.

These exit strategies are all part of an effective money management system. As we have emphasised in previous posts, which particular money management method you use will depend on your personal approach to trading and what kind of Forex trading system you are using. But without following money management principles you simply cannot be successful in Forex trading in the long run. If you decide to trade with Easy-Forex, they will start training you in money management principles from Day 1, along with trading methods that ensure you make more winning than losing trades.

Find out more from http://www.bizwrite.co.uk/Forex/forexindex.html If you have a question that isn't answered there or on this blog, there's an opportunity for you to ask it!

Money Management in Forex Trading - Four Types of Stop You Can Use

As we said in yesterday's post, you can't be successful in Forex trading without good money management and the discipline to put limits on the risks you take. This means using "stops" or "stop-losses" on your trades. There are four kinds of stop you can use.

1. Equity stop. You decide what percentage of your equity - that is, the amount of money you have in your account - you are going to risk in this trade. The most common percentage is 2%, though as said in the last post many advise a maximum of 1%. The main problem with this type of stop is that it puts an arbitrary exit point on your trade, so that you leave the trade because of your predetermined risk strategy when the market movements might be signalling that it would be advantageous to continue.
2. Chart stop. You use charts to generate stops, based on price action - for example, the swing high/low point.
3. Volatility stop. This is another version of the chart stop, using volatility instaed of price action to determine how much risk you take. In a high volatility environment, you allow more room for risk, and in a low volatility environment, you allow less room.
4. Margin stop. Using this strategy you subdivide your capital into ten equal parts, and only use one segment at a time, thus avoiding using your whole capital in a single trade.

You can experiment with different stops to see which suits you best, but you must practice some form of money management, once you get to the stage of having a full account. If you are just starting, you need to learn the basics first.

And if you are just thinking about starting, Easy-Forex allows you to start trading with a very small amount so you can't incur big risks - AND you have the advantage of their unique personal guidance to make sure you know how to make winning trades. Don't forget too that there is always more to learn at http://www.bizwrite.co.uk/Forex/forexindex.html

Tough Lessons in Forex Trading

In yesterday's post we discussed how it is possible to wipe out a sustained period of profitable Forex trading with a single disastrous move - simply because of sloppy money management (i.e. NO money management!)

The golden rule for avoiding this fate is: Never risk more than 1% of your total equity on any trade. This means you can be wrong 20 times in a row and still have 80 percent of your equity left.

VERY FEW Forex traders have the discipline to stick to this rule consistently. This is the very good reason why Easy-Forex don't use a demo account for training purposes, as some platforms do. You can't teach a child not to touch a hot stove by using a toy stove - the child will only learn after being burned a couple of times. In the same way, most traders can only learn the lessons of risk discipline through the painful experience of losing money. With Easy-Forex you can start with a mini-account which will make sure that if you make a loss, you won't lose your house - but with their close personal guidance you will quickly find your winning trades outnumber your losing trades.

The way to control your risks is through stop-losses. There are two main ways of doing this;

1. You can take frequent small stops and hope to gain your profits from your few large winning trades: or


2. You can go for many small gains and take infrequent but large stops - the more risky way.

You can try both ways and see which suits you better.

There are four main types of stop and we will look at these next. Keep checking http://www.bizwrite.co.uk/Forex/forexindex.html for other things you might want to know.

Money Management in Forex Trading

In an earlier post way back on December 12, 2007, we looked briefly at ways of managing risk in Forex trading. This is really just a small part of the wider subject of money management.

Money management is actually the main thing that separates the unsuccessful Forex trader from the successful one. Yet it's surprising how many traders ignore the idea, thinking it doesn't apply to them! So many people come into Forex thinking that they are going to make the "Big Trade" that's going to seal their fortune. They don't like to be told about discipline, management and caution - it sounds boring.

However, much more common than the "big win" is the "big lose". It's not uncommon for a trader to wipe out a year's profit - or even two or four years' profits - in one disastrous trade. When this happens, it is almost invariably due to loss of discipline and sloppy money management.

The truth is - you CAN succeed in Forex! But don't regard it as a casino where you can stake everything on a big game of chance. Forex trading isn't gambling - if it was, I'd have nothing to do with it! It's a skill you learn, or rather a set of skills, and money management is one of the most important. I honestly don't believe there is a better place to learn the skills of trading Forex than Easy-Forex, with their brilliant tutorial systems.

In the next few posts we will look at money management in more detail - I believe you will be glad we did.

Candlestick Charts in Forex Trading

Candlestick charts are based on a charting method which originated in Japan over 300 years ago. In fact they used to be known as "Japanese Candlesticks" but now they are usually just called "Candlesticks" or "Candlestick charts."

A candlestick chart displays the same four pieces of information as the bar chart (see yesterday's post) - High, Low, Open and Close. The high is shown by a vertical line going up from the body of the "candle" - called the "wick", and the low is shown by a vertical line going down from the "candle", called the "tail".

Market activity between opening and closing is shown by the body of the candle. In some types of candlestick chart, a candle body left transparent or hollow means that the close was higher than the open, while if the body is filled in, it shows that the close was lower. In others, blue means the close was higher while red means the close was lower. The length of the body of the candle shows the range between opening and closing, while the length of the whole candle, including the wick and the tail, shows the whole range of trading prices over that time unit.

Many people involved in Forex trading find the candlestick chart more appealing and helpful than the bar chart. You can see at a glance what the markets are doing and this helps you make your decisions. A hollow or blue candle showing the close higher than the open indicates buying pressure, while a filled-in or red candle, showing the close lower than the open, indicates selling pressure.

Of course as we said yesterday there is much more to learn about charts, and Easy-Forex will teach you all you need to know when you trade with them. To learn more about Forex in general go to http://www.bizwrite.co.uk/Forex/forexindex.html

Bar Charts in Forex Trading

Yesterday we looked at what was meant by charting in Forex trading. Today we are looking at the most popular type of chart - the Bar chart. You can see above how clear and how easy to understand they are and this is the main reason why they are so popular.

The vertical line represents a specific period of time - very often one day. The chart is designed to provide four specific pieces of information: high, low, open and close.

1. The highest point of the line represents the highest price that was reached during the period.
2. The lowest point on the line shows the lowest price that was reached during the period.
3. A dot or vertical bar on the left of the line shows the opening price of the period.
4. A dot or vertical bar on the right of the line shows the closing price of the period.

There are different patterns you can detect in bar charts, that can help you make your trading decisions by predicting the movements of the market. We will look at these patterns in a later post, but tomorrow we will look at Candlestick charts. Easy-Forex provide a large range of charting tools. according to whether you are a novice or experienced trader, and give you detailed tuition in how to use them. And don't forget there's plenty of information about Forex trading at http://www.bizwrite.co.uk/Forex/forexindex.html

So What Exactly Are Charts In Forex Trading?

A chart in financial trading is a sequence of prices plotted over a specific time frame. The vertical axis (y-axis) represents prices and the horizontal axis (x-axis) is the time scale. Prices are plotted from left to right across the x-axis with the most recent being the furthest right.

Although charts are used almost exclusively in Technical Analysis, they are also useful in Fundamental Analysis. A chart makes it easy to spot the effect of a specific event on a currency's prices and its performance over a period of time.

What time frame is chosen for a chart depends on how compressed the analyst wants the data to be. A chart can be intraday, daily, weekly, monthly, quarterly or annual. The less compressed the data is, the more detail is shown.

Most commonly, charts used for the purpose of Forex trading show intraday (price movements within the period of a day) and daily data - daily data is intraday data compressed to show each day as a single data point. However, longer-term charts are also useful to show the larger picture and get an idea of historical price trends.

In the next two posts we will be looking at two of the most common types of chart - bar charts and candlestick charts. As we said yesterday, there is a lot more detail to this subject than can be provided in this blog, and you can learn it all in much more detail through the amazing tutorials that Easy-Forex provide when you register with them.