For currency forex traders, the use of moving averages is common. For many, moving averages are commonly used as an indicator in part of a trading system.
As we make use of historical data to compute moving averages, they invariably contain a lagging effect.
Hence, with the use of moving averages in forex trading which is fast paced, the question which arises is this: "How effective are moving averages (which forms a lagging indicator) within a technical trading system for forex trading which is fast paced?"
A question as controversial as this would lead to much differences of opinion, each centering on how lagging moving averages are.
Rather than putting emphasis on these differences of opinion, a better solution is to accept that moving averages do play a role in technical analysis and charting, and to consider ways to reduce the lagging effect.
I have, for instance, seen forex traders who trade with nothing else except moving average lines, and yet among them are many profitable traders.
Do they use the standard moving average lines, or rather, how do they use the moving average lines?
In trying to overcome the lagging effect of moving averages, one simple way is to adopt exponential moving average in lieu of the standard moving average line as an indicator. Others , adopt the weighted moving averages, where more weight is given to newer price data.
A brillant solution is to adopt a mathematical approach towards the lagging effect by computing the moving averages as adaptive moving averages. In this particular case, the moving averages are allowed to self adjust to the prices based on a special adaptive computation and thus represents a clearer and truer of current price.
As part of the computation, it is possible to project the adaptive moving average forward by a certain number of bars or days where the moving average would have lagged the market, thus compensating for the lagging effect and even neutralising the lagging effect.
In all these trading systems involving the use of moving averages, applied in conjunction as 3, 4 or even 5 exponential moving averages together as a band to form a rainbow, or as a single adaptive moving average, it is to the best interest of the forex trader to back test the trading systems and to test out the profitability of the trading system using a forex strategy builder or a trade simulator. Then it is possible to know whether the use of these modified moving averages will enhance the robustness of a trading system or otherwise.
One note of caution is in order. In using moving averages, it is dangerous to optimize the moving averages to fit in with the best profitability, as over-optimization will lead to a non-representative trading system. You can get very good trading results and the best profitability from over optimization of the moving averages, but such a trading system involving the over-optimized moving averages is bound to fail, and will lead to disastrous results.
As moving averages are representation of price itself, the next question is - why not use price itself as an indicator rather than a representation of price which induces lag?
Indeed there are many forex traders who avoid the use of moving averages because of their inherent lag. To be able to monitor price itself, they would use price levels, favoring fibonacci levels, price pivots, gann levels and Murrey Maths levels. This has led to the use of a price time action method and a dynamic analysis based on time and price.
So if you are using moving averages in your trading system, be aware of the lagging effect. Check out whether a price time action method can be useful to you if the lagging effect is a concern of priority to you.
By Peter Lim
Saturday, February 3, 2007
Currency Forex Trading Systems- The Best Ways To Learn Forex Trading Revealed By 6645 Forex Traders
Potential traders and novices to forex trading are getting somewhat confused on what is the best method to go about learning how to trade forex or currencies. This is rightfully so, because there are a whole lot of training providers, and independent coaches , even brokers and printed literature all vying for the attention of potential students.
Indeed, if you desire to learn how to trade forex successfully, what is the best way to do so?
Trading coaches and trainers sometimes do have their own opinions, but are their opinions on what is their best way to teach others necessarily be in the best interest of their students?
To get a better understanding of what exactly is the best way for a person to learn forex trading, a recent poll was conducted in a major Forex Trading forum, consisting of international forex traders across the globe, with the question:
"What is the best way to learn how to be a successful forex trader"
A significant number of forex traders responded to the question as a total of 6645 responses were received from the membership, providing direct answers to this question. These were responses from actual forex traders who have faced the same question earlier in their trading careers, and who, now having learnt the tricks of the trade, are able to look back with much hindsight and wisdom, and to share their feelings on what exactly would be the best way to learn forex trading successfully.
Topping the list of the main ways was " to attend more seminars, read books and forums, get some experience and make trading decisions yourself". In other words, members were overwhelmingly endorsing a period of self study and education and paper trading and practice as the best way to become a successful forex trader.
A close second approach was to "sit side by side with a Mentor and study his methods and techniques".
Other responses which receive little support included subscribing to a signal alert or to get live deals from a guru and trade according to them; to buy a software package and trade according to the signals therein; to hire a professional forex portfolio manager or to invest in a hedge fund and monitor trades done by the fund manager to learn from him, and several other minor approaches.
On the basis of these responses from experienced forex traders, it is clear that they were subscribing to the concept that in forex trading, it is important to know how forex trading works, why it works, and to do self study on the various aspects, which will include knowing the win/loss ratios, back testing and strategy testing. By a period of self study, a forex trader can find a system that matches closely his trading profile, his personal tolerance for risk and time frame of trading. Those who were supportive of having a mentor would have the benefit of a fast tracking of practical skills and knowledge, from the mentor to the student, and to gain hidden and lesser known information from a reliable source, namely the mentor himself.
So if you are seeking to learn how to trade the forex profitably, consider the fact that 6645 forex traders are broadly supportive of the idea that it is personal discovery and study, and learning with a mentor that counts as the two major top approaches in learning to be a successful forex trader.
By Peter Lim
Indeed, if you desire to learn how to trade forex successfully, what is the best way to do so?
Trading coaches and trainers sometimes do have their own opinions, but are their opinions on what is their best way to teach others necessarily be in the best interest of their students?
To get a better understanding of what exactly is the best way for a person to learn forex trading, a recent poll was conducted in a major Forex Trading forum, consisting of international forex traders across the globe, with the question:
"What is the best way to learn how to be a successful forex trader"
A significant number of forex traders responded to the question as a total of 6645 responses were received from the membership, providing direct answers to this question. These were responses from actual forex traders who have faced the same question earlier in their trading careers, and who, now having learnt the tricks of the trade, are able to look back with much hindsight and wisdom, and to share their feelings on what exactly would be the best way to learn forex trading successfully.
Topping the list of the main ways was " to attend more seminars, read books and forums, get some experience and make trading decisions yourself". In other words, members were overwhelmingly endorsing a period of self study and education and paper trading and practice as the best way to become a successful forex trader.
A close second approach was to "sit side by side with a Mentor and study his methods and techniques".
Other responses which receive little support included subscribing to a signal alert or to get live deals from a guru and trade according to them; to buy a software package and trade according to the signals therein; to hire a professional forex portfolio manager or to invest in a hedge fund and monitor trades done by the fund manager to learn from him, and several other minor approaches.
On the basis of these responses from experienced forex traders, it is clear that they were subscribing to the concept that in forex trading, it is important to know how forex trading works, why it works, and to do self study on the various aspects, which will include knowing the win/loss ratios, back testing and strategy testing. By a period of self study, a forex trader can find a system that matches closely his trading profile, his personal tolerance for risk and time frame of trading. Those who were supportive of having a mentor would have the benefit of a fast tracking of practical skills and knowledge, from the mentor to the student, and to gain hidden and lesser known information from a reliable source, namely the mentor himself.
So if you are seeking to learn how to trade the forex profitably, consider the fact that 6645 forex traders are broadly supportive of the idea that it is personal discovery and study, and learning with a mentor that counts as the two major top approaches in learning to be a successful forex trader.
By Peter Lim
Forex Trading - 6 Simple Tips To Increase Your Profit Potential
Forex trading looks simple but few succeed. A lot of the so called investment wisdom doesn’t work and is given by people who have never traded in their lives.
Here we will give some simple tips that will help you increase your profit potential.
1. Get a simple method you understand
In forex trading many people think that the more complicated a method they use in forex trading the more likely they are to make money.
The fact is however that simple systems work best.
Simple systems are more robust and easier to trade with discipline, as you understand the logic and can therefore follow it with confidence when it has a losing period.
You can build one yourself easily and we have written frequently on this and it’s easy to do.
2. Trade the big trends
Forget day trading (we have written several articles why) it’s guaranteed to lose you money, stick to catching the big long term trends that make the big profits.
3. Work smart not hard
Once you have a system your happy with that’s it. People go on about working hard in forex trading to educate yourself but once you have your system stick with it.
The market doesn’t give you extra dollars for effort, you get your reward for trading correctly.
4. Trade Infrequently
Many traders trade frequently and always like to be in the market and in on the action.
The big moves in FOREX trading, with optimum risk to reward, come just few times a year, so don’t trade for the sake of trading wait for these moves – These are the ones that will make you the big profits and that’s why you’re trading.
5. Money Management
In forex trading most traders can see moves and be right about market direction but they can’t hold a trend.
They get in, get stopped out quickly, then see the market reverse back in the direction of their trade and pile up $10,000 or more and their not in!
The reason for this is traders have not grasped money management. When trading they do the following:
Place stops to close to entry and get taken out by volatility of the market. I have seen traders put stops right at the first support in an up trend and of course they get taken out.
Forex trading is risky, so you need to place your stop far enough away from the market action to allow for volatility.
This is not being rash, but to make money you have to risk it.
Placing stops to close to entry and not taking enough risk dooms most traders to fail - Don’t make the same mistake.
Also when you have a profit don’t move the stop up to quickly, be patient and give the trade room to breathe – The big trends last months or years and to say with them you need to accept short term swings against you.
Its tough watching open profit dip, but keep your eye on the bigger picture and the bigger profits.
6. The key to success
The key to success in forex trading is to do the following:
Apply Simple Method + With Discipline + Calculated Risks = Forex trading success
While it is a simple equation most forex traders don’t do this. There always looking for a short cut or easy way to make money and in forex trading.
So there you have 5 simple tips understand and apply them and rely on yourself and you could make some big profits forex trading.
By Sacha Tarkovsky
Here we will give some simple tips that will help you increase your profit potential.
1. Get a simple method you understand
In forex trading many people think that the more complicated a method they use in forex trading the more likely they are to make money.
The fact is however that simple systems work best.
Simple systems are more robust and easier to trade with discipline, as you understand the logic and can therefore follow it with confidence when it has a losing period.
You can build one yourself easily and we have written frequently on this and it’s easy to do.
2. Trade the big trends
Forget day trading (we have written several articles why) it’s guaranteed to lose you money, stick to catching the big long term trends that make the big profits.
3. Work smart not hard
Once you have a system your happy with that’s it. People go on about working hard in forex trading to educate yourself but once you have your system stick with it.
The market doesn’t give you extra dollars for effort, you get your reward for trading correctly.
4. Trade Infrequently
Many traders trade frequently and always like to be in the market and in on the action.
The big moves in FOREX trading, with optimum risk to reward, come just few times a year, so don’t trade for the sake of trading wait for these moves – These are the ones that will make you the big profits and that’s why you’re trading.
5. Money Management
In forex trading most traders can see moves and be right about market direction but they can’t hold a trend.
They get in, get stopped out quickly, then see the market reverse back in the direction of their trade and pile up $10,000 or more and their not in!
The reason for this is traders have not grasped money management. When trading they do the following:
Place stops to close to entry and get taken out by volatility of the market. I have seen traders put stops right at the first support in an up trend and of course they get taken out.
Forex trading is risky, so you need to place your stop far enough away from the market action to allow for volatility.
This is not being rash, but to make money you have to risk it.
Placing stops to close to entry and not taking enough risk dooms most traders to fail - Don’t make the same mistake.
Also when you have a profit don’t move the stop up to quickly, be patient and give the trade room to breathe – The big trends last months or years and to say with them you need to accept short term swings against you.
Its tough watching open profit dip, but keep your eye on the bigger picture and the bigger profits.
6. The key to success
The key to success in forex trading is to do the following:
Apply Simple Method + With Discipline + Calculated Risks = Forex trading success
While it is a simple equation most forex traders don’t do this. There always looking for a short cut or easy way to make money and in forex trading.
So there you have 5 simple tips understand and apply them and rely on yourself and you could make some big profits forex trading.
By Sacha Tarkovsky
Forex Trading - Factors You Cannot Ignore To Become A Successful Forex Trader
When it comes to forex trading, there is one particular aspect that differentiates it from other types of trading. This aspect is that forex traders are predominantly technical based, depending a lot of fast entry and exit following charts. Forex traders adopt fundamental analysis only to give them a better economic picture and projection of an overall currency trend.
However, there are particular times when the forex trader has to watch out for significant fundamental developments such as economic matters, especially when there are reports and news release pertaining to international interest rates of the major currencies. This is because everything might be quiet before a news release, with prices breaking out only in a strong move upon the release of the news or after an important meeting.
Therefore, in forex trading, in considering the technical setups, the forex trader has to be aware of the dates of the release of major reports, including what the "chairman of the Fed" says. Certain comments may be construed as bullish and may cause forex prices to move strongly and vice versa.
It would be wise for the forex trader to determine a few reliable source of financial news feeds, and to apply the information from the news channels to his trading.
In any profitable trading system, the forex trader must know how to buy and sell the currency pairs, set appropriate stop losses, and set profit limits, and exploit the power of leveraged margin to his trades.
If he fails to follow these important principles, losses can easily follow and losses can exceed whatever profits and can ruin a man.
In a technical trading system, the forex trader will use some indicators to gauge the market direction . He will need to set up his charts with the right combination of indicators, and more importantly how to use them correctly.
To accelerate one's learning, a forex trader may use a trade simulator, called a trade sim for short. A trade sim provides simulation of actual forex price movements so that the forex trader can practise his entry and exit of his trades, and improve upon the timeliness of his trades.
From my own experience, I like to tell traders who are beginners to watch for 3 main technical trading setups which are broadly, to trade with the breakout of a trend, to trade with a strong trend, and lastly to trade the tops and bottoms of the market.
Following a period of consolidation which is represented on the charts as a rectangular pattern, a breakout can result in good gains. To trade with the trend means to make several trades as the prices continue to move up, and to buy on the dips and to sell on the rebound. To trade the tops and bottoms, a forex trader needs to recognise toppish and bottoming chart patterns, including Japanese candlestick charting to catch a glimpse of the future.
The biggest advantage of forex trading is that a lot of money can be made ( or lost) within a very short period of time.
Therefore, it is always best for a less experienced forex trader to get under the tutelage of an experienced professional trader to walk him through the ropes.
Good traders are never born. Traders become good through gaining skills and from learning through experience. Either they pay their dues in the market, gaining experience from disappointing trades that went wrong, or they can have a smoother transition into the lucrative field of forex trading by getting a successful professional trader to mentor them.
Academic and head knowledge is useful,but it is always skills and experience that will determine how successful and profitable a trader is. Get trained, be prepared, be capitalised and you can become a successful forex trader.
By Peter Lim
However, there are particular times when the forex trader has to watch out for significant fundamental developments such as economic matters, especially when there are reports and news release pertaining to international interest rates of the major currencies. This is because everything might be quiet before a news release, with prices breaking out only in a strong move upon the release of the news or after an important meeting.
Therefore, in forex trading, in considering the technical setups, the forex trader has to be aware of the dates of the release of major reports, including what the "chairman of the Fed" says. Certain comments may be construed as bullish and may cause forex prices to move strongly and vice versa.
It would be wise for the forex trader to determine a few reliable source of financial news feeds, and to apply the information from the news channels to his trading.
In any profitable trading system, the forex trader must know how to buy and sell the currency pairs, set appropriate stop losses, and set profit limits, and exploit the power of leveraged margin to his trades.
If he fails to follow these important principles, losses can easily follow and losses can exceed whatever profits and can ruin a man.
In a technical trading system, the forex trader will use some indicators to gauge the market direction . He will need to set up his charts with the right combination of indicators, and more importantly how to use them correctly.
To accelerate one's learning, a forex trader may use a trade simulator, called a trade sim for short. A trade sim provides simulation of actual forex price movements so that the forex trader can practise his entry and exit of his trades, and improve upon the timeliness of his trades.
From my own experience, I like to tell traders who are beginners to watch for 3 main technical trading setups which are broadly, to trade with the breakout of a trend, to trade with a strong trend, and lastly to trade the tops and bottoms of the market.
Following a period of consolidation which is represented on the charts as a rectangular pattern, a breakout can result in good gains. To trade with the trend means to make several trades as the prices continue to move up, and to buy on the dips and to sell on the rebound. To trade the tops and bottoms, a forex trader needs to recognise toppish and bottoming chart patterns, including Japanese candlestick charting to catch a glimpse of the future.
The biggest advantage of forex trading is that a lot of money can be made ( or lost) within a very short period of time.
Therefore, it is always best for a less experienced forex trader to get under the tutelage of an experienced professional trader to walk him through the ropes.
Good traders are never born. Traders become good through gaining skills and from learning through experience. Either they pay their dues in the market, gaining experience from disappointing trades that went wrong, or they can have a smoother transition into the lucrative field of forex trading by getting a successful professional trader to mentor them.
Academic and head knowledge is useful,but it is always skills and experience that will determine how successful and profitable a trader is. Get trained, be prepared, be capitalised and you can become a successful forex trader.
By Peter Lim
3 Reasons Forex Trading is So Popular
First, it may be necessary to explain what forex trading is. Forex trading, also called currency trading, FX trading, Foreign Exchange trading and forex currency trading refers to the largest financial investment market in the world. Forex trading is fully electronic and has an average daily capital turnover amount in the area of $1.5 trillion. This amount of capital changing hands dwarfs the stock and commodity markets. Forex trading is the simultaneous buying of one particular currency and the simultaneous selling of another particular currency. If a forex investor believed that the Euro Currency would weaken versus the US Dollar they would Sell EUR/USD. In forex trading the strongest currency is listed first in the pair. Currently the European Currency (EUR), the Australian Dollar (AUD) and the British Pound (GBP) are the only 3 currencies valued higher than the US Dollar (USD).
The #1 reason forex trading is so popular is the ease and accuracy of trading at the forex traders convenience. Forex trading follows the sun around the world which enables investors to trade on their schedule 24 hours a day from the comfort of their own computer. Most forex trading platforms offer free real time quotes, charts and news to facilitate forex trading efficiency. Many also offer free practice forex trading accounts so investors can learn forex trading without any risk. Visit www.tkfutures.com/forex.htm and open an educational forex trading demo practice account. These typically offer the forex trader $50,000 in virtual equity and 30 days to practice forex trading with.
The #2 reason forex trading is so popular is the inexpensive trading costs. Many forex trading companies charge no commissions. The forex trading company and the introducing broker are compensated by the pip spread. For instance, a EUR/USD pip spread may be 3 pips which are equal to $30. The investor is leveraging $100,000 of EUR/USD with a total transaction cost of $30.
The #3 reason forex trading is so popular is the limited risk of capital loss. Many but not all forex trading platforms do not allow trading once the forex account equity amount falls below the required margin level. The forex trading platforms that offer this service will automatically liquidate the currency positions before the account can go negative. There are no margin calls in forex trading for the investor to worry about. Forex trading does offer extreme leverage of up to 100 times the value of the trading account which can cause significant losses in a short period of time. Visit www.tkfutures.com/forex.htm to learn more.
By MK. Smith
The #1 reason forex trading is so popular is the ease and accuracy of trading at the forex traders convenience. Forex trading follows the sun around the world which enables investors to trade on their schedule 24 hours a day from the comfort of their own computer. Most forex trading platforms offer free real time quotes, charts and news to facilitate forex trading efficiency. Many also offer free practice forex trading accounts so investors can learn forex trading without any risk. Visit www.tkfutures.com/forex.htm and open an educational forex trading demo practice account. These typically offer the forex trader $50,000 in virtual equity and 30 days to practice forex trading with.
The #2 reason forex trading is so popular is the inexpensive trading costs. Many forex trading companies charge no commissions. The forex trading company and the introducing broker are compensated by the pip spread. For instance, a EUR/USD pip spread may be 3 pips which are equal to $30. The investor is leveraging $100,000 of EUR/USD with a total transaction cost of $30.
The #3 reason forex trading is so popular is the limited risk of capital loss. Many but not all forex trading platforms do not allow trading once the forex account equity amount falls below the required margin level. The forex trading platforms that offer this service will automatically liquidate the currency positions before the account can go negative. There are no margin calls in forex trading for the investor to worry about. Forex trading does offer extreme leverage of up to 100 times the value of the trading account which can cause significant losses in a short period of time. Visit www.tkfutures.com/forex.htm to learn more.
By MK. Smith
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