Forex (or trading) psychology is very interesting and important as well as difficult for study. Every single Forex trader, who is successful on the market knows, that the technical knowhow of the actual mechanics of trading the Forex (foreign currency exchange) market is not all you have to have, but recognizing the fact that you should be a winner - the main psychology of trading well known as Forex requires mental discipline.
While the main idea is to capture as many Pips (Price Interest Points) as possible, just to make your profits, ruling the heart in Forex trading is one of the thing that your head should focus on. Don’t get carried away by the thrill and excitement of the moment! Having a good strategy or well-built plan in place before you start trading is one of the main keys, as well as predetermining your exit point. You will have losing trades (everyForex trader does), within the Forex trading experience.
The art is in knowing when to let go of these, and not hang on in the hope that they will turn around and start making money. You don’t need to persist just to try and prove yourself, and keep lowering your stop-loss order in anticipation of an upturn in the market that may not come for some while. Is that right? The advance and smart forex traders also know that there will be another trade along soon. Knowing when to exit from profitable trades, too.
Most of all, gain an understanding of the charts, for they represent so much and are relatively easy to interpret and use. Forex trading develops strong trends, and although a more volatile market, predictability is one of the advantages of this market over others such as futures and stocks. Technical analysis is the most precise way of trading Forex, with charts showing the historical data, which over time has patterns repeating themselves, and can be used reliably for predicting future trends. It is wise to open a demo account and to practice trading ‘on paper’ first before risking your money on the forex trading market. If you’re unsuccessful in this, it is unlikely that you will suddenly become an expert trader in a ‘live’ account, when using your own finances adds to the pressure to succeed. Never risk more money than you can afford to lose.
argin trading is playing main role in forex trading study and learning. As a beginning we should know what is margin?
Here it is: $10,000 is 2.0% of $500.000, or put it another way: 50 times $10,000 is $500,000, because in terms of leverage this corresponds to 50:1. You can make profits very quickly thanks to the possibility of using this much leverage, but there is also a greater risk of incurring large losses and even being completely wiped out. Maximize your leveraging it’s inadvisable, because the risk can be very high. Attracting investors to the FOREX market who wish to risk less than one million dollars at any time (a standard lot for trading on the exchange market), it employs what is referred to as a margin trade.
The so-called ”shoulder” or leverage gives the client an opportunity to make deals in volumes that are 50-100 times greater the start up amount. It is granted by a credit institution bank or bank, where he deposits a guaranteed margin. Just a simple example: by depositing a guaranteed amount of $100,000 in a broker company or bank, the individual can make financial operations in amounts of 5 to 10’s of millions of dollars. Any kind of modest gain on the FOREX Market is considered to be of significant size. If we think of another advantage of FOREX, this could be the profit derived from any direction of price changing, regardless of the particular currency involved.
Speculators use the term - margin-equity ratio, which is the amount of their trading capital, used to hold it as margin at any particular time. Forex trader would rarely hold 100% of their capital as margin, that is also unadvisedly strategy. The options to lose their entire capital at some point could be high. A conservative trader might hold a margin-equity ratio of 15%, while a more aggressive trader might hold 40%. By contrast, if the margin-equity ratio is so low as to make the trader’s capital equal to the value of the futures contract itself, then they would not profit from the inherent leverage implicit in futures trading.. Return on margin (ROM) is often used to judge performance because it represents the gain or loss compared to the exchange’s perceived risk as reflected in required margin. ROM may be calculated (realized return) / (initial margin). The Annualized ROM is equal to (ROM+1)(year/trade_duration)-1. For example if a trader earns 10% on margin in two months, that would be about 77% annualized.
We mainly do fundamental analysis to get better information of a long-term trends in the currency market. There are a number of factors that determine the value of a country’s currency. In a fundamental analysis, the primary issues, that are measured are the economic, overall political and social climates of a specific country. It can be difficult measure how these issues affect one another. Before forex trading, every single trader should be aware of the affects of political events, central bank news, non-farm payrolls, consumer price index, imports, exports etc. on the value of currency.
Charts and graphs are the main stuff, which is produced by the technical analysis and scrutinizes past data on volume and price. “Fibonacci retracement” is one of the latest buzzwords in this approach to currency trading analysis. Fibonacci was an Italian mathematician, lived in 12th century, who contributed to a modern forex trading strategy consists of his retracements, fans and arcs. The basic - the lines in these mathematical studies are currently used to anticipate a trend change as prices near the lines created by these arcs, fans, and retracements. So Candlestick Formations, Fibonacci Sequence, Financial Breakouts and Trend Lines are some of the more popular forms of technical analysis used in forex.
E"$/£ the exchange rate is too high. Since the exchange rate, as written, is the value of the pound, we can also say that the pound value is too high relative to the dollar to satisfy IRP.
