MONEY MAKING AND FOREX INVESTMENT

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Forex trading information

FOREX TRADING TRAINING

TITLED

"TEN GOLDEN RULES OF A PROFESSIONAL TRADERS"

 

BY:

 

JOHNSON OLALEKAN TEMITOPE

 

FORWARD:

THE AIM OF THE TEN GOLDEN RULES IS TO EDUCATE THE PROFESSIONAL TRADER ON HOW TO GET AN ANSWER TO THE BASIC QUESTIONS

1. WHICH WAY IS THE MARKET MOVING? ( price)
   
2. HOW FAR UP OR DOWN WILL IT GO?
   
3. WHEN WILL IT GO THE OTHER WAY?
   

THESE ARE THE BASIC CONCERNS OF A PROFESSIONAL FOREX TRADER.

 

COURSE CONTENT

• UNDERSTANDING PRICING MECHANISMS
  
• PLAN YOUR TRADE
  
• KNOW YOUR USEFUL FORCASTING METHODS
  
• MAP YOUR TRENDS
  
• SPOT YOUR TRENDS AND FOLLOW IT
  
• FIND THE LOW AND HIGH OF IT
  
• LEARN THE TURN AND WARNING SIGNS
  
• FOLLOW THE AVERAGE AND DRAW THE LINES
  
• KNOW HOW FAR TO BACK TRACK
  
• TREND OR NOT A TREND
  

 

ONE: UNDERSTANDING PRICING MECHANISM

WHAT REALLY AFFECT THE PRICING IS THE DEMAND AND SUPPLY. THE DD AND SS TAKES PLACE THROUGH THESE SET OF PEOPLE.

GOVERNMENT OF A COUNTRY ( CENTRAL BANK)

COMMERCIAL BANKS

 

FINANCIAL INSTITUTIONS

COPORATE ORGANIZATIONS

SPECULATORS

• INTER BANK PRIC FEED
  
• DEMAND AND SUPPLY THEORY APPLICATION
  
• MARKET GAME BETWEEN BUYER AND SELLER
  

 

STOCK

 

1. 6
   

 

1. 5
   

 

1. 4
   

 

1. 3
   

 

1. 2
   

 

1. 1
   

 

PRICE

 

THE HIGHER THE STOCK THE LOWER THE PRICE AND VICE VERSA.

© 1st Forex Trading Academy 2004 10

Today, supply and demand for a particular currency, or its relative value, is the driving factors in

determining exchange rates.

Decreasing obstacles and increasing opportunities, such as the fall of communism and the dramatic

growth of the Asian and Latin American economies, have created new opportunities for investors.

Increasingly vast amounts of foreign currencies began flowing into other countries banks.

Players in the Forex Market

Central Banks - The national central banks play an important role in the (FOREX) markets.

Ultimately, central banks seek to control the money supply and often have official or unofficial target

rates for their currencies. As many central banks have very substantial foreign exchange reserves,

their intervention power is significant. Among the most important responsibilities of a central bank

is the restoration of an orderly market in times of excessive exchange rate volatility and the control

of the inflationary impact of a weakening currency.

Frequently, the mere expectation of central bank intervention is sufficient to stabilize a currency, but

in case of aggressive intervention the actual impact on the short-term supply/demand balance can

lead to the desired moves in exchange rates.

If a central bank does not achieve its objectives, the market participants can take on a central bank.

The combined resources of the market participants could easily overwhelm any central bank. Several

scenarios of this nature were seen in the 1992-93 with the European Exchange Rate Mechanism

(ERM) collapse and 1997 throughout South East Asia.

Banks - The Interbank market caters to both the majority of commercial turnover as well as enormous

amounts of speculative trading. It is not uncommon for a large bank to trade billions of dollars daily.

Some of this trading activity is undertaken on behalf of corporate customers, but a banks treasury

room also conducts a large amount of trading, where bank dealers are taking their own positions to

make the bank profits.

The Interbank market has become increasingly competitive in the last couple of years and the godlike

status of top foreign exchange traders has suffered as equity traders are again back in charge. A

large part of the banks' trading with each other is taking place on electronic booking systems that

have negatively affected traditional foreign exchange brokers.

Interbank Brokers - Until recently, foreign exchange brokers were doing large amounts of business,

facilitating Interbank trading and matching anonymous counterparts for comparatively small fees.

With the increased use of the Internet, a lot of this business is moving onto more efficient electronic

systems that are functioning as a closed circuit for banks only.

The traditional broker box, which lets bank traders and brokers hear market prices, is still seen in

most trading rooms, but turnover is noticeably smaller than just a few years ago due to increased use

of electronic booking systems.

Introduction

Commercial Companies - The commercial companies' international trade exposure is the backbone

of the foreign exchange markets. A multinational company has exposure in accounts receivables

and payables denominated in foreign currencies. They can be protected against unfavorable moves

with foreign exchange. That is why these markets are in existence. Commercial companies often

trade in sizes that are insignificant to short term market moves, however, as the main currency

markets can quite easily absorb hundreds of millions of dollars without any big impact. It is also

clear that one of the decisive factors determining the long-term direction of a currency's exchange

rate is the overall trade flow.

Some multinational companies, whose exposures are not commonly known to the majority of

market, can have an unpredictable impact when very large positions are covered.

Retail Brokers - The arrival of the Internet has brought us a host of retail brokers. There is a

numbered amount of these non-bank brokers offering foreign exchange dealing platforms, analysis,

and strategic advice to retail customers. The fact is many banks do not undertake foreign exchange

trading for retail customers at all, and do not have the necessary resources or inclination to support

retail clients adequately. The services of such retail foreign exchange brokers are more similar in

nature to stock and mutual fund brokers and typically provide a service-orientated approach to

their clients.

Hedge Funds - Hedge funds have gained a reputation for aggressive currency speculation in recent

years. There is no doubt that with the increasing amount of money some of these investment

vehicles have under management, the size and liquidity of foreign exchange markets is very

appealing. The leverage available in these markets also allows such a fund to speculate with tens of

billions at a time. The herd instinct that is very apparent in hedge fund circles was seen in the early

1990's with George Soros and others squeezing the GBP out of the European Monetary System.

It is unlikely, however, that such investments would be successful if the underlying investment

strategy was not sound. It is also argued that hedge funds actually perform a beneficial service to

foreign exchange markets. They are able to exploit economical weakness and to expose a countries

unsustainable financial plight, thus forcing realignment to more realistic levels.

Investors and Speculators - In all efficient markets, the speculator has an important role taking

over the risks that a commercial participant hedges. The boundaries of speculation in the foreign

exchange market are unclear, because many of the above mentioned players also have speculative

interests, even central banks. The foreign exchange market is popular with investors due to the large

amount of leverage that can be obtained and the liquidity with which positions can be entered and

exited. Taking advantage of two currencies interest rate differentials is another popular strategy

that can be efficiently undertaken in a market with high leverage. We have all seen prices of 30 day

forwards, 60 day forwards etc, that is the interest rate difference of the two currencies in exchange

rate terms.

 

TWO: PLAN YOUR TRADE

 

• Determine your trade objective
  
• Plan your trade
  
• Ensure to trade your plan
  

 

Determining trade objectives is the home work of the professional trader, a professional trader should know which pair to trade in and also determine if he will be trading in a short term, intermediate or long term.

 

You should plan your trade at all times and ensure to trade your plan.when you plan your trade it means you are building a system. Anxiety and greed may not allow a trader to trade the planned system.

Remember to trade like a casino and not a gambler!

Always trade where the Risk/Reward ratio is acceptable to you, it is very good not to trade any thing less thanratio1:2 (i.e risk=1, reward=2).

 

Ensure you always record your trading activities,so as to enable youto review your decisions,it will serve as a means of correcting wrong trading decisions, and improve on right decisions.

 

All your money management strategies should be applied to prevent big net losses.

 

Remember,the first golden rule of making money is to prevent losing it.

 

THREE: KNOW YOUR USEFUL FORCASTING TOOLS.

• Support and Resistance
  
• Retracement
  
• Moving Average
  
• Strochastres/RSI. (Oscilator)
  
• MACD
  
• DMI
  
• Trend lines
  

 

Details and demonstration during class lectures.

 

FOUR: MAP YOUR TREND

 

• Determine your appropriate chart period to suit your trading objectives.
  
• Analysis of trend mapping matrix.
  
• Understanding the matrx for proper use.
  

 

Study long term charts.

It is best to begin a chart analysis with a monthly and weekly charts spanning several years. A larger scale map of the market provides more visibility and a better long term perspective of the market.

Once the long term has been established, then consult daily and intra-day charts.

A short term market view alone can be very deceptive, even if you only trade the very short term, you will do better if you are trading in the same direction as the intermediate and longer term trends.

 

FIVE: SPOT YOUR TREND AND FOLLOW IT

 

• Identify trading opportunities that satisfy your trading plan.
  
• Trade the opportunity according to plan.
  

 

Determine the trend and follow it.

Market trends come in different sizes; long term , intermediate term and short term.

 

First, determine which one you are going to be trading and use the appropriate chart

10 mins., 1hr and 4hrs charting is good for intra-day (short term) trading. To spot your trend, start with the 4hrs chart then the hourly and finally confirm it in your 10 mins chart.

Use 30 mins, 4hrs and daily charts for intermediate term and 1hr, daily and weekly charts for long term trade.

 

Remember, the trend is your friends so do not trade against the trend. Buy dips if the trend is upward moving and sell rallies if the trend is downward moving