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Successful Forex Traders vs. Unsuccessful Forex Traders

Two weeks ago I discussed the 7 habits of a forex winner so you don’t become a forex loser (yeah, I’ve read some Steven Covey ).

While there are several concepts that I’ve reinforced repeatedly on the rapid forex blog,  the ideas below are simple and need to become part of your mindset as a forex trader in order to become successful.

As a forex trader, you will have the highest chance of success if you believe in – and follow – the following principles:

1. A successful forex trader educates themself on how the market works.
2. A successful forex trader understands how to find and place a trade.
3. A successful forex trader trades only when solid equity management allows.
4. A successful forex trader NEVER trades without a protective stop loss order.
5. A successful forex trader never chases the market.
6. A successful forex trader patiently awaits solid trading opportunities that meet his trading criteria and passes on trades that do not meet his equity management requirements.

One of the fundamental reasons that 90 percent of Forex traders fail is that they do not follow the rules.  It is crucial that you educate yourself on how to place sound, educated trades, this is why you’re at the rapid forex trading blog

But you can have all of the education in the world and if you don’t follow the rules you have learned, you will fail.  Do not get emotionally attached to the money invested in a trade (that means, in part, that you should not trade more than you can afford – practice sound equity management).

Do not get emotionally attached to a trade.  Psychologists have found that many people who lose big in the markets held on to losers for too long – you can prevent this by setting appropriate stop loss orders with every trade.

Remember that every trader loses sometimes. It’s how we deal with losses that allows us to ultimately be successful! The ones who win overall are those who trade the Forex in an educated, methodic way.

Posted in Forex Trading Mindset

Create Your Trade Plan for Forex Trading

Forex trading is not at all like playing Poker, Blackjack, or any other casino game. Forex trading is an activity best done by people who are educated about it, who have a plan, and who follow the plan.

If you are relying on any element of luck in your forex trading, then you will not be a successful trader. While no forex trader is profitable 100% of the time, traders who are educated about how the market works, who create a forex trading plan and trade that plan, who do not allow themselves to become emotionally involved in any trade, are the traders who are consistently successful.

The education you received in the last 30 rapid forex blog posts will contribute greatly to your success as a forex trader, providing that you practice what you have learned.

In addition, it is important to be psychologically prepared as a forex trader in order that your emotions do not overrun your intellect and begin making trading decisions for you.

There are several forex trading strategies, in addition to forex education, that will help you succeed as a forex trader:

1. Decide to be a day trader or a position forex trader
2. Manage your risk. You may or may not be able to quantify how much you could potentially profit in a trade, but you can quantify how much you could potentially lose, and from that decide how much you are willing to risk.
3. Risk no more than 5% of the value of your forex account on any single trade. If you risk more than 5% of the value of your forex account on any one trade you will be overtrading your account, a practice that successful traders do not engage in.
4. Once you have identified the risk in a given trade, decide if that amount of potential loss fits within your equity management plans. If it does not, pass on the trade. There will be other trades that do meet your equity management requirements.
5. Use Proper Risk/Reward Ratio- The amount of money that you could potentially lose on any given forex trade should be proportional to the amount of money that you could potentially win; this is called your risk/reward ratio. That ratio should be, at least, 1:1.5 on every trade you make.

For example, if the distance between your entry and your stop loss covers 40 pips, you are risking about $400 on that trade, so you want to make sure that you can set a profit limit order at least 60 pips away from entry such that your potential profit is about $600, 1.5 times your potential loss.

6. Learn how to take a loss. You will lose – no trader profits 100% of the time. Know, however, that percentages mean nothing.If you practice sound equity management, set your stop orders and limit orders according to a risk/reward ratio of at least 1:1.5, and only enter trades where potential loss is relatively small, then you will likely profit (make money) overall.For example, consider a forex trader who wins 30% of the time and loses 70% of the time. If that trader goes for rewards of $2000 on each trade and minimizes his potential losses on each trade to $300, then he will still net $3900 in profit, even though he lost 70% of his trades.# of wins is 3 out of 10 (30%) * $2000 profit limit for each trade = $6000 gross profit

   # of losses is 7 out of 10 (70%) * $300 stop loss for each trade = $2100 gross loss

   = $3900 net profit

Following these six steps for having a solid plan for your forex trading will help you become a forex winner trader (nobody wants to be a forex loser trader). These are fundamental concepts, if you ever start losing money as a forex trader you should re-review this blog post.

Posted in Money Management

The Anatomy of a Japanese Candlestick

In this blog post, I’ll continue to explain how Japanese candlesticks work. As a forex trader, it’s essential that you understand how this works. Soon I’ll show you how you can trade the forex market by using the wealth of information available in each candle at a mere glance.

At first glance, candles tell you which team won the period’s tug-of-war.  That is, a candle will tell you whether the bulls succeeded in getting the market to close at a higher price than it opened, or the bears succeeded in getting the market to close at a lower price than it opened.

You can identify the game’s winner by its candle – specifically, whether its body is filled in or not.

Looking more closely, the candle offers additional information.  Not only will it reveal whether prices closed lower or high than they opened, but it will also give you an idea of the period’s high and low prices.

The high and the low prices are revealed in the candles upper and lower wicks.  If the candle has a very long upper wick, for example, then prices went very high during that period’s trading but returned back to a much lower close.  If the candle has a very long lower wick, then the opposite is true.

Take a look at Figures 1 and 2, which reiterate the anatomy of a bullish candle and a bearish candle:

A candle, then, can tell you a lot about the trading activity that occurred in a given period (again, candles can represent periods of one minute, five minutes, fifteen minutes, one hour, one day, one week, etc.).

The benefit of candles over bars or lines is precisely that – that each candle reveals so much information about a period’s trading in a very clear, succinct way.

For example, imagine that you are looking at a chart displaying one minute candles.  Looking at the chart, you can easily identify minutes where the bulls won (unfilled, outlined in blue) and where the bears won (filled and outlined in red).

You can see from the length of the upper and lower wicks how high and low prices went during the session, and you can see the distance between the session’s opening and closing prices.  All this information is summarizing what is actually going on within that one minute period.  Within that period prices are going up and down, higher and lower, moving in a bunch of vertical lines.

If you were looking simply at those lines (as you would be if you were looking at a line chart) it would be very hard to break apart the one minute sessions and determine whether the bulls or the bears won, how high and low prices went, and at what price the market closed an opened during that one minute.  Instead, this nice little candle figures all of that out for you and presents it to you in a very readable, friendly way.

What About Bar Charts?

Bar charts have benefits similar to candles, in that they represent the trading activity during a given period in a very succinct, readable way.  A bar represents price movement with a vertical line (compared to the candle, which represents price movement with the candle body and wick).

The top of the bar’s vertical line indicates the high price during that trading period (just as the top of the candle’s upper wick indicates a high).  The bottom of the bar’s vertical line indicates the low price during that trading period (just as the bottom of the candle’s lower wick represents a low).

On a bar chart, the period’s opening and closing prices are displayed by horizontal ticks jutting out from the bar’s vertical line.  The ticks jutting out to the left represent the opening price, while the ticks jutting out to the right represent the closing price.

The downside to bar charts is that you have to look much closer to determine whether the market closed higher than it opened (bulls won) or closed lower than it opened (bears won); because, on a bar chart the open and close are marked by lines jutting out from the bar’s body to the right or the left.  The fact that a candle is filled or unfilled depending on which team won the session makes it much easier to read and understand at a glance.

Posted in Japanese Candlesticks, Technical Analysis