I have talked before about the need for a trader to be realistic and not take forex trading like a game.Take it from me, if I had saved some of the money I have lost trading, I could have bought a few shoes. Now for those who think that this will end as soon as you have been trading for sometime, then think again.

I do not know of any business on this earth where everything is just fantastic, everyday ,every time, any how . Even Donald Trump was bankrupt and he owned buildings I might never be allowed to go into.

One of the things that how to start winning again was the need to set realistic forex goals. I do not mean do not go for the million. Everyone has their goals and mine is definitely different from yours. So set your own !

We talked about what would happen to any forex trader who does not set realistic forex goals. Lets try to be positive here for a moment and see what we can do to try have realistic goals.

1. Keep your Forex Goals Modest.

There is nothing wrong with going for 50 pips a week or 10 or 20 as long as you have proper money management. 50 pips a week is about 10 pips a day . My experience is that after being a bit more realistic I might just trade once or twice a week. If I have a losing trade, it goes to 3 trades a week.

There are 5 days in a trading week. 2 of those must trend. You really should not be trading the other 3 if you are a trend trader. So you reduce your work to figuring out which days trend for the particular market you are going for.

Modesty is also a good virtue I hear and creates good Karma.

2. Trade with the right Amount of Money

Stop trying to go for 1 million dollars when you only have $1000 in your account. I can assure you that no one has done that yet. Fund your account with the amount of money you can afford to lose ( whatever that means) and use proper money management.

If you lose money trading $100 in your account, believe me, you will lose money trading $20,000

3. Stop Looking for the Big Trade

I have had a few friends try to go for the 100 pip move after they saw me trading. They end up being frustrated because they wanted to hit the home run. There are very few “big ones” that a new trader can get. Even Barry Bonds had to take steroids to hit those “big ones”.

Go for smaller returns until you are comfortable in yourself and your trading methodology. 10 pips in your account is much better than minus 50 pips in your account.

4. Take Trading like a Business

This is not a casino. You are bound to lose in the long run ( you may actually lose in the short run too ) if you do not take trading like any other business out there. You need to put in the time and gain experience just like any other business out there. Reading about the fantastic cornflower system and putting in your milk money is a sure way to be broke.

Make a business plan just like any other business and in our case is a reasonable and detailed trading plan.Stick with it and let the market take you where it will. Which brings us to the next point.

5. Stop Chasing the Market

Understand that the market will go where it will. Your only problem is trying to figure out where it is going and not reading a forex blog with a great new idea and following it. If you follow step 4, you really should not be chasing markets.

The market is not your father or mother, it will not listen to your cries that you can’t pay the mortgage. Try and stay realistic when the market is not. I never trade anything if I do not know where the market is heading.If I am a bit confused I go back to bed. Learn to live for another day.

6. Have some Faith in Yourself

You are not going to win everyday. There are choppy days in the market , the forex scalper makes money then. There are trending days in the market, the forex scalper loses money then.

If you think that you are perfect, then you would be better served to send a check to your broker and get it over with instead of trading funny hours of the day looking at something going up and down on your computer screen.

True faith in yourself means that you learn from your mistakes and try not to repeat them.

Trading is a great business and as long as one takes the effort to learn all that is there to learn from it, you are bound to succeed ……..IN THE LONG RUN.

Yesterday we discussed a little about the positive odds in forex trading. Let’s try and compare that to casino gambling. In a casino there is only one game where history has proven that the player can beat the casino, and that game is blackjack. Using a technique of counting cards, the payout rate goes from anywhere from a .97:1 ratioto a 1.05:1, depending of course on how much is wagered and how many highcards are left in the deck compared to low cards.

Lets take a look at forex pairs now:
Forex pairs are sold with a spread ranging from 2 pips all the way up to 7 pips on the GBPJPY but we’ll use 3 pips as the universal spread in order to make things less complicated.

Long term trading of currencies benefits greatly from the influence of nations to affect monetary policy and is mathematically the best way to beat the odds of the market. With a 3 pip spread, and investor must make 13 pips on a trade in order to lock in a 10 pip proft. That sets the commission for the trade at 23%; no amount of institutional manipulation will add 23% to the foreign exchange pool.

However looking long term, seeking 500 pips from a trade, the commission drops to just .59% of the of amount invested, a number that can easily be beaten.

Long term trading benefits most from the economic outlook over a time of 3-5 years. The input of money by government can easily top the negative payouts of the foreign exchange.

I believe that the foreign exchange markets, on average, give more to the investor than is put into it each and every year. This is not only due toinflation, but also due to the influence that institutions and governments use to keep the markets in economically safe levels. For example if I had bought the eurodollar when it was at about 1 euro to 1 USD I would have increased my earnings by 50% without ever having made another trade. Add levearage to that and you can see there are some people who made a killing .

To a government like the European Union, it is in their best interest to value their currency in order to make imports cheap, but also be able to export goods that the area produces.If the pound was to move to 3:1 against the Euro, the exports from European Union would be far too expensive for the UK to buy. Thus hurting Europe as a whole.

Banks and governments spend billions, probably trillions trying to regulate the Foreign exchange markets each year. Governments buy and sell their own currencies to promote the best economic scenario possible for their country or region.

It is well known that China controls over one trillion dollars worth of US Dollars. Holding large quantities of the dollar keeps it own currency values up (since the Yuan is tied to the US dollar) and also allows the nation to influence world economics.

If the Chinese were to sell their dollars, it would drop the value of the dollar and its own currency, effectively making Chinese goods that much cheaper to the overall market.

Tomorrow I will explain how this works, and why it benefits you as a forex trader.

You’ve heard of it, its a tatic used by the hedge funds to generate loads in income from a relatively small investment.  The carry trade is considered to be far safer than speculative currency trading and it has the ability to create huge returns. We tried to discuss a bit about it at what is the yen carry trade?

The carry trade, and the carry trade basket (plural) is something that is never truly perfected due to rapidly changing prices but neither is it completely unprofitable.

The carry trade results from a difference in the bid and ask interest rates offered at banks around the world.  The carry trade is similiar to borrowing $10,000 from an introductory credit card at a low interest rate, say 2% per year, and depositing the money in a bank account or certificate of deposit to generate 4% a year.  A net gain of 2% a year, or $200.

In forex, these trades are everywhere.  The only problem though, is generating a return from carry trades always requires borrowing from one currency and depositing in another.  The movement in one currency pair can send your carry trade down in value, pushing up your daily interest but completely destroying your equity in the trade.

For example  If I were to buy USDJPY, I would be borrowing Japanese Yen to invest in an American bank account.  I can borrow $100,000 worth of JPY for just .8% per year, a very cheap interest rate.  The $100,000 is then put in an American account with a 4.65% return.

My investment of $2,000 to secure $100,000 in currency would then yield 3.85% per year, or $3,850 per year if the exchange rates stay the same.

This week I got a few emails and though I did not want to post today as I want to watch the red sox beating the rockies,but I just can not help myself.

I was asked what is the worst indicator in forex trading.

It was a hard question but to be honest , all indicators are useful to a point and all indicators work if you are looking for something in particular. If you are a trader, you must be looking for something in particular. Let me give you an example, I am a man and I have been told that women love good things.However I learnt not all women love roses. Some love red roses others white roses. If I want to be hated by a woman , get her a rose or flower she does not like.If you want to be broke , then get a trading indicator at the wrong time.

Trading is a game and a very serious game that can make you broke.Take it as a business and you will not be disappointed.. If you use trending indicators during news releases, you will regret it. If you use scalping indicators during a trend, you might never trade again.

The biggest problem as a trader is trying to figure out if the market is trending or choppy. Your bigger problem is getting an education to learn what the difference is. There are many tools you can use. One of them is seasonal trading, another is fundamental trading, another is technical trading but the most important is your mind.

A traders mind should understand that trading gurus are a dime a dozen and trading gurus believe in the forex holy grail.The trading holy grail might exist but since I have not seen it, I can only do myself a favor by learning and reading as much as I can.

Get yourself in a position where you can look at a forex chart and know that the market is choppy. Get yourself in a position where you hear that payrolls are down this month and instead of selling you buy because yesterday you heard that new home sales went up. In other words get yourself in a position to succeed. The best indicator is yourself and your education.

My worst forex indicators are listed below.

1. Forex Volume Indicators

If there is no central market in forex so how can anyone know the volume? For me anyone who talks about candlesticks which are volume indicators is a forex guru, who will fleece me.There is simply no volume in forex as there is no central market so each and every indicator that uses volume is null and void.

2. Back tested Forex System

If you back test any forex system with esignal , the results are perfect, try that on Amibroker you will be very surprised then add your own broker , you will be broke.Since forex does not have a central market, what the hell are you back testing? Have you ever bought a forex metatrader system that worked 80% of the time, put it on your charts and failed miserably? The answer is very simple,it has nothing to do with your system. Every forex broker has their own data and they can do anything with it. Your metatrader system is built on strategy trader however you will trade it on North finance. It will fail miserably all the time. Though you bought a good metatrader system, your broker prices will be different and believe me brokers are not your friend.

3. Forex Gurus

There are many forex gurus I have heard off but there is only one that I trust. His name is ‘The Oracle of Omaha ‘ who predicted 2yrs ago the fall of the dollar. There are some who I will not name here but you know them but there is one who is very notorious .Forex bastards are a scam . I need to add the period. These guys have started some 3 other websites including forex secret society and they claim to have insider information. First of all having insider information is illegal and ask Martha Stewart about that fact. But the things that annoys me is seeing them trading 10 second charts. Really? That’s all I’ve got to say about that.

4. You will be a Forex Millionaire

All I’ve got to say about that is , YEAH RIGHT!

Ladies and gentlemen forex trading is not 4xmade easy , it is hard and just like any other business you have to work hard. When I started trading 7yrs ago we used to be a group of 10 ,only 2 of us are still trading. Think about that.Don’t go into forex trading with hype, take it like any other business. It will be hard, it will be tough but only the tough will remain and it is a a wonderful actually the best internet business you will ever have.

We have seen that the forex market is also a seasonal trading market , some months are just better for currency pairs than other over the course of a long period of time. In this case, we used 10 year charts to best understand the trends over time and include enough time to show a true trend.

GBPUSD Seasonal Trades

September is a good month for GBPUSD.In eight out of the last 10 years, the GBPUSD has rallied in September.Europe generally takes August off as a time for their seasonal vacations or holidays as they’re called across the pond, this is one of the reasons stated for the GBPUSD to gain ground as European traders get back to the markets and move back into summer positions. Breakdowns in 2005 and 2006 might show some disagreement to this trend. We’ll see how it develops.

EURUSD Seasonal Trades

January is a downer for EURUSD This one has a clear cut answer as for why this trend has developed. At the beginning of each calendar year, when financial audits and tax info is coming out, many funds move money back into their own currency. In January, Forex and hedge funds bring money back into a local currency to prepare for calculations of earnings and makes asset accounting that much easier.

Trading these trends of course has some risk, overall though, all of these trades do average out to bring some profitability to your trading. I would suggest, if you were to take advantage of these trades, would be to trade an Fxbox or a similar product to bet that the currency pair will not end the month below a certain number. Brokerages such as Oanda offer this trade.

Believe it or not, the Forex market is very prone to seasonal markets. As some months fair better for currency pairs than do other months and this pattern occurs year after year. That’s one of the reasons automated trading systems tend to fail in some months and others are just fantastic.

The month of July is traditionally a good period for the USDJPY pair. In the last ten years, only once has the USDJPY dropped in the month of July. The first quarter ends in Japan just as the second quarter begins in the US, this must be one of the reasons that the USDJPY flourishes during this period.

These quick gains in July are often quickly erased in the month of August. Perhaps the drop is due to the seasonal drop in oil prices in July, causing a drop in demand for the US dollar. In 9 out of the past ten years, the USDJPY has lost considerably to in August right after July?s gains. The losses are not just held to the USD, other currencies such as the Euro and British Pound also fall seasonally to the Yen. August is the best month in the calendar year for the yen to advance against other currencies.

No trading system is perfect and I don’t advocate taking expensive hedges every year to look for the upside in July and downside in August. These numbers should make you reconsider taking alternate positions or cutting positions in these months to get a less expensive entry into a trade. Tomorrow I will add a few more currencies to this limited list.

We have already discussed how to trade using forex fundamentals and also seen why I basically the top 5 reasons why I do not trade forex news .However ,this does not mean that one cannot make living trade forex news and forex fundamentals. Here are some of the ways that I think can help a forex trader increase their chances with trading forex fundamental Analysis.

1. Get the Whole Market Picture

If you decide to trade forex fundamentals on the basis of news, do it right and get the whole picture and not just pieces of it.A lazy trader is only interested in the that part of the market that interests him. For example if you are trading crude ,one may need to know what the current production levels are, what are the crude stockpiles,how do they compare to previous months and what is OPEC doing. Just because there is a hurricane warning in the Gulf does not necessarily mean that the crude market goes up.

In forex it doesn’t mean much to say that the dollar is going to go up or down just because the feds has cut rates. Since forex is a two currency game , one currency movement does not necesarily mean that it will weaken with all other currencies.In the last dollar sell off ,we saw that though generally the faller lost value ,the rate of fall was not equal accross the board. It fell less in percentage terms against the yen than against the euro.

2. Complement Fundamental Analysis with Technical Analysis

Now since you have a sence of what the fundamentals are telling you, why not complement that with simple technical analysis? What is so hard about setting up a simple moving average crossover to confirm your market entry.There is nothing very complicated about a moving average crossover and you will feel more at ease with your trade if both your fundamental analysis and technical analysis agree.

3.Trading Patiently

The most important thing you can ever do for your sanity in trading forex news is to be flat before the market news.As a high probability trader ,you know that it is not worth trying to guess where the market is going before the news is released.If you are not flat ,you are gambling not trading.

The normal market report after any type of forex news release is a spike. The next move is a retracement sometimes to keep going lower and sometimes to come back and rally. Jumping on board before the market settles is dangerous to your account balance. The best thing you can do is to sit back and wait for the market to pick a clear direction and then trade when all the noise is over. I call any trader who trades those spikes the forex broker’s best friend. I have seen 200 pip spikes and stops never being honoured, gaps in one broker charts that are not on any other broker. I have seen forex gurus get wiped out in one trade and I personally have endoured losing half my account in 1 minute of trading.

Here is my simple tip

Note how the market is trading before the release of a news event. Whichever direction it is moving in is the what the consensus is thinking. If the number is in line with expectations, this is the direction the market should move and any surprises may cause it to move the other way. If the market does not continue in the direction it had been moving and the forex news was expected,the best thing to do is to not enter that market as it failed to move the way it should.

So in short

1. If the market should go up and it doesn’t , it’s going lower.
2. Don’t jump into a trade as soon as the news comes out. My rule of thumb is to wait 15 minutes
3. Let the market digest the news.
4. Be flat before the news release otherwise you should go to vegas and gamble.

We shall continue with this tommorow

The Australian Dollar is flying to new highs due to increased demand and
prices in the natural resources arena.  The Australian export list is half
natural resources, the remaining is made up with the booming Cotton
markets.

As prices rise greatly in metals such as gold, which is a top Australian
export, the dollar moves to near parity against other currencies like the
US dollar.   Australia’s oil exports are also bringing in more money than
ever expected.

The Australian dollar is following a near perfect trendline straight
towards probable parity with the US Dollar over the long run.  Experts
believe strong fundamentals will bring a thriving economy to Australia
which has benefited greatly from the growth of Asia, specifically China.

The only thing left in the way of the extreme growth rates is China’s
currency, the Yuan, and its ties to the US Dollar.  As the dollar
devalues, so does the Yuan which is heavily tied to the US Dollar while
still being valued against a basket of other currencies.

The commodity markets are thriving due to the rebuilding of places such as
Louisiana, Indonesia, Mexico and other places affected by natural
disasters.  Expect the Australian dollar to take a short fall during
profit taking but then continue its upward swing.  The prices of
commodities wont be going down any time soon.  The $89 barrel of oil has
confirmed this.

The dollar is one of the most used currencies in the world, and no
doubt because there is so many of them.

Regardless of political policy and the United State’s federal reserve,
there has to be a reason why the dollar is so popular.So why is the dollar fall related so much in the past week to oil volatility?

While the dollar falls, it also pushes oil to record highs. See, the
market adjusts accordingly to a falling dollar by bidding up the price
of oil. Cheaper oil means higher demand which means more expensive
energy for nations like the United States.

Good luck daytrading dollar vs oil