This page contains a comprehensive list of hands-on practical tips for trading the spot forex. These forex trading tips are dynamic and have been rewritten several times based on client input.
Tip 1 - Always trade in the direction of the trend. The spot forex is a large market and the trends, momentum, and movement cycles tend to last longer than other markets. If you don't know the trends of the forex or consistently trade against it will cause pain and losses.
Tip 2 - Always trade the forex with a stop order, not because you expect to lose, but to prevent a large loss from an unexpected news event like a currency devaluation, terrorist attack, tsunami, or whatever. Nobody can predict tomorrow. These very market conditions may even prevent a stop order from being executed exactly where you place it. Please consult with your broker on the details of how they execute stops.
Tip 3 - Know the currency pairs you trade. Some currency pairs move fairly slow and some move extremely fast. Slow moving pairs include the NZD/USD, AUD/NZD, EUR/GBP and CHF/JPY. The next group moves a little faster like the AUD/USD, EUR/CHF, AUD/JPY, AUD/CAD, NZD/JPY. Intermediate volatility pairs include the EUR/USD, USD/CHF, USD/JPY, EUR/JPY and USD/CAD. High to very high volatility pairs include the GBP/AUD, GBP/CAD, GBP/USD, GBP/CHF, GBP/JPY, EUR/AUD, CAD/JPY, and EUR/CAD.
Tip 4 - After you enter a spot forex trade you can use these guidelines for initial stop order placement. Initial stops for slower moving pairs should be in the range of 20-25 pips. Just verify where the pair was trading as it was consolidating in the last few hours before the current movement started using a conventional bar chart found on most brokerage platforms or by checking the free trend indicators. You can also look at the "lows" and "highs" on the smaller trend channels found in each trading plan on the free trend indicators to check these values against a conventional price chart (bar chart) over the last few hours prior to the start of the movement, they will always match up well. Initial stops for buys should be placed immediately below the recent lows as the pair was consolidating for the last few hours of trading prior to the movement starting to the upside. Initial stops for sells should be placed immediately above the recent highs as the pair was consolidating for the last few hours of trading prior to the beginning of the movement to the downside. For more volatile currency pairs you can add 5-15 pips to your initial stop. These are excellent guidelines for new traders but more experienced traders will modify these initial stop guidelines as they develop some experience.
Tip 5 - Always know your money management ratio. If a trade has 100 pips of potential and you enter the trade with a 30 pip stop at the outset, then the money management ratio is 100/30 or 3.3 to 1 positive. The higher the money management ratio, the better. Everyone has losses. It's going to happen. Just keep them small and manageable and with the proper ratio of wins and losses and the proper money management ratio and you will be fine. You will get stopped out at some point, its a fact of life and part of trading. But even with a 50% success rate and the proper money management ratio your account will grow. Some spot forex trades that we point in our trading plans have money management ratios of 15-20:1, which is excellent. We trade the forex swing to position style and only take shorter term trades when the forex market conditions dictate this.
Tip 6 - As part of almost every ForexEarlyWarning trading plan we provide you with a price alarm point at critical areas of support and resistance on the currency pairs we track. The reason for this is that we want to intercept the price movement but spend less time in front of the computer. Please make sure you have access to price alarms prior to signing up for our service. Desktop and wireless price alarms for up to 20 pairs are available at no cost on almost all spot forex trading platforms, even demo accounts, including our brokerage partners. You can set up our free trend indicators on metatrader and desktop price alarms are built into the platform.
Tip 7 - Many forex traders try to do too much and they lose a lot of sleep and it sometimes winds up costing them their health. Its not worth it to trade under these circumstances. Consider getting a trading partner and opening up a joint account with them. Make sure your trading partner likes trend trading also and you think alike. You can meet online in a chat room daily and discuss trades. Make the forex a great part of your life and keep a good balance. The forex should never be a chore.
Tip 8 - Entry management is one of the pillars of forex trading. Below are three specific methods for managing forex entries. Use The Forex Heatmap ™ on all of your trades to verify your entries, all clients have access to this entry management tool. These are guidelines for new forex traders, veterans may modify these guidelines somewhat:
Time Method - After you enter a trade you can give the trade 30 minutes to one hour to continue in the direction of the trend. If you check the trade later and the trade has moved +30 pips or more past the entry price just move your stop to break even and go back to sleep.
Trades that Stall - If the trade stalls out at plus or minus 10 pips after 30 minutes to 1 hour later its best to exit and live to trade another day, this will not happen too often if you are using the heatmap tool correctly.
Partial Limit Orders and Alarms - After you enter a trade another entry management method involves the use of price alarms combined with limit orders. For example if you enter a trade with 4 mini lots you can set a limit order for 2 mini lots at +30 pips or more and set a price alarm on top of the limit price. If the alarm hits you can move your stop to break even on the remaining two mini lots and even if the pair reverses you walk away with a profit.
Tip 9 - If you have any currency pair that has moved strongly in your favor you can close out half of your lots, adjust your stop order on the remaining lots and let the remaining lots ride on the larger trends if they are strong. If you choose to close out a portion of your lots after a strong move you can do so at the end of the USD session in a time window of 10:00 am EST plus or minus 30 minutes. This is generally when the pairs end their moves and start to consolidate. Our general philosophy is to get your stops to break even then let the trend do the work. On any strong positive trades close out half of your lots and let the rest ride with the trend, another general rule of thumb.
Tip 10 -At ForexEarlyWarning we write out our trading plans and have entry management plan guidance here as well. Trading plans have been employed successfully in stock and commodities markets and it works for the spot forex. In order to prepare a forex trading plan we conduct multiple timeframe analysis across 22 pairs. We determine pockets of strength and weakness using a parallel and inverse analysis of pair groupings which is absent from almost all trading plans currently available. Then we evaluate support and resistance for the pairs we are planning for to determine alarm placement and potential for pips. Our website has articles on multiple timeframe analysis and an audio training library to complement the methodology we use.
Tip 11 - New traders to the spot forex can learn to trade with the less volatile currency pairs ( see Tip 3) and then move to the more volatile pairs later. Get your feet wet first. Experienced stock and option traders generally know how to handle the volatility better but there is still a learning period. You can start off by only paper trading these volatile pairs then add them to your real money trading when your comfort level goes up. Each individual must decide when the time is right. If you continue to paper trade the most volatile pairs you will get the picture.
Tip 12 - When you buy or sell a currency pair you are paid or charged interest daily based on current worldwide interest rates across each region. The daily rollover interest, or swap, is paid into your accounts or removed daily based on the spot forex positions you are holding. When you paper trade see how the interest accumulates or is debited daily from your account. On certain pairs extra interest income can be accumulated over time, this is called a carry trade.
Tip 13 - There are times in your life when you should not be trading. When you are sick, distracted, have family issues, computer issues, or when you are dead tired. Admit it and trade when you are in the right frame of mind and the other important phases of your life are in order. Make the forex an important and positive part of your life and enjoy the other phases of your life equally. If there are no trades available taking a break from trading and the computer is good, spending time with family and hobbies will keep you well rounded in all phases of life and when you come back to the computer your mind will be refreshed and ready.
Tip 14 - At some point in your trading career, the electricity will go off, the internet will die, your software or trading platform will not be working, etcetera. Plan in advance for these types of problems and always use stop orders, a set of backup conventional price charts, backup quote system, or brokers phone numbers handy and always have a contingency plan in place or backup systems for your hardware and trading systems in place.
Tip 15 - Some conventional chart patterns are very important and can help you to be a much better forex trader. Focus on recognizing pennants, flags, double tops, double bottoms, ascending and descending wedges, and oscillations. These chart patterns are easy to recognize and occur frequently, they also confirm your trade and direction.
Tip 16 - When using news to trigger an entry make sure you have a plan and only trade news in the direction of the trend like your plan says to. You may get lucky trading news arbitrarily without a plan or against the trend but eventually it will yield losing trades. Listen to the training audios and related link about news calendars to learn more from the audio training library.
Tip 17 - Trading the forex is a stepwise process, first you paper trade the forex and the ForexEarlyWarning trading plans first during your 30 day trial, then start trading with micro lots or fractional mini lots, then one mini lot, the multiple mini lots and then ramp up over time to multiple mini lots and beyond to full scale lots. Build confidence as you go and don't expose yourself until you have your entry procedures and profit taking procedures down well. There is no substitute for experience.
Tip 18 - If you are preparing to enter a trade just remember that the ForexEarlyWarning spot forex trading plans are written after a rigorous parallel and inverse pair analysis across multiple timeframes. For example if we issue a buy plan on the USD/CHF and issue a price alarm just check The Forex Heatmap ™ when the alarm hits, the best case scenario would be the USD strengthening and the CHF weakening. Using this method our clients report consistent profits on practically all entries.
Tip 19 - Learning to be a longer term trader and managing your trades differently is not difficult. Anyone can teach and train themselves to do this, if you get into a nice positive trade with a lot of pips you can always take some profit (close out half of your lots) and if the longer term trend channels are open just hold onto the rest with a break even stop and move the stop on the remaining lots day by day. Teach yourself to be a longer term trader.
Tip 20 - Trade only with the trend and market momentum. To help you set your mind in this direction you can read the book by Michael Covel titled "Trend Following".
Tip 21 - The majority of forex traders scalp the euro and british pound using standard indicators. We don't do this, we really trade the entire forex and have a broader perspective of the entire market and parallel and inverse analysis sets us completely apart. If you trade using our methods prepare to change your approach to trading the spot forex compared to the methods you may have used in the past, which more than likely didnt work anyway.
Tip 22 - Our forex entry plans are written to be flexible for end users. You must have price alarms to use with the FEW plans. If you use expensive trading software you can use our plans directly and set up the channels as specified in each plan. If you are an experienced spot forex trader and you have your own trend and momentum indicators you can check those when the alarms hit. If you need a good set of free trend indicators you can get a charting package with most brokers and use our setup located on our home page.
Tip 23 - At the top of trading each plan is a link to a set of instructions, please read them carefully before you start trading or paper trading.
Tip 24 - On our web site the FEW Education tab will be populated with free forex educational information for subscribers related to the forex and our analysis methods, including technical articles and click and play audio files. Enjoy them and learn as much as you can about the forex. We also sponsor two free forex webinars on Wednesday nights for anyone to attend and have a weekly pair analysis and question and answer session.
Tip 25 - Don't let the forex rule your life… you in charge. Don't stare at the forex all day and all night. Write a plan, set price alarms, and be aware of when important news items are being announced to minimize time in front of the computer.
Tip 26 - All currency pairs are trending or oscillating all the time in some form or fashion. Trending is a strong directional move up or down, oscillating is up and down movements going sideways within a range. We always trade in the direction of the trend but if a pair starts oscillating (shorter up and down trends within a price range) we will tell you in each daily plan. Oscillations are shorter term movements and you must enter and exit more frequently.
Tip 27 - Always trade a number of lots you are comfortable trading, some people are papertrading the spot forex, some are trading micro lots, others trade mini lots, and still others many regular lots. Always know yourself emotionally. As you get more experience the right trade will come along and you will automatically know when to increase the number of lots on entry. Experience is the key it will happen naturally.
Tip 28 - Any questions related to our forex trading plans, free indicators, forex trading or payment and administrative issues please contact us at any of our 4 email boxes and include your phone number in case we need it.
Risk Disclaimer:
Customers should be aware of the risks associated with over-the-counter, spot Forex. In the off-exchange, also called the over-the-counter market, a retail customer trades directly with a counterparty and there is no exchange or central clearing house to support the transaction. Forex trading is highly speculative in nature which can mean currency prices may become extremely volatile. Forex trading is highly leveraged, since low margin deposits normally are required, an extremely high degree of leverage is obtainable in foreign exchange trading. A relatively small market movement will have a proportionately larger impact on the funds you have deposited. You may sustain a total loss of your funds. Since the possibility of losing your entire cash balance does exist, speculation in the Forex market should only be conducted with risk capital you can afford to lose which will not dramatically impact your lifestyle. A further disclosure is made here.
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