Category: General


Why you need a Forex Trading Plan

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Anyone who starts trading forex immediately realizes that there are a lot of factors involved and that a trader has to look at them all. The Forex Trading Plan helps you to make sure that you’ve left nothing out, and that you are pursuing your trading according to the strategy you want to use.

It’s surprisingly easy, when trading forex, to get caught up in the heat of the moment, to go off strategy, and to start making mistakes. Forex trading can be excruciatingly slow, but it is also devastatingly rapid. When making decisions, it’s good to know that you have the full weight of your experience and know-how behind you.

This is what a forex trading plan offers you, and, although it is tedious work completing it every day you trade, you will find the effort well worthwhile.

 

What goes in the trading plan?

 

A forex trading plan has two parts: A journal and the plan itself.

The journal is the easy part of the trading plan. In it, you log your trades with all the relevant information – time, date, amount, currency pair, and – this is very important – the strategy behind the trade. If you based your trade on a technical pattern, then, win or lose, explain what you tried to do and what happened. It doesn’t even require full sentences, just a few words like, ‘noted reverse triangle pattern, went long in euros’ or whatever the primary reasons behind your move were.

The trading journal is an enormously supportive tool, because, while you are analyzing the market and planning trades, you will, again and again, see patterns that you’ve described in your journal. When you see a winning pattern check in your journal how the last trade based on that pattern turned out, each time you will hone your strategy, noting more and more relevant points so that you win more trades.

Yes, there is software available to make a trading journal. You can find a selection of useful apps here. Some of the software supports importing charts and records from your broker; others have specific metrics and even trading algorithms. Choose an app that fits your personality and style.

 

The trading plan is about strategy and risk management

 

The trading journal covers day-to-day activities, but the trading plan has a long-term outlook.

As its name suggests, the trading plan is about what you plan to do with your trading, and how you plan to do it. It brings together the different elements of your strategy, so that, before you make a trading decision, you can be sure that you have based it on the right factors.

The plan is an evolving document: Every day you write about what you did, why, and how it all worked out. Then you add what you plan to do the next day, based on what market conditions. At the end of the trading day, you discuss results and analyze what happened. 

Why write all this down? Because you are certain, in this way, to forget nothing and to learn from your mistakes.

But the most crucial point of a trading plan is that it helps you rein in your emotions. Every trader gets angry when losing, or too confident when winning. The trading plan will remind you to stick to your strategy, and to not make foolish emotional decisions – these can be a trader’s worst enemy.

This writer, for example, tended to get mad when losing and to jump back into a trade too fast. When I started keeping a journal, and I was tempted to trade on my emotions, I would look back to the last (disastrous) time I did this, and the reminder often saved me from expensive mistakes.

 

Use a Checklist

 

Many traders include a checklist in the trading plan. Make a list of what market conditions are relevant to your trading, what factors are behind your trades based on your strategy, and then go over the list when analyzing the market and getting ready to commit your funds.

Some people make the whole trading plan into a checklist, but this leaves out much of your thinking and feeling, and you want to get those on paper to understand more and control yourself better.

The plan should also include a long-term evaluation of your trading – perhaps it’s good to do this at the end of the trading week. What are your goals at this point? How have they changed from when you started trading? Do you feel satisfied with your success, and if not, why not?

All of this will burn into your brain the elements you need for success, and hone your strategy so that you don’t keep making the same mistakes. It’s tedious and time-consuming, but when you start seeing the profits roll in, you’ll understand why serious professional traders always keep a journal and a forex trading plan.

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Forex Trading versus Stock Trading

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The main takeaway you should get from this blog is that forex trading is very different from stock trading. The logic is fundamentally different, and the factors to consider are not of the same order.

And some would argue that your chances of making a regular income from forex trading are much greater than if you put your money on the NYSE or Nasdaq.

Yes, there are some similarities, but they are not of much relevance when you think about what matters in trading.  Stocks trade on ordered markets and well-regulated exchanges. Stocks are volatile enough to day trade. You can certainly apply the principles of technical analysis to the stock markets, and many traders do this with some success.

And, the mechanics of trading in the forex market are mostly the same: Bid-and-ask prices move up and down throughout the trading day, and a trader can go either long or short in a given stock. Traders use all the same basic types of orders on stock exchanges as in forex trading.

Forex is based on pairs

But these are broad and inessential similarities. The most fundamental difference between trading forex and stocks is that forex works in currency pairs while investing in a single stock means that you are only long in that single security.

You are betting that one currency will go up, while the other goes down, and so your analysis of the trade is based on factors specific to both currencies. If you do fundamental analysis for trading, you are looking for an economic event or change in conditions that either affects both, or that affects one very strongly. If you are making technical trades, you are looking for patterns in resistance and support with both currencies in action.

Another fundamental point: Period is much more important in forex trading. Rarely do stock traders look just at a 15-minute, or five-minute period in trading, and they don’t scalp. Forex traders can trade the 1-minute chart, although it’s a very tough bet. But the five-minute chart has clear and orderly patterns  — some of the time. At least, enough of the time so that technical trading is worthwhile.

Trading in currency pairs encourages specialization, and most traders decide on the few pairs that they best can understand and study. The pairs with the most interest have the components USD, EUR, GBP and JPY, the so-called ‘majors,’ and many traders never venture beyond those currencies. But you can trade Ghanian cedi if that is what you think is best, and you will find liquidity almost all the time for such trades. 

Forex is the most liquid

Then there is the forex market. There are no exchanges in forex: All the world trades on one huge multi-trillion dollar market.

This means that there is almost always liquidity for your trades, while picking a stock and trading it may mean that no one wants to buy it when you’re ready to sell.

This gives the trader a chance to earn much more, much faster, although, make no mistake, it’s a great challenge.

Let’s also not forget that Forex trades night and day from Sunday to late Friday. Certainly, sometimes of the day are more active, with the most trading coming when London wakes up at about 7 a.m. GMT, while Asia is still active,  and then about nine a.m US time when the traders go to work in New York.

Even with these fluctuations, there is far more chance to trade than on a regulated stock exchange which is open 9 to 5.  There is, of course, a gray market that trades stocks 24/7, but you have to be pro to access it.

 

Margins are low, and leverage is broad

Because of the high level of liquidity on the forex market, brokers can work on low margin rates, and offer broad leverage. Most margin traders in the stock market need at least half of the value of their investment constantly available in their margin accounts, whereas forex traders need as little as 2 percent. And forex traders enjoy very high levels of leverage, where the stockbroker can only offer 2:1 at best. While commissions have gone down in stock trading, thanks to discount and online brokers, they are still significant, while forex traders usually pay no commission at all – the broker makes money on the bid-ask spread. 

Make Money Faster

This is a not something experts can prove, but I think anyone who, like myself, has tried his/her hand at both types of trading, finds that you make money faster with forex. There is just a lot more rapid change on the forex market because currencies aren’t linked to specific companies – they are big pools of liquidity with hundreds of institutions, banks, and brokers busy night and day. 

This is what makes forex trading so exciting, while at the same time so challenging.

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The Importance of the Forex Economic Calendar

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Forex trading is about the value of national currencies (and a few international ones like the euro).

Currencies have value because they are part of the economic system in a given country – so events, economic and political, and environmental can affect the value of a national currency.

While there are always unscheduled events like earthquakes and snap elections to deal with when trading forex, there are also scheduled events that have a reasonably well-defined effect on currency pair prices.

This is why every serious forex trader starts the day by reading the forex economic calendar. Many trading sites have one, but if yours doesn’t, you can find an excellent one on Marketwatch.com. Or just Google ‘economic  calendar.’

Here is a section of a typical forex economic calendar, for a single day:

(time is EST)

04:00 France Trade Balance

05:00 Australia Consumer Price Index

06:00 German Buba Monthly Report

07:00  PPI CORE OUTLOOK

08:00  EU28 Employment report

09:00  US Housing Starts

10:00 PMI Manufacturing UK

Typically the forex economic calendar will run right through from 12 a.m. to 11 p.m. because there are economic events that matter every hour of every day around the world – and forex is global.

There are a wide variety of economic terms used on the calendar, and it is useful to have a way to look them up if they are unfamiliar. The best site for this is called tradingeconomics.com . This site has an economic calendar of its own, along with short glosses on all of the terms used.

For example, you may wonder why the French balance of trade might affect the euro?

First, there’s a short analysis from the forex economic calender. “The French trade deficit decreased to EUR 4.1 billion in October 2018 from a downwardly revised EUR 5.4 billion in the previous month and below market consensus of a EUR 6.0 billion gap. Exports jumped 6.2 percent to an all-time high and imports climbed at a softer 2.5 percent, also reaching a record. The balance of Trade in France averaged -1254.56 EUR Million from 1970 until 2018, reaching an all-time high of 2674 EUR Million in October of 1997 and a record low of -7811 EUR Million in January of 2017.”

What does this mean for the euro? The French economy is improving, according to this announcement, as the trade deficit is getting smaller (it is sometimes said to ‘narrow,’) while exports are at an all-time high. That’s good for the euro, and the currency almost certainly goes up against the dollar and the yen when this happens.

So, if you’ve been trading the euro, you’ve been wisely reading up about how the French economy is doing, along with Germany, UK, Italy, Spain and more. You probably expected the announcement to be a good one for the euro, so you cleverly went long in EUR/GBP ahead of the announcement, and made a bundle.

Similarly, you have Australia Consumer Price Index at 05:00. Here’s the note: “Consumer Price Index CPI in Australia increased to 113.50 Index Points in the third quarter of 2018 from 113 Index Points in the second quarter of 2018. Consumer Price Index CPI in Australia averaged 44.70 Index Points from 1950 until 2018, reaching an all-time high of 113.50 Index Points in the third quarter of 2018 and a record low of 4.20 Index Points in the first quarter of 1950.”

This suggests an overall moderate improvement in the economy, as a slight increase in inflation means the economy is growing, albeit slowly.  This means that the Australian dollar is likely to hold against the US dollar so that you might trade that pair.

To give one US-based example, housing starts are considered a significant indicator of the state of the American economy, and the announcement is closely watched by traders. Here’s a look at what happens:

“In the US,  housing starts on the docket today, but it could be an important signal as housing starts tend to be one of the earliest forecasters of US economic slowdown and that indicator has been trending down for months. If the decline is worse than expected, USDJPY could probe 112.00 figure as the day proceeds.”

All of this should give you a good sense of just how crucial it is to read the economic calendar every morning before you start trading. It enables you to start with a basic framework for action before you’ve even looked at a chart.

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Understanding Automated Forex Trading and Forex Robots

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One of the greatest threats to your ability to succeed in forex trading is your emotions. No trader can entirely control worry, fear, and greed – and each of these is liable to lead you into error when you are making a trade.

For some traders, the solution is automated forex trading: A computer program that operates your trading strategy, or one that is recommended, without being influenced by emotions. It takes into account the elements of a strategy that determine when to trade, how much to place on a given trade, and when to exit, among others.

The elements of an automated forex trading strategy can be based on reasonably basic operations, for example, like following a Fibonacci retracement, or they can comprise a complex and sophisticated strategy with many elements. You can choose the strategy you prefer, or let the experts provide one for you, but you must accept the conditions that come with getting a machine to do the job. This means that the strategy will be executed exactly as planned regardless of any change in conditions, the market, etc.

There are automated trading systems that make use of the programming language on professional platforms like MetaTrader 4 and MetaTrader 5. Others run separately on a computer and connect up to automated forex trading platforms. Some automated forex trading platforms have strategy building 'wizards' that permit traders to build a strategy from a list of indicators. This allows a non-specialist to enter in each element of a strategy separately, but then the program will trade according to all the desired criteria – i.e., you input trading entry when a moving average is crossed, or when a given stochastic moves to a specific position.  

 

Forex Robots

 

It is also possible to work with a forex broker who provides an algorithm that implements a very sophisticated trading strategy – these are sometimes called forex robots. The programmed applications of the forex robot include ways of managing a trade while it is in progress. The robot will place stop losses and profit-taking strategically, insert trailing stops or even implement a scaling strategy. From a mathematical point of view, the robot can do everything to make your trade succeed – unfortunately, trading is not a mathematically determined science, and so success by these robots is limited.

This takes the burden of trading off the individual but means that you will only earn as much as the algorithm is capable of. The average return from such algorithms is six to eight percent per month – if you find one that promises more, by all means, test it out! What these programs are very good at is cutting losses – they will keep you from bad trades or trades in which some element of strategy is neglected.

There are, of course, some dangers to be aware of in using forex robots.  Like all computer applications, forex robots often have bugs that the software maker hasn’t ironed out yet. A bug can undermine the effectiveness of the forex robot, or break it down in the middle of trading.

Then, forex robots, like all computer programs, are vulnerable to hackers if they do not operate in an environment of perfect security. Forex trading on a platform is very safe, but when you move it to another computer or data provider, you need to ensure that the correct protection is in place.

Then there is a less obvious danger: Limited application to market conditions. You may choose a forex robot for a specific strategy, but the market is always changing, and that strategy may just not apply after a certain period. You can move to a new one, of course, but you should be aware that robots are inflexible and have a limited shelf-life without recalibration.

 

Backtesting is the way to decide if a forex robot will work for you. You input conditions from a specific period in the market in the past – so that you know exactly what the outcome of trades will be – and then you see if the robot follows the logic and makes winning trades.

But even with backtesting, it is challenging to tell how well a given robot will succeed in real conditions. Vendors will show you all sorts of records of success, but there’s no way to know if they’re real. The only way to find out is to try the robot out, and see what happens. There's a great deal of curve-fitting or adjustment in the selling and presentation of forex robots that are ready-made for use. 

No machine can win all the time in forex trading, nor can any human being succeed 100 percent of the time, no matter how great a genius the trader is. The market is not always rational and is affected by too many factors to always provide happy results. What you want from a forex robot is a reasonably consistent level of success.

A human being who is a good trader can earn more than these machines on a regular basis. Consider what will work best for you, and what your goals are as a trader, before going the forex robot route.

 

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An Introduction to Forex News Trading

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One of the surest forex trading strategies is trading on the news. Forex markets almost invariably react to certain types of news, although the reaction can be unexpected. With experience, however, Forex news trading offers an excellent trading strategy.

What kinds of news move the forex markets? First, you have to realize that 90 percent of all forex trades involve the dollar in one way or another. So news affecting the dollar, and its parent country the US, is always likely to send a currency pair up or down.

The most basic news is that which directly affects the currency itself – the Federal Reserve, which controls the money supply in the US, will announce every month an interest-rate decision – whether to raise interest rates, or to reduce them, or to leave them as they are.

Analysts will discuss ahead of the decision what changes it will make in the economy and for the dollar itself. It’s never entirely obvious: A higher rate of interest should make the dollar more valuable, but if analysts think the national economy will suffer as a result of the move, the dollar could fall.

You have to learn as much as you can about how traders react in these circumstances, for it is the big institutional traders like banks and brokerages that will move in unison, sending the market up or down. Remember that a vast amount of trading is automated, and so the movement will be massive and rapid.

The best way to learn about this kind of trading is to watch the news every day, and then see what happens on the market. You can’t be sure what will happen, but you can reduce the probability of being wrong by a vast amount.

 

The Straddle Trade

But suppose there was a way for you to win regardless of which direction the trade goes?

There is a simple, straightforward way to bet going up or going down: The Straddle Trade. Aptly named, the time to use the straddle trade is when you know some big news is coming out, but you aren’t sure what the market will do. This could be something as simple as a central bank announcement, but also something complex like the menace of impeachment for the president, a significant business failure, or the announcement that the GDP is up for the quarter (if it’s not up enough to satisfy traders, the currency could fall).

So the first thing to do is to decide what currency pair you will trade on the news and then look at the range between its recent high and low. Traders recommend that you do this about 20 minutes ahead of the news announcement. You should realize that, the narrower the range, the better the chance that there will be a substantial breakout in one direction or the other.

Taking the range points as your targets, you set the stop 20 pips below and the profit-take 20 points above these target points. In this way, you are betting on a higher or lower movement. It doesn’t matter which way the market goes, one of your trades will make a profit, while the other will be stopped out before doing much damage.

A more efficient and profitable way to make this kind of trade is to buy a put and a call option on the same currency pair – this may be possible through your forex broker. The put option bets that the price will go down and the call option puts the money on the price going up. Both the put and the call options must be purchased at the same price and have the same expiration date to be effective.

So long as either method for the trade is correctly exercised, the Straddle Trade can be very profitable indeed, while the threat of loss is contained. It is a safe bet that a currency pair will move after major news, and one option will gain faster than the other loses. One leg of the straddle will lose up to its limit, but the other leg will continue to gain, resulting in an overall profit.

Of course, it is possible that the currency pair simply does not move much in either direction, regardless of the probability. It happens, and in this case, each leg of the straddle loses. But the stop-loss on the two trades (or the price of the options if you buy a put and call), are the limits on losses in this worst-case scenario.

 

Forex news trading is simple, effective and can be profitable. Add it to your arsenal of strategies, and use it when it feels like the right time.

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What is an ECN Broker?

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Suppose you want to bet the euro against the dollar? You take $10,000 and buy euros at $1.25. The price is fixed by the bid and ask mechanism. And you would expect to pay the broker a spread based on trading conditions for the market maker.

Working with an ECN broker changes everything. The Electronic Communications Network broker (the name is a bit antiquated in a post-Internet world) brings together a group of traders, some who want to trade euros for dollars, others who want to trade dollars for euros. The broker finds a trader who wants just the same amount of dollars for euros. He/she puts the trade through directly – by doing this, he saves money and gives you a much better spread. Liquidity is provided at one end; orders are placed at the other end.

The ECN broker does all this using an essential piece of financial engineering: The Financial Information Exchange Protocol (FIX).  The FIX Protocol was created in 1992 by Fidelity Investments and Salomon Brothers to facilitate and secure stocks trading. Previously, trading shares were done over the phone by two brokers, but it became clear that this was no longer safe (to say the least)! Using the FIX protocol, data was transferred from computer to computer, protected by the network, and shared among the specific group of market participants involved.

FIX has become the de facto messaging standard for global stocks trading and is used by an essential number of fixed-income, derivatives, and forex traders as well.

This gives some major advantages to the ECN broker: This kind of broker works with direct electronic trades from one participant to another, avoiding exchanges. He uses direct communications to give clients access to other participants in currency markets. This makes, for example, scalping, in which traders profit from minimal movements in any direction by a currency pair, much easier and more profitable.

This kind of broker can bring together a group of market participants, and then matches one who wants to trade A/B with another who is trading B/A – fill in with ~USD/GBP, EUR/JPY or whatever.  Prices are fixed by the market participants’ orders, and this is why the spreads are so much better with an ECN broker. But ECN brokers do charge a commission on trades just so that they can make a living with such tight spreads.

To make this work, all ECN brokers have access (via the network) to the same information – all orders being entered on the ECN – and trade at the exact same prices. So all the network has to do is  to match buyers and sellers.

 

There are a couple of more advantages to the ECN. At times outside of traditional trading hours (9 a.m. to 5 p.m. in New York, for example), liquidity on the regular exchanges can be low. But many market participants prefer to trade during these off-hours, whether for personal reasons or because they see specific patterns at these times that they wish to exploit. To get access to sufficient liquidity, they can trade on the ECN. Using the FIX protocol means that traders get access to a pool of liquidity supplied by major institutional investors, brokers, and banks.

 

Another plus: The ECN provides a level of privacy that you can’t get elsewhere.

 

Still another advantage: When traders use Expert Advisors — programs capable of automatically trading following the instructions provided – ECN brokers can be hooked right up to them. This means the Expert Advisors can work at much higher speeds than on a traditional trading platform. Certain ECNs are configured to serve institutional investors, and others are designed to serve retail investors. There are some that do both, offering superior trading speed and execution to retail traders than they usually have access to. The same goes for their trading algorithms, models and risk management systems – it can all be connected up to the live market data feed and the price matching engine in the FIX environment. This offers the most competitive bid and ask prices available at any given time in the market, and the trading process remains reliable and consistent.

 

All of this makes the ECN particularly attractive to traders of very large amounts – they find enough liquidity on the ECN, and they don’t advertise who they are.

 

But there are some real disadvantages to the ECN networks. They charge relatively high commissions, and brokers also charge substantial fees for access to these privileged interchanges. Also, ECN brokers tend to require higher minimum trade amounts

 

Altogether, there are significant advantages to working with an ECN broker if you can afford to. You would join a kind of elite group of traders, and that could help to make your trading more successful. 

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Forex Trading Sessions Explained

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Local Time                            US Eastern Standard Time

New York       8 a.m. to 5 p.m.                    8 a.m. to 5 p.m.

London          8 a.m. to 4 p.m.                    3 a.m. to 11. a.m.

Tokyo             9 a.m. to 6 p.m.                    8 p.m. to 5 a.m.

Sydney           7 a.m. to 4 p.m.                     5 p.m. to 2 a.m.

(be careful to watch for any changes in your region to Daylight Savings Time, or other points when the clock is moved forward or backward).

We all know that there is only one Foreign Exchange Market that covers the globe and that is open 24/7.

But trading forex requires movement, ideally a lot of movement, and there are times when the market for a  given currency becomes sluggish as most of the traders have closed down for the night.

For example, the New York forex trading session gets very active from 8 a.m. to 5 p.m. Eastern Standard Time (US Eastern Time), (Monday to Friday) but then slows down after 5 in the evening. Around midnight in New York, it gets pretty slow.

Certainly, anything can happen, at any time on the forex market. But your chances for what professionals call “orderly trading,” meaning trading in which you can read the charts in technical terms (and not worry about some outlandish local event interfering), are greatest during the local opening hours.

This is particularly true of the London market, which is “open” from 8 a.m. to 4 p.m. local time (BST) from Monday to Friday. I knew a professional trader in Tampa, Florida who used to get up at 3 a.m., Monday to Friday, and work for five hours every day. Then he quit – he never traded longer. He said that it was worth getting up in the wee hours for the orderly trading at the time – and his results bore him out.

It is true that London is a particularly pattern-bound exchange, if you are trading GBP of course. If you want to try it out, study it for a week or two and see if you can identify repeated movements.

But London is the largest trading session in the world, so a lot happens there. It is not unusual for trends set in London to carry on into the New York session. When the London session overlaps others, this means that, at those times, trading volume is extremely high. This is the time to consider very short-term trades if you are working in these currencies. Your broker may also offer you tighter spreads if you trade during these periods.

 

Do watch for trends that start in London and finish in New York. That is a particularly interesting approach to trading USD and GBP and the euro (but not the Swiss franc, CHF, because it is pegged to the euro at a fixed rate).

The London session overlaps that of  New York from 1 p.m. to 4 p.m. UK time (BST), which corresponds to 6 p.m. to 9 p.m. US Eastern time.

 

Tokyo used to be a very orderly exchange as well, but in recent years, the pressure on the national economy has made JPY less of a safe harbour than it used to be. Still, the Tokyo session is often called the “Asian Session” because of Japan’s importance in the region’s economies.

Despite the fact that Tokyo is one of the largest Forex Trading sessions in the world, there are times when trading can be amazingly slow. You may have to wait for a trade to go through. To avoid this, trade starting at the opening of the session if you can for the next few hours when economic news from around the world often drives movement.

What about China? You may have been surprised to notice that we discuss Asia without mentioning the Chinese yuan.

What you have to understand is China’s central bank, the People’s Bank of China (PBoC) fixes the rate of the yuan every day. This announcement does have an important influence on all forex markets, so you should be aware of it and understand it in any case. How the PBoC fixes the Chinese Yuan provides a good indication of how the central bank views the Chinese economic outlook, and that outlook influences all of the economies in Asia. China is a major market for all of Asia (and the rest of the world) so a weak indication from the PBoC might affect the AUD, the JPY and even the euro and the dollar.

As for the Sydney session, it tends to get swallowed up in the Asian session. But there are some specific characteristics to take advantage of. Volatility is relatively low during the Sydney session, if you are trading the major currency pairs.  Obviously the AUD is the currency to watch, but you should be careful about announcements from the Reserve Bank of Australia (RBA), the central bank. The RBA is active in market intervention, so a move from them can rip right through a carefully thought out trading strategy.

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Should you use MT4 or MT5?

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One of the most challenging decisions a new forex trader has to make is to choose an electronic trading platform. Many brokers offer users a choice, although many only provide access to either MetaTrader 4 or Metatrader 5 (MT4 and MT5).

One thing new forex traders should look out for from the start: Some brokers offer their platforms for trading with so-called “bridges” to MT4 or MT5. This may cause problems; as if there are issues with the bridge, it could interrupt your trading on the MT platform.

But how to choose between the two most popular trading platforms around, both produced by the same Russian company, MetaQuotes Software?

Each platform has been developed with the individual trader in mind, and each supplies a vast amount of information and tools to help us all make winning trades. It isn’t hard for the beginner to make trades on both platforms, but the expert will find many useful extras. Both platforms are good for learning to trade.

But there are important differences between the two platforms, and while the beginner trader may not notice them at first, as he/she develops more sophistication, they may become important.

There are three fundamental differences between the platforms: MT5 offers the ability to trade stocks and commodities as well as forex. MetaQuotes sought to attract traders who wanted to do every type of trading on the same platform. This doesn’t, however, change anything for its rich offer of forex trading functions.

The second fundamental difference is about hedging trades: The regulators in the US no longer permit hedging on forex trades. This again should not affect many beginning traders, but more experienced ones may want to keep this in mind.

But here’s a difference that may matter to all kinds of traders: MT5 is faster than MT4. It is a 64-bit, multi-threaded platform. MT4 is a 32-bit, mono-threaded platform with a 2 Gb memory limit. This places some limitations on features that more experienced traders may find valuable, like the size of historical data files, or backtesting.

Then there are some more minor differences – although some traders don’t think they’re minor!

The user interface is different

There are some slight, but notable differences between the user interface of MT5 and that of its predecessor.

There had been some complaints from users that the buttons used for specific functions as well as some of the tools were too hard to see on MT4, reports Meilleursbrokers.com So MetaQuotes made them more prominent on MT5, and even put more space between them. There are those who say that the redesigned interface is harder to use.

Fibonacci bonanza on MT5

Both MetaTrader platforms have a wealth of tools for users who trade the Fibonacci retracement – that ratio based on a special series of numbers discovered by the Italian mathematician.

MT4 boasts four different Fibonacci retracement tools (there may be extra charges for these tools) according to the website Trading Fibonacci: Fibo Machine Pro generates trading signals based on the Fib calculations; AutoFibo automatically finds the Fibonacci levels on any chart; QuickFib calculates tops and bottoms of a Fibonacci formation on any chart, then, when you move to the next one, it finds the new levels; AutoFib TradeZones is an alternative trading tool based on Fibonacci ratios. The indicator is used for trading ranges or price breakouts.

But MT5 has all these and two more: Auto Fibonacci indicator for MetaTrader 5 is an automated Fibonacci indicator for MT5. It automatically finds the higher and lower points of any chart view and then it calculates and draws the Fibonacci Levels, and applies Fibonacci multiples to identify and draw significant support and resistance levels, and the Fibonacci Pivot Points Indicator applies Fibonacci multiples to identify and draw significant support and resistance levels.

So truly dedicated Fibonacci traders (like this writer) may appreciate the more significant offer of tools on MT5.

MT4 has offline charts

In case you’ve gotten the impression that MT5 has everything, hold your horses. A trader can still produce charts or save charts offline with MT4. With MT5, everything is done online.

This may seem a minor disadvantage, but with offline charts, it’s possible to use the data in other applications that sophisticated traders may prefer.

Which to choose?

There is no question that MT5 has been developed with some of the issues that arose on MT4 in mind. But the more complex MT5 may not be the best choice for a beginning trader. You may wish to learn the ropes on MT4 – which is unquestionably a tried-and-true solution – before stepping up to MT5.

Try both, and see which one works for you best. In trading, you don’t want to be distracted with any technical issues – you want to concentrate on the sufficiently challenging work of placing winning trades!

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Top Five Trading Strategies in 2018

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A trading strategy is a pattern- or trend-based approach to forex trading, in which certain specific aspects of the market are relied on for probable trading direction.

What’s happening in the forex market in 2018?

Well, volatility is one major aspect. Traders are spooked, to some extent, by the level of geopolitical instability – you read about it regularly in the newspapers, or, I guess, on your newsfeed nowadays.

Then there is growth. Stocks have been weak lately, and gold has been down, while the price of oil is anybody’s guess. This has pushed a lot of investment capital into forex, where results have been more predictable, despite relative volatility.

Finally, there has been rapid growth in Emerging Markets currencies, as Reuters explains:  “Emerging market foreign exchange trading is growing at a double-digit clip this year; Emerging currency trading represented 17 percent of all daily average spot volumes this year, up from 7 percent in 2015, according to NEX Group, which runs one of the biggest electronic trading platforms.”

Strategy 1: Scalping

One trading strategy that fits volatile markets well is scalping. The term ‘scalping’ comes to us from the investment world, where it means jumping into and out of an investment very quickly to just skim a quick profit.

We like this strategy very much in volatile times, where you profit from a short-term trend, and then cut your risk down by getting out fast.  It’s particularly adapted to forex trading because, the longer a forex trade lasts, the greater the risk you run. So you might bet the euro against the British pound (EUR/GBP) for five or ten minutes one day, take advantage of a jump or a slide, and then out you go with a small positive gain.

Strategy 2: The 50 pip

This is a low-risk strategy that is well adapted to today’s market. You place two opposite orders and cancel the losing one out while taking 50 pips profit. The trick is to find a currency pair with a large daily movement — pick a pair and track it for a few days before you start.

Then place two pending orders: A buy order with a stop 10 pips above the high, and a sell order with a stop 10 pips beneath the low. Whichever order is activated when the price hits the target is the one you keep – you cancel the other one.

Strategy 3: The Double Stochastic

This is an excellent strategy for uncertain times. You will often be told, as a trader, to use stochastics in combination with other types of indicators. But the results of this very common strategy are mediocre.

The double stochastic approach produces far better results. It’s quite simple: You use one fast stochastic and one slow stochastic working together.

You wait for the slow stochastic to indicate a trend. When the trend is clear, you wait for the fast stochastic to confirm it. When that happens, jump in and take advantage.

Strategy 4: Bolly Band Bounce

We often trade in range-bound markets today. So a strategy that is targeted to range-bound trading has become very popular – this one is called the Bollinger Band Bounce. It’s based on using Bollinger Bands – an indicator that tracks price and volatility over time.

First, decide if prices are range-bound. Is an upward movement to hit the same resistance point each time and bouncing back? When this happens, the pair will stay either above or below the middle Bollinger band for some time.

What you then look for is a “tweezer” formation on a candlestick chart – two candles that are at the bottom or top of a trend, but which are exactly the same. When this formation occurs, you can either trade it (as a low or high point) or wait for the bounce to occur and trade the rebound.

Bollinger bands take some getting used to – they are among the more complex indicators in forex, and you should get used to them a bit before jumping in. But they offer many useful strategies, of which the ‘bounce’ is well adapted to today’s market.

Strategy 5: The Exotic Pairs

Here’s a good way to take advantage of the Emerging Market growth trend we’ve seen in forex in 2018.

What traders call ‘exotic pairs’ involve putting a less-traded Emerging Market currency (the baht, the rand, the real, just to name a few) with a major currency like the dollar or the euro.

The advantage here is that you are taking a fairly predictable currency and pairing it with one that is far less traded, and so may work in fairly regular patterns. You will want to observe the exotic currency a bit before jumping in.

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