Initially, it makes sense to select one or two currency pairs, to specialize and learn the intricacies involved. The EUR/USD is a common starting point but any high-volume pair will do. Start by reviewing the many broker websites and studying their material. There is an abundance of guides and helpful information, take your time! It is better to start slowly, to absorb as much as you can before risking your capital unnecessarily.

Forex involves substantial risk. So start with a “demo” account at one of the major brokers. You can experiment with fake money, as though you are really trading. This way you can test out ideas that are new to you, and you can make all the basic mistakes without losing your money. One of the first aspects to learn, is risk control. If you don’t learn this quickly, your demo account will reach a zero balance quickly. Yes, you can make substantial profits if you take high risks, but you cam also lose all your capital quickly.

Aside from all the technical aspects and terminology. You will also need to learn to manage your emotions. Trading is often emotional, because there is real risk and reward involved. Keep your priorities in mind at all times, they should take precedence over your emotions. This is actually difficult to achieve! You will need to monitor your positions, your trades as they progress, while ignoring all the emotional input and most importantly the news! Excellent traders learn to monitor the news, but do not let their trading be governed by it. What the market is actually doing, is far more important than what the news is announcing. Those two can be in conflict much of the time!

After some time you will learn a strategy that suits your abilities and your ambitions. You may need to adjust and improve on this strategy, but it is important to clearly define your trading method. Only after you have experience and have defined a sound trading method, should you risk real capital my moving from a demo account to a real brokerage account. Traders who make this transition too quickly usually regret it, so be cautious and methodical as you are getting started in Forex trading.

Additional Resources;

How To Get Started In Forex Trading

How To Make Money In Forex

Learn Forex Trading
The mimic bands the keyword opposite the given earth.

Trading Dilemma: “Bad internal dialogue and questions can disempower a trader”

When a trader is having a bad trading day all to often their internal dialogue, questions and language are also bad. This leads to trading with uncertainty, insecurity, fear, unhappiness, and other disempowering emotions. Also the result can be a continued pattern of one bad trade after another. Traders that continue this behavior tend to “beat themselves up” on a regular basis, even if they have winning trades. The solution is sometimes referred to “positive thinking” but it is much more then that. It’s conditioning.

Examples of bad internal dialogue, language and questions, to watch out for.

I’m so stupid?		I can’t find a trade.
The market makers did it to me.		I can’t make money.
Every time I trade I lose money.		I’m a bad trader.
I only made ¼ of a point instead of ½		I always lose.
I can’t win.		I can’t do this.

Solution: Create new self dialogue and questions that will empower you Your brain creates associations every time you have a thought. Bad thoughts get bad results. Good thoughts get good results. Approaching trading with an open, inquisitive mind moves a trader forward faster as the brain will look for new distinctions, strategies and solutions. (Like playing a video game and figuring out how to capture additional weapons to fight off the villain’s, resulting in getting you to the next level.)

Here’s how you switch your dialogue and questions to enhance your trading.

I’m so stupid ——————> I’m an intelligent trader that can figure it out.
I can’t find a trade –> There’s a better trade around the corner, and I will find it
The market makers did it to me———-> I did that…..now how can I do it better?
I can’t make money————————> I can make lots of money.
Every time I trade I lose money —> When I am focused and patient I always win.
I’m a bad trader—————————–> I am a successful trader.
I only made a ¼ of a point instead of ½ –> Next time I will make even more money.
I always lose.———————> I always learn something. New distinctions.
I can’t win.———————————-> I will win this next trade.
I can’t do this. —————————–> I will figure out a way to win.

So, be careful of what you say to yourself. It is the powerful food for your brain and your behavior. Use it to increase your trading success and let the market be the only thing that presents you with your trading challenges.

Robin Dayne,
http://www.robindayne.com/

In part 1 of this article I started to look at the financial implications of giving up the day job to instead start trading full time for a living. There are more than just monetary considerations as we will see later, but for now, there are some more costs to ponder.

More Costs!

Let’s move on to equipment. Presumably you already have a PC and internet connection by virtue of the fact you are reading this on the internet. But are these both up to the job of trading full time? Again the specifications for both hardware and ISP will depend largely on your trading style, but if you’re relying on a 100Mhz Pentium II and a dial up service, you’re setting yourself up for failure. So budget for quality equipment, budget to keep it up to spec, and budget for some repairs too – expect the unexpected. Many traders make the mistake of saying “This will do me whilst I start out, and I’ll get something better when I make some real money”. This is quite simply false economy, you are unlikely to ever make real money with a substandard setup (and this applies equally to substandard software and data feeds). This is a cut-throat business and 95% fail, you must give yourself every advantage you can. You wouldn’t enter the Indy 500 in a go-kart with the intention of buying a better car when you’ve won a few races, and the same thing applies here.

Earnings

When you’ve added this all together, you have a pretty good picture of how much money you need to generate from your trading in order to live. Does your past performance suggest you will be able to meet this target? It’s tempting to say “When I go full time I’ll make much more”, but how do you know this is the case? Perhaps you can take a couple of weeks holiday and try it out – if you don’t make enough in that two weeks then you’re not ready. A few weeks really isn’t enough time to know if you’re going to succeed though. An ideal next step then is to cut your day job hours to part time and trade maybe two or three days a week. This way you know you have some money coming in, you get to trade for real, and if it all goes horribly wrong you are probably better placed to get back into full time employment than someone who quit the working world completely.

The option of part time work is a luxury many of us don’t have however. So does it have to be all or nothing – trade or work? Why not keep the day job and trade outside your working hours as well. If you are trading and end of day strategy, then this is easily achieved by doing your research in the evening and placing the appropriate combinations of Stop and Limit orders with your broker. For day traders, certainly practising is easier if your intended market is not your home market, for example if you want to trade the US and you live in the UK where you can come home and paper trade in the evening. There are other try before you buy options open to the day traders who want to practise trading their home market outside of normal hours though. eSignal allows you to download tick data for any symbol and play it back in real time or speeded up so you could trade the whole day in an hour. Other vendors have similar offerings, and if you have an IB account you can use AutoTrader to record tick data during the day for playback into a demo version of SierraCharts or QuoteTracker for free.

The bottom line here is that before you take the plunge, you need to have done everything in your power to prepare yourself for what lies ahead. It will still be harder than you ever thought, but it will be nigh on impossible with no preparation whatsoever.

Other Considerations

There are a few non-financial aspects to consider before going full time with your trading. If you have a family, how will the change impact them? Do you have the space to work uninterrupted during the day? It’s important that the family don’t assume that because you are at home you are automatically available to take the kids to school, or walk the dog. Make sure from the start that everybody knows the ground rules and that you can separate your working time from your free time effectively.

Consider also the social impact of leaving your full time employer. Again, if you have a partner or family are you going to drive each other nuts being in the same house all day? Relationships can be tested to the limit! Or if you live alone, are you going to drive yourself nuts being on your own all day? Trading full time can give you enormous amounts of free time, but if you have nothing to fill that time with you can quickly lose the plot – I’ve seen it happen and it’s not pretty.

Is It Worth It?

Nobody can tell you if trading for a living is for you, it’s something you have to find out for yourself. I’ve seen traders go through highs and lows to challenge those of any stock chart, but for most it has proved to be a good move. The long list of benefits are all there for the taking, as with any change of career or indeed any major life change, as long as you go into it with your eyes open, and above all prepare, then there is no reason why it cannot work for you.

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So much time is spent on entering a trade. Today I want to focus on some exit strategies. This is not a full Fibonacci course, so if you don’t understand the basics I suggest that you visit my website for help with those aspects.

Human nature makes trading very challenging. Sometimes you want to exit a trade too quickly when it goes against you, and to cling on to a winner too long. Too often a winning trade will reverse, taking back most of your profits, or even going into a loss. On the other hand if you exit too soon, you risk missing some big profits. You may find that you’re sitting on the sidelines while the market continues well beyond your exit.

In this lesson I’ll show you how to bank those profits before they turn against you.

First look at this FOREX chart (JPY hourly chart). Click for chart in new window.

Let’s imagine that you were clever (or lucky) enough to enter long near point “A”. You’re feeling pretty good when price reaches “B”. So good that you don’t want to exit, because the up-thrust just before “B” give the impression that this market wants to go further.

Before you know it, the market reverses and heads towards “C”. Right at “C” you get scared and bail out with a little profit. Not much profit compared to exiting at point “D” or even at “F”.

You exit near “C”, and feel relieved until you see the market heading (thrusting) up to point “D”. You stop kicking yourself long enough to enter when it breaks above “B”, just a little before the high at “D”.

Soon after your entry near “D”, the market retraces to “E”, and on the way breaks below the high of “B”. Breaking below the high of “B” feels scary because you’re thinking this chart could be back at “A” in a flash. So you exit at “E” licking your wounds with a loss in this trade.

You start to notice more frustration now, when you enter somewhere between “E” and “F”. You’re feeling good near “F”, but then the chart dives to “G” and you’re stunned! This is a losing day for your account, and it’s beginning to hurt.

By this time you feel like the whole market is watching your trades, and they’re doing exactly the opposite of what you are doing. You start thinking that they wait for you to enter before they slam you and empty your account..

You have wasted your emotional capital, you don’t want to trade any more. You don’t have the stomach to consider shorting the rally after “G” to take profits at “H”.

There must be a better way!

Banking those profits.

You should seriously consider using profit targets to improve your trading performance. There are several ways to do this, my preference is to use Fibonacci techniques.

On the following chart, I have added a Fibonacci expansion using points “A, B, C”. This provides us with three profit targets. They are at 116.52, 116.93, and 117.59, see the blue arrows. Click for chart in new window.

If I add another Fibonacci expansion using points “C, D, E”, then two more profit targets are added, at 116.87 and at 117.22 . I have not added those studies to the chart, in order to keep things simple for now. You will notice the 116.87 target is quite close to the profit target at 116.93 in the above paragraph. And the 117.22 target is remarkably close to the swing high at 117.32 which is between E and F. We’ll ignore those for simplicity, just remember that Fibonacci is excellent at predicting probable turning points.

The trick with Fibonacci is that the market sometimes blows right through a profit target. So what do you do then? Simple – you stay in the trade! But sometimes the market reverses shortly after a profit target.

Sometimes the market respects a certain Fibonacci level, sometimes not. Some Fibonacci levels are “stronger” than others. Advanced Fibonacci techniques are able to help determine which have more validity, but that is beyond the scope of this lesson. What mechanism could you use to exit the trade?

One practical method of timing a trade is to use an oscillator. Another is to use a moving average. When an oscillator shows a decline of momentum, or when price crosses a moving average, you could exit the trade. Let’s explore the “oscillator” option in the following chart. Click for chart in new window.

In that chart, I have removed the Fibonacci studies (less clutter), leaving the blue arrows for profit targets. At the bottom I have added the default Stochastic per E*Signal charting software. I have added a red vertical line whenever the Stochastic “fast” blue line crosses the “slow” red line just after price rises above the Fibonacci target. If you exited when price reached those vertical red lines, you’d be a happy trader!

Already you can see the potential of using profit targets with an exit trigger.

You may want to research the following:

· Possibly exiting a partial position at each profit target.
· Consider entering long again on the dips, when the chart begins to rally again.
· Consider using multiple time-frames, perhaps Fibonacci studies on the hourly chart, and exit triggers on 5 minute charts.

If you would like to become an expert at trading with Fibonacci, see my trading seminars at my website.

-Neal. Hughes http://www.fibmaster.com

Copyright, Neal Hughes, Hughes Trading International Inc, 2006 – http://www.fibmaster.com – Reproducible in entirety with full credit.

Information, charts or examples contained in this lesson are for illustration and educational purposes only. It should not be considered as advice or a recommendation to buy or sell any security or financial instrument. We do not and cannot offer investment advice. For further information please read our disclaimer.

The Bad News

Time for a reality check. Certainly all of the above benefits are there to be enjoyed, but it’s a huge step from full time employee to full time trader. Are you really ready to give up that monthly pay-check just yet? Can you really cope not knowing how much money you’re going to make month to month? Are you prepared for the months when you actually lose money instead of make it? There are many things to consider before taking the leap of faith.

Considerations

Before you even think about trading for a living you have to know how much money you need to live on, that is, how much cash do you need to generate every month in order to survive. As a financially minded person you already have good home accounts, or are at the very least vaguely aware of where the money goes. So take the annual figure (monthly is no good, you need to account for annual recurring items like insurance premiums, car servicing, and vacations), add 50% and divide by 12. Why add 50%? Because there will always be unexpected expenses, and as traders we are always prepared to expect the unexpected. Now you know how much money you need each month, you can look at your savings and work out how much buffer money you have, that is, how long you could survive without earning anything at all. You can’t expect to be an instantly profitable trader, and even the best and most experienced have periods of drawdown, so you need to be ready for the worst. If you can’t live for at least six months from your savings then you are probably under capitalised and are not ready to give up that pay-check just yet. An important but often overlooked aspect of under capitalisation is the effect it will have on your trading; if you are trading because you need the money, then you are trading scared and you’re almost certainly going to lose. You cannot distance yourself from the money-aspect of the trade if you are relying on the money.

Living expenses are only one part of the financial equation. Next you must consider how much trading capital you need. This is the money actually facilitate trading, in other words your account balance for trading margin, and the money you will be spending on data feeds, software, and internet access. You must account for this separately, you cannot start eating into your daily living expenses money just because you took a bad trade and need some more margin.

The amount of trading capital you require will depend very much on your trading style. To day trade the US Stock Markets for example, you must have at least $25,000 in your account, so budget for $30,000 to allow for positions moving against you (if you fall below the $25k minimum even briefly, your account can be frozen for up to three months). If you are holding positions overnight you may manage with a lower balance but bear in mind your buying power and consequently returns will be reduced.

If all this is starting to sound expensive, well it is. There’s no two ways about it, you simply cannot survive long term as a trader if you are under funded.

This article is concluded in part two.

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