Archive for the "Trading" Category
Speaking about Forex trading efficiency, people often mention teamwork. Who is more efficient on Forex: individual trader or a team of traders working in a synch? Traditionally, every private investor is for himself on Forex. However, teamwork may vary a bit, being formal or informal. Traders have not agreed on teamwork efficiency though. Some say that a team is totally unsuitable on Forex while others find good reasons in defense of a collective mind. We will consider pros and cons as well.
Physiological aspects of team and individual trading are considered as the most controversial issues. Trading alone, you are alone responsible for your decisions which you do not need to coordinate with other traders. You spend on market analysis as much time as you deem necessary to make a trade. Still a possibility that you make a wrong decision is high. A man has limited capabilities, and provided that you are not enough skilled, a risk to lose is much higher.
In a team, responsibility is shared by its members both psychologically and econominally. A team collectively discusses a problem and elaborates a decision that will satisfy all its members. It does not annul risks though. Collective decisions may be even more risky than individual. It is again associated with psychology of teamwork: a team may overestimate the value of a profitable trade and underestimate the risk of losing. Working as a team, people normally tend towards positive risks. Moreover, members may confide decision-making in their experienced co-member or leader thus decreasing efficiency of collective work.
Fortunately, a team may incorporate different people with different skills who can provide together a comprehensive evaluation of challenges. In addition, a total capital of a team is generally more that a capital of an individual trader.
A sort of hierarchy is recommended even for informal teams. Members should share coordinated purposes rather than seek personal profits. The main challenge is time which is required more to make a collective decision, especially when members disagree. But a team may have a formal or informal leader with a decisive vote. Team members can also set certain limits and divide scope of activity.
There is no categorical answer on whether it is better to trade on Forex alone or in a team. Nevertheless, most traders agree that if you work in a team, you should better make sure that your team consists of professions only who know their business and can follow rules.
Added by Kristina Leshkevich,
InstaForex Clients’ relationship manager
Is there any sense in recording your observations and conclusions? This question is answered affirmatively by many traders. They believe that keeping a trading journal contributes to self-discipline and helps to systematize the experience gained.
- Apart from a traditionally used journal, there are other ways to record your observations. It is a well-known fact that people are divided into auditory learners, visual learners and kinesthetic learners (also known as “tactile learners”) on the basis of the prevalent cognitive channel.
- Auditory learners perceive information through listening. They tend to utter their thoughts and conclusions. Music means much for these people; it sets their mood and emotional state. People of this type are even likely to use a dictation machine to record and reproduce their thoughts.
Pictures and images dominate the mind of visual learners. Visual materials are crucial for cognition of these people. That is why charts, schemes and figures are the most powerful perception tools for them. In this context the Mind Mapping method introduced by British scientist Tony Buzan appears to be effective. The essence of this method is establishing associative relationships among concepts and visualizing these relationships. According to T.Buzan, associative thought processes are the most efficient in learning and memorizing, as our mind stores information in the form of associative maps. Mapping is based on employing graphical representations, colours, three-dimensional images, letters etc. A cognitive map is supposed to be a consistent hierarchy of concepts. An example of a mind map is represented below. It hardly reflects peculiarities of your trading system, yet it might facilitate the process of knowledge systematization. The mind mapping technique is applicable in numerous spheres of life indeed.
- As for kinesthetic learners, they rely rather on their feelings, emotions and tactile sensations. They need more time for pondering and making a decision. Kinesthetic learners attach great significance to atmosphere and comfortable overall environment.
Try choosing a way of keeping a trading journal or data memorizing proceeding from your own personality type.
- What are techniques of other traders? Many have a special notebook to record parameters of each particular trade, describe a trading strategy, including indicators employed and signals considered. In such a notebook you can also explain why a decision to open or close a trade was made. Later these records will be helpful for you to revise and correct your strategy. If you are a short-term trader, you can draw conclusions at the end of each day. Such a notebook allows fixing effective strategies, capital management methods, principles of indicators functioning and useful recommendations. It is also worth taking notes while testing new strategies and software products.
- Some make screenshots with comments and store them in folders bearing certain dates. Many traders employ Excel for necessary calculations. Others prefer blogging in the Internet.
- A journal of any format is especially important to keep at first stages of work so that you could systematize information, analyze your mistakes and trade sticking to the scheme elaborated. If you plan to trade on several accounts or with several brokers, you certainly need to keep records to avoid confusion. One can have on mind just a few ideas at once, since the human brain capacity is not unlimited. We tend to forget information, so well-structured and logically consistent records appear to be useful for recalling something important and putting thoughts in order.
- As you can see, there are numerous ways of record keeping. It is up to you whether keeping a journal is helpful on Forex.
Added by Anna Shubina ,
InstaForex Clients’ relationship manage
After the gold standard was cancelled, the world economy switched to the floating exchange rates. Since then every currency price is the result of the free interaction between its demand and supply. The demand for the currency is formed under the influence of such factors as the necessity for goods import, investment attractiveness of the country, currency reliability, etc. The supply is determined by the national export volume, loans, etc.
However, it does not mean that there are no exchange rate regulation measures. Each country government is interested in maintaining their currency price on the acceptable level (to avoid the negative influence on the national economy). Previously IMF watched over exchange rate policy of counties in order to maintain the economy stability and consider common interests. Now this supervision has become less strict, so, when carrying out any intervention, counties should follow only several principles developed by IMF.
Currency intervention is a strong instrument of central banks. It is interference in operations on the exchange market in order to influence national currency exchange rate. It is usually a result of currency selling or purchasing. There are also coordinated interventions when banks are operating together.
Reasons and consequences of intervention can be absolutely different. Currencies are traded in pairs, so everything is interconnected on the market. When some currency appreciably loses or strengthens its position it influences other currencies. Sometimes sudden movements happen on the market because of some circumstances. In that case carrying out gradual adjustment is impossible and banks must give quick response to the market circumstances by making currency intervention.
Traders should take in account such events because interventions can contribute both to the investment capital growth and reduction. If there is a probability of intervention skilful traders can be ready for profitable positions opening and taking considerable profit.
When waiting for an intervention, sometimes it is necessary to act against the trend, and it is always a risk. That is why it is better to use a low leverage, put stops and remember capital management rules.
Very often interventions are sudden or hidden. Not always central banks divulge information about interference in Forex, sometimes such information is delayed. However, a trader has several instruments which help forecast intervention probability. The fundamental analysis and news tracking are necessary to be aware of the world economy events. Secondly, often international leaders hint at intervention possibility, so it is very useful to pay attention to their declarations. Thirdly, read analytical reviews and forecasts of professional analysts who represent large banks and companies. Finally, experts note that often banks vary out interventions when the price reaches the level of the previous intervention.
By the way, intervention can be carried out to curb or strengthen the trend. Interventions against the trend are not always successful because sometimes even banks cannot resist the market.
Added by Daniel Shchagin,
InstaForex Clients’ relationship manager
Volumes of Forex trading exceed 4 trillion dollars a day. Forex brokers can help to invest in foreign exchange market almost anyone willing to obtain benefits. Hot-eyed and hot-blooded beginners often rush into trading in an eager for a desirable piece of cake. The purpose is quite understandable, though difficult to reach if you are unaware of basic rules. These rules are related to the art of money management.
You will increase your chances for successful trading by using well-checked trading algorithms, calculating possible results and trying not only enrich but also save your money. For a couple of loss-making trades may deprive you of the whole deposit, a size of losses is often more important than of profits. Beginning traders often watch their expected profits turning to substantial losses. The reason is that they cannot get to close positions ahead of a good deal of money. If they use a margin, they face even worse disaster. Self-confidence and market’s favour are questionable training wheels. It is better to aim at small but constant profits and work out a strategy and follow it.
You will definitely need some time to elaborate a strategy. Who says it would be an easy score? Start with demo and then try a cent account. Go to a classic live account after that. I would not recommend you to begin with a margin for any misfortune may deprive you of the whole deposit.
Trading with fixed volume is an easy way to manage your money. Set a fixed limit (e.g. 0.5 or 1 lot) and trade within it. Do not open numerous positions at a time. Even if this strategy will not give you extra profits, you will save most of your money and get a foot in the door to solid profits. Always analyze results: make some calculations, monitor charts and study the market. Find mistakes and try to fix them. If the results are positive, you may increase the volume of trade and use a minimum margin.
Another method of money management is to choose a part of deposit you are ready to risk. For example, 5 per cent for a trade. An advantage is that you will have the same risk portion for all trades. By increasing your deposit, you will be able to raise a volume of trades and reinvest the money including profits. However, it is not recommended to invest more than a half of your deposit.
Contrary to self-confidence, self-discipline is essential for Forex trading. You should know exactly where to enter and exit the market. Set up stop loss levels and move them if the market favours you. Close positions if you got the profits you expected. Close positions if your losses reached the limit. Control your emotions. If you failed and suffered from stress, take a time out and have a rest for a few days.
Later you will know how to diversify risks and elaborate the most appropriate trading and money management strategy.
Added by Evgeny Galaev,
Chief Manager of InstaForex Client Relations Department
Options represent one of six investment instruments of Forex trading. Option is a contract to buy or sell an asset at a specific price within a specific time period. However, the contract gives the right and not the obligation. An option holder is entitled to repudiate the contract if it will bring him no profits. The option’s nature lies in its name which implies “choice” and means that traders have almost absolute freedom in setting contract’s conditions.
There are different types of options: exchange and off-exchange, exotic and common, call and put, and American and European. Forex is well-known to be off-exchange market. Forex options are called currency options.
Call and put options are major types of options. Call options give the right to buy an asset, while put options give the right to sell it. If traders expect the option’s cost basis to rise, they buy the first type of options. If they expect it to fall, they buy the second type.
American option gives its holder the right to buy or sell an asset of a specific volume at a specific price within a specific time period. European option can be only executed at its expiration date.
Although currency options may have rather long life, short-time option contracts are of bigger interest to us. Experts describe option trading as a rapidly developing sector of exchange market. Previously, options had been primarily used by exporting and importing companies to hedge risks, and today they have revealed new opportunities for investors and attracted more traders. However, not all traders fully understand exact principles of option trading and the results it may lead to. Some consider options to be highly profitable with no danger of huge losses while the others think that they are too risky.
Today’s brokers provide traders with various types of options. Experienced investors and specialists have developed multiple strategies for option trading. Undoubtedly, options are a very flexible instrument that can minimize risks and shortly maximize profits provided that it is handled ably. Options are on your side in both low and highly market volatility and bring profits at even a slight price fluctuation.
Beginners in option trading are usually recommended to start with small amounts of money and simple strategies. First, choose a type of options. Then study the theoretical basis and compare trading conditions provided by brokers. And always work out trading process. Developed analytical skills would be an asset as option trading is based on technical and fundamental analyses as well.
Binary options, another type of exotic options, have recently gained popularity among traders. These options are usually called “all or nothing”. It means that a trader will get either known profits or nothing and the debited option value. The only prerequisite for successful binary option trading is to forecast accurately the price direction. Will it rise or fall? Option will win if your choice proves to be correct. Although binary options are quite a clear and simple trading method, thoughtless actions may perceptibly affect your budget. Always remember to plan carefully before act and do not rely on luck.
Added by Roman Tsepelev,
InstaForex development manager