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DEFINING RISK IN FOREX – 4

July 5th 2010 00:00

Pic source: Wikipedia

The Trend Is Your Friend?

Well, sure! Any trader will tell you that. And I am not about to argue the point. “The trend is your friend.”

BUT in foreign exchange, this friend is so fickle minded. Because of the speed by which the forex market is moving, you better be certain what kind of a friend (trend) you are following and for how long you are going to be “friends” before you commit a considerable amount of resources (money) to it.

After all, even in your other life (outside of Forex) “best friends” can be your worst enemies as well!

One of the advices experts giveto a trader to remain faithful to a trend is to study a chart of a longer time frame. A daily chart for example can give you a better idea of the bigger (general) trend of the market compared to a 15 minute chart. But while a daily chart may take a while to show a change in direction (up, down or sideways), and while a chart of shorter time frame may confuse you as to which general direction the market is really moving, you better be ready to heed their bidding.

Now, since it is the nature of the market to advance in a jagged (up and down) movement, knowing when the market has already turned or reverted back to its previous direction is quite a challenge.

This is where I am losing my money. If I stick it out with the original direction I selected because I believe that’s where it will continue to go after a bit of a “pullback” (thanks, but no thanks to a prediction of experts which I read) I often discover that the direction has, in fact, already changed! By the time I realized that, I have already lost a lot and the more that I am hesitant to give up my initial position since it would mean confirming my losses.

And it doesn’t help that every time I give up a losing position, I almost always find myself on the opposite side of the trend - which means, that the direction of the market has reverted back to the direction of my previous position!

Isn’t that nice?
Grrrrr!

That’s right. You do it several times with the same results and you are ready to snarl at anyone who happens to be nearby. Including the computer you are using to do the forex trades.

But getting even (especially with the market) will just add up to what seems like already insurmountable risks you are facing in foreign exchange.

Lose your head and get even with the market - and you end up losing even more!

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DEFINING RISK IN FOREX – 3

May 3rd 2010 00:00

Pic Sourse: Wikipedia

How To Lose It All And More.

There is certain information that a novice, who had a bit of experience in the stock market, has to realize if he would like to try the foreign exchange market.

That information has to do with the funds that he would put into his account with his chosen forex brokerage house.

In the stock market, the money in his stock brokerage account which he did not use to buy stocks will be just like the money that he put in a bank account. It will remain intact (untouched – except by inflation) and may even earn some interest.

In Forex, even the money that was not used to buy currencies is at stake. In fact, even the money that was not in his brokerage account would be at risk if the novice is not careful.

For more clarity, let’s say that you deposited $1000.00 in your Forex account. Let’s also say that your brokerage house allows a margin of let’s say 400 (they all give big margins). If the novice is not careful and the market turned against the direction of the currency pairs that he bought, he could potentially loss up to $400,000.00!

That is, if he (and his brokerage house) allowed his losses to accumulate. There are brokerage houses that terminates your account if your losses is about to go beyond your available funds with them. But then, even that already means you’ve lost all your available funds – when in fact you just initially wagered say, $50.00.

This is the reason why anybody who plays the Forex is always given the advice to put a “stop-loss” in place.

Some however refuse to use this feature, especially if their positions are always being stopped out.

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DEFINING RISK IN FOREX -2

April 26th 2010 00:00

Pic source: Wikipedia

The speed by which the prices of currency pairs are changing is one of the things that make Forex a very risky endeavor – and it would serve well a novice (like me) to be aware of this fact even before he decides to try his luck in this field.

Let me clear something here first. When I said “speed” I meant fast not slow. And when I said fast, I meant split-second fast.

Let’s try an example to further clarify what I mean. Let’s say you found yourself in a wrong side of a trade. Let’s say you shorted the EUR/USD pair, you are trading the short time frame, and every second that passes by - while you are staring in your computer monitor – you are losing money… those short green candles just keep on adding up on top of the one before it.

Then, suddenly, you saw a red candle form and it’s getting longer and longer – removing all the money you lost (because of those green candles) along the way. The red candle is getting really long quite fast, and in less than 2 seconds you are registering profits!

You were languishing at the top of the chart seeing your losses double or even triple for quite some time before this happened so you wanted to get out, to close your position while you are ahead – but you hesitated, you wondered whether you should add a few more profits before you hit the button. It was just a thought, it took just half a second for you to decide to forget additional profits… you quickly hit the button to close your open position and the computer responded right away. Your position was immediately closed.

But in that instant that you hesitated, a green candle has formed beside the red one that brought your position to profitability – and by the time you close your position the green candle has already brought back your losses once again.

You’d be quite lucky if, by the time the computer responded to your request, the green candle hasn’t reached above the beginning of that red candle yet. The preceding candles sometimes come back down again to give you some profits, but oftentimes they just leave you with your losses.

There are, of course, quite a number of books and instructional materials that one can find to prepare in the Forex business.

But one should never ever get in there, unprepared.

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DEFINING RISK IN FOREX

April 13th 2010 02:30

Most Traded Currencies data source: Wikipedia

If you are just about to try Forex trading, (especially if you are planning to do it on your own on-line) the first thing you’ll notice in every website you’ll visit is the warning that says “forex trading presents substantial risk to your capital”. You’ll see it in almost every page.

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EVER TRIED FOREX?

April 8th 2010 05:33

Foreign Exchange turn-over. Pic Source: Wikipedia

If you haven’t tried trading forex on your own, allow me to give you some tips

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DO BANKS RIP THEIR CLIENTS OFF?

February 9th 2010 02:37

Pic source: Wikipedia

Several years ago, there was this woman who personally told me their family’s struggle to get back their entire fortune which was taken over by a bank thru some insidious practices. They went to court and to the media to fight their battle. She said they are winning but they still have a long way to go

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ARE THEY SHOOTING BLANK MONIES?

December 29th 2009 02:35

Blank cartridges. Pic source: Wikipedia

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MAYON VOLCANO ERUPTING, WANNA GO SEE IT?

December 17th 2009 06:34

If you think it is crazy to rush to a place where there is an erupting volcano - at a time when government officials are evacuating the residents from that place - I’ll agree with you.

That was what I thought when, as a young boy, we couldn’t get a ride in a bus that goes to our town because every single seat has been taken by people who would like to go to Legaspi – to watch Mayon Volcano erupt

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AND NOW THERE ARE EIGHT

December 16th 2009 02:37

Please don’t get confused by the title. This story is targeted to a portion of the Five (5) Million Filipino OFWs who just might wander to Orble pages, those who may still be searching their souls on who to vote for in the 2010 Presidential elections.

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1 COUNTRY, 99 PRESIDENTIAL CANDIDATES

December 2nd 2009 07:37

Hmmmm… now, I am beginning to wonder if that’s the reason why people here keep saying we have the wrong president – no matter who becomes president.

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July 2010

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April 2010

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