Traders have no business trading if risk/reward analysis is not at the top of their concerns. If a trader has no idea of the potential profit return on any given trade. Relative to the initial risk of taking the trade at all, his long-term profitability is in question.
Risk and Reward Forex
Of course, for every trader, the best case scenario would be to minimize the first and maximize the second. But how do you get a handle on the potential reward in any investment and the risk you might be taking on?
Risk and Reward Forex
Technical analysis – what’s popularly called charting – can help traders evaluate both risk and reward. The technical indicators used to read the charts will give you the simplest kind of picture you can get of a currency’s performance. Simply by placing your support and resistance. And by looking at the past performance of a currency. You can get a record of its closing price over time. Once all of the elements are in place for an analysis, you can calculate your pips difference and verify. Depending on the trend of the market, if you will make more profit or loss and if it is after all worth the position.
Risk and Reward Forex
For example, if the market is in a bullish situation, you need to have a higher pips difference. Between your buy-stop order and your resistance price. Than between your support price and your buy-stop order so that your reward will be maximize and your risk will be minimize. In each case, upside (bullish) or downside (bearish). The tools of technical analysis will tell you important things about risk and reward. Don’t trade without them.
Once you have the facts it is decision time. You can choose to do nothing or seek to reduce the exposures or to hedge them in whole or in part. The unforgivable sins are to fail to consider the risks or fail to act on any decisions. The risk culture of your business is critical and must be established at the most senior level.
Above all it calls for honesty. Too often individuals are criticized for decisions that, at the time, were in tune with the organization’s perceived appetite for risk. But it is never easy to set down effective guidelines and the range of exposures for even a simple transaction can be extensive.
For example, an exporter needing to borrow to finance a sale in foreign currency may have to consider counterparty credit risk, funding risk and interest rate risk. The permutations are endless and the costs of hedging transactions to reduce or eliminate every possible exposure could potentially swallow any profit from a deal.
How to manage your risk Forex.
While losses are likely to be quantitative, the potentially infinite number of risk combinations means that the skills needed to make good decisions are usually qualitative. Even a computer programmed to consider every conceivable permutation of risks needs to be told what level of exposure is acceptable. Any program is only as good as the parameters and data fed into it by people who have themselves been conditioned by experience. But what of the improbable. The wholly unexpected or the never-seen-before?
How to manage your risk Forex.
Effective risk management requires thinking the unthinkable. This does not in any way lessen the great value of the many sophisticated risk-management systems available. The problems come if people start to think of them, and the models they are based on, as infallible. It is also common for the development of control systems to come after any new risk-related products. Be careful not to bet the business until the exposure is known. To be in business you must make decisions involving risk. However sophisticated the tools at your disposal you can never hope to provide for every contingency. But unpleasant surprises should be kept to a minimum.
Ask yourself… -How to manage your risk Forex
1- Can the risks to your business be identified, what forms do they take and are they clearly understood? Particularly if you have a portfolio of activities?
2 – Do you grade the risks faced by your business in a structured way?
3 – Do you know the maximum potential liability of each exposure?
4 – Are decisions made on the basis of reliable and timely information?
5 – Are the risks large in relation to the turnover of your business and what impact could they have on your profits and balance sheet?
7 – Are the exposures one-off or are they recurring?
8 – Do you know enough about the ways in which you exposures can be reduced or hedged and what it would cost including the potential loss of any upside profit?
9 – Have trading and risk-management functions or decisions been adequately separated?
Where to place stops – How to manage your risk Forex
We stop out of a trade when we no longer want to hold onto that particular position. The question that arises is: WHY do we want to get out of that trade? There can be 2 reasons for stopping out of a trade. EITHER the market tells us that our intrinsic View or Directional Assessments itself was wrong. OR we stop out of a trade because we think we can establish another position at a better level than the previous one.
How to manage your risk Forex.
The effort should be to choose a meaningful SL which is neither too close to the entry to get activated soon after entry. Nor so far away from the entry that we have no time or space left for follow up action. The difficult part about the paragraph above is that it requires us to have a Trading Plan or Strategy . And to choose our Entry much more carefully than we tend to do, in accordance with that plan.
How to manage your risk Forex.
Follow through action required we come back to the reasons for wanting to stop out. In the first case, when our directional reading has been proved wrong. We should look to enter into a trade in the opposite direction – a case of Stop-and-Reverse (SAR). It needs to be pointed out here that it is NOT necessary to SAR at the same instance and level all the time. If you are an intra-week (or longer) trader, you can enter into a reverse trade after stopping out of the original trade. Allowing yourself time to reformulate your strategy.
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The United States dollar is the world’s main currency a universal measure to evaluate any other currency traded on Forex. All currencies are generally quoted in US dollar terms.
Under conditions of international economic and political unrest, the US dollar is the main safe-haven currency, which was proven particularly well during the Southeast Asian crisis of 1997-1998. As it was indicated, the US dollar became the leading currency toward the end of the Second World War along the Bretton Woods Accord, as the other currencies were virtually pegged against it.
The introduction of the Euro in 1999 reduced the dollar’s importance only marginally. The other major currencies traded against the US dollar are the Euro, Japanese Yen, British Pound and the Swiss Franc.
Euro -Major currencies Forex
The Euro was designed to become the premier currency in trading by simply being quoted in American terms. Like the US dollar, the Euro has a strong international presence stemming from members of the European Monetary Union.
The currency remains plagued by unequal growth, high unemployment, and government resistance to structural changes.
The pair was also weighed in 1999 and 2000 by outflows from foreign investors, particularly Japanese, who were forced to liquidate their losing investments in euro-denominated assets. Moreover, European money managers rebalanced their portfolios and reduced their Euro exposure as their needs for hedging currency risk in Europe declined.
Japanese Yen – Major currencies Forex
The Japanese Yen is the third most traded currency in the world; it has a much smaller international presence than the US dollar or the Euro. The Yen is very liquid around the world, practically around the clock. The natural demand to trade the Yen concentrated mostly among the Japanese keiretsu, the economic and financial conglomerates. The Yen is much more sensitive to the fortunes of the Nikkei index, the Japanese stock market, and the real estate market.
British Pound – Major currencies Forex
Until the end of World War II, the Pound was the currency of reference. The currency is heavily traded against the Euro and the US dollar but has a spotty presence against the other currencies. Prior to the introduction of the Euro, both the Pound benefited from any doubts about the currency convergence. After the introduction of the Euro, Bank of England is attempting to bring the high U.K. rates closer to the lower rates in the Euro zone. The Pound could join the Euro in the early 2000’s, provided that the U.K. referendum is positive.
Swiss Franc – Major currencies Forex
The Swiss Franc is the only currency of a major European country that belongs neither to the European Monetary Union nor the G-7 countries. Although the Swiss economy is relatively small, the Swiss Franc is one of the four major currencies, closely resembling the strength and quality of the Swiss economy and finance.
Switzerland had a very close economic relationship with Germany, and thus to the Eurozone. Therefore, in terms of political uncertainty in the East, the Swiss Franc is favored generally over the Euro. Typically, it is believed that the Swiss Franc is a stable currency. Actually, from a foreign exchange point of view, the Swiss Franc closely resembles the patterns of the Euro, but lacks its liquidity. As the demand for it exceeds supply, the Swiss Franc can be more volatile than the Euro.
The Canadian Dollar and the Australian Dollar are also part of the currencies traded on the Forex market but do not count as being part of the major currencies due to their insufficient volume and circulation. They can only be traded against the US Dollar.
Canadian Dollar – Major currencies Forex
Canada decided to use the dollar instead of a Pound Sterling system because of the ubiquity of Spanish dollars in North America in the 18th century and early 19th century and because of the standardization of the American dollar.
The Province of Canada declared that all accounts would be kept in dollars as of January 1, 1858, and ordered the issue of the first official Canadian dollars in the same year. The colonies that would come together in Canadian Confederation progressively adopted a decimal system over the next few years.
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The Forex Scalpers is active long enough to penetrate and recognize the thoughts of many traders. It’s important to know about the emotional and psychological part of trading. The right Trading mindset. If you think only strategy matters your partly wrong. You need to be smart, patience, disciplined and have the right Trading mindset to be a successful trader.
Firstly don’t get me wrong. There are a lot of websites trying to sell a robotic, profit guaranteed, system. Ever thought why? All they want is for you to buy their product. For example they give you the illusion that their system is 100% waterproof so you buy their product. But let’s think a bit longer before buying these systems.
If they are 100% successful, why is the price just a few hundred dollars? In case it gives a guaranteed profit it should be valued much and much higher. If you have a system that will guarantees you a profit, would you sell it for a few hundred? Just what I thought, you won’t.
Trading mindset. As experienced traders we tend to tell you the truth and the truth only. The thing is. Starting traders more often realize that their so called “guaranteed profit” system doesn’t work the way they hoped it would. That’s why we give you this decent course. Having an effective trading strategy is just a small piece of the big puzzle. Again, balance your emotions and be aware of your mental process is vital in this business.
Start trading with money you can lose. Since losing money is part of this business. We can have a good guess what is going to happen in the future but still we can’t predict it for a full 100%. N the beginning the emotions will probably get the better of you. You open your account after you’ve red some about Forex and bought your winning system. You are all excited to become rich and live that lifestyle you’ve always wanted.
At that moment you need to start thinking clear and trust in yourself and always explain to yourself why you made a certain decision. In conclusion don’t get caught up in your dreams like all the other traders do. Think a head and you will have a bright future!
Forex Charts Explained Trading at the Forex Market
There are three different Forex charts of use when trading at the Forex market. Let me introduce you to them: Line charts, bar charts, and candlestick charts. We have a strong preference for the candlestick charts because they give us the most information.
Line Forex Charts
So a chart with just one line the shows us the movement of the quote.
Line charts are easy to read and show us the trend in the Forex charts. Also good at using to see the Support & Resistance levels. Although the line chart gives us information about the history of the pairs price, it’s hard to see the individual prices.
Bar Forex charts
The Bar charts show us individual prices for a certain time period. Every bar has it’s own information and will so give you a more accurate view of your positions. The bar has an open, high, low and closing point.
Candlestick Forex charts
Most traders use the candlestick chart because they tell us a lot of clear information. Especially the Price Action is really recognizable. Don’t get confused, the candlestick shows us the same information as the bar charts, however, it’s easier to read. Candlesticks give good information about the highs and lows at a certain timeframe.
Japanese Candlestick Trading
Back in the day when Godzilla was still a cute little lizard, the Japanese created their own old school version of technical analysis to trade rice. That’s right, rice.
A Westerner by the name of Steve Nison “discovered” this secret technique called “Japanese candlesticks,” learning it from a fellow Japanese broker. Steve researched, studied, lived, breathed, ate candlesticks, and began to write about it. Slowly, this secret technique grew in popularity in the 90’s. To make a long story short, without Steve Nison, candlestick charts might have remained a buried secret. Steve Nison is Mr. Candlestick.
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IC Markets True ECN trading environment allows you to trade online on institutional grade liquidity from the worlds leading investment banks and dark pool liquidity execution venues, allowing you to trade on spreads from 0.0 pips. You can now trade along side the worlds biggest banks and institutions with your order flowing straight into our true ECN environment.Trade in a true ECN environment with no dealing desk or price manipulation. IC Markets is the online forex broker of choice for high volume traders, scalpers and robots.
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