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TECHNIQUES & STRATEGIES
Seven Steps to Success
1) Maximize Your Tools 
FX provides multiple tools to help you become a better Forex trader including free market news and real-time charts. The most valuable tool, however, is the FX Demo account, which allows traders to test out strategies and learn from their mistakes without risking real money. 
2) Risk Management 
Every successful trader knows how much risk he is willing to take and what profits should result from a trade. This is the basis of every  realistic trading strategy. 
   3) Two Ways to Trade
There are two types of traders, technical and fundamental. Both have radically different approaches to making trading decisions. Click here to find out which camp you belong to. 
 4) The Basics of Technical Analysis 
All Technical Analysis starts with a few basic building blocks. With  these as a foundation, you can start to make sound trading decisions. 
        5) Applying Technical Analysis
FX provides tools for basic technical analysis. Test your knowledge of technical analysis. 
     6) Fundamentals Everyone Should Know
All Traders should understand why economic releases, interest rates and international trade are important to movement in currency  markets. 
7) Psychology of Trading 
The biggest enemy to most traders is not the market but themselves. Learn four trading principals that will help you avoid the four biggest mistakes that traders make.

The Difference Between Being Right and Making Money 

Lesson 1: Right And Wrong 

Being right about the overall direction of the market does not guarantee profits. In fact, it is possible to be wrong about the overall direction of the market and still be a very profitable trader. 

Novice traders often place too much focus on “trying to figure it all out”. Surely, it is possible to predict general market direction. Consider for example the recent dramatic rise in the euro against the US dollar (this is being written Feb 2003). With such strong macroeconomics reasons to support this move, many were able to predict the euro’s appreciation. Despite this foreseeable move, however, the euro’s rise did not come without hiccups. Indeed, in July of 2002, many traders who had the right overall view of being long euro, sustained significant losses as the euro temporarily made a size able move in the opposite direction. 

Because of market volatility, most traders do not have the financial resources or the patience to take advantage of the macroeconomics trends that move the market over the long term. In a market that constantly zigzags, tracing and retracing on the way to establishing its long term trend, long term traders must be prepared to weather short term losses when right about market direction or large losses when wrong. Conversely, short and medium term traders are able to determine whether their trading strategy is right or wrong early thus minimizing potential losses. Moreover, since currencies fluctuate constantly, there are many opportunities for short and medium term traders to profit from small fluctuations, trading 5, 10, and 15 times a day. 

There are many benefits of short and medium term trading over long term trading in the spot currency market. The Metex Course focuses on showing traders how to use the right tools to determine what moves markets in the short to medium term and, in turn, maximize trading performance. 

Avoiding Information Overload

Lesson 2: Information Overload

In the age of 500 plus TV channels, thousands of newspapers, and tens of thousands of Internet sites, choosing a limited number of resources amongst this bombardment of information can be difficult. 
A successful currency trader must be skilled at deciphering and digesting the most essential information and selecting a limited number of resources to follow. Almost every day, the major economic powers release a torrent of economic data. With CPI, PPI, Housing Starts, Unemployment Claims, Trade Deficit, and M3, just to name a few, how can traders determine which numbers are most important and, in turn, the fundamental data that will move markets? Indeed, by knowing in advance which facts and figures are important and when they are likely to have a major impact on the market will limit information overload and allow traders to focus on the most important information as they conduct their analysis. The Metex Course reveals the most important economic data for each currency pair and how they affect currency movements. This useful resource will save valuable time for all traders. 

Each Currency has a Personality

Lesson 3: Knowing What Makes a Currency Move 

Each currency has a unique personality cultivated through its native country’s history, political state, and economic fundamentals. Just as a country’s economy runs in cycles, currencies tend to repeat their patterns of behavior. Since currencies tend to repeat previous price patterns, if you know how a currency has reacted in the past to certain news, you can reasonably predict how a currency is likely to react again. 

Consider for example the Australian dollar. Given that Australia is one of the world's largest producers and exporters of gold, the Australian dollar is known to be very sensitive to gold prices. When gold prices rise, the value of Australia’s exports rise and the country's economy becomes more robust. As a result, demand for Australian dollars rise leading to an increase in their value. Indeed, those trading the Australian dollar pay close attention to the gold markets. 

The Metex Course, written from the experience of professional FX traders, will detail the most important characteristics of each currency pair. Even more, it will clarify questions like "what moves each currency" and "what are the important markets to watch in order to predict a currency's movement." As a valuable resource for both new and experienced traders, the Metex Course will bestow upon traders all of the important information needed to know about analyzing and trading each currency. This Cliff's Notes for currencies includes information on how the currency reacted to past events, as well as which factors will have the greatest impact on each currency going forward. By taking this course, traders will increase their expertise by leaps and bounds. 

An Ounce of Protection is Worth a Pound of Cure

Lesson 4: An Ounce Of Protection Is Worth A Pound of Cure 

One of the most common pitfalls of trading is holding on to a bad trade. Too often, traders have a hard time admitting that they have made a bad decision on a trade. So instead of keeping losses to a minimum, they hold on to a bad trade in hopes of it turning around and becoming profitable. This usually results in bigger losses. 
Having a sound risk management program in place will prevent this mistake and many others. For example, having a stop-loss order is a major component of any risk management program for trading. This type of order tells one's broker to close a trade when the trade starts heading south. The Metex Course will cover different types of risk management orders and when and where to place them. Different traders have different styles of risk management; however, all need to develop discipline and a strategy that helps them to generate consistent profits. The Metex Course will teach traders how to develop a solid risk management strategy and provide them with the tools to implement that strategy. 

Support and Resistance: The Basics of Trading

Lesson 5: Finding support and resistance 

Prices do not move randomly. When you have a moment, pull up any chart of any security and you will see that price movements follow patterns, which tend to repeat themselves. Technical analysis is the study of these patterns. Two words that are heavily used in technical analysis are support and resistance. Support refers to the level at which the price has a pattern of "bouncing off" after previously touching it or almost touching it. Resistance is the reverse situation. It is the level on a chart where prices have difficulty passing or getting above. Figuring out where support and resistance lies is critical to successful trading, because it is used to determine the two crucial decisions every trader should make: Where should I enter the trade and where should I exit a trade. 
There are many tools that traders can use to figure out support and resistance levels. They include Fibonacci levels, stochastic oscillators and patterns such as double tops, and head and shoulders. The Metex Course will explain in detail the most commonly used tools for finding support and resistance, how to use them, and examples of how they have worked in the past. The sooner traders master spotting support and resistance levels, the sooner they start making money in the currency markets. 

Smart Trading 

Lesson 6: One Piece Of Evidence Is Not Enough To Make A Decision

It is human nature to want to find a simple, easy solution to every problem. Traders are no different. Every trader wants to find a method for predicting profitable trades that works every time. There is no shortage of firms that will try to sell you a fail proof system. But common sense dictates that no such tool exists. There are many tools that are good for predicting the direction of the market. However, it is unlikely that any one tool will be accurate 100% of the time. Using several tools simultaneously increases the chance for success. 
The Metex Course will teach you which tools to use and how to combine them to maximize your trading profits. Not all tools work well together, while some tools work particularly well when used together. With the Metex Course, traders will know exactly how to use and analyze the most important technical analysis tools. 

 Pulling It All Together 

Lesson 7: Pulling It All Together

Are you a trader? If you are, then you know that trading is not easy. On top of mastering the market and developing a strategy (which includes risk management), there is also a psychological component to trading, which is of equal, if not greater, importance than mastering any of the other skills. A trader must have discipline and confidence. While even the most successful traders have bad trades and bad days, it is their steadfast commitment to maintaining discipline and following their strategy cutting losses early, letting profits run for example that allows them to maximize returns in the long run. 

Indeed, consistently trading successfully requires mastering self-discipline and proper risk management to, in turn, defy fear and greed, which only motivate failure and losses. The Metex Course teaches traders how develop and adhere to a disciplined strategy to maximize trading performance. 
Two Basic Approaches

There are two basic approaches to analyzing currency markets, fundamental analysis and technical analysis. The fundamental analyst concentrates on the underlying causes of price movements, while the technical analyst studies the price movements themselves. 
                        Technical Analysis 
                              Technical analysis focuses on the study of price movements. Historical currency data is used to forecast the direction of future prices. The premise of technical analysis is that all current market  information is already reflected in the price of that currency; therefore,  studying price action is all that is required to make informed trading  decisions. The primary tools of the technical analyst are charts.
                              Charts are used to identify trends and patterns in order to find profit opportunities. The most basic concept of technical analysis is that markets have a tendency to trend. Being able to identify trends in  their earliest stage of development is the key to technical analysis. 
                              Fundamental Analysis 
                              Fundamental analysis focuses on the economic, social and political forces that drive supply and demand. Fundamental analysts look at various macroeconomics indicators such as economic growth rates,  interest rates, inflation, and unemployment. However, there is no  single set of beliefs that guide fundamental analysis. There are  several theories as to how currencies should be valued. Currency prices reflect the balance of supply and demand for currencies.  Two primary factors affecting supply and demand are interest rates and  the overall strength of the economy. Economic indicators such as GDP  foreign investment and the trade balance reflect the general health of an  economy and are therefore responsible for the underlying shifts in supply and demand for that currency. There is a tremendous amount of data released at regular intervals,  some of which is more important than  others. Data related to interest rates and international trade is looked at  the closest. 
                              Interest Rates 
                              If the market has uncertainty regarding interest rates, then any bit of news regarding interest rates can directly affect the currency markets. Traditionally, if a country raises its interest rates, the currency of that country will strengthen in relation to other countries as investors shift assets to that country to gain a higher return. Hikes in interest rates,  however, are generally bad news for stock markets. Some investors will transfer money out of a country's stock market when interest rates are hiked, causing the country's currency to weaken. Which effect dominates can be tricky, but generally there is a consensus beforehand as to what the interest rate move will do. Indicators that have the biggest  impact on interest rates are PPI, CPI, and GDP. Generally the timing of  interest rate moves are known in advance. They take place after regularly scheduled meetings by the BOE, FED, ECB, BOJ, and other central banks. 
                        International Trade 
                              The trade balance shows the net difference over a period of time between a nation's exports and imports. When a country imports more than it exports the trade balance will show a deficit, which is generally considered unfavorable. For example, if U.S dollars are sold for other domestic national currencies (to pay for imports), the flow of dollars outside the country will depreciate the value of the currency. Similarly if  trade figures show an increase in exports, dollars will flow into the United  States and appreciate the value of the currency. From the standpoint of a national economy, a deficit in and of itself is not necessarily a bad thing.  However, if the deficit is greater than market expectations then it will trigger a negative price movement. 
                        Technical Analysis or Fundamental Analysis?
                              Most traders with FXCM abide by technical analysis because it does not require hours of study. Technical analysts can follow many currencies at one time.  Fundamental analysts, however tend to  specialize due to the overwhelming amount of data in the market.
                              Technical analysis works well because the currency market tends to  develop strong trends. Once technical analysis is mastered, it can be applied with equal ease to any time frame or currency traded. 



 Psychology of Trading
                             Trade with a DISCIPLINED Plan:  The problem with many traders is that they take shopping more seriously than trading. The  average shopper would not spend $400 without serious research and examination of the product he is about to purchase, yet the  average trader would make a trade that could easily cost him $400  based on little more than a “feeling” or “hunch.”  Be sure that you  have a plan in place BEFORE you start to trade. The plan must include stop and limit levels for the trade, as your analysis should encompass the expected downside as well as the expected  upside. 
                              Cut your losses early and Let your Profits Run:  This simple concept is one of the most difficult to implement and is the cause of most traders demise.  Most traders violate their predetermined plan and take their profits before reaching their profit target because they feel uncomfortable sitting on a profitable position.  These same people will easily sit on losing positions, allowing the  market to move against them for hundreds of points in hopes that  the market will come back.  In addition, traders who have had their  stops hit a few times only to see the market go back in their favor  once they are out, are quick to remove stops from their trading on  the belief that this will always be the case. Stops are there to be  hit, and to stop you from losing more then a predetermined  amount!  The mistaken belief is that every trade should be profitable. If you can get 3 out of 6 trades to be profitable then you  are doing well.  How then do you make money with only half of your trades being winners? You simply allow your profits on the winners to run and make sure that your losses are minimal. 
                              Do not marry your trades:  The reason trading with a plan is the #1 tip is because most objective analysis is done before the trade is executed.  Once a trader is in a position he/she tends to analyze the market differently in the “hopes” that the market will  move in a favorable direction rather than objectively looking at the changing factors that may have turned against your original analysis.  This is especially true of losses.  Traders with a losing position tend to marry their position, which causes them to disregard the fact that all signs point towards continued losses. 
                              Do not bet the farm:  Do not over trade. One of the most common mistakes that traders make is leveraging their account too high by trading much larger sizes than their account should prudently trade. Leverage is a double-edged sword. Just because one lot (100,000 units) of currency only requires $1000 as a minimum margin deposit, it does not mean that a trader with $5000 in his  account should be able to trade 5 lots. One lot is $100,000 and  should be treated as a $100,000 investment and not the $1000 put  up as margin. Most traders analyze the charts correctly and place  sensible trades, yet they tend to over leverage themselves.  As a  consequence of this, they are often forced to exit a position at the  wrong time.  A good rule of thumb is to trade with 1-10 leverage or  never use more than 10% of your account at any given time. 
Trading currencies is not easy;
if it was, everyone would be a millionaire !
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