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1) Maximize Your Tools
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.
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.
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.
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.
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.
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.
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.
Psychology of Trading
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.
if it was, everyone would be a millionaire !
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