Casual Forex Trader

I wanted to talk to you about forex divergence and how you can trade with it. A lot of people want to get in this market, but there is so many little things they have to get down and divergence is one of them. If you can’t profit with this, than you can’t profit at all.

• You need to identify indicators along the chart patterns, trends, resistance and support.
• The misconception is that these indicators can predict future price.
• Indicators are calculated based on price movement, so they’re not following future price.
• When the price for something booms, you’ll find that the indicator booms too - and vice versa.

A lot of people simple don’t have the know how to understand forex divergence and it is sort of sad.

I wanted to take the time to show you how to get started trading forex. This market can be tough and rewarding at the same time. I think the best way to describe it is that it has no mercy. If you know how to use it right - you’re fine, but if you don’t, well you can bet you’re going to have some trouble making money and even holding onto the money you already have.

Getting started will require a few things…

Broker

You’re going to need a broker because there needs to be someone moving around your money for you. You don’t have to get a broker that makes the decisions on your behalf, but just get one that has software for you to trade right from your computer.

There’s thousands of different brokers on the internet ready to compete for your business. That means there can be some great places to go, but also you have to watch out for scams. It’s very easy for a person to setup a website and look like a professional broker - they could very well be some teenager running this out of their basement.

I suggest to always do your homework and check out forex forums. These are communities where actual traders talk and you can see which brokers are good, bad and ugly.

Starting Cash

Getting started trading forex requires a little cash to start with, but the cool thing is that the broker allows you to leverage some of their money - usually 10x or 100x. That means if you put in a $100, they’ll let you trade up to $10,000.

Just a note, they won’t let you lose money. Once your losses approach your original deposit they’ll cut you off. If you’re using a high amount of money, losses can add up quickly.

I wanted to take the time to talk to you about forex stops and how to do them effectively. You have to be able to not lose money. That’s a skill most people don’t go after. They’re more interested in earning money, but they don’t learn how to protect it. It’s a sad state of affairs, but it’s the reality of the forex business and the people looking to get rich.

You have to remember your main priority as a trader. You want to preserve as much trading capital as you can. It’s not bad trades that cause the problems, it’s the ones that bleed us of capital. When it is a bad trade, you know when it’s time to stop. When it’s something that is bleeding, you’re not sure. You know it’s down, but you think to yourself that it might go back up. It might recover.

You need to preserve capital and that means you have to use forex stops. The key to this is being objective. Most people aren’t objective enough. They’re emotionally involved in a trade and they can’t make a good decision in the heat of the trade. You should recognize that, instead of ignoring it.

I’ve found that the best time to implement forex stops is before I make the trade. I decide when I’ve had enough before I buy. All you have to ask yourself is this: “If it goes down, at what point will I sell?” It’s objective and easy to follow.

I wanted to take the time to talk to you about the critical forex trading decisions. You can sum up the biggest problems in society are caused by someones inability to make a decision. That’s what it is all about. Decisions are what count and often people in forex trading don’t have the first clue on what they should be making decisions on.

Cutting Losses

Probably the toughest decision to make. All of us start thinking, “after I sell - it’ll go back up”. Yeah, that could happen, but it really doesn’t happen that often. You need to make decisions fast before you lose out. Cutting your losses is an important part of doing this.

Analyze or Move

Many people get stuck in the analyzing mode, which is basically an inaction or no decision. Analysis is important because if you don’t know what you’re getting into, you could be making a bad trade. Never skimp on the analysis, but eventually you’re going to have to act. Basically, I act when I’ve extracted as much as I can get out of a trade. That’s not to say everything, but there is a point where the remaining information is just useless to the decision.

When to Sell

None of us want to sell when something is going up and making us money. We all know that it won’t go up forever, but while it is rising, it is hard to let go. You need to recognize that the chances of you selling this on the peak are slim to nill. Make a decision of when you’re going to sell and move on.

I’ll be the first to admit that I never really knew what arbitrage meant, but I’ve heard people used it. I don’t think I’m alone in this case, but the definition is surprisingly simple.

Arbitrage means dealing simultaneously in the same product in two markets to take advantage of temporary price distortions with minimal risk.

Forex arbitrage trading is a very effective method for profiting. You’re taking advantage of price differences with very little risk on your part. That’s what most of us want - money without the risk.

The way this works is pretty simple. As you can see from the definition, “two markets”, but you’re thinking - “There’s only one forex market”. You’re right, but we have to think about the price of things and you’ll realize that brokers give different spreads and that allows you to take advantage of different prices in a market.

There are some pretty sophisticated ways of doing this with just one trading account. It involves a lot more attention on your part and you’ll have to monitor. If you look at three currencies; A, B and C, you may notice the following:

A is 2xB
B is 2xC
C is 6xA

They’re all ratios and they make up a perfect breakdown, but what you can catch is that one of the ratios will change before all of them change. Typically you only have a short time to act, but there is a potential for forex arbitrage trading.

This may seem difficult and that is because it is. It requires a lot of attention on your part and you don’t have much time to act - but when you do, you have a low risk profit. I have to say that this is what all traders want.

It’s time to get in on the difference between the US dollar and Canadian dollar. The Canadian dollar was trading at parity this summer, which is extremely high for the Canadian dollar, but it has been in a free fall.

Here’s a clue; the Canadian dollar is highly linked to oil, since Canada has the 2nd largest oil reserves in the world. That may not mean much for you, but while oil is falling, the Canadian dollar will fall. Conversely, if you see a sharp rise is the price of oil, you’re going to see the Canadian dollar move back up again and it will be a strong move.

But it looks like with the world economies slowing and the price of oil literally crashing, even after OPEC cuts production by 1.5 million barrels a day. There is going to be a considerable growth between US dollars and Canadian dollars. The good news is that it is going to be extremely profitable to those that take advantage of it now.

USD/CAD = 1.27

Just a few years ago, the USD/CAD = 1.43. It could fall as low as that and you have some opportunities to take advantage of that if you want too.

Today we’re going to talk about the support and resistance level.
It is essential to be able to see the support and resistance level
because you can find a pivot point and make a nice short term profit.

A support is a virtual barrier that prevents the price from falling.

A resistances is a virtual barrier that prevents the price from
increasing.

If the price of the currency breaks the support, than the support
price becomes the resistance. The same is true of the resistance is
broken, than the resistance becomes the support. That is a little
confusing, but read it over a few times.

Look at this image to get a visual look.

The best thing you can do is take a look at a candlestick chart and
draw lines from each pivot point for both the support and
resistance. You’ll notice that some lines end up touching more
pivot points than others. The ones that have more touching are the
ones with high competition between buyers and sellers. All that
means is that buyers and sellers are testing the ground out and no
one has won yet.

Here is an image of my lines on a graph.

The highs for the day and the lows for the day are considered the
strong resistance and support levels. You can look at the previous
days levels to get a general idea where it will be today. If things
are calm, everything should remain relatively the same

You can also look at the long term graphs to get a much better idea
if the currency has been increasing or decreasing. With that
information you can slightly adjust your levels.

I’m going to show you how controlling emotional forex trading is important. I think the best way to really control it, is to understand the emotional pressures that you’ll experience while you’re trading forex. When you can identify it, you can logically bypass the emotion. It may not be easy, but it’s something that you can work on.

The most obvious emotional state you can have is the worried or the optimist. Worried is pretty obvious. You put your money into the market and you’re having an anxiety attack every time it makes a move. The problem here is that you’re more likely to cut and run before you ever give the trade a chance. The optimist is the over confident one. They see the trade going down, but they assume it’ll all play out for the best. That’s fine when you first make the trade, but there’s a point where you just need to cut your losses.

I’ve bet you’ve had some very convincing gut feelings about certain trades that you are sure will be profitable. Gut feelings are an emotional response to our instinct as human beings. They’re designed to help us survive, but when you’re trading forex it is sort of an inappropriate type of thing to listen to. When you’re feeling that gut feeling, you always think about the positive outcomes of following past gut feelings. The problem is that you never really think of all the times it goes wrong. Never make a decision on a gut feeling. Always crunch the numbers and do an analysis. Make the move on those numbers. It’s fine to investigate gut feelings, but never go on them alone.

Well, we’re in pretty rought times and it is something that we haven’t seen in a good 25 years. Wall Street isn’t working, so that creates a forex roller coaster for us traders. All this problem in the credit and financial market was bound to spill into the forex market because we are talking about money and the amount available in the economy.

The proof that there is volatility can be easily shown by the trends between the EUR/USD. If you go back a number of years, you’ll notice that the variation of price was roughly a penny in a day. In the last few years it has been actually declining, on average, to less than a penny. Sometimes to a 0.60 in change between highs and lows. But if you look at September we see a change of 1.67. That’s a huge change compared to what it was just last year.

Even though the market is volatile and in a roller coaster, there does come opportunity because people are afraid to enter the market. There is much more risk, but you should notice much wider spreads and be able to predict some nice positive runs in the future by some simple indicator.

There is risk in this market and there is opportunity. Things are definitely volatile, but there is definitely room for profit on this forex roller coaster.

The economy is probably the most volatile it has been in most of our lives. It’s actually quite groundbreaking. I turn on CNBC and I see the markets continue to tumble day after day. The bailout bill has been passed that was supposed to give the market a little hope, but it hasn’t done anything. The only real good news is that oil has gone down. It even looks like it might fall below $80 a barrel today.

Forex traders are a bit scared. They’re not scared because there aren’t profit opportunities because I mentioned in my previous post that this is a recession free market. The fear isn’t of everything going down the tubes, the fear is of the volatility in the market.

Volatility is probably about the biggest killer of wealth during any sort of tough economic situations.  It’s not that things are actually bad. Trades don’t really represent what should actually be happening. People are dumping trades and not exactly buying because they’re afraid that the volatility might get them.

That’s the problem, people don’t really believe the forex markets are bad, it’s just that you don’t know which side your trade is going to come out for you and that is extremely risky.