FX Island

To become a successful trader, you have to stay rational and emotionally detached. Many novice traders ride an emotional rollercoaster, feeling on top of the world after a win, but down in the dumps after a loss.

In contrast, most professional traders stay calm and relaxed even after a series of losses. They don’t let the natural ups and downs of trading affect them emotionally.

As a winning trader you’ll want to do the same – stay composed and as unemotional as possible. We know it can get tough. Even the seasoned trader will lose composure and let emotion take charge. It’s a natural thing – many novice traders would start doubting their methods and decisions.

One the other side of the coin, when things are going well, it’s normal to feel excited or like a supreme being. Nothing can stop me now, I’m invincible! It’s this overconfidence that can certainly lead to problems. Any time things start to go your way, you feel safe, and you think there’s a little more room for unnecessary risk. Your euphoric state clouds your judegement and you figure that things can only get better. When times are golden, it’s very easy to forget about your plan or process.

This emotional roller coaster most often finds a home with the novice trader.

A novice trader is more likely to risk too much capital during a single trade and risk management goes out the door. If that “big risk” turns successful, blissfulness follows the victory. But with a disastrous loss on that “big risk,” the joy transforms into a feeling of utter failure.

The key to curbing, or at least minimizing, your losses is through proper risk management. Smaller loses are definitely easier to stomach than those monster losers.

Remember that trading is not like online poker or gambling – it’s a business. And as the person making the decisions, you don’t want to run the business on pure emotion. You want to be objective in your decision making. This objectivity will make it easier to examine and consider new trading opportunities as they become available.

So, at the heart of the issue, what can you do to control your emotions? For one, understand that you’ll win some and you’ll lose some. At times you’ll be profitable in your trading, and at other times you won’t be. Coming to grasps with this simple fact will definitely help. Second, trade with enough money to allow for a buffer when those losing trades come. Be ready to handle the losses, because they WILL come! That’s just how the market works. Third, try not to have a house party after every win. Higher highs are great, but a stretch of losers following your wins will put you into those lower lows. And they’re no fun at all.

Emotional stability, matched with proper risk management, is the name of the game. Trading can cause you to become emotional and lose control (and money), but the most successful traders can minimize those peaks and valleys, resulting in a calm and rational trading mind. That kind of mind ultimately leads to increased odds of financial success. Be cool…

Source: Babypips

The US dollar fell to yet another record low against the Euro on Friday as traders remain overwhelmingly bearish on the greenback. However, the markets have remained bullish on nearly everything else, including commodities. In fact, oil continued to trade near record highs above $90/bbl on Friday amidst escalating tensions between the US and Iran as well as Turkish warnings of a broader assault on Kurdish militants in Iraq. The US dollar will find little support given the sharp rally in oil, and economic data isn’t helping the case either. The University of Michigan Consumer Confidence survey exacerbated fears of a consumer-led recession in the US, as the October reading was unexpectedly revised down to 80.9 – the lowest since June 2006. Stock market tumbles undoubtedly played a hand in the deterioration in sentiment, and further market routs will only leave consumers more pessimistic. Will the dollar’s woes ever end? Within the next few days: probably not. Indeed, the currency faces major event risk this coming week from the FOMC rate decision, the release of Q3 GDP, and non-farm payrolls. The central bank decision and GDP reading hit the wires on the same day, and the former will garner much of the attention. Fed fund futures now price in a 92 percent chance of a 25bp cut on October 31st to 4.50 percent, but there is speculation that Bernanke & Co. could surprise the markets. Will they slash the benchmark rate by 50bp like they did in September as economic conditions worsen, or will they show the DJIA and the S&P tough love by leaving policy unchanged? And what about oil? Given current geopolitical tensions and undeniably strong demand for the commodity, there is much talk about oil jumping to the psychologically important $100/bbl level. Volatility is soaring, and while the greenback is likely to remain weak and oil strong in coming days, all of this wild price action creates the potential for steep corrections market wide.

Euro: Can It Sustain These Record Highs If The ECB Doesn’t Hike?
The Euro hit yet another record high of 1.4392 against the greenback today, and it may simply be a matter of time before the currency jumps above the 1.4400 barrier. The currency’s gains came despite the weaker-than-expected GfK consumer sentiment survey, which dropped to a seven month low of 4.9. After the IFO business confidence report for the same period fell to a 20-month low, the decline in consumer confidence is not very surprising, especially as energy and food prices have soared and left Europeans with less retained income for discretionary spending. In fact, the willingness to spend component of the report dropped to -12.9, its lowest reading since December of 2005, which could very well mark a turn in the consumer sector’s contribution to growth. There is little doubt that the European Central Bank will take note of the downside risks to growth that diminishing consumer and investor optimism present. As a result, the ECB is unlikely to raise interest rates before year end – barring a major increase in inflation figures – which provides far less fundamental support for the Euro at current levels.

Commodity Dollars Still Hot On Rallies In Gold, Oil
The Australian dollar, New Zealand dollar, and Canadian dollar all gained on Friday as spot gold prices pushed to multi-year highs while oil held near record levels. The sole piece of economic data came from Canada, as the business conditions survey showed that sentiment regarding orders in Q4 fell negative, suggesting that manufacturers are getting nervous that the Canadian dollar’s move to parity with the US dollar in September will be to the detriment of exports. Since then things have only gotten worse as USDCAD has pushed down to fresh 33-year lows of 0.9589. However, domestic demand in the country remains solid, and with labor markets tightening more and more every month, consumers may be able to pick up some of the slack in economy. In New Zealand, on the other hand, consumption is anticipated to have eased back in September. On Sunday, the New Zealand trade deficit is expected to narrow on the back of softer imports and a gain in exports, as the RBNZ’s aggressive tightening cycle cuts into household spending while the relative easing in the Kiwi reinvigorates demand for the country’s goods.

Bank of England’s Dour Outlook Weighs on the British Pound
On Thursday, the Bank of England issued a gloomy outlook for the UK’s financial markets, noting that the credit, equity, and commercial property markets remain “vulnerable to further adjustments.” The BOE pointed the finger at a sharp slowdown in the US economy and rising credit defaults that “could trigger a further round of asset price falls.” While this analysis does not necessarily suggest that the central bank will be aiming to cut rates in the near-term, it does effectively eliminate much of the probabilities of a rate hike. Indeed, BOE Governor Mervyn King is a staunch hawk and extremely hesitant to enact policies that create the potential for moral hazard to come into play – though one could argue that the BOE’s bailout and guarantee of funds at Northern Rock just a few weeks ago was the epitome of just this. Nevertheless, until UK data starts to reflect a more pronounced economic slowdown and easing in price pressures, interest rates in the UK will likely hold at 5.75 percent until at least Q1 2008. 

Written by Terri Belkas, Currency Analyst

Source: DailyFX

1. Forex is the world’s largest market. With a $2 Trillion a day volume, forex market participants includes banks, corporations and individuals like yourself, trading from around the world.

2. The Forex market is open 24 hours a day, 5.5 days a week. Because of the decentralized clearing of trades and overlap of major markets in Asia, London and the United States, the market remains open and liquid throughout the day and overnight.

3. Forex Trading is Commission-Free with 60 currency pairs to choose from.

4. One consistent margin rate 24 hours a day allows Forex traders to leverage their capital more efficiently with as high as 100-to-1 leverage.

5. Currency traders can make money when markets are rising or falling. There is never a “bear” market in Forex trading.

6. Small start up capital requirements – the minimum deposit for the opening of a trading account is only $2500.

7. Diversify your portfolio – smoother overall portfolio returns makes forex trading a very attractive alternative to stocks. The factors that drive other asset classes are very different from those that drive the forex market.

8. Trader’s identities and trading activities are completely anonymous.

9. You can trade from any location in the world – with currency trading , financial independence is within your reach . Trade from the comfort of your own home or office.

10. 100-to-1 leverage reduces the need for large amounts of capital.

Source: Buying Currency

This section is one of the most important sections you will ever read about trading.

Why is it important? Well, we are in the business of making money, and in order to make money we have to learn how to manage it. Ironically, this is one of the most overlooked areas in trading. Many traders are just anxious to get right into trading with no regards to their total account size. They simply determine how much they can stomach to lose in a single trade and hit the “trade” button. There’s a term for this type of investing….it’s called GAMBLING!

When you trade without money management rules, you are in fact gambling. You are not looking at the long term return on your investment. Instead you are only looking for that “jackpot”. Money ma nagement rules will not only protect us, but they will make us very profitable in the long run. If you don’t believe me, and you think that “gambling” is the way to get rich, then consider this example:

People go to Las Vegas all the time to gamble their money in hopes to win a big jackpot, and in fact, many people do win. So how in the world, are casino’s still making money if many individuals are winning jackpots? The answer is that while even though people win jackpots, in the long run, casino’s are still profitable because they rake in more money from the people that don’t win. That is where the term “the house always wins” comes from.

The truth is that casinos are just very rich statisticians. They know that in the long run, they will be the ones making the money—not the gamblers. Even if Joe Schmoe wins $100,000 jackpot in a slot machine, the casinos know that there will be 100 more gamblers who WON’T win that jackpot and the money will go right back in their pockets.

This is a classic example of how statisticians make money over gamblers. Even though both lose money, the statistician, or casino in this case, knows how to control their losses. Essentially, this is how money management works.If you learn how to control your losses, you will have a chance at being profitable.

You want to be the rich statistician…NOT the gambler because in the long run, you want to “always be the winner.”

So how do you become this rich statistician instead of a loser?

Source: Babypips.com

It has been a record breaking past few months in the currency markets.  While the EURUSD, the most actively traded pair in the world, made headlines when it surpassed its all time high late September; the story was quickly overshadowed by the Canadian dollar which reached parity with the US dollar.  Six months ago, parity still seemed to be a far fetched idea for loonie traders and now, the Canadian dollar is actually stronger than the US dollar.  Could the same thing happen to the Australian dollar?  Why not?  The currency pair is closer to parity now than the Canadian dollar was five months ago.  Although it is possible for the Australian dollar to be even with the US dollar, the better question to ask is whether it is probable. 

The Australian dollar has already made its mark by rallying over 15 percent in the past eight weeks to a 23-year high against the US dollar.  Clear similarities between the Australian and Canadian dollar’s advance could raise expectations that one Australian dollar could soon equal one US dollar. Like Canada, Australia’s economy is rich in natural resources; enjoys a strong economy supported by domestic spending; and has a central bank that is leaning closer towards further hikes than any sort of policy easing.

Read full article here.

Source: DailyFx

Trading is not your everyday business. It is in actual fact,  a rather demanding affair. This is a game that only the most skilled traders can play to make a living as an active trader. Do you have what it takes?

The first step towards this goal is to approach trading in a serious and dedicated manner. You must persevere to hone your skills in order to move to the top of the field.

Like most professionals (doctors, lawyers, accountants etc.), the professional trader has rare and valuable skills which puts them among the elite of their choosen field. In order the climb the ladder of success, be prepared to spend extra hours  developing your skills. This will also mean limiting your social life among other things, but hey, success doesn’t come without sacrifices.

It’s a choice you’ll have to make. For example, take a look at student interns. They work hard and long hours with virtually no pay, just so they can learn as much as they can. They sacrifice their social life to pursue knowledge which can one day bring them success.

Are you up to the challenge? Are you willing to make the necessary sacrifices? Do you have what it takes?

Article inspired by: Pipsychology