CUT LOSSES

The single most important characteristic found within successful Forex traders is the ability to exit losing positions quickly. Losing trades are inevitable for high volume traders. Many novice traders are unwilling to recognize and accept when a position goes against them. Seasoned traders have learned to cut their losses on an adverse trade quickly. A reduced loss is no less valuable than a gain from a winning position. However, human psychology skews our perspective making a loss infinitely more painful than a gain is pleasurable. Overcoming this inherent human flaw is the first critical step towards becoming a Forex pro.

MONEY MANAGEMENT

Professional Forex traders employ detailed and strict money management regimens. Novice traders often get overly excited at the prospects of a given trade and plow into it full force. This behavior almost always translates to account blow-ups and Forex losers. Forex winners learn quickly that there isn’t any trade, no matter how attractive, that is worth risking more than 4% of your account balance. Those just starting out are advised to limit the risk associated with any single trade to 2% of the account balance. Forex professionals manage their risk assiduously.

KISS

Follow the famous advice of McDonald’s found Ray Kroc who said to “keep it simple, stupid!”. Many Forex traders fall victim to information overload, especially with many of the trading “command centers” available today which can display hundreds of data points. A Forex pro becomes a specialist in trading given pairs or spotting a specific group of indicators. By keeping it simple, you are able to become an expert in your Forex niche able to outwit other traders who do not possess your level of experience and knowledge within it.

PRACTICE MAKES PERFECT

The best Forex traders rigorously test their trading strategies before putting real money at risk. Myriad simulation programs exist, and most Forex brokerages provide for a “testing mode”. Overly anxious traders jump right in and often take losses while refining their strategy. A Forex pro fully tweaks the strategy in practice mode avoiding these initial losses thus positively impacting their net ROI.

KEEP YOUR COOL

Emotions are the enemy of all traders. Fear can often prevent a trader from executing upon a correct thesis at the right time. Greed can lead a trader to deviate from their money management rules in pursuit of the proverbial grand slam. Frustration can cause traders to chase losses and engage in the mortal sin of averaging down on losers. Impatience can cause traders to take positions before their strategy would otherwise dictate. All of these emotions prove detrimental to professional level Forex trading. Pro Forex traders execute their strategies remaining cool, calm and collected despite the often chaotic nature of the Forex market.

USE STOP LOSSES

A stop loss order is one which you define an amount of acceptable loss on a given trade. Pro traders religiously use stops and do not rely upon manual executions when it comes to limiting loss. Without a stop loss already in place, novice traders often allow the trade to keep going against them in the misguided hope it will soon turn thus preventing a loss. A stop loss works hand in hand with the rule dictating that traders seek to cut their losses on their bad trades. A stop loss is an effective tool which can be used towards enforcing discipline in this arena.

SET UP A POSITIVE RISK/REWARD EQUATION

Forex professionals ensure that each trade entails a positive expectation. The likelihood of success and potential pay-off must outweigh the odds of failure and the commensurate amount of loss. Shrewd Forex traders do not engage in coin flips. They seek trades where their research and strategy indicates that they have an edge. If you are able to maximize reward while minimizing risk, then mathematics dictate that you will profit nicely over the course of time.

LEVERAGE: YOUR BEST FRIEND OR WORST ENEMY

Many are drawn to the Forex market due to the extreme leverage that can be deployed within it. When the trade goes your way, leverage can produce obscene profits from only a small investment. Conversely, if a trade using 400:1 leverage goes against you, then it can wipe out your account in the blink of an eye. New traders should use leverage with extreme caution. Using leverage sparingly in order to juice your ROI is the sign of a pro Forex trader.

STUDY YOUR LOSSES

A normal human reaction to a loss is to try to forget it and put it behind you. However, pro Forex traders study their losses in order to derive lessons which can prevent the same scenario happening again. Oftentimes, analysis of your losing trades can help you glean critical information used to further tweak your trading strategy. Losses obviously aren’t fun, however, the ability to learn from them is the sign of a pro trader.

TIPS ARE FOR HORSE RACES

Novice Forex traders scour message boards and other chat forums seeking “tips” from random posters telling them which currency to buy or sell. It is a truism for both stocks and Forex that if anyone truly had any information of value, then they would not be sharing it for free in the Internet. This is even more salient in the realm of Forex where “inside information” regarding the movement of major currencies is a complete myth. Many forums can yield valuable information about strategies, indicators and money management techniques. However, view any outright trade advice posted on them with a huge grain of salt.

In the coming weeks we will further explore differing forex strategies, software, and brokers.

The Yen’s break of 89.44 suggests continued downside momentum during the duration of the week.  Yen traders are closely watching whether the crucial support at 88 will be breached.

The US Dollar began the session trading down on continued weakness after last week’s poor non farm payroll report.  The continued strength of gold prices portend to a further weakening US Dollar encouraging Forex traders to pile on with bearish bets.

The British Pound showed the most modest gains against the US Dollar as a result of rumors concerning possible loss of BOE’s AAA status.  Forex traders are keeping a close eye on future quantitative easing.

Remainder of Week

Thursday

5:00 AM   EMU – :Report on Industrial Production

7:00 AM   United States MBA Purchase Applications

8:30 AM   US:Report on Jobless Claims

11:00 AM  United States: Petroleum Status Report

Friday

2:00 AM   German Gross Domestic Product Flash Report

2:45 AM   French Consumer Price Index

2:45 AM   French GDP Flash Report

5:00 AM   Italian Gross Domestic Product Report

Going into the rest of the week many Forex traders are keeping a close eye on the USD/Swiss Franc swap.  Todays chart shows action coming exceedingly close to the critical support level at 1.003.  Traders expect accelerated momentum should this swap pierce this threshold which has held for the past 15 months.

Of course, traders will also be focused on the USD as it continues its dramatic decline. Technicians will be affixed to charts watching for critical support level breaks, and fundamentalists will be reading the tea leaves in an attempt to predict future Fed policies.

Monday

Monday started off with a boost to the Euro from a strong October EU Manufacturing PMI. This follows mixed data from the previous week and encourage Forex traders to take more aggressive Euro positions. The salient question remains if the EU Zone can continue to exhibit economic strength while keeping inflation at bay.

The British Pound initially traded down against the USD and Euro, but it recovered after release of the UK PMI figures which indicated expansion within Great Britain’s manufacturing base. Forex trader’s eyes will remain fixed on the BOE gauging whether further stimulus will be deployed.

Tuesday

Tuesday saw the Euro fall off sharply after revelations of further European bank troubles. This brought into doubt a future hawkish position on behalf of the ECB hoped for by many traders.

The Australian Dollar fell sharply on Tuesday even after an interest rate hike by the Australian Central Bank. Forex traders because skeptical of an additional December hike which sparked the sell-off.

Wednesday

The Euro rallied against the US Dollar and other currencies on Wednesday on the back of a positive EU PMI Services report. Forex traders remained bullish on the Euro going into Thursday’s ECB meeting.

The Japanese Yen displayed weakness on Wednesday as a result of the Bank of Japan’s indication that it will remain dovish on interest rates for some time to come. Furthermore, a Japanese short fall in tax revenues was a harbinger of more government issued debt to come.

The British Pound trended slightly higher on Wednesday on the back of increased British consumer confidence. Forex traders on Wednesday were getting into Pound positions ahead of BOE’s Thursday meeting surrounding the future of their asset purchase program.

Thursday

The Euro made slight gains on Thursday as the ECB predicted a pickup in future EU productivity. Forex traders secured positions betting one way or the other pending the US nonfarm payroll report due Friday.

The BOE decided to expand its asset purchase program leading to a small rally in the British Pound.

A sell off in the Asian stock markets caused a flight to safety causing the Japanese Yen to trade higher on Thursday. A fight between the BOJ and the Japanese Government seems to be brewing over future economic policies.

Friday

The Euro traded slightly higher on Friday on the back of the much awaited US nonfarm payroll report. The main numbers were disappointing, however any potential Euro rally was muted as investors sought refuge in gold as opposed to Forex assets.

The British Pound did not react to the US employment report and traded mixed in advance of next week’s critical British unemployment report.

The Japanese Yen was the main beneficiary of the weak US jobs report and traded much higher on Friday. Yen traders accumulated positions ahead of next week’s slew of Japanese economic data reports.