Understand This Equation for Success and Win in SigmaForex
3 comments Posted by sara carter at 7:17 PM
Most forex traders lose and the reason they do, is they don't understand the simple equation for forex trading success enclosed in this article.
So learn it as part of your forex trading education and get on the road to currency trading success. Here is the equation and we will discuss its significance in a moment. Robust Logical System + Confidence in = Discipline to Apply = Forex Trading Success Now that's nice and simple - but most traders fail to understand it's significance.
Of course, some traders simply get the wrong forex education, try and apply it and lose - here are some common beliefs of losing traders: - Believing forex day trading or scalping works - Believing prices move to a scientific formula - Trying to predict forex prices in advance - Trusting their money to a forex robot with a simulated, paper track record Believe any of the above and you will lose at forex trading. To win you must understand that having a logical robust forex trading system is not enough, you have to apply it with discipline.
This means you must have confidence in the logic, because you are going to have to apply it with discipline and remember - if you can't apply your forex trading system with discipline, you don't have a system! Most traders hear about the word discipline but have no idea what it means and how important it is and it's a hard trait to acquire. You need to hold your discipline when your trading system is taking loss and after loss (this happens to even the best traders) and keep executing you're trading system with discipline. In a famous experiment, David Carter taught a group of traders who had never traded before to trade and he did it in 14 days.
The trading system taught was basically simple (a long term breakout system) but Carter didn't just tell them to follow it blindly - he taught them to have confidence in the logic, so they would have the discipline to apply it. The result was stunning - these traders made over $100 million dollars in just 4 years and went down as trading legends.
When Carter taught the group, he knew the importance of mindset and sticking with a plan through short term losing periods, to make long term profits and you must to. Discipline is not easy, but if you get the right forex trading education and have the right mindset, you can enjoy forex trading success and you will be doing what over 90% of traders fail to do. The rewards in forex trading are huge and you can generate a great second or life changing income, you must however be prepared to take your losses to get your profits. All successful traders know this and you must to.
In most cases, a pip is equal to .01% of the quote currency, thus, 10,000 pips = 1 unit of currency. In USD, 100 pips = 1 penny, and 10,000 pips = $1. A well known exception is for the Japanese yen (JPY) in which a pip is worth 1% of the yen, because the yen has little value compared to other currencies. Since there are about 120 yen to 1 USD, a pip in USD is close in value to a pip in JPY. (See Currency Quotes; Pips; Bid/Ask Quotes; Cross Currency Quotes for an introduction.) Because the quote currency of a currency pair is the quoted price (hence, the name), the value of the pip is in the quote currency. So, for instance, for EUR/USD, the pip is equal to 0.0001 USD, but for USD/EUR, the pip is equal to 0.0001 Euro. If the conversion rate for Euros to dollars is 1.35, then a Euro pip = 0.000135 dollars.
Converting Profits and Losses in Pips to USD
To calculate your profits and losses in pips to your native currency, you must convert the pip value to your native currency. The following calculations will be shown using USD as an example. When you close a trade, the profit or loss is initially expressed in the pip value of the quoted currency. To determine the total profit or loss, you must multiply the pip difference between the open price and closing price by the number of units of currency traded. This yields the total pip difference between the opening and closing transaction. If the pip value is USD, then the profit or loss is expressed in USD, but if USD is the base currency, then the pip value must be converted to USD, which can be found by dividing the total pip profit or loss by the conversion rate.
Example—Converting Pip Values to USD.
You buy 10,000 Canadian dollars with USD, with conversion rate USD/CAD = 1.100. Subsequently, you sell your Canadian dollars for 1.1200, yielding a profit of 200 pips in Canadian dollars. Because USD is the base currency, you can get the value in USD by dividing the value by the exit price of 1.12. 10,000 CAD x 200 pips = 2,000,000 pips total. Since 2,000,000 pips = 200 Canadian dollars, your profit in USD is 200/1.12 = 178.57 USD.
For a cross pair not involving USD, the pip value must be converted by the rate that was applicable at the time of the closing transaction. To find that rate, you would look at the quote for the USD/pip currency pair, then multiply the pip value by this rate, or if you only have the quote for the pip currency/USD, then you divide by the rate.
Example—Calculating Profits for a Cross Currency Pair
You buy 100,000 units of EUR/JPY = 164.09 and sell when EUR/JPY = 164.10, and USD/JPY = 121.35. Profit in JPY pips = 164.10 – 164.09 = .01 yen = 1 pip (Remember the yen exception: 1 JPY pip = .01 yen.) Total Profit in JPY pips = 1 x 100,000 = 100,000 pips.Total Profit in Yen = 100,000 pips/100 = 1,000 Yen Because you only have the quote for USD/JPY = 121.35, to get profit in USD, you divide by the quote currency’s conversion rate:
Total Profit in USD = 1,000/121.35 = 8.24 USD.
What Is Hedging ?
Basically, hedging involves the buying (or selling) of currency pair(s) in order to protect the hedger against unwanted currency fluctuations. Traditionally, hedging was used to protect the profits of multinational companies from unfavourable currency fluctuations.Hedging is a great way for these companies to protect their profits, but unfortunately many inexperienced Forex traders have incorrectly applied the same principles to their trading activities.Here’s how a Forex trader may try to hedge his position:Imagine that I buy the EUR/USD currency pair, and the market immediately moves against my position (i.e. prices went down). At this moment, I would be facing an unrealized loss. In order to ‘protect’ myself against further losses, I might sell the EUR/JPY currency pair in the hopes that any gain in the latter pair will partially offset the losses of the former pair.Essentially, I’ll be holding on to two simultaneous ‘long’ and ‘short’ positions for the Euro currency. Hedgers hope that the results of both positions will partially cancel each other out.
Why Hedging is A Bad Idea for Retail Traders ?
This method of hedging is a deathtrap waiting to spring. The original purpose of a hedge was to reduce the uncertainty of company profits.To the retail trader, however, this does the exact opposite!Such a hedging strategy simply leaves too many factors open to risk. Although the Euro price fluctuations may be some what muted, the ‘retail hedger’ now has worry about the USD and JPY currencies too! The EUR/USD and EUR/JPY pairs are not highly correlated and may end up causing an even larger total loss in the end.Many people like to hedge because they don’t want to admit that they made a bad trading decision. They try to ‘safely’ hold on to a losing position for as long as possible in this manner, but don’t realize that they’re actually exposing themselves to even greater risks!
Read more in SigmaForex
Forex trading is a relatively new concept in the world of financial investments. High leverage offered, volatility, and 24-hour availability is the reasons why this business is simply too irresistible to ignore.
There are facts that most traders lost money in this market, but there are facts that some won the trades. The question is why?
Actually, the answer is simple. If you want to win in this market, then see it as a hard work. As a work, the market pays you to be discipline, open mind, and willingness to learn. If you want to win in this market then, turn this potential into profit.
The formula is simple,
Simple but Logical Trading System + Discipline = Win
Find your own trading system and be discipline on it.
You have to find your own trading system to follow. Trading system is the way you can accept responsibility and have confidence in what they were doing so. That’s way a trading system in which suitable and make big money for some trader is sometimes not suitable for other traders.
Be Discipline
Many traders change their win into loss. They do have good Forex trading systems that work, but the lack of discipline changed them to be losers. And of course, this is a fatal mistake. Traders have to follow and be discipline with their own Forex trading system no matter when losses occur.
Forex trading involves prediction and no one can forecast the next price future in absolutely right. Trading system is made based on logical and analytical calculations to predict the next currencies price movements. If you don’t have discipline, then you don have the logical and analytical predictions. That means, don’t have trading system.
Win
Once you follow the formula, you’ll be the winner. And keep with your own trading system. Sometimes, you do lose in your Forex trading, but this is OK. There is no trading system perfects and 100% profits. A good Forex trading system is a Forex trading system that will make you cumulatively win. Just follow the system and never turn your wins to losses by violating your trading system.
Trading Timeframes
Long term traders will work from end of day data and look to hold trades for a few weeks up to many months. Usually trend trading.
Advantages
No need to watch the markets intraday.
Fewer transactions means lower commission costs.
Cost of equipment and data is minimal.
Disadvantages
Large equity swings on single positions with large stops.
Usually only 1 or 2 exceptional trades a year so patience is essential.
Bigger capitalization required to ride longer term swings.
Frequent losing months.
Working from intraday data and looking to hold for a day up to a week. Usually swing trading.
Advantages
More opportunities for trades.
Less chance of losing months.
Less reliance on one or two trades a year to make money.
Disadvantages
Transaction costs will be higher.
Intraday data adds to costs.
Overnight risk becomes a factor.
Working from intraday data the day trader will attempt to take small profits from intraday swings. All positions will be exited at the market close.
Advantages
Many trading opportunities in a day.
Much lower chance of losing months.
No overnight risk.
Reduced margin requirements due to no overnight risk.
Disadvantages
Transaction costs will be high.
Psychologically more difficult due to frequency of trading.
Profits are limited by needing to exit at the end of the day.
Data costs are high as real time data is essential
Forex Trading - A Good Way To Learn How To Win
Online Forex trading is very popular now that most people have access to a computer and the internet. Technology advances like the internet and broadband access have spawned this new craze, where anyone with a secure internet connection can prepare him/herself to gain a small amount of training with the hopes of big profits down the road. As a Forex trader your goal will be to attempt to make more profits than losses from the fluctuations of exchange rates between currencies in the Forex market; in short, this is what is called Forex trading
Market Orders
The most common order is the market order, which is to buy or sell at market. Actually, what this means is that you are buying the quote currency at the brokers ask price or you are selling short at the brokers bid price, which is always lower than the ask price. This is how most brokers make their money, and why they do not need to charge commissions. The spread is the difference between the bid and ask prices. In most cases, the most actively traded pairs will have the smallest spreads, and less actively traded currency pairs will have larger spreads. Spreads also increase when there is increased volatility in the market, even for frequently traded currency pairs.
As soon as you buy or sell short, the spread is immediately subtracted from your equity, because if you immediately closed the transaction even before there are any price changes, then you will lose the amount of the spread.
