To Think or not to Think: The Trader’s Dilemma

In 1969, when I made my first futures trade, thinking was fashionable. The 1960’s and 1970’s were good times for thinkers, free thinkers, thought-provoking issues, civil disobedience, and analytical traders. Thinkers thought great thoughts about the future of our nation, about our presence and purpose (if any) in Viet Nam, about domestic and international racial issues, about freedom and equality, about the poor and the homeless. Thinking prompted radical action by various political interest groups. There violent numerous anti-war protests, a variety civil disobedience events, draft card burnings, sit-ins and student protests. The stock and futures markets were studied closely. They were analyzed, scrutinized and theorized. Computer analysis of the markets was a new and promising science.The “Zeitgeist”Against the backdrop of this intellectual Zeitgeist, we were taught that if success was to be attainable to us as futures traders we would need to consider each trade carefully; all potential outcomes were to be critically evaluated in terms of risk and reward. Trading decisions, we were told, which were the result of intensive analysis were likely to be more correct than those which were the product of less intensive scrutiny. In fact, thinking about trades was so much in vogue that traders would frequently seek out numerous sources of information in order to validate each of their trades. There was no such thing as “too much information”. After all, how could there be too much information in the so-called Information Age?Edsel TradingDo you remember the story of the Edsel? In what seemed to be a reasonable approach, Ford Motor designed the Edsel to please the consumer. They did so by attempting to include everything that the buyer wanted to see in a car. The end result was a car that failed miserably. The simple truth is that “too many cooks spoil the pie”. Consider the following questions:* How much information is enough? * How can you decide when you have given a decision enough thought? * Are there any objective measures for knowing when you have thought about something enough, or does the process end when things "feel right"? * Is there a correlation between the amount of thought devoted to a trade and its end result? * Can intensive analysis and thought really lead to success in trading? The questions are totally absurd. What is deep thought to one trader is either a mere pittance to another trader or totally worthless activity to another. There are no set standards, no guarantees, and no insurance policies. There is no firm correlation between the amount of thought and deliberation that gores into a trade and the outcome of that trade. In fact, there IS a correlation then it’s likely an inverse one. Decisions made seemingly off the cuff by some traders are often more successful than decisions made by committees. And, of course, computers have totally revolutionized the decision making process by doing our "thinking" for us. Once the computer has done the hard work there's really nothing left to do but to take the prescribed action. Any hesitation subsequent to the acquisition of knowledge is hesitation bound to lead to confusion, indecision, insecurity, ambivalence, and equivocation - none of which are constructive inputs in the formula for success.Why Bother?The purpose of my commentary here is to make a case for "simpler" and “less intelligent” trading. Once the facts are known and once the computer has decided the best course of action, there's no choice but to act. Failure to do so constitutes a breach of contract between you and the computer, but more importantly between you and yourself. I suggest that the failure to act on your system is the first indication that you have taken a wrong turn, which will eventually lead you down the road to ruin.The only way in which learning can develop is through action. Non-behavior, however, means that there will be no learning regardless of whether the action would have produced positive or negative results.Have you ever noticed the relationship between the success of a trader and his or her ability to take action, right or wrong? Traders who make decisions promptly and without fear most often come out ahead in the long run. Furthermore, it's been my observation that there's an inverse correlation between intellectual ability and market success - the smarter you are (or think you are), the more you'll think, and the less money you'll make. I'm not saying that you have to be stupid in order to trade well. What I am saying, however, is that you can't over analyze a trade or you will either be too late to make it or you'll talk yourself out of it. Traders who can act quickly, evaluating information and reacting to it on a gut level, are often traders who succeed. While I am not advocating irrational or impulsive behavior with your money, I am saying that ONCE THE FACTS ARE IN, THEY'RE IN. It is the fear of being wrong that inhibits action. But if this is the fear which keeps you from making decisions then you had better give up the game - there's no way you can play the game without taking some heat. You never know ahead of time whether your decision will be profitable or not. If you did, then there would be no game. There would be no losers to help sustain the winners.Feelings aren't Facts!Have you observed a relationship between your feelings about a given trade and its eventual success or failure? Consider this: the more a trade scares you, the more likely it is to be successful. The one's you're scared out of are often the one's that work. WHY? The human brain cannot think without being affected by external interference and influences.Any intellectual process designed to making a trading decision is subject to a thousand and one fears before the thought becomes translated into action. To give into those fears is to circumvent the system.Trade -- Don't ThinkConsider the following list of blunders, which are ordinarily, considered the by-product of informed thought.Consider how much money you've lost or failed to make as a result of these "crimes of thinking".* There's too much risk. This is basically an excuse for fear. It's been said that "you don't know how deep a hole is until you stand in it". This applies to the risk of trading as well. If it's the degree of dollar risk that's bothering you then there are many ways in which this problem may be resolved. Risk can be decreased by the use of futures options and/or options strategies. Risk evaluation is an intangible. If intangibles scare you then don't drive a car. If you really think about what could happen to you on an expressway then you'll not want to drive. If you think about the risk of trading then you won't trade.* I don't feel good about this trade- it scares me. Here's a favorite cop out on the list of excuses. Assuming that your signal to trade came from a computer or from a mechanical trading system then your excuse is without merit. Your computer had no idea that you don’t like the trade. Nor does the computer care about your feelings. Following feelings or “the force” may have been good for Luke Sykwalker, but it's totally bogus approach when signals come from a mechanical system or a computer.* The trade looks good but. . . Here's a worthless bit of reasoning. The signal looks good but. . . BUT WHAT? You want to get in cheaper. . . you want to wait for a pullback . . . you want more confirmation. . . you want to wait for a report. . . you want to wait for the next signal. . . . you want to talk to your broker first. . . EXCUSES. . . all poor excuses, which are the bastard child, of what you think is good thinking! You might as well wait to ask your dead grandfather if the trade's good.* Let's see how the market opens before I enter my order. . . let's check it after the first hour of trading. . . let's put in an order below the market...above the market . Here’s an excuse I’ve used hundreds of times. IT’S ALL B.S. I TELL YOU! These are also fatherless children of the crime, which comes from too much thinking. Futures trading is very much a game of stimulus and response. The signal is your stimulus and you must make the proper response.* Perhaps I'll trade a spread or an option instead. This bit of thinking is certainly a more creative one, possibly even an intellectual thought. But it's totally wrong! Entering a spread as an alternative to a flat position is like entering a spread to avoid taking a loss. One action has nothing to do with the other. It's like giving peanut butter to a man dying of thirst.* And last, but by no means less absurd is the "it just doesn't look right" excuse. This one comes from truly deep thought. It comes from an analysis of the economy, trends, possibly even volume and open interest, and of course, from the input of too many traders and advisors. It you want to get totally confused and frozen into inaction think about -all the facts and opinions, evaluate them all, throw them into the hopper and decide that you can't decide because something doesn't seem right. Here's the real thinking traders excuse. And it's another totally worthless one. I’m Far From PerfectDon't think for even one second that I’m preaching to you from a position of perfection. I've made more than my share of mistakes. And I'll continue to make mistakes as long as I live. My hope, however, is that I'll make fewer mistakes and less serious one's. And that's my hope for you as well. Try a little experiment. Make a commitment to take the next ten trades without thinking about them. After you've done so evaluate your results. See how you've done. See how you feel. Here's what I think you'll find: you've spent less valuable time on meaningless thought; you've made the trades you were supposed to make; you’ll feel better about yourself-more confident and more secure; and you've probably made money as well.Best of tradingJake (Jacob) Bernstein is President of MBH Commodity Advisors Inc. and Bernstein Investments Inc. Born in Europe in 1946, Bernstein moved to Canada and then to the United States.He is publisher of Bernstein on Stocks, The Letter of Long Term Trends, Short Term Stock Trader's Hotline, MBH Weekly Commodity Trading Letter, Monthly Key Date Trader, and Short Term T-Bond Hotline. His newsletters and advisory services are read internationally by traders, investors, brokers, financial institutions and money managers.

His Internet presence includes: Jake Bernstein on Futures (http://www.trade-futures.com) and his stock market advisory 2Chimps.com (http://www.2chimps.com), www.Seasonaltrader.com, and www.Patterns4Profit.com.

Forex Money Management

by Boris Schlossberg

Put two rookie traders in front of the screen, provide them with your best high-probability set-up, and for good measure, have each one take the opposite side of the trade. More than likely, both will wind up losing money. However, if you take two pros and have them trade in the opposite direction of each other, quite frequently both traders will wind up making money - despite the seeming contradiction of the premise. What's the difference? What is the most important factor separating the seasoned traders from the amateurs? The answer is money management.

Like dieting and working out, money management is something that most traders pay lip service to, but few practice in real life. The reason is simple: just like eating healthy and staying fit, money management can seem like a burdensome, unpleasant activity. It forces traders to constantly monitor their positions and to take necessary losses, and few people like to do that. However, as Figure 1 proves, loss-taking is crucial to long-term trading success.

Figure 1 - This table shows just how difficult it is to recover from a debilitating loss.

Note that a trader would have to earn 100% on his or her capital - a feat accomplished by less than 1% of traders worldwide - just to break even on an account with a 50% loss. At 75% drawdown, the trader must quadruple his or her account just to bring it back to its original equity - truly a Herculean task!

The Big One

Although most traders are familiar with the figures above, they are inevitably ignored. Trading books are littered with stories of traders losing one, two, even five years' worth of profits in a single trade gone terribly wrong. Typically, the runaway loss is a result of sloppy money management, with no hard stops and lots of average downs into the longs and average ups into the shorts. Above all, the runaway loss is due simply to a loss of discipline.

Most traders begin their trading career, whether consciously or subconsciously, visualizing "The Big One" - the one trade that will make them millions and allow them to retire young and live carefree for the rest of their lives. In FX, this fantasy is further reinforced by the folklore of the markets. Who can forget the time that George Soros "broke the Bank of England" by shorting the pound and walked away with a cool $1-billion profit in a single day? But the cold hard truth for most retail traders is that, instead of experiencing the "Big Win", most traders fall victim to just one "Big Loss" that can knock them out of the game forever.

Learning Tough Lessons

Traders can avoid this fate by controlling their risks through stop losses. In Jack Schwager's famous book "Market Wizards" (1989), day trader and trend follower Larry Hite offers this practical advice: "Never risk more than 1% of total equity on any trade. By only risking 1%, I am indifferent to any individual trade." This is a very good approach. A trader can be wrong 20 times in a row and still have 80% of his or her equity left.

The reality is that very few traders have the discipline to practice this method consistently. Not unlike a child who learns not to touch a hot stove only after being burned once or twice, most traders can only absorb the lessons of risk discipline through the harsh experience of monetary loss. This is the most important reason why traders should use only their speculative capital when first entering the forex market. When novices ask how much money they should begin trading with, one seasoned trader says: "Choose a number that will not materially impact your life if you were to lose it completely. Now subdivide that number by five because your first few attempts at trading will most likely end up in blow out." This too is very sage advice, and it is well worth following for anyone considering trading FX.

Money Management Styles

Generally speaking, there are two ways to practice successful money management. A trader can take many frequent small stops and try to harvest profits from the few large winning trades, or a trader can choose to go for many small squirrel-like gains and take infrequent but large stops in the hope the many small profits will outweigh the few large losses. The first method generates many minor instances of psychological pain, but it produces a few major moments of ecstasy. On the other hand, the second strategy offers many minor instances of joy, but at the expense of experiencing a few very nasty psychological hits. With this wide-stop approach, it is not unusual to lose a week or even a month's worth of profits in one or two trades. (For further reading, see Introduction To Types Of Trading: Swing Trades.)

To a large extent, the method you choose depends on your personality; it is part of the process of discovery for each trader. One of the great benefits of the FX market is that it can accommodate both styles equally, without any additional cost to the retail trader. Since FX is a spread-based market, the cost of each transaction is the same, regardless of the size of any given trader's position.

For example, in EUR/USD, most traders would encounter a 3 pip spread equal to the cost of 3/100th of 1% of the underlying position. This cost will be uniform, in percentage terms, whether the trader wants to deal in 100-unit lots or one million-unit lots of the currency. For example, if the trader wanted to use 10,000-unit lots, the spread would amount to $3, but for the same trade using only 100-unit lots, the spread would be a mere $0.03. Contrast that with the stock market where, for example, a commission on 100 shares or 1,000 shares of a $20 stock may be fixed at $40, making the effective cost of transaction 2% in the case of 100 shares, but only 0.2% in the case of 1,000 shares. This type of variability makes it very hard for smaller traders in the equity market to scale into positions, as commissions heavily skew costs against them. However, FX traders have the benefit of uniform pricing and can practice any style of money management they choose without concern about variable transaction costs.

Four Types of Stops

Once you are ready to trade with a serious approach to money management and the proper amount of capital is allocated to your account, there are four types of stops you may consider.

1. Equity Stop

This is the simplest of all stops. The trader risks only a predetermined amount of his or her account on a single trade. A common metric is to risk 2% of the account on any given trade. On a hypothetical $10,000 trading account, a trader could risk $200, or about 200 points, on one mini lot (10,000 units) of EUR/USD, or only 20 points on a standard 100,000-unit lot. Aggressive traders may consider using 5% equity stops, but note that this amount is generally considered to be the upper limit of prudent money management because 10 consecutive wrong trades would draw down the account by 50%.

One strong criticism of the equity stop is that it places an arbitrary exit point on a trader's position. The trade is liquidated not as a result of a logical response to the price action of the marketplace, but rather to satisfy the trader's internal risk controls.

2. Chart Stop

Technical analysis can generate thousands of possible stops, driven by the price action of the charts or by various technical indicator signals. Technically oriented traders like to combine these exit points with standard equity stop rules to formulate charts stops. A classic example of a chart stop is the swing high/low point. In Figure 2 a trader with our hypothetical $10,000 account using the chart stop could sell one mini lot risking 150 points, or about 1.5% of the account.

3. Volatility Stop

A more sophisticated version of the chart stop uses volatility instead of price action to set risk parameters. The idea is that in a high volatility environment, when prices traverse wide ranges, the trader needs to adapt to the present conditions and allow the position more room for risk to avoid being stopped out by intra-market noise. The opposite holds true for a low volatility environment, in which risk parameters would need to be compressed.

One easy way to measure volatility is through the use of Bollinger bands, which employ standard deviation to measure variance in price. Figures 3 and 4 show a high volatility and a low volatility stop with Bollinger bands. In Figure 3 the volatility stop also allows the trader to use a scale-in approach to achieve a better "blended" price and a faster breakeven point. Note that the total risk exposure of the position should not exceed 2% of the account; therefore, it is critical that the trader use smaller lots to properly size his or her cumulative risk in the trade.

4. Margin Stop

This is perhaps the most unorthodox of all money management strategies, but it can be an effective method in FX, if used judiciously. Unlike exchange-based markets, FX markets operate 24 hours a day. Therefore, FX dealers can liquidate their customer positions almost as soon as they trigger a margin call. For this reason, FX customers are rarely in danger of generating a negative balance in their account, since computers automatically close out all positions.

This money management strategy requires the trader to subdivide his or her capital into 10 equal parts. In our original $10,000 example, the trader would open the account with an FX dealer but only wire $1,000 instead of $10,000, leaving the other $9,000 in his or her bank account. Most FX dealers offer 100:1 leverage, so a $1,000 deposit would allow the trader to control one standard 100,000-unit lot. However, even a 1 point move against the trader would trigger a margin call (since $1,000 is the minimum that the dealer requires). So, depending on the trader's risk tolerance, he or she may choose to trade a 50,000-unit lot position, which allows him or her room for almost 100 points (on a 50,000 lot the dealer requires $500 margin, so $1,000 – 100-point loss* 50,000 lot = $500). Regardless of how much leverage the trader assumed, this controlled parsing of his or her speculative capital would prevent the trader from blowing up his or her account in just one trade and would allow him or her to take many swings at a potentially profitable set-up without the worry or care of setting manual stops. For those traders who like to practice the "have a bunch, bet a bunch" style, this approach may be quite interesting.

Conclusion

As you can see, money management in FX is as flexible and as varied as the market itself. The only universal rule is that all traders in this market must practice some form of it in order to succeed.

By Boris Schlossberg, Senior Currency Strategist, FXCM

Ten New Trader Pitfalls

So you want to trade, eh? Or have you already started? What drew you to it? Was it the huge profit potential? Maybe it was the excitement. Or perhaps you're like me and love the challenge of solving a big, multi-dimensional puzzle. Whatever the case, there's certainly a number of things that make trading the financial markets worthwhile. At the same time, however, there are some huge obstacles along the path to profits and success. In this article I will give you five ways to avoid trouble in the markets. They will help protect your capital and increase your chances of success. Ready? Let's jump right in!
#1 Avoid Errors in Order Entry!
The quickest way to lose money in the markets is to make mistakes when you place your orders. Fortunately, this is something very easy to fix. PAY ATTENTION! It's as simple as that. Every trade entry system you could use has some kind of order confirmation mechanism. Take the extra two seconds and check to make sure everything is correct. I can assure you this will save you money, not to mention a little stress and high blood pressure.
#2 Use Only Risk Capital!
New traders often get so caught up in the excitement and anticipation of trading that they let common sense go on holiday and trade with money they have no business putting at risk. Any money you put in to the markets must be risk capital, money you can afford to lose and not impact your basic financial situation. It's hard enough to be successful as a fledgling trader. You do not want the added pressure of having to make money and/or not being able to afford losing it.
#3 Start With Enough Capital!
It takes money to make money. You've heard that often enough. Accounts that are too small can be a major hindrance to trading success. They suffer from transactions costs that are proportionally higher than is the case for larger accounts, which hinders returns. They also restrict the number of positions you can have at one time, which means you cannot always take good trades that come along and you may not be able to diversify as you should.
#4 Trade Small!
When in doubt, put less money at risk. There is no more swift way to lose huge chunks of money than to trade too big. Your trading size should be determined by your account size based on the risk being taken. If you are risking an amount of your account that potentially puts your long-term ability to keep trading in question, your position is too big. If this means you cannot trade certain instruments, find something else.
#5 Avoid Trading Too Often!
Trading can be fun, exciting, and profitable. It is also an intermittent reward system, like gambling. That means it's easy to get hooked and in a dangerous cycle. The feeling you have after a winning trade will make you want to do it again. This can lead to sloppy trading. I personally try not not to make any additional trades the same day as I close out a position when trading short-term. That helps me get some time and space to ensure I am making good decisions based on my system, not my emotions. Do whatever you must to ensure you always trade in control.
#6 Have a System!
You will not be a successful trader if you do not have a system. They come in all different shapes and styles, but there are a couple of common elements. A system has both entry and exit determinants. A system can also be described. If you cannot verbalize your system, it's not a system. If you don't have rules for both entry and exit, it is not a system.
#7 Take the Time to Learn!
Many, many dollars can be saved by new traders if they take the time to learn and practice. There are so many resources so readily available today that there is no excuse for not entering the markets prepared to do battle. Demo accounts can be found for all major markets. That means you can practice your order execution, and you can paper/demo trade your system to confirm its viability before putting a single dollar at risk. To do otherwise is foolish.
#8 Trade in the Right Time Frame!
You have a life beyond trading. May be you have a job or go to school. You have family and social commitments. All of these things combine to determine the timeframe you can use. It does not make sense, for example, to try day trading when you cannot not monitor the markets almost continuously. In my own trading, there are times when I can day trade or swing trade (1-3 day position durations), but there are others when I know I won't be able to dedicate as much time to the markets and therefore have to take longer-term positions. You must find a trading time frame that fits your lifestyle.
#9 Trade the Right Market(s)!
What often happens with new traders is that they get in to trading because of some experience they had which introduced them to the thrill of the game. That experience probably also got them in to a certain specific market, like stocks or foreign exchange. An emotional attachment is established. Needless to say, this isn't the best way to pick the market you should be trading. The various markets have different trading profiles. Some are more volatile than others. Some are good for trading intraday, while others are better for longer-term action. The process of deciding to begin trading should include a hard look at what market(s) you should trade based on your account size, trading time frame, personal knowledge and interests, and risk tolerance.
#10 Understand the Risks!
Every market has different risk factors. In fact, each trade has its own distinct risk profile. You need to be aware of what they are. You may have a general awareness that the market may not go the way you thought. That is certainly true, and that is why stop loss orders are advocated. It is how the market can go against you, though, that is important. In the major markets, things like economic releases, earnings reports, and statements by government officials can influence prices. Some cannot be avoided, like a natural disaster, but others can be by simply being aware of the calendar and taking measures to guard against an adverse data release or speech by someone like the Fed Chairman.
As a new trader, you will make mistakes. If you take the advice of this article you can avoid some of the bigger potential pitfalls. That could both save your money in avoidable losses, and potentially lead to more profits.

by John Forman
Email: author@theessentialsoftrading.com
Web: http://www.andurilonline.com

Guide To Forex Trading.

When one talks about exchange rate, this simply refers to how much a certain currency is worth in relation to another currency. For example, you are planning to go on vacation to Singapore and you live in the United States. You need to have your US dollars exchanged to Singaporean dollars so that you have money to spend during your journey. Thus, you need to determine the exchange rate in order to determine that what you have will be enough to sustain your trip to that country.

You should keep in mind, though that every day, the currency equivalent may change depending on the demand. This is due to the fact that the different currencies in circulation are being traded in the Foreign Exchange Market (Forex). This Market functions the same way as the stock trading markets, except that in this case, currencies and not stocks are being sold and bought by the traders. As an international market, the Forex operates round the clock, from Sunday afternoon up to Friday afternoon, 24 hours a day.

Foreign exchange(Forex) trading can be quite lucrative, if you know how to play the game. Even if you do not have sufficient capital to make huge transactions but are a risk taker, you might want to try marginal trading, which refers to trading utilizing borrowed resources. Marginal trading is when you are able to buy a certain currency at a lower exchange rate and when the rate increases, you cash in and sell what you have previously bought. It can be quite risky though since there is the probability that the exchange rate will go lower than your buying level. However, if you have the knack for feeling the market and the movements of currencies, you can capitalize on this ability to make money for yourself.

For a better understanding of the foreign exchange(Forex) trading, you might want to resort to fundamental as well as technical analysis of the market, which most investors generally utilize as tools in making their investments. Fundamental analysis refers to the study of the currency in relation to its country of origin. The political and economic situations of the country are taken into consideration as a way of evaluating the future performance of the currency in question. Factors such as the prevailing banking interest rates, inflation rates, employment as well as unemployment levels, purchasing power and other pertinent data are being studied by fundamental analysts as to predict if the currency will perform stronger or weaker in the near, medium and long-term.

Technical analysis is the study of the performance of the currency based on the opening, highest, lowest and closing prices of a certain currency together with the volume of transactions on a daily basis. The application of this technique is deemed useful as analyst and investors believe that there are patterns or trends in each and every movement of a currency. Hence, it is possible to predict to a specific degree that the currency will move up or down the next day or the following week or months.

Generally, most players in the foreign exchange(Forex) market would normally look at types of analysis for a better leverage in their investments while others may favor one over the other. Whatever analysis you choose is really up to you.

Article Source: Forex Trading Guide
By: Michael Russell

Forex - What Is Technical Analysis?

When trading in the foreign exchange market(Forex), part of the process involves forecasting future price movements in order to determine the best time to buy and sell. One method, called technical analysis, takes a look at the market’s past price movements to determine where the numbers will go in the future. Most investors who employ this type of analysis look mostly at price data, but sometimes information such as volume and open interest in futures contracts are also taken into consideration. If you’re just starting out in forex, the rule of thumb is to keep your methods simple - follow the basics, which have been proven over time, and only when you have gained some experience introduce more difficult techniques into your plans.

Technical analysis is almost always used on some level because price charts provide a good visual representation of the price history of a particular currency. At the very least, they can help you determine ideal entry and exit points for a trade based on the historical data. You can decide whether or not you’re buying at a fair price, selling at the top of a cycle, or entering into a shaky market.

It may seem as if adherents of technical analysis disregard market fundamentals in favor of mounds of charts and data, but they argue that these fundamentals are ingrained in the actual numbers. Something unpredictable may cause the numbers to unexpectedly spike, but you can still analyze the data, and identify patterns that will aid you in forecasting future prices.

Essentially, technical analysis can be summed up in three points. First of all, as mentioned above, technical traders assume that market fundamentals are tied to the price data. This is why factors such as the fear, hope, and mood of market participants are not contemplated directly.

Secondly, the idea that history repeats itself is core to this system of analysis. It is possible to look for patterns in price movement (called signals) because the market is predictable. When you look at past market signals you should be able to predict future signals.

Lastly, technicians rely on trends. From this analytical perspective, the market is not irregular or unpredictable. Rather, you can determine, to a high degree of accuracy, what direction a price will take: up, down, or sideways. In addition, trends are expected to continue for a period of time, making it possible to formulate predictions.

But it’s important to understand that technical analysts use more than price charts to determine good entry and exit points. Price charts are used in conjunction with volume charts, and other mathematical representations of market signals. Called studies, these additional pieces of information add another layer of data to the analysis. They let the trader look at the strength and sustainability of trends, in addition to the bare statistics.

Technical analysis is, of course, quite complicated - but for the new trader just starting out in forex, following the basics is a good place to begin. After you gain some experience and learn more about the foreign exchange market, you can delve into more complex research strategies. This article was written by Katerina Mitrou sponsored by http://www.manchesterfx.com/. Manchesterfx.com is a US-based Forex Broker providing Online Currency Trading, or online Forex Trading, in 60 different currency pairs from real time streaming forex quotes. Manchesterfx provides free forex charting (including 92 technical indicators) and real time streaming forex news.

By: Michael Russell
Article Source: Forex Trading Guide