Scaling In and Out of a Position Gives You the Needed Flexibility to Manage a Forex Trade

The ideal way to enter into a trade is to do it gradually. This is also known as Scaling In A Position. In the same manner, it is best to exit the trade in a gradual manner. This is also known as Scaling Out Of A Position. Trying to figure out the perfect entry and exit is only going to make you more confused and hinder you in making your trading decisions. There is no perfect entry or exit. You will never be able to catch the top or the bottom at the precise moment.
Let’s make it clear with an example. Suppose, you are trading EUR/USD. If you have been following the currency market, EUR/USD is hovering at its lowest level of 1.2700 in 16 months in the last few days. It can fall further if ECB decides on further interest rate cuts. Your fundamental and technical analysis is strongly suggesting that EUR/USD pair will go down more.
So, you decide to go short. One approach is to enter into a short position with 1 standard lot single entry straight away and say put a stop loss of 50 pips at 1.2750. If instead of EUR/USD rate going down, suppose, the rate starts climbing and climbs more than 50 pips to say 1.2760, your stop loss will be hit and you will be out of the trade.
Suppose, EUR/USD rate climbs up by 100 pips to 1.2800 then again starts dropping and drops by more than 200 pips. You are not happy as you made a wrong entry decision. If you had entered into a trade gradually, you would have been still in the trade. So, the correct and much better approach is to enter the market gradually.
This is how you should do it. You plan to trade a total lot size of 1, break this lot into 5 small lots of 0.2 lot each. First enter into a short trade at 1.2700 with 0.2 lot and stop loss of 50 pips at 1.2750. When you hit the stop loss and if your technical analysis is still strongly suggesting that EUR/USD will eventually fall, you should enter another 0.2 at 1.2760 with stop loss of 50 pips at 1.2810.
When price action reaches 1.2800 and starts dropping enter another 0.2 lot at 1.2750 and then another at 1.2700 and the last 0.2 lot at 1.2650. This is also known as Scaling in technical terms. With experience you will see that this scaling in and out of a position is a much better approach and will give you the flexibility to manage your trade in a much better manner no matter in which direction the market moves.

How to Apply the Fibonacci Retracement Tool Correctly?

The Fibonacci retracement tool is one of those tools in forex that a forex trader simply cannot do without. This is because in the financial markets, prices do not move in a continuous straight line, but in a convoluted twist of pullbacks and advances. Whenever the price action of a currency has moved substantially in a particular direction due to a very strong trend, those traders who were able to get in early would at some point, decide to take some profits from their trades. This will place the gaining currency on offer and will lead to a supply excess over demand for that currency at that particular time, leading to price pullbacks.

A dilemma has always been how to determine with some degree of accuracy, how far the price action of the currency will pull back before resuming the move in the direction of the previous trend. This renewed move in the previous trend occurs because traders now perceive the currency in question to be at bargain levels, low enough to be able to still grind out some advance movement for profit.

This is where the Fibonacci retracement calculator comes into play. Traders can use it to identify the possible levels to which prices will pull back, and there are five levels to choose from.

In this piece, we will deal with how to correctly apply the Fibonacci retracement tool to a forex chart, as this is one area where traders make mistakes when using the Fibo tools.

Step 1

The first step is to open an appropriate time frame chart. The Fibo tool is used to detect levels at which trend retracements will end. Trends can only be correctly determined from longer term charts such as the daily chart. So you can open a daily chart as the first step.

Step 2

Identify the swing high and the swing low for the forex chart. The swing high is the highest point the price action has reached for the time period in view. The reverse is also true for the swing low.

GBP/USD Forex Strategy That is Very Simple and Makes 20 Pips Daily Using Pending Orders

GBP/USD is one of the major pairs that gets heavily traded. GBP/USD pair is also known as the Cable. GBP/USD pair is affected by the interest rate differential between the Bank of England (BoE) and the Federal Reserve (FED). GBP/USD pair tends to have a positive correlation with EUR/USD and a negative correlation with USD/CHF. For example, a few days back this pair was trading in tandem with the EUR/USD pair.

Many traders trade GBP/USD and EUR/USD. They need to keep the positive correlation between the two currency pairs in view when trading both these pairs together. There are many strategies to trade the GBP/USD pair. Some are heavily based on the London Market Open as this pair normally starts trading in a range a few hours before the London Market open and tends to make a breakout after the London market open.

However, this is a very simple GBP/USD forex strategy that will not make you rich. It can only make 20 pips in day. But the good thing about this strategy is that it does not entail doing any complicated fundamental analysis or technical analysis.

The first thing that you need to do while trading with this strategy is to note the difference between your terminal time and the GMT. You should know the difference between your terminal time and the GMT. This strategy uses GBP/USD 15 Minute Chart.

Daily open the GBP/USD 15 Minute Chart after or before 0.15 GMT. Note the closing price of the candle that starts at 0.15 GMT and closes at 0.300 GMT. This closing price is your base price.

Now, place two pending orders. One Pending Buy Stop Order 50 pips above the base price and another Pending Sell Stop Order 50 pips below the base price. Take profit for both orders will also be 20 pips and the stop loss for both the orders will also be 20 pips. So the risk/reward ratio of both the trades will be 1:1.

You will find at least one pending order getting opened daily. Delete the other pending order that didn’t get opened. If none of the orders get opened in the next 24 hours delete them the next day before entering two new pending orders.

This is it. There is no complicated technical analysis involved. Practice this GBP/USD forex strategy on your demo account and note the win rate. If you are in a time zone where you can easily open the GBP/USD 15 minute chart at 0.15 GMT, you will find it to be a very simple way to make 20 pips daily. You can also automate this strategy with an Expert Advisor.

Dealing with Your Forex Losses

This is a guest post by Elizabeth Goldman
There’s no denying that forex trading is an exciting way to make money. You can get a return on your investment in a matter of minutes if the market goes your way. It is inevitable however, that you will take some losses, but if managed correctly they can form part of a successful strategy. Here, we will look at different methods for dealing with losses.
Control Your Emotions
Lack of emotional control and mental discipline is the main cause of failure among online traders. Lots of accounts are wiped out early because traders act like scared animals in the highly charged atmosphere of the markets. Many more won’t reach a stage where understanding statistics and economic data can help produce better profits. Controlling your emotions, therefore, is an important part of managing losses.
To successfully trade forex, you need to isolate emotions while dealing with the markets. Markets move by emotions but logic is needed to analyze those movements correctly. You need to step back and look at the bigger picture. Study the figures, plot charts and only move when the time is right. Don’t be tempted to rush in.
Avoid Minor Currencies
Stick to the major currencies when trading forex. Smaller currencies are riskier because they fluctuate more than larger, more stable currencies. Avoid potential losses and trade the American dollar rather than the Norwegian Krone. Remember that smaller currencies will also be more expensive to buy because they are illiquid and are traded in lower volumes.
Trade with a Stop-Loss Limit Order
Trading with a stop-loss order will help prevent large forex losses. This will tell your broker to sell a currency when it reaches a certain price e.g. setting a stop-loss order for 10% below the price you paid for a Euro order will limit your loss to 10%.
Use a Take-Profit Order
Take-profit orders are used by currency traders to lock in profits should the currency move in their favor. It specifies the exact rate or number of pips from their current position to where they can close out for a profit.
Trade with a Plan
Do not rush in. Start by examining charts which will give you more information about the currencies you want to trade. Look at the 5 second, 1 hour, and 1 day charts to understand how a currency might move in a trading session. Technical and fundamental analysis are also worth looking at to help look for possible long-term trends.
Avoid Trading Lots of Pairs
Trading lots of currencies is asking for trouble. You will spend too much time looking at charts and not enough time tracking your investments. Keep it simple and focus on a few pairs. More currencies increases the risk as there’s a chance one will drag all your investments down.
Notice Trends
If you notice a downward trend early on in your trading, cut your losses and get out. Do not continue losing money. A stop-loss order will help in these situations.
Keep Records
It is important to keep a record of losses to be always updated with a currency’s development and avoid any future mistakes. Keep a notebook specifically for forex trading and make a chart with the following titles:
Trading date
Beginning balance
Number of trades
Pairs traded
Strategies used
Ending balance
Forex trading losses

Vital Components of a Comprehensive Trading Plan

You must have heard several times that it is important to have a trading plan and stick to it. Not having a trading plan is like an invitation for failure as a trader. What is meant by building a trading plan? Here are some broad points to consider.
The Importance of a Trading Plan
Trading plan is nothing but a checklist. You refer to it before taking a trade. When in a trade you refer to it to make sure that you take a decision according to a plan. Checklist also helps you to stay away from trades which are low probability set ups. The whole idea behind the trading plan is to keep emotions away and take decisions logically.
Stay Away from Bad Trades
The first aspect of the plan should be an affirmation to take only those set ups which are in accordance to your trading strategy and that you will not indulge in overtrading or revenge trading. This will allow you to stay away from bad set ups. If you are a price action trader and take only daily or weekly set ups, you can read the affirmation daily till it becomes your second nature not to look at lower time frame and study only daily and weekly charts.

How to Treat Forex Trading Like a Business

Many people come to Forex trading looking for the ultimate lifestyle of wealth and freedom. Whilst this level is by no means unattainable it is these exact thoughts that tend to bring the trader undone. Instead of treating their trading like a business the trader is too busy committing all the errors that will lead to money being lost rather than money being made consistently.

What does treating your trading like a business mean?

Trading like any other sort of business is designed to yield a profit at the end of the month and year. Setting up and treating your trading as a business is all about doing the things that will give you the best chance to make a profit.
Whilst most traders would like to think they treat trading as a business they are still committing critical errors such as outdated equipment, not following a business plan and continuing to search for a holy grail instead of perfecting just one method.

Have the correct equipment

To give yourself the best chance to succeed you must use the best equipment available to you at the time. This includes;

A solid trading platform that has minimal slippage

A broker with a long standing good record

A good computer to carry out your trading

A back up platform such as a Tablet, Ipad or Mobile Phone with the correct charting equipment

The great thing about Forex is you don’t have to spend a massive amount of money to purchase the equipment you’ll need - but skimping on the essentials will put you behind all the other traders trading the same markets.

Find a method that gives you an edge over the market

When traders have the basic equipment for their business set up they need to decide on the method they are going to use to trade with. Changing from strategy to strategy will only take attention away from becoming profitable at the method of choice.

Make a business plan

A business plan is essential to any viable business and this is no different to trading Forex. Most traders don’t use a business plan but it is also true that most traders do not treat their trading like a business and most traders don’t make money.

Just a few things your trading plan should have are;

What you look for to enter the market and take a trade

The money management technique you use. Ex – how much money or % of your account you risk per trade

How you manage your trades

How you exit your trade or trail your stop

Ongoing Education

Like any other business once you become profitable the education does not stop there. The markets are changing and evolving all the time and like all good businesses you must move with the times. Continually seeking further education and market knowledge will help you stay abreast of any changes to the market.

Forex Trading

The Foreign Exchange Market (FOREX)

Forex is an acronym for FOReign EXchange and is the worldwide cash inter-bank or inter-dealer market that uses a floating exchange rate system. Most people have never heard of Forex.

Some say that it would take the entire New York Stock Market about 3-4 months of daily trading to equal one day of trading in Forex! It's on line forex trading, and it begins with a good forex education.

Yet, it is the world's largest financial market with an estimated daily average of more than $1.5 TRILLION.