Can you make a living trading Forex?

Can you make a living trading Forex?

Introduction

One of the most repeated questions asked regarding Forex trading is: ”Can a person make a
career out of trading Forex?”

This question is asked not only by persons outside the realm of trading, but also by persons
who have completed some form of training and are now wandering into Forex trading. No
doubt is this a difficult question to answer. There are many people outside Forex trading who
will answer in the negative given the perceptions that do exist of Forex trading.

The short answer to this question is simply: “Yes you can”. But like most things in life, this is not
clear cut and in black and white. The answer needs to be qualified to enable those persons who
are considering a career in Forex to make an informed decision.

Forex as a Career and Business

The first item to be aware of is the fact that if a person wants to change from a paying
profession to become a Forex trader is the fact that to succeed Forex needs to be seen as a
business and not as a part time hobby.

And like any other business will the Forex business require funding; starting capital to fund your
business and open a live trading account. Being under-funded will not result in a living wage
with Forex. The amount required to operate as a full-time trader will differ between individuals.
As a rule of thumb, to effectively manage the risk on every trade, a decent amount of money is
required in order to trade a large enough position size to make enough money to support the
trader while at the same time not risking too much of the account balance.

Part time trading for extra income is relatively easy at the early stages of a trading career. But
the period of part time trading should be utilized to learn to trade with consistency rather than
accumulating wealth. Even the part time trader who has a large sum of money available should
focus on getting consistent results. A profitable track record and self confidence will follow in
the wake of consistency. Not focusing on the mechanics of successful trading will eventually
lead to losses.

It is also possible, like with any business, that things can go horrible wrong. To counter this
possibility, the independent trader is advised to have reserve cash at hand to cover for such an
eventuality of running out of trading funds.

Tools required to become an independent trader

An independent trader requires a set of tools to become a trader of note. The following
paragraphs will highlight some of the requirements.

Educations and Training

It is important to obtain the very best education and training before considering a career in
Forex trading. The market is constantly changing, and trading skills always need to be updated.
Forex training and education is required to familiarize the novice trader with all the concepts
and terminologies. In the high risk Forex market not only the concepts and terminologies, but
also the art of trading strategies and Forex maneuvers need to be mastered. Forex education
and training should possibly enhance with the guidance of a professional mentor.

Forex education and training needs to become a life-style. However, education and training are
no guarantee for success, but will move the odds to be more favorable.

Reliable Forex Broker

Forex brokers are firms that provide currency traders with access to a trading platform that
allows them to buy and sell foreign currencies. A currency trading broker, also known as a retail
forex broker, or forex broker, handles a very small portion of the volume of the overall foreign
exchange market. Currency traders use these brokers to access the 24-hour currency market.
Before trading, a forex broker will require customers to deposit money into their account as
collateral. However, through leverage, customers can trade larger amounts than what is
deposited in their account.

Most major forex brokers will allow prospective clients to use a practice account so that they
can get a good understanding of what the system is like.

MT4 Trading Platform

The MT4 platform has become a market standard and there is a good reason for that. It is the
most advanced and trustworthy Forex trading platform available on the market, and even with
its complex and advanced features, the user interface is friendly and intuitive, making it an
attractive option for new and experienced Forex traders alike.

Doing the right things in Forex Trading

Perusing a career as Forex trader requires that the right things being done correctly. Trading
the Forex market does not only depend on being sufficiently funded and the attendance of a
training course. They are very important considerations, but other items required for successful
trading include the following:

  • The learning and mastery of an effective trading strategy with which the trader is
    comfortable
  •  Designing a tangible and working forex trading plan where items such as the following are being spelled out:
    • The risk to reward scenario
    • Forex position sizing
    • Stop-Loss distance
    • Entry and Exit strategy
  • Setting up a trading journal to create a track record
  • Adhering to careful money management principles

Psychological Factors

Forex trading is the one place where human attributes and stressful psychological factors play a
crucial role.

Trading Forex is stressful at its’ best. The market is highly volatile, ever changing and what
worked yesterday does not apply today. Forex trading is the place where fear, hope, greed,
excitement, elation and depression meet.

The person attempting to trade Forex who has little self-discipline and not in control of his/her
emotions has little chance of becoming successful in Forex trading.

All Forex traders makes mistakes and loses money. It is the nature of the beast. We all have to
live with it. The successful trader learns from it and is better prepared for the next round.

Is a career in Forex trading possible?

The conditional answer to the question has been given. A well-funded account, attendance of a
quality training course and an understanding of the risks involved, the spirit of
entrepreneurship and the preparedness to work hard in a disciplined manner will set winners
apart from the losers.

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Certainty in Uncertain Times : Forex

Certainty in Uncertain Times

Background

In the times we are living we are faced with change and uncertainty. Change and uncertainty
are the only constants in our lives.
The world is in a constant mode of change. Never had the saying ”you cannot step into thesame river twice” so much meaning. For both the river and the person has changed since first

stepping into the river. The river has a few drops of water less and the person is slightly older.The items that gave us certainty in the past does not seem to be holding true anymore. We were encouraged to excel at school in academics and sports for those items would bring us to a better life. Now being away from school we find that that reality is different from what our parents and teachers told us. We are unable to find a job despite acquiring a qualification. And if and when we do manage to find a job it is often not what we want to do. The remuneration associated with a job is sometimes hardly sufficient to survive on.

Focus

We have learned that the old ways are no longer applicable in the world we are living in. To
adapt a laissez-faire attitude and let life runs its course will bring us no closer to a solution. We
have to change with the times and in our uncertainty create our own certainty.
Easier said than done you may point out. True, nothing in this life has ever been easy. But doing
absolutely nothing to change our position is fatal. We will be relegated to a position of
inferiority and we will be dependent on hand-outs. Hand-outs and dependency are not a
dignified life, not for anybody.
We must find a solution where we no longer are dependent on the hand-outs of others. Be that
the government, the churches or the community who are providing. In finding a solution we
must do a mind shift away from the old and trusted ways, for the old and trusted ways are no
longer to be trusted. We must find in the new world we are living in a solution that will give us
back our dignity and make us the movers and shakers of the world.
In the new world we are living in there are many “new ways” that we could adopt to move us to
a newer plain. In the next paragraph we are discussing one of the new ways that has the
potential to lead us to a better life.

Focus

Sometimes a solution is staring us in the face, but we do not recognize the solution. We may
have heard of it, but our view is contaminated with the prejudice that others provide.
Sometimes we are scarred to put the solution to the test for what will happen if the solution
works? Psychologically we are sometimes trapped in negative thought, for the negative thought
has become our comfort zone. Moving out of our comfort zone brings change and uncertainty.

One such a solution we would like to present has been tainted with a lot of negativity, some of
which is true. This solution is called Forex trading.
There is negativity associated with Forex trading has some truth for many people have lost
money on the Forex market. Some of the reason is situated in the fact that there are many
scams in the market place. One needs to be careful with whom you sign up as your broker.
Another reason is that people enter the market without proper training. It was found that
persons new to the Forex market who did some self-study course has the biggest potential to
lose money. Forex trading is a serious business and need to be treated as such. Forex also is no
get rich quickly scheme. It takes dedication, focus and self-discipline to become a successful
trader. Which is another reason why some people fail with the Forex market.
But what is also a proven fact is the potential that Forex has to deliver a practical solution to the
dedicated trader to became independent and maintain a sustainable income. People who
attend a training course where they are taught on a practical manner and receive support post
the training have a chance to move to a better life. The training course must provide insight and
practice in all the trading tools – analysis, the setting up and monitoring of trades, the closing of
trades, risk management and money management. The training must also address the influence
of psychology in training.

Forex as Business

To establish a Forex business you need to have a laptop, reliable internet connection, about R1
000,00 to open your account and patience and perseverance. There is no need to register a
business with the authorities.

Conclusion

You should consider Forex as an alternative career to make yourself independent and grow a
business for yourself. Forex has the potential to provide you with stability amidst an
ever-changing and uncertain world. Forex can provide you with certainty in this uncertain world.
Trading with self-discipline, focused on a daily task, repeating positive actions and finding a
reason to trade brings about certainty in uncertain times.
Forex has the potential to provide you with certainty in an uncertain world.

Why do Forex Traders Keep on Failing?

Why do Forex Traders Keep on Failing?

Amongst Forex traders there is a high percentage who fail to make a living. Why?
Even successful businessmen who succeeded to acquire a million / billion of money and never failed to acquire a good life still experience losing in trading Forex. Why is that?
In stock trading a big profit can be made in a rising market (if the right stock was chosen of course). But Forex trading is a different game because when somebody makes money, somebody else must lose money. And vice versa.
The answer to this question is complex and to give a full account would probably take large volume. We will use a brief example in describing the issue. We will break the explanation up in two parts. First the psychological reasons and then the operational reasons.

Psychological Reasons

Despite the fact that traders develop a trading plan (or follow somebody else’s plan), there are always losses in Forex trading. The trading plans are not being followed and rules are being broken.
Inexperience could be a culprit for traders to break the rules of the adopted trading plan. Breaking rules in a volatile market is dangerous with disastrous effects.
Experienced traders also lose money by not being disciplined enough to follow their own trading rules. This can put the trader out of business despite previous successes.
One of the pitfalls of not having a well-developed trading strategy or ignoring the associated rules is by following emotions when making trades. And of all human emotions is FEAR, GREED and HOPE the main trading emotions that make the Forex market to move.

FEAR

Fear takes the form of “fight or flight” for self-preservation in dangerous situations.
While losing money is the apparent cause for fear in Forex trading, the root cause is a fear of poverty; no one wants to be poor. The fear of poverty is a deep-seated fear that society has programmed into its’ members and directly affects the trading community.
Fear that manifests itself in the trader include the following:
• Fear of failure
• Fear of missing out on potential profits
• Fear of losing everything or impending doom
Fear is manifested in the following from the following possible scenarios:
• Not having the right mindset. Traders need to learn to control emotions in all trading situations.
• Lack of taking action when the traders is in a losing position and being paralyzed when he markets continue to move against them
• This type of response may also impede a trader from taking advantage of a trading opportunity going against their own trading plan and allowing fear to prevail over their own instructions.
• After experiencing a losing trade, a trader may experience a lack of confidence. The forex trader might be too afraid to jump back in regardless of an opportunity to make back the money lost on the losing trade.
• Fear will also cause a person to exit a profitable position earlier than would be necessary. This reduces possible gains.
• The fear of loss makes up a chief component of the forex market’s mass psychology, and it can lead to major market panics as people scramble to get out of positions at almost any price.

Dealing with Fear

Basically, the disciplined trader will be able to trade with a sound trading and money management system, can control fear and other emotions easily. “Plan your trade and trade your plan,” will keep fear at a minimum during Forex trading.

GREED

The basics of greed is to desire more than you need. Greed can manifest in the common trading errors of overtrading and running winning trades into losses.
Greed can also cause a person to stay in a losing position beyond the time when an objective trading strategy would call for an exit. This obviously results in a larger loss.
Most people do not have any idea of how greedy they really are until after they start trading. Having a clear profit taking component of the trading plan can help overcome this emotional obstacle to success.

HOPE

Hope can be one of the most damaging market emotions to a forex trader’s success because hope can coddle a forex trader into holding onto a losing position in the hopes that the market will come back.
Hope can be used constructively by traders when they hope to make more money on a winning trade, and therefore let their profits run on.

Lack of Discipline

Lack of discipline leads to emotional trading. The trader who loses discipline will lose money eventually.
At a certain point, the trader who has lost all discipline acts in a way remarkably reminiscent of a gambler, since they have virtually stopped being a business person when it comes to their trading. In essence, any forex trader that wants to be in the business over the long term needs to think of their trading activities more as a business, than as a gambling game.
Basically, having and implementing a trading plan makes up the trader’s method for minimizing emotional reactions while trading. Having a set of rules which are of a purely technical nature, is the ideal method for approaching forex trading in an objective manner.
Having a solid trading plan and the discipline to follow it can minimize losers while maximizing winners.

Operational Reasons

Trading without a stop-loss order

Traders should have the discipline to enter a stop-loss order immediately after entering into a position. An account can be wiped-out on just one all too common currency spike.
Trading without a reasonable risk assessment and management strategy can spell disaster in the highly leveraged game of the forex market. Purposely trading without a stop-loss and prolonging a losing position can arise from the trader’s perception that the market will turn around if only they are patient, which may or may not ever happen. Basically, the trader has already psychologically placed themselves at a disadvantage.
The trader eventually chokes on the growing loss and closes out the position near its worst point, only to see the market subsequently recover. They are devastated and so is their trading account.

Lack of Capital

One guaranteed experience in the forex market is loss. If you are trading, you are guaranteed to lose on some of your trades. Capital is required to sustain losses that will, at times, outweigh gains. This problem become worst when traders make up for their lack of capital by using heavy leverage.
Traders need to grow their accounts so that lower leverage is required, or that backup liquidity can be maintained.
Taking too much risk in a single trade often occurs in the increasingly slim hopes of making back the lost funds in a bigger loss, again when the trader cannot control their emotions.

Unrealistic Targets and Goals

Another reason why most forex traders fail is because they have established unrealistic targets and goals. These impractical goals will either cause a person to take more risk than they should on individual trades, or they will encourage more trades than would be necessary within the bounds of a balanced and objective trading strategy.

High-Risk Aversion

While taking on too much risk can prove disastrous to the forex trader, a high-risk aversion will limit a person’s ability to take the necessary risks to be profitable and successful in the forex market. Forex market trading is not for the faint of heart!
Poor Choice of Broker
If the broker that you chose does not have the skills, knowledge, and tools necessary to properly advise the new forex trader, the possibility of failure increases significantly.

Lack of Knowledge

Just as it is with any business, whether you are selling products or services, trading futures, or trading in the forex market, you need to know the business in order to be profitable.
The need for a proper training course cannot be over-emphasized. This will provide the education required to prepare and develop a trading plan and strategy, evaluate potential brokers and help avoiding common causes for failure as mentioned above.
Ultimately, failure happens because people never spend the time or effort to do well.

The C2Wealth Solution

While eliminating the emotional element in trading is unlikely, the way emotional and character elements have been minimized by seasoned professionals, is by education, confidence and a trading plan.
Being well educated on the economic forces that cause prices to change and considerable familiarity with the financial product or commodity one is trading, give the trader confidence.

The trader needs to strictly adhere to the trading parameters of a concise, complete and well-tested trading plan. Any such plan should contain a risk-management component and be relatively easy to follow and implement in practice.

As an additional measure of insurance, position sizing in decreasing amounts as the portfolio size decreases along with less frequency of trades and a focus on higher probability trades is recommended.

Happy Trading

Forex and Market Manipulation

Introduction

A question that remain on the minds of many Forex traders is the matter of market manipulation by major players in the market.

There are many theories about market manipulation. Some of the theories are situated in the realm of conspiracy. Other theories are linked to criminal intention. And mostly, for every theory that exists, there is a counter theory.

In the recent past, six major banks have been fined a total of $4.3 billion by different regulatory agencies for manipulating practices. These fines add to the theory of market manipulation.

The Forex market is globally the largest and most liquid financial market. The daily trading average is estimated to be $5.3 trillion dollars. With those figures in mind it would stand to reason that it would be difficult to manipulate a market of such magnitude.

In the following paragraphs an explanation for Forex market manipulation is being presented. The explanation would probably never be subject to verification as banks would not willingly admit to any form of malpractice. But it is a plausible explanation which probably hold some truth.

The Forex Marketplace

The Forex market can be described as a place where buyers and sellers come together, facilitated by brokers and market makers to find profit by making a commission on each transaction. The forex market is similar to any other market where buyers and seller come together with a middleman facilitating the transaction.

In Forex the middleman is the market maker and their job are to match buy and sell orders for the best possible price and earn commission on each transaction. The Forex market maker is the financial intermediary set up with the sole purpose of matching buyers and sellers together to make a commission in the process.

What is vital to understand of the Forex market is the fact that the Forex market is a “zero sum” market place. Each transaction has to have a buyer and a seller to create a transaction. The transaction is executed in a fraction of a second, but for every buy transaction there is an opposite sell transaction. The same would apply to a sell transaction. Without this counter transaction there would be no transaction at all.

The importance of this fact, having a buy and a sell in the same transaction, highlights the problem that the banks have which does not apply to small retail traders. Retail traders can have their transactions matched with whatever position without fear for slippage or bad fill. Slippage may take place during high impact news items, but on the whole, most of the retail transactions are done instantaneously.

The same does not apply to banks who are renowned for placing orders with large lot sizes – 100 lots, 500 lots or even 1000 lots are not uncommon. Lot sizes that big is much more difficult to find a counter transaction for than what the retail trader is able to execute. Especially at the exact same price at the exact same time. There is always the possibility that the order might not be filled.

When this happens, the bank has three options available:

Option 1:

Bite the bullet and get executed at whatever price is available. The problem in this case is that the bank won’t get the best possible price for the trade and could led to the forfeit of profit.

Option 2

The bank could wait the time out and get the to get the price at a level for the best possible execution and buy or sell at a more favorable price. In this case it is assumed that that the price will reach the desirable level, but reality might dictate otherwise. The bank then could be forced to walk away without trading or be forced to take whatever price is available if the trade was an absolute necessity.

Option 3

Force the price to a level acceptable for trading by cleverly manipulating other smaller traders to push the market in the desired direction. Once the price has reached the desired level, the bank can execute its’ own transaction.

Manipulation in Simplicity

Option 3 is the way in which manipulation works in simplicity. Banks who have the funds available move the market in their desired direction. The banks actually are forced to use this option. Unless the banks can manipulate the market, they won’t be able to execute their large orders.

The Forex price normally moves due to an imbalance of buyers and sellers. More buy orders than sell orders means there is more demand for a particular currency pair than there is supply. Conversely, a large build up of sell orders than buy orders such that the supply outstrips the demand will result in the price falling.

The Process

A market maker coming into the market with a massive buy order will cause the price to rise. This will result in the market maker constantly buying at a higher price until the order is fulfilled. This is neither attractive or smart as the profits of the market maker will be limited.

The alternative for the previous paragraph is to buy or sell in a hidden way without alerting the other traders as to what the real agenda is. This done by buying into selling pressure and by selling into buying pressure. Thus, the market maker will do the opposite of the desired outcome.

Let us look at an example:

Should a large European conglomerate decide on buying a US corporation for $10 billion, the approach would be to go to a large broker or bank who will complete the transaction by going into the money markets via their brokerage arm. The market maker will convert the conglomerate’s Euro to Dollars. The selling of Euros to Dollars takes place instantaneously and the market maker need to get the highest exchange rate for the Euro to Dollar conversion. The market maker starts to drive the exchange rate higher first and then start to sell Euros against the higher price. More plainly said, the market maker buys more Euros and with that force the price up. Other buyers follow suit. Just when everybody has been fooled into believing the price is going to continue higher, all the Euros are sold and converted into Dollars. What happens now is that selling pressure has become stronger than buying pressure, the price falls rapidly and there is a scramble to get out of the trade. A false signal has been given that market moves up and other traders were enticed to buy Euros. Once traders have found that their assessment on market movement have been wrong, the focus is to get out of the trade fast.

Conclusion

Market makers move the Forex market from one point to another by using clever manipulation techniques. There is however no guarantee that the technique will always work. There is the risk that market makers could work against one another.

It is also alleged that dealers within market makers are in constant contact with each other via chatroom’s. Since the mentioned penalty imposed as mentioned in the introduction have banks shut down and imposed a ban on the use of chatroom’s

during trading.

Retail traders should be diligent enough to study charts and look for false signals. It is not easy and underpin the notion that the Forex trader is a student for life.


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Why is it possible to make a profit in a declining market

Introduction

New commerce to the Forex market often have a problem understanding why it is possible to

make a profit in a declining market. It is not only the newbies that have this problem, Often,

seasoned traders in the Forex market can’t explain why it is possible to make a profit when the

prices are declining. The seasoned trader understands the “mechanics” of the trade, but to

explain the reason why a profit is being made is difficult.

This short article aims to explain the reason why it possible is to make a profit from declining

prices.

Background

To explain the reason why profits are being made in a declining market, some related items

need to be discussed.

It is necessary to understand that Forex trading is derivative trading and not commodity

trading. This is important because this factor differentiates Forex from the stock market.

A derivative can be described as “ something that is based on another source” or as “something

derived from something else”. A trading derivative can be described as a security with a price

that is dependent upon, or derived from, one or more underlying assets. The asset value is

determined by fluctuations in the underlying market. The most common underlying assets

could include stocks, bonds, commodities (gold, oil etc.)currencies and market indices.

In trading a commodity such as gold, the trader could trade the gold bullion itself, or the

derivative of the metal could be traded. The trader can trade on the price of gold without

owning gold coins or bullion. That is derivative trading. Trading without the item.


Trading principles

Trading and making a profit when the market is going down is very confusing when the newbie

is confronted with the item. Logic tells us that “buy low, sell high” is the way to make a profit.

Normal transnational philosophy tells us that the starting point of trading is buying at lowest

possible rate and selling at the highest possible rate. This logic applies to all items being traded

– cars, property, computers, cosmetics or groceries. Buying and selling shares works on the

same principle when shares are being traded as a commodity.

It is possible to make profit in a declining market with shares. That is, when trading the

derivatives of shares are being traded. Trading the derivative of shares is being referred to as

trading “Contracts for Difference” (CFD trading).

The technique in the case of CFD trading in a declining market works as follows: The broker would effectively “lend” the trader shares which would be sold in the market place

at the current price. The trader would then follow the fluctuating price. Selling of the share is

called “shorting” or entering a short position. Entering a trade by buying is called a “long”

position. “Short” and “long” have no reference to length of any sorts.

The trader would follow the price action to determine in which direction the price is moving.

For the trader to make a profit the price must move downward. In the event the price goes up

by a certain measure, the trader will make a loss. At the end of the trade when the price action

has moved sufficient downward the trader would end the trade by buying back the stock at the

current lower price, thus making a profit. The profit is the result of the difference of the entry

price at initially selling the stock and the buying of the stock at the new price. And that is how

the stock market can make a profit in a fluctuating market.


What about Forex?

The difference between Forex trading and CFD trading is situated in the fact that in Forex there

is always a currency pair whilst CFD’s refer to single stocks such as Amazon or Apple.

There is standing convention for quoting currency pairs such as EUR/USED, GBP/USD, USD/CAD

to name but a few. With a single operation instead of making two transactions, currency pairs

can be bought (going ”long”) or sold (“going “short”).

Irrespective whether the trader is going long or short, there is always the buying & selling of

one currency against the other stated currency.

For example, if the trader expects the price of EUR/USD to rise, the Euro will be bought, and the

Dollar sold in the same transaction. Similarly, should the trader anticipate the price of the

EUR/USD to decline, the EUR will be sold, and the Dollar be bought in the same transaction. In

either case, in the event that price moves against the anticipated direction, losses will occur.

In the case of selling the currency pair (going short) the question may be asked: “How can the

trader sell something which he/she does not own?”.

In Forex trading nothing is owned – the transaction is based on speculation – the speculation is

that the price will be lower in the future. The trader makes the commitment to buy at that time

in the future. The principle here at play is to sell first and buy it later. Let us look at an example.

The trader wants to buy a new motorcar. The dealer does not have the particular vehicle in

stock, but still sells the vehicle to the trader. The dealer expects the trader to purchase the

vehicle at a later time. There is no guarantee that the dealership will be able to source the

particular vehicle at the exact same list price, and thus they are taking a risk too. The effect

stays the same – sell first and buy later.

Selling currency is equivalent to the motor vehicle example. A currency pair is sold with the

speculation or expectation that the price will be lower in the future when the currency could be

bought back.

Summary

Profiting from declining markets works in the financial markets. The techniques might differ

between asset classes, but the principle applies everywhere.

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