Okay, I've been trying to find information on forex scalping and the pickings are mightly slim indeed. In fact, the so-called information on the net is so bad I'm going to write up a small post of my own... because I'm sure if you found this page you are desperately looking for some real information.
What Is Scalping?
Quite simply, very short term trading.
Why Don't Brokers Like Scalping?
Well, some brokers don't like scalping because of how they are set up. If they are not able to execute your trades quickly or efficiently enough then they risk being the source of your profits.
Does Scalping Work?
I've seen some people claiming that it works great as well as others claiming that it is impossible to do profitably. The reality is that if you can predict the direction that an equity pair will move, either up or down, then you can hop into the market and grab a few pips when it happens.
How Easy Is It To Predict Equity Pair Price Changes?
Well, that's the million dollar question! I don't have any books to sell or anything, but a lot of people claim to have solutions for you. Personally, I think if they really had solutions that worked they wouldn't waste time telling you about it, they'd be busy trading. However, in an effort to be informative, when you spend enough time watching a market (which is quite boring) you'll get a feel for it's current state and how it is moving. Often, until conditions change, you can be fairly accurate with your predictions.
Can Anyone Do This?
If you find a market maker that doesn't mind scalping, you can try. However, you must know how to place stop and limit orders with their trading platform. In particular, it would be very nice if you were able to have someting known as a trailing stop. As well you will want to understand the concept of leverage as it applies to a forex account. Basically, I'd suggest throwing $100 at a starter account and playing around, carefully, until you've made enough bad decisions to learn how things work. After that, you should have the tools needed to try out various strategies.
How Much Effort Is It?
Scalping is very time consuming. You have to spend a lot of time watching the markets, to the point that it would be difficult to do well if you had an existing full time job. Also, scalping is very demanding from a psychological point of view, as you will have large amounts of your capital ready to put into play, but you may have to wait hours before you spot a good entry point. Then, upon entry, you might find you are back out with a small loss in no time. Alternately, you might get a small profit, take it, and then watch the market skyrocket after your exit. The shorter your trading is the more attention it will take and the more nerve wracking it will be.
Are You Scalping?
I'm thinking about it. I've been opening up a grid strategy to catch swing trades, but I have noticed that using half of the scalping mentality to accumulate positions in trends may be able to have a significant positive impact on my results. I guess I'll end up letting you know how things work out.
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Saturday, September 6, 2008
Part Time Currency Trader
As I've written before it is quite easy to become a currency trader. The harder part is being a currency trader that doesn't lose money. You see, according to the scuttlebutt on the forums, about 90% of new traders end up losing their money to the market.
Are you thinking about trying your hand?
I'm not here to talk you out of it. I myself am a part time currency trader. By day I work at my office job and by night I fight crime with a mask and cape. Wait, no, that's not right. By night I trade online when family duties allow me to squander a chunk of time.
Trading part time has it's challenges. You will see endless market movements that you did not participate in. You will miss opportunities to open or close a position even though your ideas about what would happen next were proven right. In fact, a very large part of trading well involves being able to deal with the psychological aspects of trading, whether part time or not.
If you read other posts in my blog, such as this one on trading philosophy, you'll see that I recommend working with very small trades. If you take larger trades, relative to your available capital, you'll find the emotional stress greatly magnified. It is very difficult to make good decisions as you watch your capital evaporate before your eyes.
Nothing will drive you from the market quicker than watching your capital shrink, panicking and saving what little you can, and then watching the market reverse leaving you without a stake. Or, perhaps worse, you do get back in after seeing a healthy rise, only to watch the market reverse yet again and wreak havoc on your capital once again.
It happens. I'm sure it happens a lot.
Did I mention that I'm not trying to talk you out of becoming a currency trader? It certainly isn't impossible to trade successfully but you really have to understand that there are many different ways to be unsuccessful. One very easy way to fail is to enter the market during a period in which it is easy to understand market behavior, think that trading is quite easy, and then have the market turn upside down and brutally fleece you.
Let's see. Yes, another painful lesson is developing the discipline to set stops and then have them tripped trivially, while the market does in fact go in the direction that you expected. Of course, this sets you up for the opposite, hanging on to a trade endlessly expecting to go as you expected, while it sucks up more and more capital.
My advice, do become a currency trader. Take your time. Learn with a practice account. Eventually, switch to a micro or nano account and trade with very small amounts of money. Continue to play with very small capitalizations until you have blown up your account once or twice -- this happens when you get a margin call and all your funds (except active margin) are forfeited.
Take the long view. There is always going to be another opportunity. No currency pair moves only up or only down. When trading part time you must either make accurate predictions or tread softly enough that the market can't move far enough to cause a margin call.
Anyway, to get into some information you can act on, if you are totally new to the game you'll want to know the following:
Are you thinking about trying your hand?
I'm not here to talk you out of it. I myself am a part time currency trader. By day I work at my office job and by night I fight crime with a mask and cape. Wait, no, that's not right. By night I trade online when family duties allow me to squander a chunk of time.
Trading part time has it's challenges. You will see endless market movements that you did not participate in. You will miss opportunities to open or close a position even though your ideas about what would happen next were proven right. In fact, a very large part of trading well involves being able to deal with the psychological aspects of trading, whether part time or not.
If you read other posts in my blog, such as this one on trading philosophy, you'll see that I recommend working with very small trades. If you take larger trades, relative to your available capital, you'll find the emotional stress greatly magnified. It is very difficult to make good decisions as you watch your capital evaporate before your eyes.
Nothing will drive you from the market quicker than watching your capital shrink, panicking and saving what little you can, and then watching the market reverse leaving you without a stake. Or, perhaps worse, you do get back in after seeing a healthy rise, only to watch the market reverse yet again and wreak havoc on your capital once again.
It happens. I'm sure it happens a lot.
Did I mention that I'm not trying to talk you out of becoming a currency trader? It certainly isn't impossible to trade successfully but you really have to understand that there are many different ways to be unsuccessful. One very easy way to fail is to enter the market during a period in which it is easy to understand market behavior, think that trading is quite easy, and then have the market turn upside down and brutally fleece you.
Let's see. Yes, another painful lesson is developing the discipline to set stops and then have them tripped trivially, while the market does in fact go in the direction that you expected. Of course, this sets you up for the opposite, hanging on to a trade endlessly expecting to go as you expected, while it sucks up more and more capital.
My advice, do become a currency trader. Take your time. Learn with a practice account. Eventually, switch to a micro or nano account and trade with very small amounts of money. Continue to play with very small capitalizations until you have blown up your account once or twice -- this happens when you get a margin call and all your funds (except active margin) are forfeited.
Take the long view. There is always going to be another opportunity. No currency pair moves only up or only down. When trading part time you must either make accurate predictions or tread softly enough that the market can't move far enough to cause a margin call.
Anyway, to get into some information you can act on, if you are totally new to the game you'll want to know the following:
- Most, if not all, companies that offer online foreign exchange trading provide free forex demo accounts. These practice accounts are the same as live accounts except of course that you don't trade real money.
- A currency trading platform is simply a fancy name for what is usually branded currency trading software. This software will let you view charts for various currency pairs, add indicators and execute trades
- Forex trading is global. You can trade starting on Monday moring in Asia until Friday night in New York. Trading is 24x7 during this period though each trading session will offer differing market volume and behavior.
- If you are looking for a place to open your first forex demo account I'd suggest Oanda. To ensure that you don't think I'm compensated to say that I'll ask you to search Google to find them. They are a reputable company that allows you to trade with very small amounts -- which is great for starting out.
How To Become A Currency Trader
If you are anything like me, you probably imagine that it is difficult to become a foreign currency trader. Perhaps there are rules, regulations and other hoops that have to be jumped through. Maybe you need large amounts of cash in order to get started.
No.
Becoming a Forex currency trader is incredibly simple!
Get A Demo Account
As I beginner I'd suggest you sign up with Oanda. Not only do they have a good reputation but they offer other advantages for a beginning trader as well:
So, that's what I did. I started with $100 in my account and was off to the markets. Sweet, I'm a forex trader!
Learning To Trade Foreign Exchange
If you have a demo account, enter some trades. See what happens. Then, after the results come in, search for information about what happened. You'll find some helpful advice in blogs, such as mine, as well as various tutorial and forum sites. I would suggest that you buy a book or two on forex trading, technical analysis and perhaps something concerning the attributes of successful traders.
However, with a few dollars on the table, I realize that now the more difficult process starts. Now that I have a few dollars on the table I'm ready to start learning the lessons of the trade. Frankly, I won't be able to trade realistically if I am not actually risking my own money, so I have to do it this way. Of course, for most people, $100 is not a big enough sum of money to be a hardship if lost anyway.
So, I'm just blathering because the markets are currently closed for their regular weekend respite. I'm sitting in a precarious position because I have some open trades on my account and there is no telling what shape the market will be in when Sunday evening rolls around. I may be lucky and end up way ahead or I may be unlucky and lose my initial $100 payment. Another potential lesson is looming...
Oh, I should mention, these days Forex trading with a reputable company is quite safe. While there are large risks and large rewards, my risks are essentially limited to the capital that I have put into my account. With wise strategies I can limit risks further, but as a beginner it is comforting to know that I can't lose more than I let sit in my account no matter how foolish a beginner mistake I might make.
UPDATE:
I should stress that you could lose all the capital you put in your account, so do not start out with a large account with the idea that you will only conduct small trades. At the very least, create some sub-accounts and keep the majority of your capital out of harms way until you have blown up your play money account, learned a few lessons, and know how to protect your capital.
Further Reading
If you are still at the stage of thinking about becoming a currency trader I suggest you read my post about being a part time currency trader next...
No.
Becoming a Forex currency trader is incredibly simple!
Get A Demo Account
As I beginner I'd suggest you sign up with Oanda. Not only do they have a good reputation but they offer other advantages for a beginning trader as well:
- You can sign up for a live account with very little initial capital.
- You can execute trades of just about any arbitrary (small) size.
So, that's what I did. I started with $100 in my account and was off to the markets. Sweet, I'm a forex trader!
Learning To Trade Foreign Exchange
If you have a demo account, enter some trades. See what happens. Then, after the results come in, search for information about what happened. You'll find some helpful advice in blogs, such as mine, as well as various tutorial and forum sites. I would suggest that you buy a book or two on forex trading, technical analysis and perhaps something concerning the attributes of successful traders.
However, with a few dollars on the table, I realize that now the more difficult process starts. Now that I have a few dollars on the table I'm ready to start learning the lessons of the trade. Frankly, I won't be able to trade realistically if I am not actually risking my own money, so I have to do it this way. Of course, for most people, $100 is not a big enough sum of money to be a hardship if lost anyway.
So, I'm just blathering because the markets are currently closed for their regular weekend respite. I'm sitting in a precarious position because I have some open trades on my account and there is no telling what shape the market will be in when Sunday evening rolls around. I may be lucky and end up way ahead or I may be unlucky and lose my initial $100 payment. Another potential lesson is looming...
Oh, I should mention, these days Forex trading with a reputable company is quite safe. While there are large risks and large rewards, my risks are essentially limited to the capital that I have put into my account. With wise strategies I can limit risks further, but as a beginner it is comforting to know that I can't lose more than I let sit in my account no matter how foolish a beginner mistake I might make.
UPDATE:
I should stress that you could lose all the capital you put in your account, so do not start out with a large account with the idea that you will only conduct small trades. At the very least, create some sub-accounts and keep the majority of your capital out of harms way until you have blown up your play money account, learned a few lessons, and know how to protect your capital.
Further Reading
If you are still at the stage of thinking about becoming a currency trader I suggest you read my post about being a part time currency trader next...
Forex: What Is A Pip?
If you are a beginning forex trader you might be wondering what exactly a pip is. Everyone throws around the lingo but hardly anyone ever stops to give a good explanation that makes things clear for the aspiring trader.
Generally, a pip is explained as the least significant digit of a price quote.
So, if the US Dollar (USD) trades at 120.19 JPY (Japanese Yen) then each unit of change, such as a an increase increase in value of the USD to 120.20 JPY, involves a one pip change in price.
I'm going to step out on a limb and say that a PIP is a price increment point. However, the more confusing official terminology is apparently percentage in point. Which is less confusing?
Either way, it's a single point of change in the quote price between two currencies. Now, while this is very simple, it can be confusing at first when you find out that different currency pairs are quoted to a varying number of digits.
By way of example, here are some relatively current price quotes for various currency pairs:
- AUD/JPY 093.29
AUD/USD 0.8574
EUR/USD 1.4668
EUR/JPY 159.62
GBP/JPY 198.05
GBP/USD 1.8204
NZD/USD 0.7001
USD/CAD 1.0635
USD/JPY 108.75
Why such a feature is enabled by default is something that mystifies me. I guess people in the forex industry soon forget what it is like to be at the beginning of your trading experience -- things can be confusing at first.
Best Forex Trader Return
I see people in various forums asking what the best rate of return is for professional forex traders.
What kind of question is that?
Do you want an annualized answer based on a great trading day? I could boast a fabulous rate of return if I did that, but it wouldn't be meaningful.
How about an annualized rate of return for a trader's best month? No? Maybe some arbitrary consecutive twelve month period? Oh, maybe you wanted a number representing January through December?
Forex trading does not really have a linear behavior that makes it easy to determine what a good rate of return is. Are you a cautious trader? Are you more comfortable taking large risks? Are you trying to accumulate a carry trading position?
Even if you do get someone to tell you what they made over a suitable period of time, you have to realize that past results are not a reliable way to predict the future. Situations change. Economies change on a global scale. Political events that elevate risk levels happen all the time. Just as with stocks, you can never really be sure what will happen.
On a more personal level you are either profitable or you are not. If you are profitable you either have enough of a track record to make a living off it, if you even wanted to, or you don't. If you don't have enough capital to make a living off it, then you can work to build your capital if you are profitable.
Worry about being profitable. Worry about preservation of capital. Don't worry so much about what other people can do or claim to do. This isn't a market that is set up for easy measurement and comparison between participants.
Rest assured, the best rate of return out there is going to be much higher than you or I will be able to earn.
What kind of question is that?
Do you want an annualized answer based on a great trading day? I could boast a fabulous rate of return if I did that, but it wouldn't be meaningful.
How about an annualized rate of return for a trader's best month? No? Maybe some arbitrary consecutive twelve month period? Oh, maybe you wanted a number representing January through December?
Forex trading does not really have a linear behavior that makes it easy to determine what a good rate of return is. Are you a cautious trader? Are you more comfortable taking large risks? Are you trying to accumulate a carry trading position?
Even if you do get someone to tell you what they made over a suitable period of time, you have to realize that past results are not a reliable way to predict the future. Situations change. Economies change on a global scale. Political events that elevate risk levels happen all the time. Just as with stocks, you can never really be sure what will happen.
On a more personal level you are either profitable or you are not. If you are profitable you either have enough of a track record to make a living off it, if you even wanted to, or you don't. If you don't have enough capital to make a living off it, then you can work to build your capital if you are profitable.
Worry about being profitable. Worry about preservation of capital. Don't worry so much about what other people can do or claim to do. This isn't a market that is set up for easy measurement and comparison between participants.
Rest assured, the best rate of return out there is going to be much higher than you or I will be able to earn.
Carry Trade Accumulation Strategy
As I haven't seen this forex tactic expressed anywhere else I thought I'd blog about it and share it with my small readership.
Are you familiar with trailing stops?
This is when you set a stop loss some number of points below the current price and then allow that stop loss to float when the price moves in a profitable direction.
Well, I'm not going to talk about stop losses, but the idea is similar. What I'm going to describe is a trailing limit order.
Let's say, for example, that you think the GBPJPY is starting to look like a good deal. Instead of jumping on and buying it you may want to set a limit purchase order above the current price. The odds are good, given recent history, that the price will drop further.
Bingo. You can then adjust your limit order and trail the market price by some appropriate level. Be warned that the price could spike, activating your purchase, and then continue dropping. In today's environment you can then save yourself the risk of acquiring a position until the price does show some type of strength.
I'm not aware of any forex trading platform implementing this so you'll have to execute a manual trailing limit order yourself.
Are you familiar with trailing stops?
This is when you set a stop loss some number of points below the current price and then allow that stop loss to float when the price moves in a profitable direction.
Well, I'm not going to talk about stop losses, but the idea is similar. What I'm going to describe is a trailing limit order.
Let's say, for example, that you think the GBPJPY is starting to look like a good deal. Instead of jumping on and buying it you may want to set a limit purchase order above the current price. The odds are good, given recent history, that the price will drop further.
Bingo. You can then adjust your limit order and trail the market price by some appropriate level. Be warned that the price could spike, activating your purchase, and then continue dropping. In today's environment you can then save yourself the risk of acquiring a position until the price does show some type of strength.
I'm not aware of any forex trading platform implementing this so you'll have to execute a manual trailing limit order yourself.
EURAUD Head And Shoulders?
Are you a Forex carry trader?
Don't look now but the EURAUD has completed two out of three components of a head and shoulders pattern on the hourlies.
You might want to be on the lookout for this over the next several hours. If it activates it could spell a nice downward move for this carry pair.
Don't look now but the EURAUD has completed two out of three components of a head and shoulders pattern on the hourlies.
You might want to be on the lookout for this over the next several hours. If it activates it could spell a nice downward move for this carry pair.
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