Psychological Pitfalls

Here are some additional psychological pitfalls to avoid. Be wary of
depending on others for your success. Most of the people you are
likely to trust are probably not effective traders. For instance:
brokers, gurus, advisors, friends. There are exceptions, but not
many. Depend on others only for clerical help or to support your
own decision-making process.
You may acquire trading methods or systems from others or from
books, but be sure to test them carefully yourself before trading.
Good systems that you can buy come with computer software that
allows comprehensive historical testing.
Don't blame others for your failures. This is an easy trap to fall into.
No matter what happens, you put yourself into the situation.
Therefore, you are responsible for the ultimate result. Until you
accept responsibility for everything, you will not be able to change
your incorrect behaviors.
Stay long-term oriented. Don't adjust your approach based solely on
short-term performance. Through luck, any horrible system can look
great, even for relatively long periods of time. Conversely, the best
systems have frequent losing periods. If you judge a system by

short-term performance, you are likely to reject the best systems
that exist.
Most traders have such an ego investment in their trading that they
cannot handle losses. Several losses in a row are devastating. This
causes them to evaluate trading methods and systems based on
very-short-term performance. Don't start trading a system based on
only a few trades, and don't lose confidence in one after only a few
losses. Evaluate performance based on many trades and multi-year
results.
Don't underestimate the psychological difficulty of successful
trading. Robert Rotella describes the trauma in The Elements of
Successful Trading: "Trading is one of the most stressful endeavors
imaginable. Taking losses day after day with a strategy that, just a
short while ago was working well, can be a terrible experience.
Trading performance can be consistently volatile with good and bad
times highly magnified. The market can batter your psyche and
gnaw at your soul. These bad experiences will never end as long as
you trade. The more successful you are as a trader, the more
money you will lose."
Keep trading in correct perspective and as part of a balanced life.
Trading is emotionally intensive no matter whether you are doing
well or going in the tank. It is easy to let the emotions of the moment
lead you into strategic and tactical blunders.
Don't become too elated during successful periods. One of the
biggest mistakes traders make is to increase their trading after an
especially successful period. This is the worst thing you can do
because good periods are invariably followed by awful periods. If
you increase your trading just before the awful periods, you will lose
money twice as fast as you made it.
Knowing how to increase trading in a growing account is perhaps
the most difficult problem for successful traders. Be cautious in
adding to your trading. The best times to add are after losses or
equity drawdowns.
Don't become too depressed during drawdowns. Trading is a lot like
golf. All golfers, regardless of their ability, have cycles of good play
and poor play. When a golfer is playing well, he assumes he has
found some secret in his swing and will never play poorly again.
When he is hitting the ball sideways, he despairs that he will never
come out of his slump.

Trading is much the same. When you are making money, you are
thinking about how wonderful trading is and how to expand your
trading to achieve immense wealth. When you are losing, you often
think about giving up trading completely. With a little practice, you
can control both emotional extremes. You'll probably never control
them completely, but at least don't let elation and despair cause you
to make unwarranted changes in your approach.
Other common themes of good traders are self-understanding,
balance and self-control. If you can master yourself, you can master
the futures markets.

Elements of a Successful Trading Plan--Let Profits Run

The next part of the plan involves a more pleasant alternative: when
to exit a trade that is profitable. The cardinal principle involved is Let
Profits Run. In other words, stay with your profitable trades as long
as possible because the trend is likely to continue and make your
profits even larger.
Again, this is easy to understand but not so easy to do when real
money is involved. The difficulty is that although your profit may
become much larger if you stay with a trade, it may also decrease
and even disappear. Human nature is such that it values a sure
profit much more highly than the probability of a much higher profit.
Thus, traders are inclined to take their profits too soon. This can be
fatal to long-term success because big profits are necessary to
overcome the inevitable collection of small losses.
There is a good way to let profits run while still guarding against the
possibility that prices will turn around and take away much of your

accumulated profits before the trend actually reverses. It is called a
trailing stop. You include in your plan a method for moving an exit
point along some distance behind your trade. As long as the trend
keeps moving in your favor, you stay in the trade. If the market
reverses direction by the amount of your trailing stop, you exit the
trade at that point. You would also offset your trade and reverse
position if the trend reversed.
One way to set a trailing stop is to protect a certain percentage of
the accumulated profit. That will always insure that you keep some
profit on a good trade.

Elements of a Successful Trading Plan--Trade With The Trend

Trading with the trend is hard to do because a logical give-up exit
point will be farther away, potentially causing a larger loss if you are
wrong. This is a good example of why so few traders are successful.
They can't bring themselves to trade in a psychologically difficult
way.
You can define the concept of trend only in relation to a particular
time frame. When you determine the trend, it must be, for example,
the two-week trend or the six-month trend or the hourly trend. So an
important part of a trading plan is deciding what time frame to use
for making these decisions.
Do you want to be a long-term trader, also called a position trader?
They hold positions for weeks or months. Do you want to be a short-
term trader who holds positions only for a few days? There are even
very short-term traders called day traders. They watch the markets
during the day and always enter and exit their positions on the same
day.
While it is perhaps easier psychologically to keep the time frame
short, the best results come from longer-term trading. The longer
you hold a trade, the greater your profit can be.
Day trading has great attraction because you can start each day
fresh and sleep comfortably every night with no open positions.
However, it is the most difficult kind of trading there is. Here's how
legendary trader Larry Williams describes it: "Day trading is so
stressful. You're going to end up frying your brain. All the day
traders I talk with are losing money. Besides, it's really hard to come
up with profitable day trading systems."
For the greatest chance of success, your time frame to measure
trends should be at least four weeks. Thus, you should only enter
trades in the direction of the price trend for the last four weeks or
more. A good example of a trend-following entry rule would be to
buy whenever today's closing price is higher than the closing price

of 25 market days ago, and sell whenever today's closing price is
lower than the closing price of 25 market days ago.
When you trade in the direction of this long a trend, you are truly
following the markets rather than predicting them. Most
unsuccessful traders spend their entire careers looking for better
ways to predict the markets.

Elements of a Successful Trading Plan--Getting Started

The first element of any trading plan is the amount of capital you
intend to invest. This is up to you, but you should understand that
there is a direct relationship between the amount of capital you
commit and your probability of success. The more you invest, the
greater is the likelihood that you will make money.
What is the minimum advisable amount to start with? Most
professionals agree that it takes a minimum of $10,000. If you try to
trade with anything less, what happens to you will be luck. You won't
have the capital necessary to apply proper risk management
principles.
An important thing to keep in mind when deciding how much to
commit initially to commodity trading is that the amount you invest
must be "risk capital." Risk capital is defined as money you can
afford to lose without affecting your standard of living. It should also
be money that you feel comfortable risking. Think of your commodity
account as an investment in a business. Many businesses fail.
That's life. Make sure you won't be so afraid of losing money that it
will affect your ability to make correct trading decisions.
The next part of your trading plan involves how you will make your
actual buying and selling decisions. Under what conditions will you
enter trades? When will you exit your trades? What markets will you
trade?
There are four cardinal principles which should be part of every
trading strategy. They are: 1) Trade with the trend, 2) Cut losses
short, 3) Let profits run, and 4) Manage risk. These building blocks
are so basic and important that I have written a whole book about

them. You should make sure your strategy includes each of these
requirements for success.

Learning To Trade Correctly

One way to learn how to trade correctly is to find a successful trader
and have him or her teach you exactly how they do it. However,
even if you could find such a person and even if they would be
willing to spend the time with you, it would not necessarily make you
a successful trader. You might not have the capital necessary to
trade the way they do. You would definitely not have the years of
experience they had developing their successful approach. You
might not have the personality profile necessary to execute their
style of trading.
Another way to learn is by trial and error. This is the method of
choice for most people although they probably don't realize it. The
trouble with trial and error in futures trading is that you don't always
take a loss when you trade incorrectly and you don't always make a
profit when you trade correctly. Some of the best methods generate
losses more than half the time. You can take many losses in row
applying a very effective system. On the other hand, if you are
lucky, you can makes tons of money trading quite stupidly.
Psychologists call this random reinforcement, and it makes good
trading impossible to learn through trial and error.
The most obvious and practical way to learn how to trade correctly
is to read books. Find the best books by the most respected authors
and the best traders and learn from them. While this may work in
other areas of life, it is more problematic in commodity trading.
One of the few real secrets in commodity trading is that most of
what you read in books about how to trade does not work in the real
world. Even books by respected authors are full of trading methods
that lose money when put to the test. You may find this shocking,
but almost no commodity authors demonstrate the effectiveness of
the methods they advocate. The best you can hope for are some
well-chosen examples or a few cursory tests.
Learning to trade is a combination of being exposed to ideas plus
practical experience watching the markets on a day-to-day basis.
This is not something that can happen in only a few weeks. On the
other hand, you can become a great trader even with only average
intelligence. Professional trader and money manager Russell Sands
describes the makeup of a successful trader: "Intelligence alone
does not make a great trader. Success is equal parts of intellect,

applied psychology, practice, discipline, bankroll, self-understanding
and emotional control."
Furthermore, to be successful you don't have to invent some
complex approach that only a nuclear physicist could understand. In
fact, successful trading plans tend to be simple. They follow the
general principles of correct trading in a more or less unique way.

Separating the Winners and Losers

A very high percentage of those who try commodity trading
eventually lose money. The ratio of losers could be as high as
ninety-five percent. However, this does not necessarily mean that
your chance of failure is that high. If, before you begin, you identify
correctly the reasons most people lose, you can improve your odds
significantly.
There is a small percentage of full-time professionals and highly
skilled part-time traders who have learned how to trade correctly
and generate consistent profits year after year. It is not impossible
to determine what separates these people from the crowd.
Because trading well is not easy, you must approach the task very
seriously. This is not something to treat as a hobby. Perhaps, first
and foremost, this is what separates professionals from amateurs.
Professionals look at their trading as a business. There are
substantial profits to be made, and they will not just fall into your lap.

Another crucial difference between successful and unsuccessful
traders is that the successful ones have a plan and they follow it.
Considering the amount of money involved and the potential risks, it
is remarkable how few traders actually have any kind of plan for
their trading. They go from trade to trade applying various ideas
they have learned without any consistency and without any testing.
They make decisions based on hot tips, something they read,
today's news. They are acting from emotion rather than using a
proven methodology. While they may not want to admit it, they are
really gambling in the futures markets rather than trading
intelligently.
Trading by emotion in an unstructured way certainly adds fun and
entertainment to the enterprise. Taking positions on instinct is
exciting, especially when they work out . . . as they often do. But in
the end, this kind of trading will lose money.
Good trading is boring because you've thought out your strategy
and tactics in advance. You trade according to a carefully tested
system or method, not from what moves you emotionally that day.
Two psychological traits that separate winners from losers are
patience and discipline. It is not enough to have a carefully tested
trading plan. You must also be able to follow it religiously. This is
not as easy as you may think.
Every experienced trader knows how great the temptation is to stray
from the plan. There is always what seems to be a good reason.
The true professional can resist this temptation and stick to his plan.
He has the patience to wait for his method to signal a trade and not
take trades he may be emotionally attracted to that are outside his
plan. He has the discipline to follow his plan and take all the trades
that it signals even when there appear to be strong reasons to make
an exception.
This may sound easy, but when real money is on the line--your
money--nothing is more difficult. The kind of trading that really works
is emotionally demanding.
It is hard work to create a winning trading plan. It is hard
psychologically to follow the plan after you create it. This is why so
many people fail. Perhaps you have what it takes to be an
exception.

The Truth About the Commodity Markets

In order to be a successful trader, you must understand the true
realities of the markets. You must learn how the professionals make
money and what is possible. Most traders come into commodity
trading, lose a substantial portion of their capital and then leave
trading without ever having a correct perception of what good
trading is all about.
For many years college professors have argued that the markets
are both random and highly efficient. If this were true, it would be
impossible to gain an edge on other investors by having superior
knowledge or a superior approach.
Professional traders, who make their living trading rather than
studying the markets from afar, have always laughed at these ivory
tower theories. A good example is George Soros, who has made
billions of dollars from trading and is perhaps the greatest trader of
all time. Here is how he responds to these ivory tower academics:
"The [random walk] theory is manifestly false--I have disproved it by
consistently outperforming the averages over a period of twelve
years. Institutions may be well advised to invest in index funds
rather than making specific investment decisions, but the reason is
to be found in their substandard performance, not in the
impossibility of outperforming the averages."
Mathematicians have conclusively shown the financial markets to be
what are called non-linear, dynamic systems. Chaos theory is the
mathematics of analyzing such non-linear, dynamic systems. The
commodity markets are chaotic systems. Such systems can
produce random-looking results that are not truly random. Chaos
research has proved that the markets are not efficient, and they are
not forecastable. Commodity market price movement is highly
random with a small trend component.
Most beginning traders assume that the way to make money is to
learn how to predict where market prices are going next. As chaos
theory suggests, the truth is that the markets are not predictable
except in the most general way.

In his book, Methods of a Wall Street Master, famous trader Vic
Sperandeo, whose nickname is "Trader Vic," warns: "Many people
make the mistake of thinking that market behavior is truly
predictable. Nonsense. Trading in the markets is an odds game,
and the object is always keep the odds in your favor."
Luckily, as Trader Vic suggests, successful trading does not require
effective prediction mechanisms. Good trading involves following
trends in a time frame where you can be profitable.
The trend is your edge. If you follow trends with proper risk
management methods and good market selection, you will make
money in the long run. Good market selection refers to trading in
good trending markets generally rather than selecting a particular
situation likely to result in an immediate trend.
There are three related hurdles for traders. The first is finding a
trading method that actually has a statistical edge. Second is
following it with consistency. Third is consistently following the
method long enough for the edge to manifest itself on the bottom
line.
This statistical edge is what separates speculating from gambling. In
fact, effective trading is actually like the gambling casino rather than
the gambling customer. Professional trader Peter Brandt explains
successful trading in just this way: "A successful commodity trading
program must be based on the simple premise that no one really
knows what the markets are going to do. We can guess, but we
don't know. The best a commodity trader can hope for is an
approach which provides a slight edge. Like a gambling casino, the
trader must earn his profits by exploiting that edge over an extended
series of trades. But on any given trade, like an individual casino
bet, the edge is pretty meaningless."
Unsuccessful and frustrated commodity traders want to believe
there is an order to the markets. They think prices move in
systematic ways that are highly disguised. They hope they can
somehow acquire the "secret" to the price system that will give them
an advantage. They think successful trading will result from highly
effective methods of predicting future price direction. These deluded
souls have been falling for crackpot methods and systems since the
markets started trading.
Prolific futures trading author Jake Bernstein describes how these
desperate traders are victimized: "Futures trading is ultimately very
simple. Any attempt to make trading complex is a smokescreen. Yet

for self-serving reasons an army of greed-motivated promoters try to
make things complicated. Too many market professionals consider
it their mission in life to obfuscate. Why? Because in so doing they
give the appearance that their efforts are scholarly and important.
They create a need for more information, and then they fill it!"
Books on how to trade commodities are famous for showing a few
well-chosen examples where a described prediction method
previously worked. They never show what would have happened if
you had applied the method religiously for many years in numerous
markets. Those who have tested these methods have found that in
the long run almost all of them don't work. Be wary of any trading
method unless you see a detailed demonstration showing that it has
worked for at least five to ten years in a variety of different markets
using exactly the same rules.
The job of the person who wants to trade commodities rationally and
prudently is to ignore the promises of those promoting pie-in-the-sky
prediction mechanisms and concentrate on finding and
implementing a proven, integrated methodology that follows market
trends.

The Trading Process

Here are some typical steps in the process of making a commodity
trade including the trader's decision-making process and the
procedures involved in actually placing the trade.
In order to make decisions about when to trade commodity futures,
you must have a source of price data. Many daily newspapers carry
some commodity prices in their financial sections. The Wall Street
Journal has comprehensive commodity price listings. Investor's
Business Daily has both price tables and numerous price charts
All experienced commodity traders prefer to look at price activity on
a chart rather than trying to interpret tables of numbers. In financial
analysis, charts are indispensable for quickly grasping the essence
of historical and recent price action.
The typical commodity chart depicts daily price action as a thin
vertical bar which indicates the day's high and low by the top and
bottom of the bar. The opening and closing prices are shown as tiny
dots attached to the left and right side of the bar. A typical daily
price chart can show up to six months of price action this way.
It is easy to change the bar's time frame from days to weeks or
months and thus show from two to twenty years of historical price
action in the same format. For short-term trading you can change
the bar's time frame to hours or even minutes.
Looking at such bar charts enables a trader to see the recent trend
of prices--whether up, down or sideways--in whatever time frame he
chooses. Following the current trend of prices is a cornerstone of
successful trading.
There are a number of ways to obtain the price charts a trader
needs to analyze the markets. You can make your own using graph
paper. This sounds rather primitive, but some experts recommend it
as a good way to put yourself in close touch with price activity and
monitor risk.

Another source of charts is the printed chart service. There are
about half a dozen of these. They typically mail a booklet of
numerous charts covering all the tradeable markets after the
markets close on Friday. There is space on the charts to update
them daily during the following week until next chart book arrives.
These printed chart books normally have a number of indicators
plotted along with the price action and contain a wealth of additional
information.
For computer owners there are many software programs that create
fancy charts on the computer screen. You can input the price data
manually or, via telephone modem, download comprehensive data
after the markets close for the day. Those with larger budgets can
install a small satellite dish and watch price changes in all the
markets nearly instantaneously as they occur. The software creates
charts dynamically on the computer screen as each trade takes
place on the exchanges. You can put many different charts on the
screen and thus watch numerous markets all around the world in
real time. The cost can range from a few hundred to $1,000 a month
depending on the software and the number of exchanges you
subscribe to.
It is easy to believe that computers can make a big difference in
trading success. Vendors of expensive software will tell you that
since other traders, who are your competition, have expensive
computer setups, you need one too. This isn't really true.
Those who can't trade profitably without a computer probably won't
be helped too much by using a computer. It may actually be
detrimental by causing an increase in trading frequency. While a
computer will not make a bad trader into good one, they are fun to
use, and they do make a trader's life easier.
There are two primary analytic methods for deciding when to take a
futures position: fundamental analysis and technical analysis.
Fundamental analysis involves using economic data relating to
supply and demand to forecast likely future price action. Technical
analysis involves analyzing past price action of the market itself to
forecast the likely future price action.
While there are differences of opinion about the relative merits of
the two approaches, almost all successful traders emphasize
technical analysis. There are a number of reasons for this. First and
foremost is the difficulty of obtaining accurate fundamental data.
While various governments and private companies publish statistics
concerning crop sizes and demand levels, these numbers are gross

estimates at best. With the current global marketplace, even if you
could obtain accurate current information, it would still be impossible
to predict future supply and demand with enough accuracy to make
commodity trading decisions.
Technical analysts argue that since the most knowledgeable
commercial participants are actively trading in the markets, the
current price trend is the most accurate assessment of future supply
and demand. If someone is correct that for fundamental reasons,
prices will likely move up strongly in the future, the commercial
participants who have the greatest knowledge and influence on the
markets should certainly be moving the price upward right now. If
price instead is moving down, a lot of very knowledgeable people
must think price in the future will likely be down, not up.
For this reason, almost all successful speculators learn to follow
price action and not try futilely to predict turning points in advance.
They seek to trade in tune with the large participants who move the
markets.
In his classic book, Technical Analysis of the Futures Markets,
famous analyst John Murphy summarizes the rationale for technical
analysis: "The technician believes that anything that can possibly
affect the market price of a commodity futures contract--
fundamental, political, psychological or otherwise--is actually
reflected in the price of that commodity. It follows, therefore, that a
study of price action is all that is required. By studying price charts
and supporting technical indicators, the technician lets the market
tell him which way it is most likely to go. The chartist knows there
are reasons why markets go up and down. He just doesn't believe
that knowing what those reasons are is necessary."

Commodity Trading As An Investment Vehicle

There are many inherent advantages of commodity futures as an investment vehicle over other investment alternatives such as savings accounts, stocks, bonds, options, real estate and collectibles.

The primary attraction, of course, is the potential for large profits in a short period of time. The reason that futures trading can be so profitable isleverage.

For instance, if you had a $10,000 futures trading account, you could trade one S&P 500 stock index futures contract. If you were going to buy the equivalent amount of common stocks, you would currently need about $350,000, thirty-five times as much.

Let's say you decided that the stock market was going to go up. You could invest $350,000 and buy individual stocks equivalent to the S&P index, or you could buy one S&P futures contract. Buying a futures contract is the same as betting that the S&P index will go up.

If you had made your move on the first trading day of September, 1996 and held your position for two weeks, your common stock position would have been worth about $20,000 more than when you bought it, a gain of about six percent. Not bad for only two weeks. If you had taken the futures route, however, you would have made the same $20,000, which would have been a 200 percent gain on the $10,000 margin required in your futures trading account.

That is an actual example of the tremendous returns you can earn in a short period of time trading futures. Of course, you can lose money just as fast if you trade in the wrong direction. Suppose you had thought the stock market was about to go down and you had sold a futures contract instead of buying one. If you had valiantly held it for two weeks, you would have lost $20,000. That's a good example of why you must exit your trades quickly if they start to move against you.

Another advantage of futures trading is much lower relative commissions. Your commission on that $20,000 futures trading

profit would have been only about $30 to $50. Commissions on individual stocks are typically as much as one percent for both buying and selling. That could have been $7,000 to buy and sell a basket of stocks worth $350,000.

While profits can be large in commodity trading, it is not easy to make consistently correct decisions about what and when to buy and sell.

Commodity speculation offers an important advantage over such illiquid vehicles as real estate and collectibles. The balance in your account is always available. If you maintain sufficient margin, you can even spend your current profit on a trade without closing out the position. With stocks, bonds and real estate, you can't spend your gains until you actually sell the investment.

As you will see, commodity trading is not particularly complicated. Unlike the stock market where there are over ten thousand potential stocks and mutual funds, there are only about forty viable futures markets to trade. Those markets cover the gamut of market sectors, however, so you can diversify throughout all important segments of the world economy.

In futures trading, it is as easy to sell (also referred to as going short) as it is to buy (also referred to as going long). By choosing correctly, you can make money whether prices go up or down. Therefore, trading a diversified portfolio of futures markets offers the opportunity to profit from any potential economic scenario. Regardless of whether we have inflation or deflation, boom or depression, hurricanes, droughts, famines or freezes, there is always the potential for profit trading commodities.

There are even tax advantages to making your money from futures trading. Regardless of the actual holding period, commodity profits are automatically taxed as sixty percent long-term capital gains and forty percent short-term capital gains. The current maximum capital gains rate is thirty-three percent, somewhat less than the maximum rate for ordinary income. To the extent that capital gains tax rates are reduced in the future, commodity traders will benefit. If a distinction is re-established so that taxes on long-term gains are lower than on short-term gains, commodity traders will benefit.

Things to Know to Deal With Foreign Currency Exchange

The main purpose of the foreign currency exchange market is to make money but it is different from other equity markets. There are various technical terminologies and strategies a trader must know to deal with currency exchange. This article will give an insight into the normal operations in the foreign currency exchange market.

In the Currency Exchange market the commodity that is traded is the foreign currency. These foreign currencies are always priced in pairs. The value of one unit of a foreign currency is always expressed in terms of another foreign currency. Thus all trades incorporate the purchase and sale of two foreign currencies at the same time. You have to buy a currency only when you expect the value of that currency to increase in the future. When it increases in value, you have to purchase the currencies you have bought to make your profit. When you buy or sell a currency then the trade is called open trade or in open position and can be closed only when you sell or buy an equivalent amount of currency.

You must also understand how the currencies are quoted in the currency exchange market. They are always quoted in pairs as USD/JPY. The first currency is the base currency and the second one is the quote currency. The quote value depends on the currency conversion rates between the two currencies under consideration. Mostly the USD will be used as based currency but sometimes euro, pound sterling is also used.

The profit of the broker depends on the bid and the ask price. The bid is the price the broker is ready to pay to buy base currency for exchanging the quote currency. The ask is the price the broker is ready to sell the base currency for exchanging the quote currency. The difference between these two prices is called the spread which determines the profit or loss of the trade.

The bid and ask prices are quoted in five figures. The spread is measured in pip which is defined as the smallest change in price based on the current conversion rates of the currencies under consideration. For USD/JPY if the bid price is 136.50 and ask price is 136.55 then spread is 5 pips and you have to recover the five pips from your profit.

Margin used in the foreign currency exchange terminology refers to the deposit that a trader makes to his account to cover any losses expected in the future. A high degree of leverage is supplied by the brokers to traders for currency exchange. The ratio is 100:1 normally. The brokerage system will calculate the funds required for the current trade and will check for the availability of margin before executing any trade.

Forex Charts - Novice Trading Mistakes

Using Forex charts is like being a ships captain at sea: Your charts can help you navigate successfully to port or you can hit the rocks and drown - the choice is yours.

It’s the same with forex charts 95% of users drown – Let’s look at common errors that novice traders make and how to avoid them.

1. Predicting Price

No one can predict price movement and if you do - you are simply hoping levels will hold.

Do this and you will be wiped out quickly the market wont reward you for hoping or guessing.

If you want to win, act on the reality and that means - trading with price momentum AFTER a test of the level you are looking at.

Trade with momentum on your side and you are trading a fact and your odds of success are increased dramatically.

If you don’t use momentum indicators in your forex technical analysis learn what they are quickly.

2. Indicators Chosen and Misuse Of Them

A common error is to use lagging indicators to enter trades such as moving averages – This really leads on from the above: A

Always use momentum indicators to enter trades and only use lagging indicators to determine levels of support and resistance.

Many indicators traders use are useless good examples are:

Fibonacci levels and cycles - they again involve prediction and simply help wipe out equity.

3. Trading Invalid Data

Day traders are the worst offenders here. They are picking a short time frame where volatility is random they can’t calculate the odds - so they lose.

4. Systems that are to complicated

Some people devise very clever systems and lose.

Fact is - in forex trading you get your reward for being right – NOT Being clever.

Simple systems are best - as they are more robust and have fewer elements to break.

5. Not understanding volatility

Do you know what standard deviation of price is? If you don’t learn it backwards as this will help you determine everything from stop levels to targets for your trades and help you stay in winning trades longer and get better money management.

6. Your edge

Ask yourself this question:

What is your trading edge which will see you win when 95% of traders lose?

If you don’t know what it is – then find out or do more work on your forex trading strategy!

If you don’t know what your edge is kiss goodbye to your equity.

7. Following a method

Many traders have perfectly good methods but simply don’t have the discipline to follow them – if you dont have discipline you have no method in the first place.

If you want to enjoy currency trading success don’t make the mistakes above or you will lose.

Finally, there are a lot of vendors on the net promising you untold riches from their currency trading systems, for just a few hundred dollars – its not that easy so don’t buy them.

Trading is hard, but for the forex trader prepared to put in the work, the rewards can be immense.

Do your homework, be realistic and you could soon be making big returns from forex charts and executing some great trading signals for big profits.

Forex Trading – Experiencing low Gains? Simple Tips to Get Triple Digit Gains

In forex trading the bulk of traders experience mediocre gains or lose - this applies to 95% of traders. However many traders are closer than they think to achieving bigger gains and the simple tips below can be incorporated in any forex trading strategy to increase returns – lets look at them.

1. Trade Less

One of the major problems that traders have is they equate trading a lot with getting more profits and they simply trade too much.

There is NO correlation between how often you trade and how much you are going to make - so the first point is cut your trading back to high odds trades only.

This means hitting the long term trends and turning points that yield the really big profits. The big trades only occur a few times each month in a currency so focus on these.

Forget day trading and scalping - the odds are not in your favour and you are guaranteed to lose so don’t try – Hit the big trends and milk them for all you can.

2. Risk More

If your trading a small account don’t diversify ( this is another word for diluting potential gains ) so risk more per trade.

If the odds are in your favour you need to increase your bet size.

You will hear a lot of traders saying you should risk 2% per trade! Well if you don’t risk much you won’t gain much – risk 10 – 20% per trade and more if you have a total conviction the odds are in your favour.

The enemy of successful forex trading is volatility and you need to have your stop far enough back that you are NOT clipped out by it and trail your stop slowly.

With reward goes risk and that’s a fact.

Most traders are so afraid of risk they create it, by having stops to close and losing.

They think they have a low risk but they may as well have not bothered trading in the first place!

3. Use Momentum

The biggest error traders make is trying to predict – If you do you will lose.

Why?

If you predict you are hoping a level will hold and the market is not going to reward you for hope.

You need to make sure that whenever you trade price momentum is on your side. This means missing a bit of the move – but as you can’t predict it’s the best you can do and it will still mean you can make a lot of money as:

You are trading the reality and always trading with the trend.

If you get 70% of the major trends you will make a lot of money.

Trading The Odds For Bigger Gains

If you like the action and the buzz of trading the above is not for you but if you are interested in increasing profits from your forex trading strategy then you will find the above is logical common sense.

You will be trading the best odds trades, risking amounts that can give you big rewards and timing your entries for maximum profit to lowest risk and this over time means big profits.

Automated Trading Systems for Financial Markets and Recommendations for Their Usage

1. Introduction. Today using information and trading platforms has become a de facto requirement for successful trading in the financial markets. Their advantages as compared to conventional trading schemes include, for example, an unprecedented speed of processing and delivery of information to end users, the level of integration with data providers, and a wide array of built-in technical analysis instruments. At the same time, an investor opening an account with a brokerage firm simply cannot simultaneously manage the real-time analysis and trade in more than 4-6 financial instruments in several markets 24 hours 7 days a week. This brings about the need to employ automatic trading systems in the form of runtime environment with client and server parts and the programs to control these systems (scripts).

2. Comparative Analysis of the Problem Area. Various software components embrace the entire target sector of the market-from analytics and forecasting to complex trade and administration. The components of a trading platform provide its clients-brokers, dealers, traders, financial analysts and advisors-just the service they need at the very moment they need it, from immediate round-the-clock access to information of concern by means of mobile devices, to multi-move trading operations in the major client terminal. The software market offers a great many of information and trading platforms that differ, first of all, in the functionality of the client and server parts, and the list of services provided by the financial company once an account has been opened. However, only a relatively small number of software solutions include the components that automate trading.

2.1. MetaTrader4-based Solutions. One of the world's most widely used trade platform products is apparently MetaTrader4, developed by MetaQuotes Software Corporation for Forex market trading. The platform includes an integrated development environment (IDE) MetaEditor, intended for writing scripts in a programming language called MetaQuotes Language, or MQL4 for short. The language's syntax is based on the classic C language syntax, and the flow logic has not been significantly changed since the previous version of the platform that used MQL II as the programming language. The new automated trade framework is, undoubtedly, an evolution of the previous one. Both languages feature good functionality, with an optimum set of built-in trading and utility functions which is quite sufficient to implement the basic operations, and a facility to define custom functions to help implement non-standard ideas. From the programming point of view, MQL4 is much more convenient that its predecessor; this language is more oriented at professional programmers, while MQL II, in my opinion, will rather suit financial experts wishing to build trading programs (or trading advisors, in the MetaQuotes terminology) of their own.

2.2. Omega Research-based Solutions. In the New World, the vast majority of companies use the Omega Research platform developed by TradeStation Securities, Inc. This platform has long ago proven its worth at the worldwide market, and to date experts consider it to be the best system for technical analysis. The provided IDE called Omega Research PowerEditor is intended to create control programs in EasyLanguage (EL). The language's major advantage that strikes the eye is the easiness (hence is the name) of placing opening and closing orders. The corresponding program instructions can be written such as if we were formulating an order to our broker in the plain human language. In MQL4, for example, placing an order to open a position would involve specifying about a dozen of various parameters. In EasyLanguage, the same can be expressed in a short statement using a few words. Working with technical indicators is about that simple, too. But don't fall under an illusion: when creating these simple commands, language developers sacrificed the functionality and limited the possible ways of using a particular function, therefore effectively depriving the IDE users of the opportunity to accurately implement their own algorithms. TradeStation decided not to create extensive libraries of built-in trading and utility functions but to limit to only an essential set. As the platform advanced, the number of functions written by both in-house and third-party developers grew, and TradeStation simply included them as user-defined functions into the repository of its scripts. As a result, the functionality offered to users is not in the least scarcer than that of MetaQuotes product. PowerEditor provides a built-in dictionary that lets user search and get help on the available functions. Another handy tool worth mentioning is the strategy builder. Using the strategy builder, the user can easily create a basic algorithm for his or her trading program, and then modify and adjust it as necessary. EasyLanguage is an old-timer and pioneer in the field of creating automated trading systems for the stock market. It was the basis for the development of MQL II. EasyLanguage will be a good choice for programmers, but still a better one for financial experts more oriented at analyzing the market than trading.

2.3. ProTrader-based Solutions. Professional financial experts can choose the ProTrader2 or ProTraderFX platform as their working tool, depending on the type of the financial market-stock or Forex, respectively. The two platforms are developed and supported by PFSoft LLC. While featuring the specially developed ProTrader Language (PTL), the provided IDE named PTL Builder offers also the opportunity to create scripts in MQLII, MQL4 and EasyLanguage. For this, the text of the program is translated to a language-independent code. Therefore, at runtime it does not matter in which language the script was written. This technology does not only enable creating new scripts, but makes it possible to use freely the entire accumulated collection of scripts that many experienced traders possess. The main idea put into the new scripting language was to ensure maximum reliability and predictability of the scripts being run. The PTL language is built so as to minimize the possibility of making a mistake in the text of a user's script-the potentially dangerous points will be detected even before the script is tested or launched. Regardless of the programming language chosen, the platform works with verified managed code while running the script. This Microsoft-developed technology enables proper handling of errors that cannot be detected before the script is run. This means the program will not fail and will not perform any unwanted operations that might be due to critical errors or damage caused by another program, for which the account holder would eventually have to pay. The PTL Builder IDE will serve well both financial experts and programmers thanks to its support of different programming languages and provided tools such as tester and debugger.

3. Approaches for Creating Automated Trading Systems and Recommendations for Using Them. It hardly needs mentioning that choosing an information and trading platform should be taken with all seriousness. For those who plan to use an automated trading system in their business, below are some points I would recommend considering, based on my personal experience.

Choosing a Working Environment First of all, define the type of tasks the automated trading system is to perform. These could be:

Actual trading: opening and closing positions in selected instrument(s). Secondary support-type functions. These could include placing protective orders, creating and sending out reports of notifications. Analyzing the market with different technical analysis tools using your own algorithm. Now, after you have studied user comments on the Internet and perhaps consulted your broker, proceed to getting the feel of the products offered. I strongly encourage you not to just have a cursory look, but to test the system for a day of two, thankfully, most of the large companies will let you sign up for a demo account for testing. Pay attention to both the convenience of the IDE and the tools that go with it, and to reliability and security of the control programs created with the IDE.

4. Conclusion. In this article, I neither discuss any programming rules for creating the advisors, nor the specifics of writing scripts in a particular language. On these subjects, there are whole books written as well as a number of articles. My aim was to present several points which I think to be quite important but which have not been sufficiently covered in existing publications. So, are automated trading systems your ally or enemy? When used carefully and without hasty judgments, an automated trading system can facilitate the financial expert's work and bring in certain profits. But when used incorrectly, incompletely tested, or having settings changed frequently, the automated trading system can lose the money you entrust to it. Remember that an automated trading system is not going to do your job for you without any effort on your part. Use it to solve your existing problems and not add new ones.

Incorporating Price Action Into a Forex Trading System

For the past couple of years Forex market has become very famous. It is a common question that how many dealers make it in the Forex trading. Sadly only fiver percent are able to make it. One point can be that Forex dealers are not aware of the right area to concentrate their focus, in which direction and what decisions have to be taken. Price factor plays an important factor which is not given much importance by the Forex dealers.

Technical indicators comprises of the majority of the Forex trading methods such as moving average, overbought/oversold state in an oscillator, crossover etc. The question arises that what are indicators? They are just a sequence of data points that are planned in a chart and these points are obtained from mathematical methods which are used for the price for any currency. In simple terms it is a chart of price planned in a such a way that we are also introduced to other price also.

As a matter of fact that the majority of the readings acquired are totally derived from the price action. For example a long MA crossover signal the price has increased considerably to make the shorter period MA cross the long period MA producing a major signal. It is generally believed that MA crossover is the reason behind the increased price which is not a genuine reason as MA crossover signal appeared as the price rise. What I am trying to say is that eventually it is the price factor that will decide the functioning of the indicator and the outcome can be decided on any decision trading.

If we try to figure out the trading outcome derived from technical indicators without including the price factor then you cannot get positive effects. For instance, a long signal produced by the MA crosses with the advancement of the market reaches to its resistance stage. There is no point of making use of the signal where the price all of a sudden makes a comeback from that important stage. The price factor justifies that the market is not yet ready to experience an increase. In this situation the market will definitely crash down ignoring MA crossover.

Technical indicators are very essential feature of the trading. These assist us to see all those state those are sometimes difficult by only watching price factor. The involvement of the price factor in the Forex trading methods certainly will turn the difficulties in our support and will assist in increasing the trade.

The question is how to prepare an accurate Forex trading method?

First and foremost, it is very important to choose a trading system that matches your individuality so that you can easily follow it. The requirements and objectives are different for every trader and no system is complete in itself. It is you who have to take the decision of which style and technical indicators to adopt till the time you find the appropriate one. It is very important to know about what technical indicator you are using.

The second step is to add in the price factor to the system that you have adopted. It is beneficial for you as it will guide you to take the long signals if the price factor informs that if the market it going to rise or not and taking short signals just in case the market is decreasing. Thirdly it is very essential to follow the method religiously you have selected for your Forex trading. It is recommended to try out first on a demo account then moving to the small accounts and in the end when you are comfortable in using and operating then shift it to the real account.

Swing Trading With Elliot Wave For Bigger Forex Profits

Elliot wave is one of the most popular methods of trading and although originally devised for the stock market swing trading with Elliot wave is very popular with forex traders.

Let’s look at swing trading with Elliot Wave in more detail

Elliott Wave theory is named after Ralph Nelson Elliott, who concluded that the markets moved in a repetitive pattern of waves and was a reflection of human nature.

He attributed this action to the mass psychology of the market which never changes and can therefore be predicted with scientific accuracy.

Elliott Wave patterns follow a specific pattern that the markets move up in a series of 3 waves and then down in a series of 2 waves in a bull market. The 3 wave impulse and 2 wave corrective sequences form the basis of his method of a 5 Wave impulse pattern, with the reverse occurring in a bear market.

In Elliot wave theory there is also a use of the Fibonacci number sequence which is specific retracement levels to help calculate the waves.

So by trading these waves, a forex trader can look at his forex charts and swing trade with Elliot Wave and make consistent profits from his forex technical analysis.

It’s a scientific way of making profits according to Elliot waves and his disciples – so does it work?

The answer is it has to be one the biggest myths of forex trading that Elliot Wave Theory can lead you to currency trading success (lets ignore the fact that there is no hard evidence that Elliot made any money from his own theory) and look at why the theory is flawed.

1. If it’s a scientific theory:

It should be objective!

If human psychology can be predicted with scientific accuracy it should tell you exactly what to do, but of course it doesn’t – it leaves everything to your subjective judgment, so it can’t be a scientific theory – it’s a total contradiction in terms.

You have to look at the waves and decide what happens next - does that sound scientific to you?

2. Human Psychology is not scientific!

Of course it isn’t and neither are currency markets.

If there was a scientific theory that allowed people to predict prices in advance there would be no market- as we would all know the price beforehand.

Forex markets move on differences of opinions and these cannot be measured scientifically – This is common sense.

3. The Fibonacci Number sequence

This number sequence is loved by the far out investment community and was developed in the 12th century by Leonardo Fibonacci. It was NOT developed for the purposes of trading forex markets though - but was developed to solve a problem posed by the copulation of rabbits!

In fact I am sure if Leonardo Fibonacci was around today, he would be bemused by the way his theory is used by the believers of Elliot Wave.

So there you have it:

A scientific theory that is not scientific at all and is totally illogical.

Forex Trading – These Traders Made Millions after Just 14 Days Studying The Markets

The turtle story is perhaps one of the most inspiring trading stories ever and if you want to learn forex trading, then you should study how they did it.

Let’s look at it in more detail.

The Experiment

Legendary trader Richard Dennis set out to prove over 20 years ago, that successful trading could be learned by anyone and set out to prove his point.

He took 23 people all with no trading experience:

Male, female, young, old and from a variety of jobs - many of them blue collar and set out to teach these people a method they could use to make big profits.

The result?

These traders went on to be some of the most successful and famous traders of all time and made him over $100 million dollars.

How did they do it and how did he teach them so quickly?

Let’s take a look.

Dennis set out to teach them a simple method; they could have confidence in and apply it with discipline and then added a set of money management rules to preserve equity.

There was no filler - he just taught them the knowledge they needed to win.

It’s a fact that trading is relatively simple, yet few succeed - and they fail for two main reasons:

- They do not have sufficient confidence in their method to follow it with discipline And:

- They cannot run profits and cut losses.

Dennis focused on these two areas taught them how to overcome these obstacles and the group succeeded.

Is it really that easy to learn forex trading?

The answer is yes and no.

It’s a fact that forex trading can be learned by anyone, yet most traders don’t succeed but this is down to them – the opportunity is there for everyone.

Trading is hard (as any venture is in life where there is big money to be made) but there is a big difference between something being hard and not being achievable.

You can succeed but just like the turtles, you must get the RIGHT forex education and learn the right mindset for success.

Trading success in forex is a combination of the right mindset and the right knowledge.

Most traders simply learn the wrong information or are lazy and expect some guru or mentor, to give them success and lose.

Unfortunately most of the systems and e-books sold on the net are not from traders but from marketing companies who never trade the system!

They make their money making claims that have no substantiation and the gullible novice traders fall for it.

The challenge

If you have a burning desire to succeed and are prepared to apply yourself to trading in the right way, by learn the right knowledge, then you can enjoy currency trading success. The question is:

Are you up for the challenge?

If you are, forex trading can offer you the opportunity to make big consistent gains and brighten your financial future – the opportunity is there now, are you have to take it?

Good luck!

The Tao Of The Wealthy Currency Trader

The word 'tao' literally means 'way,' so what we will talk about in this article is the way of the wealthy currency trader.

For clarification, the market to which I am referring is the foreign exchange (forex) or currency market, which is the highest volume market in the world.

(Throughout, I will also be using the pronoun 'he,' but ladies this information applies equally to you as well!)

The single most important thing that a wealthy and successful currency trader needs is his confidence. It is this intuitive confidence that will allow him to continually and reliably reap great rewards from the forex markets.

The way that I use the word 'confidence' above is different than the way the word is used in everyday conversation. For the currency trader, I mean that he is always calm and collected, he has completely divorced any and all emotion from his trading activity, he feels good about every trade he makes and he is supremely confident in his decision-making abilities.

The ability to divorce his emotions from his trading is of the utmost importance, and this is a learned skill that comes from experience trading demo and live accounts over time.

The wealthy currency trader has a highly developed intuitive sense; in terms of his trading, this means that in his mind he is able to visualize and conceptualize the value of different world currencies in his mind, and he can see how his trades should play out before he enters them.

The major world currencies that he is concerned with are:

United States Dollar - USD, British Pound - GBP, Swiss Franc - CHF, Euro - EUR, Canadian Dollar - CAD, Australian Dollar - AUD, New Zealand Dollar - NZD

By examining certain important economic indicators for a specific country's currency, he uses his intuitive sense to create an instinctual or gut feeling of what the value of that currency should be.

He relies much more on his mind and his instinctual feelings rather than on overly complicated charts or indicators.

The wealthy currency trader does not like to lose money, though he does realize that losing trades are to be expected because of the inherent risk of the forex market, and when he does lose money he does not get emotional about it.

Because he does not like to lose money, he is not a fan of pure technical analysis probability trading. The idea behind a purely technical based strategy is that you will have lots of winning and losing trades, but over time there will be a greater volume of winning trades than losing ones.

This does not work for the wealthy currency trader, because he would much rather have winning trades all the time. It is for this reason that he uses much trepidation in his decisions about when to place a trade, and he knows that the best times to place sure-fire winning trades is around the time of economic indicator releases.

The wealthy currency trader knows that there are around 30-50 economic indicators released every month that have a significant impact on the exchange rates of major world currencies. He also knows that immediately prior to the release of this indicator, the market has already factored in the estimated value that the indicator SHOULD be released at. This means that if the figure of the indicator differs significantly from expectations, this is a potential trading opportunity and will usually play out to be a winning trade.

Win at Forex With a Master Mind

As a professional Forex money manager I have the unique opportunity to converse with investors from all walks of life, and in the process I've noticed a common question amongst the majority of individuals. Time and time again I'm asked what the chances are of becoming a true success trading the currencies market.

If I answered this question by stating: "On average 80% of today's Forex traders will succeed" you might be justified in calling me crazy, however some 15 years ago one might be inclined to answer with such bold figures. Certainly it would not be uncommon for at least 50 to 60% of the chosen few Forex traders to achieve success in those days. Trading Forex was new and profits were there for the taking. Daily price movements were somewhat more predictable and the competition was not nearly as aggressive as it is today.

As time moved on from the late 80s, early to mid 90s and on up to our Present day the success rate dropped drastically as the Forex market progressively became saturated with day traders; this in turn made for a more unpredictable trading environment. The "white noise" we experience intra-day is in part the efforts of the masses, each trader grabbing at what they can to secure their daily profits. It's unfortunate to take note that less than 10% of the investors currently trading the Forex market come out on top.

Let's take a closer look at the real ratio of winners to losers. You see, it's important to understand that this isn't a luck of the draw situation. When you look at figures like 1-in-10 there is certainly much more than meets the eye beneath these numbers. Let's explore this thought further.

Take 10 traders asking the question "What are my chances at succeeding in Forex" and try to find out which of them has the mind of a champion. The answer is rather disappointing, as those who think big do not ask small questions like this. Thus you will not end up with 1 winner and 9 losers. It doesn't matter how many people you tested this theory on, be it 10 or 500+. But how can this be the case if the odds of success are 1-in-10? That is a very good question as within the answer lies one of the keys to your trading success regardless of which system, method or school of thought you subscribe to.

From those who are winning constantly we notice a pattern. Specifically the pattern of positive questions, they tend to stay away from a losing attitude by not asking self defeating questions such as: "Why do I keep losing trades, am I any good at all?" but unfortunately the vast majority of those who are not making steady growth have no option but confusion as they wonder why they aren't on the winning end of things; constantly asking: "Why do I keep losing in Forex?" and inevitably receiving rather discouraging and uninformative answers. You might find yourself saying "I just don't try hard enough" which doesn't help encourage you in any way nor does it point you in the right direction. It only leaves you looking down on yourself in guilt. Not a very winning attitude at all and it definitely won't help you take hold of your financial destiny. If you don't want to be left in the dark without a lamp then it's time to take control of your mind and give yourself the psychological edge you need and deserve.

Forex Trading - Proven Methods For Generating Consistent Profits

When I see so many people with powerful dreams and desires for their lives looking to the Forex market I really feel for them. I remember when I first started investigating Forex trading and started to get an understanding of what it can do, I could hardly sleep at night because of all the wheels that kept turning in my mind. I kept asking the people I knew who were already involved in Forex trading, "You mean I can now live anywhere in the world or travel as long as I have a laptop and wireless internet?" Yes! "You mean I can start with a very small amount of money and within a year be making more money than I could have after 5 years of real estate investing? Yes! The more I thought about it the more excited I got.

Once I got started learning to trade, however, I started to see that it just wasn't as easy as what the brokers and training salesmen tried to make it out to be. In fact, after visiting some of the forex forums out there and listening to all the negative discussion I began to wonder if anyone really made money in the trading world. I watched many people join various training programs, get discouraged and eventually give up. Fortunately I knew that success was possible and continued to work on my trading while studying every training program I could find. I started to meet people personally who were credible ordinary people who had gotten through the struggling period and actually multiplied their accounts just like the trading plan formulas show. Rather than put 100% faith in a particular program I gathered information from every source I could. During this time I was privileged to have a series of breakthroughs and insights some of which most traders never see. While others would follow a particular trading program like a religion then give it up and "convert" to another guru's system, I continued to take the best of all that I found and put it all together in the testing ground of my own experience.

After a couple of years I was still trading and finally started to see the results I was looking for. The potential results in Forex trading are so amazing and exciting that once you experience it there is nothing else that compares. The first thing I did was quit my previous business and move to Santa Fe to enjoy the sunny climate, artistic community, the beautiful Rocky Mountains and surrounding desert. Next year I may move to Aspen or to Fiji or Switzerland. Now I am only doing what is most fulfilling in my life. I can finally live by T Harv Eker's wealth statement, "I work because I choose to, not because I have to." There are many things I love being involved in and I don't do them for money because the money department is taken care of.

When some of my associates started asking me to show them how I trade the thought of being involved in forex trading training kind of defeated my purpose for trading. I really don't want another job and training is a job. Plus, I never really cared much for "public speaking" if you know what I mean. Well, after some coaxing I realized that with today's web conferencing technology I can show people exactly what I am doing while sitting in my adobe courtyard watching another incredible Santa Fe sunset. Or from the alpine European style lodge where I vacation in Aspen. Plus I do enjoy helping others succeed and that fits in well with my chosen mission in life. So, here we go!

Understand Your Currencies

In the forex markets, it is important to understand the nature of the currencies you are trading. It is worth knowing the characteristics of the currency pairs, since each of them exhibit distinct identities. There is a fact that most of the currencies might exhibit similar movement patterns, which can help a trader confirm price movements. Trader can look at two pairs of currencies that have almost similar or completely opposite price movement patterns to get better predictions. Let take an example of the close relation between the EUR/USD & USD/CHF.

The price movements of these two currency pairs are absolute mirror images. In short, they have an inverse relationship. If EUR/USD is rallying, then USD/CHF should have downward movement, and vice-versa.

How can traders take advantage of this? The most obvious fact is that one must not trade both the currencies at the same time. If one is long the EUR/USD, logically one should not be long the USD/CHF at the same time, since the USD/CHF would have a downward movement.

Neither is it wise to take opposing trades on these two pairs, because if the trade goes wrong, then the trader would incur losses in both the trades (although the trader also might have double profit if the trade goes right, but anyway, in forex trading, we focus on how to not get loss first).

Ideally, one should trade either of the two pairs. The best way to take advantage of this fact is to cross-check a trade by looking for confirmation factors on the other pair. If a trader is planning to take a long position in the EUR/USD, he can look for a similar short setup on the USD/CHF. If such an opposite setup is present in the USD/CHF, it only adds further credence to his long EUR/USD trade. It is just a check.

There are other currency pairs also which exhibit a close relation. This fact serves as a good rule of thumb to estimate the movement of the particular currency. Thus it is worth studying these relationships to gain a higher edge in the market. As you know, sometimes a basic knowledge can also serve as a turning point between failure and success.