Mistakes Of The Beginning Trader

Your FOREX Trading Philosophy

"Easy money" is the allure that captivates many beginning FOREX traders.

FOREX websites offer "risk-free" trading, "high returns", "low investment." These claims have a grain of truth in them, but the reality of FOREX is a bit more complex.

There are 2 common mistakes that many beginner traders make: trading without a strategy and letting emotions rule their decisions. After opening a FOREX account it may be tempting to dive right in and start trading. Watching the movements of EUR/USD for example, you may feel that you are letting an opportunity pass you by if you don't enter the market immediately. You buy and watch the market move against you. You panic and sell, only to see the market recover.

This kind of undisciplined approach to FOREX is guaranteed to lose money. FOREX traders must have a rational trading strategy and not make trading decisions in the heat of the moment.

Understanding Market Movements

Your FOREX Trading Philosophy

To make rational trading decisions, the FOREX trader must be well educated in market movements. He must be able to apply technical studies to charts and plot out entry and exit points. He must take advantage of the various types of orders to minimize his risk and maximize his profit.

The first step in becoming a successful FOREX trader is to understand the market and the forces behind it. Who trades FOREX and why? This will allow you to identify successful trading strategies and use them.

Accountability

Your FOREX Trading Philosophy

There are 5 major groups of investors who participate in FOREX: governments, banks, corporations, investment funds, and traders. Each group has its own objectives, but 1 thing all groups except traders have in common is external control. Every organization has rules and guidelines for trading currencies and can be held accountable for their trading decisions. Individual traders, on the other hand, are accountable only to themselves.

Large organizations and educated traders approach the FOREX with strategies, and if you hope to succeed as a FOREX trader you must follow suit.

Money Management

Your FOREX Trading Philosophy

Money management is an integral part of any trading strategy. Besides knowing which currencies to trade and how to recognize entry and exit signals, the successful trader has to manage his resources and integrate money management into his trading plan.

There are various strategies for money management. Many rely on the calculation of core equity -- your starting balance minus the money used in open positions.

Core Equity And Limited Risk

Your FOREX Trading Philosophy

When entering a position try to limit your risk to 1% to 3% of each trade. This means that if you are trading a standard FOREX lot of $100,000 you should limit your risk to $1,000 to $3,000. You do this with a stop loss order 100 pips (1 pip = $10) above or below your entry position.

As your core equity rises or falls, adjust the dollar amount of your risk. With a starting balance of $10,000 and 1 open position, your core equity is $9000. If you wish to add a second open position, your core equity would fall to $8000 and you should limit your risk to $900. Risk in a third position should be limited to $800.

Greater Profit, Greater Risk

Your FOREX Trading Philosophy

You should also raise your risk level as your core equity rises. After $5,000 profit, your core equity is now $15,000. You could raise your risk to $1,500 per transaction. Alternatively, you could risk more from the profit than from the original starting balance. Some traders may risk up to 5% against their realized profits ($5,000 on a $100,000 lot) for greater profit potential.

These are the kinds of strategic tactics that allow a beginner to get a foothold on profitable trading in FOREX.

Money Market

Call money market
A market that consists of the borrowing of money by brokers and dealers for the purpose of meeting their credit needs.

Generally this money is used to either cover their customersâ?? margin accounts or finance their own inventory of securities. Along with day-to-day loans, call money loans play a significant role in interbank money dealings and between banks and money market dealers. The term â??call moneyâ?? alone usually refers to either secured or unsecured callable loans made by banks to money market dealers. Generally these loans are made on a short term basis.

Floating currency

A floating currency is a currency that uses a floating exchange rate as its exchange rate regime. A floating currency is contrasted with a fixed currency.

In the modern world, the majority of the world's currencies are officially but not really floatingincluding the most widely traded currencies: the United States dollar, the Japanese yen, the euro, the British pound and the Australian dollar. The Canadian dollar most closely resembles the ideal floating currency as that their central bank has not interfered with its price since it officially stopped doing so in 1998.

The United States is a close second with very little changes in its foreign reserves; by contrast, Japan and the UK continually interfere with the prices of their respective currencies. From 1946 to the early 1970s, the Bretton Woods system made fixed currencies the norm; however, in 1971, the United States government abandoned the gold standard, so that the US dollar was no longer a fixed currency, and most of the world's currencies followed suit.

A floating currency is one where targets other than the exchange rate itself are used to administer monetary policy.
The People's Republic of China recently unpegged their currency, which was formerly pegged to the US dollar, and allowed it to float within a carefully managed range of values relative to the dollar and other currencies.

Floating exchange rates

A floating exchange rate or a flexible exchange rate is a type of exchange rate regime wherein a currency's value is allowed to fluctuate according to the foreign exchange market. A currency that uses a floating exchange rate is known as a floating currency. The opposite of a floating exchange rate is a fixed exchange rate.


There are economists who think that, in most circumstances, floating exchange rates are preferable to fixed exchange rates. As floating exchange rates automatically adjust, they enable a country to: dampen the impact of shocks & foreign business cycles; and preempt the possibility of having a balance of payments crisis. However, in certain situations, fixed exchange rates may be preferable for their greater stability and certainty.


This may not necessarily be true, considering the results of countries that attempt to keep the prices of their currency "strong" or "high" relative to others, such as the UK or the Southeast Asia countries before the Asian currency crisis. The debate of making a choice between fixed and floating exchange rate regimes is set forth by Mundell-Fleming model understood, which argues that an economy cannot simultaneously maintain a fixed exchange rate, free capital movement, and an independent monetary policy. It can choose any two for control, and leave third to the market forces.

In cases of extreme appreciation or depreciation, a central bank will normally intervene to stabilize the currency. Thus, the exchange rate regimes of floating currencies may more technically be known as a managed float. A central bank might, for instance, allow a currency price to float freely between an upper and lower bound, a price "ceiling" and "floor". Management by the central bank may take the form of buying or selling large lots in order to provide price support or resistance, or, in the case of some national currencies, there may be legal penalties for trading outside these bounds.

Devaluation

Devaluation is a reduction in the value of a currency with respect to other monetary units. In common modern usage, it specifically implies an official lowering of the value of a country's currency within a fixed exchange rate system, by which the monetary authority formally sets a new fixed rate with respect to a foreign reference currency. In contrast, (currency) depreciation is used for the unofficial decrease in the exchange rate in a floating exchange rate system. The opposite of devaluation is called revaluation.

Depreciation and devaluation are sometimes incorrectly used interchangeably, but they always refer to values in terms of other currencies. Inflation, on the other hand, refers to the value of the currency in goods and services (related to its purchasing power). Altering the face value of a currency without reducing its exchange rate is a redenomination, not a devaluation or revaluation.

Gold Standard

The gold standard is a monetary system in which a region's common media of exchange are paper notes that are normally freely convertible into pre-set, fixed quantities of gold. The standard specifies how the gold backing would be implemented, including the amount of specie per currency unit.

The currency itself has no innate value, but is accepted by traders because it can be redeemed for the equivalent specie. A U.S. silver certificate, for example, could be redeemed for an actual piece of silver.

Gold was a common form of representative money due to its rarity, durability, divisibility, fungibility, and ease of identification.

Representative money and the gold standard were used to protect citizens from hyperinflation and other abuses of monetary policy, as were seen in some countries during the Great Depression. However, they were not without their problems and critics, and so were partially abandoned via the international adoption of the Bretton Woods System.

Under this system all other major currencies were tied at fixed rates to the dollar, which itself was tied to gold at the rate of $35 per ounce. That system eventually collapsed in 1971, which caused most countries to switch to fiat money, backed only by the laws of the country. Austrian economists strongly favor a return to a 100 percent gold standard.

Under a gold standard, the long term rate of inflation (or deflation) would be determined by the growth rate of the supply of gold relative to total output. Critics argue that this will cause arbitrary fluctuations in the inflation rate, and that monetary policy would essentially be determined by gold mining, which some believe contributed to the Great Depression

Fixed Exchange rate

Under a fixed exchange rate currency regime, a country's currency is tied in value to another single currency or to a basket of other currencies (or sometimes to another measure of value, such as gold). A fixed exchange rate is usually used to stabilize the value of a currency, vis-a-vis the currency it is pegged to. It can also be used as a means to control inflation. However, as the value of the reference currency rises and falls, so does the currency pegged to it. This essentially means that the inflation rate in the fixed exchange rate country is determined by the inflation rate of the country the currency is pegged to. In addition, a fixed exchange rate prevents a government from using domestic monetary policy in order to achieve macroeconomic stability.

Monetary Policies

Today the primary tool for controlling inflation is monetary policy. Most central banks are tasked with keeping the federal funds lending rate at a low level, normally to a target rate around 2% to 3% per annum, and within a targeted low inflation range, somewhere from about 2% to 6% per annum.

There are a number of methods that have been suggested to control inflation. Central banks such as the U.S. Federal Reserve can affect inflation to a significant extent through setting interest rates and through other operations. High interest rates and slow growth of the money supply are the traditional ways through which central banks fight or prevent inflation, though they have different approaches.

For instance, some follow a symmetrical inflation target while others only control inflation when it rises above a target, whether express or implied.
Monetarists emphasize increasing interest rates (slowing the rise in the money supply, monetary policy) to fight inflation. Keynesians emphasize reducing demand in general, often through fiscal policy, using increased taxation or reduced government spending to reduce demand as well as by using monetary policy.

Supply-side economists advocate fighting inflation by fixing the exchange rate between the currency and some reference currency such as gold. This would be a return to the gold standard. All of these policies are achieved in practice through a process of open market operations.

Inflation

In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time. The term "inflation" once referred to increases in the money supply, however, economic debates about the relationship between money supply and price levels have led to its primary use today in describing price inflation.

Inflation can also be described as a decline in the real value of money—a loss of purchasing power in the medium of exchange which is also the monetary unit of account.

When the general price level rises, each unit of currency buys fewer goods and services. A chief measure of price inflation is the inflation rate, which is the percentage change in a price index over time.

Inflation can cause adverse effects on the economy. For example, uncertainty about future inflation may discourage investment and saving. High inflation may lead to shortages of goods if consumers begin hoarding out of concern that prices will increase in the future.
Economists generally agree that high rates of inflation and hyperinflation are caused by an excessive growth of the money supply.

Views on which factors determine low to moderate rates of inflation are more varied. Low or moderate inflation may be attributed to fluctuations in real demand for goods and services, or changes in available supplies such as during scarcities, as well as to growth in the money supply. However, the consensus view is that a long sustained period of inflation is caused by money supply growing faster than the rate of economic growth.

Today, most economists favor a low steady rate of inflation.
Low (as opposed to zero or negative) inflation may reduce the severity of economic recessions by enabling the labor market to adjust more quickly in a downturn, and reducing the risk that a liquidity trap prevents monetary policy from stabilizing the economy.

The task of keeping the rate of inflation low and stable is usually given to monetary authorities. Generally, these monetary authorities are the central banks that control the size of the money supply through the setting of interest rates, through open market operations, and through the setting of banking reserve requirements.

Real Interest rate

The "real interest rate" is approximately the nominal interest rate minus the inflation rate. Since the inflation rate over the course of a loan is not known initially, volatility in inflation represents a risk to both the lender and the borrower.

Risk
In economics and finance, an individual who lends money for repayment at a later point in time expects to be compensated for the time value of money, or not having the use of that money while it is lent. In addition, they will want to be compensated for the risks of having less purchasing power when the loan is repaid.

These risks are systematic risks, regulatory risks and inflation risks. The first includes the possibility that the borrower will default or be unable to pay on the originally agreed upon terms, or that collateral backing the loan will prove to be less valuable than estimated. The second includes taxation and changes in the law which would prevent the lender from collecting on a loan or having to pay more in taxes on the amount repaid than originally estimated.

The third takes into account that the money repaid may not have as much buying power from the perspective of the lender as the money originally lent, that is inflation, and may include fluctuations in the value of the currencies involved.

Nominal interest rate
Nominal interest rates include all three risk factors, plus the time value of the money itself. Real interest rates include only the systematic and regulatory risks and are meant to measure the time value of money. Real rates = Nominal rates minus Inflation and Currency adjustment. The "real interest rate" in an economy is often the rate of return on a risk free investment, such as US Treasury notes, minus an index of inflation, such as the CPI, or GDP deflator.

Interest rates

An interest rate is the price a borrower pays for the use of money they do not own, for instance a small company might borrow from a bank to kick start their business, and the return a lender receives for deferring the use of funds, by lending it to the borrower. Interest rates are normally expressed as a percentage rate over the period of one year.
Interest rates targets are also a vital tool of monetary policy and are used to control variables like investment, inflation, and unemployment.

Interest rates throughout history have been variously set either by national governments or central banks. For example, the Federal Reserve federal funds rate in the United States has varied between about 0.25% to 19% from 1954 to 2008, while the Bank of England base rate varied between 15% and 1% from 1989 to 2009, and Germany experienced rates close to 90% in the 1920s down to about 2% in the 2000s. During an attempt to tackle spiralling hyperinflation in 2007, the Central Bank of Zimbabwe increased interest rates for borrowing to 800%.

Deferred consumption. When money is loaned the lender delays spending the money on consumption goods. Since according to time preference theory people prefer goods now to goods later, in a free market there will be a positive interest rate.
Inflationary expectations. Most economies generally exhibit inflation, meaning a given amount of money buys fewer goods in the future than it will now. The borrower needs to compensate the lender for this.

Alternative investments. The lender has a choice between using his money in different investments. If she chooses one, she forgoes the returns from all the others. Different investments effectively compete for funds.
Risks of investment. There is always a risk that the borrower will go bankrupt, abscond, or otherwise default on the loan.

This means that a lender generally charges a risk premium to ensure that, across his investments, he is compensated for those that fail.
Liquidity preference. People prefer to have their resources available in a form that can immediately be exchanged, rather than a form that takes time or money to realise.
Taxes. Because some of the gains from interest may be subject to taxes, the lender may insist on a higher rate to make up for this loss.

The nominal interest rate is the amount, in money terms, of interest payable.
For example, suppose a household deposits $100 with a bank for 1 year and they receive interest of $10. At the end of the year their balance is $110. In this case, the nominal interest rate is 10% per annum.

The real interest rate, which measures the purchasing power of interest receipts, is calculated by adjusting the nominal rate charged to take inflation into account.
If inflation in the economy has been 10% in the year, then the $110 in the account at the end of the year buys the same amount as the $100 did a year ago. The real interest rate, in this case, is zero.

Asia and other parts of the globe

Traveling in Asia is often a culture shock, and this is magnified when it comes to tipping. While most of the globe follows the thinking that gratuities are required, or at the very least expected, many countries in Asia strictly forbid it, and many service workers will be offended if you attempt to tip them.

Tipping is not the custom in India, China, Korea, Taiwan, and especially Japan. Likewise, in Australia and New Zealand, tipping has not historically been a custom and it is not expected, although the practice is growing, and has become especially common in the tourist areas.

Other parts of the globe also have some guidelines for tipping. Canada is very similar to the U.S., as is Mexico. The key thing to keep in mind when traveling is to be respectful of the customs in the country you are visiting.

It is also better to lean towards generosity rather than stinginess when in doubt. Also, keep in mind that many restaurants and hotels add on a charge for gratuity, so carefully inspect the bill before leaving a tip.

Furthermore, if you are traveling on business it is especially important that you represent yourself well. Always be sure to tip well when it is called for, and give your client the impression that you are interested in seeing others succeed.

Tipping is definitely a touchy subject for many, but if you can master it, then you will enjoy yourself far more, and also ensure the happiness of those around you.

Europe

In Europe, workers in the service industries are generally paid higher wages than in America, and therefore tipping is not always customary. When people do tip they generally tip less than in the states. However, it varies from country to country. Central European countries like Germany, Switzerland, Austria, and Holland tip between 5-10% as a common practice, although it is not always required to tip. Countries like Spain and Italy are not advocates of tipping. In France and the Scandinavian countries, a service charge is included in the bill, while Ireland and the U.K. generally adhere to an optional tipping policy. When traveling in Europe, unless you are in Spain or Italy, it is generally a good idea to leave a tip close to 10% unless the charge is included, or the service was not satisfactory.
source: gocurrency

Europe

In Europe, workers in the service industries are generally paid higher wages than in America, and therefore tipping is not always customary. When people do tip they generally tip less than in the states. However, it varies from country to country. Central European countries like Germany, Switzerland, Austria, and Holland tip between 5-10% as a common practice, although it is not always required to tip. Countries like Spain and Italy are not advocates of tipping. In France and the Scandinavian countries, a service charge is included in the bill, while Ireland and the U.K. generally adhere to an optional tipping policy. When traveling in Europe, unless you are in Spain or Italy, it is generally a good idea to leave a tip close to 10% unless the charge is included, or the service was not satisfactory.
source: gocurrency

Travelers

For many travelers, one of the central sources of angst and confusion is how to tip in a manner that is neither miserly, nor extravagant. Travelers run into far more situations where tipping is a concern than they would in their everyday life at home. And it's made more uncomfortable due to the fact that when visiting abroad, the customs are foreign and easily misunderstood. Taxi drivers, porters, valets, waiters, and barbers/hairstylists are just some of the people you will encounter who will provide you with a service, and may or may not expect or require a gratuity.

The first key to understanding tipping is realizing the situation at hand. Starting with restaurants, the general rule is between 10-20% of the bill before taxes. Some people choose to tip extra if they feel the service is outstanding, while many will leave a small tip or not tip at all if they feel the service is terrible. However, not leaving a tip because the service did not meet expectations can often lead to a confrontation. It is often better to leave some kind of a tip; but be sure address the situation with the manager. It is also vital to know the local customs when it comes to tipping.

In America, tipping is expected, and we are known to be some of the most generous tippers around. Many people in the service industry depend on tips to supplement their wages, which are often set artificially low in expectation of the tips they will receive. The key thing to remember is that tipping is a personal decision, but it affects others. So the idea of treating others as you would want to be treated clearly resonates. Be wary of restaurants that add a tip to the bill automatically: no one should pay two tips for the same meal.
source: gocurrency

Dominican Republic

The Dominican Republic is a relatively new destination to think of when planning for your retirement, but its popularity as a retirement location has been growing exponentially. Reasons for its new popularity include but certainly are not limited to the near perfect weather, absolutely gorgeous beaches and golf courses and of course the great exchange rates for Americans.

These factors combined with the fact that because the Dominican Republic is a relatively new developing country, it is extremely affordable in most areas, it is safe to assume that its popularity will only be increasing further in the near future.

When choosing a retirement location, one of the most important factors that people consider is if they were to purchase property there, how easy it would be for them to obtain a mortgage and what kind of rates they should be expecting to pay. This is important to investors since international mortgaging is different in every country and it can sometimes be difficult to find information on it that can be trusted.

If you are one of the many visitors interested in purchasing property in the Dominican Republic, and are looking to finance. Get ready to be shocked! Mortgage rates in the Dominican Republic are typically around 20% and can sometimes be as high as 26% and are almost always totally adjustable.

Even worse news is that you are going to be purchasing properties with U.S. Dollars; however financing in the Dominican Republic must be done in pesos! Since exchange rates are constantly changing, the amount you are paying for a home is constantly changing, making it impossible to know what is really being paid for the home that was suppose to cost say $150,000.

However, if the Dominican Republic is where your heart is set on for real estate purchasing, there are ways to avoid these outrageous mortgages. The best option is available to those people who own assets or have property in the U.S. If this is the case, the best thing to do is refinance the property that is owned in the United States and use that cash to purchase property in the Dominican Republic.

Reasons for doing this are endless including interest rates in the single digits, up to 100% of appraisal value available, and interest payments and taxes on the property in the US are tax deductible. When purchasing real estate anywhere, there is a lot to consider but especially when looking outside your own country.

The Dominican Republic is a great place to retire with affordable properties and beautiful areas, however financing through the United States is definitely the way to go when purchasing property in the Dominican Republic.

The Logical Trader

Paul Tudor Jones
Chairman and CEO of Tudor Investment Corp.

Applying A Method To The Madness
My first face-to-face encounter with Mark Fisher occurred in the silver pit in the early '80s on the COMEX in New York where he often resided. An occasional visitor to that club of gentlemanly behavior, I was given an order to buy 200 contracts of silver on the close by one of my upstairs friends. The treatment I received was something akin to that of a piece of red meat thrown into a cage of half-starved lions.


I remember being pounced upon by four or five "locals," not the least of which was this short blur of energy shouting, cajoling, and talking to me so fast that I could only recognize the badge FSH (or "Fish" as he was known to thousands on the trading floor). As he always does, he somehow innately knew exactly how many I had to buy and waited until I had bought all but 20 or 30 contracts before selling me the top tick of the close. There was no one better and there never will be anyone as good as Mark Fisher when it comes to smelling an order that a pit broker has in his hand.

It will not take you long in reading this book to realize that Mark Fisher is being powered by some type of energy source that is not endemic to the normal human condition. And to say that he is a control freak is an understatement. But to anyone who wants to learn how to trade and takes the time to read this book, there is zero doubt that Fish's messianic willingness to share with the public the successful system he has developed is an opportunity to be exploited.

He details in very methodical and systematic fashion a unique way of approaching markets and creating fantastic reward/risk opportunities over virtually any timeframe, from day trading to long-term positioning. Creating these favorable reward/risk trades is the genesis of all profitable trading and his plan is one that has been successfully implemented by hundreds. I know this first hand as many of the traders who worked for me when I had a floor operation used his system successfully to trade profitably.

For anyone starting out in the trading business, Mark's trading experiences and ACD system provide an invaluable blueprint for trading success. Central to his trading methodology is his incredible discipline, which has been his hallmark as a trader over the years. As he stresses throughout the book, the most important factor for traders to identify is the point at which to get out if they are wrong.


If traders learn nothing else from this book, the lesson of knowing where to get out is one that will spare them much physical, emotional, and financial pain.
While presenting a "logical" method to approach the market, Mark also shares with the reader, colorful and entertaining stories of the breakdowns and breakthroughs of several traders who he has worked with over the years. In addition, Chapter 7 entitled "The ACD Version of Ripley's Believe It or Not!" presents incredible, real stories from the trading pit. Experienced traders will see themselves and their flaws in these stories, while novices can learn from these professional traders' mistakes.

When I meet someone who is interested in learning the trading business, I always refer them to what I consider to be the four Bibles of the business: Reminiscences of a Stock Operator by Edwin Lefevre, the fictionalized biography of the fabled Jesse Livermore; Technical Analysis of Stock Trends by McGee and Edwards, which was written in the first half of the 20th century and whose tenets still hold today;


The Elliott Wave Theorist by Robert Prechter and A. J. Frost, a classic; and finally Market Wizards by Jack Schwager, which is a compilation of interviews with great traders. Reminiscences is a wonderfully entertaining read that mostly illuminates the emotional highs and lows that go with trading and tape reading. Technical Analysis of Stock Trends and The Elliott Wave Theorist both give very specific and systematic ways to approach developing great reward/risk ratios for entering into a business contract with the marketplace, which is what every trade should be if properly and thoughtfully executed.


Finally, Market Wizards is a great read if but to learn one lesson over and over again from virtually every single trader who tells his tale in the book - that is, to make great sums of money you first have to learn how to lose much smaller sums of it when you're wrong.
I mention the other four books because, after having read The Logical Trader, I am going to add Fish's book to my list of must reads for the beginning trader.


Having seen hundreds of traders matriculate through the doors here at the Tudor Group, I am consistently amazed that virtually all of them have different ways of approaching and reaping profits from the marketplace. There really are dozens if not hundreds of ways of making money. But ultimately, though all of them may have different techniques, they share the common trait of somehow creating very favorable reward/risk ratios for trading despite their myriad approaches.


That is also what The Logical Trader accomplishes in a straightforward fashion. It gives you a well-developed, systematic way to competently apply leverage in the marketplace and garner great performance from it. How could we not pay close attention with great gratitude to the vision that one of the most successful floor traders of all time has decided to share with us? Over the past 20 years that I have known him, Fish has been a giving and generous person in every aspect of his life. This is but another in a long line of incredibly valuable gifts he has given to people that he both knows and doesn't know.Thank you, Mark.

Risk Management

Risk Management In The Real World
An experienced trader takes his lumps in the market, but still comes out ahead. How?Prudent risk management.In order to generate long-term investment success,traders must adhere to several time-honored trading principles.Bruce Babcock summed up these principles concisely in his;

Four Cardinal Principles Of Trading:
1. Trade with the trend.
2. Cut losses short.
3. Let profits run.
4. Manage risk.

No trading methodology is 100% accurate. Thus, it is important not to place all of your capital at risk on any given idea. When an idea is correct, you must let it work as long as possible to generate the large returns necessary in order to offset the inevitable losing trades. Here are some real-life examples of both winning and losing trades, and how my risk management of these trades resulted in overall profitable trading, even though 50% of the trades resulted in losses.