10 Ways To Avoid Losing Money In Forex

The global forex market boasts over $4 trillion in average daily trading volume, making it the largest financial market in the world. Forex's popularity entices traders of all levels, from greenhorns just learning about the financial markets to well-seasoned professionals. Because it is so easy to trade forex - with round-the-clock sessions, access to significant leverage and relatively low costs - it is also very easy to lose money trading forex. This article will take a look at 10 ways that traders can avoid losing money in the competitive forex market. (There are no specifically forex focused programs, but there are still some advanced education alternatives for forex traders. Check out 5 Forex Designations.) TUTORIAL: Trader's Guide To Forex 1. Do Your Homework Learn Before You Burn Just because forex is easy to get into doesn't mean that due diligence can be avoided. Learning about forex is integral to a trader's success in the forex markets. While the majority of learning comes from live trading and experience, a trader should learn everything possible about the forex markets, including the geopolitical and economic factors that affect a trader's preferred currencies. Homework is an ongoing effort as traders need to be prepared to adapt to changing market conditions, regulations and world events. Part of this research process involves developing a trading plan. (For more, check out 10 Steps To Building A Winning Trading Plan.) 2. Take the Time to Find a Reputable Broker The forex industry has much less oversight than other markets, so it is possible to end up doing business with a less-than-reputable forex broker. Due to concerns about the safety of deposits and the overall integrity of a broker, forex traders should only open an account with a firm that is a member of the National Futures Association (NFA) and that is registered with the U.S. Commodity Futures Trading Commission (CFTC) as a futures commission merchant. Each country outside of the United States has its own regulatory body with which legitimate forex brokers should be registered. Traders should also research each broker's account offerings, including leverage amounts, commissions and spreads, initial deposits, and account funding and withdrawal policies. A helpful customer service representative should have all this information and be able to answer any questions regarding the firm's services and policies. (Discover the best ways to find a broker who will help you succeed in the forex market. Refer to 5 Tips For Selecting A Forex Broker.) 3. Use a Practice Account Nearly all trading platforms come with a practice account, sometimes called a simulated account or demo account. These accounts allow traders to place hypothetical trades without a funded

account. Perhaps the most important benefit of a practice account is that it allows a trader to become adept at order entry techniques. Few things are as damaging to a trading account (and a trader's confidence) as pushing the wrong button when opening or exiting a position. It is not uncommon, for example, for a new trader to accidentally add to a losing position instead of closing the trade. Multiple errors in order entry can lead to large, unprotected losing trades. Aside from the devastating financial implications, this situation is incredibly stressful. Practice makes perfect: experiment with order entries before placing real money on the line. 4. Keep Charts Clean Once a forex trader has opened an account, it may be tempting to take advantage of all the technical analysis tools offered by the trading platform. While many of these indicators are wellsuited to the forex markets, it is important to remember to keep analysis techniques to a minimum in order for them to be effective. Using the same types of indicators such as two volatility indicators or two oscillators, for example can become redundant and can even give opposing signals. This should be avoided. Any analysis technique that is not regularly used to enhance trading performance should be removed from the chart. In addition to the tools that are applied to the chart, the overall look of the workspace should be considered. The chosen colors, fonts and types of price bars (line, candle bar, range bar, etc) should create an easy-to-read and interpret chart, allowing the trader to more effectively respond to changing market conditions. 5. Protect Your Trading Account While there is much focus on making money in forex trading, it is important to learn how to avoid losing money. Proper money management techniques are an integral part of successful trading. Many veteran traders would agree that one can enter a position at any price and still make money it's how one gets out of the trade that matters. Part of this is knowing when to accept your losses and move on. Always using a protective stop loss is an effective way to make sure that losses remain reasonable. Traders can also consider using a maximum daily loss amount beyond which all positions would be closed and no new trades initiated until the next trading session. While traders should have plans to limit losses, it is equally essential to protect profits. Money management techniques, such as utilizing trailing stops, can help preserve winnings while still giving a trade room to grow. 6. Start Small When Going Live Once a trader has done his or her homework, spent time with a practice account and has a trading plan in place, it may be time to go live that is, start trading with real money at stake. No amount of practice trading can exactly simulate real trading, and as such it is vital to start small when going live. Factors like emotions and slippage cannot be fully understood and accounted for until trading live. Additionally, a trading plan that performed like champ in backtesting results or practice trading could, in reality, fail miserably when applied to a live market. By starting small, a trader

can evaluate his or her trading plan and emotions, and gain more practice in executing precise order entries without risking the entire trading account in the process. 7. Use Reasonable Leverage Forex trading is unique in the amount of leverage that is afforded to its participants. One of the reasons forex is so attractive is that traders have the opportunity to make potentially large profits with a very small investment sometimes as little as $50. Properly used, leverage does provide potential for growth; however, leverage can just as easily amplify losses. A trader can control the amount of leverage used by basing position size on the account balance. For example, if a trader has $10,000 in a forex account, a $100,000 position (one standard lot) would utilize 10:1 leverage. While the trader could open a much larger position if he or she were to maximize leverage, a smaller position will limit risk. (For additional reading, see Adding Leverage To Your Forex Trading.) 8. Keep Good Records A trading journal is an effective way to learn from both losses and successes in forex trading. Keeping a record of trading activity containing dates, instruments, profits, losses, and, perhaps most importantly, the trader's own performance and emotions can be incredibly beneficial to growing as a successful trader. When periodically reviewed, a trading journal provides important feedback that makes learning possible. Einstein once said that "insanity is doing the same thing over and over and expecting different results." Without a trading journal and good record keeping, traders are likely to continue making the same mistakes, minimizing their chances of become profitable and successful traders. 9. Understand Tax Implications and Treatment It is important to understand the tax implications and treatment of forex trading activity in order to be prepared at tax time. Consulting with a qualified accountant or tax specialist can help avoid any surprises at tax time, and can help individuals take advantage of various tax laws, such as the marked-to-market accounting. Since tax laws change regularly, it is prudent to develop a relationship with a trusted and reliable professional that can guide and manage all tax-related matters. 10. Treat Trading As a Business It is essential to treat forex trading as a business, and to remember that individual wins and losses don't matter in the short run; it is how the trading business performs over time that is important. As such, traders should try to avoid becoming overly emotional with either wins or losses, and treat each as just another day at the office. As with any business, forex trading incurs expenses, losses, taxes, risk and uncertainty. Also, just as small businesses rarely become successful overnight, neither do most forex traders. Planning, setting realistic goals, staying organized and learning from both successes and failures will help ensure a long, successful career as a forex trader. The Bottom Line The worldwide forex market is attractive to many traders because of its low account requirements, round-the-clock trading and access to high amounts of leverage. When approached

as a business, forex trading can be profitable and rewarding. In summary, traders can avoid losing money in forex by:

Being well-prepared Having the patience and discipline to study and research Applying sound money management techniques Approaching trading activity as a business

Read more: http://www.investopedia.com/articles/forex/11/10-ways-avoid-losing-moneyforex.asp#ixzz1Uv2JCsEw

Capture Profits Using Bands And Channels

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Print Posted: Jul 7, 2010 | Filed under Active Trading Currencies Day Trading Forex Forex Technical Analysis Forex-Advanced Technical Analysis Reprints

Richard Lee
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Widely known for their ability to incorporate volatility and capture price action, Bollinger bands have been a favorite staple of traders in the FX market. However, there are other technical options that traders in the currency markets can apply to capture profitable opportunities in swing action. Lesser-known band indicators such as Donchian channels, Keltner channels and STARC bands are all used to isolate such opportunities. Also used in the futures and options markets, these technical indicators have a lot to offer given the vast liquidity and technical nature of the FX forum. Differing in underlying calculations and interpretations, each study is unique because it highlights different components of the price action. Here we explain how Donchian channels, Keltner channels and STARC bands work and how you can use them to your advantage in the FX market. Donchian Channels Donchian channels are price channel studies that are available on most charting packages and can be profitably applied by both novice and expert traders. Although the application was intended mostly for the commodity futures market, these channels can also be widely used in the FX market to capture short-term bursts or longer-term trends. Created by Richard Donchian, considered to be the father of successful trend following, the study contains the underlying currency fluctuations and aims to place profitable entries upon the start of a new trend through penetration of either the lower or upper band. Based on a 20-period moving average (and thus sometimes referred to as a moving average indicator), the application additionally establishes bands that plot the highest high and lowest low. As a result, the following signals are produced:

A buy, or long, signal is created when the price action breaks through and closes above the upper band. A sell, or short, signal is created when the price action breaks through and closes below the lower band.

The theory behind the signals may seem a little confusing at first, as most traders assume that a break of the upper or lower boundary signals a reversal, but it is actually quite simple. If the current price action is able to surpass the range's high (provided enough momentum exists), then a new high will be established because an uptrend is ensuing. Conversely, if the price action can crash through the range's low, a new downtrend may be in the works. Let's look at a prime example of how this theory works in the FX markets.

Figure 1: A typical example of the effectiveness of Donchian channels

Source: FXtrek Intellicharts In Figure 1, we see the short, one hour time-framed euro/U.S. dollar currency pair chart. We can see that, prior to December 8, the price action is contained in tight consolidation within the parameters of the bands. Then, at 2am on December 8, the price of the euro makes a run on the session and closes above the band at Point A. This is a signal for the trader to enter a long position and liquidate short positions in the market. If entered correctly, the trader will gain almost 100 pips in the short intraday burst. Keltner Channels Another great channel study that is used in multiple markets by all types of traders is the Keltner channel. The application was introduced by Chester W. Keltner (in his book "How To Make Money In Commodities" (1960)) and later modified by famed futures trader Linda B. Raschke. Raschke altered the application to take into account average true range calculation over 10 periods. As a result, the volatility-based technical indicator bears many similarities to Bollinger bands. The difference between the two studies is simply that Keltner's channels represent volatility using the high and low prices, while Bollinger's studies rely on the standard deviation. Nonetheless, the two studies share similar interpretations and tradable signals in the currency markets. Like Bollinger bands, Keltner channel signals are produced when the price action breaks above or below the channel bands. Here, however, as the price action breaks above or below the top and bottom barriers, a continuation is favored over a retracement back to the median or opposite barrier. (To learn more, see Discovering Keltner Channels And The Chaikin Oscillator and The Basics Of Bollinger Bands.)

If the price action breaks above the band, the trader should consider initiating long positions while liquidating short positions. If the price action breaks below the band, the trader should consider initiating short positions while exiting long, or buy, positions.

Let's dive further into the application by looking at the example below.

Figure 2: Three profitable opportunities are presented to the trader through Keltner. Source: FXtrek Intellicharts By applying the Keltner study to a daily charted British pound/Japanese yen currency cross pair we can see that the price action breaks above the upper barrier, signaling for the trader to initiate long positions. Placing effective entries, the FX trader will have the opportunity to effectively capture profitable swings higher and at the same time exit efficiently, maximizing profits. No other example is more visually stunning than the initial break above the upper barrier. Here, the trader can initiate above the close of the initial session burst above at Point A on July 17. After the initial entry is placed above the close of the session, the trader is able to capture approximately 300 pips before the price action pulls back to retest support. Subsequently, another position can be initiated at Point B, where momentum once again takes the position approximately 350 pips higher STARC Bands Also similar to the Bollinger band technical indicator, STARC (or Stoller Average Range Channels) bands are calculated to incorporate market volatility. Developed by Manning Stoller in the 1980s, the bands will contract and expand depending on the fluctuations in the average

true range component. The main difference between the two interpretations is that STARC bands help to determine the higher probability trade rather than standard deviations containing the price action. Simply put, the bands will allow the trader to consider higher or lower risk opportunities rather than a return to a median.

Price action that rises to the upper band offers a lower risk sell opportunity and a highrisk buy situation. Price action that declines to the lower band offers a lower risk buy opportunity and a high-risk sell situation.

This is not to say that the price action won't go against the newly initiated position; however, STARC bands do act in the trader's favor by displaying the best opportunities. If this indicator is coupled with disciplined money management, the FX enthusiast will be able to profit by taking on lower risk initiatives and minimizing losses. Let's take a look at an opportunity in the New Zealand dollar/U.S. dollar currency pair.

Forex Leverage: A Double-Edged Sword

One of the reasons why so many people are attracted to trading forex compared to other financial instruments is that with forex, you can usually get much higher leverage than you would with stocks. While many traders have heard of the word leverage, few have a clue about what leverage is, how leverage works, and how leverage can directly impact their bottom line. (To learn more, see How does leverage work in the forex market?) What is leverage? Leverage involves borrowing a certain amount of the money needed to invest in something. In the case of forex, that money is usually borrowed from a broker. Forex trading does offer high leverage in the sense that for an initial margin requirement, a trader can build up - and control - a huge amount of money. To calculate margin-based leverage, divide the total transaction value by the amount of margin you are required to put up. (For more insight, check out Margin Trading.) Total Value of Margin-Based Leverage = Transaction Margin Required For example, if you are required to deposit 1% of the total transaction value as margin and you intend to trade one standard lot of USD/CHF which is equivalent to US$100,000, the margin required would be US$1,000. Thus, your margin-based leverage will be 100:1 (100,000/1,000). For a margin requirement of just 0.25%, the margin-based leverage will be 400:1, using the same formula. Margin-Based Margin Required of Leverage Expressed as Total Transaction Value

Ratio 400:1 200:1 100:1 50:1

0.25% 0.50% 1.00% 2.00%

However, margin-based leverage does not necessarily affect one's risks. Whether a trader is required to put up 1% or 2% of the transaction value as margin may not influence his or her profits or losses. This is because investor can always attribute more than the required margin for any position. What you need to look at is the real leverage, not margin-based leverage. To calculate the real leverage you are currently using, simply divide the total face value of your open positions by your trading capital. Total Value of Transaction Total Trading Capital

Real Leverage =

For example, if you have $10,000 in your account, and you open a $100,000 position (which is equivalent to one standard lot), you will be trading with a 10 times leverage on your account (100,000/10,000). If you trade two standard lots, which is worth $200,000 in face value with $10,000 in your account, then your leverage on the account is 20 times (200,000/10,000). This also means that the margin-based leverage is equal to the maximum real leverage a trader can use. And since most traders do not use their entire accounts as margin for each of their trades, their real leverage tends to differ from their margin-based leverage. Leverage in Forex Trading In trading, we monitor the currency movements in pips, which is the smallest change in currency price, and that could be in the second or fourth decimal place of a price, depending on the currency pair. However, these movements are really just fractions of a cent. For example, when a currency pair like the GBP/USD moves 100 pips from 1.9500 to 1.9600, that is just a $0.01 move of the exchange rate. This is why currency transactions must be carried out in big amounts, allowing these minute price movements to be translated into decent profits when magnified through the use of leverage. When you deal with a large amount like $100,000, small changes in the price of the currency can result in significant profits or losses. When trading forex, you are given the freedom and the flexibility to select your real leverage amount based on your trading style, personality and money management preferences. Risk of Excessive Real Leverage Real leverage has the potential to enlarge your profits or losses by the same magnitude. The greater the amount of leverage on capital you apply, the higher the risk that you will assume.

Note that this risk is not necessarily related to margin-based leverage although it can influence if a trader is not careful. Let's illustrate this point with an example (See Figure 1). Both Trader A and Trader B have a trading capital of US$10,000, and they trade with a broker that requires a 1% margin deposit. After doing some analysis, both of them agree that USD/JPY is hitting a top and should fall in value. Therefore, both of them short the USD/JPY at 120. Trader A chooses to apply 50 times real leverage on this trade by shorting US$500,000 worth of USD/JPY (50 x $10,000) based on his $10,000 trading capital. Because USD/JPY stands at 120, one pip of USD/JPY for one standard lot is worth approximately US$8.30, so one pip of USD/JPY for five standard lots is worth approximately US$41.50. If USD/JPY rises to 121, Trader A will lose 100 pips on this trade, which is equivalent to a loss of US$4,150. This single loss will represent a whopping 41.5% of his total trading capital. Trader B is a more careful trader and decides to apply five times real leverage on this trade by shorting US$50,000 worth of USD/JPY (5 x $10,000) based on his $10,000 trading capital. That $50,000 worth of USD/JPY equals to just one-half of 1 standard lot. If USD/JPY rises to 121, Trader B will lose 100 pips on this trade, which is equivalent to a loss of $415. This single loss represents 4.15% of his total trading capital. Refer to the chart below to see how the trading accounts of these two traders compare after the 100-pip loss. Trading Capital Real Leverage Used Total Value of Transaction In the Case of a 100-Pip Loss % Loss of Trading Capital % of Trading Capital Remaining Figure 1: All figures in U.S. dollars Trader A $10,000 50 times $500,000 -$4,150 41.5% 58.5% Trader B $10,000 5 times $50,000 -$415 4.15% 95.8%

Excessive Leverage Can Kill With a smaller amount of real leverage applied on each trade, you can afford to give your trade more breathing space by setting a wider but reasonable stop and avoiding risking too much of your money. A highly leveraged trade can quickly deplete your trading account if it goes against you as you will rack up greater losses due to bigger lot sizes. Keep in mind that leverage is totally flexible and customizable to each trader's needs. Having an aim of trading profitably is not about making your millions by the end of this month or this year. Read more: http://www.investopedia.com/articles/forex/07/forex_leverage.asp#ixzz1UvDn9dxh

Figure 3: A great risk to reward is presented through this STARC bands example in the NZD/USD. Source: FXtrek Intellicharts Looking at New Zealand dollar/U.S. dollar currency pair presented in Figure 3, we see that the price action has been mounting a bullish rise over the course of November, and the currency pair looks ripe for a retracement of sorts. Here, the trader can apply the STARC indicator as well as a price oscillator (Stochastic, in this case) to confirm the trade. After overlaying the STARC bands, the trader can see a low-risk sell opportunity as we approach the upper band at Point A. Waiting for the second candle in the textbook evening star formation to close, the individual can take advantage by placing an entry below the close of the session. Confirming with the downside cross in the Stochastic oscillator, Point X, the trader will be able to profit almost 150 pips in the day's session as the currency plummets from 0.7150 to an even 0.7000 figure. Notice that the price action touches the lower band at that point, signaling a low-risk buy opportunity or a

potential reversal in the short-term trend. Putting It All Together Now that we've examined trading opportunities using channel-based technical indicators, it's time to take a detailed look at two more examples and to explain how to capture such profit windfalls. In Figure 4 we see a great short-term opportunity in the British pound/Swiss franc currency cross pair. We'll put the Donchian technical indicator to work and go through the process step by step.

Figure 4: Applying the Donchian channel study, we see a couple of extremely profitable opportunities in the short time frame of a one-hour chart. Source: FXtrek Intellicharts

These are the steps to follow: 1. Apply the Donchian channel study on the price action. Once the indicator is applied, the opportunities should be clearly visible, as you are looking to isolate periods where the price action breaks above or below the study's bands. 2. Wait for the close of the session that is potentially above or below the band. A close is needed for the setup as the pending action could very well revert back within the band's parameters, ultimately nullifying the trade. 3. Place the entry at slightly above or below the close. Once momentum has taken over, the directional bias should push the price past the close. 4. Always use stop management. Once the entry has been executed, the stop should always be considered, as in any other situation. Applying the Donchian study in Figure 4, we find that there have been several profitable opportunities in the short time span. Point A is a prime example: here, the session closes below the bottom channel, lending to a downside trend. As a result, the entry is placed at the low of the session after the close, at 2.2777. The subsequent stop will be placed slightly above the high of the session, at 2.2847. Once you are in the market, you can either liquidate your short position on the first leg down or hold on to the sell. Ideally, the position would be held in retaining a legitimate risk to reward ratio. However, in the event the position is closed, you may consider a re-initiation at Point B. Ultimately, the trade will profit over 120 pips, justifying the high stop. Defining a Keltner Opportunity It's not just Donchians that are used to capture profitable opportunities - Keltner applications can be used as well. Taking the step-by-step approach, let's define a Keltner opportunity: 1. Overlay the Keltner channel indicator onto the price action. As with the Donchian example, the opportunities should be clearly visible, as you are looking for penetration of the upper or lower bands. 2. Establish a session close of the candle that is the closest or within the channel's parameters. 3. Place the entry four to five points below the high or low of the session's candle. 4. Money management is applied by placing a stop slightly below the session's low or above the session's high price. Let's apply these steps to the British pound/U.S. dollar example below.

Figure 5: A tricky but profitable catch using the Keltner channel Source: FXtrek Intellicharts In Figure 5, we see a very profitable opportunity in the British pound/U.S. dollar major currency pair on the daily time frame. Already testing the upper barrier twice in recent weeks, the trader can see a third attempt as the price action rises on July 27 at Point A. What needs to be obtained at this point is a definitive close above the barrier, constituting a break above and signaling the initiation of a long position. Once the chartist receives the clear break and closes above the barrier, the entry will be placed five points above the high of the closed session (entry). This will ensure that momentum is on the side of the trade and the advance will continue. The notion will place our entry precisely at 1.8671. Subsequently, our stop will be placed below the low price by one to two points, or in this case at 1.8535. The trade pays off as the price action moves higher in the following weeks with our profits maximized at the move's high of 1.9128. Giving us a profit of over 400 pips in less than a month, the risk reward is maximized at more than a 3:1 ratio. Conclusion Although Bollinger bands are more widely known, Donchian channels, Keltner channels and STARC bands have proved to offer comparably profitable opportunities. By diversifying your knowledge and experience in different band-based indicators, you'll be able to seek a multitude

of other opportunities in the FX market. These lesser-known bands can add to the repertoire of both the novice and the seasoned trader. Read more: http://www.investopedia.com/articles/forex/06/BandsChannels.asp?ad=FX_Feat#ixzz1UvCkF9 m9

What Type Of Forex Trader Are You?

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Time frames are extremely important to any trader. traders and strategies tend to fall into three broader and more common categories. Position strategies span days, weeks, months or even years.

What are some things that separate a good trader from a great one? Guts, instincts, intelligence and, most importantly, timing. Just as there are many types of traders, there is an equal number of different time frames that assist traders in developing their ideas and executing their strategies. At the same time, timing also helps market warriors take several things that are outside of a trader's control into account. Some of these items include position leveraging, nuances of different currency pairs, and the effects of scheduled and unscheduled news releases in the market. As a result, timing is always a major consideration when participating in the foreign exchange world, and is a crucial factor that is almost always ignored by novice traders. Tutorial: Top 10 Forex Trading Rules Want to bring your trading skills to the next level? Read on to learn more about time frames and how to use them to your advantage. Common Trader Time frames In the grander scheme of things, there are plenty of names and designations that traders go by. But when taking time into consideration, traders and strategies tend to fall into three broader and more common categories: day trader, swing trader and position trader. 1. The Day Trader Let's begin with what seems to be the most appealing of the three designations, the day trader. A day trader will, for a lack of a better definition, trade for the day. These are market participants that will usually avoid holding anything after the session close and will trade in a high-volume fashion. On a typical day, this short-term trader will generally aim for a quick turnover rate on one or more trades, anywhere from 10- to 100-times the normal transaction size. This is in order to

capture more profit from a rather small swing. As a result, traders who work in proprietary shops in this fashion will tend to use shorter time-frame charts, using one-, five-, or 15-minute periods. In addition, day traders tend to rely more on technical trading patterns and volatile pairs to make their profits. Although a long-term fundamental bias can be helpful, these professionals are looking for opportunities in the short term. (For background reading, see Would You Profit As A Day Trader? and Day Trading Strategies For Beginners.)

Figure 1 Source: FX Trek Intellicharts One such currency pair is the British pound/Japanese yen as shown in Figure 1, above. This pair is considered to be extremely volatile, and is great for short-term traders, as average hourly ranges can be as high as 100 pips. This fact overshadows the 10- to 20-pip ranges in slower moving currency pairs like the euro/U.S. dollar or euro/British pound. (For more on pairs trading, see Common Questions About Currency Trading.) 2. Swing Trader Taking advantage of a longer time frame, the swing trader will sometimes hold positions for a couple of hours - maybe even days or longer - in order to call a turn in the market. Unlike a day trader, the swing trader is looking to profit from an entry into the market, hoping the change in direction will help his or her position. In this respect, timing is more important in a swing trader's strategy compared to a day trader. However, both traders share the same preference for technical over fundamental analysis. A savvy swing trade will likely take place in a more liquid currency pair like the British pound/U.S. dollar. In the example below (Figure 2), notice how a swing trader would be able to capitalize on the double bottom that followed a precipitous drop in the GBP/USD currency pair. The entry would be placed on a test of support, helping the swing trader to capitalize on a shift in directional trend, netting a two-day profit of 1,400 pips. (To learn more, read The Daily Routine Of A Swing Trader and Introduction To Types Of Trading: Swing Traders.)

Figure 2 Source: FX Trek Intellicharts 3. The Position Trader Usually the longest time frame of the three, the position trader differs mainly in his or her perspective of the market. Instead of monitoring short-term market movements like the day and swing style, these traders tend to look at a longer term plan. Position strategies span days, weeks, months or even years. As a result, traders will look at technical formations but will more than likely adhere strictly to longer term fundamental models and opportunities. These FX portfolio managers will analyze and consider economic models, governmental decisions and interest rates to make trading decisions. The wide array of considerations will place the position trade in any of the major currencies that are considered liquid. This includes many of the G7 currencies as well as the emerging market favorites. Additional Considerations With three different categories of traders, there are also several different factors within these categories that contribute to success. Just knowing the time frame isn't enough. Every trader needs to understand some basic considerations that affect traders on an individual level. Leverage Widely considered a double-edged sword, leverage is a day trader's best friend. With the relatively small fluctuations that the currency market offers, a trader without leverage is like a fisherman without a fishing pole. In other words, without the proper tools, a professional is left unable to capitalize on a given opportunity. As a result, a day trader will always consider how much leverage or risk he or she is willing to take on before transacting in any trade. Similarly, a swing trader may also think about his or her risk parameters. Although their positions are sometimes meant for longer term fluctuations, in some situations, the swing trader will have to

feel some pain before making any gain on a position. In the example below (Figure 3), notice how there are several points in the downtrend where a swing trader could have capitalized on the Australian dollar/U.S. dollar currency pair. Adding the slow stochastic oscillator, a swing strategy would have attempted to enter into the market at points surrounding each golden cross. However, over the span of two to three days, the trader would have had to withstand some losses before the actual market turn could be called correctly. Magnify these losses with leverage and the final profit/loss would be disastrous without proper risk assessment. (For more insight, see Forex Leverage: A Double-Edged Sword.)

Figure 3 Source: FX Trek Intellicharts Different Currency Pairs In addition to leverage, currency pair volatility should also be considered. It's one thing to know how much you may potentially lose per trade, but it's just as important to know how fast your trade can lose. As a result, different time frames will call for different currency pairs. Knowing that the British pound/Japanese yen currency cross sometimes fluctuates 100 pips in an hour may be a great challenge for day traders, but it may not make sense for the swing trader who is trying to take advantage of a change in market direction. For this reason alone, swing traders will want to follow more widely recognized G7 major pairs as they tend to be more liquid than emerging market and cross currencies. For example, the euro/U.S. dollar is preferred over the Australian dollar/Japanese yen for this reason. News Releases

Finally, traders in all three categories must always be aware of both unscheduled and scheduled news releases and how they affect the market. Whether these releases are economic announcements, central bank press conferences or the occasional surprise rate decision, traders in all three categories will have individual adjustments to make. (For more information, see Trading On News Releases.) Short-term traders will tend to be the most affected, as losses can be exacerbated while swing trader directional bias will be corrupted. To this effect, some in the market will prefer the comfort of being a position trader. With a longer term perspective, and hopefully a more comprehensive portfolio, the position trader is somewhat filtered by these occurrences as they have already anticipated the temporary price disruption. As long as price continues to conform to the longer term view, position traders are rather shielded as they look ahead to their benchmark targets. A great example of this can be seen on the first Friday of every month in the U.S. nonfarm payrolls report. Although short-term players have to deal with choppy and rather volatile trading following each release, the longer-term position player remains relatively sheltered as long as the longer term bias remains unchanged. (For more insight, see What impact does a higher non-farm payroll have on the forex market?)

Figure 4 Source: FX Trek Intellicharts Which Time Frame Is Right? Which time frame is right really depends on the trader. Do you thrive in volatile currency pairs? Or do you have other commitments and prefer the sheltered, long-term profitability of a

position trade? Fortunately, you don't have to be pigeon-holed into one category. Let's take a look at how different time frames can be combined to produce a profitable market position. Like a Position Trader As a position trader, the first thing to analyze is the economy - in this case, in the U.K. Let's assume that given global conditions, the U.K.'s economy will continue to show weakness in line with other countries. Manufacturing is on the downtrend with industrial production as consumer sentiment and spending continue to tick lower. Worsening the situation has been the fact that policymakers continue to use benchmark interest rates to boost liquidity and consumption, which causes the currency to sell off because lower interest rates mean cheaper money. Technically, the longer term picture also looks distressing against the U.S. dollar. Figure 5 shows two death crosses in our oscillators, combined with significant resistance that has already been tested and failed to offer a bearish signal.

Figure 5 Source: FX Trek Intellicharts Like a Day Trader After we establish the long-term trend, which in this case would be a continued deleveraging, or sell off, of the British pound, we isolate intraday opportunities that give us the ability to sell into this trend through simple technical analysis (support and resistance). A good strategy for this would be to look for great short opportunities at the London open after the price action has ranged from the Asian session. (For more, see Measuring And Managing Investment Risk.) Although too easy to believe, this process is widely overlooked for more complex strategies. Traders tend to analyze the longer term picture without assessing their risk when entering into the market, thus taking on more losses than they should. Bringing the action to the short-term

charts helps us to see not only what is happening, but also to minimize longer and unnecessary drawdowns. The Bottom Line Time frames are extremely important to any trader. Whether you're a day, swing, or even position trader, time frames are always a critical consideration in an individual's strategy and its implementation. Given its considerations and precautions, the knowledge of time in trading and execution can help every novice trader head toward greatness. Read more: http://www.investopedia.com/articles/forex/09/day-swing-positiontrader.asp#ixzz1Ux8NuSKG