Forex Trading and Ways to Earn Money Online

1. Introduction to Forex Trading

Forex Trading and Ways to Earn Money Online – Importers are the people who wish to buy foreign goods, and they must fix the money of their own country equivalent to the current value of the currency to be converted. Exporters are the people who wish to sell foreign currency. The money is converted and credited to their local account. The forex Market is one of the largest and dynamic financial markets in the world. The trading volume usually exceeds $4 trillion per day. In simple terms, forex trading is buying and selling currency. The transaction cost is meager. It can be done with the help of desktops, laptops, and smartphones. Forex trading could be an additional income stream for you. It helps to earn money in two different ways, namely long-term trading and short-term trading. The long-term trading is also called a fundamental trader, and the short-term trading is called a technical trader. These two types of traders are usually different and independent of each other’s trading strategies.

Forex trading gives you an opportunity to make money online. The word “trading” can be defined as being involved in buying and selling goods and services. By transferring goods and services between buyers and sellers, one can earn money. Similarly, this concept is also applicable in forex trading. Here, foreign currencies are traded between sellers and buyers by fixing a fixed price called the exchange rate. But the only difference in this trade is that the exporter and the importer are the same person.

1.1. Definition and Basics of Forex Trading

Essentially, forex is related to the exchange of two currencies. You may try to predict and earn by buying, and the price goes up or when selling, short, and the price goes down. Buying a currency pair or going long means buying the first currency. The price goes up when we sell it. With ECN and human-based brokers, the network enables speculation about the movement of the exchange price. With forex trading, the process is easy, and even when price fluctuations are low or volatile, the trading process enables the trader or speculator to explore the activity. Property parameters to keep in mind before you trade online.

Many individuals trade forex online as a way to earn extra money. Forex or foreign exchange trading provides a simple way to invest a significant amount of money and earn profits from it, just from having an ECN or a computer. Forex trading has become quite popular in recent years. Nowadays, forex trading is a full-time business that is manageable from anywhere. Forex trading can produce a significant amount of profit even if you only invest a little. Forex trading is accessible to anyone who wants to trade forex online. You will require a broker to begin trading. Forex trading would not be simpler if not for the services provided by a broker. To make forex trading successful, you should be able to choose a reliable broker, and you must look for some key features in it.

1.2. History and Evolution of Forex Market

From a historical perspective, the centralization of the foreign exchange trading activity to one outer circle and its demarcation from the inner circle of forward dealers and other market participants, due to the fluctuations of foreign exchange rates, was a prime cause of the emergence of the modern forex markets in the 1970s. That is, the current situation where credit and total forex volume is derived largely from the two-cornered forex dealer bank market system, along with the mode of dealer financing at covered interest rate parity, has been formed by the dynamics of foreign exchange fluctuations. The dynamics lead to the sudden and large jumps in (conditional) correlations between the return of exchange market instruments and between forex with the equity and money markets. Nevertheless, the sudden financial crisis and the negative systemic externalities that were exhibited during the 1990s witnessed large foreign exchange intervention by domestic financial institutions on exchange markets around the world. This evidence happened despite the offshore position of their trading accounts with their onshore national central bank.

Currently, we are experiencing the global integration of the world capital markets and a single global market for foreign exchange. This capital liberalization, brought about by advancements in technology and innovations in rules and regulations, has resulted in the extraordinary growth of foreign exchange trading activities. The daily volume of trading in 2010 was a record high of 3.98 trillion US dollars, which was 19 times the volume in 1989 when the foreign exchange became most liquid. This surge in foreign exchange trading was accompanied by significant changes in the structure of forex clients, forex products, and trading platforms. Now we have more foreign exchange market participants, who are assisted by more diversified products and who trade on more sophisticated venues, compared to those present right before the emergence of the forex crisis in the 1990s. Therefore, the previous studies on its efficiency and rationality might have been affected by the positive technological advances described above.

2. Understanding the Forex Market

Understanding the exchange rate is to be treated as a price which is directly determined by demand and supply. An increased demand for a particular currency will make the price of that currency go up. Conversely, if there is a decrease in demand for that currency, its price will go down. When people travel to a particular destination, they will change their currency into the currency of their destination or keep some of it. This type of demand is known as the real demand for forex. In the forex market, users can also purchase the foreign currency with the expectation that the value of that currency will go up in the future. This is known as the speculative demand for forex. When the value of the foreign currency goes up, the value in the user’s accounts also goes up.

The easiest way to understand the forex market is to think of it as changing money when you go on holiday. For example, if you go on holiday to the United States, you cannot take Indian Rupees with you; you will have to get them from money changers there. It is the same with our forex trade; you will trade your Indian Rupees and buy US dollars. The exchange rate between the two currencies is what determines the price of the US dollars. Sometimes, you will get more dollars and on some days you will get fewer dollars. The exchange rate between the two currencies will fluctuate whether bought in the money changers in a foreign country or through the forex broker who buys and sells the currency in the online forex market.

2.1. Major Participants in the Forex Market

The forex market is one of the most famous and the best trading market for most traders. It is a 24-hour business or you can say a market because everyone can trade forex. It is the largest market in the world, and the brokers or the dealers of forex trading are spread all over the world. Now, here are some participants in the forex market. The forex market includes banks, commercial companies, central banks, investment management firms, hedge funds, retail forex brokers, and investors. First, we are going to discuss banks. Banks are dealing face to face with the largest amount of currency trading business. Banks make significant deals among clients and have been frequenting dealers to supply themselves with a set of internal trading platforms.

Ways to earn money online. There are various ways by which you can earn money online, but forex trading is the best way among all these ways. First of all, we are going to discuss how to earn money online step by step. To earn money online, the following ways are very famous. All these ways are an authentic way to earn money online. In the upcoming article, I will guide you on how to follow all these ways. When you follow this way and follow a proper path, you can easily earn a lot of money online. According to my research and most of the experts, forex trading is the best among them all. You can earn big revenue by doing forex trading. You can do trading by using only your mind. In forex trading, you are the boss. You are the own money earning machine. By the way, there is some risk in this business, but if you are well trained in this business, you can earn a lot of money and become a successful person.

2.2. Key Concepts: Pips, Lots, Leverage, and Margin

Still, traders need to use leverage and a margin account, which allows you to trade ratios of large currencies for a small capital stake. A one percent or two percent margin is typical, so you can use one or two percent of the total money that is traded in a particular trade. To fill the 100,000 minibar trade mentioned above, your account only needs a 1,000 margin at odds of 100:1. This is the maximum contingent style that traders use. Approximately every 50 trades or so, a trader might incur a terrible day and lose their margin. However, prudent traders should not use the maximum contingency style. A margin of 2 to 10 percent is more common, and if your account is small, you should use a margin of no less than 5%. You can lose more to your investment than the margin, so you only need to ensure that you own a larger margin if you lose it. This can be called your security margin.

After defining some terms, let’s start with pips, the smallest measure of price movements. In currency trading, the price of a currency pair is written in up to four decimal places. The change from one to the next is a pip. For example, the ratio EUR/USD might fall from 1.4001 to 1.4000, and experienced traders will know that this means a change of one pip. They will also know that there are 10 pip points in a pip. They will trade lot sizes of at least 100,000 worth of the base currency, i.e. the first currency in the ratio (and more of the terms currency, i.e. the second currency in the ratio, the larger its pip value). Mini accounts trade in lot sizes of 10,000. This is more manageable, but also increases in leverage and the bottom-line potential volatility in your trading.

3. Fundamental Analysis in Forex Trading

Fundamental analysis in forex is most valuable in the medium to long term. The changes created by macroeconomic developments on the currency are in the long term. Like any other financial commodity, the currency is traded on the basic theory of supply/demand relationship. We see two main reasons in the fundamental analysis of determining the direction of the currency to be more accurate, and in terms of the upper time frames, fundamental analysis is more widely used than the technical analysis alternatives that sometimes work in any way.

Fundamental analysis in the forex market is considered to be a kind of functional analysis where the transaction basically reveals the real world. Currencies deal with each other based on the macroeconomic situation of their own country, and in particular, the official reports and thoughts made in the explanation of these data show the situation on these macroeconomic variables. Since, in terms of inflation, current deficit, budget deficit, economic growth, employment, and interest rate level in the current account of the currency, whether or not the macroeconomic data are in line with the consensus estimates is the best indicator of the currency’s appreciation or depreciation.

3.1. Economic Indicators and their Impact on Currency Prices

Therefore, political and social factors should be taken into account. If we consider the situation in more detail, the value of the currency is determined by the current situation in the state economy (domestic economy) and the expectations of future economic performance. Therefore, the key driver of the economy is the currency imbalance. To predict the direction in which currency rates will move in the future, economists have developed two approaches to exchange rate modeling. They are: the fundamental approach, which is based on supply and demand, and the operations approach, which is based on problems in the behavior of currency prices.

These indicators are considered to be the most important in terms of the specific country and its central bank and the economy as a whole. Personal income, employment, consumption, prices, money supply, interest rates, external operations, and balance of payments are basic attributes cutting economic issues. Consequently, more factors can be mentioned, but these are fundamental. The situation of each particular economy has a direct impact on its state currency. Each statement can change the current situation of the market. But it is very difficult to predict the direction of the currency pair if other countries cannot boast strong economic conditions or there is also more advanced economic progress.

3.2. Political Events and Geopolitical Risks

But in the case of December 16th, the FOMC meeting in 2014 was scheduled on the 17th of December. On the eve of the meeting, the bank had already reported forecasts of possible decisions to ensure future results, which resulted in a sharp increase in EURUSD the day before. The market is very reactive to such information, with anticipation sales in the case, while the actual political events haven’t really had such strong effects. The geographic location of the base (USA) should also be taken into consideration, especially if important news is expected. The retailer of the result of the American government’s or corporate reports is prepared to be decreased.

Political factors generally don’t often affect the market in the short term, but in situations where political events have strongly influenced specific circumstances and resulted in geopolitical risks, they can lead to panic and buying and selling. Such threats tend to give greater weight to supply factors or even rumors, and can lead to strong intraday movements and sharp rate jumps. For example, geopolitical risks in the largest oil-producing countries are rate-boosting factors. During these events, the influence will come from political instability or national security. These are the only real and dangerous risks of Forex for holidays and weekends. Usually, after the Foreign Exchange Market closes, the largest banks publish lists of exchange rates on those holidays. Due to lower liquidity, the rates will often be slightly higher or lower by a few points.

4. Technical Analysis in Forex Trading

There are some trading range strategies’ supporters who wish to consider all good-to-trade opportunities. We show that a personality that considers good-to-trade opportunities would take all good-to-trade opportunities, whether they are random or not. They do not require experience and will have no influence on the probability of good trade opportunities. Good-to-trade opportunities should be large and trade opportunities should be evident. The Forex market actual trades are consistent with buying and selling with present good-to-trade opportunities and only with good-to-trade opportunities.

In technical analysis, when considering the value, the analyst needs to consider more requirements from the results of P and D in the Forex market. Let us continue to consider. P and D are the total personality of stakeholders in the Forex market. We take P and D as trends (or curves) that present shapes as let’s be a personal valuation of P or D in x, a time. Combining trend line theory, we get five major trend lines: long-term trend lines, medium-term trend lines, secondary trend lines, and short-term trend lines. Any two P behaviors and D in the market will create a trendy atmosphere.

4.1. Chart Patterns and Trends

On the other hand, there are a few trends on the price charts that always repeat and are relatively predictive. These can be used to identify and predict the direction of currency in the future. The most common bullish candlestick patterns are hammer, inverse hammer, morning star, piercing line, morning doji star, and bullish harami. Conversely, the bearish patterns are shooting star, evening star, dark cloud cover, evening doji star, bearish harami, and descending hawk. The other types of candlestick patterns are harami cross and three white soldiers (bullish only) / three black crows (bearish only). An uptrend happens when the market makes higher highs and higher lows. In every type of chart pattern, traders should not rely solely on the candlestick pattern but always look for trading signals based on a combination of tools. The other types of tools normally added to the candlestick analysis are trend lines, moving averages, volume, price oscillators, and support/resistance.

A currency pair can move in three types of markets, namely an uptrend market, a downtrend market, and a sideways market. Candlestick patterns are one of the most widely used indicators by most technical traders due to their easy visualization. A pattern in technical analysis is a setup on a price chart that will lead to a potential trading opportunity. Traders use these set patterns to decide the best time to enter into a trade based on market conditions. There are three types of chart patterns: continuation, reversal, and bilateral. One thing to note is that the patterns only show signs that the price of currency will make a movement, but it’s hard to have one hundred percent accuracy that the currency will make specific movements.

4.2. Indicators and Oscillators

When the %K line moves above the %D line, it is said to be a buy signal, and when the %K line moves below the %D line, it is said to be a sell signal. When Stochastic rises above the upper reference line, it means overbought, meaning the price of the base asset rose significantly. If the Stochastic drops below the lower reference line, it means oversold conditions, and the price of the base asset dropped significantly.

Stochastic Oscillator, arguably the most underrated indicator, can identify overbought and oversold conditions in erratic ways. It is a forward-looking indicator programmed to show reversal points. As the indicator consists of two lines named %K and %D.

The default period is 20. When the value of the CCI is more than 100, it means overbought, and less than -100 means oversold. A buy signal is confirmed when the CCI moves above -100. Likewise, a sell signal is confirmed when the CCI moves below +100.

Commodity Channel Index (CCI) measures the strength of the latest price trend. It falls when the trend is weak and rises when the trend is strong. It helps you to spot the divergence or reversal of a trend.

5. Risk Management Strategies

One strategy is stop loss orders. This order is a risk management strategy where you have pre-determined a point and you will not allow the forex trade to go beyond that point. As mentioned above, the two most consistently overlooked principles behind every successful investor are limiting losses and protecting your profits. The stop loss orders address the first principle: by setting a pre-determined price where your investment automatically sells the stock and gets you out of that trade. The second strategy is protective stops orders.

If you are a beginner in the world of forex trading, this is your first factor to take into consideration before going into trading. There are many forex risks that you need to manage. Some of these risks include interest risk, credit risk, and country risk. And we also have operational risk, which is caused by breakdowns in internal controls and poor management. Though there are innumerable risk management strategies that you can employ, you don’t have to use all of them. But you have to find the one or several that you’re most comfortable with and use them consistently.

5.1. Position Sizing and Stop Loss Orders

Underlying the ability to trade is the availability of funds. If funds are lost, there is the possibility that clients or the trader may go out of business. There is the additional problem of earning it back in some way. Sure, some wait a while until an investor comes along and offers a new round of funding, but frankly, there is nothing so heart-stoppingly effective as losing your own youthful fantasy money. This is why it is very important to figure out how many trades one can afford to make and still be in business. Decisions about position size need to be predicated on the concept of how preservation of investment will permit future trading, to permit one to earn lots and lots of money over time.

It is very important to position-size correctly to avoid the risk of ruin. It is important to diversify and establish how much correlation may exist between the individual bets to avoid excessive risk. It is also important to figure out how much drawdown or loss of investment or subscription clients can bear to adjust position size accordingly. It is also important to attempt to predict possible drawdown, although this is not easy to do, especially in live trading. Excessive drawdown can wipe out an account and may have long-lasting psychic effects that can hinder future trading performances.

5.2. Diversification and Correlation

On the other hand, it is important for one’s trading strategies to have a low or negative correlation ratio to perform well in diverse market environments or different economic conditions. For example, considering three trading strategies such as equity trading, momentum trading, and value trading in the context of traders’ decision-making or stock selection, the discovered correlation ratio is normally negative without adjusting the time of the strategy and cycle of economic conditions. Trading strategies with a positive correlation will usually result in a lower return and nondiverse gain, assuming a profitable correlation. Despite the existence of minority correlation-correct positive correlation in which the trading strategies can exploit the correlation ratios to generate a higher return, then this fact also implies that any employed tools that are examined or used for trading purposes need to bear out the degree of correspondent proposes of news matching the predicted stock market reaction.

A diversified portfolio has a mix of assets with low or negative correlation ratios. When different assets move in different directions, the combined portfolio is expected to perform more smoothly with lower volatility. The concept of diversification is simply not to put all eggs in one basket. This acknowledges that it is possible to protect against risk by holding a variety of permanent investments. Measuring the historical observation of fund managers’ returns is fundamental for building a portfolio. When considering the historical performance of two managers, this measure compares the relative price movement of two funds over time. For example, if the pair of value fund and growth fund share an r-squared of 70%, then it means that 70% of price performance is explained by the capitalization’s similarities.

6. Choosing a Forex Broker

After you have decided on the broker with which you may want to open the trading account, read the registration agreements meticulously and pay attention to the minute letter that includes bank connections. Find detailed details of the letter that specifies the tries the broker and the Tempter that operates it, paying attention to brokers who use companies in well-known tax refuge for registration. After you have opened the account, never answer the letter with your sample if it demands financial data about you, as the mailers of the troop or spyware do. The usual procedure of opening an account can take from approximately 1 to 7 days, and a first operation with a broker’s account can occur thereafter.

Otherwise, you can choose a company that is just a part of the broker. These days, you can find many territorial agents and businesses of foreign Forex, which have enough competent staff for having rendered the essential service. It is worth deciding on a business that is near to you and suitable for your dealing method, but it is also worth putting the test on the quality of service of lesser-known companies. When choosing the major broker firms, specialists who tested the brokers top to bottom are advised also to look at the electronic options auction of migrant’s pair of currencies because if several tractor brokers quote narrow spread, the better prices can be obtained for trading.

6.1. Regulation and Safety

It also exists among jurisdictions where less stringent regulation does not require a heavy burden on the brokerage and the requirements of breaking into the market. A tag of regulation can be used as a convincing marketing tool for any available size of broker. Support for financial service policies, financial stability, and avoidance of any harm to the trading public is another role of a number of regulatory bodies around the world. As a primary customer safeguard in established trading experts, a financial services regulator is viewed favorably in that it underpins trading revenues.

Leverage can be tightly regulated by various regulators. A 1:25 leverage cap is imposed on the forex market by the central bank of a country. A cap of this leverage requirement is set in order to expel forex trading from the country, hence boosting the economy of this country. Of course, national regulators prefer to attract foreign exchange trading activity and earn profits. This point is emphasized by the FCA, and regulated brokers of different sizes and business models are commonly operating. A stamp of approval also calls certified brokers legally compliant and in good standing with the regulator to use the term.

Different maximum leverage rates on certain asset classes can be offered by a broker, and these vary in the split between retail and professional category clients. A leverage rate of a maximum of 30:1 is for retail clients in the case of a major currency pair. A professional trader can apply for the maximum leverage rate. The ESMA is referenced, and in the case that one applies, who needs to comply with the requirement of being approved by a competent authority, the retailer can apply for reassessment either of the MM SUs or the Retail EM pattern. A lower leverage limit than 30:1, if set by the national regulator, shall be applied. A national regulator has raised the limit in a certain case. The trend shows that in more and more countries, the maximum leverage limit is regulated due to the increasing number of retail traders who lost their deposits.

Brokers which provide high leverage, like 1:500, underline that they will take care of retail losing traders. The majority payout side on the market, to whom deposits immediately transfer to the liquidity provider, are professional traders who take care of that money by producing a safe and regulated trading environment. While they get paid for every retail losing trade executed, traders must be aware that most of the time the brokerage uses a B-booking model by taking the opposite side and netting orders. High and negative net exposure is not desirable when the brokerage uses the B-booking model. In that case, the more retail traders earn, the more of a loss is incurred by the brokerage. When a brokerage uses the B-book or hybrid type, high leverage represents a danger element for the safety protocols of the brokerage.

Regulation and Security

6.2. Trading Platforms and Tools

It is important to notice that the simulation model used by the platform incorporates several factors that a developer must necessarily take into account when creating his script. For this reason, MetaTrader 4 has been proposed as the perfect forex trading platform. The interface is not as user-friendly and clear as the one offered by MetaTrader 4 and the support offered by the online community is less consistent. But it is enough to want to systematically integrate supportive indicators in the trading system, so it is likely to focus on the MetaTrader 5 option.

Launched several years after MetaTrader 4, MetaTrader 5 boasts more features. While it may seem that this platform is better for several reasons, it is also slightly more complicated to use. This has been the main reason why MetaTrader 4 is still more popular among traders. Some of the improvements offered by MetaTrader 5 concern the development of indicators and scripts. These features allow writing advanced custom scripts and then testing them effectively by using the built-in strategy tester.

The most popular trading platform is MetaTrader, which is produced in several versions. Currently, MetaTrader 4 is the most popular among traders, though MetaTrader 5 improves a number of quite important features. The platform is easy to use and provides everything necessary to perform necessary technical analysis operations. Besides, it is the most widely used platform and it has perfect trading volume indicators that make it superior to other platforms.

To start trading on Forex, any user needs a special terminal (a trading platform). This is the software that provides access to the large interbank market, trading on which occurs almost 24 hours, 5 days a week. These trading platforms can be classified into several groups depending on the features they offer, improving the trader’s efficiency and proper decision-making.

7. Developing a Trading Plan

Before you embark on your plan development, there are several points to consider that will allow you to develop your plan or strategy for your trading as efficiently as possible. Every plan has two main considerations you need to be aware of. It has an external and internal planning structure. Consideration of these fields will be instrumental in developing your trading edge. If you develop a winning edge, you will have a successful trading plan. Your edge might be a moving average, overbought/oversold conditions, Stochastic, time of day, market events, time in trade, or any combination of thorough testing, well-thought-out strategies, and preparation that lead us to a favorable outcome. If an unfavorable outcome is realized, attentive correct action will put you back on the winning edge.

Now that we have established the direction we want to take, it is time to focus on the constraints of our plan and how we will ensure its success. Every plan should have some rules that are to be followed without question. If you have not yet developed a plan, a good place to start will be formulating a solid decision-making process. This might be looked at similarly to any successful business. You must establish clear goals, a concise decision-making process, as well as giving strict adherence to the rules set out. We are trying to make money, so elaborate rules are not necessary. A simple system that follows the trend will do just as well as a complex system that will not work as well. As it is often stated, “The simpler, the better”.

7.1. Setting Goals and Risk Tolerance

7.1.2. Defining Acceptable Risks Everyone has a personal risk tolerance to achieve trading and investing goals, and your tolerance for risk is likely to change over time. A good rule of thumb is to never risk more than two percent of your available cash and account values. The markets can take your money really fast if you are not careful. Keep in mind how flexible you are and how you feel when making risky decisions. If you are considering borrowing money to trade, you probably cannot afford it. Also, keep in mind that the higher the potential benefits, the higher the potential risks, so you should carefully examine your risks. What are the risks associated with trading Forex and futures? The high liquidity of the Forex market offers tremendous built-in benefits either through leverage or the execution of immediate trading orders.

7.1.1. Setting Forex Specific Goals Developing a clear sense of where you want to go is an important step, and it is difficult to get somewhere when you do not know exactly where you are going. Each type of trading style requires a different approach, and each style has a different risk profile, which requires a different attitude and approach. Also, make it a goal to reinvest your profits in further response to additional goals. First, it will allow you to trade comfortably even when losses are compounded, and second, it makes little sense to have profits not working for you. Lastly, trade your goals in lieu of unrealistic expectations. This is a business, so it should be treated as such, and building financial wealth takes time and patience.

7.2. Creating a Trading Strategy

Typically, together with Take profit and Technical Analysis, a Forex trader comes up with his trading strategy that assists him in several ways to predict the tensions of the market or reach his personal objectives.

Prior to the execution of the first trade, the trader must prepare a trading plan. The trading plan should contain three basic things: Entry rules, Exit rules, and Money Management rules. Money Management is the essential component that can determine the profitability of a trading decision amounting to the establishment of the numerical relationship among the invested amount, the realized losses, the chance of return, and the probability of losses without forgetting the impact of extreme events, incidents, or bad surprises that may affect the operational capacity.

Graziano Campagna warns traders that trading without a trading system is gambling since a Forex trader that does not have a Forex trading system of his own leaves himself unprotected and too liable to the pitfalls and malfunctions brought about by the lack of discipline in dealing with his trading plan and, consequently, loss.

In building a trading strategy, a trader should clearly understand how and when he should enter and exit the trade. The trading strategy incorporates rules for: Entry – when to open a position, Exit – an order to close an open position, Stop Loss level – minimizing loss level for the trader, and Take Profit level – maximizing profit level for the trader.

Different types of strategies are created: Trend-based (short-term, mid-term, long-term), Support and Resistance-based, Fibonacci-based, Elliott Wave, Heikin-Ashi Candles-based, Moving Average-based, Trendline and Chart pattern analysis, Bollinger Band, Parabolic SAR, Gann Grid, RSI (Relative Strength Index), MACD (Moving Average Convergence Divergence), Stochastic Oscillator, Forex Pivot Point, Bounce-Crossover System, etc.

A trading strategy is a set of rules and conditions established by a trader to define the actions in trading. Usually, a trader follows his own strategy that is based on his personal trading system. The main purpose of all strategies is to have some sort of edge in the Forex market. The strategy must clearly define what should be done in this or that situation during trading. A trader should develop his personality as well as establish disciplined trading.

8. Demo Trading and Backtesting

Make sure you are serious about forex trading and you know what you are doing before taking the plunge. I have some bad news for you. The right way to trade Forex is to spend tons of time learning the basic principles, and then some time identifying the proper methodology, rules, etc. What you cannot and should not do is to start thinking about money before you have done all of that. Before that, you can safely use Forex demo accounts to gain a feel for what you are getting into without incurring unnecessary risks.

Demo trading has the advantage of introducing you to what is called in more general terms, ‘paper trading’, without losing any real money. If you try a trade and it really doesn’t work in paper trading, your main reaction should be happiness that you find this out without losing a dime. If this would have been a real trade on your part, you could lose some of your hard-earned money. So, instead of getting discouraged if the trades aren’t going your way initially, relax and give this time to yourself.

Demo trading: When I get a new system or I want to try a new system, I use demo accounts to trade the system. Usually for at least 2 months. It is also a good practice to have my first month’s profit check sent to me. I do not start trading a real account until I have both.

8.1. Benefits of Demo Trading

It is the best opportunity to compare the technical tools and charts of a suitable platform without risking any of your money. A Unitech official highlights that in addition to allowing traders to familiarize themselves with trading platforms, trading on a demo account also allows them to test their trading strategies and signals. It’s a platform that’s very useful in terms of learning about forex market trading. These are essential preparations before you open a live account so that you don’t develop strategies while risking any money. It helps traders avoid a good deal of loss that they might incur if they were carrying out the trial using a real account. You would benefit a lot more from demo trading if you had this in mind during forex training. After you spend a significant amount of time trading on a certain platform, you will get a sense of what the platform is like, what the charges are, and whether or not it is appropriate for you.

Despite the benefits of demo trading, the therapy is underutilized by many traders. Many people have a very casual attitude towards trading on a demo account. If you think that the longer you trade on a demo account, the more experience you will gain, then you are wrong. The goal of trading on a forex demo account is to master the features and general functions of the trading platform.

A forex demo account is the same as a live trading account, the only difference being that it cannot be used to earn real market capital. However, the features and tools available in demo accounts are identical to those of real accounts. This makes it a great platform to hone your skills. It gives future investors ample time to learn the market before risking their money, master essential strategies, and comprehend the basics of how the market operates.

8.2. How to Backtest a Trading Strategy

These tests must produce consistent results. If only testable parameters allow a strategy to be profitable, then the strategy probably has little value. A good sign is if profits are the most likely in the forward test data set on which no optimizations were conducted. During backtesting, position sizes cannot exceed a risk cap per position. When trading, we need to employ a similar technique. The size of the account will determine the maximum size of the forex trade(s) a trader is able to take. While backtesting strategies, we should account for variable trading spreads and slippage. These adverse conditions allow the testing of the worst-case scenario. Lastly, be aware that forex trading robots frequently cannot replicate their backtest when put in an actual forex trading environment. When examining 4 to 10 years of historical intraday forex data, only about 10% of the Expert Advisors successfully generated profits.

When backtesting a trading strategy, one of the main questions to be answered is: How far back can historical data go as a grid for testing this strategy? The further back, the more reliable the strategy will be, as it will be exposed to a larger set of data, allowing us to make pertinent statistical judgments. Multiple trading optimization tests can be performed on a given forex trading strategy.

The backtesting technique checks if this strategy is worth implementing, i.e. it truly shows the favorable odds to get profit without unreasonable losses. The purpose of backtesting is to find if a strategy, applied to available historical data, gives signals that appear profitable. If this is indeed the case, then the next step is to apply the strategy to fresh data and see if the results are consistent.

Before using a strategy, expert advisors should be backtested, which is a very important aspect of automated trading. This allows you to assess the best strategy with maximum profit and minimum loss, and selecting the most adequate forex broker to implement it.

9. Psychology of Trading

In most psychology courses and self-help books, you read that it is essential to be in control of your emotions. When it comes to forex trading, successful investors lose their practical thinking and many others allow their fear to take over their strength. The reason for this lack of self-control and instinctual trading decisions comes from their own inner experience. Traders are not much different from other people and we all share the same psychological needs. However, successful individuals respond towards these basic needs in a different way. As we have mentioned in our last course, emotion is really just an abstract word to represent specific feelings essentially sparked by the desire for pleasure and the fear of pain.

There are many principles and strategies to describe in terms of money management and position sizing, but a solid trading system can also be very profitable if a trader is not disciplined enough. Knowledge of typical trading mistakes and methods to counteract them will help any trader to gain more experience and trade successfully in the long run. We are almost ready with the Forex Trading for beginners series and our final chapter for today is the right mind for trading. All that has been mentioned may be in vain if you are not ready to achieve them. Those are the key psychological characteristics that differentiate traders and a good from fly-by-night fat.

The last chapter in our series about forex trading is the Psychology of Trading. We have explored most of the key concepts along the trading process. Entries, exits, and money management certainly matter, but all the knowledge will just be a waste of time without consistency. Trading success is a matter of self-discipline based on rules regarding each and every aspect of trading. The psychology of trading can have a serious impact on your trading performance if you are not aware of things and have the necessary experience.

9.1. Emotional Discipline and Patience

It is hard to wait for the reverse of a long upward or downward trend. Normally, the trend goes on for a year or two during which it’s impossible to get benefit. Stocks can be displayed on a monitor all the time but it would be disastrous for the state of the trader. Instead of this one might be engaged in something delicious, profitable, and joyful; switch on care and attention when a long trend has just been broken. It is quite simple (there are the “breakout” models based on this idea for traders) but the implementation is hard; most market participants miss out on long-term trends giving accounts to small but faithful and concentrated group of the lead Bulls and Bears. The problem has already been solved. Allocate 10% of the portfolio for the trading on long-term trends (the portfolio should necessarily contain these “hot” stocks), and invest the remaining 90% in the growth stocks of the new industries or the global development, as these are the offerings future progress.

Delay impulses of being at the peak of good luck after making 3-5 successful transactions. Omit actions out of spite, fear, and greed. Listen to yourself; impatience, dissatisfaction, or fear means that the transaction is made with an error. If realization of loss is delayed when the deficit rises 3-fold, the economy of the trader will be exhausted soon. Deficit is to be immediately realized; to acquire new profitable securities later. Every profit has the limit, and the market reverses to take it back. If after reaching the ceiling the assets continue growing, enter the market again; buy at always rising price. This is a dilemma. It is the “stop” order that will help you. It doesn’t need control; closes the position and may never be executed.

9.2. Dealing with Losses and Drawdowns

Having a discombobulated view of stop-losses due to interpretive impacts represents another problem that exists for forex traders, causing caution about loss levels and misleading thoughts. Every trader is willing not to take risks that could lead to substantial losses, but consumes energy to initiate stop-losses, and often struggles against them. Traders can patiently regard the broad but steady fluctuations as a sign of a strong trend with a steady progression. Responses to these wider fluctuations could be reducing risk exposure by decreasing the position’s size of the system to better control the large uncertainties of a structured event, receiving a higher risk premium for holding the long open position when the exchange rate shifts up and down within a given range, or increasing the probability of open positions by using different moving strategies when technical indicators are available.

Something is certain: every forex trader hopes to have large, frequent, and not temporary forex gains. The certainty and power that come with making many successful trades can make you believe that another trade similar to the one you just completed could bring similar results. At these particular times, a forex trader may dissociate the contribution of the system failures and controlling loss and start overemphasizing the expected forex revenue and mitigating with fear of stopping losses. The trader’s unstoppable needs amplify the trader’s false sense of certainty and make him or her more intolerant. After suffering from these psychological obstacles, forex traders may start taking big risks to achieve high profitability by increasing over-confidence in their decisions. In this case, traders do not desire at all to change the strategy and its orders and ignore any analysis or advice warning about stop-losses. Their mental model and confidence levels impair their ability to perceive market events correctly and make more unwise decisions.

Every forex trader is well aware that he/she will have to deal with drawdowns and losses and has succeeded in some way to do this properly. Why do some traders find it more difficult to keep the system open during losing times than others? One reason might be that it is easy to have an excessively high sense of certainty and to feel powerful about being the master of currency price movements when the system is going well. As with the feeling of depression when things are going badly, which is learned through disappointments, overconfident feelings are learned about the small victories. The psychology behind these confidence feelings is that easy, frequent, and large profits make you honestly expect that more trading will produce more revenues.

10. Automated Trading Systems

Unfortunately, not all automated success. Therefore, one should do considerable homework before deploying any trading robot, whether or not it is from a retail vendor or a “professional” fund manager using trading robots. With the popularity of retail trading robots ever on the rise, some unscrupulous vendors have sought to cash in on the stellar performance of the most successful trading robots such as Megadroid and FAP Turbo. These vendors have labeled their robots as Megadroid and FAP Turbo to dupe innocent customers who do not realize that the new robots are “cheap imitations”. Sadly, these customers are then subject to bad performance, losing lots of money and more often than not, suffering the bitter realization that they have been taken for a ride. These customers should have paid heed to the cliché “If it is too good to be true, it generally is”, rather than simply pursuing the dream of easy money, a trap that unfortunately snares many people every day.

Automated trading systems or algorithms are sometimes considered the holy grail of trading, as these systems are expected to provide trading results with minimal user involvement. The key to how these trading robots work lies in the programming code. When instructed correctly, these robots are able to open and close trades according to the particular strategies they have been programmed with, automatically and without the need for human intervention. Let’s take the emotion out.

10.1. Advantages and Disadvantages

On the other hand, forex has its omissions. Since there are advantages, there can be disadvantages as well. Each trader has to decide for himself whether to work in the foreign exchange market or not.

1. Relatively simple and quick entry into the work with the real deposit. 2. Profitable trading and gaining with a little amount of personal time. 3. Large volumes – You can make transactions of any volume that is clear by means of leverage. 4. Liquidity – In three working days, you can convert currency into any other one at market price, compelling banks to execute an agreement. 5. Lack of informational asymmetry: No one will control whether insiders manipulate price.

Certainly, first of all, you have a full trading window every day and you can plan different strategies: long-term, intra-day trading, and day trading. It’s a versatile market for taking money out of different directions, while other online services or methods of making bank require, as a rule, 20% effort and skills to earn 50% profit. You have a full trading window every day; only the market hours exclude the weekend and prevent making transactions. You have the opportunity to cooperate with professional traders living all over the world, and this gives you the unique trading window from 5:30 to 21:30 (GMT).

10.1. Advantages and Disadvantages

We have talked about trading in the foreign exchange market and considered various methods and systems for making money with a full trading window. Let’s consider the list of all possible advantages and disadvantages of this type of business.

10.2. How to Build or Purchase a Trading Robot

In my opinion, the following list of conditions is enough to develop, test, and operate trading robots in live trading mode and a 24/7 market opening strategy with a central trading terminal. A robot terminal must be attached to a broker trading terminal with shaping parameters of a long-term investment and with an account of at least $10. However, it is necessary to possess a very critical mindset toward the advertised marketing promises and the decision outlets which these development platforms provide to trades. Platforms often set up the simplest and at the same time unprofitable marketing patterns. Furthermore, shell designs of a long-term investment are often overly complicated and provided with no guidance.

A trading robot is a program which uses a trading strategy to enter and exit market orders. A trading robot builder usually uses easy creation of such programs as a distinguishing feature to promote their trading platform. The program is responsible for monitoring the market for trade signals and making decisions to either enter or exit a trade. Typically, clients either completely purchase a ready-to-use program or commission a developer to create a trading program according to their specific requirements. Moreover, clients can purchase a ready-to-use trader robot on special trading platforms.

11. Popular Forex Trading Strategies

2. Scalping: It is a method that involves making hundreds of transactions in an entire session, with the only intention of getting a very small benefit from each of them. This means that the operation within the market will last a very short period of time, about a few seconds or minutes, exponentially increasing the risk but also the benefit. It is a style that has been highly valued due to the democratization of access to the market and the popularization of Forex day trading. As it operates in short periods, scalpers have little time to identify the trend, but they use highly advanced trend identification systems. The essential requirement for scalpi