Tag Archives: trading

Forex Trading

Backtesting Explained (Part I)

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With Backtesting, traders can actually test their trading strategies and how well they would have done if executed in the past. Backtesting any trading strategy allows a trader to simulate its expected performance using historical price data.

Any trading strategy that does not have any ambiguity in its rules can be backtested effectively. Example of a simple trading strategy that can be backtested can be as follows.

When the MACD histogram has crossed above the zero line and the DMI+ is above DMI-, go long when the 5 period moving average has crossed above the 20 period moving averages.

When DMI- is above DMI+ and the MACD histogram has crossed below the zero line, sell short when the 5 period moving averages has crossed below the 20 period moving averages.

This one example is just meant to illustrate that any trading strategy having clear cut rules can be backtested with the historical data. However, using the past price data to simulate future results often misleads traders into thinking that their backtested results will also give into similar results in actual real time trading.

Many potential factors can and will make hypothetical performance and actual performance differ significantly. So you should not fall into the trap of thinking that Backtesting may be a perfect method for identifying the most profitable trading strategies.

A trading strategy that may have worked very well over the past three years may work in an entirely different manner for the next three years as the market changes and evolves. One of the most important facts that you should always keep in your mind is that market change considerably overtime.

Often technical indicators that have been giving profitable signals in the past are subsequently unable to replicate their performance in the future. This may frustrate you. But this is exactly what makes trading a challenging endeavor.

Secondly in term of trade execution, a trading strategy in real time may be much different from the way the trading strategy behaves on Backtesting. These differences can potentially skew the results.

However, Backtesting is still the best available method for evaluating a trading strategy without actually trading it in real time environment. Backtesting can provide a trader with a reasonable expectation of the trading strategy’s potential worth and usefulness.

Backtesting can be done by using two methods. The first one is the automated Backtesting. This is the most popular method. Automated Backtesting entails using a specialized program. The trader inputs the specific rules and criteria for the trading strategy into the Backtesting program.

Automated Backtesting is very easy. An entire picture of the past performance is created with the help of that software program. The software automatically applies those rules to the past price data and tallies the past hypothetical profits, losses and other information.

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Forex Trading

What Are The Advantages Of Trading The Forex Market

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Although the Forex market used to only be traded in by large multinational companies, anyone with a true interest in the market can begin to trade in it in just a few days now.

There are many different opportunities for those who are brave to learn how to invest in the Forex market. It is easy to make a huge profit, because there is a lot of money in the market.

On the flip side, you can also experience colossal losses if the same is not delicately managed because of the high liquidity.

Forex trading relies on the assumption that currencies frequently show the trend of value growth for months or even years and learning these growth trends, buying into them and continuing with it will allow you to make profits for extended periods of time.

Forex markets are also advantageous in that you do not need to be concerned with frauds or scams as other traders do not cause this market to change with their decisions. Everyone is given the same probability of profiting in the Forex market when they start trading.

With the Forex market being open for trading twenty-four hours a day for six days of the week you can trade almost as often as you want.

Another thing you do not need to be concerned with when trading in the Forex market is the possibility of insider trading or takeover bids. Dialect and other fine details of the share market do not carry over into the Forex market.

It is a very good idea to try to come to the Forex market having learned tips and strategies from seasoned traders. Being a novice trader is much more likely to be a successful venture if you have some of your own tricks up your sleeve to fall back on to ensure your success as a trader.

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Forex Trading

Beware of Affinity Fraud in the Forex Markets

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As children we were all taught to look both ways before crossing the street. We were also told to pay attention to the crossing guard. Money and internet scams are the concerns we have in our older years. They prompt us to not fall victim to the predators eyeing us constantly, like the bully after our lunch money at school.

Affinity frauds are the just some of the lions in the grass eyeing us like scrumptious meat. Affinity frauds pounce on the identifiable and very specific groups in the money markets, factions of religion, ethnicity and demographics. It is a new type of fraud in the Forex market that is being heavily watched. Some brokers play in the field of predators offering alleged investment opportunities to specific areas claiming affinity (similarity, likeness) towards them, to lure in a comfort feeling as in to better be able to reel them like fish to the hooked worm.

The enormity of true connection is easily portrayed in a world of many people. The quick and easy route to get things done and get people connected is a effortless as watching ice cream melt, via emailing, instant messaging, and so on. Whether it’s with Forex brokers or other types, individuals who are making investments need to be fully aware of this. The capital of new found brokers, regulators, traders or investors, and companies need to be researched.

Being legitimate with a few real customers is a typical move for these swindlers, forming the bond, working with them hand in hand, getting the testimonials, and then using that as collateral to fetch others. Being the lucky ones to be embarked on a fraud that can lead to damages they cannot live with is unfortunate for the “others”. The lack of notifying the authority is all too common in this situation. Trying to fix issues within the group, and leaving them quickly shorthanded and alone is usually what happens instead.

Ways to avoid Affinity Frauds

1) The most important and first thing that should be done is to call and ask your state or provincial security agencies about the sales person, firm or company before investing ANYTHING. This simple maneuver can save most people a lot of money. See if the investment is allowed to be sold after asking if investor or company is registered. These investors do not care in any way for you and have a way with words so if they are not completely back away. DO your research.

2) From the investor obtain written information on the procedures of the investment, risks of the investments, and procedures on getting your money out!

3) Ask for professional advice, from an attorney, accountant, financial planner; be it through a friend or you pay them, you are much better off.

4) Earlier people the investor had that were legitimate could be incredibly enthusiastic, however later arrivals may not be so pleased. So pay attention to dates of testimonials. Look closely for odd names and repetitive names. Be AWARE!

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Stock Trading

Is Day Trading For A Living For Everyone? – Easy Tips

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If you mention day trading for a living to someone who has never traded before, you can be rest assured that they’ll immediately ask you why there aren’t more people doing it if there’s really so much money to be made.

Now, if people asked this question because they really wanted to find a proper answer so that they could learn more about it, then the question would be perfectly acceptable. However, the vast majority of people who ask this question only do so in order to find a way out of actually becoming involved. If however you are sincere, then you need to be advised that there is one huge misleading factor, and that factor is the frequent use of the word “invest”.

Before you even begin thinking about trading you need to get something straight, and that is that trading is definitely not the same as investing. In fact, it’s not even a form of investing, in that trading and investing are worlds apart.

Yes there are high risk investment opportunities out there, but you need to bear in mind that whether it’s a high risk investment or whether it’s a conservative investment, the basic principle still involves holding onto your investment for a certain period of time.

Unlike investing, day trading for a living doesn’t involve trying to hold onto your cash. In fact, if you’re day trading for a living you need to be buying and selling on the same day, and no matter what anyone has told you, it’s not an easy process. Of course there is plenty of money to be made with day trading, but there’s also a chance that you could end up losing a great deal of money.

To answer the original question, this is why so many people do not embark on day trading for a living. It simply is not for them and there is nothing wrong with such an assessment. Some people are just more cut out for the world of day trading than others.

Considering the large amount of money that is on the line when day trading as well as the amount of effort involved with being successful, it is no secret that some individuals would be better off not trying to do this for a living.

For those that have a knack for the market and the confidence to trade, the venture may most definitely turn out to be an extremely rewarding venture. For some, the rewards have come in the form of millions of dollars. Yes, while rare, there are literal rags to riches stories in the world of day trading. You can always look to such stories for inspiration if you are on the fence about becoming involved with trading.

Of course, it is also possible to start very small and day trade with a very minimal amount of money. This way, you can gain a little experience and a potentially much needed confidence boost from the venture.

No, day trading for a living is certainly not a good choice for everyone. If you feel that you’re simply not cut out for it then you’d be better off avoiding it altogether. If on the other hand you find the idea of day trading appealing, then of course you should at least give it a try, because after all, the truth is that you could very well end up making a huge amount of money.

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Forex Trading

Getting A Forex Trading Plan Started

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If you want to be a successful Forex trader, than you need to make sure you know your style of trading just as well as you know the market. Different trading plans go with different trading styles so it is imperative to know how you trade before you can come up with a plan.

No one will know better than you what type of trader you are. Various factors are counted in to determining this classification including your personality, how often you plan to monitor the market, and whether or not you want to take a hands on approach. Generally there are three different types that people fit into.

If you are considered a “Short Term” trader, than this basically means that you are an active, or day trader. You actively trade in an out of the market if you are a short term trader and trades could be just minutes or less in when it comes to the Forex market. Price fluctuation is how money is gained. Pip fluctuation is narrower in the Forex market and just a couple pips are where the profits are. Without the aid of a Forex robot you will have to be very vigilant of the market.

The time frames of mid term trading are not much longer than short term trading. Mid term traders will hold trades from as long as a few minutes to a few hours, but not much more than a day. As with short term trading, mid term traders profit on price fluctuations, but usually ride the momentum of the market a bit longer. These traders like to take profit frequently and then reassess the market before diving back in.

Long Term traders: These are usually not individual traders but large institutions or hedge funds. Trading positions can be held for long periods over weeks, months or more than a year. Since individual traders want to make profits quickly they do not prefer long time trading.

No matter the decision, a specific trading discipline must be developed and practiced. It is important to focus on one trading style and master it.

When beginning, if you do not like the style you originally opted with it is fine to change it. You will run into problems if you mix short and long term trades unless you have expertise in the field. New traders should stick to one style and never change a trade from what you originally had planned it to be. Should your plan not follow through as you had wanted then take your exit plan. It is very important to not base future trading styles on a trade itself as that can only bring bad news in the future.

All styles of trading require discipline, including Forex trading. You must practice this discipline by choosing a trading style, creating the appropriate trading plan, developing it and sticking to the style.

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