Knowledge of price action is by far the most underestimated part of trading. Remember, you are joining a game where 90% of people lose. For example, many forex brokers offer 100:1 leverage on forex trades. That
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doesn't sound quite as appealing, now does it. So, let's say you purchase
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1 standard forex lot on the Euro to US Dollar (EURUSD). This does not mean you throw a bunch of indicators on your charts and hope for the best. In the forex example, that would mean you would need $50K to open 1 standard position, which obviously isn't very
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palatable
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to those with small accounts. Unfortunately, many people treat forex trading like it is a trip to Las Vegas.
Learning the forex market is both an art and a science. The Leverage Beast I'm sure
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you've seen ads from forex or futures brokers touting the incredible
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leverage you can have trading. While the thought of making $1,000 on a $1,000 margin deposit is no doubt appealing, think of the downside. They don't really know why they
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are trading a particular currency. This requires actually taking the time to to study what makes the market move the way that it does. Every pip that the trade moves will mean a $10 profit or loss. At this point,
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you might think, "well, $10 per pip is only 1% of my account, so that is a pretty small number.
My risk isn't that high." But, in an average day, the range (the high minus
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the low) of the EURUSD pair is about 100 pips, or $1,000. Some even offer 400:1 leverage,
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but since 100:1 is extreme enough, we'll stick with that for this example. Learning the Forex Market by Thinking Outside the Box When it comes to learning the forex market, most people don't go about doing
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it the right way. When you can predict the future price of a currency pair, just by looking at a simple price pattern, then you know you are a lot further
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ahead than most traders. The obvious advantage to forex trading
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compared to actually gambling is the fact that with gambling, your chances of success foreign exchange toronto are mostly based on luck. All they know is they have a good hunch. Why throw your money away until you know you have something that works. 1 standard lot has a value of $100,000, and you
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only need $1,000 in margin to make that trade.
You are hoping that the price will go up, so you can sell at a profit. If you really want to get a deeper understanding
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of why prices move the way they do, all you need to do is look at a simple price chart. While it is true that leverage is great when a trade moves in your favor, it can
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wipe out your account
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in an instant when it goes against you. Your best oberon of success is to trade small until you know you have an edge, then when you feel comfortable, you can increase the leverage you use. Therefore,
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on any given day, you could easily gain or lose
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thousands per day. And during the financial crisis of 2008, the daily range was as high as 480 pips, or $4,800.
This may work for Las Vegas, but when it comes to forex, that just doesn't cut it. What should
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you do to avoid this double edged sword of leverage. Using high leverage right from the beginning is a quick way to eventually, and almost inevitably, blow your account out.. But what can you expect when we live in a world where the trading community is so indicator crazy. All the information you'll ever need is on it. But, the point is if your system does not work, high leveraged trades will only wipe you out sooner. Simple - if you think you have any kind of tradable edge, trade it at first with very small leverage, for example 2 to 1.
You could easily lose ALL your margin (and then some) in a day. If luck has to factor in whether a trade will be successful or not, then you are not doing it right.
Day Trading
