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Basic Concepts to Understand in FX

  • #1
  • First Post: Jun 24, 2013 11:23pm Jun 24, 2013 11:23pm
What would you guys think are some basic concepts to understand regarding the forex market?

My initial list would look like this (in no particular order):

- major currencies: USD, EUR, JPY, AUD, CAD, GBP, CHF
- Technical,Fundamental,Sentiment analysis
- rollover/swap
- pips/lots/margin/leverage
- volatility in FX and how it can be beneficial/add risk
- risk management
- choosing a broker to fit your trading style
- candlesticks
- multiple time frame analysis
- order types and executions
- major trading sessions
- advantages of demo accounts
- currency correlations

I bolded some of the concepts that I thought were especially important.
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  • #2
  • Jun 25, 2013 12:10am Jun 25, 2013 12:10am
Quoting emanontrader
- choosing a broker to fit your trading style
Don't choose a broker according to your trading style but based on his reputation. Any reputable and serious broker will fit any trading style.

Quoting emanontrader
- advantages of demo accounts
The only advantage about demo is to learn how to use the platform. Real live trading (real funds) is the only way to master your emotion which is the most important factor in trading.
MT4/MT5 EAs/Indicators/Alerts coder
  • #3
  • Jun 25, 2013 12:16am Jun 25, 2013 12:16am
Quoting FerruFx
{quote} Don't choose a broker according to your trading style but based on his reputation. Any reputable and serious broker will fit any trading style. {quote} The only advantage about demo is to learn how to use the platform. Real live trading (real funds) is the only way to master your emotion which is the most important factor in trading.
I actually agree with your thoughts on choosing a broker.

In regards to demo accounts. I definitely agree that live trading is the only way to truly understand the emotional toll that risking capital can take. However, I definitely think that trading on a demo account can emulate live trading if it is taken seriously and the demoing is done with discipline.

It's also a great tool to safely forward test new discretionary strategies and mechanical systems.
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  • #4
  • Jun 25, 2013 2:01am Jun 25, 2013 2:01am
On the risk management part,
let me ask you how do you define risk? where and when the risk appears? and how well do you handle your loses in terms of risk management.

It's a fairly good subject that would take sometime to fulfill, but worth knowing.
More than a hobby. Never a game. US Client at 1:50.
  • #5
  • Jun 25, 2013 3:48am Jun 25, 2013 3:48am
intro: I use multiple time frames with an oscillator for overbought/oversold levels, fibonacci and price action.

I find that Risk Management is quite well defined in Van Tharp's books but difficult to summarise in comment spaces like this. Essentially, this is what I do based on Tharp; for each trade you need to predefine your exit (stop loss and limit profit), then decide if the stop loss is an amount you can afford to lose and whether the potential profit is worth the amount at risk (stop loss). Generally if the risk amount is greater than the potential profit, it's not a worthwhile trade. If you risk 3% of your account per trade you need to figure out how many losing trades can wipe out your account and then test your trading method with historic data to find your longest losing streak.

for your list, I would add: Keep a journal. Note each trade and the reasoning behind it, with results. You should build up a pattern of what works for you. I have my journal in a spreadsheet (open office), I use pivot tables to analyse the entries, exits and to look for good trading times, good symbols to trade etc.
  • #6
  • Jun 26, 2013 12:14am Jun 26, 2013 12:14am
Quoting Chi
On the risk management part, let me ask you how do you define risk? where and when the risk appears? and how well do you handle your loses in terms of risk management. It's a fairly good subject that would take sometime to fulfill, but worth knowing.
I define my equity risk by the amount of equity I am risking on a single trade which I typically keep under 2%. I also look at future fundamental reports which will provide liquidity to the markets as my market volatility risk.

I think defining and understanding risk is probably the most important thing to understand when improving your trading.
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  • #7
  • Jun 26, 2013 12:15am Jun 26, 2013 12:15am
Quoting Saz
intro: I use multiple time frames with an oscillator for overbought/oversold levels, fibonacci and price action. I find that Risk Management is quite well defined in Van Tharp's books but difficult to summarise in comment spaces like this. Essentially, this is what I do based on Tharp; for each trade you need to predefine your exit (stop loss and limit profit), then decide if the stop loss is an amount you can afford to lose and whether the potential profit is worth the amount at risk (stop loss). Generally if the risk amount is greater than the...
Awesome advice.

I currently keep a trade journal and I also have a trade checklist which I require myself to fill out before I enter any trade. This act forces me to think out each trade methodically prior to jumping into the market.
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  • #8
  • Jun 26, 2013 12:24am Jun 26, 2013 12:24am
Quoting emanontrader
I also have a trade checklist which I require myself to fill out before I enter any trade. This act forces me to think out each trade methodically prior to jumping into the market.
This is the base in order to avoid emotional entry.

And this should be the exact same process to check out each exit ...
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  • #9
  • Jun 26, 2013 1:11am Jun 26, 2013 1:11am
Quoting FerruFx
{quote} This is the base in order to avoid emotional entry. And this should be the exact same process to check out each exit ...
interesting because I plan out my potential exits prior to entering the trade, including my take profits. (I use a rolling stop along with soft take profit levels)
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  • #10
  • Jun 26, 2013 1:16am Jun 26, 2013 1:16am
Quoting emanontrader
{quote} interesting because I plan out my potential exits prior to entering the trade, including my take profits. (I use a rolling stop along with soft take profit levels)
This is what we call to have a plan!
MT4/MT5 EAs/Indicators/Alerts coder
  • #11
  • Last Post: Jul 14, 2013 7:58am Jul 14, 2013 7:58am
Trader psychology should be up there imo
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