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TheCapitalManager

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  1. Four Different Types of Stop Orders

    Here we would be discussing Four different types of Stop Orders. Initial Stop (to cut losses) Once we have detected a potentially profitable entry signal you will have to determine a level at which your setup is not valid anymore. Since you never know 100 % what will happen next you have to protect your capital with every trade. As soon as you place your trade you should therefore also define the so called “initial stop”. This is the level at which your position will get closed automatically when you are wrong. This is your maximum risk for that position. This stop should not be changed when prices approach that level. The initial stop can be defined in different ways. You can set that stop according to a specific dollar amount you want to risk. You can risk a fixed pip stop, e.g. 20 pips per trade or you can use a volatility based stop using a given indicator. You can also place the initial stop below or above a specific level in the chart which you consider to be support or resistance (technical stop). Securing Profits (Trailing stop) Let’s say your position performs well and is heading in the anticipated direction. You will now have to manage your trade and adjust the stop. Nothing is more annoying than a trade which shows you a nice profit but still gets stopped out with a loss later on. An important part of trading is managing your position – in this case adjusting your initial stop. You can adjust your stop manually once it shows you a healthy profit or use a so called “trailing stop“. When you apply a trailing stop your loss protection will be automatically adjusted. The parameters for a trailing stop are the “distance” (from the current price to your stop) and the “step”. If you choose a 30 pips distance trailing stop with a “10 pips” step the trailing stop will be moved automatically to 30 pips above or below current prices (depending on if you are long or short) every 10 pips. Logging in profits (Profit target stop) This type of stop is used when a specific pre-defined price target was reached. The profit target stop is especially useful in trading on a short time frame and in a range bound market. If you bought a currency at the lower boundary of the range you would then place a profit target at the upper end of the range if you are of the opinion that the range will stay intact. Once that level is reached the position will be squared automatically. Stop entry A stop order can also be used as an entry into a new position. This can be especially useful if you expect a significant move once a certain level is taken out. Let’s assume you are bullish on EUR/USD and want to go long once a certain resistance level is surpassed. In this case you would place a buy stop order above that resistance level and get “stopped in” once that level is reached. Stop orders are an extremely useful tool if applied correctly.
  2. Here we will be going to take a look what are the best months of the year and the best days of the week to trade forex. The foreign exchange market is open 24 hour for 5 and a half (Sunday) days a week around the whole year. But there are certain times when it is more attractive to trade. Best Months to Trade The worst months for trading are certainly the summer months of June (second half), July and especially August. Many institutional traders in Europe and North America are on vacation which results in less trading activity in general, drying up of trading volume and smaller swings in currency pairs. If you trade during the summer months you will have to take into consideration that prices will be range-bound for a long time and get rather unpredictable. Starting in September – usually after Labor Day in the US – trading activity picks up again as traders return to their desks. Then the best three months of the year follow until volume dries up again in the second half of December as traders take extended Christmas holidays. From January until May it is also very good to trade as we usually witness good swings during these months. Just be very cautious during the summer period and during the second half of December. What normally works in “normal” conditions might not work during these low volatility months. Best Days to Trade While the Forex market already opens on Sunday evening Central European Time (Monday morning in New Zealand and Sydney) it is not recommended to start your trading week on Sunday already. Unless there was major news over the weekend there won’t be much going on as volumes and volatility are usually at an extreme low on Sunday evening. Monday can also be very difficult to trade as many traders – especially in Europe – wait for economic news and macro data before they put up new positions. Trading ranges on Monday are usually smaller on average compared with the other days of the week. Tuesday, Wednesday and Thursday are considered to be the best days of the week for forex trading. These three days are usually the days which get the most action. If you want to trade only three days a week and spend the rest of the week at the beach you should chose these three days. The first half of Friday is also pretty decent for trading but please be aware that volumes dry up in the second half of the day as traders head for the weekend. Be also aware of the fact that on Friday trends which have persisted for the whole week can be reversed on Friday’s as traders close their positions to avoid the weekend risk. You should be especially cautious on the first Friday of each month as this is the day when the non-farm payroll report from the US is due. This data usually leads to erratic swings in all major currency pairs, especially in the dollar related pairs. If there is a holiday in more than one major financial center such as Easter Monday or Christmas we usually also witness a drying up of volumes and sometimes erratic swings. Be especially careful on these major holidays as most of the big traders are off their desks. If you avoid these low volatility days you will usually diminish potential frustration and boost your performance.
  3. 7 Things You Need as a Trader

    7 Things you need as Trader, to trade in a more disciplined and profitable way. 1. Confidence If you do not have the necessary confidence your chances for success are slim. This is not only valid for trading but also for the rest of your life. In trading you have to believe in what you are doing. There is no room for fear – mistakes are part of the game. The key to success is to analyze your mistakes and draw the necessary conclusions in order not to repeat the mistake. This is the progress you will make in your trading. 2. Strategy There are so many different strategies out there: trend trading with momentum, scalping, news-trading and so on. You have to find a strategy which fits your personality. Then you have to do everything necessary to master this strategy. The fastest way to learn a strategy is to follow a successful mentor and copy his or her trading with your own style. Another option is to have a trading partner with whom you share your trading experience. This can be beneficial for both parties. Together you will have to fine-tune your strategy and adapt it to potentially changing market conditions. It is often difficult to go through that whole process just by yourself. 3. Specialization on a specific product Specialization is important. Nowadays you can trade futures, equities CFDs or Forex – there is a huge variety of instruments available to trade. It is all right to try every instrument available but sooner or later you will have to find out which instruments suits you best. If you trade a bit in stocks, trade a bit in futures and some forex you will never truly become a master in trading a specific instrument. Specialization is absolutely necessary. 4. Timeframe You will have to find the timeframe which best suits your personality. If you are a very nervous person trading on the shorter timeframes is probably not for you. Finding “your” timeframe to trade on is essential for being a consistently profitable trader. 5. Capacity to cut losses short All good traders know that they have to cut their (small) losses and don’t allow them to become big losses. As a trader your money is the basis of you activity. If you lose it you are out. If you cannot limit your losses you will be sooner or later out of the game. You have to be confident in what you are doing but if the market proves you wrong you will have to cut back your ego and take the loss. 6. Ability to make decisions If you go to a Restaurant with your partner and after half an hour you still cannot decide what to order then trading is probably not for you. You have to be able to take decisions, sometimes within a very short time. You cannot hesitate in trading – if there is a valid signal you have to take it. The markets move fast. It does not pay to be afraid and hesitate to pull the trigger. If you make a loss this is part of the game. 7. Use your own brain In the long term it does not pay to follow the suggestions and trading recommendations of other people – you will have to use your own brain and develop a trading plan which suits you. If you are listening to “tipsters” you will never become a consistently profitable trader.
  4. Today, We would be going back to the basics and understanding " How Forex works ?'' As you may know any other market demand and supply determine the price of an asset, in this case the asset is the exchange rate between one currency and another currency. Exchange-rate Regime This is valid for a currency regime with free floating rates. The other two main exchange rate regimes are: - the so called pegged float and - the fixed rate regime Currencies such as the Chinese Yuan are not floating freely as they are allowed only to trade within a limited range around a certain price level (pegged float). It is almost impossible to make money trading a currency like the Yuan which can only be traded in a fixed corridor. Other currencies are fixed completely to the value of another currency and are not tradable independently. Four Main Fundamental Factors If you trade the highly liquid major currency pairs which are available to trade via the Forexchampionship you need to be aware of the fundamental factors which influence the exchange rate between two currencies. The four main factors are: -Inflation -Monetary policy -Economic growth -Interest rates These factors are linked and influence each other. Furthermore the creditworthiness of a country and its status as a reserve currency play an important role. These are the most important fundamental factors which can influence a currency but certainly this list is not “complete”. Other Factors As we have seen lately with the tensions between Russia and Ukraine – geopolitical events can influence currency prices. The immediate reaction of the market after the events in Ukraine over the weekend was to buy the US dollar and the Japanese yen. The USD is still the world’s reserve currency No.1 and the yen is the favorite funding currency in the carry trade. In times of crisis investors seek the “safe haven” of the US dollar and carry trades get unwinded as they are considered risky. Conclusion If you are aware of what’s driving a specific currency fundamentally and if you manage to combine this knowledge with technical analysis you have a good chance to succeed in currency trading.
  5. TheCapitalManager welcome on Collective Investments Forum. Nice to have you here with us.

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