How To Choose The Best FOREX Trading Software

microchip for automated trading

We are moving into a world which is increasingly automated. Currency trading is no exception. FOREX trading software enables traders to identify and execute portable trades without constant supervision.

These software programs comb financial markets to find probable trading situations and then make trades using parameters predetermined by the trader or by the designers of the software. Here is the short list of some trading strategies that are being used by the software designers:

Trend Following

Determining the overall direction of the trading instrument by analyzing multiple time-frames along with complex math calculations.

Mean Reversion

Taking advantage of deviations from the mean, the average price. Most of the time it is two or three standard deviations that are used to determine if the price is in the oversold/overbought conditions.

Scalping

Refers to trading on shortest time-frames by capturing smallest moves. Trades are executed within minutes or even milliseconds.

Arbitrage

Exploiting a price difference, the disparity between the Markets, or between several trading instruments, in our case – currencies. It is considered to be a risk-free opportunity. While automated trading can be extremely useful, it is not a “silver bullet” for becoming a profitable trader. Read on to find out how FOREX trading software works and how it can be best applied to profitable trading.

 

How Does Trading Software Work

Algorithmic trading programs work by scanning buying and selling activity and price charts. The software uses this data to identify signals which suggest that there is a profitable trading situation. When the trading software had identified that a specific criteria for a profitable trade, it will automatically execute a buy or sell order.

 

The Benefits Of Trading Software

FOREX trading software programs have a number of advantages over traditional human led trading. The most important of these is an entirely rational and detached approach to trading.

Most traders will tell you that winning the psychological game is one of the most important aspects of becoming a successful trader. Computer programs are completely unemotional, neither prone to fear or greed, which plague human traders. Instead, they trade entirely according to preset criteria.

financial market, driven by the algorithmic robots

Human traders are not just limited by their emotions. No matter how driven a trader is, he, or she still needs to sleep, eat and rest.

A computerized trader in contrast, can trade around the clock. Using a computer program trader is able to trade multiple markets and execute trades constantly.

Computer programs can execute trades instantly when the correct parameters are met.

 

The time required to capitalize on profitable trading situations becomes shorter every single year. Using some form of trading software is therefore almost essential in today’s market.

 

Disadvantage of Trading Software

In computer science, there is a phrase “Garbage in, Garbage Out.” What this means is that the output you receive from a computer program, is only as good as the information that you feed in. This is an important concept to keep in mind when selecting a program trading software.

Not all trading software is the same. The results you achieve will only be as good as the software is designed. While there are many good trading software packages available, there are equally as many that will cause you to lose money.

Make sure that you check carefully that any trading claims are backed by an authenticated history of successful trades.

 

Testing The Software

A number of trading software packages allow you to test the program before choosing to buy it. If this is available you should take advantage. This is the best way to make sure that you will be able to install and trade using the software.

It’s a good opportunity to have any questions answered by support staff. You should also become familiar with all of the specific features of the software. If you aren’t completely comfortable with the software and feel that it will improve your trading, then just pass on it.

testing of statistical arbitrage in the soundproof room

Conclusion

There are many FOREX trading software packages available. Before buying test the software and look at customer reviews from different sources.

Make sure that there is good ongoing customer support. Finally, make sure that the software works with the currency markets that you trade.

A good FOREX trading program can significantly up your trading game. Keep in mind that there is no software that can completely guarantee profitable trading and so you need to consistently monitor the results it produces.

 

 

Photo credits:

By Erik Lucero, Martinis Group, University of California,
Santa Barbara – Homepage Martinis Group, University of California, Santa Barbara: http://www.physics.ucsb.edu/~martinisgroup/index.shtml, CC BY-SA 3.0, https://commons.wikimedia.org/w/index.php?curid=12518228
By Glogger (Own work) [CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0) or GFDL (http://www.gnu.org/copyleft/fdl.html)], via Wikimedia Commons
Consumer Reports [CC BY-SA 4.0 (http://creativecommons.org/licenses/by-sa/4.0)], via Wikimedia Commons

 

Introduction To Hedging FOREX: How To Use Hedging In Your FOREX Trades.

a foreign exchange risk control medkit

Hedge fund trader Mark Sellers once remarked that if you “focus on the downside, the upside will take care of itself”. Protecting against adverse currency movements is essential for long term trading profitability. Hedging is a way that FOREX speculators can control their foreign exchange risk.

When used correctly hedging can protect against both long and short currency risk. Here we will look at how hedging foreign currencies works, and why it can help you to control risk in your trading.

What Is Hedging?

Hedging can be used by a trader to protect against a down movement in a currency pair that they have gone long. Hedging also can be used to protect against upward movement in a trade where they have gone short. While there are different ways for speculators to hedge their trades, the most popular are  forward contracts and well known foreign currency options.

foreign currencies specialist at his workplace

Hedging Forex Trades Using Currency Options

One of the most popular ways for retail traders to hedge forex is using a currency option. A currency option provides the purchaser with the right, but not an obligation, to buy or sell a particular currency pair at a specific exchange rate in the future.

For example, you may be in a long trade position. You want to protect against potential downside risk, while still being able to profit from your projected upwards movement in the currency pair. In this situation you might choose to purchase a put option.

If the currency pair increases in value, the put option might become worthless but you would profit from your original trade. If the currency trade moved against you and started to fall, then the put option would increase in value. This would offset your losses from the currency pair trade.

 

Benefits Of Hedging With FOREX Options

When you purchase an option to hedge your financial instrument, the maximum that you can lose is the option premium. The option premium is the amount that you had to pay to buy the option. While options can limit your upside or downside risk, you have essentially an unlimited potential for profit.

Hedging price movements with options is also useful for volatile markets where you are concerned that you might get traded out of a position. For example, you might have gone long on a currency trade. You can see that there may be some volatility in the near future, but ultimately you believe that the currency pair will trend upwards.

You don’t want to set a stop-loss because you are concerned, you will be traded out of your position. Options provide an alternative to stop losses while avoiding being traded out of the position.

safety net bridge that represents security when hedging forex

 

Conclusion

Hedging allows you to protect against adverse movements in your trades, while still allowing you to enjoy potentially unlimited profit on your trades. Forex options are one of the most popular ways of hedging for retail traders.

The correct amount that a trade should be hedged will depend on the trader’s risk tolerance and the individual risk of the trade. By evaluating these two factors the trader can determine how much of the trade should be hedged.

 

…YES, I don’t Care about The Fundamentals. I Love Technical Analysis!

picture of a musician

The majority trading experts tell you to disregard the fundamentals and concentrate on the technical analysis.

Pretty much every trading publication you select is stuffed with a wide variety of strategies that use technical patterns, indicators or combination of both.

Nearly all retail traders can explain the distinctions between the RSI and Stochastic indicators, but would be baffled by the meaning of PMI reports or the IFO survey.

 

Fundamentals are hard.

Yes, they are confusing and often times contradictory.

They require understanding of the context; an understanding of what is going on behind the scenes right now, or what might develop in the future based on today’s economic conditions.

It requires you to follow the Micro, as well as the Macro developments of the particular currency, you trade. The Fundamentals analysis certainly appear less objective than a couple of trend lines or Fibonacci ratios on a chart.

 

I can’t tell you how many times I’ve seen traders get into a trade simply because “…hey man, it looked good on a chart.”

I mean, risk their hard-earned money on a simple Moving Average crossover. And the saddest part of all is, putting on the trade right before the Major news announcement!

You would think, that they’d checked the Calendar for the scheduled news releases, but again “…hey man, who cares? Everything I need to know, is in the charts.”

Photo credit: jamelah via Visual Hunt / CC BY-NC-ND

 

What moves the price?

Only two things, really. Imbalance in Supply/Demand, and the Economic Information; the Macro-picture, and the Micro-releases.

If you believe that your genius new tweak to your ADX settings is the key to your future success, but you have no clue of who Jannet Yellen, or Mario Draghi is, well… I’ve got news for you! You are stepping into the mine field without even knowing it.

Sooner or later, your trading account will suffer a blow from one of their’s “verbal-mines,” as I call them.

In fact, 90% of all retail traders would be much better off if they knew less about technical analysis, but knew more about the weekly scheduled economic events.

Here is some “tough Love” for you my fellow technical analysis junkie:

If you know the difference between the RSI and Stochastic, but can’t tell me who, in Finance world, the above mentioned people are, then you’re a figaro-trader.

If you worship Fibonacci and can defend a thesis on Price Action but have no clue as to what time of the day and what week the Non-Farm payrolls are released, then you’re even a bigger figaro-trader!

boxers in the ringPhoto credit: jimbo0307 via Visual hunt / CC BY-NC-SA

Conclusion

If you are just watching the price, and not following the news, you are like a  boxer that just stepped into the ring, with one hand, tied behind his back.

Is there any wonder why 90% of retail traders fail to succeed in financial market?

Without any awareness of the Macro-events and the Micro-releases retail traders simply fall prey to more sophisticated and well-informed professional traders.

 

 

Are You still Making an Error Trades, even though You have a Trading Plan?

a guy sitting by the computer with the regret on his face

It’s been said that pilots make an excellent trader, because they are taught to be exceptionally thorough, and learn to follow a checklist.

I’ll paraphrase  Marty Schwartz, the greatest S&P trader of the  90’s, he once said:

“A great trader is like a great athlete.” “You have to have natural skills, but you have to train yourself how to use them.”

I would say the following:

“A great trader is like a pilot.” You have to have a checklist, and follow it to a tee.”

This is easier said, than done…

The actual reality is, None of us will be disciplined a 100 %.

Neither will anyone else that has a heartbeat.

To deny this fact, is essentially deny the very essence of our nature.

Meaning, we are humans; we tend to make errors.

 

Trading psychology plays a major role in determining whether you are going to succeed in this field, or not. Your mental state, especially an emotional background, will be a true reason separating you from the loosing herd.

You might have a rock-solid trading plan, but certain emotions like fear, greed and regret will affect your decision-making process anyway.

Here is the thought for the brain:

If a strategy alone was the true determinant of success, than most traders would’ve been millionaires.

Photo credit: TZA via Visual hunt / CC BY-NC

So, what is an error trade?

Below is a compact checklist of what I think to be an error trades:

 

  • Missing out on the entry, thus being late to the actual trade

         (This, I account to the analysis-paralysis. Over thinking, and over analyzing the setup.)

  • Moving your predetermined stop order

         (Wishful thinking. Hoping of a market turnaround.)

  • Rushing, or forcing entering the trades too early

         (Fear of missing out on opportunities.)

  • Placing the wrong take profit

         (Not understanding risk-to-reward ratios.)

  • Not following your predetermined risk parameters

        (Lack of discipline and patience.)

  • Not initiating a trade, when your system provides a clear signal

        (Lack of confidence. Not believing in yourself. This happens a lot after the several

         stop-outs.)

 

Back in the days, when I was day-trading, I had my good days and bad days.

After doing my back test, and reviewing one of these bad days I came to a realization.

Even though, I followed my trading plan, but if, and only if,

I have had eliminated my error trades, I’d finish the day in positive.

 

This what I can suggest, to avoid these situations

Open two accounts, plain and simple!

Shield yourself from the error trades, by creating two accounts.

With the first account you’ll be making disciplined trades; you’ll be following your outlined trading rules to a tee, and tracking any “errors” you make.

With the other one, you can be more lenient with yourself and make all the errors you want as you experiment with new ideas.

This will be compared to a simple dress code scenario. When you are at home, or with your friends, you usually ware casual clothes, right? On the other hand, when you are on a date, not only you want to look good, but also to feel good. You wear the nicest clothes, and deliver your best attitude.

Think of the first account, as being your “dating-account.”

And the second, being the “casual-account.”

You’ll be amazed at what a difference this little trick will make to your trading.

a pretty girl with happy emotion on her face

Conclusion

Even though you might have a solid trading plan, you still are a human being. You are bound to make mistakes, the “error trades.”

The best option to improve one’s profitability happens to be, not by constantly fine-tuning the parameters of your strategy, but by attempting to remove the errors you are already making.

Start tracking your errors.

What Are The Qualities Of a Great FOREX Platform…

Close shot of the electronic trading platform

Choosing the right Forex platform is a big decision! They are the online software that provides live, streaming, executable offers and bids for instant electronic trading. This is where you actually perform your trades on products such as currencies, stock-CFD (contract for difference), commodities and derivatives.

These platforms (also known as the “forex station”) should include charts and other necessary tools needed for an online forex speculations. Honestly, it is challenging to find the right online trading platform, and you can do this if you are determined to trade the forex successfully.

There are several key factors to consider before you choose one.

One of the interesting things about forex brokers is that most of them offer a free trial for their software, so you are free to open a demo account and simulate the trading without any risk.

So after spending long hours studying Forex investing, you’ve finally decided to take the plunge!

But here comes a little problem… you’re just finding it hard to figure out how to use these platforms.

Online, there are numerous available, but only a few of them offer beginners the comfort for trading. It can be frustrating finding the right platform that works for you, let alone understanding how they work. Finding platform that provides a free demo account and is user-friendly will make a huge difference in the way you view trading.

 

picture of a girl that is baffled by the look of electronic trading

As a newbie, you have a special problem… experience.

So if you are looking for a trusted platform for your trading business, then there are lots and lots of available platforms in the market today. In this article, we will be discussing the properties you need to consider in a good forex platform.

Here we go!

SUPPORTED BY TOP-NOTCH BROKERS

One of the most important properties of a trusted forex platform is that it should be backed up by reputed forex brokers. This makes the platform established on trust and reliability. A platform supported by the major brokers will be able to do the outstanding trading. With such a great backup, a valuable performance will be delivered with a high level of accuracy and speed.

DEMO TRADING

In Forex trading, you will keep learning as you continue working in the process. An excellent platform will provide you with the option of some demo trading. This is necessary because when the time comes to use a platform with a new technique, you’ll not be putting your investment at a greater risk.

GREAT CUSTOMER SUPPORT

A great platform needs to have a well-trained customer support team. They should be available 24/7, providing customers with an incredible service. This team should be capable of solving all of your forex trading related problems.

They also need to have a community where you will be opportune to interact with other users of the forex platform. They must provide this service in the form of online chat rooms or forums, where users can interact and communicate with each other.

Business district at night time

In conclusion,

Despite the fact that the software development of electronic trading platforms  came a long way since the early days, remember to look for a platform that is backed by a reputable broker, provides a free demo account, has a high level of accuracy/speed, and also has a user-friendly graphical interface.

This will help you become better conversant with the system so that it wouldn’t sound like a frightening place.

Putting some Daily Fx Trading Things in Perspective

robot Walle representing the daily fx algorithmic trading

Let’s face it, Markets have changed, the computers have taken over!

The algorithmic programs now do most of the market making and dominating the daily Fx flows, essentially narrowing margins to a fraction of a pip.

This kind of trading approach, is also known as automated forex trading. It makes use of programmed computer code and generally focuses on short-term price action.

It is also classified as “black box trading” given that these programs are mostly hidden from the public and generate profits on sudden spikes in volatility.

There are many variations of these machines many of which are quite expensive for the retail pocket. Usually these algorythms are used in automated market centers and private trading pools, also known as “dark pools.”

There are ones that use arbitrage which looks for price imbalances across different markets and brokers, making quick profits off buying and selling large positions.

Others, are known as high-frequency trading (HFT’s), which operate at a very fast speeds and are able to go in and out of trades in a matter of millisecond, that is one thousand of a second!

tall buildings in one of the Market centers

Currency trading still continues to be a “dirty” Game

Banking companies continue on paying their billion dollar fines for rate fixings and market data manipulations. Nevertheless, their greedy party is evidently getting to an end.

Customers becoming much smarter nowadays; everyone has access to price information, and competition for acquiring a clientele is ruthless.

In my opinion, Forex will never be a totally clean market until it will be regulated on exchange, which, by the way, might happen in the near future.

Nonetheless, the daily Fx environment that we’re in right now, looking purely from a retail standpoint, can be considered, more or less, as a level playing field.

a cat with the glasses during the daily fx routine, checking the Market data

Let’s take a look at what we have today for free, as opposed to only a decade ago

Charts

Most Brokers’ trading platforms, nowadays, come with free charts, especially MT4’s. And, yes, back in the days, you actually had to pay for charting.

Below are some free charting services you can use from anywhere, with just using your browser:

Tradingview.com

Netdania.com

 

Quotes

Streaming quotes as tight as 1/10th of a pip, (on Majors), with most ECN Brokers.

I’ll repeat myself again, you had to pay for quotes itself  back in the days.

 

Market Rundowns

Extensive Market Analysis prepared by professional analysts is also available for free on many sites.

To name the few:

ForexLive.com

ActionForex.com

DailyFx.com

ForexCrunch.com

 

Low Commissions

Today, high commissions are merely a history. As I mentioned before, ruthless competition among Brokerage houses allows us, retail traders, to trade with very low spreads, and commissions as well.

I don’t know about you, but I still remember paying 4-5 pips spread on EUR/USD trading pair.

 

Conclusion

With the rise in computer processing, many algorithmic machines are being created, as we speak, by the well funded trading Elite. And even though, in times when the algos are trying to dominate the daily Fx flows, the very same technology is essentially enabling the retail trader to compete in the most challenging of arenas – the FX Market.

 

What You Need To Know About Margin Trading When Speculating In FX Markets

 

Magnifying Glass on top of the Calculator is being used as a Financial instrument.

Margin accounts, or better known as Margin trading, enable traders to increase the return on investment from their trades.

Using borrowed funds they can control larger positions that they would with their own invested capital.

When margin trading is profitable the returns are magnified. However, there is the other side as well; when trading is not profitable your losses can be multiplied.

Overview of FOREX Margin Accounts

Simply put, in a finance world margin account is a facility which allows trader to borrow on a short-term basis from a broker.

In order to take out a margin loan the trader must first have an account with a traditional or online FOREX broker.

The trader then applies for the option to trade on margin, which acts as a collateral. When this is approved the trader deposits funds into the margin account.

The broker that acts as a counterparty, in this case, will have a margin percentage that is required to be deposited.

For example, a currency speculator might want to trade an account with total size of $250,000. The broker and the trader agree that the margin percentage required is 2%. This means that the trader will need to deposit $250,000 x 2% which is $5,000.

Opened lap-top with the EUR/USD chart on it at one of the Broker's platform.

The Advantages of Margin Accounts

Being able to control such a significantly larger position. This is why it can be very profitable to trade on margin.

Imagine two scenarios:

In scenario A the trader is trading $5,000 without margin. Over the course of twelve months of trading they increase their account by 25% or $1,250.

In scenario B the trader borrows on margin at 2% increasing their trading capital to $250,000.

If they increased their account size by 25% over the same twelve months at the end of that period they would have

$62,500 (minus any margin costs and commissions).

The positive difference in returns for profitable FOREX traders who use a margin account can be huge.

The Disadvantages of Margin Accounts

Like I’ve mentioned before, margin trading is a double-edged sword. Your profits are greatly magnified when you trade successfully. The flip side is that your losses are likewise magnified when your trades are unsuccessful.

If your trades go against your position and the initial deposit is lost then the broker can initiate what is termed a “margin call”. A margin call is a request for you to deposit more funds or to close out your position so that the margin percentage can be maintained.

In case the speculator is unable to guarantee more funds, or perhaps is hesitant to close out the position then he or she, and yes, there are plenty of female traders as well, may lose control of the trade. Many times the broker will close out the trade in order to avoid any further losses.

One problem is that the trade which may have turned profitable if was held longer may be closed out prematurely. Because of this, traders who use a conservative amount of leverage are generally likely to enjoy more long term success.

Up Town New-York city, represens the pinnacle of the Finance world.

 

Conclusion

As with trading any financial instrument risk and return are related when using a margin.

If, you are willing to increase risk by trading on margin then your potential returns may be many times greater.

At the same time greater margin also means you are more likely to lose all of your funds if you cannot trade successfully.

Make sure that you are confident and have a reliable trading edge before you begin margin trading your way to success.

…So, What Comes First, the Chicken or the Egg?

 

Chicken and the Egg situation

Of course the chicken first, the species first, then the egg…

How the heck, this relates to trading? – You may ask.

I’ll answer it with the counter question; Which comes first, Fundamental analysis or Technical?

Wow, wow, hold on now Dave… what do you mean by “…which comes first?”

Ok, let me rephrase the question; when trading the markets, which one you, as a trader, mostly pay attention to: the charts, or the fundamentals? Yeah, this is definitely a loaded question.

If you ask any Technician the very same question, he or she may answer that everything already has been discounted in the price, thus looking for the clues anywhere else, but the charts, is a waste of time and effort.

 

Now, the Fundamental analyst, on the other hand, will give you a completely different answer.

Here is Ralph Seger’s quote “One way to end up with $1 million is to start with $2 million and use technical analysis.”

I don’t completely agree, with Mr. Seger, nevertheless he has his point.

But before I tell you why I disagree, let’s take a look at some of the differences between fundamental and technical analysis.

Let’s take a look at this table:

 

                                                                                                                          Source: DailyFx.com

As we can see, Technical Analysis centers around examining a chart information.

There are lots of means of achieving this; some traders using just plain charts and raw price action,

others are employing indicators or complex mathematical systems to place their trades in the present according to price movements of history.

 

Fundamental Analysis, on the other hand, studies the factors to forecast future price movements.

It is the study of what’s going on in the world (macro-trading) economically, politically and financially speaking.

This particular analysis tends to concentrate on how macroeconomic components such as employment, inflation, interest rates affect whatever we plan to trade.

 

Which Is Better?

For many years, fundamental analysis had been considered as the only highly regarded method for medium and long term trading among Institutional traders. Which, has changed recently with the introduction of high-speed processing.

Computer modeling and technical studies became much easier and more widely available. Nowadays, numerous large investment companies use black box trading and high frequency trading, to determine their directional entry and exit areas.

Because of this many of the largest market participants are generating their trading decisions from computer algorithms. The truth of the matter, it is estimated that algorithmic speculation represents from 70 and up to 80 percent of the total volume on exchanges these days.

Whether you like it, or not, the markets have changed and nowadays your trades are moving on technical reasons as much as fundamental ones. In my opinion, the best approach to trading should involve the combination of both.

 

Conclusion

The fundamental analysis is considered to be more logical, practical part of trading in which you are looking at Global macro-events as well as everyday economic micro-events.

Technical analysis, on the other hand, can tell us a lot about the psychological mood of the market by analyzing past data to forecast future movements.

In a nutshell,

Technicals help to see what has happened, and Fundamentals help shape future price movements.

 

 

If You think, you can beat these guys at their own Game…think twice!

 

Professional Traders at their working stations

Below is the transcript from Jason’s speech.

I couldn’t describe your trading competition, better than, he did.

This cuts deep into the reality of who you’re up against when trading the markets.

This is the bitter truth:

“…there is a whole day of that; they lunch at their desk, they work from 6 o’clock in the morning till the markets close at 4 o’clock, and then they go into their training.

Then they go through their back-testing. They go through their entire day and look at every trade they took, every execution. They write reports about what they did right, and what they did wrong; what they need to make improvements on.

Then they go into a training session where they get evaluated by one of their mentors, one of the coaches on the trade-floor, and he talks to them about what’s going on.

I mean, that’s the type of guy you’re up against!

The guy who gets up at 5-am in the morning, to ride the freaking subway down the New York city to be in the chair at 6 o’clock in the morning so he can trade for 12 freaking hours, then turns around and does back-testing until 8 o’clock at night, then he hops back on a subway goes back out of the city, catches couple of hours of sleep, turns around, comes back and does it the next day.

That’s the guy you’re competing against.

That’s the guy who’s going to eat your lunch every single day, ‘cause he exists in every city, he exists in every market.

It is how they pay their bills. It is how their mortgage gets paid. It is how their kids go to school…”

–  Jason Stapleton

 

Currency Traders at their work stations

Before dabbling into Forex trading, or any other market for that matter,

please ask yourself, if you are committed enough?

Are you ready to go against these guys and gals, and battle them every single day?

 

Ask yourself, if you are knowledgeable enough?

Do you have the right tools?

Do you have the right information?

 

These are the questions that needed to be answered, before venturing

into the “shiny” world of Trading.

 

Bottom line:

Know your competition.

Get educated on the subject.

Start acting as a professional.

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