When a currency trader enters into a trade with the intent of protecting an existing or anticipated position from an unwanted move in the foreign currency exchange rates, they can be said to have entered into a forex hedge. In simplest terms, a trader who is long on a particular currency pair can hedge to protect against downside risk exposure. On the other hand, a trader who is short on a particular currency pair can hedge to protect against upside risk exposure. The way a simple forex hedge protects you is that it allows you to trade the...
Trend following is an investment strategy based on the technical analysis of market prices, rather than on the fundamental strengths of the companies. In financial markets, traders and investors using a trend following strategy believe that prices tend to move upwards or downwards over time. They try to take advantage of these market trends by observing the current direction and using this to decide whether to buy or sell. Trend following is an investment or trading strategy which tries to take advantage of long, medium or short-term moves...
Backtesting is the process of testing a trading strategy on prior time periods. Instead of applying a strategy for the time period forward, which could take years, a trader can do a simulation of his or her trading strategy on relevant past data in order to gauge the its effectiveness. When you backtest a theory, the results achieved are highly dependent on the movements of the tested period. Backtesting a theory assumes that what happens in the past will happen in the future. Although it is done using computers for the most part, you can...
There are certain things that happen to all forex traders regardless of their experience level. One of these things is losing money on a trade. There are a number of ways that traders deal with this, from assessing their trading plan to taking some time from the market, to revenge trading. Out of all the options available revenge trading is the worst thing a forex trader can do. It is important that you understand why this kind of trading is bad, and what it actually encompasses. Revenge trading is the act of either not adhering to predefined...
Trading in the financial markets is stimulating, exciting and engrossing. But one can become addicted, just like with actual casino gambling or illegal drugs. Like any severe addiction, this can cost you your job, relationships and, of course, your financial resources. As all experienced forex traders will tell you, maintaining discipline when trading is one of the keys to success. However, one of the biggest problems with this is that some people become addicted to trading. Being a forex trading addict is one of the fastest ways to lose your...
