Monday, September 30, 2013

Electronic Communications Networks (ECNs)



How ECNs Work
ECNs pass on prices from multiple market participants, such as banks and market makers, as well as other traders connected to the ECN, and display the best bid/ask quotes on their trading platforms based on these prices. ECN-type brokers also serve as counterparties to forex transactions, but they operate on a settlement, rather than pricing basis. Unlike fixed spreads, which are offered by some market makers, spreads of currency pairs vary on ECNs, depending on the pair's trading activities. During very active trading periods, you can sometimes get no ECN spread at all, particularly in very liquid currency pairs such as the majors (EUR/USD, USD/JPY, GBP/USD and USD/CHF) and some currency crosses.

Electronic networks make money by charging customers a fixed commission for each transaction. Authentic ECNs do not play any role in making or setting prices, therefore, the risks of price manipulation are reduced for retail traders.

Just like with market makers, there are also two main types of ECNs: retail and institutional. Institutional ECNs relay the best bid/ask from many institutional market makers such as banks, to other banks and institutions such as hedge funds or large corporations. Retail ECNs, on the other hand, offer quotes from a few banks and other traders on the ECN to the retail trader.

Pros:
  • You can usually get better bid/ask prices because they are derived from several sources.
  • It is possible to trade on prices that have very little or no spread at certain times.
  • Genuine ECN brokers will not trade against you, as they will pass on your orders to a bank or another customer on the opposite side of the transaction.
  • Prices may be more volatile, which will be better for scalping purposes.
  • Since you are able to offer a price between the bid and ask, you can take on the role as a market maker to other traders on the ECN.
Cons:
  • Many of them do not offer integrated charting and news feeds.
  • Their trading platforms tend to be less user-friendly.
  • It may be more difficult to calculate stop-loss and breakeven points in pips in advance, because of variable spreads between the bid and the ask prices.
  • Traders have to pay commissions for each transaction. 

Now you may ask for your ECN account with Trust Capital. Contact us.





Monday, September 23, 2013

Importance of Trading Consistent Lot Sizes



As traders we should understand and practice good Money Management techniques. These are not only essential to our trading success but also ensure longevity within your chosen career. Quite often we find traders who are caught up in their success and start to change the lot sizes of their particular trades and find themselves outside the scope of their Trading Plan.

We emphasize rigorous testing of your trading methodology to provide statistical data on each market and timeframe you choose to trade. This ensures that we have the knowledge to position ourselves correctly in the markets and within the tolerances of our account size. If however, we choose to start changing the lot sizes in any given trading session then we are essentially making our prior statistical data redundant.

We will not be able to assess our performance as easily as well as engender a feeling of distrust when placing future trades. Your confidence as a professional trader will diminish and could ultimately lead to the complete erosion of your account. It is therefore essential that you remain consistent in your trading and use only the lot size determined not only by our account size; but also the size that was used throughout the strategy testing phase. Once the account has grown over a pre-determined period of time then it is possible to change the lots size in accordance with the growth that the account has achieved.


Monday, September 16, 2013

What Is The Best Time Frame To Trade?


Time Frame to Trade
 
The time frame you choose to trade will be one of the greatest contributions to your success or failure as a trader. One of the biggest mistakes aspiring traders make is simply over trading. Through trading smaller positions and larger time frames you can achieve enormous success.
You want to pick a time frame that is going to fit your personality and lifestyle. Do you work full time? Do you have a family? If you had all the free time in the world how much time would you still want to devote to being in front of the computer screen? Brainstorm for a moment. Spend the day thinking about what is your ideal schedule.
Time Frames to Choose From for Forex Traders

§  Daily time frame = 1 signal period a day
§  8 hour time frame = 3 signal periods a day
§  4 hour time frame = 6 signals periods a day
§  1 hour time frame = scalps in fast moving markets
The reason I specified ”for forex traders” is because the higher time frames happen to be much more profitable in forex trading than for example e-mini which can be trades on the 1 & 3 minutes charts.
Advantages of Each Time Frame

Let’s begin with the daily time frame which is ideal for those who busy with work and family that they only have very limited time to spend on the markets each day. You are looking for “once a day” trading style. You can spend ten minutes or so scanning the markets for new trade setups and looking over the charts and five to ten minutes placing trade orders.

The next two time frames I consider the best for trading forex. I will cover them together. The 8 hour time frame is my personal favorite as it bridges a gap between the daily and 4 hour time frame that provides to be an excellent filter against normal market chop or price fluctuations that the 4 hour tends to get caught up in while providing more opportunity to stay with current market momentum than the daily time frame does.

That being said, the 4 hour time frame is excellent for taking pips out of the market when you are picking your setups and see things nicely aligned. If you have the time to watch the charts or happen to catch the market when scanning your charts and see a nice setup on the 4 hour it can provide some nice regular gains.

The 1 hour time frame is ideal for those who are actively trading the market and will be in front of the computer to watch their trades play out. If you choose to trade this time frame you have to be able to distinguish when the market is moving and when it is not. The market tends to be in a range 80% of the time and trend 20% of the time. Understand that means you must be able to see when that 20% of trending market action is taking place and then take short term opportunities on the 1 hour. This is a scalper’s time frame for forex traders.

What time frame are you choosing to trade and why?



Tuesday, September 10, 2013

3 Ways to Trade a Strong Forex Trend



Many traders of all experience levels follow a simple Forex strategy called trend trading. Learn three ways to enter trades into the direction of a strong Forex trend.
 
The Forex market consistently attracts traders of all skill levels and strategies. With unconventional methods of economic stimulus becoming more conventional recently, strong trends have developed in the valuation of currencies. One common Forex strategy utilized is a trend following strategy.
There are 3 ways to identify trading opportunities into the direction of a strong trend.
  1. Buy the dips, sell the rallies
  2. Breakouts into new highs or lows
  3. Diversify with currency baskets
Buy Dips
A common Forex strategy is to buy low and sell high. This type of strategy is generally sought out by many newer traders. More experienced traders will also buy dips and sell rallies too, but they bring a filter with an edge to this strategy. More experienced traders filter signals with a strong trend.
You see, many traders utilize indicators and oscillators to help them determine when currency pairs have become oversold so they can buy low. On the other hand, traders look for overbought levels on the oscillator to aid them in deciding when to sell. The signals on oscillators are generally straightforward and easy to read. However, one trading tip we offer in our Forex courses is to filter your signals in the direction of the trend.
Follow this 3 step guide to buy dips and sell rallies to improve the consistency of your trading. 

Breakouts
A breakout strategy is technically the opposite of buying dips in a rally. In a breakout, wait for the price to move higher, and then buy at a higher price than you would have when buying dips. This begs the question, why somebody would want to do this?
The reason is because the market is made up of emotions. There are times when the prices don’t seem rational which is how bubbles develop. Breakout trading simply looks to play on those emotions because the reason prices are moving higher may not be rooted in fundamentals, but that traders are getting greedy and buying with all they have. Several famous traders like the Turtle traders used a breakout strategy.
Therefore, the advantage a breakout strategy is confirmation. You get entered into the buying position only when prices have confirmed they are ready to trade at new highs. Therefore, if the confirmation doesn’t come and if prices do not trade to new highs, then you have been kept away from a losing trade.
Follow this 4 step guide to trading breakouts in Forex. 

Baskets
A currency basket is a collection of currency pairs traded where the sole purpose is to highlight a specific currency’s move. For example, if you felt the US Dollar was going to gain strength and wanted to buy a US Dollar basket, you might look to place the following trades:
  • Buy USDJPY
  • Sell EURUSD
  • Sell GBPUSD
  • Sell AUDUSD
One advantage of basket trading is diversification. Since exchange rates are quoted as currency pairs, but wrong on the trade. For example, let’s assume you decide to trade the USDJPY because of US Dollar strength. If the JPY gains more strength than the USD, then you would have been right about US Dollar strength, but wrong on the trade simply due the other currency you matched it up against.
On the other hand, if you diversifying the trade as a basket, then you are boiling the trade down to a US Dollar move. Forex trends can last a while, so a powerful basket approach can be a less stressful way to trade these trends. 

Good luck with your trading!