• Market Analysis
  • The Technical Vs The Fundamental
  • The Basic Of The Fundamentals
  • Interest Rates
  • Money Supply
  • Inflation
  • Economic Release
  • What Is Technical Analysis
  • Support and Resistance
  • Trendlines and Channels
  • Indicators
  • Lagging Indicators
  • leading Indicators
  • Bollinger Bands
  • Fibonacci Sequence
  • Chart patterns
  • Conclusion
• Risk Management
  • Financial Risk
  • Why Risk it
  • Risk Management Tools
  • Risk Tolerance
  • What Makes Trading Such Risky Business
  • Mitigating Risk
  • Golden Rules For Trading In a Volatile Market
• Trading Psychology
  • The Emotions of Trading
  • Managing Risk and Emotions
  • Trading Tips

What Is The CFD Trading

A contract for difference (or CFD) is a contract between two parties; One Financial is the market maker in this situation and will be the buyer to anyone selling and the seller to anyone buying. The seller will pay to the buyer the difference between the current value of an asset and its value at contract time. (If the difference is negative, then the buyer pays the seller.) In effect CFDs are financial derivatives that allow investors to take advantage of prices moving up (long positions) or prices moving down (short positions) on underlying financial instruments and are often used to speculate on those markets.

* If the difference between the current and contract time value is negative, then the buyer will pay the seller.

* If the difference is positive, then the seller will pay the buyer the difference in the values.

There is. . .

No restriction on the entry or exit price of a CFD.

No time limit on when this exchange happens.

No restriction on buying or selling first

That example makes CFDs look pretty simple, and that's because, well, they are. Trading CFDs isn't all that different from trading traditional shares;

If you buy 500 shares of a company at £5 then you have £2500 of stock

If you buy 500 shares with a CFD at £5 then you also have £2500.

If the share price rises by 10% then you have made £250 from your share trade.

If the share price rises by 10% then you have made £250 from your CFD trade

Now you're thinking, well if the value is the same, the profit is the same, the loss is the same, the risk is the same, then why trade CFDs?

Read Advantages of CFD Trading below to find out

Advantages Of Cfd Trading

Profit and Loss Calculations

The Profit or Loss for a CFD can be calculated using a very simple formula;

*Without decimal point

Factors that influence indices .

An index will reflect the general health and stability of that country's economy and will be affected by the countries industrial and political status. It is worth remembering that a country's index is directly linked with the relative strength of that country's currency; because it is its currency that will determine a company's competitiveness on the international scene.

Industrial Factors

Trade Balance: This is the difference between the monetary value of exports and imports over a certain period of time. A positive balance is known as a trade surplus and means more goods have been exported than imported. The opposite is what we call a trade deficit. The key figure here is

Industrial Production: Output for key industrial sectors such as manufacturing, mining and utilities are highly sensitive to consumer demand and interest rates. This means Industrial Production is also key when forecasting economic performance and growth. In fact it's so important that it's even

Relative Currency Strength: This will determine the competitiveness of a company to compete in the international arena. If the home country's currency is strong then wages and production costs are going to be higher so to ensure a profit the cost of the end product is going to get higher too.

This is because the cash price is calculated from a weighted addition of the prices of the constituent stocks. This can lead to a difference if a stock in an index is suspended or not trading correctly. One Financials price is therefore more accurate as it is a tradable instrument based on another traded instrument.

The Foreign Exchange market (also commonly referred to as the FX, Forex or currency markets) is the single largest market in the world with an average of approximately $3.0 trillion worth of currency traded every day. The market exists whenever one currency is traded for another and consists of transactions between large banks,

central banks, currency speculators, multinational corporations, governments and other financial markets and institutions. The FX market is an OTC (Over The Counter) market, in which participants trade via telephones and computer connections. One Financial Markets is one of the market makers that offer their own prices which are derived from various reputable counterparty feeds. We do not physically deliver currencies, but offer them on a contracts for difference basis, so that clients can speculate on the relative strength or weakness of a particular currency against another.

Floating exchange rates are constantly changing and, like any other product, are influenced by the supply and demand for each currency. The factors that affect supply and demand can be generalised into 2 groups: Economic and Political.

E.g. USD/JPY = 98.00
This means 1 $ = 98

USD; in this quote USD is known as the base currency.
JPY; in this quote JPY is known as the counter or quote currency.
This quote is also referred to as an indirect quote which is where US Dollar is the base currency

Going Long Or Going Short

Going long or going short is just trader lingo for buying or selling.

The bid price - As long as you remember LONG = BUY and SHORT = SELL The next bit is a bit trickier

When to go Long and when to go Short in FX "Going long" in FX terms is buying the base currency and selling the quote currency. It is what you would do if you thought the base currency was going to rise

E.g. EUR/USD = 1.2500If you thought that EUR was going to rise, you would "go long" meaning that you would buy EUR with the hope that you would be able to sell it for a higher price once it has risen.

You go long Euro @ 1.2500

Your Euro is now worth $1.27 instead of $1.25

So a PIP is essentially the last decimal place of quotation, most currency pairs will have a PIP being equal to 0.0001 as they are usually quoted to 4 decimal places. This isn't always the case however, as we can see from the example above.

How Much Is a Lot

One of the first concepts you need to understand as part of your Forex trading training are standard lots and micro lots; what are they and what's the difference between them?.

What is a Forex lot?A standard forex lot is equal to 100,000 units which is $100k if you are trading in dollars and the average pip size for a standard lot is $10 per pip. Put simply if you're down 10 pips with "Sir Standard" then you've made a $100 loss.

Standard lots in forex are usually for institutional sized accounts; we're talking big rollers, who should have $25,000 or more to make trades using standard lots

What is a Forex micro lot? So let's get real, if you're thinking of starting Forex Trading, you have to start small and work your way up. Micro lots are good for beginners who need to get to grips with Forex trading. Unlike standard forex lots, which are worth $100k, a micro lot is the equivalent to $1000 worth of the base currency you want to trade.

Calculating Your PROFIT Loss In Forex

Show me the money!Now that you understand what a pip is and what a lot is, you need to know why you learnt about them in the first place..

The bid price is the price at which the other party is willing to buy the base currency you want to sell in exchange of the quote currency.

The ask price - if you want to BUY the base currency, then you would click on the ask price. We need pips and lots to work out our profit and loss; so here are the basics of your Ps and Ls.

Remember how we spoke about DIRECT and INDIRECT Forex quotes before? Well here's where you can put your new knowledge to work!

There are two rules for calculating your profit and loss in forex, and its all about the dollar.

Whenever you have a direct quote [where the quote currency is USD] you can calculate your profit and loss by using the following formula

Example: You buy 2 lots of EUR/USD at 1.5554 and sell at 1.5559 P/L = (1.5559 - 1.5554) x 100,000 x 2 = $100

The BID price is always lower than the ASK price and the difference between the two is known as the SPREAD.

The spread is the difference in price between buying and selling the base currency - this difference is charged to the client and paid to the Market Maker

Hedger - A person whose primary motivation is not seeking profits, but instead to reduce the risk of adverse price movements in a security

Speculator - A person seeking large profits in return for large risks by trying to anticipate price movements, in the hope of making quick, large gains

MARKET ANALYSIS

The Technical Vs The Fundamental

Technical and Fundamental Analysis are both tools used by traders to help determine a trading strategy. Both fundamental and technical analysis help traders to predict possible trends and future prices

Technical Analysis:The process of analysing a financial instrument's historical prices and other statistics generated by market activity, in an effort to determine probable future prices

The Basic Of The Fundamentals

Fundamental analysis is a method of evaluating an asset it attempts to measure its intrinsic value by examining the underlying forces that could affect the asset. Fundamental Analysis includes;

Geo Political factors - such as interest rates and other government policies

Macroeconomic factors - such as the level of unemployment

Company or industry specific factors - such as mergers or acquisitions

Why is it useful? So why is Fundamental Analysis used so widely, and what does it help us achieve and understand?. Through fundamental analysis we are able to determine the overall health of an economy to give us a mid to long term outlook as to the direction of the markets

Fundamental Analysis helps us to measure an asset s intrinsic value. The idea behind fundamental analysis is that each asset has a correct price which means we can determine if the current market price is overvalued or undervalued. Keeping in mind that the price will always revert back to Major Industrialized Nations Central Banks Below is a list of a few major industrialised nations, their central banks and the chairman or governor:

You might be wondering why this is important to you, well changes in interest rate cause changes in the economy and changes in the economy affect your trading.

Example Increasing the interest rates

This effectively makes borrowing money less easy and as a result the amount that people spend goes down. The decrease in expenditure means that the demand for many goods goes down, and as a result, their price will also decrease.

The central bank will often increase interest rates when they fear the economy is inflamed - they make borrowing less easy to reduce expenditure and cool the economy down in order to avoid inflation.

Example Decreasing the interest rates

This effectively allows us to borrow money more easily and as a result the amount that people spend goes up. The increased expenditure means that there is also an increase in the demand for many goods, and as the demand for these goods increases so too will their prices.

The central bank will lower interest rates when they feel as though the economy is facing a potential recession, interest rates will be reduced to encourage spending and promote the growth of the economy.

It seems they learnt their lesson; governments don t force the monetary growth to fall within their target brackets anymore. Governments nowadays just play it by ear waiting for the right moment to do the right thing in order to maintain stability, keep inflation in check, and promote sustainable growth.

Inflation

What is inflation? We ve spoken about inflation a lot in this module, and in case you haven t got it yet put simply inflation is 'Rising prices

It can also be described as the sustained increase in the prices of goods and services.

What does inflation do?Inflation causes what we call an erosion of the purchasing power of your money.

I.e. your money is worth less, you can buy less with your buck [or pound or euro] and its all because of inflation.

What causes inflation

There are two maincauses of Inflation:

There are two maincauses of Inflation: Demand-Pull Inflation; this form of inflation occurs when aggregate demand outweighs aggregate supply.

This data/news can have both a short and long term impact on prices and traders will look to benefit from any movement created by these economic data releases. So investors will make investment decisions based on their interpretation of the economic data which has been released.

Key Points of Economic DataThe key to trading data is to look at the outcome of the data/news release in relation to the expected forecast. The larger the difference between the actual figure and the forecast figure the greater the likely hood of a larger change in prices..

The strength of importance of the data will also be a factor in determining strength of price moves.

An example of an economic data release is as follows;

U.S. Non-Farm Payrolls - [Released monthly] Measures the number of jobs created or lost each month excluding the agricultural sector.

Support & Resistance Levels + Pivot Points

Trend Lines & Channels + Breakout Points

• Chart Patterns
• Trade Entry & Exit points
• Strategic Stop Loss points
• Technical analysis can be looked at as another way of reducing your risk

Support and Resistance

Support and resistance is a concept used within technical analysis that suggests that the market price of an asset will tend to fall and rise at certain predetermined levels.

Support 0.5% margin deposit means you are trading 200 times leverage, for example; The support level is the level at which the price tends to find support as It is falling; it is more likely to bounce off this point rather than break through it. In the event that a price does in fact break through its support it will often continue to fall until a new support level is identified.

Resistance Resistance is the opposite of support - the resistance level is the level at which the price tends to find resistance as it is going up, and again, it is more likely that the price will bounce off this level rather than break through it.

Unfortunately its not as easy as A, B, C - support and resistance levels aren t exact numbers that can be worked out using a formula or rule.

A support or resistance level may appear to have broken but soon after we see that the market was just testing it and the support and resistance levels remain in place.

The fact that support and resistance levels are often depicted as lines, when they are not in fact exact figures is sometimes misleading - so it s often simpler to think of support and resistance as zones as opposed to definitive levels.

The two types of support and resistance

There are essentially two types of support and resistance - major and minor. A price can move up for example, breaking the minor resistance in order to test the major resistance and as we can see below often a price move against the trend will be stopped by the minor resistance or support, and reverse.

The more often a price tests the levels of support and resistance without actually breaking through them, the stronger the support and resistance zones are seen to be.

To create a downtrend channel, draw a parallel line at the same angle as the downtrend line and then move that line to a position where it touches the most recent low.[This should be done at the same time you created the trend line] When prices hit the bottom trend line this may be used as a buying area When prices hit the upper trend line this may be used as a selling area

Indicators

There are essentially two groups into which technical indicators fall - leading and lagging indicators. Leading indicators will change in advance of expected economic trends; they are often used to predict future movements but not always necessarily accurate.

Lagging indicators are used to summarise past movements as opposed to predicting future; it changes after the economy has already begun to follow a particular pattern or trend.

We can see here that the longer the SMA period is the more it lags behind the current price; i.e. the higher the number period you use the slower it is to react to a current price movement.

One problem that traders often experience with SMAs is that they are very susceptible to price spikes.

Exponential Moving Averages (EMAs)

EMAs place more weight on the most recent periods and react faster to recent prices than SMAs. The shorter the EMA period the higher the weight that the current price will carry in the MA curve - the opposite is also true.

SMAs or EMAs

Now that you know the difference between simple and exponential moving averages you re probably asking yourself when you would use them and more importantly, which one is better.

The answer is - either it may sound clich but, like most methods of analysis, it really depends on your trading style.

How to use moving averages

Moving averages are used to facilitate lots of trading strategies such as;

Identifying trendsand reversals

leading Indicators

As mentioned before leading indicators will change in advance of expected economic trends; they are often used to predict future movements but not always necessarily accurate.

Now that we have discussed moving averages, an example of a lagging indicator, let us move on to the Relative Strength Index which is a type of leading indicator.

Relative Strength Index (RSI)

The Relative Strength Index [RSI] determines the speed and change of price movements; it allows traders to measure the buying or selling momentum of a product. RSI oscillates between 0 and 100 and generally a market is thought to be overbought once the RSI approaches 70. This is a good indication that the asset may be getting overvalued and is a good candidate for a pullback.

Conversely in instances where the RSI approaches 30, it is an indication the market may be oversold and therefore the asset is likely to become undervalued.

This condition is usually a result of market overreaction or panic selling.

Overselling is generally interpreted as a sign that the price of the asset is becoming undervalued and may represent a buying opportunity for investors.

Hopefully it is now more clear to you what it means to say an asset is overbought or oversold, but please remember that determining the degree in which an asset is overbought or oversold is very subjective and can differ between traders.

Stochastic Oscillator

Stochastic Oscillator is another example of a leading indicator; it is a momentum indicator that measures the speed of change of price or the impulse of price. It does this by comparing an asset s closing price against its price range over a given time period.

Similar to RSI Stochastic Oscillators also have levels that indicates potential trends or points of entry or exit

Traders will often look to sell when the Stochastic Oscillator line rises above 80m predicting that it will inevitably then fall back below. Traders will also look to buy when the level falls below 20 predicting that it will increase above this level.

Another way of utilising stochastic oscillators is to watch timing trades. The graph below gives an example of this;

The sensitivity of the oscillator can be adjusted by changing the time period for the %D or %K lines.

Bollinger Bands

Bollinger bands is an analytical tool used by traders to identify a market s volatility and looks at the levels of current prices relative to previous trades.

We can see from the above graph that in an instance where there is little volatility the bands contract and as the market becomes increasingly volatile the bands expand.

It may be simpler to look at Bollinger bands as a form of support and resistance.

Often what is seen with Bollinger bands is that as the price deviates within the band it often tends to return back to a middle ground; this is what is known as the Bollinger Bounce.

Fibonacci Sequence

Fibonacci sequence is used widely in many different industries in the world which is why it may sound the most familiar to you out of all the technical analysis tools we have covered so far.

Leonard Fibonacci was an Italian mathematician (1200 AD) who discovered a simple sequence of numbers (Fibonacci numbers) that are used today in what is called Fibonacci retracement as a popular technical analysis tool.

Fibonacci Numbers are as follows; 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55 and so on.

More important than the sequence itself is the mathematical relationship between the numbers. It is the quotient of any two adjacent numbers in the sequence that is what s important to us each term in this sequence is the sum of the two preceding terms.

Fibonacci retracement works by taking two extreme points on a chart and dividing the vertical distance between the two points by what are known as the Fibonacci ratios. These ratios are 23.6%, 38.2%, 50%, 61.8% and 100% and the quotient of adjacent numbers in the sequence. Once these calculations have been done and the point defined they are noted on the graph using horizontal lines. These lines are interpreted by many traders as levels of support and resistance and are also used to help identify strategic places for transactions to be placed, and target prices or stop losses to be selected.

Chart patterns - Triangles

Triangles represent continuation patterns and there are three main types;

Symmetrical Triangles - Neutral pattern signaling breakout to either side, though usually a continuation pattern

So how do you spot a systematic triangle pattern?

Symmetrical triangles have distinct pattern signs and these can be seen in the image below

• Upper trend line downwards sloping
• Lower trend line upward sloping
• Both trend lines converging together
• Breakout to upside or downside being confirmation of trend in that direction

Ascending Triangles - Bullish continuation pattern Ascending triangles also have pattern traits with which you can identify it.

• Upper trend line horizontal / flat
• Lower trend line upward sloping
• Both trend lines converging together
• Breakout to the upside through upper resistance

Ascending triangles are experienced in instances where there is a resistance level coupled with a slope of higher lows as seen below;

Above we can see a descending series of highs, which forms the upper line. The lower line is a support level in which the price cannot seem to move below.

Unlike with ascending triangles where traders are waiting for an uptrend breakthrough traders witnessing a descending triangle are expecting a bearish market and are waiting to see if the price eventually makes a breakout to the downside through the support level.

When using double tops as a form of analysis traders will often look to go short below the level which is referred to as the neck line. When the price level falls below the neckline traders will expect the reversal of an upward trend.

Double Bottom - Reversal Pattern

A double bottom is the opposite of a double top. It is a bullish trend reversal formation, meaning that unlike with double tops traders are now looking for the price to reverse upwards after it has been coming down.

Head and Shoulders

Head and shoulders is another form of a reversal pattern which has two main types;

Reverse Head and Shoulders

A reverse head and shoulders is pretty self explanatory; it s a head and shoulders formation, in reverse.

An inverse head and shoulders formation is a bullish reversal pattern and so traders will look to buy when the price increases above the neck line as they will be expecting an upward trend break through.

The main differences between the two are that the marubozu are larger in size and unlike spinning tops do not have shadows. Again the two colours, green and red, indicate whether the market is bullish or bearish.

We can see for example in a bullish market that the open price = low price and that the high price = close price. The green marubozu pattern is often seen as the first part of a bullish continuation or a bullish reversal pattern and so may traders will buy into a market in which they see a bullish marubozu.

The opposite here is the bearish marubozu which is seen in red. In this case the low price = close price and open price = high price. A bearish marubozu implies an impending bearish reversal or a bearish continuation and so many traders use the red marubozu as an indication to sell into the market.

Again it implies that the direction of the trend is nearing a major breakthrough with the longer lower shadow implying the possible reversal of a bearish trend.

A gravestone Doji is essentially the opposite of the dragonfly Doji explained above. It forms when the opening and closing prices are equal and occur at the end of the day. The long upper shadow implies that the days buying pressure was countered by sellers and that a bullish uptrend is about to be reversed.

Finally a four price Doji is a candlestick formation where the day s high, low, open and close price were all equal. This is the most neutral of all the Doji candlestick formations and does not occur often. It is seen mostly in times where there is a very low volume of trading such as after hours and is often disregarded by traders as being a result of bad data.

Although Doji Candlesticks are important, it is their combination with preceding patterns which traders look most at. For example, if a Doji candlestick appears after a series of candlesticks with long green bodies it is an indication that buying pressure is weakening. Conversely, if a Doji candlestick is seen after a series of red candlesticks this is an indication that selling pressure is weakened.

Basic Candlestick Patterns: Inverted Hammer & Shooting Star

The inverted hammer occurs when a falling price indicates the possibility of a reversal. Its long upper shadow as seen below showing us that buyers are attempting to counter the downwards pressure and were able to close the session near its open as opposed allowing the price to be pushed down further.

The shooting star is a bearish reversal pattern that looks identical to the inverted hammer but occurs when prices have been rising.

Its shape indicates that the price opened at its low, rallied, but pulled back to the bottom. Conversely to the inverted hammer the shooting star shows us that sellers countered the upward pressure of buyers and were able to keep the day s close almost equal to its open and avoid any further upward pressure.

Example: "By buying EUR/USD, I effectively have the opinion the Euro will strengthen against the US Dollar The risk is the possibility of the Euro weakening against the US Dollar - an adverse movement

In other words financial risk is the possibility of losing part or all of your original investment

Why risk it

If trading the financial markets is effectively the trading of risk, then why would we "risk" the market going against us?

Although risk makes us susceptible to adverse movements in the market, risk also presents the potential/opportunity to make huge amounts of money.

Risk = opportunity
And
The higher the risk, the higher the potential opportunity

The Risk/Reward Trade Off

The higher the risk an investor takes on, the higher the potential returns should be in order to compensate the increased risk. This is known as The Risk/Reward Trade Off

Higher volatility = More risk = Larger profit potential

3. Trading Psychology

The final factor that affects risk is trading psychology - this will be covered in the module that follows.

Although it does not seem it in nature, trading is in fact very emotional and emotions often affect and influence trading decisions.

Fear and Greed; generates greater implied volatility - do not let your emotions get the better of you Hope ('false dawn'); often leads to greater risk as it causes us to hold onto losing investments when we should be cutting our losses.

Bad Mental State; For whatever reason, whether you have just incurred losses or are fatigued - do not make investment/trading decisions

Risk Management Tools

Stop Loss Orders are the single most important risk management tool and should always be employed when trading Types of Stops Breakeven Stops - executed at the point at which gains equal losses Time Stops - it relies on a certain period of time elapsing before the order is executed Trailing stops - set at a percentage level below the market price. It allows you to let profits run on and minimise your losses at the same time.

Order Aware Margining will recalculate the margin requirement for this position based on the maximum possible loss plus a 20% security factor against slippage New margin requirement for this position is therefore $1,200 with the freed up $780 made available for the client to trade with Learn to love your losses, manage your losses, and learn from your losses, or one day you will have the mother of all loses that will wipe out your entire account.

Risk Tolerance

Low risk investments will have lower return potential than high risk investments.

Low Risk = Potential Low Return
Medium Risk = Potential Medium Return
High Risk = Potential High Return

Your trading style will often define how low or high risk your strategy is but even the greatest investment/trading strategies are of little help if you do not control risk

How tough are you?

Your Risk Tolerance is the degree of uncertainty you can handle regarding a potential loss or decrease in your investment portfolio value

Risk tolerance will be different for each person and how much you can handle generally depends on three things;

Diversification

'A risk management technique that aims to reduce risk through mixing up your portfolio with many different investments'

Diversification is particularly helpful when trying to offset unsystematic risk, which is industry/company specific.

Diversification is based on the rationale that any bad performers should be offset by good performers thus smoothing out unsystematic risk.

The lower the correlation between investments in your portfolio, the lower the risk

Example of Correlation;

Gold and the US Dollar
Gold is inversely correlated to the dollar meaning that the value of gold appreciates as the dollar weakens

Gold and Crude Oil
Rising crude oil prices tend to lead to a rise in the value of gold as gold is often bought as a hedge against inflation

All the above will aid the reduction of risk and help improve your chances of making profits.

For more information on Technical Analysis please see the "Analysis" Module

Golden Rules For Trading In a Volatile Market

1. Use Stop Losses

Using a stop loss - a preset level at which an open trade is automatically closed - is standard good practice this limits your downside risk and also shows trading discipline which is paramount in developing a healthy trading account.

However when markets are incredibly volatile you could some slippage with the position not being able to be closed at the exact level specified. In volatile markets there is often a "gap" on the open, where an index opens substantially lower or higher than expected perhaps 10-15%. With a normal stop loss you will get the first available print which could cause a large loss at

One Financial will provide stop loss cushions with the aim of reducing the effect of slippage on stop loss orders. The stop loss cushion has been developed to provide the client with an element of protection over such market moves. Our stop loss cushions allow for a slippage of 10 pips in the underlying market before the effects are seen on the client account.

This means that execution can be delayed and prices to execute at may not be available. One Financial provides fixed spreads no matter what market conditions but in times of increased volatility it is sometime better to limit trade execution.

4: Stick to Your Strategy

During volatile times, it easy to be shaken and diverted from your normal trading strategy but most experienced traders apply the same strategy to choosing investments as they normally do. While it's tempting to react to the volatility, it's incredibly difficult to predict moves in the short term, so you have to stick to your trading strategies and limit your risk exposure when times are volatile.

What are the important bits?

• We need Risk Management to control our losses
• Always be sure to know your Risk Tolerance
• Have a Risk Management strategy - Leverage/Volatility/Diversification/Asset Allocation
• Incorporate a Stop Loss strategy as part of your Risk management strategy
• Be disciplined in effecting your strategy

PLAN YOUR WORK AND WORK YOUR PLAN

Greed

"You can't feed on greed"

• Many people think that greed is thinking that the sole aim of trading is to make money.
• This is NOT what greed is

reed is trying to make money too quickly
There are lots of ways to be greedy in trading;

• Trading in sizes that are too large
• Trading too frequently
• Having unrealistic expectations
• Dreaming of the big hit trade, rather than steadily building your equity

Fear

Fear in trading has two faces;

• Fear of loss
• Fear of missing out

The fear of loss compels traders to close profitable trades prematurely, meaning they miss out on potential profit

• Trade sizes that are too large for your account can cause exaggerated price swings and play havoc with your account as well as your emotions. This can then lead to mistakes caused by fear or greed. Like we said before trading affects psychology as much as psychology affects trading
• Do not forget that a trade can go wrong - if you are dreaming of a huge profit by taking a large trade size, remember this high risk trade can also produce a loss as big as the profit you were dreaming of.

Risk/reward ratio

Aim for at least a 3-1 or at worst a 2-1 Profit/Loss ratio

• For example, if you are aiming for 60 pips profit, your maximum loss should be around 30 pips. Or, if the maximum loss you are prepared to take is $1000, your profit target should be at least $2000

• If your trading style is to get in and out of the market for a small profit each time then make sure your losses are also small.

Planning your risk/reward ratio means that you can prepare yourself mentally for the loss that you might face and prevent emotional trades.,

Implement risk management

Use stop losses and limits - these take the emotion out of closing a trade and reduce the risk of unnecessary losses as a result of attachment to a position.

Traders allow losses to grow as their emotional attachment makes them hope the price will reverse

• The hardest thing a trader has to do is manually close a losing trade; placing a stop loss order at the same time you make a trade will avoid having to do this.
• Traders often complain when their stops hit then the price reverses; never cancel a stop loss order after you have placed it. You placed the stop when you were calm before you entered the trade; now you are stressed because the trade is moving against you

Trust your original judgment!

Treat trading as a business not a hobby

You wouldn't invest $10,000 in a business enterprise on impulse - so don't do it when trading!

Make sure to make time for researching the markets when you are not trading

• The price moves down so they sell, it moves up so they buy, in doing so they are always chasing the market and usually losing.

Learn to anticipate price moves, not just follow them

Time frames

• Short term trading is highly intensive and requires lots of discipline and concentration so make sure you are ready for this level of intensity and can trade without distractions
• Longer term trades do not have to be monitored constantly and are more appropriate for traders with other commitments

Coping with losing trades

Learn to love your losses

This is a term heard often in the trading world, and if you don't learn to embrace your losses, your trading career will probably be short lived.

So, what exactly does "learn to love your losses" mean?

It means you should understand why you made a losing trade;

• Did you misread your indicators?
• Did you fail to anticipate the release of an important piece of economic data?

Set yourself rules to follow; close a trade if the market retraces 20% from your profit target. This allows you to make sure that your emotions don't get out of hand when trading Except in special circumstances, get in the habit of taking your profit "too soon"

Don't torment yourself if a trade continues not to move in your favour. A common mistake is to close a position that is in profit and keep one that shows a loss.

Building your account equity

Don't try to make your fortune in a single trade - you will never be satisfied if you have unrealistic expectations

• Aim to build your account steadily
• 5% per day is a great return
• Remember you will have periods of equity draw downs or sideways movement
• If you have 3 losing days in a row, take a step back from trading for at least a day to collect yourself.
• Use this time to reassess your strategy and analyse the market

To summarise, don't underestimate the power of your emotions

TAKE CONTROL OF YOUR TRADING, DON'T LET TRADING TAKE CONTROL OF YOU