The Psychology of Traders?

Developing the proper trading psychology is crucial if a trader is to have any trading successes. This is an area that many novice traders tend to overlook while they are educating themselves. Sad to say, there is no magic formula with which a trader can forgo having to develop the correct “Trader’s Mindset”. As mentioned earlier not having the proper “trader’s mindset” can result in a costly and negative experience with trading in Forex.

Evertheless, before all else we need to be able to recognize that the psychological aspect to trading is tantamount. For us to correct our short comings and minimize the losses that we suffer when we trade, we first need to know what is the problem and the issues surrounding the problem. Success in Forex trading is a combination of proper trading strategy, prudent money management appropriate capitalization and having the proper psychology. All these factors must work in synchronization in order for a Forex trader to be successful in his trading.

Some of the common psychological issues that a new trader will face are:

A fear of having to take a loss:

This is a result of a trader’s ego. In fact this reason is the most common reason why Forex traders fear having to take a loss. As a result, they try to go against the market trends trying to beat the market.

Exiting a trade prematurely:

A novice trader will exit a market position prematurely mainly due to the fact that he lacks confidence. He exits his position before he should because he wishes to relieve himself of the anxiety of closing a market position.

Holding on to a losing position for too long:

This happens because a trader refuses to acknowledge that he made a mistake. He holds on to the losing position hoping things will turn around and correct his mistake. Again, this is due to ego.

Obsessive Trading:

Because of the thrill of making profits, traders can sometimes feel euphoria when they made a good trade. The danger is that it can also fuel an addictive need to seek this thrill with no thought of loss.

Feeling angry after a loss:

Traders feel this way because they think that they are being victimized by the market. They got into this situation due to the fact that they had unrealistic expectations in the first place.

Guilt feelings in making excessive profits:

Sometimes due to poor self esteem, traders feel guilty when they make excessive profit. They believe that they don’t deserve the profits that they make thus limit themselves to how much they will make.

Over thinking or second guessing the trading strategy:

This is the result of wanting a “sure thing” in a world filled with uncertainties. Traders do this because they fail to understand losses are part and parcel of Forex trading. They choose to disregard that risk is inherent in any investment endeavors.

The human mind is the most difficult aspect of Forex trading to overcome. There is no short cut to this except through realization, and coming to terms that we all are human and are prone to mistakes. Once we can recognize this, we can begin to watch out for these “undesirable” mental blocks and take steps to eliminate them.

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The Seven Most Traded Currencies in Forex.

Currencies on the Forex market are traded in terms of “lot” sizes. Each lot is equivalent to $1,000. With leverage through margin trading, a Forex trader can control $100,000 worth of currency with a capital outlay of just one thousand dollars. Currencies are also bought and sold in the Forex market in terms of pairs. Each currency is always denoted by 3 letters like listed below:

• AUD for the Australian Dollar

• CAD for the Canadian Dollar

• CHF – for the Swiss Franc

• EUR for the “EURO”

• GBP for the British Pound

• JPN – for the Japanese Yen

• USD for the US Dollar

When a Forex trader buys and sells a currency pair, he is buying or selling the currency pair in terms of the “base” currency. For example for the USD/AUD currency pair, what this means is that one US dollar is worth so much in terms of the Australian dollar. The most common pairs are:

1. EUR/USD (Euro & US Dollar) known by just the “Euro”

2. USD/JPY ( US Dollar & Japanese Yen) known by just the “Dollar Yen”

3. GBP/USD ( British Pound & US Dollar) normally called “Cable”

4. USD/CAD (US Dollar & Canadian Dollar) known by just the “Dollar Canada”

5. AUD/USD (Australian Dollar & US Dollar) known by just the “Aussie Dollar”

6. USD/CHF US (Dollar & Swiss Franc) known by just the “Swissy”

7. EUR/JPY (Euro & Japanese Yen) known by just the “Euro Yen”

Thus, when you buy the EUR/USD currency pair; you are by definition buying the Euro while selling the US dollar at the same time. When you sell this specific pair, you are selling the Euro and simultaneously buying the US dollar. You transaction will always be by the base currency in contrast to the counter currency.

To avoid confusion, you can regard the currency pair as just one item. It is perfectly alright to ask for a currency pair quote by the base currency. Your Forex broker will be able to understand what you mean and you are still able to place trades through him. The distinction between the two currencies in the pair is drawn with regard to fundamental analysis concerns. The concept of the base and counter currencies is useful to demonstrate what is essentially happening in a Forex trade. In the financial markets, you are able to execute trade through short selling.

Short selling is when you sell a financial asset first and then proceed to buy that asset back later at a lower price, thus reaping a profit. However, short selling in the equity market is controlled by the regulatory bodies. Whereas in the Forex market, because you are continuously buying the base currency and selling the counter currency, you are able to flip the transaction as to which will be the base currency and which is the counter currency. The transaction is in essence the same and this permits you to short sell a currency pair with any restrictions like those in the equity market. With short selling, you are able to profit from a Forex trade regardless of whether the market is falling or on the up trend. With short selling, you can only make money when the market is on the upswing.

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Glossary of FOREX terms.

The Forex market, just like any other financial market, can be risky if one does not follow a conservative trading strategy. Markets can move against you, just like in stocks or futures trading, and you can lose your entire investment. Therefore, you should not invest more than you can afford to lose. Forex Club does not recommend trading with a leverage of higher than 20:1, and invites you to follow our unique training program, which consists of 6 hours of online video training and practice trading on a demo account with 100,000 virtual dollars in it.

American-style option An option contract that may be exercised at any time before it expires.

Ask The quoted price at which a customer can buy a currency pair. Also referred to as the ‘offer,’ ‘ask price,’ or ‘ask rate.’

Base Currency For foreign exchange trading, currencies are quoted in terms of a currency pair. The first currency in the pair is the base currency. For example, in a USD/JPY currency pair, the US dollar is the base currency. Also may be referred to as the primary currency.

Bid The quoted price where a customer can sell a currency pair. Also known as the ‘bid price’ or ‘bid rate.’

Bid/Ask Spread The point difference between the bid and ask (offer) price.

Call A call option gives the option buyer the right to purchase a particular currency pair at a stated exchange rate.

Counterparty The counterparty is the person who is on the other side of an OTC trade. For retail customers, the dealer will always be the counterparty.

Cross-rate The exchange rate between two currencies where neither of the currencies are the US dollar.

Currency pair The two currencies that make up a foreign exchange rate. For example, USD/JPY is a currency pair.

Dealer A firm in the business of acting as a counterparty to foreign currency transactions.

Euro The common currency adopted by eleven European nations (i.e., Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain) on January 1, 1999.

European-style option An option contract that can be exercised only on or near its expiration date.

Expiration This is the last day on which an option may either be exercised or offset.

Forward transaction A true forward transaction is an agreement that expects actual delivery of and full payment for the currency to occur on a future date. This term may also be usedto refer to transactions that the parties expect to offset at some time in the future, but these transactions are not true forward transactions and are governed by the federal Commodity Exchange Act.

Interbank market A loose network of currency transactions negotiated between financial institutions and other large companies.

Leverage The ability to control large dollar amount of a commodity with a comparatively small amount of capital. Also known as ‘gearing.

Margin See Security Deposit.

Offer See ask.

Open position Any transaction that has not been closed out by a corresponding opposite transaction.

Pip The smallest unit of trading in a foreign currency price.

Premium The price an option buyer pays for the option, not including commissions.

Put A put option gives the option buyer the right to sell a particular currency pair at a stated exchange rate.

Quote currency The second currency in a currency pair is referred to as the quote currency. For example, in a USD/JPY currency pair, the Japanese yen is the quote currency. Also referred to as the secondary currency or the counter currency.

Rollover The process of extending the settlement date on an open position by rolling it over to the next settlement date.

Retail customer Any party to a forex trade who is not an eligible contract participant as defined under the Commodity Exchange Act. This includes individuals with assets of less than $10 million and most small businesses.

Security deposit The amount of money needed to open or maintain a position. Also known as ‘margin.’

Settlement The actual delivery of currencies made on the maturity date of a trade.

Spot market A market of immediate delivery of and payment for the product, in this case, currency.

Spot transaction A true spot transaction is a transaction requiring prompt delivery of and full payment for the currency. In the interbank market, spot transactions are usually settled in two business days. This term may also be used to refer to transactions that the parties expect to offset or roll over within two business days, but these transactions are not true spot transactions and are governed by the federal Commodity Exchange Act.

Spread The point or pip difference between the ask and bid price of a currency pair.

Sterling Another term for British currency, the pound.

Strike price The exchange rate at which the buyer of a call has the right to purchase a specific currency pair or at which the buyer of a put has the right to sell a specific currency pair. Also known as the ‘exercise price.’

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Stocks Investment

Stocks investment dates back to the 16th century, when the Dutch East India Company issued IPOs in 1606. Going public and involving outside investors in company ownership allowed this company and many others that followed to pursue economic growth. Stocks Investment | Investment Stocks

During the 60s and 70s before the advent of computers, stocks investment was done by contacting a broker, handing over your money directly, and waiting. These days, all you have to do is open an online bank account, fund it with your credit card, punch in a few digits on your computer and voila, you have invested in stocks all on your own!

Did you know that ticker tapes were being used for stocks trading since as far back as 1867? Technology in the 21st century now allows you to scan ticker tapes of different companies on the internet, bring up a specific company to see what its stocks trading pattern is, and compare share prices between companies trading on the Nasdaq, NYSE, DJIA, and Amex.

Choosing the stocks to invest in is a personal decision you will have to make yourself. This will depend on the following things:

• How much money you are willing to invest – Can you afford to go big time and trade on the major stock exchanges where your $1,000 dollars will get you just a few shares, or would you rather put that same amount in a company where you have more shares and can earn more?
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How long you want to keep your money tied to the stock – Are you willing to wait for years to see your stocks investment appreciate, or do you want to day trade, meaning buy a stock today and unload it after you make money, then move on to another promising stock tomorrow or within the week?
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How much risk you’re willing to take – Are you a conservative investor who prefers to put your money on companies that are considered “safe,” and whose share price increases are predictably slow, or do you like the thrill of discovery and are willing to put your money on growth companies with a bigger chance of earning more?

There are two kinds of stocks exchanges – the traditional ones where the big companies trade, and the OTC Bulletin Boards. We like to call them “Inside” and “Outside.” Inside means the New York Stock Exchange (NYSE), American Stock Exchange (Amex), and the Nasdaq (National Association of Securities Dealers Automated Quotations), the last of which is an electronic quotation board. These are the three major ones, and you’ve also got state-based or regional stock exchanges such as the Chicago Stock Exchange, Philadelphia Stock Exchange, Boston Stock Exchange, and the Pacific Stock Exchange. Outside of these are the Over The Counter Bulletin Boards and the Pink Sheets, where the penny stocks, micro cap stocks and small cap stocks are traded.
Share prices for stocks investments at the major stock exchanges can range from a low of $100 to as high as $120,700 per share – a place of honor bestowed to Berkley Hathaway, the company owned by Warren Buffet. The companies that trade here are those that have met the SEC’s stringent requirements about disclosure of their financials and company information.

You probably would rather not go into the big cap stocks right now, considering the erratic fluctuation of the Dow Jones index right now. Think penny stocks, then. Although penny stocks investment poses a bigger risk than the stocks on the major exchanges, some companies – Marks & Spencer from the UK, Italian-owned Benetton SPA, Swiss-owned Roche, and Adidas from Germany –are some of the foreign-owned stocks trading on the Pink Sheets.

There are many more stocks investment finds like these, and we’ll tell you all about them in our SmallCapProfits.net Newsletter. We’ll help you find the best unknown but promising stocks so that you

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