Author: Ho KhinwaiKhin Wai is a Year 3 Banking and Financial Services student from the School of Business Management (SBM). He started his foray in finance in 2011 and has his roots in value investing. Archives
December 2013
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Are you discombobulated by FOREX?5/10/2013 The foreign exchange market, or Forex / FX in short, is something most (if not all) traders and investors would’ve heard of at some point or another. Most business and financial newsprints in Singapore and around the world carry FX connotations in many of their macroeconomic articles, or what is commonly titled as “World News”. The Forex market is a platform where currencies are being traded on an international scale every single day. It is THE market where the largest transactions are being made – over US$4.9 trillion per day, according to the Bank for International Settlements (BIS) as of August 2012. There is no central exchange as compared to the stock market, with SGX being our local exchange. Instead, currencies are traded electronically OTC (over-the-counter) all over the world. FX is hot topic in any professional trader’s conversations. By far, it can be the most lucrative and fastest money-making market as compared to other investments and assets. FX is hot, no doubt about it, but it can also be the place where big money is being lost, and as fast as in a split second. If You Are Dying to Learn FX Trading… Trading FX can be a very daunting task to a new trader who isn’t too sure where to start, with so much FX trading material floating around the internet and libraries. There are thousands of Forex education sites that you can go through and never really find anything of substance. However, you are likely to find a lot of hype and big promises on most of these sites, so it's necessary to know the best way to go about learning to trade Forex, so that you don't waste your time and money. It’s All about Strategy! In NYP Investment Club, you may find that some of us may be interested in day trading in the FX market. Most of them would tell you that it is their TRADING STRATEGY that makes all the difference between a profit and a loss. Therefore, in any kind of trading in any market, be sure you are armed with the necessary tools and knowledge before you jump in to catch those gains! You Don’t Need Advanced $10,000 FX Trading Software Robots! Having quite familiarized myself with the investment and trading scene in Singapore, I have noticed that there are many FX trading manuals, seminars and workshops that generate quite a big hype over their trading programmes. You might see something like, “FX Trader Makes $5,000 per hour!” or “Most Advanced, Precise FX Trading Software in the Market!” These seminars, programmes, workshops or even books tell you that to make money in FX trading, you need to use highly-complex, Technical Analysis algorithms that take years to learn and master. The “Masters” too, are claimed to have graduated from a prestigious college with a Masters or PhD in Financial Technical Analysis or some similar field. Then, the observant person might realize that they will subtly imbue into you the idea that their FX trading step-by-step programme or software can cut all of that learning-work into a 3-day lesson. “Great!”, you say. Then, you slowly get bought into the idea that their exorbitant $10,000 three-day course will greatly benefit your FX trading career. While I’m not one to be overly-critical about such activities (each trader / investor needs to take responsibility for his own trading / investing journey, and not let a computer software do it for them), I do want to mention that not ALL programmes are like that. Some FX workshops actually do impart some veritable and useful trading strategies and knowledge for a considerably affordable price or even for FREE. In fact, some of the most robust trading strategies and systems use simplest and most basic Technical Analysis methods and actually work. The minute you find that you are being drawn into an FX trading system that you don’t understand, don’t make common sense or are too good to be true, get out of the room immediately. Know Your Charts and Patterns I couldn’t stress this enough. As an investor coming from a long-term perspective and mindset, I do not know many of the advanced Technical Analysis charts and Patterns such as Elliot Waves and Fibonacci Retracements. However, I have to say that I do know the basics of Technical Analysis, like how to draw a trend line or how to spot signals in common indicators such as Moving Averages. Focus on mastering the basics of TA, in tandem with your trading strategy. Practice, and practice and practice! Get out a daily chart from Google Finance or Yahoo Finance or DailyFX and practice buying and selling virtual cash or just writing down imaginary transactions on paper! With prior experience and effort, you can be sure that confidence and practice is going to yield some good returns. Trading Psychology New traders who do short-term transactions will almost always be overcome by typical psychological trading follies and barriers. These include selling out too quickly, going astray from your strategy, trading with “GUT” feel, or just feel their heart beating quicker with each drop in price they see (or the number of “reds” they see). Experienced traders know this; they understand that the human brain is wired that way to alert us when something seems wrong, and that we supposedly have to ACT. Experienced (and profitable) traders have understood the effects of psychological follies and have overcome them to make large amounts of profits. If you are a beginner in FX trading, or are contemplating to be one, make sure to also know some of the behavioral follies that we make in trading or investing, and learn not to get affected by them through practice. Coming Out On Top! FX traders should have heard about “the man who broke the Bank of England”, George Soros. In 1992 on Black Wednesday, the business magnate shorted more than $10 billion in pounds, after believing that the UK government’s indecisiveness to raise interest rates to be on par with a European level will cause the pound to plunge. In the end, UK didn’t want to conform to the Level and the pound devalued, earning George Soros over US$1 billion. From this short example, we could see that Mr. Soros had huge faith in his position and trusted his trading strategies. And, once you have sharpened your craft and begin to have confidence in your own strategies, you too could generate unthinkable amounts of profits.
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