Month: June 2015

Over 90% of the people who start trading online forex in Kenya get their accounts wiped out in less than six months. However, you do not have to become part of this statistics. You can trade forex in Kenya and become as profitable as you wish to be.

However, for that to happen, there are some fundamentals of forex trading that you have to keep in mind:

#1 Currency Trading is not a get-rich-quick scheme

Sorry to break your heart, but if you are looking to get into forex so that you can retire at thirty, you couldn’t be more wrong.

Forex trading is a skill, and it takes a lot of training, time and persistence to be profitable in the trade. The truth of the matter is that if you are just getting into the trade, you will lose more trades that you will win. This is why I highly recommend that you trade on a demo account for as long as it takes you to return some profits.

If you do not have a forex demo account, click on this link to open one right now.

#2 Focus on only one or two currency pairs

Trying to be a jack-of-all-trades (pun intended) is the easiest way to wipe out all the capital you have invested in forex trading.

Pick one or two currency pairs, study them until you understand how they are affected by prevailing market conditions. Practice dealing them on your forex demo account.

It is overwhelming to keep tabs on all the major seven currencies that are commonly traded on the forex market.

If you are going to pick one of the major currencies, go with the EUR/USD. It offers the best spreads, which will cut down on the price you pay to get into a trade. However, since the currency is highly traded, it is very unstable and you will need to be more savvy when trading it.

#3 Follow Financial News

As a beginner in forex, you will mostly be using technical analysis to get into trades. This does not however mean that you shouldn’t keep tabs on the news affecting the forex market.

Trading forex in Kenya without a clear picture of what news is being released and how the news is affecting the market is a recipe for disaster.

Mostly, immediately, news is released, the market tends to be very volatile, and it is advised that you wait 15 minutes after the break of important news before you place a trade.

Now, assume that you are not aware of when news is released? Do you see why it is important to keep tabs on political and economic news from around the world?

#4 Follow the Analysis of Forex Trade Experts

There are guys there who have been trading forex since God-knows-when. They are experts in what they do, and they are generous with their opinions.

Do not shy away from following them on Social Media, Youtube, websites and forums.

While reading the analyses from forex trade experts, write down what direction they are predicting the market will go and the levels they have predicted to be the key resistance and support points for the day for the currency you are following.

Some of the best places to find daily expert opinion about the market include:

  • Fxstreet.com
  • Forexnews.com
  • Currencypro.com

#5 Always Have a Trade Strategy and Plan

By failing to plan, you are planning to fail.

That is some deep ancient wisdom right there. Forex trading is not gambling. There are indicators and signals that clearly point where the market is headed. Make use of these.

More importantly, however, never enter a trade without a strategy.

Before you make a decision to go long or short, you should clearly have an entry and exit strategy. How much profit do you want to make from the trade?

What loss can you tolerate on the trade?

Place your take profit and stop loss, and stick to them. Do not get greedy and do not let fear get the best of you.

If you do not know how to analyze forex charts, make a point of taking a training course.

Since scalpers open many positions in the forex market that do not last for more than 5 minutes, they love trading in high volumes. The high-volume lots traded by scalpers allow them to make maximum profits in the little time that they have positions open.

In this article, I am going to show you the two forex trading strategies that successful scalpers use:

  1. Rapid fire trading
  2. Piranha Trading

As a scalper your most important tools include a computer, stable internet connection, and lots of coffee to keep you wide awake late into the night.

Who is a Scalper?

A scalper is a type of forex trader who places and closes trades in the forex markets rapidly. Scalpers open hundreds of trades every day but will rarely hold open positions for more than 5 minutes. I like to think of them as guerilla traders.

Scalpers make use of technical indicators and price action charts to outline their forex trading strategies. All their trading strategies are developed on the short timeframe charts (M1 and M5). Plotting their trades on these charts allow them to enter and exit the market numerous time on any given trading day.

Although scalping can be very exciting and adrenaline-filled, the constant monitoring of the markets can lead to mental fatigue, which can make your trading erroneous. To stay on course, you need to know when to take a break. Impose simple rules on yourself and have the self-discipline to follow them through.

You may, for instance, decide that you are going to stop trading for the day after you have traded for 2 hours or after you have made say 20 pips.

Scalper Strategy #1: Rapid Fire Trading

The Rapid Fire strategy works best when the forex market is on a clearly defined trend. It is an action packed strategy that requires you to think on your feet and act as fast.

Rapid Fire Scalper Strategy relies on two main criteria in the forex market:

  1. Highly liquid currency pairs
  2. Lowest timeframes available

The strategy is best deployed on the EUR/USD currency pair using the MI chart window. Trading on the M1 time frame is like driving on the fast lane in the interstate. The timeframe presents close to 50 trading opportunities every day.

Rapid Fire Indicators

Because of the high frequency trades witnessed with the rapid fire strategy, scalpers do not have the luxury of using different indicators to analyze the market.

The two indicators used with the strategy are:

  1. Parabolic SAR- Used with settings of Step02 and Maximum 0.2.
  2. Simple Moving Average (SMA) – With a Period of 60, and applied to the close.

Both Parabolic SAR and Simple Moving Average are trend indicators, meaning that they work best when the forex market is on a clearly defined trend.

The SMA is used to identify the direction of the trend. We go long when the EUR/USD price climbs above 60, and conversely go short when the EUR/USD price falls below 60.

Parabolic SAR is used to give the exact entry point for both the short and long position. When the price rises above the Parabolic SAR, we go long on the EUR/USD. If the price falls below the Parabolic SAR, we go short on the currency pair.

Scalper Strategy #2: Piranha Strategy

If the forex market is not trending, it is moving in a range. The Piranha Strategy was invented for use when the markets is in range.

Let us dive into marine life. Marine piranhas take small repeated bites on their prey until the prey is totally vanquished. While a single bite might not inflict much harm to a prey, frequent bites are lethal and will usually lead to the death of the prey. The piranha scalping strategies works in a similar way. It gives forex scalpers plenty opportunities to bite small chunks of profit from the forex market.

The piranha strategy works best on the GBP/USD currency pair using the M5 (5-minute) timeframe. Using the strategy, a trading day presents trades with 15-20 trading opportunities.

Indicators to use with Piranha Strategy

The Piranha strategy utilizes one indicator, Bollinger Bands, with Period 12, Shift 0 and the Deviation left at default (2).

The Bollinger Bands are used to identify market entry opportunities. Ideally, you should go long when the price of the GBP/USD touches the lower band and go short when it touches the upper band.

I have had the privilege to tutor many intermediate and beginner forex traders in Kenya. Almost all the traders I have dealt with ask one common question:

“What should I do right now, should I buy or sell?”

The question reminds me of when I first started trading online forex.

The truth is that there is no definite answer to this question. What you do at any particular time depends on what type of a trader you are.

There are 5 broad types of forex traders:

  1. Day traders
  2. Swing traders
  3. Scalpers
  4. Position Traders, and
  5. Mechanical traders

Your forex trading strategy depends on which type of a trader you are. Understanding what type of a trader you are will help you refine your forex trading strategy and avoid trading from fear, greed and faith, which are the three greatest pitfalls to successful trading.

My Experiment

Before we discuss the 5 types of forex traders, I would like to share with you the results of an experiment that I conducted with two of my forex students, who I shall call John and Mary.

At the beginning of the experiment, I gave both John and Mary a simple trading strategy that they were to follow. The strategy consisted of a plan on when to go short and when to go long.

To make things easier for them, I sent both of them daily SMS alerts to remind them to watch out for trade setups.

After one month, I evaluated their trading results, which were very different. John had made net returns of 40% on his account while Mary had only managed 10%. Several factors make these results very interesting:

  1. Both Mary and John started with the same amount of capital
  2. Both of them carried out the same number of trades
  • Both of them had excellent entry strategies

So, how could their results be so different?

After carefully analyzing their trades, I discovered where the discrepancy emanated. While both of them had good entry strategy, Mary constantly interfered with her trades. She would get anxious, abandon the strategy and exit trades before they ran their course.

On the other hand, John stuck to his entries and exits. He left his trades run their full course. He either got stopped or hit his targeted profit.

Both traders had a similar strategy, but their personalities were very different. The message from this experiment is very clear. What you need is not a forex trading strategy, but a trading strategy that marries with your personality.

There is nothing like a perfect strategy in forex trading. The best strategy is the one that suits your personality.

The 5 Types of Traders in the Forex Market

Your personality plays a very important role in determining your forex trading strategy. Are you impatient? Do you get anxious? Do you have a strong appetite for risks? These are some of the personality traits that will dictate which strategy best fits you.

Basically, the only difference between the 5 types of traders is the timeframe that a position is held open. The timeframe increases from scalpers to day traders, swing traders and finally to position traders. The exception is Mechanical traders, who do not heed to any specific time frames.

Scalpers

If forex trading was a superhighway, scalpers would be the individuals on the fast lane. I like to think of them as guerrilla traders. They enter the market multiple times a day, each position they open lasting only a few seconds or minutes. Scalpers can make up to 10 pips on every position that they open.

A scalper’s trading strategy relies on the busiest hours of the forex market, typically when there are two sessions overlapping. Scalpers spend most of their time trying to spot trend changes on the charts. Additionally, a scalper must be able to make snap decisions in order to capture more profits when a trend is changing.

If you are intending to scalp the forex markets, here are the 3 cardinal rules that you must follow:

  1. Spreads: Since you will be opening and closing many positions, you need to trade on currencies with the minimal spreads. The major pairs (USD/JPY, GBP/USD and EUR/USD) usually have the best spreads for a scalper.
  2. News: Scalpers avoid trading during major news announcements. Major news, such as the NFP usually stir different emotions in the forex market and cause inexplicable swings in the major currency pairs.
  3. Leverage: Since they are only targeting small pips on their trades, scalpers must use high leverage to amplify their profits.

Because scalping is fast-paced, many scalpers result to using forex trading software to execute trades on their behalf. You can read about the other two most successful forex scalping strategies here.

Day Traders

A common characteristic with day traders is that they do not like to hold open positions overnight. They open a position at the start of the trading day and close it at the end of the day. Depending on the currency pair they are trading, day traders can make anywhere between 20-40 pips per trade.

Day traders rely on the M15 and M30 chart windows to analyze the forex market.

Day traders care most about closing all open positions at the end of the trading day. Most of them do not care whether the position is at a loss or profit. All that matters is that the position be closed at the end of the day.

Unlike scalpers who avoid trading the news, day traders rely on news to plan and execute their trades. Additionally, a day trader must be able to spot breakouts as they happen.

Swing Traders

Swing traders keep positions open for more than a day but never more than a week. Swing trading is most suited to persons who juggle forex trading with their daytime jobs. Swing trading can yield anywhere between 50-150 pips.

Swing traders have larger profit targets and stop loss levels. Since their profit targets are high and they place far lesser trades than scalpers and day trades, swing traders are less bothered by forex spreads. They can afford to trade currencies with higher spreads.

However, to be pretty sure, swing traders usually have to wait for a few confirmation signals before they open positions.

Position Traders

Position traders are the exact opposite of scalpers. If forex trading was athletics, they would be the marathoners. They can hold a position open for weeks to months. Position traders understand the fundamentals that drive the forex markets and are able to spot trends that can lead to long term profits early on. The profit potential on their trades is usually above 500 pips.

Position traders use the D1, WI and even MN chart windows to analyze the forex market.

Two characters distinguish position traders from the other types of forex traders. They are voracious and astute readers on the financial markets, and they have a very large trading accounts. The large accounts helps them withstand losses should trades go against them for an extended period of time.

Mechanical Traders

Mechanical traders do not care about time frames. They are usually the beginners in forex markets. They are the traders who have learned how to use specific technical indicators, back tested them, and now all their care is implementing the indicators on their preferred trading platform.

Most mechanical traders end up coding their strategies into forex trading software that does the trading on their behalf. The main disadvantage with this type of trading is the false sense of security that it creates. If interest rates change or the central banks take proactive measures to correct liquidity, mechanical traders may suffer prolonged losses if they do not take measure to adjust their forex software to reflect these changes.

Your Perfect Forex Trading Strategy

The perfect forex trading strategy is the one that fits your personality traits and your lifestyle. If you have a lot of time to analyze the charts and you love action-packed trading, you will probably end up being a scalper. If you are juggling a daytime job and forex trading, swing trading will probably fit you best.

I would like to hear from you. Heck, I would even like to help you sharpen your forex trading strategy. Leave a comment below letting me know what type of a trader you think you are, and why.

 

Easy Forex is one of the most recommended forex brokerage firms in Kenya. Opening an account with them is easy, and you can start practicing how to trade forex by opening a demo account. However, after some time, you may feel that the time has come to start trading with real money.

So, how do you deposit money into your Easy Forex account?

Easy Forex: Account Types

Easy Forex provides forex traders with 4 types of accounts to choose from depending on the minimum amount of deposit that you have, the lot sizes you wish to trade and the level of desired margin level.

The four account types offered are:

  • Mini Account– Requires $25 to open.
  • Gold Account– Minimum deposit is $500
  • Platinum– Minimum deposit is $5,000
  • VIP– Minimum deposit is $10,000

Funding Your Easy Forex Account

Your trading account needs to be funded before you can start trading. Doing so is easy and takes less than 5 minutes.

You can fund your account from your debit (ATM) card, Credit Card, Direct Bank Transfer or using one of the accepted E-wallets.

Credit cards have become the most convenient way for traders to deposit money into their Easy Forex accounts. The payment method is secure and takes only a few minutes. Simply type your credit card details on the deposit form, and hit ‘Deposit”.

However, you need to note that most forex brokers insist that you can only withdraw funds from the same source that you used to deposit funds. Don’t use your friends Skrill account if you do not wish to withdraw your profits from the same account.