Nikolai Kuzentsov, Author at Algorithmic and Mechanical Forex Strategies

7 Things You Need To Become A Successful Forex Trader

June 13, 2016 by Nikolai Kuzentsov 1 Comment

If you make the decision to start trading forex to earn extra income it is vital that you set yourself up to succeed. To do so you need to be aware of the 7 things you need to become a successful forex trader.

The desire to succeed

Firstly, it is elementary that you commit fully to the process of becoming a forex trader. That means that you are willing to put the time in to learn all important aspects of currency trading and the global currency market. You will only have the motivation to put the time in to learn, if you truly have the desire to succeed and make money trading currencies.

A genuine interest in forex, economics and the financial markets

Secondly, and this ties in with the first point, if you want to succeed as a currency trader it is vital that you have a genuine interest in the financial markets. If you are doing it just to make a quick buck, without actually putting in the regular work of reading financial news, analyzing charts and reading daily currency market updates, then you will most likely not succeed. Furthermore, you will need to learn about macroeconomics, as economic data and central bank policies are key drivers of the foreign exchange market. Hence, having a genuine interest in what moves the financial markets is a key component to becoming a successful currency trader.

The right online broker

There is a vast choice of online brokers that charge different spreads and commissions and have different product ranges. Hence, it is important to choose an online broker that is right for you. To do so, you need to choose a broker that covers the asset classes and currency pairs you wish to trade, charges you comparatively low fees, offers tight spreads, has a good reputation and is regulated by your country’s financial regulatory body.

It is also important that the online broker you choose offers easy-to-use chart analysis tools, timely market news updates and possesses good customer service. The best way to choose a broker is to check independent broker reviews and comparisons online.

Trading capital (but less than you might think)

To start trading forex you need a certain amount of capital. However, it is must less than you might think if you choose to trade with leverage. Leverage in the foreign exchange market refers to the ability to move, for example, USD 100 dollars worth of a currency using only USD 1. This would be leverage of 100:1, which is a popular leverage amount in the currency market. Other common leverage amounts are 50:1 and 20:1. Using leverage you can move large amounts of a security by only putting down a small initial amount per trade. This small amount is referred to as the initial margin.

The best way to use leverage is by trading so-called CFDs (contracts for difference) as they allow you to set your leverage, as you require it. By adopting a CFDs trading strategy you are able to profit off small moves in the currency pairs you are trading without putting down a large amount of capital on each trade. Hence, this is the best way to trade currencies if you only have a small amount of available trading capital.

The right trading strategy

Once you feel comfortable with the currency market’s terminology and mechanics and you have deposited your trading capital into your online brokerage account, it’s time for you to apply the right trading strategy.

When it comes to trading currencies there are many approaches you can take. For example, you can apply more of a momentum trading strategy and put on trades just after market moving news, such as economic data announcements, or you can use a technical indicators-based trading strategy and follow a set of indicators that give you buy and sell signals for the currency pairs you follow. Of course, there are many more approaches you can take. It is important for you to find a strategy that suits your style of trading and is in line with your risk-return profile.

The discipline to stick to your strategy

Once you have found a trading strategy that works for you, it is important that you have the discipline to stick to your trading strategy. A great way to ensure you don’t let emotions get in the way of you following your strategy is to set target prices and stop-losses, where your broker automatically buys or sells the currency you hold against another, once these trading levels have been hit.

The emotional stability to handle losses

Finally, if you truly want to succeed as a forex trader you need to develop the emotional stability to handle losses. No matter how good your trading strategy is you will have days where you will generate losses. It is important to accept down days and not let your losses affect you emotionally, as this could impair you when you put on further trades.

Top 3 Indicators To Use For Short Term Trading

March 14, 2016 by Nikolai Kuzentsov 4 Comments

Short term trading can be an incredibly lucrative process. However, without proper analysis, it can also be a process that leads to big losses. The good news is that there are several tools that make analysis a simple process. Today, we’ll talk about the top 3 indicators for short term trading. So, let’s get right to it…

Short Term Trading Indicator #1: MACD

The MACD is also known as moving average convergence divergence. This is an incredibly popular indicator that is used not only to show whether or not a trend is in process as well as the momentum of the trend associated with any security. This indicator is made of of to EMA’s or exponential moving averages that cover two different time frames, generally these are 12 and 26-period time frames. The MACD, which is the actual indicator is the difference between the two moving averages. The higher the number, the stronger the directional momentum of any given trade. The lower the MACD, the less momentum the trend has. Click to learn more about using the MACD for Short Term Trading Strategies.

The MACD uses a histogram to spot buying and selling opportunities.

Short Term Trading Indicator #2: On-Balance Volume

On-balance volume, also known as OBV is a technical indicator that tracks the positive and negative flow of volume on any security and what that volume flow has to do with the price movement in that security. OBV is a number that shows the average volume on a stock by adding or subtracting each trading session’s value depending on the price movement within that session. Essentially, trading volume is what causes price movement. High volume generally indicates that gains are ahead while low volume generally indicates that declines are coming. Therefore, short term traders watch the OBV on securities to see if the number is going up or down. This gives them an idea of what to expect in the price of the security over a short period of time. Click to learn more about using the On Balance Volume Indicator.

Short Term Trading Indicator #3: Average Directional Index

Essentially, short term traders make money by taking advantage of strong trends in the value of a stock. So, the Average Direction Index or ADX comes in handy. The ADX is an indicator that focuses on trend momentum instead of directional changes. When the ADX on a financial asset is below 20, it means that the current trend is weak, if the asset is even trending at all. However, if the ADX is above 40, it means that the current trend has strong directional strength. So, short term traders tend to look for assets with a high ADX as a high ADX means that momentum will likely keep the trend headed in the same direction, making taking advantage of the trend relatively simple. Click to learn more about using the ADX indicator when trading.

Final Thoughts

Like a contractor, any successful short term trader has a tool box that’s filled with tools that make his or her job easier. Ultimately, without properly analyzing trends, short term trading is nothing more than gambling. However, by taking advantage of indicators that are known to lead to productivity in trading, the ball is put in your court, giving you the ability to somewhat peek into the future. Now, no one has a crystal ball that allows them to see exactly what’s going to happen in the market moving forward. However, using strong indicators like the tools listed above, can give you such a high level of accuracy that you may feel as though you have a crystal ball. So, what are you waiting for? Add these tools to your repertoire, and start short term trading with improved accuracy.

Using Correlation To Increase Returns

July 16, 2015 by Nikolai Kuzentsov Leave a Comment

As an investor, my goal is to earn as much money as possible with the principle investment dollars I have. With that said, I’m constantly on the hunt for ways to maximize my earnings. One of my favorite strategies for doing so is called the correlation strategy. This strategy recognizes the fact that some assets are correlated; and that by trading them together, the investor has the ability to earn more from the trends they find. Today, we’ll talk about what the correlation strategy is and how it works as well as go over a few examples of correlation in the market. So, let’s get right to it.

What Is The Correlation Strategy?

The correlation trading strategy is designed to take advantage of the fact that many assets are correlated. Therefore, if the trader knows a big event is going to happen that’s likely to cause movement in one asset, he also knows that the event is likely to cause movement in correlated assets; leading to more opportunities. There are two different types of correlation in the market…

Positive Correlation – A positive correlation is when two or more assets tend to move in tandem with each other in the market. Therefore, when one asset moves up, any positively correlated asset is likely to do the same. Adversely, when an asset sees declines, positively correlated assets are likely to follow the value down.
Negative Correlation – Negative correlation is the exact opposite of positive correlation. Assets that are negatively correlated tend to see opposite movements in the market. Therefore, when an asset sees increases, negatively correlated assets will trend to decline. Adversely, when an asset sees declines, negatively correlated assets are likely to trend up.

Examples Of Positive And Negative Correlations In The Market

Positively Correlated Assets – As mentioned above, positively correlated assets tend to move in tandem with each other. Therefore, one of the best examples of this phenomenon would be the relationship of commodities with commodity producing stocks. For example, take a look at Gold in comparison to Goldcorp in the chart below…

Looking at this chart, it’s clear to see that when the value of gold sees improvements, as it did from 2005 to 2008, so too does Goldcorp stock. Adversely, when the value of gold declines, the value of Goldcorp falls as well. Therefore, knowing this information allows the trader to execute two trades at a time; effectively doubling earnings.

Negatively Correlated Assets – As mentioned above, negatively correlated assets move against one another. Therefore, when the value of one is trending up, the value of the other tends to trend down. A perfect example of this would be the relationship between the United States dollar and silver. This negative correlation is easy to see by looking at the chart below…