How To Trade

70. How To Interpret the Consumer Confidence Index (CCI)

A lesson on the Consumer Confidence Index and what it means to traders and investors in the stock, futures, and foreign exchange markets.

71. How to Interpret the Index of Leading Economic Indicators

A lesson on the Conference Board's Index of leading economic indicators for active traders and investors in the stock, futures, and forex markets.

72. The Advantages and Disadvantages of Day Trading

A lesson on the advantages and disadvantages of day trading the stock, futures, and forex markets for active traders and investors.

73. The Advantages and Disadvantages of Swing Trading

In our last lesson we gave an introduction to the three main styles of trading and looked specifically at the advantages and disadvantages of the most popular style of trading, day trading. In today's lesson we are going to look at the advantages and disadvantages of the second most popular style of trading, swing trading. Swing trading is generally defined as a style of trading where positions are held for larger gains over multiple days and up to several weeks. Traders who promote this style of trading normally feel that it combines the best of both day trading and position trading. What this means is that these traders feel swing trading gives you a similar ability to amplify gains as day trading does, with the slow pace and lower transaction costs of position trading. A second advantage that many traders would site about swing trading, is that good swing traders plan their entries and exits in advance and since positions are held for longer than one day this method of trading does not have the same intensity that day trading does. While some traders prefer the intensity of day trading, traders who want a less stressful trading career often opt for swing trading as a result. I think most traders would agree that the biggest disadvantage to swing trading is the increased risk per trade. Because swing traders hold positions for longer periods of time, their average risk per trade is generally higher than day traders in order to give the position enough breathing room to work. As swing traders hold positions overnight they are also exposed to the overnight risk which we learned about in our lesson on day trading. Secondly, although swing trading does not require as much work as day trading, it still generally requires more work and resources than position trading, as good swing traders normally follow the markets very closely even when not entering or exiting a trade. That's our lesson for today, in our next lesson we are going to look at the third style of trading, position trading so we hope to see you in that lesson.

74. The Advantages and Disadvantages of Position Trading





In our last lesson we looked at the advantages and disadvantages of the second most popular style of trading, swing trading. In today's lesson we are going to look at the third and final category of trading, position trading. Position Trading, which is also referred to as trend trading, generally involves holding a position for three to six months to capture a fundamental change in the value of the financial instrument that is being traded. As this is the case position traders will generally be more prone to integrating at least some fundamental analysis into their trading, than will day and swing traders. Probably the biggest advantage to position trading is it generally involves the least amount of time of the three trading styles. After they have spent the significant time necessary to learn about trading in general, many good position traders will spend just several hours a week analyzing the market and making their trades. As they are holding positions for long periods of time good position traders have their stop loss and profit targets in place before making the trade, requiring that the trader only monitor the position to make sure nothing significant has changed since his original trading decision. The second major advantage that I think many traders would site about position trading is that because you are in positions for long periods of time with wide stop loss orders, your positions have room to breath and are much less likely to get stopped out because of random market noise than with the other two styles. As we learned in our lesson on Swing Trading, holding positions over longer time frames generally requires wider stop loss orders. While as we have just stated this is an advantage from a market noise standpoint it is also a disadvantage from a larger average risk per trade standpoint. The second main disadvantage that I think most traders would site is that position traders miss out on many of the shorter term opportunities that day traders and swing traders can use to amplify their profits. This is not only true from a length of trade standpoint but also from a capital standpoint. Because position traders hold positions for long periods of time their trading capital is also tied up in those trades for longer periods of time, restricting them from taking advantage of as many opportunities.

We are going to go into a bit more detail on how to choose the style of trading which is best for each trader in our lesson on the trader's business plan, but you should now have a good understanding of what each style entails. The last thing that I would like to point out here is that often times different styles work better in different types of market conditions. With this in mind many traders will learn a bit about each of these styles so they can place longer or shorter term trades depending on the market conditions at the time. That's our lesson for today, in our next lesson we are going to begin to take a look at the different markets that are available to traders so we hope to see you in that lesson.

75. How to Keep a Trading Journal



In our last lesson we finished up our discussion the different styles of trading with a look at the longer term style of position trading. In today's lesson we are going to start a new discussion on one of the trader's most powerful tools, the trading journal.

As I think most people who are successful at anything will tell you, a major factor that separates the successful from the unsuccessful is those who are successful look at each experience as a chance to learn and grow where those who are not move from one experience to another without learning much at all. With this in mind one of the major things that separates the profitable trader from the unprofitable trader is an openness to learning from each trade, and a willingness to put in the effort it takes to document and periodically review each trade that is made.

Traders who document their trades do so in trading journals. This can be as simple as writing down certain details of your trades in a notebook or in a word document, however those who know a bit about excel normally find this a much more powerful option Below are 10 things that in my opinion it is important to document about each trade :

1. The general market conditions for that specific trading day. For example is there a lot of volatility in the market, is the market trading lower or higher, ranging or trending?
2. Why you entered the trade, the time you entered the trade, and the price you entered the trade.
3. Why you exited the trade, the time you exited the trade, and the price you excited the trade.
4. Whether the trade was a long or short trade.
5. What happened with the market from the time you opened the trade to the time that you closed the trade.
6. The money management parameters you used in the trade and which we covered in our previous lessons on the subject.
7. Many traders will also attach a chart with their analysis on it to help them remember the trade when they review their trading journal.
8. Where you were weak that particular day and what you are going to do to address those weaknesses.
9. Where you were strong that day and what you are going to do to address those strengths.
10. Any other thoughts that you had that day which should be noted.

76. The Most Important Attributes of a Good Trading Journal

In our last lesson we began our discussion on how successful traders leverage trading journals in order to learn from their past mistakes and successes. In today's lesson we are going to wrap up our discussion on trading journals with a look at what to look for when reviewing your trades. Simply writing the days activity down in your trading journal is the first step. The next and equally important step is to review your journal on a regular basis to see what is working and what is not. This way you can leverage your journal to help you improve in areas where you are weak and make sure you continue to leverage your strengths where you are strong.

77. The 20 Components of a Successful Trading Plan

In our last lesson we finished up our discussion on trading journals with a look at the important things to look for when reviewing past trades. In today's lesson we are going to discuss how to handle trading like a business with a discussion of how to compile a trading business plan. One of the leading causes for the failure of many businesses is their lack of planning. I think most successful people would agree that if you want to be successful in life and business you need to have a plan for how to obtain that success, set goals to meet along the way, and then work on executing your plan and meeting your goals. Trading is no different from any other business in this sense and it is my opinion that those who fail to plan out their trading like a business are doomed to failure as well. With this in mind it is important to have a written business plan for your trading just as you would for any other business. Below are some of the things which should be included in that plan, most if not all of which you should now have a good understanding of if you have watched all of our lessons up to this point.

What are your reasons for wanting to become a trader?
What do you hope to gain from trading? Be specific here. If the possibility of making a lot of money has drawn you towards trading then list out how much money you want to make from trading and what you plan to do with that money if you make it.
What are the things that are going to separate you from the large majority of traders who fail?
What are your biggest weaknesses?
How do you plan to address your weaknesses and leverage your strengths?
How much time can you devote towards actively following the market?
Do you plan to day trade, swing trade, position trade or a combination of the three? Does your choice here reflect the time you have to devote to the markets?
What market or markets do you plan to trade and why?
At what times throughout the day are you going to spend actually trading, researching trades, and then learning about the market?
What are your criteria for entering a trade?
What are your criteria for exiting a trade?
What is your money management strategy?
How will you know if one of the pieces of your strategy stops working?
After identifying that one of the pieces of your strategy has stopped working what will you do to address it?
What trading software and equipment you will use to trade and how much is it?
What Broker/Brokers will you use?
Do you plan to add money to your account and if so where is that money going to come from?
If you are profitable do you plan to reinvest profits or withdraw some or all of them?
If you plan to trade full time how you will support yourself if you aren't profitable right away.
How much money do you plan to start to trade with? Does the math work out when considering taxes, all costs, living expenses and your initial trading balance?

As you can see, just as with any business, there are many things to consider before jumping into trading. From my experience however those who actually take the time to think about and write down the answers to each of the above questions have a much higher chance of success than those who do not. That's our lesson for today

78. An Overview of the Forex Market

The first lesson in new free video forex trading course which introduces the main aspects that differentiate the forex market from the equities and the futures markets.

79. The Difference Between Over the Counter (OTC) and Exchange-Based Markets

When trading stocks or futures you normally do so via a centralized exchange such as the New York Stock Exchange or the Chicago Mercantile Exchange. In addition to providing a centralized place where all trades are conducted, exchanges such as these also play the key role of acting as the counterparty to all trades. What this means is that while you may be buying for example 100 shares of Google stock at the same time someone else is selling those shares, you do not buy those shares directly from the seller but instead from the exchange.

The fact that the exchange stands on the other side of all trades in exchange traded markets is one of their key advantages as this removes counterparty risk, or the chance that the person who you are trading with will default on their obligations relating to the trade.

A second key advantage of exchange traded markets is that as all trades flow through one central place, the price that is quoted for a particular instrument is always the same regardless of the size or sophistication of the person or entity making the trade. This in theory should create a more level playing field which can be an advantage to the smaller and less sophisticated trader.

Lastly, because all firms that offer exchange traded products must be members and register with the exchange, there is greater regulatory oversight which can make exchange traded markets a much safer place for individuals to trade.

The downside that is often cited about exchange traded markets is cost. As the firms who offer exchange traded products must meet high regulatory requirements to do so, this makes it more costly for them to offer these products, a cost that is inevitably passed along to the end user. Secondly, as all trades in exchange traded products must flow through the exchange this gives these for profit entities immense power when setting things such as exchange fees which can also increase transaction costs for the end user.

Unlike the stock market and the futures market which trade on centralized exchanges, the spot forex market and many debt markets trade in what's known as the over the counter market. What this means is that there is no centralized place where trades are made, instead the market is made up of all the participants in the market trading among themselves.

The biggest advantage to over the counter markets is that because there is no centralized exchange and little regulation, you have heavy competition between different providers to attract the most traders and trading volume to their firm. This being the case transaction costs are normally lower in over the counter markets when compared to similar products that trade on an exchange.

As there is no centralized exchange the firms that make prices in the instrument that is trading over the counter can make whatever price they want, and the quality of execution varies from firm to firm for the same instrument. While this is less of a problem in liquid markets such as FX where there are multiple price reference sources, it can be a problem in less highly traded instruments.

While the lack of regulation can be seen as an advantage in the above sense it can also be seen as a disadvantage, as the low barriers to entry and lack of heavy oversight also make it easier for firms offering trading to operate in a dishonest or fraudulent way.

Lastly, as there is no centralized exchange the firm that you trade with when you trade in an over the counter market like forex is the counterparty to your trade, so if something happens to that firm you are in danger of loosing not only the trades you have with that firm but also your account balance.

It is for these reasons that there is so much focus among forex traders as to which firm to trade with, with special attention being paid to the financial stability of the firm and the execution that they provide.