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Emotions: A Trader's Worst Enemy; Get Rid of Fear and Greed - You'll be Glad You Did

by: Jonathan van Clute

Copyright 2005 Jonathan van Clute

You hear it over and over and over in books, forums, and chatrooms. Fear and greed, fear and greed, fear and greed. Emotions are a trader�s worst enemy. What are we supposed to do about it? We are human after all. Human beings have emotions. We can�t just throw a switch and suddenly behave like �Data� on Star Trek the Next Generation.

So what�s the answer for the aspiring trader?

It all boils down to 2 main components:

1. Having a plan

2. Having an appropriate trading style

You hear the first point often. Obnoxious little phrases like �Plan your trade, Trade your plan� are thrown around like it was really just that simple. But without the second part, the first part is useless. What good is a plan if you don�t know what type of plan is appropriate?

For example, you could plan your commute to work expecting to make the 30 mile trip in 20 minutes, but if you�re on foot that plan isn�t going to work very well is it? The plan was simply not appropriate for you in that situation.

There are an unlimited number of possible trading methods and styles, from chart reading to fundamental analysis, cycles to Fibonacci retracements, intra-day, Dogs of the DOW, Options, Futures, FOREX, Pork Bellies, Arbitrage � it can make you feel like your head will explode! But what you trade does not matter nearly as much as how, or perhaps why you trade.

Why do you trade?

Are you the sort who likes to play video games, loves fast action, and has no problem being glued to a screen all day? Then maybe intra-day trading 1 and 5 minute charts of high volatility equity options is for you.

Rather check your trades maybe every few days, or maybe once a week? Then perhaps swing trading currency pairs is more your style.

Prefer sleeping easy at all times, never worrying in the least about your trades because you knew up front that they would profit? Then my friend, arbitrage trading is calling your name.

Every style has its advantages and disadvantages, its risks and rewards, but most important is that the style must match the trader. If you jump into trading believing that just because someone else can do it this way, then so can you � you may be in for a very painful surprise.

Never trade someone else�s plan. Never trade someone else�s style. You absolutely must know your own temperament well enough to determine what you will trade, and exactly how you will trade it. Your money management rules, your tolerance for losses, i.e. costs, , your willingness to change the trade if your market opinion is proven wrong � these are the true secrets to trading that separate the novice from the veteran. With these in place, emotions can be reduced if not eliminated.

After all, which would put you most at ease? Driving through an unfamiliar city alone with no guidance, driving with a map, or driving with a full color street-level-detail GPS navigation system?

I�ll take the GPS, thank you.

So before you place your first, or next, trade, consider the following:

a. Do you understand what you are trading and why?

b. Do you know what you will do given any of the possible outcomes?

c. Are you ready and willing to admit you were wrong about the trade, and if so what will you do about it and when?

d. Are you comfortable with the thought of losing the money you are putting into the trade, and will your trading account survive to trade another day if you do?

These are all part of what you need to have in your plan. I urge you to have considered them thoroughly before risking the slightest amount of money in a real trade.

Emotions � �You can�t trade with �em, and you must trade without �em.�

About the author:
Jonathan van Clute is a full time investor, educator, speaker, and online options and sports arbitrage trader. In addition to his business activities, he is also a musician, video editor/animator, and one of the world's greatest Segway Polo athletes. He can be reached via email at jonathan@PMLinvestments.com and is speaking at an upcoming teleseminar, visit for details.

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Forex: Benefits of Trading the Forex Market
by: Raul Lopez

Trading the Forex market has become very popular in the last years. Why is it that traders around the world see the Forex market as an investment opportunity? We will try to answer this question in this article. Also we will discuss come differences between the Forex market, the stocks market and the futures market.

Some of the benefits of trading the Forex market are:

Superior liquidity.

Liquidity is what really makes the Forex market different from other markets. The Forex market is by far the most liquid financial market in the world with nearly 2 trillion dollars traded everyday. This ensures price stability and better trade execution. Allowing traders to open and close transactions with ease. Also such a tremendous volume makes it hard to manipulate the market in an extended manner.

24hr Market.

This one is also one of the greatest advantages of trading Forex. It is an around the click market, the market opens on Sunday at 3:00 pm EST when New Zealand begins operations, and closes on Friday at 5:00 pm EST when San Francisco terminates operations. There are transactions in practically every time zone, allowing active traders to choose at what time to trade.

Leverage trading.

Trading the Forex Market offers a greater buying power than many other markets. Some Forex brokers offer leverage up to 400:1, allowing traders to have only 0.25% in margin of the total investment. For instance, a trader using 100:1 means that to have a US$100,000 position, only US$1,000 are needed on margin to be able to open that position.

Low Transaction costs.

Almost all brokers offer commission free trading. The only cost traders incur in any transaction is the spread (difference between the buy and sell price of each currency pair). This spread could be as low as 1 pip (the minimum increment in any currency pair) in some pairs.

Low minimum investment.

The Forex market requires less capital to start trading than any other markets. The initial investment could go as low as $300 USD, depending on leverage offered by the broker. This is a great advantage since Forex traders are able to keep their risk investment to the lowest level.

Specialized trading.

The liquidity of the market allows us to focus on just a few instruments (or currency pairs) as our main investments (85% of all trading transactions are made on the seven major currencies). Allowing us to monitor, and at the end get to know each instrument better.

Trading from anywhere.

If you do a lot of traveling, you can trade from anywhere in the world just having an internet connection.

Some of the most important differences between the Forex market and other markets are explained below.

Forex market vs. Equity markets

Liquidity

FX market: Near two trillion dollars of daily volume.

Equity market: Around 200 billion on a daily basis.

Trading hours

FX market: 24hr market, 5.5 days a week.

Equity market: Monday through Friday from 8:30 EST to 5:00 EST.

Profit potential

FX market: In both, rising and falling markets.

Equity market: Most traders/investor profit only from rising markets.

Transaction costs

FX market: Commission free and tight spreads.

Equity market: High Commissions and transaction fees.

Buying power

FX market: Leverage up to 400:1.

Equity market: Leverage from 2:1 to 4:1.

Specialization

FX market: most volume (85%) is made on major currencies (USD, EUR, JPY, GBP, CHF, CAD and AUD.)

Equity market: More than 40,000 stocks to choose from.

Forex market vs. Futures market

Liquidity

FX Market: Near two trillion dollars of daily volume.

Futures market: Around 400 billion dollars on a daily basis.

Transaction costs

FX market: Commission free and tight spreads.

Futures market: High commissions fees.

Margin

FX market: Fixed rate of margin on every position.

Futures market: Different levels of margin on overnight positions than day time positions.

Trade execution

FX market: Instantaneous execution.

Futures market: Inconsistent execution.

All this makes the Forex market very attractive to investors and traders. But I need to make something clear, although the benefits of trading the Forex market are notorious; it is still difficult to make a successful career trading the Forex market. It requires a lot of education, discipline, commitment and patience, as any other market.

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