Online Forex Trading Basics

Forex Trading Articles Written by Winsor AGA Hoang (pdf)

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A message from Winsor AGA Hoang

Date:  April 12, 2010

Dear Friends, 

I would like to welcome you to CTSForex.com - Foreign Currency Trading Software. You may not realize it yet, but we at CTSForex automated trading are attempting to change the landscape of Forex trading. Banks and financial institutions have been using automated Forex trading for more than 20 years under great secrecy. With the proliferation of the Internet and more powerful computers, you can now partake in the information-based economy of the 21st Century. 

The concept of computerized trading or automated Forex trading is not a new concept. We are all affected by greed, fear, and lack of discipline. Only the computer has no greed or fear. It does not care if it is running a demo account, managing a $1,000 account, or administering a $1,000,000 account. It still applies the same set of rules for entering and exiting the Forex trading market. It does not care if the last 10 trades were losing trades, nor does experience an adrenaline rush if the last 10 trades were winning trades. The computer can continuously monitor the market 24 hours a day for 5.5 days per week without taking a  break.  This is the ultimate solution in wealth generation. 


 
The chart above demonstrates the live equity curve of a real $10,000 FXCM account trading with our automated Forex robot Mellisa from October 23/09 to February 23/09, a four-month period. Before discussing its profitability, I would like to point out 5 important points for you:

1) The largest losing trade is $126. Each of our trades is placed with a fixed stop loss to protect our capital, and we cut our losses short at $126. 
2) We let our profits run, and the largest profitable trade is $284. Over the long term, we will come out on top because of our advantageous risk-to-reward ratio. 
3) Any Forex currency trading system may get lucky and be profitable after 20 - 30 trades. Our automated trading system is still profitable after making over 100 trades. 
4) CTS automated Forex is one of the few Forex trading companies that show both winning and losing currency trades. Foreign currency trading involves both risks (losing trades) and rewards (winning trades). You should be suspicious of anyone claiming that there is no risk in their foreign currency trading system - if that were true, that person should be a billionaire trading their own system instead of trying to sell you their software. 
5) Notice the equity curve moving up and down with each winning and losing trade. Our company's motto is: Real-Time Trading, Real World Results and we are only targeting 40% return per annum. Because our losses are small and our winnings are bigger, we have the advantage in the long run, and we will come out on top. 

Previously, we explained the risk of our foreign currency trading software. Let us now discuss our profitability. Below is a screen capture of the same real money Forex trading account on March 23, 2010.  I would like to point out 5 important points for you:

1) Each of the icons on the bottom of the screen represents a currency trading account running on our servers. All the demo accounts run on one server, all the $5,000 accounts run on a separate server, and so on. 
2) The snapshot of the real money Forex trading account was done on March 23, 2010, and shows the account's profitability after 5 months of automated currency trading. 
3) There are 5 profitable open Forex trades.
4) The equity of the account is $12,185, approximately $2,000 USD was gained in 5 months. This is 20% return for 5 months of live trading using 0.1 lot trading (1.2% account risk per trade). For more aggressive traders, a 0.2 lot trading (2.4% account risk per trader) can be deployed giving 40% return after 5 months of automated currency trading.
5) Each of the servers has redundant Internet and backup power supply to ensure the continuous monitoring of the currency trading market. 

As a manual Forex trader, I can relate to you when your stomach twists and turns as you log on to your Forex account to view your trading balance. This is the FEAR in currency trading. You have fear of losing money, fear of being wrong, and fear of losing face with your family and peers. Fear limits your focus, which can cause you to make further bad decisions, which then generates more anxieties. It is a vicious cycle plaguing all currency traders. Besides fear, there is also the praying and the hoping that the market will turn in your favor. There is no room for hope in currency trading. 

A lack of DISCIPLINE in your nature will cause to you fail over again and again in Forex trading. Most traders seek yet another currency trading system in the hope that the next method will be the Holy Grail. There is no Holy Grail method in Forex trading. Trading is 70% psychology, 20% money management and 10% trading strategy. Anyone can call themselves a Forex trader with a few profitable trades from beginner's luck. The worse thing that can happen to a trader is a string of winning trades. This adrenaline rush will make you feel invincible, thereby causing you to lose your discipline. 

Foreign currency trading without a stop loss is a lack in discipline. When you have trouble in taking losses, you are denying the risks in Forex trading. Everyone has to realize that you cannot be more than 70% correct after 100 trades in the market. Another example of lack in discipline is failing to pull the trigger according to your trading plan. It is the hesitation that prevents you from following through in your currency trading strategy. It seems that every trader wants to take only the winning trades in any trading method, and somehow avoid the losing trades. Any trading strategy will have both winning trades and losing trades; hence, you must be disciplined enough to accept both winning trades and losing trades. 

CTS Automated Forex Trading is located in Vancouver, British Columbia, Canada, and it has the worst Forex trading time zone. In order to trade the London opens, we have to stay up past midnight. Participating both London and New York opens, it means that we only get 2 hours of sleep in order to wake up at 5:00 AM to trade the Forex market. Due to studies, exams, or work deadlines, we can cram and stay up for 48 hours or so; however, it is humanly impossible to be a disciplined Forex trader without proper sleep. 

It is very important to get at least eight hours of sleep every night to have a sharp mind the next day. Without proper rest, you will be more irritable and lack energy the next day. When you sleep at night,  your body experiences different REM cycles. This allows the body to rest, recharge, and heal itself. During your REM cycles, your body is working to fix chemical imbalances and ensuring that your blood sugar levels are regulated when you wake up. Lack of sleep will impair your ability to memorize and recall things, which could lead to improper decisions in Forex trading and other consequences such as weight gain, high blood pressure, depression, and irritability. 

Yes, we all would like to have a solid, reliable Forex trading income so that we can live a comfortable life; however, at what cost to your health from lack of sleep? Automated Forex trading is the ultimate solution in wealth generation without having to monitor the market 24 hours a day.  

Do you agree with me about the GREED, FEAR, and LACK OF DISCIPLINE in Forex trading?

How I started in trading...

Ever since I was 17 years old, I had a fascination for the stock market. I remember signing up for a course on how to invest in a Registered Retirement Saving Plan (RRSP for Canadians, equivalent to 401K in the US) during the summer that I graduated from high school. Looking back, it was rather funny. I had just finished high school, I had not even entered the work force, and yet, I was already thinking about retirement. 

For my 18th birthday gift, I remember getting the book Beating the Street by Peter Lynch from one of my best friends in high school. I really like Peter Lynch's bottom-up approach in investing. He only invested for the long run and based his decisions on a  company's fundamentals. Peter talked to everyone, and when talking to company executives, he would ask about their competitors. By doing that, he sometimes ended up investing in the rival companies rather than the original companies that he was investigating.

From reading Peter Lynch, I quickly came across Benjamin Graham and Warren Buffett on value investing. Even back then, I found that I was greedy because I did not want to learn from Warren Buffett, but only wanted to learn from the master himself, Benjamin Graham. I proceeded to taking out The Intelligent Investor from the local public library. 

As I got deeper into value investing, I realized that numbers from companies' financial statements can be manipulated. Everyone now knows the criteria for value investing; hence, it is a number massaging game for the accountants and CEOs. From cooking the books, I learned about insider trading, naked short selling, market manipulation by the financial institutions A.K.A. "Smart Money", etc. 

During the ".com" boom, I was working full time for Nortel Networks as a Test Engineer. Nortel stocks were going through the roof, and I could not afford to buy many of its shares. A colleague recommended a penny stock to me, but I wrote down the wrong ticker symbol and ended up buying the wrong company. It did not matter as all the high tech stocks were going insanely higher and higher. I lost my discipline and adopted the new trading mentality, "Buy higher and sell even higher". The tech bubble busted and I learned my lessons the hard way. 

In 2004, I was introduced to the foreign currency trading market with the promise of making an easy $5,000 a day without risking a dime. We've all heard the standard Forex sale pitch: 1) 24-hour market as there is always a market open somewhere in the world, 2) high liquidity as large amounts of money can go into and out of the foreign currency with minimal price movement 3) no commission on trading as the transaction cost is built into the spread 4) high leverage as traders with 100:1 leverage could control a trade of $100,000 using only $1,000 5) recession-proof as traders can make money on both up and down markets on a currency pair 6) free demo accounts with news, charts, and analysis 7) mini trading account starting with only $250USD 8) the largest financial market in the world with daily trading volume of $3 trillion and growing 9) price movements are highly predictable due to the strong trends 10) instantaneous order execution as buy and sell orders are taken in seconds 11) market transparency as analyzing and having real-time access to research and news is easier for countries than it is for companies and 12) making a good living by trading on the news, the list goes on and on. 

Once I got involved in the Forex market, that was when I found out the truths about this market.

First, it is a 24-hour market, but 95% of the movement happens during the London market and the New York market sessions. Vancouver is located in the Pacific Standard Time zone, which means London's market opens at midnight and New York market opens at 5:00AM.

Second, the spread in the foreign currency trading market gets extremely wide during important news releases or violent market movements. I found that trading on the news was like gambling; hence, I avoided it like the plague, regardless of people claiming to be successful at it. I know of many brokers that don't allow any trades 2 minutes before and after news releases. 

Third, the high leverage is a double-edged sword which cut both ways. Yes, you can make a lot of money with very small capital in Forex, but you can also lose a lot of your money very quickly. Imagine giving your teenager son a Lamborghini sports car instead of the family station wagon after he has passed his driver's road test. Theoretically, he will be able to get from a point A to point B very fast; however, his chance of crashing the car is also very high. A new trader with leverage of 400:1 is like a teenager with a Lamborghini. 

Fourth, your Forex brokers have 3 operation models. Your broker can operate as straight through processing where they only earn part of the pips spread whenever you make a trade. This is the true meaning of being a broker, as it is a party that mediates between a buyer and a seller. When Forex brokers observe that more than 95% of new traders lose their money within the first 3 months, they want to become the market maker themselves. With this model, they can pocket the spread and also all the loss of new currency traders. Alternatively, your brokers can operate on a hybrid model whereby they pass through all the large currency trades of experienced traders to the Inter-banks and become the market maker that trades against only new traders' accounts.

Fifth, your Forex brokers will attempt to cheat on you. Stop loss hunting is one of their tools; hence, you will need to keep constant watch of your open Forex trades. 

Sixth, you have to learn to complain to your Forex brokers. Empty threats are meaningless, you have to keep proper records and learn how to perform a screen capture of your currency trading platforms and Forex trades. Having proper evidence will go a long way to extracting money from your Forex brokers.

Seventh, indicators don't really work. Your Forex instructions or DVD salesman will try to convince you that MACD, RSI, pivot point, Stochastic, Bollinger Bands and candlestick formations are the tickets to your financial freedom. You will need to be strong and tell them that they are full of it. If indicators really work, then all the software engineers should be millionaires as indicators are coded software. 

Eighth, learning Forex trading on DVDs is like having medical students learning how to operate by watching DVDs. I definitely would not want anyone to operate on me without extensive hands-on experience. I found that one-on-one coaching is the best method for learning how to trade the Forex currency market.

Ninth, there is no Holy Grail in Forex currency trading. There is no Forex trading software or trading strategy that will turn your $1,000 account into $1,000,000 within 6 months or 1 year. The more money that you want to make, the more risk you will take. If you are looking for more than 40% return a year, you are gambling with your money. 

Tenth, there are two camps in foreign currency trading: Forex Fundamental Analysis and Forex Technical Analysis. Fundamental Analysis is based on economic, political, and environmental factors such as the FOMC rate decision, non farm payrolls, current account, trade balance, retail sales, housing market, etc. Fundamental Analysis is more for position trading or long term trading. It is difficult to apply fundamental trading in Forex for daily trading or weekly trading. Forex Technical Trading is based on charts, price actions, supports and resistance, trend lines, and the infamous indicators. I like technical analysis as you can apply your experiences to any market, whereas, the fundamental analyst needs to know a particular market intimately. 

Eleventh, trading is extremely difficult to master.  A good book pointing out the psychology of foreign currency trading is Trading in the Zone by Mark Douglas. You will either hate this book or really love it. I own this book in my collection, and I absolutely love it. When a Forex trader operates in an unstructured environment, he will most likely fail, like 95% of his colleagues. Imagine leaving your house to your teenage son for 6 months as you are off to the Bahamas for a vacation. In Forex trading, you are the teenager - Forex trading is extremely unstructured; hence, new traders are doomed for failure. Most Forex traders will fail because they will break one or many of these rules: 1) trading without a stop loss 2) reliance on the experts or fellow currency traders  3) aiming to double your Forex account within weeks or months 4) compounding trading lot size with each profitable trade 5) forgetting to practice and refining your new learned skills 6) falling in love with a trade 7) not checking your emotions after winning trades or losing trades 8) using too much leverage 9) over trading 10) picking tops and bottoms 11) poor risk-to-reward management 12) trading without a strategy or jumping from trading strategy to trading strategy every two months 13) thinking that you are above everyone else 14) trading for the sake of trading 15) mixing fundamental analysis with short term trades 16) trying to scalp and beating your broker 17) assuming your beginner's luck will go on forever 18) looking for quick and easy money 19) looking for excitement 20) lack of mentorship and support, and the list goes on... 

Twelfth, foreign currency trading is 70% psychology, 20% money management, and 10% trading strategy. It does not matter if you have learned the best trading techniques - you will not be successful without the proper trading psychology and money management technique. Yet again and again, I see Forex traders searching for ways to make a lot of money quickly. Once I realized this formula for trading success, there were very few choices for me to move forward. Every trader is bound by greed, fear and lack of discipline, which makes up the 70% of psychology in successful trading.

I was very fortunate to come across three major elements in developing my automated Forex trading software: 1) The Bunnygirl Cross mentoring (BGX) 2) the book The Predictors by Thomas Bass and 3) Metatrader 4.

I have paid tens of thousands of dollars in Forex training, Forex software & DVDs but nothing compared to the one-on-one training that I received from the Bunnygirl Cross mentoring. Normally, the training would only be two hours per day, but I got on so well with her that we ended up chatting three to five hours per day. I am one of the original five students that were mentored by her. I learned the proper manual Forex trading techniques from her; hence, I always considered myself as a manual trader. For all the software programmers out there, you’ll need to learn how to successful trade manually for a few years before any coding.  

The Predictors book is about a bunch of physicists using chaos theory and their quest to create software that actually beats the market. At the end of the story, they were bought out by a bank and disappeared altogether.

When I started learning how to trade Forex in 2004, it was quite easy for me as I could pick up all the trend lines, pivots, Camarilla, etc. The hardest part for me was sitting there waiting for the price to hit a certain point for entries or exits. It was like watching paint dry, and I had to keep my discipline and focus in check at all times. I kept saying to myself that there must be a way to program all of my trading knowledge and execute trades automatically instead of having me sit here monitoring and waiting for the market to come to me.

Back then, I had to pay for the charting software monthly and had to trade separately on the broker trading platform. The price on the charting software and the broker trading platform did not always match, but it was impossible to perform technical analysis using the free charts that came with the broker trading platform. The first time that I came across the MetaTrader 4 platform, I fell in love with it instantly. Of course, I had spent a week to customize the colors to make it similar to my charting software because the default look and feel of MT4 were just horrid. 

Metatrader 4 solved several of my problems: 1) it is a powerful charting platform, and I can trade off it. Before I had to use one software for charting and another software for trading 2) Metatrader 4 provides real time data, and it was free. I was saving myself $60 USD using MT4. Back then, large brokers such as FXCM did not offer MT4 trading platform 3) here was a trading platform that I could do some programming on. Mind you, it was possible to program with TradeStation; however, it was $98 per month. The timing was excellent as I had built up my trading skills and always considered myself as a manual trader.

My personal belief is that good traders are bad programmers, and good programmers are bad traders. 

It took me and 6 others engineers working three and a half years to develop the five automated Forex trading systems and CTS Automated Forex Trading Systems  were borned.

Getting Started   $29.78 for 3 weeks trial

Our simple 3 steps process

1) Open a Forex trading account

2) Subscribe to our service

3) Sit back & relax

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Select a Forex broker with MT4 trading platform such as FXCM, Varengoldfx, FXDD, MIGFX and etc. Verify with your Forex broker that you are allowed to have both open buy and sell trades at the same time. Each of our automated trading systems has independent 6 trading robots; hence, one robot may open a buy trade while another robot may open a sell trade. Our automated trading robots operate independently and we do not use intentional hedging.

Select a trading system based on your risk tolerance and our published maximum drawdown. If your account is $5,000 and our maximum drawdown is 1,400 pips ($1,400), then you account may dip down to $3,600. Be prepared mentally as drawdown is part of risk in foreign currency trading. If you can tolerate higher risk, you will achieve higher reward. The best time to sign up for an automated trading system is when it is losing. You will experience lesser drawdown because the system already encountered the loss. This also applies to when you want to increase your trading lot size.

Our subscription is $29.78 USD for three weeks trial period and $98/month afterward. During the subscription process you will be ask for your Forex trading account number and password. This is required for our trading server. We do not have access to withdraw fund from your account; hence, it is 100% secure. You can validate this with your Forex broker. There is no software to install and you can monitor your account 24 hours a day. Just sit back and relax as our trading software will do all the work for you.

 

Currency Trading Video Tutorials

• CTSForex Trading System Software Advantages

• Manual Forex Trading vs. Automated Forex Trading

• CTSFOREX's Mellisa USDCHF Auto Trading System

 

Forex Foreign Currency Trading Basics

The Forex currency trading is the largest financial market in the world. In addition, it has the greatest liquidity of any market. The Forex foreign currency trading system is not a market in the traditional sense, since there is no centralized exchange, such as Wall Street for the NYSE. Rather, this market operates around the globe, first in Sydney and then Tokyo, London, New York and this cycle continues without interruption.

Currencies are traded in pairs in the Forex currency trading market. Foreign currencies traded on the Forex market include the US dollar, Euro, Japanese Yen, British Pound, Swiss Franc, Canadian, Australian and New Zealand dollars. Approximately three fourths of all Forex traders choose the four most liquid currency pairs for Forex currency trading. These are USD/JPY, EUR/USD, GBP/USD and CHF/USD.

All traders are not equal in Forex currency trading. There are levels of access that are based on the amount of money being traded. The levels include large banks, central banks, multinational corporations, governments, financial markets, institutions and individual investors, with the help of brokers. The individual is no longer shut out with online Forex currency trading.

Because the Forex currency trading system operates 24 hours a day, investors need to monitor the market to make trades. However, this is impossible with work and other commitments. Our automated Forex trading software allows you to live your life. Our Forex trading robots monitor the market around the clock and make trades automatically, so you can sleep at night.

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