Keep Your System Tuned Up!

For you traders that really want to keep your Forex trading strategies tuned up, back testing is a must. You can learn a lot from your performance ups and downs of previous years. Of course, the market dictates most of the activity, but your program and personal actions, at crucial times, could be the difference between a healthy account and a margin call.

Here’s the best I can do for you on a definition of back testing. It’s a method of simulation of your relevant past Fx currency trading data in order to test it’s effectiveness. Most technical strategies are static and unless they are re-programmed, will operate in the same manner going forward as they did in the past. Back-testing will show these tendencies and help you correct them. We all know that assuming that the same things that happened in the past will happen in the future, is a basis for trouble.

I believe that so much emphasis is placed on exotic theories that back testing is sometimes overlooked. Take some time to work on these back test areas, and you’ll see a noticeable difference in your currency trading performance.

1) Entries and exits: This is probably the easiest area to back test. You can follow the previous market performance to see if you’re jumping the gun or bailing out too early.

2) Leverage and cash management: Knowing when to use your margin to best advantage. It’s easy to trace the times when you were over-leveraged at crucial opportunities and didn’t have the cushion to make the most money. Your money model can be tested to see when you reach certain trigger points…and how your Forex trading strategy worked.

3) Your trading psychology: This is sometimes the hardest pill to swallow. Back testing will show you your mental strengths and weaknesses. Do you let your emotions get out of hand? Are you too aggressive or too timid? Are you too easily influenced by what others think? As you back test, place a high priority on studying yourself, as well as your Fx trade program.

When you back test your patterns, it’s much easier to see areas of improvement that need to be undertaken. Without back testing, you’re liable to develop a crisis of confidence in yourself and your Forex market trading system. When you start to lose confidence, you begin wholesale tinkering throughout your trading program. This is a bad mistake and will cause you to lose money. Back testing allows you to pinpoint areas of improvement, without throwing the baby out with the bathwater.

Any Forex  tutorial has to start with some history and background on the currency trading market. Here is a short course on billions of dollars and millions in daily trades. That’s volume of the foreign exchange currency market, or Forex for short. Newcomers are often amazed at how huge this trading market is, and how many trades are executed in a window of 5-30 minutes at selected times each 24 hour day. It isn’t like the frantic picture we have in our minds of wildly strenuous trading activity on the floor of an exchange. Most of the work in Forex trading is done in advance. Trading programs are tweaked in response to world events, financial news, other trading markets and global trade indicators. Unlike our mental picture of a busy exchange, this trillion dollar currency trading process can be like watching grass grow. There are certain timing windows when trades are best executed. Traders prepare themselves in advance and either move positions or hold during these windows. Some traders rely on information gathering and intuition, while others have completely automated systems. In a further Forex  tutorial we’ll explain to newcomers why automated currency trading systems work well.

Free Enterprise at it’s Best!

Unlike the stock market, Forex doesn’t not rely on the trading of tangible products. Instead, this system operates by buying, selling, and trading currencies of different areas and economies around the globe. Remembering the different time zones, currency trading is essentially a six day a week, 24 hour a day activity. Additionally, there is no governing body to regulate the Forex market. This is just about the only real free enterprise system left in the world. No regulatory body means no one is tinkering with exchange rates or manipulating the system to corner the market. Forex traders depend on each other to make money, and there is a certain level of respect and trust among traders. When someone or an institution gets out of line, the word gets around fast and no one will do business with them, which cuts off their ability to make money. It’s a self governing market, and…surprise…it works! I may sound a little jaded concerning regulation, but I’ve seen it carried to extremes that defeat the purpose of a free market system. There are many Forex tutorial programs that explain the lack of regulation and why it works.

No More Gold Standard.

Foreign currency exchange works on the concept of floating currencies that are tied to intangibles. This is easy to explain. Free floating currencies are not backed by something like gold or silver or some other commodity that retains a certain value worldwide. Here’s a quick Forex  tutorial history lesson. Before 1971, a Forex market wouldn’t have worked because of something called the Bretton Woods agreement, which mandated that all economies involved would try to hold the value of their currency close to the US dollar value. In 1971, the signers of the Bretton Woods agreement bailed out. Why? Because the US was going broke trying to maintain a war time economy and printing more paper currency than could be backed by their gold, which was leading to runaway inflation. By the year 1976, almost all major world players had left the BW system and allowed their currencies to run free floating. This meant that there could be huge discrepancies in other countries currency value, depending on how individual economies were faring. In this Forex tutorial, I’ve tried to touch on the background of currency exchange. There is much more to learn. I suggest some books like Forex for Dummies. I’m not implying that you are a slow learner, but this book is an excellent base to build on.

Cash in on This Lucrative Business!

Essentially, this Forex tutorial is some  background that explains how the currency markets work and why you can make money trading currencies. Because currencies fluctuate independently, it feasible to make a profit from the changes in a currency value. Everything about the Forex currency market is dependent on the exchange rate of various currencies. Predicting the fluctuations and learning when to buy, hold and sell are at the heart of most Forex tutorial programs. Once you’ve gotten a taste of how fascinating and profitable currency exchange can be, you’ll want to find our more about how you can cash in on this lucrative business!