Do Forex brokers really trade against us these days?
We all know that there are bad Forex brokers out there that are only interested in getting as much cash out of your trading account as possible. They will do anything to get you to trade multiple times per day because the more you trade the more commission or spread cost they can charge. Unfortunately, these types of companies base their business model on greed which blinds their eyes from making an honest profit from an industry that can actually deliver it. Perhaps they know they are not going to stay in operation for a long time so their aim is to scam traders as much as possible and as fast as possible.
However, there are ways to ensure that you do not become a victim of this greed. One of the ways is to ensure that you only use a regulated Forex broker. Regulation will work in your favor and protect you from any bad practices utilized by bad Forex brokers. However, you must also check where they are situated because if they are based in a country with relaxed regulation then you may not be entitled to anything if things go wrong. It is this ‘relaxed regulation’ that contributes to greed desired by bad Forex brokers and it is up to us to research it. So, when the time comes, you simply must confirm and be comfortable with what you are entitled to and how you are protected; which is described in the regulatory body’s list of rules and legal descriptions.
Traders find it really easy to blame Forex brokers when trades start turning against them. Reason why is because historically, a selection of market makers traded against their clients resulting in frequent investment losses. This is why a lot of us find it harder to trust market makers these days but the truth is, it is not important if they are market makers or not.
Firstly, this is because there is always a better company to partner up with that allows you trade in fair market conditions, so you simply need to open a new account. Secondly, it is because most market makers don’t need to cheat anymore. For example, many people say that Forex brokers profit from losses incurred by traders, but they say it like it is a really bad thing. However, this is true in all cases – all brokers make money when you lose. Sometimes this saying gets lost in translation because what they mean is that some brokers make the trader lose so that they can profit. This is not true in all cases. The reasons why are traders themselves. The unfortunate truth is that most traders fail; around 90% of them. With this being the case, these companies don’t need to cheat their customers because the losses are ‘given’ to them on a regular basis. All brokers know this so they compete heavily on low spreads and low commission to get as many customers through the door as possible. They are simply playing the odds that we, as traders, have created ourselves, so for them it is easy money.
All this really proves is that most traders do not get the right education. Without it, our markets are always going to be viewed as a betting field no different to the one created by a betting shop. The reason is failure – our failure. However, this is all treatable. We just need to get out of this frame of mind where we think we can beat the market. Instead, we need to apply discipline and professional education to all we do in the markets. Otherwise, the 90% problem will stay with us forever and we will always look for another Forex broker to blame.
Dragan Lukic is a professional trader with years of experience with capexforextrading.com forex brokers. His advice is to research and ask questions no matter which broker you find.
Trading is difficult. The goal of this article is not to make trading seem less difficult; but rather to highlight the fact that many new traders can often-times become their own worst enemies, making trading even more difficult than it already is. To illustrate how this can happen, try to think back to the last time that you were very angry; the last time that you were really mad about something.Then think about what caused you to be mad.Then think about what you did, and how you felt after you first became mad.For many, when they became mad they lost control to some degree; as in – they weren’t able to draw upon their highest of mental faculties to ‘fix’ what was making them upset. This is a trait that can often hinder us from accomplishing our goals.For traders, this issue can be very problematic.Imagine you’ve just taken a trade ahead of Non-Farm Payrolls, with the expectation that if the reported number is higher than forecasts, you will see the price of the EURUSD increase very quickly; enabling you to make a hearty short-term profit.NFP comes, and just as you had hoped – the number beats forecasts. But for some reason, price goes down!You think back to all of the analysis you had performed, all the reasons that EURUSD should be going up – and the more you think, the further price falls.As you see the red stacking up on your losing position; emotions begin to take over. These are often the same emotions we feel if we had just been in a shocking accident, or a fight with another person.This is the Fight-or-flight instinct, and we have it for a reason.In psychology circles, the fight-or-flight instinct is often regarded as being a key part of the human psyche; built to protect us in times of stress.The theory states that when a person encounters stress, their brain quickly makes calculations (so quick that the person doesn’t even notice) to make a determination as to how that stress should be handle.In some situations, when the mind deems the situation as too stressful to attempt to manage – we run.In other situations, in which the mind feels as though we can make an impact with our actions – we fight.This is often why we do or say things we regret when we fight with each other; in some cases, it really is out of our control.This is the fight-or-flight instinct; always part of every one of us constantly seeking to protect us in times of stress.In trading, we can get quite a bit of stress. When a position begins to turn against us, that's when we begin to feel it. The red arrows on the chart accompany all the fears of failure that rush through our brains in nanoseconds.As the loss continues to stack against us, that stress becomes more and more profound; making the concept of taking action even more intimidating.And this is precisely how our fight-or-flight instinct can negatively affect us in trades, as we allow ourselves to make decisions in extremely stressful states that, often-times, don't do us any favors.The decisions we make in these situations are often called ‘knee-jerk reactions,’ or ‘on-the-fly decisions,’ depending on how they turn out. Bad trades are often reactions, while good trades are often decisions.Professional traders usually don’t want to take the chance that a rash decision will damage their account; or said another way – they want to make sure one knee-jerk reaction doesn’t ruin their entire career. They often go through much practice, and many trades in an attempt to soften this emotional reaction to the stress of an open trade. Below are some of the ways that can help traders do this.Plan your successOne of the things that professional traders do to ensure discipline during these trying times is to plan out their approach. The old adage ‘Failing to plan is planning to fail,’ can really hold true in financial markets.As traders, there isn’t just one way of being profitable. There are many strategies, and approaches that can help traders accomplish their goals. But whatever is going to work for that person is often going to be a defined and systematic approach; rather than one based on ‘hunches.’Planning each trade, and planning how you want to react in each situation that takes place in those trades can greatly help a new traders manage the emotions that come with speculation.In the DailyFX Education group, we get to work with many new traders. One of themes we’ve noticed with those new traders that are successful is the usage of a Trading Plan.The differences between new traders using a trading plan, and those not using a trading plan were shocking: So shocking that we wanted to produce resources so that any and every trader interested in writing a trading plan would have everything they need.I wrote an article outlining many of the areas of the trading plan that traders may want to pay focus to.Compiling a trading plan is the first step to attack the emotions of trading, but unfortunately the trading plan will not completely obviate the effects of these emotions. Below are a few ways that traders will often attempt to mitigate this damage.See how others handle the stressIn the DailyFX series, Traits of Successful traders – David Rodriguez, Tim Shea, and Jeremy Wagner set out to discover what separated those who were successful from those who had failed in the Forex market, and the research was shocking.In the Number One Mistake Forex Traders Make, David Rodriguez found that, shockingly, retail traders were right MORE often than they were wrong; meaning that they were actually on the right side of the trade more often than not.But what was even more shocking was the fact that, in many cases, traders were taking losses TWICE that of the gain that they were making IF they were right.The unsustainability of this type of plan should be obvious. If we’re losing 2 dollars for every time that we are wrong, and only making 1 dollar for every time that we are right, we must be right AT LEAST twice for every one time we are wrong.And that doesn’t even include spread, or slippage, or any other costs that may come about.If we utilize this style of money management, we often need to be right 3 times for every one time that we are wrong; a 75% success rate.Most professionals don’t want to expect themselves to be able to pick the right side of the trade for more than 3 out of 4 times.And keep in mind, for every one loser that cancels out two winners. So if a trader using the above scenario happens to get surprised – well, now they’ve taken a loss.Needless to say, this is a scenario that many traders have a difficult, if not impossible time digging themselves out of.The thesis of the Number One Mistake Forex Traders Make is:Traders are right more than 50% of the time, but lose more money on losing trades than they win on winning trades. Traders should use stops and limits to enforce a risk/reward ratio of 1:1 or higher.Employ loss limitsThis may have special importance to scalpers and day traders, but the Loss Limit has been used for years in an effort to prevent a bad day becoming even worse.After losing trades, we often feel negativity. After many losing trades, this negativity can often build; reinforced by the thought that ‘its about time I finally win a trade.’I can not even begin to count the number of new traders that have come to me, regretfully, after blowing an account on one currency pair in a single trading session simply because they were chasing prices.What usually happens with these folks is that after placing a few losing trades, and getting nowhere really fast, they increase the trade size.While there is the chance that the trade might work out for you, the fact of the matter is that you are making quick, short-term decisions about future price movements.The DailyFX Education team places a heavy importance on Money Management, and as we’ve worked with so many new traders we realized the necessity of loss limits.In the DailyFX Education Course we offer a full module on Money Management, with a full profile and set of rules for new traders to use.One of the key elements of our Money Management curriculum is the 5% rule; meaning that on any one trade we will not risk more than 5% of our account.This rule is in place to ensure that one bad day doesn’t end (or cause irreparable damage to) our trading careers.Lower your leverageOne of the easiest ways to decrease the emotional affect of your trades is to lower your trade size.Don’t believe me? Remember how it felt the last time you placed a demo trade? It probably didn’t garner much of an emotional affect at all, as there was no financial risk on the trade.Increasing the trade size, or velocity, will often increase these stress levels as traders are allowing each individual trade to carry to great of an impact to their trading account.Let me explain.Imagine a trader opens an account with $10,000 dollars.Our trader first places a trade for a $10,000 lot on EURUSD.As the trade moves at $1 a pip, the trader sees moderate fluctuations in the account. Three hundred twenty dollars was put up for margin, and our trader watches their usable margin of $9680 fluctuate by ten cents-per-pip.Now imagine that same trader places a trade for $300,000 in the same currency pair.Now our trader has to put up $9600 for margin – leaving them with only $400 in usable margin.And now the trade is moving at $30 per pip.After the trade moves against our trader only 14 pips, the usable margin is exhausted, and the trade is closed automatically as a margin call.The trader is forced to take a loss; they don’t even have the chance of seeing price come back and pull the trade into profitable territory.In this case, the new trader has simply put themselves in a position in which the odds of success were simply not in their favor. Lowering the leverage can greatly help diminish the risk of such events happening in the future.
If you want to stop practicing bad trading habits and develop a healthy trading routine, this article is just for you! Why Are Trading Habits Important? We all have heard that “Practice makes perfect”... But can we really become successful traders by practicing bad trading habits? The truth is that practice is vital as it helps us develop trading habits. Take any great athlete, for example! They also repeat the same routine over and over again until it becomes an automatic reaction of their bodies. Even if you don’t want to think of yourself as a creature of habit, experts reveal that more than 45% of our daily activities are habit-forming and automatic. As such, habits play a crucial role in life and help us function, allowing us to concentrate on novel and complex tasks. Imagine thinking over and over again whether or not to turn on your computer every time you are about to start trading forex! Simply a waste of time and resources that can be used to execute a trade instead, right?! Why Are Bad Trading Habits Bad? While practice is vital to help traders establish trading habits, what will happen if you keep repeating the wrong things over and over again? Having poor knowledge and repeating the same mistakes won't lead you to progress no matter how many hours you spend practicing. The key here is repeatability. Experts claim that it’s the continuous repetition of bad money habits that causes such bad habits to become deeply rooted. In fact, developing bad habits early on can cause big problems in your trading career. Imagine if greed becomes ingrained in your trading plan! A real recipe for financial disaster! So instead of burying yourself in wrong trading practices, start breaking your bad trading habits. But Why Is It So Hard to Stop Practicing Bad Trading Habits? Just like any bad habit, including nail-biting and procrastinating, bad trading habits can be detrimental. But how can we stop practicing bad trading habits? It’s easier said than done, we know! Breaking bad habits and developing a healthy trading routine can be really hard. The main reason is rooted in the brain. When we find a rewarding activity, we start practicing it over and over to feel good. Take smoking, for example! Any pleasurable activity can create a new neural pathway in the brain. In order to feel good, we keep craving for activities that follow that pathway; slowly such behavioural patterns become ingrained and hard to change. To stop practicing bad habits, traders - including forex newbies - have to identify their bad habits and the so-called habit loop. In other words, one has to identify triggers, behaviours, and reinforcing rewards. How?, you may ask. How to Stop Practicing Bad Trading Habits? Wondering how to stop practicing bad trading habits? How to stop checking your social media feed instead of catching up on the latest forex trading news, for example?! The easiest way is to create a new habit; a new habit that can replace your old one but still meet your needs. When you find a substitute for your bad trading habit, visualise yourself succeeding and avoid negative self-talk. It’s not about becoming someone else but creating a positive mindset. When it comes to forex trading, for instance, one has to see success as their ability to be consistent and to follow a trading plan; not as their ability (or sometimes pure luck) to make a profit. Here are some tips that can help you stop practicing bad trading habits: 1. Start with the Basics of Forex Trading To stop practicing bad trading habits, you have to start with the basics. Like most things in life, you can't master a topic without thoroughly exploring the fundamental principles behind it. In the world of forex trading, for example, before you start making large trades and placing large sums of your cash flow on a single trade, you need to understand the very fundamentals that constitute trading. This includes things like common trends and chart patterns, currency correlations and general economic trends, and so on and on. From books and online courses to webinars and social network groups, traders should invest enough time and resources in proper trading education. Once you’ve comprehended how forex trading works, only then can you begin forming strategies on how to properly trade currencies and potentially make stable long-term gains. Let’s mention again that consistency is the key to success: numerous small gains over a certain period are more valued than large one-off wins. After all, forex trading is not gambling or a get-rich-quick scheme, so you shouldn’t rely on luck and leprechauns. 2. Use Virtual Funds in a Real-world Trading Environment The second solid trading habit you should be following to replace a bad trading habit is to regularly test your skills in a risk-free but realistic environment. To put it simple, instead of making trades with your actual cash flow, you can use demo accounts with virtual funds. These test areas are anything but straightforward. Moreover, demo accounts usually allow you to trade live, so there is no way to know what will happen. To make this a truly great habit, you will need to regularly revisit these demo accounts to improve your long-term abilities. Virtual trading can help you develop skills that you can’t simply forget about. At the same time, as virtual trading doesn’t come with real money and emotions, demo accounts can play a bad joke on you. Thus, when you acquire enough skills, do not hesitate to dive into the world of real forex trading. 3. Follow Your Own Forex Trading Rules To stop practicing bad trading habits, you have to establish strict rules and self-control. From placing stop-loss orders to taking breaks between trades, you should be consistent in setting your own rules. When it comes to consistency, always stick to your trading plan and risk management strategy. Here we should note that experts claim that one should never place more than 1% of their account on a single trade. Even if you get tempted, remind yourself there’s no place for impulsiveness in trading. No, trading forex and impulsiveness are not a good pair. Take a break between trades if needed to stop yourself from executing unplanned moves. 4. Stay Positive No matter what happens, positivity is the key to changing habit-forming behaviours and breaking bad trading habits. Believe it or not, trading psychology is a big deal! Embrace that trading comes with risks and losses, and stop seeking immediate rewards. Ditch your impulsiveness and stay positive about the fact that you can change your trading habits and mindset. It will take time, but don’t worry! You can even reward yourself for being persistent. Grant yourself a small reward for following your trading plan, for instance! How about buying a forex trading psychology book or some chocolate? 5. Understand Your Emotions Behaviours, emotions, and cognitions are all mixed in one, so it’s vital to recognise your emotions on your journey to trading success. Breaking bad habits will come with a lot of frustration, anger, impatience, and even overconfidence, so make sure you understand how forex trading makes you feel. Even if you are not an expert in trading psychology, you should become an expert in your own trading routine. As stated earlier, healthy habits are vital to help us function and potentially make a profit. Do not allow greed, fear, or overconfidence to guide your moves. To help you feel more at ease, experts advise to trade only money you can afford to lose. 6. Seek feedback When you decide to change your bad trading habits, do not be afraid to seek feedback. Okay, okay, we know that the fear of failure often stops us from seeking feedback. For instance, people rarely tell other people that they’ve started exercising. Why? Simply because they think they’ll fail and will be mocked about their inability to be persistent. However, seeking feedback is a key part of your learning process. Though the nature of forex trading makes it more of an isolated experience, seek help and learn from the best. This could be from a friend, relative, or even a paid coach. In fact, seeking feedback is one of the best habits that can make you a truly successful forex trader. If it’s unlikely to have someone else with you in the room when you are executing trades, you should go through your own trades and offer personal feedback. Keeping a trading journal, for instance, can be highly beneficial. 7. Be Patient Even if you are committed to creating a healthy trading routine, do not forget that breaking bad habits requires a lot of patience. We can’t change our biology fast, after all. As Warren Buffet said, “Successful investing takes time, discipline and patience.” Remind yourself of the benefits of your new trading routine and give yourself at least a month to see the fruits of your new trading habits. Here we should note, according to science, it might take between 18 and 254 days (66 on average) for a new behaviour to become automatic. It’s worth waiting because trading habits can become success habits! At the same time, plan for failure. Be prepared not only to lose money but to lose yourself on your journey to success. When you notice that you might be slipping back to old habits, reassess your emotions and moves, and give yourself some more time. It’s not only the trade that’s your friend... but patience! 8. Stay Healthy Healthy habits go hand in hand with a healthy lifestyle. We are not talking about going on a diet or quitting sugar, caffeine, or nicotine. We all have our little secrets. Yet, try to stay healthy; exercise, connect with nature, and try to get enough sleep. Treat yourself and use your free time to the fullest. Also, do not forget that trading should not become an obsession. Try to find a balance between work and personal time and always dedicate enough time to your loved ones. Rounding Off At Trading Education, we recommend these good habits as a solid and fundamental way to build up a successful career in forex trading. Yes, practice is a vital part of learning, but there is no place for practice without a healthy routine. These guiding principles can help you build a healthy trading structure: - Always go back to the basics to ensure you understand the fundamentals of forex trading patterns. - Use demo accounts and virtual environments to test your knowledge, especially in fluctuating markets. - When you start trading, be consistent and stick to your trading plan and risk management strategy. - Find a mentor with more experience than you, a mentor who can offer you constructive criticism and feedback regarding your trading patterns. - Changing bad habits requires a lot of patience and may come with many intense emotions. Thus, try to analyse your emotions and stay positive. Give yourself enough time to change and even be prepared for failure. - To have a healthy trading routine, one has to stay healthy. Find a balance between trading and personal life; simply because success is not measured only in money!
Inside day is a widely followed trading strategy for securities with range-bound price movements. It suits forex trading in particular due to the nature of price swings observed in forex markets. This article explains inside day breakout trading, what forms this pattern, entry/exit points and what to consider when trying this strategy.Meaning of Inside DayThe inside day is a candlestick pattern made up of intraday price ranges relating to Open, High, Low and Close (OHLC) prices. When today’s OHLC price band lies completely “inside” the limits of previous day’s OHLC price band, that's an inside day pattern, also known as inside day bar. Note also that the previous day's bar can be known as “mother bar” and today’s bar is referred to as “inside bar”. Simply put, today’s highest price should be lower than yesterday's highest price, and today’s lowest price should be higher than yesterday's lowest price.It should look like this:High liquidity due to large-scale trading (generally by big institutional traders), is mandatory for inside day pattern formation. Effectively, inside day indicates a state of indecision in the overall market i.e. no movement in either direction beyond yesterday’s range. There can be multiple inside day patterns day after day, indicating a continuous reduction in volatility and thus the increasing possibility of a breakout. Why and how do inside day patterns get formed?Understanding the reasons behind the formation of such patterns can help traders spot subsequent symptoms. Here are the key reasons why inside day patterns form:1) Trend Reversals – The probability of inside day pattern formation is high when an asset trades around support and resistance levels. Around resistance levels, sellers start taking short positions and buyers start profit booking for their long positions. The opposite happens for support levels, when buyers start building long positions and sellers cover their short positions. In both cases, trading occurs in a tighter price range as a trend reversal proceeds from one day to the next, creating inside day patterns. 2) Breakouts – Before an asset price breaks any long perceived support or resistance level, a period of consolidation is observed. During this time, the price remains in tight range, touching support/resistance levels a few times, and then breaks out steeply in one direction. In this period just prior to breakout, buyers and sellers build their positions, leading to inside day patterns. 3) Consolidation during up and down trends – During strong up or down trends, several inside day patterns develop sporadically. This happens as traders either book profits or add to profitable positions. Losers attempt to cut losses or average out and new entrants advance, expecting continued momentum. The net result is a lot of range-bound trading activity, leading to the formation of an inside day pattern.4) Low liquidity periods – Even the most volatile and liquid stocks enter a stagnant phase of low market activity caused by market sentiment, the macroeconomic situation, less activity by institutional traders or a holiday season. Such periods also give way to inside day pattern formation.How to trade inside day patternInside day patterns often arise, but traders should note that not all inside day patterns are profitable. Heed the important points below:* The frequency of trading inside bar patterns varies according to the trader’s preference. It can be used an hourly, daily or weekly basis. For an average trader, daily is recommended because of the free and easy availability of charts and data, less need for monitoring and no overtrading.* Choose instruments that have high liquidity and high volume trading (like major currency pairs). The ones known to be regularly used by large institutional traders to build substantial positions are the best fit. (For related reading, see: Forex Currencies: The Four Major Pairs).* Though going against the trend is tempting for many traders, it is better to follow trends for the inside day breakout trading strategy. Empirical evidence indicates higher success rates for going with the trend in anticipation of breakouts.* It's advisable to make an entry for breakouts when momentum is high – i.e. a clear steep and strong move is visible, which can be determined by looking at lower frequency periods. For example, while following a daily inside day pattern, one can look for strong moves at 2, 3 or 4 hour intraday periods.* To anticipate reversals, it is recommended to take a position opposite to the current trend.* Inside day trading should be avoided during low liquidity periods. The corresponding patterns do form, but they are caused by low trading activity and not the desirable inherent factors of high accumulation and distribution.Stop-lossesInside day strategy offers one of the simplest stop-loss mechanisms. It should one or a few, points below or above the inside bar level for a long or short position respectively. Forex traders use up to 5 pips below or above the bar levels for their stop-losses. Profit TakingThe point of effectively trading inside day is to enter long or short positions at lower levels in anticipation of a breakout (either from trend reversal or continued momentum). Compared to the previous day, the entry price is always better by the inherent nature of inside day bar. A tighter price range with each passing day ensures further favorable entry prices. Forex traders build models and strategies based on this concept.As with any trading strategy, it is important to keep a target for taking profits. Inside day breakouts offer limited risk and high reward for breakout patterns. The risk-reward ratio for inside day trading pattern (1:3 and above) is higher compared to other trade strategies (1:2), indicating high profit potential.Multiple inside bars can help traders build cumulative positions i.e. accumulating more positions each day based on a trader's criteria. Once the expected breakout occurs, the profit potential is significantly higher. The stop-loss level can be retained at that of the first day and while high reward can be accomplished with multiple inside bars. In fact, if followed in a disciplined manner, there is potential to cover multiple losing trades with one single profitable trade thanks to the better risk-reward ratio (1:3 and above).The Bottom LineThe simplicity of inside day breakout patterns, combined with the high profit potential and lower underlying risk, makes it a very popular trading strategy. Forex is the most suitable trading asset because of its range-bound price patterns with frequent breakouts. Highly liquid stocks are also strong candidates for this strategy. Before trying this method out, traders should research carefully and backtest the pattern before finally choosing an asset to trade.