forex for dummies

In Forex trading,stop loss is not a great tool or technique for many traders as it requires taking necessary losses, calculate risks and foresee price turns. However, such money management tool in hands of a knowledgeable trader becomes rather a powerful trading weapon than a tool of disappointment and painful losses. There are several method we can apply stop-loss when start trading

Simple equity Stop
According to this rule, a trader would place an order and based on a lot size would calculate amount of pips required to reach the limit of 2-3% of the total account balance (and a stop loss will be placed at that point).

Chart based Stop
There are many approaches to placing protective stops using a chart based stops: stops based on swings high / low, stops using trend lines, fibonacci related stops and so on.

Margin Stop
first, the trader should divide his account into several equal pieces to ensure that the whole capital will not be blown off in one shot.Supposing that a trader plans to spend 15 000 USD, it is suggested that the account opened with a broker "weights" between 1000 to 2000 USD.

In forex trading,some of the currencies tend to move in the same direction,and some of them may move in opposite direction. This is a powerful knowledge for those who trade more than one currency pair. It helps to hedge, diversify or double profitable positions.

Statistically measured by performance, currency pairs are given so called "correlation coefficients" from +1 to -1.

Correlation +1 means two currency pairs will move in the same direction 100% of the time. Meanwhile a correlation of -1 means they will move in the opposite direction 100% of the time.A correlation of zero means no relation between currency pairs exists.

Examples of same direction moving currency pairs are:

EUR/USD and GBP/USD
EUR/USD and NZD/USD
USD/CHF and USD/JPY
AUD/USD and GBP/USD
AUD/USD and EUR/USD

Inversely moving pairs are:

EUR/USD and USD/CHF
GBP/USD and USD/JPY
GBP/USD and USD/CHF
AUD/USD and USD/CAD
AUD/USD and USD/JPY

For what this information?

1. A very simple use is avoiding trades that cancel each other. For instance, knowing that EUR/USD and USD/CHF move inversely near-perfectly, there would be no point to go short on both positions as they eventually cancel each other (loss + profit).
2. When confident, a trader may double position size by placing same orders on parallel (moving in the same direction) currency pairs.
3. Another option would be to diversify risks in trade. For instance, AUD/USD and EUR/USD pairs have the correlation coefficient of about +0.70 which means that pairs are moving mostly in the same direction but not as perfect