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A lot of times newbies who were doing fine in a demo account will be surprised when things begin to crumble when they move into live account.

If you have real money on the line as you make your trade, this can spell a lot of difference. This time your emotions will really get the best of you. When a trader loses money in a live account, emotions can go to extremes of joy and frustration.

When emotions come into play, this will usually result to more losses in trades. However, the secret to success is trading live but your decision are made as if no money is at stake. The key to success is having the courage to risk real money.

The technique is to start out slowly as you open that live account. Why not start by trading only one mini lot at a time. That way your risks are at a minimum. You should keep doing this until you feel more confident about your decisions.

Demo trading will not teach you how to do this. No amount of practice can prepare you to deal with real trading. You must use and risk real money if you really want to improve your trading.

This doesn’t mean however that you have to be reckless. Just take it easy at first; keep the risk within your level of comfort. Only then can you move up. Remember, practice makes perfect.

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Can you identify any potential trades that are emerging in the market? When a currency pair that has been in a strong uptrend and gets a good support level as it pulls down, this usually means a good opportunity to buy. However, new traders often delay, wanting to see what will occur next instead of taking advantage of the opportunity. So what happens? That great trading opportunity will just pass them by.

More often than not this hesitation to jump into the trade when the good opportunity presents itself is not about the fear of taking risks, but rather a lack of confidence in their ability to trade as well as judgment. However, to become a successful trader, one must be able to identify good trading opportunities and then pursue that trade aggressively once the setup is complete. Hesitation will get you nowhere.

Remember that when you see a pulling back of the market to a support level, it is a good time to buy. Sure, there is always that risk, but it will be within reasonable levels. As we put our initial protective stop beneath that support level. The nearer you get at buying at this support level, the nearer your stop will be to the price at entry, which boils down to taking fewer risk.

What you should do as a trader is buy just when that level is being tested by the market - do not hesitate to go there. If you delay and the market has rallied off of that support, it most certainly means greater risks for you should you decide to get into the trade at that point. A forex trading demo can also help here.

Therefore learn to identify trading opportunities and just as it sets up do not hesitate to get into that trade. Grab that opportunity while you can.

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More often than not, the main reason new forex traders lose money is that they simply do not have a specific goal. Strange as it may seem, a lot of new traders don’t know what they want to accomplish.

Of course you might say that everyone wants to make big bucks, however, a trader must be realistic as he tries to achieve his goal. Forex trading is just like flipping a coin. If you get paid $1 for each time the coin you flipped landed on tails and you lose $1 if the coin landed on heads, you could spend the rest of the day and break even at every hundred coin flips.

So where does this analogy take you? You should think of forex trading as simply breaking even, but with a slight twist. Instead of winning a dollar or losing a dollar with each flip, think of losing a dollar when you lose and gaining a couple of dollars every time you win.

Remember that in order for this principle to work is if you go with the trend and if the setup you took is solid. This is what is called a 1:2 risk:reward ratio. If for example you risk 50 pips on the trade, you should look for profit that is double that amount, which is of course 100 pips.

Now, following that principle, regardless if you lose a series flips in the end you will still come out the winner at say the hundredth flip. A forex trading demo can also help here.

Have you considered how many of the last 10 trades you’ve engaged have become winners? If you want to be able to take your trading to the next level, you should take a look at how you’ve been performing during the last 10 trades and see if your tactics worked. In forex trading, these are some of the things you need to do in order to move up to the next level.

Before you go to the next trade you must first analyze how you did in the past. A lot of newbies simply want to forget about the losing trades and not glance back at them again, however, if you intend to improve as a forex trader you must look back and learn from your mistakes.

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If out of the last 10 trades five came out as winners, but then in the series you did not gain any profit, there is a need for you to bring down your risk or simply look for more profit. A forex trading demo can also help here. If you utilized two different strategies to land an entry and there is one that stands out as profitable, then do more testing using that strategy. But you cannot know these answers unless you keep track of what it is you are doing.

A great number of traders that found success keep a record of their trades and also pay special attention to their strategy or approach at that time. By doing so, they will be reminded of what worked for them and what didn’t.

This trading record should include as much information as you possibly can jot down. This record should include date, time, entry, stop, profit target, exit, and results. You might also want to include whatever information you find interesting, but that is optional. Know why you entered or exited the trade. Although these information can be time consuming to write, but these are some of the most important information you can use to improve your trading and eventually improve your winnings.

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A lot of new currency traders tend to use time frame charts that are the shortest when they trade. Using short time frames to base newbies’ decisions from is typical. A lot of theses newbies utilize a one- or five-minute chart since they believe this lowers their risk. They think that risking less on each trade must pay off. However, these new traders don’t realize is that these “low risk” trades often have problems as they usually end up riskier because of the sheer volatility of those trades, resulting in a series of losing trades for the beginner.

As a forex trader, you should trade off the hourly or 4-hour chart in the trend’s direction as the daily chart shows. By doing so, you trade with the trend and not against the market’s momentum. You can then be reap the benefits of the bigger moves that are known for these markets.

The big spikes that you see on the five minute chart are embodied within charts that are of longer term, and often within a bigger move. It is a good practice to begin with the daily chart. This will help you pinpoint the trend’s direction. Only then can you find your trade by going into or the four hour chart.

As a rule of thumb, if you see an up trend, then you should be on the lookout for buys, and sells when it’s a down trend. If you follow this guide, you will keep your risk at an acceptable level while at the same time you can generate profit that is large to protect you from losing trades.

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As was mentioned in a previous post, candlesticks do have bodies, and they come in different body sizes too. If you see a candlestick that has a long body, this means that there is a strong buying and selling for the currency being traded. The longer this body grows the stronger is the pressure to buy and sell that particular currency. On the other hand a short body indicates that there is hardly any buying or selling activity that occurred.

The buyers in this case are called bulls, and the sellers are referred to as bears. From now on, you will always be hearing the terms bulls and bears.

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Take a look at the chart. Do you see long white candlesticks? They mean that buying pressure is strong. As the candlestick increases in length, the higher above the close is from the open. This means that prices surged tremendously from the open to close - buyers were therefore aggressive in this case. In short the bulls are profiting so much against the bears.

You will also notice that there are long black candlesticks in the chart. These are filled candlesticks that reveal a strong pressure to sell. A black or shaded candlestick means that the closing price is lower than the opening price. The longer the black candlestick becomes, the lower below the close is from the open. This means that prices plummeted a long way down from the open. To look at it another way we can say that sellers have been aggressive - the bears are winning this time.

Another thing to note about candlesticks is the upper and lower shadows. These are the thin lines sticking out of the top and bottom portions of the candlestick’s body. They reveal important things about what transpired during the trading session.

The shadows on the upper portion of the body signify the session high, while the shadows found below signify the session low. So that if you see long shadows on a candlestick they mean that trading continued well after the open and close. The opposite is true when you see short shadows - that trading activities were well within the open and close.

A long upper shadow and short lower shadow on a candlestick indicate that buyers bidded higher prices, but for some reason, sellers entered the picture and pulled down the prices that ends the session back to somewhere close to the currency’s open price.

A short upper shadow and long lower shadow combination indicates that sellers forced the price down, but buyers eventually drove it back up, and the session ends close to the opening price.

To understand fully what candlesticks are we need to study a little bit about their origin and their body parts. Yes, they do have bodies. So read on and learn more about the candlestick chart.

The candlestick chart is of Japanese origin that was originally used as a technical analysis tool for trading rice. This system of technical analysis was discovered by a westerner named Steve Nison. During the 1990s the candlestick chart gained popularity as it was used as a technical analysis tool for currency or forex trading.

So let’s examine how candlesticks are formed. Take a look at the illustration; you will see the open, high, low and close. If the close is higher than the open, then you will see a hollow candlestick, often portrayed as white. If, however, the close is lower than the open, it is portrayed as a filled (usually black) candlestick.

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Candlesticks have parts called bodies and shadows. The candlestick’s body is that part shown as a hollow or filled section, and is also know as ‘real body.’

The shadows of the candlestick consist thin lines sticking out above and below the real body and are used to indicate the high and low range of the currency being traded.

The upper shadow, the one on top of the body, is referred to as ‘high,’ and lower shadow, found sticking out below the body, is referred to as ‘low.’ A forex trading demo or a forex course can help you practice this.

One of the first things you should learn before you can get started in forex is read charts, and here are the ones that are commonly used:

• Line chart
• Bar chart
• Candlestick chart

Line Charts

As the name implies, these are simple charts consisting of a line drawn across the chart as from one closing price to the another. When these plotted points are connected together with a line, we can see the general trend of a currency pair, euro versus US dollar for instance, over a time period.

This is an example of a line chart:

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Bar Charts

A bar chart, just like the line chart also reveals closing prices, however, it also allows you to see more than that, it shows the opening prices, the highs as well as the lows. Take a look at the vertical bar. The bottom pertains to the lowest traded price falling within that period of time, while the topmost portion of the bar tells you the highest price paid during that time period. All in all what is indicated by vertical bar is the trading range of the currency pair, EUR-USD for example. Do you see a horizontal hash on the bar’s left side? This indicates the opening price. The other side of the bar - the right side - indicates the closing price.

An example of a bar chart:

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Remember that when the word bar is used, it pertains to a particular data on a chart. A single bar represents a time segment that can be an hour, a day or a week. When you encounter something like the bar going forward, it usually references a particular time frame, and you should pay attention as to what time frame is being referenced by it.

What is OHLC? This another name for the bar chart which stands for Open, High, Low, and Close for a specific currency.

Open indicates the opening price and indicated by that tiny line that runs across the left side. High, as the term implies, is at the top of the upright line, which indicates the highest price within that time frame. Low can be found at the bottom of the vertical line, and as the name implies indicate the lowest price paid within that period of time. Close is that little line running horizontally, which simplyt means the currency’s closing price.

Candlestick Charts

Candlestick charts have the same use as the bar chart, however it looks more pleasing to the eye, and is best suited for the beginner because it also serves as a visual aid.

Candlestick bars also indicate OHLC with some slight differences. The large block that you see in the middle pertains to the opening and closing range of prices. If the middle block has been shaded, colored, or filled it simply means that the currency closed lower than the opening price.

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If you like candlestick charts, you are not confined to the use of traditional “colors” like black and white. You can substitute other colors for shading the middle blocks if you prefer.

Remember your preference for candlestick charts is purely esthetic, since in reality it is no better than an OHLC bar, which provides exactly the same information as the candlestick bar.

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Technical analysis can be summarized in one word - “trend.” Yes, technical analysis is simply the study of trends. Trends are patterns of market movements regarding changes in price, values or exchange rates. At the very core of technical analysis is the ability to interpret charts. Yes, charts! In another post, we will be studying different types of forex charts.

The whole concept of technical analysis is wrapped around the idea that a trader can look into the historical price movements of currency, and based on certain trends perceived, can pinpoint to a certain degree of accuracy where the currency is headed - whether up, down or no change. By examining the charts, you will be able to learn from trends and patterns that serve as your guide in seeking profitable trading opportunities.

Remember, when dealing with technical analysis, always think about trend. The idea behind this is to study the chart and find a trend, and then invest in the same path as the trend - never go against it - unless you have a reason to, backed by fundamental analysis. This way you will most likely emerge a winner. Technical analysis enables you to see trends at its inception and therefore it can give you exceptional trading opportunities.

So at this point, I’m sure you’re wondering which type of analysis is better - whether technical or fundamental analysis. In reality, one is not better than the other. So do not waste your time debating which one is best. What you should be concerned about is how you can make use of these two different methods of analysis to your advantage. Make use of both methods.

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There are two types of analysis employed by currency traders: Fundamental analysis, and technical analysis. This post deals with the first type. Technical analysis is dealt with in another post.

While the subject has been a constant source of confusion to newbies as to which of the two methods of currency analysis is best when trading in forex, the experienced trader will tell you that both methods are equally important and tend to compliment each other.

What is fundamental analysis?

This is a method of analysis that takes into consideration the market condition through certain economic indicators that includes political and other social forces that affect the distribution of goods, and most importantly supply and demand. In short our analysis would be based mainly on how well or badly different economies are doing. These are important indicators that tell us whether it’s time to buy, sell, or whether it’s best to do nothing and wait a little while.

Generally if a country’s economy is healthy, that country’s currency will most likely be strong and stable as well. The reason why this is so is that the more economically stable a country is the more trust other economies will have for that currency.

Something that’s very important for you to realize is when an economy improves, like China for example, you will also see its currency strengthening. The next thing you will notice is that interest rates will begin to soar as the economy improves. This is a necessary move by that economy’s central bank in order to put inflation under control.

In the case of China, which is our example, as it continues to improve, interest rates will have to go up to curb inflation; in turn, the value of the Chinese yuan will also continue to grow. Basically this is what a trader looks for when he or she employs fundamental analysis.