The main task of daytrader is:
● Controlling the risk
One of the most important things that daytrader needs to ensure that control the position exposed to risk – in a word, all open
positions. Of course, controlling risk is a concept that you need to use in any type of trading, but you have to look daytrading on
this issue under a different account. Because your job is to use a different price movements that occur during the day, so naturally
your goals for profit will be lower (with a single transaction) rather than long-term player. So when you conclude several transactions
during the day, it is easy to “drift” away from a predetermined stop loss. A very popular idea daytrader now reads: “If you stop
loss’a extends only a little, then surely the market is about to turn!” Hope is one of the biggest enemies of the player. These small
extensions loss stop suddenly and silently causing you to lose much more money than planned, setting the ratio of potential profit to
risk and ultimately turns it against you.
● Being disciplined
This principle is key to any trade, especially for daytrading. If I were to mention one aspect of the game, a player who can make a
winner or loser – it’s change discipline. You can even have such a system, but still make money if you’re disciplined. But even if you
had the best system in the world, but you would not be disciplined, I guarantee that as a player does not succeed. So what is all this
discipline, which we all still speak? It’s very simple. This is precisely the respect and follow their own game plan. It is sticking to its
strategy, sticking to his own capital management and commitment to the game. Being disciplined about each of these rules and to
all of them together is a prerequisite for success.
Why is it so easy to walk away from his own plan, the rules and system, especially in daytrading? There are two reasons. First,
because the player trades very often, he has no time to cool down, think and analyze. Second, because the reality is replaced by
hope. Your transactions generally say, “come out already from trade”, but suggests hope, “hold on again, it may still be profitable.”
Your bankroll management rules say: “risking only 2% of my capital,” and hope “recently lost, so quickly make up for, only 4%, and
this transaction is more thought out.” Your game plan, says: “I play every day 4 hours, Wednesday or Thursday and I do break,”
Hope says, “because I am not yet so good, I do not have to do on a break, and even I can easily spend 7 hours a day.” I already
know (it’s not my hope!) That you understand this point.
Profitable Daytrading in Forex
Being daytrader can be very lucrative. Forex market is much more fluid and changeable than any other market in the world, and
therefore the made various occasions. Whether you choose what type of market you need to know the “personality” market in which
trading with. Each market has its own characteristics and it is important to know before we try to get some profit on it. The forex
market is no different. In this article we look at very important, the general principles and rules daytading which the player must
recognize.
How to select periods. Daytraders focus on what happens in today’s market. Not tomorrow, not next week, not next month, but just
today. Work involves capturing daytrader daily fluctuations in the price. Depending on the system used, the method used to play,
this can mean capturing one traffic prices, or several such movements.
Conclusions
Which approach is therefore better for Forex traders? The fact that better suits your personality. For example, if you’re a player,
that’s hardly the trading signals, then the better for you will use mechanical systems where your judgment does not play an
important role. You take only those transactions that your system generates.
If the psychological barriers that affect every player (such as fear, greed, anger, etc.), causing unwanted later decision making,
better will be the use of mechanical systems, because then just follow the sign that says: buy, sell, close the transaction.You do not
need to take any other decisions.
On the other hand, if you are a disciplined player, will be better for you to use a system based on their own decisions. Because
discretionary systems adapt to market conditions and can change them as often as the situation changes in the market. For
example, if your goal is to reach 60 pips on a long position and the market suddenly starts to climb with great force, then you can
change your goal and move it to 100 pips.
Does this mean that the game without the use of mechanical systems do not have any rules? This is absolutely incorrect thinking.
Trading based on your own system means that when a trader is your layout, then decide on appropriate action. But every player
needs to have certain rules that must be taken into account, such as the size of the items or conditions that must be met before
taking the position in the market.
Before deciding to choose one of the systems, you should consider a few important points:
1. Make sure to play the Forex system you use, is entirely consistent with your personality. Otherwise, your system can
outsmart you.
2. Whatever system you choose, you must adhere to the rules of action, which is decided.
3. Do not rush the construction of a perfect system. It takes time and hard work, but if you do it well, will bring you positive
results.
4. Before doing so in real life, try it on demo account or even on account of a real mini-version. I suggest a demo option,
since psychological barriers will be inevitable.
Discretionary System
(Unrestricted top-down regulations, depending on our discretion)
• Benefits
- Discretionary systems are easily adaptable to new market conditions.
- Decisions of the transaction are based on experience. Traders learn to recognize these signals, which have a greater probability of
success.
• Disadvantages
- They can not be tested on historical data, as in the case of mechanical systems, and automate transactions, there is always
thought out decision on the action.
- Develop experience takes time to be able to finally deal with success and create a framework for their strategy. In the early stages
can be quite dangerous.
Mechanical System
• Benefits:
- This type of system can be automated and quite successfully tested on historical data.
- It has a very rigid rule.
Clearly indicates whether or not to enter into a transaction.
- Traders are playing a mechanical system less vulnerable to the emotions than the traders, who themselves make decisions.
• Disadvantages:
- Most traders incorrectly tested the system on historical data. To produce results, the need for accurate data (high, low, open, close
to all periods).
- The Forex market is constantly changing. At Forex (as well as on all other markets) is a random element. Market conditions may
look similar, but they are never the same.
- The system that worked effectively in some past period, will not necessarily be a check in the present.
Forex – The Game Systems
Mechanical system versus discretionary system (their own decisions)
There are two types of systems in the Forex game. Mechanical system and a system based on their own decisions. The signals
generated by mechanical systems are mainly based on technical analysis and should be used systematically and consistently.
While the discretionary system requires experience, intuition and solid decision-making regarding entry and exit positions. However,
the question: which system produces better results? Or more precisely, that more suits your style of trading? These are the
questions that try to answer in this article.
First, we analyze the pros and cons about each system.
Stock exchange and currency options trading
Currency options is an important and useful instrument for exchange rate risk management specialists. Centuries-old history of
this tool absolutely happy entails securing a business, you can safely say that in this context should be one of the most important
instruments available on the market. But it is not. Despite the recognition of what it has for the world economy has not gained proper
position in the market for classifying contracts and swaps on the podium. What’s more, even though the Polish Stock Exchange is
now almost two decades is still currency options are considered exotic and are not listed on it.
It’s hard not to notice the surprise on the faces of Western investors, when they learn of any such situation. It is incomprehensible to
them that such an important facility has not been restructured and standardized and that there is sufficient market demand for them
to do so.
Experts say that such proceedings brought by changes in the direction desired by the market. Options have to be more easily
accessible, and thus knowledge about them to become more popular. In addition, an investor using the services of experienced and
specialized brokers or brokers would reduce the costs associated with the exploration know-how, and to ensure that the instruments
purchased by the departments are properly in his favor. It is worth mentioning that in this case, the instruments could be purchased
from many entities, the primary selection criterion was that price., Which slashed costs to such transactions.
In addition, currency options are a very important instrument in the global FX market, the daily turnover of over 3 trillion U.S. dollars.
So you might consider participation in such a broad market for a new segment would not be a good solution for the Polish currency
traders and brokers.
On the other hand, standardization and the introduction of currency options on the stock exchange would have a clear impact on
the politics of all kinds of speculators, would have opened many doors for Polish players. Speculation, which originally was not the
source of hedging risk, but will get with the purchase and sale of instruments was a gain to a healthy sign of the market. It is the
currency options offer the possibility of high profits at low volumes.
The modern foreign exchange market requires the latest solutions, but it is difficult to disagree with the proposition that should be
addressed at the appropriate place and currency options. In 2008, 40 percent of Polish companies have an open position in foreign
exchange options, so you can not say that the Poles are not familiar with this instrument. We ask ourselves whether Poles are ready
for structured currency options and that will cope with the operation of the new reality?And on the other hand if a modern instrument
introduced to exchange trading has not changed that reality and not improved the operation of the market?
Foreign exchange market compared to other markets in Poland is somewhat neglected. Older economists despite the fact that since
2000 in Poland we have a variable exchange rate system still does not appreciate the importance of this segment of the economy
as a junior vice versa. Therefore it was necessary to give the opportunity to develop the market of currency options, which in future
will reach a significant position,
Option strategies – how to choose the right structure?
As shown in recent years the management options is a complex process requiring specialized know-how, caution and common
sense. In 2008, many Polish companies was difficult to find a properly constructed strategies, which in many cases ended in
significant financial losses. To avoid them, remember that building a proper strategy, Option is based on the finding of such a simple
combination of options that protect a specified period of our cash flow.
The first basic step is to determine what kind of structure we need, we can choose from among three main groups, so it will be
easier to identify further requirements for the composition of the structure:
- Horizontal – horizontal span – the options have the same strike price but different deadlines;
- Vertical – vertical span – the options have different exercise prices, but the same term;
- Diagonal – the options have different prices and deadlines.
An important element is to identify investor expectations about the direction and strength of future changes. Looking from the
perspective of the foreign exchange market precise these two aspects is not possible, however, each investor decides himself
about them. If the investor does not have these preferences for direction, but expects a strong change is recommended to use the
simplest long straddle strategy consisting of buying two options: call and put prices with the same performance. In the case of low
expectations for future rate changes, use short straddle strategy involving the issuance of call and put options with the same prices
do. In anticipation of breaking, but knowing that the higher the likelihood applies to drop an investor buys call options and put two
prices with the same performance (long strip), analogous to purchase two call and one put, the greater the opportunity for growth
(long strap). Small changes in the planned rates of return combined with the use of bull call spread strategy or bear call spread, the
call option and buying a call with different exposure, appropriate pricing execution.
Preferences allow the investor to choose from among the among the 20 most popular and basic structures. Each has a specific
purpose, which is realized by the holder of the strategy. Given the nature of flows and the level of willingness to risk of a company
it can expect full security. Generally, construction strategies using options can be very effective, most successful businesses in this
area not only did not suffer losses, but also profitable.
Of course, option strategies are not a closed set, so we can invent their own structures adapted to our needs, but it is worth noting
that the above represent almost 95% of the Assemblies of option used by companies. It is rare for firms to seek other solutions, as
in the case of the above strategy is known asymmetry in the distribution of risk. The year 2008 showed that companies that have
tried to create the same option strategies bear the losses due to incorrect estimation of the payment profile. So making a choice
between the known and proven strategies and the construction of their own should consider what the risks are able to take on the
company and whether it actually selected structure protects them against him?
Foreign exchange swaps
● The agreement between the two partners, under which they exchange payments in one currency for payments in another
currency. This instrument is usually used to secure loans or investments that are offered in an unfavorable currency of the
investor.
● Swap Option is an instrument consisting of three elements. The first is the initial exchange of equity in one currency for
another at an agreed rate (called the first leg of the swap). The second element is the exchange rate during the swap and
it occurs either at regular intervals, or on the date of final swap. The last element is the exchange of equity at the same
rate swap on the closing date (the second leg of the swap).
● Equity swaps are common in the Polish market in the form of non-deliverable, which means that the first exchange of
capital occurs physically, then comes to the exchange rate and the final exchange of capital, which are billed at the rate of
the reference.
● To guard against the growth rate needs to be addressed so. long position in the swap contract (ie buying the base
currency), while otherwise known. short position in the swap contract (selling the base currency).
Currency options
● The contract between the purchaser of the option (holder) and the option seller (issuer) that gives a right, not a buyer
commitment to buy (call option) or sell (put option) the underlying instrument (for example, the exchange rate between two
currencies) on or before the day fixed in the future at a specified price.
● The buyer is only obligated to pay the seller the option premium in exchange for the acquisition of the right. The writer of
an option has the obligation to buy or sell the underlying instrument if the option purchaser so requests.
● The final date on which the option can be exercised (whether the option will be realized or not is solely the responsibility of
the buyer’s option), is called the execution date or maturity options. If this is the American style option can be made before
maturity, it is the option, in case of European-style options, it can be realized only on the day of its maturity.
● Settlement options may take place in 3 different ways: settlement unreal (non-deliverable option), in which the only
difference is accounted for exchange rate policy, settlement of physical delivery of currency at the rate of execution and
settlement options involving mixed in that part of the contract is settled physical delivery of currency, and the remainder
accounted for cash.
● If we want to protect against unexpected increase in the exchange rate to buy a call option, while the opposite situation,
buy a put option.