Forex Trading - Earn Bigger Profits Now By Applying the 80:20 Rule by Sacha Tarkovsky

The 80:20 rules applies in many spheres of life and if you know what it is and apply it in forex trading you will increase your profits dramatically. So let's take a look at what it is and specifically how to apply it to forex trading.

In the late nineteenth century an Italian economist named Vilfredo Pareto observed that, in his native country of Italy, a small group of people held nearly all the power, influence, and wealth.

Came to the conclusion that in most countries, about 80% of the wealth and power was controlled by about 20% of the population and he referred to this as:

"Predictable imbalance," which became known as the 80:20 rule.

He concluded that in relation to an individual's effort:

20% of your effort or energy output will produce 80% of your income furthermore, 20% of your time will produce 80% of your work out put or income.

Does this apply to forex trading?

Yes it does and the lesson you can learn from the 80:20 rule is to work smart not hard. Concentrate your effort on the trades that have the best risk reward.

Cut The Number Of Trades You Do

It's a fact that most traders trade too much and execute trading signals to often, as they want to force the market to give profits, but of course profits cannot be forced.

The way to apply the 80:20 rule to currency trading is drop your frequency of trading. If you look at forex charts you will see that there are very few big trends each year but when they do occur they produce huge profits.

How do you spot them?

Here is a checklist

1. Look for valid resistance levels, that if broken are considered significant by the market.

2. Learn how to use a breakout methodology and go with breaks of these support and resistance levels.

3. To increase the odds even further make sure that you use momentum indicators to confirm that price momentum is supporting a break.

4. As you are trading less you can afford to risk more on these trades and increase profitability.

5. Don't trail stops to close and have a profit target that relates to the size of the break.

The above method will ensure you are trading a lot less and it could be as much as 80%, but your profitability will be increased.

It's a fact that most of the big profits are generated from trades that break from new market highs - NOT market lows.

So if you have been buying dips its time to re think your forex trading strategy.

Trading Less for More Profits

If you like excitement and the thrill of trading this strategy is not for you. The above strategy is all about making money and trading the trades with the best risk to reward which can yield triple digit annual gains.

If you have been trading and making marginal profits, apply the 80:20 rule to your trading, cut the frequency of trades and increase the profits!

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Basics of the Foreign Exchange (Forex) Market by Paul Bryan

Foreign exchange market operates by trading one type of currency against another. Unlike other financial markets, the market has no physical location and no central exchange. It operates through a global network of banks, financial institutions, and individuals. The forex market is emerging as the world's largest financial market, operating round the clock with enormous amounts of money traded on a daily basis.

Another major difference between forex market and other financial market is that in forex, investors can respond to currency fluctuations caused by economic, political and social events immediately, without waiting for the exchanges to open. Modern news services, smart online charting services, electronic forex trading platforms, signal services exploded the forex market and opened it for even small and medium traders and investors.

In the foreign exchange market 6 major currency pairs are traded the most, which accounts for almost 90% of the daily trading activity. They include:

1. EUR/USD = Euro versus U.S. Dollar
2. JPY/USD = Japanese Yen versus U.S. Dollar
3. USD/CHF = U.S. Dollar versus Swiss Franc
4. AUD/USD = Australian Dollar versus U.S. Dollar
5. GBP/USD = British Pound versus U.S. Dollar
6. USD/CAD = U.S. Dollar versus Canadian Dollar

When reading these forex quotes we have to look at the bid price which is the highest price for buying versus the ask price which is the lowest price to sell. The first currency of the pair (EUR/USD) is known as the base currency and has the value of 1. If the bid of the Euro versus U.S. Dollar is 1.2811, it means that for buying one Euro we have to pay $1.2811.

When the bid and ask prices moves in an uptrend, it suggests that the secondary currency is getting weaker and the base currency in turn is getting stronger. They go up or down by units known as pips or price interest point which is almost identical to a tick in a stock price. It is the smallest increment and a move from $1.2811 to $1.2821 is a 10 pip move upwards.

When trading the pairs, we should think in terms of the base currency for buying and selling. If we were to buy (long) the EUR/USD, it means that we bought (long) the euro, hoping it to go up, and selling (short) the dollar, hoping it will fall. If we were to sell (short) the EUR/USD, it means that we sold (short) the euro, hoping it to fall and in turn buying (long) the dollar hoping it to rise. There are different types of transactions in the forex market. They are Spot transactions, Forward transaction, Futures, Options, and Swap.

In the Foreign Exchange markets we trade in lots, which are in increments of 10,000s:

1 lot=10,000 units
2 lot=20,000 units
3 lot=30,000 units

The minimum one can purchase is 10,000 units of a certain currency pair. For example, if we were to buy 3 lots of the EUR/USD with the bid price at 1.2811, we would spend $38,433 (30,000 ?1.2811= 25,622). With buying 3 lots this means for every pip that it goes up you make $3. So with movements of some of these pairs, it's possible to generate considerable profits.

It is important to remember that high risks accompany any investment like forex market has the potential for great returns. Proper knowledge, studied information and risk management measures can help the investors gain profit without the fear of losing in their trade.

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To learn more about trading Forex please visit Basics of the Foreign Exchange Market