Learn Forex: Moving Averages.
Moving averages help forex traders make effective transactions by aiding them in evaluating the price history of a currency pair or related investment. More specifically, these averages make it easier for investors to interpret the price fluctuations of an asset by smoothing out their random movements.
Technical analysts have harnessed a wide range of indicators over time, but the moving average stands out due to it being simple, practical and useful. By using it, forex traders can identify the price trends, as well as the resistance and support, of the security in question.
What Is A Moving Average?
A moving average is a type of lagging indicator that accumulates past price points and then averages them to provide a technical analyst with a better sense of where a security went over a period of time. There are a handful of different moving averages, including the simple moving average (SMA) and the exponential moving average (EMA).
Calculating The SMA.
To calculate the SMA, one must start by gathering a security’s closing prices over a fixed number of trading sessions.
If a trader wants to determine the 20-day SMA of the EUR/USD, he can add up all the currency pair’s closing prices over the time and then divide by 20. Alternatively, figuring out the 200-day SMA of the same currency pair would require totalling its closing values during that time and then dividing that sum by 200.
Calculating The EMA.
Calculating the EMA is a bit more complicated, as this indicator gives greater weight to more recent values in order to reduce the effect of lag. To determine this moving average, a forex trader should begin by selecting a time period, for example 10 days, and then calculating its SMA.
Next, the investor should figure out the multiplier he will use to give the most recent data points greater emphasis. The size of this multiplier will depend on how long the EMA is.
To calculate the multiplier, one can use the following formula:
Multiplier = (2/(number of time periods) + 1) For a 10-day EMA: (2/(10 + 1)) = 0.1818 or 18.18% For a 20-day EMA: (2/(20 + 1)) = 0.0952 or 9.52%
Once this multiplier has been acquired, the following equation can be used to determine the EMA:
Multiplier x (closing price – EMA(previous day)) + EMA(previous day)
Harnessing Moving Averages.
Once a forex trader has calculated one or more moving averages for a security, he can use it for a wide range of purposes. Many investors utilise these indicators to determine what trend a security is following.
For example, a currency pair could follow an uptrend, or period of rising values, during a time frame. Most investors seek to identify these trends and then try to profit from them. Alternatively, a security may do the opposite and follow a downtrend over a period. When an investment behaves this way, it can create losses for any people or institutions owning it.
However, investors should keep in mind that whether a security is rising or falling in value, there are many different ways they can try to generate returns from either its rise or descent. For example, as long as assets are climbing in value, investors can simply buy them and obtain profits. They can also generate returns from depreciating securities through strategies such as shorting.
Using Different Time Periods.
It is worth noting that forex traders with different preferences may employ moving averages of varying length. For example, someone looking to invest over the long term may look at how a security performs over a time frame such as 200 trading days, as this will grant insight into how the financial instrument has performed in the long run.
Alternatively, an individual focusing on short-term trading might hone in on how a currency pair did during a 20-day window, as doing so will provide a sense of how the pair performed in this comparatively short time.
One more use of moving averages is measuring the momentum of a given security’s price, or how quickly it is either ascending or descending. The whole point of determining momentum is that once an asset starts moving in a certain direction, it will likely keep going the exact same way.
If a forex trader can identify the momentum of a security, he can buy or sell the asset, or even take out long or short positions on it. To single out this momentum, an investor can look at what the financial instrument did within the short, medium or long-term.
For example, if a forex trader wanted to ascertain the short-term momentum of the EUR/USD, he could look at either its 20-day SMA or EMA. If he instead desired a better sense of the pair’s long-term momentum, he could look at a measure that used a period of 100 days or more.
Support and Resistance.
One more benefit of moving averages is that they can be used to determine an asset’s support and resistance. Securities will often find support at important moving averages. For example, if the USD/JPY recently increased over the course of a week and then this upward trend gave way to a sharp drop, the currency pair might find support at its 200-day moving average.
Many forex traders will expect securities to find support once they reach key averages and use other indicators in order to back up their forecast. In addition, these same investors will frequently make use of important averages to predict when currency pairs will run into resistance during their upward climbs.
For example, if a security drops below a key level of support, such as a 200-day moving average, the financial instrument will often have a difficult time rising above this important level. When an investor observes this situation, he can use it to either take profits or alternatively try to generate returns through shorting.
If investors take the time to master the moving average and the many benefits it provides, they will have access to a wide range of tools they would not be able to harness otherwise. With these implements, forex traders can make better-informed decisions and increase their chances of meeting their investment objectives.
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Forex average roi

What are realistic average monthly returns when trading forex. 10% monthly gains? Is this type of return possible for you?
Are 10% Monthly Returns Possible Forex Trading?
Often people ask this question, is it possible to have a 10% return monthly trading forex? Or traders who would like to start trading with $5,000 and be able to trade forex full time and support themselves.
I’ve heard of some traders who consistently hit 10+% a month over a few years, is that possible?
Sure it is possible. You might even be one of the extreme few who can it yourself one day. Right now though unless you are already close to achieving those kind of extraordinary trading results it would be best to focus on improving your trading and setting some realistic forex trading goals for yourself that you can achieve and work on expanding those goals as you do reach them.
Before you are worried about how much of a return you can have, learn how to have a return on your money.
Your first goal in forex trading should simply be having a return on your account and growing your money. You have to have forex goals that are realistic so that you can achieve them. New traders often have lofty goals or pipe dreams of the type of returns they want to have. Spending perhaps more time playing with a calculator figuring out how much money they will have if they have a 10% return monthly or weekly than they spend on working our a viable trading plan.
Realistic Returns In Forex Trading.
I am not sure what type of returns you imagine or desire to make trading Forex but before you set unreasonable goals that will lead to the market humbling you quickly I would suggest you first learn to be able to turn a profit. You know the old adage learn to walk before run and crawl before walk. Same hold true in trading forex. The trader who knows how to make money trading understands the value of having a return on their money. The person who yet does not know how to make money dreams of impossible returns. Give yourself an edge and have the mindset of a successful trader and you will be on your way to becoming one.
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About the Author: Jordan.
Above of all I am a husband, a father. I am also a trader with a great passion for the markets. Most of all how to profit from them. Work with me and I’ll show you what works: 31 Days To Profitability.

How Much Trading Capital Do Forex Traders Need?
Access to leverage accounts, easy access to global brokers and the proliferation of trading systems promising riches are all promoting forex trading for the masses. However, it is important to keep in mind that the amount of capital traders have at their disposal will greatly affect their ability to make a living from trading. In fact, capital's role in trading is so important that even a slight edge can provide great returns. This is because an edge can be exploited for large monetary gains only through large enough positions and replication (or frequency). A trader's ability to implement size and replication when conditions are right is what separates a true professional from less-skilled traders. This is accomplished by - among many other things - not being undercapitalized.
So just how much capital is required? Find out how much income you need to meet your trading goals - and whether ultimately, your goals are realistic. (For more, check out Day Trading Strategies For Beginners .)
What Is Respectable Performance?
Every trader dreams of taking a small amount of capital and becoming a millionaire off of it. The reality is that it is unlikely to occur by trading a small account. While profits can accumulate and compound over time, traders with small accounts often feel pressured to use large amounts of leverage or take on excessive risk in order to build up their accounts quickly. Not realizing that professional fund managers often make less than 10-15% per year, traders with small accounts often assume they can make double, triple or even 10 times their money in a single year.
The reality is, when fees, commissions and/or spreads are factored in, a trader must exhibit skill just to break even. Take for example an S&P E-mini contract. Let's assume fees of $5 per round trip trading one contract and that a trader makes 10 round trip trades per day. In a month with 21 trading days this trader will have spent $1,050 on commissions alone, not to mention other fees such as internet, entitlements, charting or any other fees a trader may incur in the course of trading. If the trader started with a $50,000 account, in this example, he would have lost 2% of that balance in commissions alone.
If we assume that at least half the trades crossed the bid or offer and/or factoring slippage, 105 of the trades will put the trader offside $12.50 immediately. That is an additional $1,312.50 cost for entering trades. Thus, our trader is now in the hole $2,362.50 (close to 5% of his initial balance). This amount will have to be recouped through the profits on the investment before the investor can even start making money!
A Realistic Look at Fees.
When fees are looked at in this way, just being profitable is admirable. But if an edge can found, those fees can be covered and a profit realized. Assuming that a trader can establish a one-tick edge, meaning on average they make only a one-tick profit per round trip, that trader will make:
210 trades x $12.50 = $2,625.
Minus the $5 commissions the trader comes out ahead by:
$2625 - 1050 = $1,575, or a 3% return on the account per month.
The average profit shows that while the trader has winning and losing trades, when the trades are averaged out the resulting profit is one tick or higher.
Making an average of one tick per trade erases fees, covers slippage and produces a profit that would beat most benchmarks. Despite this, a one tick average profit is often scoffed at by novice traders who shoot for the stars and end up with nothing. (To learn more, see Price Shading In The Forex Markets .)
Are You Undercapitalized for Making a Living?
Making only one tick on average seems easy, but the high failure rate among traders shows that it is not. Otherwise, a trader could simply increase the trade size to five lots per trade and be making 15% per month on a $50,000 account. Unfortunately, a small account is significantly impacted by the commissions and potential costs mentioned in the section above. A larger account is not as significantly affected. The larger account also has the advantage of taking larger positions to magnify the benefits of day trading . A small account cannot make such big trades, and even taking on a larger position than the account can withstand is very risky because this could lead to margin calls.
Because one of the common goals among day traders is to make a living off their activities, trading one contract 10 times per day while averaging a one-tick profit (which as we saw is a very high rate of return) may provide an income but factoring other expenses, it is unlikely that income will be one on which a trader could survive.
An account that is able to trade five contracts can essentially make five times as much as the trader trading one contract, as long as a disproportionate amount of capital is not risked.
There are no set rules on how many trades to make or contracts to trade. Each trader must look at his or her average profit per contract/trade to understand how many trades or contracts are needed to meet a given income expectation. How much risk a trader exposes himself to in doing this is also of prime concern. (For more insight, read Understanding Forex Risk Management .)
Leverage offers high reward coupled with high risk. Unfortunately, since many traders do not manage their accounts correctly, the benefits of leverage are rarely seen. Leverage allows the trader to take on larger positions than they could with their own capital alone.
Since traders should not risk more than 1% of their own money on a given trade, leverage can magnify returns, as long as the 1% rule is adhered to. However, leverage is often used recklessly by traders who are undercapitalized to begin with. In no place is this more prevalent than in the foreign exchange market, where traders can be leveraged by 50 to 400 times their invested capital. (Learn more about this in Forex Leverage: A Double-Edged Sword and Adding Leverage To Your Forex Trading .)
A trader who deposits $1,000 can use $100,000 (with 100 to 1 leverage) in the market. This can greatly magnify returns and losses. This is fine as long as only 1% (or less) of the trader's capital is risked on each trade. This means with an account this size only $10 (1% of $1,000) should be risked on each trade. In the volatile forex market, most traders will be continually stopped out with a stop so small. Therefore, in this market traders can trade micro lots, which will allow them more flexibility even with only a $10 stop. The lure of these products is to increase the stop, yet this will likely result in lackluster results as any trading system can go through a series of consecutive losing trades.
In this example, traders need to avoid the temptation of trying to turn their $1,000 into $2,000 quickly. It may happen, but in the long run the trader is better off building the account slowly by properly managing risk.
With an average five-pip profit and making 10 trades per day with a micro lot ($1,000), the trader will make $5 (estimated, and will depend on currency pair traded). This does not seem significant in monetary terms, but it is a 0.5% return on the $1,000 account in a single day. As the account grows the trader may be able to make a living off the account, but attempting to make a living off a small account will likely result in increased risks, excessive use of leverage and often large losses. (For more, see Forex Leverage: A Double-Edged Sword .)
Traders often fail to realize that even a slight edge such as averaging a one-tick profit in the futures market, or a small average pip profit in the forex market can mean substantial percentage returns. Most traders enter the market undercapitalized, which means they take on excessive risk by not adhering to the 1% rule. Leverage can provide a trader with a way to participate in a otherwise high capital requirement market, yet the 1% rule must still be used in relation to the trader's personal capital. Profits will come as the account grows, and making a living only requires a small edge, but the account must be large enough to provide monetary returns the trader can live off of. The edge is exploited by repeatedly putting enough capital into play (without excessive risk) to turn the edge into a livable income. (For a step-by-step look at how to get started in forex, check out our Forex Walkthrough .)

Average Rate Of Return For Day Traders.
It's the question at the tip of every aspiring day trader’s tongue: how much money can I earn from day trading?
Since most day traders do not disclose their trading results to anyone but the IRS, an exact answer to how much money an average day trader makes is impossible to answer. However, there are numerous sources of information, including reliable academic studies, that offer clues on average earnings. The majority of available information does not shed a positive light on day trading. The research typically indicates that, in fact, most day traders lose money.
Day traders make money by buying stock and holding it for a short period of time--anywhere from a few minutes to a few hours--before selling it off again. Day traders usually enter and exit trading positions within the day and rarely hold positions over night. The focus is on profiting from short-term price fluctuations. They often use leverage to give themselves greater power to buy and sell.
Significant Start Up Costs.
Getting started in day trading is not like dabbling in investing. Anybody would-be investor with a few hundred dollars can buy some stock in a company they believe in and keep it for years. Under FINRA rules, pattern day traders in the equities market must maintain a minimum of $25,000 in their accounts and will be denied access to the markets if the balance drops below that level. This means day traders must have enough capital on top of that to realistically make a profit. And because day trading is more than a full-time job, it is not compatible with keeping a day job. That means the day trader must live off his profits from trading as well as risk his own capital everyday to make those profits. In addition to the minimum balance required, prospective day traders must consider the cost of equipment such as computer hardware and fast internet access. Brokerage commissions and taxes on short-term capital gains can also make a big dent in profits. ( For an in-depth review of the subject see An Introduction To Day Trading)
A University of California, Davis study published in 2000 by Brad Barber and Terrance Odean titled “Trading Is Hazardous to Your Wealth,” showed a correlation between active trading and poor performance among individual investors. The study pointed to overconfidence as a cause of high-volume trading and the resulting poor performance.
A 2004 academic study by Brad Barber, Yi-Tsung Lee, Yu-Jane Liu, and Terrance Odean examined the transaction history of the Taiwan Stock Exchange from 1995 through 1999. Day trading among individual investors is common in Taiwan and accounted for over 20 percent of total trading volume during the period of the study. The research showed that while high-volume traders were sometimes able to earn gross profits, the profits were usually not enough to cover transaction costs. In a typical six-month period more than 80 percent of day traders lost money, and only 1 percent of them could be called predictably profitable.
An important factor that can influence earnings potential and career longevity is whether you day trade independently or for an institution such as a bank or hedge fund. Traders working at an institution have the benefit of not risking their own money. They are also typically far better capitalized and have access to advantageous information and tools. Unlike independent day traders, they are also compensated with benefits such as health insurance, retirement funds, sick leave, and vacation days.
In 2012, the Wall Street Journal published an article giving some rare insight into the failure rates of retail foreign-exchange traders, many of whom are day traders. The article, titled “The Customer Is Too Often Wrong at FXCM,” showed that in four consecutive quarters more than 70 percent of FXCM's U. S. accounts were unprofitable. The article cited the high levels of leverage available at FXCM (50 to 1) as part of the problem. With 50 to 1 leverage, a $10,000 account can take a market exposure of $500,000 and it only takes a relatively small adverse price move to erase the initial balance. Transaction fees are also mentioned as a hurdle that must be overcome. ( See also The Pros & Cons Of A Forex Trading Career)
Trying to become a millionaire through independent day trading is something like trying to become a Hollywood star or a professional athlete. The evidence suggests that a very small minority will achieve consistently high-level of earnings while the majority will not be able to sustain a long-term career.