The infamous stock market crash of 1929 took place in October. Then anther stock market crash took place in October 1989. October is the month in which the most famous crashes historically took place. You must have across the word the January Effect so many times. Do you believe in the January Effect? Markets are all about people buying and selling. What you believe is what you see in the markets. The party starts in December and continues in the early part of January with some hangover effect. So what is the January Effect?

New Year is the end of a year and the beginning of a new year. This is what makes the January Effect so special. There is usually a rally in the stocks in the first few days of January. There are various reasons behind the rally. Most of the people are trying to pay their taxes at that time of the year. The companies are trying to show a good performance at the end of the year by cleaning their balance sheets. The January Effect can be quite a rally but much depends on the strength of the economy, how good December was and is there any catalyst to move the markets. There is usually a significant rally in the early part of January that actually sets the tone for the rest of the month and sometimes for the rest of the year. New Year is party time. People are in exuberant mood. Everyone wants to forget the past year and start the coming year with high hopes and good expectations. This is what is so special about the January Effect. So what is this January Effect? January Effect actually starts in the mid December and tends to favor small stocks. The most profitable period as measured statistically has been found to start from December 31st and end around February 28th with an average rate of return of 6.6% on smaller stocks.

Now, you must know this fact that the January Effect is not guaranteed every year. The best example is the year 2007 when the market became bearish and didnt start to look to bottom out until March 2008. Now January Effect may happen or may not happen but the turn of the month that is the last day of the month and first five days of the next month form a very good seasonal pattern.

But the end of each month tends to be good for trading. Turn of the month is a very good seasonal pattern that actually holds up more often than not. Chances are you are going to make some profit if you buy stocks at the last day of the month and hold them for the first five days for the next month. This can be a good swing trading strategy. At the end of the fifth day you move your money back into the money market funds.

This system works because the pension funds tend to put new money to work during the holidays and the overall tendency of the market to rise improves. You can do the same on the holidays. Move your money in on the day before the holiday and sell it on the day after the holiday.

Holidays are good for your mood. Everyone is happy to escape the drudgery of their daily routines. People want no worries in the holidays. People start to feel happy when the holidays approach and buy stocks before they run off to celebrate Christmas, the fourth of July, the Labor Day and so on. After the party the reality sets in the stocks are usually sold off. The holidays and those times when people traditionally take vacations often lead to higher prices. Fewer traders lead to lower trading volume which in turn tends to exaggerate price moves.

Thats because these days fall within the most bullish time period of the year, winter! The three days before the New Year Eve and the first three days trading days after the New Year are your best holiday bet for making money.

Lets assume that you already have got a trading system that tells you where to enter the market. Now you have a trading system that tells you when to enter the market. Does this system also tell you where to get out before you enter the trade?

In other words are you taking the market conditions into account and willing to give your trade a breathing space so that you dont get whipsawed or repeatedly get stopped out. On the road to profitability, lets start by agreeing that we need stop loss exits.

Just dont forget, the more trades you place, more commissions or spreads you will have to pay and the higher your trading cost will be. After this agreement on having stop loss exits, we need to determine how to effectively select stop loss exits to avoid excessive stop outs.

The best way to do this is to develop a stop loss strategy that takes into account currency market conditions. So right there you can increase your profitability if you increase the number of winning trades that is your win ration thereby decreasing your trading cost.

Finding the right trading system can be a lengthy process. There need to be a connection between you and your trading system. It truly is like having a personal relationship. You must believe in your trading system and have a high degree of trust that it can produce consistent level of profits overtime.

But you must also understand that no trading system can be perfect and no trading system can produce 100% winning trades. If you have a trading system that isnt working for you and your win ratio and your payoff ratio dont generate a profit over time then you need to rethink your trading strategy.

Make adjustments to entry and exits. Determine if it is your trading system that isnt working or is it your trading psychology that is off. Maybe the market conditions have changed and you havent adjusted your trading system to the new market conditions.

Test your trading system overtime. Make a number of trades with your trading system. Just keep this in mind that if you dont give your trading system a chance to work jumping constantly from one trading system to another trading system in search of a holy grail wont help you.

Divorce of any kind can be emotionally and financially expensive so proceed with caution when divorcing your trading system. The decision to divorce your trading system should be a carefully thought out one.

If you feel comfortable and confident with your trading system, you ultimately will also be profitable. The primary purpose of your trading system is to make you feel comfortable and confident.

Its a team work. You will feel confident when your trading system has proven to you and you have proven to your trading system that both can work together.

British Pound is also known as the Cable. The name most probably struck in the late nineteenth century and the early twentieth century. United Kingdom (UK) is the fourth largest economy in the world. UK has a service oriented economy with manufacturing representing a small part of GDP. Manufacturing is only equivalent to one fifth of GDP.

London is still the forex center of the world. New York comes after London in the daily market turnover in forex. The main reasons that London has a higher percentage of trade is that it has always been a financial center and also because of time zones. The London market starts between 7am and 8am, which is the end of the trading day for Asia. Just as the Banks in London are beginning to open at 8am they can deal with other traders in Tokyo, Hong Kong or Singapore whose trading day is just coming to a close. During the later part of the trading day in London, the US market opens up and so catches a healthy portion of that market as well. London Stock Exchange is still the second most important stock exchange in the world after the New York Stock Exchange. The British capital market systems are one of the most developed in the world and as a result finance and banking has become a strong contributor to the GDP.

The energy production industry accounts for 10% of GDP which is one of the highest shares of any industrialized nation. Although majority of UK GDP is from services, UK is the largest producer and exporter of natural gas to EU.

This is important for forex traders as increases in energy prices such as oil will significantly benefit the large number of UK oil exporters. Overall, UK is a net importer of goods with a consistent trade deficit.

The two main trading partners for UK are the EU and the US. The United States on an individual basis still remains UKs largest trading partner. However, the largest trading partner of UK is the EU. Trade between UK and EU accounts for almost 50% of UK imports and exports activities!

The leading import sources for UK are Germany, France, United States, Belgium and the Netherlands. The leading exports markets for UK exporters are the United States, France, Germany, Ireland and the Netherlands.

The possibility of Euro adoption will still be in the backs of minds of pound traders for many years to come. UK had rejected adopting Euro as its currency in June 2003. Now, if UK decides to join EMU, it will have significant ramifications for its economy.

One of the primary arguments used against adopting the Euro is that UK has sound macroeconomic policies that have worked very well for the country. The most important of these ramifications is the adjustment of UK interest rate with the Eurozone interest rate in case UK decides to join EMU.

Right now Brits are not in favor of a Euro entry. There are many arguments in favor of Euro entry and many against.UK is a highly political country with government officials highly concerned about the voter approval ratings. The voter opinion can change overtime. However, the likelihood of EMU entry will decline if the voters do not support Euro entry.

Bank of England: The Bank of England (BOE) is the UKs central bank. The Monetary Policy Committee is the nine member committee that sets the monetary policy for UK. It consists of a governor, two deputy governor, two executive directors of the central bank and four outside experts. The committee was granted operational independence in 1997.

If you are currently trading for a living or want to take on trading as a future substitute of a current job, then you should remember to take trading as a business. You need to treat it as a business.

You need to give some consideration to the fact that how you are going to deduct your monthly expenses such as your computer equipment, your quote feed, your DSL line, travel to investment conferences and continuing education seminars. How are you going to treat trading as a business? You should think whether you need to form a private limited company or a public limited company.

Take advantage of all the regular and necessary expenses as business deductions. This can help you save thousands of dollars annually. You should seek advice from a tax specialist so that you know the best way to cut your business expenses.

Many people jump into trading without giving any consideration to these issues. For them the target is to start making money as early as possible. They need not waste time on other non trading issues. After you have consistently started making money in the market, it would be heart breaking to know that you cannot make expense deductions that could literally save you thousands of dollars.

Treating trading as a business will help you focus on it just like any other brick and mortar business. Lets see what can be your expenses as a forex trader: You need to have a room where you have the required peace for trading. Suppose you rent a small one room office that could cost you like $500-1000 per month. Then you have to have equipment that includes desktop computers, printers, laptop for travel and so one. Lets say these things cost you $5000.

A price quote feed might cost you something like $200 per month. You need a good DSL connection for your trading, $50 per month for the DSL expense. You attend an investment conference that might cost you $1000 roundtrip airfare plus $300 per night for the night stay at a hotel.

If you have business entertaining expenses and went to two investment conferences per year, you could be taking as little as $5000 to $25,000 per year in actual business expenses that could be deducted if you are running trading as a business.

If you a small time investor and decide that trading for a living is something that interests you. Do you have the financial resources, time and emotional makeup to trade full time. Do you have a business plan? What business plan you have in place to protect the money you make in the market.

You need to cover your cost of living expenses, mortgage payments as well as your business expenses. As a long term trader what will you do when the market conditions change according to your system or methods?

In forex trading, there are no commissions per trade like that in the stock market. But you have to cover the bid-ask spread each time you trade as a trading cost. The forex market offers you a unique opportunity to participate on a pay as you go method because there are no commissions. Forex dealers provide free charts and quotes.

You need to keep this in mind that trading is not free. Suppose you are a day trader, you trade twice a day with a 2 pips bid-ask spread. Suppose you trade 10 lots ($100,000) each trade. So your daily trading cost will be $400 = (2) (2) (10) (10). If there are 200 trading days in a year, it means $80,000. Not to talk of your actual trading losses, first you need to cover $80,000 as your trading cost annually.

Whats so special about Forex Leverage? Another feature of forex markets that differentiates it from other financial markets is the astronomical level of leverage that is commonplace in the forex world.

Forex brokers can offer up to 400:1 leverage on the average retail trading account. This means that $1 in a traders forex account can control up to $400 in a currency trade. The implications of this are mind boggling. No other financial market offers even close to this level of leverage.

Leverage is type of financial magnification by definition. Forex leverage can both be a very positive feature as well as a very negative one. Forex leverage is a double edged sword. It is true that high leverage magnifies profits. However, it also magnifies losses equally.

Used with a great deal of caution, however, high leverage of the magnitude found in forex trading can offer tremendous possibilities to the upside as well as the downside. However often, this high level of leverage summarily wipes out otherwise healthy trading accounts.

If you have been trading stocks than you already know that stock brokers only offer leverage ratio of 2:1 on margin accounts. The futures market is better. FCMs (Futures Commission Merchants) offer leverage of 10:1 to futures traders. But in case of forex trading, common leverage ratios offered by forex brokers range from 50:1 on the low side all the way up to 400:1 on the high side. Even on the low side, as compared to the amount of leverage available in other financial markets, the sheer magnitude of forex leverage far eclipses whatever leverage is available in other markets.

In practical terms, what this means to a forex trader is that a standard lot of $100,000 for example can be traded in EUR/USD currency pair with only $250 in trading account margin. Of course, this is assuming that 400:1 leverage is utilized.

In this particular example, $250 in your forex trading account can control a trade of $100,000 using 400:1 leverage. In other words, for every $1, you as a forex trader are in fact controlling a whopping $400.

Some brokers even advertise that you can open a trading account with $50. With $50 you can trade a mini lot of $10,000 using a 200:1 leverage ratio. The fact that a small amount of money can control a large amount of money in forex trading can certainly serve to magnify potential profits. Can you handle this much leverage while trading? The amount of risk involved in using this high level of leverage is also equally magnified, however on the flip side of the coin.

Leverage is required by aggressive traders who are willing to take risk. But most of the traders like you and me need to be balanced in their risk taking behavior. Highly leverage trading is aggressive trading that is both characterized by high risk and high reward potential. Therefore, it is advisable to use caution when trading with the substantial leverage common in forex trading.

Dont get hoodwinked by the forex broker advertisements. Too much leverage is dangerous. Even a small movement in the market can be magnified many times by using leverage making large profits for you when the market moves in your favor. Now this is the positive side. You need leverage in forex markets because the size of the currency pair movements is too small. So you need to magnify it with leverage. However, when the market moves even a small amount against your position, your whole trading account can get wiped out. This is the dark side of using too high a leverage.

What is the safe level of leverage that you can use in your trading? In the beginning, dont use more than 5:1 leverage in your trading. With experience, you can increase that level to 10:1 or 20:1 but this much leverage would always be sufficient for you.

The monthly identifiers for the E-mini S&P futures contracts are H for March, M for June, U for September and Z for December. The E-mini S&P futures contract trade almost 24 hours per day with a 30 minute maintenance break in trading from 4:30 to 5:00 PM daily.

In case you lose at the end of the day you are likely to pay in a big way. If you are a new E-mini trader you be careful as traders are expected to pay for the difference between the margins for the entry and exit points. The day trading margin is less than the margin to hold an overnight position in S&P 500 E-mini Futures contract. The margin requirements for E-minis are much less than the normal contract.

All futures contracts are settled daily (assigned a final value price). Based on this settlement price, the values of all positions are marked to the market each day after the official close. Your account is then either debited or credited based on how well your positions fared in that days trading session. In other words, as long as your positions remain open, cash will either come into your account or leave your account based on the change in the settlement price from day to day.

This system gives futures trading a rock-solid reputation for creditworthiness because losses are not allowed to accumulate without some response being required. It is this mechanism that brings integrity to the marketplace.

Leverage: Leverage can produce large profits in relation to the amount of your initial margin if you speculate in futures and the market moves in your favor. However, you also could lose your initial margin if the market moves against your position. The effect of price changes is magnified because futures markets are highly leveraged. You typically pay the price in full with stocks (without leverage) or on margin (50 percent leverage).

Suppose you buy one E-mini S&P 500 index futures contract when the index is trading at 1000 and you have decided to put $10,000 into your futures account. Your initial margin requirement for that one contract is $3,500.

Each one-point change in the index represents a $50 gain or loss because the value of the futures contract is $50 times the index. You could realize a profit of $2,500= (50 points) ($50) if the index increases 5 percent, to 1050 from 1000. Conversely, a 50-point decline would produce a $2,500 loss. The $2,500 increase represents a 25 percent return on your initial investment of $10,000 or a 71 percent return on your initial margin deposit of $3,500.

Conversely, a decline would eat up 25 percent of your original $10,000 or 71 percent of your initial margin. In either case, an increase or decrease of only 5 percent in the index could result in a substantial gain or loss in your account. Thats the power of leverage.

Leverage can be a beautiful thing. When everythings going your way, it makes your money work harder and produces more in a shorter period of time than if you paid for everything in full, up front. Indeed, leverage is the key, distinctive aspect of futures trading as compared with stock trading.

But there is a dark side to leverage, too. For example, assume you use $5,000 in your account to buy an E-mini S&P 500 contract worth $50,000. Instead of going up, however, prices fall by 10 percent and the contracts value drops to $45,000. Your $5,000 is completely gone. Unless you get out of the position with an offsetting sale when your maintenance margin level is violated, youll be obligated to put up even more money if the market keeps moving against you. Leverage is the one ingredient that can produce either horror stories or happy endings. To get the happy ending, it is extremely important that you fully understand the power of leverage and how to manage it well.

Stock-index futures are by far the largest category of futures contracts traded as a percentage of the total number of futures contracts traded. Stock index futures like the Dow Futures are traded for speculation as well as hedging purposes. The dominance of index futures clearly speaks of the major role that stock-index futures play in risk management for the entire stock market.

There are many advantages of trading stock index futures like the Dow Futures. Stock index futures like the Dow futures are a better option than trading individual stocks. Some of these advantages are gains in the futures markets are taxed at a lower rate than the stock market capital gains.

However, future traders don’t have the same amount of time to make decisions as someone who is only trading stocks. Globex is a 24 hour electronic trading system for a wide variety of futures contract. If something happens on the stock market overnight when it is closed and you want to hedge your risk, you can trade Dow Futures or the S&P 500 Futures on Globex. Many futures brokerages offer lower commission rates as compared to stocks.

You are betting on the direction of the Dow Futures contract value, in this case DJIA and not on the individual stocks that make up the index when you trade Dow Futures or for that matter any other stock index futures.

You are blocking out a good deal of the noise that is often associated with the daily gyrations in the prices of the individual stocks in a sense by focusing on the value and the general trend of the stocks as a group when you trade stock index futures like the Dow Futures.

Aside from hedging, you can simply speculate with the futures contract like the Dow Futures just by using technical and fundamental analysis. Stock index futures like the Dow Futures are guaranteed to move in response to the economic indicators. You can setup positions with both futures and options as you wait for the news to hit the wire.

For the past many years, the monthly employment report which is issued the first Friday of every month at 8:30 AM EST has been an excellent mover for stock index futures like the Dow Futures.

You just need to find one or two stock index futures with which you’re comfortable -the ones that enable you to implement your strategies. You don’t need to trade every major index futures contract in the world to be successful.

The better off you are, the more you know about a particular type of a contract. So the best way to trade futures contracts is to become a specialist in one type of the contract like the Dow Futures or the S&P 500 Futures or NASDAQ-100 Futures.

You can get an idea when the Dow Futures contract is likely to turn around by using technical analysis. You can use your knowledge of technical analysis to figure out how many days the Dow Futures contract tends to spend rising or falling using Bollinger Bands or Moving Averages. So by becoming a specialist in trading Dow Futures you can make a lot of profit daily from the daily movements in DJIA. This way you can become a Dow Futures swing trader. Every time profiting from a turn in the DJIA!