Tuesday, December 8, 2009
This piece of write up is to guide, alert and instruct aspiring and already-made forex traders on the must follow stages they need to follow in other to be like the professional traders they want to be. May be there is something wrong with your stages of learning which you need to correct.
Stages in learning forex:
STAGE 1 - this is the stage of discovering about this market and the potentials it has. A discovery stage. At this stage, you feel motivated and ready to give your best short in making it big in the forex market.
STAGE 2- this is the stage one goes for practical one-on-one training. Some people make the mistake of replacing this stage with one day seminars making themselves half-baked forex students. Even if you attend seminars, you still need to sit down with a good forex trainer for some days (like 3-5 days) in order to have an in-depth understanding of what forex trading is all about.
STAGE 3- this is the stage you need to train your self using demo-account for weeks or months. Forex trading is an art which needs practice in other to master it. Practice all the strategies and trading system you have received and browse for more in other to give you more understanding of how the market works. From my personnel experience any day i opens my platform to trade, i do learn a new thing. There is a lot to learn in forex and you will discover on your own those areas your trainer did not teach you.
STAGE 4- the stage to train your emotions. When you are comfortable with your forex skill and confident enough to go live trading, you still need to battle with emotions of fear, greed, hope, anger and pride. This is your real bucks we are talking about here so, your emotions will definitely come to play. Train your emotions and stay disciplined. I recommend that when starting your live trading, don't hope to carry all the money in forex market at once but trade with a very little risk of about 0.5% or lesser of your trading capital.
STAGE 5-at this stage, you are now the master of your trading and can increase the your percentage risk to 1-5% of trading capital as professionally recommended. Just know that nobody knows it all, we stop learning only when we are in the grave. Change is the only thing constant in life so you should update your knowledge as the market changes with time.
FOR RELATED ARTICLE see: REASONS WHY MOST TRADERS FAIL IN FOREX TRADING
Thursday, October 22, 2009
1. Trade for the long term - Swing trading is a medium long style of trading. Unlike day trading which opens and closes trades within a single day period, swing traders are holding trades for several days. This is necessary to catch and ride the swings as price moves up and down in the market. Holding trades for too short a period of time may result in you getting out too soon before price begins its next swing.
2. Plan your trade and trade your plan - It can't be said enough. Any trader needs to make sure that they have a solid trading plan or strategy before opening any trade. If you don't have a plan then don't trade, at least not live. Spend your time demo trading and developing your own style of trading before you go live.
The best tips for swing trading are to be patient so you can catch the next big price swing and follow a plan. To swing trade effectively, you must be patient and have a proven system that allows you to take advantage of the swings that price makes as it moves along through the market.
Of the market being flooded with information regarding various trading systems with reviews and guides each one explaining how perfect they are it is certainly a tough choice for the traders to choose a system that suits their needs. Whatever your need may be there are three special aspects that you have to look out for in any system or strategy to determine whether it is profitable.
These include identifying a market trend through higher time frame like 4hr chart, daily chart, weekly chart. So following these trends is one of the simple ways to make money. Although this is not the ultimate way to make money this is one profitable method for the newcomers. It requires only about 30 minutes of your daily schedule unlike other strategies where you have to spend hours on trading. Therefore you can utilize your free time by learning about the forex trading.
The simplicity of the system also plays a key role in determining success. If the trader is a beginner he has to understand the system and follow the instructions as his knowledge of the Forex trading is limited. A system with no more than three indicators is best to begin with for those who are new to the trading arena. This in a way minimizes confusion and eliminates potential losses as a result of misinformed trading session. So a simpler system is more profitable for a beginner than overloading yourself with a complex one.
The system should be clear of any error or doubts when using an indicator. If only all the conditions are satisfied a trade should be placed. The guidelines also should be clearly mentioned regarding the position size, amount, the stops that should be made and the time to take profit on a trade. It is very important to have a well devised trading plan to avoid time losses.
Winning with a 100% profit should not be criteria but to minimize the loss percentage and to maximize the overall profit is what you should watch out for. Only way to determine a profitable system is to test over a period of time in the live market and determine the kind of profit and loss from the trading system. Although you may lose few trades in the beginning but its part of a trading strategy to increase your profits in the long run.
• The first strategy you have to know is to deal only during market periods. The 80% traded main currency including the period is the United States dollar. You must know the opening and closing time of US market, which is from 8:00 A.M (EST) to 4:00 P.M (EST). If you plan to deal some currencies, you must research what time it opens and closes. The accuracy and activeness of currencies occurs during the market period of it.
• It is best to utilize simple Japanese bar charts or candle sticks on resistance lines. For you to understand you must try to know the psychology of these candlesticks and you'll see that you're giving a great opportunity of success. Learn candlestick reversal patterns.
• To successfully proceed and avoid depending on indicators consider the price-action analysis. This is live, easy, and lucrative. Forex price-action trading lets you to achieve a great feeling when your way in and way out have to be.
• Select a currency pair that you feel at ease with and check its monthly, day-by-day, and hourly progress. Concentrate on single currency pair until you become well experienced.
• Avoid Forex news trading, particularly if there are large quantity of traders that shift the market, for it can be very inconsistent. Price tend to move in the trend direction of the longer time frame after experiencing dips during news releases.
• The last Forex trading strategy is to get up at least half hour prior on starting your Forex trading. See your Forex calendar and the progress of your currency pairs to get upcoming news happenings. Prepare for the trad before trading.
These are just the Forex strategies that you must know to become successful. Through this you can make your Forex trading strategy more efficient.
Trading is first and foremost a passion. How many jobs do you know where people can't wait for Monday (or in our case Sunday night)? We are all fortunate to be involved in an enterprise that we care so much about and enjoy. But trading is also a business. And the cold hard, truth of the business of trading is that the more you trade the more you lose.
Of course there are exceptions to this rule. Some traders are extremely adept at high frequency trading and can churn out profits doing excessive round turns per day. Those traders, however, are few and far between. Doing this, you are really busy enriching the forex brokers. I call them the idiot savants of trading because they tend to have a supernatural feel for price action. See this scenario: "many times have I booked hundreds of pips of profit in Europe only to give them all back during North America trade". Who is fooling who?
The reason why frequent trading is so hard is because most of the time price action is random. The more often you enter the market the more likely you are to step in front of some monster order on the other side and get rolled over by the flow. Again, trading so much makes it easy to loose focus and thereby fail to apply the rules of our trading system.
While it is all good and well to pontificate about discipline and patience it is also utterly unrealistic to expect us flawed human beings to follow such advice. That is why it is crucial to have a garbage account in which we unleash all of our gambling instincts without doing any serious harm to our net worth/real capital.
With so many brokers now offering micro lots, the creation of a garbage/gambling account couldn't be easier. They key is to make sure your well reasoned disciplined trades go into you real account, and all your impulse trades go into the garbage account. If we can't realistically follow the dictum of Trade Less Win More, we should at least attempt to minimize the damage of our cravings.
Tuesday, October 13, 2009
The key thing here is that one need to plan his/her trade before time, but how do you make those plans?
- Select your trades before the news releases. Forex market presents plenty of opportunities during these periods, so you need to be selective of the currency pairs you will be trading. Don't try to over trade i.e. placing so many trades across different currencies but select one or two currency pairs you will be trading. This will help you to be more focused in your trade. Personally, during important news releases on the US currency, i prefer trading only one currency pair; EUR/USD or GBP/USD depending on the economic state of the pairing country.
- Reduce your leverage. Volatility period is most the risky period to trade because your stoploss can be reached in a twinkle of an eye without giving you time to make changes. You have to reduce your leverage in trading in such times.
- Be more disciplined in placing your trades. I will say this over and over out of an experience. The trade you placed may be going your direction but don't be beclouded by the emotions of greed. Don't place more excessive trades without checking properly the technicalities involved. Follow the rules of your trade and trade more cautiously.
- Make use of tight stops. In a volatile period, it is possible for a trade to move 70 pips against you and still reverse to 100 pips in your direction. It is better to use tighter stops to cut out trades that are not in your favour and look out for another opportunity to enter your trade.
- Always be prepared to take the bull by the horn. How much is your target? How much can you afford to loose in that trade? You need to get organise and put thesefigures in paper and pen before entering a trade. Be prepared physically, mentally and psychologically.
Sunday, August 23, 2009
• Federal Reserve Bank and their governor: the US Central Bank are in charge of making monetary policies in order to achieve stability in the economy. Market experiences a move when the president of the bank is giving a speech. Activities of the Bank has effects on the economy as a whole and should be watched.
• Federal Open Market (FOMC): It is a committee of 12 members which includes president the Fed, members of FOMC; through their voting they makes decision on monetary policy. Like announcement on interest rate.
• Interest rates: Federal fund rates is a the type of interest rate that makes more strong impact in the financial market when it is announced and the most important. Discount rate is the interest rate charged on commercial banks for emergency liquid purposes. The higher the rate of interest, the solid the currency which gives a buying opportunity to traders. Lower interest rate suggests a weakening economy and a sell opportunity for the traders.
• Economic data: like non-farm payroll, CPI, PPI, GDP, housing starts, housing permits, consumer confidence and so on have tremendous impact on the dollar.
• Stock market :popular market indices like Dow jones, Nasdaq, and S&P 500 influence the Dollar. The most influential is the Dow Jones. When these indexes are on the positive territory the dollar will more likely go up but when negative (down) the dollar will go down. The USD has a positive correlation with the US stock market indices. It is called a carry trade.
• Cross rate effects: a currency can be affected by another currency pair . For e.g. when the exchange rate of GBP/CHF is really down due to bad economy indicator affecting pound. There can be effect in GBP/USD when the pound is sold and USD is bought. This situation can occur also with EUR/USD, when the EUR economy is weak, it will be a boost for the dollar making people to buy the USD.
• Economic and political events in the Euro zone: the countries that made up the EURO ZONE are twelve in number, namely: France, Italy, Germany, Netherland, Belgium, Luxemburg, Spain, Austria, Greece, Finland, Portugal, and Ireland.
• Euro central banks and CB Governor: these central banks are responsible for making monetary policies that will stabilize the economy of countries in this zone. There are selected governor s which their speech can move EUR currency by name: Jean Claude Trichet, Erust Welteke, and Italy respectively. If you have gone through the economy calendars from websites like: Forexfactor.com, you will see at times written, "Trichet speaks" as one of the eco-event. This speech moves the market.
• Correlation: EURO has a negative correlative with CHF meaning that when EUR/USD is up expect USD/CHF to be down.
• MOF (Ministry Of Finance) is the sole institution which their statements gives an impact on the JPY. They are in charge of foreign exchange policies. They announces the interest rate which has a good move on the currency.
• BOJ: have complete control of monetary policies through their governor. Their speech gives clue on the pace of the economy thereby providing trading opportunities for the traders.
• Stock Market: Nikkei is one of the popular stock market in Japan and has a positive correlation with the JPY.
• Cross rate effects: other currencies like USD, EUR, GBP, also affects the JPY. For example when there is a positive data released on USD, this will cause USDJPY to move in uptrend. This means that as a result of the news released on USD people are selling the JPY at the same time buying Dollar.
Thursday, August 13, 2009
LACK OF A SOUND FOREX EDUCATION: Another fact is that many traders have simply not had appropriate forex education or training, and as a consequence, eventually fall on their sword having confronted the realities of this unforgiving market. Note that I am not talking about general education here, I am talking about forex education. Currency trading is like any other trade or profession - you simply cannot just start to trade forex successfully without any kind of appropriate education, practice or training, but people think they can, and soon learn otherwise. It is trench warfare out there and one simply needs to be prepared! If you are serious about being a successful trader, get forex education. There are loads of good free forex educational resources and web sites on the web, as well as formal, paid-for courses.
INAPPROPRIATE TRADING SYSTEM: The lack of a forex trading system, or using a poor or inappropriate one, are other contributing reasons why many forex traders fail. Trading systems exist, or are developed, to help the trader to trade more objectively and systematically through the use of statistical indicators to help the trader assess risk or probability. Like so many other things, some forex trading systems are better than others. But, another issue with them is that they must fit with a trader's own personal style of trading to be of much good. What works for one trader, won't necessarily work for another. If, for example a trader prefers intra-day trading, they should use an appropriate short term system. Likewise, a longer term trader should use, say, a daily trading system. Matching of trader and trading system is thus another key to trading success or failure.
WRONG BELIEFS: Believing you're in some kind of competition, your perceived opponent being "the market". Believe me the market is enormous, it doesn't care. It's in competition with no one. A belief in "luck" & a superstitious attitude. Is your computer screen surrounded by lucky charms? Trading isn't based on luck or the planets being aligned. Again, Believing that great results from "paper trading" will translate into the same in the real world - they won't! You may be worth millions in Toytown currency, but the real world is different from a game of Monopoly. Also believing in the use of products like trading robots to rake the market is really a way of adding your self among the 95% losers in forex market. Those things don't work over time if so, all these big banks that trade forex will move to them.
IMPATIENCE: the inability to NOT trade when conditions are unfavorable. Sit back, don't feel you have to have your "nose to the grindstone" for 8 hours a day. Only trade when it's the right thing to do. Recognize your chance to strike but also recognize when it is necessary to withdraw.
INCONSISTENT METHODOLOGY: One of the biggest mistakes, it might work now and again, then again if you have no method, you are just guessing. Forex trading is not a guessing game so get a good method of trading and follow it consistently.
A WRONG MINDSET: feeling that the market is "out to get you". Do you get angry at "the market"? do you try to get your own back? Don't waste the negative energy, the market is bigger than any of us and to be honest, it just doesn't care! Don't get back at the market for the yesterday's loss rather follow your trading plan.
LACK OF SELF RELIANCE: taking personal responsibility for one's actions. Don't blame your poor results on anyone or anything else. It's all down to you. It's lonely out there, get used to it. Too much willingness to listen to news items and to believe others know more than you do, seeking out "hot trading tips" for example. These days we are bombarded with info overload - TV, radio, internet, newspapers, magazines - all packed full of so called experts. Don't listen to the noise! Follow your system, trade when the signals are favorable not when the latest "TRADING GURU" gives you a hot tip.
Again feeling of low self worth. Profits made are quickly lost again due to a feeling of not being deserving of them. The old work ethic rears its ugly head. Does working for only a couple of hours a day somehow make you feel guilty.
TRADING UNDER PRESSURE: Trading with money you can't afford to lose will definitely put you under pressure to trade against your trading rules. Decide how much you can afford to lose, accept that you may. There are some people i have seen who do well in trading their own capital in forex but the moment they start collecting money to trade for others, they end up loosing their stand and their trading capital. Avoid trading under pressure, relax and do your thing.
TRADING WITH EMOTIONS: Another major reason for failure is that many people are too emotional when it comes to trading and let their hearts rather than their heads do the trading. Forex is a numbers game in many ways, and one needs to apply facts, logic, commonsense and experience, rather than letting killer emotions of greed, fear, hope, anger and pride wreck their trading accounts. Scared of losing, scared of winning. Driven to make millions - all of these stop you being "an amused bystander". Again keep emotion out of the equation. Never try to double your losses. Stick to your system, start and exit your trades in line with your system. You won't win them all, get used to it. Inability to let profitable trades run can be due to emotions at trade. Have confidence in your system, follow it, don't get scared and grab the money and run.
IMPROPER USE OF MONEY MANAGEMENT RULES: You may only need to work a couple of hours a day but it needs to be a well organized, focused couple of hours. It's important to know at any given moment how much you should trade, when to enter and when to exit a trade. Before you enter any trade, you must know how much you can afford to loose in case the trade go against you and it should not be more than 3% of your trading capital. Check our post on money management for better understanding and the use of the principle
GET A MENTOR: the road you are walking on, there are people who have passed it. You need somebody to learn from. Forex is easy only when you learn from the right person and start doing the right thing.
Thursday, June 18, 2009
Unlike any other financial markets, foreign exchange market is traded in pairs
It is made up of two currencies as a pair which represents the financial instrument. We have 8 major currencies which are: USD, EUR, JPY, GBP, CAD, AUD, CHF and NZD. When you bring two currencies out of this list and join them together, you will have our investment instrument.
USD + EUR = EUR/USD
USD + CHF = USD/CHF
AUD + GBP = GBP/AUD
Having two currencies as our financial security means that, there are two different economies involved in each pair. That is in USD/JPY; we have USD representing the US economy and JPY representing the Japanese economy. In EUR/USD, we have EUR from European economy and USD from US economy. Therefore the market movement of this pair “EUR/USD” is determined by what is happening in the European economy and the US economy as well. That is the economic condition of this two different economies good or bad will determine the direction of the currency. When the economic condition of US economy is bad, it means that the US dollar is weak in this sense you will be selling it and vice versa. The simple general fundamental rule is to buy the stronger currency and sell the weaker currency.
Among the two currencies making a pair, we have the counter currency and base currency. The first currency among the pair is the base currency while the second currency is the counter currency. In the pair EUR/USD for example, the EUR is the base currency while the USD is the counter currency. Also in the pair USD/CHF, USD being the first currency in the pair is the base currency while the CHF is the counter currency.
Understood? I hope so, and then let’s proceed.
When a sell order is issued to your broker to sell a currency pair, it means you are selling the base currency (i.e. the first currency in the pair) and at the same time buying the counter currency. Confused? No need to be, just know that when you place a sell order in your broker’s platform to sell Eur/Usd it means you are selling EUR and at the same time buying USD in exchange. When you place your buying order to buy EUR/USD, you are actually buying EUR being the base currency and at the same time selling USD being the counter currency in that pair.
Bringing this lesson practically, if an economic news is released in US economy signifying that the economy is really in a good shape, As a good forex trader, I will be buying the USD as a stronger currency.
This will be done by placing a sell order on EUR/USD, a buy order on USD/CHF, a buy order on USD/JPY, and sell order on GBP/USD. Understand that when I place a sell
Thursday, June 11, 2009
I know you will be asking is it not possible to make such returns from forex? This is exactly the question one of my friends at the discussion asked. It is very possible to make even more than that in the forex market even within less than 3 days of trading, but that does not make you a professional trader. It means that you are putting out a lot of risk than you should. And it is not advisable for a person who really plans to have future in the forex world. Such people can make enormous returns today but can wipe their entire account in the next day: a pure forex gambling.
Gambling is activity of playing a game of chance for money. One fact that should be noted is that no “trading system” is 100% guaranteed, which means that there are bound to be losses sometimes in a trade. How you cut your losses by exposing your capital to a lesser risk matters a lot. Professional forex traders observe the rules of the game, treat forex as an on-going business and employs the strict risk management rules to ensure their future in the market is secured.
The essence of this post is to let you understand and appreciate the small but steady returns as a way of building a life wealth from the market. This helps to make forex trading easier for you as you pip the market with consistent trading. Some people are scared away from forex because they hear forex is a very risky market but you can make it less risky for by appreciating small returns. You need to understand the importance of using this powerful and old concept, "COMPOUND INTEREST" in making most of your investment.
A trader who makes as little as 2% weekly returns on investment (ROI) and compounds it for three years; you will be surprised at what he will be getting from this market. Then, compound for more five or ten years and you will see that small 2% weekly ROI can lead you to an abundant retirement. Note that in average, professional forex traders set their weekly target to 8%-15% returns on investment so that you will understand what a forex can do for a man who knows his onions.
Mr. Kingsley started trading forex with a $7000 and his weekly target of ROI is 2.5%. He decided to compound his investment for the period of five years and he arrived at a whooping amount of over $220,000.
This is why professional forex traders go into fund management with confidence. They know with target of small returns for some period of time, their risk is far reduced. Forex gamblers can not be able to operate fund management because that will mean playing with people’s money and they will be burnt by it.
To be able to achieve this feet which is very possible, a trader should consider the following factors
• The use of compound interest warrants your patience. Like Mr. Kingsley who has to wait for 5 years; it took him patience.
• You need to be consistent. In appreciating small returns in forex , you need to trade consistently to be able to meet your trade target/goal.
• Make use of proper risk management. You can check out our post on risk management, read it, and absorb it if you want to be among the professional forex traders and not a gambler.
Thursday, May 14, 2009
To learn more on how to trade with the support and resistance levels, check here!
SEPTEMBER 28TH. 2009 ANALYSIS
EUR/USDThe Euro versus Dollar pair was able to form a bearish technical pattern, seen in the image above, with a neckline at 1.4615. We expect the pair to decline on the intraday and short term basis, targeting 1.4360 before extending declines towards 1.4275. The stochastic indicator is showing oversold signs, which may result in a slight upside correction to retest the above mentioned neckline before continuing the expected decline, which will remain as far as 1.4765 is intact. Our opinion is selling the pair from 1.4615 to 1.4500 and stop loss above 1.4705 might be appropriate.
USD/JPYThe USD/JPY pair reached the expected downside target to hit the key support for the downside channel at 88.55, seen in the image above, where we expect the pair to incline on the short term basis towards 94.00; supported by positive signs on momentum indicators. The first resistance, which may be an obstacle for the pair is at 90.30, where a breakout of this level will open the way for today's target at 91.60. This incline remains as far as 88.50 is intact. Our opinion is buying the pair with the breach of 90.30 to 91.60 and stop loss below 89.55 might be appropriate.
The Dollar versus Swissy pair continued to surge to the upside to touch the key resistance of the minor bullish channel that is taking the pair to the upside on the short term. From the image above, we see a minor resistance level is currently the neckline for a possible bullish technical pattern, which may reverse the pair to the downside in correctional movements to reach 1.0300, before rebounding to the upside and completing the pattern by breaching the 1.0365 level and open the way towards 1.0550. This incline is valid as far as 1.0365 is intact on the four hour charts.
Our opinion is buying the pair from 1.0300 to 1.0450 and stop loss below 1.0205 might be appropriate.
The 23.6% correction limited further inclines for the pair, where it reversed to the downside to near the 38.2% correction for the bullish wave, seen in the image above. The short and medium term declines may face volatility near the current support at 1.5745, as momentum indicators show the possibility for a slight upside correction towards 1.5870 before reversing back to the downside towards 1.5555, as far as 1.6150 remains intact.
The 23.6% correction limited further inclines for the pair, where it reversed to the downside to near the 38.2% correction for the bullish wave, seen in the image above. The short and medium term declines may face volatility near the current support at 1.5745, as momentum indicators show the possibility for a slight upside correction towards 1.5870 before reversing back to the downside towards 1.5555, as far as 1.6150 remains intact.Our opinion is selling the pair from 1.5870 to 1.5745 and stop loss above 1.5940 might be appropriate.
These analyses are for information purposes only. They DO NOT post a BUY or SELL recommendation for any of the financial instruments herein analyzed. The information is obtained from a generally accessible data sources. The forecasts made are based on technical analysis. Ensure a good risk management in carrying all your trades.
...To your trading success!
Saturday, March 28, 2009
You don't need to ignore this principle if you really want to make good money from the Forex market in the long run. Gamblers don't last long in this market. Professional traders use money management principle by adding a good risk management system to all their trades. This is a way of protecting your capital from bad trades.
The knowledge of how to manage your risk is very important and should not be ignored as this determines your long term success in the market. The concept of loss is inevitable in the Forex market. For you to survive, you need to mange your loss so as not to cut deep into your capital. There is no trading system with 100% accuracy so, losses will always come but your ability to minimize them determines your survival.
With the risk management, you are looking at a long term returns on investment and not a jackpot. Risk management is a system use by investors to control their trading losses. As you are thinking of making profit, also make a provision of how much loss you can afford to bear in case the trade turns against you.
UNDERSTANDING THE USE OF STOP LOSS
This is a tool use to set up when a trader can afford to leave the market with a loss in case if the trade moves against him. It is very important to use this tool effectively because the level of risk a trade carries is determined by the value of the stop loss. This means that a higher stop loss value means a higher risk level while a lower stop loss value means a lower risk level. There are some trading strategies that reqiure the use of fixed exit stop loss and some that require a variable exit stop loss. It is very important for a trader to use stop loss before opening any position because the concept "loss" is inevitable in this market but your ability to manage it properly determines your success.
YOUR RISK LEVEL
You have come to understand that the value of your stop loss determines your risk level. Then, next question is how will you choose your risk level? Different traders have different opinions to the choice of their risk level per trade. From my experience, i think percentage risk level should be drawn from 2% to 3% of your trading capital per trade.
Assuming you are trading with a capital of $2000 and using 3% risk level per trade. With 30 pips stop loss per trade, your risk level will be 3/100 * $2000 = $60.
The amount you gain/loose per pip = $2 ( i.e $60/30 pips)
PROFIT TO LOSS RATIO
This is the ratio of your profit to your loss. Using 3:1 profit to loss ratio means that you are placing your trades only when you have a chance to make three times of what you set to loose. Assuming a stop loss of 20 pips, a trader using 3:1 profit to loss ratio will only place his trade when he sees the chance of making 60 pips profit. This trading rule will increase your chances profitably.
Monday, March 23, 2009
Your success in Forex trading also depends on the trading system you use for your trades. One of the most popular trading system use by investors in technical method of trading is buying support and selling resistance. If you don't know about this important system you have the opportunity to learn it now and add it to your trading tools. Though there are variations to the use of this system and different names given to it. Traders use a mixture of different indicators like stochastic oscillator, relative strength index and so on to identify there support and resistance areas. But the base of the concept is still maintained as buying at the support and selling at the resistance zone.
WHAT IS SUPPORT AND RESISTANCE?
As the chart moves up or down, it attains some level where it becomes tired of moving and tends to change its direction of movement. Watch any chart moving up and you will notice that there are are some areas on the chart where the price stops going further up and you will notice that there are some areas on the chart where the price stops going further up but instead, it changes direction to downward movement. Such area(s) is called resistance area. That is the exchange rate (i.e. price) is resisting from further upward movement.
Also when a chart is going down it reaches a point where it will settle from further movement and change its direction of movement from down to up. This area is called the support or rather the bottom. Trader all over the world watch out for these areas to place their trades so, market most of the time follow this concept. Remember i told you that the secret to pipping the Forex market is the ability to gauge the direction most traders will be placing there trades. If most will be selling then the market will go down and if most traders will be buying. then the market is heading up.
This is a USD/CHF chart. This market is trading in a range looking at the chart you will see the resistance and support area which are indicated by red lines. The support area is marked as 1.1816 while the resistance area is marked as 1.1853. A trader who observes these areas will place his trades accordingly and make a nice profit.
Simply place a buy order at the support area as the market move up and enjoy your pips. To sell, your orders will be placed at the resistance area for a good trade.
WHEN THE RESISTANCE AND THE SUPPORT LINE IS BROKEN
Another way to trade support and resistance is to watch when the support and the resistance area is broken. At times it happens that due to some fundamental factors, the market will experience a heavy buying. In that situation instead of the price to reverse at the support and resistance areas, it ignores them and move further down or up respectively. In a situation like this, a trader seeing that the support area is broken will place a sell order because the market will be going further down.
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Friday, March 20, 2009
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*And above all will pip the Forex for you.
This free gift goes to our blog followers. All you need is to Follow our blog or simply email us at janinvest5@gmail.Com for your FREE COPY now.
Forex trading is very risky and may not be suitable for all individual. Endeavor to test the efficiency of any system you receive here with a demo-account before using it for live account.We will not be held liable for any losses.
Friday, March 13, 2009
Forex! Forex! Forex! How do I get started? Reading books on Forex is not all you need to be equipped in Forex trading, you also need to practice with a Forex demo-account. Yes I said a demo-account because that is what you need first before thinking of a live account. There are too many Forex brokers online today also be warned that scams are also out there in form of brokers. In opening a Forex account, one need to be careful.
But, don't worry because I will be recommending a tested Forex broker to make it easier for you searching for one.
Apart from having a good trading skill, having a good online broker has a lot to add to your trading success. It is pertinent that you open your eyes widely while choosing your broker by considering the factors below:
Low trade commissions: In Forex, the commission you pay your broker is called a spread. This is the difference between the bid and ask price. Choose brokers that charge low minimum spread like two pips per trade.
Good customer service: use brokers who can answer you with good customer relationship. You can try this by sending an inquiry mail to see how fast they respond to you.
Free trade tools available from a broker. This includes provision of an understandable trading platform, indicators, enough currency instrument etc.
Account minimum depending on your reach. Brokers use varying minimum account opening deposit so, you use broker whose account minimum you can afford. An investor who has only $200 to start trading Forex will look for those brokers that can allow him trade with that little amount.
Account security: this is very important to avoid working for another man’s pocket. How far can the broker protect your account against scam?
International exposure: Their services, did it extend to your area? So you need to check out for those ones that have extended coverage to your area.
You need not to worry because I will be recommending a broker that has all these attributes mentioned above; all for you.
You don't need to deposit your money with them before you can start trading so, why not try it out now?
Click this link
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*You will be given one account instantly with two desks: demo-account desk and live account desk all in one platform.
*You will receive a FREE $5 in your live account and up to $20,000 in your demo-account. Start trading with your free $5 immediately as you like.
*Whether you are in for micro account or standard account the platform is so easy to enable you type in the quantity of trade you want to embark on even 1 unit.
*Discover an excellent customer service. The platform includes a "DISCUSSION" page where you chat directly with the companies support and other traders while you make your trade. Feel free to ask your questions and get an instant answer from the discussion page.
*Enjoy MARKETIVA low spread trades and register here http://www.marketiva.com/?gid=24852
What we do in technical analysis is simply using the past and present price actions to forecast the future price action. We study the charts which can be a line chart, a bar chart or a candlestick chart to enable us understand market movements and performances.
The most recommended chart for technical traders is candlestick chart because it shows the opening price, closing price, highest and the lowest price unlike the line chart that shows only the closing price.
There are indicators which you need to learn in order to apply them very well as a technical tool to your trading. They are Bollinger bands, stochastic oscillator, relative strength index, MACD, moving averages, Ichimoku, parabolic SAR, momentum, etc. these indicators are part of your Forex broker's platform so all you need to do is to apply them to your chart.
This is made up of three bands: the upper Bollinger band, the lower Bollinger band and the middle Bollinger band. Bollinger band is used to measure the volatility of the market. Hence when the market is loud, the upper and lower bands spread wide apart but when the market is quiet, the bands squeeze together.
Sometimes, chart do bounce around the upper and lower bands giving a technical trader the chance to analyze the next movement of the chart. As seen below, from lower band it hit the upper band at point A, move down to lower band at point B and then back to upper Bollinger band at C.
Relative strength index or RSI
This indicator is used to measure the overbought and oversold areas. An overbought area is an area where buyers are getting weak while sellers are expected to take over the market while an oversold area are area where sellers are getting weaker and market is expected to turn to the direction of the buyers (up). When RSI reads 30 or below, it shows an oversold area. When it reads 70 or above it shows overbought area.
From the picture above showing RSI, when the tip/end of the blue line reads a value 30 or below, you should buy. But when the value is 70 or above, then you need to sell because the market is in the overbought area.
RSI can also be used to confirm trend formation. When you think an uptrend is forming your RSI should be above 50. at a downtrend, RSI should read below 50.
It works the same way as RSI. Reading of 20 or below shows an oversold area while a reading of 80 or above shows an overbought area. This indicator is mostly used when the market is trading in ranges and is very good in confirming indicators.
This is one of the easiest indicators represented in dots ..... used to detect trend formation. When the dots are placed above the chart, it is a sell signal but when the dots are placed below it is a buy signal.
This fully means a moving average convergence divergence. The indicator is comprised of two lines of moving averages (fast and slower moving averages) and a histogram. Looking at this indicator, you will notice that as the moving average lines separate from each other the histogram gets bigger (called divergence) but when they come together the histogram gets smaller (called con
vergence).You can trade MACD crossover by generating a buy signal when a slow moving average crosses over the fast one from above and a sell signal when the slow moving average crosses over the fast from below.
A technical trader makes use of two or more combination of these indicators to generate buy and sell signals. This is because no indicator can give you 100% buy or sell signal so, you need to add other indicators to confirm your signals before embarking on a any trade. You need to study these indicators to select the ones that fit your personal trading style.
Monday, March 9, 2009
There are essential things every trader should know at the back of their finger tips before embarking on the journey of digging on this farm land called FOREX. You need to know the FOREX terminologies as this will go a long way in helping you to understand Forex trading easier.
Under orders, we have ENTRY ORDERS AND EXIT ORDERS.
Entry orders can further be grouped into market orders and pending orders. Market orders are orders placed by a trader instructing his broker to buy or sell a security for him at a current market price. Pending orders are orders to buy or sell securities at a price higher or lower than the market price. Under pending orders we have buy stop, buy limit, sell stop and sell limit. Buy stop is a pending order given to a broker to buy a security at a price higher than the current market price (also called instant order) while a buy limit is a pending order to buy at a price lower than the current market price. A sell stop is a pending order to sell at a price lower than the current market price while a sell limit is a pending order to sell at a price higher than the current market price.
From this chart, we can see that the market price is 1.2837. Any order placed at this market price is a market order. An order place to buy or sell above this price is a buy stop and sell limit order respectively. While an order to buy or sell below the market price is a buy limit and sell stop order respectively.
These are orders placed by a trader instructing him to close his open position at a particular price to book his profit or to cut his losses. They are TAKE PROFIT ORDER AND STOP LOSS ORDER. Take profit order is an exit order to exit a trade when a targeted profit is realized. A stop loss order is an exit order to close your trade at a stated price if the market goes against you. This is mostly used to mange your investment risks.
A price given to you by the market which to buy a security. Simply put the buying price
This is the price you can sell your security that the market is willing to purchase it from you. It is usually lower than the Ask price. It is the selling price
This is calculated as difference between the ask price and the bid price. It is the commission you pay to your broker for his services. From the diagram above, Ask - Bid = Spread (2 pips).
Currency Is any form of money issued by central bank of any country. Currency pairs consist of two currencies making a pair. In Forex, currency as an instrument is traded in pairs like EURUSD, USDJPY, GBPCHF, etc
This currency pair consist of two currencies: US dollar and Japanese yen. USD being the first in the quote is the base currency (base currency is always equal to 1 in that particular quote)while Japanese yen being the last in the quote is the counter currency (counter currency is equal to their exchange rate at that point in time).
This is the price of one currency in terms of another. If the exchange rate of EUR/USD is equal to 1.234, this means that 1 unit of EUR can be exchanged to 1.234 units of USD. The rate at which one currency is changed for another changes over time and this is what Forex traders take advantage of. They open a buy position when their analysis signals to them that the rate (or price) will be going up and close their position by selling back to the market in order to lock their profit. He will do the opposite when he see that the exchange rate will be falling.
Pips is an acronym for percentage in points. It is the movement of exchange from one point to another. If EUR/USD exchange rate moves from 1.234 to 1.236, this means 2 pips gained.
This is an extra trading power provided by the market to a trader. It is in form of ratio like 100:1, 200:1, etc. When a leverage of 100:1 is given to a trader it means that for every I unit of a trader's capital the market has provided an extra 100 units to enable him trade more quantities. The provided money is a borrowed money.
Before you start trading, the amount you are required to deposit in your trading account is your margin.
When you receive a margin call it means you are called by your broker to deposit more money to enable you trade.
To short a trade means to sell a security(currency). Bear also means sell.
To go long on a position means to buy. Also bull means buy.
This is where record of all your transactions are kept. This is the portfolio of your investment. In Forex we have live account and Demo-account. Demo-account is a practice account which a trader opens with a virtual money enabling him to practice Forex trading before investing his real money in a live account. You don't have to rush into Forex market but learn it as a serious business by first having a practice account as this will allow you to see all the market performance and reactions. The only difference between live account and Demo-account is that the money involved in practice account is not your real money but virtual.
There are two methods employed by a Forex trader in analyzing a trade, they are fundamental analysis and technical analysis. Some traders base only on technical analysis while some make only the use of fundamental analysis in executing their trades. It is very important that a trader learn and understand the two methods of analysis ; as well apply both in trade executions. Forex trading is not a guess work you need to analyze the market properly using the two method of analysis to ascertain market's movement.
Fundamental analysis deals with those macro-economic factors that can have impact on country's economy and their currency as well. These factors can also be called economic indicators and they reflect the health of a nation's economy. Every nation have Central banks who watch these macro-economic factors in order to make a suitable economic policies.
These indicators are: Interest Rate, Inflation, Non-farm payrolls, Housing starts, Purchasing Managers Index, Gross Domestic Product, Unemployment rate, Retail Sales, Consumer Price Index, Producer Price Index, etc.
News reports are given time to time on these indicators from country to country which Forex traders capitalize on to trade on their releases.
There are resourceful website where you can get information on fundamental trade and analysis like www.forexfactory.com , www.actionforex.com , www.dailyfx.com , www.bloomberg.com ,and visit their economic calendar. This will help you to know before time the economic news to be released, when and the analyst forecast (the market expected number) so that you can plan your trade . When the news comes out better or worst than the market expected number, it can have a great impact in the market up or down.
Forex trading is all about trading nations' currencies. In Forex, people buy currencies from Countries with strong economy and sell currencies from countries with weak economy which are shown by positive or negative released economic indicators. These currencies experiences a demand (buy) when the indicators shows positive data and a supply (sell)on the release of negative economic data.
The only way you can master this method of analysis is by practicing. Try what you have learn here on your demo-account first.
UNDERSTANDING THE ECONOMIC INDICATORS
Interest rate: this is among the market movers on the list of economic indicators. This is fixed by a nation's central bank after watching other economic indicators like inflation. Interest rate is the cost of borrowing fund in a country. When a central banks governor announces a higher interest rate, it shows a positive economy and their currency market will rise but when the interest rate is cut, it can lead to a fall in the currency price. This means that when this news is released and it came out higher than expected (positive report), you should buy their currency and smile for a good trade. Do the opposite on a negative report.
Inflation: this is also one of the drivers of the economy. Central banks watch this indicator to enable them make policies. A rise in inflation shows too much money in economy which can lead to an increase in interest rate while a fall in inflation (deflation) can make the central bank governors to cut rates. From these explanations, you will understand that you need to buy a currency with a rising inflation and sell a currency with a falling inflation.
Non-farm payroll: this indicator is released on first Friday of every month. It shows the number of new jobs created and the percentage of job seekers who fail to get job in the previous month.
Gross domestic product (GDP): this is the total amount of goods and services produced in an economy for a period of time. This economic indicator shows whether the economy is growing or shrinking. When GDP of a country came out with higher figure it shows economic growth and you will need to buy the currency but if it is released with a data lower than the market expectation, sell the currency.
Consumer price index (CPI): this measures an average price paid by consumers on fixed basket of goods and services. Increase in price of consumer goods and services indicates a rising inflation while fall in prices is a falling inflation.
Producer price index (PPI): this measures an average changes in selling prices in the manufacturing sector. Increase in the PPI can lead to increase in CPI.
Retail sales: this measures sale performance in retail stores. Increase in the data released on retail sales shows an active economy and you need to buy the currency while you will be selling at the release of decreasing retail sales.
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