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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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.
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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.
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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.
Sunday, March 8, 2009
The essence of this article is to expose a lucrative market that can be your great farm land. It is called foreign exchange market which is mostly known as the FOREX market. FOREX is an acronym for foreign exchange and can also be called Spot FX or FX. This market is where currencies of different countries across the globe exchange hands. It functions just like the stock market where people buy and sell stocks and other securities like bonds via a stock broker. Forex is traded via Forex brokers.
Waooh! It sounds like I am speaking in riddles with all these unfamiliar terms. Don't worry I will bring it down to your perfect understanding. Have you ever traveled out of your country before or probably have a friend who have traveled out of the country before . Assuming you are an American who wants to travel to Japan may be on a business trip. It is no news that you will have to change your dollar to Japanese yen in other to be able to spend your money in Japan. While coming back to your country, you will still need to change the available yen you have with you back to US dollar. That's it, you have participated in the Forex market. Simply put, "Forex is all about exchange of one currency in respect of another".
HAVE A COLORFUL LIFE TRADING FOREX!!!
There are many currencies used across the world but in FOREX market the major currencies which are traded are USD(US dollar), GBP(Great Britain pound), EUR (Euro), CAD (Canadian dollar), AUD (Australian dollar), JPY (Japanese yen), CHF (Swiss franc)and NZD (New Zealand dollar). These currencies are traded in pairs (this means you are trading one for the other)like USD/JPY, USD/CHF, EUR/USD, GBP/JPY and so on. Among the pairs, the first currency is the base currency while the second currency is the counter currency. When a trader is executing a trade on a pair, like buying a USD/JPY it means that he is buying a USD and at the same time selling a JPY. And when he decide to close his position by selling this pair, he will be selling USD and at the same time buying back JPY.
Considering the fact that the exchange rates of these currencies fluctuates, the idea is to buy currencies with increasing rates and sell those with falling rates. A Forex trader aims to spot which currency will rise or fall next in value against the other.
REASONS WHY YOU SHOULD GET IN NOW
Considering the 2008 global economic meltdown which claimed 50 %-70% of investors portfolio. Blue ship stocks where turned to penny stocks and penny stocks turned valueless. Forex market has been characterized as recession proof market. Whether the market is rising or falling, a trader makes his money provided he places his trade in the direction the market is moving (up or down). Most financial investors worldwide who have suffered from the hands of the economic recession are now more into Forex trading to build back their wealth.
Forex is one the most lucrative and biggest financial market with over 3 trillion dollars traded daily. It is the fastest growing liquid market and you need to watch this market to grab your own share of the trillions of dollars exchanging hands on daily basis. I am not kidding.
The market is highly leveraged which generates so much for a trader even at a little shift in the exchange rate. We measure the changes in exchange rate in pips (price interest points). Assuming that a USD/EUR exchange rate move from 1.2111 to 1.2114, this means 3 pips increase (1.2114 - 1.2111 = 3 pips). Due to the advantage of more leverage in Forex, this little change in exchange rate can mean an earning of $30 for a trader using 1 lot size of a standard account ($10 per pip). Lot size determines the quantity or units a trader trades. The higher the units, the higher the profit/loss and vice versa. In a day a currency pair can rise or fall for up to 200 pips and over. This presents an opportunity for you to grab your pips and have a pipsful day.
Forex market is traded for twenty-four hours daily which is comprised of Asian session, European session and American session. Even if you already have a job, you can still create some time to trade Forex part-time.
Or rather quit your job and be your own boss.
With the current advancement in technology, Forex is no longer traded alone by Banks, Hedge fund or institutional investors but allows the participation of ordinary individuals like you and I. Forex market has no location, it can be traded anywhere with just a computer connected to the internet.
What are you still waiting for? This site is filled with enough knowledge in an understandable approach that will get you started and running in the Forex world. Learn to trade Forex today and discover the amazing returns you can get with our recommended risk management plans and trading strategies.
Get in now and learn how to be financially liberated and enjoy your life to the fullest!!!
- ▼ 2009 (19)