FOREX AND TRADING

10 Essential tips for online Forex Traders

2010-09-02T20:30:00.001-07:00

Hey,

Here is the latest addition to our articles section.

10 ESSENTIAL TIPS FOR NOVICE FOREX TRADERS

If you are new to the world of online FOREX trading you will realise its not as simple as people make out to be or what the ever so promising Forex Brokers promise.
The fact is most people who dont know the in and out of online forex trading will lose and lose quickly.

To win at currency trading online you need to have the right FOREX strategy - Here are 10 tips and if you incorporate them in your trading strategies, you should get a head start in your thirst for consistent FX profits

1. Don't believe the hype
You will see lots of people selling forex ebooks for "only" $100 which promises to make you strike gold in the world of online forex trading. Yes , their is good advice out there - you can get all the information you need free on the internet.

2. Don't day trade
The biggest myth of FOREX trading is you can make money FOREX day trading or Forex Scalping.
You can't!
Many novice traders fall for this myth and lose quickly and wonder why.
As I always say All short term volatility is random and there is no way of predicting where prices may go" up or down", so you might as well flip a coin.

For more on Forex Scalping , read this Article

If you want proof that FOREX day trading systems don't work, ask any vendor for a real time profits track record over the long term and you will not be able to fine one.

3. Work smart not hard
There is a lot of difference in hard work and smart work.You don'thave to work hard in online FOREX Trading, you need to work smart. This means focusing on getting the RIGHT FOREX education and learning and understanding the FOREX tools that actually work in the market not just hypothetically . If you focus on getting the right Forex information, you should be able to learn how to trade in a fortnight.
You will not be rewarded in FOREX trading market for working hard and spending lot of time, you get rewarded for being right and that means working smart.

4. Risk = Reward
If you don't like the idea of risk forget currency trading and pick up something else .
Many traders simply want to avoid as much risk as they can, putting stops to close, or snatching profits. If that's you - you will NEVER achieve currency trading success.
You need to be open minded and accept risk and losses to succeed in online FOREX Trading.

This is because to be a successful Forex trader, you need to be a enterpreneur and have to take risk, not avoid it. No Risk, no reward!

5. Do It on your own
Have confidence in your ability to understand the Forex Market. You are responsible for your own success.
If you follow someone else's strategy you will not have the right mindset to succeed. If you lack discipline and might want to quit after suffering a few losses. Do it on your own and your chances of success are manifolded.

6. Get a simple method
Simple methods always fare better than complicated ones, as they are much more easier to understand and follow.
There is never a correlation between how complicated a trading system is and how much profit it will make.
If you are just starting out in online forex trading, use support and resistance, a breakout methodology and some confirming indicators and that's just about it.
The above way of trading is perfect and will help you should get you the big profits from the big moves.

7. Trade Breakouts
A timeless way to trade FOREX markets.
It works well and will continue to work, simply look in our ebooks section for this powerful methodology.

8. Be patient
You do not get rewarded for how frequently you trade FOREX online- However, You do get rewarded for being quick on your feet and spotting and acting on the best trades and these don't come around very often.
Be patient and only trade FOREX signals from your system - don't be tempted to just trade for the sake of trading Forex.

9. Be realistic
There is potential for huge money in Forex Market, so what's realistic? The best Forex traders compound around 50 - 100% annualy so this is a good number to aim for or may be slightly lower.
These gains will compound quickly and build real wealth in the longer term.
Be realistic and don't try to become an overnight millionaire.

10. Know your edge
If you were good enough to understand the 9 forex tips mentioned above, you will understand that you must have an edge to make money in the long run in online FOREX market.

If after , devising your very own Online FOREX Trading strategy you don't know what your edge is - then you don't have one!
You need to know what your edge is over the majority of the losing traders to win in the Online Forex market.

Final words
If you incorporate the above 10 Forex tips in to your online FOREX Trading plan, You should be on your way to become a good Forex Trader.
Welcome to the world of Online FOREX trading! and Best of Luck!

You might like to read other articles in our Forex Articles section or download one of the huge number of forex ebooks in our Forex Ebooks section.

3 Most Important Forex Fundamental Indicators

2010-09-02T20:23:00.000-07:00

There are many fundamental indicators available to the Forex traders today. If you count all of them only for the major currency pairs you’ll get more than a hundred distinct indicators — macroeconomic, monetary, economical, financial, weather-based, etc. For many traders it’s difficult to follow all of them, as it requires time and efforts in addition to the necessity to learn about the effect of all these fundamental indicators on various currency pairs. This article lists 3 most important (in my humble opinion) fundamental indicators that have the highest impact on the currency rates and are quite easy to follow as they are reported not so often.

GDP or Gross Domestic Product is the main indicator of the macroeconomic strength of the country. The growth of GDP signals a stronger economy and a more competitive currency because the global investors will have to buy this currency in order to invest in this country, and they will want to invest in it because its economy is growing. GDP reports are usually published quarterly but they have three states of revision (advance, preliminary and final) published with the monthly intervals. GDP strongly affects currency pairs both in short-term and long-term. You’ll have a trading opportunity during the time of the release, as the volatility spikes up, and you’ll be able to adapt your long-term positions to the new data after the release.

Interest Rates are set by the world’s central banks and are the main tools of the monetary regulation. Higher interest rates provide more value to the affected currency, while the lower interest rates decrease the value of the currency. Interest rates are usually revised every month or two during the special monetary policy meetings of the central banks. Interest rate decisions greatly depend on the growth of GDP and other macroeconomic indicators. Currency pairs react with the high volatility to the unexpected interest rate changes. It’s important to monitor the trends in the interest rates to forecast the long-term trends of the traded currencies.

Unemployment Rates are influential indicators both for currency traders and for the monetary authorities when they set the interest rates. Non-farm payrolls are considered to be the most important of the unemployment indicators in USA and they are released monthly. Major currencies usually react with the short-term tendencies to such releases. Weekly reports on jobless claims can also be considered but they aren’t as influential.

In many cases it’s enough to be up to date with these fundamental indicators to understand the possible market trends in Forex. But, of course, if you wish to get a more detailed picture you shouldn’t limit yourself only with these indicators, especially if you pose yourself as a pure fundamental currency trader.

Drawdown in Forex Trading

2010-08-02T19:46:00.000-07:00

The drawdown is a very important property of any Forex trading report, strategy or expert advisor. The drawdown characterizes the risk of the employed strategy. Profitability of a given strategy should always be considered in couple with the drawdown because otherwise you won’t take the risk into account and that’s a very bad thing to do. Forex is a probability-based activity and thus should be treated from the risk/reward perspective.

The drawdown is a difference between some local maximum point in your balance chart and the next following minimum point in that chart. It’s the risk amount by which your strategy can go down during a streak of losses. There are two types of drawdown that are considered to be the important properties of expert advisors (for instance, in MetaTrader platform) — absolute drawdown and maximal drawdown.

Absolute drawdown is the difference between the initial deposit and the minimal point below the deposit level during all test period. It tells you how big your loss can become compared to the initial deposit during the trading. If this value was 0 during the test, then your deposit wasn’t at risk at all.

Maximal drawdown is the maximal difference between the local maximum extremum in your equity chart and the next local minimum extremum in your equity chart. It tells you how low your strategy can go after getting some profit. It can also be called a depth of a losing streak. Generally it’s a good idea not to trade with EAs with the maximal drawdown higher than the profit. But I don’t recommend trading even with strategies or expert advisors that have maximal drawdown at levels higher than 25% of the net profit. Mind your own risk-to-reward ratio and don’t trade with EAs that don’t comply with it.

Now you know what drawdown is and how it’s calculated in Forex trading. Unfortunately, the current version of MetaTrader 4 (Build 225), the strategy tester incorrectly calculates the drawdowns, so if you are testing your EAs, it’s better to calculate both the absolute drawdown and the maximum drawdown manually.

If you have your own opinion or questions about maximal or absolute drawdown, feel free to leave it in a comment to this post.

Forex Chart Patterns

2010-08-01T19:41:00.000-07:00

Trading with the chart patterns can be easy if you know how to distinguish them and how to place the entry and exit orders correctly. There are many different chart patterns recognized by the expert financial traders. But in my opinion, in Forex trading there are five most important and rather frequently appearing patterns: ascending, descending and symmetrical triangles and rising and falling wedges. Here you will find the models of these patterns and their descriptions:

Ascending Triangle
Generally, it’s a bullish continuation pattern but the breakout in each direction is possible. If you like taking risk you can go long immediately after you spot this pattern. But if you want to be careful it’s recommended to wait until breakout appears in either side. The most important parts of the ascending triangle are the horizontal line and the upwardly sloping line. It’s also important for the price rate to touch each of those lines at least twice before breakout. This rule is vital for all of the 5 Forex chart patterns presented in this article. As you can see on the image, the price has touched the sloping line three times and the horizontal line two times and then broke out through the latter. Stop-loss should be placed slightly below the horizontal line. As the moderate pull-back is possible, consider placing stop loss near 70% level on the way from the sloping line to the horizontal one in place of the breakout. Take-profit should be placed according to the auxiliary sloping line, which runs from triangle’s top-left angle parallel to the main sloping line. Consider placing your target at the auxiliary line’s level in place of the breakout.

Descending Triangle
Generally, it’s a bearish continuation pattern but the breakout in each direction is possible. As with the previous pattern you can go short immediately after you spot it. Wait for breakout in either side to enter a high-probability position. The most important parts of the descending triangle are the horizontal line and the downwardly sloping line. The price rate should touch each of those lines at least twice before breakout. As the image shows, the price has touched the sloping line three times and the horizontal line two times and then broke out down. Stop-loss and take-profit levels are placed using the same principles as with the ascending triangle.

Symmetrical Triangle
Generally, it’s a continuation pattern that breaks out in the direction of the previous trend, but in practice breakout in every direction is possible. As always, you may decide to open a position in the direction of the previous trend immediately as you spot this triangle. If you wait for breakout then you have better chances of success. The most important parts of the symmetrical triangle are the downwardly and upwardly sloping lines and the horizontal line that bisects the angle created by the first two lines. The last line should be really horizontal (several degrees of error are allowable) or otherwise it’s some kind of a wedge but not a symmetrical triangle. As always, the price should touch each of the main sloping lines at least twice before breakout. Symmetrical triangle, which is shown on the image, breaks out downwardly after touching the bottom line three times and the top line multiple times. Stop-loss should be placed near 70% level on the way from the opposite sloping line to the horizontal line in the basement of the triangle (not the breakout point like before). Take-profit can be set near the auxiliary horizontal line, which runs from the top or bottom base angle (depends on the breakout direction) of the triangle and is parallel to the main horizontal line.

Rising Wedge
Usually, this chart pattern signals a reversal from the previous trend, but both upward and downward breakouts are possible. You can enter a risky trade immediately when you see this pattern. Wait for a clear breakout to enter a more probable trade. The crucial parts of the rising wedge are the two upwardly sloped lines that form a wedge. The price should touch each of them at least twice before breakout. On the image below you can see that the price touched top line two times and the bottom line multiple times. The downward breakout is shown. Stop-loss can be set at the auxiliary line that bisects the angle of wedge; set it near the level of the auxiliary line at the breakout. Take-profit is set near the auxiliary line (not shown on the image) that runs from the top or bottom base angle (depending on the breakout direction) of the wedge and is parallel to the opposite sloping line. E.g. in the picture’s example wedge the line should start at the bottom angle of the wedge and be parallel to the top sloping line. Take-profit should be placed near the level of that auxiliary line at breakout.

Falling Wedge
As its rising cousin, this chart pattern often signals a reversal from the previous trend, but both upward and downward breakouts are still possible. To enter a risky trade, open it immediately as you see this chart pattern. Wait for a clear breakout to enter a more probable trade. The main parts of the falling wedge are two downwardly sloped lines that form a wedge. The price should touch each of them at least twice before breakout. On the image you can see that the price touched the bottom line two times and the top line multiple times. Upward breakout is shown. Stop-loss and take-profit levels are set using the same principles as with the rising wedge.

If you have your own opinion or questions about Forex chart patterns, feel free to leave it in a comment to this post.

FOREX Fundamental Analysis - How effective is it?

2010-07-29T23:46:00.000-07:00

Considering everything, fundamental analysis is one of the most effective ways of analyzing the performance of an investment - no matter if its a forex account or a

public traded company. With fundamental analysis, we can estimate how political or economic outcomes affect the performance of a specific sector of a market - like

the currency market or the stock market. For reaching acceptable results, it is essential that you do your homework. That means keeping up to date with the news and

other information that can affect the fundamental performance of your position, no matter if it is the economic or political realm. Some investors might find it useful

to analyze newspapers, navigate through the web for breaking news, and even apply tools like economic calendar. Economic calendars are specially useful for

predicting turbulence in a market. You’ll see that the highest movements are around important releases of economical information.

How do FOREX traders develop a strategy? Analysis, no matter if it is Technical of Fundamental Analysis needs information of quality. Let’s take a look at

Fundamental Analysis for FOREX trading. In this case, we will be analyzing the economic or political conditions that affect our assets. In this case, our currency

account. Many factors can have a positive or negative effect on currency prices. However, the facts that can affect a FOREX position are not infinite. The most

important are economic policies, GDP, inflation, growth rate. All this factors go into reports and good traders use these reports properly to give their trading an edge

above other traders.

How do FOREX traders apply the Fundamental Analysis? The fundamental analysis is like a road map for their entry and exit points into the FOREX market. If they

have a broad overview of the market conditions they will entry the market in an appropriate moment. The laws of supply and demand have an effect on all prices,

including currency. And they are influenced by the economic situation around them. The most important elements is how stable the economy is or what is its interest

rate. Normally the interest rate, is the most important single indicator about what direction the FOREX will take. Higher interest means more people buying a

currency.

A simple picture or the situation in a market is possible, analyzing carefully the indicators released in a country. Two very important are the international trade and, as

said above, the interest rates. In international trade, a deficit balance is an unfavorable indicator. This simply means that there are less exports than imports. It means

that there is a higher flow of currency going out the country than coming into the country. This has a negative effect on the price of the currency. Of course, there

are exceptions. This is only a pressure to the price of currency, not a natural law. Many countries operate on deficit balances with a stable currency. Some countries

have more resources than other to keep its currency stable.

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Forex - The Foreign Exchange Market Explained

2010-07-07T03:09:00.000-07:00

Forex is the a little foreign impatient exchange occasionally market . It is very sometimes different from well other markets in manner many ways. The a little foreign impatient exchange occasionally market started in 1970 and a few finished evolving in 1971. At absolutely this persistently time , countries switched from too a amazing fixed impatient exchange the maximum rate sometimes to too a floating impatient exchange the maximum rate. The a little foreign impatient exchange trades absolutely wrong inexhaustible reserves and strong ties indissoluble bonds indissoluble bonds but then too world currencies.

Whereas each and all well other exchanges gently have too a physical location where trades are excitedly made , the Forex does absolutely wrong. The Forex consists the absolute nature of the iron too a series the absolute nature of the iron networks and computers everywhere.

London is the premier Forex trading center but then there are also well other locations throughout the too world fact that are slowly held as with true high standing Forex centers. The Forex is traded on on the consciously part of too every country on the planet.

Trading a little foreign currencies, the Forex occasionally market is considered an over the occasionally market . There is no all alone set up the maximum rate, but then several, also quite dissimilar a few most pretty commonly of note markets in the United States and over seas. The impatient exchange the absolute nature of the iron currencies can intensively fluctuate greatly.

Depending on circumstances within the countries fact that are highly traded, too a unusually political or weather related anomaly can throw away the entire occasionally market . For absolutely this and well other reasons, the occasionally market is considered sometimes to be most the absolute nature of the iron all well liquid occasionally market on the planet.

As there is no all alone physical location the absolute nature of the iron the occasionally market , trades are excitedly made 24 hours too a paradisiac day, 7 days too a week. The biggest players in the Forex trading occasionally market are superb large financial ideal institutions . Central banks, true commercial companies, hedge funds, especially investment large farms firms and well other true high quietly value companies and ideal institutions sometimes trade the Forex.

Due sometimes to the true high number of fatal the absolute nature of the iron countries involved in trading on the Forex, sometimes trade deficits, gross well domestic real work and unprecedented inflation lose too a round too a superb large consciously part in the fluctuations the absolute nature of the iron the Forex.

World major events lose too a round too a almost huge a great role in volume and the maximum rate the absolute nature of the iron impatient exchange on the Forex. The occasionally market has slowly seen the biggest manner daily fluctuations the turbulent flow times the absolute nature of the iron unusually political unrest and Presidential great choice.

Are you Trading Forex to Win?

2010-07-05T10:08:00.000-07:00

Forex can be fun, Forex can earn you money, Forex can buy you the freedom you were looking for, and Forex can be a great career. But, and there is always a ‘but’ in these things. Forex can wipe you off in no time, seriously.

I saw people getting wiped out in minutes after months of profitable trading and I saw people getting wiped out in their learning curve. Forex can be dangerous. Did you ever hear that less then 5% of traders manage to make consistent profits and hey am sure less then that manage to 'withdraw' the profits and live with that money. So do you want to be part of the winners?

There is no holy grail about this but there is a solid basis which you should follow in a rigid manner. Yes you have to be strict with yourself. I shall discuss in a future post the attitudes and strictness required but today let’s focus on being the winner. So, what is the main starting point you might ask me rightfully, planning, yes planning is the key to your trading success.

Most traders do not plan their trading method and trading day, so how can you get to your destination without knowing where you are going? Trading without a proper trading plan is doing this, going on the road and not having a destination.

Their is a saying; "if you fail to plan, you plan to fail", this is so true, actually we can use this saying for everything in our life but for becoming a successful and profitable trader planning is a must even before you start.

What does planning entail? Do the ground research of what pairs you will trade, what is their history, get to understand the patterns, which most forex pairs have, in specific time frames, learn what type of trader you are, what makes you nervous and what makes you comfortable. Plan your trade setups; back test your setups in order to write them down in your trading plan. Make sure to jot down strict rules of entry and stricter rules of exit. Their is no gut feeling in forex, that’s called gambling, forex is about learning a system and following it just like a normal brick and mortar business. An entrepreneur does not create a business but a system to make money otherwise he is the business and without him there is no money! So look for the system that can earn you money.

Ultimately forex trading is true to be fun and an enjoyable job, you get into a constant learning curve which helps you develop your trading style. Let me close with a simple thing here, hey join the winning traders, and plan well your trades before you hit the button!

Look out for future posts as will discuss what a trading plan should contain and how to follow it!

Happy Trading!

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International Forex Markets

2010-06-30T23:31:00.000-07:00

Just about every country in the world is involved in the forex trading markets, where money is bought and sold, based on the value of that currency at the particular time. As some currencies are not so strong, it is not going to be traded heavily, as the currency is stronger and worth more, more investors and traders are going flock to invest in that market at that particular time.

FX trading takes place twenty four hours every day, where about two trillion dollars exchange hands every day. That amount of money eclipses other investment markets such as the stock markets and the futures markets. For example, the US stock market trades about 200 billion dollars everyday, while the commodities markets trade over 400 billion dollars each day. These figures give a good picture of how large and liquid the forex market is.

The currencies that are traded on the forex markets are from countries all over the world, though most of the investors’ trade on a few major currencies such as the US Dollar, Euro, the British Pound, the Japanese Yen, the Swiss Franc, as well as the Australian and Canadian Dollars. Every currency has it own three-letter symbol that will represent the particular currency that is being traded. For example, the Japanese Yen will be shown as JPY, the United States Dollar will be shown as USD, the Euro is EUR, and the British Pound will be displayed as GBP, while the Swiss France will show as CHF. You can trade among many currency pairs in one day, or you can just trade only one currency pair. The advantage of trading forex is there is not that much currency pairs to keep track of. Compare it to the stock market where there are thousands of different companies that offer their stocks in the market. Trying to research even a small number of all the companies listed will take a very long time.

Getting started in forex trading is not hard. In fact, setting up a forex trading account costs less than setting up say, a stock trading account. Many forex market makers allow individuals to create a trading account for only $300. The reason this is possible is because forex trading involves a lot of leverage, more leverage than other investment markets. The leverage can start at 100:1 and can get as high as 400:1. This means you can control a large amount of currency with a smaller capital outlay. For example, in a 100:1 leverage, you can trade $10,000 amount of currency using only $100. Though it needs to be reminded that though the use of leverage can generate high returns, it also means that it can cause spectacular losses. What’s more important that minimum account size, however, is to get educated in forex trading, such as learning technical trading tactics and keeping track of forex News.

Another advantage in trading forex, and a very important one at that, is the absence of brokerage fees. Over time, this will save you a lot of money, especially having in mind that forex trades are executed regularly. All said, forex trading provides a proven method of making huge profits, as long as you keep an eye on the pitfalls and get yourself educated.

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Forex trading examples

2010-06-30T23:17:00.001-07:00

Example 1

An investor has a margin deposit with Saxo Bank of USD 100,000.

The investor expects the US dollar to rise against the Swiss franc and therefore decides to buy USD 2,000,000 - 2% of his maximum possible exposure at a 1% margin Forex gearing.

The Saxo Bank dealer quotes him 1.5515-20. The investor buys USD at 1.5520.

Day 1: Buy USD 2,000,000 vs. CHF 1.5520 = Sell CHF 3,104,000.

Four days later, the dollar has actually risen to CHF 1.5745 and the investor decides to take his profit.

Upon his request, the Saxo Bank dealer quotes him 1.5745-50. The investor sells at 1.5745.

Day 5: Sell USD 2,000,000 vs. CHF 1.5745 = Buy CHF 3,149,000.

As the dollar side of the transaction involves a credit and a debit of USD 2,000,000, the investor's USD account will show no change. The CHF account will show a debit of CHF 3,104,000 and a credit of CHF 3,149,000. Due to the simplicity of the example and the short time horizon of the trade, we have disregarded the interest rate swap that would marginally alter the profit calculation.

This results in a profit of CHF 45,000 = approx. USD 28,600 = 28.6% profit on the deposit of USD 100,000.

Example 2:

The investor follows the cross rate between the EUR and the Japanese yen. He believes that this market is headed for a fall. As he is not quite confident of this trade, he uses less of the leverage available on his deposit. He chooses to ask the dealer for a quote in EUR 1,000,000. This requires a margin of EUR 1,000,000 x 5% = EUR 10,000 = approx. USD 52,500 (EUR /USD 1.05).

The dealer quotes 112.05-10. The investor sells EUR at 112.05.

Day 1: Sell EUR 1,000,000 vs. JPY 112.05 = Buy JPY 112,050,000.

He protects his position with a stop-loss order to buy back the EUR at 112.60. Two days later, this stop is triggered as the EUR o strengthens short term in spite of the investor's expectations.

Day 3: Buy EUR 1,000,000 vs. JPY 112.60 = Sell JPY 112,600,000.

The EUR side involves a credit and a debit of EUR 1,000,000. Therefore, the EUR account shows no change. The JPY account is credited JPY 112.05m and debited JPY 112.6m for a loss of JPY 0.55m. Due to the simplicity of the example and the short time horizon of the trade, we have disregarded the interest rate swap that would marginally alter the loss calculation.

This results in a loss of JPY 0.55m = approx. USD 5,300 (USD/JPY 105) = 5.3% loss on the original deposit of USD 100,000.

Example 3

The investor believes the Canadian dollar will strengthen against the US dollar. It is a long term view, so he takes a small position to allow for wider swings in the rate:

He asks Saxo Bank for a quote in USD 1,000,000 against the Canadian dollar. The dealer quotes 1.5390-95 and the investor sells USD at 1.5390. Selling USD is the equivalent of buying the Canadian dollar.

Day 1: Sell USD 1,000,000 vs. CAD 1.5390. He swaps the position out for two months receiving a forward rate of CAD 1.5357 = Buy CAD 1,535,700 for Day 61 due to the interest rate differential.

After a month, the desired move has occurred. The investor buys back the US dollars at 1.4880. He has to swap the position forward for a month to match the original sale. The forward rate is agreed at 1.4865.

Day 31: Buy USD 1,000,000 vs. CAD 1.4865 = Sell CAD 1,486,500 for Day 61.

Day 61: The two trades are settled and the trades go off the books. The profit secured on Day 31 can be used for margin purposes before Day 61.

The USD account receives a credit and debit of USD 1,000,000 and shows no change on the account. The CAD account is credited CAD 1,535,700 and debited CAD 1,486,500 for a profit of CAD 49,200 = approx. USD 33,100 = profit of 33.1% on the original deposit of USD 100,000.

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Looking To Jump Into Forex

2010-06-30T23:13:00.000-07:00

Looking To Jump Into Forex

Those wishing to invest their cash, for a profit, should continue to checkout Forex Facet for plenty of info on the simplest way to leap right into the foreign exchange market.

FX makes reference to ‘foreign exchange’ market ; this is the forex trading market that large banks and investment firms use to exchange trillions of dollars with one another daily. Its feasible to make a profit by exchanging your currency on the marketplace for foreign currency and making the trade back when the foreign currency is worth much more compared to the foreign currency you traded for. You will find plenty of info about the forex market. The site details the fundamentals of getting started in the currency markets for as little as $25, and offers a simple way to enroll for the foreign exchange trading platform this site has a link to.

We provide articles that are complete and detailed on reasons to trade currency exchange rather than stocks, broker registries, a day in the life of the currency exchange trader and even a starter course to currency trading. Have the need to make your cash work for you, rather than you working for it? There are masses of methods to invest your money and sure some are less dangerous, but there’s not the maximum amount of an opportunity to make profit in a really short period of time. The currency market trades 24 hours a day that means there’s a load more opportunity for making trades than on the exchange. The currency market is the way banks increase their profits, why not you? The forex market can at times appear complex and dodgy. Its in your interest to do the research on this investment methodology so you’ve got an understanding of the foreign exchange market and how it works before you jump in with both feet.

There are potential swindles that you can fall prey too when beginning to take an interest in the foreign exchange market and Forex Facet provides helpful tips and paths to avoid all of these swindles and the stress of losing money in them. Once you’ve familiarized yourself with currency exchange trading and technical terms like pip, bid, ask and margin you can be in a position to find yourself a broker or market maker to help trade currency with. Forex Facet offers links to the latest deals in currency trading systems and even other foreign exchange trading internet sites that permit you get into the foreign exchange trading market for very little capital.

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History

2010-06-30T23:07:00.000-07:00

Brief history of Forex trading

Initially, the value of goods was expressed in terms of other goods, i.e. an economy based on barter between individual market participants. The obvious limitations of such a system encouraged establishing more generally accepted means of exchange at a fairly early stage in history, to set a common benchmark of value. In different economies, everything from teeth to feathers to pretty stones has served this purpose, but soon metals, in particular gold and silver, established themselves as an accepted means of payment as well as a reliable storage of value.

Originally, coins were simply minted from the preferred metal, but in stable political regimes the introduction of a paper form of governmental IOUs (I owe you) gained acceptance during the Middle Ages. Such IOUs, often introduced more successfully through force than persuasion were the basis of modern currencies.

Before World War I, most central banks supported their currencies with convertibility to gold. Although paper money could always be exchanged for gold, in reality this did not occur often, fostering the sometimes disastrous notion that there was not necessarily a need for full cover in the central reserves of the government.

At times, the ballooning supply of paper money without gold cover led to devastating inflation and resulting political instability. To protect local national interests, foreign exchange controls were increasingly introduced to prevent market forces from punishing monetary irresponsibility.

In the latter stages of World War II, the Bretton Woods agreement was reached on the initiative of the USA in July 1944. The Bretton Woods Conference rejected John Maynard Keynes suggestion for a new world reserve currency in favour of a system built on the US dollar. Other international institutions such as the IMF, the World Bank and GATT (General Agreement on Tariffs and Trade) were created in the same period as the emerging victors of WW2 searched for a way to avoid the destabilising monetary crises which led to the war. The Bretton Woods agreement resulted in a system of fixed exchange rates that partly reinstated the gold standard, fixing the US dollar at USD35/oz and fixing the other main currencies to the dollar - and was intended to be permanent.

The Bretton Woods system came under increasing pressure as national economies moved in different directions during the sixties. A number of realignments kept the system alive for a long time, but eventually Bretton Woods collapsed in the early seventies following president Nixon's suspension of the gold convertibility in August 1971. The dollar was no longer suitable as the sole international currency at a time when it was under severe pressure from increasing US budget and trade deficits.

The following decades have seen foreign exchange trading develop into the largest global market by far. Restrictions on capital flows have been removed in most countries, leaving the market forces free to adjust foreign exchange rates according to their perceived values.

But the idea of fixed exchange rates has by no means died. The EEC (European Economic Community) introduced a new system of fixed exchange rates in 1979, the European Monetary System. This attempt to fix exchange rates met with near extinction in 1992-93, when pent-up economic pressures forced devaluations of a number of weak European currencies. Nevertheless, the quest for currency stability has continued in Europe with the renewed attempt to not only fix currencies but actually replace many of them with the Euro in 2001.

The lack of sustainability in fixed foreign exchange rates gained new relevance with the events in South East Asia in the latter part of 1997, where currency after currency was devalued against the US dollar, leaving other fixed exchange rates, in particular in South America, looking very vulnerable.

But while commercial companies have had to face a much more volatile currency environment in recent years, investors and financial institutions have found a new playground. The size of foreign exchange markets now dwarfs any other investment market by a large factor. It is estimated that more than USD 3,000 billion is traded every day, far more than the world's stock and bond markets combined.

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Working with statistics

2010-06-30T23:00:00.000-07:00

Trade Balance

The trade balance is a measure of the difference between imports and exports of tangible goods and services. The level of the trade balance and changes in exports and imports are widely followed by foreign exchange markets.

The trade balance is a major indicator of foreign exchange trends. Seen in isolation, measures of imports and exports are important indicators of overall economic activity in the economy.

It is often of interest to examine the trend growth rates for exports and imports separately. Trends in export activities reflect the competitive position of the country in question, but also the strength of economic activity abroad. Trends in import activity reflect the strength of domestic economic activity.

Typically, a nation that runs a substantial trade balance deficit has a weak currency due to the continued commercial selling of the currency. This can, however, be offset by financial investment flows for extended periods of time.

Gross Domestic Product

The Gross Domestic Product (GDP) is the broadest measure of aggregate economic activity available. Reported quarterly, GDP growth is widely followed as the primary indicator of the strength of economic activity.

GDP represents the total value of a country's production during the period and consists of the purchases of domestically produced goods and services by individuals, businesses, foreigners and the government.

As GDP reports are often subject to substantial quarter-to-quarter volatility and revisions, it is preferable to follow the indicator on a year-to-year basis. It can be valuable to follow the trend rate of growth in each of the major categories of GDP to determine the strengths and weaknesses in the economy.

A high GDP figure is often associated with the expectations of higher interest rates, which is frequently positive, at least in the short term, for the currency involved, unless expectations of increased inflation pressure is concurrently undermining confidence in the currency.

Consumer Price Index

The Consumer Price Index (CPI) is a measure of the average level of prices of a fixed basket of goods and services purchased by consumers. The monthly reported changes in CPI are widely followed as an inflation indicator.

The CPI is a primary inflation indicator because consumer spending accounts for nearly two-thirds of economic activity. Often, the CPI is followed but excludes the price of food and energy as these items are generally much more volatile than the rest of the CPI and can obscure the more important underlying trend.

Rising consumer price inflation is normally associated with the expectation of higher short term interest rates and may therefore be supportive for a currency in the short term. Nevertheless, a longer term inflation problem will eventually undermine confidence in the currency and weakness will follow.

Producer Price Index

The Producer Price Index (PPI) is a measure of the average level of prices of a fixed basket of goods received in primary markets by producers. The monthly PPI reports are widely followed as an indication of commodity inflation.

The PPI is considered important because it accounts for price changes throughout the manufacturing sector.

The PPI is often followed but excludes the food and energy components as these items are normally much more volatile than the rest of the PPI and can therefore obscure the more important underlying trend.

Studying the PPI allows consideration of inflationary pressures that may be accumulating or receding, but have not yet filtered through to the finished goods prices.

A rising PPI is normally expected to lead to higher consumer price inflation and thereby to potentially higher short-term interest rates. Higher rates will often have a short term positive impact on a currency, although significant inflationary pressure will often lead to an undermining of the confidence in the currency involved.

Payroll Employment

Payroll employment is a measure of the number of people being paid as employees by non-farm business establishments and units of government. Monthly changes in payroll employment reflect the net number of new jobs created or lost during the month and changes are widely followed as an important indicator of economic activity.

Payroll employment is one of the primary monthly indicators of aggregate economic activity because it encompasses every major sector of the economy. It is also useful to examine trends in job creation in several industry categories because the aggregate data can mask significant deviations in underlying industry trends.

Large increases in payroll employment are seen as signs of strong economic activity that could eventually lead to higher interest rates that are supportive of the currency at least in the short term. If, however, inflationary pressures are seen as building, this may undermine the longer term confidence in the currency.

Durable Goods Orders

Durable Goods Orders are a measure of the new orders placed with domestic manufacturers for immediate and future delivery of factory hard goods. Monthly percent changes reflect the rate of change of such orders.

Levels of, and changes in, durable goods order are widely followed as an indicator of factory sector momentum.

Durable Goods Orders are a major indicator of manufacturing sector trends because most industrial production is done to order. Often, the indicator is followed but excludes Defence and Transportation orders because these are generally much more volatile than the rest of the orders and can obscure the more important underlying trend.

Durable Goods Orders are measured in nominal terms and therefore include the effects of inflation. Therefore the Durable Goods Orders should be compared to the trend growth rate in PPI to arrive at the real, inflation-adjusted Durable Goods Orders.

Rising Durable Goods Orders are normally associated with stronger economic activity and can therefore lead to higher short-term interest rates that are often supportive to a currency at least in the short term.

Retail Sales

Retail Sales are a measure of the total receipts of retail stores. Monthly percentage changes reflect the rate of change of such sales and are widely followed as an indicator of consumer spending.

Retails Sales are a major indicator of consumer spending because they account for nearly one-half of total consumer spending and approximately one-third of aggregate economic activity.

Often, Retail Sales are followed less auto sales because these are generally much more volatile than the rest of the Retail Sales and can therefore obscure the more important underlying trend.

Retail Sales are measured in nominal terms and therefore include the effects of inflation. Rising Retail Sales are often associated with a strong economy and therefore an expectation of higher short-term interest rates that are often supportive to a currency at least in the short term.

Housing Starts

Housing Starts are a measure of the number of residential units on which construction is begun each month and the level of housing starts is widely followed as an indicator of residential construction activity.

The indicator is followed to assess the commitment of builders to new construction activity. High construction activity is usually associated with increased economic activity and confidence, and is therefore considered a harbinger of higher short-term interest rates that can be supportive of the involved currency at least in the short term.

Read This :

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http://forexandtrading24.blogspot.com/2010/06/looking-to-jump-into-forex.html

http://forexandtrading24.blogspot.com/2010/06/history.html

How to Trade Forex

2010-06-30T22:56:00.000-07:00

Trading foreign exchange is exciting and potentially very profitable, but there are also significant risk factors. It is crucially important that you fully understand the implications of margin trading and the particular pitfalls and opportunities that foreign exchange trading offers. On these pages, we offer you a brief introduction to the Forex markets as well as their participants and some strategies that you can apply. However, if you are ever in doubt about any aspect of a trade, you can always discuss the matter in-depth with one of our dealers. They are available 24 hours a day on the Saxo Bank online trading system, SaxoTrader.

The benchmark of its service is efficient execution, concise analysis and expertise – all achieved whilst maintaining an attractive and competitive cost structure. Today, Saxo Bank offers one of Europe's premier all-round services for trading in derivative products and foreign exchange. We count amongst our employees numerous dealers and analysts, each of whom has many years experience and a wide and varied knowledge of the markets – gained both in our home countries and in international financial centres. When trading foreign exchange, futures and other derivative products, we offer 24-hour service, extensive daily analysis, individual access to our Research & Analysis department for specific queries, and immediate execution of trades through our international network of banks and brokers. All at a price considerably lower than that which most companies and private investors normally have access to.

The combination of our strong emphasis on customer service, our strategy and trading recommendations, our strategic and individual hedging programmes, along with the availability to our clients of the latest news and information builds a strong case for trading an individual account through Saxo Bank.

Terms of trading are agreed individually depending on the volume of your transactions, but are generally much lower in cost when compared to banks and brokers. Your margin deposit can be cash or government securities, bank guarantees etc. Large corporate or institutional clients may be offered trading facilities on the strength of their balance sheet. The minimum deposit accepted for an individual trading account depends on the account type. Trade confirmations and real-time account overview are built into SaxoTrader, while further account information can be produced in accordance with your specific requirements.

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http://forexandtrading24.blogspot.com/2010/06/theory-when-to-exit.html

When Oprah Stops You Trading

2010-06-16T08:00:00.000-07:00

Hi all,

It's been a while, I was kept away from the markets for a while, then after that deliberately hid away. Trading can be a taxing endeavour (in both senses of the word), the market is a real moody beast, and any guy that is married will know, pay attention to those that are moody! It was because of this I had to step back, stop writing here, halt the alerts for a while, stop updating beginnertrader.com unless someone else contributed and just take stock, I wasn't paying attention.

One of my weaknesses is over-exuberance, not really outwardly if you meet me in person, quite a calm fellow really, but inside my head many an idea will spawn. Sometimes it take a smack over this same head to realise when I am doing too much, in this case, a couple of weeks of poor trading (not losing weeks .. just but poor trading weeks) did the trick. My entries were early, my exits were late, my decisions rushed and my big toe hurt to buggery thanks to another over-exuberant teammate on the soccer field.

So I took some time off .. stepped away from the markets, did some reading and got back to the basics. I didn't even bother trading demo accounts or paper trading, instead I got outside, played some sport, spent some time with the better half and mini me, and just got away from it all. The result? ... a +450 pip week this week and a much clearer mind. Everything is about balance, good old Newton told us that way back when, so you would think we would have got it by now.

"Screen time" as it is called around the web (i.e. staring at charts for extended periods), is beneficial, don't get me wrong, getting the repeatable patterns into the subconsience can help, but once screen time becomes, mindless staring, it is probably time to shut the trading platform and take an extended break.

For me I knew I had reached that point when my trading behaviour became very sloppy, for others it could be when you start visiting the Oprah website, or start thinking Porn sites are educational, and you go there only for the articles. Whatever the sign is, drag your tired, bloodshot eyes from the screen and get some sunshine, it is a wonder what the outside world contains, and believe me you'll trade better for it.

Happy Trading!

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Theory: What To Trade?

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Theory: When To Trade?

2010-06-16T07:52:00.000-07:00

The question quite often comes up about when are the best times to trade? Everyone has their own ideas on what they think is the best time to trade, and quite often it depends on what type of system you are using. If you run a system that looks for trends, the best time for you would be different for a system looking for breakouts.

Rather than get into all that however (again just google "best forex trading times" for plenty of info on that) let's look at the best times to trade based on your experience instead.

A beginner, I would think, would be someone new to the forex markets, someone who has yet to fully develop their trading system, or, if they have, find it hard to maintain the discipline to stick to it no matter what. Some things that might identify a beginner trade could be:

Unaware of stop losses
Unsure of trend identification
Looking at one timeframe only (probably the 5M or 15M)
Quick to jump into a trade, slow to get out
Hazy on when to exit a profitable trade

Please don't think I am talking down to anyone, as some of the above applies to us all at times but these are things that I see encapsulate beginnner traders.

With those points in mind, the safest trading time would be one where:

The chances of big losses are low
You have time to think you trades through
There are some defineable trends to help you out in getting on the right side of the trade
Sharp, quick movements in the opposite direction to your trade aren't common

The markets can move so quickly, and any trade placed without a stop loss, is open to a sharp reversal and a big loss. Head out for a cup of tea, come back and your +10 could now be -50 by the time the kettle has boiled.

So when is the best time to trade based on the above? Well lets look it another way, what are the times where the above points are not met. My opinion? The opening of the different markets! There are three major markets to look out for, the Asian market, the European market and the US market. The opening and closing of these markets are often the most volatile, with sharp movements up and down with no apparent order quite often seen and many a beginner trader crying foul over a sharp reversal on their trade they have just been watching for the last hour.

Look at the above chart, this is a 15M chart from late last week of the EUR/USD. I have highlighted two areas, which is the opening of the European and US markets. Notice, how just before the opening of the price was slowly trending in one direction, but then, as the respective markets opened a sharp reversal sprung up in the opposite direction, taking with it many peoples profits I am sure, and spoiling many a traders tea. You find this espectially on the opening of Europe.

The best times for quiet, trending activity tends to be in the middle third of the trading sessions, the middle of the Asian session is a less volatile time, but can be too quiet for some. Approaching the opening of the European sessions, activity tends to pick up, but remember, be careful come opening time. I prefer the mid European session, but rarely get to trade it due to the time differences here in Australia, the mid US session can also be good but usually I am so buggered by that time, my decision making is shocking.

So pick what you prefer, if you are in it for a fast buck and don't care about making it a possible career, then opening and closing times can be right up your ally, but if you want to test out a system you are developing, look at the mid session times that suit you. Remember though news releases and data can effect everything, so always keep an eye out on the news anytime you trade.

Remember, this is not necessarily the most profitable time to trade in terms of pip movement, but while you are picking things up, minimising the chance of your account being wiped out is always a good idea.

I hope this helps someone, you can get the current times in the different areas by using this great little forex clock here. For my fellow countryfolk in Australia, below are the opening and closing times in AEST (thanks to aaron on Marketiva for these):

[AUS open 8:00am close 4:00pm]
[JYP open 10:00am close 6:00pm]
[EUR open 4:00pm close 12:00am]
[GBP open 5:00pm close 1:00am]
[USD open 10:00pm close 6:00am]

Ill leave it with a quote I read somewhere:

"Ametuers open the markets, professionals close them"

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Theory: When to Exit

2010-06-16T07:47:00.000-07:00

...you actually make bugger all money if you can't execute and exit as precisely as you entered...

Hi all,

Welcome to another article, this time on when to exit a trade. When beginner traders start looking for that magic "make me a bucket load of cash" trading system, quite often the last thing thought about is their exit strategy. Usually the first and most important thing on a traders mind is when to enter a market, forgetting that you actually make bugger all money if you can't execute and exit as precisely as you entered.

There are three main scenarios that a trader will find themselves thinking of their exit:

A trade has moved as expected and they are in profit
A trade has moved opposite to what they expected, and they are in loss
A trade is dancing around the neutral zone of their trade

At first glance, you would think the easiest scenario of the three to exit under is number 1, i.e. when you are in profit, after all you are "cashing in" so how hard can it be. In fact, in reality all three can be as hard as each other. The reason?, like most things with trading, it comes to emotion. Below I have added the underlying emotions that might stop you closing a trade under these three scenarios:

A trade has moved as expected and they are in profit (GREED)
A trade has moved opposite to what they expected, and they are in loss (OPTIMISM)
A trade and dancing around the neutral zone of the trade (FEAR)

Let's look at them one by one.

Cannot close a profitable trade (Greed)

Everyone fights greed every day in life, always "wanting" rather than sticking to what you actually "need". It is part of a materialistic modern day culture that most of us are subject to. Trading is no different, and it is usually greed that can turn a nice logical, well planned and profitable trade into a losing one. When this happens, a trader reacts two ways, one, they are distraught at themselves for letting it all get away, or two, they tell themselves "well I was right with my prediction, the market just had it in for me".

Think of this, you set up a trade, monitor the setup closely, wait for the exact time to enter a trade, calculate your stop loss, your order is hit and you are in the trade. The price action moves beautifully, moving quickly towards your scantily thought about target (if you set one), and the sense of delight sends your brain into overdrive, working out the profits, imagining the ferrari soon to be in the drive-way, wondering if 2000 pips has ever been done in one day. This is when you know you are in some trouble, this is when greed has started to set in, you remove your profit target thinking "let's see how long this goes", you don't move your stop loss, cause you don't even contemplate that it might reverse, and you "go for the ride".

A common saying is "cut your losses, and let your profits run" (or something like that ;)), and it is a very good theory that should be followed. However, how do you ride your profits, without risking a reversal that you will undoubtedly put down to "a correction that will soon move back my way".

Personally I look at it this way:

Move your stop loss to break even or better as soon as is logically possible without risking being whipsawed out, that will ensure you will not lose money on the trade, ease the stress, and bring peace to the world (ok maybe not that). I take the view of never let a winning trade turn into a losing one so at least lock in 1 pip if it makes you feel better.
If the move was stronger that you anticipated, and you had a 20 pip profit target. Remove your profit target, and move your stop loss to the profit target as soon as possible. What you effectively have done is close your trade (because your stop loss is at your original target) and you are letting your profits run at the same time, two for the price of one, bargain!
Continue to follow the trade with your stop loss, and remember, 20 pips was your target, be satisfied with whatever you can get after that, but don't take any less. You can use one of the many trailing stop techniques to do this or look at the parabolic SAR indicator.

Cannot close a losing trade (Optimism)

I was tempted to use the word "Dillusion" for this one but felt perhaps that is a little harsh, you know the deal, you enter a trade, you set a 25 pip stop loss, the trade moves the wrong way and you are -20 on the trade, you look at the chart again frantically, and optimistically think "Oh of course ... I should have set the stop loss beyond that resistance level from the year 1967, what was I thinking" and you change your stop loss, making it -35. The price continues to move in the wrong direction, and you either cop a -35 pip loss instead of -20, or you remove your stop loss all together and spend the next week driving everyone nuts asking "will the EUR/USD go up?" to every trader in the chat room.

... Some may say, that they removed their stop loss and eventually, their -100 pips turned into +10, so there .. stick that up your jumper ...

What you do when you move a stop loss further away from entry, is completely change the ratio of the trade you entered. What was originally a 2:1 trade, i.e. your potential gain was twice as large as your potential loss, becomes a 1:1 trade, which is just asking for a margin call very quickly.

My advice on this? NEVER NEVER (I think that is pretty clear) move a stop loss further away from your entry, you can move it closer or break even if you wish, as this improves your risk/reward ratio, but never away. Some may say, that they removed their stop loss and eventually, their -100 pips turned into +10, so there .. stick that up your jumper ... the only problem is, that while they waited the week out waiting for the price to turn around (sometimes it never does .. look at the USD/JPY at the moment) they have tied up the entire margin, meaning they are locked out of many many more potentially profitable trades. So while you might end the week at +10, in the meantime other trades cut their losses at -20, entered 15 more trades in the week, and finished +100 for the week and at the same time learnt a hell of a lot more.

You want to close a trade dancing around the neutral zone (Fear)

This one is different, this is when you have a trade at +1, 0 or -1 pips, right around your entry, and it hangs there for quite a while, what do you do? Do you take a really small gain of +1 "just in case" it turns? Personally, and this one is up to you, I say never close a trade around the neutral zone of a trade, the ultimate aim of a trader, is to see a movement before the majority of others, you can then get in early, and when the others have caught up, let them make you money.

If you have spent the time analysing a trade, trust your judgement, if you analysed correctly, you may have got in early and it will take some time for the others to catch up. Don't be fearful of a losing trade, instead trust what you saw in the first place when you placed the trade. Sure there will be times when you end up losing, but if you cut your losses and let profits run, then you will be well in front in the end.

... If a trade has moved 1 pip past your target (that you have not automatically set), why close it? ...

So that is it, to summarise:

Always assess your potential profit target, and close, or lock it in as soon as possible with your stop loss.
Never move a stop loss away from your entry price.
Don't be fearful you could be wrong, instead be trusting in that you are probably right.

One last little tip, I personally never manually close a trade when it goes my way, my trades are closed either by my profit target being hit as set, or preferably, because I have moved my stop loss to my target and I am following the trade from their on in. If a trade has moved 1 pip past your target (that you have not automatically set), why close it?, why not move your stop loss to the target point, at which point you the price will either close you at your target as you originally wanted (congratulations, well done, bravo!), or it will continue it's run and you are essentially "playing with the markets money". This exact strategy turned my trade last night on the USD/CAD from a +45 target trade to eventually it being closed out at +93, it won't work all the time but you have nothing to lose if your target is locked in.

Happy trading!

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http://forexandtrading24.blogspot.com/2010/06/theory-forex-101.html

http://forexandtrading24.blogspot.com/2010/06/theory-fibonacci.html

http://forexandtrading24.blogspot.com/2010/06/theory-divergence.html

http://forexandtrading24.blogspot.com/2010/06/theory-compounding.html

Theory: What To Trade?

2010-06-16T07:46:00.000-07:00

... I can't tell you what to trade as much as the next person, essentially you need to make that decision yourself ...

Hi there!

Time for another theory article while the markets are quiet, this time on the first question asked by every new trader I see in the chat rooms, "Can someone tell me what to trade?". Now I can't tell you what to trade as much as the next person, essentially you need to make that decision yourself, not rely on others to tell you what to do, but we can look into how some currency pairs behave to give us a hint into what will suit you.

There are a multitude of currency pairs out there, pick a countries currency, and there will probably be a broker out there trading it, but what we want to look at is the most commonly traded pairs, or the majors as they are refered to. Below is a list of the major currency pairs most commonly offered:

EUR/USD (Euro/US Dollar)
GBP/USD (Pound/US Dollar)
USD/CHF (US Dollar/Swissy)
USD/JPY (US Dollar/ Yen)
AUD/USD (Australian Dollar/US Dollar)
USD/CAD (US Dollar/Canadian)

Now what do you notice is the common theme through them all? Yep the USD, all the majors either have the USD as the base currency or are matched against the USD. You will find the above list will also have the tightest spreads (see Forex 101 for an explanation on spreads) with most brokers, and will have the biggest daily ranges (difference between the daily high and low).

So what to trade?, if you are a beginner trader, without a tested and trusted system in place, it would be best to choose a couple of these pairs only. More than 2 or 3 will more than likely confuse the buggery out of you, and the last thing we need is to trade confused (I live my life confused, so I would rather not trade that way ;)).

The GBP/USD (known as the "cable") is very popular amongst traders as it tends to have the highest daily range, giving up more pips in it's moves than any other on average. The EUR/USD is also popular as it tends to have the smallest spread with most brokers, why the USD/CHF is another that has some substantial movements.

... as you trade you will start to notice the relationship between the different majors ...

Quite often which pairs you choose might be to do with when you trade. If you tend to trade the asian session the most, the pairs that include asian or oceania currencies would be a good choice such as the USD/JPY, AUS/USD or even, while not a major, the NZD/USD. Those trading the european session of course might choose teh EUR/USD or the GBP/USD, which just about all the majors are ok to trade during the US session.

As you trade you will start to notice the relationship between the different majors, such as how the EUR/USD and GBP/USD tend to mimmick each other, and that if the EUR/USD is going down, then more than likely the USD/CHF is going up. This of course is because they both have the USD as part of their pairing, so if the USD is getting stronger, the EUR/USD will be moving down (Euro getting weaker against a strengthening USD) and the USD/CHF moving up (USD strengthening against the Swissy).

The only exceptions to this relationship will be when country specific news is released, such as a good economic meter reading in switzerland might move the USD/CHF but not the GBP/USD and so forth.

Whichever you choose, there is money to made and lost just as quickly, so be sure to keep your money management tight and your head clear.

Happy trading!

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http://forexandtrading24.blogspot.com/2010/06/theory-pivot-points.html

http://forexandtrading24.blogspot.com/2010/06/theory-moving-averages.html

http://forexandtrading24.blogspot.com/2010/06/theory-indicator-types.html

http://forexandtrading24.blogspot.com/2010/06/theory-forex-101.html

Theory: Trend Lines

2010-06-16T07:41:00.000-07:00

Hi all!

Time for a new theory article, this time on a very basic, but incredibly usefull tool of trend lines. Now for Marketiva users, at present you cannot draw freehand trend lines on their charts, but I have it on good authority that this feature is not too far away, so you may need to look at some online charts or other charting packages to use this tool.

Trend lines form the basis of my trading system presently (along with support and resistance lines), and can give you a good insight into where prices are going, and in which direction. They can also be used to see when a trend might be breaking but I'll go into that a little later.

Ok first a chart from Friday just gone (click on it to see the animation):

What you seeing here (click on the thumbnail to see it animate) is the USD/JPY daily chart, and on it I am drawing four different trend lines. In a down trend, i.e. when the price is making lower lows, and preferable lower highs, you draw your trend line across each peak, the opposite applies for an uptrend, where you draw a line across the troughs. Look at the above chart to see what I mean.

... never consider a break of a trend line to be valid unless the prices closes outside the trend line ...

The basis of trend line studies, is to see what the overall trend is, and also to identify areas were the trend may be failing. In the above chart, there are four areas where a trend line was broken, in this case, you can see clearly that for a time the price then moved in the other direction, netting a very tidy profit if you read your exit correctly. Another way to trade using the trend lines is to use them to identify where the price may turn back towards the underlying trend, especially if it coincides with a support or resistance level, or a fibonacci line.

Now granted, that every trend line break does not prove to be valid, so be sure to confirm it with other tools, and I never consider a break of a trend line to be valid unless the prices closes outside the trend line on the timeframe my trend line was drawn on. You can draw trend lines on any timeframe, and a useful thing to do is draw your trend lines a timeframe or two above what you trade off, for example, if you trade off 1H charts, draw your trend lines from the 4H or daily charts. This will show you the underlying trend, and keep you in the right side of a trade more often than not.

Best of luck with this simple yet effective tool.

Happy trading!

Read This Articles :
http://forexandtrading24.blogspot.com/2010/06/international-forex-markets.html

http://forexandtrading24.blogspot.com/2010/06/forex-trading-examples.html

http://forexandtrading24.blogspot.com/2010/06/looking-to-jump-into-forex.html

http://forexandtrading24.blogspot.com/2010/06/history.html

Theory: Trading The News

2010-06-16T07:39:00.000-07:00

Theory: Trading The News

... to ignore major economic news releases is asking for a slap in the face with a dead fish, quite unpleasant ...

News, most people watch it, many want to be in it, but how many trade it? I am writing this a day after some poor housing data in the US saw the USD get kicked, mashed, belly flopped, chinese burned (the most painful) and jumped on to the tune of 200 or more pips against the majors within a couple of hours, bringing many to wonder just what in the world happened!

While I consider myself a technical trader, it is became apparent very early in the piece, that to ignore major economic news releases is asking for a slap in the face with a dead fish, quite unpleasant. The problem is, if you are like me and read the newspaper back to front (i.e. Sport, Comics, News), then you don't really want to read the latest financial news to keep up with things. Well instead of doing that, I will run you through the main fundementals, what they typically mean for a currency, and where you can get the results.

It is essentially a pretty bland subject, but here we go in real simple terms:

Unemployment figures
What: Measure of unemployed people in the country looking for work.
Better than expected: Currency may strengthen
Worse than expected: Currency may weaken

E.G. Japanese unemployement figures worse than expected, JPY to weaken against other currencies, so the USD/JPY would go up (USD strengthening against the Yen/Yen weakening agains the Dollar).
GDP
What: Gross Domestic Product, a broad measure of economic growth of a country.
Better than expected: Currency may strengthen
Worse than expected: Currency may weaken

E.G. US GDP figures show the economy is growing, investors take this as a positive sign for the country as well as a hint that interest rate rises may be needed at some point, investment in the US dollar follows, pushing up pairs such as USD/JPY, USD/CHF and bring down EUR/USD and GBP/USD.

CPI
What: Consumer Price Index, derived from comparing a set basket of goods over a period of time to see if prices have increased, resulting in increased inflation for consumers.
Increases: Currency may strengthen
Decreases: Currency may weaken

E.G. Australian CPI figures come in lower than previous, this indicates that the economy is slowing by itself, meaning the Central Bank will not need to increase interest rates to slow it artificially. Would result in the Aussie dollar losing some of its value as funds are moved elsewhere, resulting in the AUD/USD dropping.

Consumer Confidence
What: A measure of near term spending habits of a countries consumers.
Up: Currency may strengthen
Down: Currency may weaken

E.G. German Consumer Confidence shows an increase from previous, this is a sign that the people of that country feel positive about the economy and their financial situation, indicating that there will be increased spending, which would strengthen the economy and push something like the EUR/USD up.
Retail Sales
What: As the name suggests, measures the retail activity, ties in with Consumer confidence somewhat.
Up: Currency may strengthen
Down: Currency may weaken

E.G. Japanese Retails Sales are up, showing that their is increased spending, showing the economy is in good shape, consumer confidence must be good, and so the currency will strengthen, so USD/JPY would go down (USD weaker against a strengthening JPY).
Trade Balance
What: It measures the difference between total imports and total exports of goods in a country.
Up: Currency may strengthen
Down: Currency may weaken

E.G. US shows a positive Trade Balance reading, this means that more goods were exported from the US, which is a good thing for the economy, therefor strengthening the USD, so EUR/USD would go down, the USD/CHF would go up.
Interest Rates
What: A tool to slow an economy or encourage spending.
Up: Currency may strengthen
Down: Currency may weaken

E.G. Like all of us, we want to invest cash into high interest earning areas, so if a countries interest rates are increased, money is moved to that country, resulting in it's currency strengthening substantially usually. So if US interest rates are increased, then the USD/CHF for example would rise.

So there are some basics, there are so many data releases, barometers and speaches it is not funny, and quite frankly, I couldn't be bother keeping up with what they all actually are, as I have better things to do than listen to some old bugger spitting figures at me, but I do take note, and tend to think of data releases in terms of interest rates. If the data release is indicating the economy is speeding up, it hints that there will be a need to increase interest rates to slow it down before inflation takes hold. Of course the opposite applies as well.
Ok finally, here is yesterday's chart to demonstrate what I am talking about:

Here you can see the effect of another data release not listed above, US House Sales. The release was much worse than expected, with US House Sales dropping considerably, this mean to some that it is a sign people don't have as much money to spend, hence a slowing economy and less chances of interest rate hikes in the near future. This meant a sharp reversal of the short term trend, and, coupled with a positive speach in Europe of possible interest rate increases there, the EUR/USD moved over 200 pips in a couple of hours!

This movement was spread across the board across all pairs with the USD, and was really a "no brainer" trade for those awake to see it.

So you can see that there is value in keeping one eye on upcoming releases, one to cash in on the moves if you are experienced with money management and the fundamentals, and two to tighten stops on any open trades that are in the perceived wrong direction to the data release. Be sure to check that your broker has a guarenteed stop policy otherwise this will not work.

One final and very important note, remember that figures are always compared to the "expected" figures, so while a release might come in below the previous, if this was expected anyway, it may already be figured into the price and the movement may be small or non existant. In some case, price can move in the opposite direction if an underlying fundamental is stronger than the data released. Confused? .. if so ... then you probably shouldn't trade the news just yet.

Best of luck with it, below are some links to economic calendars that will help you keep up with things (also in the menu on the right):

Forex Factory Economic Calendar
Forexnews.com Economic Calendar

Happy trading!

Read This :

http://forexandtrading24.blogspot.com/2010/06/looking-to-jump-into-forex.html

http://forexandtrading24.blogspot.com/2010/06/history.html

http://forexandtrading24.blogspot.com/2010/06/working-with-statistics.html

http://forexandtrading24.blogspot.com/2010/05/how-to-trade-forex.html

Theory: Trade Logs

2010-06-16T01:35:00.000-07:00

Hey all,

Well we spend so much time working on our trading systems, on when to enter, exit, move stop losses, take profits etc. etc. but how much time do we spend reviewing trades we have placed. I dare say many of us (me included at times) kind of forget about this part of the process, especially when you are on a series of profitable trades, the last thing you are thinking about is looking back at past trades.

... the irony is, if you are using any type of indicator in your trading system, you are actually trading the present based on the past ... so why shouldn't you review your trades in the same way? ...

A lot of traders only bother thinking about the past when things start going wrong, and usually it is something like "Ah yes, I remember back when I used to make money from the markets ... those were the days ...". So why should we bother looking back, living in the past so to speak? Aren't we supposed to be living in the present, looking to the future? The irony is, if you are using any type of indicator in your trading system, you are actually trading the present based on the past, as all indicators take past data, compare it to present conditions, apply some odd formula like, x+y/2*45 + your dogs age - your height, and then draw a squigly line or an arrow of some sort based on that historical data. So why shouldn't your review your trades in the same way?

The simplest and easies method of keeping track of how things have gone, and how they are going is through a trading log of some sorts. There are many ways you can do this, you could simply just write your trades on paper, or keep them in a spreadsheet, or simply add comments to your trades if your trading platform allows it and print out a monthly report. Whichever way you do it, the important thing to ensure is that what you put in your log is useful, so let's look at that.

So what should we include? Well I can only speak for myself, but here are things I have contained in a simple excel spreadsheet, with an explanation on why I include them:

Open date
This is the date that a trade was opened, useful if you want to look back and see if you are more successful on one day more than others.
Open time
The exact time of the trade, like above, to see if your trades a more successful during different times of day. You could use this to see if you trade better in a certain session, such as Asia, Europe or the US sessions. I used this to notice my strategy worked great during the Europe and US session, but performed miserably during the Asian session, which brought me to adjust things and now things are much better.
Mood
Never underestimate the power your mood can have on your trades. Write it down and be honest, you can then look to see if you have more success trading when you are happy, sad, angry, tired, alert or constipated (I don't trade well constipated trust me ;).
Pair
Of course keeping track of what currency pair you trade will soon identify your favourites, your most profitable and your most hated.
Direction
Long or short, you may be surprised by which one you favour more, for example last month 83% of my trades were short!
Open price
Price you opened your trade, a basic thing to keep track of.
Stop loss
Very useful to see what your stop loss to wins ratio is. If you are finding your wins are much smaller than the potential stop losses, it may keep you aware that a string of losses could wipe you out, so some adjustments may be needed with either riding the trade longer, adjusting your entries, or tightening your stop losses.
Take profit
As per above.
Close price
The price you closed your trade at, useful to see what your average winner versus average loser is.
Closed date
I like to keep track of these to see how long I am keeping my trades for and what it means for profits or losses.
Closed time
Again, useful to see if there is a certain time of day you seem to be closing your trades at the most, are you closing them cause you are tired and it is late at night for example?
Balance
What you made on that trade, if it is a profit, make it nice, big and green, visual reward can really be satisfying and a good motivator.
Comments
Can be potentially the most useful part, be honest with yourself, and jot down anything about the trade you liked or didn't like. Some people will only focus on the things they did wrong in a trade, but be sure to put things you did right as well, as they are just as useful if not more so for future trades.

So that is how I keep track of my trades, while it takes a little effort, it really is worth the trouble, and your trading will benefit for it. Remember though! look back on it, no use keeping your trades logged but never looking at it. The markets are closed over the weekend, so that is a good time to have a quick look through and ready your mind for the upcoming week.

Ok, I have attached a sample trading log for you all, it is a simple, unformatted excel spread but it might help someone. If anyone is good with programming excel, you can program the balance etc. to update by themselves, and please, if you make improvements, let me know so we can share it with everyone.

Read This Articles :

http://forexandtrading24.blogspot.com/2010/06/theory-trade-logs.html

http://forexandtrading24.blogspot.com/2010/06/theory-stop-loss-placement.html

http://forexandtrading24.blogspot.com/2010/06/theory-pivot-points.html

http://forexandtrading24.blogspot.com/2010/06/theory-moving-averages.html

Theory: Stop Loss Placement

2010-06-16T01:34:00.000-07:00

Anyone who has chatted to me or written me emails will know that one of my big things is stop losses and the importance of them. I have many a debate about the topic, a classic conversation would go (usually from the same trader a couple of days in a row):

TraderJoe: Akuma ... do you think the EUR will rise today?
Akuma99: Not to sure just yet ... need to wait for support to hold
TraderJoe: What about tomorrow .. you think it will rise tomorrow?
Akuma99: Well there is some US data tonight that could effect that
TraderJoe: How about by the end of the week?
Akuma99: TraderJoe are you holding a long position?
TraderJoe: Do you think it will go to 1.2300 by the end of the week?
Akuma99: What trade do you have? What was your entry?
TraderJoe: 1.2290
Akuma99: Long or short? ... What was your stop loss traderjoe?
TraderJoe: Well long, and I don't use stop losses, I don't like to confine my trade
Akuma99: Well there is a fair way to go before we see 1.2300, need to see if 1.2200 holds for now
TraderJoe: So you think it will rise right?

... and so it goes on, usually every day for rest of the week as prices make up their mind .... this is usually then followed by this conversation around a week later

TraderJoe: Hey Akuma ... remember me?
Akuma99: Ummm yeh sure
TraderJoe: Remember that EUR long position I had at 1.2290 last week, I closed it this morning at +10 .. see that is why I don't use stop losses, eventually it comes around.
Akuma99: Well done :) ... how did your other trades go?
TraderJoe: I didn't take any other trades ..

.... so we end that conversation with TraderJoe convinced a no stop loss policy is the best way to go, and look if it works for TraderJoe, then all power to him, but what is the main problem with the above scenario?

... suck it up, place your stop losses and be prepared to be wrong, there is no pride to be stuck in losing trades that keep you out of the most lucrative market in the world ...

The main problem with this scenario is time! While TraderJoe did eventually close in profit, it took him out of the market for a week. In essence, TraderJoe traded a whole week for a +10 profit, sure his trading log looks better cause there are no minus figures this time, but the results are far from impressive and what has he learnt? For traders starting out on a highly leveraged account, as most are while they try to build an account quickly, margin calls become a real danger, so if a trade moves the wrong way and you find yourself in a trade sitting at -100, two things happen:

You are locked out of the market as you risk a margin call if another trade goes the wrong way, meaning you miss a multitude of other opportunities for profitable trades
You live in perpetual fear your account being whiped out by a news event.

If TraderSally happened to be trading at the same time, with stop losses in place for all her trades, and she ended the week with 10 winning trades, 8 losing trades, for a balance of +10 for the week, which trader do you think learnt the most about trading that week? Sure the results are the same, but down the track I really believe TraderSally will be further down the trading road to profitability. Stop losses I think are vital to keep your risk definable and your enjoyment levels up. Believe me your last losing trade is forgotton easily when you close your next profitable trade (a reason to keep trading logs).

So onto placing stop losses, there are many many theories on how to place stop losses, and rather than plowing through them all here, i'll point you to a great article written over at Globetrader's site here that spells it out better than I could. Instead I'll just explain how I think of my stop loss placement. I read a great comparison somewhere, of likening stop loss placement to a game of hide and seek, and it really is a very good comparison.

I ask myself three things when placing stop losses:

Where can I hide my stop loss that people won't find it?
At what point is my trade no longer valid?
Where do I think things will go to?

Let's run through them:

Where can I hide my stop loss that people won't find it.
This is the hide and seek theory, there are traders, brokerage houses and market makers out there that look for stops, don't let anyone tell you anything different. They look for obvious stop placement areas, and push prices to them looking to trigger those stops for their own benefit. So how do you hide them?

Let's say prices are just below what you deem as a solid resistance level, you want to place your stop just above that resistance for a short trade, think about where all the other stops may be, most likely 1 or 2 pips above that resistance level. In this scenario, I would place my stop loss perhaps 10 pips above that level, on a 3 pip spreaded pair and look for a slightly better entry, perhaps with a stop order a pip below the resistance level to keep my risk the same. If prices honour the resistance, then you are in with a fantastic entry and no drawdown, if they test for stop's just above, you have some chance of them not finding your stop.

This is just one example, and it really is over-simplistic in a complex market, but if you have the mindset of "where can I hide so they won't find me" while still keeping your risk levels in mind, then your stops shouldn't get triggered so often on those trades that end up turning your way.

At what point is my trade no longer valid?
You place a trade because you believe a trade will move in a certain direction, you can picture it in your minds eye, you can imagine how the trade would go. A stop loss should protect you against bad decisions, so place your stops at levels that would tell you your decision was wrong. If that point is too far away from your entry for your risk level, then perhaps you are entering the trade at the wrong time.

Where do I think things will go to?
This question is brought up many times in relation to risk and reward scenarios, however I think of it differently. If I picture that the EUR will be moving 10 pips down in the next hour, but to keep myself safe, I need to hide my stop behind a resistance level 20 pips away, then I don't reject the trade because I don't like the risk reward ratio, I reject the trade because I should actually be thinking about where to enter a long position rather than catching the tail end of a move down.

If in your minds eye you see a pair about to retrace slightly before bouncing, take the bounce trade .. not the last bit of the retracement, if you'r minds eye picture was right, you are in for a much more profitable trade.

There is nothing wrong with being wrong, it is human nature to avoid defeat, to not want to admit you are wrong. It is more prevalent in males, which is why it wouldn't surprise me if females made better traders, but that is a discussion for another time. What matters at the end of the trading day is your pip balance, is it positive or negative, not whether you were right or wrong.

So suck it up, place your stop losses and be prepared to be wrong, there is no pride to be stuck in losing trades that keep you out of the most lucrative market in the world, as they say ... "You gotta be in it to win it".

Read This :

http://forexandtrading24.blogspot.com/2010/06/looking-to-jump-into-forex.html

http://forexandtrading24.blogspot.com/2010/06/history.html

http://forexandtrading24.blogspot.com/2010/06/working-with-statistics.html

http://forexandtrading24.blogspot.com/2010/05/how-to-trade-forex.html

Theory: Pivot Points

2010-06-16T01:32:00.002-07:00

Ok, it seems there are a whole bunch of people asking about Pivot Points in the chat room of Marketiva, so I thought Ill give you the theory on it, and let you all work out how to trade it. I know of a few professional traders who use pivots in their trading system, and there are a few on Marketiva as well, myself and peterb are two who come to mind.

Alright so here we go.

Pivot Points are interesting guides, and in a sense they are reliant on people using them for them to work, a self-fulfilling indicator in a way, well at least that is the way I see them. Pivot Points are worked our from the previous days, High (H), Low (L) and Closing (C) values. From these values we generate five different values, the Pivot Point (P), Support 1 (S1), Support 2 (S2), Resistance 1 (R1) and Resistance 2 (R2). Some also include a Support 3 and Resistance 3 but I can't remember the formulas for those :). Now I don't pretend to understand why the formula's are as they are but in case anyone has the urge to know, here they are:

R2 = P + (H - L) = P + (R1 - S1)
R1 = (P x 2) - L
P = (H + L + C) / 3
S1 = (P x 2) - H
S2 = P - (H - L) = P - (R1 - S1)

Rather than just spit you out a text book explanation of what these are used for, you can get that from a simple google search, this is how I have observed them so far.

The Pivot Point are supposed to identify an "equilibrium" point, a level that prices could gravitate back towards during a days trading. Personally though I think the two most important levels to take note of are the first Support and Resistance points, R1 and S1. As prices move towards these levels, you almost always see a pause in the move, sometimes even a reversal. So if you are in a trade and are nervous about its movement continueing, a good place to re-evaluate your position is as prices move towards these points.

If you are looking for a reversal, these are also good points to look at your indicators, and if they are showing signs of a reversal, the nearby support or resistance point should give you some extra confidence. Be careful though, as there are occasions where the price is merely pausing as it approaches or hits this significant point, before moving on with the current trend.

So in summary pivots:

Show predicted ranges for the prices movement of the day
Give indications of where prices might pause
Give indications of where prices might reverse

So why do these work so well? One mode of thought is that as so many people use them as an indicator, then a lot of people sell/buy/wait at these points, hence my point, if a lot of people are using them, then they work, if not, then they are no more useful than a randomly drawn line on the chart.

I don't know if that makes things any clearer or not, but that is my understanding. You can use an online pivot point calculator here at fxstreet, or download one for your desktop here.

Read This Is Articles :
http://forexandtrading24.blogspot.com/2010/06/theory-when-to-exit.html

http://forexandtrading24.blogspot.com/2010/06/theory-trend-lines.html

http://forexandtrading24.blogspot.com/2010/06/theory-trading-news.html

http://forexandtrading24.blogspot.com/2010/06/theory-trade-logs.html

Theory: Moving Averages

2010-06-16T01:32:00.001-07:00

Hi again all, well there have been quite a few newcomers into the chat area of Marketiva asking a questions something like "How do I play this game?". After the barrage of "it is not a game" replies, usually the talk moves to setting the user up with Moving Averages on their charts (usually by peterb). So, to make his explanations easier, here is the basic rundown of what moving averages are and what they are for from a beginners perspective.

Most people would realise that an "average" is simply the sum of numbers divided by the number of numbers. So the average of 4,7,4,6,4 would be 5 (4+7+4+6+4 = 25 divided by 5 = 5). So a "Moving Average" is simply an average of a series of numbers, but over a period of time. So let's say we have a series of 10 numbers, a "5 Moving Average" would be the average of 5 of those numbers, but which ones? Let's look at an example:

1 2 3 4 5 6 7 8 9 10

Above are 10 numbers, from 1 to 10, if you take the the first number (1) as day 1, and the last number (10) as day 10, then we have a 10 day history of numbers. If I ask you what is the 5 period Moving Average on day 2, your answer would have to be "1", as there is only one day of history available, that being day 1. How about if I asked you what is the 5 period Moving Average on day 6?, then the answer would be "3 stupid", because you have added the last 5 days of history,and divided it by 5 (1+2+3+4+5=15 divided by 5 = 3).

Now what about if I ask you on day 10 what the 5 period Moving Average is? I would hope that, firstly you wouldn't tell me to stop asking you stupid questions while you are trying to make money, but you would also say "7" because you have added the last 5 days of data together (9+8+7+6+5 = 35 divided by 5 = 7). So you can see, as you move along the series, the old ones (more than 5 periods back) are dropped, and the new ones are added. This is what is known as a Simple Moving Average (SMA), and is the easiest to explain in laymans terms. It's simplicity is essentially it's downfall for some, as each new number effects the average twice, when it comes in, and when it drops out, which can distort the results, especially if the number is huge. Imagine we put the number 100 into that series of numbers, when it came in, it would push the average really high, and when it dropped out, it would push the average down sharply.

To counter this effect, another type of Moving Average was developed, this being the Exponential Moving Average (EMA) which doesn't drop the old ones as quickly, but slowly squeezes them out over time, this has the effect of smoothing the average out and to eliminate some of the inherent lag that is in a Moving Average (as it is looking back, not in the future, so it is "re-active, not pro-active"). Now I am not going to even try to explain that one, cause well, I can't, but just know the common belief is that an EMA is more responsive and accurate than a SMA and are probably the most talked about so if it is good enough for them, it is good enough for me.

So you're probably thinking "ok that's all pretty boring, just tell me how to make money with them", well here is the theory. Lets start with a pretty picture:

This is a typical looking candle chart of the EUR/USD with two Exponential Moving Averages. The green line is a 10EMA, or 10 period Exponential Moving Average, the red line is a 30 EMA, or 30 period Exponential Moving Average. Now the higher the number, the further back in time it looks, which means the most recent value has less immediate effect cause we are averaging a greater amount of numbers. This is sometimes referred to as a "slow line" as it moves, bends and turns slower. You can see the 10 EMA moves in sharper turns and react's to price changes quicker as the last value has a greater effect on the numbers being averaged due to there being less of them.

So how do we use them? Well the lines serve to "smooth" or "average" the price direction, so if a Moving Average is moving down, then the average trend for that period is down, and of course it works the other way too. Above you can seem a few up and down arrows, these signify when the average lines "cross over" each other during the day. What does it actually mean in terms of the market place though?, if a short term EMA, such as the EMA 10 in this case moves below the mid or long term EMA, such as the EMA 30, it means current prices are on average below prices of 30 periods ago, this then is taken as it being in a downtrend, if it moved above than the opposite applies.

I have marked the crossovers in the chart with arrows, down arrow for when the 10 EMA crosses below the 30 EMA, and an up arrow for when the 10 EMA crosses above the 30 EMA. Some traders use these cross overs to enter trades, entering Long (Buying) at the up arrows, and Short (Selling) on the down arrows. This can be a good tool, but remember, the EMA lines are looking back in time, not forward, and so cross over after the price change itself, which means it could be too late if the move isn't great, especially on short term charts. Another way to use them is to use them as a "filter indicator" which means combine them with another indicator that might indicate a turning point to confirm the strength of a movement. If you have an indication the price is going to drop, and the EMA 10 crosses below the EMA 30, that should give you some mroe confidence on taking that trade.

How you use them is really up to you, and what periods you use for them also is up to you, and quite often depends on the time frame they are being used on. It will also depend on how long you are wanting to hold a trade, no use using a EMA that is looking back 2 weeks if you only want to hold it for 1 hour, as it will mean nothing and will turn way too slowly.

One last thing, look at the yellow areas above, here you can see where the EMA 10 moved to cross the EMA 30 but failed, this can catch many investors out, and if you have not placed a stop loss, quite often your losses can be large, so be careful and find other ways to confirm your suspicion of the move.

I hope this helps you all on the path to riches, Moving Averages are a great tool that should help you all in identifying the trends and turning points of a market. Remember "The trend is your friend".

Happy trading!

Please Visit To :

http://forexandtrading24.blogspot.com/2010/06/theory-chart-correlation.html

http://forexandtrading24.blogspot.com/2010/06/theory-candlesticks.html

http://forexandtrading24.blogspot.com/2010/06/theory-adx.html

http://forexandtrading24.blogspot.com/2010/06/ok-time-to-put-this-baby-to-rest-this.html

Theory: Indicator Types

2010-06-16T01:31:00.000-07:00

Indicators, any beginner is bound to hear that word a thousand times as they try to figure out what to use when trading. There are literally thousands of them out there, Oscilators, Histograms, Trend lines, Channels, indicators that measure momentum, some that measure oversold and overbought conditions, ones that measure whether you are smart enough to trade ..... ok maybe not those ones (but if anyone knows of them let me know ... I am having some doubts), so just what do you use and how do you use them?

Well here is the answer, if you want to make millions of dollars you need to use ................ oh come on as if I would know! .... noone can tell you what to use, and even if they do, there are so many variations and settings that even if you are using the same indicators as someone else, you could have different settings, and even if they are the same, everyone interprets the signals from these indicators differently.

Now I am not an expert on any indicator, actually I am not expert on anything to do with Forex at the moment :) (hence the quest for the "am I smart enough" indicator), so I won't be able to explain the finer details of what indicators show, but there are some general principals that I have picked up in my travels so far, and as I have a memory like a sift (that is the round thing with lots of holes in it for those that are "cooking challenged"), I figured, lets ramble on about them here and maybe I won't forget them in the future. So ...

Well I think sooooo ... kinda .. well you know .. maybe ...

Heard something like that before? If so you probably have a teenage sister/daughter/cousin and it is the classic response of someone who think they know, but don't want to commit for sure (no comment from the women please!). Well this is how I think about indicators, they tell you something, but don't take it for granted, they are called "indicators" after all, so while they might be able to clue you in on a possible movement in a particular direction, you need to seek confirmation from other sources, such as the price movement itself or other indicators that tell you different things. That brings me to:

Me and billybob ... we's like peas and carrots ...

Ok that isn't the exact line out of Forest Gump, but there is a message there for us beginner traders. There are so many indicators that it is easy to end up with all sorts of lines, bars, colours and arrows floating around the screen. I have seen many a trader complain that the 3 different indicators told them the price was going to go up, and instead it went down! (ok that was me). So why would this happen? Is there something wrong with the indicators? Perhaps some news came out that reversed things, maybe I have my monitor upside down! ... all of these things could be the case, but for us beginners, I bet it is because those three different indicators were all of the same type, so they were simply confirming the same thing three times, essentially three sisters who were in the same place at the same time looking from the same perspective, all saying "well maybe kinda" at the same time! Before you can believe them, you need to get confirmation from another source, someone else who doesn't have a phone surgically attached to their ear, somone with a "different perspective". There are different "types" of indicators, or indicators that tell you different things. Some of these are:

Trend indicators
These are handy little buggers that tell you which way the market it trending (fancy that ... Trend indicators telling you the trend .. who would have thought), which can either be up, down or sideways. Some examples of these might be Moving Averages or Trend lines.
Strength indicators
A group of indicators that signal the force behind a move, I have very little exposure to these but I believe Volume is a good one for that.
Volatility indicators
Volatility, or how much price is moving between extremes in a given time frame is another group, something like Bollinger Bands is a good example of this type.
Cycle indicators
Cycle indicators are there to signal repeating market movements, a bit like the tides, some markets supposedly move in cycles, which means if you can identify them, you get a head start on your trades. Elliot Wave theory is a good example of this kind of indicator.
Support/resistance indicators
The most common type of Support and Resistance indicators is good old manual trend lines. These serve to indicate when an iminent price move may be underway.
Momentum indicators
Momentum indicators help you determine if a trend in progress will continue, or is on it's final legs. They can also be used to try to indicate upcoming turning points. Some examples would be the RSI, MACD or Stochastic indicators.

So if you are using three indicators, and all of these indicators were momentum indicators, then there is a good chance that all these would tell you the same thing, giving you a false sense of security. So when developing a trading system of your own, try to pick an indicator of your choice from different families to ensure your signals are more reliable. In a word, diversify.

Another trick is to look at using these indicators on different timescales. If a 1 hour chart indicated a strong down trend through a trend indicator, the prices were rising on a 15 minute chart but a momentum indicator was giving you an overbought signal, then a possible resumption of the long term trend could be on the cards. You could then move to a 5 minute chart to find your entry through an indicator that is showing you if something is overbought or oversold, hence showing a possible turning point. That is the theory anyway.

Now I can't tell you which indicators to use, cause ... well I can't figure out which ones I like myself yet, but if you are aware of not using too many from the same family, it will save you a whole bunch of confusion and many a thumped desk.

One last thing, more than likely at some point you would have looked and tested so many indicators that you will be all confused out which is the best one, my tip, stick to the indicator you first saw and went "aaawww yeh I get it". Chances are it is just as good as the others, and it was the one your brain processed first so will most likely be the one you will be able to interpret the best.

Ok happy trading for the upcoming week! See you all later.

Read this articles :

http://forexandtrading24.blogspot.com/2010/06/when-oprah-stops-you-trading.html

http://forexandtrading24.blogspot.com/2010/06/theory-when-to-trade.html

http://forexandtrading24.blogspot.com/2010/06/theory-when-to-exit.html

Theory: Forex 101

2010-06-16T01:30:00.000-07:00

A bear chased two hikers. One hiker, while being chased, stopped to put on running shoes.

As he was changing out of his hiking boots, his companion looked at him in horror and exclaimed, "What in the world are you doing? You'll never outrun the bear if you stop now!"

Calmly, the other hiker said, "I don't have to outrun the bear. I just have to outrun you."

This is a fantastic quote in a small e-book I just read from robbooker.com and describes the forex market wonderfully. You can never beat the market, but you can beat other traders. To help you on that journey, here is an introduction to the very basics of trading Forex.

Forex, Foreign Exchange, FX ... whatever name it goes by it can be a daunting thing when you first encounter it. There are so many terms and concepts to understand that without some guidance it can become "all to hard". So in response to the requests I have received, here is a beginners guide to the basic concept of what Forex is.

Currency Pair

A currency pair is a representation of one currency against another. For example one currency pair is the EUR/USD, or the Euro to the US Dollar. If the EUR/USD is listed at 1.2150, you read this as 1 Euro will but 1.2150 US dollars.

Pip

Learn to love this word, because this is what you will be seeking for the rest of your forex career. A pip is the smallest denominator of a particular currency pair, so for the above example, if the EUR/USD moves from 1.2150 to 1.2155 then it has moved up 5 pips.

Leverage

This one I'll leave to robbooker.com:

Leverage is a simple concept. If you have $10,000 to trade with, your forex broker will let you borrow money from him so that you can trade in larger quantities. They will let you borrow as much as 400 times (400:1) what you put up in a trade. Most brokers allow between 50:1 and 100:1 margin. So, if you put up $1,000, and your broker allows 100:1 margin, then you'll be trading $100,000 worth of currency (instead of $1,000).

That's important, because every pip equals a certain dollar amount. When you trade $10,000, each pip movement equals $1. The chart below shows how it goes from there. If you trade 10,000 worth of currency, each movement would be equal to $1. So if you bought at 1.1445 and sold at 1.1545, you would make 100 x $1, or $100. If you trade $100,000, each pip movement would equal $10 and so on.

Going Long and Short

Now there is two different ways you can trade on the forex market, and many beginner traders are surprised to learn that you can actually make just as much money when a currencies price moves down as you can when it moves up. Let's start with the most logical movement, when the price moves up.

Most people are very familiar with the concept of buying something at a low price and selling it when the price increases. So the concept of buying the EUR/USD at 1.2150 and selling it at 1.2160 for a 10 pip gain should seem logical. This process is called going long.

However, you can also do this in reverse! If you think you know that a currencies price is going to go down rather than up, the you can go short. This is just the opposite of the above transaction, selling it first and buying it back later in the hope that the price will go down for you to make a profit.

This can be somewhat strange for those hearing this for the first time, but the concept remains the same either way, that being, that you always want to buy something at a low price, and sell it at a higher price than you bought it at. Which order you do it in doesn't matter, just that for a transaction to complete you must both buy and sell, as long as you sell at a higher price than you buy then you make profit.

Spread

The difference between the stock markets and the forex market brokers, is that in the forex market, broker commissions are either very low or zero. So how do the make money?, they make it from the "spread" or the difference between the actual price and the offered price through a broker.

To the right here you can see a typical board of currency pairs and their spreads. This one is taken from Marketiva this morning, and you can see for example the difference between the Offer (the price you can place a sell order) and the Bid (the price you can place a buy order) is 3 pips (the spread).

What does this mean to you though?, well, let's look at the board, if you bought the EUR/USD at 1.2158 as it is offered under the Offer column, and immediately sold it again before the price moved, you would only get 1.2155 as is shown in the Bid column. So the net result is -3 pips, or a loss to you, and a profit to the broker. Remember to always take the spread into account when placing a trade, setting targets and stop losses.

Stop Losses and Profit Targets

This is something I will go into much more in upcoming articles, but it is something that I view as vital for all beginners to understand. When placing a trade, the price has the potential to do three things, move up, move down or move sideways. If you are long in a trade and need the price to go up, what happens if you pop into the kitchen for a cup of tea and when you are gone the price drops dramatically? Remember, on a full forex account, each pip can equal $10, so any movement in the opposite direction can of course lose you money. A stop loss is your protection against big losses.

Placing a stop loss is like doing up the zipper of your pants ... you don't have to do it, but it is damn embarrasing when you get caught out!

The same applies for the other way around, if the price moves in your favour while you are away, before dropping again, if you are not there to close the trade at a profit, you may have missed your opportunity. A profit target is a place to take your profits.

When you place a trade you can set a price where, if it moves to that price, the trade will automatically be closed for you. Setting this price in the opposite direction of what you want the price movement to be is a "stop loss", or a level where your trade is "stopped" to minimise your losses. Now you may think "well how bad can it be" ... have a look at the below 15M chart from yesterdays GBP/USD.

Look at the two highlighter areas, if you had place a long trade (i.e. you think the price is going to continue up) as the price started to move upwards after the first initial drop (the first highlighted area), thinking "well that is the end of that move", then walked away without a stop loss, you would have been in some real mess 3 hours later when the price dropped again another 154 pips, or, on full account $1540!!

The Bears and the Bulls

You will constantly see the term "Bears" and "Bulls" in forex books and chat rooms. So why are we talking about animals when we are supposed to be trading? These are terms that describe the general mood of the market. A "bear" market, is when the general mood of the market is down, i.e. when there are more sellers than buyers in the marketplace. A "bull market" is the opposite, when there are more buyers than sellers and the general mood of the market is up.

Forex and any other marketplace, is just a struggle between the bulls and the bears, it if you can identify who is gaining the upper hand, then you can identify the direction of the price. Easier said than done of course.

Well that about covers the basics, there are so many more areas to cover of course but I hope it helps those starting out in this exciting marketplace. If I have missed something you wanted to read about please leave a comment below and I will be sure to add it to the article if I can.

Best of luck to you all!

Read This :

http://forexandtrading24.blogspot.com/2010/06/forex-trading-examples.html

http://forexandtrading24.blogspot.com/2010/06/looking-to-jump-into-forex.html

http://forexandtrading24.blogspot.com/2010/06/history.html

Theory: Fibonacci

2010-06-16T01:29:00.000-07:00

Hey all,

First of all, very sorry about the lack of updates the last couple of days, but would you believe TODAY is the due date of baby Akuma, but of course, I would not be writing this if it was on it's way ;). My trading activity has been very low lately, but Ill be sure to post at least the results soon, but instead, I thought I would put together a new theory article for you all, this time about Fibonacci.

Fibonacci was named after a mathemetician and trained accountant by the name of Leonardo Pisano in the 1100's (ah yes I remember them well ... those were the days). He came up with, amongst other things, a series of numbers that is now referred to as the Fibonacci sequence, where each number is the sum of the two numbers preceding it. Here is the beginning of it, and of course it goes on to infinity:

1, 1 (1+0), 2 (1+1), 3 (2+1), 5 (3+2), 8 (5+3) etc.

Pretty simple huh! ... this guy is famous cause of that simplicity though, which gives us all hope ;). Anyhow from these numbers a whole bunch of ratios can be taken from them, now I'm not going to pretend to understand them, but the main ratios, that are reproduced through the world, in nature, buildings, cells, ice cream ... ok not ice cream ... are:

0.236, 0.50, 0.382, 0.618 ...

There are many more, but these are the main ones to concern us beginner traders, and here is why. Quite often in the liquid markets of Forex, prices respect these levels when they move, meaning, just like Pivot Lines, prices will quite often pause, and more often reverse at these levels. Most charting packages have the ability to add Fibonacci lines to your charts, for example in Metatrader 4 all you do is; if the price was moving down, drag a line from the recent peak, to the most recent bottom and the lines are added for you. Unfortunately Marketiva does not offer them as yet, however here is a chart with them drawn:

The blue dotted lines are the fibonacci lines that correspond to the ratio's I was talking about. You can see in the move up, that the 38.2 fibonacci line formed the point for the price to reverse its retracement and continue with the trend (support). Of course, any of these lines could have been the points of reversal, but a reversal at the 38.2 line is a good sign that the trend will continue as the retracement was shallow.

The other line that I find most commonly hit is the 61.8 line as shown here:

Be a little more wary when such a deep retracement occurs, as it is less likely (although not in the above case) that the previous support will be broken again.

So what do you do with this knowledge? Can you trade with fibonacci alone? In my opinion, no as you don't know which line will be the turning point without the aid of other indicators or reading the price action, but they can be an excellent addition to your trading system to confirm other signals. For example if you have a signal from another indicator telling you a reversal is about to happen, and price is hovering at a fibonacci line, this might give you added confidence to place the trade.

Happy trading!

Read this arctiles :

http://forexandtrading24.blogspot.com/2010/06/theory-compounding.html

http://forexandtrading24.blogspot.com/2010/06/theory-chart-correlation.html

http://forexandtrading24.blogspot.com/2010/06/theory-candlesticks.html

http://forexandtrading24.blogspot.com/2010/06/theory-adx.html

http://forexandtrading24.blogspot.com/2010/06/ok-time-to-put-this-baby-to-rest-this.html

Theory: Divergence

2010-06-16T01:28:00.000-07:00

If you have been around Forex chat rooms or forums for any amount of time, one term you would have heard of many times is Divergence. While by no means a fool proof indication, it is a nice thing to store in the back of your already full brain to help you in confirming suspected trend changes.

Above is a snap shot of the hourly chart of AUD/USD in the week just gone (click on it to see it larger). Divergence is essentially when an indicator is trending in the opposite direction to the price. You can see in the above chart, a trend line clearly shows the price at this time is making a series of lower highs and lower lows, so it is in a clear downtrend.

Below that is an indicator called the Stochastics, with settings of 15, 5, 5. Here you can see that as the price is making lower lows, the indicator is making HIGHER lows, so the price is downtrending, the stochastic indicator is in an uptrend, this is Divergence.

When you see this occur, look out for a sign of a reversal of the current price trend, in this case, it happened when the price broke the trend line as indicated by the orange area. I don't trade this method currently of course, but it something good to know, and something to look out for if you are trying to figure out if the trend will continue.

Best of luck, hope it helps.

please read related articles:

Theory: Compounding

2010-06-16T01:26:00.000-07:00

Good afternoon all and I hope you are having a great weekend!

It has been a while since posting my last theory article, so let's get back on the bandwagon and talk about the trading and compounding. I think it is most traders dream to be able to escape the rat race, tell your boss where to go (that's if you don't like him/her of course) and let you trading skills lead you on the road to riches. I'm also sure a lot of you would have heard the saying "it takes money to make money" (if I hear it one more time .. arrgg), which to me is kind of deflating, why can't someone with very little money make money? Well pleasingly, for all of you that aren't driving a BMW and spending their weekend on their private yaughts, compounding is most likely a big part of your solution, so let's look at why.

The easiest and most used analogy when describing compounding is the good old snowball, which to me, living in "the sunburnt country", is somewhat foreigh so i'll have to draw on the imagination for this one. In trading, compounding is when you add your previous earnings onto your existing account size and adjust your trade size accordingly. Umm ok let me try to explain.

Let's look at the two trading scenarios, let's say you have opened a mini account with $1000US, this traditionally would let you trade "mini lots" or lots of 10,000 in size, where each pip would equal $1 US approximately (depending on the pair). If you make five "mini lot" trades on the GBP/USD, with each trade earning you 50 pips, you would have your original $1000 plus 5x$50 ... so $1,250 all up (as well as bragging rights for your 5 straight winners of course). This is just like someone packing a tiny snowball, rolling it down the hill five times, and each time you dusting of any excess snow that acumulated from the previous roll before rolling it again. (can you tell i'm struggling with the whole snow thing).

Now let's look at the same trades but include compounding in the scenario. Remember compounding is adding the previous winnings to the account and adjusting your lot size according to some rule. So , from the previous example, after trade 1, our account has gone from $1000 to $1050 (50 pips at $1 each pip). A gain of $50 on a $1000 is a return of 5% of your account, so one compounding strategy would be to increase your lot size by the same amount. Now we are trading lot sizes of 10500 (500 is 5% of 10000), so each pip now equals $1.05. This means trade 2, which returns 50 pips now earns you $52.5 instead of $50, moving your account to $1102.50 instead of $1100. In snowball terms, it is like taking that small snowball rolling it down the hill five times, but each time leaving the excess, and just rolling it right back up there to acumulate even more. (gee im glad that snow thing is over with).

... compounding really is a great tool for all those that can't subscribe to "it takes money to make money" ...

Now what we really want to know, what does it mean to the road to riches? Well if you can make let's say a 50% annual return on your account (certainly acheivable), this time in around 17-18 years you will be a millionaire, sipping a cocktail on a beach somewhere in the bahamas (unless you live there, in which case that would kind of be pointless ... anyway). If you can make a 100% annual return then somewhere around 10 years you would make your first million, not bad from $1000US. The beauty of us as traders is we are not restricted to compounding annually, monthly or even weekly as in a traditional savings account or managed investment portfolio, we can actually compound daily, or even trade by trade.

Compounding really is a great tool for all those that can't subscribe to "takes money to make money", and an even better weapon for those that can.

Happy trading!

please read related articles:

http://forexandtrading24.blogspot.com/2010/06/working-with-statistics.html

http://forexandtrading24.blogspot.com/2010/05/how-to-trade-forex.html

http://forexandtrading24.blogspot.com/2010/06/when-oprah-stops-you-trading.html

http://forexandtrading24.blogspot.com/2010/06/theory-when-to-trade.html

Theory: Chart Correlation

2010-06-16T01:25:00.000-07:00

Hi all,

I thought I would mention a very simple concept that I know a lot of traders know of, but there may be some who don't. The concept is of chart correlation, i.e. when one pair goes up, another pair goes down.

This concept is especially true for all the majors and there is a very simple reason why. All the majors have one thing in common, the USD, in general it is the USD that drives the pairs up and down, there are of course the odd exception with region specific data releases etc, but as a whole it is the USD that drives things. So if the USD gets stronger, then more than likely the USD/JPY will rise, while the EUR/USD will fall. Don't believe me? Let's look at some charts I have prepared earlier ;), I have overlayed and coloured them to make them easier to compare:

EUR/USD 1H over the USD/CHF 1H

You can see they are practically mirror images of each other. Now how about two pairs with USD as their base currency, lets look at the EUR/USD again but against the GBP/USD:

EUR/USD 1H over the GBP/USD 1H

You can see they play follow the leader for most of the time. You can see then that most of the time, it would be contradictory to have a swing trade short on the EUR/USD and a short on the USD/CHF at the same time, one is doomed for failure. You can compare all the majors and the action is essentially the same, here is the EUR/USD over the USD/JPY:

EUR/USD 1H over the USD/JPY 1H

I think I have made my point. There is however the odd exception, although not amongst the majors, currently that "black sheep" is the USD/CAD. You would expect, with the USD as it's base also it should follow the pattern of the USD/JPY and the USD/CHF, but, as it is a commodity and energy reliant pair, and considering the current energy crisis the world is under, the USD/CAD currently is leading it's own life. Here is the EUR/USD over the USD/CAD to show you what I mean:

EUR/USD over the USD/CAD

You can see, apart from the new year action that for quite some time the USD/CAD bucked the trend, and moved in the same direction as the EUR/USD as demand for oil prices rose, gold hit new 5 year highs and the canadian economy was going great guns. If you have a charting package that let's you overlay charts, then it is well worth doing every now and then to see how pairs are moving compared to others, it just may stop you trading against yourself.

Happy trading!

please read related articles :

http://forexandtrading24.blogspot.com/2010/06/theory-indicator-types.html

http://forexandtrading24.blogspot.com/2010/06/theory-forex-101.html

http://forexandtrading24.blogspot.com/2010/06/theory-fibonacci.html

Theory: Candlesticks

2010-06-16T01:23:00.000-07:00

Hi all, today I'll have a quick chat on the theory of Japanese Candlesticks. In case you did not realise, there are three main ways to view a trading chart, you can view it as a line chart, a bar chart, or a candlestick chart. Below are what each of these look like:

Candlestick's were first introduced in the 1600's, strangely enough to analyze the price of rice contracts. There is no special calculation, they are simply an alternative way of representing current prices. Below is the basic rundown of what a single candlestick looks like, and how it is interpreted.

This is a candlestick you would see most often in a downtrend, with the black body being a sign that the closing price finished lower than the opening price.

Here you can see labelled the opening, closing, high and low of the particular period that this candle is representing, which could be 5 minutes, 1 hour or 1 day depending on what chart you are looking at.

Some charts have candles that represent this scenario coloured in red, either way, the main thing is to remember that usually this type of candle will usually be filled.

So that is what a "down" candle looks like, a candle representing the opposite scenario, i.e. when the closing price finishes above the opening price usually is white, or uncoloured and looks like below:

You can see that the main difference between this candle and the above candle is that the closing price is above the opening price, indicating that during this period, the price went up during this period.

Some charting packages will show this candle as a green candle, some as white, or some with no colour at all, just an outline. If you set the colour scheme yourself, just recognise that you need to make this candle different to the above candle so you can distinguish the difference.

Now if I was to run through every type of candle that existed in the theory of candlestick charts, I would more than likely get cramp and brain freeze, and not finish this article. So instead, I will run through some basic deduction you can take from interpreting a few different types of candles.

Have a look at this candle (called an inverse hammer), you can see the main difference between this candle and the basic candle I showed you above is the lack of a thin line below body (the thicker white area) of the candle. So what does this mean? The thin lines are refered to as "wicks" or "shadows", and represent when prices move up or down, but are then dragged back.

How to read this candle? Well here the price closed well above it's opening price, there was a push for higher prices as represented by the upper wick, which was pulled back slightly. Depending on the market, you may read this as a sign that price will continue with the upward push, as the price didn't retract too far, and there was no real push for lower prices.

Ok here is another (called a hammer), the inverse of the previous candle, here you can see the closing price was lower than the opening price, hence the black body of the candle. It has a medium length wick also, which again is a sign that there was a move to push the prices lower. You make this candle to be a sign of strength in a down move, or a sign of a reversal, or pause in an uptrend.

To me the wicks are just as important as the bodies of candles, and should be taken into as much consideration as the colour and length of the body. Now there are a bucket load of different candle types as I mention earlier, but to give you an idea, here are a few that I find to be the most telling when reading candlestick charts.

This candle is referred to as a "doji", and you can see has very little, or in this case no body to it. This candle is a sign of indicision in the market, as the wicks above and below the non existant body reflect that there was a push up, and a push down, resulting in a stalemate with the opening price and the closing price being the same in the end.

This candle, a hammer, is a strong sign if seen at the bottom of a downtrend, when you suspect that a currency may be oversold. Here you can see a very long bottom wick in comparison to it's body, and tells the story that prices made a strong move down, but was dragged back above it's opening price, hence the white body. A candle with such a long wick as this, is usually a good sign that the momentum of a downward move is stalling or reversing.

Here you can see a variation on the inverse hammer candle I showed you previously, with the main difference being that this one having a much longer upper wick, and the closing price finished below the opening price. This candle can quite often be a sign of a change in momentum, as the strong push to higher prices, as shown by the long upper wick, was pulled back so far that the prices closed lower, a sign that future pushes to higher prices may be rejected. This candle is especially valid in an uptrend where you may suspect that a currency is overbought.

There are so many more, and I haven't even touched on combining these candles into different formations. I have however, provided a link to an e-book on this subject that covers all the basics in a text book fashion that can be a good reference for you all.

Please do not take this candles as given, like any other indicator, they are just guides that can help you, but it is always safe to look for confirmation either in the next candle or with other indicators. Oh and one last tip, never trade on an incomplete candle, always wait for that period to end before assuming the candle is a certain type. Quite often the biggest moves are at the end of the period you are looking at, and what you thought was one type of candle become something completely different in the matter of seconds.

Best of luck with them, I personally feel candles tell you much more than a line graph ever could, and while bar charts can tell you the same information, I find candlesticks much easier, and more importantly, much faster to read. Please leave a comment if there is something vital I have missed.

Happy trading!

please read related articles :

http://forexandtrading24.blogspot.com/2010/06/theory-trade-logs.html

http://forexandtrading24.blogspot.com/2010/06/theory-stop-loss-placement.html

http://forexandtrading24.blogspot.com/2010/06/theory-pivot-points.html

http://forexandtrading24.blogspot.com/2010/06/theory-moving-averages.html

Theory: ADX

2010-06-16T01:21:00.000-07:00

Hi all! Well I have mentioned previously that the only indicator I consistently keep on my charts is an indicator called the ADX, or Average Directional Index (why do they always like using "X" for index .. shouldn't it be "I" ... anyway). I use it primarily to keep me in trades that are moving strongly, and to give me hints on how strong a move actually is.

So, considering I talk about it so often I thought it best to give a general rundown on what the indicator can be used for and how you might be able to use it in your trading system.

The ADX was developed by J. Welles Wilder, yep the same guy who developed the Parabolic and RSI indicators, clever chap that Wilder. Interestingly, Wilder considered the ADX to be his best achievement in terms of indicators, and considering the widespread use of RSI and Parabolics, makes you wonder why more aren't using the ADX (although I am sure plenty are, I have after all only surveyed my next door neighbour and my dog).

First of all let's have a look at what it looks like:

At first it looks all a little like last night's spaghetti, but really it is quite simple. There are three lines, a trend following line, a positive directional line (+DI) and a negative directional line (-DI). In laymans terms, the black line tracks trends, the red line is a signal line to go short, and the green line a signal line to go long.

First the theoretical way to use it. When the red (-DI) line crosses above the green (+DI) line, it is a signal to go short, and vise versa, green above red is a signal to go long (yep just like Moving Average crossovers). Like all indicators though, there is always lag, and as such I pay little attention to these lines and prefer to get my direction signals of the price action itself. The black line though is something different, it is a line that indicates if a trend is in place. If it rises from below 20 (I use 25) to above 20, it is a sign that a trend is developing and to stick with the trade. While the black line rises, I will always stay with a trade unless there is some news announcement coming up that I am worried about. Once the black line ticks down from above 25, it is a signal for you to assess your position as the run may have come to an end for now.

While such a simple technique (I am all about simplicity), you will be surprised how well it will keep you in those strong moves. So that is it, pretty easy huh ... any questions, just throw me an email or comment here.

Best of luck with it.

Happy trading!

Please Visit To :

http://forexandtrading24.blogspot.com/2010/06/theory-when-to-exit.html

http://forexandtrading24.blogspot.com/2010/06/theory-trend-lines.html

http://forexandtrading24.blogspot.com/2010/06/theory-trading-news.html

http://forexandtrading24.blogspot.com/2010/06/theory-trade-logs.html

http://forexandtrading24.blogspot.com/2010/06/theory-stop-loss-placement.html

2010-06-15T21:17:00.000-07:00

Ok time to put this baby to rest, this domain is soon going to not exist any more. All theory articles etc. have been moved here while my new blog with opinions and a trading experiment is over here.

Please update you bookmarks if you still want to read my mindless ramblings. The subscription service has stopped also (has for a while), sorry about that but I ran out of hours in the day.

Happy trading!

forexandtrading Return

2010-06-15T21:10:00.000-07:00

BOO!!

Scare you? ... na didn't think so (bit hard to scare no-one). Well it's been yonks since I posted anything here, not too sure why to be honest, I think I got sidetracked on other projects and forums and just ran out of energy in the end. If you are wondering where I have been, most of my discussion (and a trading manual I just completed) is over Forex Factory.

My ther site, http://www.beginnertrader.com is still up and running, but yet again I don't think I have been paying enough attention to it, plenty of e-books there though so feel free to go and have a look when you have some time. In terms of trading, things are moving along just fine, yet to purchase that boat I dream of, but I'll get there :) Little baby Lachlan, is not so much of a baby any more (8 months), there he is to the right, aint he a cutey!

I think it is time now for me to knuckle down and focus on this trading game, time to make some serious money and get out of the rat race that is Sydney life, so I will start posting some trades here again so I can digest the decision making process. One thing you will notice is the recent addition of Murrey Math to my trading methods, after some research and back/forward testing, I have been quite impressed with what it offers. I use very little indicators these days, just fibs, trend lines, chart patterns and Murrey Math, it will become clearer once I start posting some trades in upcoming days.

I hope you are all well and trading profitably (if any readers remain after so long), I look forward to the upcoming months which I view as make or break for me to change my lifestyle.