Forex

World Events and Wise Forex Trading.

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Forex trading has the great potential of becoming a profitable and fulfilling career that will let you have a lifestyle that few other lucrative activities in the world can offer to people from many roads in life and without asking any of those men and women for a diploma or some special certification.

But Forex trading is not easy; it may be simple to enter and place your first trade but becoming a profitable trader is a different thing. You will need to acquire the right knowledge and techniques in order to understand and know when to enter or leave a trade always fulfilling the main objective every trader must have; making money.

There are two kinds of analysis you can perform on the Forex markets. They are known as technical analysis and fundamental analysis. It is common that traders tend to divide themselves into technical and fundamentalists. Each group devoting themselves to the main tools each kind of analysis gives them.

Technical forex traders base their trading on the analysis of the charts and the number of indicators derived from the plots of price oscillations and patterns. Meanwhile Fundamentalists traders base their trading mostly on the fundamental numbers and economical indicators of countries economies. Though, even if divided, both tendencies tend to complement each other to some degree.

In this article I will place myself on the fundamentalists side and focus on one of the situations every forex trader must be aware of and don’t let the events involved affect his trading efforts.

This risky situation is that when unprecedented chaotic world events start to develop as the trading day goes on. The power of the media (tv, internet, printed) can magnify and sometimes it may even distort the events taking place and impacting the trading journey in a significant manner. The result of this magnification and rapid diffusion of the news about the series of unfavorable events taking place is an increased atmosphere of fear, confusion and uncertainty in the trading world. And fearful traders are not prone to make the best trading choices because they have given themselves to panic and emotional reactions instead of reasoned and intelligent decisions.

If you need to have more specific examples of these kind of events you can search a bit inside your memories and consider the impact of just a few types of unfavorable chaotic world events as the political upheavals or corporate scandals of companies as; Enron, WorldCom, or of people as the case of Martha Stewart trial, etc. There is also the example of the terrorist attacks on Sep 11 in New York, March 11 in Spain, etc. Also natural disasters: tsunamis, earthquakes, floods, freezes, droughts, hurricanes along with wars can cause great disruption in a trading journey.

In short, every forex trader should be totally sure that his method of trading has built-in safe guards (stops, limit orders) to prevent a major financial loss from his trading account in case any of the unfavorable events I mentioned above ever takes place. And being realistic, many of those events will surely happen in the future.

February 24, 2011 · Tagged with

Forex

Winning Strategies With Forex Charts

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As you read forex charts, remember that the two fundamental approaches for online forex trading: fundamental analysis and technical analysis.

Fundamental analysis doesnt rely on forex charts. It scrutinizes political and economic indicators to determine trades. Charts here are deployed as used as a secondary reference.

Technical analysis on the other hand, attempts to predict price swings by analysis of historical price activity. Those who use technical analysis study the relationship between price and time.

The most actively traded pair of currencies is the Euro and the US pound, so we will use them in our example. The pound is on the right hand side of the chart and the Euro is on the left hand side. The currencies are expressed in relationship to each other in pairing. Forex charges will always display how much of the currency on the right hand side is necessary to buy a unit of the currency on the left side. Looking at the typical EU-USD, chart you will notice the last price displayed per given date. This number is always emphasized. The time is tabbed horizontally across the bottom of a chart and the price scale is displayed vertically along the right hand edge of the chart. The time and the price are set in all caps to help the trader remember that technical analysis rests upon the relationship between time and price.

The trader observes the price and time movement on a chart. These include bars, lines, point and figure, and Japanese candle sticks– the most favored method. With the candlestick method there is a large, red section that is the body of the candlestick. Lines protrude from the top and bottom and they are the upper and lower wicks. When you look at all the candles on a chart it is apparent that bodies come by difference sizes. Sometimes no body exists at all.

The same is true with wicks. Candle wicks come by many difference sizes; there may be no wick at all. The length of the body and the length of the wick are determined by the price range for the candle. Longer candles will have had more price movement during the time that they were open. The top of a candle wick is the highest price for that currency while the wicks bottom is the lowest price. A currency is bullish when the close of the candle is higher than the open. In simple terms this means that there were more buyers than there were sales during the opening time period. Sometimes the candles will not have wicks. The price opened and it dropped off until it closed.

Forex charts dont offer bullet proof trading hints, but they can help a trader. Past trends do have their place in forex trading as most traders will admit, and using the charts to track historical trends can assist a trader in making a snap decision.

The online investor typically joins a service that provides realtime charts that updates on currency activity. Charts can be checked on a minute to minute basis. For those who primarily do their trading based on historical accuracy this can ease the burden of prediction.

Most forex traders however use a combination of fundamental and technical analysis. They may chart historical trends, but they will also pay close attention to political, cultural and economic indicators within a region. They might use charts and other techniques to check correlation between political climate and currency fluctuations. But even the most sophisticated technical analysis software or tool has its limitations. A trader must be prepared to take risks and invest money that is not needed for the immediate future.

February 17, 2011 · Tagged with

Forex

Why Trade the FOREX?

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My purpose for writing this article is to demonstrate to you the advantages of trading on the FOREX market. However, there is one myth that I want to dispel before I go further. The myth is that there is a difference between trading and investing. To dispel that myth I quote from Al Thomas, President of Williamsburg Investment Company, who wrote If It Doesnt Go Up, Dont Buy It. He said Everyone who invests is a trader, only the time period is different. It is a lesson that I took seriously after taking a beating in the stock market in 2000.

So now, lets compare features of currency trading to those of stock and commodity trading.

Liquidity – The FOREX market is the most liquid financial market in the world around 1.9 trillion pounds traded everyday. The commodities market trades around 440 billion pounds a day, and the US stock market trades around 200 billion pounds a day. This ensures better trade execution and prevents market manipulation. It also ensures easily executable trading.

Trading Times The FOREX market is open 24 hours a day (except weekends) which means that in the US it opens at 3:00 pm Sunday (EST) and closes Friday at 5:00 (EST), allowing active traders to choose the times they want to trade. Commodities trading hours are all over the board depending on which commodity you are trading. Including extended trading times US stocks can be traded from 8:30 am to 6:30 pm (ET) on weekdays.

Leverage Depending on your FOREX account size, your leverage may be 100:1, although there are FOREX brokers that offer leverage of up to 400:1 (not that I would ever recommend that kind of leverage). Leverage in the stock market can be as high as 4:1, and in the commodities market, leverage varies with the commodity traded but it can be quite high. Because the commodity markets are not as liquid as the FOREX market, its leverage is inherently riskier. Although I was never shut out of a commodity trade by the day limit, the fear was always in the back of my mind.

Trading costs Transaction costs in the FOREX market is the difference between the buy and sell price of each currency pair. There are no brokerage fees. For both the stock and the commodity markets, there are transaction costs and brokerage fees. Even when you use discount brokers, those fees add up.

Minimum investment You can open a FOREX trading account for as little as 300.00. It took 5,000 for me to open my futures trading account.

Focus 85% of all trading transactions are made on 7 major currencies. In the US stock market alone there are 40,000 stocks. There are just over 200 commodity markets, although quite a few are so illiquid that they are not traded except by hedgers. As you can see, the fewer number of instruments allows us to study each one more closely.

Trade execution In the FOREX market, trade execution is almost instantaneous. In both the equity and commodity markets, you count on a broker to execute your trades and their results are sometimes inconsistent.

While all of these features make trading the FOREX market very attractive, it still requires a lot of education, discipline, commitment and patience. All trading can be risky.

February 10, 2011 · Tagged with

Forex

Why Is A Mentor Necessary To Succeed At Forex (FX)

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Why Is A Mentor Necessary To Succeed At Forex (FX) Currency Trading? (Part II)

A Forex mentor is by far the best way to go when attempting to learn Forex trading. This particular type of trading is becoming increasingly popular and there are many sources of help and information widely available. Some of this information is contradictory so it is understandable that a novice would have a hard time sifting through it all in order to find what will work best for him and how he should go about getting started in the fine art of Forex trading.

By engaging the services of a Forex trading mentor rather than purchasing a one-size fits all course, you are providing yourself with a jump-start to your Forex trading education. If your overall goal is to learn Forex trading, a mentor is a great way to go, mentors have years of their own trading experiences to share with you in addition to methods of learning that may deviate from the general courses that are marketed to mass audiences. Even better, mentors teach and guide you as an individual rather than one of the masses. They want you to succeed and will present the information over and over until it clicks with you.

Learning Forex doesnt have to be a lesson in futility. Employing a mentor can make the learning process go so much faster and provide you with real life experiences, good and bad, in the market. In the end, you will find that by utilizing the services of a mentor, if you take what you learn to heart, the money will be well spent. Take what your mentor teaches you and it will serve you well. With a mentor, you arent getting a black and white instruction sheet, rather you are receiving real life examples of what to do, not to do and why these things do or do not work.

All of this is great, but perhaps the best thing about having a mentor rather than signing up for a typical study course is that you have feedback from a real person who has actually been there and done that rather than someone with a script at the other end of an internet connection. You get a flesh and bones person with real experience in trading rather than a telemarketer trying to sell you the next generation of courses. You have someone who will answer your questions and take the time to explain the whys and why nots.

While we all have different methods of learning that work best for us, Im sure there are very few who would not benefit from the services a mentor has to offer no matter which learning style best suits them. I believe that you will find a mentor well worth every penny and many more.

February 3, 2011 · Tagged with

Forex

Why I trade Forex?

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Many people ask me why I trade Forex, Well I think like most people when I was introduced to Trading I didnt know about the Forex market. It was just natural to go looking in the stock exchange for trades. However, I found my trading was very limited, by the time I got home from work in the evening all the action was over. I moved to Forex mainly to take advantage of the 24-hour opening hours, I would often be found at my computer in the middle of the night waiting for the next bar to appear.

Unlike Futures, there are no trading exchanges as such. Trading is being done from major banking establishments around the world, With futures you are generally limited to trading only for a few hours that they are open, if major news breaks and the price starts going against you when the market is closed, you could end up losing big time while you are forced to wait for the market to open. With Forex you will always have an opportunity to trade 24 hours per day 5 days a week. As the sun wakes up each country on its journey it also wakes up the markets in New York, London, Europe, Asia, Australia to name a few.

The Currencies of the world are traded against each other, the most popular being the Euro the US and Australian pound, British Pound, Swiss Franc and the Japanese Yen.
Because of 24 hour trading, it is rare to see large gaps in price like stocks have on the opening and you often see prices in currencies trending more than stocks.

There are many advantages in trading Forex rather than Stocks, expensive Data providers that you need with Stocks is exchanged for free charting software offered by many Forex brokers. With over 1.5trillion (thats 46 times bigger than all the future markets put together!) being traded in a single day you are always sure of a trade, With Low transaction costs, no commissions or exchange fees is it no wonder more and more traders are turning to Forex.

Beware though, even with all these advantages trading is a high risk game and should only ever be trading with money you can afford to lose. With a good Trading Strategy and Money Management in place there is no reason not to join many Traders profiting from trading the Forex markets

January 27, 2011 · Tagged with

Forex

What is Forex Trading?

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FOREX, (FOReign EXchange market) or FX, is an international exchange market where stocks and shares are not traded, but currency. The return for the investor is not in the value of the currency per se, but rather the relative exchange value of one currency against another currency. Therefore, Forex trading is always expressed in pairs such as EuroUS pound (EURUSD) or US poundJapanese Yen (USDJPY).

By simultaneously buying and selling pairs of currencies, the investor, or speculator, hopes to profit from a favorable exchange rate change. Unlike the American stock exchanges, the New York Stock Exchange (NYSE) and the National Association of Securities Dealers Automated Quotation System (NASDAQ), Forex trading is more predictable than stocks.

One strategy that the Forex investor uses is a technique that stems from the assumption that all information about the market and a particular currency’s future fluctuations is found in the price chain. In other words, an investor simply looks at what has happened to that currency in the recent past, and predicts that the small fluctuations will generally continue just as they have before. Another strategy for the Forex investor is to analyze the country of the currency’s economy, political situation, and other possible rumors. The investor can also anticipate such things as political unrest or change that will also have an effect on the market.
Forex is the largest financial market in the world handling between 1.5 and 1.9 trillion US pounds a day. The combination of rather constant but small daily fluctuations in currency prices, create an environment which attracts investors. Because of the the liquidity of the market, unlike some rarely traded stock, traders are able to open and close positions within a few seconds as there are always willing buyers and sellers.

What are the risks?

Because of the sheer scale of the Forex Market, it ensures greater price stability and greater leverage. Also, with built-in protections such as safety margins, automatic limits for buying and selling, and other risk protection measures, the likelihood of ending up in the red even when the Forex market is volatile is drastically reduced. Furthermore, because of its’ size, it is near impossible for a single investor to significantly affect the price of a major currency.

However, all Forex traders should be aware that the market is one of the most liquid around and subject to strong currency trends. While leverage figures of up to100:1 are possible, without adequate risk protection in place the gap between profit and loss can be dramatic. Even veteran Forex traders can be caught out from time to time and take large hits. With this type of investor speculation, the golden rule must be: don’t risk more than what you can afford to lose.

January 6, 2011 · Tagged with

Forex

What Is Forex?

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It may come as a shock to the investment rookie, but Forex is the largest market in the world. Forex is an abbreviated form of the term Foreign Exchange, or simply currency. These terms refer to the monetary value of one countrys money value (as measured by the countrys largest single-value denomination) and is usually measured in comparison to the unit of currency used by the country in which the investor is a citizen.

The measure by which Forex is considered the largest market is in terms of cash value traded, and it is used by every type of investment imaginable, from individuals (who use brokers or banks) to governments to international banking firms. Forex is extremely popular due to its extreme liquidity and its time capacity (with three large stock markets open day long during the week, it is possible to exchange foreign currency at every hour of the day). Liquidity is a term that is short for market liquidity, which refers to the ability to quickly buy or sell without causing a dramatic fluctuation in price. As currency for countries is determined mostly by internal (domestic) factors rather than external ones, Forex is not subject to the fluxes caused by a panicked sell-off.

As the industrial market place and arguably the defining center of the world, the pound of the United States is used by far the most in Forex transactions. Involved in 89% of transactions, the US pound was way ahead of other currencies, followed distantly by the euro (37%) and then the yen (20%). Remember that the numbers here do not add up to 100% because every transaction will contain at least two different currencies.

Forex speculators are a controversial topic among economists and politicians alike. One school of thought posits that currency speculation can contribute to a countrys economic downfall, as a lower currency value causes the price of inflation in comparison to imported goods to rise, snowballing the problem. Countries that are primarily exporters to a country with a higher currency value, however, receive benefits when their pound is lowered in comparison, as their goods are thus inherently easier to purchase. The opposing view to the speculators as instruments of economic downfall is that speculators serve to keep currency regulated according to international agreements, and that their profits are the results of basic economic laws. Those who subscribe to this theory often point out that the opposing view is held all too often by leaders seeking to deflect attention away from their own domestic policies when explaining to a populace why their economy is in the toilet.

Individuals wishing to become involved in the Forex market need to remember that they must do so through a broker or bank, bodies regulated by their governments and international agreements to prevent the unlawful profit resulting in economic damage to a different country. Investing through these bodies inevitably means that the individual will not see the full results of their investment, as they naturally provide some insulation for themselves against loss in the fluctuating market.

December 30, 2010 · Tagged with

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