Winning strategies with Forex Charts

As you read forex charts, remember that the two

fundamental approaches for online forex trading:

fundamental analysis and technical analysis.

Fundamental analysis doesn’t 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 dollar, so we will use them in our example. The

dollar 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 wick’s 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 don’t 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.

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Eight Key Aspects in Selecting Your Forex Broker

As you decide upon a forex broker there are many factors to

take into account.

•

Trust

•

Experience

•

References from past clients

•

Level of success

•

Amount of advice to be given

•

Convenience

•

Amount of margin offered

•

The aforementioned are important. In any financial

transaction it is important to trust the broker you work

with. This trust is garnered by the experience level the

broker has. Of course there are some new brokers starting

out who are quite trustworthy, but most people would

rather work with an experienced broker. For that reason

most new brokers attach themselves to a firm where they

can be mentored and gain experience.

References from previous clients are vital. If your broker

has helped someone else is successful in the past and that

person is willing to speak up for him that says a lot. You

can gage the level of success your broker has had by

speaking with past clients and seeing how well they did

working with this broker. Next, take a look at the amount

of advice your broker is willing to give you. Of course, you

make your own decisions and will never take another

person’s word for everything, but it is good to have

knowledge to work with, and advice from an experienced

broker is key information to factor in. Convenience is also

impotent. If you live in California then an Ohio broker

might not be the best choice. But in the age of the internet

that factor has become less relevant. With fax and email

where you and your broker live has become less important.

Pay attention to the margin offered. Margin is used to

leverage your money. A broker who gives you a 50 to one

margin is more valuable than one who gives you 20 to one.

And of course speed. Is your broker quick? Does he return

phone calls and emails promptly? If so, perhaps you can

work with him.

Remember that the broker serves as a trusted advisor and

someone that you may be working with for years to come so

choose the relationship carefully. Ask friends and

acquaintances who are active in forex trading what broker

they use and how they met. It is quite possible that you can

get a referral from a friend or acquaintance you trust and

acquire a good forex broker that way.

An alternative method to find a forex broker is to go online.

There are message forums, chat rooms, and email groups

through portals like Yahoo, Google and MSN that contain a

wealth of information. Getting onto one of these online

communities and asking other people for advice is the way

that many people found their broker. If a broker has

several clients in an online community who are happy with

what he has accomplished for them, then that is a good

indication that you might be happy with him as well. Take

advantage of the number of people who are on the internet

and join some of these online communities. Ask question

and you’ll probably learn a great deal from the experiences

that other people have had. Also find trade journals,

magazines and ezines to subscribe to. Read as much as you

can about the subject of forex trading before going into it.

Become a smart shopper and smarter trader.

Locating a superb forex broker is a job in itself. When you

visit with a forex broker you are in essence conducting an

employment interview to determine if this is the broker you

wish to handle your financial affairs, so be thorough. Ask

plenty of questions. Ask for references. Don’t be shy. Also

check with other people in the office of the broker and see if

you would trust them to fill in for your broker if he were not

available. And, see if the broker is willing to offer you a

demo account to use to get in some practice before you

actually make an investment. If the broker is able to do so

and encourages you then it means that the broker wants

educated clients and is not just out for the quick buck. See

what kind of training and tutoring the broker is willing to

offer. A good broker will offer to answer your questions

and help you through the learning process.Speed

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Earn Thousands Hourly (with a Forex Simulator.)

Test-driving an online forex demo account is the preferred

method of potential traders to minimize risk. A demo

account readily allows a cautious person to go online and

observe exactly how a paid account would work. Think of it

like playing the popular wargame Command and Conquer:

you send in the troops (gobs of fictitious money), make a

few tactical maneuvers (invest in speculative exchanges)

and conquer territories (reap profit).

It can be addictive. Without investing and risking any real

money, the investor plays with ghost money in an account

and initiates buys and sells the same way it would be done

in reality. The software used for these demo accounts

parallels what the real trading platform does. Real figures

are pulled from exchanges, trend charts are generated, and

profits are calculated from buy/sell maneuvers., A trader

sees at the end of the day the net loss or gain should real

money had been used in the transactions.

Even a novice can trade. Let’s assume an investor pretends

to open a margin account with ten thousand dollars. He

watches trends in the currency markets and believes that

the dollar will go up in value against the British pound. The

demo software empowers him to purchase at a ten to one

margin; he then authorizes a buy of one hundred thousand

dollars of dollars and sells one hundred thousand dollars of

Pounds. There will be a spread, or difference, which

accumulates to the gains, or “profit”.

Why invest time with demo accounts? Simple. It’s safe to

learn the currency trade without having real money to lose.

Think of it like crashing your car in driving simulators or

doing crazy rolls in an F-14 - on a Playstation. You stretch

your creativity, test your reflexes and build your skills all

behind the safety of a highly immersive computer screen.

Your mind gets a full reflex workout without incurring

damage to property and incurring lawsuits!

The same holds true for forex trading. Spending time with

a demo account allows the potential trader to gain skills

and learn the ins and outs of the game and the market

place. A person is then able to see if they truly have the

instincts necessary for the market and have sufficient

knowledge to “play with the big boys.”

Almost all online companies involved in forex trading offer

demo accounts, sometimes free and sometimes for a small

fee. Even if a fee is paid, it is usually worth it because a

forex trader can flex his skills and knowledge for vast

profits after spending some time practicing with the forex

demo software.

Setting up a demo account requires nothing more than a

valid email address and your name. Upon activation, you

will have access to the usual charts, graphs, ordering

system and even prediction tools. The latter are quite

interesting, particularly predictive implements based on

Fibonnacci… but take care that such tools can never predict

swings in the market. Too many social, political and

environmental variables cause erratic fluctuations and no

software can ever take those into consideration.

Richard Peyton, my good friend, benefited from a forex

demo account. After months of study of the forex market,

Jackson was convinced that he could make a go of it as a

day trader in the forex market. His girlfriend, however

wasn’t convinced and feared the inherent risk. She

considered forex nothing more than sophisticated

gambling.

Richard went to a brokerage company online that he felt

held good reputation. He set up a demo forex account and

began to make trades as though he were using real money.

After several days, on paper, Richard garnered consistent

profit. He continued learning and his confidence increased

that he grew anxious to open a real forex account and invest

a percentage of disposable income. His girlfriend also saw

how on paper he had made a nice profit and relaxed,

withdrew her objections.

Today Richard and his family do very well financially

through forex trading, With a demo account, he leapt into a

world of vast financial potential and built a fortune. He

retired his day job.

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Foreign Exchange Markets – A General Overview

In the beginning countries would trade with each other

using the barter system. If one nation needed lumber but

had cattle, they would trade one product for another. This

was pure trading. This type of economy has many

limitations, but served mankind well for many centuries.

However, nations quickly saw the benefit of having a

system of exchange, and while some cultures used pretty

rocks, or animal teeth, precious metals quickly became

established methods of exchange. God and silver were the

most popular. Initially gold and silver coins were used, and

in fact the name of the British standard currency, the

pound sterling, came from the Hasterling region where gold

coins were made, and originally meant coins of the

Hasterling’s. Up until World War I most nations had

central banks that supported the value of their currencies

and most used gold as the standard. Paper money was

printed and it legally could be exchanged for gold but this

did not often happen. Since it was rarely converted, some

banks and some nations believed they no longer needed to

keep reserves of gold in their vaults, as the US once did

with Fort Knox. Inflation then occurred.

Near the end of World War II a conference known as

Bretton woods had many nations reach an agreement on a

reserve currency system based on the US dollar. The World

Bank and other organizations agreed, and a fixed exchange

rate system was reached. The value of the dollar was fixed

on a certain amount of gold, and other currencies were

fixed on value to the dollar. Currency trading after this

however has evolved and currencies have grown in value,

and gone down in value, leading to fluctuation.

Today traders take advantage of the fluctuation in value

among currencies through the forex or foreign currency

markets. It is quite common to see a trader who suspects

that the value of the Euro will go up against the yen or the

dollar and follow the old axiom of “buy low and sell high.”

On of the ways this is done is through margin trading. With

margin trading a trader doesn’t have to have all the money

in an account that is being traded. If a trader has 10,000

and works with a one percent margin, he is able to trade

$100,000 in currency. This adds great leverage to the trade

and makes forex trading very attractive to many who are

looking for a large and quick return on their investments.

Forex traders are also attracted to the low costs associated

with trading since most trades are without commission.

The fact that there is a 24 hour trading cycle is also

attractive to many. Traders have opportunities for large

profit, but they also have risk inherent. An aggressive

trader may experience profit and loss swings of up to 30%

in a day. This can be 30% to the good, or to the bad, so

forex trading requires education and courage as well as

capital. However there are no daily limits and no

restrictions on trading hours other than the weekend when

markets are closed. For this reason there are always

opportunities. Money will always be made.

Much of the forex trading that occurs however is not with

individual investors or speculators. Many commercial

organizations have currency exposures that are created due

to import and export activities. This is reason enough for

many to engage in forex trading. However, financial

institutions remain the biggest players in the forex market.

Banks, brokers, mutual funds and other major financial

institutions are actively involved in forex trading.

Some nations in the past have complained about hedge

funds and other large institutions involved in forex trading,

saying that they have intentionally devalued their

currencies to make quick profits. George Soros, the famous

billionaire who is involved in politics, has been accused of

this practice by the government of Indonesia. Whether it is

true or not, and if true whether it should or should not be

done is not for this article. However, when institutions

control such large amounts of money, the chance of

manipulation does exist. As long as foreign currency is

traded, there will be such accusations. However, the forex

market remains a way to achieve substantial financial gain.

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Money Management Basics for Forex Traders

Money management in the foreign exchange currency

market requires educating yourself in a variety of financial

areas. First, a definition of the foreign exchange currency

or forex market is called for. The forex market is simply the

exchange of the currency of one country for the currency of

another. The relative values of various currencies in the

world change on a regular basis. Factors such as the

stability of the economy of a country, the gross national

product, the gross domestic product, inflation, interest

rates, and such obvious factors as domestic security and

foreign relations come into play. For instance, if a country

has an unstable government, is expecting a military

takeover, or is about to become involved in a war, then the

country’s currency may go down in relative value compared

to the currency of other countries.

There are five major forex exchange markets

in the world,

New York, London, Frankfurt, Paris, Tokyo and Zurich.

Forex trading occurs around the clock in various markets,

Asian, European, and American. With different time zones,

when Asian trading stops, European trading opens, and

conversely when European trading stops, American trading

opens, and when American trading stops, then it is time for

Asian trading to begin again.

Most of the trading in the world occurs in the forex

markets; smaller markets for trade in individual countries.

Simply put forex trading is the simultaneous buying of one

currency and selling of another. Over $1.4 trillion dollars,

US of forex trading occurs daily and sometimes fortunes are

made or lost in this market. The billionaire George Soros

has made most of his money in forex trading. Successfully

managing your money in forex trading requires an

understanding of the bid/ask spread.

Simply put the bid ask spread is the difference between the

price at which something is offered for sale and the price

that it is actually purchased for. For instance, if the ask

price is 100 dollars, and the bid is 102 dollars then the

difference is two dollars, the spread. Many forex traders

trade on margin. Trading on margin is buying and selling

assets that are worth more than the money in your account.

Since currency exchange rates on any given day are usually

less than two percent, forex trading is done with a small

margin. To use an example, with a one percent margin a

trader can trade up to $250,000 even if he only has $5,000

in his account. This means the trade has leverage of 50 to

one. This amount of leverage allows a trader to make good

profits very quickly. Of course, with the chance of high

profits also comes high risk.

People who do forex trading do so because they are

attracted by 24 hour trading days, by strong liquidity –

unlike stocks, buying and selling is almost instantaneous –

and the fact that forex trading usually occurs without

paying commissions.

Like many other speculative investments, a key part of

money management for the forex trader is only using

money that can be put at risk. It is wise to set aside a

portion of your net worth and make that the only money

you use in forex trading. While the chances of good profits

are there, if you should have a problem and get wiped out,

you’ll only have a limited amount of money placed at risk.

Also remember that the market is n constant motion.

There are always trading opportunities. If a currency is

becoming stronger or weaker in relation to other currencies

there is always a chance for profit. For instance, if you

believe that the Euro is gong to become weak compared to

the US dollar then selling Euros is a good bet. If you

believe that the dollar is going to become weaker than the

yen, or the pound sterling, then selling dollars is wise.

Staying current on the news and current events in the

countries whose currency you hold is a smart move. Many

people reach points where they can predict currency

changes based on political or economic news in a given

country. Remember though that forex trading is

speculation, so be careful when managing your funds and

only invest what you can afford to risk.

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Forex for Absolute Dummies

Forex (foreign exchange) refers to the foreign currency

exchange market, the world’s largest financial trading

market. Pass yourself as a forex expert with these buzz

words:

•

Bid – to buy

•

Ask – to sell

•

Liquidity – financial ease of transaction, i.e. cash

•

Trading volume – the amount traded

•

buying price and the actual selling price

Bid/ask spread – the difference between the proposed

•

OTC – over the counter

•

for instance, a Canadian dollar is valued at .86 of a US

dollar

Exchange rate – the difference between currency values;

•

control vast amounts of money and are able to

manipulate the value of a currency through speculation

Hedge funds – large mutual funds companies that

•

usually exerts control over the value of that currency

Forex trading is the investment in the currency of one

nation. Multinational Corporations doing business across

national boundaries find value in keeping their cash

reserves in a variety of countries, and holding their funds in

a myriad of ways. For example, a UK corporation may hold

a percentage of its working capital in UK pounds, but if it

does quite a bit of business in USA it may also maintain a

percentage of its money in dollars, in US banks. Individual

investors over the decades have discovered that there is

profit to be made in investment and speculation in the

currency markets.

Take the case during the 70’s when the German DM swung

rapidly in value. It was worth anywhere from 1.2 marks

the US dollar to 3.5 US marks to the dollar. When the mark

was worth 2.5 it was beneficial to spend dollars buying

marks, since the mark would buy more goods or services at

that rate. As the mark bottomed out 1.7 to the dollar there

was less incentive.

Surprisingly, the forex market itself is not unified. One can

find many small forex markets specializing in trading

various currencies. The most commonly traded currencies

in forex speculation are the US dollar, the Australian dollar,

the British pound sterling, the Japanese yen, and the

European Euro. Currency values vary depending on the

market in which an investor is speculating, so there is really

no such thing as a single, unified dollar rate, but instead

there are multiple dollar rates, which vary according to the

market where the trade is occurring.

The major cities in which trades occur include New York,

London, and Tokyo. It’s a 24 hour process. When Asian

trading ends, European trading commences, and when

European trading ends, then American trading opens.

Naturally, when American trading ends, it is time for Asian

trading to open house once more… and so on.

Currently, the most actively traded currency is the US

dollar, involved in 90% of all trades. This is followed by the

Euro involved in 36% of all trades, then by the yen in 20%

and the pound in 17%.

Our fastest rising currency in trade is the Euro, however the

US dollar is still the favored anchor point-- and the

currency watched so as to judge how others will react.

Differences in value of currencies come from the current

events. GDP growth, inflation dips, interest rate swings,

budget and trade deficits, surpluses and other economic

conditions all shift currency values. Investors, for this

reason, follow the news very closely. There are 24 hour

cable news channels and many web sites devoted to news

that aid currency speculators.

The forex market is highly susceptible to rumors. In fact

the central banks of countries frequently manipulated local

currency value by sowing rumors about interest rate hikes

and other economic propaganda that impacts the value of

the domestic currency. When this news is false it is called a

dirty float- and it dismays the market.Central bank – the national bank of a nation, which

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Trader or gambler

If reading the above phrases did stimulate your mind so much that you feel

sympathy with them, forget about trading.

Buy a lottery ticket, so that you won’t be one of those people who say you cannot

make money trading.

The attitude to trading cannot be the same as the attitude to gambling.

Traders would not be successful people if they believed they were lucky or if they

approached this profession like you approach a casino.

I understand that these simple observations could seem stupid, but the failure of a

trader often stems from exactly this sort of thing.

These are the same phrases and slogans that attract gamblers and stimulate the

minds of those starting up in trading.

So be careful and try to understand if your approach is the one of a trader or rather

that of a gambler.

My advice for those starting, and for those who have

already started

Believe in the fact that trading is a profitable activity.

Believe in yourself.

Look for an intelligent trading method, test it and start believing in the method itself.

Once you overcome those three steps, start trading and never, for any reason,

doubt yourself or trading.

Only in this way will you belong to the group of people who have achieved success

with trading, without paying any attention to the people who told you to be careful or

laughed at you because you chose to become a trader.

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