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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Earnings, losses and emotions

“If you don’t scratch you don’t win”.

- What do you feel reading this phrase?

Maybe the push to try and win, too?

“The pleasure of an easy win”.

- What do you feel reading this phrase?

Are you already feeling lust for the possession of money?

But not the money you sweated for and worked for, the money you got without

doing anything and that has an immeasurable value.

The money that falls at your feet and you did not have to commit for.

The money that changes your life in a moment because fortune choose you.

“Do you feel lucky today?”

- What do you feel reading this phrase?

If you wake up in the right mood and you go to have breakfast in a café, would you

not invest at least 10 € on a lottery ticket?

If it is luck and the feeling of it being "the right moment" which is driving your

choices, you will probably have disappointments of huge proportions.

It is through emotions that people choose, but you do not have to confuse emotions

with luck.

“Win for life, happy and lighthearted”

- What do you imagine reading this phrase?

Not having problems any more?

Not depending on anything or anybody?

Not needing money any more?

You can win all your life at a cost of only 1 €.

It really seems that with the financial crisis, the income from lotteries and gambling

has increased out of all proportion. If the probability of winning is very low and the

money usually ends up in the hands of the Government, why then do so many

people decide to gamble even if they know they will be throwing their money away?

This is the reason why the slogans I reported above are the true luck of the

marketing companies that look after the lotteries and the gambling industry’s ad

campaigns, and especially the Government’s coffers.

If this phenomenon did not constantly increase, the Government probably would not

be able to keep its public debt at an acceptable level.

Money coming from gambling actually represents capital which the Government

cannot give up without having to create new taxes or new more restrictive

measures.

If, starting tomorrow, “everybody would stop” gambling and the Government then

decided to increase taxes to compensate for lost revenue, a “civil war" would

probably break out.

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Daily and monthly balance

I understand perfectly that closing every daily or weekly trading session in profit is

difficult.

For this reason, above all if the operativity is not intraday based but on a multiday

base, the balance has to be done monthly or quarterly.

If the quarterly balance is negative you need to ask yourself some questions about

the method or your personal discipline in trading.

If the problem lies in the method, because it is unable to perform in that particular

market phase, obstinacy is the worst path to follow.

If the problem is lack of discipline, I suggest you take a holiday.

These moments, when you lack results and you need a break, are the most difficult

to face because at this precise moment of wanting redemption and recovery, the

trader should stop.

At this point ego and obstinacy come into the game and the trader would like to

continue on his nerves.

Stopping could be seen as fear and the trader does not want this for him- or herself:

fear is unacceptable.

In reality a degree of humility never hurts and a break to reflect could be more

valuable than any other solution.

The backtest simulation, like a demo trading account, is a very good solution to

regain confidence and to keep on training or to test your own method during an

unsuccessful phase of the method itself.

To simulate without money allows you to draw more reasonable conclusions about

the operativity, exactly when the results are not those you were expecting and the

loss of money could invalidate your rationality in analysing the problem.

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Everybody makes mistakes with operations

If the trader trades, he or she will inevitably have right and wrong operations.

To admit one’s faults is a sign of maturity and to understand that faults are part of

the way to success is an unavoidable step for the trader’s career.

The most interesting observations we should make are about the emotions felt after

a losing operation.

The first losing operation is normal, the second is annoying, the third makes you

angry and after the fourth, you start losing confidence in the method or in yourself.

And it is at exactly this point that the desire comes to recover the losses, maybe

with only one right operation.

From the probability point of view, you put yourself in a situation which is more and

more uncomfortable and difficult to satisfy.

If the fifth consecutive loss also arrives, usually the extent of this last one is bigger

than the sum of the previous ones, because of the higher amount of money you

invested or the higher risk situation you exposed yourself to, in the hope of

recovering the first four losses.

The fifth loss exceeds the stress levels that the trader had fixed in advance and

furthermore it goes against the estimated acceptable risk ,because the trader was

not prepared to accept that fifth loss.

At this point the trader goes into shock and stops for a few days before regaining

confidence or before being simply drawn back by a dependence on the “gaming

table”.

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How a successful trader does face difficulties

A successful trader is, above all, a successful person.

Achieving success in life at a certain level is never due to fate.

And I’m not talking about being the first in sport or in a particular profession at world

level.

I’m simply talking about achieving results above the average or at an unusual level.

Average people get scared, feel fear, anxiety and frustration.

Successful people feel the same emotions, otherwise they would not be people.

The difference lies in the fact that facing the same feelings, successful people do

not give up.

Often people confuse enthusiasm for reaching a goal with a consciousness of the

result.

If I’m conscious of the result and of the goal I want to reach, I will remain focused on

it even in difficult moments when enthusiasm decreases.

If I live pushed by enthusiasm and not by determination and consciousness of the

result, a gust of wind coming from a failure or from any kind of problem will be

enough to shake my certainty together with my enthusiasm and everything that

follows.

Success is not 100% enthusiasm, and even successful people experience

discouragement but they do not give up disheartened in the face of an obstacle.

There are no obstacles that can stop successful people, and maybe this is the only

difference between a successful and an average person.

The approach of “start with a loss”

When I open an operation I do not expect to earn.

When I do open an operation I ask myself what I will feel if this operation loses and I

decide to accept this feeling from the beginning.

In this way I become conscious of the risk and I accept it.

The perception of risk is always higher than the real risk.

When a person is “risking”, he or she experiences feelings of “fear” that link the risk

to the conscious and unconscious memory.

For this reason, if I risk being knocked down by a car I experience a temporary

shock which, after the event, leaves me completely immobilized or makes me feel

sick with fear.

The “fear” remains and over time it will influence my future behaviour in relation to

similar situations, when it comes back to me or when I live through it again in the

future.

When you lose or risk losing, you also experience a “fear” that will go with you in

your conscious and, above all, unconscious memory.

You will live through this uncomfortable feeling again every time you risk losing

money and this quite heavy, unpleasant feeling could provoke a reaction of refusal

to trading, where every day and in every single operation you risk losing money.

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The model of the successful trader

No trader has been trading all his or her life

I started trading in 1997.

So I cannot state that I have been trading all my life, as I believe nobody can.

There is always a beginning, and when you start you are exactly like anyone else

starting something: doubtful, confused, maybe a bit clumsy, and if you add some

insecurity, the recipe is made.

By 2009, in the 12 years since I started trading, I had seen at least 3 important

crashes on the stock exchange: the one on the Japanese market, the 9/11 crash

and, finally, the one that involved the whole financial world and is still having an

impact today (2010) all over the world.

The beginning is the first phase, the one that is for brave, passionate or simply

curious people, but the results fill the white pages of your own story only because

you started one day.

All traders have had some difficulties

All the jobs in the world and all the professionals face some difficulties in their

careers, why should a trader not face any?

The first difficulties are those that define the boundary between earning and losing

money.

If we think about this, these are the most important difficulties and those which will

determine whether the trader succeeds or quits.

The trader who quits is the one who is tired of frustrations and failures or the one

whose capital has been reduced to zero by the number of failures .

But there also are traders who operate for years and then, facing a long-lasting

period during which they lose or do not perform, prefer to quit because they have

lost confidence in trading or in themselves. Losing confidence in oneself or in the

trading world is the biggest reason for failure for those who have achieved some

results over a long or short period. But then fall out of love with trading when facing

a difficult test. The thing is, those people did not think they would still have to face

such a trial after quite a long successful period in trading.

Difficulties have existed, do exist and will always exist even in the life of a super

trader who has faced the market for years and managed any amount of money.

We cannot know what we are not prepared for until the day when, unexpectedly, it

turns up at our door.

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The trader’s goal is to “last”

Joe Ross has surely seen more than I have on the markets.

His fame and his mature age make him one of the best known traders in the world.

The other day I was surfing on Facebook, I was looking for some well-known name

in the trading world, and you know what? Joe Ross is on Facebook.

What do I do?

I send him a Friend request.

The next day I receive his confirmation: I am a friend of Joe Ross on Facebook!

But that’s another story. What I want to tell you here is a phrase that a trader told

me some days ago: “the trader's goal is to last”.

This trader did courses with me and then after 3 years of study finally started

operating with real money.

In 3 years he had not even opened an account.

He studied all sorts of books and collected all the information he could find on the

web.

I remember the hours spent coaching him, discussing all the details of optionstrategies

and even the most useless and hidden curiosities of trading.

I sincerely thought that for him trading was a fascinating subject to study with an

academic approach.

Even if rare, his was not the first case I saw of a person who, after having attended

a course and traded virtually, did not start operating in real money after having

passed the critical limit of 6 months. By this time more or less everyone starts

trading, even the most risk averse, with the desire of challenging their own goals.

Well this person, who is now a friend of mine, comes into my office for a talk, after I

had not heard from him for a while,.

We meet and we discuss the latest trading news and what do I find out?

He started trading.

With an account of $100, you will think.

Absolutely not.

His first account was $100.000 and his profit in the first 3 months $30.000.

I have always told people to start trading virtually, with paper money, and then to

open a small account and then, goal by goal, to increase the managed amount.

In any case, starting is very important, once you feel ready, to get a feeling for the

market.

He did virtual trading for more than 2 years, he carefully consolidated his knowledge

and he started without losing 1 dollar.

His first quarter has been a very good one for a beginner, not only because he has

proved that he can manage risk emotionally, but also by because he has gone on

the market with a such a significant amount of money for his first options account.

I strongly recommend not opening such a big account, during the first few months of

operations, but his story has been a lesson for me.

Just thinking of the number of books about trading he suggested I read, in only one

evening, his study time has not been too long or too short.

I also told him I would read them but I do not think he believed me, as I did not write

down one title or author he told me about.

This has been a period for him when he gained awareness of the risk and he

worked out his identity as a trader.

The job was so well done that when he started, he started with the confidence that

only a trader with at least 1 year’s experience on the markets could have had.

When you work with different people, you understand that what you can teach them

is simply the beginning.

After a while, you will definitely learn far more from each of them.

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Maximum duration of losses in time

If the method you have spent so long looking for and that has worked for a period is

not working anymore, whose fault will this be?

whoever taught you the method ?

your emotions?

your lack of discipline?

Wake up!

The market could simply have changed and the moment has come for you to adapt.

When the system is not performing anymore, the only responsibility you have is to

notice it before having lost your entire capital and having given it away to whoever

was already ready to receive new money, yours!

Number of consecutive losses

The maximum number of consecutive losing trades is a bother.

If you lose for 5-10-20 consecutive times, troubles will start.

You start losing your trust in the method, and then you start doubting the market

moment, and in the end you lose trust in yourself as a trader and as a person.

When you reach this stage, the first instinctive reaction is one of discomfort, then

the feeling grows and starts taking on the look of frustration, and then sadness

amplifies the feeling of frustration.

At this point, if you want to get out of the “corner” and not go k.o. you decide to quit,

looking for an alternative that justifies the fact that trading does not suit you, or

,simply that trading is a tool with which it is impossible to earn and in doing so you

feed the legend that “with trading people do not earn money”.

I decided that I would definitely stop trading when in only 6 months I managed to

accumulate a small fortune that allowed me to buy my parents' house in cash. At

that time those were modest dreams: I lost the same amount of money in around 3

months.

The feelings I felt were so strong for me, that a wave of pure ammonia in a closed

elevator would have been nothing in comparison, even if the wave went on for 1

hour.

At that point I decided to definitely stop trading.

To rebuild the “neuronal” journey that allowed me to accept the loss and to start

facing the market again has not been easy.

It was like after the first free fall parachute jump , the emergency landing near a tree

made me completely forget the idea of carrying on jumping, and years later a

partner of mine suggested I try again.

Well, at that time I was already conscious that I wanted to trade again and I was

already earning money with it, which made it seem easier for me to do another

parachute jump.

That's how I got my parachutist’s licence.

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The trading method

The method’s ups and downs

I went through phases when opening a calendar spread was a free meal in 80% of

the cases. I remember when this happened between 2005 and 2006.

I bought butterflies without an afterthought in the first part of 2007, when the market

went down without a hitch and I was earning from volatility, time or from direction,

but it was not difficult to bring money in, taking well judged risks.

I saw the break-even points of my options strategies fly from one side to the other

during the crashes of 2007, whatever the underlying.

I then decided to operate buying monsters and gianty swaps, as we called them, to

earn from volatility without taking a risk on direction even when the market went on

moving violently and did not seem to want to stop.

I operated with options on the Vix, to earn rapidly during market crashes, with an

underlying that was maybe even more volatile than the market itself, simply

because the Vix represents the measure of the market's volatility.

I have been able to create, with the help of expert scalpers, an unshakeable

operating strategy for the Forex.

Besides all this, I had to face difficult, non-profitable or even loss periods.

But above all, why did I go on changing strategy if I had a strategy that worked?

The method is useful to understand how a determined strategy has to be applied.

In any case, you cannot think that the strategy you use is the only one for your

entire life.

Your ability as an experienced trader will allow you to understand the conditions in

which to use one strategy or the other.

No business lasts forever without innovation.

Trading needs to travel step by step with evolutions in the market.

The application method of a strategy can last for 6 months, a year or maybe 2

Then this method will end up in the drawer to make room for a new method, waiting

for one you used for the previous 2 years to come back into fashion.

And when your method ends up in the drawer, what do you do?

The method is not wrong.

What is wrong is to always go on using the same method, at any cost.

The true method is the one of knowing how to recognise the method that works in a

defined, longer or shorter phase of the market, and to know that if you do not know

the right method, it is better not to risk your own money.

I expose myself to risk when I’m conscious of having the chance of earning a profit

and definitely not when I‘m at the mercy of risk.

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95% of the losses end up in the hands of 5% of the rich

But who is this 5%?

Who are these people?

Let’s say that if the strong hands are able to move the market with some efficiency,

and to be a significant counterpart to the equivalent value exchanged, maybe those

strong hands will be a big part of this 5%.

This reduces the chances of us being elected to the 5% of profitable traders even

more.

The simplest thing to do, I think, is to follow the moves of those who definitely have

the cards, whether legitimately or not, to play the game.

That is why simply watching the price and reading the tracks left by the big

operators is an inescapable necessity for the trader.

The trader is “the little fish” that swims under the “shark”.

The shark moves and looks for its prey to eat, and by remaining under the shark’s

belly the meal is guaranteed, and if nothing else, we also avoid becoming the

shark’s dinner.

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Who has money, decides

Usually money can make the difference in the decision process.

Useless to say that, being able to change the rules of the game is a winning hand in

any activity.

In trading this is only possible at the very highest levels.
Levels of power that are in the hands of a few.

Who has power, has money

The figures of power who hold important political and financial roles have access to

unobtainable information and are even able to create such information, not just

modify the rules of the game.

To know that the market can be manipulated and that this ability is in the hands of

the few, makes us conscious of the real risk, that of the impossibility of predicting

the price.

If anytime you enter the market, you are conscious of the fact that you can lose In

spite of your trading system, you can think of making this fascinating job part of your

future.

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Money moves the price

Many people think that trading is a war to be fought against the market.

The market satisfies the demand and supply of those who place orders to buy or

sell, and that’s all.

If the price rises, your order has contributed to that movement, just as it has when

the price falls.

It is simply a matter of understanding whether there are people able to “manipulate”

the price or not.

In any case we will not be those people, and we have to accept this fact.

In any case, if a character exists who "manipulates” the market, (usually called a

“strong hand”), it would be interesting to understand what logic this character

adopts and what moves he/she makes, so that we can be on the right side of the

market.

I have never found the phone number of someone who could keep me updated

about the intentions of the “strong hands”, but what I have identified is the “track”

that those “strong hands” leave when they move.

This particular detail warrants consideration in this e-book, which does not intend to

explain direction as the result of a technical observation, but simply as the result of

the circulating money flows.

To know where the money masses are directed gives us the chance to be on the

side of those who earn simply because they have enough capital available to

influence the rules.

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Automatic systems

In the era of the iPod, palm and laptops, which are forever getting smaller, we have

the feeling that everything can be automated.

In trading, the “robot” that imitates human abilities without emotions is one of the

frontiers in the top ten interests for newbies and professionals.

I have heard a lot of talk amongst professionals on this subject.

A lot of talk amongst traders new on the scene, who already want a trouble free life.

A major split has emerged between those who consider the trading system as the

only way to success, and those who consider it as the surest way to a guaranteed

decline in performance and capital in the medium term.

The Holy Grail

When the moment comes that you are consistently earning more money than you

budgeted when you started trading, you will know for sure that you have earned the

results with commitment and you will certainly not believe that you have found the

Holy Grail

it with consistency and passion.but of have simply learnt a profession after having committed yourself to

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Oscillators

Oscillators are definitely a taboo subject.

People say that oscillators do react late in relation to the price, that they give a more

immediate and filtered reading of the price and that they therefore reduce the

information it gives.

Of course, a line drawn with a mathematical formula can not, at any time back up

my personal decision about the risk I want to take.

A very interesting observation came from a pleasant chat with a directional trader

recently...

When stock exchange traders were

computers and could not calculate the MACD or stochastic value at any moment of

the day.

Traders knew the prices of the previous stock exchange session and they could

mark with a pencil, in a notebook, the prices of the trading day that were shown on

a luminous strip display.

These traders managed enormous capital and represented the interests of

institutions that definitely did not trade on the stock exchange to lose their money.

Today, computers allow us to automate complex formulae in a second and this

allows analysts and private traders to go crazy using indicators and "magic

formulae", which have nothing to do with the price, other than as the basis for a

calculating model that tries to explain what the price already says.

The more you move away from the pure price, the more you go towards something

that does not represent the price at all.

In any case, I want you to remember that what we buy and sell is always a price,

never one of its derivatives, the stochastic is not on sale
☺.floor members they certainly did not have

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The price moves without reason

2.1. Technical analysis

This is my strongest position.

There is no technical analysis that can predict price.

Technical analysis is a very good discipline for describing and justifying the past,

but definitely not for earning money operating on the market in the present.

Directional traders often support this. What also helps me here, are the completely

informal conversations I have had with traders who live from trading on the stock

market or on the Forex and who have spoken to me about how their strategy, is

based on studying the price but also takes into consideration previous key levels,

and only works because of the care taken to enter into the position at the right

moment and only earns because of care with risk management.

When I talk about risk management in my courses, the audience only pays attention

because of the word “risk”, and all the rest is just boring as people want to hear

about profits, and definitely not about how to manage their own operational plan:

management does not fascinate anybody.

In this book you will learn that technical analysis is the result of the amount of

money operators put into the game and not the opposite.

A resistance does not only form because the price reacts psychologically to a

specific past price level.

If no money was involved, the price would not go anywhere.

A level of support results if money flows in the market but the fact that those

movements correspond with a support, does not tell us if it will be a support, or a

“broken support”.

What should I do when I read about the presence of a support on a chart? Do I buy

it, thinking that it works as support, or do I sell it, thinking that there will be a

breakout?

Is this not the same thing as deciding to buy or to sell at any time?

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What do people starting out in trading think

Simple: they are buying a dream.

The dream of freedom, wealth and prestige that everybody would like for

themselves and for the people close to them.

The chance to say “go to hell” to their boss or colleagues.

The wish to find an ability in themselves to be successful challenging the market,

through their own strengths and maybe only in their spare time.

Does anybody ever asked themselves whether a commitment at the highest level is

necessary in order to achieve excellent results?

What I think

For me, money is only real if it comes from the market.

My identity as a trader is very strong and I would never be able to justify not being

able to make a profit from the market.

I have had periods of low profitability, or no profitability at all, even after having

acquired a lot of experience and ability.

I’m not afraid of being compared with others, or of admitting this important truth.

What I do not accept is giving up a job like this, that defines me as person.

I believe that often even the best trading methods, and I have discovered and

invented hundreds of them, have varying periods of inefficiency or inactivity.

I think this is normal, I do not believe that is good business to sell ice to Eskimos,

and in the same way to do options’ calendar spreads in the middle of the storm of

the financial crisis, or to buy call and put, in a

other than a “crime”.range market, cannot be anything

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What the traders think

Traders embrace this profession for several reasons, but in first place is always the

desire for high profits and independence.

Traders win above all because they risk their own capital, they enjoy the chance of

working anywhere in the world and they earn sums of money that most people

cannot even imagine.

Traders believe in themselves and in their trading system.

After a long time researching, they land on a suitable trading system and as far as

they are concerned, there cannot be another system that lets you earn as much as

theirs does, or even that lets you earn anything at all.

Why do successful traders not believe that another trader can earn money with a

different trading system?

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What the managers think

Managers who work for institutional investors, or directly for their own customers

are able to achieve positive performance in the long run, but without avoiding

periods of loss of varying length.

The manager profile is that of a professional starting out as a private trader or as a

trader working at the desk of one of the main managing banks, who decides to offer

his or her own consultancy to certified managing companies, or to open their own

company betting on their own abilities as a manager and a trader.

One of the phrases that most impressed me and that best sums up and describes

collective opinion, is the following:

“it does not matter if you earn or lose, what matters is how you earn or lose”

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What the institutional investors think

I have had the opportunity of speaking to institutional investors, that is funds’

managing companies or in general to people whose job is to select managers for

funds’ funds.

Here things become interesting because the manager's goal is to

select other managers able to do this for him or her, in order to satisfy a clientele

who will then be willing, too, to entrust them with their own savings and capital.

The war of the managers, in this case, is divided into two sides: one side is looking

for the best performance and the other is looking for the best product package.

You know that even managing is selling a product.

In this case, you should measure the quality of the product by its return over a

period of time, in proportion to risk.

The product package is important in every case: just think about the amount of

money that has been raised from the introduction of capital-guaranteed products

after the stock exchange crashes of 2001.

In this case the product’s success does not come from the performance promised,

but from the feeling of “safety” generated by the product.

Some years later you would have discovered that nothing was guaranteed by those

products, as the risk assumption made during subscription was based on bonds

issued by certain banks that wrote the history of finance and today do not even

have an official web site.
perform, or to

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Is it possible to earn money on the

1.1. What the brokers think

Over the years I have talked to several brokers who have sight of their customers’

accounts.

What people say in the trading rooms and at business dinners is that very few

accounts operate in the black and many of them are not destined to be profitable in

the long term.

These observations certainly do not encourage anyone to start out or to continue as

a trader.

It is often commission that makes a trading model inefficient, or over rigid automatic

systems, or the emotions of the trader who uses his discretion. However you look at

it, it seems there is always something that goes wrong, for the majority of

professionals, private individuals or for the often ill-prepared people camping in the

land of gold, on planet trading.

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Why am I saying all this?

To be free, in peace and in tune with the world!

I have met more than 5000 people and I felt good with all of them … isn’t that

fantastic?

I want each of you to receive these few lines and to be able to read them, as if I had

written them by hand and addressed them personally to you.

In the following pages you will discover a part of the experience I have gained in

trading, but what you will not discover is the person I am and this is the reason I

wanted to tell you something personal about me.

When you read the book, I wouldn’t want you to think that it’s the stuff of genius and

therefore is in some way unachievable for the majority.

I’m an average person.

So make good use of the information and understand that the result will always and

only depend on the person you are, or decide to be.

At this point, it is appropriate for me to thank all the people who made it possible for

me to live the first 34 years of my life in the best way possible.

Starting in chronological order, my first thanks go to my brother, with whom I’ve had

a lot of fun from when we were kids, and who taught me patience, a virtue of which

he is so full that many would be ready to make him a “saint” immediately.

To my mother and father, who have always lived a life devoted to sacrifice and

honesty, which is not a small thing, and always tried to instil those values in me.

To my childhood friends, “those you never forget”, with whom I discovered the world

step by step.

To Claudio, who for years “freaked me out” with his talks on philosophy, leaving a

sharp and indelible mark on my youth.

To Lina, who dedicated an entire life to others and never got tired of passing on the

message of charity.

To my high school mates who completely changed my diligent self at school,

making me forget about the school uniform and the “good guy” hair cut.

To Valentina, who spent 16 years of her life beside me and gave me trust and

unshakeable respect.

To Andrea Cesarano, friend and brother, who taught me how to sell under the

pretext of teaching me how to live with an awareness of the possibilities open to me

To all those to whom I owe my success at Investing People.

To Stefano De Carlo, who was the first person to arrive in the office and who has

shown heart and enthusiasm for himself and for everything around him over the last

3 years.

To Mirko Masoni, Stefano Gianti, Valerio Maggi, Salvatore Lo Voi and Gianluca

Landini, inveterate traders who have experienced in their life what it means to leave

a safe job and to live only from trading.

Monica, Valentina, Fabio, Alessandro, Stefanny, Elisa, Francesca and Felipe who

dedicated time, passion and enthusiasm, both when working for us and during

moments of fun or difficulty.

Again thank you to Stefano De Carlo, Daniele Repossi, Alessandra Chirizzi, Andrea

Mereghetti and Alessandro Bonetti, who share the challenges of trading with me

every day, having this as their only profession.

To the woman I never thought would arrive in my life but who, in answer to a simple

request to Baby Jesus, just arrived like an angel, and gives me tenderness, love

and enjoyment every day of my life: Alessandra, for our friends

Thank you, thank you, thank you to over 5000 people who I have met in these 5

years of on and off stage training and who are still reading my words today, in this

book.Cina.

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This is the way my story starts

The part everyone knows is the part which starts in 1997, when I started trading on

the Stock Exchange and in 2002, when I started trading with options.

But my story really starts on the night of the 23rd to the 24th of October 1975, when

I was born for the first time.

Yes, for the first time, because since then I have been born again at least 6 times.

The first time I was born the same way as everyone else, from my mothers’ womb,

under the sign of Scorpio.

I’ll spare you the other 6 times, but the thing to know is that I have always been a

shy person.

One of those people always appreciated for his kind heart, but so shy that he could

make even the most introverted person in the group feel uncomfortable.

Yes, because when you are shy, not only do you not strike up conversation with a

stranger, but you are quite capable of silencing even the leader of a high school

class, who has no time to waste on someone who doesn’t speak.

I know this seems incredible to those of you who met me in my “dominant stage

animal” persona, giving the audience shows and emotions together with amazing

creative inventions for trading strategies.

Coming onto the stage, to the Rolling Stones’ music, in front of more than 500

people, like a rock star, and certainly not like the trader in a necktie you are used to

seeing at an average financial presentation.

But why am I telling you all this?

Usually people make themselves seem important by talking about their successes

and how they made millions.

When I went on stage for the first time, I was in front of 9 people.

I remember that during the coffee break I dissolved into tears with my friend

Andrea, because I believed I was not able communicate, my heart and my passion

to all the people there, together with the information they came for.

After the break, I understood something had changed …

The people there were participating, smiling, enthusiastic and became an active

part of the show, while they were learning.

In other words, they were with me, accepting me as if they wanted to consume me

and I did nothing other than give them all of myself, my heart and my spirit, along

with information and entertainment.

When I found myself in front of more than 500 people, who were all there for me, 5

years on from that first time, it was simply extraordinary.

I do not usually prepare an opening speech or a rigid programme for my

presentations.

I always improvise and try to develop the presentation according to the make-up of

the audience.

Basically, the audience loves me, it seems to need to meet me.

In reality, all this comes from the fact that when I’m on stage I give them my heart

and I lay myself bare to everyone.

Yes, because if you remember what you read up to this point, I was born shy!

When people think they are getting a lot from me, they do not know how much I am

getting from them.

Being accepted for what you are is the best satisfaction for a shy person, and every

person in the room was a big vote of confidence to me!

Maybe this is the reason why I never became bigheaded in front of all those people,

and I never will.

Heart for heart!

People always gave their heart to me and I always gave them mine back in return...

With time I learned to accept myself fully and to give people back the gift they gave

to me: acceptance.

I’m not writing these words for myself. It is beautiful to say all this things to the

people around you who sometimes see you as an example.

Many people think I’m really someone … to put it briefly, I eat and drink, have fun

and get angry like everybody else in the world. I have my fears even if I have learnt

to give less importance to fear and more emphasis to important things so that I do

not lose the important things out of fear, as often happens .

I do not even believe I am “talented”..

I owe everything that I have achieved to my heart, to perseverance and to some

flash of “genius” but to nothing unique.

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Mergers and Acquisitions

Mergers and acquisitions are relevant indicators, though perhaps not as strong as the

others discussed here.

However, mergers and acquisitions between large, multinational companies can and do

have an impact on currency values for the short-term. The reason should be fairly clear

when you think about it.

In order to complete an acquisition, for example, the corporation that is attempting to

purchase a corporation based in another country must enter the Forex market to purchase

the corresponding currency.

During the window of time that the acquisition is pending, it is not unusual to see a spike in

currency value on both sides.

Trade and Capital Flow

Countries may be said to be dependent on

either trade flow or capital flow.

A country dependent on

or exports with other countries.

Some examples of trade flow dependent economies include:

trade flow brings in the larger part of its income from by its trade



Canada - oil exports



Australia - precious metals exports



New Zealand - agricultural exports



Each of these countries depends largely on their foreign exports for economic growth.

Remember when Japan's economy was booming due to all the cars and electronics they

were exporting across the world?

A country dependent upon

foreign investments. The

dependent countries.

This is because the financial investment markets, on the whole, are very large and highly

liquid in these countries. They draw in a steady pool of investors both from within and

without, but are particularly reliant on the influx of capital from foreign investors.

Take from this another set of potential Forex signals to watch:

capital flow brings in the bulk of its income by attracting outside,U.S. and Great Britain are primary examples of capital flow



Any event impacting the flow of trade



And keep in mind that these events may be something more than new trade agreements or

faltering investor confidence. Natural disasters, for example, can have an impact on trade

dependent countries that rely on agriculture for their exports.

Any event impacting the flow of capital

Geo-Politics

Unlike stocks, currencies are quite sensitive to events in the political sphere. In a way,

currencies are a lot like “flags”

country they serve.

It is not unusual for foreign investors to devalue currencies intentionally as a way of sending

a message about a country's politics. It is also quite common for adversarial governments to

take actions towards devaluing the currency of an 'enemy' or problem country.

One needs to look no further than the current controversy surrounding the United States'

war effort. The Dollar has taken a beating along with the U.S. in terms of image.

Many countries are now threatening to denominate their oil exchanges in currencies other

than the U.S. Dollar (which has been standard since the 1970s'), as well. If that occurs, the

almighty Dollar may crash farther than it has at any time in history.

So, pay attention to politics as much as you can!

Any time a major political player does something to indicate a vote of confidence (or lack

thereof) in his own country or another, you're sure to see a corresponding change in

currency value.- they may represent everything good and bad about theJapan - electronics and automotive exports

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Forex 102: Factors Affecting the Global Currency Market

Many people find the 'predictions game' the most enjoyable aspect of Forex trading. In order

to develop solid mid-range and long-range trading strategies, you have to acquire a fairly

sophisticated knowledge of economics.

So, you ask, which factors most influence the global currency market?

There are 5 key areas you need to pay attention to in order to become a top-notch Forex

investor:



Interest Rates



Economic Growth



Mergers and Acquisitions



Trade and Capital Flow



We'll take a look at each area now, and how you can take advantage of these factors.

Geo-Politics

Interest Rates

The Forex market allows you to profit from differences between the interest rates of different

countries. Interest rates on a currency from a given country are set by that country's central

bank.

In general, you want to purchase low interest rate currencies first, and use these to finance

your purchase of high interest currencies or other instruments. This tactic is known as

generating

A second tactic involves generating income from

observed that a rise in a country's interest rate usually triggers a corresponding rise in

currency value.

The main thing to understand about

shift in interest rates presents you with an opportunity to play interest rate differentials

against each other.

The corresponding rise and fall in currency values means that interest rates make for

powerful and generally very reliable Forex indicators.

interest income.capital appreciation. It has beeninterest income and capital appreciation is that any

Economic Growth

Positive economic growth is strongly tied to a rise in currency value. Why?

When an economy is in a growth period, inflation tends to follow. What do the central banks

do when the threat of inflation is looming ahead? Typically, they raise interest rates in order

to slow down the economic boom just a bit.

Now, when interest rates go up, investors - especially foreign investors - start putting more

money into the economy. More investors mean more demand for the currency. So, the value

of the currency goes up.

Likewise, a slow in growth or even a significant downturn will cause the reverse of this chain

reaction to take place. Central banks tend to cut interest rates to give sluggish economies a

shot in the arm.

However, lower interest rates mean lower returns for investors. They respond by pulling out

of the market. This results in less demand for the currency, followed by a drop in currency

value.

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