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If you are going to be a profitable Forex trader who makes serious money from the markets, then just understanding the basics will not be enough. You will need to have a trading strategy and system that you can use to find and manage your trades. This strategy will be how you find your profitable trades and how you do things like take profit or minimize your losses.
We discuss different strategies that might suit you below. Often the most profitable trading strategies are those that are the simplest. The two trading strategies discussed below are swing trading and scalping. These are very different trading strategies suited to very different traders. You could test them both to see what you prefer.
Swing trading is a trading strategy where you look to make profits when price makes its next swing higher or lower. With this strategy you are not using smaller time frames like the 1 minute or 5 minute charts and jumping in and out of trades quickly.
Instead, you are using higher time frames like the 4 hour and daily charts and are holding trades for longer periods. Swing trading is often best done when price is making clear trends higher or lower. As the example chart shows below; price is in a trend higher. Although price is in a trend higher it is still making regular rotations lower.
These rotations are known as swings or dips in the market. The value and swing trader would be watching this trend higher and looking to buy these dips lower and then making a profit as price continues with the trend and makes its next swing back higher. Scalping or what is often called scalp trading is almost the opposite of swing trading. Where swing traders are holding for longer periods of time and for the next swing higher or lower, scalp traders are jumping in and out of trades quickly.
Scalping involves looking to make quick profits as price makes small movements higher or lower. The example below is of a 5 minute chart showing a scalping trade. In this example price was stuck trying to breakout of a support level. Once price did make the breakout the scalper would have entered their trade hoping to make quick profits as price breaks lower.
Whilst scalping can be exciting and offer a lot of trading opportunities, it is not for everyone and is a strategy you should test to see if it fits with your trading style. Along with Forex trading tutorials and free trading courses, one of the best ways to learn how to trade the Forex market is by reading books from market experts. There are literally thousands of different books dedicated to the markets that range from beginner to advanced level. One of the best books if you are looking to get started in the Forex markets is Currency Trading for Dummies.
The author Brian Dolan has 20 years experience in the markets and has worked at Forex. Whilst this book will not teach you how to trade the markets, it sure is a great book that has been read by millions of traders. This book was first published in and tells the story of the successes and failures of trader Jesse Livermore. If you are looking for a trading strategy, then price action and candlestick trading is one of the most popular in the world.
This book by Steve Nison goes in-depth into exactly what candlesticks are, how and why they work and the different patterns you can use in your trading. There are a lot of different candlestick patterns and this book does a great job of explaining them. Whilst many like to think that Forex trading is a get rich quick scheme, you will only find lasting success with commitment.
There is a lot to learn and study and you will need to be prepared to knuckle down and learn both the basics and also the different trading strategies for sustained success. How to find, enter and place stop losses on the best price action entries. I hunt pips each day in the charts with price action technical analysis and indicators.
Thus, time frame does not play into the equation. Note, however, that deals can be renewed rolled-over to the next day for a limited period of time. The Forex deal, in this context, is therefore an obligation to buy and sell a specified amount of a particular pair of currencies at a pre-determined exchange rate. Forex trading is always done in currency pairs. If 6 of 6 an investor had bought 1, euros on that date, he would have paid 1, If one year later, the Forex rate was 1.
The investor could now sell the 1, euros in order to receive 1, The investor would then have USD However, to know if the investor made a good investment, one needs to compare this investment option to alternative investments. At the very minimum, the return on investment ROI should be compared to the return on a risk-free investment.
Long-term US government bonds are considered to be a risk-free investment since there is virtually no chance of default - i. Trade only when you expect the currency you are buying to increase in value relative to the currency you are selling. If the currency you are buying does increase in value, you must sell back that currency in order to lock in the profit.
An open trade also called an open position is one in which a trader has bought or sold a particular currency pair, and has not yet sold or bought back the equivalent amount to complete the deal. In other words, the person or institution that bought or sold the currency has no plan to actually take delivery of the currency in the end; rather, they were solely speculating on the movement of that particular currency.
Exchange rate Because currencies are traded in pairs and exchanged one against the other when traded, the rate at which they are exchanged is called the exchange rate. The majority of currencies are traded against the US dollar USD , which is traded more than any other currency.
These five currencies make up the majority of the market and are called the major currencies or the Majors. Some sources also include the Australian dollar AUD within the group of major currencies. The first currency in the exchange pair is referred to as the base currency.
The second currency is the counter currency or quote currency. The counter or quote currency is thus the numerator in the ratio, and the base currency is the denominator. The exchange rate tells a buyer how much of the counter or quote currency must be paid to obtain one unit of the base currency. The exchange rate also tells a seller how much is received in the counter or quote currency when 7 of 7 selling one unit of the base currency.
In other words, this is the difference between the market maker's "selling" price to its clients and the price the market maker "buys" it from its clients. If an investor buys a currency and immediately sells it and thus there is no change in the rate of exchange , the investor will lose money. The reason for this is the spread. At any given moment, the amount that will be received in the counter currency when selling a unit of base currency will be lower than the amount of counter currency which is required to purchase a unit of base currency.
In general, smaller spreads are better for Forex investors since they require a smaller movement in exchange rates in order to profit from a trade. Prices, Quotes and Indications The price of a currency in terms of the counter currency , is called Quote. There are two kinds of quotes in the Forex market: Direct Quote: the price for 1 US dollar in terms of the other currency, e. Japanese Yen, Canadian dollar, etc. Indirect Quote: the price of 1 unit of a currency in terms of US dollars, e.
British pound, euro. The market maker provides the investor with a quote. The quote is the price the market maker will honor when the deal is executed. This is unlike an indication by the market maker, which informs the trader about the market price level, but is not the final rate for a deal.
Cross rates any quote which is not against the US dollar is called cross. The collateral is called the margin and is also known as minimum security in Forex markets. In practice, it is a deposit to the trader's account that is intended to cover any currency trading losses in the future. Margin enables private investors to trade in markets that have high minimum units of trading, by allowing traders to hold a much larger position than their account value.
Margin trading also enhances the rate of profit, but similarly enhances the rate of loss, beyond that taken without leveraging. Maintenance Margin Most trading platforms require a maintenance margin be deposited by the trader parallel to the margins deposited for actual trades. The main reason for this is to ensure the necessary amount is available in the event of a gap or slippage in rates. Maintenance margins are also used to cover administrative costs.
When a trader sets a Stop-Loss rate, most market makers cannot guarantee that the stop-loss will actually be used. For example, if the market for a particular counter currency had a vertical fall from 1. No matter how the rate slippage is accounted for, the trader would probably be required to add-up on his initial margin to finalize the automatically closed transaction. The funds from the maintenance margin might be used for this purpose.
Easy-Forex guarantees the exact rate Stop-Loss or other as pre-defined by the trader. There are five ways private investors can trade in Forex, directly or indirectly: The spot market Forwards and futures Options Contracts for difference Spread betting Please note that this book focuses on the most common way of trading in the Forex market, Day-Trading related to Spot.
Please refer to the glossary for explanations of each of the five ways investors can trade in Forex. A spot transaction A spot transaction is a straightforward exchange of one currency for another. The spot rate is the current market price, which is also called the benchmark price. Spot transactions do not require immediate settlement, or payment on the spot.
The settlement date, or value date is the second business day after the deal date or trade date on which the transaction is agreed by the trader and market maker. The two-day period provides time to confirm the agreement and to arrange the clearing and necessary debiting and crediting of bank accounts in various international locations.
Risks Although Forex trading can lead to very profitable results, there are substantial risks involved: exchange rate risks, interest rate risks, credit risks and event risks. Given the extremely 10 of 10 short lifespan of the typical trade, technical indicators heavily influence entry, exit and order placement decisions. You dont need British pounds or Japanese yens to trade with them.
Use your own account base currency at Easy-Forex. Today, the Forex market is a nonstop cash market where currencies of nations are traded, typically via brokers. Foreign currencies are continually and simultaneously bought and sold across local and global markets. The value of traders' investments increases or decreases based on currency movements. Foreign exchange market conditions can change at any time in response to real-time events. An enormous liquid market, making it easy to trade most currencies.
Volatile markets offering profit opportunities. Standard instruments for controlling risk exposure. The ability to profit in rising as well as falling markets. Leveraged trading with low margin requirements. Many options for zero commission trading. A brief history of the Forex market The following is an overview into the historical evolution of the foreign exchange market and the roots of the international currency trading, from the days of the gold exchange, through the Bretton-Woods Agreement, to its current manifestation.
In , a Chicago bank refused to make a loan in pound sterling to a college professor by the name of Milton Friedman, because he had intended to use the funds to short the British currency. The bank's refusal to grant the loan was due to the Bretton-Woods Agreement. Bretton-Woods was aimed at establishing international monetary stability by preventing money from taking flight across countries, thus curbing speculation in foreign currencies. Between and World War I, the gold exchange standard had ruled over the international economic system.
Under the gold 12 of 12 standard, currencies experienced an era of stability because they were supported by the price of gold. However, the gold standard had a weakness in that it tended to create boom- bust economies. As an economy strengthened, it would import a great deal, running down the gold reserves required to support its currency. As a result, the money supply would diminish, interest rates would escalate and economic activity would slow to the point of recession.
Ultimately, prices of commodities would hit rock bottom, thus appearing attractive to other nations, who would then sprint into a buying frenzy. In turn, this would inject the economy with gold until it increased its money supply, thus driving down interest rates and restoring wealth. Such boom-bust patterns were common throughout the era of the gold standard, until World War I temporarily discontinued trade flows and the free movement of gold.
Participating countries agreed to try to maintain the value of their currency within a narrow margin against the dollar and an equivalent rate of gold. The dollar gained a premium position as a reference currency, reflecting the shift in global economic dominance from Europe to the USA. Post-war construction during the s, however, required great volumes of Forex trading as masses of capital were needed. This had a destabilizing effect on the exchange rates established in Bretton-Woods.
In , the agreement was scrapped when the US dollar ceased to be exchangeable for gold. By , the forces of supply and demand were in control of the currencies of major industrialized nations, and currency now moved more freely across borders. Prices were floated daily, with volumes, speed and price volatility all increasing throughout the s. New financial instruments, market deregulation and trade liberalization emerged, further stoking growth of Forex markets. The explosion of computer technology that began in the s accelerated the pace by extending the market continuum for cross-border capital movements through Asian, European and American time zones.
Similarly, Euro markets are those where currencies are deposited outside their country of origin. The Eurodollar market came into being in the s as a result of the Soviet Union depositing US dollars earned from oil revenue outside the US, in fear of having these assets frozen by US regulators. This gave rise to a vast offshore pool of dollars outside the control of US authorities. The US government reacted by imposing laws to restrict dollar lending to foreigners.
Euro markets were particularly attractive because they had far fewer regulations and offered higher yields. From the late s onwards, US companies began to borrow offshore, finding Euro markets an advantageous place for holding excess liquidity, providing short- term loans and financing imports and exports. London was and remains the principal offshore market. In the s, it became the key center in the Eurodollar market, when British banks began lending dollars as an alternative to pounds in order to maintain their leading position in global finance.
London's convenient geographical location operating during Asian and American markets is also instrumental in preserving its dominance in the Euro market. Euro-Dollar currency exchange The euro to US dollar exchange rate is the price at which the world demand for US dollars equals the world supply of euros. Regardless of geographical origin, a rise in the world demand for euros leads to an appreciation of the euro.
Factors affecting the Euro to US dollar exchange rate Four factors are identified as fundamental determinants of the real euro to US dollar exchange rate: The international real interest rate differential between the Federal Reserve and European Central Bank Relative prices in the traded and non-traded goods sectors The real oil price The relative fiscal position of the US and Euro zone The nominal bilateral US dollar to euro exchange is the exchange rate that attracts the most attention.
Notwithstanding the comparative importance of 14 of 14 bilateral trade links with the US, trade with the UK is, to some extent, more important for the euro. This chart is illustrates the steady general decline of the USD in terms of euro from the beginning of until the end of EUR-USD rates In the long run, the correlation between the bilateral US dollar to euro exchange rate, and different measures of the effective exchange rate of Euroland, has been rather high, especially when one looks at the effective real exchange rate.
As inflation is at very similar levels in the US and the Euro area, there is no need to adjust the US dollar to euro rate for inflation differentials. However, because the Euro zone also trades intensively with countries that have relatively high inflation rates e.
In the wake of the sub-prime mortgage crises in the US, dollar losses escalated and continued to feel the backlash. The Fed responded with several rounds of rate hikes while weighing the balance of domestic growth and inflation fears.
Have a look at Easy-Forex professional charts. The basic theories underlying the US dollar to euro exchange rate Law of One Price: In competitive markets, free of transportation cost barriers to trade, identical products sold in different countries must sell at the same price when the prices are stated in terms of the same currency.
Interest rate effects: If capital is allowed to flow freely, exchange rates become stable at a point where equality of interest is established. The dual forces of supply and demand These two reciprocal forces determine euro vs. US dollar exchange rates.
Various factors affect these two forces, which in turn affect the exchange rates: The business environment: Positive indications in terms of government policy, competitive advantages, market size, etc. Stock market: The major stock indices also have a correlation with the currency rates, providing a daily read of the mood of the business environment.
Political factors: All exchange rates are susceptible to political instability and anticipation about new governments. For example, political instability in 16 of 16 Russia is also a flag for the euro to US dollar exchange, because of the substantial amount of German investment in Russia. Economic data: Economic data such as labor reports payrolls, unemployment rate and average hourly earnings , consumer price indices CPI , producer price indices PPI , gross domestic product GDP , international trade, productivity, industrial production, consumer confidence etc.
Confidence in a currency is the greatest determinant of the real euro to US dollar exchange rate. Decisions are made based on expected future developments that may affect the currency. Types of exchange rate systems An exchange can operate under one of four main types of exchange rate systems: Fully fixed exchange rates In a fixed exchange rate system, the government or the central bank acting on its behalf intervenes in the currency market in order to keep the exchange rate close to a fixed target.
It is committed to a single fixed exchange rate and does not allow major fluctuations from this central rate. Semi-fixed exchange rates Currency can move within a permitted range, but the exchange rate is the dominant target of economic policy-making.
Interest rates are set to meet the target exchange rate. Free floating The value of the currency is determined solely by supply and demand in the foreign exchange market. Consequently, trade flows and capital flows are the main factors affecting the exchange rate.
The definition of a floating exchange rate system is a monetary system in which exchange rates are allowed to move due to market forces without intervention by national governments. The Bank of England, for example, does not actively intervene in the currency markets to achieve a desired exchange rate level. With floating exchange rates, changes in market supply and demand cause a currency to change in value. Pure free floating exchange rates are rare - most governments at one time or another seek to manage the value of their currency through changes in interest rates and other means of controls.
The advantages of fixed exchange rates Fixed rates provide greater certainty for exporters and importers and, under normal circumstances, there is less speculative activity - though this depends on whether dealers in foreign exchange markets regard a given fixed exchange rate as appropriate and credible. The advantages of floating exchange rates Fluctuations in the exchange rate can provide an automatic adjustment for countries with a large balance of payments deficit.
So what! The group using these hedging tools is primarily businesses and other organizations participating in international trade. Their goal is to diminish or neutralize the impact of currency fluctuations. This group includes private individuals and corporations, public entities, banks, etc.
They participate in the Forex market in order to create profit, taking advantage of the fluctuations of interest rates and exchange rates. The activity of this group is responsible for the high liquidity of the Forex market. They conduct their trading by using leveraged investing, making it a financially efficient source for earning. Questions and answers about 'market making' What is a market maker?
A market maker is the counterpart to the client. The Market Maker does not operate as an intermediary or trustee. A Market Maker performs the hedging of its clients' positions according to its policy, which includes offsetting various clients' positions, and hedging via liquidity providers banks and its equity capital, at its discretion. Who are the market makers in the Forex industry? Banks, for example, or trading platforms such as Easy-Forex , who buy and sell financial instruments make the market.
That is contrary to intermediaries, which represent clients, basing their income on commission. Do market makers go against a client's position? By definition, a market maker is the counterpart to all its clients' positions, and always offers a two-sided quote two rates: BUY and SELL. Therefore, there is nothing personal between the market maker and the customer. Generally, market makers regard all of the positions of their clients as a whole. They offset between clients' opposite positions, and hedge their net exposure according to their risk management policies and the guidelines of regulatory authorities.
Do market makers and clients have a conflict of interest? Market makers are not intermediaries, portfolio managers, or advisors, who represent customers while earning commission. Instead, they buy and sell currencies to the customer, in this case the trader. By definition, the market maker always provides a two-sided quote the sell and the buy price , and thus is indifferent in regards to the intention of the trader. Banks do that, as do merchants in the markets, who both buy from, and sell to, their customers.
The relationship between the trader the customer and the market maker the bank; the trading platform; Easy-Forex; etc. Definitely not, because the Forex market is the nearest thing to a perfect market as defined by economic theory in which no single participant is powerful enough to push prices in a specific direction. This is the biggest market in the world today, with daily volumes reaching 3 trillion dollars.
No market maker is in a position to effectively manipulate the market. What is the main source of earnings for Forex market makers? The major source of earnings for market makers is the spread between the bid and the ask prices. Easy-Forex Trading Platform, for instance, maintains neutrality regarding the direction of any or all deals made by its traders; it earns its income from the spread.
How do market makers manage their exposure? The way most market makers hedge their exposure is to hedge in bulk. They aggregate all client positions and pass some, or all, of their net risk to their liquidity providers. Easy-Forex, for example, hedges its exposure in this fashion, in accordance with its risk management policy and legal requirements. Easy-Forex guarantees the accuracy, security and integrity of all transactions. Read more here 20 of 20  Overview of trading Forex online How a Forex system operates in real time Online foreign exchange trading occurs in real time.
Exchange rates are constantly changing, in intervals of seconds. Quotes are accurate for the time they are displayed only. At any moment, a different rate may be quoted. When a trader locks in a rate and executes a transaction, that transaction is immediately processed; the trade has been executed. Up-to-date exchange rates As rates change so rapidly, any Forex software must display the most up-to- date rates. To accomplish this, the Forex software is continuously communicating with a remote server that provides the most current exchange rates.
The rates quoted, unlike traditional bank exchange rates, are actual tradable rates. A trader may choose to lock in to a rate called the freeze rate only as long as it is displayed. Trading online on Forex platforms The internet revolution caused a major change in the way Forex trading is conducted throughout the world. Until the advent of the internet-Forex age at the end of the s, Forex trading was conducted via phone orders or fax, or in-person , posted to brokers or banks.
Most of the trading could be executed only during business hours. The same was true for most activities related to Forex, such as making the deposits necessary for trading, not to mention profit taking. The internet has radically altered the Forex market, enabling around the clock trading and conveniences such as the use of credit cards for fund deposits. Forex on the internet: basic steps In general, the individual Forex trader is required to fulfill two steps prior to trading: Register at the trading platform Deposit funds to facilitate trading 21 of 21 Requirements vary with each trading platform, but these steps bear further discussion: Registering Registration is done online by the individual trader.
There are various forms used in the industry. Some are quite simple, where others are longer and more time-consuming. In part, this can be attributed to governmental or other authorities requirements, though some Forex platforms require more information than is actually needed.
Some even require a face-to-face meeting, or to obtain hard copies of required documents such as a passport, or drivers license. Typically, the Forex platform is not required to run a thorough check, but rely on the registrant to be truthful. Nevertheless, each Forex platform conducts certain routines, in order to check and verify the authenticity of the details provided. Registrants are required to declare that funds used for trading are not in question, and are not the result of any criminal act or money laundering activity.
This is mandatory as part of a global anti-money laundering effort. It is advised that the reader becomes familiar with Anti-Money Laundering regulations, and the procedures associated with the prevention of this criminal activity. Depositing funds New registrants must deposit funds to facilitate trading. However, the majority of the Forex platforms today require that, in addition to funds used for actual trading, an additional amount be deposited.
Often called maintenance margin or activity collateral, its purpose is for the platform to have an additional guarantee. Some of the platforms that require an additional deposit do pay interest on the collateral, which is frozen under the traders name. Easy-Forex is able to 22 of 22 provide these advantages because it assures guaranteed rates and Stop- Loss. That means that there will never be any additional requirement for funds as a result of a gap that causes you to surpass the Stop-Loss.
See 20 issues you must consider Chapter 9 for more. Trading online The trading platform operates 24 hours a day just as the global Forex market runs around the clock. However, many online Forex market makers require the download and installation of software specific to their own trading platform.
Consequently, accessibility is limited to those terminals that have the software. Since Forex trading is borderless, and may be performed at any given time, it is obviously advantageous to have access to trading from as many locations as possible. The Easy-Forex Trading Platform is a fully web-based system, which means trading can be conducted from any computer connected to the internet.
Traders are only required to log-in, ensure they have available funds to trade, or make new deposits, and commence trading. The Trading Platform: real-time software The main feature of any Forex trading platform is real time access to exchange rates, to deal and order making, to deposits and withdrawals, and to monitoring the status of positions and ones account.
The Easy-Forex Trading Platform system uses web services to continuously fetch the most current exchange rates. The most recent data displays without the need for a page refresh. This includes account status screens such as My Position, which updates continually to reflect changes in rates and other real time elements. Read more here Transaction processing and storage As soon as a transaction is executed, the relevant data is processed securely and sent to the data server where it is stored.
A backup is created on a different server farm, to ensure data integrity and continuity. All of this happens in real time, with no human intervention. In the case of an indication, the price given does not bind the dealer, but rather provides information about market conditions. It is wise to withhold from the dealer the intended direction of the deal, specifying the pair only.
Accordingly, the dealer then provides a quote comprising two prices, buy and sell both sides quote. The quote binds the dealer for the very second it is given. If the trader does not immediately ask for execution, then the price is no longer in force. The dealer would then tell the customer risk, or change, meaning the price quoted is no longer in force. In such case, the trader should ask for a new price.
On the other hand, in order to make a deal, the trader must proclaim buy or sell, together with the currency or the price. The dealer says 1. Banks are closed at nights, weekends and holidays. Trade, deposit and withdraw at Easy-Forex, 24x7 24 of 24  Training for success Understanding the nuances of the Forex market requires experience and training, but is critical to success.
In fact, ongoing learning is as important to the veteran trader as it is to the beginner. The foreign currency market is massive, and the key to success is knowledge. Through training, observation and practice, you can learn how to identify and understand where the Forex market is going, and what controls that direction. To invest in the right currencies at the right time in a large, nonstop and global trading arena, there is much to learn. Forex markets move quickly and can take new directions from moment to moment.
Forex training helps you assess when to enter a currency based on the direction it is taking, and how to forecast its direction for the near future. Training with Easy-Forex Easy-Forex offers one of the most effective forms of training through hands- on experience. For as little as USD 25 at risk per trade, you can start trading while learning in real-time. Easy-Forex strongly recommends starting with very small volumes, and depositing an amount to cover a series of trades. Learn the basics of the foreign exchange market, trading terminology, advanced technical analysis, and how to develop successful trading strategies.
Discover how the Forex market offers more opportunities for quick financial gains than almost any other market. To learn more about the trading advantages of Easy-Forex, join Easy-Forex registration is quick and free, no obligation The many available resources and tools to train yourself There are many free tools and resources available in the market, particularly online.
Start with simple charts. Try to identify trends and major changes, and try to relate them to technical patterns as well as to macro events news, either financial 25 of 25 or political. Guided tours Most platforms provide guided tours, demos or tutorials, either online or via download.
Read all the headlines, particularly those directly related to Forex. Check the impact of such news, if any, on the charts. Many include alerts to upcoming reports and events such as market indicators and interest rate decisions. To read todays professional outlook and view detailed charts, join Easy- Forex registration is quick and free, no obligation : www. Bear in mind that forecasts and predictions are made by people, none of whom can guarantee the occurrence of future events Indices Follow the indices of the leading markets e.
Compare them to the changes in the Forex market, as well as to changes in particular currency pairs. Economic indicators Pay attention to the release of economic indicators for example the monthly unemployment rate in the USA , and try to identify their impact on the market in general, and on specific currency pairs in particular. Glossary Dont hesitate to browse Forex glossaries, which are offered free on many platforms.
A given word may have different meaning as it relates to Forex and to the terminology used by the Forex market participants. Some seminars are offered free, often as part of a client recruitment process by a given platform; many are, nevertheless, worth attending. Educational courses are offered online and by many post-secondary institutions.
Forex books Read, or even just browse. Many books are offered free, or as part of a service package to the trader. For many, historical background and technical analysis are topics better covered in books than in an educational setting. This gives you an opportunity to learn from the experience of others. Of course, remember that some forum participants may be biased, promoting a given Forex platform or their own agenda.
No commissions? How about profit withdrawal fees? No hidden costs at Easy-Forex. Join and trade without banking costs or other indirect costs. Read more: www. Customers can access FREE one-on-one online training. The training goal is to teach people specific strategies for trading currencies over the internet. Both novice investors and expert day traders have benefited from the training provided by Easy-Forex. The demo account idea The demo account idea Many Forex platforms offer new registrants a demo account.
A typical example would provide 10, demo dollars that can be traded as a means of learning how to succeed in Forex. Many Forex platforms offer new registrants a demo account. Easy-Forex does not offer demo accounts. Coming to understand that reason must rule over emotion is the most important lesson a trader can learn, and it cannot be done with play money.
If there is no consequence to indulging in emotional responses to the market, there is no learning, so demo accounts tend to have little educational value. New registrants are thus able to garner both an educational and experiential benefit unavailable through simulated situations. To get personal assistance and free training, Join Easy-Forex To get personal assistance and free training, Join Easy-Forex registration is quick and free, no obligation 28 of 28  Technical Analysis: Patterns and forecast methods used today Basic Forex forecast methods: Technical analysis and fundamental analysis This chapter and the next one provide insight into the two major methods of analysis used to forecast the behavior of the Forex market.
Technical analysis and fundamental analysis differ greatly, but both can be useful forecasting tools for the Forex trader. They have the same goal - to predict a price or movement. The technician studies the effects, while the fundamentalist studies the causes of market movements. Many successful traders combine a mixture of both approaches for superior results.
If both Fundamental analysis and Technical analysis point to the same direction, your chances for profitable trading are better. This chapter describes the approaches, methods and tools used to this end. As there are many ways to categorize the tools available, the description of tools in this chapter may sometimes seem repetitive. The sections in this chapter are: [6. Price indicators; b. Number theory; c. Waves; d. Gaps; e. Trends; [6. Technical analysis is concerned with what has actually happened in the market, rather than what should happen, and takes into account the price of instruments and the volume of trading, and creates charts from that data as a primary tool.
One major advantage of technical analysis is that experienced analysts can follow many markets and market instruments simultaneously. Technical analysis is built on three essential principles: 1. Market action discounts everything!
This means that the actual price is a reflection of everything that is known to the market that could affect it. Some of these factors are: fundamentals inflation, interest rates, etc. However, the pure technical analyst is only concerned with price movements, not with the reasons for any changes.
Prices move in trends. Technical analysis is used to identify patterns of market behavior that have long been recognized as significant. For many given patterns there is a high probability that they will produce the expected results. There are also recognized patterns that repeat themselves on a consistent basis. History repeats itself. Forex chart patterns have been recognized and categorized for over years, and the manner in which many patterns are repeated leads to the conclusion that human psychology changes little over time.
Since patterns have worked well in the past, it is assumed that they will continue to work well into the future. Disadvantages of Technical Analysis Some critics claim that the Dow approach prices are not random is quite weak, since todays prices do not necessarily project future prices; The critics claim that signals about the changing of a trend appear too late, often after the change had already taken place.
Many traders are quite familiar with these patterns and often act on them in concern. This creates a self-fulfilling prophecy, as waves of buying or selling are created in response to bullish or bearish patterns. Pure technical analysis is based on objective tools charts, tables while disregarding emotions and other factors; Signaling indicators sometimes point to the imminent end of a trend, before it shows in the actual market.
Accordingly, the trader can maintain profit or minimize losses. Be disciplined, dont be greedy. Close your Forex the position as you originally planned. The objective is to predict the major components of the trend: its direction, its level and the timing. Some of the most widely known include: Bollinger Bands - a range of price volatility named after John Bollinger, who invented them in the s.
They evolved from the concept of trading bands, and can be used to measure the relative height or depth of price. A band is plotted two standard deviations away from a simple moving average. As standard deviation is a measure of volatility, Bollinger Bands adjust themselves to market conditions. When the markets become more volatile, the bands widen move further away from the average , and during less volatile periods, the bands contract move closer to the average.
The closer prices move to the upper band, the more overbought is the market, and the closer prices move to the lower band, the more oversold is the market. The longer the price stays at a particular level, the stronger the support at that level. On the chart this is price level under the market where buying interest is sufficiently strong to overcome selling pressure. Some traders believe that the stronger the support at a given level, the less likely it will break below that level in the future.
The Resistance level is a price at which an instrument or market can trade, but which it cannot exceed, for a certain period of time. On the chart this is a price level over the market where selling pressure overcomes buying pressure, and a price advance is turned back.
CCI - Commodity Channel Index - an oscillator used to help determine when an investment instrument has been overbought and oversold. The Commodity Channel Index, first developed by Donald Lambert, quantifies the relationship between the asset's price, a moving average MA of the asset's price, and normal deviations D from that average.
The CCI has seen substantial growth in popularity amongst technical investors; today's traders often use the indicator to determine cyclical trends in equities and currencies as well as commodities. The CCI, when used in conjunction with other oscillators, can be a valuable tool to identify potential peaks and valleys in the asset's price, and thus provide investors with reasonable evidence to estimate changes in the direction of price movement of the asset. Hikkake Pattern a method of identifying reversals and continuation patterns, this was discovered and introduced to the market through a series of published articles written by technical analyst Daniel L.
Chesler, CMT. Used for determining market turning-points and continuations also known as trending behavior. It is a simple pattern that can be viewed in market price data, using traditional bar charts, or Japanese candlestick charts. Moving averages - are used to emphasize the direction of a trend and to smooth out price and volume fluctuations, or noise, that can confuse interpretation.
There are seven different types of moving averages: 32 of 32 simple arithmetic exponential time series weighed triangular variable volume adjusted The only significant difference between the various types of moving averages is the weight assigned to the most recent data. For example, a simple arithmetic moving average is calculated by adding the closing price of the instrument for a number of time periods, then dividing this total by the number of time periods.
The most popular method of interpreting a moving average is to compare the relationship between a moving average of the instruments closing price, and the instruments closing price itself. Sell signal: when the instruments price falls below its moving average Buy signal: when the instruments price rises above its moving average The other technique is called the double crossover, which uses short- term and long-term averages.
Typically, upward momentum is confirmed when a short-term average e. Downward momentum is confirmed when a short-term average crosses below a long-term average. The MACD is computed using two exponentially smoothed moving averages see further down of the security's historical price, and is usually shown over a period of time on 33 of 33 a chart. By then comparing the MACD to its own moving average usually called the "signal line" , traders believe they can detect when the security is likely to rise or fall.
MACD is frequently used in conjunction with other technical indicators such as the RSI Relative Strength Index, see further down and the stochastic oscillator see further down. Momentum is an oscillator designed to measure the rate of price change, not the actual price level.
This oscillator consists of the net difference between the current closing price and the oldest closing price from a predetermined period. They refer in general to prices continuing to trend. The momentum and ROC indicators show that by remaining positive, while an uptrend is sustained, or negative, while a downtrend is sustained. A crossing up through zero may be used as a signal to buy, or a crossing down through zero as a signal to sell.
How high or how low, when negative the indicators get shows how strong the trend is. RSI - Relative Strength Index - a technical momentum indicator, devised by Welles Wilder, measures the relative changes between the higher and lower closing prices. RSI compares the magnitude of recent gains to recent losses in an attempt to determine overbought and oversold conditions of an asset.
An asset is deemed to be overbought once the RSI approaches the 70 level, meaning that it may be getting overvalued and is a good candidate for a pullback. Likewise, if the RSI approaches 30, it is an indication that the asset may be getting 34 of 34 oversold and therefore likely to become undervalued. A trader using RSI should be aware that large surges and drops in the price of an asset will affect the RSI by creating false buy or sell signals.
The RSI is best used as a valuable complement to other stock-picking tools. Stochastic oscillator - A technical momentum indicator that compares an instrument's closing price to its price range over a given time period. The oscillator's sensitivity to market movements can be reduced by adjusting the time period, or by taking a moving average of the result. The theory behind this indicator, based on George Lanes observations, is that in an upward-trending market, prices tend to close near their high, and during a downward-trending market, prices tend to close near their low.
Trend line - a sloping line of support or resistance. Up trend line straight line drawn upward to the right along successive reaction lows Down trend line straight line drawn downwards to the right along successive rally peaks Two points are needed to draw the trend line, and a third point to make it valid trend line. Trend lines are used in many ways by traders. One way is that when price returns to an existing principal trend line it may be an opportunity to open new positions in the direction of the trend in the belief that the trend line will hold and the trend will continue further.
A second way is that when price action breaks through the principal trend line of an existing trend, it is evidence that the trend may be going to fail, and a trader may consider trading in the opposite direction to the existing trend, or exiting positions in the direction of the trend. Dont fall in love with your Forex position. Never take revenge of your Forex position. Charts are major tools in Forex trading. There are many kinds of charts, each of which helps to visually analyze market conditions, assess and create forecasts, and identify behavior patterns.
Most charts present the behavior of currency exchange rates over time. Rates prices are measured on the vertical axis and time is shown of the horizontal axis. Charts are used by both technical and fundamental analysts. The technical analyst analyzes the micro movements, trying to match the actual occurrence with known patterns. The fundamental analyst tries to find correlation between the trend seen on the chart and macro events occurring parallel to that political and others.
What is an appropriate time scale to use on a chart? It depends on the traders strategy. The short-range investor would probably select a day chart units of hours, minutes , where the medium and long- range investor would use the weekly or monthly charts. High resolution charts e. The major types of charts: Line chart The simplest form, based upon the closing rates in each time unit , forming a homogeneous line. Such chart, on the 5-minutes scale, will show a line connecting all the actual rates every 5 minutes.
This chart does not show what happened during the time unit selected by the viewer, only closing rates for such time intervals. The line chart is a simple tool for setting support and resistance levels. Unlike most other investment charts, point and figure charts do not present a linear representation of time. Instead, they show trends in price. Increases are represented by a rising stack of Xs, and decreases are represented by a declining stack of Os.
This type of chart is used to filter out non-significant price movements, and enables the trader to easily determine critical support and resistance levels. Bar chart This chart shows three rates for each time unit selected: the high, the low, the closing HLC.
There are also bar charts including four rates OHLC, which includes the Opening rate for the time interval. This chart provides clearly visible information about trading prices range during the time period per unit selected. The chart represents prices at their opening, high, low and closing rates, in a form of candles, for each time unit selected. The empty transparent candles show increase, while the dark full ones show decrease. The length of the body shows the range between opening and closing, while the whole candle including top and bottom wicks show the whole range of trading prices for the selected time unit.
Alternatively, it can be defined as the act of taking in raw data and taking an action based on the category of the data. As such, it is a collection of methods for supervised learning. A complete pattern recognition system consists of a sensor that gathers the observations to be classified or described; a feature extraction mechanism that computes numeric or symbolic information from the observations; and a classification or description scheme that does the actual job of classifying or describing observations, relying on the extracted features.
In general, the market uses the following patterns in candlestick charts: Bullish patterns: hammer, inverted hammer, engulfing, harami, harami cross, doji star, piercing line, morning star, morning doji star. Bearish patterns: shooting star , hanging man, engulfing, harami, harami cross, doji star, dark cloud cover, evening star, evening doji star.
The chart types: The time scales: The view types: 40 of 40 The "drawing line on the chart" types: The Study types: Please note: the above screen-shots were taken around mid The Easy-Forex platform continuously upgrades its system, while adding new features on a regular basis. If the RSI is 70 or greater, then the instrument is assumed to be overbought a situation in which prices have risen more than market expectations. An RSI of 30 or less is taken as a signal that the instrument may be oversold a situation in which prices have fallen more than the market expectations.
The indicator is based on the observation that in a strong up-trend, period closing prices tend to concentrate in the higher part of the period's range. Conversely, as prices fall in a strong down-trend, closing prices tend to be near the extreme low of the period range.
Divergence between the stochastic lines and the price action of the underlying instrument gives a powerful trading signal. The MACD line is the difference between two exponential moving averages and the signal or trigger line, which is an exponential moving average of the difference.
If the MACD and trigger lines cross, then this is taken as a signal that a change in the trend is likely. The ratio of any number to the next larger number is The inverse of Wave patterns and behavior, identified in Forex trading, correlate to some extent with relations within the Fibonacci series. The tool is used in technical analysis that combines various numbers of Fibonacci retracements, all of which are drawn from different highs and lows.
Fibonacci clusters are indicators which are usually found on the side of a price chart and look like a series of horizontal bars with various degrees of shading. Each retracement level that overlaps with another, makes the horizontal bar on the side darker at that price level. The most significant levels of support and resistance are found where the Fibonacci cluster is the darkest. This tool helps gauging the relative strength of the support or resistance of various price levels in one quick glance.
Gann numbers: W. There is no easy explanation for Gann's methods, but in essence he used angles in charts to determine support and resistance areas, and to predict the times of future trend changes. He also used lines in charts to predict support and resistance areas. An ideal Elliott wave pattern shows a five-wave advance followed by a three-wave decline. Gaps can be created by factors such as regular buying or selling pressure, earnings announcements, a change in an analyst's outlook or any other type of news release.
A down gap is formed when the highest price of the day is lower than the lowest price of the prior day. An up gap is usually a sign of market strength, while a down gap is a sign of market weakness. A breakaway gap is a price gap that forms on the completion of an important price pattern. It usually signals the beginning of an important price move. A runaway gap is a price gap that usually occurs around the mid-point of an important market trend. For that reason, it is also called a measuring gap.
An exhaustion gap is a price gap that occurs at the end of an important trend and signals that the trend is ending. Rising peaks and troughs constitute an up trend; falling peaks and troughs constitute a downtrend that determines the steepness of the current trend. The breaking of a trend line usually signals a trend reversal. Horizontal peaks and troughs characterize a trading range. In general, Charles Dow categorized trends into 3 categories: a Bull trend up-trend: a series of highs and lows, where each high is higher than the previous one ; b Bear trend down-trend: a series of highs and lows, where each low is lower than the previous one ; c Treading trend horizontal- trend: a series of highs and lows, where peaks and lows are around the same as the previous peaks and lows.
Moving averages are used to smooth price information in order to confirm trends and support-and-resistance levels. They are also useful in deciding on a trading strategy, particularly in futures trading or a market with a strong up or down trend. Recognizing a trend may be done using standard deviation, which is a measure of volatility.
Bollinger Bands, for example, illustrate trends with this approach. When the markets become more volatile, the 44 of 44 bands widen move further away from the average , while during less volatile periods, the bands contract move closer to the average. It is calculated as a month weighted moving average of the sum of the month rate of change and the month rate of change for the index. DMI Directional Movement Indicator is a popular technical indicator used to determine whether or not a currency pair is trending.
It is used to determine good exit and entry points. You are almost ready to trade in real-time, but you want to discuss something online. Chat with an Easy-Forex expert. Many markets have a tendency to move in cyclical patterns. Cycle indicators determine the timing of a particular market patterns. Example: Elliott Wave. Momentum indicators Momentum is a general term used to describe the speed at which prices move over a given time period. Momentum indicators determine the strength or weakness of a trend as it progresses over time.
Momentum is highest at the beginning of a trend and lowest at trend turning points. Any divergence of directions in price and momentum is a warning of weakness; 45 of 45 if price extremes occur with weak momentum, it signals an end of movement in that direction.
If momentum is trending strongly and prices are flat, it signals a potential change in price direction. Strength indicators Market strength describes the intensity of market opinion with reference to a price by examining the market positions taken by various market participants. Volume or open interest, are the basic ingredients of this indicator. Their signals are coincident or leading the market.
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