Category Archives: Forex Training Articles

Forex Trading For Beginners – Risk And Benefits #4

In every investment, there is always a risk involved. In this article, we will take a look at some of the risks associated with the Forex market as well as the benefits it has to offer. Also, we will differentiate the Forex market from the Equity Market so that we will fully understand how Forex works in order to learn to trade Forex.

Read more about Forex Trading Strategy: Price Action Trading Patterns

We have already discussed some of the important factors (size, volatility, structure among other things) about the Forex market, that contributed to its successful and growing state. In terms of liquidity, the Forex market is highly liquid in nature where in a trader could invest huge amounts of money without affecting any given exchange rate. This is made possible by the low margin being required by most Forex brokers. For example, it is possible for a trader to invest US $1,000 for a position of US $100,000, a 100:1 leverage. This amount of leverage acts as a double-edged sword because investors could either rip large gains or run the risk of a massive loss when movements aren’t favorable. Because of the leverage that the Forex market could offer, it attracts many speculators in the midst of many foreign exchange risks.

Read more about Forex Trading Strategy Made Very Simple – Price Action

Not only that the Forex market is highly liquid but also it is mostly open 24 hours a day, which is favorable for traders who have a tight schedule. In the chart below shows the major trading hubs and their trading hours.

Time Zone Time (ET)
Tokyo Open 7:00 pm
Tokyo Close 4:00 am
London Open 3:00 am
London Close 12:00 pm
New York Open 8:00 am
New York Close 5:00 pm

With the high leverage of the Forex market, it poses a higher risk in comparison to trading equities. It is important to understand that because of the large amount of money involved and some of the impulsive moves made by traders, it will lead to a sharp change in the price of a currency pair. Though currencies don’t tend to move as sharply as equities on a percentage basis, it is the leverage that creates the volatility. For example, in a 100:1 leverage, if you put US $100,000 into a currency and the currency’s price moves 1$ against you, the value of the capital will have decreased to US $99,000, which means a loss of US $1,000 (a 100% loss). On the other hand, in the equity market, there is no leverage being used most of the time, so if there is a 1% loss in stock’s value on a US $1,000 investment, it will only give you a US $10 loss.

Read more about Forex Trading Strategy – Buy The Rumor Sell The Fact In Price Action

To go deeper regarding the difference between the Forex Market and  Equity Market, let’s look at the number of traded instruments. The Forex market has only a few in comparison to the Equity Market. There are only seven different currency pairs and the four major includes: EUR/USD, USD/JPY, GBP/USD, and USD/CHF. Also, there are three commodity pairs USD/CAD, AUD/USD, and NZD/USD. All other pairs are just different combinations of the same currencies – called cross currencies. It makes it easier to choose and monitor the instruments in the Forex market compared to trading in equity that you have to carefully pick thousands of stocks of the best value.

In trading equity, it is difficult to open and close positions because of the shrinking volumes and activities of the stock. Furthermore, one could make a profit in a declining equity market only while one could make profit both in the rising and declining Forex market. It is a simultaneous buying and selling and even short-selling. In addition, since the Forex market is so liquid, waiting is not required for an uptick (A transaction occurring at a price above the previous transaction) before they can enter into a position as they are required in the equity market. Furthermore, not only that the Forex market offers a low margin, it also has a lesser commission fee compared to in the equity market.

Read more about Forex Trading Strategy – Price Action For Dummies

By now you already have a good grasp of the risk and benefits that a Forex market contains. In the next chapters, we will be tackling about fundamental analysis, trading strategies, technical analysis and technical indicators. Keep on reading about Forex trading strategies and Forex trading for beginners to learn to trade Forex. Understanding Forex Trading is not a quick and easy process but it requires utmost patience and determination to be able to Learn the Market and eventually Learn How to Trade Currencies. With this continuous effort to gather Best Forex Trading Strategies in order to come up with a step by step Forex Course: Learning Forex Trading for Beginner for everyone all for FREE. Once again, keep learning and happy investing!

Source:

  • Forex Tutorial: Foreign Exchange Risk and Benefits. Retrieved April 13, 2013. http://www.investopedia.com/university/forexmarket/forex3.asp

FOREX TRADING FOR BEGINNERS:

  1. Introduction to Forex Market
  2. History Of Forex Market
  3. Common Used Forex Terms
  4. Risk And Benefits

Forex Trading Strategy – Buy The Rumor Sell The Fact In Price Action

Most people who have been involved in trading in the markets for a significant length of time surely have heard about the saying “Buy The Rumor Sell The Fact”. It is an old trading rule, but highly misunderstood, and often quoted by traders that explains price declines that occur after an anticipated positive event has happened.

Read more about Forex Trading Strategy Made Very Simple – Price Action

Many traders stumble on buying the rumors without any in depth analysis, just based on pure emotions. Assessing the direction of the market based on economic news update doesn’t mean it is not good but the veracity of it should be confirmed first before doing any drastic moves. Traders should not let greed overwhelm their judgement because most of the time it doesn’t bring positive outcomes. Sometimes, focusing too much on the news, creates an opposite result from what the news imply.

A good example is the paired currencies EUR and US Dollars during the monthly U.S. Non-Farm Payrolls. Some traders thought that the news being released will place them on an advantageous position based on the implications of the report, however, they were mistaken. Price counters to what one might expect from the report. It knows no advantage.

Read more about Forex Trading Strategy: Price Action Trading Patterns

With this kind of trading strategy of basing one’s decision on rumors, emotions and even luck, will not bring you anywhere. It is no more than guessing your fate by flipping a coin. Also, the market possesses a contrarian nature, where in the price will move in an opposite direction of the majority’s emotional perception. This is one of the reasons why most impulsive traders lose plenty of money. It is important to have a good strategic plan by learning proven Forex Trading Strategies – coming from reputable traders and of course, in this website which offers Free Forex Entry Strategies and Free Forex Tips. There is no specific style in trading but through experience, patience and logic, one could develop a good Forex Trading Strategy especially in the utilization of Price Action.

Read more about Forex Trading Strategy – Price Action For Dummies

Always remember that the price action is an important tool in predicting the market. It contains all the information you need to become an effective trader and it reflects everything that is affecting the market. Always remember “KISS”, keep it simple stupid! By making things simple (freeing oneself from the complex market indicators and trading software), one could save oneself from wasting time and effort. Stop losing your money, start getting yourself a solid education in price action analysis. It is a proven Forex Trading Strategy that I recommend without doubts.

Bottom line is there is nothing more than a simple and solid plan to reach your goal of becoming a successful trader by learning one Forex Trading Strategy at a time, avoiding making decisions based on rumors, emotions, and most importantly greed. Once again, Happy Investing and keep on reading our articles about Forex Trading Strategies for Beginners and Professional Forex Trading Strategies. With our everyday motto, learning should be fun!

Source:

  • Don’t Trade The News – Trade Price Action Instead by Nial Fuller. Retrieved April 13, 2013. http://www.learntotradethemarket.com/forex-trading-strategies/dont-trade-news-trade-price-action
  • Webster’s New World Finance and Investment Dictionary (2010). Wiley Publishing, Inc., Indianapolis, Indiana.

Forex Trading Strategy – Price Action For Dummies

In trading in the Forex Market, you should remember the word “KISS” which means “KEEP IT SIMPLE STUPID”. With almost every Forex trader utilizing trade off indicators and trading software, he somehow neglects one of the basic Forex Trading Strategy which is the Price Action.

Read more about Forex Trading Strategy Made Very Simple – Price Action

Forex Trading Strategy – Price Action Definition

Price Action is a Forex Trader’s way of looking at the market’s movement without using any technical indicators. It is basically the footprint of money. The exchange of money in the market leaves a trail and this trail is considered as the price action which is apparent on the price chart. If you will use the Price Action as a Forex Trading Strategy, you will be harnessing the power of price and be considered as a price action trader.

Forex Trading Strategy – Price Action VS. Technical Indicators

Most Forex trading systems are made of  technical indicators or trade off indicators such as Moving Average Crossover, Overbought Conditions, Oversold Conditions and many more. Technical indicators are series of data points plotted on the price chart and these points are derived from a mathematical formula applied to the price of any given paired currencies. In short, it helps us see the other aspects of price.

Because of all these overwhelming technical indicators, one might be focusing more in using trading tools which draws him away from using the Price Action itself. Similarly to following other people’s hunches, one might hold on to these technical indicators to hope for a positive outcome of the movement in the market even though they really don’t understand or don’t feel confident about their decision in their trading.

Read more about Forex Trading Strategy: Price Action Trading Patterns

The reality of the Forex Market is that the price action itself is the end result of everything including all the variables connected to the market, so taking the price action for granted is considered to be a bad move. Most traders if not all tend to fall in the traps of easy money schemes through widely advertised Forex technical indicators, trading tools and other software which give off false promises. The truth is there is no easy way to success.

In order not to delay one’s success in Forex trading, it is strictly prescribed to use Price Action in Forex Trading. It is a strategy to eliminate useless tools and focus on important things. Not only that your time is saved and effort is lessen, it gives you a more accurate edge in identifying the direction of where the market is going. With that being said, the use of Price Action will give you a less hassle, no frill, type of trading from a naked chart than all the technical indicators combined.

Forex Trading Strategy –  Three Points In Learning Price Action

  1. One Price Action Strategy At A Time  – It is better to focus and master on one thing first then the next than having to learn plenty of things with little mastery of it.
  2. High Time Frames First – It is a way to prevent oneself from doing an over trade. With over trading, it will lead you to a natural death in the Forex Market. It is better to focus on high time frames first because you can benefit from the filtered price movement “noise” coming from the lower time frames hence improving your position towards the winning side.
  3. Learn From The Best – A wise Forex trader always learn from other people’s trading mistakes as to avoid any trial and error style of trading. It is a way to control the risk that trading poses. Mistakes that are made once are okay but when repeated, it is way beyond tolerable. Always learn from the best and proven Forex trader.

Bottom line is always remember the word “KISS” (one of the Best Forex Day Trading Strategies) and you will have an easier time in the Forex Market. Also, never ignore Price Action Forex Trading Strategy because it is one of the Winning Forex Strategies out there. For more Free Forex Trading Strategies, keep on reading! Happy investing everyone.

Source:

  • Price Action Basics. Retrieved April 11, 2013. http://www.stratsforextrading.com/dokuwiki/doku.php?id=path_of_learning:price_action_basics
  • A Beginner’s Guide to Forex Price Action Trading. Retrieved April 11, 2013. http://www.learntotradethemarket.com/forex-trading-strategies/a-beginners-guide-to-forex-price-action-trading

Forex Trading Strategy – Basics Of Support and Resistance

Forex Trading Strategy – Basics Of Support and Resistance

When dealing with technical analysis, the concepts of support and resistance are commonly discussed and studied, and could be regarded as complicated by traders who are still learning to trade. In this article, I would like to point out the basics in order to simplify the complexities that surround these concepts. At the end of this article, you will be able to learn how these concepts are being used by traders to predict the potential market movements. In the picture below is a simple example of a chart that shows resistance and support:

support-resistance-basics

Source: Babypips

True to most financial markets, the price of a stock, future, or currency is ultimately determined by supply and demand. To put simply, if there is an increase demand for supply then price will rise, and if the demand for supply drops then price will fall. Therefore, support and resistance are price levels where the supply and demand equation is expected to fluctuate.

Read more about Forex Trading Strategy Made Very Simple – Price Action

Forex Trading Strategy – Support

Support is the price level of a particular currency in the Forex market where there is enough demand which increments the price and prevents it from declining. In the chart below, it illustrates the strength of the base currency, the Euro, relative to the quote currency, the US Dollar.

SupportSource: Fxstreet

Forex Trading Strategy – Resistance

Resistance is the price level of a particular currency in the Forex Market where there is not enough demand which decrements price and prevents it from rising.

Forex Trading Strategy – Support and Resistance in a Range Market

Support and Resistance

Source: Informed Trades

There are plenty of ways to determine support and resistance on the chart however the most basic way is to look for areas where the price has touched multiple times without breaking through that level  (Refer to the above chart). With this Forex Trading Strategy, the more valid it is to determine whether it is a support or a resistance to be able to predict accurately the outcome of the trade.

Forex Trading Strategy – Support and Resistance in a Trend

Support and Resistance

 Source: Informed Trades

In the example above, it shows a trendline of support and resistance. When the market is trending upward, resistance levels are formed as the price action slows and starts to pull back toward the trendline. This is because of selling or profit taking by traders. The resulting price action undergoes a plateau effect in price, creating a short term top.

On the other hand, when the trend of the marketing is declining, you should watch for a series of declining peaks and connect these peaks with a trendline. When the price is consistent with the trendline, most will be pressured to sell. It will therefore continue to decline as demand is decreasing.

Read more about Forex Trading Strategy: Price Action Trading Patterns

With the identified support and resistance levels, it helps in creating a strategic entry or exit points that will be in favor towards the trader’s profitability.

Bottom line is determining support and resistance when reviewing charts will help improve returns of short term investing because it could provide traders an accurate picture of the movements in price. Also, it helps long term investors to foresee possible hindrance to their long term investing by discovering a decline in the trend of a particular investment. It is definitely one of the Forex trading strategies to follow!

Source:

  • The Basics of Support and Resistance in Trading. Retrieved April 08, 2013. http://informedtrades.hubpages.com/hub/The-Basics-of-Support-and-Resistance-in-Trading
  • Support and Resistance Basics. Retrieved April 08, 2013. http://www.investopedia.com/articles/technical/061801.asp
  • Support and Resistance. Retrieved April 08, 2013. http://www.babypips.com/school/support-and-resistance.html

Basic Forex Trading Strategies For Beginners Revealed

Basic Forex Trading Strategies For Beginners

The concepts about the Forex market might be daunting because of its very complicated out of this world, non average terms being used, however, it is quite funny that most of us already have a first hand experience with the said market. The mere fact that every time we go to a currency exchange station to change our money into another currency is already a basic participation of the Forex market.

It is understandable that we get overwhelmed because of its encompassing entity to other capital markets but the concepts about trading currencies are let’s say, simple. Now, I would want to share to you the basic Forex Trading Strategies for Beginners out there.

Read more about Forex Trading Strategy: Price Action Trading Patterns

Forex Trading Strategy : 8 Majors

If you have an experience in trading in the stock market, you need to choose a stock out of thousands of stocks however in the currency market, you only need to be updated with the Economic data being released almost daily by the countries that belong to the 8 Majors. It will provide you the best undervalued or overvalued opportunities.

Here are the countries that make up the 8 Majors in the currency market:

  • United States
  • Eurozone (the ones to watch are Germany, France, Italy and Spain)
  • Japan
  • United Kingdom
  • Switzerland
  • Canada
  • Australia
  • New Zealand

The following countries belong to the most sophisticated financial markets in the world. It is strictly advised that following the 8 Majors is a way to take advantage of earning interest income on the most credit-worthy and liquid instruments in the market.

Forex Trading Strategy : Yield & Return

“Yield drives return” is a key to always remember.

A spot market is a commodities or securities market in which goods are sold for cash and delivered immediately. In dealing with foreign exchange spot market, you are actually buying and selling two paired currencies because each currency is valued in relation to another. For example, if the PHP/USD pair is quoted as 39.8500 that means it takes PHP 39.8500 to purchase one USD. Therefore, in every foreign exchange transaction, you are buying one currency and selling another. Furthermore, the country’s central bank places an interest on the currency, which means that you are obligated to pay the interest when the currency is sold however earning potentials are possible on the currencies that you have brought.

For example, let’s look at the New Zealand dollar/Japanese yen pair (NZD/JPY). Let’s assume that New Zealand has an interest rate of 8% and that Japan has an interest rate of 0.5% In the currency market, interest rates are calculated in basis points. A basis point is simply 1/100th of 1%. So, New Zealand rates are 800 basis points and Japanese rates are 50 basis points. If you decide to go long NZD/JPY you will earn 8% in annualized interest, but have to pay 0.5% for a net return of 7.5%, or 750 basis points. (Source: Investopedia)

Forex Trading Strategy : Leveraging Returns

Sometimes leveraging creates good profits but sometimes too, it generates huge losses. It can be a double-edged sword which comes with great risk and great opportunity. The Forex market offers tremendous leverage, as high as 100:1, which means that when you can control $10,000 worth of assets with a capital of $100.

Using the most conservative 10:1 leverage, the 7.5% yield on NZD/JPY would translate into a 75% return annually. Therefore, if you were to hold a 100,000 unit position in NZD/JPY using $5,000 worth of equity, you will have a daily interest of $9.40, which could be translated to a $3,760 annually. It is quite different when you would invest your money in a bank that will only give you a yield of $250 in return however the only edge it gives is assurance because it is much risk free compared to the Forex market.

Read more about Forex Trading Strategy Made Very Simple – Price Action

Forex Trading Strategy : Carry Trades

Since currency values is constantly dynamic, it paved way to one popular Forex trading strategy of all time, the carry trade. Carry traders look for positions to appreciate in value other than earn the interest rate differential between paired currencies. Here are some historical examples of carry trades:

Between 2003 and the end of 2004, the AUD/USD currency pair offered a positive yield spread of 2.5%. Although this may seem very small, the return would become 25% with the use of 10:1 leverage. During that same time, the Australian dollar also rallied from 56 cents to close at 80 cents against the U.S. dollar, which represented a 42% appreciation in the currency pair. This means that if you were in this trade – and many hedge funds at the time were – you would have not only earned the positive yield, but you would have also seen tremendous capital gains in your underlying investment. (Source: Investopedia)

Australian Dollar Composite

Figure 1: Australian Dollar Composite (2003 – 2005)
Source: eSignal

The carry trade opportunity was also seen in USD/JPY in 2005. Between January and December of that year, the currency rallied from 102 to a high of 121.40 before ending at 117.80. This is equal to an appreciation from low to high of 19%, which was far more attractive than the 2.9% return in the S&P 500 during that same year. In addition, at the time, the interest rate spread between the U.S. dollar and the Japanese yen averaged around 3.25%. Unleveraged, this means that a trader could have earned as much as 22.25% over the course of the year. Introduce 10:1 leverage, and that could be as much as 220% gain. (Source: Investopedia)

Japan Yen Composite

Figure 2: Japan Yen Composite (2005)
Source: eSignal

Forex Trading Strategy : Carry Trade Success

It is not only pairing up two currencies with the highest interest rate against a currency with the lowest rate for the goal of earning but also look for paired currencies that have the potential to appreciate in value. Here is an example of a currency with an interest rate that is in the process of expanding against another currency.

In the previous USD/JPY example, between 2005 and 2006 the U.S. Federal Reserve was aggressively raising interest rates from 2.25% in January to 4.25%, an increase of 200 basis points. During that same time, the Bank of Japan sat on its hands and left interest rates at zero. Therefore, the spread between U.S. and Japanese interest rates grew from 2.25% (2.25% – 0%) to 4.25% (4.25% – 0%). This is what we call an expanding interest rate spread. (Source: Investopedia)

Forex Trading Strategy : Getting to know interest rates

It is compulsory to monitor the economic data being released by every country to be able to know the health of its economy, whether it is conditioned for investment. To know the underlying economics of the country is a way to know where interest rates are heading. In general, countries that have good economic condition, meaning strong growth rates and increasing inflation will likely increase interest rates to be able to control inflation and growth. On the other hand, countries in an economic crisis ranging from a broad slowdown in demand to a full recession will likely to reduce interest rates.

Bottomline is the abundant resources that are readily available and accessible are right at your finger tips. In the advent of technology, there are programs that are available for you to use in monitoring your position in trading. It is just a way on how you would exhaust such availability of these things. Happy Investing with the basic list of Forex trading strategies!

Source:

  • 8 Basic Forex Market Concepts. Retrieved April 02, 2013. http://www.investopedia.com/articles/forex/08/forex-concepts.asp

Forex Market Preview March 31, 2013

In today’s Forex Market Preview we are discussing the 7 trades my currently Pro Signals Direct and Mirror Trader Pro customers are in and how we are handing these 7 trades as well as a few new trading opportunities to look at. Watch this video as there are some great Forex trading strategies for beginners as well as for pro Forex traders.

View more Forex trading strategies for beginners here