Forex trading secrets and strategies for beginners


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Forex Trading Secrets And Strategies For Beginners - Forex Trading Guide

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Forex trading secrets and strategies for beginners

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  2. 2. The foreign exchange market is also known as the FX market, and theforex market. Trading that takes place between two counties withdifferent currencies is the basis for the fx market and the background ofthe trading in this market. The forex market is over thirty years old,established in the early 1970s. The forex market is one that is not basedon any one business or investing in any one business, but the tradingand selling of currencies.The difference between the stock market and the forex market is thevast trading that occurs on the forex market. There is millions andmillions that are traded daily on the forex market, almost two trilliondollars is traded daily. The amount is much higher than the moneytraded on the daily stock market of any country. The forex market is onethat involves governments, banks, financial institutions and those similartypes of institutions from other countries. TheWhat is traded, bought and sold on the forex market is something thatcan easily be liquidated, meaning it can be turned back to cash fast, oroften times it is actually going to be cash. From one currency toanother, the availability of cash in the forex market is something thatcan happen fast for any investor from any country.The difference between the stock market and the forex market is thatthe forex market is global, worldwide. The stock market is somethingthat takes place only within a country. The stock market is based onbusinesses and products that are within a country, and the forex markettakes that a step further to include any country.
  3. 3. The stock market has set business hours. Generally, this is going tofollow the business day, and will be closed on banking holidays andweekends. The forex market is one that is open generally twenty fourhours a day because the vast number of countries that are involved inforex trading, buying and selling are located in so many different timeszones. As one market is opening, another countries market is closing.This is the continual method of how the forex market trading occurs.The stock market in any country is going to be based on only thatcountries currency, say for example the Japanese yen, and the Japanesestock market, or the United States stock market and the dollar.However, in the forex market, you are involved with many types ofcountries, and many currencies. You will find references to a variety ofcurrencies, and this is a big difference between the stock market andthe forex market.Forex trading uses currency and stock markets from a variety ofcountries to create a trading market where millions and millions aretraded and exchanged daily. This market is similar to the stock market,as people buy and sell, but the market and the over all results are muchmuch larger. Those involved in the forex trading markets include theDeutsche bank, UBS, Citigroup, and others such as HSBC, Braclays,Merrill Lynch, JP Morgan Chase, and still others such as Goldman Sachs,ABN Amro, Morgan Stanley, and so on.To get involved in the forex trading markets, contacting any of theselarge broker assistance firms is going to be in your best interest. Sure,anyone can get involved in the forex market, but it does take time tolearn about what is hot, what is not, and just where you should placeyour money at this time.
  4. 4. International banks are the markets biggest users on the forex markets,as they have millions of dollars to invest daily, to earn interest and thisis just one method of how banks make money on the money you save intheir bank. Think about the bank that you deal with all the time. Do youknow if you can go there, and obtain money from another country ifyou are heading out on vacation? If not, that bank is most likely notinvolved in forex trading. If you have to know if your bank is involved inforex trading, you can ask any manager or you can look at the financialinformation sheets that banks are to report to the public on a quarterlybaiss.If you are new to the forex market, it is important to realize there is noone person or one bank that controls all the trades that occur in theforex markets. Various currencies are traded, and will originate fromanywhere in the world. The currencies that are most often traded in theforex markets include those of the US dollar, the Eurozone euro, theJapanese yen, the British pound sterling and the Swiss franc as well asthe Australian dollar. These are just a few of the currencies that aretraded on the forex markets, with many other counties currencies to beincluded as well. The main trading centers for the forex trading marketsare located in Tokyo, New York and in London but with other smallertrading centers located thought out the world as well.
  5. 5. If you are interested in trading Forex, there are plenty of places that youcan go for great information. Forex for beginners is usually very easy tolearn and can be a great way to invest. If you are beginner and lookingto trade Forex, here are some tips.There are tons of great places to learn Forex for beginners. Most Forexbrokers have their own tutorials or even an ecourse dedicated to teachForex to beginners. If you are just starting to look at Forex as a tradingoption, take a look at the following resources for Forex beginners.Forex stands for foreign exchange. Forex trades currency throughoutthe world 24 hours a day. Forex is a great way to trade from homebecause there is no central office and there are plenty of brokersoffering their member traders great software that can run and trade offof their home computer.It is easy to invest in Forex if you are a beginner. You can open anaccount with a small amount of funds. Many Forex brokers allowbeginners to trade with an account of only $250. For many Forextraders, you don’t even have to trade real money to check out a brokerssystem or to see if you like investing with Forex. Many brokers allowyou to join their simulation trading platform, where you can trade in realtime, except without real money. This way you can get the hang of it,before you invest a dime. If you are looking for a new investmentvehicle take a look at trading Forex for beginners.
  6. 6. You can trade Forex from home with relative ease. Trading Forex fromhome is one of the most popular ways day traders and small investorsare able to reach their investment goals from the privacy and comfort oftheir own home. If you are interested in trading Forex from home, hereare some tips.Trading Forex from home is incredibly simple. There are plenty ofbrokers that enable you to trade in real time with great features.Finding a Forex broker is relatively simple, however you should put lotsof thought into which features you would like, the information theyprovide their members and the ease of use of their trading software.Trading Forex from home is relatively easy once you have yourcomputer set up and a broker picked out. Before you start to tradeForex with actual money, it is important to know all the ins and outs oftrading Forex as well as how to conduct research and use your brokersForex trading software. Many brokers allow you to try simulationtrading. A simulation trading environment is where you can trade in realtime foreign currencies with the actual software and features. The onlydifference between simulation and real trading is that with simulationsoftware you don’t have trade real money. This can be an excellent toolto learn how to trade Forex from home.Finding information from home regarding Forex is also very easy withthe help of Forex forums, broker trading resources and Forex charts.Many investors use the Forex forums to find out about new tools, spottrends in the market and hear commentary on new products orforecasts. You can also find loads of information at your broker’s site.Most brokers usually offer great charts to track currencies and plenty ofarticles that can fill you in on information that can help you trade. Sofollow the above suggestions to trade Forex from home.
  7. 7. Technical Analysis is the study of price movement. You can use pricecharts to track the history of price movement and attempt to anticipatewhich way prices will go in the future.Online forex brokers provide you with many different tools that are usedin technical analysis. Some of the most common are listed below.Bollinger BandsBollinger Bands are used to measure market volatility.They consist of three lines:1. A simple moving average in the middle.2. An upper band which indicates the simple movingaverage plus 2 standard deviations.2. A lower band which indicates the simple movingaverage minus 2 standard deviations.When market volatility is high, the bands spread apart.When volatility is low, they come together.
  8. 8. The Bollinger Bounce. Most of the time, the middle bandstay in between the outer bands. Think of the outer bandsas the border patrol. When the middle brand approaches oneof the border guards, it gets bounced away and back towardsthe middle. Hence the name Bollinger Bounce. This is usefulto know because if you see the middle band approaching anouter band, theres a good chance it will bounce off.This strategy works best when prices are fluctuating and thereare no clear trends.A good way to spot a trend early is the Bollinger Squeeze.When the bands squeeze close together, it often means that abreakout is about to occur. If the middle band breaks througheither the top or lower band, the trend will usually continueto go in that direction.Parabolic SAR (Stop And Reversal)The Parabolic SAR indicator is used to spot trend reversals.It is perhaps the easiest indicator to read, Dots are placed onthe chart in positions either above or below the candles (theformula that calculates where the dots go is too complicatedto get into).
  9. 9. Dots above the candles are a signal to sell.Dots below the candles are a signal to buy.Parabolic SAR works best when there are clear upward or downwardtrends. It does not work well when price movement is small.StochasticsStochastics is an indicator that is used to measure overbought andoversold conditions in the market. It consists of a scale from 0-100.As the stochastics lines are above 80 it means that the market isoverbought and a downward trend could be forming. When the lines fallbelow 20 it means the market is oversold and an upward trend may beforming.Stochastics are useful in determining when to lock in profits and whento issue buy or sell orders. But you should never rely on only oneindicator. Combine several and adjust them to your trading strategy.
  10. 10. Candle SticksWhat do Japanese candlesticks have to do with trading forex? A wholelot.Originally created in Japan (as the name implies) several centuries agoto trade rice, candle charts are used by thousands of traders to trackprice movement.Most people find candle charts much easier to read than standard barcharts, and they have become incredibly popular. Most forex charts yousee are japanese candlesticks.Candle charts are formed using the opening and closing prices, as wellas the high and the low.If the price closes higher than it opened, a hollow candleis drawn (usually drawn in white or green in color).If the price closes lower than it opened, a filled candleis drawn (usually drawn in black or red in color).Most online brokers Ive seen use the green/red color scheme ratherthan the more traditional white/black. Trends are easily spotted even bynewcomers as green candles signify price increases while red indicatesprice decreases.
  11. 11. Fundamental AnalysisAny smart trader knows that in order to be successful they must be ableto analyze the market and predict price movement. This is true whetheryou trade in stocks, bonds, commodities, currency, or any other for ofsecurity.Analysis can be done in two different ways: fundamental analysisand technical analysis.Technical analysis is the study of prices. The goal is to analyze thehistory of price movement in an effort to predict future prices.Fundamental analysis is the study of a nations overall economic health.I like to think of this as "Big Picture" analysis. The idea is that thestrength of a nations economy will affect the supply and demand for itscurrency, which will in turn affect the price of the currency.For example, lets assume that the US economy is in a major upswing.Since the economy is strong, the value of the dollar will be expectedto rise and currency traders will invest heavily in the dollar. Thisbullish behavior becomes a self-fulfilling prophecy and the dollarrises in value.
  12. 12. Thats a pretty simple concept, but judging the health of a nationseconomy is no easy task. There are many factors to consider, and twotraders may look at the same figures and interpret the data differently.Fundamental analysts look at various economic indicators for signs ofan economies strength. Some of the indicators they analyze are theinterest rate, unemployment rate, consumer price index, and grossdomestic product (GDP).These reports are released regularly by various government agenciesand non-government entities. You should find the latest schedule ofupcoming releases and put them on your calendar. Keep an eye onthem for a few months and see what effect they have on currencyprices.One thing to keep in mind: it is not always the numbers contained in areport that have the greatest impact, but rather the relation of thenumbers compared to what was forecasted.In other words, a rise in interest rates may not have a significantimpact if forecasters were expecting it. But if they were expectinginterest rates to remain steady and there was an unexpected increase,there may be a large impact on currency prices.
  13. 13. A major disadvantage of fundamental analysis is that it can be a littletoo "big picture". It is great for predicting overall economic growthand price changes, but it doesnt offer enough details to target specificentry and exit points. This is where technical analysis comes in.Reading Forex QuotesTo a newcomer in the world of trading, forex quotes can be confusing.But they are actually quite simple to read.Lets look at an example of what a foreign exchange rate quote lookslike:EUR/USD = 1.2526Seems simple enough, right? This example shows the foreign exchangerate between the Euro and the US Dollar.It helps to remember that in any forex quote, there will always be twocurrencies quoted. This is because when you make a trade on theforeign exchange you are in effect buying one currency and selling asecond currency at the same time.When reading forex quotes, the first currency listed is called the basecurrency. The second currency listed is called the quote currency. Forexquotes show us the price relationship between two currencies.
  14. 14. The exchange rate tells you how many units of the quote currency youhave to pay in order to get one unit of the base currency.In the example above, the base currency is the Euro and the quotecurrency is the US dollar. The price quote tells us how each currency istrading relative to the other. In order to buy one unit of Euros you willhave to sell 1.2526 units of US Dollars.Still with me? Ok, just one more thing to add to our example: theBid/Ask spread.There are no commissions charged on any trades placed in the forexmarket. But brokers do get paid for their work through the bid/askspread.Lets add the spread to our example and Ill explain:EUR/USD = 1.2526/1.2528Or, this can be simplified to:EUR/USD = 1.2526/8Brokers make their money by selling currencies at a slightly higher ratethan they buy them. This is perfectly legal and all brokers do it, thoughthe amount of the spread can vary.
  15. 15. As a trader, you will buy the at bid price, which is the first price quoted.You will sell at the ask price, which is the second price. The differencebetween the prices is called the spread, which is retained by the brokeras their profit on the trade.In our example, you would buy at 1.2526 and sell at1.2528. The 0.0002 (2 pips) would go to the broker aspayment for executing the trade.The bid/ask spread is a simple and straightforward way to calculatetrading fees and expenses.Understanding PipsTo forex traders, everything revolves around pips."Im up 35 pips for the day.""I made a 127 pip profit on my last trade."Thats great, but whats a pip?Pip is short for "percentage in point" and you may sometimes hearpeople refer to pips as points.
  16. 16. Put simply, a pip is the smallest unit of price for a currency. Its the lastdecimal point in every exchange rate or currency pair.For most currencies its 0.0001. So if you bought USD/CHF 1.2475 andsold at 1.2489 you made 14 pips.One common exception is USD/JPY. In this currency pair there are onlytwo decimal places so a pip is equal to 0.01.The reason pips are so important is because they are the basis forcalculating profit or loss.Pip Value.With all these different currency pairs to deal with and with pricesfluctuating all the time, how do you know the value of a pip?Its a simple calculation. For currency pairs inwhich USD is the base currency, just divide a pip(usually 0.0001) by the exchange rate.For currency pairs in which USD is the quote currency,its even simpler. The pip value is always one pip(for example, 0.0001).
  17. 17. So in our example above, when the exchange rate forUSD.CHF is 1.2489:0.0001 / 1.2489 = 0.0000800704Thats a pretty tiny number. But remember that in forex trading you areable to leverage small sums of money to move large quantities ofcurrency.In other words, you can use leverage to make big profits off of that tinynumber.Lets say your broker allows you to trade with leverage of 100:1. Thismeans that in order to buy a standard lot of $100,000, you only needto put up $1,000.You can see how trading in larger lots affects the pip value, andtherefore your profit or loss:If you are only trading $1,000 in currency, the pip value is calculated asfollows:0.0000800704 X 1000 = $0.08 per pip.The price would have to go up by a whole lot of pips in order to make asignificant profit at that rate.
  18. 18. That 14 pip profit only made you $1.12.But by using leverage to buy a lot size of $100,000 your profit increases.0.0000800704 X 100,000 = $8.01 per pip.Thats a profit of $112.14. Now youre talking.
  19. 19. Forex risks are always present when you trade Forex. Just like anyother investment vehicle, Forex trading does have its risks. Here aresome tips and information on the risks inherent in Forex trading as wellas how to minimize some Forex risks.Forex stands for foreign exchange and Forex is the largest financialmarket in the world today with almost 2 trillion dollars worth of dailytrades. Forex is a trading platform that many people can access fromthe privacy of their own home. There is no central market for Forex andyou can enjoy 24 hour trading around the world each day.There are many people that sign up to trade Forex that don’tunderstand or take the time to learn how and why to trade Forex.There are many risks involved in trading any kind of asset, whether it isstocks, bonds or currencies. If you are interested in trading, make sureyou understand Forex risks.One of the biggest Forex risks is a leveraged buy. Some Forexbrokerages allow you to hold a certain amount of money in your accountbut leverage that amount to up to 200 times its worth. While this canbe good if you are on the winning side of a trade, this can bedevastating if you lose your entire accounts worth plus many timesmore.Many Forex brokers have special features that can limit your risks suchas stop loss and limit orders and no negative balances. If you areinterested in trading Forex, before you start to trade, learn andunderstand the Forex risks involved.
  20. 20. Here are some tips that will help you to minimize the risk in your tradingbusiness ..The first Forex trading tip is to always to remember that Forex tradinglike any investment is not a sure thing. Just like any type of investmentor investment vehicle there are risks involved. No matter how much youresearch your data or how much thought you put into your trading, youcan always lose money.Another important Forex trading tip is that if you are just starting out,learn as much as possible about foreign exchange trading. There aremany theories, strategies and tools to help you trade Forex. Learnwhich tools are available and how to use them effectively. You shouldn’tdecide to just throw money around into an investment and go with theflow. Forex trading is not a casino game and you can lose thousands ofdollars of your investment.One of the most important Forex trading tips is to choose your tradingbroker carefully. Don’t just enroll with a trading broker because theyoffer you great incentives or have a great web site. Shop around; find aForex trading broker that can help you reach your investment goals.There are plenty of Forex trading brokers and many of them might nothave the resources to help you with your individual investment needs.