Archives for September 2007

Free Forex Courses

If you are interested in trading Forex, there are plenty of free Forex courses that can teach you the basics of trading Forex and the theories and strategies behind each trade. If you are looking for an investment vehicle, Forex might be able to help you achieve your investment goals. Here are some suggestions on how to use free Forex courses, to see if Forex trading is right for you.

One of the great things about trading Forex is that there are plenty of sites that offer free Forex courses. Many of these sites are directly related to specific brokers that can help you open a Forex account and offer you software, tools and analysis to trade Forex effectively.

Free Forex courses usually come in the form of tutorials or basic web articles; however there is great information if you know where to look. Most Forex course include commentary and analysis from experts on how to trade Forex and can include instruction from expert Forex traders that can walk you through a trading session by streaming a conference call.

Many brokers also assist you with free Forex courses and provide you access to Forex forums where members exchange information, questions and opinions on all things that have to due with Forex.

Most Free Forex courses really over deliver on the amount of information they give to prospective traders. With the help of the internet, free Forex courses really make sense. So if you are looking to educate yourself, check out free Forex courses.

Introduction to Technical Analysis – 2

In this second article about FOREX technical analysis we will look at the various kinds of charts and provide basic guidelines for reading charts.

Price Charts

Price Charts show information about FOREX prices at specified intervals of time. Intervals can be from one minute up to several years and everything in between. Prices can be plotted with simple line graphs or the price variation for each interval can be shown by a bar or candlestick pattern.

Line charts are suitable for getting a broad overview of price movements. They show the close price at the chosen intervals. Line charts are very clean to read and make it easy to spot patterns, but they lack the detail of bar and candlestick charts.

Bar charts offer much more information than line charts. The length of each bar indicates the price spread for the given period – a long bar indicates a large difference between high and low prices. The left tab on the bar shows the opening price and the right tab show the closing price. You can see at a glance whether the price fell or rose for that particular period, and what the price variation was. Bar charts printed on paper (especially for short periods) can be difficult to read, but software charts usually have a zoom function that makes it easier to read closely spaced bars.

Candlestick charts were invented by the Japanese for analyzing rice contracts. They are similar to bar charts in that they indicate open, close, high and low prices for a given period. They are easier to read than bar charts, however, because of their color coding. Green candlesticks show rising prices and red candlesticks show falling prices.

Candlestick shapes – when viewed in relationship to neighbouring candlesticks – provide indicators of market movement that can aid in chart analysis. Various shapes of candlesticks are formed according to price spread and the proximity of opening to closing prices. Candlestick patterns have been given fanciful names like ‘morning star’ and ‘dark cloud cover’ and once the shapes have been learned, they are easy to pick out on a chart for identifying trends in the market.

Price charts are usually supplemented with technical indicators. There are many Technical Indicators broadly divided into different categories. Trend indicators, strength indicators, volatility indicators, and cycle indicators are just some of the analytical tools used to anticipate movement and market volume.

Some of the most common technical indicators used in FOREX are:

Average Directional Movement Index (ADX) – is used to determine if a market is entering a trend (either downward or upward) and how strong the trend is. Readings over 25 indicate a trend with higher values indicating stronger trends.

Moving Average Convergence/Divergence (MACD) – shows the momentum of the market and the relationship between two moving averages. When the MACD line crosses the signal line it indicates a strong market.

Stochastic Oscillator – indicates the strength or weakness of a market by comparing a closing price to a price range over a period of time. When the stochastic is above 80 it indicates the currency is overbought while a stochastic below 20 indicates the currency is oversold.

Relative Strength Indicator (RSI) – is a scale of 100 indicating the highest and lowest prices over a given period. When the price rises above 70 it is considered overbought and when the price falls below 30 it is considered oversold.

Moving Average – is the average price for a given time interval when compared with other prices during similar time periods. For example, the closing prices over a 3 day period would have a moving average of the total of the 3 closing prices divided by 3.

Bollinger Bands – are bands which contain the majority of a currency’s price. The bands are three lines – the upper and lower lines following the price movement and the middle line showing the average price. During times of high volatility the distance between the upper and lower bands widen. If a bar or candlestick touches one of the bands it indicates overbought or oversold conditions.

Forex Education

Introduction

Forex education is as imperative for veteran forex traders as it is for novices. Learning to be a successful Forex trader is a constant, unending process. The road to Forex education, therefore, has a start but knows no end. One should not try to deal in the forex markets unless he or she receives appropriate forex education and guidance to become a successful forex trader. There are considerable returns to be made in the forex market, but trading in the Forex is for the educated.

The recent innovations in electronic technologies have made forex education available in ways formerly restricted to the elite market players. The expansion of the Internet and the subsequent mass-scale development of e-commerce have permitted digital trading and forex education obtainable for any person with a processor and access to the web.

Brief History

In the early part of the 20th century, currency markets were comparatively stable. Although diverse currencies and the requirement to trade them had existed for eons, the exchange rates remained steady. Speculative activity rarely occurred, and the colossal speculative action in the Forex market nowadays would have been nightmarish. The chief catalyst to the speeding up of Forex trading and the consequent need for Forex education was the swift growth of the euro-dollar market.

Paramount for Traders

Scores of traders arrive with modest or absolutely no Forex education to the foreign exchange markets, only to squander their entire resources, in just a few days. Reason: These traders were not concerned to learn the fine details of the Forex markets, strategies one should adopt, technical analysis, currency chart systems and a host of other vital things one should be familiar with, before one starts trading. It is imperative for both the experienced and greenhorn traders to have some serious Forex education before they begin dealing in these markets.

Traders Bible

The foreign exchange market is truly one of the most popular marketplaces for speculative activity due to its colossal size, sheer amount of liquidity, and penchant for the currencies to move in rather strong trends. A tantalizing characteristic of trading currencies is the high level of leverage offered. The Forex brokers by and large allow positions to be leveraged up to 100:1.

Without proper Forex education and appropriate risk management, this extremely high level of leverage can result in substantial swings between profit and loss. Forex education teaches us that even veteran traders experience losses, and thus assumptions in the forex market should only be carried out with risk capital funds that, if lost, will not extensively impinge on the traders’ individual financial health.

How to Read FOREX Quotes

Currency prices are determined by a number of factors, the most important of which are economic and political conditions in the issuing country. Political stability, inflation, and interest rates are all factored into the price of any currency. In addition, governments can try to control the price of their currency by either flooding the market (to lower the price) or buying extensively (to raise the price).

Because of the immense volume of FOREX, however, it is impossible for one force to control the market for any length of time. Market forces will prevail in the long run, making FOREX one of the most open and fair investment opportunities available.

Each world currency is given a three letter code which is used in FOREX quotes. The most common currencies are USD (US dollars), EUR (European euros), GBP (United Kingdom pounds), AUD (Australian dollars), JPY (Japanese yen), CHF (Swiss francs) and CAD (Canadian dollars).

Prices of foreign exchange are indicated by FOREX quotes in pairs of currencies. The first currency is the ‘base’ and the second is the ‘quote’ currency. In this example:

USD/EUR = 0.8419

…the currency pair is US dollars and European euros. The base currency (USD) is always at ‘1’ and the quote currency shows how much it costs to buy one unit of the base currency. In this example, 1 US dollar costs 0.8419 euros.

Conversely…

EUR/USD = 1.1882

…tells us that it costs 1.1882 US dollars to buy 1 euro.

When the price of the quote currency goes up it indicates that the base currency is becoming stronger – one unit of the base currency will buy more of the quote currency. If the quote currency falls, however, the base currency is becoming weaker.

FOREX quotes are seen in ‘bid’ and ‘ask’ prices. Bid is the price that buyers will pay for the base currency (while selling the quote currency), and ask is the price that sellers will sell the base currency (while buying the quote currency).

Symbol Bid Ask
USD/CAD 1.2392 1.2397

This chart tells us that we can buy one American dollar for 1.2397 Canadian dollars, or sell one American dollar for 1.2392 Canadian dollars. The most commonly traded currencies pairs are the ‘Majors’ – GBP/USD, EUR/USD, AUD/USD, USD/JPY, USD/CHF, and USD/CAD.

We often see exchange rates listed in cross currency charts that list many different currencies and their values against each other. An example of such a chart is seen here:

US $ Ca $ Euro UK ?
US $ 1.00000 1.24060 0.83935 0.56870
Ca $ 0.80606 1.00000 0.67657 0.45841
Euro 1.19140 1.47805 1.00000 0.67755
UK ? 1.75840 2.18147 1.47591 1.00000

In this chart, the currencies listed down the left side of the chart are the base currencies and the currencies at the top are the quote currencies. We can convert the chart above into currency pairs by following the row beside the base currency. Using US dollars as the base currency we get the following currency pairs:

USD/CAD = 1.24060
USD/EUR = 0.83935
USD/GBP = 0.56870

…which tells us that one US dollar is equal to the corresponding value of the quote currency. To find the opposite pair e.g. CAD/USD follow the Canadian dollar row to the US dollar column – CAD/USD = 0.80606 (one Canadian dollar is worth 0.80606 US dollars).

There is no standard for cross-currency charts – some have the base currency on the top and some have it on the side. How to tell which is which? You need to know at least one pair of currencies and which one of the pair is more valuable.