Archives for September 2007

The truth of the matter is that forex trading may or may not be right for you. True, Forex trading is popular but that doesn’t mean that you have what it takes to be a successful Forex trader.

Now I’m not trying to burst anyone’s bubble and be negative about trading….I just want to be on of the few people in the world of trading who will actually level with you. Just understand that there is more to successful Forex trading than meets the eye.

Please don’t be pulled in by the amazing trading results you see advertised. Most of these are designed to pull you in and not to make you successful. Actually some of the vendors may actually think they are designing Forex trading systems to make their clients successful. Unfortunately many of these trading system vendor possess only a rudimentary idea of what a truly successful trading system is. All They can tell you is what they know. Sadly what most of them know is either insufficient or just plain wrong.

Stay tuned here as we will have an opportunity to review various Forex trading systems and separate the boys from the men. At the end of the series you’ll know more about what a good Forex trading system looks like than 90% of the people trying to sell them.

The ForexExaminer Team

?Top Ten Basic Terms in Forex Trading and Their Definitions

Forex refers to the foreign currency exchange market, the world’s largest financial trading market. Some terms that help a person understand Forex trading include:

Bid ??” to buy

Ask ??” to sell

Liquidity ??” financial ease of transaction, i.e. cash

Trading volume ??” the amount traded

Bid/ask spread ??” the difference between the proposed buying price and the actual selling price

OTC ??” over the counter

Exchange rate ??” the difference between currency values; for instance, a Canadian dollar is valued at .86 of a US dollar

Hedge funds ??” large mutual funds companies that control vast amounts of money and are able to manipulate the value of a currency through speculation

Central bank ??” the national bank of a nation, which usually exerts control over the value of that currency

Forex trading is in essence the investment in the currency of one country. Large international corporations that do business in many nations find value in keeping their cash reserves in a variety of nations, and holding their funds in a variety of ways. For example, a US company may have a percentage of its working capital in US dollars, but if it does quite a bit of business in Europe may also find it beneficial to keep a percentage of its money in Euros, in European banks. Many individual investors over the years have discovered that there is profit to be made in investment and speculation in the currency or forex markets.

As an example, during the 1970’s the German deutchmark was changing rapidly in value. It was worth anywhere from 1.7 marks to the US dollar to 2.5 US marks to the dollar. When the mark was worth 2.5 it was beneficial to spend dollars buying marks, since the mark would buy more goods or services at that rate. When the mark was only worth 1.7 to the dollar there was less incentive.

The forex market itself is not unified. There are many small forex markets specializing in trading various currencies. The most commonly traded currencies in forex trading are the US dollar, the Australian dollar, the British pound sterling, the Japanese yen, and the European Euro. The values of these currencies will vary depending on the market in which an investor is looking, so there is really no such thing as a single, unified dollar rate, but instead there are several dollar rates, which are different according to the market where the trade is occurring. The major cities in which trades occur are London, New York and Tokyo. This covers a 24 hour clock. When Asian trading ends, European trading beings, and when European trading ends, then American trading opens. Of course when American trading ends, it is time for Asian trading to open again, and so on.

The most commonly traded currency is the US dollar, involved in 89% of all trades. This is followed by the Euro involved in 37% of all trades, then by the yen in 20% and the pound in 17%. The fastest rising currency in trade is the Euro, but the US dollar is still widely considered the anchor point, and the currency to watch to judge how others will react. Differences in value of currencies come form the daily news. Changes n gross domestic product growth, in inflation, interest rates, budget and tirade deficits, surpluses and other economic conditions will cause changes in currency values. Investors and traders for this reason follow the news very closely. In fact, there are 24 hour cable news channels and many web sites devoted to news of value to currency traders.

It wasn’t long ago that the nation of Iran removed its currency from European investment banks. In anticipation of rising world tensions they removed their currency to become less vulnerable to freezing of their assets and to economic warfare, of which forex trading could be a part. The forex market is very susceptible to rumors. In fact the central banks of some countries have at times manipulated the value of their currency by spreading rumors about hikes in interest rates and other economic news that could have an impact on the value of the currency. When this news is false it is called a dirty float.

Introduction to Technical Analysis – 1

FOREX analysis is divided into two types: Fundamental and Technical. Fundamental analysis attempts to predict movements in currencies by examining current political and economic events. Technical analysis uses historical economic data to predict movements in the FOREX. These two articles will examine the principles of technical analysis and the tools involved.

Basic Principles

Technical analysis is based on three assumptions:

1 – Price movements are a result of all market forces combined. Things that can affect currency prices include political events, economic conditions, supply and demand, seasonal variations and weather conditions. The technical analyst, however, is not concerned with the reasons for market movement, but rather, the movements themselves.

2 – Currency prices follow trends. Many market patterns have been recognized as having predictable consequences.

3 – Price movements follow historical trends. FOREX data has been collected for over 100 years and patterns have emerged over time. These patterns are based on human psychology and the way people react to certain sets of circumstances.

Is Technical Analysis Necessary?

Most FOREX day traders rely heavily on technical analysis and may use fundamental analysis to support their trading strategy. A major advantage of technical over fundamental analysis is that it can be applied to many different markets and currencies at the same time. Fundamental analysis requires in-depth knowledge of the political and economic conditions of a certain country; therefore it is less likely that any one trader can do proper fundamental analyses on more than a few countries.

The beginner trader may be put off by the seeming complexity of technical analysis and wonder if it is necessary for FOREX trading. As with any investment, FOREX trading requires a strategy. Although any strategy is possible, technical analysis is a proven method for predicting movements in the FOREX. Does that mean it’s a sure thing? Nothing is 100% certain, and currency prices are affected by a variety of forces. This is why many traders use a combination of technical and fundamental analysis to plot their trading strategies.

Availability

Every FOREX online broker should provide access to a wide variety of charts for technical analysis. Some charting software is available free of charge while in-depth professional charts may carry a monthly fee. Charts can be viewed by various time scales and provide detailed information about price movements as well analytical overlays. Charts can be zoomed in to the tick level or zoomed out to see the broad picture over a period of months or years. Charts are updated in real time.

FOREX charts may be available on your broker’s web site or may be included as part of their trading software.

Before beginning in FOREX trading it is a good idea to become accustomed to market behaviour by following charts for a period of time and studying their movements and learning about trends. Many brokers provide practice accounts that can be used by beginners to place ‘paper’ bids – no real money is exchanged. These practice accounts familiarize the beginning trader with FOREX charts and market movement while at the same time allowing him to become acquainted with the trading software a particular broker uses.

Part 2 of this article will look at the various kinds of charts and technical indicators.

FOREX Training

Knowledge is the key to successful FOREX trading. The knowledgeable trader has greater awareness of how the market moves and more chances of making profitable transactions. Without knowledge you are shooting in the dark. You may succeed on a few deals but the odds are that you are going to lose in the long run.

Thankfully there’s lots of information available about the FOREX and how to trade. You can find hundreds of web sites with useful advice and there are just as many books about all aspects of FOREX trading. If self-learning is not your style, there are training courses available that guide you step-by-step through the intricacies of Foreign Exchange.

If you have the time and the inclination, you can find all the facts you need on the Internet or in your public library. The problem with Internet sources, however, is that the information is generally unstructured. You may find bits and pieces of useful data, but finding a source that presents it in a step-by-step fashion is more difficult.

Study courses, on the other hand, present their material in a logical and structured manner that aids in understanding FOREX trading. The investment involved in a FOREX course may well worth the time saved in seeking out similar information on your own. There are courses available for both beginners and intermediate traders.

The cost of a FOREX course varies from free to $1000 or more. As with most things, you get what you pay for. Free Internet courses may give you the basics needed to begin trading, but usually omit the in-depth training needed to analyze charts and plot trading strategies.

There are two basic types of study courses. You can attend a class with a group of people, or you can sign up for an online course that is taken over the Internet. Classes are available in most major cities. You can attend a class to learn the basics or sign up for more advanced courses if you are an experienced trader. The advantage of these courses is that you get personalized attention – any questions you have can be answered directly by the instructor. The disadvantage is that you must follow the class schedule – if you miss one class it can’t be made up at a later time.

Seminars are also a possibility for learning about FOREX. Seminars are usually aimed at experienced traders, but if you know the basics you could benefit from a 1 or 2 day seminar. These are available in most major cities, and you could expect to see seminars offered every couple of months. They are usually conducted by well-known FOREX professionals who can offer new insights and strategies in FOREX trading.

If you prefer to study at your own pace you should investigate online FOREX courses. You can log on to a website any time of the day or night and go through the course material as you see fit. If you have any questions, you can usually communicate with an instructor by email. Responses could take anywhere from minutes to days.

A variation of online courses is CDROM courses. These are done on your computer, but you order the study materials from a company and they arrive by mail. There may be little after market service offered with CDROM learning materials. If you have questions you may not be able to contact an instructor for answers. However, each company has their own policy about this, so find out what their service provides before putting down your money.

Other types of home training include video lessons. These can be watched in the comfort of your living room and are similar to attending a FOREX training seminar.

The best kind of FOREX training can be with an individual trainer or mentor. This would be someone with many years of FOREX experience who can offer insights and strategies learned through the course of conducting thousands of transactions. FOREX mentors usually charge a lot of money – thousands of dollars is not unheard of. Whether the cost is worth it is up to the individual to decide. Working with a master trader can provide valuable insight into the psychology of FOREX trading.