Firstly, let's revise the basics of a forex trading as this
relates directly to how to reade forex charts.
Each currency pair is always quoted in the same way. For
example, the EURUSD currency pair is always as EURUSD, with the EUR being the
base currency, and the USD being the terms currency, not the other way round
with the USD first. Therefore if the chart of the EURUSD shows that the current
price is fluctuating around 1.2155, this means that 1 EURO will buy around
1.2155 US dollars.
And your trade size (face value) is the amount of base
currency that you're trading. In this example, if you want to buy 100 000
EURUSD, you're buying 100 000 EUROs.
Now let's have a look at the 5 important steps on how to
read a forex chart:
1. If you buy the currency pair, that is, you're long the
position, realise that you're looking for the chart of that currency pair to go
up, to make a profit on the trade. That is, you want the base currency to
strengthen against the terms currency.
On the other hand if you sell the currency pair to short the
position, then you're looking for the chart of that currency pair to go down,
to make a profit. That is, you want the base currency to weaken against the
terms currency.
Pretty simple so far.
2. Always check the time frame displayed. Many trading
systems will use multiple time frames to determine the entry of a trade. For
example, a system may use a 4 hour and a 30 minute chart to determine the
overall trend of the currency pair by using indicators such as MACD, momentum,
or support and resistance lines, and then a 5 minute chart to look for a rise
from a temporary dip to determine the actual entry.
So ensure that the chart you're looking at has the correct
time frame for your analysis. The best way to do this is to set up your charts
with the correct time frames and indicators on them for the system .
you're trading, and to save and reuse this layout.
3. On most forex charts, it is the BID price rather than the
ask price that's displayed on the chart. Remember that a price is always quoted
with a bid and an ask (or offer). For example, the current price of EURUSD may
be 1.2055 bid and 1.2058 ask (or offer). When you buy, you buy at the ask,
which is the higher of the 2 prices in the spread, and when you sell, you sell
at the bid, which is the lower of the two prices.
If you use the chart price to determine an entry or exit,
realise that when you place an order to sell when the chart price is say 1.330,
then this is the price that you'll sell at assuming no slippage.
If on the other hand, you place an order to buy when the
chart price is the same price, then you'll actually buy at 1.3333. A forex
system will often determine whether your orders will be placed simply according
to the chart price or whether you need to add a buffer when buying or selling.
Also note that on many platforms, when you're placing stop
orders (to buy if the price rises above a certain price, or sell when the price
falls below a certain price) you can select either "stop if bid" or
"stop if offered".
4. Realise that the times shown on the bottom of forex
charts are set to the particular time zone that the forex provider's charts are
set to, be it GMT, New York time, or other time zones.
It's handy to have a world clock available on your computer
desktop in order to convert the different time zones. This is important when
you're trading major economic announcements.
You'll need to convert the time of an announcement to your
local time, and the chart time, so you'll know when the announcement is going to
happen, and therefore when you need to trade.
5. Finally, check whether the times on your forex charts
corresponds to when the candle opens or when the candle closes. Your charting
software may be different to someone else's in this way.
You can trade 24-hours a day
The Forex is larger than all other financial markets
COMBINED
The Foreign Exchange
(Forex) Market is a cash, or “spot”, interbank market
established in 1971 when
floating
exchange rates began
to materialize. This
market is the
arena in which
the currency of one
country is exchanged for those of another, and where
international business is settled.
The Forex is
a group of
approximately thousands of
currency trading institutions
that include
international
banks, government central banks, and commercial companies. Payments for exports and
imports flow through
the Foreign Exchange
Market, as well
as payments for
purchases and sales
of
assets. This is called the “Consumer Foreign Exchange
Market.” There is also a “speculator” segment in
the Forex Market. Speculators have great financial exposure
to overseas economies participating in the
Forex to offset the risks of international investing.
Historically, the
Forex Interbank Market was not open to
small speculators. With a
previous, minimum
transaction
size, and often
stringent financial requirements,
the small trader
was excluded from
participation in this
market. Today, Market
Maker brokers are
allowed to break
down the larger
interbank units and offer small traders the opportunity to
buy or sell any number of these smaller units
(lots).
The reason I mention this, is that if you need to trade
major economic announcements, either by entering a trade based on the movements
that happen after the announcement, or to exit a trade before the announcement
in avoid getting stopped out during it, then you need to be precise (to the
minute!) as these trades are performed according to what happens at the 1
minute immediately after the announcement, not the candle afterwards!
So there you have it.
You now have the 5 essential keys to how to properly read
forex charts, which will help you to avoid the common mistakes which many forex
beginners make when looking at charts, and which will speed up your progress
when you're looking at forex charting packages, and forex trading systems that
you want to trade!
Confusion exists about the risks involved in trading
currencies. Much has been said about the interbank market being unregulated and
therefore very risky due to a lack of oversight. This perception is not
entirely true, though. A better approach to the discussion of risk would be to
understand the differences between a decentralized market versus a centralized
market and then determine where regulation would be appropriate.
The interbank market
is made up of many banks trading with each other around the world. The banks
themselves have to determine and accept sovereign risk and credit risk and for
this they have much internal auditing processes to keep them as safe as
possible. The regulations are industry-imposed for the sake and protection of
each participating bank.
Since the market is
made by each of the participating banks providing offers and bids for a
particular currency, the market pricing mechanism is arrived at through supply
and demand. Due to the huge flows within the system it is almost impossible for
any one rogue trader to influence the price of a currency and indeed in today's
high volume market, with between two and three trillion dollars being traded
per day, even the central banks cannot move the market for any length of time
without full coordination and cooperation of other central banks. (For more on
the interbank, read The Foreign Exchange Interbank Market)
Attempts are being
made to create an ECN (Electronic Communication Network) to bring buyers and
sellers into a centralized exchange so that pricing can be more transparent.
This is a positive move for retail traders who will gain a benefit by seeing
more competitive pricing and centralized liquidity. Banks of course do not have
this issue and can, therefore, remain decentralized. Traders with direct access
to the forex banks are also less exposed than those retail traders who deal
with relatively small and unregulated forex brokers, who can and sometimes do
re-quote prices and even trade against their own customers. It seems that the
discussion of regulation has arisen because of the need to protect the
unsophisticated retail trader who has been led to believe that trading forex is
a surefire profit-making scheme.
It’s a fact that forex trading became a highly preferable
investment method in the last decade. Combined with the internet as a global
24/7 network forex is reachable to everyone. I’ll not give you about the basic
explanation of forex trading in this article. I’m sure that i don’t have to
tell what forex trading is. People which familiar or have an interest in an
investment know forex already. Don’t they?
Forex trading is basically just an investment
As any other investment, there are always benefits and risks
beyond forex trading. Many people/organization, especially forex brokers, its
affiliate and those who earn their income by providing some forex related
services says that forex trading have so much advantages compared to other
investments; Forex is easy, with its non-stop 24 hours market, its wide range
adjustable leverage, its automated trading platform, its offered better
opportunity for income resource, and many more — you name it as much as you
want to.
Blinded by its ‘beautiful dream imagination’, many
small/personal traders, especially for the new ones forgot that forex trading
is basically still an investment program. Traders should never have a thought
that forex trading is an income resource.
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