CHART PATTERNS (1)

Selasa, 12 Agustus 2008

When to buy and when to sell could very well be the question of all questions when it comes to trading or investing in forex, stocks, futures, and option. The answer thought, could very well be found in technical analysis. It,s been suggested time and time again, that technical analysis is indeed the most reliable method for trading the market.

Candle Stick Pattern


Bullish Pattern


Long white (empty) line. This is bullish line. It occurs when prices open near the low and close significantly higher near the period’s high

Hammer. This is bullish line if it occours after the significant downtrend. If the line occurs after the significant up-trend, it is called Hanging Man. A Hammer is indentified by a small real body (i.e., a small range between the open and closing prices ) and a long lower shadow (i.e., the low is significantly lower than the open, high, and close). The Body can be empty or filled-in.

Piercing Line. This is bullish pattern and opposite of a dark cloud cover. The first line is long black line and the second line is long white line. The second line opens lower than the first line’s low, but it closes more than halfway above the first line’s real body.

Bullish engulfing lines. This pattern is strongly bullish if it occurs after a significant downtrend (i.e, it acts as reverseal pattern). It occurs when a small bearish (filled-in) line is engulfed by a large bullish (empty) line.

Morning star. This is a bullish pattern signifying a potential bottom. The “star” indicates a possible reverseal and the bulish (empty) line confirms this. The star can be empty or filled-in.

Bullish doji star. A “star” indicated a reverseal and a doji indicates indecision. Thus, this pattern usually indicates a reverseal following an indecisive period. You should wait for a confirmation (e.g., as in the morning star, above) before trading a doji star. The first line can be empty or filled-in.

Currency Exchange Terms Every Forex Trader Should Know

Sabtu, 09 Agustus 2008

Before jumping into the forex market, you need to arm yourself with some terminology that will be used in any course or software on this subject. The following set of terms were put together with the idea of providing the novice forex trader with the fundamental concepts of the forex trading business. While they sound technical, most are easy to understand and apply.

Let us begin with the instruments that are traded in the forex markets. Currencies are traded in pairs so the instrument will always be in this double denomination. The reason for this is simple; the basis of forex currency trading is to exchange one currency for another. So if the pair is the Euro and the US Dollar, and the forex trader is taking a long position or buying the Euro in hopes that it will appreciate, effectively the trader is also selling US Dollars to buy the Euros. The most widely traded pairs are the Great Britain Pound and the US Dollar (indicated as GBP/USD), the Euro and the US Dollar (the EUR/USD pair), the Aussie Dollar and the US Dollar (AUD/USD pair), the USD and the Japanese Yen (USD/JPY pair), and the Canadian Dollar and the USD (USD/CAD pair). These pairs account for well over 80% of the total volume of the trading in the forex market. The advantage to trading in these currency pairs is that they are highly liquid and allow the investor to convert their portfolio to cash very quickly to realize a profit.

In every pair, the first currency is called the base currency, over which the second one is countered to imply the price of the pair, or commonly referred to as the "cross currency". The second is therefore called the quote currency and the pair price is recorded in terms of the units of the quote currency required to buy one unit of the base currency. Thus, assuming the price of the GBP/USD pair is 1.5, this implies that 1.5 USD will buy 1 GBP.

Every pair is quoted in terms of a bid ask spread. The bid price is the rate at which your forex broker bids to buy the currency at, while the ask price is the rate the forex broker is asking to sell the currency to the forex trader. The bid price will always be less than the ask price and the forex trader will buy at the ask price and sell at the bid price. The bid ask price will be quoted as: GBP/USD 1.532/5, meaning the bid price is 1.532 and the ask price is 1.535.

A pip price interest point), as it is commonly called, is the smallest incremental change a currency pair will experience, for instance, a change in the GBP/USD price from 1.532 to 1.542 is a change of 10 pips. A trading margin is a deposit which is a minimum amount or a small percentage of your traded amount that you have to put up. The remaining amount is supplied by your broker. This amount can vary from 1% to 0.25%, also referred to as 100:1 and 400:1. Most often, forex brokers will offer 100:1 or 200:1 to most clients. This is risky but enables the trader to leverage a large amount that he or she would not otherwise have access to.

Finally, a margin call can happen when the forex trader allows the balance in the trading account to go below the margin deposit percentage agreed upon with the forex broker. The broker will automatically sell your long positions or buy your short positions and clear the entire trading account, returning the margin amount to the trader to protect the trader from losing more money than they have.

Forex Trading and Risk-Return ratio

Kamis, 07 Agustus 2008

Forex trading is fast becoming the top method of making money on the internet and plenty of average people are trying their hand at becoming millionaires. For most people, forex trading is a much needed source of a second income, to supplement their current single income from their main profession. However, the true potential to become very wealthy is not tapped by most such investors and they earn mere pennies on the dollar, compared with what they could be earning. While everyone has their own forex currency trading system, this will be in proportion to your risk appetite and will only bring the returns that you strive for. While there are many ways to invest your money in currency, most people play safe by either investing small amounts or spreading their money very thin across the various currencies they are invested in. This makes for a very small return but practically no risk potential, since the bases are mostly covered so that if one currency depreciates, the other appreciates and the losses are minimal. However, clearly this will never make the forex trader a millionaire. Life is short, and most forex trading millionaires made their money fast off the forex market. These individuals are generally highly leveraged, because they know that money makes money, and the more money they invest, the greater the risk and the greater the potential reward. Also, betting on unlikely currencies is risky and can have a huge potential upside. So what exactly will leveraging yourself mean for you? You can start with a portfolio, meaning that you put your investment towards buying a part of the forex trading. Then, you buy shares of the forex trading the world over, depending on what countries appeal to you. The prices of these shares may rise slowly to increase your portfolio, and you are still playing safe. Once your total portfolio value goes over the 5000 dollar mark, you as a forex trader can apply for something known as a console, which now puts you in the position to act as an agent for others. At this point, you can process exchanges for small investors who want to buy and sell currencies through you. For each transaction processed, you will earn a fee of 6% and this can roll into your portfolio, increasing further, making your status as a forex trader more credible. Other than an unlikely event such as a war or natural calamity, nothing on the forex market will give you a sudden unexpected windfall. Do not expect to become a millionaire over night. You will have to plan and strategize, and most importantly, leverage yourself, to truly make a lot of money. The forex market will generally move like the stock market, in small digits and only when you have plenty of money spread out on the forex market do you stand a chance of making a great deal of profit. While this type of trading is not for the faint hearted, experience in forex trading will bring some confidence to your forex trading strategy, especially as you learn which systems work for you and which don't. As your level of confidence grows, the process will seem much less daunting. However, it is great to be cautious and be sure of any risks you take. That said, do remember that millionaires are always highly leveraged in the forex market – take calculated risks.

FOREX Trading Philosophy

Rabu, 06 Agustus 2008

Keen on starting FOREX trading? Why would you not be… Many beginning FOREX traders are captivated by the allure of easy money. FOREX websites offer 'risk-free' trading, 'high returns' and 'low investment' – these claims have a grain of truth in them, but the reality of FOREX is a bit more complex. As with anything in life, what you put in will determine what you get out.

There are two common mistakes that many beginner traders make – trading without a strategy and letting emotions rule their decisions. After opening a FOREX account it may be tempting to dive right in and start trading. Watching the movements of EUR/USD for example, you may feel that you are letting an opportunity pass you by if you don't enter the market immediately. You buy and watch the market move against you. You panic and sell, only to see the market recover.

This kind of undisciplined approach to FOREX is guaranteed to lose you money, and have you waste your time. FOREX traders need to have a rational trading strategy and not allow emotions to rule their trading decisions.

The two emotions prevalent in the above example is greed (entering the market immediately) and fear (selling when the market temporarily moves against you). Investing and these two emotions do not gel at all. Keep them out of your trading and you will see results.

To make rational trading decisions the FOREX trader must be well-educated in market movements. He must be able to apply technical studies to charts and plot out entry and exit points. He must take advantage of the various types of orders to minimize his risk and maximize his profit.

The first step in becoming a successful FOREX trader is to understand the market and the forces behind it. Who trades FOREX and why? Who is successful and why are they successful? This knowledge will allow you to identify successful trading strategies and use them as models for your own.

There are 5 major groups of investors who participate in FOREX – Governments, Banks, Corporations, Investment Funds, and traders. Each group has varying objectives, but the one thing that all the groups (except traders) have in common is external control. Every organization has rules and guidelines for trading currencies and can be held accountable for their trading decisions. Individual traders, on the other hand, are accountable only to themselves.

If you do not keep yourself in check, nobody else will. Why should they worry if you aimlessly waste your money?

This means that the trader who lacks rules and guidelines is playing a losing game. Large organizations and educated traders approach the FOREX with strategies, and if you hope to succeed as a FOREX trader you must play by the same rules. That is studying these strategies and rules before starting to trade is so important.

FOREX Trading Philosophy - Money Management

Money management is part and parcel of any trading strategy. Besides knowing which currencies to trade and recognizing entry and exit signals, the successful trader has to manage his resources and integrate money management into his trading plan. Position size, margin, recent profits and losses, and contingency plans all need to be considered before entering the market.

This may sound like Greek now! If it does, you have more reason to get to know these terms. Knowledge will empower you on any investment market, including FOREX.

There are various strategies for approaching money management. Many of them rely on the calculation of core equity. Core equity is your starting balance minus the money used in open positions. If the starting balance is $10,000 and you have $1000 in open positions your core equity is $9000.

When entering a position try to limit risk to 1% to 3% of each trade. This means that if you are trading a standard FOREX lot of $100,000 you should limit your risk to $1000 to $3000 – preferably $1000. You do this by placing a stop loss order 100 pips (when 1 pip = $10) above or below your entry position.

As your core equity rises or falls you can adjust the dollar amount of your risk. With a starting balance of $10,000 and one open position your core equity is $9000. If you wish to add a second open position, your core equity would fall to $8000 and you should limit your risk to $900. Risk in a third position should be limited to $800.

By the same principal you can also raise your risk level as your core equity rises. If you have been trading successfully and made a $5000 profit, your core equity is now $15,000. You could raise your risk to $1500 per transaction. Alternatively, you could risk more from the profit than from the original starting balance. Some traders may risk up to 5% against their realized profits ($5,000 on a $100,000 lot) for greater profit potential.

As you can see, the novice needs to get through quite a bit of education, understanding and planning before those 'risk-free' trading, 'high returns' and 'low investment' promises will come into play. What are you waiting for? Get yourself a decent FOREX Trading Education. If you need more information, feel free to visit http://www.investing-smarter.com.

Making Your First Successful Forex Trade

Kamis, 31 Juli 2008

If you get of to a good start with Forex it will give you confidence and will encourage you to trade regularly.

Follow these tips to get of to the best start possible:

Making your first Forex trade can be quite an exciting event.

It also is an event that requires some planning in advance, as well as doing some checking and double-checking before you ever make that first trade.

Here are some suggestions for preparation that will help you to really get the most out of that first trading event.

Trading currency comes with a certain amount of risk.

The prudent trader will always make sure, that he or she has enough resources to be able to withstand a period where there are more losses than there are gains. From that perspective, it is important to never risk more funds than you can reasonably do without.

Examine the condition of your finances carefully, and determine the amount of your resources that can be comfortably involved in the process of currency trading without creating any financial burdens.

Keep in mind that the volume of your transactions will often come into play when it comes to purchasing currency.

Simply put, the more you can afford to buy, the better rate you are likely to command. Your circumstances will of course dictate how much you can afford to invest in a single transaction.

Individuals who are involved in currency trading will also have to keep in mind that there is the matter of that minimum margin deposit that you must be able to maintain.

You may have to begin with smaller transactions that yield less return. But keep in mind that as you grow your revenue from your currency trading efforts, you will be in a position to go for the more lucrative deals.

It is a very good idea to begin developing your strategy well before you make that first trade.

You can get a great deal of help developing that strategy by utilizing the various reports and other sources at your disposal to try some projections of your own.

Set up some test runs by structuring a currency trade on paper and watch how things would have gone had you actually made the transaction. Learn from the outcome, whether it was a win or a loss.

Either outcome can help you identify some valuable tools that will help you refine your basic strategy.

You may find that you need to include more sources of information in your decision making process.

Perhaps your simulated trades will teach you that there is a source or two that needs to be disregarded or replaced in your roster of informative sources.

The point is to refine your strategy as much as possible before you go "live" with your currency trading.

Making money and having some fun in the process are what the trading is all about.

When you perform due diligence before you ever begin you can ensure that your first Forex trade, will be a true example of what you are capable of accomplishing.

It should be noted Forex trading involves substantial risk of loss and is not suitable for all investors.

How You Can Make Ten Times Your Salary- With Day Trading

Day trading – no, it’s not something that Bill Murray wished he had in Groundhog Day. It’s a style of trading on the foreign currency exchange market in which a trader completes all his trades within a single day. In other words, he may make a few dozen – or more – trades in a day with the objective of buying and selling quickly and making a profit from the fluctuations in a currency exchange rate over the course of the day.

Sound complicated? Depending on the method or system that you use to pick your trades it can be. The idea behind day trading is that currency exchange rates are subject to fluctuations over the course of the day – they go up and down depending on who’s buying, who’s selling and what rumors are floating around. In fact, day trading in the foreign currency market is probably the single segment of any type of stocks, currency or futures trading market most affected by rumors and real-time, real-world happenings. A savvy trader who is quick on his feet can roll up the profits by paying attention to what the current news is doing to the currency exchange rates.

The currency market, commonly referred to as the forex (short for Foreign Exchange), is the most liquid market in the world. The latest statistics say that daily trading on forex is in excess of $1.3 trillion U.S. dollars. That makes forex the world’s largest, most efficient market. A major part of the reason for the liquidity and volume of trade is the practice of day trading. The difference between day trading and other types of trading is in how long you hold your stocks (or in this case, your currency). In day trading, you hold nothing beyond the close of the day’s market. Think of it as a game in which the object is to keep trading cards back and forth, increasing the value of your cards – but have no cards in your hand at the end of the day.

Of course, since the currency market is a 24 hour market, there really IS no market closing – so the rules change slightly. The currency market is open from Sunday afternoon to Friday afternoon, with trading going on all the time, so you can pick your times to trade rather than being locked into the Stock Exchange timetable.

How You Make Money in Day Trading

People will tell you that the difference between a day trader and an investor is the length of time that each holds onto their stocks. That’s a superficial difference. The real difference is in the mindset of short-term vs. long-term and liquidity. An investor buys something that he believes will steadily increase in value, and holds onto it for the long haul. A day trader rides the minute fluctuations in the currency market minute by minute the way a surfer rides a wave. Because you’re trading in lots of 100,000, a tiny fluctuation can mean a big profit – or a huge loss.

Limiting Loss in Day Trading

One of the hardest concepts for new traders to grasp is that of limiting loss. Let’s say you make a trade for a currency that is heading down because you believe that it’s near its support point – the point where it will rebound and start heading back up. Instead, it breaks the point and keeps heading down – you’re losing money instead of making it. You have two choices – hold onto it because you KNOW it will start heading back up soon, or get rid of it and limit the amount of money you’re going to lose. In day trading, the name of the game is limiting your losses and maximizing your wins – decide ahead of time just how much you’ll allow each trade to lose before you sell it, and then STICK TO YOUR LIMIT. By the same token, decide how much profit you want to make, set a sell order for when the currency reaches that point – and sell when it hits the mark.

Know what you’re doing.

Day trading on the forex is like any other business. The people who make money are the ones who take the time to learn the market and understand the ins and outs of the trades that they make. Those who jump in feet first without learning the terms, rules and trends of the forex market are priming themselves to lose – and lose big. Remember, there’s no such thing as high profit potential without equivalent risk. Before you jump in, take a course in trading, or read read read all that you can.

Currency Trading: Understanding the Basics of Currency Trading

Investors and traders around the world are looking to the Forex market as a new speculation opportunity. But, how are transactions conducted in the Forex market? Or, what are the basics of Forex Trading? Before adventuring in the Forex market we need to make sure we understand the basics, otherwise we will find ourselves lost where we less expected. This is what this article is aimed to, to understand the basics of currency trading.

What is traded in the Forex market?

The instrument traded by Forex traders and investors are currency pairs. A currency pair is the exchange rate of one currency over another. The most traded currency pairs are:

EUR/USD: Euro

GBP/USD: Pound

USD/CAD: Canadian dollar

USD/JPY: Yen

USD/CHF: Swiss franc

AUD/USD: Aussie

These currency pairs generate up to 85% of the overall volume generated in the Forex market.

So, for instance, if a trader goes long or buys the Euro, she or he is simultaneously buying the EUR and selling the USD. If the same trader goes short or sells the Aussie, she or he is simultaneously selling the AUD and buying the USD.

The first currency of each currency pair is referred as the base currency, while second currency is referred as the counter or quote currency.

Each currency pair is expressed in units of the counter currency needed to get one unit of the base currency.

If the price or quote of the EUR/USD is 1.2545, it means that 1.2545 US dollars are needed to get one EUR.

Bid/Ask Spread

All currency pairs are commonly quoted with a bid and ask price. The bid (always lower than the ask) is the price your broker is willing to buy at, thus the trader should sell at this price. The ask is the price your broker is willing to sell at, thus the trader should buy at this price.

EUR/USD 1.2545/48 or 1.2545/8

The bid price is 1.2545

The ask price is 1.2548

A Pip

A pip is the minimum incremental move a currency pair can make. A pip stands for price interest point. A move in the EUR/USD from 1.2545 to 1.2560 equals 15 pips. And a move in the USD/JPY from 112.05 to 113.10 equals 105 pips.

Margin Trading (leverage)

In contrast with other financial markets where you require the full deposit of the amount traded, in the Forex market you require only a margin deposit. The rest will be granted by your broker.

The leverage provided by some brokers goes up to 400:1. This means that you require only 1/400 or .25% in balance to open a position (plus the floating gains/losses.) Most brokers offer 100:1, where every trader requires 1% in balance to open a position.

The standard lot size in the Forex market is $100,000 USD.

For instance, a trader wants to get long one lot in EUR/USD and he or she is using 100:1 leverage.

To open such position, he or she requires 1% in balance or $1,000 USD.

Of course it is not advisable to open a position with such limited funds in our trading balance. If the trade goes against our trader, the position is to be closed by the broker. This takes us to our next important term.

Margin Call

A margin call occurs when the balance of the trading account falls below the maintenance margin (capital required to open one position, 1% when the leverage used is 100:1, 2% when leverage used is 50:1, and so on.) At this moment, the broker sells off (or buys back in the case of short positions) all your trades, leaving the trader “theoretically” with the maintenance margin.

Most of the time margin calls occur when money management is not properly applied.

How are the mechanics of a Forex trade?

The trader, after an extensive analysis, decides there is a higher probability of the British pound to go up. He or she decides to go long risking 30 pips and having a target (reward) of 60 pips. If the market goes against our trader he/she will lose 30 pips, on the other hand, if the market goes in the intended way, he or she will gain 60 pips. The actual quote for the pound is 1.8524/27, 4 pips spread. Our trader gets long at 1.8530 (ask). By the time the market gets to either our target (called take profit order) or our risk point (called stop loss level) we will have to sell it at the bid price (the price our broker is willing to buy our position back.) In order to make 40 pips, our take profit level should be placed at 1.8590 (bid price.) If our target gets hit, the market ran 64 pips (60 pips plus the 4 pip spread.) If our stop loss level is hit, the market ran 30 pips against us.

It’s very important to understand every aspect of trading. Start first from the very basic concepts, then move on to more complex issues such as Forex trading systems, trading psychology, trade and risk management, and so on. And make sure you master every single aspect before adventuring in a live trading account.