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Get to know Forex trading
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Are you a forex beginner? Have never traded Forex before? Don't worry! I have prepared this Forex for beginners guide for you. This step-by-step guide will walk you through the steps needed to be a successful forex trader.
Want to improve your Forex trading? There are several ways to help you improve your trading. You may need a better strategy. You may need better money management. You may need to be in the zone. Or you may need more...
I try my best to give you practical and helpful information on this site. Please feel free to browse all you wish. I hope that what you will read will save you a lot of time, money and get you faster on the right track of Forex trading!
EWI's Forex Focus: Wanted: A Few Good Bulls (Forex)
5/7/2007 6:12:48 PM
Source:Elliott Wave International
This is a big week for the Fed, ECB and BOE watchers. The Federal Reserve will announce its latest interest rates decision on Wednesday (May 9), and the European Central Bank and the Bank of England will speak out the day after. Forex traders are hoping that come Wednesday, the Fed 'will point to signs of U.S. economic weakness, reinforcing the case for a cut in borrowing costs,' and then on Thursday, the ECB will hint it will raise rates in June, while the BOE will go ahead and do it right now. None of it sounds like good news for the US dollar... Read on. Read More
Forex For Beginner
A step-by-step guide for beginners. You will get to know all the insights and "need to know" information here.
Technical Analysis Fibonacci
Fibonacci levels work consistently in Forex markets. Learn more about it. Make it work for you.
Forex Trading Strategies
Some useful strategies and tips to help you with your currency trading.
Forex Brokers
Wondering which Forex broker to use?
Forex Charting Software
Looking for reliable and convenient Forex charting software?
Free Download
Download your free Forex trading ebooks here.
Trade Set-ups New
Those are the set-ups I used to post on my blog. As it's easier to look at set-ups and follow ups on the same page, I moved this section to my main web pages. It also allows me to better organize all the charts. Set-ups include monthly, weekly and daily charts, as well as live set-ups on 4h and 1h time frames.
Elliott Wave
Elliott Wave International's tutorial is the most comprehensive introduction to the Elliott Wave Principle available in cyberspace. All ten lessons have been adapted from Prechter and Frost's Wall Street bestseller, Elliott Wave Principle - Key to Market Behavior.
Technical Analysis - Fibonacci
Introduction to Fibonacci trading techniques
Prices never move in a straight line. Look at any chart, you will see many wiggles, as price advances and retraces.. Stocks, Futures, Forex, all instruments which are liquid, will often retrace in Fibonacci proportions, and advance in Fibonacci proportions. Not always, and not precisely to the penny. But very often, and reasonably close! This happens often enough that profitable trades can result.
Fibmaster's Fibonacci Trading Videos
Step-by-step videos show you how to pre-determine the highs and lows just the way the pros do!
This video course will teach you the same techniques that professionals use for predicting market turning points.
Here's what you will learn in the video courses:
How to calculate probable future turning points.
All about retracements: what, where and why.
Extensions and expansions for taking profits.
Entry and exit levels, and stop placement levels.
Where buyers are likely to support the market.
Where sellers should be taking profits.
How to apply Fibonacci analysis to the market.
How to determine the stronger support/resistance levels.
How to determine entry and exit levels for maximum potential.
Where the high probability trades are.
How to adjust for all time frames and all markets.
Stacking the odds in your favor.
Which Fibonacci levels are more likely to turn the market.
Fibonacci use from intra-day to longer-term trading.
Everything you need to make more money in the markets!
The two courses contain 21 video lessons, total running time of almost 3 hours!
You can have a free subscription to ProfitPoint for 1 month for free, if you order the FibMaster's video lessons.
Trading With DiNapoli Levels
If you want a quick, general discussion on Fibonacci analysis, this book is not for you. In fact, the author takes seven chapters to cover the context for entering a trade, before even getting into Fibonacci techniques. Why? As is often said, Fibonacci techniques work sometimes, and sometimes they don't. Context according to the author, is a major determinant in making Fibonacci techniques successful. After laying the groundwork, and discussing Fibonacci techniques, Joe DiNapoli details methods and approaches few have thought about much less published. Now I know what's been missing in the other Fibonacci books I've read!
The Most Powerful Indicator - Fibonacci
Of all the trading tools I have ever used by far my favorite tool for analysis is Fibonacci studies. This is such a large and complex study that I shall not even pretend to be an expert in this area. Instead I would like to demonstrate how I apply a limited knowledge of the subject to my trading.
Fibonacci Studies
There are four Fibonacci Studies used to analyze chart patterns: Arcs, Fans, Retracements, and Time Zones. The general interpretation of the Fibonacci Studies involves the anticipation of a change in trend as prices near the lines created by the studies.
Projected Fibonacci Targets
Here is a new technique for determining price targets after a breakout from a previous price swing.
Technical Analysis - Fibonacci Levels
Trading With DiNapoli Levels
OVERVIEW:
If you want a quick, general discussion on Fibonacci analysis, this book is not for you. In fact, the author takes seven chapters to cover the context for entering a trade, before even getting into Fibonacci techniques. Why? As is often said, Fibonacci techniques work sometimes, and sometimes they don't. Context according to the author, is a major determinant in making Fibonacci techniques successful. After laying the groundwork, and discussing Fibonacci techniques, Joe DiNapoli details methods and approaches few have thought about much less published. Now I know what's been missing in the other Fibonacci books I've read!
Book summary by chapter.
INTRODUCTION - SECTION 1
CHAPTER 1:
TRADING METHODS, JUDGMENTAL VS NON-JUDGMENTAL, POSITION VS INTRADAY.
The author begins the book with a refreshing dose of reality. "Although it would be nice if you could live where you want, trade when you want, . and turn a modest amount of money into a mountain pure financial muscle," reality can be a little different. Joe warns that even with access to the best approach available, there is more to it than most of us are led to believe. This honesty is welcome in that we can more clearly understand, and therefore meet, the demands of trading. It is apparent from the first chapter that this book promises to be a practical, real life guide, rather than just another pointer to that elusive pot of gold at the end of a shimmering rainbow.
Joe discusses the aspects of judgmental and nonjudgmental trading, as well as position and day trading, to help you determine the type of investor/trader you inherently are. The value of this is apparent after reading more of the book. Knowing yourself and where you belong is, according to the author, one of the big keys to success.
CHAPTER 2: PREREQUISITES, GROUND RULES AND DEFINITIONS.
Determining trend, direction, movement, and failure, understanding leading indicators, lagging indicators, logical profit objectives, time frame, confirmed and unconfirmed signals, your trading plan, and how to tell whether you are trading well, are the subjects of this chapter. A clear understanding of these aspects is the foundation, which will allow you to apply the lessons in the rest of the book. Don't be tempted to skip this section. Something as basic as the definition of "trading well" will not have the same meaning to an accomplished trader as it does to the reader. My first thought was that if I'm making a profit, I'm trading well. Not so! As the author says, "If you don't trade well, you are lost" and he explains why. By this time I realize it is important to carefully consider what Joe is telling me in this book. No assumptions - it's time to be attentive to fully benefit from the gems provided here.
CHAPTER 3: The essential components of a successful trading approach.
Joe introduces the outline of the basic components of a sound trading methodology here, including Market Entry Techniques, Exit Techniques, and Leading Indicators. You might already know that most trading indicators are based on some type of moving average (or averages), smoothed in some way. This makes them lagging indicators. Think about it. Joe shows the reader how to anticipate, not react, and how to close a trade (sell) when most of the "crowd" is buying. If this doesn't get your attention, slow down and consider how this affects slippage, your real cost of trading!
CONTEXT. SECTION 3:
CHAPTER 4: Trend analysis, using displaced moving averages (DMA).
Have you noticed that trading with a moving average will cause you to lose a lot of capital due to "whipsaws"? If you try to reduce whipsaws by using a longer (slower) moving average, you reduce profits because you enter your trade later and exit further into the price decline. Displaced Moving Averages help avoid whipsaws, without the disadvantages of using a slower moving average. You're not left to ponder which DMA to use. The author has researched DMA's for 3 years, taught about DMA's for over 11 years and traded with them since the early 80s. Over that time, he has found which DMA's are most successful. Through a series of questions and answers gleaned from his teaching experiences, he anticipates the problems most readers will encounter in understanding the application of DMA's. This knowledge alone is worth the price of the book, as anyone who has been the victim of excessive whipsaws will know.
CHAPTER 5
TREND ANALYSIS, USING THE MACD/STOCHASTIC COMBINATION.
Wow! Take notes during this chapter! The author has obviously paid his dues, having been involved in software development for 15 years, and been the victim of improperly programmed "standard indicators" like the common Stochastic. "Will the right Stochastic please stand up!" Joe says. Then he discusses subtleties, like the data sample upon which your indicators are calculated. He even warns you to check on how bars are developed on our charts! Joe is unbelievably candid, and readers should heed his warning. The author is freely critical of software "upgrades" and trading software developed by unmanaged programmers, instead of traders! To quote the book "I'd like to establish an industry-wide standard - when programmers do something (on an upgrade) and don't tell you about it, that they lose a toenail." We can benefit from the author's hard-learned lessons, especially because they are presented humorously and with the perspective of substantial experience.
Twenty-five years of trading have taught Joe to use a specific combination of the Stochastic and MACD indicators to determine market trend. This unique approach is detailed in the book. This combination not only indicates when we have a solid trend, it also displays the trading action of our opponents in the market. To quote the book: "I've always bought when I get a Stochastic buy signal, how can I now sell?" The answer is: "If you are going to be among the 5% to 10% of winners, you will have to be open to applying methods and procedures which are different from those of the masses". Beware - this is a summary. It is not as simple as that. You need to read the book before you attempt to apply this powerful strategy.
CHAPTER 6 DIRECTIONAL INDICATORS. 9 POWER PATTERNS FOR HIGH PROBABILITY TRADING SIGNALS.
This chapter is really one of the most valuable in the book, even if you never use the Fibonacci techniques covered later. Some authors come up with 9 "hot new" patterns a week. This author has been at it 25 years and has narrowed it down to the 9 most successful patterns. I studied two of the patterns and found that I could make consistently profitable trades with only that information. Not every time, no guarantee of untold riches without risk, but the "Double RePo" is as close as I've seen. The other pattern which I found easy to use is the "Bread and Butter Signal", so named because it occurs frequently and although it does not produce guaranteed huge profits, it can put bread and butter on the table if applied correctly and consistently. All of these patterns are completely disclosed, with many chart examples. The explanations also disclose when the pattern has failed, in order to reduce risk.
CHAPTER 7 OVERBOUGHT AND OVERSOLD INDICATORS. WHAT WORKS, WHAT DOESN'T AND WHY.
The author could launch directly into what he has found most beneficial but, as is his practice throughout the book, he spends considerable time discussing the common pitfalls and shortcomings of indicators the public typically uses. Only after that aspect is covered does he explain how oscillators are useful, even in trending markets (contrary to popular belief). Also, since Joe likes high-probability trading, you will learn how to use his oscillators to filter out bad trades, and determine stop-loss placement. "Loss of opportunity is preferable to loss of capital!" is his concept outlined throughout the book.
Overbought and oversold indicators can also help determine logical profit objectives, thereby increasing the number of profitable trades. How often have you seen your profits waste away because you did not take a profit at the right time? Joe closes the chapter by introducing his own indicator, the Oscillator Predictor, a derivative of the Detrended Oscillator. This indicator enables you to determine optimum entry and exit points before you enter a trade.
SECTION 3 DINAPOLI LEVELS.
CHAPTER 8 BASIC FIBONACCI ANALYSIS, RETRACEMENT AND OBJECTIVE ANALYSIS.
This is the section I have been waiting for. With characteristic humor, that may disturb some of the mathematical purists among you, the author discusses and simplifies the application of Fibonacci analysis to the markets. It turns out that Fibonacci ratios are excellent at predicting crowd behavior, as well as other interesting and even strange applications. The author shows us the basics of calculating probable future turning points of markets. After reading a few more chapters, I pull out some charts of a few indexes, blue chips, mutual funds, and - HEY - this Fib stuff really works! Not all the time, but often. Now I'm convinced, there's something to this. Read on, you'll see what I mean.
CHAPTER 9 DINAPOLI LEVELS INTRODUCTION
This chapter defines terms and underlines cautions. It's more of the no-nonsense, practical approach, stressing the importance of building a proper foundation.
I have read many books on the numerous ways of applying Fibonacci techniques. This chapter erases all the complicated methods, focusing instead on what Joe DiNapoli has proven to work.
Even so, this is not a high-level scratch-the-surface chapter. Don't read this chapter late at night while you are falling asleep, The author is explaining the underlying rules for a solid trading methodology that is to follow. The best of these rules are unique to the author's methods. No other book has them. Joe includes many charts and examples to help you understand how to exactly determine future levels of support and resistance.
CHAPTER 10 DINAPOLI LEVELS
MULTIPLE FOCUS NUMBERS AND MARKET SWINGS.
We are fully launched into advanced Fibonacci techniques here, a bit taxing on the old brain, so slow down and take it carefully. This is powerful stuff! I like the "less is more" part at the end of the chapter, where we learn how to reduce the clutter and focus on the most important turning points. Are you tired of having your stops hit, only to see the market turn around and go where you though it would after you have exited the trade? Do you feel like the "insiders, market-makers, locals and specialists" are "gunning" for your stops. Read this book! There are solid methods revealed to help avoid these problems.
CHAPTER 11 TRADING WITH DINAPOLI LEVELS.
This is where the prior chapters really start to pay off. With the assistance of Hyper Hank, Conservative Carl, and Diligent Dan - humorous, but vitally important characters -the author leads us through some actual trades. We explore different trading styles and experience how these techniques can be applied appropriately. We see how a trader's psychology can "torpedo" his knowledge and his ability to realize profit.
A valuable software tool call FibNodes is introduced, though it is not necessary for the application of these techniques. This chapter is where we really begin to understand the difference between DiNapoli Levels and the generic Fibonacci techniques as taught in trading text-books. This is especially apparent in the section on hidden D-Levels. This is a real eye-opener!
CHAPTER 12 TYING IT ALL TOGETHER.
"Okay, you've studied context, you know whether you want to be long or short. You've studied D-Levels so you know how and where to enter (sort of), and you have a pretty good idea of how to go about taking a Logical Profit Objective. It's time to get a trade on." Joe leads us through a trade, step by step, bar by bar, minute to minute, looking at it from different perspectives. Throughout the book, Joe injects his emotions and his perspective. This not only helps the reader to remain focused, but also gives comfort that you are learning from someone who is a master of the game. There is more to it than picking mathematical turning points. The way these techniques are presented will help you build a "feel" for the market.
CHAPTER 13 FIBONACCI TACTICS, PROTECT YOURSELF AND STILL CATCH THE BIG ONE.
The author explains entry placement techniques more deeply, with a continuing emphasis on trading conservatively. The techniques have numerous chart examples, with defined entry and stop placement rules to reduce or limit your risk. These are advanced concepts, worth the time they take to understand. Don't try skipping to this section. You will be lost without the foundation covered earlier. Hyper Hank and the other characters continue to educate us and maintain our attention. Joe really works at making what could be a dry and taxing topic, easy and almost fun to follow. You can tell he has been teaching for some years. To quote the book "Which technique is best? What should I use? That's up to the psychological make-up of each individual trader." Although it is scrupulously organized, it is not a "9 steps to eternal wealth" book. Instead, it caters to many types of traders. You pick the techniques that best suit your trading style.
CHAPTERS 13 THROUGH 15
AVOIDING A TYPICAL MISTAKE. MORE MARKET EXAMPLES.
Did you know that advanced Fibonacci techniques work in real estate markets? You will see how in this chapter, but that's not all. The author takes us step by step, through market action, exposing us to more of the chart as we move forward. In each case, we are able to build on the techniques we have learned, so we can later apply them to our own real-time charts. Since the basics have been covered, Joe is able to get into the "nuance" of a trade, and explore trade psychology and market mechanics more completely. It is interesting to get a peek into the brain of this trader.
APPENDIX AND REFERENCE SECTION
Finally there is a comprehensive set of appendices, detailed equations, and software setups for the most popular charting programs available. The author doesn't leave you to solve the implementation of his techniques on you own, he helps you get there!
In the reference section you'll find contact material for a wide variety of market traders and analysts whom Joe feels have something to offer you.
At $162 this is not an inexpensive book, but after studying it I've concluded it would be a lot more expensive to be without it! Trading with DiNapoli Levels is the most valuable book in my collection so far.
What you will learn in this book:
Effective techniques to determine trend direction and when the trend is likely to reverse.
Effective stop placement techniques to avoid being stopped out of a winning trade.
How to:
Enter a trade with the highest probability of profit.
Predict probable market support, resistance, and turning points with profitable accuracy.
Determine the points of least risk and highest probability of success for entering or closing a trade.
Recognize "good markets" and "bad markets".
Improve your overall result by closing a trade at predetermined Logical Profit Objectives.
Close a trade at the best time, when others are clamoring to get into the market.
You'll also learn:
Why your software could be giving you false signals.
Indicators to monitor how your opponents in the market are positioning themselves.
Powerful predictive patterns which the author has proven profitable over 25 years.
Trading with DiNapoli Levels is written to cater to the perspectives of all trading styles, whether you are a long-term mutual-fund investor, a daily or weekly position speculator, or an intraday tick-by-tick scalper.
Forex trade set-ups
This used to be part of my blog - Forex trading journals. I found that it's easier to organize all the live trade set-ups in web pages instead of blog. At least it's easier to read all the charts in one place and post all the follow ups after the initial set-ups.
Most of the setups are found by MTPredictor and using Fibonacci patterns.
Forex trading strategies
Currency Trading Made Easy
Aden Rusfeldt is a full-time currency trader and he developed a course called, appropriately, "Currency Trading Made Easy". Because he practices what he preaches, he says on his web page, "You'll never be able to reach me for the first few hours after the New York open" ;-)
There are actually more than a few video examples sprinkled throughout Aden's "Currency Trading Made Easy" website, so you get a very good feel for his trading method.
According to Aden, here's what you get with his course.
** I teach only five simple technical indicators. All five are taught extensively in the DVD's and member's area. Only two are required to line up for you to have a high percentage winning trade, but the more you have, the more rock solid your trade becomes.
** Unlimited email support for 12 months
** Daily analysis and tips of what happened in the market
** Unlimited free charts and demo accounts
** Learn how to make a minimum of 20 pips/ticks a day
** I teach you how to recognize false buy/sell signals
While it looks like to me that Aden's course is easy to understand, if you're new to currency trading, be aware that like anything else, you'll need to work at it. Aden says, "The whole course is laid out in plain english, no sugar coating and no beating around the bush. I like to teach with clarity, getting to it and making it simple for you. If you are new to currency trading you may need to go through the course 2 or 3 times but it is well worth it."
Sign up for his FREE 5 day mini-course.
Profitable Trend Forex System
Are you fed up with all trading gurus telling you that you need to predict future price behavior to survive in the market ....
It's a lie ... the greatest myth that they want you to believe ....
Fact is, you don't need to predict anything. To succeed, you simply need to identify the current trend and jump into that trend with perfect timing.
Just recently, a professional trader debunked all the myths and revealed an easy-to-use and consistently profitable system that helps you do exactly those two things.
Check out his unique system and see how simple trading can be.
Guide to Profitable Forex Day Trading
The CI System in "Guide to Profitable Forex Day Trading" has consistently averaged around 85% winners year after year. It was written by Rob Moubray and Ken Marshall who are full time forex traders. Their ebook has received favorable reviews on forex forums and on an independent forex trading service review website.
Day Trade Forex System
If you desire to learn the skill of online currency trading, then DayTradeForex.com has what you are looking for. They offer 3 comprehensive online currency trading courses complete with specific trading systems and strategies to profit in the world's largest market: the Foreign Exchange (Forex).
1. The Day Trade Forex System: The Ultimate Step-By-Step Guide To Online Currency Trading
2. The Day Trade Forex System: Advanced Trading Course
3. The Euro Fractal Trading System : How To Maximize Forex Profits Trading EUR/USD Fractal Breakouts
Want to know about the three forex trading systems?
Elliott Wave Analysis
Elliott Wave Short-Term Commentary
The Bear Earth 2/6/2007 5:38:37 PM " At a dinner recently, I told friends I didn't have all the information I needed to decide whether global warming is caused by humans. They inched away from me, glaring as if I had blasphemed. The issue is emotional and political, and feelings cloud perception. Read on...Read More A Bearish Bipolar Order 2/2/2007 4:09:37 PM " Human nature causes most people to see bear markets as 'negative' and bull markets as 'positive.' In this brief excerpt from his book, Prechter's Perspective, Bob explains how a bear market can bring out the best in people.~Read More
EURUSD: The Goof 1/30/2007 12:01:55 PM " I goofed. I should never trade early on Monday mornings -- at least not until the weekend fog wears off and I am able to think clearly. Here's what happened. At around 8:30 AM yesterday (Jan. 29), I opened my forex trading account to see what the markets had done over the weekend... Read on.~Read More Cotton, Corn and Feeder Cattle: Watch This Video 2/6/2007 4:44:24 PM " You know that at Elliott Wave International, we use a lot of pictures and charts. So, to introduce our first-ever video version of Futures Focus, we thought it would be appropriate to show, not tell. In this special video issue, EWI's Chief Commodities Analyst Jeffrey Kennedy shows you several charts from his latest Weekly Wrap-Up and tells you about important trends he sees in commodities markets.Read More
A Yen For A Weak Yen 1/31/2007 9:26:48 AM " In any case, the fact DOES remain that over the last year, the land of the rising sun has officially become the land of the rising stocks: Japan's Nikkei 225 Stock Index quickly soared from a multi-month, to a nine-month, to a six-and-a-half year high as of January 30, 2007, on top of enjoying the longest economic expansion since World War II. As for why -- well, that depends on who you ask AND when you ask it...~Read More So You Wanna Learn Wave Analysis? Part IV 2/5/2007 1:11:29 PM " When you combine Elliot's rules for counting waves with Fibonacci-related price targets, you gain effective tools for establishing a methodical investment strategy and limiting risk exposure. You get a rule set for deciding when to enter or exit a position, or terminate a strategy. The Wave Principle lets you identify the highest probability direction for the market, and craft an optimum position to take advantage of it while guarding yourself against the less probable outcomes. That is a significant edge, and if you want to win in markets, you need an edge. Read more...Read More
The Independent Investor eBook is now available, FREE! This 75-page eBook will stand conventional investment notions on their collective head, and explain market behaviors that have always been considered "inexplicable" using hard facts and generous price charts. CLICK HERE.
Elliott Wave Long-Term Commentary
Download the Independent Investor eBook, FREE!
This 75-page eBook will stand conventional investment notions on their collective head, and explain market behaviors that have always been considered "inexplicable" using hard facts and generous price charts.
EWI Crash Course Video Series
Time and again, we see that what financial news writers call causes, really aren't causes at all. Steer clear of this misguided forecasting. Take part in the Elliott Wave Crash Course to learn the Why, What and How of the Elliott Wave Principle.
FREE clip of How to Trade Choppy, Sideways Markets
Discover how to turn a potentially aggravating trading "nightmare" into a trading opportunity by learning the common misconceptions about choppy, sideways markets through real-time trading scenarios and so much more.
Can You Feel the Social Mood Changing?
As overt signs of negative social mood become stronger, the cheery outlook on stocks remains at a record high. You must truly understand the herding impulse common to every human being to understand today's financial markets what's to come.
Free Report: How to Use Bar Patterns to Spot Trade Setups
How to Use Bar Patterns to Spot Trade Setups is a free report that answers the following questions: What is a bar pattern? How can it help me identify trade setups? Includes 13 instructional charts and simple explanations.
Fundamental Analysis
Concept
A fundamental trading strategy consists of strategic assessments in which a certain currency is traded based on virtually any criteria excluding the price action. These criteria include, but are not limited to, the economic conditions in the country that the currency represents, monetary policy, and other elements that are fundamental to economies. Most fundamental analysts look at various macroeconomic indicators such as economic growth rates, interest rates, inflation, and unemployment. Several theories prevail as to how currencies should be valued.
However, the focus of fundamental analysis lies on the economic, social and political forces that drive supply and demand. Currency prices are a reflection of the balance between supply and demand for currencies. Interest rates and the overall strength of the economy are the two primary factors that affect supply and demand. Economic indicators (for example, GDP, foreign investment and the trade balance) reflect the overall health of an economy. Therefore, they are responsible for the underlying changes in supply and demand for that currency.
Alone, fundamental analysis can be stressful when dealing with commodities, currencies and other "margined" products. The reason for this is that often fundamental analysis does not provide specific entry and exit points, and therefore it can be difficult for risk to be controlled when utilizing leverage techniques.
A tremendous amount of data is released at regular intervals, and some of this data is significant. Data that is related to interest rates and international trade is analyzed very closely.
Interest Rates
If there is uncertainty in the market in terms of interest rates, then any developments regarding interest rates can have a direct affect on the currency markets. Generally, when a country raises its interest rates, the country's currency will strengthen in relation to other currencies as assets are shifted to gain a higher return. Interest rates hikes, however, are usually not good news for stock markets. This is due to the fact that many investors will withdraw money from a country's stock market when there is a hike of interest rates, causing the country's currency to weaken. Knowing which effect prevails can be tricky, but usually there is an agreement among the field as to what the interest rate move will do. The timing of interest rate moves is usually known in advance. It is generally known that these moves take place after regular meetings of the BOE, FED, ECB, BOJ, and other central banks. PPI, CPI, and GDP have also proven to be indicators with signifcant impact.
International Trade
The trade balance portrays the net difference (over a period of time) between the imports and exports of a nation. When imports become more than exports, the trade balance shows a deficit (this is --for the most part-- considered unfavorable). For example, if Euros are sold for other domestic national currencies, such as US Dollars, to pay for imports, the value of the currency will depreciate due to the flow of dollars outside the country. On the other hand, if trade figures show an increase in exports, money will flow into the country and increase the value of the currency. In some ways, however, a deficit in and of itself is not necessarily a bad thing. A deficit is only negative if the deficit is greater than market expectations and therefore will trigger a negative price movement.
Forex trading articles
Introduction to Fibonacci trading techniques
High-probability trading
Taking profits
Investors - What Separates the Good Traders from the Bad Traders
Losses, not Profits, will Stop You from Trading in the Market
How to save a lot of money and increase your trading capital
How to dramatically reduce your trading costs
Following someone else's trades most often leads to failure
Fear of capital loss is the greatest cause of failure
How to get rich starting with only $5,000
How to consistently make good trades
Backtesting and paper trading are valuable tools (and abused concepts)
Forex Basics
Foreign Exchange
Foreign exchange trading is the simultaneous buying of one currency and selling of another. The foreign exchange market (Forex or FX) is the largest financial market in the world with a daily turnover of over $1.9 trillion. Examples of currency trading pairs are Euro/US Dollar (EUR/USD) and US Dollar/Japanese Yen (USD/JPY). Most currency transactions involve the "Majors"-the US Dollar, Euro, Japanese Yen, British Pound, Swiss Franc, Canadian Dollar and Australian Dollar.
Unlike other financial markets, the foreign exchange market has no physical location and no central exchange. The Forex market operates 24 hours a day through an electronic network of banks, corporations and individual traders. Forex trading begins every day in Sydney, then moves to Tokyo, followed by London and then New York. The major market makers, or dealers, consist of the commercial and investment banks, the exchange traded futures, and registered futures commission merchants.
Foreign Exchange Prices
Foreign exchange markets and prices are mainly influenced by international trade flows and investment flows. The FX markets are also influenced, but to a lesser extent, by the same factors that influence the equity and bond markets: economic and political conditions especially interest rates, inflation, and political instability. Those factors usually have only a short-term impact, which makes Forex attractive-it offers the investor some of the diversification necessary to protect against adverse movements in the equity and bond markets.
Foreign Exchange prices, or quotes, include a "Bid" and "Ask" similar to other financial products:
Bid: Price at which Dealer is willing to Buy and Traders can Sell Currency
Ask: Price at which Dealer will Sell and Traders can Buy Currency
The difference between the Bid and Ask is called the "Spread", which is the Trader's cost of the transaction.
Currencies are usually quoted to four decimal places, such as the Euro/US Dollar trading at 1.2400/1.2403, with the last decimal place referred to as a point or "pip". A pip for most currencies is 0.0001 of an exchange rate; the one exception is the USD/JPY quote in which each pip is equal to 0.01.
Analysis of Foreign Exchange Markets
Foreign exchange traders base their decisions on technical analysis and fundamental analysis.
Technical traders use charts, trend lines, support and resistance levels, mathematical models and other means to identify opportunities and drive trading decisions.
Fundamental traders identify trading opportunities by analyzing economic information.
Forex glossary
Account
A record of transactions of goods and services owed to one person by another.
Agent
An intermediary or person hired to carry out transactions on behalf of another person.
Aggregate Demand
Total demand in an economy, consisting of government spending, private/consumer and business investment.
All or None
Refers to requests for a broker to fill an order completely at a predetermined price or not at all. Refers to both buy and sell orders.
American Option
An option that can be exercised anytime during its life. The majority of exchange-traded options are American.
Anonymous trading
Visible bids and offers on the market without the identity of the bidder and seller being revealed. Anonymous trades allow the high profile investors to execute transactions without the scrutiny and speculation of the market.
Appreciation
An increase in the value of a currency in response to market demand.
Arbitrage
When a price differential arises, creating an opportunity to profit through buying and selling. Arbitrage is a "riskless" opportunity to profit, as there is no uncertainty involved. In regards to the foreign exchange market, arbitrage arises when a profit can be made through differentials in exchange rates. Arbitrage opportunities in the foreign exchange market are rare.
Asian Option
An option whose payoff depends on the average price of the underlying asset over a certain period of time. These type of option contracts are attractive because they tend to cost less than regular American options
Ask Rate
The lowest price that shares will be offered for sale, such as the bid/ask spread in the foreign exchange market.
Ask Size
The number of shares a seller is willing to sell at his/her ask rate.
Asset Allocation
The diversification of one's assets into different sectors, such as real estate, stocks, bonds, and forex, to optimize growth potential and minimize risk.
Asset Swap
An interest rate swap used to alter the cash flow characteristics of an institution's assets in order to provide a better match with its liabilities.
Attorney in Fact
A person given the right or authority to act on behalf of another to carryout business transactions and implement documents.
Authorized Dealer
A financial institution or bank authorized to deal in foreign exchange.
Automatic Exercise
A procedure implemented to protect an option holder where the Option Clearing Corporation will automatically exercise an "in the money" option for the holder.
Away From the Market
When the bid on an order is lower (or the ask price is higher) than the current market price for the security.
Back Testing
The process of designing a trading strategy based on historical data. It is then applied to fresh data to see if and how well the strategy works. Most technical analysis is tested with this approach
Balance/Account Balance
The net value of an account.
Balance of Payments
A record of all transactions made by one particular country with others during a certain time period. It compares the amount of economic transactions between a country and all other countries. This includes trade balance, foreign investments, and investments by foreigners.
Balance of Trade
Net flow of goods (exports minus its imports) between two countries.
Bank for International Settlements
The BIS is an international organization fostering the cooperation of central banks and international financial institutions. Essentially, the BIS, located in Basel, Switzerland, is a central bank for central banks. It monitors and collects data on international banking activity and promulgates rules concerning international bank regulation.
Back Office
Refers to the administrative arm of financial service companies, who carry out and confirm financial transactions. Duties include, accounting, settlements, clearances, regulatory compliance and record maintenance.
Balance of Payments
Record of all transactions, such as trade balances and capital flows, carried out by a county with the rest of the world within a certain period.
Base Currency
In general terms, the base currency is the currency in which an investor or issuer maintains its book of accounts. In the FX markets, the US Dollar is normally considered the 'base' currency for quotes, meaning that quotes are expressed as a unit of $1 USD per the other currency quoted in the pair. The primary exceptions to this rule are the British Pound, the Euro and the Australian Dollar.
Basis
The difference between the cash price and the futures price.
Basis Point
Measure of a bond's yield equal to 1/100th. A 1% change in yield is equal to 100 basis points and 0.01% is equal to one basis point.
Bear
nvestor acting on the belief that prices or the market will decline.
Bear Market
Any market that exhibits a declining trend. In the long run they have a down turn of 20% or more.
Bid
The price an investor is willing to pay for an asset.
Bid/Ask Spread
The difference between the bid and the ask price.
Big Figure
Refers to the first number to the left of the decimal point in an exchange rate quote, which changes so infrequently that dealers often omit them in quotes.
Bonds
Bonds are debt instruments used to raise capital, which are issued for periods greater than one year. Bondholders are loaning money (investing in debt) to companies and governments, at the end of which they will be paid a specified interest rate. Bond prices are inversely related to interest rates, as interest rates rise, bond prices fall. There are numerous types of bonds, including treasury bonds, notes, and bills; municipal bonds and corporate bonds.
Book
Recording of the total positions held by a trader or desk.
Bretton Woods Accord (1944)
This accord established a fixed exchange rate regime, whose aim was to provide stability in the world economy after the Great Depression and the WWII. This accord fixed the exchange rates of major currencies to the US dollar and set the price of gold to $35. The accord required central bank intervention to maintain the fixed exchange rates. The US Central Bank was required to exchange dollars for gold, which eventually let to the demise of this system, when the demand for the dollar declined, as well as the gold reserves, forcing Nixon to stop the exchange of dollars for gold, effectively ending the system in 1971.
Broker
Individual or firm acting as an intermediary to bring together buyers and sellers typically for a commission or fee.
Bull
Investor who expects markets or prices to rise.
Bull Market
A market where prices are rising or are expected to rise.
Bundesbank
Germany's Central Bank.
Buy a bounce
A recommendation to instigate a long trade if the price bounces from a certain level.
Buy break
A recommendation to buy the currency pair if it breaks the current level specified.
Buy stops above
A recommendation to enter the market when the exchange rate breaks through a specific level. The client placing a stop entry order believes that when the market's momentum breaks through a specified level, the rate will continue in that direction.
Cable
Term used to describe the exchange rate between the US dollar and the British Pound.
Candlestick Chart
Chart depicting the daily high, low, opening and closing price, similar to that of a bar chart. If the close is lower than the open than the body of the candlestick is filled in, and if the open is lower than the close the body is left empty.
Capital Markets
Markets in which capital (stocks, bonds, etc.) are traded. Usually for medium or long term investing.
Carry Trade
An investment position of buying a higher yielding currency with the capital of a lower yielding currency to gain an interest rate differential.
Central Bank
A banking organization, usually independent of government, responsible for implementing a country's monetary policy and for printing money.
Chartist
Refers to a technical analyst or one who analyses charts/graphs and data to uncover potential trends.
Clearing
Refers to the settlements/confirmations of trades.
Close a Position (Position Squaring)
Refers to getting rid of a position, either by buying back a short position or selling a long position.
Commission
A fee charged by broker or agent for carrying out transactions/orders.
Confirmation
A written document verifying the completion of a trade/transaction to include such things as date, fees or commissions, settlement terms and the price.
Contagion
Term used to describe the spread of economic crises from one country's market to other countries within close geographic proximity. This term was first used following the Asian Financial Crisis in 1997, which began in Thailand and soon spread to other East Asian economies. It now is used to refer to the recent crisis in Argentina and its effects on other Latin American countries.
Contract (unit or lot)
The standard trading unit on certain exchanges. A standard lot in the forex market is $100,000.
Convertible Currency
Currencies that can be exchanged for other currencies or gold.
Cost of Carry
When an investor borrows money to sustain a position. There is a cost for borrowing derived from the interest parity condition, which is used to determine the forward price.
Counterparty
A participant, either a person or an institution, involved in one side of a financial transaction. With such transaction there is an associated risk (counterparty risk) involved that the counterparty will not be able to meet the terms outlined in the contract. This risk is usually default risk.
Country Risk
The risk that a government might default on its financial commitments/contracts, which typically causes harms to other areas of the financial sector, as well as those in other countries.
Cover on a bounce
A recommendation to exit trades on a bounce out of a support level.
Cover on approach
A recommendation to exit trades for profit on approach to a support level.
Credit Checking
Before making a large financial transaction, it imperative to check whether the counterparty has enough available credit to carryout/honor the transaction. Credit checking refers to the process of verifying that counterparty has enough credit. The check is initiated after the price has been determined.
Credit Netting
Agreements that are made to avoid having to continually recheck credit, usually established between large banks and trading institutions.
Cross Rate
Refers to the exchange rate between two countries' currencies. Cross rates usually refer to pairs quoted that do not include the domestic currency. For example, in the US, the EUR/JPY rate would be called a cross rate.
Currency
Notes and coins issued by the central bank or government, serving as legal tender for trade.
Currency (Exchange Rate) Risk
Risk associated with drastic changes/fluctuations in exchange rates in which one could incur a major loss.
Day Trading
Refers to the process of entering and closing out trades within the same day or trading session.
Dealer
One who places the order to buy or sell. A dealer differs from an agent in that it takes ownership of the asset, and thereby is exposed to some risk.
Deficit
An excess of liabilities over assets, of losses over profits, or of expenditure over income.
Delivery
Term used to describe the exchange by both parties (buyer and seller) of the traded currency.
Deposit
Refers to the process of borrowing and lending money. The deposit rate is the rate at which money can be borrowed or lent.
Depreciation
The decline in the value of an asset or currency.
Derivative
A security derived from another and whose value is dependent the underlying security from which it is derived. Examples of derivatives are future contracts, forward contracts and options. Underlying securities can include stocks, bonds or currencies. Derivatives can be traded and are usually used to hedge portfolio risk.
Devaluation
When the value of a currency is lowered against the other, i.e. it takes more units of the domestic currency to purchase a foreign currency. This differs from depreciation in that depreciation occurs through changes in demand in the foreign exchange market, whereas devaluation typically arises from government policy. A currency is usually devalued to improve the balance of trade, as exports become cheaper for the rest of the world and imports more expensive to domestic consumers.
Dirty Float (Managed Float)
An exchange rate system in which the currency is not pegged, but is "managed" by the central bank to prevent extreme fluctuations in the exchange rate. The exchange rate is managed through changes in the interest rate to attract/detract capital flows or through the buying and selling of the currency. This system is contrasted with a Pure Float in which there is no central bank intervention and the exchange rate is entirely determined by the market and speculation.
Economic Indicator
An economic statistic used to indicate the overall health of an economy, such as GDP, unemployment rates, and trade balances. Used in fundamental analysis of foreign exchange markets to speculate against the direction of an exchange rate.
Efficient Markets
Markets where assets are traded in which the price is indicative of all current and relevant information and thus it is impossible to have undervalued assets.
End of the Day (Mark to Market)
Accounting measure, referring to the way traders record their positions. There are two ways that a trader can record his positions: the accrual system in which only cash flows are recorded and the mark to market method, in which the value of an asset is recorded at the end of each trading day at the closing rate or value.
Estimated Annual Income
The expected yearly earnings.
Euro
The new monetary unit of the European Monetary Union used by twelve countries in the European Union. It is now the legal tender of those countries as of January 2002. Those countries include Germany, France, Belgium, The Netherlands, Luxembourg, Spain, Portugal, Italy, Austria, Ireland, Finland and Greece.
European Central Bank
The central bank of the EMU, responsible for the monetary policy of all member countries.
European Monetary Union
An institution of the EU, whose primary goal is to establish a single currency (the euro) for the entire EU.
Economic Exposure
When the cash flow of a country is vulnerable to changes in the exchange rate.
Federal Deposit Insurance Corporation
A regulatory agency of the US created to oversee that bank deposits are insured against bank failures. It was created in 1933 to restore confidence in the banking system. It insures up to US $100,000 per banking institution.
Federal Reserve/Fed
The central bank of the United States, responsible for monetary policy.
Fixed Exchange Rate
When the exchange rate of a currency is not allowed to fluctuate against another, i.e. the exchange rate remains constant. Typically, under fixed exchange rate regimes, currencies are allowed to fluctuate within a small margin. Fixed exchange rate regimes require central bank intervention to maintain the fixed rate.
Fixed Interest Rate
An interest rate used for loans, mortgages and bonds that remain at the same rate throughout the period.
Flat/Square
To either have no positions or positions that cancel each other out.
Floating Rate Interest
An interest rate that is allowed to adjust with the market. The opposite of a fixed interest rate.
Foreign Exchange (Forex)
The buying and selling of currencies.
Foreign Currency Effect
Refers to how changes in the exchange rate affect the return on foreign investment.
Forward Contract
A deal in which the price for the future delivery of a commodity is set in advance of the delivery. The Forward rate is obtained by adding the margin to the spot rate. It is used to hedge against adverse fluctuations in the exchange rate that can affect amount of profit or loss at that future date.
Forward Points
Refers to the pips that were added to or subtracted from the current exchange rate to obtain the forward price/rate.
Future Rate Agreements (FRAs)
FRAs are agreements that are made that allow for borrowing and lending at a constant interest rate for a specified period in the future.
Front Office
Refers to the sales personnel (trading and other business personnel) in a financial company.
Fundamental Analysis
The analysis of economic indicators and political and current events that could effect the future direction of financial markets.
Futures (Financial Futures)
Future contracts that commit both sides to an exchange/transaction of financial instruments, currencies or commodities at a future date and a predetermined price. Future contracts are similar to forward contacts, but future contracts can be traded in the futures markets. Can be used to hedge or speculate against the value of the asset at the expiry date.
GTC (Good-till-Cancelled)
Refers to an order given by an investor to a dealer to buy or sell a security at a fixed price that is considered "good" until the investor cancels it.
Hedge/Hedging
Strategy to reduce the risk of adverse price movements on one's portfolio and to protect against the volatility of the market. Hedging typically involves selling the good forward or taking a position in a related security. Hedging becomes more prevalent with increased uncertainty about current market conditions.
High/Low
Refers to the daily traded high and low price.
Inflation
Refers to the increase in prices (price level) and wages over time that decrease purchasing power. It is calculated from changes in the price index, usually a consumer price index or a GDP deflator.
Initial Margin
The percentage of the price of a security that is required for the initial deposit to enter into a position. The Federal Reserve Board requires a minimum of 50% initial margin. For futures contracts, the market determines the initial margin.
Interbank Rate
The rate at which the major banks (Deutsche, Citibank, Bank of Tokyo) trade in foreign exchange.
Interest Parity
Theory that says that the difference in interest rates across countries should be equal to the difference between the forward and spot rate.
Interest-Rate Swaps
The process of changing the form of debts held by banks or companies, in which they trade debts/loans fixed rates for floating rates (or vice versa) in another country.
Interest-Rate Swap Points
The interest rate can be determined through the difference in the bid and offer price of an exchange rate. If y
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