Relative Strength Index (RSI) is used to quantify the strength of the entire set of ascending movements in opposition to all descending movements within a given period of time. The following is the Relative Strength Index equation:
RSI = 100 - [100/(1+RS)]
RS is the ratio between the average gain of day n and the average loss of day n.
Period fourteen is the most frequently used RSI value, but traders may choose any time period according to their preference. RSI figures among the most widely used oscillators which can be successfully employed in range bound markets.
The scope of RSI is from zero to one hundred. Let us say that in the above equation, RS equals one. This signifies that the average gain of day n is the same as the average loss of day n, hence giving us an RSI of fifty. The ascending force of the market is thus the same as its descending force. When RSI is higher than fifty, the ascending force is more powerful. Conversely, when RSI is below fifty, the descending force outweighs the ascending force.
RSI is employed to detect whether a market is overbought or oversold. The market is viewed as being overbought when RSI is higher than seventy and, consequently, a signal to sell is emitted. When RSI is below the value of thirty, this tells us that the market is oversold and we are given a signal to buy.
We also use the Relative Strength Index to recognize divergence. When the price is close to the level of support/resistance and RSI starts diverging and not going in the same direction, this tells us that there might be a lessening of a trend’s power. Divergence may point towards a reduction in the force of the trend or that a reversal is imminent.
Sunday, October 25, 2009
Knowing When to Stop Trading
The worst thing a trader can do is lose control while on a winning streak. This is where trading in the foreign currency market is similar to gambling. Players who do not know when to stop end up losing everything. This is what we call overtrading. It represents the biggest threat to traders and accounts for the number one source of losing money in markets.
Despite this fact, a large majority of traders continue to overtrade. This applies even to those who buy and sell within the same trading day, i.e. day traders. It is completely unnecessary to trade every single say or even throughout a given day. However, good traders know how to choose only the most advantageous trades and thus avoid unnecessary losses. Indeed, highly professional traders are distinguished by their ability to know when not to trade.
Overtrading is particularly tricky because it is hard to tell when it is taking place. It may refer to the amount of contracts being traded, the frequency, number of positions or even just spending too much time following market trends.
Experienced traders will reduce the size as soon as they suffer losses or an equity drawdown. The amount of investment for a given entry must be determined with regard to a sensible anticipation of its possible return. There is no one-size-fits-all solution and, since every trade is unique, it must be assessed individually.
It is generally difficult to say with absolute certainty which is the optimal number of contracts you should trade. Nevertheless, every time that it is possible, you should endeavor to trade not less than two contracts. The idea is to have one contact which will serve to compensate for expenses and one more to provide you with earnings. It is usually not desirable to trade only one contract, unless you are trading options.
Day traders who would usually trade five contracts should consider trading less if it is late in the evening, the reason being that there is not sufficient time for the trade to evolve as there would be if it had been performed in the morning.
Despite this fact, a large majority of traders continue to overtrade. This applies even to those who buy and sell within the same trading day, i.e. day traders. It is completely unnecessary to trade every single say or even throughout a given day. However, good traders know how to choose only the most advantageous trades and thus avoid unnecessary losses. Indeed, highly professional traders are distinguished by their ability to know when not to trade.
Overtrading is particularly tricky because it is hard to tell when it is taking place. It may refer to the amount of contracts being traded, the frequency, number of positions or even just spending too much time following market trends.
Experienced traders will reduce the size as soon as they suffer losses or an equity drawdown. The amount of investment for a given entry must be determined with regard to a sensible anticipation of its possible return. There is no one-size-fits-all solution and, since every trade is unique, it must be assessed individually.
It is generally difficult to say with absolute certainty which is the optimal number of contracts you should trade. Nevertheless, every time that it is possible, you should endeavor to trade not less than two contracts. The idea is to have one contact which will serve to compensate for expenses and one more to provide you with earnings. It is usually not desirable to trade only one contract, unless you are trading options.
Day traders who would usually trade five contracts should consider trading less if it is late in the evening, the reason being that there is not sufficient time for the trade to evolve as there would be if it had been performed in the morning.
Assessing Risk and Reward in Forex Trading
The question of measuring risk and reward in the forex market is a very complex one. It is very difficult to find the correct response due to the inconstancy of market conditions. In this sense, risk and reward in forex trading is similar to the weather, which means that there are no laws, only approximations.
The most common advice concerning risk and reward tells us to apply a ratio not less than 2:1. This means that we should look at the number of pips we are attempting to get and divide it by two. The result is the amount we will risk. Namely, assuming that we are looking for a profit of 200, our stop will be 100.
At first, this seems to work like a charm, given that we must only be right four times out of ten in order to gain profit. Yet, it is very hard to find somebody who has really applied this successfully in the long term. And while theoreticians, who have never risked anything or had their main income depend on forex trading, will be quick to suggest this method, it is virtually impossible to find someone that uses this two to one method to guarantee their main source of income.
This can be chiefly explained by the fact that those that do not earn a living by trading cannot see that the forex market grants no rewards, it solely implies risk. Markets are highly mutable and seldom do they fulfill your hopes and expectations. Let us say that we wager 50 points and our goal is to obtain 100. In the beginning, the floating profit and loss will increase up to +99 and everything would be fine. Now, we pursue this method and stand by for our goal to be achieved in order to take on one more profitable deal. However, the market unexpectedly halts and goes backwards. A highly profitable trade then just reverses and plunges through our stop. While it seems that we suffer the loss of only 50 points, in reality we are deprived of 149 points, since we have lost our 50 and the 99 we failed to secure. This is, unfortunately, how the harsh reality of forex trading works.
What it boils down to is the fact that we can never predict rewards in forex trading. Rather, the best we can hope for is to regulate risk.
The most common advice concerning risk and reward tells us to apply a ratio not less than 2:1. This means that we should look at the number of pips we are attempting to get and divide it by two. The result is the amount we will risk. Namely, assuming that we are looking for a profit of 200, our stop will be 100.
At first, this seems to work like a charm, given that we must only be right four times out of ten in order to gain profit. Yet, it is very hard to find somebody who has really applied this successfully in the long term. And while theoreticians, who have never risked anything or had their main income depend on forex trading, will be quick to suggest this method, it is virtually impossible to find someone that uses this two to one method to guarantee their main source of income.
This can be chiefly explained by the fact that those that do not earn a living by trading cannot see that the forex market grants no rewards, it solely implies risk. Markets are highly mutable and seldom do they fulfill your hopes and expectations. Let us say that we wager 50 points and our goal is to obtain 100. In the beginning, the floating profit and loss will increase up to +99 and everything would be fine. Now, we pursue this method and stand by for our goal to be achieved in order to take on one more profitable deal. However, the market unexpectedly halts and goes backwards. A highly profitable trade then just reverses and plunges through our stop. While it seems that we suffer the loss of only 50 points, in reality we are deprived of 149 points, since we have lost our 50 and the 99 we failed to secure. This is, unfortunately, how the harsh reality of forex trading works.
What it boils down to is the fact that we can never predict rewards in forex trading. Rather, the best we can hope for is to regulate risk.
Understanding Stop Losses
A proper understanding of stop loss in Forex trading is essential if you want be a winning trader. Good traders will not hesitate to accept defeat and acknowledge that they made a mistake. It is impossible to be right every single time and the sooner you accept this, the sooner you will start minimizing your losses.
Namely, imagine that a trader purchases a stock for the price of 30 dollars, expecting it to rise to 34 dollars, only to see it go down abruptly. Deciding when to sell and when to acknowledge that a mistake has been made is of crucial importance. If the trader sells the stock as soon as its price falls below 29 dollars, the resulting loss would be small. Moreover, minor losses mean that there will still be money to trade on the following day.
Determining the risk and reward ratio prior to assuming a position is obligatory. If we take the above-mentioned case, had the prediction turned out to be right, the trader would have won four points. A wrong prediction would have implied losing one point. This means that the risk and reward ratio in this specific case is four to one.
Now, let us assume that the trader was right in two out of four trades, i.e. fifty percent. That means that the trader won eight points (two times four points) and lost two points (two times one point). This gives us an overall profit of six points and the trader only guessed fifty percent of the trades. Even if the trader was so bad that they were only right in twenty-five percent of the trades, there would still be a profit of one point.
Traders should always maintain a four to one risk and reward ratio. You should never go for a two to one ratio. A two to one ratio means that most likely there is no telling what direction the market will take. Most frequently the market moves sideways and a great number of traders squander their money instead of just refraining from trading.
You can easily check this out for yourself by simulating trades on paper in these market circumstances. The results will show you that you made the right choice not to put your money on those trades. The most important thing to remember is that choosing not to trade and being right is also a way of winning. Being undisciplined with regard to this fact will ultimately result in loss of money.
Namely, imagine that a trader purchases a stock for the price of 30 dollars, expecting it to rise to 34 dollars, only to see it go down abruptly. Deciding when to sell and when to acknowledge that a mistake has been made is of crucial importance. If the trader sells the stock as soon as its price falls below 29 dollars, the resulting loss would be small. Moreover, minor losses mean that there will still be money to trade on the following day.
Determining the risk and reward ratio prior to assuming a position is obligatory. If we take the above-mentioned case, had the prediction turned out to be right, the trader would have won four points. A wrong prediction would have implied losing one point. This means that the risk and reward ratio in this specific case is four to one.
Now, let us assume that the trader was right in two out of four trades, i.e. fifty percent. That means that the trader won eight points (two times four points) and lost two points (two times one point). This gives us an overall profit of six points and the trader only guessed fifty percent of the trades. Even if the trader was so bad that they were only right in twenty-five percent of the trades, there would still be a profit of one point.
Traders should always maintain a four to one risk and reward ratio. You should never go for a two to one ratio. A two to one ratio means that most likely there is no telling what direction the market will take. Most frequently the market moves sideways and a great number of traders squander their money instead of just refraining from trading.
You can easily check this out for yourself by simulating trades on paper in these market circumstances. The results will show you that you made the right choice not to put your money on those trades. The most important thing to remember is that choosing not to trade and being right is also a way of winning. Being undisciplined with regard to this fact will ultimately result in loss of money.
Understanding the Meanings of Overbought and Oversold
The terms "overbought" and "oversold" are commonly used by analysts when talking about the condition of the market. These terms appear to be complex but they can be simple to understand. They are very important to comprehend when analyzing market movements for trading signals. Overbought and oversold are used in an analysis of leading indicators, or oscillators, that describe the areas of market movement in certain quantities. In addition, these indicators help determine the timing of when certain trading signals can be entered and exited. The areas of market movement are either above or below the center line and are dynamic rather than fixed. The Relative Strength Index (RSI) is an example of a technical indicator that was introduced by Welles Wilder. RSI compares the degree of gains to losses and indicates the strength of security or index accordingly. Figures ranging from 0 to 100 are used to represent this information and Welles originally recommended 70 as the value for overbought and 30 for oversold. The calculated figures are subjective, but they aim to indicate the levels of entry and exit points for trading. Depending on the condition of the market, some traders will use an 80 and 40 split while others may use a 60 and 20 split. These splits indicate the extremes that a market can reach. If the market is experiencing an uptrend, it can be overbought for a while where as if the market is experiencing a downtrend, it can be oversold for a while.These market extremes can also help determine if there is a likelihood of a reversal. If indicator goes up to the overbought area while the market is in a downtrend, a reversal can take place. On the other hand, if the market is in an uptrend and the indicator goes to oversold, a reversal is just as likely.RSI is among several other indicators that provide such maximum and minimum values. Another indicator is the Stochastic, which also aims to quantify market changes and ultimately helps to verify trading signals. While the indicators may be similar, they can be different when it comes to entry and exit points due to the methods of calculation that take place.Once the overbought and oversold terms are understood, they can be used effectively and profitably. These terms can be used when talking about the entire market or certain aspects of it. For the most accurate results, it is recommended that a few indicators be used to determine whether the market is overbought or oversold
Determining Forex Trading Strategy
Before we get into determining strategies for forex trading, let's make sure we understand the core of Forex Trading. The forex market is a dynamic market place where foreign currencies are traded actively. This is normally done using brokers as the via media. Huge amounts of money is made or lost through these forex trades.
The retails traders are often unprepared of the road that lies ahead of them in the forex market and this article will help you avert heavy losses that may have occurred by diving straight in the trading of forex helping you in saving your hard earned money and assisting you in becoming a money-making forex trader.
These trades are done by:
Businesses because their dealings are global and involve trading in goods and services that need to be paid for, or for consideration received in foreign currency, and by
Speculative traders who thrive in the glorious uncertainties of the forex market and operate with the sole objective of gaining from these forex trading activities
The strategy for trading would accordingly depend on whether you are a businessman or a speculator. It is necessary to have a strategy simply because not having one is a sure shot strategy for failure. And that is not something acceptable to either the business man or the Speculator - one does not want to lose money on the forex market and the other wants to make money on the forex market. Again, whatever may be the objective, one thing is for certain - only the well informed actor achieves his objective.
Corporate or a Business House
Business Houses are exposed to the risks of the forex market because of their exposure to foreign currency dealing arising out of the contracts executed. Normally these houses shy away from taking risks in the forex market, reason being forex trading is merely incidental to their core business and not their core business. They do not like forex market risks to affect their carefully planned strategies for success in their business.
In such cases forex strategies revolve around how to ensure that their businesses are protected from the adversities of the forex market. They tend to be risk-averse in the sense that they do want the forex market risks to add to their bucket of risks that are associated with their business. What then, determines forex market strategies for such business houses?
They like to hedge their exposure to forex market risks: they would like to remove entirely (if possible) or at least significantly reduce their risks related to forex market exposure.
Some business houses tend to protect themselves when a risk is foreseen and the more forward thinking ones tend to make it a way of life to manage exposure to risks. They make policies to prevent individuals from taking calls based on their assessments. They tend to continuously evaluate risks involved and hedge accordingly using tools offered in the forex market and make sure that their businesses are rendered sustainable.
While entering into forward contracts would seem to be the favorite option for these business houses (with the objective of preventing losses to the business), some of them would prefer the currency options mode which also allows you to benefit from favorable market situations. The latter of course needs smart treasury managers who understand nuances of forex trades well and take the right steps at the right time to make money using the market situation.
Business houses like to work on logical or rational decision making processes - the why determines what and how of the actions they take. They focus on their core business and only focus on forex trading to the limited objective of staving off risks to their core business.
Speculator
A Speculator is an investor. An opportunist. Combine these two in the field of Forex market and you will see an Operator who wants to make money using the volatility or the swings in the forex market to make money out of money.
Even the Speculator does not like to lose money, even as he would admit that the forex market trade exposes him to the risks of losing money. Such players in the forex market tend to win with their professional approach to the "game" and their personal attitude.
What would they do?
Professional approach:
They study the forex trades well and they use their knowledge to take a view on the market
They tend to use statistical tools / technical analysis of the forex market like charts and trends to corroborate the views that they take
Pick up sentiments ruling in the market
They tend to pinpoint advanced support and resistance levels to support the kind of positions they take in the market
They tend to fix clear price objectives for profitable trades and try to take an objective view on market's topping or bottoming.
They tend to fix clearly the “stop loss” and “make profit and exit” targets and adhere to them
Personal Traits:
They avoid being reckless. Being disciplined is half the battle won.
They have sound logic for taking positions in the market
They avoid being greedy - they set clear stop loss and take profit and exit targets and adhere to them.
They limit their risks by putting a cap on their losses.
They apply logic to their decision making process and this minimizes the risk of losing money
They trust their intuition - beyond all logic, there is always the “intuition” factor that a seasoned trader has.
The retails traders are often unprepared of the road that lies ahead of them in the forex market and this article will help you avert heavy losses that may have occurred by diving straight in the trading of forex helping you in saving your hard earned money and assisting you in becoming a money-making forex trader.
These trades are done by:
Businesses because their dealings are global and involve trading in goods and services that need to be paid for, or for consideration received in foreign currency, and by
Speculative traders who thrive in the glorious uncertainties of the forex market and operate with the sole objective of gaining from these forex trading activities
The strategy for trading would accordingly depend on whether you are a businessman or a speculator. It is necessary to have a strategy simply because not having one is a sure shot strategy for failure. And that is not something acceptable to either the business man or the Speculator - one does not want to lose money on the forex market and the other wants to make money on the forex market. Again, whatever may be the objective, one thing is for certain - only the well informed actor achieves his objective.
Corporate or a Business House
Business Houses are exposed to the risks of the forex market because of their exposure to foreign currency dealing arising out of the contracts executed. Normally these houses shy away from taking risks in the forex market, reason being forex trading is merely incidental to their core business and not their core business. They do not like forex market risks to affect their carefully planned strategies for success in their business.
In such cases forex strategies revolve around how to ensure that their businesses are protected from the adversities of the forex market. They tend to be risk-averse in the sense that they do want the forex market risks to add to their bucket of risks that are associated with their business. What then, determines forex market strategies for such business houses?
They like to hedge their exposure to forex market risks: they would like to remove entirely (if possible) or at least significantly reduce their risks related to forex market exposure.
Some business houses tend to protect themselves when a risk is foreseen and the more forward thinking ones tend to make it a way of life to manage exposure to risks. They make policies to prevent individuals from taking calls based on their assessments. They tend to continuously evaluate risks involved and hedge accordingly using tools offered in the forex market and make sure that their businesses are rendered sustainable.
While entering into forward contracts would seem to be the favorite option for these business houses (with the objective of preventing losses to the business), some of them would prefer the currency options mode which also allows you to benefit from favorable market situations. The latter of course needs smart treasury managers who understand nuances of forex trades well and take the right steps at the right time to make money using the market situation.
Business houses like to work on logical or rational decision making processes - the why determines what and how of the actions they take. They focus on their core business and only focus on forex trading to the limited objective of staving off risks to their core business.
Speculator
A Speculator is an investor. An opportunist. Combine these two in the field of Forex market and you will see an Operator who wants to make money using the volatility or the swings in the forex market to make money out of money.
Even the Speculator does not like to lose money, even as he would admit that the forex market trade exposes him to the risks of losing money. Such players in the forex market tend to win with their professional approach to the "game" and their personal attitude.
What would they do?
Professional approach:
They study the forex trades well and they use their knowledge to take a view on the market
They tend to use statistical tools / technical analysis of the forex market like charts and trends to corroborate the views that they take
Pick up sentiments ruling in the market
They tend to pinpoint advanced support and resistance levels to support the kind of positions they take in the market
They tend to fix clear price objectives for profitable trades and try to take an objective view on market's topping or bottoming.
They tend to fix clearly the “stop loss” and “make profit and exit” targets and adhere to them
Personal Traits:
They avoid being reckless. Being disciplined is half the battle won.
They have sound logic for taking positions in the market
They avoid being greedy - they set clear stop loss and take profit and exit targets and adhere to them.
They limit their risks by putting a cap on their losses.
They apply logic to their decision making process and this minimizes the risk of losing money
They trust their intuition - beyond all logic, there is always the “intuition” factor that a seasoned trader has.
Methods of Forecasting the Behavior of the Forex
Businesses which are involved in global trading need to be in a position to predict forex market behavior. This is essential for them when concluding deals / arranging for payments to protect themselves from the possible adverse outcomes of forex market behavior or gain from the situation. Being a complex exercise, guess work is not a tool at all and one has to use a scientific basis to predict forex market behavior.
This article on the forecast of behavior of the Forex Market will educate you on two methods of analysis. Though, both of them (Technical and Fundamental analysis) have vast difference between their approaches, their goal is the same. They are very effective in predicting the rise, movement or price of the forex market behavior and/or trends. To get the best outcome, fundamentalists suggest combining both of them for better results.
Primarily, there are 2 methods of predicting forex market behavior / trends:
Technical Analysis
Fundamental Analysis
There is no judgment possible on which of the above 2 methods is more reliable. They vary in their approaches and use different parameters to predict the price or a price movement. In essence, we can say that while a Technical analyst will focus on what will be the outcome i.e. the price or the movement expected, a Fundamental Analyst will lay emphasis on the "Why" of the price or the movement expected. A Technical Analyst would believe that over and above the fundamental analysis, certain other factors need to be taken into account before coming to a conclusion. A judicious mix of the two approaches is what is really sound as it is important to know the cause and also the effect i.e. the price or the movement expected taking into account all factors affecting it.
Let's try and understand how these two approaches work:
Technical Analysis:
The method focuses on understanding the prevailing market trends and tries to pinpoint any reversal of this trend and predict how the forex market is likely to behave in the future. It is more statistical in nature in the sense that this method relies heavily on historical data on prices and volumes traded and using charts to understand and interpret the behavior. Many tools are available for making such analysis like Indicators, Number Theory, Waves, Gaps, and Trends etc.
A technical analyst prefers not to waste his time on finding out how the market ought to have behaved and why it did not - he would look at only what has happened and what is the take-out from that behavior. This method believes that the historical movements of the prices do tell a story that needs to be understood.
This method also believes that such study of price movements is more useful when we are talking about a situation where price movements are caused by free market situation i.e. where demand and supply situation determine the rate and not where exchange rates are fixed artificially. (Malaysian Ringgit ( MR) was once pegged to the United Stated Dollar (USD) by the Malaysian Government at 3.76 MR to a USD). On top of all this, this method tries to understand the "market sentiment" or the emotional reaction of the market as opposed to the sentiments of the individual participants in the market.
In essence, Technical Analysis is underscored by three basic assumptions:
That the market discounts everything: that is to say all the happenings in the economy - let's say global economy - be they political events, statements by economic gurus , security situation, crop failures or the collapse of a bank - everything affects the forex market and has affected the prices prevailing in the market.
Prices move in trends: which means that there is a pattern always to the price movements which need to be studied and that they do tell us something about the existing trends and allow us to make a prediction.
History repeats itself: that is, mass thinking does not change dramatically over periods of time and the "wave" of mass psychological thinking moves in a familiar pattern. Only, the same needs to be understood and applied in practice.
Fundamental Analysis:
As the name suggests, this method of analysis focuses on the "fundamental" factors that are known to affect / ought to be affecting forex market rates. This method therefore is a bit traditional in approach and is typically theoretical in nature. For instance, typically, a Fundamental Analyst when asked to predict the forex market rates, would look at existing and expected interest rates, GDP growth rates, inflationary trends, weather changes affecting agricultural output, international trade balances, exchange rate policies of the countries involved , capital market status etc. before saying "I believe given these indicators, the forex market ought to be behaving this way" and would conclude whether a currency is likely to appreciate or depreciate vis- a- vis the other one. Not surprisingly, when the market rate determined is at variance with the prediction, a fundamental analyst looks flummoxed.
This kind of analysis fails to take into account that there is also something called market sentiment - simply because such a factor is not "fundamental" to the analysis because it is not predictable and not driven by rationale.
Conclusion:
Having understood both the approaches, we can only say that both methods have their own merits and demerits.
However, smart forex market operators prefer to use a good mix of these 2 methods, apply their own judgment and take calls on how the market is likely to behave and take actions as deemed fit for their business.
This article on the forecast of behavior of the Forex Market will educate you on two methods of analysis. Though, both of them (Technical and Fundamental analysis) have vast difference between their approaches, their goal is the same. They are very effective in predicting the rise, movement or price of the forex market behavior and/or trends. To get the best outcome, fundamentalists suggest combining both of them for better results.
Primarily, there are 2 methods of predicting forex market behavior / trends:
Technical Analysis
Fundamental Analysis
There is no judgment possible on which of the above 2 methods is more reliable. They vary in their approaches and use different parameters to predict the price or a price movement. In essence, we can say that while a Technical analyst will focus on what will be the outcome i.e. the price or the movement expected, a Fundamental Analyst will lay emphasis on the "Why" of the price or the movement expected. A Technical Analyst would believe that over and above the fundamental analysis, certain other factors need to be taken into account before coming to a conclusion. A judicious mix of the two approaches is what is really sound as it is important to know the cause and also the effect i.e. the price or the movement expected taking into account all factors affecting it.
Let's try and understand how these two approaches work:
Technical Analysis:
The method focuses on understanding the prevailing market trends and tries to pinpoint any reversal of this trend and predict how the forex market is likely to behave in the future. It is more statistical in nature in the sense that this method relies heavily on historical data on prices and volumes traded and using charts to understand and interpret the behavior. Many tools are available for making such analysis like Indicators, Number Theory, Waves, Gaps, and Trends etc.
A technical analyst prefers not to waste his time on finding out how the market ought to have behaved and why it did not - he would look at only what has happened and what is the take-out from that behavior. This method believes that the historical movements of the prices do tell a story that needs to be understood.
This method also believes that such study of price movements is more useful when we are talking about a situation where price movements are caused by free market situation i.e. where demand and supply situation determine the rate and not where exchange rates are fixed artificially. (Malaysian Ringgit ( MR) was once pegged to the United Stated Dollar (USD) by the Malaysian Government at 3.76 MR to a USD). On top of all this, this method tries to understand the "market sentiment" or the emotional reaction of the market as opposed to the sentiments of the individual participants in the market.
In essence, Technical Analysis is underscored by three basic assumptions:
That the market discounts everything: that is to say all the happenings in the economy - let's say global economy - be they political events, statements by economic gurus , security situation, crop failures or the collapse of a bank - everything affects the forex market and has affected the prices prevailing in the market.
Prices move in trends: which means that there is a pattern always to the price movements which need to be studied and that they do tell us something about the existing trends and allow us to make a prediction.
History repeats itself: that is, mass thinking does not change dramatically over periods of time and the "wave" of mass psychological thinking moves in a familiar pattern. Only, the same needs to be understood and applied in practice.
Fundamental Analysis:
As the name suggests, this method of analysis focuses on the "fundamental" factors that are known to affect / ought to be affecting forex market rates. This method therefore is a bit traditional in approach and is typically theoretical in nature. For instance, typically, a Fundamental Analyst when asked to predict the forex market rates, would look at existing and expected interest rates, GDP growth rates, inflationary trends, weather changes affecting agricultural output, international trade balances, exchange rate policies of the countries involved , capital market status etc. before saying "I believe given these indicators, the forex market ought to be behaving this way" and would conclude whether a currency is likely to appreciate or depreciate vis- a- vis the other one. Not surprisingly, when the market rate determined is at variance with the prediction, a fundamental analyst looks flummoxed.
This kind of analysis fails to take into account that there is also something called market sentiment - simply because such a factor is not "fundamental" to the analysis because it is not predictable and not driven by rationale.
Conclusion:
Having understood both the approaches, we can only say that both methods have their own merits and demerits.
However, smart forex market operators prefer to use a good mix of these 2 methods, apply their own judgment and take calls on how the market is likely to behave and take actions as deemed fit for their business.
Anything called the Best strategy for trading?
Ever been able to listen to anything when there is a lot of noise? Ever been able to think clearly when there is a rock band playing? Ever been able to speak or be heard over a din? Or been able to concentrate on something when a football ground or a rugby ground explodes into a thunderous shout of approval or disapproval? The Market too makes a lot of noise everyday. A noise that disturbs the thought process of a diligent investor, who wants to take a long term view of market trends, analyze, ponder and take his next step.However, for the short term investor the noise is what matters. The intra day trader makes his money by listening to the noise. Noise does make money for such investors. The noise reflects the volatility in the market resulting from the news of a government decision, of a policy announcement, of a decision by the Board of Directors of a company etc. even before full sense can be made of it.This is the time when short-term investors or intra-day traders act on what they believe they are hearing and what they believe they are seeing. More often than not, they are wrong. But why worry if it helps them make some money in the short term? They are many players in the market who want to make hay while the sun shines and cannot be called investors in the true sense.The Value Based Investor is wary of noise factors. He in fact ignores it. He is not taken in by sudden emotions or sentiments of the market. It's the fundamentals of a company and its future prospects that matter to him. What matters is the long term perspective of what the company can become, the kind of niche segment it will occupy or the kind of market share it has the potential to command. Market noise is of least significance to the value-based investor. He knows that empty vessels make the most noise.Such a Value Based Investor would rather believe in charts that show the trends. Carry out research and look at fundamentals and the industry; the company's management and the credibility that its Board members and promoters carry; their belief system and compliance with governance norms; their vision and the belief in their dreams – in short, the intrinsic value of the company that went beyond any market noise.So, there is nothing like the best strategy. It finally depends on who you are and what you have set out to achieve. The market is big enough to accommodate all kinds of investors.It's up to you now to make your own choice. Intelligently. Make money though
Tread the untrodden path to make more money
They say if you walk the same path as others do, you reach the same destination. People succeed enormously by doing things differently and not by doing different things that others do. To make money on trading, one can have many strategies. From the safe strategy to the street smart strategy. From a long term strategy to the short term one. From a "sheep strategy" (follow the shepherd) to the "rebel strategy" (take a different view, backed by intelligence).The rebel strategist is an investor who dares to think different, quite often out of the box. He does his fundamental research. He also does the technical analysis. He goes beyond and follows his intuition. He trusts his intuition in doing something that the market is not doing. He sees the half glass full when others see the half that is empty. He sees it white when others look at the basic colors. He smells an opportunity when others predict doom.The power of contrarian thinking comes from the daring to be called "stupid" by others who cannot see the brilliance of the thinking. Or the rationale behind it. Simply because the contrarian thinker does not follow the "trend". He would like to be the Columbus who discovered America. Not follow the traditional routes. The contrarian thinker is not an idiot. Simply put, he has a perspective that is actually, "uncommon sense".The "market sentiments" may predict that a particular sector is doing badly or expected to do badly. Or, that a particular sector is doing good or expected to do well. Share prices of all companies in that sector simply suffer / benefit from that perspective. Investors normally look for "tips" to invest or disinvest that ride on these perspectives. Not the Contrarian investor.The Contrarian thinks differently. He is able to see the prince when others see the frog. At bad times, people tend to believe the bad news more than the good. Not the contrarian. He looks for opportunities that get buried by these perspectives. Intrinsically good companies whose market prices get depressed way beyond their true worth, weighed down by the market perspective. The contrarian looks for such "dust covered" stocks, picks them up and just waits for a time when the dust will surely fly off and the stocks start shining again. He then is able to sell these off at a huge margin. Similarly, the contrarian is also able to take a "sell position" much before others start seeing the trend of falling prices and makes money by bucking the trend.Basically, the contrarian refuses to flow with the tide. He is able to get a 35,000 feet view when others still trying to raise their heads above the crowd. He is smart enough to profit from incorrect assumptions made by regular investors about the intrinsic value of companies or the long term prospects.Welcome to the world of Uncommon Sense. To be a contrarian in a world of conformists. AND, to benefit from it. Be a Warren Buffet. It's in the thinking.
How to choose the best broker?
There are a number of important factors to be considered as you decide on the forex broker best suited to your expectations. Assuming that you’re a beginner, you do not possess a background in trading or similar risky activities, and every single concession that you can get from the broker is an advantage increasing your chances in trading, and improving your profitability. Since it is highly likely that the initial period of your career will involve setbacks and problems (after all, did you learn swimming in your first attempt?), you must make the necessary arrangements to minimize your risk, and one of the best ways of doing so is choosing the right broker. There are a couple of things which can help you with the selection process, and we’ll mention a couple of them here.
Minimum deposit and leverage ratios
These are some of the most important aspects of a forex account for a beginner. A beginning trader will probably suffer losses, and the smaller the minimum deposit requirement, the smaller the losses will be. Due to the vast size and depth of the forex market, there is absolutely no reason to begin your trading with any amount. You can begin with $10, you can begin with $1000, the market will be able to absorb both sizes in the blink of an eye. And in addition, as you move from $10 to $1000 in your account, there is no difference in the way the market will treat you. Your orders are not noticeable, and your experience will be the same. As a result, it is always a good idea to begin with very small sums, and, naturally, with low leverage, and once you establish your success, you can add more funds to your account as well. Clearly, you should make sure that you choose a broker whose minimum deposit requirements are low and comfortable for a beginner.
Time in Operation
This is related to the safety of the broker. If the firm has been in operation for a long time, it is likely to be safer, because it has been scrutinized and regulated by authorities during its lifetime, and was found to be a legitimate broker. Prolonged existence is of course not an error-free guarantee against fraud and cheating, but it is an additional safety mechanism in addition to the other aspects.
Beginner Support
Finally, some firms are exceptionally friendly to beginners and offer many resources to help the assist in the learning process. Some of them go so far as to provide you a personal assistant just for opening an account. Since this kind of generosity can only be beneficial, a novice trader is always invited to seek brokers which offer such facilities.
To conclude, selection of a good broker is an important step in a trader’s careers, and it should be approached with diligence and responsibility. An incompetent broker may quickly eliminate all chance of success for you, so make sure that you devote enough energy to finding one which is real, honest, and efficient.
The career of a novice forex trader begins at forextraders.com. For all things related to online forex trading, the best online commentary, and analysis is to be found at forextraders.com where traders and experts come together to make sense of the chaotic events of a trading day. Whether to find the best forex brokers, or to discover the most efficient strategies, forextraders.com is the gateway to success and riches in a trading career.
Minimum deposit and leverage ratios
These are some of the most important aspects of a forex account for a beginner. A beginning trader will probably suffer losses, and the smaller the minimum deposit requirement, the smaller the losses will be. Due to the vast size and depth of the forex market, there is absolutely no reason to begin your trading with any amount. You can begin with $10, you can begin with $1000, the market will be able to absorb both sizes in the blink of an eye. And in addition, as you move from $10 to $1000 in your account, there is no difference in the way the market will treat you. Your orders are not noticeable, and your experience will be the same. As a result, it is always a good idea to begin with very small sums, and, naturally, with low leverage, and once you establish your success, you can add more funds to your account as well. Clearly, you should make sure that you choose a broker whose minimum deposit requirements are low and comfortable for a beginner.
Time in Operation
This is related to the safety of the broker. If the firm has been in operation for a long time, it is likely to be safer, because it has been scrutinized and regulated by authorities during its lifetime, and was found to be a legitimate broker. Prolonged existence is of course not an error-free guarantee against fraud and cheating, but it is an additional safety mechanism in addition to the other aspects.
Beginner Support
Finally, some firms are exceptionally friendly to beginners and offer many resources to help the assist in the learning process. Some of them go so far as to provide you a personal assistant just for opening an account. Since this kind of generosity can only be beneficial, a novice trader is always invited to seek brokers which offer such facilities.
To conclude, selection of a good broker is an important step in a trader’s careers, and it should be approached with diligence and responsibility. An incompetent broker may quickly eliminate all chance of success for you, so make sure that you devote enough energy to finding one which is real, honest, and efficient.
The career of a novice forex trader begins at forextraders.com. For all things related to online forex trading, the best online commentary, and analysis is to be found at forextraders.com where traders and experts come together to make sense of the chaotic events of a trading day. Whether to find the best forex brokers, or to discover the most efficient strategies, forextraders.com is the gateway to success and riches in a trading career.
Thursday, October 15, 2009
The need For forex Robot for Beginners
FOREX IS VERY TECHNICAL SO BEGINNERS NEED TO USE FOREX ROBOT AND SOFTWARES TO TRADE FOR THEM
Tuesday, October 13, 2009
Foreign Exchange Markets: What You Need To Know
The foreign exchange markets are situated all around the world. Currency trading is a global activity. Every country in the world uses money and needs to change that money into other currencies in order to trade or interact with other nations.
Currency exchange happens at every level of society. As an individual, you may have changed money when traveling on business or on vacaation. Or maybe you have sold something on eBay to somebody in another country. Their payment comes in to your account in their own currency, and the bank or other payment processor such as PayPal changes it for you. That is currency exchange at the root level.
Foreign exchange or forex trading has a different purpose, however. When you are trading on the foreign exchange markets you are not buying another currency because you need it. You are buying it in the hope that it will rise in value, so you can change it back and end up with more money than you started out with.
Of course, it is risky. The price movement could go against you and then you would end up with less money instead of more. So you will want to gather plenty of information about currency trading before you start.
Forex trading began in the 1970s when the major currencies were deregulated so that their values were no longer fixed. The banks and large investors quickly saw the potential for making money from the changing prices.
The main forex marketplaces are the big financial centers of the world. London sees the highest activity with New York second and Tokyo third. Other major players are Sydney, Zurich and Frankfurt.
Originally you had to be in one of those places to trade money, or at least have a telephone connection with a broker who was there. It was very difficult for somebody who was not on the spot to act fast enough to react to the sudden fluctuations in price that can happen in the forex markets.
But modern advances in technology have changed all of that. Since the rise of the internet it has been possible to trade on your own account from anywhere. This means that it has become easier and easier for the little guy to get a piece of the action.
While some people never think about foreign currency from one overseas trip to the next, others are studying charts and financial information or even using automated software in the form of forex robots to make money from the rising and falling prices with the aim of becoming financially free by trading on the foreign exchange markets.
Currency exchange happens at every level of society. As an individual, you may have changed money when traveling on business or on vacaation. Or maybe you have sold something on eBay to somebody in another country. Their payment comes in to your account in their own currency, and the bank or other payment processor such as PayPal changes it for you. That is currency exchange at the root level.
Foreign exchange or forex trading has a different purpose, however. When you are trading on the foreign exchange markets you are not buying another currency because you need it. You are buying it in the hope that it will rise in value, so you can change it back and end up with more money than you started out with.
Of course, it is risky. The price movement could go against you and then you would end up with less money instead of more. So you will want to gather plenty of information about currency trading before you start.
Forex trading began in the 1970s when the major currencies were deregulated so that their values were no longer fixed. The banks and large investors quickly saw the potential for making money from the changing prices.
The main forex marketplaces are the big financial centers of the world. London sees the highest activity with New York second and Tokyo third. Other major players are Sydney, Zurich and Frankfurt.
Originally you had to be in one of those places to trade money, or at least have a telephone connection with a broker who was there. It was very difficult for somebody who was not on the spot to act fast enough to react to the sudden fluctuations in price that can happen in the forex markets.
But modern advances in technology have changed all of that. Since the rise of the internet it has been possible to trade on your own account from anywhere. This means that it has become easier and easier for the little guy to get a piece of the action.
While some people never think about foreign currency from one overseas trip to the next, others are studying charts and financial information or even using automated software in the form of forex robots to make money from the rising and falling prices with the aim of becoming financially free by trading on the foreign exchange markets.
Forex Margin Trading: Make More Money With Less
Forex margin trading is a way of applying leverage to increase the purchasing power of your money. Leverage simply means using a small sum to control a much larger sum. This is possible because it is unlikely that the value of a currency will change by more than a certain percentage over a short time. So you can place a few hundred dollars in your brokerage account to trade on the margin - the amount that you think the price will fall. Your broker will in effect lend you the balance.
Trading on margins is also known in stock and futures trading, but because of the special nature of currencies, you can get a lot more leverage in the forex market. Depending on your broker's terms, you may be able to control 50, 100 or even 200 times your account balance.
This can lead to big profits if you are successful, but it can also mean big losses if not. In general, the more leverage you use, the more risky your trading is.
We can understand leverage and margins if we consider an example.
Imagine that the current rate on the British pound to US dollar forex market is shown as GBP/USD 1.7100. So to buy one British pound you would need $1.71. If you expected the value of the dollar to rise against the pound you might decide to sell enough pounds to buy $100,000. If your broker used lots of $10,000 each, this would be 10 lots. Then you would sit back and wait for the price to go up.
A few days later you might find that the price had moved to GBP/USD 1.6600. Sure enough, the dollar has risen and the pound is now worth only $1.66. If you sell your dollars now and buy back into pounds, you will have made a profit of 2.9% less the spread. 2.9% of $100,000 is $2,900, so that would be an excellent trade.
But most of us do not have $100,000 spare cash that we want to trade on the currency exchange market. So here is where the principle of forex margins comes into play.
Since you are buying and selling different currencies at the same time, your own money only has to cover any loss that you might make if the dollar falls instead of rising. And you would put a stop loss into place to limit that loss, so $1,000 might be all you needed to have in your account to make this $100,000 purchase. Your broker guarantees the other $99,000.
In fact many brokers now operate limited risk amounts where the account will automatically close out the trade if whatever funds you have in your account are lost. This prevents margin calls which can be disastrous for a trader because they mean that you can lose more than you have. But with a forex limited risk account that is not a possibility. The broker's software that you use to control your account will not let you lose more than your account balance.
Using leverage in this way is so common in currency trading that you will soon do it without even thinking about it. Still it is important to keep in mind the risks. Lower leverage is always safer and you may never want to go to the maximum forex margin that your broker would allow.
Trading on margins is also known in stock and futures trading, but because of the special nature of currencies, you can get a lot more leverage in the forex market. Depending on your broker's terms, you may be able to control 50, 100 or even 200 times your account balance.
This can lead to big profits if you are successful, but it can also mean big losses if not. In general, the more leverage you use, the more risky your trading is.
We can understand leverage and margins if we consider an example.
Imagine that the current rate on the British pound to US dollar forex market is shown as GBP/USD 1.7100. So to buy one British pound you would need $1.71. If you expected the value of the dollar to rise against the pound you might decide to sell enough pounds to buy $100,000. If your broker used lots of $10,000 each, this would be 10 lots. Then you would sit back and wait for the price to go up.
A few days later you might find that the price had moved to GBP/USD 1.6600. Sure enough, the dollar has risen and the pound is now worth only $1.66. If you sell your dollars now and buy back into pounds, you will have made a profit of 2.9% less the spread. 2.9% of $100,000 is $2,900, so that would be an excellent trade.
But most of us do not have $100,000 spare cash that we want to trade on the currency exchange market. So here is where the principle of forex margins comes into play.
Since you are buying and selling different currencies at the same time, your own money only has to cover any loss that you might make if the dollar falls instead of rising. And you would put a stop loss into place to limit that loss, so $1,000 might be all you needed to have in your account to make this $100,000 purchase. Your broker guarantees the other $99,000.
In fact many brokers now operate limited risk amounts where the account will automatically close out the trade if whatever funds you have in your account are lost. This prevents margin calls which can be disastrous for a trader because they mean that you can lose more than you have. But with a forex limited risk account that is not a possibility. The broker's software that you use to control your account will not let you lose more than your account balance.
Using leverage in this way is so common in currency trading that you will soon do it without even thinking about it. Still it is important to keep in mind the risks. Lower leverage is always safer and you may never want to go to the maximum forex margin that your broker would allow.
How To Be A Foreign Exchange Trader
Being a forex or foreign exchange trader no longer means you have to work for a bank in one of the world's financial centers. These days you can trade on your own behalf, from anywhere.
Since the rise of the internet many people are doing this from their own homes, making money in their spare time or even making a full time income. But what is forex trading and how does it work?
A foreign exchange trader deals in currencies. He or she will sell one currency that seems to be falling in value, to buy another that seems to be rising. There are always two currencies involved in a trade (a currency pair) because when you want to buy dollars you have to have another currency to exchange for them.
In the beginning it is best to be involved with just one currency pair. Most people start out trading in the EUR/USD market, that is the euro against the US dollar. This is the biggest forex market. There is plenty of information available for this market and it tends to have lower costs and be relatively stable.
Nevertheless forex is a very volatile market. This means that the prices can rise and fall steeply and quickly. The risk is high. It is easy to lose money. In fact, some losses are inevitable, so you should manage your account so that you never risk too much on one trade. You can use stop losses so that your broker will automatically sell if the price goes a certain way against you. The aim is not to have no losses, but to make sure that your profits are higher than your losses so that you end up with a net gain.
You will need access to a computer with a high speed internet connection any time that you want to trade. Unless you use a robot to control your currency trading, you will also need time where you can concentrate on learning a profitable system and then on trading itself. You pretty much need to be able to lock yourself away in a room to do this, at least for a couple hours a day. It is no good trying to trade from your desk at your day job with your boss interrupting you, or using a computer in the family den with kids climbing on your knees wanting to play games. You must be fully concentrated on the movements in the market or you could miss the right moment to either open or close a trade.
If you are a cautious person who likes a solid investment with predictable low returns, you should not become a currency trader. Forex traders are people who enjoy risk and love the challenge of trying to turn a profit in a fast moving market.
It helps if you are strongly focused on your goals and not easily swayed by emotion. It is important not to let fears of losses or dreams of huge wealth divert you from your strategy. You also need to stay aware of financial news, not only in your own country but in all of the major world powers, because this will affect the forex markets. With these characteristics and a good trading system in place, a foreign exchange trader can reap substantial gains from his or her investment.
Since the rise of the internet many people are doing this from their own homes, making money in their spare time or even making a full time income. But what is forex trading and how does it work?
A foreign exchange trader deals in currencies. He or she will sell one currency that seems to be falling in value, to buy another that seems to be rising. There are always two currencies involved in a trade (a currency pair) because when you want to buy dollars you have to have another currency to exchange for them.
In the beginning it is best to be involved with just one currency pair. Most people start out trading in the EUR/USD market, that is the euro against the US dollar. This is the biggest forex market. There is plenty of information available for this market and it tends to have lower costs and be relatively stable.
Nevertheless forex is a very volatile market. This means that the prices can rise and fall steeply and quickly. The risk is high. It is easy to lose money. In fact, some losses are inevitable, so you should manage your account so that you never risk too much on one trade. You can use stop losses so that your broker will automatically sell if the price goes a certain way against you. The aim is not to have no losses, but to make sure that your profits are higher than your losses so that you end up with a net gain.
You will need access to a computer with a high speed internet connection any time that you want to trade. Unless you use a robot to control your currency trading, you will also need time where you can concentrate on learning a profitable system and then on trading itself. You pretty much need to be able to lock yourself away in a room to do this, at least for a couple hours a day. It is no good trying to trade from your desk at your day job with your boss interrupting you, or using a computer in the family den with kids climbing on your knees wanting to play games. You must be fully concentrated on the movements in the market or you could miss the right moment to either open or close a trade.
If you are a cautious person who likes a solid investment with predictable low returns, you should not become a currency trader. Forex traders are people who enjoy risk and love the challenge of trying to turn a profit in a fast moving market.
It helps if you are strongly focused on your goals and not easily swayed by emotion. It is important not to let fears of losses or dreams of huge wealth divert you from your strategy. You also need to stay aware of financial news, not only in your own country but in all of the major world powers, because this will affect the forex markets. With these characteristics and a good trading system in place, a foreign exchange trader can reap substantial gains from his or her investment.
Forex Market Hours: Can You Trade Currency 24/7?
The forex market hours stretch from Monday morning in Sydney, Australia to Friday afternoon in New York. During that time the market is open somewhere around the globe at all hours of the day or night.
However it is not a 24/7 market because it does shut down on weekends. 24/5 would be more accurate.
If you need to know the exact times that the markets open and close, you have to take time zones into consideration. It is very simple when expressed in UTC. This is Universal Coordinated Time, formerly known as Greenwich Mean Time. This is the standard (winter) time in Greenwich, London which is the point of zero longitude on the globe.
So, the normal forex market hours are 22.00 Sunday UTC to 22.00 Friday UTC. This is 10 pm in the UK in winter time.
New York is 5 hours behind the UK so the global forex market opens and closes at 5 pm Sunday/Friday in New York, 2 pm on the US west coast, 11 pm in Germany, 8 am Monday/Saturday in Sydney.
Things get a little complicated when you start to try to take summer time daylight saving into account. This makes one hour difference in countries that observe it. But daylight saving operates in a different way in the southern hemisphere countries such as Australia which have summer time from September to March instead of March to September.
The hours of the different major national markets are as follows:
Sydney: 10 pm to 7 am UTCTokyo: 12 midnight to 9 am UTCLondon: 8 am to 5 pm UTC New York: 1 pm to 10 pm UTC
Or we can express that in EST (Eastern US time):
Sydney: 5 pm to 2 am ESTTokyo: 7 pm to 4 am ESTLondon: 3 am to 12 noon ESTNew York: 8 am to 5 pm EST
You can see that these correspond to 24 hour cover.
However, this does not necessarily mean that trading will be good at all of these times. Just after a major market opens, the prices can be very volatile and unpredictable. Many traders will stay out of the forex market for up to an hour four times a day when the financial markets are waking up in these major cities.
The US dollar is the most traded currency by a long way, involved in 2.5 times as many trades as its nearest rival the euro. This means that events in the USA have a greater impact on the financial markets than events in other countries. The New York market tends to slow down around 3 pm local time (8 pm UTC) and if you are involved in a US dollar pair, this can be a good time to stop trading for the day.
So theoretically you can trade 24 hours a day from Sunday night to Friday night. Automated software in the form of a forex robot can even make this physically possible. However, a cautious trader will choose his times and will not be active during all of the forex market hours.
However it is not a 24/7 market because it does shut down on weekends. 24/5 would be more accurate.
If you need to know the exact times that the markets open and close, you have to take time zones into consideration. It is very simple when expressed in UTC. This is Universal Coordinated Time, formerly known as Greenwich Mean Time. This is the standard (winter) time in Greenwich, London which is the point of zero longitude on the globe.
So, the normal forex market hours are 22.00 Sunday UTC to 22.00 Friday UTC. This is 10 pm in the UK in winter time.
New York is 5 hours behind the UK so the global forex market opens and closes at 5 pm Sunday/Friday in New York, 2 pm on the US west coast, 11 pm in Germany, 8 am Monday/Saturday in Sydney.
Things get a little complicated when you start to try to take summer time daylight saving into account. This makes one hour difference in countries that observe it. But daylight saving operates in a different way in the southern hemisphere countries such as Australia which have summer time from September to March instead of March to September.
The hours of the different major national markets are as follows:
Sydney: 10 pm to 7 am UTCTokyo: 12 midnight to 9 am UTCLondon: 8 am to 5 pm UTC New York: 1 pm to 10 pm UTC
Or we can express that in EST (Eastern US time):
Sydney: 5 pm to 2 am ESTTokyo: 7 pm to 4 am ESTLondon: 3 am to 12 noon ESTNew York: 8 am to 5 pm EST
You can see that these correspond to 24 hour cover.
However, this does not necessarily mean that trading will be good at all of these times. Just after a major market opens, the prices can be very volatile and unpredictable. Many traders will stay out of the forex market for up to an hour four times a day when the financial markets are waking up in these major cities.
The US dollar is the most traded currency by a long way, involved in 2.5 times as many trades as its nearest rival the euro. This means that events in the USA have a greater impact on the financial markets than events in other countries. The New York market tends to slow down around 3 pm local time (8 pm UTC) and if you are involved in a US dollar pair, this can be a good time to stop trading for the day.
So theoretically you can trade 24 hours a day from Sunday night to Friday night. Automated software in the form of a forex robot can even make this physically possible. However, a cautious trader will choose his times and will not be active during all of the forex market hours.
Beginner Forex Currency Trading: What Is It All About?
For a beginner forex currency trading may seem to be a whole new world but in fact the basics are quite easy to learn. You just need to understand the buzz words and trading terms and grasp a basic understanding of how the markets work.
Making big money in a short time is what forex currency trading is all about! It is possible for investors to make a lot of money very fast because the rates of exchange on the foreign market can rise and fall quickly. This means of course that it is risky and there is also a chance of losing a lot, just like most things in life that have the potential of big returns.
As you will know if you have ever exchanged currency for a vacation, the rates are constantly changing. For example you may change $100 into another currency planning to travel, and then find that you do not need it and change it back. The rate will probably have changed in the meantime and you may even have made a profit.
Forex traders deal in currencies hoping to make a profit all of the time, but instead of changing money at the bank they use a broker. Most transactions these days are handled online. In many ways it is not so different from stock trading. There is the same potential to trade in margins where a small balance held by your broker can control much larger deals.
One difference from stock exchange trading is that forex traders are not limited to dealing in their own country. You can trade any two currencies regardless of where you live. This also means that the market is international. Because of time zone differences, it is open 24 hours a day from Monday morning in Australia to Friday afternoon in New York.
Each currency is represented by 3 letters: USD for the US dollar, GBP for the British pound, EUR for the Euro, JPY for the Japanese Yen, CHF for the Swiss franc, CAD for the Canadian dollar, AUD for the Australian dollar etc. The exchange rate between two currencies may be expressed like this: USD/CHF 1.14. This means that to buy one US dollar you will need 1.14 Swiss francs.
If you want to start out in forex trading you will need to look for a broker or investment management company that you trust. It is worth shopping around and checking online forums for recommendations. Check out how long the company has been in business and what your rights and liabilities will be. Read all of the fine print.
You will probably also want to use a bot to do your trading for you. This is automated forex trading software that can trade 24 hours a day according to rules that you set for it. There is usually a demo option so that you can test out the whole system for a while before you let it trade with real money. There are many forex robots on the market and most of them come with full instructions for beginner forex currency trading.
Making big money in a short time is what forex currency trading is all about! It is possible for investors to make a lot of money very fast because the rates of exchange on the foreign market can rise and fall quickly. This means of course that it is risky and there is also a chance of losing a lot, just like most things in life that have the potential of big returns.
As you will know if you have ever exchanged currency for a vacation, the rates are constantly changing. For example you may change $100 into another currency planning to travel, and then find that you do not need it and change it back. The rate will probably have changed in the meantime and you may even have made a profit.
Forex traders deal in currencies hoping to make a profit all of the time, but instead of changing money at the bank they use a broker. Most transactions these days are handled online. In many ways it is not so different from stock trading. There is the same potential to trade in margins where a small balance held by your broker can control much larger deals.
One difference from stock exchange trading is that forex traders are not limited to dealing in their own country. You can trade any two currencies regardless of where you live. This also means that the market is international. Because of time zone differences, it is open 24 hours a day from Monday morning in Australia to Friday afternoon in New York.
Each currency is represented by 3 letters: USD for the US dollar, GBP for the British pound, EUR for the Euro, JPY for the Japanese Yen, CHF for the Swiss franc, CAD for the Canadian dollar, AUD for the Australian dollar etc. The exchange rate between two currencies may be expressed like this: USD/CHF 1.14. This means that to buy one US dollar you will need 1.14 Swiss francs.
If you want to start out in forex trading you will need to look for a broker or investment management company that you trust. It is worth shopping around and checking online forums for recommendations. Check out how long the company has been in business and what your rights and liabilities will be. Read all of the fine print.
You will probably also want to use a bot to do your trading for you. This is automated forex trading software that can trade 24 hours a day according to rules that you set for it. There is usually a demo option so that you can test out the whole system for a while before you let it trade with real money. There are many forex robots on the market and most of them come with full instructions for beginner forex currency trading.
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