Further Tips on Making the Best Use of Economic Data

In the last post we looked at some hints for making sets of economic data work for you in Forex trading. Here are one or two further things to remember:

• Concentrate on the finer points of the data, rather than the headline figure of each set of data. For example, the PPI (Producer Price Index) measures changers in producer prices of different commodities. However, experienced traders will know not to pay so much attention to the food and energy components of the data set. This is because they are aware that these components are so volatile that they do not provide an accurate picture of economic conditions.


• Remember that economic indicators usually contain revisions to previous data sets. So although we said in the previous post that the importance of figures lies in the extent to which they fall outside market expectations, be aware that an unexpected rise could be the result of a downward revision to the previous month. So look at revions to older data before you use this as a basis for making a trade.


• Never forget that there are two sides to a trade in Forex trading. You always trade one currency against another. Therefore you must pay attention to the economic data from both of the countries whose currencies you are trading. Remember that not all countries are as efficient as the USA or Europe in releasing their economic information so you have to be careful about judging how much weight in the market the data from each country will carry. Always do your homework.

If this all seems difficult and complicated, don't forget Easy-Forex will give you plenty of help if you are trading with them, and you can also get help on many aspects of Forex trading at http://www.bizwrite.co.uk/Forex/forexindex.html

Tips on Using Economic Data in Forex Trading

In a previous post we underlined the importance of knowing exactly when each set of economic data is due in the country whose currency you are trading. Here are some other points you need to be aware of:

• Make sure you are clear which aspect of the country's economy is being revealed in the figures - e.g. which measure the growth of the economy (GDP), inflation(PPI, CPI), employment (non-farm payrolls) etc.
• Understand which economic indicators have the greatest potential to move markets.
• Be clear which economic issues are the most crucial for the country you are dealing with. For instance, if inflation is a more important issue than economic growth in that country, inflation figures will have more effect on the market than figures that show GDP.
• This point is very crucial. Remember that the numerical value of an indicator is not as important as the extent to which the figures have been anticipated by the market. The market expectations for all releases are posted on various sources on the Internet and you need to put these on your calendar along with the release dates.

In the next post we will look at further hints on using economic indicators. Remember that Easy-Forex has lots of very helpful information in this area for those who are trading with them, and go into much more detail than is possible here. Also don't forget the information available at http://www.bizwrite.co.uk/Forex/forexindex.html

Some More Indicators You Can Use in Forex Trading

Today we are looking at some further important economic indicators. These and the previous ones are indicators used in the USA - remember that you need to find out those used in other leading economies, depending on which currencies you are trading.

• Consumer Confidence Index (CCI). This is published on a monthly basis in the USA and is seen as one of the most accurate indicators of confidence. When consumers are more confident, and therefore spend more money, it is taken as a sign that the economy is in good shape with jobs on the increase.


• Changes in non-farm payrolls (NFP). This too is published on a monthly basis and is used to help government policy-makers to determine the current state of the economy and predict future levels of economic activity. It is a very big market mover.


• Trade Balance. This measures the difference between the value of goods and services that a country exports and those it imports. It is seen as an extremely big market mover.


• Housing starts. This tracks how many new single-family homes or other residential buildings were constructed in the course of the month. It is not a big market mover, but it is seen as an accurate predictor of trends in the economy.


• Employment Cost Index (ECI). This is produced on a quarterly basis and tracks movements in the costs of labor at all levels. It is quite an important market mover since it increasing wage pressures are thought to indicate increasing inflation.

Next time we will look at how these indicators should be used. You can learn a lot more about this if you are using the Easy-Forex trading platform, and a lot more about Forex generally by visiting http://www.bizwrite.co.uk/Forex/forexindex.co.uk

Some Important Indicators for Forex Trading

As we saw on Friday, economic indicators can be extremely important for Forex trading because they can enable you to judge the economic health of a country and thus how its currency will perform. But there are such huge numbers of economic indicators. How do you know which to pay most attention to?
Here are some of the major economic indicators:

• Gross Domestic Product (GDP). This consists of the sum of all goods and services produced within that country by either domestic or foreign companies. This enables you to assess the pace at which the country's economy is growing or shrinking and it's seen as the broadest indicator of economic output and growth. All countries will have one of these.


• Purchasing Manager's Index (PMI) In the USA, the Institute for Supply Management releases a monthly index of national manufacturing conditions. Other countries will have something similar.


• Producer Price Index (PPI) This is a measure of price changes in the manufacturing sector. The indexes most often used for economic analysis are those for finished goods, intermediate goods and crude goods.


• Consumer Price Index (CPI) The CPI is a measure of the average price level paid by urban consumers (80 percent of the population) for a fixed basket of goods and services. This is the most effective measure of inflation in a country and thus of the country's economic health.

In the next post we will look at another selection of economic indicators. This may seem like a lot to learn but Easy-Forex will really help you and give you lots of guidance in how to use these to ensure you make a profit in Forex trading. There is also information on various aspects of Forex trading at http://www.bizwrite.co.uk/Forex/forexindex.html

Fundamental Analysis - Economic Indicators

Obviously, economic indicators are not the ONLY factor in fundamental analysis. But the economic health of any country is reflected in its currency. So economic indicators are a very important way to measure the economic health of a country and therefore to understand the way the currency is going to go. So economic indicators are important for Forex trading.

Economic indicators fall into two groups: leading indicators and lagging indicators. Leading indicators are economic factors that change before the economy starts to follow a particular pattern or trend, so they can be used to predict changes in the economy. Lagging indicators follow changes, so they can be used as indicators of what is already going on.

Economic indicators basically consist of snippets of economic data published by various agencies of the government or private sector of any individual country. They are published on a regular basis - this could be monthly, quarterly, half-yearly or yearly.

What is important in Forex trading is to know when these indicators are due to be released. Keep a calendar on your desk with the dates marked for the publication of each set of data. Because currencies are traded in pairs, you will need to do this for at least two different countries. For instance, if you are interested in trading USD/JPY, you will need to track the indicators of both the USA and Japan. Currency movements are meaningless in themselves - what you need to know is the movements of any given currency AGAINST another currency.

In the next post we will look at examples of some of the most important economic indicators. You can also find out much more about this in the tutorial materials provided by Easy-Forex. And there is more to find out about Forex at http://www.bizwrite.co.uk/Forex/forexindex.html

Fundamentals of Forex Trading

If you have been involved in Forex trading for any length of time, you will know that there are two main ways of analyzing markets and predicting trends: Technical Analysis and Fundamental Analysis. We have spent quite a lot of time looking at Technical Analysis and the different types of charts you can use, but so far we haven't looked much at Fundamental Analysis. However, this doesn't mean it isn't important.

You have probably also picked up that Forex traders tend to be split into two main schools of thought: those who swear by technical analysis and those who give priority to fundamental analysis. However, the two are so different that it would be very foolish to ignore either of them - they both have their very distinctive contribution to make to the way you study the markets.

As you will know by now, technical analysis is a way of using historical price data, via the charts, to predict the future price of a currency pair. In actual fact, technical analysis tracks the PAST, it does not in itself predict the future. You have to learn the skills and abilities to interpret the data in order to decide what the charts tell you about future activities.

Fundamental analysis consists of the study of all the information about a particular country that could possibly have any bearing on the movements of that country's currency. This will include economic and inflation indicators, political events such as election results, government policies, or even climatic events such as tornadoes, floods or earthquakes. These are a very effective way to forecast economic conditions, though they are not necessarily predictors of exact market prices.

In the next few posts we will look in more detail at the different kinds of Fundamental Analysis and how they should be used. A lot more detail can be found in the tutorial materials that Easy-Forex provide. And there's more information about Forex trading in general at http://www.bizwrite.co.uk/Forex/forexindex.html

Make Sure You Win At Forex Trading

We said at a very early stage that when trading Forex you cannot expect never to have losing trades. NOBODY in Forex trading wins every time. What separates successful Forex traders from unsuccessful ones is that the successful ones have worked out ways of putting the odds in their favor.

If you trade with a 1:1 risk-reward ratio, after 100 trades you should theoretically break even (end up with the same amount of money in your account). In order to manage risk effectively, it is necessary to find high-probability trades that have a 1:1.5 or greater risk-reward ratio. Most advice is to go for a risk-reward ratio of 1:2 or more.

So supposing you are going for a 40-pip trade, you set your reward for 40 pips and your stop-loss order for 20 pips below the entry order. Suppose too you are trying out the 1:2 ratio, and you are only right 50% of the time (though you will probably do better than that). If you make 4 trades, two of them winning and two of them losing, you have made 80 pips and lost 40 pips (2 x 20 because you had a 20-pip stop-loss order).

The lesson is - ALWAYS calculate your risk-reward ratio BEFORE making a trade, and refuse potential trades unless the ratio is at least 1:1.5 or preferably 1:2 - that is, for every dollar risk there is a potential for 2 dollars gain.

Easy-Forex will teach you much more about managing risk. Keep an eye on http://www.bizwrite.co.uk/Forex/forexindex.co.uk for answers to more of your questions.

Forex Trading On Margin

In the last post we clarified what was meant by a MARGIN in Forex trading. It's tied up with the concept of LEVERAGE, which means that if you are trading on a 1% margin, you can use a starting capital of $1,ooo to trade with $100,000.

Forex trading on margin is also bound up with the concept of spot Forex. The spot Forex market is the biggest Forex market that is traded - much bigger than the futures market. Most providers of spot forex charge no commission because they make their profits on the spread (see posting of January 15).

A spot contract in Forex trading means that when you buy or sell a currency, the settlement date is in two business days. In Forex trading on margin you need to provide 1 percent or more of the face value, depending on the margin requirement of your broker or trading platform. (1 percent represents a leverage of 1:100. A few trading platforms, such as Easy-Forex, provide a leverage of 1:200.)

If you hold the position longer than one trading day the provider will "roll over" your position to the next trading day. (Rollover time is 5 p.m. EST.) If the currency you have bought has a higher rate than the one you have sold, you will receive a rollover fee. If the opposite is true, you will be CHARGED a rollover fee. For most providers you will need at least 2-5 percent of margin in your account to benefit from rollover payments.

Remember that Forex trading on margin carries a high degree of risk. What's more, the higher the leverage, the higher the risk. So you need to be extremely careful not to invest money you can't afford to lose. I know I have said this several times but it can't be emphasized too often.

Trading with Easy-Forex can really help you to minimize risk because you have the benefit of their one-to-one advice and tuition from the very start. You can also find the answers to a lot of questions at http://www.bizwrite.co.uk/Forex/forexindex.html

If I Get A "Margin Call", What Does It Mean?

You will hear the term "margin" used frequently in connection with Forex trading. The idea of "margin" is tied up with the term "leverage". If your broker or trading platform requires a 1% margin, this means that with a starting capital of $1,000 you can trade with $100.000. In other words, you are using a leverage of 1:100.

If your broker or platform requires a 2% margin, that means you would need $2,000 to trade with 10,000 - that's a leverage of 1:50. Easy-Forex is one of the few platforms providing a leverage of 1:200 - that means with a margin of $1,000 you can control $200,000 of trading. But you can actually start with as little as $100, which enables you to trade with $20,000 - you can do a lot with that!

Now - suppose you have a margin requirement of 1% and you have a margin of $2,000, which gives you a leveraged float of $200,000. And suppose you make a trade with a face value of $100,000, such as buying USD/JPY, which means you use $1000 of your margin and have $1000 left. If the trade goes against you by $1000, you will lose your remaining margin. So you will get a MARGIN CALL, requiring you to place more funds into your account. If no funds are forthcoming your position will be closed out.

If this happens to you it means you have not been using appropriate money management - look at last week's posts to remind you of what this means. At the very least you should have placed a stop loss. A margin call should not be necessary if you have learned your money management lessons. And there is plenty more to learn at http://www.bizwrite.co.uk/Forex/forexindex.html

How do I choose the best time-frame for Forex trading?

In previous posts we have looked at day-trading, scalping (taking profits from shorter movements of the market) and swing-trading (following market trends over periods of a day or more). But how do you know which is the best trading style for YOU?

A few weeks ago (January 12/13) we looked at the global Forex market and identified the best trading times from the market point of view. These were 2-4 a.m. EST and 8 a.m.-12 noon EST. But of course at any time round the clock there are some markets open. Obviously, not everyone can be, or wants to be, awake to trade in the small hours of the morning, so it partly depends on where in the world you live and what time-zone you are in.

Easy-Forex makes it very easy to trade at any point in the 24 hours because they do not use software, which would be dependent on the terminals being open. They provide a fully web-based service which you can log into at any time. In addition, the Easy-Forex trading platform uses web services to fetch the most current exchange rates on a non-stop basis. The most recent data displays without the need to refresh the page. This includes account status screens such as "My Position", which updates continuously to reflect changes in rates and other real-time elements.

So which time-frame you use for Forex trading depends largely on your own preference as well as the way prices move in the different time frames. For instance, you can trade the hourly and 4-hourly charts. But if the system requires that you adjust your stops below a trough as the trough occurs, you may need to be awake at 3 a.m. to do it.

Alternatively there are systems that trade the 5-minute charts - this way you trade for 3-4 hours a day and then stop. You can trade again that day or a different day. Many people find this more convenient as it's a discrete time period. But it's advisable to choose a time of day that coincides with one of the most active periods of the market, as above.

Again, you can trade the daily charts, but if you place stops below the troughs the loss risk can be very large.

So the time frame you choose to trade Forex will depend on your preferred system, your preference for a discrete time period or otherwise, and what time zone you live in.

Don't forget you can find out more at http://www.bizwrite.co.uk/Forex/forexindex.html

Forex Scalping and Forex Swing Trading

Way back before Christmas (December 14, 2007) we looked at Forex Day Trading. This is the type of trading in which you enter and exit a trade within a single working day. This is the most common type of Forex trading so it was important to learn about this first. However, there are other types of trading. Two of the main ones are scalping and swing trading.

Scalping is the style of trading in which you take your profits after relatively small moves in the market. Your profits are usually smaller but they are taken more frequently, so potentially this style can be just as profitable as day trading. It can also be less risky because the time your position is exposed to the market is shorter, so there is less risk of adverse market events causing the price to go against the trade. Another advantage is that scalping works in any type of market, so you don't have rely on a trending market to be profitable.

Scalping doesn't have to be your only style of trading - you can use it to complement your other trading strategies.

Swing trading is a type of trade that follows a trend over a day or more. This way you can capture larger moves in the market, so your potential profits per trade are larger. You will usually want to set your stop-loss size higher than you would in day trading, to allow the currency room to move.

Swing trading is usually done by assessing charts over longer time frames. This means that you probably won't need to spend as much time in the day on your trading, so it may be more convenient and practical if you have other commitments.

Obviously this is a simplified description. If you are trading with Easy-Forex you will learn more about the different types of trading and they will help you decide which type suits you best. You can also find out more at http://www.bizwrite.co.uk/Forex/forexindex.html

Another way of looking at exit strategies in Forex trading

Another way of looking at exit strategies, or stops, is by classifying them according to what kind of trade you're making or what stage you are at in the trade. Under this classification the main kinds of stop are initial stops, break-even stops, take profit stops or trailing stops.

1. Let's look at trailing stops first. A trailing stop is a stop that moves in the direction of the trade - that is, up for a long or buying trade and down for a short or selling trade. By placing a trailing stop you are aiming to allow room to move and thus allow the profits to run, but ensure you can exit the trade when it does turn against you.


2. An initial stop may or may not be the same as your trailing stop, depending on the system you are trading. The idea is to get you out of the trade if it turns against you at an early stage, and thus to limit your losses. By definition it will be closer to the entry price than the trailing stop.


3. A break-even stop is where your trailing stop is moved to the point where the exit price is equal to the entry price. You will want to use this in a very volatile market where the prices fluctuate so much that you will keep exiting at your trailing stop unless you use a break-even stop.


4. If you are using a take profit stop, you determine your target profit in advance - for example, a certain number of pips. This protects your profit if the market then suddenly turns the other way. There is nothing to stop you having a trailing stop as well as a take-profit stop.

These exit strategies are all part of an effective money management system. As we have emphasised in previous posts, which particular money management method you use will depend on your personal approach to trading and what kind of Forex trading system you are using. But without following money management principles you simply cannot be successful in Forex trading in the long run. If you decide to trade with Easy-Forex, they will start training you in money management principles from Day 1, along with trading methods that ensure you make more winning than losing trades.

Find out more from http://www.bizwrite.co.uk/Forex/forexindex.html If you have a question that isn't answered there or on this blog, there's an opportunity for you to ask it!

Money Management in Forex Trading - Four Types of Stop You Can Use

As we said in yesterday's post, you can't be successful in Forex trading without good money management and the discipline to put limits on the risks you take. This means using "stops" or "stop-losses" on your trades. There are four kinds of stop you can use.

1. Equity stop. You decide what percentage of your equity - that is, the amount of money you have in your account - you are going to risk in this trade. The most common percentage is 2%, though as said in the last post many advise a maximum of 1%. The main problem with this type of stop is that it puts an arbitrary exit point on your trade, so that you leave the trade because of your predetermined risk strategy when the market movements might be signalling that it would be advantageous to continue.
2. Chart stop. You use charts to generate stops, based on price action - for example, the swing high/low point.
3. Volatility stop. This is another version of the chart stop, using volatility instaed of price action to determine how much risk you take. In a high volatility environment, you allow more room for risk, and in a low volatility environment, you allow less room.
4. Margin stop. Using this strategy you subdivide your capital into ten equal parts, and only use one segment at a time, thus avoiding using your whole capital in a single trade.

You can experiment with different stops to see which suits you best, but you must practice some form of money management, once you get to the stage of having a full account. If you are just starting, you need to learn the basics first.

And if you are just thinking about starting, Easy-Forex allows you to start trading with a very small amount so you can't incur big risks - AND you have the advantage of their unique personal guidance to make sure you know how to make winning trades. Don't forget too that there is always more to learn at http://www.bizwrite.co.uk/Forex/forexindex.html

Tough Lessons in Forex Trading

In yesterday's post we discussed how it is possible to wipe out a sustained period of profitable Forex trading with a single disastrous move - simply because of sloppy money management (i.e. NO money management!)

The golden rule for avoiding this fate is: Never risk more than 1% of your total equity on any trade. This means you can be wrong 20 times in a row and still have 80 percent of your equity left.

VERY FEW Forex traders have the discipline to stick to this rule consistently. This is the very good reason why Easy-Forex don't use a demo account for training purposes, as some platforms do. You can't teach a child not to touch a hot stove by using a toy stove - the child will only learn after being burned a couple of times. In the same way, most traders can only learn the lessons of risk discipline through the painful experience of losing money. With Easy-Forex you can start with a mini-account which will make sure that if you make a loss, you won't lose your house - but with their close personal guidance you will quickly find your winning trades outnumber your losing trades.

The way to control your risks is through stop-losses. There are two main ways of doing this;

1. You can take frequent small stops and hope to gain your profits from your few large winning trades: or


2. You can go for many small gains and take infrequent but large stops - the more risky way.

You can try both ways and see which suits you better.

There are four main types of stop and we will look at these next. Keep checking http://www.bizwrite.co.uk/Forex/forexindex.html for other things you might want to know.

Money Management in Forex Trading

In an earlier post way back on December 12, 2007, we looked briefly at ways of managing risk in Forex trading. This is really just a small part of the wider subject of money management.

Money management is actually the main thing that separates the unsuccessful Forex trader from the successful one. Yet it's surprising how many traders ignore the idea, thinking it doesn't apply to them! So many people come into Forex thinking that they are going to make the "Big Trade" that's going to seal their fortune. They don't like to be told about discipline, management and caution - it sounds boring.

However, much more common than the "big win" is the "big lose". It's not uncommon for a trader to wipe out a year's profit - or even two or four years' profits - in one disastrous trade. When this happens, it is almost invariably due to loss of discipline and sloppy money management.

The truth is - you CAN succeed in Forex! But don't regard it as a casino where you can stake everything on a big game of chance. Forex trading isn't gambling - if it was, I'd have nothing to do with it! It's a skill you learn, or rather a set of skills, and money management is one of the most important. I honestly don't believe there is a better place to learn the skills of trading Forex than Easy-Forex, with their brilliant tutorial systems.

In the next few posts we will look at money management in more detail - I believe you will be glad we did.

Candlestick Charts in Forex Trading

Candlestick charts are based on a charting method which originated in Japan over 300 years ago. In fact they used to be known as "Japanese Candlesticks" but now they are usually just called "Candlesticks" or "Candlestick charts."

A candlestick chart displays the same four pieces of information as the bar chart (see yesterday's post) - High, Low, Open and Close. The high is shown by a vertical line going up from the body of the "candle" - called the "wick", and the low is shown by a vertical line going down from the "candle", called the "tail".

Market activity between opening and closing is shown by the body of the candle. In some types of candlestick chart, a candle body left transparent or hollow means that the close was higher than the open, while if the body is filled in, it shows that the close was lower. In others, blue means the close was higher while red means the close was lower. The length of the body of the candle shows the range between opening and closing, while the length of the whole candle, including the wick and the tail, shows the whole range of trading prices over that time unit.

Many people involved in Forex trading find the candlestick chart more appealing and helpful than the bar chart. You can see at a glance what the markets are doing and this helps you make your decisions. A hollow or blue candle showing the close higher than the open indicates buying pressure, while a filled-in or red candle, showing the close lower than the open, indicates selling pressure.

Of course as we said yesterday there is much more to learn about charts, and Easy-Forex will teach you all you need to know when you trade with them. To learn more about Forex in general go to http://www.bizwrite.co.uk/Forex/forexindex.html

Bar Charts in Forex Trading

Yesterday we looked at what was meant by charting in Forex trading. Today we are looking at the most popular type of chart - the Bar chart. You can see above how clear and how easy to understand they are and this is the main reason why they are so popular.

The vertical line represents a specific period of time - very often one day. The chart is designed to provide four specific pieces of information: high, low, open and close.

1. The highest point of the line represents the highest price that was reached during the period.
2. The lowest point on the line shows the lowest price that was reached during the period.
3. A dot or vertical bar on the left of the line shows the opening price of the period.
4. A dot or vertical bar on the right of the line shows the closing price of the period.

There are different patterns you can detect in bar charts, that can help you make your trading decisions by predicting the movements of the market. We will look at these patterns in a later post, but tomorrow we will look at Candlestick charts. Easy-Forex provide a large range of charting tools. according to whether you are a novice or experienced trader, and give you detailed tuition in how to use them. And don't forget there's plenty of information about Forex trading at http://www.bizwrite.co.uk/Forex/forexindex.html

So What Exactly Are Charts In Forex Trading?

A chart in financial trading is a sequence of prices plotted over a specific time frame. The vertical axis (y-axis) represents prices and the horizontal axis (x-axis) is the time scale. Prices are plotted from left to right across the x-axis with the most recent being the furthest right.

Although charts are used almost exclusively in Technical Analysis, they are also useful in Fundamental Analysis. A chart makes it easy to spot the effect of a specific event on a currency's prices and its performance over a period of time.

What time frame is chosen for a chart depends on how compressed the analyst wants the data to be. A chart can be intraday, daily, weekly, monthly, quarterly or annual. The less compressed the data is, the more detail is shown.

Most commonly, charts used for the purpose of Forex trading show intraday (price movements within the period of a day) and daily data - daily data is intraday data compressed to show each day as a single data point. However, longer-term charts are also useful to show the larger picture and get an idea of historical price trends.

In the next two posts we will be looking at two of the most common types of chart - bar charts and candlestick charts. As we said yesterday, there is a lot more detail to this subject than can be provided in this blog, and you can learn it all in much more detail through the amazing tutorials that Easy-Forex provide when you register with them.

Charting in Forex Trading - Support and Resistance Levels

As promised yesterday, we are going to look at what is meant by "support" and "resistance" levels in Forex trading. These are expressions you will meet a lot, especially in connection with charting.

As you know, in the financial markets, as in most markets, prices are driven by supply and demand. Over-supply drives prices down, and over-demand drives prices up. Support and resistance represent the junctures where the forces of supply and demand meet.

SUPPORT is the price level at which demand seems to be sufficiently strong to prevent the price from falling further. The lower the price gets, the more people are inclined to buy and the less they are willing to sell. When the price reaches support level, it appears that demand will overcome supply. This should prevent the price from falling any further. However, support levels don't always hold and there is sometimes a drop below support level. This signals that sellers have lowered their expectations and are willing to sell at new lows. So new, lower support levels will have to be set.

RESISTANCE is the price level at which selling, and thus demand, seems to be sufficiently strong to prevent the price from rising further. The higher the price gets, obviously sellers have more desire to sell and there is less temptation to buy. When the price reaches resistance level, it appears that supply will overcome demand. This should stop the price from rising any further. However, again, resistance levels don't always hold.

The easiest way to identify support and resistance levels in on a chart. On a Forex trading bar chart that details the changes in the currency over time, you can see that it is possible to draw a horizontal line at the lowest place the graph reaches, and at the highest place it reaches. So with a falling graph, after it has fallen several times, it reaches a point below which it never drops. This is the support level. Similarly, with a rising graph, after it has risen a number of times, it reaches a point above which it never rises - this is the resistance level.

Obviously there is a lot more to learn about charting and about support and resistance, but I hope this has helped to clarify the basic meaning. Easy-Forex has terrific tuition on all aspects of charting, as part of their comprehensive tutorials they provide when you trade with them. And you can come to http://www.bizwrite.co.uk/Forex/forexindex.html to learn more about all aspects of Forex trading.

Using Charts in Forex Trading - Trend Lines

In the posts of December 17th and 18th, we talked about trends and how to recognize them. The fact that prices move in trends is one of the most important assumptions on which Technical Analysis is based. This is a really essential thing to learn about in Forex trading.

When you look at a Forex chart you will see some straight lines going up or down - these are Trend lines. An "up" trend line is formed by connecting two or more low points, where the second low is higher than the first. An up trend line indicates that net demand (demand minus supply) is increasing at the same time as the price is rising. If prices remain above the trend line, the trend is seen as solid. If the trend line crosses through the price line, this is a sell signal.

A "down" trend line is formed by connecting two or more high points, where the second high is lower than the first. A down trend line indicates that net supply (supply minus demand) is increasing at the same time as the price declines. As long as prices remain below the downtrend line, the trend is seen as solid. If the trend line crosses the price line, this indicates a buy signal.

Uptrend lines and downtrend lines act as "support" and "resistance" respectively. Tomorrow we will discuss what support and resistance mean. Charting is an essential part of Forex trading and Easy-Forex teach you everything you need to know about charts through their excellent tutorial systems - so you'll find it's not as difficult as it looks! And it makes all the difference to your ability to make winning trades.

And remember there's more information about Forex at

http://www.bizwrite.co.uk/Forex/forexindex.html

What Are Forex Signals?

Forex signals are alerts which might be sent to you by brokerage firms or independent Forex analysts. In most cases you have to subscribe to a signal service, which could cost you $100 per month or more.

These firms then do all the Technical Analysis and Fundamental Analysis on your behalf. Obviously this can be very time-consuming and tedious, and you may well not have the time to do it yourself, especially if you have a day-job. They will identify trends and discover profitable entry and exit points. They may send you the information on your computer screen, via e-mail or on your mobile phone. It is then up to you to decide what to do with it.

The important thing to note is that subscribing to a signal service for your Forex trading is in no way a substitute for education and training in Forex and how the markets work. The signal services will not take any responsibility for any losses you may make and they certainly do not guarantee that you will always have winning trades. It is YOUR responsibility to decide what to do with the information so you need to obtain enough Forex training to be able to make the decisions.

The great thing about trading with Easy-Forex is that ALL you pay is the initial purchase. Then they give you the training - and it's the best training on the market with a one-to-one, personal, hands-on service, plus tutorials and seminars. And they walk you through your initial trading including advice about the right times to trade - which elsewhere you would be paying hundreds of dollars for. So you really have the best chances right from Day 1.

Don't forget there's more at http://www.bizwrite.co.uk/Forex/forexindex.html

Another powerful Forex trading method - Gann angles

Gann numbers or Gann angles are named after a legendary trader who made vast millions using this Forex trading method in the 1950s.

Gann's methods were based on his belief that the only factors relevant to Forex market movements are price, time and range, and that markets are cyclical in nature. He also believed that market movements are a reflection of human nature and that by studying the past we can predict the future.

So he used three patterns to predict market movements: Price study, using support and resistance lines, pivot points and angles; Time study; and Pattern study, using trend lines and reversal patterns.

What makes Gann's system unique is that the support and resistance lines he used are diagonal. When the angle on the chart is exactly 45 degrees, which indicates a balance between time and price, this is the best time to trade.

Gann also used Fibonacci numbers which we talked about yesterday. When the two are combined, this makes an extremely powerful trading method. For more about Fibonacci, visit http://www.bizwrite.co.uk/Forex/forexindex.html Don't worry if these advanced methods seem too complicated. If you start trading with Easy-Forex you can get going right away with the all-round tuition they provide, then you can progress to more advanced methods as your confidence grows.

Another kind of Technical Analysis - Fibonacci Forex Trading

Yesterday we looked at a different kind of Technical Analysis to use in Forex trading - Elliott Wave Theory.

Today we are going to look at another special approach based on Fibonacci numbers. You have probably heard of the "Fibonacci sequence" - discovered by Finonacci who was a medieval Italian mathematician - you may have met the Fibonacci sequence in the novel The Da Vinci Code. In this sequence each number is the sum of the two preceding numbers: 1,1,2,3,5,8,13,21,34 .... Fibonacci realized that this sequence could be found throughout nature and all branches of thought.

However, what is significant for the Forex trader is the Fibonacci ratios which are derived from the sequence: .236, .50, .382, .618, etc. This is because the oscillations observed in Forex charts, where prices are visibly changing in an oscillatory pattern, follow these ratios very closely as indicators of resistance and support levels. It's a bit mysterious as to why this is so, but it is incredibly helpful once you've got the idea. You can calculate Fibonacci price points or levels for any currency pair in advance, so you know exactly when to enter or exit the trade.

Don't be put off by the very complicated explanations of this that you sometimes see. Ignore these, they are not necessary. You will be able to understand this technique once you have grasped the basics and progressed a bit in Forex trading. Of course you will want to use it in conjunction with other indicators.

There is so much you can learn about Forex trading to help you learn to be successful - if you're trading with Easy-Forex they will teach you all this AND you can trade and make profits while you're learning. Don't forget too there's plenty of information on http://www.bizwrite.co.uk/Forex/forexindex.html

More kinds of technical analysis in Forex trading

Looking at charts isn't the only kind of Technical Analysis. There are some more abstract and advanced kinds, based on wave theory and number theory, for instance.

Wave theory was developed in the 1920s by a man called Ralph Elliott as a way of predicting trends in the stock market. It's really based on physics and on the law that every action is followed by a reaction. This can apply to the market and you often see it happen in the stock market: i.e. when prices drop, people will buy, increasing demand so prices rise. Then people sell, demand drops and prices fall again, and so on. The trick is to determine when these actions cause reactions that make your trades profitable.

The Elliott Wave Theory is that market activity can be predicted as a series of five waves that move in one direction (the trend) followed by three waves in the opposite direction - the 5-3 move is one cycle.

Using the theory is very much a matter of interpretation, as the timing of each series of waves varies so much. If you can see and follow the pattern of larger and smaller trades, you can identify the best times to enter a trade and to get out of a trade.

Whether this appeals to you or not depends on whether you enjoy patterns and numbers. If it leaves you cold, you might be better sticking to more concrete methods such as charts, at least until you are more experienced! But many who HAVE used it have found it a really amazing way of predicting trends, and thus of making a profit.

Don't forget, if you are keen to get into Forex trading, Easy-Forex is probably your best "way in" because of the incredible amount of live support and training they offer you - so you can start training for real from Day 1. And remember there's always more help at http://www.bizwrite.co.uk/Forex/forexindex.html

When do I pay or receive INTEREST in Forex trading?

Most deals in Forex trading are done as Spot deals. Spot deals are nearly always due for settlement two business days later.This is referred to as the "Value date" or delivery date. On that date the counterparties take delivery of the currency they have sold or bought. In Spot Forex trading the end of the business day is usually 21:59 (London time). Any position still open at this time is automatically rolled over to the next business day, which again finishes at 21:59. This is necessary to avoid the actual delivery of the currency. As Spot deals are predominantly speculative, the traders won't wish to take delivery of the actual currency. They will instruct the brokerage to roll over their position. Many of the brokers do this automatically unless you instruct them that you actually want delivery of the currency - which you don't, of course!

Another point to note is that most leveraged accounts are unable to actually deliver the currency as there is insufficient capital there to cover the transaction. (Remember that if you are trading with Easy-Forex, you can have a "leverage" of 200:1, which means if you have $100 in your account you can trade with $20,000. This is known as the "margin") Trading on margin
means you have in effect got a loan from your broker for the amount you are trading. If you had a 1.0 lot position (a "lot" is £1,000) with 100:1 leverage, your broker has advanced you the $100,000 even though you did not actually have $100,000. The broker will normally charge you the interest differential between the two currencies if you roll over your position. This normally only happens if you rolled over the position and not if you open and close the position within the same business day. If the first named currency has an overnight interest rate lower than the second currency, then you will pay that interest differential if you bought that currency. If the first named currency has a higher interest rate than the second currency then you will gain the interest differential. To put it more simply: if you are long (bought) a particular currency and that currency has higher overnight interest rate you will gain. If you are short (sold) the currency with a higher overnight interest rate then you will lose the difference.

More information on all aspects of Forex trading on http://www.bizwrite.co.uk/Forex/forexindex.html

Some other Technical Indicators

In the last post we mentioned that in Forex trading the Moving Average convergence/divergence indicator (MACD) was often used in conjunction with the Relative Strength Index.

The Relative Strength Index (RSI) compares recent gains with recent losses to detect whether the market is overbought or oversold. The higher the number – i.e. 70 or more on a scale of
1-100 – the more overbought the market is, and the lower the number – 30 or less on a scale of 1-100 – the more oversold it is. The RSI is what is called a “leading” indicator – that is, it enables you to see what the market is about to do, and act accordingly.

Another very important technical indicator is Bollinger Bands. These are plots on a graph, plotted two standard deviations above and below a simple moving average. The principle is that the spacing between them varies according to the volatility of the market. So when the markets become more volatile, the distance between the bands widens, and when they become less volatile, the spacing narrows. The closer prices move to the upper band, the more overbought the market is – indicating “sell” – and the closer they move to the lower band, the more oversold the market is, indicating a “buy” signal.

As we mentioned last time, if you register with Easy-Forex they will teach you all you need to know about using these technical indicators. You really do need to know how to use them in order to make buying/selling decisions. And make sure you keep checking
http://www.bizwrite.co.uk/Forex/forexindex.html

Forex trading - what kinds of Technical Analysis can you use?

As we have said, in Forex trading there are a number of different techniques and indicators that can be used to predict market trends. One of the most important is moving averages.

Moving averages are used to emphasize the direction of a trend. A moving average indicates the average price at two given points in time, over a defined period of time intervals. So when the price falls below its moving average, it’s a signal to sell, and when it rises above its moving average, it’s a signal to buy. There are several kinds of moving average, including simple, weighted and exponential. The exponential moving average is the most often chosen as it takes into account both the most recent data, and the entire time period.

Moving average convergence/divergence (MACD) - a more sophisticated way of using exponential moving averages to detect price swings. This technique plots the difference between a 26-day and a 12-day exponential moving average. It takes a 9-day moving average as a trigger line, so that below this would be a “sell” signal and above this would be a “buy” signal. The MACD is often used in conjunction with other indicators such as the Relative Strength Index or RSI. (More about the RSI in the next post).

This is just a very brief summary - if you register with Easy-Forex you'll learn in detail about these techniques and many more - and learn how to use them to increase your profits. And of course you can learn more about Forex trading in general at http://www.bizwrite.co.uk/Forex/forexindex.html

How important are technical indicators?

In our post on January 8th, 2008, we mentioned the two types of analysis that we use to predict currency movements - Technical Analysis and Fundamental Analysis. We said that you can use either or both. However you have to remember that neither is a magic bullet. They are tools that you need to keep as part of your personal trading tool kit.

For instance, we said technical analysis is one of the most reliable ways of predicting price movements, and it is. But you have to learn to use technical indicators in the context of the market.

1. Don't use technical indicators to go against a trend. Look at the prices. If the EUR/USD is at 1.3443, then goes to 1.3440, then 1.3333, then 1.3329, you can see the market is in a down trend. In this context, indicators showing what the market will do next or what it SHOULD do are of no use. You must stay with the trend. To work out the price action of a currency pair, you have to be concerned with what the market IS doing, not what it MIGHT do. Look at the prices to tell you.


2. Never forget that technical indicators are only CONFIRMING what the market is already telling you. To be a successful trader you need to learn to listen to the market.

If you keep these reminders in mind, you will be able to use Technical Analysis successfully because it will be your servant or tool, rather than dictating all the decisions you make. And make no mistake, it is one of the most powerful tools you have. Easy-Forex will provide tuition on how to use the various types of Technical Analysis and they have what is almost certainly the most comprehensive and detailed collection of charts you will find anywhere.

And there is always more to learn at http://www.bizwrite.co.uk/Forex/forexindex.html

I keep hearing about "spreads" - what is a spread?

When you see the quoted price for a currency "pair" - e.g. USD/JPY -you will notice it looks something like this:

105.26/105.30

That means you can BUY $1 US for 105.30 yen or you can SELL $1 US for 105.26 yen. The difference here is 4 yen - that is the "spread". It is usually expressed in "pips" - ( a "pip" is the last digit after the decimal point) - this is a 4-pip spread.

At any given moment, the amount that will be received in the counter currency - the yen in this case - when selling a unit of the base currency (the dollar here) will be lower than the amount of the counter currency which is required to BUY a unit of base currency. So if you buy a currency and immediately sell it, you will lose money because there has been no time for the exchange rate to move.

When Forex trading you will find a smaller spread is a better prospect than a large spread because it only requires a small movement in exchange rates before you can profit from a trade.

The smaller a spread is, the more competitive it is. Easy-Forex uses very competitive spreads and this is why they are able to allow you to trade commission-free.

Find out more at http://www.bizwrite.co.uk/Forex/forexindex.html

More about Forex trading times

Following on from yesterday's post, there's one important thing you have to remember.

During each trading day, overall Forex volume (the higher the volume, the greater your chance of finding more trade opportunities) is determined by what markets are open and the times each of these markets OVERLAP one another. With each passing second, minute and hour, Forex volume remains high, but peaks highest when the Asian market (including Australia and New Zealand), the European market and the U.S. market are open at the same time (actually only two of the major markets can overlap at the same time).

Here's the breakdown of Open Market Times (the times each country's exchange-traded markets are open. (Remember: exchange-traded instruments, such as foreign exchange futures, stocks, bonds, etc. adhere to the traditional exchange trading hours):
New York Market trade times: 8am-4pm EST
London Market trade times: 2am-12 Noon EST-
Tokyo Market trade times: 8pm-4am EST-
Australia Market trade times: 7pm-3am EST

(The first three are "Majors")

You will notice that there are two periods when two of the major markets OVERLAP in trading times: between 2am and 4am EST (Asian/European) and between 8am and 12 noon EST(European/N. American). Generally, the markets tend to make their biggest moves during these overlaps and, therefore, the overlaps are usually the best times to trade.

Easy-Forex has a global reach so you can log on and trade at absolutely any time in the 24 hours. It's important to know when the best times for trading are, but whatever time it is, there will be some markets open somewhere. Easy-Forex will give you more help and guidance through their personal tutorial system. And you can learn more about Forex in general at
http://www.bizwrite.co.uk/Forex/forexindex.html

When does Forex trading take place?

The market never sleeps. Forex is basically a continuous 24-hour open electronic-trading session. So when should I be awake to trade?

Good question.

The 24 hour market goes from Sunday 5pm EST through Friday 4pm EST. Rollover at 5pm EST. Trading begins in New Zealand, followed by Australia, Asia, the Middle East, Europe, and America. The US and UK account for more than 50% of turnover. Major markets: London, New York, Tokyo. Trading activity is heaviest when major markets overlap - nearly two-thirds of NY activity occurs in the morning hours while European markets are open.Select the market, select the time, start trading.

The foreign exchange "week" begins at 5am Sydney time on Monday mornings. The foreign exchange trading day virtually never ceases except for short periods over weekends. At any given time, somebody somewhere is buying and selling currencies. As one market closes, another market opens. Business hours overlap, and the exchange continues as day becomes night and night becomes day. So, the answer to your question is this: The massive liquidity of Forex, combined with a true 24-hour market that's traded 5.5 days a week, offers you exceptional independence and choices to trade Forex when you want to, not when the market wants you to.

Trades actually develop with relatively the same frequency, regardless of time. As long as the Forex is open, there is about the same chance that you will find a trade, whenever you look. But some times are significantly better than other times. If you are trading with Easy-Forex, they will show you why, and which times to aim for.

Learn more at http://www.bizwrite.co.uk/Forex/forexindex.html

How do I decide if a currency will go up or down?

In the last couple of posts I mentioned using Technical analysis and/or Fundamental analysis to decide whether the price of a currency pair might go up or down.

I said "and/or" because the two are not mutually exclusive. The majority of those who are successful in Forex trading make use of both types of analysis. However, some people prefer Technical analysis, while others are big supporters of Fundamental analysis.

Technical analysis is a method of predicting price movements and future market trends by using charts to identify what has already happened. It is concerned with actual price movements, not the reasons for them. Fundamental analysis uses more wide-ranging factors such as political or environmental events, or anything in the country concerned that could have an effect on currency movements.

Technical analysis is without doubt the easiest and most precise method of foreign exchange trading. It is based on three principles:
1. The price of a currency already reflects everything that is known to the market that could affect it.
2. Prices move in trends, so analysing the patterns of current behavior is very effective.
3. Patterns repeat themselves.

If you use Easy-Forex, you will get very detailed tutorials in both types of analysis. You will soon discover which suits you better, or whether you are happy using both. But you will not be able to succeed in Forex trading without at least one of them!

Find out more at http://www.bizwrite.co.uk/Forex/forexindex.html

Making a profit on Forex - a selling trade

Yesterday we traced exactly what happens when you make a BUYING trade in Forex trading ("going long"). Today we will turn it the other way round and look at a SELLING trade - "going short".

You take a SELL position, or go short, on a currency pair if you believe EITHER that the base currency will fall against the quote currency, OR that the quote currency will rise against the base currency. You use your methods of Technical Analysis and/or Fundamental Analysis to come to this conclusion.

Take the Currency Pair USD/JPY. You see that the price at this particular moment is:
USD/JPY 104.41/104.45
This means that at this moment you can sell 1 US dollar for 104.411 Japanese Yen or buy 1 US dollar for 104.45 Yen.

Because you believe that the dollar is going to fall against the Yen, you take a SELL position. You might sell $100.000 USD, simultaneously buying 10,410,000 Yen. At the 1:200 margin that Easy-Forex allows you, your initial margin deposit would be only $500.

Then you wait for the dollar price to fall. As you expected, the USD/JPY pair falls to 103.41/103.45. This means you can now buy 1USD for 103.45 Yen and sell 1 USD for 103.41 Yen. You now buy dollars and sell back your Yen to make your profit. If you buy $100,000 USD at the current rate of 103.45, it now costs you 10,345,000 Yen. Since you bought 10,410,000 Yen, you have made a profit of 65,000 Yen. Use the currency exchange to see what this is in dollars.

Do you see how exciting this can get? With Easy-Forex you are guided to simple trades to start off with and only risk small amounts of money. You soon become more experienced and you can find yourself making bigger and bigger profits. Learn more at
http://www.bizwrite.co.uk/Forex/forexindex.html

Making a profit on the Forex market

Obviously, you are in Forex trading in order to make a profit!

The simplest way to look at it is, that you enter the market as EITHER a "buy position", or "going long" or in a "long trade"
OR a "sell position", or "going short", or in a "short trade".

For instance, suppose you have been using Technical Analysis and/or Fundamental Analysis to conclude that the Euro is going to rise against the US dollar. So you want to BUY the EUR/USD pair - that means, you simultaneously buy euros, which in this pair are the base currency, and sell dollars. So when you enter the market, you may see that the pair is trading at:
EUR/USD: 1.4322/25
The price to the left of the stroke is the "bid price" - what you obtain in USD when you sell one Euro. The sum to the right of the stroke is the "ask price" - what you pay in USD if you buy Euro.

As you have concluded that the Euro is going to go higher against the dollar, you want to enter a BUY Position or a LONG TRADE. Suppose you buy one lot at 1.4325. Assuming you are right and the price goes higher, you can sell it back at a higher price and bingo! you've made a profit!

Tomorrow we will do an illustration of a "sell position" or a "short trade". But I hope you are beginning to see that there is absolutely no reason why you can't make money in Forex trading. If you are using a well-organized trading platform like Easy-Forex, you can start making simple trades straight away, with full personal advice and guidance - and you'll very quickly find out how exciting it is!
Find out more at http://www.bizwrite.co.uk/Forex/forexindex.html