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