Thursday, 31 January 2008
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.
Wednesday, 30 January 2008
Monday, 28 January 2008
Friday, 25 January 2008
Wednesday, 23 January 2008
Tuesday, 22 January 2008
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
Monday, 21 January 2008
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.
Sunday, 20 January 2008
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
Friday, 18 January 2008
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).
Wednesday, 16 January 2008
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.
- 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.
- 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
Tuesday, 15 January 2008
Sunday, 13 January 2008
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
Saturday, 12 January 2008
Tuesday, 8 January 2008
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.
Sunday, 6 January 2008
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:
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
Saturday, 5 January 2008
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".
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