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.