21‏/12‏/2008

Forex Trading Education - The London Open Checklist

A thorough Forex trading education must include an understanding of the effect market timings can have on trading and liquidity.One of the most active periods of the day is from the time the London market opens. Often around that time good trading opportunities will appear.As part of your Forex trading education, learn to analyze market conditions around London open and begin to recognize good setups.The following questionnaire and checklist will help.London Open PreparationAbout 15 to 30 minutes before London open check the answers to these questions:- Are the MACD indicators on the 4 hour and 1 hour charts in agreement? If they are not going in the same direction be very careful!- Is there MACD divergence on the 4 hour, 1 hour, or 15 minute chart? Look for other clues to confirm that price may go in the direction of MACD divergence.- On the 4 hour chart what is the overall trend?- Do a Fibonacci calculation on the last swing high and low and see if price is pulling back to an optimum retracement level or whether it is reaching a key extension level.- Note price in relation to the 200 EMA (Exponential Moving Average) on the 4 hour, 1 hour and 15 minute charts. Is price bucking the trend? In other words, is price above the 200 EMA on the 4 hour and 1 hour chart but below it on the 15 minute? Then be prepared for price to go long at some stage. (Draw the opposite conclusion if price is below the 200 EMA on the 4 hour and 1 hour chart but above it on the 15 minute chart.)- Are any Economic Reports imminent?- As the candle closes on the 15 minute chart at London open, do you see any distinctive candle patterns such as tweezers, or doji's or hammers indicating price exhaustion?- If I entered a trade right now in a particular direction, what would be the risk and where would I place my stop?Within a few minutes of London open, if you see a number of factors converging from the analysis above, make a decision one way or the other:- trade- wait for clearer signals or a better entry pointCarrying out an analysis in this way each day at London open will do much to increase your Forex trading education.It will make you aware of what is happening on the charts and in the marketplace and help you to arrive at conclusions.There is no magic formula involved with Forex trading education. Put simply, successful Forex trading is the result of years of hard work, study, practice, and experience often gained through painful trading scenarios.Eventually the newer trader learns mental discipline, and how to control the emotions - probably the biggest part of a Forex trading education.Practice a procedure like the one above day after day and begin to see some progress as you get nearer the time you make profits consistently from currency trading.

Forex Glossary

Here are some of the most common terms used in FOREX trading.Ask Price ¨C Sometimes called the Offer Price, this is the market price for traders to buy currencies. Ask Prices are shown on the right side of a quote ¨C e.g. EUR/USD 1.1965 / 68 ¨C means that one euro can be bought for 1.1968 UD dollars.Bar Chart ¨C A type of chart used in Technical Analysis. Each time division on the chart is displayed as a vertical bar which show the following information ¨C the top of the bar is the high price, the bottom of the bar is the low price, the horizontal line on the left of the bar shows the opening price and the horizontal line on the right of bar shows the closing price.Base Currency ¨C is the first currency in a currency pair. A quote shows how much the base currency is worth in the quote (second) currency. For example, in the quote - USD/JPY 112.13 ¨C US dollars are the base currency, with 1 US dollar being worth 112.13 Japanese yen.Bid Price ¨C is the price a trader can sell currencies. The Bid Price is shown on the left side of a quote - e.g. EUR/USD 1.1965 / 68 ¨C means that one euro can be sold for 1.1965 UD dollars.Bid/Ask Spread ¨C is the difference between the bid price and the ask price in any currency quotation. The spread represents the broker's fee, and varies from broker to broker.Broker ¨C the intermediary between buyer and seller. Most FOREX brokers are associated with large financial institutions and earn money by setting a spread between bid and ask prices.Candlestick Chart - A type of chart used in Technical Analysis. Each time division on the chart is displayed as a candlestick ¨C a red or green vertical bar with extensions above and below the candlestick body. The top of the extension shows the highest price for the chart division and the bottom of the extension shows the lowest price. Red candlesticks indicate a lower closing price than opening price, and green candlesticks indicate the price is rising.Cross Currency ¨C A currency pair that does not include US dollars ¨C e.g. EUR/GBP.Currency Pair ¨C Two currencies involved in a FOREX transaction ¨C e.g. EUR/USD.Economic Indicator ¨C A statistical report issued by governments or academic institutions indicating economic conditions within a country.First In First Out (FIFO) ¨C refers to the order open orders are liquidated. The first orders to be liquidated are the first that were opened.Foreign Exchange (FOREX, FX) ¨C Simultaneously buying one currency and selling another.Fundamental Analysis ¨C Analysis of political and economic conditions that can affect currency prices.Leverage or Margin ¨C The ratio of the value of a transaction to the required deposit. A common margin for FOREX trading is 100:1 ¨C you can trade currency worth 100 times the amount of your deposit.Limit Order ¨C An order to buy or sell when the price reaches a specified level.Lot ¨C The size of a FOREX transaction. Standard lots are worth about 100,000 US dollars.Major Currency ¨C The euro, German mark, Swiss franc, British pound, and the Japanese yen are the major currencies.Minor Currency ¨C The Canadian dollar, the Australian dollar, and the New Zealand dollar are the minor currencies.One Cancels the Other (OCO) ¨C Two orders placed simultaneously with instructions to cancel the second order on execution of the first.Open Position ¨C An active trade that has not been closed.Pips or Points ¨C The smallest unit a currency can be traded in.Quote Currency ¨C The second currency in a currency pair. In the currency pair USD/EUR the euro is the quote currency.Rollover ¨C Extending the settlement time of spot deals to the current delivery date. The cost of rollover is calculated using swap points based on interest rate differentials.Technical Analysis ¨C Analysis of historical market data to predict future movements in the market.Tick ¨C The minimum change in price.Transaction Cost ¨C The cost of a FOREX transaction ¨C typically the spread between bid and ask prices.

Risks by the foreign exchange on Forex

The Forex is essentially risk-bearing. By the evaluation of the grade of a possible risk accounted should be the following kinds of it: exchange rate risk, interest rate risk, and credit risk, country risk.Exchange rate risk. Exchange rate risk is the effect of the continuous shift in the worldwide market supply and demand balance on an outstanding foreign exchange position. For the period it is outstanding, the position will be subject to all the price changes. The most popular measures to cut losses short and ride profitable positions that losses should be kept within manageable limits are the position limit and the loss limit. By the position limitation a maximum amount of a certain currency a trader is allowed to carry at any single time during the regular trading hours is to be established. The loss limit is a measure designed to avoid unsustainable losses made by traders by means of stop-loss levels setting.Interest rate risk. Interest rate risk refers to the profit and loss generated by fluctuations in the forward spreads, along with forward amount mismatches and maturity gaps among transactions in the foreign exchange book. This risk is pertinent to currency swaps, forward outright, futures, and options (See below). To minimize interest rate risk, one sets limits on the total size of mismatches. A common approach is to separate the mismatches, based on their maturity dates, into up to six months and past six months. All the transactions are entered in computerized systems in order to calculate the positions for all the dates of the delivery, gains and losses. Continuous analysis of the interest rate environment is necessary to forecast any changes that may impact on the outstanding gaps.Credit risk. Credit risk refers to the possibility that an outstanding currency position may not be repaid as agreed, due to a voluntary or involuntary action by a counter party. In these cases, trading occurs on regulated exchanges, such as the clearinghouse of Chicago. The following forms of credit risk are known:1. Replacement risk occurs when counterparties of the failed bank find their books are subjected to the danger not to get refunds from the bank, where appropriate accounts became unbalanced. 2. Settlement risk occurs because of the time zones on different continents. Consequently, currencies may be traded at the different price at different times during the trading day. Australian and New Zealand dollars are credited first, then Japanese yen, followed by the European currencies and ending with the U.S. dollar. Therefore, payment may be made to a party that will declare insolvency (or be declared insolvent) immediately after, but prior to executing its own payments.Therefore in assessing the credit risk, end users must consider not only the market value of their currency portfolios, but also the potential exposure of these portfolios. The potential exposure may be determined through probability analysis over the time to maturity of the outstanding position. The computerized systems currently available are very useful in implementing credit risk policies. Credit lines are easily monitored. In addition, the matching systems introduced in foreign exchange since April 1993 are used by traders for credit policy implementation as well. Traders input the total line of credit for a specific counterparty. During the trading session, the line of credit is automatically adjusted. If the line is fully used, the system will prevent the trader from further dealing with that counterparty. After maturity, the credit line reverts to its original level.Dictatorship risk. Dictatorship (sovereign) risk refers to the government's interference in the Forex activity. Although theoretically present in all foreign exchange instruments, currency futures are, for all practical purposes, excepted from country risk, because the major currency futures markets are located in the USA. Hence, traders have to realize that kind of the risk and be in state to account possible administrative restrictions

Short data about the origin and development of the currency exchange market

Currency trading has a long history and can be traced back to the ancient Middle East and Middle Ages when foreign exchange started to take shape after the international merchant bankers devised bills of exchange, which were transferable third-party payments that allowed flexibility and growth in foreign exchange dealings.The modern foreign exchange market characterized by periods of high volatility (that is a frequency and an amplitude of a price alteration) and relative stability formed itself in the twentieth century. By the mid-1930s the British capital London became to be the leading center for foreign exchange and the British pound served as the currency to trade and to keep as a reserve currency. Because in the old times foreign exchange was traded on the telex machines, or cable, the pound has generally the nickname “cable”. After the World War II, where the British economy was destroyed and the United States was the only country unscarred by war, U.S. dollar, in accordance with the Breton Woods Accord between the USA, Great Britain and France (1944) became the reserve currency for all the capitalist countries and all currencies were pegged to the American dollar (through the constitution of currencies ranges maintained by central banks of relevant countries by means of the interventions or currency purchases). In turn, the U.S. dollar was pegged to gold at $35 per ounce. Thus, the U.S. dollar became the world's reserve currency. In accordance with the same agreement was organized the International Monetary Fund (IMF) rendering now a significant financial support to the developing and former socialist countries effecting economical transformation. To execute these goals the IMF uses such instruments as Reserve trenches, which allows a member to draw on its own reserve asset quota at the time of payment, Credit trenches drawings and stand-by arrangements. The letters are the standard form of IMF loans unlike of those as the compensatory financing facility extends financial help to countries with temporary problems generated by reductions in export revenues, the buffer stock financing facility which is geared toward assisting the stocking up on primary commodities in order to ensure price stability in a specific commodity and the extended facility designed to assist members with financial problems in amounts or for periods exceeding the scope of the other facilities.At the end of the 70-s the free-floating of currencies was officially mandated that became the most important landmark in the history of financial markets in the XX century lead to the formation of Forex in the contemporary understanding. That is the currency may be traded by anybody and its value is a function of the current supply and demand forces in the market, and there are no specific intervention points that have to be observed. Foreign exchange has experienced spectacular growth in volume ever since currencies were allowed to float freely against each other. While the daily turnover in 1977 was U.S. $5 billion, it increased to U.S. $600 billion in 1987, reached the U.S. $1 trillion mark in September 1992, and stabilized at around $1.5 trillion by the year 2000. Main factors influences on this spectacular growth in volume are mentioned below. A significant role belonged to the increased volatility of currencies rates, growing mutual influence of different economies on bank-rates established by central banks, which affect essentially currencies exchange rates, more intense competition on goods markets and, at the same time, amalgamation of the corporations of different countries, technological revolution in the sphere of the currencies trading. The latter exposed in the development of automated dealing systems and the transition to the currency trading by means of the Internet. In addition to the dealing systems, matching systems simultaneously connect all traders around the world, electronically duplicating the brokers' market. Advances in technology, computer software, and telecommunications and increased experience have increased the level of traders' sophistication, their ability to both generate profits and properly handle the exchange risks. Therefore, trading sophistication led toward volume increase.

Online Currency Trading requires Patience

When the going gets tough, the tough get going. This adage often brings back the memories of my past days when I was trading initially in the currency exchange market. Indeed, there's nothing more hurtful than losing your invested money in the FX market. But, online currency trading is like life where you're got to learn from your wrong moves and keep moving on. Learning the basic skills of online forex trading could be easy but, practically, one needs to acquire the advanced skills to play safe through thick and thin of FX trading.I have traded in forex for many years and, if you count on me, I must tell you that the secret of successful trading lies largely on the hunch and intuition of an trader. Technically expressed, you should have the accurate forex alerts and forex signals to be able to make the right moves in the currency market. However, this is easier said than done as the skills of the Currency Trading Signal takes a long time to master. This is why while a few people are able to boost their forex pips in a short span of time, the others take a long time to achieve the same or maybe, some of them get frustrated and just give it up! The reality is that not many people are ready to be entirely devoted to the perilous process of online forex trading. Having said this, I still wonder why some people choose to be a dare-devil and risk their money instead of simply following an established and renowned Account Forex Online Trading. I began trading in 1997 and there is one important thing I have learnt in my trading career so far, i.e., you have to got to be patient to learn the tricks of making right moves at the right times and profit from your trading.Since I have led quite a successful career in forex trading, I have been sharing the tips and tricks of online currency trading with many traders around the world through my G7 Forex Trading System which as you know has remained pretty successful for many traders so far. My G7 Forex _______________ you will find many of my existing customers are pretty satisfied with the performance of their investments and in fact, most of them have been able to increase their forex pips drastically. You would be surprised to know quite a few of them haven't traded for a long time! Now, this is what we call success in the forex trading, eh?

what is forex

The international currency market Forex is a special kind of the world financial market. Trader’s purpose on the Forex to get profit as the result of foreign currencies purchase and sale. The exchange rates of all currencies being in the market turnover are permanently changing under the action of the demand and supply alteration. The latter is a strong subject to the influence of any important for the human society event in the sphere of economy, politics and nature. Consequently current prices of foreign currencies evaluated for instance in the US dollars fluctuate towards its higher and lower meanings. Using these fluctuations in accordance with a known principle “buy cheaper – sell higher” traders obtain gains. Forex is different in compare to all other sectors of the world financial system thanks to his heightened sensibility to a large and continuously changing number of factors, accessibility to all individual and corporative traders, exclusively high trade turnover which creates an ensured liquidity of traded currencies and the round - the clock business hours which enable traders to deal after normal hours or during national holidays in their country finding markets abroad open.Just as on any other market the trading on Forex, along with an exclusively high potential profitability, is essentially risk - bearing one. It is possible to gain a success on it only after a certain training including a familiarization with the structure and kinds of Forex, the principles of currencies price formation, the factors affecting prices alterations and trading risks levels, sources of the information necessary to account all those factors, techniques of the analysis and prediction of the market movements as well as with the trading tools and rules. An important role in the process of the preparation for the trading on Forex belongs to the demotrading (that is to trade using a demo-account with some virtual money), which allows to testify all the theoretical knowledge and to obtain a required minimum of the trade experience not being subjected to a material damage.

10% Of Traders Go Bankrupt

I was thinking about an article I read some time ago that 90% of traders who ever trade lose their account and that 10% actually go bankrupt. If the first number doesn’t scare you then the second definitely should.
Why is it then that there is such a large number of traders failing? It is not because they are stupid; in fact most traders have an above average IQ and are above average in most categories such as education and income. So why do they fail?
Lack of trading education!
By education I don’t just mean learning how RSI works or drawing lines on a chart. I mean thoroughly educating yourself in all aspects of your chosen profession. Educating yourself on the correct psychological approach to the market! Educating yourself in the correct risk management techniques relative to your account size. Educating yourself in the correct entry and exit methods for the trading style that suits you.
This, my friend, is where I hope to be of some help. I don’t have all the answers nor do I profess to be some kind of guru but I will do my best to point you in the right direction.
Common Misconceptions Of New Traders
They think they can trade consistently with an 80% accuracy.They think they can turn $1000 into $100,000 in six months.They think they can predict turning points in their given markets to within minutes.They think they can buy a system that is 100% accurate.They think they will quit their jobs and make a living full time after a few months of trading.
What’s the reason that so many new traders believe that trading is an easy way to make big profits? Propaganda!
We are continually bombarded in magazines, emails and the general media with claims of making astronomical amounts, just by applying the vendor’s latest method or system.
Don’t get me wrong, there is good stuff out there but the vast majority is not worth the price you pay. At www.surefire-trading.com I also recommend products but I have at least read the ebooks or courses and think they have some value to my subscribers and they all have a refund guarantee.
Fundamentals Of Trading
Trading is not an exact science. You can’t do X and get Y every time. It is as much an art as it is anything else. There is no magic formula. Trading is all about probability. It is the art of correctly applying a set of carefully thought out rules and allocating the probability of that event to result in success.
Each trade is an independent event. The market does not remember if you lost or made dollars the last time you traded.
The way you approach the market psychologically has as much to do with your success as any trading plan.
Risk management is crucial if you want to have any hope of becoming a successful trader.
Matching a method of trading with your personality is the only way you will ever feel comfortable in the markets.
An adequately funded account is necessary - not only to be able to take the trades you want, but also so you don’t feel every trade is a live or die situation.
The journey to the road of successful trading will make you confront your deepest fears. Your armor on this journey will be confidence, knowledge and belief in yourself that you can achieve your dreams.
Never, equate your success or failure in the markets with who you are as a person!
The Flaw In Our Emotions
As humans we have a natural tendency to try and influence our surroundings and events we take part in. This is one reason we, as a species, have succeeded but it is also one of the fundamental flaws we all have when trying to achieve success as a traders.
As traders we have to realize we have no control over the market and if we accept that then we have to accept that we can not influence the direction of the market.
The problem of course is we have a tendency to try and succeed and when inevitable losses come, it is easy to let those losses effect us emotionally. Becoming euphoric when you hit a winning streak is almost as detrimental as becoming depressed when you have a string of losses.
We as traders have to try and achieve the state of impartiality. We have to accept that we will have losses as readily as we will have wins. Reaching the stage where you can comfortably accept loss in the knowledge that your method of trading will produce profits in the longer term is the state we have to aspire to.
Risk Management
Whenever I think of risk management I always think of an article I read on 925 CTA programs between 1974-1995. It essentially confirmed what I have long held to be true. To summarize the report, of all the CTA’s who managed funds, the most consistently profitable were the ones with the best risk management systems.
To trade successfully you have to take a long look at yourself. Ask and answer the following questions.
How much equity do I need to start? How much should I risk on any one trade? Am I undercapitalized?
During the course of these lessons I will do my best to help answer these and other questions.
Entry And Exit
As a trader you will probably fall into two main categories, traders who like to trade the breakout and traders who like to join the trend once established. We could also add congestion traders, reversal type traders and mechanical signal traders but for the vast majority of traders you are going to fall into one of the two categories.
If you are a trend trader, you like to define a trend and then find a way in. This may be with the aid of fibonacci retracement levels, moving averages, Gann or one of the other many indicators available today. Your goal is to enter the trend as early as possible with the least amount of risk.
Breakout traders like to enter the market on the breakout of a previously identified range. This may be support/resistance areas, rectangles, triangles or one of the many other chart patterns. The secret to this type of trading is to determine a valid break.
In future lessons we shall begin to look at the more technical side of trading and how you can apply technical analysis to the markets to increase your probability of success.

21‏/12‏/2008

Forex Trading Education - The London Open Checklist

Forex Glossary

Risks by the foreign exchange on Forex

Short data about the origin and development of the currency exchange market

Online Currency Trading requires Patience

what is forex

10% Of Traders Go Bankrupt

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