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Tools Needed to Trade Forex News

Trading forex based on forex news is what all fundamental traders do and there are a number of technical traders who also use forex news when trading.  It is important that you find out what tools you need to trade fundamentally.  You should also consider the news items that you have to look at when you are trading fundamentally.

Economic and Political Forex News

Many new traders believe that economic news is the only forex news that they have to look at.  This is not actually true because political news and news relating to commodities are also very important.  The level of impact that the news has will depend on the currency you are looking at and the importance of the news.

Each day there are hundreds of news releases and a fair number of them should be ignored.  There are monthly and quarterly economic reports that you need to take note of because they have a large impact on the market.  The political news you need to look at is the elections and any policies coming into place that could affect the stability of the country.

A Forex Calendar

When you are looking at news you should know about the tools you need.  One of the best tools you can use is a forex calendar.  These calendars will list the releases which are coming up and what level of impact they will have on the market.  Most calendars will classify the news as high, medium or low impact.  Most traders concentrate on the high impact news and certain medium impact releases.  The low impact releases are generally ignored because it is felt that the impact will be mitigated by other forex factors.

The calendar can also be filtered to show the news releases of a single currency only.  It is important that you look at the news releases of both currencies in your currency pair.  A lot of new traders make the mistake of only looking at one currency.

A News Feed

While having an idea of when news is going to be released you should also be aware of any breaking news.  Breaking news can have a serious effect on the forex market if it is related to how stable the country seems.  A lot of integrated trading platforms will have a news feed.  However, most platforms do not have a good news feed and you will have to look elsewhere.

Many of the major news agencies will have a news feed that traders can use.  Of course, you need to verify that the feed is geared toward forex traders and not stock traders.  The news that a stock trader will use is different to the forex trader as it relates more to what is happening to companies.

Some news feeds are free to get while others require a payment.  Most of the paid services have a monthly subscription fee which you can pay through a number of methods.  You should check to see if the service you are going to get is worth the price you are paying.  The best way to do this is to look at what other traders have to say about the service.

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Forex Trading Strategies

Forex Trading Strategies For Part-Timers

Some people are not able to trade on a full-time basis.  These traders may have to undertake trades at the office, during their lunch break or when they get home from their full-time job.  This causes most of these traders to miss opportunities because of the liquidity of this financial market.  This could mean a missed opportunity to buy at a favourable price or a total loss of funds if a trade is not exited at the right time.

Time of Day or Night

There are particular forex trading strategies that this type of trader can use to alleviate the problems associated with part-time trading.  One of the strategies would be to trade based on the volume of trade during the 24 hour period.  You should trade in the currency pairs that are most active during the times when you are able to trade.  You may need to change to a less popular trading pair.  Check on the correlation between the pair you choose, so if you have a certain time of day when you have available time, you should study the marketplace and implement your trades.

Traders who have an inconsistent schedule have particular needs for trading.  These traders often pop in and out of the market throughout the trading period.

Stop-Loss

If you are only able to trade for about an hour every day, you will do better to use your computer as a partner.  Not being able to watch the market consistently, you will miss opportunities and having a software programme do the work for you may be a good idea.  An alternate strategy to use is to set stop-loss orders so if there is a sudden move in the market, you will be protected against losses.

Prices

If you have the chance to pop in and out of the market during your working day, you could rely on price action trading.  This requires you to analyse the charts or technical results of your currency pair and base your trades on what the charts indicate.  Choosing a time frame on the chart that suits your schedule is vital to using this strategy.

Other Forex Trading Strategies

If you fall into the category where you cannot even trade for short bursts or for a block of time during your day, there are other methods you can use to continue forex trading.

  • Investigate long-term trends.  Rather than depending on hourly charts, you should analyse the charts for a full day or a week.  This will give you the opportunity to trade even if you can only access your computer on a daily basis.
  • Use the available technology.  You can set up mobile phone alerts or email alerts to keep you up to date when you are not trading.
  • Once you have studied the market, you could choose to take fewer positions and hold them for a few days.  This will require knowledge about your currency pairs so you must understand what drives your pair and know the economic movements related to that pair.  Add stop-loss orders to all the trades you make to ensure minimal losses when the market takes a dive against you.

 

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Indicators For Foreign Exchange Traders

Most foreign exchange traders look for the perfect moment to enter a trade and wish that they had something that tells them when to buy or sell.  There are many different ways to trade this market and the methods are not all suited to all traders.  There are various indicators that can aid you in the search for the right time to go into or out of a position.

Tools for Trend Following

You can become profitable by using a counter-trend approach.  Most traders find it easier to trade in the direction of the trend.  The role of trend following tools is not to be used as an independent trading system.  It is to be used as a suggestion tool for entering either a long or short position.

Moving Average

This is one of the simpler trend following tools.  A moving average is representative of the average closing price for a number of days.  If you look at a 50 day/200 day average for a currency pair, the theory stands that it would be a favourable trend when the 50-day is shown at a level above the 200-day.  It will be unfavourable if the 50-day is under the 200-day.  This trend combination is ideal for identifying major movements in the market.  Bear in mind that you will always experience whipsaws, regardless of the moving average combination chosen.

The 10 day/30 day crossover is advantageous as its reaction is quicker to price changes than the 50 day/200 day.  The disadvantage of this crossover is that it is more prone to whipsaws.

You will benefit most by making a decision as to the combination which best suits your time frames.  From there you will be able to use these indicators to show if you should trade short or long.  You should not depend on it to tell you when to enter or exit your trades.

Tools for Foreign Exchange Trend Confirmation

A trend following tool indicates whether the main trend is up or down.  Many ask if this is reliable or not.  To make a decision as to whether it is accurate or not, you can use a trend confirmation tool.  This tool can at times be used to indicate buy and sell points, but this is not the intention.  You need a tool that confirms what you are following.

The essence of these tools is that if both are bullish, you can be confident in considering a long trade in your currency pair.  If they are both bearish, you can focus on selling your pair short.

Moving Average Convergence Divergence

This is one of the most useful and popular trend confirmation tools used.  It firstly measures the variance between two moving averages.  This variance is smoothed, followed by a comparison to its own moving average.  When the smoothed average rises over its own average it is positive and an uptrend can be confirmed.  The same applies for the reverse situation where the current average is below the moving average, it will be negative and confirmation of a downtrend is apparent.

These indicators are best indicated on graphs and you should ensure that you know what the indicators are trying to tell you.

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Payment Methods For Forex Brokers

The forex market is unlike other exchange markets in that forex brokers entice traders by promising no regulatory fees, data fees or exchange fees, and normally they promise no commission charges.  To the new trader this sounds ideal as trading with no fees payable is a huge advantage.  You must have a clear idea of the exact method of payment that forex brokers expect from you before you sign up.

Commission

Forex brokers generally make use of three types of commission structure.  Some of them offer a variable spread, some a fixed spread, while others charge a commission which is percentage-based on the spread.  This can be quite confusing for newcomers to this market.

The spread is the variance between the price the broker is willing to pay you for purchasing the current, the bid price, compared to the price at which the broker is willing to sell you a currency, the ask price.  For example, if your broker is offering you a fixed spread of two pips rather than a variable spread, the variance will always be two pips, irrespective of the volatility in the market.

In cases where a broker offers you a variable spread, you can expect regular movements which could be as low as 1.5 or as high as 5.  This depends on the currency pair you are trading and the volatility of the market.

There are brokers who may charge a tiny commission, sometimes two-tenths of a pip.  In these cases, they generally pass your order on to a larger market maker whom they have a credit relationship with.  If this is the case with your broker, you may be able to obtain tight spreads that are normally only available to larger traders.

Levels of Service from Forex Brokers

So you are wondering what each commission type offers you and how it will affect your trading.  Forex brokers and the services they offer vary greatly.  You have several other factors to consider when you decide on the most appropriate broker for your trading.

Not all forex brokers have the same market making advantages.  This financial market is an over the counter one and this means that banks, as the primary players in the market have credit relations with other banks and retail online brokers.  This is based on their creditworthiness and capitalisation of the organisation.  There are no centralised exchanges or guarantors involved in these transactions, only the agreement between the two players.  The effectiveness of your broker will be dependent upon his relationship with the bank and the level of trade undertaken with them.  Tighter spreads are obtainable if the broker is a high volume firm.

In cases where the broker has a good relationship with a number of banks, then he or she will pass that advantage on to you as the client.  Even if the broker widens the spread slightly to improve his profit, you may still obtain a more competitive spread than you would from his competitors.

Choice

If you deal with a broker that offers you guaranteed liquidity with attractive spread, you may want to settle for that.  Alternatively, you may be prepared to pay a fixed spread if you are certain that you are obtaining at-the-money trades every time.  You do not want to be in a situation where you have to bear the cost of slippage.

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Finding FX Rates for Day Trading

A lot of traders look at day trading as their means of using the forex market.  However, many of these traders do not know how to find the best FX rates for day trading.  There are certain rules that you should follow regarding the identification of the best rates for day trading.  When you follow these rules you have a better chance of opening a profitable trade.

FX Rates Intra-Day Trends

When you are looking at the FX rates that you should be trading, you need to look at the intra-day charts.  As day trading does not allow you to hold a position overnight there is no reason to spend time analysing longer trends. The intra-day trends you look for may be part of a longer trend and it is important that you make the most of them.  The trends will be both upward and downward, but it is important that you know when to lose your position.

The most successful day traders will use only strong trends to trade on because they can get the most profit from these trends.  When you look at the charts you should be able to see a distinct directional movement in the price.  If you do not then the currency pair may be ranging and you should not trade.  Day traders rarely make a profit off range trades because these are better suited to long-term strategies.

Be Patient with Your Trade

A lot of new day traders become flustered and impatient when they trade.  This often leads to the opening of positions in market conditions that are not ideal.  You have to wait for the correct market conditions for your trades.  It is possible to employ a range of different short-term strategies as part of your day trading.  When you do this you are able to take advantage of range and trend market conditions.

When the market is ranging you should look at very short-term trading strategies like scalping.  These strategies require very small movements in order to make a profit.  It is possible to find these movements in the range market.  When there is a strong trend you need to look at a trend trading strategy instead.

Always Take Your Profits

When you day trade it is very important that you take the profits you make.  Holding onto a trade can cause losses because of the natures of day trading.  The intra-day charts will move in waves and you need to ride these waves correctly.  When there is a turn you should close your position and look at opening a new one.  This way you could be profiting from two intra-day trends instead of trying to profit from one longer trend.

Know When the FX Rates Should be Traded

There are certain times in the day when you should not be trading certain FX rates.  These times generally correspond with the market sessions which are open.  You need to know when you should be trading certain FX rates and when you should not trade these rates.  When you know this you can pinpoint which currency pairs are best for you day trading based in your trading schedule.

 

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The Phases of FX Trading

When you are FX trading there are three phases that you should know about.  These phases are something that all traders will go through.  It is important that you not only know what the phases are, but what they entail and what you should be doing during these times.  Once you know what is expected of you it is possible to be more successful in your trading.

The FX Trading Down Time

Down time in FX trading is not like down time in other aspects of life.  Down time generally brings the image of relaxation, but this is not the case with trading.  Trading down time is when you have hit a losing streak or are not making much of a profit.  This is where most traders will actually start because they are still getting into trading forex.

When you are in down time you should ask yourself some questions which can help you get out of this phase:

  • The first question you should ask is whether your trading plan is complete and works.  If you have never tested your plan then you need to get a demo account and test it.  You should also make sure you actually have a plan that you are going to trade on.
  • The second question you should ask is whether your trading plan suits the market conditions.  If you are meant to trade on a trend and the market is ranging you will lose money.
  • The third question you should ask is whether your trades are too risky or not.  If you have opened a number of high risk trades you are likely to lose more money on a smallest turn.
  • The fourth question you should ask is whether or not you have been following your trading plan.  The only way to be successful in trading is to follow your trading plan.

The Up Time

Up time in FX trading is when you are actually making a profit.  This is the best time for traders and you need to ask yourself some questions to ensure that you can replicate this up time in the future:

  • The first question you should ask is why your trading plan is working now.  You need to consider the market conditions and see what the currency pair is doing.  All of these small details build up to create the up time.
  • The second question you should ask is whether you are using stops.  Stop loss and trailing stops should be employed to ensure you do not hit a down time.  These orders limit the losses you face when you trade.

Neutral Time

Neutral time is when you should not be trading at all.  This phase often comes when you understand what is causing your down time and stop trading.  The most successful traders know when to trade and more importantly know when not to trade.  By employing neutral time you can protect your trading account balance and stop your trading mentality falling into down time.  It is also easier to identify when you up time starts when you are in a neutral phase.

 

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