Review Category : Trading Education

Foreign Currency Exchange Techniques That Can Improve Your Results

Foreign Currency Exchange

It’s not that uncommon to hit a bad patch when trading foreign currency exchange. If you find yourself making a series of losses, just stop everything and take a break. Do something different, so that your mind can break out of whatever funk it’s in and get back on a highly creative track. Then, settle back down by examining all the main charts of the currency pair that interests you. Start with a monthly chart. Put a “Zig Zag” indicator on it, to pick up the main trend. Move on a weekly chart, layering on a “Keltner Channel” to pick up on volatility patterns. Now, examine the daily chart with a pair of 20- and 50-period weighted moving averages. Add a “Know Sure Thing” momentum oscillator to the chart. What’s going on should be quite clear, at this point.
A successful trading strategy is one that makes a profit 6 out of 10 times, at least. If this isn’t happening to you, go back to the drawing board – immediately.

Why You Have Been Unsuccessful With Foreign Currency Exchange So Far

Many forex beginners are not aware that there are free “demo accounts” available or don’t practise on them enough before they switch over to a “real account”. As a result, they have insufficient experience with the vagaries of the market (and, get caught on the wrong side of too many trades) or they use too high leverage ratios for longer-term trades (and their trade gets blown away by a price spike) or they don’t use stop losses (which could have cushioned the blow of a bad trade) – or, a combo of all three reasons happened. You could – rather uncharitably – also say that there’s also a high chance that they didn’t do enough research before jumping into the world’s largest capital market.

Widely Used Techniques To Help You Profit From Foreign Currency Exchange

Very short-term traders – aka, “day traders” – buzz in and out of the marketplace in short bursts of time, grabbing a bunch of pips and exiting the scene as fast as they can. The reason for this is that they’re fuelling their trading with very high leverage ratios (i. e., 100:1 or higher) that do not allow them to dally around, least they get fried by some whipsaw pricing action. Long-term traders are most interested in trends. Specifically, they want to try to find an evolving trend where they can slide into a position and safely surf it into the sunset. Since they might be in the market for days, they use relatively low leverage ratios (i. e., 30:1 or less).

Knowing When To Try A New Foreign Currency Exchange Technique

Several brokerage firms offer “perpetual demo accounts” (meaning that they don’t automatically shut down after 30, 60 or 90 days, like most “demos” do). Such a demo would be the perfect for trying out a new trading strategy or technique. In addition, there are a few charting websites on the internet that can also serve this purpose. For instance, both “tradingview.com” and “netdania.com”, offer sophisticated charting options – for free. Realistically, however, “if it ain’t broke, don’t fix it”. Translation: if you have a strategy that makes a profit 6 out of 10 times (with minimal losses during the other times), keep it and use it – again and again. If the world is already your oyster, why bother with new seafood?

 

 

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What Should You Research Before Trading Foreign Currency Exchange

Forex

What Should You Research Before Trading Foreign Currency Exchange
When you start trading foreign currency exchange, you’ll discover that there are a lot of trees in the forests and the forests can be so dense that it’s hard to see the trees. Through research, you can figure out which forests and what trees are really important and which ones are not. This will give you the confidence to trade on what your charts and trade signals are telling you – even if no one else is doing what you are thinking of doing. A great example of this is Australia’s upcoming LNG export situation. A little research shows that it will be Japan and South Korea who should benefit the most from receiving such energy supplies – not China. That makes the weekly chart of the AUD/JPY even more interesting than before, doesn’t it? Watch momentum on the approach to AUD/JPY 108.00.
Listening to non-traditional news sources can pay off. For Japan, there’s NHK, the BBC of Japan. There’s also a superb Australian forex trader, Eamonn Sheridan, at “forexlive.com”.

Why Research Is Key To Foreign Currency Exchange Success

In forex, knowledge is power. To the degree that you constantly seek to learn more about everything that affects the currency pairs that you are trading, you’ll be able to maintain an edge that should reward you with a very profitable trading career. For instance, if you’re trading the AUD/JPY, it’s not that hard to keep up with news about Australia, but you might be thinking that it’s hard to keep up with news about the Japanese yen. Not if you’re reading “nhk.or.jp” (the BBC of Japan) every day or constantly checking into Eamonn Sheridan’s Asian trading session blog at “forexlive.com”. Mr Sheridan is a former forex bank dealer and he is on top of all things Japanese, particularly the AUD/JPY.

What Forms Of Research Are Best For Foreign Currency Exchange Trading?

Each currency pair trades a bit differently than its cousins and neighbours. So, to a large degree, you have to tailor your research to which currency pairs you are interested in. Anyone trading the AUD/USD has to remember China. This means adding a daily reading of “xinhuanet.com” to your schedule, at a minimum. For the USD/JPY, keeping a keen eye on US Government bond rates (available in the “Market Data” section of “Bloomberg.com”) is a very good idea (since higher Treasury rates, particularly in the 10-year, mean a higher USD). For the euro, knowing what the “market makers” (like Barclays) are thinking is mandatory. Here, “efxnews.com” comes in very handy, particularly if you don’t have the time to peruse bank websites.

Making Hard Work Pay Off In Foreign Currency Exchange Trading

If you want to be wildly successful, specialise. Pick only 1 or 2 currency pairs and just follow them like a hound dog. If your pairs have the USD in them, then you are going to have to watch the US Federal Reserve’s “FOMC” decisions (and press conferences) like a hawk. (Just tune in “federalreserve.gov/mediacenter/media”.) If your pairs have the EUR in them, then you’re going to have to become a Dr Draghi monthly video press conference fan (at “ecb.europa.eu/press/tvservices/webcast”). For GBP-related trades, Governor Carney can be kept up with by visiting the Bank of England’s website, at “bankofengland.co.uk/publications/pages/speeches”. And, don’t forget Mr Kuroda and his marvellous Oxford English! The current Bank of Japan Governor can be found at “boj.or.jp/en/announcements/press”.

 

 

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Foreign Currency Exchange Can Be To Your Serious Advantage

Foreign Currency Exchange

Trading foreign currency exchange should be part of everyone’s investment portfolio. The advantages far outweigh the disadvantages. For instance, forex is the most global of all capital markets and, due to the way it operates, you can just about launch a trade any time you want to. In addition, most accounts allow for highly leveraged trading – a “day traders” dream come true (particularly since there’s no prohibition (or fees) against selling short). It’s also possible to do something in forex that you cannot do in any other public investment venue – regional arbitrage of the same currency pair, but in different time zones of the same “day”. For anyone specialising in the AUD/USD, this is an interesting – and, potentially lucrative – factoid.
If you don’t have a lot of time to devote to forex, just “trend-trade”. Trading trends involves getting into an evolving trend early in its march and just surfing the ride for fun and profit. Positive interest rate carry currency pairs, like the AUD/JPY or USD/JPY, are particularly well suited.

Starting To Trade Foreign Currency Exchange When You’re Short Of Time

Low maintenance forex trading is possible if you’re the type of person who likes to (or has to) keep up with global economic and political events. What you do is trend-trade only where you know a sea of change is sweeping through all or part of the world. A perfect example is the 2013 Bank of Japan’s about-face on monetary policy which will gradually weaken the yen to at least USD/JPY 120.0000. The US Federal Reserve’s “taper” decision has also doomed any further ascent of the Canadian dollar, whose weekly (USD/CAD) chart is now sporting a 2-year “rounding bottom” – a bullish formation if there ever was one. As with all long-term trades, keep your leverage low (i. e., 20:1 or less).

Making Serious Money With Foreign Currency Exchange

The way to correctly judge when and where to get into a long-term trade is to pull up a daily chart of the currency pair that you’re interested in and then place a “Zig Zag” indicator on it (to see the main trend and where it’s going). Then, add “Bollinger Bands®“ or a “Keltner Channel” to the chart. Look for areas where the price either pierces the top of the Bands (or Channel) or plunges through the bottom of the Bands (or Channel). It is at these extreme pricing points that you want to enter your trade (i. e., “buying low” or “selling high”). If necessary, scale your chart to 4-hour intervals and add a “Stochastic RSI” for trade signal confirmation.

Tips For Making A Successful Foreign Currency Exchange Trade

In forex, not all days of the week are equal. Unless you have a compelling reason, forget trading on Mondays. Not everyone is back in the office and many traders wait to see what North America is going to do before committing themselves to any significant positions. Tuesday mornings and Wednesday mornings, are on the other hand, are great. Trade volume is high and spreads are normally tight. Thursday mornings can be problematic, depending upon which central bank is giving a press conference, etc. Get out of all your trades by Friday noon. Trading interest (and liquidity) starts to dry up and spreads are not great. Start your weekend early, but don’t forget to review your charts before Monday morning.

 

 

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FX Trading Grows in Popularity

FX Trading

There are not one or two advantages to FX trading. There is an entire list of benefits. It is the many pros that are leading more and more traders into swapping out of stock markets and into the foreign currency exchange. The myriad of reasons forex is better than the stock market are shared here to help you decide if it is the right path for you or something you would like to diversify into. Often the best choice in investing is to diversify to ensure the best possible profit.

FX Trading with No Commissions

Spot currency trading does not carry commissions on trades. There is a fee called a spread in which the buy and sell rates are usually a few pips different. It is how the dealer makes his money FX trading. It does not mean there are absolutely no other fees to forex because anyone who decides to trade futures, options, ETFs or ETNs will find other fees do apply.

No government fees does not mean there are no taxes; however, you do not have any additional fees to pay other than taxes on income. The stock market does have commissions and various fees associated with it.

Spot trading is done with market makers or dealers. The bank is responsible for setting the trading prices meaning there is no middle person. The rates are not going to change from the bank to the dealer. The only change is how much spread they will charge, which does vary between brokers. You can also choose a platform that allows you to trade directly with the market without a dealer in the middle.

Lot sizes are fixed only in the beginning increment for FX trading. You might see 1,000, 10,000 or 1 million for the lot size, but you can decide how many you trade such as 5,000. You also have leverage, which helps you to put more into your investment than you have such as using 1,000 unit lot sizes where you have $25 AUD in your account.

Leverage is considered a benefit and a curse to trading. Leverage provides you a way to put more into the trade than you have in your account. However, it can also be a bad thing because you can hit margin call on a bad trade with too much leverage.

FX Trading Cornering the Market

It is not possible to truly gain the market as a single entity. No central bank can control FX trading and no person can, which is why it is easy for you to find a small corner for you to make profit with.

It is also an open market in terms of hours. Depending on where you live it might be a Monday through Saturday market or a Sunday through Friday market. New Zealand is the first to open, with Australia following a few hours later. After New York closes on Friday things stay closed until it is Monday in New Zealand; however, it is still Sunday in New York. With 24 hours of FX trading you have plenty of choices to make profit.

 

 

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FX Rates Protected by Trailing Stop

FX Rates

Stop losses and trailing stop losses help you exit a position before you lose too much of your hard earned money. The theory is that you set the stop loss or trailing stop loss to ensure no loss happens when FX rates begin to move. You can walk away and let your trade continue on without fear of loss. You might sit down at the pool in the hotel and look at your phone when you get an alert of the sale. Your worries do not exist. Of course you have to set your stop losses and trailing stop losses at an appropriate point first.

Following FX Rates with Trailing Stops

An example is the best way to bring the concept in discussion home. Say you decided to buy into the AUD/USD at .9300. It has been in a period of gain for AUD heading towards .9350. You decide to buy in at .9310 because you want to make certain the trend is still continuing. You wait until the rate moves to .9320 and you set a stop loss at .9312. This covers your 2 pip spread and ensures you at least break even. If the rate drops to .9312 your position is sold. Also note the stop loss is not tight to FX rates. If you had a stop loss only 2 to 5 pips from the current position you could sell out in a few seconds as the market bounces on the way up. It might also create slippage if volatility happens and the FX rates suddenly drop from .9320 to .9220 in one minute.

You never want to go tight on a currency rate. You also want to make certain to set the stop loss at a point that breaks even, if at all possible. It prevents loss. If you cannot wait then you may want to use the other option open to you which is the trailing stop.

It is like the stop loss only it trails after the current rate. If you set the trailing stop 8 pips from the current price then when the rate moves your trailing stop moves, always remaining 8 pips off the current price. If the price reverses then the stop will be enacted. As long as the FX rates do not move against you by 8 pips the position will be open. In other words, your trailing stop would remain at .9312 if the rate hits .9318. If it hits .9315 the stop is still at .9312. If the rate drops to .9311 you have closed your position at .9312. If the rate continues up instead going from .9320 to .9340 the trailing stop is at .9332.

FX Rates are Followed Only if the Market moves for You

The only way the trailing stop loss would move up or down is if the market is moving for your position. In other words if you buy in on FX rates for a gain on the base currency then the trailing stop follows until the rate starts to move against you hitting that stop loss.

 

 

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Your State Of Mind on the Foreign Exchange

foreign exchange

Most people do not realise that in life their physical actions are determined largely by what their mindset is like at any particular moment. When in anger many people lash out and forget their manners. Similarly, when depressed, many people stop working and start wallowing in their misery.

The same is true when it comes to foreign exchange. If you are emotional while trading then your actions would be different to if you were objective. In the majority of cases, this means losses. Thus, it is extremely important for you to prevent yourself from getting emotional. How does one do that though?

Just like your emotional state can affect your actions, you can implement actions that will affect your emotional state. In this way you can head off the aspect of getting emotional in the first place. Consider the following.

Look for Signals Instead Of Guessing

When you guess the direction of the market, you will automatically invest yourself emotionally to your foreign exchange trades because the decision would be made by your heart instead of your head. On the other hand, if your decision was based objectively on numbers or conditions which would combine as signals, then this would not happen to you.

Always Follow the Trend

What is a foreign exchange trend? It is a sustainable movement of forex rates in one direction. Sustainable is key here because it means that the rates would move in that one direction for the foreseeable future.

This is the easiest way through which you can make money on the foreign exchange which is why you should always try to take advantage of any trends that you spot in the market.

If You Lose Then Learn and Move On

Even if you are completely objective, you will lose some foreign exchange trades. These are dangerous situations because they can push a trader over the edge emotionally, especially if the losing streak is long or if the loss is too big.

Losing is inevitable in forex trading and instead of getting emotional about your losses you should study them, learn from them, and casually move on to your future trades.

Every Change in Strategy Must Be Analysed

There is a lot of power in consistency. This is particularly true for the forex market. If you can manage to be consistent then you can make a considerable amount of money on the foreign exchange.

Consistency is based on planning which means that you cannot change anything in your routine or your strategy without carefully analysing that change. Therefore, there should be no impulsive decisions and you should carefully analyse every titbit of information before changing anything.

Learn from Winners Too

It is not only your losing foreign exchange trades that have something to teach you about the market but also your winning trades. While your losses would show you what not to do your winners would show you what you should try to always do in the market. Therefore, you should analyse your winning foreign exchange trades as well.

 

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System for Choosing Australian Forex Brokers

Australian forex brokers

Gaining popularity for a profession means that it sees more participants whether it is in terms of individuals or organisations. In the Australian forex market, this means that there are increasingly more traders and more Australian forex brokers to cater to those traders.

However, along with the popularity comes a lot of risk because that popularity draws in scammers with scams designed to make a quick buck. This is again true for the forex market where scammers are found in both forex brokers and sellers of other forex services.

Any individual who is new to the market is a prime target for these conniving brokers because their lack of experience and knowledge makes them highly susceptible. Thus, you, as a new forex trader in the Australian market, need to have a system to protect yourself from such threats.

Learn about the Industry

Before you can spot anything awry in the service providers you are considering, you need to have a rough idea of what the norm is in the industry. This knowledge is crucial because if you do not know the usual offerings and practises of Australian forex brokers you would not be able to pick out brokers who are doing something different to make more money.

Moreover, knowing industry standards would also help you in choosing those brokers who are offering something unique.

Look into Licence Related Information

Most countries have licencing bodies which brokers have to conform to so as to provide their services in that market. In Australia, the concerned body is the Australian Securities and Investments Commission. You should look into what the Commission’s requirements are to provide licences to Australian forex brokers and which brokers it has provided the licence to.

Figure out What You Need from Your Broker

After you have some idea of the industry and regulatory requirements, you need to figure out what you will need from your Australian forex brokers. The clearer your understanding is of your own future needs, the more confidently you will be able to choose your broker and the happier you will be with your final choice. Furthermore, if you know your needs then you may not have to change brokers in the future.

Create a Shortlist of Contenders

After following the first three steps, you would have solid criteria on the basis of which you can evaluate various Australian forex brokers. You can now start considering various brokers and creating a shortlist on the basis of general things like reputation and presence in the market. This should give you a final shortlist to assess.

Compare Each of Them in Extreme Detail

In your shortlist, you should have around five or more Australian forex brokers. Your task now is to compare them to each other and find one which ticks as many boxes as possible. Essentially, you are looking for the best option from your shortlist of brokers and the only way this is possible is to compare their pros and cons and reward points.

 

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Forex Charts – Making Successful Trades

Forex Charts

A successful trader on the foreign exchange needs to have a complete arsenal of tools. Forex charts are one of those tools and reading them is an essential skill. It is not a difficult skill to learn but it does take some time to become comfortable with the data, how it is presented, and be able to know what you need to do instantly in order to take advantage of the trends being presented by the data.

Forex Charts – Presentation and Reading

There are several steps to gaining the proficiency that you need to be able to make use of the data presented by Forex charts. The first step is to understand that these charts are designed to present information in a concise manner. The information that is being presented is going to cover a great deal of data in a small amount of space and everything is set up with a very specific time frame.

The time frame for charted foreign exchange fluctuation data is going to vary. It is essential that you know and understand the time frame on the chart you are looking at because it can help you to interpret the data correctly. The more accurately you read the charts the more accurate your predictions about market movements are going to be in general. Forex charts are generally presented in four-hour intervals but can be done in smaller intervals such as thirty minutes.

Forex charts are presented in terms of particular pairings. This is helpful because it means you do not have to run through the forty-some odd pairings that make up the foreign exchange. You can pull information on the pairing you want and then evaluate it within the time frame that you want.

Forex Charts – Understanding the Data

The next step is to evaluate the data that is being presenting by the chart. The Japanese candlestick offers the starting price, the ending price, the direction the prices were moving, how much of a spread, and was there devaluation or a strengthening in the currency. It is a great deal of information in a very small amount of space.

It also provides you with all the information you need to make informed decisions about the orders you want to give and the strategies you want to employ with your foreign exchange investment portfolio. The information can be used to spot a trend. If you look at historical data and combine technical and fundamental analysis together you can create a powerful tool that can help you to predict when a fluctuation is going to happen before it happens, and allows you to determine if shorting the currency or going long is the right choice. It can also tell you approximately how long the fluctuations are going to last. This is one of the most important parts because it allows you to put in your stop order close to where the trend will start and set it up to become active when the trend starts, allowing you to maximise profit.

 

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Investigate Foreign Exchange Trading History

Foreign Exchange Trading

There is an entire section dedicated to historical and past events that also encompass big financial events and other big events throughout history. For those just starting to learn about foreign exchange trading looking at all this history can seem superfluous. The fact is history has made the world what it is today. From the beginning of coins and paper money to the more recent century, plenty of decisions have affected how the forex market works.

Without the pegged system turning into a free floating system it would be impossible for the small investor to make a pip much less thousands of pips on currency pairs. Without big banks creating trading platforms that allowed small traders like you into the mix with small mini lots you would not have the opportunity to make money with money.

Checking Out Foreign Exchange Trading Brokers

Retail forex brokers are only one type of choice you can use to get online and trade in the big guy’s game. Retail forex brokers only allowed the bigger players into the market for foreign exchange trading, but then the Internet opened up more possibilities where it was easy for the right account deposit to open an account. Now you will discover these retail forex brokers come in two types.

You have market makers which set their own buy/sell prices. They look around at the other banks, at what central banks are doing, and decide what the fairest bid/ask spread is going to be for the day based on the closing price of the previous day. ECNs or electronic communication networks will look to find the best buy/sell spread from the market makers. They ensure foreign exchange trading is competitive by providing prices from various banks in the Interbank market. You might trade with Barclay one day and use rates from Deustche Bank the next.

Market Makers and ECNs use the spread to make their money. It might seem like a small fee you are charged, but consider the millions of traders in the market. These small spreads add up and rather quickly.

Consider the AUD/USD is at .9700 for the day. This is the buy price and the sell price is .9702. It is a 2 pip difference, thus the spread is .0002 or 2. When you calculate profit on 2 pips it is not a whole lot, but when you have millions paying that price market makers have a very good profit.

ECNs can work a little differently where they may charge you a larger spread or commission.

Foreign Exchange Trading with ECNs

ECNs sometimes charge a commission instead of the pip spread because that is how they are able to make money off of the transaction they place for you. Sometimes they just add to the spread, so rather than seeing 2 pips you might notice 2.8 pips for the spread, in which the .8 is their fee, and the 2 goes to the foreign exchange trading market maker. Most ECNs tend to match to the stated prices with a small commission.

 

 

 

 

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How Foreign Currency Exchange Traders Make Their Money

forex

Making money by trading foreign currency exchange isn’t that hard, if you do the research and practice – before you start trading – that’s necessary to your continued success. Many beginners make the mistake of thinking that forex trading is like trading stocks, but it’s not – not by a long shot. Prices move faster and because forex is a global business, there are regional variations that can affect trading far more than you think. For instance, due to the preponderance of exporters in Asia, there’s a tendency to sell US dollars when Asia is open. On the other hand, banks in New York City prefer buying US dollars. In addition, forex accounts offer leverage ratios that stock market investors can only dream about.
The reason why you need to spend some quality time research this market is that there are certain interconnections that you must understand in order to not make a big mistake. For instance, the AUD/USD is affected by the monetary policies of 2 central banks – not just 1.

What Moves Foreign Currency Exchange Markets

Forex pricing is determined by a variety of factors, some of which are externally generated and some of which are internally generated. The largest external factor is central bank monetary policies (which control interest rates). Generally speaking, a currency that has a relatively high interest rate (e. g., the AUD/USD) attracts money, particularly if there is a chance of an interest rate increase. Many forex market participants like to have what is called a long position in a “positive interest rate carry” currency pair. In addition, technical indicators play an important role. For example, the “RSI” (a widely used technical indicator) on the weekly AUD/USD chart has been rising ever since mid-2013 – a very bullish “buy signal” for many traders.

Why You Need Foreign Currency Exchange Markets To Move In Order To Profit

In forex, the way you make a profit is by exploiting pricing discrepancies. These can only occur if prices are on the move. Therefore, in order to make a profit, you have to have a currency pair that is showing some kind of momentum. It doesn’t have to be much, since you can increase the amount of leverage you’re using to make the trade more profitable. For instance, the EUR/CHF moves about 50 pips per day – a snail’s pace, in terms of other forex pairs. However, if your trade is leveraged to the tune of 100:1, that’s a potential 50% profit/day. Obviously, if you were to use an even higher leverage ratio (e. g., 200:1), the potential profitability is even greater.

How Foreign Currency Exchange Positions Can Profit

One of the easiest ways to make a profit in trading forex is to open up a 1-hour chart of your favourite currency pair and to slap a “Williams Alligator” on it. The Alligator is composed of a trio of smoothed moving averages that show price changes at 3 levels of analysis. Because 1 of the moving averages is rather short, in terms of time periods, it tends to move over the other ones, when there’s a substantial change in pricing trends. This is a trading signal (to launch a trade in the direction of the crossover). Use a “Know Sure Thing” indicator to confirm the trade. If it is also crossing over, then go ahead with the trade.

 

 

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