Monday, May 5, 2008

Types of Trading

There are 2 basic types of analysis you can take when approaching the Forex:
1. Fundamental analysis
2. Technical analysis.
There has always been a constant debate as to which analysis is better, but to tell you the
truth, you need to have the knowledge of both. So let’s break each one down and then
come back and put them together.

Technical Analysis
Technical analysis is the study of price movement. In one word, technical analysis equal
to charts. The idea is that a person can look at historical price movements, and based on
the price action, can determine at some level where the price will go. By looking at
charts, you can identify trends and patterns which can help you find good trading
opportunities. The most IMPORTANT thing you will ever learn in technical analysis is
the trend! Many expert traders have a saying that goes, “The trend is your friend”. The
reason for this is that you are much more likely to make money when you can find a trend
and trade in the same direction. Technical analysis can help you identify these trends in
its earliest stages and therefore provide you with very profitable trading opportunities.

Fundamental Analysis
Fundamental analysis is a way of looking at the market through economic, social and
political forces that affect supply and demand. In other words, you look at whose
economy is doing well, and whose economy sucks. The idea behind this type of analysis
is that if a country’s economy is doing well, their currency will also be doing well. This is
because the better a country’s economy, the more trust other countries have in that currency.
For example, the U.S. dollar has been gaining strength because the U.S. economy is gaining strength. As the economy gets better, interest rates get higher to control inflation and as a result, the value of the dollar continues to increase. In a nutshell, that is basically what fundamental analysis is.
Based on experience and research, both technical and fundamental analyses are to gaze at
when you want to trade, each trade swings its focus more to one of the two; I will
basically say that economic news release is more fundamental, while session opening is
more technical. Therefore, watch out!
Fundamental Announcements provides some of the absolute best trading opportunities in
the FOREX markets, and it account for most of the considerably large market moves. In
general (but not always) the markets move relatively slowly when not affected by FA,
thus giving small profit opportunities. Immediately, and for a while after a significant
Fundamental Announcement the markets move strongly, thus providing great profit
opportunities.
Usually Fundamental Announcements are released at a scheduled time. This means that
you can know days in advance when a potentially great opportunity will happen… to the
minute! This could be found on some websites like www.forexfactory.com,
www.fxstreet.com. Focus on the Fundamental Announcements of the country or
economy that you are proposing or already trading their currency pairs for more profits.
Some of the major Global Economic Calendars (indicators) are state below and could be
very volatile and profitable. You cannot watch all the indicators because they change in
importance base on time and condition. Watch out for more insights of different
techniques and strategies of trading the FA indicators.
1. Trade Reports
2. Gross Domestic Product (UK)
3. Unemployment
4. Interest Rates Reports
5. Core Durable Goods (USD)
6. Retail Sales (USD)
7. Consumer Confidence
8. Trade Balance (USD)
9. ISM manufacturing Index and Prices (USD) (comes 1st of every month)
10. Non-Farm payroll (USD) (being announced every 1st Friday of the month)
11. Employment Change (it will happen the same day with non-farm payroll but an
hour before non- farm payroll).

As I stated before, the pros watch only six major currency pairs. Here they are:
The U.S. dollar vs. the Japanese yen
The U.S. dollar vs. the Swiss franc
The U.S. dollar vs. the Canadian dollar
The Euro vs. the U.S. dollar
The British pound vs. the U.S. dollar
The Australian dollar vs. the U.S. dollar

How to Open a Forex Account

What you need to put in place before trading Forex online are:
1. Domiciliary Account
2. Utility Bills
3. Means of Identification (International Passport, National ID Card or Driver’s
License)
4. Download the trading platform
5. Demo Trade
6. Open a Forex Account with a broker.
7. Fund the account base on your capacity.

HOW TO FUND A FOREX ACCOUNT
Funding your Forex account is so simple but some hidden charges need to be clear to you
before funding the account. And there are ways of transferring from your domiciliary
account to your Forex account in abroad.
The most reliable means of funding a Forex account is through Bank wire transfer i.e
through your domiciliary account. This means is safe and since there is no third party in
Forex, your money is secured.
Also, understand the transfer and withdrawing charges of your Bank before your make any transaction.
STEPS:
1. Get transfer form and details from your broker’s website.
2. Make the transfer and inform your broker so that your Forex account can be
funded.

HOW TO WITHDRAW FROM YOUR FOREX ACCOUNT
1. Simply download and fill the withdrawal form (usually available on your broker’s
website)
2. Signed the completed form and send either by Fax or E-mail)
3. The funds will be wire directly to your domiciliary account (within 48hrs).
NB: You can’t transfer or make withdraw into any other person’s account but yours as
there’s no third party in Forex.

How to Open a Forex Account

What you need to put in place before trading Forex online are:
1. Domiciliary Account
2. Utility Bills
3. Means of Identification (International Passport, National ID Card or Driver’s
License)
4. Download the trading platform
5. Demo Trade
6. Open a Forex Account with a broker.
7. Fund the account base on your capacity.

HOW TO FUND A FOREX ACCOUNT
Funding your Forex account is so simple but some hidden charges need to be clear to you
before funding the account. And there are ways of transferring from your domiciliary
account to your Forex account in abroad.
The most reliable means of funding a Forex account is through Bank wire transfer i.e
through your domiciliary account. This means is safe and since there is no third party in
Forex, your money is secured.
Also, understand the transfer and withdrawing charges of your Bank before your make any transaction.
STEPS:
1. Get transfer form and details from your broker’s website.
2. Make the transfer and inform your broker so that your Forex account can be
funded.

HOW TO WITHDRAW FROM YOUR FOREX ACCOUNT
1. Simply download and fill the withdrawal form (usually available on your broker’s
website)
2. Signed the completed form and send either by Fax or E-mail)
3. The funds will be wire directly to your domiciliary account (within 48hrs).
NB: You can’t transfer or make withdraw into any other person’s account but yours as
there’s no third party in Forex.

How do i Trade Forex?

Trading Forex could be as simple as it is being advertised but before you venture into
online Forex trading, kindly demo trade by downloading the trading platform from any
Forex broker’s website. Moreover, I will advise you start a METAQUOTE4 trading
platform as it is very easy to maneuver, customize and understand be it a beginner or an
expert. Let me sound this warning that there are lots of SCAM online that claims to be a
broker but you can check their rating on www.forexbastards.com/forexbrokerreviews.
I highly recommend that you only open an account with a registered broker. Having said
that, most Forex brokers provide, “free of charge”, an online trading platform that is
integral with decent charting software. I believe you can consider the data reliable and the
order execution proper as long as you are dealing with a registered broker. However,
some trading platforms and charting software are more intuitive and easier to use than
others, so in selecting a broker, you want to open a demo account first and get the feel for
that broker’s platform to see if it is comfortable for you. You will be able to determine
this with a little paper trading over a few days and weeks.

Also, you want to be sure that your brokers charting software is able to plot the indicators
that your trading methods call for. Most will be able to do this, but not all.
You select the pair of currencies with which you wish to make a Forex deal. You
determine the volume (the amount of the deal). You deposit the "margin" (collateral
needed to facilitate the deal. Usually - only a very small portion of the whole deal, say:
1% or 1:100).
Before you finally activate the deal, you can still "freeze" it for a few seconds (only
available at selected brokers). That enables you to either change the terms, or accept it as
is, or altogether regret the whole idea.
When your Forex deal is running, you can monitor its status and check scenarios online
whenever you wish. You may change some terms in the deal, or close it. Ultimately, you
remain in control, only you can decide when the time is right to cash in your profit! Some
Forex brokers will even let you determine a "take-profit" rate, with which the deal will
close automatically for you.

Psychology of Trading

Trade with a DISCIPLINED Plan:
The problem with many traders is that they take shopping more seriously than trading.
The average shopper would not spend $400 without serious research and examination of
the product he is about to purchase, yet the average trader would make a trade that could
easily cost him $400 based on little more than a “feeling” or “hunch.” Be sure that you
have a plan in place BEFORE you start to trade. The plan must include stop and limit
levels for the trade, as your analysis should encompass the expected downside as well as
the expected upside.
Cut your losses early and Let your Profits Run:
This simple concept is one of the most difficult to implement and is the cause of most
traders demise. Most traders violate their predetermined plan and take their profits before
reaching their profit target because they feel uncomfortable sitting on a profitable
position. These same people will easily sit on losing positions, allowing the market to
move against them for hundreds of points in hopes that the market will come back. In
addition, traders who have had their stops hit a few times only to see the market go back
in their favor once they are out, are quick to remove stops from their trading on the belief
that this will always be the case. Stops are there to be hit, and to stop you from losing
more then a predetermined amount! The mistaken belief is that every trade should be
profitable. If you can get 3 out of 6 trades to be profitable then you are doing well. How
then do you make money with only half of your trades being winners? You simply allow
your profits on the winners to run and make sure that your losses are minimal.

Do not marry your trades:
The reason trading with a plan is the #1 tip is because most objective analysis is done
before the trade is executed. Once a trader is in a position he/she tends to analyze the
market differently in the “hopes” that the market will move in a favorable direction rather
than objectively looking at the changing factors that may have turned against your
original analysis. This is especially true of losses. Traders with a losing position tend to
marry their position, which causes them to disregard the fact that all signs point towards
continued losses.

Do not bet the farm:
Do not over trade. One of the most common mistakes that traders make is leveraging their
account too high by trading much larger sizes than their account should prudently trade.
Leverage is a double-edged sword. Just because one lot (100,000 units) of currency only
requires $1000 as a minimum margin deposit, it does not mean that a trader with $5000 in
his account should be able to trade 5 lots. One lot is $100,000 and should be treated as a
$100,000 investment and not the $1000 put up as margin. Most traders analyze the charts
correctly and place sensible trades, yet they tend to over leverage themselves. As a
consequence of this, they are often forced to exit a position at the wrong time. A good
rule of thumb is to never use more than 10% of your account at any given time.

What is Forex Trading?

The word FOREX is derived from Foreign Exchange and is the largest financial market
in the world. Unlike many markets, the FX market is open 24 hours per day, 5 days per week and has an estimated $1.5 Trillion in turnover every day. This tremendous turnover is more than the combination of all the worlds' stock markets on any given day. This tends to lead to a very liquid market and thus a desirable market to trade.
Unlike many other securities (any financial instrument that can be traded) the FX market
does not have a fixed exchange. It is primarily traded through banks, brokers, dealers,
financial institutions and private individuals. Trades are executed through phone and
increasingly through the Internet. It is only in the last few years that the smaller investor
has been able to gain access to this market. Previously, the large amounts of deposits
required precluded the smaller investors. With the advent of the Internet and growing
competition it is now easily in the reach of most investors.

Forex Trading Terminology

Spot Deal: A deal taking part between two parties who can deliver a certain amount of
different currencies to each other within 2 business days of each other (excluding
Canadian dollar where the trade is executed within 1 business day)

Market Order/ Instant Execution: This is the execution you make when deciding to
buy/sell a currency. In other words you see a currency exchange rate quote on screen and
you place a ‘market order’ when you click the button to execute the trade.

Limit Order: This order type is used to buy or sell a pair at a predetermined price. A buy
limit order will only be filled if the market trades (ask) at or below the limit price. A sell
limit order will only be filled if the market trades (bid) at or above the limit price.

Stop Order: This order type is used to buy or sell a pair at a predetermined price. A buy
stop order will only be filled if the market trades (ask) at or above the stop price. A sell
stop order will only be filled if the market trades (bid) at or below the stop price.

Entry Orders: This is basically and advance order, you decide at what price you want to
buy or sell a currency and you place an ‘entry order’. As soon as the currency reaches this
rate your trade is executed.

Stop-Loss Order: This is a function offered by some brokers which is aimed at reducing
your risk; you can decide the maximum and minimum amount of profit or loss you want
to exit a trade at. In other words if you decide you are happy to make $500 from one trade
but don’t want to lose anymore than $500 should the trade go the other way you can
place this safety net on your trade.

Spread: The difference between the Bid and Ask price.

Lot: The amount of units of the base currency when you enter the market. I will like to
explain further in this as many are not getting the concept of the LOT. This is simple the
contract value of the currency you are buying or selling.

Trend: The direction the market is currently moving in.

Long Position: This is used to describe a market in a long-term buy trend.

Short Position: This is used to describe a market in a short-term sell trend.

What does it mean to be "long" or "short" a currency?
Being long means buying a currency. Being short means selling a currency. If a trader goes long GBP/USD, he or she buys GBP and sells USD. Buying a currency is synonymous with taking a long position in that currency. A trader takes a long position in a currency if he or she believes it will appreciate in value.
If a trader goes short GBP/ USD, he or she sells GBP and buys USD. Selling a currency is synonymous with shorting that currency. A trader would short a currency if he or she believes it will depreciate in value.

Bid and Ask Price: Currency is traded in pairs as mentioned above; where one is Base
and the other is Counter currency. The currencies are two-sided quoted, consisting “Bid”
and “Ask” e.g. 2.0440/2.0443. The bid is always lower than the ask price. The Bid is the
price at which the dealer is willing to buy the base currency in exchange for the quoted
currency. This means the Bid is the price at which you (as the trader) will sell i.e. 2.0440
The Ask is the price at which the dealer will sell the base currency in exchange for the
quoted currency. This means the Ask is the price at which you will buy. i.e. 2.0443.

Pip(s): Is the Percentage Interest Points and the last decimal point in a quoted price of
any currency. The most common increment of currencies is known as the "pip." It is the
smallest value change in a currency pair exchange rate. Example: the movement of GBP/USD of 1.7896 to 1.7897 signifies a pip movement. A positive or negative pip value
is how you calculate your profit or loss.

Benefits of Forex Trading

There are many benefits and advantages to trading Forex. Here are just few reasons why
so many people are choosing this market as a business opportunity:

1. LEVERAGE: In Forex trading, a small margin deposit can control a much larger
total contract value. Leverage gives the trader the ability to make extraordinary profits
and at the same time keep risk capital to a minimum. Some Forex firms offer 200 to 1
leverage, which means that a $50 dollar margin deposit would enable a trader to buy or
sell $10,000 worth of currencies. Similarly, with $500 dollars, one could trade with
$100,000 dollars and so on. Moreover, one must be careful when choosing leverage
because due to experience and research, it is very clear that leverage is misunderstood
and this misunderstanding is a root cause of Forex trading losses and the futile attempts
to overcome these losses without addressing the root cause.
Because of the high leverage that Forex offers, Forex positions require a much smaller
account size than stock. Stocks trading similar sized positions as Forex margin
requirements are much smaller than stock margin requirements. And so the reward can be
much greater with Forex, but at the same time, the risk is much greater. But this can be
dealt with effectively with good trading tactics and good money management rules that
allow for maximizing profit potential and minimizing risk.
Now, let me explain in a lame man way that the deposit (money) you have in your Forex
account with a broker is refers to as collateral (margin) for getting a loan (leverage) from
the broker to trade any required amount of currencies.

2. LIQUIDITY: Because the Forex Market is so large, it is also extremely liquid.
This means that with a click of a mouse you can instantaneously buy and sell at will. You
are never 'stuck' in a trade. You can even set the online trading platform to automatically
close your position at your desired profit level (limit order), and/or close a trade if a trade
is going against you (stop order).
3. PROFIT IN BOTH 'RISING' AND 'FALLING' MARKETS: On the stock
markets, you can only make money if shares are rising, but in economic recession and
falling 'bear' markets, there is little chance of making big money. Forex is different. One
of the most exciting advantages of FX trading is the ability to generate profits whether a
currency pair is 'up/bullish' or 'down/bearish'. A trader can profit by taking a 'long'
position, (buying the currency pair at one price and selling it later at a higher price), or a
'short' position, (selling the currency pair and buying it back at a lower price). For
example, if you think the US dollar will increase in value vs the Japanese Yen then you
will buy Dollars and sell Yen (go long). If you think the Yen will increase in value
against the Dollar then you will sell Dollars and buy yen (go short). As long as the trader
picks the right direction, a potential for profit always exists.

4. 24 HRS: From Sunday evening to Friday Afternoon EST the Forex market never
sleeps. This is very desirable for those who want to trade on a part-time basis, because
you can choose when you want to trade - morning, noon or night.

5. FREE 'DEMO' ACCOUNTS, NEWS, CHARTS AND ANALYSIS: Most
Online Forex firms offer free 'Demo' accounts to practice trading, along with breaking
Forex news and charting services. These are very valuable resources for traders who
would like to hone their trading skills with 'virtual' money before opening a live trading
account. I will also want to advise the newbies in the Forex market to at least “Demo
Trade” for 2 months uninterruptedly before going live trading because this will really
help build up strong emotions in live trading. Also, demo trade with what you will fund
your live account with. Take for instance, you wish to fund your live account with $500,
don’t demo trade more than what you will fund your live account with.
You must also take the demo trade serious and maintain the account like a real live
account. Apply all strategies on demo account before applying it on live account.

6. MINI & MICRO MINI TRADING: One might think that getting started as a
currency trader would cost a lot of money. The fact is it doesn't. Online Forex
Firms/Brokers now offer 'mini' trading accounts with a minimum account deposit of only
$200 - $500 with no commission trading. This makes Forex much more accessible to the
average individual, without large, start-up capital. But my personal perspective about the
Forex market is that the more money you have to trade the more you enjoy trading Forex.

How to Get Started In Forex Trading

You may have been hearing about the foreign exchange market (FOREX) and the investment advantages it offers. You would like to try it out, but don't know where to start. This short guide will give you the basics in FOREX and tell you what you need to participate in this fast growing field.Foreign exchange used to be limited to large players such as national banks and multi-national corporations. In the 1980's the rules were revised to allow smaller investors to participate using margin accounts. Margin accounts are the reason why FOREX trading has become so popular. With a 100:1 margin account, you can control $100,000 with a $1,000 investment.FOREX is not simple, however, and education is needed to make wise investment decisions. Although it is relatively easy to start trading on the FOREX, there are risks involved, so finding out as much as possible about the market is a good move for any beginner.FOREX traders usually require a broker to handle transactions. Most brokers are reputable and are associated with large financial institutions such as banks. A reputable broker will be registered as a Futures Commission Merchant (FCM) with the Commodity Futures Trading Commission (CFTC) as protection against fraud and abusive trade practices. Opening a FOREX account is as simple as filling out a form and providing the necessary ID. The form will include a margin agreement that states that the broker can interfere with any trade it deems to be too risky. This is to protect the interests of the broker - most trades, after all, are done using the broker's money. Once your account has been established, you can fund it and begin trading.Many brokers have different types of accounts to suit the needs of individual investors. Mini accounts allow you to get involved in FOREX trading for as little as $250, while standard accounts may have a minimum deposit of $1000 to $2500 depending on the broker. The amount of leverage - using borrowed money - varies with accounts. High leverage gives you more money to trade for a given investment.HOWEVER - beginner traders are advised get accustomed to FOREX by doing paper trades for a period of time. Paper trades are practice transactions that don't involve real capital. They allow you to see how the system works while learning how to use the various software tools that are at provided by most FOREX brokers.Most online brokers have demo accounts that allow you to make free paper trades for up to 30 days. Every new FOREX investor is strongly advised to use these demo accounts at least until they are showing consistently steady profits. Each broker has their own set of software tools to aid in making transactions, but there are a few tools that are common to all FOREX brokers. Real time quotes, news feeds, technical analyses and charts, and profit and loss analyses are some of the features you should expect to see on most online brokers' web sites. Almost every broker operates on the Internet. To access their online services you should have a reasonably modern computer, a fast Internet connection, and an up-to-date operating system such as Windows XP. Once your account is set up, you can access it from any computer - just enter your account name and password. If for some reason you are not able get access to a computer, most brokers will allow you to make trades over the phone.Trades are commission free, meaning that you can make many trades in one day without worrying about incurring high brokerage fees. Brokers make their money on the 'spread' - the difference between bid and ask prices.