FOREX TRADING

Forex Trading Training

The forex currency market is the largest financial market in the world, boasting an average daily turnover of greater than $3 trillion, forex is exploding in popularity and you can learn to trade it from a variety of sources on the internet. Beginning traders often learn how to trade online from a forex educational course or from any number of forex educational systems available on the internet. Whatever trading educational sources that you use to learn how to trade forex with, make sure they are genuine in their intentions and that they teach strategies that are actually effective.

The advantages that you get when you learn to trade forex are enormous; you can trade forex from virtually anywhere on earth with only an internet connection and a computer, you can get started with a very small amount of money, and there is very dense liquidity in the forex market. Having dense liquidity means that you can enter and exit the market whenever you want essentially, this is very important and you will realize exactly why as your trading training evolves. To learn how to trade forex effectively, you need the best forex training available, otherwise you will spend many months or years going through trial and error and losing money. Unfortunately, not all forex trading training is created equal; this is why you should look for a genuine and trusted forex mentor, preferably someone who is a both an experienced trader and mentor.

Learning how to trade the forex market is great because you can learn forex trading online; there is no need to go to seminars that push some thousand-dollar product down your throat. The amount of truly effective forex education information on the internet is increasing by the day, therefore, if you find genuine forex education information, you can learn to trade very effectively and for little money. The forex market is open 24 hours a day, 5 and half days a week; this means you can apply what you learn about forex trading almost immediately. As you learn to trade forex, this information can be tested out on a demo trading account that simulates live market conditions but without real money on the line. After you successfully learn forex trading and have been profitable on a demo account for a period of months, then you can apply what your forex mentor has taught you on a real money trading account.

Remember, there is both reward and risk in forex trading, don’t forget about the risk invovled like so many forex traders do as the learn how to trade forex. If you don’t focus enough mental energy on the risk invovled with trading as you learn forex trading, your forex trading training will be wasted and you will probably fail to be a successful trader. Traders who put proper focus on managing risk and learn to trade in risk to reward scenarios are the ones who make consistent money in forex.

The overall forex market generally trends more than the overall stock market. Why? The equity market, which is really a market of many individual stocks, is governed by the micro dynamics of particular companies. The forex market, on the other hand, is driven by macroeconomic trends that can sometimes take years to play out. These trends best manifest themselves through the major pairs and the commodity block currencies. Here we take a look at these trends, examining where and why they occur. Then we also look at what types of pairs offer the best opportunities for range-bound trading. (Trade 10 of the most popular currency pairs on our NEW forex trading simulator, FXtrader.)

The Majors
There are only four major currency pairs in forex, which makes it a quite easy to follow the market. They are:

• EUR/USD - euro / U.S. dollar
• USD/JPY – U.S. dollar / Japanese yen
• GBP/USD – British pound / U.S. dollar
• USD/CHF - U.S. dollar / Swiss franc

It is understandable why the United States, the European Union and Japan would have the most active and liquid currencies in the world, but why the United Kingdom? After all, as of 2005, India has a larger GDP ($3.3 trillion vs. $1.7 trillion for the U.K.), while Russia’s GDP ($1.4 trillion) and Brazil’s GDP ($1.5 trillion) almost match U.K.’s total economic production. The explanation, which applies to much of the forex market, is tradition. The U.K. was the first economy in the world to develop sophisticated capital markets and at one time it was the British pound, not the U.S. dollar, that served as the world’s reserve currency. Because of this legacy and because of London’s primacy as the center of global forex dealing, the pound is still considered one of the major currencies of the world.

The Swiss franc, on the other hand, takes its place amongst the four majors because of Switzerland’s famed neutrality and fiscal prudence. At one time the Swiss franc was 40% backed by gold, but to many traders in the forex market it is still known as “liquid gold”. In times of turmoil or economic stagflation, traders turn to the Swiss franc as a safe-haven currency.

The largest major pair – in fact the single most liquid financial instrument in the world – is the EUR/USD. This pair trades almost $1 trillion per day of notional value from Tokyo to London to New York 24 hours a day, five days a week. The two currencies represent the two largest economic entities in the world: the U.S. with an annual GDP of $11 trillion and the Eurozone with a GDP of about $10.5 trillion.

Although U.S. economic growth has been far better than that of the Eurozone (3.1% vs.1.6%), the Eurozone economy generates net trade surpluses while the U.S. runs chronic trade deficits. The superior balance-sheet position of the Eurozone and the sheer size of the Eurozone economy has made the euro an attractive alternative reserve currency to the dollar. As such, many central banks including Russia, Brazil and South Korea have diversified some of their reserves into euro. Clearly this diversification process has taken time as do many of the events or shifts that affect the forex market. That is why one of the key attributes of successful trend trading in forex is a longer-term outlook. (more…)

Interest rate parity refers to the fundamental equation that governs the relationship between interest rates and currency exchange rates. The basic premise of interest rate parity is that hedged returns from investing in different currencies should be the same regardless of the level of their interest rates. (For more on the role interest rates play in the forex market, check out our Forex Walkthrough.)

There are two versions of interest rate parity:

1. Covered Interest Rate Parity
2. Uncovered Interest Rate Parity

Read on to learn about what determines interest rate parity and how to use it to trade the forex market.

Calculating Forward Rates
Forward exchange rates for currencies refer to exchange rates at a future point in time, as opposed to spot exchange rates, which refer to current rates. An understanding of forward rates is fundamental to interest rate parity, especially as it pertains to arbitrage. (For background reading, see Forces Behind Exchange Rates.)

The basic equation for calculating forward rates with the U.S. dollar as the base currency is: (more…)

Trading in the financial markets is surrounded by a certain amount of mystique because there is no single formula for trading successfully. Think of the markets as being like the ocean and the trader as a surfer. Surfing requires talent, balance, patience, proper equipment and astute discrimination. Would you go into the water if there were sharks swimming all around you or dangerous rip tides? Hopefully not. (Benjamin Graham pioneered cutting edge concepts that propelled other top investors to fame. Read The 3 Most Timeless Investment Principles.)

The attitude to trading in the markets is no different to that required for surfing. By blending good analysis with effective implementation, your success rate will improve dramatically and, like many skill sets, good trading comes from a combination of talent and hard work. Here are the four legs of the stool that you can build into a strategy to serve you well in all markets.

Leg No.1 – Approach
Before you start to trade, recognize the value of proper preparation. The first step is to align your personal goals and temperament with the instruments and markets that you can comfortably relate to. For example, if you know something about retailing, then look to trade retail stocks rather than oil futures, about which you may know nothing. Begin by assessing the following three components. (more…)

I love to trade a lot – which is of course a euphemistic way of saying I love to gamble. Although I have been to Vegas more than a dozen times I never laid down so much as a dollar bet in any casino. I have absolutely no interest in backjack, craps, slot machines or any other games of chance and I look down with disdain at the excited masses crowding the cavernous Vegas gambling halls. But deep down, if I am honest with myself, I have to admit that whenever I trade a lot I am just as much of a sucker as every hopeless loser that gives up his hard earned money to Steve Wynn or Sheldon Adelson

If you are constantly trading just for the sake of trading, just for the rush of being “in the game”, just for the momentarily thrill of being right you are gambling. You are trading without an edge, without any solid information and are therefore completely vulnerable to the random vagaries of price.

Towards the end of last year I decided to do something about my toxic addiction and created two separate accounts – one for trades that would only follow my trading plan – the other for all my trading/gambling impulses. But before I share my experience with you allow me to define the difference between a trade and a gamble. The key distinction is information. The less information you posses the more likely the chances are that your trade is gamble.

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How do you determine proper risk and reward in trading? I don’t think anyone can ever provide a definitive answer to that question because its is akin to asking how many layers do you need to walk outside of my apartment in New York City in the winter. Right now as the thermometer reads a balmy 8 degrees Fahrenheit as I type this at 3 in the morning, you need about four layers just to make it to the coffee shop across the street. But just last week you could have made the same journey in a T shirt without feeling a chill.

Trading, like the addled, globally warmed weather of my great metropolis is an imprecise and a highly volatile proposition. Therefore the question of risk and reward always changes with the circumstances of the moment. The traditional view on risk and reward is to set the ration to at least 2:1 – risking half the amount of pips as you are trying to make, so that if your profit target was 100 then your stop would be 50. (more…)

by Kathy Lien and Boris Schlossberg

Some traders are extremely patient and love to wait for the perfect setup while others are extremely impatient and need to see a move happen quickly or they’ll abandon their positions. These impatient traders make perfect momentum traders because they wait for the market to have enough strength to push a currency in the desired direction and piggyback on the momentum in the hope of an extension move. However, once the move shows signs of losing strength, an impatient momentum trader will also be the first to jump ship. Therefore, a true momentum strategy needs to have solid exit rules to protect profits while still being able to ride as much of the extension move as possible.

In this article, we’ll take a look at strategy that does just that: the Five-Minute Momo Trade.

What’s a Momo?
The Five Minute Momo Trade looks for a momentum or “momo” burst on very short-term (five-minute) charts. First, traders lay on two indicators, the first of which is the 20-period exponential moving average (EMA). The EMA is chosen over the simple moving average because it places higher weight on recent movements, which is needed for fast momentum trades. The moving average is used to help determine the trend. The second indicator to use is the moving average convergence divergence (MACD) histogram, which helps us gauge momentum. The settings for the MACD histogram is the default, which is first EMA = 12, second EMA = 26, signal EMA = 9, all using the close price. (For more insight, read A Primer On The MACD.) (more…)

Trading requires reference points (support and resistance), which are used to determine when to enter the market, place stops and take profits. However, many beginning traders divert too much attention to technical indicators such as moving average convergence divergence (MACD) and relative strength index (RSI) (to name a few) and fail to identify a point that defines risk. Unknown risk can lead to margin calls, but calculated risk significantly improves the odds of success over the long haul.

One tool that actually provides potential support and resistance and helps minimize risk is the pivot point and its derivatives. In this article, we’ll argue why a combination of pivot points and traditional technical tools is far more powerful than technical tools alone and show how this combination can be used effectively in the FX market.
Pivot Points 101
Originally employed by floor traders on equity and futures exchanges, pivot point have proved exceptionally useful in the FX market. In fact, the projected support and resistance generated by pivot points tends to work better in FX (especially with the most liquid pairs) because the large size of the market guards against market manipulation. In essence, the FX market adheres to technical principles such as support and resistance better than less liquid markets. (For related reading, see Using Pivot Points For Predictions and Pivot Strategies: A Handy Tool.)

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Trading is the exchange of goods or services between two or more parties. So if you need gasoline for your car, then you would trade your dollars for gasoline. In the old days, and still in some societies, trading was done by barter, where one commodity was swapped for another. A trade may have gone like this: Person A will fix Person B’s broken window in exchange for a basket of apples from Person B’s tree. This is a practical, easy to manage, day-to-day example of making a trade, with relatively easy management of risk. In order to lessen the risk, Person A might ask Person B to show his apples, to make sure they are good to eat, before fixing the window. This is how trading has been for millennia: a practical, thoughtful human process.

This is Now
Now enter the world wide web and all of a sudden risk can become completely out of control, in part due to the speed at which a transaction can take place. In fact, the speed of the transaction, the instant gratification and the adrenalin rush of making a profit in less than 60 seconds can often trigger a gambling instinct, to which many traders may succumb. Hence, they might turn to online trading as a form of gambling rather than approaching trading as a professional business that requires proper speculative habits. (Learn more in Are You Investing Or Gambling?)
Speculating as a trader is not gambling. The difference between gambling and speculating is risk management. In other words, with speculating, you have some kind of control over your risk, whereas with gambling you don’t. Even a card game such as Poker can be played with either the mindset of a gambler or with the mindset of a speculator, usually with totally different outcomes.

Betting Strategies
There are three basic ways to take a bet: Martingale, anti-Martingale or speculative. Speculation comes from the Latin word "speculari," meaning to spy out or look forward.
In a Martingale strategy, you would double-up your bet each time you lose, and hope that eventually the losing streak will end and you will make a favorable bet, thereby recovering all your losses and even making a small profit.
Using an anti-Martingale strategy, you would halve your bets each time you lost, but would double your bets each time you won. This theory assumes that you can capitalize on a winning streak and profit accordingly. Clearly, for online traders, this is the better of the two strategies to adopt. It is always less risky to take your losses quickly and add or increase your trade size when you are winning.

However, no trade should be taken without first stacking the odds in your favor, and if this is not clearly possible then no trade should be taken at all. (For more on the Martingale method, read FX Trading The Martingale Way.)

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As a trader, you have probably heard the old adage that it is best to trade with the trend. The trend, say all the pundits, is your friend. This is sage advice as long as you know and can accept that the trend can end. And then the trend is not your friend.

So the important question is, how can we determine the direction of the trend? I believe in the KISS rule, which says, "keep it simple, stupid!" Here is a method of determining the trend, and a simple method of anticipating the end of the trend. (Knowing when trends are about to reverse is tricky business, but the MACD can help Spotting Trend Reversals With MACD.)
Before we get started, I want to mention the importance of time frames in determining the trend. Usually, when we are analyzing long-term investments the long-term time frame dominates the shorter time frames. However, for intraday purposes, the shorter time frame could be of greater value. Trades can be divided into three classes of trading styles or segments: the intra-day, the swing and the position trade. (For more on time frames, check out Trading Multiple Time Frames In FX.)
Large commercial traders, such as those companies setting up production in a foreign country, might be interested in the fate of the currency over a long period of such as months or years. But for speculators a weekly chart can be accepted as the "long term."

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Kathy Lien

The one factor that is sure to move the currency markets is interest rates. Interest rates give international investors a reason to shift money from one country to another in search of the highest and safest yields. For years now, growing interest rate spreads between countries have been the main focus of professional investors, but what most individual traders do not know is that the absolute value of interest rates is not what’s important – what really matters are the expectations of where interest rates are headed in the future.

Familiarizing yourself with what makes the central banks tick will give you a leg up when it comes to predicting their next moves, as well as the future direction of a given currency pair. In this article, we look at the structure and primary focus of each of the major central banks, and give you the scoop on the major players within these banks. We also explain how to combine the relative monetary policies of each central bank to predict where the interest rate spread between a currency pair is headed.

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