Forex Technical Analysis

There is so much to know when it comes to currency trading. Having knowledge about the basics in Forex trading is not enough. You must become aware of the types of trading that people use to invest their money. Some of the richest people in the world have found the form of trading that would best suit their interest which is why they have found success in it. Hence it is essential that you go through the different style of trading and determine the one in which you are comfortable and your goals are met.

Of all the trading styles fundamental analysis trading is the most basic form and a number of trading styles are grouped under the subcategories of fundamental analysis trading. The basis for making a decision is not based on facts and data rather it works on intuition. In this type of trading the actual real world events are studied and a prediction is made on how the Forex market would respond due to these events.

Technical analyst trading on the other hand relies on hard-core facts to predict the market. The importance is done on the trends projected by graphs and data rather than a person’s intuition to make a decision. Though this type of trading may seem to be better than Fundamental Analyst trading there’s every chance that the market might not respond as expected.

Range Trading profit is made by purchasing technical levels of support and then selling the technical levels of resistance. While in Swing Trading the profit is made during a short to medium market swings and in Position Trading the profit is made for a long period of time by choosing to stay in one single trade.

Scalping is a popular choice among day traders. In scalping the investor makes a number of small trades within a short span of time and waits for its value to rise. In this method the person who has purchased these trades does not stay with them for long and sell them before their value starts dipping hence the trades of this style usually last for only few minutes.

In Auto trading the trends of the market are predicted by programs and hence humans are not personally required to make a decision which is however not the case in Discretionary trading where for each transaction to happen a decision must be made by the humans.

The above discussed styles are some of the popular styles that are prevalent in Forex trading.

By: Elwilliams W

I’ve seen it asked many times, “Do people really make a living trading forex?”

Frankly, most people who try to make a living by trading forex exclusively don’t make it (but there’s a reason for that I think – see below). However, I do know a few people who are actually able to make incredible money with forex working only part-time so it is definitely possible.

I want to share with you what I have personally observed – why some people are more successful with forex than others – and what eventually led me to trade forex the way I do.

Most people who try to make good money with forex go about it by first learning everything they can. They literally stay up nights and sacrifice weekends reading books on the subject. I have friends who I consider to be really intelligent who simply can’t seem to make enough in the forex market to turn it into a living or even make enough to justify the time they spend on it.

However, I had one online friend who started making amazing amounts of profit with forex. But… she did not do it by reading books! She did it by receiving forex signals from a very advanced forex trader. She received these signals in real time so she could copy everything he was doing. At first, she did this in a demo account because she didn’t want to risk losing her money before testing it out. However, it didn’t take her long to figure out that if she had been using real money she would have made a small fortune over a very short period of time. In fact, it was so profitable she would have made more money in a a few days than she had been able to do over the previous several months.

My friend immediately switched gears and started trading exclusively the forex signals that were being sent to her and now she makes many times over what she would actually need to live on. Of course, she turned me on to this amazing strategy as well (thank you!!). I probably never would have done much with forex otherwise.

What we have both learned since is that copying a truly successful forex expert’s signals on a regular basis is by far the best way to learn how to trade forex. You just can’t learn how to turn forex into a profitable endeavor by reading a book – or several books! It’s a “hands-on” activity and is best learned by jumping in and doing it. However, if you do on your own, you can lose a lot of money while learning so I HIGHLY recommend this strategy of getting real time forex signals sent to you from an expert trader. It’s like having training wheels on while you learn and you get to make a lot of money while you’re learning instead of continually losing your investment.

By: Joe Wolfe

Often people ask me if it is really possible to make a living trading the Forex market. I would have to say that it is definitely not possible to merely make a living unless you have no idea of what simple trading money management is. If you are successful in Forex trading and you understand what money management is, you will not just make a living but will create wealth relatively quickly. So I often tell people that if you are looking for a job, you might want to try Wal Mart. I hear they are hiring part time employees.

A good tool that can help you to understand how this works is a calculator. They can be purchased at most local stores for as little as $5.00. Then you might want to open a Forex trading demo account and place a trade. Observe what happens to the digits that display the profit or loss and get an idea of what the value of a PIP is in your account. Then you can develop a purely hypothetical trading plan.

After you have learned a little about how Forex trading works you should start to get an idea of what is a realistic expectation for results in PIPS over a given period of time. Then decide what a prudent risk management plan would be. Some say no more than 2% of your capital is a good number. That number is of course, based on a false industry belief that it is not possible to have a high win to loss ratio in Forex trading. Regardless, it is a good conservative number. Then simply start off with a number that represents the amount of capital you plan to start with and project what would happen if you were successful with a realistic win to loss ratio. How many PIPS will you earn? Win to loss ratio is the number of winning trades vs. the number of losing ones. Risk to reward ratio represents the average number of PIPS per loss vs. the average number of PIPS per winning trade. What will your average net gain be per day or per month? What will that do to your capital?

The next step is to note the amount of money you need to meet your living expenses. When the amount of your monthly profits is at least twice as much as the amount you need to live, begin taking out 50% of your monthly profits. From that point on you will make a living AND your trading account will increase each month while the amount you take out will also increase every month from that point on. What could be better than that?

By: Scott Shubert

Currency correlation as it pertains to currency pairs can have major consequences on a forex trader’s trades. If the trader isn’t up to date about various correlations among currency pairs, then he may experience lower profits, or he might take on further risk.

What is Currency Correlation?

Currency Correlation means that there is a relationship that can be measured statistically between two financial instruments. With regards to the forex market, it would refer to the relationship between two pairs of currency.

The relationship correlation between these pairs are referred to as positive or negative. They will either move together in a positive direction, or they will move together in a negative and opposing direction.

“Correlation Coefficient” refers to the measure of the correlation. It ranges between -1 and +1. +1 means 100 percent positive correlation. On the other hand, -1 means 100 percent negative correlation.

Examples of a Positive Relationship Correlation

If you look at EUR/USD, and GBP/USD, you will see that these currency pairs have a positive correlation. In fact, they are almost identical, particularly over a long period of time. This means that over a period of time, the correlation between the pairs will be highly positive. This will be more apparent over a long time period, and not necessarily over a short period of say, a few days.

The reason for this is because the Euro (EUR) and the British Pound (GBP) are European currencies. As such, they are based upon the same fundamental principles. So both of these will behave similarly in relation to the U.S. dollar (USD).

Some Basic Guidelines

Here are some general rules for clarification:

The correlation between two currency pairs becomes more significant when viewed over a long period of time. With respect to the Correlation Coefficient, the higher the number either positive or negative, the stronger the degree of correlation. It’s key to get a correlation at the 0.9, or 1.0 level, positive or negative. This represents the strongest correlation. If the value is below 0.5, then there really isn’t any correlation.

How Is This Important to Forex Trading?

If the trader knows in advance the correlation amongst various currency pairs, then the trader can take better positions and avoid undue risk.

If the trader opens positions in two positively-correlated currency pairs, then he would be doubling his risk. On the other hand, if he were to go with two negatively-correlated currency pairs, his risk would be lowered, but so would the profit margin potential.

In the end, Forex traders do themselves a favor by having knowledge in advance about strong currency correlation pairs.

By: Rudolf Boquiren

If you have traded in Forex before, or if you want to, one of the things you are going to need to know about is technical analysis.

There are two types of analysis you need to know about when it comes to Forex trading. Fundamental analysis is “big picture” analysis, whereby you take into account a country’s social, economic and political health to determine the stability of its currency. A country that is stable in these areas is going to have a stronger currency, in general than a country that is not stable in these areas, and therefore a stronger country is going to be a better bet when it comes to Forex trading.

What is technical analysis?

Technical analysis is a little bit different. With technical analysis, you analyze a particular currency’s patterns and trends over a specific period of time. For example, if a particular currency has been performing strongly in its recent history, it’s probably going to continue to do so. Similarly, if it’s been doing poorly in its recent history, it’s probably going to continue to do that too. You chart currencies’ trends and patterns, and make predictions as to how a particular currency is going to continue to do against another. You place trades with “currency pairs” based on this information, in essence betting that one currency is going to do better than another and therefore “winning” on that trade.

Does Forex technical analysis really work?

Absolutely, Forex technical analysis works to produce winning trades; many successful traders encourage taking a twofold approach by using both fundamental and technical analysis to determine which trades are going to produce profits.

Becoming an experienced Forex technical trader

To become an experienced Forex technical trader, you should learn your way around the Forex market by using a “demo” account first. Most good Forex brokers will allow you to open a demo account with no money; then, you “trade” in “demo” mode until you’ve become very experienced in placing trades. Once you begin to win on trades with this type of “pretend” trading, you can begin to place real trades with real money so that you can make a profit. It’s very important, though, that you do demo trading first. This gives you the opportunity to learn your way around the market just as you would if you were really trading, and it teaches you how to handle both wins and losses on trades.

What being an experienced Forex technical trader can do for you

As an experienced Forex technical trader, you have the opportunity to make trades based upon the patterns and trends you see (as well based upon your own gut reaction, once you become experienced), instead of on an emotional basis. Why is this important? Because if you make trades based upon an emotional basis instead of on what your data tells you, you’re going to lose on trades, and you may even lose your shirt. That’s a simple fact.

Trading based upon what your charts and data tell you, on the other hand, is simply smart. That means that you make decisions based upon data, not upon emotions. In practical terms, that means you may get out of a trade that’s still winning because your data tells you it’s time, or your data may tell you to get out of a trade that you’re losing on, even though your emotions would tell you to stay “in the trade” in the hopes that you could make back the money you have already lost.

Successful Forex traders know that they are always going to lose on some of their trades, but they follow their data, their charts and analyses, and they do what this information tells them. This helps them be successful because they win on more trades than they lose on – and that helps them break a profit and be successful overall. Learning Forex technical analysis can help you do the same.

By: Chris Hayden