Forex Technical Analysis

The Forex (short for foreign exchange) market or foreign exchange currency market is a world-wide market. It is decentralized and accessible to all: when a tourist in Tokyo buys dollars with yen, they are performing a transaction on the Forex market – just as when a multinational institution converts millions of euros to pounds sterling. This makes it the largest market in the world, rendered volatile by the large volume of transactions. It is also always open, except on weekends.

Many Forex traders only seek to trade a foreign currency against their own, such as companies needing to pay wages somewhere other than where they sell. But a large part of the market consists of currency traders who speculate on movements in exchange rates – in the same manner as those who are speculating on stock prices.

Exchange rates fluctuate due to macroeconomic developments and events and expectations that traders have, in addition to actual cash flows. This market attracts investors because its volatility provides many opportunities for profits (and losses, of course), while allowing the use of hedging instruments as well. A further advantage is that the Forex broker authorizes the use of leverage by allowing that their investors trade on margin.

On the Forex market, currencies are traded against each other by “pairs”, which represent the relative value of a unit of currency, the “base” against another currency. They are usually written by juxtaposing the three-letter codes of international currencies, starting with the base, for example, EUR/USD is the ratio of the Euro against the U.S. dollar.

Like all markets, there is a difference between purchase price and selling price with Forex, called the gap between demand and supply. It is measured in “pips,” the smallest difference in price that a given exchange can offer – and generally equal to one hundredth of a percent. For major currencies, the difference between the price at which one can buy and that at which one can sell is often between one and three pips.

The market is divided into three access levels: at the top is the interbank market, including the largest banks and securities dealers, who generally perceive sharp differences. Smaller banks and large multinational corporations come later, followed by pension funds and asset managers. Traders, who bring up the rear, participate indirectly through brokers or banks, and constitute a growing part of the market through the facilities offered by the Internet.

By: Christopher Shepherd

There is an old Chinese saying and it goes something like this: “there is a time for everything”. In Forex this is rather true, while the Forex market is 24 hours you have to discover the best times to trade forex and not enter into a trade where there are no takers for your orders!
Although the forex market is a 24 hour market there are times when the volume of traders enter and exit the market increases largely and the market becomes very liquid and fast paced. These are the best times to take a position and depending on your trading plan a there is a higher potential for profits during these times. These times are termed as cross-over times.

The different time zones

There are 3 different cross over periods and the basically depict the opening and closing of the different markets in the world. There are 3 major Forex centers in the world and they are the Asian market (Tokyo) the European market (London) and the American market (New York). When there is a cross over of markets the huge amount of volatility creates very handsome opportunities for savvy traders to take profits.
When the Asian market closes the London market is opening up and this is one of the best times to trade as there is a huge amount of volume flowing as the Asian traders exit their positions and the European players start up their trading. The nest close and open would be the US open and London close, this also presents a lot of opportunities for the trader living or trading these time zones. The last is of course the US close and the Asian open which of the three sessions shows the least volume.

How to trade best

Now depending on your trading plan you will want to position yourself about an hour before the market has a cross over. I have a friend in London and he wakes up at 7am (London time) just to read the markets and get a grasp on what and how the Asian market performed.
The effects of the cross over work well an hour before and after the actual opening and closing of the centers. So you have about a 3 hour window to do your trading. Depending on your trading set up you could do one or two trades and look to very handsome profits of about 40 or more pips. (That’s my profit target)

Just imagine that your orders will be filled 3 times faster and the market moves 3 times faster than normal thus your ability to make pips also increase 3 times faster. To prevent from losing just as fast, you will need to stick to your money management plan like glue and not allow yourself the luxury to be ill disciplined and force your way into a trade especially when your set up does not show all the required conditions.

Now that you have discovered the best times to trade forex, take a moment to collect your thoughts and reflect back on the missed opportunities and profits. With this basic knowledge look to learn more about how you can properly utilize this information before plunging into a wild trading spree during the cross over times!

By: Joshua Geralds

While, the Forex Options Market started as mainly an opportunity for large banks and investment corporations, with the accessibility of trading online, many individuals and smaller corporations have climbed aboard. If used as a tool for smart investing, Forex trading options allows for more flexibility when looking for the right trading and strategies. Most trading is done via telephone, though some traders offer online Forex options as their trading platforms.

Forex options are currency contracts that enable the buyer to sell or purchase specific spot contracts at a particular price before or on a specific date. The premium is the amount of the contract. The buyer has can choose to sell the option contract before the expiration date or find a position in spot foreign currency. When you exercise this option in the Forex market the spot market becomes known as being assigned to a “spot” position.

The initial financial investment must be paid to the seller when the option is purchased. Once purchased there is no additional financial obligation until the time comes for the contract to expire or be offset. When the expiration date arrives the buyer will need to either buy the currency spot position or sell at the option’s strike price.

These options can become worthless if they expire and the strike price referred to as being “out-of-the-money,” or the price falls below the call option’s strike price. There are a number of other options to consider in regards to Forex markets, these include Forex call option, and Forex put option, Plain Vanilla Forex options and Exotic Forex options. These all offer slightly different guidelines and rights t to the buyer and should be considered carefully to find the right option for you and your investment needs.

When pricing an FX option, there are many factors to consider including the Intrinsic and Extrinsic value, volatility and the delta. All of these factors can change the price on the option you are interested in and change the way the option develops before the expiration date which will no doubt have an effect on the way you decide to handle the option.

By: Jayda Kaycee

Forex Technical Indicators are a series of tools created primarily to measure volatility, like the stochastic indicator, or to smooth the zig zag of the market, like a MA or moving average. It is important to realize that all indicators are trailing indicators. They are excellent at telling us what the market just did, but they will never be able to tell you what a market is about to do.

Many fail to understand this distinction. An indicator is used primarily as a tool to assist in the traders pattern recognition. Not to predict the market. Let me explain further.

When you spend large amounts of time, manually back testing with a pad and pencil. (And if you are not performing this at least 2 or 3 hours a day, you are missing out on training that is worth its weight in gold) You begin to develop a bit of sixth sense. My own back testing is set up, so I can scroll one bar at a time to the right (the future) this allows me to play a little game of recognize a pattern and predict what the price will do next.

After just 5 to 10 hours of this type of self training, you really begin to discover patterns in the pricing chart that are predictable. Leading indicators like the EMA (exponential moving average) are excellent to have up along with the pricing, because it gives you a visual point of relevance. For example, when the price is very far above or below the EMA, you know the price is in an extreme state, compared to where it was, your gut immediately tells you the following price action will at some point be coming back to the EMA This is a type of pivot point trade.

As you manually back test, you will find many types of “set ups” in the price action. These set ups are typically cataloged and recorded by professional traders who actively look for certain price formations that have a high probability of doing what the formation predicts.

By: Martin Thomas

We may find many traders having Bollinger Bands on their trading charts even if they are not using it for their primary source of trading signals.

With the combination of other technical analysis indicators like Stochastic, Bollinger bands can provide some good winning signals. In this article we will try to see how?

Volatility of the market is what Bollinger bands indicate and it’s always advisable to keep a track of the changing volatility of the market. The change in the volatility might indicate some major moves or breakouts and in such cases it is always better to be on the boat before it is late.

What we need to look out is as follows:

1) Are the bands widening?: Widening bands indicate an increase in volatility. This indicates possibilities of further move in the current direction. But before we enter a trade we need to be sure of the current direction.

2) Are the bands tightening?: Tightening bands would indicate a decrease in volatility. Is it the silence before the storm and is a major breakout on the way? If it happens then we need to analyze about the possible direction of the breakout.

1-a) Bullish widening Bollinger Bands:

This pattern generally would take place after some tightening of the bands during the period of low volatility (shorter candles with range movement)

- The bands are widening with the upper band moving sharply upside and the lower and moving sharply downwards.
- The price action is moving upwards above the middle band.
- The recent candle sticks are longer than the previous candlesticks

Action:
- Check if RSI (Relative Strength Index) is in the range of 30 to 50 and rising.
- You may also check if ADX is rising towards 25 and/or beyond 25 and +DI line is crossing -DI line.
- Also check if Slow Stochastic is crossing the stochastic signal line upwards.
- With all the above taking place, we can expect a further upward movement. It will be safer and hence better to wait for 2 or 3 more candles to confirm the trend and then take a long position. It also happens that before a further upward move there is some downward correction and waiting for 2 or 3 candles may help in increasing our gains if we can take a position during that correction.

If ADX does not move above 25 then the upward move may be limited and hence the profit taking will be limited

1-b) Bearish widening Bollinger Bands:

This pattern generally would take place after some band tightening with low volatility (shorter candles with range movement)

- The bands are widening with the upper band moving sharply upside and the lower and moving sharply downwards.
- The price action is moving downwards below the middle band.
- The recent candle sticks are longer than the previous candlesticks.

Action:
- Check if RSI (Relative Strength Index) is in the range of 55 to 75 and is falling.
- You may also check if ADX is rising towards 25/beyond 25 and -DI line crossing +DI line.
- Check if Slow Stochastic is crossing the signal line downwards.
- With all the above taking place, we can expect a further downward move. It will be safer and hence better to wait for 2 or 3 more candles for confirmation of the trend before taking a short position. It also happens that before a further downward move there may be some upward correction and the wait of 2 or 3 candles may help in increasing the gains if we can enter during the correction.

If ADX does not move above 25 then the downward move may be limited and hence the profit taking will be limited.

2-a) Bullish tightening Bollinger bands:

The pattern happens with a prolonged sideways move with less volatility (short candlesticks)

- Check if there are minimum 2 continuous bullish candlesticks (green) which are longer than previous 2 to 3 candlesticks.
- Check if RSI (Relative Strength Index) is in the range of 30 to 50 and rising.
- You may also check if ADX is rising towards 25/beyond 25 and +DI crossing -DI.
- Check if Slow Stochastic is crossing the signal line upwards.
- If all above are taking place then we can expect an upward breakout. It will be safer and hence better to wait for 2 or 3 more candles for confirmation before taking a buy position with a red candle.

If ADX does not move above 25 then the upward move may be limited and hence the profit taking will be limited

2-b) Bearish tightening Bollinger bands:

The pattern happens with a prolonged sideways move with less volatility (short candlesticks)

- Check if there are minimum 2 continuous bearish candlesticks (red) which are longer than previous 2 to 3 candlesticks.
- Check if RSI (Relative Strength Index) is in the range of 40 to 60 and falling.
- You may also check if ADX is rising towards 25/beyond 25 and -DI crossing +DI.
- Check if Slow Stochastic is crossing the signal line downwards.
- If all above are taking place then we can expect a downward breakout. It will be safer and hence better to wait for 2 or 3 more candles for confirmation before taking a sell position with a red candle.

If ADX does not move above 25 then the upward move may be limited and hence the profit taking will be limited.

3-a) Continuation of uptrend after correction

During an ongoing uptrend the price may reverse to the middle band or even the lower band.
- Check if RSI (Relative Strength Index) is in the range of 30 to 50 and rising.
- You may also check if ADX is above 25 and +DI line is over -DI line.
- Check if Slow Stochastic is over the signal (bullish configuration).
- With all above we can expect a continuation of the uptrend. It will be safer and hence better to wait for 2 or 3 more candles to confirm that the recent move was just a correction and then take a buy position

3-b) Continuation of downtrend after correction

During an ongoing downtrend the price may reverse to the middle band or even the upper band.

- Check if RSI (Relative Strength Index) is in the range of 55 to 75 and falling.
- You may also check if ADX is above 25 and -DI line is above +DI line.
- Check if Slow Stochastic is below the signal line (bearish configuration).
- With all above we can expect a continuation of the downtrend. It will be safer and hence better to wait for 2 or 3 more candles for the confirmation that the recent move was just a correction before taking a short position.

By: H Jain