Forex Trading - Japanese Candlesticks

You may be asking yourself, "If I can already use bar charts to view prices, then why do I need another type of chart?"

The answer to this question may not seem obvious, but after going through the following candlestick chart explanations and examples, you will surely see value in the different perspective candlesticks bring to the table. In my opinion, they are much more visually appealing, and convey the price information in a quicker, easier manner. Candlestick chart is a combination of a line-chart and a bar-chart, in that each bar represents the range of price movement over a given time interval. It is most often used in technical analysis of equity and currency price patterns.

The History of Japanese Candlesticks

Candlestick charts are on record as being the oldest type of charts used for price prediction. They are said to have been developed in the 18th century by legendary Japanese rice trader Homma Munehisa. In fact, during this era in Japan, Munehisa Homma become a legendary rice trader and gained a huge fortune using candlestick analysis. The charts gave Homma and others an overview of open, high, low, and close market prices over a certain period. This style of charting is very popular due to the level of ease in reading and understanding the graphs. The Japanese rice traders also found that the resulting charts would provide a fairly reliable tool to predict future demand.

The candlesticks themselves and the formations they shape were give colorful names by the Japanese traders. Due in part to the military environment of the Japanese feudal system during this era, candlestick formations developed names such as "counter attack lines" and the "advancing three soldiers". Just as skill, strategy, and psychology are important in battle, so too are they important elements when in the midst of trading battle.

The method was picked up by Charles Dow around 1900 and remains in common use by today's traders of financial instruments.

What do Candlesticks Look Like?

Candlesticks are usually composed of the body (black or white), and an upper and a lower shadow (wick). The wick illustrates the highest and lowest traded prices of a security during the time interval represented. The body illustrates the opening and closing trades. If the security closed higher than it opened, the body is white or unfilled, with the opening price at the bottom of the body and the closing price at the top. If the security closed lower than it opened, the body is black, with the opening price at the top and the closing price at the bottom. A candlestick need not have either a body or a wick.

To better highlight price movements, modern candlestick charts (especially those displayed digitally) often replace the black or white of the candlestick body with colors such as red (for a lower closing) and blue or green (for a higher closing).



Candlestick Patterns

White and Black Bodies



White candlestick shows strong buying pressure. The longer the white candlestick is, the further the close is above the open. This indicates that prices advanced significantly from open to close and buyers were aggressive. While long white candlesticks are generally bullish, much depends on their position within the broader technical picture. After extended declines, long white candlesticks can mark a potential turning point or support level. If buying gets too aggressive after a long advance, it can lead to excessive bullishness.

Black candlestick shows strong selling pressure. The longer the black candlestick is, the further the close is below the open. This indicates that prices declined significantly from the open and sellers were aggressive. After a long advance, a long black candlestick can foreshadow a turning point or mark a future resistance level. After a long decline a long black candlestick can indicate panic or capitulation.

Upper and Lower Shadows



The upper and lower shadows on candlesticks can provide valuable information about the trading session. Upper shadows represent the session high and lower shadows the session low. Candlesticks with short shadows indicate that most of the trading action was confined near the open and close. Candlestick with long shadows show that traded extended well past the open and close.

Candlesticks with a long upper shadow and short lower shadow indicate that buyers dominated during the session, and bid prices higher. However, sellers later forced prices down from their highs, and the weak close created a long upper shadow. Conversely, candlesticks with long lower shadows and short upper shadows indicate that sellers dominated during the session and drove prices lower. However, buyers later resurfaced to bid prices higher by the end of the session and the strong close created a long lower shadow.

Marubozu



Even more potent long candlesticks are the Marubozu, Black and White. Marubozu do not have upper or lower shadows and the high and low are represented by the open or close. A White Marubozu forms when the open equals the low and the close equals the high. This indicates that buyers controlled the price action from the first trade to the last trade. Black Marubozu form when the open equals the high and the close equals the low. This indicates that sellers controlled the price action from the first trade to the last trade.

Spinning Tops



Candlesticks with a long upper shadow, long lower shadow and small real body are called spinning tops. One long shadow represents a reversal of sorts; spinning tops represent indecision. The small real body (whether hollow or filled) shows little movement from open to close, and the shadows indicate that both bulls and bears were active during the session. Even though the session opened and closed with little change, prices moved significantly higher and lower in the meantime. Neither buyers nor sellers could gain the upper hand and the result was a standoff. After a long advance or long white candlestick, a spinning top indicates weakness among the bulls and a potential change or interruption in trend. After a long decline or long black candlestick, a spinning top indicates weakness among the bears and a potential change or interruption in trend.

Doji



Doji are important candlesticks that provide information on their own and as components of in a number of important patterns. Doji form when a security's open and close are virtually equal. The length of the upper and lower shadows can vary and the resulting candlestick looks like a cross, inverted cross or plus sign. Alone, Doji are neutral patterns. Any bullish or bearish bias is based on preceding price action and future confirmation. The word "Doji" refers to both the singular and plural form.

Ideally, but not necessarily, the open and close should be equal. While a Doji with an equal open and close would be considered more robust, it is more important to capture the essence of the candlestick. Doji convey a sense of indecision or tug-of-war between buyers and sellers. Prices move above and below the opening level during the session, but close at or near the opening level. The result is a standoff. Neither bulls nor bears were able to gain control and a turning point could be developing.



Different securities have different criteria for determining the robustness of a Doji. Determining the robustness of the Doji will depend on the price, recent volatility, and previous candlesticks. Relative to previous candlesticks, the Doji should have a very small body that appears as a thin line. Steven Nison notes that a Doji that forms among other candlesticks with small real bodies would not be considered important. However, a Doji that forms among candlesticks with long real bodies would be deemed significant.

The relevance of a Doji depends on the preceding trend or preceding candlesticks. After an advance, or long white candlestick, a Doji signals that the buying pressure is starting to weaken. After a decline, or long black candlestick, a Doji signals that selling pressure is starting to diminish. Doji indicate that the forces of supply and demand are becoming more evenly matched and a change in trend may be near. Doji alone are not enough to mark a reversal and further confirmation may be warranted.



After an advance or long white candlestick, a Doji signals that buying pressure may be diminishing and the uptrend could be nearing an end. Whereas a security can decline simply from a lack of buyers, continued buying pressure is required to sustain an uptrend. Therefore, a Doji may be more significant after an uptrend or long white candlestick. Even after the Doji forms, further downside is required for bearish confirmation. This may come as a gap down, long black candlestick, or decline below the long white candlestick's open. After a long white candlestick and Doji, traders should be on the alert for a potential evening Doji star.



After a decline or long black candlestick, a Doji indicates that selling pressure may be diminishing and the downtrend could be nearing an end. Even though the bears are starting to lose control of the decline, further strength is required to confirm any reversal. Bullish confirmation could come from a gap up, long white candlestick or advance above the long black candlestick's open. After a long black candlestick and Doji, traders should be on the alert for a potential morning Doji star.



Long-legged Doji have long upper and lower shadows that are almost equal in length. These Doji reflect a great amount of indecision in the market. Long-legged Doji indicate that prices traded well above and below the session's opening level, but closed virtually even with the open. After a whole lot of yelling and screaming, the end result showed little change from the initial open.




Dragon fly Doji form when the open, high and close are equal and the low creates a long lower shadow. The resulting candlestick looks like a "T" with a long lower shadow and no upper shadow. Dragon fly Doji indicate that sellers dominated trading and drove prices lower during the session. By the end of the session, buyers resurfaced and pushed prices back to the opening level and the session high.

The reversal implications of a dragon fly Doji depend on previous price action and future confirmation. The long lower shadow provides evidence of buying pressure, but the low indicates that plenty of sellers still loom. After a long downtrend, long black candlestick, or at support, a dragon fly Doji could signal a potential bullish reversal or bottom. After a long uptrend, long white candlestick or at resistance, the long lower shadow could foreshadow a potential bearish reversal or top. Bearish or bullish confirmation is required for both situations.

Gravestone Doji form when the open, low and close are equal and the high creates a long upper shadow. The resulting candlestick looks like an upside down "T" with a long upper shadow and no lower shadow. Gravestone Doji indicate that buyers dominated trading and drove prices higher during the session. However, by the end of the session, sellers resurfaced and pushed prices back to the opening level and the session low.

As with the dragon fly Doji and other candlesticks, the reversal implications of gravestone Doji depend on previous price action and future confirmation. Even though the long upper shadow indicates a failed rally, the intraday high provides evidence of some buying pressure. After a long downtrend, long black candlestick, or at support, focus turns to the evidence of buying pressure and a potential bullish reversal. After a long uptrend, long white candlestick or at resistance, focus turns to the failed rally and a potential bearish reversal. Bearish or bullish confirmation is required for both situations.

Bulls versus Bears

A candlestick depicts the battle between Bulls (buyers) and Bears (sellers) over a given period of time.



1. Long white candlesticks indicate that the Bulls controlled the market (trading) for most of the time.
2. Long black candlesticks indicate that the Bears controlled the market (trading) for most of the time.
3. Small candlesticks indicate that neither Bulls nor Bears could move the market and prices finished about where they started.
4. A long lower shadow indicates that the Bears controlled the market for part of the time, but lost control by the end and the Bulls took over the control.
5. A long upper shadow indicates that the Bulls controlled the market for part of the time, but lost control by the end and the Bears took over the control.
6. A long upper and lower shadow indicates that the both the Bears and the Bulls had their moments of control, but neither could gain advantage over the other and steady the market.

What Candlesticks Don't Tell You

Candlesticks do not reflect the sequence of events between the open and close, only the relationship between the open and the close. The high and the low are obvious and indisputable, but candlesticks (and bar charts) cannot tell us which came first.



With a long white candlestick, the assumption is that prices advanced most of the session. However, based on the high/low sequence, the session could have been more volatile. The example above depicts two possible high/low sequences that would form the same candlestick. The first sequence shows two small moves and one large move: a small decline off the open to form the low, a sharp advance to form the high, and a small decline to form the close. The second sequence shows three rather sharp moves: a sharp advance off the open to form the high, a sharp decline to form the low, and a sharp advance to form the close. The first sequence portrays strong, sustained buying pressure, and would be considered more bullish. The second sequence reflects more volatility and some selling pressure. These are just two examples, and there are hundreds of potential combinations that could result in the same candlestick. Candlesticks still offer valuable information on the relative positions of the open, high, low and close. However, the trading activity that forms a particular candlestick can vary.

Candlestick Positioning

Star Position



A candlestick that gaps away from the previous candlestick is said to be in star position. The first candlestick usually has a large real body, but not always, and the second candlestick in star position has a small real body. Depending on the previous candlestick, the star position candlestick gaps up or down and appears isolated from previous price action. The two candlesticks can be any combination of white and black. Doji, hammers, shooting stars and spinning tops have small real bodies, and can form in the star position.

Harami Position



A candlestick that forms within the real body of the previous candlestick is in Harami position. Harami means pregnant in Japanese and the second candlestick is nestled inside the first. The first candlestick usually has a large real body and the second a smaller real body than the first. The shadows (high/low) of the second candlestick do not have to be contained within the first, though it's preferable if they are. Doji and spinning tops have small real bodies, and can form in the harami position as well.

Shadow Reversals

There are two pairs of single candlestick reversal patterns made up of a small real body, one long shadow and one short or non-existent shadow. Generally, the long shadow should be at least twice the length of the real body, which can be either black or white. The location of the long shadow and preceding price action determine the classification.

The first pair, Hammer and Hanging Man, consists of identical candlesticks with small bodies and long lower shadows. The second pair, Shooting Star and Inverted Hammer, also contains identical candlesticks, except, in this case, they have small bodies and long upper shadows. Only preceding price action and further confirmation determine the bullish or bearish nature of these candlesticks. The Hammer and Inverted Hammer form after a decline and are bullish reversal patterns, while the Shooting Star and Hanging Man form after an advance and are bearish reversal patterns.

Hammer and Hanging Man



The Hammer and Hanging Man look exactly alike, but have different implications based on the preceding price action. Both have small real bodies (black or white), long lower shadows and short or non-existent upper shadows. As with most single and double candlestick formations, the Hammer and Hanging Man require confirmation before action.



The Hammer is a bullish reversal pattern that forms after a decline. In addition to a potential trend reversal, hammers can mark bottoms or support levels. After a decline, hammers signal a bullish revival. The low of the long lower shadow implies that sellers drove prices lower during the session. However, the strong finish indicates that buyers regained their footing to end the session on a strong note. While this may seem enough to act on, hammers require further bullish confirmation. The low of the hammer shows that plenty of sellers remain. Further buying pressure, and preferably on expanding volume, is needed before acting. Such confirmation could come from a gap up or long white candlestick. Hammers are similar to selling climaxes, and heavy volume can serve to reinforce the validity of the reversal.

The Hanging Man is a bearish reversal pattern that can also mark a top or resistance level. Forming after an advance, a Hanging Man signals that selling pressure is starting to increase. The low of the long lower shadow confirms that sellers pushed prices lower during the session. Even though the bulls regained their footing and drove prices higher by the finish, the appearance of selling pressure raises the yellow flag. As with the Hammer, a Hanging Man requires bearish confirmation before action. Such confirmation can come as a gap down or long black candlestick on heavy volume.

Inverted Hammer and Shooting Star



The Inverted Hammer and Shooting Star look exactly alike, but have different implications based on previous price action. Both candlesticks have small real bodies (black or white), long upper shadows and small or nonexistent lower shadows. These candlesticks mark potential trend reversals, but require confirmation before action.



The Shooting Star is a bearish reversal pattern that forms after an advance and in the star position, hence its name. A Shooting Star can mark a potential trend reversal or resistance level. The candlestick forms when prices gap higher on the open, advance during the session and close well off their highs. The resulting candlestick has a long upper shadow and small black or white body. After a large advance (the upper shadow), the ability of the bears to force prices down raises the yellow flag. To indicate a substantial reversal, the upper shadow should relatively long and at least 2 times the length of the body. Bearish confirmation is required after the Shooting Star and can take the form of a gap down or long black candlestick on heavy volume.

The Inverted Hammer looks exactly like a Shooting Star, but forms after a decline or downtrend. Inverted Hammers represent a potential trend reversal or support levels. After a decline, the long upper shadow indicates buying pressure during the session. However, the bulls were not able to sustain this buying pressure and prices closed well off of their highs to create the long upper shadow. Because of this failure, bullish confirmation is required before action. An Inverted Hammer followed by a gap up or long white candlestick with heavy volume could act as bullish confirmation.

Conclusion

It is important to realize that this introduction is just that, an introduction to candlestick analysis. After having read this, you will have merely scratched the surface of the many patterns and variables that can go into candlestick analysis. No attempt was made to provide a thorough analysis of each and every pattern. In fact, many formations were left out as they cross the border into more complicated analysis.
As traders, we need as many trading tools in our arsenal, and a basic knowledge of candlesticks provides a trader much needed ammunition. Also remember that no matter what the trading tool, no matter how advanced or ancient, it is only effective when put into practice properly.

Forex Overtrading

It is said that overtrading ranks as one of the most common trading pitfalls in fx trading. It is the greatest single cause for losses in the markets. Whether you are winning now or losing now, ninety-five or more percent of all traders trade too often.

So what is exactly is overtrading and how are we going to recognize and prevent it? A good definition of overtrading is taking a position which is too large in relation to the available trading capital.

Overtrading typically comes in two main forms:

1. trading too many positions at once or trading too frequently in the market

2. always having an open position.

An essential tip in forex currency trading is that you should have no more than 5 positions when trading in the market. Any more than that will cause detriment on your focus in each one of your trades which will generate negative effects on your transactions.

Overtrading also causes impulsive trading. The trading that is done without control and caused by greed. It leads to more risk in your account and also reduces your win loss ratio. It also increases your cost of trading as each time you are trading ,you are paying the broker commissions.

One way to control a loss is by reducing your size. The problem with traders is that they will often double up their stake so they can get even quicker. This usually leads to a greater loss and devastation. It takes tremendous discipline to hold yourself back from overtrading. So having the strength to grind your way back from a loss is important in trading.

How to Score the Most Forex Complementary Services

While its true that there’s no such thing as a 'no strings attached' free lunch, its good to know that there are still some foreign currency exchange complementary services doing the rounds.

Some brokerage firms' Forex complementary services include standing orders. The key benefits of having a standing order as a complementary service are that the market is monitored on your behalf. You just pick your desired exchange rate and your order will be automatically processed if the forex market reaches your chosen rate. The good thing about this kind of FX complementary service is that you will also not be under any obligation to make a definite purchase if the market doesn't really reach your desired rate.

A standing order enables you to capitalize on positive exchange rates when you are not able to personally monitor the market and or do a transaction. Some brokerage firm representatives can assist you in deciding on a rate that is appropriate for current market conditions. Standing Orders is one of the best complementary services to have and it can monitor the market 24 hours a day for mostly up to 14 weeks, after which you must choose whether to renew your Standing Order if the market hasn't reached your specified rate. Most firms also offer you the chance to cancel your standing order if it hasn't already been executed should you change your mind about your currency needs.

Another one of the great Forex complementary services is when your broker provides you with free, real-time streaming quotes. It’s great that web brokers are now being able to offer this complementary service as it is something that was once only really available through expensive full-service firms.

When we are looking at foreign exchange complementary services, we should note that you are more likely to get these free services at full service brokers, although the internet has made it easier for discount brokers to also offer freebies. When you choose to use a discount broker, you should be able to make your own decisions, and be of the opinion that saving on trading cost is more important than added FX complementary services. Full-service brokers are typically better for novices as they offer personalized investment advice, as well as investment research reports that were produced by their company.

Remember not to overlook discount brokers as more of them are starting to provide research reports on various types of stocks, bonds, mutual funds, and other investments, and others are even making some research reports available to their clients as one of their free services.
If you can get some bundled foreign currency exchange complementary services for the same price or slightly more, then all the better!

How To Find A Forex Broker Dealer ?

You amenability find a Forex broker dealer online or offline. The by oneself Forex broker dealers you will find guidance your own areas will sell for banks and immense companies who approach foreign investing. Most smaller dealers and brokers are not movement to approach foreign investing, because they don't hold the optimum connections to perk accordingly. A Forex broker banker boundness act as inaugurate online, easier than offline.

To find a Forex broker dealer online you craving to point the links on this page to part you to great proclaimed brokers or you boundness again handling the links on this page to search the net to find more broker of Forex trades. Brokers of Forex trading will serve drawn importance telling you all about site you responsibility effect bread promptly, tomorrow and locality the hottest investments are. We advise you to canvass and specialize in about detail company position your are chemistry on working keep from a broker of foreign exchange before putting your hard earned gravy out crack.

You essential to conceive sharp are a number of companies, those who are Forex broker dealers, who are stunt to prevail you string a scam. Don't imitate alarmed, because this could also happen hold back brokers dealing pull stocks, and supremacy other hometown investments owing to strong, but you should serve aware of absolute. Forex broker dealers who are involved weight scams will after all whirl to push you into forming decisions faster and to moulding your investments invisible giving you the ample juncture to cram about stage your property is game or what your possible rates of return are. Forex broker dealers who are game to catching the clock to annotate what is activity on, and how solid will happen are added oftentimes bona fide Forex broker dealers you might yearning to grant contact metier shadow.

Forex broker dealer is a materiality who leave body your foremost know-how agency the uncompromising or effect the deportment; you are big idea to spawn your gravy nailed down. Most all - stock trades make ready 'go through' a company or a broker thus the trade burden yield city. The corresponding lore of the stock trade juice your country will resort to to the Forex trading systems, but the Forex broker dealer is working to occasion the transactions happen on a worldwide system. The worldwide system involves the matronymic Forex, which stands for foreign exchange and trade. The trade of currency and stocks worldwide is scene to immediate you squirrel crowded farther options about latitude you duty forge dinero and how you duty organize dinero to physique your person cash.

Forex Charting

In Forex Trading, when becoming a Forex trader you can definitely use great tools available to you, such as Forex charting. The charts produced by Forex analysis can give you great insight into different aspects of the market, including movements. By using charts in foreign exchange you can study the behavior of the market over a greater amount of time and analyze them and how they affect trading.



Forex charting is a method of providing financial data, in this case the performance of world currency, in the form of different types of charts called currency charts. Currency charts represent a single period in time: a minute, a month, a year, depending on how the charts are packaged.

The forex charts are generated by charting software, which go through historical as well as current data and generate the big picture for the trader. The trader can select the charting software based on his specific needs. Dailyfx offers free forex charts with live FXCM Quotes.

There are many people who are very interested in Online Forex Trading but fear that they may suffer some losses due to lack of experience or knowledge. If this is the case, you should open an online trading account with the appropriate forex charting software. This virtual account enables you to learn about currency trading and the market without investing money and without having to establish a commitment.

Every trader should have to be aware and keep these points in mind:

*Ensure that the charts are as up to the minute and accurate as they claim.

*The charts should give meaningful and significant information at a glance.

*The charts should integrate with the trading platform that the trader is using.

*The trader should be able to view more than one chart at a time to get the fullest possible picture of forex’s current behavior.

Forex Trading Rules: Never Let a Winner Turn Into a Loser

Never let a winner turn into a loser

There is nothing worse than watching your trade be up 30 points one minute, only to see it completely reverse a short while later and take out your stop 40 points lower. If you haven't already experienced this feeling firsthand, consider yourself lucky - it's a woe most traders face more often than you can imagine and is a perfect example of poor money management.

Managing Your Capital

The FX markets can move fast, with gains turning into losses in a matter of minutes, making it critical to properly manage your capital. One of the cardinal rules of trading is to protect your profits - even if it means banking only 15 pips at a time. To some, 15 pips may seem like chump change; but if you take 10 trades 15 pips at a time, that adds up to a respectable 150 points of profits. Sure, this approach may seem like trading like penny-pinching grandmothers, but the main point of trading is to minimize your losses and, along with that, to make money as often as possible.

The bottom line is that this is your money. Even if it is money that you are willing to lose, commonly referred to as risk capital, you need to look at it as "you versus the market". Like a soldier on the battlefield, you need to protect yourself first and foremost.

There are two easy ways to never let a winner turn into a loser. The first method is to trail. The second is a derivative of the first, which is to trade more than one lot.

Trailing Your Stops

Trailing stops requires work but is probably one of the best ways to lock in profits. The key to trailing stops is to set a near-term profit target. For example, if your "near-term target" is 15 pips, then as soon as you are 15 pips in the money, move your stop to breakeven. If it moves lower and takes out your stop, that is fine, since you can consider your trade a scratch and you end up with no profits or losses. If it moves higher, with each 5-pip increment you boost up your stop from breakeven by 5 pips, slowly cashing in gains. Just imagine it like a blackjack game, where every time you take in $100, you move $25 to your "do not touch" pile.

Trading In Lots

The second method of locking in gains involves trading more than one lot. If you trade two lots, for example, you can have two separate profit targets. The first target would be placed at a more conservative level, closer to your entry price, say 15 or 20 pips, while the second lot is much further away, through which you are looking to bank a much larger reward-to-risk-ratio. Once the first target level is reached, you would move your stop to breakeven, which in essence embodies the first rule: "Never let a winner turn into a loser".

Of course, 15 pips is hardly a rule written in stone. How much profit you bank and by how much you trail the stop is dependent upon your trading style and the time frame in which you choose to trade. Longer term traders may want to use a wider first target such as 50 or 100 pips , while shorter term traders may prefer to use the 15-pip target. Managing each individual trade is always more art than science. However, trading in general still requires putting your money at risk, so we encourage you to think in terms of protecting profits first and swinging for the fences second. Successful trading is simply the art of accumulating more winners than stops.

8 Online Currency Trading Secrets

Investing on foreign exchange puts your money at greater risk. Since currencies are changing from time to time, you couldn’t actually tell how the business will run for the next few days or years. Because of the constant changes and the big size of this market, you couldn’t really escape from the risks of investment.

Among all the other markets in the world today, foreign exchange accounts for the biggest and most volatile investments of all time. There is no individual, event, or specifically any factor which can tell how the investments will run. There are also no rules that govern the foreign market. And in a matter of days, or even minutes, you could be losing your investments. For this reason, you need to be equipped with the best strategies that can drive you away from failed investments. Below is a list of ways that can help much in your forex trading.

Knowing the best times to trade is a helpful foreign exchange strategy. During the UK and US session overlap, you could have all the best chances in foreign exchange. At this time, the market is condensed with participants who signal the currencies to really move. Therefore, you gain a heap of opportunities to score quick profits. It is also during this time that fundamental news comes out; thus increasing your leverage of bringing in more money.

Avoiding scams in foreign exchange is also another helpful strategy. Some examples include phony investments, software downloadable products, and signal sellers. There are other more risks around; so you have to be careful in every step you take or you’ll be losing all your money.

Margin trading is another technique used in foreign exchange. This approach allows you to have greater chances of profiting more money. However, one has to be an experienced trader to carry out impressive gains. Strict management policy is also needed in this kind of approach.

Implementing the risk-reward ratio is also another useful strategy in foreign exchange. The trader has to calculate the risks against the potential reward that he can get from the investment. Many traders neglect the use of such because of its simplicity in approach. However, many investors swear by this strategy because investing money can be a lot safer with the use of such technique.

Two useful strategies are available for your use. Through fundamental and technical analyses, you can know the entry and exit points in the trade. However, experience is still the best key in reaching your goals in the foreign exchange market.

There is actually no “holy grail” in the foreign exchange market. Most investors develop a good plan, put it into action, and find out if the system works. If not, the trader can always try new ways until he finds out what works best for his investment. Foreign exchange is mostly a trial and error system. One has to risk first before gaining something in return.

Forex Trading Mistakes

The smallest mistake or miscalculation can end up resulting in either a massive gain or a horrible loss when it comes to currency trading. The experts will all attest that though there are several books and strategies on the currency market there is always going to be the unexpected. So how can we avoid ourselves from making costly mistakes when Forex Trading.

So we will explore the major mistakes and give some helpful information on how to avoid these situations in the future. The major mistakes that most beginner forex traders will make is when there is too much capital but too little chance of making profit. With a small account balance backed by hope that things will be in your favour, you can just as easily lose more than you can afford to. This market is, as you should know by now, not ruled by emotions or luck, although there are rare instances wherein others do strike a gold mine.

Remember when it comes to forex trading a golden rule is not to take a gamble, but a calculated risk instead. We should only trade when the odds are in our favor.

The biggest mistake a Forex Trader can make is over trading, thinking that they have to continually trade. Most beginner traders will wrongly assume that the outcome of a trade can entice them to invest too much of their capital and then losing it all in one trade. This can also result in them becoming in debt.

Failing to plan the trade can result in poor execution and major losses. Before you begin to trade you must make sure that you have plan- then trade the plan without a plan you are planning to fail without knowing it. You also must understand what sort of trader you are, short term, medium term or long term whatever you decide to be stick to your rules and trading plan.

The fastest way to become a successful trader is learning, and in most cases learning from other peoples mistakes. In order to do this you must be prepared to educate yourself to become a better trader.

Opening A Forex Micro Account

Mini Forex accounts is another term for a Forex brokerage micro account, which allows the client to take part in trading Forex with a much smaller account when compared to the “normal” Forex accounts.

The FX mini account is made possible due to the fractional trading sizes, with 1 mini Forex lot being a fraction of 1 actual lot in the interbank foreign exchange market. Because of this, the account size and margin requirement can be fractional in size as well.

Trading with Forex micro accounts can be a great learning curve. Because the Forex trades placed with FX micro accounts are placed outside of the interbank foreign exchange market, due to their size, the market maker for the mini trading account lots is normally the same brokerage firm that you have the mini Forex account with.

Luckily, because the Forex brokerage can hedge risk safely in the interbank market, they can normally also offer comparative market prices and comparative spreads compared to the actual Forex markets. So if you are considering FX account opening, why not open a micro account?
However, you will find variations in rollover rates. Mini Forex and Forex rollover rates are paid to or subtracted from a Forex account held overnight, which will affect your trading performance. This means it usually pays off to compare FX micro accounts to find the top rates on overnight positions, in addition to the top competitive spreads.

If you open a micro account, make sure to look at the mini forex trading accounts providers. With the rise of the Internet, the popularity of Mini forex trading accounts has skyrocketed. In fact, many investment stock traders seem keen to spread their trading risk by taking some positions on the forex market with forex mini accounts.

There are quite a few providers available for open mini account possibilities. These providers differ in, for example, trading spreads, overnight rates, and max leverage rules, which means that you should take all the time you need when comparing the various offers. In addition to comparing the Forex mini trading accounts, compare the other trading platforms available. There is a difference in the simplicity of use and interface design between mini Forex and other trading platforms.

The choice of a Forex mini trading platform may, in fact, affect your trading returns, so choose one that you’re comfortable with. Remember that you have to have the ability to use the Forex platform quickly and correctly.

Forex Currency Trading Systems

The forex currency trading system is the system, which lets the forex traders buy one currency and sell the other simultaneously. This is a platform where you can also participate in the currency trading game and make lucrative profits by buying and selling currency pairs.

According to the basics of forex currency trading system, when the value of a currency falls the currency should be bought and when it rises, the currency should be sold off. However, you must know the basics of forex trading before you start using forex currency trading systems. The forex currency trading system is the relatively new venture into the financial world; over three trillion dollars worth of transactions are taking place everyday in the forex market with forex currency trading system.

The Forex currency trading system works like this. For example, you anticipate that the value of Euro will increase relative to Dollar, and you buy Euros with Dollars. So, if the Euro rate increases relative to the Dollar, you sell the Euros and make your profit. The first currency of each currency pair is referred as the base currency, and the second is as the ‘counter’ or ‘quote currency’. Each currency pair is expressed in units of the counter currency needed to get one unit of the base currency. If the price or quote of the EUR/USD is 1.2545, it means that 1.2545 US dollars are needed to get one EUR.

These currency pairs used in the forex currency trading system are usually traded and quoted with a ‘bid’ and ‘ask’ price. The ‘bid’ is the price at which the broker is willing to buy and the ‘ask’ is the price at which he is willing to sell.

Fibonacci currency trading system is based on the world famous Fibonacci sequence – which is formed by a series of numbers where each number is the sum of the two preceding numbers, such as 1,1,2,3,5,8,……and so on. The forex currency trading system benefits a lot from this mathematical system; if you closely monitor the forex rate charts you will see Fibonacci series type oscillations in prices.

When applied to the field of currency trading, the ratio derived from this sequence of numbers, i.e. .236, .50, .382, .618, etc., it has been found that the oscillations observed in forex charts, follow Fibonacci ratios very closely. Since the Fibonacci system calculates the points, levels or currency pair in advance, you, as a trader, easily come to know when to enter into the market for trading and when to exit.

There are over 60 currency pairs available in a forex currency trading system to trade on. However, there are four currency pairs that dominate the forex currency trading system. These are:

EUR/USD: Euro vs. USD (U.S. Dollar)

GBP/USD: British Pound vs. USD

USD/JPY: USD vs. Japanese YEN

USD/CHF: USD vs. Swiss franc

These currency pairs generate up to 85% of the overall volume generated in the Forex market.

The base/counter currency concept illustrates what is actually happening in a Forex transaction. This allows you to short-sell with no restrictions. In forex currency trading system, short-selling is when you sell a stock or currency first and then try to buy it back at a lower price later.

As there are no restrictions, you can make money when the market drops as well as when it rises. So unlike stock market, in the forex currency trading system lets you make money in all directions.

Learning indicators on forex

A moving average is one of the fundamental tools of technical analysis. The two most popular types are the simple moving average and the exponential moving average.

The simple moving average (SMA) is calculated by averaging market prices over a given period. For example, the twenty-day moving average would average price levels for the first twenty days of the market. On the following day, the SMA would include the twenty-first day of the market, omitting the first day. All SMA values are plotted on a chart, resulting in a significantly smoothed indicator of overall price behavior. The more periods are taken into account by the SMA, the less the SMA line will reflect minor fluctuations in market behavior, and the smoother the data will be.

The exponential moving average (EMA) is more complicated, but is calculated by taking the difference between the current price and the previous EMA. This value is multiplied by a set percentage (often dependent on the number of periods taken into account), and the resulting number is added to the previous EMA value. Unlike the SMA, the EMA doesn't eliminate any previous price levels from consideration when making its calculations, and as such is slightly more responsive at reflecting minor fluctuations in price behavior.

Moving averages are a simple way to see overall price behavior for an asset, and are also used as variables for a number of more complicated technical analysis
charts and tools.

MACD

Moving Average Convergence/Divergence, an indicator used in technical analysis that was invented in the 1960s as a means of showing the differences between both the fast and slow EMAs (Exponential Moving Average) of closing prices, although since 1986 the graph has been produced as a histogram.

The moving average as expressed by the MACD is essentially the average of a price over a certain set amount of time and the MACD enables easy demonstration of the relationship between two exponential examples of the moving average.

Generally, a fast EMA would be considered one within a time frame of twelve days, whereas a slow EMA would represent a twenty-six day period.

The formula: MACD=EMA[12] of price - EMA[26] of price with a signal line of EMA[9] then plotted over the top of this MACD result, allowing as a trigger point for interpretation of buy and sell signals.

Generally, it is considered that when the MACD falls below the signal line it can be regarded as bearish and may well indicate a time to sell, whereas when the MACD rises above the signal line indicating a bullish trend which may indicate an upward trend in price.

McClellan Oscillator

The McClellan Oscillator is a technical analysis indicator for determining the behavior of an overall market, rather than the behavior of a single asset. The Oscillator was developed by Sherman and Marian McClellan for use with the New York Stock Exchange.

The McClellan Oscillator is taken by first subtracting the advancing assets from the declining assets for the entire market to determine the net advances and declines for the market. Two moving averages are taken of this net market behavior, one for a thirty-nine day period and one for a nineteen-day period. The difference between these two moving averages, formed by subtracting the thirty-nine day average from the nineteen day average, forms the McClellan Oscillator.

When the McClellan Oscillator is positive, advances are dominant in the market. When the Oscillator is negative, declines are dominant. Traders take this as a signal of the overall momentum for a market. Additionally, signals in excess of 100 or -100 are signs that a market is either overbought or oversold, respectively. If the Oscillator moves from -100 or below into positive numbers, a buy signal is generated; if the Oscillator moves from 100 or above into negative numbers, a sell signal is generated.

Bollinger Bands

Bollinger Bands are a simple technical analysis tool developed by John Bollinger, and are used to measure the volatility of a market as well as to indicate relative price levels.

Bollinger Bands consist of three lines. The center line is calculated by taking a simple moving average of the price of an asset. Traders most commonly use a 20 or 21-day moving average when calculating the center line of a Bollinger Band. Once the center line is calculated, the upper and lower bands are drawn two standard deviations above or below the moving average. The standard deviation of a market price varies depending on the difference between high and low prices for a given trading day, which means that when an asset becomes more volatile, the Bollinger Band expands, whereas when an asset becomes less volatile, the Bollinger Band contracts. This gives traders an idea of an asset's volatility.

If prices fall outside of two standard deviations of the median price (meaning that, on a candlestick chart, they fall outside of the Bollinger Band), those prices have reached an extremely high or extremely low level for the asset at that time. This can be a signal that a breakout from the trend is imminent, or a warning that an asset is overbought or oversold. When such indicators occur during a period of low volatility, this can be a very strong indicator of a coming reversal in trend, giving traders a signal to take the appropriate action with respect to that asset.

Parabolic SAR

The parabolic SAR (short for Stop And Reverse) is a very complicated predictive algorithm designed to establish a trailing stop-loss level for asset markets that follow strong bullish or bearish trends. The algorithm was introduced by J. Welles Wilder, Jr. in his 1978 book, “New Concepts In Technical Training Systems.”

The parabolic SAR for any given day is calculated before that day's trading, incorporating the extreme high or low value of an asset from the previous day as well as a variable acceleration factor designed to make emerging trends more visible to the trader. A parabolic SAR graph takes the form of a series of points—ideally arranged in a parabola—either above or below the price line. When the SAR points cross below the price line, long positions should be closed; when the SAR points cross above the price line, short positions should be closed. Since the SAR point for a day is calculated in advance, this graph allows traders to set their stop-loss levels at the beginning of the day in order to capitalize immediately on probable trend reversals. This creates a stop-loss level highly responsive to large-scale shifts.

The parabolic SAR is effective only for markets with strong trends, which, according to Wilder, comprise only 30% of markets. In horizontal markets, or markets dominated by rapid yet irregular fluctuations, the SAR becomes much less accurate at finding useful stop-loss levels, and other predictive tools should be used.

How To Get The Best Forex Trading Education

Almost 100 million people around the world today invest or trade in forex market, which is undoubtedly the largest financial market with an estimated daily average turnover between $1.5 trillion to $2.5 trillion.

So, if you want to make profit from your investment, there are some forex trading knowledge which you must have. The best forex trading education provides you with the background and basic information that you need to trade the forex successfully.

The best forex trading education must introduce you to the basics like how to read a currency quote, trading practices, how to read forex charts, advantages of trading currencies over stocks, simulated forex online trading etc.

Through the best forex trading education, you can develop trading skill, formulate your own strategy, make online investment, and finally emerge as a successful investor or trader.

With the ever-expanding coverage of internet, the first and most rigorous forex trading education are the innumerable internet sites. The best forex trading education sites must be logical, powerful, robust, and well presented which you can comprehend and navigate easily.

The first step to get the best forex trading education will be to read! read! and read. Internet has an edge over conventional text books which is the dynamic features like three dimensional charts, bars, interactive graphics, simulated platforms etc.

In the best forex trading education software you can learn to gauge price action and use technical analysis to confirm the price action. You can also use future data, charts, and trend line to predict forex trend or use future data to justify market trend.

The best forex trading education must offer information, practical tips and real-life examples. The best forex trading education helps you in:

· assessing a currency for high profitability and raising the stakes in your profits.

· learning which currencies to trade and which to avoid and which currencies are actually ready to make a move.

· fine-tuning your entry and exit strategies.

· discovering the mistakes that a forex trader can make, and how you can avoid them.

· developing the strategies to save money, time, and effort.

The best forex trading education software will provide you links that thousands of forex traders actually use everyday. You also get the benefit of personal experience provided by brokers and traders. The best forex trading education also helps you in learning exactly which services and software give you best value for your money.

If you are looking for some offline forex trading education material, an interactive manual with video CDs, proves to be quite useful. It comes with printed pages which you can refer while trading forex and interactive CDs that provides video clips, real charts, technical information, live instruction, trading tools and strategies.

The best forex education should have live trading examples and reviews, daily pivot data for all the major currency pairs, market analysis, etc. As the market keeps changing, the best forex trading education should keep you posted on the updates and advanced techniques and therefore your learning should never stop.

Meet your local traders, join discussion forum, read financial magazines, discuss trading strategies and tips with veteran traders. All these can supplement your best forex trading education.

Why Forex Trading Gets More Popular Than Trading Stocks

Forex is different from trading stocks, but the benefits and risks are similar.

The Forex markets are quite different from the stock markets largely because the price behavior of the Forex pairs is different and entails abrupt price swings. This means traders should utilize trading methods different from those that are used to trade stocks so that traders may fully realize the profit potential Forex offers while still minimizing risk.

Both Forex and stocks, however, are similar in that they repeatable price trends that give traders enormous profit opportunities for those traders with strong trading methods, disciplined trading mindsets and sound money management tactics.

One of the reasons Forex has gained in popularity is the concept of Leverage, which allows traders to take Forex positions with a much smaller account size than would be required for trading stocks, and because the margin requirements for Forex are smaller than they are for stocks. This increases the reward ratio for profitable trades, but it also increases the risk.

For example, most brokers offer at least 100:1 leverage, which is more than enough to generate significant profits while maintaining sound risk management. Other brokers will offer up to 400:1 leverage — but the risk reward ratio is not in the trader’s favor with this type of leverage.

Leverage, combined with reduced margin requirements and high profit potential are the real driving forces of the expanding Forex trading market.

In addition, Forex is more predictable than thousands of stocks. It follows well established trends.

And: Foreign Currency Traders don’t suffer from a Global Recession.

In fact, there has been a multitude of opportunities in Foreign Currency during the Crash of 2008.

And there will always be a constant flow of opportunity in Forex.

Because as one economy slows, another surges.

Sometimes we see these mini surges daily, others are longer term trends that we can ride for bigger profts.

You’ll always be able to find financial imbalances in the Forex market, where you can proft.

Trading Forex has become a recession-proof business for those willing to learn the process of how markets
react in today’s volatile world events.

Trading Forex enables you to (re-)gain contol of your financial well-being.

Forex Trading Methods – Fibonacci Trading

Fibonacci Forex Trading.

The concept of Fibonacci Forex trading is being used by millions of Forex traders all around the world. These numbers forecast the coming oscillation in the Forex charts. Though, at the same time, the prediction made cannot be proclaimed as flawless and straight hitting to the mark, the closeness it gets to is quite amazing. The Fibonacci levels are very elementary and fundamental concepts which need to be grasped before delving into the risky environment of Forex trading.

Who was Fibonacci?

Leonardo was born in Pisa, Italy in about 1170. His father Guglielmo was nicknamed Bonaccio ("good natured" or "simple"). Leonardo's mother, Alessandra, died when he was nine years old. Leonardo was posthumously given the nickname Fibonacci (derived from filius Bonacci, meaning son of Bonaccio).

Guglielmo directed a trading post (by some accounts he was the consultant for Pisa) in Bugia, a port east of Algiers in the Almohad dynasty's sultanate in North Africa. As a young boy, Leonardo traveled there to help him. This is where he learned about the Hindu-Arabic numeral system.

Recognizing that arithmetic with Hindu-Arabic numerals is simpler and more efficient than with Roman numerals, Fibonacci traveled throughout the Mediterranean world to study under the leading Arab mathematicians of the time. Leonardo returned from his travels around 1200. In 1202, at age 32, he published what he had learned in Liber Abaci (Book of Abacus or Book of Calculation), and thereby introduced Hindu-Arabic numerals to Europe.

In the Liber Abaci, Fibonacci introduces the so-called modus Indorum (method of the Indians), today known as Arabic numerals. The book advocated numeration with the digits 0–9 and place value. The book showed the practical importance of the new numeral system, using lattice multiplication and Egyptian fractions, by applying it to commercial bookkeeping, conversion of weights and measures, the calculation of interest, money-changing, and other applications. The book was well received throughout educated Europe and had a profound impact on European thought.

Liber Abaci also posed, and solved, a problem involving the growth of a hypothetical population of rabbits based on idealized assumptions. The solution, generation by generation, was a sequence of numbers later known as Fibonacci numbers. The number sequence was known to Indian mathematicians as early as the 6th century, but it was Fibonacci's Liber Abaci that introduced it to the West.

Contribution of Fibonacci in the number theory is one of the most important incorporations in the domain of arithmetic and calculations. He conferred the following benefits:

- Implementation of square root notation.
- Introduction of bars in the fractions. Earlier, the numerator used to have quotations around it.

Later it was discovered that the Fibonacci numbers and the respective series were not only limited to the arithmetic but it also played a pivotal role in economics, commerce and trading sectors too.

Fibonacci Sequence

In the Fibonacci sequence of numbers, each number is the sum of the previous two numbers, starting with 0 and 1. Thus the sequence begins 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610 etc. The higher up in the sequence, the closer two consecutive "Fibonacci numbers" of the sequence divided by each other will approach the golden ratio (approximately 1 : 1.618 or 0.618 : 1). In mathematical terms, the sequence Fn of Fibonacci numbers is defined by the recurrence relation Fn=Fn-1 + Fn-2 with seed values F0=0 and F1=1.


The Golden ratio

Later, more calculations were made and it became evident that the sequence also follows a certain fixed ration. For example, when the particular number was in ratio with its just next higher number in the sequence, the value came out to be 0.618 while on the other hand, if the number was in ratio with the previous lower number, the ratio came out to be 1.618. Eventually, these two ratio values were known as the Golden mean or the Golden ratio. It was also later realized that the application of the Golden ratio and the Fibonacci numbers in the technical analysis was very beneficial as it also reflected the human behavior and human nature. This is because the Fibonacci numbers and the golden ratio are applicable to everything from architecture to human body, music, biology and art. Most of the Forex traders who have been adopting this technique feel that the entire concept is applicable because trading is related to both science and art. They believe that after a lot of meticulous and close scrutiny of the Forex market, it becomes clear that both the price movements and patterns of human behavior are interlinked and the Fibonacci technique have relations to both the patterns.

Risk and greed tolerance are applicable to the Forex trade and guide the outputs of the trade. Most of the traders, whether long term or short term undergo the risking and greed tolerance levels. In this case, if an average it calculated, it becomes evident that what the current perspectives of the traders are. In the same manner, the Fibonacci sequence reveals through the cost of the pricing instruments that how many traders have reached or are reaching the tolerance levels.

With the application of the Fibonacci techniques, it also becomes easier to predict the various turning points which would crop up in the Forex trading.

How can we use the Fibonacci numbers in Forex trading?

Technical analysis is one of the most pivotal tools for forecasting the different twists and turns of the Forex market. Resistance and support levels in the bar charts of the Forex trading are the most important components which have to be scrutinized through the technical analysis. These levels are very important to know regarding the entry and exit spots of the Forex market. For this respective utility, the Forex traders are also using the "retracement" levels involving the Fibonacci percentages. 38.2% and 62.8% are the two most important retracement levels in the Fibonacci percentages.

By using the Fibonacci numbers in the charts, you can find more supports and resistances. It will be a big help to choose the right direction and avoid entering to a wrong trade. To use the Fibonacci numbers in the charts, you have to find the top and the bottom of the previous trend. When the previous trend has been a downtrend, you draw the Fibonacci levels from top to the bottom and extend the lines in the way that they cover the next completing trend and when the previous trend has been an uptrend, you draw the Fibonacci levels from the bottom to the top and extend the lines in the way that they cover the next completing trend.

You have to wait for the trend to become completed: You cannot draw the Fibonacci levels while the trend is not completed. When you cannot find a completed trend in a time frame, you have to look for one in the smaller or bigger time frames in the same currency pair or stock.

The Fibonacci Method is one of the most essential aspects of Forex trading. It basically includes indicators, charting and instrumental spotting patterns. The main strategies which are employed under the utility for the funds traded through exchanges, stock indices and different stocks indicated in the returns.

Furthermore, the Elliot Wave concept is used, which includes the classic applications and principles. The main idea behind using the Fibonacci numbers is to predict as a potential tool in the trading system is to predict and calculate the important and pivotal points in the Forex markets which might be indispensable in causing sudden twists and turns, analyze the business growths and other economical recycles which might occur. At the same time, these Fibonacci methods are also pivotal in predicting the profitable and benefiting aspects of the interest rate and their movements.

Fibonacci Retracement - Zero percent is the considered as the peak of the crest of the move while hundred percent is considered as the bottom most point of the trough of the move. The trading signals are revealed by the Fibonacci retracement zones or levels which are calculated at 23.6%, 38.2% and 50%. Since it's mostly seen that history is continuously repeated when it comes to the Forex market, the Fibonacci methods prove be to be very applicable over here. Thus, with these shapes, the Forex traders are not only able to predict the entire course of the market, they also end up preventing worthless investments.

Fibonacci Equations - Fibonacci equations, by definition, are mathematical applications wherein every term of the equation is the sum of its preceding two numbers. The execution of this process, also a property of recursion, is accomplished by initiating the values of the first and second terms as 0 and 1 respectively. The remaining values can be 'recursively' quantified henceforth. Therefore, the calculated sequence processes as 0, 1, 1, 2, 3, 5, 8, 13, 21, 34 and so on.

Fibonacci Extensions - Fibonacci extensions are furthered developments in Fibonacci fundamentals. These have been extensively tapped by traders and investors in deducing out future support and resistance levels of a particular trend. These levels are plied beyond the standardized 100% level, offering traders to seek areas that yield optimum profits and benefits. 161.8%, 261.8% and 423.6% are perhaps the most well known extension levels in this context.

Forex Fundamental Analysis

The main approach to the analysis of the Forex market analysis, technical and fundamental analysis. And includes studies and analysis of economic indicators, asset markets and political considerations in the assessment of the nation in terms of currency to another. Focus on analysis and is located on the main economic, social and political forces that demand and supply. There is a set of beliefs that guide fundamental Forex analysis, most analysts still do not have to look at various macroeconomic indicators such as economic growth, interest rates, inflation and unemployment.

Here we look at some of the largest Forex fundamental factors that play a role in the movement of currencies:

Economic indicators

Economic indicators and reports issued by public or private organizations, a detailed economic efficiency. These indicators can be placed on a weekly basis, but generally the monthly report. Indicators based on a number of economic conditions, which are important factors, international trade and interests. Other factors include the consumer price index), and purchasing managers index (Red Cross), and the demand for durable goods, retail, rising producer price index).

Exchange

Content is one of the main factors, the main interest rates and economic characteristics of each country. Usually the country for the interest in the country of the currency strengthened against other currencies, such as the transfer of assets to obtain a higher yield. Higher interest is usually not good news for the stock market. This is due to the fact that many investors money from the stock market, where there is an increase in interest rates.

International trade

The trade balance with the net difference (time) between the imports and exports of the nation. The trade deficit may be the management of monetary and economic disaster. It can not exist when the deficit country imports more than exports, which means that more money and leave, at least in some aspects, but the trade deficit and of itself is not necessarily a bad thing. Disability only if the negative deficit is higher than the expectations of the market and therefore will result in a negative price movement.

What is Forex?

What is Forex?

If you would go out on a dinner with your friends or family and you mentioned that you were trading on the Forex market most of them wouldn’t know what you were talking about. The worst thing is that most of the Forex traders that join the Forex market don’t know what they are doing. Understanding what Forex is, is the first good step to your success at Forex trading.

The foreign exchange market (Currency, Forex, or FX) is where currency trading takes place. It is where banks and other official institutions facilitate the buying and selling of foreign currencies. Forex transactions typically involve one party purchasing a quantity of one currency in exchange for paying a quantity of another. The foreign exchange market that we see today started evolving during the 1970s when world over countries gradually switched to floating exchange rate from their erstwhile exchange rate regime, which remained fixed as per the Bretton Woods system till 1971.

Today, the Forex market is one of the largest and most liquid financial markets in the world, and includes trading between large banks, central banks, currency speculators, corporations, governments, and other institutions. The average daily volume in the global foreign exchange and related markets is continuously growing. Traditional daily turnover was reported to be over US$3.2 trillion in April 2007 by the Bank for International Settlements. Since then, the market has continued to grow. According to Euromoney's annual Forex Poll, volumes grew a further 41% between 2007 and 2008.

Main foreign exchange market turnover, 1988 - 2007, measured in billions of USD. The purpose of Forex market is to facilitate trade and investment. The need for a foreign exchange market arises because of the presence of multifarious international currencies such as US Dollar, Pound Sterling, Yen, etc., and the need for trading in such currencies. Since you aren’t buying anything physical this kind of trading can be confusing. When buying a currency think of it as buying a part in that particular country’s economy because the currency rate reflects the economical situation of the country when compared to others.

Currencies

currencies on the Forex market

Forex used to be a closed market because only the “big boys” because you needed between 10 and 50 million $ to open an account. But today, with the development of internet, online Forex brokers have the possibility to offer their services to “little” traders. All you need to start is a computer, fast internet connection and information which you can find on this page also.

This enormous market is like the dangerous sea where you can meet lots of sharks and dangerous waters but at the same time it is the only one where two weeks of trading can hypothetically bring you $1,000,000 out of $1,000 of initial investment.

This is certainly hypothetically because a lot of newbie traders deal with their trades as gambling, that surely bring them to having nothing in the end. You should always keep the phrase "be careful!" in your mind. This market would give you its profit possibilities only if you learn the basic things hard and make lots of demo trading.

The statistics is that as much as 95% of traders come to losing their money at Forex, 5% have profit and less than 1% of traders make large fortune at Forex. You shouldn't produce, sell or advertise anything trading at Forex. Your assets are your knowledge, experience and a small amount of cash.

This market is a platform for banks, transnational corporations and individual traders to change the currencies they possess into other ones. This is the spot Forex market. At this market you can trade with up to 1:400 leverage which means that you'll get $400 on your account for each dollar invested. So, you can trade with the $400,000 sum having invested $1,000 onto your account.

Forex is unique among other world markets because in any time of day and night, somewhere in the world, a financial centre is open for business, banks and corporations exchange currency all the time, with a little lower frequency during the weekend.

Why to trade on Forex?

1. There is no commission fee for trading at Forex.

2. There is no intermediary, you can trade directly at Forex.

3. Forex is open 24-hours a day.

4. Nobody can influence the market for a longer period.

5. High liquidity.

6. Free demo accounts, analysis and charts.

7. Small accounts that allow everyone to try out his luck.

Hope this has answered a lot of questions you were asking yourself about Forex and that you can now start trading. Also make sure that you check out other articles on this blog which can help you earn your fortune.