INTRODUCTION TO FOREX TRADING

(CURRENCY TRADING)
Forex or Foreign Exchange, the forex market or Currency market came into existence after the relinquishment of the Bretton Woods accord in 1971 and later abandoned the regime of universal fixed exchange rates. The triennial survey conducted by the Bank of International Settlement (BIS) shows that global forex trading or currency trading turnover amounts to more than $3000bn per day.

Forex or currency trading is not only the domain of governmental (central banks) and institutional (commercial and investment banks), the forex market is also the jurisdiction of non banking international corporations, hedge funds and individual private investors and speculators. Internet has enhanced the currency trading especially for individuals investors.

Forex trading or Currency trading has short term as well as long term benefits and opportunities but without proper training and knowledge forex traders are vulnerable to risks, therefore great care need to be taken before any venture is undertaken

Forex trading for private investors surged after the advent of the internet. Best investment for forex is sound and practical education with experience. ForexTradingEvo help us to make knowledge regarding forex or forex trading.

Forex trading or currency trading has seen rapid growth in trade, as equity and futures traders become aware of the approaches they have been using for years in their respective markets, especially price based techniques based or technical and quantitative analysis are equally applicable to Forex.

From a price action perspective, it’s inclined towards strong tentative trends.


Over 80 percent of forex trading or currency trading is speculative, as a result it mostly over react.

Market Regulation.

Forex or currency Market is most lightly regulated. There is no regulatory authority. However, Federal Reserve Bank of the US do provide some degree of oversight. As compared to stock or bond trading Forex or Currency markets are least regulated.

Medium

Internet is the medium of forex trading or currency trading. First the investors have to open their account through Broker and send their capital through wire transfer, like Western Union or bank cheques to their Brokers to open a live trading account. They can soon start trading once the amount is credited into their accounts.

Forex Broker

For investors to trade inter-bank forex market, a Forex Broker firm provides all the arrangements. Forx broker firms have huge trading turn over by their clients. Their interest is only limited to the spread and they charge no commission. The difference between buying and selling price of a currency pair is spread, If the spread on a currency pair in the inter bank market is 2 pips(a pip is the smallest unit of a lot, if the rate of buying rate of a pair is 18241, the last digit “1” is a pip) regardless of any outcome of a trade such as profit or loss the Broker will charge 3 or 4 pips on each roundabout trade.

Merits of Forex Trading


1.Forex traders or Currency traders do not have to wait long time to cash
their investment, since they directly trade in real money.

2.Leverage of up-to 1100 US Dollars. To benefit from a lot of US$ 10,000
you only need to invest US$ 100, remaining amount is leveraged by

Forex Broker.

3.Currency Market is a 24/5 trade. Markets with highest volume trade occur at London time, New York, Tokyo in descending order.


4.In Forex Market you can profit from both ways. When the currency pair is going up and also when its going down.


5.You have total control over market. You decide to how much you target to profit and how much to loose. If the market trend is against you, the only thing you do is to take a day off.


6.You don’t have to pay any commission to Forex Broker.




Demerits of Forex Trading.

1.Forex Trading is a highly volatile market, that offers huge profit as well as a great loss. Always your loss will give profit for someone else.


2.Leverage works both ways. Its like a weapon that’s not in your control. It helps traders to benefit from a lot size much greater than their investment, but it also exposes them to the losses of same proportion.



What currencies can you trade?

In Forex, you deal with currency pairs. There are four main currency pairs: British Pound and USD (GBP/USD), Euro and USD (EUR/USD), USD and Japanese Yen (USD/JPY), USD and Swiss Frank (USD/CHF).
In each currency pair, the first currency works as commodity and the second one works as money. For example when you choose GBP/USD to trade, if you buy, you buy British Pound against USD and if you sell, you sell British Pound against USD. It doesn’t matter what currency you have in your account. The trading software takes care of the exchanges and transactions automatically.

How can you make money?

Buying low and selling high or selling high and buying low is the base of making money in Forex. For example If you buy GBP against USD when each GBP is equal to $1.9554USD and then sell it when it is $2.0235USD, you have made a profit. I don’t want to focus on more details in this article and explain how the profits and the money you make will be calculated. I will talk about these topics in other articles.
But the big question is that how you can find out the best time to buy and how you can predict that if you buy, the price will go up and you will make a profit? This is the most important question that makes you a successful trader.
There are two methods to know the optimum time to buy and sell: Technical and Fundamental Analysis.
In technical analysis, you can predict the direction of the price using the the price chart analysis and also with the help of some special tools that are called Indicators.

GBP/JPY price chart with three indicators: RSI and  MACD

Technical Analysis is a science and if you want to start working on Forex, you have to learn it properly, especially if you want to work as an intraday trader. It is not too hard to learn the technical analysis. If you are a focused and a serious person, you can learn technical analysis in a few months. There are a lot of free resources over the web that you can use to learn. There are some expensive training courses but those who sign up for them are not happy and believe that they have learned nothing. So don’t waste your money. If you are serious to learn, there are a lot of free resources over the Internet. You can also visit this weblog every now and then or subscribe for my RSS feed. I will try to share my experiences with you.

The other method is the Fundamental Analysis. This method is used to predict the future movements of currencies’ prices, according to the economic and even political situation of the world and important developed countries like USA, UK, Germany, Japan and… .

Fundamental analysis has a long term usage but good traders can predict the sudden changes that happen after releasing an important news about economic situation of an important country. For example when the news says that economic situation of USA is improved for 5% in comparison to the last month, USD will become stronger and people start buying it. So the value of USD will go up because of the sudden increase of demand. If you know the effect of the news on the price, you can take the proper position and make money. Of course there are two sides in this story which means if you take the wrong position, you will lose.

Experienced and professional traders take the advantage of both technical and fundamental analysis whereas 99% of traders are dependent on the technical analysis.

Some good things about Forex:

1- Forex is an online home based business that doesn’t need referring, recruiting and advertising. You only deal with the currencies through the Internet. So you will not have to reply any email, make any phone call and spend any money on advertising.

2- If you learn Forex trading properly, you can make a lot of money. Forex can be your full time job that makes thousands of dollars for you every month. I have to emphasize again that if you start working on Forex before you learn it properly, it can be risky and you will lose your money. It is like driving. If you drive a car, before you learn to drive properly, you will hurt yourself and others but if you learn it properly first, it will be pleasant and funny.

3- You can make a lot of money by spending a small amount of money. Unlike other investments like stock market that you have to invest a lot of money to make a reasonable profit, you can make a good income through investing small amount of money. For example, with a $5000 account, you can make about $5000 per month. Of course it highly depends on the way that you trade and the strategy that you follow but good and experienced traders can double their money every month.

4- Forex - and of course stock market - are the only businesses that competition has positive impact on them. It is amazing, isn’t it? Competition is the biggest problem in all other businesses but in Forex, it helps the traders to make more money. Why?

Supply and demand are the factors that determine the price in any market. When there are too many buyers and sellers, price volatility will be much higher and market will be more dynamic. Price will go up and down more frequently and this is what we need to make money. When price goes up we buy and when it goes down we sell and make profit.

So if you choose Forex as your business, you will not have to be worried about competition.

what is forex?If you are looking for a business to make money full time or part time, Forex is the best option. It can make reasonable decent income for you and on the other hand, you will not have to be worried about the problems like marketing, advertising, referring and recruiting and even you will not have to be worried about competition.

On this weblog, I am trying to help people to learn forex. I share my knowledge and experience with them. If you like to trade forex and make money and also learn to become a profitable and professional forex trader and forex market analyst

you want to make money and you have heard that forex or currency trading is one of the best ways to achieve this, but you do not know how ??Or, maybe you have already tried to make money through currency trading, but you have not been successful and so you are looking for a trustworthy forex market analysis and forex training program to join.

You can make money with currency trading. In fact, you can make thousands of dollars per month or even per day. However, you can also "lose your shirt" in this market. This is a fact, and you should know this if you haven't already learned this the hard way. This is the reason why you should start slow and trade with someone who you can trust, and at least, why should follow the market with a trustworthy market analysis program.

Forex trading is risky and only those who know how to do it, can be profitable. But don't think that you cannot become a good trader. In fact, in comparison to other businesses, forex trading is one of the best and easiest businesses in the world. Really, it is! Here is the first secret I will share with you: the simpler you keep your trading strategy, the more profitable you will be. In fact, there will become a time when each additional indicator you put on your chart will cost you.

Maybe you already tried to make money through currency trading, but you have not been successful. You may even have lost some or a lot of money.
I have explained in one of my other article that you have to have three things to become a good and successful trader:

1. Knowledge
2. Experience
3. Suitable mental and psychological condition

A professional forex trader is not someone who makes money with each and every trade. When he loses in a trade, he tries to find the reason. If you lose your money as soon as you start working with the real account you should ask yourself that “Do I have enough knowledge? Do I have enough experience? Am I mentally and psychologically ready to trade with my money?”

If you answered no to any of the above questions, you should not trade with the real account.

You can learn everything about forex trading through the internet. Internet is full of free and invaluable information about forex. There are also free videos that you can watch and learn a lot. They all talk about trends, patterns, indicators, candle sticks, fundamentals and … and you can learn all of them word by word.

Then you sign up for a demo account and start trading. Sometimes your first trades are very good and it deceives you that you have learned everything and now you can trade with real money but you don’t know that forex market is like an ocean. Sometimes it is calm. Sometimes it is stormy and sometimes there is a Tsunami because of an earthquake. Someone who has experienced sailing when the ocean has been calm may think that he is a sailor but he is not aware that the storm is on the way and he is not experienced enough to face a real storm. He goes to ocean and becomes trapped by the storm.

Professional forex trader means someone who has built his confidence through enough practicing and repeating his success. Beginners should keep in their mind that a few successful trades with the demo account doesn’t mean that they are good traders and a few successful trades with the real account, doesn’t mean that they can increase the amount of the trades.

Beginners have to keep on trading with the demo at least for few months. The other thing is that they have to have a system. Trading with the demo account without an especial and well-described system is wasting of time. You have to know what kind of signals you should be waiting for before you buy and sell and you should know that you only buy and sell when you see the signals not when you think that you are seeing the signals. Like waiting behind the red light. You start moving only when you see the green light.

So you have to trade with the demo account at least for few months. You have to learn to get stuck to your system. You have to learn to control your emotions. You have to learn to control your fear and greed before you start working with real money.

Unfortunately some greedy brokers push the beginners to open real accounts. They are not smart enough to understand that they have to have long term traders not one day traders. Most beginners who lose their money, will never reload their accounts and so the brokers will lose them for good.

When you work with the demo account for few months, you feel a confidence in your heart. This confidence is not a false confidence because it is gained through practicing and experiencing. If you don’t feel a true confidence, keep on practicing with the demo account. It doesn’t matter for how long. One year or even two years. Nobody has determined a deadline for you. So don’t rush. The market is always there waiting for your money.

Then open a real account but please note that after opening a real account, you are at the BEGINNING of a new stage. Yes! Working with the real account is different from the demo account.

Why? Are the signals, charts, indicators, currency pairs and … different?

Absolutely not. They are all the same but something that is different is that you know that you are playing with your real money. The money that you have been working to the bone to collect. You don’t like to lose it. You want to increase it.

What will happen then?

You trade with more fear and greed. You don’t close the trade that goes against you because you don’t want to lose. You wait for the price to change the direction but it won’t and finally you decide to close your trade when you have lost a lot.

Or you keep a good trade to make more profit. You ignore the reversal signals and so you lose all the profit you had in your hand.

Sounds familiar, doesn’t it?

So what should you do?

1. Start learning first and complete your knowledge.
 

Learn everything that you should know about the trends, patterns, support, resistance, candle sticks, reversal and continuation signals and … . There are a lot of websites that have these information for free. You have to spend at least three months to learn all these things.

2. Decide that if you want to be a swing trader or an intraday trader.

As a beginner you should choose one of them because you have to be focused on one thing first.

3. Choose a system (strategy). Your system should be as simple as possible. 

Complicated systems are not applicable. You can only lose with them. A System should be as easy as 1, 2, 3. Also choose a system that works according to technique and knowledge not according to superstitions. In an e-book I read about a strategy that says you should buy when you see the price has gone up for 80 pips before noon!!!

4. Start trading with the demo account using the system you have chosen. 

If you see that you don’t like your system or it is not good, change it. Find a better and simpler system. Get stuck to it and test it over and over and over. Spend several months to one year with the demo account. Do not be fooled by some of the forums members who say “I have started working on forex two months ago and now I make 100 pips everyday”. This is not true.

5. Forget that the account you are working with it is a demo account.

Consider it as a real account. When you see you are losing, think that it is your REAL money that is burning. And when you see that you are making profit think that it is going to your real bank account. Keep in your mind that if you rush and trade emotionally you lose your money. This will help you to experience your fear and greed before trading with the real account. If you experience them, you will learn to control them. Don’t let them show themselves right when you start trading with your real money.

6. Then start working with a real account BUT trade with a very very small amount of money.

I don’t care if you have a $500k account or a $100 account. Start trading with the minimum amount that you can place an order. Keep on working with this amount of money for a few weeks. If you saw that you are trading exactly like when you have been trading with the demo account, increase the amount of the money gradually. Do not play with a huge amount of money after a few successful trades.

7. Don’t give up! Don’t get disappointed when you lose. 

Everybody loses at the beginning. Even the best traders lose in some of their trades. Learn from your mistakes. Keep in your mind that losing is part of the game. We do not practice to learn not to lose. We practice to learn how to lose small amounts and win big amounts. Your stop loss will be triggered in some cases. This is natural. It should not prevent you from entering to another trade.

If you work in the way I explained above, you will become a professional trader in about one year without losing your money and without having to reload your account.
Forex Market Hours
 

You need to learn is “when” to trade the forex market.
Yes, it is true that the forex is open 24 hours a day, but that doesn’t mean it’s always active the whole day. You can make money in the forex when the market moves up, and you can even make money when the market moves down. However, you will have a very difficult time trying to make money when the market doesn’t move at all. This lesson will help determine when the best times of the day are to trade.

Market Hours

Before looking at the best times to trade, we must look at what a 24hr. day in the forex world looks like. The forex can be broken up into three major trading sessions: the Tokyo Session, the London Session, and the U.S. Session. Below is a table of the open and close times for each session.
 




You can see that in between each session there is a period of time where two sessions are open at the same time. From 3-4 a.m. EST, both the Tokyo and London markets are open, and from 8-12 p.m. EST, both the London and U.S. markets are open. Naturally, these are the busiest times during the market because there is more volume when two markets are open at the same time.

As you can see, the London session usually shows the most movement.
Now let's see which days of the week are best for trading...

       
Best Days of the Week to Trade Forex

Ok, so now we know that the London session is the busiest out of all the other sessions, but there are also certain days in the week where all the markets tend to show more movement. Below is a chart of average pip range for the 4 major pairs for each day of the week:

You can see that during the middle of the week is where the most movement is seen on all 4 major pairs. Fridays are usually busy until 12pm EST and then the market pretty much drops dead until it closes at 5pm EST. This means we only work half-days on Fridays. The weekend always starts early! Yippee!
So based on these three simple pieces, we’ve learned when the busiest times of the market are. These are the best times to trade because they give us a higher chance of success.

How to Use Technical Analysis in Forex and Stock Trading?

 

Technical analysis is the science or skill of forecasting of the future movements of the price using the past movements and data.

Obviously the past movements can not guarantee the future movements and so technical analysis is not a hundred percent accurate and surefire forecasting but if you learn the technical analysis properly, you can make more correct predictions and so you will be in profit at the end.

Technical analysis rules, techniques and tools are 99% the same in the stock and forex market . So if you learn technical analysis, you can use it both in stock and forex market.

It is impossible to cover everything about the technical analysis in one article. So here I just try to talk about technical analysis in general but write more detailed articles about it.

If you read my daily forex market analysis reports, you will see that technical analysis is the main thing that I use in the market analysis.

I do not use indicators in the big time frames like 4 hours, daily and weekly charts because I believe indicators are too delayed to be used on big time frames. They show the signals far after a breakout and a big move happens. So it can be too late to enter to any trade.

In technical analysis we work on the price charts. The price chart is a two dimensional chart. The vertical axis shows the price and the horizontal axis shows the time.

We have different kinds of price charts:

1- Tick chart
2- Line chart
3- Candlestick chart
4- Bar chart
5- Heikin-Ashi chart
6- Kagi chart
7- Renko chart
8- Point & Figure Chart

There are some other kinds of charts but as they are not common, I have not mentioned them in the above list. Even Heikin Ashi, Kagi, Renko and Point & Figure are not very common too but as I like to talk about them because I believe some of you will become interested in using them.

Line, candlestick and Bar charts are very common and I think candlestick chart is the most common chart and it becomes more popular everyday.

Technical analysis is based on the analysis of the charts. Finding the trends, support and resistance levels and also consolidations like triangles, wedges, pennants, double and triple tops and bottoms, head and shoulders and … can be done through the technical analysis rules and when you can achieve to find these things on your charts, you will be able to predict the next direction and movement and so you can take the proper position.

Technical analysis becomes even more helpful and valuable when you enrich the result with some other tools like candlesticks and Fibonacci levels. You can do your technical analysis on a simple line chart. It will not make any difference because you will find the same trends and formations but when you do in on a candlestick chart and pay enough attention to the candlesticks’ signals, your analysis will be stronger.

If you don’t know about the candlesticks’ signals, please read one of my other articles which is about reading the candlesticks’ signals:

1- Trend:

Trendlines are the general direction of the price. When the price goes up, we have uptrend and when it goes down, we have downtrend.

You can find several small trends inside a big trend. Additionally each time frame can have its own trends which can be different from other time frames. For example while you have an uptrend in the daily chart, you can have a downtrend in the one hour chart.

Finding the trends is the first thing we do in technical analysis.

Look a this big uptrend we have in EUR-USD since the end of the 2005:

Now look at the small uptrends and downtrends inside the same big uptrend:

2- Support:

Support is a level that doesn’t let the price go lower.

Look at the strong support that we have had in EUR-USD since 2006. As you see the price has gone up any time that it has touched this support level:

However a support level can be broken down. Usually when a support line becomes broken down, the price goes much lower but it is important to know that when a support level becomes broken down it will act as a resistance and sometimes the price goes up several times to retest the broken support.

Look at the broken support in the below chart:

The same chart with a higher magnification:

See how a broken support was retested as a resistance in the Eur-USD one hour chart:

3- Resistance:

Resistance is a level that doesn’t let the price go higher.

Like the support level, the resistance level can be broken up and then act as a support.

Look at the resistance level (the red line) in the below chart.

And see how this resistance became broken up and then was retested as a support line:

It is time to tell you that finding support and resistance levels is the foundation of technical analysis. Everything that we do in technical analysis is based on the support and resistance levels we find on the charts. Even patterns like triangles, wedges, pennants, double and triple tops and bottoms, head and shoulders and … are created by support and resistance levels.

Some important questions:

- Why do we have support and resistance levels in the market?

- Why do the price goes up as soon as it touches a support level and goes down as soon as it touches a resistance level?

- What causes a support or resistance level becomes broken?

These are the questions that could be formed in your mind. It doesn’t make any difference in your trades if you know the answer of these questions or not. You just need to know what a support/resistance level is and how it acts. But it is always useful to know more than the basic.

You can be a good driver even if you know nothing about the engine and gearbox but professional drivers have to know about engine, gearbox and all other parts of the car. That’s why they are called professional drivers. You can be an ordinary trader or a professional trader. Professional traders know a lot about the psychology of the market.

So why do we have support levels in the market?

We have support and resistance levels in everything. For example in the weather changes. It becomes hot in summer but it has a limit in different regions. It doesn’t go up as much as it can. There is a resistance level in different areas. Every year the temperature goes up, retests the resistance and then goes down. It is the same in Winter. The temperature goes down but it doesn’t go lower than a special level in different regions (support).

What prevents the temperature from going above or below a special level? 

There are different factors like atmosphere and geographical conditions.

It is the same as the forex market and all other kinds of markets.

Traders buy and buy and buy and the price goes higher and higher and higher but can the trader keep on buy for good? Or will they find a seller to sell his/her shares to them anytime that they want to buy?

Definitely not because they have limitations. They can not afford to buy more than a special limit and when most of the buyers reach their limit, they stop buying and start selling gradually and so the price will be stopped from going up and starts going down gradually. Then the other buyers who had kept their positions, becomes realized that the price will not go higher and will go down. So they sell and the price goes down much faster.

On the other hand, when you want to buy, a seller should be found at the other side of the market. Otherwise you can not buy. And it is clear that you can not find a seller at any condition and time and visa versa.

This cycle will be repeated over and over but each time when the buyers reach their limit level, they stop buying. When we have an uptrend - like the EUR-USD chart you see above - each limit will be higher than the previous one because the buyers become stronger and their buying limit goes higher because they have made profit in their previous trades. So we still have a limit level but this level is higher than the previous level.

When you connect the buying limits (tops) to each other, you will have a resistance level:

Support level has the same story. It is the level that all the buyer finish selling and then start buying and so the price goes up again. When you connect the selling limits (bottoms) to each other, you will have a support level

But what causes a support or resistance level becomes broken?

There are so many factors that cause a support or resistance level becomes broken. A positive or negative change in the economic condition is the most important factor. For example a big country like USA decides to attack Iraq. This tells the traders and investors that the economic situation of USA will be encountered with some problems because of the heavy expenses of war. So they stop investing in USA and they stop buying USD.

On the other hand, those who already had bought USD start selling because they believe if they don’t do it, they will lose a lot when the value of the USD goes down. Also some of the investors who had invested in USA, take their money out because they are fearful that the US economy will go down and so they can not make any profit or they will lose. So the value of the USD goes down against the other currencies and so several strong support/resistance levels becomes broken.

Anyway! You’d better to know what causes the price to go up and down but for trading according to the technical analysis, we just need to find the support and resistance levels and know when it is the time to buy or sell.

When you find the support and resistance levels through technical analysis, you wait for the price to retest the support. If it can not break down the support and goes up, you take a long position and if it breaks down the support, you take a short position.

Also when the price retests a resistance line and can not break it up, you take a short position and if it breaks up the resistance, you take a long position.

When the price goes up or down for a while, it just stops going up or down and makes some small fluctuations. All these events has physiological reasons related to buyer (Bulls) and sellers (Bears). For example buyers stop buying and wait for the other traders. If other traders keep on buying, the price will go up and so those who have been waiting, start buying too. This waiting period in the market makes a consolidation in the price charts and when the price goes up again, the consolidation will be known as a continuation signal.

Consolidations show the uncertainty of the market. The price doesn’t know if it should go up or down. It is the time that we have to plot the support and resistance levels and wait for the breakouts.

Consolidations makes different shapes and patterns. I just mention some of the patterns that becomes formed by the support and resistance levels but I will write different articles for each of them.

Double Tops
Triple Tops
Double Bottoms
Triple Bottoms
Head and Shoulders
Ascending, Descending, Symmetrical Triangles
Ascending and Descending Wedge
Flags or Pennants

Some of the consolidations work as continuation signals. For example flags or pennants are continuation signals. It means the price will keep on moving to the same direction that it has been moving before the formation of the flag.

Some other patterns are reversal signals. For example Head and Shoulders and Double Tops that are formed at the top of an uptrend are reversal signals and the price should go down after these patterns but sometimes they fail to act as reversal and so the price keeps on moving to the same direction.