Better Understand Technical Analysis And Some Indicators

We’re focusing on technical analysis in this article with a description of some of the important indicators.
We could say, all wealthy traders use technical analysis but not all technical analysis traders are wealthy although T.A. is the most precise way of trading the Forex market. It’s also useful note that fundamentals play their part in indicating whether a price will move up or down. It gives you the edge over other traders.
Technical Analysis is so powerful because of a few reasons

1) it represents numbers. All information and its impact on the market and traders is represented in a currency’s price.

2) It helps to predict trends and the foreign exchange market is very ‘trendy’.

3) Certain chart patterns are consistent, reliable and repeat themselves. T.A. helps us to see them.

Here’s one way of putting technical analsysis into perspective (wish I had a dollar each time I said ‘technical analysis’). We all know that prices move in trends. Research has shown that those that trade ‘with the trend’ greatly improve their chances of making a profitable trade.

Trends help you become aware of the overall market direction and often rescue us from less then profitable entry points. I attended a 2 day course costing me over $2500 AUD and the biggest thing I learned from it was the need for discipline and emotional control. The content was so basic that within the next 3 or 4 articles, I would have covered all of it. So learning the ‘tools of the trade’ the technical indicators and their applications will help you to diagnose what the market is doing but even then you need to expect ups and down and trade with emotional control.

Stay with the trend, follow the price.

Find the price of the currency pair. If EUR/USD is 1.4224 and moves to 1.4180 then 1.4090 then the market is in a down trend. Concern yourself only with what the market IS doing not what it might do. Listen to the markets and the indicators will backup what they are telling you.

Moving Averages.

Tell you the price at a given point of time over a defined period of intervals. They are called moving because they give you the latest price while calculating the average based on the selected time measure.

They lag the market so to give you an indication of a change in trend, use a shorter average such as a 5 or 10 day moving average. By combining a shorter term and longer term M.A. you can detect a buy signal when the shorter term crosses the longer term moving average in the upward direction. Or a sell signal if it crosses in a downward direction. For example, you could use a 5 day versus a 20 day moving average or a 40 day versus a 200 day moving average.

There are simple moving averages, linearly weighted which gives more importance to the recent prices or exponentially weighted. The latter is a favourite because it considers all prices in a time period but emphasizes the importance of the most recent price changes.

MACD

Based on moving averages, a MACD plots the difference between a 26 exponential moving average and a 12 day exponential moving average, with a 9 day used as a trigger line. If a MACD turns positive when the market is still plummeting it could be a strong buy signal. The converse also works.

Bollinger Bands (sounds like an elastic band)

Prices tend to stay between the upper and lower bands. They widen and become more narrow depending on the volatility of the market at the time. A sell signal would be when the moving average is above the Bollinger bands and vice versa for a buy signal. Some traders use it in conjunction with RSI, MACD, CCI and Rate of Change.

Fibonacci Retracement

Describe cycles found throughout nature and when applied to technical analysis can find shifts in the market trends. After a climb prices often retrace a large portion sometimes all of the original move. Support and resitance levels often occur near the Fibonacci retracement levels.

RSI

Relative Strength Index measures the market activity to see whether it’s overbought or oversold. This is a leading indicator so helps to indicate what the market is going to do (awesome!). Ahigher RSI number indicates overbought (so expect a bearish shift) and a lower number indicates oversold.

Successful traders will generally use 3 or 4 signals to provide a more conculsive signal before entering a trade.

Always remember, “If in doubt, stay out!” . Technical analysis doesn’t factor in political news, a country’s economic profile or fundamental supply and demand.

Technical Analysis helps us figure out how much money to risk on a trade. How and when to enter the market and how to exit the trade for profit or to minimize loss.

I sincerely hope you found this article useful.

Forex Currency Trading

You can develop into a better and more profitable trader by applying some of the more imperative forex currency trading rules consistently with an appropriate amount of discipline. There are few principles that can help to perk up your chances of success if they are understood, practiced, and implemented in your trading on a regular basis and these rules have been learned in the trenches, mostly through testing and scrutinizing the common mistakes nearly every trader makes when starting out in the forex currency trading business. The first step is to set up and apply specific goals and objectives.

The majority of forex traders who often find themselves on the losing end of a trade make the same common and recurring mistakes. Most forex traders don’t have a clear direction, never take the time to develop a sound business plan and lack a formal written strategy for putting a well thought out plan in place. In forex currency trading, the primary goal is clearly to make money, but it’s important to have goals that are not strictly money related as well. Your personal objectives and ambitions should be very specific and measurable to you, but they should include the characteristics that are needed for the trading.

Having a clear-cut idea of what you want to accomplish in your trading and the precise time frame you want to achieve it, make your efforts more focused. In order to establish a track record of winning trades, you need to develop discipline and a personal forex currency trading system that makes sense for you. The spread generally referred to as the bid/ask spread is what brokers charge instead commission fees. Forex brokers are typically linked with large banks due to the large amount of capital that is required to operate in the forex market. Leverage is a ratio of total capital available to actual capital which is the amount of money a broker will lend you for trading. Finally you should select a trading account that fits your budget.

Basic Forex trading strategy begins with fundamental and technical analysis. Fundamental analysis is mainly used to anticipate and better understand long-term trends in the currency market. Technical analysis is widely used to examine the forex because it identifies and measures sustained trends. Successful traders use a combination to make more accurate predictions. Once you have the knowledge of how the forex currency trading works open a demo account and paper trade to practice until you have what it takes to make a consistent profit. It’s important to take the time to build, test and implement a sound trading plan before you put capital at risk.

Real Forex Traders Learn To Like Losses

As a forex trader you have to learn how to take losses. Period. Don’t be a crybaby. Learn how to take losses.
Learning how to take losses is one of the most important lessons you must learn if you want to survive as a trader. Nobody is 100% right all the time.
Losses are inevitable. Even Michael Jordan and Tiger Woods lose sometimes and they’re considered the best in their field.
There will be trading streaks where you’ll have a number of successful consecutive trades, but that will eventually come to an end you will take a loss.
As that point it’s very important not to lose your head, you must remain in control of yourself. Don’t have a cow man.
Take a break. Calm down and relax. Take a chill pill dude.
Until you’ve regained a clear mind and an ability to think logically again, stay out of the market.
Don’t whine about your loss and never carry a prejudice against a loss.
The key to manage losses is to cut them quickly before a small loss becomes a large one.
I repeat. The key to manage losses is to cut them quickly before a small loss becomes a large one.
Never ever think that you will never lose. That’s just ludicrous. Losses are just like profits, it’s all part of the trader’s universe.
Losses are unavoidable. Get over the loss and move on to the next trade.

Start in Foreign currency trading

When you are just starting out in the stock trading business or if you are already in it, you may have heard the term Forex trading quite a few times, however you probably will possibly not have a clue on what it could actually mean.

Forex or foreign exchange trading is truly the largest and a fast-rising financial industry in stock trading nowadays. Here's a quick introduction to trading in foreign exchange.

What exactly is Forex Trading?

The Foreign Exchange market (Forex) is really the largest financial market in the world. It actually makes a volume of over 2 trillion U.S. dollars a day, and as compared to its counterpart –the New York Stock Exchange (NYSE) which usually only trades a volume of 25 billion dollars daily, this industry is so huge that it becomes a profitable playground for several investors including central banks, large banks, multinational companies and even governments.

What is actually traded on the foreign exchange is money. It actually consists of the concurrent buying and selling of currencies, which are traded through brokers and are traded in pairs.

When you are buying currency, it is like you are investing on the economy of a particular country. For example, if you buy U.S. dollars then it is as if you are buying a share of the U.S. economy. Whatever the market thinks about the current health of a country's economy would directly be reflected on the price of its legal tender and this is how currencies go up or down.

Forex Trading For The Masses

Originally the whole concept of trading in the Foreign Exchange was only intended for huge companies and banks, but not for normal citizens. After all, you could only take part in the trade if you have around ten to fifty million dollars minimum.

However, with the rise of globalization through the Internet, trading is now offered to retail traders. And these days, almost anyone can now invest on the foreign trade. All you really need to join is some small amount of money, a computer and a high-speed Internet connection, and you can sign up for an account with online Forex trading firms.

There is no exact physical office for Foreign Exchange unlike its counterpart in New York. However, the three main centers for this trade are United States, United Kingdom and Japan. These countries handle majority of Forex transactions and trades goes on for 24 hours everyday.

Today, the Foreign Exchange, as the largest market in the world, is fast paced and enormous. And it has become a very lucrative arena for many traders who may have had participated in stock trading and in other markets. Many large institutions and even smaller-based individuals have gone out to play in this market.

Although this particular market gives huge promises, remember that there is still too much at stake. It is estimated that around 70 to 90 percent of the Foreign Exchange market is still speculative. And the parties that trade currencies may not always have a plan to actually take delivery of the said currency, and more are still speculating on movement of money.

If you are interested in investing in this particular arena, take time to be familiar with the game and make sure you get the right educational background. Taking the extra mile will all be worth it, and once you have tasted your success in this arena, you will be ready to take on anything in trading.

Investing Vs Trading What would be the Distinction

There's a question that's often asked by those fresh to the financial markets, and also frequently disputed by proficient individuals. That question is in fact how one particular seperates between trading and investing. Because both of them trading and investing – when one considers them from the perspective of the financial markets are performed in very similar fashions, they are generally thought of as exchangeable behaviors.
In my book, The Essentials of Trading, I followed along with this basic theme by introducing the idea that what differentiates the two is scope definition. Both trading and investing, after all, are at the most simple of levels application of capital in the pursuit of profits. If I buy XYZ stock I expect to either see the price appreciate or earn dividends – perhaps both. What separates trading from investing, however, is that generally in trading one has an exit expectation. This might be in the form of a price target or in terms of how long the position will be held. Either way, the trade is seen to have a finite life. Investing, on the other hand, is more open-ended. An investor will buy a company's stock with no predefined notion of when he or she will sell, if ever.
We can use examples to help demonstrate the difference. Warren Buffet is an investor. He buys companies which he sees as somehow undervalued and holds on to his positions for as long as he continues to like their prospects. He does not think in terms of a price at which he will exit the stock. George Soros is (or at least was while he was still actively running his hedge fund) a trader. His most famous trade was shorting the British Pound when he thought the currency was overvalued and ready to be withdrawn from the European Exchange Rate Mechanism. The position he took was based on a specific circumstance. Once the Pound was allowed to float freely, and quickly devalued in the market, Soros exited with a handsome profit. That meets the criteria of having a predefined exit, making it a trade, not an investment.
There is another way one can define trading as set against investing, though. It has to do with the manner in which the applied capital is expected to produce a return. In trading the appreciation of capital is the objective. You buy XZY stock at 10 expecting it to go to 15 and thereby produce a capital gain. If dividends or interest are paid out along the way, that is fine, but likely only a minor contribution to the expected profits.
In contrast, investing looks more toward income over time. That makes income production, such as dividends and bond interest payments, the major focal point. Do investors experience capital appreciation? Sure, but unlike in trading, that is not the prime motivation.
With these definitions in mind, consider what many people refer to as their single biggest investment – their home. Based our second definition of investing, however, a home is generally not an investment because in most cases is does not produce any income. In fact, it produces considerable expenses in the form of mortgage interest payments, utility bills, and upkeep. If anything, a home is a trade. We buy it and hope for its value to rise over time, increasing our equity. And the fact that many people expect to move in only a few years and sell at that point makes it even more of a trade rather than an investment. (Of course own rental property can certainly be viewed as investing, unless one is flipping it, which would definitely be more trading.)
As noted earlier, for many people trading and investing seem like the same thing. The mechanics of buying and selling are basically the same. Sometimes the analysis one does to make those decisions is identical as well. It's the intention and definition of objectives which separate trading and investing.