Forex Trading And Scams

Because Forex Trading is relatively new in terms of the average investor being able to make money in the currency markets, there is a lot of speculation as to what kinds of returns are considered to be the status quo. In fact, if you look on any forum that deals with forex or yahoo answers, you will find the it will be peppered with questions such as "how much can I make with forex"..."can I make a living trading forex?"....."is forex trading good for beginners?". If you continue reading over a period of time, you will find even more ridiculous questions like "could I double my money in a month with forex trading?".....or...."I was at (insert scam website name here) and it says that I can expect a 4% per day return on my investment..is this possible?"

For those of you who are completely new to forex trading, I implore you...use some common sense...the old adage 'if it sounds too good to be true...' should be employed here. I know that many would love to think that making huge returns quickly is possible (these are mostly wishful thinkers or complete forex newbs), it simply isn't. And because forex trading is fairly new arena, you are going to find a lot of con artists that can't wait to separate your money from your ignorance.

Am I being too hard on these poor individuals? Probably...but the point I am making that most of the forex beginners aren't asking the right questions. They have the dollar signs in their eyes. Their vision is clouded and the money that they think they will make has already been spent before they have made it.

I think rather than asking "how much can you make trading forex?", the inquisitive should instead be asking "how much can you consistently make with forex trading?" And that is the key.

Five years ago, I was one of the ignorant that I am currently bashing. I got into forex trading after suffering some losses from a scam operation (based in the Asia) called PIPS "traded" away nearly $2,000 of my money. I learned of this company from a friend of a friend who actually flew to the country and met the owner (Bryan Marsden). He was convinced that what Bryan was doing was legit and actually had collected over 100k from his investment over the period of year.

Just to let you know exactly how stupid I was, I thought that Bryan was actually trading forex and consistently making 4% COMPOUNDED daily. I wasn't alone. There were nearly 100,000 of the "bungled and botched" out there hanging their hopes and dreams on the shoulders of this con artist.

And the sad thing was, the longer that the company existed, the stronger the belief that he was doing the trading was. And even after the supposed company was defunct and Bryan was gone, there were still hordes of people who believed that their ever growing account would eventually be theirs for the taking.

When PIPs disbanded, I started looking into trading. I didn't want to get hoodwinked again. At the time, I still believed that you could make a ton of money trading the currency markets. I still had visions of making a killing, quitting my day job and purchasing an island in the bahamas. Five years later and although I have made money (and lost money), I have learned that just like everything in life, nothing good comes from easy.

Currently, there are probably 2,000+ sites that claim to trade the forex markets. Some these supposed "forex traders" claim to be able to make as much as 100% ROI in one day. Most fall between 1%-4% a day though. And I am here to tell you, if you think that you can make 30% per month ROI consistantly, then you really need to check your head.

Well, I know that this rant is abit winded so without further ado, here are some realistic expectations that all of you forex trading beginners can look at:

• Expect to have some good luck initially out of the gate with your DEMO forex account- Call it beginner's luck or the god's trying to play tricks on you but most beginner forex traders wind up having substantial gains that kind of lulls them into believing that they are ready for a real account. Trading with REAL money will do some crazy things to your mind, especially if you are on the losing end.
• Expect to lose...initially- Best case scenario is that you don't drain your forex account within a couple months (what most will do) and actually learn from your mistakes. Worst case scenario is you lose really quickly and decide to throw in more money (can we say degenerate gambler?) to try to get back to even.
• Expect to become partially bald from pulling out your hair- My first year of trading, I had a semi-permanent bald spot on the side of my head made primarily from me yanking it out whenever I couldn't cancel a trade quick enough.
• Expect to become obsessed with new 'tricks', 'systems' and other con jobs out there- Over the years, I have tried a couple dozen guaranteed systems out there. The "system" I use now is what I consider the fundamentals of forex trading., such as dow theory and how it applies to forex trading, support and resistance bands in forex, how to use leverage when dealing with forex trades and understanding how risk and rewards work in forex trading
  
• If you are forex day trading, expect to be glued to the screen for hours looking for good entry points- The notion that you will be loosening the chains of that J-O-B is replaced with the shankles next to your computer.
  
• Expect months of great returns followed by streaks of no returns- This is for real...My second month of trading, I pulled in a whopping 20% ROI. I thought I hit the promised land (granted, my account was smallish). The next couple months after that, I gave it all back to the house and then some. Oh well, back to the drawing board.
• If you are lucky, expect to make more than your average mutual fund in a year's time- Yeah, you heard me right. There is money to be made in the forex market. But just like the stock market, it is a zero sum game. Everytime you are a "winner", there is someone out there wondering what in the heck just happened ("loser).

That is pretty much it for today. I was planning on getting into how to spot a forex scam, but figure that you can figure that out on your own (I may revisit this later). The bottom line is that because forex trading is fairly new (to the regular investor), the idea of what you could make trading forex is saturated with presuppositions and myths. The only way for you to truly realize what you can make is to get a trading account for yourself and test it out yourself. I'm out.

Forex Trading For Beginners | The Art of Scalping Trades in the Currency Markets

If you are brand new to forex trading, then chances are you have never heard of scalping trades. However, if you have been around the block on the forex circuit, then chances are you have run into the notion of scalping forex trades as a way to be profitable. In this tutorial of Forex Trading For Beginners, I am going to introduce you to the art of scalping.

What is scalping in relation to trading currencies?

A forex scalper is basically a trader that will enter and exit a trade quickly, usually within a minute of the trade being made, and take the 4-5 pips in profit and move on to the next trade. A typical scalper will exploit small price movements and usually deals with the lowest time frames possible. In other words, while most forex traders will look to enter trades with a potential for large bulk profits (50+ pips), a scalper is only looking for small profits. As you probably can guess, the scalper will need a lot of these small trades to make it worth his while and he will prevent a reversal of fortune by placing tight stop/loss points in his trades. Typically, a successful forex scalper will have a very disciplined system in place when making trades. For example, if the scalper thinks they will make 5 pips, he will typically take the profits regardless of whether the price is moving in the right direction.

However...there are some problems with scalp trading...

The first and probably the biggest problem with scalp trading is that most brokerage firms don't like this. The reasons are really two-fold.

1. First, opening and closing trades for something as small as a couple pips is a big time waster for a brokerage firm. Not only that, but most of the second tier brokerage firms need time to actually make the trades. If you are opening and closing trades in just a matter of seconds, you are essentially just taking money from them.
2. Secondly, most forex brokerage firms actually make money betting against you. What I am trying to say is that alot of time the forex firms will take your trade then open a trade against your own. Once again, time becomes the key factor here. If you are opening and closing trades quickly, they won't have enough time to profit from you.

That said, in an ideal environment, scalping trades in the forex currency market can make you money. However, be aware....if your brokerage firm is not letting you out on canceling trades (since they are short term) or give you a montage of excuses as to why you weren't able to exit a trade, then perhaps you should look for a different firm.

Okay, now that we got that out of the way, let's look at what to expect from scalping the forex market....

• Don't be unrealistic with your numbers- When you are scalping, you should aim for no more than 6 pips a day in profit. Not quite the numbers you were expecting, right? Well, add it up....6 x 30 = 180 pips for the month which is likely better than 97% of the folks out there. Is that a consistently attainable goal? No. But it is a good spot to aim for.
• High leverage is the best way to make a small forex account larger- I know, I know..I have spoken fairly negatively about leverage in the past but I don't believe that leverage in of itself is a bad thing...I think that since most forex traders who are beginners don't understand leverage, they risk way more than they should. Use your brain and stop dreaming....I normally risk 7.5% of my bankroll per trade. This way, I can lose 9 times and still retain half of my equity. And although losing 9 forex trades in a row is unlikely, anything can happen. The main reason why I advocate high leverage in scalping strategies is because typically you stop/loss is tight and the profit is so small.
• Only Scalp Trade using volatile currencies- The market should be liquid and volatile with a high daily average in range (average possible range divided by bid/ask price) The Eur/USD is a great currency pair to scalp trade.

What you can expect....

Like I said before, you shouldn't expect a windfall of pips on a daily basis but rather a small stream of pips profit daily. And this adds up. Once you get the average daily range of the currency, you should aim to make 5-10% of this. Like I said, not a lot but it is steady profit.

One more thing before I end my rant on how to scalp forex trades....if you think that scalping trades can be a part-time job, think again. Scalping the forex market requires vigilant attention to the trading platform and those thinking about scalping should keep realistic expectations about what can be made. Oh...and yeah, you do need to know the fundamentals of forex trading and preferably have your own system in place before attempting to go this route. Forex trading is fun, y'all. But it ain't easy. Until next time....

Forex Trading For Beginners | What all Traders Should Know

About 5 years ago, right before I decided to get into forex trading, I was like many who were on the outside looking in. After all, by all accounts, if you were to believe everything that you read, you would think that trading forex could be as easy as learning a few indicators and plugging in a "proven forex system" and then laughing all the way to the bank. However, forex trading for beginners is much more difficult...in fact, even after you bust your "forex cherry", you are still in for a bumpy ride. Below are some common myths about Forex Trading and what beginners want to believe....

1. There is a such thing as forex automated software that works- I see account after account talk about a forex system that claims that you can plug in a couple variables and profit month after month without a hitch. The problem is that there is NO AUTOMATED FOREX SYSTEM that exists that is profitable month after month. Think about it for a second...if you could develop such software, would you sell it? The problem with automated forex systems and their claims is that most forex traders like to think of trading like it is a "us" vs. "them". It isn't. When you trade forex, you are competing against all the other traders out there...which means the market is getting moved by emotions as well as technical data. I am not sure you can write a variable for the human trader's emotions and this is why an automated system would not work.
2. There is a such thing as a "Proven Forex System"- Books are great for learning stuff. And there are many books that claim that their system will work without fail. The problem is that most of these proven systems are based on the trader's knowledge and since the trader writing the book most likely knows Forex Fundamentals, then he can fine tune his system on the fly...which is something that a beginner in forex can't do. I would like to add that systems do work sometimes, but you most likely will not hear about them. After all, why would a trader want you to know his secrets if he was profitable month after month? Books are meant to be sold, folks. Learn from them..test the systems out there and then apply what works for you.
   
3. Leverage is Great..You can double your earnings in a month- Sure, this is true. But understand that the same high leverage position can just as easily wipe out your account.Leverage is something that most new forex traders don't quite get. All they see are dollar signs and the potential upside to trading with leverage...they don't see the other side, which typically is the side that most beginning traders end..that being the losing end...
4. Trading Forex is easy- Trading Forex is not easy. It never has been and it most likely never will be. Don't believe me? Try talking to some of the newer guys out there..you know, the ones not selling the systems and books on how to make money trading forex. Most of the guys who are making money trading have spent years tweaking and testing their trades AND (drum roll please)........they understand the basic fundamentals of finance and trading in general; Things like how to find trends, support and resistance, and the dow theory. Too many newbies think that all you need to do is slap up a couple forex indicators on their platform and get a feel for the market...that, my friends, is gambling.
5. Trading Forex is not Gambling- Alright, this is for all of you puritans out there that think that just because the banks have decreed currency trading as NOT gambling, that therefore it isn't. As a sports gambler, I am going to tell you the similarities are astounding, from how human emotion plays a part in the trades and volumes, to the "spread", a term that gives the brokerage two pips on either side of the trade. And if it smells like a rose, then it most likely is a rose. The key is understand your risk to reward ratio when making forex trades
   

That's it for today. I don't want anyone to think that I am hating on forex trading. I make money with forex trading. However, just like anything else in life, if you don't learn the fundamentals of whatever investment vehicle you are in, then chances are you will come out on the short end of the stick. Tomorrow, I am going to go over a strategy that many forex beginners get all caught in...scalping..how to make money with the forex markets by "scalping" trades.

Technical Analysis and Forex Trading | Tools for Forex Traders

While there are many who claim that trading stocks OR Forex Currency is nothing more than a random walk, there are far more who incorporate technical analysis into their forex trading. That said, there are a lot of different ways to go about analyzing charts. The methods of technical analysis and forex are all over the board with different traders claiming that their method is better than the other.

Real quickly, here are the various technical analysis tools that a forex trader would have at his disposal:

• MACD- This tool basically takes a 26 day average and subtracts it from a 12 day moving average of the price. What essentially happens is the price oscillates above and below zero. The School of thought here is that if the MACD rose above zero, it would indicate that investor's believe that the market is rising as well and therefore, it would be correct to BUY. Likewise, if the MACD was below zero, it would indicate that investor's are leaning to a bearish market and someone using this indicator would consider SELLING.

• Momentum Indicator- This indicator measures the momentum of a currency pair over a given period time. There are two common ways that someone would use this indicator........1. Investors could use this indicator much in the same way you would use a Moving Average Indicator (like MACD) to find trending in their currency pairs. Basically, you would BUY when the bottoms out and turns back up and Sell when the market peaks and looks to head downward.....2.You can also use the momentum tool as a leading indicator- In other words, you assume that the market tops are easily identifiable by a quick price increase OR on the other side, you assume when the market bottoms, it will be easily identifiable by a fast sell-off from investors.
  

• Moving Averages- This is probably one of the most used analysis tools, primarily because it is very easy to understand. A moving average is nothing more than an average of a price over a period of time. One of the best methods to using a moving average is to compare a moving averages closing price with the actual closing price (use NY markets as the close in this 24 hour market). Basically what advocates of this indicator will do is to buy when the actual price rises above the moving average and SELL when it falls below. Of course, this has some problems in terms of technical analysis- everyone has 20/20 hindsight and when a beginner forex trader is looking over data, they will find entry points in which they could have profited. The key to using a moving average is to find a system that is consistantly profitable. Another problem that people who emply moving averages is that Trader's Remorse often enters after a resistance or support line is broken.

• Relative Strength Index- With a name like this, you would think that the RSI would compare the relative strength of two currency pairs, but instead it actually measures the internal strength of the currency pairs themselves. The RSI can be used to find the support and resistance levels of a currency pair.

• Stochastic Oscillator- To understand what stochastics are, it is best to define the term stochastics...designating a process having infinite progression of jointly distributed random variables...what??!! Layman's terms, please...to use a stochastic oscillator, you need to set some variables...%K variable is basically the number of days that you want it to "oscillate". A real common %k variable is 3 days. Here is the math behind the stochastic oscillator-
  

(today's close)-(lowest lows %k periods) divided by (highest high %k periods)-(lowest lows %k periods)

I will go more into detail about these different indicators at a later date, since all deserve a page exclusively made for each.

So, the magical, million dollar forex question is what technical tools work best in forex trading? When I first started out, I tried them all with a varying degree of success but one of the things that I realized was that the theory known as the random walk really foiled most of my attempts at finding a consistent profitable indicator, long term.

About 2 years ago, I put all my indicators to rest and started to really graph things out by hand and using fibronacci numbers as a way to analyze retracements (which I will get into at a later date).

That said, I have spoken with a number of forex traders that claim that simple things such as EMA's work for them. The key is to open up a demo account and play around with them until you find what works best for you.

Dow Theory and How it Works for Forex Trading

Here is yet another ramble about some forex trading concepts that you can use, if you can understand them that is. Today, we are gonna focus on Dow Theory and how you can use this to your benefit in your forex trading....

But first, a little ramble about Dow theory, how it became known as the "Grandfather of Chart Analysis Theory" and what is about...

The History of Dow Theory

Way back in the early 1900's, a fella by the name of Charles Dow started putting together a series of editorials which would define technical analysis as we know it today. The editorials (which are unfinished due to his health), were comprised of his thoughts on how the stock market behaved and how to use the market to judge the health of businesses and their environment.

Like I said, Dow never actually finished his theory but nevertheless his six theories are still used today by technical analysts. And while most of these theories are done with the Stock Market in mind, trust me, they can be transferred to literally any other market out there....the foreign exchange market included....

So without ado, here are the 6 theories...

1. The Market Discounts everything- This theory is basically built on the notion that all things...past, present and future are discounted and reflected in the prices. All things = emotions, inflation, interest data, ect.
2. The Three Trend Market- I will actually discuss this later in this rant because this theory can be immediately applied to forex trading. Basically, this theory deals with trend analysis and Dow believed that there were 3 main trends, the Primary Trend, the Secondary Trend and finally, the minor trend. Like I said, hold your horses...I will be expounding on this later....
3. The Three Phases of the Primary Trend- The Primary Trend is the long term trend. For instance, in forex terms, the dollar over the past couple years has been shrinking. Although there are rallies here and there, the dollar is continuing to shrink. There are three phases that Dow identified in a bullish market...Accumulation Phase, the public participation phase and finally, the excess phase. In contrast, Dow also noted that there were three phases in a bearish market...The distribution phase, the public participation phase, and finally, the panic phase.
   
4. Market Indexes Must Confirm Each Other-This is not relative to forex trading (although, I guess you could analyze a currency with other similar pairs)but in this theory, Dow basically says that both the indexes (the dow industrial and rail averages) would need to be in agreement with each other. So, in other words, if one of the indexes is indicating an uptrend while the other isn't, then there is no way to determine whether an uptrend is actually happening.
5. Volume Must Confirm the Trend- This theory basically implies that you should look at the volume of sales to confirm that there is a trend started. I kind of went over this in my forex trading support and resistance tutorial and understanding trader's remorse. It is no joke...The amounts of volume is critical to knowing when to buy and when to sell.
6. Trends Remain in Effect Until Clear Reversal Occurs- The trend is your friend..heard of that saying? It is true. The theory implies that the trend stays until proven that it is going in the other direction.

Great, you say...but what does this have to do with forex trading? After all, isn't the Dow Theory tailored to the Stock Market mainly?

Well, yes it is....but the Dow Theory deals with technical analysis and guess what? Most forex traders learn...technical analysis. So what parts of the Dow Theory can we glean and use to our benefit?

What You Should Immediately Understand about Dow Theory and Forex Trading

I mentioned that I would get back to the three different trends and which way they are going. As forex traders, we tend to get enamored with the here and now and many of us use the 5,10, and 15 minute charts. However, if you were to exclusively use these charts to identify overall trends in a market, you would likely be surprised when things whip saw back on you in your forex trades.

Hence where the three trends of dow theory come into play...

I already mentioned that the primary trend can sometimes take years to establish itself and is really a long term trend that you can identify the overall health of the currency pair. However, you wouldn't notice this if you were simply charting out hourly or even daily charts. You should always identify the primary trend of whatever currency pair you are trading.

How do you identify an upward or downward trend?

As you probably have found out, normally the market is nothing more than a series of rallies and sell offs. According to Dow, for a market to be trending, each rally point should be be higher than the previous rallies high. Each sell-off point, should be lower than the previous sell-off point.

In other words, for a market to be trending up or down according to Dow Theory, it must be consistantly moving upwards or downwards. I should note, that Dow didn't do much intra-day trading. Instead, he focused on the closing price each day.

The secondary trend is even more important to the forex trader who is trading for the quick buck because these trends tend to last from a couple weeks to a few months. Once again, the same theory applies....a market must be outpacing its previous highs or lows to qualify as a trend.

Finally, the minor trend....this trend can actually go against the primary trend and doesn't last very long. Typically these trends can happen from forex news but normally are quickly corrected.

That is pretty much it. If you can identify the primary trend of whatever currency pair you are playing around with, the rest is a cakewalk. Well....sort of....Dow's Theory might have been made for the Stock Market folks, but as you can see, it can be applied to the forex market as well....

The Hidden Dangers of Forex Trading

I am going to back track a bit and share with you a story on the hidden dangers of forex trading. I have been trading on and off now for roughly 5 years, and have my share of bumps and bruises along the way. Trading Forex has actually taught me alot about myself, including some of the not so pretty things that I am about to reveal to you. Forex trading is not a piece of cake that many would have you believe.  In fact, if you don't know much about forex trading, then perhaps you should investigate stocks first and learn how to buy stocks for beginners before you get into the volatile currency markets.

I was actually one of the lucky ones out there when I first started out. I was just like many other people out there just starting out. I didn't know a thing about trading and didn't see the importance of placing "stops" to prevent huge losses.

As you are probably aware, the forex markets are unkind to those who don't set up precautionary things like stop losses. Well, on this occasion, I was trading the Eur/USD currency pair and it was late. I was speculating that the USD was going to go up but it had just been hovering at the same place for around an hour or two, give or take a few pips. I didn't have a stop loss in place because I was monitoring it pretty closely.

Well, long story short, I ended up going to bed, and didn't bother to close my position. I can't remember exactly why I didn't do this but the point is that I didn't. I woke up the next morning and went in to check my position. The result? There was a 60 pip move in my favor.

Now while I know many of you would say that that was great and congratulate me for a job well done, understand that this swing could have easily wiped out my rather small account in the blink of an eye had it gone in the other direction at the time. And trust me, it could have easily done so.

So what caused the huge swing? It was an annual news report about the US housing market. Like I said, I had no idea that this report was coming out on this day and had the news been bad, this story would probably be vastly different and it could have forced me onto the forex sidelines with all the other losers for the day.

Needless to say, I could have made a decent return that day. But I didn't. Why? Because rather than closing my position, I fell into yet another newbie forex trader trap...GREED. That's right. My first inclination was to close my position. But then, I started thinking......

What if the market continues to move up? Would I be leaving money on the table? Maybe I should hold onto it a little longer.....

Of course, the market started to correct itself. I started to think that maybe it will rise again (I didn't understand what the market was doing at the time) so I stayed in the trade all the way back down.

The bottom line was I lost PIPs (the spread) instead of making the 60 PIPs. I had a windfall and didn't capitalize on it. I lost the opportunity due to my greed and when it was apparent that it was going back down, I remained in because I thought that maybe, it would rise again. And I DID NOT HAVE A STOP LOSS POINT IN PLACE TO PREVENT SLIPPAGE.

So what is the lesson in all this?

• Understand that you should always have a stop/loss point in place for any trade that you do, especially if you are stupid enough to use high leverage in a trade. If you luck out and actually make a windfall of PIPS, readjust your stop/loss point up to where you will make something.
  
• If you decide to do intra-day trades, take your profits and move on (especially in a correction)
  
• Also, always be aware of upcoming news and when it is coming out as news can make the market swing wildly (in your favor or not so much) and could cause a margin call, once again for those of you who are recklessly messing with high leverage. I don't mess with trading the news and try to close my short term positions during this time.

There are actually more "hidden dangers of forex trading" but those two are probably on the top of my list. If you are going to trade, be smart about it. If you don't use a stop/loss point, you are playing with fire. Couple that with an unmonitored account during some forex breaking news and that spells a recipe for disaster. I'm out.....

Risks of Forex Trading | Understanding Risk vs. Reward

In the last post, I briefly went over how to use leverage in forex trading and more importantly what NOT to do when you are first starting to trade on the foreign markets. In this post, I am going to expound on this by going over the risks of forex trading...most notably how to use a risk versus reward ratio to exploit forex trading and actually not lose your butt in the process.

Do You Understand Your Risk Versus Reward?

I hate to beat a dead horse but understanding risk versus reward is probably one of the biggest (yet untraveled) roads out there and I actually learned how to do this several years ago when I first started doing sports gambling.

The reason why I ask this is because understanding this is paramount to how much money you will want to risk. Establishing and understanding the risk/reward ratios will help you with understanding exactly how much leverage you will want to use. Once you understand this, you will realize that not all trades are created equal. I will repeat this....

NOT ALL FOREX TRADES ARE CREATED EQUAL

One of the first rules that you will need to understand is that when you are making trades, you should always examine the risk/reward ratio. In sports gambling it is no different. You want to find the entry/exit points that will maximize your reward while limiting your risk.

The reason for this is simple. If you can stick to a disciplined plan of attack and know how to maximize your risk/reward ratio, then logic would say that you will come out ahead.

For instance, if you have measured the risk/reward ratio to be 3:1, then you can safely ascertain that all you need to win is 1 trade (with the spread in mind) and lose 2 trades to break even.

So, once again, let's use a real world example....

Let's say that you have found a good forex trade that looks like in all likelihood it will be profitable. All things point to the market moving in the direction that you want it to. Now, you ascertain that the risk/reward is 4:1. You have established that you won't enter a trade that is less than 3:1.

In layman's terms, you are betting that for every trade you make, you only need to win 1 out of 4 to break even (without a spread...it would most likely be 1 out of three with a spread).

Great, you say...but how do you determine what your risk to reward ratio is? What metrics and variables can you use specifically for forex trading?

To understand this, you will need to understand Fibronacci retracement levels. Since you probably haven't gone there yet (assuming you are an amateur forex trader), I will try to explain it in layman's terms.

Basically Fibronacci was this Italian mathematician that published a very important book on calculations. What Fibronacci did was create a series of numbers where if you added 1 (+1) to the previous number, you would get the next number. Here is an example...

1,1,2,3,5,8,13,21 and so on.....

Now if you divided two subsequent numbers on the list, you would get a ratio. The further along you go, the close to phi you get.

For our purposes, the three numbers that are most commonly used in forex trading are .382, .500, and .618.

These numbers will actually help you establish a risk/reward ratio...

So, let's use a real world example....

As you can see from the image above, I have a downtrend (this is a 30 minute chart). I have also added the Fibronacci numbers here. Notice how at the .382 retracement that it sits there for a second. Now take a look at the next jump....0.618.

How I would calculate my risk is by setting point A (which is the highest point) and then point B (which is the lowest point). I would then do the math (or in this case, my trading platform does the math for me) to get the retracement values. I would then go to the risk probability calculator (which is free by the way) and see whether me making the forex trade will be worth the risk.

Hindsight...20/20 right? Sure. You can view this however you want. It is obviously easier for me to look at this after the fact and see that if I had made this trade at the lowest point, I would gain 40 pips if I stopped it at its current point (where the uptrend is seeming to meander). But that is part of the game....doing your homework, finding the trend and capitalizing on the trend.

If you are wrong, so what? You can't win them all but if you constantly temper your trades and only go after the ones with a high risk/reward ratio, then you can buffer the losses.

Oh, and by the way...here is the risk probability calculator for you.

I have rambled on enough for the day. To sum it all up, if you don't understand the risks of forex trading, then you are cheating yourself out of potential good money. If you don't understand how to manage your risk to reward ratio in your forex trades, then you might as well be at the casino betting on red or black. The risks of forex trading are just too high to be playing around with.

How to Use Leverage in Forex Trading

Understanding leverage and how to use it can be the difference between you going broke very quickly and you actually making money. I occasionally read a forum post where some guy claims that he made x amount of dollars trading forex with a 100:1 margin and while it is possible, it is also extremely risky. Most beginning forex traders simply don't understand what they are betting when it comes to leverage. Forex trading can be extremely risky and the higher the leverage the higher the risk. Hopefully after you have read this, you will understand why playing with a high leverage is alot like playing with a loaded gun.

I have one caveat to say before we enter this realm. Just like sports gambling (something that I know a thing or two), forex trading can be a goldmine for those that understand the risks associated with it. With just a little knowledge on how things are run and with a couple technical indicators, you can make money on the FX market. However, just like sports gambling, if you bet the farm on one game and lose, you are taken out of the race. The foreign exchange market is no different. And the fact that you can leverage large currency amounts (lots), makes this endeavor very risky. That said, those that profit the most understand when to take risks and when to sit it out. We are going to explore this today...

Understanding how Leverage Works

The forex market works in using PIPs. A PIP is worth roughly 1/100th of a penny. Needless to say, this little amount of money is hardly worth trading, right? Well, in the forex market, most traders will work with lots which is 100,000 units of currency. In other words, if the USD/Euro pair was currently being traded for $1.0054, then one lot would be worth over $100,000 if the trader was risking his own money dollar for dollar (1:1)

Now most traders don't have this kind of capital to trade with. This is where leverage comes in and the confusion begins.

Here is a real world example:

You have $1,000 (which is low by the way) and decide that leveraging at a 1:25 level would be good because you can make a ton of money quickly...pay off the mortgage and retire in the bahamas by next year. At least that is your dream. After all, by leveraging 1:25, you are essentially controlling $125,000 dollars (assuming you are trading lots, not mini-lots because after all, you are a dreamer).

So, you enter a trade, with those dreams of getting rich quick in mind. However, the market moves against you. How much can you lose before you get that margin call? If you answered 2%, you would be correct. So, of the market moves against you and you lose 2% of your bankroll, you will be standing on the sideline with all the other forex trading amateurs wondering what in the heck just happened.

The end result is you get a margin call and are left with two choices:

1. Liquidate Your Account and call it a loss.
2. Add more money to your account.

It is safe to assume that most beginner forex traders don't have the capital to add more money to their account. In fact, most people who begin forex trading just think that it is a way to get rich quick.

Now, while this is a hypothetical example, don't think for a moment that it doesn't happen. Forex trading is full of losers who bet their bankroll without fully understanding the risks. And the worst part is that this margin call that I used in the previous example is conservative....most forex traders trade with 50:1 - 100:1 leverage. Forex is risky folks but playing with such a high leverage and you would be better off taking your chances with jumping in front of a moving train and hoping to live.

How to Use Leverage in Forex Trading

Since we have established that using too much leverage can be catastrophic to your account, let's examine how much leverage you should use when you are trading forex (or any market).....

A good rule of thumb is to not use more than 60% of your margin on any one trade. I think that this is a bit high personally, but you can decide for yourself what kinds of risk you are comfortable with.

If you are just starting out and getting a feel for the market using real dollars, chances are you are going to want to start small. 1:10 leverage is a good place to start because:

• It allows you to actually lose a few trades and still be in the game.
• It allows you to get a feel as to how much leverage is too much leverage for your risk taking.

Pay special attention to point #1. Staying in the game should be your number one goal. If you don't know how to use leveraging in forex trading, I would say that your chances of staying in the game aren't great. Learning how to leverage and when to leverage will most certainly increase your odds of not going broke quickly.

Forex Pivot Point Tutorial | Forex Trading

In my last post, we went over why you should establish support and resistance lines for your forex trades. Today, I am going to show you one of the ways to predict where to establish these lines. We are going to use forex pivot points to get this done.

So before we get into the nuts and bolts of this, what exactly are forex pivot points?

A pivot point is a technical indicator derived by calculating the numerical average of a particular stock’s high, low and closing prices. A technical indicator derived by calculating the numerical average of a particular stock’s high, low and closing prices.

In layman's terms, all that means is that you establish pivot points from yesterday's averages (or whatever time line you are using) to "guesstimate" what the support and resistance line will be on the current day.

The reason I say "guesstimate" is because that is exactly what it is. There is no hard set of rules of what is right and what is wrong when establishing pivot points and therefore, forex pivot point strategies should be used with other technical indicators as well.

What makes analyzing forex pivot points so popular is because it is a leading indicator as opposed to a lagging indicator. As they say, we all have 20/20 hind sight and it is easy to look back and analyze what happened....It is a complete different story to be able to predict the future...

Forex Formula time

As you can imagine, there are some standard formulas to use when guesstimating the pivot points. The 5 point system is probably the most used.... You are going to need just 3 numbers in order to try to predict the forex trends of the day...

1. High- This is the previous day's high
2. Low- This is the previous day's low
3. Close- This is where the forex market actually closed at (since the forex market is 24 hours, typically forex traders use the New York Market as the close of the day).

Now that we have these three numbers, we can get to work. We will add up yesterday's High, low and close together, then divide this by 3. This will give us our pivot point.

High + Low + Close/3 = our Forex Pivot Point.

Now, that we have our pivot point, we can now start to crunch the numbers to accurately how the market is going to move....

Let's get our first resistance level....(we are going to call it R1)

R1 = (Pivot Point x 2) -Low

Now, let's get a second resistance level...(we are going to call it R2)

R2 = (Pivot Point + High) -Low

Let's move on and do the same thing with our Support lines...(S1)

S1 = (Pivot Point x2) - High

And do it again for the second support point

S2 = (Pivot Point -high) + Low

So, I am sure at this point you are wondering, 'I got the numbers, now what?'

Understand this, the three most important numbers for your forex trading (or any trading for that matter in relation to pivot points) is the actual pivot point and the resistance 1 (R1) and support 1 (S1) numbers.

In a perfect setting the R1 and S1 numbers will typically hold unless there is a breakout. The resistance 2 and support 2 numbers are both good numbers to aim for as both tend to be slightly lower than the first set of numbers.

I want to say that many beginner forex traders want to believe that there is a forex magic bullet. You know, a set of indicators that will accurately predict the market time and time again. If you have been trading for a any amount of time, you would know that. And these forex technical indicators are used to get a good idea of where the market is headed. A lot of newbie forex traders get into this frame of mind that they can find one set of indicators that will accurately predict which way the market is going to move...

That said, consider the pivot point as the average of the previous session's trading range combined with the closing price.

So, you probably have gathered that when you do the math, you can guesstimate (with decent accuracy) the range of the market today based on the past performance of the currency pair that you are dealing with. So, we aren't necessarily trying to predict the future of the forex market....we are just trying to get a good idea of where the market could go in the market based on where it's been.

In other words, you can use forex pivot points to find overall trends in the markets.



In closing, I am going to leave with a great quote from Arthur Sklarew who was a commodities broker....in this quote he mentions what most beginner trader's don't want to believe...that there is not one type of chart analysis indicator that is a magic bullet....However, chart analysis can give reliable forecasts of trends in the forex market. And that, my friends, is golden.

Technicians know very well that price chart analysis is not an exact
science. No single chart technique yet discovered is infallible. Despite
this lack of perfection, price chart analysis can very often give reliable
forecasts of trend direction . . . Confirmation is therefore an
essential component of every valid chart signal. In addition to comparing
price charts of different contract months and time scales, it
has been my experience that the accuracy of any technical price forecast
can be improved greatly by the application of a principle that I
call the “Rule of Multiple Techniques.”
The Rule of Multiple Techniques requires that the chart technician
not rely solely on one single technical signal or indicator but look
for confirmation from other technical indicators. The more technical
indicators that confirm each other, the better the chance of an accurate
forecast. The logic behind this rule is that, if individual timeproven
techniques tend to be right most of the time, a combination of
several such techniques that confirm each other will tend to be right
even more frequently.

It should go without saying that while learning how to establish pivot points can help you understand how the forex market works and give you the ammunition to develop a gameplan as far as predicting support and resistance lines, forex pivot points are just a small part of the equation....in other words, you will have to find and use other forex indicators in addition to establishing pivot points. It is all in understanding the how's and why's as far as market movement is concerned. And Forex Pivot Points is just a small part of the large jigsaw puzzle into forex trading.

Forex Trading | Forex Support and Resistance Tutorial

To first begin Forex Trading, you first need to understand some of the basics of the market. For instance, how the market moves, why it moves in the direction it does and how to find a good entry point to start placing bids. Understanding the concept of support and resistance lines will be our first stop.

Forex is a lot like trading stocks and if you have a solid foundation on how the stock market moves, the transition to forex trading will be fairly easy. If you have no idea how it works, this will hopefully give you a layman's viewpoint into forex trading. Best case scenario in this little rant is that you get a clear and accurate understand of how support and resistance lines work and are able to use this to become a better forex trader. Worst case scenario? You completely are stupified (which is not likely) by a concept so simple as analyzing support and resistance lines and decide that forex trading is simply not for you.

Concept #1 Understanding Support and Resistance in the Forex markets

Nothing new here. Just like the stock market, the forex market is nothing more than a battle between the bulls (the buyer) and the bears (the seller). If a currency pair is overvalued, the price will drop (make a correction) until it eventually hits a line of support. If the price is undervalued, then the price will rise until it hits a line of resistance.

Just like the stock market, the forex market tends to trend and repeat itself over and over. For instance, if you were to draw lines of support and resistance over 10 years, you will discover that most currency pairs pretty much stay inline with each other. Most forex currency pairs have a pretty set support and resistance line. When you drop the chart down to a monthly forex chart, it is really no different. The support and resistance lines pretty much follow a trend and as a future forex trader, it is your job to realize this trend.

Support and Resistance lines are nothing more than the top (and bottom) of supply and demand. The forex market tends to stay within these parameters. When they break these barriers, there could be a period of "trader's remorse", and the market either drops back into the broken barriers OR a new support and resistance line is set.

Support and Resistance lines are no more than the bottom and top points of supply and demand. Usually the forex market stays somewhere in the middle.

In order for anyone to fully appreciate this push and pull of the bulls and bears, one needs to think of it as "mini-battles" throughout the day in which the buyers and sellers try to move the market in the direction they want to move it.

Support and Resistance in Forex is nothing more than a constant push and pull from supply and demand and is nothing really that exciting. In fact, if you took economics 101, chances are you have a good handle on support and resistance.

Support levels is the line that define the price at which most forex traders feel the prices will move higher. Pin Pointing support levels is easy...just take a look a the day's lowest prices . These lows usually fluctuate around a certain point. This is the place where the support levels can be found.

Resistance levels is the line that defines the upper level of trading. This is the place where there are more sellers than buyers. Supply and demand at its finest!

It is important that you get this concept down if you intend to trade forex as it is probably the simplest forex concept and one that you can immediately employ, strategy wise. I would suggest that you start out with a weekly or monthly chart as identifying long term trends is much easier than identifying short term trends. Understanding how the forex market trends in a certain time frame is key to understanding how the market moves. This is primarily why you are going to want to use just one forex currency pair WITH a Trading Solutions rather than simply throw in real money.

Concept #2 When does Support become Resistance and Resistance become Support?

Once you can identify your support and resistance points with relative accuracy, the next step is to understand that although trends do happen with forex trading, trends are made to be broken. It is important for you to watch for this. Roll with trends until they look to be reversing. But the million dollar question is "when can you decide when a support or resistance level has been broken in the forex market?"

A lot of traders are going to be quick to pull the trigger when a support line or resistance line has been broken. If you look at the image below, you will notice that the resistance level was broken only to quickly fall back. These pullbacks happen when forex traders are testing the market. This happens and is easily identifiable by looking at the candlesticks.

Did the chart break the line of support or resistance only to retreat back to within its trend? It is easy to mistake the market breaking these points for new established lines of support and resistance. However, when you are determining your resistance and support lines, you need to understand that you want to create them in relation to the way the market is moving ON THE WHOLE, not simply the reflexes that happen from day to day. You want to analyze the trend, not the knee jerks of the market.

So, if the forex market is constantly ebbing and flowing and breaking support and resistance barriers, how do forex traders determine when a support or resistance line is really broken?

There is no real answer to this. Some forex traders consider where the market closes at the end of any given day as a good way to determine if the price has hit a new support or resistance line.

However, this is not always the case. If you used this strategy as a definitive place to determine support and resistance lines, you will get burned more than once. A better way to use support and resistance lines in forex trading is to think of them not as concrete numbers but as zones of opportunity.

So, judging from the forex chart above and supposing that we didn't see it in its entirety but had reached "point A" on the chart where the line began edging its way upwards, breaking the resistance level", would you automatically assume that that should be the new support line? Would you immediately start mapping out new support and resistance lines?

If you were smart, you would hold the phone and wait it out. Why? Because, normally when a support and resistance line is broken, it takes a second for forex traders to decide whether the broken barrier was justified. And this is one of the cruxes that forex trading are forged on and more importantly, it separates the forex traders who make money from the forex traders that don't.

Concept #3 Understanding "Trader's Remorse" in regards to the forex market.....

We've already established that these breaches are just tests in which the buyers or sellers are testing the market. So, let's say you are plotting out your next move. The market has been hovering right at the line of resistance, in which it is reaching "highs" right beyond the line of resistance but closing under the line. Suddenly, it breaks it at a close and starts to move forward.....Is this a good time to place a trade? After all, the forex market has broken the resistance line and therefore should be trending upward, right? Time to grab a pen and start charting out new support and resistance lines, right?......

Not necessarily....Enter "Trader's Remorse" to make trading forex a little more complicated....

If you haven't guessed it yet, the market is moved by people just like you and I and because of this, you need to understand the psychology behind trading forex. I have said this over and over again...understand how your fellow forex traders react to the market and you will have a definitive edge when it comes to forex trading. Don't bother and you will likely be one of the "dead" forex traders which consistently lose when trading.

Understand your fellow trader and how they react = Win

Ignore your fellow forex trader's impulses and reactions = Lose

Okay, so let's take a look at how trader's remorse fools even the more advanced forex traders.

Here is what happens:

When resistance or support lines are initially broken, buyers and sellers start to question the validity of the new price. Does this new price actually reflect it's value? One of two things will happen at this point....

1. The consensus among buyers and sellers is that the new price is not warranted in which the price will start to fall back into the old support and resistance barriers. This creates a "bear" or "bull" trap and it is at that point where those that rush in to buy or sell prematurely will lose because the market quickly falls back.
2. OR the traders/investors will accept the new price, in which a new support and resistance line will be established and the price will start to climb or fall (depending on which line was broken).

A good way not to get hoodwinked into falling into one of these traps is to pay particular attention to the volume of forex trades when it breaks the barrier and then watch the volume carefully after the initial break. Just because support and resistance lines are broken doesn't necessarily equate to an upward or downward trend on the forex market.

• If prices break with an increase of volume and the initial "trader's remorse" volume is low, then the new price will likely rule and a new support and resistance lines can be identified and set.
  
• However, if the "trader's remorse is high on the backend (high volume after the break), then it is likely that many forex traders aren't comfortable with the new line break and it should quickly return back to the old support and resistance levels.
  

I know that this has been a ramble but I really want new traders to understand the importance of identifying and charting out support and resistance lines as this is probably the easiest concepts to understand in forex trading.

Once you understand the concept of drawing support and resistance lines, we can move on to bigger and better things. But understand, that if you completely blow off analyzing support and resistance lines, then you won't be as effective of a forex trader. BABY STEPS y'all. That is what you need to take.

So in summation.....

1. Start studying current forex charts BEFORE you start to trade. Identify the support and resistance lines first with the longer time frames (year and month) and then move down. If you are want to do forex day trading, resist the initial urge to jump right in.
2. Once you have identified the support and resistance lines, chart it out. Do you notice any breaches that first looked like a new line that would be set only to watch it fall back into the old support and resistance frame? If so, check out the amounts of volumes that were sold in that time frame. Now examine the reason why the forex market moved back into its old support and resistance lines.
   
3. Also, once you have moved down to analyzing daily trends, start asking yourself why the forex market moved...was it because of forex news?....if so, make a log of it. You can probably examine the market news and see a pattern.

A couple more points on support and resistance and I am out....

• When the forex market passes through resistance, the resistance point becomes the support point (if it passes the trader's remorse test).
• The more often a support and resistance line is tested without breaking through, the stronger it becomes.
  

It is all about trends, y'all. If you want to trade and be profitable, you need to understand them. Support and Resistance lines can help you identify bullish or bearish trends in the foreign exchange market. Once a forex trader can get a good handle on the basics of support and resistance lines, they will be able to make better and more profitable trades. And as you know, we aren't in the forex market just for our health. As forex traders, we want to make money. Support and Resistance lines..learn how to do them and improve your forex trading potential. I am out....until next time...

Forex Trading and Human Behavior

Forex Trading is not only about reading charts...it is about understanding our fellow man.

So, you have picked up several forex books and have read them twice and finally have a grip on the charts....like what the difference is between support and resistance and forex pivot points. And now, you are ready to play around with a forex "dummy" account. Forex trading could be that easy but it really isn't. Understanding how your fellow forex traders react to news is equally important. And if you break that code, you are on your way to making a fortune trading forex.

Well, if you think that you can make a small fortune simply by reading forex charts, understand that forex trading has just as much to do with human behavior and understanding it as it does learning how to decipher the candlesticks (or whatever graph you are using) that magically appear on whatever platform you are using.

The good news for you is human behavior hasn't changed for thousands of years. Get a grip on what moves people and you will on your way to having a stranglehold on the forex market.

The bad news is that chances are you are going to have to get a grip on your own human behavior. In other words, you are going to have to set some ground rules when dealing with the forex market.

My background doesn't come from the world of economics although it involves a genre that is alot like forex and a lot of people will either agree or strongly disagree that these two things are the same:

Forex and Gambling

Like it or not, a successful gambler has about as much in common as a successful forex day trader.

• Both put in the hard work doing number crunching.
  
• Both gamblers and forex traders not only set goals for themselves.
• They also set limits...in other words, they rarely chase their bets. Their behavior doesn't change from day to day regardless of whether they win or lose.
• Forex traders also understand that there are going to be losing days. What they are concerned about is the bottom line..you know..what the ledgers say at the end of the month.

And this primarily the difference between the forex traders that are successful and the forex traders that aren't.

Now, I am not going to get into a ethics debate or some sort of philosophical argument about whether forex trading is alot like gambling. I am not here to do that. But there are way more similarities to it than not and therefore, to get a good grip on human behavior and what affects the other amateur forex traders, you need to understand what moves them. Understand this and you will be far ahead of most other traders......

1. Greed
2. Fear

Greed can move people to do some pretty incredibly stupid things. Just to give you a real world Forex example, a friend of mine was using this automated software from a company called FreedomRocks. Now I am not going to get into exactly what they do to make their software work but it had to do with riding the interest that they made via mirroring currency pairs.

Alot of these amateur traders who didn't really know how to trade forex were at first making some pretty incredible gains....some at 10-20% per month. Of course, it had to happen. Some of the young forex traders started thinking to themselves...

If I can make this much on a 50:1 margin, just think of what I could make if my margin was 200:1 or 200:1?

For awhile these guys were making a ton of money..hand over fist. The forex market look bright for these people. Then, all it took was a little bit of news from Japan for many of these people's accounts to be wiped out.

Just one tiny bit of news from Japan, rocked those people so hard that all of those forex traders who were playing with high margins and large stop points suddenly watched their account literally disappear.

Now the point here to take is not whether automated software is good or not. The point is that getting greedy will result in disaster 9 out of 10 times.

Which brings me to my next point....Fear.....

As a pro gambler, I have seen some pretty stupid things done out of fear. Human behavior affects Forex trading is no different. I have watched people double down, chase bets, and pretty much do anything possible in order to recoup their losses.

There is a popular gambler's creed that has been my mantra now for years...

....Don't play with scared money....

I don't mean to ramble on about gambling but I just see some striking similarities in forex trading and gambling. And understanding it can actually help you get a grip not only on your own behavior but also on what others are feeling when the crap hits the fan.

So, how does understanding this help you?

The next time you are listening to forex news and/or trading the news, watch how the market reacts but more importantly think about how the other traders are reacting. At what point will support or resistance be hit? How drastic was the news? Where did the forex market open on the day? Where is it forecasted to close? These are all important questions to ask, especially if you are a forex day trader. Now try to get a good feel on other investors...are they unfairly inflating the numbers based on fear?

I hate to give another sports gambling example but I feel like once again it is relative. Just a couple weeks ago, the Patriots were big favorites in the superbowl...by almost 2 touchdowns. The two touchdowns were the perceptions of value that gamblers felt that the Patriots had over the Giants.

This was in spite of the fact that the previous five games that the Pats had were won by just a few points a game.

Of course, if you watched it, you would know that the outcome was anything BUT what the public thought. The lesson that you could apply to forex trading is that the public is generally wrong 9 times out of ten and if you find and follow trends that you will likely profit from it.

That is pretty much it...get a good understanding on how and when fellow forex traders react and you will be able to make money with forex trading. While forex charts and studying candlesticks and forex pivot points will aid you in making trades, the real secret is understanding your fellow man, since it is the trader next to you that will ultimately tell you which way the forex market moves...see you next time.

Forex Trading Part 2

In the last post, if you missed it, the primary premise was to help you understand how the forex market works and more importantly, the basics of forex trading and how to trade currencies on the forex market if you are a beginner.

In this post, I am going to explain it a bit further....

I used a rather large overview to help you understand forex trading. I mentioned that if I was going to England and wanted to exchange my $2000 of US currency to pounds, and the english pound was worth $1.10, then I would be making money that way. In other words, I would be making 10 cents on the dollar.

Forex Trading is actually a little more complicated than this. The problem is that forex deals with quantities much smaller than a penny.


These are called PIPs or which is short for PRICE INTEREST POINTS. These "PIPS" are in very small increments (1/100th of a cent). Hence why you see numbers like 1.4002 or 1.1113.

And even a small movement from let's say 1.4002 to 1.4010 is where fortunes are made AND lost. And here is why.....

When you are doing forex trading, you are trading large volumes of currencies. And this is where the little guy with a few thousand dollars can get involved with the forex market.

Most forex brokers will let you trade on 100:1 ratio meaning that a "lot" of $100,000, you need just $1,000 on margin. A small pip move using a 100:1 margin can spell pure unadulterated elation or misery depending on what you are willing to lose.

What is Forex Trading?

Do you need to know exactly how to trade in the forex market?

Forex Trading is not a new concept although many people have gravitated to forex trading recently because of the high yield possibilities. Some claim that trading forex can actually yield as much as 50% gains in a month. While this may sound attractive, know that forex trading is not for everyone. For every one trader that averages 10% a month net, there are hundreds that don't.

Unlike the stocks or commodities, where the market isn't as volatile (or in the case of the current price of gold, it is)

Once upon a time, in the not so distant past, forex trading was confined to the uuber riche, the banks and corporations and those that had enough money to sustain the potential losses. This changed in the seventies and many "day traders" have moved away from trading stocks and started trading forex instead.


The benefits of forex trading versus day trading on the stock market is numerous but the biggest point is that the forex markets only close for roughly 30 hours. The reason for this is that unlike the stock market where has a 9-5 schedule, the forex market is actually worldwide and when the one market closes, another one opens. For instance, the forex markets in Japan and Australia open in the wee hours of those that live in America.

This gives even the night owl trader the ability to choose whatever hours he/she wants to begin trading forex.

A quick overview...Forex Currencies are traded as pairs. Basically what you are doing is trading one currency (such as the US dollar for the Canadian dollar).

Usually, when one rises, the other falls and visa versa.

Let's take a look at Forex Trading from a real world perspective:

Let's pretend that you were headed to England for a vacation and decided to take $2,000 with you. You go to a bank and do the exchange. England's pound trades for 1.1000 for every dollar you have, giving you a grand total of $2,200.

You have made $200 just from exchanging your money! Now when you decide to come back to the states, you trade it back in. This time, the transfer from the pound to the dollar is an even 1:1 trade. You have $500 left and get $500 exchanged back to the dollar.

Now this is a bit drastric but forex trading operates under the same premise...

You are basically betting on which currency is going to rise or fall.

While this may sound a lot like trading stocks, the forex market is a lot different.

First of all, you can trade both ways. If, for instance, you are looking at the dollar and see a downtrend, then you can bet against the dollar.

Likewise, if you are forecasting that the dollar may rise in the future, you bet that the dollar will rise.

What makes forex trading so interesting is that in a lot of ways, forex trading almost replicates bookmaking in premise.

If more people bet that the US dollar is going to rise, then the demand for the US dollar rises, driving the price (pips) up until there is enough demand on the other side to drive the price back down.

Can you predict forex?

I would recommend people who want to try trading foreign currencies to first try with a demo account and learn that way. Trading Forex is a learned skill that will take months to master and currently there is not really a piece of software that can accurately predict the market.

The reason why this is the case is because real world news actually can create a bull or bearish market and if you aren't careful, you can watch as all your margin disappears.

This actually happened a couple years back when overly aggressive investors who were using FreedomRocks, got totally slain when the Asian Market cut interest rates. Simply put, there is a lot of money to be made with Forex but the problem is that most forex traders who are too aggressive tend to get burned rather quickly.

That said "Trading the news" actually might be a good place to start as the market is the most volatile at this point. Typically Forex news comes out at a predefined moment and when it does, the market responds with sheer tenacity.

Just to illustrate this, I had a friend who had a Bloomburg ticker and got the news just as it hit, roughly seconds before most of the other amateur traders did. With the news, he was able to set his "stops" just high enough to where if he lost, it would be a small loss, normally 10 pips.

However, if he "hit" right, then the result could be 60-100 PIPs in just minutes. As you can see, trading forex on news can be a profitable yet volatile endeavor.

So, what do you do if you want to trade forex on news?

1. Find a good forex brokerage firm- Make sure to really check it out. Not all forex firms are created equally.
2. Create a demo account and be sure to be around when the news hits.
3. Test it.

One of the problems when trading forex news is that while on a demo account, it is easy to cancel a trade, many forex brokerage firms may delay a cancel by a few seconds and this can result in a lot of money lost quickly, so tread softly.

Whatever you do, you are definitely going to want to start with a demo account just to get a good feel for the forex market.

Another good way to begin trading forex is to simply center on one pair of currencies such as the yen to the us dollar (yen/USD) or the Euro to the US Dollar (eur/USD). Most Forex traders will do this because each pairing reacts differently and it is easy to have a good feel for the "ebb and flow" of each forex currency pairing. Once again, be sure to use a forex demo account first so that you can begin to understand margins and how whatever currency pair you choose reacts.

Some react strongly and are highly volatile. Other forex pairings aren't so volatile and tend to stick around the points for days at a time.

How to Chart Forex

Most forex traders develop many different strategies when trading. Before I briefly touch on this issue, understand that the prices of each currency pair is directly dependent on the psychology of those that are doing the trading.

In other words, understanding market perception is key to profiting. If you can guess how the market is going to react, you will profit with Forex. But Forex trading is not just a "guessing game". There are some fundamentals that all future forex traders should know and understand.

Market Perception + Fundamentals = Price Action (whether it goes up or down)

Price action might reflect fundamentals but it is also important to realize to understand what the other people are perceiving the market to be.

With that in mind, understand that history does, in fact, repeat itself. And if you can understand that human behavior does repeat, then you are one step ahead of the game. By studying charts (long and short term) you can come up with your own forex trading system based squarely on how people are perceiving the market to be.

This is primarily why you must learn how read charts to profit from forex. While you may be able to profit from forex by "eyeing" a forex chart, this is by no means a good game plan long term.

Forex bar charts generally are most used charts of graphing commodity prices. In the future, I intend to go over the different methods for using these charts and will give out some commonly used forex strategies to make the most of these charts.

Things like knowing how to understand trending and support and resistance...pretty basic stuff but important especially if you are completely new to forex trading.