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?
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.
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.
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.
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?
- Find a good forex brokerage firm- Make sure to really check it out. Not all forex firms are created equally.
- Create a demo account and be sure to be around when the news hits.
- Test it.
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.
No comments:
Post a Comment