Index: Forex Trading and Market Basic Article

This blog contains the basic forex trading and marketing. It also contains articles and ebooks that can be downloaded for free. Read More......

Bull: A History of the Boom and Bust

PRODUCT DETAILS :
- Author: Maggie Mahar
- Paperback: 528 pages
- Publisher: Collins Business (October 12, 2004)
- Language: English
- ISBN-10: 0060564148
- ISBN-13: 978-0060564148
- Product Dimensions: 7.9 x 5.3 x 1.4 inches
- Shipping Weight: 13.6 ounces

FROM BOOKLIST :
Mahar, a journalist, explores the intrigue and implications of the famous 1982-99 bull market. We are introduced to money managers, stock analysts, and market timers who played critical roles, as well as an unprecedented number of average men and woman (called "main street investors") who poured their retirement savings into mutual funds--money most of them could not afford to lose. Small investors were not advised of the inherent risks in their investments, says Mahar, and the media hype was so great and the news was so good that thousands upon thousands gave Wall Street their confidence. The book concludes with the author's thoughts on topics such as the "buy and hold" strategy; managing risk in a bear market; strategic market timing; and commodities, gold, and the dollar. The 1982-99 run of the bulls on Wall Street was part of a longer cycle that governs the stock market, and Mahar teaches many valuable lessons in this excellent history and analysis. Mary Whaley
Copyright © American Library Association. All rights reserved --This text refers to the Hardcover edition.


DESCRIPTITON FROM PUBLISHERS :
From Publishers Weekly
Financial journalist Mahar offers a thorough and accessible history of the explosive 1982-1999 bull market that is illuminating as well as sobering from the current bear market perspective. She notes that most people swept up in the euphoria of this latest market surge failed to recall the lessons of 1929-1934 and 1970-1974, when earlier bubbles collapsed and investors lost heavily. Citing studies by esteemed economists John Kenneth Galbraith and Charles Kindleberger, Mahar reminds readers that this self-blinding euphoria is a regular feature of every bull market.

In vivid detail, she documents the trends and outsized personalities that fueled this particular bull market, including the surge of leveraged buyouts of 1984-1987, the mania for junk bonds, falling short-term interest rates, the rush of individual investors into 401(k) retirement plans, the power (and appetites) of mutual funds and the media frenzy that lent an unlikely allure to quarterly corporate earnings reports.

As the runup in stock prices gained momentum in the late 1990s while evidence of corporate accounting shenanigans mounted, Mahar's account assumes the compelling power of an oncoming train wreck. Survivors of the recent market meltdown can profit from Mahar's assertion: "Ultimately, secular bear markets teach investors to learn to manage risk in a different way, focusing not on the odds, but on the size of risk." Individual investors will also gather that they need to be more skeptical of some sources of "information" and to be much better informed not to be burned again. Charts.
Copyright 2003 Reed Business Information, Inc. --This text refers to the Hardcover edition.

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Technical Analysis Plain and Simple: Charting the Markets in Your Language (2nd)

PRODUCT DETAILS :
- Author:Michael N. Kahn
- Hardcover: 352 pages
- Publisher: FT Press; 2 edition (June 12, 2006)
- Language: English
- ISBN-10: 0131345974
- ISBN-13: 978-0131345973
- Product Dimensions: 9 x 6.2 x 1.4 inches
- Shipping Weight: 1.5 pounds

REVIEW :
Top technical analyst and Barron's Online columnist Kahn demystifies technical analysis. While many investors view technical analysis as a mystical "tea-leaf reading" process, "this could not be further from the truth," says the author, in the second edition of this handy guide to technical analysis. Indeed, Kahn teaches investors how to bring clarity and objectivity to their market decisions by augmenting their fundamental research with the use of technical analysis.

Beginning with a general overview of the subject, the author then moves on to the core concepts of chart analysis and the various facets of the investment process. Finally, he covers more advanced topics like candlesticks, cycles and Elliot waves, and also explains common technical terms and jargon and how to identify patterns, listen to the market and "reality check" broker recommendations. Investors will appreciate this straightforward and clear guide to technical analysis. --Kirkus Reports, Vol. 3, Issue 3 (March 31, 2006)


DESCRIPTITON :
Top technical analyst and Barron’s Online columnist Kahn demystifies technical analysis.

While many investors view technical analysis as a mystical “tea-leaf reading” process, “this could not be further from the truth,” says the author, in the second edition of this handy guide to technical analysis. Indeed, Kahn teaches investors how to bring clarity and objectivity to their market decisions by augmenting their fundamental research with the use of technical analysis. Beginning with a general overview of the subject, the author then moves on to the core concepts of chart analysis and the various facets of the investment process. Finally, he covers more advanced topics like candlesticks, cycles and Elliot waves, and also explains common technical terms and jargon and how to identify patterns, listen to the market and “reality check” broker recommendations.

Investors will appreciate this straightforward and clear guide to technical analysis.

--Kirkus Reports, Vol. 3, Issue 3 (March 31, 2006)

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All About Stocks: The Easy Way to Get Started

PRODUCT DETAILS :
- Full Title : All About Stocks: The Easy Way to Get Started
- Paperback: 339 pages
- Publisher: McGraw-Hill; 2 edition (December 20, 1999)
- Language: English
- ISBN-10: 0071345086
- ISBN-13: 978-0071345088
- Product Dimensions: 8.8 x 6 x 1 inches
- Shipping Weight: 1.5 pounds

DESCRIPTITON :
All About Stocks, Second Edition, covers stock market basics for newcomers and provides concise and understandable answers to today's most-asked stock market questions. Entirely rewritten from the first edition­­with diagrams, charts, and tables added to increase its usefulness­­this second edition now includes information on:

- Using the Internet for both information and trading
- How mutual funds can ease stock market anxieties
- How to buy a stock­­and how to know when it's time to sell


BACK COVER :
All About Stocks, Second Edition, will make you a smarter, more accomplished investor. This bottom-line guidebook is now updated to explain every essential aspect of today's stock market ­­in which the rewards as well as the risks have increased dramatically over the past five years­­and is arranged to provide quick, clear answers to any questions you might have.

All About Stocks is written to be understood by an investor ­­yet packed with information that will be valuable to everyone! Practical, hands-on guidance on how you can use the Internet to find and buy undervalued stocks...strategies on selecting a mutual fund for both above-average returns and below-average risk...types of trades that can significantly increase your safety during turbulent markets...it's all here. Before you invest, read All About Stocks and discover:

What stocks are, and why you should own them
Explanations of the different types of orders
How fundamental and technical analysis can help you find undervalued stocks
Aspects of growth stocks and value stocks
What mutual funds are, how they work, and which are right for you
Easy-to-follow strategies to assemble a high-growth, low-risk, versified portfolio
Strategies for buying indexed mutual funds and index-tracking stocks


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Trading to Win: The Psychology of Mastering the Markets

PRODUCT DETAILS :
- Hardcover: 272 pages
- Publisher: Wiley (October 6, 1998)
- Language: English
- ISBN-10: 0471248428
- ISBN-13: 978-0471248422
- Product Dimensions: 9.3 x 6.5 x 1.1 inches
- Shipping Weight: 1.2 pounds

DESCRIPTITON :
A breakthrough programfor achieving new heights of trading success

The product of a five-year collaboration between Dr. Ari Kiev, a leading psychiatrist renowned for his success with Olympic athletes, and top equities trader Steve Cohen, Trading to Win gives you the essential tools to overcome outmoded, self-limiting beliefs and mindsets that may be keeping you from a higher level of success. Illustrated with real market scenarios and applications, this powerful program will help psych you into a less stressful, more self-possessed mastery of the trading game and help you reach goals you may never have thought possible.


"The strategies in this book will unleash the hidden trader in you, and can substantially increase your trading profits." --Jay G. Goldman, Hedge Fund Manager.

"Ari Kiev has written a wonderful guide for money managers, traders, brokers, and investors alike. Sharing his thoughts with us regarding our behavior patterns enables us to take a step back and look at ourselves more objectively." --Seymour W. Zises, President and CEO, Family Management Corp.

The trading arena has produced its share of select "super-traders," market practitioners who set themselves apart from the rest of the field with one distinct advantage: mental and emotional toughness. Like outstanding athletes who stay focused, remain calm, and stick to their game plan, these master traders in this highly risky, highly competitive arena possess an edge that keeps them from being distracted by fear, self-doubt, greed, and other emotional components that can cause major losses and prevent gains from soaring to new highs.

Trading to Win presents a step-by-step, goal-oriented program for building the mental and emotional stamina not only to win, but to win on an unprecedented level. Created by a leading psychiatrist for a top trading firm, this proven approach spotlights a set of philosophical and behavioral principles designed to assist you in implementing proactive trading strategies, as well as developing the mindset needed to trade effectively in the realm of uncertainty. Delving into your underlying thought processes when you trade, Trading to Win enables you to understand what is motivating you, whether it is consistent with your game plan, and whether you are in any way sabotaging yourself.

Fully supplemented with real market trading scenarios, Trading to Win shows you how to apply key concepts where it counts--in actual trading room situations. For both professional traders and sophisticated investors, this remarkable program offers a rare opportunity for both personal and financial gain.

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The Geometry of Stock Market Profits

PRODUCT DETAILS :
- Author:Michael Jenkins
- Publisher: Traders Press
- Number Of Pages: 176
- Publication Date: 1996-08
- ISBN-10 / ASIN: 0934380279
- ISBN-13 / EAN: 9780934380270

Customer Reviews :
I have read both of Michael Jenkin's books they are both almost the same they both contain the same gann stuff you can find online for free if you just search gann (im sure everyone has run into this stuff online) do yourself a favor and join some groups or forums that are related to gann or get some courses that teach it (i find the groups help the most) But as far as this book goes it did not help me one bit.


DESCRIPTITON :
This book is about Jenkins' proprietary techniques, with major emphasis on cycle analysis, how he views and uses the methods of W. D. Gann, and the geomery of time and price. Among the many topics, you will learn:

1. Which angles are important and how to draw them correctly.
2. How professional traders think and the types of strategies they use day to day.
3. How to place stops correctly.
4. How to construct and use Gann Squares for analysis and forecasting of individual stocks and commodities.
5. How long the basic trend can be expected to last.
6. When and where to buy and well
7. How to utilize Gann angles and methods that predict exact turning points with high probability.
8. The numerological interrelationships of price and time forecasting.
9. Ten trading tips to make you rich.

This book is a trading classic and you will treasure the contribution it will make to your trading proficiency and profit.

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Basic: Calculating Profit and Loss

For ease of use, most online trading platforms automatically calculate the
P&L of a traders' open positions. However, it is useful to understand how
this calculation is formulated:

To illustrate an FX trade, consider the following two examples.


Let's say that the current bid/ask for EUR/USD is 1.4616/19, meaning you can
buy 1 euro for 1.4619 or sell 1 euro for 1.4616.


Suppose you decide that the Euro is undervalued against the US dollar. To execute
this strategy, you would buy Euros (simultaneously selling dollars), and then
wait for the exchange rate to rise.

So you make the trade: to buy 100,000 Euros you pay 146,190 dollars (100,000
x 1.4619). Remember, at 1% margin, your initial margin deposit would be approximately
$1,461 for this trade.

As you expected, Euro strengthens to 1.4623/26. Now, to realize your profits,
you sell 100,000 Euros at the current rate of 1.4623, and receive $146,230
You bought 100k Euros at 1.4619, paying $146,190. Then you sold 100k Euros
at 1.4623, receiving $146,230. That's a difference of 4 pips, or in dollar terms
($146,190 - 146,230 = $40).

Total profit = US $40.

Now in the example, let's say that we once again buy EUR/USD when trading at
1.4616/19. You buy 100,000 Euros you pay 146,190 dollars (100,000 x 1.4619).

However, Euro weakens to 1.4611/14. Now, to minimize your loses to sell 100,000
Euros at 1.4611 and receive $146,110.

You bought 100k Euros at 1.4619, paying $146,190. You sold 100k Euros at 1.4611,
receiving $146,110. That's a difference of 8 pips, or in dollar terms ($146,190 - $146,110 = $80)

Total loss = US $80.

Source : www.forex.com
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Basic: Forex Quotes

Understanding Forex Quotes

Reading a foreign exchange quote is simple if you remember two things:

1. The first currency listed is the base currency


2. The value of the base currency is always 1.

As the centerpiece of the forex market, the US dollar is usually considered
the base currency for quotes. When the base currency is USD, think of the quote
as telling you what a US dollar is worth in that other currency.


When USD is the base currency and the quote goes up, that means USD has strengthened
in value and the other currency has weakened. Rising quotes mean a US dollar
can now buy more of the other currency than before.

Majors not based on the US dollar
The three exceptions to this rule are the British pound (GBP), the Australian
dollar (AUD) and the Euro (EUR). For these pairs, where USD is not the base
currency, a rising quote means the US dollar is weakening and buys less of the
other currency than before.


In other words, if a currency quote goes higher, the base currency is getting
stronger. A lower quote means the base currency is weakening.

Cross currencies
Currency pairs that don't involve USD at all are called cross currencies, but
the premise is the same.

Bids, asks and the spread
Just like other markets, forex quotes consist of two sides, the bid
and the ask:


The BID is the price at which you can SELL
base currency.

The ASK is the price at which you can BUY
base currency.


What's a pip?

Forex prices are often so liquid, they're quoted in tiny increments called
pips, or "percentage in point". A pip refers to the fourth decimal
point out, or 1/100th of 1%.


For Japanese yen, pips refer to the second decimal point. This is the
only exception among the major currencies.



Source : www.forex.com
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Basic: Leverage and Margin

Leverage & Margin

Leverage trading, or trading on margin, means you aren't required to put up
the full value of the position.

Forex trading offers more leverage than stocks or futures - up to 200 times
the value of your account. Of course keep in mind that increased leverage also
increases your risk.


FOREX.com: No debit balances, no margin calls

At FOREX.com, your risk is only limited to funds on deposit. There are no margin
calls in forex trading, so if your account falls below required levels, for
your protection we will close out all positions automatically. You'll never
lose more money than you have in your account.

More leverage means more opportunity - and more risk

It's crucial to remember: increasing leverage increases risk. To limit downside
risk, monitor your account regularly and use stop-loss orders on every open
position.

Source : www.forex.com
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Basic: Intro to The Market

What's Forex?

"Forex" stands for foreign exchange; it's also known
as FX. In a forex trade, you buy one currency while simultaneously selling another
- that is, you're exchanging the sold currency for the one you're buying. The
foreign exchange market is an over-the-counter market.
Currencies trade in pairs, like the Euro-US Dollar (EUR/USD) or US Dollar /
Japanese Yen (USD/JPY). Unlike stocks or futures, there's no centralized exchange
for forex. All transactions happen via phone or electronic network.

Who trades currencies, and why?
Daily turnover in the world's currencies comes from two sources:

• Foreign trade (5%). Companies buy and sell products in
  foreign countries, plus convert profits from foreign sales into domestic currency.


• Speculation for profit (95%).

Most traders focus on the biggest, most liquid currency pairs. "The Majors"
include US Dollar, Japanese Yen, Euro, British Pound, Swiss Franc, Canadian
Dollar and Australian Dollar. In fact, more than 85% of daily forex trading
happens in the major currency pairs.

The world's most traded market, trading 24 hours a day

With average daily turnover of US$3.2 trillion, forex is the most traded market
in the world.


A true 24-hour market from Sunday 5 PM ET to Friday 5 PM ET, forex trading begins
in Sydney, and moves around the globe as the business day begins, first to Tokyo,
London, and New York.

Unlike other financial markets, investors can respond immediately to currency
fluctuations, whenever they occur - day or night.
More Info
"All About the Foreign Exchange Markets in the United States", from
the Federal Reserve Bank of New York.

Understanding Forex Quotes

Reading a foreign exchange quote is simple if you remember two things:

1. The first currency listed is the base currency


2. The value of the base currency is always 1.

As the centerpiece of the forex market, the US dollar is usually considered
the base currency for quotes. When the base currency is USD, think of the quote
as telling you what a US dollar is worth in that other currency.

When USD is the base currency and the quote goes up, that means USD has strengthened
in value and the other currency has weakened. Rising quotes mean a US dollar
can now buy more of the other currency than before.

Majors not based on the US dollar
The three exceptions to this rule are the British pound (GBP), the Australian
dollar (AUD) and the Euro (EUR). For these pairs, where USD is not the base
currency, a rising quote means the US dollar is weakening and buys less of the
other currency than before.
In other words, if a currency quote goes higher, the base currency is getting
stronger. A lower quote means the base currency is weakening.

Cross currencies
Currency pairs that don't involve USD at all are called cross currencies, but
the premise is the same.

Bids, asks and the spread
Just like other markets, forex quotes consist of two sides, the bid
and the ask:

The BID is the price at which you can SELL
base currency.

The ASK is the price at which you can BUY
base currency.

What's a pip?
Forex prices are often so liquid, they're quoted in tiny increments called
pips, or "percentage in point". A pip refers to the fourth decimal
point out, or 1/100th of 1%.

For Japanese yen, pips refer to the second decimal point.
This is the only exception among the major currencies.

Source : http://au.biz.yahoo.com
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What is Forex Trading Verstion 2?

What Does Foreign Exchange mean?
"Foreign Exchange" refers to money denominated in the currency of another nation or group of nations. Any person who exchanges money denominated in one nation's currency for money denominated in another nation's currency is conducting foreign exchange. That holds true whether the amount of the transaction is equal to a few dollars or to billions of dollars; whether the person involved is a tourist cashing a traveler's check in a restaurant abroad or an investor exchanging hundreds of millions of dollars to acquire a foreign company. In other words, a foreign exchange transaction is a shift of funds from one country and currency to another.

What is Forex Trading?
The Forex (short for Foreign Exchange) market is the 24 hour cash market where currencies are traded, typically via brokers. Foreign currencies are constantly and simultaneously bought and sold across local and global markets and traders' investments increase or decrease in value based on currency movements. Foreign exchange market conditions can change at any time in response to real-time events.

What is an investor's goal in Forex trading?
The investor's goal in Forex trading is to profit from foreign currency movements. Forex trading or currency trading is done in currency pairs. For example, the exchange rate of EUR/USD on August 26, 2003 was 1.0857. This number is also referred to as a "Forex rate" or just "rate" for short. If the investor had bought 1,000 euros on that date, he would have paid 1,085.70 U.S. dollars. One year later, the Forex rate was 1.2083, which means that the value of the euro increased in relation to the U.S. dollar. Therefore, the investor could now sell the 1,000 euros in order to receive 1,208.30 dollars and make a profit of $122.06. Someone buying and then later selling U.S. dollars would have seen a $122.06 loss

Exchange Rate
Because currencies are traded in pairs and exchanged one against the other when traded, the rate at which they are exchanged is called the exchange rate. The majority of the currencies are traded against the U.S. dollar (USD). The four next-most traded currencies are the euro (EUR), the Japanese yen (JPY), the British pound sterling (GBP), Australian Dollar (AUD) and the Swiss franc (CHF). These currencies make up the majority of market trading and are called the major currencies or "the majors."

Source: Federal Reserve Bank of New York

What are the differences and similarities between the stock market and foreign exchange market?
The Forex market is the largest financial market on earth. Average daily trading volume is more than 1.9 trillion. The New York Stock Exchange (NYSE) has an average daily volume of 55 million. Transaction prices in Forex are very low due to the amount of volume and large number of participants.

Trading is not limited to 9:30 AM - 4:00 PM like the NYSE. Forex offers round-the-clock trading and high market liquidity, better execution, and no restriction on falling markets. Like the stock market you can use both fundamental and technical analysis to determine what type of trade you might execute.

The Forex market is global while the stock market is something that takes place only within one country.

What is a pip?
A pip is the minimum fluctuation or smallest increment of price movement in the Forex markets.

Source: Forex Capital Markets

How does leverage work in the Forex market?
The leverage that is used in the foreign exchange markets is one of the highest that investors can obtain. Leverage is a loan that is provided to an investor by the broker that is handling his or her Forex account. When an investor decides to invest in the forex market, he or she must first open up a margin account with a broker. Usually the amount of leverage provided is 50:1, 100:1 or 200:1, depending on the broker and the size of the position the investor is trading.

To trade $100,000 of currency, with a margin of 1%, an investor will only have to deposit $1,000 into his or her margin account. The leverage on a trade like this is 100:1. Although 100:1 leverage may seem extremely risky, the risk is significantly less when you consider that currency prices usually change by less than 1% during intraday trading. Although you can see significant profits using leverage in currency trading is also worth noting that you can also see the same type of significant losses using leverage and trading currencies. That is where a trading style using stop and limit orders come into play to minimize risk.

Source: Investopedia.com Read More......

The Explosion of the Euro Market

The rapid development of the Eurodollar market, where US dollars are deposited in banks outside the US, was a major mechanism for speeding up Forex trading. Likewise, Euro markets are those where assets are deposited outside the currency of origin.

The Eurodollar market first came into being in the 1950s when the Soviet Union's oil revenue -- all in US dollars -- was being deposited outside the US in fear of being frozen by US regulators. This resulted in a vast offshore pool of dollars outside the control of US authorities. The US government therefore imposed laws to restrict dollar lending to foreigners. Euro markets then became particularly attractive because they had fewer regulations and offered higher yields. From the late 1980s onwards, US companies began to borrow offshore, finding Euro markets an advantageous place for holding excess liquidity, providing short-term loans and financing imports and exports.

London was and remains the principal offshore market. In the 1980s, it became the key center in the Eurodollar market when British banks began lending dollars as an alternative to pounds in order to maintain their leading position in global finance. London's convenient geographical location (operating during Asian and American markets) is also instrumental in preserving its dominance in the Euro market. Read More......

Forex Risk Management Strategies

The Forex market behaves differently from other markets! The speed, volatility, and enormous size of the Forex market are unlike anything else in the financial world. Beware: the Forex market is uncontrollable - no single event, individual, or factor rules it. Enjoy trading in the perfect market! Just like any other speculative business, increased risk entails chances for a higher profit/loss.

Currency markets are highly speculative and volatile in nature. Any currency can become very expensive or very cheap in relation to any or all other currencies in a matter of days, hours, or sometimes, in minutes. This unpredictable nature of the currencies is what attracts an investor to trade and invest in the currency market.

But ask yourself, "How much am I ready to lose?" When you terminated, closed or exited your position, did you understand the risks and taken steps to avoid them? Let's look at some foreign exchange risk management issues that may come up in your day-to-day foreign exchange transactions.

• Unexpected corrections in currency exchange rates
• Wild variations in foreign exchange rates
• Volatile markets offering profit opportunities
• Lost payments
• Delayed confirmation of payments and receivables
• Divergence between bank drafts received and the contract price
These are areas that every trader should cover both BEFORE and DURING a trade.

Exit the Forex market at profit targets
Take profit take orders, allow Forex traders to exit the Forex market at pre-determined profit targets. If you are short (sold) a currency pair, the system will only allow you to place a limit order below the current market price because this is the profit zone. Similarly, if you are long (bought) the currency pair, the system will only allow you to place a take profit order above the current market price. Take profit orders help create a disciplined trading methodology and make it possible for traders to walk away from the computer without continuously monitoring the market.

Control risk by capping losses
Stop/loss orders allow traders to set an exit point for a losing trade. If you are short a currency pair, the stop/loss order should be placed above the current market price. If you are long the currency pair, the stop/loss order should be placed below the current market price. Stop/loss orders help traders control risk by capping losses. Stop/loss orders are counter-intuitive because you do not want them to be hit; however, you will be happy that you placed them! When logic dictates, you can control greed.

Where should I place my stop and take profit orders?
As a general rule of thumb, traders should set stop/loss orders closer to the opening price than take profit orders. If this rule is followed, a trader needs to be right less than 50% of the time to be profitable. For example, a trader that uses a 30 pip stop/loss and 100-pip take profit orders, needs only to be right 1/3 of the time to make a profit. Where the trader places the stop and take profit will depend on how risk-adverse he is. Stop/loss orders should not be so tight that normal market volatility triggers the order. Similarly, take profit orders should reflect a realistic expectation of gains based on the market's trading activity and the length of time one wants to hold the position. In initially setting up and establishing the trade, the trader should look to change the stop loss and set it at a rate in the 'middle ground' where they are not overexposed to the trade, and at the same time, not too close to the market.

Trading foreign currencies is a demanding and potentially profitable opportunity for trained and experienced investors. However, before deciding to participate in the Forex market, you should soberly reflect on the desired result of your investment and your level of experience. Warning! Do not invest money you cannot afford to lose.

So, there is significant risk in any foreign exchange deal. Any transaction involving currencies involves risks including, but not limited to, the potential for changing political and/or economic conditions, that may substantially affect the price or liquidity of a currency.

Moreover, the leveraged nature of FX trading means that any market movement will have an equally proportional effect on your deposited funds. This may work against you as well as for you. The possibility exists that you could sustain a total loss of your initial margin funds and be required to deposit additional funds to maintain your position. If you fail to meet any margin call within the time prescribed, your position will be liquidated and you will be responsible for any resulting losses. 'Stop-loss' or 'limit' order strategies may lower an investor's exposure to risk.

Easy-Forex foreign exchange technology links around-the-clock to the world's foreign currency exchange trading floors to get the lowest foreign currency rates and to take every opportunity to make or settle a transaction.

Avoiding/lowering risk when trading Forex:
Trade like a technical analyst. Understanding the fundamentals behind an investment also requires understanding the technical analysis method. When your fundamental and technical signals point to the same direction, you have a good chance to have a successful trade, especially with good money management skills. Use simple support and resistance technical analysis, Fibonacci Retracement and reversal days. Be disciplined. Create a position and understand your reasons for having that position, and establish stop loss and profit taking levels. Discipline includes hitting your stops and not following the temptation to stay with a losing position that has gone through your stop/loss level. When you buy, buy high. When you sell, sell higher. Similarly, when you sell, sell low. When you buy, buy lower. Rule of thumb: In a bull market, be long or neutral - in a bear market, be short or neutral. If you forget this rule and trade against the trend, you will usually cause yourself to suffer psychological worries, and frequently, losses. And never add to a losing position. On Easy-Forex the trader can change their trade orders as many times as they wish free of charge, either as a stop loss or as a take profit. The trader can also close the trade manually without a stop loss or profit take order being hit. Many successful traders set their stop loss price beyond the rate at which they made the trade so that the worst that can happen is that they get stopped out and make a profit. Read More......

Forex Candlestick Chart Patterns

This article provides insight into Candlestick patterns that can be extracted from Foreign exchange charts. A candlestick chart is a style of bar-chart used primarily to demonstrate price movements over a certain time period.

Doji
A name for candlesticks that provide information on their own and feature in a number of important patterns. Dojis form when the body of the candle is minimal as market's open and close are virtually equal.

Hammer
A price pattern in candlestick charting that occurs when the market trades significantly lower than its opening, but rallies later in the day to close either above or close to its opening price. This pattern forms a hammer-shaped candlestick.

Inverted hammer
A price pattern in candlestick charting that occurs when a security trades significantly higher after its opening, but gives up most of all of its intraday gain to close well off of its high. Gravestone - The market gaps open above the previous day's close in an uptrend. It rallies to a new high, then loses strength and closes near its low: a bearish change of momentum. Confirmation of the trend reversal would be an opening below the body of the Shooting Star on the next trading day. If the open and the close are identical, the indicator is considered a Gravestone Doji. The Gravestone Doji has a higher reliability associated with it than a Shooting Star.

Shooting star
A candlestick indicating a reversal. The previous day's candle has a very large body. On the day the shooting star occurs, the price (generally) opens higher than the previous day's close, then jumps well above the opening price during the day, but closes lower than the opening price.

Three white soldiers
Three white soldiers is a bullish reversal pattern that forms with three consecutive long white candlesticks. After a decline, the three white soldiers pattern signals a change in sentiment and reversal of trend from bearish to bullish. Further bullish confirmation is not required, but there is sometimes a test of support established by the reversal.

Three black crows
A bearish reversal pattern consisting of three consecutive black bodies where each day opens higher than the previous day's low, and closes near, but below, the previous low. Read More......

Forex Forecasting

This article provides insight into the two major methods of analysis used to forecast the behavior of the Forex market. Technical analysis and fundamental analysis differ greatly, but both can be useful forecast tools for the Forex trader. They have the same goal - to predict a price or movement. The technician studies the effect while the fundamentalist studies the cause of market movement. Many successful traders combine a mixture of both approaches for superior results.

Technical analysis
Technical analysis is a method of predicting price movements and future market trends by studying charts of past market action. Technical analysis is concerned with what has actually happened in the market, rather than what should happen and takes into account the price of instruments and the volume of trading, and creates charts from that data to use as the primary tool. One major advantage of technical analysis is that experienced analysts can follow many markets and market instruments simultaneously.
Technical analysis is built on three essential principles:

1. Market action discounts everything! This means that the actual price is a reflection of everything that is known to the market that could affect it, for example, supply and demand, political factors and market sentiment. However, the pure technical analyst is only concerned with price movements, not with the reasons for any changes.

2. Prices move in trends Technical analysis is used to identify patterns of market behavior that have long been recognized as significant. For many given patterns there is a high probability that they will produce the expected results. Also, there are recognized patterns that repeat themselves on a consistent basis.

3. History repeats itself Forex chart patterns have been recognized and categorized for over 100 years and the manner in which many patterns are repeated leads to the conclusion that human psychology changes little over time.

Forex charts are based on market action involving price. There are five categories in Forex technical analysis theory:
• Indicators (oscillators, e.g.: Relative Strength Index (RSI)
• Number theory (Fibonacci numbers, Gann numbers)
• Waves (Elliott wave theory)
• Gaps (high-low, open-closing)
• Trends (following moving average).

Some major technical analysis tools are described below:
Relative Strength Index (RSI):
The RSI measures the ratio of up-moves to down-moves and normalizes the calculation so that the index is expressed in a range of 0-100. If the RSI is 70 or greater, then the instrument is assumed to be overbought (a situation in which prices have risen more than market expectations). An RSI of 30 or less is taken as a signal that the instrument may be oversold (a situation in which prices have fallen more than the market expectations).

Stochastic oscillator:
This is used to indicate overbought/oversold conditions on a scale of 0-100%. The indicator is based on the observation that in a strong up trend, period closing prices tend to concentrate in the higher part of the period's range. Conversely, as prices fall in a strong down trend, closing prices tend to be near to the extreme low of the period range. Stochastic calculations produce two lines, %K and %D that are used to indicate overbought/oversold areas of a chart. Divergence between the stochastic lines and the price action of the underlying instrument gives a powerful trading signal.

Moving Average Convergence Divergence (MACD):
This indicator involves plotting two momentum lines. The MACD line is the difference between two exponential moving averages and the signal or trigger line, which is an exponential moving average of the difference. If the MACD and trigger lines cross, then this is taken as a signal that a change in the trend is likely.

Number theory:
Fibonacci numbers: The Fibonacci number sequence (1,1,2,3,5,8,13,21,34...) is constructed by adding the first two numbers to arrive at the third. The ratio of any number to the next larger number is 62%, which is a popular Fibonacci retracement number. The inverse of 62%, which is 38%, is also used as a Fibonacci retracement number.

Gann numbers:
W.D. Gann was a stock and a commodity trader working in the '50s who reputedly made over million in the markets. He made his fortune using methods that he developed for trading instruments based on relationships between price movement and time, known as time/price equivalents. There is no easy explanation for Gann's methods, but in essence he used angles in charts to determine support and resistance areas and predict the times of future trend changes. He also used lines in charts to predict support and resistance areas.

Waves
Elliott wave theory: The Elliott wave theory is an approach to market analysis that is based on repetitive wave patterns and the Fibonacci number sequence. An ideal Elliott wave patterns shows a five-wave advance followed by a three-wave decline.

Gaps
Gaps are spaces left on the bar chart where no trading has taken place. An up gap is formed when the lowest price on a trading day is higher than the highest high of the previous day. A down gap is formed when the highest price of the day is lower than the lowest price of the prior day. An up gap is usually a sign of market strength, while a down gap is a sign of market weakness. A breakaway gap is a price gap that forms on the completion of an important price pattern. It usually signals the beginning of an important price move. A runaway gap is a price gap that usually occurs around the mid-point of an important market trend. For that reason, it is also called a measuring gap. An exhaustion gap is a price gap that occurs at the end of an important trend and signals that the trend is ending.

Trends
A trend refers to the direction of prices. Rising peaks and troughs constitute an up trend; falling peaks and troughs constitute a downtrend that determines the steepness of the current trend. The breaking of a trend line usually signals a trend reversal. Horizontal peaks and troughs characterize a trading range.

Moving averages are used to smooth price information in order to confirm trends and support and resistance levels. They are also useful in deciding on a trading strategy, particularly in futures trading or a market with a strong up or down trend.

The most common technical tools:

Coppock Curve is an investment tool used in technical analysis for predicting bear market lows.

DMI (Directional Movement Indicator) is a popular technical indicator used to determine whether or not a currency pair is trending.

Unlike the fundamental analyst, the technical analyst is not much concerned with any of the "bigger picture" factors affecting the market, but concentrates on the activity of that instrument's market.

Fundamental analysis
Fundamental analysis is a method of forecasting the future price movements of a financial instrument based on economic, political, environmental and other relevant factors and statistics that will affect the basic supply and demand of whatever underlies the financial instrument. In practice, many market players use technical analysis in conjunction with fundamental analysis to determine their trading strategy. Fundamental analysis focuses on what ought to happen in a market. Factors involved in price analysis: Supply and demand, seasonal cycles, weather and government policy.
Fundamental analysis is a macro or strategic assessment of where a currency should be trading based on any criteria but the movement of the currency's price itself. These criteria often include the economic condition of the country that the currency represents, monetary policy, and other "fundamental" elements.

Many profitable trades are made moments prior to or shortly after major economic announcements.

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The Australian Dollar

The Australian dollar is a commodity-based currency and is currently the sixth most traded currency in the world currency market (behind the US dollar, the euro, the yen, the British pound and the Swiss franc).
It accounts for approximately 5% of the total volume of foreign exchange transactions (approximately 1.9 trillion dollars a day). Its popularity is due to the fact that there is little government intervention in the currency and a general view that Australia has a stable economy and government.

For much of its history, the Australian dollar was pegged to the British pound however, that changed in 1946, when it was pegged to the US dollar under the Bretton Woods system. When this system broke down in 1971, the AUD moved from a fixed peg to a moving peg to the US dollar. Then in September 1974, it moved to a moving peg against a basket of currencies called the TWI (trade weighted index) because of concerns about the fluctuations in the US dollar. This continued until December 1983, when the then Labour government under Prime Minister Bob Hawke and Treasurer Paul Keating “floated” the Australian dollar. The Australian dollar is now governed by its economy’s terms of trade. Should Australia’s commodity exports (minerals and farms) increase then the dollar increases. Should mineral prices falls or when domestic spending is greater than exports, then the dollar falls. The resulting volatility makes the Australian dollar an attractive vehicle for currency speculators and is the reason why it is one of the most traded currencies in the world despite the fact that Australia only comprises 2% of the global economic activity.

Over the last 23 years as a free floating currency, the Australian dollar has usually served as a proxy for gold due to the fact that Australia is the second largest producer of gold after South Africa. Fluctuations in the price of gold have seen corresponding rise and falls in the Australian dollar.

As well as its relationship with gold, like the Canadian and the New Zealand dollars, the Australian dollar is a commodity currency. According to the Australian Bureau of Agriculture and Resources Economic, commodity sales are expected to total AUD billion or about 55% of Australia’s exports, hence any movements in commodity prices will effect the Australian dollar. Expectation over the next few years is for a gradual easing of world economic growth, which should see the price of Australian commodities average lower and result in downward pressure on the Australian dollar especially in late 2006/2007. It should however be noted, that there is considerable uncertainty in predicting Australian dollar movements since it can be significantly influenced by a change in market sentiment. Since the floating of the Australian dollar in 1983, the currency has fluctuated in an average range of 10 cents a year.

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Dollar-euro currency exchange

This article provides an overview of the factors affecting the leading currency pair: Euro-dollar exchange, commonly expressed as EUR/USD.
The euro to dollar exchange rate is the price at which the world demand for US dollars equals the world supply of euros. Regardless of geographical origin, a rise in the world demand for euros leads to an appreciation of the euro.

Factors affecting exchange rates
Four factors are identified as fundamental determinants of the real euro to dollar exchange rate:
• The international real interest rate differential
• Relative prices in the traded and non-traded goods sectors
• The real oil price
• The relative fiscal position

The nominal bilateral dollar to euro exchange is the exchange rate that attracts the most attention. Notwithstanding the comparative importance of euro to US dollar bilateral trade links, trade with the UK is, to some extent, more important for the Euro zone than is trade with the US. The dollar and the euro have a strong predisposition to run together in the very short run, but sometimes there can be significant discrepancies. The very strong appreciation of the dollar against the euro in 2003 is one example of these discrepancies.
In the long run, the correlation between the bilateral dollar to euro exchange rate, and different measures of the effective exchange rate of Euroland, has been rather high, especially if one looks at the effective real exchange rate. As inflation is at very similar levels in the US and the Euro area, there is no need to adjust the dollar to euro rate for inflation differentials, but because the Euro zone also trades intensively with countries that have relatively high inflation rates (e.g. some countries in Central and Eastern Europe, Turkey, etc.), it is more important to downplay nominal exchange rate measures by looking at relative price and cost developments.

The fall of the dollar
The steady and orderly decline of the dollar from early 2002 to early 2004 against the euro, Australian dollar, Canadian dollar and a few other currencies (i.e., its trade-weighted average, which is what counts for purposes of trade adjustment), while significant, has still only amounted to about 10 percent.

There are two reasons why concerns about a free fall of the dollar should not be worth consideration. The first is that the US external deficit will stay high only if US growth remains vigorous. But if the US continues to grow strongly, it will also retain a strong attraction for foreign capital, which should support the dollar. The second reason is that the attempts by the monetary authorities in Asia to keep their currencies weak will probably not work.

The basic theories underlying the dollar to euro exchange rate:
Law of One Price: In competitive markets free of transportation cost barriers to trade, identical products sold in different countries must sell at the same price when the prices are stated in terms of the same currency.

Interest rate effects: If capital is allowed to flow freely, exchange rates become stable at a point where equality of interest is established.

The dual forces of supply and demand determine euro vs. dollar exchange rates. Various factors affect these two forces, which in turn affect the exchange rates:

The business environment: Positive indications (in terms of government policy, competitive advantages, market size, etc.) increase the demand for the currency, as more and more enterprises want to invest there.

Stock market: The major stock indices also have a correlation with the currency rates.

Political factors: All exchange rates are susceptible to political instability and anticipations about the new government. For example, political or financial instability in Russia is also a flag for the euro to US dollar exchange because of the substantial amount of German investments directed to Russia.

Economic data: Economic data such as labor reports (payrolls, unemployment rate and average hourly earnings), consumer price indices (CPI), producer price indices (PPI), gross domestic product (GDP), international trade, productivity, industrial production, consumer confidence etc., also affect fluctuations in currency exchange rates.

Confidence in a currency is the greatest determinant of the real euro-dollar exchange rate. Decisions are made based on expected future developments that may affect the currency. A EUR/USD exchange can operate under one of four main types of exchange rate systems:

Fully fixed exchange rates
In a fixed exchange rate system, the government (or the central bank acting on its behalf) intervenes in the currency market in order to keep the exchange rate close to a fixed target. It is committed to a single fixed exchange rate and does not allow major fluctuations from this central rate.

Semi-fixed exchange rates
Currency can move inside permitted ranges of fluctuation. The exchange rate is the dominant target of economic policy-making, interest rates are set to meet the target and the exchange rate is given a specific target.

Free floating
The value of the currency is determined solely by market supply and demand forces in the foreign exchange market. Trade flows and capital flows are the main factors affecting the exchange rate. A floating exchange rate system: Monetary system in which exchange rates are allowed to move due to market forces without intervention by national governments. For example, the Bank of England does not actively intervene in the currency markets to achieve a desired exchange rate level. With floating exchange rates, changes in market demand and supply cause a currency to change in value. Pure free floating exchange rates are rare - most governments at one time or another seek to "manage" the value of their currency through changes in interest rates and other controls.

Managed floating exchange rates
Governments normally engage in managed floating if not part of a fixed exchange rate system.

The advantages of fixed exchange rates are the disadvantages of floating rates:
Fixed rates provide greater certainty for exporters and importers and, under normal circumstances, there is less speculative activity - although this depends on whether the dealers in the foreign exchange markets regard a given fixed exchange rate as appropriate and credible.

Advantages of floating exchange rates
Fluctuations in the exchange rate can provide an automatic adjustment for countries with a large balance of payments deficit. A second key advantage of floating exchange rates is that it gives the government/monetary authorities flexibility in determining interest rates.

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The History of the Forex Market

An overview into the historical evolution of the foreign exchange market
This article will follow the historical roots of the international currency trading from the days of the gold exchange, through the Bretton Woods Agreement, to its current setting.

The Gold exchange period and the Bretton Woods Agreement.

Prior to Bretton Woods, the gold exchange standard -- paramount between 1876 and World War I -- ruled over the international economic system. Under the gold exchange, currencies experienced a new era of stability because they were supported by the price of gold.

However, the gold exchange standard had a weakness of boom-bust patterns. As a country's economy strengthened, its imports would increase until the country ran down its gold reserves, which were required to support its currency. As a result, the money supply would diminish, interest rates escalate and economic activity slowed to the point of recession. Ultimately, prices of commodities would hit bottom, appearing attractive to other nations, who would rush in and amid a buying frenzy inject the economy with gold until it increased its money supply, driving down interest rates and restoring wealth into the economy. Such boom-bust patterns abounded throughout the gold standard until World War I temporarily discontinued trade flows and the free movement of gold.

The Bretton Woods Agreement, established in 1944, fixed national currencies against the dollar, and set the dollar at a rate of USD 35 per ounce of gold. The agreement was aimed at establishing international monetary steadiness by preventing money from taking flight across countries, and to curb speculation in the international currency market. Participating countries agreed to try to maintain the value of their currency within a narrow margin against the dollar and an equivalent rate of gold as needed. As a result, the dollar gained a premium position as a reference currency, reflecting the shift in global economic dominance from Europe to the USA. Countries were prohibited from devaluing their currency to benefit their foreign trade and were only allowed to devalue their currency by less than 10%. The great volume of international Forex trade led to massive movements of capital, which were generated by post-war construction during the 1950s, and this movement destabilized the foreign exchange rates established in Bretton Woods.

The year 1971 heralded the abandonment of the Bretton Woods in that the US dollar would no longer be exchangeable into gold. By 1973, the forces of supply and demand controlled major industrialized nations' currencies, which now floated more freely across nations. Prices were floated daily, with volumes, speed and price volatility all increasing throughout the 1970s, and new financial instruments, market deregulation and trade liberalization emerged.

The onset of computers and technology in the 1980s accelerated the pace of extending the market continuum for cross-border capital movements through Asian, European and American time zones. Transactions in foreign exchange increased intensively from nearly billion a day in the 1980s, to more than $1.9 trillion a day two decades later.

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Exchange rates

Because currencies are traded in pairs and exchanged one against the other when traded, the rate at which they are exchanged is called the exchange rate. The majority of the currencies are traded against the US dollar (USD). The four next-most traded currencies are the Euro (EUR), the Japanese yen (JPY), the British pound sterling (GBP) and the Swiss franc (CHF). These five currencies make up the majority of the market and are called the major currencies or "the Majors". Some sources also include the Australian dollar (AUD) within the group of major currencies.

The first currency in the exchange pair is referred to as the base currency and the second currency as the counter term or quote currency. The counter term or quote currency is thus the numerator in the ratio, and the base currency is the denominator. The value of the base currency (denominator) is always 1. Therefore, the exchange rate tells a buyer how much of the counter term or quote currency must be paid to obtain one unit of the base currency. The exchange rate also tells a seller how much is received in the counter term or quote currency when selling one unit of the base currency. For example, an exchange rate for EUR/USD of 1.2083 specifies to the buyer of euros that 1.2083 USD must be paid to obtain 1 euro.

At any given point, time and place, if an investor buys any currency and immediately sells it - and no change in the exchange rate has occurred - the investor will lose money. The reason for this is that the bid price, which represents how much will be received in the counter or quote currency when selling one unit of the base currency, is always lower than the ask price, which represents how much must be paid in the counter or quote currency when buying one unit of the base currency. For instance, the EUR/USD bid/ask currency rates at your bank may be 1.2015/1.3015, representing a spread of 1000 pips (also called points, one pip = 0.0001), which is very high in comparison to the bid/ask currency rates that online Forex investors commonly encounter, such as 1.2015/1.2020, with a spread of 5 pips. In general, smaller spreads are better for Forex investors since even they require a smaller movement in exchange rates in order to profit from a trade.

Margin
Banks and/or online trading providers need collateral to ensure that the investor can pay in case of a loss. The collateral is called the margin and is also known as minimum security in Forex markets. In practice, it is a deposit to the trader's account that is intended to cover any currency trading losses in the future.
Margin enables private investors to trade in markets that have high minimum units of trading by allowing traders to hold a much larger position than their account value. Margin trading also enhances the rate of profit, but can also enhance the rate of loss if the investor makes the wrong decision.


Leveraged financing
Leveraged financing, i.e., the use of credit, such as a trade purchased on a margin, is very common in Forex. The loan/leveraged in the margined account is collateralized by your initial deposit. This may result in being able to control USD 100,000 for as little as USD 1,000.
There are three ways private investors can trade in Forex directly or indirectly:

• The spot market
• Forwards and futures
• Options

A spot transaction
A spot transaction is a straightforward exchange of one currency for another. The spot rate is the current market price, also called the benchmark price. Spot transactions do not require immediate settlement, or payment "on the spot." The settlement date, or "value date," is the second business day after the "deal date" (or "trade date") on which the transaction is agreed to by the two traders. The two-day period provides time to confirm the agreement and arrange the clearing and necessary debiting and crediting of bank accounts in various international locations.

Forwards and Futures
Forwards make up about 46% of currency trading. A forward transaction is an agreement between two parties whereby one party buys a currency at a particular price by a certain date that is greater than two business days (a spot transaction).
A future contract is a forward contract with fixed currency amounts and maturity dates. They are traded on future exchanges and not through the interbank foreign exchange market.


Options
A currency option is similar to a futures contract in that it involves a fixed currency transaction at some future date in time. However the buyer of the option is only purchasing the right but not the obligation to purchase a fixed amount of currency at a fixed price by a certain date in future. The price is known as the premium and is lost if the buyer does not exercise the option.

Risks
Although Forex trading can lead to very profitable results, there are risks involved: exchange rate risks, interest rate risks, credit risks, and country risks. Approximately 80% of all currency transactions last a period of seven days or less, while more than 40% last fewer than two days. Given the extremely short lifespan of the typical trade, technical indicators heavily influence entry, exit and order placement decisions.

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What is Forex Trading?

An overview of the Forex market
The Forex market is a non-stop cash market where currencies of nations are traded, typically via brokers. Foreign currencies are constantly and simultaneously bought and sold across local and global markets and traders' investments increase or decrease in value based upon currency movements. Foreign exchange market conditions can change at any time in response to real-time events.

The main enticements of currency dealing to private investors and attractions for short-term Forex trading are:
• 24-hour trading, 5 days a week with non-stop access to global Forex dealers.
• An enormous liquid market making it easy to trade most currencies.
• Volatile markets offering profit opportunities.
• Standard instruments for controlling risk exposure.
• The ability to profit in rising or falling markets.
• Leveraged trading with low margin requirements.
• Many options for zero commission trading.

Forex trading
The investor's goal in Forex trading is to profit from foreign currency movements. Forex trading or currency trading is always done in currency pairs. For example, the exchange rate of EUR/USD on Aug 26th, 2003 was 1.0857. This number is also referred to as a "Forex rate" or just "rate" for short. If the investor had bought 1000 euros on that date, he would have paid 1085.70 U.S. dollars. One year later, the Forex rate was 1.2083, which means that the value of the euro (the numerator of the EUR/USD ratio) increased in relation to the U.S. dollar. The investor could now sell the 1000 euros in order to receive 1208.30 dollars. Therefore, the investor would have USD 122.60 more than what he had started one year earlier. However, to know if the investor made a good investment, one needs to compare this investment option to alternative investments. At the very minimum, the return on investment (ROI) should be compared to the return on a "risk-free" investment. One example of a risk-free investment is long-term U.S. government bonds since there is practically no chance for a default, i.e. the U.S. government going bankrupt or being unable or unwilling to pay its debt obligation.
When trading currencies, trade only when you expect the currency you are buying to increase in value relative to the currency you are selling. If the currency you are buying does increase in value, you must sell back the other currency in order to lock in a profit. An open trade (also called an open position) is a trade in which a trader has bought or sold a particular currency pair and has not yet sold or bought back the equivalent amount to close the position.

However, it is estimated that anywhere from 70%-90% of the FX market is speculative. In other words, the person or institution that bought or sold the currency has no plan to actually take delivery of the currency in the end; rather, they were solely speculating on the movement of that particular currency.

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