Trading Times - When to Exit a Trade

Trading Times - When to Exit a Trade

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There is no perfect exit strategy. Whatever you do you will never exit a trade exactly at the point of the high on a buy or a low on a sell. However, you can use exit strategies that are quantified and permit you to exit into strength when you are holding a long position or on short positions cover into weakness.

In fact the essence of a trade exit rule or plan is to cut your losses and let your profits run. To cut your losses short use a well thought out protective stop to protect your currency trading capital. Even before you make a trade you should have worked out where your defensive stop will be. This is designed to be the minimal loss you are willing to take. You can set a stop in many different ways. 

For example:

You can set a dollar amount on every trade at which you want the trade to stop.
Percentage retracement - perhaps 10% from entry
Moving Averages - the reverse of the moving average entry
Channel breakouts – the reverse of the channel breakout entry
Stops based on areas of support and resistance
Time - If after a certain length of time the position hasn’t made a profit then exit.

An effective technique is also needed to let a profit run.

An efficient exit procedure is also necessary to allow a winning currency trading to create the most profit achievable and give back the smallest amount of it.

Trailing Stop:

Normally a trailing stop is in used to realize this purpose. A trailing stop follows a price to secure profits as the trade shifts in the traders favor; a trailing stop should never be moved the wrong way. Trailing stops can be calculated exactly the same way as you calculate a stop loss.

LIMIT Order:

A limit order is an order which protects your profits. It has a pre-determined exit/profit objective and is placed accordingly. This strategy obviously breaks the rule of letting your profits run and usually cuts short the best trades and thereby reduces your profit.

Source: www.etoro.com

Top 10 Biggest Forex Trading Mistakes & Misconceptions

Top 10 Biggest Forex Trading Mistakes & Misconceptions

All Forex traders tend to commit similar mistakes when interacting with the market. They also tend to harbor similar misconceptions about trading and what successful Forex trading is all about. This week’s article can be thought of as a guide to what the biggest trading mistakes and misconceptions are and what you can do to put an end to them. You should refer back to this article often to help you stay on the path to becoming a profitable trader. This article will give you some valuable insight and direct you to other relevant articles so that you can stop making the same trading mistakes and let go of any misconceptions you hold about Forex trading.

1. Trading with indicators and fancy tools –

Many Forex traders, especially beginners, tend to erroneously believe that they need to use indicators to fully understand Forex price movement, or that indicators will help them in some way become more profitable. This leads many traders to concentrate solely on reading and trading from indicators, instead of the actual price action that these indicators are derived from. The bottom line is that indicators provide no real advantage over simply learning to read a “naked” price chart, and they actually inhibit your progress as a trader because they distract you from learning to read the pure price dynamics that occur on the charts every day. Price action tells you what is most likely to happen next in the market, you just have to know how to interpret it. After learning to trade with price action you will soon learn why trading with indicators destroys Forex trading success.

2. Not fully understanding and implementing risk / reward –

If there is one thing that all professional traders have in common it is that they fully understand the power of risk reward and how to implement it on every single trade they take. Beginning traders obviously know the importance of making sure their winners are larger than their losing trades, but they often do not understand how this translates into real world trading and what it really means. Every single trade you consider taking should be viewed in terms of risk to reward. You have to consider not only if your trading edge is present, but if the realistic potential of the risk reward on the trade makes it worth taking.

We typically want to make at least two times our risk on any one trade, doing so gives us an excellent shot at making consistent money over the long-run. Many traders get caught up on losing 2 or 3 trades in a row because they fail to understand the full implications and practical application of risk reward ratios that take time to play out. Check out the following articles to learn why risk reward in Forex is the true Holy Grail, and to learn how Forex risk reward and price action trading can make you a consistently profitable trader.

3. Not understanding position sizing –

Many traders come into the Forex market and they do not understand that just because you put a wider stop loss on a trade does not mean you have to risk more money or that just because you put a smaller stop loss on a trade does not mean you automatically risk less. A very common mistake that traders often make is that they adjust their stop loss to meet the number of lots they want to trade, instead of adjusting their position size to meet the most logical and realistic stop loss distance. A thorough understanding of position sizing is very important to your overall money management plan and to correct implementation of risk reward on every single trade.

4. Not having a Forex trading plan –

Most beginning traders make the mistake of not having a functional trading plan, and they also harbor the misconception that they don’t really need one. Forex trading needs to be treated as a business, and just like having a business plan is necessary for the growth and prosperity of any business, having a Forex trading plan is necessary for the growth and prosperity of any trader. A trading plan helps to keep you accountable in a world that allows you to do an unlimited amount of damage to yourself; the world of Forex trading. Most traders seem to get fixated on how much money they can make and thus lose focus of the real risk involved in Forex trading, aForex trading plan that you read every single day can help to keep you focused and on track, so that you don’t fall off the wagon and begin trading in a delusional manner.

5. Gambling instead of trading –

A question that every trader who has been trading for any period of time needs to stop and ask their self is; “Am I gambling or am I trading responsibly?”. Almost every trader falls into some sort of cycle where they are simply gambling instead of trading at some point in their trading career. The quicker you can recognize this and pull yourself out of this deadly cycle the quicker you will become consistent and profitable. Trading should really be viewed as “risk managing”, and not necessarily as “trading”, the traders who manage their risk the best are the ones who make the most money; take care of your risk and the market will take care of the rest; that is a very general anecdote, but it is also true, you have to control your risk very consistently if you don’t want to end up gambling in the market, when you put your focus on risk control instead of on how much money you can make the money will seem to come naturally. So, are you a Forex trader or a gambler?

6. Allowing emotions to cloud judgment / giving into emotions –

There are many factors that can contribute to and induce emotional trading, and emotional trading is the reason why so many traders lose money in the markets. Emotional trading is the end of result of not doing other things right, like anything or everything else listed in this article. Any one of the trading mistakes listed in this article can induce emotional trading, and once you begin trading emotionally it is extremely difficult to pull yourself out of its grips because it is a psychologically reinforcing problem that traders simply cannot shake unless they totally stop trading for a period of time and take a step back to think logically about what they are doing.

The Forex market can be an excellent arena for self-improvement and mastery of one’s own impulses and mind, or it can be an arena for total financial destruction and loss, which arena you ultimately create depends on whether or not you can master your primitive emotional brain structures with your more advanced logically thinking and planning brain structures. Read about how price action will help cure emotional trading problems.

7. Not having patience –

Patience is scare among amateur Forex traders. The reason it is scarce is because most new traders approach the market from the complete wrong perspective. Most people are attracted to trading because they think it will “fix” their life in some way, whether through freeing them from a job they hate or by providing them with extra money. While these are by no means bad or inappropriate goals to have, when you approach your trading from a feeling of “needing” it to work because you have no other options, you are almost certainly doomed to fail as a trader.

You have to be completely fine with whatever happens to your trades, and this means not trading with money you can’t afford to lose. Once you start approaching the market from a perspective of not feeling like it “has to” work out for you to be happy in life, you will begin to exercise more patience in the Forex market and this will drastically improve your overall winning percentage and will actually make you more profitable faster.

8. Not trading higher time frames –

I have been trading for nearly 10 years now and I still almost solely look at the daily and 4 hour charts. It amazes me to no end how many beginning traders that I encounter who want to trade shorter time frames. I get emails almost every day from traders asking me questions about trading the 15 minute charts, or even lower time frames. The simple fact of higher time frames that makes me concentrate most of my trading efforts on them instead of their lower time frame counterparts is that they act as natural filters of price movement, filtering out the price action that is not useful and leaving with you with a much clearer picture of what price is likely to do. This is why when you trade higher time frames in Forex combined with price action you have an extremely potent trading strategy at your finger tips.

9. Over-trading / being too involved

The quickest way to becoming a full-fledged emotional trader right behind over-leveraging, is over-trading. I find that traders are often guilty of over-trading and don’t even realize it. Most traders that I encounter do not spend long enough demo trading; this means they jump into live-market trading too soon and as a result of this they begin over-trading because they have not spent enough time on the demo charts perfecting their Forex trading strategy. Over-trading is most tempting after a trade, whether it is a loser OR a winner. Traders need to be especially aware of their state of mind immediately after exiting a trade, because this is when emotions like revenge and euphoria hit their peak, making it very likely the trader will dive back in the market with no real sound reasoning behind their action. Forex trading can be addictive and you certainly should trade less to profit more.

10. Not taking profits –

Yet another area where Forex trading is a paradox is profit taking. While hope is a great feeling to have in almost every other endeavor in life, in the financial markets hope is often the downfall of traders. They hope for larger profits, or they hope the next trade will allow them to make back all the money they lost. Most retail traders simply do not fully realize or understand the implications of the fact that the Forex market ebbs and flows, it never moves in a straight line for every long. So, when trying to build up a relatively small trading account it is essential to your equity curve and to your emotional sanity that you take profits as they come, instead of constantly hoping and holding out futilely for ever larger profits.

This is why I teach that traders should often take profits of 2 or 3 times risk, because generally speaking if you hope for more than this once you are up 2 to 3 times risk, the market is going to reverse and move back towards your entry. These reversals are what shake out most amateur traders, so it is crucial that you take profits when you have them, otherwise they are likely to disappear very quickly. As the Kenny Rogers song goes: “You’ve got to know when to hold em and know when to fold em”.

Source:http://www.learntotradethemarket.com

Guide to Forex Trading

Simple guide to Forex Trading:

1. Set a Stop Loss: Before entering any trade, decide beforehand the amount you are willing to lose and stick to it. Set a stop loss on the trade before you enter. Do not fluctuate your stop loss if you are in a losing trade. During times of extreme volatility it can be difficult or impossible to execute orders. Stop orders become market orders when executed, so the order may not be filled at the desired price. As a result, the initial risk can be estimated, but not guaranteed.

2. Let your profits run:

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 Do not be emotional about a trade – you will lose some and win some. Know the reason why you entered a trade and stick to those reasons. The less emotional you are the more successful you will be. Stick to your game plan – move your stop loss as the market moves in your favor and let your profits run. During times of extreme volatility it can be difficult or impossible to execute orders.

3. Don't be influenced: You have your own game plan stick to it. If you are influenced by others you will constantly be changing your mind. Learn to insulate external sources once you have made up your mind. You will always find someone who will give you a logical reason to do the opposite.

4. Keep your position sizes within your limitations: Successful traders know that in order to profit you trade for the long term. Trading is a game of probabilities, and over the long run as long as you stick and implement sound strategies and stay consistent – success is much more likely to come. To be a successful trader you should never take a position that puts substantial capital in jeopardy. In actuality you will rarely find successful traders who risk more than 10% of their account in any trade. You might want to start small and increase your trade sizes as your confidence grows.

5. Know your risk vs. reward ratio: The minimum ratio you should be using is 2:1, so if you are successful on 50% of your trades you are doing well. For instance, if you are long GBP/USD and you want to earn 30 pips you should not risk more than 15 pips. You should never risk 30 pips in order to make 10 pips. If you do, you’ll make a lot more successful deals then unsuccessful ones, but the poor ones will ruin any of your chances for profit. Your risk vs. reward analysis is extremely important to trading successfully.

6. Have adequate capital: You should never trade with money that you cannot afford to lose. Always make sure that you have enough credit. For example, you should can ask yourself the following question: “if I were to lose 50% of my opening balance in 6 months will I still be able to afford to trade?” Only if the answer is yes should you start trading, click to open trading account. One of the keys to successful trading is mental independence, which means your trading freedom must not be influenced by your fear of losing.

7. Trending or Neutral: Learn to analyze the forex market – is it a trending market or a neutral market? In a trending market, follow the trend. In a neutral market, buy on lows and sell on highs. As long as you use stop-losses you are controlling your risk.

8. Don’t fight the trend: Don’t try to buy on dips and sell on highs in a trending market. The old saying "the trend is your friend" is a good one. Why fight it – go with it!

9. Averaging – don’t do it: One of the most common mistakes traders make is the continuing adding of a losing position. Averaging will be the death of short-term trades. For short-term trades, preserving capital is the most important thing, and putting too much capital at risk will jeopardize success. In short-term trading, if a strategy is right the market should move in the correct direction within a relatively short period of time. However if it's wrong, the short-term traders should realize that they traded incorrectly, and they should take the loss and move on. There is not much room for pride in short-term trading. You should never add to a losing position.

10. Chasing a bad idea: This happens all the time. You see a potential trade and then decide to wait till the next day to see if it sets up. By the time you see that it did exactly what you thought, it may be too late. Review your reasoning for the trade, make sure your initial reason is still there and if not, forget about the trade. There will always be trading opportunities, so be patient and strike.

11. Understand the way the market thinks: You should understand that all the information (except for newly released information which the market adjusts to within a short moment) is already built into the price of the cross. You should know what indicators are coming, particularly the majors, and you should know what is already anticipated by the market. There are many publications of market anticipation for major indicators.

12. Trading - a game of probabilities: You will not be correct 100% of the time – it’s a fact. Good, experienced traders all know this. It’s a numbers game, and you’ll make some and lose some. The idea is simply to win more than you lose, not to catch all the fish in the pond. Understand that trading is a game of probabilities, and if you do the right thing, in the long run you will come out ahead. Learn from mistakes. When you start forex trading, you may well lose more than you make. Think about what you did wrong and try not to be emotional about the trades. If you stick to your game plan and learn, hopefully your profits will out weight your losses.

13. Know why you are in the trade: Keep a trading log, and write down why you entered a trade. Don’t be impulsive. Have a plan. This way you will learn which strategies work for you in the long run and which don’t. If trading before or after releases works for you, look for them and trade those.

14. If the logic goes you go: If the reason you entered the trade disappears then so does your reason to remain in the trade. If you think you’re at a low and it breaks through, get out. Then reevaluate and decide once more.

15. Have a maximum run: If you have 4 or 5 bad trades in a row, take a break. Something isn’t working. Go away and regroup. Don’t be afraid to take a break.

16. Study: Learn new ideas, keep up to date, and don’t trade other people’s ideas. You should always know why you are in the trade.

17. Have Fun: Enjoy what you do. Keep calm and stay as unemotional as possible – you will be more successful.

Source:http://www.avafx.com

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FUNDAMENTAL ANALYSIS – AN INTRODUCTION

Fundamental analysis is the study of economic, social and political data that represents and quantifies the economy in question with the goal of determining future movements in a financial market. 

Analysts have been grouped into either Technical or Fundamental camps for many years, but actually there are very few pure technicians or fundamentalists. Technical analysts cannot really ignore the effect and timing of economic announcements, and fundamental analysts cannot really ignore various signals derived from the study of historic prices and volatility.

It is fairly difficult to take into account all the different economic announcements as well as the political and social situations that affect an economy, particularly in today's global market. However by understanding the basics and delving deeper into the various fundamentals of the economies one’s understanding of the financial markets can improve dramatically.

There are a myriad of economic announcements, and while it may be important to be familiar with schedules and understand the nature and possible impact of the announcements, it is very easy to be bogged down by too much information to the point where one may simply not be able to come up with an effective basis for trading.

Because of the vast number of fundamentals out there, it may be more important to focus on the main price movers as a basis, rather then try to know a little about a lot.

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ECONOMIC INDICATORS

Economic indicators are quantitative announcements released as data reflecting the financial, economic and social atmosphere of an economy. They are published by various agencies of the government or private sector. These statistics are anticipated by the public and are released at predetermined times according to a schedule. They are used by many to monitor the health and strength of an economy. With so many players anticipating the release, the announcements themselves often create a surge in volume and may often move the price of various instruments very quickly.

With so many economic releases made daily, it is more important to be aware of a few major announcements and then to try to be up to date with them all.

The following is a basic guide to economic announcements:

1. ECONOMIC CALENDAR

Know exactly when each economic indicator is due to be released. Try keeping a calendar on your desk or trading platform or station that contains the name of the indicator, the date and time as well as the expected release. Often it's not just the announcement itself that moves the market but the anticipation of the announcement, which can move the market sometimes days or weeks prior to the actual release.

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2. UNDERSTAND THE ANNOUNCEMENT

Understand what particular aspect of the economy is being revealed in the data. There are several aspects of an economy that are measured by growth, such as GDP; by inflation, such as PPI or CPI;  by employment, such as Non-Farm Payrolls; by interest rate announcements; by confidence, such as Consumer Confidence or Spending, and so on. After you follow the data for a while, you'll become very familiar with each economic indicator and what part of the economy they are relating to.

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3. KNOW THE INDICATORS TO CONCENTRATE ON

As mentioned before, there are a myriad of indicators that are released daily. It would be impossible to follow them all religiously, and it may well be a waste of time. Some move markets and others don't – concentrate on the ones that do. However economic indicators are not static over the years. Some have gained greater importance and others have become less important. Keep up to date.

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4. ANTICIPATION

The data itself may not be as significant as the difference between market expectation and the actual result. As mentioned earlier, it is important to know the expectation by the market. Expectations are then built into the price of the instrument. What is not built in is an unexpected figure or event. This is sometimes felt not only by the announcement itself but by the wording joined with the announcement. For instance, an expected 0.25% rate hike may not change the market as expected, however the wording following the announcement, that there will not be any further hikes, for example, may in fact move the price.

5. UNDERSTAND THE RELEASE

Not all unexpected releases trigger a move in the market. Contained in each new economic indicator released to the public are revisions to previously released data. Sometimes these can be ambiguous. For instance, if durable goods rise by 0.4% in the current month and the market is anticipating them to fall, the unexpected rise could be the result of a downward revision to the prior month. Compare the revisions to older data because, in this case, the previous month's durable goods figure might have been originally reported as a rise of 0.4% but now, along with the new figures, is being revised lower to say a rise of only 0.1% Therefore, the unexpected rise in the current month is likely the result of a downward revision to the previous month's data.

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6. CURRENCY CROSSES

Instruments are traded as one currency against another, therefore knowing one side of the game may not be enough. One currency may be down but the other one even worse, so the effect may be the opposite of what you expect.

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TYPES OF INDICATORS

Economic indicators are often described as either leading or lagging indicators. Leading indicators relate to economic indicators that change before the economy starts to follow a particular pattern or trend; they are used to predict changes in the economy. Lagging indicators are economic indicators that change after the economy has already begun to follow a particular pattern or trend.

US ECONOMIC INDICATORS

NON-FARM PAYROLLS, (NEW JOBS CREATED) NOT INCLUDING AGRICULTURE.

• Released on the 1st Friday of every month at 8:30 am NY time.
• Importance – Market mover

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TRADE BALANCE OR US TRADE DEFICIT

• Trade Balance, calculates the difference between the total amount of exports versus imports in goods and services; the balance has been in a deficit since the 1970s.
• Released on approximately the 10th of every month at 8:30 am NY time.
• Importance – Market mover

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CORE CPI, CONSUMER PRICE INDEX

• The CPI calculates the difference in price of a basket of goods and services that are influenced by the surroundings and paid by urban consumers; the Core CPI eliminates those same goods (food and energy) that are strongly influenced.
• Released on approximately the 15th of every month at 8:30 am NY time.
• Importance – Market mover

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MANUFACTURING ISM, (INCLUSIVE OF MANUFACTURING)

• Institute for Supply Management inclusive of Manufacturing gives an indication of activities in the manufacturing sector.
• Released on the first business day of every Month at 10:00 am NY time.
• Importance – Market mover.

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RETAIL SALES

• Calculates the monthly differential in sales by retail shops to the consumer.
• It is the timeliest indicator of broad consumer spending patterns and is adjusted for normal seasonal variation, holidays, and trading-day differences.
• Released on approximately the 15th of every month
• Importance – Market mover.

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MICHIGAN CONSUMER CONFIDENCE

• Indicates consumer confidence in the US Economy, based on a monthly survey of 5,000 households in the US
• The preliminary report is released on approximately the 15th of every month, the final report on the last Tuesday of every month.
• Importance – Market mover

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GROSS DOMESTIC PRODUCT - GDP

• The output of goods and services produced by labor and property located in the United States.
• GDP indicates the pace at which the country's economy is growing (or shrinking) and is considered the broadest indicator of economic output and growth.
• Quarterly data revised monthly, released about four weeks after month end.
• Importance – Market mover

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INSTITUTE FOR SUPPLY MANAGEMENT INDEX

• The ISM is a composite index based on the seasonally adjusted diffusion indexes of five of the indicators (New Orders, Production, Supplier Deliveries, Inventories and Employment) with different weights.
• Importance - High.

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NATIONAL SAVINGS (%)

• Personal saving as a percentage of disposable personal income.
• The rate of savings has a direct impact on economic activity. A high rate of savings implies that little money is being directed into the economy. A lower rate of savings suggests that consumers are spending more, thus fueling the economy. However, a negative rate of savings means that the public is putting itself in debt - a situation that may drive growth in the short-run, but is unsustainable.
• Importance - High

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WEEKLY LEADING INDEX (MONTHLY)

• The Weekly Leading Index is a composite index based on the following seven indicators: the JOC-ECRI materials price index, mortgage activity, bond quality spreads, stock prices, bond yields, and jobless claims.
• The WLI measures leading indicators and shows economic trends quickly and reliably by using indicators that measure drivers of business cycles.  It shows troughs a median of three months ahead and peaks a median of ten and a half months ahead.
• Importance - Medium.

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NEW ORDERS FOR DURABLE GOODS (IN BILLIONS)

• Seasonally adjusted.
• Durable Goods orders measures new orders placed with domestic manufacturers for immediate and future delivery of factory hard goods.
• A Durable Good is defined as a good that lasts an extended period of time (over three years) during which its services are extended.
•  Durable Goods orders are volatile, but can serve as an indicator of future economic activity. An increase in orders must occur before manufacturers will increase production. Conversely, a decrease in orders tends to result in a cutback in production.
• Importance - Medium.

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PPI – FINISHED GOODS

• Producer Price Index - Finished Goods, not seasonally adjusted.
• Measures inflation at the producer level, and does not include services. Typically a sharp rise in the PPI triggers a decline in both the stock trading and bond markets.
• The PPIs most often used for economic analysis are those for finished goods, intermediate goods, and crude goods.
• Importance - Medium

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U.S UNEMPLOYMENT RATE (%)

• Ratio between the number of unemployed persons and the total labor force, seasonally adjusted.
• The unemployment rate is an indicator of overall economic health. A low rate indicates a strong economy where job seekers can find employment quickly, whereas a high rate may indicate a weaker economy. On the other hand, businesses can find employees more easily when the unemployment rate is high.
• Importance - Medium

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RESIDENTIAL BUILDING PERMITS

• New privately owned housing units authorized by building permits, not seasonally adjusted. Figures are for total permits, including both single-unit and multi-unit structures.
• The housing market tends to be a leading indicator of economic activity. Aside from seasonal fluctuations, sharp increases (decreases) in home construction or sales lead to a corresponding increase (decrease) in the economy due to the fact that housing accounts for between one quarter and one third of investment spending and five percent of the overall national economy. Construction employment is also impacted by the housing market. A decline in the number of permits issued signals a decrease in construction employment.
• Importance - Medium.

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INDUSTRIAL PRODUCTION

• A chain-weighted measure of the change in the production of the nation's factories, mines and utilities as well as a measure of their industrial capacity and of how many available resources among factories, utilities and mines are being used (commonly known as capacity utilization).
• The manufacturing sector accounts for one-quarter of the economy.
• The capacity utilization rate provides an estimate of how much factory capacity is in use.
• Importance - Medium.

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PURCHASING MANAGERS INDEX (PMI)

• The National Association of Purchasing Managers (NAPM), now called the Institute for Supply Management, releases a monthly composite index of national manufacturing conditions,
• Constructed from data on new orders, production, supplier delivery times, backlogs, inventories, prices, employment, export orders, and import orders.
• Divided into manufacturing and non-manufacturing sub-indices.
• Importance – Medium.

HOUSING STARTS

• The Housing Starts report measures the number of residential units on which construction is begun each month.
• A start in construction is defined as the beginning of excavation of the foundation for the building and is comprised primarily of residential housing.
• Housing is very interest rate sensitive and is one of the first sectors to react to changes in interest rates.
• Significant reaction of start/permits to changing interest rates signals that interest rates are nearing trough or peak. To analyze, focus on the percentage change in levels from the previous month.
• Report is released around the middle of the following month.
• Importance – Medium.

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EMPLOYMENT COST INDEX (ECI)

• Payroll employment is a measure of the number of jobs in more than 500 industries in all states and 255 metropolitan areas.
• Employment estimates are based on a survey of larger businesses and count the number of paid employees working part-time or full-time in the nation's business and government establishments.
• Importance – Medium-Low.

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GERMANY ECONOMIC INDICATORS

IFO SURVEY (INCOME FROM OPERATIONS)

• Business Confidence
• Importance – Medium.

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JAPAN ECONOMIC INDICATORS

TANKAN SURVEY

• Climate Survey or Confidence Survey.
• An economic survey of Japanese business issued by the Central Bank of Japan, which uses it to formulate monetary policy.
• The report is released four times a year in April, July, October and mid-December.
• Importance – Medium.

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MACHINERY ORDERS

• Importance – Medium.
  
  
  
  
  
  
  Source:http://www.avafx.com

Six steps to improve your currency trading: Fourth Step

step 4: Chart Your Course with Technical Analysis

Technical Analysis uses charts to try to forecast future currency prices by studying past market movements. Using this technique, a trader has the ability to simultaneously monitor multiple currency pairs by evaluating how others are trading a particular currency. In our experience, because so many traders use technical analysis, and their reaction to market activity tends to be similar, the validity of this technique is strengthened. It becomes a self-fulfilling prophecy that feeds on itself, increasing the reliability of the signals generated from this analysis.

Support & Resistance

Perhaps the most effective and therefore the most popular form of technical analyses is the use of "support" and "resistance". Support is the "floor" or lower boundary that a currency pair has trouble breaching. Resistance, on the other hand, is simply the opposite: it is the upper boundary that a currency pair has trouble penetrating.

Support and Resistance are important in range bound markets because they indicate the boundaries where the market tends to change direction. When and if the market breaks through these boundaries, it is referred to as a "breakout" and is usually followed by increased market activity.

Using Support & Resistance

We can use these support and resistance levels in many ways. A range trader would want to buy above support and sell below resistance while breakout. Trend traders, on the other hand, would buy when the price breaks above a level of resistance and sell when it breaks below support.

The concept is still the same as we stated earlier. We want to buy a currency pair if we anticipate the market moving up and then sell it at higher price. We can also sell a currency pair if we anticipate the market moving down and then buy it at a lower price.

Be aware that trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.

Source: http://www.xe.com/currencytrading/improve.php

What should you know about Forex Signals ?