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Forex pairs go up, then down, then up…

These days, when I look at my charts and the state of the Forex market, I sometimes laugh at myself. It’s funny because, at some point, I genuinely believed that there was a legitimate argument to be made about fundamental or technical analysis. When I was learning about Forex Trading, I was under the impression I had to choose one. With that in mind, I chose what come naturally to me – technical.

I then spent the next year and a half attempting to test out a string of technical strategies and indicators, attempting to impose my ideas on the markets. Needless to say, I failed; but I learnt…I learnt a lot. That’s one of the most important things about mastering forex trading…or any other skill for that matter. Your student cap needs to be on all the time.

Fast-forward to Today. We’re in an Economic crisis. What stage of the crisis we are in still remains in debate. Whether the Dollar will be strong or weak in the long term…more debate. What is interesting are the ups and downs we see today in US Dollar versus other majors, mostly driven by the performance of the World Equity Markets. It’s still Up Equities, Down Dollar and vice versa.

In my trading framework, the fundamentals drive direction while the technicals set targets. So, for instance, if the Stock Market points higher, we get more risk takers in the market, the EUR/USD currency pair falls as the dollar loses steam. When it gets to the next level of support, traders re-evaluate, perhaps take some profit off the table as they work out whether the momentum will allow a further fall. This is obviously over-simplified, but it’s the general idea.

So, I find the choice of Technical against Fundamental completely removed from me. That is where we still are this April. It could change soon, if things get better, but we all have to pay attention.

Happy Trading

Forex Day Trading – Strong nerves required

Day trading is a way of trading that generally relates to entering and exiting trades such that all positions are closed off before the end of the trading day. As a style, it refers more to people who are willing to execute multiple trades within a relatively short period, attempting to make money off what more long-term traders would see as fluctuations.

Some seasoned Forex traders prefer this method as opposed to long-term methods for various reasons. There is instant gratification. You can see the results of your efforts in shorter periods. It can be very profitable, particularly if you have a large amount of money in your account. Large institutions engage in this sort of trading quite a bit because they have millions, maybe billions in their accounts. A very small move might earn the small-time trader – i.e. me – only a few hundred dollars. That same “fluctuation” might earn the big boys tens of thousands of dollars or more. It means that you have many more opportunities to open positions and thus, make profits. Unfortunately, it also means you have many more opportunities to lose your money. As with all forms of trading, the trick is managing your money effectively; something that is a lot more difficult when operating in shorter time frames.

One of the obstacles cited by some traders in their case against day trading is the necessity of spending more time in trading mode. This means staring at a computer screen, for most people. It can also mean listening to news, constantly browsing the information websites etc. These traders may be able to overcome the higher risks that Day Trading might entail; they just don’t have the time to do that. This is where an automated system comes in. If any of these traders could “program” his trading system into a Forex Trading Software, then that problem would be solved. In that situation, the trader no longer has to devote all that time. Other tasks can be done. When there is a Buy or Sell signal, the trader can have a quick look at the markets and confirm this by opening the position.

It is also possible to have the software enter and exit trades for you, hence the term “automated”. To use this, the trader would have to have complete trust in his system. Many automated systems are now available from a large variety of traders and gurus. If you feel comfortable enough, you can try one. It’s easy enough to test on a demo account. If you wish to try any of these on a live account, then you should start out using the signals, while you actually enter the trades yourself. They usually have a free trial period, so you can evaluate whether or not you are comfortable using them. That way, if it doesn’t work out, you can get your money back, or just not buy the full product.

As with any of the other trading styles, techniques or whatever you might choose to call them, this one has takers and those who are against it. Some experts argue that it is simply not possible to do any meaningful analysis when operating within such a short time frame. Such a sentiment is understandable. This method of trading, in their opinion, reduces Forex Trading to something more akin to gambling. They would argue rightfully that entering and exiting a trade should not be like throwing dice. There should be a clear strategy in place. This concept is just much more complicated to implement when engaging in day trading. You are also significantly more exposed to price spikes due to news. It can be a wild ride. Adding an automated system to the mix goes even further down the road in that respect.

Regardless of that, there are those who thrive on it. It’s hard to argue with facts and figures. For some people, Day Trading is Forex trading. They wouldn’t have it any other way. In fact, the first fulltime trader I met was a Day trader. He did well, making consistent profits. It’s not for everyone, but that doesn’t mean it can’t be done profitably. Ultimately, you will have to try it yourself to see how it sits with you. Who knows…you might find that you’re a natural born Day trader.

Starting Forex Trading…the basics

The term “Forex” is short for Foreign Exchange. Each country in the world generally has its own money or currency. Some countries may share the same currency e.g. the Euro is shared by a number of countries in Europe such as Germany, France and Spain. These currencies have to be valued against each other via some mechanism so when goods or services are bought across borders, proper pricing can be done. This valuation is essentially the Exchange rate between currencies. Exchange rates of currency can vary from day to day. They depend on a wide variety of factors such as Interest rates, Geopolitical climate and many others. Forex trading is a platform through which currencies are bought and sold according to their current rates in order to make profit.

The way it works is simple: A Forex trader purchases some amount of a particular currency which they think will rise in value against the currency they are exchanging it with. After a certain period of time, assuming that the rate rises as expected, they sell or re-exchange the previously-bought currency, making a profit. The same thing can be done with selling. So, Forex Trading is based on speculation. The trader does some analysis of market conditions and, based on that, makes an informed “guess” what direction the Exchange rate will go. The difference between Currency Trading and traditional gambling is simply that, with Forex Trading, proper analysis gives you a lot more information so you are able to better determine market direction. If it feels like throwing dice, you are doing it wrong.

Providing a small example of Forex trading will probably help you to have a clearer idea of how this whole system works. Let’s suppose that the Exchange Rate between the Euro and the Dollar is 1.2614 i.e. 1.2614 Dollars buys 1 Euro. Suppose then that, after your preliminary analysis, you conclude that the Euro is going to rise against Dollar. This basically means that, in a certain amount of time, you will need more dollars to buy the same amount of Euros than at the current rate. Please note that estimating this should be another major result of your analysis. It could be a few minutes, or it could be a few months. In this case we’ll assume it will be days. So, you buy €10 at the rate mentioned above spending $12.614 in total.

After a few days, you find that the Euro has indeed risen up in value and that €1 is now equivalent to US$1.30780. You immediately exchange the €10 for $13.078 and earn a profit of $0.464. This amount may look very small, but imagine if you had invested $10,000 instead of $10, your profit would have been a substantial $464. This example neglects the charges and differences that exist between buy and sell prices. It’s just to illustrate the point. Now imagine this sort of transaction on a grand scale. I mean trillions of dollars traded every day, and you start to understand what the Forex Market is.

Forex trading started in 1970s. It was during this time that most world governments switched over to floating exchange rates for their currencies from fixed rates. Previously these governments would peg the exchange rate of a their currency against another one, such as the US Dollar. Many economists promoted floating exchange rates as a far healthier option for the economy of any country, as it ensured a relatively less deterioration of rates due to any kind of shock or the influence of a foreign business cycle.

At present, the forex market is one of the largest markets in the world with a turn-over of more than $3.2 trillion. There are millions of banks, governments, individual forex traders, corporations and other entities trading currencies around the clock. Because the Forex Market is international, someone somewhere is always trading currencies on the market.

There is always a demand for Forex trading. With the rising trend of globalization, people need foreign currencies now more than ever. The revolution in transportation and communication industry has made it possible for people and companies of different countries do business with each other. Taking this into consideration, we find that the Forex Markets offer ample opportunities for people who are willing to learn about forex trading to profit from, provided they arm themselves with the appropriate information first.

  
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