FOREX TRADING TIPS AND TRICKS

TECHNICAL INDICATORS

2007-05-08T06:25:00.000+07:00

A set of mathematical models known as technical indicators are used in
chart analysis-Technical Analysis-to study price activity. ....(click the tittle on sidebar)

Basics of Technical Analysis (1)

2007-05-08T06:20:00.000+07:00

Basics of Technical Analysis (1)

BAR CHARTS

A bar is a vertical line on a price chart. The lowest point of the bar
is the lowest price recorded during a trading period and the highest point
of the bar is the highest price recorded during that same trading period.
A price chart is a two dimensional graph and consists of a horizontal scale
spanning from left to right at the bottom of the chart and which measures time.
This scale is commonly referred to as the time scale.
A bar chart consists as well of a vertical axis spanning from the top to the bottom of the chart
which measures price. This latter scale is commonly called the price scale
and is located to the right of a chart. These scales are also referred to
sometimes as the x and y axes where the x axis measures time and the y axis
measures price. A bar can consist of a mark resembling a hyphen (-). When this
mark is located on the left side of the bar (the high and low price range)
it represents the opening price. When that mark is located on the right
side of the bar it represents the price level where a financial instrument
closed.
When a bar consists of the open, high, low, and close it is referred to
as OHLC chart. When a bar does not consist of the opening price and only
the high, low, and close are shown, this type of chart is referred to as
HLC chart.
A bar chart is plotted for a specific time period for which the bar
measures the open, high, low, and close prices. There are several time bars. A
bar may represent trading activity for 15, 30 minutes, one hour, a day, a
week, a month etc. For example, a weekly bar is fully formed when the last
trading day of the week is over and reflects the daily price history in the
trading days of that week. A weekly bar chart seen on the first day of the
week, Monday, bears Friday's date whether there was trading activity during that date
or not.
The opening price of the weekly bar chart is the opening price
achieved on the first trading session of the week. The highest high price
attained during the week is the weekly high, the lowest low price is the weekly
low, and the closing price of the last trading session is the weekly closing
price.
A monthly bar chart is formed in a similar fashion as the weekly bar
chart and depends also on the daily OHLC price values. A monthly bar chart is
not formed based on the weekly bars although it does reflect the price
history of the trading weeks in the month. A monthly chart opening price is the
opening price of the first trading day of that specific month, the highest
daily high during the month is the monthly high, the lowest daily low is the
monthly low, and the daily closing price in the last trading day of the month
is the monthly close.

LINE CHARTS

Line charts, also commonly referred to as close-only charts. Line
charts are constructed by connecting a line through closing prices for a specific
trading period that is being analyzed; such as, hour, day, week, and
month.

HL LINE CHART

HL line charts are their drawn by connecting the highs and lows prices
for a specific trading session.

CANDLESTICK CHARTS

A price charting technique originally developed by Munehisa Homma, a
renowned and extremely successful Japanese rice trader who was an active trader
in 1700s. Drawing a candlestick requires the high and low for a time
period, like a bar chart. Drawing a candlestick depends also on how the close
and the open prices are related to one another. The thick part of the
candlestick is referred to as the real body and represents the price range between
the opening and closing prices. A real body that is not filled in, that is,
hollow, indicates that the closing price was higher than the opening price.
When the closing price is below the opening price, the real body of the
candlestick is filled in, that is, black. The thin lines extending from the body
are referred to as shadows and the highest point of the upper shadow
represents the high price in that specific time frame. The lowest point on the
lower shadow represents the low price for the period being studied. You can
also note that certain candlesticks figure have no shadow or thin lines
because the high price was the same as the close or the low price was equal to
the open price.
Again, we suggest you to trade with virtual money for as long as
possible, before trading your own funds. We will continue this practice of
sending educational e-mails in order to help you obtain further knowledge about
the foreign exchange market.
If you need more information, please reply to this e-mail and we will
provide you directions on where to get more education material.

Best Regards,

(source: Nadia Fleischer, Marketiva Corporation)

The Market Hours

2006-04-30T19:24:00.000+07:00

The trading begins once the markets are officially open in Tokyo, Japan at 7:00 PM Sunday, New York time.
Afterwards, at 9:00 PM EST, Singapore and Hong Kong opens followed by the European markets in Frankfurt at 2:00 AM and in London at 3:00 AM.
When the clock reaches 4:00 AM, the European markets are in the hot spot and Asia just concluded its trading day.
Around 8:00 AM on Monday, the US markets opens in New York while Europe is slowly going down. Australia will take the lead around 5:00 PM and when it is 7:00PM again, Tokyo is ready to reopen.

Fundamentals for short-term trading

2006-04-30T19:14:00.000+07:00

Trading off economic releases
While many participants in the forex market are pure technicians,
a 1999 study (“Macroeconomic Implications of the Beliefs
and Behavior of Foreign Exchange Traders,”)
involving U.S. foreign exchange dealers
revealed a significant number of traders also used a fundamental-
based approach. Nearly one-fourth of dealers surveyed
claimed they primarily used fundamental methods to trade, vs.
30 percent who used technical analysis. It should not be surprising,
then, that fundamental data releases impact curre n c y
rates in the near term. What is more interesting is the
speed with which exchange rates adjust to news. Based on
responses from foreign exchange dealers, the same study found
the time it takes for exchange rates to adjust after data releases ,
such as unemployment, trade balances, inflation, GDP a n d
i n t e rest rates, is generally less than one minute, and in many
instances less than 10 seconds. The one economic report that
stood apart was money supply, which was estimated to have a
longer exchange rate adjustment t i m e .

Fundamentals for long-term trading

2006-04-30T19:10:00.000+07:00

Fundamental analysis focuses on the economic, social and
political forces that drive supply and demand. More so than
other markets, currencies tend to develop strong trends, and
one of the key roles of fundamental analysis is forecasting longterm
trends. Analysts consider various macroeconomic indicators,
such as economic growth rates, interest rates, inflation
and employment when forecasting the markets. Fundamental
drivers of currency moves include economic data releases,
interest rate decisions, news and announcements, all of which
can indicate potential changes in the economic, social and
political environment.
Fundamental analysis helps determine whether currencies
a re undervalued or overvalued. A classic example is the
eurocurrency/dollar rate (EUR/USD), which has been in a
long-term uptrend since 2002 (see Figure 1). This trend
can be explained by the ballooning U.S. account
deficit, the U.S. government’s flagging commitment to
a strong dollar and the fragile nature of the labor market
recovery.
An example of a popular fundamental-based trading
strategy is the “carry trade,” which exploits the
interest rate differential between currencies. This was
a primary driver of exchange rate movements in 2002
and 2003. The strategy consists of going long a currency
with a high interest rate while simultaneously
going short a currency with a low interest rate with the
goal of earning both the yield differential (the difference
between the interest rates of the two countries), as
well as capital appreciation. This type of strategy
re w a rded currency traders who went long the
Australian dollar against the U.S. dollar in 2003 with a
30-percent gain.

Avoiding mistakes in forex trading

2006-04-30T05:00:00.000+07:00

Here are some tips on avoiding common pitfalls when trading forex.

1) Don’t read the news — analyze the news. Many times, seemingly straightforward
news releases from government agencies are really public relation vehicles to advance a particular point of view or policy. Such “news,” in the forex markets more than any other, is used as a tool to affect the investment psychology of the crowd.
Such media manipulation is not inherently a negative. Governments and traders try to do that all the time. The new forex trader must realize that it is important to read
the news to assess the message behind the drums. For example, Japan’s Prime
Minister Masajuro Shiokowa was quoted in a news report on Dec. 13 that “an excessive
depreciation of the yen should be avoided. But we should make efforts and give consideration to guide the yen lower if it is relatively overvalued.” When a government official is asking,in effect, if traders would please slow down the weakening of his currency, then we must wonder whether there is fear the opposite will happen. In this case, that was the outcome as on Dec. 14 the dollar vs. the yen surged to a three-year high. The Prime Minister’s statement acted as a contrarian indicator. This is what “fade the news” means. Often, a bank analyst or trader will
be quoted with a public statement on a bank forecast of a currency’s move.
When this occurs, they are signaling they hope it will go that way. Why
put your reputation on the line, saying the currency is going to break
out, if you don’t benefit by that move? A cynical position, yes, but
traders in the forex markets always need to be on guard. Read the news
with the perspective that, in forex, how the event is reported can be as
important as the event itself.

2) Don’t trade surges. A price surge is a signature of panic or surprise. In
these events, professional traders take cover and see what happens.
The retail trader also should let the market digest such shocks.
Trading during an announcement or right before, or amid some turmoil,
minimizes the odds of predicting the probable direction. Technical
indicators during surge periods will be distorted. You should wait for a
confirmation of the new direction and remember that price action will
tend to revert to pre-surge ranges providing nothing fundamental has occurred.
An example is the Nov. 12 crash of the airplane in Queens, N.Y. Instantly, all
currencies reacted. But within a short period of time, the surge that
reflected the tendency to panic retraced.

3) Simple is better. The desire to achieve great gains in forex trading can drive us to keep adding indicators in a never-ending quest for the impossible dream. Similarly, trading with a dozen indicators is not necessary. Many indicators just add redundant information. Indicators should be used that give clues to: 1) trend direction, 2) resistance, 3) support and 4) buying and selling pressure.
By Abe Cofnas

Charts InForex (basic)

2006-04-30T04:44:00.000+07:00

A price chart represents a sequence of prices plotted over a specific time
frame. On the chart, vertical axis (referred to as y-axis) represents the
price scale and the horizontal axis (x-axis) represents the time scale.
Prices are plotted from left to right, so the most recent price value is
placed on the furthest right.

Four most popular charts styles are implemented in the Streamster:

Line Chart

Line chart, often referred to as Fever chart, is one of the most common
forms of graph, particularly favored by scientists, with data points
displayed against X and Y axes and all the points connected with a single
line. The points themselves are not shown. Alternatively, all the data
points may be shown and a line drawn which doesn't necessarily go through
them all but which gives a reasonable "best fit" to them all.

Line HL Chart

Line chart is the easiest chart to read and it clearly illustrates trend of
the market. The drawback of Line chart style is that it does not show how
volatile market is in specific period. Two grey lines on Line HL (High /
Low) chart, one above and other under base line, show High and Low value in
a period of time. If all three lines are almost "glued" together, market in
that period had low volatility and vice-versa.

Bar Chart

Bar chart is graphic representation of price action using a vertical bar.
Each vertical bar shows four values:

- Highest price during a period - value at the top of the line,
- Lowest price during a period - value at the bottom of the line,
- Opening price is shown as a horizontal line on the bar's left side, and
- Closing price is shown as a horizontal line on the bar's right side.

Bar charts can be effective for displaying a large amount of data: Line
chart is not suitable if High and Low values are used in analysis and
Candlestick chart takes a lot of room on graph, making it harder to "read"
and analyze.

Candlestick Chart

The Japanese began using technical analysis to trade rice in the 17th
century, but the US version initiated by Charles Dow at the beginning of
20th century popularized it in technical analysis. Charles Dow developed the
Dow Theory from his analysis of market price action in the late 19th century.
Each candlestick is composed of a vertically standing rectangle (body) and
vertical lines (shadows). The rectangle indicates the open and close of
trading periods. If the body of a candlestick is white, the close price of
the period was higher than it was when it opened. A black body signifies a
closing price lower than the price at the opening of the period. Highest and
lowest values of a period are shown as value at the top and bottom of the shadows.
Compared to traditional bar and line charts, many traders consider
candlestick charts easier to interpret. Each candlestick gives a
representation of price action. Trader can compare the relationship between
the open and close as well as the high and low in that period and get the
vital information about the market: White (hollow) candlesticks indicate
buying pressure, while black (filled) ones indicate selling pressure.

TIMESCALE

Charts can be displayed for any time period in which prices are available,
ranging from 5 minutes to one month. Traditionally, the most popular time
chart intervals are hourly and 4-hour intervals, however, it is also common
to use smaller time intervals such as 30 minutes, 15 minutes, and even 5
minutes.

CONCLUSION

One chart style is not necessarily better than the other. They all show same
data, but each method will provide its own unique interpretation, with its
own benefits and drawbacks mentioned above.
Which charting method to use, will depend on your personal preferences and
on your trading style. One advice is to limit the number of charts,
indicators and styles you use and that once you choose a particular charting
methodology, you should stick with it and learn how best to read the
signals. Constant changing, may cause confusion and undermine your trading.
If you have any questions regarding technical analysis and charts, please
reply to this e-mail and we will provide more third-party, independent
material that will help you get deep into technical analysis secrets.

Factors Affecting the Market

2006-04-30T04:34:00.000+07:00

Currency prices are affected by a variety of economic and political conditions, most importantly interest rates, inflation and political stability. Moreover, governments sometimes participate in the Forex market to influence the value of their currencies, either by flooding the market with their domestic currency in an attempt to lower the price, or conversely buying in order to raise the price. This is known as Central Bank intervention. Any of these factors, as well as large market orders, can cause high volatility in currency prices. However, the size and volume of the Forex market makes it impossible for any one entity to «drive» the market for any length of time.
Another factor affecting the market, with an effect as important as the other factors mentioned above, is the news. Once released, the news have a direct outcome on the currency price as per news are always directly related to the economic stability of the market. Here’s a list of channels that will provide you useful information on currency news:
CNBC – USD News
Rob TV – CAD News
Bloomberg TV – EUR News