Sunday, May 18, 2008

Why I Like forex trading price action support and resistance

Forex Strategy: How The MACD Indicator Can Save You Anxiety

The MACD (Moving Average Convergence Divergence) indicator can add a degree of certainty to your Forex strategy.

As with any indicator, it is too risky to enter trades on this signal alone. However, as we will see, used with caution on higher time frames, it can help confirm you are going in the right direction and that your trade is higher probability.

First, let?s take MACD apart and describe it?s component parts.

The default MACD on most charting packages sets 2 EMA?s (Exponential Moving Averages) at 26 and 12 days.

This is represented by a colored line (color varies according to charting package) which crosses a different colored 9 EMA often termed the trigger line.

When MACD (the 12/26 EMA) crosses above the trigger line (9 EMA) upward momentum is indicated and vice versa.

A center line, or zero line, often called the water line is also shown in the MACD indicator. When MACD is above the water line an upward trend is indicated, when it is below the water line, a downward trend is indicated.

MACD also includes a histogram, small vertical lines that appear above or below the zero line, not unlike mountains and valleys in appearance.

MACD is a lagging indicator which follows price action.

The histogram is an indicator of MACD. So watching the histogram can give you an early indication of where MACD is going. The height of the histogram can be a good momentum indicator.

How can you use MACD to your advantage?

If you want to be very cautious in your Forex strategy, going only for high probability trades, then pay attention to MACD on the 4 hour and 1 hour charts.

Some traders will only enter a trade when the 4 hour and 1 hour MACD?s are going in the same direction. This will mean a lot less trades but the ones you do take are likely to be profitable. (Agreement of the two MACD?s is used in conjunction with other indicators, not by itself.)

MACD on the 1 hour chart is particularly powerful. If you want to stay out of trouble and avoid trades you might later regret, NEVER trade against the direction of the 1 hour MACD. To do otherwise is not necessarily foolhardy if you know what you are doing.

But for the newer, less experienced trader, only trading long when MACD has crossed up, or short when MACD has crossed down on the hourly chart when your other favorite indicators line up, will make for a higher success rate with your Forex strategy. It will also save you much anxiety!

To see the above information presented graphically, follow the link in the Resource Box.

Michael A. Jones is a writer and webmaster with over 10 years experience who also trades the forex regularly. For screen shots of MACD with explanatory notes go to this page:

Click here for his advice for absolute beginners:

Michael has also put together a list of key free resources which he finds invaluable:

Forex Investment - Making The Decision Is The Hardest Part

When investing in the Forex market, making a Forex investment can be the best decision and can definitely earn you the best profits. Because there is very little in the way of barring entrance to the Forex market making a Forex investment is an excellent opportunity. Especially for those individuals who have low investments to start with, this can allow them to gain a large return regardless. Of course it also depends on how well they understand the Forex market in order for them to truly benefit from a Forex investment.

In the past Forex investment was limited to only banks and financial institutions due to large transactions and strict financial requirements. Of course now with online trading widely available making a Forex investment is more readily accessible to individuals as well. This means just about anyone can invest in Forex and actually make money from it.

When making a Forex investment you are allowed to do so either directly or through a Forex broker. Banks and financial institutions now are forced to acknowledge that small and individual investors are involved in the Forex market and therefore have been providing online trading packages to them. A lot of these have high leverage available to clients, which when it involves a Forex investment can lend itself to an environment where high gains are made with comparatively small amounts.

This means that someone who chooses to open a mini account in the Forex market has a great leverage ratio of one hundred to one. This means that a one thousand dollar investment can buy or sell a 'lot' of one hundred thousand dollars in foreign currencies. Most mini accounts can be opened with two hundred and fifty dollars as a minimum Forex investment.

Because of this a huge increase has occurred in the amount of trades currently in the Forex market. This also causes a high liquidity with a daily turnover that has been known to reach two trillion dollars. Yet this has also mad Forex trading a bit more transparent. Making a Forex investment can be done in multiple currencies in multiple markets in real time without any barriers or physical boundaries.

What is very important in making a Forex investment is realizing that the there is an instant nature to the trade and huge amounts being traded every single day. This means that each investor must be very familiar with the way the Forex market works. They also need to have a clear understanding of trading strategy in order to gain the best profits. Those who don't understand this can feel that the Forex market is too risky. So when making a Forex investment, make sure you have someone who thoroughly understands the inner workings and who can handle the risky nature of the Forex market, and you will have a better chance of gaining the best profits.

Forex - Choosing the Right Broker

There are a mind boggling number of forex brokers available to choose from. Choosing the right broker is the most important decision you can make for your forex venture. Here is a checklist of what you need to be looking for.

1. Regulation. Just because a broker is available does not mean they are regulated. You may want to check first what country your broker is registered in. Some countries have lax laws regarding forex brokers. In the US, brokers are regulated by the Commodity Futures Trading Commission or the National Futures Association. If a broker is regulated, then they must regularly submit financial reports to these organizations. If these reports are not submitted, then they can be fined, or shut down. Any person can view these financial reports (similar to publicly traded companies). This regulation also give the investors avenues to pursue if there are any issues with the broker.

2. Company customer service. Check and see if there are any complaints about the forex broker with the Better Business Bureau. If there were complaints, see how the company resolved these complaints. Call or email the broker with any questions. You should not feel uncomfortable doing this, as they will be holding your money. The broker should be courteous and respond quickly to any and all questions. Does this particular broker have a lot of discrepancies between the price the trade was requested at and the actual value? This is called 'slippage' and can lead to the loss of funds if it is rampant. Some brokers will compensate you for the slippage, others do not.

3. Trading options. Not all forex brokers offer the same types of platforms, spreads or leverage. You need to decide which options are the most important to you. Some things to think about regarding options are: Commissions - does the broker take a commission and a spread? Make sure the spread is small enough to compensate for the commission. Spread - what spread is offered? Does the spread vary depending on the time of day, or is it always constant? Margin - is there a maximum amount of leverage allowed by the broker? Scalping - what is the broker's policy on scalping? Some brokers will put your account on manual execution if you scalp. This means that all your transactions have to go through a live person to be executed, which will slow down your trades and possibly keep you from getting some trades. Platform - what type of platform does the broker offer. Is it easy to use and understand? Does the platform perform quickly enough to execute trades instantly?

4. Demo account. Does the broker offer a demo account to practice with? And does the demo platform perform exactly like the live version? A demo account is a great way to test the platforms and see if you like the features the platform offers before actually sending them any funds.

Running a checklist on all the brokers you want to check out should narrow down your options and help you choose the best broker for you!

Michael Russell

Your Independent guide to Forex Trading


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