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Day Trading Forex Market Behaviour
Technology advances like the internet have spawned a new craze, where anyone with a secure internet connection prepared to undertake a small amount of training can engage in trading foreign exchange on the forex market.
Just as a day trader will closely track stock price movements on the Dow Jones Industrial Average, all over the world forex traders monitor currency fluctuations in a similar fashion.
Forex traders have the aim of using the smallest amount of one currency, say the US dollar, to purchase another currency like the British Pound. If supply of the pound lessens in a busy market, it will cost more dollars to buy pounds, and the forex trader hopes to sell their pounds at a higher than their purchase price. In many respects, this type of trading behaviour is very similar to trading in stocks, where the aim of nearly all traders is to buy low and sell high.
The trading process works under a bid/ask system. In the above example, a forex trader might bid 10 dollars in return for 5.7 British pounds, and the seller of the pounds could be asking 11 dollars for the same amount of pounds. If the seller accepts the bid, the trader then hopes the pound continues to increase in price, so that when time comes to sell, they can get in excess of the 10 dollars initially paid.
As only registered traders have access to this auction process, most online speculators will trade through a bank or broking house. Such brokerages charge a commission for facilitating the trades, and forex traders should consider these transaction costs when calculating their selling offer when time comes to exit their position, as this will influence their profit margin.
The global foreign exchange market can trade in excess of a trillion dollars a day. Sheer market size means there is considerable money to be made, and lost, through miscalculation. It is neither a guaranteed, nor easy path to riches, so traders should be educated in how to play the market. Instructional packages are available, and should be carefully reviewed as they can easily range in quality and price.
About the Author: Jay Moncliff is the founder of http://www.forexadvise.info a website specialized on Forex, resources and articles. This site provides updated information on Forex. For more info on Forex visit: http://www.forexadvise.info
Pivot Points in Forex: Mapping your Time Frame
It is useful to have a map and be able to see where the price is relative to previous market action. This way we can see how is the sentiment of traders and investors at any given moment, it also gives us a general idea of where the market is heading during the day. This information can help us decide which way to trade.
Pivot points, a technique developed by floor traders, help us see where the price is relative to previous market action.
As a definition, a pivot point is a turning point or condition. The same applies to the Forex market, the pivot point is a level in which the sentiment of the market changes from "bull" to "bear" or vice versa. If the market breaks this level up, then the sentiment is said to be a bull market and it is likely to continue its way up, on the other hand, if the market breaks this level down, then the sentiment is bear, and it is expected to continue its way down. Also at this level, the market is expected to have some kind of support/resistance, and if price can't break the pivot point, a possible bounce from it is plausible.
Pivot points work best on highly liquid markets, like the spot currency market, but they can also be used in other markets as well.
Pivot Points
In a few words, pivot point is a level in which the sentiment of traders and investors changes from bull to bear or vice versa.
Why PP work?
They work simply because many individual traders and investors use and trust them, as well as bank and institutional traders. It is known to every trader that the pivot point is an important measure of strength and weakness of any market.
Calculating pivot points
There are several ways to arrive to the Pivot point. The method we found to have the most accurate results is calculated by taking the average of the high, low and close of a previous period (or session).
Pivot point (PP) = (High + Low + Close) / 3
Take for instance the following EUR/USD information from the previous session:
Open: 1.2386
High: 1.2474
Low: 1.2376
Close: 1.2458
The PP would be,
PP = (1.2474 + 1.2376 + 1.2458) / 3 = 1.2439
What does this number tell us?
It simply tells us that if the market is trading above 1.2439, Bulls are winning the battle pushing the prices higher. And if the market is trading below this 1.2439 the bears are winning the battle pulling prices lower. On both cases this condition is likely to sustain until the next session.
Since the Forex market is a 24hr market (no close or open from day to day) there is a eternal battle on deciding at white time we should take the open, close, high and low from each session. From our point of view, the times that produce more accurate predictions is taking the open at 00:00 GMT and the close at 23:59 GMT.
Besides the calculation of the PP, there are other support and resistance levels that are calculated taking the PP as a reference.
Support 1 (S1) = (PP * 2) - H
Resistance 1 (R1) = (PP * 2) - L
Support 2 (S2) = PP - (R1 - S1)
Resistance 2 (R2) = PP + (R1 - S1)
Where , H is the High of the previous period and L is the low of the previous period
Continuing with the example above, PP = 1.2439
S1 = (1.2439 * 2) - 1.2474 = 1.2404
R1 = (1.2439 * 2) - 1.2376 = 1.2502
R2 = 1.2439 + (1.2636 - 1.2537) = 1.2537
S2 = 1.2439 - (1.2636 - 1.2537) = 1.2537
These levels are supposed to mark support and resistance levels for the current session.
On the example above, the PP was calculated using information of the previous session (previous day.) This way we could see possible intraday resistance and support levels. But it can also be calculated using the previous weekly or monthly data to determine such levels. By doing so we are able to see the sentiment over longer periods of time. Also we can see possible levels that might offer support and resistance throughout the week or month. Calculating the Pivot point in a weekly or monthly basis is mostly used by long term traders, but it can also be used by short time traders, it gives us a good idea about the longer term trend.
S1, S2, R1 AND R2...? An Objective Alternative
As already stated, the pivot point zone is a well-known technique and it works simply because many traders and investors use and trust it. But what about the other support and resistance zones (S1, S2, R1 and R2,) to forecast a support or resistance level with some mathematical formula is somehow subjective. It is hard to rely on them blindly just because the formula popped out that level. For this reason, we have created an alternative way to map our time frame, simpler but more objective and effective.
We calculate the pivot point as showed before. But our support and resistance levels are drawn in a different way. We take the previous session high and low, and draw those levels on today's chart. The same is done with the session before the previous session. So, we will have our PP and four more important levels drawn in our chart.
LOPS1, low of the previous session.
HOPS1, high of the previous session.
LOPS2, low of the session before the previous session.
HOPS2, high of the session before the previous session.
PP, pivot point.
These levels will tell us the strength of the market at any given moment. If the market is trading above the PP, then the market is considered in a possible uptrend. If the market is trading above HOPS1 or HOPS2, then the market is in an uptrend, and we only take long positions. If the market is trading below the PP then the market is considered in a possible downtrend. If the market is trading below LOPS1 or LOPS2, then the market is in a downtrend, and we should only consider short trades.
The psychology behind this approach is simple. We know that for some reason the market stopped there from going higher/lower the previous session, or the session before that. We don't know the reason, and we don't need to know it. We only know the fact: the market reversed at that level. We also know that traders and investors have memories, they do remember that the price stopped there before, and the odds are that the market reverses from there again (maybe because the same reason, and maybe not) or at least find some support or resistance at these levels.
What is important about his approach is that support and resistance levels are measured objectively; they aren't just a level derived from a mathematical formula, the price reversed there before so these levels have a higher probability of being effective.
Our mapping method works on both market conditions, when trending and on sideways conditions. In a trending market, it helps us determine the strength of the trend and trade off important levels. On sideways markets it shows us possible reversal levels.
How we use our mapping method?
We at StraightForex (www.straightforex.com) use the mapping method in three different ways: as a trend identification (measure of the strength of the trend), a trading system using important levels with price behavior as a trading signal and to set the risk reward ratio (RR) of any given trade based on where the is the market relative to the previous session.
About the Author
Raul Lopez is the founder of www.straightforex.com A site dedicated to provide high quality training for Forex traders.
Why I Like currency forex online trading currency exchange iraq
Forex Trading - The Secret of "Mr X" And His 5 Figure Income By Using Price Momentum
As a Certified Financial Planner, I have often been amazed with the specific trades that a client, whom I shall call "Mr X" places in the forex and stock markets. His calls are almost always winners, which means his trading signals are very accurate. He does not trade every day, because his trades are based on the trading setups that he obtains, which is around 3 or 4 times every month or averaging a signal a week. Most interesting of all, he is consistently one day earlier in deciding whether there is going to be a trading move or not. He is a trader who is always timely with his entry and exit, which is highly remarkable. Needless to say, Mr X has been earning a 5 figure income from trading the forex market for years. How does Mr X do it so consistently? Firstly, he uses technical analysis and charting, and follow a trading concept called price momentum. Price momentum dictates that when a currency breaks out in price, the momentum will carry it in the same direction, until it falters and the momentum decreases, and finally comes to a stop. For Mr X, forex trading is a profitable game as he has perfected his entry and exit positions based on many years of trading experience in the direction of the price momentum. Once a currency has broken out of a price level and has indicated that it will continue in the same direction, Mr X will just make a purchase position. Conversely, when he sees the price momentum dropping, and touch a certain level that he has determined prior to the occurrence, he would be selling. In this way, setting a limit to the price momentum to ensure that it goes that direction and surpasses it, greatly enhances his profits, as this makes sure that he is not whiplashed. If the price momentum limit of a "X" number of pips is not exceeded, Mr X knows that the momentum is not strong enough to give him his profits, and he allows that signal to pass. This reduces his risk substantially, and sets him up for massive profits. Most popular currencies are capable of large swings, swings that are explosive and are sharp several times a month, and when you adopt a price momentum method, you are well placed to capture these explosive price movements and reap massive profits. There is of course a need to set a stop loss, because no trading system is foolproof. But when you do utilise a price momentum trading system, you will readily find forex trading to be largely profitable. It is so profitable that Mr X adopts the same principles in trading stocks as well, and with similar results. Indeed, trading price momentum can be your Forex Cash Cow Strategy. If you desire to see large profits in your trading, make price momentum a part of your trading arsenal. With the risk control limits in place, you can be like Mr X, raking in the profits consistently, month after month without a losing year.
A Great forex alerts Resource.
Currency Forex Trading System-Opportunity For Swing Trading When Currencies Move Up or Down
Generally, when we trade forex, we can either trade the short term fast moves that characterise the volatility inherent in currencies, or we can trade the longer term swings. Since our aim is to have a consistent income, there is a need to have a systematic way to trade forex so that we can glean our profits consistently and systematically. If we look at trading systems today, we find that many forex traders day-trade and these day traders have their own favorite day trading systems. Another way to describe these traders is scalping. Indeed, many forex traders are able to make a living by scalping the markets, working a few hours a day from home. If we look a bit deeper into what makes scalping possible, then we can discover that prices of a currency do have this characteristic of moving from a low point position to an upper point position, to form a trading range in a daily fashion. As long as prices oscillate within this range, the forex trader can actually scalp and make profits from buying at the low point and selling at the high point. What is most interesting is that beyond the boundaries of the lower point and the upper point, the currency no longer displays its tendency to oscillate, but break out into a trend. If the price drops below the lower point position, it goes into a downtrend. If it goes above the upper point position, it goes into uptrend. It is no longer under a trading range where the forex trader scalps or actually is range-trading. It is times like these when the projected lower points positions and the upper point positions are breached and confirmed that trends are apparent, and swing trading comes into play. For example, the US-Yen currency pair has been in a prolonged downtrend where selling positions could be taken over a period of 8 years to profit from the down swing. Day trading is no longer the focus. Recognising when the currency pair has moved out of its trading range and has broken out into a confirmed trend is the key to swing trading. Is the chart displaying a bottoming pattern configuration, with higher bottoms, and higher highs? Is there a double bottom or triple bottoms pattern, a V formation or a W formation in the chart pattern? Is there slowing downwards price momentum? From the aspects of japanese candlestick, are there short term bottoming patterns such as a hammer, a tweezer bottom, a rising star, a piercing line or a bullish engulfing pattern to lend credence to your initial suspicions of a bottom and an initial upswing? As forex traders, our objective is to be profitable whether we scalp or we swing trade. As markets trend only around 30% of the time, being able to identify the initial outbreaks of the swings and being able to trade them with our favorite swing trading systems will mean we can capture the sweetest part of the swing moves. While we range-trade 70% of the time, it is the big swing trades that can provide us with big profits. That's why we need a sound proven currency forex trading system for both range trading and swing trading if we are to profit from forex trading. Peter Lim is a Certified Financial Planner. You can shorten the learning curve and discover 3 powerful trading systems that cover day trading, range trading and swing trading devised by a veteran professional forex trader by visiting the author's blog http://1forex-trading.blogspot.com | |
Forex options are a great trading tool if used correctly. They give you unlimited profits with a set risk in advance and allow you to ride out short term volatility. They are an excellent way to stay in the market and seek huge gains, but you
Must use them correctly and most traders don?t. Here are your golden rules for options trading: The Odds Most people don?t look at the odds of the option they buy making money, they simply get obsessed with the potential profit. They therefore buy options way out of the money and if it gets to the price and trades in the money they will make a killing. The big word here is ?if? Buying way out of the money options a long way from the strike price is like backing the outsider at a horse race. You will win occasionally but most of the time you will lose and the odds are firmly against you. The real pro?s do the following: 1. Buy close to the strike That means buying options that are at or close to the money or in the money. Keep in mind if your option is not in the money at expiry you lose your entire premium. This therefore puts the odds in your favour, you may not make as much but your chances of winning are greater and these profits will mount up over time. The second golden rule of options trading is 2. Get time on your side The closer and option comes to expiry the more the time premium will eat into the profit. Therefore buying options with just a few days or few weeks to expiry is not a way to put the odds in your favour. Get plenty of time on your side and make sure time premium doesn?t kill you. Forex options are a great trading tool if used correctly novice traders simply look at the unlimited gains and forget about the risk that options trading involves as you have to pay for the limited risk. Don?t make the same mistake use the two rules above as your basic strategy for trading options. You will win more often and the profits will add up to some great long term gains over time and that?s the aim of all forex traders.
Forex Trading - Are Trading Forums Worth Your Time?
Are trading forums worth your time? Yes and no. (Terribly indecisive answer, I know :-) Let me explain. It depends on how you use them. If you're very new trading, forums can be an asset, if you proceed with caution. There are a lot of people on those boards who perceive themselves and being something important and skilled. They are neither. The bad part is sometimes they are hard to tell apart from those who offer real value. Don't take anyone's word in a forum as gospel. So, if you're new, you could find yourself being steered down the wrong path. However, it can be a great way to be exposed to new ideas. The way you want to approach a forum is like hit and run . . . Take this for example, if you find yourself posting multiple times per day, you are wasting your time, and that is the great danger of these forums. They can become addictive to certain types of people. They leech your time away. Time that should have been spent trading or something productive. Instead, you wasted it away "chatting." Here's how I use forums. When I need feedback or an idea, I hop into them. When I've gotten what I want, I hop out. I know, that's not supposed to be how it's done. You're supposed to stay and "add value" to the forum. You're not taken seriously if you don't have 100 posts along with your name. Who cares? Don't waste your time. You don't need acceptance into that "circle." Get what you need. Move on.
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