FOREX MARKET

Intermarket Analysis of Forex Markets

2009-04-06T16:05:00.000-07:00

Most traders stress the role of fundamental information and historical single-market price data in analyzing markets for the purpose of price and trend forecasting. Traders do need to look back at past price action to put current price action in perspective, but they also need to look forward to anticipate what will happen to prices if their analysis is to pay off in the real trading world.

To be able to look ahead with confidence, however, traders need to look in one other direction, and that is sideways to what is happening in related markets, which has a major influence on price action in a target market. What are the external market forces that affect the internal market dynamics – the intermarket context or environment in which the market you are trading exists?

Moving beyond single-market analysis

Intuitively, traders know that markets are interrelated and that a development that affects one market is likely to have repercussions in other markets. No market is isolated in today's global financial system. However, technical analysis has traditionally emphasized single-market analysis, focusing on one chart at a time and failing to keep up with structural changes that have occurred in financial markets as the global economy has emerged with advances in telecommunications and increasing internationalization of business and commerce.

Many individual traders still rely upon the same types of mass-marketed, single-market analysis tools and information sources that have been around since the 1970s when I first started in this industry. And a large percentage of traders continue to end up losing their trading capital. If you’re still doing what the masses are doing, isn’t it likely that you’ll end up losing your hard-earned money, too?

In the forex markets especially, you cannot ignore the broader intermarket context affecting the market that you are trading. You still need to analyze the behavior of each individual market to see the double tops or broken trendlines or indicator crossovers that so many other traders are following because that's part of the mass psychology that drives price action. However, it is increasingly important that you factor into your analysis the external intermarket forces that influence each market being traded.

Historical roots

Intermarket analysis is certainly not a new development for traders, having roots in both the equities and commodities markets. You are probably familiar with equities traders who compare returns between small-caps and big-caps, one market sector versus another, a sector against a broad market index, one stock against another, international stocks versus domestic stocks. Portfolio managers talk about diversification as they try to achieve the best performance. Whether they are speculating for profits or arbitraging to take advantage of temporary price discrepancies, intermarket analysis in this sense has been part of equities trading for a long time.

Traders in the commodities markets have also been into intermarket analysis for a long time, trading spreads that have a reliable track record. Farmers have been involved in intermarket analysis for years although they may not have thought of what they do in those terms. When they calculate what to plant in fields where they have several crop choices – between corn and soybeans, for example – they typically consider current or anticipated prices of each crop, the size of the yield they can expect from each crop and the cost of production in making their decision. They do not look at one market in isolation but know that what they decide for one crop will likely have a bearing on the price of the other, keeping the price ratio between the two crops somewhat in line on an historical basis.

The price relationships of corn to soybeans or hogs to cattle or gold to silver or T-bonds to T-notes have been the subject of intra-commodity and inter-commodity spread analysis and have been an integral part of technical analysis of the commodities markets for decades, long before John Murphy and I brought the term "intermarket analysis" into vogue.

The commodities markets, in turn, have a tremendous effect on the financial markets such as Treasury notes and bonds, which have a powerful effect on the equities markets, which have an effect on the value of the U.S. dollar and forex markets, which has an effect on commodities . . . The ripple effect through all markets is sort of a circular cause-and-effect dynamic involving inflationary expectations, changes in interest rates, corporate earnings growth rates, stock prices, forex fluctuations. You can hardly name a market that isn't affected by other markets or, in turn, doesn’t affect other markets. Whatever the market, assets tend to migrate toward the one producing or promising the highest return. That's as true for forex as any other market.

You have probably heard the expression, "If the U.S. economy sneezes, the rest of the world catches cold" or that the health of the U.S. economy is the engine that drives the global economy. It works both ways as a sneeze elsewhere in the world can have a significant impact on U.S. markets, as was evident in the Asian financial crisis in 1997 and other incidences over the years that have provided proof, if any was still needed, of how linked today's global markets are.

Intermarket analysis: The next logical step

So, a quantitative approach to implement intermarket analysis, which has been the basis of my research since the mid-1980s, is neither a radical departure from traditional single market technical analysis nor an attempt to undermine it or replace it. Intermarket analysis, in my opinion, is just the next logical developmental stage in the evolution of technical analysis, given the global context of today’s interdependent economies and financial markets.

Bottom line: If you want to trade forex markets today, you have to use a trading tool or adopt an approach or trading strategy that incorporates intermarket analysis in one way or another. An important aspect of my ongoing research involves analyzing which markets have the most influence on each other and determining the degree of influence these markets have on one another.

Hurricaneomic analysisTM is a perfect example of the inter-connectedness of events and markets and how nothing can be looked at in isolation. Take the spate of hurricanes that hit the Gulf Coast and Florida in 2005. They did not simply cause local damage to the economy of those regions. On the contrary, there are hurricaneomic effects that will ripple throughout the world economy for months and years to come, impacting the energy markets, agricultural markets, building materials including lumber, the federal deficit, interest rates, and, of course, the forex market as it pertains to the U.S. dollar. So, hurricaneomic analysis goes hand-in-hand with intermarket analysis in looking at events such as natural disasters and their effects on the global financial markets.

Our research in the ongoing development of VantagePoint since its introduction in 1991 indicates that, if you want to analyze the value of the euro versus the U.S. dollar (EUR/USD), for instance, you not only have to look at euro data but also at the data for these other related markets to find hidden patterns and relationships that influence the EUR/USD relationship.

• Australian dollar/U.S. dollar (AUD/USD)
• Australian dollar/Japanese yen (AUD/JPY)
• British pound
• Euro/Canadian dollar (EUR/CAD)
• Gold
• Nasdaq 100 Index
• British pound/Japanese yen (GBP/JPY)
• British pound/U.S. dollar (GBP/USD)
• Japanese yen

When you are trading the USD/JPY forex pair, you need to take into account another set of intermarket relationships including the following markets:

• 5-year U.S. Treasury notes
• Euro/Japanese yen (EUR/JPY)
• Gold• Euro/Canadian dollar (EUR/CAD)
• Euro/U.S. dollar (EUR/USD)
• British pound/Swiss franc (GBP/CHF)
• Crude oil• Nikkei 225 stock average
• S&P 500 Index

Many market inter-relationships are obvious, but others may seem more distant and unrelated, such as the importance of stock indices, U.S. T-notes or crude oil prices on pricing of the USD/JPY forex pair. Research has verified that these related markets do have an important influence on a target forex market and can provide early insights into the forex market's future price direction .

Forex Rates

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Foreign currency exchange rates are what it costs to exchange one country’s currency for another country’s currency. For example, if you go to England on vacation, you will have to pay for your hotel, meals, admissions fees, souvenirs and other expenses in British pounds. Since your money is all in US dollars, you will have to use (sell) some of your dollars to buy British pounds.

Assume you go to your bank before you leave and buy $1,000 worth of British pounds. If you get 565.83 British pounds (£565.83) for your $1,000, each dollar is worth .56583 British pounds. This is the exchange rate for converting dollars to pounds.

If £565.83 isn’t enough cash for your trip, you will have to exchange more US dollars for pounds while in England. Assume you buy another $1,000 worth of British pounds from a bank in England and get only £557.02 for your $1,000. The exchange rate for converting dollars to pounds has dropped from .56583 to .55702. This means that US dollars are worth less compared to the British pound than they were before you left on vacation.

Assume that you have £100 left when you return home. You go to your bank and use the pounds to buy US dollars. If the bank gives you $179.31, each British pound is worth 1.7931 dollars. This is the exchange rate for converting pounds to dollars.

Theoretically, you can convert the exchange rate for buying a currency to the exchange rate for selling a currency, and vice versa, by dividing 1 by the known rate. For example, if the exchange rate for buying British pounds with US dollars is .56011, the exchange rate for buying US dollars with British pounds is 1.78536 (1 ÷ .56011 = 1.78536). Similarly, if the exchange rate for buying US dollars with British pounds is 1.78536, the exchange rate for buying British pounds with US dollars is .56011 (1÷ 1.78536 = .56011). This is how newspapers often report currency exchange rates.

As a practical matter, however, you will not be able to buy and sell the currency at the same price, and you will not receive the price quoted in the newspaper. This is because banks and other market participants make money by selling the currency to customers for more than they paid to buy it and by buying the currency from customers for less than they will receive when they sell it. The difference is called a spread and is discussed later in this booklet.

Fundamental Analysis On Forex Trading

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It has become imperative for every forex trader to learn how to predict the price trend and which method or software is the best.

When you do forex trading, it is very important to understand the difference between fundamental analysis and technical analysis. A quick explanation of the difference among the two types of analysis is: fundamental analysis focuses on money policy, government policy and economic indicators such as GDP, exports, imports etc within a business cycle framework while technical analysis focuses on price action and market behavior, especially on chart and technical indicators.

Needless to say both schools are equally disparaging about the other, and both believe their techniques are infinitely superior. But the reality is that it has become increasingly difficult to be a purist of either persuasion. Fundamentalists need to keep an eye on the various signals derived from the price action on charts, while few technicians can afford to completely ignore impending economic data, critical political decisions or the myriad of societal issues that influence prices.

Generally speaking, fundamental analysis can only judge which direction the market will move, and technical analysis can supply both direction and rough currency rate.

Keeping in mind that the financial underpinnings of any country, trading bloc or multinational industry takes into account many factors, including social, political and economic influences, staying on top of an extremely fluid fundamental picture can be challenging. Meanwhile, forecasting models are as numerous and varied as the traders and market buffs that create them. Different people can look at the exact same data and come up with two completely different conclusions about how the market will be influenced by it. At the end, some may make huge profit and some lose their money. You can not say fundamental analysis is easy.

Remember, fundamental analysis is a very effective way to forecast economic conditions, but not necessarily exact market prices. For example, when analyzing an economist's forecast of the upcoming GDP or employment report, you begin to get a fairly clear picture of the general health of the economy and the forces at work behind it. However, you'll need to come up with a precise method as to how best to translate this information into entry and exit points for a particular trading strategy.

Tip: If you are new to do forex trading and do not trade frequently, you can mainly use fundamental analysis for your trading.

Don't disturb yourself by information overload. Sometimes traders fall into this trap and are unable to pull the trigger on a trade. Normally, your first feel is the answer for you to do forex trading. At that time, you are sure which currency is strong and which country's economy is good. The more simple, the more useful.

However, trading a particular market without knowing a great deal about the exact nature of its underlying elements is unbelievable. You might get lucky and snare a few on occasion but it's not the best approach over the long haul.

For forex traders, the fundamentals are everything that makes a country tick. From interest rates and central bank policy to natural disasters, the fundamentals are a dynamic mix of distinct plans, erratic behaviors and unforeseen events. Therefore, it is very important to understand fundamental analysis and use them on forex trading.

Forex Trading System - A Key To Successful Forex Trading And Trading For A Living

2009-04-06T16:00:00.000-07:00

Every one has his days when no matter how well he has planned out his trades, he may find some of his trades not performing to what is planned. It is only natural for one to feel upset, but for the follower of a forex trading system, making money or losing money from that trade is not the paramount objective.

Why is this so?

For the trader who employs a forex trading system, he can still face the losing trade with a smile, because he has had followed through the trading signals in a disciplined way, and it is only when a trader follows a system, he can be sure of keeping his losses small and to live to trade again another
day.

By using a forex trading system, the trader can have a cool head, and can face his trades rather unemotionally. He can execute his trades following pre-determined price levels of initial stop loss, trailing loss and computed and projected price profit.

He knows his tolerable level of loss, his threshold of pain - and of course, his risk to reward ratio even before he trades.

Now when a trader has a trading system and follows through the trading plan, making profits is a natural result when he makes a correct trade. But when his trade is wrong, his forex trading system will very quickly show him that the direction of his trade is wrong, so that he is out of the game fairly quickly.

I am often flabbergasted at some very broad claims of some traders who condemn day trading systems and relegate them to the garbage bin. When you look at forex trading systems, review them quickly by peer recommendation whenever possible. By peer recommendation, I mean you can ask existing traders their experience on the trading system, and how they are doing with it. Posting to the numerous reliable trading forums will allow you to receive some independent reviews fairly quickly. At the same time, my personal experience, and that of many other professional traders is that day trading can be profitable, though it is never easy to day trade. Otherwise, how is it that so many day traders are able to earn their income day trading the short swings of the market daily for a living? So it is important for you to have a broad view of forex trading systems if you are contemplating of learning or purchasing any trading system that relates to day trading.

If you ever wish to trade successfully, whether you day trade or swing trade, it is important that you have a trading system that will allow you to approach trading in a disciplined manner. It is only when you are a disciplined trader that you can see consistent large gains and small losses.

FOREX Trading Strategy - The Secret of Timing

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Once you've identified a trading opportunity, the next step is to decide EXACTLY when to buy - and this is where many traders go wrong.

Here we explain how to incorporate better market timing into your FOREX strategy - so that you can make bigger profits.

Most traders time their entry levels incorrectly, so here's the right way to do it:

Using Support and Resistance Correctly
A basic wisdom of market timing is ¡°buy low, sell high¡± - well, the reality is, if you try this in FOREX trading, you'll end up losing money. First, let's define what support and resistance means

A support level is a historical price that traders come in, and buy to ¡°support the market¡± ¨C and the more times it's tested, the more valid the support will be.

Conversely, a resistance level is a level on the charts that resisted prices from moving higher¡±- again the more times it's tested, the more significant it becomes.

Why Buy Low and Sell High doesn't Work Buy low, sell high¡± is accepted wisdom by the majority of traders - but this logic is fundamentally flawed - use it in FOREX trading, and you're
asking for trouble. Why? - If you wait for a pullback, you're going to miss some of the biggest moves.
Think about it - what if a currency starts to trend and doesn't pullback? (How often have you seen this?) If you're waiting for a pullback that never comes, you'll never get in on the trade ¨C and you'll miss a major opportunity.You Need to Feel Uncomfortable
When Trading in the FOREX market, you should usually feel uncomfortable (and that's why most traders don't make these trades) - as no one likesto buy or sell after the market has started trending - but doing this will make you money.

The fact is, the more comfortable you feel when entering a trade at support, the less likely the trade will be a big winner.

During any given year, most of the big moves in currencies, take place from new

MARKET HIGHS with NO pullback.
If you base your FOREX Trading strategy around waiting for a warm comfy entry, at key support, you¡¯re going to miss the biggest and most profitable trades ¨C so step away from the losing majority of traders.
Your FOREX trading strategy should give you a different mindset - most traders ¡°buy low and sell high¡± - so you should ¡°buy high and sell higher¡± ¨C i.e. you should be doing the opposite of what the crowd are doing.

Don't worry - most traders lose money, and their FOREX Trading strategy is based on the flawed logic we have just discussed - so not doing whatthey do makes total sense. Therefore, look for breakouts through support and resistance - and sell and buy respectively.

Its Tough Mentally - But it Makes Money!

Sure, it's hard to do - the majority don't agree with you - and no one likes to go against the majority. However, it's the right thing to do, to make your FOREX trading successful. Think about what we've just said, and you'll see it makes logical sense.

Has this Happened to You?

How many times do traders buy into support, and the market breaks support, stops them out and continues to decline. On the other hand, another common scenario is, price never get to support - it simply goes higher - and the trader misses the chance to get in on the trend.
This type of trading is tough mentally - that's why 90% of traders don't do it - they want to be comfortable - well being comfortable is great, but you'll lose money.
Breakouts work, and if you use them in your FOREX Trading strategy, you won't be comfortable on entry - but you'll make money - and that will more than compensate.
The way to succeed in FOREX trading is to do what the losing majority don't do - then you can join the elite 10% of traders who make the big profits - try it and see!

Forex Swing Trading with Elliott Wave

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When evaluating the forex market for swing trade opportunities the focus is placed on predicting directional changes or continuations for a givencurrency pair. For this we rely on technical analysis.

In technical analysis, just as in fundamental analysis, there are lagging indicators and leading indicators. One of the most reliable tools used to predictforex market swings is Elliott Wave analysis. Elliott Wave analysis can be used to identify trends and countertrends, trend continuation or exhaustionand to evaluate the potential price targets of a trend.

You can apply Elliott Wave analysis to both long and short position swing trade set ups for your currency pairs.Elliott Wave theory is named after Ralph Nelson Elliott, who concluded that the markets moved in a repetitive pattern of waves. He attributed thisaction to the mass psychology of the market.

Elliott concluded that the market's movement was a direct result of the mass psychology of the time and that the stock market is a fractal. A fractal isan object that is similar in shape, but at different scales. A great example of a fractal in nature is a stalk of broccoli. The stalk and the individualbranches look exactly the same; just the branches are smaller in scale.Fractals just happen to form in accordance with Fibonacci ratios. Is this a coincidence?Elliott attributes this mass psychological move to the human trait of herding. Even though Elliott¡¯s theories were based on stock market pricemovements, it has been applied to evaluating Presidential approval ratings and fashion trends changes as well.

The conclusion, the market price actions are not the cause of economic growth or slow down, but the reflection of the mass psychology of investors. Ifthe mood of the investing public is upbeat then a bull market ensues. This is counter to what most individual perceive, that because there is a bullmarket the mood of the investing public is upbeat.

Elliott Wave patterns follow a sequence that the markets move up in a series of 3 waves and down in a series of 2 waves. This 3 wave impulse and 2wave corrective sequence form the foundation of the 5 Wave impulse pattern (the opposite is true in a downtrend).

The Elliott Wave Counts are as follows;

Wave 1 - Short Covering
Wave 2 - Pullback from Short Covering
Wave 3 - Major Rally Phase
Wave 4 - Institution Pause in the Rally
Wave 5 - Retail Buying

Wave 1 is usually the weakest of the impulse waves. It is a brief rally based on short covering of the bears from a previous move down. When Wave 1is complete, the currency pair sells off, creating Wave 2.

Wave 2 ends when the market fails to make new lows. You often see dominant reversals patterns form at the end of this wave signaling the being ofthe rally phase or Wave 3.

Wave 3 is the longest and strongest of the impulse waves. This signals strong currency buying or selling in the direction of the trend. This trend usuallystarts of slowly, but tends to accelerate as it breaks to new highs above the top of Wave 1.

Like any trend, especially a strong trend a correction will occur. Traders will begin to take profits and the currency pair will retrace. This signals thebeginning of Wave 4.

Again the currency pair will rally ushering in the Wave 5 rally. Wave 5 is typically supported by the retail traders and not institutional buyers (the herd)and tends to lack the momentum generated in the Wave 3 rally. This creates divergence that can be easily measured on any technical oscillator. Afterthe currency pair breaks to new highs above the previous Wave 3 high, the rally loses steam and changes trend.

This trend change can result in either a new 5 Wave impulse pattern or a corrective in nature.

Now that we know what the Elliott Wave analysis is, how would a currency trade using this analysis look like, just as an example?

Look to Wave 5 as the most reliably tradable impulse wave. The trade sets up as follows. Look for the Elliott Oscillator to pull back between 90% and140% of the Wave 3 high on a daily chart. This pullback should correspond to a 38%-62% Fibonacci retracement from the Wave 2 extension. Thissignal is the strongest when the Fibonacci retracement is between 38% - 50%.

Like any technical analysis tool you never want to employ an indicator as a stand alone analysis tool. A trigger and a confirming indicator are requiredas well.

Look for a trigger in candle patterns, such as Harami, Tweezers or Harami cross. There are a variety of software packages on the market that performElliott Wave counts and have other entry signal indicators as well.

Draw a regression channel on the Wave 4 retracement and look for a break above or below the channel as confirmation to enter the trade.

Place stops at the high of the Wave 1 advance, just below the 38% Fibonacci retracement level or where your individual trading plan dictates. Trailyour stops once the currency pair has advanced past the Wave 3 high. Look for reversal candle patterns like doji, hammers, shooting stars or hangingmans for signals that the wave is about to end or stall. A typical price target is 127% retracement of the Wave 4 low.

This is just a glimpse of how Elliott Wave analysis can be deployed to enhance your forex swing trade evaluations. Look more into the Elliott Wavetheory and other strategies as tools for increasing your forex swing trade opportunities.

Forex Options Market Overview

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The forex options market started as an over-the-counter (OTC) financial vehicle for large banks, financial institutions and large internationalcorporations to hedge against foreign currency exposure. Like the forex spot market, the forex options market is considered an "interbank" market.However, with the plethora of real-time financial data and forex option trading software available to most investors through the internet, today's forexoption market now includes an increasingly large number of individuals and corporations who are speculating and/or hedging foreign currencyexposure via telephone or online forex trading platforms.

Forex option trading has emerged as an alternative investment vehicle for many traders and investors. As an investment tool, forex option tradingprovides both large and small investors with greater flexibility when determining the appropriate forex trading and hedging strategies to implement.

Most forex options trading is conducted via telephone as there are only a few forex brokers offering online forex option trading platforms.

Forex Option Defined - A forex option is a financial currency contract giving the forex option buyer the right, but not the obligation, to purchase or sell aspecific forex spot contract (the underlying) at a specific price (the strike price) on or before a specific date (the expiration date). The amount the forexoption buyer pays to the forex option seller for the forex option contract rights is called the forex option "premium."

The Forex Option Buyer - The buyer, or holder, of a foreign currency option has the choice to either sell the foreign currency option contract prior toexpiration, or he or she can choose to hold the foreign currency options contract until expiration and exercise his or her right to take a position in theunderlying spot foreign currency. The act of exercising the foreign currency option and taking the subsequent underlying position in the foreigncurrency spot market is known as "assignment" or being "assigned" a spot position.

The only initial financial obligation of the foreign currency option buyer is to pay the premium to the seller up front when the foreign currency option isinitially purchased. Once the premium is paid, the foreign currency option holder has no other financial obligation (no margin is required) until theforeign currency option is either offset or expires.

On the expiration date, the call buyer can exercise his or her right to buy the underlying foreign currency spot position at the foreign currency option'sstrike price, and a put holder can exercise his or her right to sell the underlying foreign currency spot position at the foreign currency option's strikeprice. Most foreign currency options are not exercised by the buyer, but instead are offset in the market before expiration.

Foreign currency options expires worthless if, at the time the foreign currency option expires, the strike price is "out-of-the-money." In simplest terms, aforeign currency option is "out-of-the-money" if the underlying foreign currency spot price is lower than a foreign currency call option's strike price, orthe underlying foreign currency spot price is higher than a put option's strike price. Once a foreign currency option has expired worthless, the foreigncurrency option contract itself expires and neither the buyer nor the seller have any further obligation to the other party.

The Forex Option Seller - The foreign currency option seller may also be called the "writer" or "grantor" of a foreign currency option contract. The sellerof a foreign currency option is contractually obligated to take the opposite underlying foreign currency spot position if the buyer exercises his right. Inreturn for the premium paid by the buyer, the seller assumes the risk of taking a possible adverse position at a later point in time in the foreigncurrency spot market.

Initially, the foreign currency option seller collects the premium paid by the foreign currency option buyer (the buyer's funds will immediately betransferred into the seller's foreign currency trading account). The foreign currency option seller must have the funds in his or her account to cover theinitial margin requirement. If the markets move in a favorable direction for the seller, the seller will not have to post any more funds for his foreigncurrency options other than the initial margin requirement. However, if the markets move in an unfavorable direction for the foreign currency optionsseller, the seller may have to post additional funds to his or her foreign currency trading account to keep the balance in the foreign currency tradingaccount above the maintenance margin requirement.

Just like the buyer, the foreign currency option seller has the choice to either offset (buy back) the foreign currency option contract in the optionsmarket prior to expiration, or the seller can choose to hold the foreign currency option contract until expiration. If the foreign currency options sellerholds the contract until expiration, one of two scenarios will occur: (1) the seller will take the opposite underlying foreign currency spot position if thebuyer exercises the option or (2) the seller will simply let the foreign currency option expire worthless (keeping the entire premium) if the strike price isout-of-the-money.

Please note that "puts" and "calls" are separate foreign currency options contracts and are NOT the opposite side of the same transaction. For everyput buyer there is a put seller, and for every call buyer there is a call seller. The foreign currency options buyer pays a premium to the foreign currencyoptions seller in every option transaction.

Forex Call Option - A foreign exchange call option gives the foreign exchange options buyer the right, but not the obligation, to purchase a specificforeign exchange spot contract (the underlying) at a specific price (the strike price) on or before a specific date (the expiration date). The amount theforeign exchange option buyer pays to the foreign exchange option seller for the foreign exchange option contract rights is called the option "premium."

Please note that "puts" and "calls" are separate foreign exchange options contracts and are NOT the opposite side of the same transaction. For everyforeign exchange put buyer there is a foreign exchange put seller, and for every foreign exchange call buyer there is a foreign exchange call seller.The foreign exchange options buyer pays a premium to the foreign exchange options seller in every option transaction.

The Forex Put Option - A foreign exchange put option gives the foreign exchange options buyer the right, but not the obligation, to sell a specificforeign exchange spot contract (the underlying) at a specific price (the strike price) on or before a specific date (the expiration date). The amount theforeign exchange option buyer pays to the foreign exchange option seller for the foreign exchange option contract rights is called the option "premium."

Please note that "puts" and "calls" are separate foreign exchange options contracts and are NOT the opposite side of the same transaction. For everyforeign exchange put buyer there is a foreign exchange put seller, and for every foreign exchange call buyer there is a foreign exchange call seller.The foreign exchange options buyer pays a premium to the foreign exchange options seller in every option transaction.

Plain Vanilla Forex Options - Plain vanilla options generally refer to standard put and call option contracts traded through an exchange (however, inthe case of forex option trading, plain vanilla options would refer to the standard, generic forex option contracts that are traded through anover-the-counter (OTC) forex options dealer or clearinghouse). In simplest terms, vanilla forex options would be defined as the buying or selling of astandard forex call option contract or a forex put option contract.

Exotic Forex Options - To understand what makes an exotic forex option "exotic," you must first understand what makes a forex option "non-vanilla."Plain vanilla forex options have a definitive expiration structure, payout structure and payout amount. Exotic forex option contracts may have a changein one or all of the above features of a vanilla forex option. It is important to note that exotic options, since they are often tailored to a specific'sinvestor's needs by an exotic forex options broker, are generally not very liquid, if at all.

Intrinsic & Extrinsic Value - The price of an FX option is calculated into two separate parts, the intrinsic value and the extrinsic (time) value.

The intrinsic value of an FX option is defined as the difference between the strike price and the underlying FX spot contract rate (American StyleOptions) or the FX forward rate (European Style Options). The intrinsic value represents the actual value of the FX option if exercised. Please notethat the intrinsic value must be zero (0) or above - if an FX option has no intrinsic value, then the FX option is simply referred to as having no (or zero)intrinsic value (the intrinsic value is never represented as a negative number). An FX option with no intrinsic value is considered "out-of-the-money," anFX option having intrinsic value is considered "in-the-money," and an FX option with a strike price at, or very close to, the underlying FX spot rate isconsidered "at-the-money."

The extrinsic value of an FX option is commonly referred to as the "time" value and is defined as the value of an FX option beyond the intrinsic value.A number of factors contribute to the calculation of the extrinsic value including, but not limited to, the volatility of the two spot currencies involved, thetime left until expiration, the riskless interest rate of both currencies, the spot price of both currencies and the strike price of the FX option. It isimportant to note that the extrinsic value of FX options erodes as its expiration nears. An FX option with 60 days left to expiration will be worth morethan the same FX option that has only 30 days left to expiration. Because there is more time for the underlying FX spot price to possibly move in afavorable direction, FX options sellers demand (and FX options buyers are willing to pay) a larger premium for the extra amount of time.

Volatility - Volatility is considered the most important factor when pricing forex options and it measures movements in the price of the underlying. Highvolatility increases the probability that the forex option could expire in-the-money and increases the risk to the forex option seller who, in turn, candemand a larger premium. An increase in volatility causes an increase in the price of both call and put options.

Delta - The delta of a forex option is defined as the change in price of a forex option relative to a change in the underlying forex spot rate. A change ina forex option's delta can be influenced by a change in the underlying forex spot rate, a change in volatility, a change in the riskless interest rate of theunderlying spot currencies or simply by the passage of time (nearing of the expiration date).The delta must always be calculated in a range of zero to one (0-1.0). Generally, the delta of a deep out-of-the-money forex option will be closer tozero, the delta of an at-the-money forex option will be near .5 (the probability of exercise is near 50%) and the delta of deep in-the-money forex optionswill be closer to 1.0. In simplest terms, the closer a forex option's strike price is relative to the underlying spot forex rate, the higher the delta because itis more sensitive to a change in the underlying rate.

Forex Money Management by FX Master

2009-04-06T15:51:00.001-07:00

Money management is a critical point that shows difference between winners and losers. It was proved that if 100 traders start trading using a systemwith 60% winning odds, only 5 traders will be in profit at the end of the year. In spite of the 60% winning odds 95% of traders will lose because of theirpoor money management. Money management is the most significant part of any trading system. Most of traders don't understand how important it is.

It's important to understand the concept of money management and understand the difference between it and trading decisions. Money managementrepresents the amount of money you are going to put on one trade and the risk your going to accept for this trade.

There are different money management strategies. They all aim at preserving your balance from high risk exposure.

First of all, you should understand the following term Core equity

Core equity = Starting balance - Amount in open positions.

If you have a balance of 10,000$ and you enter a trade with 1,000$ then your core equity is 9,000$. If you enter another 1,000$ trade,your core equitywill be 8,000$

It's important to understand what's meant by core equity since your money management will depend on this equity.

We will explain here one model of money management that has proved high anual return and limited risk. The standard account that we will bediscussing is 100,000$ account with 20:1 leverage . Anyway,you can adapt this strategy to fit smaller or bigger trading accounts.

Money management strategy:

Your risk per a trade should never exceed 3% per trade. It's better to adjust your risk to 1% or 2%

We prefer a risk of 1% but if you are confident in your trading system then you can lever your risk up to 3%

1% risk of a 100,000$ account = 1,000$

You should adjust your stop loss so that you never lose more than 1,000$ per a single trade.

If you are a short term trader and you place your stop loss 50 pips below/above your entry point .

50 pips = 1,000$1 pips = 20$

The size of your trade should be adjusted so that you risk 20$/pip. With 20:1 leverage,your trade size will be 200,000$

If the trade is stopped, you will lose 1,000$ which is 1% of your balance.

This trade will require 10,000$ = 10% of your balance.

If you are a long term trader and you place your stop loss 200 pips below/above your entry point.

200 pips = 1,000$1 pip = 5$

The size of your trade should be adjusted so that you risk 5$/pip. With 20:1 leverage, your trade size will be 50,000$

If the trade is stopped, you will lose 1,000$ which is 1% of your balance.

This trade will require 2,500$ = 2.5% of your balance.

This's just an example. Your trading balance and leverage provided by your broker may differ from this formula. The most important is to stick to the1% risk rule. Never risk too much in one trade. It's a fatal mistake when a trader lose 2 or 3 trades in a row, then he will be confident that his next tradewill be winning and he may add more money to this trade. This's how you can blow up your account in a short time! A disciplined trader should neverlet his emotions and greed control his decisions.

Diversification:

Trading one currnecy pair will generate few entry signals. It would be better to diversify your trades between several currencies. If you have 100,000$balance and you have open position with 10,000$ then your core equity is 90,000$. If you want to enter a second position then you should calculate1% risk of your core equity not of your starting balance!. Itmeans that the second trade risk should never be more than 900$. If you want to enter a 3rdposition and your core equity is 80,000$ then the risk per 3rd trade should not exceed 800$

It's important that you diversify your prders between currencies that have low correlation.

For example, If you have long EUR/USD then you shouldn't long GBP/USD since they have high correlation. If you have long EUR/USD andGBP/USD positions and risking 3% per trade then your risk is 6% since the trades will tend to end in same direction.

If you want to trade both EUR/USD and GBP/USD and your standard position size from your money management is 10,000$ (1% risk rule) then youcan trade 5,000$ EUR/USD and 5,000$ GBP/USD. In this way,you will be risking 0.5% on each position.

The Martingale and anti-martingale strategy:

It's very important to understand these 2 strategies.
-Martingale rule = increasing your risk when losing !

This's a startegy adopted by gamblers which claims that you should increase the size of you trades when losing. It's applied in gambling in thefollowing way Bet 10$,if you lose bet 20$,if you lose bet 40$,if you lose bet 80$,if you lose bet 160$..etcThis strategy assumes that after 4 or 5 losing trades,your chance to win is bigger so you should add more money to recover your loss! The truth is thatthe odds are same in spite of your previous loss! If you have 5 losses in a row ,still your odds for 6th bet 50:50! The same fatal mistake can be madeby some novice traders. For example,if a trader started with a abalance of 10,000$ and after 4 losing trades (each is 1,000$) his balance is 6000$.The trader will think that he has higher chances of winning the 5th trade then he will increase ths size of his position 4 times to recover his loss. If helose,his balance will be 2,000$!! He will never recover from 2,000$ to his startiing balance 10,000$. A disciplined trader should never use suchgambling method unless he wants to lose his money in a short time.

-Anti-martingale rule = increase your risk when winning& decrease your risk when losing

It means that the trader should adjust the size of his positions according to his new gains or losses.Example: Trader A starts with a balance of 10,000$. His standard trade size is 1,000$After 6 months,his balance is 15,000$. He should adjust his trade size to 1,500$

Trader B starts with 10,000$.His standard trade size is 1,000$

After 6 months his balance is 8,000$. He should adjust his trade size to 800$

High return strategy:

This strategy is for traders looking for higher return and still preserving their starting balance.

According to your money management rules,you should be risking 1% of you balance. If you start with 10,000$ and your trade size is 1,000$ (Risk1%) After 1 year,your balance is 15,000$.
Now you have your initial balance + 5,000$ profit. You can increase your potential profit by risking morefrom this profit while restricting your initial balance risk to 1%. For example,you
can calcualte your trade in the following pattern:

1% risk 10,000$ (initial balance)+ 5% of 5,000$ (profit)

In this way,you will have more potential for higher returns and on the same time you are still risking 1% of your initial deposit.

The Forex Advantages

2009-04-06T15:39:00.000-07:00

Foreign exchange market (shortly forex) is a certain place for trading different currencies. As it is one of the most liquid financial markets available to an average investor it offers a possibility of earning huge profits daily! And it is reasonable due to forex market apparent turnover of 3 trillion dollars a day. One might think that the list of its advantages ends here but one could not be more wrong.

As stated above forex market is tremendously liquid. It means that one can buy and sell currencies more easily and with lesser slippage contrary to stock markets, for instant. Speaking of which, forex market is much larger than the world bonds, stock, and futures markets combined together and for that reason currency prices in the forex market are relatively objective because they are based on current supply and demand and cannot be easily manipulated by greater traders like central banks.

Forex trading can be profitable in every market aspect. For example, if the market is in the upward trend, investor naturally takes long positions (buy) but there is a gain in the market fall as well if investor takes short positions (sell). In other words, constant profits are possible even if the market is in a downward trend.

In the forex market one can trade 24 hours a day! As there is no central marketplace (all trades are electronically conducted over the internet), currencies are traded throughout the time zones in the major financial centers, such as Tokyo, London, and New York. For instant, when Tokyo finishes its trading day, forex trading begins after a short time in London and after London in New York. And this trading cycle takes place for five days in a week.

Another advantage of the forex market is that there is no size limitation for trading. One can decide by him/herself how large amounts they wish to trade with. Moreover, some brokers let people trade with even $1! And that is exceptionally good opportunity for making the first steps in forex trading.

Despite the great advantages of forex one must be careful when trading currencies. It is absolutely vital to learn trading on the forex market due to its riskiness. Even though there is a saying that the safest way to trade is not to trade at all, it is not completely true if one wants to earn money with trading. Mainly there are two major ways of learning forex. The first one is to read different handbooks and get the vital knowledge from there and the second option is trading itself. It is possible to open demo accounts with virtual money and through it start trading and learning! The last option is considered as the most effective one because people tend to learn better from their own mistakes.

To sum it up, forex is risky but at the same time it has great advantages over any financial market. It is important to realize the need of learning the forex market and when it's done all doors are opened for profitable trading.

How To Handle Rumour While Trading

2009-04-06T15:38:00.000-07:00

Because currency exchange covers the entire world and all 24 time zones, forex is a 24-hour-a-day market. This is good in that it results in billions upon billions of dollars of transactions per day. But it also means that forex traders have a constant influx of information to keep track of, unlike the stock market, where once trading closes at 5 p.m., that’s it. So how do forex traders stay on top of things? Most of them use forex alerts of some kind.

Forex alerts are available from many online forex brokers and other companies. A forex alert is simply a message sent to the user informing him of the latest developments in the forex market, often recommending action of some kind. These alerts can be sent via e-mail or cell phone text message.

The idea behind them is that no one can follow all the markets all the time. Even if you limit yourself to just the “majors” -- U.S., Eurozone, Great Britain, Australia, Japan and Switzerland -- that’s still 15 currency pairs to keep an eye on. What’s more, sometimes things are steady for long periods of time, while other periods are marked by great activity.

The sites that offer forex alerts go about it in one of two ways. Some simply send out alerts every 24 hours, offering the latest info on the forex market. Others send alerts only when something crucial happens. These systems use formulas of their own to determine what constitutes “something crucial,” and they may charge a lot more for their more specific alerts. And of course it’s still up to the individual trader to act on or disregard the information send to him in the alerts.

Some brokers include forex alerts as part of their service, while others charge for them. Some are part of a wider alert program that also handles your stocks and bonds. You can tailor the type of alerts you get based on whether you’re a conservative or aggressive trader, and how actively you plan to trade.

Serious traders who use forex alerts swear by them. No system is perfect, of course, and a smart trader will always do a little browsing on his own to make sure his latest alert didn’t miss anything. But alerts are an invaluable way for busy investors to go about their daily lives without having to constantly watch the forex rates

How To Analyse Forex Chart

2009-04-06T15:15:00.000-07:00

The forex chart is among the most basic tools in a forex trader’s arsenal. Simply put, it is a graph of a particular currency pair’s performance over a given period of time. Reading forex charts is essential to a trader’s business, so it’s important to know how to read them and understand what they mean.

Every forex chart will be labeled with a currency pair: EUR/USD, USD/GBP, etc. Remember, all forex trading deals with different countries’ currency in relation to each other. The EUR/USD chart, for example, tells you how the euro and the U.S. dollar compare.

Along the bottom of the chart is the timeline -- 15 minutes, an hour, a day, a week, or some other period. Going up the right-hand side are incremental amounts. For the EUR/USD chart, the amounts might be 1.2531 at the bottom, going up to 1.2561 at the top. And of course the middle of the chart shows what position the EUR/USD pair held at what time.

The forex chart is useful because it shows in graphic terms how a currency pair is doing. You can see at a glance whether a currency is getting stronger or weaker, and you can act accordingly. Choosing the time frame helps you see very minor trends (in a 15-minute period, say) or more long-term ones (over the course of several days, perhaps).

You can find forex charts all over the Internet, on Web sites for forex brokers, tutors, and on other forex-related sites. Those are fine for glancing at trends now and then. But to be a serious trader, you need to have access to charts much more readily, without having to go to a Web site. That’s why trading software gives you forex charts, too (you need to have broadband Internet so you can be “always connected”). Obviously, if you’re going to be trading, you need to have convenient access to the very latest charts.

With dozens of world currencies, there are far too many possible currency pairs for anyone to keep track of mentally. Forex charts show at a glance what any currency pair is up to, and good software allows you to save multiple charts as “favorites.” Naturally you’ll want to keep an eye on the charts representing investments you’ve already made, and it’s smart to have a few additional ones saved, too, so you can watch for trends in currencies you haven’t traded yet. You never know when a lucrative new opportunity is going to be

Forex Glossary

2009-04-03T12:56:00.000-07:00

Here are some of the most common terms used in FOREX trading.Ask Price ¨C Sometimes called the Offer Price, this is the market price for traders to buy currencies. Ask Prices are shown on the right side of a quotee.g. EUR/USD 1.1965 / 68 ¨C means that one euro can be bought for 1.1968 UD dollars.

Bar Chart ¨C A type of chart used in Technical Analysis. Each time division on the chart is displayed as a vertical bar which show the followinginformation ¨C the top of the bar is the high price, the bottom of the bar is the low price, the horizontal line on the left of the bar shows the openingprice and the horizontal line on the right of bar shows the closing price.

Base Currency ¨C is the first currency in a currency pair. A quote shows how much the base currency is worth in the quote (second) currency. Forexample, in the quote - USD/JPY 112.13 US dollars are the base currency, with 1 US dollar being worth 112.13 Japanese yen.Bid Price is the price a trader can sell currencies. The Bid Price is shown on the left side of a quote - e.g. EUR/USD 1.1965 / 68 ¨C means that oneeuro can be sold for 1.1965 UD dollars.

Bid/Ask Spread ¨C is the difference between the bid price and the ask price in any currency quotation. The spread represents the broker's fee, andvaries from broker to broker.

Broker ¨C the intermediary between buyer and seller. Most FOREX brokers are associated with large financial institutions and earn money by setting aspread between bid and ask prices.

Candlestick Chart - A type of chart used in Technical Analysis. Each time division on the chart is displayed as a candlestick ¨C a red or green verticalbar with extensions above and below the candlestick body. The top of the extension shows the highest price for the chart division and the bottom ofthe extension shows the lowest price. Red candlesticks indicate a lower closing price than opening price, and green candlesticks indicate the price isrising.

Cross Currency ¨C A currency pair that does not include US dollars ¨C e.g. EUR/GBP.

Currency Pair ¨C Two currencies involved in a FOREX transaction ¨C e.g. EUR/USD.

Economic Indicator ¨C A statistical report issued by governments or academic institutions indicating economic conditions within a country.

First In First Out (FIFO) ¨C refers to the order open orders are liquidated. The first orders to be liquidated are the first that were opened.

Foreign Exchange (FOREX, FX) ¨C Simultaneously buying one currency and selling another.

Fundamental Analysis ¨C Analysis of political and economic conditions that can affect currency prices.
Leverage or Margin ¨C The ratio of the value of a transaction to the required deposit. A common margin for FOREX trading is 100:1 ¨C you can tradecurrency worth 100 times the amount of your deposit.

Limit Order ¨C An order to buy or sell when the price reaches a specified level.

Lot ¨C The size of a FOREX transaction. Standard lots are worth about 100,000 US dollars.

Major Currency ¨C The euro, German mark, Swiss franc, British pound, and the Japanese yen are the major currencies.

Minor Currency ¨C The Canadian dollar, the Australian dollar, and the New Zealand dollar are the minor currencies.

One Cancels the Other (OCO) ¨C Two orders placed simultaneously with instructions to cancel the second order on execution of the first.

Open Position ¨C An active trade that has not been closed.

Pips or Points ¨C The smallest unit a currency can be traded in.

Quote Currency ¨C The second currency in a currency pair. In the currency pair USD/EUR the euro is the quote currency.

Rollover ¨C Extending the settlement time of spot deals to the current delivery date. The cost of rollover is calculated using swap points based oninterest rate differentials.

Technical Analysis ¨C Analysis of historical market data to predict future movements in the market.

Tick The minimum change in price.

Transaction Cost ¨C The cost of a FOREX transaction ¨C typically the spread between bid and ask prices.

Volatility ¨C A statistical measure indicating the tendency of sharp price movements within a period of time.

Cut Your Losses and Let Your Profits

2009-04-03T12:55:00.002-07:00

Did you know that many successful traders win less than 50% of their trades? Yes, top traders know that they can be VERY successful winning only 40% of the time.

How can that be?¡± you ask. Simple, really. They are truly following the old adage of ¡°Cut Your Losses and Let Your Profits Run. Let's see how this might actually work.

Suppose you had a stock pick, and it hit your stop loss at 98% of your entry price, which gives you a loss. You pick another stock, and again, it hits your stop loss, for another 2% ding to your account. Third time¡¯s the charm, and your stock pick gains 15% before falling back and triggering your trailing stop at 10% above your entry price. In other words, you made 10%.

In this example, you had two losers and one winner for a win/loss percentage of 33%, yet you are ahead by about 6%. You let your profits run and cut your losses short.

It is not easy having more losers than winners, because you can easily find yourself with 5, 10 or even a string of 20 losses in a row. But those numbers are deceptive, because each loss will be fairly small.

Think of it in terms of baseball. A player can have only a fair lifetime batting average and still be a great player if he hits a home run when he finally does connect with the ball.

It takes confidence in yourself as a trader to work a stock trading system that only wins less than half the time. It¡¯s not easy to be wrong most of the time. But that is why the market rewards such a strategy so highly, if it is done right.

In other words, don¡¯t dismiss a system out of hand because it has more losers than winners. As long as the average win is significantly larger than the average loss, you can be very successful with such a system in the long run.

So keep this in mind as you are searching around for the right strategy for you. Many small losses and a few big winners can be much more profitable then a lot of little winners and a few large losses that take it all back and then some.

Bollinger Bands Can Give You a Huge Trading Edge

2009-04-03T12:55:00.001-07:00

One of the critical pieces of forex education for any Forex trader is to understand the concept of standard deviation of price and how to use volatility to their advantage.

If you understand the concept you can easily apply it with Bollinger bands which are an essential tool for all forex traders.
Let's look at why Bollinger Bands are so useful and profitable, when incorporated in your Forex Strategy.

If you don't know what standard deviation is simply check our article on the concept , right, let's take a look at Bollinger bands.

Bollinger Bands Defined:

Bollinger bands are simply volatility bands drawn either side of a moving average.

You calculate Bollinger bands using the standard deviation of price over the same period as moving averages the mean price, then the volatility bands are plotted above and below the moving average.

Moving averages are used to identify the underlying trend of currencies and Bollinger bands take this one step further by:

Combining the moving average of the currency with the volatility of the individual market (or the standard deviation) ¨C this then creates a trading envelope ¨C with a middle mean price (moving average and 2 x bands (expanding or contracting) either side that reflect volatility or standard deviation.

As prices move away from the longer-term average, the standard deviation rises - and thus the bands will fluctuate in varying amounts, away from the average.

Why they work:

In any market, the value of a currency traded tends to rise slowly over the longer term.

Prices can and do spike quickly in the short term, but will normally return to the longer term moving average - which represents fair value.

The standard deviation of the outer bands (how far they are from the mean) shows how far prices are from longer-term value.

Most price spikes are caused by trader psychology with greed and fear to the fore and this can be graphically seen with Bollinger bands.

So how should you use Bollinger bands?

There are 3 main ways to use them:
1. Spotting price spikes: When the bands are a long way from the mean you can use Bollinger bands as profit taking signal on existing trades or use them to spot contrary trades.

2. Enter exisiting trends: If you have a good trend in the forex markets then you can use dips to the middle band to buy at fair value.
3. Entering new trends: When prices are trading in tight range and start to breakout with a change in volatility a great new trend could be emerging.

Bollinger bands can certainly give you a new dimension to your forex trading strategy and any currency trading system can benefit from the extra insight that they can give you.

A word of warning:

Like all technical indicators you should not use Bollinger bands in isolation to enter trades, however combined with timing indicators such as, the stochastic or RSI, then you have a powerful combination for greater FX profits.

With regard to forex education, knowing what standard deviation is and how to apply the concept through Bollinger Bands, will give you a huge trading edge, so make sure you use them.

4 Tips For Choosing a Reputable Forex Broker

2009-04-03T12:51:00.000-07:00

Finding a Forex broker is a tough process to navigate through and for most people, the necessity of outside assistance is needed. Trying to trade in the Forex market without a broker could lead to devastating results for the normal trader. Similarly, hiring the wrong Forex broker can lead to the same result as trying to muddle through it alone. It is highly important that you be diligent in researching any prospective brokerage firms to handle your financial portfolio.

A good Forex broker will supply you with clients that were successful and can attest to the specific broker's qualifications and success history. Put yourself in that position, would you testify to someone's strengths if they did a poor job for you? Client history testimony should be present in any prospective Forex broker and plentiful to indicate a solid background with trading. You can tentatively assess a lot from a Forex broker with a list of clients that will speak up for the brokerage firm or individual broker. It should be noted that all word of mouth testimony should be taken with a grain of salt and dissected to collect the pertinent information. Testimony should be used in your research to find a Forex broker but should not be the deciding factor.

Another good morsel to test the reliability of any potential Forex broker is the amount of information, literature and lessons that they are willing to give to you. Most Forex brokers are of a high reputation and a solid background however, there are many out there that don't have a good history or no history and it is wise to steer clear of these brokers. You are trying to find a trusted financial advisor and settling for second best, just won't do. The more a potential Forex broker is willing to do for you in the area of helping you understand the Forex trading system, the better quality trader they will be for you.

A good avenue to travel down when seeking a good Forex broker is to ask your acquaintances about Forex brokers and how they met. This can not only give you prospective referrals to great Forex brokers but will also equip you with ideas and resources that you may not have located. If you get a referral from friends, be sure to still research that specific broker and his qualifications before committing to any formal agreement.

The other factor in finding a good Forex broker is the margin of return that is offered. A Forex trading margin used to influence your money and many Forex brokers offer different margins. Finding a Forex broker, who gives a margin of ten to one isn't a very good find so it's worth the time to reinvest in research. Remember that this industry is all about customer service and catering to the clients so if your prospective Forex broker doesn't return your calls within a reasonable time frame it would be advisable to keep searching.

Learn Forex Trading, Which Forex Strategy Is Right For Me

2009-04-03T12:50:00.000-07:00

Learning to trade Forex is not an easy task, but by no means is it difficult either. Learning to trade Forex does not require a great intellect or a college degree. Doctors have failed as traders and construction workers have become millionaires. Trading is all about discipline, determination and perseverance.

The key is to understand who you are as a trader and trade to your strength. Leveraging your strength can be magnified by deploying the appropriate Forex trading strategy. There are hundreds, if not thousands of Forex trading strategies out there. Logic will tell us that there is a currency strategy out there which leverages our strengths. It is not a one-size-fits-all world. To immediately cut to the chase and take away the magic, it all comes down to two basic Forex strategies; trend-following and range-bound. All Forex trading strategies use a variety of indicators and combinations, MACD, Moving Averages, Stochastic, Chart Patterns, Candlesticks, Pivot Points, Fibonacci ratios, Elliott Wave analysis, Bollinger Bands and the list goes on and on. Let's take away the magic again. These indicators and studies are merely measuring support and resistance and trend in the Forex market.

But which strategy really works? This is the age old question?

First, we must understand who we are as traders. Does our personality fit the pip sniper mode or does our disposition attract us more towards swing trading. Finding your trading personality will mean studying and experiencing the different time frames and associated Forex trading strategies. Over time you will notice a higher level of success and/or comfort trading one style over others. Pay attention! The market is telling you where your skill is more capable of extract consistent profits for the market. This is why journaling is so important to your Forex trading routine.

Secondly, if you are using someone else¡¯s strategy, a most of us are, deploy this strategy without change until you fully and completely understand all aspect of the strategy through back-testing and actual experience. As I was told; dance the dance you have been taught until you learn a dance of your own!

Don¡¯t fall into the trap of jumping from strategy to strategy or combining different strategies when the one you are using doesn¡¯t yield immediate success. This is only a recipe for disaster. Take the time to really understand the trading strategy. Study the components individually so a deeper understanding of the strategic mechanisms is mastered.

Above all, know when and when not to deploy this strategy. You will not find consistent success implementing a trend following system in a range-bound currency market.

So what¡¯s the right strategy for you? It is simple, the one that works. It doesn¡¯t matter if it is complicated or simple, trend-following or range-bound, uses Fibonacci studies, pivot points or both. If you understand the components, internalize its use, and drive consistent profits into your trading account, then you have your Forex trading strategy.

It doesn¡¯t matter what the experts say, your account balance is the ultimate judge and jury for your Forex trading strategy.

What is Forex

2009-04-03T12:31:00.000-07:00

We had heard a lot of forex trading, but we don't have enough time to know what is forex exactly, because it have a very big books and courses to read.

Forex (Foreign exchange market) is an international money market where free purchase and sale of national currencies are conducted. Forex as we know it today was formed in 1970s after the world's leading countries switched from fixed to floating rates. Forex is a worldwide market for buying and selling currencies. Forex is short for foreign exchange, so when you mention "forex market", you are referring to the foreign exchange market.

Forex traders are represented by thousands of trading institutions such as international banks, central banks of different countries and commercial brokers for all types of foreign currencies. Forex trading or currency trading is always done in currency pairs. Forex advantages 24 hour trading, 5 days a week with non-stop access to global forex dealers.

Forex currency trading for beginners should always include a discussion of the effects of trade imbalances on the price of currencies in foreign exchange trading. The average of forex day trading sales is $ 4 trillion, with constantly increasing volumes of funds for forex conversion operations. As at any stock exchange market, a trade on forex occurs according to the demand and the proposal of a certain instrument. Trading the forex allows the trader to profit from both rising and falling currency prices and this market is not subject to recessions.

In the Forex Market, the money is bought and sold freely; this is the exchange of one currency over another. Foreign exchange trading views a budget surplus as a favorable factor in the worth of a currency while a deficit can lower the value of a currency when trading forex. As mentioned above, the advancement of technology has made forex trading available through the web. The forex market gives traders the ability to leverage their returns by up to 400:1 times the capital in their trading account. The Foreign Exchange Market, also referred as Forex market or FX market, was established between 1971 and 1973, when various central banks around the world introduced a free exchange rate regime, letting the currencies fluctuate driven by the market. Unlike other financial markets, the Forex market has no physical location, no central exchange.

Trading was done by phone orders almost exclusively at one time and they still are today but not as extensively. This is called "trading in pairs", for example: the US dollar against the Japanese yen, or the English pound against the yen, and so on. Forex traders are represented by thousands of trading institutions such as international banks, central banks of different countries and commercial brokers for all types of foreign currencies. One great advantage of trading currencies is you can profit in up and down markets, it is just acceptable to trade to the down side “Short” as it is to the upside “Long”.

Basically, it is a very large market where only currencies are exchanged each time transactions are carried out in Forex, a currency is bought and one is sold at the same time.

When quoting currency pairs, the first currency is known as the base currency and the second as the quote, if you think the US Dollar is going to be stronger than the Japanese Yen, you would buy the base (USD) Hoping that it would rise and sell the USD when you wanted to exit the trade. On the market, a buyer of any particular currency pair is basically indicating their confidence in the economy of that particular country.

Stock Trading

2009-04-03T12:30:00.000-07:00

Stocks are shares of ownership in companies. People who buy a company’s stock may receive dividends (a portion of any profits). Stockholders are entitled to any capital gains that arise through their trading activity—that is, to any gain obtained when the price at which the stock is sold is greater than the purchase price. But stockholders also face risks. One risk is that the firm may experience losses and not be able to continue the payment of dividends. Another risk involves capital losses when the stockholder sells shares at a price below the purchase price.A company can list its stock on only one major stock exchange. However, options on its stock may be traded on another exchange. Where a stock is traded depends on both the requirements of the exchange and the decision of the corporation. Each exchange establishes requirements that a company must meet to have its stock listed. For example, to be listed on the New York Stock Exchange, a company, among other things, must have a minimum of 1.1 million shares outstanding with a market value of at least $100 million. But not all companies that satisfy NYSE requirements apply to have their stock traded on this exchange. Intel and Dell Computer, two very large and well-known corporations, satisfy NYSE requirements but choose instead to have their shares traded on the over-the-counter Nasdaq.The different exchanges tend to attract different kinds of companies. Smaller exchanges, such as the Nasdaq, typically trade the stock of small, emerging businesses, such as high-tech companies. In the United States, the AMEX lists small to medium-sized businesses, including many oil and gas companies. The NYSE primarily lists large, established companies.Most security trading is accomplished through brokerage firms. Persons and organizations that wish to purchase securities will call upon the brokerage firm to execute their transaction. To actually conduct the transaction on the stock exchange, the brokerage firm must have a membership, called a seat, on the exchange. Stock exchanges limit the number of available seats, and the cost of a seat on an exchange is high. During 2002 the price of a seat on the NYSE ranged from $2 million to $2.6 million. Brokerage firms that have seats not only can complete trades on the floor of the exchange but also have the right to vote on exchange policy.Brokerage firms are willing to pay high prices for exchange seats because of the profit opportunities available from membership in an exchange. Profits can be generated from the fees charged for the execution of trades as well as from trading on the firm’s own account. There are, however, risks associated with brokerage firm activity. For example, brokerage firms can lose money if their clients default on margin loans (loans obtained to purchase securities).

Forex Analysis

2009-04-03T12:29:00.001-07:00

While some analyze their portfolios based on profit or loss; in the world of the FOREX Exchange, FOREX Analysis is one of the most important Keystones to successful investing. FOREX Analysis helps both large corporations, central banks, and private investors make the crucial choices to guide them to successful speculation and investment. FOREX Analysis sifts the reams of data, mountains of new articles, and miles of charts and reports to determine the most successful strategy to capitalize in the rates of exchange that are the means of transaction in the FOREX Market.FOREX Analysis takes a comprehensive look at both statistical and non-statistical information and weighs these factors with an eye towards seeking profit in the currency transactions between two countries. For instance let's say we are seeking to make a profit off the movement and conversion of Russian Rubles into British Pounds.Using FOREX Analysis we can determine who, or rather which end of the deal, can provide the most profit return to the eager investor. FOREX Analysis determines the cost and benefit of these investment strategies, and as we all know, this is crucial to determining the extent of investment and the potential for profit; otherwise why commit any funds, if not to reap the return on a much larger amount?FOREX Analysis is made much easier to the average investor if he has access to a brokerage, or a statistical information gathering service. The sheer volume makes collection on the most narrow of invest opportunities almost beyond the scope of the private individual. So having access to the best FOREX Analysis available can make the difference, and for that mater should be the rule of thumb, in considering any investing decision within the FOREX Market.The future of your money is going to be determined either by you or by the erosion of time. Using FOREX Analysis you can place safeguards not only to hedge the amount of your fortune, but also to increase the size and growth potential of your money. In short FOREX Analysis is a key essential to strategic successful investing.

4 Tips For Choosing a Reputable Forex Broker

2009-04-03T12:28:00.000-07:00

Finding a Forex broker is a tough process to navigate through and for most people, the necessity of outside assistance is needed. Trying to trade in the Forex market without a broker could lead to devastating results for the normal trader. Similarly, hiring the wrong Forex broker can lead to the same result as trying to muddle through it alone. It is highly important that you be diligent in researching any prospective brokerage firms to handle your financial portfolio.A good Forex broker will supply you with clients that were successful and can attest to the specific broker's qualifications and success history. Put yourself in that position, would you testify to someone's strengths if they did a poor job for you? Client history testimony should be present in any prospective Forex broker and plentiful to indicate a solid background with trading. You can tentatively assess a lot from a Forex broker with a list of clients that will speak up for the brokerage firm or individual broker. It should be noted that all word of mouth testimony should be taken with a grain of salt and dissected to collect the pertinent information. Testimony should be used in your research to find a Forex broker but should not be the deciding factor.Another good morsel to test the reliability of any potential Forex broker is the amount of information, literature and lessons that they are willing to give to you. Most Forex brokers are of a high reputation and a solid background however, there are many out there that don't have a good history or no history and it is wise to steer clear of these brokers. You are trying to find a trusted financial advisor and settling for second best, just won't do. The more a potential Forex broker is willing to do for you in the area of helping you understand the Forex trading system, the better quality trader they will be for you.A good avenue to travel down when seeking a good Forex broker is to ask your acquaintances about Forex brokers and how they met. This can not only give you prospective referrals to great Forex brokers but will also equip you with ideas and resources that you may not have located. If you get a referral from friends, be sure to still research that specific broker and his qualifications before committing to any formal agreement.The other factor in finding a good Forex broker is the margin of return that is offered. A Forex trading margin used to influence your money and many Forex brokers offer different margins. Finding a Forex broker, who gives a margin of ten to one isn't a very good find so it's worth the time to reinvest in research. Remember that this industry is all about customer service and catering to the clients so if your prospective Forex broker doesn't return your calls within a reasonable time frame it would be advisable to keep searching.

Introduction to Foreign Exchange Markets

2009-04-03T12:27:00.000-07:00

Being the main force driving the global economic market, currency is no doubt an essential element for a country. However, in order for all the countries with different currencies to trade with one another, a system of exchange rate between their currencies is needed; this system, is formally known as foreign exchange or currency exchange.In the early days, the system of currency exchange is supported solely by the gold amount held in the vault of a country. However, this system is no longer appropriate now due to inflation and hence, the value of one’s currency nowadays is determined through the market forces alone. In order to determine the value of a currency’s exchange rate, two main types of system is used which is floating currency and pegged currency.For floating exchange rate, its value is determined by the supply and demand of the global market where the supply and demand is bound by all these factors such as foreign investment, inflation and ratios of import and export. Normally, this system is adopted by most of the advance countries like for example UK, US and Canada. All of these countries have a similarity where their market is well developed and stable in economic terms. These countries choose to practice this system due to the reason where floating exchange rate is proven to be much more efficient compared to the pegged exchange rate. The reason behind this is because for floating exchange rate, the market itself will re-adjust the exchange rate real-time in order to portray the actual inflation and other economic forces. However, every system has its own flaw and so does the floating exchange rate system. For instance, if a country suffers from economic instability due to various reasons such as political issues, a floating exchange rate system will certainly discourage investment due to the high risk of suffering from inflationary disaster or sudden slump in exchange rate.Another form of exchange rate is known as pegged exchange rate. This is a system where the value of the exchange rate is fixed by the government of a country and not the supply and demand of the market. This system is called pegged exchange rate because the value of a country’s currency is fixed to another country’s currency. As a result, the value of the pegged currency will not fluctuate unlike the floating currency. The working principle behind this system is slightly complicated where the government of a country will fixed the exchange rate of their currency and when there is a demand for a certain currency resulting a rise in the exchange rate, the government will have to release enough of that currency into the market in order to meet that demand. However, there is a fatal flaw in this system where if the pegged exchange rate is not controlled properly, panics may arise within the country and as a result of that, people will be rushing to exchange their money into a more stable currency. When that happens, the sudden overflow of that country’s currency into the market will decrease the value of their exchange rate and in the end, their currency will be worthless. Due to this reason, only those under-developed or developing countries will practice this method as a form to control the inflation rate.However, the truth is, most of the countries do not fully practice the floating exchange rate or the pegged exchange rate method in reality. Instead, they use a hybrid system known as floating peg. Floating peg is the combination of the two main systems where one country will normally fixed their exchange rate to the US Dollars and after that, they will constantly review their peg rate in order to stay in line with the actual market value. The Foreign exchange market, or commonly known as FOREX, is the largest and most prolific financial market because each day, more than 1 trillion worth of currency exchange takes place between investors, speculators and countries. From this, we can deduce that the actual mechanism behind the world of foreign exchange is far more complicated than what we may already know, and that, the information mentioned earlier is just the tip of an iceberg.