Category Archives: Forex

Forex Trading 101

Foreign exchange, more commonly referred to as Forex, is the selling and buying of currencies in exchange with other currencies. It is the largest trading market globally. This is because countries, businesses, and people participate in forex trading.

It is easy to commence forex trading because all you need is little capital to start. Sometimes, people even participate in forex exchange without knowing it. For example, when you’re on vacation and convert your monies to that of another country you are taking part in foreign exchange.

In forex trading, you will always find a currency’s value being pushed either down or up. The following are some forex basics to get you started.

Currency Pairs Outline 

Before commencing with your first-ever trade, you need to get conversant with currency pairs. Here are some of the key points you should take note of:

  • As earlier stated, currencies in the forex market trade-in twos. For example, if you want to exchange euros for dollars, you have two currencies involved. The USD/EUR price tells you how many euros it will take to purchase a (USD) U.S. dollar.
  • In forex, particular currency pairs are designated by symbols. For example, AUD (Australian Dollar), JPY (Japanese Yen), NZD (New Zealand Dollar), CAD (Canadian Dollar), CHF (Swiss Franc), and GBP (Great Britain Pound).
  • All forex pairs have market prices that are associated with them. This means the amount the secondary currency will take to purchase a unit of that first currency. For example, if the USD/EUR is 1.4746, it means that you’ll need 1.4746 euros to purchase a dollar.

Tip: If you’d like to know how many USD you’ll need to purchase a euro, flip that pair to EUR/USD. Then, device 1 by 1.4746 (or whatever that current rate will be). Using this example, the result is 0.67815. This means you will need 0.6782 to buy one euro. 

An overview of Market Pricing 

Here, you will get to hear a different terminology (pip) as is used in the forex market. The term is used to describe currency pairs’ prices. The moment you understand how you can calculate trade profit, you will be a step closer to a successful first trade.

Pip (point in percentage) is a name used in indicating the 4th decimal place in currency pair. In the JPY, it is used to describe the 2nd decimal place. Most exchange pairs move about fifty to a hundred pips daily. This depends on the whole market conditions. When a USD/EUR moves to 1.4750 from 1.4700, it is said to have moved 50 pips. That way, you’ll have made a 50 pip profit.

Note: The best way you can learn about forex is by finding out how prices move in real-time. You can try out demo accounts (that way, you won’t incur any actual financial risks). Many forex accounts offer mobile and online-app-based trading accounts’ simulators. 

How does Currency Trading Work?

Currency trading is a round-the-clock market. It does not open from Friday to Sunday evenings. Even so, the 24hr trading sessions tend to be deceptive. There are 3 sessions including the United States, Asian, and European trading sessions.

Even though there are sessions that overlap, the main currencies in all markets mostly trade in the assigned market hours. This is to means, that there are currency pairs that will have larger volumes in some sessions.

What changes currencies?

Many stock traders take interest in forex because the forces moving the stock market are the same forces moving the currency market. Supply and demand are among the largest. For example, when there is a global need for dollars, the dollar value will go up. When many dollars are circulating, prices go down. There are also other factors such as interest rates, which affect the prices of currencies.

Conclusion

Much like all things in the world of investing, learning about forex trading is not difficult. The tough part comes in when you’re trying to find a winning strategy for trading. This will take more than one try to get it right.

Most forex brokers have dummy accounts you can use to familiarize yourself with the real thing. Most of these demo accounts enable you to trade using virtual money. That way, you have time to find trading strategies using oscillators.

Fundamental Analysis vs. Technical Analysis in the Forex Trading Market

In forex trading, fundamental analysis and technical analysis are the two main schools of thought used by traders to influence their trade decisions. While these two are not mutually exclusive, most traders often use one of the analysis types.

From a data standpoint, both technical and fundamental analysis offer unique advantages to forex traders. To use these analysis options to your benefit, you need to understand what they are and how they differ. Here is everything you need to know about fundamental analysis and technical analysis in forex.

Technical analysis in forex trading

This is a data reading method that helps traders to forecast changes in currency prices in the future based on past price movements. Technical analysis can be affected by numerous external factors, sometimes leading to different outcomes.

Price data is the primary tool used in technical analysis and is the most important consideration. With this data, technical analysis can provide a framework for analysts to make market decisions by reading the current price action while comparing it with historic appearances.

Technical analysis can be used in different markets, including currencies, stock indices, individual stocks, futures, and commodities. As long as a market has high liquidity and is hardly influenced by outside forces, technical analysis can be the best way to make trade decisions in such a market.

The fundamentals of technical analysis are based on three core beliefs:

  • Price discounts every other market aspect – technical analysis dictates that the current price of a currency pair is a reflection of all information available to market players. It also believes that any new data can quickly reflect in the security’s price.
  • Price moves in an observable trend – technical analysis believes that price moves in a predictable trend that is non-random and thus observable by a trained eye. The trend starts from a trading range and moves into the consolidation phase before the emergence of a new trend phase.
  • History repeats itself – technical analysis believes that market trends are repetitive and recursive even though there are no two identical price patterns in history. However, there are similarities in trend patterns that go beyond randomness.

Benefits of technical analysis in forex

  • It can be applied to any trading timeframe, making it ideal for short-term and long-term traders.
  • Ability to analyze different trends using different studies like trend lines, moving averages, support and resistance, swing highs, and lows, among other studies.
  • Helps with timing trades for the best trading opportunities.
  • Technical analysis shows the mood of the market.
  • It is simpler to use and less time-intensive.

Fundamental analysis in forex trading

This is a type of forex market analysis that determines the underlying value of a security by assessing and studying economic data. In forex, fundamental analysis evaluates the overall conditions of an economy using different data such as employment rate, GDP, interest rates, and inflation, among other factors.

In the forex market, fundamental analysts are mostly interested in central bank activity. This means accessing stakeholders’ meetings, interest rates decisions, and speeches made by high-ranking central bank officials.

Fundamental analysts gauge the overall market conditions by use of different economic reports where they seek to find mispricing that can offer good forex trading chances. Most fundamental traders are short-term traders interested in capturing price moves in volatile periods. They can also be long-term traders interested in monthly or annual trends.

Fundamental analysts are more focused on the why as opposed to the what. They seek to understand the cause of different economic standpoints and use this data to forecast the market. Most fundamental traders use the forex market to buy high yield currencies against lower yield ones. Referred to as carry trade, this strategy is common amongst most long-term fundamental traders as well as global investment funds.

Benefits of fundamental analysis

  • It helps to explain price movements through studying major economic news and other factors that drive up currency prices.
  • Fundamental analysis provides the trader with insight into global markets. This gives the trader a better understanding of a country’s economy and other economies globally.
  • Fundamental analysis makes it easier for an analyst to find currency valuation by studying consumer sentiments, inflation, interest rates, and industrial production, among other relevant factors.
  • It provides long-term trend patterns.

Which one is best?

The best analysis type for you depends on the kind of trader you are and the kind of data you are after. Some traders prefer to use one of the two, while others use a blend of both. When it comes to choosing, there is no right or wrong answer. You only need to take time to understand both approaches and find the one that works best for your forex trading techniques.

Why Forex Traders Should Use Bollinger Bands

Forex trading is the most volatile market and requires sophisticated tools for the trade. Bollinger band is a popular trading instrument in the forex market. The tool will help you to determine the incremental price.

It would help if you capitalized on the incremental price for maximum profits. Since the prices in the forex market are constantly changing, a forex trader needs to keep track. Bollinger band can keep the fast changes in the market. The band offers a technical solution in the forex market.

 What Are Bollinger Bands?

The Bollinger bands have the following unique features that make them appropriate for the forex market:

Technical Features

The Bollinger band is a technical tool that analyses the market trends and draws trend lines. Trend lines are two standard deviation lines drawn from a simple moving average price of the stocks. The trend line helps the traders to identify the appropriate trading times. From the trend lines, you will be able to see when the sales or purchases are high.

Setting Limits

The Bollinger upper and lower bands can be used to set the market limits. These bands show the price volatility of the prices, which will enable you to make informed decisions.

 Measuring The Deviation of The Price

The Bollinger bands are used to measure the deviation of the price from the average to the highest. When prices escalate, the Bollinger bands change their shape immediately.

The change in shape is easily noticed, thus enables you to make a swift decision. Forex trading decision needs to be executed swiftly before the prices change again.

Backup Plan

Since the prices in the forex market keep changing, a trader requires to have a backup plan. The Bollinger bands provide a backup plan where you can always refer to when making decisions. Due to the volatile nature of the stock market, it is not easy to notice the entry and exit points.

Failure to notice these points is frustrating and can lead to losses. Bollinger bands clearly show the exit and entry points. You can use Bollinger bands as a strategy in forex trading for maximum profits.

High Returns

The bottom line of forex trading is making profits. Executing trader at the opportune time will bring high returns to your forex trading. Bollinger bands give a signal when the currencies are doing well. Investing in such times brings high yields to the business.

How Do Bollinger Bands Work?

Bollinger band is a high-tech tool that is used to compute the market averages. You can use the Bollinger bands to calculate the averages and to set the SMA limits. The following simple steps are used to determine the Bollinger bands:

Step 1: First, calculate the simple moving averages by setting the limit of the SMA. If you set a 20-day limit, you calculate the average for the closed prices for twenty days.

Step 2: Then, obtain the standard deviation of the security price. Standard deviation helps to determine the deviation of the numbers from the average. Standard deviation is calculated by taking the square root of the variance. The variance is obtained from the differences derived from the squared mean.

Step3: Finally, determine the upper and lower bands by multiplying the standard deviation value by two. The standard deviation value is derived from adding or subtracting each point that occurs on the simple deviation average.

How To Utilize the Bollinger Bands in Forex Trading

There are several ways in which you can use the Bollinger bands in forex trading:

Checking At the Position of The Prices

You can use the Bollinger bands to determine whether the market is oversold or overbought. When the prices are near the upper band, it shows that the market is overbought. The market is oversold if the prices are close to the lower band.

The Lengths of The Bands

The Bollinger band lengths keep changing depending on the volatility of the market. When the market is highly volatile, the band lengths widen. These bands contract during less volatile times.

Use Of the Squeeze

Squeeze is the coming together of the bands due to the constriction of the moving averages. Squeeze shows the direction of the market. When the market is volatile, the bands widen. During the less volatile days, the Bollinger bands contract.

Heikin Ashi Technical Trading Technique for Forex Trading

Forex trading involves using different indicators to analyze the currency market before making a move. Some of the trading strategy indicators are complex, and they take too much time to read the charts and formulas. However, some technical indicators show traders the latest trends and potential currency reversals within the shortest time possible. One such strategy is the Heikin Ashi trading technique.

Continue reading Heikin Ashi Technical Trading Technique for Forex Trading

Line Charts Vs. Candlesticks Vs. Bar Charts

Some of the most essential and popular technical analysis tools in forex trading are trading charts. In technical analysis, charts provide the foundation for price volatility and movements.  Moreover, they are the easiest to understand even for forex trading beginners, and you can set them up in varying styles showing differing timeframes.

If you are a long-term forex trader, you can choose to track the currency market using a weekly or monthly trading chart. If you are a short-term forex trader, 60-minute trading charts to 5-minute trading charts are ideal for you. You can also choose to look at several charts showing varying timeframes depending on your trading horizon.

Continue reading Line Charts Vs. Candlesticks Vs. Bar Charts

Forex Trading Accumulation/Distribution Indicator

Forex traders use many types of technical indicators, most of which are readily available in trading platforms to analyze and determine the currency price movements. Some of the most popular indicators include oscillators, Relative Strength Index (RSI), Parabolic SAR, Fibonacci, etc. These indicators help identify overbought and oversold price key levels, among other trends.

Continue reading Forex Trading Accumulation/Distribution Indicator

Forex Basics- Using Oscillators in Your Daily Trading

If you are an experienced online trader, you have heard phrases such as “plan your trade” and “keep your losses to the bare minimum. But when you are new, you fly by the seat of your pants and want to rush things so that you can make money quickly.

But hold your horses’ buddy. Things don’t work that way. To be a successful trader, you have to play by the book. Otherwise, your pockets will always be empty. 

Continue reading Forex Basics- Using Oscillators in Your Daily Trading

Using Relative Strength Index To Trade Forex Profitably

Relative Strength Index is a technical analysis tool that is an important part of a forex trader’s toolkit. It helps traders to make the right decisions on how and when to enter or exit potential trade positions.

The RSI as it is popularly known falls in the category of technical analysis tools known as oscillators. As such it indicates the movement of price and market. These are important factors for traders to consider before they take a position on trade.

Continue reading Using Relative Strength Index To Trade Forex Profitably

To Make Big Money Trading, Don’t Think About the Money

Some people join the business because they long to be doing such tasks, others because they are skilled in it while others join a business just to look for money. The majority of forex traders join in the trading game out of the hierarchy that it brings in good money. Other forex traders take time to study what forex trading is all about.

Continue reading To Make Big Money Trading, Don’t Think About the Money