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A Brief Look at Forex Trading

Monday, February 26, 2007

Forex is the currency trading market which is the biggest and most quickly evolving markets in the world. Currently it has a daily turn over of of 2.5 trillion dollars which is actually one hundred times larger then the NASDAQ. Different markets are great ways to diversify your investments and trade different goods and services. The same is true with the Forex market in which the “goods” are actually currencies from around the world. Here you can buy Euros with American Dollars and sell Japanese yen for Swiss Francs. The profit is make in the difference between currencies values.

To make a profit on the Forex market investors only need one rule – buy cheap and sell high. The profit comes from the fluctuations within the exchange market for currency. The great thing about the Forex market is that it has regular daily changes and a fluctuations of 1% is actually multiplied by 100. For example if the exchange rate of your pair of currencies increases by 0.7% in 5 hours, the profit you make will be 70% of your initial investment. This can happen within a single day or a single hour. Trading the Forex market is extremely secure because you can never lose more than your initial investment. This is low risk when compared to the unlimited profit you could potentially gain.

You can choose your pair of currencies and your volume whether the market is moving up or moving down – and still make a profit. You can decide to buy Euro and sell dollar or buy dollar and sell Euro. Additionally you do not have to physically have the currency you choose to buy and sell. The easiest way to get started in the Fored market is to find a Forex market site, open an account, deposit your money, and begin trading. Most companies provide you with training, support, and advice.

Once you have all the necessary research in hand you are ready to make your first trade. You need to first select the pair of currencies that you wish to trade. Then you select the volume or the amount of money you want trade. Then you must deposition the collateral needed for the whole deal, usually about 1%. Most companies allow for a brief freeze period in which the consumer can adjust or cancel their deal. While the deal is running you can monitor the status and check for additional trading tips online. You still have the ability to change the terms, or cash out the profit to minimize loss. Forex trading companies allow an automatic take profit option which allows the investor to preset the rate at which you want to see and it will do it for you. That way you do not have to stay constantly online to monitors your trade.

Forex is a great trading market for new investors. The specifics of the currency trade are fairly straight forward and easily accessible to the general public. There is a low initial investment that way new investors can begin small and as they feel comfortable and work their way up to larger trades.

Hot Commodities – Buy Copper For Huge Long Term Gains!

Buying copper as long term investment is one of the best ways of taking advantage of global economic growth.

Forget about the situation in individual countries, global demand is strong and this commodity is “hot” and long term gains are expected of 100% or more!

Triple digit gains per annum

100% annual gains are a strong possibility based upon past performance, in fact prices of copper have increased in price more than six-fold since late 2001.

This price rise has been driven by strong demand from China and India, general world economic growth, tight supply and fund buying.

The recent dip is NOT a trend change

Copper is a barometer for global industrial demand, but it lost ground last week on concerns that rising inflation could trigger higher interest rates and dampen economic growth.

The long term trend is still up!

Copper is still up about 54% since the end of last year, supported by historically low inventory levels and a series of threats to supply and firm demand.

This will continue as we have said forget individual countries global economic expansion is broad based and set to continue with China and India leading the way.

The technical view.

If we look at the technical picture, we can get a clear detached view of the trend.

The weekly chart

Here we can see the long term trend and it’s clearly up.

Prices have dropped to the centre of the Bollinger band ( which is an area of fair value ) but stochastic momentum has yet to provide short term momentum.

The daily chart

As you can see from a short term perspective prices have hammered out support at last weeks double bottom and the week before provides another triple bottom layer of support. These are the areas to key off for long positions.

Stochastic momentum has already turned up on the daily chart with bullish divergence and higher prices are expected.

On a strong open on Monday (with the stochastic indicator still firm) enter the market with stops below the triple bottom.

Keep in mind

All bull markets have dips and this is exactly what this is nothing more, just a normal correction in a bull market.

The dip now can provide you with an entry point to target 100% + profit potential annually!

You can trade the market in two ways

1. Use options that give you unlimited profit potential and limited risk. Keep in mind that you need to buy at, near, or in the money options with lots of time value. This will help you ride out short term volatility

2. Use intra market spreads. This simply involves using two contracts in the same commodity. Buy the nearby and sell a deferred ( check the spread strength first though) spreads are great giving you the advantage of lower margins and staying power.

Stochastic Indicator – The Ultimate Timing Indicator For Huge Gains

While basic chart analysis will tell you the trend, the stochastic offers something more when used as a filter, it helps you time your trades with better accuracy and greater profits.

Its real value is that at significant chart points where you are looking for a top or bottom, it will help you enter or exit your trades for greater long term profits.

For long term trader’s day traders or swing traders it’s the ultimate timing filter, in currencies or any ther market.

An Introduction

George Lane, who developed the indicator, postulated that in an upwardly-trending market, prices tend to close near their high, and in a downwardly-trending market, prices tend to close near their low.

As an upward trend takes its course, prices tend to close further away from the high, and as a downward trend develops, price tends to close away from the low.

As a timing indicator

The theory of the stochastic is based upon these are the catalyists which indicate the beginning of a trend reversal.

The stochastic indicator defined:

1. Is a momentum oscillator that can warn of strength or weakness in the market, often well ahead of turning points.

2. Is based upon the assumption that when a financial instrument is rising it tends to closer to the high than when it is falling, where it tends to close near its lows.

How the indicator is plotted

The stochastic is plotted as two lines %K, a fast line and %D, a slow line.

The %K line is more sensitive than %D

The %D line is a moving average of %K.

The %D line triggers the trading signals.

Although this sounds very complicated, it is actually very similar to the way a moving average is plotted.

Think of %K as a fast moving average and %D as a slow moving average.

Don’t worry

You don’t need to know how an internal combustion engine works to drive a car and stochastics are the same.

Their plotted on most major chart services, take a look at futuresource.com as an example and there are many others.

All you need to do is look at the set up, all the maths is done for you

The lines are plotted on a 1 to 100-scale. "Trigger" lines are normally drawn on stochastics charts at the 80% and 20% levels.

A signal is generated when the lines cross. The zones above and below these two lines are referred to as stochastic bands.

Overbought and oversold levels

The 80% value is used as an overbought signal, and the 20% is used as an oversold signal.

The Stochastic Oscillator generates signals in three main ways:

1.Extreme values

When the 20% and 80% trigger lines are crossed.

Buy when the stochastic falls below 20% and then rises above that level.

Sell when the stochastic rises above 80% and then falls below that level.

The pattern of the stochastic is also important; when it stays below 40-50% for a period and then swings above, the market is then shifting from an overbought scenario and giving a buy signal and vice versa when it stays above 50-60% level for a period of time.

Stochastic Crossovers

Crossovers are very effective and work as follows.

Buy when the %K line rises above the %D line and sell when the %K line falls below the %D line. Beware of short-term crossovers that may generate false signals.

The preferred crossover is when the %K line intersects after the peak of the %D line ( known as aright-hand crossover).

Beware though, crossovers often provide choppy signals that need to be filtered with the use of other indicators.

Stochastic Divergences

Divergences between the stochastic and the underlying price trend also offer good signals to trade off.

For example, if prices are making a series of new highs and the stochastic is moving lower, you may have a warning sign of weakness in the market.

Caution

As with any technical indicator its does not work by itself, so make sure you have signals from the charts before adding the stochastic as a filter.

The ultimate trading filter

Used as a filter, it can warn of strength and weakness and get you into or out of the market, to maximize profits, or just as importantly help you minimize losses.

Pattern of Continuation: Descending Triangle Bearish

Descending Triangle Bearish occurs when sellers force buyers to hold their orders or to yield thus making breakout in market price.

Market price is trying to move downward but held by support level. Then highest prices are making descending pattern until market price could make breakout level to continue moving downward.

Well, some traders use this pattern to identify sell signals. They sell at the breakout level. But I don’t recommend you to do that. Most of the times would only bring you to false signals.

I only use this pattern to determine whether I want to keep my order or to exit from market. That means, when I sell a certain pair, and I found Descending Triangle Bearish Pattern then I will keep the order, assuming that price will make breakout at the support level and go downward just as we discuss here.

So the next important question would be “when do we exit from market?”

Draw short-term bearish trend line and notice the angle created between bullish trend line and horizontal line. Use the same angle to redraw bearish trend line after the breakout level. When market price crosses above the trend line then it's the right time for us to exit from market.

Part-time Trading – Making the Most of Your Time

It seems like I am always answering the question as to whether trading can be done meaningfully on a part-time basis. My answer is always the same – “Absolutely!”

Somehow people have been convinced that you have to spend hour upon hour in front of computer watching the markets in order to have a chance at success. That is simply just not true. Part-time trading can be extremely worthwhile – in some cases even more so than trading more actively. I am proof of that. Even though I sometimes do have the opportunity to trade more frequently, my best trades always seem to be the ones I do on a more part-time basis – the ones that only require an occasional check of the markets.

This may sound strange coming from someone who used to be a professional analyst and really does enjoy the markets, but I really have no desire to spend all day in front of the trading screens. It’s a grind, and I have a lot of other things I enjoy doing a whole lot more than watching price quotes tick up and down. I’m sure you could say the same.

Effective part-time trading is simply a matter of maximizing the time you have available. That might be an hour a night, or maybe a couple hours on the weekend. Maybe it’s even less than that. It doesn’t matter. If you make the most of what you have, you can do good things trading part-time. Doing so is a matter of developing a method for your work and applying it consistently.

I’ll use myself as an example.

My schedule is somewhat convoluted. I travel frequently and my activities have a seasonal nature to them. There are points in the year when I have almost no time to devote to the markets. At other times I can maybe put in an hour each morning. Then there are also times when things are more open and I can be a bit more active.

Regardless of my time availability, though, I always do the same thing. I scan the charts for the markets I’m interested in trading and look for something specific. If I don’t see it, I move on to the next. If I don’t see anything good, I don’t trade. It’s as simple as that.

My available trading time will dictate which timeframe charts I look at when doing my scan. If I’m at a point where I can be more active, I’ll perhaps look at the hourly charts. If I can only check in on things once or twice a week, I’ll look to the daily and/or weekly charts to find possible trades with longer holding periods. In that way, I can choose the best timeframe for me to operate in for my schedule at that point.

What is more, I don’t ever have to trade. That’s a major advantage for part-time traders. Unlike our full-time peers who are under pressure to produce results every day, we can pick our spots and only go after trades likely to be big winners. I’ll take that relaxed approach any day!

Let’s face it. Full-time trading is a commitment most of us will either never be able to or never be willing to make. That doesn’t mean we cannot make excellent use of the markets to better our financial situation. Part-time trading can certainly provide the opportunity to do just that.

Forex Trading Pivot Points

Many traders and novices are looking to make money in Forex, however only 5% of Forex traders ever make a dime. The question then becomes what are the 5% that are making money in Forex doing that the other 95% are not.

The truth is anyone can make money in Forex as long as they educate themselves and learn how the market reacts. Trades can use key support and resistance zones for entry and exits within the market, however there is another key component that will help determine price movement and that is pivot points. Pivot points help determine where price is going as well as reversals in trends.

If one knew the range parameters used by floor traders then one may have a handle on significant areas where off floor and position traders may take over the market. Determining key support and resistance zones coupled with pivot points is essential to forecasting price movement in the Forex. Even if you are not a day trader, knowing the key pivot point, support and resistance points can help the short term trader and intermediate positional trader to identify potential entry points and stop loss levels.

Getting into a trade near key support and resistance zones is a double edged sword. Pivot points can be seen as both dangerous and a great opportunity to enter a trade. Stop orders to enter at pivot points are readily whipsawed by the local market and noise, meaning price may bounce up and down around pivot points before heading in one direction. The question then becomes how are pivot points used to determine a good entry and exit point in the market?

Pivot points can be used in two ways. The first way is for determining overall market trend: if the pivot point price is broken in an upward movement, then the market is bullish, and vice versa. Keep in mind, however, that pivot points are short-term trend indicators, useful for only one day until they need to be recalculated. The second method is to use pivot point price levels to enter and exit the markets. For example, a trader might put in a limit order to buy 100 shares if the price breaks a resistance level. Alternatively, a trader might set a stop-loss for his active trade if a support level is broken.