Forex Charts – What Are They and How Do You Read Them?

There are two basic approaches for online forex trading, When learning to read forex charts. They are fundamental analysis and technical analysis. Fundamental analysis doesn’t rely on forex charts. It uses both political and economic factors to help determine trades. Charts here are only used as a reference. Technical analysis on the other hand will try to predict where the prices are going by analysis of historical price activity. Those who use technical analysis study the relationship between price and time.

The most traded pair of currencies is the Euro and the US dollar, so we will use them in our example. The dollar is on the right hand side of the chart and the Euro is on the left hand side. The currencies are expressed in relationship to each other in pairing. Forex charts will always display how much of the currency on the right hand side is necessary to buy a unit of the currency on the left hand side. Looking at the chart you will notice the last price displayed on a given date. This number is always highlighted. The time is recorded horizontally across the bottom of a chart and the price scale is displayed vertically along the right hand edge of the chart. The time and the price are often in all caps to help the trader remember that technical analysis is about the relationship between time and price. That is a fundamental rule of this type of relationship.

There are many ways to observe the price and time movement on a chart. These include bars, lines, point and figure, and Japanese candle sticks, the most popular method.

With the candlestick method there is a fat, red section that is the body of the candlestick. Lines protrude from the top and bottom and they are the upper and lower wicks. When you look at al the candles on a chart it is clear that bodies can be difference sizes and sometimes there is no body at all.

The same is true with wicks. Candle wicks can be of many difference sizes, or there may be no wick at all. The length of the body and the length of the wick are determined by the price range for the candle. Longer candles will have had more price movement during the time that they were open. The top of a candle wick is the highest price for that currency while the wick’s bottom is the lowest price. A candle or currency is bullish when the close of the candle is higher than the open. In English this means that there were more buyers than there were sales during the opening time period. Sometimes the candles will not have wicks. The price opened and it dropped off until it closed.

Forex charts are not a sure fire method, but they are a tool that can help a trader. Many forex traders use charts on a regular basis. Historical trends do have their place in forex trading as most traders will admit, and using the charts to track historical trends can assist a trader in making a decision today.

Often the charts are online rather than on paper. By joining a service that provides the charts via the internet a trader is able to stay very current indeed on currency activity. Charts can be checked on a minute to minute basis. For those who primarily do their trading based on historical accuracy this can be a true help.

Most forex traders however use a combination of the two approaches. They may chart historical trends, but they will also pay close attention to political, cultural and economic events within a nation. They may also use charts or other methods to check and see if a particular political event as a recent historical parallel that can be checked to determine how the currency behaved in past times. Simply following a system usually is not enough. A trader should also be a student of history and of economics. Using all the tools at your disposal will make you a better and stronger forex trader.

Economic News: Experts Analysis

From the news, here's Forexyard expert's analysis:

USD

Dollar Advances on Deepening Global Recession

The Dollar rose against most of its major currency pairs on Monday. This comes about as falling global equity markets and economic deterioration in Japan and Europe, which are more serious than the slowdown in the U.S., have boosted safe-haven demand for the U.S currency. Nevertheless, the U.S. has also released gloomy economic data. Last Friday's report showed that the U.S. unemployment rate rose to a high of 8.1% in February, as employers cut 651,000 jobs. This reveals that the U.S. has the highest unemployment rate since 1983. Analysts expected weak figures from the U.S. to lead market participants to take positions against the USD in Monday's trading. However, in many respects, much the opposite has happened.

In late afternoon trading, the USD was up 0.4% against the Yen at 98.78, and ended yesterday's session up over 90 pips at the 98.94 level. Against the EUR the Dollar fluctuated between gains and losses, finally by settling virtually unchanged at 1.2674. The Dollar's biggest gains came against Sterling, which fell to 1.3740, the lowest level since Jan. 26th. The currency cross ended yesterday's session with the GBP down nearly 300 pips against the greenback at the 1.3843 level.

Analysts predict that the Pound is likely to continue to remain vulnerable to the woes of the Britain's financial sector as investors fear more gloom, despite massive government capital injections and guarantees. Meanwhile, the USD is likely to strengthen further against the JPY, as the deepening downturn in Japan has taken the lure off the Japanese currency as a safe-haven in recent weeks. A number of analysts hold the opinion that intensified worries over grim Japanese data might take the Dollar back within sight of the key 100 Yen mark.

Looking ahead to today, there are 2 data releases that may help determine the Dollar's strength in late trading today. These are the IBD/TIPP Economic Optimism and Whole Inventories figures both at 14:00 GMT. The thing that is likely to impact the Dollar the most is U.S. Federal Reserve Chairman Ben Bernanke's speech about the state of the U.S. economy at 12:30 GMT. Forex traders are also advised to follow economic news events coming out of the Euro-Zone, Japan, and Britain, as these are likely to help determine the Dollar's main currency crosses by the end of today's trading.

EUR

Pound Crashes to a 6 Week Low vs. the U.S Currency

The Pound dropped to a record low against the Dollar yesterday, and also weakened against the EUR on growing concerns about the outlook of the British banking sector. The GBP was also hit as the Bank of England (BoE) this week will begin to implement its buying of 75 billion sterling worth of assets to boost the money supply, analysts said. The (BoE) said on March 5 that it plans to buy 75 billion pounds of gilts and corporate debt funded by new money in the next three months as it tries to bring down Interest Rates and pull the economy out of its first recession in 17 years.

The British currency fell 2% yesterday against the USD to $1.3843 from $1.4123. Against the EUR, it declined 1.8% to 0.9151 from 0.8970. It also fell 1.3% vs. the Yen to 137.03 from 1.3847. Worries amongst investors were intensified yesterday after Lloyds Banking Group; the biggest mortgage lender said over the weekend that the British government would get a stake of up to 77% in the bank after agreeing to underwrite 260 billion pounds of risky assets.

Market players expect the Sterling to weaken further, in line with medium-term monetary and fiscal realities. Therefore investors should buy the EUR against the Pound following the Bank of England's decision. As the British Pound continues to persistently sell off on each and every negative news flow from British banks, it might drop vs. the USD to as low as the 1.3650 level in the coming days.

The EUR may also make losses against the Dollar, and trade at the $1.2500 by week's end as European finance ministers resist doing more to boost their economies. This is even as the World Bank forecasts the biggest global recession since World War II. The European Central Bank (ECB) has already reduced its main refinancing Rate last week to 1.5%, and ECB President Jean-Claude Trichet stated at a press conference in Basel, Switzerland yesterday the world may be approaching a turning point, and that further measures taken by central banks and governments are likely to stimulate economic growth.

JPY

Yen Slides on Weakening Economy

The Yen fell broadly on Monday on speculation economic conditions in Japan are deteriorating due to the global recession, thus reducing the appeal of the Japanese currency. The JPY declined against most of its major currency pairs after a Cabinet Office report prediction showed that the leading index of business conditions fell to 77.4 in January from 80 in December. Japan fell into its first current account deficit in 13 years in January as the global recession crushed export demand and income from overseas investment. Making the situation worse, Japanese policy makers have been slow to respond to deteriorating economic conditions, denting investors' confidence in the country's ability to tackle the economic crisis.

The JPY dropped to 125.45 per EUR from 124.23 yesterday, and fell to 98.94 versus the Dollar from 98.02. Analysts say that the incoming data is likely to illustrate the vulnerability of the Japanese economy, and therefore the JPY is likely to remain weak, particularly as we head into end of the fiscal year. Also, the Yen is likely to weaken further since the Japanese authorities that a weak Yen is their intention. The Yen has slipped 11% since a 13 year peak against the Dollar in January as Japan's economy grapples with diving exports and its worst recession of the postwar era. Due to Japan's poor economic data, and the fact that the political situation remain uncertain, some investors predict a possibility of the JPY testing 100 level per Dollar very shortly.

Surefire Strategy For Losing Money In Forex

When it comes to forex trading, here is a trading strategy that is bound to lose you a lot of money in no time: the "Go-with-your-gut" strategy...unless your gut is highly trained and impervious to emotion. The trick to making money in the currency exchange market is to avoid making any emotional decisions and follow a carefully thought out strategy that takes the current market and history into account.



Forex trading is a highly volatile market. Emotions tend to run high – and low – and either of those extremes can influence your trading decisions, unless you have a strategy planned in advance, and stick to it, no matter what you THINK you’re seeing at the moment. The keys to success in Forex are system, analysis and perseverance. Note that emotion is not one of them. Going with your gut is a losing proposition in forex trading.

Letting your emotions rule your decisions can hurt your trading in several different ways. It’s the reason that most experienced traders tell novice traders that they need to develop a system – and stick to it no matter what. The system tells you when to buy, what to buy, when to trade and what to trade for. By sticking to your system even when you want to fly in the face of accumulated data, you’ll maximize your profits.

The 5 Needed Rules To A Trading Plan

In trading more so then in any other business, when you fail to plan, you plan on failing. In trading you must have a plan of action written out before you place the trade. The Forex market is way too fast to think you can make sound judgments on the fly. It is full of price reversals and head fakes, and if you have not prepared yourself for the obstacles ahead of you, you are not going to succeed.

You need to have studied your Currency Market and plotted out your support and resistance levels before you pull the trigger on a trade. More so then knowing your forecasted price points your Money Management system needs to be sound and in place. Trading Plans are 85% Money Management and 15% analysis. In this article we are going to focus on some of the Analysis.

I have a whole section in my E- Book on Money Management and it needs a lot of depth. It is the most important aspect to your trading.

Part of it is Position Size which I went over in previous articles. I will not belabor the points here, but I do suggest you reread them if need be. The trading plan has more to do with how you are able to trade the currency market, based on your risk capital.

However, no money management system can make profits for a trader that is hap hazard and makes bad trading decisions, conversely and excellent market timer with great trade selection will not be guaranteed profits without good money management. It is a double edged sword. That's part of the 85% of the trading plan. I will now go over some of the more important minor (most often overlooked) aspects.


Minor Rule Number 1


Before you enter your trades write down the price move you forecast that you can capture. Look for modest profits; don't always be looking or a home run. Get on base often and learn to use trailing stops, this way the market takes you out of the trade. When you are in a good position you will be able to ride the wave longer and capture more profits with less head games occurring. Always be mindful of your risk/reward ratio it should be a minimum of 1.7:1. Example you risk $1000. You should be looking for $1700 in profits.


Minor Rule Number 2


Establish profit objectives. It is a bit different then rule number one. In rule one you have your modest gain that you are looking to capture. In this rule we are going that step further where we are in a run away market that is in our favor and have perhaps broke a support or resistance level. You should have an overall profit objective based on a percentage gain to your equity that you would want to lock in.

Example could be a 12% gain of your account equity. You will move your Trailing Stop to that level and let the market take you out if a retracement occurs. This is a crucial point to keep in mind, I have seen trader's double accounts in one day, and lose all the gain and Base equity because of greed and fear, in another trading session. There can be nothing worse then having a great trade turn bad and not having an exit hatch to jettison out of. Believe me you want to keep those gains; it is really annoying when you let them slip away.


Minor Rule Number 3


Have a maximum amount of capital that you are willing to commit at one time. You have to limit your exposure so you do not begin to over trade. Don t open 5 different positions in different currencies at once. Go to were you believe the action is and plan your trades accordingly. If you feel you need excitement go do something that quenches that thirst. Don' t use your trading account to escape boredom.


Minor Rule Number 4


Have plan for increasing or decreasing your positions. If you want to add to a position do it at certain predetermined levels. Always add less then your base position. (Pyramid Profits with a larger base on first) Example would be if you have 100,000 euro on and you are going to add do 50,000 more, then another 50,000 at a different level. When you go to liquidate the position if you're long sell into the rally at predetermined levels (Stepping).

If you're short buy into the dips at predetermined levels as well.


Minor Rule Number 5


Do Not Force A Trade!

This is really not a minor rule; really there are no minor rules just ones that seem to have less glamour then others. I would like to go over something that I feel is a real important point. Realize how fortunate you are that you do not have to trade every day.

When I worked at the bank I was forced into trading every day and night at times due to customer orders, Interest Rate Swap tails that needed to be bought or sold, Money Market desk activities; that's the borrowing and lending of currencies taking interest rate positions. So my point is do not force a trade if it s not there for you. Enjoy the process of being a sniper, and entering on your terms.

This is an article written by Thomas Strigano, from Forex Confidante.

Recognizing Patterns In Forex Trading Markets

In order to become a successful Forex trader it’s important to develop a pattern of recognition. The forex markets often display a specific pattern that repeats over time across assorted time scales. Forex traders can develop an expertise by acquiring the information around the patterns and then discovering how to recognize these patterns for what they are.

An analogy of a medical student who is learning how to diagnose a disease will explain this better. Every disease, for instance, pneumonia, is defined by a distinct set of symptoms. By running the right tests and making ethical observations of the patient in question, the medical student will collect all the information needed to recognize that the disease is indeed pneumonia. A medical student can never become an expert doctor until he has seen a number of patients, thus gaining practice in putting the pieces of the puzzle together rapidly and correctly.

The brightest illustration of gaining the trading expertise is through pattern recognition and the large literature on technical analysis. Many of the technical analysis books look like the books that are carried around by medical students. They attempt to combine market symptoms into identifiable patterns that are aimed to help the trader diagnose the market. Some of these patterns may be chart patterns, while others may be based on identifying cycles and configurations, and so on. Like the medical student turned doctor, each technical analyst must cultivate a level of expertise by recognizing the various markets and by learning how to identify the patterns.

Notice how the pattern recognition and research answers lead to very dissimilar approaches to the training of forex market traders. The traders tend to learn how to improve their trading by doing their research by learning how to use more sophisticated tools, collect more data, expose the best predictors, and so on.

However, from a pattern recognition advantage point, being successful at trading will not come from conducting more research. Instead, gaining the knowledge directly from the experts and through a great deal of practice will lead to the solid development of competence. The research viewpoint fundamentally treats trading as a type of science. Like scientists, we gain our knowledge by unveiling new observations and pattern recognition through a perspective that treats trading as a functioning activity. Expertise is gained through mentors and by constantly practicing the trades.

Today's Technical News

EUR/USD

There appears to be a bullish cross forming on the daily chart's Slow Stochastic, indicating that an upward correction is expected in the near future. However, almost all other oscillators are stuck in neutral territory, signaling that this pair may be less volatile than expected. Going long with tight stops might be the right strategy today.

GBP/USD

A bearish cross on the 4-hour chart is forming, signaling a potential price drop, while the Bollinger Bands are also tightening, pointing to an imminent volatile price movement. However, the daily chart's Slow Stochastic indicates a recent bullish cross, signaling a possible upward movement. In the short-term traders may expect a downward correction, but longer-term traders may want to maintain their long positions today.





USD/JPY

The price of this pair appears to be floating in the over-bought territory on the 4-hour chart's RSI and there appears to be an imminent bearish cross on the Slow Stochastic, indicating a downward correction may occur soon. The price also appears to be floating in the over-bought territory on the daily chart's RSI which also lends support to this notion. Going short might be the right choice today.

USD/CHF

The pair has been range-trading for a while now with no specific direction. The daily chart's Slow Stochastic is providing us with mixed signals, however it's Bollinger Bands are tightening, implying that a violent breach may take place. Until that will happen, 4 hour chart reflects quite a stable fluctuation within a flat channel thus providing traders a chance to make profits from buying on dips and selling on highs.

Four Reasons To Start In Forex Trading

Forex trading on the internet is without a doubt the quickest way to use your investment capital to its maximum. The foreign exchange markets offer certain advantages to the smaller and larger traders, thus making the foreign exchange currency trading more preferable than the other markets such as stocks, options and all of the traditional futures. Here are some of the top reasons why you will want to use the forex trading on the internet, in order to become a more successful forex market trader.

1. The foreign exchange market is the largest financial market on earth giving forex traders unlimited flexibility and liquidity. That’s over three times larger than the equity market and over five times larger than futures.

2. Forex trading can fit into anyone’s schedule because it is available on the internet 25 hours a day, 7 days a week. There is no waiting for markets to open; they are always open day in and day out. This flexible schedule makes the forex market extremely attractive to those professional and potential traders and investors.

3. Forex trading on the internet encompasses buying one currency while simultaneously selling another currency; therefore you have an equal opportunity to make a profit no matter what direction the currencies are heading. Another great advantage to consider is that there are currently only fourteen pairs of currencies to trade. Compare those fourteen currencies to the thousands of stocks, options and futures when you’re considering the pros and cons of delving into the trading game.

4. Investors and traders are flocking to the forex internet trading as a way to gain a higher leverage to their investments. Some brokers even offer margin ratios of 200/1 in open forex trading accounts. There are also those mini-forex accounts that can be opened for a minimum of $200, offering a margin of 0.5%, where $50 in trading capital will control a ten thousand unit currency position.

The forex prices are often predictable, allowing the currency prices to create trends that can be followed to allow the technically trained forex trader to be able to spot, and even take advantage of, the many entry and exit points. One of the best parts about forex trading on the internet is that there is no charges for commissions, any exchange fees or any other hidden fees. The forex market is a very easy market to research the countries and currencies involved. The only fees come from the forex brokers, who only make a very small percentage of what the bid/ask price is. Plus, there is no need to calculate any commissions or fees when completing a trade and your transactions are made a confirmed within seconds. Also because this is all done electronically, with no people involved, there is not much that can slow you down.

Brief Information For Traders

Here's a short daily analysis from Forexyard Experts:

EUR/USD

The hourlies show quite a wide range-trading with no specific direction; however, the daily chart's Bollinger Bands are tightening, indicating upcoming increased volatility. A bearish cross on the 4-hour chart's Slow Stochastic indicates an upcoming test of the 1.2800 level once again. If that level is breached, swinging in the trend would be the best strategy.

GBP/USD

The pair's bullish price movement continues within the bullish channel, which still has yet to be breached. The bullish cross forming on the hourly chart's Slow Stochastic supports the upward notion as well. The RSI is floating above the 50 level pointing to the continuation of the upward movement. Next testing point might be around 1.4950.

USD/JPY

After touching a base at 90.89, the pair now consolidates a bit higher at around the 91.46 level. All oscillators show that the bullish momentum will probably continue. The Slow Stochastic of the 4-hour chart is showing no crosses in the horizon, and the bullish momentum there appears to be intact as well. On the daily chart, this pair is still trending upwards and there are no imminent indications of a reversal. Therefore, traders can maximize profits by entering steady long positions.

USD/CHF

The bullish momentum continues full steam ahead within the bullish channel which still has yet to be breached. The 4-hour chart is showing a strong bullish cross, and the RSI on the hourly chart also supports the continuation of the bullish movement. Next testing point should be around 1.1780. Going long appears to be preferable today.

Five Beginner Forex Trader Mistakes To Avoid

Making mistakes is a natural part of any learning process. When learning to trade or invest in the Forex market, mistakes can lead to losses and become very expensive. Mistakes are made not only by new but also by experienced traders.

Here's some of them:

1. Do not use too much margin when trading or investing. Margin is the use of borrowed money to purchase securities. While it is true that using margins can increase your profits, it can also make your losses bigger. Never look at margins as “free” money, otherwise your potential to lose much more money will greatly increase. Margin is not free money and using it too much can end up making more debt than profits. You would not buy stocks using a credit card, so you should not use margins to trade currency. When investors use margins in Forex trading, it requires the investor to watch their investments much more closely than when margins are not used. Margins should never be used if the investor does not have the experience or time to closely monitor their trades.

2. Do not buy and trade on unfounded tips. Unfortunately, this is one of the most common mistakes, even with more experienced traders. It is easy to be tempted to buy or trade currency or even stocks when you overhear someone talking about the next big “thing”. Do not fall victim of investing and trading based on tips you hear or read about on television or on the Internet. If you hear about a trade that interests you, do some research and talk to your broker before trading or investing. If possible get a second opinion about a Forex tip before buying, selling or trading any form of currency.

3. Understanding how the foreign exchange market works, the terminology and terms used in the Forex is very important to new traders. Go through the tutorials and free demos widely available on the Internet that show how to use the Forex market to your advantage. It is also wise to choose an experienced broker that can help you trade and invest. Brokers should know everything about the Forex Market and be able to help traders and investor make wise choices. To be on the safe side, find a broker that is tied with a good financial institution and that has experience in the Forex.

4. Avoid buying or selling any currency just because the rate is low. Sometimes this may be a good move, but a low rate does not necessarily mean that it will profit the investor. Instead of choosing a currency to buy or trade just because it is low, it would be best to look at all of the factors that affect the exchange rate and look at the trends and history. Most of the time, there is a distinct reason why these rates are low. Research the trends of the currency and find out, which ones are the best profit makers when trading on the foreign exchange market.

5. Do not underestimate your trading ability. Some investors feel that they do not understand the Forex well enough to trade to their fullest ability. Anyone with willingness to learn the Forex can profit with some education and research. The process of learning all the aspects of the foreign exchange market can take some time, but it is within the reach of new investors to learn how to obtain success and profits in forex trading.

How To Guarantee Failure In Forex Trading

Right now due to the Worldwide economic crisis Forex trading has become one of the most exciting new ‘games’ in town. The stakes are variable enough that almost anyone can play, and the potential winnings are high enough to tempt even the most conservative into the running. There’s something romantic and dashing about trading in money – something that stock, bonds and mutual funds just don’t have. With trillions of dollars changing hands everyday, it seems like everyone’s got a fail-safe method that will make you rich overnight.

Here are nine failsafe facts that will guarantee that you fail in forex trading.

1. There is a failsafe method to make money on every trade.

Just like there’s no such thing as a free lunch, there’s no such thing as a failsafe method. You WILL lose money on some trades, it’s inevitable. Expecting to always win is a guarantee that you will hang on to trades long past the point that an experienced trader would have found an out.

2. You don’t need to know anything about the market to make money in it.

Not knowing your playing field is a sure way to hit every bump and hole in it. It’s not enough to read a few articles from your dealer. You need to make a concentrated effort to understand the forces that drive the market so you’ll know the best times to make a move.

3. You can play a winning game by making frequent trades with small profits.

If your goal is to make a few hundred dollars a day, you may be ahead of the game, but you’re seriously limiting your profit potential. The only people getting rich on frequent tiny trades are the dealers taking commission on them.



4. You don’t need a plan to make money in the currency market – making money IS a plan.

Trading without a well-thought out plan is like jumping out of a plane without a backup chute. Your plan is what keeps your eye focused on your goal, and gets you through the inevitable losses. Currency trading isn’t a short-term game, but most new traders (95%) quit within the first year because they didn’t have a plan to follow.

5. If you stick with a losing trade long enough, it will turn around.

Sticking with a losing trade is a good way to lose more money. When a deal isn’t going the way that you expected, it’s hard to admit that you were wrong and get out – but it’s the best way to avoid losing even bigger money. Winning on one trade isn’t going to make you rich overnight. Consistently knowing when to get out – whether it’s to cut your losses or grab your winnings – is the way to be a successful currency trader.

6. Where there’s smoke, there’s fire.

Rumors are just that – rumors – 99% of the time. If you want to win at the game, base your trades on reality, not hearsay. On the other hand, rumors can alert you to look at what’s really happening and make a decision based on the movement that you see.

7. The more currencies you trade, the better your chances are of scoring a big profit.

The more you know about a currency, the easier it is to predict how and when it will move. The more intimately you understand the way it behaves, the better your chances are of consistently making successful trades in that currency. If you’re trying to focus on too many different currencies, you’ll be spreading yourself too thin to really get to know any one of them.

8. Thinking long-term and trading short-term is a sure way to make money in the long run.

That’s one of those logical fallacies that sound good on the surface. Look at it more closely though. If you’re trading in the short term, then you need to keep your eyes on the short term rather than trading to what you think the market will be in a week. Today is today – if you make your best trade today every day, you’ll consistently be ahead of the game.

9. The way to make money in forex is to always have a trade in motion.

Sometimes there just isn’t a trade that’s going to profit you. Making a trade just to make a trade is a sure way to do yourself no good – and possibly a great deal of harm.

Obama's Inauguration & The Forex Market

Just to register how a political (and historical) event can affect the Forex Market, here's Forexyard market analysis:

On Monday, the U.S. Dollar made extremely significant gains against most of its major currency pairs ahead of Barack Obama's inauguration, which takes place later today. This is in contrast to Sunday's trading session that saw the Dollar go bearish against its main currency pairs, such as the GBP and the EUR. The Dollar's rebound since the start of Tuesday's trading session has left many traders excited at the prospects of what lies ahead of them in the coming trading days.

The Dollar gained a massive 300 pips against the EUR, and a massive 550 pips versus the GBP, to close yesterday's trading at 1.3038 and 1.4308 respectively. The Dollar also rose against the JPY to close yesterday's session at 90.34. The Dollar has also continued to maintain its strength since the start of today's trading. There are a number of important factors that contributed to the Dollar's spike yesterday. These include optimism in the U.S. ahead of Barack Obama's inauguration, low trading volume, and the bleak outlook for Britain and the Euro-Zone.

As the Obama's inauguration becomes closer, the Dollar has been responding with bullishness. Investors have been attracted to the Dollar, due to renewed optimism of a new U.S. administration that may do away with adversary politics in the U.S. Not only that: it seems that there is wide support for Obama's additional $850 billion stimulus plan. As of late, he seems the only man that can rescue the U.S. from her dire economic situation. Therefore, as the excitement builds, so does the value of the Dollar.

The low trading volume on Monday, owed to few news events coming out of Europe and the U.S. as the Martin Luther King Jr. bank holiday also helped the Dollar gain strength. Adding to this, officials from the European Central Bank (ECB) said that the Euro-Zone's economy is likely to slump 1.9%, rather than the previously forecasted 1%. This obviously added to the EUR's decline against the Dollar

Yesterday, in regards to the GBP's decline, the Royal Bank OF Scotland (RBS) set shock waves through Britain and Europe as RBS's shares declined 67%. This led to renewed fears of nationalization of Banks across Britain. These different factors show that economic woes across the Atlantic may continue to support the Dollar.

The issue that may have played mostly into trading when it came to the EUR and the GBP against the U.S. is the inauguration of Barack Obama later today. Investors and most of the U.S. populous see Obama as the only man that may be able to pull America out of the worst economic crisis since "The Great Depression." This is likely to play into investor's behavior in the coming trading days too.

Traders, keep an eye on it!

Technical Analysis In Forex Trading

Fundamental analysis and technical analysis are the two basic tools used to follow and predict the behavior of the forex market.

While fundamental analysis considers the factors that affect a country's economy and its effect on its currency, technical analysis predicts price movements and market trends by studyimg what has actually happened in the past. Technical analysis looks at the past performance and history of an investment and creates charts to be used as primary tools. It relies on data showing this history and current trends and patterns to make predictions of future market activity. It ignores the intrinsic value of the investment in favor of its statistical abstract. Technical analysis is only concerned with price movements and not with the reasons for any changes.

Technical analysis is used to identify significant patterns of market behavior. The history of the value of currency pairs is a matter of statistical record and can be easily accessed. Its supporters claim it is the only sure way of understanding the market and predicting its future based on the high probability that certain recognized patterns tend to repeat themselves on a consistent basis. This is especially true in the Forex market. Fans of technical analysis say that the economies of modern nations are so complex that they no longer can be accurately predicated. It is only in the study of the past history of the currency and the trends that are revealed that a possible glimpse of the future be found.

Forex technical analysis aims to support the investor in determining his views and forecasts regarding the exchange rates of currency pairs. The technical approach concentrates on prices and is based on objective tools like charts and tables, which neutralize external factors and emotions. It can and should be used to project movements in the Forex trade. Of course, in the end, it is going to be the investor's own preference that settles the question, and this is true of the market. Both fundamental analysis and technical analysis are mere tools that help make the decisions that in the end only the investor can make.

Fundamental Analysis In Forex Trading

How can one predict market movements in Forex trading?

The two most useful tools used to forecast the behavior of the forex market are technical analysis and fundamental analysis. Technical analysis is concerned with the effects while fundamental analysis studies the causes of market movements.

Fundamental analysis forecasts future price movements based on economic, political, environmental and other relevant factors, like seasonal cycles, supply and demand, government policy. Fundamental analysis is a macro assessment of where a currency should be traded based on the movement of the currency's price itself.
The economic conditions of the country, monetary policy and other fundamental elements play an important role on this assessment. Many profitable forex trades are made moments prior, or shortly after, major economic announcements.

Fundamental analysis considers the intrinsic value of an investment when making a decision as to its future activity. There are some who feel that this is an excellent method of making decisions in the Stock market as a lot of data can be gathered and studied concerning the value of a Company. But how can a Nation have an intrinsic value?

The answer is fairly simple. The economy of a country goes through a basic business cycle, and there are a lot of indicators available to the investor to measure where a particular economy stands at any given time. Such indicators are followed by traders worldwide. The analysis would involve matching the stage of the cycle with its impact on the value of its currency. The normal economic cycle consists of periods of inflation and deflation with peaks and troughs in between. Certain indicators such as the Gross National Product (GNP), Employment Report, Consumer Price Index and current prime interest rates can give a good idea of the stage of the economy at any given time.

Each of these indicators would tend to impact currency valuation in different ways, and sometimes would even vary from country to country. In the United States, rising interest rates are normally associated with currency deflation, for example, and it is factors such as this that are the heart of fundamental analysis. This analysis can become quite detailed, but the focus remains on the country and its economy. Every factor that impacts the country and its economy can play a role in the value of the currency, and understanding these factors are the tools the fundamental analyzers use to guide their investment strategy.


Economic News


USD
Dollar Rises on Risk Aversion
Trader's aversion to risk has continued to push safer currencies higher as global equity markets continue to trend lower. Both the Nikkei and Dow Jones Industrials ended lower yesterday and that has been influencing the currency markets. The financial markets show the concerns of a global recession. Traders have been unraveling riskier investments financed with loans from currencies with ultra low Interest Rates, predominately in the USD and the Yen. These two currencies may continue to see support in the short term as investors lose confidence in riskier assets.

The Dollar continued a 3-day rally against the EUR, finishing the day up at 1.3328. The Dollar also posted significant gains against the GBP, sending the pair down 2% to finish the day down 1.4774.

Trading today and tomorrow may be based on fundamental data coming from the United States. The U.S. trade balance report will be released today at 13:30 GMT and is expected to show a decline in the difference between U.S. exports and imports. Tomorrow the monthly retail sales report will be released. This report has proven increasingly difficult to accurately forecast. Traders will be looking for these reports for positive economic data to give direction for the struggling U.S. economy.
EUR
EUR Stops its Slide against the GBP
The EUR continues to lose ground against the Dollar as added market risk weighs on the European currency. However, the currency did break a 4-day losing streak against the GBP to close the day up at 0.9020.

The EUR/GBP, which last year saw an appreciation in excess of 26%, has given back some of those gains so far this year. The drop in the GBP's valuation stems from an ever more deteriorating economic situation. The Bank of England (BoE) has slashed Interest Rates, at times cutting rates much faster and steeper than forecasted. British Interest Rates are predicted to fall close to 0% in the near future, and the next step of action perhaps could be the printing of new money or the purchase of commercial debt to stimulate the British economy.

The economic downturn has been very sharp for Britain and currently Interest Rates stand at an all time low. Despite the British recession, the Pound may be poised to head higher against the EUR on future European Interest Rate moves later this week.

Most traders are anxiously awaiting the Interest Rate decision by the European Central Bank (ECB). In this Thursday's meeting, the ECB is expected to cut rates by 0.50%. So despite the recessionary trends, we may see the EUR/GBP head lower on ECB rate cuts, with perhaps a return below the 0.8900 mark.
JPY
JPY Breaks Support Line
As risk aversion heads higher, so does the value of the Yen. Yesterday the JPY strengthened across the board and dropped below a significant support line. At one point in yesterday's trading the USD/JPY fell to a low of 88.86 before ending the day at 89.27. The large price swing may be attributed to low levels of liquidity as Japanese markets were closed yesterday for a bank holiday.

This is the fourth consecutive day for a strengthening Yen. The renewed gains sparked further speculation of Japanese government intervention in the currency markets. A strong Yen hurts Japanese exports, a major component of the Japanese economy. The government has made pledges to intervene in the open market, but we have yet to see a firm commitment to help weaken the currency.

Traders may look for the Yen to perhaps continue its bullish run. Keep an eye for the U.S. trade balance report today. This may help to send the JPY higher against the Dollar, possibly below the 89.00 level.
Oil
Crude Drops below $40
Crude Oil continues to head lower for the 4th day in a row. The driving factor is concerns of the slowing global economy. Rising supplies and lower demand has pushed the price of Crude below the $40 level. This was a support line that many analysts said could not be broken.

The end to a gas feud between Russia and Ukraine did little to lower the risk tolerance in the market and traders continued to move out of equities and riskier commodities throughout the day. This spat was the start of the Crude rally at the beginning of the year. Now the price of Crude Oil stands below this psychological mark. Many of the concerns are on the demand side due to a global recession.

Some are calling for Oil to be priced at $25; however this figure may be a bit to bearish, even for the most skeptical of Crude Oil traders. A $35 mark could be reachable by the end of today's trading.

 Technical News


EUR/USD
It appears that the bearish trend may have run out of strength as the current price level has dropped the pair into the oversold territory as the 4 hour chart's RSI reveals. The pair also currently floats near the bottom barrier of the daily chart's Slow Stochastic, suggesting a bullish correction may be imminent. In that case, going long with tight stops may be the correct strategy.
GBP/USD
The typical range trading on the hourly chart continues. Both the daily RSI and Slow Stochastic are floating in neutral territory. However, the 4 hour chart's RSI can already be seen in the oversold territory. It appears that the possible next move might be a bullish one. When the upwards breach occurs, going long with tight stops appears to be preferable strategy.
USD/JPY
The daily chart is showing mixed signals with its RSI fluctuating at the neutral territory. However, the 4 hour chart's RSI is already floating in the oversold territory indicating that a bullish correction might take place in the nearest future. When the upwards breach occurs, going long with tight stops appears to be preferable strategy.
USD/CHF
Narrow range trading continues as the pair did not make a significant move in either direction, and is currently traded around the 1.12 level. The 4 hour chart's RSI is already floating in the overbought territory indicating that a bearish correction might take place in the nearest future. When the downwards breach occurs, going short with tight stops appears to be preferable strategy.

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Online Forex Trading

The Forex market is not something new, it exists for over thirty years. Prior to the advent of the Internet, Forex trading was mainly done via phone, fax or in-person orders. Most of the trading could only be executed during business hours as well as the activities related to Forex, like deposits and profit taking.

The Internet has caused a radical change in the way Forex trading is conducted throughout the world. The Internet made it possible around-the-clock trading and conveniences such as the use of credit cards for fund deposits. With the introduction of computers, and then the Internet, the Forex market continues to grow as more and more people and businesses alike became aware of this trading market and were given easier access to it.

Online foreign exchange trading occurs in real time. The exchange rates change so rapidly, in intervals of seconds, that the quotes are accurate for the exact time they are displayed only. A different rate may be quoted at any moment. When a trader locks in a rate and executes a transaction, that transaction is immediately processed and the trade completed.

Due to the constant changing rates the Forex software used for online trading must be able to provide real time access to the most current exchange rates, to deal and order making, to deposits and withdrawals and to monitoring the status of positions and trader's accounts. Online trading platforms normally operate 24 hours a day just as the Forex market.

There are two basic steps to fulfill before you can start trading online:

1. Register at a trading platform: registration is done online and the basic information required is the trader's name, address, e-mail, telephone, and sometimes an ID number (passport, SSN or driver's license). The information requirements may vary from one trading platform to another. As part of a global anti-money laundering policy the registrant must declare that the funds used for trading are not the result of money laundering or any criminal activity.

2. Deposit funds: after registering, funds must be deposited to facilitate trading. Many Forex platforms require that, in addition to the funds used for trading, an additional amount be deposited as a “maintenance margin”, which works in fact as an additional guaranteee.

Some trading platforms require the download and installation of specific software that will grant access to trading only to computers that have the software. Others have fully web-based systems that enable trading to be conducted from any computer connected to the internet from anywhere in the world.

Choosing A Forex Broker

If you intend to get involved in forex trading, you must do it through a broker or a financial institution. A broker or investment advisor will be able to tell you more about the forex trading market and the forex trading systems to use.

Deciding which brokerage firm is best for you is as important in the Forex market as it is in the Stock Market. However, the way of evaluating the various firms differs slightly between the two markets. In the Stock Market, brokers earn their money from commissions or a flat "per transaction" fee. Forex trading does not actually involve commissions, but it does have what is known as spread, i.e. the difference between the price a currency can be purchased and the price for which it can be sold at a given time. This spread is how the broker makes its money, so it functions exactly as a commission. You can be pretty certain that the spreads vary between brokerage firms just as widely as commissions do in the Stock Market, so you should investigate this carefully before making your selection.

Most brokerages dealing with the Forex market are involved with large financial institutions where the funds are available to provide sufficient leverage for their clients. It is also important to make sure the firm you choose is reliable. In the US, there are many regulations and laws in regards to who can handle forex trading so if you are searching the internet for a broker, be sure you read the print, and the information about where the company is located and if it is legal for you to do business with that company. They should be registered as a FCM (Futures Commission Merchant), and regulated by the CFTC- Commodity Futures Trading Commission.

Several firms offer widely varied packages of tools that can assist you in making trading decisions and understanding the market better. They provide information and research that is available to you in many different formats. It is wise to take a little time to study these tools, and to find the ones that are most helpful to you. They are going to end up being very important and you need to feel comfortable with them.

Look for a firm with a wide variety of account and leverage options. The ability to use the Forex market's advantages in leverage is one of the things that makes it the most attractive to you as an investor, and you want to have the maximum flexibility here. Although there are a few unethical firms operating, a few references and inquires should be able to identify them. Make sure that you learn as much as you can about a broker before you make your decision. It is also a good idea to go with a brokerage company that has been around for a while. This selection process is worth a little effort on your part and an investment of time. It is an investment that is going to most likely pay off by preventing future headaches.

Forex Trading vs. Stock and Commodity Markets

Learning the advantages of investing in the Foreign Currency Exchange Market (Forex) over the Stock or Commodity Market is of fundamental importance when considering the different types of investment. The Forex market offers so many advantages that it is not hard to understand its popularity.

This market is similar to the stock market, as people buy and sell, but the market and the over all results are much larger. On the Forex market, almost two trillion dollars are traded daily. The amount is much higher than the money traded on the daily stock market of any country. The profit potential comes from the fluctuations (changes) in the currency exchange market. The advantage of the Forex Market is that the regular daily fluctuations - often around 1% - are multiplied by 100.

Unlike the stock market, where shares are purchased, Forex trading does not require that you purchase or sell actual, physical currency: you work and trade with your own base currency and deal with contracts for amount and exchange rates of any currency pairs you wish to.

While the stock market operates only on business hours, the Forex Market operates 24 hours a day. It is a truly world wide market, constant trading is done in the Forex markets as time zones will vary and the markets will open in one country while another is near closing.

Although it has its trends and cycles, the Forex Market is not locked in the Bear vs. the Bull market mentality of the Stock Exchange. What happens in one market will have an effect on the other countries forex markets, but it is not always bad or good, sometimes the margins of trading are near each other. Since all Forex trades involve the exchange of one currency for another, one currency's hard times opens the door for a profit in another currency. The market is not adversely affected by rising interest rates. When a nation raises rates, normally the currency is strengthened, while rising interest rates tend to depress the stock market.

The number of different stock issues on the New York Stock Exchange and NASDAQ exceeds 8000. That is a lot of stocks and it is time consuming to keep up with even a portion of them. Opposed to it, there are four major currencies, and only about 34 second tier currencies, to consider in the Forex Market. Brokerage firms do not stand between you and profit in the Forex. Not only are the brokerage and commission fees almost non-existent, but analysts in the Forex tend to actually analyze in the currency market and not dictate or control the rise and fall of the market.

Short-term currency trading offers some unique attractions to private investors, like 24-hour trading, volatile markets offering profit opportunities, the ability to profit in rising as well as falling markets, leveraged trading with low margin requirements, options for zero commission trading.

To summarize it, when the two markets are compared, Forex currency trading certainly looks like the better investment choice, even under the present world economy conditions.

An Introduction To Forex Trading

The currency trading market is the biggest and fastest growing market on earth, although most people outside of the financial world consider the New York Stock exchange to be the pinnacle of financial trading. The Foreign Exchange Market is in fact the true leader. The Forex Market, as this currency exchange is known, has a volume of around 1.5 trillion United States dollars daily. This staggering amount is over one hundred times larger than the volume of the New York Stock Exchange.

The forex market is over thirty years old as it was established in the early 1970's. It is not based on any one business or investing in any one business, but the trading and selling of currencies. What is traded, bought and sold on the forex market is something that can easily be liquidated, meaning it can be turned back to cash fast, or often times it is actually going to be cash. From one currency to another, the availability of cash in the forex market is something that can happen fast for any investor from any country.

The market is world wide. It is what is known as an “interbank” market where trades are conducted OTC (over the counter), which means they take place directly between the parties involved in the trade rather than through a central exchange. The main centers for the Forex market are located in New York, Tokyo, Frankfurt, Sydney and London. This allows the market to operate virtually 24 hours a day.

Put simply, the Forex market is based on trading the currency of one country for the currency of another country. The ratio of the value of one currency to the other rises and falls, and this ratio is what fuels the market. The trades consist of the simultaneous buying of one currency, for example, United States Dollars (USD), and the selling of another, i.e. The European Euro (EUR).

The most important market in Forex trading is called the “spot market” because trades are executed at once, or "on the spot". There are other elements of Forex trading, such as futures trading, and Forward Outrights, which are slightly more complex than spot trading.

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