There are many ways to calculate pivot point. The most accurate way that found is calculated by taking the average of the high, low and close of a previous period (or session).
Pivot point (PP) = (High + Low + Close) / 3
Below will be the example:
Open: 1.2386
High: 1.2474
Low: 1.2376
Close: 1.2458
The PP would be,
PP = (1.2474 + 1.2376 + 1.2458) / 3 = 1.2439
What is the message behind the number? It tells us about the market that trade above 1.2439, it is bull market. And if the market is trading below this 1.2439, it is likely to be a bear market. This kind of condition will continue until the beginning of next session.
Since Forex is a 24 hours market, we can take the open, close, high and low from each session at anytime. But the more accurate predictions is calculating at 00:00 GMT until the close at 23:59 GMT. There are also have support and resistance levels in this market. There is other calculation of the PP as below:
Support 1 (S1) = (PP * 2) – H
Resistance 1 (R1) = (PP * 2) - L
Support 2 (S2) = PP – (R1 – S1)
Resistance 2 (R2) = PP + (R1 – S1)
H =High of the previous period
L =low of the previous period
Let’s say, PP = 1.2439
S1 = (1.2439 * 2) - 1.2474 = 1.2404
R1 = (1.2439 * 2) – 1.2376 = 1.2502
R2 = 1.2439 + (1.2636 – 1.2537) = 1.2537
S2 = 1.2439 – (1.2636 – 1.2537) = 1.2537
These levels are used to mark down the levels of support and resistance for the present session.
By using the same example above, the PP was calculated by using the information of the earlier session (the day before). From that, we can see clearly about the resistance and support levels. However, we also can use the previous weekly or monthly information in order to calculate the support and resistance levels. By doing so, we are able to notice the market flowing over a longer term. In addition, we are able to see the possible levels that the support and resistance levels might have achieved throughout the week or month. Most of the long term dealers calculated the pivot point by using the weekly or monthly data, and sometimes it also used by short term dealers in order to get a good idea about the longer term trend of the current market.
Friday, July 31, 2009
Pivot to Map Time Frame
A use of map is that you can see how the market goes relative to the earlier market movements. We can see the responses from traders and investors at anytime and get a general idea of where the market is heading to. It helps you to trade wisely. Pivot point in Forex market is a turning point or condition. It is the market level changes from “bull” to “bear” or vice versa. It is a bull market if the market continues to go up level and if the market is expected continue goes down level, then it is a bear market. There are also have some support or resistance levels in the market. A possible bounce is considered reasonable if price can’t break the pivot point.
Pivot points function well in liquid markets as well as in other markets.
How does pivot point work? It simply works out with traders and investors use and trust, as well as bank and other traders’ companies. All the traders should know that pivot point is an important measurement for the strength and weakness of any market. As already stated, the pivot point zone is a familiar technique as it works simply because of the use and trust from many traders and investors. But what about the other support and resistance zones (S1, S2, R1 and R2)? To predict something likely to happen for the support or resistance level with some mathematical formula in some way is quite subjective. We can not rely on that formula blindly merely because of the formula suddenly popped out on the level. For this reason, we have found another simpler alternative way to map our time frame, and somehow it is more objective and effective. What we should know is that support and resistance levels are not merely a level resulting from the mathematical formula but they are measured objectively. These levels which have upturned there before have a higher probability of being more effective.
Mapping method works on trending and on sideways market conditions. In a trending market, it helps us determine the strength of the trend and trade off important levels. On sideways markets, it tells us about the possible turning levels. How does our mapping method function?Mapping method can function in three different ways such as: -
(i) As a trend identification (measure of the strength of the trend)
(ii) A trading system using important levels with price behavior as a trading signal
(iii) To set the risk reward ratio (RR) of any given trade based on where is the market relative to the previous session.
Pivot points function well in liquid markets as well as in other markets.
How does pivot point work? It simply works out with traders and investors use and trust, as well as bank and other traders’ companies. All the traders should know that pivot point is an important measurement for the strength and weakness of any market. As already stated, the pivot point zone is a familiar technique as it works simply because of the use and trust from many traders and investors. But what about the other support and resistance zones (S1, S2, R1 and R2)? To predict something likely to happen for the support or resistance level with some mathematical formula in some way is quite subjective. We can not rely on that formula blindly merely because of the formula suddenly popped out on the level. For this reason, we have found another simpler alternative way to map our time frame, and somehow it is more objective and effective. What we should know is that support and resistance levels are not merely a level resulting from the mathematical formula but they are measured objectively. These levels which have upturned there before have a higher probability of being more effective.
Mapping method works on trending and on sideways market conditions. In a trending market, it helps us determine the strength of the trend and trade off important levels. On sideways markets, it tells us about the possible turning levels. How does our mapping method function?Mapping method can function in three different ways such as: -
(i) As a trend identification (measure of the strength of the trend)
(ii) A trading system using important levels with price behavior as a trading signal
(iii) To set the risk reward ratio (RR) of any given trade based on where is the market relative to the previous session.
Pivot Forex
The Pivot techniques work well in markets with a wide daily trading range, such as the Forex. Pivot lines steers traders away from “no man’s land” and identifies “high activity” areas in which the equity has a high probability of reversal. These areas are important trading zone watched daily by floor traders and computer trading systems. The levels for the trading ranges and pivots are the support and resistance levels of the market in the next time interval. It is important to note that the predicted levels only give the range in the next time interval. They do not indicate when the levels will be reached by the currency price action. The pivot is a level at which the underlying asset can be expected to change direction and/or move rapidly away from.
DAILY PIVOT DATA
My pivots program provides not only Pivot, R1, R2, S1, and S2, but also the M1, M2, M3, and M4 points as well. It is common to find many traders calculating only the Pivot, R1, R2, S1, and S2 levels. In the Forex market, you will find additional points of support and resistance to be very significant indeed. These pivot data points are published daily and is available for access to you once you start the course. The Forexmentor video course also shows you how to calculate the Pivot points using our proprietary Pivot Calculator. After you have calculated the pivot numbers for the day, place horizontal lines on your 15 minute and 1 hour charts at the pivot numbers for the day, or at least as many lines as your chart has room for. These pivot points will guide your trading throughout the day.
DAILY PIVOT DATA
My pivots program provides not only Pivot, R1, R2, S1, and S2, but also the M1, M2, M3, and M4 points as well. It is common to find many traders calculating only the Pivot, R1, R2, S1, and S2 levels. In the Forex market, you will find additional points of support and resistance to be very significant indeed. These pivot data points are published daily and is available for access to you once you start the course. The Forexmentor video course also shows you how to calculate the Pivot points using our proprietary Pivot Calculator. After you have calculated the pivot numbers for the day, place horizontal lines on your 15 minute and 1 hour charts at the pivot numbers for the day, or at least as many lines as your chart has room for. These pivot points will guide your trading throughout the day.
Learn Pivot Points
My trading system is based on pivots. Pivot points are targets, or mile markers, used for assessing price movement and determining direction.
Pivot points are rarely understood and even rarely used by the Forex trader. However, they are gaining in popularity, once traders realize there is nowhere else to turn. Used by professional floor traders, pivot trading is one of the oldest and most valuable technical trading methods available. Professional traders calculate pivot points in preparation for each trading sessions. The pivot lines system is an indispensable guide for making profitable decisions. For an active trader, the pivots can mean the difference between winning and losing.
WHY PIVOT POINTS WORK
Pivot points are 'super-sized' resistance and support levels. They are more important than normal resistance and support levels because they're objective, and it’s not easy to ‘read back into the data’ what a trader may be subconsciously looking for. Many indicators and pattern recognition systems used in technical analysis are subjective and prone to human error.
For example, two traders drawing Fibonacci lines might take entirely opposite trades because a Fibonacci line does not inherently contain rules for objectivity. The same goes for Elliot Waves (very prone to ‘oh that was the 2nd wave!’) and other common systems. Common technical analysis indicators like Parabolic SAR, EMA and others generate so many false signals it again becomes difficult to be objective in choosing combinations of indicators and knowing when to execute. This is why objectivity is the pivot points system’s greatest strength, as it takes the analysis out of the trader’s hands, and puts it in the capable, mathematical hands of the computer. Why are pivot points so good at forecasting short-term price levels? Pivot points are reflective of both short-term volatility and trader psychology.
Pivot points are rarely understood and even rarely used by the Forex trader. However, they are gaining in popularity, once traders realize there is nowhere else to turn. Used by professional floor traders, pivot trading is one of the oldest and most valuable technical trading methods available. Professional traders calculate pivot points in preparation for each trading sessions. The pivot lines system is an indispensable guide for making profitable decisions. For an active trader, the pivots can mean the difference between winning and losing.
WHY PIVOT POINTS WORK
Pivot points are 'super-sized' resistance and support levels. They are more important than normal resistance and support levels because they're objective, and it’s not easy to ‘read back into the data’ what a trader may be subconsciously looking for. Many indicators and pattern recognition systems used in technical analysis are subjective and prone to human error.
For example, two traders drawing Fibonacci lines might take entirely opposite trades because a Fibonacci line does not inherently contain rules for objectivity. The same goes for Elliot Waves (very prone to ‘oh that was the 2nd wave!’) and other common systems. Common technical analysis indicators like Parabolic SAR, EMA and others generate so many false signals it again becomes difficult to be objective in choosing combinations of indicators and knowing when to execute. This is why objectivity is the pivot points system’s greatest strength, as it takes the analysis out of the trader’s hands, and puts it in the capable, mathematical hands of the computer. Why are pivot points so good at forecasting short-term price levels? Pivot points are reflective of both short-term volatility and trader psychology.
Wednesday, July 15, 2009
10 Things You Should Beware
* Watch out of those who guarantee large profits.
* Stay away from those who promise no financial free
* Beware of those everything sounds very easy.
* Don’t trade on Margin unless you have been trained
* Please take cautious to online/phony transferring cash in online trading
* Make sure its really interbank market
* Job offer as Account Executive might lead you to use your money for currency trading
* Need to ensure the company background
* Avoid those company who won’t let you know their background
* Don’t fully trust any agency or broker, put some effort to understand currency trading by yourself.
Risks Accessment Consideration
Trading currency exchange will carry certain level of risk which may not be fitting all investors' appetite. Prior to trading, investor should take consideration of their experience level, monetary objectives, financial management plan and risk-bearing.
Credit risk
Due to intended or unintended action by counter party, an outstanding currency position may not be paid off as agreed due to voluntary or involuntary action by counter party.
Replacement risk
When you cannot get refund from the counter party and induce your account deranges, instantly clear off your books to hold the currency price rate.
Settlement risk
Due to different prices at different time zones between you and your counter party, transaction payment might possible to be declared not enough money before payment is executed.
Exchange rate risk
Variation of currency rate is due to the worldwide market supply and demand. Price changes may bring to loss from profitable position.
Interest rate risk
Because of variation of currency rate, in forward spread , there might be some maturity gaps and transaction mismatch.
Dictatorship risk
Dictatorship (sovereign) risk refers to the government's interference in the Forex activity. Traders have to realize that kind of the risk and be in state to account possible administrative restrictions.
* Stay away from those who promise no financial free
* Beware of those everything sounds very easy.
* Don’t trade on Margin unless you have been trained
* Please take cautious to online/phony transferring cash in online trading
* Make sure its really interbank market
* Job offer as Account Executive might lead you to use your money for currency trading
* Need to ensure the company background
* Avoid those company who won’t let you know their background
* Don’t fully trust any agency or broker, put some effort to understand currency trading by yourself.
Risks Accessment Consideration
Trading currency exchange will carry certain level of risk which may not be fitting all investors' appetite. Prior to trading, investor should take consideration of their experience level, monetary objectives, financial management plan and risk-bearing.
Credit risk
Due to intended or unintended action by counter party, an outstanding currency position may not be paid off as agreed due to voluntary or involuntary action by counter party.
Replacement risk
When you cannot get refund from the counter party and induce your account deranges, instantly clear off your books to hold the currency price rate.
Settlement risk
Due to different prices at different time zones between you and your counter party, transaction payment might possible to be declared not enough money before payment is executed.
Exchange rate risk
Variation of currency rate is due to the worldwide market supply and demand. Price changes may bring to loss from profitable position.
Interest rate risk
Because of variation of currency rate, in forward spread , there might be some maturity gaps and transaction mismatch.
Dictatorship risk
Dictatorship (sovereign) risk refers to the government's interference in the Forex activity. Traders have to realize that kind of the risk and be in state to account possible administrative restrictions.
How to Take A Loss
There are quite a few books written on how to make money in the market. Some of them are even written by people who have made money as traders! What you don't see often, however, are books or articles written on how to lose money. "Cut your losers and let your winners run" is commonsensical advice, but how do you determine when a position is a loser? Interestingly, most traders I have seen don't formulate an answer to this question when they put on a position. They focus on the entry, but then don't have a clear sense of exit-especially if that exit is going to put them into the red.
One of the real culprits, I have to believe, is in the difficulty traders have in separating the reality of a losing trade from the psychological sense of feeling like a loser. At some level, many traders equate losing with being a loser. This frustrates them, depresses them, makes them anxious-in short, it interferes with their future decision-making, because their P & L is a blank check written against their self-esteem. Once a trader is self-focused and not market focused, distortions in decision-making are inevitable.
A particularly valuable section of the classic book Reminiscences of a Stock Operator describes Livermore 's approach to buying stock. He would sell a quantity and see how the stock responded. Then he would do that again and again, testing the underlying demand for the issue. When his sales could not push the market down, then he would move aggressively to the buy side and make his money.
What I loved about this methodology is that Livermore's losses were part of a grander plan. He wasn't just losing money; he was paying for information. If my maximum position size is ten contracts in the ES and I buy the highs of a range with a one-lot, expecting a breakout, I am testing the waters. While I am not potentially moving the market in the way that Livermore might have, I still have begun a test of my breakout hypothesis. I then watch carefully. How are the other averages behaving at the top ends of their range? How is the market absorbing the activity of sellers? Like any good scientist, I am gathering data to determine whether or not my hypothesis is supported.
Suppose the breakout does not materialize and the initial move above the range falls back into the range on some increased selling pressure. I take the loss on my one-lot, but then what happens from there?
The unsuccessful trader will respond with frustration: "Why do I always get caught buying the highs? I can't believe "they" ran the market against me! This market is impossible to trade." Because of that frustration-and the associated self-focus-the unsuccessful trader does not take any information away from that trade.
In the Livermore mode, however, the successful trader will see the losing one-lot as part of a greater plan. Had the market broken nicely to the upside, he would have scaled into the long trade and likely made money. If the one-lot was a loser, he paid for the information that this is, at the very least, a range-bound market, and he might try to find a spot to reverse and go short in order to capitalize on a return to the bottom end of that range.
Look at it this way: If you put on a high probability trade and the trade fails to make you money, you have just paid for an important piece of information: The market is not behaving as it normally, historically does. If a robust piece of economic news that normally sends the dollar screaming higher fails to budge the currency and thwarts your purchase, you have just acquired a useful bit of information: There is an underlying lack of demand for dollars. That information might hold far more profit potential than the money lost in the initial trade.
I recently received a copy of an article from Futures Magazine on the retired trader Everett Klipp, who was dubbed the "Babe Ruth of the CBOT". Klipp distinguished himself not only by his fifty-year track record of trading success on the floor, but also by his mentorship of over 100 traders. Speaking of his system of short-term trading, Klipp observed, "You have to love to lose money and hate to make money to be successful.It's against human nature what I teach and practice. You have to overcome your humanness."
Klipp's system was quick to take profits (hence the idea of hating to make money), but even quicker to take losses (loving to lose money). Instead of viewing losses as a threat, Klipp treated them as an essential part of trading. Taking a small loss reinforces a trader's sense of discipline and control, he believed. Losses are not failures.
So here's a question I propose to all those who enter a high-probability trade: "What will tell me that my trade is wrong, and how could I use that information to subsequently profit?" If you're trading well, there are no losing trades: only trades that make money and trades that give you the information to make money later.
One of the real culprits, I have to believe, is in the difficulty traders have in separating the reality of a losing trade from the psychological sense of feeling like a loser. At some level, many traders equate losing with being a loser. This frustrates them, depresses them, makes them anxious-in short, it interferes with their future decision-making, because their P & L is a blank check written against their self-esteem. Once a trader is self-focused and not market focused, distortions in decision-making are inevitable.
A particularly valuable section of the classic book Reminiscences of a Stock Operator describes Livermore 's approach to buying stock. He would sell a quantity and see how the stock responded. Then he would do that again and again, testing the underlying demand for the issue. When his sales could not push the market down, then he would move aggressively to the buy side and make his money.
What I loved about this methodology is that Livermore's losses were part of a grander plan. He wasn't just losing money; he was paying for information. If my maximum position size is ten contracts in the ES and I buy the highs of a range with a one-lot, expecting a breakout, I am testing the waters. While I am not potentially moving the market in the way that Livermore might have, I still have begun a test of my breakout hypothesis. I then watch carefully. How are the other averages behaving at the top ends of their range? How is the market absorbing the activity of sellers? Like any good scientist, I am gathering data to determine whether or not my hypothesis is supported.
Suppose the breakout does not materialize and the initial move above the range falls back into the range on some increased selling pressure. I take the loss on my one-lot, but then what happens from there?
The unsuccessful trader will respond with frustration: "Why do I always get caught buying the highs? I can't believe "they" ran the market against me! This market is impossible to trade." Because of that frustration-and the associated self-focus-the unsuccessful trader does not take any information away from that trade.
In the Livermore mode, however, the successful trader will see the losing one-lot as part of a greater plan. Had the market broken nicely to the upside, he would have scaled into the long trade and likely made money. If the one-lot was a loser, he paid for the information that this is, at the very least, a range-bound market, and he might try to find a spot to reverse and go short in order to capitalize on a return to the bottom end of that range.
Look at it this way: If you put on a high probability trade and the trade fails to make you money, you have just paid for an important piece of information: The market is not behaving as it normally, historically does. If a robust piece of economic news that normally sends the dollar screaming higher fails to budge the currency and thwarts your purchase, you have just acquired a useful bit of information: There is an underlying lack of demand for dollars. That information might hold far more profit potential than the money lost in the initial trade.
I recently received a copy of an article from Futures Magazine on the retired trader Everett Klipp, who was dubbed the "Babe Ruth of the CBOT". Klipp distinguished himself not only by his fifty-year track record of trading success on the floor, but also by his mentorship of over 100 traders. Speaking of his system of short-term trading, Klipp observed, "You have to love to lose money and hate to make money to be successful.It's against human nature what I teach and practice. You have to overcome your humanness."
Klipp's system was quick to take profits (hence the idea of hating to make money), but even quicker to take losses (loving to lose money). Instead of viewing losses as a threat, Klipp treated them as an essential part of trading. Taking a small loss reinforces a trader's sense of discipline and control, he believed. Losses are not failures.
So here's a question I propose to all those who enter a high-probability trade: "What will tell me that my trade is wrong, and how could I use that information to subsequently profit?" If you're trading well, there are no losing trades: only trades that make money and trades that give you the information to make money later.
Entering Trades
Trades can be initiated in one of three ways: 1) a Market Order, 2) a Stop, and 3) a Limit.
Market Order
Placing a market order means that you will buy at your brokers current "ask" price, or sell at your brokers current "bid" price, whatever that price currently is. For example, suppose you are buying EURUSD. The current market, as quoted by your broker or on GCI's "Dealing Rates" window, is .9152/56. This means that your broker is willing to buy EURUSD from you at .9152, and sell it to you at .9156.
To place a market order to buy click on the rate (Sell or Buy) field within the order record or right click anywhere within the order record and then choose Market order command from pop-up menu. The Amount input screen will appear:
Enter desired amount measured in lots and press OK. New order marked with letter ‘I’ (Initiate) will appear on the Trader’s Orders window. Dealer now is able to confirm operation or to reject it due to market movement.
Stop Order
Initiating a trade with a stop order means that you will only have a position if the market moves in the direction you are anticipating. For example, if USDJPY is currently 128.50 and you believe it will move higher, you could place a "buy stop" at 128.60. This means that the order will only be filled if the market moves up to 128.60. The advantage is that if you are wrong and the market moves straight down, you will not have bought (because 128.60 will never have been reached). The disadvantage is that 128.60 is clearly a less attractive rate at which to buy than 128.50. Initiating a trade with a Stop order is usually appropriate if you wish to trade only with strong market momentum in a particular direction.
On the GCI system, you can enter a trade with a stop order by right-clicking on the appropriate currency rate in the "Dealing Rates" window, and then selecting "Entry Stop" from the pop up menu. You can then input the order size and price.
Limit Order
A Limit order is an order to buy below the current price, or sell above the current price. For example, if EURUSD is trading at .9152/56 and you believe the market will rise, you could place a limit order to buy at .9145. If filled, this will give you a long position in EURUSD at .9145, which is 11 pips better than if you had just bought EURUSD with a market order. The disadvantage of this Limit order is that if EURUSD moves straight up from .9152/56, your limit at .9145 will never be filled and you will miss out on the profit opportunity even though your view on the direction of EURUSD was correct. Entering a trade with a Limit order is usually appropriate if you believe that the market will remain in a range before moving in your anticipated direction, allowing the order to be filled first.
On the GCI system, you can enter a trade with a limit order by right-clicking on the appropriate currency rate in the "Dealing Rates" window, and then selecting "Entry Limit" from the pop up menu. You can then input the order size and price.
Trading Strategy
Making trading decisions and developing a sound and effective trading strategy is an important foundation of trading.
Before developing a trading strategy, a trader should have a working knowledge of technical analysis as well as knowledge of some of the more popular technical studies. Please visit these pages for detailed information.
Sample Strategy 1 - Simple Moving Average
Successful trading is often described as optimizing your risk with respect to your reward, or upside. Any trading strategy should have a disciplined method of limiting risk while making the most out of favorable market moves. We will illustrate one decision making model which uses a Simple Moving Average ("SMA") technical study, based on a 12-period SMA, where each period is 15 minutes. This is one example of a trading decision making strategy, and we encourage any trader to research other strategies as thoroughly as possible.
We will use a simple algorithm: when the price of the currency crosses above the 12-period SMA, it will be taken as a signal to buy at the market. When the currency price crosses below the 12-period SMA, it will be a signal to "Stop and Reverse" ("SAR"). In other words, a long position will be liquidated and a short position will be established, both with market orders. Thus this system will keep the traders "always in" the market - he will always have either a long or short position after the first signal. In the chart below, the white line represents the price of USD/JPY, the purple line represents the 12-period SMA of USD/JPY, and the red line indicates where USD/JPY crosses above the SMA, generating a buy signal at approximately 129.90:
This is a simple example of technical analysis applied to trading. Many strategies used by professional traders make use of moving averages along with other indicators or "filters". Note that the moving average method has an element of risk control built in: a long position will be stopped out fairly quickly in a falling market because the price will drop below the SMA, generating a stop-and-reverse signal. The same holds true for a sell signal in a rising market. Note that the SMA is generated automatically by GCI's integrated charting application.
Please review the technical studies described in this site for additional resources on developing technical trading strategy.
Sample Strategy 2 - Support and Resistance Levels
One use of technical analysis, apart from technical studies, is in deriving "support" and "resistance" levels. The concept here is that the market will tend to trade above its support levels and trade below its resistance levels. If a support or resistance level is broken, the market is then expected to follow through in that direction. These levels are determined by analyzing the chart and assessing where the market has encountered unbroken support or resistance in the past.
For example, in chart below EUR/USD has established a resistance level at approximately 0.9015. In other words, EUR/USD has risen up to 0.9015 repeatedly, but has been unable to move beyond that point:
The trading strategy would then be to sell EUR/USD the next time it gets close to 0.9015, with a stop placed just above 0.9015, say at 0.9025. This would have indeed been a good trade as EUR/USD proceeded to fall sharply, without breaking the 0.9015 resistance. Hence a substantial upside can be achieved while only risking 10 or 15 pips (0.0010 or 0.0015 in EUR/USD).
On GCI's integrated charting system (GCI Multi-Currency Charts), the red support line shown above can be drawn by clicking on the "Trend" button at the top of the chart window, and then drawing a line by clicking the mouse once at the beginning of the line, and again at the end of the line.
Before developing a trading strategy, a trader should have a working knowledge of technical analysis as well as knowledge of some of the more popular technical studies. Please visit these pages for detailed information.
Sample Strategy 1 - Simple Moving Average
Successful trading is often described as optimizing your risk with respect to your reward, or upside. Any trading strategy should have a disciplined method of limiting risk while making the most out of favorable market moves. We will illustrate one decision making model which uses a Simple Moving Average ("SMA") technical study, based on a 12-period SMA, where each period is 15 minutes. This is one example of a trading decision making strategy, and we encourage any trader to research other strategies as thoroughly as possible.
We will use a simple algorithm: when the price of the currency crosses above the 12-period SMA, it will be taken as a signal to buy at the market. When the currency price crosses below the 12-period SMA, it will be a signal to "Stop and Reverse" ("SAR"). In other words, a long position will be liquidated and a short position will be established, both with market orders. Thus this system will keep the traders "always in" the market - he will always have either a long or short position after the first signal. In the chart below, the white line represents the price of USD/JPY, the purple line represents the 12-period SMA of USD/JPY, and the red line indicates where USD/JPY crosses above the SMA, generating a buy signal at approximately 129.90:
This is a simple example of technical analysis applied to trading. Many strategies used by professional traders make use of moving averages along with other indicators or "filters". Note that the moving average method has an element of risk control built in: a long position will be stopped out fairly quickly in a falling market because the price will drop below the SMA, generating a stop-and-reverse signal. The same holds true for a sell signal in a rising market. Note that the SMA is generated automatically by GCI's integrated charting application.
Please review the technical studies described in this site for additional resources on developing technical trading strategy.
Sample Strategy 2 - Support and Resistance Levels
One use of technical analysis, apart from technical studies, is in deriving "support" and "resistance" levels. The concept here is that the market will tend to trade above its support levels and trade below its resistance levels. If a support or resistance level is broken, the market is then expected to follow through in that direction. These levels are determined by analyzing the chart and assessing where the market has encountered unbroken support or resistance in the past.
For example, in chart below EUR/USD has established a resistance level at approximately 0.9015. In other words, EUR/USD has risen up to 0.9015 repeatedly, but has been unable to move beyond that point:
The trading strategy would then be to sell EUR/USD the next time it gets close to 0.9015, with a stop placed just above 0.9015, say at 0.9025. This would have indeed been a good trade as EUR/USD proceeded to fall sharply, without breaking the 0.9015 resistance. Hence a substantial upside can be achieved while only risking 10 or 15 pips (0.0010 or 0.0015 in EUR/USD).
On GCI's integrated charting system (GCI Multi-Currency Charts), the red support line shown above can be drawn by clicking on the "Trend" button at the top of the chart window, and then drawing a line by clicking the mouse once at the beginning of the line, and again at the end of the line.
Hedging
Hedging is often used to control risk and to eliminate market exposure without "realizing" a loss.For example, if a trader buys 1 lot of USDJPY, he can then eliminate his exposure to a falling USDJPY by selling a second lot.
The trader can then manage each position separately, using stops, limits, or market orders to close each "leg" at the most opportune time.
On the GCI platform, this can be done by either right-clicking on the long USDJPY position and selectingn "Hedge" position from the pop-up menu (as pictured below), or by simply selling another lot from the "Dealing Rates" window.
This will result in one long position ("B") and one short positiong ("S") in USDJPY, as shown below. Note that these two positions do not offset and cancel each other.
The trader can then manage each position separately, using stops, limits, or market orders to close each "leg" at the most opportune time.
Exiting Trades
As with entering trades, exiting trades can be done with either a "Market" order, a "Limit" order, or a "Stop" order. "Trailing Stops" are variations of stops and can also be used effectively to exit trades. Exiting trades will generally result in a loss or a gain on an open position, and should be done once you have reached your profit target, your maximum loss, or when your market view has changed.
Exiting with a Market Order
Exiting a trade with a market order means that you will sell at your brokers current "bid" price, or buy at your brokers current "ask" price, whatever that price currently is. For example, suppose you had purchased one lot of USDJPY, meaning you are long one lot. If you then assume that the current market is 127.51/55, you know that you can exit your existing long position at 127.51 (that is, sell it to close at 127.51).
On the GCI system, this is done by right clicking on the open position in the "Open Positions" window. You can then select "close position" from the pop up menu, enter the lot amount you wish to close, and click "OK".
Exiting with a Market Order
Exiting a trade with a market order means that you will sell at your brokers current "bid" price, or buy at your brokers current "ask" price, whatever that price currently is. For example, suppose you had purchased one lot of USDJPY, meaning you are long one lot. If you then assume that the current market is 127.51/55, you know that you can exit your existing long position at 127.51 (that is, sell it to close at 127.51).
On the GCI system, this is done by right clicking on the open position in the "Open Positions" window. You can then select "close position" from the pop up menu, enter the lot amount you wish to close, and click "OK".
Exiting with a Stop
Exiting a trade with a stop order means that your position will be closed after an adverse market move of a specified amount. This does not necessarily mean that you have incurred a loss on the trade (see "trailing stops" below). For example, if you had purchased 1 lot of USDJPY and it is now trading at 128.50/54, you could place a Stop at 128.20. This means that the order will only be filled if the market moves down to 128.20, limiting your loss to .30 (30 pips).
On the GCI system, you can place an order to exit a position on a Stop order by right-clicking on the position in the "Open Positions" window, and then selecting "Stop" from the pop up menu. You can then input the order size and price.
A Trailing Stop is placed in the same manner, but the concept here is that the stop will be moved as the market moves in your favor (the stop "trails" the market"). So for example, assume that you had placed your stop at 128.20 with a long USDJPY position at 128.50. If USDJPY moves up to 128.90, you could then move the stop up to 128.60. This would ensure a worse case of a gain of .10 (10 pips), while still allowing unlimited upside if USDJPY continues to rise.
The advantage of exiting with a Stop is that (1) you limit your downside to the amount you specify with your stop, and (2) you have unlimited upside in the event that the market continues to move in your favor. The disadvantage is that markets will occasionally move adversely initially, causing your stop to be filled and closing your position, and then proceed to move in the direction that you had originally anticipated.
Exiting with a Limit Order
Exiting a trade with a limit order is an effective way to ensure that you will capture profits once your profit target is reached.
On the GCI system, you can place an order to exit a position on a Limit order by right-clicking on the position in the "Open Positions" window, and then selecting "Limit" from the pop up menu. You can then input the order size and price.
The advantage of exiting a trade with a limit order is that your position will be successfully closed if your profit target is reached, even if only for a few seconds. For example, if you purchased USDJPY at 128.50 and placed a limit order to exit the trade at 129.50, you will successfully capture a 1.00 profit (100 pips) if 129.50 is reached even briefly and then the market falls again. The disadvantage is that you will limit your upside, foregoing additional gains if the market was to continue to move in your favor. Furthermore, you will not limit your downside if the market moves against you. For example, if the market rises to 132.00, your profit will still be limited to the 100 pips because your position was closed at 129.50. If the market moves down below 128.50, your losses will not be limited, unless you had also placed a stop on the open position (see "exiting with a Stop" above.
Using Stops and Limits Together. A common strategy is to place both a Stop and a Limit on the same open position. On the GCI system, the position will be closed by whichever order is reached first, and the other order will automatically be cancelled. This is known as "OCO" or "One Cancels the Other".
Controlling Risk
Controlling risk is one of the most important ingredients of successful trading. While it is emotionally more appealing to focus on the upside of trading, every trader should know precisely how much he is willing to lose on each trade before cutting losses, and how much he is willing to lose in his account before ceasing trading and re-evaluating.
Risk will essentially be controlled in two ways: 1) by exiting losing trades before losses exceed your pre-determined maximum tolerance (or "cutting losses"), and 2) by limiting the "leverage" or position size you trade for a given account size.
Cutting Losses
Too often, the beginning trader will be overly concerned about incurring losing trades. He therefore lets losses mount, with the "hope" that the market will turn around and the loss will turn into a gain.
Almost all successful trading strategies include a disciplined procedure for cutting losses. When a trader is down on a positions, many emotions often come into play, making it difficult to cut losses at the right level. The best practice is to decide where losses will be cut before a trade is even initiated. This will assure the trader of the maximum amount he can expect to lose on the trade.
The other key element of risk control is overall account risk. In other words, a trader should know before he begins his trading endeavor how much of his account he is willing to lose before ceasing trading and re-evaluating his strategy. If you open an account with $2,000, are you willing to lose all $2,000? $1,000? As with risk control on individual trades, the most important discipline is to decide on a level and stick with it. Further information on the mechanics of limiting risk can be found at the Exiting Trades pages and Hedging pages.
Determining Position Size
Before beginning any trading program, an assessment should be made of the maximum account loss that is likely to occur over time, per lot (see "Drawdown" in "Glossary of Terms"). For example, assume you have determined that your worse case loss on any trade is 30 pips. That translates into approximately $300 per $100,000 position size. Further assume that the $100,000 position size is equal to one lot. Five consecutive losing trades would result in a loss of $1,500 (5 x $300); a difficult period but not to be unexpected over the long run. For a $10,000 account trading one lot, this translates into a 15% loss. Therefore, even though it may be possible to trade 5 lots or more with a $10,000 account, this analysis suggests that the resulting "drawdown" would be too great (75% or more of the account value would be wiped out).
Any trader should have a sense of this maximum loss per lot, and then determine the amount he wishes to trade for a given account size that will yield tolerable drawdowns.
Trades can be initiated in one of three ways: 1) a Market Order, 2) a Stop, and 3) a Limit. Market Order.
Placing a market order means that you will buy at your brokers current "ask" price, or sell at your brokers current "bid" price, whatever that price currently is. For example, suppose you are buying EURUSD. The current market, as quoted by your broker or on GCI's "Dealing Rates" window, is .9152/56. This means that your broker is willing to buy EURUSD from you at .9152, and sell it to you at .9156.
To place a market order to buy click on the rate (Sell or Buy) field within the order record or right click anywhere within the order record and then choose Market order command from pop-up menu. The Amount input screen will appear:
Enter desired amount measured in lots and press OK. New order marked with letter ‘I’ (Initiate) will appear on the Trader’s Orders window. Dealer now is able to confirm operation or to reject it due to market movement.
Stop Order
Initiating a trade with a stop order means that you will only have a position if the market moves in the direction you are anticipating. For example, if USDJPY is currently 128.50 and you believe it will move higher, you could place a "buy stop" at 128.60. This means that the order will only be filled if the market moves up to 128.60. The advantage is that if you are wrong and the market moves straight down, you will not have bought (because 128.60 will never have been reached). The disadvantage is that 128.60 is clearly a less attractive rate at which to buy than 128.50. Initiating a trade with a Stop order is usually appropriate if you wish to trade only with strong market momentum in a particular direction.
On the GCI system, you can enter a trade with a stop order by right-clicking on the appropriate currency rate in the "Dealing Rates" window, and then selecting "Entry Stop" from the pop up menu. You can then input the order size and price.
Limit Order
A Limit order is an order to buy below the current price, or sell above the current price. For example, if EURUSD is trading at .9152/56 and you believe the market will rise, you could place a limit order to buy at .9145. If filled, this will give you a long position in EURUSD at .9145, which is 11 pips better than if you had just bought EURUSD with a market order. The disadvantage of this Limit order is that if EURUSD moves straight up from .9152/56, your limit at .9145 will never be filled and you will miss out on the profit opportunity even though your view on the direction of EURUSD was correct. Entering a trade with a Limit order is usually appropriate if you believe that the market will remain in a range before moving in your anticipated direction, allowing the order to be filled first.
On the GCI system, you can enter a trade with a limit order by right-clicking on the appropriate currency rate in the "Dealing Rates" window, and then selecting "Entry Limit" from the pop up menu. You can then input the order size and price.
Calculating Pip Values
A "pip" is the smallest increment in any currency pair. In EUR/USD, a movement from 0.8941 to 0.8942 is one pip, so a pip is 0.0001. In USDJPY, a movement from 130.45 to 130.46 is one pip, so a pip is 0.01. How much in dollars is this movement worth, for example, per 10,000 Euros in EUR/USD? How much is one pip worth per 10,000 Dollars in USD/JPY? We will refer to the size, in this case 10,000 units of the base currency, as the "Notional Amount". The formula for calculating a pip value is therefore:
(one pip, with proper decimal placement/currency exchange rate) x (Notional Amount)
Using USD/JPY as an example, this yields:
(0.01/130.46) x USD10,000 = $0.77
or 77 cents per pip
Using EUR/USD as an example, we have:
(0.0001/0.8942) x EUR10,000 = EUR 1.1183
But we want the pip value in USD, so we then must multiply EUR1.1183 x (EUR/USD exchange rate):
EUR 1.1183 x 0.8942 = $1.00
This is in fact a phenomenon you will see with any currency in which the currency is quoted first (such as EUR/USD, GBP/USD, or AUD/USD): the pip value is always $1.00 per 10,000 currency units. This is why pip (or "tick") values in currency futures, where the currency is quoted first, are always fixed.
Approximate pip values for the major currencies are as follows, per 10,000 units of the base currency:
USD/JPY: 1 pip = $0.77; In other words a change from 130.45 to 130.46 is worth about $0.77 per $10,000.
EUR/USD: 1 pip = $1.00; 0.8941 to .8942 is worth $1.00 per 10,000 Euros.
GBP/USD: 1 pip = $1.00; 1.4765 to 1.4766 is worth $1.00 per 10,000 Pounds.
USD/CHF: 1 pip = $.59; 1.6855 to 1.6866 is worth $.59 per $10,000.
(one pip, with proper decimal placement/currency exchange rate) x (Notional Amount)
Using USD/JPY as an example, this yields:
(0.01/130.46) x USD10,000 = $0.77
or 77 cents per pip
Using EUR/USD as an example, we have:
(0.0001/0.8942) x EUR10,000 = EUR 1.1183
But we want the pip value in USD, so we then must multiply EUR1.1183 x (EUR/USD exchange rate):
EUR 1.1183 x 0.8942 = $1.00
This is in fact a phenomenon you will see with any currency in which the currency is quoted first (such as EUR/USD, GBP/USD, or AUD/USD): the pip value is always $1.00 per 10,000 currency units. This is why pip (or "tick") values in currency futures, where the currency is quoted first, are always fixed.
Approximate pip values for the major currencies are as follows, per 10,000 units of the base currency:
USD/JPY: 1 pip = $0.77; In other words a change from 130.45 to 130.46 is worth about $0.77 per $10,000.
EUR/USD: 1 pip = $1.00; 0.8941 to .8942 is worth $1.00 per 10,000 Euros.
GBP/USD: 1 pip = $1.00; 1.4765 to 1.4766 is worth $1.00 per 10,000 Pounds.
USD/CHF: 1 pip = $.59; 1.6855 to 1.6866 is worth $.59 per $10,000.
Overnight Interest
Every currency and commodity has a "cost of carry" associated with holding the position for more than one day. In currencies, this cost is a function of the "interest rate differential" of the two currencies that comprise the exchange rate.
For example, in USDJPY, the interest rate differential is the difference between short-term U.S. interest rates and short-term Japanese interest rates. If, for example, U.S. interest rates are 5.0% and Japanese interest rates are 1.0%, the interest rate differential is 4.0% (5.0% - 1.0%). This means that if a trader was to sell USDJPY, he would have to pay 4.0% of the notional amount of the contract per year to hold the position. On one lot, the notional amount is $100,000, so the trader would have to pay approximately $4,000 to hold the position for one year. This translates to approximately $11.00 per day per lot for holding the USDJPY position ($4,000/365).
On the GCI system, these amounts are calculated for the trader and shown, as dollars per lot per day, in the "Currency Reference Rates" window under the columns "Prm Buy" and "Prm Sell":
Margin Requirements
Forex and commodity trading is always conducted on "margin". This means that a cash deposit, usually much smaller than the underlying value of the currency or commodity contract, is required in order to trade.
For example, a broker might require only $1,000 in the trader's account in order to trade a $100,000 currency position. The $1,000 is referred to as "margin". This amount is essentially collateral to cover any losses that you might incur. Since nothing is actually being purchased or sold for delivery, the only requirement, and indeed the only real purpose for having funds in your account, is for sufficient margin.
Margin should reflect some rational assessment of potential risk in a position. For example, if a currency is very volatile, a higher margin requirement would normally be justified. One common rule of thumb is a worst-case one day move in the market. So if a $100,000 currency position is unlikely to move by more than 1% (or $1,000) in a 24 hour period, a $1,000 margin requirement is probably reasonable. If, however, the currency or commodity in question is highly volatile and is likely to move by, say, $3,000 or more (or 3%, as is often the case with certain NASDAQ stocks and some commodities) it would put the broker at increased credit risk to require only a $1,000 margin deposit.
Note that margin available in your trading account is based on account equity, not account balance. The equity is the most accurate measure of the value of your account, as it takes into account unrealized gains or losses.
With a GCI forex account, clients can never lose more than their deposited funds. Other brokers may have other policies with respect to satisfying margin requirements.
For example, a broker might require only $1,000 in the trader's account in order to trade a $100,000 currency position. The $1,000 is referred to as "margin". This amount is essentially collateral to cover any losses that you might incur. Since nothing is actually being purchased or sold for delivery, the only requirement, and indeed the only real purpose for having funds in your account, is for sufficient margin.
Margin should reflect some rational assessment of potential risk in a position. For example, if a currency is very volatile, a higher margin requirement would normally be justified. One common rule of thumb is a worst-case one day move in the market. So if a $100,000 currency position is unlikely to move by more than 1% (or $1,000) in a 24 hour period, a $1,000 margin requirement is probably reasonable. If, however, the currency or commodity in question is highly volatile and is likely to move by, say, $3,000 or more (or 3%, as is often the case with certain NASDAQ stocks and some commodities) it would put the broker at increased credit risk to require only a $1,000 margin deposit.
Note that margin available in your trading account is based on account equity, not account balance. The equity is the most accurate measure of the value of your account, as it takes into account unrealized gains or losses.
With a GCI forex account, clients can never lose more than their deposited funds. Other brokers may have other policies with respect to satisfying margin requirements.
Market Background
The global marketplace has changed dramatically over the past several years. New investment strategies are becoming more important in order to minimize risk, as well as to maintain high portfolio returns. Among the most rewarding of the markets opening up to traders is the Foreign Exchange market. Identifiable trading patterns, as well as comparatively low margin requirements, have rewarding trading opportunities for many.
In contrast to the world’s stock markets, foreign exchange is traded without the constraints of a central physical exchange. Transactions are instead conducted via telephone or online. With this transaction structure as its foundation, the Foreign Exchange Market has become by far the largest marketplace in the world. Average volume in foreign exchange exceeds $1.5 trillion per day versus only $25 billion per day traded on the New York Stock Exchange. This high volume is advantageous from a trading standpoint because transactions can be executed quickly and with low transaction costs (i.e., a small bid/ask spread).
As a result, foreign exchange trading has long been recognized as a superior investment opportunity by major banks, multinational corporations and other institutions.
Spot foreign exchange is always traded as one currency in relation to another. So a trader who believes that the dollar will rise in relation to the Euro, would sell EUR/USD. That is, sell Euros and buy US dollars. Forex-Training.com has compiled the following guide for quoting conventions:
Symbol Currency Pair Trading Terminology
GBP/USD British Pound / US Dollar "Cable"
EUR/USD Euro / US Dollar "Euro"
USD/JPY US Dollar / Japanese Yen "Dollar Yen"
USD/CHF US Dollar / Swiss Franc "Dollar Swiss", or "Swissy"
USD/CAD US Dollar / Canadian Dollar "Dollar Canada"
AUD/USD Australian Dollar / US Dollar "Aussie Dollar"
EUR/GBP Euro / British Pound "Euro Sterling"
EUR/JPY Euro / Japanese Yen "Euro Yen"
EUR/CHF Euro / Swiss Franc "Euro Swiss"
GBP/CHF British Pound / Swiss Franc "Sterling Swiss"
GBP/JPY British Pound / Japanese Yen "Sterling Yen"
CHF/JPY Swiss Franc / Japanese Yen "Swiss Yen"
NZD/USD New Zealand Dollar / US Dollar "New Zealand Dollar" or "Kiwi"
USD/ZAR US Dollar / South African Rand "Dollar Zar" or "South African Rand"
GLD/USD Spot Gold "Gold"
SLV/USD Spot Silver "Silver"
Spot Forex versus Currency Futures
Many traders have made the switch from currency futures to spot foreign exchange ("forex") trading. Spot foreign exchange offers better liquidity and generally a lower cost of trading than currency futures. Banks and brokers in spot foreign exchange can quote markets 24 hours a day. Furthermore, the spot foreign exchange market is not burdened by exchange and NFA ("National Futures Association") fees, which are generally passed on to the customer in the form of higher commissions. For these reasons, virtually all professional traders and institutions conduct most of their foreign exchange dealing in the spot forex market, not in currency futures.
The mechanics of trading spot forex are similar to those of currency futures. The most important initial difference is the way in which currency pairs are quoted. Currency futures are always quoted as the currency versus the US dollar. In Spot forex, some currencies are quoted this way, while others are quoted as the US dollar versus the currency. For example, in spot forex, EURUSD is quoted the same way as Euro futures. In other words, if the Euro is strengthening, EURUSD will rise just as Euro futures will rise. On the other hand, USDCHF is quoted as US dollars with respect to Swiss Francs, the opposite of Swiss Franc futures. So if the Swiss Franc strengthens with respect to the US dollar, USDCHF will fall, while Swiss Franc futures will rise. The rule in spot forex is that the first currency shown is the currency that is being quoted in terms of direction. For example, "EUR" in EURUSD and "USD" in USDCHF is the currency that is being quoted.
The table below illustrates which spot currencies move parallel to the futures contract and which move inversely (opposite):
Forex Symbol Currency Pair Futures Symbol Directional Relationship
GBP/USD British Pound / US Dollar BP Parallel
EUR/USD Euro / US Dollar EU Parallel
USD/JPY US Dollar / Japanese Yen JY Inverse
USD/CHF US Dollar / Swiss Franc SF Inverse
USD/CAD US Dollar / Canadian Dollar CD Inverse
AUD/USD Australian Dollar / US Dollar AD Parallel
NZD/USD New Zealand Dollar / US Dollar ND Parallel
In contrast to the world’s stock markets, foreign exchange is traded without the constraints of a central physical exchange. Transactions are instead conducted via telephone or online. With this transaction structure as its foundation, the Foreign Exchange Market has become by far the largest marketplace in the world. Average volume in foreign exchange exceeds $1.5 trillion per day versus only $25 billion per day traded on the New York Stock Exchange. This high volume is advantageous from a trading standpoint because transactions can be executed quickly and with low transaction costs (i.e., a small bid/ask spread).
As a result, foreign exchange trading has long been recognized as a superior investment opportunity by major banks, multinational corporations and other institutions.
Spot foreign exchange is always traded as one currency in relation to another. So a trader who believes that the dollar will rise in relation to the Euro, would sell EUR/USD. That is, sell Euros and buy US dollars. Forex-Training.com has compiled the following guide for quoting conventions:
Symbol Currency Pair Trading Terminology
GBP/USD British Pound / US Dollar "Cable"
EUR/USD Euro / US Dollar "Euro"
USD/JPY US Dollar / Japanese Yen "Dollar Yen"
USD/CHF US Dollar / Swiss Franc "Dollar Swiss", or "Swissy"
USD/CAD US Dollar / Canadian Dollar "Dollar Canada"
AUD/USD Australian Dollar / US Dollar "Aussie Dollar"
EUR/GBP Euro / British Pound "Euro Sterling"
EUR/JPY Euro / Japanese Yen "Euro Yen"
EUR/CHF Euro / Swiss Franc "Euro Swiss"
GBP/CHF British Pound / Swiss Franc "Sterling Swiss"
GBP/JPY British Pound / Japanese Yen "Sterling Yen"
CHF/JPY Swiss Franc / Japanese Yen "Swiss Yen"
NZD/USD New Zealand Dollar / US Dollar "New Zealand Dollar" or "Kiwi"
USD/ZAR US Dollar / South African Rand "Dollar Zar" or "South African Rand"
GLD/USD Spot Gold "Gold"
SLV/USD Spot Silver "Silver"
Spot Forex versus Currency Futures
Many traders have made the switch from currency futures to spot foreign exchange ("forex") trading. Spot foreign exchange offers better liquidity and generally a lower cost of trading than currency futures. Banks and brokers in spot foreign exchange can quote markets 24 hours a day. Furthermore, the spot foreign exchange market is not burdened by exchange and NFA ("National Futures Association") fees, which are generally passed on to the customer in the form of higher commissions. For these reasons, virtually all professional traders and institutions conduct most of their foreign exchange dealing in the spot forex market, not in currency futures.
The mechanics of trading spot forex are similar to those of currency futures. The most important initial difference is the way in which currency pairs are quoted. Currency futures are always quoted as the currency versus the US dollar. In Spot forex, some currencies are quoted this way, while others are quoted as the US dollar versus the currency. For example, in spot forex, EURUSD is quoted the same way as Euro futures. In other words, if the Euro is strengthening, EURUSD will rise just as Euro futures will rise. On the other hand, USDCHF is quoted as US dollars with respect to Swiss Francs, the opposite of Swiss Franc futures. So if the Swiss Franc strengthens with respect to the US dollar, USDCHF will fall, while Swiss Franc futures will rise. The rule in spot forex is that the first currency shown is the currency that is being quoted in terms of direction. For example, "EUR" in EURUSD and "USD" in USDCHF is the currency that is being quoted.
The table below illustrates which spot currencies move parallel to the futures contract and which move inversely (opposite):
Forex Symbol Currency Pair Futures Symbol Directional Relationship
GBP/USD British Pound / US Dollar BP Parallel
EUR/USD Euro / US Dollar EU Parallel
USD/JPY US Dollar / Japanese Yen JY Inverse
USD/CHF US Dollar / Swiss Franc SF Inverse
USD/CAD US Dollar / Canadian Dollar CD Inverse
AUD/USD Australian Dollar / US Dollar AD Parallel
NZD/USD New Zealand Dollar / US Dollar ND Parallel
Fundamental Trading
Fundamental trading strategies consist of macro, strategic assessments of where a currency should be trading based on virtually any criteria but the price action itself. These criteria often include the economic condition of the country that the currency represents, monetary policy, and other "fundamental" elements.
Fundamental analysis alone is often difficult to use when dealing with currencies, commodities and other "margined" products. This is because fundamental analysis does not provide for specific entry and exit points, and therefore makes it difficult to control risk when using leverage.
Fundamental analysis alone is often difficult to use when dealing with currencies, commodities and other "margined" products. This is because fundamental analysis does not provide for specific entry and exit points, and therefore makes it difficult to control risk when using leverage.
Technical Analysis Trading
Technical Analysis
Technical Analysis is probably the most common and successful means of making trading decisions and analyzing forex and commodities markets.
Technical analysis differs from fundamental analysis in that technical analysis is applied only to the price action of the market, ignoring fundamental factors. As fundamental data can often provide only a long-term or "delayed" forecast of exchange rate movements, technical analysis has become the primary tool with which to successfully trade shorter-term price movements, and to set stop loss and profit targets.
Technical analysis consists primarily of a variety of technical studies, each of which can be interpreted to generate buy and sell signals or to predict market direction. Please see our Technical Studies page for a detailed description of these studies and their uses.
Support and Resistance Levels
One use of technical analysis, apart from technical studies, is in deriving "support" and "resistance" levels. The concept here is that the market will tend to trade above its support levels and trade below its resistance levels. If a support or resistance level is broken, the market is then expected to follow through in that direction. These levels are determined by analyzing the chart and assessing where the market has encountered unbroken support or resistance in the past.
For example, in chart below EUR/USD has established a resistance level at approximately .9015. In other words, EUR/USD has risen up to .9015 repeatedly, but has been unable to move above that point:
The trading strategy would then be to sell EUR/USD the next time it gets close to .9015, with a stop placed just above .9015, say at .9025. This would have indeed been a good trade as EUR/USD proceeded to fall sharply, without breaking the .9015 resistance. Hence a substantial upside can be achieved while only risking 10 or 15 pips (.0010 or .0015 in EUR/USD).
On GCI's integrated charting system (GCI Multi-Currency Charts), the red support line shown above can be drawn by clicking on the "Trend" button at the top of the chart window, and then drawing a line by clicking the mouse once at the beginning of the line, and again at the end of the line.
Technical Analysis is probably the most common and successful means of making trading decisions and analyzing forex and commodities markets.
Technical analysis differs from fundamental analysis in that technical analysis is applied only to the price action of the market, ignoring fundamental factors. As fundamental data can often provide only a long-term or "delayed" forecast of exchange rate movements, technical analysis has become the primary tool with which to successfully trade shorter-term price movements, and to set stop loss and profit targets.
Technical analysis consists primarily of a variety of technical studies, each of which can be interpreted to generate buy and sell signals or to predict market direction. Please see our Technical Studies page for a detailed description of these studies and their uses.
Support and Resistance Levels
One use of technical analysis, apart from technical studies, is in deriving "support" and "resistance" levels. The concept here is that the market will tend to trade above its support levels and trade below its resistance levels. If a support or resistance level is broken, the market is then expected to follow through in that direction. These levels are determined by analyzing the chart and assessing where the market has encountered unbroken support or resistance in the past.
For example, in chart below EUR/USD has established a resistance level at approximately .9015. In other words, EUR/USD has risen up to .9015 repeatedly, but has been unable to move above that point:
The trading strategy would then be to sell EUR/USD the next time it gets close to .9015, with a stop placed just above .9015, say at .9025. This would have indeed been a good trade as EUR/USD proceeded to fall sharply, without breaking the .9015 resistance. Hence a substantial upside can be achieved while only risking 10 or 15 pips (.0010 or .0015 in EUR/USD).
On GCI's integrated charting system (GCI Multi-Currency Charts), the red support line shown above can be drawn by clicking on the "Trend" button at the top of the chart window, and then drawing a line by clicking the mouse once at the beginning of the line, and again at the end of the line.
Introduction to Forex
FOREX or Foreign Exchange market is the world largest financial market, where currency of one country is exchanged with another country through currency exchange rate system. Trader’s purpose is to get the profit as the result of foreign currencies purchase and sale. Forex trading daily constitution is approximately average from 1.5 trillion to 2.5 trillion. . The free-floating of currencies being in the market turnover are determined by the supply and demand. The currency rate is actually running through telecommunication all over the network of banks 24 hours a day from 00:00 GMT on Monday to 10:00 pm GMT on Friday. Importance of human society event in the sphere of economy strongly influences the currency market. Traders gain the profit from the fluctuations in accordance with an agreed principle “buy cheaper- sell higher” or “sell higher-buy cheaper”. Forex is a continuously changing number financial system which exclusively create high trade turnover to all individual and corporative traders with an ensured liquidity of traded currencies. Due to the high potential profitability, therefore the higher risk should be essentially considered. Traders can only be the successful forex investors by going through proper training including an understanding of forex structure and types, the common techniques of analysis, the factors influencing currencies and potential risks, high confident prediction of the market movements with the trading tools and data. There are lots of simulation trading software on web, you can simply choose anyone of them for self training. This will help you to be in a better scenario. Most of the trading providers have the toll free phone number, so just call them up! Ask them questions! Learn from them! Some of them may take initiative to consult you, so do write down the question from time to time.
There are many countries in world; so results different currency pairs. Among all of them, these are the popular in currency trading:
EUR/USD, USD/JPY, GBP/USD, USD/CHF, EUR/CHF, AUD/USD, USD/CAD, NZD/USD, EUR/GBP, EUR/JPY, GBP/JPY, CHF/JPY, GBP/CHF, EUR/AUD, EUR/CAD, AUD/CAD, AUD/JPY, CAD/JPY, NZD/JPY, GBP/AUD, AUD/NZD
Five Major Currencies are:
U.S dollar - The United States dollar is the world's main currency – an universal measure to evaluate any other currency traded on Forex.
Euro- Euro was designed to become the premier currency in trading by simply being quoted in American terms. Like the U.S. dollar, the euro has a strong international presence stemming from members of the European Monetary Union.
Japanese Yen- The Japanese yen is the third most traded currency in the world; it has a much smaller international presence than the U.S. dollar or the euro. The yen is very liquid around the world, practically around the clock.
British Pound - Until the end of World War II, the pound was the currency of reference. The currency is heavily traded against the euro and the U.S. dollar, but has a spotty presence against other currencies.After the introduction of the euro, Bank of England is attempting to bring the high U.K. rates closer to the lower rates in the euro zone.
Swiss Franc - Swiss franc is the only currency of a major European country that belongs neither to the European Monetary Union nor to the G-7 countries. Although the Swiss economy is relatively small, the Swiss franc is one of the four major currencies, closely resembling the strength and quality of the Swiss economy and finance.
To have a well focusing, you have to concentrate on less than 5 currency pairs( preferred the U.S. cross-currency pairs.)
Some traders see forex as a business, and some see it as a fortune. And even some traders think forex is an art. But anyway, its highly recommended to use pivot system in your trading plan or else you are trading blind.
There are many countries in world; so results different currency pairs. Among all of them, these are the popular in currency trading:
EUR/USD, USD/JPY, GBP/USD, USD/CHF, EUR/CHF, AUD/USD, USD/CAD, NZD/USD, EUR/GBP, EUR/JPY, GBP/JPY, CHF/JPY, GBP/CHF, EUR/AUD, EUR/CAD, AUD/CAD, AUD/JPY, CAD/JPY, NZD/JPY, GBP/AUD, AUD/NZD
Five Major Currencies are:
U.S dollar - The United States dollar is the world's main currency – an universal measure to evaluate any other currency traded on Forex.
Euro- Euro was designed to become the premier currency in trading by simply being quoted in American terms. Like the U.S. dollar, the euro has a strong international presence stemming from members of the European Monetary Union.
Japanese Yen- The Japanese yen is the third most traded currency in the world; it has a much smaller international presence than the U.S. dollar or the euro. The yen is very liquid around the world, practically around the clock.
British Pound - Until the end of World War II, the pound was the currency of reference. The currency is heavily traded against the euro and the U.S. dollar, but has a spotty presence against other currencies.After the introduction of the euro, Bank of England is attempting to bring the high U.K. rates closer to the lower rates in the euro zone.
Swiss Franc - Swiss franc is the only currency of a major European country that belongs neither to the European Monetary Union nor to the G-7 countries. Although the Swiss economy is relatively small, the Swiss franc is one of the four major currencies, closely resembling the strength and quality of the Swiss economy and finance.
To have a well focusing, you have to concentrate on less than 5 currency pairs( preferred the U.S. cross-currency pairs.)
Some traders see forex as a business, and some see it as a fortune. And even some traders think forex is an art. But anyway, its highly recommended to use pivot system in your trading plan or else you are trading blind.
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