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Forex Chart Study : More on Indicators

Forex chartists use price charts to identify apparent market trends. But mere identification is not enough. They need to know how strong and lasting the trends are. This is done with the help of indicators.

Moving Averages

Being one of the most widely used indicators, these lines laid out on charts average out short term fluctuations enabling one to observe long term trends.

Simple moving averages average all price points over the whole period, like a normal average. Weighted moving averages also smoothen out the price curve, but emphasise on recent price changes more than past ones. The third type are exponential moving averages and are different from the other two in that they multiply a certain percentage of the latest price with previous averages to obtain the average curve.

It can take some time to find what combination of moving average and period length works best for the currency pair you’re targeting. Once you find the right combo, you will be able to trace patterns easier, and hence keep track of your trades accordingly.

Stochastics

These are studies that indicate trend sustainability and price reversals. %K and % D are the two types used in stochastics, measured on scale of 0 to 100; %D is a slow, long term indicator while %K is the faster more responsive indicator. These studies serve no useful purpose in a choppy sideways market.

Relative Strength Index (RSI)

The RSI also measures price movements on a 0 to 100 scale. It is advisable to confirm RSI signals with other indicators. RSI will vary according to the time frame used. Short term RSI fluctuates more and is suitable for day traders while long-term position traders will benefit more using a longer time frame.

Moving Average Convergence Divergence (MACD)

Mac-dee charts the differences between exponential moving averages (26 day and 12 day). A 9 day moving average is used as the trigger line, which when crossed by MACD gives a bullish or bearish signal (going higher than or lower than the trigger line respectively).

There are other indicators like Bollinger bands and Fibonacci retracements which are also used, but the above mentioned indicators are the most commonly used ones.

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The Forex Trend-Line Analysis - Understanding the forex trends

It is basically the overall direction prices that might be moving Up, Down or Flat.

A trend may comprise of many other smaller trends that sum up to make the entire trend. The direction in which the trend is pointing is very important when it comes to trading and surveying the market. Trends in Forex can be understood as the response, which you can predict on the basis of analysis, to the price at its very own level of opposition or support over a span of time. To illustrate a little, prices are recovered when they are in the proximity of the apex in an upward trend. However the case is just the opposite with the downward trend – prices increase when they come nearer to the opposition levels. A trend is identified in such a manner. This is called, what is referred to as the ‘Trade-line examination’.

Trend-line examination is often underrated. In the view of some analysts, there is a lot of subjectivity used in it that it is a little retrospective. Though such analysts cannot be held completely wrong but they also overlook that trend-lines help concentration when it comes to essential price designs thus pulling out the redundant factors which are there in the market. So it can be said that the Trend-line analysis should be your very first process in determining the existence of a trend. If you continue to follow the same and it does not show any existence of a trend, then you can be sure that there isn’t any.

The Trend-line analysis is made the best use of when you are using it for a longer period of time for eg. Daily to weekly. With the passage of time we can move to hourly timeframes as well where levels of opposition and support may be found out. This methodology has proved quite beneficial because it lets you give more importance to those aspects in trends which are more significant than the others rather than to the less important ones. Also by making use of this method, traders reduce the risk of following a not so permanent leg up that might have come in the trend. It also ensures that you don’t miss an important long-term upward trend.

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How to keep your risks to a minimum in forex trade ?

Risk Management is basically an approach to manage uncertainty which might be linked to a threat through a series of human activities like risk strategies, management, its management and even migration of risk.

The strategies basically consist of transference of risk to a different party, avoiding it, bringing down the ill effects of risks, and receiving the consequences and results of a given risk. Some of the traditional risk managements are highlighted on the risks arising from legal or physical causes (eg: accidents, lawsuits, natural disasters, fires etc.). On the other hand Financial Risk Management focuses upon the risks that can easily be managed with the help of traded financial instruments.

The basic objective of Risk Management is the lower the no. of various risks linked to a domain selected beforehand and bring them to such a level that may be accepted by the society. It may also refer to the various threats caused by technology, humans, environment, politics and organizations. On the obverse side it includes all the basic means available to humans or rather for a entity of risk management (organization, staff, person).

The video below gives an excellent step by step risk management execution for a forex newbie using real time screenshots:

In case of ideal Risk Management, a process based on prioritization is followed in which the risks with maximum probability are dealt first then the ones with the second highest probability and the process continues in the same manner. The process is very difficult in actuality. Sometimes its difficult to handle and strike the right balance between a risk with high probability but low loss and another with low probability and high loss.

In Intangible Risk Management there might be a risk with almost 100% probability but even then it is not accepted by the company because there is lack in the ability of identification. Eg: when insufficient information is used for a particular solution, the ‘knowledge’ risk materializes. Risks related to Relationship also start appearing when the collaboration does not prove to be effective. The issues relating to process-engagement risk may also arise when the applied operational procedures are ineffective. Such risks are instrumental in reducing the productivity of workers, profitability, reputation, quality, service and brand value. Intangible Risk Management permits risk management to make instant value from the reduction and identification of risks that directly reduce productivity.

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The Ideal Psychology of Forex Trading

Ø Have a Disciplined Plan:

The fault in the thinking of the traders is that they take shopping more seriously than trading. On an average the shopper would not spend more than $400 without collecting all the relevant information of that product that he is going to purchase. However the average trader makes the trade is such a manner that it may cost him the same amount. Also the plan must have stopping and limiting levels for the trade and your analysis should cover both the expected downside and the expected upside.

Ø Minimize your losses and maximize the profits:

The concept sounds very easy to follow but it very difficult to implement. At some point or the other the traders get deviated from the plan and take their profits much before what they had targeted it to be. This is because they no dot get a comfortable feeling when they are in a profitable position. But these are the people who eventually sit in the losing position and allow the market by letting the market to move a hundred points against them hoping that it’ll come back. Therefore its the job of the stops/stop losses to make sure that you don’t end up losing more than a fixed amount.

Ø Do not be very friendly with your trades:

The reason behind the fact that trading should be done with a well laid plan is that most of the objective analysis is usually done before the execution of the trade. Once the trader gets the hang of it, he analysis the market differently hoping that it will move in a particular desired direction rather than looking objectively upon the various changing factors which might prove just the opposite to your original analysis.

Ø Do not bet the farm:

The key point is never to over trade. Most common mistake that the traders make is that they leverage their account higher than what is required by trading larger sizes than what their account should actually trade. Leverage is basically a sword with a double edge. It may happen that one lot say 100,000 units of currency might require a minimal margin deposit of $1000 but that can never ensure that a trader who has $5000 is his account will easily trade five lots. A lot of $100,000 should be considered as an investment and not as a $1000 margin. The golden rule is: as far as possible try not to use more than ten percent of your account at any particular time.

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How to do Forex trading online - Learn the basics first

If you are aware of share trading business it is very unlikely that you have not heard about forex trading. Forex means foreign exchange and involves currencies from all around the world. Unlike share trading, trading forex online is a kind of business you can do 24 hours. Reason is the forex trading involves trading of currencies of different countries all around the globe and as it is day time in half of the world at a time, market remains open some where at any given time.

Then the question arises that how to do the forex trading? Earlier, getting into forex trading was very difficult because of several entry barriers. It was mainly because of technological barriers like tools and systems which were available predominantly to banks and large financial institutions only. Now, with the advent of internet and technological advancement in it any one can jump into such kind of trading at any time. There are websites and platforms where one can buy a currency from any country that he or she thinks will appreciate as compared to some other country and holds it for some time. When the currency bought is appreciated enough it can be swapped with the currency with which it was compared. There are basically four to five of currencies which are traded most. These are Euro, USD, Yen, Swiss Franc and Pound Sterling. These currencies keep on changing their values continuously in respect to each-other. Having some knowledge regarding this movement and some speculations based on the market, economy information and activities going on in the concerned country helps a lot.

As everyone knows that the money involved to start trading is a huge one, a minimum of one hundred thousand dollars and such people/ organizations are small players. So it is not possible for every individual to get into it with that kind of money. The small players allow the individual investors to get into the forex trading with a money cap as small as $ 250!

Practically, the first thing an individual should do is to approach a trusted broker. He/she will give you a particular number of base currency units in exchange of a certain margin deposit. Then you chose a single pair of currency initially to learn how it works. The trader will provide a platform where one can monitor the continuous movement of currencies. However, before you go live, trading real currencies, you should create a demo account with virtual money. Once you are confident enough of your skill set enter into the market with a micro or mini account which comprise of one thousand to ten thousand USD.

Which are the trusted brokers? KEEP CHECKING THIS BLOG AS I COME UP WITH AUTHENTIC FOREX BROKERS WHICH ALLOW U TO PLAY ONLINE AND ARE GENUINE IN TERMS OF PAYMENT TOO.

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