A Quick Forex Guide for Traders

In this Forex course we will review some steps you need to take care before you venture into your trading journey. Most traders venture into the Forex market with little or no experience in the Forex market. This results in painful experiences like loosing most of the risk capital, frustration because it seemed so easy to make money, etc.

The first thing you need to realize is that, it is not easy to make money. As every other endeavor in life, where important rewards are to come after mastering it, you need to work hard. You need to get very well educated and experienced before having the possibility to receive important rewards on it. The key on mastering the Forex market relies on commitment, patience and discipline.

Ok, you have decided you are going to trade the Forex market, you have seen several advertisings featuring how easy is to make money in the Forex market. You might think this is your opportunity to reach your financial freedom, right away, time is money, why waiting any longer if you have the opportunity to make money now. I know, I've been there, but you have a chance now, I didn't, no body told me what I am going to tell you.

We, Forex traders, make transactions based on a set of rules. These sets of rules are what we call a Trading System. Our systems tell us the exact time where we need to get in the market and out the market in order to make a profit (i.e. buy low sell high.)

Creating a system is the first big step you need to take care first. Why is this so important? Because you need to build a system that suits your personality, otherwise you are going to find hard to follow it, thus hard to profit from.

A system can be based on technical indicators or what we called a mechanical system or based on experience and intuition or what we call discretionary systems. I highly recommend using and trying first a mechanical system, because discretionary systems are dangerous during the early stages of a Forex trader (can lead to indiscipline.) With experience, on later stages, you will find out which signals work better and which ones to avoid.

The next step in this Forex course is to try your system on a demo account. Most Forex brokers offer a demo account, an account with virtual money. This is an excellent choice to test your trading system as there is no money at risk. In this step you will figure out if the strategy works for you. If you feel comfortable trading it, then it is most likely to produce good results. How much time should you stay in this step? It varies, but you shouldn't go one step further until your system gets consistent profitable results over a period of time. It can take many months, but remember, you need to be patient.

You must be honest to yourself; you need to take every single signal generated by your system, not only the signals you thought were going to work, otherwise, you are going to have problems in the next two steps.

Ok, by know you had consistent profitable results on your demo account. You might think its time to go full. Nope, nope, nope. There is a big difference between trading a demo and a real account. The most important difference lies on emotions (fear, greed, anger, etc.) These are psychological barriers that affect every single decision made by traders regardless of what he/she is trading (stocks, bonds, Forex, futures, grains, etc.) These emotional factors, in my opinion, are the most determinant factor that separates profitable traders from the others.

The next step in this Forex course is specially designed to deal with emotions and to confirm the results obtained in the prior step (consistent results in a demo account.) At this step you need to trade in a real account with limited funds. Some brokers offer fractional lot trading. Meaning you are able to trade any desired amount (even cents.) The important thing here is that these emotions we've been talking about are present only when there is real money at risk. At this stage, you are going to see if you are really comfortable trading your system and if you are able to trade with such system, remember different systems produce different emotions. If you are able to produce similar results than those obtained in a demo account, then ready for the next step. If you didn't, then you might need to create another system, there is chance your system never fit you. If you created consistent profitable results on this stage, you have a chance to produce similar results in the next one, on the other hand, if you didn't produce good results in this stage, you will not be able to make on the next stage. Remember, you need to do things right, and be honest to yourself.

The last stage is trading in a real account with sufficient funds. If you are at this stage, and have passed successfully every prior stage, then you have a chance to make it, go ahead and try it, you need to be confident in yourself and in your system, your strategy have already produced consistent profitable results, there are reasons to believe you are going to make it. Very few traders fail at this stage (if passed successfully prior stages).

Trading successfully is no easy task, it requires a lot of work, patience, discipline, and education. By completing the steps outlined in this Forex course, you have a chance to produce profitable results. I repeat it again, you need to be honest to yourself about the results obtained in every stage. Some times you might need expert guidance regarding your system development strategies.

source straightforex.com

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Psychology of Trading Strategy (Psycho-Strategy)

What’s the Psychology of Trading Strategy (Psycho-Strategy)?

I’m sure you understand that the Psycho-strategy is a mere metaphor, however we are going to use the same Forex terminology to describe our hypothetical strategy.

The Psycho-strategy is the mind frame you have to set your mind to if you want to make constantly profit in the world of Forex. It’s the way you have to think and feel in the three stages of the trade; before opening a trade, while the trade is running and after closing the trade.

The first thing I have to advice you before reading this article is that you have to to believe that using the Psycho-strategy is not less important than using your technical and fundamental strategies if not important! if you can’t totally believe that I recommend you to skip this article and continue with your favorite technical and fundamental venerable strategies.

The Psychology of Trading Strategy (Psycho-strategy) setup:

The the Psycho-strategy uses three indicators: Discipline indicator, Greedy oscillator and Fear oscillator.We use these indicators not to tell us when to enter the market (there are much better techniques to enter the marker where the Psycho-strategy can help) but we are using them to refine our overall trading practice hence our success in the Forex world.

Let’s start with the most important indicator; the Discipline indicator:

Discipline indicator:

It is unquestionable that nobody could achieve a goal if he have not already set this goal. Give the best archer the best tools and tell him to shot aimless target! what do you think he will do?

In the Forex (and in live un general) you have to define your goal and keep it obvious if you want to achieve it. For example you have to determine how many pips you want to gain daily, weekly and monthly from your trading.

Your goal have to be realistic, attainable and measurable: realistic goal means you have to set a goal that is not impossible for you and anybody to achieve, for example you can be a millionaire from trading Forex for few weeks or months. attainable goal means you can easily achieve the goal for example gaining 100 pips daily is not impossible in Forex trading so it’s a realistic goal but 25 pips per day is more attainable goal, get it?

The goal you have set have to be measurable which means you can easily say I’ve achieved my goal of today or this month. Goals like “I want to be a millionaire or I want to get the maximum pips the market could offer” are not measurable goals.

The first line in the Discipline indicator is the Goal line, the second line in the Discipline indicator is the Rules line.

Any successful person has his set of rules which he extremely bind himself to it, you too have to set you trading rules and obey them to the end, for example one of successful traders rules “Set stop loss before trade”.

You have to discover your trading rules and more important to obey them to the end, of course you can change this rules occasionally (i.e. every six months you have to review your trading rules) but once you have set them you can’t change them “Rules couldn’t’ be changed while playing the game”.

The Discipline indicator now has two lines: Goal line and Rules line; these lines have to be unbreakable, untouchable, you have to limit you trade between these lines and don’ let Greedy or Fear indicators to breaks your Goal and Rules lines.

Fear and Greedy oscillators:

The fear making of loss and Greedy of making more profits are very like bulls and bears that imagined fighting each others and move the market accordingly. Both of the fear and greedy trying to break your Discipline indicators lines.

Fear of losing maybe advising you to ignore setting stop loss for you trade and break one of your trade rules. Fear maybe asking you to close a profitable trade once the market start to move against you for awhile.

Greedy acts the same trying to break your rules but inversely of fear; Greedy will tell you to continue in a profitable trade although you Goal has been achieved seeking more pips. Greedy will advice you to remove your trailing stop hoping o make the maximum of he market.

As long as Fear indicator and Greedy indicator oscillate between the Discipline upper line - Goal line - and lower line - Rules line - you will constantly make profits with the Psycho-strategy!

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Forex Trading Strategies - Stop-Loss - Do You Need to Use It Right Now? Pros and Cons

There are pros and cons of using stop-loss in your forex trading strategy. In this article I want to summarize the most important points of this topic and help you to understand if you need to use this trading instrument or not.

Pros:

You cut down your losses, so no matter what happens and no matter how the market moves, you won't lose more money than you set. This is also the main purpose for using this order.

You protect your deposit from the sudden big market movements against you. Remember - they can always happen, and this doesn't depend on your trading system. But you can protect your money from this dangerous trends by using stop-loss forex trading strategy and setting it properly according to your trading rules.

You can calculate your maximum total loss for your trading system. It usually happens on the "bad" market for your system and is a result of series of losses that come in a row. This wi! ll help you manage your risks better. Knowing the weak points of your system, you can always set your trading lots so you don't lose too much money even if things go the worst way.

Cons:

If your stop loss order was executed and than market movement changes, you can't profit from it because your deal is already closed. So you can't recoup your losses if your forex trading strategy doesn't imply opening additional deals to cover the losses.

Sometimes market is "stormy" - volatility increased, no particular trend. This usually happens when some important news comes out. On this market trader usually opens a lot of positions, and a lot of stop-loss orders execute again and again. This can summarize into one big loss.

You need to consider certain currency pair's volatility - and then set your stop losses according to it. If your SL (stop-losses) are too small it will cause a lot of series of small losse! s that can result into a big one. If your SL are too large, on! e loss c an drain all your profits, so your bottom line will be near to zero. So you need to take into consideration the volatility of the currency pairs you're working with.

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Popular Technical Analysis Tools

Technical Analysis is probably the most common and successful method 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 decisions or to predict market direction.

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.

Popular Technical Analysis Tools

Moving Averages (MA) : Indicators used to smooth price fluctuations and identify trends. The most basic type of moving average, the simple moving average, is the average of the past x bars ending with the current bar;

Moving Average Convergence Divergence (MACD): Indicator that utilizes moving averages to identify possible trends and an oscillator to determine when a trend is overbought or oversold;

Bollinger Bands : Bands that are placed x moving average standard deviations above and below a simple MA line;

Fibonacci Retracement Levels : Indicator used to identify potential levels of support and resistance;

Directional Movement Index (DMI) : A positive line (+DI) measuring buying and a negative line (-DI) measuring selling pressure;

Relative Strength Index (RSI) : Momentum oscillator that is plotted on a vertical scale from 0 to 100;

Stochastics : Momentum oscillator that measure momentum by comparing the recent close to the absolute price range (high of the range minus the low of the range) over a period of x bars;

Trendlines : Straight line on a chart that connects consecutive tops or consecutive bottoms of prices and is utilized to identify levels of support and resistance;

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Forex Technical Analysis - Symmetrical Triangles Use Them Correctly For Huge Profits!

If you want to use forex technical analysis and base your forex trading strategy on forex charts then you need reliable chart patterns to trade and they don't come much better than the symmetrical triangle which if traded correctly can give you some great high odds trades and big profits...

As with all chart formation the symmetrical triangle is rooted in investor psychology, so lets look at how and why they form.

Why a Symmetrical Triangle Forms

Symmetrical triangles can be seen as areas of indecision in the market as it pauses and future direction is uncertain.

Typically, the forces of supply and demand at that the time the triangle is forming are considered nearly equal. Attempts to push the currency higher are quickly met by selling into the rally, on the other hand dips are seen as good value and see buying.

Each new lower top and higher bottom becomes more shallow than the last, which gives the symmetrical triangle is distinctive shape.

Eventually, this indecision gives way to action as market sentiment breaks out or in many cases explodes out of this formation.

They normally feature low volatility before a breakout and low volatility when followed by high volatility means the market has decided where to push prices.

They very often form before major events such as economic reports where traders are waiting to see the outcome of the report and how it will affect prices. They can form before important geo- political events as well and are very much a wait and see formation"

A Continuation Pattern

Research has shown that symmetrical triangles normally resolve themselves in the direction of the trend. This means the pattern is normally classed as a continuation pattern.

Taking the Move

Its always best to wait for the break from the triangle and not try and predict the move in advance - wait for confirmation and use a momentum indicator to time your trade. We love using the stochastic indicator (discussed in our other articles) and looking for an up turn in momentum to accompany the move.

We find that the narrower the triangle becomes and the longer it takes to form the better the signal will tend to be.

If you are suing forex charts then you really should look to trade symmetrical triangles, there a great reliable formation and when prices break you can get some high odds trades and great forex profits.

If you want to learn forex technical analysis then make symmetrical triangles, an essential part of your forex education.

By Monica Hendrix

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What is Carry Trade?

Additional Information
In an ever changing world, making profitable carry trades* (definition below) are not as easy as they use to be. Therefore we have created a dynamic carry basket that changes when the monetary policy outlook for a central bank changes or if there is significant event risk ahead. Follow the performance of the DailyFX Dynamic Carry Trade Basket.

What is Carry Trade
All that is needed to understand the carry trade concept is a basic knowledge of foreign exchange and interest rates differentials. Money shifts from around the world in seek of the highest yield and the benefit of trading currencies is that you are dealing with countries that have interest rates, which are charged or received every single day. If you are positioned on the side of positive carry, you have the right to earn that interest, which can be quite lucrative over time.

Protective Stop-Loss
Substantial gains made from interest rate differentials provide undeniable evidence that the carry trade strategy has been very successful over the past few years. Still, this strategy involves significant risks and an adequate protective stop is required. We are using a protective stop-loss equivalent to five times the average true range.

Position Sizing
Our position size varies according to each currency volatility. Generally, the more volatile the currency is, the fewer lots we trade. For example, let's assume you have $10,000 and you are trading 10K lots, you decide to limit your risk per trade to 3% or $300 and the 90 days average true range for the EURUSD is 100 pips. In this case, if you go long EUR/USD you could buy 3 lots, since ($10000 * 3%) divided by (0.0100*10K) = 3 lots. In case the final result is not an integer you should always rounded it down to limit your exposure.

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Forex Trading Strategy and Global Market Concerns

About forex trading strategy
A complete forex trading strategy is needed in order to dominate the global market. This article is helpful to a beginner trying to learn forex, to the skilled forex trader. The foreign exchange currency market is a popular place for specialized traders and brokers to trade world currencies. Known as Forex, the foreign exchange market is complex in the way it is influenced by a variety of factors and variables in world economies. Forex trading strategy is trading on a global scale, with local factors making impacts in a global market.
In recent news, worry about the current markets, bank and commercial trends have the Forex market in a bit of a bind. Forex analysts are saying that the U.S. economy is hinging on the labor market. Many use the U.S. currency as a safe zone for their funds as part of their Forex trading strategy. For those who are yearning to learn Forex trading, all of the global markets and current conditions and stabilities can seem a bit much to keep up with.
Many Forex trading strategy plans involve using indicators that can be applied to different currencies to help develop a Forex trading system that is universal. Currently, the labor market is an indicator many are looking at and the impact it will have on Forex trading strategy and the U.S. economy. The job growth in August will be a major factor on the Fed’s decision to further cut rates to spur the economy or leave rates alone.
Many in Forex training feel that 100,000 will be the benchmark or breaking point for the Fed. If job growth in August was less than 100,00 the threat of a recession increases and could lead to another cut in rates to offset the threat. If the job growth last month was greater than 100,000 then the market could stabilize for a bit and rate cuts might not occur. In the mean time it’s up in the air at the moment for Forex trading strategy for U.S. currency.

Forex(fx) Trading Strategy
A forex trading strategy can provide profit for a skilled speculator. A FX trading strategy is, simply put, a method for using foreign exchange rates of currency from various countries to buy one country’s currency when it is undervalued, and exchange it for another country’s currency with it is of normal or higher value, with the difference being profit.
A common forex trading strategy could involve US dollars and the Euro, the official currency of most European countries. To use a simple example of a forex trading strategy, a speculator would buy Euros when they were undervalued; let’s say two Euros equaled one US dollar. This would be unusual because normally the two currencies are almost equal.
By spending one hundred US dollars to buy two hundred Euros a speculator would be able to buy more goods in Germany, France or other European countries. When the market changed and became more even, the speculator would have twice as many goods as he normally would have, and would be able to exchange those goods for US dollars once again.
The difference would be profit. This is a very simple explanation of a forex trading strategy, but gives the basics to the new speculator.Of course, when coming up with a forex trading strategy the trader should only use money that he or she can afford to loose. This is speculation, as opposed to investment. The chances for profit are real, and could come quick but if the market turns the opposite way than expected the trader could actually loose money.
A forex strategy can reap large profits, but if anyone tells you that all trades will result in profit, they haven’t studied the market as well as they should have and they are not correct. Still having a sound forex trading strategy for a competent businessman can be a profitable venture. It requires study of the markets, which takes time and is usually best accomplished by reading financial newsletters and using tools available on the Internet.
Getting the advice of a professional forex trading strategy specialist can also be a sound choice. Professionals have the time, education and skills and can generally help a trader come up with a forex trading strategy that will result in profit more often than one could do without their help.The most sound forex trading strategy options are generally used by large multinational corporations who are often able to make steady profits.
Watching what large corporations do who are involved in forex trading, looking for patterns they may have set, can help a trader to get the benefit of the very expensive expertise used by these large companies. Making watching of the large traders a part of a person’s education is definitely a good place to start a forex trading education. Identifying the state of the market, determining the time frame you are working in, and the currencies that have fluctuation and getting the advice of professionals through self study can be the wisest forex trading strategy option available.

Setting The Strategy
When building a strategy using Forex Strategy Builder you should think for the long position only! When the testing algorithm of the program calculates the strategy, it performs mirror logic for both position directions. It is not necessary for the logic of the short position to be entered into the program. It makes this automatically.
The Open Strategy will send orders with price Price Open of the bar, but because of no filters to determine the direction. Two orders will be sent: Buy Market Order and Sell Market Order in the same time. The first order will open a position and the second one will close it immediately. The result is Position Neutral and Loss equal to the Spread.

Forex Trading Strategy Reviews
Bought this method a while back, a solid trading method that is VERY good. I do not like sitting at my computer so the long term method is great for this. Profitable ..... Oh yes. This method is not based in indicators rather fibnacci ONLY. I read the manual front to back 2,3 times then started to implement it, by far the best method to date I have come across.
Plus the eBook reads in a "just the facts ma'am" manner so if you're already familiar with trading concepts such as money management you can get a trading system going pretty quickly. I don't like going to seminars or buying fancy multimedia CDs. I just had to do about a month of paper trading with the system in order to get really confident and then I started making money.

Hedging Strategies In Forex
There are two new Forex articles that I have uploaded on my site today. They are written by Mary McArthur and they both are about hedging in Forex. Hedging is a simultaneous buying and selling of the same trading instrument. It has a great potential on the volatile and less trendy markets. One articles describes the Forex hedging in general, while another is about a grid hedging system, which exploits the fast swings in both direction on such currency pairs as GBP/JPY and GBP/USD:

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Forex Trading Strategies for Advanced Traders

The Forex Trading Strategies I Use Every Day to Make Consistent Profits

If you've been trading for a while, you know how hard it can be to find profitable trading strategies. There are so many forex strategies on the market today, it's very difficult finding ones that work and sifting through all the other ones that don't do squat.
That's why I created this section of the website. This is for the advanced traders who have used a forex broker, know how to trade, know what take profit targets are, stop loss targets etc. If you don't know what I'm talking about then you should not continue with this page because it will be confusing. Please visit our Novice Forex Traders section to learn more.

For the advanced traders still with me, I’d like to share some forex trading strategies that have worked well for me and I think are some of the best out there. As I mentioned in the About ForexBoost section, I’ve tried a lot of different trading strategies, and the ones I’m about to share are the best ones I’ve found. I mention these strategies on the website, but this area explains them more in detail. These strategies are in no particular order.

Forex Hidden Systems - Teaches 4 forex trading strategies. Three of them are day trading strategies and one is a swing trading strategy. These are very easy to learn and use so they're perfect for new and experienced traders.

The Forex-Killer - This is a trade signal program for generating Buy, Sell or No Trade signals.

The Forex Trading Machine - Teaches 3 very easy to use forex trading strategies. Two are day trading strategies and one is a longer term forex trading strategy.

The Blade Forex Strategies - This also teaches 3 forex trading strategies. One is for quick scalps and the other two are for longer term trades.

Trading TIPS:

Tip #1: One very important tip is to never execute any technical trades when important financial news releases are due out. News can cause market volitility and can knock you out of good technical trades. I always start my technical trades when news is out of the way. A great news calendar to use if the Forexfactory News Calendar. I always have this calendar open every day so I know what news events are due out.

Tip #2: I personally do not get into any new trades between the hours of 11am and 2am EST. The best times to trade are the London Session into the NY session. Trading start to get going around 1:30am EST and starts to slow down around 11am EST. Price can be too unpredictable for my taste outside the hours or 2am and 11am EST so I dont' trade. The only time I break this rule is if there's a "tape bomb". A tape bomb is an unexpected news anouncement that shocks the market. This can cause the financial markets to go crazy and I don't want to miss out if I can trade it. A great example of a tape bomb was when the Fed announced they did a surprise 50 basis point interest rate cut before the financial markets opened. This was huge and we shorted the dollar immediately once we heard this announcement. A lot of traders made a killing that day. Tape bombs don't happen often but when they do, they're the best way to make easy money in the forex market.

source www.forexboost.com

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Inverted Pyramid Based Forex Trading Strategies

As a trader, you must develop a Forex trading strategy that will allow you to quickly identify flaws and make adjustments while continuing to trade. A classic approach used to evaluate risks in the currency trading system is the inverted pyramid approach. All macroeconomic factors that affect a chosen currency pair are a function of the top of the inverted pyramid. All technical factors are considered as you move down to the bottom of the pyramid. Traders assign weight to different parts of the pyramid. Purely technical traders may apply more weight to the bottom of the inverted pyramid (upside down triangle) while fundamental traders may apply more weight at the top.

In order to make use of the inverted pyramid you will need to understand the macroeconomic factors that are a function of the top of the inverted pyramid. These include international issues that influence the global trading community. These types of issues may be gauged from news reports and news feeds with global coverage. News networks, such as CNN, provide up to date coverage of terrorism, oil prices and other such issues.

In order to account for the technical factors that apply to the pyramid, you will need to determine specifics and sediment in the particular market within which you are trading and also for any market that impacts the market within which you are trading. You must decide the type of technical indicators that will be used in your Forex trading strategy. Some traders rely upon randomness and chance while others engage more complicated mathematical computations to calculate weighted moving averages. You must be able to develop and visualize a picture of the market, which identifies events that are of importance to affect the market. You also need to develop a general feel about the market. News reports and specific market reports will assist you in developing a picture of the market and also indicate of the direction in which the market is headed.

You will need to determine which currency pairs are volatile in relation to the macroeconomic environment and market conditions that have been identified. You will need to have knowledge of the market in order to identify and differentiate market indicators from events that bear no real significance. Your analysis of acquired data should indicate whether price movements represent a trend or volatility in the currency trading system. You will then be able to use this analysis to narrow your options to trades that offer the most potential.

You must be able to set floors and ceilings in your technical analysis to establish trading levels and then use those levels in your Forex trading strategy. Technical patterns that indicate the direction of trades in specific currency pairs should be developed. Once you have narrowed down to a specific currency pair for trade, you will then need to reexamine its market sediment as it applies to the technical analysis. You will have to identify entry and exit points for your chosen trades.

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Andrew Daigle is the owner, creator and author of many successful websites including ForexBoost at http://www.forexboost.com/ and http://forex-trading-system.typepad.com/ , Free Forex Training Resource for the Novice and Advanced Forex trader.

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Combines Physics Into New Technical Analysis

Stock market and options trader Richard Lees has combined physics, pattern recognition and technical analysis to form several new “pH-Indicators” to guide him in trading.
Lees is a money manager and president of Richard Lees Capital Management in the Studio City area of Los Angeles. He is a featured speaker at the Telerate Seminars 20th annual Technical Analysis Group (TAG 20) conference here this weekend.

“I began to trade the markets in 1982 when, after my father died, managing family money arose literally from a life-and-death situation as my responsibility in the family. So the enterprise has, from day one, left me with little patience for hypothetical market methods,” said Lees.

He has studied technicals, fundamentals and systems trading that combined them both. “Eventually, I felt my own way to what worked in real time and with real money,” he said.

After some valuable additional encouragement from one of the “wizards” in Jack Schwager’s book, “Market Wizards,” Lees developed an entirely new set of indicators.

“The indicator set, which is what I’m introducing for the first time in public at TAG 20 in Las Vegas, is called The pH-Indicators. And they are elastic, or what I

like to call liquid oscillators. They do not reach, what conventional oscillators call ‘overbought’ and ‘oversold,’ but rather establish trend points which give signals, although in all timeframes. I use them on everything from intermediate signals on the stock market to day trading.”

Lees said three proprietary indicators are literally enough for him to reviewuate the stock market.

“One is pH-F, my fundamental indicator, and keys off the S&P earnings yield rather than its price-earnings ratio. This has kept me on the right side of the bull market of the 1990s.

“Second is pH-L, my Liquidity Indicator, which sits at the heart on my work. It is a simple, but I think elegant, way I’ve found to connect what the Federal Reserve is doing in the real economy with how the stock market is valuing that real economy.

“Last is pH-I, my Market Internals indicator, which gives me everything technical I need to know about market action in one indicator. It’s kind of an updated version of TRIN, and it was formed at least in part because of my simultaneous admiration for and disappointment in TRIN. I would emphasize that I consider Richard Arms one of the true brilliant men in technical analysis, and I’ve long admired his work. It’s just that I found what I consider a more immediate and fast-changing indicator which I believe is more suited to the electronic markets of today and tomorrow.”

Lees said he then combines what these indicators are telling him about the market to produce an Overall Market-pH number, which is also the percentage he will be invested at any given time in the market. (i.e., if the Overall Market-pH is 9.3, he wants to be 93% in the market with his stock picks.)

Then he uses a 21-point Screen he developed for picking stocks, which essentially identifies “a key data signature that I’ve found over the years selects value just before it’s about to become growth.”

“I’m effectively always in the market then, but at different levels of commitment. I believe in stock picking, not mutual fund investing, as I believe money managers should be paid for picking stocks, not other money managers.”

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Forex Calculating Profit & Order Type

As we have specified in earlier page, in order to calculate the pip value or how much is one pip, you have to know some additional information such as: trading size (how many lots), leverage used, and the actual rate of the pair for which you want to calculate the pip value

Calculation Formula for currencies with USD as quote currency (or X/USD such as EUR/USD, GBP/USD, and AUD/USD)

(Selling Price - Buying Price) x lot size x number of lots = Profit / Loss

Example :

• Buy 3 standard lots EUR/USD at 1.2000
• Sell (liquid) 3 lots EUR/USD at 1.2010
• Profit = (1.2010 - 1.2000) x 100.000 x 3 = $300

• Sell 1 standard lot GBP/USD at 2.0001
• Buy (liquid) 1 lot GBP/USD at 2.0000
• Profit = (1.2001 - 1.2000) x 100.000 x 1 = $10

Simple method :

As you can see from example number 1 and 2, for every standard lot (100K) the profit is $10/pip.

How to calculate profit per pip ? Profit/pip = total profit / total pips

• Example number 1 : $300/3 = $10/pip
• Example number 2 : $10/1 = $10/pip

Conclusion : (applies for x/USD Pair only !)

• For every 1 standard lot, profit (loss) = $10/pip
• For every 1 mini lot, profit (loss) = $1/pip
• For every 1 micro lot, profit (loss) = $0.1/pip

Calculation Formula for currencies with USD as base currency (or USD/X such as USD/JPY and USD/CHF)

[ (Selling Price - Buying Price) / Closing (liquidating) Price ] x lot size x number of lots = Profit / Loss

Example :

• Buy 1 standard lot USD/JPY at 110.00
• Sell (liquid) 1 lot USD/JPY at 110.01
• Profit = [ (110.01 - 110.00) / 110.01 ] x 100.000 x 1 = $9.09

Calculation Formula for mixed currencies (such as EUR/JPY) [ (Selling Price - Buying Price) / USD/JPY Closing Price] x lot size x number of lots = Profit / Loss

Example :

• Buy 1 standard lot EUR/JPY at 162.70
• Sell (liquid) 1 lot EUR/JPY at 162.71 USD/JPY closing price of the previous day is 118.10
• Profit = [ (162.71 - 162.70) / 118.10 ] x 100.000 x 1 = $8.47

Please note :

If you open a Buy position (going Long), you will open with offer price, and will have to use bid price while selling it back (liqudating, closing, stop loss, and taking profit)

If you open a Sell position (going Short), you will open with bid price, and will have to use offer price while selling it back (liqudating, closing, stop loss, and taking profit)

Profit Target, Stop Loss, and Trailing Stop

Profit Target is a target point at which you want to liquidate your position in profit automatically, when the market price hits it. This means, you dont have to monitor your open positions all the time, just set a profit target, and once market price hits it, your position will be closed in profit automatically

Stop Loss order ensures a particular position is automatically liquidated at a predetermined price in order to limit potential losses if the market moves against an investor's trade.

• If you open a Buy or Long Position, profit target level should be placed Higher than opening price.
• If you open a Sell or Short Position, stop loss level should be placed Lower than opening price.

Example :

• Buy (Long) EUR/USD 1.2000 (offer price)
• Profit Target 1.2050 (50 pips profit target, bid price)
• Stop Loss 1.1950 (50 pips stop loss, bid price)
  
• Sell (Short) EUR/USD 1.2000 (bid price)
• Profit Target 1.1950 (50 pips profit target, offer price)
• Stop Loss 1.2050 (50 pips stop loss, offer price)

Trailing Stop is an kind of stop loss. This function enables you to automatically set stop loss level whenever the profit you got has exceeded the minimum trailing stop level. If the profit has not exceeded minimum trailing stop level, it will not work ! Please keep in mind that trailing stop usually is executed directly from your computer (client software), not your broker's server so it is highly recommended to put a stop loss besides trailing stop.

The objective of trailing stop is to protect your profit if the market moves against your position so the profit will never go anywhere.

If Trailing stop level is set to 10 pips. Right after your position has reached profit more than trailing stop level (more than 10), then the stop loss will be set to 10 pips away from your open position to protect your profit . Lets say you have already got 10 pips profit, then trailing stop will put a stop loss to 0 (10 pips away from open). If your profit is 20, then stop loss will adjust the stop loss to 10 points profit (still 10 pips awa from open).

Example :

Trailing stop = 10 pips, You open a buy position at 1.2000, suddenly price moves to 1.2010, trailing stop set a stop loss at 1.2000 (Break Even). Market keeps moving to 1.2020, trailing stop level will be adjusted to 1.2010 (10 pips profit), and so on.

Basic Forex Order Types

There are 3 basic order types to trade currencies. They are called Market Order, Stop and Limit Pending Orders.

Market Order is an order to go Long (Buy) or short (Sell) at the current market price. You can't edit these rates.

Example :

Your trading software shows a quote for GBP/USD is at 1.9996 (bid)/2.0000 (ask). This means you can order a buy position at 2.0000 or you can order a sell position at 1.9996 at the moment.

But if you are willing to place an order at different price, you need to use Stop or Limit Pending Orders.

Stop Pending Order :

There are 2 benefits of using Stop Pending Orders :

• Stop Buy Order is used when you want to Buy above the current market price. Example : Current price is at 1.2000, and you want to Buy only if the market hits 1.2050. You can set a Stop Buy at 1.2050
• Stop Sell Order is used when you want to Sell below the current market price Example : Current price is at 1.2000, and you want to Sell only if the market hits 1.1950. You can set a Stop Sell at 1.1950

Limit Pending Order :

There are 2 benefits of using Limit Pending Orders :

• Limit Buy Order is used when you want to Buy below the current market price.

Example :

Current price is at 1.2000, and you want to Buy only if the market hits 1.1950. You can set a Limit Buy at 1.1950

• Limit Sell Order is used when you want to Sell above the current market price

Example :

Current price is at 1.2000, and you want to Sell only if the market hits 1.2050. You can set a Limit Sell at 1.2050

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Fundamental Or Technical Analysis?

Basically, forex traders always use two different approaches to make decisions in forex trading. The first approach is Technical Analysis, and the other one is Fundamental Analysis. But we added 1 more approach which was not included among two approaches above. We call it Logical Analysis.

What does Fundamental, Technical, and Logical Analysis mean ?

Technical Analysis is the art of forecasting price movements through the study of chart patterns, indicator signals, sentiment readings, volume, open interest, and other mathematical analysis to identify trading opportunities.

Fundamental Analysis focuses on key underlying economic and political factors to determine the direction of a currency's value. Fundamentalists predict price movements by interpreting a wide variety of economic information, including news, government-issued indicators and reports, and even rumors. There are a number of fundamental indicators traders may follow that reflect how an economy is changing and gleam insight into Forex market prices to come.

Logical Analysis is an approach to exploit the law of eternal balance in the universe (its like the eternal balance of yin and yang). Forex and every matter in this world are affected by the universe. Hence this approach can be implemented in forex as well. Later we will give you a very profitable trading system to gain an enormous profit based on this method.

Fundamental, Technical, and Logical Analysis. Which one is the best ?

Technical traders usually say that it is impossible to trade on the news, because the market moves so fast. In the other hand, fundamentalists say that only the news move the market and indicator is always a follower.

The big question is what actually moves the forex market? It is trader's expectation and speculation that moves the market! Neither the news nor the graphs move the market. The most dramatic price movements, however, occur when unexpected events happen.

There is another important question you should think of: How much money is traded by fundamentalists, and how much money is traded by technical traders?

We will tell you a little secret in forex industry. Do you know that almost all of big banks, hedge funds, and other big financial institutions trade using Fundamental Analysis? And unfotunately those big financial institutions have the biggest amount of money in the world.

So what is the correlation with forex market? It is very rational and predictable : At the time they open trades (using a large amount of money), the market moves accordingly. What do fundamentals do ? If the news report for a country is better than expected, that country's currency usually gets stronger and moves the price, if it's worse, that currency will be weaker and moves the price to the other way.

Do you know why there is only a small amount of fundamental forex trading e-book taught by forex brokers out there ? This probably has something to do with more profitable nature of fundamental analysis. As you know, some brokers dont like if their customers win. If you win they will lose (they trade against you).

What about technical traders ? It seems that most of technical traders and small traders don't have such a lot of money compared to big financial institutions, even altogether.

For complexity, there are lots of different indicators and timeframes used in technical analysis. At the same moment, each of them are giving different signals.

The conclusion is we prefer to use fundamental analysis compared to technical. Then what about logical analysis ? To be honest, logical analysis the best method to trade forex, as it will give you a constant, reliable, and greatest result almost all the time.

Forex Trading Tips

Trading tips suitable for Technical Traders : Only use the most common, widely used Trading Indicators and Never trade during important News Accouncement Time.

Trading tips suitable for Fundamental Traders : Be patient, discipline, use an accurate clock and only trade during important news release.

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How to Achieve Trading Perfection?

Achieving Trading Perfection - Trade quality, not quantity. Take the best of the best. Get the big picture. If you haven’t previously come across such advice, or if you have and are not following it, it is time that you take these words to heart. But how?

Trade selection and adequate planning go hand in hand. This is where most would-be professional traders miss the boat.
Much more money is made as a result of proper planning than from sitting and trading everything that comes along or “looks” good.
It’s difficult to fully understand why people think they have to trade so much. It’s difficult to truly grasp why people think that they have to take as many trades as they do.
Just the opposite is true. There is a correct approach to each and every trade. That is what achieving perfection is all about.
It all starts with proper management: planning, organizing, delegating, directing, and controlling.
These facets of management must be woven together into your trading; they do overlap.
Although planning is the major management function involved in achieving perfection, you can’t possibly plan well unless you are organized to do so.
You must have your tools at hand: your trading software, your data, the proper equipment. All of the rudiments for planning must be in place, which in itself is a part of organizing.
You must be physically fit when you plan: well nourished, properly exercised, well rested and mentally alert - all part of having your life organized, all part of achieving perfection as a trader.
To be a winning trader, you have to be among the best. There can be no middle ground. There are only winners and losers, and to be a winner you have to be a champion. And, just like any champion, you must have discipline, self-control, and a willingness to train, train, train.
There are no runners-up in trading, you either get the gold or you give the gold. Often, while others are busy going to parties or watching sports events, you are busy poring over charts, studying, thinking, planning. When others are listening to music or watching TV, you are busy practicing your trading, practicing trade selection, working hard to become a more astute trader.
Part of achieving perfection involves the diligent study of charts. The data, as presented on your screen and preserved as charts, are, for the most part, all you have for making trading decisions. They are a picture, a visualization of what is taking place in the reality of the forex market. Your job in achieving perfection and becoming an adequate trader is to picture and imagine in your mind what makes prices move and form the way they do. Ask yourself, “How does what I see in front of me relate to the supply and demand for the underlying?” Ask yourself, “Is what I am seeing on the chart even related to supply and demand, or is what I am seeing related to an engineered move by some insider or market mover?”
Supply and demand are not what makes prices move or fail to move most of the time. The sooner you realize that fact, the better off you will be. Markets are engineered, manipulated? You need to know that.
But there’s more to a chart than merely price patterns. Reflected in the chart are the emotional reactions of human beings. Reactions to rumors and news; to national and world events; to government reports - these, too, are on the charts.
You might say that price movement, or the lack thereof, is the net effect of all the perceptions of all the traders who are participating in the market for a particular futures.
There is something else on the charts, something that too few take into account. That something is the manipulations from and by the insiders, the market movers, and by commercials holding large inventories of the underlying you are attempting to trade.
In achieving perfection as a trader, you must train yourself to look for evidence of any and all of these things as you study your charts. It is the cumulative action of all perceptions which causes patterns to form on a price chart.
You must learn to look for the truths in the markets. There are certain truths which are self-evident; they are always true. For instance, take the phenomenon of a breakout. When prices break out, no one can change the fact that they did break out. It is a fact and it is true. The breakout may turn out to be a “false” breakout, but nevertheless it is a breakout. As part of achieving perfection in your trade selection skills, you have to learn to tell which breakouts are most likely true breakouts, and which ones are most likely false. How can you know? By the price patterns on the chart.
And what about trend? Your job in achieving perfection as a trader is to master how to trade a trend. A trend is a trend, is a trend. It is a trend until the end, and part of your job is to know when a market is not trending.
The trend is the trend while it lasts. While a market is trending it is telling the truth. The trend can change, but the truth is the truth. If prices are rising, the trend is up. If prices are falling, the trend is down. The truth can be found in the trend. It is an immutable fact. You are to learn to make my money by trading with the trend. You are to learn what constitutes a trend. You have to learn to spot trends early so that you can make the most out of the market while it is trending. Your job in achieving perfection as a trader is to learn to recognize when a trend will most likely begin, and just as important, to learn to be even more adept at deciphering when a trend is ending.
In achieving perfection, you must learn to recognize “your” trade(s), and to take only “your” trades. Trade the formations and patterns that you can easily recognize and identify.
You must learn to trade using tips and tricks that you are shown and to accumulate and keep a collection of techniques that result in the selection of high probability trades.
How are you to do all this? Practice, practice, PRACTICE. Practice recognition of congestion areas. Practice recognition of high probability breakouts. Practice trend recognition. Practice and more practice. Just like anyone who wants to achieve perfection at anything, there must be total dedication, study, practice and more practice. You are to become a trading virtuoso. You are to practice, yet always realizing that you will never attain true perfection, that there is always room for improvement. There is usually a way to refine: ways that you can do things better, more efficiently, and with greater speed and finesse.

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Technical Analysis by Currency Traders

Technical analysis is a method used by currency traders to predict price movements and future market trends by studying what has occurred in the past using charts. Technical analysis is concerned with what has actually happened in the market, rather than what should happen, and takes into account the price of instruments and the volume of trading, and creates charts from that data as a primary tool. One major advantage of technical analysis is that experienced analysts can follow many markets and market instruments simultaneously.

Technical analysis is built on three essential principles :

1. Market action discounts everything! This means that the actual price is a reflection of everything that is known to the market that could affect it. Some of these factors are: fundamentals (inflation, interest rates, etc.), supply and demand, political factors and market sentiment. However, the pure technical analyst is only concerned with price movements, not with the reasons for any changes.
2. Prices move in trends. Technical analysis is used to identify patterns of market behavior that have long been recognized as significant. For many given patterns there is a high probability that they will produce the expected results. There are also recognized patterns that repeat themselves on a consistent basis.
3. History repeats itself. Forex chart patterns have been recognized and categorized for over 100 years, and the manner in which many patterns are repeated leads to the conclusion that human psychology changes little over time. Since patterns have worked well in the past, it is assumed that they will continue to work well into the future.

Want to learn more about the advantages and disadvantages of Technical analysis? Get complete currency trading eBook FREE Download it NOW!

http://forex.easy-forex.com.au

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Major Economic Indicators

Economic indicators play a huge role in the forex market, particularly in the form of fundamental analysis. Some of the most influential indicators for the dollar include Non Farm Payroll, Federal Open Market Committee (FOMC) interest rate decisions, trade balance, Consumer Price Index (CPI), and retail sales.

Non Farm Payroll (NFP) is a good indicator of the employment rate and overall strength of the labor market. It represents all business employees excluding general government employees, private household employees, and employees of nonprofit organizations, accounting for about 80% of the workers who contribute to GDP. The full report also includes estimates on the average work week and weekly earnings of these employees. As a general indicator of the health of the economy, usually the dollar in forex trading is affected more the further from expectations the figure for NFP turns out to be. The general trend for NFP since 1990 has been increasing. Overall, NFP has increased from 109,144 in January of 1990 to 135,106 in May of 2006. Generally, when NFP is lower than expected traders will begin to sell the US dollar on the belief that it is weakening. The opposite is true for an unexpectedly high NFP. NFP is released at 8:30am EST on the first Friday of every month and tends to cause an average move of 124 pips in the EUR/USD.

Federal Open Market Committee (FOMC) decisions in general indicate the overall strength of the economy. The FOMC sets the discount rate or federal funds rate (the rate that the Federal Reserve Bank charges member banks for overnight loans) which is highly influential on the forex market. Because interest rates are set higher to induce foreign investment and therefore fight inflation during times of prosperity and lower to increase spending during recessions, they are an important indicator of the strength of the dollar. Increases in interest rates tend to lead to a strengthening of the dollar, while decreases usually precede a depreciation. Therefore, following rate hikes traders usually buy the dollar, anticipating an increase in its value. The opposite is true when the FOMC reduces rates. For the past 15 years the federal funds rate has experienced a net decrease, from 8.23% in January of 1990 to 4.94% in May of 2006, with periods of significant variance inbetween. There are eight scheduled FOMC meetings per year, each of which is usually followed by an average move of about 74 pips in the EUR/USD.

Trade balance measures the difference in value of the goods and services the US imports and those that it exports. From another perspective, it may also be considered the difference between national savings and national investment. A surplus exists if the exports exceed the imports, and a deficit, the current situation for the US, exists if the opposite is true. The balance can be affected by a variety of factors, including prices of domestic goods, exchange rates, trade agreements or barriers, and other trade regulations such as tariffs. Trade surpluses are generally not bad for the economy, but may lead to harmful protectionist policies. Deficits may lead to loss of jobs and problems with debt servicing. The US has had a trade deficit since the 1970s, at $101.7 billion in 1990, $716.7 billion in 2005, and continuously increasing. This could be because of the dollar’s use as a reserve currency and its overall strength, the growth of the US economy, high demand for American investment assets, rising oil prices, and globalization. Depreciating the dollar could be a possible solution to this imbalance, through a variety of methods. This would give consumers less purchasing power, ideally leading to a decrease in imports. This makes the trade balance less relevant as an immediate influence on forex trading but rather valuable as an alert to likely future Fed decisions. In general, however, a deficit is considered a sign of US economic weakness and therefore may lead traders to short the dollar. Trade balance is usually released near the middle of the second month after the reporting period and is followed by an average move of 64 pips in the price of the EUR/USD.

The Consumer Price Index (CPI) is a statistical measure representing inflation based on a fixed basket of consumer goods. Used to deflate other economic indicators and set wages, CPI is useful throughout the economy. The US CPI has been steadily increasing for the past 15 years, from 127.5 in January of 1990 to 201.0 in April of 2006. The response of traders to CPI is difficult to predict because although a high CPI is a signal of trouble in the economy, prompting traders to short the USD, it also tends to forecast interest rate increases by the Fed to which traders usually respond by buying. CPI is released around the 13th of every month at 8:30am EST followed by an average move in the EUR/USD of 44 pips.

Retail sales is a figure measuring the amount of goods sold by a sampling of stores, meant to be representative of consumer activity and confidence in the economy. Therefore, high retail sales numbers imply a strong economy. The retail trade sector, as delineated in the North American Industry Classification System (NAICS) is considered to include companies selling finished goods or rendering services incidental to the sale of finished goods. Since 1992 the US retail sales numbers have been steadily increasing, jumping from $147.14 billion in January of 1990 to $328.77 billion in May of 2006. Generally forex traders respond positively to high US retail sales numbers and long the dollar, shorting it when the figure is lower than expected. Retail sales numbers are announced around the 11th of every month at 8:30am EST causing an average 44-pip movement in the EUR/USD

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Forex Fundamental Analysis

Forex fundamental analysis is one of two widely recognized approaches to foreign exchange market analysis.

An alternative to technical analysis, which makes use of market trends (i.e. chart analysis) to determine the future value of a particular currency in the FX market, fundamental analysis describes methods of present and future valuation determined by social, economic, and political variables. While technical analysis is praised for its effectiveness at predicting short-term trends (under 3 months), the fundamental analysis approach is better suited at forecasting long-term movement in the FX market.Employing fundamental analysis strategies requires a basic understanding of supply and demand, the underlying force behind all financial markets. In the case of the FX market, the commodity being exchanged is a particular currency. Because the value of a currency is derived from the economic health of its respective country, global (or local) macroeconomic changes can invariably have an impact on currency rates. Fundamental analysis itself is broken down into two broad subcategories: capital flows and trade flows.

Capital Flows in Fundamental Analysis
A country's capital flows are the net quantity of currency being traded through capital investments, including equity market investments, fixed income market investments, third party licensing agreements, joint ventures, and foreign direct investment—all of which must be considered in fundamental analysis. The first two are the flow of portfolio investments and international government bonds, while the latter three represent the physical flows of capital that serve as financial indicators of stability and growth. Together, they are known as the capital flows.

Trade Flows in Fundamental Analysis
Also known as current accounts, these flows measure the net of imports and exports of a particular country, and the subsequent impact that these flows can have on the value of a currency. The reason that international trade plays an important role in fundamental analysis, and ultimately in FX market, is that importers are required to sell currency used to purchase goods and services being exported. Following this logic, countries that have positive trade flows (exports are higher than imports) run surpluses that serve to increase their currency, while the opposite is true of net importers. This aspect of fundamental analysis is one of the most influential, frequently providing insights into movements in a currency's price.

For more information regarding Fundamental Analysis, see the links in the left section: you can:

• Review information on six major economic indicators,
• Browse links for applicable foreign exchange news sites,
• See a listing of major governmental web pages and other sources of direct fundamental information feeds
• Look at a selection of recommended foreign exchange brokers to begin your own excursion in foreign exchange trading.

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Fundamental Analysis: What Is It?

In this section we are going to review the basics of fundamental analysis, examine how it can be broken down into quantitative and qualitative factors, introduce the subject of intrinsic value and conclude with some of the downfalls of using this technique.

The Very Basics

When talking about stocks, fundamental analysis is a technique that attempts to determine a security’s value by focusing on underlying factors that affect a company's actual business and its future prospects. On a broader scope, you can perform fundamental analysis on industries or the economy as a whole. The term simply refers to the analysis of the economic well-being of a financial entity as opposed to only its price movements. Fundamental analysis serves to answer questions, such as:

• Is the company’s revenue growing?
• Is it actually making a profit?
• Is it in a strong-enough position to beat out its competitors in the future?
• Is it able to repay its debts?
• Is management trying to "cook the books"?

Of course, these are very involved questions, and there are literally hundreds of others you might have about a company. It all really boils down to one question: Is the company’s stock a good investment? Think of fundamental analysis as a toolbox to help you answer this question. Note: The term fundamental analysis is used most often in the context of stocks, but you can perform fundamental analysis on any security, from a bond to a derivative. As long as you look at the economic fundamentals, you are doing fundamental analysis. For the purpose of this tutorial, fundamental analysis always is referred to in the context of stocks.

Fundamentals: Quantitative and Qualitative

You could define fundamental analysis as “researching the fundamentals”, but that doesn’t tell you a whole lot unless you know what fundamentals are. As we mentioned in the introduction, the big problem with defining fundamentals is that it can include anything related to the economic well-being of a company. Obvious items include things like revenue and profit, but fundamentals also include everything from a company’s market share to the quality of its management. The various fundamental factors can be grouped into two categories: quantitative and qualitative. The financial meaning of these terms isn’t all that different from their regular definitions. Here is how the MSN Encarta dictionary defines the terms :

• Quantitative – capable of being measured or expressed in numerical terms.
• Qualitative – related to or based on the quality or character of something, often as opposed to its size or quantity.

In our context, quantitative fundamentals are numeric, measurable characteristics about a business. It’s easy to see how the biggest source of quantitative data is the financial statements. You can measure revenue, profit, assets and more with great precision. Turning to qualitative fundamentals, these are the less tangible factors surrounding a business - things such as the quality of a company’s board members and key executives, its brand-name recognition, patents or proprietary technology.

Quantitative Meets Qualitative

Neither qualitative nor quantitative analysis is inherently better than the other. Instead, many analysts consider qualitative factors in conjunction with the hard, quantitative factors. Take the Coca-Cola Company, for example. When examining its stock, an analyst might look at the stock’s annual dividend payout, earnings per share, P/E ratio and many other quantitative factors. However, no analysis of Coca-Cola would be complete without taking into account its brand recognition. Anybody can start a company that sells sugar and water, but few companies on earth are recognized by billions of people. It’s tough to put your finger on exactly what the Coke brand is worth, but you can be sure that it’s an essential ingredient contributing to the company’s ongoing success.

The Concept of Intrinsic Value

Before we get any further, we have to address the subject of intrinsic value. One of the primary assumptions of fundamental analysis is that the price on the stock market does not fully reflect a stock’s “real” value. After all, why would you be doing price analysis if the stock market were always correct? In financial jargon, this true value is known as the intrinsic value. For example, let’s say that a company’s stock was trading at $20. After doing extensive homework on the company, you determine that it really is worth $25. In other words, you determine the intrinsic value of the firm to be $25. This is clearly relevant because an investor wants to buy stocks that are trading at prices significantly below their estimated intrinsic value. This leads us to one of the second major assumptions of fundamental analysis: in the long run, the stock market will reflect the fundamentals. There is no point in buying a stock based on intrinsic value if the price never reflected that value. Nobody knows how long “the long run” really is. It could be days or years. This is what fundamental analysis is all about. By focusing on a particular business, an investor can estimate the intrinsic value of a firm and thus find opportunities where he or she can buy at a discount. If all goes well, the investment will pay off over time as the market catches up to the fundamentals.

The big unknowns are:

1. You don’t know if your estimate of intrinsic value is correct; and
2. You don’t know how long it will take for the intrinsic value to be reflected in the marketplace.

Criticisms of Fundamental Analysis

The biggest criticisms of fundamental analysis come primarily from two groups: proponents of technical analysis and believers of the “efficient market hypothesis”. Technical analysis is the other major form of security analysis. We’re not going to get into too much detail on the subject. (More information is available in our Introduction to Technical Analysis tutorial.)

Year after year, key players in the Forex market make a killing by picking the right currencies – now it’s your turn. Access industry gurus Boris and Kathy’s exclusive FREE report, The Five Things That Move the Currency Market – And How to Profit From Them, right now! Put simply, technical analysts base their investments (or, more precisely, their trades) solely on the price and volume movements of securities. Using charts and a number of other tools, they trade on momentum, not caring about the fundamentals. While it is possible to use both techniques in combination, one of the basic tenets of technical analysis is that the market discounts everything. Accordingly, all news about a company already is priced into a stock, and therefore a stock’s price movements give more insight than the underlying fundamental factors of the business itself. Followers of the efficient market hypothesis, however, are usually in disagreement with both fundamental and technical analysts. The efficient market hypothesis contends that it is essentially impossible to produce market-beating returns in the long run, through either fundamental or technical analysis. The rationale for this argument is that, since the market efficiently prices all stocks on an ongoing basis, any opportunities for excess returns derived from fundamental (or technical) analysis would be almost immediately whittled away by the market’s many participants, making it impossible for anyone to meaningfully outperform the market over the long term.

By Cory Janssen, Co-Founder, Investopedia.com; Ben McClure, Contributor - Investopedia Advisor and Investopedia Staff, (Investopedia.com)

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The Basics of Forex Trading Economic Indicators

Economic indicators are an essential and primary part of the world of economy and the Forex trading market. In our previous articles about different approaches towards market analysis we have briefly discussed this concepts and emphasized their affect on your trading system. In this article we will try to illuminate the importance of this indicators even further. The term 'economic indicators' stands for a wide variety of financial statistics, figures and evaluations. This info is being processed, studied and then released by several financial establishments around the world, such as national treasuries and large investment banks.
The Forex trading indicators are a powerful device that is used by these establishments to better understand and trace the changes in the world economy. Although the indicators originally had a different function they are now closely watched by all investors around the world. Each smart investor waits anxiously to the release date of each of the indicators and knows how to act upon them. Most people presume that it is almost impossible to understand economical concepts such as indicators without an economics school degree. This is of course false. If you want to use indicators as a tool to improve your forex trading then you are more than able to do this without any academic education. In this series of articles we will present you with several guiding principles that are bound to turn you into a better forex trader in no time.
The first thing on your list is to learn the release dates of each of the economical indicators. Keeping an organized calendar near your trading station (your home or office computer) with each of the release dates marked will make the job much easier. You can find all the release dates for all the indicators in many places around the net but generally the best places to look are http://www.ny.frb.org/ and http://www.worldbank.org/. Following the calendar will be very useful in more than one way. Many price shifts and sudden rallies that could confuse you in the past are now easily explained by their proximity to one of the release dates. The calendar will help you feel the pulse of the forex market. Economic indicators can affect the market both in a immediate straightforward manner and also in a more subtle, roundabout way. When traders act upon the data that they learned from the indicators this is a direct affect of the indicator's release. When traders move to better positions according to their expectations of the indicator, this is an indirect affect on the market. When prices shift just before the release date of a certain indicator because traders move to a better position according to what they expect from an indicator, it is an indirect affect on the market. We strongly advise you to keep reading our next articles which will deal with more advanced concepts of economic indicators.

By Dan Princeton, Editor

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Forex for Dummies

Forex Basics
If you've already read the "What is Forex?" section then you should know what Forex market is and what it is all about. If not, please, do it. There are five essential aspects of foreign currency market a beginner trader (and an old one as well) should be aware of :

• Forex Fundamental Analysis
• Forex Technical Analysis
• Money Management
• Forex Trading Psychology
• Forex Brokerage

Understanding and mastering these sides of trading are crucial to organize your Forex trading experience.

Forex Fundamental Analysis
Fundamental analysis is the process of market analysis which is done regarding only "real" events and macroeconomic data which is related to the traded currencies. Fundamental analysis is used not only in Forex but can be a part of any financial planning or forecasting. Concepts that are part of Forex fundamental analysis: overnight interest rates, central banks meetings and decisions, any macroeconomic news, global industrial, economical, political and weather news. Fundamental analysis is the most natural way of making Forex market forecasts. In theory, it alone should work perfectly, but in practice it is often used in pair with technical analysis. Recommended e-books on Forex fundamental analysis :

• Reminiscences of a Stock Operator
• What Moves the Currency Market?

Forex Technical Analysis
Technical analysis is the process of market analysis that relies only on market data numbers - quotes, charts, simple and complex indicators, volume of supply and demand, past market data, etc. The main idea behind Forex technical analysis is the postulate of functional dependence of the future market technical data on the past market technical data. As well as with fundamental analysis, technical analysis is believed to be self-sufficient and you can use only it to successfully trade Forex. In practice, both analysis methods are used. Recommended e-books on Forex fundamental analysis are :

• The Law Of Charts
• Candlesticks For Support And Resistance
• Trend Determination

Money Management in Forex
Even if you master every possible method of market analysis and will make very accurate predictions for future Forex market behavior, you won't make any money without a proper money management strategy. Money management in Forex (as well as in other financial markets) is a complex set of rules which you develop to fit your own trading style and amount of money you have for trading. Money management play very important role in getting profits out of Forex; do not underestimate it. To get more information on money management you can read these books :

• Risk Control and Money Management
• Money Management (A chapter from The Mathematics of Gambling)
  

Forex Trading Psychology
While learning a lot about market analysis and money management is an obvious and necessary step to be a successful Forex traders, you also need to master your emotions to keep your trading performance under strict control of mind and intuition. Controlling your emotions in Forex trading is often a balancing between greed and cautiousness. Almost any known psychology practices and techniques can work for Forex traders to help them keep to their trading strategies rather to their spontaneous emotions. Problems you'll have to deal while being a professional Forex trader:

• Your greed
• Overtrading
• Lack of discipline
• Lack of confidence
• Blind following others' forecasts

These are very professional books on psychology written specially for financial traders :

• Calming The Mind So That Body Can Perform
• Emotion Free Trading
• The Miracle of Discipline

Forex Brokerage
Every Forex trader like any other professional needs tools to trade. One of these tools, which is vital to be in market, is a Forex broker and specifically for Internet - on-line Forex broker - a company which will provide real-time market information to trader and bring his orders to Forex market. While choosing a right Forex broker things to look for are the following :

• Being a professional company you can trust
• Provide you with real-time quotes
• Execute your orders fast and accurately
• Don't take a lot of commissions
• Support the withdraw/deposit methods you use

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What is Forex?

FOREX - the foreign exchange market or currency market or Forex is the market where one currency is traded for another. It is one of the largest markets in the world.
Some of the participants in this market are simply seeking to exchange a foreign currency for their own, like multinational corporations which must pay wages and other expenses in different nations than they sell products in. However, a large part of the market is made up of currency traders, who speculate on movements in exchange rates, much like others would speculate on movements of stock prices. Currency traders try to take advantage of even small fluctuations in exchange rates.
In the foreign exchange market there is little or no 'inside information'. Exchange rate fluctuations are usually caused by actual monetary flows as well as anticipations on global macroeconomic conditions. Significant news is released publicly so, at least in theory, everyone in the world receives the same news at the same time.
Currencies are traded against one another. Each pair of currencies thus constitutes an individual product and is traditionally noted XXX/YYY, where YYY is the ISO 4217 international three-letter code of the currency into which the price of one unit of XXX currency is expressed. For instance, EUR/USD is the price of the euro expressed in US dollars, as in 1 euro = 1.2045 dollar.
Unlike stocks and futures exchange, foreign exchange is indeed an interbank, over-the-counter (OTC) market which means there is no single universal exchange for specific currency pair. The foreign exchange market operates 24 hours per day throughout the week between individuals with forex brokers, brokers with banks, and banks with banks. If the European session is ended the Asian session or US session will start, so all world currencies can be continually in trade. Traders can react to news when it breaks, rather than waiting for the market to open, as is the case with most other markets.
Average daily international foreign exchange trading volume was $1.9 trillion in April 2004 according to the BIS study.
Like any market there is a bid/offer spread (difference between buying price and selling price). On major currency crosses, the difference between the price at which a market maker will sell ("ask", or "offer") to a wholesale customer and the price at which the same market-maker will buy ("bid") from the same wholesale customer is minimal, usually only 1 or 2 pips. In the EUR/USD price of 1.4238 a pip would be the '8' at the end. So the bid/ask quote of EUR/USD might be 1.4238/1.4239.
This, of course, does not apply to retail customers. Most individual currency speculators will trade using a broker which will typically have a spread marked up to say 3-20 pips (so in our example 1.4237/1.4239 or 1.423/1.425). The broker will give their clients often huge amounts of margin, thereby facilitating clients spending more money on the bid/ask spread. The brokers are not regulated by the U.S. Securities and Exchange Commission (since they do not sell securities), so they are not bound by the same margin limits as stock brokerages. They do not typically charge margin interest, however since currency trades must be settled in 2 days, they will "resettle" open positions (again collecting the bid/ask spread).
Individual currency speculators can work during the day and trade in the evenings, taking advantage of the market's 24 hours long trading day.

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Forex Trading History

Foreign exchange of currencies can be dated back to ancient times, when merchants of different sorts traded coins from country to country. In ancient Egypt the first coins were used, and paper notes were added later on by the Babylonians. The history of Forex continues in the middle ages when foreign exchange was maintained by international banks. This enabled a growth of the European powers and contributed to the spread of foreign currencies throughout Europe and the middle east. The history of Forex is therefore perhaps the longest of all the other markets, and this is one of the advantages of Forex over other market options.

1816-The Gold Standard Changes Forex History
The gold standard was a trading standard that was used as a fixed value for trading commodities. This means a certain weight in gold was established and used to trade for other currencies. This started to be in use in 1816, when the British pound was defined as 123.27 grains of gold. This meant that the British banks had a specific value that was defined and this in turn helped set the UK standard currency as stable.
The US adopted the gold standard in 1879 and replaced the British pound when the European nations stopped using the gold standard in the outbreak of World War I.

1944 - The Bretton Woods System
By the end of WW II, the economical status of the world's great nations had changed. The UK had suffered a great financial blow and its economical state was disastrous, while the US had remained relatively unchanged by the war. The dollar rose as the new standard of the financial market. At a conference held at Bretton Woods in the US in 1944, a new international financial framework was introduced into Forex history. The US dollar now became the new global reserve currency, when other currencies where set according to the dollar. At this summit the US, UK and France met in order to try and better the European economies scathed by the war, and to create a stable environment by which the global economies could restore themselves. The Bretton Woods Accord established the pegging of currencies and the International Monetary Fund (IMF), and established the world bank.

1973 - The Floating Exchange Rates
By 1972 a few major countries, such as the UK, suffered economical difficulties and initiated the floating of their currencies. The Smithsonian agreement was signed in 1971 and meant creating a more flexible agreement than Bretton woods where currencies had the ability to fluctuate more. The European market also tried to move from its dependency on the US dollar with more joints and agreements signed to ensure currencies' extended flexibility. Both the Smithsonian agreement and the European Joint Float collapsed, signifying the official switch to a free-floating currency system. Governments were now free to peg their currencies or allow them to freely float. In 1978, the free-floating system was officially mandated, but like previous attempts failed in 1993.

1994 - Forex History Changes With The Introduction of The Internet
During 1994, online currency trading made its debut, with the first online Forex transaction done. Since then, the market has grown to what it is today, with a total circle of more than $1.9 trillion every day. The big change in Forex history is that now anyone could participate and invest in the market. The vast amount of people trading online Forex is due mostly to the option of margin investments that are available with online Forex trading.

2002 - The Arrival of the Euro to Forex Trading
On January 1, 2002, the history of Forex trading was changed with the introduction of the Euro as the official currency between twelve European nations. The Euro is now the second most frequently traded currency in Forex markets. The countries first added to the Euro currency were: Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain. More details on the Forex market is available at Forex info. Forex History can be seen as spanning only one decade, or it can be measures from ancient times when coins were swapped. In any case no one undermines the importance of the Forex market today.

Written by Debbie Graham - Section Editor published with www.fxinfo.com

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Forex Glossary

Ask (Offer) — price of the offer, the price you buy for.
Bank Rate — the percentage rate at which central bank of a country lends money to the country's commercial banks.
Bid — price of the demand, the price you sell for.
Broker — the market participating body which serves as the middleman between retail traders and larger commercial institutions.
Cable — a Forex traders slang word GBP/USD currency pair.
Carry Trade — in Forex, holding a position with a positive overnight interest return in hope of gaining profits, without closing the position, just for the central banks interest rates difference.
CFD — a Contract for Difference - special trading instrument that allows financial speculation on stocks, commodities and other instruments without actually buying.
Commission — broker commissions for operation handling.
CPI — consumer price index the statistical measure of inflation based upon changes of prices of a specified set of goods.
EA (Expert Advisor) — an automated script which is used by the trading platform software to manage positions and orders automatically without (or with little) manual control.
ECN Broker — a type of Forex brokerage firm that provide its clients direct access to other Forex market participants. ECN brokers don't discourage scalping, don't trade against the client, don't charge spread (low spread is defined by current market prices) but charge commissions for every order.
ECB (European Central Bank) — the main regulatory body of the European Union financial system.
Fed (Federal Reserve) — the main regulatory body of the United States of America financial system, which division - FOMC (Federal Open Market Committee) - regulates, among other things, federal interest rates.
Fibonacci Retracements — the levels with a high probability of trend break or bounce, calculated as the 23.6%, 32.8%, 50% and 61.8% of the trend range.
Flat (Square) — neutral state when all your positions are closed.
Fundamental Analysis — the analysis based only on news, economic indicators and global events.
GTC (Good Till Cancelled) — order to buy or sell of a currency with a fixed price or worse. The order is alive (good) until execution or cancellation.
Hedging — maintaining a market position which secures the existing open positions in the opposite direction.
Jobber — a slang word for a trader which is aimed toward fast but small and short-term profit from an intra-day trading. Jobber rarely leaves open positions overnight.
Kiwi — a Forex slang name for the New Zealand currency - New Zealand dollar.
Limit Order — order for a broker to buy the lot for fixed or lesser price or sell the lot for fixed or better price. Such price is called limit price.
Liquidity — the measure of markets which describes relationship between the trading volume and the price change.
Long — the position which is in a Buy direction. In Forex, the primary currency when bought is long and another is short.
Loss — the loss from closing long position at lower rate than opening or short position with higher rate than opening, or if the profit from a position closing was lower than broker commission on it.
Lot — definite amount of units or amount of money accepted for operations handling (usually it is a multiple of 100).
Margin — money, the investor needs to keep at broker account to execute trades. It supplies the possible losses which may occur in margin trading.
Margin Account — account which is used to hold investor's deposited money for FOREX trading.
Margin Call — demand of a broker to deposit more margin money to the margin account when the amount in it falls below certain minimum.
Market Order — order to buy or sell a lot for a current market price.
Market Price — the current price for which the currency is traded for on the market.
Offer (Ask) — price of the offer, the price you buy for.
Open Position (Trade) — position on buying (long) or selling (short) for a currency pair.
Order — order for a broker to buy or sell the currency with a certain rate.
Pivot Point — the primary support/resistance point calculated basing on the previous trend's High, Low and Close prices.
Pip (Point) — the last digit in the rate (e.g. for EUR/USD 1 point = 0.0001).
Profit (Gain) — positive amount of money gained for closing the position.
Principal Value — the initial amount of money of the invested.
Realized Profit/Loss — gain/loss for already closed positions.
Resistance — price level for which the intensive selling can lead to price increasing (up-trend)
Settled (Closed) Position — closed positions for which all needed transactions has been made.
Slippage — execution of order for a price different than expected (ordered), main reasons for slippage are - "fast" market, low liquidity and low broker's ability to execute orders.
Spread — difference between ask and bid prices for a currency pair.
Stop-Limit Order — order to sell or buy a lot when the market reaches certain price. Usually is a combination of stop-order and limit-order.
Stop-Loss Order — order to sell or buy a lot for a certain price or worse. It is used to avoid extra losses when market moves in the opposite direction.
Support — price level for which intensive buying can lead to the price decreasing (down-trend). Technical Analysis — the analysis based only on the technical market data (quotes) with the help of various technical indicators.
Trend — direction of market which has been established with influence of different factors.
Unrealized (Floating) Profit/Loss — a profit/loss for your non-closed positions.
Useable Margin — amount of money in the account that can be used for trading.
Used Margin — amount of money in the account already used to hold open positions open.
Volatility — a statistical measure of the number of price changes for a given currency pair in a given period of time.

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