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Things you Need to Know About Forex Charts
Whether you trade options, binary options, or forex, if you use forex charts, you may notice a couple strange things at first. Here we will look at some simple concepts to help you better understand the forex market and forex charts.
Pairs and Trend Direction
Currencies always trade in pairs – the EUR/USD, AUD/CAD etc. So if you pull up a chart of the EUR/USD, and the chart shows the price is moving higher, what does that mean? In simple terms you can think of the first currency as the directional currency. So in this case, the EUR is rising, relative to the USD. If you pull up a chart of the AUD/CAD and the price of the pair is falling, that means the price of the AUD is declining relative to the CAD.
If you buy the EUR/USD you are expecting that the EUR will rise relative to the USD, and therefore will want to see the price move higher on your chart.
If you sell the EUR/USD you are expecting that the EUR will decline relative to the USD, and therefore will want to see the price move lower on your chart.
A few years ago most pairs were quoted at four decimal places, now they are typically quoted at five. The forth decimal place represents 1 pip, while the firth decimal place represents 1/10 of a pip, or a “fractional pip.”
For example the EUR/USD may be trading at 1.38056, and will constantly fluctuate throughout the trading week…providing profit potential. But what does this price mean? Think of the first currency as “1.” The second currency is the price “1.38056”, and is how much it costs of the second currency to buy the first. So in this case, it costs 1.38056 USD to buy 1 EUR.
Yen (JPY) Pairs are typically quoted to three decimal places, such as 101.654 for the USD/JPY.
Time Frames and Indicators
When you view forex charts, there are multiple timeframes you can look at. Popular time frames are 1, 5, 15, 30-minute charts, hourly, 4-hour, daily and weekly. Each bar on the chart represents the timeframe. So 1-minute charts will show 1-minute price bars, and is useful for seeing very short-term price action and trading opportunities. Each bar on a daily chart is one day, and shows trends and opportunities for longer-term trades, or shows the overall trend which can be used to filter out trades on a shorter time frame (see: The Two Time Frame Approach to Trade Selection).
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When you apply an indicator to the chart, it will automatically adjust to the timeframe you have chosen. For example, a 50-period moving average will work on a 1-minute chart as well as a daily chart. With the daily chart the moving average will show the average price over the last 50 days. With the 1-minute chart the moving average will show the average price over the last 50 minutes.
The Bid and Ask on the Chart
In the forex market there are always two prices at any given time–the Bid and Ask/Offer. Forex charts by default show the Bid price. This varies from stock charts which typically show the last price a transaction occurred at.
In forex there is usually a spread, so the ask price–the price you can buy at right now–is always going to be slightly higher than the (bid) price on the chart. If you are selling, you can sell to the bid price and the price on the chart is accurate. For example, if the EURUSD chart shows a price of 1.38056, that is the price you can sell at right now. The offer could be 1.38066 (1 pip higher), so if you market buy, this is the price you get, not the price shown on the chart. The spread can vary drastically from broker to broker. If you are just using forex charts for informational purposes, or to trade options or binary options, this may not matter as much. But if you are trading forex, the spread is a major factor. The smaller the spread the better.
Forex brokers are all over the world, and typically the charts they offer will align with their home time zone. That means daily price bars may start and end at different times. This means if you compare the daily bars of one broker to another, they may have different highs and lows as well as different opening and closing prices. One broker may operate from midnight to midnight EST, while another operates from midnight to midnight GMT. Have a world clock handy or get used to converting time zones if your broker is in a different time zone than you. Also, if you are comparing charts on different platforms, make sure the time zones are the same, so you can accurately compare the charts.
Also keep in mind that information sites also have a time zone attached to them. Say you want to know what economic news releases are coming out today. The times given could be EST, MST, GMT or any other time frame. Make sure you know which it is, and account for it.
Many sites and platforms allow you to change the time zone. When applicable use this feature to avoid making mistakes on time zone conversion.
You’ll also want to know when different markets around the world are open. The forex market is open 24-hours during the week, but is most active when major markets are open. See Making Sense of Forex Market Hours for more on this topic.
The forex market and forex charts can be a bit confusing at first, but eventually you get used to it and it becomes second nature. When trading forex, keep these points in mind, as they will make your path a bit easier.
TOP 5 THINGS YOU NEED TO KNOW ABOUT FOREX BEFORE INVESTING IN IT
Forex is a market where currencies are exchanged. If we look at the nature of this word, the word derived from two words that are Foreign and Exchange. To make it FOR was take from FOREX while EX from Exchange. Thus, even the name represents that this term is dependent upon exchanging currencies. If you are novice to this money world where big gigs happen every day but want to enter in, here are the top most basic yet five essential things you need to know about Forex before investing in or entering in.
You Can Exchange Commodities like Gold, Silver, oil and other precious goods into Forex
When people came to know about forex, they thing that the currency is the only unit which is sold, purchased or exchanged in the market. Well, for your information let me inform you that you can also exchange expensive and precious minerals like oil, gold, and silver etc. in the forex market. To exchange goods instead of money, you first have to determine the value of that commodity in the international market. You will be betting for
Value of gg = Value of the commodity in international market * Unit of that commodity you want to bid
To give you a better understanding; suppose that you want to exchange 3 units of gold in the forex. The price of one unit of gold will have to be determined first. Suppose the price is 1.5 million, now you will multiply 1.5 with 3, and the answer is the value of the gig you are betting in the forex for. You can say that money is the only directly exchanged commodity, and the commodities other than money will be indirectly exchanged.
Do not invest your complete savings into the market at once, understand your limits
You need correct gig timing and the right commodities to exchange in the market but your luck matters as well. There are examples of people who invested their complete money into this forex market and then came on the road because they had nothing left for their bread and butter. Thus, I will not suggest you invest the whole of your asset into the forex market.
Another reason that you need to understand your limitations while investing in the forex market is the time when the trade will be taking place that stress can even lead you towards a stroke because all you have is at stake. Thus, it is suggested that instead of putting your complete money into the forex market, start with the smallest investment first. You will learn the tactics and techniques of investing and winning into this market with a passage of time, but for the time being, you must start with taking the first step so that in case you lose, still you will have enough to lead your life as the loss is very small.
Enter in the Market through some Forex Exchange Platform that lets you enter in the market in the lowest rates
As you are new to the niche of forex exchange hence entering independently is risky. You must find a reliable platform or portal that assists you in your trading at the forex. You know that before the advent of the internet, there were forex experts who used to give advice and hints of trading to their clients via phone calls. A person will have to stick to a platform 24×7 to get updates.
Now the things have gone advanced, and due to interment, you don’t need to stick to the television screen or a screen that shows you ups and downs of the forex market. A single computer screen and an online platform can give you enormous and complete bits and bobs of the foreign market. These companies are embedded with experts who are in the niche of currency trading since long. Also, they don’t charge you so much, in fact, they let you enter the forex market as low as only dollar 100.
On this dollar five, they give you a guarantee of 90 per cent profit on this small investment. All you need to do is, trade according to the instructions of the given platform and bingo, success will be yours.
You have to patient and never lose hope when you are dealing in the forex market
Next thing you need to do is have patience and stamina of understanding the ups and downs of the forex market. You know that when you are attached to a firm for your forex trading, the firm has a staff to assist you that have huge experience in the forex. Nevertheless, if you see something that is not inside the instructors or the precautions, you need to stay patient, calm hopeful.
Moreover, even if you have lost some money, still there are lots of opportunities to earn more, and that get small lost money back. You need to stick to the instructions of your forex advisor. With first lose don’t lose hope learn from the mistakes and by overcoming those mistakes, you will be able to win next time.
Forex is not just a matter of luck there are certain tactics involve that can make you win
Last but not least, people think that winning at forex market is all the matter of luck. I want to tell those people that although your luck matters but the forex is not completely and only dependent upon luck. If luck would be the only thing that could make you win then what is the use of forex expert who always gives successful trades.
Thus, here I again suggest that find a company that will assist you in your trades and lets you enter the foreign market with tiny investments. However, don’t forget to check the previous record of the company before investing through them. You need to know the success rate of the company and how much their instructions were proved to be correct.
Top 10 Things You Need to Know About Forex Trading [Beginner’s Guide]
The foreign exchange market presents a challenge for traders. It is the biggest financial market in the world – with trillions of dollars converted every single day – and it’s also the most volatile, with big fluctuations in value possible.
So, if you’re a beginner dipping your toe into this market for the first time, what do you need to know?
1 Volatility isn’t necessarily a bad thing:
Before you begin, don’t go thinking that a volatile market is a bad one to trade in. It’s this volatility that attracts traders, who spot the chance to make money from the rise and fall in currency values.
2 You do, however, need to know what you’re talking about:
How To Read Forex Charts: 5 Things You Must Know
Learning the basic skills in Forex, such as how to read Forex charts, is really important.
This is because once you have this vital skill under your belt, it will be a lot easier and quicker when the time comes for you to learn and practice an actual Forex trading system.
By the time you finish this article, you’ll learn how to read Forex charts, as well as know the pitfalls that can occur when reading them, especially if you haven’t traded Forex before.
Firstly, let’s revise the basics of a Forex trading as this relates directly to how to reade Forex charts.
Each currency pair is always quoted in the same way. For example, the EURUSD currency pair is always as EURUSD, with the EUR being the base currency, and the USD being the terms currency, not the other way round with the USD first. Therefore if the chart of the EURUSD shows that the current price is fluctuating around 1.2155, this means that 1 EURO will buy around 1.2155 US dollars.
And your trade size (face value) is the amount of base currency that you’re trading. In this example, if you want to buy 100 000 EURUSD, you’re buying 100 000 EUROs.
Now let’s have a look at the 5 important steps on how to read a Forex chart:
1. If you buy the currency pair, that is, you’re long the position, realise that you’re looking for the chart of that currency pair to go up, to make a profit on the trade. That is, you want the base currency to strengthen against the terms currency.
On the other hand if you sell the currency pair to short the position, then you’re looking for the chart of that currency pair to go down, to make a profit. That is, you want the base currency to weaken against the terms currency.
Pretty simple so far.
2. Always check the time frame displayed. Many trading systems will use multiple time frames to determine the entry of a trade. For example, a system may use a 4 hour and a 30 minute chart to determine the overall trend of the currency pair by using indicators such as MACD, momentum, or support and resistance lines, and then a 5 minute chart to look for a rise from a temporary dip to determine the actual entry.
So ensure that the chart you’re looking at has the correct time frame for your analysis. The best way to do this is to set up your charts with the correct time frames and indicators on them for the system you’re trading, and to save and reuse this layout.
3. On most Forex charts, it is the BID price rather than the ask price that’s displayed on the chart. Remember that a price is always quoted with a bid and an ask (or offer). For example, the current price of EURUSD may be 1.2055 bid and 1.2058 ask (or offer). When you buy, you buy at the ask, which is the higher of the 2 prices in the spread, and when you sell, you sell at the bid, which is the lower of the two prices.
If you use the chart price to determine an entry or exit, realise that when you place an order to sell when the chart price is say 1.330, then this is the price that you’ll sell at assuming no slippage.
If on the other hand, you place an order to buy when the chart price is the same price, then you’ll actually buy at 1.3333. A Forex system will often determine whether your orders will be placed simply according to the chart price or whether you need to add a buffer when buying or selling.
Also note that on many platforms, when you’re placing stop orders (to buy if the price rises above a certain price, or sell when the price falls below a certain price) you can select either “stop if bid” or “stop if offered”.
4. Realise that the times shown on the bottom of Forex charts are set to the particular time zone that the Forex provider’s charts are set to, be it GMT, New York time, or other time zones.
It’s handy to have a world clock available on your computer desktop in order to convert the different time zones. This is important when you’re trading major economic announcements.
You’ll need to convert the time of an announcement to your local time, and the chart time, so you’ll know when the announcement is going to happen, and therefore when you need to trade.
5. Finally, check whether the times on your Forex charts corresponds to when the candle opens or when the candle closes. Your charting software may be different to someone else’s in this way.
The reason I mention this, is that if you need to trade major economic announcements, either by entering a trade based on the movements that happen after the announcement, or to exit a trade before the announcement in avoid getting stopped out during it, then you need to be precise (to the minute!) as these trades are performed according to what happens at the 1 minute immediately after the announcement, not the candle afterwards!
So there you have it.
You now have the 5 essential keys to how to properly read Forex charts, which will help you to avoid the common mistakes which many Forex beginners make when looking at charts, and which will speed up your progress when you’re looking at Forex charting packages, and Forex trading systems that you want to trade!
Now that you know this, practice looking at Forex charts with each of these 5 points in mind.
by Mark Hamburg
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5 Things You NEED to Know Before Trading Forex Live
You just hit another nice winner on your demo account ….it’s been about 3 months now and you feel confident that your ready to make the jump to trading a real live account. You feel ready to try your hand at live trading, yet questions and doubts still linger in your mind….
From all the emails I answer every week, I know for a fact that most traders begin trading live well before they are ready, and there’s a good chance you are guilty of this too (I know I was back when I started). But how can you know “for sure” if you’re ready to start risking real money in the markets or not? Well, unfortunately there is no 100% sure-fire way to know if you are ready to trade live or not, but there are some things that you can do to be prepared for live-account trading and there are definitely some things you NEED to know before trading live…
We tell ourselves all kinds of things that convince us it’s OK to start risking our money in the markets; it’s pretty easy to justify something to yourself if you really want it bad enough.
There’s a fine line between logic and emotion that causes many traders to trade live before they are truly ready. Today’s lesson is going to discuss 5 logic-based things you REALLY need to know before you start risking your hard-earned money in the markets, I hope what you read below will save you money, time and stress:
Be aware of your biology
Humans are wired to be less risk averse after winning and more risk averse after losing; in other words, we are basically wired by evolution to be bad at trading. In reality, how risky you feel the market is should not change very much from one trade to the next. For example, after wining 5 trades in a row most people will feel quite a bit more “numb” to the fact that the next trade could be a loser. Conversely, if you lose 5 trades in a row your perception of risk on the next trade is typically going to be a lot higher than it should be, so much so that you might risk a lot less than normal or possibly even be too afraid to enter a perfectly good setup.
What you have to realize is that for any given trading strategy or system there’s a random distribution of winners and losers. If you have found over time that you can win 55% of the time with your trading strategy, that means you’re going to lose 45% of the time…and you never know which trade is going to be a winner and which will be a loser…because they are randomly distributed. So, whilst you might have an entry method in the market that gives you the ability to profit over a series of trades , you cannot fall into the trap of thinking that you “know for sure” what is going to happen on your next trade . It’s this mentality that causes traders to become too confident after a few winners and risk more than they normally would and then….bam!; they hit a loser whilst their risk is ratcheted up to 2 or 3 times its normal amount. It doesn’t take too much to see how this can affect your trading…you hit a loser while risking too much because you were over-confident, then you get angry that you lost more than you normally do so you try to “make it back” and you dive right back in even though your entry strategy is not present… until you’ve blown your trading account.
What’s the fix?
The fix for our evolution-generated trading “handicaps”, is to first just accept that we were born pre-wired to be less concerned with risk after winning and over-concerned with risk after losing. If you don’t believe me about this “wiring” problem then check out this video and article by John Coates who is a former Wall Street trader, Deutsche bank trader and an author: Is Biology to Blame?
Once you’ve accepted your biological trading faults, you can start to work on overcoming them simply by being realistic, logical and disciplined . But, it’s CRITICAL that you are aware of your biological trading issues before you start trading live, because it’s very hard to detect them whilst trading live and especially if no one has informed you of them. It really just comes down to you being consciously aware of what you are doing in the markets all the time, always ask yourself if what you are about to do is an emotion-based decision or a logic-based decision.
Make sure you want to be a trader because you really love trading
On the surface, trading seems deceptively easy, but it really takes someone with a strong passion and interest to excel at it. You’ve got to be able to become immune to losing and be able to be disciplined and patient…many people simply cannot do these things very easily. Before you start risking your hard-earned money in the markets, you have to sit down and honestly ask yourself how well you think you will operate in a world of constant temptation? Are you someone who can look temptation in the eye and ignore it? If not, you might have trouble with over-trading and risking too much per trade.
Do you have patience enough to wait for your trading strategy to show itself before you trade? Are you disciplined? These things are not impossible for you to attain, but some people have an easier time with them than others. If you have enough passion and desire to become a successful trader you can work through whatever psychological traits you have working against you. However, if you’re just looking for some “easy money” and you don’t want to fix whatever psychological / mental problems you have that are interfering with your trading, you should probably forget about trading and move on to something else.
All brokers (and charting platforms) are not created equal
Unfortunately, all brokers are not created equal in the Forex world. Many brokers do not offer the most pertinent charts for you to make your trading decisions from. For many beginning traders, the fact that they might be looking at charts that aren’t as accurate or relevant as they could be does not even occur to them. Again, this is something that you NEED to know before trading live but that you won’t read on most other trading websites. So, that’s why I’m telling you…you NEED a broker who offers New York close charts that have 5 daily bars per week instead of 6, here’s why:
The New York close coincides with the end of the current Forex trading day and the start of the new one which occurs at 5pm NY time as New Zealand / Australia and Asia trading gets underway. The New York close charts also reflect the close of the 2nd heaviest Forex trading session which is the New York session.
Closing prices are the most important in any market, as they reflect who won the battle between the bulls and bears that day, and because daily chart trading strategies are so critical for all beginning traders to learn, we need to see the most accurate and relevant daily chart closing price. Also, it’s important to have 5-daily bars, not 6, as the Sunday bar should be included with the Monday bar since there is no actual “Sunday” trading at any of the world’s major financial centers.
Learn To Use The Trading Platform First
Another important part about trading platforms is that BEFORE you trade live you NEED to demo trade the platform you will use to trade live with. You need to get familiar with how the platform functions, how to execute trades and how to set up the charts for your analysis etc…you don’t want to lose money simply because you didn’t take the time to learn how your trading platform works. For those of you who need help with setting up your MT4 platform correctly, you can read the detailed tutorial I wrote recently: How to set up your MT4 charts.
Successful trading is not about being “right” or having high winning percentages
Many beginning traders think that they have to try and win every trade to be profitable. However, this really could not be farther from the truth. For some traders it becomes an ego thing in regards to losing trades; they think they are “smarter” or “better” than most other traders or that they have some special ability to analyze the markets that no one else has. This causes them to get too concerned with winning percentages and they try to have as few losing trades as possible.
The key to success in the market is not about having a small amount of losing trades, it’s about minimizing the losing trades you do have; keeping them contained. Trading success depends more on capital preservation and risk management skills than anything else: if you can manage to maintain all your losers at 1R (see previous “risk management” link if you don’t know what “1R” means) or less and only trade when your entry technique is really present, you will be putting yourself ahead of many traders. All you need to do then is combine your risk management ability with a high-probability trading strategy like my price action strategies, and trade it with discipline, and you’ll have a recipe for success.
Once you begin to focus on controlling your risk and on maintaining your losses instead of avoiding them, you will truly be on the road to trading success. This is called being a “risk manager” and this is a much more useful way to think of yourself instead of a “trader” or “speculator”. The underlying point here is that you don’t need to be “right” or have a high winning percentage to make money as a trader, to see the math behind this checkout last week’s article on how to remove fear from your trading.
If you can’t easily explain your trading strategy to a ten year old, it’s too complicated
Before you start trading live you need to make sure that you know what you’re doing. Before I sign off today, I’m going to leave you guys with some “must haves” before trading live. If you do not have the following things then I STRONGLY suggest you stay on demo until you do:
1) A trading strategy that’s not too complicated and that you can easily explain to a 10 year old kid. Price action trading obviously fits the bill here, I’ve been trading with price action strategies for years and it really is the most stress-free way to trade. If someone asks me about my trading strategy I can easily explain it to them by just explaining simple price dynamics in the market; I don’t need to talk about indicators, trading software, complicated math, Elliot waves or anything else that’s too complicated for its own good.
2) A trading plan you’ve built from the trading strategy you’ve mastered. I know it’s cliché and I know you might be thinking you don’t really need a written out or typed out trading plan, but you do. Even if your trading plan is to do a weekly or daily market commentary like I do, that is a lot better than many traders who have no plan whatsoever. You need to consolidate your thoughts and overall trading strategy into a daily guide of sorts, that way you are prepared and this helps you to trade off logic rather than emotion.
3) A trading journal to track your progress. A simple spread sheet journal is fine; it doesn’t have to be complicated. You just need a journal to track your progress over time, if you need a template for one then see this link on trading journals. A journal will help to show you how discipline and patience pay off over time and this will reinforce positive trading habits. It’s also a must to have an accurate track record if you want anyone to give you funds to trade with down the road.
4) Take points 1 to 3 and demo trade with them until you’re confident and seeing consistent profits on your demo account. Some people will only need a month of demo trading, some might need 6 months; every trader is different. The point is that you are taking your trading strategy and practicing it on a demo account before you go live. It always amazes me how so many traders just ignore demo trading and begin trading live as soon as they feel like they know a thing or two about the markets. Don’t be fooled, if you aren’t prepared you WILL lose money, and losing money is equal to losing time, and time is precious as we all know, so do what you can to avoid losing it unnecessarily. You will have losing trades no matter what, but the goal of trading is to minimize them; not to avoid them. You minimize them by being prepared.
Maybe you realized after reading today’s lesson that you shouldn’t be trading live, in which case, stop now and go back to demo. Maybe you haven’t yet traded live and you are still getting prepared, in that case I trust this article helped you a lot too. Whatever the case, leave your comments below, I want to hear your thoughts.
If you enjoyed this lesson and want to learn more about developing the strategies and skills required to trade live with confidence, checkout my Forex trading course here. If you have any questions, feel free to contact me here.
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