How Forex Works

Transactions in foreign currencies are not centralized on an exchange, unlike say the NYSE, and thus take place all over the world via telecommunications. Trade is open 24 hours a day from Sunday afternoon until Friday afternoon (00:00 GMT on Monday to 10:00 pm GMT on Friday). In almost every time zone around the world, there are dealers who will quote all major currencies. After deciding what currency the investor would like to purchase, he or she does so via one of these dealers (some of which can be found online). It is quite common practice for investors to speculate on currency prices by getting a credit line (which are available to those with capital as small as $500), and vastly increase their potential gains and losses. This is called marginal trading.

How currency trading is done traditionally

Currency trading is always done with currency pairs, such as EUR/USD, and so it is useful to consider the currency pair as an instrument, which can be bought or sold.

• Buying the currency pair implies buying the first, base currency and selling (short) an equivalent amount of the second, quote currency (to pay for the base currency). (It is not necessary for the trader to own the quote currency prior to selling, as it is sold short.) A speculator buys a currency pair, if she believes the base currency will go up relative to the quote currency, or equivalently that the corresponding exchange rate will go up.
• Selling the currency pair implies selling the first, base currency (short), and buying the second, quote currency. A speculator sells a currency pair, if she believes the base currency will go down relative to the quote currency, or equivalently, that the quote currency will go up relative to the base currency.

After buying a currency pair, the trader will have an open position in the currency pair. Right after such a transaction, the value of the position will be close to zero, because the value of the base currency is more or less equal to the value of the equivalent amount of the quote currency. In fact, the value will be slightly negative, because of the spread involved.

In todays currency market, a trade goes through a three-step process:

1. the trader communicates the currency pair and the amount he/she would like to trade with another dealer.
2. the dealer responds with a bid and an ask price
3. the trader responds to the bid and ask price with one of:
   1. buy (by saying "Mine" or "I buy" or "I take")
   2. sell (by saying "yours" or "I give you" or "I sell")
   3. refuse.

The transaction occurs if the final response is either a buy or a sell. The dealer is required to quote a "good" market price, since he does not know whether the trader will buy or sell.

The currency exchange market described above is referred to as the spot market and the transaction described is referred to as a spot deal. A spot deal consists of a bilateral contract between a party delivering a specified amount of a given currency against receiving a specified amount of another currency from a second counter party, based on an agreed exchange rate, within two business days of the deal date, which is referred to as the settlement date. (The settlement date for USD/CAD is one business day after the deal date.) Speculators rarely deliver, however. Instead, they use what is referred to as a rollover swap. The rollover swap is designed to allow the changing of an old deal date to the current date by simultaneously closing an open position for todays date and opening the same position for the next day at a price reflecting the interest rate differential between the two currencies.

When a trader buys or sells a currency pair, the value of the currency pair, as an instrument, initially is close to zero. This is because (in the case of a buy) the quote currency is sold to buy an equivalent amount of the base currency. As the market rates fluctuate, however, the value of the currency pair position held will also fluctuate. Thus, if the rate for the currency pair goes down, the speculators long position will lose in value and become negative. To ensure that the speculator can carry the risk for the case where the position results in a loss, banks or dealers typically require sufficient collateral to cover those losses. This collateral is typically referred to as margin.

To limit down-side risk, traders often specify a Stop-Loss rate for each open trade. The Stop-Loss specifies that the trade should be closed automatically when the currency exchange rate for the currency pair in question reaches a certain threshold. For long positions, the Stop-Loss rate is always lower than the current exchange rate; for short positions, it is always higher. Traders, at times, also specify a Take-Profit rate for their trades in order to lock in a profit when the exchange rate reaches a certain threshold. For long positions, the Take-Profit rate must be above the current rate, while for short positions, it must be below the current rate.

A trader may also leave an order with a bank, broker or dealer. These so called leave orders are orders that a trade should be executed (in the future) when certain market conditions occur. There are three types of leave orders:

1. entry orders: specifies that a currency pair should be traded when it reaches a certain exchange rate. Entry orders are used when the trade would not offset a current position.
2. take-profit orders: are used to clear a position by buying (or selling) the currency pair of the position when the exchange rate reaches a specified level.
3. stop-loss orders: are used to clear a position by buying (or selling) the currency pair of the position when the exchange rate reaches a specified level.

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The Currency Exchange Market

The currency exchange market is an inter-bank or inter-dealer market that was established in 1971 when floating exchange rates began to materialize. In addition, it is an Over-The-Counter market, meaning that transactions are conducted between any two counter parties that agree to trade via the telephone or electronic network. Trading is thus not centralized, as is the case with many stock markets (i.e., NYSE, ASE, CME) or as the case for currency futures and currency options, which trade on special exchanges. Dealers often "advertise" exchange rates using a distribution network, such as the one provided by Reuters or Bridge. Dealers then use the information obtained there (or directly) to "agree" to a rate and a trade.

The major dealing centers today are: London, with about 30% of the market, New York, with 20%, Tokyo, with 12%, Zurich, Frankfurt, Hong Kong and Singapore, with about 7% each, followed by Paris and Sydney with 3% each.

In terms of trading volume, the currency exchange market is the worlds largest market, with daily trading volumes in excess of $1.5 trillion US dollars. This is orders of magnitude larger than the bond or stock market. For example, the New York Stock Exchange has a daily trading volume of approximately $60 billion. Thus, the currency exchange market is by far the most liquid market in the world today. Because of the volume in trading, it is impossible for individuals or companies to affect the exchange rates. In fact, even central banks and governments find it increasingly difficult to affect the exchange rates of the most liquid currencies, such as the US dollar, Japanese Yen, Euro, Swiss Frank, Canadian Dollar or Australian Dollar.

The currency exchange market is a true 24-hour market, 5 days a week. There are dealers in every major time zone. Trading begins Monday morning in Sydney (which corresponds to 3pm EST, Sunday) and then daily moves around the globe through the various trading centers until closing Friday evening at 4:30pm EST in New York.

Today, over 85% of all currency exchange transactions involve a few major currencies: the US Dollar (USD), Japanese Yen (JPY), Euro (EUR), Swiss Frank (CHF), British Pound (GBP), Canadian Dollar (CAD), and Australian Dollar (AUD). In the currency exchange market, most of the currencies are traded only against the US Dollar. The term cross rate refers to an exchange rate between two non-dollar currencies. Trading between two non-dollar currencies usually occurs by first trading one against the US Dollar and then trading the US Dollar against the second non-dollar currency. Because of this, the spread in the exchange rate between two non-dollar currencies is often higher. (There are a few non-dollar currencies that are traded directly, such as GBP/EUR or EUR/CHF.) The following directly traded currency pairs make up the vast majority of the trading volume and are thus considered to be the most important ones: EUR/USD, USD/JPY, EUR/JPY, USD/CAD, EUR/GBP, GBP/USD, USD/CHF, AUD/USD, and AUD/JPY.

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Currency Exchange Rates and Spreads

Currency exchange rates are determined by the currency exchange market. (The currency exchange market is described further below.) A currency exchange rate is always quoted for a currency pair using ISO code abbreviations. For example, EUR/USD refers to the two currencies Euro (the European currency) and U.S. Dollar. The first is referred to as the base currency, while the second as the quote currency. The EUR/USD exchange rate specifies how many US Dollars you have to pay to buy one Euro, or conversely how many US Dollars you obtain when you sell one Euro. More generally, if buying, an exchange rate specifies how much you have to pay in the quote currency to obtain one unit of the base currency, and if selling, the exchange rate specifies how much you get in the quote currency when selling one unit of the base currency.

A currency exchange rate is typically given as a pair consisting of a bid price and an ask price. The ask price applies when buying a currency pair and represents what has to be paid in the quote currency to obtain one unit of the base currency. The bid price applies when selling and represents what will be obtained in the quote currency when selling one unit of the base currency. The bid price is always lower than the ask price.

In the currency market, the following abbreviation for the currency exchange rate pair is used:

0.8423/28

The first component (before the slash) refers to the bid price (what you obtain in USD when you sell EUR), and in this case includes four digits after the decimal point. The second component (after the slash) is used to obtain the ask price (what you have to pay in USD if you buy EUR). The ask price is obtained by increasing the first component until the last two decimal places are equal to the digits in the second component. In this example, the ask price is 0.8428. As another example, 0.8498/03 refers to a bid price of 0.8498 and an ask price of 0.8503. (Note that for some exchange rates it is customary to quote rates in units of 100, as is the case with USD/JPY.)

The difference between the bid and the ask price is referred to as the spread. When trading large amounts of $1M or higher, the spread obtained in a quote is typically 5 basis points or PIPs, with each basis point referring to 0.0001 (or 0.01 when, say, the Yen is involved). In the example above, the spread is 0.0005 or 5 PIPs. When trading smaller amounts, the spread may be larger; for example, when trading less than $100,000, spreads of 50-200 PIPs are common. Credit card companies typically apply a spread of 200-300 PIPs. Banks and exchange bureaus typically use a spread in the range of 200-1000 PIPs (in addition to charging a commission). For investors and speculators, a lower spread translates into easier profit taking due to movements in exchange rates.

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The Need for Currency Exchange

Currency exchange is necessary in numerous circumstances.

Consumers typically come into contact with currency exchange when they travel. They go to a bank or currency exchange bureau to convert one currency (typically, their "home currency") into another (i.e., the currency of the country they intend to travel to) so they can pay for goods and services in the foreign country. Consumers may also purchase goods in a foreign country or via the Internet with their credit card, in which case they will find that the amount they paid in the foreign currency will have been converted to their home currency on their credit card statement. Although each such currency exchange is a relatively small transaction, the aggregate of all such transactions is significant.

Businesses typically have to convert currencies when they conduct business outside their home country. For example, if they export goods to another country and receive payment in the currency of that foreign country, then the payment must often be converted back to the home currency. Similarly, if they have to import goods or services, then businesses will often have to pay in a foreign currency, requiring them to first convert their home currency into the foreign currency. Large companies convert huge amounts of currency each year; for example, a company such as General Electric (GE) converts tens of billions of dollars each year. The timing of when they convert can have a large affect on their balance sheet and "bottom line.

Investors and speculators require currency exchange whenever they trade in any foreign investment, be that equities, bonds, bank deposits, or real estate. For example, when a Swedish investor buys shares in Sun Microsystems on the NASDAQ, she will have to pay for the shares in U.S. Dollars and likely have to convert Swedish Krona to U.S. Dollars. Similarly, a Japanese real estate investor who sells a New York property may well want to convert the proceeds of the sale in U.S. Dollars to Japanese Yen.

Investors and speculators also trade currencies directly in order to benefit from movements in the currency exchange markets. For example, if an American investor believes that the Japanese economy is strengthening and as a result expects the Japanese Yen to appreciate in value (i.e., go up relative to other currencies), then she may want to buy Japanese Yen and take what is referred to as a long position. Similarly, if an American investor believes that the Euro will go down over time, then she may want to sell Euro to take a short position. Interestingly, investors and speculators can profit equally from currencies becoming stronger (by taking a long position) or from currencies becoming weaker (by taking a short position). Speculators are often day traders, trying to take advantage of market movements in very short time periods; buying a currency and then selling it again may happen within hours or even minutes. They are attracted to currency trading for numerous reasons, including (i) the size and daily volatility of the market, which gives them unparalleled excitement, (ii) the almost perfect liquidity of the currency exchange market, (iii) the fact that the currency exchange market is "open" 24 hours a day market, and (vi) the fact that currencies can be traded with no brokerage charges.

Commercial and Investment Banks trade currencies as a service for their commercial banking, deposit and lending customers. These institutions also generally participate in the currency market for hedging and proprietary trading purposes.

Governments and central banks trade currencies to improve trading conditions or to intervene in an attempt to adjust economic or financial imbalances. Although they do not trade for speculative reasons --- they are a non-profit organization --- they often tend to be profitable, since they generally trade on a long-term basis

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What is Currency Exchange?

Currency exchange is the trading of one currency against another. Professionals refer to this as foreign exchange, but may also use the acronyms Forex or FX.

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A WORD FOR NEW TRADERS

Traders that try to pick the tops and bottoms of the market throughout the day end up with mostly misery because inexperienced fellows in Forex departments even in first division clubs try to pick the tops and bottoms believing that is where the real big money is. And ego demonstration and bonus consideration comes into play too for smart college graduates. The first thing I do when facing new recruits is, do my best to destroy their ego and fear in the market first. Once their ego and fear are reasonably cured, they become dutiful followers of the market like Pavolv�s hounds and they can survive. And once they can survive, they can be taught on how to put temporary tops and bottoms to the market at much higher level of speculation school. Then, that may take at least a decade of training too.

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QUIPS FROM BC

Forex is all about how to hit the next ball correctly rather than worrying about something of a distant future. The next ball may be for 2 pips or 20 pips or 200 pips or 500 pips depending on a trader�s style.

Anything is possible in Forex.

I am useless as a daytrader. Corrections may take days or longer to complete.

Good quality info is everything in this game.

Bottom picking in the Usd/Jpy is the Mother of all risky trades.

We learn how to trade till we stop trading and we learn from each other everyday. That is the beauty of trading and life in general.

Do not worry about what market will do. Just worry about what you will do when market reaches your "pain point" or "happy point". You will have an easier life as a trader that way.

Forex players can operate quietly, but they cannot hide their moves in those charts.

Good morning. Yes, no liquidity and no conviction by players make the market look like a vagrant loitering in his usual area. Good forecasts and trades.

Good sleep is essential for good trading but most of the traders I know of seem to sleep with one eye open.

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FAIR VALUE

Good evening. The concept of fair value in any currency is largely that of CBers and economists and not much about trading ..Almost always currencies overshoot from the fair value areas some 20-30% in their medium-term trend and what makes all hard currencies range in reasonable areas overtime since we had this floating regime in 1971 must the ability of relevant CBs to control the currency ranges and their real economy's weakness or strength to support those ranges. ECB folks were not joking when they said Eur/usd was some 25% undervalued from the fair value when Eur/Usd was below parity levels two years ago. Same goes for BOJ when they were saying Yen was some 10-20% overvalued when it was trading around 100 some three years ago too. That is how these folks view the markets and try to guide the market. Of course, when US Treasury folks say "Dollar is still strong" when it is falling, they are begging the market to sell more Dollars.

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DIFFERENT CENTERS

The first hour after opening in Tokyo tend to provide the best liquidity of the day and that is when most heavyweight players try to position their way without having much difficulty for the day. Sydney open is more often used as an ambush hour by certain players using the time window till Tokyo open. One rule of thumb is when Yen jumps at Tokyo open the chances are it will continue throughout the day and a few more days. On different point, learn to position trade Yen or any other currency if one is really going to make a big money one day. Fwiw.

One hour from Tokyo open, London open and NY open are the times where most liquidity of the market exist. And that is where market makers are busy setting the trend for the session or even the day. Your observation has a merit because most of the session or daily moves are started either in London open or Tokyo open or NY open. Especially London Open. Other markets are too thin for any good sized traders to make their market views felt. Good luck.

London is just a market place where all sorts of Forex folks flock to buy and sell. It does not have to be London folks. It could be anyone from anywhere in the world with deep pockets who start setting the market direction on a given day. Same goes for NY and Tokyo sessions markets. In any case, Tokyo and NY still relatively small markets when compared to London as far as Forex goes.

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REACTING TO NEWS

News or data are always read by the market along the prevailing market bias. Data can provide a good reading for the state of the market. If the data is bad but the price is still rising or not affected, it must be a bull market which means buy on dip strategy is a better one. Conversely, if the data is good but the price is not rising or even falling, it must be a bear market which means sell on bounce strategy is a better one. The inflexion point must be when bad news or good news. no longer affect the prices as they have done before. Medium/long-term bias changes are usually accompanied by such reactions to the news. Fwiw.

It is not the numbers that counts but how the market reacts to the numbers that counts. That gives some comfort to those who are not privy to the numbers already

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USD/JPY HINTS

One of the silly rules of thumb in USD/JPY trading is it rarely moves 700-800 pips in a row without 200 pips or more correction in the middle and it almost always retraces back to 350 pips advance point from the start of its 700-800 pips move. All because of liquidity problem in Yen market.

The real battle of bulls and bears for medium-term trend is always around 20 day MA line in Yen market. Daily option activities here and there are of no relevance as far as medium-term trend is concerned.

Yen position traders sit on their positions gunning for several hundred pips at one go. For day trades, much more nimble approach is required. As Yen position trader, please never buy anything below falling daily 20 MA and never sell anything above rising daily 20 MA, no matter how attractive they look. So start buying only when daily 20 MA starts rising, from whatever level, is not only safe but also proven way of making money although it sounds so simple. Imho. Good trades.

You can read how Yen traders make intraday moves by watching 30 min USD/JPY candlestick chart or line chart if you are not familiar with candle nuance. 4, 8 hourlies are for positional moves. Good trades.

The Tokyo Fix is where the FX rate is established for the day by the banks for their customers. So even though the FX rate may change during the day the customer gets the rate at the time of the fix. There is a fix in Tokyo, London and Toronto (more I am sure). Importers generally settle their accounts on the 5th, 10th, 15th, etc, of the month before and up until the fix ():50 GMT). Sometimes, if there is an "excess" dollar demand $/JPY will continue to climb slightly after the fix. $Bulls will also use this as a staging for extending a rally. $Bears (Yen Bulls) will use this to establish better shorts.

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USING STOPS

Please always give stop order per your risk profile when you open any new position. Medium-term reversals can be confirmed only in monthly, weekly and daily charts. Chart reading is not to predict the tops or bottoms of any move, but to confirm the change of trend as soon as they are made and adopt right strategies in that new trend. Good trades.

For position traders, the basic bias of the market in his trading time frame, the liquidity situation of the market in that time frame, and the size of trading positions must be all taken into account when exercising stops, be it based on tech levels or a certain sum of money or a percentage of a total equity. It is a must but also it is form of art like trading itself. And every trader must develop his own unique style of using stops. But unfortunately, all this can be learned only by paying a certain amount of tuition fee to the market.

Yes, but as a position trader I never use tight stops. Same goes for trailing stops. All very far away from the market not to be taken out by meaningless market noises. Initial stop is always 1% of my total equity, and never commit the whole position at a go but always scale in and scale out.

Good morning. You can avoid your problem in most cases by leaving the market always by trailing stops, i.e., do not set the profit target. So, any winning trade must be held as long as market does not tell you to leave by hitting your trailing stops. When you enter the market by market signals and leave by stops or trailing stops, it solves the most difficult part of decision making process rather easier for traders. Good trades.

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USING CROSSES AND GOLD

EUR/GBP and GBP/JPY have a value as the leading indicators of EUR/USD and USD/JPY moves. EUR/CHF is similar to EUR/GBP in forecasting value but stopped trading and looking at it a long ago after experiencing difficulties in running good sized positions there.

In short, EUR/GBP and GBP/CHF are leading indicators for EUR/USD and USD/CHF, and GBP/JPY, EUR/JPY and CHF/JPY are leading indicators for USD/JPY. EUR/JPY plays a very important role in EUR/JPY direction too, while GBP/JPY plays the same role for GBP/USD. For example, yesterday�s EUR/USD weakness largely started from EUR/JPY sales keeping EUR/USD and USD/JPY downwards. As a rule of thumb, if EUR/USD does not move but EUR/GBP moves first, it is a good indicator that someone is maneuvering in EUR/USD front in the same direction later, and when EUR/USD moves but EUR/GBP does not move first or in tandem, then it is highly likely EUR/USD move is countered by its opponent and the opposite move is highly likely soon. Same applies in USD/JPY and EUR/JPY, GBP/JPY front in the same fashion. Imho. Good trades.

Good morning. EUR/USD, EUR/GBP, EUR/JPY and GBP/CHF all have correlation to a certain degree affecting each other. It simply shows how the money moves around in these pairs. For daily candle studies, it is more accurate to read them all to see where the flow is going, and same for 4 hourly or hourly or even 10 minute charts. In fact, GBP/CHF and EUR/GBP in many cases move a day or two before EUR/USD. Even by watching GBP/CHF and EUR/GBP charts, short term or long-term as above, you can manage to move in front of EUR/USD moves in many cases. Same goes for GBP/JPY and EUR/JPY charts for USD/JPY moves. More study on these pairs moves will reveal some more interesting things too. Good trades.

I have been using USD index and Eur/Gbp (or Gbp/Chf) as my guide dogs since late 70�s with reasonable accuracy for medium-term trend. Never lost money on medium-term bet relying on those guide dogs in fact. But that cross does not work when Pound is deliberately devalued.

AUD/JPY is one of the important pairs influencing AUD after Dollar, Euro and Pound. Usually falling AUD/JPY is good for Yen Bulls as well.

Good evening. Gold is the mirror of Dollar for hedging purposes and the co-relation is excellent. Sometimes, when I am tired of double checking too many "inside infos" rushing in every hour, I just watch Gold to confirm and go ahead with the moves. Gold chart is one of the top charts you must always watch in forex trading. Eur/Gbp chart, along with the Eur/Jpy chart, is an excellent mirror for Eur/Usd directions most of the time too. Gold, Eur/Gbp and Eur/Jpy charts will tell most of the market story most of the time with Gold and Eur/Gbp leading Forex world most of the time. Good luck.

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TECHNICALS and CHARTING

Why day trade once you get a good seat and the market is going your way. It is always more profitable to ride even the short wave for 2-10 days by adding up. In general, you must day trade only when you are losing. To find a buy entry seat for short-term trades, you can study the "accumulation and distribution patterns and 20 MA" in 8, 4 hourlies or 30 min "Line Charts" (or Candle Charts), together with MACD "overbought and oversold indicators" with its Patterns. If you study them for awhile you will understand when it the best entry point. The remainder is for money management and discipline and of course, experience. Good trades�

On technical side of the trading, the first thing to do is to find out the trend in one�s trading time frame and the proper trading strategy for that trend. Some ride positions for months, while some ride positions for less than an hour or a day and their views of the trend obviously differ. For a trader who is running a position for months, a daily fluctuation may be just a meaningless noise while for a daytrader or an hour trader, a daily fluctuation could be a monstrous tsunami. Having a precise definition and a technique of identifying a trend and the turn of a trend in a trader�s time frame, and adopting the right strategies for that trend is the first elementary step in a hard school of trading. Imho.

I keep my technical side on any pair as simple as possible largely relying on other�s moves to see how I can take advantage of the situation. So for me the strategy is to "range trade". Please always give stop order per your risk profile when you open any new position. Medium-term reversals can be confirmed only in monthly, weekly and daily charts. Chart reading is not to predict the tops or bottoms of any move, but to confirm the change of trend as soon as they are made and adopt right strategies in that new trend. Good trades.

Each cycle is different from the last one and that is the beauty of the market. It is extremely important to look at the big picture from the distance rather than studying the minute and hourly charts with a microscope. And repeat the whole show again and again �til it shows the sign of turning in daily or weekly chart. And flip. Good trades to you.

I use very primitive charting methods. Please read 8 hour charts of EUR/GBP with 20 and 40 MA, and read round figures and breakout (from consolidations, then you will realize the method cannot be more primitive than that, but still deadly effective). Buy on dips towards the support and add up on breakout of that consolidation treating the two as one trade with same stop loss and "keep them" as long as the market moves in your way. Good trades.

As a rule of thumb, 20 MAs in 8 hour, day, week and month are useful for its directional tendency and as a resistance and support point. Not sure how much it is useful in daytrading though.

Please have a look at Eur/Usd and Usd/Jpy weekly 10 RSI and Aud/Usd monthly 10 RSI "patterns", not levels. Then you will find out primitive things work better when coupled with even simpler MAs. And RSI is useful "only in these weekly and monthly time scale" as far as I can see. You can ignore RSI in short-term scales as the inventor of RSI, Wilder, told us long ago.

Good afternoon. Agree with your observation. Once Soros of Quantum Fund hit the nail on the head with his theory of reflexivity in the market and that is exactly how these players work in the market. That rather romantic tool of daily candlestick chart is useful because whenever some players start positioning to start or stop short-term moves in Yen market, say several hundred pips, for whatever reasons, it reveals their intention to the market, more often than not. It sounds so weird to say tens of yards are spent relying on indicators so primitive like hand-drawn candlestick charts, but that is the truth in Yen market. Same as millions of soldiers risking their lives depending on how their generals draw up the battle plan with their cheap red and blue pencils in their operation room desk. Crazy world, I would say, but that is the fact. And as you say, battle is a battle and those ones who make their first move with their candlestick may not always win either. I happen to believe if a child can learn to trade with some simple signals he will do better than most traders, most of the time, making a good living. But then again, movin market is more than just following the signals. Good trades to you.

I guess if you are a daytrader, 30 minute and 15 minute candle charts and line charts in combination with MACD and MA could be more useful than hourly charts or even daily charts. Especially watch out for the down-sign and up-sign with long tails in candle charts and confirmation of the change of short-term trend in line charts breaking accumulation area in these charts. If you are a nimble trader, even a candle-sign is enough to start moving in with stops above or below the long tail end. For dollar/yen trade, read swiss/yen, pound/yen and euro/yen together to confirm the top or bottom. For Eurodollar or dollar/swiss trade, read pound/swiss and euro/pound together to confirm the same. If you are a daytrader, what matters is the flow of that particular day, not the bull or bear bias, so, 30 Min and 15 Min Candle Charts and Line charts are not bad tools to follow these flows. Good trades.

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TREND TRADING: Accumulation and Distribution

Forex market like any other market works in a very simple way. It accumulates in a certain area for awhile, and once the accumulation is over, it advances to a certain distance until distribution starts, and accumulation happens again and advances to a certain distance again, and repeat and repeat. Day trading may not yield the best results while the accumulation and distribution work out itself, being double-murdered by zig-zag moves, while the market starts advancing out of accumulation area, day trading is a sure way of cutting profit short. In general, day trading is not the best form of yielding the most profits in my experience contrary to what some writers who never made real money in this game try to say.

The safe and better way in making some money must be wait for "accumulation" to be over and ride the whole length of advance until "distribution" starts and reverse as the market dictates as a short-term trade for 2-10 days, as the case may be.

Please study 8 hour or 4 hour line charts or candle charts, especially the patterns and 20 MA inside the charts for a few months everyday, and you will discover what I mean by accumulation and distribution for short-term trades in Forex market. Forex market always needs this process, so you can decide what tactics you will use at a given stage. Imho. Good luck.

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BC's WORDS OF WISDOM

Any market, be it real estate market or forex market, is all about transferring money from the masses to a few lucky ones in the long run. In most real property speculation cases, the masses make money ,a lot of money, but the money stays as paper profit and evaporate before they realize their paper profit into real hard cash. In most forex speculation cases, the masses barely survive a few years thanks to lack of knowledge of the market and the deadly leverage. But both types of speculators all serve their useful purposes in investment food chain contributing their hard earned money to the market in exchange for a dream.

For any prospective traders, hope this is not in anyway a discouragement. Trading is a hard mind game and not everyone is suitable to be engaged in such a hard game. Most have neither frame of mind nor mental fortitude to survive in this hard game. Mastering TAs or numbers or options business are at best a first tentative step into the right direction with no guarantee to any success. Training a right frame of mind is the most difficult but absolutely necessary part for success and most are simply not ready to go through that hard stage of the learning process because it is a very painful process. Trading is essentially about pain-taking-process in the end although most do not realize it. The process of overcoming fear, greed and mastering tranquility of mind in this hard school of speculation. Fwiw.

Every trader should find his/her method/system which suits his/her own situation and personality. And that system/method must be the one that has proven to be able to make some money through trials. So, if Tom, the medium-term trader, revealed his money making method of last three decades, it may not have the same effect for Dick and Harry, the day traders, and vice versa. Agree that most fail for lack of system/method and/or lack of discipline to follow through.

Trading success is all about making as much as one can when one is right and losing as little as possible when one is wrong. That is the essence of this business. So, any theory or system which looks after the above is a good one.

System is a weapon of a soldier in this market. You must have one as soon as possible. Otherwise, it will be like fighting well-armed Forex robbers with a handbag. Best one is a self-made one because you can never feel comfy in borrowed shoes although borrowing good ideas from others is a good idea. Good luck.

One cannot make a dime unless follow the herd or trend most of the time. It is just that one has to be cautious when overbought/oversold region is approaching and know how to turn at inflection point for the opposite trend. Following herd needs average intelligence and courage but identifying inflection points and taking a necessary action needs not only intelligence but also a lot of courage. Again, fortune favors the brave.

Money management is where most traders go wrong in almost all cases leaving only a few as the winner at the end of the day. Money management and discipline of mind is what makes or brakes a trader at the end of the day, not the elementary entry and exit method.

Forex/Currency Trading: It is a sentiment game w/ a crowd mentality where even the best players w/ the best forecasts are tricked out of good positions by the magic of price action.

http://www.gvilearning.com/shanghai_bc.html

TRADING: A MIND GAME

You must change your mental attitude first from a normal person to that of a speculator. Almost all traders I have met, except a few successful ones who really made millions and billions trading in the market, simply waste all their time trying to learn the easiest part in perfection, like about how to read data and charts, and trying to perfect entry and exit skills, etc. Trading is a mind game and without having a right frame of mind, it is a losing game even before it starts. Training a trader�s mind is the first step for any successful trader but almost all new traders neglect that part and that explains why more than 95% of traders are a failure in the long run.

Acquiring the knowledge of the market is not difficult for anyone with average intelligence after a few years of hard study in the market. But it is neither the level of intelligence nor the knowledge that decides the outcome of the market operations of a trader. It is the decision making process that is so hard for most traders to overcome and that is the main reason for a success or a failure for all the traders. Some find it easy to make decisions and stick to it and most find it so hard to make decisions and stick to it. Unfortunately, any decision making process in trading is a pain-taking process and humans tend to avoid pains and go for pleasures even if for temporary ones. Assuming one has acquired enough market knowledge and acquired one�s proven trading system (this is the second most important element of success in trading, in fact. An edge in any system is based on the quality of info one has, charts being only an info of secondary quality not the best one)

Through studies and research, a trader faces the task of making decisions to put this knowledge and system into practice. Then, how many traders can honestly say they can commit their ranch when the trade is suggested by their own system (given that trading is just a chance game) and let the profit run for weeks and months when their system tells them, and how many can manage to cut the loss as a routine process when the situation arise. It all sounds so easy when saying it but so difficult when doing it affecting real money in the market. I still do not sleep well when I am running position because even if the profits are running into a few hundred dollars and the system is telling you to carry on, there is no guarantee that the profit will turn into a yard or two in a month time, and it may even turn into a loss in a day or two when something unexpected happens. A painstaking process in real sense. The pain is not knowing what will happen in the future and in fear of losing. So at the end of the day, assuming one has decent trading system and market knowledge and decent info, it is ultimately how disciplined and how well that trader can take the pain of making right decisions at the right time that decides the outcome of the trades. Hence I call trading a mind game. When I interview prospective young traders, I always look for disciplined and strong-willed person as my first priority as long as one has decent education, but strangely in many cases, it is some kind of genius or half-genius with lots of brains with no disciplines who turn up for an interview thinking only bright people can make good traders.

In fact, I always try to pyramid while position trading medium-term once I am convinced of a new medium-term trend emerging. Like in USD/JPY position trading 135-132 as an initial position, adding in 132 and 129 areas. Same for AUD/USD and EUR/USD with similar strategies. But sitting on positions and watching the counter-rallies costing truck load of money is not easy job to do and causes lots of pain all the time. Most traders even among experienced ones cannot bear that pain and give up too early. But there is no other way to make a big money and we have to bite the bullet and "sit and accumulate" as long as the medium-term trend is intact. That is why I always believe psychological aspects of trading is far more important than anything else in successful trading. A mind game like those bluffing game of poker.

Entries and exits can never be "irrelevant" for any trader for any purpose. It is just that psychological aspects of trading are much more important than entries and exits, and decisive for the success or failure of a trader in the long run. Perhaps exits are more important than entries because any perfect or near-perfect entries are possible only in hindsight.

http://www.gvilearning.com/shanghai_bc.html

Essential Elements of a Successful Trader

Courage Under Stressful Conditions When the Outcome is Uncertain

All the foreign exchange trading knowledge in the world is not going to help, unless you have the nerve to buy and sell currencies and put your money at risk. As with the lottery “You gotta be in it to win it”. Trust me when I say that the simple task of hitting the buy or sell key is extremely difficult to do when your own real money is put at risk.

You will feel anxiety, even fear. Here lies the moment of truth. Do you have the courage to be afraid and act anyway? When a fireman runs into a burning building I assume he is afraid but he does it anyway and achieves the desired result. Unless you can overcome or accept your fear and do it anyway, you will not be a successful trader.

However, once you learn to control your fear, it gets easier and easier and in time there is no fear. The opposite reaction can become an issue – you’re overconfident and not focused enough on the risk you're taking.

Start by analyzing yourself. Are you the type of person that can control their emotions and flawlessly execute trades, oftentimes under extremely stressful conditions? Are you the type of person who’s overconfident and prone to take more risk than they should? Before your first real trade you need to look inside yourself and get the answers. We can correct any deficiencies before they result in paralysis (not pulling the trigger) or a huge loss (overconfidence). A huge loss can prematurely end your trading career, or prolong your success until you can raise additional capital.

Both the inability to initiate a trade, or close a losing trade can create serious psychological issues for a trader going forward. By calling attention to these potential stumbling blocks beforehand, you can properly prepare prior to your first real trade and develop good trading habits from day one.

The difficulty doesn’t end with “pulling the trigger”. In fact what comes next is equally or perhaps more difficult. Once you are in the trade the next hurdle is staying in the trade. When trading foreign exchange you exit the trade as soon as possible after entry when it is not working. Most people who have been successful in non-trading ventures find this concept difficult to implement.

For example, real estate tycoons make their fortune riding out the bad times and selling during the boom periods. The problem with trying to adapt a 'hold on until it comes back' strategy in foreign exchange is that most of the time the currencies are in long-term persistent, directional trends and your equity will be wiped out before the currency comes back.

The other side of the coin is staying in a trade that is working. The most common pitfall is closing out a winning position without a valid reason. Once again, fear is the culprit. Your subconscious demons will be scaring you non-stop with questions like “what if news comes out and you wind up with a loss”. The reality is if news comes out in a currency that is going up, the news has a higher probability of being positive than negative (more on why that is so in a later article).

So your fear is just a baseless annoyance. Don’t try and fight the fear. Accept it. Have a laugh about it and then move on to the task at hand, which is determining an exit strategy based on actual price movement. As Garth says in Waynesworld “Live in the now man”. Worrying about what could be is irrational. Studying your chart and determining an objective exit point is reality based and rational.

Another common pitfall is closing a winning position because you are bored with it; its not moving. In Football, after a star running back breaks free for a 50-yard gain, he comes out of the game temporarily for a breather. When he reenters the game he is a serious threat to gain more yards – this is indisputable. So when your position takes a breather after a winning move, the next likely event is further gains – so why close it?

If you can be courageous under fire and strategically patient, foreign exchange trading may be for you. If you’re a natural gunslinger and reckless you will need to tone your act down a notch or two and we can help you make the necessary adjustments. If putting your money at risk makes you a nervous wreck its because you lack the knowledge base to be confident in your decision making.

Patience to Gain Knowledge through Study and Focus

Many new traders believe all you need to profitably trade foreign currencies are charts, technical indicators and a small bankroll. Most of them blow up (lose all their money) within a few weeks or months; some are initially successful and it takes as long as a year before they blow up. A tiny minority with good money management skills, patience, and a market niche go on to be successful traders. Armed with charts, technical indicators, and a small bankroll, the chance of succeeding is probably 500 to 1.

To increase your chances of success to near certainty requires knowledge; acquiring knowledge takes hard work, study, dedication and focus. Compile your knowledge base without taking any shortcuts, thereby assuring a solid foundation to build upon.

by Jimmy Young of EURUSDTrader

Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity

March 2005

Every three years, the BIS coordinates a global central bank survey of foreign exchange and derivatives market activity on behalf of the Markets Committee and the Committee on the Global Financial System. The objective of the survey is to provide comprehensive and internationally consistent information on turnover and amounts of contracts outstanding in these markets. The exercise also serves as a benchmark for the semiannual OTC derivatives market statistics, which are limited to banks and dealers in the most important financial centres.

The first three surveys were limited to the foreign exchange markets (1989, 1992, 1995). Subsequently both the foreign exchange and the derivatives markets have been surveyed (1998, 2001, 2004). For the survey, each participating central bank collects data from the banks and dealers in its jurisdiction and calculates aggregate national data. These are provided to the BIS, which compiles global aggregates. The number of participating countries has increased over time.

The 2004 survey

In April 2004, 52 central banks and monetary authorities collected daily data on turnover in traditional foreign exchange markets (those for spot, outright forwards and swaps) and in the OTC currency and interest rate derivatives markets. Preliminary results on turnover were published in September 2004, and an analysis of the results for the traditional foreign exchange markets was included in the December 2004 issue of the BIS Quarterly Review . The 2004 survey also covered data on amounts outstanding of OTC foreign exchange, interest rate, equity, commodity and credit derivatives at the end of June 2004. The full report on the Triennial Central Bank Survey was published by the BIS in March 2005.

www.bis.org

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About Forex

For those unfamiliar with the term, FOREX (FOReign EXchange market), refers to an international exchange market where currencies are bought and sold. The Foreign Exchange Market that we see today began in the 1970's, when free exchange rates and floating currencies were introduced. In such an environment only participants in the market determine the price of one currency against another, based upon supply and demand for that currency.

FOREX is a somewhat unique market for a number of reasons. Firstly, it is one of the few markets in which it can be said with very few qualifications that it is free of external controls and that it cannot be manipulated. It is also the largest liquid financial market, with trade reaching between 1 and 1.5 trillion US dollars a day. With this much money moving this fast, it is clear why a single investor would find it near impossible to significantly affect the price of a major currency. Furthermore, the liquidity of the market means that unlike some rarely traded stock, traders are able to open and close positions within a few seconds as there are always willing buyers and sellers.

Another somewhat unique characteristic of the FOREX money market is the variance of its participants. Investors find a number of reasons for entering the market, some as longer term hedge investors, while others utilize massive credit lines to seek large short term gains. Interestingly, unlike blue-chip stocks, which are usually most attractive only to the long term investor, the combination of rather constant but small daily fluctuations in currency prices, create an environment which attracts investors with a broad range of strategies.

Marginal Trading

Marginal trading is simply the term used for trading with borrowed capital. It is appealing because of the fact that in FOREX investments can be made without a real money supply. This allows investors to invest much more money with fewer money transfer costs, and open bigger positions with a much smaller amount of actual capital. Thus, one can conduct relatively large transactions, very quickly and cheaply, with a small amount of initial capital. Marginal trading in an exchange market is quantified in lots. The term "lot" refers to approximately $100,000, an amount which can be obtained by putting up as little as 0.5% or $500.

EXAMPLE: You believe that signals in the market are indicating that the British Pound will go up against the US Dollar. You open 1 lot for buying the Pound with a 1% margin at the price of 1.49889 and wait for the exchange rate to climb. At some point in the future, your predictions come true and you decide to sell. You close the position at 1.5050 and earn 61 pips or about $405. Thus, on an initial capital investment of $1,000, you have made over 40% in profits. (Just as an example of how exchange rates change in the course of a day, an average daily change of the Euro (in Dollars) is about 70 to 100 pips.)

When you decide to close a position, the deposit sum that you originally made is returned to you and a calculation of your profits or losses is done. This profit or loss is then credited to your account.

How FOREX Works

Transactions in foreign currencies are not centralized on an exchange, unlike say the NYSE, and thus take place all over the world via telecommunications. Trade is open 24 hours a day from Sunday afternoon until Friday afternoon (00:00 GMT on Monday to 10:00 pm GMT on Friday). In almost every time zone around the world, there are dealers who will quote all major currencies. After deciding what currency the investor would like to purchase, he or she does so via one of these dealers (some of which can be found online). It is quite common practice for investors to speculate on currency prices by getting a credit line (which are available to those with capital as small as $500), and vastly increase their potential gains and losses. This is called marginal trading.

ProForex Blog Awarded!

I am happy to announce you that my blog was chosen as one of the top 25 forex blogs on the net! Here is the permalink to the site that awarded my blog www.forexreader.com

My blog is placed as number 12 i think it is reasonable position as it wasn't often updated besides blogs that higher then i am, are the ones that i have learned from, so i advice you to check them out.

What else can i say? This award motivated me to continue this blog with even more interesting forex informations. I will soon write very interesting article on entering and exiting trades. I have got new trading strategy that produces steady results for USD/JPY it will be also published soon.

I will also write some articles on Automated Trading with MetaTrader, i will mainly focus on script and ExpertAdvisors, because as you already know i do not really use indicators. More over i will try to show you how to detect patterns on charts and translate thse patterns into ExpertAdvisor code.

I was also thinking of buying domain and placing there my best articles, it would be good to have those articles available within a click of a mouse, don't you think?

Marketiva platform update

Well they updated their platform few months ago, but i didn't wrote about, mainly because i doubt anyone is using marketiva for charting. But in my Marketiva review i wrote their trading platform lacks functionality such as trendlines, support, resistance lines, fibonacci retracement, etc.

So now they have all of mentioned above tools, although i still do not like their interface which is not user friendly, but this is only my opinion, some of you will probably do not agree with this.

If you would like to read my last marketiva review then here is the link.

Watch out for EA scams!!!

Recently i found forum post at ForexFactory, where author talked about some scammer selling MetaTrader expert advisor, unfortunetly i can't find this post now to give you permament link so i will just tell you what i know about the case.

First of all this "Expert Advisor" costs 25 000$ (a lot of cash) but from what i have heared it isn't worth even 25 cents. So if you recive such offer by spam or something it is best just to ignore it.

Ofcourse if you find offer interesting then you may want to buy it, in this case it is best to do your own due dilligence, search forums, ask questions etc. Do not buy just because advertisment looks good!

Well this is second forex bad news this week, so i guess coming days can be only better .

Stop using HedgeHog!

I have a quite sad news for you, i backtested both hedgehog strategies with MetaTrader which i described earlier and results are not as good as i thought.

More over using HedgeHog you cannot even breakeven it is a fast way to loose all your money. It is interesting because when i backtested it with spreadsheet results where quite good, and i used the worst case scenerio because i was backtesting this strategy on daily bars, so modeling quality was quite low.

Although HedgeHog seemed to be simple and effective strategy, without a big drawdown, so everything should be ok but ... well it isn't.

If you want to try to trade this strategy anyway, then you better try it on demo first and do not use big lots.