Introduction
Why Trade Currencies?
We will now illustrate the difference in profit potential between these three popular trading instruments. As mentioned above, we will assume a starting capital of $5,000 and a typical 2:1 equity trading margin.
What Influences Currency Prices?
Understanding Currency Trading Dynamics
If you have some trading experience, you will find some of the parts boring and you may want to skip to those areas that you feel need improvement. Once you have gained a solid knowledge of the forex markets in general, you will better understand the importance of having a reliable broker.
Currency Markets
- What Is Foreign Exchange?
- Forex Market
- Major Participants
- OTC and Exchange Traded Futures
- Order Types
Other important players in the foreign exchange market are central banks, hedge funds, brokers, corporations and individuals. A broker participates in the market as an intermediary for one or both parties in an exchange transaction.
How To Choose An Online Broker?
- System Reliability
- Spreads And Commissions
- Execution Speed
- Quote Reliability
- Charting Software
- Technical Support And Phone Service Reliability
Increase in positive volume (closing prices are higher than opening prices for the periods being considered) – if you don't have volume on your software that is OK, you will have to do without it. Negative volume increase (closing prices are lower than opening prices for the periods being considered) – if you don't have volume on your software that is OK, you will have to do without.
How To Set Up A Trading Workstation?
What Kind Of Computer Do You Need?
It is impossible to give you precise advice that will hold up for more than a few months. If at the time of writing (Fall 2003) you plan to swap with your existing system, make sure your microprocessor is a Pentium III 866 MHz or higher.
How Many Monitors Do You Need?
The card allows you to view your running programs at the same time without clicking between windows. If you already have a decent (16MB or more) graphics card, find out if it supports multiple monitors. Another, easier, more reliable, but also more expensive way to install multiple monitors is to buy a graphics card that has two or more screen slots that are already built-in.
What Kind Of Operating System Should You Use?
You can always change your software later if you find out that it doesn't meet your standards. When trading EUR/USD, pay attention to the reports coming from the EU and the US. If you trade currency futures, it works the same way, although the minimum amount you can buy is one contract.
You won't be able to do this if you don't give your trade a chance.
What Kind Of Internet Connection Do You Need?
Cable Internet Connection
Cable companies and cable Internet service providers claim that cable modems are as much as 100 times faster than a normal dial-up connection. They say you can get speeds of up to 5 Mbps compared to 50 kbps per call. If you are a cable TV subscriber, your cable internet services will likely be billed on the same bill.
The disadvantage of wired internet access is that it is shared by all the people in a neighborhood, which means that if several people are online at the same time, your connection will be slowed down.
DSL Internet Connection
If this happens while you are in the middle of a trade, you will need an additional link to be able to exit that trade. If you see such a movement, it is very likely that the price will change direction. If you are trading USD/CAD, you should pay attention to reports coming from USA and Canada etc.
If our stop loss is reached, we will exit the trade immediately, no questions asked.
Trading Capital
How Much Capital Should You Start With?
You'll have a clear head as long as you don't have to worry about losing the only money you have, so be reasonable with both your starting capital and your expectations. You can start your trading career with a relatively small initial capital as long as you don't count on your trading profits to cover your living expenses. trading capital was $5,000, you would need to make consistent monthly profits of 50% to survive on it. You don't want to make any life-changing decisions like selling your business or quitting your job until you've made steady profits.
Trading with a small initial capital is a pure gamble, sometimes you will get lucky, most of the time you will lose.
How Do You Find Start Up Capital?
You need to make consistent profits for many months in a row to justify any life-changing decision. If you start with a few hundred dollars, you will have to place your stop very close to your entry and you will always be out of a position. If starting with a small capital is too risky, what amount of capital is right.
Start with the amount low enough to make it affordable, and high enough so you can withstand the loss of streaks as well as the cost of spreads.
Technical Analysis
- Why Does Technical Analysis Work?
- Price Chart
- Moving Average
- Relative Strength Index RSI
- Bollinger Bands
- Volume
- Support And Resistance Levels
- Fibonacci Retracement
- Chart Patterns And Trend Lines
- Head And Shoulders
- Inverse Head And Shoulders
- Double Top
- Double Bottom
- Rounded Top And Rounded Bottom
- Trend Lines
- Candlestick Patterns
The price chart most commonly used among active traders is the candlestick chart. As we can see from the chart, it is usually a negative signal when the price crosses the blue line from top to bottom and the trend becomes bearish for a period of time. When the price reaches the resistance level and starts to reverse, it is usually an entry opportunity on the short side.
When the price reaches a support level and starts to reverse, it is usually an entry opportunity on the long side. It is created when the price climbs to the resistance level twice in a row, but fails to breach it. When the price drops, touches the established trend line and begins to reverse, it is considered a bullish signal.
How To Choose The Trading Software
Esignal
As you can see from the figure below, on the left side of the screen there is a daily candlestick chart for EUR/USD, in the middle of the screen there is an hourly chart for EUR/USD and on the left side there is a five minute candlestick chart for EUR/USD.
DailyFX
Oanda.com
We assume you will be using two monitors for the purposes of this strategy. 4 points A bearish candlestick pattern forming on the hourly chart………….4 points We will enter a trade if the current score is 38 or above. When we enter a buy order, we will place our stop loss just below the nearest support line (PDClose, PP, PDLow, Lower Trendline, Fibonacci retracement).
If we have entered a short sell order, we will place our stop loss above the nearest resistance line (PDClose, PP, PDHigh, Upper Trendline, Fibonacci Retracement).
Trading Strategy
How To Prepare For A Trading Day?
- Economic Calendar
- Calculating Major S/R Areas
Previous trading day started at 5:00 PM EST on Tuesday and it ended at 5:00 PM EST on Wednesday.”. If you are already in the market, you need to closely monitor the situation at those times and be ready to react quickly. Again, if you are starting to trade, don't enter your trades right before such reports are due out.
Or if you are looking for a US calendar, you can find it at: http://biz.yahoo.com/c/e.html or http://moneycentral.msn.com/investor/calendar/econ/current .asp .
How To Set Up Your Screens?
On the daily candlestick chart, we have placed a 20-day moving average (blue line) and you can also place a 50-day moving average as this is also an important and widely followed moving average. On the hourly chart we have placed moving averages of 12 hours (blue line) and 4 hours (red line). On the five minute chart we have Bollinger Bands, RSI, Volume, PDHigh, PDLow, 0.786 Fibonacci, Pivot Point and Close. These are the lines most likely to act as support/resistance lines on the current trading day.
What your setup will look like depends on the type of charting software you'll be using, but our example can give you a general idea.
When To Enter The Trade?
- How To Properly Use Leverage?
8 points Increase in positive volume (closing prices are higher than . Opening prices for observed periods) - if you don't have volume in the software, that's fine, you will have to. 8 points Increase in negative volume (closing prices are lower than opening prices for observed periods) - if you have no volume in the software, that's fine. If you are a beginner trader, you should start with very small amounts and once you are able to create your account, you can start trading with larger amounts.
You can then imagine what would have happened to your account if you had traded with a margin of 1:50.
When To Exit The Trade?
- Cut Your Losses Short
- Where To Place Your Stops?
- Let Your Profits Run?
- Trailing Stops
If it is not possible to place our stop loss below the closest support line and still keep our stop loss at less than 5%, we will have to move it up and make it a maximum of 4%. If it is not possible to place our stop loss above the nearest resistance line. If the nearest support line is above 1.1526, we place our stop loss just below (about 10 points) the support line.
We will automatically place our stop loss just below the next support line or if it is above 5%.
Example One: EUR/USD
As the name suggests, the trailing stop follows the price that is moving in your direction. CurrentStopLoss = PrevStopLoss + (PrevPrice - PrevStopLoss) * 0.75 where CurrentStopLoss is calculated every time the price moves even 0.5% in the direction of our trade. At approximately 5 am EST, the price was moving through the Pivot Point Resistance line while at the same time the RSI was rising towards the upper line (70) and the price was touching the upper Bollinger band.
At approximately 09:00 EST, the price bounced off the lower trendline while the RSI simultaneously moved down and the price touched the lower Bollinger Band.
Example Two: USD/CAD
At about 3am EST, there was a rebound from the PDClose support line coupled with an RSI moving down towards the lower line (30) and price touching the lower Bollinger Band. The trading day has started and we have set up our monitors with the necessary data, as described earlier in this chapter. As we can see from the charts above, there was only one solid short position during the trading day.
At around 07:00 EST there was a break through the PDLow Support line along with RSI moving down to lower line (30) and the price touching lower Bollinger Band.
Paper Trading
