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Real-Life Application of News

Dec 29th, 2010
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You have probably heard that trading the news is one of the best ways to make money in the forex market. This is true, but it is much easier said than understood. There is news happening twenty-four hours a day, seven days a week. How does one narrow down what’s important and what isn’t? What pieces of news should we pay attention to, and which news should we ignore?

For one, you need to pay attention to the major markets around the world by using the Oracle Trader. This includes New York, London, and Tokyo. The major stock markets will oftentimes be a step ahead of that particular nation’s currency. If stocks on the New York Stock Exchange suddenly tank, it might be a good idea to short the dollar and buy some other currency that is doing well.

The source of the information also must be considered. Perhaps you are reading an analyst’s blog and he has written that the yen is poised to go up dramatically. Before you buy the yen, you need to do a bit more digging than this; where did this blogger get his information? What facts are there to back it up? Anyone can write what they think a currency will do, it’s a rare few that can do so accurately.

The age of the information is also important. If the blog you are reading is a week old, perhaps the moment in question has already passed. News happens quickly in the Forex market. If you are behind the times, your trading too will be left behind.

Identifying Wave Patterns

Dec 22nd, 2010
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The key to being a successful Forex trader is in correctly pinpointing trends and then acting appropriately. This is much easier said than done. Waves occur constantly as currency prices try and establish the most stable point for trading. Prices increase as consumers buy more of a currency, and then drop once consumers begin selling off that currency once they think the true value is lower than the price. These oscillations are tricky to identify, but with a little help, you can become an expert at reading chart patterns.

The Eliott Wave Theory seeks to identify these patterns as they happen. By breaking a larger wave into five sections, this theory actively seeks out just where a price is in its wave pattern. Wave One is when a price is making its initial increase. Wave Two occurs when a few people begin to think that the currency has risen a bit too much and they begin to sell, causing the price to slightly drop. Wave Three is typically the strongest of the five waves. Here is where a large number of people jump on the bandwagon and begin buying the currency in large chunks. The price increases here as demand increases.

Wave Four occurs when these traders sell off the currency in hopes of locking in a profit. Wave Five is the final wave before the currency finally drops in value. Here traders, usually the mass public, are buying the currency in very large amounts. This wave is characterized by hysteria. The trend is in full swing here and the public believes that they can make a killing. This is the final stage before a down trend occurs.
Trading Waves

Wave Patterns

Dec 8th, 2010
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A wave pattern is exactly what it sounds like. Currencies fluctuate up and down, leaving wave-like trails on price charts. Waves can be seen at every level of analysis, whether you are day trading or investing long-term. There are waves within waves, smaller short-term patterns within the bigger longer term trends. This is a phenomenon known as oscillation, and it goes on and on indefinitely.

The Elliot Wave Theory seeks to understand these fluctuations in price. This theory assigns names to each type of wave pattern, ranging from the largest Grand Supercycle to the tiniest Sub-Minuette. The Grand Supercycle, as it is the largest pattern, is made up of all the other price change patterns. Day traders would focus on the smaller of these cycles since they occur almost constantly, while longer term traders focus on the larger cycles.

Waves aren’t necessarily pretty to look at and do require some skill to decipher. A price chart for a given currency will have ups and downs naturally, but the patterns can be difficult to spot. You will need to look at different time spectrum’s in order to see the actual sub-categories of the waves created. A five year chart will show grand supercycles, while a chart that shows minute to minute variations will show the smallest fluctuations. All of these things should be considered when preparing for a trade, but the type of trading you are conducting should be in direct correlation to the appropriate wave timeframe.

The Three Major Types of Market Analysis

Nov 24th, 2010
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There are three ways to analyze the currencies market: fundamental, technical, and sentimental analysis. People often wonder which one of these is best suited for the forex market, but in reality it is all up to personal trading styles. Therefore, knowledge of each of these is helpful and will aid you in perfecting your own methods of trading. The more you know about each type, the better armed you will be in making your own trades.

Fundamental analysis looks at the basic underlying factors of a currency. These analysts look at economic signals, political news, and social realities in order to determine where a currency’s value is headed. Supply and demand is the fundamental analyst’s best friend. The better a country’s economic strength, the stronger its currency will be. There are fundamental indicators and data that help these analysts make their decisions.

Technical analysts look at charts to make their decisions. A chart alone is not enough information to base a decision upon, though. Because of this, these analysts use mathematical formulas within their charts to document and identify trends in order to help them predict where markets are headed. The basic premise of technical analysis is that markets move in cycles. Rather than moving randomly, markets oscillate up and down. By identifying these cycles, traders can get a jump on the currency’s momentum and make a profit. Using systems such as the Forex Profit Multiplier will allow you to take advantage of some solid market analysis.

Sentimental analysis is a method that takes traders’ emotions and psychology into account. The premise here is that these human factors influence where trade patterns go. Bull and bear markets are the most basic examples here. Is the market in a bullish pattern where traders think the price is rising? Or is it a bearish market where the prices are dropping? Identifying trader emotions and thoughts, you can sometimes make money off of the general momentum of the market.

Pivot Points

Nov 19th, 2010
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Learning about pivot points in Forex trading is a very effective tool that you can use regularly to make good profits. Many Forex traders have been using pivots since a long time and they form an important part of their market strategy. Pivots are also used by future traders in the case of floor trading.

The pivot level refers to the area where the market position can possibly reverse in the opposite direction. It may also stop for a while before continuing in the same direction. It might just hang around for a while. You can obtain a series of pivots by simply taking the previous day’s close price, high price and low price.

The pivots can prove to be important resistance and support levels for the traders. The pivot levels are also called support and resistance levels. Every day there is a close price, high price and low price of the previous day mentioned in the market. In order to calculate the pivot points that are predictive you can make use of information of the previous day and then calculate the potential turning points so that you know what you have to trade for the day.

Today most of the Forex traders allow pivot points it opens a lot of opportunities for you to make profitable Forex trades. The pivot figures are actually the known price levels that are used by many Forex traders to provide useful information to their clients. Hence you can get a good advantage when you deal in Forex trading.

Who Trades Currencies?

Nov 14th, 2010
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Knowing what type of entities are involved in the currency market will help you to gain a better understanding of how the Forex market functions, and consequently help you to make better informed trades. There are four major players in the Forex market: financial institutions, brokers, customers, and national banks. Each of these players fulfills a different function within the market.

Financial institutions account for the most activity in the Forex market. Banks will buy and sell currencies back and forth in an attempt to make a profit. This activity accounts for about two-thirds of all Forex transactions. This happens more often than you would at first imagine, but this is a major way for banks to add interest to their customers’ accounts.

Brokers help clients (who are oftentimes banks) find the best exchange rates possible. These brokers will charge a commission for any trade they conduct, allowing them to profit off of other people’s trades.

Customers, the third category, can be individuals, but the most prevalent type of customers are major corporations. These companies will buy and sell currency not necessarily as a profit making activity, but as a necessity for conducting business in foreign countries. Individual traders, although there are many that fit in this category, do not account for nearly as many dollars traded as what the major corporations will exchange.

National or central banks trade currencies for a number of reasons, the most common being a way for them to regulate their respective currency’s value. The Federal Reserve is an example of a central bank. The Fed might trade currencies in order to keep the dollar at a reasonable value, preventing inflation or other devaluations that the dollar might face.

Exchange Traded Funds

Nov 13th, 2010
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Exchange Traded Funds (ETFs) are relatively new in the forex world. They were not traded in the U.S. until the 1990s and did not gain in widespread popularity until the 21st century. An ETF is basically a basket fund of similar financial products. This can consist of a group of just foreign currencies or of stocks and currencies. ETFs are traded just like stocks are and oftentimes can consist of just stocks that are traded within the domestic market.

ETFs are great for traders looking for diversification of their portfolio. Because they contain stocks, ETFs are still subject to commission charges and various other transaction fees. But ETFs are not as highly managed as mutual funds, making them a much cheaper way to diversify your portfolio than a mutual fund, IRA, or 401(k) would be. This does not mean that an ETF should replace these other products; they do have a degree of risk associated with them since they can consist of higher risk foreign currencies and stocks. But ETFs that deal with currencies and stocks are oftentimes a safer investment than just a currency since there is the added stocks which will hopefully increase the funds profits and stability.

ETFs are not traded 24 hours a day like currencies are for the simple fact that they must be traded and dealt by a broker. This is another downfall of ETFs—they are subject to brokerage fees. But for beginning traders especially, forex ETFs are a great way to protect and hedge your investments.

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