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| Forex Basics
The main currencies that are traded are;
Times to trade Seeing as the forex market is global it can be traded around the clock of course it is advisable to get at least 8 hours of sleep! I remember a Greek female chef once told me she had liked to balance here day as follows 8 hours of work, 8 hours of doing things she enjoyed and 8 hours of sleep. So that’s the secret to a happy life. Back to the markets. You may find that you login to your demo account and armed with your latest strategy start hunting for the perfect setup to enter a trade. And there are none. You may find that your chosen pair is quietly ticking away back and forwards 10 or so pips. Chances are someone is getting their 8 hours of sleep or fun. For more action and liquidity look to trade when there is more than one market open at the same time. For example I live in Bangkok so based on local time good times to trade are between 2pm – 3pm as both London & Japan are open and also 7pm – 11pm when London & New York are open. London is the busiest market. Also mid week you will find the highest levels of trade typically Tuesday & Wednesday as Monday’s hangover has worn off. Friday can be unpredictable as everyone is down the pub by lunchtime so best to join them. Sundays and bank holidays there’s not much happening so spend some time with the family or your special friend. If you can’t trade during the busy times then trade a different session. Look for patterns, read the charts.
Rollover For positions open at your broker’s “cut-off time” usually 5pm EST, there is a daily rollover interest rate that a trader either pays or earns, depending on your established margin and position in the market. If you do not want to earn or pay interest on your positions, simply make sure they are all closed before 5pm EST, the established end of the market day. Since every currency trade involves borrowing one currency to buy another, interest rollover charges are part of forex trading. Interest is paid on the currency that is borrowed, and earned on the one that is bought. If a client is buying a currency with a higher interest rate than the one he/she is borrowing, the net differential will be positive (i.e. USD/JPY) – and the client will earn funds as a result. Ask your broker or dealer about specific details regarding rollover. Commodities What are commodities? Well two important ones that traders like to keep their eye on are Gold and Oil. So if you are going to be a well rounded omnipotent trader you will need to understand the correlation between currencies and commodities. We first consider the countries that actually produce or import oil and / or gold. The thinking behind this is that any price changes in the price of gold or oil will have a corresponding positive or negative impact on that countries economy. The currencies to consider are JPY, CAD, CHF, AUD, USD & NZD. In basic terms an increase in gold prices will have a negative effect on the USD (because they import a lot of gold) whilst having a positive effect on CHF, CAD, AUD & NZD. Whilst an increase in oil prices will have a negative impact on the JPY as they are a major importer of oil. AUD – World’s 3rd largest gold producer the exports represent approx $5 billion CAD – World’s 5th largest gold producer NZD – 40% of exports are commodities When the going gets tough – people buy gold. Investors are quick to pull out of more risky investments and place at least part of their funds in gold as until more stable market conditions ensue. Switzerland’s long standing reputation as a safe haven and its psychological association with gold results in a rise in the CHF when there is a dash for gold. Now if you a new trader when you come across any old piece of information then it is imperative that you investigate further. Seek the patterns in charts to confirm or deny these correlations and see exactly how they have worked in the past. By studying the charts you will soon become familiar with patterns and trends and you will be able to put your knowledge into action in real time. The Economy If you studied economics at university then it’s possible you already work in finance and you will be miles ahead of someone with only a limited knowledge of basic economics. So if you want to be a forex trader then you must be prepared to study. As you know currencies are traded in pairs and each currency represents a country. A foreign exchange trader will keep an eye on the important economic indicators so they can see how an economy is performing. So for example GBP/USD is Great Britain vs. the United States of America. In this example the GBP is the base currency so if you think the British economy is performing better than the United States and will continue to do so then that would reinforce your decision to BUY GBP/USD. Economic Indicators So what are the important economic indicators? There are many and some are more important than others your forex broker will be able to advise the important ones to look out for each day. Be wary of trading when these figures are released as the markets can be quite volatile. It is possible to trade the news and make quick profits but you need a calm mind and a clear strategy with fixed stop loss and profit levels. Each currency has a corresponding interest rate attached to it so any changes in the interest rate could have a major influence on that currency. Central banks modify interest rates to try and keep inflation on track. If inflation is low then interest rates may be reduced to stimulate borrowing whilst if inflation is high then interest rates may be increased to discourage spending. Gross domestic product (GDP), Nonfarm payrolls (NFP), Housing stats, Trade balance, Industrial Production, Consumer Price Index (CPI) & Retail Sales are all examples of economic indicators. If the released figures are above or below what is forecast or expected then this could trigger a rise or fall in the corresponding currency. Technical Analysis
“Mathematics is the language of nature” If you were the kid at school always moaning on about the irrelevance of learning advanced “math” as the yanks would say then you may want to find another hobby that doesn’t involve such a huge amount of calculations and statistical analysis. I decided to study Psychology and Sports Studies at college and was soon to come across 2 words Probability and Statistics. When trying to predict the movement of a currency pair there is a huge amount of historical data that we can draw upon. Most forex charts contain data spanning over 20 years or more. Of course the Euro was only introduced in 1999 so that’s as far as the data extends for that currency. Whilst news may make markets move psychological barriers exist within the technical data presented on the charts. Some traders opt to purely trade the news whilst others trade based on information provided by technical indicators alone. Whilst valid strategies exist for both at the very least it is essential to be mindful of the day’s news releases when placing a trade based on technical analysis.
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