Thursday, March 5, 2009
Friday, February 13, 2009
Methods for Analyzing the Foreign Currency Market
The foreign currency market is fascinating and complicated in a way which is unparalleled. The potential for profit is colossal. However, trading requires considerable caution and discipline, and above all:
in order to succeed it requires experience and know-how.
In order to become a successful trader one has first to familiarize oneself with analysis techniques, the data that affects the market and financial management and risk management methods. There are two main methods for analyzing future market behavior:
fundamental analysis and technical analysis. Fundamental Analysis emphasizes collecting massive amounts of data and examining all the data that affects the market. The most important pieces of information include various economic data concerning markets across the globe. However, one should also consider political, religious, geographical and even climatic events. The method assumes that the more market-related data we have, the better can we forecast its results.
Technical analysis states that all the information required to identify future behavior of a certain currency, including the external factors which the previous method takes into account, are represented on a graph at any given point in time. Thus, one can forecast the behavior of the graph in the future, based on the currency’s fluctuation on the graph up to a particular point.
in order to succeed it requires experience and know-how.
In order to become a successful trader one has first to familiarize oneself with analysis techniques, the data that affects the market and financial management and risk management methods. There are two main methods for analyzing future market behavior:
fundamental analysis and technical analysis. Fundamental Analysis emphasizes collecting massive amounts of data and examining all the data that affects the market. The most important pieces of information include various economic data concerning markets across the globe. However, one should also consider political, religious, geographical and even climatic events. The method assumes that the more market-related data we have, the better can we forecast its results.
Technical analysis states that all the information required to identify future behavior of a certain currency, including the external factors which the previous method takes into account, are represented on a graph at any given point in time. Thus, one can forecast the behavior of the graph in the future, based on the currency’s fluctuation on the graph up to a particular point.
Characteristics of the Foreign Currency Market
A Decentralized, Advanced and Electronic Market
The foreign currency trading market has a unique character since there is no one central market (such as a specific stock exchange, like The New York Stock Exchange) in which trade is carried out. The trade is carried out "over the counter", 24 hours a day, 5 days a week and across the globe. The term "over the counter" (OTC) means that the currencies can be transferred between any two entities. For example: between a private client and a market-maker, and between a large company and a bank. Modern foreign currency trade is carried out electronically via the international banks’ networks and through news agencies, such as Reuters. Nowadays, market traders are gradually shifting from telephone-based to internet-based systems.
The Largest and Most Dominant Market in the World
The trade volume of the international currency market is estimated at three trillion dollars a day. When one compares this volume with the volume of trade on Wall Street (20-30 billion dollars a day), one can get a sense of the tremendous size differences between the foreign currency market and the other markets.
The foreign currency market is a dynamic one and it is constantly changing. Since the value of a currency is the basis of all economies, foreign currency trade affects international firms, importers, exporters and all the other international markets.
How Trade is Carried Out
A foreign currency transaction is the purchase of one currency in exchange for the sale of another currency. Each transaction applies to currency pair. The first currency in a transaction is called the base currency, and the second currency is called the secondary currency.A rate is a figure which represents the quantity of units in the secondary currency (x), which is equal to one unit of the base currency. Suppose that the USD/CHF rate is 1.2414. The base currency in this rate is the dollar (USD) and therefore it appears first. The secondary currency is the Swiss franc (CHF) and accordingly it is written second. The meaning of the rate "USD/CHF 1.2414" is that one dollar is worth 1.214 Swiss francs.All currencies are traded against the dollar and there are currencies that are traded against additional currencies. The main currencies that are traded against the dollar are:
Risks in the Foreign Currency Market
The combination of money and the virtual trade era has created an endless continuum of buying and selling. As in any other market, profits are attained by buying at low prices and selling at higher ones. As opposed to other markets, there is an additional risk in the market (which constitutes an advantage as well) – the foreign currency market never stops!Private and corporate investors enjoy free access to the market, which operates day and night. Trade volume is enormous and enables infinite liquidity in foreign currency trade. This means that profits are not limited. However, one may also lose large amounts of money. Therefore, before investing a lot of money in this market, it is important to study the rules of the market well and to understand the nature of its forces.
The foreign currency trading market has a unique character since there is no one central market (such as a specific stock exchange, like The New York Stock Exchange) in which trade is carried out. The trade is carried out "over the counter", 24 hours a day, 5 days a week and across the globe. The term "over the counter" (OTC) means that the currencies can be transferred between any two entities. For example: between a private client and a market-maker, and between a large company and a bank. Modern foreign currency trade is carried out electronically via the international banks’ networks and through news agencies, such as Reuters. Nowadays, market traders are gradually shifting from telephone-based to internet-based systems.
The Largest and Most Dominant Market in the World
The trade volume of the international currency market is estimated at three trillion dollars a day. When one compares this volume with the volume of trade on Wall Street (20-30 billion dollars a day), one can get a sense of the tremendous size differences between the foreign currency market and the other markets.
The foreign currency market is a dynamic one and it is constantly changing. Since the value of a currency is the basis of all economies, foreign currency trade affects international firms, importers, exporters and all the other international markets.
How Trade is Carried Out
A foreign currency transaction is the purchase of one currency in exchange for the sale of another currency. Each transaction applies to currency pair. The first currency in a transaction is called the base currency, and the second currency is called the secondary currency.A rate is a figure which represents the quantity of units in the secondary currency (x), which is equal to one unit of the base currency. Suppose that the USD/CHF rate is 1.2414. The base currency in this rate is the dollar (USD) and therefore it appears first. The secondary currency is the Swiss franc (CHF) and accordingly it is written second. The meaning of the rate "USD/CHF 1.2414" is that one dollar is worth 1.214 Swiss francs.All currencies are traded against the dollar and there are currencies that are traded against additional currencies. The main currencies that are traded against the dollar are:
Risks in the Foreign Currency Market
The combination of money and the virtual trade era has created an endless continuum of buying and selling. As in any other market, profits are attained by buying at low prices and selling at higher ones. As opposed to other markets, there is an additional risk in the market (which constitutes an advantage as well) – the foreign currency market never stops!Private and corporate investors enjoy free access to the market, which operates day and night. Trade volume is enormous and enables infinite liquidity in foreign currency trade. This means that profits are not limited. However, one may also lose large amounts of money. Therefore, before investing a lot of money in this market, it is important to study the rules of the market well and to understand the nature of its forces.
Modes of Trade
Trading in the foreign currency market requires considerable skill and knowledge. Those trading for the first time must learn the basic rules carefully. People who wish to experience market forces more strongly and to enjoy the colossal profit-making possibilities, should restrict the risk level in all transactions. Xforex™ offers the best tools for restricting risks, such as an advanced system for carrying out Stop-Losses, and a unique application for giving Take Profit instructions.Market Location The foreign currency markets are located across the globe and are not concentrated in specific locations, as opposed to certain exchanges.Transactions are carried out via internet and by telephone using an "over the counter" method, and without actual handling of money. Rather, transactions are carried out exclusively by means of calculating the differences between the transactions and their realization.Maximum Flexibility – 3 Forms of TradeThree forms of trade are customarily used in the market:
Day Trading Spot Transactions Forward Transactions Day TradingDaily trading is a transaction which is opened and closed on the same trading day. Currency exchange rates vary over the course of a trading day.Spot TransactionAn immediate transaction between a pair of currencies at an agreed rate. The rate according to which the currencies will be exchanged is the rate at the time the transaction was announced. The monies are actually only transferred two trading days after the declaration.Forward Transaction A contract for the execution of a purchase transaction or a sale transaction at an agreed future date and at an agreed rate. The rate agreed upon generally includes interest differences for both currencies.
Day Trading Spot Transactions Forward Transactions Day TradingDaily trading is a transaction which is opened and closed on the same trading day. Currency exchange rates vary over the course of a trading day.Spot TransactionAn immediate transaction between a pair of currencies at an agreed rate. The rate according to which the currencies will be exchanged is the rate at the time the transaction was announced. The monies are actually only transferred two trading days after the declaration.Forward Transaction A contract for the execution of a purchase transaction or a sale transaction at an agreed future date and at an agreed rate. The rate agreed upon generally includes interest differences for both currencies.
The History of Forigen Currency
It was at the time of the Pharaohs that money began to be used. In effect, the Babylonians were the first people who used notes and receipts. Foreign currency trade in the Middle East began when various peoples, each of whom had their own currency, began to trade with each other.In the middle ages, traders felt the need for a more convenient method of making payments – a fact which led to the adoption of notes for money. This development made the economies of peoples who chose to use notes flourish.The foreign currency market assumed its present form in the mid 1930's. London became the center of world trade and the British Pound Sterling became the basic currency. World War II turned the world economic balance on its head. The British economy collapsed, and at the same time, the USA, which emerged relatively unscathed from the war, became the leading player in the foreign currency market.
The Bretton Woods Agreement
As World War II drew to an end (1944), 730 representatives from 45 nations attended a conference in the town of Bretton, whose intention was to set a new world economic order. The overarching aim was to create a stable basis for the economic markets that had been damaged. At the time, an agreement was signed which officially made the dollar the global base currency. It was defined as linked to gold at a fixed rate of $35 per ounce of gold. In addition, the other currencies in the world were largely linked relative to the dollar.For the dollar, this was an important achievement since only 15 years earlier, in 1929, the United States had suffered an unprecedented economic collapse. And then at the end of the war – the dollar took center-stage.
International Monetary Fund (IMF)
Another important part of the Bretton Woods Agreement was the establishment of the International Monetary Fund, which was to provide economic support for developing nations that affect the balance of world trade. The fund supports weak economies by stabilizing them and by encouraging economic growth in the world.
The Smithsonian Agreement
The Bretton Wood Agreement ultimately failed to achieve its objective of rehabilitating and stabilizing the economy in Europe and in Japan. Following a decision made by US President Nixon in August 1971, representatives of the International Monetary Fund’s 10 senior countries met and signed the Smithsonian Agreement in December of that year. The agreement put an end to the policy of linking global currencies to the dollar and linking the dollar to gold. In effect, the agreement paved the way to a floating currencies policy, which is the dominant policy in the world until this very day. The Smithsonian agreement forms the basis for foreign currency trading as we know it, and it enables a high level of fluctuation in currency exchange rates, taking place in a completely free market.
The European Joint Float
In 1972, a decision was made to jointly float the European currencies (up to a fluctuation level of 2.25%) in order to avoid being dependent on the dollar. The countries which decided to float their currencies jointly were: Germany, France, Italy, Holland, Belgium and Luxemburg.
The Era of Free-Floating
The era of the free floating foreign currencies trade began in 1971 and currency exchange rates turned into floating ones, rates which vary in the wake of currency trading. The main effect of the market in the free-floating era is supply and demand. Other factors that determine exchange rates include: Gross National Product, unemployment levels, political events and interest rates.
The Foreign Currency Market
TodayNowadays the free floating policy, which is based upon supply and demand, is the dominant policy in global markets.All of the main currencies are traded freely opposite other currencies in accordance with relative changes in their values.Only very infrequently do the central banks try to influence trade levels. The free-floating method is ideal for trading in a virtual marketplace.
The Bretton Woods Agreement
As World War II drew to an end (1944), 730 representatives from 45 nations attended a conference in the town of Bretton, whose intention was to set a new world economic order. The overarching aim was to create a stable basis for the economic markets that had been damaged. At the time, an agreement was signed which officially made the dollar the global base currency. It was defined as linked to gold at a fixed rate of $35 per ounce of gold. In addition, the other currencies in the world were largely linked relative to the dollar.For the dollar, this was an important achievement since only 15 years earlier, in 1929, the United States had suffered an unprecedented economic collapse. And then at the end of the war – the dollar took center-stage.
International Monetary Fund (IMF)
Another important part of the Bretton Woods Agreement was the establishment of the International Monetary Fund, which was to provide economic support for developing nations that affect the balance of world trade. The fund supports weak economies by stabilizing them and by encouraging economic growth in the world.
The Smithsonian Agreement
The Bretton Wood Agreement ultimately failed to achieve its objective of rehabilitating and stabilizing the economy in Europe and in Japan. Following a decision made by US President Nixon in August 1971, representatives of the International Monetary Fund’s 10 senior countries met and signed the Smithsonian Agreement in December of that year. The agreement put an end to the policy of linking global currencies to the dollar and linking the dollar to gold. In effect, the agreement paved the way to a floating currencies policy, which is the dominant policy in the world until this very day. The Smithsonian agreement forms the basis for foreign currency trading as we know it, and it enables a high level of fluctuation in currency exchange rates, taking place in a completely free market.
The European Joint Float
In 1972, a decision was made to jointly float the European currencies (up to a fluctuation level of 2.25%) in order to avoid being dependent on the dollar. The countries which decided to float their currencies jointly were: Germany, France, Italy, Holland, Belgium and Luxemburg.
The Era of Free-Floating
The era of the free floating foreign currencies trade began in 1971 and currency exchange rates turned into floating ones, rates which vary in the wake of currency trading. The main effect of the market in the free-floating era is supply and demand. Other factors that determine exchange rates include: Gross National Product, unemployment levels, political events and interest rates.
The Foreign Currency Market
TodayNowadays the free floating policy, which is based upon supply and demand, is the dominant policy in global markets.All of the main currencies are traded freely opposite other currencies in accordance with relative changes in their values.Only very infrequently do the central banks try to influence trade levels. The free-floating method is ideal for trading in a virtual marketplace.
What is Forex
In the international currency exchange market, the currency trader's goal is to earn as much profit as possible as a result of purchasing and selling foreign currencies. Currency exchange rates fluctuate perpetually based on continuous supply and demand by traders in addition to other more significant factors discussed below. Currency traders derive substantial gains by taking advantage of considerable fluctuations in currency price while using the well-known "buy low - sell high" principle. In comparison to all other sectors of the financial world, foreign currency exchange is quite unique in that it is highly sensitive to myriad factors, open access to many classes of investors, high liquidity, and 24 hour access. Such day-long access to foreign exchange allows traders the luxury of dealing after normal hours or even during national holidays in their country of residence. Much as is the case in equity markets, trading currency comes with potential risk and considerably higher potential for ROI. However, in currency trading, as a consequence of the drastic and fluid fluctuations in currency valuation, the potential for risk, as well as return, is exceedingly high. It is essential to become familiar with the factors that affect prices and the levels of risk involved. When beginning to enter the foreign currency exchange arena, it is crucial to prepare, much like a saavy investor spends hours analyzing a stock's fundamentals or technical data before investing in equity. One way to achieve such preparation is to first look at some key factors and recent newsworthy events related to the currencies that one wishes to deal with. In addition, it is also important to use a demo account with "virtual" money in order to get one's feet wet and get a sense for how FOREX really works. Why would you want to learn and experiment with your own capital when you can make mistakes and get some experience by using imaginary capital. You'll minimize your material damage considerably by getting some practical experience in this fashion. If you do your homework, you'll notice that there are many firms out there offering demo accounts on a trial basis to help you get a taste for what it is like to trade foreign currency. Such demo accounts and proprietary software are usually available for free. We wish you the best of luck in your trading endeavors.
Forex?
What is it, anyway?The marketThe currency trading (FOREX) market is the biggest and fastest growing market on earth. Its daily turnover is more than 2.5 trillion dollars. The participants in this market are banks, organizations, investors and private individuals, just like you.The goods (merchandise)Markets are places to trade goods, and the same goes with FOREX. The Forex goods are the currencies of various countries. You buy Euro, paying with US dollars, or you sell Japanese Yens for Canadian dollars. That's all.How does one profit in Forex?Obviously, buy cheap and sell for more! The profit potential comes from the fluctuations (changes) in the currency exchange market.The nice thing about the FOREX market, is that regular daily fluctuations, say - around 1%, are multiplied by 100! .How risky is Forex trading?You cannot lose more than your "margin" (your initial investment)! You may profit unlimited amounts, but you never lose more than what you initially risked. However, risk only what you can afford and is not vital for your well-being.How do I monitor my Forex trading?Online, from anywhere, anytime. You have full control to monitor status, check scenarios, change some terms in the deal, or close it.Foreign Exchange MarketAn informal network of trading relationships between the world's major banks and other market participants, sometimes referred to as the 'interbank' market. The foreign exchange market has no central clearinghouse or exchange, and is considered an over-the-counter (OTC) market.Spot MarketMarket for buying and selling currencies usually for settlement within two business days (the value date). USD/CAD = 1 day.RolloverThe process whereby the settlement of a transaction is rolled forward to the next value date with the cost of this process being based on the interest rate differential between two currencies. Rollover typically occurs at 5PM EST/10PM GMT. For example, if you open a position on Monday, the settlement date will be Wednesday, however, if you hold this position past rollover cutoff on Monday, the new value date will be Thursday. Most brokers will automatically roll over your open positions, allowing you to hold a position for an indefinite period of time. Depending on your broker's rollover policy, if you are holding a currency with a higher rate of interest in the pair, you will earn credits, however if you are holding a currency with a lower rate of interest in the pair, you will pay it. Current central bank interest rates.Exchange RateThe value of one currency expressed in terms of another. For example, if the EUR/USD exchange rate is 1.3200, 1 Euro is worth US$1.3200.
Simple Moving Average (SMA) and Technical Analysis...
One of the easiest methods in Technical Analysis is the Simple Moving Average or SMA. It is the simplest type of all the moving average. The SMA shows the average price of a given time period. And each period carries the same weight for the average. SMA helps to smooth the price curve for better trend identification. In fact, the longer the SMA period selected, the smoother the curve.Since it is the simplest of all the moving average, the math behind SMA is also simple. The average price of a certain period is represented by SMA and it is calculated by summing up the prices of instrument closure over a certain number of single periods divided by the number of time periods. Take note that short-term averages respond quickly to changes in the price of the underlying, while long-term averages are slow to react.SMA = SUM (CLOSE (i), N) / NWhere:SUM - sum; CLOSE (i) - current period closing price; N = number of periods in calculation.For example you want to plot a 5 period simple moving average on a 1-hour chart, you should add up the closing prices for the last 5 hours and then divide it by 5. If you want to plot 5 period simple moving an average on a 30 minute chart, then you should add up the closing prices of the last 150 minutes and divide it by 5. So if you want to develop an SMA chart for USD/JPY closing price in a 5-day time frame, how would you do it?For example the first 5 days USD/JPY closing prices are 125.0, 124.0, 126.0, 123.0, and 127.0. The average of the first 5 days USD/JPY closing price that will be the first dots of the SMA graph is 125.0. The second SMA point will be (124.0 + 126.0 + 123.0 + 127.0 + 126.0)/5= 125.2 if we assume the USD/JPY closing price for the day six is 126.0. So the calculation goes on for the following dots. And joining these SMA dots defines the SMA chart. In other words, SMA is the average stock price over a certain period of time.Formula for the 5 period SMA 5 period SMA = (Price1 + Price2 + Price3 + Price4 + Price5) / 5Simple Moving Average operates with a delay just like any indicator. You are forecasting of the future price, not a concrete view of the future, because you are just taking the averages of the price. Although all calculations will be provided by most charting packages, it is important to understand how simple moving averages are calculated. By understanding, you can decide on which type of tool is best for you.
How Do I Read the Stochastic Indicator?
How Do I Read the Stochastic Indicator? Stochastic Indicator is another type of overbought/oversold indicator that is very popular among stock traders and futures traders. This indicator was developed by George Lane in 1960s. George Lane assumed that as the price of an instrument increases, the daily closes tend to be closer to the upper end of the recent price range. On the other hand, as the price decreases, the daily closes tend to be closer to the lower end of the recent price range.The STOCH is plotted as two lines called %K, a fast line and %D, a slow line. These two lines have the following characteristics: %K line is more sensitive than %D; %D line is a moving average of %K.; and %D line triggers the trading signals. Confused? Deal %K as a fast moving average and %D as a slow moving average. At the 80% and 20% levels, "trigger" lines are normally drawn on stochastic charts. When these lines are crossed, a signal is generated. Stochastic bands are what we call the zones above and below these two lines.Apply the following formula in order to calculate the stochastic indicator. A scale from 1 to 100 is used to plot the results from the calculations of the formulas below:%K = [(CCP - LOWn) / (HIGHn - LOWn)]*100where:CCP - current closing priceLOWn - the lowest low for the previous n trade periodsHIGHn - the highest high for the previous n trade periodsn- typically it is 14, may also vary. The %K value is 0 when the CCP is the lowest for the last n trade periods. Likewise, the %K value is 100 when the CCP is a highest for the last n trade periods.%D = SMAn %Kwhere:SMAn - simple moving average across n periods; typically n=3When using Stochastic Indicator, you should be able to determine on how and when to trade.Overbought / Oversold: The market is in an overbought or oversold mood when one of the stochastic lines crosses the 20% and 80% levels. It means that when the stochastic falls below 20% level then rises above it, then we should buy. And we should sell when the stochastic rises above 80% level then falls below it.Crossover: The STOCH is plotted as two lines, the %K line and the %D line. They are like two moving averages indicators, one of them is fast and the other is slow. When %K crosses down up the %D, we should buy. But when the %K crossed above down the %D, we sell.Divergences: There is a good signal for buying or selling the security when there is a divergence between the stochastic lines. The market is weak if prices are making a series of new highs and the stochastic is trending lower.
How Is Stop Limit Order Done?
A Stop Limit order is same as stop order wherein a stop price will trigger the order. Such an order will be placed by a broker that merged the features of both the stop order and those of a limit order. This is a combination of both a stop order and a limit order. Once this is activated, the stop limit order becomes a buy limit or a sell limit order and can be carried out at a particular price or a better one. This will be executed after a stop price has been reached, and once reached, it becomes a limit order to buy (or sell) at the limit price or for a better one. As with all limit orders, a stop limit order could not be filled unless the security price reaches the specified stop price.The benefit of this type of order is that it allows the traders to control over when is the best time order should be filled. Investors can manipulate the price at which the trade will be implemented. Of course, like all limit orders, the trade will be filled or guaranteed unless the stock’s price or commodity never reaches the specified stop or limit price. Mostly, this incident happens in fast moving markets since prices tend to vary or fluctuates outrageously.Since this type of order can help you in the possibility of getting a lower buy price or a higher sell price than a limit order alone, there are few tips which might be useful for you.1.If you are unfamiliar with the process of using a basic type of limit order, read some articles about how to issue a limit order, for you to have an overview about it.2.Be aware of the difference of using a stop limit order from a limit order. As a substitute of having one price point, you must need to set two. The initial one will be a “trigger” point that will stimulate your order. The second will represent the price at which you intend to actually buy or sell the stock.3.Decide what you desire to have with this type of order. You may use one to sell your stock at a particular price point after it tapped above your trigger point. As well, you can use one to purchase a stock at a particular price after it moved below your trigger point. This can be helpful if the stocks you are selling heads up and keep moving or the one you intend to buy drops down and keep falling. On the other hand, just like the basic limit order, there is no assurance that you will achieve the price you set; your stock could either hit the trigger or have the reverse direction. As much as possible, keep in mind that the further apart your trigger and target prices are, the less you will be able to achieve both objectives in one day.
The Basics of Forex Technical Analysis
Technical analysis is one of the two methods of analyzing Forex; fundamental analysis is the other. These two methods are very important in the Forex trading by forecasting the variations of the Forex market, prediction of the price and the movement of the market. Although technical analysis and fundamental analysis differ greatly, they both predict a price or movement. In this article, Forex technical analysis will be analyzed in detail.Technical analysis is a method of forecasting price movements and future market trends through the study of past market action which take into account price of instruments, volume of trading and open interest in the instruments. Unlike fundamental analysis, technical analysis is focused with what has actually happened in the Forex market, rather than what should happen. There are certain technical analysis tools such as the relative strength index (RSI), which is a price-following oscillator that ranges between 0 and 100; the Elliott waves method, which deals in the prediction of the market movement by the study of wave patterns over a period of time; the parabolic SAR methodology, in which the prices are examined and compared to stop and reversal numbers which are an indication of entry points and exit points for any Forex trade; the stochastic oscillator, which shows the over bought or oversold currencies on a scale of 0- 100%; and gaps, which denotes the spaces on the bar chart that none of the trading takes place.Technical analysts are confident that historical performance of stocks and markets denote future performance. They use charts and other tools to identify patterns that can suggest future activity. They do not attempt to measure a security's intrinsic value. They study the price and volume movements. And they create charts from that data. A technical analyst would rather sit on a bench in a certain mall and watch people going into the store. He decides basing on the activity of people going into each store. But if he is a fundamental analyst, he would rather go to each store and study the products on sale. Later he decides whether to buy or not. In other words, technical analysts disregard the intrinsic value of the products in the store. From the point of view of technical analyst, anyone can gain the profit by posing himself in the trend direction. Consequently, they use different patterns in order to create the price chart that will suit the future market and the price would follow the pattern.In summary, Forex technical analysis focuses on what actually happens in the market. The charts are based on market action involving price, volume and open interest. It is always focused with the pricing and time factors rather than the factors affecting the market. Thus technical analysts study the effects, not the cause of market movement.
The Basics of Forex Technical Analysis
Technical analysis is one of the two methods of analyzing Forex; fundamental analysis is the other. These two methods are very important in the Forex trading by forecasting the variations of the Forex market, prediction of the price and the movement of the market. Although technical analysis and fundamental analysis differ greatly, they both predict a price or movement. In this article, Forex technical analysis will be analyzed in detail.Technical analysis is a method of forecasting price movements and future market trends through the study of past market action which take into account price of instruments, volume of trading and open interest in the instruments. Unlike fundamental analysis, technical analysis is focused with what has actually happened in the Forex market, rather than what should happen. There are certain technical analysis tools such as the relative strength index (RSI), which is a price-following oscillator that ranges between 0 and 100; the Elliott waves method, which deals in the prediction of the market movement by the study of wave patterns over a period of time; the parabolic SAR methodology, in which the prices are examined and compared to stop and reversal numbers which are an indication of entry points and exit points for any Forex trade; the stochastic oscillator, which shows the over bought or oversold currencies on a scale of 0- 100%; and gaps, which denotes the spaces on the bar chart that none of the trading takes place.Technical analysts are confident that historical performance of stocks and markets denote future performance. They use charts and other tools to identify patterns that can suggest future activity. They do not attempt to measure a security's intrinsic value. They study the price and volume movements. And they create charts from that data. A technical analyst would rather sit on a bench in a certain mall and watch people going into the store. He decides basing on the activity of people going into each store. But if he is a fundamental analyst, he would rather go to each store and study the products on sale. Later he decides whether to buy or not. In other words, technical analysts disregard the intrinsic value of the products in the store. From the point of view of technical analyst, anyone can gain the profit by posing himself in the trend direction. Consequently, they use different patterns in order to create the price chart that will suit the future market and the price would follow the pattern.In summary, Forex technical analysis focuses on what actually happens in the market. The charts are based on market action involving price, volume and open interest. It is always focused with the pricing and time factors rather than the factors affecting the market. Thus technical analysts study the effects, not the cause of market movement.
What Is A Tick or A Pip and How to Calculate It?
If the currency pair means the quotation of two correlated but different currencies known as pip or “percentage in point”, then a “tick” depicts to the smallest change or increment or movement in any currency pair on the FX market.In a currency pair, the first currency is called the base currency or the transaction currency while the second currency is known as quote currency, payment currency or counter currency and they are always subjected to changes like for example; EUR/USD currency pair. For example, a change or movement from 0.8941 to 0.8942 is called one tick or pip, so pip for this is 0.0001. For AUD/USD currency pair the case is the same, one pip is 0.0001.Below is a table for the most common or major currency pairs showing its National Amount and Its pip to USD equivalents:EUR/USD EUR 10,000 .0001 = $1USD/JPY USD 10,000 .01 = $1GBP/USD GBP 10,000 .0001 = $1USD/CHF USD 10,000 .0001 = $1USD/CAD USD 10,000 .0001 = $1AUD/USD AUD 10,000 .0001 = $1NZD/USD NZD 10,000 .0001 = $1You will notice that in the table the example currencies are quoted in four decimal places, which is the most common way to quote, except for Japanese yen. Let’s take a value of USD/CHF of 1.5395 as an example, 5 the fourth place is the pip.So, how do we arrive with these results? The formula to calculate this value is defined as: one PIP (with proper decimal placement) / currency exchange rate x National AmountLet‘s take for example per 10,000 Euros in EUR/USD, how much in dollars is one pip movement or one tick? Taking or referring to the size that is in this case is 10,000 units of Euros as the base currency and National Amount and one pip base on the given table, we will get: (.0001/.8942) x EUR 10,000 = EUR 1.1183Using the same example, since we want to the get the value of one pip in dollars or USD, we will need to get the product of EUR 1.1183 and the exchange rate of this currency pair, that is 0.8942 and we will get $1.00 same as in table.If you notice, every currency pair like the USD/JPY, GBP/USD or USD/CHF one pip is always $1.00 per 10,000 currency units. This in an amazing fact and that is why pip or tick values even in futures are always the same.This is one important term on Forex that one should know and have to understand because this will determined or using pip you will know how to calculate your profits and losses in the Forex market.
What Is A Tick or A Pip and How to Calculate It?
If the currency pair means the quotation of two correlated but different currencies known as pip or “percentage in point”, then a “tick” depicts to the smallest change or increment or movement in any currency pair on the FX market.In a currency pair, the first currency is called the base currency or the transaction currency while the second currency is known as quote currency, payment currency or counter currency and they are always subjected to changes like for example; EUR/USD currency pair. For example, a change or movement from 0.8941 to 0.8942 is called one tick or pip, so pip for this is 0.0001. For AUD/USD currency pair the case is the same, one pip is 0.0001.Below is a table for the most common or major currency pairs showing its National Amount and Its pip to USD equivalents:EUR/USD EUR 10,000 .0001 = $1USD/JPY USD 10,000 .01 = $1GBP/USD GBP 10,000 .0001 = $1USD/CHF USD 10,000 .0001 = $1USD/CAD USD 10,000 .0001 = $1AUD/USD AUD 10,000 .0001 = $1NZD/USD NZD 10,000 .0001 = $1You will notice that in the table the example currencies are quoted in four decimal places, which is the most common way to quote, except for Japanese yen. Let’s take a value of USD/CHF of 1.5395 as an example, 5 the fourth place is the pip.So, how do we arrive with these results? The formula to calculate this value is defined as: one PIP (with proper decimal placement) / currency exchange rate x National AmountLet‘s take for example per 10,000 Euros in EUR/USD, how much in dollars is one pip movement or one tick? Taking or referring to the size that is in this case is 10,000 units of Euros as the base currency and National Amount and one pip base on the given table, we will get: (.0001/.8942) x EUR 10,000 = EUR 1.1183Using the same example, since we want to the get the value of one pip in dollars or USD, we will need to get the product of EUR 1.1183 and the exchange rate of this currency pair, that is 0.8942 and we will get $1.00 same as in table.If you notice, every currency pair like the USD/JPY, GBP/USD or USD/CHF one pip is always $1.00 per 10,000 currency units. This in an amazing fact and that is why pip or tick values even in futures are always the same.This is one important term on Forex that one should know and have to understand because this will determined or using pip you will know how to calculate your profits and losses in the Forex market.
The Value of Trade Balance to Local Economy
The balance of trade also referred as trade balance, which sometimes is symbolized as NX, is the difference of the monetary value of imports and exports in one economy in a given period of time. The balance of trade is considered the biggest part of a country’s balance of payments.Imports, domestic spending, foreign aid, and investment abroad are called debit items while credit items includes exports, foreign investments in domestic economy and foreign spending in domestic economy.A trade surplus is a positive balance of trade which is consists of more exporting than importing. A trade deficit is the negative balance of trade or sometimes called a trade gap. The trade balance can sometimes be divided as services balance and goods balance just like in the United Kingdom which they use the terms invisible and visible balance.The balance of trade is a part of current account which includes transactions that includes income derived from international investment and international aid. Thus, if the current account comes as a surplus then the nation’s international net asset increases also while deficit will decrease the international net asset.A good trade surplus is achieved when a country exports products more than buying imported goods. A trade deficit is eventually experience as a result of the opposite of a trade surplus. The trade balance is alike to the difference of a country's output and the domestic demand. These factors may affect the trade balance: prices of goods manufactured, taxes and tariffs, trade agreements, business cycle (home or abroad), and exchange rates.The trade balance is different in many business cycles. For instance, export growth like oil and industrial goods which improves when there is economic expansion.In developed countries like; Japan, China and Germany usually run at trade surpluses in which they experience a higher savings rate. Around the world there are different natural resources which a country may have for instance, countries from the coastal regions are major producers of fish, Canada can be a major producer of lumber because of its huge forests while in the Middle East, has the most oil reserves.International trade is important so in order to sustain the balance of trade. A country should be totally self sufficient without international trade. Through international trades, each country will have the opportunity to produce specialize goods efficiently. In relation, when a nation specializes in producing these goods, the total production increases instead of trying to be self sufficient. Nations will benefit from international trades and also meets their needs. Generally, nations will trade to other nations when they gain from the trade. But the gains are not usually equal in terms of benefits and profit.
What is a Transaction Cost and How to Calculate Them?
In economics, transaction costs are the rate acquired when making an economic exchange. This costs incurred when buying or selling securities or stocks. This is also referred as transaction fees. Transaction costs also comprise of brokers’ commissions ad spreads (difference between the price that the dealer paid for a security and the price it may be sold. This is what the broker or bank produce for being a middleman in a transaction.For instance, most people when buying or selling a security or stock, pays a commission to their broker and that commission can be considered as the fee or transaction cost for doing that stock deal. When evaluating a potential transaction, it is crucial to think about these costs that might prove significant. Mostly, in financial markets, the initial cost for these transactions is commission which is paid to brokers upon trade execution. This costs becomes increasingly important the shorter the holding time of an investment.Many market models disregard transactional costs, presumptuous instead those markets are non resistant. While this thought is invalid, for many applications such costs are low enough that they can be disregarded. The lesser the cost for a transaction, the more effective and competent a market is said to be. The Foreign exchange market and stock market have lower costs for such transactions of any major asset class.It is considered to be much more cost- efficient to trade in Forex in terms of both commissions and transaction fees. An online website for example charges no fees or commissions and at the same time offer traders an access to all relevant market information and trading tools. On the contrary, online stock trade commission ranges from $7.95 - $ 29.95 per trade and up to $100 or more per trade with full service brokers.Another thing to consider, which is an important point is the width of the bid / ask spread. Regardless of the deal size, foreign exchange dealing spreads are normally or common in 3-4 pips (anyway a pip is .0001 US cents) in the major currencies. Generally, the width of the spread in a foreign exchange market transaction is less than one tenth (1/10) that of a stock transaction, which could contain a .125 or one eight (1/8) wide spread.Since transaction costs are paid via bid/ask spread, there has to be no charges to trade or hidden fees. There are instances that there would be extra charges asked by good brokers for some non compulsory services or access to particular reports. A smaller spread is visibly better. Since brokers are taking the other side of all the customer trades, brokers gain profit by making the spread between the bid and offer prices. You may find that find spreads vary by broker.In order to be successful in trading on the foreign exchange market, you have to find a good broker.
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