Historically, only large financial institutions, institutional investors, and high-net-worth individuals had access to the foreign exchange, or “Forex” (Spot FX) market. Before the advent of automatic computerized trading systems, transactions were handled by a “voice broker” or a man screaming updates from the trading floors.
The retail investor or “home office-based trader” can now trade in real-time with banks through the environment of a broker using computerized trading platforms that may have live desk traders placing trades either in the brokers’ books (95% of traders lose money so it is in their interests not to trade for real) or for real – for the winners.
Technical and fundamental analysis are the two central pillars of every successful foreign exchange trading strategy. Fundamental analysis entails awareness of market-moving economic events and announcements, whereas technical analysis entails looking at charts and applying arithmetic to represent market movement.
Let’s discuss the role of fundamental analysis in forex trading. Every day, new statistics are issued meant to represent an economy’s aspects. Non-farm payrolls are only one example of an announcement that could have far-reaching effects on the market, depending on the context of the information and the significance of the data that is revealed. Staying out of the market during significant announcements is a complex and fast guideline for new traders (and seasoned pros). By enrolling in one of our classes, you may learn more about where to obtain these.
By plotting indicators on price charts, technical analysts can identify potential “get stuck” or “stop and reverse” points for prices as they do their analysis. The “Fibonacci” method is one of the most common (and reliable) ways to determine where support and resistance levels are likely to be. Fibonacci’s sequence of numbers, discovered 750 years ago, is a prominent high school math topic since it reflects a proportion observed in nature (such as pineapple rinds and sunflower seeds). Was there ever a time when you were asked, “What is the next number in this sequence….1,1,2,3,5,8,13,21, X?” Here we see the famous Fibonacci numbers.
You don’t need to be a math genius because most forex charting software calculates your percentage ratio based on the Fibonacci numbers you enter. This will highlight probable support and resistance zones on your charts, allowing you to assess each potential move better. Since “what has happened before will happen again – history repeats itself,” Fibonacci, when combined with the momentum or strength of the present market indicators, can provide you with a method to be profitable consistently in forex.
Foreign exchange trading is akin to running a haberdashery in that it can generate a profit. You make a profit when you buy something cheap and sell it for more money. However, in foreign exchange, it’s not uncommon to profit by selling at a higher price and buying at a lower price. It’s a win-win situation for both parties.
The method is straightforward. When a trade is made (buy or sell, depending on the base currency), the complementary currency is immediately traded (bartered or acknowledged). If you buy the GBP/USD pair, you will purchase British pounds and sell American dollars in real time. For maximum profit, you anticipate the pound’s value will increase before you sell your pounds (or “close your position”). The time required for this varies significantly from one another.
After the broker takes his share, you receive less than the price’s “distance” traveled.
Brokers will often provide you with leverage of up to 200:1, allowing you to manage far more funds than you have at your disposal. Since you are only purchasing one currency and selling the other, you are not risking all of your money. Simply the amount that will be lost or earned relative to the overall change in value of the currency pair.
An example forex trading strategy would include purchasing the Euro against the US dollar. The current exchange rate is 1 EUR = 1.2866 USD.
Euro to Dollar Exchange Rate: 1.2866
Your broker’s “spread” means that to achieve even pricing, you must either purchase at 1.2868 or sell at 1.2864. This is comparable to a commission; depending on your broker, you may not have to pay one.
The exchange rate will rise by 22 points in the next fifteen to twenty minutes, proving that your forex trading method or technique was spot on.
Seeing that the current price is 1.2888, you decide to exit your current position.
Your profit margin is 20 points. This exchange worked well.
But what do those twenty points represent for your investment portfolio?
It’s a valid query. If you employ 100:1 leverage, every “pip” or “point” is worth $10, so a $100 increase in your account balance would result in a $200 profit. (I’ve subtracted $20 because brokers charge a spread of 2 pips).
You can trade one lot at 100:1 for each pip to be worth $10 if you have a capital of around $2000 (you need a $1000 deposit to trade and some excess equity in case the price goes in the other direction to what you wanted at first). Since the market might shift 30 pips or more in minutes during extreme volatility, successful traders can quickly accumulate wealth. The potential for rapid financial loss is an inherent risk. Therefore, our forex trading strategy would be incomplete without a risk management plan. Putting a “stop loss” in place means that your trade will be closed automatically if you incur a loss. Another option is a “take profit” level or “trailing stop” that is adjusted to break even or higher as the trade’s profitability increases. That way, you may “let the trade run” and still make money.
Sam Beatson, also known as “The Master Forex Trainer,” provides the best education in forex online through his coaching program, which is accessible at [http://www.fasttrackforex.com/fx] and features numerous online training and setup videos, as well as personalized email support and trade analysis. For additional information, please visit [http://www.fasttrackforex.com/special/index2.html]. You can find his introductory material at.
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