The majority of trading comes from banks brokerages and investment companies. Companies that sell and buy foreign currencies as part of their business like independent brokers and currency dealers make up only a small part of the foreign exchange currency trading. The Forex market will continue to develop and grow at a steady pace as more currency traders become aware of the foreign exchange markets potential for earning and raising capital. The Forex market reaches an average daily turnover 30 times higher than any other U.S. market.
Wednesday, August 26, 2009
The Forex is a huge market that encompasses the entire globe. This is a market that spans from North America to Europe, to China, and back. There is no area it doesn't touch which makes the market so popular. There is simply something for everyone within the Forex market. Its easy 24 hour a day access makes it even more attractive for investors. No matter what time of day you want to trade, there will be someone trading in some distant location around the world. Although there is trading in the Forex in every corner of the globe, the major exchanges are Singapore, Hong Kong, Tokyo, Bahrain, London, New York, San Francisco, and Sydney. The geographical element of the foreign exchange market can help new traders realize the size and volume of the Forex. It is simply unmatched in volume and size making it a powerful tool for investors everywhere.
What is a myth: A myth is often thought to be a lesson in story form which has deep explanatory or symbolic resonance for preliterate cultures, who preserve and cherish the wisdom of their elders through oral traditions by the use of skilled story tellers.
Many new Forex market traders have misconceptions about the entire system. They see people making money trading with the Forex market and automatically assume they can easily do the same. What they tend to forget it that there is strategy and research done in order to make successful trades and profits from trading. If you are new to the Forex market system, don't get caught up in popular investment myths. Be sure that you know exactly what to expect and be realistic when trading.
However, all these preconceived notions apart, forex or currency trading is not the domain for the super intelligent alone.
There is no doubt that you need brains to get involved in forex trading. Then, I bet you cannot name a single sphere of human activity that does not need the application of one's mind. A bit of brains and lot of research can help you make a tidy sum in currency trading.
Till recently, the forex trading market was not open to individual investors. To take part in the process of buying and selling of currency, you either had to be a big bank with lots of deposits and assets under your belt or you had to be a big financial institution that carried out the business of trading in forex as its primary activity. Today you do not need a lot of capital to earn money in currency trading. A few thousand dollars as the initial capital is sufficient to get you started.
The advantages of trading in currency are manifold. The biggest advantage is that the currency trading market is a market that remains open round the clock. No other financial market stays open and operation twenty-four hours a day. This round the clock functioning results in constant and immediate reflection of economic, political and social events. A smart investor can take advantage of the fluctuation to make huge profits.
The Foreign Exchange Market, or Forex market is a worldwide market where buying and selling of currencies takes place. These transactions take place 5 days a week, 24 hours a day and daily are worth approximately 1.5 trillion dollars (US). The Forex market opened in 1971 when the fixed currency exchanges market was closed. Thanks to the technology now available this market has grown from trading 70 billion dollars (US) a day to the current level.
There are approximately 5,000 institutions in Forex. Some are banks, some commercial companies and some foreign currency brokers. The largest Forex trading centers are located in New York, London, Tokyo, Hong Kong, Paris, Frankfurt, Singapore and Paris.
As mentioned above, technology has produced a boom in the Forex market. With the advent of online investing even small investors can take advantage of the Forex market. Over the years many regulations have changed allowing smaller transactions to take place. There are no longer minimum transaction sizes.
Some of the advantages to Forex are:
Brokers earn money by setting the spread, they do not work on a commission basis. The spread is known as the difference between what a currency can be bought for and sold at. The market is open, as mentioned above, 24 hours a day, 5 days a week and is available to you at the push of a button over the internet. The Forex market is a huge one and with bids and ask offers and the high number of transactions taking place on a daily basis the market remains liquid. This means there is always a buyer and a seller for any currency type.
Because there are always movements between currencies even small changes can result in profits for investors. This is due to the fact that the market is broken down into what are called lots. Each lot is worth approximately 100 thousand dollars (US). Individuals can invest through what are called leverage loans. Generally a $1,000.00 investment can get you started.
The origin of Forex trading traces its history to centuries ago. Different currencies and the need to exchange them had existed since the Babylonians. They are credited with the first use of paper notes and receipts. Speculation hardly ever happened, and certainly the enormous speculative activity in the market today would have been frowned upon.
In those days, the value of goods were expressed in terms of other goods(also called as the Barter System). The obvious limitations of such a system encouraged establishing more generally accepted mediums of exchange. It was important that a common base of value could be established. In some economies, items such as teeth, feathers even stones served this purpose, but soon various metals, in particular gold and silver, established themselves as an accepted means of payment as well as a reliable storage of value. Trade was carried among people of Africa, Asia etc through this system.
Coins were initially minted from the preferred metal and in stable political regimes, the introduction of a paper form of governmental I.O.U. during the Middle Ages also gained acceptance. This type of I.O.U. was introduced more successfully through force than through persuasion and is now the basis of today's modern currencies.
Before the First World war, most Central banks supported their currencies with convertibility to gold. However, the gold exchange standard had its weaknesses of boom-bust patterns. As an economy strengthened, it would import a great deal from out of the country until it ran down its gold reserves required to support its money; as a result, the money supply would diminish, interest rates escalate and economic activity slowed to the point of recession. Ultimately, prices of commodities had hit bottom, appearing attractive to other nations, who would sprint into buying fury that injected the economy with gold until it increased its money supply, drive down interest rates and restore wealth into the economy.. However, for this type of gold exchange, there was not necessarily a Centrals bank need for full coverage of the government's currency reserves. This did not occur very often, however when a group mindset fostered this disastrous notion of converting back to gold in mass, panic resulted in so-called "Run on banks " The combination of a greater supply of paper money without the gold to cover led to devastating inflation and resulting political instability. The Great Depression and the removal of the gold standard in 1931 created a serious lull in Forex market activity. From 1931 until 1973, the Forex market went through a series of changes. These changes greatly affected the global economies at the time and speculation in the Forex markets during these times was little.
In order to protect local national interests, increased foreign exchange controls were introduced to prevent market forces from punishing monetary irresponsibility.
Indeed large multinational and individual banks and other major financial institutions have dominated FX trading (also known as Forex trading), but there is a paradigm change in the nature and type of investing. According to one estimate, in the new millennium, there are over 6 million online investment accounts, up from 1.5 million in 1997. As a result, start-up firms now compete directly with financial institutions to serve investors in the new technologically driven economy, and the clear winner is the customer. The competition between the brick and mortar institutions and the Internet-based companies has dramatically lowered the costs of investing, and empowered the individual investor to take control of their own investment strategy in Forex trading.
We know Forex trading is direct access trading of currencies. In the past, foreign exchange trading was limited to large banks and institutional traders but recent advancements in technology have allowed small traders to take advantage of the many benefits of Forex trading using online trading platforms to trade. Virtually Forex trading is done 24 hours day and almost 5 ? days of a week. In the recent times, online trading has revolutionized the currency markets by making it accessible to the small and medium sized investor.
Foreign exchange is the buying and the selling of foreign exchange in pairs of currencies. For example you buy US dollars and sell UK Sterling pounds or you sell German Marks and buy Japanese Yen. Why are currencies bought or sold? The answer is simple; Governments and Companies need foreign exchange for their purchase and payments for various commodities and services. This trade constitutes about 5% of all currency transactions, however the other 95% currency transactions are done for speculation and trade. In fact many companies will buy foreign currency when it is being traded at a lower rate to protect their financial investments. Another thing about foreign exchange market is that the rates are varying continuously and on daily basis. Therefore investors and financial managers track the forex rates and the forex market it on a daily basis.
Let's look at two Internet businesses, almost as diametrically opposed as it's possible to be — Internet Marketing and Forex Currency Trading.
You've probably heard the old Internet adage — build a better website and they will come. Well it ain't true!
You could put up a site advertising dollars for a dime and they still wouldn't come — because they wouldn't know where to look!
Let's look at what you need to have in place in order to build a successful Internet marketing business.
First of all, you need a product. If you've been reading the recent Internet marketing blurb you'll know you need a niche product.
Actually, the new thing is sub-niche but whatever they call it, you need a product for which there is high demand but low supply.
Finding a suitable niche is the hardest part of the whole process but let's say you have a killer product, what else do you need?
Foreign exchange trading is the trading of currencies. Most currencies can be traded. Huge amounts of currencies are traded 24 hours a day, 5 days a week. On average $1.9 trillion is traded a day. The most traded are United States Dollar, Japanese Yen, Euro, Canadian Dollar, British Pound Sterling, Australian Dollar and Swiss Franc.
Many brokers will let you open an account with a starting balance of just $250. Though that may seem small, remember you will be trading on margin. Your $250 investment may let you control $25,000. As with all investments there are risks so make sure you take the time to study the markets and your exposure before making your first trades. I highly recommend that you do some paper trades first to make sure you have understood how the markets work. No risk training, just write down the trades you would have done for real and chart the prices. Buy and sell and see if you have the right strategy before making real trades.
Foreign exchange used to be limited to large players such as national banks and multi-national corporations. In the 1980's the rules were revised to allow smaller investors to participate using margin accounts. Margin accounts are the reason why Forex trading has become so popular. With a 100:1 margin account you can control $100,000 with a $1,000 investment.
Forex is not simple however and education is needed to make wise investment decisions. Although it is relatively easy to start trading on the Forex there are risks involved so finding out as much as possible about the market is a good move for any beginner.
The Foreign Exchange Market was established in 1971 with the abolishment of fixed currency exchanges. Currencies became valued at 'floating' rates determined by supply and demand. The Forex grew steadily throughout the 1970's, but with the technological advances of the 80's Forex grew from trading levels of $70 billion a day to the current level of $1.5 trillion.
The Forex is made up of about 5000 trading institutions such as international banks, central government banks (such as the US Federal Reserve), and commercial companies and brokers for all types of foreign currency exchange. There is no centralized location of Forex — major trading centers are located in New York, Tokyo, London, Hong Kong, Singapore, Paris, and Frankfurt, and all trading is by telephone or over the Internet. Businesses use the market to buy and sell products in other countries but most of the activity on the Forex is from currency traders who use it to generate profits from small movements in the market.
Ask Price — Sometimes called the Offer Price, this is the market price for traders to buy currencies. Ask Prices are shown on the right side of a quote — e.g. EUR/USD 1.1965 / 68 — means that one euro can be bought for 1.1968 UD dollars.
Bar Chart — A type of chart used in Technical Analysis. Each time division on the chart is displayed as a vertical bar which show the following information — the top of the bar is the high price, the bottom of the bar is the low price, the horizontal line on the left of the bar shows the opening price and the horizontal line on the right of bar shows the closing price.
Base Currency — is the first currency in a currency pair. A quote shows how much the base currency is worth in the quote (second) currency. For example, in the quote — USD/JPY 112.13 — US dollars are the base currency, with 1 US dollar being worth 112.13 Japanese yen.
Bid Price — is the price a trader can sell currencies. The Bid Price is shown on the left side of a quote — e.g. EUR/USD 1.1965 / 68 — means that one euro can be sold for 1.1965 UD dollars.
The forex market itself is basically a worldwide connection of traders, who make investment moves based on the price of currencies, or their values relative to other currencies. These traders constantly negotiate prices with other traders resulting in the fluctuation or movement of a currency's value. The value of a currency on the forex market also corresponds with supply. If there is greater demand for the Euro, let's say, then there will be less supply of it on the forex market, which means, in time, it will make a Euro more valuable compared to let's say the dollar. In short, in this forex market situation, one Euro would yield more dollars, subsequently weakening the dollar as well. Analyzing the forex market's fluctuations allows investors to make predictions on how a currency will move in relation to another currency. They then can make predictions and buy and sell currency accordingly.
The foreign exchange market (Forex) offers many advantages to investors. But you need to know where to begin.
This short guide will give you the Forex basics, so you can quickly start participating in this fast growing market.
In the past, foreign exchange trading was limited to large players such as national banks and multi-national corporations. In the 1980's the rules were changed to allow smaller investors to participate using margin accounts. Margin accounts are the reason why Forex trading has become so popular. With a 100:1 margin account, you can control $100,000 with a $1,000 investment.
A Learning Curve
Forex is not simple, though, so you'll need some knowledge to make wise investment decisions. Although it is relatively easy to start trading on the Forex, there are risks involved.
Do you know what Forex trading is? Some people have heard of this type of trading, others have not. If you haven't, it might be something you are interested in trying. Forex trading stands for foreign exchange trading. What it consists of is the buying and selling of different currencies. This is done simultaneously, and there are people who make a lot of money with this kind of trading. This is apparent by the 1.9 million dollar turnover in this market that happens every day. Also a lot of it is done online. Online Forex trading is very popular.
The most common currencies to trade are the Euro and the U.S. dollar, and the U.S. dollar and the Japanese Yen. However, nearly all of the Forex trading done involves the major currencies of the world. These include the Euro, Japanese Yen, U.S. dollar, Canadian dollar, British Pound, Australian dollar, and the Swiss franc. The Forex exchange is different from other exchanges,such as the New York Stock Exchange in that it does not have a physical location or central exchange. The exchange day begins in Sydney then moves to Tokyo, on to London, and finally ends in New York. Each country takes the responsibility of regulating the Forex exchange activities in their own country. So there is no overall regulatory agency. However,this does not seem to be a problem and most countries do very well at overseeing Forex exchange activities.
The Foreign Exchange market, also referred to as the "Forex" is the biggest and largest financial market in the world. It has a daily average turnover of US$1.9 trillion- just imagine that amount of money! Don't you want to join this trillion-dollar industry?
Forex is the simultaneous buying of one currency and selling of another. Currencies are traded in pairs, for example Euro/US Dollar (EUR/USD) or US Dollar/Japanese Yen (USD/JPY). So basically, Forex is trading.
There are two reasons to buy and sell currencies. About 5% of daily turnover is from companies and governments that buy or sell products and services in a foreign country or must convert profits made in foreign currencies into their domestic currency.
The Foreign Exchange Market (Forex) has no central exchange location yet it is the largest financial market in the world. It is over 3x's the size of the stock and futures markets combined and operates via an electronic network of a banks, corporations and investors.
Foreign exchange consists of a simultaneous buying of one currency and selling of another. Currency is traded in pairs, in other words, one currency is traded for another. The major currencies are:
USD — United States Dollar
EUR — Euro members Euro
JPY — Japan Yen
GBP — Great Britian pound
CHF — Switzerland franc
CAD — Canadian dollar
AUD — Australia dollar
There are 2 types of investors involved in the Forex market.The first type of investor is the hedger. The hedger is involved in International trades and utilizes Forex trading to protect their interest in a transaction from adverse currency fluctuations. The 2nd type of investor is the speculator who invests in currency solely for profit.
Before I settle down to watch England get stuck into the Aussies in the Ashes series, I have two snippets of news that I want to tell you about.
Firstly if you want to know a little more about me, you may be interested in reading an interview I've recently done for Daily Forex. This interview is part of a review of this blog, so it focuses more on my blog than my actual trading but you may still find it interesting and I would certainly love to get some feedback from you.
We've seen some very interesting developments on the Japanese yen pairs today because the strength of the yen has pushed the GBP/JPY, EUR/JPY and USD/JPY into new bearish trends, at least according to the Supertrend indicator.
To put this into context, the Supertrend indicator has been green (ie bullish) since February 6th for the GBP/JPY pair, May 8th for the EUR/JPY pair and June 5th 2009 for the USD/JPY pair. So this change of trend is clearly significant and could well point to further weakness, particularly as each of these pairs is now trading below their respective 200 day EMA (exponential moving average).
All of this means that when trading my main 4 hour trading strategy, according to my own rules I shall only be looking for short positions for each of these three pairs, at least until the daily Supertrend turns green again.
The daily trend was (and still is) bullish on the EUR/USD pair so I was waiting for an upwards EMA crossover on the 4 hour chart. This looked like it was about to happen on Tuesday but after entering a long position at 1.4005, the price reversed back downwards and I ended up closing out at 1.3955 for a 50 point loss.
I really hate starting the week off with a loss but as long as you don't panic and start deviating from your trading strategy it's still possible to end the week in profit and this is what subsequently happened.
Just a quick post this morning to let you know about two new trading videos that have just been produced by Adam Hewison (from Marketclub). These cover the USD/JPY pair, which I discussed myself a few days ago, and the USD/AUD pair, which is a pair I've never actually traded.
Both videos are very interesting because Adam discusses why he thinks the USD/JPY may be headed as low as 88 in the coming weeks, and with regards to the USD/AUD he argues a case for this pair to rebound all the way back up to the 1.35 – 1.40 area.
Zecco is a name synonymous with stock and options trading but after teaming up with GAIN Capital they are now making inroads into the forex industry as well with their latest venture Zecco.
Zecco Forex is currently a separate entity from their share trading service so you will have to open a separate account if you are an existing Zecco account holder but it's a fairly straight-forward process.
There are three types of account to choose from. You can open a mini account which requires a minimum deposit of $250 and offers leverage of up to 200:1, or you can open a standard account which requires a minimum deposit of $2500 and offers leverage of up to 100:1.
Alternatively you can open a free $50,000 practice account. This takes just a few minutes and enables you to familiarise yourself with the Zecco Forex trading platform, practice trading the forex markets with a fictional $50,000 and start honing your trading strategies before you open a real money account.
t's been a very short trading week for me because I was in hospital on Monday and Tuesday and was still a bit groggy on Wednesday (I'm fine now by the way). As it turned out I probably should have taken the whole week off because my only trade of the week occurred earlier today and it turned out to be a losing one.
It was on the GBP/JPY pair and it looked like the EMAs were about to cross downwards but unfortunately it turned out to be a false crossover. I entered a short position at 152.98 and ended up taking a 78 point loss including the spread.
So it's been a poor trading week but I can at least console myself with the fact that if I had been here all week, I would have grabbed some nice profits from the upward EMA crossovers that took place on the GBP/USD and EUR/USD pairs.
I've got a new trading video for you to watch this weekend. It's been created by Adam Hewison (from Marketclub) and in this video Adam discusses where he thinks the EUR/USD is headed in the coming weeks and months.
As it turns out he is actually bullish on this pair and for what it's worth I'm in agreement with him on this one. My own view is that the upside still prevails because not only is the weekly Supertrend still indicating a bullish trend, but on the daily chart the Supertrend indicator is positive (and rising) and the EMA (200) is still trending upwards.
The USD/CHF is starting to look interesting because it is very close to being an excellent medium/long-term shorting candidate. The key level to watch out for is 1.0591. If we see a daily close below this level, then this could well be a good time to open a short position.
The price has been stuck in a tight trading range for a few months now and the 1.0591 figure that I've just mentioned represents the low point of this trading range, which is why it's significant.
Various other technical indicators would certainly support a downwards move. For instance the Supertrend indicator is currently red (indicating a bearish trend) on the daily, weekly and quarterly charts, and the EMA (200) is sloping downwards (with the price trading below this indicator) on all of these time frames as well.
I've currently got around 21 different forex templates loaded into my charting software but today I thought I would share with you one particular template that I've been working on recently. It uses a combination of moving averages in conjunction with one of my favourite indicators, the Supertrend indicator, and I think it could potentially be extremely profitable.
The components of this particular template are as follows:
- Exponential Moving Average (10) - blue
- Exponential Moving Average (21) - green
- Simple Moving Average (35) - red
- Exponential Moving Average (62) - pink
- Supertrend (1.5, 5)
As you can see, not only does the Supertrend indicator (with these shorter settings) track the price extremely closely but you also get some very nice breakouts shorter after these moving averages converge together.
After the disappointment of last week, it's been a much more profitable week this week. My 4 hour trading system generated three decent set-ups (on the GBP/USD, GBP/JPY and USD/JPY pairs) and thankfully all of them worked out nicely.
The first two trades occurred on the GBP/JPY and USD/JPY pairs at roughly the same time on Tuesday evening. The daily Supertrend was (and still is) red so I was only looking for opportunities to go short and the EMAs did indeed cross downwards on the 4 hour chart for both of these pairs.
I went short on the GBP/JPY at 154.10 and opened a short position at 93.73 on the USD/JPY pair. Unfortunately they didn't move very much straight away so I had to let them run overnight. I set my profit targets at 100 and 40 points respectively. The 100 point target was triggered overnight on the GBP/JPY pair but the USD/JPY trade was still running when I woke up the next morning. However it did move nicely downwards and I managed to close half the position for 40 points and let the other half run, moving my stop loss down to break-even, however this stop loss was later taken out.
The other trade this week was on the GBP/USD pair. This pair is still in an upwards trend according to the Supertrend indicator on the daily chart so I was looking for upwards EMA crossovers on the 4 hour chart. I missed the first one unfortunately, because it happened between Sunday evening and Monday morning, but I did manage to catch the second crossover. This one occurred on Wednesday and I managed to go long at 1.6437.
IvyBot is the latest forex robot to be released and this one appears to be a little more advanced than most because it consists of four separate advisors (each trading the EUR/USD, EUR/JPY, USD/CHF and USD/JPY pairs) and claims to adapt to changing market conditions.
I have to admit that with more and more forex robots being released on to the market, I seem to be getting more and more sceptical about them. I've never really used any of these robots myself, mainly because I don't have access to MetaTrader4, but the feedback I've received from many of my readers and subscribers has never been that positive.
Anyway going back to this particular product, the IvyBot robot certainly appears to be very impressive if you read the sales page with gains of between 475% and 920% per year every year since 2001.
The major currency pairs that I normally trade, ie the GBP/USD, EUR/USD and USD/JPY pairs, seem to be trading sideways at the moment so I haven't traded them at all this week. There were two upward EMA crossovers on the 4 hour chart of the GBP/USD pair but I didn't feel confident about them at all, although they both would have yielded a small profit.
I did however trade three positions on a few other pairs. The first of these was on Monday morning on the USD/CHF pair. The daily Supertrend was red was I was only looking for short positions on the 4 hour chart and an opportunity arose when the EMAs crossed downwards. I went short at 1.0703 and later closed half the position for 40 points, but after moving my stop loss to break-even I was soon stopped out of this trade.
I also traded this pair short again the following morning but I fared even worse on this trade and ended up taking a 43 point loss after the price quickly surged upwards.
This is exactly what happened to a forex trader here in the UK a few years ago. If I remember correctly, he deposited £10,000 into a spreadbetting account and managed to turn this initial deposit into something like £260,000.
I don't know how he did it. He must have taken some high risk trades and leveraged himself up to the hilt, but the point is that he never withdrew any of his winnings and you can probably guess what happened next.
His good fortune suddenly came to an end and as his trades started to conspire against him, he lost the plot completely and ended up losing pretty much all of his money.
I feel sorry for the guy but the point is that if he withdrew say £200,000 or even just £100,000 of his winnings, he could have invested it into shares or property and given himself a nice recurring residual income for the rest of his life in the form of dividends and rent respectively. He could also have benefited from any long-term capital growth as well.
I personally believe that every forex trader should at least have a basic understanding of fibonacci analysis and the key levels to watch out for, which in my view are the 50% and the 61.8% levels. By plotting these two levels you can form an idea of what kind of price targets you should aim for whenever you trade any price reversals.
For example if the price has moved 1000 pips (from the low point to the high point) and is reversing back downwards quite strongly then a 50% retracement, ie 500 points, would be a good place to exit your position.
However some traders like to wait for these retracement levels to be hit before entering a new position in the direction of the initial trend. Now this is where fibonacci analysis can be a little bit hit and miss.
While you will find plenty of instances where the price has bounced nicely off of the 50% or 61.8% retracement levels and resumed it's trend, unfortunately there are just as many instances where the price has ignored these levels and just gone straight through them.
To demonstrate this point you only have to look at the recent movement of the GBP/USD pair. As you can see from the chart below the pair moved from a low point of 1.6339 all the way up to 1.7044.
After a very strong run in recent weeks the GBP/USD pair is now very close to entering a new bearish phase. The reason I say this is because the Supertrend indicator currently stands at 1.6425 so as soon as the price closes below this level, the Supertrend is going to turn red, ie bearish, for the first time since March 24th.
Therefore as a result of this, when I use my main 4 hour trading strategy (see right for details) I shall automatically be seeking out opportunities to open short positions on the 4 hour chart for this particular pair.
There are already a few signs emerging that this pair is turning bearish. For instance the CCI (20) has just crossed down through 0, the RSI has recently crossed down through the 50 level, and the Smoothed Repulse indicator (another one of my favourites) is also on the verge of turning bearish as well.
So as I say if the Supertrend turns red as well, ie closes below 1.6425, then the GBP/USD could be heading a lot lower in the coming weeks.
Well it's been a difficult and frustrating couple of weeks for me on the trading front. There was just one trade this week using my main 4 hour trading strategy. Admittedly it did bring in a small profit, but it wasn't exactly an overwhelming profit.
The trade in question was on the GBP/USD pair and took place yesterday afternoon. I was (and still am) waiting for this pair to close below 1.6425 on the daily chart in order to begin a new bearish trend, but the fact that it failed to do so, and actually moved up to create an upwards EMA crossover on the 4 hour chart, gave me confidence that I could bank maybe a few hundred points profit in the short-term.
The AUD/NZD pair (Aussie dollar against the New Zealand dollar) is starting to look interesting because it has just broken downwards through a tight trading range, as you can see from the chart below.
It moved strongly downwards yesterday to close at 1.2278 and could well signal the start of a strong downward breakout. It's now trading comfortably below it's 200 day exponential moving average and the fact that it's broken through an established trendline could encourage more sellers to jump on board.
I mentioned last week that 1.6425 was a critical level because if the price of the GBP/USD pair closed below this level on any one day, the Supertrend indicator would turn red and possibly signal the start of a new bearish trend. Well this is exactly what happened yesterday and I think it could be highly significant.
This indicator has been green, ie bullish, since 24th March when the price was around 1.45 and has been rising ever since, along with the price. Therefore this trend has been in place for a very long time, which is why I think it's significant. What it does mean is that I shall be automatically looking for short positions on the 4 hour chart for this pair in accordance with my own particular trading rules.
So if the price is set to fall what kind of price targets should we be looking at?
Well it's been quite an interesting week this week because I've been employing a few strategies that I wouldn't normally consider using. Furthermore these additional positions generated more profits than my main 4 hour trading strategy and they were based on nothing more than sound logic and gut instinct.
I did still trade my main 4 hour trading strategy but it's struggled to generate any profits because they were both on the GBP/USD and unfortunately this pair just didn't want to go down. The EMAs crossed downwards on two occasions on the 4 hour chart but I was forced to close both of them out for a loss and ended up around 83 points down in total.
Nevertheless I still made some decent returns trading this pair and indeed the AUD/NZD pair. I've talked about both of these pairs and how they are starting to look weak in my two latest blog posts and have therefore been watching them both very closely this week.
One of the best things you can do if you're serious about becoming a profitable forex trader is to learn all about money management. This is because capital preservation is just as important as the actual system you use to generate your profits. Therefore to protect your capital you need to use an effective staking plan.
Most people agree that whenever you place a trade you should never risk more than 2-3% of your capital. So if you use a staking plan of 3% per trade and have $1000 in your trading account, for example, then you would be prepared to lose no more than $30.
I'm broadly in agreement with this. I think 3% is just about right for people new to forex trading. However you should of course have a good trading system in place before you start trading with real money.
You should also try and look for trading opportunities that if successful would give you much greater returns than your initial stake. So for instance if you were risking 3% per trade then your trading system should ideally look to take profits in the region of 6% or more. In other words if you are risking 3% of your capital using a stop loss of 30 points then your target price should be 60 points or more.