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: The term ‘Forex’ stands for Foreign Exchange.
: admin 12, 2019, 04:05
What is Forex (https://www.npbfx.com/en?referer1=ad40d3bc) Trading?
The term 'Forex' stands for Foreign Exchange. Forex (https://www.npbfx.com/en?referer1=ad40d3bc) trading in simple terms is the trading in currencies from different countries against each other; for example the US Dollar against the Euro.
As a child, I remember collecting coins and bank notes from my father, every time he would return from one of his trips abroad. The colors, the pictures, the name and sign of the currency - it would transport me to a different world - a place where I saw myself traveling to different countries around the world. As I grew, I did travel to many different countries and my collection of coins and bank notes of different currencies kept growing. This interest in collecting different currencies soon developed into studying the connection between one currency with another and very soon into the world of trading foreign currency or Forex (https://www.npbfx.com/en?referer1=ad40d3bc) as it is called. My interest led me to www.ForexSQ.com; a website, where I learned everything about Forex (https://www.npbfx.com/en?referer1=ad40d3bc) trading and started my trading activities from and have continued since.
Last week, as I was sorting through my collection of coins; my daughter asked me to explain to her what Forex (https://www.npbfx.com/en?referer1=ad40d3bc) Trading was all about. Before I could launch myself into talking about the intricacies of Forex (https://www.npbfx.com/en?referer1=ad40d3bc) trading, she smiled and said, "Dad, start from the beginning and keep it simple. I have absolutely no idea about this but would like to know and understand why it fascinates you so much." Taking a deep breath and collecting my thoughts I started.
What is Forex (https://www.npbfx.com/en?referer1=ad40d3bc) Trading?
The term 'Forex' stands for Foreign Exchange. Forex (https://www.npbfx.com/en?referer1=ad40d3bc) trading in simple terms is the trading in currencies from different countries against each other; for example the US Dollar against the Euro. Anyone who deals with a foreign country - be it a holiday there, or wanting to purchase something from that country or pay for a service, generally requires the currency of that country to do so. For example, to pay for your college fees at Dubai, I need to make the payments in UAE Dhirams as Indian Rupees are not accepted there. Of course, I could pay in US Dollars too, as it is accepted almost everywhere, but that is a different story. So, in order to make this payment, I would have to buy UAE Dhirams by paying the equivalent amount in Indian Rupees. Remember all those signs stating 'Foreign Currency Sold / Exchange here'; well, that is where I give the Indian Rupees and get UAE Dhirams in exchange. Now for these brokers to be able to give me UAE Dhirams, they need to buy the same - this is done in the foreign exchange market - the largest, most liquid financial market where currencies worth over $4 trillion are exchanged daily. One of the most fascinating things about this market - there is no brick and mortar marketplace for Forex (https://www.npbfx.com/en?referer1=ad40d3bc) trading. Every transaction is done electronically over-the-counter. Unlike the stock exchange, the Forex (https://www.npbfx.com/en?referer1=ad40d3bc) market remains open round the clock with currencies traded across every time zone, five days every week. Fascinating, isn't it?
Like the broker who changes my Indian Rupee to UAE Dhirams, I too trade on the Forex (https://www.npbfx.com/en?referer1=ad40d3bc) market on my own - all it required was to open an account with a Forex (https://www.npbfx.com/en?referer1=ad40d3bc) broker. I selected one from ForexSQ and have been trading since then. However, Forex (https://www.npbfx.com/en?referer1=ad40d3bc) trading is different from exchanging money at the Foreign Exchange outlets. There is much more to Forex (https://www.npbfx.com/en?referer1=ad40d3bc) trading than just exchanging one currency for another. The two currencies that have the highest trading volume on the Forex (https://www.npbfx.com/en?referer1=ad40d3bc) market are the US Dollar and the Euro - but, other currencies are traded as well. One of the biggest advantages of Forex (https://www.npbfx.com/en?referer1=ad40d3bc) trading is the 'leverage' that is provided to me by my broker. Unlike the stock market or the futures market, where my broker offers me a leverage of 2:1 and 15:1 respectively, my Forex (https://www.npbfx.com/en?referer1=ad40d3bc) trading broker offers leverages of 50:1; 100:1 and even 200:1 depending on the size of my trade. This means that if I were to buy, let's say, $ 100,000 and was provided a leverage of 100:1, I would only need $1,000 in my margin account with the broker i.e. only 1%. Oh! I forget to tell you, standard Forex (https://www.npbfx.com/en?referer1=ad40d3bc) trading is done in 'lots' with each lot representing 100,000 units of currency. Now, a leverage of 100:1 sounds risky - what if I made a loss? But, generally, currency prices on an intraday trading basis changes by less than 1% - that does make it less risky than it sounds, doesn't it?
: Re: The term ‘Forex’ stands for Foreign Exchange.
: admin 12, 2019, 04:05
The price of any currency is always versus anther currency - for example the US Dollar versus the Euro. The two currencies in the quote are known as a pair which consists of a 'base' currency and a 'counter' currency. In a quote of USD/EUR (US Dollar to Euro) the 'base' currency is USD and the 'counter' currency is EUR. So buying and selling a currency pair is based on whether you think the base currency will appreciate or depreciate against the counter currency. One interesting aspect - you will find most currency pairs quoted to 5 decimal points. Now, obviously, you do not deal in such small denominations when using money to buy something. However, in the Forex (https://www.npbfx.com/en?referer1=ad40d3bc) market, a change from the 4th decimal point in price is known as a 'pip' which stands for Percentage in Points. Let's say, the price of USD / EUR moved from 1.33800 to 1.33940 - this means that the currency has climbed by 14 pips, i.e. 94-80=14. A 'spread' is the difference between the bid/ask of the currency pair. Keeping the earlier example in mind, if the pair USD/UER was trading at 1.33800/1.33806, the spread would be 0.6 pips or 0.00006. That roughly covers the basics of Forex (https://www.npbfx.com/en?referer1=ad40d3bc) terms that are used in the market.
Actually, there are three ways in which individuals, corporate and institutions trade Forex (https://www.npbfx.com/en?referer1=ad40d3bc) - the spot market, the forwards market and the futures market. The spot market witnesses the largest quantum of trades - that is because both the futures and forward markets are based on the underlying real asset i.e. the spot market. However, this was not always the case. The futures market was more favored in the past because it was available for a longer period of time for individual investors. But, now with electronic trading, the spot market surpasses all others. However, companies and institutions prefer the futures and forward markets more than individual investors, as they need to hedge their foreign exchange risks.
Oh, sorry, I need to tell you the difference between spot, forward and future trades. The spot market is where I buy or sell currencies according to the current price - which is determined by the demand and supply for that particular currency. This demand / supply hinges on various factors such as, political situations, interest rates, economic performance and the perception of how the currency would perform in the future. Well, when I buy or sell a currency and the deal is finalized, it's known as a 'spot deal'. The biggest difference between the spot and the forward and futures trade is that while the spot trade deals in actual currencies, the future and forwards trade do not. These markets trade in 'contracts' - which represents a claim to a specific currency, a specific price per unit and a future date of settlement of that trade. The forward market witnesses 'contracts' with terms of the agreement decided between the two parties who buy or sell them over-the-counter. The 'futures contracts' that are brought or sold in the futures market is based upon a standard size and settlement date. The futures contracts have specific details, such as, settlement and delivery dates, number of units, minimum price increments etc. These are traded on public commodities markets with the exchange acting as a counterpart to the trader, i.e. providing clearance and settlement for the trade. I suddenly realized that I was getting too much into the details and said, "There is much more to understand here, but that would mean going into far more detail than you would want." My daughter just nodded her head in agreement and looking at my laptop screen said," So, where does ForexSQ fit into this picture?"
: Re: The term ‘Forex’ stands for Foreign Exchange.
: admin 12, 2019, 04:05
Well, when I wanted to learn about Forex (https://www.npbfx.com/en?referer1=ad40d3bc) trading, a friend of mine suggested I try this site. I did and haven't changed since then. Actually, when you asked me to tell you about Forex (https://www.npbfx.com/en?referer1=ad40d3bc), I was going to suggest that you go through the site yourself. Not only does the site contain basic information for those who have absolutely no idea or knowledge about Forex (https://www.npbfx.com/en?referer1=ad40d3bc) and Forex (https://www.npbfx.com/en?referer1=ad40d3bc) trading, it also features detailed information on Forex (https://www.npbfx.com/en?referer1=ad40d3bc) trading, knowledge and information based articles, news from the Forex (https://www.npbfx.com/en?referer1=ad40d3bc), Equity and Commodity markets, information and links to brokers, analysis of the various markets and financial news from around the world.
After spending a few weeks reading all I could about Forex (https://www.npbfx.com/en?referer1=ad40d3bc) trading, I signed up with a broker from their list and opened a Demo trading account. This actually helped me a lot, allowing me to practice Forex (https://www.npbfx.com/en?referer1=ad40d3bc) trading without any risk. Once I was confident that I could manage a few small trades without risking too much, I opted for a live mini account with the same broker. The process itself is rather simple and everything is online. I deposited some money into the account and started trading - and have been doing so ever since. Oh, they also have a list of the top Forex (https://www.npbfx.com/en?referer1=ad40d3bc) managed account service companies that lets you to invest in the Forex (https://www.npbfx.com/en?referer1=ad40d3bc) market - even if you have absolutely no knowledge about Forex (https://www.npbfx.com/en?referer1=ad40d3bc). All you need to do is put up a small amount of margin money in your account and the broker takes care of all the trading and managing of the account for you. I opened two accounts - one where I am trading on my own with the mini account and one where the broker trades and manages the mini account - sort of like spreading my risk.
ForexSQ features lists of the top brokers and in-depth information about Equity trading, CFD Trading, Binary Options trading, Spread Betting and of course Forex (https://www.npbfx.com/en?referer1=ad40d3bc) trading. The site features reviews and comparisons of the various brokers / brokerage houses thus allowing you to research the pros and cons of each before making your decision of signing up with them. In a nut shell, this is one complete site for learning and trading - and I too have been recommending it to those who ask me.
My daughter looked at me for a few seconds and walked away, leaving me wondering as to what happened here. A few minutes later she walked back into the room and said," Dad, can I give you 50% of my pocket money every month - I want you to trade on your Forex (https://www.npbfx.com/en?referer1=ad40d3bc) account with that and earn more for me to enjoy." I sat there speechless as she put a small bundle of notes in front of me saying, "To start with. I saved this over the last one year from my pocket money."
I haven't been able to stop telling everyone about it since then. And I did make her some profits from the first trade that I did yesterday. Like father, like daughter - she too has started collecting currency - except that her collection is for spending.
: Re: The term ‘Forex’ stands for Foreign Exchange.
: admin 12, 2019, 04:06
: Re: The term ‘Forex’ stands for Foreign Exchange.
: admin 12, 2019, 04:06
What is Volume in Forex (https://www.npbfx.com/en?referer1=ad40d3bc) Trading?
Last Updated: May 9, 2017 by Hugh Kimura.
This is a common question that I get and there can be some confusion around it, so I thought that I would write a quick blog post to explain how volume in Forex (https://www.npbfx.com/en?referer1=ad40d3bc) trading works .
If you have traded stocks before, you probably understand a little bit about how volume can be used to identify potential trades. Since volume is more straightforward in stock trading, I'll use that to illustrate how volume can help traders.
However, if you already understand what volume can show you about trading activity, then skip to the section on How Volume Works in Forex (https://www.npbfx.com/en?referer1=ad40d3bc) Trading to learn how it applies to FX.
Remember, if you use to choose volume in your trading, it is only a clue as to where price might go. Do not trade off it alone and be sure to backtest your strategy!
What Trading Volume Can Tell Us.
Alright, if you don't know anything about volume, then let's take a look at how trading volume in stocks works first, because it is a smaller market and it is easier to explain the concepts. Even though this is not about Forex (https://www.npbfx.com/en?referer1=ad40d3bc) trading, it will give you a lot of context for the Forex (https://www.npbfx.com/en?referer1=ad40d3bc) market, later in this post.
So be sure that you understand these concepts first.
Trading volume in stocks is simply a measure of how many shares traded during each candlestick. For example, in this $FCX daily chart, there were 24,157,000 shares (rounded) traded on the most recent day.
This can be a key piece of information in stock trading. But we also need some other information.
How Many Shares are Outstanding?
It is very useful to know the total number of shares that are being publicly traded. This is called the float .
When we check Yahoo Finance, we find that the total float is 1.33 billion shares. In stock trading, this is important because it helps us answer the question:
"How much volume is a lot of volume?"
So in this example, 24 million shares is not a lot of volume, in relation to the 1.33 billion shares that are available to trade.
Now, if there was a day where 600 million shares were traded, then that is almost half the number of total shares, and it would tell us that something very significant is happening with the stock. That brings us to some other trading clues that volume can give us.
Let's take a look at three of the basic ways that volume is used to spot trading opportunities.
Volume Can Show You Exhaustion.
When you see higher volume while price is dropping, this shows that investors are dumping the stock and it can be a signal that it is time to sell your shares too.
Without a lot of volume, the price drop could simply be a momentary dip, before it moves up again.
Several big drops, on high volume, could also signal a good opportunity to buy. If you think that a company is solid, but is just the victim of bad short-term news, it could be a great time to buy at a very low price.
In other words, it could signal a bottom.
For example, let's take a look at Citigroup ($C), during the fallout from the financial crisis of 2007. Price was moving down throughout 2008.
Then, towards the beginning of 2009 (points 1 and 2 below), we saw two big spikes in volume, during two down days.
The chart above shows the current split-adjusted price, but at the time, price got down to less than $1, if I remember correctly. I actually bought this stock because the US government basically told everyone that they would not let Citigroup fail.
So that was a fundamental reason for buying the stock.
Now let's look at the volume analysis.
At point #3, there was some buying interest, but price didn't move up significantly.
Buyers step in to buy the stock, for a short-term gain. I was in this group.
However, at point #4, there was another huge spike in selling volume, but price failed to drop significantly. That was a sign that most of the sellers were out of the stock, at that point.
So that is how we can use volume to show us when a stock does not have any more buyers and might be ripe for a purchase.
Volume Can Show You Accumulation.
Next, volume can give you hints as to when a stock is being possibly accumulated. This is one example of how we can see volume increasing, while price is basing.
In the basing pattern, there are more green bars than red bars in the volume indicator. So this could be a good hint that price might start to turn around soon.
...and in this well chosen example, it does 😉
Volume Can Show the Strength of a Move.
The general idea is that if you see volume increasing in a trend, it is likely that you will continue to see price move in the same direction. It makes sense because as a trend gets going, more people need to pile in, to keep the trend going.
Here is an example of a trend in crude oil where volume increases in an uptrend. Although this is futures and not stocks, the same principle applies. Once volume starts to dry up, the trend reverses, soon after.
Alright, now that you have an idea of how volume can be used in stock trading, let's jump over to Forex (https://www.npbfx.com/en?referer1=ad40d3bc) trading to see if these same principles apply.
How Volume Works in Forex (https://www.npbfx.com/en?referer1=ad40d3bc) Trading.
After reading the previous examples, you are probably ready to throw up a volume indicator on your FX charts.
Hold on for a minute because volume works a little differently in FX.
For starters, there is no way to figure out how much "float" or how much total currency is traded every day.
This is because Forex (https://www.npbfx.com/en?referer1=ad40d3bc) trading is a decentralized market.
Since there isn't a primary exchange that all transactions run through, there is no way to count how much currency is being traded at any one time. So what you are seeing on your FX charts is only the volume that your broker sees.
This can lead to some very different numbers, between brokers.
For example, here are two EURUSD screenshots taken at the same time. This chart uses Oanda data and shows that the current volume is 8,156 currency units.
But when we look at an FXCM chart, we see a much different picture. This chart shows a volume of 50,869 currency units.
If you look at the relative volume, the graphs are pretty similar, but they are not exactly the same. For example the right side of this chart shows a big spike. However, on the Oanda chart, there is actually a decline in volume.
Does this mean that volume in Forex (https://www.npbfx.com/en?referer1=ad40d3bc) trading is useless?
Well, let's take a look at a few example to see if it could useful, even if you are only getting part of the picture. I'll examine some moves in the EURUSD and see if we can find the same patterns that we saw in the stocks.
Exhaustion.
I actually had a hard time finding a good example of an exhaustion volume pattern on the EURUSD daily chart.
This was the best that I could do.
As you can see, price moved down on a lot of volume, but stopped short of a previous support point. After this spike in volume, price started to move up.
Accumulation.
This is an example of a pretty long downtrend, followed by a basing pattern and an increase in volume. The volume increase could have been a clue that accumulation was taking place. Price shot up, soon afterwards.
Trend Strength.
Here is an example that I found of a strong trend being reinforced by volume. As we saw with the oil example above, when volume starts to decrease, price starts to drop.
Lower Timeframes.
From those previous FX examples, volume looks like it could be a fairly useful predictor of future price movement. But hang on for a minute, those were a few well-chosen examples.
...and what happens if you use a different time frame?
Like the 4-hour chart, for example?
This is what you will see...
The differences in market open times and volume are reflected in the intraday volume spikes. Of course, this makes it harder to read than intraday stock volume.
However, if you only take the peaks, it could be usable.
Conclusion.
So volume might be able to give us some hints about where price is likely to go next.
However, since we are only seeing volume from one broker, it is tough to trust the numbers to give us an accurate picture of how much currency is being traded across the entire market.
If you want to test a trading strategy that includes volume as a trading signal, be sure to use data from the broker that you will be trading with. This is very important.
I don't find volume useful in FX and I don't recommend using it.
There are some periods when volume can signal a possible move, but for the most part, volume is too flat to make any real trading decisions.
But don't take my word for it. Test it and find out for yourself.
Do you disagree? Have you found a way to trade consistently with FX volume from your broker?
Let me know below...
Category: Forex (https://www.npbfx.com/en?referer1=ad40d3bc) Education . or find similar posts on: Forex (https://www.npbfx.com/en?referer1=ad40d3bc) Volume.
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: Re: The term ‘Forex’ stands for Foreign Exchange.
: admin 12, 2019, 04:06
About Hugh Kimura.
Hi, my name is Hugh Kimura and my mission with Trading Heroes is to give you the roadmap to becoming a consistently profitable Forex (https://www.npbfx.com/en?referer1=ad40d3bc) trader.
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Comments.
Please I will like us to talk privately on mail so that we can exchange idea further especially on the issue of fx.
Thank you for the useful article about volumes. I had one more question on this subject. With stocks, it is pretty straight forward that the volume is derived from the amount of stocks that are floating around. However, when we are talking about currency units where is this information based upon? When we look at the EUR/USD pair for example and the volume is 50,000 currency units, does this mean there is 50,000 euro being traded or 50,000 dollar? For me the first answer sounds more logical, but this is a question that I was asking myself and I could not get a definite answer. Hopefully you can give more clarification on this.
You're welcome. If you are buying 50K EURUSD, you are using 50K EUR to buy the equivalent USD. The lot size is the number of units of the base currency, or the currency that is listed first.
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CFTC Rules 4.41 - Hypothetical or Simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, because the trades have not actually been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs, in general, are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown. Testimonials appearing may not be representative of other clients or customers and is not a guarantee of future performance or success.
: Re: The term ‘Forex’ stands for Foreign Exchange.
: admin 12, 2019, 04:07
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How to Trade the Head and Shoulders Pattern.
The head and shoulders chart pattern is a reversal pattern and most often seen in uptrends.
Not only is head and shoulders known for trend reversals, but it's also known for dandruff reversals as well.
In this lesson, we'll stick to talking about trend reversals and leave the topic of dandruff for another time.
Head and Shoulders.
A head and shoulders pattern is also a trend reversal formation.
It is formed by a peak (shoulder), followed by a higher peak (head), and then another lower peak (shoulder).
The slope of this line can either be up or down. Typically, when the slope is down, it produces a more reliable signal.
In this example, we can easily see the head and shoulders pattern.
With this formation, we put an entry order below the neckline.
We can also calculate a target by measuring the high point of the head to the neckline.
This distance is approximately how far the price will move after it breaks the neckline.
You can see that once the price goes below the neckline it makes a move that is at least the size of the distance between the head and the neckline.
We know you're thinking to yourself, "the price kept moving even after it reached the target."
And our response is, " DON'T BE GREEDY! "
Inverse Head and Shoulders.
The name speaks for itself. It is basically a head and shoulders formation, except this time it's upside down.
A valley is formed (shoulder), followed by an even lower valley (head), and then another higher valley (shoulder). These formations occur after extended downward movements.
Here you can see that this is just like a head and shoulders pattern, but it's flipped upside down.
Our target is calculated just like the head and shoulders pattern.
Measure the distance between the head and the neckline, and that is approximately the distance that the price will move after it breaks the neckline.
You can see that the price moved up nicely after it broke the neckline.
If your target is hit, then be happy with your profits.
However, there are trade management techniques where you can lock in some of your profits and still keep your trade open in case the price continues to move your way.
You will learn about those later on in the course.