Monday, 10 June 2013

What is Technical Analysis in Forex?

Technical analysis is the overview of market data such as historical and current price data and volume in an effort to forecast future market activity. Historical price data is the most commonly used available data that is implemented into the analysis.

It assume three basic factors below.

1. Fundamentals are already built into the price

2. History has a habit of repeating itself – find what happened in the past and project it into the future.

3. Technical analysts believe price fluctuations are not random and unpredictable. Once an up, down or sideways trend has been established, it usually will continue for a period..

Technical analysis can add discipline and minimize emotion in your trading plan. It can be hard to screen out fundamental impressions and stick with your entry and exit points as planned. 

Price chart types

  • Bar chart
  • Candlestick Charts
  • Point & Figure Charts
These are famous chart that show price in action which will be helpful in technical study

Technical Indicator Types

Trend indicators smooth price data out, so that a persistent up, down or sideways trend can be easily seen. 
Strength indicators describe the intensity of market opinion on a certain price by examining the market positions taken by various market participants. Volume or open interest are the basic ingredients of strength indicators.
"Volatility" refers to the magnitude of day-to-day price fluctuations, whatever their directional trend. Changes in volatility tend to anticipate changes in prices. 
Cycle indicators indicate repeating market patterns from recurrent events such as seasons or elections. Cycle indicators determine the timing of a particular market pattern. 
Support and resistance describe the price levels where markets repeatedly rise or fall and then reverse. This phenomenon is attributed to basic supply and demand. 
Momentum indicators determine the strength or weakness of a trend as it progresses over time. Momentum is highest when a trend starts and lowest when the trend changes.

Sunday, 9 June 2013

What is Fundamental Analysis?

Fundamental analysis is the study of how global economic news and other news events affect financial markets. Fundamental analysis encompasses any news event, social force, economic announcement, Federal policy change, company earnings and news, and perhaps the most important piece of Fundamental data applicable to the Forex market, which is a country’s interest rates and interest rate policy. A country with a strong and growing economy will experience stronger demand for their currency, which will work to lessen supply and drive up the value of the currency.

• Basic OR Major economic events in Forex

Gross Domestic Product (GDP)
The GDP report is one of the most important of all economic indicators. It is the biggest measure of the overall state of the economy. The GDP number is released at 8:30 am EST on the last day of each quarter and it reflects the previous quarter’s activity. The GDP is the aggregate (total) monetary value of all the goods and services produced by the entire economy during the quarter being measured; this does not include international activity however. The growth rate of GDP is the important number to look for.
Trade Balance
Trade balance is a measure of the difference between imports and exports of tangible goods and services. The level of a country’s trade balance and changes in exports vs. imports is widely followed and an important indicator of a country’s overall economic strength. It’s better to have more exports than imports, as exports help grow a country’s economy and reflect the overall health of its manufacturing sector.

Consumer Price Index (CPI)
The CPI report is the most widely used measure of inflation. This report is released at 8:30 am EST around the 15th of each month and it reflects the previous month’s data. CPI measures the change in the cost of a bundle of consumer goods and services from month to month.

The Producer Price Index (PPI)

Along with the CPI, the PPI is one of the two most important measures of inflation. This report is released at 8:30 am EST during the second full week of each month and it reflects the previous month’s data. The producer price index measures the price of goods at the wholesale level. So to contrast with CPI, the PPI measures how much producers are receiving for the goods while CPI measures the cost paid by consumers for goods.

Employment Indicators
The most important employment announcement occurs on the first Friday of every month at 8:30 am EST. This announcement includes the unemployment rate; which is the percentage of the work force that is unemployed, the number of new jobs created, the average hours worked per week, and average hourly earnings. This report often results in significant market movement. You will often hear traders and analysts talking about “NFP”, this means Non-Farm Employment report, and it is perhaps the one report each month that has the greatest power to move the markets.
Durable Goods Orders
The durable goods orders report gives a measurement of how much people are spending on longer-term purchases, these are defined as products that are expected to last more than three years. The report is released at 8:30 am EST around the 26th of each month and is believed to provide some insight into the future of the manufacturing industry.

Retail Sales Index

The Retail Sales Index measures goods sold within the retail industry, from large chains to smaller local stores, it takes a sampling of a set of retail stores across the country. The Retail Sales Index is released at 8:30 am EST around the 12th of the month; it reflects data from the previous month. This report is often revised fairly significantly after the final numbers come out.
Housing Data
Housing data includes the number of new homes that a country began building that month as well as existing home sales. Residential construction activity is a major cause of economic stimulus for a country and so it’s widely followed by Forex participants. Existing home sales are a good measure of economic strength of a country as well; low existing home sales and low new home starts are typically a sign of a sluggish or weak economy.

Interest Rates
Interest rates are the main driver in Forex markets; all of the above mentioned economic indicators are closely watched by the Federal Open Market Committee in order to gauge the overall health of the economy. The Fed can use the tools at its disposable to lower, raise, or leave interest rates unchanged, depending on the evidence it has gathered on the health of the economy. So while interest rates are the main driver of Forex price action, all of the above economic indicators are also very important.

How to make a plan for trade?

Here we try to learn what is required to to plan a trade on daily basis.

These are the necessary components of a Forex trading plan, you can add more if you like, but don’t get too carried away otherwise your plan will become too long and complicated for you to follow. I will give you examples of each of these in the section that follows:
• Begin your trading plan with a positive affirmation that you read aloud
• State your short-term and long-term goals in trading the markets
• Define your trading strategy and all aspects of how you will analyze and trade the markets
• Define your money management strategy, this includes things like risk and reward per trade; what reward is realistic given the market conditions? What dollar amount am I OK with losing per trade? What’s my long-term strategy for withdrawing money from my much money do I want to withdraw each month after I become profitable?
• Miscellaneous components to check: things like, major currency pair, trading time, news events, etc
• Make yourself double-check everything before entering the trade, and ask yourself this question “Is this trade jumping off the chart at me basically telling me I’m stupid if I don’t trade it, or did I have to think about it for an hour and justify the setup by reading 20 different Forex blogs?”
• End your trading plan

• Daily trading affirmation:
I will never enter a trade without first consulting my trading plan, because my trading plan is what keeps me objective and eliminates emotion from my trading, and that is what will make me consistently profitable over the long-term
When I enter a trade, I will not touch the trade or edit the trade, removing all emotions and remaining firm on my initial observations

• Trading goals:

Short-term trading goals: To make consistent profits each month and supplement the monthly income from my job. To be a patient and disciplined trader who follows my plan.
Long-term trading goals: To build my trading account up to $25,000 through mastery of my trading strategy, patience, and the discipline to follow my trading plan every time I trade.
To avoid over trading, be patient, remain disciplined and stick to my plan always.

• Forex trading strategy:
This is the process I will use to scan the markets for potential price action trade setups:

1. Analyze the market conditions: is the market trending or consolidating? 

You need to first determine what condition the market is in. I teach traders how to identify trending and consolidating markets in my trading course, but, basically you just need to identify the general direction a market is moving and try to trade with that direction. We are looking for higher highs and higher lows in an uptrend and lower highs and lower lows in a downtrend.. For consolidating markets we are looking for a market that is consolidating between an obvious support and resistance  level. So, in your trading plan you might have a picture like this or similar to remind you of what you generally should look for.

2. Determine the core daily support and resistance levels and draw them on the charts

After you determine whether the market is trending up, down, or consolidating sideways, you need to draw in the core support and resistance levels on the chart. These are going to be the confluent value areas that you watch for Price action strategies to form near to trade back in the direction of the dominant market momentum
There is  Price action trading strategies pin bars, inside bars and fakeys.

3. You have to know exactly what price action strategies you are looking for before you build your trading plan.

4. Remember, we want to always calculate risk based off dollars, not pips or percentages.


6. Must check upcoming economic news to see if an important release is about to be released.

These Points are required for making a daily plan.

What is forex?

People heard the term "Forex", but most of them do not Know what is Forex?
.Forex or foreign exchange is the financial market which trades in international currencies. The forex market determines the values of currencies around the world. Traders from all over the world buy and sell currencies or currency pairs. There are plenty of currency pairs available and the forex market moves constantly based on supply and demand.
Forex determines the exchange rates of currencies and allows traders to profit from price movements. It is the biggest and most liquid financial market with daily turnover of over $5 Trillion per day, in the world and is open for business 24 hours a day except for weekends.
One of the most appealing factors for forex trading, besides its high liquidity, is the small amount of capital requirements and the potential for profits in relation to the investment. Usually Forex account is leveraged which means the capital needed in order to execute a big trade can be very small. Some accounts are leveraged up to 500 times or even 1,000. An account that is leveraged 500 times means that the trader needs to pay $1 for every $500 traded.
Leverage may be the best tool for traders, but traders need to understand how to use the tool otherwise it can cause heavy losses to the traded amount. The biggest advantage leverage gives traders is the ability to trade large amounts of money and profit from them. For example a trader has $500 to use for trading purposes and in a normal non-leveraged account the trade can place trades for $500. An account which is leveraged 500 times would allow the trader to place forex trades worth $500x$500 with the $500. Using leverage can be very risky if traders do not understand how to use it properly and have poor money as well as risk management procedures in place.
Forex pairs are traded in lots. One standard lot represents 100,000 units. In other words if you execute a buy order for one lot you are purchasing 10,000 currency units.
Forex price movements are defined as pips. One pip is the smallest price move on a classical four digit account. For example if the EUR/USD Forex pair trades at 1.3440 and the price moves one pip higher the new price would be 1.3441. On five digit account the smallest price movement possible is called a pipette and represents one-tenth of a pip. Ten pipettes equals one pip.