A Look At Forex Markets
Forex markets, which are also known as currency markets, are the most active trading futures markets both in terms of volume and amount of money. With a daily volume of over $2 trillion, trading Forex is done mostly between central banks, commercial banks and large companies.Forex markets are unique because then aren't traded at futures exchanges; they are traded directly between investors in such trading centers as London, New York and Tokyo. Some of the most popular forex markets available are:
- USD / JPY - US dollar to Japanese yen exchange rate
- CHF / USD - The Swiss franc to US dollar exchange rate
- AUD / USD - The Australian dollar to US dollar exchange rate
- CAD / USD - The Canadian dollar to US dollar exchange rate
- GBP / USD - The British pound to US dollar exchange rate
- EUR / GBP - The Euro to British pound exchange rate
- EUR / USD - The Euro to US dollar exchange rate
- EUR / CHF - The Euro to Swiss franc exchange rate
Forex Brokers
Day trading allows you to access the Forex markets using the same direct access brokerages that are used for other markets, except for one difference. Trades in Forex markets are not handled by an exchange; these transactions are made by a currency broker instead. Currency brokers are allowed to establish their own markets, which means that investors using one broker may not get the same prices that investors using another broker get. Unfortunately, some commodity brokers are less than honorable and will actually trade against the investors that use them, preventing them from getting the best prices available in the Forex markets.
Additionally, it is typical that currency brokers not take a commission on trades in the Forex market. They will, instead, charge a portion of the spread for their futures trading services.
Currency Market Info
Trading symbols for the Forex market are made by combining the abbreviations for the two currencies being traded. For example, the currency trading symbol for euros to British pounds would be EUR/GBP.
Each currency market has a price change that it considers the minimum for trading commodities ; this unit of measure is called a tick. Currency or Forex markets have a minimum tick size (typically 0.0001) as well as a minimum trading amount of approximately $25,000. In this instance, the minimum price movement would equate to tick size x minimum trading amount or 0.0001 x $25,000= $2.50. Due to leveraging, even though the minimum trading amount is $25,000, the investor will only have to have a portion of that in his or her trading account. This is why it is important to be wise with your investments; successful Forex traders know that it is possible to lose more than your original investment due to the leverage factor
Rate Spreads If you go on vacation in a foreign country, you will quickly become aware that the buying and selling exchange rates are different. For example, if you take $100 to the bank and exchange it for Mexican pesos, then take the pesos you receive and exchange them again for dollars, you will wind up with less than your original $100. This is a direct result of the rate spreads and it is the same for commodity trading. While the rate spread at the bank may be several cents on the dollar, the difference in the Forex markets is usually only one tick.
Conclusion
Forex currency trading for beginners can seem very different from the stock market. Forex markets have different regulations and terminology but the same overall principles apply; perform your technical analysis, stick to your trading plan and use Japanese Candlesticks to help you find the trends. Forex markets have their differences but they are very interesting and offer the possibility of excellent profits for the savvy investor.
Market Direction: The best candlestick trades are the results of a candlestick signal, such as a candlestick buy signal in the oversold conditions, followed by a gap up in price. A gap up in price provides valuable information. It illustrates the Bulls wanting to get into a position with great enthusiasm. This enthusiasm is something wanted to be seen at the beginning of an uptrend. The value of the candlestick signals is having the ability to potentially see a change of investor sentiment. The potential of that change of a price trend is more confirmed when the Bulls demonstrate enthusiasm in their buying.
A gap up in price does not need to be significant as far as a percentage move. A small gap up illustrates the very simple indication needed to confirm a candlestick reversal signal. It illustrates that the Bulls are still participating. As seen in the MNKD chart, a Bullish Engulfing Signal, in the oversold condition, was an obvious reversal signal. The following day opened above the Bullish Engulfing Signal high of the day. This immediately revealed the Bulls were still very much involved with this new trend. Although the price pulled back slightly, and started moving up again, was evidence that the bears were not affecting the new trend.
MNKD
For the trader, one gap up reveals strength. Two gap ups in price is a very strong signal. The Bulls want to be in a position in a great hurry. Once the trend becomes obvious, upside targets can be projected. As seen in today's trading, MNKD did not resist at the 50 day moving average. The 50 MA can now be watched to see if it will act as support and possibly the 200 day moving average being the next target.
Combining candlestick signals with gaps makes for a high profit trading platform. Most investors are afraid to trade after a gap. They are not comfortable with prices that have already moved a large percentage. The benefit of candlestick signals is the ability to use gaps effectively. A candlestick buy signal followed by a gap, especially at important technical levels, provides for high probability/high profit trade setups. Learn more of about the Candlestick Forum Gaps Training CD special, click here.
A major advantage of knowing what candlestick signals reveal allows an investor to have better control of when to get into or out of positions. After three hard selling days in the Dow, coming down through the T-line, the trading strategy becomes relatively simple. If prices open higher on Friday and started trading higher, we know that would form a Bullish Harami. The Bullish Harami signal indicates the selling had stopped. Traders would know to start buying on strength with a very simple stop loss provision. The Dow should not close below the close of Thursday. If it did, the 50 day moving average would be the viable target. A Doji forming the day after a large price move is not unusual. It is the consolidation between the Bulls and the Bears. The Doji also has some simple rules. The trend will generally move in the direction of how they open/trade the day after a Doji. This makes the trend analysis relatively simple.
DOW
Both the Dow and the NASDAQ tested but failed to stay above the 8 EMA, the T-line. If there is weakness in the morning futures on Tuesday morning, it can be assumed that a bounce in the downtrend is over. Liquidating long positions on weakness tomorrow is prudent, being the trend appeared to be resisting at the T-line. If the futures appear to be stronger on the open tomorrow, it can be assumed that the uptrend should continue.
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