How to Trade Forex
When learning how to trade forex you will learn many different terms. For starters the “foreign exchange market” is also known as the “forex market.” You will also see forex referred to as just FX. Basically, forex trading is the trading of currencies from around the world. The forex market is considered to be the larget market in the world with an estimated 3 trillion US dollars traded every day. As you learn how to trade forex you will also learn that it can be traded 24 hours a day. This is because there are electronic networks all around that world that trade currencies. Some of the main networks include New York, London, Tokyo, and Sydney to name a few. Many investors find this appealing because they can trade according to their own schedules.
Trading in this market takes place on the interbank market, otherwise referred to as an over the counter market (OTC). It is not like trading on the stock market where stocks are actuallly traded on a central exchange. When trading forex many investors opt to practice margin trading. Trading on margin occurs when the trader buy and sells assets that are worth more than the value of the capital in their margin account. Forex trading is typically done with pretty small margin deposits. Margin trading is a useful to forex traders because it allows investors to take advantage of currency exchange fluctuations which are tyically very small.
Additionally, as you learn how to trade forex, you will learn two very important terms. They are the terms “spread” and “pips.” You also learn the terms “bid” and “ask.” A “spread” is the difference between the price you sell the currency at and the price you buy the currency at. The “bid” is the price that you sell currency at and the “ask” is the price that you buy currency at. A pip is the smallest unitin which a cross price quote changes. You may hear there is a 3-pip spread. If you see USD 0.0003, this is equal to 3 pips. Keep in mind as you trade forex, that forex trading is speculative in nature. Only a very small percentage of the activity in this market consists of company and government fundamental conversion needs.
There is a lot more to this market. Continue to study about forex and see if this is a market that will work for you. Good luck!
Market Direction: When is it time to take profits? That is much easier to answer when using candlestick analysis. As indicated by the trend in the Dow, the past two days finished up with Hanging Man type signals, Wednesday's trading was more pronounced, a Dragonfly Doji which is essentially the ultimate Hanging Man formation. Witnessing that signal when the markets are in overbought conditions have very simple if/then results. If the market opened positive today, the uptrend was still in progress. If the market opened lower, expect profit taking or a selling market day.
Waking up this morning to premarket futures that were down substantially should have instigated one simple process. Look through the portfolio and be prepared to close out long positions that would be confirming sell signals from the previous day. This helped take the emotions out of investing. Knowing what should occur after specific candlestick signals makes the decision making process very mechanical.
A weaker open in the Dow would of made the tee line the suspected target. The NASDAQ formed a Hanging Man/Harami signal on Wednesday. A weaker open would have made the T-line the suspected target also. As illustrated in the NASDAQ chart, a gap down in price and a close below the T-line makes for a strong case for the bears. Candlestick signals provide a very simple trading format for investors. There are expected results from the confirmation of potential sell signals. What do most investors do when they see the market/stock prices go down? They have that twinge of hope the prices will come right back up.
The true investor moves immediately based upon what the markets are tell you the markets are doing. The bearish futures this morning short have instigated the liquidation of long positions that were starting to show weakness immediately. The Japanese Rice traders have produced the signals and the rules that make investing much more profitable based upon what investor sentiment is doing.
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