For starters, the market for foreign exchange is enormous. There are over 100 times more trades than the New York Stock Exchange with nearly two trillion trades every day! In addition to the incredible volume, Forex trading is also almost entirely speculative, which gives it somewhat of a higher risk than some may be accustomed to. Still another large difference is that unlike trading through a central exchange like the NYSE, the trading occurs on the over the counter or OTC market. Trades like these are completed directly between the seller and the buyer via telephone or online. One of the biggest differences in my opinion that can be a positive or a negative is that the trading takes place 24 hours a day in major cities all over the world, unlike the major stock markets which close at specific times each day.
The main trading that drives the Forex market is called currency trading which is a trade where one currency is bought and another sold at the same moment. This act of trading is known as a "cross" in the FX movement. Some of the most traded currencies include the US dollar, the Australian dollar, the British pound sterling, the Japanese yen, and the European Euro, with the US dollar accounting for almost 90 percent of all currency trading. The next most popular currency is the Euro, which is involved in almost 40 percent of all trades and gaining popularity all the time.
The values of the currencies fluctuate daily in reaction to news reports on changes in inflation, interest rates, gross domestic product growth, trade and budget deficits and surpluses, as well as many other economic factors. This is the reason you will see those who are highly involved in Forex trading following the news reports very close and staying on top of breaking news 24 hours a day through the internet and 24 hour cable news channels.
As you can see there are many differences between FX trading and regular stock trading and it is very easy for a novice to lose a lot of money by not being informed. It is best to start out slow and learn the business before investing a large sum of money.
Sunday, November 16, 2008
Swing Trading In 3 Simple Steps For Big Profits
Here we will look at a specific method to swing trade that will give you low risk and high reward.
Swing trading
Takes advantage of corrections in value sideways or strongly trending markets and a typical trade will last 2 – 5 days.
Many traders think they can swing trade on a daily basis but this will just see you lose your equity quickly.
Day trading no matter what system you use is a mugs game, as volatility within a day is totally random and levels have no significance.
If you want proof then ask a day trader for a real time track record of profits and you won’t get one.
Now let’s get started on a simple 3 point method to swing trade.
1. Establish valid support and resistance
You are looking for support or resistance that has been tested and held on several occasions preferably at new chart highs or lows.
2. Watch Momentum
Watch prices move strongly toward the support or resistance and look for confirmation that price momentum is going to turn.
This is the critical point!
You need CONFIRMATION that price momentum is waning, a turn is likely and the odds favour a swing trade.
You want some evidence that price momentum is not strong enough to take out support or resistance.
The best indicator for this is the stochastic indicator – It’s the ultimate indicator to time a swing trade and if you don’t know how it works learn about it from our other articles.
The stochastic is a visual indicator and here we will simply look at the visual set up you need.
When the market is for example trending up to resistance, the stochastic lines will both normally point up. When the market is moving down the opposite set up will apply.
The signal you are looking for is:
For the stochastic lines to cross each other and point either up (bullish divergence) to show support has held or cross and point down (bearish divergence) to show resistance has held - This is your signal to take the trade.
You can see this set up on any free chart service and one of the best is futuresource.com.
3. Target
When you have entered a trade you need a target.
Next pull up the Bollinger band.
If you have had a quick volatile move to test support or resistance, prices will be normally at the top or bottom of the band.
Look for prices to return to the middle band and make this your target.
Don’t hang around and trail stops.
As soon as you hit this band or near it take profit.
Other points
1. Only trade sharp volatile moves into valid and significant support and resistance.
2. Always wait for a stochastic crossover to enter don’t predict.
3. Set a target and get out.
A typical swing trade will last for around 2 – 4 trading days.
If you look for set ups that meet the above criteria you can get some low risk high reward trades that will build significant profits over time.
Swing trading
Takes advantage of corrections in value sideways or strongly trending markets and a typical trade will last 2 – 5 days.
Many traders think they can swing trade on a daily basis but this will just see you lose your equity quickly.
Day trading no matter what system you use is a mugs game, as volatility within a day is totally random and levels have no significance.
If you want proof then ask a day trader for a real time track record of profits and you won’t get one.
Now let’s get started on a simple 3 point method to swing trade.
1. Establish valid support and resistance
You are looking for support or resistance that has been tested and held on several occasions preferably at new chart highs or lows.
2. Watch Momentum
Watch prices move strongly toward the support or resistance and look for confirmation that price momentum is going to turn.
This is the critical point!
You need CONFIRMATION that price momentum is waning, a turn is likely and the odds favour a swing trade.
You want some evidence that price momentum is not strong enough to take out support or resistance.
The best indicator for this is the stochastic indicator – It’s the ultimate indicator to time a swing trade and if you don’t know how it works learn about it from our other articles.
The stochastic is a visual indicator and here we will simply look at the visual set up you need.
When the market is for example trending up to resistance, the stochastic lines will both normally point up. When the market is moving down the opposite set up will apply.
The signal you are looking for is:
For the stochastic lines to cross each other and point either up (bullish divergence) to show support has held or cross and point down (bearish divergence) to show resistance has held - This is your signal to take the trade.
You can see this set up on any free chart service and one of the best is futuresource.com.
3. Target
When you have entered a trade you need a target.
Next pull up the Bollinger band.
If you have had a quick volatile move to test support or resistance, prices will be normally at the top or bottom of the band.
Look for prices to return to the middle band and make this your target.
Don’t hang around and trail stops.
As soon as you hit this band or near it take profit.
Other points
1. Only trade sharp volatile moves into valid and significant support and resistance.
2. Always wait for a stochastic crossover to enter don’t predict.
3. Set a target and get out.
A typical swing trade will last for around 2 – 4 trading days.
If you look for set ups that meet the above criteria you can get some low risk high reward trades that will build significant profits over time.
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