Category: General


The Ultimate Guide To Types Of Forex Orders

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Forex Orders

Types of Forex Orders

Placing a trading order in forex trading already involves a bit of thinking, if you want to do it right. You should not only choose the currency pair you wish to trade and the price for entry, but you should also have an entry point determined, an exit point in view, a stop-loss set so that you don’t get hammered by an unexpected market reaction, and perhaps a take-profit set so that you can be sure to rake in your winnings if the trade works well.

This kind of trade is called a Market Order.

Bear in mind that there is a difference between the bid price and the ask price – you are paying the ask. You may wind up paying a slightly different price from what you saw quoted when your order is executed – this is because the market keeps moving while the system processes your trade.

Then you hit the button to start the trade, cross your fingers, and watch carefully.

But this is only one way to place an order: There are a number of order types that offer you special handling on your trade. These include:

  • Stop Loss Order

Stop losses are mission critical for trading, and no trade should be without one. You can add or modify a stop loss separately from your order, even while the trade in is progress, but it should be part of your strategy to place a stop loss at the right place in every trade.

 

When your trade bets on a price rise, set the stop loss so that a plunge in the price will close your trade without too much loss – you should think hard about how much loss you can tolerate in each trade.  Vice-versa for a trade that is going short on a currency pair – set your stop loss to limit damage as the price rises. The stop loss stays in effect until you either cancel it or close the trade.

 

  • Trailing Stop

A trailing stop is a very useful way to protect your trade while locking in profit. Here’s how it works: You buy a currency pair at the price 1.0000. You set the trailing stop 20 pips below that price. Now the price moves up to 1.0020. You trailing stop moves up to 1.0000. This cuts your losses – a fixed stop would have stayed at 40 pips below the market price. If the trade moves up to a much higher price, your trailing stop follows. Now, when the price begins to drop, your profit from the previous rise is locked in by the stop.

  • Limit Order

 

A limit order is a simple concept – it enables you to buy at a particular price level or to sell at one.  If the currency pair is at 1.0000, and you want to buy at 1.0020, you set a limit order which tells the system to execute the buy at that price. If you want to sell at 0.0020, you do the same thing with a limit order. The advantage is simply that of executing your trade at the level you want without your having to worry about it.

 

  • Limit Entry Order

 

A limit entry order is used to enter a long trade below the current market price or to sell a short trade above the current market price. A limit entry Order requires that you fix the entry price for the trade. The order will be executed at the requested price or at a better price.

 

  • Stop Entry Order

 

This kind of order executes your trade at a future market price level. When you think a currency pair will go up 40 pips in price, set your stop entry order at that level. Now just sit back and wait until the trend works in your favor, and the price moves up to the desired level.

 

  • Good ‘Till Cancelled Order – Good for the Day Order

 

This is a somewhat special type of the forex orders, in the sense that it stays in place as long as you want.

 

When you set a Good ‘Till Cancelled order, the order simply stays, waiting to be filled at the given price,  unless you cancel it This will continue indefinitely, hours, days, weeks, as long as you like.  This is a good way to place an entry at a specific level.

 

A Good for the Day order works the same way as a Good ‘Till Cancelled order, except that it expires at the end of a trading day. This is usually 5 p.m. in the local market, but you should check with your broker to learn when they cut off these trades.

 

  • One-Cancels-the-Other – One Triggers the Other

This kind of order pair is particularly useful to hedge your bets. Place an order above, and another below the current price. If the price goes up, the other order is cancelled, and vice-versa. The other order pair does the opposite: When one order is executed, so is the other.

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Everything You Need to Know about Forex Trend Trading

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Forex Trend Trading

What is Forex Trend Trading?

Forex Trend trading, as you might suppose, means looking for price movement in a particular direction, then entering a trade as close to the starting point of the trend as you can. You then wait for the trend to run its course, and exit as close to the end point of the trend as you can.

This sounds very simple, but, like so many things in forex trading, it’s not. You will have heard forex traders use the expression “the trend is your friend.’ The problem is, that’s only the first half of the expression; the entire expression is “the trend is your friend until it ends.’

That’s the real story, and forex traders must adapt to it because the challenges in forex trend trading are identifying the strength of a trend and then determining the entry and exit points.

 

How to identify a trend

The first step in trend trading is to determine a trend.

The place to start is to ‘zoom out’ to a longer timeframe on the charts and see what is happening there. If you are trading the 15-minute chart, and you think you spot a trend, then ‘zoom out’ to the full-day chart, and see if it is there. If it is, great, you’re on to something. If not, try the 5-hour chart, and see if it is there. If you get down to the 1-hour chart and don’t spot it, you probably shouldn’t trade on it.

More detailed trend-spotting comes with the use of moving averages. A moving average crossover, for example: When a short-term price is moving average rises above or drops below a longer-term moving average, there is a strong probability of a long-term trend. A long-term trend on the 5-minute chart will be quite short, while one on a full-day chart could last weeks. To reduce risk further, look at the stochastic indicators that are on your trading platform – the MACD and the RSI are good ones for trend-spotting, but there are many others. If the indicators confirm the direction of the price movement, you have an even better chance of succeeding with your trade.

The ADX indicator deserves special mention. The ADX shows the strength of a trend, i.e., when it is gaining or losing momentum. This is very helpful for entry and exit decisions. The ADX indicator shows three lines: The ADX line that tells you the strength of the trend, the green line which shows bullish strength and the red line which shows bearish strength.

Another forex trend trading indicator is price action.  Is the currency pair price going higher than the last high, then bouncing back to a low that is below the last low? If so, and especially if this action is repeated, you have a good chance of spotting an upward trend. It works vice-versa for a downward trend; first a new low point, then a new high point, etc.

 

Draw a Trend Line

Keep track of trends by drawing a trend-line. There is a tool for trendlines available on your platform that makes it easy. Click where you think the trend starts, and then follow it up or down with the line as far as it goes.

Trendlines are handy because if a trend changes, you can see it almost immediately in the divergence from the trendline. But don’t act too fast! There are always bumps along the road to a long-term trend.

 

Build Your Trend Trading Strategy

 

A trend strategy is created by combining different elements from all the above forex indicators.

You may be a fan of the ADX indicator, and use it in tandem with price action. Or you may prefer to combine the ADX with moving averages.

Try different combinations, until you find the one that works best for you. You may wish to add more elements along the way, and if that helps, go for it.

The one thing to avoid is to combine too many disparate indicators and strategies so that making a trade involves endless calculations and considerations – so many, that you lose the opportunity.

Forge a strategy that starts with the long term, and then breaks down that decision-making into smaller bits.

It is always a good idea to retain a fundamental element in your strategy because otherwise, they can wreck your plans. Check to see what might move your currency pair in the outside world, be it an oil-price spike, an election, a budget or trade announcement, etc. If you see a trend and expect an event like an interest-rate hike that will support it, you have a good chance of success.

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What is Forex Correlation?

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Forex Correlation

On the forex charts, you see each currency pair moving in a particular direction, higher, lower, range-bound, etc.  You often see two currency pairs moving in the same direction as well.

What if there were a direct relationship between the two currency pairs moving in the same direction — you could then use that knowledge to make trades based on it.

Forex correlation provides the means to see if there is a price relationship among various currency pairs. If there is a statistical way of showing this, we can use this correlation in our trading strategies: Such a correlation can help to reduce risk and to suggest alternative strategies.

If there were a perfect correlation between two currency pairs, that would mean that they move in the same direction all of the time.

If there is no correlation between two currency pairs, then they move in completely random directions with respect to each other at all times.

It’s the in-between perfect and random correlations that makes understanding currency pair correlations interesting.

Because it’s quite rare to find a 100 percent correlation, but an 80 percent correlation is a number you can work with.

As you can guess from the previous paragraph, forex correlations are related in terms of percentages.

Here is a typical forex correlation table:

 

Forex Correlation

 

Source: MyForex  (this is a selection from the entire table – the period is one day)

 

You can enter levels of correlation in terms of percentages at the top of the chart to find which ones are closely correlated and which currency pairs have a low correlation.

 

For example, CAD/JPY correlates at 88.3 percent with USD/JPY. Now, knowing that these pairs are closely correlated, you would be wise to not trade both of them at the same time. Obviously, they are both going to move in the same direction, but they may not move to the same number of pips – i.e. if one gains 30 pips, and the other gains 20 pips, the losses on one pair will offset the gains on the other.

 

So you choose another forex correlation that is negative with respect to one of the first two pairs. Now you’re betting on separate correlations, with a much better chance of winning at both. And you avoid betting on different pairs that would cancel each other out – one winning, the other losing.

 

Correlations also permit you to make the best use of forex leverage. Trade currencies with secure levels of correlation, but go long or short in one pair and then hedge with a bet on the other.

 

You can even use forex correlation to cut losses. For example, if you are long in USD/GBP, and you see the trade isn’t working out, go long in a pair that has a strong negative correlation, and you will have a good chance of compensating for losses in the first pair. This is a classic trading technique, one that can cut your losses and save you money.

Then you can look for price reversals. Looking at two negatively correlated currency pairs, when a significant upward price reversal in one pair takes place, then you can anticipate a potential downward reversal in the other pair.           

You can also use currency correlations to help you to decide when to enter or exit a trade.

Suppose you see that a currency pair is about to break through a significant level of resistance in an upward move.

You look at the other currencies closely correlated with it: Those with close correlations and those with negative correlations. If you see similar moves taking place with these other currency pairs, you know that a breakout is likely to take place, so you enter a trade.

You can observe correlated pairs once your trade is underway to determine if they are all moving in a related way, like the one described above, and then use that knowledge to exit.

 

Currency correlations change, and they  change often

You should take advantage of currency pair correlations when you can, but you should be aware that they’re not carved in stone.

The correlation that worked well for you a week ago may have completely disappeared this week.

So you have to keep up with the changes. The broker you work with should publish updated correlation tables on a regular basis. Make sure you learn all you need from them before you use correlations in your forex trading strategy.

With that said, there are a few currency pairs that seem to stay correlated over long periods. You’ll notice that they all involve USD – that’s probably why they stay correlated, as USD often moves in the same direction against most currencies.

Here are the positive long-term correlations:  EUR/USD and GBP/USD, EUR/USD and AUD/USD, EUR/USD and NZD/USD, USD/CHF and USD/JPY, AUD/USD and NZD/USD.

Here are the negative, long-term correlations:  EUR/USD and USD/CHF, GBP/USD and USD/JPY, USD/CAD and AUD/USD, USD/JPY and AUD/USD, GBP/USD and USD/CHF.

 

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What is Forex Scalping?

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Forex Scalping

In forex trading, a trade can go wrong in a nanosecond, and you have only your stop loss to protect you from dire consequences.

One way of managing this risk is to scalp: In forex scalping, a trader opens and closes a trade in less than five minutes – average trades are one to two minutes long. The shorter the time the trade is open, the less chance for disaster to strike.

Of course, it also means that the profit will be minimal. This is why forex scalpers make dozens of trades every day.  

To succeed at forex scalping, you have to be able to make a decision very quickly. But this doesn’t mean that you have to have nerves of steel. What you need, instead, is to have worked out an elaborate trading strategy before the trading day begins.

A forex scalper should make a written, detailed forex trading plan, and then note the complete results in the trading journal. This plan takes into account longer-term trends, and how they will appear in a specific trading period.

The significant danger in forex scalping is one really bad trade. This can wipe out all your small gains amassed during several trading days. For this reason, the successful scalper spends a great deal of time with an eye on the chart, looking for that one clear-cut opportunity for a quick win.

 

This kind of strategy is not really for a beginning trader. Forex scalping requires long experience of what to expect on the market. The beginning trader should concentrate on developing market knowledge with very carefully placed trades. When you have a really good idea of how a given currency pair is likely to react over a period of time, that’s when you should consider scalping.

 

Scalping calls for a good broker

 

Some brokers do not allow scalping. Check carefully with your broker before you start. Others actually support it, so seek those out.

If you do plan to scalp in forex, make sure you have a reliable broker, one who offers tight spreads on a regular basis (the spread between the bid and ask price is what you have to pay before you begin to make any money on a trade).

If you are to trade often for a small profit, the spread is a factor as it takes time to get through a large spread before seeing even a tiny profit.

Watch out for your leverage. Make sure it is adapted to your budget and trading style. Very high amounts of leverage are dangerous in scalping: it’s probably unwise to try more than 50:1.

This may limit your scalping opportunities to some extent if you plan on working with exotic currencies where spreads tend to be wide. If you start out, at least, with the major currency pairs, you are more likely to have opportunities with tight spreads.

There is another good reason to start off your scalping with the majors. The major currency pairs like USD/GBP or EUR/JPY see vast amounts of investment every day from large institutions, professional traders and brokers. This makes for orderly trading, as they remain relatively stable – you are not likely to see USD/GBP go plunging to be nearly worthless. Even a market shock caused by a central bank announcement of something of equal force will not create wild swings.

Carry Pairs and “the Guppy”

Another excellent opportunity for the scalper is what is called “carry pairs.” The term comes from the “carry trade,” which is very popular in Japan among small investors.

In a carry trade, you borrow Japanese yen at a low-interest rate. With these yen, you buy a currency that has a high-interest rate. The interest you earn on the high-interest currency goes to pay off the low interest on the yen loan and leaves you with a profit. Similarly, a carry trade in forex means buying yen at a low rate and then investing the yen in a higher-interest-rate currency. The Swiss franc, another low-interest currency most of the time, is also often used in this kind of trade.

There is, however, one currency pair with major currencies that is famous for its volatility. That is GBP/JPY, commonly referred to as “the guppy” (that is just from pronouncing the letters gup -y).

The guppy is exceptionally volatile, and trading it successfully is one of the excellent skills for forex traders. Profits are high, in that the guppy moves fast. Losses are high too, as you might guess.

A guppy scalper has to get through a large spread based on the volatility of the currency. But if you guess right, your chances of making a lot of pips are strong. It’s probably best that beginners stay away from the guppy, but once you have some experience under your belt, you might go for it. Watch it carefully for a couple of days before you try.

If you are just starting forex scalping, look for range-bound trading. This is the paradise for forex scalpers, as you just keep betting on the observed market movements. Apparently, it never lasts forever, but a short period of scalping in orderly trading can be quite profitable.

Take your time, make a good plan, and go to work.

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How to Use the Moving Average in Forex Trading

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Moving Average

The Moving Average is very important in forex trading. Read forex technical trade analysis and, again and again, you’ll see references to moving averages. The computers that move most of the money on the forex market are programmed to track moving averages – this means you had better notice them too.

The advantage that moving averages give you is that they smooth out “market noise.” You want to isolate the trend, but forex prices often go through anti-trend variations before falling back on the trendline. Using moving averages, you can look through very short-term changes and keep your bet alive on the real trend. No, it doesn’t always work, but you’ll be on the right side of probability if you stick with moving averages.

You are probably familiar with the mathematical concept of “averages” from your high school math days.

To find the mean average of a set of numbers (there are other kinds of averages), you add them up, count how many there are in the set, and divide the sum of all the numbers by the total number. For the set 1234567, the average is the sum=28/7=4.

The mean average is what forex traders use to calculate what is called the “simple moving average.”  Start with the chart you want to work on: Let’s say the one-hour chart. You want the moving average for a 24-hour period. You add up the closing prices from each hour, and you divide by 24.

If you plot this on the chart – there’s a tool available on most forex trading platforms – you’ll see the general direction of the price action.  Working with a simple moving average, the shorter the time period, the closer it will be to the price movement.

You get a sense, from this, of the overall sentiment on the market, but you have to watch for extreme movements that buck the trend. If for some reason, one closing price is much lower or higher than the others, your calculation will be off. This happens when something affects orderly trading – you know, a major announcement, for example, from a central bank that causes an extreme price change.

Long-term traders often use the 100-day or 200-day simple MA, but many forex traders prefer the 50-day exponential moving average which is closer to short-term trends.

Here’s a recent example: “USD/CAD was supported by the 200-day (MA) this week before turning higher…”  

 

The Exponential Moving Average

An exponential moving average for a short period will stay closer to the price changes than a simple moving average.

You don’t have to make this calculation, as the platform will have a tool to do it for you and to draw the trendline.  But here’s how it works:

The exponential moving average (EMA) is a weighted average of the last n prices, where the weighting decreases exponentially with each previous price/period. In other words, the formula gives recent prices more weight than past prices.

Exponential moving average = [Close – previous EMA] * (2 / n+1) + previous EMA

For example. a four-period EMA with prices of 1.5554, 1.5555, 1.5558, and 1.5560, with the last value being the most recent, gives a current EMA value of 1.5558 using the calculation [(1.5560 – 1.5558) x (2/5) + 1.5558 = 1.55588].

What you get from the exponential moving average

Moving averages can be used for both analysis and trading signals.

As we’ve seen, both moving averages help you to isolate the trend, although the exponential is closer to it. When the price of a currency pair crosses above its moving average, it suggests that the price will keep on moving higher, so it indicates an upward trend. And vice-versa when it crosses below a moving average – think downward trend.

It’s useful to put a long- and a short-term moving average on a chart together, and wait to see which one crosses the other – this too will give an accurate trend indication.

In a sustained uptrend, the currency pair price generally remains above the 50-day moving average, and the 50-day MA remains above the 100-day moving average. If the currency pair price falls sharply below the 50-day moving average, which remains below the 100-day moving average, it signals a pretty sharp downward trend.

And moving averages are often combined with other indicators to form a new one – as in the Keltner Channel.

There is no one right choice for moving averages as an indicator. You should understand the differences among the various alternatives, and choose one that fits your strategy.

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How to Read a Forex Quote

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Forex Quote

A forex quote holds a great deal of information that you need for your forex trading. It’s not a complex concept, but it’s one that you will need to understand.

This is a basic forex quote.

 

EUR/USD

1               1.0717

This means, of course, that one euro is equal to 1.0717 US dollars. Each euro you spend to buy dollars will give you that amount.

So the standard format for a currency pair is x/y, as above. Note the four decimal points – the last one is referred to as a pip in almost all currency pair quotes except that of the Japanese yen – that currency is quoted to two decimal points (and the pip is the last one).

In the above formula, x is referred to as the “base” currency, and y is called the “quote” (or sometimes the “counter”) currency.

You will usually see forex quotes in a more expanded form:

 

EUR/USD

1/1.0717/25

This forex quote encompasses the “bid” price and the “ask” price. The first price – 1.0717 – is what you can buy euros for. It is the price at which the forex trader will enter the market when selling the currency pair. The second price – 1.0725 – is what you can sell one euro for with dollars. It is the price which the trader will enter the market when buying the currency pair.

When you are buying the base currency, probably because you think it will increase in value,  then you are selling the quote currency and you are also entering into what is called a “long” position. If you instead sell the base currency and buy the quote currency, you are going into a short position. 

 

Direct and Indirect Quotes

There are two types of currency quotes in forex: Direct quotes and Indirect quotes.  A direct currency quote is simply a currency pair in which the currency of the country you live and work in is the quoted currency; an indirect quote is a currency pair where the local currency is the base currency. So if you live in the U.S., and you’re looking at USD/GBP, the direct quote would be USD/GBP, while an indirect quote would be GBP/USD. The direct quote varies the domestic currency, and the base, or foreign currency, remains fixed at one unit. In the indirect quote, on the other hand, the foreign currency is variable, and the domestic currency is fixed at one unit. 

Most traders, however, don’t make all their trades based on their local currency. You might start out that way because you have a better sense of trading the money you use to buy things with. But you’ll soon see opportunities in what are called “cross currency” trades, in which the dollar is not a component. If you have a good sense of international economic affairs and follow the forex economic calendar, this kind of forex trading can be quite profitable.

What is the spread?

The difference between the bid price and the ask price in a forex quote is called the spread. In the previous example: EUR/USD, the spread is 8 pips. A pip may seem an incredibly small amount, but if you’re trading a few million in the forex market, even a half-pip movement makes a pretty considerable difference.

Most brokers in the forex market do not take commissions on trades. Instead, they earn their profit with the spread. You will conclude from this that, the wider the spread, the more the broker makes, but that’s not how it works really. A broker who gave really wide spreads would quickly lose all his customers. Brokers compete on spreads, and you should compare spreads when choosing a forex broker.

Part of the strategy of spreads is based on the kind of currency pair being traded. When it’s a major currency pair, with trillions being exchanged every nano-second, brokers narrow the spreads. When it’s an exotic currency pair, in which there may not be much liquidity, brokers widen the spreads to make up for the lack of business.

From a forex trader’s point of view, when you make a trade, you have to start out by beating the spread before you see any profit. If the currency pair you are interested in trades with a wide spread, you must consider that the trade will earn a lot of pips before you can break even. You must calculate your strategy with this in mind.

Use of lots

Another aspect of currency pairs is the use of lots. To facilitate trading, brokers don’t trade make a single trade at one time, they group them into lots.  The standard lot is valued at $100,000. There are also smaller lots with a size of $10,000 called mini-lots, or $1,000 called micro lots. Because most trades are intended to profit from small movements of currency pairs,  only a few pips at a time, these large lots of currency are put together to take advantage of small price movements.

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How Forex Calculators can help your Forex Trading

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Forex Calculator

Our Forex Calculators

At this link https://fxtradingpro.com/forex-calculators/, the reader will find five forex calculators, each designed to make your forex trading easier.

 

Pip Calculator

A pip, in most currency pairs, is the fourth decimal place in the price. If you are long in GBP/USD, and the price move from 1.1111 to 1.1112, you have gained one pip. You sometimes see a fifth decimal place, which is a fraction of a pip.

When you are planning your trades, you should be managing risk by considering position size – how much will you risk on this very risky trade? How much will you put down for this fairly safe trade?

To calculate position size, you need to know the value of a pip. Our forex calculator tells you what the value is when you input your account currency. The calculator then provides price, pip value for a standard lot, pip value for a micro lot, and just the basic pip value itself.

 

Margin Calculator

Margin, in forex, is the amount of actual cash you must put down to make a trade. It is closely linked to leverage, because the more margin that is required, the more actual cash must be put up with less leverage in the trade.

Your broker will have fixed requirements for margin and leverage – and traders must always be attentive to how much leverage they are taking on at the risk of large losses. We cite typical margin requirements and the corresponding leverage:

Margin required

Maximum leverage

50%

2:1

3.33%

30:1

2.00%

50:1

0.5%

200:1

 

The Forex Calculator to calculate the margin required, input the account currency, the currency pair, the margin rati, and the trade size. Click on “Calculate,’ and you’ll see the margin used in US$.

 

Fibonacci Calculator

A Fibonacci retracement is used to identify support and resistance levels. It is based on the sequence of numbers identified by the 13th century mathematician Leonardo Fibonacci. The important aspect of it in forex trading is the ratios determined by the numbers in the series.

A Fibonacci retracement is created by taking a high point and a low point in a price movement and dividing the vertical distance by the key Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8% and 100%. 

Choose between an uptrending retracement, and one that is downtrending.

Enter the high point for the currency in the first box, and the low point in the second box. If you use a custom ratio, input it in the “Custom” box.

 

Pivot Point Calculator

 

A pivot point is a calculation intended to identify support and resistance. Many forex traders use pivot points as, like a Fibonacci retracement, it uses mathematics to show what the market will do.

 The classic pivot point is simply the average of the high, low and closing prices from the previous trading day.

Here is how it works:

 

  1. Calculate the pivot point: (High+Low+Close)/3.
  2. Now calculate the support and resistance levels.

First Resistance Level: (2 times the Pivot Point) – Low.

Second Resistance Level: Pivot Point + (High-Low)

Third Resistance Level: High +2 (Pivot Point-Low).

 

  1. Now calculate the Support Levels.

First Support Level: (2 x Pivot Point) – High

Second Support Level: Pivot Point– (High – Low)

Third Support Level: Low-2(High-Pivot Point).

 

The other three types of pivot points indicated in the forex calculator use different calculations for the pivot point, and for support and resistance. Woodie's formula gives more weight to the closing price of the previous period to calculate the pivot point and the resistance and support levels. The principle is the same as above, however, so just input the info requested in the calculator and you’ll get your answers.

 

Profit Calculator

This forex calculator pretty much speaks for itself but is very handy in the midst of a complicated trading day.

Just input the basic elements of your trade, and see what you’ve hopefully earned (or sadly lost).

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How to Use Fundamental Analysis in Forex

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Fundamental Analysis

Fundamental analysis in forex is a powerful tool that can effectively indicate currency pair price movements.

Why is it called ‘fundamental?’ Because, instead of looking at the charts, it looks at what’s going on in the world that might change the price of a currency. Nearly all currencies that we trade are linked to a nation state, or a region (like the euro). When times are good in Japan, and the economy is strong, the Japanese yen goes up in price. Bad times mean it goes down in price.

So fundamental analysis looks closely at the factors that are affecting the economy. There is a vast range of factors to be considered, and, in fact, a national economy can be affected by political changes, wars, environmental disasters, health crises, changes in the price of energy, and just overall global economic changes like a slowdown or a recovery.

There are, in particular, certain economic events that tend to drive the price of a currency higher or lower, and fundamental analysis zeroes in on those events.

Interest-rate increases and decreases are one of the most fundamental factors for a given currency: Higher interest rates make it worth more with respect to others and vice-versa for interest-rate reductions.

So, here’s what happens when interest-rate rises are expected:

(Reuters – New York – Feb. 28, 2018) – The dollar rose to five-week highs on Wednesday, bolstered by an upbeat assessment of the U.S. economy from the Federal Reserve’s new chairman, which raised expectations the central bank could aggressively increase interest rates over the next two years.

A fundamental analyst will try to predict this change ahead of time, and then enter a trade at the lowest point possible close to the event.

 

Economic Data to Watch for

 

Interest-rate changes are only one of the vast number of economic factors and events that fundamental analysts watch.

Some of the most important include:

 

  • Any major central bank announcement;

 

  • Employment statistics

 

  • Sales of homes and property in the country

 

  • Consumer confidence reports

 

  • Purchasing Manager Indexes (these are surveys of private companies by a researcher called Markit)

 

  • National credit rating (issued by analysts like Fitch or Moody’s)

 

There are a great many events the forex economic calendar, and it is up to the fundamental analyst to choose the one that is significant in a given trading period, research to get ahead of it and predict it, and then take advantage to enter the trade at the right time.

 

Working with Fundamental Analysis

 

You may wonder how to sift out the data and events that move the forex market from the ones that can be traded?

Fundamental analysis requires lots of studies. You need to have a deep understanding of the economic factors in play. So, if you wish to trade USD/GBP using fundamental analysis, you will look back over several years, and see how the market reacted to certain announcements, and, most of all, you will learn why it reacted.

Because, sometimes, the market doesn’t react the way you’d expect.

For example, on Dec. 18, 2018, the Fed raised interest rates. You would have expected the dollar to move higher against the pound, but it didn’t. Why? Because the Fed’s announcement that accompanied the rate rise said that there wouldn’t be any more for a long time. Forex Traders took that as a sign to unload the dollar, and it fell.

Of course, you would also want to know, at the time, what the British economy was doing, and whether the pound might fall along with the dollar? These are the kinds of questions to consider in fundamental analysis.

 

Technical and Fundamental Analysis together 

 

You may have guessed by now that, because of its complexity, fundamental analysts tend to trade longer term than technical analysts, who are just looking at what happened in the recent past on the charts.

But it’s wise to always keep a bit of the fundamental approach on your radar screen as you are trading. Suppose you’re trading the five-minute chart? You don't expect any economic events to interfere with the orderly patterns you’ve observed and wanted to make use of.

All of sudden, the ministry of finance of the country whose currency you’ve just gone long in releases a devastating economic report about the currency you are trading. According to the ministry, a recession is just around the corner!

The currency you are going long in plunges right past your stop-loss.

This is why even a died-in-the-wool technical analyst pays attention to fundamental factors.

 

Tools for Fundamental Analysis

The most basic tool to use to avoid situations like the one just described is always to read the daily economic calendar published either by your forex broker or by one of the forex websites. There are also economic reports for the day from some forex pubs. These would have indicated that the country’s ministry of finance was to release an economic report on that day, and you would have known to keep away from the national currency ahead of the announcement.

Some other very useful tools are less tied to daily events. Economic reports on nearly every country in the world are published regularly by the International Monetary Fund and the OECD. These can be obtained on the organization’s websites, and they will give you a very accurate idea of what factor matter most for the economy of the country whose currency you wish to trade.

In the same way, it’s useful to read the economic press regularly, with particular attention to the countries you are interested in.

One website, https://tradingeconomics.com/ has an enormous wealth of data about nearly every country in the world and is extremely useful.

Don’t be afraid to try fundamental analysis when you feel confident you know the economic situation behind a currency pair well.  Research and knowledge lead to wins with this technique.  

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How to Get Started with MetaTrader 4

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MetaTrader 4

The MetaTrader 4 forex trading platform is one of the most popular in the world, but that’s not because of its ease of use.

What’s good about it is the wealth of functionality it offers: The longer you trade, the more you will learn about new forex indicators or techniques, and then, sure enough, you’ll find something to help you with what you’ve learned on Metatrader 4.

Download and install MetaTrader 4

The first step is to download the platform and to install it in the usual way. This can be done here. But your broker may offer you a download on the broker’s site, and this is worth starting with because the forex broker often tweaks MetaTrader 4 in specific ways that may be useful to you.

We recommend that you start with the desktop version in which you will find it easier to locate features you need – the mobile version is tops, too, but, necessarily, a lot smaller.

Opening or Adding your Account

The Accounts prompt on the navigator permits you to start with various types of accounts. You can quickly open a demo account without even linking up to a broker. Or you can input the specifics of the account your broker has provided into a live account: You will need to choose between an existing live account or a new account.

You will have to add your forex account data for authorization, and then log in. It is a good idea at this point to update the version you’ve downloaded to make sure you have all the bells and whistles.

Setting up the Client Terminal

The user should now select the features he/she wishes to adjust in the Client Terminal.

Some of these will be obvious, i.e., you can send email from the terminal at the prompt indicated.

If you have downloaded your platform from the broker, other settings like that of the “Server” will have been configured for you.

But you will want to have a close look at the charts section – this is where it all starts. You can select the charts you wish to have displayed, and fix the time period (i.e., 5-minute chart, fifteen-minute chart). There are other settings like the Ask-Price level and the amount of bars displayed that you can adjust to your liking.

You’ll also want to fix the trading parameters – how new orders are opened, which financial instruments you want to work with, amounts, etc.

You can also here choose if you wish to automate your trading, and select which Expert Advisors (automated trading algorithms)  you want to work with. You’ll be asked if you want to automate, and offered specific options, like a profile change that will disable it.

In the terminal is the “trade” tab, that lets you see open orders and all the trade’s activity.

 

Metatrader 4 Basics

Once you’ve become familiar with the terminal options, you can get to work with how to trade.

By default, MT4 opens with four chart windows, each representing a different currency pair. At the top of that screen, you’ll find the toolbars, where much of what you’ll apply to your trades is found. Below the toolbars, on the left side of the screen, there is a window called “Market Watch,” that allows you to observe other market activity.  By clicking the ‘Tick Charts’ option on that window, you can see the current price activity of any of these pairs.

Making a Trade
Finally, we come to making a trade! You do this by opening the “Order” window. Then you have three choices:

·      Choose a currency pair in the Market Watch window and right-click on it. This will open the order window, and you can select “New Trade.”

·      Choose a chart that is already open and right-click on it. Select “Trade,” then “New Order.”

·      If you look closely at the toolbar, you'll see a “New Order" prompt – just click on that.

Hopefully, you’ll have planned your strategy carefully before you click the new order to open.  You’ll find the button to stop the trade in the same place you found the one to start it.

The open order can be viewed in the "Terminal" window by clicking on the "Trade" tab.

Traders often wish to modify an open order, even if they can’t change it.  You can, however, add a stop-loss or take-profit, for example. This can be done by highlighting the trade in the “Trade” tab of the terminal, then right-click on it and select "Modify or Delete Order."

Explore the Metatrader 4 terminal, examine things you’ve not seen before, and, as you learn new forex trading strategies, find the support for them there.

 

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