Wednesday, February 24, 2010

Understanding Fundamental and Technical Analysis in Forex Trading

To become a successful Forex trader you need to understand how to analyze the market. Market analysis in case of Forex Trading is usually done in two different ways. These are Fundamental Analysis and Technical Analysis. So what really is fundamental analysis and what is technical analysis? Let us understand what these terms mean and how can one use these techniques to trade in a better manner.

  • Fundamental Analysis: Fundamental analysis deals with analyzing the economic, social and political position of a nation as a whole to determine the value of its currency and to determine whether the currency's value will rise in the near future or whether it will fall down. The main principle behind this is that if the economy of a nation is doing very well then its currency would also do well. Certainly the value of a currency of a nation which is having a growth rate of 10 % per year would be better than the value of a currency of a nation whose progress is very slow. Similarly the currency of a developed nation will have higher stability than that of a developing nation. Fundamental Analysis basically means that a good economy leads to higher currency value and a bad economy leads to a lower currency value.
  • Technical Analysis: Technical analysis deals with Forex Trading at the root or basic level. Technical analysis is the study of the price movement of a currency pair.By this we mean that in Technical analysis we analyze the price of a currency pair with respect to time and find out the change in the value of a currency pair over a certain interval in order to ascertain which is the best currency pair to invest in and at what time should the investment be made. One of the most important thing that one must learn or try to interpret is trend. A trend is a situation when the value of a pair is either falling or rising constantly. A trend can earn you money in forex trading. If you are able to find a trend and follow then you would surely gain from it. So it is important to find out trends and follow them to earn a profit.

From the above discussion we can conclude that Forex Trading has two aspects that need to be understood in order to gain an advantage over other investors as well as the market. Complete understanding of Fundamental and Technical analysis techniques can help you earn a continuing profit in the Forex Market.

Forex Trading Technical Analysis

As 2009 draws to a close, what can we learn from years past about the value of the USD and what happens to it during the holiday season. It's simple to find out yet so few people actually take the time to apply what they know about forex trading technical analysis to seasonal changes.

For instance, I have been making the point that I believed the the year would close out somewhere near the point that the month of October 2009 closed out. Why would I believe that and how did I come to that conclusion? So far, with only 11 days left in the trading year, my prediction is proving to be right.

Knowing the exact price that prices will close at would be impossible. I can however guess within reason the range that it will be in. In round numbers, I am suggesting that the USDINX will little unchanged form it's October 2009 close. That means that I believe that the index will be near 76.36 I reached this conclusion by looking at years past, and comparing those years price action to the current years price action.

Here is what I found. In 7 of the last 9 years, the index moved lower in the October through December time frame. Only twice did it close higher. In those two years, the index moved higher for the entire January through October time frame. This year certainly wasn't one of those years. In addition to that, two of the years that closed down, closed down only very marginally. Taking a closer look at the two years that closed up (2001 and 2005) and the two that closed down only marginally (2006 and 2007) brought me to my conclusion.

Since this has not been an up year, I ruled out a significantly higher close for the two month period. Looking that the two years that closed basically sideways, shows us that they were years of either correction or continuation. Since this was definitely a year of correction, I presumed that the year would close sideways for the two months ending the year.

I didn't leave it at just the index either. It's important to look at the major pairs that contribute to the index as well. Once I had done that, I was comfortable making my prediction.

Fundamental Analysis in Forex Trading

Most forex traders plan their trading strategy on the basis of fundamental and technical analysis methods. Generally fundamental and technical analysis are used together in which fundamental analysis method explains the causes of market movements and technical method explain the effects. Fundamental analysis is a method which depends upon economical, political, and other factors to forecast the price of currencies in future. It mainly focuses on political changes, inflation rates, policy of exports and imports, GDP, business related law of the country and many other factors. All these factors may be causes of movements in price of currencies.

Fundamental analyst provides a details overview of changes in price of currencies on the basis of political and economical concepts and issues. Interest rates, supply and demands, foreign investments, trade balance, and political and economical stability etc. are some factors which fundamental analysts take into consideration. This provides a picture of market movements and mainly studies the elements which can affect the economy and on the basis of these it forecast the price trends of currencies pairs. The points on which this analysis is based are following-

Fundamental Economic Analysis- In economic analysis the analyst determine the strength of economy in present and future through Grass Domestic Products(GDP), foreign investments, stock prices etc.

Interest Rate- Interest rates effect the economic growth. If interest rates will raise then the price of currency will move up due to more foreign investments.

Commodity Price Analysis- Price of commodities determines the economic growth of the country. Therefore price of commodities like gold, silver, gas, and oil etc. are important points of consideration here.

Besides these another points which are also considered in fundamental analysis are stock market and currency exchange rates analysis etc. In present financial scenario forex markets are being changes frequently so any forex traders can't avoid this analysis because it forecast the overall economic condition on which price of currencies depends. Without fundamental analysis, it is very difficult for any forex investor to take a right forex trading judgments.

Sunday, February 21, 2010

Computer For Forex Trading

Many people want to start trading forex (also known as foreign currency exchange or fx), but do not know how and what to do. The first thing you will need is a good laptop or computer with plenty of RAM (Random Access Memory where the operating system, applications and data uses to run).

The worst thing that can happen to a trader while trading is if he runs out of RAM. The computer might hang or slow down dramatically. For a little extra money, you can easily upgrade your RAM to the maximum available, in tandem with technological advances. You need to have sufficient RAM to run the trading platforms, charts and software smoothly.

Having many screens or monitors to look at different charts and live news feeds are luxuries. However, if you are a beginner and have a tight budget, you can start off with one screen/computer/laptop, and when you become more proficient at trading, you can use the profits to invest in more equipment to facilitate your trading. Make sure that you place your screen directly in front of you, and not at an angle up or down, as this would cause you to have a stiff neck and shoulder pain, after some time of sitting in this position.

Spend the rest of your budget to get the fastest system that you can afford to facilitate the ease of your chart and data analysis, and trade executions, as this is crucial in determining your profits. You need a computer with a good processing power.

Try to find a broker which provides charts and data on a gray background, as staring for long hours at the computer screen with a white background can be pretty strenuous on the eyes.

There is a whole variety of computers that you can choose from. The most important consideration is your comfort. If you are going to make trading forex a lifetime career, you must be comfortable, relaxed and enjoy it.

How to Win at Forex Trading

When you get into forex trading, you should know how to win at it otherwise your investment will be go down the drain. The primary thing that you need to do is plan. Without proper planning you wouldn't be able to see the general picture of what you are into. To start planning you have to consider the following:

1. What is your level of skill? This goes to say that you should be ready to learn forex trading in the first place. Are you aware of probabilities? Remember that forex trading is entering into business without certainties, only evaluation and right judgment. Professionals are trained in this skill so you better know your level on this part.

2. How well can you take risks? Forex trading involves taking risks. You need to forecast well and stand up for possible risks. You need to be knowledgeable on how to play with the capital invested and be prepared of the possibilities. Of course, this means that you have to minimize risks.

3. What is your target? Usually, traders set a 1:3 ratio in forex trading. This means that in every 1 dollar loss, you should have 3 dollars profits. The name of the game is to be as profitable as possible and get lesser loss. With this target, you would then develop a strategy that can be counted on.

4. What is the condition of the market? Before you sign in the market, you need to be sure of the value at stake in that market. You can use indexes as tools to evaluate the market. Most of the time, the realities that are happening based on current news are the basis of most traders.

5. Are you mentally alert? It is important that in forex, you are not tired or mentally stressed. By then you will have the tendency to commit mistakes and put your investments at high risk. Mental alertness is actually required for proper thinking and evaluation.

6. Set target to exit. There re times that in your quest for more profit, you wouldn't know when to exit even if you incur losses. Just remember that professionals do have losses, but they know when to stop and go. You should know how to put an end to trading as well and get lessons for the day trading.

7. Know when to enter. After knowing how to end, it is also important that you know when to start again. If the goal is 1:3 ratio, then you should be aware of the signal of this possibility. Online forex trading software provides signals that you should go for the contract when the direction it shows seem fit.

When you know how to win at forex trading by heart, you would be a successful trader. Your wins will be higher most of the time.

Forex Trading Strategy

Forex trading is an exiting way to earn money provided that a good strategy is planned before starting to trade and also well followed during trading. Four basic factors must be considered in order to build a forex trading strategy which will be illustrated below.

First, the planner should determine the time frame which will be used during the trading. The meaning of choosing the frame is to choose the period during which price will be noted for change. It may be in the range of minutes such as one minute or five minutes or in the range of hours or even days. Each period has its advantages and disadvantages. For example, in the high periods such as the one day period, the movement from one period to another will be high and thus there will be higher profits as well as high risk. The daily trading is considered long term forex trading strategy while low time periods such as hours and minutes are considered low term forex trading strategy.

Second, the analytical methods which will be used during forex trading must be planned carefully. This step is considered the most important one in the planing. It can be fundamental or technical schemes. The technical analysis depends on analyzing the curve of the currency pair price which will be traded. It uses technical schemes in order to predict the price movement in the future based on the history of the price. The most popular schemes are simple moving average, exponential moving average, stochastic, Relative Strength Index, MACD, and pivot point trading. The fundamental analysis depends on economical news analysis

Third, money management planning must be considered as part of the strategy. What meant by money management is to determine the percentage of the forex account which will be traded, the profit limit, stop limit, and risk to reward ratio. This is very important in the planing although it is ignored by many people.

Fourth, the entry and exit points must be determined according to the analysis used in trading the forex. This means to determine when to enter a trade and when to exit. This will deepens on the technical analysis used in studying the pair. For example, if pivot point is used as a trading strategy, the entry point may be the pivot line and the exit point may be the first resistance level.

Once the trader determined the four above points, then the strategy then the forex trading strategy is built. An important thing to do after building it is to follow it carefully and respect the rules inside the forex e trading strategy.

Forex Trading Software Online

I have been testing and reviewing Forex trading software online for several years now. During that time, I found out that most of these systems were complete garbage or too difficult to understand for someone just starting out in Forex trading. I like to try the new Forex trading software online when they are released and if they work I keep them, if the product does not do as advertised, I get a refund. Most of the products I buy, review and test come with a no questions asked, 60 day money back guarantee. This is a good thing, because I end up returning most of the Forex trading software and products I purchase.

So a few months ago, while I was checking out some of my favorite Forex blogs, I came across a website advertising a new Forex expert adviser software package called FAP Turbo. I asked a friend of mine about it, who trades Forex professionally, and he told me that he was running FAP Turbo at home to see if this "robot" could beat him at his own game. Kind of like the chess match between Deep Blue and Garry Kasparov back in the late 90's.

If you remember, Deep Blue was a chess-playing computer developed by IBM. On May 11, 1997, the machine won a six-game match by two wins to one with three draws against world champion Garry Kasparov. FAP Turbo is a lot like Deep Blue, except instead of playing chess extremely well, it uses complex algorithms and mathematical calculations to make profitable Forex trades on auto-pilot. But does it do it very well, like Deep Blue?

My friend had sparked my curiosity so I checked out their website and other than the sales hype; I was impressed with what I saw:

1) FAP Turbo is a 100% legal system developed by 3 tech geeks and a professional Forex trader. I like systems that are legitimate and are designed by people in the Forex profession...unlike some other Forex products that are developed by slick marketers just trying to make a quick buck.

2) These guys provide live trading results using real money which is updated every 15 minutes right on their website. I must admit, these live trading results are very impressive. Most of the Expert Adviser/Forex Robot software systems only provide back test results. This is the first time I have seen live results being displayed for everyone to see on the product sales page which indicates these guys are really putting their money where their mouth is.

3) Likewise, the backtest results for this software are pretty incredible. For those of you new to Forex trading, backtesting a trading system involves running the expert adviser software against historical market data and analyzing the trades the software robot would have made according to the robot's built in trading strategies. This provides you a good idea as to whether or not the system actually performs as expected under diverse market conditions over time. The 9 year backtest results on a $10,000 starting account show FAP Turbo making profitable trades over 95% of the time with a 5,000% net profit totaling almost a half million dollars!

4) FAP Turbo is a 100% automatic Forex trading robot, so once you get it installed and configured, the software runs and makes trades on auto-pilot...all you really need to do is make sure you have a good Internet connection and check your account balance.

Does FAP Turbo Work?

I purchased the FAP Turbo Forex trading software online and immediately downloaded it and got it up and running within a half hour using the instructional videos provided in their members section. To say that I have been impressed with the results of FAP Turbo would be an understatement. The software performs exceptionally well under even the worst economic conditions, including the current financial crisis. In my 3 yrs of Forex trading experience I have never found a system with this kind of accuracy and ease of use.

And what about my friend who put FAP Turbo to the test against his professional trading skills? Like Kasparov against Big Blue, my friend lost. Over the last few months, FAP Turbo has made winning trades over 94% of the time vs my friend, "the professional trader" winning about 27% of time trading Forex the old fashion way...manually, filled with plenty of sleepless, stressful nights evaluating neon green charts and graphs.

Did FAP Turbo pass the sniff test? Absolutely! This automated trading system has given me more income than my 9-5 job and more importantly, more free time with my family...the software analyzes the Forex market and makes profitable trades for me automatically.