What Is Day Trading?

We often hear the term ‘day trading’ today but just what is day trading?




In very simple terms a day trader buys and sells with a very short investment horizon which is typically measured in minutes with trading positions being opened and closed within the same trading day. Day trading is particularly suited to high volume, volatile markets such as the Forex but is certainly not limited to currency trading. It is for example very commonly seen in the equity markets, although it tends to be seen on the more volatile exchanges such as the NASDAQ, rather than the NYSE or AMEX.

The principle is simply to spot an opportunity and then profit from it quickly getting in and out of the market with just enough time to make your profit and too little time to risk the market turning against you. For example, you might open a position at 11:00 am and close it out just a few minutes later at 11:07 am to take a small but quick profit and repeat this process as many as a hundred times in a single trading session.

Today this traditional definition has been widened somewhat and we now also refer to the practice of trading from home through an online broker as day trading. And, just to complicate matters, the term ’swing trading’ has also started to appear recently to refer to traders with a slightly longer investment horizon of anywhere from one to five days.




Day trading in its truest form (buying and selling with a very short investment horizon) is a risky business and is not something which you should try unless you know exactly what you are doing as, while it can be very profitable, it can also produce very large losses very quickly.

Although we talk about ‘investment horizons’ it also needs to be understood that day trading is not the same as investing and you will be working to very short time frames during which you will need to be glued to your computer screen jumping onto the wave of a trade as it gains momentum and the jumping off as it crests in order to ride the next wave. Spotting the waves as they roll in and knowing just when to jump on and jump off requires both skill and practice.

For those who enjoy the excitement of the roller coaster ride then day trading can be both exciting and profitable but it is not something for the novice forex trader and should only be contemplated once you have cut your teeth in the world of currency trading and gained a fair amount of experience.

Article Source: http://learningforextradingonline.com/forex-questions

The Importance Of Real Time Forex Charting

Trading in the foreign exchange market today means having a sound understanding of technical analysis and in particular an ability to keep track of currency pairs by learning the skill of reading live or real time Forex charts. For the novice trader this also means finding a source of good online Forex charts and, better still, free Forex charts. Even better, if you can find yourself some free chart pattern recognition software for Forex and learn how to use it you will be well on your way to trading with a fair degree of confidence.




Online forex charting conveys information about currency prices at specific time intervals ranging from as little as one minute up to several years and prices can be plotted either as simple line charts or as bar or candlestick charts showing price variations at specific time intervals.

Line charts are easy to read and give a broad overview of price movements which often allows you to clearly define patterns in price movements. By contrast, bar charts are not quite as easy to read but do provide far more information.

In simple terms the length of each bar on a bar chart indicates the price spread for a given period and the longer the bar the larger the variation between high and low prices. Opening and closing prices are shown on each bar so that you can see at a glance whether the price has risen or fallen and just what the variation in price has been. Although bar charts can be difficult to read, most chart pattern recognition software packages simplify the process of reading bar charts considerably.

Invented by the Japanese to analyze rice contracts, candlestick charts are similar to bar charts but are far easier to read as they are color-coded. For example, green candlesticks are used to show rising prices while red candlesticks show falling prices.

The beauty of candlestick charts is that the candlestick shapes when viewed in relation to one another form patterns many of which have been given names such as ‘Morning Star’ and ‘Dark Cloud Cover’ and once you learn to recognize these patterns it is an easy matter to identify trends in the market.

Although a real time Forex chart can give you a great deal of information about a particular currency pair this is often supplemented using a number of technical indicators including trend, strength, volatility and cycle indicators all of which are used to predict both movements in the market and market volume.

The most commonly used Forex technical indicators include:

Average Directional Movement (ADX). ADX can be used to ascertain whether a market is approaching an upward or downward trend and how strong that trend is likely to be.

Moving Average Convergence/Divergence (MACD). MACD indicates the momentum of a market and the relationship between two moving averages.

Stochastic Oscillator. The stochastic oscillator shows the strength or weakness of a market by comparing closing prices to a price range over a period of time. A high stochastic will indicate that a currency is being overbought while a low stochastic will indicate that a currency is being oversold.




Relative Strength Indicator (RSI). RSI is a 100 point scale which shows the highest and lowest prices over a given time. When prices move above 70 a currency is considered to be overbought and when prices move below 30 a currency is considered to be oversold.

Moving Average. The moving average is simply the average price for a set time period when compared to other prices during similar time periods. For example, the moving average of closing prices over a 14 day time period would be equal to the sum of the 14 closing prices divided by 14.

Bollinger Bands. A Bollinger band consists of three lines – an upper and lower line indicating the range of price movement and a middle line showing the average price. When the market is volatile the gap between the upper and lower bands will widen and when a bar or candlestick crosses one of the bands it will indicate a currency which is either being overbought or being oversold.

Article Sorce: http://learningforextradingonline.com/forex-charting

5 Reasons For Becoming A World Currency Trader

The foreign currency exchange market offers today’s investor many advantages and here are just 5 reasons why you might want to become a world currency trader.




A Market Which Never Closes

Many of the trading markets around the world are situated in fixed locations and operate within strict trading hours, often limited to just five or six hours a day between Monday and Friday. The Forex market however is open 24 hours a day.

This means that traders can not only take advantage of international events and react literally as they happen, but they also have the ability set their own trading hours. If you prefer to work in the mornings then that’s fine but, if this doesn’t suit you, then you can choose to trade during the afternoon, late evening or even in the middle of the night if you want to.

Low Trading Costs

In many markets, like the equity market, traders not only have to pay a spread (the difference in price between buying and selling a stock) but also have to pay a commission to the broker. On small trades this commission can typically be about $20 and this can rise rapidly to over $100 for larger trades.

Because the foreign currency exchange market is a wholly electronic market many of the traditional trading costs are eliminated and you are in affect reduced to paying nothing more than the spread. In addition, the extremely liquid nature of the global currency exchange market means that spreads are normally much tighter than those seen in other markets.

The Ability To Trade On High Leverage

In most markets where a trader has an opportunity to trade on leverage the leverage offered is often quite low. In the case of equity markets, for example, professional equity day traders will normally operate on a leverage of about ten times their capital. In the Forex market by contrast it is quite common to find that traders are permitted to trade at one hundred to two hundred times their capital.

A downside of high leverage is that it can of course lead to high losses as well as high gains. However, within the foreign currency market, risk management is extremely tightly controlled.

Limited Slippage

In currency trading trades are executed immediately using real-time prices at which firms will buy or sell the currencies quoted. In almost all cases this means that the price you see and the price you pay are the same.

This is not often the case in other markets where there can be often considerable delays between placing an order and that order being executed during which time the price will often move against you.




The Chance To Profit In Both Rising And Falling Markets

Equity markets follow rising and falling trends (cycling between Bull and Bear markets), but the Forex market does not suffer this cycling which comes from structural bias in the market.

World currency trading always involves two currencies so that if you are down on one currency then you are up on the other. There is therefore always the potential for making a profit whether the market is rising or falling.

Article Source: http://learningforextradingonline.com/forex-articles

An Introduction To Fundamental Analysis

It is generally said that information is the basis of profitable Forex trading but, though correct and timely information is indeed vital for currency trading, it is the examination of this information that is the real key. There are currently two main forms of analysis used in Forex trading – fundamental and technical analysis – and in this short article we are going to examine precisely what is meant by fundamental analysis.




At its simplest, fundamental analysis looks at both political and economic conditions that could have an affect upon currency prices and Forex traders who use fundamental analysis rely upon news reports for information on a whole range of things including, economic policy, inflation, growth rates and rates of unemployment.

Basically, fundamental analysis provides an outline of currency movements together with a broad picture of economic conditions that could well alter the value of a particular currency. With this picture in mind, Forex traders will then frequently move on to use technical analysis to then plot entry and exit points into the market and to complement the information gained using fundamental analysis.

The Forex market is much like other markets and is affected by the laws of supply and demand, which are also affected by economic conditions. Two economic factors affecting supply and demand are interest rates and the strength of the economy and the strength of the economy is affected by the gross domestic product (GDP), foreign investment and the economy’s balance of trade.

Various economic indicators are published by governments and other sources and are normally considered to be sound measures of economic health that are followed by all sectors of the investment market. Almost all economic indicators are published once a month although some are released more often and usually weekly.

Two of the key fundamental indicators are international trade figures and interest rates, but other extremely helpful indicators include the, consumer price index (CPI), producer price index (PPI), purchasing manager’s index (PMI), durable goods orders and retail sales.

Interest rates are an especially important indicator because they can have either a strengthening or weakening affect on a currency. High interest rates could, for instance, attract foreign investment which strengthens the local currency, while investors in the stock market frequently react to rising interest rates by selling in the belief that higher borrowing costs will have an adverse affect on many companies. High volume selling by stock investors can quite often result in a downturn in both the stock market and the national economy.




Indicators of international trade are also particularly important for the Forex trader. A deficit on the trade balance, indicating that imports have exceeded exports, is usually seen to be an adverse indicator as money leaving the country to purchase goods from overseas could well have the affect of devaluing the currency. However, fundamental analysis will also indicate market expectations and these will often dictate whether a trade deficit is unfavorable. For instance, it may be the case that a county usually operates on a trade deficit and that this has already been taken into consideration in fixing the price of its currency. In general terms, trade deficits will only affect currency prices where they are higher than the market would usually expect to see.

Each country has got its own set of economic indicators (presently there are some twenty-eight major indicators being used in the United States) and these strongly influence the financial markets. For this reason, Forex traders need to be conversant with them and study them carefully when preparing their trading strategies.

Luckily, for traders who are working on the Internet, many websites today provide an abundance of the latest information, but it is up to individual Forex traders to extract this information and then apply the principles of fundamental analysis to it before making their trading decisions.


Article Source: http://learningforextradingonline.com/forex-articles/an-introduction-to-fundamental-analysis

Why Most Forex Traders Use Technical Analysis

For many years Forex traders based their trading decisions on fundamental analysis which examines both past and current political and economic events in order to predict movements in currencies.




However fundamental analysis is a difficult art requiring considerable knowledge and experience and the ability to handle and analyze enormous amounts of data. As if this were not enough, there is also considerable disagreement in many quarters about just what data is and is not important when it comes to fundamental analysis and, even when it is agreed that certain data is relevant, there is often further argument about just how much weight should be attributed to each factor in the equation.

Today there is also a second form of analysis which is widely used and which is known as technical analysis. While proponents of technical analysis would probably tell you that it is no easier and in many ways more difficult an art to master than fundamental analysis, the truth of the matter is that it is a lot easier to learn technical analysis and this in no small measure explains why so many traders are adopting it in preference to fundamental analysis and are opting for technical analysis training. Which method is better is of course a whole different argument.

In considering technical analysis it is necessary to understand its three underlying principles:
All sorts of things will produce movements in currency prices, including political and economic events, but the forces which produce currency price movements are not important. As far as technical analysis is concerned it is simply the price movements themselves which are important and not the reasons for them.
A currency price will follow a trend which can be identified by looking at the patterns which emerge in the market over time.
A currency price not only follows a trend in terms of looking at historical market data, but will continue to follow this trend in the future. In effect this principle reflects the technical analyst’s view of human psychology and a belief that currency price movements are a consequence of the manner in which people have reacted, and will continue to react, in certain circumstances.

Many of the ‘old school’ and ‘fundamentalist’ Forex traders find it hard to accept the principles of technical analysis and still hold firm to the belief that you cannot accurately predict a currency’s movement unless you have a sound understanding of just what factors affect the price of that currency and indeed just what effect these factors will have on its movement.




Nevertheless, the fact of the matter is that many traders believe that this is not necessary and base their often extremely successful trading purely on technical analysis. No system, at least none that has been devised so far, will predict currency movements with one hundred percent accuracy but fundamental and technical analysis do a pretty good job.

In its simplest form technical analysis consists of taking historical price data (the foreign exchange market has over one hundred years worth of recorded price data) and feeding it into a computer which will then look for patterns in that data and display these in a graphical format. The trader can then look at the manner in which a currency’s price is currently moving and compare this to similar past patterns to predict the future direction of that currency’s movement.

This is of course a very much simplified view of technical analysis but in today’s computer age it is easy to see why many younger traders entering the Forex market are drawn to technical analysis.


Article Source: http://learningforextradingonline.com/forex-articles/why-most-forex-traders-use-technical-analysis

Forex Trading Strategies Are The Key To Successful Trading

Before venturing into the world of Forex trading it is vitally important that you stop and think carefully about the trading strategy that you are going to adopt, because Forex trading strategies are the key to success in currency trading. There is no single strategy when it comes to trading in the foreign currency markets and every Forex trader has to develop his own strategy. It is important however to have a clearly defined plan from the very outset.




Some Forex traders choose to use a technical approach when it comes to trading while others are more at home with a fundamental approach. Both approaches are of course sound, but in reality most successful traders use a combination of the two to give them both an overview of theforeign exchange market and to permit them to plot specific entry and exit points for each currency trade.

The idea behind technical analysis is simply that prices rise and fall according to well established trends and that the currency market possesses clearly identifiable patterns which can be seen as long as you know what to look for. Knowledge and experience come into play here, but it is also a question of using the numerous analytical tools that are available and this means having a sound working knowledge not just the patterns of price movement but also of the tools at your disposal.

Many traders also rely on what are known as support and resistance levels. Here ’support’ refers to a low price which is repeatedly seen as being the bottom of the market and from which there is a tendency for prices to rise. A ‘resistance level is a high price beyond which a currency is rarely traded.

The principle here is that, should a currency break through either its support or resistance level, its price is likely to continue in that direction. So, if the price of a currency rises above its resistance level it is considered to be bullish and the price can frequently be expected continue to rise.

Another commonly used tool in foreign currency trading is that of moving averages. A simple moving average (SMA) shows the average price in a given time period (say 7 or 10 days) when the price is plotted out over a longer time period. Forex traders use moving averages to eliminate short term fluctuations in price and to provide a clearer picture of the movements in currency prices. A SMA can be plotted to indicate when prices are displaying a tendency to rise or fall. Prices which rise above the average will frequently continue to rise and, similarly, prices which fall below the average will often continue to fall.

These are just two of the many trading tools that can be used either in isolation or in combination and it is recommended that traders make use of several trading tools to analyze the market. If you are relying on just a single trading tool then trading can often be risky but, if the results from several different tools show that the market is moving in a particular direction then trading can be conducted with a fair degree of confidence.

Many traders will base their trading upon a fundamental analysis of the market and thus base their trading on such things as economic and political events, trade figures, inflation figures, unemployment rates and a host of other similar forms of data.




Fundamental analysis can be very powerful but it is perhaps at its most powerful when it is used alongside technical analysis, particularly as a tool to reinforce the indications derived from technical analysis.

In many ways it does not matter what trading strategy you adopt as long as you are happy that it can provide you with clear expectations about movements in the market and indicate to you just where you should be trading and when you should enter and exit individual trades.

A sound knowledge and understanding of fundamental and technical analysis should be every forgein currency trader’s starting point when it comes to building a Forex trading strategy.


Article Source: http://learningforextradingonline.com/forex-articles/forex-trading-strategies-are-the-key-to-successful-trading

Forex Trading Strategies Are The Key To Successful Trading

Before venturing into the world of Forex trading it is vitally important that you stop and think carefully about the trading strategy that you are going to adopt, because Forex trading strategies are the key to success in currency trading. There is no single strategy when it comes to trading in the foreign currency markets and every Forex trader has to develop his own strategy. It is important however to have a clearly defined plan from the very outset.




Some Forex traders choose to use a technical approach when it comes to trading while others are more at home with a fundamental approach. Both approaches are of course sound, but in reality most successful traders use a combination of the two to give them both an overview of the foreign exchange market and to permit them to plot specific entry and exit points for each currency trade.

The idea behind technical analysis is simply that prices rise and fall according to well established trends and that the currency market possesses clearly identifiable patterns which can be seen as long as you know what to look for. Knowledge and experience come into play here, but it is also a question of using the numerous analytical tools that are available and this means having a sound working knowledge not just the patterns of price movement but also of the tools at your disposal.

Many traders also rely on what are known as support and resistance levels. Here ’support’ refers to a low price which is repeatedly seen as being the bottom of the market and from which there is a tendency for prices to rise. A ‘resistance level is a high price beyond which a currency is rarely traded.

The principle here is that, should a currency break through either its support or resistance level, its price is likely to continue in that direction. So, if the price of a currency rises above its resistance level it is considered to be bullish and the price can frequently be expected continue to rise.

Another commonly used tool in foreign currency trading is that of moving averages. A simple moving average (SMA) shows the average price in a given time period (say 7 or 10 days) when the price is plotted out over a longer time period.Forex traders use moving averages to eliminate short term fluctuations in price and to provide a clearer picture of the movements in currency prices. A SMA can be plotted to indicate when prices are displaying a tendency to rise or fall. Prices which rise above the average will frequently continue to rise and, similarly, prices which fall below the average will often continue to fall.

These are just two of the many trading tools that can be used either in isolation or in combination and it is recommended that traders make use of several trading tools to analyze the market. If you are relying on just a single trading tool then trading can often be risky but, if the results from several different tools show that the market is moving in a particular direction then trading can be conducted with a fair degree of confidence.

Many traders will base their trading upon a fundamental analysis of the market and thus base their trading on such things as economic and political events, trade figures, inflation figures, unemployment rates and a host of other similar forms of data.




Fundamental analysis can be very powerful but it is perhaps at its most powerful when it is used alongside technical analysis, particularly as a tool to reinforce the indications derived from technical analysis.

In many ways it does not matter what trading strategy you adopt as long as you are happy that it can provide you with clear expectations about movements in the market and indicate to you just where you should be trading and when you should enter and exit individual trades.

A sound knowledge and understanding of fundamental and technical analysis should be every forgein currency trader’s starting point when it comes to building a Forex trading strategy.

Article Source: http://learningforextradingonline.com/forex-articles/forex-trading-strategies-are-the-key-to-successful-trading

The Forex Demo Account

The Value Of Simulated Forex Trading To Currency Trading Success

As a novice you will probably begin trading by opening a Forex demo account and your first few trades will be paper trades, or simulated Forex trading, as you learn how the market works and how to use some of the trading tools. It is not long however before you are ready to move on and to put your paper trading days behind you.

But is it such a good idea to leave paper trading behind you?




Many successful Forex traders today are discovering that continuing to trade on paper from time to time can be both helpful and profitable.

Problems often arise for traders when they find themselves with a losing trade. Despite the fact that losing trades are an everyday part of trading life, you are always going to be affected by a trading loss and there is often a strong, albeit often subconscious, urge to recoup the money you have just lost as fast as possible. This frequently means that you go right back into the market but, because you are in a losing frame of mind, your next trade often also results in a loss or a less than spectacular gain.

For many traders the answer to this problem is to follow a losing trade with a paper trade.




In this case you trade seriously and in exactly the same way that you would trade normally but run the trade on paper. You study the market indicators, open a trading position, put a stop loss order in place and then track the trade. As the trade progresses you move your stop loss order as the market moves and, finally, you close out your position when your market indicators tell you to do so.

This paper trade might result in a profit or a loss but, as the trade is only being made on paper, it doesn’t matter one way or the other. The importance of this trade is that it allows you to clear your mind and to put your previous losing trade behind you. Even if this paper trade results in a loss the affect is positive because you are happy knowing that you have not actually lost any money.

Having run this paper trade you are now ready to leave the world of simulated Forex trading and return to live trading and can open a new trading position in a winning frame of mind.

Article Source: http://learningforextradingonline.com/forex-mini-trading/the-forex-demo-account