DAILY FOREX RECOMMENDATIONS

Forex Pivot Point Calculator

To calculate R3/R2/R1/P/S1/S2/S3, enter previous period's high, low close and click 'Go'.

High: Low: Close:

  Results Formulas
  Res3 Res3= H + 2*(P-L)  
  Res2 Res2= P + (Res1-Sup1) extreme
trading
range
normal
trading
range
Res1 Res1= 2 * P - L
Pivot Point P= ( H + C + L ) / 3
Sup1 Sup1= 2 * P - H
  Sup2 Sup2= P - (Res1-Sup1)
  Sup3 Sup3= L - 2*(H-P)  

Wednesday, June 27, 2007

Forex Trading Strategy

Forex Trading Strategy - 6 Tips to Make Big Profits
By: Sacha Tarkovsky

If you want a successful FOREX trading strategy, you should incorporate the following tips into your existing strategy – you should then become a profitable currency trader.

The aim is not to just to make money, but to make big profits consistently.

Six Essential FOREX Trading Strategy Tips:
1. Get a Method you have Confidence in
You need to have total confidence in your method - so you can follow it with discipline.

Pick a simple, technical method - simple methods work best, as they’re more robust in the face of brutal market conditions - complicated methods tend to break.

Just use a few rules and parameters, and they should work across all markets – a technical trading system should work on ANY market that trends.

2. You need to have the Mindset to Take Risks!
You will read a lot about money management - but keep in mind risk = reward.

If you don’t take reasonable risks, you won’t make big profits.

2% is a commonly touted figure to risk per trade - but if you’re trading $10,000 that’s just $200.

Risk more if you’re confident - 10% is fine - you just need to be selective with your trades. You can have the best FOREX trading strategy, but you need to take calculated risks to make big gains.

3. Don’t Trade Frequently
The good trades only come around a few times a year, so focus on them.

Many traders think there are good opportunities everyday - there aren’t.

There’s no correlation between how often you trade, and how much money you will make - if you want to make big profits, you need patience.

4. Only Focus on the Long Term Trends
Forget day trading, and focus on the longer-term trends only - how can you make big profits in a day? - You can’t. Don’t forget you have to cover your losing days as well.

Always remember - brokers interested in making the maximum amount of commission, perpetrate the make money by day trading myth.

Currency trends last for months or years - focus on them, and milk them for all they’re worth.

5. Trade in Isolation
Don’t discuss your trading with anyone - the only way you’ll make big money is by doing it by yourself.

Have confidence in your ability and don’t let anyone put you off - this is an essential character trait of all great traders.

6. Work Hard not Smart
Many losing traders think the more effort they make with their FOREX trading strategy, the greater their trading skills will become – this is not true! You can learn a method in a short period of time, and if you have a simple robust method, you can do your analysis in about 30 minutes a day - and that’s it!

A Strategy for Big Gains
So there you have it - a FOREX strategy designed to make you big profits.

Many of the above tips are not conventional wisdom - but keep in mind that 90% of traders don’t make big gains – and they follow the herd.

Step away from the crowd, and incorporate the above tips into your existing FOREX trading strategy – you could become very rich!

What Is Currency Exchange?

Currency exchange is the trading of one currency against another. Professionals refer to this as foreign exchange, but may also use the acronyms Forex or FX.

The Need for Currency Exchange
Currency exchange is necessary in numerous circumstances.

Consumers typically come into contact with currency exchange when they travel. They go to a bank or currency exchange bureau to convert one currency (typically, their "home currency") into another (i.e., the currency of the country they intend to travel to) so they can pay for goods and services in the foreign country. Consumers may also purchase goods in a foreign country or via the Internet with their credit card, in which case they will find that the amount they paid in the foreign currency will have been converted to their home currency on their credit card statement. Although each such currency exchange is a relatively small transaction, the aggregate of all such transactions is significant.

Businesses typically have to convert currencies when they conduct business outside their home country. For example, if they export goods to another country and receive payment in the currency of that foreign country, then the payment must often be converted back to the home currency. Similarly, if they have to import goods or services, then businesses will often have to pay in a foreign currency, requiring them to first convert their home currency into the foreign currency. Large companies convert huge amounts of currency each year; for example, a company such as General Electric (GE) converts tens of billions of dollars each year. The timing of when they convert can have a large affect on their balance sheet and "bottom line.

Investors and speculators require currency exchange whenever they trade in any foreign investment, be that equities, bonds, bank deposits, or real estate. For example, when a Swedish investor buys shares in Sun Microsystems on the NASDAQ, she will have to pay for the shares in U.S. Dollars and likely have to convert Swedish Krona to U.S. Dollars. Similarly, a Japanese real estate investor who sells a New York property may well want to convert the proceeds of the sale in U.S. Dollars to Japanese Yen.

Investors and speculators also trade currencies directly in order to benefit from movements in the currency exchange markets. For example, if an American investor believes that the Japanese economy is strengthening and as a result expects the Japanese Yen to appreciate in value (i.e., go up relative to other currencies), then she may want to buy Japanese Yen and take what is referred to as a long position. Similarly, if an American investor believes that the Euro will go down over time, then she may want to sell Euro to take a short position. Interestingly, investors and speculators can profit equally from currencies becoming stronger (by taking a long position) or from currencies becoming weaker (by taking a short position). Speculators are often day traders, trying to take advantage of market movements in very short time periods; buying a currency and then selling it again may happen within hours or even minutes. They are attracted to currency trading for numerous reasons, including (i) the size and daily volatility of the market, which gives them unparalleled excitement, (ii) the almost perfect liquidity of the currency exchange market, (iii) the fact that the currency exchange market is "open" 24 hours a day market, and (vi) the fact that currencies can be traded with no brokerage charges.

Commercial and Investment Banks trade currencies as a service for their commercial banking, deposit and lending customers. These institutions also generally participate in the currency market for hedging and proprietary trading purposes.

Governments and central banks trade currencies to improve trading conditions or to intervene in an attempt to adjust economic or financial imbalances. Although they do not trade for speculative reasons --- they are a non-profit organization --- they often tend to be profitable, since they generally trade on a long-term basis.

Currency Exchange Rates and Spreads
Currency exchange rates are determined by the currency exchange market. (The currency exchange market is described further below.) A currency exchange rate is always quoted for a currency pair using ISO code abbreviations. For example, EUR/USD refers to the two currencies Euro (the European currency) and U.S. Dollar. The first is referred to as the base currency, while the second as the quote currency. The EUR/USD exchange rate specifies how many US Dollars you have to pay to buy one Euro, or conversely how many US Dollars you obtain when you sell one Euro. More generally, if buying, an exchange rate specifies how much you have to pay in the quote currency to obtain one unit of the base currency, and if selling, the exchange rate specifies how much you get in the quote currency when selling one unit of the base currency.

A currency exchange rate is typically given as a pair consisting of a bid price and an ask price. The ask price applies when buying a currency pair and represents what has to be paid in the quote currency to obtain one unit of the base currency. The bid price applies when selling and represents what will be obtained in the quote currency when selling one unit of the base currency. The bid price is always lower than the ask price.

In the currency market, the following abbreviation for the currency exchange rate pair is used:

0.8423/28

The first component (before the slash) refers to the bid price (what you obtain in USD when you sell EUR), and in this case includes four digits after the decimal point. The second component (after the slash) is used to obtain the ask price (what you have to pay in USD if you buy EUR). The ask price is obtained by increasing the first component until the last two decimal places are equal to the digits in the second component. In this example, the ask price is 0.8428. As another example, 0.8498/03 refers to a bid price of 0.8498 and an ask price of 0.8503. (Note that for some exchange rates it is customary to quote rates in units of 100, as is the case with USD/JPY.)

The difference between the bid and the ask price is referred to as the spread. When trading large amounts of $1M or higher, the spread obtained in a quote is typically 5 basis points or PIPs, with each basis point referring to 0.0001 (or 0.01 when, say, the Yen is involved). In the example above, the spread is 0.0005 or 5 PIPs. When trading smaller amounts, the spread may be larger; for example, when trading less than $100,000, spreads of 50-200 PIPs are common. Credit card companies typically apply a spread of 200-300 PIPs. Banks and exchange bureaus typically use a spread in the range of 200-1000 PIPs (in addition to charging a commission). For investors and speculators, a lower spread translates into easier profit taking due to movements in exchange rates.

The Currency Exchange Market
The currency exchange market is an inter-bank or inter-dealer market that was established in 1971 when floating exchange rates began to materialize. In addition, it is an Over-The-Counter market, meaning that transactions are conducted between any two counter parties that agree to trade via the telephone or electronic network. Trading is thus not centralized, as is the case with many stock markets (i.e., NYSE, ASE, CME) or as the case for currency futures and currency options, which trade on special exchanges. Dealers often "advertise" exchange rates using a distribution network, such as the one provided by Reuters or Bridge. Dealers then use the information obtained there (or directly) to "agree" to a rate and a trade.

The major dealing centers today are: London, with about 30% of the market, New York, with 20%, Tokyo, with 12%, Zurich, Frankfurt, Hong Kong and Singapore, with about 7% each, followed by Paris and Sydney with 3% each.

In terms of trading volume, the currency exchange market is the worlds largest market, with daily trading volumes in excess of $1.5 trillion US dollars. This is orders of magnitude larger than the bond or stock market. For example, the New York Stock Exchange has a daily trading volume of approximately $60 billion. Thus, the currency exchange market is by far the most liquid market in the world today. Because of the volume in trading, it is impossible for individuals or companies to affect the exchange rates. In fact, even central banks and governments find it increasingly difficult to affect the exchange rates of the most liquid currencies, such as the US dollar, Japanese Yen, Euro, Swiss Frank, Canadian Dollar or Australian Dollar.

The currency exchange market is a true 24-hour market, 5 days a week. There are dealers in every major time zone. Trading begins Monday morning in Sydney (which corresponds to 3pm EST, Sunday) and then daily moves around the globe through the various trading centers until closing Friday evening at 4:30pm EST in New York.

Today, over 85% of all currency exchange transactions involve a few major currencies: the US Dollar (USD), Japanese Yen (JPY), Euro (EUR), Swiss Frank (CHF), British Pound (GBP), Canadian Dollar (CAD), and Australian Dollar (AUD). In the currency exchange market, most of the currencies are traded only against the US Dollar. The term cross rate refers to an exchange rate between two non-dollar currencies. Trading between two non-dollar currencies usually occurs by first trading one against the US Dollar and then trading the US Dollar against the second non-dollar currency. Because of this, the spread in the exchange rate between two non-dollar currencies is often higher. (There are a few non-dollar currencies that are traded directly, such as GBP/EUR or EUR/CHF.) The following directly traded currency pairs make up the vast majority of the trading volume and are thus considered to be the most important ones: EUR/USD, USD/JPY, EUR/JPY, USD/CAD, EUR/GBP, GBP/USD, USD/CHF, AUD/USD, and AUD/JPY.

How currency trading is done traditionally
Currency trading is always done with currency pairs, such as EUR/USD, and so it is useful to consider the currency pair as an instrument, which can be bought or sold.

* Buying the currency pair implies buying the first, base currency and selling
an equivalent amount of the second, quote currency (to pay for the base
currency). (It is not necessary for the trader to own the quote currency prior
to selling, as it is sold short.) A speculator buys a currency pair, if she
believes the base currency will go up relative to the quote currency, or
equivalently that the corresponding exchange rate will go up.
* Selling the currency pair implies selling the first, base currency (short), and
buying the second, quote currency. A speculator sells a currency pair, if she
believes the base currency will go down relative to the quote currency, or
equivalently, that the quote currency will go up relative to the base currency.

After buying a currency pair, the trader will have an open position in the currency pair. Right after such a transaction, the value of the position will be close to zero, because the value of the base currency is more or less equal to the value of the equivalent amount of the quote currency. In fact, the value will be slightly negative, because of the spread involved.

In todays currency market, a trade goes through a three-step process:
1. the trader communicates the currency pair and the amount he/she would like to
trade with another dealer.
2. the dealer responds with a bid and an ask price
3. the trader responds to the bid and ask price with one of:
a. buy (by saying "Mine" or "I buy" or "I take")
b. sell (by saying "yours" or "I give you" or "I sell")
c. refuse.

The transaction occurs if the final response is either a buy or a sell. The dealer is required to quote a "good" market price, since he does not know whether the trader will buy or sell.

The currency exchange market described above is referred to as the spot market and the transaction described is referred to as a spot deal. A spot deal consists of a bilateral contract between a party delivering a specified amount of a given currency against receiving a specified amount of another currency from a second counter party, based on an agreed exchange rate, within two business days of the deal date, which is referred to as the settlement date. (The settlement date for USD/CAD is one business day after the deal date.) Speculators rarely deliver, however. Instead, they use what is referred to as a rollover swap. The rollover swap is designed to allow the changing of an old deal date to the current date by simultaneously closing an open position for todays date and opening the same position for the next day at a price reflecting the interest rate differential between the two currencies.

When a trader buys or sells a currency pair, the value of the currency pair, as an instrument, initially is close to zero. This is because (in the case of a buy) the quote currency is sold to buy an equivalent amount of the base currency. As the market rates fluctuate, however, the value of the currency pair position held will also fluctuate. Thus, if the rate for the currency pair goes down, the speculators long position will lose in value and become negative. To ensure that the speculator can carry the risk for the case where the position results in a loss, banks or dealers typically require sufficient collateral to cover those losses. This collateral is typically referred to as margin.

To limit down-side risk, traders often specify a Stop-Loss rate for each open trade. The Stop-Loss specifies that the trade should be closed automatically when the currency exchange rate for the currency pair in question reaches a certain threshold. For long positions, the Stop-Loss rate is always lower than the current exchange rate; for short positions, it is always higher. Traders, at times, also specify a Take-Profit rate for their trades in order to lock in a profit when the exchange rate reaches a certain threshold. For long positions, the Take-Profit rate must be above the current rate, while for short positions, it must be below the current rate.

A trader may also leave an order with a bank, broker or dealer. These so called leave orders are orders that a trade should be executed (in the future) when certain market conditions occur. There are three types of leave orders:
1. entry orders: specifies that a currency pair should be traded when it reaches a
certain exchange rate. Entry orders are used when the trade would not offset
current position.
2. take-profit orders: are used to clear a position by buying (or selling) the
currency pair of the position when the exchange rate reaches a specified level.
3. stop-loss orders: are used to clear a position by buying (or selling) the
currency pair of the position when the exchange rate reaches a specified level.

by Babypips

An Introduction To Forex

The Foreign Exchange market, also referred to as the "Forex" or "FX" market, is the largest financial market in the world, with a daily average turnover of well over US$1 trillion -- 30 times larger than the combined volume of all U.S. equity markets. "Foreign Exchange" is the simultaneous buying of one currency and selling of another. There are two reasons to buy and sell currencies. About 5% of daily turnover is from companies and governments that buy or sell products and services in a foreign country or must convert profits made in foreign currencies into their domestic currency. The other 95% is trading for profit, or speculation. For speculators, the best trading opportunities are with the most commonly traded (and therefore most liquid) currencies, called "the Majors." Today, more than 85% of all daily transactions involve trading of the Majors, which include the US Dollar, Japanese Yen, Euro, British Pound, Swiss Franc, Canadian Dollar and Australian Dollar. A true 24-hour market, Forex trading begins each day in Sydney, and moves around the globe as the business day begins in each financial center, first to Tokyo, London, and New York. Unlike any other financial market, investors can respond to currency fluctuations caused by economic, social and political events at the time they occur - day or night. The FX market is considered an Over The Counter (OTC) or 'interbank' market, due to the fact that transactions are conducted between two counterparts over the telephone or via an electronic network. Forex Trading is not centralized on an exchange, as with the stock and futures markets.

The foreign exchange market is not a "market" in the traditional sense. There is no centralized location for trading as there is in futures or stocks. Trading occurs over the telephone and on computer terminals at thousands of locations worldwide. Foreign Exchange is also the world's largest and deepest market. Daily market turnover has skyrocketed from approximately 5 billion USD in 1977 to a staggering 1.5 trillion US dollars today; even more on an active day. Most foreign exchange activity consists of the spot business between the US dollar and the six major currencies (Japanese Yen, Euro, British Pound, Swiss Franc, Canadian Dollar and Australian Dollar) The FOREX market is so large and is controlled by so many participants that no one player, governments included, can directly control the direction of the market, which is why the FOREX market is the most exciting market in the world. Central banks, private banks, international corporations, money managers and speculators all deal in FOREX trading.