Tutorial Forex

A picture is worth more than a thousand words. The forex chart is perhaps the best proof of this clich. Have you heard of Candlestick Charting? It was developed by the Japanese in the 17th century to profit from rice trading.

Appearance of certain chart patterns can give you priceless clue about the direction in which the market is about to turn. Traders have become very sophisticated in understanding charts and the information contained in them over time. Dont confuse the Head and Shoulder pattern with the name of a shampoo. Head and shoulder is an important trend reversal chart pattern.

Study of charts is known as Technical analysis. Whether it is sideways, upward or downward, by studying the patterns that appear on the forex charts, you can predict the likely direction of the currency pair. Technical analysis depends on the study of different types of charts to understand and predict the likely direction of the currency market. Without technical analysis, you wont be able succeed in forex trading.

You must have seen a bar chart. However, it is possible that you may not have looked at a point and figure chart if you are new to trading. There are four main types of forex charts that are used in the world of forex trading. The four main types of forex charts are: 1) Line Chart, 2) Bar Chart, 3) Candlestick Chart and 4) Point and Figure Charts (P&F Charts). Bar charts, candlestick charts and P&F charts are frequently used in the technical analysis. A brief description of each one is given below.

Line Charts: This chart resembles a line hence the name line chart. This chart simply connects the closes from one period to another. Critical data is missing from a line chart as a line chart doesnt show you where the currency pair opened for the period. It only shows where it closed. Nor does it points the high and lows for a period.

Bar Charts: A bar chart shows the opening, closing and the low and high for each period. The bar chart addresses many of the shortcomings of the line chart. The bar chart can provide the hourly, daily, weekly and even monthly information. It is also often called the OHLC (open-high-low-close) bar chart.

A horizontal line protruding from the left of the bar represents the opening price of the currency pair. A horizontal line protruding from the right of the bar represents the currency pairs closing price. The periods high and low are the top and bottom of the bar.

Candlestick Charts: Traditional bar charts and the candlestick charts do almost the same thing. But candlestick charts do it more effectively. Candlestick chart clearly depicts the currency pairs open, high, low and close. A candlestick chart is made up of two components.

The real body of the candle is the range between the opening and the closing price of the currency pair. It is also called the candle body. The candlestick body is white if the currency pair closing price is above the opening price and it is taken as a bullish sign. Similarly the candlestick body is painted black if the closing price is below the opening price and it is taken as a bearish sign. The price movement above and below the body is called the shadows. It is also known as the candle shadows.

Point and Figure Charts (P&F): The main advantage of the P&F charts is that they filter out noise. The only downside is that they dont represent the time well. Point and figure charts plot the currency pair price using a column of Xs to represent rising price movements and Os to represent falling price movements.

The Xs and Os are plotted only when the currency price moves by a predefined amount. The new plot is only made when the price exceeds the predetermined threshold by a fixed amount. A plot may not be made if the currency price does not move significantly.

Mr. Ahmad Hassam is a Harvard University Graduate. He is interested in day trading stocks and currencies. Know These Forex Charts. Learn Forex Trading!

Each triangle type has its own directional bias. Ignore any first breakout attempts whether it is to the upside or the downside when you trade triangle breakouts. Get ready for a breakout when you have identified the triangle formation on either the daily or weekly chart. There can be three possibilities when you try to trade the decreased volatility breakout strategy.

Possibility No 1: You should not forget to ignore the first breakout. Suppose the second breakout attempt is in the upside direction for an ascending triangle and it is in the downside direction for the descending triangle. In other words, the second breakout attempt is in the direction expected of the triangle type. This breakout could signal either the continuation of the existing trend or the trend reversal.

For an ascending triangle make sure each side of the triangle gets touched two times at least. Place a stop buy order at least 10 pips above the horizontal resistance level to capture the potential upside breakout. Place a stop loss order 10 pips below the horizontal level of the triangle to protect against false breakout. Set profit target according to your time frame.

In case of the descending triangle again make sure the triangle is touched two times before the breakout. Place a stop sell order 10 pips below the horizontal support level to capture the potential downside breakout. Place a stop loss order 10 pips above the horizontal support level.

Possibility No 2: The second breakout is in the downside in case of an ascending triangle and it is to the upside in case of the descending triangle. Again ignore the first breakout attempt. In other words, the second breakout attempt is in the opposite direction of the expected triangle type breakout direction.

Cut the position size to half for this trade in order to reduce risk in case of an ascending triangle since the breakout direction is opposite to the most expected direction. Set stop sell order at least 10 pips below the upward sloping trendline in order to capture the expected downside breakout. Place the stop loss 10 pips below the breakout point. Ignore the first breakout attempt and make sure the triangle is touched at least two times. Place take profit in accordance to your time frame.

In case of a descending triangle, place a stop buy entry order at least 10 pips above the downward sloping trendline in order to capture the potential upside breakout. Again reduce the position size to half in order to reduce risk. Place stop loss 10 pips below the breaking point and set your profit target in accordance with your time frame.

Possibility #3: In case of symmetrical triangles, there is an equal possibility of upside as well as the downside breakout. Just follow the above guidelines and place stop buy entry order or the stop sell entry order 10 pips above the downward sloping trendline or 10 pips below the upward sloping trendline. Similarly set your stop loss orders.

Mr. Ahmad Hassam has done Masters from Harvard University. He is interested in day trading stocks and currencies. Develop your own Forex Trading System. Learn Forex Trading !

The crowd psychology behind the descending triangles is that every time the currency price goes down to a certain level that forms the support there are buyers who want to hold that level stubbornly for their own reasons. Buyers thus push the price up each time the support level is tested. Spotting a descending triangle in a downtrend signals the downside breakout of the support level.

Thus when the price bounces off the support level, the bears take the opportunity to short again. Sellers are quite anxious to sell as they feel that the currency price should fall over time.

Spotting a descending triangle should allow you to be prepared for a downside breakout from the support level especially if it is a down trend. Bulls and bears face a skirmish with both camps not feeling confident of the next market move as with an ascending triangle.

When the support level is broken, many of those long positions which have been placed above that level soon get stopped out. Prices tend to break in the middle or the final third part of the triangle formation.

If the descending triangle is formed during an existing downtrend, it tends to give off even more bearish vibes than if it is formed during an uptrend. But you should always assume the continuation of the prevailing trend unless you have reversal signals in the form of technicals or turn around of the market sentiment.

If the descending triangle appears in the midst of a downtrend, the triangle serves as a continuation pattern. A descending triangle should not be considered to be the final word on impending downside breakout. However, with that said prices also sometimes breakout from above the descending triangle successfully in a burst of bullish momentum.

Symmetrical Triangles: There are no horizontal lines in symmetrical triangles. This differentiates it from the ascending and the descending triangles. A symmetrical triangle consists of two converging trendlines that join a series of lower highs and higher lows. A symmetrical triangle has some resemblance to a wedge pattern.

The lower highs reflect the mildly bearish conviction of the sellers as they are willing to accept less and less of the price over time. The higher lows are formed when buyers of the currency pair are willing to pay a bit more to get a piece of action.

A symmetrical triangle tends to be less reliable as compared to an ascending or descending triangle. There is no way to predict the future breakout direction until one of the symmetrical triangle lines is penetrated. Breakouts usually occur in the middle or the final third of the triangle as with the other sloping triangles.

Decreased volatility can also be detected with the exponential moving averages and the Bollinger bands besides the triangle formation. You should always consider other pieces of information so that you can better pinpoint a higher probability trade set up when trading triangle breakouts.

Mr. Ahmad Hassam is a Harvard University Graduate. He is interested in day trading stocks and currencies. Know These Forex Charts. Learn Forex Trading!

Triangles are one of the best depictions of decreasing price volatility in the currency price charts. Triangle formations appear relatively common in charts. Through triangle formations you can ride on a potentially high momentum move that is likely to occur after a period of decreasing volatility.

When a particular type of triangle has been identified by the trader, a high probability trade is in sight when the technicals are coupled with the current market sentiment. All triangles show decreasing price volatility in action.

Triangles are also known as Wedges. There are basically three types of triangles: 1) Ascending, 2) Descending and 3) Symmetrical. Triangles are basically continuation patterns but they can also be reversal patterns. This depends on the different types of triangles and whether they occur in an uptrend or a downtrend.

Ascending Triangle: An ascending triangle can be easily identified by its upward sloping trendline. This upward sloping trendline creates the lower boundary of the ascending triangle. It is basically a bullish signal when you see an ascending triangle on the chart. An ascending triangle can be either a continuation or reversal pattern.

The upper boundary is roughly horizontal and should connect at least two price points. The upper boundary represents the resistance level. The crowd psychology behind the ascending triangle is this that every time the currency price goes up to the resistance level; there is sellers in the market who push the price down.

When the prices retreat from their high and are on the way down, there are buyers who believe very strongly that the currency price should rise based on their own reasons. The buyers thus bid the prices higher than the previous low forming the upward slope of the triangle.

When these two lines, one sloping and the other horizontal converge at one point the triangle is formed. The appearance of an ascending triangle should prepare you for an upside breakout from the resistance. Breakouts tend to occur in the middle or the third of the triangle formation measuring from the start of the triangle to the tip.

It acts as a bullish reversal pattern if it formed during an existing downtrend. It is seen as an uptrend continuation pattern when you see an ascending triangle during an uptrend in general.

Descending Triangles: A descending triangle works the opposite of an ascending triangle. It is viewed as a bearish formation even though it can be either a continuation or reversal pattern.

A descending triangle can be identified by the downward slope of the trendline which is formed by connecting the lower price highs. This downward sloping trendline forms the upper boundary of the triangle. The horizontal lower boundary of the triangle represents the support level and it is formed by connecting at least two price points.

Mr. Ahmad Hassam has done Masters from Harvard University. He is interested in day trading stocks and currencies. Know These Forex Charts. Learn Forex Trading!

Aging Trend: This is the third stage of the trend and is the period of consolidation as the trend comes to maturity. As the momentum of the trend exhausts itself, volatility tends to decrease at this stage of the trend. This is the period where lot of profit taking will take place.

Experienced traders try to get out of their trades at this stage of the trend by closing their positions. This satisfies the appetites of inexperienced traders as they consolidate their positions. Both the bulls and the bears are hesitant to make daring moves at this stage of the trend.

This is the period of consolidation and the prices tend to stay calm during this period. Currency prices have moved by a large amount in the previous period of high volatility. The trend takes a short break and the volatility is low during this stage of the trend.

End of Trend: This is the time when the prevailing trend ends and reverses itself after some new information is revealed about a currency that changes the mass opinion. This results in the rapid adjustment of prices within a short time as the market players tend to absorb the information.

Many stops will get triggered during this stage of the trend. Especially if they have been caught on the wrong side of the market, traders become desperate to get out of their positions. Most know that the trend has come to an end. The best way to preserve their profits is to get out of the trend as early as possible. Experienced traders had already gotten out of the trend during the aging stage of the trend. Most of the traders who are trying to get out now are inexperienced traders.

During this stage of the trend there is a sharp follow through of the prices in the reversed direction. You can see even within a trend currency prices can experience decreased volatility followed by increased volatility as the crowd psychology keeps on changing.

Decreased volatility can be found during trending or ranging phases. Traders with open positions during this low period of volatility are the most vulnerable to unanticipated news.

However deceased volatility provides an excellent opportunity to traders to prepare and profit from an imminent change from low to high volatility. During this time gains can be made from the unsuspecting players and this is known as the Decreased Volatility Breakout Strategy.

But the success of this strategy lies in measuring the volatility of the forex market correctly. There are several technical indicators that can help you visualize the volatility in the currency prices.

One such is the triangle patterns. Though they maybe difficult to identify for new traders but with experience you can learn how to identify the triangle patterns on price charts. You can use triangle patterns as one of the best indicators of decreasing price volatility in the currency price charts. Combine the triangle patterns with technical indicators to confirm or deny decreasing price volatility. Two of the most useful indicators that can help you measure the volatility of the currency prices are: 1) Moving Averages and 2) Bollinger Bands.

When a particular type of triangle has been identified by the trader, a high probability trade may be in sight. All triangles show decreasing price volatility in the forex market. You can take advantage of the decreasing price volatility in the forex market through identifying the triangle formations.

Mr. Ahmad Hassam is a Harvard University Graduate. He is interested in day trading stocks and currencies. Get Netpicks Forex Signals Free. Learn Forex Trading!

Without understanding the crowd psychology, you cannot become a successful trader. Always try to understand the crowd psychology. Trading breakouts is one of the most popular ways of making pips from the forex market. Decreased volatility breakout is one of the subsets of breakout trading. While this strategy is similar to the strategy of trading breakouts, but it is specific to a certain conditions in the forex market. With this strategy, you try to take advantage of periods of low volatility in the forex market.

Volatility is a measure of the scale of price fluctuations over time. Volatility tends to be high when prices change to a large extent within a short span of time. The reverse also holds when prices oscillate more or less close to a certain price level without deviating much from it over a long span of time.

It is the volatile nature of the forex market that attracts the risk seekers in search of high returns. However, entering the market in periods of high volatility can be stressful for most of the traders as they dont know whether the trade their way or not. Instead of focusing on the high volatility market, why not concentrate on the low volatility period.

Forex market is just people trying to buy or sell currencies. It is the psychology of the crowd that rules the market in the end. There is a tendency in the currency prices to alternate between periods of high volatility and low volatility in the forex market just like other financial markets. This recurrent pattern is due to the crowd psychology which is the force behind changes in the forex market.

There are four main stages of a trend. These four stages are: 1) Nascent Trend, 2) Fully Charged Trend, 3) Aging Trend and 4) End of Trend. At each stage of the trend, there is a different crowd psychology behind it. These four stages are closely linked to the cycle of volatility in the market. Lets discuss these stages of a trend in detail.

Nascent Trend: When the new trend just starts either upside or downside, most market players are still skeptical about the possible new trend direction during the nascent stage of the trend. Volatility is thus low as both bears and bulls tread carefully and are cautious.

Fully Charged Trend: This is the second stage of the trend and during this stage the trend becomes well established! The trend becomes fully charged as there is now evidence from fundamental data that supports the trend direction. The trend is in full progress and it is time for more action now. Traders who are caught on the opposite side of the market become exposed when the new information proves them wrong. They become desperate.

A lot of changing positions will take place during this period. Traders who were initially on the wrong side of the market become new converts to the trend. This causes the currency prices to move more dramatically within that stage.

Traders become convinced of the direction of the trend and new information convinces most of the traders of the direction of the trend. Everyone wants to jump in the trend. More and more positions are established. Hence volatility tends to be high during this period. This brings prices to higher highs in an uptrend or lower lows in a down trend.

Mr. Ahmad Hassam has done Masters from Harvard University. He is interested in day trading stocks and currencies. Know These Forex Charts. Learn Forex Trading!

Greed is a form of fear which is the fear of missing out. So you need to control and face your fears in trading. The first step in overcoming fear is to recognize the various forms of fear connected with trading. The second step is knowing how to control those fears.

Why do so many people rush to the departmental store during the sales season? It is the fear of missing out. Any kind of buying mania stems from the fear of missing out. This form of fear is a kind of greed.

This fear manifests itself especially during a sharp rally or decline of a currency pair in forex trading. Suppose you are interested in choosing a good currency pair for trading. You see on your computer monitor that the EUR/USD pair is making new highs, as it keeps on going up and up.

Immediately buy, buy, and buy signals start ringing in your mind. Your heart starts pounding. You start feeling the acute pain of not being in the market when the EUR/USD pair continues to move higher and higher. Your mouth is watering with the thoughts of making potential huge profits.

You start thinking, Everyone is buying and I am not buying. I am losing out a highly profitable trade. This fear of losing out hypnotizes you into placing buy orders frantically. You have some doubts at the far back of your mind but you simply ignore them.

These types of trading decisions are very dangerous. When most of the buying has been done, it compels you to enter into a trend very late. Be disciplined! The mindset, How can I not be buying/selling when everyone else is buying/selling, is extremely dangerous. Be glad to think that most of the traders are pouring dumb money into buying a currency pair that is already overbought. Always remember, Buy low and sell high.

Trading is a game. There will be winners. There will be losers. Sometime you win and sometimes you will lose some of your trades. The fear of losing out is the most prominent among the new traders.

New traders dont yet have the adequate skills and knowledge to help assess and evaluate trading opportunities with a high level of confidence. This leads to trading paralysis. New traders become afraid of pulling the trigger when it comes to entering or exiting a trade as they fear losing money.

Now you should not be afraid of pulling the trigger and being fearful of damaging the account based on only one trade. How to overcome this type of trading paralysis? Decide before entering into a trade, how much you can afford to lose. Use a stop loss order that is in accordance with your money management rules.

It is very easy for traders to oscillate between emotional high and low. The outcome of just one trade should not affect your overall performance. Do not get caught up feeling invincible or pessimistic after a win or a loss. Try to develop your own winning forex trading system that can give more winner than losers in the long run.

Mr. Ahmad Hassam is a Harvard University Graduate. He is interested in day trading stocks and currencies. Know These Forex Charts. Learn Forex Trading!

Can you control your emotions? Can you behave like a robot? Certainly not! Human beings are emotional creatures. Our mind is capable of playing emotional tricks on us. It is often said that we are our own worst enemy. In forex trading, this is the ultimate truth. Most of our trading decisions are guided more by emotional than logical thinking.

We can get seduced into unfavorable situations by our emotions. Emotions can work for us and against us. Your battles are won or lost in your mind first. A traders mindset is the most important ingredient of success.

Forex trading is not for everyone. Do you have a strong desire to succeed in forex trading? You will end up like the majority who end up losing their money if you just want to try your luck or dabble in trading. Do you have the passion for trading forex?

In order to become a successful forex trader, you must be highly self motivated. You must have a concrete plan of action and not be afraid of failure. Are you ready to devote a lot of time and effort into picking up trading skills and knowledge?

You need knowledge and skills in trading currencies in order to become a successful forex trader. To attain consistent success in forex trading, a huge amount of time, effort and money is required for a trader.

Losses are the inevitable part of lack of experience and knowledge. But even if you develop the experience and knowledge to successfully trade the currency market, you cannot avoid losses. There is an inherent risk in trading currencies. No one can overcome that risk. Are you willing to accept losses as part of trading? You are going to make mistakes while trading. Do you understand that you can suffer losses in trading? Are you willing to learn from your mistakes? Do you have a traders log that you use to reflect on each lost trade and learn from it?

Every trade needs proper planning. Dont try to rush into a trade. Many traders enter into the trade based on someone elses market analysis. Most depend on market analysis from an analyst. If the trade turns out to be a loser, most of us tend to blame the market analysis and the opinion of the analyst. It is easy to blame others.

When you are confident that you have done your analysis to confirm what others are saying only then pull the trigger. Dont be trigger happy! You must reflect on your decision before pulling the trigger. Is it fair to blame the other person when you could have done further market analysis on your own? When you could have planned your trade in a better way, it is foolish to blame others for your mistakes. So accept your responsibility if the trade goes wrong.

A trader is constantly under the influence of fear and greed when trading. Fear and greed are the two most important and dominant emotions that affect not only the individual traders but also the currency markets. In fact, these two emotions are the main drivers of the forex markets. Can you be greedy when others are fearful? Do you need to be fearful when others are greedy?

Fear makes you over pessimistic about a currency pair. Similarly, greed is going to make you over optimistic in thinking that a currency is going to appreciate. In nutshell, fear and greed are behind the steering wheel of the currency market. When fear takes over, the market turns bearish. When greed takes over, the market becomes bullish.

Mr. Ahmad Hassam has done Masters from Harvard University. He is interested in day trading stocks and currencies. Know Swing Trading. Learn Forex Trading!

A stop-limit order is basically an order that becomes a limit order once the currency reaches the designated stop price. Only when the specified stop price has been reached, the stop-limit order will instruct the broker to buy or sell at the specific price. At the specific price the stop-limit order becomes a limit order.

The main advantage of using the stop-limit order is that the trader can decide ahead of time the price at which the trade will get executed in the News Straddling strategy. However, the stop-limit order may not get filled at all. This is exactly what our strategy is. Either we get the price that we want or we dont trade!

Due to the fast moving nature of the market, the currency price may not stay within the limit range for the order to get executed. Second reason could be there is not enough supply and demand at the price at which the order is to be filled.

We are instructing the forex broker that the entry price is either filled at the limit price or better by placing the stop limit order. Using stop-limit order helps us avoid risking slippage. . If the price that we want is not possible than the order is not executed at all! If we are not able to trade at the entry price that we want, it is better that the position is not filled at all.

However some brokers do not allow stop-limit orders on their platforms. If the broker does not allow the use of stop-limit order, simply look for another broker that does allow it. Simple as that!

Most often, a horizontal channel is formed prior to the release of the news. The news straddling approach is conceptually similar to a channel breakout strategy. This channel may be identified on the intraday 5 minute or 60 minutes chart.

First draw a lower line connecting the two lowest points, forming the support line. Then draw a second line connecting the two highest points to form the resistance line. The two line snow forma channel. The channel should be roughly like 40 pips wide.

A channel basically tells that neither the bulls nor the bears are over enthusiastic about their bias before an important new release. Once you have identified and drawn the channel on the 5 minute chart, monitor it for 20 minutes prior to the news release.

Name of the game is that we either enter at the price that we want or we completely stay out of the market. Place your entry order not more than a few minutes before the news release. Place a stop limit long entry order a few pips above the resistance level and a stop limit short entry order a few pips below the support level of the channel.

Each stop-limit entry order must be accompanied with a specified stop loss order and profit-limit orders. For a long entry, a stop sell order is placed at least 20 pips below the resistance level. For a short order, a stop sell order is placed at least 20 pips above the support level.

The initial profit target could be equal to the width of the channel. A staggered profit taking could be considered. You can set your initial profit objective for half of your lot size. For the rest of the position, you could set profit target equal to the twice the width of the channel.

You should know the problem of slippage and how to avoid it if you want to successfully trade the news. Slippage occurs when the price you intend to enter or exit the market is different from your actual transacted price. Currency prices tend to move very fast during highly volatile market conditions. The risk of slippage is usually very high when trading the news.

Placing stop loss or market entry orders under fast moving market conditions do not guarantee anything. These orders do get filled but mostly at different prices than you had intended. Slippage is the biggest problem when the market moves fast. There is no way you can avoid it. Some of it is genuine. During times when too many orders are placed by the traders, most forex brokers cannot offset these orders in the interbank market due to the small amounts involved. They have to take the opposite positions themselves. This gives them the chance to take the excuse of slippage.

Sometimes, these entry orders may even get filled past your stop loss or profit target. This means that you would be left with immediate net loss. Many market makers will wait till after the big move is over. Then they will fill your entry order.

Many brokers will fill your stop loss or take profit before filling your entry order with wide slippage. It is a trick that many forex brokers use in order to make profit by filling your position with a negative spread.

Suppose you have set your long entry stop for EUR/USD at 1.2564 and your profit limit is 1.2594. The forex broker may first fill your take profit at 1.2594. Then fill your long entry stop at 1.2604 with a 40 pips slippage.

If filled at the prices you wanted, your trade would have resulted in a profit. But now you have a net realized loss. If the trade goes against you, the forex broker may fill your stop loss order first and then fill your entry order with slippage after that so as to widen their profits.

Suppose, you had placed your long entry stop at 1.2564. You place your stop loss at 1.2544. The broker could first fill your stop loss at 1.2544. Then fill your long entry stop at 1.2594 with a slippage of 30 pips. You now have a net loss of 50 pips due to slippage instead of planned 20 pips loss.

You should know as an individual trader that your orders will be kept pending till you get stopped out or your profit limit is reached during the release of news when the market moves fast. The more you stand to lose and the more the forex broker stands to make a profit, the larger the slippage you experience. Some forex brokers add slippage to any of your orders to increase their profits during times of fast moving markets when the volatility is high.

Many forex traders readily accept the risk of slippage. Most news traders consider slippage as one of the realities of trading the news. However, you as a forex trader should know that slippage can eat up a huge chunk of your profits. In the end slippage can affect your overall profit and loss. Read more in the next article how you can overcome the problem of slippage through the use of stop-limit entry order.