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The Basics of Forex Trading
The .382 Fibonacci Ratio
The basis of many Forex systems is Fibonacci Forex trading. Many successful and profitable Forex traders around the world use this type of a system.
These types of systems are based on Fibonacci ratios. Each of these ratios in combination with minor indicators helps identify accurate profitable levels for entry and exit.
The .382 Fibonacci ratio is among the most widely used.
Currency prices are continually fluctuating. When looking at a Forex chart it is easy to see a variable pattern in the prices with peaks and valleys. Peaks are called resistance levels while valleys are called supports.
To find the .382 ratio level, measure the rise or drop over the time of interest. Then this value is multiplied by .382 which gives the ratio.
When looking at a rise, the last value calculated is added to the total drop. If looking at a drop this value is subtracted from the total rise. This is the .382 Fibonacci ratio for either the rise or drop of interest.
With this ratio a strategy can be planned which increases the chances of success and profit. The .382 ratio level calculated for a rise is a highly probable support and for a drop it will be a highly probably resistance.
This type of calculation and analysis gives a vast advantage over most Forex traders when used in conjunction with proper secondary indicators and as known ahead of the market.
For these reasons Fibonacci trading is accepted widely over the world, and is profitable and successful.
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The Leading Indicator for Forex
Bond spreads are a very popular and helpful indicator in foreign currency trading. However, they are not an indicator of rapid and sudden change, but rather a cue as to what will eventually happen, perhaps a year into the future.
That's exactly why bond spreads are called a "leading" indicator, because they lead the event, rather than following it like a moving average or other indicators do by their nature.
A bond spread is typically viewed on the difference between the five year, and the ten year, bonds of two currencies. For instance, if you are studying the Euro and the US Dollar, you would need to look at the spread, or difference, between the yields for the bonds of both the Euro and of the US Dollar.
Whichever currency in the pair has the higher interest rate is likely to be favored for the benefit of that interest. However, be careful to look at a chart of historical data to make sure the spread is increasing and not decreasing.
The way this is used as an indicator is really simple. When the spread reaches its highest, or its lowest point, and begins to turn in the other direction, you can expect the value of the currencies involved to follow suit at some point later on.
Sometimes the delay between the turnaround in spreads and the turnaround in currency valuation is as much as a year.
Some exceptions to this indicator have occurred. The Japanese Yen continued to gain value even though Japanese bonds were suffering from the recently ended zero interest rate policy, or ZIRP.
The reason for this was that, despite the interest rate, Japanese equity markets, especially stocks, were climbing in value, and therefore attracted much international investment. This demand for Japanese equities led to an equal demand, and therefore an appreciation, in the Yen.
It is important to note here that bond spreads are not going to do you much good if you are a day trader or other form of short-term trader. For this type of indicator to work, you must plan on staying the course for as little as six months, and up to perhaps a year or more.
Therefore, you should not enter a trade with high leverage using this indicator. Shorter term fluctuations could flush you out well before the true appreciation of this indicator could be realized. |
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Introduction To Forex Trading
FX, Forex, Foreign Exchange are all names for the transaction of one currency for another, e.g. you buy £100.00 with $150.25 or sell $150.25 for £100.00.
Traders buy and sell currencies with the hope of making a profit when the value of the currencies changes in their favor, whether from market news or events that takes place in the world.
Forex trading has been around for years. It is viewed as the largest financial market in the whole world. The estimated amount of daily volume is 1.5 trillion (US) dollars.
A true 24-hour market, Forex trading begins each day in Sydney, and advances around the globe as the business day begins in each financial center, first to Tokyo, London, and New York.
Unlike other financial markets, Forex Allows investors to respond to currency fluctuations caused by economic, social and political events instantaneously, at the time that events occur, day and night. The market only closes on weekends.
A benefit of forex trading is that it is not really subject to the same kinds of swings in the market that stocks are subject to.
Of course if you always buy and sell the same currencies then there will be market swings.
But, because there are hundreds of currencies out there, there is always going to be something for you to make money on because while one currency is up in value another one is down and vice versa.
Forex trading does not take huge amounts of capital to start. Traders can begin investing with as little as three hundred dollars.
Transaction costs are usually minimal. Often brokers will provide you with the tools and data you need to make trades for free.
There are a large number of buyers and sellers all selling the same products. Information is free-flowing and there are few barriers to participation.
Websites like http://www.forexinterbank.com/ affiliate.php also offer training courses to help you succeed in the Forex market.
Forex trading is an over-the counter (OTC) market. This means buyers and sellers do not meet in central locations to make exchanges. Instead transactions are completed by phone, fax, and email or through the websites of brokers specializing in this market.
Currencies are always traded in pairs. Transactions always involve selling one currency and buying another. If you believe the euros would gain against the dollar you would sell dollars and buy euros.
A very liquid market, your money is not held up for long periods of time. You will have full control of your capitol.
With planning, a good system to follow, strong money management skills, and self-discipline, Forex trading can be relatively low risk and quite lucrative.
Related Topics: Strategies for Forex Trading,
Bad Forex Strategies, Getting Started in Forex Options
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