|
Chart Reading
Rollover in Forex
You may have heard of the rollover in forex trading, and you might not be familiar with what it is. It's actually a very simple concept. Rollover is a situation that occurs when you hold a trade beyond the ending time of a particular day's trading.
There are different times at which this may happen, and that will depend on which broker you are using for your forex trading. But at any time of day, the rollover is the time when your trade is carried to a new day and you pay, or are paid, for the position you hold on that trade.
When you take a position in the forex market, you are simultaneously buying one currency and selling another. No matter what currency it is, all currencies are paired in forex, so you must sell one to buy another. When you do this, you are, in effect, borrowing one currency from someone to sell it or buy it. The in-depth details of this borrowing are not of much concern to you as a trader, but what is of concern is the interest rate for the currencies involved.
Each currency bears an interest rate that is very similar to the rate established by that currency's central bank. The difference between the rates of the currencies in the pair you are trading is what determines whether you pay, or are paid, when the day changes in the currency market. In some instances, you will pay regardless of the direction you take on a currency pair, such as the GBP/USD pair where the rates are so close at this time that the spread between them leads to you paying whether you buy or sell.
As noted earlier, the times vary as to when you will see the rollover occur. In the case of many US forex brokers and market makers, the time used for the rollover is the end of banking hours on the east coast. Basically, when the banks close in New York, the rollover occurs, and the next day is started. At that time you will either be charged or credited, depending on your trade.
To avoid this, all you have to do is to close your positions before the rollover occurs. In the case of most brokers, you can exit the trade prior to the rollover and incur no charges or credits for that day. However, some brokers have moved to a continuous rate calculation and charge or credit based on how long you held the position, regardless of whether or not it carries through the rollover.
See Also:
Common Sense Trading
Getting Started in Forex Options
The Best Momentum Indicator
When it comes to technical analysis of the price action on Forex charts, one of the most important indicators you can have in your arsenal is a good momentum indicator. In fact there are several indicators for momentum that you can use.
We'll look at all of them and why the Stochastic indicator is considered by many to be the best.
MACD, or Moving Average Convergence/Divergence, is a good indicator of price momentum. This indicator uses two moving averages and an activating period.
Usually, when you see a cross of the moving averages, a change in momentum, or trend, has, or is about to, occur. Sometimes, however, there is a cross and yet price action moves sideways instead of in the opposite direction of the previous trend.
RSI, or Relative Strength Indicator, is another good indicator of momentum. With the RSI, what you are looking for initially is a break across the 50% line. When the RSI crosses above 50, you are looking at an upward trend. The opposite is true when it crosses below 50.
Also, overbought and oversold readings tell of a probable trend reversal. However, this tends to be somewhat of a lagging indicator and can leave you with only half of the trend left to follow.
Stochastics are varied in their configuration. You can set them in many ways depending on the charting package you use. These indicators are considered one of the best momentum indicators because they get you the signal first. Whereas MACD and RSI tend to follow, Stochastics seem to be almost simultaneous with the trend change.
Strong trends usually follow the highest/lowest spike of the Stochastic in the opposite direction of the current price trend. The Stochastic tends to be more susceptible to "noise" from price action, however, so be aware of this.
These three indicators are all good methods for determining momentum of price action in Forex. However, while the Stochastic indicator is favored, one of the more common practices among traders is to use Stochastics, MACDs, and RSIs together and look for total confirmation of trends on all three.
It depends on your personal style as to how you use the indicators, but regardless, you'll probably at least want the Stochastic in your arsenal. |
|
More articles:
Automated Forex Trading System
Online Forex Trading | Currency Trading | ACM
Automated Forex Trading System
Carry trades finally showing signs of fatigue as equity markets ...
Forex - A Snappy Way to Make Serious Bucks
How To Deal With Forex Trading
Intermediate Forex Trading
There are many different intervals in forex trading, including scalpers (very short term), day traders (short term), intermediate traders (days), and investors (week, months, even years). Intermediate trading is advantageous for several reasons, and this is why it is perhaps one of the more popular trading intervals used.
Intermediate trading allows you to look at the market and say "this is where I think prices will go over the next several days". This allows you the opportunity to enter a position that you can hold for long enough to get through all of the "market noise", price action that occurs but is not relevant to the trend you are pursuing.
You should be aware that in order to trade over the intermediate term, you must scale back your leverage a bit to avoid margin calls as the result of this noise.
Intermediate trading is based largely on technical analysis, to include the usage of indicators, trend lines, and support and resistance lines on charts. However, it is helpful to also include some fundamental analysis in your decision.
Rather than the fundamentals that would tell you where a currency will be next year, use fundamentals to help you gauge the current market sentiment on the currencies you are trading. This can help you to know whether there is a particular favorite in the market, or if sideways action will occur because of market indecision.
As with any trading time frame, you should always be looking at three intervals of charts. For intermediate trading, perhaps the best way to do this is with daily charts for the overall trend, two- three- or four-hour charts for your actual trading, and one-hour charts for details, especially on good entry and exit points.
What indicators you choose for each of these charts will be up to you. However, you should never operate off just one time frame because you will miss the bigger picture of where price is going, and you will miss the perfect entry and exit points provided by the smaller time frame.
No matter what, leave room for prices to move against you. Study the charts for indications of how prices swing to know how much room to leave yourself on the trade, and consider stop-loss orders to help you avoid further loss.
The one thing you should never do is put yourself in the position of a margin call.
Related Topics: History of Forex Trading,
Forex Money Management, How To Deal With Forex Trading
|