All traders, who joined Forex, seek to reach best results. However, to trade with profit, traders need to know and follow some Forex principles.
· Have your own trading strategy. Develop your system, which is based on some significant factors for trading on Forex.
· Control your emotions. Unstable emotional condition may disturb the process of making decisions. Learn how to control your emotions and wishes.
· Have your own historical data. Write down under which circumstances and on what factors your decisions to open/close orders are based and your comments on every situation. Constantly review the results of your work.
· Learn from your mistakes. Analysis and work on mistakes are among the most important components of successful trade. It is important to be self-critical in the analysis of loss positions. Having dealt with loss positions, you can avoid repeating these mistakes.
· Do not trade without the reason. Do not open a trading platform only because you have nothing else to do or you cannot fall asleep. Trade only when there are factors that justify such actions.
· Work and think by yourself. Help and hint from another person may be helpful, but not while trading on Forex. You can consider advice from experienced traders, but do not just follow it without even thinking. Progress will appear only when you make your own analysis, develop your own strategies and rely only on your decisions.
· Trade only when you are confident about it. It is better to wait for the appropriate moment to enter the market, than open the order when you do not understand the situation. It is important to enter and leave the market at the right time. If you do not feel confident, you better not take the risk. A couple of lost pips cannot be compared with the large loss, which may be caused by rash action. Just open the order later: the market is not going anywhere.
· Limit your risk. Use for trading only the sum of money, the loss of which will not cause shortage in the family budget.
· Know your limits. Be able to stop.
· Be careful with early success. Do not lose your head from happiness just because of a few hundred dollars' profit (back to 2).
· Do not trade against the market. With the lack of experience, it is better not to take the risk. In the process of price movement in a particular direction, market starts jumping up/down. To learn how to use short– term fluctuations, you must gain experience, thus minimizing risks.
The most important steps of trading are order opening and order closing to fix the results of the trade.
It is possible to trade on the platform MetaTrader 5using either market or pending orders. Market order is used to open positions at the current time. Pending order is executed when the price reaches a certain, earlier chosen level of price. Pending orders let you trade even when you do not have an opportunity to be at your working place. After the pending order is set, it will be executed when the desired price level is reached even if the platform is closed.
There are four pending orders on open positions:
· Buy Limit– the position to buy opens in case the Ask price becomes lower or equal to the order price (the current price level at the moment of placing an order is higher than the Buy Limit order level).
· Buy Stop– the position to buy opens in case the Ask price becomes higher or equal to the order price (the current price level at the moment of placing an order is lower than the Buy Stop order level).
· Sell Limit– the position to sell opens in case the Bid price becomes higher or equal to the order price (the current price level at the moment of placing an order is lower than the Sell Limit order level).
· Sell Stop– the position to sell opens in case the Bid price becomes lower or equal to the order price (the current price level at the moment of placing an order is higher than the Sell Stop order level).
Pending Order Placing
1.Open the "New Order" tab. There are several ways to do this on MetaTrader4:
o in menu "Tools" choose "New order";
o in the "Terminal" block, open the "Trade" tab and right-click and choose "New Order";
o click twice on the currency pair in the "Market Watch" window;
o right-click on the chart and choose "Trade"– "New order";
o use F9 button.
2.Choose the type"Pending order" (under "comment" field). Then, you need to modify the main meanings of fields, such as:
o symbol– the financial instrument that will be traded;
o volume– the amount of lots;
o stop loss (not necessarily)– the function of limiting losses at the indicated price;
o take profit (not necessarily)– the function of fixing the profit at the indicated price;
o type– the type of the pending order (buy limit, sell limit, buy stop, or sell stop);
o at price– the level of the price, at which the order is to be open;
o expiry (not necessarily)– the function of the cancellation of pending order (deletes pending order from the platform if it does not open until the indicated time).
3.When all the information is entered, click "Set" and after this, the pending order will show up in the "Terminal"– "Trade" window. If you want, you can modify or delete it (if it is not open yet), by right-clicking on the order in the "Terminal" window and choosing "Modify or Delete Order". You can also modify or delete pending order in one click. You can read how to fullfill this.
Example: The bid price at USD/JPY is 109.23 at the current time, and according to your forecast, the price will increase up to USD/JPY @109.33 soon, and then, it will start falling. However, if you do not want to stay near the terminal and wait for the price that you want, you can place a pending order to sell (sell limit), which will be executed only if the price reaches the USD/JPY @109.33 level and goes down.
At the moment of the pending order execution, slippages are possible.Slippageis the amount of market movements from the moment of placing the request for the order to be executed until the moment of its execution. The execution at the better or worse price than the one indicated in the order takes place.
You can also place/modify pending orders directly on the chart. You can read how to fullfil this.
FOREX BASICS KNOWLEDGE
* Account— the record in the database, which contains information about user and other objects of the system.
* Arbitrage— the transfer of funds from one market to another to profit from the difference in interest rates, exchange rates or commodity prices.
* Ask— the price at which you can buy currency. Ask price is bigger than Bid price.
* Aussie (AUD)— the slang term for Australian dollar.
* Automated trading— the method of trading when special programs execute orders on the trader's behalf, based on a particular system, but without the participation of the trader.
* Balance— the sum of funds on the trading account after finishing the last transaction at a certain period.
* Base currency— the currency that stands first in the currency pair. All transactions are made with base currency.
* Bear— the trader, who counts on the devaluation of currency.
* Bid— the price at which you can sell currency. Bid price is lower than Ask price.
* Broker— an individual or company who takes responsibility to be an agent between a buyer and a seller of financial instruments, while charging a fee (commission charges).
* Bull— the trader, who counts on the rise in the exchange rate.
* Buy limit— pending order to buy at a price lower than the current price level (buy cheaper than now). It is placed with the expectation that the price will drop to a certain level and then will start increasing again.
* Buy stop— pending order to buy at a price higher than the current price level (buy more expensive than now). It is placed with the expectation that the market price will reach a certain level and will continue to grow.
* Cable— the slang term for pound. It is called this way because the first quotations were sent to America by a trans-Atlantic cable in the middle of the 19th century.
* Candlesticks— one of the methods of displaying charts of financial instruments' rate changes.
* Central bank— a bank that provides financial services to the government and the commercial banks of its country.
* Cross currency pairs— currency pairs that do not include USD. For example, EUR/JPY.
* Currency pair— financial instrument, that is traded on the foreign exchange market. Currency pair is formed by two currencies, which are written as a ratio of one to another. For example, USD/JPY. The result is called the exchange rate or a quotation.
* Day trading— trading operations that are completed within a day.
* Dealer— an individual or company, with whom a trader has an agreement, governing the basics of trading operations. The dealer takes the responsibility to act as a second part of the transaction.
* Deposit— funds put on the account for further transactions.
* Diversification— a strategy, that aims to reduce risks by allocating investments in different financial instruments or objects of investment.
* Equity— an indicator that characterizes the trader's account status at the moment. It is calculated as follows: equity = balance + floating profit – floating loss.
* Exchange rate (quotation)— a ratio of the price of one currency to another at a time. For example, 1EUR can be bought for 1.3000USD. It looks like: EUR/USD = 1.3000.
* Expert Advisor— an automatic system (script), that executes trade without the trader's participation based on the predetermined algorithm.
* Financial instrument— a market product type of the financial environment (namely currency, shares, futures, options, etc.)
* Flat— a period, when the price stays within the same range and does not express the direction of growth or decrease.
* Fundamental analysis— a type of market analysis, where the forecast is based on news of financial market; an analysis of economic and political information to predict market movements.
* Gap— the breaks on the quotation graphs caused by a mismatch between the open price of one trading period and the close price of the previous trading period. This may take place because of unforseen circumstances (e.g., after the weekend).
* Hedging— the use of one financial instrument to reduce risk, which is connected with the influence of unfavorable market factors on the price of another financial instrument, associated with the first one or the cash flows that they generate.
* Indicator— the tools of the computer analysis of price movements on the basis of statistical data used in technical analysis.
* Instant Execution— the method of order execution, where the order is executed at the price indicated. If the price changes while getting to the trading server, the client gets a notification about the price change (requote). The trader can either accept the new price or refuse the order to be executed.
* Kiwi (NZD)— the slang term for New Zealand currency (New Zealand dollar).
* Leverage— an instrument that lets one trade bigger sums, having only a part of the sum. For example, with a 1:100 leverage, you can conduct a trade of a USD100000 volume, having only USD1000 of your own funds.
* Liquidity— the feature of one asset to change for another one. A bigger liquidity gives an opportunity to make a big deal without being affected by a significant change in price.
* Lock— the presence of two positions of one financial instrument open in opposite directions at a time.
* Long— the position to buy. Its profit increases when market price grows.
* Lot— a certain amount of units or the sum of assets used for executing the trade of a certain instrument (for currency pairs, one standard Forex lot is 100000 units of the base currency).
* Majors— main currency pairs: EUR/USD, GBP/USD, USD/JPY, USD/CHF, AUD/USD and USD/CAD.
* Margin— the guarantee required to execute trade with the help of leverage. For example, if the leverage is 1:100 and the volume of order is USD10000, the margin is USD100.
* Margin call— a notification that shows that little amount of funds is left on the trading account and that in case of unfavorable market movement, stop out may take place. This notification is sent at the moment when the remaining funds on the trading account is a certain percent from the margin (for example, 40%).
* Market Execution— the method of order execution, where the order is executed in any case. If the price changes at the moment of order execution, it will be executed at a new, changed price.
* Market-maker— a large bank or financial organization, that determines current currency rates because of the major part of its operations in the whole market's volume.
* News trading— a type of trading system, the essence of which is in receiving profit on the price gaps at the moments of important economic news release.
* Non-market quotation— a quotation that matches the following conditions:
· the presence of significant price gap;
· the return of price within a short period to the initial level with price gap formation;
· the absence of fast price dynamic before the appearance of this quotation;
· the absence of important economic news, which considerably influence the rate of the financial instrument, at the moment of the appearance of the quotation.
* Order (position)— client's instruction to execute trade at a specified rate (to buy or sell one currency for another one). After the order is opened, it must be closed to fix the profit or loss.
* Order (position) closing— the process of reverse selling/buying such volume of financial instruments, which compensates for the bought/sold volume of the opening position.
* Order (position) opening— the process of buying or selling certain volume of financial instruments, for profit because of the changes in quotations in the favorable direction. To fix trading results, you need to close the order.
* Pending order— an order to buy or sell financial instruments in the future, when the price reaches the level, indicated in the order.
* Pips (points)— the unit of financial instrument price change (0.0001). For example, if the quotation changes from 1.3000 to 1.3001, this means that it changes for 1pip (point). The fractional unit of price change is used on the NDD and ECN accounts, which means that the quotation can change on 0.1 pips and will look like 1.30011.
* Profit— a positive increase in balance, resulting from investment or trade, after deducting all expenses.
* Quoted currency— the currency, that stands second in the currency pair. The price of the base currency is reflected with the help of it.
* Resistance level— the term of technical analysis, which determines the level at which market participants often start selling.
* Requote— a notification in the trading terminal about price changes during the process of placing an order. You can either accept a new price or cancel the execution of the order. Requotes can appear on the accounts with Instant Execution.
* Scalping— a trading strategy, where a trader executes a big amount of orders during a short period (even a couple of seconds) and fixes profit in several pips.
* Short— a position to sell. Its profit increases with the decrease of the market price.
* Slippage— the amount of market movements from the time of placing an order until its execution. It is the situation when orders execute at a better/worse price, than the one indicated in the order. For example, this might happen during high market volatility.
* Sell limit— pending order to sell at a price higher than the current price level (sell more expensive than now). It is placed in with the expectation that the market price will increase up to a certain level and then will begin to fall.
* Sell stop— pending order to sell at a price lower than the current price level (sell cheaper than now). It is placed with the expectation that the market price will decrease up to a certain level and will continue to fall.
* Spread— the real time difference between the Bid and Ask prices of one currency for another one.
* Stop out— the process of automatic order closing. This procedure takes place at the moment when the remains on the trading account is a certain percent from the margin (for example, 20%).
* Stop loss— a type of pending order, that helps limit losses while trading.
* Support level— the term of technical analysis, which determines the level at which market participants often start buying.
* Swissy (СHF)— the slang term for Swiss franc.
* Swap— fee for the transfer of open trading position through the night. Funds may be deducted or added from/to the account.
* Take profit— a type of pending order, that helps fix (take) profit while trading.
* Technical analysis (graphical analysis)— a type of market analysis, where forecast is based on the fact that the market has memory and future changes will be influenced by patterns of its behavior in past.
* Тrailing stop— an instrument, that "pulls" stop loss level to the current price at a certain distance untill the market turns and passes it. It is helpful during strong one-way price movement.
* Trading platform (trading terminal)— a trader's software, that lets execute trade from the computer or another telecommunication device.
* Тrend— clearly seen market movement in one direction (upwards – bullish, down – bearish, sideways – flat).
* Volatility— strength of the exchange rate variation.
* Volume— the amount of financial instrument, that is traded during a certain period.
Entering the Market
The first step for becoming an FX trader is to open an account with a forex Broker. Brokers in these markets usually give the investors the opportunity to test their trading system and trading facilities through opening a demo account on their trading platform and start practicing buying and selling currencies.
The most important aspect of FX trading is to understand the FX platforms, as they are the direct connection to the financial and forex markets. They are the software you use to place your orders, watch the market prices and also place transactions.
As a trader, you would be sitting at the computer screen, looking for signals and interpreting whether to buy or sell. The main concept is to buy a product hoping to sell it on a higher price or vice versa, so that the difference is your profits, i.e. you need to buy low and sell high.
Tools to get started
• Computer or Smartphone
• Reliable internet connection
• Trading software (platform) usually made available by the broker
• Trading capital
• Forex Broker
Technical analysis is a technique used to forecast the future direction of prices through the study of historical market data, primarily price, volume and open interest.
Support & Resistance indicators
Fundamental analysis is a method that attempts to predict the intrinsic value of an investment. It is based on the theory that the market price of an asset tends to move towards its 'real value' or 'intrinsic value'. Fundamental traders believe that the markets will react to events in certain ways and that they can predict future market prices based on these events.
Fundamental analysis in Forex entails predicting the price valuation of a currency and its market trends by analyzing current economic conditions, government policy and societal factors within a business cycle framework.
Forex Traders gauge a country's economic state by examining macroeconomic indicators. When properly used, these indicators can be an invaluable resource for any Forex trader. After publication of these indicators we can observe volatility of the market. The degree of volatility is determined depending on the importance of an indicator. That is why it is important to understand which indicator is important and what it represents.
When properly used, these indicators can be an invaluable resource for any Forex trader. After publication of these indicators we can observe volatility of the market. The degree of volatility is determined depending on the importance of an indicator. That is why it is important to understand which indicator is important and what it represents.
Some important economic indicators are;
Interest Rates Announcement
Interest rates play the most important role in moving the prices of currencies in the foreign exchange market. Interest rates dictate flows of investment. Since currencies are the representations of a country's economy, differences in interest rates affect the relative worth of currencies in relation to one another. When central banks change interest rates they cause the forex market to experience movement and volatility and accurate speculation of central banks' actions can enhance the trader's chances for a successful trade.
Gross Domestic Product (GDP)
The GDP is the broadest measure of a country's economy, and it represents the total market value of all goods and services produced in a country during a given year. Since the GDP figure itself is often considered a lagging indicator, most traders focus on the two reports that are issued in the months before the final GDP figures: the advance report and the preliminary report. Significant revisions between these reports can cause considerable volatility.
Consumer Price Index
The Consumer Price Index (CPI) is probably the most crucial indicator of inflation. It represents changes in the level of retail prices for the basic consumer basket. If the economy develops in normal conditions, the increase in CPI can lead to an increase in basic interest rates. This, in turn, leads to an increase in the attractiveness of a currency.
Employment indicators reflect the overall health of an economy or business cycle. In order to understand how an economy is functioning, it is important to know how many jobs are being created or destructed, what percentage of the work force is actively working, and how many new people are claiming unemployment.
The retail sales indicator is released on a monthly basis and is important to the foreign exchange trader because it shows the overall strength of consumer spending and the success of retail stores. It can be used to predict the performance of more important lagging indicators, and to assess the immediate direction of an economy.
Balance of Payments
The Balance of Payments represents the ratio between the amount of payments received from abroad and the amount of payments going abroad. If coming payment exceeds payments to other countries and international organizations the balance of payments is positive. The surplus is a favorable factor for growth of the national currency.
Government Fiscal and Monetary policy
Stabilization of the economy (e.g., full employment, control of inflation, and an equitable balance of payments) is one of the goals that governments attempt to achieve through manipulation of fiscal and monetary policies. Fiscal policy relates to taxes and expenditures, monetary policy to financial markets and the supply of credit, money, and other financial assets.
There are many economic indicators, and even more private reports that can be used to evaluate the fundamentals of forex. It's important to take the time to not only look at the numbers, but also understand what they mean and how they affect a nation's economy.