You'll be able to make forecasts of price movements by applying the past data of the prices and graphs to the technical analysis methods. You can predict future prices with the level of accuracy dependent on your technical analysis skills using the graphs of the rates you observe. Trading with some brokers you can see technical indicators along with the graphs. You can apply it to your demo account and estimate your prediction skills necessary for planning trading decisions.
It is impossible to choose the most effective indicator among lots of various ones. Each trader has to decide for himself which indicator is best for him. You can't find any magic formula; you just see the graphs, make your forecasts and find out whether they come true seeing the values in the news later. There are a lot of technical analysis indicators available but here are the ones which are the most wide-spread: the Moving Average Convergence Divergence (MACD), the Bollinger Bands, Pivot Points, RSI, Stochastic, Fibonacci, EMA, Elliot Waves.
Fundamental analysis is another tool that maximizes your profit and minimizes your losses on the trades. There are some traders who prefer only one kind but the majority prefers both. Fundamental analysis means trading following the news, e.g. telling about the economies or unemployment rate in the countries of the currencies you trade. They can also tell about the events that can have a strong influence on the currencies' exchange rate.
Fundamental analysis studies the core underlying elements that influence the economy of a particular entity, like a stock or currency. It attempts to predict price action and trends by analyzing economic indicators, government policy, societal and other factors within a business cycle framework.
In other words, if a particular country has a successful economy, its currency value will grow, if the economy is going through a rough time the currency value will fall.
Things that affect economy are called economic indicators. They are snippets of financial and economic data published regularly by governmental agencies and the private sector. These statistics help market observers monitor the economy's pulse - so it's no surprise that they're religiously followed by almost everyone in the financial markets. With so many people poised to react to the same information, economic indicators have tremendous potential to generate volume and to move prices. It might seem like you need an advanced economics degree to parse all this data accurately - but in fact traders need only keep a few simple guidelines in mind to making trading decisions based on this data.
Most important economic indicators are:
1. Gross Domestic Product (GDP)
2. Industrial Production
3. Purchasing Managers Index (PMI)
4. Producer Price Index (PPI)
5. Consumer Price Index (CPI)
6. Durable Goods
7. Employment Cost Index (ECI)
8. Retail Sales
9. Housing Starts
All of these things affect economy in some way and should be taken into consideration when making fundamental analysis if you want to maximize your profit and minimize your losses on trades.
Technical analysis attempts to forecast future price movements by examining past market data. Most traders use technical analysis to get a "big picture" on an investment's price history. Even fundamental traders will glance at a chart to see if they're buying at a fair price, selling at a cyclical top or entering a choppy, sideways market. History repeats itself. The techniques which were effective in the past can be still effective to forecast future price movements.
Technical analysis predominantly uses charts to forecast future price movements. Nowadays it is not necessary to draw charts on paper as the process is automated by specially designed computer programs.
There are three sources for the technical analysis: price, volume and open interest . Price discounts everything. Price is affected by economic, political and other factors, and all information is already reflected in it. Technical analysis utilizes the information captured by the price to interpret what the market is saying with the purpose of forming a view on the future. Price movements are not totally random, or prices trend. The main purpose of the charts is to define a trend at an early stage and to trade in accordance with its direction.
Technical indicator types:
Using Technical Indicators
Price charts help traders identify trade-able market trends - while technical indicators help them judge a trend's strength and sustainability.
If an indicator suggests a reversal, confirm the shift before you act. That might mean waiting for another period to confirm the same indicator's signal, or checking out another indicator. Patience will help you read the signals accurately and respond accordingly.
There are a lot of different types of charts that you can use in Forex trading. The most popular ones are line chart, bar chart and candlestick chart, so I’ll try to explain to you what these are, how they are made and what they look like.
1. Line chart
Line chart or line graph is a type of graph created by connecting a series of data points together with a line. In Forex bar charts are plotted with time on the x-axis and the currency pair on the y-axis. Each time period on our real time charts can range from a tick by tick to a weekly interval (the tick refers to each individual pip movement). This gives traders the flexibility to view currencies with closer examination while also allowing them to spot the trends most suitable for their time-sensitive trading strategy. A line chart's strength comes from its simple design; it provides an uncluttered, easy to understand view of a currency's price. Line charts display the currency's closing price. A line chart is simply a graph of the value of a currency taken at regular time intervals based on current prices.
2. Bar chart
A bar chart or bar graph is a chart with rectangular bars with lengths proportional to the values that they represent. Bar charts are used for comparing two or more values. The bars can be horizontally or vertically oriented. Sometimes a stretched graphic is used instead of a solid bar. It is a visual display used to compare the amount or frequency of occurrence of different characteristics of data and it is used to compare groups of data. Standard bar charts are commonly used to convey price activity into an easily readable chart. Usually four elements make up a bar chart, the Open, High, Low, and Close for the trading session / time period. A price bar can represent any time frame the user wishes, from 1 minute to 1 month. The total vertical length / height of the bar represents the entire trading range for the period. The top of the bar represents the highest price of the period, and the bottom of the bar represents the lowest price of the period. The Open is represented by a small dash to the left of the bar, and the Close for the session is a small dash to the right of the bar.
3. Candlestick chart
A candlestick chart is a style of bar-chart used primarily to describe price movements of equity over time. It is a combination of a line chart and a bar chart, in that each bar represents the range of price movement over a given time interval. It is most often used in technical analysis of equity and currency price patterns. They appear superficially similar to error bars, but are unrelated. Candlestick Charts identical to a bar chart in the information conveyed, but presented in an entirely different visual context. The candlestick encapsulates the open, high, low and close of the trading period in a single candle. Candlestick charts are on record as being the oldest type of charts used for price prediction. They date back to the 1700's, when they were used for predicting rice prices. In fact, during this era in Japan, Munehisa Homma become a legendary rice trader and gained a huge fortune using candlestick analysis. He is said to have executed over 100 consecutive winning trades. Candlestick charts are much more visually appealing than a standard two-dimensional bar chart. As in a standard bar chart, there are four elements necessary to construct a candlestick chart, the Open, High, Low and Closing price for a given time period. A candlestick can either be solid or transparent. Its appearance depends on the relationship between the opening and the closing price. If the close is higher than the open, the candlestick is transparent or empty. Candlestick charts are much more "visually immediate" than bar charts. Once you get accustomed to the candle chart, it is much easier to see what has happened for a specific period - be it a day, a week an hour or one minute.
Which Analysis should I use?
This is a question that many people have asked themselves. There are people that think that only the fundaments move the market and that everything you find on a chart is just a mere coincidence. On the other hand there are people who think that only the technical part is important and that you can find all you need to trade and foresee future prices by looking at the charts. The truth is that this two fulfill each other and make a perfect couple. If you master both of this analysis success will come in its time.
Fundamental Outlook for US Dollar: Bearish
- US ISM services index showed that business activity continues to contract in the sector
- US personal income growth surprisingly rose, but gain was due to increased social security, unemployment payments
- US non-farm payrolls fell by 651,000 in February, sending the unemployment rate to a 25+ year high
The US dollar ended last week mixed across the majors as the currency gained against the British pound, euro, Japanese yen, Canadian dollar but fell versus the Swiss franc, New Zealand dollar, and Australian dollar.
Looking ahead to data releases this week, the big indicator to watch will hit the wires on Thursday at 08:30 ET. The Commerce Department is forecasted to report that US retail sales fell negative for the seventh time in the past eight months in February, as the surging unemployment rate, tight credit conditions, and a year-long recession weigh heavy on the minds of consumers. More specifically, advance retail sales are anticipated to have contracted 0.5 percent during the month, and excluding auto sales are expected to have slumped 0.2 percent, marking what may end up being a consistent trend through the first half of 2009. The impact of a disappointing result may be mixed for the US dollar, as the Federal Reserve has already cut the fed funds target to a record low range of 0.0 percent - 0.25 percent and has no room to cut further. As a result, it will be important to gauge the impact of the news on DJIA or S&P 500 futures, as a sharp shift could suggest either flight-to-quality or a pickup in risk appetite.
Other indicators to watch that may not be as market-moving, but just as important as a gauge of economic health include: jobless claims, the trade balance, the import price index, and the University of Michigan (U of M) consumer confidence survey. On March 12 at 08:30 ET, both initial and continuing jobless claims are anticipated to rise further, with the latter forecasted to hit fresh record highs of 5,150,000. On March 13 at 08:30 ET, low oil prices could help lead the trade deficit to narrow slightly to $38 billion from $39.9 billion while the annual rate of import price growth could plunge to a new record low of -13.6 percent. Finally, the U of M sentiment index is projected to fall to 55.0 from 56.3, which would mark the lowest level since May 1980.
Euro On Edge As Eastern European Countries Threaten Renewed Crisis
Fundamental Outlook for Euro This Week: Bearish
- The ECB meets market expectations by cutting rates 50 bps; yet warning of further reductions unanticipated
- European Union leaders deny request for a 180 billion aid package for Eastern Europe
- German PM Merkel says $145 billion liquidity fund open to largest firms
The euro is at a fundamental and technical cross roads. In price action, the currency has taken to congestion that is on the verge of confirming a major bearish reversals against the US dollar, British pound and Japanese yen. So, what has prevented the market from confirming – or reversing – the next dominant trend? Fundamentals. This past week, increasingly critical traders looked for tangible evidence that the Euro Zone was truly stronger than its global counterparts. Doubts have lingered and developed for months; but the ECB’s decision to maintain its dovish policy and the growing financial troubles for some members of the Union that have been dubbed the ‘emerging market’ economies of Europe have put the superpower on the same level as the United States and United Kingdom.
Through its troubles are growing, the euro’s primary market driver over coming week will likely be the financial cracks that are developing within the member-state economy. For months, the Euro Zone has been suffering from the effects of the global recession and credit crisis. However, to this point, the contractions in the coalition’s individual economies and the frozen credit markets were tolerable through economic diversification and significant nation-specific bailout efforts. However, the pain is outlasting the government’s efforts; and the fact that this is a patchwork of individual economies is becoming blatantly clear. The true nature of the beast was revealed when Hungary was rejected by European Union leaders for a 180 billion euro bailout for Eastern European economies that were on the verge of collapse. Instead, German Prime Minister Angela Merkel said aid would be by given on a case-by-case basis. Should any of these economies (small or not, Union members or not) fail, it could severely undermine confidence in the entire region. Officials will no doubt act should it be clear that such a failure was imminent; but from a broader perspective, this further highlights the reality that little has been done to stabilize all of Europe. More than likely, for the world’s leaders to be successful in curtailing a deeper recession, there will need to be an effort made on a global scale. This will be the milestone for the G20 meeting on April 2nd; but until then, doubt will always be present.
Looking outside of this long-term and vague market theme, there is little on the fundamental docket that can define a major trend in the euro on its own. However, there is plenty of data that could contribute to general forecast for growth and interest rates. For economic activity, readings on German factory orders and Euro Zone retail spending will start to form expectations for first quarter GDP. For market moving potential, the Sentix investor confidence report won’t likely rouse much in the way of volatility; but it will confirm the rising sense of concern that a group of pessimists do not need to be reminded of. Also, the ECB monthly report for March will establish benchmarks for economic activity and interest rate expectations from policy makers point of view.
Japanese Yen's Safe Haven Roll Reviewed As Sentiment Fails
Fundamental Outlook for Japanese Yen: Bearish
- Citi, AIG and Lloyd’s testing the definition of nationalization and the limits of sentiment
- Chinese Premier fails to deliver expansion to stimulus plan in annual testimony sending risk appetite tumbling
- Fear is growing as government bailout and spending efforts fall short of reviving consumer and investor confidence
What defines a safe haven currency? This is a questions that has been sidestepped many times by financial participants in the past. Back when conditions were optimal, there was little doubt that US Treasuries, gold and the Japanese yen were key harbors for rough financial weather. However, with an economic recession evolving into a depression and a financial crisis testing the limits of government reserves, anything and everything is being reevaluated. And, for a fundamentally-unstable and crisis-prone financial center like Japan, there may be a good reason for cutting its currency from the list.
Looking ahead to next week, there are few, global scheduled releases that promises to redefine general risk trends. This may actually prove a stroke of good luck for the yen as traders will be able to reconsider its sharp plunge over the previous two weeks and come up with a reasonable argument to label it a safe haven. To this point however, there are few lines of reasoning to support capital flowing into Japan seeking shelter. Through the first leg of the financial crisis, the yen was rising as traders deleveraged direct or indirect carry trades through a need for cash, natural repatriation and frequently forced liquidations. Even though this was such a prevalent strategy during the height of the market’s risk appetite, it naturally has limits to which the capital will be fully exercised. No doubt, there is still a considerable amount of capital behind the carry trade, but most of it will be through pension funds and other bulk investors that weather long-term trends. Aside from carry, there was also weak support through Japan being the second largest economy in the world with benchmark rates that had extremely low volatility. Now, however, it is more than evident that primary cash targets are going to experience low volatility across the global as the world’s central banks near zero. More importantly though, a semblance of safety is hard to hold when an economy is suffering as stark a recession as the one Japan has been pitched into. With BoJ economists forecasting a worse slump than the one recorded through the 4Q of 2008, memories of the bank failures and crisis of the 1980s and 1990s are called to mind.
When it comes down to it though, the severity of a panic can send traders back to the yen regardless of the fundamental debate. For this reason, we should keep an eye on developments in the Eastern European crisis. A failure in any one of these economies can send ripples through the global financial space similar to the Russian bond default back in 1998. Also, the trend towards nationalization of major financial firms indicates lingering problems that could eventually overwhelm a government and/or destabilize fragile confidence (it’s hard to feel safe when policy officials have to constantly disarm bombs).
Considering the Japanese economy is already expected to suffer a debilitating recession, the market will also look for confirmation from the economic calendar. Among the notables, bank lending and bankruptcy numbers will be particularly important considering the plight of policy makers. The final reading on 4Q growth will also offer adjustments to sector readings; but the leading economic indicators index for January and consumer confidence figures for February will take the trend into the current year.
British Pound Outlook Worsens on BoE Cuts, Quantitative Easing
Fundamental Outlook for British Pound: Bearish
- British Pound drops as Bank of England announces Quantitative Easing
- GBP/USD Nonetheless Continues to hold Major Support Levels
- UK Government Reportedly takes 75 Percent Stake in Lloyds
A tumultuous week for financial markets left the highly risk-sensitive British Pound sharply lower through Friday’s close, and major Bank of England monetary policy decisions further hurt outlook for the downtrodden currency. The BoE moved closer to the near-zero percent interest rate policy of its US counterpart, slashing overnight targets by a full 50 basis points to 0.50 percent. Central bankers likewise moved to increase money supply by effectively printing money via “Quantitative Easing”. The announcement had little short-term effect on the British Pound, but it is important to highlight the potential for GBP depreciation through a pickup in inflationary pressures.
Fundamental outlook for the British Pound remains fairly bleak. Economists widely predict that the British economy will continue to be one of the worst affected by the ongoing global financial crisis. Such sentiment effectively limits external demand for British Pounds, and the crisis in confidence for UK financial markets likewise removes a key pillar of GBP support. Just this past weekend, the UK government reportedly took a 75 percent stake in Lloyds Banking Group. A hodge-podge of financial market intervention and the fourth-such major nationalization hardly bodes well for jittery investors. We would expect the highly risk-sensitive British Pound to continue to languish under such poor financial market conditions.
The week ahead promises little in the way of foreseeable event risk, but it will be critical to monitor overall risk trends in global financial markets. For the time being, the British Pound continues to decline against its US counterpart through times of market distress. Absent a shift in dynamic, we would expect the GBP/USD to continue moving off of the US S&P 500, the FTSE 100, and other key risk barometers.
Written by John Kicklighter, David Rodriguez, Terri Belkas, John Rivera, Ilya Spivak and David Song, Currency Analysts
Article Source - Forex Trading Weekly Forecast - 03.09.09
What is Forex?
The foreign exchange market (Currency, Forex, or FX) is where currency trading takes place. It is where banks and other official institutions facilitate the buying and selling of foreign currencies. Forex transactions typically involve one party purchasing a quantity of one currency in exchange for paying a quantity of another. The foreign exchange market that we see today started evolving during the 1970s when world over countries gradually switched to floating exchange rate from their erstwhile exchange rate regime, which remained fixed as per the Bretton Woods system till 1971.
Today, the Forex market is one of the largest and most liquid financial markets in the world, and includes trading between large banks, central banks, currency speculators, corporations, governments, and other institutions. The average daily volume in the global foreign exchange and related markets is continuously growing. Traditional daily turnover was reported to be over US$3.2 trillion in April 2007 by the Bank for International Settlements. Since then, the market has continued to grow. According to Euromoney's annual Forex Poll, volumes grew a further 41% between 2007 and 2008.
Forex used to be a closed market because only the “big boys” because you needed between 10 and 50 million $ to open an account. But today, with the development of internet, online Forex brokers have the possibility to offer their services to “little” traders. All you need to start is a computer, fast internet connection and information which you can find on this page also.
This enormous market is like the dangerous sea where you can meet lots of sharks and dangerous waters but at the same time it is the only one where two weeks of trading can hypothetically bring you $1,000,000 out of $1,000 of initial investment.
This is certainly hypothetically because a lot of newbie traders deal with their trades as gambling, that surely bring them to having nothing in the end. You should always keep the phrase "be careful!" in your mind. This market would give you its profit possibilities only if you learn the basic things hard and make lots of demo trading.
The statistics is that as much as 95% of traders come to losing their money at Forex, 5% have profit and less than 1% of traders make large fortune at Forex. You shouldn't produce, sell or advertise anything trading at Forex. Your assets are your knowledge, experience and a small amount of cash.
This market is a platform for banks, transnational corporations and individual traders to change the currencies they possess into other ones. This is the spot Forex market. At this market you can trade with up to 1:400 leverage which means that you'll get $400 on your account for each dollar invested. So, you can trade with the $400,000 sum having invested $1,000 onto your account.
Why to trade on Forex?
1. There is no commission fee for trading at Forex.
2. There is no intermediary, you can trade directly at Forex.
3. Forex is open 24-hours a day.
4. Nobody can influence the market for a longer period.
5. High liquidity.
6. Free demo accounts, analysis and charts.
7. Small accounts that allow everyone to try out his luck.
Hope this has answered a lot of questions you were asking yourself about Forex and that you can now start trading. Also make sure that you check out other articles on this blog which can help you earn your fortune.
Good luck to everyone!