Archive for the ‘Forex Trading’ Category

20
Nov

3 Factors That Move Price In Forex Trading

   Posted by: Admin

The currency market or otherwise known as Forex is the world’s most traded market, attracting more than a trillion dollars of investment per day. This investment comes from large hedge funds, central banks and even small fish in the sea such as individual traders. They all do the same thing – speculate the price of one currency against the other. With such large daily investment Forex trading can be a bit if whirlwind for new comers because it is so volatile and fast-paced. With this in mind most new traders must wonder at some point; what is it that drives the movement in the market? Everyone is using Forex brokers and everyone is seeing the same prices and movement but how do they know what will move next and in which direction?

Interest rates

Every country’s currency is driven by its interest rate. In essence, as the interest rate of one country rises the same is reflected in its currency. As the interest rate increases you can profit from this by buying that currency against another and selling it at a higher price. Every country has a central bank that controls these interest rates. For instance, the UK has the Bank of England who announce the interest rate every month. In the recent years it has remained unchanged but if it rose, the demand for the pound will increase instantly and you are very likely to see the pound rise quickly against other currencies such as the US dollar.

Country’s economic state

This seems to be a sore subject for many developed countries these days but the basics are that if the economy is getting stronger the more likely the central bank will raise interest rates. Why? The first reason is that it will attract foreign investment into that country. The higher the interest rate the more foreign investors will be willing to invest into the financial markets. This will increase demand for the currency and so the price for the currency will increase; as you may see on your Forex brokers’ charts. The other reason is to eliminate inflation. If the economy is getting strong, the rise of interest rates will slow down the threat of a massive price rise.

Political announcements

Investors do not like the threat of political fall-down. If a political turmoil is announced across the news wires investors see this as something that will not help their investment so they simply pull out for a while. Until political issues are resolved they may not come back into the market.

Whilst there are other factors that influence the currency markets, you can see that it can be quite difficult to undertake daily Forex trading if you are not in tune with financial information such as above. If you are a technical Forex trader it might be best if you sit out every time announcements on the above events take place.

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18
May

Using Support And Resistance Within Forex Trading Strategies

   Posted by: Admin

As every serious trader knows Forex trading strategies are an essential part of Forex training. They range from reversal through to continuation strategies with each one having its own specific set of rules, entry and exit points. Knowing how these Forex trading strategies work and when they are most likely to fail is a core element of the learning process for any aspiring new trader.

Another crucial element of Forex training is the notion of support and resistance. They re defined as follows:

Support – a price area where a horizontal line is drawn connecting two price hits which have bounced in the upwards direction. Market price is decreasing when suddenly it starts to pull back upwards. It then decreases again with another pull back at the same price level as the first one. The horizontal line that connects the two pull back price points is called the support line. The line literally creates support for that particular price level.

Resistance – a price area where a horizontal line is drawn connecting two price levels which have bounced in the downward direction. Market price is increasing thus moving upwards; but suddenly it starts to pull back in the downwards direction. It then reverses back into the original upward direction only to pull back downwards at the same price point as the first one. The horizontal line that connects the two price points is called the resistance line. It creates a resistance point at which the market cannot continue upwards.

The reason why it is crucial to know about support and resistance is because they can drastically slow down your profits or even reverse your Forex trading strategies back to create a loss. The point is that there is a reason why there is support or resistance at a certain price level. It does not matter what this reason is. What is important is that traders respect it as a potential profit stop. So, if a profit target is 30 pips but there is a heavy support/resistance line blocking the way at 25 pips, profit should be taken at 25 pips. If orders are left to fight the support/resistance lines you are simply hoping for the best. You may get through some of them but in the long-run it is not worth the wait.

Another factor to bear in mind is that support can become resistance and resistance can become support. For example, as price breaks through resistance whilst moving upwards it is very common to see the price pull back to the line it broke through originally and bounce back upwards as a result. In this manner historical resistance has now become new support. The same can happen in the other direction.

In summary, it pays to be extra careful when support or resistance lines are apparent in the market when Forex trading strategies are being used. It is common for a trader to lose faith in his/her strategy when they see it bounce from this horizontal line simply because they haven’t studied it in their Forex training. In this instance it is not the strategy that is at fault, it is the lack of knowledge.

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