Thursday, July 20, 2006

Relative Strength Analysis in Forex

The relative strength analysis compares all foreign currency and the exchange rates every day in the Forex market. The report will then be sorted by their strength rating and ranked according the previous week’s rating. This report relies on at least 45 weeks of data so that sustained growth can be seen with ease. Using this analysis promises to be one of the most valuable tools of forecast the trends in the market. In addition, it can show the rating of stocks and rate them into which ones are the strongest. The stock market has a direct relation to the foreign exchange market because it reflects current trends in buying and selling, which will increase or decrease the value of currency.

The current trend in predicting the trends in the market is to use not only the relative strength analysis, but to also look at other factors. When investors and brokers look into all of these factors when forecasting the Forex, it makes for a highly reliable means of predicting trends. This can be the vital difference between making money and losing money on the foreign exchange market. When using the relative strength analysis in relation to the foreign currency exchange, it is possible to tell which markets are performing well and which ones are not. The key is finding the markets and currency that are moving up on the ranking scale. The relative strength analysis can help investors find which ones are good investments.

The report can calculate the markets report for any period in time. There are several benefits to using the relative strength analysis when attempting to forecast the Forex. When an investor looks at the relative strength of a certain stock, it affects the foreign exchange rate. One with a strong relative strength is ideal, but the value on these will not be low. Investors can look at a stock that is increasing in values and used the relative strength to measure whether or not this particular stock is moving up because it has a history of increasing or if it has a sustained high value. Stocks with a good relative strength over a constant, steady time period are good performers in the market.

Sunday, July 16, 2006

Forex Demo Trading

Forex Demo trading is a great way to get started in foreign exchange trading. It is identical to real trading, except that you're using "pretend" money. Demo trading allows you to get a taste for what type of events move markets and how they move. It encourages you to learn more about geopolitics, macroeconomics and global finance and these are all incredibly positive things.

Forex demo trading also introduces you to the rapture of greed. Trading is a means to one of the purest, most raw and potent forms of greed. The whole point of trading is to make money and the more money you make - the stronger the pull of your greed becomes. It is intoxicating and can take complete control of you.

But demo trading does not introduce you to fear. There is no fear when you are demo trading. It is like you have a perpetual get out of jail free card. If you start losing badly on a demo account - simply start a new one. There is no accountability for your trading failures and only recognition of your trading success.

So your demo account does not teach you how to handle the emotion of fear. This emotion is most likely going to lead to your downfall. Greed may get you overextended, but fear will stop you from cutting your losses (and it’ll stop you from enlarging your profits by minimizing your winning trades). You may think that fear of losing money would cause you to cut your losses, but the stronger emotion is fear of being wrong and that causes you to hold on to your losing position - until it's all gone.

So you have to do the transition wisely from forex demo accounts to real accounts, and be very aware of your feelings and actions (and their source).

Tuesday, July 11, 2006

Trailing stops in forex trading

In forex trading, it is not enough to use the stop-loss option, as a tool to minimize your losses. You need to be aware and go on using a trailing stop-loss.

The rationale behind the use of the trailing stop-loss is based on the anticipation of occasional extremely large trends and the possibilities of capturing substantial profits during these major trends. If the entry is timely and the market continues to trend in the direction of the trade, trailing stops are an excellent exit strategy that can enable us to capture a significant portion of that trend.

The trailing stops we will describe here, and in the future, in the following articles, have similar characteristics that are important to understand as we use them to design our trading systems. Effective trailing stops can significantly increase the profits gained in a trend-following system by allowing us to maximize and capture large profitable trades.

The ratio of the average winning trade in forex trading to the average losing trade is usually improved substantially by the use of trailing stops. However there are some negative characteristics of these stops. The number of profitable trades is sometimes reduced since these stops may allow modestly profitable trades to turn into losers. Also, occasional reductions in open trade profits can make the use of these stops quite difficult psychologically. No trader enjoys seeing large profits reduced to small profits or watching profitable trades become unprofitable.

But just imagine your feeling if you went out of a position, and had you stayed there, you could earn much much more - wouldn’t you be sorry you haven’t used the trailing stop loss in your forex trading? It would have taken you to higher profit, and allow you to earn more in your trade.

Sunday, July 09, 2006

Forex - I love it!!!

If you haven’t started yet with forex - get to it…

I have some friend whom I get to practice, using various proven techniques, with their demo account until they feel comfortable that they are consistently making profits. At first, like anything, you need to learn from experts. You can’t just do what you ‘think’ will work – you must learn techniques that really work. Trading is both a science and an art, so practice is very valuable before you start to trade for real. I tell them to be patient, the thrills are coming soon!

Then the day arrives, they open a real account and start trading in a mini account (designed for beginners or those who want to do smaller, yet real, trades). Once they see real money being made in forex, they can hardly wait to trade in a regular account – but again I tell them to practice because now the trades are real. Because they did their homework and practiced proven techniques with the demo accounts, as they enter into this exciting arena along side the wealthiest people in the world. Keeping calm takes awhile and then they come to the realization that they too are on their way to making more money than they ever imagined.

What amazed me when I first looked into trading was the amount of available websites offering endless promises about riches to be made trading. Yet, at the same time, I quickly learned from real experts that most people who follow this advice lose all of their investment in the first few months! Wow! So, not wanting to make that huge mistake, I followed the advice I now give to my friends. Start with a demo, then a mini-account and finally move to a regular account all the while being mentored by someone who really knows how to make profits in the forex market.

By following this advice myself, I survived the first few months and now make wonderful profits! I love it!

Monday, June 26, 2006

Forex - not exactly like the stock market

With the development of the stock exchange market, technical analysts have developed numerous methods and tools to help analyze the market. These include trend lines, support and resistance levels, chart formations and mathematical indicators such as moving averages, MACD and stochastic analysis. Other studies include Fibonacci projections, Elliot waves and Japanese candlesticks.

When coming to analyze the forex market, it is important to understand that, tentatively, these methods and tools were developed for use in the stock market. While a stock (and commodities, bonds and most other types of investments) is a financial instrument representing the price of a single entity (and a change in a stock’s price reflects a change in the perceived value of the entity) - currencies are different. A currency rate represents the value of one currency in relation to another. The direct result is that a change in a currency rate can reflect a change in one, the other or both of the currencies. This presents currency traders with an opportunity to add a powerful filtering method, known as relative-strength analysis, to their existing technical-analysis arsenal.

Relative Strength Analysis
Determining the relative strength of a currency, involves comparing it to a basket of other currencies. If, by comparing, we discover that the currency is strong and gaining more strength against a basket of other currencies, we will have gained valuable knowledge about current market sentiment towards that currency. As speculators, we can apply this knowledge towards buying or selling the currency against any other individual currency.

While Forex trading is not easy as they may say - you have a few tools that can be very helpful when trading.