What is a Pip?

Currency pairs that trade on the foreign exchange market are quoted in terms of “pips,” which stands for the “percentage in point.”  The pip is the smallest unit on the exchange, which is 1/100th of one percent.

Picking The Right Forex Broker

Picking the right forex broker is often the most important decision any new trader will make. In the past few years, there has been a virtual explosion in the number of forex brokers doing business. To the trader, this is great, as the number of brokers has helped lower the cost of trading and to provide better services and trading tools that were not available before.

Find Forex Signal Services

Forex signal services offer investors the ability to trade the foreign-exchange market without their own analysis.  Instead, investors can rely on professional advice from a currency trader.  It is important to remember that forex signal services are not the same as managed accounts; managed accounts are traded by an active manager whereas forex signals are traded by the subscriber.

Forex Stop Loss and Take Profit

Arguably, the stop loss and take profit orders are the two most important order types for foreign exchange traders. The two orders are essentially orders on top of another order. The stop loss allows you to determine at what price you want to cut your losing trades and the take profit allows you to enter what price you’d like to close a position for a profit.

Types of Forex Market Orders: Market and Limit

Now that we know what goes into a trade, we need to also know how to enter the trade to a broker. There are two main types of orders to buy currency, the first of which is a market order, the second is a limit order.

The Spread, A Forex Brokers Profit

In our example from the previous article, we actually alluded to a few things. The first, is that there were a few costs in our example trade of 1 lot of GBP/USD. The hidden cost is the “spread” or the commission the broker earns for completing our trade.

How Money is Made With Forex

So, you know how the forex market works, now its time to find out how investors make money with forex. The premise of the foreign exchange market is simple, to exchange one currency for another currency which you believe will go up in value. The basics are much like the stock market, so anyone with any financial experience should pick up the foreign exchange market rather quickly.

Forex Market Trading Times

The foreign exchange market is the only market in the world that is open 24/7. Investors are able to place trades every single day of the week, however, most pairs will move very little on the weekends as very few investors stick around to trade.

The Basics of The Forex Market

The foreign-exchange market, or forex, is the largest market in the world by volume. That is, more money exchanges hands on the foreign exchange than in any market in the world. Some $1.5 Trillion is exchanged daily compared to $25 billion on the New York Stock Exchange.

Forex Glossary

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Appreciation – Currencies appreciate when traders and investors on the foreign exchange market push up a currency’s value. Appreciation is marked by a rise in value against one currency, or against a basket of world currencies.

Williams %R – Williams Percent Range

The Williams’ Percent Range is similar to the Stochastic Oscillator. Known also as the William’s %R, this technical tool allows traders to gauge raw momentum in the market.

Stochastic Oscillator

The Stochastic Oscillator is a technical indicator which shows relative highs and lows based on high-low calculations from previous periods. Stochastic indicators place less emphasis on price, instead focusing on speed and momentum of price movements to determine highs and lows.

Standard Deviation Indicator

Standard deviation is a fundamental concept in modern statistics, but it plays a role in technical analysis too. The standard deviation indicator available in forex trading platforms provides a way to complement other technical indicators for a broad market analysis.

Relative Vigor Index

Breathe a big sigh of relief. There is simply no indicator that is as simple to understand as the Relative Vigor Index. The RVI as it appears in your platform is constructed of two lines. The fast line represents the vigor of recent movements. The slow line represents a longer-term view of momentum created by major market participants.

Percentage Price Oscillator

The Percentage Price Oscillator is built around the same foundation as the Moving Average Convergence Divergence, which is also an oscillator for technical analysis.

The Percentage Price Oscillator is even used with the same default settings. If you were to use the PPO as it were intended, you’d use 12, 26, and 9-period settings.

Parabolic SAR

The Parabolic SAR indicator is a technical indicator created by none other than Welles Wilder, the man who created other top-notch indicators like the Relative Strength Index. Known by its full name as the Parabolic Time/Price System, the shorter name, Parabolic SAR, stands for Parabolic “Stop and Reversal” indicator.

Moving Average of Oscillator

Metatrader 4 lists this indicator as the Moving Average of Oscillator in their list of technical indicators. In forex trading circles, the Moving Average of Oscillator is also referred to as the OsMa, the initials of the longer form, Oscillator of Moving Average.

Market Facilitation Index

All technical indicators have an inventor. One of technical analysis’ biggest contributors was Bill Williams, who invented the Market Facilitation Index, among other indicators like the RSI.

Gator Oscillator

The Gator Oscillator is a technical indicator based on the Alligator Indicator. The Gator Oscillator allows traders to quickly reference the spread between the Alligator Indicator’s charted lines.

Gann Fan

W.D. Gann, an early trader and market enthusiast created several technical indicators. Among the most popular was the Gann Fan, a market indicator which created support and resistance lines based on the slope market movements.

Force Index

We say repeatedly on this site that the foreign exchange market trends 70% of the time. But when the market isn’t trending, it moves with force. Luckily, the Force Index exists to tell us how weak or strong the force is with each trend.

Fractals in Forex

Fractals are a mathematical vocabulary term, but they’ve been turned into technical trading tools, as well. In forex, trading platforms like Metatrader 4 and TradeStation keep traders from having to explore fully the mathematics of the indicator. Rather, traders simply need to know how fractals work, and how they can be used in profitable forex strategies.

Commodity Channel Index

The Commodity Channel Index measures the relationship of a security’s current price to its statistical average. Though the CCI appeared first in Commodity trading circles—the indicator was published first in Futures Magazine—the Commodity Channel Index is equally powerful for predicting stock, bond and currency movements as it is commodities.

Alligator Indicator

The Alligator Indicator is an excellent technical indicator for forex traders, even if it is one of the most basic. In fact, the popular Alligator Indicator is nothing more than three smoothed moving averages, but the Alligator’s ability to find winning trades is second to none.

How to Trade with Elliot Wave Theory

Elliot Wave Theory is far easier to spot in our diagrams than it is in the markets. Markets don’t always make very perfect patterns. In fact, this is what you might see when looking at an Elliot Wave in action in the foreign exchange market:

Elliot Wave Theory’s Correction Patterns

Elliot was mostly open-ended on the interpretation and application of his wave theory. When it comes to corrections, however, Elliot had very firm guidelines for how these corrective wave patterns would look.

What Is Elliot Wave Theory

The Elliot Wave Theory suggests that market movements can be described with waves. Inside a large up or downtrend are several smaller trends that make up the whole of the market movement.

Reversals, Retracements, and Waves

If you have yet to notice, technical analysis focuses on trends. Remember: the market does trend 70% of the time, and that amount of trending is enough to make serious profits in the market.

Leading and Lagging Indicators

We have explored more than a few indicators in this lesson, some of which you may find practical for use, and some which you may prefer not to use. At the end of the day, technical analysis is all about making informed decisions on the future of the price based on price alone.

How to Use Bollinger Bands

Bollinger Bands may very well be one of the most useful technical indicators. Compared to other trading indicators, you can think of Bollinger Bands as a Swiss army knife—there’s so many uses for them that Bollinger Bands are almost ubiquitous with technical analysis.

Average Directional Index {ADI}

The Average Directional Index, or ADI, is a premier technical analysis indicator that shows investors when markets are trending. We can use the ADI to find key points of entry, and explore when a buy or sell ahead of a trend makes sense.

Relative Strength Index {RSI}

The relative strength index, or RSI, is a commonly-used indicator for spotting new trends in the price of a currency pair. By using the relative strength index, a trader can keep close tabs on the relative strength of a market movement, up or down.

Moving Average Convergence Divergence[MACD]

Previously, we explained how exponential moving averages were just modified simple moving averages. Now we’re going to explain the Moving Average Convergence Divergence, often known as simply “the MACD.”

Technical Analysis Indicators

By now you’ve become accustomed to the forex markets. You understand how they work, why they work, and basic methods for evaluating the markets for successful trades. Now we’re going to explore technical analysis to its fullest with indicators that forex traders use to make sense of the markets.

Moving Average Crosses

Moving average crosses are one of the best ways to use moving averages. Using a moving average cross strategy requires that you use two moving averages, one fast, and one slow.

Using Moving Averages to Make Forex Trades

Simple vs. Exponential: A Comparison

In looking at the two types of moving averages, you can come to a very simple conclusion: use what works best for you. Each can be used to produce successful trades, and some traders even use both!

Exponential Moving Average

The exponential average is a variant of the moving average. In an exponential moving average, the price action in the most recent trading periods has more weight in the calculation.

Simple Moving Averages

The simple moving average is one of the most primitive trading tools investors have at their disposal. Used for many decades in regulating the price of every financial instrument over time, the simple moving average is used to show how the current price of a currency relates to the average price during the previous X periods.

Moving Averages

Moving averages lay the basis for our study in technical analysis indicators. Moving averages are the most simplistic form of an indicator as they use the past prices of a currency pair to help traders see the future direction of a currency pair.

Three Candlestick Patterns

Three candlestick patterns are some of the most respected patterns in all of technical analysis. When patterns made up of three important candlesticks appear (a rare event compared to single-candlestick patterns) you should be ready to play an upcoming trend, breakout, or reversal in the current currency prices.

Double Candlestick Patterns

In making use of candlestick charts, traders should familiarize themselves with double candlestick patterns for better analysis. Here are a few you should know:

Single Candlestick Analysis

Single candlesticks are the easiest candlesticks to analyze because we have to look for only one candlestick in a chart. Below, we’ll name the several different types of single candlestick indicators, and how you can analyze them for trading success.

Spinning Tops

Making Use of Candlesticks in Forex Trading

In our primer on candlestick charts we showed you how to see long-term candlestick charts for what they are. However, to use candlestick analysis techniques in the currency markets, you need to know how to hone in on parts of a candlestick that are easily ignored.

Candlestick Analysis

Previously, we touched on the various types of charts. Candlestick charts were included in this tutorial. The tutorial alluded to candlestick analysis to determine future price action. Now we’re going to fill in the void with a proper tutorial about how to use candlesticks to determine the future direction of a currency pair’s price.

Capital Flows and Forex

Imagine the world as if every country were one 5-gallon bucket, and capital (money) was water. We could pour money from one bucket to another, and some would overflow, while others would dry up.

Central Banks Manage International Trade

You know that it is the job of the central bank to manage an economy. By setting interest rate policy, they can boost an economy, or cool it off.

Balance of Trade

Much like we have the Gross Domestic Product calculation to understand how productive an economy is at any given time, the balance of trade calculation can be used to tell us how well an economy performs in the international markets.

How International Trade affects Currencies

Now that we’ve sprinted through two fundamental analysis concepts for the foreign exchange markets, let’s seek to understand another important concept: international trade.

GDP and Interest Rates: Combining Concepts

You have read all about Gross Domestic Product and interest rates. But now you want to know why it matters, or at least how you can use them to make money, right?

Economic Growth vs. Recession

Economic Growth and Currency Values

The measure of any economy is how fast or slow it is growing or contracting. When economies are growing, they’re said to be…well, growing. But when economies are slowing, they’re said to be in a recession or even worse, a depression.

Triple Tops and Bottoms

Triple tops and bottoms are very much like a double top and bottom formation. When you see a triple top or bottom, know that the next move could be a very large move to the upside or downside, depending on the bullishness or bearishness of the pattern.

Cup and Handle Chart Pattern

The cup and handle chart pattern is a bullish continuation pattern. To put it simply, when you see the cup and handle, it is usually indicative of a future bull movement toward the top of a chart. The cup and handle chart pattern can appear on any chart setting, and is just as useful on long-term charts as it is on short-term charts.

Head and Shoulders Chart Pattern

The head and shoulders is a reversal pattern, meaning that it usually comes before a reversal in a trend. Like other chart patterns, the head and shoulders can be bullish or bearish, depending on how it appears in the chart.

Pennant Chart Patterns

Pennants may allow you to show your colors in rooting for your favorite sports team, but they are used by technical analysts to predict future currency values. Pennants are a very basic chart pattern.

Double Tops and Bottoms

There are two different types of “double” chart patterns: double tops, and double bottoms. We’ll start first with double tops, which are a bearish reversal signal.

Making Money on Forex Trends

You know how to spot support and resistance, how to draw trend lines, and how to construct trading channels. Now it’s time to see how you can make trades based on trendlines.

Channels, Ranges, and Currency Pairs

At some point in each of our lessons on forex trading, the entirety of a concept comes together. Channels and ranges are at the crux of successful application of basic technical analysis, so we’ll dedicate this lesson to making channels and ranges from support, resistance, and trend lines.

Channels

Support and Resistance: The Basics of Technical Analysis

Support and resistance lines are the most simple form of technical analysis. In using support and resistance lines, a trader marks places on a chart at which they believe the price will rise or fall.

Let’s get the basic understanding out of the way before moving forward:

Forex Analysis

Here at ForexOnlineLearning we tend to favor fundamental analysis; however, we do see some short-term value in technical analysis, as well.

Forex Charts and Market Data

You are now caught up on all the innards of the foreign exchange market, from the methods to calculate profit and loss, and the different types of orders. From here, we have only one more topic to cover before getting into the analysis behind the movements in the foreign exchange markets—we need to cover charts.

Recap on Central Banking

Let’s go through the concepts we discussed in this chapter as they relate to central banking and forex:

What Are Central Banks?

He we are deep in the thick of monetary policy and we haven’t yet discussed what central banks are, or how they work. Let’s get into the details of what a central bank actually is, what it can do, and how it does it.

Interest Rates and Central Banks

Interest rates are, by far, the most important piece of fundamental analysis. Each currency has its own central bank, which has a duty to set interest rates for borrowers who need its specific currency.

Recap on Trading News in Forex

Let’s recap the basic concepts behind trading the news:

Trading the News in Forex

You now know that there are three outcomes of news items—no change, or a big up or down move. There are two ways to trade the news in foreign exchange: predicting or following.

What Makes Forex News Actionable?

Why News is Actionable

News becomes actionable because it can be used to spot good trades. With each economic report, there is usually an expected outcome for the market.

Spotting News in Forex

Some forex traders look to trade the news in the foreign exchange markets. In staying on top of key events and happenings, a forex trader can make money from fundamental factors that affect the currency markets.

What is Fundamental Analysis

Fundamental analysis hinges on the concept that all currency pairs find their price based on the underlying strength or weakness of a particular currency. The strength or weakness, the fundamental analyst might argue, is determined by the economics of currency pairs.

Forex Fundamental Analysis

We have covered everything related to technical analysis in detail, and now you’re ready to get your hands dirty in the world of fundamental analysis.

A Recap of Successful Multiple Timeframe Analysis

Let’s recap what it takes to effectively trade multiple timeframes.

Merging Multiple Timeframes

To understand multiple timeframes, we have to understand how to merge multiple chart timeframes together to get to a good view of when it is time to buy, and when it is time to sell.

The Types of Forex Traders

The different types of forex traders can be broken down into a few major categories. What makes each “type” of forex trader different is mostly attributed to how each decides to make trades on the foreign exchange market.

Timeframe Analysis

This concept stands in between fundamental and technical analysis because it’s very important to both. Nevermind their differences, a technical analysts and fundamental analyst will still have to navigate multiple timeframes to decide which trades make sense, and which simply do not.

Multiple Timeframe Analysis

One element that we neglected in the tutorial for technical traders was the importance of multiple timeframes in decision making. Depending on which chart you’re reading, you might see a bullish signal, or you might see a bearish one.

You see, in the short-term, a technical trader might spot an emerging bullish trend on the 15 minute candlestick charts. A technical analyst might see this:

Making a Forex Trade

You know how an individual trade works, how to calculate your profit and loss, and even how leverage plays into your trades. Now you’re at the final step. We’ll cover what you need to know about making a trade in foreign exchange.

Forex brokers offer several different types of forex trades, or orders:

Rollovers and Carry Interest

Rollovers and Carry Interest: Making Money for Making Money

In the last section of this tutorial you learned how you could boost your returns by using leverage. Now we’re going to show you how this leverage actually works, and the costs and gains that come with levered forex positions. These costs or gains are known as forex rollovers, or carry interest.

Pips and Profits: Calculating Profit and Loss

It’s time for a new vocabulary word: pips. Unlike other forex vocabulary words, you’ll hear this one a lot, because it is the way we define success in foreign exchange trading.

Margin Trading: Forex Isn’t only for Millionaires

We have discussed in full several large trades of $10,000. For many investors, this kind of money is out of reach, and for good reason—you don’t need this much money to trade forex! You just need to understand margin trading.

Buying vs. Selling: Going Long and Short in Forex

You’ve noticed by now that the forex market—and all financial markets, for that matter—bring about a whole new vocabulary. Traders even have funky words for buying and selling a currency pair. Traders say they are “going long,” and “going short” a currency pair when they make a trade.

Making Forex Trades: How it Works

You saw an example of buying and selling Mexican Pesos with American Dollars to make a quick buck in the first chapter of this forex tutorial. Now that you’re this far into the series on how to trade, we’re going to take the tutorials to the next level to show you what making money in forex is all about.

New York Forex Trading Session

The last of the markets to open each day, the New York trading session definitely carries a lot of weight in how the markets move.

London Trading Session

London, England has long been the world’s financial capital. Before the United States took over as the market of choice for most exchanges, London was the center for finance, insurance, banking and to this day, it is still a leader in many financial service businesses.

Tokyo Forex Trading Session

On the last page we gave you a brief overview of the three major trading sessions that make up the international foreign exchange market. In this article, we’ll explain the characteristics of the Tokyo trading session, and what investors should know about this very important market.

The 24 Hour Forex MarkeT

In the last article we talked about how the foreign exchange market went around the clock for 24 hours of trading activity each and every day. As the forex market moves around the world, it follows three markets: Tokyo, New York, and London. In the following article, we’ll explain how you can benefit by trading each market.

Forex trading vs stock trading

How the Market Work

Unlike any other market, the foreign exchange market does not have any central clearinghouse where buyers and sellers meet to make a transaction. Instead, international banks known as “interbanks” help set the price for currencies around the globe.

Firms on the Forex Market

In the last article we showed you how foreign exchange participants do not place trades on a centralized market. Instead, each individual person and entity is essentially a little piece of a larger market.

Forex Market Size: Massive.

The foreign exchange market is the largest market by total nominal value of all things traded. Each day, some $4 trillion in value trades hands between governments, institutional investors, corporations, and individual traders who trade world currencies between themselves.

Other markets find it hard to compete against the foreign exchange market’s massive size. The chart below shows the total value of the foreign exchange market versus several other financial markets: