Learning to Trade the Forex Market

Getting started

The beauty of forex is you can get started right away without any money and without having any idea what you are doing. To do this you open what is called a demo forex account. In your demo account you trade with fake money and you have fun learning how to trade for real. Your goal is to build a sustainable track record of successfully trading with fake money. Once you have done this you will be ready to try trading with real money.

The transition from fake money to real money can be tricky. Sort of like learning to fly in a flight simulator and then flying a real airplane for the first time. Each time you enter the flight simulator your skills will be improving and your confidence increasing, until you get to the point you feel you are ready for the real thing. In theory, if you master the flight simulator, the real airplane will not be a problem.

In reality, as you're walking toward that real airplane for the first time, your heart will be pumping and you will be scared. Likewise when you are about to pull the trigger on your first real money trade your heart will be pumping and you will be scared.

Flying a plane for real and trading forex for real are similar in many ways:

If you are reckless flying the plane you will get yourself killed. If you are reckless trading forex you will lose all your moneyFlying entails taking off, obeying the rules of safe flying, and landing safely. Forex trading entails entering a trade, controlling your risk, and exiting safely.When flying an airplane your success requires you get all three (takeoff, safety, and landing) right. In forex trading your success requires that you get all three (entry, risk, and exit) rightThe best pilots always put safety first. The best forex traders always put safety first.

Flying a plane and trading forex for real are different in one key way

To become a pilot there is government mandated formal education and professional training requirements; as a result of this formal education and professional training, few pilots crash and burn. To become a real money forex trader there is no government mandated formal education and no professional training requirements; as a result, almost all forex traders crash and burn

Formal education and professional training

Whether you want to be a jet fighter pilot or a weekend recreational pilot of a two-seater, you need formal education and professional training to insure your safety and success. If you want to become a full-time forex trader, a part-time forex trader, or just dabble from time to time you need at least some education and training to insure your safety and success; especially if you're serious about making money from forex trading.

Education choices - getting started

I suggest you start withBabyPips.com; it's described as “a free, funny, and easy-to-understand guide for teaching beginners how to trade the forex market”. Here you will learn about the forex market, forex trading, technical analysis, and fundamental analysis. There is also practical advice on choosing a forex broker and how to go about opening your broker account and getting started with your forex trading. If you prefer reading a book, “Forex for Dummies” is a good place to start. Brian Dolan, one of the authors, is a brilliant guy and he has done an excellent job in laying out the forex basics in easy to understand language. I wrote an article “Forty five ways not to lose money trading forex”, which can easily be located with a Google search; many traders have told me it helped them a lot. You may want to read that one; knowing the common mistakes new forex traders make may be helpful.

As you study the basics, you will likely find the technical tools that you think will suit you. It's a good idea to do further research on those technical tools; three excellent free sources of further information on technicals (and fundamentals) are Investopedia.com, fxstreet.com, and forexfactory.com

Your broker will supply free charting software for you. Personally, I like netdania.com charts; they are very user friendly and there is a free demo version, which I have been happily using for the past 5 years.

Technical tools I use

I love trading. I was a professional forex bank trader for 20 years. I retired in 2004 and have been trading my own account since then. I like to trade everything from one minute charts to daily charts. The technical tools I like best are:

Simple moving averagesRange breakoutsMomentum breakoutsSwingsFibonacci retracementsGartley patternsCandlestick patternsBar reversalsCorrelationsDaily high and low

There is plenty of free information about all of these technical tool available on the internet

Fundamental tools I use

Market view - what currencies are traders focusing on and whyCentral bank speak - what are the key moneymen in each country saying and whyInterest rates - how much interest you get for holding onto a currency mattersEconomic news - the reality of employment, retail sales, and housing matters

A good free website to track all the upcoming important scheduled economic news is forexfactory.com. Kathy Lien is excellent at the fundamentals. Her daily comments can be found at fx360.com.

Where do you begin?

Of course, if you are a new forex trader it takes time to figure out your niche and if you have a job you will need to choose a particular focus of your forex trading. I still think it helps to at least get some exposure to all the tools, both technical and fundamental, that work best in forex trading, and then choose the ones you like. There is plenty of free information on the internet to choose from.

Consider formal education and training

Once you've done your independent study you may choose to try trading forex on your own. If you have the available resources, it may be a good idea to get specialized training / mentoring; there are some good ones out there.

The argument that if a trader was any good he would not be teaching is not without merit. However, there is this to consider. A good trader manages risk effectively. Trading has its ups and downs but getting paid to teach trading is a winning trade every time. Why not do both and improve the slope and the volatility of the earnings curve.
That is not to say there are not a lot of disreputable forex educators out there. Do your due diligence and you can find a good one.

Jimmy Young

eurusdtrader.com

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Aussie Mixed in Forex Trading

Aussie is down against the US dollar as risk aversion continues today, but up against the euro. Concerns about the eurozone crisis have sharpened, and that has investors and Forex traders alike jumpy about what could be next for the global economy. As a result, the Australian dollar is seeing gains against a weaker euro, but losses against the greenback, which is used as a safe haven.

Indeed, the eurozone is back in focus today as Italy’s largest bank insists that it needs more capital. The news sent Asian stocks, including the S&P ASX index in Australia, lower today, and brought the Aussie down against the US dollar. It’s also not helping the Australian dollar that gold prices are lower, and that there are new concerns about Chinese growth going forward.

Even though Aussie is down against the greenback, it is still gaining against European currencies. Aussie is higher against the euro, which appears to be struggling mightily as concerns about the next phase of the eurozone debt crisis reach a new level, and it is also higher against the Great Britain pound, which is exposed to eurozone banks.

At 14:29 GMT AUD/USD is lower at 1.0271, down from the open at 1.0326. EUR/AUD is lower at 1.2468, down from the open at 1.2518. GBP/AUD is down to 1.5088 from the open at 1.5112.

Tags

AUD/USD, Australia, Dollar, EUR/AUD, Euro, Eurozone, GBP/AUD, Great Britain, Pound, S&P ASX, United States

Rand Advances as Forex Traders Express Optimism

The South African rand advanced yesterday on the positive mood among Forex traders, though the currency lost part of its gains later. The rand held steady today.

The optimism was felt across all markets yesterday and currencies of emerging economies benefited from it. The MSCI Emerging Markets Index climbed 1.8 percent. South Africa’s benchmark stock index (JALSH) reached the highest level in more than a month. The Standard & Poor’s GSCI index of commodities jumped to the monthly high.

The rand was the worst performer among 12 major currencies last year. It has dropped 18 percent as fears of the European sovereign-debt crisis and its impact on the global economy damped demand for currencies of emerging markets.

USD/ZAR traded near its opening level of 8.0390 today as of 2:23 GMT. The currency pair fell yesterday from 8.0490 to 7.9960 — the lowest level since December 8.

If you have any questions, comments or opinions regarding the South African Rand, feel free to post them using the commentary form below.

Earlier News About the South African Rand:

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Japanese Yen Continues to Gain in Forex Trading

Japanese yen continues to gain in Forex trading. Indeed, yen closed out 2011 at highs not seen for years — and not seen for a decade in the case of the euro. Japanese yen is in demand as continued global uncertainty sends traders looking for safe haven.

Indeed, even with the problems faced by Japan in 2011, including a massive earthquake and tsunami, the yen remained strong. Japanese financial leaders intervened in the Forex market multiple times, attempting to weaken the currency, especially as it gained against the US dollar.

Financial minister Jun Azumi has spent plenty of time warning that Japan will do what it takes to keep the yen weak, and that resolve might be tested in the coming year as traders look for ways to protect their capital in uncertain times.

The year ahead will certainly be interesting. If the global economy, led by the United States and (in the developing world) China, begins to recover, and if Europe can sort out its problems, the yen might see some weakness later on. But, for now, the yen is in demand as safety is at a premium.

At 17:20 GMT USD/JPY is lower at 76.9150, down from the open at 76.9600. EUR/JPY is down to 99.3930, down from the open at 99.6505. GBP/JPY is lower at 119.2075, down from the open at 119.2850.

If you have any questions, comments or opinions regarding the Japanese Yen, feel free to post them using the commentary form below.

Earlier News About the Japanese Yen:

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RBI imposes forex strictures to defend Rupee

 
By Moses Harding, Head - ALCO and Economic & Market Research, IndusInd Bank

We discussed the need for RBI to think of measures other than intervention to prevent rupee weakness beyond 54. RBI?s intervention (how aggressive it may be) was ineffective in a highly dollar demand driven mode. The earlier measures to open up inflows through FII/ECB/NRI route did not yield desired result. Hence, the need is to explore ways and means to cut the dollar demand from the system and get the market into neutral mode to make RBI?s intervention effective. That?s what has been done now. The demand for dollars is now reduced significantly through blocking export cancellations; corporate speculation through performance based limits (mainly NDF trades) and limiting intraday/overnight exposure of Banks. The market was in heavily over-sold position with exporters covering most of receivables and importers/FC borrowers maintaining large open positions. The chance of exporters to cancel the existing contracts with intention to reinstate at better levels is now blocked; thereby cutting huge demand through export cancellations. RBI?s ineffective intervention resulted in widening arbitrage between off-shore NDF and on-shore OTC; thus generating huge dollar demand in the domestic market. This is also cut now. Other measures such as cutting the exposure limits for Banks are not very significant.
Over all, the huge gap in days? demand-supply is bridged and expected to stay in either neutral mode or shift into supply driven mode; thus bringing the Rupee exchange market in firm control of RBI. While many will advocate that these steps are not fair-play; RBI did not have any other option to arrest spread of currency woes into inflation and the economy. It was the last weapon as RBI cannot go the SNB way (to open up dollar sales counter at predetermined rate). It was discussed in earlier reports that rupee weakness beyond 54 will push the Indian economy into low growth; high inflation mode which would be economic disaster. It would need exchange rate stability at 51-54 till inflation worries are out of the way. Post that and firm downtrend in commodity prices, RBI would allow the rupee to float along with USD strength. Now, RBI can afford to turn into dollar ?buy mode? to release rupees into the system without CRR/OMO route. So, focus is back to the 51-56 short term range play while 54 remains firm in the near term. Rupee fall from 44 to 54 since August 2011 is excessive and it would have been in order if the market had shifted into supply driven mode at 54-56 to provide rupee stability at 51-54. When rupee woes are imported from external sector on which RBI did not have any control; use of these options can be considered as prudent (and sensible) if it could arrest rupee impact on inflation. Let us welcome these moves with pinch of salt for the good of the Indian economy.   
Policy expectations:
CRR: UNCHANGED. RBI has now has the option to inject liquidity through OMO purchases in the bond market and dollar purchases in the FX market; hence no need at this stage to cut CRR for the purpose to address tight liquidity above RBI?s comfort level of minus 1% of NDTL.
Repo rate: UNCHANGED. The moderation in growth momentum below 7.5% and headline inflation stubbornly above 9% will keep RBI in pause mode into January 2012 monetary policy review.
Guidance: NEUTRAL. RBI may not choose to sound dovish at this stage. Rupee woes are not completely out of the way. RBI has already exhausted all its options including strictures in FX operations. RBI will look for improvement in the external sector to get the worries on inflation and rupee out of the way before shift into dovish stance.
Currency market: We discussed that rupee weakness beyond 54 can push the economy into low growth; high inflation mode considered as disaster when RBI struggles to balance both growth pressures and inflation worries. Now that RBI has cut the demand, rupee is expected to be in consolidation mode at 51-54 with immediate bias into 52.50-51.50. Given the fact that rupee value around 51 is fairly valued, it makes sense to keep rupee bit undervalued for the benefit of exporters who have paid for these FX strictures losing their freedom to un-do past mistakes. So, providing stability around 52.50 will be in order. RBI would now have the option to operate from ?buy side? to supply rupees into the system. It is important for RBI to keep rupee exchange rate in its grip till inflation eases into 7%. The shift into low growth; low inflation (around 7%) will enable RBI to take dovish stance on monetary policy. We advised exporters to cover 1-3M receivables on extended weakness into 54 with 3M forward dollars looking attractive at 55.00-55.50. We saw a high of 3M dollars at 55.25 to bring in supplies which made RBI intervention effective to drive rupee from low of 54.30 for close below 53.70. We also asked importers to stay away for 53.50-52.50; now importers will get to buy cheaper dollars around 52.50. Having said these, fundamentals continue to remain weak. USD Index is bullish for gradual move into 89 in the short term tracking economic woes in the Euro zone and better economic performance out of the Euro zone. USD Index is expected to form a strong support base around 79.80 and prepare momentum to take out 81. Domestic stock market is also weak tracking growth pressures. Let us now look for consolidation in rupee at 52-53. It is important for importers to hedge on extended reversal below 52 where RBI is expected to get into dollar buy mode. On the other hand, exporters can sell 1-3M dollars on weakness into 53. Over all, 3M forward dollar above 54 will be good for exporters and 12M forward dollar below 54 will be good for importers.
EUR/USD is able to hold its weakness at 1.2950-1.3000 but the bounce from there lacks momentum and has held at 1.3050. Our strategy to exit short EUR/USD positions at 1.3000-1.2950 for bounce into 1.3050/1.3150/1.3250 is valid. We continue to watch consolidation at 1.2850-1.3150 with bias for extension into 2650. Our short term target continues to remain at 1.20-1.18. Strategy is to sell EUR/USD correction into 1.3050-1.3250 for 1000 pip dollar rally into the short term.  USD/JPY is in tight consolidation mode at 77.75-78.25. It is matter of time before see extended dollar strength into 79.00-79.50.
FX premium spiked to 7% in 3M and 5% in 12M (higher end of set near term range of 6.0-7.0% in 3M and 4.5-5.0% in 12M) before close at 6.75% and 4.9% respectively. RBI?s sale of forward dollars arrested test/break of higher end. Now, it is important for RBI to allow a bull run in FX premium to shift forward market into supply driven mode; leading exporters? supplies and lagging importers? demand. We will revise the near term range into 6.5-7.5% in 3M and 4.5-5.5% in 12M with bias into the lower end. This will also help release of dollar credit to exporters at affordable cost. RBI may need to keep FX premium high through purchase of forward dollars to arrest excessive reversal in spot rupee below 52.
Bond/OIS market: The initial gains in the market tracking lower US Treasury yields could not sustain getting the focus back into domestic cues. The initial rally found strong support at 8.45% (10Y bond); 7.75% (1Y OIS) and 7% (5Y OIS) before close at 8.49%; 7.79% and 7.10% respectively. RBI?s actions in the FX market will provide great relief. The fear is of RBI extending its pause mode in monetary policy on shift of currency woes into inflation; growth and fiscal deficit. This relief will provide kind of stability in Bond/OIS market. Let us look for consolidation at 8.40-8.55% (10Y bond); 7.65-7.80% (1Y OIS) and 6.95-7.15% (5Y OIS). The strategy is to play end-to-end as test/break either-way is not expected to sustain.
Commodity market: Gold found support above 1560 (low of 1564) held at upper end of set 1500-1600 range (high at 1593). There is no change in expectation of extended weakness below 1560 for 1520-1500. In the meanwhile NYMEX crude failed close to higher end of set near term range of 90-97 for move below 95 and looks good for extension into 90. Let us now watch 90-95 with bias into the lower end.
NIFTY: The initial weakness in NIFTY held at the immediate support at 4675 (low of 4673) for decent bounce into 4773 before close at 4746. RBI?s actions in the FX market will provide bit of relief to domestic stock market to provide consolidation at 4675-4825 with overshoot limited to 4650-4850.