At its most simplistic, it attempts to describe the human thought processes invoked by experienced, non-disciplinary traders as they observe and trade their markets. It is readily observed in markets where liquidity and price volatility are highest, but anything that is bought or sold freely in a market will per se demonstrate price action. Price action trading can be included under the umbrella of technical analysis but is covered here in a separate article because it incorporates the behavioural analysis of market participants as a crowd from evidence displayed in price action - a type of analysis whose academic coverage isn't focused in any one area, rather is widely described and commented on in the literature on trading, speculation, gambling and competition generally.
It includes a large part of the methodology employed by floor traders  and tape readers. A price action trader observes the relative size, shape, position, growth when watching the current real-time price and volume optionally of the bars on an OHLC bar or candlestick chart , starting as simple as a single bar, most often combined with chart formations found in broader technical analysis such as moving averages , trend lines or trading ranges.
The various authors who write about price action, e. Brooks,  Duddella,  give names to the price action chart formations and behavioural patterns they observe, which may or may not be unique to that author and known under other names by other authors more investigation into other authors to be done here.
These patterns can often only be described subjectively and the idealized formation or pattern can in reality appear with great variation. There is no evidence that these explanations are correct even if the price action trader who makes such statements is profitable and appears to be correct.
Also, price action analysis can be subject to survivorship bias for failed traders do not gain visibility. Hence, for these reasons, the explanations should only be viewed as subjective rationalisations and may quite possibly be wrong, but at any point in time they offer the only available logical analysis with which the price action trader can work. The implementation of price action analysis is difficult, requiring the gaining of experience under live market conditions.
There is every reason to assume that the percentage of price action speculators who fail, give up or lose their trading capital will be similar to the percentage failure rate across all fields of speculation. Some sceptical authors  dismiss the financial success of individuals using technical analysis such as price action and state that the occurrence of individuals who appear to be able to profit in the markets can be attributed solely to the Survivorship bias.
A price action trader's analysis may start with classical technical analysis, e. Edwards and Magee patterns including trend lines , break-outs , and pull-backs,  which are broken down further and supplemented with extra bar-by-bar analysis, sometimes including volume. This observed price action gives the trader clues about the current and likely future behaviour of other market participants. The trader can explain why a particular pattern is predictive, in terms of bulls buyers in the market , bears sellers , the crowd mentality of other traders, change in volume and other factors.
A good knowledge of the market's make-up is required. The resulting picture that a trader builds up will not only seek to predict market direction, but also speed of movement, duration and intensity, all of which is based on the trader's assessment and prediction of the actions and reactions of other market participants.
Price action patterns occur with every bar and the trader watches for multiple patterns to coincide or occur in a particular order, creating a set-up that results in a signal to buy or sell. Individual traders can have widely varying preferences for the type of setup that they concentrate on in their trading.
One published price action trader is capable of giving a name and a rational explanation for the observed market movement for every single bar on a bar chart, regularly publishing such charts with descriptions and explanations covering 50 or bars.
This trader freely admits that his explanations may be wrong, however the explanations serve a purpose, allowing the trader to build a mental scenario around the current 'price action' as it unfolds. The price action trader will use setups to determine entries and exits for positions.
Each setup has its optimal entry point. Some traders also use price action signals to exit, simply entering at one setup and then exiting the whole position on the appearance of a negative setup. Alternatively, the trader might simply exit instead at a profit target of a specific cash amount or at a predetermined level of loss.
This style of exit is often based on the previous support and resistance levels of the chart. A more experienced trader will have their own well-defined entry and exit criteria, built from experience. An experienced price action trader will be well trained at spotting multiple bars, patterns, formations and setups during real-time market observation.
The trader will have a subjective opinion on the strength of each of these and how strong a setup they can build them into. A simple setup on its own is rarely enough to signal a trade. There should be several favourable bars, patterns, formations and setups in combination, along with a clear absence of opposing signals. At that point when the trader is satisfied that the price action signals are strong enough, the trader will still wait for the appropriate entry point or exit point at which the signal is considered 'triggered'.
During real-time trading, signals can be observed frequently while still building, and they are not considered triggered until the bar on the chart closes at the end of the chart's given period. Entering a trade based on signals that have not triggered is known as entering early and is considered to be higher risk since the possibility still exists that the market will not behave as predicted and will act so as to not trigger any signal. After entering the trade, the trader needs to place a protective stop order to close the position with minimal loss if the trade goes wrong.
The protective stop order will also serve to prevent losses in the event of a disastrously timed internet connection loss for online traders. After the style of Brooks,  the price action trader will place the initial stop order 1 tick below the bar that gave the entry signal if going long - or 1 tick above if going short and if the market moves as expected, moves the stop order up to one tick below the entry bar, once the entry bar has closed and with further favourable movement, will seek to move the stop order up further to the same level as the entry, i.
Brooks also warns against using a signal from the previous trading session when there is a gap past the position where the trader would have had the entry stop order on the opening of the new session. A price action trader generally sets great store in human fallibility and the tendency for traders in the market to behave as a crowd.
Many traders would simply buy the stock, but then every time that it fell to the low of its trading range, would become disheartened and lose faith in their prediction and sell. That is a simple example from Livermore from the s. Support, Resistance, and Fibonacci levels are all important areas where human behavior may affect price action. Several strategies use these levels as a means to plot out where to secure profit or place a Stop Loss.
These levels are purely the result of human behavior as they interpret said levels to be important. One key observation of price action traders is that the market often revisits price levels where it reversed or consolidated. If the market reverses at a certain level, then on returning to that level, the trader expects the market to either carry on past the reversal point or to reverse again.
The trader takes no action until the market has done one or the other. Many traders only consider price movements when trading diverges or trend changes. Most traders will not trade unless there is a signal to ensure a reversal, because they want to see the close of a major reversal, but this is very rare. It is considered to bring higher probability trade entries, once this point has passed and the market is either continuing or reversing again.
The traders do not take the first opportunity but rather wait for a second entry to make their trade. For instance the second attempt by bears to force the market down to new lows represents, if it fails, a double bottom and the point at which many bears will abandon their bearish opinions and start buying, joining the bulls and generating a strong move upwards.
Also as an example, after a break-out of a trading range or a trend line, the market may return to the level of the break-out and then instead of rejoining the trading range or the trend, will reverse and continue the break-out. This is also known as 'confirmation'.
Any price action pattern that the traders used for a signal to enter the market is considered 'failed' and that failure becomes a signal in itself to price action traders, e. It is assumed that the trapped traders will be forced to exit the market and if in sufficient numbers, this will cause the market to accelerate away from them, thus providing an opportunity for the more patient traders to benefit from their duress.
It can also scare traders out of a good trade. Since many traders place protective stop orders to exit from positions that go wrong, all the stop orders placed by trapped traders will provide the orders that boost the market in the direction that the more patient traders bet on. The phrase "the stops were run" refers to the execution of these stop orders. Since , the use of the term "trapped traders" has grown in popularity and is now a generic term used by price actions traders and applied in different markets — stocks, futures, forex, commodities, cryptocurrencies, etc.
All trapped trader strategies are essentially variations of Brooks pioneering work. This concept of a trend is one of the primary concepts in technical analysis. A trend is either up or down and for the complete neophyte observing a market, an upwards trend can be described simply as a period of time over which the price has moved up.
An upwards trend is also known as a bull trend, or a rally. A bear trend or downwards trend or sell-off or crash is where the market moves downwards. The definition is as simple as the analysis is varied and complex. The assumption is of serial correlation, i. On any particular time frame, whether it's a yearly chart or a 1-minute chart, the price action trader will almost without exception first check to see whether the market is trending up or down or whether it's confined to a trading range.
A range is not so easily defined, but is in most cases what exists when there is no discernible trend. It is defined by its floor and its ceiling, which are always subject to debate. A range can also be referred to as a horizontal channel. A range bar is a bar with no body, i. This is also known in Japanese Candlestick terminology as a Doji. Japanese Candlesticks show demand with more precision and only a Doji is a Doji, whereas a price action trader might consider a bar with a small body to be a range bar.
It is termed 'range bar' because the price during the period of the bar moved between a floor the low and a ceiling the high and ended more or less where it began. If one expanded the time frame and looked at the price movement during that bar, it would appear as a range. There are bull trend bars and bear trend bars - bars with bodies - where the market has actually ended the bar with a net change from the beginning of the bar.
In a bull trend bar, the price has trended from the open up to the close. To be pedantic, it is possible that the price moved up and down several times between the high and the low during the course of the bar, before finishing 'up' for the bar, in which case the assumption would be wrong, but this is a very seldom occurrence.
And strong bulls are insisting on their ownership. They buy trend bars that are creating a bull market, bars with tails at the bottom, and double bull market reversals. Its final impact is gradual and usually leads to the final price increase. The bear trend bar is the opposite. When the bear leg turns up, the bull market reverse bar is the bull market trend bar, which is classically described as the tail at the bottom and the closing price near the top.
Some descriptions include the opening price of the tail at the top and the closing price near the bottom. A trend bar with movement in the same direction as the chart's trend is known as 'with trend', i. In a downwards market, a bear trend bar is a "with trend bear" bar. A trend bar in the opposite direction to the prevailing trend is a "countertrend" bull or bear bar. There are also what are known as BAB - Breakaway Bars- which are bars that are more than two standard deviations larger than the average.
This is a with-trend BAB whose unusually large body signals that in a bull trend the last buyers have entered the market and therefore if there are now only sellers, the market will reverse. The opposite holds for a bear trend. A shaved bar is a trend bar that is all body and has no tails.
A partially shaved bar has a shaved top no upper tail or a shaved bottom no lower tail. An "inside bar" is a bar which is smaller and within the high to low range of the prior bar, i. Its relative position can be at the top, the middle or the bottom of the prior bar. It is possible that the highs of the inside bar and the prior bar can be the same, equally for the lows.
If both the highs and the lows are the same, it is harder to define it as an inside bar, yet reasons exist why it might be interpreted so. An outside bar is larger than the prior bar and totally overlaps it. Its high is higher than the previous high, and its low is lower than the previous low. The same imprecision in its definition as for inside bars above is often seen in interpretations of this type of bar.
An outside bar's interpretation is based on the concept that market participants were undecided or inactive on the prior bar but subsequently during the course of the outside bar demonstrated new commitment, driving the price up or down as seen. Again the explanation may seem simple but in combination with other price action, it builds up into a story that gives experienced traders an 'edge' a better than even chance of correctly predicting market direction.
The context in which they appear is all-important in their interpretation. If the outside bar's close is close to the centre, this makes it similar to a trading range bar, because neither the bulls nor the bears despite their aggression were able to dominate. Primarily price action traders will avoid or ignore outside bars, especially in the middle of trading ranges in which position they are considered meaningless. When an outside bar appears in a retrace of a strong trend, rather than acting as a range bar, it does show strong trending tendencies.
For instance, a bear outside bar in the retrace of a bull trend is a good signal that the retrace will continue further. This is explained by the way the outside bar forms, since it begins building in real time as a potential bull bar that is extending above the previous bar, which would encourage many traders to enter a bullish trade to profit from a continuation of the old bull trend.
When the market reverses and the potential for a bull bar disappears, it leaves the bullish traders trapped in a bad trade. If the price action traders have other reasons to be bearish in addition to this action, they will be waiting for this situation and will take the opportunity to make money going short where the trapped bulls have their protective stops positioned.
If the reversal in the outside bar was quick, then many bearish traders will be as surprised as the bulls and the result will provide extra impetus to the market as they all seek to sell after the outside bar has closed. The same sort of situation also holds true in reverse for retracements of bear trends. As with all price action formations, small bars must be viewed in context. A quiet trading period, e. In general, small bars are a display of the lack of enthusiasm from either side of the market.
A small bar can also just represent a pause in buying or selling activity as either side waits to see if the opposing market forces come back into play. Alternatively small bars may represent a lack of conviction on the part of those driving the market in one direction, therefore signalling a reversal. As such, small bars can be interpreted to mean opposite things to opposing traders, but small bars are taken less as signals on their own, rather as a part of a larger setup involving any number of other price action observations.
For instance in some situations a small bar can be interpreted as a pause, an opportunity to enter with the market direction, and in other situations a pause can be seen as a sign of weakness and so a clue that a reversal is likely.
One instance where small bars are taken as signals is in a trend where they appear in a pull-back. They signal the end of the pull-back and hence an opportunity to enter a trade with the trend. An 'ii' is an inside pattern - 2 consecutive inside bars.
An 'iii' is 3 in a row. Most often these are small bars. Price action traders who are unsure of market direction but sure of further movement - an opinion gleaned from other price action - would place an entry to buy above an ii or an iii and simultaneously an entry to sell below it, and would look for the market to break out of the price range of the pattern. Whichever order is executed, the other order then becomes the protective stop order that would get the trader out of the trade with a small loss if the market doesn't act as predicted.
A typical setup using the ii pattern is outlined by Brooks. The small inside bars are attributed to the buying and the selling pressure equalling out. The entry stop order would be placed one tick on the countertrend side of the first bar of the ii and the protective stop would be placed one tick beyond the first bar on the opposite side. Classically a trend is defined visually by plotting a trend line on the opposite side of the market from the trend's direction, or by a pair of trend channel lines - a trend line plus a parallel return line on the other side - on the chart.
In its idealised form, a trend will consist of trending higher highs or lower lows and in a rally, the higher highs alternate with higher lows as the market moves up, and in a sell-off the sequence of lower highs forming the trendline alternating with lower lows forms as the market falls.
A swing in a rally is a period of gain ending at a higher high aka swing high , followed by a pull-back ending at a higher low higher than the start of the swing. The opposite applies in sell-offs, each swing having a swing low at the lowest point.
When the market breaks the trend line, the trend from the end of the last swing until the break is known as an 'intermediate trend line'  or a 'leg'. Frequently price action traders will look for two or three swings in a standard trend. With-trend legs contain 'pushes', a large with-trend bar or series of large with-trend bars. A trend need not have any pushes but it is usual. A trend is established once the market has formed three or four consecutive legs, e.
The higher highs, higher lows, lower highs and lower lows can only be identified after the next bar has closed. A more risk-seeking trader would view the trend as established even after only one swing high or swing low. What You Need to Succeed in Forex 9. Thousands of people, all over the world, are trading Forex and making tons of money.
Why not you? All you need to start trading Forex is a computer and an Internet connection. You can do it from the comfort of your home, in your spare time without leaving your day job. And you don't need a large sum of money to start, you can trade initially with a minimal sum, or better off, you can start practicing with a demo account without the need to deposit any money.
Once you consider to start Forex trading, one of the first things you need to do is choose a broker, choosing a reliable broker is the single most critical factor to Forex success. There are dozens of online brokers out there but your best bet is to go with one of the leaders.
Here are 2 online brokers that are reputable and are most suitable for beginners and pros alike: 1. Now I would strongly encourage you to go and visit these broker's sites right now even if you are not yet decided whether you want to go into Forex trading. Simply go to each of these brokers, register for a free demo account and start "trading" - by actually practicing and experiencing it firsthand you'll be able to decide whether Forex trading is for you.
In any case, before starting to trade for real, it is advisable that you practice with a demo account. Once you build some skill and feel more comfortable with the system you can start trading gradually for real money. Now which of the two brokers you should choose? Here is a summary of the specific advantages of each of them. Choose based on your personal preferences: Forex Inc www.
It has several different account levels that make it easy for anyone to open an account. Forex Inc is an excellent broker suitable for beginners and pros alike. You can also communicate with other traders including the top traders. What is Forex Trading Foreign exchange, popularly known as 'Forex' or 'FX', is the trade of a single currency for another at a decided trade price on the over-the-counter OTC marketplace.
In essence, Forex currency trading is the act of simultaneously purchasing one foreign currency whilst selling another, mainly for the purpose of speculation. Foreign currency values increase appreciate and drop depreciate towards one another as a result of variety of factors such as economics and geopolitics.
The normal objective of FX traders is to make money from these types of changes in the value of one foreign currency against another by actively speculating on which way foreign exchange rates are likely to turn in the future. In contrast to the majority of financial markets, the OTC over-the-counter currency markets does not have any physical place or main exchange and trades hours every day via a worldwide system of companies, financial institutions and individuals.
Because of this, currency rates are continuously rising and falling in value towards one another, providing numerous trading choices. One of the important elements regarding Forex's popularity is the fact that currency trading markets usually are available hours a day from Sunday evening right through to Friday night.
Buying and selling follows the clock, beginning on Monday morning in Wellington, New Zealand, moving on to Asian trade spearheaded from Tokyo and Singapore, ahead of going to London and concluding on Friday evening in New York. The fact that prices are available to deal hours daily makes certain that price gapping whenever a price leaps from one level to another with no trading between is less and makes sure that traders could take a position each time they desire, irrespective of time, even though in reality there are particular 'lull' occasions when volumes tend to be below their daily average which could widen market spreads.
Forex is a leveraged or margined item, which means that you are simply required to put in a small percentage of the full value of your position to set a foreign exchange trade. Because of this, the chance of profit, or loss, from your primary money outlay is considerably greater than in conventional trading. Currencies are designated by three letter symbols. The first currency is the base currency and the second currency is the quote currency.
The price, or rate, that is quoted is the amount of the second currency required to purchase one unit of the first currency. As we see, the US dollar is represented in all currency pairs, thus, if a currency pair contains the US dollar, this pair is considered a major currency pair. Pairs which do not include the US dollar are called cross currency pairs, or cross rates. One of the most interesting movements in the Forex market involving the British pound took place in the September 16, That day is known as Black Wednesday with the British Pound posting its biggest fall.
The general reasons for this "sterling crisis" are said to be the participation of Great Britain in the European currency system with fixed exchange rate corridors; recently passed parliamentary elections; a reduction in the British industrial output; the Bank of England efforts to hold the parity rate for the Deutschemark, as well as a dramatic outflow of investors.
At the same time, due to a profitability slant, the German currency market became more attractive than the British one. All in all, the speculators were rushing to sell pounds for Deutschemarks and for US dollars. As a result, the pound returned to a floating exchange rate. Another intriguing currency pair is the US dollar vs. It is traded most actively during sessions in Asia.
From the mid 80's the Yen ratings started rising actively versus the US Dollar. In the early 90's a prosperous economic development turned into a standstill in Japan, the unemployment increased; earnings and wages slid as well as the living standards of the Japanese population.
And from the beginning of the year , this caused bankruptcies of numerous financial organizations in Japan. As a consequence, the quotes on the Tokyo Stock Exchange collapsed, a Yen devaluation took place, thereafter, a new wave of bankruptcies among manufacturing companies began.
The above started an Asian crisis in the years that led a Yen crash. The global economic crisis touched almost all fields of human activities. Forex currency market was no exception. Though, Forex participants central banks, commercial banks, investment banks, brokers and dealers, pension funds, insurance companies and transnational companies were in a difficult position, the Forex market continues to function successfully, it is a stable and profitable as never before.
The financial crisis of has led to drastic changes in the world's currencies values. During the crisis, the Yen strengthened most of all against all other currencies. Neither the US dollar, nor the euro, but the Yen proved to be the most reliable currency instrument for traders. One of the reasons for such strengthening can be attributed to the fact that traders needed to find a sanctuary amid a monetary chaos.
Ask and Bid When traders want to place an order on the Forex market they should be aware of the currency pair as well as the price of this pair. A Forex market price of a currency pair is denoted by two symbols, Ask and Bid, which have specific digital notations. Consequently, a trader sells the currency standing second. Bid price is the lowest price in the quotation of the currency pair, at which a trader sells the currency standing first in the abbreviation of the currency pair.
Respectively, a trader buys the currency standing second. Seem complicated? This means that you can buy 1 euro for 1. The difference between the Bid price and the Ask price is called spread. The spread is actually the commission of the broker. The Spreads in Forex trading are actually very small compared to currency spreads at banks. A pip is the smallest price movement of a traded currency. It is very important that you understand what a pip is in the Forex trading because you will be using pips in calculating your profits and losses..
For most currencies a pip is 0. When a currency moves from a value of 1. There is an exception for quotations for Japanese Yen against other currencies. For currencies in relation to Japanese Yen a pip is 0. A lot is the minimal traded amount for each currency transaction. For regular accounts one lot equals , units of the base currency. However you can also open mini and micro accounts that allow trading in smaller lots. Understanding the Pip Spread - The spread is closely associated with the pip and has a major importance for you as a trader.
As mentioned above, It is the difference between the selling and the buying price of a currency pair. It is the difference in the bid and ask price. The ask is the price at which you buy and the bid is the price at which you sell. In this case the spread is 3 pips. The pip spread is your cost of doing business here.
In the case above it means you sustain a paper loss equal to 3 pips at the moment you enter the trade. Your contract has to appreciate by 3 pips before you break even. The lower the pip spread the easier is it for you to profit.
Generally the more active and bigger the market, the lower the pip spread. Smaller and more exotic markets tend to have a higher spread. Smaller accounts will generally have higher spreads than bigger regular accounts. From the profitability point of view it is important to find a broker offering a lower pip spread, however the low spread is not everything. More important is to choose a reputable and reliable broker.
Most brokers will allow leverage. This can heighten profits and losses and should be used wisely. How to Control Losses with "Stop Loss" Stop loss is a widely used order aiming mainly at limiting the possible losses in case of negative market movements. Stop loss is used only with open positions. When the market conditions are not favorable for a trader and the price has reached the level of the "Stop loss", the deal is closed automatically.
Therefore, Stop loss helps the trader to control losses and in case of failures to keep safe at least part of his deposit. If a trader does not use Stop loss orders, the position is closed by the broker when the sum of losses is equal to the sum of the deposit. There are 3 types of Stop loss orders: fixed Stop loss, sliding Stop loss and combined Stop loss. Fixed Stop losses are set while opening positions. They cannot be changed until the deal is closed. Sliding stop losses, on the other hand, can be modified any time depending on the price movement.
Another name for sliding Stop loss is Trailing stop, that can be modified either manually or automatically based on the traders' settings. There are many discussions on whether it is necessary to use Stop losses or not. Some traders believe that Stop loss is essential in trading, emphasizing the ability of Stop losses to prevent the loss of the whole deposit.
If the price is rapidly moving in a direction which does not correspond to the forecast, a deal that has not been closed in time can result in a significant loss. The opponents of Stop loss believe that this order can limit not only losses, but profits as well. In this case the position is closed prematurely with a loss while it could develop into a profit later on. As a rule, the decision on whether to use Stop loss or not depends on the individual strategy and preferences of a particular trader.
Trailing stop is an order which its major function is to act as an automatic maintenance of an open position with continually shifting of the stop loss level depending on the price movement. A trader may open a bullish position and sets the gap from the current price to trailing stop in pips.
When the price goes upwards, the trailing stop follows it automatically sticking to the set gap. In case that the price goes down, then the trailing stop quote remains on the spot. In this way, a trader using a trailing stop has an opportunity to derive maximal profit at an ascending price with no regard to the set Take Profit value. Furthermore, a trailing stop is a loss limiter. Here is an example: a trader opens a buy position at the price of 1.
In case that the price starts to move upwards and exceeds the mark of 1. If the price turns down, the price does not change its position. As to a sell position opening, trailing stop behaves quite in the opposite. The trader sets it a few pips higher. At a price descending motion the trailing stop shifts according to the set size.
With the up-going price, the trailing stop does not move. While applying a trailing stop in Forex operations a trader will have to remove stop loss orders manually in line with increases in the trade profit. Trailing stop sets a stop loss level automatically at the value the trader needs. A trailing stop is mainly used by traders who run trend trading, but can't follow the price moves continually.
Trailing stop usage is also feasible at intraday trades, when quick reaction to price change is required. Please note that trailing stops work only when the trading terminal is open. Once the terminal is switched off the stop loss is fixed at its current spot. How to Use Forex for Hedging Hedging denotes safety and security.
Hedging means the protection of a client's funds from unfavorable currency rate fluctuations. Account funds are fixed at their current price through conducting trades on Forex. Thus, hedging helps to ease exposure to currency rate changes risks, which helps to prevent the risk of currency rate fluctuations. As a matter of fact, hedging presupposes using one instrument in order to lower the risk related to unfavorable market factors impact on the price of another one directly associated with it.
Hedging can also be considered as a type of investment allowing to minimize price movements risks in the market. The hedging cost should be valued with regard to the possible losses in the event of not hedging. Here's a hedging example: a trader, who imports in a foreign currency, opens a buy trade with the currency of his trading account in advance, and when the real time of the currency purchase arrives to his bank, he closes the position.
And a trader, who exports in a foreign currency, opens a sell trade with the currency on his trading account beforehand, and at a the real moment of this currency purchase in his bank, he closes it. Simple to comprehend and master - In a Forex trade we deal with just a pair of currencies 2.
Low Minimum Investment - The Forex market requires less capital to start trading than most other markets. The initial investment could go very low, depending on the leverage offered by the broker. This is a great advantage since Forex traders are able to keep their risk investment to the lowest level. Online Forex brokers offer "mini" and "micro" trading accounts with low minimum account deposit. We're not saying you should open an account with the bare minimum, but it does make Forex trading much more accessible to the average individual who doesn't have a lot of start-up trading capital.
Trading starts when the markets open in Australia on Sunday evening, and ends after markets close in New York on Friday. High Liquidity - Liquidity is the ability of an asset to be converted into cash quickly and without any price discount. In Forex this means we can move large amounts of money into and out of foreign currency with minimal price movement. Low Transaction Cost - In Forex, typically the cost of a transaction is built into the price. It is called the spread.
The spread is the difference between the buying and selling price. Leverage - Forex Brokers allow traders to trade the market using leverage. Leverage is the ability to trade more money on the market than what is actually in the trader's account.
This means, if you think a currency pair is going to increase in value; you can buy it, or go long. Similarly, if you think it could decrease in value you can sell it, or go short.. No one can corner the market - The foreign exchange market is so huge and has so many participants that no single entity can control the market price for an extended period of time.
Such a huge amount of a daily volume allows for an excellent price stability in most market conditions. This means you likely will never have to worry about slippage as you would when trading stocks or commodities. The price you see quoted on your trading screen is the price you get. Market transparency and Instant execution - Market transparency is much greater in Forex than in stocks or commodities, this means it is easier to analyze the inner workings of the market and figure out what is driving it.
Instantaneous order execution is another great advantage Forex has over other markets. Retail Forex trading is generally done over the internet on all electronic platforms. The Forex market has no central exchange and was designed to be this way to facilitate large banks and allow for instant execution of transactions, this means no delays for you and extreme ease of execution. Price movements are highly predictable in the Forex market - Due to its highly speculative nature Forex price movements tend to over shoot and then correct back to the mean.
This means there are a number of repetitive patterns that are easily recognizable to the trader who is trained in price action analysis. Forex currency pairs generally spend more time in very strong up or down trends than other markets, this is also a huge advantage because it is generally much easier to trade a strongly trending market than a chaotic and consolidating market. Now, if you were holding a futures position over night it is entirely possible that your stop got gapped around, in which case you would get filled at the next best price, which often will be extremely damaging to your trading account.
Direct participation, difficult to manipulate or influence - Forex trading operates in a decentralized online electronic market for its participants: Banks, FCMs, hedge funds, governments, retail currency conversion houses and high worth net individuals. Investors can interact directly with the market maker for pricing on a currency pair. Access is quicker and costs are lower than in other markets. Large market liquidity makes it very difficult for any one participant to manipulate or influence it.
Easier market analysis - Countries are more often stable than companies making it easier to predict their economic direction. Primary factors affecting demand and supply for Forex investment are interest rates and economic indicators such as GDP, trade balances and foreign investment. This and other economic data released regularly determines demand and supply for currency pairs.
Technology frontiers and investing - Technology enables the retail investor the ability to make better investment decisions through ready access to economic and political news events, to technical charting software and electronic trading platforms. They also have transparent and safe access to their investment funds in segregated accounts so that the safety of their funds is guaranteed.
Limited Risk - Despite the common perception about Forex being risky, it is easy to limit and reduce the risk if a trader chooses the right strategy. In addition it should be mentioned that stops are much easier to control as well, that is why newbies have good chances to succeed even while doing their first steps as Forex investors and traders. No fees or middlemen - There are no commissions when trading on the Forex market. The retail brokers in this market are compensated through the bid-ask spread.
Businessmen can also spot currency trading which eliminates the middlemen and allows each person to trade directly with the market that is responsible for pricing on a certain currency pair. Not only does this expedite the process, it gives each trader more options and versatility. This strategy is widely followed because of its simplicity to identify and trade and many times, strong trends can bail you out of an imperfect set of buy and sell rules.
Before we delve into the basics of Trend Following, it is important to first explain why trend trading is a popular strategy used by many new and experienced traders. Do you have the perfect Forex trading strategy? I have not found it. To me, a perfect strategy is the one that wins all of the time and has minimal trade drawdown. Therefore, learning how to trade in an imperfect world is very important. Trend following is a simple way to cover up some strategy imperfections by identifying the strongest trends in the market.
When you trade in the direction of the trend, the rest of your trading approach can fall right into place. This doesn't mean that all your trades will be winners. It does mean that you don't have to be exact in your entries and exits once you find a strong trend to trade. Now how do you know when a trend starts and when it is going to end? Since this is a beginners guide I will not elaborate on the various techniques that traders use to identify trends as this is beyond the scope of this book.
I will however touch on several techniques in later chapters but note that these will be just in an introduction level without going too much deeper. Any trader either a newbie or a pro should develop his own style of trading.
There are several trading styles that you can adopt. You will choose your style based on your personality and financial capacities. Many traders make the mistake of adopting a trading style that is unnatural for them. A trader may adopt one of the following two main trading styles: Day Trading and Intraweek trading.
Let's discuss each of them; Day Trading Day trading on Forex means that one or few trades are conducted within one trading day. As a rule, the time intervals between the opening or the closing of trades may take from several minutes up to several hours. Despite some difficulties of day-trading, this type of trading is very popular among the newcomers as well as among experienced traders.
Day trading allows for the opportunity to make a profit in a short time with a small amount of funds. In order to achieve favorable results in an intraday trading it is essential that you make the right forecast as to the price movement, as there are many external factors that cause high volatility in the currency market.
So to make your day trading beneficial you have to track the market situation, collate facts and make conclusions about the price behavior of currencies, it is also important to be able to react fast so that you will find entry and exit points quickly at the opening or the closing of trades. Combining knowledge of technical analysis to be discussed in a later chapter with patience and observance a trader has good chances to earn well with a relatively low risk.
There are several strategies of day trading.
Certain price levels offer value to either bullish or bearish traders. Once institutional traders and big banks see this value, they will look to capitalize on it. As a result, price action tends to accelerate relatively quickly until the value has diminished or has been fully realized. Witnessing multiple instances of this at the same price level increases the probability that it is an area of value and therefore, a supply or demand zone.
Traders can incorporate daily or weekly pivot points to identify or confirm supply or demand zones. At DailyFX, we have a dedicated page showing relevant support and resistance levels for all major markets. Traders should look for support and resistance levels to line up with demand and supply zones for higher probability trades. Furthermore, traders can use Fibonacci levels for greater accuracy on possible turning points at supply or demand zones.
The Supply and demand zones can be used for range trading if the zones are well established. Traders can incorporate the use of a stochastic indicator or RSI to assist in identifying overbought and oversold conditions.
Since this is a non-directional trade in terms of the trend, both long and short entries can be spotted. The breakout strategy is another supply and demand trading strategy. Price cannot remain within a defined range forever and will eventually make a directional movement. Traders look to gain favorable entry into the market, in the direction of the breakout, as it may be the start of a strong trend.
Traders that place a short trade at the breakout are susceptible to being stopped out in this scenario. One way to mitigate this is to anticipate the retracement back to the demand zone before pacing the short trade. Demand and supply zones are very similar to support and resistance and therefore, these areas provide an indication as to where a trader can place stops and limits.
These areas allow traders to implement a positive risk to reward approach on all trades. Range traders that are selling at the supply zone can set stops above the supply zone and targets at the demand zone. Conservative traders can set the target above the demand zone or implement a number of other risk management techniques.
Learn more about supply and demand vs support and resistance. DailyFX provides forex news and technical analysis on the trends that influence the global currency markets. Leveraged trading in foreign currency or off-exchange products on margin carries significant risk and may not be suitable for all investors.
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It does not use complex technical indicators and, according to many traders, it provides significant advantages in the real trading of any financial instruments. By the way, ping-pong between the US and China is now a particularly hot topic. Sam Seiden is a trader with 20 years of experience in trading indices, currencies and futures.
He began his career on the Chicago Mercantile Exchange, the largest financial exchange in the world, where he facilitated the flow of institutional orders. He worked as an individual and institutional trader, and also trained hundreds of traders and investors through seminars and daily trading signals at Online Trading Academy. Sam served as the head of technical analysis at two investment companies and regularly published his reports.
A well-known author, a regular guest on radio and television, a frequent participant in leading industry publications. Thanks to his experience, he developed an original strategy for determining the levels of supply and demand in the financial markets. His main methodological developments were made during his work at the famous Online Trading Academy www.
However, this site is currently not supported. Sam and his followers do not have any book or guide to his theory of supply and demand levels. Information is scattered on the Internet in the form of separate articles, market analytics and video lessons on Youtube. It is encouraging that at the end of , Sam announced the revival of the Academy.
In the meantime, we are studying his approach to the materials available to us. As the name of his methodology shows, the main approach to market analysis is based on the study of the interaction of market demand and supply. This is how Sam himself described the basic principles of trading. Our goal is to determine the amount of these forces and to identify price levels where the imbalance is greatest, as this leads to a change or movement in price. Principle 1: Price movement in any free market is a derivative of the continuous relationship between supply and demand in this market.
Trading and investing in the market consists of three components: buyers, sellers and a product for buying or selling. A stock has some value. The market is always in one of three states:. The way we determine the amount of supply and demand is the same in any of the markets.
Principle 2: Any and every influence on the price is already reflected in the price. In any movement, there are tons of financial information that is created and transmitted to the whole world. All this information creates opinions and perceptions that are different for everyone because of the individual belief system. Most people assume that others have the same belief system as theirs. This, of course, is not true.
As I said earlier, belief leads to action, and in trading and investing, action is buying or selling. Each action to buy or sell occurs at a certain price. Therefore, price is all that a consistently profitable trader or investor should focus on. Adding any other information distorts your perception of actual demand or supply in any of the markets.
In other words, a price action occurs when one of two competing forces becomes zero. Two competing forces are supply and demand. Each time an imbalance appears, a price movement occurs, which is a derivative of the action of these two forces. If you already know what supply and demand look like on a chart, the purpose of this article is to make you turn back the clock and focus on the foundation of your trading strategy.
If there is any illusion or subjectivity in the information used to search for truth, then you will never find the truth. The methodology of supply and demand levels is essentially an improvement of the support and resistance levels known to all traders. Below I give the main excerpts from this article, and you can familiarize yourself with the full content of the article by the link at the end of this material.
Traders need to remember that the markets are nothing more than pure supply and demand at work, with human action reacting to that ongoing supply and demand relationship. This is ultimately what determines price, and opportunity emerges when this simple and straightforward relationship is out of balance.
When we simply look at the ongoing supply and demand relationship, identifying where prices are most likely to turn is really not that difficult. Yes, this is basic, but why not begin at the start to get this right? Support demand is a price level where there are more willing buyers than available supply at a specific price level.
Resistance supply is a price level where there is more supply available than there are willing buyers to purchase the supply at a specific price level. Area A in Chart 1 represents a price level where supply and demand are in relative balance or equilibrium. Everyone who wishes to buy and sell at that price level is able to do so, and prices are stable.
On the close of the candle B , the supply and demand relationship in area A is no longer in balance. We now know that there is much more demand at price level A than there is available supply. How do we know this to be true? In other words, when candle B closes, we can objectively conclude that some willing buyers were left behind.
Area A can now objectively be labeled demand support. The area labeled C represents a decline in price to our objective demand level. Now simply stand that previous example on its head for identifying supply resistance and quantifying it on a chart. Just apply and reverse the criteria and logic from the prior demand example to Chart 2.
The identification of true demand support and supply resistance price levels typically is where market participants complicate trading decisions most. The demand and supply definitions are all that needs to be considered when identifying turning points in price.
The only truly objective information available to us is price and volume. Everything else is either subjective or a derivative of price and volume, so why not go right to the source? Most trading books and so-called market professionals will talk about moving averages, Fibonacci retracement levels, and so on, as being demand support and supply resistance areas. This could not be further from the truth. Any indicator or oscillator that someone touts as a tool for identifying support and resistance is just that, an indicator or oscillator, not demand and supply.
These will appear to work only at times when they line up with true supply and demand levels on a chart. When determining the strength of a demand or supply level, there are two important factors that need to be considered. First, we must determine the amount of trading activity in the level of demand or supply. The higher the volume in a demand or supply area, the stronger that area will be if and when prices reach it. When they all are bought, more buyers are needed for prices to rise and so on.
Second, we must determine objectively how many times prices revisit a demand or supply level. The highest-odds buying opportunity, for example, is when prices revisit an objective demand area for the first time, not the second, third or fourth. Remember what demand is — some buyers who desired to buy were not able to because prices rose.
Each time prices revisit the demand level, more buyers that were left behind are now able to buy. This logically weakens the strength of the demand level in question each time it is revisited simply because there are fewer buyers. Executing entries and exits and determining protective stops properly and objectively can only be accomplished by identifying true demand and supply areas and taking advantage of imbalances when they occur.
If one can accomplish a trade entry into true demand and supply price levels, it solves the two most important tasks in trading. First, it allows the trader to enter a full position very close to his protective stop and to take advantage of sound money management strategies.
Second, it allows a trader to enter and be a part of the reversal in price that then invites others in to pay the trader! Price reversals that end up as pretty green candles after a number of red candles at demand areas on a chart, for example, invite the masses to buy. Smart traders consistently strive to be a part of that invitation the first green candle that goes out to the masses. How did we know this demand area was demand? Simply, the breakout from the area of price stability objectively told us so.
Once prices reached that level, we concluded that the sellers in that area were novice traders who consistently lose. But how does one know this? Again, the laws of supply and demand tell us that someone who sells after a period of selling and into an objective area of demand will consistently lose, and that was exactly the scenario at hand with this opportunity.
This study employs a diverse set of tools to evolve a dependable set of trading systems based on the confluence of technical analysis methods. The principal objective of this paper is to exhibit the most feasible method to establish a Forex firm successfully. Technical analysis can be done through measurements or indicators of a stocks price movement. One major indicator used by swing traders is, "support and.