Introduction To Forex Trading.ppt

introductiontoforextrading e coursebylearnfx net instructionalgoals toprovideanoverviewofwhatistheforexmarket toprovideanoverviewofhowtheforexmarketworks toprovideanoverviewofthekeyelementsinvolvedintrading testyourknowledge afteryouhavecompletedyoure course youwillbeabletotestyourknowledge lesson1 whatisforextrading forexdefined for eign ex change forexistheacronymforforeignexchange foreignexchangeisthetransferofdifferentcurrenciesbetweenparties whenauscitizengoestothestoreandbuyscoffeeintheunitedstates he shetakesdollarsandpaysforthecoffeeandgetschangebackindollars butwhenthatsamepersontravelstotheunitedkingdomandbuyscoffee he shehastoexchangethedollartobritishpounds wheneuropeaninvestorsbuyusstockstheyhavetofirstselltheircurrency theeuro andbuyusdollarstoacquireusthosestocks whentheusequitymarketshaveabigdownday foreignownersofstockssellthosestocks selldollars andbuybacktheircurrenciespushingtheeuroupinvalue currencytradingorforex makestheworldwork howbigistheforexmarket forexistheworldsbiggestofallmarketsbecausealleconomicactivityhastoultimatelybetranslatedtocashinsomecurrency forexactivityneverstops forexisusedbyanyoneexchangingcurrenciesforanyreason travelimport exportgovernmentsinvestments whyforexisimportant forexisimportantbecauseitisakeymeasureoftheworldeconomy worldcurrenciesflowbetweencountriesandthatflowaffectseveryoneintheworld sizeofmarkets usequitymarket 10billionustreasuryandbonds 300billionforex 1 5trillion whyisforeximportanttoyou forexisimportanttoyoubecauseitprovidesanopportunitytoindividualsanywheretoachieveasecondcareerorincome rightfromthedesktop nomatterhowoldtheyare whatwasonceonlythedomainofthepowerfulandrichisnowavailabletotheindividual understandingcurrencypairs forexhasitsownterms intheworldofforexcurrenciesarecalledcurrencypairs usd usdgbp usdeur usdusd jpyusdchfchf usdacurrencypairissimplyonecurrencyexpressedintermsoftheother iftwocurrenciesareequalthentheywouldbevaluedat1 1 inreality thedollarintheunitedstatesisreallyacurrencypair theusd usd whentheeurachievesparitywiththedollar theeurusdisworth1 00oronedollar lesson2 understandingcurrencypairs howtoreadcurrencypairsoncharts whenlookingatapricechartofacurrencypair thechartistrackingthedirectionofthenumerator thefirsttermisalsocalledthebasecurrency thesecondtermiscalledthecountercurrency onthefollowingchartusdjpy ifthechartisgoingup thefirsttermisgettinglarger itmeansthedollarisstrengtheningandthejpyisweakening charts usdweakening theusdjpyisthecurrencypair whenthechartshowsthepricegoingdown theusdisweakening lesson3howforextradingworks forextradingoccurslargelybetweenbanks about10 000bankstrade largefundsandcorporatetradinggeneratesmorethan95 ofglobalforextrading nikecorporation forexample has20 ofitsnetincomeaffectedbycurrencyexposure over 1billionistradedbythatcompanytohedgetheirexposure desktopcurrencytrading desktoptradingarrivedrecentlyprovidingtheabilityforanypersontotradeon linefromtheirhomeoroffice whatwasthedomainofinstitutionshasbecomeaccessiblebecauseofinnovationsinplatformsandtheinternet forexistrulytheon linerevolutionofthe21rstcentury currencyorderflow step1 customerentersacurrencyorderviacomputer buysorsellspair step2 dealingdeskreceivesordersstep3 dealingdeskfillsorderforcustomerdealingdeskoffsetsorderstep4 customerclosesorder lesson4understandingbid ask currencypairsareavailableonabid askbasis thisisanegotiatedmarket thereisnooneexchangelistedprice similartothebondmarket thisresultsinaspread spread differencebetweenbidandaskiscommonly5pips customerbuysattheaskandsellsatthebid bid ask aquoteisasimultaineouspresentationofthebid askbidask99 0099 05buyerswillbefilledat99 05sellerswillbefilledat99 00note pricechartsarereallychartsofthebidprice pips apips priceincreasepoint isthesmallestunitofpriceforanyforeigncurrencypairmovement exampleiftheeurusdmovesfrom99to1 00ithasmoved100pips iftheusdjpymovedfrom122 0to123 0itis100pips iftheeurusdmovesfrom99to99 01itisa1pipmove pipcalculator http 208 34 212 202 pipcal htmusethiscalculatortoquicklydeterminepipvalues lesson5leverageandmargin forexallowsleverageintrading acurrencycontractof 1 000 1lot isleveraged100 1whichequatesto 100 000if20pipsprofitwerecapturedinatradeintheeurusd 200wouldbecreditedtotheaccountvalue italsocutstheotherway if20pipsmoveagainstyouaredebited 200 marginexample marginexample margincontrol intradingkeepingyouraccountbalancewithexcessmarginiscritical ifaccountsbecomethininmargin thetraderwillneedto a getoutofpositions winningpositions toavoidamargincall andb addmoney marginexcess availablefundsintheclient saccountnotcurrentlybeingusedtosupportexistingtradingpositions whichcanbeusedtoopennewpositions tradingsessions asia 7pmesteurope 1amestus9 30amesttheseareestimatedtimesandineffectthemarketneverstops forpurposesofaccountingeachfirmselectsadailycut offtimetomarktheendofasession lesson6understandingfundamentals fundamentallycurrenciesaredeeplyrelatedtotheeconomyoftheircountriesandregions inperiodsofstrongeconomichealth currenciestendtogoupinvalue inperiodsofhighinflation theygodowninvalue inperiodsoflowinterestratestheytendgodowninvalue fundamentalsareimportanttoenablealongertermperspectiveoncurrencies currency fundamentals eurusdeurolandeconomyof12countriesisoftendependentonusgrowth eurusdchartpatternisofteninarange eurusdoftenreactstousmarkets ifusequitiesaredown eurmovesupandvice versa however ifusmarketshaveaverybadday thenfearofeconomicdeclineinworldcanalsofollowwitheurdeclining eurusdanddow eurusdcountertrendvsdow usdjpy fundamentals japanisinadeeplongtermrecession economiesinarecessionneedliquidityandthereispressureforaweakcurrency whenthechartofusd jpyisup itisreflectingthisweakness usdjpy yenweakeningwhenrising usdchf swissfranc thiscurrencyoftenactsasareservewhenmoneyflowsoutofusandoutofeuro theusdchfexhibitsstrongtrendsandispartiallybackedbygold positionplaysinthiscurrencyisafavoriteamongtraders usdchf swissweakness resistance gbpusd fundamentals similarinpriceactiontotheeurusd gbpusdoftenparallelstheeur butitcandivergeandgivetradingopportunities gbpusd audusd usdcad thesecurrencieswhilenotpartofthe4majorsreflectthestrongcommoditybasedresourceeconomyofthosenations goldpricesandthecrbindexcanbeaguidetotheirtrend audusd audusdtrends usdcad globaleconomics currenciesareaplayontheeconomyofacountryorregion thereforetheirvaluationsreflectimportantmacro economicprinciples thekeyeconomicprincipleisthatmoneygoestowhereitwillgainagreaterreturn ifinterestratesgoup acurrencywilltendtoattractmoneyflow ifgrowthrateincreases acurrencywillgetstronger ifuncertaintyprevails currencyvalueswillincreaseinvolatility weakcurrenciesstimulateexports aweakcurrencystimulatesexportingacountrylikejapanisinarecessionandneedsmoremoneytocomeintothatcountry aweakeryenmeanshondasarecheapertousbuyers astrongerdollarwillmeanhondasbecomemoreexpensiveinusandlesssales yearsagowhentheusdollarwasextremelystrong uscitizensflewtogermany purchased mercedesbenz sandshippedthemtotheusa andstillachievedsavings currenciesaffecttheconsumer aloweurusdmeanscheapereuropeangoodsforuscitizens aeurmovingtoparityandabove meanscheaperusgoodsforeuropeans buttoostrongaeurusdwillraisefearsofareductioninpurchasingfromtheus theeuropeancentralbankmaymovetobuydollarstokeeptheeuronottoostrong currenciesandgovernments theglobalnatureofcurrenciesmeansitisdifficulttomanipulate governmentstrytoaffectthevalueofthecurrencyby increasing decreasinginterestratesintheircountries buying sellingtheircurrencies andjaw boning threateningtothepresstointervene theeffectsofexchangeratechanges anexchangerateisthepriceofoneforeigncurrencyintermsofanothercurrency foreignexchangeratesareofparticularconcerntogovernmentsbecausechangesinfxratesaffectthevalueofproductsandfinancialinstruments asaresult unexpectedorlargechangescanaffectthehealthofnations marketsandfinancialsystems exchangeratechangesalsoimpactanation sinternationalinvestmentflows aswellasexportandimportprices thesefactors inturn caninfluenceinflationandeconomicgrowth forexample supposethepriceofthejapaneseyenmovesfrom120yenperdollarto110yenperdollaroverthecourseofafewweeks inmarketparlance theyenisa strengthening orbecomingmoreexpensive againstthedollar ifthenewexchangeratepersists itwillleadtoseveralrelatedeffects first japaneseexportstotheunitedstateswillbecomemoreexpensive overtime thismightcauseexportvolumestotheunitedstatestodecline which inturn mightleadtojoblossesinjapan also thehigheru s importpricesmightbeaninflationaryinfluenceintheunitedstates finally u s exportstojapanwillbecomelessexpensive whichmightleadtoanincreaseinu s exportsandaboosttou s employment interestratedifferentialsbetweencountriesareoneofthemainfactorsthatinfluenceexchangerates moneytendstoflowintoinvestmentsincountrieswithrelativelyhighreal thatis inflation adjusted interestrates increasingthedemandforthecurrenciesofthesecountriesand thereby theirvalueinthefxmarket bankanalysisofcurrencieshelptradertrackfundamentals purchasingpowerparity purchasingpowerparity ppp isatheorywhichstatesthatexchangeratesbetweencurrenciesareinequilibriumwhentheirpurchasingpoweristhesameineachofthetwocountries thismeansthattheexchangeratebetweentwocountriesshouldequaltheratioofthetwocountries pricelevelofafixedbasketofgoodsandservices whenacountry sdomesticpricelevelisincreasing i e acountryexperiencesinflation thatcountry sexchangeratemustdepreciatedinordertoreturntoppmerce ubc ca xr ppp htmlthebigmacindexthisindexprovidesaveryaccuratepictureofrelativepppforcountriesbycomparingthepriceofamacdonaldhamburgerindifferentnations intheory thebigmacshouldcostthesameeverywhere whenitdoesn toneofthecurrenciesisovervalued bigmacindex lesson7usdollarindex animportantfundamentalfactorintradingisthevalueoftheusdollarindexthisindexisabasketofcurrenciesagainstthedollar watchingitsmovementcanbeusedtoimprovetradingsuccessandpinpointifthedollarisinabulltrendorabeartrend orsimplyinasidewaysaction usdollarindex declineofdollar usdxandcrbindex usdandcrbindex keygovernmentagenciesandeconomicwebsites followinguponfundamentalscanbeachievedbyreviewingthesesites http www federalreserve gov http www boj or jp en http www ecb int lesson8technicalanalysis understandingpricemovementandhowtoevaluatechartsisthegoaloftechnicalanalysis thepremiseoftechnicalanalysisis forexmarketisnon random pricesreflectallunderlyingfactors knowledgeofchartsgivestradersanedge priceandtime intradingforex manychartsareavailablecoveringdifferenttimeframes eachtimeframeprovidesimportantcluestochangesintrenddirectionandmomentum monthly bigpictureofglobalforcesweekly stillabigpictureofpricesdaily trendsherevisiblehourly15mintues5minutes1minutetick monthlychart dailychart hourlychart 5minutechart typesofcharts linebarcandlepointandfigrekagirenko3linebreak linechart barchart candlesticks barvscandlestick pointandfigure renkochart kagichart lesson9pricemovements updownsidewayschannelsurges spikes supportandresistance whenpricesstopmovingdowntheyhavereachedalevelofsupport whenpricesstopmovinguptheyhavereachedalevelofresistanceonceyouhavepickedsupportandresistanceyouknow therange lesson10trendlines trenddefinition uptrend higherhighsandhigherlows downtrend lowerhighsandlowerlows trendlinescanbeinnerandouterandactassupportandresistanceareas trendconstruction lesson11patterns pricesmoveinpatternsandbreakoutofthosepatterns eachpatterncontributestoconfirmingatradingstrategy keypatterns fibonaccimovementselliotwaveheadandshoulderstriangleswedgesgann fibonacciretracement lesson12technicalindicators technicalindicatorsareusedtoquantifythepricemovementstodetermine pricemomentum trendingtendencies andprovideabasisforenteringandclosingaposition technicalindicatorshelpidentifybuyingandsellingopportunities therearemanyindicators differentindicators movingaverages simple exponential weighted movingaveragecrossoversoscillators rsi mom pricemovementasindicatorsindifferenttimechartsintermarketanalysis eurvsdow rsi therelativestrengthindex rsi isapopularoscillatorusedbycommoditytraders itwasfirstintroducedbyj welleswilderinanarticleincommodities nowknownasfutures magazineinjune 1978 step by stepinstructionsoncalculatingandinterpretingthersiarealsoprovidedinmr wilder sbook newconceptsintechnicaltradingsystems thersiisafairlysimpleformula butisdifficulttoexplainwithoutpagesofexamples thebasicformulais rsi 100 100 1 u d where u anaverageofupwardpricechange d anaverageofdownwardpricechange rsi whenwilderintroducedthersi herecommendedusinga14 dayrsithersiisaprice followingoscillatorthatrangesbetween0and100 apopularmethodofanalyzingthersiistolookforadivergenceinwhichthemarketismakinganewhigh low butthersiisfailingtosurpassitsprevioushigh low thisdivergencewouldbeanindicationofanimpendingreversal whenthersithenturnsdownandfallsbelowitsmostrecenttrough itissaidtohavecompletedafailureswing thefailureswingwouldbeconsideredaconfirmationofanimpendingreversal 1 topsandbottoms thersiusuallytopsabove70andbottomsbelow30 thersiusuallyformsthesetopsandbottomsbeforetheunderlyingpricechart whenthersicrossesthroughthe50markitisalsoconsideredabuyorsellsignal 2 chartformations thersioftenformschartpatterns suchasheadandshouldersorrisingwedges thatmayormaynotbevisibleonthepricechart 3 failureswings alsoknownassupportorresistancepenetrationsorbreakouts thisiswherethersisurpassesaprevioushigh peak orfallsbelowarecentlow trough 4 supportandresistance thersishows sometimesmoreclearlythanthepricechart levelsofsupportandresistance 5 divergence asdiscussedabove thisoccurswhenthepricemakesanewhigh orlow thatisnotconfirmedbyanewrsihigh orlow momentum themomentumindicatoristheratiooftoday spricecomparedtothepricex periodsago momentum close closex timeperiodsago 100thetimeperiodweareusingis10days interpretation similartothersi therearemorewaystousethemomentum threeareexplainedhere asatrend followingoscillator buywhentheindicatorbottomsandturnsupandsellwhentheindicatorpeaksandturnsdown trendrecognition justusethismethodincombinationwithotherindicators valuesbelow100 areindicatingthatthepriceismakingadowntrend whereasvaluesabove100 areindicatinganuptrendoftheprice divergence occurswhenthepricemakesanewhigh orlow thatisnotconfirmedbyanewmomentumhigh orlow macd calculation themovingaverageconvergence divergenceindicator macd iscalculatedbysubtractingthevalueofa0 075 26 day exponentialmovingaveragefroma0 15 12 day exponentialmovingaverage blueline a9 dayexponentialmovingaverageofthismacdlineisthered signal line themacdwasdevelopedbygeraldappel interpretation thebasicmacdtradingruleistosellwhenthemacdfallsbelowits9 daysignalline similarly abuysignaloccurswhenthemacdrisesaboveitssignalline anindicationthatanendtothecurrenttrendmaybenearoccurswhenthemacddivergesfromthesecurity anegative positive divergenceoccurswhenpricesaremakingnewhighs lows whilethemacdfailstoreachnewhighs lows bollingerbands sometimespricesappeartoremaininarangeforextendedperiodsoftime agoodwaytodescribethissituationistodefineamovingrangearoundtheprices somepeopleuseanupperboundaryandalowerboundarytodefinetherange theupperboundaryiscalculatedasamovingaverageofachosenperiodplus5 oftheprice andthelowerboundaryisthemovingaverageminus5 theseboundarieshavethedrawbackofbeingtoonarrowtoaccommodatepricelevelswhenvolatilityishighandtoowidewhenvolatilityislow abettersolution recommendedbyjohnbollinger definestheupperboundaryasachosenmovingaverageplustwicethecorrespondingstandarddeviation withthelowerboundaryasthemovingaverageminustwicethestandarddeviation themethodisdescribedbelow thebollingerbandincludes3lines theupperband lowerband andthecenterline thecenterlineissimplythemovingaverage andtheupperandlowerbandsare respectively thecenterlineplus minustwicethestandarddeviation forap periodbollingerband centerline p periodmovingaverageupperband centerline 2xstddevlowerband centerline 2xstddev bollingerbands parabolic ifyouarelong i e thepriceisabovethesar thesarwillmoveupeveryday regardlessofthedirectionthepriceismoving theamountthesarmovesupdependsontheamountthatpricesmove theparabolicsarprovidesexcellentstops youshouldcloselongpositionswhenthepricefallsbelowthesarandcloseshortpositionswhenthepricerisesabovethesar eachsarstoplevelpointisdisplayedonthedayinwhichitisinaffect notethatthesarvalueistoday s nottomorrow sstoplevel explanation theparabolictime pricesystemorsar stop and reversal developedbyj welleswilder isusuallyusedtosettrailingpricestops theparametersarespecifiedatthetimetheindicatorisplotted asthequotemakesnewhighs lows theparabolicsarwillrise fallaccordingtothesarstepsize theaccelerationfactor thestandardvalueofthisfactoris0 02 whichisalsousedinthecurrentchart forexample ifnewhighsappearedforthreeconsecutive stochastics thestochasticoscillatorcompareswhereapriceclosedrelativetoitstradingrangeoverthelastx timeperiods theformulaforthe kparameterofthestochasticis today sclose lowestlow kperiods highesthigh kperiods lowestlow kperiods amovingaverageof kisthencalculatedusingthenumberoftimeperiodsyouspecifiedinthe dperiods thismovingaverageiscalled d finally wemultiplyallstochasticvaluesby100tochangedecimalvaluesintopercentagesforbetterscaling e g 0 375isdisplayedas37 5 thestochasticoscillatoralwaysrangesbetween0 and100 areadingof0 showsthatthesecurity sclosewasthelowestpricethatthesecurityhastradedduringtheprecedingx timeperiods areadingof100 showsthatthesecurity sclosewasthehighestpricethatthesecurityhastradedduringtheprecedingx timeperiods interpretation stochasticoscillatorscanbeusedasbothshort andintermediate termtradingoscillatorsdependingonthenumberoftimeperiodsusedwhencalculatingtheoscillator whendisplayingashorttermstochasticoscillator e g 5 25days itispopulartoslowthe kvalueby3 days thereareseveralwaystointerpretastochasticoscillator threepopularmethodsinclude 1 buywhentheoscillator either kor d fallsbelowaspecificlevel e g 20 andthenrisesabovethatlevel andsellwhentheoscillatorrisesaboveaspecificlevel e g 80 andthenfallsbelowthatlevel 2 buywhenthe k blue linerisesabovethe d red lineandsellwhenthe klinefallsbelowthe dline 3 lookfordivergences forexample wherepricesaremakingaseriesofnewhighs lows