Author: Andrew

Reasons why you should Start Trading Forex

- Andrew

Now more than ever, financial markets are becoming more accessible to people. Forex trading is also one of the best ways to secure your financial future. Simply put, forex trading comes with a host of benefits.

However, not as many people are confident about venturing into it and this is mainly because there is a lack of education and understanding about the same. How about then, we let you in on some of the benefits you are likely to enjoy by venturing into the financial market?

Here are the top reasons why you should begin forex trading.

Reasonable Start-up Capital

If you have tried other businesses, then you know that most of them require you to inject a significant amount of capital. While that is not necessarily a bad thing, it can be a hindrance for new investors who do not have large sums of money set aside for investment.

One of the best things about forex trading is that it does not require you to have a large amount to start. You can easily sign up for a trading account and begin trading with a fractional fee. With forex trading, you can start small and graduate over time with the help of forex associate programs.

Ultimately, the sky is the limit when it comes to this business. If you need proof, there are dozens of

The key lies in patience, consistency, and shrewdness.

Time Flexibility

Most businesses require you to be present all the time to handle stocks, customer service, and the like. Of course, that means that you have a fixed daily schedule otherwise the business will go down. With forex trading, however, you get to enjoy flexibility in terms of time.

Did you know that the forex market operates round the clock? As if that is not enough, it deals in universal global electronic currency exchange. As an investor, you will appreciate this because it means that you can enter and exit the market as you please.

You get to trade when you have the time and not when you have to. As you can see, forex is one of the few trades that allow you to transact at any time.

Attractive Returns

You have probably heard of a few success stories where people claimed that they rose from grass to grace just by trading in forex. Most of the time, such stories are true. Forex trading has the potential to turn you into a millionaire overnight. Of course, you only get to experience the same if you trade wisely.

When it comes to forex trading, the profitability rate is quite high when you win your trades. This is evidenced by the many people who started the business as part-time and ended up taking it up as their main source of income and even quitting their jobs.

What we are trying to say here is that forex has attractive returns. Nevertheless, to enjoy such returns, you need to invest more and decide wisely to enjoy winning trades.

High Liquidity

Perhaps you are not aware of this yet but the foreign exchange market is one of the most liquid in the world. Now, the number of sellers and buyers is what determines the liquidity of financial markets. That simply means that the forex market has many sellers and buyers who are matched within a short time.

What that does is to present investors with bigger opportunities to win a trade by leveraging a fair price when it comes to selling and buying currency pairs. This is what makes the forex market liquid. The high liquidity then translates to less likelihood of price control by the few big players in the market.

Suitable for all Investors

It is an unspoken rule that some businesses are reserved for a select group because of the experience and capital required but that is not the case with forex trading. You can venture into the business regardless of your knowledge, capital, or experience.

While knowing the financial market is an added experience, you can enter without the experience and learn over time. The same applies to capital. You can start small and grow with time.

Conclusion

With hard work and consistency, you can succeed in forex trading. The best part is that you do not need a lot of money to start and neither do you need to have prior knowledge of the business. This is one of the best ways to earn high returns without spending all your time working so you may want to try it.

Risk Management when Trading Forex

- Andrew

It is not uncommon to hear newbie forex traders saying just how easy it is to make money when trading Forex. However, Forex trading requires patience, commitment, dedication, and time to have a success story in this trading.

A trader cannot open positions in a trading platform without first consulting your Forex broker. That way, you’ll be able to know the conditions they’ve set for trading. You’ll also get to know counterparty risks, liquidity, leverage and the market.

What’s more, you need to be conversant with techniques and tools you should apply to manage your risks and money safely. Failure to do these things will mean that you’re gambling rather than trading.

How to Manage Risks when trading Forex     

  • Trade money that’s not needed.

This may sound like an obvious point, but it is an essential one to repeat. Newbies and experienced traders tend to overlook this point with the assumption that it will not happen. Just like gambling, traders shouldn’t put all their money in. Doing so is taking very unnecessary risks, which will result in emotional stress and pressure when trading. This pressure will only increase your chances of making mistakes as you trade.

  • Make use of limit and stop-loss orders.

Orders are the trade instructions you get from your broker when a given level is attained in an underlying market. Stop-loss orders are in open positions to assist you in getting out of any trade should the market move in the opposite direction. Simply put, the order will stop your loss.

  • Do you have risk tolerance?

Before trading begins, you should determine how much you can tolerate. Your determination should be based on:

  • Your experience
  • Your age
  • Your FX trading knowledge
  • The amount you can handle losing
  • The investment goals you have set

Doing this assessment is not just so that you will sleep better at night or reduce your currency fluctuation stress. It is about having control of any situation because the amount you’re trading is the correct amount, vis-à-vis your current financial objectives in relation to your financial situation.

When trading is kept within a manageable risk, chances of successful trading increase.

  • Set or have a 1:2 minimum risk ratio.

You need to be conversant with the RRR (risk/reward ratio) when trading Forex. Doing so increases the chances of long-run profitability. RRR compares and measures the distance between your take-profit and stop-loss orders and entry points.

If you are a day or scalper trader, keep your RRR at a minimum of 1:2 ratio. On the other hand, position and swing traders can have a wider minimum RRR ratio of 1:3.

  • Risk control per trade.

Newbie traders should consider their risk per trade as a percentage of their trading capital, thus setting it to a conventional level. This is because inexperienced traders are more likely to make mistakes as compared to experienced traders.

Traders should risk only a fraction of the capital per trade. To start, consider risking about 1% of the capital per trade. If the RRR you are applying is a good one, it means you’ll be risking 1% for a possible 3% return.

  • Be consistent with the risk.

You will be tempted to increase your positions’ size when you begin making a profit. This is an excellent example of a person wanting to wipe out their account. Always be consistent with your risk. Remember, making a few wins while trading does not guarantee that the next trade will also yield profit. Avoid being over-confident and not being risk-averse. This has seen many traders change their risk management rules and money without concrete reasons.

  • Be conversant with leverage.

Using leverage products like spread bets, CFDs, and spot Forex mean that you can trade money that exceeds the initial deposit. Your broker will request that a portion of a position’s total value be put aside as collateral. While leverage can magnify your profits quickly, the opposite is also true. Hence the need to fully understand how margin and leverage trading works.

Conclusion

It is imperative that you learn about leverage risks and how they work. Once you actively manage them, you will be well on your way to being a good trader. Remember, you shouldn’t focus too much on making money; instead, protect your investments when trading Forex.

4 Most Basic Forex Trading Tools

- Andrew

Forex trading is fun, unique, and enriching. Unlike other trading markets, the currency exchange market comes with many benefits that add to its popularity. These benefits include- knowing capital requirements, high liquidity, affordable brokers, increased volatility, leverage, and relaxed shorting restrictions.

However, even with all the benefits, forex trading is also challenging for both seasoned traders and novices, which is why it is advisable to invest in trading tools. Many trading tools are easily accessible through proprietary software or popular trading platforms such as MT4 and MT5. Below is a list of the most popular forex trading tools.

1.    Forex Calculators

Calculators are essential tools to use in trading forex. They not only help to improve your experience in forex trading to earn more earnings, but they also help you to keep up with the calculations of the real-time forex trading results.

Moreover, they make answering all the market questions easier because that is what their primary purpose is, something you cannot get from the standard calculators. It is important to note that forex calculators come in various choices, all for different purposes.

The essential forex calculators are as follows.

  • Correlation calculator
  • Currency calculator
  • Forex margin calculator
  • Forex profit calculator
  • Forex swap calculator
  • Forex volatility calculator
  • Pip calculator

Forex calculators are easily accessible from the websites of forex brokerage websites. You can also download one from an app if you want to use it offline.

2.    Forex Charting Software

Every forex trader must observe the currency movements in the market. One of the best ways to do this is by using charting software. Charts or graphs show plotted price movements in real-time.  Besides this, trading charts are also valuable for a trader when a trading platform does not provide essential features, analytical tools, and efficient charting opportunities, all needed for positive trading.

Forex traders have many options when it comes to choosing the best charting tools. Some of the most accessible and helpful forex charting software are bar charts, line charts, and candlestick charts.

3.    A Forex Trade Journal

Another basic but very essential trading tool that every forex trader should have is a journal. Forex trading is different for every trader in varying trading levels. What works well for one trader might not work well with another one. Your trading techniques are unique, and one of the best ways to know if they are working for or against your trading performance is by keeping a trade journal.

The information you note on the journey helps improve your trading tactics over time because you can efficiently react to your own feedback. Some of the essential things to include in your trade journal include

  • Your trading strategy used for each trade
  • Market results after executing every trade
  • Your emotional status before, during, and after executing the trade
  • Your goals, which include your financial objectives for the day of trading
  • Anything that might affect the outlook or outcome of the financial market on your trading day
  • Objectives for your next day of trading

When dating up your trade journal, you might need to include longer-term objectives. However, whether you keep a trading journal for short-term or long-term trading objectives, the primary intention is to ensure that you avoid losses and repeat winning trades by improving your trading performance.

4.    Trading Platform

If you want to realize all your trading needs irrespective of your trading skills, the right trading platform should be one of the essential tools to consider. A legit and reputable trading platform ensures that you get complete control of your trading experience by delivering exceptional performance and speed. Other things to expect from a trading platform include-

  • The best trading analysis tools
  • Real-time trade signals
  • Trained and experienced forex trade market strategists
  • A well-informed and highly experienced research team that provides you with the best trade ideas, and real-time market insights

Some of the most trusted forex trusted platforms are MT4 and MT that you will find with many highly rated forex brokerage firms.

Wrapping up

Picking the right forex trading tools is challenging, especially to a novice trader with little or no knowledge of forex trading. Though you need many other forex trading tools as a trader, the above four are some of the most basic and essential tools that help you make a mark in the lucrative forex trading market.  Without them, your trading potential would not amount to much.

Combining Technical Analysis with Fundamental Analysis

- Andrew

Technical and fundamental analysis are two principal disciplines when investing in markets, but they are on opposite sides of the spectrum. Therefore, investors want to know if technical analysis can be an effective alternative to fundamental analysis.

Although there is no final answer to this query, there is little doubt about combining the strengths of both these techniques to help investors better appreciate the market and speculate the direction in which their investments might be heading.

In this discussion, let’s take a look at which elements of technical analysis work well with fundamental analysis and also discuss some of the drawbacks of combining technical analysis with fundamental analysis.

Which Technical Analysis Elements Work Well with Fundamental Analysis?

Pursuing Feedbacks Over Time

Many fundamental experts will look at a graph of a certain market, stock, or index to conclude how that item has done over time and when specific kinds of news such as financial data or positive earnings will be released.

Trends have an affinity of repeating themselves, and the traders who were tempted or put off by the news in question happen to respond in a similar way over time.

For instance, if you look at the graphs of housing stocks, most of the time, you’ll note that they respond negatively when the US Federal Reserve decides to waive a portion of the interest rates. Also, interior fittings stores are affected when sales of new and existing homes drop.

Volume Patterns

When an investor or analyst studies stocks, it’s always good to hear what other analysts think about the stock. Maybe they might have gotten some extra information about the company, or they could be creating a pattern.

One of the most common means of judging market sentiment is to focus on the freshly traded volume. Massive trades imply that the stock has gotten a lot of attention from the trading industry, and the shares are either under accrual or circulation.

Pursuing Short-Term Movements

Although a majority of fundamental traders happen to focus on the long-term, odds are that they still need to get a favorable entry price or a favorable exit price after they stop holding a position. Technical analysis can come in very handy in such scenarios.

More precisely, when a stock breaks its 20 or 30-day moving average (MA) either up or down, it normally proceeds along that pattern for some time. In layman’s terms, it’s mainly an illustration of what to expect in the imminent period.

Also, 50 and 200-day MAs are typically used by some fundamental traders and chartists to conclude long-term breakout trends. For investors looking for the opportune moment to trade or set a favorable entry or exit price, these kinds of analyses are vital.

What Are the Drawbacks of Combing Technical and Fundamental Analysis?

Technical analysis can give an incorrect perspective because:

There is Bias

When it comes to examining a chart, a certain level of bias comes into play. For instance, some people may see a chart and presume that the stock is stalling, while others might see this and decide that there is an immense loss to follow.

So who is correct? There is no definitive answer because there’s no computation that can be done to settle this argument, as is the case in fundamental analysis. In charting, only time will reveal the direction in which markets move.

History

Although it’s possible to predict some changes based on trends or when a certain stock breaks past a significant moving average, charts usually don’t forecast future positive or negative fundamental information. Instead, they are mainly focused on the past.

For instance, if word gets out that a company is about to release outstanding quarterly earnings, investors might be able to exploit this prospect, and the good news will be evident in the chart. A basic chart cannot give an investor vital long-term fundamental data such as the imminent direction of price per share or cash flow.

Charts Don’t Constantly Predict Macro Trends

Charts are generally incapable of predicting macroeconomic patterns accurately. For instance, it’s almost impossible to look at a key figure in the oil and gas industry and conclusively tell whether OPEC plans to amplify the quantity of oil its producing.

Final Thought

All in all, there is no conclusive response as to whether technical analysis can be used as an alternative to fundamental analysis. However, most analysts agree that it has its benefits when used to complement rather than replace fundamental analysis.

Benefits Of Technical Analysis In Forex Trading

- Andrew

Technical analysis is the most common method of analysis in forex trading. Technical analysis involves the use of charts to investigate and predict the price movement of a currency pair. Many forex traders love to use technical analysis for the many benefits that they gain from this analysis technique.

Here are some of the benefits of technical analysis.

Provides Traders With Current Price Information

As a trader, when you chart a price chart for your currency pair of interest, it gives you all the information you require.

Depending on the formulae you use on your charts, you have historical data as back as you like and predict future prices.

This ensures that you can easily make your decision on what position you will take on your trade.

Another piece of information that you get from the technical analysis is the presence of a trend. A trend indicates that there the price is persistently moving in a particular direction.

As a trader, you can take advantage of the trend to profit. When you identify a trend, technical analysis will help you find the best point to enter and exit the trade profitably.

Helps Traders Identify Trends

Technical analysis charts help traders identify the presence of trends in the market. A trend could either be upward or downward.

An upward trend indicates that the price is rising. A downward trend indicates that the price is going down.

By using technical analysis, you can identify when markets are trending and you can take advantage of them.

When you have a trend, technical analysis provides you with support and resistance points. These are points at which the price of the currency pair will either be at the lowest or highest respectively.

With these points, you can pick a point at which to take a position on trade. You can easily predict the highest and lowest points of the price and can take your profit before your trade turns.

Helps Traders Identify Patterns

In addition to trends, technical analysis helps to identify patterns. This is because technical analysis also involves the use of historical data.

Thus, as a trader, you can go back a few hours, days, weeks, months, and even years to check how the currency pair performed.

With this historical information, you can see how the price of the currency pair moves at certain times.

You can compare that with the present to help you make up your mind and take a profitable position on your currency pair of interest.

Saves Traders Times

Technical analysis saves time for traders and allows them to trade with speed.

Unlike fundamental analysis, you don’t have to investigate the performance of the economy of a country before you take a position. Much of the information you need to decide on fundamental analysis takes time before you can get it.

All you need to do is press a button and you have a chart on your screen. If you have the right skill, the chart can tell you everything you need to know to make a profitable trade. You can now make your decision and take a position that you can expect to profit from.

The time saved by using technical analysis allows traders to enter into several trades in a given trading session.

Easily Available

When it comes to technical analysis, you don’t have to invest a lot of resources. Charting tools are easily available and freely provided on your trading platforms. If you know how to use them, you don’t need to pay for additional information or tools to help you make up your mind.

Best For Both Short And Long Term Trades

You can use technical analysis for as long or a short a period you want to hold your trade position.

You can use technical trading for both short and long-term trades. Based on your analysis, you can hold your position for a quick profit. Alternatively, you can hold it for longer to ensure that you make a larger profit.

Conclusion

Technical traders love their technical analysis. It provides information quickly and ensures that you can get into the market in the prevailing conditions. It is easy to do and is the best for traders who intend to make lots of trades in the trading session.