what is forex

Regardless of the school of analysis we belong to, most of us will have few problems with the statement that the price action is all that matters to trading, ultimately, because the only determinant of our profits or losses is the price itself. We may have very sensible, well-thought justifications for our Forex analysis and Forex strategy, but if we cannot confirm them with the price action, the sad fact is that they are worthless.

Technical analysis takes this concept one step further, and claims that all that matters to trading is the price action itself. In other words, traders should disregard news events, statistics and data, along with economic and political developments, and concentrate all their attention on the price itself. This attitude is justified on the basis of the belief that the price action, created by knowledgeable and profit-hungry traders, reflects all the information available to the public at any one time, and it is futile so seek an edge over the market by trying to stay updated on all data. Not only is it impossible, technical analysts contend, but also useless, since the price already incorporates all the available information in itself according to the interpretation of the best and most powerful minds in the market. Technical analysts exhort us to study the markets, and ignore everything else, thus gaining a strong focus on the only piece of information that matters, the price.

Critics of technical analysis counter that while the price does represent the total amount of bulls and bears in the market, it doesn't reflect a consensus, and as such cannot be taken as a speaking the opinion of market participants at large. In other words, there is no such thing as a market opinion. In addition, they add, although in the short term the price action is difficult to predict, in the longer term economic events establish clear trends which can easily be anticipated and exploited through fundamental analysis. Technical analysts defend their school by positing that fundamental analysis is difficult, no more reliable than technical studies, and more time-consuming.

The tools of technical analysis are all applied on the price action as depicted on charts. Indicators are used to evaluate any price pattern to generate buy or sell signals, while price patterns are interpreted to identify the underlying momentum. Technical analysis does not claim to create error-free, concrete answers to questions in traders' minds, but it does offer to identify the scenarios where the potential for a profitable trade is greatest. A technical trader must have a mind adapted and used to dealing with probabilities, and he must be ready to take losses when they are unavoidable as well.

Let's conclude this brief study by noting that in the chaotic environment of the Forex market diligent money management methods, and emotional control are just as important, if not more important than any kind of strategy or analysis. To learn Forex, we need to preserve our capital. And money management is what teaches us how to preserve it. With patience and commitment, it is not hard to succeed in Forex, but without those two, there's no point in entertaining dreams about bathing in pools of gold and silver either.

To trade forex profitably, we need to catch trends and stick with them until they complete a healthy part of their development. While there are many indicators today available to the typical trader towards the purpose of identifying and trading trend patterns, point and figure charts stand among those for the simplicity of the signals generated and lack of clutter in the display. The strengths of the P&F chart is its simplicity. Although it may appear complicated or difficult at first sight to an inexperienced trader, in fact its laconic depiction of the market action makes it an ideal choice for trend following strategies where one would like to disregard most of the retracements, and volatility in favor of following the main momentum of the market.

A P&F chart consists of boxes and X and Os. An X indicates an uptrend, the price was rising during this period. An O indicates a period of falling prices. But unlike other kinds of charts, P&F charts do not record all the price action in a period. There are two important criteria for including any day's price movement on a P&F chart: box size and reversal amount. Box size determines the minimum amount by which the price action must move above the last trading days's close in a column of Xs (that is, in an uptrend), or below the close of the previous day in a column of Os (in a downtrend). Reversal amount determines the minimum movement when the price contradicts an ongoing trend. It is the minimum amount by which we'll need to negate a column of X's and begin a column of Os if the price goes down, and vice versa if it goes up. In other words, as long as the reversal remain less than the reversal amount in an uptrend, we'll have a column of X's, and when the same is the case in a downtrend, we'll have a column of Os. In the stock market, box size is often 1, and the retracement amount is 3.

It sounds complicated, but it really is very simple. Traders will buy or sell at reversal points. For example, when, after a period of X's the chart shows an O, it's likely that a reversal has taken place and it is time to short the market. Conversely, you may choose to jump in a trend after it emerges and keep buying and selling for as long as the main trend remains intact. Since the P&F chart only includes significant price movements, the reversals and trends indicated by it are thought to be more reliable.

The P&F chart is not exactly popular among traders, and many forex trading brokers do not include it in their standard packages. However, this does not make this tool any less efficient than others. If you favor this kind of charting in stock trading, and want to use it in forex, there's no reason to discourage you from doing so. The same rules and principles are valid, and due to the simple and uncomplicated nature of the P&F, you can even use your own hand calculations for drawing it at all times.

In order to learn to trade forex you must have the appropriate knowledge. ForexTraders.com offers free information to help educate yourself on strategies, analysis, how to choose among the many forex trading brokers and we even offer a free course!

The Fibonacci number sequence and golden ratio can be found throughout nature and traders such as Gann applied them to financial markets and made millions using this unique tool as part of his trading method.

The Fibonacci number sequence and golden ratio is used by many savvy traders today so let's look at how they can make huge profits in ANY financial markets.

Support and resistance levels are critical for all traders as they can help identify entry and exit points when trading.

Fibonacci percentage "retracement" levels derived from the Fibonacci number sequence and golden ratio are an innovative and useful tool for any trader, so why are they so useful.

Let's find out.

Fibonacci Numbers and Golden Ratio Applied To Trading

The Fibonacci sequence was printed in the Liber Abaci, written by Leonardo Fibonacci in 1202. It introduced Hindu-Arabic to Europe for the very first time and they replaced Roman numerals.

The Fibonacci number sequence was based around the following equation:

How many pairs of rabbits can be generated from one single pair, if each month each pair produces a new pair, which, from the second month, starts producing more rabbits?

While the Fibonacci number sequence and golden ratio was used to solve the above equation.

The result was:

It produced a number sequence that has importance throughout the natural world.

After the first few numbers in the sequence, the ratio of any number in relation to the next higher number is approximately .618, and the lower number is 1.618.

These two figures are known as the golden mean or the golden ratio.

The Golden Mean and Golden Ratio

These numbers are pleasing to the us and appear throughout biology, art, music, weather, creatures and even architecture.

Examples of natural objects based on the Golden Ratio are:

Snail shells, galaxies, hurricanes, DNA molecules, sunflowers and many more objects that occur in the natural world.

Retracement Levels

The two Fibonacci percentage retracement levels considered the most critical by traders are: 38.2% and 62.8%.

Other important retracement percentages are: 75%, 50%, and 33%.

So how can traders use them?

Well, there are three main advantages and they are:

1. Fibonacci numbers Define exit numbers

If three or more Fibonacci price levels come together, a stop loss can be placed above the area which indicates an important area of support or resistance.

Setting stop loss trades using Fibonacci retracements allows traders to set pre defined exit points, so they can exit the market if their wrong.

This means they can trade in a disciplined fashion and protect their equity, which is critical to all traders.

2. Fibonacci levels Can Define Position Size

Depending on the risk a trader wants to take on a trade Fibonacci numbers can give the size of position to be taken, in terms of risk the trader wishes to assume.

Why?

This is simply because the monetary loss from the stop for a trade is different on most positions taken in the market.

A stop close to resistance and support may mean that a bigger position than one where support or resistance is further away.

Traders can therefore decide position size within their money management parameters easily and have a pre defined exit point.

3. Fibonacci Numbers & Profit Per Trade

With Fibonacci numbers, once a pattern completes against a Fibonacci price area traders can use them to lock in profits.

This indication of how far a profit may run, enables traders to lock in profits at pre defined set levels.

The advantage of the Fibonacci number sequence is they are a predictive tool:

So, they allow traders to have specific stop loss and profit objectives in advance.

Traders can then use them to lock in more profits and cut losses to a minimum, which is essential for longer term profitability.

Gann used them for this purpose and that is why they are such a useful tool for traders

One of the keys to trading any market is discipline:

To cut losses and run profits and win over the longer term by trading without emotion.

Gann knew this and all traders who have traded know how emotions can wreck a trading plan and the Fibonacci number sequence makes a trader stay disciplined.

Do they work?

Gann understood that using Fibonacci numbers could make large profits and cut losses on his trades and he used them to amass a fortune of over $50 million.

Fibonacci numbers are useful but should be used as part of a trading plan and Gann for example did not just rely on them he had an array of innovative tools that he combined to make stunning profits.

He was one of the most successful traders of all time and his legend lives on and many savvy traders around the world still use his methods

Check them out and you may be glad you did.

Not only are they innovative, they can give you big profit potential and that's what we all want as traders.
One of the best known and least understood theories of technical analysis in forex trading is the Elliot Wave Theory. Developed in the 1920s by Ralph Nelson Elliot as a method of predicting trends in the stock market, the Elliot Wave theory applies fractal mathematics to movements in the market to make predictions based on crowd behavior. In its essence, the Elliot Wave theory states that the market — in this case, the forex market — moves in a series of 5 swings upward and 3 swings back down, repeated perpetually. But if it were that simple, everyone would be making a killing by catching the wave and riding it until just before it crashes on the shore. Obviously, there's a lot more to it.

One of the things that makes riding the Elliot Wave so tricky is timing — of all the major wave theories, it's the only one that doesn't put a time limit on the reactions and rebounds of the market. A single In fact, the theories of fractal mathematics makes it clear that there are multiple waves within waves within waves. Interpreting the data and finding the right curves and crests is a tricky process, which gives rise to the contention that you can put 20 experts on the Elliot Wave theory in one room and they will never reach an agreement on which way a stock — or in this case, a currency — is headed.

Elliot Wave Basics

* Every action is followed by a reaction. It's a standard rule of physics that applies to the crowd behavior on which the Elliot Wave theory is based. If prices drop, people will buy. When people buy, the demand increases and supply decreases driving prices back up. Nearly every system that uses trend analysis to predict the movements of the currency market is based on determining when those actions will cause reactions that make a trade profitable.

* There are five waves in the direction of the main trend followed by three corrective waves (a "5-3" move). The Elliot Wave theory is that market activity can be predicted as a series of five waves that move in one direction (the trend) followed by three 'corrective' waves that move the market back toward its starting point.

* A 5-3 move completes a cycle. And here's where the theory begins to get truly complex. Like the mirror reflecting a mirror that reflects a mirror that reflects a mirror, the each 5-3 wave is not only complete in itself, it is a superset of a smaller series of waves, and a subset of a larger set of 5-3 waves — the next principle.

* This 5-3 move then becomes two subdivisions of the next higher 5-3 wave. In Elliot Wave notation, the 5 waves that fit the trend are labeled 1, 2, 3, 4 and 5 (impulses). The three correcting waves are called a, b and c (corrections). Each of these waves is made up of a 5-3 series of waves, and each of those is made up of a 5-3 series of waves. The 5-3 cycle that you're studying is an impulse and correction in the next ascending 5-3 series.

* The underlying 5-3 pattern remains constant, though the time span of each may vary. A 5-3 wave may take decades to complete — or it may be over in minutes. Traders who are successful in using the Elliot Wavy theory to trade in the currency market say that the trick is timing trades to coincide with the beginning and end of impulse 3 to minimize your risk and maximize your profit.

Because the timing of each sequence of waves varies so much, using the Elliot Wave theory is very much a matter of interpretation. Identifying the best time to enter and leave a trade is dependent on being able to see and follow the pattern of larger and smaller waves, and to know when to trade and when to get out based on the patterns you identify.

The key is in interpreting the pattern correctly — in finding the right starting point. Once you learn to see the wave patterns and identify them correctly, say those who are experts, you'll see how they apply in every facet of forex trading, and will be able to use those patterns to trigger your decisions whether you're day trading or in it for the long haul.
When searching for Forex information on the internet you are likely to find articles relating to trendlines and trendline analysis.

Tom DeMark is a specialist in the field of technical market analysis and his best-selling book "The New Science of Technical Analysis" released in 1994 spells out some innovative techniques when it comes to the use of trendlines.

Much Forex information on the internet is of a general nature, and many articles are written about Forex by individuals who are not traders themselves. Tom DeMark on the other hand has had a long career with institutions trading stocks, futures, currencies and options.

His guidelines on the use of trendlines are very specific and they can be helpful to the newer trader who is searching for reliable Forex information on how to use standard indicators.

Here is a brief step-by-step description of how to draw DeMark trendlines:

Note: The term swing high and swing low (also called cycle high and cycle low) refers to the following:

In An Uptrend: A swing high is the wick of a candle that is higher than the wick of the candle to the left and right.

In A Downtrend: A swing low is the wick of a candle that is lower than the wick of the candle to the left and right.

Obviously the more candles to the left and right that are higher in a swing low or lower in a swing high makes the swing or cycle more significant.

An uptrend is where price is making higher highs and higher lows. A downtrend is where price is making lower highs and lower lows.

Drawing DeMark Trendlines

Drawing Trendlines In An Uptrend

    Examine the bottoms of the candles on your chart and identify the most recent candle wick that is lower than the candle wicks to the immediate right and left of it.
    Look left on the chart, and identify the previous low candle that has candle wicks higher to the immediate right and left of it which is lower than the current low candle.
    Now draw a line from the current lowest candle to the previous lowest candle (drawing from right to left).
    Now take the end of the newly drawn line which stops at the current low candle and extend it forward some distance (drawing from the present position to the right).

Drawing Trendlines In A Downtrend

    Examine the tops of the candles on your chart and identify the most recent candle wick that is higher than the candle wicks to the immediate right and left of it.
    Look left on the chart, and identify the previous high candle that has candle wicks lower to the immediate right and left of it which is higher than the current high candle.
    Now draw a line from the current highest candle to the previous highest candle (drawing from right to left).
    Now take the end of the newly drawn line which stops at the current high candle and extend it forward some distance (drawing from the present position to the right).

You have now drawn a Tom DeMark trendline.

This can now be a reference point for future price action. It will often be observed that price will come and check this level. If it breaks through, it can mean a change in direction, the significance of which will depend on the time frame being used.

Trendlines drawn on 5 minute or 15 minute charts have much lesser significance than trendlines drawn on higher time frames such as the 1 hour, 4 hour, or daily.

Caution Required

Much Forex information extols the virtues of trendlines as an indicator of possible future price action.

Mr. DeMark certainly has made this a science and his detailed approach to drawing trendlines is certainly more accurate than just drawing general trendlines along the bottoms and tops of trends according to the way the eye sees.

However, trendlines in themselves do not indicate where high probability trades can be taken.

It is important to use a variety of indicators before pulling the trigger. Examining previous levels of support and resistance is probably far more significant in determining where price is likely to hesitate that watching trendlines.

However, they can be useful. If you find a key support or resistance level also coincides with a Fibonacci retracement or extension level which is also at an intersection with a trendline, then you have built a reasonably solid case for a trade.

Use this Forex information on DeMark trendlines wisely, with caution, and it can be another useful addition to the Forex day trader's toolkit!
All the investors in the forex market often base their decisions in trading upon economic and political news around the world. Forex and stock market depend on the countries economy. Using of industrial production index is the best way to predict the market trends in the future. All the traders are using this market indicator specially the traders who want to trader for a long time because if a country's economy is improving definitely its currency rate goes up and if the economy is decreasing, currency rate will automatically goes down.

What is Indicator?

Forex indicators are the primary and most essential tools used to determine the trend of foreign exchange and their future prospects. These tools sometimes become so important for the users to anticipate future ups and downs of the Forex market according to which, they could invest and deal their finances with foreign exchange.

There are a variety of Forex indicators available to the users of foreign exchange, which are highly advanced and avail an enhanced platform to the Forex dealers and users to deal the challenges with foreign exchange efficiently. These indicators are useful not only to the novice Forex trader, but also an experience Forex dealer as well. The two most significant indicators of them are as follows.

Moving Averages: Simple, Exponential and Weighted

Most Forex traders use Moving Average Indicators to calculate the trends in foreign exchange. This procedure can be set and interpret easily. Using this indicator, we can easily measure the average movement of the price within a particular time period. Through this indicator, the price data get smoothen with which, we can easily observe the market trend and tendencies.

Stochastic indicator

Stochastic indicator is another significant tool used as a Forex indicator by the Forex experts and dealers to estimate market trends and tendencies. The main idea suggested by this indicator is that the rising price always lies closer to its previous highs and the falling price always lies to its previous lows.

what is forex

what is forex

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