ARTICLE ONE: FUNDAMENTAL ANALYSIS- GROSS DOMESTIC PRODUCT (GDP) and GROSS NATIONAL PRODUCT (GNP)

Many use fundamental or technical analysis to trade , and this- fundamental and technical analysis- have indicators that show when to enter a trade or when not to enter a trade. Fundamental or technical indicators could either be lagging, leading or coincident indicators. Lagging indicators show data after the market moves, leading indicators show data before the  market moves and coincident indicators move with the  market.

This and proceeding writings will discuss fundamental and technical analysis indicators. But this writing will be about Gross Domestic Product (GDP) and Gross National Product (GNP) as fundamental analysis currency indicators.
Gross Domestic Product (GDP) is a fundamental indicator of economic performance of any country. GDP measures all economic activities which is the total value of goods and services produced during a period of time.

HOW IS GDP CALCULATED? Many economists calculate a country’s GDP by adding up the value of goods and services produced or by adding up expenditure on goods and services at the time of sale or by adding producer’s incomes from the sale of goods or services.
How does GDP affect forex? A high GDP indicates a healthy economy; a high GDP indicates high interest and exchange rate of a currency.
More on this later.

GROSS NATIONAL PRODUCT (GNP)
Gross National Product (GNP) is similar to Gross Domestic Product (GDP). GNP is used to describe in monetary value the total yearly flow of goods and services in country’s economy. Basically, GNP shows how a nations economy is on a micro and macro scale. GNP is calculated by adding up all personal, governmental and investment spending by a country’s industry both nationally and internationally.
GNP is a good trading indicator, if the GNP of a country is low; it indicates a weak economy and a low exchange and interest rate of the country’s currency. Which wouldn’t be a currency to go short to go long on another currency with a higher GNP, a higher exchange and interest rate, a stronger currency.
More on this later.
Thanks for reading

WHAT YOU MAY NOT KNOW ABOUT LEVERAGE

Leverage is using a small amount of money to trade with a large amount of money. Many brokers or market makers offer leverage to Forex traders. For a small deposit one is able to trade with a large amount of money. Brokers offer many types of leverage packages like 100:1, 200:1, 300:1 or 400:1. This means that for every 1 dollar you deposit you will be giving 100, 200, 300 or 400 dollars to trade. Leverage makes trading very profitable for many traders. But there is a major disadvantage to trading with leverage.

DISADVANTAGE OF LEVERAGE

Using leverage to trade is like using a knife that allows you to cut your vegetables but at the same time if you don’t cut properly you may cut off your hand. Leverage has the ability to increase profit and while also increasing loss.

For example one may make a trade using a 100, 000K Standard lot with a 1,000 dollars deposit and make a profit on a currency pair lets say EUR/USD, lets do some calculations:

Let’s say the exchange rate of EUR/USD is 1. 2940.

And pip value is 0.0001.

Lot is 100,000 = leverage

Profit is 30 pips 

Calculation:    (0.0001 * 1.2940) * 100,000 = $ 12.94

          Profit:    12.94 * 30 pips = $ 388.2

BUT if it is a loss and not a gain than it would be a $ 388.2 loss and, since there was only a 1,000 dollars deposit, the present amount left will be:

1,000 – 388.2 = $ 611.8

That’s almost a 40% loss at a time on the used margin.

The above is not a real example, but with it one could understand how with leverage a person could loss a large portion of his or her trading money easily.

 Certainly, trading leverage may be very profitable if used properly but an uninformed use of leverage could result in a loss.

Thank you for reading

2 SIMPLE MONEY MANAGEMENT TIPS

Every Forex trader needs simple effective money management to trade properly. This is because, if one is not able to use his or her trading money properly, one may loss it, which may would not be good. Before I give the money management tips, what is money management?

 WHAT IS MONEY MANAGEMENT? Money management involves determining risk to profit maximization on potential trade positions. It sounds technical but, that’s how I understand what money management is.

 Tip one: Read Money Management Books:
 Reading trading money management books is the best way to manage your trading money. This books contain the thoughts and techniques of experienced  traders which will be very helpful to you. Tip two: Be Realistic:

Been realistic about how to manage your trading money is also very important. Being realistic involves not expecting to win big in the market with an under-capitalized trading account, may be trying to use leverage with a small amount of money, with hopes that with just one miraculous turn of events that your trading money will triple. Although it does happen, but lighten striking in one spot twice is more frequent, than that happening. The best option is to build your account slowly being realistic about your trading capital and ignoring the people who are out for quick wealth. No such thing.

 Been realistic also involves using common sense, using your two eyes to analyze how your spending your money, avoid opening trading positions based on impulse, may be trying to get the market back for stopping you out on a trading position. More  money management later. 

 Thanks for reading.

2 VERY IMPORTANT TECHNICAL ANALYSIS INDICATORS- LAGGING AND LEADING INDICATORS

LAGGING INDICATORS

Lagging indicators are indicators that are used to predict future price movement based on passed price activities. Lagging indicators are also called momentum indicators. One very important feature of lagging indicators is that it can be used to spot trends in the Forex market once the trends have been established but with one disadvantage. Lagging indicators only show how the market was not how it is presently, so there could be possible delay of entry. In simple terms lagging indicators follow the market, and only showing any data after the market moves.

TYPES OF LAGGING INDICATORS

       ·Simple Moving Average (SMA)

       ·Exponential Moving Average (EMA)

       ·Moving Average Convergence Divergence (MACD) 

There are other lagging or momentum indicators but for now I will discuss this.

Simple Moving Average (SMA)

Simple moving averages is basically used to forecast future currency prices, this is done by adding up the last “x” periods closing prices and than dividing the number by “x”. for example if I was plotting a 20 period simple moving averages on an  hour chart, I would add up the closing prices for the last 20 hours and divide that number by 20.

 Moving averages smooth out price action, if the moving average lines are very smooth it will be slower to react to price movement, whereas, if the moving average line is very ruff or choppy it will react to price movement quickly.

The simple moving average gives me an overall sentiment of the  market at a point in time and not the current price of the market.

Exponential Moving Average (EMA)

Exponential moving averages is an indicator that gets close to what the current price of the Forex market is and it shows what other traders are doing presently. Although, exponential moving average is a lagging indicator, it gives more current information than the simple moving average, which may be showing what traders did last week, last month or even last year, this data though important, may not be accurate compared, to what is happening in the market now, which is shown by the EMA.

`Moving Average Convergence Divergence (MACD)

This indicator is very interesting and I'm still studying it. The Moving Average Convergence Divergence (MACD)  is an indicator that identify moving averages that show a new trend, this trend could be a bearish or bullish trend.

The MACD indicator on a Forex chart usually shows 3 numbers. The first number is the number of periods that is used to calculate the faster moving average. The second number is the number of periods that is used in calculating the slower moving average. The third is the number of bars that is used to calculate the moving average of the DIFFERENCE between the faster and slower moving averages.

The lines of the MACD, that Is the two lines that are drawn are NOT moving averages of the price. They are the moving average of the DIFFERENCE between two moving averages.

The third line of the MACD is usually a histogram; this histogram plots the difference between the fast and slow moving averages. When the moving averages move separates the histograms expands, this is known as divergence. When moving averages moves towards each other, the histogram becomes small, this is known as convergence.  

LEADING INDICATORS

Leading indicators are indicators that are ahead of the market. Leading indicators are also called oscillators, this indicator main shows two data BUY or SELL; it indicates when the market is over bought or over sold. There are many leading indicators or oscillators but, I will only write on.

       ·Stochastic

<     ·Parabolic SAR
       ·Relative Strength Index

Stochastic: stochastic is a leading indicator that determine where a trend might end, stochastic also determines when the market is over bought or when it’s over sold, stochastic is scaled from 0 to 100, when the stochastic indicator lines are above 70 it means the market is over bought and when the stochastic lines is below 30 it means the market is over sold.

Parabolic SAR: This indicator is a very easy indicator to use; it appears as dots on the trading chart. When this dots are above the candle sticks it signals a possible Short or SELL signal, and when the dots are below the candles sticks it’s a possible long or BUY signal. This indicator works in a Stop and Reversal (SAR) pattern, and it works well in a trending market (up or down trend) it may not give accurate data if there is no trend or if the market is moving side ways.

Relative Strength Index (RSI): this indicator is very similar to stochastic, Relative Strength Index helps to show when the market is over bought or over sold. It could also be used to determine and confirm trend formations. This indicator is scaled 1 to 100, when trading if the RSI lines are above 50 it means there might be a possible up trend forming, and if the RSI lines are below 50 it means there might be a possible down trend forming.

More on lagging and leading indicators later. Thank you for reading article.

3 SIMPLE WAYS TO IMPROVE YOUR SKILL

The forex market is very volatile and without the right  skills you will not succeed. As you know trading is a business and in every business you need the right skill to succeed, as you know skill is important but, more important is continuous improvement of skill. Three simple but not easy ways to improve your  trading will be discussed in this article.

EDUCATION

One way to improve your  skill is to get educated. With  education you can trade the market efficiently, with education you don’t even need a lot of cash to trade, with education you will be more successful than the person with a lot of cash but who knows nothing about the  market. The only thing is that, to get this education requires effort on your part, you may need to attend classes, take courses, read books, listen to audio's etc. In fact, you must be a continuous learner. It may not be easy. It may be stressful but, learning all you can, will really improve your trading skill.

PRACTICE

There is a saying you may have had before, it goes like this “practice makes perfect”. The more you practice what you learn from the books you read,  classes you attend, audio’s you listen too, the more your skill will improve. It could be compared to driving a car. At those early stages learning to drive may have being hard, at those early stages you may have been nervous. But, as you keep on learning and practicing, you slowly understand how to drive and it even gets to a point when driving becomes a knee-jerk reflex, you don’t even need to think before you drive. Same goes for trading and as well as your skill development.

If the motto for buying a house is location, location, location, than the motto for trading is PRACTICE, PRACTICE and PRACTICE. Continuous training and practice is one very important way to improve your skill.

PLANNING

Every good business man will tell you that plans are worthless but planning is priceless.  trading is not a hobby, trading is a business and like every business there must be plans and continuous planning for it to succeed. Planning will help direct your skill in the right direction. Planning will help you to concentrate your effort in the right way and at the right time. In another article more simple ways to improve your  skill will be discussed.

Thank you for reading this article.    

HOW TO TRADE WITH FIBONACCI RATIO

The Fibonacci ration was given by an Italian mathematician named Leonardo Fibonacci. Fibonacci gave a theory which he called the Fibonacci series (1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144…….) , this series he used to calculate the natural proportion of things in the universe, each number in the series is called a Fibonacci number.

In the series if I divide 34 by next number 55 it will be 0.618. And if I divide 34 by the number after 55 in the series, 89 what I will get is, 0.382.

I know I may have lost some people back there, or some people may read this and say I'm lost maybe they know it more than me.

 the numbers above are called the Fibonacci ration and the ratio’s 0.618 and 0.382 are known as golden means.

Fibonacci ratio is divided in two parts

<    1. Fibonacci retracement levels

<    2. Fibonacci extension levels

To fully understand what Fibonacci ratio is I need to show a chart, O well since I don’t that have a chart I will use the next best thing.

Fibonacci retracement levels: to find the retracement level on a plate form I would click on a significant swing low (swing low is a candle stick with at least two higher lows on both the left and right) and drag the cursor to the most recent swing high (swing high is a candle stick with at least two lower highs on both the left and right of itself). These are the numbers I may see 0.236, 0.382, 0.500, 0.618, 0.764.

Retracement levels are very important because one, the forex market usually finds temporary support during an up-trend or resistance during a down trend and two, this may be good trading spots to long or to short on a trade.

Fibonacci extension levels: to find the extension level on a  plate form I would have to use three clicks. First, I will click on a significant swing low, second, drag my cursor and click on the most recent swing high, third, drag my cursor back down and click on the retracement swing low. These are the numbers I may see 0, 0.382, 0.618, 1.000, 1.382, 1.618.

Fibonacci extension levels are very important because the  market usually finds at least temporary resistance at these levels and traders use Fibonacci extension levels as profit taking levels.

Thank you for reading this boring article.       

WHAT ARE TRENDS LINES AND CHANNELS

WHAT ARE TREND LINES?

In an earlier article I talk about the benefit of trading with the trend and not against the trend. Now, trend lines are lines that are used to connect points on a particular price movement of a currency pair. Trend lines drawn on an up-trend, is drawn to connect the bottom of an obvious support area, to the next higher support 

(in an up-trend as you know, the price is ascending). Trend lines drawn on a down-trend  connects the peak of obvious resistance, to the next lower resistance (in a down-trend the price is descending).

Since I have explain what trend lines are let’s talk about channels.

WHAT ARE CHANNELS?

I'm not talking about CNN, BBC, NBC  MTV or any channel. Channels on a forex trading platform is drawing two parallel lines that make (not to make but, at least to have some kind of guiding lines)  the price movement to move in between the parallel lines ( I just hope I explain it well). Plotting a channel on an up-trend is done by drawing a line that connects an obvious lower support to another higher support, while also drawing a parallel line from a lower resistance to a higher resistance. Plotting a channel on a down-trend is done by drawing a line that connects a higher resistance peak to lower resistance peak, while also drawing a parallel line from a higher support point to a lower support point.

May I add that this whole process of drawing trend lines and channels is done to make profit. traders use this trend lines and channels as profit areas and indicators. When the price movement hit the bottom of the channel it means BUY.  When the price hits the top it means SELL.

Thank you for reading.

HOW TO PLOT SUPPORT AND RESISTANCE LEVELS

 WHAT ARE SUPPORT AND RESISTANCE LEVELS?

I believe that a diagram will explain what support and resistance levels are, since no diagram I’ll use the next best thing- writing.

Support and resistance levels can be explained using a bouncing ball, if I bounce a ball, it hits the ground goes up to a certain height returns to the ground than goes up again. The height the ball reached before it returns to the ground could be called the resistance and the ground is the support. On a technical analysis chart, a certain currency pair movement could be going up & down, up & down, bouncing on support and resistance levels, going up & down changing supports levels to resistance levels and vise versa. Support and resistance levels could be very profitable levels but, how do I know which one is a support and resistance level and how do I plot them?  

First, this is how to know a support and resistance level, when the market moves up and pulls back the highest point reached before it pulled back  is the resistance, (remember the bouncing ball). And as the market continues move down the lowest point it reach before it starts to move up is the support, (just like a zig zag thing).

Second, this is how to plot support and resistance levels. The best way to plot support and resistance is to use LINE CHART instead of candle stick charts. This is because, one, support and resistance levels are not real numbers (many trading plate forms show support and resistance as numbers), but they are more like zones. Two when plotting support and resistance levels I want only the closing price and line chart show only the closing on like candlestick that show the closing price as well as the low, high and open price. This other details are not needed when plotting support and resistance levels when Forex trading.

Finally, its better to plot support and resistance levels when I see the currency price movement forming several peaks and valleys.

Thank you for reading.

WHAT ARE TRENDS

What is a TREND in the Forex market? A trend is a way of analyzing price movement over a period of time. This trend could be an up or down trend. Let me illustrate what a trend can be compared to in the market; all marketers know that if something is in fashion, the best way to make profit is to sell that thing in fashion, selling something else would be going against the trend which would not be profitable. Likewise in the  market to be successful trade with the trend. If the market is on a down trend, which means that prices are dropping, trading as if you where in an uptrend would be bad for business. If the market is on an uptrend, which means that prices is rising, trading as if you where in a down trend would not be wise.

There is a common saying; the TREND is your FRIEND. Don’t walk up a down escalator or don’t walk down and up escalator in a mall you may hurt yourself. In the  market you may loss all your money which will be equal to hurting yourself.

Thanks for reading 

KNOWING YOUR FOREX CANDLE STICKS

Candlesticks are formed using the open, high, low and close. If the closing price is above the opening price it’s a BULL market or a market where buyers are very many and very strong and the candlestick on your forex trading chart will be hollow.

If the opening price is above the closing price it’s a BEAR market, its market full or sellers no body wants currency and their very willing to sell. The candlestick on your chart will be filled or black.

Long candle sticks on a chart mean strong buying or selling pressure, while short candle sticks mean little buying or selling pressure or activity.

 BULL mean BUYERS, while BEAR mean SELLERS.

CANDLESTICK SHADOWS

I’ve always wondered about the concept of shadows little did I know that I will come across it while learning to trade using technical analysis.

Candle sticks have shadows, this shadows tell a lot about each trading session. The lower shadow of a candlestick shows the sessions high, the lower shadow shows the sessions low.

Candle sticks with long shadows show that traders like financial institutions, you and me traded  pass the open and closing price. While candle sticks with short shadows show that many  traders actions was confined near the open and closing price.

VARIATION IN CANDLE STICK SHADOWS

Some candle sticks have long upper shadows and short lower shadow or short upper shadow and long lower shadow, what do they mean?

If a candle stick has a long upper shadow and short lower shadow it means that the market was basically a BULL market, buyers where very strong moving the market passed it’s open price but the lower shadow shows that sellers still managed to sell a lot of currencies to end the session at it’s open price.

If a candle stick has a short upper shadow and a long lower shadow it means that SELLERS own the market but the long lower shadow shows that buyers bought enough currencies to end the trading session at its open price.

CANDLE STICK PATTERNS/ REVERSAL PATTERNS

       · Spinning Tops

<     ·  Marubozu

*     ·   Doji

<     ·  Hammers

*     ·  Hanging man

*     ·  Shooting star

       ·  Inverted hammer

Spining Tops: I call this candle stick pattern a steal mate. Spinning tops mean neither buyers nor sellers are able to control the  market. This pattern is represented by a short candle stick with long upper and lower shadows, it does not matter if the short candle stick is filled or hollow.

Marubozu: this is a candle stick that has no shadows, this means that the open and close price is the same as the high and low. If the marubozu candle stick is a long hallow stick it means that the whole session is controlled by the buyers and if it’s a filled it means that the sellers control the whole session.

Doji: this candle stick on your plate form should appear as a very thin line with either a long upper or lower shadow, a short upper or lower shadow, a long upper and short lower shadow, a short upper and long lower shadow or no shadows at all. If this doji candle stick appears on a trend (I will say what a trend is later) it means a struggle between buyers sellers and price moved above and below the opening and closing prices during the session but, managed to close near the open price.

TYPES OF DOJI CANDLE STICK ON A FOREX TRADING PLATE FORM

       1. Long- legged doji

       2. Dragon fly doji

       3. Gravestone doji

       4. Four price doji

Hummer: this candle stick looks like a hummer, it has a small body with no upper shadow but a very long lower shadow. I will talk about what it means later.

Hanging man: is very similar to the hummer candle stick, it even looks like the hummer- small body with an absent upper shadow but a very long lower shadow- but it means something totally different from the hummer.

Inverted hummer and shooting star: the inverted hummer and the shooting star are the opposite of the hummer and the hanging man. The inverted hummer has a small body with an absent lower shadow but a very long upper shadow likewise the shooting star but, they mean different things.

Thanks for reading.

TECHNICAL ANALYSIS- TYPES OF CHARTS

As I said in an earlier writing technical analysis means using charts to trade. Charts show price movement over a period of time.

TYPES OF CHARTS

Line chart

Bar chart

Candlestick charts

Line Chart: line charts draw a line from one closing price to the next closing price, for either a trading period or a trading session. For example let’s say the markets closing price yesterday was 1.9300 and the closing price for today is 1.9635, a line chart draws a line that connects these two closing prices.

Might I add that many line charts can be strung together to give a picture of price movement of a currency pair over a period of time.

Bar Chart: bar chart show more details than line charts. Bar charts show not only the closing price but also the open price, the Forex markets high price and the markets low price of a currency pair for period of time.

The Acronym OHLC is used to represent the bar chart.

O = OPEN PRICE

H = HIGH

L = LOW

C = CLOSE

Candlestick Chart: candlestick charts are like bar charts, they show the open, close, high and low plus they also show more details and candlestick charts are used in many plate forms, use more than line and bar charts.

Thanks for reading.

TERMS

LONG: long means buying a currency and selling another currency. For example if you where trying to trade the EUR/USD, LONG will mean buy the EUR and sell the USD.

LONG = BUY

SHORT: short means selling a currency and buying another currency. For example if you SHORT the EUR/USD currency, it means you sell the EUR and buy the USD.

SHORT = SELL

BASE CURRENCY: in any currency pair the base currency is the first stated currency in the example above EUR/USD the EUR is the base currency and by base I mean the basis for any transaction involving the pair.

QUOTE CURRENCY:  in any currency pair the base currency pair the base currency is the second stated currency, example EUR/USD the USD is the quote currency. Another name for the quote currency is counter currency.

BID PRICE: the bid price is the price the market is willing to buy a currency from you.

ASK PRICE: the ask price is the price currencies are sold

SPREAD:  the spread is the difference between the ask and the bid price. For example if your trading the EUR/USD and the EUR is stated on your trading platform to equal 1.4953 and the USD is stated to equal 1.4957 the spread is the difference between the two  which is 4.

PIP:  the pip is the smallest increment in price of any currency. In the example above the EUR is stated to equal 1.4953, if it increases to 1.4954, it increased by one pip.

Lot: a lot is a specific volume or quantity of currency you are allowed to buy or sell in any transaction. Forex brokers give 100,000 lots known as standard lots, 10,000 lots known as mini lots and 1,000 lots known as micro lots.

Rollover Charge: rollover charge is a daily rollover interest rate someone will either pay or earn (I intend to earn instead of paying). Many  market makers pay or receive rollover charges if someone leaves a trading position open until their closing time, for many brokers it’s 5 PM EST.

Leverage: leverage means using a small amount of money to trade with a large amount of money. brokers offer leverage to traders to help them make profit or loss. Depending on the broker a trader could receive 100:1, 200:1 300:1 or 400:1 leverage, this means that, for every one dollar a trader has, he is given 100, 200, 300, 400 Dollars to trade.

USED MARGIN: used margin is the money you’re using to trade.

USABLE MARGIN: usable margin is the money you have in your trading account.

In other words used margin is the money you have in your hand so to say and usable margin is the money you have in your bank account.

MARGIN CALL: when the money you have in your account is very small due to continuous loss, your broker may tell you to close your trading positions or they may close it for you, so you don’t lose all your money. When this happens it’s called, a margin call.

   

Thanks for reading.

WHAT IS TRADED IN THE FOREX MARKET

Forex is short for Foreign Exchange, exchange of foreign currencies. What is traded in the market is, currencies of different countries. This kind of market was confusing for me to understand at first, but I now know what it is.

I this how it works. Currencies are always bought and sold in pairs. One currency; lets say the EURO (European Member) is used to buy another currency let’s say the USD (United States Dollar), or the U.S Dollar is sold in exchange for the Euro. Any transaction  always involves two currencies which are traded in pair.

THE MAJOR CURRENCIES IN THE FOREX MARKET

 1.United State Dollar              (USD)             Dollar

 2.European Member                (EUR)            Euro

 3.Japanese Yen                        (JPY)              Yen

 4.Great Britain Pound              (GBP)            Pound

 5. Switzerland Franc                 (CHF)           Swissy
 6.Canadian Dollar                    (CAD)          loonie

 7.Australia Dollar                     (AUD)         Aussie

Also, currencies are usually paired in relation to there exchange rates, that is, a strong currency against a weak currency. A currency with a higher interest rate against a currency with a lower interest rate.    

Thank you for reading.

FUNDAMENTAL AND TECHNICAL ANALYSIS

I was studying about fundamental and technical analysis recently, fundamental and technical analysis are the two broad schools of thought.

FUNDAMENTAL ANALYSIS

Fundamental analysis or economic fundamentals analyzes the strength of a currency by its country’s economy. Simply put, GOOD economy = HIGH exchange rate of currency, BAD economy = LOW exchange rate of currency. Fundamental analysis analyzes all the various sectors of an economy, political, social and economic sectors and activities in a country in relation to its currency. For example the U.S Dollar (USD): Using fundamental analysis to analyze the U.S Dollar I would look at the U.S economy; how is the economy? What is the U.S Gross Domestic Product (GDP)? Supply and demand of all goods and services, distribution and consumption by individuals and by business. I will analyze how major financial decisions affect the economy, it’s monetary unit etc.

I believe in a nutshell this is what fundamental analysis is all about.

TECHNICAL ANALYSIS

In lay man’s terms technical analysis = charts. Technical analysis involves analyzing the  market price movement of various currencies’ by using charts. Charts help identify trends and patterns so I can spot trading opportunities. Technical also involves using other technical indicators to trade the Forex market.  

Thanks for reading.