forex chart

In all media references, you may have heard about Foreign Exchange. Still, a lot of people have little idea when it comes to forex trading, especially reading the forex chart. people seldom realize its importance because they probably have not participated in it.

But it is actually quite easy to understand the forex chart, as long as you know what to look for. There are essentially two basic approaches for buying and selling currencies and this is where the understanding of a forex chart comes in.

First off is the Fundamental Analysis approach. This approach doesn? depend on forex charts at all. Instead, it uses economic and political factors to establish trades. Charts are essentially used just for reference regarding exiting and entering trades. The other approach is the Technical Analysis approach. This approach, meanwhile, tries to forecast the direction of prices by studying historical price movement on a particular chart. Technical analysts observe the relation between price and time.

To know how currencies are related to one another is very important. A forex chart always shows to your RIGHT, the value of the currency so one can buy a unit of the currency found to the LEFT. Recorded horizontally, time will be found somewhere at the chart? bottom alongside the price scale to the right. Price scale always stands for the currency to the east in the forward slash.

The most popular way of observing price or time movement on a forex chart is by means of the Japanese candle sticks. In order to watch price movement, one must pay attention to Japanese candle sticks. In case you don? know, a lot of traders depend on these sticks in making decisions in trading. A Japanese candle stick provides a way to examine price movement for a currency pair over a given timeframe. How much "time" each candle represents depends on the timeframe of the chart. If the chart below were a one-hour chart, each red and blue candle on it would represent the price activity for the currency pair over the course of one hour. If the chart were a daily chart, each candle would represent price activity for one day. It does not really matter what the timeframe is. You just have to remember that a candle represents price activity for the timeframe of whatever chart you are viewing.

The following are the basic parts and whatnot of a typical forex chart. The fat red section is the body of that candlestick. The lines protruding from the top and bottom are the upper and lower wicks. The bodies of the candles can be of varying sizes in a forex chart. There may also be times when there are no bodies in the chart at all. This is not something out of the ordinary. The same goes for the wicks. The wicks can be of varying sizes, or there just might not be any wicks at all. The length of the body and the wick is determined by the price range for that candle. Longer candles had more price movement during the time they were open. The very top of a candle? wick is the highest price for the currency pair, while the wick? bottom represents. When a candle is considered "bullish", this means there were more buyers than sellers during the time the candle was open.

If you're using charts, then you want to trade the strong trends - and the Average Directional Movement Index Indicator, or ADX, enables you to do this.

Wells Wilder developed the ADX, and outlined it in his classic book “New Concepts in Technical Trading Systems”.

Let’s look at this essential indicator in more detail - and see how to apply it on your forex charts, to give you greater accuracy when generating your trading signals.

Determining the Strength of the Trend

The ADX is a momentum indicator, which aims to measure the strength of the trend - and attempts to determine if the market is trending, or is trading sideways.

The Advantages of the ADX

A core belief of technical analysis is that a strong trend in motion is more likely to continue, than reverse. Therefore, you always want to be trading strong trends - as your odds of success are higher. The Average Directional Movement is a good indictor – and you should consider using it as part of your currency trading system.

The Technical Bit

For the boffin’s out there, here’s the technical bit – don’t worry if you don’t understand the calculation, its easy to use when visually plotted. The ADX is based on the comparison of two other directional indicators, both of which were also developed by Wilder, and they are:

Positive Directional Indicator (+DI) and the Negative Directional Indicator (-DI) to produce ADX as showed in the following formula:

ADX = SUM[(+DI-(-DI))/(+DI+(-DI)), N]/N

Where:

N: Refers to the period of calculation. The formula above produces the ADX line, which oscillates between 0 to 100 values. The +DI and -DI are both present and can be seen to make up the indicator.

You don’t need to understand the above calculation to use the indicator – you only need to accept that the indicator works.

The indicator is easy to use when it’s visually plotted - and you’ll find it included, with most of the good forex chart services.

How to Trade using the ADX Indicator

The ADX it’s not a bullish, bearish trading signal generator - and should never be used as such.

The ADX indicator simply indicates the strength of the trend - and other indicators should be used to enter, and exit trades.

Although the ADX fluctuates from 0 to 100, it rarely moves above 60.

Use the ADX in the following way:

Readings above 40 indicate the strength of the trend.

Readings below 20 indicate range trading and flat periods of consolidation.

You can use the crossing of +DI and -DI to determine the trend direction; when +DI crosses -DI upward, it’s a bullish signal, on the other hand, when +DI crosses -DI downward it’s a bearish signal.

The ADX line is a great momentum indicator and like the RSI (also developed by Wells Wilder), the ADX it will help you trade the strongest trends - and give you advance warning of changes in momentum.

The Bottom Line

If you want currency trading success, you can’t just trade support and resistance levels, and hope they hold or break. You need confirmation of momentum to get the odds on your side - and the ADX indicator will assist you.

Final Words

New Concepts in Technical Trading Systems was published in 1978, and was one of the first trading books I ever bought. Every trader should make this book a part of his or her forex education. If you want to learn forex trading the right way, get the book, and use the ADX indicator to increase your chances of making big FX Profits.

preplaned stategy in forex market

f you are new to the world of Forex trading then, before you even think about making your first trade, you need to sit down and draw up a Forex trading strategy. The foreign currency market is one of the most exciting and lucrative markets in the world, but it is also extremely fast moving and volatile and, while you can make tremendous profits, you can also make substantial losses if you don not have a very clearly defined game plan.

There are a number of different strategies which you can adopt for trading in the currency markets and you will need to come up with a strategy that suits you. At the end of the day exactly what strategy you decide to adopt is largely immaterial but, what is important, is that have you a strategy before you start to trade.

Many traders today choose to base their strategy on a technical approach to trading while others prefer to follow a fundamental approach. Both approaches are fine but the truly successful traders will tell you that the real secret lies in not selecting one or the other but in combining the two.

Technical analysis holds that prices follow trends and that markets possess clearly identifiable patterns which can be recognized if you know what you are looking for. Both knowledge and experience play an important role in technical analysis but here it is a case of knowledge and experience of not just the patterns in the market but of working with the barrage of tools which are know available to the technical analyst.

Within technical analysis many traders like to work with what are called support and resistance levels. In this case a support price is a low price to which a currency repeatedly returns, effectively representing the bottom of the market or the price at which it supports the market. By contrast, a resistance price is the high price which a currency reaches from time to time but above which it tends to resist rising.

The importance of these two levels is that once a currency price drops below its support level it will commonly continue to fall and, similarly, once the price exceeds its resistance level it will continue to climb.

It is also common for technical analysts to make use of moving averages which show the average price of a currency over a given period of time within a longer period. This is extremely useful for eliminating short term fluctuations in a currency price and producing a clearer picture of the movement of a currency over time.

These of course are just two of the many tools available to Forex traders who are following a technical approach and there is a wide range of far more complex and powerful tools available today.

In addition to technical analysis, many traders also believe strongly in fundamental analysis which holds that currencies move in response to a wide range of factors including political events, changes in trade agreements and trading patterns, economic numbers, interest rates, employment figures and much more.

The concepts of Globalization have changed the forex trading dramatically over the past several years. New investment strategies and instant electronic trading now ensures high returns for the investors. Therefore it has become quite important for the traders to have authentic forex information. Internet and other electronic sources like CDs, DVDs, etc., are fast replacing the conventional resources like books, magazines, etc.
The advantages of these electronic sources are there ‘interactive’ modules and ease of navigation, which make them faster and more effective for even beginners to comprehend the information. Dynamic features like search or graphical representation of live data with two or three dimensional charts, graphs, and ‘easy to learn’ e books are presented quite attractively to help the readers in understanding the subject.
You can have online forex information on:


* Forex definitions and terms including glossary

* Market background information and the developmental stages of the trading

* Trading strategy and decision making

* Different methods of Technical and Fundamental analysis

* Controlling the risk


Forex trading has long been recognized as a superior investment opportunity and the market is expanding to the individual small or medium traders than ever before. If you are powered by the knowledge and keep yourself informed, you have huge potential for earning from the market. Internet sites offer you wide ranges of e books which are classified in different groups like: forex books for beginners, books on market in general, on market profile basics, money management, trader's psychology, strategy and even books for advanced traders for supplementing their knowledge.


Forex information in the form of articles is again an exhaustive resource. One single site may present 2000 featured articles from which you can read any depending on your needs. These articles can be on brokerage, technical and fundamental analysis, money management, general tips or strategy building etc.


There are vendors or market professionals who offer forex tips and signals, which you can have by subscribing to their services. You can have information on forex market analysis, charts and technical analysis, trading platforms, facility to open demo account, etc. Different forex forums and groups are again a very useful resource for authentic information. You may find your queries being answered by veteran forex traders and the best thing is, most of the time, these tips are free. These traders very often share useful strategies and tips that proves to be extremely helpful.


Other than these electronic resources, you can always authenticate the forex information from books and magazines. Crash courses and short term seminars organized by different universities also prove to be helpful for those who are comfortable with the conventional class room mode of learning. Another advantage of these seminars is you get your doubts cleared by the experts directly. So the buzzword is to get informed and educated before you tread into the trade.

points to keep in mind while trading

Forex trading, just like most other forms of trading, carries risks and the novice Forex trader needs to be aware of these before dipping a toe into the foreign exchange pond. Here we will consider the 5 most common risks of foreign currency trading.

1. Forex scams. In recent years the industry has done a great deal to put its house in order and today Forex scams are certainly far less common than they used to be. They do however still exist.

It is fairly easy to open a Forex trading account, especially online, and a Forex scam in its simplest form is a case of a crook setting up a website posing as a broker, inviting you to open an account and deposit money into it and then disappearing without trace.

To ensure that you do not get caught out check out any broker carefully before opening an account. Choose a broker who is associated with a major financial institution (for example, a bank or insurance company) and who is also registered as a broker. In the United States brokers will be registered with the Commodities Futures Trading Commission (CFTC) or will be a member of the National Futures Association (NFA).

2. Exchange Rates. One of the attractions of the foreign exchange market is that it can be extremely volatile with currencies moving significantly against each other in very short periods of time giving rise to fast and substantial gains. The other side of this coin however is that the market can also produce substantial and rapid losses.

Fortunately there are tools available to the trader to limit this risk, such as stop loss orders, and novice traders need to familiarize themselves with these tools and to ensure that they make full use of them whenever they enter a trade.

3. Credit Risk. Because there are two parties (a seller and a buyer) involved in every transaction there is a possibility that one party will fail to honor his or her commitment once a deal is closed. This usually happens where a bank or financial institution declares insolvency.

You can reduce any credit risk considerably by trading only on regulated exchanges which require members to be monitored to ensure their credit worthiness.

4. Interest Rates. When trading any pair of currencies traders need to watch for discrepancies between the underlying interest rates in the two countries in question, as any discrepancy can result in a difference between the profit predicted and that which is actually received.

5. Country Risk. Occasionally a government will intervene in the foreign currency exchange markets to limit the flow of its country’s currency. It is unlikely that this will happen in the case of a major world currency but could occur in the case of minor and less frequently traded currencies.

These of course are just some of the risks involved in Forex trading and novice traders will need to familiarize themselves with the others as they go along. However, a good understanding of the 5 risks detailed here is essential before you enter the trading arena.

Euro Outshines Yen

Most of the stories and analysis featured on the forex blogs concern the Dollar, or at the very least, how other currencies are performing relative to the Dollar. But there are many important currency pairs that don't involve the Greenback, including the Euro/Yen. Last week, the Euro climbed to its highest level in 2008 against the Yen, thanks to diverging economies and interest rates. Neither economy is particularly strong, but the Bank of Japan is using especially bearish language to describe its faltering economy. It should be noted that despite a prolonged period of economic growth, the Bank of Japan avoided raising interest rates even once. Meanwhile, the European Central Bank is becoming increasingly hawkish in its monetary policy rhetoric. The result has been a sustained (and soon-to-widen) interest rate differential, which has contributed to a dynamic that is unique to these two currencies. Bloomberg News reports:

The yen fell against every major counterpart today after a government report showed Japan's longest postwar expansion may be over.

The euro rose to the strongest level this year against the Japanese yen and traded near a two-week high against the dollar as traders increased bets the region's central bank will raise rates as early as next month.

The euro has appreciated 2.6 percent versus the yen and 2.4 percent against the dollar since June 5, when ECB President Jean-Claude Trichet signaled interest rates may rise July 3 to quell inflation. The yen fell against every major counterpart today after a government report showed Japan's longest postwar expansion may be over.

``When you have yields in Europe and the U.S. about to pick up, it does lead to outflows from Japan into foreign markets,'' said Hans Guenter Redeker the London-based global head of currency strategy at BNP Paribas SA, France's biggest bank. ``In the aftermath of Trichet's comments, European yields have risen, providing euro-yen support.''

The euro rose to 166.65 yen as of 7:23 a.m. in New York, from 165.54 last week. It strengthened to $1.5802, from $1.5778. The yen dropped to 105.70 versus the dollar, from 104.93.

An interest-rate increase next month is ``possible,'' Trichet said in Frankfurt last week. It was a message that the markets have understood ``quite well,'' ECB council member ,Nout wellink who also heads the Dutch central bank, was quoted as saying in an interview with Market News International.

`Rhetoric Differential'

``The euro is gaining in the context of the rhetoric differential between the European Central Bank and the Fed,'' said ,Daragh Maher , a London-based currency strategist for Calyon, the investment-banking arm of Credit Agricole SA. ``The ECB is much more strident than the Fed, which has said it will stop easing. That's very different from saying you're about to hike.'' The euro may rise to $1.60 by quarter-end, Maher said.

The ECB will lift the main refinancing rate twice this year as inflation exceeds the central bank's target, taking it to 4.5 percent by year-end, according to interest-rate futures trading. Inflation is running at the fastest pace in 16 years.

Trichet will speak at a forum in Paris at 6:30 p.m. local time. The ECB last week kept its main refinancing rate at a six- year high of 4 percent, unchanged since last June.

Traders stepped up bets the central bank will boost rates by the end of this year, with the implied yield on the December Euribor futures contract rising to 5.47 percent, from 5.01 percent on June 4. European two-year notes had their biggest decline in 4 1/2 months, pushing the yield to 35 basis points more than 10 year-notes, the most since October 1992.

Japan at `Turning Point'

Japan's economy may be reaching a ``turning point,'' the Cabinet Office said today after releasing figures that showed the coincident index, a measure of current economic activity, fell to 101.7 in April from a revised 102.4 the previous month. The government hasn't described the world's second-largest economy in such terms since the most recent recession in 2001.

Japanese importers took advantage of recent gains to buy yen, said , Yuji Saito,head of foreign-exchange sales in Tokyo at Societe Generale SA, France's second-largest bank by market value. The yen may fall to 105.60 a dollar today, he said.

Trading volumes may be less than usual today as financial markets in Australia, China, Hong Kong and the Philippines are closed for public holidays, said ,Tetsuhisa Hayashi chief manager of foreign-exchange trading at Bank of Tokyo-Mitsubishi UFJ Ltd. in Tokyo.

The dollar rose versus the yen as Lehman Brothers Holdings Inc. reported a record $2.8 billion second-quarter loss and said it will raise $6 billion in capital in a public offering.

Dollar Index

The Dollar Index traded on ICE futures in New York, which tracks the currency against those of six trading partners, fell for a third day to 72.323, from 72.390 on June 6. The U.S. currency traded at $1.9781 against the British pound, from $1.9708, and was at 1.0174 versus the Swiss franc, from 1.0185.

Gains in the dollar against the yen may be limited by speculation an U.S. industry report today will show the worst housing slump in a quarter century is weighing on the world's biggest economy.

The U.S. currency touched the lowest in almost two weeks versus the euro after a government report June 6 showed the U.S. unemployment rate climbed the most in two decades. It also traded near its weakest level in 25 years against the Australian dollar as investors reduced bets the Federal Reserve will raise interest rates this year.

Fed Futures

The dollar traded at 96.30 U.S. cents per Australian dollar from 96.26 cents on June 6, near a 25-year low of 96.54 cents reached May 21.

The U.S. currency has fallen 11 percent against the euro and 9 percent versus the yen since September when the Fed began to lower borrowing costs. Futures on the Chicago Board of Trade show a 61 percent chance the Fed will increase its 2 percent target rate by at least a quarter-percentage point by December, compared with 66 percent odds a week earlier.

The National Association of Realtors will today report pending home resales fell 0.5 percent in April after a 1 percent decline in March, a Bloomberg News survey of economists showed.

Volatility implied by dollar-yen currency options rose to a one-week high on speculation the U.S. economy will slow and credit losses will widen, said ,Takeharu Miki, options manager at Bank of Tokyo-Mitsubishi UFJ Ltd. in Tokyo.

Traders quote implied volatility, a measure of expectations for future currency swings, as part of pricing options. A strike, which is the price an option holder may buy or sell a currency, is at-the-money when it is near the spot market rate.

Dollar to `Gain Ground'

The dollar may still be supported by speculation Fed Chairman Ben S. Bernanke will reiterate concern the currency's 15 percent decline against the euro in the past year will stoke inflation. Bernanke, who speaks at a Boston Fed conference at 8:15 p.m. local time, said on June 3 he's aware of the impact a falling currency can have on price expectations.

``I expect the dollar to gain ground,'' said Hiroshi Yoshida, foreign-exchange trader in Tokyo at Shinkin Central Bank, Japan's fifth-largest publicly traded lender. ``Bernanke has made it clear he's uncomfortable with the dollar falling much further. We also can't rule out a rise in interest rates.''