They are known to be anti-trend and are usually on the wrong side of the market. Because of that, they are typically less successful than hedgers and commercial traders. However, when they do follow the trend, they tend to be highly concentrated at market tops or bottoms.

The COT Trading Strategy Since the COT comes out weekly, its usefulness as a market sentiment indicator would be more suitable for longer-term trades. The question you may be asking now is this: How the heck do you turn all that "big giant gobbled-up block of text" into a sentiment-based indicator that will help you grab some pips?!

One way to use the COT report in your trading is to find extreme net long or net short positions. Finding these positions may signal that a market reversal is just around the corner because if everyone is long a currency, who is left to buy? No one. And if everyone is short a currency, who is left to sell? What's that? Pretty quiet Yeah, that's right. NO ONE. One analogy to keep in mind is to imagine driving down a road and hitting a dead end. What happens if you hit that dead end?

You can't keep going since there's no more road ahead. The only thing to do is to turn back. At the same time, on the bottom half, we've got data on the long and short positions of EUR futures, divided into three categories:  Commercial traders blue  Large Non-commercial green  Small non-commercial red Ignore the commercial positions for now, since those are mainly for hedging while small retail traders aren't relevant.

Let's take a look at what happened mid-way through Soon after, investors started to buy back EUR futures. Over the next year, the net value of EUR futures position gradually turned positive. In early October , EUR futures net long positions hit an extreme of 51, before reversing. Holy Guacamole! Just by using the COT as an indicator, you could have caught two crazy moves from October to January and November to March The first was in mid-September This would have resulted in almost a 2,pip gain in a matter of a few months!

With those two moves, using just the COT report as a market sentiment reversal indicator, you could have grabbed a total of 3, pips. Pretty nifty, eh? Picking Tops and Bottoms As you would've guessed, ideal places to go long and short are those times when sentiment is at an extreme. If you noticed from the previous example, the speculators green line and commercials blue line gave opposite signals.

While hedgers buy when the market is bottoming, speculators sell as the price moves down. As a result, speculative positioning indicates trend direction while commercial positioning could signal reversals. If hedgers keep increasing their long positions while speculators increase their short positions, a market bottom could be in sight.

If hedgers keep adding more short positions while speculators keep adding more long positions, a market top could occur. Of course, it's difficult to determine the exact point where a sentiment extreme will occur so it might be best to do nothing until signs of an actual reversal are seen. We could say that speculators, because they follow the trend, catch most of the move BUT are wrong on turning points. Commercial traders, on the other hand, miss most of the trend EXCEPT when price reverses.

Until a sentiment extreme occurs, it would be best to go with the speculators. The basic rule is this: every market top or bottom is accompanied by a sentiment extreme, but not every sentiment extreme results in a market top or bottom.

Your Very Own COT Indicator Having your very own COT indicator is like having your own pony. Using the COT report can be quite useful as a tool in spotting potential reversals in the market. There's one problem though, we cannot simply look at the absolute figures printed on the COT report and say, "Aha, it looks like the market has hit an extreme I will short and buy myself 10,, pairs of socks.

What may have been an extreme level five years ago may no longer be an extreme level this year. How do you deal with this problem? What you want to do is create an index that will help you gauge whether the markets are at extreme levels. Below is a step-by-step process on how to create this index. Decide how long of a period we want to cover. The more values we input into the index, the less sentiment extreme signals we will receive, but the more reliable it will be.

Having less input values will result in more signals, although it might lead to more false positives. Calculate the difference between the positions of large speculators and commercial traders for each week. This would result in a positive figure.

On the other hand, if large speculators are extremely short, that would mean that commercial traders are extremely long and this would result in a negative figure. Rank these results in ascending order, from most negative to most positive.

Assign a value of to the largest number and 0 to the smallest figure. And now we have a COT indicator! This is very similar to the RSI and stochastic indicators that we've discussed in earlier lessons. Once we have assigned values to each of the calculated differences, we should be alerted whenever new data inputted into the index shows an extreme - 0 or This would indicate that the difference between the positions of the two groups is largest, and that a reversal may be imminent.

Remember, we are interested in knowing whether the trend is going to continue or if it is going to end. If the COT report reveals that the markets are at extreme levels, it would help pinpoint those tops and bottoms that we all love so much.

We dug around the forums and found this little gold nugget for you. Apparently you can download the COT indicator if you're trading on an MT4 platform and you can find the link in our COT data to indicator forum thread!

Recall that not every sentiment extreme results in a market top or bottom so we'll need a more accurate indicator. Calculating the percentage of speculative positions that are long or short would be a better gauge to see whether the market is topping or bottoming out.

Going through the COT reports released on the week ending August 22, , speculators were net short 28, contracts. On March 20, , they were net short 23, contracts. From this information alone, you would say that there is a higher probability of a market bottom in August since there were more speculators that were short in that period. But hold on a minute there You didn't think it would be THAT easy right? A closer look would show that 66, contracts were short while 38, contracts were long.

On the other hand, there were just 8, long contracts and 32, short contracts in March. What does this mean? There is a higher chance that a bottom will occur when As you can see on the chart below, the bottom in fact did not occur around August , when the Canadian dollar was worth roughly around 94 U.

The Canadian dollar continued to fall over the next few months. Then what happened? It started to steadily rise! A market bottom? Yep, you got it. Before we start betting the farm based on our analysis of the COT report, remember that those were just specific cases of when the COT report signalled a perfect market reversal.

The best thing to do would be to back test and look at reasons why a reversal took place. Was the economy booming? Or was it in the middle of a recession? Remember, the COT report measures the sentiment of traders during a specific period of time. Like every other tool in your toolbox, using the COT report as an indicator does not always correlate to market reversals.

So take the time to study this report and get your own feel of what works and what doesn't. Also, before we bring this lesson to an end, always keep in mind that market prices aren't driven by solely COT reports, stochastic, Fibonacci levels, etc. The markets are driven by the millions of people reacting to economic analysis, fundamental reports, politics, Godzilla attacks, UFO sightings, Lady Gaga concerts - life in general! It is how you use these tools that will help you be prepared to what lies ahead.

In conclusion Trading the News Extra! Reading up on the news reports may just reel you in a handful of pips! Lessons in Trading the News 1. Importance of News Like how things are in the world of Star Wars, there is always fundamental force behind each movement in the market. Why Trade the News Trading the news is a double-edged sword. Sure, you can earn a lot of money by doing it but you also stand to lose a lot in times of increased volatility!

Which News Reports are Trade-Worthy? The most-watched news reports are from the U. Can you guess why? Directional Bias vs.

Non-Directional Bias "Buy the rumor, sell the news. Trading with a Directional Bias Let's take a look at an example on deciding whether to go long or short before a report is released. Letting the Market Decide Which Direction to Take Okay, you already know which market-moving report to trade.

What do you do next if you want to let the market decide which side to take? Summary: Trading the News You could get burned a couple of times by trading the news so practice, practice, practice! It will be very rewarding once you get the hand of it. Importance of News It's not enough to only know technical analysis when you trade.

It's just as important to know what makes the market move. Just like in the great Star Wars world, behind the trend lines, double tops, and head and shoulder patterns, there is a fundamental force behind these movements.

This force is called the news! To understand the importance of the news, imagine this scenario purely fictional of course! Let's say, on your nightly news, there is a report that the biggest software company that you have stock with just filed bankruptcy. What's the first thing you would do? How would your perception of this company change? How do you think other people's perceptions of this company would change? The obvious reaction would be that you would immediately sell off your shares.

In fact, this is probably what just about everyone else who had any stake in that company would do. The fact is that news affects the way we perceive and act on our trading decisions.

It's no different when it comes to trading currencies. There is, however, a distinct difference with how news is handled in the stock market and the forex market. Let's go back to our example above and imagine that you heard that same report of the big software company filing bankruptcy, but let's say you heard the report a day before it was actually announced in the news. Naturally you would sell off all your shares, and as a result of you hearing the news a day earlier, you would make save more money than everyone else who heard it on their nightly news.

Sounds good for you right? Unfortunately this little trick is called INSIDER TRADING, and it would have you thrown in jail. Martha Stewart did it and now she has a nice mug-shot to go along with her magazine covers.

In the stock market, when you hear news before everyone else it is illegal. In the forex market, it's called FAIR GAME! The earlier you hear or see the news, the better it is for your trading, and there is absolutely no penalty for it! Add on some technology and the power of instant communication, and what you have is the latest and greatest or not so greatest news at the tip of your fingers.

This is great to react fairly quickly to the market's speculations. Big traders, small traders, husky traders, or skinny traders all have to depend on the same news to make the market move because if there wasn't any news, the market would hardly move at all!

The news is important to the Forex market because it's the news that makes it move. Regardless of the technicals, news is the fuel that keeps the market going! Why Trade the News The simple answer to that question is "To make more money! When news comes out, especially important news that everyone is watching, you can almost expect to see some major movement.

Your goal as a trader is to get on the right side of the move, but the fact that you know the market will most likely move somewhere makes it an opportunity definitely worth looking at.

Dangers of trading the news As with any trading strategy, there are always possible dangers that you should be aware of. Here are some of those dangers: Because the market is very volatile during important news events, many dealers widen the spread during these times. This increases trading costs and could hurt your bottom line.

You could also get "locked out" which means that your trade could be executed at the right time but may not show up in your trading station for a few minutes. Obviously this is bad for you because you won't be able to make any adjustments if the trade moves against you! Imagine thinking you didn't get triggered, so you try to enter at market then you realize that your original ordered got triggered!

You'd be risking twice as much now! You could also experience slippage. Slippage occurs when you wish to enter the market at a certain price, but due to the extreme volatility during these events, you actually get filled at a far different price. Big market moves made by news events often don't move in one direction. Often times the market may start off flying in one direction, only to be whipsawed back in the other direction.

Trying to find the right direction can sometimes be a headache! Profitable as it may be, trading the news isn't as easy as beating Pipcrawler at Call of Duty. It will take tons of practice, practice and you guessed it more practice! Most importantly, you must ALWAYS have a plan in place. In the following lessons, we'll give you some tips on how to trade news reports. Before we even look at strategies for trading news events, we have to look at which news events are even worth trading.

Remember that we are trading the news because of its ability to increase volatility in the short term, so naturally we would like to only trade news that has the best market moving potential. While the markets react to most economic news from various countries, the biggest movers and most watched news comes from the U. The reason is that the U. has the largest economy in the world and the U.

Dollar is the world's reserve currency. This means that the U. news and data important to watch. With that said, let's take a look at some of the most volatile news for the U. In addition to inflation reports and central bank talks, you should also pay attention to geo- political news such as war, natural disasters, political unrest, and elections. Although these may not have as big an impact as the other news, it's still worth paying attention to them. When our economic guru Forex Gump is in a good mood, he usually releases a Piponomics article on upcoming news reports that you can play and with trade strategies to boot!

Check out some of his articles of this sort: Trade the News This Week 4 News Reports You Can Trade this Week Trade the U. Retail Sales Report With Me Make Pips with this Week's Big Reports Also, keep an eye on moves in the stock market. There are times where sentiment in the equity markets will be the precursor to major moves in the forex market. Now that we know which news events make the most moves, our next step is to determine which currency pairs are worth trading.

Because news can bring increased volatility in the forex market and more trading opportunities , it is important that we trade currencies that are liquid. Liquid currency pairs give us a reassurance that our orders will be executed smoothly and without any "hiccups".

These are all major currency pairs! Remember, because they have the most liquidity, majors pairs usually have the tightest spreads. Since spreads widen when news reports come out, it makes sense to stick with those pairs that have the tightest spreads to begin with.

Now that we know which news events and currency pairs to trade, let's take a look at some approaches to trading the news. Non-Directional Bias There are two main ways to trade the news: a Having a directional bias b Having a non-directional bias Directional Bias Having directional bias means that you expect the market to move a certain direction once the news report is released.

When looking for a trade opportunity in a certain direction, it is good to know what it is about news reports that cause the market to move. Consensus vs. Actual Several days or even weeks before a news report comes out, there are analysts that will come up with some kind of forecast on what numbers will be released.

As we talked about in a previous lesson, this number will be different among various analysts, but in general there will be a common number that a majority of them agree on. This number is called a consensus. When a news report is released, the number that is given is called the actual number. For example, let's say that the U. unemployment rate is expected to increase.

Imagine that last month the unemployment rate was at 8. With a consensus at 9. economy, and as a result, a weaker Dollar. So with this anticipation, big market players aren't going to wait until the report is actually released to start acting on taking a position. They will go ahead and start selling off their dollars for other currencies before the actual number is released. Now let's say that the actual unemployment rate is released and as expected, it reports 9.

As a retail trader, you see this and think "Okay, this is bad news for the U. It's time to short the dollar! Now let's revisit this example, but this time, imagine that the actual report released an unemployment rate of 8. The market players thought the unemployment rate would rise to 9. What you would see on your charts would be a huge dollar rally across the board because the big market players didn't expect this to happen. Now that the report is released and it says something totally different from what they had anticipated, they are all trying to adjust their positions as fast as possible.

This would also happen if the actual report released an unemployment rate of The only difference would be that instead of the dollar rallying, it would drop like a rock!

Since the market consensus was 9. looks a lot weaker now than when the forecasts were first released. Keeping track of the market consensus and the actual numbers, you can better gauge which news reports will actually cause the market to move and in what direction.

Non-directional bias A more common news trading strategy is the non-directional bias approach. This method disregards a directional bias and simply plays on the fact that a big news report will create a big move.

It doesn't matter which way it moves We just want to be there when it does! What this means is that once the market moves in either direction, you have a plan in place to enter that trade. You don't have any bias as to whether price will go up or down, hence the name non-directional bias.

Trading with a Directional Bias Let's go back to our example of the U. unemployment rate report. Earlier, we gave examples of what could happen if the report came in light with expectations, or slightly better. Let's say there was a surprising drop. What effect could this have on the dollar? One thing that could happen is that the dollar falls. Isn't the dollar supposed to rise if the unemployment rate is dropping? There could be a couple reasons why the dollar could still fall even though there are more people with jobs.

The first reason could be that the long-term and overall trend of the U. economy is still in a downward spiral. Remember that there are several fundamental factors that play into an economy's strength or weakness.

Although the unemployment rate dropped, it might not be a big enough catalyst for the big traders to start changing their perception of the dollar. The second reason could be the reason for the unemployment rate drop. Perhaps it's right after Thanksgiving during the holiday rush.

During this time, many companies normally hire seasonal employees to keep up with the influx of Christmas shoppers. This increase in jobs may cause a short term drop in the unemployment rate, but it's not at all indicative of the long term outlook on the U. A better way to get a more accurate measure of the unemployment situation would be to look at the number from last year and compare it to this year. This would allow you to see if the job market actually improved or not.

The important thing to remember is to always take a step back and look at the overall picture before making any quick decisions. Now that you have that information in your head, it's time to see how we can trade the news with a directional bias. Let's stick with our unemployment rate example to keep it simple. By looking at what has been happening in the past, you can prepare yourself for what might happen in the future. Imagine that the unemployment rate has been steadily increasing.

You could now say with some confidence that jobs are decreasing and that there is a good possibility the unemployment rate will continue to rise.

Since you are expecting the unemployment rate to rise, you can now start preparing to go short on the dollar. Take note of the high and low that is made. This will become your breakout points. Since you have a bearish outlook on the dollar, you would pay particular attention to the lower breakout point of that range.

You are expecting the dollar to drop so a reasonable strategy would be to set an entry point a few pips below that level. You could then set a stop just at the upper breakout point and set your limit for the same amount of pips as the breakout point range.

One of two things could happen at this point. If the unemployment rate drops then the dollar could rise. No harm no foul! Or if the news is as you expected and the unemployment rate rises, the dollar could drop assuming the entire fundamental outlook on the dollar is already bearish. This is good for you because you already set up a trade that was bearish on the dollar and now all you have to do is watch your trade unfold.

Later on, you see that your target gets hit. You just grabbed yourself a handful of pips! The key to having a directional bias is that you must truly understand the concepts behind the news report that you plan to trade. If you don't understand what effect it can have on particular currencies, then you might get caught up in some bad setups. Luckily for you, we've got Pip Diddy and Forex Gump to help explain what effect each report can have on the forex market. Letting the Market Decide Which Direction to Take The first thing to consider is which news reports to trade.

Earlier in this lesson we discussed the biggest moving news reports. Ideally you would want to only trade those reports because there is a high probability the market will make a big move after their release. The next thing you should do is take a look at the range at least 20 minutes before the actual news release.

The high of that range will be your upper breakout point, and the low of that range will be your lower breakout point. Note that the smaller the range is the more likely it is you will see a big move from the news report.

The breakout points will be your entry levels. This is where you want to set your orders. Your stops should be placed approximately 20 pips below and above the breakout points, and your initial targets should be about the same as the range of the breakout levels.

This is known as a straddle trade - you are looking to play both sides of the trades, whichever trade it moves. Now that you're prepared to enter the market in either direction, all you have to do is wait for the news to come out.

Sometimes you may get triggered in one direction only to find that you get stopped out because the price quickly reverses in the other direction. However, your other entry will get triggered and if that trade wins, you should recoup your initial losses and come out with a small profit. A best case scenario would be that only one of your trades gets triggered and the price continues to move in your favor so that you don't incur any losses. Either way, if done correctly you should still end up positive for the day.

One thing that makes a non-directional bias approach attractive is that it eliminates any emotions - you just want to profit when the move happens. This allows you take advantage of more trading opportunities, because you will be triggered either way. There are many more strategies for trading the news, but the concepts mentioned in this lesson should always be part of your routine whenever you are working out an approach to taking advantage of news report movements.

Summary: Trading the News There you have it! Now you know how to trade the news! Just keep these things in mind when trading:  When you have a directional bias, you are expecting price to move a certain direction, and you've got your orders in already. You just want to get triggered. That's pretty much it Is it really that easy??? HECK NO!!! You'll have to practice and trade many different reports before you get a feel of which news reports will make the market move, how much of a surprise is needed for the market to move, and which reports to avoid trading.

Like in any other trading method, your success depends on your preparation. This will take time and practice. Do your homework and study the economic indicators to understand why they are important. Remember, nothing worth having comes easy, so stick with it and you'll find that trading news report will be very rewarding once you get the hang of it!

Carry Trade Did you know that you can actually still make money in forex without doing anything? You just have to keep your fingers crossed that price stays the same for a long period of time. Lessons in Carry Trade 1. What is Carry Trade? Carry trades involve buying higher-yielding currencies and selling lower-yielding ones.

How Do Carry Trades Work for Forex? Seems too good to be true? Oh, but carry trades are true! Check out how they work in real life in the forex market! To Carry or Not to Carry Carry trades work well when risk aversion is low.

Carry Trade Criteria and Risk There are only two things to consider when you pick a pair to do a carry trade, but that simplicity doesn't make it any less easy. Summary: Carry Trade Simply put, carry trades can work by making moolah out of the interest rate differentials of two currencies. Did you know there is a trading system that can make money if price stayed exactly the same for long periods of time?

Well there is and it's one the most popular ways of making money by many of the biggest and baddest money manager mamajamas in the financial universe! It's called the "Carry Trade". A carry trade involves borrowing or selling a financial instrument with a low interest rate, then using it to purchase a financial instrument with a higher interest rate.

Thus your profit is the money you collect from the interest rate differential. What's your profit? You got it! The difference between interest rates! By now you're probably thinking, "That doesn't sound as exciting or profitable as catching swings in the market. In this section, we will discuss how carry trades work, when they will work, and when they will NOT work. We will also tackle risk aversion WTH is that?!? Don't worry, like we said, we'll be talking more about it later.

dollar and selling Swiss francs at the same time. Just like the example in the previous, you pay interest on the currency position you sell, and collect interest on the currency position you buy. What makes the carry trade special in the spot forex market is that interest payments happen every trading day based on your position. Technically, all positions are closed at the end of the day in the spot forex market.

You just don't see it happen if you hold a position to the next day. This is the cost of "carrying" also known as "rolling over" a position to the next day. The amount of leverage available from forex brokers has made the carry trade very popular in the spot forex market.

What a deal, eh? Let's take a look at a generic example to show how awesome this can be. For this example we'll take a look at Joe the Newbie Forex Trader. Instead of going out and blowing his birthday present on video games and posters of bubble gum pop stars, he decides to save it for a rainy day. Isn't that fantastic? com School of Pipsology and knows of a better way to invest his money. So, Joe kindly responds to the bank manager, "Thank you sir, but I think I'll invest my money somewhere else.

What will happen to Joe's account if he does nothing for a year? Well, here are 3 possibilities. Let's take a look at each one: 1. Currency position loses value. The currency pair Joe buys drops like a rock in value.

The pair ends up at the same exchange rate at the end of the year. Currency position gains value. Joe's pair shoots up like a rocket! That would be a nice present to himself for his next birthday! Here is an example of a currency pair that offers a 4. Again, this is a generic example of how the carry trade works. Any questions on the concept? We knew you could catch on quick! Now it's time to move on to the most important part of this lesson: Carry Trade Risk.

To Carry or Not to Carry When Do Carry Trades Work? A good indication that the latest price is higher than the older price is when the long-term moving average is below the short-term moving average. This could be considered a buy signal due to an upward trend in the market. In the opposite scenario when the long-term moving average is higher than the short-term moving average, this of course points towards a sell signal due to a downward trend.

Moving averages are usually used as evidence of an overall trend, rather than purely forex trading signals. Of course, this is a great way to make your breakout signals much more productive. If you are alerted to a sell signal, this indicates that the short-term moving average is below that of the long-term moving average, so you might want to place a sell order. However, if you are given a signal to buy, this usually means that the short-term moving average is higher than that of the long-term moving average.

Using breaks as trading signals, the breakout is considered a long-term strategy. The breakout itself occurs when the market goes further than these consolidation limits — whether that be lower or higher. As such, a breakout must take place whenever a new trend occurs. By looking at breaks, you will have a good indication of whether or not a new trend has begun. In this case, you might want to use a stop-loss order to give you a better chance of avoiding a substantial loss. As glamorous as a career in forex trading might sound, there are a number of risks that you need to take into account.

In the below sections of our forex trading PDF, we explore these possible risks in more detail. The transaction risk is in relation to the exchange rate and any time zone differences. This means there is a chance that at some point between the beginning and end of a contract that the exchange rates could be subject to change. The risk of this happening elevates with the more time that passes between entering a contract and settling the same contract.

This generally leads to investors withdrawing investments, and as a result, your return will be lower. The good news is that when a currency rate is on the rise, chances are that the respective currency will be stronger.

When this does happen, your returns could be higher. This is because seasoned investors like to gain exposure to stronger currencies. The higher your leverage is, the higher your losses or benefits will be. Of course, this means leverage can affect your trading in a positive or negative way — depending on which way it goes.

The final part of our forex trading PDF is to explore which brokers are popular with both newbie and seasoned traders. Each of the forex trading platforms listed below has been pre-vetted, meaning that you can be confident they tick most boxed.

This means that each platform is regulated, offers heaps of forex pairs, has low commissions and fees, and supports several payment methods. AvaTrade is an established broker that offers thousands of financial instruments.

On top of stocks, indices, commodities, and cryptocurrencies all via CFDs , you can also trade heaps of forex pairs. There are no trading commissions to pay, and spreads are very competitive. You can either trade via the AvaTrade web-platform, or via popular third-party provider MT4. The platform is heavily regulated, with several licenses under its belt. com is an FCA, CySEC, ASIC, and NBRB-regulated online broker that offers heaps of financial instruments.

All in the form of CFDs - this covers stocks, indices and commodities. You will not pay a single penny in commission, and spreads are super-tight. Leverage facilities are also on offer - fully in-line with ESMA limits. Once again, this stands at on majors and on minors and exotics. If you are based outside of Europe or you are deemed to be a professional client, you will get even higher limits.

Getting money into Capital. Having made it this far through our forex trading PDF, you should by now have an understanding of how technical analysis works, and have a good grasp of the macroeconomic fundamentals which guide currency values. Armed with all of the useful information included in this guide, you should be ready to get out there and start trading forex. Hopefully, making a profit and learning more along the way.

If you are a trader with somewhat limited funds, you might find that swing trading suits you best. If you have a larger trading fund available to you, you might have a more profitable experience with fundamental based trading. Either way, w e do recommend trying out a free demo account where possible before trading with your hard-earned money.

As well as reading helpful guides like ours, actually learning by doing will also provide you with a better sense of how it all works and how you might like to trade yourself. What does forex mean? Forex as a term refers to 'foreign exchange'. You will make money in two different scenarios.

You either buy a currency pair for less than you sell it for long order , and you sell a currency pair for less than you bought it for short order. The spread is the difference between the bid and ask price of a forex pair. This gap in pricing must be included in your profit and loss forecasts, and it is how the broker ensures that the platform always makes money.

This depends on the type of forex pair you are trading. The pip refers to the movement of one decimal place in a pair. This depends on several factors, such as your location, the currency pair, and the broker itself.

In most cases, traders from the UK and Europe are capped to leverage of on major pairs and on minor and exotic pairs. Slippage means that your forex order is executed at a slightly different price to what you had asked for. Free Forex Signals Telegram Groups of Forex Trading for Beginners: How to Trade Forex and Find the Best Platform Learn 2Trade Forex Channel. Learn 2Trade Crypto Channel. Download Our Forex Trading PDF!

Samantha Forlow. Updated: 31 October Buy the D2T token now. As featured in CryptoNews. com, FXEmpire. com, FXStreet. com and more. BUY D2T NOW. D2T TELEGRAM. Learn 2 Trade Free Signals Service. LT2 Rating. Get 3 Free Signals per Week No Payment or Card Details Needed Test the Effectiveness of our High-Level Signals Major, Minor, and Exotic Pairs Covered. Get Free Signals Now. Candles are similar to bar charts in that they show all four data components open , close, high and low but that is where the similarities end.

Candle charts use rectangular boxes that join the open and closing prices together, and use vertical thinner lines to define the trading range. The boxes are called the ' Real Body ' and the thin trading range line are called the ' wicks or shadow If the closing price is higher than the opening price the body will be white, if the closing price is lower than the opening price the body will be black.

Opposite is a basic list of common candle stick formations. large trading range. small trading range. Market tested higher levels but failed to close any higher than open.

Market tested lower levels but failed to close lower than open. Also known as a ' Hammer ". The appearance of a hammer at the top of a trend could suggest lower prices may follow. Bearish sign. Also known as Hammer. The appearance of a hammer at the bottom of a trend could suggest higher prices may follow. Bullish sign. Bullish at bottom. Bearish at top. Please note that Hammers are also referred to as ' umbrella lines ". They represent small trading ranges and are important in some candle chart patterns.

Again where they occur is of the up most importance. Opposite are 3 examples of Hammers. The bottom two are bullish while the top one is Bearish. The appearance of Dark clouds is not a good sign. It is formed with a white real body followed by a Larger black real body that closed lower than the previous days close. As mentioned at the start of this chapter Candle stick charting is so involved that the purchase of a book solely dedicated to this subject should be must for any serious trader.

I have only scratched the surface of this invaluable method of charting in this chapter. Moving Averages have been around for many centuries and helps the trader to try and eliminate some of the volatility that is associated with stock prices. There are three main types of moving averages: Simple, Exponential and Weighted.

This suits my trading style and all examples shown here are based on this. I suggest that you experiment with all 3 on the same stock to see how all three behave just that little bit differently.

Moving averages are basically the share price smoothed out over a set time frame. They are calculated by adding all the closing prices together for a set number of days and then dividing this total by that set number of days. As new data becomes available the earliest entry is replaced with the latest entry thus keeping our 20 day total intact.

The longer the time frame the less false signals. As most charting packages automatically construct all three types of moving averages I believe that time is better spent here explaining how to trade using them as opposed to their how they are mathematical made up. This works as both a buy and sell signal and is one of the most widely used methods. The key to this method is the time frame.

The basic rule is the longer the time frame the less false signals. This is fine but with this you also get the longer the time frame the later the buy or sell signal. Day traders and short term speculative traders may elect for shorter time spans than a long term, more cautious trader. Ranges from 9 days to 24 months can be used. The most common used by traders would be 9, 20, 25, 30, 50, 75, and days. We now how have two indicators giving us signals. Interesting to note that the 50ma gave a sell signal before the support was broken but gave a buy signal after the resistance was broken.

It is interesting to note that such a small change can effect the timing of the signals. This is the preferred method by many traders and the method I personally elect to use. It involves the use two or more moving averages at the same time which are set at different times spans. When the moving averages cross each other, either a buy or sell signal is generated.

When the faster moving average 25ma crosses above a slower moving average 50ma it is classed as a Buy signal. When the faster moving average crosses below the slower moving average it is classed as a Sell signal.

Once again the time frames used have a great impact on where the signals are generated on the charts. Below are all the same stock with a moving average added each time. It is of PBL daily. Make sure you use the same stock for the tests.

This method is by far the best way to truly understand moving averages and will allow you develop your own set of trading criteria. Some traders like to use up to 6 moving averages at a time believing that when all the averages converge to the same spot on the chart a change of trend is very near. This method definitely its merits as the lines converging is sometimes the first indictor to get the attention of the Technical Trader and is a sign that this stock should be placed in the ' watch closely basket '.

In summary I would like to advise that the best way to gain a real understanding of moving averages is to run tests. Please keep in mind that once you have tested the ma's on the one stock and you are comfortable with the settings you have chosen, try testing those settings on at least 50 others stocks to see if they still show the same results. The more time spent testing, the more comfortable you will be when making your trading decisions.

In closing I have included a chart opposite with the settings I use when trading. It is of PBL and is a current chart. I have included all signals that are relevant that have been discussed so far. PLEASE do not just copy my settings and take them as gospel. This works for me and may not be suitable for you, PLUS it will not aid in your own development as a trader, please take the time to run the tests, you will be more than rewarded in the end. MACD MACD indicators are yet a further extension of the moving average theory.

They are part of the Momentum indicator family. MACD simply stands for Moving Average Convergence Divergence. The most common form used by traders is the MACD Histogram. It is constructed by measuring the convergence and the divergence of two moving averages. The most widely used time frame is a 12,26,9 macd. The 12 and 26 ma's are divided and plotted as the Red line, the 9 ma is plotted as the blue line. A horizontal line is drawn and is used as the point when these two moving averages are at the exact same level.

The 12,26 macd crosses the 9 ma This is called the Equilibrium Line. A dotted line is usually added which represents the zero line. Bars are used as a visual aid in determining the position of the faster moving average in relevance to the slower moving average. Bars pointing above the Equilibrium Line indicate that the Macd average is above the 9 day moving average.

Bars pointing below the Equilibrium Line indicate that the Macd average is below the 9 day moving average. by MPFX There are 3 mains ways to trade when using Macd's. A buy signal is given when the bars first point above the equilibrium line. A sell signal is given when the bars first point down below the equilibrium line. The chart opposite shows two buy and two sell signals. It is interesting to note where the signals given correspond to the price action on the main chart.

The first two signals are pretty much spot on, but after the second sell signal was given, the price moved higher before moving down again. On the second buy signal the price drifted lower before moving up again. The second sell signal was too low and the second buy signal was too high. This is important because traders who set tight stop losses on their trades run the risk of getting out of their trade only to watch the stock rebound.

This is why it is so important not to rely on only one technical indicator, it is the culmination of many indicators that are positive or negative at the same time.

On this next chart we have five signals being generated by the Macd. The Red circle indicates 4 sell signals occurring within 2 weeks of each other. This is a what I mean by more than one indicator turning negative at same time, it does not have to happen on the same day. The Pink circle indicates that although the price did drop on both sell signals, the support line remained intact.

The price only crossed the 20ma on the first sell signal but remained above on the second. The 20 ma remained above the 50ma on both sell signals. Convergence means two separate objects heading towards the same meeting point. Divergence means two separate objects moving away from a meeting point. For the use in trading we are interested in the convergence or divergence of the price chart and the indicator that we have selected, in this case Macd. What we are looking for is lower lows on the price chart and higher lows on the Macd.

This creates a buy signal or at least should alert the trader to a possible trend reversal. Using this method is a good visual aid for seeing that a trend is slowly running out of steam. Most technical traders use what is called a lead indicator. This is the indicator that is the first to show signs of an impending trend change. Momentum indicators are usually high on this list.

The same applies when we are searching for sell signals. Instead of the lines converging, this time we are looking for divergence of the price and the Macd. We are looking for the price to be making higher highs but the Macd to be setting lower highs. Again these signals are only part of the equation when look to buy and sell. If a trader only looks to use one indicator he will get caught out more times than not, but on the other hand, I believe the use of too many indicators is just as a fatal mistake as using only one.

edu no longer supports Internet Explorer. To browse Academia. edu and the wider internet faster and more securely, please take a few seconds to upgrade your browser. Fundamental analysis is a way of looking at the market by analyzing economic, social, and political forces that affects the supply and demand of an asset. If you think about it, this makes a whole lot of sense!

Just like in your Economics class, it is supply and demand that determines price. Log in with Facebook Log in with Google. Remember me on this computer. Enter the email address you signed up with and we'll email you a reset link. Need an account? Click here to sign up. Download Free PDF. Forex Fundamental analysis. Darren Chia. Continue Reading Download Free PDF. Content Page no. Fundamental Analysis.

Interest Rates Long-term Market Movers. News and Market Data. Market Reaction. Market Sentiment. Commitment of Traders Report. Trading the News. Carry Trade. The US Dollar Index. Inter-market Correlations. Gold Correlation. Bonds Correlation.

Bond Spreads. Bond Markets, Fixed Income Securities, and the Forex Market. Global Equity Markets to Trade FX. The Relationship Between Stocks and Forex. Correlation Between Stocks and Currencies. Inter-market Analysis Cheat Sheet. Country Profiles and Major Economies. United States of America. Euro Zone. United Kingdom. New Zealand. Using supply and demand as an indicator of where price could be headed is easy.

The hard part is analyzing all the factors that affect supply and demand. In other words, you have to look at different factors to determine whose economy is rockin' like a Taylor Swift song, and whose economy sucks. You have to understand the reasons of why and how certain events like an increase in unemployment affect a country's economy, and ultimately, the level of demand for its currency. The idea behind this type of analysis is that if a country's current or future economic outlook is good, their currency should strengthen.

The better shape a country's economy is, the more foreign businesses and investors will invest in that country. This results in the need to purchase that country's currency to obtain those assets. In a nutshell, this is what fundamental analysis is: For example, let's say that the U. dollar has been gaining strength because the U. economy is improving. As the economy gets better, raising interest rates may be needed to control growth and inflation.

Higher interest rates make dollar-denominated financial assets more attractive. In order to get their hands on these lovely assets, traders and investors have to buy some greenbacks first.

As a result, the value of the dollar will increase. Later on in the course, you will learn which economic data drives currency prices, and why they do so. You will know who the Fed Chairman is and how retail sales data reflects the economy. You'll be spitting out interest rates like baseball statistics.

But that's for another lesson for another time. For now, just know that the fundamental analysis is a way of analyzing a currency through the strength or weakness of that country's economy.

It's going to be awesome, we promise! Fundamental Analysis We already touched upon fundamental analysis in Kindergarten. Now it's time to dig a little deeper! Lessons in Fundamental Analysis 1. What is Fundamental Analysis? If you like analyzing social, economic, and political factors that affect supply and demand, fundamental analysis is for you! Interest Rates Interest rates changes are one of the biggest fundamental catalyts out there. Heck, you could even say that they make the forex world go 'round!

The Who's Who of the Central Bank Central banks are like puppeteers. They have full control over monetary policies and their words can move markets in an instant. Long-term Market Movers As with personal relationships, it's important to consider long-term factors in trading. They may hold the key to your happiness! News and Market Data In forex trading, you've got to keep up to date with the latest news and market data to stay alive. Be in the know by checking out these market info tools!

Market Reaction A super duper important report just came out Now what?! Along your travels, you've undoubtedly come across Gulliver, Frodo, and the topic of fundamental analysis. Wait a minute We've already given you a teaser about fundamental analysis during Kindergarten! Now let's get to the nitty-gritty! What is it exactly and will I need to use it? Well, fundamental analysis is the study of fundamentals! That was easy, wasn't it?

There's really more to it than that. Soooo much more. Whenever you hear people mention fundamentals, they're really talking about the economic fundamentals of a currency's host country or economy. Economic fundamentals cover a vast collection of information - whether in the form of economic, political or environmental reports, data, announcements or events.

Fundamental analysis is the use and study of these factors to forecast future price movements of currencies. It is the study of what's going on in the world and around us, economically and financially speaking, and it tends to focus on how macroeconomic elements such as the growth of the economy, inflation, unemployment affect whatever we're trading.

Fundamental Data and Its Many Forms In particular, fundamental analysis provides insight into how price action "should" or may react to a certain economic event.

Fundamental data takes shape in many different forms. It can appear as a report released by the Fed on U. existing home sales. It can also exist in the possibility that the European Central Bank will change its monetary policy. The release of this data to the public often changes the economic landscape or better yet, the economic mindset , creating a reaction from investors and speculators. There are even instances when no specific report has been released, but the anticipation of such a report happening is another example of fundamentals.

Speculations of interest rate hikes can be "priced in" hours or even days before the actual interest rate statement. In fact, currency pairs have been known to sometimes move pips just moments before major economic news, making for a profitable time to trade for the brave. That's why many traders are often on their toes prior to certain economic releases and you should be too!

Generally, economic indicators make up a large portion of data used in fundamental analysis.

They are drawn onto charts by drawing both support and resistance lines simultaneously. In fact, currency pairs have been known to sometimes move pips just moments before major economic news, making for a profitable time to trade for the brave. Economic data rumors do exist, and they can occur minutes to several hours before a scheduled release of data. And any impact to an economy will most likely affect exchange rates. com, FXEmpire.

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