Forex Education

Education on Forex trading and financial markets for beginners and professional traders interested in earn money trading

Support and Resistance in Trading

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Two of the most basic concepts in the technical analysis of the financial markets are both the resistances and the supports. And when we talk about basic concepts we mean that they are very simple to understand and at the same time they are one of the pillars on which the technical analysis is based. First of all, we are going to define what is support and what is resistance.

  • Resistance is defined as a level or price above the current price at which the selling force will stop and eventually exceed the buying force so that it puts an end to the bullish momentum. This causes the price to begin to fall and even to reverse the upward trend. In a price chart like the one shown in the following figure, the resistances can be identified as previous peaks reached by the price before falling. In an upward trend, the resistances can be visualized as increasing highs.
  • The concept of support, on the other hand, is opposite to that of resistance. Support is defined as a level or price below the current price in which the buying power equals and eventually exceeds the selling power so that the bearish momentum is stopped and this will cause the price to rise and even the bearish trend could be reversed. Generally, in a price chart, the supports can be identified as minimums reached before the price starts to rise. In a bearish trend, the supports can be identified as increasingly lower minimums.
The following image shows several real examples of resistance (lines R1, R2, R3, R4, and R5) and supports (lines S1, S2, S3, S4, and S5).

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What is price action?

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Price action is a common term used in trading to refer to the analysis of the movements made by the price of a particular asset or financial instrument in the market.
Although it is included in the technical analysis, the analysis of price action does not use any technical indicator and the forecast of the future price trend is made based on the interpretation given by the trader of the price movement and not by the value shown by an indicator.
Price movements as a time function can be represented in the form of price charts, tables or other graphics. When price charts used other related tool analysis of chart patterns, often included in the analysis of price action, although not all traders agree this classification.

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Trading Psychology

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Why psychology in trading is so important?

Trading is a very hard game. A trader who wants to succeed must take very seriously what he is doing. You can not afford to be naive or to trade for hidden psychological reasons. Unfortunately, trading attracts impulsive people, players and those who think the world owes them something. If you practice trading for the excitement it produces, it is possible that you may perform many trades with little chance of sucess or accept unnecessary risks. The market does not forgive and the emotional trading always carries losses.

The feelings have an immediate impact on the trading account. May be you have a brilliant trading system, but if you are frightened, arrogant or upset is almost certain that your account will suffer. When you realize that the thirst for gambling is gaining or fear clouds your mind, you must stop trading. Your success or failure as a trader depends on controlling your emotions.

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Definition of Gap and Trap

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What is a Gap and Trap?

A “Gap and Trap” is a price formation that can be observed in a individual stock, a market index, a currency pair, futures contract or other instrument or asset traded in financial markets.

The “Gap and Trap” occurs when there is an upward gap between one trading session and another, and investors begin to buy in the first minutes of the new session, when the price suddenly changes direction and begins to fall, trapping traders who bought shortly after the opening. Hence comes the name of the event, as “Gap” is the space between the closing price of the previous session and the opening price of the current session and “Trap” is referring to traders (buyers) who get caught in the market.

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Rollover in the Forex Market

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What is the Rollover?

Every time we trade in the currency markets, all positions must be closed within two business days. Despite this, every trader has the option to renew all his open positions easily without the need for physical delivery of the foreign exchange contracts with which he is negotiating.

For example, if a trader buys $10,000 on Monday is in the obligation to make delivery of those $10,000 no later than Wednesday of the same week, unless he want to renew the position, which is called Rollover. Currently, most Forex brokers include among their services to their customers the option of renewing their open positions automatically (the rollover is credited or debited automatically if the client does not close their positions before a certain hour) or manually, which is also known as tom/next swaps a trade for the next day of the position´s settlement.

Thus, rollovers or swaps involve the application of a credit or debit in the operator’s trading account, which is based on the positions that remain open in the market at precisely 17:00 pm EST and differentials in interest rates between the currencies that make up the pairs with which we are trading. In this case, if we have an open position in which we proceeded to sell the currency that has the highest interest rate, our trading account will be debited (the account will be charged with the difference in the interest rate applied on the total volume of the position).  But if in that position the same currency was bought, the account will be credited by the broker (the money deposited in the account is equal to the interest rate differential applied to the size of the position).

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Overnight Positions in Forex

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What is an overnight position?

These are open positions in the Forex market which are not closed at the end of the trading day in which they were opened. In the stock market an overnight position is considered at risk because it is common, for as long as the exchange is closed (after the trading session), that some events may occur which can negatively impact the price of the stock traded.

In the Forex market, which is an international financial market that operates continuously 24 hours, it has been set the 17:00 EST (00:00 UTC) as the final hour of the trading day. At this time, any position that is still open is considered an overnight position. This hour is strict. If you open a position at 23:59:59 UTC and close this same position at 00:00:01 UTC, it will be considered an overnight position.

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The Candlestick Price Charts

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Candlestick Charts – Offering Best Information about Forex Trading!

All traders in all financial markets continuously seek for proper tools to analyze the behaviour of the price of the financial assets in order to determine its direction and the right moment to open a position.  Well, there are numbers of solution available through which people can get the right option for their market trading. One of the best solutions is the candlestick chart which is a special type of bar-chart  through which investors can get more information about the price behaviour of any financial  instrument like stocks, currency pairs or derivative for example.

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Bar Charts in trading

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Bar charts- A useful market analysis tool

The Bar charts are one of the various types of prices charts used to analize the market movements. The bar charts, unlike the line charts, shows the movement of prices for a specific period of time (can be 1 minute, 5 minutes, 1 hour, 1 day, 1 week, etc), besides the opening price, closing price, maximum price and minimum price. The bar is represented by a vertical line and two perpendicular horizontal lines. The high point in the bar is the maximum price achieved in the period while the low point is the minimum price in the same period. The two horizontal lines are arranged one to the right and the other to the left. The left side line represents the opening price and the right side line is the closing price.The information represented in the bar charts is more complex than that presented in line graphs, but is also more complete.

There are two types of bar charts used in Forex and other markets, and differ slightly from the information presented. One is called LHC (initials Low, High, Close) chart and the other OLHC (initials of Open, Low, High, Close) chart, and they look very similar in the graph but in fact there are some differences between them. These charts show bars with information on price movements of a currency pair in a given period. For example, if we choose to see a OLHC chart of the EUR /USD of 15 minutes, each bar shows information about what has happened in separated periods of 15 minutes in the Forex Market.

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Technical Analysis in Trading

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What is Forex technical analysis?

Introduction

There are two main approaches used to analyze and decide when to buy or sell in the market. These methodologies are called technical analysis and fundamental analysis and each one is based on radically different principles. In this section, we are going to discuss mainly about technical analysis but at the same time, we are going to present an introduction to fundamental analysis to explain this approach to visitors.

Fundamental analysis

In the Forex market, the fundamental analysis examines in depth the political, social, or economic events and how and why these events have historically affected the prices of currencies. So its main purpose is to understand the current state and likely evolution of the price action according to the socioeconomic circumstances that are currently being developed or in the process to be developed.

In the case of stock market analysis, for example, the fundamental analysis examines the financial reports published by the company, audits, quarterly and annual balance sheets, market trends, product quality, dividends, sales, position against competitors, news, etc… Ultimately this determines whether the stock price is below, above, or matches the price at which such share is quoted at the time. If, for example, the result of the fundamental analysis shows that the share price should be higher than what is listed at that time, the recommendation is to buy it and wait for the market’s true value.

In the case of the Forex market, fundamental analysis studies the economic, political, social, and even weather events that can affect the exchange rates of the currencies mainly in the long term.

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