1-Introduction to the Forex
Welcome to forex trading. I will start teaching you from the beginning and keep it simple.
When you trade the stock market, you are buying and selling stocks. When you trade the forex, you are buying and selling currencies.
In order for countries to business with each other, money has to move from one currency to another. If I want to buy something really cool in England, I need to change my dollars in pounds. Then I can buy the item. The rate at which my dollars are turned into pounds is called the exchange rate. This rate fluctuates… it goes up and down.
When I trade the forex, I want to buy a currency and hold on to it while the value goes up and then sell it. I keep the difference in value. So the idea is to buy low and sell high. When I do this I am called a “bull”.
What do I do when the currency is dropping in value? I can make just as much money if I sell FIRST and then buy LATER. In this case I want to sell at a high price and buy at a low price. I still make money and I am called a “bear”.
I know this is a weird idea if you have never thought about it. Picture it this way. I sell you a Dell computer for $1,000 and deliver it in one month. Computer prices fall and I buy the computer one month later for $800. I deliver it to you and I just made $200.
In a get rich quick scam, you make very little effort, invest a little money and expect a huge return.
Trading the forex is a profession, and like other professions, it requires training. You must invest money and time to acquire the skills to be successful at trading. You need a successful mentor to guide you.
Can you expect a return on your investment? If you work hard, apply yourself, and stick with it long enough to be successful you can expect a huge return on your investment.
However, only 10% of traders succeed. The reason – successful traders will do what unsuccessful traders CAN’T AND WON’T DO! Successful traders will:
- Educate themselves.
- Create good trading habits.
- Schedule a regular time to trade.
- Practice equity management (limit how much they risk in each given trade).
- Exercise patience while trading and control their emotions.
- View trading as fun.
Success is not a fantasy, it is a formula. If you combine dreams, plus expectation, plus courage, you too can make this a reality. Believe your dreams are worth chasing, and your belief alone will transform the dream into a reality.
The Forex market opens up Sunday evening at 7PM EST and goes until Friday evening at 5PM EST. There are 3 trading sessions every 24 hours.
- Asia 7PM EST to 6AM EST
- Europe 2AM EST to 11AM EST
- United States 8AM EST to 5PM EST
Each day the trading session begins when the Asian trading session opens and ends when the United States session closes. The most movement occurs at the beginning of the European session.
You can trade any time of the day you wish. You can scalp, which is a very short trade that could go anywhere from 10 minutes to several hours. Or you could position trade, which is a long term trade that could go anywhere from hours to days or even weeks. The choice is yours.
It is easy to enter and exit a trade. You will need charting software to help you analyze the market and set up your trade. You will need a broker and a broker platform to actually place the trade.
In order to view the forex, you need charting software. There are several to choose from, like Fibonaci Trader(www.fibonaccitrader.com) and Meta Trader(http://www.metatrader4.com/), but I prefer MTI 4.0 (http://www.markettraders.com/landings/forexIQ/forexIQ.aspx?id=THEFOREXMOM(Blog)). You can download a free trial version of each one of them to see which one you feel most comfortable with.
This is an example of a chart:
This is a chart of the currency pair of AUD/USD, the Australian dollar verses the US Dollar. The 10 following AUDUSD means this is a 10 minute time frame. Each candle represents 10 minutes worth of prices. The time is shown on the bottom (x coordinates) and the right column shows the prices (y coordinate).
You can see the prices are going up, we call this an uptrend. To understand what each candle on this chart means, look at my blogs in the subcategory, Candlestick formations.
You might be asking yourself, if my broker provides charts, why do I need to pay for special charting software? This is a great question. The answer is simple. My experience has shown me the charts my broker provides are not good enough for me to properly analyze the market. The tools a good charting software provides gives me far more useful information. I will talk about trading systems and indicators in future blogs and you will see what I mean.
My subscription to MTI charting software means I have access to great mentors and the fellowship of other traders who are learning to trade, just like me. They provide a live analysis of the market 5 times a day. As trading conditions change over time, I am able to ask them questions and confirm my analysis in the market. Trading can also be very lonely, so I love going to the MTI chatroom and talking to others who are trying to trade. I have formed many great friendships in the market. One of the traders, FxGuru has started to call me “Mom” and I call him “Son”.
4 key skills to trading the forex:
- Determine the trend direction. Is the trend going up, down, or sideways (consolidation)?
- Determine where to get in and what strategy you will be trading.
- Determine where to get out for profit and why.
- Determine where to get out for loss and why.
Every trade must have an entry and two exits, one for profit and one to protect you from loss.
Remember – There are many ways to make money in this market, but there is only one way to loose it… not setting a stop loss!