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How To Read Forex Charts
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Forex Pips, Fx Charts And Trends
Trends
The Forex markets have been studied for over 100 years and over that time trends have repeated themselves and patterns have become consistent and fairly reliable. It is very important to understand that prices move in Trends and those traders who trade with the trend are more successful. Finding the trend will help you become more aware of the market direction.
Always find the trend and trade with it, not against it. This applies even if it takes days or weeks for a new trend to become obvious.
Looking at the charts and drawing trend lines is the most common form of technical analysis. A trend is usually when 3 or more lows line up. A market that is trending up is making a series of higher highs and higher lows and you can draw a line connecting the bottoms (roughly), this is a support line.
The market is trending down when it is making lower lows and lower highs, if you draw a line connecting the tops you have drawn a resistance line.
Charts
Traders have different times they wish to trade in, some are comfortable using 1 and 5 minute time frame charts others prefer 15 min or 1 hour charts placing 4 to 10 trades daily and others prefer to place a trade and let it run for several days, weeks or longer. This is a personal decision. There is not one time period that makes more money than the others.
When reading the charts it is a good idea to look at 3 different time frames. The reason for this is the largest time gives a general over view of what is happening, the direction of the market, then zooming in to the next level shows what is going on more recently and when you should enter the market and the third and closest time frame is the one where you would actually monitor your trade.
The 3 different time frames can be any combination depending on your chosen trading time. A daily chart might show a downward trend but the 5 minute charts could show an upward trend and the 1 minute charts show a downward trend, these charts would be of no interest to anyone leaving a trade to run for weeks. Again there are software programs available to help identify trends and placement of orders. Having some knowledge I believe is useful even with automated programs.
There are 3 main types of Charts, the candlestick chart, bar charts and line charts.
They all come in many different time periods, 1 minute, 5 minutes,10 minutes,30 minutes, 1 hour, 2 hours, 4 hours, 1 day, 1 week and 1 month plus others.
With the bar chart each bar represents one period of time (as above) and on each bar there are 4 marks. The highest point reached in that time frame, the lowest point, the opening point and the closing point. Those 4 points tell you what has happened in the market for that time.
The candlestick charts give exactly the same information with the candlestick body changing colour on a high(bullish) and changing back on a low (bearish) market
The line charts simply chart the direction of the market moving up, down or sideways. You usually have a choice of what sort of chart you want from the broker of your choice.
Trade in the time frame you feel comfortable with. There is no right or wrong time frame.
This is the smallest increment the value of the currency can change by. The pricing of the currency is always showing the value of one currency against another. For example EUR: USD 1.4443 ( 1 Euro is worth USD 1.4443) The last number shown on a price (for example the 3 in the following price 1.4443 ) is known as a pip.
If the value of the Euro went up 20 pips it would be shown as EUR : USD 1.4463. All value changes are referred to as pip changes.
The main objective of trading is to gain as many profitable pips as possible. The more dollars you are trading and the higher your leverage the higher the value of the pip is worth to you. Trading a full lot of 100,000 with leverage the pip value is around $10 however with a mini account you are trading 1/10th of the size therefore a pip is worth $1.00.
Traders have different goals, short term traders might look at gains of 20 pips per trade, for a longer term Traders will be looking at 100 plus pips.
Good luck with your trading.
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Lyndsay is a successful entrepreneur and forex trader. Discover how you can get the best proven
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How Do Forex Brokers Make Money?
Saturday, December 27th, 2008How Do Forex Brokers Make Money?
It is one of the most talked-about advantages of trading on the Forex the commission-free trades!
Unfortunately, while we would all like to think that Forex brokers are just out there executing trades for the fun of it, the simple truth is that everyone needs to make money- even the brokers. While they may not charge a traditional commission, brokers on the Forex still make their money whenever trades take place. Brokers actually are compensated in a number of ways, including:
Buying/Selling Currencies
Earned interest on deposited funds
Converting and holding currencies
Rollover fees
It is in the buying and selling of currencies that brokers make the majority of their money. They make this money in something known as the ’spread’, or the difference between the asking and bidding price of the currency pair. The ‘ask’ is the price a retail Forex trader would pay for a position. The ‘bid’ price refers to the amount that an investor could then sell the position at.
The smallest unit of measure in Forex trading is known as a pip and it is equal to .0001 (except for the Japanese Yen, which is .01). The difference between the ask and bid price is typically only 3 or 4 pips and this is what the broker makes when buying and selling currencies.
A broker is actually a middleman and never actually charges anyone directly. Instead, a broker purchases a position from a larger investment institution and then sells it to the retail Forex trader while pocketing the difference between the two amounts. For instance, a broker might set the ‘ask’ price at 1.250 and the ‘bid’ price at 1.246. If the investor were to sell the position immediately, then the most they could sell it for would be the ‘bid’ price of 1.246or a loss of 4 pips. Since the typical Forex transaction is conducted in $100,000 lots, that means that the broker made $40 in that currency exchange.
The spread will vary depending on the broker and the currencies being traded. Typically, the spread averages between 3-5 pips. Unfortunately, brokers are necessary tools in the Forex trading game if for no other reason than the sheer size of the transactions. There is approximately 1.8 trillion dollars exchanging hands on the Forex every day and these transactions are conducted in $100,000 ‘lots’ (there are also $10,000 mini-lots and even micro-lots). Thus, it is typical for Forex transactions to be highly leveraged with most traders only putting up $1,000 (or 1/100) in capital.
Forex brokers will tend to be partners or somehow associated with investment banks and similar institutions. These ‘backers’ actually guarantee the loans used to leverage Forex tradesand without themnone of us could trade on the currencies markets unless we were willing to risk more than the 1% demanded by most brokers.
Yes, the brokers do make money when investors trade on the Forex but they do provide a genuine service. Just be careful to avoid trading too often because although the pips are smallthey can disappear quickly especially when investors try to compensate for a loss by turning around and investing before doing their homework. Therefore, be wary of any Forex broker that advocates any form of ‘day trading’ or the likeit’s a very, very dangerous strategy to use in the most volatile and fluid market the world has ever known!
By: Kent Douglas -
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Article by Kent Douglas, author of "The Simple Forex Solution: The Easiest Currency Trading System Anywhere." To learn how you too can succeed in Forex and Currency Trading, please visit www.SimpleForexSolution.com
Recommended forex trading software: FAP Turbo Review
Forex patterns and forecast explained
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What Does Scalping Forex Pips Mean?
Wednesday, December 24th, 2008Forex Pips: What Exactly Are They? 
All traders in the foreign exchange (FOREX ) market are seeking to find as many of these sometimes elusive characters as possible. They are called ‘pips’.
What is a pip and what role does it play in the FOREX market? One thing is sureyou can make money when you gain pips.
In the R&B genre of yesteryear, many came to know and love the music of Gladys Knight and the cool-stepping Pips, her background vocals. As a personal injury attorney in a prior professional life, I associated the term, PIP (acronym for ‘Personal Injury Protection’) with a type of insurance coverage which usually meant more money for my clients, and yes, for me also. As the music of Gladys and her group slowly fades into the musical sunset and PIP insurance coverage persists in the legal realm, the term ‘pip’ rings louder and louder in the investment world. You may be surprised, however, by the number of definitions or references available for the term in online resources such as Wikipedia.
What Is A Pip?
In FOREX trading, a pip is the unit of measurement for the smallest change in the price of a currency or currency pair. Compare this term to the use of the unit of measurement in the stock market referred to as a ‘point’. Charts that are used for trading the FOREX usually clearly reflect the various price levels of a currency. With each price levels achieved, it should be fairly easy to mathematically determine the amount of movement in a particular currency as expressed in pips. Many online platforms provided by FOREX brokers display a feature which automatically calculates the number of pips gained or lost in the position taken by the trader.
How Much Is It Worth?
Generally speaking, as to certain major currency pairs such as the EUR/USD (Euro/U.S.Dollar), if a trader commits one standard lot (equal to 100,000 units of the currency traded) to the trade, a movement of one pip in the trader’s favor will yield a profit of $10. If a mini-lot (equal to 10,000 units of the currency traded) is used instead, then one pip will have a value of $1. A micro-lot and its corresponding pip value would be one-tenth that of a mini-lot. Stated another way, a trader can predetermine the value of the pip, and consequently the profit or loss resulting from the trade, by changing the number of lots used in the trade. The greater the number of lots used, the greater the potential profit or loss. The converse is also true.
The monetary value of a pip depends not on the number of lots traded but also on the type of currency traded. If the currency pair used is the USD/JPY (U.S. Dollar/Japanese Yen), the pip value will be less than $10 for a 100,000 lot trade, based on the current exchange rates. Similarly, other currency pairs may have differences in value for the pip based on the same standard lot size.
What Is A Pip Spread?
One final observation should be noted here. Most quote their spreads in terms of pips. The spread is the difference between the bid and the ask price of a currency pair. It is also the amount that is paid to the broker for facilitating the trade. Therefore, the lower the spread in terms of pips, the less the broker gets paid and the more profits the trader gets to keep.
Sandy Robinson, J.D., Copyright 2007
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If you are ready to change your future by stepping into the exciting world of trading FOREX, go to www.winningtradersassociation.com for more information. Author Sandy Robinson, J.D. is part of the Winning Traders Association, an educational organization founded by John Beiler, President. The organization consists of a network of committed trainers and motivated traders willing to provide support to those interested in trading foreign exchange. Many of the members work from home.
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