Nison's work is ideal for traders seeking to up their trading strategies game. Courtney Smith begins How to Make a Living Trading Foreign Exchange with an introduction to the world of forex that explains how the market works.
But most of this work is devoted to making money, offering six strategies to earn a steady income by trading. He also provides important risk management techniques as well as material on the psychology of trading. It includes an explanation of Smith's unique "rejection rule," a strategy designed to double the profit generated from basic channel breakout systems.
As the title indicates, this book is oriented toward giving beginners the basics. The author is a self-taught forex trader who became intrigued by currency exchange and its profits at a private gathering for stock traders. The text stands out for Brown's clear, concise language that, without being condescending, never takes the reader's knowledge for granted. Some of the basics covered are:. Brown also offers up his own trading strategy that a novice can use, or at least be inspired by and use as a guideline for creating a personalized one.
Your Money. Personal Finance. Your Practice. Popular Courses. Currency Trading for Dummies by Brian Dolan. Buy on Amazon. A bar chart is a little more complex. It shows the opening and closing prices, as well as the highs and lows. The bottom of the vertical bar indicates the lowest traded price for that time period, while the top of the bar indicates the highest price paid. As the price fluctuations become increasingly volatile, the bars become larger.
As the price fluctuations become quieter, the bars become smaller. The fluctuation in bar size is because of the way each bar is constructed. The vertical height of the bar reflects the range between the high and the low price of the bar period. The horizontal hash on the left side of the bar is the opening price, and the horizontal hash on the right side is the closing price. A bar is simply one segment of time, whether it is one day, one week, or one hour.
Open : The little horizontal line on the left is the opening price. Low : The bottom of the vertical line defines the lowest price of the time period. Candlestick charts show the same price information as a bar chart but in a prettier, graphic format. However, in candlestick charting, the larger block or body in the middle indicates the range between the opening and closing prices.
Traditionally, if the block in the middle is filled or colored in, then the currency pair closed LOWER than it opened. Here at BabyPips. They just look so unappealing. A color television is much better than a black and white television, so why not splash some color on those candlestick charts? We simply substituted green instead of white, and red instead of black. This means that if the price closed higher than it opened, the candlestick would be green.
For now, just remember that on forex charts, we use red and green candlesticks instead of black and white and we will be using these colors from now on. The purpose of candlestick charting is strictly to serve as a visual aid since the exact same information appears on an OHLC bar chart. There are many different types of charts available, and one is not necessarily better than the other. The data may be the same to create the chart but the way that data is presented and interpreted will vary.
Each chart will have its own advantages and disadvantages. You can choose any type or use multiple types of charts for technical analysis. It all depends on your personal preference.
A hollow candlestick is where the close price is higher than the open price, which will indicate to traders to BUY. Short bodies represent very little price movement and are often treated as a consolidation pattern, known as Doji. Doji is an important facet of the candlestick chart as they provide information in a number of candlestick patterns. The relevance of Doji candles are to show traders that after a long green candlestick the buying pressure is starting to weaken, or after a solid red candle that the selling pressure is starting to decrease and the supply and demand are starting to even out.
There are a variety of patterns you can identify just by looking at the chart. The nature of chart patterns is based on the fact that human psychology does not easily change and therefore history tends to repeat itself. Chart patterns demonstrate the psychology of the financial markets and under the assumption that chart patterns worked in the past, so too will they work in the future. They give you clues as to the potential direction the trend will follow.
They are at the heart of all important price moves that form a connection between trends. You can use chart patterns as a self-contained technical strategy for your trading. Some of the most important patterns to know include Triangles , a continuation pattern which shows a battle taking place between a rising and falling price. This means the price is eventually expected to continue in the direction it was travelling before the pattern was identified.
Another key pattern to know is the double top , which shows the price making two highs and indicates a reversal in the bullish trend to a bearish trend. Its converse — the double bottom — identifies a trend reversal from bearish to bullish, meaning an impending uptrend. From these examples you can understand just how important being able to identify patterns is to your trading outcome.
As you get more comfortable reading charts, you may start using technical indicators to gain even more insight into the current price action of an asset and to measure the rate of market volatility as well as the changes in the value. Technical indicators are mathematical tools that help to put past and current price action into context so that traders can predict possible future price direction.
There are numerous types of indicators, and they help traders to understand different types of price elements such as trend, momentum, volatility, volume, and market cycles. Trend indicators help traders to identify and take advantage of opportunities in trending markets. An example is Moving Averages , whose slope and direction reflect the trend direction as well as its momentum. They help traders to establish overbought and oversold conditions in the market. For instance, using Stochastics , a reading of above 80 implies overbought conditions and traders will look to sell; whereas a reading of below 20 implies oversold conditions and traders will look to buy the underlying asset.
Volatility indicators, such as ATR and Bollinger Bands , help traders measure the rate of price fluctuations in an underlying asset. This can help traders to filter out which markets to trade with an appropriate strategy. For instance, a risk-averse trader will look to trade low volatility markets or to utilise low stake amounts in high volatility markets.
As an example, Bollinger Bands converge when there is low volatility, and they diverge when there is high volatility. Volume is an important price element. A volume-backed movement is considered valid and tradable, whereas a movement backed with low volume is considered fake and unsustainable. Market cycle indicators , such as Elliot Waves , help traders to anticipate the various phases of price development including the rise, peak, fall, and trough.
Traders using market cycle indicators also have the advantage of an incorporated time element. There are numerous indicators available on various trading platforms. Despite this, it is important not to clutter your charts or use too many indicators which can lead to decision paralysis or information overload.
For instance, there is no need to use both Stochastics and RSI, because they are both momentum indicators delivering similar signals — using only one will suffice. It is also important to utilise complementary indicators, which support each other. For instance, you can use Moving Averages trend indicator together with RSI momentum indicator to pick out potentially lucrative opportunities in a trending market. A trading chart basically displays the price information of an underlying asset over time.
Price is the primary factor of the trading chart and is usually graphically represented on the vertical or y-axis. There are usually different approaches to representing the information on the horizontal or x-axis. Most platforms utilise a linear or arithmetic model that represents time in equal intervals price bars are printed after a specified amount of time has elapsed. But there are also tick and volume charts. Tick charts print the price based on a certain number of transactions that have been performed in the market.
For instance, a tick chart will print the price after every transactions. A volume chart basically reflects the volume behind any price level of an underlying asset. This is very important in gauging the buying or selling interest elicited by market participants at any particular price point. Time charts are by far the most popular price charts among investors. The timeframes represented range from 1-second to monthly trading charts.
Different timeframe charts support efficient price analysis of different trading styles. Monthly and weekly charts are usually used by long-term position traders who seek to take advantage of price changes over a longer period. The time horizon can range from several months to a few years.
This type of trading is generally popular with institutions or high net worth individuals who pursue gradual, stable returns over time. Daily charts are typically used by traders who are seeking to implement swing-trading strategies. These strategies seek to gain the bulk of profits over significant short to medium price changes in the markets.
The time horizon for swing trades ranges from a few days to a few months. Swing traders can also use week charts as a long-term guide to their trading bias. Intraday charts are usually used by traders who seek to gain profits over a short period. Intraday trades are entered and exited within the same trading session or day. They are typically not held overnight. Day traders usually use 1-hour to 4-hour charts to guide their trading ideas.
Day trading positions are usually held for several minutes to a handful of hours. Scalpers, though, can be even more aggressive and often use 1-minute to minute trading charts. Scalpers seek tiny profits which can be captured within several seconds or a few minutes. Traders use a variety of indicators to read a trading chart, but at its core it contains two vital pieces of information — price and volume. Anything else besides the historical price and volume information is nothing more than speculation.
And yet these two pieces of information are vitally important to forecasting future market moves. In order to read currency pairs correctly, traders should be aware of the following fundamentals of a forex quote:. Base currency and variable currency: Forex quotes show two currencies, the base currency, which appears first and the quote or variable currency, which appears last.
The price of the first currency is always reflected in units of the second currency. This is unusual as you cannot physically hold fractions of one cent but this is a common feature of the foreign exchange market. The bid SELL price is the price that traders can sell currency at, and the ask BUY price is the price that traders can buy currency at. Traders will always be looking to buy forex when the price is low and sell when the price rises; or sell forex in anticipation that the currency will depreciate and buy it back at a lower price in the future.
The price to buy a currency will typically be more than the price to sell the currency. This difference is called the spread and is where the broker earns money for executing the trade. Spreads tend to be tighter less for major currency pairs due to their high trading volume and liquidity.
This direct quote will provide US citizens with the price of one Euro, in terms of their home currency which is 1. It shows the value of one unit of domestic currency in terms of foreign currency. Indirect quotes can be useful to convert foreign currency purchases abroad into domestic currency. DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.
Leveraged trading in foreign currency or off-exchange products on margin carries significant risk and may not be suitable for all investors. We advise you to carefully consider whether trading is appropriate for you based on your personal circumstances. Forex trading involves risk. Losses can exceed deposits. We recommend that you seek independent advice and ensure you fully understand the risks involved before trading. Live Webinar Live Webinar Events 0.
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Currency Trading for Dummies, by Brian Dolan. Day Trading and Swing Trading the Currency Market, by Kathy Lien. Japanese Candlestick Charting Techniques, by Steve Nison.