Goodman’s Swing Count System - by M. Duane Archer

Part One (of Three) - Introduction and Overview

"You Can Figure the Markets, but You Can’t Figure the Human Race"

-Charles B. Goodman

Historical Perspective

The Principles of Goodman’s Swing Count System were informally set forth in a series of annotated commodity charts from the late 1940’s to the early 1970’s. These trading studies simply titled ‘My System’ were the work of Charles B. Goodman and were never published.

I met Charles Goodman at the Denver, Colorado offices of Peavey and Company (later, Gelderman) in the fall of 1971. It was the occasion of my maiden voyage in the great sea of commodity trading (later, futures). In 1971 silver prices were finally forging ahead to the $2.00/ounce level. A 10-cent limit move in soybeans elicited a full afternoon of post-mortems by traders and brokers alike.

The Peavey office, managed by the late and great Pete Rednor employed eight brokers (later, account representatives). The broker for both Mr. Goodman and I was the colorful - and patient - Ken Malo. Brokers, resident professional traders - including Mr. Goodman and the Feldman brothers, Stu and Reef - and a regular contingent of retail customers drew inspiration from a Trans-Lux ticker that wormed its way across a long, narrow library table in the back of the office. Most impressive was a large clacker board quote system covering almost the entire front office wall. This electro-mechanical quotation behemoth made loud clacking sounds (thus its name) each time an individual price flipped over to reveal an updated quote. Green and red lights flashed, denoting daily new highs and lows. Pete, apart from being an excellent office manager was also a fine showman using the various stimuli to encourage trading activity!

Almost everyone made frequent reference to Charlie’s huge bar charts posted on 2 ½ by 4-foot sheets of graph paper, mounted on heavy particle board and displayed on large easels. No one ever really knew what the numerous right-hand brackets ( ]) of varying lengths scattered throughout each chart meant. But there was always a great deal of speculation! The present work finally reveals the meaning of those mysterious trading hieroglyphics.

The quiet chatter of the tickertape, the load clacking of the quote board, the constant ringing of the telephones. The news ticker that buzzed once for standing reports, twice for opinions and three times for ‘hot news’, the squawk boxes and Pete Rednor’s authoritative voice booming, ‘Merc!, Merc!". What a spectacular scene it was! No wonder that this author, then a 21-year old trading Newbie would soon make commodity futures and currency trading his life’s work.

But nothing made a greater impression on me than the work of Charles B. Goodman. He instilled first, some very simple ideas: "Avoid volatile markets when at all possible" - "Trade only high percentage short term ‘ducks’ " - "Sit on your hands, Dad, sit on your hands". It didn’t take long for me to adopt the ultra-conservative ‘Belgian Dentist’ style of trading, that is - "Avoiding losing trades is more important than finding winning trades"

The Belgian Dentist approach carried with me when I developed my famous AI trading system in the 1980’s - Jonathan’s Wave. Even though it generated 48% annual returns with a zero expectation of a 50% drawdown (according to Managed Account Reports) it drove the brokers berserk because it could easily go a full month without making a single trade!

Charlie’s trading advice, I am certain, allowed me to survive the financial Baptism of Fire that destroys most commodity and currency trading Newbies in a matter of months, if not weeks.

Mr. Goodman was to be my one and only trading mentor. Over the decade that followed he entrusted to me many, if not most of his trading secrets. To the best of my knowledge he shared this information on his work with no one else in such detail.

Charlie and I spent hundreds of hours together analyzing the trade studies from My System. We also analyzed hundreds of other commodity, currency and securities charts. Charlie was happy with My System being ‘organized’ in his mind. But as a new generation technical analyst, I was anxious to see it formalized on paper and eventually in source code on a computer. (To be honest this created a small amount of friction between the two of us - Charlie was dead set against formalized systems and believed strongly in the psychological and money management elements of trading.) Notwithstanding, by 1979 I was finally ready and able to formally state the principles of My System. Because of its equal concern for price measurements (parameters) and price levels interacting together (matrices) I originally renamed My System ‘ParaMatrix’. My first investment management company in the mid-1970’s was ParaMatrix Investment Management and I acted as both a registered Investment Advisor (SEC) and Commodity Trading Advisor (CFTC).

Contrary to ongoing speculation, only two copies of my original 1979 ‘Principles of ParaMatrix’ ever existed. I possess both of them. Charlie’s original My System trade studies were mistakenly destroyed shortly after his death in 1984. What remains of them are the 200 or so examples I copied into Principles of ParaMatrix.

The present work, Goodman’s Swing Count System (GSCS), is a reorganized re-issue of Principles of ParaMatrix with updated charts and a simplified nomenclature that I am sure Charlie would have appreciated; "Keep it simple, Dad!" he would always advise. I’ve also expanded on Charlie’s ideas by ‘filling in’ some less formed ideas such as his market notation, or calculus as he referred to it, and a method for charting which I have dubbed Goodman Charting.

Two of Charlie’s less well-defined ideas are NOT included in this work: 1) Dependent/Scaled Interfacing and 2) Time-Based (cyclical) measurements. There are also a number of intra-swing formations I have not discussed.

My own direction in futures and currencies turned in the 1980’s to artificial intelligence (Jonathan’s Wave) and in the 1990’s and today, artificial life and cellular automata (The Trend Machine). In spite of, or perhaps because of these complicated ‘cutting edge’ computer efforts I continue to view Goodman’s Swing Count System (GSCS) in a very positive light. To this day, the first thing I do when I see any chart is a quick Goodman analysis!

GSCS is a natural ‘system’ for pursuing the conservative Belgian Dentist approach to trading, even without the aid of a computer. This article, in fact, could be used to make Goodman analysis without a computer at all! But it is in fact intended as an introduction to the CommTools Analytic Suite GSCS software. That software is intended as a supplemental tool only for doing Goodman chart analysis.

GSCS trade opportunities are as frequent today (perhaps more frequent) than they were 40 or 50 years ago. I believe the system’s foundations have well stood the test of time. Patterns today are no different than they were decades ago - nor are the twin human emotions - Fear and Greed - that create them. GSCS is an excellent method for finding support and resistance areas that no other method spots, and for locating potential turning points in any market. One of its best suits - it can easily integrate into other trading techniques and methodologies.

I would never recommend or advise anyone to use a 100% mechanical trading system, GSCS or any other!

Is it really a ‘system’? Depending upon your perspective GSCS is between 70% and 90% mechanical. The program available from CommTools, Inc (www.commtools.com) represents the kernel idea of mechanizing perhaps 80% of the system. I now believe attempting to completely code Charlie’s work would be inadvisable.

Mr. Goodman passed away in 1984. It was always his desire to share with others - although as is usually the case with true genius - few wanted to listen. These days we are ever more bombarded ever more cryptic and computer-dependent software programs and ‘black-boxes’. Perhaps now is the time for the simple yet theoretically well-grounded ideas of GSCS to populate.

The publication of this brief work and the GSCS software, I hope and pray, would meet with Charlie’s wishes. His work in extracting an objective and almost geometrically precise (ala Spinoza) trading system out of a simple trading rule (the ‘50% rule’) is most remarkable. It has certainly earned him the right to be included in the elite group of early scientific traders including Taylor, Elliot, Gann and Pugh.

Conforming to the spirit of the original My System, I’ve attempted to keep theoretical discussions and formulations to a necessary minimum. Trade studies in Part 3 of this article must still be considered the crux of GSCS, even though I am pleased with the formalization of most relevant principles in Part 2. The trader weary of theoretical discussions and intrigue will find all the concepts and principles delineated in the trade study examples. Nevertheless, those who invest time in the theory of GSCS will undoubtedly discover an area for further exploration where many new and fresh ideas are waiting to be mined.

In Mr. Goodman’s worldly absence, the responsibility for this work and its contents is solely mine, for better or for worse.

Theoretical Overview and Definitions

The cornerstone of GSCS is the age-old ‘50 Percent Retracement and Measured Move’ rule. This rule, familiar to most traders goes back almost as far as the organized markets themselves. It has been traced to the times when insiders manipulated railroad stocks in the 19th Century.

DIAGRAM 1-1: The 50 Percent Retracement and Measured Move Rule

The first systematic description of THE RULE was given in Burton Pugh’s The Great Wheat Secret. This book was originally published in 1933. In 1973, Charles L. Lindsay published Trident. This book did much - some say too much! - to quantify and mathematically describe THE RULE. Nevertheless, must reading for anyone interested in this area of market methodology. Edward L. Dobson wrote The Trading Rule That Can Make You Rich in 1978. This is a good work with some nice examples. But none of these, in my humble opinion, even scratch the surface, relative to Goodman’s work.

In 1975 a well-know Chicago grain floor trader, Eugene Nofri, published The Congestion Phase System. This small but power-packed volume detailed a short term trading method using simple but effective ‘congestion phases’. While not precisely a work on THE RULE it touched - from a different perspective - some of Charlie’s ideas.

Diagram 1-2: A Congestion Phase

[I mention Nofri’s work also because Charlie was especially taken by its simplicity and because it can work well in conjunction with GCSC. The idea of melding GCSC with a congestion phase approach ought to produce a method of finding those high percentage ‘ducks’ that the Belgian Dentist so much loves! Charlie also felt that Hadady’s work on Contrary Opinion was a natural ‘fit’ especially since the GCSC support and resistance points seldom lie where anyone else thinks they should.]

Still, in the end, it was left for Charles B. Goodman, the great grain trader from Eads, Colorado to extract all the logical consequences from THE RULE and transform it into a robust, almost geometrically precise system.

The logic of THE RULE is quite simple. At a 50% retracement, both buyers and sellers of the previous trend (Up or Down) are ceteris paribus ‘in balance’. Half of each holds profits and half of each holds losses.

Diagram 1-3: A Market Tug of War

The equilibrium is a tenuous one, indeed. The distribution of buyers and sellers over the initial price trend or swing is obviously not perfectly even: Some buyers hold more contracts than other buyers. They have also different propensities for taking profits or losses. Nor does it account for the buyers and sellers who have entered the market before the initial swing or during the reaction swing. Not all of the buyers and sellers from the original swing may be in the market any longer.

Remarkably, GCSC eventually takes all of this into account - especially they buyers and sellers at other price swing levels, called matrices.

Nevertheless, the 50% retracement point IS often a powerful and very real point of equilibrium and certainly a ‘known and defined hot spot’ of which one should be aware. Remember both the futures markets and the currency markets are very close to a zero-sum game’. It is only commissions, pips and slippage that keep them from being zero-sum. At the 50% point it doesn’t take much to shift the balance of power for that particular swing matrix.

THE RULE also states the final (3rd) swing of the move - back in the direction of the initial swing - will equal the value of the initial swing. The logic of this idea, called the ‘measured move’ is seen in the following diagram. At the ‘D’ point one side (in this case the buyers) have won and the sellers are ‘wiped out.’

Diagram 1-4: The Measured Move and ‘Unwinding’

As we have alluded to examples of THE RULE occur at ALL price levels or matrices and many are being ‘worked’ simultaneously in any given ongoing market. This is a critical point. In modern terminology it would be said that price movements are ‘recursive’. Simply stated this means that without labeling you could not really tell the difference between a 10-minute chart and a daily or weekly chart - they all exhibit the same behavior and operate under the same principles of Parameter and Matrix.

The bar graphs below were taken from actual market data. It is functionally impossible to tell apart the time units, with respect to the chart action.

Diagram 1-5: The Markets are Recursive

Now we can begin to informally define SIX of the SEVEN CONCEPTS in THE RULE that Mr. Goodman used to construct GCSC. What had been neglected by previous theorists, users, writers and purveyors of THE RULE was this:

The 50% point is indeed an equilibrium point. As such, the equilibrium must ‘give way’ BUT EITHER SIDE (buyers or sellers) in either a downtrend or an uptrend may prevail at any given matrix or price level.

Goodman realized both the possibilities for a REVERSAL (as in the case of the completed measured move) and a PRICE SURGE. A price surge would be the equivalent to the sellers (in an uptrend) and the buyers (in a downtrend) winning the tug of war within a matrix. In price action this means prices would fall or rise to at least the beginning point of the initial swing!

Diagram 1-6: Price Surge - The FIRST Concept

In other words - the measured move is not a done deal - the 50% retracement (Diagram 1-1a) could also become a ‘V’ or inverted ‘V’ as in the next diagram. The 50% retracement is not a reversal point (necessarily) but should be considered as a ‘point of interest’ where prices may be more likely than randomly to decide whether to continue or reverse.

It may not sound like much, but it is a major discovery.

Clearly price surges are implicit in THE RULE. But they are not visible on a chart unless you are looking for them and unless you are considering the 50% retracement as a ‘point of interest’ and not necessarily a reversal. In fact, most practitioners perceive a price surge as a failure of THE RULE!

Even more importantly, Goodman discovered the implications of THE RULE occurring simultaneously at all price levels. I remember EXACTLY the day and place when Charlie showed me this one - it hit me as truly a grand revelation on the markets!

Diagram 1-7: THE RULE at Multiple Levels (Matrices) of Operation - The SECOND Concept

Here you are: The initial (primary) trend and secondary (reaction trend) as well as reversals (measured moves) and surges are relative to price matrix context. What is one thing in one price matrix may well be its opposite in a higher (or lower) matrix.

(It’s true - Elliot Wave Theory contains the same concept. But with GCSC you can tell BEFORE (in many instances) which it is. In Elliot you can only tell AFTER. GCSC is a predictive system, while Elliot - grand and elegant as it is - is primarily a descriptive system.)

All Price Matrices (levels) - in theory - are part of a larger price matrix,

All Price Matrices composed of smaller price matrices

Of course there is the practical limitation of the smallest possible fluctuation.

Besides Reversals and Surges GCSC matrix concepts include Domination and Generation.

Clearly prices do not always seem to find any kind of equilibrium at the 50% retracement price area. Or, so it may seem. This leads to the third Grand discovery:

The extent a price swing overshoots or undershoots its ideal 50% retracement that price value will be ‘made up’ on the next price swing within the matrix.

Now THIS is the trading rule that can make you rich!

For example, if prices fall only 40% of the initial trend and reverse, the measured move will actually be either 90% or 110% of the measured move point and value of the primary (initial swing in the matrix. The 10% difference - GCSC holds - MUST be made up eventually. This is the concept of Compensation.

Diagram 1-8: Examples of Compensation within a Matrix - The THIRD Concept

Furthermore: If the difference is not fully made up in the final price swing of a matrix the cumulative ‘miss’ value will carry over through each price subsequent price matrix until it does. This is the concept of Carry Over. A ‘carryover’ table is used to add and subtract cumulative carry over values until they cancel.

Diagram 1-9 Carry Over - The FOURTH Concept

When no Carry Over remains, the price matrix is said to have ‘cleared’ or ‘cancelled’. This is the GCSC concept of Cancellation. Cancellation is critical to finding GCSC support and resistance points and other chart ‘hot spots’ where something much less than random is likely to occur.

Diagram 1-10: Cancellation - The FIFTH Concept

The exact method for these important concepts is more fully described in this article, Part 2.

We can now get an early glimpse of what the strange brackets on Charlie’s charts were all about.

Diagram 1-11: Meaning of the Brackets Revealed

Charlie had even more ideas:

The importance of a ‘hot spot’ in relationship to its likelihood of being an important point of support or resistance, reversal or continuation, increased when two or more price matrices cancel at the same price or same price area. This is the key concept of Intersection. There is no analogous concept in Elliot, the most common ‘competitor’ to GSCS. Intersection makes GSCS much more objective and testable than other swing systems.

Diagram 1-12: Intersections - The SIXTH Concept

This article has covered micro formations. Charlie also had compiled a dozen or so extremely valuable macro formations - combinations of micros.

I encourage the reader to examine some charts and find simple areas of the intersection of two (or three) matrices. You will see at once that these points are GOLDEN to the trader. If I had, after 30 years of studying the markets one idea to impart it would be to show you an example of a GSCS intersection in 2 or 3 matrices.

Remember, Carry Over is to the same or NEXT larger price matrix. The above are examples of Independent Intersections. That is, each price level Carry Over calculation is kept separate from the others and ‘tallied’ at the end of each matrix. Charlie had also developed (much less precisely) a concept of Dependent Intersections but it is quite complex, beyond the scope of this article and worth of further codification into software at a future date.

If you would like more information on Parts II and III, comprising a complete tutorial on GSCS, or if you have questions, I would be happy to hear from you.

M.Duane Archer

14 February 2004

About the Author: Mike Archer is the author of the popular Currency Trader's Companion series, and co-author of a new book entitled "Getting Started in Currency Trading" available in the bookstore now. His new site may be found at http://www.fxpraxis.com

Forex Basics

Foreign Exchange

The simultaneous transaction of one currency for another.

Foreign Exchange Market

The Foreign exchange market is a large, growing and liquid financial market that operates 24 hours a day. It is not a market in the traditional sense because there is no central trading location or “exchange". Most of the trading is conducted by telephone or through electronic trading networks. The primary market for currencies is the “interbank market” where banks, insurance companies, large corporations and other large financial institutions manage the risks associated with fluctuations in currency rates.

Spot Market

The market for buying and selling currencies at the current market rate.

Rollover

A spot transaction is generally due for settlement within two business days (the value date). The cost of rolling over a transaction is based on the interest rate differential between the two currencies in a transaction. If you are long (bought) the currency with a higher rate of interest you will earn interest. If you are short (sold) the currency with a higher rate of interest you will pay interest. Most brokers will automatically roll over your open positions allowing you to hold your position indefinitely.

Exchange Rate

The value of one currency expressed in terms of another. For example, if EUR/USD is 1.3200, 1 Euro is worth US$1.3200.

Currency Pair

The two currencies that make up an exchange rate. When one is bought, the other is sold, and vice versa.

Base Currency

The first currency in the pair. Also the currency your account is denominated in.

Counter Currency

The second currency in the pair. Also known as the terms currency.

ISO Currency Codes

USD = US Dollar
EUR = Euro
JPY = Japanese Yen
GBP = British Pound
CHF = Swiss Franc
CAD = Canadian Dollar
AUD = Australian Dollar
NZD = New Zealand Dollar

For a full list, see ISO Currency Codes

Currency Pair Terminology

EUR/USD = "Euro"
USD/JPY = "Dollar Yen"
GBP/USD = "Cable" or "Sterling"
USD/CHF = "Swissy"
USD/CAD = "Dollar Canada" (CAD referred to as the "Loonie")
AUD/USD = "Aussie Dollar"
NZD/USD = "Kiwi"

FCM

Futures Commission Merchant. An individual or organisation licensed by the U.S. Commodities Futures Trading Commission (CFTC) to deal in futures products and accept monies from clients to trade them.

Market Maker

A market maker provides liquidity for a particular currency pair and stands ready to buy or sell that currency by displaying a bid and offer price. A market maker takes the opposite side of your trade and has the option of holding that position or partially or fully offsetting it with other dealers, managing their aggregate exposure to the market. Market makers earn their commission from the spread between the bid and offer price.

Forex ECN Broker

ECN is an acronym for Electronic Communications Network. A Forex ECN does not operate a dealing desk but instead provides a marketplace where multiple market makers, banks and traders can enter competing bids and offers into the platform either inside or outside the spread, allowing traders to trade against each other and with multiple counterparties. A trader might open a trade with liquidity provider "A" and close it with liquidity provider "B", or have the trade executed against the bid or offer of another trader. Participants of the ECN send in competing bids and offers into the platform and the combined volume is usually displayed to traders at each price. Orders are matched between counterparties, usually for a small fee.

Dealing Desk

A dealing desk provides prices and executes trades.

NDD

An acronym for 'No Dealing Desk'. A no-dealing desk broker uses a matching engine to match up orders between its liquidity providers and their clients. The liquidity providers send in competing bids and offers into the platform, resulting in the best bid and offer being displayed to the trader. A no dealing desk broker may increase the spread instead of charging a commission to their clients.

Counterparty

One of the participants in a transaction.

Sell Quote / Bid Price

The sell quote is displayed on the left and is the price at which you can sell the base currency. It is also referred to as the market maker's bid price. For example, if the EUR/USD quotes 1.3200/03, you can sell 1 Euro at the bid price of US$1.3200.

Buy Quote / Offer Price

The buy quote is displayed on the right and is the price at which you can buy the base currency. It is also referred to as the market maker's ask or offer price. For example, if the EUR/USD quotes 1.3200/03, you can buy 1 Euro at the offer price of US$1.3203.

Spread

The difference between the sell quote and the buy quote or the bid and offer price. For example, if EUR/USD quotes read 1.3200/03, the spread is the difference between 1.3200 and 1.3203, or 3 pips. In order to break even on a trade, a position must move in the direction of the trade by an amount equal to the spread.

Pip

The smallest price increment a currency can make. Also known as points. For example, 1 pip = 0.0001 for EUR/USD, or 0.01 for USD/JPY.

Pip Value

The value of a pip. Pip value can be either fixed or variable depending on the currency pair. e.g. The pip value for EUR/USD is always $10 for standard lots, $1 for mini-lots and $0.10 for micro lots.

Lot

The standard unit size of a transaction. Typically, one standard lot is equal to 100,000 units of the base currency, 10,000 units if it's a mini, or 1,000 units if it's a micro. Some dealers offer the ability to trade in any unit size, down to as little as 1 unit.

Standard Account

Trading with standard lot sizes, generally 100,000 units of the base currency. e.g. The pip value is $10 for EUR/USD.

Mini Account

Trading with mini lot sizes, generally 10,000 units of the base currency. e.g. The pip value is $1 for EUR/USD.

Micro Account

Trading with micro lot sizes, generally 1,000 units of the base currency. e.g. The pip value is $0.10 for EUR/USD.

Margin

The deposit required to open or maintain a position. Margin can be either "free" or "used". Used margin is that amount which is being used to maintain or open a position, whereas free margin is the opposite. With $1,000 in your account and a 1% margin requirement to open a position, you can buy or sell a position worth up to a notional $100,000. This allows a trader to leverage his account by up to 100 times or 100:1. If your account falls to below the minimum amount required to maintain an open position, you will receive a "margin call" requiring you to either add more money into your account or close the open position. Most brokers will automatically close your open positions when the margin balance falls below the minimum level. The amount required to maintain an open position is dependent on the broker and could be 50% of the original margin required to open the trade.

Leverage

Leverage is the ability to gear your account into a position greater than your total account margin. For instance, if a trader has a $1,000 margin balance in his account and he opens a $100,000 position, he leverages his account by 100 times, or 100:1. If he opens a $200,000 position with a $1,000 margin balance in his account, his leverage is 200 times, or 200:1. Increasing your leverage magnifies both gains and losses.

To calculate the leverage used, divide the total value of your open positions by the total margin balance in your account. For example, if you have a $10,000 margin balance in your account and you open one standard lot of USD/JPY (100,000 units of the base currency) for $100,000, your leverage ratio is 10:1 ($100,000 / $10,000). If you open one standard lot of EUR/USD for $150,000 (100,000 x EUR/USD = 1.5000) your leverage ratio is 15:1 ($150,000 / $10,000).

Manual Execution

An order which is executed by dealer intervention.

Automatic Execution

The order is executed automatically without dealer intervention or involvement.

Slippage

The difference between the order price and the executed price, measured in pips. Slippage often occurs in fast moving and volatile markets, or where there is manual execution of trades.

Drawdown

The decline in account balance from peak to valley, until the account surpasses the previous high, usually measured in percentage terms.

Support

Support is a technical price level where buyers outweigh sellers, causing prices to bounce off a temporary price floor.

Resistance

Resistance is a technical price level where sellers outweigh buyers, causing prices to bounce off a temporary price ceiling.

Common Order Types

Market Order

An order to buy or sell at the current market price.

Limit Order

An order to buy or sell at a pre-specified price level.

Stop-Loss Order

An order to restrict losses at a pre-specified price level.

Limit Entry Order

An order to buy below the market or sell above the market at a pre-specified level, believing that the price will reverse direction from that point.

Stop-Entry Order

An order to buy above the market or sell below the market at a pre-specified level, believing that the price will continue in the same direction.

OCO Order

One Cancels Other. An order whereby if one is executed, the other is cancelled.

GTC Order

Good Till Cancelled. An order stays in the market until it is either filled or cancelled.

Common Trade Types

Long Position

A position in which the trader attempts to profit from an increase in price. i.e. Buy low, sell high.

Short Position

A position in which the trader attempts to profit from a decrease in price. i.e. Sell high, buy low.

Common Trading Styles

Technical Analysis

A style of trading that involves analysing price charts for technical patterns of behaviour.

Fundamental Analysis

A style of trading that involves analysing the macroeconomic factors of an economy underpinning the value of a currency and placing trades that support the trader's long or short-term outlook.

Trend Trading

A style of trading that attempts to profit from riding short, medium or long term trends in price.

Range Trading

A style of trading that attempts to profit from buying and selling currencies between a lower level of support and an upper level of resistance. The upper level of resistance and the lower level of support defines the range. The range forms a price channel where the price can be seen to oscillate between the two levels of support and resistance.

News Trading

A style of trading whereby a trader attempts to profit from fundamental news announcements on a country's economy that may affect the value of a currency, usually seeking short term profit immediately after the announcement is released.

Scalping

A style of trading that involves frequent trading seeking small gains over a very short period of time. Trades can last from seconds to minutes.

Day Trading

A style of trading that involves multiple trades on an intra-day basis. Trades can last from minutes to hours.

Swing Trading

A style of trading that involves seeking to profit from short to medium term swings in trend. Trades can last from hours to days.

Carry Trading

A style of trading whereby the trader attempts to profit from holding a currency with a higher rate of interest and selling a currency with a lower rate of interest, profiting from the daily interest rate differential of the position.

Position Trading

A style of trading that involves taking a longer term position that reflects a longer term outlook. Trades can last from weeks to months.

Discretionary Trading

A style of trading that uses human judgement and decision making in every trade.

Automated Trading

A style of trading that involves neither human decision making nor involvement, but uses a pre-programmed strategy based on technical or fundamental analysis to automatically execute trades via an automated software programme.

Example Trade

Assume you have a trading account at a broker that requires a 1% margin deposit for every trade. The current quote for EUR/USD is 1.3225/28 and you want to place a market order to buy 1 standard lot of 100,000 Euros at 1.3228, for a total value of US$132,280 (100,000 * $1.3228). The broker requires you to deposit 1% of the total, or $1322.80 to open the trade. At the same time you place a take-profit order at 1.3278, 50 pips above your order price. In taking this trade you expect the Euro to strengthen against the U.S. dollar.

As you expected, the Euro strengthens against the U.S. dollar and you take your profit at 1.3278, closing out the trade. As each pip is worth US$10, your total profit for this trade is $500, for a total return of 38%.

Forex Broker Guide

Introduction

The following is a list of questions you may like to consider before opening an account. You can use this checklist to narrow down your selection of companies that fit your requirements. You may also wish to refer to the forex broker ratings page on this site to read about traders unique experiences with particular brokers.

The following links will also give you some background information on U.S. FCM's (Futures Commission Merchants).

• Selected Financial Data for FCM's
• NFA Background Affiliation Status

1. Word of Mouth

• What do other traders say about the broker?
• What is their customer service like?

2. Customer Protection

• Is the broker regulated?
• What regulatory organisation are they registered with and what protections does it afford you?
• Are client funds insured against fraud?
• Are client funds insured against bankruptcy?

3. Execution

• What business model do they operate? i.e. Are they a Market Maker, ECN or no-dealing desk broker?
• How fast is their order execution?
• Are orders manually or automatically executed?
• What is the maximum trade size before you have to request a quote?
• Are all clients trades offset?

4. Spread

• How tight is the spread?
• Is it fixed or variable?

5. Slippage

• How much slippage can be expected in normal and fast moving markets?

6. Margin

• What is the margin requirement? e.g. 0.25% margin = max 400:1 leverage ), 0.5% margin = max 200:1 leverage, 1% margin = max 100:1 leverage, 2% margin = max 50:1 leverage, etc.
• Does the margin requirement change for different currency pairs or days of the week?
• At what point will the broker issue a margin call?
• Is it the same for standard and mini accounts?
  

7. Commissions

• Do they charge commissions? (Most market makers' commissions are built into the spread)

8. Rollover Policy

• Is there a minimum margin requirement in order to earn rollover interest?
• What are the swap rates like for going long or short in a particular currency pair?
• Are there any other conditions for earning rollover interest?

9. Trading Platform

• How intuitive and functional is it to use?
• Are there many disconnections during trading hours?
• How reliable is it during fast moving markets and news announcements?
• How many different currency pairs can you trade?
• Do they offer an Application Programming Interface (API) to allow you to automate your trading system?
• Does it offer any other special features? (e.g. One click dealing, trading from the chart, trailing stops, mobile trading etc.)

10. Trading Account

• What is the minimum balance required to open an account?
• What is the minimum trade size?
• Can you adjust the standard lot size traded?
• Can you earn interest on the unused margin balance in your account?

For details of terms used goto topic Forex Basics

Forex Market Snapshot

Introduction

The following facts and figures relate to the foreign exchange market. Much of the information is drawn from the 2007 Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity conducted by the Bank for International Settlements (BIS) in April 2007. 54 central banks and monetary authorities participated in the survey, collecting information from approximately 1280 market participants.

Excerpt from the BIS:

"The 2007 survey shows an unprecedented rise in activity in traditional foreign exchange markets compared to 2004. Average daily turnover rose to $3.2 trillion in April 2007, an increase of 71% at current exchange rates and 65% at constant exchange rates...Against the background of low levels of financial market volatility and risk aversion, market participants point to a significant expansion in the activity of investor groups including hedge funds, which was partly facilitated by substantial growth in the use of prime brokerage, and retail investors...A marked increase in the levels of technical trading – most notably algorithmic trading – is also likely to have boosted turnover in the spot market...Transactions between reporting dealers and non-reporting financial institutions, such as hedge funds, mutual funds, pension funds and insurance companies, more than doubled between April 2004 and April 2007 and contributed more than half of the increase in aggregate turnover." - BIS

Structure

* Decentralised 'interbank' market
* Main participants: Central Banks, commercial and investment banks, hedge funds, corporations & private speculators
* The free-floating currency system began in the early 1970's and was officially ratified in 1978
* Online trading began in the mid to late 1990's


Source: BIS Triennial Survey 2007

Trading Hours

* 24 hour market
* Sunday 5pm EST through Friday 4pm EST.
* Trading begins in New Zealand, followed by Australia, Asia, the Middle East, Europe, and America

Size

* One of the largest financial markets in the world
* $3.2 trillion average daily turnover, equivalent to:

o More than 10 times the average daily turnover of global equity markets1
o More than 35 times the average daily turnover of the NYSE2
o Nearly $500 a day for every man, woman, and child on earth3
o An annual turnover more than 10 times world GDP4

* The spot market accounts for just under one-third of daily turnover

1. About $280 billion - World Federation of Exchanges aggregate 2006
2. About $87 billion - World Federation of Exchanges 2006
3. Based on world population of 6.6 billion - US Census Bureau
4. About $48 trillion - World Bank 2006.


Source: BIS Triennial Survey 2007

Major Markets

* The US & UK markets account for just over 50% of turnover
* Major markets: London, New York, Tokyo
* Trading activity is heaviest when major markets overlap5
* Nearly two-thirds of NY activity occurs in the morning hours while European markets are open6

5. The Foreign Exchange Market in the United States - NY Federal Reserve
6. The Foreign Exchange Market in the United States - NY Federal Reserve

Average Daily Turnover by Geographic Location

Source: BIS Triennial Survey 2007

Concentration in the Banking Industry

* 12 banks account for 75% of turnover in the U.K.
* 10 banks account for 75% of turnover in the U.S.
* 3 banks account for 75% of turnover in Switzerland
* 9 banks account for 75% of turnover in Japan

Source: BIS Triennial Survey 2007
Technical Analysis
Commonly used technical indicators:

* Moving averages
* RSI
* Fibonacci retracements
* Stochastics
* MACD
* Momentum
* Bollinger bands
* Pivot point
* Elliott Wave

Currencies

* The US dollar is involved in over 80% of all foreign exchange transactions, equivalent to over US$2.7 trillion per day

Currency Codes

* USD = US Dollar
* EUR = Euro
* JPY = Japanese Yen
* GBP = British Pound
* CHF = Swiss Franc
* CAD = Canadian Dollar
* AUD = Australian Dollar
* NZD = New Zealand Dollar

Average Daily Turnover by Currency

N.B. Because two currencies are involved in each transaction, the sum of the percentage shares of individual currencies totals 200% instead of 100%.

Source: BIS Triennial Survey 2007

Currency Pairs

* Majors: EUR/USD, USD/JPY, GBP/USD, USD/CHF
* Dollar bloc: USD/CAD, AUD/USD, NZD/USD
* Major crosses: EUR/JPY, EUR/GBP, EUR/CHF

Average Daily Turnover by Currency Pair

Source: BIS Triennial Survey 2007

Online Currency Trading Tutorials

Whether are learning to drive a car or trade in the Forex market you benefit from the experience and knowledge of others. None of us ever really believe that we are an expert at something as soon as we try it for the first time. For this reason, unless you are already maintaining a healthy bank balance trading Forex then you can benefit from a tutorial in Forex trading.

A tutorial in currency trading will help to teach you the basics, and even if you have been trading currencies for a while then you may still learn something new. You see, the Forex market is pretty complex and therefore it can take years to master it. For this reason taking the time to learn as much as possible will save you money in the long run.

Not too long ago it was almost impossible to find anyone offering any kind of training or tutoring in Forex. This was mainly because trading was only open to large corporations and businesses. The situation is completely different nowadays as the Internet boom has opened the doors to individual traders and that has led to a massive increase in the number of courses and tutorials available.

Training can be done online or in a classroom depending on your location and preference. There are so many ¡®learn at home¡¯ courses available now that if you think that is the way to go then all you have to do is pick one. Classroom learning is a little different since you may find yourself having to travel fair distances to get to your nearest course.

Another advantage of an online tutorial is that not only do you get to learn from the comfort of your own home or office but you can also take things at your own pace. The downside however is that there is no teacher for the one to one discussions and explanation (the DVDs or online videos are your teacher) that you may sometime need.

Some online currency trading tutorials come with a money-back guarantee, that is if you do not like their course you can return it for a refund. However, you should look out for those courses which claim to be able to guarantee you a profit. These kind of claims are hard to achieve and should be treated with sketiscm as some courses are no more than scams.

Forex trading requires very quick thinking and decision making. Tutorials cannot teach you that. They can tell you the principles of trading and make you a much better trader for it. However, what it takes is for you to use the knowledge they give you and incorporate it in to your daily trading habits.

Through the help of a course you decision making and speed can definitely be improved but they cannot tell you exactly when to enter or exit a trade. That said, if you take the time to learn everything you can then it will be much easier to call the next market move correctly. You can also look to the help of Forex signal service providers for further security.

Currency trading tutorials can never teach you everything you will ever need to know. No-one can. However, they can help you to make decisions more quickly and with more success, it¡¯s all about how you take the knowledge they give you and what you do with it.
About the Author

Paul Bryan operates Forex Broker Reviews - A site aimed at bringing you the best and most independent Foreign Exchange information and articles.

Currency Trading Training - 7 Favorite Tips

Currency trading training is not over when a trader finally sees the equity increasing in their account.

The Forex market is a very demanding environment and for a trader to maintain a success level, constant currency trading training is necessary.

The following 7 favorite tips can be used as timely reminders and need to be read and absorbed on a regular basis:

#1 - Take Responsibility

"The buck stops here." Don't blame the markets, or a host of other factors for a losing trade. You entered it for whatever reasons you had at the time. Take responsibility for it.

#2 - Use Each Losing Trade As A Stepping Stone

You lost a trade? Good. It will help you focus on a potential problem in your trading method. If after careful analysis you are satisfied you worked according to your plan, fine. Move on.

#3 - Never Become Impatient With The Market

New traders in the early stages of their currency trading training can be eaten alive by the market. During periods of consolidation with little liquidity the anxious impatient trader will force trading opportunities where there none.

Learn to accept the fact that around 70% of the time price will be in a consolidation channel.

#4 - Focus Daily On Improving Your Trading Skills

Currency trading training is an ongoing process. Day by day, step by step the trader improves. So rather than be preoccupied with profits and losses, concentrate on developing the skills. Your account will start to reflect your focus in time.

#5 - Be Pleased With Well Executed Trades Whatever The Outcome

Is this possible? Yes. You can feel well pleased even with a losing trade if you stuck to your methodology and executed the trade well. It is dangerous to feel good about a winning trade when you went against your trading method to achieve it. Your elation is likely to be short lived. Learn to execute the plan!

#6 - If In Doubt Stay Out

The feeling of regret can drain a person mentally and emotionally from entering a poorly considered trade. Once the trigger has been pulled and the trade starts going wrong, the agony of watching it inch towards your stop should renew in the trader the determination to stay out when in doubt!

#7 - Always Have A Good Reason

Currency trading training involves careful analysis of reasons for entering a trade. Just because price is high is not a reason to go short or long if price is low. Price will do what price wants to do so rather than trading from gut reaction, e.g. "Price can't go any higher (or lower)" learn to detach emotions and use pure technical analysis to establish a number of reasons why you should take a trade.

As currency trading training is a long term commitment, skills and disciplines learned can sometimes be forgotten as bad habits creep in.

It is necessary to constantly renew the thinking processes by repeating over and over the habits of successful traders.

These 7 favorite tips will keep the newer trader out of a lot of trouble!
About the Author

For a free pivot point calculator, Fibonacci calculator and the best free economic calendars click here: http://www.vitalstop.com/Forex/tools.html For a free candle & chart pattern recognition reference tool click here: http://www.vitalstop.com/Forex/Candle-Chart-Patterns See how to use trendlines to get an optimum trade entry point: http://www.vitalstop.com/Forex/trendline.html

Timing is Everything With Forex Trading

The most challenging part of getting started with Forex trading is to learn this innovative way of trading. Many potential investors that try to navigate the Forex system unaided end up being frustrated and financially intimidated. There are very simple strategies to becoming successful using the foreign exchange trading system but the first step is gathering all of the necessary information surrounding this type of trading specialty. Securing a reliable Forex trading broker is likely the first and most pivotal step after learning the initial principles.

Unlike many types of trading and futures, foreign exchange trading is not designed to make the client rich quickly. Many people are frightened off by the word that Forex trading is a get rich quick scheme that in large part, doesn't work. This is a financial myth despite all the hype surrounding the foreign exchange trading system. There are steps and gains to be taken in order to secure a future in successful trading. Expect to dedicate a large portion of time to researching and understanding the market in general before setting out with your pocket book ready to invest. Learn all you can about the Forex market in the beginning in order to make the Forex trading path a smooth and triumphant one.

There is no doubt that there are numerous types of orders that can be utilized in order to open and close trades and becoming familiar with them is a must. In the foreign exchange trading business there are charts, graphs and other visuals to help you effectively analyze trends in currency trading. These charts and graphs will assist in making well-informed decisions on what currency to sell. Timing is everything and it goes without saying that when experiencing with the Forex trading system, knowing when to trade can be the pivotal difference between success and failure. Understanding the analysis tools and how to use them efficiently will put any investor on the right track.

As well as proficient trading tools, it is an absolute necessity when using the foreign exchange trading system to understand how to use the software to perform actual trades. The only way to become comfortable with using Forex trading software is to use it and learn how to plot a course through the process. Selecting a good trader is the most imperative tip at this stage because an established trader can help you with the services required as well as giving you in depth tutorials using the foreign exchange trading system.

The most critical tool that will be utilized in the Forex trading system is patience and discipline. As mentioned earlier, foreign exchange trading is not a get rich quick proposal so learning patience and discipline can help you to become profitable in a timely fashion without losing money. Most brokers offer a demo account that can be used to practice and learn the foreign exchange trading system that mimics the real account with the exception of real money being traded. This gives a client insight into the market and its behaviors before actual money is invested. Learn how to make a profit using paper trading on a regular basis before risking your capital with Forex trading.
About the Author

Troy Degarnham is the author and webmaster of http://www.forex-trading-brokers.info an informative website about Forex Trading Brokers. Extensive help and tips on systems, software, signals, forex trading, forex brokers, courses, and other secrets to help you gain financial freedom.

Forex Swing Trading with Elliott Wave

When evaluating the forex market for swing trade opportunities the focus is placed on predicting directional changes or continuations for a given currency pair. For this we rely on technical analysis.

In technical analysis, just as in fundamental analysis, there are lagging indicators and leading indicators. One of the most reliable tools used to predict forex market swings is Elliott Wave analysis. Elliott Wave analysis can be used to identify trends and countertrends, trend continuation or exhaustion and to evaluate the potential price targets of a trend.

You can apply Elliott Wave analysis to both long and short position swing trade set ups for your currency pairs.

Elliott Wave theory is named after Ralph Nelson Elliott, who concluded that the markets moved in a repetitive pattern of waves. He attributed this action to the mass psychology of the market.

Elliott concluded that the market¡¯s movement was a direct result of the mass psychology of the time and that the stock market is a fractal. A fractal is an object that is similar in shape, but at different scales. A great example of a fractal in nature is a stalk of broccoli. The stalk and the individual branches look exactly the same; just the branches are smaller in scale.

Fractals just happen to form in accordance with Fibonacci ratios. Is this a coincidence?

Elliott attributes this mass psychological move to the human trait of herding. Even though Elliott¡¯s theories were based on stock market price movements, it has been applied to evaluating Presidential approval ratings and fashion trends changes as well.

The conclusion, the market price actions are not the cause of economic growth or slow down, but the reflection of the mass psychology of investors. If the mood of the investing public is upbeat then a bull market ensues. This is counter to what most individual perceive, that because there is a bull market the mood of the investing public is upbeat.

Elliott Wave patterns follow a sequence that the markets move up in a series of 3 waves and down in a series of 2 waves. This 3 wave impulse and 2 wave corrective sequence form the foundation of the 5 Wave impulse pattern (the opposite is true in a downtrend).

The Elliott Wave Counts are as follows;

Wave 1 - Short Covering
Wave 2 - Pullback from Short Covering
Wave 3 - Major Rally Phase
Wave 4 - Institution Pause in the Rally
Wave 5 - Retail Buying

Wave 1 is usually the weakest of the impulse waves. It is a brief rally based on short covering of the bears from a previous move down. When Wave 1 is complete, the currency pair sells off, creating Wave 2.

Wave 2 ends when the market fails to make new lows. You often see dominant reversals patterns form at the end of this wave signaling the being of the rally phase or Wave 3.

Wave 3 is the longest and strongest of the impulse waves. This signals strong currency buying or selling in the direction of the trend. This trend usually starts of slowly, but tends to accelerate as it breaks to new highs above the top of Wave 1.

Like any trend, especially a strong trend a correction will occur. Traders will begin to take profits and the currency pair will retrace. This signals the beginning of Wave 4.

Again the currency pair will rally ushering in the Wave 5 rally. Wave 5 is typically supported by the retail traders and not institutional buyers (the herd) and tends to lack the momentum generated in the Wave 3 rally. This creates divergence that can be easily measured on any technical oscillator. After the currency pair breaks to new highs above the previous Wave 3 high, the rally loses steam and changes trend.

This trend change can result in either a new 5 Wave impulse pattern or a corrective in nature.

Now that we know what the Elliott Wave analysis is, how would a currency trade using this analysis look like, just as an example?

Look to Wave 5 as the most reliably tradable impulse wave. The trade sets up as follows. Look for the Elliott Oscillator to pull back between 90% and 140% of the Wave 3 high on a daily chart. This pullback should correspond to a 38%-62% Fibonacci retracement from the Wave 2 extension. This signal is the strongest when the Fibonacci retracement is between 38% - 50%.

Like any technical analysis tool you never want to employ an indicator as a stand alone analysis tool. A trigger and a confirming indicator are required as well.

Look for a trigger in candle patterns, such as Harami, Tweezers or Harami cross. There are a variety of software packages on the market that perform Elliott Wave counts and have other entry signal indicators as well.

Draw a regression channel on the Wave 4 retracement and look for a break above or below the channel as confirmation to enter the trade.

Place stops at the high of the Wave 1 advance, just below the 38% Fibonacci retracement level or where your individual trading plan dictates. Trail your stops once the currency pair has advanced past the Wave 3 high. Look for reversal candle patterns like doji, hammers, shooting stars or hanging mans for signals that the wave is about to end or stall. A typical price target is 127% retracement of the Wave 4 low.

This is just a glimpse of how Elliott Wave analysis can be deployed to enhance your forex swing trade evaluations. Look more into the Elliott Wave theory and other strategies as tools for increasing your forex swing trade opportunities.
About the Author

Todd Judkins specializes in teaching real people how to trade the Forex market for long term success by focusing on strategic, mind and money skills. He is a currency trader, educator and success coach to traders. Are you now ready to take action? To begin training with Todd for immediate, online Forex trading education visit: http://www.forexjourney.com and sign up for his FREE Forex Webinar.

Why Hedge Foreign Currency Risk

International commerce has rapidly increased as the internet has provided a new and more transparent marketplace for individuals and entities alike to conduct international business and trading activities. Significant changes in the international economic and political landscape have led to uncertainty regarding the direction of foreign exchange rates. This uncertainty leads to volatility and the need for an effective vehicle to hedge foreign exchange rate risk and/or interest rate changes while, at the same time, effectively ensuring a future financial position.

Each entity and/or individual that has exposure to foreign exchange rate risk will have specific foreign exchange hedging needs and this website can not possibly cover every existing foreign exchange hedging situation. Therefore, we will cover the more common reasons that a foreign exchange hedge is placed and show you how to properly hedge foreign exchange rate risk.

Foreign Exchange Rate Risk Exposure - Foreign exchange rate risk exposure is common to virtually all who conduct international business and/or trading. Buying and/or selling of goods or services denominated in foreign currencies can immediately expose you to foreign exchange rate risk. If a firm price is quoted ahead of time for a contract using a foreign exchange rate that is deemed appropriate at the time the quote is given, the foreign exchange rate quote may not necessarily be appropriate at the time of the actual agreement or performance of the contract. Placing a foreign exchange hedge can help to manage this foreign exchange rate risk.

Interest Rate Risk Exposure - Interest rate exposure refers to the interest rate differential between the two countries' currencies in a foreign exchange contract. The interest rate differential is also roughly equal to the "carry" cost paid to hedge a forward or futures contract. As a side note, arbitragers are investors that take advantage when interest rate differentials between the foreign exchange spot rate and either the forward or futures contract are either to high or too low. In simplest terms, an arbitrager may sell when the carry cost he or she can collect is at a premium to the actual carry cost of the contract sold. Conversely, an arbitrager may buy when the carry cost he or she may pay is less than the actual carry cost of the contract bought. Either way, the arbitrager is looking to profit from a small price discrepancy due to interest rate differentials.

Foreign Investment / Stock Exposure - Foreign investing is considered by many investors as a way to either diversify an investment portfolio or seek a larger return on investment(s) in an economy believed to be growing at a faster pace than investment(s) in the respective domestic economy. Investing in foreign stocks automatically exposes the investor to foreign exchange rate risk and speculative risk. For example, an investor buys a particular amount of foreign currency (in exchange for domestic currency) in order to purchase shares of a foreign stock. The investor is now automatically exposed to two separate risks. First, the stock price may go either up or down and the investor is exposed to the speculative stock price risk. Second, the investor is exposed to foreign exchange rate risk because the foreign exchange rate may either appreciate or depreciate from the time the investor first purchased the foreign stock and the time the investor decides to exit the position and repatriates the currency (exchanges the foreign currency back to domestic currency). Therefore, even if a speculative profit is achieved because the foreign stock price rose, the investor could actually net lose money if devaluation of the foreign currency occurred while the investor was holding the foreign stock (and the devaluation amount was greater than the speculative profit). Placing a foreign exchange hedge can help to manage this foreign exchange rate risk.

Hedging Speculative Positions - Foreign currency traders utilize foreign exchange hedging to protect open positions against adverse moves in foreign exchange rates, and placing a foreign exchange hedge can help to manage foreign exchange rate risk. Speculative positions can be hedged via a number of foreign exchange hedging vehicles that can be used either alone or in combination to create entirely new foreign exchange hedging strategies.
About the Author

John Nobile - Senior Account Executive
CFOS/FX - Online Forex Spot and Options Brokerage

The Forex Market and Understanding Foreign Exchange Rates

Unlike the stock exchange, the Forex Market (foreign exchange market) is a relatively new player to the investment world. Today's current Forex market model started in the early 1970's, and today it represents the biggest financial market around, even surpassing the stock market. With trading surpassing $2 trillion dollars per day, the Forex market attracts more and more investors all the time. Before an investor starts trading on the Forex market, he should grasp the fundamentals of how exchange rates work.

Exchange rates

Basically, the exchange rate represents the rate of exchange between two currencies. Most currencies are traded, or paired up against the dollar. The five most common currencies traded on the market are the dollar (USD), euro (EUR), the yen (JPY), the British pound (GBP), and the Swiss franc (CHF). Some other currencies that are traded are the Australian dollar, the Canadian dollar, and the Hong Kong dollar.

In the exchange rate or ratio, the numerator represents the quote currency and the denominator the base currency, which always equals one.

Let's say that an investor wants to exchange euros for dollars. In this case, the euro currency is the quote currency, or how much currency you have to exchange. The base currency is the dollar. The investor researches the current exchange rate (euros converted into dollars) either on the Internet, through the bank, broker, etc., and then multiplies that amount by the number of euros to exchange. Let's say that the exchange rate is 1.57959. That means that 1.57959 euros must be paid to receive one dollar. If he has 1000 euros to exchange, then he can receive $1,579.59 (1000 x 1.57959).

On the flip side, the exchange rate can also tell the investor how much he'll receive if he converts dollars back into euros. If he has $1000, he can either divide that amount by the same euro to dollar exchange rate ($1000/1.57959 = 633.07 euros), or look up the conversation rate for dollars to euros on the Internet, etc. (i.e. .633072) and multiply it by the amount of dollars to exchange ($1000 x .633072 = 633.07 euros).

Once the exchange rate concept is understood, the investor can feel more confident in investing in the Forex market.

About the Author

This article is provided by FX Auto, the world's most powerful online automated Forex Trading System. http://www.fx-auto.com

Learn Forex Trading

Gone are the days, when people with small bundles of notes surely would draw your attention at the airports/ international bus terminus/ important office areas, who are ready to exchange your currency to your desired foreign exchange at a commission. The literacy, the spread, the entrants of various professionals, automated software, revolutionary online forex trading companies have been able to put a control over the entire unorganized sector to pave the way for complete professionalism and to offer a much more convenient and systematic way of Forex trading.

At the inception phase, people, mainly the large corporations used to perform their Forex trading through various banks or major financial institutes, who used to operate at the international level. The overwhelming popularity of Forex of today's modern world due to the liberalization and global economic polices is empowered by the telecom boom, the immense reach of Internet and the unimaginable advantage of advanced technology. The instantaneous effect and up-to-date news provided by the Online Forex Software exchange trading platform in the regime of online Forex, have given you the classical opportunity of taking decisions and immediate implementation. Online Forex trading has been standardized over the years after the initial teething problems, and today's Forex participants get an almost secured access through various online Forex trading companies, which is free from all encumbrances. The technology, its application in case of online Forex has been drastically improved with the increasing awareness of people at large. The success lies in bringing a wider gamut of people into Forex trading platform and in turn the entire Forex Software exchange trading platform has become commercially viable.

If we want to look into the current Foreign Exchange market, we can find a reasonable number of stakeholders beyond the predominated traditional Multi National Companies or MNCs, banks, brokers and the final impetus has given by the wide acceptance of a large number of commoners, who get engaged in Forex trading due to various reasons including even as a mere hobby. The latest encryption methodologies and plenty of guide and trend analysis will make you secured and comfortable even if you are a first timer dabbling into online Forex trading.

The concept of margin trading, implying the traded on margin, saves you for a huge amount of deposit in the Forex. The margin deposit varies between banks and it is always in percentile terms of the original amount, which the bank allows you to play. A simple example will show you the actual potential. Suppose a bank has kept the margin deposit as 2%, which implies that you need to deposit only $20000 USD to trade two million dollars and also you may gear up your profit by 200%. As the coin has got two sides, the 2% margin deposit in Forex may also take you to the road of losses by 200%. The rule remains same, when the offline Forex trading changes it face to online Forex trading.

As every investment carries the potential risk of both profit and loss, the luck of an aggressive online Forex trader may sway anywhere between 2 to 25% on a daily basis on an average. Just for the knowledge base, the beginner in Forex trading must be aware of that the interest rates on your deposit varies greatly depending upon the currencies and the prevailing practice is to play in multiple currencies, popularly known as Base currency and variable currency in the world of Forex both in traditional platform and in online Forex platform. Your awareness level, your analytic power, your intuition are the key driven forces to transform you to an informed Forex trader and to optimize your Return on Investment (ROI) in the most prospective financial market of today's economic world.
About the Author

www.eToroNews.com - Easy to use trading platform, allowing you to use real or virtual money to execute real-time trades with a click of a button.

Risks of Trading in Forex Market

Although every investment involves some risk, the risk of loss in trading off-exchange forex contracts can be substantial. Therefore, if you are considering participating in this market, you should understand some of the risks associated with this product so you can make an informed decision before investing.

As stated in the introduction to this booklet, off-exchange foreign currency trading carries a high level of risk and may not be suitable for all customers. The only funds that should ever be used to speculate in foreign currency trading, or any type of highly speculative investment, are funds that represent risk capital i.e., funds you can afford to lose without affecting your financial situation. There are other reasons why forex trading may or may not be an appropriate investment for you, and they are highlighted below.

The market could move against you

No one can predict with certainty which way exchange rates will go, and the forex market is volatile. Fluctuations in the foreign exchange rate between the time you place the trade and the time you close it out will affect the price of your forex contract and the potential profit and losses relating to it.

You could lose your entire investment

You will be required to deposit an amount of money (often referred to as a security deposit or margin) with your forex dealer in order to buy or sell an off-exchange forex contract. As discussed earlier, a relatively small amount of money can enable you to hold a forex position worth many times the account value. This is referred to as leverage or gearing. The smaller the deposits in relation to the underlying value of the contract, the greater the leverage. If the price moves in an unfavorable direction, high leverage can produce large losses in relation to your initial deposit. In fact, even a small move against your position may result in a large loss, including the loss of your entire deposit. Depending on your agreement with your dealer, you may also be required to pay additional losses.

Overtrading is another ordinary money management mistake in the forex market. This trading does not have clearly defined trading objectives; the sole reason is to make more money. To avoid this mistake, make sure that every trade is broken into ultimate goals, and that these goals are achieved before other positions are added. Very few traders can successfully manage multiple positions in a variety of currency trading markets.

Overconfidence is a big mistake when it comes to money management and the forex market. This is caused when a trader has or thinks they have particular or inside information. These hot tips are sometimes wrong, and when this happens large amounts of money may be lost because of this. The way to avoid this is to avoid being confident in any rumors or special information you may have. Managing your money means taking measures to preserve it as well.

Preferential bias can exist among forex market traders. This happens when they only see or hear what they want in relative to the favored trade. This can cause a trader to ignore the real activity of the forex market in favorite of what they want to happen. It is important to look at each trade impartially and do not become set in cement with your opinion. Do not ask friends or family for their opinions; just go with what you know.

About the Author

I am Rahul Patel a freelance writer SEO Web Designer with deep interest in forex trading. I have written online forex trading articles and published many of them online. I have designed website on currency trading guide.

Forex Market Scam

The Forex market is the biggest financial market in the world. But this doesn ' t make it easier; on the contrary. You have a lot of big advantages but Forex is also very challenging. Almost all advantages, when observed carefully, transform not is disadvantages but in challenges. It is the case of the Forex market being open 24 hours a day. When someone begins trading the Forex or reads about this particular market, this characteristic is taken as an advantage. Traders tend to think " Great! Finally I can trade whenever I want! ". Well, this is, in part, true. But, when you start trading the Forex, you ' ll see that volatility only appears during certain times and that if you are day trading, you can ' t be in front of your computer 24 hours a day. This is a challenge for most Forex traders who are looking for day trading the currency pairs. If you want to day trade, you will have to develop a decent strategy in order to concise it to a few hours a day, probably when the volatility is more likely to urge.

Other big advantage that is always quoted related to the Forex market is the brim requirements. Well, smooth tuck away a pygmy invoice coextensive $300 you can advantage 100, 200 or rolled 400x your wad. You may think this is a great advantage but, in my opinion, this is more a challenge than an advantage. If you have a petite balance and pop to practice a steep side, you can avoid your entire balance in a single trade.

Also, Forex is admitted as the scam market. You have trading systems, courses and common brokers that are constantly rated by traders as scams. In the case of the systems and courses in that they promise a lot of profits stash no elbow grease at all, and in the case of the brokers that donate you all the resources but inasmuch as trade lambaste you, don ' t agreement you withdraw your property or neatly disappear salt away it.

When you start trading the Forex market, or if you present are, you demand to avoid the scams.

Here are some tips of how to avoid Forex scams:

1 - Exercise your shipshape sense. This is the primary phenomenon you compulsion to arrange. Evaluate carefully the product or the broker you are election. If you think they are offering you utterly much, be careful. It may be a scam.

2 - When you are looking for a forex trading system or a course, you ' ll probably see things same " make $100, 000 in a epoch ". Forex is a challenging market and not everyone can make long green obscure it. Don ' t dispose fooled by stir gilded fast conspiracies.

3 - One commendable tip when buying a trading system or course is to viewing if they have riches back guarantee or a unpaid trial spell. This journey, if you don ' t relating what you bought, you can always request for a decrease.

4 - If you are looking for a forex trading system, course or broker, scan reviews untrue by others traders. Scrutinize what they think about the product, the abutment party, how they handle their clients and therefrom on. Construe all that you can.

5 - Before buying a product or signing up veil a broker, always read their webpages. Feel costless to needle them your doubts. If they reckon on in their products and services, they will answer your questions.

6 - If you buy a forex trading system or course, test it first on a demo account. Don ' t start with your real account because you don ' t know how it will actually work. It may need some adjustments on your part to make the strategy good for you.

As I said, the Forex market is challenging. Unless you are able to spend some time with it, not only trading but also reading and learning, you won ' t make it. But, without a doubt, it ' s a very profitable market.

Forex Trading Systems Scam

Have you ever encountered an online promotion for a forex system, strategy or software? If so, I bet that the promoter promises great wealth in no time, something like " this incredible system makes $3, 000 a day " or " I am making money in my sleep using this automated trading software " and so on. Very tempting for some of us. And as this " Forex Systems " hype is relatively new, even veteran traders ask themselves whether these systems are for real.

The exactness is that some of these forex merchandise are indeed total scams. But absolute is again not logical to foresee that ALL of them worth nobody. Luckily, we live in the hot poop ticks, locality a scam cannot hold office close for spun out. So if you encounter a forex system, strategy or software for sale, conclude not carry lazy and search the net for relevant blogs, forex forums and reviews. If the product is a scam, you will familiar conceive physical quite delicate. However, lease ' s spiel that you treasure a decent, reliable Forex System - what rap you assume from sound? Will positive well deliver? Fine, flying start by commercial the following questions:

Am I disciplined?

Most traders purchase a first-rate trading system or software but operate not have the discipline to trade according to the system ' s rules. Some traders achieve not credence the system they have tried bought and endeavor to chicken feed the rules from day one. Others certainty the system prime, but next a few bad trades source losing confidence and contract apprehensiveness and attraction genie their decisions. I itch admit - substantial was very insolvable for me to faith a system that was created by someone too many. Solitary when I tacit the logic late the system I began to fashion confidence, traded stow away discipline and somewhere made profits.

Are my expectations fitting my ration?

The size of your trading invoice will halt your lifelike profit expectations. If you have a mini account ( a keep of between 500 to 10, 000 US dollars ), irrefutable means that for trading the EUR / USD, a 1 pip movement in your favor equals 1 US dollar in profit. So if you are a very rad trader stifle a very superb trading system, a stupendous trading point veil a total of 500 pips hike, equals US$ 500 in profit. I guess you cannot quit your job yet. But if you have a one million dollar account, you can definitely earn US$ 1, 000 per pip. So it takes only 3 pips to make US$3, 000 a day. I hope you get the point.

Do I have enough knowledge?

Even the best system is operated by a real person. And each trader is a unique individual. Consequently, if you ask a group of traders to trade the same system, under the same conditions, you will probably get totally different results. Yes, some traders do make money in their sleep using profitable forex systems, but the human factor will always be there. So get yourself a good trading system, but do not stop there. Be ready to acquire a sound knowledge in forex trading and keep expending your knowledge over time.

Sending Signals For Trading In FOREX

By: Gary Berg
Forex signals are sent by a forex firm to their subscribers in order to buy and sell currencies. These signals are called entry and exit signals for the forex dealers. The firms, which send this forex signal, do so after tedious and meticulous research and analysis into the currencies that their dealers are trading in. For example a firm may send the entry and exit signals at designated time frames in real time. These will remain valid for a short period only after which they are going to be different.

Let's say that there is a forex trading company say Acme Forex traders who send entry and exit signals to their clients in the following way

The first signal is provided to the trader at 08:30, and this signal is going to remain actual till 12.30

The trader will receive the second signal at 12.30, which would remain actual till 16.30.

The last signal would be sent to the trader at 16.30.

The transactions are given according to GMT. Please adjust for local time changes. The transaction shall be calculated till the signal is actual. The charges would be $300 per month per trader.

Forex dealers and experts provide forex-trading information and data to both institutional clients and individual investors and provide these kind of signals. Investors like to subscribe to credit worthy forex dealers / companies since their information and data would be genuine and more accurate. In fact many forex dealers would kill to get information before the rest of the market gets the same information. As forex dealing is a very competitive business.

These signals or forex indications are given to the forex dealers through the forex trading platform or hub. The signals or forex indicators are the specific entry and exit strategies. Therefore when you enter a currency trade buying currencies at lower price and then selling at higher price, you book a profit. currency pair. For example the forex dealer is trading in GBP/USD. The rate is for GBP/USD is .9800 . If you expect that Euro is likely to go up in the future you would buy the Euros today to sell them off at a later date thereby booking a profit. If you expect the dollars to appreciate, then you would buy the dollars selling them off at a later date to book profits.

Most forex dealers will get the information via email or straight on their computer screens. It is then up to the forex dealers to decide whether they want to sell / buy / hold the currencies till further information is given to them.

Those who contribute in giving the information on currency dealing are hedge managers, foreign exchange dealers located in the major financial markets of the world, professional stock brokers, finance managers and a host of other finance professionals. They make it their business to collect, analyze and disseminate information in such a way, that can be used by forex dealers to buy / sell / hold the forex.

Therefore the companies take extreme care to send the forex signals for the currency dealers.

About The Author

Gary Berg

Real time forex signals sent to your desktop, email or mobile phone. Visit http://www.forex-made-easy.biz.
Copyright Gary Berg - http://www.forex-made-easy.biz

Forex Profits

By: Anthony Trister
Forex, FX and the Forex market are some common abbreviations for the Foreign Exchange market. Actually it is the largest financial market in the world, where money is sold and bought freely. In its present condition the Forex market was launched in the seventies, when free exchange rates were introduced, and only the participants of the market determine the price of one currency against the other proceeding from demand and supply. As far as the freedom from any external control and free competition are concerned, the Forex market is a perfect market.

With a daily turnover of over trillions of dollars, the Foreign Exchange market conducts more than three times the aggregate amount volume of the United States Equity and Treasury markets combined. The Forex market is an over-the-counter market where buyers and sellers conduct foreign exchange business using different means of communication.

Unlike other financial markets, the Forex market has no physical location or central exchange. Since the Forex market lacks a physical exchange, the market trades continuously on a 24-hour basis, moving from one time zone to the next, across each of the world's major financial centers every day. Trillions of dollars of foreign exchange activity takes place every day. From 1997 to the end of 2000, daily forex trading volume surged approximately from US$5 billion to US$1.5 trillion and more (according to various recent studies it has touched $1.7 trillion per day and dwarfs all other markets for trading in size and volume). It is really difficult, if not impossible; to determine an absolutely exact number because trading is not centralized on an exchange. But one thing is for sure that the Forex market continues to grow at a phenomenal rate.

Before the advent of Internet and ecommerce, only big corporations, multinational banks and wealthy individuals could trade currencies in the Forex market through the use of the proprietary trading systems of banks. These systems required as much as US$1 million to open an account. Thanks to advancements in online technology, today investors with only a few thousand dollars can have access to the Forex market 24 hours a day and around 5 days of a week.

The Forex market is a nonstop cash market where currencies of nations are traded, typically via brokers called forex brokers. Foreign currencies are constantly and simultaneously bought and sold across local and global markets while traders increase or decrease value of an investment upon currency movements. Foreign exchange market conditions can change at any time in response to real-time events so it is also considered to be a highly volatile and fragile market too. Conditions of the Forex market never remain the same they changes every second.

The foreign exchange market dwarfs the combined operations of the New York, London, and Tokyo futures and stock exchanges. According to its size and scope it is many times larger than all other markets. Stats shows that spot transactions and forward outright Forex trading take place in the inter-bank market. 51% of the market is in spot Forex transactions, followed by 32% in currency swap transactions. Forward outright Forex transactions represent another 5% of this daily turnover, with options on interbank' Forex transactions making up another 8%. Therefore the inter-bank market accounts for 96% of the global foreign exchange market, with the remaining 4% being divided among all the global futures exchanges.

For traders, Forex trading provides an alternative to stock market trading. While there are thousands of stocks to choose from, there are only a few major currencies to trade (the Dollar, Yen, British Pound, Swiss Franc, and the Euro are the most popular). Forex trading also provides a lot more leverage than stock trading, and the minimum investment to get started is a lot lower. Add to that the ability to choose flexible trading hours (forex trading goes on 24 hours a day) and you have the reason why so many stock traders have flocked to day trade currencies.

About The Author

Anthony Trister is a currency trader and is an owner of OneDayTrades which offers free, mechanical forex signals and an automated trading program for those wanting to trade forex. Free access available here: http://www.onedaytrades.com.



Copyright Anthony Trister - http://www.onedaytrades.com