The Correct Timing in Forex Trading

The Correct Timing in Forex

Trading

When you sense a trading opportunity, the deciding factor is to know exactly when to buy.

Unfortunately this is the very point at which most loose the plot by timing their entry levels

improperly. But here are some basic guidelines to help you at those crucial moments:

Making Proper Use of Support and

Resistance

If you try and use the fundamental rule of the share market – “buy low, sell high” – in Forex

trading, you’ll actually lose money. To understand you need to know how the system of support

and resistance works.

A support price is a historically tested price at which traders intervene and buy, so as to “support

the market”. The more times this price is tested, the more bankable the support price will be.

Inversely, a resistance level is defined as a level at which “prices were resisted from moving any

higher”. Here too the more times this level is tested, the more reliable it becomes.

Why Buy Low and Sell High Doesn’t Work

The reason why this traditional wisdom is counterproductive in Forex trading is that if you actually

wait for prices to fall, you’re going to end up missing some of the best opportunities for making

money. Consider: when a currency starts to pick up, what are the chances of its pulling back?

What if it doesn’t and steadies out? If you keep waiting for a pullback, you could end up never

getting in on the trade because most of the changes in currencies occur from new market highs

and without any pullback.

So if you plan to focus your Forex trade strategy on waiting for an entry at support prices, wake

up! You stand to loose out on the most profitable trades. What your Forex trading strategy should

target is rather, to “buy high and sell higher” – i.e. you should try and do quite the reverse of what

the general crowd is doing. Try and keep a lookout for any breakthroughs in support and

resistance, and then sell and buy correspondingly.

It Takes Guts - But It Makes Money

The policy of going against the crowd takes courage to practice. But think over the strategy with a

cool head and you shall find it is the most logical thing to do. How often have you heard of traders

buying into support, but the market continuing its freefall, breaking the support?

And again, haven’t you heard tell of the price continuing to soar and never getting to support,

thereby making the trader miss the chance to capitalize on the trend?

So rather than be traditional and lose money, it is easier to adopt the breakouts policy: you won’t

be comfortable on entry but you will be making money. The trick is to break away from the pattern

that the losing majority sets and to do what is productive and logical considering the common and

predictable response.

The Importance of Real Time

Forex Charting

Do you want to earn money in the arena of foreign exchange? In order to accomplish so, you

should possess in-depth technical knowledge, focused on the capability of tracking currency

exchange rates, through interpreting actual forex charts.

If you are an amateur in this field, you should quickly discover authentic forex charts from the

Internet or may opt for free actual forex charts. The best option is however, to take the help of

free chart recognition software and mastering on it, you are well suited for this business.

Online forex charts keep you updated about currency values at any time, even between short

time gaps like minutes to long intervals like several years. The graphs depicting the oscillations in

rates are line graphs, or bar diagrams or candlestick charts.

Line charts are easy to interpret and help you to broadly check ups and downs of prices. It aids

you to track the current trend of rate movement. On the contrary, bar charts are not as lucid as

line graphs but supply a much in depth information.

To summarize, the length of a bar chart depicts the amount of rise or fall in price and the breadth

gives the duration, which has witnessed this. Initial and final rates are mentioned on chart so that

you can identify the range and whether it’s a fall or rise. There are pattern recognition software

available that interpret the bar diagrams for you and make your task easier.

The Japanese were first found to use candlestick charts to plot their amount of their rice

production. Since then they have been increasingly popular. Though they are similar to bar

diagrams, they are colored.

Each color acts as a code to signify the rise or fall in price. The index is written on the graph itself.

Thus candlestick plots are much more user friendly than bars. Candlestick charts have unique

patterns and they are as pretty as to be named after natural beauties. As soon as you are able to

identify the particular pattern you will identify the market trend.

An actual forex chart is often complemented with many technical indicators such as trend,

strength, volatility and cyclic movements. A forex chart is useful itself, but this adjunct information

is provided to ease your task of market analysis to predict both movements in the market and

market volume.

Calculating Interest on

Forex Trades

One of the best things about Forex trading is the fact that one can trade using leverage, thus

borrowing as much as 1,000 times your capital in order to make a trade. However, borrowing

money for trading in foreign exchange is the same as borrowing it for other purposes—interest

must be paid on the loan.

However, as currency trading involves both buying and selling, the interest due on your loan can

be offset by the interest earned on the currency you buy. Before going on to particular examples,

let us take a look at interest rates in general, to see how the foreign exchange market is affected

by it.

In central banks, interest rates are set in accordance with a country’s monetary policy—high

interest rates make the currency more expensive to buy and lower interest rates make it less so.

Imagining the government of a country with high inflation will help you understand how interest

rates are used.

The government, because of rapidly rising prices, might decide to raise interest rates. This would

increase the cost of the country’s currency, and make demand and consumption fall, as

borrowing would be more expensive.

This in turn would cause prices to fall and inflation rates would come down. Similarly, a country

undergoing recession might lower interest rates to boost the country’s economy, as lower price of

currency would cause demand, and, therefore, supply, to increase.

Interest rates set by central banks also determine at what rate commercial banks can borrow from

governments and lend to their customers, including forex traders. Which tells us how interest

rates affect this trade.

A trader who, for example buys GBP/USD, needs to borrow the Dollars to buy the Pounds and

will, thus, pay interest on the USD and earn it on the GBP. If the interest rate the Bank of England

sets for the UK Pound is higher than the one set by the Federal Reserve for the US Dollar, the

trader will earn more on the UK Pounds he bought than he pays on the US Dollars he borrowed,

thus making a profit.

However, unless there is a significant difference between the two interest rates, the net profit or

loss will be marginal. Besides, while interest rates are set on an annual basis, trading positions

are usually opened for short periods. This serves to significantly lower any gain or loss on interest

rates.