Tips on Identifying Forex Trends

When trading the Forex markets, one of the most important things that you need to know is the direction of the overall trend. While many people will write about the different trends and their time periods, the one that you should be worried about is the overall direction of the currency pair. While you can chart these trends down to 15 minute intervals, it is much simpler to focus on a longer timeframet.

One of the best ways to identify the trend is the simple trend line on the weekly chart. The reason the weekly chart is so significant, is that it takes much more to break a trend line on that time period than the smaller time periods such as the one hour chart. By following the weekly trend line, you can see where the overall direction of the market tends to be going. If you draw a weekly trend line, you will notice that it doesn't get broken very often. In fact, it isn't that rare for these trend lines to last for years on end. As an example, take a look at what the Euro did versus the Dollar from 2002 to 2006. It was a straight shot up, and a simple trend line analysis would have told you that based upon the weekly chart.

Moving Averages

Another common way to identify the trend is to use a moving average. While the exact moving average is debatable, some of the more common ones are the 50, 100, and 200 day moving averages. By plotting these on a daily chart, you can see how over time the trend is slowly moves these moving averages in one direction or another. This shows the long-term effects on the trend due to fundamental announcements, and traders stepping in and out of the markets. It should be noted that the higher the number on the moving average, the longer it takes to move it. On the 200 day moving average as an example, it takes a massive swing and direction to change the slope of that moving average. This can help keep you in a trend for a very long time.

Better yet, an excellent way to determine the trend is by a combination of the two tools mentioned above. A lot of traders will only trade in the direction of the market based upon where a specific moving averages. For example, you may pick the 100 day moving average. If price is above that 100 day moving average, you're only looking to buy. If it is below, you're only looking to sell. If you line up trend lines with the moving average, and both tell you to buy a currency pair, it becomes very clear that the trend is moving in a bullish direction. While this doesn't guarantee a 100% success rate, it certainly can keep you pointed in the right direction and allow the markets momentum to carry you forward.

By staying in the same direction of the trend, you allow the other traders in the market to push your trade forward, and help you we more profits. This is perhaps one of the most basic and fundamental ways to make money in the Forex markets. Sadly, far too many traders don't pay attention to the trend. Don't let yourself make this common mistake.

By: Christopher Lewis

Forex Market Hours for Maximum Profits

The Forex market offers traders many advantages over other financial arenas. These include high potential for profitability, flexible trading locations, the ability to capitalize on a bullish and bearish market, and most of all the Forex market hours, which are virtually endless and constant.

While the Forex market hours are not limited to one time slot or another, and traders can really open positions almost any time they want, there are certain Forex market hours that are optimal for trading.

One of the most blatant characteristics of the Forex market is volatility. What that means is that the market is always moving and moving fast. This has direct consequences for the Forex trader looking to make money. All a trader needs to do is be in the right place at the right time and the market can shoot in any direction, which will lead to major profits. This, however, very much depends on Forex market hours.

One other great aspect of Forex trading is that you can profit whether the market is going up or down, but if the market is not moving at all, then obviously there will be no profits. For this reason, Forex market hours are so crucial.

If you open a position when there is limited movement in the market, the volatility will be minimal and as a result, so will your profits. If however, you open a position in Forex market hours that are busy, the volatility will be up, and as you probably guessed, so will your profits.

Of course, just like everything in life, the higher the risk, the higher the reward. In this case, the higher the reward, the higher the risk. Are you confused? What I mean to say is, yes, if there is high volatility, you can make more money, but you can also lose it just as fast if the market moves against you. Trading carefully and professionally is a topic for another time, so we will leave that alone now and focus on the best Forex market hours to trade.

To better understand the best Forex market hours to trade, let's first talk about the best and worst days to trade. It has been proven time and time again that the Forex market is most active in the middle of the week. This is true across all major pairs

When trading Forex, the weekend starts early and the market is only busy for half of the average Friday and then calms down once 12 PM EST arrives. The market closes at 5 PM EST. Holidays, weekends, and days with major news reports are some examples of Forex market hours you want to stay away from.

In terms of actual Forex market hours, there are three trading sessions in the Forex market, the Tokyo session (7pm -4am EST), the London session (3am-12pm EST), and the US session (8am-5pm EST). The premise is simple. You need to find times in which multiple sessions overlap so there is the maximum activity in the market.

Yes, we will spell it out for you, don't worry. The time slots in which Forex market hours of multiple sessions overlap are as follows:
• 3-4am EST: Tokyo and London are open
• 8-12pm EST: London and US are open

Of course, this does not mean you should not trade beyond these time slots, but these specific time frames might produce higher volatility and profits for the average trader.


By: Sara Patterson

Foreign Exchange Regulation and the CFTC

A lot can be said about the retail foreign exchange market. Unfortunately for the legitimate Forex brokers out there, due to many scammy Forex services, the entire industry has a negative reputation. It is for this reason that foreign exchange regulation agencies and specifically the CFTC were born.

Many Forex service providers recognize the human weakness of greed. People like money, that is a fact of life and they know it. These services use aggressive marketing techniques and false promises that Forex will bring immediate and effortless wealth. This is of course false and it is because of these companies that Forex is associated with other industries that have also been known for negative online activities.

One of the ways these activities are battled is by foreign exchange regulation agencies. These organizations set out to regulate the market and eliminate brokers and service providers that do not come through on their promises. One such foreign exchange regulation agency is the CFTC or the Commodity Futures Trading Commission.

The CFTC was originally founded in 1974 and received support from congress to become an independent agency with the authority to regulate the commodities, futures, and options markets in the United States.

The agency's mandate has been reinstated and even increased multiple times since then, most recently in the year 2000 by the Commodity Futures Modernization Act.

When the CFTC was originally founded in 1974, the vast majority of activity in the futures market was in the agricultural sector. Since then, it has transformed and been widely adapted across industries with the financial sector dominating the futures trading arena. The CFTC, as foreign exchange regulation agencies go, states that its mission is to “assure the economic utility of the futures markets by encouraging competitiveness and efficiency, protecting investors from fraud, manipulation, and abusive trading practices.”  The CFTC also explains that they ensure financial integrity of the licensing process when it comes to futures service providers.

The CFTC plays an important role in the US futures market as well as its siblings, which include Forex and commodities. While these markets do enjoy greater independence than the Stock Market for example, too much freedom apparently cause opportunists to take advantage of the public by making empty promises. It is for this reason that foreign exchange regulation is such a crucial part of this space and the CFTC plays an important role in the task of regulating the various markets so they can remain a fair and leveled playing ground.

Foreign Exchange Regulation and the ASIC

Much has been said about the lack of regulation that exists for the Forex market. Foreign exchange regulation is a tricky topic. On the one hand, a lack of a central regulatory body provides flexibility and freedom, which enables anyone to trade the market. On the other hand, it leads to hundreds if not thousands of fraudulent service providers that have been known to blatantly steal money from their clients. Whether or not you are a fan of Foreign exchange regulation, the agencies who do regulate the market such as the ASIS, have an important job that they carry out very effectively.

The ASIS or the Australian Securities and Investments Commission is the body responsible for regulating the Australian corporate, markets, and financial arenas. As the ASIS site explains, the organization's main concern is to ensure full transparency and fairness in Australia's financial markets.

The ASIS is a foreign exchange regulation agency that is an independent commonwealth government body. It receives it authority and administers the Australian Securities and Investments Commission Act (ASIS act). It also carries out and implements most of its work under the corporations act.

The Australian Securities and Investments Commission Act requires ASIS to do the following:

• Maintain, enhance, and facilitate the high quality performance of the Australian financial system and its entities.
• Promote active participation by investors and consumers in the financial system.
• Oversee the legal issues of the financial arena to ensure a minimal amount of official bureaucratic issues for the trader.
• Enforce complete transparency when it comes to information pertaining to Australia's financial entities.

Every country has its Forex trading sessions and therefore requires a foreign exchange regulation body. The ASIS is the sole authority or regulatory body of Australia, which has a very strong presence in the global financial markets.

The ASIS has the authority to ensure fair and transparent trading and as foreign exchange regulation agencies go, the ASIS continues to conduct itself with the utmost level of professionalism, something that is very needed in the Forex market.
ASIS has the authority to regulate Australian companies, financial markets and services, as well as professionals who are involved in investments, insurance, and deposit taking and credit.

In addition, as the corporate regulator, the ASIS is also responsible for ensuring that company executives carry out their duties with integrity and in the best interests of the company.

As the regulator of the markets, ASIS assesses how effectively authorized financial markets are complient with their legal obligations to operate fair, orderly and transparent markets. They also advise the Australian Minister about authorizing new markets.
By: Sara Patterson

Minimizing Your Risks (Smartly)

When trading currencies, managing your risk is extremely important as the leverage can cut both ways. You may find that your winnings are accelerated, but very few people pay attention to the fact that their losses are accelerated as well by the very leverage that attracted them to Forex in the first place.

When we are first introduced to the world of Forex trading, from one of the first things that we hear is how outrageous returns can be. While this is true, is very unrealistic. We will often hear advertisements that tout outrageous gains like 50% in one week. We start trading for a while, and suddenly will reality sets in as we understand that these gains are not sustainable. Now that reality has set in, let's take a look at how a prudent trader goes about discovering how to control their risk in the Forex market.

While this may sound like heresy to some of the self-appointed Forex gurus out there, many professional Forex traders will not risk more than 1% of their account on any particular trade. While this doesn't sound like much, you have to remember that typically you are aiming for more than you are risking. A typical two-for-one strategy would have you aiming at 2% gains on every trade. Besides, look at all of the people that Bernie Madoff managed to swindle billions from by merely offering 1% a month! You have to ask yourself, are these people stupid? Or is it possible that they were blinded by "excellent gains?” To understand the appeal of this, you have to understand compound interest.

Using Bernie's example of 1% gains per month, you end up with a tidy 12.68% return per year. While this doesn't sound like much, this sets up for you to triple your account in 10 years. While this doesn’t sound like much, I can assure you that many people are willing to take that gain. What happens if you bump up your returns to 15% a month? You now have tripled your account in 8 years. With a starting balance of just $10,000 you will end up with $40,455.58 at the end of the decade. Again, these are very conservative returns. A good Forex trader might get something closer to 25% a month. Your $10,000 turns into $93,132.26 after 10 years. These are great returns as you can see.

By only risking a small amount, you allow yourself to stay in the game after a couple of losses. If you are only risking 1% on a trade, losing three trades in a row is actually less than 3% of your original balance. Risking 5% on the same trades, you find yourself down about 13%. But whole would you rather dig out of?

By seeing what compound interest can do, you must understand that it works both ways as well. By risking small amounts on each trade, you allow yourself to grow your account, and just as importantly - gain experience to become a better trader. After all, if you are broke and your account is blown up, you are trading.

The best way to gauge which amount to risk on any particular trade is to notice your psychological reaction when placing these trades. If you feel that you have to absolutely sit and babysit the trade, you are more than likely risking more than you are psychologically comfortable with. While this doesn't change the math, it does affect whether or not you exit when your system tells you to, or when you simply can't take the pressure anymore. As a litmus test, I have found that if I cannot walk away from the computer with the amount I am trading running live, it's too much. Besides, the whole idea behind trading is to make money without worrying about it. Remember, you started trading for the idea of freedom. And that freedom certainly wasn't sitting at a computer worrying about losing a particular trade.

By experimenting with various percentages of your trading account, you will find what works for you over time. You'll be surprised at the gains that you can get with even the smallest amount of risk being placed. If you learn to trade correctly, the gains will come. But you have to be able to stay in the game long enough to get to that point.       
By: Christopher Lewis

How the Greek Drama Affects Forex Trading

One of the most talked about situations in the Forex world at the moment is the Greek debt crisis. This is because while Greece itself isn’t a large part of European GDP, in fact it is only roughly 3%, the debt could cause massive losses for banks around the world, and more specifically – in the richer European nations.

It should be noted that a lot of the Greek debt that is currently being worrisome for traders is owned by French and German banks. The amount of debt that these banks carry is unknown, but it is known to be massive and very significant. Because of this, the Germans and French are highly exposed to the endgame of the debt crisis and could cause significant losses for those banks. As those banks go, it could have massive repercussions in the countries they are rooted in.

Is Debt Contagious?

The concern of this “contagion” is that few people actually understand where it all ends. The other issue is that if Greece gets a break on the terms of its debt, there is nothing to keep the Irish and Portuguese to ask for the same. The creditors may find that they are forced to “take a haircut”, or take less payment than originally expected – crushing profits for investors. With massive losses piling up in the banks, you could see credit markets seize up in the more prosperous countries of Europe, and this could cause serious damage to the euro as a whole.
The situation in Greece has turned out to be one that almost guarantees a cutting of the Greek debt as they simply cannot pay it off. In fact, the 2 year Greek bonds recently sold for a 26% interest rate – which certainly couldn’t be paid in reality. Because of this, people will feel a bit weary of investing in Europe. This will cut a certain amount of demand for the euro.

One thing that markets hate is uncertainty. The Greek situation pretty much guarantees that there will be a certain amount of it surrounding the European area. Because of this, we may see the euro weaken towards the latter part of the year as investors flee from the continent and look to safer areas to get involved with, such as the United States.   
By: Christopher Lewis