Simple Forex Techniques with Monthly Charts
If you are new to Forex and are not familiar with short term trading strategies, various chart patterns, and complex indicators, one way to test the water is taking a step back and looking at the big picture. Monthly charts can certainly help you so that you don't over trade. Let's take a look at the monthly chart of USD/CHF below. Currently, the pair is trading at the 1.03 level. So without any advanced Forex knowledge, one can say the pair has more room to go up than to go south. Not that USD/CHF can ever go to the 0.7 level, but that's probably not very possible unless the U.S. economy just blatantly goes to hell. However, it is more possible for the pair to go to the 0.9 level. So we can then say we'll buy when the pair is near or below 1.0. Whether we buy at 1.0, or at the current level, or 0.95, risk management is the key. We don't want a mistake to wipe out our account. Assuming we buy at the current level, and we think it's possible for the pair to go down to 0.9, so that's about 1300 points of risk. Let's say we will allow 20% of loss for that and you can decide the trading size. If you now have $100 in the account, you buy USD/CHF at the currently level, even when it goes down to 0.9, you still have $80 left. Trading size is the key. That also means the pair needs to go to 1.16 before you see a 20% profit. To many, maybe 20% profit isn't good enough, but it is sure much better than lots of mutual funds.
I found this useful tool @ earnforex to calculate the lot sizes. Using our USD/CHF as an example, we enter the account balance, risk in % or risk in dollar amount, number of pips we believe it may go against us, select the pair, and finally the current price. Hit Calculate. It tells you the units or lots you can buy or sell.
One more thing you'd also need to take into consideration is the daily interest you will earn or pay by holding USD/CHF. Using Interbank FX as an example, buying USD/CHF 1 standard lot will incur $0.87 of interest payment. It's going to cost you $26 a month. If your lot size is much smaller than a standard lot, then the interest payment is relatively insignificant.
Forex Lot Size Calculator
USD / CHF Monthly Chart
Trading Forex with Ichimoku Indicator
I like to trade with this indicator on an hourly chart when price moves above or below the cloud, and stays there for a few hours before I enter a trade. During that time, the high or low should not touch or move back into the cloud. I use the default setting that comes with Oanda, 7, 22, 44. Depending on the currency pair, with EUR/JPY, GBP/JPY, and GBP/USD, I like to set the take-profit at 80 pips. With EUR/USD and EUR/GBP, I normally set it at 50 pips or less. I normally set the stop loss a few pips above or below the cloud.
Here is an example. Yesterday, 6/21, after the price fell below the cloud, I opened a limit sell order at 112.20 at around 9:07 PM GMT. At the same time, I preset the take profit target at 111.40 and the stop loss target at 112.60. And that's it. The order was filled at 9:49 PM GMT and I let it do its own magic. The take profit target was hit at 9:14 AM GMT, 6/22.
Is Forex Trading Safe?
A simple answer is yes but it is only safe if some homework is done properly.
To choose a reuptable broker is the key to the safety of the money deposited. Before making a decision on which broker you want to invest with, check out the reports on CFTC - U.S. Commodity Futures Trading Commission.
Once you narrow down a list of brokers from 2 to 3, the next step is to test their trading software. Always open a demo account and test drive the trading platforms the brokers offer. At the same time, put your trading strategies to test as well. You will learn whether you are able to make any money in the demo account. It is a nice and convenient way to find out if Forex is for you without risking a dime.
Last but not the least is the risk management. In real trading, experts always advise that never risk more than 1% or 2% of the account balance in a single trade. This is very true and very important. Always have a stop loss order in your mind or simply place it when a position is opened.
What Is Leverage in Forex?
Leverage is a loan from a broker to your account. To trade Forex, we first open up a margin account with a broker. Usually, the amount of leverage provided is either 10:1, 50:1, or 100:1. 10:1 means we only need 10% of the margin to buy or sell a currency pair. 50:1 is 2%, and 100:1 is 1%.
For example, we have $5000 in our account. To trade $100,000 of USD/JPY, with a margin of 1%, that is 100:1, we only have to use $1,000 from our account to initiate the trade. Half an hour later, we are losing $500 in this trade. So, the free money at this time is $3500. $5000 - $1000 (margin used in USD/JPY) - $500 (unrealized loss) = $3500. If we want to open another trade, this is the amount used to calculate what our leverage would be at the time.
One thing to remember though is although the ability to earn significant profits by using leverage is substantial, leverage can also work against us. Using the example above, with 1% of margin, we can trade $100,000 of USD/JPY with just $1000. We can make about $10 a pip, but we can also lose $10 a pip. Too lose $1,000, all it takes is for USD/JPY to move 100 pips in the opposite direction of what we want it to be. To avoid such a disaster, forex traders usually implement a strict trading style that includes the use of stop and limit orders and proper use of leverage. Normally, we are advised not to risk more than 2% of the account balance in a single trade.
What Is a Forex Scalping Strategy?
Forex scalping strategy is a trading strategy used on very short time frames. Traders who use this strategy only aim to capture very small number of pips in the market. For example, during a major news announcement, traders may want to capture the big price swings and quickly buy or sell a currency pair. Once they profit a small number of pips, they close the position immediately. Traders using this strategy are not interested in the "big picture" of the market.