How to Read a Chart & Act Effectively

Introduction

This is a guide that tells you, in simple understandable language, how to choose the right charts, read them correctly, and act effectively in the market from what you see on them. Probably most of you have taken a course or studied the use of charts in the past. This should add to that knowledge.

Recommendation

There are several good charting packages available free. Netdania is what I use.

Using charts effectively

The default number of periods on these charts is 300. This is a good starting point;

• Hourly chart that’s about 12 days of data.
• 15 minute chart its 3 days of data.
• 5-minute chart it’s slightly more than 24 hours of data.

You can create multiple "tabs" or "layouts" so that it’s easy to quickly switch between charts or sets of charts.

What to look at first

1. Glance at hourly chart to see the big picture. Note significant support and resistance levels within 2% of today’s opening rate.

2. Study the 15 minute chart in great detail noting the following:

• Prevailing trend
• Current price in relation to the 60 period simple moving average.
• High and low since GMT 00:00
• Tops and bottoms during full 3 day time period.

How to use the information gathered so far

1. Determine the big picture (for intraday trading).

Glancing at the hourly chart will give you the big picture – up or down. If it’s not clear immediately then you’re in a trading range. Lets assume the trend is down.

2. Determine if the 15 minute chart confirms the downtrend indicated by big picture:

Current price on 15-minute chart should be below 60 period moving average and the moving average line should be sloping down. If this is so then you have established the direction of the prevailing trend to be down.

There are always two trends – a prevailing (major) trend and a minor trend. The minor trend is a reversal of the main trend, which lasts for a short period of time. Minor trends are clearly spotted on 5-minute charts.

3. Determine the current trend (major or minor) from the 5 minute chart:

Current price on 5-minute chart is below 60 period moving average and the moving average line is sloping downward – major trend.

Current price on 5-minute chart is above 60 period moving average and the moving average line is sloping upward – minor trend.

How to trade the information gathered so far

At this point you know the following:

• Direction of the prevailing trend.
• Whether we are currently trading in the direction of the prevailing (major) trend or experiencing a minor trend (reaction to major trend).

Possible trade scenarios:

1) Lets assume prevailing (major) trend is down and we are in a minor up-trend. Strategy would be to sell when the current price on 5-minute chart falls below the 60 period moving average and the 60 period moving average line is sloping downward. Why? Because the prevailing trend is reasserting itself and the next move is likely to be down. Is there more we can do? Yes. Look for further confirmation. For example, if the minor trend had stalled for a while and the lows of the past half hour or hour are very close to the 5 minute moving average then selling just below the lows of the past half hour is a better place to enter the market then just below the moving average line.

2) Lets assume prevailing (major) trend is down and 5-minute chart confirms downtrend. Strategy would be to wait for a minor (up trend) trend to appear and reverse before entering the market. The reason for this is that the move is too “mature” at this point and a correction is likely. Since you trade with tight stops you will be stopped out on a reaction. Exception: If market trades through today’s low and/ or low of past three days (these levels will be apparent on the 15 minute chart) further quick downward price action is likely and a short position would be correct.

3) A better strategy assuming prevailing trend down, 5-minute chart down, and just above days lows is to BUY with a tight stop below the day’s low. Your risk is limited and defined and the technical condition (overdone?) is in your favor. Confirmation would be if today’s low was a bit higher than yesterday’s low and the price action indicated a very short-term trading range (1 minute chart) just above today’s low. The thinking here is that buyers are not waiting for a break of today’s or yesterday’s low to buy cheaper; they are concerned they may not see the level.

4) Generally speaking, the safest place to buy is after a sustained significant decline when the bottoms are getting higher. Preferably these bottoms will be hours apart. By the third or forth higher bottom it is clear a bottom is in place and an up-move is coming. As in the example above your risk is limited and defined – a low lower than the last low.

5) The reverse is true in major up-trends.

Other chart ideas

• There are always two trends to consider – a major trend and a minor trend. The minor trend is a reversal of the major trend, which generally lasts for a short period of time.
• Buying above old tops and selling below old bottoms can be excellent entry levels; assuming the move is not overly mature and a nearby reaction unlikely.
• When a strong up move is occurring the market should make both higher tops and higher bottoms. The reverse is true for down moves- lower bottoms and lower tops.
• Reactions (minor reversals) are smaller when a strong move is occurring. As the reactions begin to increase that is a clear warning signal that the move is losing momentum. When the last reaction exceeds the prior reaction you can assume the trend has changed, at least temporarily.
• Higher bottoms always indicate strength, and an up move usually starts from the third or fourth higher bottom. Reverse this rule in a rising market; lower tops…
• You will always make the most money by following the major trend although to say you will never trade against the trend means that you will miss a lot of opportunities to make big profits. The rule is: When you are trading against the trend wait until you have a definite indication of a selling or buying point near the top or bottom, where you can place a close stop loss order (risk small amount of capital). The profit target can be a short-term gain to nearby resistance or more.
• Consider the normal or average daily range, average price change from open to high and average price change from open to low, in determining your intra-day price targets.
• Do not overlook the fact that it requires time for a market to get ready at the bottom before it advances and for selling pressure to work it’s way through at top before a decline. Smaller loses and sideways trading are a sign the trend may be waning in a downtrend. Smaller gains and sideways trading in an up trend.
• Fourth time at bottom or top is crucial; next phase of move will soon become clear… be ready.
• Oftentimes, when an important support or resistance level is broken a quick move occurs followed by a reaction back to or slightly above support or below resistance. This is a great opportunity to play the break on the “rebound”. Your stop can be super tight. For example, EURUSD important resistance 1.0840 is broken and a quick move to 1.0860, followed by a decline to 1.0835. Buy with a 1.0820 stop. The move back down is natural and takes nothing away from the importance of the breakout. However, EURUSD should not decline significantly below the breakout (breakout 1.0840; EURUSD should not go below 1.0825.
• After a prolonged up move when a top has been made there is usually a trading range, followed by a sharp decline. After that, a secondary reaction back near the old highs often occurs. This is because the market gets ahead of itself and a short squeeze occurs. Selling near the old top with a stop above the old top is the safest place to sell.
• The third lower top is also a great place to sell.
• The same is true in reverse for down moves.
• Be careful not to buy near top or sell near bottom within trading ranges. Wait for breakaway (huge profit potential) or play the range.
• Whether the market is very active or in a trading range, all indications are more accurate and trustworthier when the market is actively trading.

Limitations of charts

Scheduled economic announcements that are complete surprises render nearby short-term support and resistance levels meaningless because the basis (all available information) has changed significantly, requiring a price adjustment to reflect the new information. Other support and resistance levels within the normal daily trading range remain valid. For example, on Friday the unemployment number missed the mark by roughly 120,000 jobs. That’s a huge disparity and rendered all nearby resistance levels in the EURUSD meaningless. However, resistance level 200 points or more from the day’s opening were still meaningful because they represented resistance to a big up move on a given day.

Unscheduled or unexpected statements by government officials may render all charts points on a short-term chart meaningless, depending upon the severity of what was said or implied. For example, when Treasury Secretary John Snow hinted that the U.S. had abandoned its strong U.S. dollar policy.

Rollovers in Forex

Even though the mighty US dominates many markets, most of Spot Forex is still traded through London in Great Britain. So for our next description we shall use London time. Most deals in Forex are done as Spot deals. Spot deals are nearly always due for settlement two business days later. This is referred to as the value date or delivery date. On that date the counter parties theoretically take delivery of the currency they have sold or bought.

In Spot FX the majority of the time the end of the business day is 21:59 (London time). Any positions still open at this time are automatically rolled over to the next business day, which again finishes at 21:59.

This is necessary to avoid the actual delivery of the currency. As Spot FX is predominantly speculative most of the time the traders never wish to actually take delivery of the currency. They will instruct the brokerage to always rollover their position.

Many of the brokers nowadays do this automatically and it will be in their policies and procedures. The act of rolling the currency pair over is known as tom.next, which stands for tomorrow and the next day.

Just to go over this again, your broker will automatically rollover your position unless you instruct him that you actually want delivery of the currency. Another point noting is that most leveraged accounts are unable to actually deliver the currency as there is insufficient capital there to cover the transaction.

Remember that if you are trading on margin, you have in effect got a loan from your broker for the amount you are trading. If you had a 1 lot position you broker has advanced you the $100,000 even though you did not actually have $100,000. The broker will normally charge you the interest differential between the two currencies if you rollover your position. This normally only happens if you have rolled over the position and not if you open and close the position within the same business day.

To calculate the broker's interest he will normally close your position at the end of the business day and again reopen a new position almost simultaneously. You open a 1 lot ($100,000) EUR/USD position on Monday 15th at 11:00 at an exchange rate of 0.9950.

During the day the rate fluctuates and at 22:00 the rate is 0.9975. The broker closes your position and reopens a new position with a different value date. The new position was opened at 0.9976 - a 1 pip difference. The 1 pip deference reflects the difference in interest rates between the US Dollar and the Euro.

In our example your are long Euro and short US Dollar. As the US Dollar in the example has a higher interest rate than the Euro you pay the premium of 1 pip.

Now the good news. If you had the reverse position and you were short Euros and long US Dollars you would gain the interest differential of 1 pip. If the first named currency has an overnight interest rate lower than the second currency then you will pay that interest differential if you bought that currency. If the first named currency has a higher interest rate than the second currency then you will gain the interest differential.

To simplify the above. If you are long (bought) a particular currency and that currency has a higher overnight interest rate you will gain. If you are short (sold) the currency with a higher overnight interest rate then you will lose the difference.

I would like to emphasise here that although we are going a little in-depth to explain how all this works, your broker will calculate all this for you. The purpose of this article is just to give you an overview of how the forex market works.

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.

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.

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.

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.

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.