Forex
Currency Trading Tips And Hints
by Francisco Solar
Hi, on this occasion we will show you how to
read forex charts and the basic points associated with it. First
of all, you always quote currency pair in the same way. For example:
the EURUSD currency pair is always as EURUSD, with the EURO being
the base currency and the USD being the terms currency and not the
other way around. Therefore if the chart of the EURUSD shows that
the current price is fluctuating around 1.2155, means that 1 EURO
will buy around 1.2155 US Dollars.
YOUR TRADE SIZE (FACE VALUE) IS THE AMOUNT OF
BASE CURRENCY THAT YOU ARE TRADING. IN THIS EXAMPLE IF YOU ARE BUYING
20,000 EURUSD, YOU ARE THEREFORE BUYING 20,000 EUROS.
LONG POSITION: When you buy the currency pair
looking at their chart to go up to profit on the trade. That is,
you need the base currency to strengthen against the terms currency.
SHORT POSITION: Is the reverse of the above. Sell the currency pair
to short the position. You will be looking at the chart of the currency
pair to go down to profit from your trade. That is, you need the
base currency to weaken against the terms currency.
TIME OF ENTRY TO A TRADE
Always check the time frame displayed. Many trading
systems will use multiple time frames to determine the entry of
a trade. For example, a system may use a 4 hours chart to determine
the overall trend of the currency pair by using indicators such
as MACD or support and resistance lines, and a 5 minute chart to
look for a rise from a temporary dip to determine the actual entry.
Make sure the chart you are looking at, has the
correct time frame for your analysis. We suggest that you set up
your charts with the correct time frames and indicators on them
for the system you are trading, saving and re-using this layout.
On most Forex charts, it is the BID price rather
than the ASK price that is displayed on them. A price is always
quoted with a BID and an ASK (offer). For example, the current price
of EURUSD may be 1.2065 BID and 1.2068 ASK (offer). Then you buy
at the ASK, which is the higher of the 2 prices in the spread (range
between BID and ASK), and you sell at the BID, being the lower of
the 2 prices.
From the chart, you place an order to sell when
the price is 1.422, then this is the price that you sell at assuming
no slippage. You place an order to buy when the chart price is the
same price, you will be buying at 1.422. The system will determine
if your orders will be placed according to that chart price or if
you need to add a "buffer" when trading (buying or selling).
NOTE: On many platforms, when you place a stop
order(to buy if the price rises above certain level) or sell (if
the price falls below a certain level. You can choose either "stop
if BID" or "stop if offered".
WORLD TIMES
The times shown on the bottom of forex charts
are set to the particular time zone that the Forex provider's charts
are set to, GMT, New York time, or other. It is a suggestion to
have a world clock available on your computer desktop particularly
if you are waiting for announcements from Central banks or Governments
around the world which could affect the currency prices.
