FOREX Beats the Stock Market

Companies issue stocks to raise capital for expansion, equipment and other projects. Stocks have been a very popular form of investment for years. Each share of a stock a person owns represents a small ownership of the company.

Stock values fluctuate based on the fortunes of the company. When the company is doing well the stock price will increase, at this time the investor can sell their stock to capture the profit or they can continue to hold it in hopes of greater profits in the future. Some companies will pay dividends on stocks; dividends are a small share of the profit per each share of stock.

To buy and sell stocks you must use a broker and go through one of the stock exchanges. In the US there are two exchanges, the New York Stock Exchange (NYSE) and the National Association of Securities Dealers Automated Quotation System (NASDAQ). Some very large companies may have stocks on multiple exchanges but most companies will sell their stocks on one or the other.

Until recently the stock market was seen as a long-term investment strategy. Most portfolios would have a large number of "Blue Chip" stocks. These are stocks that have proven their value over a long period of time. With the addition of internet trading we are seeing what is typically known as day trading. Day traders attempt to take advantage of the daily fluctuations in the market by making multiple trades during the day. This is a fairly high-risk method of investment and is further hindered by the large number of commissions charged for each transaction.

In some cases stocks can be bought on margin. In the stock exchange your margin rates are usually about 50%, which means you need half the cost of the stock to be able to buy it.

FOREX is more predictable than the stock market as well. It follows well-defined patterns, you can also leverage better in FOREX than the stock market.

FOREX

The FOREX exchange is significantly different than the stock exchange. On the FOREX exchange almost all trades are short-term trades, in fact a trader may only hold a currency for a few minutes before moving it again. Since there are no brokers fees in the FOREX exchange you can make numerous trades in one day without racking up large commission fees.

With over $1.5 trillion in trades every day the FOREX exchange is the largest financial market in the world. To put this in perspective all of the American stock markets combined only handle about $100 billion worth of trades a day. This huge volume causes the FOREX exchange to be the most fluid market in the world. Because so much of the world economy is dependent on moving currency from country to country there is always a buyer and a seller for every currency combination. The stock market on the other hand is not nearly as liquid, you may not always find a buyer for the stock you want to sell or a seller for the stock you want to buy.

The FOREX market is not located in a single place but is worldwide. Due to time zone changes the FOREX market is open 24 hours a day 5 days a week.

Stock exchanges are normally only open for 7 hours a day, you can not buy or sell a stock if the exchange that it is listed on is closed at the time.

FOREX is more predictable than the stock market as well. It follows well-defined patterns, you can also leverage better in FOREX than the stock market. Margin accounts in FOREX run as high as 100:1 which means you only need $1 to buy $100 worth of currency.

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Technical Analysis of the FOREX Market

In FOREX trading there are two common types of analysis that most traders utilize, they are fundamental and technical analysis. Fundamental analysis attempts to predict currency movement based off of political and economy indicators. Technical analysis uses historical economic information to predict changes in the FOREX market. This is the first of two articles that will explore technical analysis.

Technical Analysis is based on the following assumptions:

1. Price movements are a result of combined market forces. Political events, economic conditions, seasonal fluctuations, supply and demand are all things that can effect currency prices. Technical analysts do not concern themselves with why the market moves, they are only interested in the movements themselves.

2. Currency prices on the FOREX market follow trends. Predictable consequences have been linked with many recognized market patterns.

3. Historical trends can be used to predict current price movements. Data on the FOREX market has been collected for the last 100 years, over that time certain patterns have become emergent. Human psychology and the way people react to certain circumstances are the basis of these patterns.

Most traders consider technical analysis to be of critical importance even though they may also use fundamental analysis to support and confirm the strategy suggested by technical analysis. Unlike fundamental analysis technical analysis can be applied to many different currencies and markets at the same time. Since fundamental analysis requires detailed knowledge of the economic and political conditions of a certain country it is nearly impossible for any single trader to perform proper fundamental analysis on more than a few countries.

For the beginning trader the complexities of technical analysis may seem overwhelming and they may even wonder if it is actually necessary. If you wish to be successful at FOREX trading you must have a strategy. Any strategy can work but technical analysis has been proven as a reliable and effective method of predicting market changes. Many forces can effect currency prices though so technical analysis is no guarantee, most successful traders utilize a combination of technical and fundamental analysis.

Any quality online FOREX broker should be able to supply you with a large variety of online charts for technical analysis. You can purchase in-depth professional charts, there is usually a monthly fee involved in gaining access to this information. There is also free software available to help you with charting. Charts provide different snapshots of timeframes and usually can also have analytical overlays. These charts will provide a broad over view and can also be zoomed into the tick level. Good charts are updated in real time. These may be available on your brokers site or could be part of their software.

You should learn the market and study trends before for a period of time before you begin actively trading. Most brokers will provide you with a practice account where you can place "paper trades". Paper trades are just practice trades where no real money is made or lost. They act just like a real trade though so you can see exactly how your trade would have turned out if you had placed it for real. This allows you to become familiar with your brokers system and software as well as learning about the market and how it moves without risking any money while you learn.

The second part of this article will explore the various charts and technical indicators.

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Technical Analysis - Reading FOREX Charts

Price charts can be simple line graphs, bar graphs or even candlestick graphs. These are graphs that show prices during specified time frames. These time frames can be anywhere from minutes to years or any time interval in between.

Line charts are the easiest to read, they will show you the broad overview of price movement. They only show the closing price for the specified interval, they make it very easy to pick out patterns and trends but do not provide the fine detail of a bar or candlestick chart.

With a bar chart the length of a line displays the price spread during that time interval. The larger the bar is the greater the price difference between the high and low price during the interval. It is easy to tell at a glance if the price rose or fell because the left tab shows the opening price and the right tab the closing price. Then the bar will give you the price variation. When printed bar charts can be difficult to read but most software charts have a zoom function so you can easily read even closely spaced bars.

Originally developed in Japan for analyzing candlestick contracts candlestick charts are very useful for analyzing FOREX prices. Candlestick charts are very similar to bar charts they both show the high, the low, open and close price for the indicated time. However the color coding makes it much easier to read a candlestick chart, normally a green candlestick indicates a rising price and a red one indicates a falling price.

The actual candlestick shape in reference to the candlesticks around it will tell you a lot about the price movement and will greatly aid your analysis. Depending on the price spread various patterns will be formed by the candlesticks. Many of the shapes have some rather exotic names, but once you learn the patterns they are easy to pick out and analyze.

Price charts are not usually used by themselves to get the full affect you need to supplement them with some technical indicators. Technical indicators are normally grouped into some pretty broad categories. Some of the more common ones used to monitor and track the market movement are: trend indicators, strength indicators, volatility indicators, and cycle indicators.

Here is a list of some of the more commonly used indicators as well as a brief description.

Average Directional Movement Index (ADX) – This index will help indicate if the market is moving in a trend in either direction and how strong the trend is. If a trend has readings in excess of 25 then this is considered a stronger trend.

Moving Average Convergence/Divergence (MACD) – This shows the relationship between the moving averages which allows you to determine the momentum of the market. Any time that the signal line is crossed by the MACD it is considered to be a strong market.

Stochastic Oscillator – This compares the closing price to the price range over a specific time frame to determine the strength or weakness of the market. If a currency has a stochastic of greater than 80 it is considered overbought. However if the stochastic is under 20 then the currency is considered undersold.

Relative Strength Indicator (RSI) – This is a scale from 1 to 100 to compare the high and low prices over time. If the RSI rises above 70 it is considered overbought where as anything below 30 is considered oversold.

Moving Average – This is created by comparing the average price for a time period to the average price of other time periods.

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The Electronic Revolution - Forex Trading Kicks Off After Dot Com Boom

Uncorrelated to the forex market, the past 20 years the global economy has been in the process of automation and digitization of all aspects of business and life. Computers are making our lives simpler and more complex at the same time. How simpler? Now, you don't have to write checks every month, mail them, and worry about balancing your account. You can automatically pay your bills with Internet banking, which has low fees, and if setup properly is fully automatic. How more complex? Research is at your fingertips. Business intelligence equals as much time as you are willing to spend in front of the computer and Internet. Anyone in a garage can start a company with a website, telephone, and computer. New technology equals new challenges, as the pre-industrial society faced basic challenges such as transportation and manufacturing processes, we now face an energy crises to power our machines, while at the same time the internet is shaping how corporations and governments operate.

This paradigm shift is creating a new face of players, and clients. It seems unheard of that a client or trader of forex doesn't have a computer, but they do exist. Different types of people are attracted to forex than to oil investing for example.

Computers are changing the way we live, invest, and bank. You can trade your own money, or watch live how your account is doing. Electronically you can download account statements, cancel your account, anything. In fact, the entire customer life cycle is fully automated, assuming the customer never picks up the phone.

The division between customers and account representatives is also blurring, just as retail is being ruined by companies like Amazon.com. Why should you pay 20% more for something? Why should a large company hire thousands of people to promote FX accounts that market themselves?

Automation cuts costs, thus cutting the need for humans. This in turn shapes the technology that drives the development of further automation, and so on. For example, if you have a fully automatic fx brokerage, what are you supposed to do all day? You will likely sit around your home office or private island and think about trading strategies – or you won't think at all. Most likely you will NOT be violating NFA rules, harassing customers, advertising on CNN, or causing trouble in general.

Now, psychotic business behavior is a pure choice. There is no reason to sue people, lie to customers, steal, etc. It's all possible and all automatic with electronic investing, trading, and banking. These 3 things represent an example customer lifecycle:
1.A customer accumulates funds in an account by selling his goods and services
2.A customer needs to invest that money somewhere
3.Funds are invested, and traded
4.Customer receives a profit (or loss) and finally banks his funds, probably in an account with an electronic link, in the future in a currency other than physical (such as e-gold)

None of this would have been possible 20 years ago, and the electronic revolution is shaping not only the way fx companies do business, but the fx market dynamics themselves.

Joe Gelet works for Elite E Services, an international electronic boutique brokerage.

www.eesfx.com www.eliteeservices.net

Factors Involved In Becoming A Successful Forex Trader

These days everyone is talking about Forex trading and the great opportunity this activity represents for people willing to brake free from the corporate world and start working from home or any where else without losing their current lifestyle and even improving it.

Forex trading has changed dramatically in the last 10 years thanks to the technological advancements of the internet era. With real-time streaming technology and faster and more efficient computer systems, almost anything, from roses to FX trading, is available at the click of a button.

Some of the great reasons why Forex trading is a great way of entering the capital markets is that your trades are all commission-free and it has a low transaction cost. All the best forex brokers have these characteristics and even Mini FX traders (i.e., traders starting with accounts having a capital as low as $250), who are just starting in this field, can buy and sell currencies online always commission-free.

But one thing is to start Forex trading and other very different is becoming a profitable Forex trader. In order to become a profitable trader the new trader will immediately discover the imperative need of having an accurate knowledge of the markets and a good understanding of the forex technical indicators. Concepts as Moving Averages, Fibonacci levels, Bollinger Bands, etc; are the basic knowledge every trader must have.

But having a good knowledge of these concepts is not everything you need. Fear is one of the worst enemies of the Forex trader. In order to become a profitable trader it is essential that the person involved in trading understands that he must leave fear aside and stick to the trading plan he has constructed and arranged before, always understanding that losing trades happen to everyone and they are always part of a profitable trading career. A forex trader must learn how to profitable use his stops without heavily compromising the capital in his trading account, i.e., he must play safe but realizing that a calculated risk must be undertaken in order to maximize profits.

In short knowledge is the key to a successful trading career but it also must go along the proper psychological preparation of the trader in order to be able to tame the markets and become a profitable trader.

If you want to learn a combination of simple indicators and technical analysis that can consistently and accurately tell you where to get into and out of the market with a profit, I recomend you to visit:

http://www.1-forex.com

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