Wednesday, January 13, 2010

How can you earn money in Forex?

You have for certain been looking into how the Forex market works and you have questions like if you can or not make money in Forex. Many web pages assure you that it is very easy to make money in the exchange market and tell you that you can make loads of money overnight, but this is not the way things works, allow me to explain:~Many web pages assure you that it is very easy to make money in Forex and they even tell you that you can make loads of money overnight, but this is not the way things works, allow me to explain:~Many web pages assure you that it is very easy to make money in the Forex market and they even tell you that you can make loads of money overnight, but this is not the way things works, allow me to explain:}~Many web pages assure you that it is very easy to make money in Forex and they even tell you that you can make loads of money overnight, but this is not the way things works, allow me to explain:~Many web pages assure you that it is very easy to make money in Forex and they even tell you that you can make loads of money overnight, but this is not the way things works, allow me to explain:~Many web pages assure you that it is very easy to make money in the Forex market and they even tell you that you can make loads of money overnight, but this is not the way things works, allow me to explain:}~Many web pages assure you that it is very easy to make money in Forex and they even tell you that you can make loads of money overnight, but this is not the way things works, allow me to explain:~Many web pages assure you that it is very easy to make money in Forex and they even tell you that you can make loads of money overnight, but this is not the way things works, allow me to explain:~Many web pages assure you that it is very easy to make money in the Forex market and they even tell you that you can make loads of money overnight, but this is not the way things works, allow me to explain:}

Forex gives you hundreds of opportunities daily to make small and great amounts of money, but it can only be achieved if you are well instructed and you practice with a demo account before entering the market with real money. Just like any job you may have in life, you must prepare in theory and in practice to reach success.

You can make a lot of money in Forex, if you apply strategies and do a technical analysis of every movement of the market, skills you acquire from a specialized education. You probably ask yourself if you need to make a considerable investment to make money, which comes to you do not need a great amount of money; it all depends on your investment capacity, which allows you to open an account that better fits you.

Types of Accounts:

1. Micro Account: Opens with less than $2000. You may operate mini and micro lots.
2. Mini Account: Opens with $2001 to $20000. You may trade mini and micro lots.
3. Standard Account: Opens with more than $20000. You may only operate full lots.

Forex allows you to open accounts and make money through leverage, which means that a broker, with solid finances, lends you money for you to trade in the market and this way get earnings from the differentials in the appreciation or depreciation of the operating currencies. Forex can become a risky activity when the leveraging takes novice traders to over leverage, because they get greedy and they want to make a fortune with little capital at hand. This way, from 2 or 3 operations that end up in losses, the trader loses all of his capital. This is why it is important to know how to manage every operation.

You may leverage from:

• 2:1 = give $1 you will get $2
• 10:1= give $1 you will get $10
• 100:1= give $1 you will get $100
• 200:1= give $1 you will get $200
• 400:1 = give $1 you will get $400

So, the amount of money that you can make depends on the number of pips you obtain and the size of the account that you opened. For this reason it is vital to be realistic on how much you can invest at first in relation with what you can make.

Also, the amount to lose depends on the number of pips lost and the size of the account. From the time an trader enters into a position, he loses because of the spread or differential from the brokers in each pair. If you use good strategies and correct money and risk management techniques, this will not be a relevant factor.

It is even more important to be able to increase earnings in the winning operations and minimize the amount lost in those operations where we lose money. This should be clear. With good money and risk management, a Forex trader can make money even in a strategy where he loses 6 out of 10 times. How? In the remaining 4, his earnings are higher than his losses in the 6 that ended up in loss.

The same way, a trader could lose money even winning in 8 out of 10 operations, following the same logic.

For this reason you will notice the first time that you enter the demo account, that when you take a position in the market, immediately it will show a “loss” in your money, which really is not a loss, but rather it is the commission that your broker charges from that moment for each position that you take in the market. In the demo accounts they add this commission for you to always have this in mind when getting a real account.

It is important to realize that you must look for a trustworthy broker, since unfortunately there are people that try to take advantage of others. For this, we recommend you to examine the history of the broker. You may be able to select a broker from a variety of countries but you must make sure they are legally established. For example: in the USA, a broker must be registered with the CFTC (Commodities Futures Trading Commission), or be a member of the NFA (National Futures Association). You may also verify this with a Costumer Protection Office, depending on his country of origin and its IT laws.

To make money, it is important that you know it will not happen overnight, it will take a whole process for you to become an expert trader. In this money making market intervene probability and consistency. Success is measured with profitability, and it does not matter the amount of operations, but also perseverance to reach your set goals in this business. As an example, constantly following a strategy and not searching every week or month a better strategy than the one before (a very common mistake among new traders).

You may also get long term or short term earnings, meaning that you may choose to make only 1 or 2 operations in a year to reach your goal, which is possible only if you use the correct strategies. You can make 10 operations or more a day, a week or a month, to reach the same goal and get earnings and vice versa.

The recommendation if you are new at this is to start with few operations, but strong ones, in longer periods of time, like daily.

You can make money in Forex if you:

• Receive the proper education and training.
• Learn to determine in the Forex market when to enter into a position and more importantly when to leave, either with losses or earnings.
• Use the correct leverage offered by brokers and you are realist when thinking of earnings.
• Are patient. Patience to practice, as well as for waiting the correct settings to enter into a position, as well as waiting to see for the right time to reach your goal for earnings.
• Do not get obsessed with reaching your earnings goal in the first week.
• Accept losses as part of the “investment game”.
• Properly manage your emotions and the psychological aspect of trading.

The Forex University specializes in courses for beginners and more advanced traders, and teaches how to obtain earnings in a constant manner, managing it as a business. For more information, you may go to the following link:

http://www.udeforex.com/Cursos/Cursos-de-Forex.html

In short, it is possible to make money in Forex, but do not forget it requires: consistency, discipline, constant growth of our account, effort, time and study. Of course you will not become rich overnight; you will only be able to make enough money in the long run to considerably improve your quality of life. Remember that the reliability that you obtain monthly from your capital, you may not be able to find in any other type of investment.

If you would like more information about Forex, please click here: The Forex Market

Wednesday, January 6, 2010

How to use the Moving Average Indicator: Forex Trading

What are moving averages?

Moving averages are indicators of technical analysis used in Forex, which will help to identify trends to take the market over a period of time determined by the trader with the currency of their choice, taking as reference the average price currency. (Also known as MA). It's called “moving” because it always indicates which will be the average price of the current pair. Thus, the average is in constant motion, this will keep prices of the currencies in the market.

There are four types of moving averages:

• The simple moving average (SMA: Simple Moving Average): This is the average mentioned above, this has the characteristic that each day that passes, it eliminates the first day of the series in the calculation and adds the last day.

• The exponential moving average (EMA: Exponential Moving Average): Includes all historical data, applying a weighting exponential (the exponential average of the first day is the closing of that day). This average places priority on closing prices (current data) and less priority to older data. It is determined by the following formula:

Today’s Average = yesterday + (Today’s Close - Yesterday´s Average) x (2 / n +1)

• The weighted moving average (WMA: Weighted Moving Average). It gives priority to the most recent prices, so that recent prices have more influence than the former ones.

• The smoothed moving average: Assigns the same weight on past prices, but not to recent prices.

The big difference between the simple moving average and the last two indicators is that the moving average uses the same weight for each period and the EMA and WMA assign more value to the periods that are closer.

Using the moving average indicator to invest in Forex

It is important to first establish the time period you want to trade in Forex; you can take long periods of years or months or you may take periods of days and hours. But it is important to note that like any technical indicator, the time frame in which you trade is very important because it determines the probability of the success of a trade.In theory, if you trade in major timeframes, more exact your signals will be. In this case, while the shorter the time period moving average is it will be more sensitive to price changes but less robust. However if it provides long periods of time it will be less sensitive to price changes but also more solid.

For example, for you can determine the simple moving average of the USD/EUR over a period of 20 days. In that period the data collected of prices that has had this pair during this time and then it will divide it by the same number the period you set (in this case 20). When you determine the average, you will be able to identify trends in the market.

The common formula for calculating the moving average is:

The moving average is the result of the sum of the last N values of the price or price in the market, divided by N

Formula: μ=∑xi/n

• μ should be read as mu and it is the moving average we want to calculate.
• N is the period for which we calculate the moving average.
• Xi (where i takes different values from 1 to n) are n values of the share price in the N days considered.

Moving averages are also used to establish significant levels of support and resistance. The periods in this indicator that are more used to establish support and resistance levels are: SMA (50), SMA (100), SMA (200), EMA (144), EMA (89) and EMA (34).

How to read moving averages signals?

If the price is located above the moving average it is considered that the Forex market is in an uptrend. If the price is set below the moving average it is considered that the market has a downward trend. At the same time you can determine the strength of the trend by observing the pending of the moving average indicator. When there is no pending this means that the market has no specific trend.

You can observe buy and sell signals when there are crossings between short periods of moving averages with long periods in the direction of the market trend. So also when there is disruption of the moving average. This you can see it with more detail in the following graphic.

Moving averages give you signals:

• When 2 moving averages cross
• When there are breakouts in the moving averages

Now let's see it in the graphic:

1. To see the trend


For example, here we are using the moving average indicator to identify the trend. In this case we are using the rule's position in the market price in relation to the moving average.

• We see a 20 in yellow
• 100 in red
• 200 in blue

Here is an upward trend since the price is above the moving average.

The rule is: When price is above the moving average it will show an upward trend and on the other hand, when the market is below the moving average then it will follow a downtrend.

The following chart shows a downtrend, since the market is below the moving average.

2. When the averages are growing:

Other methods are for example when crossing moving averages may be an indication to buy or sell in the market

• We see yellow at 20
• In 100 red
• In 200 blue

When the yellow line crosses (short period to 20) with the line with the long-period moving average (200) it indicates that it activates the signal to sell.

When a short-period moving average (yellow line) goes down and crosses a long-period moving average (blue line) it activates the signal to sell.

When a short-period moving average (yellow line) goes up and crosses a long-period moving average (blue line) it activates a buying signal.

3. When used as support/resistance

The moving average can also be used as support/resistance, on the graph the level of support we see rejects the growing market that is approaching.

Remember that no investment is risk free and the moving average indicator in Forex will help you most effectively when used in conjunction with other tools.

If you would like to have more information please click here: Moving Average Indicator