Foreign Exchange For Newbies

Foreign Exchange for Beginners

This article is about entering foreign exchange for novices in the market.

Currencies are quoted in pairs in the foreign exchange market, such as the US dollar to the Australian dollar which would be represented by USD/AUD.  The values of the two currencies are relative to each other and the state of the economic climate of the two countries to which they belong.  The first currency is known as the base currency and the second is known as the quote or counter currency.  A quote which reads USD/AUD=1.0400 means that with one US dollar, you would be able to purchase AUD1.04.  If that rate increases, it means the US dollar is becoming stronger.

Pricing Patterns

There are two types of foreign exchange markets.  These are trending or ranging markets.  A trend market indicates prices that are moving in one direction, either up or down, but never sideways.  A range market is where the prices are moving between a lower and a higher price.  It is sometimes called a sideways, choppy market.  In range market the prices moves in a wave like formation, but never in a straight line.  Trends do not normally occur in this market, but if it should happen, you will gain more by following it.

Setting Up

You should determine the charts you intend using and set your platform to use the ones that are the easiest for you to understand and read.

Candlestick Charts

Candlesticks show the opening, closing, low and high prices for the period stipulated.  A downtrend is normally black and an uptrend is white.  Some candlesticks make use of colours and you should ensure that you are fully aware of what the colours depict.

Volume Indicator

Volume indicators that you are provided are based on what your forex broker sees.  There is no central exchange for this market, hence this is not the total market volume.

Bollinger Bands

Bollinger bands indicate the averages of previous pricing behaviour which shows the average and a standard deviation on both sides of the mean line.  You should be aware of contractions and expansions.

Average True Range

This is an indication of the average price range for a specified time period.  The normal setting is for nine periods.

Relative Strength Index

This indicator shows when the market is oversold or overbought.  Oversold is indicated below 30 and overbought is indicated above 70.

Foreign Exchange Strategies

You need to develop and implement suitable forex strategies to ensure that you trade profitably.  You need to locate trends and anticipate when it may repeat itself.  If you can find an opportunity like that, you should immediately commence with the execution of your trading plan.  You will not have the time to do research and studies once this is happening.  This is the reason why you need a good trading plan.

You have to determine your lot size before you enter your trades.  Once you have entered your trade, you need to set stop losses and then make your decision as to the most opportune time to exit your position.  If the market turns against you, you should exit that position immediately.  If it remains constant, you should be on the alert to watch for an opportune time to exit.



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