Forex trading as you probably know is risky. Prices can whipsaw and reverse violently at times which makes the standard stocks investment practice invest and hold untenable. So how do prods do it? Day traders as well as successful part timers? It’s simple, they use a forex signals service or software system.These are basically buy and sell signals based on technical analysis that uses historical price and volume data to statistically analyze trends and find, with a stated probability, the likelihood of future price movements.

A signal could be as simple as Buy euros now at 1.1902.. They are delivered in any number of ways, by email, text message etc. Some are no more than flashing text and/or icons on trading software. The software contains in-built algorithms that use the methods of technical analysis, combines it with current market data and generates a signal.

For example, one commonly used indicator is called MACD (Moving Average Convergence/Divergence). It uses the moving average - the change in an average price over time. A signal can be generated when the value of MACD crosses above (or below) a certain threshold. Buy when it moves above the line, sell when it falls below.

Some signal services allow clients to automate the process of trading even further. You can leave standing orders that when a certain signal is generated, carry out the recommendation. You get an email recommending ‘Buy UK Sterling at 0.9001′ and the broker automatically enters an order to do just that.

As with any trading system, you must use it with care or financial catastrophes can result!. Totally automating your buys and sells can amount to automatically losing money. Using a signal service can make your life easier, but never abandon your investments entirely to an automated service.

Signal services are definitely useful, however. They can relieve investors of the need to continually monitor prices. They can simplify the sometimes bewildering complexity of charts. They can help the investor make better decisions about when to buy or sell and at what price.

All that comes at a price, of course. Services range from $50-$250 per month, though some are cheaper and a few are more. Only the individual investor can decide whether the cost is justified. As with any forex trading service, if you make more than it costs than you would without it, that’s profitable.

But, buyer beware. There are dozens of providers who will be happy to swallow your money. Whether their analysis, and therefore, their forex signals, are worth anything is a learning experience all its own. Before spending any money make sure you check any promising looking signals or software providers online. Look for reviews and post questions on forums like forexfactory.com to ask for hard bitten pro opinions!

In Forex trading many traders are increasingly using ‘Pivot Points’ as one of their key technical tools. While you should never reply solely on just one indicator it is a fact that pivot points are one of the best tools out there and you should learn how to use them in your trading.

A big reason for their popularity is the relative ease of calculation and application. Unlike some deep math indicators such as Parabolic SAR or Exponential Moving Averages the average trader with school level math can use them with ease after a bit of practice.

Pivot Point Calculation
To calculate pivot points is simplicity itself. The formula is: (H+L+C)/3 - where C is the currency pairs’ closing price for a given day, H is the high for the previous 24 hour period and L the low. In short, the pivot point is simply the arithmetic mean (the ‘average’) of the three prices.

Choosing the time for C is rather arbitrary as currency markets trade 24 hours per day. It’s often taken at the New York Forex market closing time, 4 p.m. EST. This number, usually denoted P, is used in conjunction with several others - called resistance and support points - in order to form the basis of a trading strategy. The resistance and support points are calculated like this -

R1 = (P x 2) - L
S1 = (P x 2) - H
R2 = P + (R1 - S1)
S2 = P - (R1 - S1)

How to choose a price for the resistance and support levels is central and traders differ. Some strategies use the pivot point itself as a key point of support or resistance, depending on the direction of recent price movements. Others use the closing price of the previous day.

If the price breaks above the pivot point, trending up, the market is tending bullish and vice-versa. In the first circumstance the pivot point would be a point of resistance, since prices ‘resist’ moving above that level. In the latter case, it’s a support point.

As well as evaluating trends, pivot points can be used as part of an entry and exit strategy. You might choose to place an order to buy or sell if the price breaks through a certain point. Similarly the point can be used to help select a stop-loss level in the event it moves below a support level.

Remember that no one indicator can be used as the sole input to a good trading strategy but pivot points do perform well as part of an overall approach involving other indicators such as Moving Average Convergence/Divergence (MACD)

Many trader analysts hold that pivot points achieve their useful status as a result of two tendencies.

Tactics
Sometimes called ‘trading between the lines’, is one popular approach. Traders wait for the reversal of the trend off a resistance point, then sell. Similarly, when the price trends upward after bouncing off a support point, a buy order can be triggered. If the market trades near R2 or S2, prices will tend to move back toward the pivot point.

Of course, this approach has to be viewed with some skepticism, as most strategies should be. Resistance and support points are broken all the time, otherwise they’d be no market! So, one has to wonder what makes those particular numbers resistance and support points.

The extent to which pivot points create good trading decisions varies according to many factors e.g., the market conditions and trader skill. But, that they do so to some degree beyond question.

The central problem is that it’s always hard to know when a price movement is a temporary blip or bounce as opposed to a serious shift (oh if I could know that…!) And as any trader knows by the time the trend is definite it’s often running out of steam and too late to profit. As ever there’s no substitute for experience over time to increase your rate of good calls on moves.

Market, Limit Stop Orders Forex Trading

To understand limit and stop orders it’s best to contrast them with the common market order. A market order is one that is placed by the investor to transact at the current market price whatever that is at the time it’s filled. Keep in mind that in forex trading, ‘current’ changes very quickly.

As a result of the inherent high volatility of currency markets, any market order can be expected to deviate from the price shown on the investor’s screen some of the time. When a stock trader requests a market order right this instant to sell Dell at, say, $40.28 then they will get that price most of the time. The odds of getting an exact screen price is less in forex trading.

As a result, other order types are more common, the most common are limit orders and stop orders.

In essence, a limit order is a request to guarantee you’ll not sell for less, or buy for more than the limit price, or nearly so. No broker will guarantee execution at an exact price, though this is often achieved.

Suppose, for example, that you bought euros at $1.1915. The market then rises to, say, $1.1965. Placing a limit sell order on your euros at, say $1.1955 would allow you to lock in a minimum profit of 40 pips or more.

Alternatively, you may want to buy in at no more than a specified price. Suppose the market for British pounds (GPB) is currently at $1.7750, which seems too high to you. You could place a limit buy order to buy GBP at $1.7805 - You’re telling the broker you don’t want to pay more for GBP than $1.7705 per pound.

A stop order used to be more commonly called a stop-loss order and is there to limit losses.

It’s what can or does happen before and after that makes the difference between a limit order and stop order. A limit order is an order to buy or sell AT a specified price or better. A stop order is an order to buy or sell ONCE a specified price is reached. After that it becomes a market order and is subject to fluctuation.

Suppose you bought euros, using dollars in your account, at the then current exchange rate of $1.1903. Now suppose, as often happens in forex trading the exchange rate changes to, say, $1.1888. The market appears to be on the way down. In order to protect yourself from either a) having to input more cash to cover the equivalent of a margin call, or b) enduring an even larger loss, you wisely put in a stop order.

You tell your broker you want to sell those euros once the exchange rate reaches $1.1803, for example. If during the trading period, the price reaches $1.1803, your euros will be sold at the market price saving you from incurring further losses.

Note that the price used for executing the order is the market price! This is the most current exchange rate at the time the order is executed and not necessarily the threshold specified in the stop order ($1.1804). This means you may only get $1.1803 or 1.1802 or less depending on what the market price is at the moment your order is executed.

To prevent this from happening the stop-limit order may be your best route. It’s a combo of a stop order and limit order. Like stop orders, your order will be executed once the market reaches a specific price. Once that price is reached, it becomes a limit order, so your order will only get filled at the chosen limit price, or a better price if there is one available.

You get a good looking forex trade signal, enter it and suddenly it’s rfeversing, you’re 50 pips + down in the blink of an eye. You panic and close out for the loss. 20 seconds later the market changes again and the trade ends as a 100 pip profit…what went wrong?

Forex trading successfully is as much about the right mental approach as it is using the right system. If you’re not mentally well prepared then no matter how good your signals are you’ll lose badly. It’s a fact that 2 traders using the same system and signals can have totally different results and the reason is purely psychological.

Why? Well, even when setting interest rates and other actions that influence inflation, the largest governments have limited immediate impact on exchange rates. The Forex markets are simply too large - $2-3 trillion daily - for any one player to dominate the action.

Trading strategies, which are essential, can increase the odds of making profits and help minimize or avoid losses. They give the you that thin edge that can make the difference between winning and losing on a given trade, or over time.

Forex is fast-paced, complicated and requires a well-thought out game plan. That game plan has to be executed with nerve and skill. To trade successfully in a demo account for several weeks is essential but can lead to unwarranted confidence. Traders who invest Monopoly money will often take chances, leading to successful trades, that they wouldn’t dream of taking with real money.

Real success requires answering honestly a number of questions that can be difficult to answer objectively when the subject you! What are your financial goals? Looking for a quick buck? Seek elsewhere. You will have losses that wipe them out. Looking for secure, low-risk capital accumulation? Look elsewhere.

Forex trades can be simultaneously a stimulating brain teasing game and an exciting adventure. The thrill of victory! The despair of (temporary) defeat! Understanding the complexities of Moving averages,  Parabolics , Fibonacci  retracements , Stochastics and so on is all part of the crazy Forex game!

As a result, you will need to be very honest with yourself and decide how and if you are prepared to deal with pressure and fear. Even professional traders do not have any certain system of ensuring profits and avoiding losses.

The pressure of deciding when to buy and when to sell is many times larger than in stock trading. The fear of loss is greater, in part because of the amplification provided by 100:1 or larger leverage.

Even winning can be problematic. With practice and persistence, provided you don’t quit too soon or run out of money too quickly, you will have periods when it all seems laughingly easy. That can lead to euphoria, which is great. But it can also lead to cockiness, which is fatal. Nothing will wipe you out quicker than arrogance. Confidence is essential, vanity is suicidal.

One bit of advice - If it gets too much and you’ve had a real bad run. Take some time off to reflect and analyse where it went so bad. Then - and only when you’re ready come back soft or dummy trade to get the feel back again.

The other side of the coin to be avoided is too much second guessing. Successful forex requires bold moves based on sound judgment and confidence. Every decision is a small leap of faith, since no one can know in advance for certain what the outcome will be. Probability of one degree or another is the best that can be achieved.

All this will be accompanied by the fear of loss of money, which often leads to panic selling in the face of what would have been a temporary price movement. It is of such panics that depressions are made, both economic and psychological (witness the madness that is the credit crunch for the best example of this in 80 years)

Forex trading can be a wild ride BUT if you have serves of steel, are not prone to ulcers plus a decent math brain plus a strategy that you’re comfortable with then you’ll do well and likely make way more money than any normal job.

Want to get rid of forex trading screw up emotion?
Have a look at Forex Autopilot and Forex Killer and test them out - both have free trials and very impressive backtest track records so why not have a look at least.

As in share trading the well known easy line graph is a major trader tool for the simple reason of it being so useful. In its base form, live current prices, historical trends and more can be taken in and understood in seconds. The issue though with Forex trading is how to actually define price? What on earth does that mean you say! Yes a bit strange I know but read on and I’ll clarify.Prices are without exception quoted for a pair of currencies. EUR/USD quoted at 1.2540/43 means that for $1.2543 you can buy one euro. To sell euros you own in exchange for dollars, you would get 1.2540 dollars per euro.

Graphs and charts of these prices as they change over time are generated by calculations based on tools from technical analysis. This involves the use of statistical techniques to calculate and predict likely price movements.

A basic technical tool may be an average calculated over time. This sort of thing and loads more is generally done by software available from brokers and online sites. That average represents ‘the price’ over a time period you choose.

That average could be used as a single point on a line graph. Repeat the process at the same times for 30 time periods, plotting each point, and eventually you’ll build up a line graph of a 30-xyz moving average e.g., 30 day, 30 x 5 minute periods etc. The average itself will change over time, just as the price does. The change in that average over a 30-period interval gives you great insight into price changes.

In Forex trading, there are heaps of charts and graphs but luckily fortunately your software tools will do all the heavy lifting for you. It’s enough to know what they mean rather than needing to know the PHD math that some of them use! Software, that your broker or spreadbetting company can provide free or packages you can buy will generate the charts. The difference between free and bought is that free tends to show you data that you interpret. Bought will create signals and form the basis of your trading.

Beyond the simple line graph there are a few common charts that every Forex trader will want to learn how to use. Among these are the Bar Chart and the Candlestick Chart.

A bar chart displays prices in the form of a vertical ‘tick’ or bar, with small horizontal lines to the right and left. The ends of the bar indicate the high and low for some period, often the prior 24 hours. The left-side tick is the opening price for that period, while the closing price is indicated by the right-side tick.

from 1 minute up to multi day.

Candlestick charts are similar to bar charts, but contain additional useful information in graphic form. They add color coding, by making the bar have a small width, hence its similarity in appearance to a candlestick.

The rectangle making up the ‘candlestick’ is called the body. A white (or, just as often, green) body indicates a closing price higher than the opening price. A black (or red) price indicates a closing price lower than the opening price. The lines protruding top and bottom from the body indicate the high and low prices at the tips.

Some candlesticks will have no line (or shadow as it is sometimes called) protruding from the top of body. That indicates that the currency closed at its high. Similarly, there may be no line protruding from the bottom. Such information is helpful in judging trends.

The length of the body, just as does the length of the bar in a bar chart, give a visual indication of the range of prices for that period. That is a visual measure of the volatility of prices, a very important factor in forex trading. Fact is that understanding how to interpret these charts requires time and practice but is time well spent. Get books and invest in courses and dummy trade is my advice.