WHAT IS FOREX TRADING?
Forex trading, also known as FX or foreign exchange trading, involves the exchange of currencies from one country to another within the Forex market.
WHAT IS THE FOREX MARKET?
The Forex market is the largest global financial market, where trillions of dollars are traded daily. It serves as a worldwide marketplace that operates 24 hours a day, facilitating currency exchange for various purposes such as trading, travel, tourism, and commerce.
WHEN IS THE FOREX MARKET OPEN?
The Forex market remains open 24 hours a day, starting from Sunday at 5:00 pm EST / 10:00 pm GMT and closing on Friday at 5:00 pm EST / 10:00 pm GMT.
WHAT ARE THE MAIN FOREX TRADING SESSIONS?
The Forex market is divided into four main trading sessions: the New York session, the London session, the Tokyo session (also known as the Asia session), and the Sydney session.
WHAT DRIVES THE FOREX MARKET?
The Forex market is influenced by various factors, including economic news releases, central bank interest rates, central bank interventions, market sentiment (fear and greed), and activities in the futures market.
CAN THE FOREX MARKET EXPERIENCE A CRASH?
No, the Forex market as a whole cannot crash in the same way as the stock market, unless one day currencies cease to exist. This is because each currency moves independently in relation to others. A helpful analogy is to think of currency pairs as elevators. For example, when looking at the Euro against the US Dollar, if the EUR elevator is going down relative to the USD elevator, it means the USD is going up (against the EUR). Therefore, while someone in Europe may perceive the EUR as crashing that day, an American may view the USD as soaring. It is all relative to the currency they are trading against.
WHAT ARE THE 8 MAJOR WORLD CURRENCIES?
The 8 major currencies include the US Dollar (USD), the Great British Pound (GBP), the Euro (EUR), the Japanese Yen (JPY), the Swiss Franc (CHF), the Canadian Dollar (CAD), the Australian Dollar (AUD), and the New Zealand Dollar (NZD).
WHAT ARE THE MAJOR CURRENCY PAIRS?
These are the major currencies cooped with the US Dollar (USD). These include: EUR/USD, GBP/USD, USD/CAD, USD/JPY, USD/CHF, AUD/USD, and NZD/USD.
WHAT ARE THE MINOR CURRENCY PAIRS?
These are the major currencies paired with one another, that don’t include the US dollar (USD). These are also called cross pairs, and they include: EUR/CAD, GBP/JPY, AUD/NZD, CHF/JPY, etc.
WHAT ARE SOME ADVANTAGES OF FOREX TRADING COMPARED TO STOCKS AND EQUITIES TRADING?
Forex trading offers several advantages over traditional equities/stock market trading, including lower barriers to entry, reduced transaction costs, extended trading hours, higher leverage, greater liquidity, and increased trading volume.
HOW CAN I DEVELOP A SUCCESSFUL TRADING STRATEGY?
To develop a winning trading strategy, you should test different trading styles and strategies to determine what works best for you. Then, perform backtesting to identify a strategy that consistently produces favorable results for your specific trading personality, as what works for others may not necessarily work for you.
HOW CAN I BACKTEST MY TRADING STRATEGY?
You can backtest your trading strategy by opening a demo trading account, which allows you to test your strategy and evaluate its performance. Another method is to review past price data and analyze how many winning and losing trades your strategy would have generated based on the parameters you set.
WHAT IS A ‘PIP’?
A “PIP” stands for Point in Percentage, and is the unit of measure used by forex traders to define the smallest change in value between two currencies. This is represented by a single digit move in the fourth decimal place in a typical forex quote (except JPY pairs). For example, if the price of EUR/USD moves from 1.1402 to 1.1403 this would be a one pip change. If the price of a JPY pair like USD/JPY moves from 113.31 to 113.30, that would be also one pip. To understand the value of a pip, you must first understand what “Lots” are.
WHAT ARE LOTS / LOT SIZE?
Lots refer to the specific units traded with currency pairs, which essentially means the number of currency units you wish to buy or sell. There are 3 types of lots:
Micro Lot size = 0.01 = Controls 1,000 units of currency
Mini lot size = 0.10 = Controls 10,000 units of currency
Standard Lot size = 1.00 lot = Controls 100,000 units of currency
WHAT IS THE VALUE OF A PIP?
If your account is in US Dollars, and you are trading a pair with USD as the base currency (ex. EUR/USD), then the following is true:
1 pip trading with a 0.01 (Micro Lot) is equivalent to $0.10 USD
1 pip trading with a 0.10 (Mini Lot) is equivalent to $1.00 USD
1 pip trading with a 1.00 (Standard Lot) is equivalent to $10.00 USD
WHAT IS A JAPANESE CANDLESTICK?
Candlesticks (or Japanese candlesticks) is a style of chart used to present price movements of a currency. Each candlestick represents a specific amount of time depending on the timeframe. If you’re on the 15 minute timeframe, each candle is equivalent to 15 mins (M15). If you are on the Daily (D1) timeframe, each candle represents 24 hours.
WHAT IS A WICK?
A wick (or shadow), is the vertical lines above and below the body of the candle.
WHAT INFORMATION DOES THE CANDLESTICKS GIVE YOU?
A candlestick give you the following information: open price, close price, and the high and low of the candle (top and bottom of the wicks).
WHAT DOES BULLISH MEAN?
Going long, or buying, is a bullish action for a trader to take. Put simply, being a bull or having a bullish sentiment means that you believe a currency pair will increase in value, or go up. To say “he’s bullish on USD/JPY,” for example, means that he believes the price of the US Dollar will rise against the Japanese Yen.
WHAT DOES BEARISH MEAN?
Going short (shorting), or selling, is a bearish action for a trader to take. Put simply, being a bear or having a bearish sentiment means that you believe a currency pair will decrease in value, or go down. To say “he’s bearish on EUR/USD,” for example, means that he believes the price of Euro will fall against the US Dollar.
WHAT DOES ‘GOING SHORT’ OR ‘SHORTING’ MEAN?
Traders can think of ‘short’ as another word for ‘sell.’ If you are ‘going short’, or ‘shorting’, it means you are selling it. When traders sell (or go short on) a currency pair, it means they believe it will decrease in value.
WHAT DOES ‘GOING LONG’ OR ‘LONGING’ MEAN?
Traders can think of ‘long’ as another word for ‘buy.’ If you’re ‘going long’ in a currency, it means you’re buying it. When traders buy (or go long on) a currency pair, it means they believe it will increase in value.
WHAT IS THE SPREAD?
Spread is part of the cost you pay the broker to open a position. It is the difference between the bid and ask price. The bid price is the best price a buyer is willing to pay, and the ask price is the best price a seller is willing to accept.
WHAT IS A MARKET ORDER?
A market order is a direct entry in the markets with an option of buying or selling at the current market price.
WHAT IS A LIMIT ORDER?
Limit orders are placed when you are only willing to enter a new position at a specific price. The order will only be filled if the market trades at that price. A buy-limit order is an instruction to buy the currency pair at the market price once the market reaches your specified price or lower; that price must be lower than the current market price. A sell-limit order is an instruction to sell the currency pair at the market price once the market reaches your specified price or higher; that price must be higher than the current market price.
WHAT IS A STOP ORDER?
A stop order becomes a market order only once a specified price is reached. A buy-stop order is an instruction to buy a currency pair at the market price once the market reaches your specified price or higher; that buy price needs to be higher than the current market price. A sell stop order is an instruction to sell the currency pair at the market price once the market reaches your specified price or lower. That sell price needs to be lower than the current market price.
WHAT IS LEVERAGE?
Leverage allows you to control a larger amount of money using a limited amount of your own. For example, with a $1,000 account trading on 100:1 leverage, you will be able to control a $100,000 position.
WHAT ARE THE ADVANTAGES OF LEVERAGE?
Ability to profit from small moves in price, and allowing you to amplify your winning positions as if you were trading a much larger account size. But, don’t forget this is a double edged sword. Your losses are also amplified as high as the profits. Trading with leverage requires implementing good risk management principles.
WHAT IS MARGIN?
Margin is the amount of money you need to have as a good faith deposit in order to open a trade with your account. Using the above example, your margin is the $1,000 that’s trading on 100:1 leverage.
WHAT IS A MARGIN LEVEL?
This is the threshold where your broker will send you a notification to take action before they liquidate your position, or close your trade(s).
WHAT IS A MARGIN CALL?
You never want to see this. It means you are over-leveraged on your account or don’t have enough margin and your broker forcibly liquidates your position, thereby closing your trade(s) at market price.
WHAT IS RISK TO REWARD (R/R RATIO)?
This measures how much you are risking in relation to the potential gain. The risk is usually defined by the stop loss from the entry point of the trade. Whereas the take profit price from the entry point defines the potential gain.
HOW IS THE RISK TO REWARD FORMULA?
Risk-reward ratio = Absolute value (Price entry value – stop loss value) divided by Absolute value (Price entry value – Target price value)
WHAT IS EBB AND FLOW?
Ebb and Flow refer to something repeatedly increasing and decreasing, or rising and falling, like ocean tides. It is the visual representation of how markets respond to daily events.
WHAT IS A DOJI CANDLE?
A Doji is a candlestick with a very small body (or no body) of the candle, with an upper and/or lower wick, and often indicates a swing high or a swing low in price action.
WHAT IS A HAMMER CANDLE?
A Hammer is a candlestick with a short body of the candle, a very short upper wick, and a long lower wick which typically occurs following a down-move. A reverse hammer is the opposite.
WHAT IS AN INSIDE BAR PATTERN?
An inside bar pattern is a price action continuation pattern. It is characterized by two candles, in which the second candle is smaller and within the high and low of the first candle.
WHAT IS A HEAD-AND-SHOULDERS (H&S) PATTERN ?
A head-and-shoulders pattern is a Price Action reversal pattern found on an uptrend. The pattern is characterized by having 3 peaks, with the middle (the head) being highest, and the two smaller peaks on either side (these are the left and right shoulders). A straight line is then drawn to connect the base of the 3 peaks, and that is called the neckline. A break of the neckline will signal a reversal to the downside. An inverted head-and-shoulders pattern is the same, but flipped horizontally and found when price is on a downtrend.
WHAT IS SUPPORT AND RESISTANCE (S&R)?
Support refers to significant levels below current market price and Resistance refers to significant levels above market price. These levels are notable areas that price has reacted in the past and might do so again in the future.
WHAT IS A FIB OR FIBONACCI TOOL?
Fibonacci is a widely used technical trading tool used to measure two swing points in price (a high and low), dividing the vertical range into percentages. This includes the Fibonacci retracement and extension.
WHAT IS A FIBONACCI RETRACEMENT?
This refers to measuring retracements as percentages of a price range. Traders tend to look for confluence at the 50%, 61.8%, and 78.6% levels. In Smart Money traders, we like to look at the 70.5% retracement as a ‘sweet spot’ for entries.
WHAT IS A FIBONACCI EXTENSION?
This refers to the continuation of the Fibonacci retracement scale, beyond the 100% retracement level. The levels of interest are the 127.2%, 161.8%, 200%, etc. These levels are used to identify potential targets for price.
WHAT ARE FRACTALS?
Fractals are a recurring geometric pattern that occurs in the markets among larger price movements, and is repeated on all time frames. You may have heard the phrase ‘price is fractal’… this means there are recurring patterns found in price.
WHAT IS SWING TRADING?
Swing trading is for those who have the patience to wait for a trade. Swing traders have lots of patience and are willing to hold a trade for days or even weeks. Swing trading requires a larger stop loss than day trading in order to allow the trade to breathe. Swing traders are able to handle high drawdowns and keep a calm mind when the trade is floating in drawdowns.
WHAT IS INTRADAY TRADING?
This is a style of trading where trades are executed and completed on the same day, which is why it is sometimes referred to as ‘Day Trading’. These types of traders look for repeating patterns that occur on a daily basis. They would not take any longer term trades or swing positions, as they may be uncomfortable holding open trades overnight.
WHAT IS SCALPING?
Scalping is a very fast style of trading. These types of traders are called scalpers, and they like to get in and out of the markets quickly. Scalping is best suited for traders who can make quick decisions and act without hesitation. These are often traders who don’t have the patience to hold trades for long periods. Instead, they expect their trades to become profitable immediately, and they will usually exit trades promptly if a trade goes against them.
WHAT IS NON-FARM PAYROLL (NFP)?
Non-Farm payroll is a key economic indicator for the US economy, representing the number of jobs added or lost. NFP releases generally cause large movements in the market and are released on the 1st Friday of every month at 8:30 AM EST.
WHAT IS THE FOMC?
FOMC is the Federal Open Market Committee that meets 8 times per year to discuss mainly 2 things: review the present financial information, and make a decision on what type of intervention will be required. If the FOMC decides to increase interest rates, there is a possibility for increase in demand for the US dollar value, so traders can speculate on the price increase of USD.
WHAT IS TECHNICAL ANALYSIS?
Technical Analysis refers to the study of historical price action in order to identify patterns in the market to determine future price action. This can be done using technical indicators, and a combination of other analysis tools. Technical analysts will often look for support and resistance, and identify trends and trend changes.
WHAT IS FUNDAMENTAL ANALYSIS?
Fundamental Analysis refers to research done on the political, economical and social factors and the impact they have on a country’s currency. Fundamentals look at the supply and demand forces of currencies, commodities, and equities that can be influenced by economic releases, geopolitical tensions, seasonalities, interest rate changes, news released by central banks, etc.
WHAT IS RISK MANAGEMENT?
This refers to managing risks on your trading account. The general rule of thumb is never risk more than 2% per trade.
WHAT IS TRADE MANAGEMENT?
This refers to the management of open positions. This includes reducing risk while trade is in profit by moving the stop loss closer to market price, or cutting losses on losing trades.
WHAT ARE FOREX SIGNALS?
Forex signals, or alerts are planned trade ideas and setups with specific Entry Price, Take Profit (TP) and Stop Loss (SL) provided to offer traders levels of consideration. These are based on the analysis and opinion on what our traders see in the market. For example, we send out a notification when they are taking a trade. It is important to remember that Trade Ideas are strictly for educational purposes only, and should never be misconstrued as financial advice.
WHAT DOES TP AND SL MEAN?
TP means ‘take profit’, and SL means ‘stop loss.’ Take profit is the target price you set for your trade to exit once it reaches the set price. Stop loss is the safety net you set for your trade to exit if it reaches a point of invalidation to limit your loss.
WHAT CURRENCY PAIRS DO WE FOCUS ON?
Our main focus is on the major and minor currency pairs. These are any of the 8 major currencies paired with one another.
HOW MANY PAIRS SHOULD I BE TRADING?
This is completely up to you to decide, and will depend on the trading strategy you develop. While each trader has their own preferences, many successful traders find it beneficial to focus on only 1-2 pairs. This is highly recommended for beginner traders.
WHAT TIME ARE THE TRADE IDEAS SENT OUT?
Trade Ideas are not sent out at a pre-set time. Instead, they are sent out when a trade opportunity presents itself in the markets and meets their criterias of the individual trader.