What's Fibonacci Forex Trading?

Fibonacci forex trading is the basis of many forex trading systems used by a great number of professional forex brokers around the globe, and many billions of dollars are profitable traded every year based on these trading techniques.

Fibonacci was an Italian mathematician and he is best remembered by his world famous Fibonacci sequence, the definition of this sequence is that it's formed by a series of numbers where each number is the sum of the two preceding numbers; 1, 1, 2, 3, 5, 8, 13 ...But in the case of currency trading what is more important for the forex trader is the Fibonacci ratios derived from this sequence of numbers, i.e. .236, .50, .382, .618, etc.

These ratios are mathematical proportions prevalent in many places and structures in nature, as well as in many man made creations.

Forex trading can greatly benefit form this mathematical proportions due to the fact that the oscillations observed in forex charts, where prices are visibly changing in an oscillatory pattern, follow Fibonacci ratios very closely as indicators of resistance and support levels; maybe not to the last cent, but so close as to be really amazing.

Fibonacci price points, or levels, for any forex currency pair can be calculated in advance so that the trader will know when to enter or exit the market if the prediction given by the Fibonacci forex day trading system he uses fulfills its predictions.

Many people tries to make this analysis overly complicated scaring away many new forex traders that are just beginning to understand how the forex market works and how to make a profit in it. But this is not how it has to be. I can't say it's a simple concept but it is quite understandable for any trader once he or she has grasped the basics and has had some practice trading using Fibonacci levels along with other secondary indicators that will help to improve the accuracy of the entry and exit point for every particular trade.

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Introduction to Fundamental Analysis: Forex

Forex traders almost always rely on analysis to make plan their trading strategies. There are two basic types of Forex analysis — technical and fundamental. This article will look at fundamental analysis and how it used in Forex trading.

Fundamental analysis refers to political and economic conditions that may affect currency prices. Forex traders using fundamental analysis rely on news reports to gather information about unemployment rates, economic policies, inflation, and growth rates.

Fundamental analysis is often used to get an overview of currency movements and to provide a broad picture of economic conditions affecting a specific currency. Most traders rely on technical analysis for plotting entry and exit points into the market and supplement their findings with fundamental analysis.

Currency prices on the Forex are affected by the forces of supply and demand, which in turn are affected by economic conditions. The two most important economic factors affecting supply and demand are interest rates and the strength of the economy. The strength of the economy is affected by the Gross Domestic Product (GDP), foreign investment and trade balance.

Indicators

Various indicators are released by government and academic sources. They are reliable measures of economic health and are followed by all sectors of the investment market. Indicators are usually released on a monthly basis but some are released weekly.

Two of the most important fundamental indicators are interest rates and international trade. Other indicators include the Consumer Price Index (CPI), Durable Goods Orders, Producer Price Index (PPI), Purchasing Manager's Index (PMI), and retail sales.

Interest Rates — can have either a strengthening or weakening effect on a particular currency. On the one hand, high interest rates attract foreign investment which will strengthen the local currency. On the other hand, stock market investors often react to interest rate increases by selling off their holdings in the belief that higher borrowing costs will adversely affect many companies. Stock investors may sell off their holdings causing a downturn in the stock market and the national economy.

Determining which of these two effects will predominate depends on many complex factors, but there is usually a consensus amongst economic observers of how particular interest rate changes will affect the economy and the price of a currency.

International Trade — Trade balance which shows a deficit (more imports than exports) is usually an unfavourable indicator. Deficit trade balances means that money is flowing out of the country to purchase foreign-made goods and this may have a devaluing effect on the currency. Usually, however, market expectations dictate whether a deficit trade balance is unfavourable or not. If a county habitually operates with a deficit trade balance this has already been factored into the price of its currency. Trade deficits will only affect currency prices when they are more than market expectations.

Other indicators include the CPI — a measurement of the cost of living, and the PPI — a measurement of the cost of producing goods. The GDP measures the value of all goods and services within a country, while the M2 Money Supply measures the total amount of all currency.

There are 28 major indicators used in the United States. Indicators have strong effects on financial markets so Forex traders should be aware of them when preparing strategies. Up-to-date information is available on many websites and many Forex brokers supply this information as part of their trading service.

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Forex Trading Indicators and the Ever Changing Market Conditions

Once you enter the Forex trading world you will immediately notice the need of using technical analysis in order to find trends when looking at the forex charts and also the importance of being aware of when they first develop so you can ride the trend until it ends. The foreign exchange market is a very strong trending market, lots of ups and downs in short periods of time, and it's, therefore, a place where technical analysis can be very effective.

But you should always remember that the indicators are only giving you a high probability behavior the markets may show when you are trading, but will never tell you the behavior of the currency prices with total certainty.

If you want to become a profitable forex trader you will need to use as many technical indicators as you can, or create a personalized trading strategy based on a combination of these indicators, to recognize with the best accuracy possible the trend. In other words, a professional forex trader will try to identify the major trend, the intermediate trend, and the short-term trend and then construct his trades in that direction based on how long their rules allow him to hold a position.

The forex markets are always changing, that's why you should always have an open criterion when using your technical indicators. Markets will be changing and different combinations of indicators may be required with time in order to have the most accurate, highest probability, prediction of future currency price behaviors.

If the action of the market shows your judgment to be correct, then you must consider staying with the market' and look for the maximum profit on each trade, according to your risk-to-reward/equity management rules. If you happen to be in a bad day and the market goes against you, the smart trader will take profits and get out of that trade. In a narrow market, when prices are not going anywhere, but move within a narrow range, there is no sense in trying to anticipate when the next big movement is going to be.

So, you must always be alert and open to use as many and as different indicators in order to stay tuned with the market and become a profitable trader at the end of the day.

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Futures versus Forex (Foreign Exchange Market)

Today’s current futures market is quite unlike the futures of the 19th century. Today’s future market is a worldwide one that includes manufactured goods, financial currencies and treasury bonds, and agricultural products.

When you speculate on futures it is not the actual good that is speculated upon rather it is the contract for the goods that is traded as value. Every futures contract includes a buyer and a seller. The following is an example of a futures speculation: A farmer agrees to deliver 1000 bushels of corn to a baker at a price of $5.00 a bushel. If the daily price of corn futures falls to $4.00 a bushel, the farmer's account is credited with $1000 ($5.00 — $4.00 X 1000 bushels) and the baker's account is debited by the same amount. Futures accounts are settled every day.

Using the above as an example this is how the contract settlement would play out: If the price of corn futures is still at $4.00 the farmer will have made $1000 on the futures contract and the baker will have lost an equal amount. However, the baker can now purchase corn on the open market at $4.00 a bushel — $1000 less than the original contract, so the amount he lost on the futures contract is made up by the cheaper cost of corn. Also, the farmer must sell his corn on the open market for $4.00 a bushel, less than what he anticipated when entering the futures contract, but the profit generated by the futures contract makes up the difference.

Speculators profit by daily fluctuations in the futures market by choosing to buy from the seller (buying short) or from the buyer (buying long).

The FOREX market has advantages over the futures market. FOREX is the largest financial market in the world. It is a liquid market and stop orders can be executed more easily and with less slippage than in other markets. The FOREX market is open 5 days a week, 24 hours a day. Traders can take advantages of opportunities as they become available. FOREX transactions are usually instantly executed. FOREX transactions are commission free. Brokers earn money on the spread.

Some investors feel that due to built-in safeguards that FOREX trading is safer than futures trading.

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Advantages of the Forex Market

There are several advantages of the Forex market over some other types of financial trading.

When talking about various investments that are accessible to almost everyone, there is one type that springs to mind. The Forex or foreign exchange market has many advantages over other types of trading. Since it is an OTC (over-the-counter) market, the Forex market is open 24 hours a day, unlike the regular stock or commodity markets. Most investments require a significant amount of money before you can take advantage of that investment opportunity. You only need a small amount of capital to trade Forex. Everyone can enter the market with as little as $1 to trade a "micro account", which allows you to open positions of 1,000 units. One lot of 1,000 units of currency is equal to 1 contract in micro account. Each "pip" or "tick" (smallest currency rate movement up or down) is worth $0.10 profit or loss, depending on whether you are going with the market or against it. A Forex mini account gives you control over 10,000 units of currency, where one pip is worth $1.00. While a standard account gives you control over 100,000 units of currency, and a pip here is usually worth $10.00.

Forex is also one of the most liquid markets. When trading currencies on the spot Forex market you have full control of your capital, meaning that you can buy and sell your positions anytime during market open period. This is a definite advantage because, if you need to use your account money, it can be accessed immediately without additional commission or waiting periods. Many other types of investments require holding your money up for rather long periods of time.

Also, in Forex, with a small amount of money, you can control bigger market positions using the leverage or margin trading. Leverage of 1:100 is common in the Fore market. It allows you to control amounts 100 times bigger than your capital, while leverage of 1:500 and 1:1000 can be found with some offshore companies.

Forex traders can be profitable in bullish or bearish market conditions. Stock market traders need stock prices to rise in order to take a profit, since short-selling is a subject to strict limits in stock exchanges. Forex traders can make a profit during both uptrends and downtrends. Forex trading is rightfully considered risky but with a good trading system to follow, good money management skills, and some level of self-discipline, the risks of Forex trading can be minimized considerably.

The Forex market can be traded anytime and anywhere. As long as you have access to a computer and internet, you have the ability to trade the Forex market. An important thing to remember before jumping into trading currencies is that it is worth practicing with "paper money", or "fake money", on the demo account. Trust Capital have demo accounts where you can download the Meta-trader 4 trading platform and practice in real-time with real market data but with "virtual money". While profitable demo trading cannot guarantee your success with real money, practicing can give you a huge advantage to become better prepared when you start trading with your real, hard-earned money.

What is Macroeconomics?

Macroeconomics, as its name suggests, is the study of economics on a large scale, such as on a national level. It was developed as a separate theory from Microeconomics, mainly as a result of the work of legendary economist John Maynard Keynes who postulated among other things, that short-run fluctuations in economic activity can be mitigated by appropriate use of monetary policy. This was in stark contrast to classical economic theory, which stated through its principle of monetary neutrality, that nominal variables such as the money supply cannot affect real variables, such as output or unemployment.

In this series of articles, we will explain how and why Keynes, as well as other economic theorists who followed him, came to some of these conclusions, and examine what evidence there is to support the theory. More importantly, we will discuss what changes to fiscal and monetary policies governments and central banks should adopt, if any, in order to minimize the negative effects of what is thought to be the natural business cycle.

If you are wondering what any of this has to do with forex trading, you may be surprised: even in today's speculation-driven market, real-money flows, based on fundamental economic reasons, are still the single most important factor in determining the relative values of currencies. Furthermore, once macroeconomics is understood, it is easier for a trader to follow economic data and central bank jargon.The main point is, therefore, that a working knowledge of economics is an important tool if a trader has any hope of engaging in fundamental analysis.

There is a on-going debate between "technical" and "fundamental" analysts among retail forex traders. The bottom line is that very few traders at this level understand what either of those types of analysis really means. There is a notion out there that fundamental analysis consits of simply reading Bloomberg news (or similar). In fact, listening to the analysts is simply consumption of someone else's fundamental analysis, and often with very little evidence being given to support the conclusions. There is no analysis being done by the trader him/herself. In the murky world of financial and economic analysis, there is a bull for every bear, and details are hard to come by. 

Opinions of the "experts" are contradictory to one another, and they have to be - otherwise there would be no market, no one to sell if everyone is buying, and no one to buy when everyone is selling.

This is why fundamental analysis can be a very useful tool, if you know what you are doing, and this is why at least a basic knowledge of economics can be an extremely valuable asset: find an inefficiency that is not in the public sphere, by doing your own analysis of the underlying economic numbers, and exploit it for profit. That is the name of the game.

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Using Fundamental and Technical Analysis in Trading

Fundamental analysis remains an essential part of formulating trading strategies for the majority of traders, regardless of whether its stocks, shares or commodities. The subject of fundamental analysis is incredibly broad with a wealth of information available to the novice and expert trader alike.

Generally speaking fundamental analysis will be used for trading stocks and shares, but where short-term trading strategies are prominent, such as FX trading, technical analysis will often be favored. Of course, using a hybrid of both fundamental and technical analysis will ensure both bases are being covered and can often be the best approach for trading. Often this can apply to dealing in individual shares, especially big FTSE100 companies where trading is active.

Before selecting shares, people will often use quantitative analysis to get a basic overview of performance and is a good starting point for initial research. This will often involve examining revenue, assets, expenses, assets and all other financial aspects of a company. Of course, it’s important to understand how all this information relates together and time is spent learning about the balance sheet, income statement, cash flow statement etc.

For selecting shares often things like price-earnings ratio, price to cash flow, discount cash flow, return on equity, and dividend yield amongst other variables will come into consideration for quantitative analysis. Selection using this kind of analysis will usually be based on a set of shared characteristics for individual or group of shares.

Often traders will use such basic information as well as further in-depth analysis, such as the timing of crucial announcement’s pertaining to future success, or indeed, failure of the company and other technical analysis to formulate decisions on the best times to buy or sell.

Technical analysis is perhaps best used when the trader suspects there may be valuation anomalies, and provides a good way to delve deeper. It can help provide attribution to key technical indicators, as a way of avoiding excessive buying prices or getting the best price when it comes to exit. Such hybrid approaches work well with the trading of commodities and precious metals, as often fundamental analysis places an added emphasis on these.

There are often levels of complexity involved when it comes to trading in commodities, for example, and a variety of different variables that can have implications on prices and decisions. Some are psychologically related such as the motivations of other traders, whilst others may be geo-political. Bad weather in Ghana for example; political disturbances in a neighboring country, a hike in shipping rates all may influence the price of trading commodities.

So one has to approach their analysis with careful consideration and often use in-depth technical analysis as well as fundamental analysis as best practice.

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