Glossary of Terms of the Forex market

ASK - the price of the offer, on which the transaction for the purchase is made

BID - the price of demand, which is the transaction for the sale

COMMISSION - (commission) remuneration of the broker for conducting transactions on behalf of the client as an agent.

FLAT (SQUARE) - (closed) neutral position when all positions are closed.

GTC (Good Till Canceled) - (good until cancelled) order (order) to buy or sell currency at a fixed price or worse. The order remains in effect until it is executed or cancelled by the client.

LIMIT ORDER - (limited order) order to the broker to buy a lot of a certain instrument and the volume of assets at a specified price or below it, or sell at a specified price or higher. The specified price is called a limited price.

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LOSS - (loss, loss) reduction of the volume of invested assets as a result of transactions or excess of expenses for the operation of the proceeds from it.

LOT - a certain number of units or the amount of assets taken to perform an operation on the market for a particular instrument (usually the number of units of volume in the lot is a multiple of 100).

MARGIN - (margin, collateral) the amount of money or a certain amount of securities that the investor must deposit with the broker to secure a loan for investment. This amount of cash represents security or collateral on the investor's margin account, which provides coverage for possible losses that may arise in the case of a margin trade.

MARGIN ACCOUNT - (margin account) the account by which the client receives a loan from a broker/dealer for transactions.

MARGIN CALL - the requirement for additional security. The requirement for the client to deposit money from the broker when performing financial transactions, when the amount of the margin is reduced below the minimum level established on the exchange or by that firm.

MARKET ORDER - (market order) order to buy or sell a lot of a certain instrument and the volume at which the broker executes it at the best price available at the time of receipt of the order.

MARKET PRICE - (market rate) in an open market is dynamically variable prices of buyers and sellers for a particular market instrument. In the conditions of the exchange, the last announced selling price.

OFFER - the offer of the price by the seller. Offer to sell at a certain price.

OPENED POSITION (TRADE) - (open position) the market volume of contracts for unfinished transactions. When playing on a raise, the position is called "long", while playing on a slide is called "short".

ORDER - (order) order the broker to buy or sell a lot of a certain instrument and volume at a given rate.

PIPS (POINT) - (pip, item) is the last digit in the spelling of the quotation (0.0001 = 1 pip).

PROFIT (GAIN) - (profit, profit) is a positive result of an investment or a business transaction after clearing the costs of its implementation.

REALIZED PROFIT / LOSS - profit / loss on settled (closed-back transactions) positions.

RESISTANCE - (resistance) price level at which active sales can suspend or unfold the upward trend.

SETTLED (CLOSED) POSITION - (closed position) the settled market position on which the reverse transaction was made and the settlement was made.

SPREAD - the difference between the bid price and the bid price

STOP-LIMIT ORDER - an order to buy or sell a lot of a certain instrument and volume, but only when the price reaches a given level. Usually, it is a combination of a stop order and a limit order.

STOP-LOSS ORDER - (stop-loss order) order to buy or sell currency at a fixed price or worse. This order is usually issued to limit losses, in case the market moved in the opposite direction to the expected one.

SUPPORT - (support) the price level at which active purchases can suspend or unfold the downward trend.

TREND - the resulting direction of price movement as a result of various factors.

UNREALIZED (FLOATING) PROFIT / LOSS - non-fixed profit / loss, unrealized until the position is settled, i.e. is blocked by a reverse transaction.

USEABLE MARGIN - (available margin) amount of funds on the margin account, available for settlements based on the results of transactions. Calculated as the difference between the current balance of the account, taking into account the unrealized profit and the amount of funds blocked under the coverage of open positions.

USED MARGIN - the amount of funds on the account, blocked to cover possible losses on open positions. It is an instrument for regulating client risks when playing on margin trading conditions.

Participants of the Forex market

This article explains various Participants of the Forex market.

Commercial banks

The main group of participants of the international currency market forex are commercial banks. It is they who conduct the bulk of foreign exchange transactions at their own expense and on behalf of customers. Other participants of the foreign exchange market keep their accounts in commercial banks and send them applications for the purchase and sale of one currency for another for their own needs (conversion operations), and also credit and vice versa keep their deposits (deposit-lending operations) in banks. Banks, being specialized organizations, accumulate (through transactions with customers) market needs (supply and demand) and if they are not able to meet these needs they themselves satisfy them through other banks. Therefore, in fact, it is not an exchange, in the strict sense, it is the market for interbank transactions (sometimes for interbank money). Commercial banks also conduct speculative operations at their own expense.

[caption id="attachment_383" align="aligncenter" width="336"] Participants of the Forex market[/caption]

Firms engaged in foreign trade operations

Firms carrying out import operations present demand for foreign currency (for the purchase of goods) and the corresponding offer of the national currency. Companies engaged in export operations create a supply of foreign currency (earned for the sale of goods) and the corresponding demand for the national currency needed to pay labour, other costs and taxes. In addition, they both place free currency balances on their accounts in deposits or securities or attract loans in various currencies, depending on interest rates and own expectations. As a rule, all these operations are done through commercial banks.

Funds and companies engaged in foreign investments

International investment funds, as well as large commercial corporations operating abroad, manage their own securities portfolio (for example, government bonds and bonds of private companies), denominated in different currencies or hold large deposits in commercial banks with the purpose of deriving profit from such investments.

Central Banks

The function of central banks is to maintain the smoothness of fluctuations in the exchange rate of the national currency, manage reserves in foreign currency, regulate refinancing rates and maintain the liquidity of the national market. The biggest impact on the market forex is provided by: The Federal Reserve System of the USA (US Federal Reserve or FED), as well as its Committee on Open Market Operations (Federal Open Market Committee, or FOMC), the European Central Bank (European Central Bank or the ECB) , the Bank of England (Bank of England - BOE, also called Old Lady) , the Bank of Japan (Bank of Japan or BOJ)

Currency exchanges

Currency is also traded on domestic national exchanges. In addition, a significant part of the standardized derivatives is traded on the exchanges: futures, options, etc.

Brokerage companies

Brokerage companies are engaged in the reduction of the buyer and seller of the currency in the event that between them there are still no stable counteragent agreements. For their brokerage, firms charge a brokerage commission, usually in the form of a percentage of the transaction amount.

Dealing centres, dealing companies

Dealing centres, play the role of peculiar intermediaries, working with small amounts of individuals and accumulating them for commercial banks.

Private individuals

Private individuals conduct a wide range of conversion and arbitrage transactions, demand for currency for tourism purposes, purchase of goods abroad, conversion of wages, etc., and conduct speculative operations.

Basic concepts and terms of the Forex market

This article explains various basic concepts and terms used in Forex market.

Currency market

Currency market - a set of conversion and deposit-credit operations in foreign currencies, carried out between counterparties - participants in the foreign exchange market at a market rate or interest rate.

Currency transactions

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Currency transactions are contracts of foreign exchange market agents for buying and selling, calculating and lending foreign currency on specific terms (amount, exchange rate, interest rate, period) with performance on a certain date. Current conversion operations (exchange of one currency for another), as well as current deposit-credit operations (for a period of up to one year) constitute the main share of currency transactions (definition by D. Yu Piskulov, Theory and Practice of Currency Dealing, Moscow INFRA-M 1995).

There is a difference between conversion and deposit-credit operations. Conversion operations do not have a length in time and are carried out at a certain point, and deposit-lending operations have a duration in time.

Deposit-lending operations are usually allocated in a separate market - the money market (Money Market).

The exchange rate

The exchange rate is the price of a monetary unit of one country, expressed in monetary units of another country in sales transactions.

The exchange rate can be formed in two ways: based on the supply / demand ratio for the currency in the free market or in an administrative way (usually by the central bank or the government).

Currency quotation

Currency quotation (from the French coter, literally - numbering, labeling) is the establishment (fixation) of the exchange rate of one currency to another in accordance with the current legislative norms and established practice.

Currency quotes are of three types:

• direct quotation - the number of units of the national currency for one unit of foreign currency.


• the reverse quotation is the amount of foreign currency per unit of national currency.


• cross-rate(sometimes called "cross") - the exchange rate between the two currencies, determined on the basis of the exchange rate of these currencies relative to the third currency. Basically, the US dollar is used as this third currency as the currency used in 80% of transactions.

The main currencies

• USD = the US dollar, financial slang also uses the names greenback, buck, dolly


• EUR = Euro, a single European currency


• GBP = English pound , the finance slang also uses the names " Great Britain Pounds, sterling, cable.


• CHF = Swiss franc, financial slang also uses the name "swissy" (swissy),


• JPY = Japanese yen

 

Other currencies

• CAD = Canadian dollar


• AUD = Australian dollar, financial slang also uses the name "aussie"


• NZD = New Zealand dollar, financial slang also uses the name "kiwi" (kiwi).

A currency pair is a text entry of a currency quote .

The base currency (traded currency) in each currency pair is written on the left (first).
Currency quotes (quoted currency) each currency pair written to the right (second).
Value or rate of the currency pair is quoted currency amount per unit of the base currency, such as dollars per 1.2264 1 EURO

Figures coming after the "." Or "," percentage points called simply points (points) or pips (pips), thus a paragraph (pips) at a forex is called the minimum price change, which is different for different pairs.

For pairs where the quotation currency (the second currency) is Eur, Gbp, Usd, Chf, Aud, Cad, one item is equal to one decimal place after the decimal point (0.0001). For currency pairs where the quote currency (the second currency) is Jpy, one item is one hundredth after the decimal point (0.01).

For example, a change in the price of the euro for the dollar from 1.2263 to 1.2264 is called a change of 1 point.

The change in the price of the dollar for the yen from 108.22 to 108.23 is also called a change by 1 point.

One hundred points up the base number, which for the dealer and trader jargon called the "big figure» (big figure) or simply a "figure". For example, a change in the price of eur / usd from 1.2263 to 1.2363 or usd / jpy from 108.22 to 109.22 is an increase on the figure.

The following currency pairs are traded most actively in the market: EUR / USD - Euro to US dollar USD / JPY - US dollar to Japanese yen GBP / USD - pound to USD USD / CHF - US dollar to Swiss franc GBP / JPY - pound sterling to Japanese yen GBP / CHF - pound sterling to Swiss franc EUR / GBP - Euro to pound sterling

• EUR / JPY - Euro to the Japanese yen


• EUR / CHF - Euro to the Swiss franc


• AUS / USD - Australian dollar to the US dollar


• USD / CAD - US dollar to the Canadian dollar

Speculative operations conducted by the trader are always carried out with the base currency (which on the left in the currency pair ). Thus, by buying USD / JPY, you buy the US Dollar for Yen, and by selling EUR / JPY, you sell euros for yen. The purchase and sale of currency in a currency pair occur at different quotations. The trader always buys on Ask, but sells by Bid . Accordingly, the bank and the dealing company on the contrary buys from the trader on Bid, and sells it to Ask. Bid is always lower than Ask. Therefore, usually the trader is given at once 2 quotes, for purchase and for sale (Ask and Bid) . For example, the EUR / USD quotation is presented in the following form: 1,2252 / 1,2256 1,2252 / 56 52/56 - it is assumed that 1,22 - the trader knows when he is requesting a quotation. Such a quote means that a trader can sell at 1.2252 (Bid) or buy at 1.2256 (Ask) Spread is the difference between Ask and Bid.

The size of the spread on Forex is usually a dynamic value and depends on a number of factors:

- Market conditions. In an unstable, volatile market, the spread may be slightly higher.
- Liquidity of the market of a specific currency. The more liquid the currency market, the less spread. Therefore, for example, the spread on EUR / USD, other things being equal, exceeds the spread GBP / JPY - The volume of the transaction. The larger and smaller ones are quoted in the interbank Forex market with a higher spread than the standard ones.

In the dealing center the spread usually fixed and increases only in moments of strong movements.

The price of a price point depends on the volume of the transaction and is always taken into account in the quote currency (the second currency in the currency pair), and, if necessary, is converted into dollars, usually automatically.

Cost of an item = volume of an operation x a minimum price change

For example, if you make an operation with a volume of 100,000 eur / usd, then the cost of the item for you will be 100 000x0.0001 = 10 usd.

For example, if you perform an operation with a volume of 350,000 gbp / jpy, then the cost of the item for you will be 350,000x0.01 = 3,500 yen.

If the value of the item is obtained in a currency other than the US dollar (that is, the quote currency is the US dollar), and, for example, the Japanese yen as in a pair USD / JPY, it can be converted into dollars.

For example, if a trader makes a profit in JPY (yen) then he needs to sell the yen and buy dollars for them or in other words buy dollars for yen (buy USD / JPY) . If a trader receives a loss in JPY, he will need to buy JPY for USD, or in other words sell dollars for yen (sell USD / JPY) . These transactions will also be covered by the rule of selling by Bid and buying by Ask. An example of a speculative operation.

After careful analysis, the trader asks the dealer for his quote for EUR / JPY and the dealer gives him the price of 131.52 / 57. Suppose a trader decides to buy EUR / JPY and makes an operation at a price of 131.57 in the amount of 400,000 eur. Let's say that he was right in his forecast and after a while the rate rises to the mark of 132.16, at which the trader decides to sell 400 000 eur (to completely close his position).

The financial result of such an operation will be as follows.

132.16 (closing or selling price) - 131.57 (the price of opening or initial purchase) = 0.59 or 59 points (we got the difference in points) .
Multiply by the volume of the transaction:
0.59 X 400 000 = 236 000 is the result in quoted currency, that is, in JPY (Japanese yen).
Now the trader needs to translate this result into US dollars. Assume the dollar to the yen at the close of the above operation was 107.19 / 24. To get dollars, they need to be bought by selling yen, or in other words buy USD / JPY. Naturally, the transaction is executed on the quotation Ask or 107,24.
We calculate in US dollars.
236 000 / 107.24 = 2200.67 US dollars.

An open position (in financial jargon sometimes say "pose") is an operation that is not closed by a reverse transaction, in which profit or loss is not fixed.

History of the Forex Market | Jamaican Currency System

In the previous article, we tried to understand History of Forex Market - Bretton Woods Agreement. Now, in this article, we'll understand History of Forex market - Jamaican Currency System.

History of the Forex Market

The self-destruction of the Bretton Woods system grew like a snow coma.

Already on December 17, 1971, the dollar depreciated against gold by 7.89% and the official price of gold increased from 35 to 38 dollars per 1 troy ounce without renewing the exchange of dollars for gold at this rate. A little more than a year (February 13, 1973), the dollar devalued to 42.2 dollars per 1 troy ounce.

In 1973, the link to the dollar was abolished by Japan and the European Union. Unofficially from this point on, the fixed exchange rate regime ended its existence, as it was not supported by the most influential countries, and a currency system of "floating rates with central bank intervention" (dirty float) appeared.

At the same time, the IMF's "Committee of Twenty" prepared in 1972-1974. project to reform the world monetary system.

In January 1976, in Kingston (Jamaica), the IMF member countries signed a new agreement, and in 1978 the relevant changes were made in the IMF statute:

• The official price of gold is cancelled, the exchange of dollars for gold is stopped, no national currency has any more gold content. The gold market from the main money market turned into a kind of commodity market.


• countries are given the right to choose any exchange rate regime: freely floating, limited (corridor to one currency and free navigation to others) or fixed (tied to one currency, SDR, basket or sliding parity).


• introduced a new type of international means of payment - SDR ( special drawing rights - special drawing rights) - the unit of account of the International Monetary Fund, used for non-cash international payments through entries in special accounts. Each country received its share of the SDR in accordance with its share in the IMF.


• the possibilities of conducting an independent domestic monetary policy by individual central banks have been expanded. Central banks of countries are not obliged to intervene in the work of foreign exchange markets to maintain a fixed parity of their currency. However, they carry out currency interventions to stabilize exchange rates.


• The Jamaican currency system was supposed to become more flexible than the Bretton Woods, and quickly adapt to the volatility of balance of payments and exchange rates. However, despite the approval of floating exchange rates, the dollar formally deprived of the status of the main means of payment has actually remained in this role, which is due to the more powerful economic, scientific, technical and military potential of the United States in comparison with other countries.

In addition, the chronic weakness of the dollar, characteristic of the 1970s, was replaced by a sharp increase in its rate by almost 2/3 from August 1980 to March 1985 under the influence of a number of factors.

The introduction of floating instead of fixed exchange rates in most countries (since March 1973) did not ensure their stability, despite the huge costs of foreign exchange intervention. This regime proved incapable of ensuring a rapid equalization of balance of payments and inflation in various countries, an end to sudden movements of capital, currency speculation, etc.

A number of countries continued to tie national currencies to other currencies: the dollar, pound , etc., some tied their rates to "currency baskets", or SDRs.

On March 13, 1979, the European monetary system was created by the members of the European Community for the purpose of economic integration, stability with their own currency, and protection from the expansion of the dollar.

The European Monetary System was based on the ECU - the European Currency Unit (ECU). The ECU's contingent value was determined using the currency basket method, which includes the currencies of all 12 EU countries. The share of currencies in the ECU basket depended on the share of countries in the total GNP of the EU member states, their mutual trade turnover and participation in short-term support credits (in September 1993, in accordance with the Maastricht Treaty, the "absolute weight" of currencies in the ECU was frozen) course. The ECU emission was partially secured by gold.

[caption id="attachment_372" align="alignleft" width="336"] History of Forex[/caption]

The exchange rate regime was based on the joint floating of currencies within the established limits of mutual fluctuations (+/- 2.25% of the central rate). On the basis of the central courses in the ECU, mutual courses in the form of a matrix with established intervention points are calculated within the permissible fluctuations of exchange rates +/- 2.25%. When the achievement of 3/4 limits of course fluctuations in the ECU was recorded, preventive regulatory measures were taken.

Over time, the ECU was used not only in interstate, but also in private calculations (the currency of Eurobond loans, syndicated loans, bank deposits and loans, traveler's checks). In 1990, the United Kingdom joined the mechanism of exchange rates, and in 1992 after a significant drop in pounds sterling caused by speculative sales, Britain withdrew from the European monetary system. After the withdrawal from the sterling agreement in 1993 due to the strong devaluation of other European currencies, the fluctuation limit was increased to 15%.

In 1999, the Euro was introduced (instead of the ECU). The agreement involved 12 countries that meet certain parameters for inflation and the state budget deficit.

January 1, 2002 The euro was introduced into cash circulation.

By 2007, the euro had already reached 1.4 US dollars and became no less popular both in international settlements and as a reserve currency in the Central Banks.

Understanding History of Forex Market

What is Forex Market?

Trade the Forex (forex) - from the English Foreign Exchange reduction (translated as the international exchange or international exchange) is a collection of various trade, investment and speculative operations with currency, is implemented through a system of institutions.

Sometimes abbreviation FX is used for brevity.

Formally, the Forex market is not organized as a stock exchange . On the contrary, it is an informal network of trade relations between participants around the world, which include central banks, commercial banks, investment banks, brokers and dealers, pension funds, insurance companies, transnational corporations and various private investors. All major currencies are traded in this market. The main role in the Forex market belongs to banks that are called market makers of the Forex market, since they are the ones who make active trading operations, offering to buy or sell currency to their customers and counterparty banks.

History of Forex - Bretton Woods Agreement

Prior to the Bretton Woods Agreement, the international system of exchange rates was based on the postulate: money reversible in gold, have the price of gold. Most of the money was not directly convertible to gold, but reversible in other money: the pound and the dollar, which in turn are already exchanged for gold. In connection with the ongoing economic crises, and after the Second World War, even before its end, the allied governments agreed on the principles of cooperation in support of post-war trade and monetary relations.

Already in July 1944, when the Second World War entered the decisive stage, a meeting was held in Bretton Woods (New Hampshire) on the reform of the traditional system of gold standards of national currencies by representatives of 41 countries whose national currencies were most heavily weighted in international settlements.

[caption id="attachment_372" align="alignleft" width="336"] History of Forex[/caption]

Due to the fact that after World War II, the US economy was the least damaged of the developed countries and the United States was almost a monopoly in the market of gold (on the application Morgenthau - Minister of Finance of the United States - in 1944 under US control were more than 2/3 of the world's reserves of gold) , only the United States could guarantee the exchange of its currency for gold at a declared rate (by 1948, the US gold reserve was already 3/4 of the stock of all market economies in the world).

According to the results of the Bretton Woods meeting, the US currency - the dollar along with gold was used as a reserve currency (the nominal value of the currencies of the member countries of the system was set in US dollars or gold).

In order to maintain the system of international payments, in 1944 an organization was created - the International Monetary Fund (IMF) . Under the agreement on the creation of the IMF, all countries participating in the fund established the nominal value of their currency in US dollars. The Fund lent, if necessary, the member countries to correct the balance of payments deficit.

The means of calculating between the countries was gold and the dollar. (According to article 4 of the IMF statute: each country is an IMF participantmust report its monetary parity in gold or in US dollars "in balances and in samples used on July 1, 1944). The dollar was recognized as an international means of payment, becoming in fact the only equivalent of gold, and therefore virtually all world prices began to be set in dollars The central banks of the IMF countries could convert dollars into gold at a fixed rate (the conversion was made by the US monetary authorities).

The US has committed to keep fluctuations in gold prices within + or - 1% of the price at $ 35 per ounce ($ 1 = 888.671 mg of gold) and exchange the dollar for gold at $ 35 per ounce (1947), and other countries - to keep fluctuations of national currencies within + or - 1% of the approved face value by currency interventions.

States under the agreement were given the right to devalue or revaluate their national currency, but if it was more than 10% of the declared parity, the IMF's prior approval, which could be given, only if the balance of these countries came into so-called "fundamental disequilibrium" is necessary. However, in connection with the need for sudden devaluation (not sudden devaluation does not make any sense), in practice, permission was never asked (devaluation of the pound in 1949, the French franc in 1948 and 1969, etc.).

In general, in the beginning, it was more profitable for countries to keep their reserves in dollars compared to gold, since investments in dollar bonds brought an additional interest income.

However, the system of fixed exchange rates contained a serious contradiction. On the one hand, the dollar should have the same confidence as gold, it must have a fixed rate, so that everyone would not care about storing gold or a dollar. To this end, the issue of the dollar should be provided by the US gold reserve (otherwise there will be a crisis of confidence).

On the other hand, the US dollar should be issued in quantities sufficient to provide an increase in the international money supply for servicing an increasing number of international transactions.

This contradiction eventually broke into the system of the gold and currency standard. By the end of 1964, the dollar reserves of central banks had reached the size of the US gold reserve and, thus, the theoretical threshold of inconvertibility had been reached. Between 1960 and 1970, the reserves in the dollars of other countries tripled (47 billion dollars in 1970, in the same year the US gold reserve was 11.1 billion dollars). During the same period, the US gold reserve declined due to the requirements to exchange dollars for gold (in 1960 the gold reserve of the US was $ 17.8 billion). There was a lack of confidence in the US in their ability to exchange dollars for gold at a fixed rate.

Already in 1965, France made a massive exchange of its dollar reserves for gold, coming out of the gold pool of seven countries that pledged to maintain the price of gold. Private banks in Europe began to strike a blow to the system, making billions of dollars in exchange for the Fed.

In November 1967, the pound sterling was devalued.  On March 17, 1968, central banks of a number of European countries abandoned attempts to stabilize the free gold market.

August 15, 1971, the Fed stopped converting dollars to gold central banks, and the limit fluctuations in the nominal value of currencies against the dollar was set at 2.25%.

Advantages and Disadvantages of the Forex market

Such properties of the forex market, as a significant volume of turnover, volatility and global structure contributed to the rise of its popularity among investors. Due to the high liquidity level, investors are able to conduct very large transactions without affecting the exchange rate. Large positions are available for traders because of low marginal requirements in the industry.

Check Forex Trading Basics.

Schedule

Forex - the only market that works really around the clock and at any time has good liquidity. For busy traders, this is the optimal solution. As can be seen from the table, large currency centers are scattered around the world, they are in different time zones. As soon as the market in the US closes, trading starts in Asia, you can trade at any time.

Leverage

Forex offers investor more opportunities for large earnings, but the risks are much higher than, for example, when trading stocks.

One of the key features of forex is the level of leverage. Due to the high liquidity of forex margin requirements are low, and the leverage is high. In stock markets it is simply impossible to find such low requirements for collateral; for the purchase of shares, it is necessary that the trader's account has a minimum of 50% of their value, while only 1% is needed to buy the currency.

For example, having on the account of 1 thousand dollars, the trader can control the capital in the size of 100 thousand dollars - the rest of the money is lent by the broker.

The ultra-high level of leverage means that a huge profit in a blink of an eye turns into a killer loss. You can lose all your capital in a few minutes. It is extremely important to understand the beginners, as well as the fact that the currency market - because of the huge amount of money and players - reacts actively to new information, which leads to sharp movements of currency pairs.

The dynamics of currencies lags behind the shares in percentage terms (after bad news, the papers of an individual company may lose a significant part of the cost in just a few minutes), however, it is the leverage that is responsible for the volatility in the foreign exchange market.

For example, with a 100: 1 lever, a trader for every 1,000 dollars receives a capital of 100,000. If he invested it in a certain currency, and it falls in price by 1%, the trader will lose the initially invested one thousand. The loss will be 100%.

In the stock market, most traders do not use leverage, so a loss of 1% does not significantly affect the trading account (if the stock falls by 1%, the losses will be only $10 from the invested thousand).

Despite the risks, it is the size of the leverage that attracts many speculators to the foreign exchange market.

The difference between the currency and stock markets

The main difference between the two markets lies in the number of traded instruments: there are few on the Forex market, while the number of public companies around the world is in the thousands.

Most forex traders prefer seven currency pairs: four major ones (EUR / USD, USD / JPY, GBP / USD, USD / CHF) and three "commodity" ones (USD / CAD, AUD / USD, NZD / USD). All other cross-pairs are simply combinations of the same currencies. This somewhat simplifies the trade: traders do not need to select the best options from thousands of issuers, but enough to monitor the economic and political news of eight countries.

In stock markets, there is often a lull. Volumes are falling, trading activity is decreasing. As a result, it can be difficult to open and close positions at the right time. In addition, not all investors are able to earn a drop in shares.

On the other hand, on forex you can earn both on growth, and on falling, as in each transaction the trader simultaneously sells one and buys another currency. In other words, a short sale is part of every transaction. Due to the high liquidity of the foreign exchange market, there is no need to wait for the price increase before opening a short position (unlike the stock market).

In addition, trading costs in the stock markets are much higher, as traders are forced to pay spread, broker commission and exchange fees. Forex brokers charge only spread for their services.

Forex Trading Basics

The basics of Forex trading. Let's start with the definition of the currency market, which is called Forex. Foreign Exchange Operations - currency exchange operations. Everyone is certainly familiar with this market, as he has repeatedly changed one currency for another or at least heard about currency exchange transactions.

The foreign exchange market exists since 1971. During the Bretton Woods system, currencies of different countries were strictly fixed by the government and tied to the dollar, which was tightly tied to gold. In 1971, this system ceased to exist, allowing many states to recover from the war.

• Forex market participants


• Trading Sessions


• Currencies and Quotes


• Margin Trading


• Orders and their types

After the currencies became a floating rate, the natural continuation was Forex, where exchange rates are formed on the basis of demand and supply. However, it is difficult to talk about some stable course, because this value is floating. Now the value of the currency can be one, and after a few seconds another, and so around the clock. The dynamics of changes in rates can be different at different times of the day.

Basics of Forex Trading - Market Participants

In the Forex market, there are always changes in exchange rates. This is due to the fact that Forex is the only market that operates round the clock throughout the week except Saturday and Sunday. A large volume of transactions is one of the advantages of the foreign exchange market Forex. Every day, the market is rotating 1-3 trillion dollars. This is the most liquid market in the world, in the bidding of which several organizations participate: central and commercial banks, participants of currency exchanges, investment funds, brokerage houses, companies whose activities are related to foreign trade operations, private individuals.

The last participants are ordinary traders. Although, of course, individuals can not participate in the Forex market independently. They instructed to do this to their broker, giving orders for the purchase or sale of a currency. Therefore, the choice of a broker should be taken as the choice of a reliable ally. But it is very hard for one broker to work in the Forex market, so brokers, dilling centers, various funds are united in brokerage houses.

But not only brokerage houses can influence the currency market. There are also commercial banks that serve exporters and importers, investment institutions, insurance and pension funds, hedgers and private investors. Banks also can conduct transactions at the expense of personal funds. Moreover, commercial banks and brokerage houses not only buy and sell, but also offer their prices, what influences the pricing and the entire life of the currency market. 2/3 of the volume of transactions in the Forex market are made daily by commercial banks.

That is why brokerage houses and commercial banks began to be called Market-makers, i.e. "Making the market". And ordinary individuals are forced to trade according to their rules and prices. But market makers can not always be confident in the profitability of their transactions. There are also such influential market participants as Central Banks. Central banks closely monitor the exchange rate of their currency. But their goal to participate in trading is not to make a profit, but to stabilize the exchange rate of the national currency to achieve certain economic indicators. Often such manipulations are conducted with the help of commercial banks.

Trading Sessions

It should be noted that the Forex market does not have a single site where transactions are made. All bidders are located in different parts of the globe and conduct trade through the Internet. In connection with this, several trading sessions have emerged, which depend on the place and time of the trade. Trading starts in Asia at 0.00 GMT and ends at 21.00 GMT in Chicago.

 

Currencies and Quotes

In this section we will go directly to the basics of Forex trading. Each of us has our favorites, that's what the currency market also has. The most important currencies are: USD, EUR, JPY, CHF, GBP. They account for the bulk of all trading in the Forex market.

In the foreign exchange market, there are rules.

• The product must be liquid.


• The size of contracts should be standardized, i. must be a multiple of some value.


• The basic law of any market - the price is determined by supply and demand.


• The minimum unit of price measurement is 1 point.


• Terms of the contract should be clear to all participants.

When the deal is concluded, the speculator purchases the currency "B" for the currency "K". The currency "K" is a means of payment. And we can say that the currency "B" was bought for the currency "K", but we can also say that the currency "K" was bought for the currency "B". To ensure that there is always understanding between market participants, a single currency pair symbols (for example, GBP / USD, EUR / USD, USD / JPY, etc.) and such concepts for currency as "Basic and quoted" were introduced.

The base currency is a currency in a currency pair, the value of one unit of which is measured by the number of units of another (quoted) currency. In the numerator of the currency pair, the base currency is indicated.

A quoted currency is a currency in units of which the price of one unit of the base currency is measured. The denominator of a currency pair is the quoted currency.

For example, GBP / USD means that GBP is the base currency that is bought and sold for USD.

A direct quotation is a quote in which the base currency is the dollar. In the reverse quotation, the dollar is a quoted currency.

If the price chart moves down, it means that the base currency becomes cheaper, and the quoted currency becomes more expensive. And vice versa, if the price moves up.

Above it was said about such a concept as "Quotation". Quotation is the price of a currency that reflects the value of one monetary unit in units of another.

A good example is currency exchange offices. There are always two prices, between which there is a difference. When trading in the foreign exchange market, too, there is such a difference, and its size depends on the terms of trade offered by the broker. For example, "EUR / USD 1.27000 / 1,2710" means that the broker can buy from the trader at the moment EUR against USD at a price of 1.2700, and sell him the euro at a price of 1.2710. The difference between the prices of buying and selling will be 10 points.

The first price in the quote is called the Bid price - this is the price of the trader's selling of the currency, and the second price is called the Ask price. This is the price of the currency's purchase by the trader. The difference between the price of Ask and Bid is called Spread.
As already mentioned above, in the currency market 1 Point (pip) is considered to be the minimum unit of price change. All currency pairs, except for the yen in the record after the comma, are left with four signs. For the yen, there is another quote entry - after the decimal place two signs are left. You can calculate the cost of 1 item using the following formula: Cost of 1 point = (lot x item) / currency quotation rate to USD.

Margin Trading

What is Margin Trading? This is the principle of the market, which is that the broker gives the trader an opportunity to make transactions with an amount greater than his deposit. That is, it gives him a Leverage. Leverage is a loan issued by a broker to a trader in order to increase the effectiveness of his trade.

How does this happen? The trader's own funds are called a security deposit, which must be at least a certain percentage of the size of the proposed trade operation. When a trader decides to make a deal, the broker provides him with personal funds within the maximum leverage, and takes the pledge deposit as collateral, thus securing his own funds.

In the event that a trader commits a loss-making transaction and a part of the funds taken on credit is lost, losses are covered by the trader's security deposit.

Thus, the broker does not lose anything, but at the same time, the deposit of the trader decreases. In the case of a profitable transaction, the broker's funds are fully preserved and returned, no write-offs from the trader's deposit will be made and all profits will be added to the trader's account. The trader can withdraw the earned money or leave it, thereby increasing the security deposit and future profit. The leverage is selected using the lot.

Lot is the volume of the transaction. Typically, one lot is 100,000 base units. There are also mini lots - 0.01, which are equal to 1,000 base units. Lot is a quantity that is always a multiple of 1000.

Also worth considering is the concept of "Trading position". Trading positions in the foreign exchange market are short and long. Short position is a trading position for the sale of the base currency, Long - for the purchase of the base currency.

Let's consider a concrete example of granting a leverage . Let's say that we have a security deposit of $ 1500. After conducting the market analysis, we perform a trading operation for the purchase of EUR by a lot of 0.01 at the rate of 1.2600, assuming that the price of EUR will increase. When the exchange rate changed to the side we were proposing and became 1.2700, our profit turned out to be $ 10 (1000 * 1.2700 - 1000 * 1.2600 = 1000 * 0.01 = $ 10). And if you use leverage, say 1: 100, you could increase the contract 100 times and earn $ 1000.

Basics of Forex Trading - Orders and their types

To make trades, traders use "Orders". An order is an order given to a broker to buy or sell a currency at the price specified by the trader

Work with orders is disciplined by the trader, since before the order is placed, the trader must calculate the potential profit and losses. In order to maintain and exaggerate its capital trader uses warrants to limit losses and save profits. The order that closes the deal, if the price went not in our direction, is called "Stop Loss" - to stop losses, and the order that fixes the profit is called "Take Profit", i.e. take profit.

Orders are immediate execution and turn-down orders.

Orders of immediate execution are orders that are triggered at the time of their issuance, as traders say, "entry from the market" is carried out. When opening such an order, the following parameters are set: currency pair, lot (transaction volume), price limiting profit, price limiting losses. The orders for immediate execution include orders "Buy" - buy, "Sell" - sell the base currency.

Orders are orders of a type with predefined parameters. Deferred orders are of the following types: Buy limit - to buy at a price below the price level, Sell limit - to sell at a price higher than the price level, Bai stop - to buy above the current price level, Sell stop - to sell below the current price level

Orders can also be Mutually canceled and On execution.

Mutually canceled orders are two such orders that are installed simultaneously and have the following property: when one of these orders is executed, the second one is automatically canceled. For example, warrants for limiting losses and fixing profits.

Orders "on performance" allows you to set a "opening" order for a particular currency pair, one or two orders that become active "on execution" of the opening. For example, you can open a position on the "opening" order and immediately activate the stop-loss order corresponding to it.

30 rules of Successful Trading

This article explains 30 simple but effective rules of successful trading in Forex market, stock market, commodity market, bond market or any other.

• Trader, know yourself. Successful trading is 97% understanding and using its own strengths and weaknesses. If you constantly enter into transactions that do not use your strengths, then you will lose money.


• Invest your money, not your "ego". Even the most carefully constructed system can unexpectedly lead you in the wrong direction. Conditions change. The markets are changing. And even a system that works fine can fail because of such changes. Always be prepared for adaptation. If you are not ready to change your settings, it can cost you very much. Never let your transaction become an "investment" simply because you are unable to understand the changes in the market.


• Maintain a trade magazine.It is very difficult to learn from mistakes if you do not remember them. Always keep a record of your past mistakes and successes at hand. Watch for market movements and reactions and record your observations. Write down how the market moves at certain times. Such a detailed journal is no less valuable than any ever written textbook on successful trading.


• Open the position as if it had the potential to become the "largest deal of the year". In other words, plan your deals. Do not enter the market until everything is thought through and analyzed in detail. Think about how you will add to the open position (building a pyramid). Make an action plan in unforeseen situations to exit the transaction. Otherwise, you will have to lose money.


• Practice discipline and patience: Wait for the right moment. According to Bill Lipschitz, out of 250 deals - on three you will lose money, two will be very profitable, and all the others depend directly on you. Expect and track compound trends: a strong share, a strong group / sector, a strong market. Wait for the moment when the composite levels of support / resistance will be in your favor. Successful trading is a business where a lot of time is spent in doing nothing.


• Open small starting positions. Use the pyramid principle to add to the original good position. Once it turned out that you were right in your decision, add to your position strategically. As Davy Crockett said, "Make sure you're right, and - go ahead!"


• Be prepared to make mistakes and take small losses. Trade is trade, markets are markets, and losses are inevitable. However, they are manageable. Put feet, mentally or really, and execute at the planned level without hesitation. So you can manage your risks. And this is the only way to protect your capital and stay in the game.

[caption id="attachment_323" align="aligncenter" width="636"] Successful Trading[/caption]

• The news is already on the schedule, both yesterday's and tomorrow's.Proponents of fundamental analysis predictably react to news. Proponents of technical analysis predictably react to figures on the charts and indicators. If you can correctly read the schedule, then you do not need to follow the news, and even worry about what's in the news. Base your decisions on what is happening on the chart, and not on what, in your opinion, will happen after the news. Forget the news, remember the schedule. He already took into account the future news.


• Always going to the crowd missed the first boat. For example, the first sharp drop in price (sell-off) will always find buyers, and the first rapid rise in price (rally) will always find sellers. These "reactions" are almost always temporary. Plan the purchase on the first rebound from the new high and sell on the first rebound from the new low.


• Large volumes kill the prevailing trend. Always remember that there may be a culmination (too high) new rise or too much collapse. Such climaxes and falls are thrown out from the market by both buyers and sellers. After such breakthroughs, the market usually enters lateral movement.


• Use moving stops if the market goes in your direction. In order not to close a position too early or too late, mentally put a stop at 10-15% of the current market price or slightly beyond the last highs or lows, or, even better, at current support / resistance levels. Then just fix the target level.


• Always, always protect your capital. Cut off small losses.The most important principle is to be intolerant with losses. As always, small losses and quick losses are the best losses. These are not the losses that must be paid attention. It is much worse to experience psychological pressure from maintaining a loss-making position. Practice full risk management.


• Never, never add to a loss-making position. If you are building a pyramid of long positions, then the price of each new purchase should be higher than the previous one. If you add to a short position, then the price of each new sale must be lower than the previous one. This is a mandatory rule.


• Do not try to "catch a falling knife." On the contrary, wait a few days - a strong rise, bounce back and return to the previous minimum. If the price does not go below the previous minimum, then plan to open the position. If the price does not go up again, it does not matter, there will always be other opportunities. Expect the best time to open.


• Buy from the support level. Set close stops when approaching the resistance level. Your price can slip through the resistance level, stop or fall. If the price falls, the position should be quickly closed.

 

To continue reading, click on the page buttons below…

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• Buy at the support level, sell at the resistance level. You must do so even if it is difficult. If you see this on the chart, then others see it. They are just waiting for the moment to join.


• Never lose sight of support (or resistance, if you sold). The further you from support or resistance (if you have sold), the more naked and lonely you will be. If you want to challenge the price, then imagine a quick turn to the resistance level, imagine a big loss.


• Every day is a new day, and every open position should be reviewed. This is especially true for your exit strategy. The price you paid and the amount of your profit or loss - things not related. If the stock has to be sold, it must be sold. It is not the amount of profit or loss from each position that is important, but your ability to stick to the chosen strategy and implement it.


• Be patient. When the position is open, give it time to develop. Give it time to create the profit that you expected. The saying "You will never go broke, closing profits" is probably the most senseless advice ever given. Closure of small profits is the surest way to increase the probable loss, because small profits are not allowed to grow into big and huge profits. Really big money in trading is done on one, two, three big deals every year. You must develop the ability to patiently hold a profitable position.


• Avoid this haste, which forces you to jump into the market, just to be "in the game." Do not hurry. Watch, build strategies and be the first at the right time.


• Whatever the proverb is erased, but the trend is really your friend. Do not try to be smart and fight it. Do not try to be a hero. If it seems to you that going back in a one-way street is silly, then you are right. Bring this understanding to the market. In the bull market you need to buy or stand aside. In a bear market, you need to sell or stand aside. And always remember - do not have positions - this is also a position. And in many cases - the best position.

[caption id="attachment_324" align="aligncenter" width="636"] successful trading[/caption]

• Avoid unverified "known" strategies. There are many of them. A few examples:
  "All gaps get filled" - "All breaks are filled". The ruptures of exhaustion are filled. Breakthroughs and continuations are not filled.
  "No one ever went broke taking a profit" - "No one went bankrupt closing profits." Closure of fast profits and holding of unprofitable positions can ruin faster than one can imagine.
  "It's not a loss until the stock is sold." Try to tell your banker. Cut your losses and let profits grow. It is simply impossible to be successful for a long time if you do not cut your losing positions quickly. Unfortunately, this and the previous rule is especially difficult for beginners, because the pain from loss is felt much more intensely than the joy of profit. In no other activity, the conflict between emotions and objective reality is so strong and so obvious as in the exchange trade.
  "Always buy at a new high" - "Always buy at a new high". Trends do not start at new highs, much more often they end there. Whenever possible, buy as close as possible to the beginning of the trend.


• If you need to look for something - it's not there. As said by Elder: "Technical analysis provides enough opportunities to deceive yourself and see what you really want." The harder it is to find something, the more likely it is that you see something that does not exist in reality.


• Trends do not unfold quickly. Trends of the trend require time for development. They are built slowly. The first few sharp falls always find buyers, and the first few sharp ups always find sellers. In both cases, buyers (on the uphill) and sellers (on the landslides) should be gradually "washed out" from the market.


• Do more than what works for you and less than what is going against you. Every day, look through your open positions. Plan to add to the position giving the greatest profit. Consider closing positions that do not make a profit or with very little profit. This is the basis of the thesis: "Let the profits grow."


• When you suffer sharp losses - move away from the market. Close all positions and stop trading for a few days. After a few sharp losses, do not try to recoup and return the money. In such cases, the ability to really perceive the market and its solutions is lost.


• Think like a hired fighter. Fight on the side of the market that wins. Do not waste time and capital in vain attempts to earn, buying at the lows and selling at highs or on some market movements. Your duty is to profit by fighting on the side of the conquering forces. If neither side wins, then do not beat at all.


• Beat the market crowd. Other traders in the game in order to take your money. You must take away their money before they get to your ...


• About analysts: look at the analyst and the bill he has exposed. Everyone lies. In general, they do it to collect your money. Analytical services belong to financial organizations. They are not in business to help you. They are engaged in promoting the interests of the firm and collecting commissions.


• Be ready to seriously study. Those traders who do not want to spend time studying and observing markets, training, and training, mastering technical analysis, new trading systems and methods, etc., will almost always lose.

In the previous article, we've learned Japanese Candlestick Pattern Morning Star. Now, we'll see another type of same pattern, known as Japanese Candlestick Pattern Evening Star.

Japanese Candlestick Pattern Evening Star

The Evening Star is the bearish counterpart of the Morning Star pattern. The Evening Star is a reversal pattern that is emerging at the end of an uptrend. The following chart shows an example of an Evening Star pattern:

[caption id="attachment_319" align="aligncenter" width="536"] Japanese Candlestick Pattern Evening Star[/caption]

1. The first candlestick has a strong bullish body.


2. The second candlestick has a small body. He can be bullish or bearish. It is also possible that the second candlestick has no body at all (a Doji).


3. The third candlestick has a strongly bearish body and closes at least within the first candlestick or even below the middle of the first candlestick of the formation.

There is another type of Japanese Candlestick - Morning Star which also shows the reversal of direction.

Summary

• Morning Star and Evening Star are reversal formations.


• The first candlestick follows the direction of the trend.


• The second candlestick can be bullish or bearish and has a small body that reflects the indecision in the market.


• The third candlestick follows the direction of the reversal and preferably closes over (morning star) or below (evening star) the middle of the first candlestick.

In this lesson, you will learn how to interpret more Japanese complex candlestick formations and we'll start with Morning Star Candlestick Pattern.

Japanese Candlestick Pattern Morning Star

The Morning Star is an upside-down reversal pattern that develops at the end of a downtrend. The following chart shows a morning star pattern:

[caption id="attachment_316" align="aligncenter" width="584"] Japanese Candlestick Pattern Morning Star[/caption]

• The first candlestick is bearish.


• The second candlestick has a small body. It does not matter if it is bullish or bearish (though a bullish body with or without a small top wick indicates more bullish power). The second candlestick serves as an indicator that bear traders are no longer able to push the market down. In some cases, the second candlestick has no body (a so-called Doji).


• The third candlestick is bullish and closes at least within the first candle or even above the middle of the first candlestick. This indicates that the cops gain the upper hand.

There is another type of Japanese Candlestick - Evening Star which also shows the reversal of direction.

Summary

• Morning Star and Evening Star are reversal formations.


• The first candlestick follows the direction of the trend.


• The second candlestick can be bullish or bearish and has a small body that reflects the indecision in the market.


• The third candlestick follows the direction of the reversal and preferably closes over (morning star) or below (evening star) the middle of the first candlestick.

The hammer is a formation in the so-called "candlestick chart technique". The hammer predicts a turnaround after a falling price. The formation consists of a single candle, which has a long lower shadow, a small candle body and a very small, ideally no upper shadow.

Japanese Candlestick Hammer Pattern

The characteristic features of the Hammer are that this candle has a long lower shadow and a short body, i.e. graphically resembles a hammer, so it's very easy to see on the chart.

The hammer is formed on the descending trend (otherwise, the candle with the same characteristics will have the name Hanged ). The hammer marks local minima and heralds further growth. Therefore, the Hammer is a bullish figure.

Japanese Candlestick Hammer Pattern Characteristics

The color of the Hammer does not matter. What matters most is the length of the shadows and the body. In order for the Japanese candle to meet the criteria to be called the Hammer, it must have the following simple features:

• small body (approximate in shape to square)


• long lower shadow (minimum 2 times longer than the body)


• there is no upper shadow (or very small)


• a large daily spread of prices (ie minus a maximum)


• is formed on a downtrend (otherwise, has a different name)

How to identify Japanese Candlestick Hammer Pattern

[caption id="attachment_307" align="alignleft" width="125"] Japanese Candlestick Hammer Pattern[/caption]

The opening price is very low, usually below the closing price of the previous trading period. Over the course of the market, prices continue to fall sharply, setting a new low, causing the bottom shadows. In order to form a hammer, the prices must then record a constant plus; Ideally, prices will rise until the end of the market period, then it is likely that they will continue to rise. In this case, the candle has no wick. If she has a small wick, this means that prices have fallen again at the end of the market period, which in turn reduces the significance of the hammer as a buy signal. In principle, it is only possible to speak of a hammer when the lower shadow is more than twice the size of the candle body. Only then can a change in trend be expected with sufficient probability. In addition, the significance of this signal increases with decreasing size of the plug body.

This results in three important criteria for detecting a hammer:

1: The candle body is at the upper end of the trading period.

2: The lower shade is at least twice the size of the candle body.

3: The upper shadow is not at best in the best case, in the worst case only very small.

Hammer as a reversal figure

A single hammer candle technical analysts use to identify the moments of oversold tools. The hammer is used to confirm support and determine the moments of the trend reversal.

The psychology of the market during the formation of the figure is simply explained: a long minimum during the candle period indicates that the bears pulled the price down with a relatively large force. But as the candles formed, the bulls still pulled the price higher than the short body and the long lower candle.

When you see a combination of a "hammer" during a downtrend, this may mean that the trend will slow and change direction, moving in lateral motion or changing to an upward trend. But remember: the hammer needs to be confirmed. Whether it means a true reversal signal will become clear from the following combination of candles.

The hammer can be either a bull or a bearish candle - Hanged. If the "hanged man" appears during the uptrend, the subtext is immediately understandable. However, you will have to wait until the next candle is formed before interpreting this signal. When / if the next candle confirms the rightness of the "hanged man", fix all or part of the profit as the price will probably go down.

Example of Japanese Candlestick Hammer Pattern

As an actual example, looking at the day-to-day foot chart of the US dollar versus the Japanese yen in the past, it can be seen that the market is changing after the hammer comes out.

Since it suggests "ceiling" if it comes out in the high price area, it can be said that it is a sign that goes downward, that is when it is sold.

[caption id="attachment_327" align="aligncenter" width="737"] Japanese Candlestick Hammer Pattern[/caption]

On the contrary, if it comes out in the bottom price zone, it suggests "bottom", so it can be said that it is a sign that goes upward, that is, at the time of purchase.

[caption id="attachment_328" align="aligncenter" width="737"] Japanese Candlestick Hammer Pattern[/caption]

Why is the hammer a reversal model?

Professional traders who are well acquainted with the analysis of candles and the psychology of the market explain this by the fact that sellers have made an attempt to significantly lower the price (this is evidenced by a long shadow down). However, buyers were able to reverse the course of events. Therefore, at the end of the hammer a small body form.

Inverted Hammer

It's amazing that the hammer turned upside down does not change its properties for the analyst. Inverted hammer, as well as a normal hammer, is a bullish sign on the chart, while on a downtrend (otherwise, it is also called otherwise).

[caption id="attachment_308" align="aligncenter" width="360"] Inverted Hammer[/caption]

No matter how you divide the market periods, whether, in weeks, days or hours, the hammer is always a signal for a turnaround. Of course, the informative value increases with the height of the selected time level.

 

In this article, we'll explain 3 types of Chart styles used in all kinds of trading market - forex market, stock market, commodity market, bond market etc.

3 types of Chart Styles

• Candlestick Chart


• Bar Chart


• Line Chart

Now, let us see above-mentioned charts in detail. As an example, the same chart is used in 3 different ways. The chart is USDJPY forex currency pair on daily time frame.

Candlestick Chart

Candlestick is a chart style born in Japan, but now it is widely used in the West as a candle chart (or candlestick chart) in the West. It is characterized by 4 values (open price, high price, low price, close price) visually easy to grasp. Methods for analyzing individual candle shapes and contexts are also widely used.

[caption id="attachment_299" align="aligncenter" width="573"] Candlestick Chart[/caption]

The interesting thing is that the sense of color is different between Japan and the West. Normally, in Japan, when the closing price ends higher than the opening price, it draws in red (this is called positive line), when it finishes cheaply it draws in blue (hidden line). In Europe and the US use green or blue when rising and red when going down. Red is a color that is congratulatory in Japan, but in Europe and America, it is a color that represents caution and danger. In addition, when monochrome is used, the rise will be white and the descent will be black for the world.

Advantages and disadvantages of the candlestick charts

The advantage lies in the fast visual capture and the simultaneous comprehensive statements of a candle. There are traders who no longer look at any other representation.

Compared to traditional bar charts, many retailers see candlestick charts as more visually appealing and easier to interpret. Each candlestick offers an easy to interpret the image of a price action. The trader can immediately compare the relationship between opening and closing and high and low. The relationship between opening and closing is seen as important information and forms the essence of candlesticks.

The exciting thing about candlelight charts is that the candles themselves can serve as an indicator of future upward or downward movements and are therefore often part of their own trading strategy.

Unfortunately, some traders find the not so clear identification of opening and closing prices compared to the bar charts with entry and exit, although the candle actually represents these courses clearly by their body. Another drawback could result from the variety of over- and misinterpretations of the candlesticks that their fans set into the world.

 

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Bar Chart

In contrast to the line chart, the bar chart (also called bar chart OHLC ) gives you at a glance four important pieces of information for the considered time period:

• Opening price ( O pen)


• Highest price ( H igh)


• Low price ( L ow)


• Closing price ( C loose)

The bar chart is a chart style that is common in Europe and the United States. Like the candlestick, it is devised so that 4 values are known. Individual feet (vertical lines) represent high and low values as shown in the image, protrusions on the left side represent opening values, and protrusions on the right side represent closing prices. There is also a pattern of three values whose initial value is omitted. It is almost impossible to distinguish between positive and negative lines, but you may also see color-coded bar charts.

[caption id="attachment_300" align="aligncenter" width="609"] Bar Chart[/caption]

Whether you use candlestick or bar chart is a matter of taste, candlesticks require a certain horizontal width to draw a single leg, so bar charts have a lot more in the limited screen There are merits to draw. Also, the candlestick emphasizes the opening and closing prices, so if you want to pay attention to the value range you just moved, a bar chart would be a good idea.

Due to the variable length of the bars, even strong fluctuations in the price trend are immediately visible.

In terms of information provision, the bar chart thus has its nose clearly ahead of the line chart due to its graphical representation.

 

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[nextpage title="Line Chart"]

Line Chart

[caption id="attachment_301" align="aligncenter" width="628"] Line Chart[/caption]

A line chart is a line graph showing the closing price (which may take the opening price or the medium price). Although information volume is inferior to candlestick feet and bar charts, it is simple and easy to see style.

Advantages and Disadvantages of Line Chart

The line chart is often the first choice for newcomers and stockbrokers because it shows at a glance whether the underlying asset is currently falling or rising.

The disadvantage of this chart representation is quickly clear: For more than the information on the closing prices this chart type does not provide. He completely ignores statements regarding strong supply or demand fluctuations. The informative value of the line charts is therefore very limited.

For investors whose strategy is based solely on trading of closing prices, the line chart is certainly very useful. Investors who are looking for further information from their chart picture will not be happy with the chart.

Which Chart Style should you use?

Just consider pros and cons of each chart style.

Line chart just shows line in a chart, whereas bar chart shows value range.

And above all, Japanese Candlestick chart shows tons of information on a single chart. Each candle represents the trend. So, combining candlestick chart with technical indicators like MACD, Doda Donchian, ADX, RSI, Stochastic etc. means, you can forecast future of trend. Almost every professional & successful traders use candlestick charts and pay attention to different patterns they formed.

Now, if we assume that technical analysts are what they see in a chart, it becomes clear that the highly complex presentation of the price history in the form of candlelight charts provides you with the highest quality information both quantitatively and qualitatively at a glance!

Therefore, it is not surprising that candle charts probably represent the most popular method of analysis worldwide. And even I hardly know a professional who does not rely on the validity of the candles.

It may require some time to learn and to gain experience, but you'll surely learn.

We'll use Candlestick charts on this website - almost everywhere.

You can find lots of tutorials and guide to learn the art of forex trading on this website and on DodaCharts.com

Japanese Candlestick Type » Close Calling line

In the previous 3 chapters, we've learned the basics of Japanese Candlestick Charts, Positive line of Japanese Candlestick Type and Hidden line of Japanese Candlestick Type

In this article, we'll learn about the Close Calling line of Japanese Candlestick Type.

Japanese Candlestick Type » Close Calling line

Candlestick	How to call	meaning
	Foot length same line	It is a line where the values ??of the opening and closing prices are the same and the pressure of buying and selling is equal. Because there are many cases that appear at the time of stock price conversion, there is a possibility of a rebound if the foot length same line comes out at the bottom price, and falling back if the foot length same line comes out in the ceiling area.
	Crosshair	As with the same foot line, although it often appears at the time of stock price change, it is a line that easily goes out to the bottom price than the ceiling zone.
	Upper cross	The buying pressure is a strong line.
	Lower cross	The selling pressure is a strong line.
	Dragonfly	It shows the turning point of stock price. If a dragonfly comes out with a bottom value, it will switch to a rise, and if a dragonfly comes out in the ceiling area it may switch to a fall.
	Tuba	It shows the turning point of stock price. If Tuba comes out at the bottom, it will switch to rise, and if Tuba comes out in the ceiling sphere there is a possibility of turning into fall.

One must learn the different types of candles because the combination of these candles make bearish or bullish patterns in the technical chart, which every trader MUST master.

Read Further

Positive Line

Hidden Line

Japanese Candlestick Type » Hidden line

In the previous 2 chapters, we've learned the basics of Japanese Candlestick Charts and Positive line of Japanese Candlestick Type.

In this article, we'll learn about the Hidden line of Japanese Candlestick Type.

Japanese Candlestick Type » Hidden line

Candlestick	How to call	meaning
	A shadow of the shade	It is a very bearish foot because it shows that it has descended straight from the opening price to the closing price. When a shady shadow comes out in the ceiling sphere, it is said to be at the time of sale.
	Large hidden line	Although it has beards on the top and bottom, it is a very bearish foot. There is a possibility of a sudden repulsion when largely hidden lines appear in the ceiling sphere.
	Shadow hidden line	Although it felt a downward tendency because the lower beard was long when the shadow hidden line appeared at the bottom price, it is considered as the time of purchase.
	Shadow buddies in the shade	It is afoot whose selling pressure is strengthening. In the ceiling sphere, if there is a shadow buddies in the shade, there is a possibility of falling.
	Calicusa hammer	It appears that there is a possibility of reversing after it appears in the scene of pushing up and down. The substance of the hammer is very small and the beard is very long, while the upper mustache is short or not attached at all.
	Small sunlight	Feet showing a state of lost. The longer the upper and lower beards are, the higher the likelihood that the market will change.
	Shadow coma	Feet showing a state of lost. The longer the upper and lower beards are, the higher the likelihood that the market will change.
	Upper shadow hidden line · Tonkachi	After rising and adding a high price, it is a form pushed back to near the opening price. Although the upper beard was long, it was on the rise, but since the body of the candle is formed short at the bottom, if there is an upper shadow hidden line in the ceiling sphere, there is a possibility of falling back. The longer the upper beard is and the shorter the entity, the higher the possibility of falling back.
	Shadow braver in the shade	Be bearish feet with resistance to the lower price. There is a possibility that it will be a turning point change at the bottom price.

 

One must learn the different types of candles because the combination of these candles make bearish or bullish patterns in the technical chart, which every trader MUST master.

Read Further

Positive Line

Close calling line