Preparation is your primary objective at this point.  It involves reading as much as you can about the topic of forex trading in order to familiarize yourself with the terminology, issues, and principles at the outset so that when you enroll in a free forex course or seek the advice of a professional, the educational material presented will be absorbed since your mind will already be receptive to the information presented.

In order to get you started, here are a few specifics about forex jargon and the market in general:

• Currency Pair:  The first principle to get your hands around is that currencies are traded in “pairs”.  An active market of buyers and sellers, the forex market, assesses the relative strengths and weaknesses of each country’s respective economy in order to determine an appropriate exchange rate.  In some cases, government officials “peg” of fix the value of the currency versus others in an effort to stabilize their export and import trade.
• Currency Code:  The International Organization for Standardization (ISO) sets a three-letter code or symbol for every recognized global currency.  For example, “EUR/USD” refers to the Euro and U.S. Dollar currency pair.
• Major Currencies:  The major currency pairs consist of the U.S. Dollar and each of seven other currencies.  The codes, names and symbols of these eight major currencies are listed below:

AUD – Australian Dollar ( or “Aussie”)

CAD – Canadian Dollar (or “Loonie”)

EUR – Euro (or “€”)

JPY – Japanese Yen (or “¥”)

GBP – British Pound (or “Sterling” or “£”)

CHF – Swiss Franc (or “Swissie” or “S?”)

NZD – New Zealand Dollar (or “Kiwi”)

USD – U.S. Dollar (or Greenback or “$US”)

• Forex Broker:  Your online forex broker is your access point to the forex market.  This firm has contracted with one or multiple banks in order to trade currencies on the open market.  He will usually provide trading software for you to use with his system to execute Buy/Sell orders on your behalf.  Your agreement will spell out key rules and limitations for your relationship.  It is very important to understand every term and paragraph in this agreement before you begin to risk real money in the market.
• Demo Account:  Most all brokers will provide one of these accounts for free.  You will be able to practice with “virtual” cash and real time quotes to gain invaluable experience and confidence before risking real capital.
• Real Time Quotes:  A forex broker will provide quotes to you for buying and selling a specific currency pair.  Since the market changes constantly, these quotes will also change.  An example of a quote for “EUR/USD” might be “1.2655/1.2658”.  The first figure is the “bid” price, and the second figure is the “offer” or “ask” price.  The former is for selling, the latter is for buying, and the difference is the “spread”, the way the broker is compensated.

These few terms will get you started on your “preparation” journey.  Good Luck!

What are CFDs compared to conventional share dealings?

If you deal in shares, you need to own the full value of the shares you are buying or selling. With CFDs, you only need to own a percentage of the share value up front. This is called the Margin Requirement. With equities it starts at 5% of the full value. So if you invest in a 10,000 position, your initial margin would be 500. When you trade on margins, you are able to earn or pay interest on your position. Another great advantage of trading in CFDs is that there is no minimum on the size of the trades you are allowed to place.

What are CFDs main advantages and disadvantages?

Trading in CFDs sounds almost too good to be true, but naturally there are some disadvantages to be aware of and although there is a huge potential for big returns in trading CFDs, you can potentially lose more money that you initially invested.

There are two types of CFDs and these are known as Long CFDs and Short CFDs.Long CFDs are when you believe that the share price or index will rise. You buy CFDs to make a profit when it goes up, or a loss if it should fall instead. In CFD trading, this is known as a Long Position.

Short CFDs refer to making money on CFDs even when you think that the price of a share or index might be in danger of falling. You sell your CFDs at a high price with the intention of buying them back again when the price falls. This is known as taking a Short position.

With long CFDs, the maximum amount of money you could lose would be the notional value of the CFDs you bought. However, the stock market would need to fall to zero before that could happen. With short CFDs, there is potentially no limit to the amount of money you could lose. If the price of your position continued to rise, you would keep losing money until you closed the position.

One main disadvantage is that you might need to make further deposits at very short notice if your positions move in the wrong direction, so you need to have the funds available at your disposal.

Trading in CFDs is not for everyone and before you consider getting involved you should give a great deal of thought to how much you are willing to lose should things go awry. However, CFDs are open ended, so as long as you can continue to keep financing your position, you can keep the contract open for an unlimited period if you are hopeful the position will recover sufficiently.

The first big mistake lots of enthusiastic would-be forex traders make is to dive right into forex trading without knowing a thing about it. It might be easy to open a forex trading account, but this does not mean you can immediately start trading in currency and expect to rack up a small fortune. You might think in your naivety that the time is right to buy, but the moment you do the market changes. So you have a panic attack and sell, only to lose money when the market recovers again.

Greed and fear are two emotions that you cannot afford to have when trading on the forex markets. If you are greedy, you will make trades when perhaps you shouldn’t. The thought of letting a deal go and losing money is unbearable when you are greedy and are keen to hit the big time as soon as possible. Unfortunately, this is completely the wrong attitude to have with forex trading.

A successful forex trader is not ruled by his or her emotions. You have to learn when to take a step back and resist the urge to make a deal when it goes against your strategy. You also have to remain cool, even when a deal looks like it is going pear-shaped. If you rush to sell the minute the market moves against you, you will lose money left, right, and centre. Keep fear and greed out of the equation and you will soon see results. Successful forex trading requires a strategy.

Once you have a strategy that works for you, stick to it. Large organizations and educated forex traders have strategies. They make money by playing to a set of rules. If you stick to your rules, there is less chance you will blow it by making a stupid decision in the heat of the moment. The best way to be a successful trader in the forex markets is to pay attention to the markets. Spend time watching how the market reacts to certain stimuli. Once you know the markets well, you will be far better at predicting the trends in future markets. Always limit your risk when trading on the forex markets, preferably to between 1% and 3%.

As your core equity rises, you can raise your risk per transaction for greater profit, but as we have already warned, greed is a one-way ticket to losses in the forex trading markets, so be careful. Becoming a successful trader in Forex requires a great deal of skill. Success will not happen overnight, so patience is the key. Make sure you educate yourself on all aspects of forex trading and you will be in the best possible position to make a killing on the forex markets.

There are three main types of forex charts: line charts, bar charts, and candlestick charts; the latter being the most popular. The horizontal axis represents time and the vertical axis represents price.

To understand the basics of how to read forex charts, you need to be familiar with how currency pairs are listed. Currency pairs are always quoted in the same way with the base currency listed first. For example, USD/HKD shows that the USD is the base currency and the HKD is the terms currency. This means that if a forex chart of USD/HKD listed the current price at 12.43, 1 USD would buy 12.43 HK Dollars. Your trade size is the amount of base currency you will be trading in.

The first important step in learning how to read forex charts is an understanding that the currency pairs go up as well as down, which is how you make a profit. If you want to buy a currency pair, you will be looking for the forex chart to show that the currency pair is going up and the base currency has strengthened. This will allow you to make a profit on the transaction. Conversely, if you want to sell your base currency, you need the currency pair to go down and the base currency to weaken in order to make a profit.

Lines on the chart going up mean that you should consider buying, whereas lines heading down indicate that it is time to sell. Thankfully, unlike other markets, forex allows you to make money in either direction!

Forex charts use different time frames, so make sure the time frame you are working from is the correct one for your analysis. To avoid any mistakes in your calculations, it is usually better to set your charts up with the time frames and indicators of the system you are trading from. That way you can save and reuse the layout again.

There are two prices for currency pairs, a bid price and an ask price. Most forex charts only have a bid price listed. A currency price is usually quoted with a bid and an ask price. Currency is bought at the ask price, which is always the higher of two prices. Currency is sold at the lower bid price.

Always remember that the time at the bottom of a forex chart will be set to the particular time zone of the forex chart provider. If you are trading against major economic announcements, you will need to convert the time difference to ensure accuracy.

Practice reading the charts and you will soon be able to see how major news stories affect the currency fluctuations!

To begin with, it makes sense to start off with a demo account at the broker of your choice. This is the best introduction to forex trading as it gives you the opportunity to play around while cushioned from the possibility of losing a huge amount of your family savings. You can use a demo account to accustom yourself with the trading platform software at the same time as learning how the markets operate on a daily basis.

Once you think you know how to read forex charts, it is time to begin trading using real currency. However, before you re-mortgage the house to raise capital, slow down and take a deep breath. It is far better to start off at the shallow end of forex trading, as opposed to diving in at the deep end, only to realise that you can’t swim!

In your introduction to forex, begin with a small account and learn patience. You might not see much in the way of returns initially, but this is far better than losing the family inheritance and having to explain exactly how it happened to your other half. Once you have grasped the basics and you are making regular successful trades, you can gradually increase the level of your trading.

Rather than constantly chop and change the currency pairs you work with, make a resolution to stick to one pair. The longer you work with one currency pair, the more familiar you will become with the minute variations and how they react with one another as well as to the world at large.

Speaking of which, what happens in the news often has a direct affect on the currency markets. Any major events, for example financial catastrophes in the banking sector, can cause a great deal of volatility. Beginners might prefer to cease trading in times of turmoil as it can be very difficult to predict the ensuing currency fluctuations. Make sure you keep an eye on news announcements and take note of how the currency market is subsequently affected.

When you begin forex trading with real money, one important piece of advice you should always heed is to stay calm. It is all too easy to be swept up in the drama of the moment and make decisions which, in the cold light of day, you would never have made. Just remember, you cannot win every trade. If things appear to be going wrong, take a step back and leave it for a day. In all likelihood you will recoup your losses the next time you trade. As you gain experience, you will see more consistent results, so do not despair!

A forex backtest program is the easy way to play around with your trading techniques. You can experiment to your heart’s content, safe in the knowledge that you are in no danger of throwing your life savings down the drain.

However, there are few things to watch out for when using forex backtesting. For one thing, a strategy that works brilliantly when tested against historical data might not be anywhere near as good when used in the current foreign exchange markets. The forex market today is inevitably different to the forex market of two years ago for example. This is because the foreign exchange markets are continuously evolving due to many variables and the past is never going to be replicated exactly in the future.

It is very easy to get all excited when you think you have discovered a trading system that is foolproof, but if backtesting was the simple way to creating a great trading strategy, we would all be billionaires by now!

So remember, you need to beware of assuming that your brilliant and innovative forex trading strategy is the golden ticket to a lifetime of Ferraris and glamour models. The reality is that your strategy might not work half as well when used in the current prevailing foreign exchange markets.

Many people sell forex trading systems claiming that they have great backtesting results. If you are considering buying one, make sure you check whether or not the results are hypothetical or actual. If the results are hypothetical, then they are purely based on backtesting using historical data, which means that the system might be worthless when used today.

There are many different versions of forex backtesting software available for the budding forex trader. The good news is that some are very inexpensive or even free. Of course, you can spend thousands of dollars on a fancy forex backtesting software package if you prefer, but why bother when you can use a program like excel for peanuts?

You will need historical data to work with while you are playing around testing your trading systems. You can obtain historical data from a variety of sources, including brokers you trade with, so ideally make sure the data you end up with is complete and preferably free. If you do decide to buy historical data off the Internet, check it out thoroughly to make sure there are no big time gaps or gigantic holes in the data. If there are, it will be useless.

When you have your backtesting software and data, you can spend as long as you like perfecting your systems and playing around with the charts and results. Once you think you might have found a reliable trading strategy, the time has come to test it out for real!

The money traded in the Forex market ranges between $1 billion and  $1 1/2 billion a day. There is always a buyer or a seller for a currency pair; an investor can enter or leave the market at any time. Only currency brokers are able to place orders. These brokers offer to the public managed forex trading accounts and forex ira managed trading accounts with many different management levels, costs and spreads. It is up to the investors to interview different brokers and locate a professional with the trading strategy they are comfortable with. This can include the currency pair is to be invested in, the timeframe of the investments or the overall strategy. Once a broker has been selected, it is simple to open an investment account and allow that broker to make all the decisions regarding the market.

Some of these brokers charge a commission and some collect the market spread which is the difference between what the market is really trading at and what the customer pays or gets. Before any account is opened the investor should learn and agree with in principle the trading strategies of the broker, his or her overall success rate and the cost of doing business with this currency broker including commissions, money transfer fees, reports, and time frame for opening and closing the account. This account is very similar to a managed account with the stockbroker; it just works in the exciting worldwide currency market which is always fluctuating as events happen around the world, in different countries and with different commodities like oil, gold and silver.

These currency brokers can be located anywhere in the  world; investors may wish to use a currency broker who is licensed and works in the country they live in, or at least in a country where they are familiar with the rules governing currency brokers. In the United States the National Futures Association regulates these brokers; a broker who is a member of an NFA has agreed to operate and conduct themselves in compliance with their rules and regulations. The rate of return on investment is important, especially when it involves a retirement account. The return of investment is much more important.

It is easy to find a currency broker with a managed forex trading account that will be delighted to have a new client. This new client will become an investor in the most active and liquid market in the world, the forex market, where something is always happening.

The way that cfd shares are different to traditional share trading is that you get more exposure to share prices than you would if you had to purchase the share outright. You are able to get a great amount of gains, but you can also suffer losses that exceed what you initially put down. Therefore knowing exactly what risk management tools you need to use is very important. Without these tools, you can lose a lot of money over a short period of time.

The pricing on a cfd share is paid by commission. This is determined by the percentage of value of your transaction. Sometimes there is a funding fee to cover the cost of financing any long position that a person would hold. The financing is charged at the risk-free (LIBOR) rate plus 2.5% per annum. Funding of a short position works where you will receive interest.

One example of buying and selling CFD shares is if two clients want to buy the same share and think that the price will rise. One client decides to buy the physical shares through a stockbroker and the other client buys a CFD. As the stock rises, both clients are profiting while holding the position. The share price rise and both clients decide to close their positions for a profit. The first client who purchased the shares out right will be charged a flat rate fee and receive 100% of the net dividend. The second client had to put down 15% for the margin requirement initially and will be charged a commission when they close. They will also be charged overnight financing costs for the period that the CFD contract is held.

Cfd share trading is not a get rich overnight scheme. You have to know what to look for and do a lot of research on the stock before you take any action. Looking at the past history of the ups and downs of a stock will help to give you a better idea of what the future may hold for them. You also want to look at the economy and what industries are taking a huge hit and not making much profit. One example would be department stores. If people are not spending money since the economy is bad, then stores are going to lose a lot of business. On the other hand, knowing what industries are thriving will help you to profit. Some businesses such as gasoline and grocery stores will not take a huge hit if the economy starts to suffer. The internet is a good place to carry out research; there are also many online forums where traders exchange tips and feedback.

It is very easy to enter a trade but it is incredibly hard to exit a trade. When do you cut your losses and when are you satisfied with your profits? Because of the high volatility of the Forex market losses can easily be turned in to profits and profits can become losses in a matter of seconds. You will need to have some kind of system that will protect you from unnecessary losses and help you gain high profits.

Stop Loss Order

You can not become a successful Forex trader if you don’t have a good system. A system will contain certain forex indicators but also placing the right stop loss orders. You will either go short or long based on the performance of the market and based on historical and economical facts. Based on these facts your expectation is that the trend is bullish or bearish. Comparing support and resistance levels will help you deciding what stop loss orders to place in order to secure your profits and lower your losses.

Placing a stop loss order will always be a certain amount of pips above or below the current price and the width of your order will be dependent on your margins and how aggressive or conservative you are. The problem with placing these orders is that although prices may keep rising, you will be stopped if your profit is reached. Making profits is a good thing, but if you were able to double your profits if you weren’t stopped than a stop loss order is a bad thing. An alternative is placing trailing stops instead.

Trailing Stops

Instead of placing your stop and loss order, with trailing stops you will enter a certain percentage where you want to exit. For example, you could decide that you want to enter a 10% trailing stop on a bullish trend. This means that as long as the price is rising, you will not exit the trade unless there is a reverse of 10% of the actual price. This is a very good way to increase your profits and lesson your losses. There are different trailing strops strategies which you can use.

Momentum based Trailing Stops

With a momentum based trailing stop you are actually working with emotions which is not always a good thing to do. Instead of exiting at a certain price, you will wait until you believe the trend is changing. Some people use technical criteria which will decide if they exit a trade. An example of this could be when the price has consolidated for 3 following days which could mean the market is going reverse. Other traders use a rolling stop system which has no discipline at all and is purely based on emotions. The momentum trailing stop is a very risky way to trade and it can give you very high profits but also massive losses. It certainly is not the right system for beginning forex traders.

Parabolic Stop and Reverse Trailing Stop

The parabolic SAR is a basic Forex indicator but it can also be used as a stop loss system.  The practice behind this is that it will place a new order directly after you have exited a trade, following the trend. If you went long and the market is reverse than it will directly place a new order following the short position.

If you are in a very volatile market than this is an excellent way in following the trend but if the market is choppy than using the Parabolic SAR is not such a good idea. When the trend is not clear you will continuously stopped out of trades which will increase your losses. Another disadvantage is that when your stop signal is never reached it will not do anything and not give you any additional buy or sell signals.

Conclusion

Deciding what strategy you want to use will be highly dependent on how aggressive or conservative your trading style is. For a beginning trader it is highly advised to use stop loss orders instead of trailing stops because of the high risks which are involved. Once you are experienced you can try to place some rolling orders. Don’t forget that all systems are dependent on the flow of the market.

Basically the Bollinger bands are 2 lines that will either squeeze /contract together or they will expand. If they will squeeze together than the market is really slow and there is not much volatility. If they expand than a bullish or bearish signal might be close by.

When a Bollinger squeeze is apparent than this means that a breakout will occur. A bullish signal will occur when the candlesticks are breaking out of the upper band and a bearish signal will occur when the candlesticks will break out on the lower band.

On the left you see that the bands are contracting (squeezing) and that the candlesticks breaks the upper band. On the right you see that the price continues to rice and if you had chosen a bullish position than you would have made yourself quite some money.

The Bollinger Bounce

The bollinger bands act as mini support and resistance levels and when there is no clear trend than the price will tend to bounce back and up again between the bollinger bands. The price always tends to go back to the middle area of the bands.

This picture is a great example of a Bollinger Bounce. You notice that the price first went down and touched the lower band. right after touching it went back up again and now it is touching the upper band. There is a very big change that the price will go back down again until it reaches the lower band. This bouncing will continue until there comes a clear trend in the price.

How to Master Bollinger Bands?

The bollinger bands strategy is pretty simple because you either expect it to bounce back when it touches one of the bands, or you expect a breakout when the bands tend to squeeze. You might think that this is to simple but that really is all about it. Off course this bollinger bands strategy does not always work because there will also be a lot of times when they do something different than you expect. That is the exact reason why you should never make your trades dependent on one single indicator.

If you want to master working with the bollinger bands indicator than this great video I found on Youtube might help you. It has more in dept explanation how the bands work and when a bullish or bearish signal is likely to occur.

If you are interested in understanding the exact calculation behind this indicator than take a visit at bollingerbands.com