30 Aug Handbook on Forex Trading by Nicholas Tan
Why trade Forex?
1) A market that is open 24 hours with only Sunday as a non-trading day
2) Highest trading volume market in the world = high liquidity
3) Only need to monitor 4 major currency pairs closely instead of numerous companies
4) Considerably large daily trading range
5) Shorting is allowed
6) High leverage
7) Convenient trading service, infrastructure and tools widely available
The four major currency pairs are
1) Euro / US dollar
2) Great Britain Pound / US dollar
3) US Dollar / Swiss Francs
4) US Dollar / Japanese Yen
Factors affecting Forex rates
1) Interest rates – A country’s currency will rise/strengthen according to the raise in her interest rate.
2) Non-farm payroll and employment – Gives an idea of the current strength of US economy. Strong economy strengthens the currency.
3) US Gross Domestic Product – Measures economic activity in US.
4) Producer Price Index – Tells us the cost of production which associates with inflation.
5) Purchasing Manager Index – Increased manufacturing condition brings about stronger economy.
6) Industrial Production – Measures production activity.
7) Consumer Price Index – Measures inflation rate.
8) Consumer Confidence Index – Measures consumer confidence.
9) Retail Sales – Measures consumer expenditure.
10) Durable Goods Sales – Measures sale of durable goods (last more than 3 years).
11) Housing Starts – Indicate the number of new homes built.
12) Trade deficits – This means US exports less than she imports.
13) Political Events – Unstable political climate weakens the currency.
14) Natural Disasters – Natural disasters halt economic activity and waste resources to rebuild.
In the European Union (EU), Germany has the largest economy and hence, her data is influential in addition to EU’s own set of data. You may also be interested to find out more from Germany IFO report, Japan Takan Report and Central Bank’s meeting minutes besides the above mentioned.
Nicholas showed his preference for candlestick charts over bar charts as the former clearly displays an up day or a down day. He also went through some Japanese candlestick patterns (click on the link to look at its appearance):
Further on, there are generally 2 types of chart patterns – Reversal patterns and Continuous patterns.
Here are the technical indicators generally used in Forex trading
1) Single moving average – Vulnerable to whipsaw
2) Double crossover – Less vulnerable to whipsaw but slower indication
3) Triple crossover
4) Moving Average Convergence and Divergence
5) Relative Price Strength – Works best when market has no trends
6) Stochastic Oscillator – Works best when market has no trends. Slow stochastic has more reliable but late signals.
7) Bollinger Band
The best time to trade forex
EUR/US (or Euro) is sluggish during Asian trading hours but active during European trading hours which is best for trading around 1am to 2am Singapore time. Likewise for USD/CHF (or Swissy) and GBP/USD (or Cable), trading range is wider during European trading hours. In general, 8pm to 12mn is good for trading with the world’s two biggest Forex centers (London and New York) in operation. As for USD/JPY, it will be active during Asian trading hours. The best day of the month will be the first Friday of each month where US releases her non-farm payroll which has huge influences on the currency movement.
These are the attributes of a good forex broker:
1) Narrow spread consistently
2) Platform that is stable and reliable
3) Available charts for analysis
4) Provides news updates
Nicholas recommends Oanda and IG markets. Last but not least, Nicholas reminds all to treat trading as a business and devise a methodology or system that proves to have an edge for winning trades. However, as no methodology is perfect or 100% accurate, the trader must have the discipline to cut loss.