As I mentioned in my previous post, if you know how to put the stats in your favor, you are on your path to make money trading Forex. PLease, read carefully the following as this is crucial to succeed.

You have now become somewhat familiar with how the stock market works, and you understand to a point what is involved in trading on the Foreign Exchange Market.  Now, you would like to know how to gauge market trends in order to profit from your business ventures on the open market.  We are no longer discussing penny stocks and playground games.  You want the real goods.

The name of the game is statistics, and the first rule is that you must be aware there is no such thing as a sure thing on the stock market.  While you can never be 100% sure at any given time of the next move that will be made on the market as a whole, being able to read statistics and interpret them will place you ahead of the pack in regards to “guessing” what will happen next.

Some people compare investing with gambling, anjd I don't blame them.  If you can keep track of the cards that have already been played, you are more informed, statistically, regarding what is likely to be dealt next, meaning you can place a bet with greater insight than someone who has no clue what has already been played.  With the open market, if you have information as to what has already occurred over the past few days, months, or even years, you are again placed in a better position to more logically conclude what will happen next.  You simply learn the pattern and follow it to the end, reaping the financial rewards.

Charts And Chartists

Wait, did you think you were going to have to research and map out the market’s past all by yourself?  Of course not!  There are people who get paid to do that sort of work.  They monitor the market hourly, daily, weekly, monthly, and yearly so that they can provide big-time traders with the same knowledge mentioned before.  The more an investment company knows about the market, the more money they can make.  The same is true for stockbrokers.  They make money when you make money, and they want to do the best they can to make sure that you make intelligent decisions.

The best part of this is that you have access to the same information as these VIP clients.  Chartists, who are essentially market analysts that publish their findings in easy to read charts, produce what is referred to as a candlestick chart.  These charts are basically a combination of a line graph and a bar graph that show the trend of various stocks, indexes, or other interests over a specified period of time.  Therefore, you can easily determine if the commodity is on an uptrend or if it is taking a downturn, when the last major change occurred, and how long it is predicted that the stock or bond will continue on the current path.
 

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Today we will see how the currency exchange works, a good understanding of this will set the next steps for a solid Forex Trading education.

When you begin trading on Forex, you have to learn how to convert currencies and note the difference in values, as well as how currencies are exchanged between international lines.  This means studying not only domestic market trends and currency values, but also those of foreign markets.

Working With Multiple Currencies

Since Forex is the Foreign Exchange Market, you obviously cannot expect everyone within the market to trade in U.S. dollars (and why not, you might ask? – but remember that not everyone covets the U.S. dollar).  With so many variables and volatile currencies being exchanged, how can you know a good buy or sell when you see one without complete awareness of the value of foreign currency?

The first step is to find a source that will give you a basic idea of the current exchange rate between your domestic currency and the foreign currency in question.  You should do this as a base listing for any currency that with which you might become involved.  Of course, this will not be consistent down to the cent or fraction of a particular currency throughout an entire business day, but at least you will have your starting point from which to begin, almost like North on a compass.  Such sources can be found all over the Internet, as well as through many brokers, both on line and in person.

Currency Expression

It is also good to understand the means be which the currency conversion is expressed.  The comparison is usually made in a ratio known as the cross-rate.  In this configuration, the two currencies are listed in an XXX/YYY ratio, with the XXX position referred to as the base currency.  The base currency is usually expressed as a whole number, while the YYY position is expressed as the decimal that most closely matches the based currency rate.  It is sort of like making reference to miles per gallon or rotations per minute on a car – a direct comparison of one to the other in the form of a ratio.

Just to give you some heads up of what is coming, in my next post, I will be talking about Statistics. Yes, trading Forex involve Technical analysis, and if you know how to identify statistic paterns you know how to put the chances in your favor and if you do that correctly youi will be making money.

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Today, I want to set the foundations of your Forex Trading education, it is better to start form the scratch, even for the more advanced traders, this would be a good reminder for your Forex Trading Education. OK, lets start, with an introduction of the Forex Market.

Forex is the nickname for the Foreign Exchange Market.  In the United States, there are several branches of the stock market, each with their own name.  For instance, some stocks trade on the Dow Jones, others on Nasdaq.  Of course, all stock market transactions in the United States take place on the New York Stock Exchange (NYSE).  In other countries the same is true.  There may be one or more distinct markets.

However, international trade takes place on the market termed the Foreign Exchange Market, or Forex.  Several countries across the world in almost every time zone participate in trade on Forex, with multiple currencies being utilized and stocks and commodities from all participating countries being offered for trade.  Because there are so many nations and time zones involved, Forex does not function as a “business day” entity like most domestic stock markets.  It remains open for trade 24 hours a day, 5 days a week.

Of course, these additional hours increase the risk factor intensely for those of us who are human and obviously cannot monitor our investments 24 hours a day.  This means that the value of your holdings could potentially plummet overnight, while you sleep, because other countries are still trading while you are in a dream world.  Again, it is like a car – there are many moving pieces under the hood, and just because you cannot see them does not mean they are not functioning.

This is one reason for several safety options, like limit orders, which we will discuss later.  This is also why it is strongly recommended that your first attempts to make money on the stock market are not transactions that take place within the Foreign Exchange Market but on a standard nine-to-five domestic trading market.  In our car analogy, this would be comparable to having asked someone who has never driven or even changed the oil in a car to rebuild the engine.

Forex Functionality

While the functionality of Forex is the same as a domestic stock exchange, the commodities and prices are more volatile, and there are additional factors to take into considerations besides the typical risks associated with a domestic market.  You will have to contend with not only the value of your stocks and your currency, but also the foreign currencies involved in any trades or exchanges on Forex, as well as the inconsistencies of values of particular goods and services across international borders.  It is like driving a car with a standard transmission as opposed to an automatic. 

I think this will help you understand what the Forex market is and from there, we will move to a next step which is the understanding of currency exchange also knows as currency conversion.

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