The foreign exchange market (the forex) can be a treacherous market to trade especially
if you are not properly equipped for the job. You will need to give attention to the
following: the equipment and type of internet connection you have; the overall amount
of capital you can put at risk on this enterprise, as well as the amount of capital you
are prepared to risk on any one trade;your broker and the reliability of the trading
platform; charts and technical analysis; good entry and exit signals; being aware of
news releases affecting this market; the need to use a stop loss on each trade to
protect your position; the cutting of losses if a trade goes against you; and the
compounding of profits.
You will ideally need a Pentium 4 desktop computer running Windows XP with a processor
speed of 2.5GHZ and 512MB of RAM. The monitor needs to be at least 17", but 19" or bigger
is better. You could get away with a 56K dial-up connection but broadband is usually far
better in terms of stability.Some people have been known to trade this market successfully
from a laptop which give them mobility.
YOu will need a minimum of $20,000 risk capital to trade this market. "Risk capital" means
that it doesn't include money you require for living from month to month, and therefore
you can employ it in the market for speculative purposes. The reason for the entry figure
being so high is that it is inadvisable to risk more than 3% of your total risk capital on
any one trade. On this basis, the most you should be putting at risk on any one trade is
$600 ( that is $20,000 X 3%) using full lots. You could start with a lesser amount of risk
capital by using mini lots and still maintain the maximum 3% loss any one trade.
You will need to choose a broker wisely for three reasons: his financial stability; the
stability of the platform he provides; and the spread per transaction. It is best to chose a broker with a proven record in the forex market operating from a well-regulated country such as the USA, UK or
Switzerland.This market was only opened up to speculators in 1997, so forex brokers haven't
got as long a history as stockbrokers.It is therefore best to chose on the basis of size
-you are looking a broker with at least 10,000 clients operating from one of the aforementioned
countries. The functionality of the platform the broker provides is important for the
execution and tracking of live trades. What you don't want is a platform that always keeps
going down at crucial moments in your trading day. In my experience, the platforms
belonging the the major brokers are now very reliable although there might be a problem
with the continuity of data displayed from time to time. With regard to the spreads on the 4 majors coupled with the USD, don't pay any more than 2-3 pips on the euro or yen, and no more than 3-4 on the pound or Swiss franc.
People who trade the forex market off fundamental analysis have been known to stay in
the positions taken for multiple days, weeks, months or even years. If you are daytrading
this market, however, you haven't got much choice but to use technical analysis as the
basis of your decisions. Therefore charts become vitally important in the decision making
process. candlestick charts are the easiest to follow on the screen as it simple to
distinguish a bull candle from a bear one just by viewing the different colors. With charts,
especially at the start of your trading day, it is best to use the top-down approach.
Even though your entry and exits may be made off the 15 minute chart, you should start
the day by looking at the daily chart to get the big picture. Then the 4 hour chart, the
1 hour chart and 30 minute can each in turn be consulted prior to your regular chart
(the 15 minute) in order to get the top-down perspective on the market.
Breakouts from support or resistance offer good entry points for trades. A support line
can be drawn by joining the bottoms of two candles that stand lower than their immediate
neighbors remembering that the support line must be tilted upwards therefore the nearest
candle the line is connected to must be higher than the further away one. If this line
is then extended into the future and is confirmed by a third candle touching the line you
have a solid support line. When a candle breaks this support line and a 15 minute candle
closes below it and subsequent candles go 5 pips (or points) beyond the bottom of the
candle which broke the support line, you have a valid entry point for a short trade (that
is selling the currency pair being traded). Resistance lines are done on the same basis
except that the initial line drawn must have a downward slope which when broken and the
the other criteria for entry is met, gives you a valid long entry (that is buying the
currency pair being traded).
Before you start your trading day, it is imperative that the daytrader knows when economic
news affecting the currency pairs being traded is scheduled to be released.There are various
websites that do this but the best one that I have found is