Academy of Trading

Forex analysis is important to every trader. It is the best way to determine when to buy or sell a currency pair. There are two basic types of Forex market analysis which we will discuss in this lesson. They are: Technical and Fundamental Analysis

Technical analysis relies only on the price charts. It shows what is happening in the market now and what happened earlier. Fundamental analysis is more of an explanation of why there was a change in price or which fundamental factor led to it. Let us take a proper look at both types of Forex analysis.

TECHNICAL FOREX ANALYSIS

Experts base the technical analysis on three assumptions:

• The first one is that everything about the market reflects in the price. It means the price of a currency pair reveals all information including economic and political factors. So there is a need to focus only on the price chart

• The second is that price moves in trends. Once you have identified a trend on the chart, the price will more likely continue in the same direction as the trend rather than go against it. 

• The third assumption is that history repeats itself. The patterns on the price chart now where there earlier. To make a forecast for the future, you need to find a similar situation on the chart in the past and see how it turned out.

In simple words, technical analysts study the past to predict the future. Such a Forex analysis works because market participants react to price movement same way every time. Here, history repeats itself.

Types of Charts for Technical  Forex Analysis 
   

• Line Charts

• Bar Charts

• Candlestick Charts.

Line Chart

A line chart is the simplest type of chart as it represents only the closing price on each day over a set period. Date and time show up along the bottom of the chart and prices are seen along the sides.

The advantage of a line chart is its simplicity and the fact it provides an uncluttered easy-to-understand view of the asset’s price over a period. The disadvantage associated with using a line chart is that it does not provide visual information about the trading range for the individual points, such as the high/low of the opening and closing prices. 

Bar Chart

A bar chart displays the opening and closing prices including the highs and lows for the trading period. If you look at the bar chart, you can see that the vertical bar represents the high and low for the trading period.

The top of the bar represents the highest price and the bottom, the lowest price. The open and close appear on the vertical lines marked by a horizontal dash. Opening prices can be seen as a dash on the left side of the bar. The dash on the right side represents the closing price.  

Candlestick Charts

Candlestick charts show the same information as a bar chart but differently. The candlestick chart shows the high to the low range with a vertical line. However, the larger block in the middle, known as the body shows the range between the opening and the closing prices.

The wick of the candlestick shows the day’s full range, which is the high and low. If the body, which is red or sometimes black, appears in full, the currency pair closes lower than the opening price.

A green or sometimes white body means the closing price of a currency pair is higher than the opening price. A long green body shows the Bulls are in charge while a long red body signifies the Bears are in control of that session. Each candlestick will represent one period, for example, a day, an hour, a minute depending on a time frame you have set.

The advantage of the candlestick charting is they are easy to use and easy to interpret. It is a good way for beginners to execute technical Forex analysis. As with other forms of charting, traders use the candlestick in all time frames, from those looking for long-term investments to those who are swing or day traders.

FUNDAMENTAL FOREX ANALYSIS

Knowing why the price of a currency pair moved in a certain direction is the key to predicting where it will go next. Currency exchange fluctuates due to a set of different factors, such as economic growth, unemployment rate, and inflation.  

Central banks have vast information about the country’s economy and they take these data into account while making their policy decisions. The main thing you should watch is the central bank’s interest rate as it can determine if investors will buy that currency.  

If the interest rate of a currency is high, investors from abroad may move their money into that currency to earn interest on their investment. Demand for this currency increases and the exchange rate goes up. If there’s a low-interest rate on that currency, investors from abroad may look elsewhere or it may encourage investors who live in that country to spend their money instead of keeping it in the bank. Demand for this currency decreases and its exchange rate goes down. 

Are you convinced that you want to become a Forex trader? Surely, the first step is to decide whether you like to become a forex trader and make money. You must decide if you will do this business full-time job or you want to try it and see how it works. Please note that if you don’t take it seriously and you treat it like a hubby, the result might not be serious too.

If you want to make money through currency trading, make a serious decision. Forex is not a game; it makes money.

After making a firm decision, the next step would be to learn what Forex is. Maybe, so far, you have spent a lot of time and money to read several books, articles, and DVDs, but you are not profitable. Maybe the things you have learned did not help you make money or even some of them made you lose money. What do you have to learn to become a currency trader? Here are the basics things you must learn:

• Currency market and currency pairs

The currency market is where currencies are traded against each other. It is where you can also buy and sell the currencies against each other.

Since you pay a currency to buy another one, platform developers have placed them in pairs to make it easier. For example, EURUSD is a currency pair. When you buy EURUSD, you buy Euro against the USD. When you sell EURUSD, you sell Euro against the USD.

• Fundamental Factors

Everyone who wants to become a Forex trader should be able to understand the factors that make the currency market tick. Currency prices fluctuate as a result important events and decisions that take place in the countries where the currencies are mostly used. For example, changes in interest rates or policy-making in the United State affects the exchange rate of the USD. So, it is important to know what currencies you want to trade and what affects them the most.

• Price Charts

Learn about the price charts and the way it works. Know the price charts and time frames. Learn the technical analysis, no matter what trading system you will have. A trader should be able to locate the support, resistance lines and levels. Understand patterns like head and shoulders triangles, double tops and double bottoms. It is also recommended to learn the candlestick signals and patterns.

Candlesticks are very helpful in understanding the psychology of the buyers and sellers, and the future direction of the price.

While you learn the technical analysis, know how to calculate your position size and your position risk/reward ratio. You should learn how to take positions and set a stop loss and target orders. Learning these things will not take you more than a few days or a maximum of few weeks.

• MetaTrader4

Metratrader is the most famous and common trading platform. It is user-friendly, and it has everything you need to analyze the price charts and find trade setups. To become a Forex trader, you must learn how to use this platform. Even if your broker does not support MetaTrader, you can use the MetaTrader of a different broker to analyze the price charts and use your broker’s platform only when you want to take a position. Tenkofx offers the MetaTrader 4 as a primary platform for trading. It takes less than 5 minutes to download and install the Tenkofx MetaTrader 4.

• Demo Account

After learning the above basic things, choose a trading system and practice it. The best trading system is the simplest one. Do not choose complicated trading systems; they only make you lose. Basic and traditional trading analysis is the best trading system. Once you’ve passed the above stage, open a demo account using the Tenkofx MetaTrader 4 and practice your trading system. Here is a tutorial on how to do that.

Your demo account size and leverage should be the same as the live account you want to open in the future. Do not open a $50,000 demo account if your plan is to open $1000 live account. Trade with your demo accounts for at least three months.  

If your account and trades were positive during the first month, open a second demo account with the same size and try to repeat what you have done in the first month. After the first month of success, you must repeat the process for the third month. If you could repeat your success for three consecutive months, then you are probably ready to go live.

You must boost your confidence with demo trading before opening a live account. This means you have self-discipline and you can control your emotions. It also means you have mastered your trading system.

Do not behave or act in a different way when trading with a live account. Stick to the same trading system and trade with money you can afford to lose, otherwise, your emotions will ruin your trades. You can make money every month when you have confidence in yourself and in your trading system. These are the basic knowledge to acquire in order to become a Forex trader.

There are three different analysis for Forex trading and it’s important to include each one of these different types to get a full view of where price might go next. These three types of analysis are: fundamental, technical, sentimental.

Fundamental analysis is perhaps the most neglected type of analysis and there are many new traders that will disregard it. However, it provides us with so many benefits and has such an influence on the markets. You will increase your chances of losing money if you don’t take it into consideration.

What Is Fundamental Analysis?

To put it as concise as possible, fundamental analysis is all about viewing the forex market from a political, social, and economic standpoint. Fundamental analysis refers to looking at the whole economy of a country and determining whether the country’s economy is getting better or worse. A better economy would equate to a stronger currency and a higher value so this plays a huge role in your trading.

Using an Economic Calendar

An economic calendar is one of the most useful tools you could use when you are performing your fundamental analysis. They are so useful because they will allow you to know when certain events are taking place–besides this, you’ll also find that many economic calendars will even state how much of an effect the event will have on the markets. For example, there are high-value events that have a huge impact on the markets such as retail sales, unemployment numbers, GDP, and many more.

if you are looking for an Economic calendar, you will find many of them online. When choosing your calendar you should make sure it is reliable and updated regularly. Getting the news as fast as possible is paramount for fundamental traders.

Traditional Sources for the Fundamental News

Besides using an economic calendar, you will also want to watch/listen to the traditional news sources that will offer a more mainstream perspective on the markets. There is a great number of them available for us to watch or listen to pretty much 24-hours a day! Some popular news sources include Marketwatch.com, Reuters, Bloomberg, and The Wall Street Journal.

The sources listed above are the big names in the industry and always stick to these–they will provide you with up-to-date coverage of all the most recent meetings and events that will impact the markets. Many people find it best to have the station playing in the background whilst they conduct the rest of their analysis, so this might be something to think about.

Using Real-Time Feeds

There are also many real-time feeds that exist, but they aim these towards the more experienced traders. They will probably charge you a monthly subscription fee, but you will enjoy getting all the news as soon as possible! Often when you receive the news from traditional news sources and economic calendars, you are being notified late and so you may miss countless opportunities.

Real-time feeds have many benefits – you can’t beat getting your news as soon as it comes out if you’re a fundamental trader – however, the monthly fee for most of these feeds will be an effective deterrent for beginner traders.

Interpret the Data and Develop Your Own System

Now that you understand how to conduct your own fundamental analysis, it would be wise to put together your own system you can prepare for times of need. It would be wrong to follow a pre-set way of doing analysis as this way won’t suit your own style and preferences.

Remember to take all three types of fundamental analysis into consideration:

∙Economic calendar–A free tool you can find around the web, make sure to only use a reliable one that is regularly updated.

∙Traditional news sources–Even though these can be great options, they are aimed more towards the beginner trader looking for someone to pick the trades out for him! They can be a good addition to a strategy, however.

∙Real-time Feeds–Using a real-time feed might seem as if you are pushing above your weight but this isn’t true. If you trade based on fundamentals, then you don’t want to compromise in this department.

Since you already know how to buy/sell and make a Profit, you must learn how to use Stop Loss, Take Profit and Trailing stop. These are also part of trade management system that helps you limit your risks and maximize profit. What are they?

How  To Use Stop Loss in Forex

Stop Loss is a feature on a trading platform you can use to tell your Forex Broker when to close your trade. This feature tells the broker to limit losses on an open position or trade. Since it is difficult to sit around and monitor your open positions, this feature could prove to be a haven.

Normally, when you notice that the market has moved against you, your first instinct would be to close your trade to protect your capital. Does this mean you can’t take your eyes off open positions? No, this is where using a Stop-Loss comes in. How much loss are you willing to accept for your trades? Think and then set the price level you want your broker to close the trade should the market move against you.

However, setting a stop loss in Forex can be very tricky. What if the market turns back and moves in your favor? You would have missed a huge opportunity. So, the ultimate importance of a stop-loss is to help you keep the position open until the market turns in your favor. You must identify the best price level to place your stop-loss.

Here is an example of how to place your stop loss in Forex:

If the buy price for EURUSD is 1.1086, and you placed a buy order, set your stop loss below the current price. Count a minimum of 5 pips or more backward, 1.1081. If the exchange rate falls down to 1.1081, it means you have lost 5 pips and since you have placed your stop-loss at this level, your broker will close the trade for you to avoid further losses.

How To Use Take-Profit

Take-Profit is the opposite of Stop Loss in Forex. It helps to control the greed in human nature. Yes, we humans are greedy and don’t know when to stop accumulating money. We always want to get everything at a single opportunity. In Forex, many traders have fallen a victim to greed. They don’t want to pull out when the market is in their favor and the market most times comes crashing back against their current position.

Always know when to pull out of a trade when it is moving in your favor and wait for another opportunity. If your eyes are not fixed on your trade, then use the Take-Profit option. Take-Profit is a tool you can use to tell your broker how much profit you hope to get out of your trade, and when the profit has accumulated to that level, the broker will close the trade; your profit is secured.

If the price of EURUSD is 1.1086, and you placed a buy order, set your Take-Profit above the current price. Count a minimum of 5 pips upward, 1.1091. If the exchange rate rises to 1.1091, the broker will close your trade and keep your Profit of 5pips secured. You can set your Take-Profit at any price level above the current price.

How To Use A Trailing Stop

A trailing stop is a special trade order where you don’t set the stop loss at a single, absolute price level, but instead at a certain amount above or below the current market price depending upon whether the open trade is a buy or sell position. These orders allow you to protect the downside risk on your trade position while locking in your upside profit. 

Once you have set a trailing stop order, it adjusts your stop loss as the price moves. When the price stops moving, the stop loss then remains at the level which it was last dragged to. 

Let’s say you buy 1 standard lot of EURUSD at a price of 1.30560 and set the trailing stop at 100 points (10pips). On the mt4 platform, you will always find the trailing stop in points. One pip is worth 10 points, while 2 pip is 20 points.

In this example, we set a 100 point trailing stop, which is 10pips. The trailing stop loss will only be triggered once the market price moves in your favor by at least the amount as set by you for the trailing. 

The trailing stop will be triggered if the market price moves to 1.30660 or above and it will set the first stop loss at 1.30560. If the market price moves above 1.30660, the trailing stop will be updated to a new stop loss level, which is 10 pips below the current market price. As the price continues to go up to 1.31400 the latest trailing stop loss will be set 10 pips below the price level, which is 1.31300. 

In this case, you have a profit of about 74 pips (1.31300-1.30560) for your trade position. If the market moves against you, it will trigger your stop loss at the last price your trailing stop dragged it to, which was 1.31300. 

A trailing stop allows you to secure your profit at the same time cap your downside risk. 

What is Forex? This is a common question because the answer reveals one of the many ways to make money online. Forex is an acronym for the Foreign exchange market. It is where different financial institutions, businesses, and investors come to exchange or speculate on currencies.

In simple words, Forex is all about the exchange of different currencies in the world. Since there are several currencies available for trade, no other market is as large as the foreign exchange market. In fact, it is the largest and most liquid market with a turnover of over 3.98 trillion dollars.

HOW IS FOREX TRADED?

Currency exchange can take place offline and online. This means you can exchange currencies physically and with the use of the internet. If you cannot use your currency in other countries, you can exchange it before you travel or when you arrive.

Let’s say you live in the United States and you’ve planned a vacation to Switzerland. That means you will convert your dollars to Swiss franc to pay for anything in Switzerland. If the exchange rate for the dollar to Swiss Franc is 1.2095, it would cost 1.2095 to buy a dollar.

Therefore, if you are to convert 500 dollars to Swiss franc at that exchange rate, you’ll get 605 Swiss francs. You have turned your domestic currency into another currency at given exchange rate. This is one half of the transaction.

Let’s say the exchange rate changed from 1.2095 to 1.1000 during your stay in Switzerland. If you convert 605 Swiss Franc at the new exchange rate (1.1000) back to the dollar, you’ll 550 dollars. Wow! You’ve made a profit of 50 dollars, and this is because while you held on to the Swiss Franc, the exchange rate changed in your favor.

This is how Forex works offline and online. Using the Internet and exchange platforms, you can buy and sell currencies simultaneously from the comfort of your home. The online Forex market is open 24 hours a day, 5 days a week.

They write currencies in symbols on online platforms. For example, you’ll see Symbols like USD for U. S dollar and CHF for Swiss Franc. You will learn more about currency symbols and exchange rates in preceding lessons.

Being a Forex trader is all about speculating on the price of different currencies. For example, if you think the United States dollar will rise against the Japanese Yen, you can buy the USD against JPY, and if the price rises as you expected, you’ll make a profit.
  

THE MAJOR PARTICIPANTS IN FOREX

Large international banks and financial institutions are the major participants in Forex. The banks rely on small financial institutions also called dealers who trade in large quantities.

Banks and financial institutions or dealers do their transactions behind the scene, hence the term ‘interbank market’. This is where the larger trades involving hundreds of millions take place. Some major market participants are Citi, JP Morgan, UBS, Deutsche Bank, Barclays, HSBC, and XTX markets.

Commercial companies also play a vital role in the foreign exchange market. They usually trade fairly small amounts as they seek foreign exchange to pay for goods and services. Their activities may not affect the exchange rates in some cases.

The other participants in Forex are individuals or corporate investors like you. To take part, they must go through retail Forex broker like Tenkofx. A retail broker is a firm that handles a tiny volume of the overall market and provides traders with access to a trading platform. Individuals cannot take part in Forex without retail brokers. You will learn more about the operations of a retail broker in preceding lessons.

WHY SHOULD YOU TRADE FOREX?

There are several reasons to trade Forex to make money. Here are some of its advantages:

High liquidity and high volatility

Liquidity means there is a lot of money fluctuation in the market - over 5.3 trillion dollars a day. As a result, it takes a fraction of seconds to open and close positions. Volatility means exchange rates are unstable and you can profit on the moves of the price anytime you like.

Online trading

People trade Forex on the Internet; there is no physical location where traders go. You need to download the Tenkofx special software called Metatrader 4 from the website or use a web trading terminal. A broker’s online platform will connect you to real-time quotes for different currency pairs.

The Forex market is open 24 hours a day, 5 days a week - from Monday morning till Friday night. You don’t have to wait for physical trade sessions like when trading stock - trade when you have time.

Lower cost of trading

Forex trading is less expensive to trade compared to stocks. For example, good a Forex Broker charge 0.1 pips for each deal made on EURUSD pair. Other fees include swap and fund withdrawal, which are almost insignificant.

Use of Leverage

The ability to use leverage provides you access to trading with bigger amounts of money than you have on your deposits. For example, if the leverage is 50:1, it means for every dollar you have in your account, you can control 50 dollars in the market. Thus, the leverage increases your potential profit. If the price does not move in your favor, the amount you lose will also be higher due to the leverage you applied.

Forex Chart patterns are a very effective type of technical analysis that focuses more on price action instead of indicators. Even though indicators can be effective, they rely on past data so they're not as accurate as you think. Chart patterns have quite a high success rate but their detection is subjective; you need to have experience with patterns if you want to see the best set-ups.

Rising Wedge and Falling Wedge Chart Patterns

The wedge patterns can have different characteristics depending on when they appear. A rising wedge, when formed during an uptrend, indicates a reversal, however, if it appears during a downtrend it will indicate a continuation. The falling wedge indicates a reversal when formed during a downtrend and a continuation when formed during an uptrend.

A rising wedge is a consolidation pattern that appears when there isn't enough power to move the price in either direction. This is shown on the chart by higher highs and higher lows, the lows should be increasing at a faster rate. This pattern indicates the price is about to move down.

Just as the rising wedge, the falling wedge is a consolidation pattern. This time though, it shows that the price is about to move upwards and it’s signified by lower lows and lower highs, the highs will also become lower at a faster rate.

Symmetrical Triangle, Ascending Triangle, and Descending Triangle Chart Patterns

Triangle patterns have a unique characteristic that can't be found in other chart patterns. They are known as bilateral patterns, meaning they don't indicate the price will move in a certain direction i.e. it could move either way. Profit can still be made regardless of which direction the price moves, so don't neglect this pattern. There are three types of triangle patterns which we will discuss below.

The symmetrical triangle pattern appears when neither buyers nor sellers can push the price in their direction i.e. it is a consolidation. This is signified by lower highs and higher lows, eventually, the price will get to a point where it will break out. You can benefit from this breakout by placing entry orders a few pips (this is subjective) away from the tip of the triangle on each side i.e. both buy and sell orders.

An ascending triangle is in favor of the buyers; you can identify this on the chart when you see higher lows and resistance at the highest point. Even though price action states that the buyers are in control, the price can easily plummet. Place entry orders on both sides just as you would with the symmetrical triangle.

Last of the triangle patterns is the descending triangle. This is the opposite of the ascending triangle and so tells us the sellers are pushing the price in their direction. A descending triangle is signified by lower highs and support at the lowest point. It remains to be bilateral so placing entry orders on both sides is still the best approach.

Bullish and Bearish Pennant Forex Chart Pattern

A bullish pennant pattern will appear after a strong rise in the market, it is a small consolidation but gives no indication that buying power is diminishing and is, therefore, a continuation Forex chart pattern. Place an entry order slightly above the pennant and a stop loss slightly below, this will save you in the result of a fake-out.

The bearish pennant is very similar to the bullish pennant, except it is formed during a downtrend in the market and means the price is about to move lower. Just like with the bullish pennant, make sure you place an entry order below the pennant and a stop loss slightly above to prevent fake-outs.

Bearish Rectangle and Bullish Rectangle Chart Pattern

Bearish rectangle patterns appear after a downtrend in the market; it's a continuation pattern but also signifies consolidation. After a strong move down, sellers won’t be putting much pressure on the market which may result in the support and resistance levels being tested as price moves up and down. To benefit from this set-up, place an entry order slightly below the support line.

Just like the bearish rectangle, a bullish rectangle is continuations pattern but also a consolidation. It appears after a strong move upwards and so the price is most likely to move further upwards on the breakout. Take advantage of this by placing an entry order slightly above the resistance level and be ready for the breakout.

If necessary, you can bookmark this page in case you need to double check a Forex chart pattern while conducting your technical analysis. Being thorough will help you become a successful currency trader.

What is social trading?

Social trading is an innovative and exciting way to benefit with and from experienced traders. It involves automatically copying or duplicating the orders of other winning traders. They also call it copy trading, mirror trading and similar to the PAMM system.

Once the signal provider who is a professional trader enters the market, the same position is automatically opened and managed on your account. You will need to choose the trader you want to copy his or her trade. This is what social trading is all about. 

How to choose the best signal providers

1. Take your time to look for a good trader who will not cause you losses. Here are some basic rules you should follow: 

2. Look for a trader with a low drawdown percentage. That is the total amount you are willing to lose from your account in percentage. Knowing how much a trader’s account has been in the negative will help you see what the future holds. 

3. Monitor the performance of every signal provider over time and go for the ones with a verifiable history of success. Do not be fooled by the short period of profitable trades. 

4. What do traders say about the trader? If he or she has many negative reviews don’t give him or her the chance. Also, check the number of followers with real money. The more followers a trader has, the better. You definitely want to be part of the success of other traders. Remember the number of followers does not guarantee success, so check other factors. 

5. Is the signal provider reasonably profitable? Look for traders with a positive profit-loss ratio. 

6. Avoid high-risk takers who abnormally leveraged their accounts. Diversify your portfolio by choosing different signal providers according to trading styles or strategies
   
   Regardless of how carefully you selected your lead traders on social trading, unfollow them if you notice their performance is dwindling. If you spot any changes in your signal providers’ behavior such as a change in risk management or reduction trading frequency, it may signal the coming of rainy days, an undisciplined signal provider will be careless in managing trades.
   
   For example, a trader that is driven by fear or greed will keep on resetting stop losses and profit targets. If the trader experiences a drop in trading volume or periods of inactivity after losing trades then he may take many risks to win back the losses. Remember to act early enough. 

7. Start by trying out your preferred trader on a demo account. Does it work? Some traders may also have other accounts with less impressive results while promoting the most profitable ones. Instead of basing your judgment only on the performance of closed trades, look for any open position the signal provider may have and include them in your calculation. Follow signal providers that trade in no more than two to three pairs of instruments. It is best to use a signal provider that knows his or her trading instruments well. Show your back to signal providers who use the martingale system. In this system, the trader is doubling positions after each loss with the expectation of recuperating the losses.
   

8. Don’t put all your eggs in a single basket. Consider distributing your capital across different signal providers.
   
   
9. Research signal providers thoroughly before committing your hard earned cash to them. It is best to use a signal provider with a proven record of at least 20 weeks and not two weeks. Watch your money management, and do not risk more than you are able to lose.
   
   
10. Check how many trades the signal provider makes in a single session. You want to have sufficient funds and avoid risking too much capital. Remember that even successful signal providers go through a period of poor performance, so don’t give up too soon before you reap from their winning streaks. 

Selecting a social trading forex broker

It is impossible to engage in social trading without a Forex broker. It is a Forex broker that holds your money and executes your trades. Since you cannot test all Forex brokers, it is wise to follow useful tips here. 

1. Decide whether to use a broker providing the social trading platform or a separate social trading platform like myfxbook. It does not matter. You can choose Tenkofx as your broker and connect your account to a social trading platform. 

2. Does the broker offer a base currency of your choice? Forex brokers will offer you accounts in the currency where they are and other currencies. Most common currencies are USD, EUR, and GBP. 

3. Find out the spread charge of the broker. Many brokers make their money from the spread, which is the difference between the buy and sell price. Shady brokers rip off their clients by increasing the spreads during certain market hours. Make sure you are certain of the spread and how much you pay for each trade. 

4. How often does slippage occur on the brokers trading platform? Slippage refers to the difference between the price you see on the screen and the price at which you open a trade. Both prices are supposed to be the same, but if there is a difference, it means there was a delay in execution. So, find out how fast (after a trader opens an order) it is copied to your account. The longer the delay, the higher the slippage.

 These are the most important factors to consider when you want to use a social trading platform. 

To understand the meaning of candles in Forex, we must know about the Market price analysis. Market prices are always on the move and the easiest way we can visualize this movement is with a simple line chart. This chart shows the movement of price over time and in any time interval. We will find the market trading in a range of price levels. 

Imagine that we focus only on the price movement for a single hour. At the top of that hour, there is a start price, also known as the open price. At the end of the hour, the price we see is the close price. Within this time interval, we can also identify both the highest and lowest price level the market closed at.

A candle is a visual representation of these four price levels. They can act as a powerful predictive raw material, helping you to know what is likely to happen next. There is more to the meaning of candles in Forex.

You can use color to identify the direction of the market price. The candle turns green when the close price is higher than the open price, but if the price were to fall, the candle will turn red. 

The central area of the candle is the body, while the lines that extend from the body above and below are the wicks or shadows. A combination of these candle forms a candlestick chart. With it, we can see the overall trend of the market price of an asset. 

As you learn more about candlesticks, you discover that individual candlestick may have particular names. 

It might interest you to know that Candlesticks are Japanese in origin. Hundreds of years ago, the Japanese rice traders who used candlestick charting noticed that some types of candlesticks, which could be identified by their real body and weak patterns has some predictive power. 

The old Japanese analysts put a name to every type of candle you could imagine. Meanwhile, this article will not only help you to know the meaning of candles in Forex, but also the five most important types of candlesticks that every trader needs to recognize. 

The Pin Bar 

Know as a Hammer, the pin bar has a tiny real body close to either its high or low and a long shadow that sticks out on one side. It forms whenever the price opens, moves away in one direction and returns quickly to the first level. 

The pin bar signifies an immediate move in the direction opposite to the way the shadow was pointing, especially where the shadow pokes out beyond the highs or lows of preceding candles. 

This is because the long shadow shows a sharp projection of the price from support and resistance, which should continue for a while.

The inside Bar

This is a bar within the range of the candle just before it. This means its high is lower than the previous candle’s high, and its low is higher than the previous candle’s low. The inside bar signifies a period of market indecision. An example is a consolidation, which is the breakout that can be bought or sold for profit. This belief is because the price could not move beyond the confines of the previous candles high and low, so when it makes its move, it should be strong. 

The Outside Bar

The outside is a bar that exceeds both the high and low of the range of the candle just before it. This means its high is higher than the previous candle’s high and its low is lower than the previous candle’s low. Its significance depends on where the bar closes. If the bar closes near its high, it is a bullish trend, it closes near its low, it is a bearish trend. 

If it closes near the middle of its range, then it signifies a combination of increasing volatility and indecision. Traders who spot this will probably stay out of the market.  

The engulfing bar

This is a candle whose real body engulfs i.e swallows up and reverses the real body of the candle just before it. This means that a bullish engulfing bar may only form after a bearish bar, that is a candle that closes lower than it opens and that a bearish engulfing bar may only form after a bullish bar, that is a candle that closes higher than it opens. 

A bullish engulfing bar’s close must not only be higher than its open but also higher than the previous candle’s open. A bearish engulfing bar’s close must not only be lower than its own open but also lower than the previous candle’s open. 

As the name suggests, bullish engulfing bars shows a bullish trend and bearish engulfing bar shows a bearish trend. 

The Doji

This is a candle whose real body is non-existent or tiny. It’s open and close point are close to together, sometimes at the same price. A pure Doji is one where the upper and lower wicks are the same size. When one wick is much longer, the candle becomes more of a pin bar. Such candles are sometimes called a dragonfly or gravestone Doji. 

A Doji signifies indecision as it shows that the price went up and down, but goes nowhere. This signifies a quiet directionless market or that a move up or down may have run out steam and it’s getting ready to reverse. 

Consecutive Doji at the end of a trend can signify a trend reversal, providing a potential low-risk high reward entry point. 

Now that you know the meaning of candles in Forex and can identify the five important types of candles, you can begin your analysis. 

There are traders who begin Forex trading using a live account rather than a demo account. Also, there are traders who start with a demo account but don’t use it long enough due to overconfidence. In the long run, they realize they are not ready to trade Forex with real money. 

If you don’t want to learn from your mistakes the hard way, you need to understand the importance of a demo account. 

Practice Trading

You will need to practice your strategies. Even if you understand the strategy or have molded it into your own version, you need to develop confidence toward that strategy. It is not your strategy, so if you are to follow a step-by-step guidance from someone else, you need a clear one month minimum of successful data for that strategy. 

This will instill confidence in you that your adopted strategy works. Allow yourself to make a mistake while using a demo account to avoid them when you switch to a live account. The market is always right and you need to adapt to it, which is why a demo account is very important. Always use a demo account to confirm the success rate of your trading strategy. 

Understand Market Movement 

You need to get familiar with market conditions. Remember, the market does not care about you or what you trade and you cannot be right 100% of the time. 

There are factors, events, and speeches that will always be there to turn the market in the opposite direction. This is something constant in the Forex market whether or not you like it. Losses are a part of Forex trading and it is up to you to control these losses. 

The more familiar you are with the market conditions, the easier it will be. The market moves in different directions because of factors you cannot control. So it is impossible to be right 100% of the time. 

Long-term trading with a demo account can prepare you to face the true nature of the market. Get familiar with market movements, reversals, spikes and flat situations. It will take you approximately 3 months to prepare depending on how well you pay attention to the market conditions. 

Acquire discipline

Every experienced trader can confirm that discipline is the most important characteristic that a trader should have. Even though it’s important to know when to trade, it’s also important to know when not to trade. To stay away from the market knowing you will not make money is a very hard thing to do. 

Unfortunately, some traders open positions when they are bored or haven’t met their target for the day. It is unprofessional to do that. When you are ready to enter the market, but there if there is any doubt, do not click the order button. The worst part is if you’re wrong you see that trade you purposely didn’t enter shoot toward your target and you will probably feel regret toward the decision. 

To control this emotion and not let it influence the same scenario next time is very hard. If you succeed, you’re halfway there because if you don’t trade you don’t lose. You must have enough discipline to be strong and confident toward your decision. 

Master Money Management

Money management is something that a lot of hedge funds or trading floor managers keep a close eye on. It comes in many formats. For example, if you give yourself a 100 dollar daily loss limit or that could be 5 dollars depending on your total investment, it’s a format of money management. 

It does not matter what the limit is, but if you stick to those rules, that is good money management. If you set a daily limit of $10 and you lose $5 in your first trade, you cannot simply increase the investment in your next trade. Here, you need to decrease the amount into let’s say $2 in each trade. 

So losses incurred should only be recouped through good money management, even if it means trading twice to break even again. If you ignore this and double up in the next trade, what happens if you also lose that trade? You will be in a much worse situation than you were earlier. 

Practice good money management in a demo account because tomorrow will bring new opportunities even if you fail today. 

Experience Without Risk

A new trader needs to feel the wrath of losses and see his reaction towards it. Well, the risk when using a demo account is zero but it will prepare you for when you trade in your love account. 

If you have been trading with a demo account for one month or two and still not confident, then keep trading. There is no time limit so make sure you perfect everything before you trade with a live account. 

Practice Precision and Timing

Precision and Timing refers to where you enter and exit the market. Every strategy has its own points of entry and exit, which depends on the market conditions surrounding them. 

By practicing with a demo account, you will see where the points are. If your timing isn’t right or there is no precision, it’s a recipe for disaster. So, ensure that you practice until you have good precision and timing. 

Psychological Preparation

90% of traders fail; why is that? Theoretically, trading should be easy because it is simply a case of following rules. However, it is not a case of being right all the time since losses are a part of trading. 

If you are not psychologically prepared to take those losses, it may not be the time to go live. You still need more time in the demo account because these negative factors can mentally scar a trader.  

Are you thinking about a Forex strategy? Perhaps, Forex scalping strategy is the ideal one. You need to understand what it means and how to implement it. Forex trading is a good way to make money and achieve financial freedom, but there are requirements.  

Two most important things a person needs to achieve success in forex are knowledge and strategy. It is one thing to learn about a simple forex scalping strategy, it is another to implement it. 

What is Forex?

To understand the answer to the above question, an explanation of Forex will help complete newbies to benefit. Forex is an acronym for the Foreign Exchange Market. This is the market where different bodies come to buy and sell currency. In another sentence, Forex is the buying and selling of currencies or the exchange of various currencies against each other. 

For example, when a person who has 10USD changes the money to EUR, a Forex trade has taken place. Here, he has to do that using an exchange rate. The two currencies here are EUR and USD, which experts have paired as EURUSD. If the exchange rate of EUR vs USD is 1.2500, you’ll pay 1.25 USD to get 1 EUR. So the person who wants to convert 10USD to EUR will get 8EUR in return. 

Let’s say after a day or two, the EURUSD exchange rate increases to 1.5000. If the person converts 8EUR back to USD, he’ll receive $12 in return. He has made a profit of $2 because the exchange rate increased while he held on to the EUR. 

Forex online is the simultaneous buying and selling of currencies for profit. If you believe the exchange rate between two currencies will increase, you buy it and hold on to it. When it increases, you will make a profit. 

This is actually done virtually but with real money. So you don’t have to buy and sell physically. Forex trading is done through a platform where you deposit money from your bank account or electronic wallet. After that, click the buy button or sell button to make money. We have discussed this in previous articles. Now it’s time to understand what Forex scalping is.

What is Forex Scalping?

Some traders click the buy or sell button and do not close the trade immediately. Their trading strategy allows them to open a trading position for over one day. These traders are long-term traders. Others close their trades the same day and they are called short-term traders. 

There are a unique set of traders that do not allow their trades to be open for over 5 minutes. These are called Forex scalpers. Forex scalping is a trading strategy that involves opening and closing of a position within a short time. Here, less than 5 minutes and in other cases, less than a minute. 

Since currency exchange rates fluctuate every second, it is logical to assume that one can profit from every turn. So a scalper goes into the market, opens a position, waits for the price to move two to 10 pips in his favor and closes the trade. The currency exchange rates go back and forth, so he must close the trade before it turns around. Scalpers don’t make a lot of money in a single trade, but with multiple positions, the profit accumulates into a significant amount. 

One thing we have learned about scalping is that it requires attention and a quick finger. A Forex scalper is ready to fix his eyes on the computer. Even though it is for a short period, it is difficult. Learning Forex scalping strategy is easy but requires attentiveness and strong concentration. 

Another thing we have learned about scalping is that a trader can only make enough money by opening many positions in one day. A long-term trader may need one trade to make a $100, but a scalper needs over 10 trades to achieve that. If this is the case why do traders use the Forex scalping strategy when they can make more from one trade? This a good question, but the answer will satisfy you. 

The Benefits of the Forex Scalping Strategy

Quick Profit

Scalpers believe it is easier to get 100 pips in multiple trades rather than holding a single trade and suffer from the physical and psychological effects of market fluctuations for a longer duration. It is better to suffer for 5 minutes than 2 to 7 days. 

Technical and Fundamental Analysis 

There is no need to study technical and fundamental analysis. It is only necessary to use the rules of opening for scalping. This is a relief for new traders who get headaches from the technical languages of Forex. There is no drawing of charts, uploading indicators, mapping resistance, and support levels. Opening and closing is all you have to do as a Forex scalper 

No Market Barriers 

Nothing stops a scalper from opening a position. The appearance of a trend is not essential as you can trade at any time of the day and on any trend. 

Managing Forex Risk

To be successful as a Forex trader, you must learn to manage two things; emotions and risk. Forex scalping strategy helps you manage both at the same time. Forex scalpers don’t blow up their account as long-term traders do. Their market risk exposure is low. 

Now that you know what Forex Scalping is and its advantages, it is best to start practicing it on a demo account.