Understanding whether there is psychological support and resistance should not be
ignored because hedge funds and institutional investing creates recognizable patterns.
Ignoring psychological expressions in the markets increases the risks that the trades will
be going against the “smart” money. Psychological support reveals itself in several ways
and in many ways is a self-reinforcing process. For example, since traders assign importance
to key Fibonacci levels, this results in aggregating more significance to those
levels. A greater number of parked orders such as stops and limits become located in Fibonacci
zones. Option orders at key strike prices play a key role that the average trader
in spot has little accessible knowledge of. Additionally, prices at round numbers such as
1.2500 receive more attention from traders. Finally, psychological support emerges when
a key support or resistance level, such as a daily, weekly, or monthly high or low, is being
probed by the currency pair.
Up to this point, we have looked at price in relationship to support and resistance
lines and pivot points, but mapping price movement is not yet complete. The trader needs
to consider the dimension of time.
PRICE AND TIME IN FOREX
The language of technical analysis really starts with the description of price in
relationship to time. Finding Significant Support and Resistance
multidimensional relationship. Let’s start with the fact that the charts themselves are
snapshots of what has occurred in a selected time interval. Whether one uses bar charts
or candlestick charts, the vocabulary of technical analysis has only four basic words.
With only these four units of knowledge, the trader can start to talk the language
of technical analysis. We can build an entire architecture of trading strategy. We can
build trend lines that connect consecutive highs and lows. We can deduce sentiment.
For example, when the price closes above the opening, we have a bullish sentiment.
When the price closes below the opening, we have a bearish sentiment. Another key
relationship that is revealed by looking at the price bars or candles is the range, which is
defined as the difference between the low and the high action.
The range of a currency pair reflects deeper psychological characteristics of the price
action that can’t be ignored. As the distance between a low and a high increases, the total
energy of buyers versus sellers has increased. Accompanying this increase in range
is also the anxiety of the trader. A widening range is a signal of increasing volatility. A
narrowing range denotes the ebbing of interest and consolidation as the market needs
new energy. Depending on the shape of the range, the trader can employ different strategies.
In a sideways range pattern known as a “channel,” trading off each side represents
a common strategy. But the width of the range should be 40 pips or more to achieve a
reasonable chance of capturing 10 to 15 pip moves. If the range is compressing in the
shape of a triangle, the trade should be ready for a breakout. There is no guarantee as to
which side the price will break out of. More often than not, a breakout in the direction of
HIGH
OPEN
OPEN
CLOSE
OPEN
AND
CLOSE
If the range is very narrow (less than 20 pips), no trade is preferable
because the market is really in a period of noise. Figure 11.11 shows a chart with a
range of 30 pips, but notice that the price is near the middle of the range. It would take
very good timing to trade this pair from where the price is. Whatever the range is trading
near, support or resistance is preferable.
WHY TRADE FOREIGN
There are many benefits and advantages to trading Forex. Here are just a few reasons why so many people are choosing this market: http://tinyurl.com/ccdgl8
No commissions. No clearing fees, no exchange fees, no government fees, no brokerage fees. Brokers are compensated for their services through something called the bid-ask spread. No middlemen. Spot currency trading eliminates the middlemen, and allows you to trade directly with the market responsible for the pricing on a particular currency pair.
No fixed lot size. In the futures markets, lot or contract sizes are determined by the exchanges. A standard-size contract for silver futures is 5000 ounces. In spot Forex, you determine your own lot size. This allows traders to participate with accounts as small as $250. Low transaction costs. The retail transaction cost (the bid/ask spread) is typically less than 0.1 percent under normal market conditions. At larger dealers, the spread could be as low as .07 percent. Of course this depends on your leverage and all will be explained later. A 24-hour market. There is no waiting for the opening bell - from Sunday evening to Friday afternoon EST, the Forex market never sleeps.
This is awesome for those who want to trade on a part-time basis, because you can choose when you want to trade--morning, noon or night. No one can corner the market. The foreign exchange market is so huge and has so many participants that no single entity (not even a central bank) can control the market price for an extended period of time.
Leverage. In Forex trading, a small margin deposit can control a much larger total contract value. Leverage gives the trader the ability to make nice profits, and at the same time keep risk capital to a minimum. For example, Forex online brokers offer 200 to 1 leverage, which means that a $50 dollar margin deposit would enable a trader to buy or sell $10,000 worth of currencies. Similarly, with $500 dollars, one could trade with $100,000 dollars and so on. But leverage is a double-edged sword. Without proper risk management, this high degree of leverage can lead to large losses as well as gains.
High Liquidity. Because the Forex Market is so enormous, it is also extremely liquid. This means that under normal market conditions, with a click of a mouse you can instantaneously buy and sell at will. You are never "stuck" in a trade. You can even set your online trading platform to automatically close your position at your desired profit level (a limit order), and/or close a trade if a trade is going against you (a stop loss order).
Free Demo Accounts, News, Charts, and Analysis. Most online Forex online brokers offer 'demo' accounts to practice trading, along with breaking Forex news and charting services. All free! These are very valuable resources for poor and SMART traders who would like to hone their trading skills with 'play' money before opening a live trading account and risking real money.
Mini and Micro Trading: You would think that getting started as a currency trader would cost a ton of money. The fact is, compared to trading stocks, options or futures, it doesn't. Online Forex ONLINE brokers offer "mini" and micro trading accounts, some www.myspace.com/budoz. with a minimum account deposit of $300 or less. Now we're not saying you should open an account with the bare minimum but it does makes Forex much more accessible to the average (poorer) individual who doesn't have a lot of start-up trading capital.
No commissions. No clearing fees, no exchange fees, no government fees, no brokerage fees. Brokers are compensated for their services through something called the bid-ask spread. No middlemen. Spot currency trading eliminates the middlemen, and allows you to trade directly with the market responsible for the pricing on a particular currency pair.
No fixed lot size. In the futures markets, lot or contract sizes are determined by the exchanges. A standard-size contract for silver futures is 5000 ounces. In spot Forex, you determine your own lot size. This allows traders to participate with accounts as small as $250. Low transaction costs. The retail transaction cost (the bid/ask spread) is typically less than 0.1 percent under normal market conditions. At larger dealers, the spread could be as low as .07 percent. Of course this depends on your leverage and all will be explained later. A 24-hour market. There is no waiting for the opening bell - from Sunday evening to Friday afternoon EST, the Forex market never sleeps.
This is awesome for those who want to trade on a part-time basis, because you can choose when you want to trade--morning, noon or night. No one can corner the market. The foreign exchange market is so huge and has so many participants that no single entity (not even a central bank) can control the market price for an extended period of time.
Leverage. In Forex trading, a small margin deposit can control a much larger total contract value. Leverage gives the trader the ability to make nice profits, and at the same time keep risk capital to a minimum. For example, Forex online brokers offer 200 to 1 leverage, which means that a $50 dollar margin deposit would enable a trader to buy or sell $10,000 worth of currencies. Similarly, with $500 dollars, one could trade with $100,000 dollars and so on. But leverage is a double-edged sword. Without proper risk management, this high degree of leverage can lead to large losses as well as gains.
High Liquidity. Because the Forex Market is so enormous, it is also extremely liquid. This means that under normal market conditions, with a click of a mouse you can instantaneously buy and sell at will. You are never "stuck" in a trade. You can even set your online trading platform to automatically close your position at your desired profit level (a limit order), and/or close a trade if a trade is going against you (a stop loss order).
Free Demo Accounts, News, Charts, and Analysis. Most online Forex online brokers offer 'demo' accounts to practice trading, along with breaking Forex news and charting services. All free! These are very valuable resources for poor and SMART traders who would like to hone their trading skills with 'play' money before opening a live trading account and risking real money.
Mini and Micro Trading: You would think that getting started as a currency trader would cost a ton of money. The fact is, compared to trading stocks, options or futures, it doesn't. Online Forex ONLINE brokers offer "mini" and micro trading accounts, some www.myspace.com/budoz. with a minimum account deposit of $300 or less. Now we're not saying you should open an account with the bare minimum but it does makes Forex much more accessible to the average (poorer) individual who doesn't have a lot of start-up trading capital.
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