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Benefits Of Trading The EURUSD Currency Pair: 1. Higher Profit Potential
The best currency pair that new traders are recommended to focus on is the
1) Volatility: Volatility is a measure of trade activity. Profits can only be made in
Volatility chart of the USD against major currencies.
You can see that the polygon drawn inside the heptagon shows the USD drifting towards the EUR in terms of volatility, more than the other major currencies that constitute the major currency pairs. This goes to show that the EURUSD shows maximum volatility compared to other currency majors. It's easy to see why this is the case.
The USD is the global reserve currency, as all traded commodities and international transactions are USD denominated. The Euro, being the single currency of the 14 Euro zone member states, provides an avenue where this vast array of countries that make up a large percentage of the world’s trade volume, can be exchanged for goods and services.
2) Economic and Trade Related Activity: This is highest in the US and the Euro zone, therefore it is not a surprise that the two currencies that make up the EURUSD are the most traded in the foreign exchange markets.
3) Liquidity: In a liquid market there are many buyers and many sellers. This is the best kind of market. When a market is liquid, transaction costs are low and trades are executed in an instant. Due to the fact that the EURUSD is the most active currency pair in the forex market, the transaction costs and spread (the difference between buying price and selling price) is the least of all the currency pairs. This enables traders to maximize their profits. The spread of the EURUSD for some brokers is only 0.8 pips compared to the EURCAD spread, which is often 10 pips or more. This may not seem significant for small traders, but when an institution is trading volumes of 1000 lots (a value of $10,000 a pip) it becomes pretty significant.
4) Predictability: The EURUSD is a very predictable currency pair. Since the ECB’s
Differences BetweenTechnical And Fundamental Trading
Technical trading refers to the use of technical indicators on your forex platform in order to predict price movements of a currency pair. Fundamental trading involves the use of economic news indicators as determinants for the direction of the affected currency pairs.
Many forex traders consider technical analys not sufficient enough in order create a trading plan that will deliver consistent profits. Market sentiment and market direction is a function of the economic and political news that hit the news wires. Any trading plan that doesn't factor in these economic indicators is "doomed to fail" from the beginning.
Let’s take for example, that the ECB Chairman warns the EC members of inflation, signaling rate hikes, which would send traders into a Euro buying frenzy. The ECB Chairman and the financial institutions that constitute and control the flow of over 80% of the $4.2 trillion / daily forex liquidity will not care if the EURUSD just made a double top or a descending triangle patter (bearish signals).
As far as the ECB Chairman is concerned, his mandate is to protect the low-inflation policy of the European Central bank and if he has to increase interest rates to do so, he will. The institutional traders will simple buy Euros in response to gain from the immediate capital gain in the market and also to earn from the increased Euro interest rate against the US dollar. The candles will respond by going northwards, blowing off any trade that went short on a double top technical strategy. That is how the market works.
This is why the hallmark of trading has always been:
“Trigger fundamentally, enter and exit technically”.
What makes fundamental trading so important in forex trading? Macroeconomic news items are released by government agencies and very important private authorities. The news is transparent, cannot be manipulated (like company’s earnings which are susceptible to accounting fraud), and is available to ALL market participants. The dates and times of release are made known to all currency market traders well in advance, and the news is delivered to channels accessible to all traders; usually their trading platforms via news feed services of Bloomberg, Reuters, Dow Jones News Wires and TV stations like CNN Money and CNBC. Insider leaks are rare.
Strategies And Techniques For Trading The EURUSD Using Your Trading Style
Determining Time Frames for Your Trading Style
In deciding what time frame to trade the EURUSD, you need to understand what kind of trader you are. This is a very key step, as application of the wrong time frame for your trading style will lead to errors in trading, and losses. Even though many experts propose looking at multiple time frames before making a trading decision, you will still need to focus on one time frame to provide the chart on which to identify your entry signal. The 4 best time-frames that we have identified to consistently yield the most predictable moves are explained inside this program...
The questions to ask in determining the time frames for your trading style are:
a) What kind of trader are you? Are you a scalper, day trader or swing trader?
Generally speaking, scalpers (forex traders who open and close trades in a matter of minutes, looking for a few pips at a time) will be more suited to trade the 5 minute or 15 minute timeframe charts, since their entry and exit time is extremely short.
Day traders would be looking at the 1 hour charts. Those who prefer to hold positions for days or weeks at a time will be looking at even longer time frames: 4-hour, Daily and Weekly charts.
Once you can identify your trading style in any of the categories listed, it becomes easier to know which charts to use in order to identify your entry signals and making good trading decisions.
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CFTC RULE 4.41 - HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAN ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.
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