Basic Trading Tips (Forex Beginners)

Forex trading is a highly complicated game, these are some simple trading tips from FxPros.net.

Forex Trading Tip 1: “Know what you are trading”

The market behavior of all Forex pairs is not the same. Some currency pairs are much more volatile, and trend very aggressively, compared to others. Furthermore, currency pairs trade within specific seasonal patterns. For example, during April, the British Pound against the US Dollar tends to appreciate more than 80% of all time. » When to trade Forex

Table: Forex Currency Pairs & Volatility

What do you need to know as a beginner in Forex trading?

Are you a beginner in Forex trading? If so, you're probably wondering where to start. It might look like there’s a lot to know, but you can learn the basics without too much stress. Here is a beginner’s guide to some of the things a beginner in Forex trading needs to know.

• This is not a get-rich-quick scheme
• This is the first thing you need to know. Forex trading involves careful investing and a lot of patience. If you're expecting to hit the jackpot from the start, you're in the wrong game.
• The retail trading foodchain
• You need to know how the industry is mapped out. It is a combination of all participants that creates the market, but their weight is measured by how much money is managed by a particular party.
• Long-term deals are safer

One unrealistic expectation that every new trader needs to avoid is that s/he will profit from the start. When you're a beginner, your objective should be minimizing risks and preserving your capital. Long-term trades will be safer for you, as you can maintain a relative balance until you know enough to make money.

Trading Calendar and the Forex Majors

The Forex majors are the most traded and liquid currency pairs in the world. Overall, the Forex majors are involved in more than 85% of the total Forex market volume. The Forex majors offer a tight bid/ask spread which makes them attractive for scalping, intraday, and algorithmic trading.

These are the periodic returns of the 7 Forex majors based on historical data for the period 2000-2018.

Table: Compare the returns of the 7 Forex majors

Foreign Exchange Market Statistics 2000-2013

The Forex Market is a decentralized OTC (Over-the-Counter) financial market. Forex is running 24 hours per day using the electronic network of banks (ECN). It is estimated that the Forex turnover today may exceed 4 trillion dollars per day. Forex volumes are generated mainly from speculators. It is estimated that 90% of the Forex trading volumes are generated by speculators (day traders).

Forex Market Structure

The global free-floating Forex currency system started in 1971 as the Bretton Woods agreement ended. The online Forex trading market started in the late 1990s. Forex is an open 24-hours market {Sunday 5 pm (EST) - Friday 4 pm (EST)}. Forex Trading starts in the Asia-Pacific and continues in the Middle East, Europe, and the US.

Forex Market Historical Volatility -Research (2000-2013)

This is a research of the most traded pairs in the Forex market. The data is corresponding to a wide time frame beginning on the first day of the millennium (1/1/2000) and ending in August 2013. The total time frame covers about 13.5 years.

• Data: Daily data for 13.5 years
• Sample: EUR/USD | USD/JPY | USD/CAD | USD/CHF | GBP/USD | NZD/USD | AUD/USD
• Timeframe: Between January 2000 and August 2013.

Measuring Historical Volatility

For measuring the historical volatility of the Forex market, two methods are used which are based on the Average True Range (ATR).

What is the Average True Range (ATR)?

The Average True Range (ATR) is an indicator developed by J. Welles Wilder to measure market volatility. {Book, “New Concepts in Technical Trading Systems”, 1978}

The True Range according to Wilder can be measured using two main methods:

■ 1-Method: Current High minus the Current Low

■ 2-Method: Current High minus the Previous Close

Forex Trading Frequently Asked Questions
 

What is the Foreign Exchange Market?

The Forex (Foreign exchange) market is a giant and highly liquid financial market operating 24/5. The Forex market is a 100% decentralized market that is based on the Electronic Network of the banks (ECN). World currencies are traded within Forex in pairs and it is estimated that the daily volume activity in Forex today is reaching 4 trillion USD.

What is a Currency Pair?

A currency pair includes two currencies that indicate an exchange rate. For example, the currency pair is EUR/USD. The first quote of the two pairs (EUR in the example) is called the Base Currency. The second quote in the pair (USD in the example) is called the counter pair. All currencies are indicated with specific symbols, here are the most popular symbols:

• USD is the Forex symbol of the US Dollar

• EUR is the Forex symbol of the Euro

• GBP is the Forex symbol of the British Pound Sterling

• JPY is the Forex symbol of the Japanese Yen

• CHF is the Forex symbol of the Swiss Franc

• AUD is the Forex symbol of the Australian Dollar

• CAD is the Forex symbol of the Canadian Dollar

• NZD is the Forex symbol of the New Zealand Dollar

The most popular currency pairs are EUR/USD, USDJPY, and GBP/USD. Why popular pairs are important for traders? Because popularity means liquidity, and liquidity means narrower spreads. The magnitude of the spread defines to a high extent the profitability potential of any Forex trader.