F.O.R.E.X.

Filed under: Learn Forex Trading |

F is for ‘foreign exchange’. The word ‘forex’ is actually short for foreign exchange (which is made up of the first three and first two letters of each word). It refers to the foreign exchange market of currencies. If you are unfamiliar, it refers to exchanging one currency for another one, just like when you go on holiday abroad. The exchange rates are continuously fluctuating based on market supply and demand. It is the largest market in the world by far, with over four trillion dollars exchanging hands daily!

 

O is for ‘oscillators’. These include tools of technical analysis such as the MACD, RSI, and stochastic. They are used to identify overbought and oversold conditions in the market.  They can also be used to find market divergences. If price is going one way, and the oscillator is going the other way – then it is a good signal that the market may be about to turn.

 

R is for ‘risk’. Risk management and assessment is a crucial element of trading the forex markets, and one that you should dismiss at your peril. It is important not to risk more than 2% of your bank, and you should also have a positive risk-reward ratio on each trade of at least 1:2. If you do this, then you will be well on your way to being profitable.

 

E is for ‘exponential moving averages’. These are something that I use on all of my daily charts to assess the trend and to find areas of value. I use an 8-day EMA and a 21-day EMA, but there are others that you can use.

 

X is for ‘confluence’. “What?” you might say. “That does not begin with ‘x’”. Unfortunately, xylophones have little to do with the forex markets so this will have to do. Confluence is when a number of factors all come together in one area to form a point of confluence, just like an ‘x’ does. When more than one factor is pointing to the same thing, then this is a good time to trade.

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