Trading Forex For Beginners

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Forex Trading: A Beginner’s Guide

Forex is a portmanteau of foreign currency and exchange. Foreign exchange is the process of changing one currency into another currency for a variety of reasons, usually for commerce, trading, or tourism. According to a recent triennial report from the Bank for International Settlements (a global bank for national central banks), the average was more than $5.1 trillion in daily forex trading volume. 

Key Takeaways

  • The foreign exchange (also known as FX or forex) market is a global marketplace for exchanging national currencies against one another.
  • Because of the worldwide reach of trade, commerce, and finance, forex markets tend to be the largest and most liquid asset markets in the world.
  • Currencies trade against each other as exchange rate pairs. For example, EUR/USD.
  • Forex markets exist as spot (cash) markets as well as derivatives markets offering forwards, futures, options, and currency swaps.
  • Market participants use forex to hedge against international currency and interest rate risk, to speculate on geopolitical events, and to diversify portfolios, among several other reasons.

What Is the Forex Market?

The foreign exchange market is where currencies are traded. Currencies are important to most people around the world, whether they realize it or not, because currencies need to be exchanged in order to conduct foreign trade and business. If you are living in the U.S. and want to buy cheese from France, either you or the company that you buy the cheese from has to pay the French for the cheese in euros (EUR). This means that the U.S. importer would have to exchange the equivalent value of U.S. dollars (USD) into euros. The same goes for traveling. A French tourist in Egypt can’t pay in euros to see the pyramids because it’s not the locally accepted currency. As such, the tourist has to exchange the euros for the local currency, in this case the Egyptian pound, at the current exchange rate.

One unique aspect of this international market is that there is no central marketplace for foreign exchange. Rather, currency trading is conducted electronically over-the-counter (OTC), which means that all transactions occur via computer networks between traders around the world, rather than on one centralized exchange. The market is open 24 hours a day, five and a half days a week, and currencies are traded worldwide in the major financial centers of London, New York, Tokyo, Zurich, Frankfurt, Hong Kong, Singapore, Paris and Sydney—across almost every time zone. This means that when the trading day in the U.S. ends, the forex market begins anew in Tokyo and Hong Kong. As such, the forex market can be extremely active any time of the day, with price quotes changing constantly.

A Brief History of Forex

Unlike stock markets, which can trace their roots back centuries, the forex market as we understand it today is a truly new market. Of course, in its most basic sense—that of people converting one currency to another for financial advantage—forex has been around since nations began minting currencies. But the modern forex markets are a modern invention. After the accord at Bretton Woods in 1971, more major currencies were allowed to float freely against one another. The values of individual currencies vary, which has given rise to the need for foreign exchange services and trading.

Commercial and investment banks conduct most of the trading in the forex markets on behalf of their clients, but there are also speculative opportunities for trading one currency against another for professional and individual investors.

Spot Market and the Forwards & Futures Markets

There are actually three ways that institutions, corporations and individuals trade forex: the spot market, the forwards market, and the futures market. Forex trading in the spot market has always been the largest market because it is the “underlying” real asset that the forwards and futures markets are based on. In the past, the futures market was the most popular venue for traders because it was available to individual investors for a longer period of time. However, with the advent of electronic trading and numerous forex brokers, the spot market has witnessed a huge surge in activity and now surpasses the futures market as the preferred trading market for individual investors and speculators. When people refer to the forex market, they usually are referring to the spot market. The forwards and futures markets tend to be more popular with companies that need to hedge their foreign exchange risks out to a specific date in the future.

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More specifically, the spot market is where currencies are bought and sold according to the current price. That price, determined by supply and demand, is a reflection of many things, including current interest rates, economic performance, sentiment towards ongoing political situations (both locally and internationally), as well as the perception of the future performance of one currency against another. When a deal is finalized, this is known as a “spot deal.” It is a bilateral transaction by which one party delivers an agreed-upon currency amount to the counter party and receives a specified amount of another currency at the agreed-upon exchange rate value. After a position is closed, the settlement is in cash. Although the spot market is commonly known as one that deals with transactions in the present (rather than the future), these trades actually take two days for settlement.

Unlike the spot market, the forwards and futures markets do not trade actual currencies. Instead they deal in contracts that represent claims to a certain currency type, a specific price per unit and a future date for settlement.

In the forwards market, contracts are bought and sold OTC between two parties, who determine the terms of the agreement between themselves.

In the futures market, futures contracts are bought and sold based upon a standard size and settlement date on public commodities markets, such as the Chicago Mercantile Exchange. In the U.S., the National Futures Association regulates the futures market. Futures contracts have specific details, including the number of units being traded, delivery and settlement dates, and minimum price increments that cannot be customized. The exchange acts as a counterpart to the trader, providing clearance and settlement.

Both types of contracts are binding and are typically settled for cash at the exchange in question upon expiry, although contracts can also be bought and sold before they expire. The forwards and futures markets can offer protection against risk when trading currencies. Usually, big international corporations use these markets in order to hedge against future exchange rate fluctuations, but speculators take part in these markets as well.

Note that you’ll often see the terms: FX, forex, foreign-exchange market, and currency market. These terms are synonymous and all refer to the forex market.

Forex for Hedging

Companies doing business in foreign countries are at risk due to fluctuations in currency values when they buy or sell goods and services outside of their domestic market. Foreign exchange markets provide a way to hedge currency risk by fixing a rate at which the transaction will be completed.

To accomplish this, a trader can buy or sell currencies in the forward or swap markets in advance, which locks in an exchange rate. For example, imagine that a company plans to sell U.S.-made blenders in Europe when the exchange rate between the euro and the dollar (EUR/USD) is €1 to $1 at parity.

The blender costs $100 to manufacture, and the U.S. firm plans to sell it for €150—which is competitive with other blenders that were made in Europe. If this plan is successful, the company will make $50 in profit because the EUR/USD exchange rate is even. Unfortunately, the USD begins to rise in value versus the euro until the EUR/USD exchange rate is 0.80, which means it now costs $0.80 to buy €1.00.

The problem the company faces is that while it still costs $100 to make the blender, the company can only sell the product at the competitive price of €150, which when translated back into dollars is only $120 (€150 X 0.80 = $120). A stronger dollar resulted in a much smaller profit than expected.

The blender company could have reduced this risk by shorting the euro and buying the USD when they were at parity. That way, if the dollar rose in value, the profits from the trade would offset the reduced profit from the sale of blenders. If the USD fell in value, the more favorable exchange rate will increase the profit from the sale of blenders, which offsets the losses in the trade.

Hedging of this kind can be done in the currency futures market. The advantage for the trader is that futures contracts are standardized and cleared by a central authority. However, currency futures may be less liquid than the forward markets, which are decentralized and exist within the interbank system throughout the world.

Forex for Speculation

Factors like interest rates, trade flows, tourism, economic strength, and geopolitical risk affect supply and demand for currencies, which creates daily volatility in the forex markets. An opportunity exists to profit from changes that may increase or reduce one currency’s value compared to another. A forecast that one currency will weaken is essentially the same as assuming that the other currency in the pair will strengthen because currencies are traded as pairs.

Imagine a trader who expects interest rates to rise in the U.S. compared to Australia while the exchange rate between the two currencies (AUD/USD) is 0.71 (it takes $0.71 USD to buy $1.00 AUD). The trader believes higher interest rates in the U.S. will increase demand for USD, and therefore the AUD/USD exchange rate will fall because it will require fewer, stronger USD to buy an AUD.

Assume that the trader is correct and interest rates rise, which decreases the AUD/USD exchange rate to 0.50. This means that it requires $0.50 USD to buy $1.00 AUD. If the investor had shorted the AUD and went long the USD, he or she would have profited from the change in value.

Currency as an Asset Class

There are two distinct features to currencies as an asset class:

  • You can earn the interest rate differential between two currencies.
  • You can profit from changes in the exchange rate.

An investor can profit from the difference between two interest rates in two different economies by buying the currency with the higher interest rate and shorting the currency with the lower interest rate. Prior to the 2008 financial crisis, it was very common to short the Japanese yen (JPY) and buy British pounds (GBP) because the interest rate differential was very large. This strategy is sometimes referred to as a “carry trade.”

Why We Can Trade Currencies

Currency trading was very difficult for individual investors prior to the internet. Most currency traders were large multinational corporations, hedge funds or high-net-worth individuals because forex trading required a lot of capital. With help from the internet, a retail market aimed at individual traders has emerged, providing easy access to the foreign exchange markets, either through the banks themselves or brokers making a secondary market. Most online brokers or dealers offer very high leverage to individual traders who can control a large trade with a small account balance.

Forex Trading: A Beginner’s Guide

Forex Trading Risks

Trading currencies can be risky and complex. The interbank market has varying degrees of regulation, and forex instruments are not standardized. In some parts of the world, forex trading is almost completely unregulated.

The interbank market is made up of banks trading with each other around the world. The banks themselves have to determine and accept sovereign risk and credit risk, and they have established internal processes to keep themselves as safe as possible. Regulations like this are industry-imposed for the protection of each participating bank.

Since the market is made by each of the participating banks providing offers and bids for a particular currency, the market pricing mechanism is based on supply and demand. Because there are such large trade flows within the system, it is difficult for rogue traders to influence the price of a currency. This system helps create transparency in the market for investors with access to interbank dealing.

Most small retail traders trade with relatively small and semi-unregulated forex brokers/dealers, which can (and sometimes do) re-quote prices and even trade against their own customers. Depending on where the dealer exists, there may be some government and industry regulation, but those safeguards are inconsistent around the globe.

Most retail investors should spend time investigating a forex dealer to find out whether it is regulated in the U.S. or the U.K. (dealers in the U.S. and U.K. have more oversight) or in a country with lax rules and oversight. It is also a good idea to find out what kind of account protections are available in case of a market crisis, or if a dealer becomes insolvent.

Pros and Challenges of Trading Forex

Pro: The forex markets are the largest in terms of daily trading volume in the world and therefore offer the most liquidity.   This makes it easy to enter and exit a position in any of the major currencies within a fraction of a second for a small spread in most market conditions.

Challenge: Banks, brokers, and dealers in the forex markets allow a high amount of leverage, which means that traders can control large positions with relatively little money of their own. Leverage in the range of 100:1 is a high ratio but not uncommon in forex. A trader must understand the use of leverage and the risks that leverage introduces in an account. Extreme amounts of leverage have led to many dealers becoming insolvent unexpectedly.

Pro: The forex market is traded 24 hours a day, five days a week—starting each day in Australia and ending in New York. The major centers are Sydney, Hong Kong, Singapore, Tokyo, Frankfurt, Paris, London, and New York.

Challenge: Trading currencies productively requires an understanding of economic fundamentals and indicators. A currency trader needs to have a big-picture understanding of the economies of the various countries and their inter-connectedness to grasp the fundamentals that drive currency values.

The Bottom Line

For traders—especially those with limited funds—day trading or swing trading in small amounts is easier in the forex market than other markets. For those with longer-term horizons and larger funds, long-term fundamentals-based trading or a carry trade can be profitable. A focus on understanding the macroeconomic fundamentals driving currency values and experience with technical analysis may help new forex traders to become more profitable.

Forex Trading for Beginners – 2020 Manual

Reading time: 20 minutes

Forex trading for beginners can be difficult. In general, this is due to unrealistic but common expectations among newcomers to this market. The first question that comes to everyone’s mind is: how to learn Forex from scratch? Don’t worry, this article is our definitive Forex manual for beginners.

Trading terminology made easy for beginners

Spot Forex

This form of Forex trading involves buying and selling the real currency. For example, you can buy a certain amount of pound sterling and exchange it for euros, and then once the value of the pound increases, you can exchange your euros for pounds again, receiving more money compared to what you originally spent on the purchase.

The term CFD stands for “Contract for Difference”. It is a contract used to represent the movement in the prices of financial instruments. In Forex terms, this means that instead of buying and selling large amounts of currency, you can take advantage of price movements without having to own the asset itself. Along with Forex, CFDs are also available in stocks, indices, bonds, commodities, and cryptocurrencies. In all cases, they allow you to trade in the price movements of these instruments without having to buy them.

If you are interested in knowing how CFDs work in greater detail, we recommend the following article: What is CFD Trading?

A pip is the base unit in the price of the currency pair or 0.0001 of the quoted price, in non-JPY currency pairs. So, when the bid price for the EUR / USD pair goes from 1.16667 to 1.16677, that represents a difference of 1 pip.

Spread

The spread is the difference between the purchase price and the sale price of a currency pair. For the most popular currency pairs, the spread is often low, sometimes even less than a pip! For pairs that don’t trade as often, the spread tends to be much higher. Before a Forex trade becomes profitable, the value of the currency pair must exceed the spread.

Margin

Margin is the money that is retained in the trading account when opening a trade. However, because the average “Retail Forex Trader” lacks the necessary margin to trade at a volume high enough to make a good profit, many Forex brokers offer their clients access to leverage.

Leverage

This concept is a must for beginner Forex traders. The leverage is the capital provided by a Forex broker to increase the volume of trades its customers can make.

  • The face value of a contract or lot equals 100,000 units of the base currency. In the case of EUR/USD, it would be 100,000 euros.
  • If you use a 1:10 leverage rate and have 1,000 euros in your trading account, you can trade a currency pair with a $10,000 position size.
  • If the trade is successful, leverage will maximise your profits by a factor of 10. However, keep in mind that leverage also multiplies your losses to the same degree.

Therefore, leverage should be used with caution. If your account balance falls below zero euros, you can request the negative balance policy offered by your broker. ESMA regulated brokers offer this protection. Using this protection will mean that your balance cannot move below zero euros, so you will not be indebted to the broker.

Forex trading lessons for beginners

Price and Quote

When you trade Forex, you will see Ask and Bid prices.

  • The ask price is the price at which you can buy the currency
  • The bid price is the price at which you can sell it

One of the things you should keep in mind when you want to learn Forex from scratch is that you can trade both long and short, but you have to be aware of the risks involved in dealing with a complex product.

Long trade

Buying a currency with the expectation that its value will increase and make a profit on the difference between the purchase and sale price.

Disclaimer: Charts for financial instruments in this article are for illustrative purposes and does not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.

Short trade

You sell a currency with the expectation that its value will decrease and you can buy back at a lower value, benefiting from the difference.

Disclaimer: Charts for financial instruments in this article are for illustrative purposes and does not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.

The price at which the currency pair trades is based on the current exchange rate of the currencies in the pair, or the amount of the second currency that you would get in exchange for a unit of the first currency (for example, if you could exchange 1 EUR for 1.68 USD, the purchase and sale price your broker gives will be on either side of this number).

If the way brokers make profit is by collecting the difference between the buy and sell prices of the currency pairs (the spread), the next logical question is: How much can a particular currency be expected to move? This depends on what the liquidity of the currency is like or how much is bought and sold at the same time. The most liquid currency pairs are those with the highest supply and demand in the Forex market. It is the banks, companies, importers, exporters and traders that generate this supply and demand.

The major currency pairs tend to be the most liquid, with the EUR / USD currency pair moving 90-120 pips on an average day and therefore providing the most opportunities for short-term trading. In contrast, the AUD / NZD pair moves between 50 and 60 pips per day, and the USD / HKD currency pair only moves at an average of 32 pips per day (looking at the value of the currency pairs, most will appear with five decimal points).

The main Forex pairs tend to be the most liquid. However, there are also many opportunities between minor and exotic currencies, especially if you have some specialised knowledge about a certain currency.

Chart types

When viewing the exchange rate in live Forex charts, there are three different options available to traders using the MetaTrader platform: line charts, bar charts or candlestick charts. When in the MetaTrader platform you can toggle between these different chart types by selecting View -> Toolbars -> Standard option. In the toolbar at the top of your screen, you will now be able to see the box below:

Line charts

Disclaimer: Charts for financial instruments in this article are for illustrative purposes and does not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.

A line chart connects the closing prices of the time frame you are viewing. So, when viewing a daily chart the line connects the closing price of each trading day. This is the most basic type of chart used by traders. It is mainly used to identify bigger picture trends but does not offer much else unlike some of the other chart types.

OHLC bar charts

Disclaimer: Charts for financial instruments in this article are for illustrative purposes and does not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.

An OHLC bar chart shows a bar for each time period the trader is viewing. So, when looking at a daily chart, each vertical bar represents one day’s worth of trading. The bar chart is unique as it offers much more than the line chart such as the open, high, low and close (OHLC) values of the bar.

The dash on the left represents the opening price and the dash on the right represents the closing price. The high of the bar is the highest price the market traded during the time period selected. The low of the bar is the lowest price the market traded during the time period selected.

  • The green bars are known as buyer bars as the closing price is above the opening price.
  • The red bars are known as seller bars as the closing price is below the opening price.

In either case, the OHLC bar charts help traders identify who is in control of the market – buyers or sellers. These bars form the basis of the next chart type called candlestick charts which is the most popular type of Forex charting.

Candlestick charts

Disclaimer: Charts for financial instruments in this article are for illustrative purposes and does not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.

Candlestick charts were first used by Japanese rice traders in the 18th century. They are similar to OHLC bars in the fact they also give the open, high, low and close values of a specific time period. However, candlestick charts have a box between the open and close price values. This is also known as the ‘body’ of the candlestick.

Many traders find candlestick charts the most visually appealing when viewing live Forex charts. They are also very popular as they provide a variety of price action patterns used by traders all over the world.

Nothing will prepare you better than demo trading – a risk-free mode of real-time trading to get a better feel for the market. It is highly recommended that you dive into demo trading first and only then enter live trading. The results will speak for themselves.

Best trading systems

Now that you know how to start trading in Forex, the next step is to choose the best Forex trading system for beginners. Fortunately, banks, corporations, investors, and speculators have been trading in the markets for decades, meaning that there are already a wide range of types of Forex trading strategies to choose from. These include:

  • Currency Scalping: Scalping is a type of trading that consists of buying and selling currency pairs in very short periods of time, generally between a few seconds and a few hours. This is a very practical strategy that involves making a large number of small profits in the hope those profits accumulate.
  • Intraday Trades: Forex intraday trading is a more conservative approach that can suit beginners. It is focused on four-hour or one-hour price trends. Trades can be open between one and four hours. In general, they focus on the main sessions for each Forex market.
  • Swing Trading: Swing trading is a medium-term trading approach that focuses on larger price movements than scalping or intraday trading. This means that traders can keep a trade open for days or a few weeks. This type of trading is a good option for those who trade as a complement to their daily work.

To compare all of these strategies we suggest to read our article “A Comparison Scalping vs Day trading vs Swing trading”

Trading platform for beginners

In addition to choosing a broker, you should also study the currency trading software and platforms they offer. The trading platform is the central element of your trading and your main work tool. When evaluating a trading platform, and even more so if you are a beginner in Forex, make sure that it includes the following elements:

Do you trust your trading platform to offer you the results you expect? Being able to trust the accuracy of the quoted prices, the speed of data transfer and the fast execution of orders is essential to be able to trade Forex successfully. Even more so, if you plan to use very short-term strategies, such as scalping.

The information must be available in real-time and the platform must be available at all times when the Forex market is open. This ensures that you can take advantage of any opportunity that presents itself.

Will your funds and personal information be protected? A reputable Forex broker and a good Forex trading platform will take steps to ensure the security of your information, along with the ability to back up all key account information.

It will also segregate your funds from its own funds. If a broker cannot demonstrate the steps they will take to protect your account balance, it is better to find another broker.

Independent account management

Any Forex trading platform should allow you to manage your trades and your account independently, without having to ask your broker to take action on your behalf. This ensures that you can act as soon as the market moves, capitalise on opportunities as they arise and control any open position.

Does the platform provide embedded analysis, or does it offer the tools for independent fundamental or technical analysis? Many Forex traders trade using technical indicators, and can trade much more effectively if they can access this information within the trading platform, rather than having to leave the platform to find it. This should include charts that are updated in real-time and access to up-to-date market data and news.

A screenshot of the MetaTrader Supreme Edition provided by Admiral Markets.

Disclaimer: Charts for financial instruments in this article are for illustrative purposes and does not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.

Automated trading functionality

One of the benefits of Forex trading is the ability to open a position and set an automatic stop loss and profit levels, at which the trade will be closed. The most sophisticated platforms should have the functionality to carry out trading strategies on your behalf, once you have defined the parameters for these strategies.

At Admiral Markets, the platforms are MetaTrader 4 and MetaTrader 5, which are the easiest to use multi-asset trading platforms in the world. Both platforms can be accessed through a variety of devices including PC, Mac, iOS and Android devices, as well as, web browsers through the MetaTrader WebTrader platform for MT4 and MT5.

These are fast, responsive platforms that provide real-time market data. Furthermore, these platforms offer automated trading options and advanced charting capabilities and are highly secure, which helps novice Forex traders.

MetaTrader 5 is the latest version and has a range of additional features, including:

  • Access to thousands of financial markets
  • A Mini Terminal that offers complete control of your account with a single click
  • 38 built-in trading indicators
  • The ability to download tick history for a range of instruments
  • Actual volume trading data
  • Free-market data, news and market education

Risks every beginner should know

There are different types of risks that you should be aware of as a Forex trader. Here are some of them.

  • Leverage Risk: Leverage in trading can have both a positive or negative impact on your trading. The higher your leverage, the larger your benefits or losses.
  • Interest Rate Risk: The moment that a country’s interest rate rises, the currency could strengthen. The boost in strength can be attributed to an influx of investments in that country’s money markets since with a stronger currency,higher returns could be likely. But if the interest rate falls, the currency may weaken, which may result in more investors withdrawing their investments.
  • Transaction Risk: This risk is an exchange rate risk that can be associated with the time differences between the different countries. It can take place sometime between the beginning and end of a contract. There is a chance that during the 24-hours, exchange rates will change even before settling a trade. The transaction risk increases the greater the time difference between entering and settling a contract.

Three simple Forex trading strategies

Below is an explanation of three Forex trading strategies for beginners:

Breakout

This long-term strategy uses breaks as trading signals. Markets sometimes swing between support and resistance bands. This is known as consolidation. A breakout is when the market moves beyond the limits of its consolidation, to new highs or lows. When a new trend occurs, a breakout must occur first. Therefore, breaks are considered as possible signs that a new trend has started. But the problem is that not all breakouts result in new trends. Using a stop loss can prevent you from losing money.

Disclaimer: Charts for financial instruments in this article are for illustrative purposes and does not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.

Moving average cross

Another Forex strategy uses the simple moving average (SMA). Moving averages are a lagging indicator that use more historical price data than most strategies and moves more slowly than the current market price.

Disclaimer: Charts for financial instruments in this article are for illustrative purposes and does not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.

In the graph above, the 25-day moving average is the orange line. As you can see, this line follows the actual price very closely. The 200-day moving average is the green line.

When the short-term moving average moves above the long-term moving average, it means that the most recent prices are higher than the oldest prices. This suggests an upward trend and could be a buy signal. Conversely, when the short-term moving average moves below the long-term moving average, it suggests a downward trend and could be a sell signal.

Rather than being used solely to generate Forex trading signals, moving averages are often used as confirmations of the overall trend. This means that we can combine these two strategies by using the trend confirmation from a moving average to make breakout signals more effective. With this combined strategy, we discard breakout signals that do not match the general trend indicated by the moving averages.

For example, if we receive a buy signal for a breakout and see that the short-term moving average is above the long-term moving average, we could place a buy order. If not, then it may be best to wait.

Donchian channels

The Donchian Channels were invented by Richard Donchian. The parameters of the Donchian Channels can be modified as you see fit, but for this example we will look at the 20-day breakdown. The indicator is formed by taking the highest high and the lowest low of a user defined period (in this case 20-periods).

A break in the Donchian channel provides one of two things:

  1. Buy if the market price exceeds the highest high of the last 20 periods.
  2. Sell if the market price exceeds the lowest low of the last 20 periods.

Disclaimer: Charts for financial instruments in this article are for illustrative purposes and does not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.

That’s not all! There is another tip for trade when the market situation is more favourable to the system. This tip is designed to filter out breakouts that go against the long-term trend.

Look at the moving average of the last 25 and the last 300 days. The direction of the shorter-term moving average determines the direction that is allowed. Therefore, you may want to consider opening a position:

  • Short: If the 25-day moving average is less than the last 300-day moving average.
  • Long: If the 25-day moving average is greater than the 300-day moving average.

The exit from these positions is similar to the entry but using a break from the last 10 days. This means that if you open a long position and the market moves below the 10-day minimum, you will want to sell to exit your position and vice versa.

Trading With Admiral Markets

If you’re ready to trade on live markets, a live trading account might be suitable for you. Admiral Markets offers traders the ability to trade with 80+ currencies, with access to a range of Forex majors, Forex minors, and exotic currency pairs. To open your live account, click the banner below!

About Admiral Markets

Admiral Markets is a multi-award winning, globally regulated Forex and CFD broker, offering trading on over 8,000 financial instruments via the world’s most popular trading platforms: MetaTrader 4 and MetaTrader 5. Start trading today!

This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisers to ensure you understand the risks.

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