There are basically two approaches to operate the forex market: fundamental analysis or technical analysis

Technical Analysis: studying the behavior of prices and indicators to try to predict future price behavior.

Fundamental Analysis: Study the underlying economic, social and political move supply and demand for instruments.

What is the best approach?

There has always been a strong debate which approach is better, sometimes technical analysts predict the price behavior accurately but some fundamental analysts have better performance. The truth is that no single answer to this question. I dare say that the answer has to do much with each operator, many feel better off operating based on technical analysis while others are more comfortable doing transactions based on fundamental analysis.

If you are a short term trader, then surely prefer the technical approach, because this approach focuses on the analysis of short-term price. While fundamental changes are taking longer to be reflected in the graphs.

If you are a long term trader, then probably the fundamental approach is more suitable for your needs because changes in supply and demand take longer to balance.

Today, many operators use two approaches to get a better view of all changes in the instruments operated.

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Section II: What Moves the Forex Market?
The currency movements, like any other financial market, are driven by two main forces: supply and demand.

Consider again our example of used cars in a small town. At first only going to be a few sellers. When the population grows, more and more people need cars vain to meet their needs, pushing up demand for cars. At this point the demand for cars is larger than the number of cars offered, pushing up prices. At this point people will realize it is a good business selling used cars inserting the market to sell cars. At this point more and more cars will be available for sale, supply pushing up car. At some point, the supply of cars will be larger than the demand for cars, car dealers if not lower their prices, they will not be able to sell all your inventory, thus lowering prices.

The same applies to foreign exchange, when a currency rises in value, demand is still greater than supply. When the dollar declines in value, the offer is still larger than its demand.

What factors influence supply and demand for the currency?

The two most important factors influencing the price of a currency are:

1. Capital Flows

2. Trade flow

These two components constitute what we call as balance of payments. The main purpose of the BOP is to quantify the demand and supply of a currency of a country in a given period.

Balance of payments Capital Flows + = trade flow

A negative balance of payments indicates that the capital leaving the country is greater than the capital entering the country (the demand is small).

A positive balance of payments means that capital entering the economy is greater than the capital this coming (increased domestic demand for currency).

Theoretically, a balance of payments equal to zero represents the “true” value of a currency.

Capital Flow

The flow of capital is the net amount of money (buying and selling) through equity investments.

The flow of capital may be divided into: physical flow and investment flow

Physical flow. This flow happens when foreign entities sell their local currency and buy foreign currency for foreign direct investment (to make acquisitions, etc.). When the value of such investments increases reflects a positive state of the economy where capital is invested.

Investment flow. These are investments in global markets, fixed income and variable (Forex, stocks, government notes, etc.).

Commercial Flow

The commercial flow measuring exports and net imports of a country. These two components constitute what we call Current Account.

Countries that have a positive current account (exports greater than imports) is more prone to devalue its currency. In this way consumers perceive lowest foreign currency to purchase goods or services to foreigners (can buy more goods and services). A good example of this is Japan.

Countries that have a negative current account (imports greater than exports) are more likely to appreciate its currency because they need to sell more expensive local currency to buy foreign goods and services at lower cost. An example of this case is the United States.

Purchasing Power Parity (PPP – Purchasing Power Parity)

This theory explains that changes in exchange rates are determined by the relative prices of a basket of similar goods across countries. In other words, the price ratio of lasa baskets with similar assets should be equal or similar to the exchange rate.

For example, if a computer in Australia costs AU $ 1,500 and the same computer in the United States costs $ 1,200, according to the PPP, the exchange rate AUD / USD would be 1.2500 (1.500 / 1.200 = 1.2500).

If the exchange rate AUD / USD was 1.3000 (or above 1.2500, according to this theory the value of the exchange rate must depreciate up to 1.2500. On the other hand, if the exchange rate was 1.0500, this would tend to appreciate up to 1.2500.

These examples are illustrative, in the real world applies to a basket of goods and not just a good.

The biggest weakness of this theory is that it assumes no transaction costs related to trade in these goods (taxes, fees, etc.). Other disadvantage is that they do not consider other factors that may influence the exchange rate (as the interest rate).

The modern monetary theories of capital market including the theory of PPP thinking that these transactions are less transaction costs.

Theory of Interest Rate

This theory states that the differentials in interest rates undermine the positive and negative changes from one currency against another, so that there can be no arbitration (opportunities without risk).

For example, if the interest rate in Australia is 5.5% and the interest rate the U.S. is 3.5% then the AUD should be appreciated that in this way has no arbitrage opportunities.

There are other theories that attempt to explain the value of a currency pair. But like all theories, are based on assumptions that may or may not in real life.

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Section III: Fundamental by Country
In this section we give a small glimpse into the economy of each country’s large foreign exchange as well as its most important basic study for each of them.

Note however, this list may not reflect what happens in the real world, we base our analysis on probabilities, and as in all probability, is likely to break down. This analysis is informational only.

European Economic and Monetary Union (EMU) – EUR

Quick Facts Eurozone Economy

– The EMU consists of 16 member countries: Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Slovenia, Spain, Sweden, Norway and the UK. Although the United Kingdom, Sweden and Norway have entered the last facet of the EMU which adopted the euro as its currency, continue to use their own currency.

– The euro zone is called the group of countries that have adopted the euro as their currency.

The Eurozone GDP and so

[Table 1]
Source: International Monetary Fund (2006)

– According to the International Monetary Fund, if the European Union (EU) were a country, would be the only country with a GDP above U.S. with 14.5 trillion USD.

– Apart from the common currency, the Euro Area share a common monetary policy dictated by the European Central Bank (ECB). The ECB was established under strict rules for each of the members, and its main rules are:

– Price stability

– Low Inflation (1.5% below the average of the three best numbers of members)

– Gaps under

– Growth

– The importance of EUR has increased significantly as more countries in the world change their reserves from USD to EUR

Leading Economic Indicators for the EMU

Here is a list of important economic indicators that tend to have a high impact on the forex market.

Notice of Interest Rate

The interest rate is a measure of the cost of money. The European Central Bank interest rate used as a tool to meet their most important objectives: inflation, growth and price stability.

When the ECB lowers interest rates, the euro tends to depreciate against other currencies because lower yields (eg, investors sell their euros to buy other currencies with higher yields, thus increasing the supply, this causes low price EUR).

When the ECB raises interest rates, the euro tends to appreciate against other currencies since it generates higher yields (eg investors sell their local currency to buy euros, this increases the demand for Euros and finally makes its price).

NOTE: As we know, the Euro Area consists of several countries, and each has its own data on GDP, inflation, etc.. While it is important to have an idea of the overall performance of the EU, for the following indicators, it is more important to monitor the performance of 3 or 4 most important countries in the EU (refer to the table of GDP above).

Gross Domestic Product (GDP or by its initials in English GDP) of Germany and the U.S.

EU’s GDP is the value of products and services produced within the territorial limits of the EU. A good GDP reflects a healthy economy.

A number of GDP indicates that the economy is growing and the euro tend to appreciate against other currencies.

A bad GDP number indicates that the economy is declining and the euro tends to lose value against other currencies.

Fuel for Thought 1 – What is a good or bad a number of fundamental announcement? In the GDP we saw (as we do with other indicators): a good number tends to appreciate the value of the Euro, What does “good”? A value above zero? Or maybe, a number above 50? Analyze it and try to reach a conclusion, once you think you have the answer refer to the section of the summary.

Harmonized Consumer Price Index (Consumer Price Index Harmonic)

The HCPI is what the U.S. used as a measure of inflation and price stability. As we explained above, the ECB has certain rules for its members, and this is one of the most important, a country can not deviate from 1.5% of the average of the countries best assessed.

Usually for the EU:

With a low of HCPI, the euro tends to gain value against other currencies.

With a high number of HCPI, the euro tends to lose value against other currencies.

Data from German and U.S. Unemployment

The unemployment data is always one of the best indicators of the health of an economy in any country. When the numbers are good usually reflect good health.

Usually for the EU:

A good number tends to appreciate the Euro against other currencies.

A wrong number tends to depreciate the euro against other currencies.

Trade Balance

The Eurozone trade balance measures the amount of services and products purchased (imports) against those sold to other countries (exports). The eurozone’s trade balance is divided into two components: Intra-and extra-Eurozone Eurozone, Intra-Eurozone regards trade with EU member countries and the Extra-eurozone trade concerns with the rest of the world. Usually the Extra-eurozone have much impact on the currency market.

A number of trade balance, usually tends to appreciate the value of the Euro

A bad trade balance numbers, usually tends to depreciate the value of the Euro.

Most investors focus on the trade balance of Germany, as this is the main economy of the Eurozone.

Industrial production in Germany and the U.S.

The Eurozone industrial production measures the total output of manufacturing industry and the energy sector. Many times this indicator is used as a proxy for GDP of any country.

Usually:

With a number the Euro will gain value against other pairs

With a bad number the Euro is going to lose value against other pairs.

Most traders and investors focus on the data from Germany for being the main economy of the EU.

ANOTHER NOTE: For the following indicators, it is good focus on the performance of Germany.

IFO Business Climate Survey (Germany)

The IFO survey is one of the most important sentiment indicators for the Eurozone. This survey asks 7,000 firms in Germany: what are the conditions they perceive in the present and future business conditions. It is an index where the level 100 is the center line between good fats conditions (above 100) and poor (below 100).

Usually:

A good number (better than expected) tends to appreciate the value of the Euro against other currencies.

A bad number (worse than expected) tends to depreciate the value of the Euro against other pairs.

ZEW Survey (Germany)

This is a survey of experts from across Europe about his vision of Germany’s most important indicators: Inflation, growth, stock market, cambo rates for a period of 6 months. Also ask for their views on current macroeconomic conditions.

A bad number, makes the EUR lose value against other pairs

A good number, makes the wins EUR value against other pairs.

What is the difference between IFO and ZEW surveys?

The IFO survey is applied to business owners and businesses while the ZEW is applied to experts in the field.

Bonus 10 Years of Germany

Long-term roles (government) are always a good indicator of future expectations of any country. In fact, if you make an inquiry, you will see that very few developing countries have papers of 10 years (because very few investors willing to invest at the level of uncertainty).

In this case, the bond of 10 years is a very good indicator of the expectations of the Euro, as compared to the 10-year bond U.S.:

If the German bond rate is higher, and the differential increases: it represents a bullish sentiment EUR

If the German bond rate is higher, and the differential decreases: it represents a bearish sentiment of EUR

United States – USD

Quick Facts U.S. Economy

– Currently U.S. is the world’s largest economy with a nominal GDP of 13.25 trillion USD, 3 times larger than its nearest competitor.

– U.S. has a very large deficit (ie they are the most important trading partner for most countries).

– According to the BIS, the USD is involved in the 89% of currency transactions.

– The Federal Reserve (or EDF, U.S. central bank) has two main objectives:

– Price stability

– Steady growth

– The USD is perceived as one of the strongest currencies and reliable in the world, as a result many countries (mostly developing) fixed their currencies to the USD.

U.S. Leading Economic Indicators for

Non-Farm Payrolls – NFP (Unemployment U.S.)

The NFP is probably in the top 3 of the indicators that move the market more.

The NFP shows the number of jobs created in the economy in a given month (jobs outside the government sector and agriculture). It is one of the best indicators of market forces work, and as we know, the job market is always followed as an important diagnostic of the overall economy.

A strong number indicates a strong economy therefore expect an appreciation of the USD.

A low number indicates a weak economy, so expect a depreciation of USD.

This report is published the first Friday of each month.

Interest Rate

As already mentioned, interest rates are a measure of the cost of money. Central banks use interest rates as a tool to meet their objectives.

An increase in U.S. interest rates typically increase the demand for USD, investors sell their local currency to buy USD to take advantage of improved performance by increasing its demand and hence the value of the USD.

A cut in U.S. interest rates typically drop in demand for USD, investors will sell USD to exchange for other currencies to generate better returns, it increases the supply of USD, decreasing its value.

When there is no change in interest rates can be interpreted as both feeling bullish or bearish depending on circumstances. No change after a period where it went down continuously, is perceived as a bass player and after a period of gains, as bullish sentiment.

This report is announced 8 times a year.

Trade Balance

This indicator measures exports and net imports of U.S. goods and services. This is the trade flow component of the balance of payments, which measures the demand for and supply of a country (as explained above).

It is important to note that U.S. has a negative trade balance with almost all the countries.

In a good number, the U.S. dollar tends to appreciate

In a bad number, the U.S. dollar tends to depreciate

This report is published every two months (mid-month).

Consumer Price Index (CPI)

This index measures changes in the price of a basket of basic goods, products and services (inflation). The aim of this indicator is to measure price changes, leaving out the changes in the quality of goods and services.

If the CPI rises, the purchasing power of a currency low, having a negative impact to the USD

If the CPI decreases, the purchasing power of money rises, making a positive difference to the USD.

This report appears commonly in the second week of each month.

Another related indicator, the Core CPI, which measures the same, but excludes food and energy related products, the more volatile components of the CPI. Thus, it has more stability in the measurement of price changes.

Thinking 3 – Is there a number of inflation for all countries?

Consumer Confidence Index

The CCI is a survey of 5,000 consumers, about how they perceive the conditions of the economy, business climate and what they expect in the future. Shows how confident are consumers in a given month.

A number of CCI indicates a good economy, positively affecting the USD.

A bad number of CCI indicates a bad economy, negatively affecting the USD.

This report is published near the end of each month.

Retail Sales

Retail sales are an indicator of consumer spending. It measures sales of retail stores (including durable and nondurable goods), but excludes services (the major disadvantage of this indicator).

A good number indicates favorable economic conditions, so the USD tends to gain value.

A bad number indicates unfavorable economic conditions, therefore the USD tends to lose value.

This report appears in the middle of each month.

Gross Domestic Product (GDP)

Measure the amount of goods and services (total production) produced within the U.S. territorial limits. The GDP includes consumption, private investment, government spending and exports minus imports.

The most important component of this announcement is the changes (in GDP) of the current issue of the month, against the same month last year.

A good number indicates a strong economy and the U.S. dollar tends to appreciate against other currencies.

A bad number indicates a weak economy and the U.S. dollar tends to depreciate against other currencies.

ISM Manufacturing Index

The ISM is another survey of business executives and ask them about their vision for future business conditions. This indicator is important because it is the first indicator that changes after a period of recession or continued growth.

The range of values of the ISM is 50, where values above 50 signify an “expansion” and values below 50 mean “contraction” or negative expectations for the near future.

FOMC Minutes (EDF)

The minutes of the FOMC (Federal Open Market Committee) give reasons on the monetary policy decision (three weeks after the decision taken).

Investors usually focus on the key elements of how the Federal Reserve sees economic conditions and their expectations of future general reviews of other issues such as markets, inflation, etc..

Market reaction to the minutes of the EDF varies, since information is already discounted, but when they give evidence of a vision not so clear market and that there may be changes in interest rates can have a major impact on the market .

Japan – JPY

Quick Facts Japan’s economy

– Japan is the second largest economy in the world with a nominal DGP 4.4 trillion USD.

– Japan is one of the largest exporting countries in the world. A large percentage of GDP is attributed to exports (around 15%).

– The Bank of Japan (BOJ) is responsible for managing Japanese monetary policy. The BOJ is an active participant in the foreign exchange market. It is well known that when the USD / JPY is approaching the values of 100.00, the BOJ tends to intervene to defend the value and push the market up. Significantly, Japan is a net exporter, so they should have a coin “cheap” to foreign buyers perceive a relative abaratmiento their products and services.

– Although the finance minister of Japan does not dictate monetary policy further, even have some influence on the exchange rate.

Leading Economic Indicators for Japan

Interest Rate

The Bank of Japan is responsible for monetary policy in Japan. Currently, the seven major currencies, Japan is the country with the lowest interest rate. The BOJ board once a month to announce possible changes in monetary policy and vision of the economy.

An increase in interest rate tends to appreciate the JPY

A decrease in interest rate tends to depreciate the JPY

Gross Domestic Product (GDP)

The GDP is the sum of all goods and services produced in Japan.

A number often means that the JPY gain value

A bad number often means that the JPY will lose value

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Tankan Survey

Like other surveys of sentiment, the Tankan survey is applied to companies and ask them how they see economic conditions (including business conditions).

This report is very important for foreign investors, and for BJ because it gives a picture of current economic conditions and the future. This helps investors to make investment decisions and determine the BOJ monetary policy.

A positive number means a good view of the economy (good for the JPY), while a negative number indicates poor vision.

A better than expected number usually helps the JPY

Fewer than expected usually hurts the JPY.

Trade Balance (including freight)

The trade balance measures the difference between exports and imports. As we know, Japan is a net exporter, then the higher the number, the better for its economy.

A positive number indicates a surplus, while a negative number indicates a deficit.

A better than expected number often means that the JPY gain value

A worse than expected number often means that the JPY will lose value

When we speak of goods (heading indicator), we refer to a similar indicator but only takes into account tangible as well as those of the automotive and electronics (two of the most important industries in Japan).

Employment Status in Japan

This report is an analysis of current conditions and future employment sector in Japan. As always, labor is always a very good indicator of overall performance of the economy.

The report of the employment situation in Japan unusually incorporates other data such as consumption, increase or reduction of wages, inflation, and others.

With a number, the JPY tends to gain value.

With a bad number, the JPY tends to lose value.

Minutes of the BOJ Policy

This report is usually published one month after the announcement of monetary policy. Clearly explains why increased, decreased or left unchanged the interest rates.

Traders and investors focus on key elements that can give them information about future monetary policy decisions and their vision of the current situation and future markets.

United Kingdom – GBP

Quick Facts UK Economy

– The United Kingdom (UK) is the 5th in the world economy with a nominal GDP of 2.3 trillion.

– Like other developed countries in the world, UK is a country oriented towards the service economy (mostly financial services: insurance, banking, etc.).

– UK has a close relationship with the eurozone, since exports and imports between them are about 50% of total UK trade balance.

– The Bank of England (BoE) is responsible for monetary policy in UK. The main objective is to maintain price stability (inflation at a comfortable level).

– There has been a controversial debate about whether UK should join the eurozone (the countries that adopt the EUR as currency). Arguments against: the current policies have done well in the new global economy, will not have full control of monetary policy if they join, arguments against: The power of the ECB would increase dramatically.

– The Pound Sterling (GBP) is among the most liquid currencies in the world. Given its high interest rate, traders and investors are much interested in this coin in operations of “carry trade” (to earn interest), even when other currencies with higher interest rates.

Important Economic Indicators UK

Interest Rate

The BoE has meetings every month to announce its decision on interest rates. Currently, the GBP is the best option to “carry trades” (though there are other pairs with higher interest rate), this liquidity. The two most commonly used for this is the GBP / JPY. For this reason, operators and investors pay close attention to this announcement.

In an increase in interest rates, the GBP is commonly seen.

In a decrease in interest rates, the GBP is usually depreciate.

When there is no change in interest rate can be as bullish or bearish sentiment depending on the circumstances.

Gross Domestic Product (GDP)

The GDP shows the overall growth of the UK economy.

In a good number, £ tends to gain value.

On a bad number, £ tends to lose value.

Trade Balance

The trade balance measures the difference between exports and imports of the UK. The UK’s main trading partner the eurozone, but by country, U.S. is still the leading partner.

In a number of GBP tends to move upward.

In the GBP wrong number tends to move downward.

Another important announcement is related Non-EU Trade Balance, which measures the ratio of exports and imports with countries outside the Eurozone.

Consumer Price Index (CPI)

The CPI is the main component of inflation. This is how many traders and investors measure inflation and therefore the increase / decrease in purchasing power of the GBP.

For the UK, usually:

A low number tends to increase the value of GBP

A high number tends to decrease the value of GBP

Another measure of the CPI for the UK Core CPI measures the price change itself but excludes two of its most volatile components: food and energy.

BoE Minutes

In the minutes of the BoE, policy makers share their vision and why they decided to change / no change in interest rate.

Whenever investors and operators focus on the view that policymakers have about future economic conditions, because it gave the notice of the interest rate. They also try to find evidence of whether a future plan to increase or decrease interest rates in the next posting.

For example, if you mention “the mortgage market is in a clear expansion” may create inflationary pressures, what you can do to increase interest rates at its next meeting.

Canada – CAD

Fast facts Canadian Economy

– Canada is currently the eighth largest economy in the world with a nominal GDP valued at 1.3 trillion dollars.

– Canada is a country dependent on trade with U.S., which imports about three quarters of Canadian exports.

– The Canadian dollar has a very close relationship with gold and oil.

– The Edict of Canada (BoC) is responsible for monetary policy in Canada. The main objective of BoC is price stability. Changes in monetary policy can be made at any time as people meet almost every day.

Leading Economic Indicators for Canada

Interest Rate

As in other countries, the announcement of interest rates for Canada is of major importance for its currency.

Typically an increase in interest rate increases the demand for CAD making the value increase. While a cut in interest rates reduces the demand for CAD decreasing its value.

It is important to clearly understand how the forex market. In this lesson we will review all basic concepts related to the operation of the Forex market, you will learn: everything about the contributions, as does the leverage, when we charge and when we pay interest, and more.

In currencies, like other financial instruments, is more practical to write in standard codes. The International Standardization Organization (ISO) has developed what is known as the ISO codes for currencies. These codes consist of three letters:

– The first two represent an abbreviation of the country of the currency.

– The last letter represents the first letter of the name of the currency.

The couple also can be called by his “nickname”.

* CHF, CH means Helvetic Confederation (the Latin translation). This eliminates the need to use one of the four official languages in Switzerland.

The Seven Major Currencies

Care of all transactions in the currency market, 85% of them are care in the seven major pairs.

Volume Generated by Currency
[Table 2]
Source: Bank of International Settlements

* As each currency pair involved 2 the total is 200%

Driving Pairs as Instruments

It is much more practical to consider the peers as instruments. For example, if you expect the euro to appreciate, you buy EUR (EUR / USD). Whatever you are doing here is simultaneously buy EUR and sell USD. But it is not practical to see it from that standpoint. It’s much simpler to consider the “Euro” as the main instrument, so you will be “long in Euros.

Continuing the example, if instead you expect the USD to appreciate whatever it is you sell EUR (EUR / USD), here you are selling and buying simultaneously EUR USD. Here you are “short in Euros.

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Tags: Lesson 02
Section III: Direct and Indirect Rates and Quotes Anti and Base
Direct and Indirect Rates

Each currency can be traded directly or indirectly against other currencies (most of the time with the USD).

Direct Quote: Number of local currency needed to buy one unit of foreign currency (usually USD).

Indirect Quotation: Number of local currency is received when a unit of foreign currency sold.

For simplicity, most of the time the USD is the foreign currency, then for the 7 main pairs we have:

Pairs with direct quote

– USD / JPY

– USD / CAD

– USD / CHF

Indirect Pairs With Quote

– EUR / USD

– GBP / USD

– AUD / USD

Base and Counter Rates

The first currency of a currency pair is always called base. The second pair is called currency against. The contributions of the pairs are always expressed in units of the currency against which they can buy a base currency unit.

EUR / USD = base currency / currency against

This is how many USD are required to purchase a EUR

If the price of EUR / USD is 1.2550, then we need 1.2550 USD to buy EUR … and the same applies to other pairs.

If the price of USD / JPY is 110.05, then 110.05 is required to obtain a USD JPY.

TIP: The EUR is always the dominant currency against all other currencies. All pairs that involve the EUR are identified as: EUR / USD, EUR / JPY, EUR / CHF, etc.. The next coin in the hierarchy is the GBP, which is always less than the base currency against the EUR.

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Tags: Lesson 02
Section IV: Lots, Pips and Spreads
Lots

Transactions in foreign exchange can be of different sizes: standard, mini, micro or variable contracts.

Lots standard: The standard lots are 100,000 units of base currency. (the amount of money needed to open a standard operation varies with leverage, we see this in a moment).

Mini lots: The lots are mini size trades of 10,000 units of base currency (10 times less than standard operations).

Micro lots: Each lot has a value of micro 1,000 units of base currency (ten times smaller mini lots and one hundred times lower than the standard lots).

Lot variable: Some brokers let you open batch operations variables, this based on the needs of the operator. For example, you can open a transaction size: 234.644 and 5.328.

Consider some numbers:

A trader buys EURUSD at 1.4530

Standard lot: the operator is buying 100,000 EUR 145.300 USD

Lot Mini: the operator is buying USD 10,000 to USD 14.530

Lot Micro: the operator is buying 1,000 EUR to USD 1.453

Lot variable: the operator is buying a ¿234.644? (see answer below).

Fuel for Thought 1 – few dollars to buy our operator use 234.644 Euros. Hint: lots used variables.

Pips

A pip is the smallest increment that can have a couple. Pip stands for “price interest point. For most couples an IPSP is the 10,000 ma part of the exchange rate (1 / 10, 000). The only exceptions are those pairs that are involved in the JPY, where the value of each pip is the 100th part of the exchange rate (1 / 100).

In the EUR / USD 1.2532 a movement to 1.2553 is equivalent to 21 pips, while the USD / JPY, a move from 110.05 to 111.10 equals 105 pips.

Calculated pip value

While most online platforms calculate the pip value automatically, it is important to know how to get the value.

In the case of USD / JPY (and the indirect exchange) the calculation is as follows:

In Yen, .01 a pip equals (1 / 100)

If the price is 116.87 yen, then a pip equivalent to:

.01/116.87 =. $ 000,086 *

* The result of this exercise is based on a contract size 1. If we worked are standard lots, then 000,086 x 100,000 = 8.6 USD per pip

In the EUR (and direct exchange) the calculation is as follows:

At the Euro, one pip equals 0001

If the Euro rate is 1.2316, then a pip equivalent to:

.0001/1.2316 = .000081 Euros

Note: The result of this exercise is € (always in base currency terms). To convert it to USD have to add a step:

000,081 x 1.2316 = .000099 or .0001 (because we left out some previous operations decimal)

Again, the outcome of this exercise is based on a contract size 1. If we are batch operations mini, then: .0001 x 10,000 = 1 USD per pip (for standard lots would be 10 USD per pip).

HINT: when making direct foreign exchange transactions, each pip always has a value of $ 10 for standard lots and $ 1 for mini lots.

Thinking 2 – Just to be sure he understood the mechanics of correct calculation of each pip, what price do we buy USD / JPY to get a pip value of USD 10 pips for each? (Operations in standard lots).

Bid and Ask Spread

The price of the currencies are quoted with a spread, the difference of the purchase price and selling a currency.

The Bid is the price at which our broker is ready to buy, we the traders sell at this price.

The Ask is the price at which our broker is prepared to sell, we, operators buy at this price

Currencies are usually quoted as follows:

EUR / USD 1.2528/31 Spread = 3 pips

The bid is 1.2528

If we replace the last two digits (31) in the right price (bid) we obtain the ask price:

The ask is 1.2531

For couples where the JPY is involved, the prices change a little:

USD / JPY 116.45/48, 3 pips spread =

Bid: 116.45

Ask: 116.48

Now, the spreads can be variable or fixed. Most of the time, in normal market conditions the spreads are fixed (for example, 3 pips constant). But when market conditions become very volatile (eg in a fundamentally important announcement) the spread may increase (for example, changing from 3 to 8 pips pips), therefore, harder for us to open such an operation.

Well, now that we understand the last three concepts, we will review what is a typical scenario of operation, but before … a question.

Thinking 3 – Why do you think that different pairs have different spreads? For example, the EUR / USD usually has 2 or 3 pips spread, while the GBP / JPY are about 5 to 7 pips spread. Or exotic pairs like the USD / MXN often have 40 pips spread.

Typical scenario of operation

The contribution of the EUR / USD is: 1.2315/18

This means we can buy one Euro for 1.2318 USD or we can sell at 1.2315 USD. But we will not buy just “a” euro, we need more, we will buy 100,000 Euros.

Based on our analysis we think the EUR is undervalued, then we go long EUR / USD (buy EUR and sell USD) on a standard lot. Then buy 100,000 Euros and paid 123.180 USD for them (remember to use the quote “ask”).

Just as we hope, the EUR / USD gains value (moves up) and decided to close our operation to the current quotation: 1.2360/60. Now we need to close our operation and sell the 100,000 Euros that we have to get profits. We sell 100,000 Euros at 1.2360 (now use the quote “bid”) and received 123.600 USD for them.

If we bought 1.2318 (123.180) and sold back to 1.2360 (123.600), we obtain a gain of 42 pips, which in dollar terms are: 123.600 to 123.180 = U.S. $ 420 in winnings.

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Section V: Leverage (margin)
Ok, if you feel tired by the material seen so far, take a break, you’ll need in this section.

Operations Margin

Unlike other financial markets where you require the deposit of the total business done in the forex market you only require a partial deposit. The rest is “lent” his broker. This is known as leverage.

The leverage can be as high as up to 400:1 (depending on their risk profile and the broker chosen). 400:1 means you only need 1 / 400 of the total value of the transaction on your account, to open such an operation (floating more losses if they have them). Under this scheme of leverage, you only need 0.25% of total transaction open.

For example, if you were to operate with a standard lot (100,000 base currency units) using a 400:1 leverage, you only need $ 250 to open surgery ($ 100.000 / 400 = $ 250).

But be careful: SENIOR APANAC SUBSTANTIAL LOSSES CAN GIVE AS WELL AS GAINS SUBSTANTIAL. We will talk about this a little later.

Comparison of Leverage
[Table 3]

There are two things to consider about the operation margin (leverage):

1 – The operations room enables us to have our venture capital to a minimum, this because a small amount of capital allows us to open a bigger operation.

2 – The greater leverage, more capital in your account will be at risk. This brings us to the next item …

Margin Call

A margin call is the worst enemy of an operator. Unfortunately, this happens to many operators, some because they used poor techniques of capital management (or without using any technique) and other carriers is because they do not even know what a margin call.

A margin call occurs when the equity in your account falls below maintenance margin (which is equal to the capital required to open an operation, ie $ 250 if using 400:1 or $ 1,000 if used in standard operations 100:1). Refer to the table above.

In a margin call, the broker closes all its operations.

Let’s see an example for all this to be a little clearer.

Calculating the maintenance margin

Again, most brokers calculate this value, but still good to know how to calculate and give us an idea of the figure before launching the operation.

A trader buys EUR / USD at 1.2318 on a standard lot. You are using 100:1 leverage (margin of 1%).

He bought 100,000 Euros to 123.180 USD, then the maintenance margin is USD 1231.80 USD (123.180 x 1%).

If the operator was using 200:1 (or a margin of 0.5%), the maintenance margin would have been 615.9 USD (123.180 x 0.5%).

For direct pair (or pairs where the USD is the base currency) calculation is a little simpler:

Since the transaction is in USD, we need only calculate the percentage as follows:

If we are long on USD / CHF at 1.1445 to one standard lot, and use 100:1 leverage

We bought 100,000 USD and CHF 114.450 pay for them, then the maintenance margin is USD $ 1,000 (100,000 x 1%).

Consider a more concrete example

An operator opens an account to trade the forex market. She made a deposit of $ 4,000 to your account. The next morning she decides to open a purchase transaction of EUR (EUR / USD) at 1.2318 with two standard lots (the transaction is U.S. $ 246,360 = 2 x U.S. $ 123,180).

She is using 100:1 leverage, then the maintenance margin is $ 2,463.6 (U.S. $ 246,360 / 100 = U.S. $ 2,463.6).

The next morning, right after you open up your graphics and dang!! The EUR / USD has fallen like a rock. When you open your platform, your account balance is at U.S. $ 2463.6. The adverse market movement had made a call on margin.

When our operator entered the market with two standard lots, the maintenance margin rose to U.S. $ 2463.60, thus he only had U.S. $ 1,536 to support the floating losses (in case of an adverse movement). A move of 100 pips in the EUR / USD would be equivalent to $ 2,000. That night, the EUR / USD fell 113 pips, and all positions were closed by their broker, staying only with your maintenance margin.

Thinking 4 – What would have happened to our operator with different levels of leverage?

400:1 -?

200:1 -?

100:1 – He earned a margin call

50:1 -?

25:1 -?

This last example demonstrates the danger of not properly use leverage.

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Section VI: Rollover or Interest
Rollover

The currency market operates at a valuation of 2 days. A new valuation date occurs after 17:00 EST. The rollover occurs when the establishment of an operation is moved to the next valuation date (the transaction is kept open during the “night”), the cost of this is the difference in the rate of interest of the two currencies.

For example, if an operator opens an operation on Monday and remains open until Tuesday (closed on Tuesday), in this case the date of valuation would be on Thursday (because it operates at a valuation of 2 days).

Triple Rollover

However, if a trader opens a position on Wednesday and continues until Thursday, the day of valuation would be on Saturday, but markets are not working as the transaction is closed Saturday through Monday. This is called interest or triple triple rollover.

When we pay and when they took Interests
[Table 4]

Here is an Example

A trader buys two standard lots of USD / JPY at 111.50 at 13:00 EST. The position closes the next day.

Interest Rates:

U.S. – 3.5%

Japan – 0.15%

Interest calculated in USD

U.S. $ 200,000 [(.035 -. 0015) / 360] = U.S. $ 18.61

We use 200,000 units because we open two standard operations: 100,000 x 2 = 200.000, 360 wanted to see what we get per day. As we kept operational operated only for a day, divide by 360 (financial transactions are rounded to 360 days per day).

Interest calculated at JPY
[Image 2]

U.S. $ 100.000 = 11,150,000 JPY per batch, 11,150,000 x 2 = 22,300,000, 360 wanted to see what we get per day. As we kept operational operated only for a day, divide by 360 (financial transactions are rounded to 360 days per day).

Interest Rates April 2008
[Table 5]

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Section VII: Type of Orders
Orders

There are several ways to enter and exit the market operations. Different types of strategies require different ways to enter and exit the market.

Orders for market entry

Market order (market order) – An order to enter the market at current market value. If the price of EUR / USD is 1.2538/41, a buy market order to sell at 1.2541 and 1.2538

Limit order (limit order) – This command lets us enter the market at a price below the current price (if you’re buying) or above the current price if we are to sell. Such orders are used to gang strategies or delays (retracements)

Strategies band, buy the smallest one channel and sell at the top of a channel.

Strategies delays: Expect the lowest price to buy or sell higher.

Stop command (stop entry order) – In this type of purchase order at a price higher than the market or sell at a price lower than the market. Such orders are used for breaking strategies.

Strategies break: Expect the market prices reach new highs or lows to enter the market in the direction of the breakup.

Output Orders

Order limit (limit order). A limit order or order of profit taking (take profit order) specifies that level we will exit the market by the side of profits. If a trader buys this order is higher than the market price. If the trader sells, the order must be lower than the market price.

Order Stop (stop order). Specifies which is the maximum amount of pips that we are risking in a position. If we buy this order must be below the market price, if we sell this order must be above the market price.

Duration of Orders

Expiration Date Cancellation (GTC, by its initials in English: “good till canceled).

This order remains active or “valid” until the market reaches a certain level or canceled by the operator.

Valid until “N” (GTN, by its initials in English: “Good Hill N”), where N is a period of time as one hour a day, week, etc.).

This order remains active until the market reaches a certain level or a certain time.

One Cancels Other (OCO, for its initials in English: “One cancells the other”).

An OCO order is a combination of two orders: a limit order and a stop (SL). An order is placed below the market, and another is set above the market (no matter if they are orders to buy or sell) when the market reaches a warrant, the other is automatically canceled.

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Summary of Lesson No. 2
Finally finished this lesson, can become tedious and even a little confusing at times, we finally understand for each basic concept of the Forex market.

Before proceeding, make sure you understand the following concepts:

– How to calculate the pip value for each of the major pairs

– The difference between “bid” and “ask” where we buy and we sell

– What is the margin, as calculated

– Because the margin can result in significant gains, but also in substantial loss

– What is the Rollover, when we pay and charge interest when

Ok, this lesson we bastentes sections in “To Think” truth …

Fuel for Thought 1 – In the instance where our trader buys EUR / USD at 1.4530, we asked about the amount we use to buy USD 234.644 Euros (batch were variable). To reach the result we simply need to do the following calculation:

234.644 x 1.4530, this amounted to 340,937.73,

So we bought 234.644 Euros to U.S. $ 340,937.73

Thinking 2 – In the second section of thinking, we asked what price we buy USD / JPY for the value of each pip is $ 10 per pip.

Normally we calculate the pip value by using two variables: a few decimal equivalent per pip in USD / JPY (0.01) and the current price (ie 116.47), in this case, however, we know the pip value is $ 10 also know how much each pip is equal, and what we need to calculate is the value of the contribution, so the equation would be:

0.01 / X = 0.0001, solving for X we get:

0.01/0.0001 = X, therefore X = 100

Then the answer would be to get a pip value of $ 10 in the USD / JPY, the quotation should be 100.00

Thinking 3 – Here we are asked to give a reason why we believe that there are different spreads for different pairs, would not it be easier to have a single spread for all pairs?

The answer is because the forex market is like any other market, remember the example we used in Lesson 1 about the used car market? Well, so does the currency market, the pairs that are operated more frequently tend to have smaller spreads, and those that are not so operators tend to have larger spreads. As a result, those who undergo surgery more frequently tend to have smoother movements while those with wider spreads tend to be more volatile movements. Thus, it is a bit more risky to operate even more spread than those with smaller spreads.

Thinking 4 – In the fourth section to think of this lesson, we had to calculate the levels of leverage and see what would happen with the operation we did in the example.

What would have happened with different levels of leverage?

400:1 – With this level of leverage, the maintenance margin is U.S. $ 615.9 (246.360 x 0.25%). For this case we have enough capital to withstand adverse movement.

200:1 – Here the maintenance margin amount to U.S. $ 1,231.8 (246.360 x 0.50%). So was U.S. $ 2768.2 to bear the losses floats, and guess what, if spared the margin call by little, the adverse movement was U.S. $ 2,260, so if he had capital to withstand adverse movement.

100:1 – This scenario discussed in the course material

50:1 – With this level of leverage can not open the operation, as the maintenance margin is greater than what you have in your account: U.S. $ 4927.2 vs. maintenance margin. U.S. $ 4,000 in your account.

25:1 – you can not open the operation, as the maintenance margin is greater than the equity in your account: U.S. $ 9854.4 vs. maintenance margin. U.S. $ 4,000 in your account.

Wait a second … so what we are saying is that it really is better to have high leverage? Not at all. High levels of leverage is always equal to greater risk. Put it this way, imagine you have two accounts, one using another using 100:1 and 200:1 and that instead of having a movement of 113 pips, the movement out of 150 pips, so it had a margin call on both accounts.

In the account you used 200:1, she ended up with $ 1,231.8 (equivalent to the maintenance margin), while the account where 100:1 has used U.S. $ 2463.60. This is where we can see that while we use more leverage, more than our own is at risk.

Also remember that the operation margin allows us to open operations with just a fraction of the investment, and the size of the transaction, earnings are also higher, but when the market goes against us, also the losses are greater. Never forget this.

Welcome to this his first lesson in the course Forex course. We hope you find this content interesting, informative and will help her future as an operator. In this lesson you will learn all the basic information about the operation of the currency market (Forex).

In any business, from selling used cars, even in the forex market is very important to understand all aspects related to it, since most essential aspects to the most complicated issues.

Imagine this scenario, if you venture into the used car business, would you buy a lot of cars and try to sell without being informed? I think not, if I did this probably end up with a different car to use every day of the week. What would I do? Chances are that at first do some research about the used car market: who are their clients, see the strategies of competitors, an analysis of the pros and cons of the market, and more.

The same applies to the operation of the market. I have seen many players get a margin call, when not even know what that means leverage, others even know what a margin call! (do not worry if you are not familiar with these terms, will be discussed in the next lesson).

In this lesson, let’s examine the basics of the Forex market, from how it was formed, major players, pros and cons and how it compares the currency market to other financial markets like stocks or futures market.

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Section II: The Forex Market
What is Forex Market?

Forex is the acronym in English of “Foreign Exchange” or currency exchange.

What is exchanged in the forex market?

Money, simple as that.

Currencies are bought and sold freely on the market. This transaction involves the simultaneous purchase and sale of two currencies.

For example, you have information that suggests that the Euro will rise in value, in this case what we will do is buy a pair Euro: EUR / USD (Euro / Dollar). When you buy EUR / USD, which is actually doing is buying and selling simultaneously EUR USD. When you buy EUR also says you are “long” in Euros. When you sell the EUR, also known as “short” in Euros.

Over 80% of volume in the forex market is generated in what is known as the Big Seven pairs:

– The United States Dollar (USD)

– The Euro (EUR)

– The Pound Sterling (GBP)

– The Swiss Franc (CHF)

– The Canadian Dollar (CAD)

– The Australian Dollar (AUD)

– The Japanese Yen (JPY)

When did it start?

You can not say that one event triggered this phenomenon. Rather a series of events resulted in the forex market as we know it today.

It all began with the treaty “Breton Woods” was abandoned in the early seventies. In this treaty, participating countries had their currencies fixed to values of either gold or the U.S. dollar. In 1973 the world’s most powerful nations introduced a free float regime where allowed to float freely handled by market forces, more precisely the forces of supply and demand. Since then the currency market that was available for speculation, hedging and other reasons.

However, it was not until 1997 when the market was made available to individual speculators through online platforms and leverage (margin operations), giving operators worldwide investment opportunities.

The Forex market is now the most liquid financial market in the world with a volume generated over $ 2 trillion per day (source: BIS), more than all the U.S. financial market combined.

Where all transactions occur?

Unlike other financial markets, there is a physical place where all transactions are made in the forex market. All transactions are done through electronic communication systems (telephone, online platforms, etc..) Between banks, corporations, investors, operators, etc.. This market is called “Over the Counter (OTC).

Thinking – How do you think that all transactions are measured in the Forex Market? Let’s put the stock market in perspective, all transactions on the New York Stock Exchange (NYSE) are performed in the NYSE building, so they can measure the volume of purchases and sales made at any point in time. But as in the forex market there is no physical place where all transactions occur, how you can measure its volume?
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Section III: Benefits of Forex Market
Trading the Forex market has some advantages over other market finances, among the most important are: liquidity, 24 hour market, leverage, low transaction costs, investment, small, specialized operation anywhere operations among others.

Liquidity – The Forex market is by far the most liquid market in the world with over 2 trillion daily volume according to the Bank of International Settlements.

Why liquidity is important to us? It helps in the following ways:

– The most important benefit of all is that with higher liquidity helps to have more price stability. With a market so large, almost always going to be someone interested in buying or selling in the quote “present”, making it easy to open and close operations. Remember however, that there are periods with high volatility is likely where we get a difference between the price they want and they give us.

– In the highly liquid, most of the time, we can enter the market with consistent performances, but as other markets in periods of extreme volatility we have inconsistent performances.

– Liquidity so high it also makes the currency market is very difficult to handle extensively. If any participants would handle it, it would need huge amounts of money (millions and millions) making it virtually impossible.

Volume Generated by Country
Table 1
Source: Bank of International Settlements (BIS) 2006 Survey

In the table above we can see that UK and U.S. have approximately 50% of total volume, as a rule of thumb, the more volatility, the bigger the market movements. We can talk about this in future lessons.

24-hour market – It is said that the forex market revolves around the clock. This means you can open or close positions from Sunday at 5:00 PM EST when New Zealand begins operations until Friday at 5:00 pm EST when San Francisco ends operations.
Operating Sessions
Table 2

Here is a more illustrative table:

Table of Sessions
[Image 1]

Fuel for Thought – As you can see in the picture above, there are 4 hours in which the meetings in London and New York come together, what can it mean in terms of volume?

Map of the meetings of the World
[Image 2]

Leverage – Trading in the Forex gives you the opportunity to have more power to buy / sell other financial markets. This allows large amounts of money to operate with a small margin deposit. Some brokers offer up to 400:1 leverage, you can control a position of $ 100,000 with only .25% or $ 250. This in turn allows us to maintain our capital at risk to a minimum.

This feature is like a double edged sword. If leverage is not used properly can work as a disadvantage. While we use more leverage, more of our “risk capital” is at risk.

Imagine the following scenario: Two players with the same capital but using different levels of leverage:

Operator A: Use 400:1 with an account of U.S. $ 2,000

Operator B: 100:1 using an account with $ 2,000

If the two operators standard open surgery (100,000 units), the operator A will have at risk $ 1,750 (2,000 – 250 = 1.750), while the operator B is only going to have to risk $ 1,000 (2,000 – 1.000 = 1.000 ) *.

* There are risk management techniques that allow you to reduce capital risk as orders of arrest or stop loss. We will discuss this in more detail in the next lesson.

That’s why we DO NOT recommend using a higher leverage than 100:1.

Remember: the margin is always used as a deposit, the remaining principal in the account is at risk.

Low Transaction costs – The Currency Market is considered one of the financial markets with lower operating costs. Most brokers charge based on the following two schemes:

Spread – The brokers charge a different price for buying and selling operations, this difference is that the broker is.

Spread and Commissions – Most brokers charge a commission this scheme, but usually the spread is very small, even while transaction costs may be lower than the brokers that charge only spread.

The Minimum Capital Risk – For the foreign exchange market risk requires less capital than other markets. Algunosbrokers even allow the opening of accounts with $ 1 (yes, you read right, one dollar). On average, the minimum investment is usually $ 300.

Of course, we can not expect to make a fortune in the capital, but definitely we can help to enter the world market without risking large amounts of money.

Operations Specialist – Market liquidity allows us to operate only some currencies, with the largest volume. About 85% of transactions occur in the seven major currencies mentioned above. This allows us to monitor, continue to detail and learn every instrument better.

Operate from anywhere – the fact that transactions do not have a physical place where all happen, we can make transactions anywhere in the world. We just need a phone or an Internet connection where we can access the broker.

Below we will see two tables between the Forex market and other financial market.

Forex Vs. Actions
[Table 3]

Forex Vs. Futures
[Table 4]

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Section IV: Major Participants
A few decades ago most important participants in the Forex market commercial banks were taking positions against other banks for a variety of reasons including speculation, to cover, among others, and companies (exporters and importers of goods and services) using the banks to carry out transactions. This was approximately 70% of turnover generated by foreign exchange transactions.

These days this has changed. With the development of technologies and the ability to conduct transactions more easily intercontinental other financial and nonfinancial institutions can participate in the Forex market. Just as they do investors and operators around the world.

Now, speculation has a stake of over 80% of the volume generated daily. These transactions are conducted from banks to small operators and investors.

The main market participants include banks, central banks, commercial companies, traders and individual investors and brokers. They make operations for a variety of reasons including:

– Get profit from fluctuations in currency

– To protect against currency fluctuation (hedging)

– To profit from interest earned on interest rates.

Banks

The banks are the largest foreign exchange market participants. Most transactions are made through the same banks (for speculation and commercial). Large transactions are made by these banks (billion dollars a day) and are made by self and client orders. Speculation of banks is about 70% of the volume generated daily.

Larger operators Forex Market
[Table 5]
Source: Wikipedia

Central Banks

Central banks are major participants in the currency market, although the reasons they are not speculative. The main objective of central banks is to control and regulate the amount of money offered in a nation to achieve its economic goals. A central bank may intervene in currency markets for the following reasons:

– To gain stability in the exchange rate and prices

– To protect certain levels of the exchange rate and inflation

– When the main economic objectives to be achieved.

Some central banks are more conservative than others, some involved regularly (such as Bank of Japan *) and not so often as the Fed (U.S. central bank).

The major central banks are:

The Federal Reserve, U.S.

The BoJ

The Bank of England

The European Central Bank

The Bank of Canada

The Swiss National Bank

* The Japanese central bank used to be involved much in the recent past, but recently it has been noticed both his speech.

Business Companies

These are corporations that participate in the currency market exchange of goods and services across the nation. Most companies like to receive cash in local currency or U.S. dollars, then to complete the transactions they need to acquire foreign currency through commercial banks.

Another reason why companies participate in the currency market is to hedge in case of high fluctuations of the currency. For example, a company will receive payments in the future in your local currency. The local currency has been depreciating and is expected to continue to depreciate until next year. In this case, the company can sell (or short put) in your local currency and buy (get along) in the currency in which payment will be received. Thus the currency fluctuation does not affect the company.

Investment Funds

These are companies that represent mutual and pension funds, and make investment transactions and arbitration that invest abroad.

In recent times, more and more funds are participating in the foreign exchange market to speculate and to cover their operations abroad.

Brokers

The main objective of the broker is to bring together buyers and sellers of a currency, ie they are intermediaries. Most brokers do not charge fees, but achieve their profit spread.

There are two types of brokers:

Market Makers (Market Maker) – The broker is the counterparty to all care operations by operators. When an operator opens a transaction, the broker opens the opposite operation, if the trader buys a pair, the broker sells the same. In this way the brokers can be covered.

No transactions table (Non-dealing-desk) – This type of brokers connected only to operators with travpes banks of electronic communications network (ECN – Electronic Communications Network). The broker does not open any type of operation. This is the kind of broker who charges a commission and a spread, but as mentioned earlier, transaction costs may be lower than those of other broker.

Individual Traders and Investors

Individuals that perform for several reasons including: speculation, a tourist who need foreign currency, etc.

This is a lesson that many do not want to check, “just blah” is understandable, but if you went so far in this lesson, congratulations! You definitely know how we do the things, “first things first.” Congratulations again and good luck on your experience of operator.

This lesson mainly talks about the forex market theory, as it formed, how it works, who its participants, etc.. If you’ve read this far do not think it necessary to review again the material in this lesson. Perhaps most important in this lesson is the difference between the two types of brokers (go to the forex market participants and reread that paragraph, I think it’s worth).

In this lesson we had two sections “To think”.

Fuel for Thought 1 – About the volume, if you arrived at a complex answer and a new theory of how the volume can be calculated, delete it. It can not be calculated, the operations are not centralized in one place. We have estimated by the futures market, with data from individual brokers, etc.. But they are only estimates.

Thinking 2 – About the joint session in London and New York, where, I believe this if it had. When the sessions overlap, there tends to be much more volume in the market, this means, that when a joint, most of the time there are also larger market movements. This is good for us because we can fix operators beyond the level of profit taking.

The MACD is calculated by subtracting the values of two exponential moving averages (EMA long-period value is subtracted from the short-period EMA). The most common values used for the MACD are 26-period moving average (length) and a 12-period moving average (short).

The MACD is positive when the EMA (12) is above the EMA (24), indicating that the rate of change of short-period moving average is higher than the average over long periods and negative when the EMA (12) is below the EMA (24), indicating that the exchange rate moving average of short periods is less than the long periods. These values are plotted on a histogram.

MACD uses

Use No. 1 – MACD as an oscillator – to indicate periods of over-buying and over-selling. Recall that a period of over-buying indicates that a currency has been bought at high rates and a turnaround in the short term is feasible. An on-sale period indicates that vendors have sold a currency with a lot of volume to some extent that a change of trend in the short term is feasible.

Whenever the MACD is overbought or oversold readings of the market tends to change direction. But what is considered overbought or oversold MACD? Very good question … is relative to previous highs and lows for the MACD as presets are not to be considered overbought or oversold. This is one of the weaknesses of this use of MACD.

Although the MACD is used very little for these purposes, there are many traders who use it this way with very satisfactory results.

Use No. 2 – MACD and crossing center line – When the MACD crosses from negative territory to positive territory is said to have had a MACD bullish crossover. When the MACD crosses from positive territory to a negative territory is said that the MACD made a bearish cross.

When the MACD histogram crosses from negative territory to positive territory is a buy signal occurs through the use “crossing center line.

Use No. 3 – MACD divergence to operate – A divergence occurs when price behavior differs from the behavior of the indicator. Theoretically, when the price hits new highs or lows, the indicator must also achieve similar maximum or minimum. So when the price reaches new highs and the indicator fails to do so or when the index reaches new highs and the price does not, it says there is a divergence present. The same is true of the next downtrend, when the index reaches new lows and the price is not done or when the price hits new lows and the indicator does not, it also says that there is a discrepancy.

[Figure 9]

The second floor created by the market is significantly lower than the first floor. However, the MACD fails to make a similar minimum and makes a higher floor. This is a divergence and signaling that sentiment is not as “bearish” as before.

Combining MACD Signals

Consider the following chart and try to determine that we are using to generate our signal.

We are using a divergence signal with a signal crossing center line to generate a sell signal. Once the market believes the gap, we need the histogram below zero crossing to confirm the input signal. And of course we could add the breaking of the support area as well (blue line).