Online Money

Forex trading
forex trading is an essential part of today’s international economy. Basically, it is trading in multiple currencies. Not an easy task. The purpose of foreign exchange trading is to minimize risks due to changes in the market and close business deals in a profitable manner.

The forex market itself if dynamic – ever changing, subject to the whims of the market place and often changes in the political climate. Large amounts of foreign currency are actively traded. The potential for great gain is there. That means, though, the downside risk for loss is equally great. The whole method of trading can be complicated. There is no room for crystal balls or guess work.

What anyone who intends to be involved in forex trading needs to understand is underlying assumptions of forex technical analysis. There are three primary assumptions.

First, is the assumption that there is a pattern in trades of a foreign currency. Individuals don’t change their thought patterns quickly and in a short period of time. Thought patterns and points of view repeat themselves. Forex technical analysis looks for the patterns in past behavior and trades In order to be able to apply these patterns to the future.

A second assumption is that the market itself will discount everything. For example, assume there are major crop failures and the threat of drought is real. The market will price this into the currencies. The market coldly and objectively takes everything that happens and adjusts its prices accordingly.

A major corporation goes bankrupt? A major financial figure makes a prediction? A war breaks out? These occurrences are quickly priced into the market. Forex technical analysis looks for these discounts in order to avoid discounting the market a second time.

A third assumption is that there are trends within the patterns. Forex technical analysis watches these movements in price and uses the trends to forecast the future.

While these three assumptions are important to understand, there are also several indicators that are calculated to support forex technical analysis. Every trader has their favorite. The basic technical indicator that anyone considering forex trading needs to understand is the concept of the” Moving Average”.

The calculation of a moving average is done using a specific number of data points that move forward. For example, a 3 day moving average is the average of a price on days 1, 2 and 3. That’s the first calculation. The next calculation is for days 2, 3 and 4. The next is days 3, 4 and 5. A moving average can be calculated using any defined interval.

Why is this important? When a moving average trend line is graphed over the individual
movements in price, much of the volatility in the price is smoothed out and the trend is easier to see. This average is always behind what is happening in the market and is known as a trend follower. There are other variations of a moving average that someone involved in forex technical analysis follows.

If you are interested in forex trading and forex technical analysis, these three basic assumptions and the concept of a moving average are very important ideas upon which to build a base for understanding foreign exchange trading and doing so profitably.