- Follow Market Commentary
Find a good collection of credible experienced bloggers or websites to keep track of what the professionals think about the market.

- Follow Other Markets And Asset Classes
Movements in other asset classes and markets can have a huge impact on the market you are trading, either directly or indirectly. For example if you trade the USD, you should also be aware of how other markets can influence its value, like gold and oil.

- Keep An Eye On Economic Indicators and Expectations
Find a reliable source of scheduled news reports for the day, by doing this you can avoid being caught up in major volatility. Watching how the markets respond to major news announcements can also give you a clue as to their future direction.

Don’t forget the big moves in the market are caused by the big picture.

Our articles have been written to help both new and experienced Forex traders avoid the common pitfalls of Forex trading and provide education on a range of Forex topics. If you are a beginner it is even more important to familiarize yourself with the traps new traders fall into and make a plan for how you can avoid them.

Forex trading tips and analyst predictions for currency pairs are published on most popular Forex brokers websites. Of course it is always recommended that you learn enough about trading Forex so that you can make your own decisions.

This website provides a number of articles on the Forex basics, including fundamental analysis and technical analysis, the featured Forex ebooks are also a great source for information and trading strategies.

No form of investment is guaranteed to make money and Forex is not an exception. As a matter of fact due to the amount of leverage available to traders and investors in the Forex market, greed can easily take over and all commonsense is thrown out the window. Experienced investors and Forex traders realize that some of their trades, even up to half of their trades, will lose money. The reason why they are successful is that they have a good money management plan so when they do lose, it doesn’t wipe out their portfolio.

In any Forex trading method, there will be a drawdown. The problem is, we don’t know when the drawdown will begin. If a Forex trading method proves it is 80% successful, that means approximately 20 out of every 100 trades won’t be successful. If those 20 trades all happened in a row (yes, it can happen!) your account could be completely wiped out if you are not using sensible money management and you wouldn’t be able to keep trading the method for the next 80 potentially profitable trades.

Some aggressive Forex traders argue that the best way to accumulate huge profits rapidly is to risk more of your money. While this may be true, it is also the fastest way to lose all your money and should really be thought of as gambling. There are many stories out there of those that made their first million trading Forex and then lost it. The most successful Forex traders and investors did not become rich fast, they took a slow and steady attitude and learnt to generate money trading Forex for the long-term.

An experienced Forex trader only risks a limited percentage of their investment money on each trade. The profits will not be as large as those of the aggressive trader, but when the drawdown comes, the Forex trader practicing sensible money management will be more prepared to survive the storm.

Sure, building up capital slowly is not an exciting plan. But, you’re in the Forex market to make consistent profits, not for the excitement. If you’re not using sensible money management when investing and trading the Forex market, you are downright gambling. Even professionals that make their living playing poker and other casino games use some sort of money management method. They realize that they can’t win every single tournament or game they enter, so they only risk a limited percentage of their bankroll on each one. This allows them to bounce back much more quickly when a losing run hits.

In conclusion, don’t allow the promise of making money rapidly let all commonsense be dismissed. Trading Forex is not a way to get rich rapidly, it’s an investment option that can make consistent profits for those who practice sensible money management.

In this article, divided in 2 part, you’ll get a basic understanding of the different use of Technical Analysis in Forex Trading.

Pivot Point
Pivot points are frequently used by Forex traders as a means to calculate resistance and support levels which are, in turn, used as visual cues to execute trades. With the use of an arithmetic program (pivot point calculator), Forex traders will try to anticipate price movements.

As a technical analysis tool, pivot points have proven themselves to be far more effective in currency trading than equities markets. This is largely due to the fact that price movements in the trillion dollar foreign exchange market are not generally subject to the kinds of manipulation that stem from unforeseen insider trading, corporate mismanagement, misrepresentation, or the actions of institutional investors.

Basic Forex pivot point trading is based on two prevailing tendencies. If a day’s price action begins above the pivot point, prices will tend to stay above that point (fulcrum) until it reaches a resistance point. Conversely, if a day’s pricing action begins below the pivot point, the price will tend to stay below that point until it reaches a support point. A resistance level is a price that tends to prevent further upward movement. A support price is a price action point that tends to prevent further downward movement.

In its simplest form pivot point trading is based on these two tendencies and is also knows as “trading between the lines”. The most popular and hence the most successful form of pivot trading is based on reversals. Simply put, when price approaches a pivot above, a trader waits for a reversal at that point and sells. The opposite is true when price action is moving downward. The patient pivot trader waits for a bounce off the pivot of support and places an order to buy.

If the market opens or later trades at the extremes R2 or S2, pricing will exhibit a tendency to trade back toward the pivot point. Hence, traders tend to avoid buying high (at R2) or selling at the low (S2). The wisdom of this is even greater the further the price moves away from the day’s pivot point.

There are a number of formulas traders use to calculate resistance and support levels and they are based on a variety of factors but those based on price are the most popular if, for no other reason, they are the easiest to calculate. Pivot trading begins with the calculation of the pivot point which is an average of the previous day’s high, low and closing price. While the Forex is a 24 hour market, “closing” is generally defined as 5 p.m. EST which coincides with the closing of the New York Stock Exchange. However, traders use various closing times, 12 a.m. EST also being a popular reference point for calculations.

In the following formula “H” represents the previous day’s high, “L” represents the previous day’s low, and “C” represents the previous day’s closing price.

Pivot Point = (H+L+C)/3

Support & Resistance
Support and resistance levels are points where a chart experiences recurring upward or downward pressure. A support level is usually the low point in any chart pattern (hourly, weekly or annually), whereas a resistance level is the high or the peak point of the pattern. These points are identified as support and resistance when they show a tendency to reappear. It is best to buy/sell near support/resistance levels that are unlikely to be broken.

Once these levels are broken, they tend to become the opposite obstacle. Thus, in a rising market, a resistance level that is broken, could serve as a support for the upward trend, whereas in a falling market; once a support level is broken, it could turn into a resistance.

Once the day’s pivot point has been calculated, traders turn to the calculation of the initial resistance (R1) and support (S1) levels which assumes that trading will continue pretty much in the same range as the previous day.

Resistance Level 1 = (2*PP)-L
Support Level 1 = (2*PP)-H

A second set of resistance and support points, R2 and S2, are used in the event that the price breaks through the previous day’s trading range and continues until it meets a second higher level of resistance or lower level of support.

Resistance Level 2 = (PP-S1) + R1
Support Level 2 = PP – (R1 – S1)

Some traders attend to the calculation of extreme price fluctuations (R3, S3) but only a small minority of them actually trade on them because such price movements are a sure sign of volatility.

Resistance Level 3 = (PP-S2)+R2
Support Level 3 = PP – (R2-S2)

Some calculators also generate midpoints – trading levels that lie at the midpoint between R2 and R1, S2 and S1, R1 and PP, and finally S1 and PP. As long as trading ranges are not too narrow, these reference points hold the same relative importance as their paired resistance and support levels.

M1= (S2+S1)/2
M2= (S1+PP)/2
M3 = (R1+PP)/2
M4 = (R2+R1)/2

Fibonacci Retracement
Fibonacci retracement is a very popular tool among Forex technical traders and is based on the key numbers identified by mathematician Leonardo Fibonacci in the 13th century. However, Fibonacci’s sequence of numbers is not as important as the mathematical relationships, expressed as ratios, between the numbers in the series. In technical analysis, Fibonacci retracement is created by taking two extreme points (usually a major peak and trough) on a currency pair chart and dividing the vertical distance by the key Fibonacci ratios of 0%, 38.2%, 50%, 61.8%, 78.6% and 100%. Once these levels are identified, horizontal lines are drawn and used to identify possible support and resistance levels.

For reasons that are unclear, these ratios seem to play an important role in the Forex market, just as they do in nature, and can be used to determine critical points that cause the price to reverse. The direction of the prior trend is likely to continue once the price has retraced to one of the ratios listed above.

Trend Lines & Channels
Trend lines are a simple and widely used technical analysis construction drawn on the currency pairs charts in Forex trading.

A trend line is a bounding line for the price movement of a currency pair. The principal trendline is an upsloping line drawn through lower extremes of price that is in an up trend, or its mirror image, a downsloping line drawn through the upper extremes of the price action that is in a down trend.

The other, less widely used type of trendline is an upsloping line drawn through high extremes in an uptrend, or a down sloping line drawn through lower extremes in a downtrend.

Trend lines are used in many ways by traders. One way is that when price returns to an existing principal trendline it may be an opportunity to open new positions in the direction of the trend, in the belief that the trendline will hold and the trend will continue further. A second way is that when price action breaks through the principal trendline of an existing trend, it is evidence that the trend may be going to fail, and a trader may consider trading in the opposite direction to the existing trend, or exiting positions in the direction of the trend.

In the next part of our Technical analysis article, we’ll talk more about Moving Averages, MACD, Parabolic SAR, Stochastic Oscillator and Bollinger Bands.