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HOW TO KNOW WHEN TO ACTUALLY BUY AND SELL
Here we are going to use Fundamental Analysis to help us decide whether to buy or sell a specific currency pair. Pretend you know whats going on.
EURUSD here EUR is the Base currency and thus basis for buy/sell.
If you believe that the US economy will continue to weaken, which is bad for the US dollar, you would execute a buy EURUSD order.
By doing so you have bought Euros in expectation that they will rise versus the U.S dollar.
If you believe that the US economy is strong and the EUROS will weaken against the US dollars, you would execute a sell EUR/USD order.
By doing so, you have sold euros in the expectation that they will fall versus the US dollar.
In this example, the Japanese government is going to weaken the Yen in order to help its export industry, you would execute a BUY USDJPY order. By doing so, you have bought US dollars in expectation that they will rise versus the Japanese Yen. But if you believe that the Japanese investors are pulling money out of the US financial market and converting all their US dollars back to Yen, this will hurt the US dollar. You would execute a SELL USDJPY order. By doing so you have sold US dollars in the expectation that they will depreciate against the Japanese Yen.
Read carefully here
HOW TO GENERATE SIGNALS FOR YOURSELF
Lets say you believe that signals in the market are indicating that the GBP will go up against the USD, you open one standard lot (100,000 units GBPUSD), buying here is with pounds.
Signals are given with entry levels because indicators are used to predict the market. There is a level when a price reaches those indicators it will tell you that its a Buy or a Sell. So if it hasn't reach that entry point which will signify a Buy order or a Sell order, it may reverse and when you execute it will go against you. So executing at entry point is important.
Executing after entry point however can mean less profit and in some cases it can also mean loss for you. The market can move in seconds and reach your TP and reverse back and if you execute the trade it wouldn't reach your TP because it has hit the target and reversed, you will therefore loose.
INDICATORS, (moving averages, stochastic, MACD, Bollinger bands, RSI, ADX, Parabolic SAR, ATR, Ichimoku)
We will learn one of the most important indicators in Forex Trading which is much pretty easier to use than the others. Our aim is to use indicators to predict prices.
Open your MT4 app. Open the chart page, click this ⇨ at the right of your screen and find Bollinger bands, click done and activate it. We should do the same procedure and add Relative Strength Index.
Lets learn something here that will greatly help our trading pattern. It is called Forex Scalping which is way of getting small profits out of the markets as price is swinging. Many traders use this method to earn hundreds and thousands of dollars daily. To scalp the market you have to monitor price movement from the charts and also use Technical indicators to analyse the market.
Scalpers can enter a trade of 5-10 pips and maybe 20 pips profit. The idea is to get in the market and out with profit over a short period of time. Some scalping trades last for 5, 15, 30 and at most an hour unless there's a market dormancy. Scalping is generally a fast trade where we get in and out of the markets to get little profits.
With Technical indicators, you can predict price movement that is its either going to rise up or drop. Please use the EURUSD pair and your time frame set at M5 which means 5 mins. Change it to H1 which means 1 hr Chart. Check at the graphs.
To change it, click anywhere on the chart and a pop up circle will appear and you can select your the hour you want. With the Bollinger Band indicators all the three in green, the one at the top is the Upper band and the one below is the Lower Band.
The Upper band tells you two things in general;
- When a price is below it, it can move up to that level meaning our market price can over time move up to that level.
- When a price reaches that level, it can pass it with a few pips upward in most cases not more than 10 pips and the price will eventually drop.
It tells us the highest level a market can reach before it falls.
With the lower green band;
- It tells us the lowest level a market can reach.
- When the market price reaches that level it can pass with a few pips and eventually move up again.
No trader will tell you which is the best. Only you can decide which one is the best for you. Some traders trade on 5 mins chart and trade 3-5 pips. So the best i can say is pending on the type of trade you want to execute and the time frame.
So when when the price hit the Lower Bollinger Band, it can still drop a few pips and rise eventually. Now what we have to do is to buy because a Bullish market can follow suit.
When it hits the upper line, it means the market will eventually retrace down which is a sell. Its therefore a Bearish signal. BULLISH, we Buy and BEARISH we Sell.
Now the middle line serves a midpoint or average market price for a particular moment and as the market is moving, the average can change overtime as well. Note that Bollinger Band is good for predicting market prices especially for scalpers.
Now let me explain what to wait for before buying or selling when the market hits our lower or upper bands.
Open any pair and check at the RSI chart and you will notice that when you find any black candle almost going down from another shows a sell signal till it hits the lower band. The next candle however was a white candle signifying a buy signal. So its important we wait for a White candle which signifies a buy order before we execute.
Another sell signal works this way, if your white candle reaches the Upper band. I mean the green contour at the top, wait for the black candle which will signify a sell order before we execute our trade.
White candle means the market is moving up, Bullish or buy signal. Black means the market is dropping, bearish or sell signal.
Please go online and watch Youtube videos on candlesticks because each has its meaning and effects on the market. It needs to be visual and accompanied by audio instructions.
I wanna talk on a situation whereby the market can decide to retrace after reaching our moving averages. It will reach the upper or lower bands but in some cases it might retrace back at the moving averages instead of passing it. These are the reasons;
- News affects market prices. When countries are going into trades, when countries are releasing News on their GDP, Foreign reserve and other Economic conditions, it affects the Forex Market. It can make a particular currency stronger or weaker against the other. In situations where we are executing a buy signal and News about a currency broke out and gives it more value, the Market will retrace back upon or before reaching the moving averages for a sell signal.
- Forex Market is filled with market forces of traders who are constantly buying and selling. If many traders decide to continue buying a particular currency pair when its on a sell signal, the market will eventually change to a buy signal upon or before reaching the moving average and vice versa. Ex In the RSI chart you will notice that the buy candle will start to increase as it reach the moving average and finally change to sell as the black candle starts to drop. I mean around the moving average contour. But if there is no News, or if the market is not affected by traders either buying or selling too much, the market will perfectly move to the upper band and drop to the lower band.
RELATIVE STRENGTH INDEX
Relative Strength Index or RSI is a popular indicator developed by a technical analyst named J. Welles Wilder. RSI identifies overbought and oversold conditions in the market.
It shows us the turning point in a particular market uptrend or downtrend. It shows us when the market reverse in the opposite direction.
The RSI is calculated from 0-100. When it's at 30, the market is considered to be oversold and a possible trend reversal i.e it means a buy signal will come next. When its at 50, it is considered at its average.
When it however reaches 70, it means the market is overbought and a possible trend reversal will come next i.e a sell signal will follow suit.
When the market is around 50, it can move to overbought or move oversold.
However, a market can be struck by News and it can affect the price movement be it in overbought or oversold level. E.g in the EURUSD pair, if it reaches the overbought level and a news is released that the USD value has considerably lost value the price can keep going up and will pass 70.
In the same way if it reaches and oversold level and a News report is released that USD has gained much over, it will keep going down and pass the overbought level.
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