Forex Charts the Basics You Need To Know

Forex Charts the Basics You Need To Know

by monica hendrix

Here we are going to give you an introduction to the basics of forex charting and how to use them to successfully catch and hold forex trends for big profits.

Forex markets (or any financial market for that matter) move to this basic equation:

Fundamentals + Investors Perception of them = Market price

The fundamentals are the supply and demand facts and we all see them but being humans we all draw our own subjective judgements on what they mean and we are not just influenced by logic - but the emotions of greed and fear as well.

It's very difficult to trade the fundamentals, because all the facts are instantly known and discounted in the price and of course you never quite know how humans are going to view them.

A basic premise of using forex charts is to simply assume that all fundamentals are instantly discounted in the price and no study of them is needed - while this sounds essentially simple (and it is), it means a chartist is not interested in knowing them - he is only interested in price movement generated by them and investor psychology.

How and where prices move is decided not by the facts or supply and demand situation but is down to how investors as a whole see them, this then becomes the market price.

A basic foundation of forex technical analysis is that history repeats.

Why?

Because human nature is constant it will be reflected in forex charts as repetitive price patterns that can be traded for profit.

In essence forex charts allow us to study the fundamentals and investor psychology all at once - a technical analyst is not interested in how or why prices move - he just studies the charts and wants to make money when they do.

Another foundation of technical analysis is that a trend in motion is likely to persist and the aim is to lock into these trends and hold them for profit.

The fact is anyone with the right forex education can make money using forex charts but it's an art not a science and you need to learn a method based upon sound logic.

Many forex traders base their currency trading systems on trying to predict forex prices but this is wrong.

Why?

Because it's simply another word for hoping and guessing and that won't get you far in any walk of life and that includes forex trading.

Forex charting is a game of odds - not certainties and you need to keep this in mind while chart patterns do repeat they do not move to a scientific theory.

If you want to learn currency trading and be successful then charting is a quick simple and profitable method and takes very little time. You can learn it in a few weeks and you can then cover your currencies daily in around 30 minutes and that's it.

Forex charting basics are enclosed but you will now say - I like the idea how do I use them for profit? That is the subject of part 2 of this article series.

Best Forex System - Beware of Backtesting!

Best Forex System - Beware of Backtesting!

by Harold Hsu

What is backtesting?

Backtesting is essentially the testing of a trading system using historical market prices, to see how profitable that system can be. This testing is usually done with computer software that runs the trading system through a period of time in the past.

Why beware of backtesting?

Many new traders think that good backtesting results will guarantee similar results in the future. This is a big mistake because a system that has worked in the past may not necessarily work in the future. This is because the Forex market is always changing and evolving. The Forex market today can be very different from the Forex market last year. The past does not equal the future... if it did, we'd all be millionaires by now!

What about trading systems with good backtesting results?

Because everyone knows what has happened in the past, it's easy for anyone to create a trading system that can be very profitable during that time (in the past). But remember: we're not trading in the past; we're trading in expectation of the future. Trading systems with good backtesting results may very well fail miserably in the future.

But this fact has not stopped unscrupulous people from selling Forex trading systems based on "excellent" backtesting results. They use impressive hypothetical (i.e. backtested) results as a sales tool. Unfortunately, many traders purchase these trading systems only to have them fail miserably and causing them to lose thousands of dollars.

What can I do to protect myself?

When looking for a good trading system, ask the system developer whether the trading results are actual or hypothetical. Many people assume that hypothetical returns are actual returns, but that's just not the case.

Now that you know it's easy to create a trading system based on backtesting (i.e. hypothetical) results, you'll hopefully be more skeptical about trading systems with little or no actual trading results.

Summary

While backtesting can be a very useful way to test a trading system, it's definitely not an accurate measure of how the system will perform for you in the future. Be wary of scammers who use hypothetical returns to try and sell you something!