Forex Trading, An Easy Way to Earn Money?

Reading the title of this post.... Is that true?? Well, it is true!! Forex Trading is a way to earn money.. and it is very easy if you have the edge. You can earn 1%, 5%, 10%, 20% or even 100% in a month. Can you imagine that? You can get rich very quick. How are we going to get that high return in forex trading?

But here is the catch: "High Return, High Risk". That is the wisdom in a trading or investment world. You will lost all your money in your trading account very quick too. So, there is another question that need to be answered: How can we manage risks in forex trading?

You need to learn the basic of trading. It can be applied to various trading instruments besides forex such as gold, oil, stocks, CFD, indices, crypto currencies, etc. Every new skills need to be learned. For example, when you want to drive a car but you don't have the skill. How do you start driving? You need to learn the basic of driving, right? What is the basic? You want to know the instruments in the car, what the functions of that instruments are, how they help you in driving, what the steps to drive are, how to control the gas pedal, the brake pedal, the gear, etc. You need to learn all of that in a structured way.

So what are the trading basics that need to be learned?
1. What are the instruments?
2. Why do the price of instruments move?
3. How to count your profit or loss.
4. Learn the chart: support-resistance, candle patterns, chart patterns, trending and consolidation phase.
5. Learn to create a trading setup or strategy.
6. Learn position sizing.
7. Learn about stop loss.
8. Learn the reverse strategy.
9. How to find a good forex broker.
10. How to trade a Forex Account.

"Wow, so much to learn dude", you probably want to say that. But Hey, you want the big money? I can elaborate those topics in this article in a simple way or you can search those in forex education websites such as babypips.com.

Here we go....

1. What are the instruments?
There are many instruments that can be traded at forex, basically all currency pairs can be traded except those that aren't allowed by its regulators such as USD/IDR (US Dollar vs Indonesia Rupiah).

As you can see, the symbol of the instruments consists of 2 abbreviation, for example EUR/USD = Euro vs US Dollar, GBP/USD = Great Britain Poundsterling vs US Dollar, EUR/JPY = Euro versus Japanese Yen, USD/TRY = US Dollar versus Turkish Lira, etc. And there are also commodities that pairing with US Dollar, XAU/USD = Gold in US Dollar, XAG/USD = Silver in US Dollar.

In trading, the currency pairs are grouped in different names, which are (1) Major Currency Pairs, (2)Cross Currency Pairs, (3)Exotic Currency Pairs.

Major Currency Pairs are pairs that include USD and currency of big countries (in term of economy) in it such as EUR/USD, GBP/USD, USD/JPY, AUD/USD, NZD/USD, USD/CHF, USD/CAD. The three most traded pairs are EUR/USD, GBP/USD and USD/JPY.

Cross Currency Pairs are pairs that don't include USD but come from big countries, such as EUR/JPY, GBP/JPY, EUR/GBP, AUD/JPY, CAD/JPY, AUD/NZD, NZD/JPY, EUR/CHF, GBP/CHF, CHF/JPY and so on.

Exotic Currency Pairs are pairs that rarely traded in the world such as USD/TRY, USD/ZAR, USD/RUB etc.

2. Why do the price of instruments move?
Before we begin, there are 3 movements of the price -> (1) upward, (2) downward and (3) sideways. Let's take EUR/USD pair for example. Upward movements in that pair means that the Euro is stronger than US Dollar. On the chart, it will show the price move up north. Downward movements means that the US Dollar is stronger than the Euro. On the chart, the price move down south. While sideways means that the price of EUR/USD move up and down in a tight range.

So why the price moves. Usually, the movement of the price is related to the changes of the monetary policies made by Central Banks, macro economy situation, political tension issues, supply and demand of commodities, and company's condition (for individual stocks).

For example, there was an issue of the US Federal Reserve (US Central Bank) will not raise interest rate anymore this year. The markets will anticipate the news by selling the US Dollar against other major currencies. And the results: for the EUR/USD pair, the currency pair will go up. And for the USD/JPY pair, the currency pair will go down.

You can monitor updated news in FXStreet.com, investing.com, reuters.com, bloomberg.com or the wired news published on MT4 trading platform. You can also monitor upcoming macroeconomic data at the calendar produced by Forexfactory.com or investing.com

3. How to count the profit or loss?
There are 4 elements to count the profit or loss: (1) The difference of  closing and opening price in pip, (2) The value of 1 pip, (3) The number of lots, (4) The commission value, (5) The swap value.

So the formula is (The difference of closing and opening price in pip) * The value of 1 pip * The number of lots - commission + swap value.

First, we need to know what is pip. The pip is a unit to count the range of the price movement. There are 3 type of the price format: (1) 4/5 decimals, (2) 2/3 decimals, and (3) without any decimals.

4/5 decimals. In the past, there are only 4 decimals but in the year 2000 era, the brokers implemented extra decimals in the price, so it become 5 decimals. But traders always count the pip from the 4th decimal. For example:

Open Price: 1.13115
Close Price: 1.13127

The difference: 1.13127-1.13115 = 0.00012
And the pip start from the 4th decimal = 0.00012 * 10,000 = 1.2 pip

The pairs with 4/5 decimals: Almost every currency pairs that not include JPY such as EUR/USD, EUR/GBP, AUD/USD, AUD/CAD , etc.

2/3 decimals. The same as above, currently every brokers use 3 decimals instead of 2 decimals but the pip count always start from the second decimals. For example:

Open Price: 108.505
Close Price: 108.516

The difference: 108.516 - 108.505 = 0.011
And the pip start from the 2nd decimal = 0.011 * 100 = 1.1 pip

The pairs with 2/3 decimals: every currency pairs with JPY: USD/JPY, EUR/JPY, GBP/JPY, commodities: XAU/USD, XAG/USD, Crude Oil and some indices price such as KOSPI, NASDAQ, S&P500

No decimals. It usually indices prices such as NIKKEI, HANGSENG and DOW JONES and the difference of the close and open price is the pip. For example:

Open Price: 27450
Close Price: 27500

The difference: 27500-27450 = 50 pip.

Now we need to know the value of the pip. How we convert it into the value of the money (usually in USD).

To count the value of the pip, it will require the value of the contract or the contract size. There are several contract size: (a) 100,000 for standard lot size, (b) 10,000 for mini lot size, and (c) 1,000 for micro lot size. But for the simplicity, let's us the 100,000 contract size and using decimal for mini and micro lot size. For mini lot, using 1 decimal and for micro lot, using 2 decimal => 0.1 is a mini lot size for 1 lot, and 0.01 is a micro lot size for 1 lot.

So the value of 1 pip of a standard lot in USD:

Direct Pairs: EURUSD, GBPUSD, AUDUSD, NZDUSD :

Contract Size in USD * (Difference between close and open price):
USD 100,000 * 0.0001 = USD 10

Indirect Pairs: USDJPY, USDCAD, USDCHF :

Contract Size in USD * (Difference between close and open price) / Current Settlement Rate:
For USD/JPY => USD 100,000 * 0.01 / 108.500 = USD 9.21
For USD/CAD => USD 100,000 * 0.0001 / 1.32720 = USD 7.53

Cross Pairs: EURGBP, EURJPY, GBPJPY, AUDNZD, etc

Contract Size in USD * (Difference between close and open price) * (Base Rate/ Current Settlement Rate):

For EURGBP, the base rate is EURUSD and the Current Settlement Rate is EURGBP:
USD 100,000 * 0.0001 * (1.13131/0.88910) = USD 12.72

For EURJPY, the base rate is EURUSD and the Current Settlement Rate is EURJPY:
USD 100,000 * 0.01 * (1.13131/122.720) = USD 9.21

After we know what the pip is and how to count the value of the pip, let's count the profit/loss:
1st example:

I open a buy of 0.01 lot (it is a micro lot) EURUSD at 1.13130 and close it with a sell at 1.13231. Since the close price is higher then an open price, it is a profit. Let say the commission and the swap value is zero. So the profit will be:

(The difference between close and open price in pip) * The value of 1 pip in USD * The lot Size - commission + Swap value.

((1.13231 - 1.13130)*10,000) *USD 10 * 0.01 - 0 + 0 = USD 1.01

2nd Example:

I open a sell of 0.1 lot (a mini lot) EURJPY at 122.701 and close it with a buy at 123.502. How much is the profit if the commission and the swap value is zero?

(The difference between close and open price in pip) * The value of 1 pip in USD * The lot Size - commission + Swap value.
((123.502-122.701)*100) * USD 9.21 * 0.1 - 0 + 0 = USD 73.77

Looking into those calculations above seems difficult to count the profit/loss. Well, it will be easier when you get use to it and the fact is you don't need to count it by yourself, the trading platform will provide you with the result of profit and loss. :)

4. Learn the chart!
Chart is very important in trading. It shows the big picture of how the price moves. We will know if the price currently in trending or consolidation phase. The chart shows the psychology of the traders. It also shows where the big chunk of sellers or buyers reside. You can predict instantly where the price will move if you understand the chart.

You can get the chart by downloading the Meta trader 4 or MT4 platform on mobile or desktop. You can check Playstore or Appstore for mobile apps. or you can go to MT4 for window's PC platform.


To be continued.....



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Read This Article (2009)

Silahkan baca artikel-artikel ini:

- Emas bisa naik ke 1200 per ons

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Trading with TopSterling Robot (Live)

This is a Forex account that trades GBP/USD using TopSterling Robot.

2009 --- Here We Go

06.20GMT, Ho ho ho, goodbye 2008 welcome 2009. At the beginning month of 2009, the financial markets meet some issues that affecting the flow of money. At the end of December 2008, we saw EURGBP sinking deep, walking away from parity. Rumors that the interest rate in euro zone is going to be much more less than the current level. The decision will be announced on Jan 15. EUR is weaker than GBP.
This January, we already had NFP news and the result is a little bit better than expected but overall, the employment situation in United States is still bad and worsen. After the realesed of this event, USD is stronger. EURUSD, GBPUSD is going South. On the other hand, Japanese yen is not weaker than USD. As the stock markets falling, yen is getting its power. The risk aversion rules. The strengthen of yen contribute to the weakness of EUR and GBP.
It looks like we will have strong USD until the end of January.

End of Year 2008

Few more days we are going to pass this year. What a year for the financial market,especially... Crisis, recession, cutting rates, stimulus packages are the main issue of this year. And We shall meet them next year.

Until the end of 2008, which is just 8 more days, people are squaring their position in stock markets. They don't want to hold anything in holidays. US dollars and Japanese yen are still stronger because of this action. Risk aversion plays. Euro is still stronger then pound sterling because of the future interest rate gap between this two. All of this situation might continue until the beginning of next month.

Extremely Bearish on USD

16.30 GMT, Wow,,, what a day! it's extremely bearish on USD. Markets look like anticipating The Fed Monetary Meeting on 16th December. It is expected to cut rate for 50 basis points more. I think, USD can still be bearish until mid European session. We will see after the news released, with this kind of volatility in financial markets, dollar can still show its power.

Auto Bailout In Deadlock, Yen And USD Are Strong

09.35 GMT, Today's hot issue is about US auto industry's bailout didn't get approval from US Senate. This issue makes Stock Index dropping and some risk aversion is seen. Yen and USD are strong because of that. Even the strong euro that hit 1.3400 yesterday is down 200 pips against USD after the auto's bailout news released. Yen is also continuing to strengthen against USD,GBP, and EUR.

Let's see one by one..

On GBPUSD: There is a support near 1.4850. and a resistance near 1.4960. We can put a sell stop just below 1.4850 and a buy stop just above 1.4960.

On EURUSD: Euro is still stronger against USD and GBP. There is a support near 1.3245, and probably will reach its high again.

On USDJPY: Yen has a resistance near 91.20. The chances to the downside is bigger than to the upside. We can sell near that resistance.

Ok, that's all folks, thanks for reading, and enjoy your trading,,

Euro Reached New High Against USD

09.37 GMT, Euro is picking up new power against US dollar this week. It reached a new high in two month against US dollar at 1.3158. Some analyst said that it's because a relatively calm markets, collapsing volatility and investors keen to exit some of their short positions ahead of Christmas holidays.

For the rest of the day, EURUSD has a support near yesterday's high at 1.3070. If it holds, EURUSD might stay above 1.3100 today. On the contrary, EURUSD will have a pullback to 1.3000

Dollar Stronger Again

10.00 GMT, Yesterday the dollar was weaker against major currency due to stock index hovering in the positive territory. In US, The bailout of the big 3 of automotive industry is the issue in this week. The possibility that the bailout approved by the Congress is getting bigger and it made investors going back to stock markets at the beginning of this week.

Today we see the dollar is stronger against GBP and EUR. It seems to anticipate the grim look on economic indicator of the British and European country.

Let's take a look one by one:

On GBP/USD: There is a support at 1.4720. If it holds, the price will stay at 1.4800 territory. But it is still strong dollar issue. If 1.4720 breaks, GBP/USD will head to 1.4500 territory again.

On USD/JPY: Looking at 4H Chart, the trend is bearish for USD/JPY. The slowdown in global economy causes unwinding carry trades. USD/JPY might reach 90.00 figures and it's possible going under that.

Ok folks, c ya next time,,thanks for reading

After Non-Farm Payrolls

14.00 GMT, As we assumed before, NFP figure came up real bad. -533K Vs -340K (forecast). 30 minutes after the release, US dollar is still strong. Stock indexes are deteriorated. And Yen is stronger too. It is unwinding carry trades. The figures did not hit the USD, it hit US Stock index.

That's all, folks,, happy trading

Another Non-Farm Payrolls Day

10.00 GMT,Friday again,,, This is the first Friday of the month so we will meet the most noticeable economic indicator in the financial world -- US Non-Farm payrolls. The slowing growth all over the world will end up with more cutting jobs. In US which is the epicenter of global crisis, the economy is getting slower. We saw every weeks its initial jobless claims were growing, so we might assume that its Non-farm payrolls will be worse than before. Polls made by Reuters expect NFP will come out -320K in November compare with -240 in October. This kind of figure might weaken the US dollar against other major currencies, and also might deteriorate Dow Jones further.

Let see one by one,,,,
On GBP/USD -- we see a resistance at 1.4815 and support at 1.4630. We might open a buy position arround 1.4665 stop loss at 1.4810 target at 1.4815 Or if the price break 1.4750 after the release of NFP figure, we might open a buy position above that number, put a stop loss near 1.4660 target arround 1.4900.

On USD/JPY -- As NFP figures will deteriorate Dow Jones Index, USD/JPY will go down further. It is unwinding carry trade, yen is getting stronger. We can open sell on a retrace arround 92.30, put a stop loss near 92.70 and target near 91.00

Ok folks,, that's my opinion so far,, happy trading,,and please give me some inputs,, thanks