Introduction to the Foreign Exchange Market

Although currency trading has a long history dating back to the middle ages, it is the changes that we have seen during the twentieth century which have created the Forex market we see today.

During the first half of the twentieth century the British pound was the world's principal trading currency and was the currency held by many as their main 'reserve' currency. As a result, London was also seen as the leading center for foreign exchange. However, the Second World War severely damaged the British economy and so the United States dollar took over as the world's principle trading and reserve currency and retains that position today. This said, there are now a number of other currencies, principally the Yen and the Euro, which are also seen as reserve currencies.

Since the Second World War there have been a number of events which have proved instrumental in shaping today's Forex market.

Until the start of the Second World War, as we said the British Pound Sterling was the World’s most prominent currency.

At the end of the Second World War the World’s economy, with the exception of the United States of America, was in disarray. Representatives from the United States of America, Britain and France met at Bretton Woods, New Hampshire with the objective of creating an infrastructure that would allow the rebuilding of the World’s economy. The result was the Bretton Woods Accord.

The Accord decided that the US Dollar would become the World’s benchmark and all other countries would measure the value of their currencies against it. Part of this agreement was the Gold Standard which fixed the price of Gold at $35 an ounce. All other currencies were pegged to the dollar at a certain rate. This rate was not allowed to fluctuate more than 1% in either direction (higher or lower). If a fluctuation greater than 1% did occur then the relevant central bank had to enter the market and restore the exchange rate to within the accepted band.

The Bretton Woods Accord also set in motion the establishment of the International Monetary Fund (IMF) which was designed to provide a stable system for buying and selling currencies and to ensure that currency transactions could take place smoothly and in a timely fashion.

In addition, the aim of the IMF was to create a consultative forum to promote international co-operation and to facilitate the growth of world trade, while at the same time breaking down exchange restrictions which hindered international trade

It was also part of the established role of the IMF to make financial resources available to member states on a temporary basis where this was considered necessary to further the aims of the IMF. Such loans were normally only made on the understanding that the country concerned would make substantial changes to rectify the situation which gave rise to the need for the loan in the first place.

There are mixed opinions as to whether the Bretton Woods Accord was successful in restoring economic stability to Europe and Japan. Despite this, the agreement eventually failed in 1971. It was superseded by the Smithsonian Agreement.

The Smithsonian Agreement tried to succeed where Bretton Woods had failed. Rather than give a 1% margin, greater room for manoeuvre was introduced. Not long into this agreement, Europe made its first attempt at breaking free from the Dollar dominated system. In 1972 Europe formed the European Joint Float. Member nations included West Germany, France, Italy, the Netherlands, Belgium and Luxembourg. This agreement was very similar to Bretton Woods but with a larger band for rate fluctuation.

Just as their predecessors had failed, these agreements were flawed and subsequently fell apart. However, this time there was no new agreement to take its place. For the first time since WWII there was a ‘free float’ system in place. The value of each currency is now governed completely by the laws of supply and demand. Large banks, private companies and individual speculators are all active participants in the Forex market.

The next major milestone was the establishment of European Monetary System which effectively came into force in 1979. The European Monetary System got off to something of a shaky start when Britain (one of the principle members of the European Community) decided not to join the system and Italy joined only under special arrangements. Britain did however later agree to participate to a limited degree by joining the exchange mechanism of the European Monetary System in 1990.

The final major development to affect the Forex market was the establishment of the Euro as a single currency for European Union member states in 1998 with eleven of the participating states replacing their national currency with the Euro.

Of all these developments it was the free-floating of currencies in 1978 which did more than anything else to boost the growth of the foreign exchange market. In 1978 Forex trading showed a daily turnover of about 5 billion US dollars and this figure rose in the following ten years to reach 600 billion US dollars by 1988. By 1992 this figure had reached 1 trillion US dollars, Today The Forex market has is the largest Trading market with daily turnover of around 2 trillion US dollars.

Basics of Forex Trading

Forex trading or Foreign Exchange Trading refers to the simultaneous trading—that is, buying and selling-of two different currencies. It is done between and among major financial institutions, central banks, retail currency traders or speculators, large international companies, government institutions, companies with overseas operations and the like.

The Forex Market operates 24 hours through a global electronic network where trading occurs over the telephone and computer networks.

The Top Forex Currencies

Each world currency is given a three letter code which is used in FOREX quotes, the instrument traded by Forex traders and investors are currency pairs. A currency pair is the exchange rate of one currency over another. The most traded currency pairs are:

EUR/USD, GBP/USD, USD/CAD, USD/JPY, USD/CHF, AUD/USD.

The Trade

Trade happens when you accept the offered price and when the dealer confirms.

A currency can never be traded by itself. So you can not ever trade a EUR by itself. You always need to compare one currency with another currency to make a trade possible.

Lets have the EUR/USD and AUD/USD for example.

So, for instance, if a trader goes long or buys the Euro, she or he is simultaneously buying the EUR and selling the USD. If the same trader goes short or sells the Aussie, she or he is simultaneously selling the AUD and buying the USD.

The first currency of each currency pair is referred as the base currency, while second currency is referred as the counter or quote currency. Each currency pair is expressed in units of the counter currency needed to get one unit of the base currency. If the price or quote of the EUR/USD is 1.2545, it means that 1.2545 US dollars are needed to get one EUR.

There are no further costs in the trade. There are no commissions and other fees as well.

Bid/Ask Spread

All currency pairs are commonly quoted with a bid and ask price. The bid is the price your broker is willing to buy at, thus the trader should sell at this price. The ask is the price your broker is willing to sell at, thus the trader should buy at this price.

Margin Trading

In contrast with other financial markets where you require the full deposit of the amount traded, in the Forex market you require only a margin deposit. The rest will be granted by your broker.

The leverage provided by some brokers goes up to 400:1. This means that you require only 1/400 or .25% in balance to open a position (plus the floating gains/losses.) Most brokers offer 100:1, where every trader requires 1% in balance to open a position.

The standard lot size in the Forex market is $100,000 USD.

For instance, a trader wants to get long one lot in USD/YEN and he or she is using 100:1 leverage.

To open such position, he or she requires 1% in balance or $1,000 USD.

Of course it is not advisable to open a position with such limited funds in our trading balance. If the trade goes against our trader, the position is to be closed by the broker.

It’s very important to understand every aspect of trading. Start first from the very basic concepts, then move on to more complex issues such as Forex trading systems, trading psychology, trade and risk manage

Forex Trading Education and Training

Should new Forex traders take Forex trading courses or join a Forex training program? Definitely yes; by now you have probably heard that only 5% of Forex traders achieve consistent profitable results when trading the Forex market. The main reason for this is the lack of education. Don’t get me wrong here, taking a Forex training program or a Forex trading course won’t guarantee profitable results, nothing can, but choosing the right Forex training program or Forex trading course will definitely put the odds in your favor.

Before spending any amount of money on any Forex trading course or Forex training program there are some important aspects you need to take in consideration. There are many Forex training programs available, but not every one of them suits the needs of every Forex trader.

The first thing you should be looking in a Forex training program is the content of the material. Unfortunately, most Forex courses or Forex training programs focus or spend most of the time on basic concepts. Though these basic concepts are important, spending most of the course on them won’t help the trader to make consistent results.

The following subjects are what I consider the most important aspects of Forex trading and every Forex training program or Forex trading course should address:

Forex trading basics:

Review Forex Trading basic concepts such as: Forex Trading margin, Forex Trading type of orders, a little Forex Trading background, Forex Trading bid/ask rollover, etc. You need to make sure you understand every Forex Trading single concept to perfection.

Main drawbacks of Forex traders.

Being aware of the common Forex Trading mistakes made by Forex traders and knowing how to handle them will prevent new Forex traders from making those Forex Trading mistakes.

Technical and fundamental Forex Trading analysis.

These are the two main approaches adopted by Forex traders. Knowing how to properly apply each concept will definitely put the odds in your favor.

The three pillars of Forex trading. I consider that these three subjects have the most impact on every Forex trader trading account.

Forex trading system development.

Having the right Forex Trading system is a must if you want to have consistent Forex Trading profitable results. Having a Forex Trading system that doesn’t fit you will cause a series of problems that will make your Forex Trading account vanish away (second guessing the Forex Trading system, not following your system, etc.) to find out Forex Trading systems please visit our directory page or the following website

Money management.

This is considered by many successful traders to be the most important single aspect of trading. Money management helps to increase your profits geometrically and at the same time limit your losses (i.e. a good risk reward ratio of about 2:1 will make you money in a Forex trading system that is right only 38% of the time.) to find out Forex Trading money management companies please visit our directory page or the following website

Trading psychology.

Being aware and knowing hot to handle the psychological barriers that affect every trader decision will put the odds in your favor.

Other important aspects every Forex training program should include are:

Developing habits for success (such as discipline patience, taking responsibility of every action, commitment, etc.,) understanding and taking our trading as a business, risk and trade management.

Another important aspect you should take into consideration when choosing a Forex training program is the mechanics of it, getting to know how the Forex training program works.

A good Forex Trading course will have the following:

A live conference room, where you can apply everything learned under live market conditions.

One-on-one feedback, every Forex trader has different needs and requires special attention. For instance a Forex trader wanting to improve the system and requires individual feedback from the instructor about it.

Online Forex Trading course, a course that could be accessible through internet. A plus is a course where you are able to access the course at the convenient time for you, so you don’t have to change your lifestyle.

A Forex forum, where members can talk just about everything related to the Forex market and the Forex training program.

Trading the Forex market is no easy task. It requires a lot of hard work. Making the right decision will definitely put the odds in your favor. Take your time when doing your diligence because it is a big and important step in a trader’s trading career. To find out Forex Trading Companies please visit our directory page or the following website

Six Forex Trading Tips for Forex Trading Newbie's

You have decided to be a Forex trader in the forex market, and you have no idea on how to begin. Let's first start by defining what the forex market is and what it does.

The term "forex", also known as the foreign exchange is a market for the sale and purchase of all kinds of currencies. It originated in the early 1970's when floating currencies and free exchange rates were first introduced. At this time, the forex market traders were the ones who set the value of one type of currency against another.

Nowadays, the Forex Trading market forces determine the value of a currency against another. One unique aspect of the Forex Trading market is that very little trading qualifications are required of anyone intending to trade therein.

Independence from external control ensures that only the market forces influence the currency prices. As the largest financial market, with trades reaching up to 1.5 trillion U.S. dollars, the money moves so fast, it’s impossible for a single investor or Forex Trader to substantially affect the price of any major foreign currency.

In addition, unlike any stock that is rarely traded, forex traders are able to open and close any positions within seconds, because there are always a number of willing buyers and sellers.

1. The first thing you need to do is open a forex Trading account. You will have to fill an application form which includes a margin agreement stating if the Forex Trading broker will be allowed to intervene with any Forex trade when it appears too risky. Since most Forex trades are done using the Forex Trading broker's money, it is only logical that he protect his interests. However, once you have established an account, you can fund it and begin trading in the forex market.To find out Forex Trading Companies please visit our directory page or the following website

2. Adopt a Forex trading strategy that has proven to be successful for you. Remember that Forex Trading strategies will work differently for different Forex traders, so don't try to adopt a Forex trading strategy that works well for another Forex trader. It might backfire on you. The two available approaches are either Forex Trading technical analysis or Forex Trading fundamental analysis. A combination of the two is a more preferred choice for experienced Forex traders.

3. Understand that prices move by trends. Forex Trading has a popular saying, “The trend is your friend.” There are certain movements that have been studied over many years in order to identify a pattern in the trend. These Forex Trading trends need to be understood in order to understand a good Forex trading strategy. For small Forex Trading accounts that are $25,000 and under, trading with a trend may help improving your odds when compared to bi-directional trading. Most Forex Trading newbie’s will look to trade Forex in any direction, when they should be trading Forex with a trend.

4. Ensure you know which are the top five currencies pairs in the foreign exchange. These are USD/Yen, Swiss franc/USD, Euro/Yen, Euro/USD and Pound/USD.

5. For Forex Trading newbie's, it is advisable to maintain two Forex Trading accounts to ensure you learn to play the Forex trading game. Keep one real Forex Trading account, one that you will actually use to trade real money; and the second Forex Trading account should be a Forex Trading demo account, one that you can use to test alternative moves in the Forex trading game. You can easily use your Forex Trading demo account to shadow the trades in your real Forex Trading account so you can widen your stops to see if you are being too conservative or not.

6. Always examine the one hour, four hour and daily charts that concern your trades. Although you can trade Forex at 15 and 30 minute time intervals, doing so requires a handful of dexterity.

How to Chose your Forex Broker?

Most investors who trade FOREX or stocks use a broker. A broker is an individual or a company, who buys and sells stocks according to the investor's wishes. Brokers earn money by collecting commissions or fees for their services, before setting up an account with a FOREX broker you will need to do some investigations:

1-You should check that a broker is registered as a Futures Commission Merchant (FCM) with the Commodity Futures Trading Commission (CFTC) as protection against fraud or abusive trade practices.

2-A FOREX broker also needs to be associated with a financial institution, such as a bank in order to provide funds for margin trading.

3-Picking the right FOREX broker for you will take some work on your part. There are brokers who charge a flat fee and some that charge commission. It may be a good idea to talk with friends and business associates about their brokers. You may get some good leads, and you're certain to hear who to stay away from. There is nothing like word of mouth advertising.

4-If you are thinking of investing online, you could choose several online brokers and contact their help desks. Seeing how quickly they respond to your questions could be key in how they will respond to their customers needs. If you don't get a speedy reply and a satisfactory answer to your question you certainly wouldn't want to trust them with your business. Just be aware that as in other types of businesses, pre sales service might be better than after sales service.

5-Before you choose an online broker get a copy of their online demo account. What features are included? Is the software reliable? Does it offer automatic trading? Are there extra software features that cost more?

6- How quickly will these brokers execute your buy/sell orders? What is their policy on slippage? What are the transaction fees? What is the spread, fixed or variable? What are the margin requirements and how are they calculated? Does the margin change with currency traded? Is it the same for mini accounts and standard accounts?

Don't forget to ask about minimum account balances and interest payments on account balances. Make sure that your funds will be insured.

Beware Of The Typical Forex Trading Scam

It’s very easy for new Forex trading investors to get taken in by some sort of Forex scam or another. This can include just about any idea under the sun that scammers can come up with. Usually the realm of Forex scams can include, software and e-books that ‘guarantee’ a profit in the Forex market, general false advertising, and even those with fake sites that just take your money and disappear.

The nature of the currency market tends to leave new investors vulnerable to such scams, simply because it fluctuates a lot and little is known about the market by the general population. It’s up to investors to educate themselves on Forex trading, just as they would before making any other investment if they expect to do well. This includes being aware of common scams. In 2001 the US Commodity Futures Trading Commission (CFTC) released nine tips investors in the Forex market should keep in mind when looking for a broker:

• Stay Away From Opportunities That are Too Good To Be True
• Avoid Any Company that Predicts or Guarantees Large Profits
• Stay Away From Companies That Promise Little or No Financial Risk
• Be Wary of Trading on Margin Unless You Know What That Means
• Be Wary of Those Claiming To Trade in the "Interbank Market" because Its ‘Safer’
• Be Wary of Sending or Transferring Cash on the Internet, By Mail or Otherwise
• Scams Often Target Members of Ethnic Minorities
• Get the Company's Performance Track Record
• Anyone Who Won't Give You Their Background Isn’t Worth the Risk

Many Forex scams, as is common with other types of scams, rely on getting dollar signs to appear in their victims eyes in order to pull off the scam. If at any point in the decision making process you start to feel yourself getting overly excited by the prospect of making what seems like easy money, then set your plans aside for the time being and come back to them later. You’ll be much calmer and in a better position to decide if the broker or deal you are interested in is really worth it.

One of the most common scams simply involves selling a product or system online that will ‘guaranteed’ make you profits in Forex trading. Be careful of online advertisements for these products, after all most of them contain information about the Forex market that you can obtain by reading any other book on Forex trading. It will give you information on the Forex market if you are doing research, but it probably won’t give you the guaranteed secret to success.

Introduction to the Fundamental Analysis

Many traders in the Forex market use Forex trading fundamental analysis techniques to predict long-term economic trends that will affect a currency pair and believe that it is not a technique that suits short-term Forex traders.

However, the dedicated Forex trading professional who keeps up-to-date on the data used to predict these long-term trends can also easily become adept at spotting "mini-trends" that become obvious when the collected data is analyzed.

Fundamental analysis refers to political and economic conditions that may affect currency prices. Forex traders using fundamental analysis rely on news reports to gather information about unemployment rates, economic policies, inflation, and growth rates.

The use of fundamental analysis in Forex trading requires you to analyze economic indicators such as Inflation Rate, Unemployment Rate, Interest Rates, Gross National Product (GNP), Retail Sales, Consumer Price Index (CPI), Non-Farm Payroll, and the sales of Durable Goods.

Currency prices on the FOREX are affected by the forces of supply and demand, which in turn are affected by economic conditions. The two most important economic factors affecting supply and demand are interest rates and the strength of the economy. The strength of the economy is affected by the Gross Domestic Product (GDP), foreign investment and trade balance.

Economic Indicators

Economic indicators are released by government and academic sources. They are reliable measures of economic health and are followed by all sectors of the investment market. Indicators are usually released on a monthly basis but some are released weekly.

Two of the most important fundamental indicators are interest rates and international trade. Other indicators include the Consumer Price Index (CPI), Durable Goods Orders, Producer Price Index (PPI), Purchasing Manager's Index (PMI), and retail sales.

Interest Rates - can have either a strengthening or weakening effect on a particular currency. On the one hand, high interest rates attract foreign investment which will strengthen the local currency. On the other hand, stock market investors often react to interest rate increases by selling off their holdings in the belief that higher borrowing costs will adversely affect many companies. Stock investors may sell off their holdings causing a downturn in the stock market and the national economy.

Determining which of these two effects will predominate depends on many complex factors, but there is usually a consensus amongst economic observers of how particular interest rate changes will affect the economy and the price of a currency.

International Trade – Trade balance which shows a deficit (more imports than exports) is usually an unfavorable indicator. Deficit trade balances means that money is flowing out of the country to purchase foreign-made goods and this may have a devaluing effect on the currency. Usually, however, market expectations dictate whether a deficit trade balance is unfavorable or not. If a county habitually operates with a deficit trade balance this has already been factored into the price of its currency. Trade deficits will only affect currency prices when they are more than market expectations.

There are 28 major indicators used in the United States. Indicators have strong effects on financial markets so Forex traders should be aware of them when preparing strategies.

FX Technical Analysis Introduction

The technical analysis takes a look at the markets past price movements to determine where the numbers will go in the future. Most investors who employ this type of analysis look mostly at price data, but sometimes information such as volume and open interest in futures contracts are also taken into consideration.

Technical analysis is almost always used on some level because price charts provide a good visual representation of the price history of a particular currency. At the very least, they can help you determine ideal entry and exit points for a trade based on the historical data. You can decide whether or not you’re buying at a fair price, selling at the top of a cycle, or entering into a shaky market.

Most traders consider technical analysis to be of critical importance even though they may also use fundamental analysis to support and confirm the strategy suggested by technical analysis. Unlike fundamental analysis technical analysis can be applied to many different currencies and markets at the same time. Since fundamental analysis requires detailed knowledge of the economic conditions of a certain country it is very hard for any single trader to perform proper fundamental analysis on more than a few countries.

Technical analysis is not an exact science. It's an art and takes considerable experience. Not all studies work the same for every instrument traded. One study may give excellent buy and sell signals while another may not work for you at all.

Between the technical analysis methodologies which can be used when currency trading:

Elliott Waves

Fibonacci Studies

Parabolic SAR

Pivot Points

Before you start Forex trading it is a good idea to acquaint yourself with market behavior by following Forex charts for a period of time and by studying the movements and gaining an understanding of trends.

Forex Trading Charts

	Forex Trading Charts
	Reading FOREX TRADING Charts Forex Trading Price charts can be simple line graphs, bar graphs or even candlestick graphs. These are graphs that show prices during specified time frames. These time frames can be anywhere from minutes to years or any time interval in between. Forex Trading Line charts are the easiest to read, they will show you the broad overview of price movement. They only show the closing price for the specified interval, they make it very easy to pick out patterns and trends but do not provide the fine detail of a bar or Forex Trading candlestick chart. With a Forex Trading bar chart the length of a line displays the price spread during that time interval. The larger the bar is the greater the price difference between the high and low price during the interval. It is easy to tell at a glance if the price rose or fell because the left tab shows the opening price and the right tab the closing price. Then the bar will give you the price variation. When printed Forex Trading bar charts can be difficult to read but most Forex Trading software charts have a zoom function so you can easily read even closely spaced bars. Originally developed in Japan for analyzing candlestick contracts candlestick charts are very useful for analyzing FOREX prices. Forex Trading Candlestick charts are very similar to Forex Trading bar charts they both show the high, the low, open and close price for the indicated time. However the color coding makes it much easier to read a candlestick chart, normally a green candlestick indicates a rising price and a red one indicates a falling price. The actual candlestick shape in reference to the candlesticks around it will tell you a lot about the price movement and will greatly aid your analysis. Depending on the price spread various patterns will be formed by the candlesticks. Many of the shapes have some rather exotic names, but once you learn the patterns they are easy to pick out and analyze. Forex Trading Price charts are not usually used by themselves to get the full affect you need to supplement them with some Forex Trading technical indicators. Technical indicators are normally grouped into some pretty broad categories. Some of the more common ones used to monitor and track the Forex Trading market movement are: trend indicators, strength indicators, volatility indicators, and cycle indicators. Average Directional Movement Index (ADX) – This index will help indicate if the market is moving in a trend in either direction and how strong the trend is. If a trend has readings in excess of 25 then this is considered a stronger trend. Moving Average Convergence/Divergence (MACD) – This shows the relationship between the moving averages which allows you to determine the momentum of the market. Any time that the signal line is crossed by the MACD it is considered to be a strong market. Stochastic Oscillator – This compares the closing price to the price range over a specific time frame to determine the strength or weakness of the market. If a currency has a stochastic of greater than 80 it is considered overbought. However if the stochastic is under 20 then the currency is considered undersold. Relative Strength Indicator (RSI) – This is a scale from 1 to 100 to compare the high and low prices over time. If the RSI rises above 70 it is considered overbought where as anything below 30 is considered oversold. Moving Average – This is created by comparing the average price for a time period to the average price of other time periods. Moving Averages Basics Among the important concepts a new forex trader should know is what a Moving Average means, how this indicator is calculated and its use as a trading tool. A “Moving Average” is a technical indicator that shows the average value of a particular currency pair over a previously determined period of time. This means, for example, that prices may be averaged over 20 or 50 days, or 10 and 50 min depending on the time frame that is more convenient for you at the moment of your trading activity. Moving Averages are an averaged quantity and can bee seen as a smoothed representation of the market activity at the moment and it’s an indicator of the major trend influencing the market behavior. This smoothing effect of the Moving Average is very helpful when the trader is looking for getting rid of the “noise” in the price fluctuations of the currency pair he is trading at the moment and a more precise emphasis in the trend direction is required. The mechanics of how Moving Averages can tell a forex trader where the forex Trading market is moving (up or down) is by considering two different time frame Moving Averages and then plotting them on a forex chart. It is very important that one of these MA is over a shorter time period than the other one; let’s say one will be over a 15 days period and the other over a 50 days period. Once you have plotted the two Moving Averages with your Forex Trading charting software (available from most internet forex Trading brokers), you will notice points of crossover where the shorter time period MA will cross above the longer time period MA indicating an upward trend in the Forex Trading market, or if the crossing is below the longer period MA that will be an indication of a down trend in the forex Trading market. So by using this simple concept of the Moving Averages you can start understanding the basics of confirming trends when checking your forex trading charts during your particular trading hours. Moving Average Convergence Divergence MACD is a more detailed method of using moving averages to find Forex trading signals. This indicator was developed by Gerald Appel, the MACD plots the difference between a 26-day exponential moving average and a 12-day exponential moving average. A 9-day moving average is generally used as a trigger line, this means that when the MACD crosses below this trigger it is a bearish signal(time to sell) and when it crosses above it, it's a bullish signal (time to buy). This indicator will help the Forex trader using MACD studies to have an early signal of what the Forex market will do next. When the MACD turns positive and makes higher lows while prices are still tanking, this is usually a strong buy signal. Conversely, when the MACD makes lower highs while prices are making new highs, this could be a strong bearish divergence and a sell signal. The other indicator, RSI, stands for Relative Strength Index. The RSI indicator measures the markets activity as to whether it is over bought or over sold. It gives a Forex trader an indication of which way the Forex Trading Market is moving at the moment. It is important to note, that this is a leading indicator and thus allows one to see what the market is about to do next and then act accordingly in order to have gains. The higher the RSI number, the more over bought it is and conversely the lower the RSI number, the more over sold it is. It is a great leading indicator for the micro and macro reversals in the forex Trading market. This Forextechnical indicator was developed by Welles Wilder to help investors gauge the current strength of a stock's price relative to its past performance. The usefulness of this indicator is based on the premise that the RSI will usually top out or bottom out before the actual market top or bottom, giving a signal that a reversal or at least a significant reaction in stock price is imminent. The main purpose of the RSI is to measure the market’s strength and weakness. A high RSI, above 70, suggests an overbought or weakening bull market. Conversely, a low RSI, below 30, implies an oversold market or dying bear market. But RSI does not indicate a top or a bottom. Sometimes overbought market will be followed by little downward correction in order to gather momentum so it could go up much further. And sometimes oversold market will be followed by little upward correction in order to gather momentum so it could go down much further. Japanese candle sticks Japanese candle sticks are the most animated way to observe price movement. It records the price movement on Forex charts in effect drawing a clear picture for Forex traders to study. Japanese candle sticks also known as sign language of the Forex market. In candlestick charts, as in many other charts, you get the open, close, high and low of the online Forex prices. One of the biggest advantages of Forexcandlestick charts is when you only take a glance; you can observe a lot of information about the online Forex currency movement. Most importantly, you can notice the difference between the open and close prices of the online Forex. If you notice a red candlestick, it can serve as a warning about the direction of the currency price. The fat red section is the body of that Forex candlestick. The lines protruding from the top and bottom are the upper and lower wicks. The very top of a candles wick is the highest price for that candle while the bottom of the wick is the lowest price for the candle. Forex Candlestick charting is great for Forex traders wanting an extra edge in their quest for profits - this is due to the way the candle bodies are drawn, that gives a better insight that is visual, and shows Forex trader psychology. More Forex traders than ever are using Forex candlestick charts due to the extra trading edge they can get with this form of Forex charting - if you have not used them before, then this article is for you. Forex Trading Candlestick charts are not new, and have been used for hundreds of years by Japanese traders to predict and act on market movements. Forex Trading Candlestick charting giving greater insight into human psychology In the 1700's, Homma, a Japanese trader in rice, noticed how the price of rice was influenced by human psychology as much as the supply and demand situation. Homma used candlestick charts to trade rice and amassed a huge fortune in the markets. In fact, it was rumored he never to have had a single losing trade! Human psychology has never changed, and has remained constant over time – Forex Trading candlestick charting is therefore just as useful today, as it was hundreds of years ago. The Re-emergence of Candlestick Charting Steve Nison, book, "Japanese charting techniques," bought candlestick charting back into the public domain in the 1990s. Currency traders soon started using Forexcandlestick charting instead of Forexbar charts for greater insight into market movements So why use Candlestick Charts? 1. They complement other Technical Tools You can use Forex candlestick charts as you would use the common Forexbar chart, and you can combine them with traditional market indicators. ForexCandlestick charts are a great way to spot opportunities, and then filter, and time trades with other indicators. 2. Spotting trend changes Because of the way Forexcandlestick charts are viewed, they can give warnings of market reversals, far more visually than traditional bar charts. If you look at candlestick charting, the human psychology of the move literally jumps out the page at you. 3. Straightforward to use Forex Trading Candlestick charts use, the same open, high, low and close data that traditional Forex Trading bar charts use, and are easy to draw. In addition, there are many packages like super charts and trade station that will draw them automatically for traders. The different candle names are also easy to remember. 4. Define market momentums The way the Forex candlestick chart is drawn not only gives the direction of price, but also the momentum behind the move. The Forex Trading candlestick chart graphically illustrates the relationship behind the open, high, low, and closes by the body - and adds an extra visual edge, due to the way they are drawn. The Forex Trading candlestick has a wide part, called the "real body." This real body represents the range between the open and close of that day's trading. When filled in black, the real body means the close was lower than the open. If the real body is empty, it means the opposite - the close was higher than the open. Above and below the real body we see the "shadows." We see these as the wicks of the candle (which give them their name), and the shadows actually show the high and the low of the day's trading. A Visual Aid to Give You an Edge Forex Trading candlestick charts should be used rather than traditional bar charts because they give you an extra visual dimension. Regardless, of whether you are a Forex day trader, Forex position trader, Forex system trader or a Forex trader who likes to make your own trades, there is really nothing to dislike about candlestick charts! Easy and fun to use, and providing a greater insight into Forex market moves, along with the ability to use in any type of Forex trading, means if you aren’t already using Forex Trading candlestick charting, then its time to start.