Tip! Considering that forex trading consists of many aspects, someone may have lack of time to learn forex trading without any clue about which ones is important and which is not.

In order to make big profits from currency trading, you need the skill on how to read the charts. While a text conveys the fine detail, a forex chart can swiftly bring the viewer up to speed with the big picture. In this fast-moving world, time is money especially in forex trading. This can make a big difference when it comes to your profits and frequently a graphic representation of the facts makes for easier interpretation.

There are several different ways to observe the price movements used in Forex trading such as bars, lines, point and figure, and Japanese candle sticks chart. Among of them, Bar Chart and the Candlestick chart are the most popular for Forex charts.

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Bar Chart is a type of chart used in Technical Analysis. They have reached their popularity because they are useful and easy to understand. The activities of the hour/day/week/month are seen as a vertical bar in the chart. Horizontal marks account for opening and closing prices. A trend line is drawn in the bar chart to indicate the price of online Forex trends. An ascending trend line connects between the daily highs of the market. A descending trend line connects the day’s low prices. If the downward trend line crosses the most recent prices - a buy signal is generated. If an ascending trend line crosses through the most recent prices, a sell option s generated.

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Forex charts are easy to interpret, especially for someone that has invested in or day traded stocks before. Charts, as mentioned earlier, are the building blocks of technical analysis which is now probably the most popular and successful ways of scrutinizing the forex market. Technical analysis concentrates on the price action of the market and applies a number of ?pure’ factors to predict market direction.

Currency charts are really no different than stock charts. One of the advantages of trading currencies over stocks is that you only have a few mayor currencies to trade rather than ten thousands of stocks. Thus, it is a lot simpler.

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 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.

Tip! The first and the most value added a resource of forex trading is through book reading. Forex and investing categorized books are availabe in countless numbers in many bookstore and online bookstore.

One of the biggest advantages of candlestick 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 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.

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Therefore traders of the online Forex market need to pay special attention to such changes of direction in currency price, in order to protect their investment.

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There are several critical factors that need to be considered in selecting the right trading system for you. Investors are always looking for a trading edge to exploit. Finding such an edge is akin to the quest for the Holy Grail and many would be traders spend their time bouncing from one system to another, constantly looking for the perfect system. If this sounds like you, let me suggest that you change your ways, quit searching, and start making money.

First, realize that every system will have loosing trades and there will be a series of such trades. The draw down is always a challenging time. You have to be prepared mentally and financially to ride out the draw downs. The way to prepare is to check the historical performance. The historical performance period should be appropriate for the number of trades and the rules in the system. What this means is that a system with many rules will need more trades to prove its validity. I like at least 50 trades per rule and be very conservative on the number of rules. For example, if the system is:

0Go long when the current price is greater than the 20 period moving average. Close when the price drops below the 20 period average.0

There are two rules in the above. One for the entry and one for the exit, which means I0d want to see a historical performance of at least 100 trades.

Another consideration is the average holding period and frequency for trading. Both these need to match your preferences or you will be soon looking for some other trading system. Some investors want a 0set and forget0 type of trading plan where they enter their trades and just make updates on a weekly, monthly or annual basis. For others this approach would be far too boring.

The major consideration is return on investment. There is no one answer as to what a reasonable number might be. It depends on several factors. First is the leverage used in the investment vehicle. For example, the least use of leverage would be to pay cash for shares of stock and own them outright. More leverage would be to purchase the stocks on margin or buy options on the stocks.

Even greater leverage would be commodities or currency trading. As the leverage goes up, returns should be greater to offset the increased risk.

Another consideration for acceptable returns is the frequency of trading. One would expect day trading to produce higher returns than a long term buy and hold approach, for example.

Let0s say that you0ve found the right combination of risk and reward. A strategy with trading frequency that suits your personality. What next? Paper trade! Always start by paper trading the strategy. The length of time to paper trade isn0t as important as the number of trades. Refer back to the previous section on number of trades to validate. The more the better, but at some point you just need to leap in. Ideally I0d like to see 25% or more of the total trades as calculated above.

About the author

Neal is a researcher on a book on forex trading. The book can be found at www.forextrader.biz. Neal is also the consultant for a stock pick service at KnowHow-Now.com Articles

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