Buy Currency in Pairs
When trading in the forex market investors learn how to buy currency and sell currency in order to make a profit. Currencies are only bought and sold in pairs and the value of a currency is determined as a comparison to another currency. The first currency of a currency pair is referred to as the base currency and the second currency is referred to as the quote currency. The currency pair price equals the ratio of one currency valued against the other so the currency pair shows how much of the quote currency is needed to purchase one unit of the base currency. The buying and selling of foreign currency is so popular because it can be traded 24 hours a day, among other reasons. You can read more about the advantages and advantages to trading forex online in previous newsletters.
When trading forex, as mentioned above you must buy currency and sell currency in pairs. The buy price or bid price, indicates how much of the quote currency is needed in order to get one unit of the base currency. The lower price or the bid price rather, is the price in which a brokerage or market maker is willing to buy the first currency or a pair. The sell price, or ask price, indicates how much an investor will get of the quote currency for selling one unit of base currency. This is the higher price, and the price in which the brokerage is willing to sell the first currency pair. When a currency pair is sold, the base currency is sold and the investor receives the quote currency. The difference between the two prices, or the bid and ask price, is called the spread.
As you learn to buy currency you learn that there are a lot of abbreviations for currency pairs. GBP/USD is the only currency pair that has its own name on the currency exchange. This name is Cable and it originated from the days when a cable under the Atlantic synchronized with the GBP/USD rate between the New York and London markets. See below more abbreviations.
What are considered to be the major currencies when forex currency trading, are typically the seven most liquid or most traded currencies in the market. Currently these include the US Dollar (USD), the British Pound (GBP), the Eurozone Euro (EUR), the Japanese Yen (JPY), the Swiss Franc (CHF), the Canadian Dollar 9CAD), and the Australian Dollar (AUD).
Market Direction: What is the underlying power of candlestick signals? They provide a graphic depiction of what is occurring in investor sentiment. This alone makes candlestick analysis a very accurate analytical tool. But what makes the signals even more powerful, producing bigger profits? Candlestick patterns! Candlestick patterns are generated with the incorporation of individual candlestick signals. Understanding what each signal represents allows an investor to analyze more accurately the conditions of a trend. Just as a signal reveals valuable information, a pattern reveals more extensive information
.If the market indexes can be analyzed as moving in a specific direction, candlestick patterns greatly enhance the profitability of participating in the trend. Obviously, all boats will rise in a rising tide. Many stocks will move positive in an uptrend. For the investor that wants to make larger than normal profits during that uptrend, the use of candlestick patterns becomes extremely valuable. Identified patterns usually have a specific result; very large price moves. Logic dictates that when prices are moving up, we want to find the price moves that are going to benefit the most from a market index uptrend. That is why candlestick patterns become extremely useful.
The patterns have multiple benefits. First, they reveal potentially strong price moves. This is due to reoccurring investor sentiment. The human mind works predominantly with reoccurring thought processes when it comes to investing. Fear and greed move prices in predictable fashion. Candlestick signals and patterns are merely the recognition of those reoccurring thought processes. Not taking advantage of the information built into patterns is leaving profits on the table. Secondly, the patterns, being formed by predictable investment habits, are also highly predictable. Not only for identifying high profit price moves but also identifying when a pattern has failed. These failures are easily recognized with the appearance of individual candlestick signals. Do all candlestick patterns perform as expected? Definitely not, but the patterns produce an extremely high probability of an expected result. If they didn't, we would not be using them today after hundreds of years of application.
What is the greatest downfall for investors? Their own emotions! What is the biggest cause for investors to allow emotions to creep into their investment decision-making? Not fully understanding what a price is doing or should do! This is greatly resolved when using candlestick signals and patterns. Each pattern has a specific visual formation. Each pattern has an expected price move. This allows for taking advantage of the price moves that would be greater than what a general market move would provide. It also allows for very simple stoploss procedures. We will be discussing the Jayhook pattern this coming Thursday night in our evening session. Learn how you can make profits from a Jayhook pattern two or three times during its price move.
Buyout rumors, how should you use them? Simple logic says that if you find out about a buyout rumor, you are probably one of the last to know. How often have you heard about something wonderful occurring in a company and you have bought the stock at the absolute high? We all have done it. How do we protect ourselves from being the last sap to buy the stock? Use the candlestick charts. There has been an underlying rumor that British Petroleum might be buying Chesapeake oil. That possibility was broadcast on CNBC today. When it is discussed on CNBC, that means everybody knows the rumor. Would it be time to buy a stock on a rumor that everybody has already heard about? Most likely not. However, the advantage of using candlestick analysis is to visually evaluate what the price trend has been doing. As seen in the CHK chart, today's trading is following a Bullish Engulfing signal of Friday coming out of the oversold condition.
When a chart can be evaluated as being in a good buy situation without considering the rumors surrounding it, it becomes a much greater probability of making money. The chart of CHK would be an excellent buy based upon the chart pattern. At least it demonstrates the price has not run up dramatically prior to everybody learning about the rumor. If you put your hand over the name on the chart, would it be a good place to be buying? If the answer is yes, then the potential rumor now becomes an added benefit for the upside. If the stock price already run up 45%, it might be assumed that you are the last one to know about the details of the rumor. Use candlestick analysis to evaluate what is occurring or what has occurred in a price move.
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