Principles in Technical Trading
Direct Quote vs. Indirect Quote
Direct Quote vs. Indirect Quote
There are two ways to quote a currency pair, either directly or indirectly. A direct quote is simply a currency pair in which the domestic currency is the base currency; while an indirect quote, is a currency pair where the domestic currency is the quoted currency. So if you were looking at the Canadian dollar as the domestic currency and U.S. dollar as the foreign currency, a direct quote would be CAD/USD, while an indirect quote would be USD/CAD. The direct quote varies the foreign currency, and the quoted, or domestic currency, remains fixed at one unit. In the indirect quote, on the other hand, the domestic currency is variable and the foreign currency is fixed at one unit.
For example, if Canada is the domestic currency, a direct quote would be 0.85 CAD/USD, which means with C$1, you can purchase US$0.85. The indirect quote for this would be the inverse (1/0.85), which is 1.18 USD/CAD and means that USD$1 will purchase C$1.18.
In the Forex spot market, most currencies are traded against the U.S. dollar, and the U.S. dollar is frequently the base currency in the currency pair. This would apply to the above USD/JPY currency pair, which indicates that US$1 is equal to 119.50 Japanese yen.
However, not all currencies have the U.S. dollar as the base. The Queen's currencies - those currencies that historically have had a tie with Britain, such as the British pound, Australian Dollar and New Zealand dollar - are all quoted as the base currency against the U.S. dollar. The Euro, which is relatively new, is quoted the same way as well. This is why the EUR/USD quote is given as 1.55, for example, because it means that one euro is the equivalent of 1.55 U.S. dollars.
Most currency exchange rates are quoted out to four digits after the decimal place, with the exception of the Japanese yen (JPY), which is quoted out to two decimal places.
If you prefer trend following, moving averages are your technical tools of choice. You can use them for layered trade orders, where each moving average is regarded as a target for the price to breach, or as trendlines that guide long term decisions. By contrast, moving averages are rarely useful in ranging markets.
We will conclude by adding that it is always a great idea to build each position gradually, never committing capital at a single stage, and that, at least at the earliest stages, it is best to keep position sizes constant. If you adhere to these basic rules, your forex education will be smoother, involving fewer setbacks, and probably far greater profits at the end of the road .
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Principles in Technical Trading
Article written by http://www.forextraders.com
Learning how to trade is a life time endeavor requiring focus and patience, but there are a few generalities that can make your job easier. And if you make use of them while trading, in addition to an immediate improvement of your trading results, you will be able to structure, simplify and condense your trading strategies, improving the quality and shortening the timespan of your basic introduction to trading and profitability.
Begin crafting your technical strategy by identifying the type of trading that the market is experiencing (is it a trend, a range pattern, is it high or low volatility?), then try to identify any fundamental factors that may be creating directionality in the market during the period observed. After that,it is time to examine the price action in light of technical tools.
In general, the smaller the number of indicators, the better. Indicators in the same category serve the same purpose most of the time, and there is little benefit to be derived in heaping one of them on top of the other. Even in the cases where a number of oscillators are yielding conflicting signals, there is little value in combining them, since it is unlikely that we will be able to deriver a correct signal by creating a lot of noise. On the other hand, by using few indicators in our analysis, we can make sure that it will be easier to find out what went wrong if events don`t turn out as anticipated at the time we opened our position.
Basic tools such as trend lines or moving averages can be exceptionally useful. It is not unusual to see that a significant technical barrier existing on a 100-day MA will fail to be breached during many weeks or months. A trend line can likewise stay valid for a long time, even as it is tested on multiple occasions, presenting many opportunities to a trader with a suitable long-term outlook. In cases where strong fundamental factors back an existing pattern, the safest course is to trade it without being concerned much with further short-term technical details. Such an approach provides greater analytical clarity, and also removes the need for constant improvisation, reducing the number of trades, risk, and the emotional pressures involved.
If the trader is in possession of concrete data relating to order flows, use of support/resistance lines can be very profitable. In the absence of such, depending too much on technical support/resistance patterns, however strong they may appear, is probably not a good idea. On the other hand, it is often the case that existing long term support/resistance lines have strong fundamental causes sustaining them, and if those can be identified, the patterns can be traded profitably with reduced risk.
Among the major classes of technical indicators, oscillators are suitable to ranging markets. That is not to say that they would never work in other types of market conditions, but since trending markets tend to breach supprort, resistance, overbought, oversold levels without looking back, depending on oscillators while trading trends can yield disappointing results. If you do decide to use oscillators such as the RSI, MACD, Stochastics indicators, or the many tools devised by Larry Williams, or other great names in trading, make sure that the overbought - oversold signals remains valid for a period of time before you trade on them. That way, there is a chance that the initial thrust of the trend will have died down by the time you open a position to countertrade it on the basis of the oscillator‘s signals.