Foreign Exchange / Forex / FX – whatever you call it, trading two currencies without the basic knowledge is equal to gambling, where you rely on pure luck. Master the ABC’s and you’ll already be better than majority of beginner traders!
Forex Market Size
As we have mentioned in other forex school lessons, weekly turnover of the forex market is over $25 trillion. That means on any given trading day, an average of $5 trillion of currency changes hands. In Donald Trump’s words: HUUGE!
Forex trading by retail investors makes up just 5% of trading volumes. This means you must understand and accept you are a little fish in a giant ocean but that doesn’t mean you can’t chase the big sharks and make money!
Don’t forget to check out the best Forex apps for trading!
Buying (Going Long) and Selling (Going Short)
- If you think the price of a currency will increase, you will want to buy it (go long/up).
- If you think a currency’s value will decrease, then you will want to sell the currency (go short/down).
Going long is easy, you buy the asset and sell it when it’s price rise. Going short is a little more complex, but it’s taken care of without you lifting a finger. Basically, the broker or trading simulator will lend you the currency you want to sell. When the price falls, you pay the broker back at the lower price. The difference between the price that you borrowed at and the price that you pay back is your profit.
As a Forex trader, you will be going simultaneously long and short as you trade a pair. For example, long EUR/USD means you buy Euros and sell Dollars. You will make money if the chart rises, and lose money if it falls. It’s best to try out how it works in the forex game with real-time market data.
Currency Pairs Being Traded
The price of a currency pair is, essentially, a reflection of what the global market thinks the future of its economy will be, compared to another country. For example, if you are buying British Pounds against U.S. Dollar (GBP/USD), you are basically betting for the British economy. In other words, you think the British economy will grow more rapidly compared to United States. Afterwards you just have to know how to read currency pairs.
Bulls versus Bears
While bulls are known for throwing an opponent in the air, bears tend to smash them down to the ground. This is a iconic analogy in the Forex as it represents rising and falling markets. A bull market is a market that is rising in value. A bullish trader is one who believes the market will rise, thus goes long.
Pips and Pipettes
A pip is the abbreviation of the phrase “Price Interest Point”. This is the basic and most important unit of measurement in forex.
Pips are used to measure gains and losses. The cash figure that a pip actually represents will vary depending on the pip value. The pip value varies depending on the pair being traded. Luckily, all best forex brokers will calculate the pips automatically for you.
Spread
The spread is the fee that you incur when trading currency. The broker executes your trade at a slightly higher (Buy) or lower (Sell) price than the market rate, and takes the difference between the two as its fee.
Lots
The concept of a lot is the same as any grocery item that is sold in a multiple pack (like a six-pack for beer). Currencies are bought and sold in minimum size packs that are called lots. This is so that tiny amounts cannot be traded, because this would be inefficient and unprofitable for market participants.
- Standard lot – 100,000 units of the base currency
- Mini lot – 10,000 units of the base currency
- Micro lot – 1,000 units of the base currency
- Nano lot – 100 units of the base currency
Leverage
Leverage allows you to earn large profits without having to raise huge amounts of cash. U.S. maximum leverage is 1:50. In Europe, normally it is up to 1:30 due to ESMA restrictions. Without any leverage, you would need $100,000 in your account in order to trade a standard lot. With leverage of 1:100 you need just 1/100 of the amount, or $1,000 as you are lent your account size X100 by your broker. Remember, that leverage works on both sides of the trade – when you’re winning, and also when the market goes against your prediction.
If you think a currency will rise, you would buy it. This is also known as going what?
Which of these is the largest social trading community?
Selling short means that you think a currency will…?
FAQs
Essentially, it is made up of four significant highs and lows on the chart: A new prevailing trend forms at A. The market retraces at B. The initial trend resumes at C. You can trade the next correction at D.
How does the ABC pattern work? ›
Finding the ABCD pattern
To find the ABCD pattern, traders look for the legs or the moves between points. AB and CD denote the moves in the direction of the overall trend, while BC is the retracement. Each leg typically lasts between three and 13 bars.
What is 90% rule in forex? ›
The 90 rule in Forex is a commonly cited statistic that states that 90% of Forex traders lose 90% of their money in the first 90 days. This is a sobering statistic, but it is important to understand why it is true and how to avoid falling into the same trap.
What is the ABCD pattern reversal? ›
Bullish ABCD
The pattern is then followed by a reverse and rise in price, known as BC, which is then reversed to a bearish move (CD), completing the pattern. The D point falls below point B. Once the price completes the CD price swing, there is a reversal and an increase in the price once the price touches point D.
What is the ABC strategy? ›
Abstinence, be faithful, use a condom, also known as the ABC strategy, abstinence-plus sex education or abstinence-based sex education, is a sex education policy based on a combination of "risk avoidance" and harm reduction which modifies the approach of abstinence-only sex education by including education about the ...
What is the ABC correction in trading? ›
The ABC correction is basically a zigzag lower. Part A: A chart is moving higher and then drops. Part B: It rebounds but makes a lower high. Part C: Prices continue down to make a lower low.
What is the target of the ABC pattern? ›
The ABC pattern targets are computed using the AB and BC swings. The height pattern (AB) is used to project target levels from C-level using Fibonacci ratios. The first target zone is (62-79% AB) from “C” and the second target zone is (127-162% AB). A secondary target level is set at 100% AB Level at 152.21.
What are ABC patterns? ›
An ABC pattern can be three different shapes, colors, etc that repeats over and over again. Look below for an example of an ABC Pattern. An AABB pattern is two colors, shapes, etc that are the same followed by two more that are the same and then repeat over and over again.
Is $500 enough to trade forex? ›
Yes, $500 or $1000 is enough to get involved in forex. Well, this depends on how much you're risking per trade. If you risk $1000, then you can make an average of $20,000 per year. If you risk $3000, then you can make an average of $60,000 per year.
Can I trade forex with $100 dollars? ›
In conclusion, starting forex trading with just $100 is possible, but it requires careful planning and risk management. You need to choose the right broker and account type that fits your budget and trading style. Micro accounts are a good choice for beginners with a low budget.
In summary, if you are interested in trading forex with a $200 budget, it's possible, but it's crucial to proceed with caution, make informed decisions, and develop a strong understanding of forex market dynamics.
Is ABCD pattern reliable? ›
Conclusion. The ABCD pattern is a valuable tool in traders' arsenal, offering a structured approach to deciphering price movements in the stock market. By identifying distinct points — A, B, C, and D — investors gain insights into potential trend reversals or continuations.
What is the ABC pattern in forex? ›
The ABCD pattern is a visual, geometric chart pattern comprised of three consecutive price swings. It looks like a diagonal lightning bolt and can indicate an upcoming trading opportunity. This is a valuable pattern to know, as it reflects the rhythmic style in which the market moves.
What is the ABCD pattern of day trade? ›
The ABCD trading pattern is a trend that prices can take in the market, observable on charts. The sequence of events follows a particular harmonic pattern in market movement that can be helpful to traders in attempting to predict future price swings.
What is the ABCD method of trading? ›
The ABCD pattern is an easy-to-identify chart pattern that consists of two equivalent price legs. It is a harmonic pattern that helps traders predict when the price of a stock is about to change direction. The pattern can be used to predict either a bullish or bearish reversal depending on the orientation.
What is forex Type B? ›
The B book broker goes by different names such as market maker or a fixed spread broker. To explain this in simple terms, if you place a buy order, your broker will be selling to you and vice versa. Many traders are starting to doubt this type of forex brokers.
What is the 5 3 1 rule in forex? ›
The 5-3-1 strategy is especially helpful for new traders who may be overwhelmed by the dozens of currency pairs available and the 24-7 nature of the market. The numbers five, three, and one stand for: Five currency pairs to learn and trade. Three strategies to become an expert on and use with your trades.
Foreign Exchange / Forex / FX – whatever you call it, trading two currencies without the basic knowledge is equal to gambling, where you rely on pure luck. Master the ABC’s and you’ll already be better than majority of beginner traders!
