What You Need to Succeed in Forex !

Currency pairs are simple to trade but don’t make the mistake of thinking that they are easy to make money with. There are many websites that tell you differently. They make you think that you just have to sign up for an account, start trading and ...voila, become a successful trader. Well, life is not that easy.
Like in many other areas, you need a solid knowledge before you get started. Hopefully you'll get some of it here in this guide. Be aware, though, that just reading this guide will not automatically make you an instant millionaire. You’ll learn some facts and strategies about Forex trading, but in order to make the most out of this guide and become the trader you want to be, you’ll have to adapt the ideas that you’re about to learn to what you already know.

For starters you need to learn how to read the charts. Charts are your main weapon in winning the Forex wars - ...well, maybe I'm a bit melodramatic here. But seriously, charts are a vital resource for a serious FX trader, actually any valid strategy involves reading and analyzing charts.
Basically, the charts allow you to predict the future course of a currency by finding patterns in its past price movements, and after all this what we need to win a Forex trade.

Don't be intimidated by the charts, actually they are not that hard to read and understand. Strategies that are based on reading and analyzing charts are part of the technical analysis area.
Technical analysis follows a straightforward set of rules freely available on scores of websites. Happily, the simplest rules in charting tend to be the most reliable. In a later chapter we will go over several strategies that you can apply in your trades.

The most basic form of technical analysis would be to look for support and resistance levels that markets have struggled to break through in the past. Charts in this way works best in moderately volatile markets. Technical analysis is also useful in identifying trends.

Another simple way of using charts is to look at moving averages, such as the average price over 10 days. The idea is that this gives you a better representation of what the price is doing over a longer period of time.
Another simple pattern is based on the so-called relative strength index (RSI). This highlights situations where a market is overbought or oversold and warns of a potential reversal in the trend. The RSI is the total points gained on up days, divided by the total points lost and gained, multiplied by 100.

In order to be able to develop effective Forex strategies you need to understand technical analysis. This chapter is design to acquaint you with the basic terms and concepts of technical analysis.
So what is Technical Analysis?
Basically, technical analysis is the studying of investor behavior as well as its influence on the price action of financial instruments. The primary information which we have to carry out our studies would be the price histories of the instruments, along with time and volume data. All these allow us to make our predictions, depending on objective data.
Technical analysis keeps track of and analyzes the ways by which investors behave. This kind of behavior is collectively called sentiment. Technical analysts' viewpoint is that investor sentiment would be the single most important factor in identifying an instrument’s price. Technical analysis practitioners believe that this analysis holds the real key to tracking investor sentiment.
In technical analysis we use charts to predict asset price movement and develop our strategies, this is why it is extremely important that you will be knowledgeable as to the various charts types that are being used in technical analysis.
Generally there are numerous ways to present price charts. Each has its unique advantages, however overall it is up to the person to determine which offers the best visual picture and is likely to be of most in discovering trends early on. We will look at the most widely used four types utilized by the pros:

This is actually the most basic chart format and is produced simply by using a line to join the data points.
The most typical use for line charts is for indicators that just have a single daily value (as opposed to high/low) for instance momentum or moving averages.
Here's a sample of a line chart:
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Bar Charts
Bar charts use vertical bars to show the price action of the underlying asset for a specific day, it indicates the lower and the higher price for the day.
As their name suggests, bar charts use vertical bars to represent price action for that day, drawn from the lowest price to the highest price.
Bar charts have indicators for the high and the low price of the asset. The left hand “notch” indicates the opening price of the asset and the right hand “notch” indicates the closing price.
Bar charts scales can be modified to show daily, weekly or monthly bars.
Here is a sample of a bar chart:
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Candlestick Charts
Candlestick charts offer a more detailed visual representation of bar charts. The opening price is included in the chart and a day’s activity would be represented as follows: an up day is indicated by a white (or empty) box. A down day is indicated by a black or shaded box. The "box" shows the open to close range. The "wick" displays the full day’s range.
Candlestick charts are generally plotted over a one-day period but technical analysts also use weekly and monthly candlestick charts to provide a valuable picture of the longer-term price action.
Candlestick charting is one of the oldest methods of technical analysis, with Japanese and Chinese both claiming that rice traders were using candlestick charts over 4000 years ago. Candlestick appeal lies in its ability to give a clear visual representation of the price action during a period, leading to easy-to-recognize pattern recognition.
Here is a sample of a candlestick chart:;
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Being familiar with the models of support and resistance is essential in creating a disciplined Forex trading strategy. Prices are dynamic, highlighting the ongoing change in the balance between supply and demand. By determining the price levels at which of these balances change we are able to plan the price level where to buy. Even though these levels could be created by the markets subconsciously they signify the collective views of the individuals in the markets.

Support represents the level where buying pressure is powerful enough to absorb and overcome the selling pressure. At price support levels buyers move into the market mopping up the imbalance between supply (sellers) and demand (buyers) so that when this happens the price will stop its fall and may probably rise.
Resistance is the opposite of support and is the level where the volume of selling (supply) exceeds the volume of buying (demand). These mini-levels may change frequently but over time a visible pattern comes out and firm levels come to be set up.

Here is a sample of support and resistant levels:
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We all know that prices do not rise or fall in a straight line but rather move in a series of zigzags which resembled waves. Now, the relative positioning of the peaks and troughs in these waves define the trend.
For a currency to be in an uptrend, it must make successive higher peaks (highs) and higher troughs (lows). For a currency to be in a downtrend, it must make lower peaks (highs) and lower troughs (lows).
Simply by figuring out these types of peaks and troughs, we are able not just to explain the present trend and set it in its historic framework but, equally as important, figure out when it is changing. We do this by looking at the patterns created by the peaks and troughs.

Here's an example of a trend:
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The moving average is probably the most widely used indicator and is used by technical analysts for numerous sorts of tasks. Moving averages can be used to discover regions of short term support/resistance, to look for the current trend and as a component in numerous other indicators like the MACD, or Bollinger bands.
The primary benefits of moving averages is first of all that they smooth the data and therefore offer a sharper visible picture of the present trend and subsequently, that moving average signals can provide an accurate answer as to what the trend is. The primary downside is that they are lagging rather than leading indicators.

There are actually two major types of moving average:
The simple moving average calculates the average price over a specific moving time period. For example, a 50 day simple moving average will calculate the average mean price from the last 50 days closing prices..
The exponential moving average also averages the last x days closes but designates a greater weight to the more recent prices which makes it more sensitive to present price action thereby decreasing the lag impact.

Here's an example of moving averages:
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