Forex Trading (2)

Price interest points, commonly known as pips, are usually expressed in decimals. Depending on the pair of currencies being traded, pips are usually the last numbers of the decimal.

A trader’s financial reward is measured in pips, which are then converted into dollars. Most traders on the Forex trade with what is called leverage. This is borrowing or using a broker’s money to trade. You acquire leverage by posting a bond or a deposit with a Forex broker who then allows you to trade using the broker’s money. When a trader executes a trade on the Forex, the trader is buying or selling currency in units referred to as lots (which is a set quantity of money). There are typically two types of lots that traders will trade. A $100,000 unit is called a regular lot, and a $10,000 unit is called a mini-lot. When you buy and sell a regular lot, you get paid $10.00 a pip versus $1.00 a pip on the mini-lot.

The average minimum deposit for trading with leverage is 1 percent, which means that for every $100,000 lot you trade, you must have $1,000.00 in your margin trading account. For mini-lots, you will need a minimum of $100.00 in your margin trading account on deposit. Trading can be a worthy full-time profession or a great way to earn secondary income.

The purpose of a broker is to facilitate the trade. After you open a trading account, the broker gives a trader the right to execute transactions, which includes certain rights and privileges, including the right to be a bull or a bear. The terms bull and bear were created by traders in the stock market in
the early 1900s to identify the direction someone was trading in the market. The term bull was derived from the way in which bulls attack or charge, moving upward. In contrast, bears move downward when they attack or charge.

Bulls, therefore, resemble a buying market, because they believe prices will continue to move upward, or rise, whereas bears resemble a selling market, because they believe prices are going move downward, or fall. Every trader has to make a decision to be either a bull or a bear before entering the market. Bulls enter the market buying (first) and exit selling (second). Bears do the opposite: they enter selling (first) and exit buying (second). To make a profit in the market, you must always buy low and sell high. Both bulls and bears are trying to do that; bears just reverse the transactions.

One of the most important and productive habits you can adopt is properly educating yourself about the Forex before you begin trading. If you move forward without the proper education, be prepared to lose your money, much like in a casino. You will be trading off your “gut feel” and emotion and placing yourself in the same position as that of a reckless gambler. Just like the casino, the market will be there to take all your money.

Bulls and bears fight aggressively to make the market go their way. For the Forex market to trade, there must be someone buying and someone selling simultaneously. In other words, one trader must be a bull going long and one must be a bear going short. Both traders are adamant about their positions, despite the fact that they rely on extremely accurate information, often from the same sources. What is amazing is they are adamant about the market going in opposite directions. In the market, the bulls and bears have different characteristics, yet they want the same thing - they both want to make a profit.

Bulls and bears enter the market buying or selling in hopes that more bulls or bears will enter after them, giving the market what is called bullish or bearish strength - creating a greater rally or greater dip. If their counterparts step in, the market will begin to move in their direction. Take the bulls, for
example. If you wanted to be a bull, you would enter the market and, if your analysis was right, more bulls would enter and the market would begin to rally and reach new highs, or what is called higher highs. Most of the time, after the bulls achieve a new high, frequently prices start to retrace, or fall back down.

Bulls and bears keep track of all the previous highs and lows, no matter how far back they go. When bulls achieve a new high - higher than a previous high - they do “scoring a point,” and after the point is scored, the market pulls back. Conversely, the bears, too, are trying to score points by taking the market lower and making lower lows. When the bears make a lower low, lower than a previous low, they “score a point,” which is followed by a pullback. Bulls and bears play this eternal game 24 hours a day, seven days a week. Bulls fight for control, proving their strength  by making new highs, and bears fight for the opposite.

Resistance occurs when the bulls move the market to a new high that is higher than a previous high and the bears jump in aggressively selling, attracting more sellers than buyers, interrupting the rally and creating a retracement or pullback from that high. The new high becomes the new level of resistance, which is defined as a market high or a price level where bears start selling enough to interrupt and reverse a rally.

Support occurs when bears move the market to a new low that is lower than a previous low and the bulls jump in aggressively, buying to support the price and attracting more buyers than sellers. That increased buying interrupts the dip and creates a retracement or pullback from that low. The new
low becomes the new level of support, which is where bulls start buying enough to interrupt and reverse a dip. Bulls on the Forex are the buyers who are looking for opportunities to buy a currency pair at a low price in order to sell it at a higher price for profit. Bears want to take the market to lower levels, enabling them to sell high and buy low, which is nothing more than buying low and selling high backwards.