Sunday, April 13, 2008

Candlestick Chart On Forex

Candlestick charts show the same information as a bar chart, but in a prettier, graphic format. Candlestick bars still indicate the high-to-low range with a vertical line. However, in candlestick charting, the larger block in the middle indicates the range between the opening and closing prices. Traditionally, if the block in the middle is filled or colored in, then the currency closed lower than it opened.

Simple Patterns

There are multiple forms of candlestick chart patterns, with the simplest depicted at right. Here is a quick overview of their names:

  1. White candlestick - signals uptrend movement (those occur in different lengths; the longer the body, the more significant the price increase)
  2. Black candlestick - signals downtrend movement (those occur in different lengths; the longer the body, the more significant the price decrease)
  3. Long lower shadow - bullish signal (the lower wick must be at least the body's size; the longer the lower wick, the more reliable the signal)
  4. Long upper shadow - bearish signal (the upper wick must be at least the body's size; the longer the upper wick, the more reliable the signal)
  5. Hammer - a bullish pattern during a downtrend (long lower wick and small or no body); Shaven head - a bullish pattern during a downtrend & a bearish pattern during an uptrend (no upper wick); Hanging man - bearish pattern during an uptrend (long lower wick, small or no body; wick has the multiple length of the body.
  6. Inverted hammer - signals bottom reversal, however confirmation must be obtained from next trade (may be either a white or black body); Shaven bottom - signaling bottom reversal, however confirmation must be obtained from next trade (no lower wick); Shooting star - a bearish pattern during an uptrend (small body, long upper wick, small or no lower wick)
  7. Spinning top white - neutral pattern, meaningful in combination with other candlestick patterns
  8. Spinning top black - neutral pattern, meaningful in combination with other candlestick patterns
  9. Doji - neutral pattern, meaningful in combination with other candlestick patterns
  10. Long legged doji - signals a top reversal
  11. Dragonfly doji - signals trend reversal (no upper wick, long lower wick)
  12. Gravestone doji - signals trend reversal (no lower wick, long upper wick)
  13. Marubozu white - dominant bullish trades, continued bullish trend (no upper, no lower wick)
  14. Marubozu black - dominant bearish trades, continued bearish trend (no upper, no lower wick)

Hedging Forex Strategy

Currency hedging refers to a strategy that strives to minimize the exposure to exchange rate fluctuations, thereby minimizing the uncertainty of future transactions denominated in a foreign currency and providing some stability to earnings and cash flow. This is typically accomplished through the use of options or futures contracts.

Forward contracts can also be used to hedge currency risk. However, while forward contracts are superior to futures in terms of their overall risk reduction, there is no central market for forward contracts, which contributes to higher transaction costs and lower liquidity, as well as counterparty risk (i.e. the risk that the contract will not be honoured at expiration).

When a business chooses to hedge its exposure to foreign currency, the objective is to minimize uncertainty, not to maximize profit from currency speculation. A hedged position will therefore not produce the benefit of a favourable exchange rate movement, but at the same time will not expose the hedger to the loss potential of an unfavourable exchange rate movement.

The underlying principle of a hedging strategy is to construct a portfolio consisting of a long position in the foreign currency asset and a short position in a foreign currency asset such that gains on one offset losses on the other. This is achieved by using derivatives whose price movements are highly correlated with movements in the spot market.

Ideally, the derivative being used to hedge will have the same underlying currency as the foreign currency asset being hedged, since the price movements of the two assets would be highly similar.

Forward contracts give you a fixed cost for your foreign currency and therefore for your foreign currency purchasing. If the interest rates in the foreign country are higher than they are in the US, the forward rate is at a discount to the spot rate, and this reduces the dollar cost still more.

Forward contracts also have the advantage of being suitable for internal transactions. If your company exports to the country you are buying in, and wants to sell in local currency, purchasing in local currency reduces the company's currency exposure. The purchasing flow of funds offsets the sales office flow of funds. If an internal forward agreement is made between the two departments, only the difference between the two flows needs to be hedged at banks.

Options allow a buyer to take advantage of an increase in the value of the US dollar but protect against a decrease. Unfortunately, they are expensive. A six month option on a volatile currency typically costs about 5% and most people choose not to buy them. An added difficulty is that option prices for the European style options that buyers need are not well listed in financial newspapers.

Hedging does involve some risks, but they are limited and can be controlled with simple attention to the fundamentals. Risk arises from forecast inaccuracy, and can lead to unexpected price variations, either up or down. If a company over forecasts purchases and hedges with forwards, there will be larger profit or loss on the hedge than the variance on part cost.

With over forecasts, there will be a loss on forward contracts if the dollar strengthens and a gain if the dollar weakens. The total unexpected gain or loss will be approximately the percent over forecasted times the percent that the dollar changed. For example, a 20 % over forecast and a 15% currency strengthening will result in a 3% (15% of 20%) extra cost of the parts.

With under forecasts, some of the parts must be purchased at the spot rate without an offsetting hedge. If the dollar weakens, they will be more expensive and if it strengthens, they will be cheaper.

The biggest gains in currency management will come from choosing the right currency. A good negotiator should be able to get an initial price reduction of 5% or more against a volatile currency like the yen or the mark. The next most consequential decision is whether or not to hedge. Not hedging opens the buyer to dollar price swings that are often 20% in six months. This uncertainty is unacceptable to most companies.

The third decision is to choose a hedging strategy. A recent article in the International Journal of Purchasing and Materials Management showed the benefits of actively choosing a hedge strategy based on a Bayesian statistical analysis of probable outcomes. Over a five year period, actively choosing a hedge strategy would have saved 3.6 percent compared to paying in the supplier's currency (yen) without hedging, and 1.8 percent compared to always hedging with forwards. The authors did not consider options as a potential hedge strategy.

If buying in the supplier's currency without hedging is unacceptably risky, and buying in dollars is excessively expensive, the choice is between hedging with forwards and hedging with options.

If options were free, they would be the ideal choice, because they permit taking advantage of a stronger dollar and protect against a weaker dollar. However, options are not free, and almost always will be more expensive than forwards.

If you actively analyze probabilities of currency changes as the authors in the Journal recommend, and believe that the dollar will weaken, you should use forward contracts. They will give the same results as an option but at a lower cost. If you see no clear trend, make the choice based on relative costs. During two one-year periods when the dollar had no net change against the yen, options would have saved an average of 3.5% compared to forwards, before the costs of either.

If the difference in costs between an option and a forward contract is less than 3.5% and you predict no increase or decrease, consider buying an option.

If you predict a strengthening dollar, an option is the better choice. During a one year period of a strengthening dollar, options would have saved 7.71% compared to forward contracts.

Why Forex Broker using MT4 (metatrader 4) as platform?

MetaTrader 4

is an online trading platform designed for financial institutions dealing with Forex, CFD, and Futures markets. The platform includes all necessary components for brokerage services via internet including the back office and dealing desk.Currently, over 100 brokerage companies and banks worldwide have chosen our solution to meet their high standards of business performance. since Mt4 platform
This application provides a professional online trading terminal for institutions such as FOREX, CFD’S, Futures and Stocks. It allows you to monitor the markets and its trends automatically using the advanced charting options. It has powerful tools which would help you in planning your own strategies through the Expert Advisors. The tool helps keep track of all updations in the market without the need for constant monitoring. It is extremely useful to trading in brokerage firms, banks and financial institutions. You can write customized indicators to suit your requirements if the standard technical indicators need to be adjusted. You can view all your accounts and portfolios on the interface.

Saturday, April 12, 2008

Forex broker that using e-gold, liberty reserve,webmoney, and ebullion as deposit method

Reason why using forex broker that enabled e-gold, liberty reserve, webmoney and other digital currency is because it's easier. we can deposit to them instantly and they process the payment faster than using wire transfer or credit card. nowdays alot forex broker offer digital currencies as deposit and witdrawal method. in the future i believe more and more broker using digital currencies as deposit and withdrawal :)

for reference list of forex broker using DGC's as deposit/withdrawal. you can visit here

My New Forex Blog

Hi all, Just finished my new forex blog. you can visit there for more reference about forex broker :)

Thursday, March 27, 2008

Fibonacci Trading Calculator

Leonardo Pisano, better known by his nickname, Fibonacci, was an Italian mathematician born in Pisa in the 12th century. He is known to have discovered the Fibonacci numbers, said to be based upon observations of the Great Pyramid of Gizeh in Egypt. Fibonacci Numbers are a sequence of numbers where each successive number is the sum of the two previous numbers.

e.g. 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, etc.

It is the ratio of the Fibonacci sequence that is significant, rather than the actual numbers in the sequence. The quotient of the adjacent terms in the series possesses an amazing proportion, roughly 1.618, or its inverse 0.618. This proportion is known by many names: the golden ratio, the golden mean, PHI, and the divine proportion. The dimensional properties that adhere to the ratio of 1.618 occur repeatedly in nature. Examples are as various as mollusk shells and the shapes of gallaxies containing billions of stars.

When used in technical analysis, the golden ratio is most often translated into three percentages: – 38.2%, 50%, and 61.8%. However, other multiples can be used, such as 23.6%, 161.8%, 423%, and so on. The Fibonacci sequence is applied to finance in several ways: retracements, extensions, arcs, fans, and time zones

Forex Fibonacci Calculator v2.1 is a simple and useful tool that will help you to calculate Fibonacci extension and retracement levels for the market price. You will be able to anticipate market price moves and plan future trades according to the calculated results.

Note, that calculation formulas will differ for uptrend and downtrend moves, therefore use appropriate panel in the Calculator to input price values.
You can also find those formulas used for calculating Fibonacci levels on the program panel below.

In order to calculate Fibonacci levels with this program traders need to fill in High and Low values for the price and click on "Calculate!"

Tip: Change default field "Decimal places" to get desired number of decimal places for calculated results.

Fibonacci calculations can be used for any currency pair and with any time frame. However, the bigger the time frame, the more accurate results traders should expect applying Fibonacci calculations.

Forex Fibonacci Calculator must be used only as a helping(!) tool for planning future trades. No liability will be taken for any losses or unwanted results caused by following the calculations obtained by using Forex Fibonacci Calculator.

We wish you profitable trading and hope this tool will help you to make one step forward in achieving your trading goals.

Dowload Forex Fibonacci Calculator here
Download here