Financial Instruments to Trade in Currency Market

It is essential to make an overview of what currency futures are and what their differences and similarities with traditional currency trading are. Currency futures are the contracts about buying or selling the fixed amount of currency in future according to the exchange rate established in the contract. This is practically the same as traditional futures, the difference being that instead of currency any other asset is used and instead of the established exchange rate there goes the established price.

Information source at FinancialInteractive.com

Hourly to tick-by-tick chart analyses

For most purposes, the treatment of trade-by-trade data is most effectively evaluated with five-minute bar charts. Using the five-minute chart as the base, it is easier to extend to daily, weekly, and monthly chart analysis of the same futures or stocks. Most software for day trading analyses provides for this type of analysis. It is much easier to analyze from a smaller scale to a larger scale than the other way around, as the data collected on the smaller scale can be summarized into larger scales.

The use of tick-by-tick charts is valid if the day trader is an experienced Elliott Wave analyst who needs to discover the wave counts as precisely as possible; for all practical purposes, if the off-floor day trader needs to analyze the market action by ticks, she shouldn't be trading at all.

The off-floor day trader mustn't even attempt to analyze the markets on a tick-by-tick basis, for three reasons: competition from floor traders and stock specialists, delays in price reporting, and incorrect sequencing of trades.

Competition from floor traders and stock specialists. Because it is the province of floor traders and stock specialists to make their living trading so close to the vest, the off-floor day trader would be literally trying to compete with them on their level. This can't be done. If it were possible, then there would be no need for member¬ships on exchanges. Even though the trend is toward trading from off-floor with computers, those who control the programming of the computers will have access to first trades.

Delays in price reporting. Where is the market really trading at while the off-floor day trader is trying to analyze the markets so precisely? Trades executed on exchange floors are reported by the human-machine chain. Early in our survey work to find the most reliable source of data for forex day trading purposes, our firm instructed a floor member at the Chicago Board of Trade to report all price changes in the Bond and Soybean pits over the telephone. The aver¬age delay from the changes reported on the electric boards at the ex¬change to the time we received the changes on our computers was about 10 seconds. In slow markets, 10 seconds of price-reporting delay seems like forever, though this problem can be resolved very easily: Give limit orders close to the last sale for trade execution instead of market orders. In fast markets, a 10-second delay can actually turn out to be forever; this problem can be resolved only with additional trading capital.

There are also many times when the prices and trades are re¬ported incorrectly: Numbers and markets are miskeyed and trade executions are reported in different sequences. Given some of these considerations, the tick-by-tick charts are useful but can often be misleading.

The day trader would be best off viewing the tick-by-tick charts for confirmation of his trade executions and not using them to evaluate market conditions for future trade executions. The tick-by-tick charts should be used only for price-reporting functions and not value-decision-making tools.

On the other hand the use of hourly charts for forex day trading takes a bit too long. There are about six hours of exchange-fostered trading in the average market, so reducing the analysis to segments of six hourly bar charts for analysis offers a maximum number of six decision-making points; that is, the trader makes a decision to enter or exit a trade only after the completion of the analysis of one particular data bar. If the day trader needs many decision-making points, the fact that there are only six hourly points drastically reduces the number of potential trades.

If the day trader waits for market action to unfold during the course of the day—waiting until half the day is over is normal— three of those six decision-making points will have passed, al¬lowing the day trader only the remaining three possible trade exit points for the latter half of the trading session. Until the third or fourth decision-making point passes, the day trader will not gen¬erally have enough information to successfully enter a day trade. At that point, there will be only two or three more data points left to be charted before the end of the trading day.

Implicit in this is the reason for exiting a successful trade: Exit only when sell signals are generated, not when the passage of time limits the trading day.


The day trader may exit profitable trades in either of these conditions:
1. Time is up and the day trader has to close out the trades prior to the day's close.
2. The day trader has profits on his trades and arbitrarily decides to close out the trades.

In either case the day trader would be allowing profits to dictate his trading style.

As will be seen elsewhere in this chapter, successfully making money in the markets must be based on using both loss-cutting techniques and profit-taking techniques. Most experienced traders, however, will tell the day trader that it has been losses that have caused the most damage to their trading, not profits. Arbitrarily defined profits are reflections of the trader's parameters. On the other hand, profit, when defined by market action, is a reflection of the market's conditions.

Aspects of day trading: Time and Price

What has been cursorily discussed so far is the range of time and the range of prices. The range of time has been defined as a maximum period as bounded by the opening time and the closing time. Any greater time period than that would encompass a larger time frame, which would move it out of the area of day trading.

Every legitimate trader is bound to play by these parameters: No trades can be executed after the closing trade. Open trades can be carried over in the next trading session, however, for the closing of the trade.

Thus, the limiting factor that defines the scope of day trading distinctly is the limit of time.

Because the day trader has access to the data of each trade, the issue of length of analysis is important: Should he analyze every trade tick by tick, or should he push to get his analysis closer to the daily parameters?

The day trading as it is

Forex day trading is the day-course trades making. The idea is to win the short-term profits. The trading day could be prolonged outside the usual time per. If the trades are carried beyond the day of initiation, the trade is extending to the position trades.

Trader is getting the maximum time length for carrying the position with the execution day trade at the opening price and ending at the close. To get high profits you should leave the trade for as long time period as possible. In this case the opportunity for profits will increase. But don`t forget about the risks – because increasing maintenance time may bring to higher losses.

Previous statements involve that through trade duration the position is going to be profitable. If the trade is profitable and the day trader decides to close out the trade prior to the close of the day, the day trader eliminates any possibility of continued profitability by eliminating any market positions.

The forex day trader`s potential for additional profits would have been reduced to zero probability by the act of closing out the trade. At this point, open trade profits or losses become realized gains or losses.

The act of allowing the profitable trade to stay open for as long as possible is merely a mechanical way to manage the position. It requires no additional thought processes. As this is the most mechanical way to increase the opportunities for profits, it does not give a hint of what is critical to profitability: the range of prices traveled during the period the markets are open from the opening trade to the closing trade, that is, the opening and the closing price, as differentiated from the opening of the day trade and its closing, and the range of prices, from high to low. In terms of prices covered, the range between high and low prices is a subset of prices through which the market has traveled from opening to closing.

As you can determine, the greater the trading range for the particular markets, the greater is the potential for absolute dollar amount of profits. Note however that simply having the potential for profits doesn`t mean that the day trader will make the profits. Offering the right tools to an inexperienced journeyman carpenter will not create beautiful works of cabinetry, yet on a more mundane level, the right tools are necessary. Successful forex day trading thus requires, among many other conditions, a wide trading range.

The introduction to the Forex Day Trading

Hello! If you wanna be well-known about all details of forex day trading systems – you came to the right place. So let`s start of the basic definitions. What is the forex day trading system? Let`s go to Investopedia to find the answer:

A set of analyses that the forex day trader uses to determine whether to buy or sell a currency pair at any given time. The day trader's currency trading system is usually made up of a number of currency day trading signals, which are based on technical analysis charting tools or fundamental, news-based events.

There are two types of FX day trading systems: manual and automated. Using manual system you need to track the FX market dynamics by yourself. You need to know a lot of different forex signals and have pretty much experience to make the right decisions where to open or close positions.

The automated system is interpreting forex trades by itself. It can be very helpful especially for newbie traders who are still not very experienced and still are very disturbed with the trading psychology factor.

Within this blog I`m going to make a lot of reviews for different day trading systems to compare them and find out the most profitable solutions. Also I`m going to provide you with the tons of valuable information on day trading.

I`m very thankful to Mikel Darvin (automated systems reviewer) for the information provided for this blog.