The Slow Stochastic Indicator

Brokerage Account

Stochastic Indicator: What Is It And How Do I Use It?

The stochastic indicator is an oscillator that enables you to see at a glance the momentum of the market. Momentum is the pressure or weight behind the current trend. It is based on the idea that while prices are rising, the closing price will tend to be higher than it would be if the market was stable. Equally, when prices are falling, the closing price will tend to be low. From this assumption the oscillator measures when a trend is considered to have reached its limit and is about to turn.

The actual calculations are complex but fortunately you do not need to do them because most trading software will do this automatically for you. This means that you should be able to access the indicator plotted on a chart in your forex brokerage account.

The stochastic indicator will give you two lines that usually run fairly close together:

- the line called %K gives a comparison of the last closing price to previous closing prices.

- the line called %D smooths out the %K line and can be used as a signal line.

So what does the stochastic indicator actually tell you, and how can you use it to make money?

Using it is quite simple. It gives a signal that a market is overbought or oversold. In other words, it will tell you when a trend should be about to reverse, according to the basis of their calculations.

If both lines are high, this is a signal that the market is overbought. If you are trading forex on the basis of this indicator you would put in an order to sell.

Conversely if both lines are low, they are telling you that the market is oversold and you could put in an order to buy.

Keep in mind that you should not trade on the basis of one indicator alone, but always seek confirmation from at least one other.

You will normally have horizontal lines on your charts marking the high and low points for you so that you can see at a glance when to act. In many cases you can alter the position of these lines to suit your trading style. The most common settings are 70, 75 or 80 for the high line and 30, 25 or 20 for the low line.

If your settings are closer (70 and 30) you will want the stochastic lines to stay above or below your trigger lines for a longer time before you trade. If your settings are at 80 and 20, any movement above them would be a strong signal. Check this out with your own backtests to decide when you would be comfortable putting in an order.

Many currency traders also regard the relative positions of the two stochastic indicator lines as a signal for forex trading. They would buy when %K crosses %D line from below going upwards, or from above going downwards.

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Friday, July 3rd, 2009 Strategy No Comments

Foreign Currency Trading Software: Shop Around For Best Results

There is a wide choice of foreign currency trading software for the forex market. When you are just getting started with forex trading you will need to shop around to find the platform that will suit you best. But what types of program are available and what features should you look for?

Online brokerage accounts are always run through forex software. Your broker may either give you access to a platform that runs on their server or you may have something that runs on your own computer.

Brokers may have their own custom forex trading platform or they may use a generic platform which they can have tailored to their company. This should provide you with many features including a wide variety of charts, tools and analytical capabilities that can indicate changing patterns and trends in the price movements. There may also be a forex alert feature or a running commentary on the financial news.

In some cases you can customize your desktop view of the software. This is more useful than you may realize at first. It can save a lot of time to have your preferred settings or combination of tools and charts load automatically when you log in.

If you choose to use automated foreign currency trading software, otherwise known as a forex robot, this will need to connect to your brokerage account to make the trades. Most robots use the platform Metatrader 4.

If you are running a program yourself, be aware that this usually means that your computer must be switched on and connected to the internet at all times while you have open trades, stop losses or orders to open a trade at a certain point. If your internet connection is often broken by storms or other factors, or if your internet provider automatically cuts the connection any time there is no activity from your machine for more than a certain time, you will not be able to trade effectively unless your instructions have already been passed to your brokerage account and are stored there.

The software should be simple to access and use. Clear instructions plus an FAQ page or manual that you can go to for reference are essential. Beyond that there should be some kind of support, either live or by email, when you need more detailed help or cannot find the answer to your question in the documentation.

Forex trading is risky and you can make losses as well as gains. In this very fast moving market it is vital to have all of the information that you need at your fingertips, plus the power to make your selected trades fast. Automated foreign currency trading software can help you massively and you need the best that you can get your hands on.

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Tuesday, June 30th, 2009 fx trading software No Comments

FX Trading: Who, Why And How?

Forex or FX trading is a way of making money from currency price movements. Forex traders buy and sell world currencies according to whether a currency seems likely to rise or fall.

Who Can Do FX Trading?

When you first hear about currency trading you might think that you need to know a lot about economics, politics or finance. You might think that all forex traders would be employed on Wall Street or other financial centers of the world. But this is not true at all.

In the past, it was certainly the case that the foreign exchange markets used to be almost entirely dominated by banks and investment companies. These days, however, all of that has changed. There are two main reasons for this.

The first is the internet, which allows anybody with a high speed connection to have access to up to the minute prices, charts and other data. People can trade from home, connecting to their broker and controlling their account online in real time. Brokers have seen the opportunity and reduced the amount of money you need to get started, encouraging people to start trading with only a few hundred dollars.

The second big development in fx trading has been the appearance of forex robots. These are automated trading programs that you can set to run on your own computer. They will connect up with your broker’s website and make trades for you. This means that you do not even need to know a lot about finance to get involved.

Why Would You Become A Forex Trader?

Why? Well, to make money, of course. At least that is most people’s reason for getting involved in the forex markets. It could be that there are some people out there who just enjoy the challenge and treat it as a game, but unless you are just using a demo account it is better to take it seriously.

Forex is a risky business with the possibility of making losses as well as gains. Money can come and go very fast. When you make a deposit into your brokerage account it is best to think of that as money spent. Any income that comes back from it is a bonus. Do not trade with the rent money!

How Do You Get Involved?

To begin forex trading you will need an account with a broker. If you want to use a forex robot you should get that right away and start using its demo settings so that you understand how it works and can see it making profits before you let it control your real money fx trading account.

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Thursday, June 18th, 2009 Introduction No Comments

Forex Currency Trading: An Introduction

Forex, foreign exchange and fx trading are all different names for currency trading, where one currency is exchanged for another in the hope of making money when the exchange rates change. These rates are constantly changing due to market news, national events or a knock on effect from changes in the stock exchange.

At the most basic level, imagine you exchanged some US dollars for British pounds. You might give $100 to buy £65. Then the rate changes in your favor so you exchange them back again. Now with the new rate you get $102 for your £65. You just made $2 or 2% of your investment.

Currency traders do this kind of thing all of the time with the aim of increasing their funds through many small trades. They trade on margins so that they can control larger amounts with only a small investment. In the above example, you might only have to hold $10 in your brokerage account to make the purchase even though the amount is $100. The broker covers the rest on the assumption that the market is unlikely to change by more than 10% in a short time.

Forex trading has been around for over 30 years but until the rise of the internet it was almost entirely in the hands of banks and other institutions with large investment funds. These days ordinary people can get involved on their home computers although the financial institutions are still the major players. When I tell you that around US $4 trillion changes hands every day on the currency trading markets you will understand that only a small part of this belongs to ordinary people like you and me.

Foreign exchange is a worldwide market and because of the different time zones around the world you can trade almost any time. Sydney, Australia is the first currency exchange market to open each day, and by the end of the business day in New York the Sydney market is open again for the next day’s trading. So for 5 days per week this is truly a 24 hour market. It only closes on weekends.

You are not limited to dealing in your own country’s currency so if your national economy is in a very unpredictable state you can switch to trading two other currencies that are a little more stable. While it is true that a volatile situation with big fluctuations can give you big profits in a short time, it is extremely risky to get involved in a currency that is experiencing a crisis.

These days brokers are going all out to attract the new type of home investor who does not have a lot of capital, so you can get started with just a few hundred dollars. They will provide you with software that allows you to make trades on your account, and real time market information including charts to show you the direction of movement of the different currency pairs.

With so much money changing hands every day, foreign exchange is a high liquidity market. This means that your capital will not be tied up for the long term as it might be if you bought certain kinds of stocks.

Apart from some funds to invest, the main things that you need to get started with currency trading are good money management skills, self discipline, a profitable system to follow and perhaps a forex robot to apply your system for you. When you have these in place, currency trading can be fun and quite profitable.

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Wednesday, May 27th, 2009 Introduction No Comments

What Are The Risks With Fx Managed Accounts?

Forex managed accounts present an attractive opportunity for people who want to make money from the lucrative currency trading markets but cannot or do not want to learn to trade for themselves. With a managed account you do not have to do any trading at all. Instead, you entrust your fund to the management company who will act for you.

There are two basic types of forex managed accounts.

1. Standard accounts

With this type of account, your money is kept in your brokerage account in your own name and the manager simply has control over it so that they can trade with it. You can see how much is there and how it is doing at all times. It remains your money.

You have to accept the risk that even a skilled account manager cannot predict the markets 100% and you may have to take some losses. Still, if you are a beginner, he is likely to do better with your money than you would yourself, so it is just a question of whether he can do well enough to cover his fees and make you a good profit.

2. Pooled accounts

Pooled accounts are more risky in that there is more possibility of fraud. Here, your money goes into a pool held by the account manager. You are paid a share of their declared profits.

In theory the pool provides a buffer so that profits and losses are more evenly spread and your income could be a little more predictable than when your money is being managed separately. The problem is that you cannot really know what is happening and an unscrupulous management company could simply be making small regular payments to keep their customers happy while illegally diverting the bulk of your funds into their own pockets.

If you are guaranteed a certain percentage return on investment by a forex account manager using pooled funds, you could be heading for trouble. There are no guarantees with forex trading and any company that makes promises of a 10% return or whatever should be treated with extreme caution.

Of course there are some well run pooled accounts and they have the advantage of a little more predictability than standard forex managed accounts. However, you should research a company offering pooled accounts even more thoroughly than usual before you decide to invest.

Even if you choose a standard account, you need to shop around. Avoid managers who insist on you signing up with their preferred broker. That usually means that they get a commission on all your trades, so they have an incentive to make a lot of small trades even if that is not the most profitable strategy, simply to increase the broker’s earnings from the spread and their own commission rakeoff. Even if their commission is worked on a different basis, you probably will not get the best or cheapest broker that way. It is better to sign up with a company who will let you choose your own broker for forex managed accounts, even if they charge a slightly higher fee.

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Tuesday, May 26th, 2009 Managed Accounts No Comments