Foreign exchange, or currency exchange, is a strange and somewhat confusing place at first where nothing physical is traded. Where the market is run electronically, within a series of banks, and trading is conducted 24 hours a day from Sunday afternoon to Friday afternoon. Forex is the world’s largest market dwarfing all markets combined many times over. The latest figures show $3.8 trillion with more being traded every day. That’s growth at a rapid pace!
Until the 1990’s Forex was only traded by multi-millionaires and banks. With the advances in technology and the internet, now anyone with a few hundred dollars can get in on the action.
Price either goes up or down. It doesn’t rest or move sideways often. All you have to do is guess right. Here’s how it works:
That’s it! Hopefully you are right 80% of the time and on the 20% of the time you are wrong your losses do not wipe out your earnings. Like most things, it is easier said than done. However knowledge can increase your chance of success in most things in life. In the next few lessons we will cover some of the tools and strategies found in the Dan Gaub Academy that will help increase your Forex knowledge.
When you go to the airport and trade your U.S. Dollars in for the Euro there is an exchange rate. When you come home again and trade in Euros for U.S. Dollars that rate has changed. The rate change was either in your favor for profit or against you for a loss. Forex works like this but is far more complex.
In Forex you buy one currency and simultaneously sell the other currency (or exchange one for the other). When you put your trade into play (often referred to as “put in a trade”, “make a trade” or “enter a trade”), you either gain profits or incur losses as exchange rates change. Sometimes the exchange rate goes in your favor for a while and then can turn and run against you and vice versa. The great thing about Forex it is that you can decide when you want to bank profits or cut your losses. You then look for the proper conditions and trade again. Here’s an illustration:
You and a friend are sitting on the sidewalk. You both have 100 dollars in 1 dollar bills in your pocket (that represents your live account in Forex). You say that you think more cars will pass you going left to right. Your friend says more cars will go from right to left. You both decide that every car that passes will cost a dollar. You shake hands and start (that represents entering into a trade). As cars pass by you get lucky, and the first 5 cars came from the left. Your friend hands you $1 as each car passes. Oops, 2 cars come from the right. Now you are only up $3. You sense there may be a line of cars coming from the right and you get worried. You say, “I’m done” and quit (close your trade) with a small profit.
On the other hand, if you were the one down $3 and you sensed more cars would come from the right, you could quit and cut your losses. You may also think that even though you may lose more money in the short term, you could stay in the game. Perhaps in a few minutes the cars will come from the left and you will get it all back and more! Of course there is no guarantee this will happen. But hey, you have been on this sidewalk before and have seen it all, so you will take the calculated risk (this represents Forex analysis and experience). You are the best Forex sidewalk trader alive!
An important point to remember, is that either you or your friend could have made money. In Forex, you can make money if the exchange rate rises (cars coming from the left), or if the exchange rate falls (cars coming from the right). Conversely, you can lose money if the opposite happens. It all depends on what position you take when you place the trade.
You will use a trading station to watch the different currency pair exchange rates change. In this station you will enter into trades. You will assign the value of each pip (a pip is the smallest measurable movement of the exchange rate). You will close trades there too.
To make sound decisions on when to enter and exit trades you will look at your custom charts. These are real time moving graphs that show exchange rate changes in an easy to follow format. The graphics on the charts are comprised of “candlesticks” which you will get to know very well. You can add a mind numbing number of indicators that will help you make a trade decision, And you will learn very well which ones Dan believes in and how to use these charts and indicators.
Forex is a lot like horse racing only with way better odds. A racing form has 20 or more statistics to analyze.
All of this past information is scrutinized to predict future performance. HOWEVER, PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE PERFORMANCE. The same holds true with Forex. There are a lot of tools at your disposal to help you make sound trade decisions.
The good news is that you are only predicting if price action will rise or fall and not trying to guess 1 winning horse out of 12. HOWEVER, LOSSES ARE STILL POSSIBLE WHEN TRADING FOREX.
— It might seem kind of complicated, at first. Risk and reward, leverage, charts and Fibonacci — where do you start? With good training. Dan’s team has taken his concepts and built a systematic approach to understanding Forex. Even if you have tried Forex before and did not get it, this system is designed to help you understand the concepts. Dan’s approach involves all of the tools listed below to help you learn to trade.