What is an ETF?

ETF stands for Exchange Traded Fund. ETFs are a very exciting and fast-growing segment of the investment industry and appear destined to replace mutual funds as the preferred vehicle for fund investing. They have been available since the early ‘90s, but are now growing at a geometric rate as more and more investors and traders become aware of the profit potential awaiting them with ETFs.

An ETF is a fund comprised of a group of stocks, bonds, or other investment vehicles similar to a mutual fund. However, unlike a mutual fund, ETFs trade like stocks, allowing a trader to buy and sell during normal exchange trading hours. That means you can have immediate access to your funds upon selling an ETF position during normal market hours, anytime you want. In addition, ETFs are generally more cost and tax efficient than mutual funds. However, when trading ETFs, there is a commission that costs the same as you would have when trading stocks. There are no minimum buy or holding period requirements common to many mutual funds. In fact, you can buy as little as 1 share of an ETF as you would buy 1 share of a stock. And so, ETFs are an excellent trading vehicle, whereas mutual funds are not. So that means you can get the diversification that a fund has to offer without giving up the ability to trade in and out of the fund. This is a big deal because you can, virtually, eliminate stock-specific risk by trading a basket of stocks within the fund so that if one stock in the fund suddenly drops in price, the negative impact on a position you may have in the fund would be far less than if you had owned a position in the shares of that particular stock.

There are many different types of funds available. In fact, in the United States alone, there are now over 600 funds currently, and more are being added each day. ETFs include stock sector, country, currency, commodity, bond or other investment-objective related funds. In addition, there are funds that have only short positions, and are sometimes referred to as “short funds” or “short ETFs”, which will increase in price as the short positions they hold go down in price.

Some funds are leveraged funds, meaning that when the stocks in their funds go up by, say 5%, the fund could go up by 10% and short funds whose stocks go down in price by, say 5%, could go down 10%.

ETFs are also a growing investment vehicle in international stock markets as well. A prospectus on each ETF is available and information on the individual holdings of an ETF can be found on Yahoo Finance and other financial related websites. Not all ETFs, however, are suitable for trading, as many are thinly traded or too volatile to be considered good swing trading vehicles.

ETFs in the U.S. are created and maintained by sponsor companies, subject to the approval and regulation of the Securities and Exchange Commission. ETFs are also traded on stock exchanges around the world, such as the London, Toronto, and Australian stock exchanges. These exchanges are approving new ETFs at a rapid pace as they follow a similar growth curve as in the U.S.

In addition to the major exchanges mentioned above, ETFs are also available in the following markets:

      • India
      • Sweden
      • Finland
      • Singapore
      • Hong Kong
      • South Korea
      • Japan
      • Turkey

The main advantage to trading ETFs, as opposed to the trading of some of the securities in the ETF directly, is diversification. Let’s say you feel that oil and gas stocks are a good buy, but are concerned about buying just one or two companies that could face an unexpected downturn in price due to some specific company related problem – by buying an oil and gas related ETF instead, you dramatically minimize the stock-specific risk because you are buying a basket of stocks, not just one or two.

Another example is, let’s say you feel that the U.S. dollar will continue to weaken against the Euro, you could buy an ETF fund that holds Euro-denominated assets instead of buying a Forex or futures position.

Most, if not all, online or discount brokers (regulated by their country’s regulatory body) that are suitable for stock trading are also suitable for ETF trading. The broker treats them both the same since ETFs trade just like stocks. It is a good idea to use one of these brokers to minimize transaction costs (commissions) when trading ETFs.

As a general rule, ETFs also pay dividends. When the companies owned by the ETF pay dividends, the ETF shareholders are entitled to those dividends. However, ETFs pay out those dividends according to different schedules. Some pay when one of their company holdings pays, others pay quarterly, others according to various schedules.

Some ETFs, on occasion, do have capital gains distributions, but only for extenuating circumstances. As a rule, most ETFs do not make capital gains distributions because they do not have to sell stocks in the fund to redeem shares. So, essentially, the tax implications of trading ETFs are the same as for trading stocks.

In practice, you can buy as little as 1 share of an ETF, so there is no minimum account size, per se, required to trade ETFs, unlike the case for many mutual funds. However, each individual must assess his or her own financial circumstances.

A common circumstance is that many beginning traders want to learn how to trade, but have limited cash for trading. The advice I always give is to learn how to trade first, learn and master a good trading method, practice it over and over again with paper trading. You will then own the method for life. That is a big deal that gives you an edge in the markets that most others don’t have. Then, when the cash becomes available, you will be ready.

People with IRAs or other investment accounts may want to follow a strategy of allocating a portion of their account to ETF trading to have the potential of supercharging the returns on the total account; others may elect to trade the entire account. Again, each individual must assess his or her own financial circumstances.

Protectionism or Nationalism?

I like to think that I am somewhat of a true capitalist at heart, so I am a big fan of competition in the marketplace. All things being equal, whatever company, anywhere in the world, that can provide goods and services for the highest quality, at the best price, is the one that should prosper and sell the most of the given product or service but what happens when all things are not equal? What happens when the government of a country controls and manipulates prices giving clear advantages to the companies in their home country versus foreign countries effectively stifling competition? This has blatantly happened in the past in the US and we are about to see it happen again unless our government steps in and stops it. The likelihood of our government stepping in to circumvent such a thing is very unlikely based on past experience.

For many decades in the last century US automakers dominated the US car market each enjoying a huge market share and big profit margins. Foreign auto companies began to try to penetrate the US auto market and they were very successful in doing so. It took them a good amount of time but they were eventually successful today making foreign automakers in many regions of the US the dominant automakers. I don’t have a problem with this in the respect that if the domestic automakers built better or at least equivalent vehicles from the time that the foreigners began to improve the cars that they sold here US automakers wouldn’t have lost market share and it would have been very difficult for foreign companies to get a foothold in the US market. Unfortunately much of this was not the reason that foreign automakers began to enjoy success here and pure completion wasn’t the cause of this either.

When foreign auto companies began to dump their cars into the US market generally speaking it shouldn’t have been a problem, the strong will survive. The company that has the best product at the best price should sell the most and prosper but all things were not equal. Foreign companies were allowed to dump their cars into the US market but US companies were charged very high tariffs to sell cars in their markets making it very difficult at best for the US companies to compete and to take advantage of some markets in specific areas around the world. This happened several years ago so in today’s world many people that buy foreign cars here in the US don’t really think of them as foreign cars. The companies have been here for a long time and many of the cars are built in the US however they are still foreign owned companies.

History is about to repeat itself.

One of the fastest growing economies in the world over the past several years has been the Chinese economy, the Chinese government has been making strides for their country to open their markets to the world and for their domestic companies to participate in foreign markets. Right now for a US automaker to sell cars in China the automaker must do so as a joint venture with the Chinese government splitting the profit on a 50/50 basis which doesn’t seem right but it is fine if everyone agrees to this arrangement. The problem that is about to occur is that it is estimated that in approximately 5 years Chinese automakers will enter the US market dumping their cars in our market repeating what was done several decades ago. The question is will the Chinese automakers be required to give the US government 50% of their profit or will the US government allow them to dump their product into our market while US automakers essentially pay a 50% tariff? Based on past experience the US government isn’t likely to do anything allowing Chinese companies to enter for free or nearly for free while US companies pay a very heavy price. I’m not a big fan of protectionism but I am a big fan of at least making the market even for all participants. The only explanation for what has gone on in the past that I can find is that someone in the US government must have been paid very well to allow the inequity to occur and I wonder who or if someone will be getting paid to let this happen again.

Year-End Trading

This is the end of the year, which is when there is a lot of talk about what the best strategy is for dealing with open trades going into the new year. Some traders will look at closing out unprofitable positions before the end of the year to take advantage of a loss, writing it off against other income for tax purposes. This may or may not be a good strategy, depending upon the situation, so there is no one-size-fits-all answer to whether or not this is a good strategy to employ.

I may be overly optimistic around trading at times. It may actually be that I have a big ego around trading and I don’t like to lose, but the only way that this really makes sense to me is if it is a situation that has almost no chance of recovery. If the company is performing horribly and is virtually out of business, this may be a strategy to consider, but I can’t help believing that you can typically do better than taking a loss for a write-off. I understand the tax ramifications/benefits of lowering one’s income and reducing a tax burden, but I have only seen a few situations where it makes sense to me to accept a loss to offset other income. I am, unfortunately, not a good enough stock trader where I can boast about never having made a bad trade, but I have always been able to get myself out of bad trades without having to take a huge loss and, most of the time, I will eventually realize a profit on them.

When you get caught in a trade that goes poorly for you, depending upon the situation, you may actually want it to continue to go against you. The reason for this is because if it is bad anyway, and you are looking to take a loss for tax purposes, take as much of a loss as you can. Another strategy to consider when this happens is, the further out of the money a bad trade goes, the greater the opportunity there may be and, in some cases, the easier it may be to recoup the loss and possibly turn the trade into a winner.

Once you have established an open position, hopefully following a reasonable risk management strategy, when a trade goes against you, letting it continue to go further and further out of the money, without doing anything, may make some sense in some situations. If it is a good company that has had a few negative occurrences that have negatively affected its stock price and, of course, your position, the further the trade goes out of the money, the more likely it is that it is going to be to reset for another entry in the same direction as your trade. You could continue to do nothing and hope that the price action recovers all, or even a large part, of the unbooked loss, but if you get a setup going in the same direction as your trade is going in, another strategy may be to load up on as many shares as you can when the setup occurs, which will average your cost per share way down in many cases. When you are able to do this the price action, you typically will not have to move very far for you to break even on the entire position, which means, of course, that if it moves even a little further than that, you can still realize a gain on the trade. I have seen this opportunity many times in the past, in some cases, the price action has actually gotten back to the entry point of the original trade and beyond. When this happens, the return can be enormous.

This can be a risky strategy in the respect that if your trade setup was wrong the first time, it may be wrong the second time too, but the price action will ebb and flow moving up and down. When it is at a point that is very far from your entry point, as long as you have the resources in the account to commit to making this work, averaging your cost per share downward enough may mean that you only need the share price to move a few cents to make this work and minimally recover the unrealized loss. This is definitely not a front line recommended trading strategy because you would hopefully be stopped out long before a trade goes this badly, but if it does happen to you, it may not be the worst thing in the world, it just may take a little longer to get your money out of the trade. I would almost always prefer to realize a gain in my trading account, paying taxes on the gains as the account grows, rather than losing money in the account and taking a loss reducing my trading capital.

Holiday Weeks

As we approach the end of the year, we need to recognize that the markets will become a bit more volatile as the trading markets begin to close. This year we will see the markets close early on December 24th at 1:00 pm Eastern Standard Time and all day on December 25th for the Christmas holiday. In addition, the next week, the market will be closed on January 1st for the New Year’s Day holiday. An important thing to remember is not only will they be closed on these days, but the market, in general, becomes less liquid, meaning that there are less traders during these times. Beginning this week (December 15 – 19) we are likely to see the markets become a bit more volatile. As we approach the end of the week and the beginning of the next week, we will see the traders become more interested in taking time off and less interested in trading.

Because of the lower liquidity, we need to be prepared for the market to experience varying levels of volatility. Volatility can be seen in different forms. Most of the time, we think of volatility as big movement, which is correct, but we can also see volatility in the form of very little and inconsistent movements. Regardless of the volatility type, we need to be prepared to deal with the market movements.

Here are a couple of things to consider when trading these next couple of weeks. The most conservative thing to do during the holidays is to take a break. This might sound a bit drastic, but when we trade, if the market is not deliberate, we should avoid trading anyway. In addition to avoiding these more volatile markets, we can take the time to review how our year went. By looking at our trading results for 2014, we can see the things we should change and improve. This can be a difficult thing to do, especially if we did not have a great year. If we don’t make changes to improve, we will likely continue to have similar results. Take some time to evaluate your statistics, such as win-loss ratio, average win-average loss ratio, and total profits made. By knowing these, you can get a sense of what you need to change. In addition to the statistics, you will want to look at how well you followed your rules. Did you make mistakes by not following your rules or do you need to change your rules to make them better?

The other thing you can do is to minimize your risk. This means if you normally trade at a maximum risk of 2%, change it to 1%. Taking less risk during the holidays will keep you trading but at a lower risk level. This is a reasonable way to approach these more volatile times. As you do this, you can trade with more confidence because you have adjusted to the market and can still trade and make profits during these times.

Take some time to review what you will do this holiday season so you can effectively use the time you will be trading. Trade well and have a happy holiday trading season!

Trend Trading Defined

When you look at different trading methods or strategies they will all fall into two general camps, either trading with the trend or trading against the trend (also called countertrend trading).

When trend trading or trading with the prevailing trend, you are trying to follow the current price action by taking advantage of the momentum of the market at the time of the trade. A good trend can be either up (bullish) or down (bearish) and if you can identify the overall direction of that trend, you should be able to find good trades that follow that momentum in the direction of the trend.

There are a couple of things to consider when identifying a trend; first, the direction of the trend, and then the momentum, or strength, of the trend. If you can identify these two things, you can trade with some confidence that the trade will be successful. A good way to identify the direction of the trend is to look at several charts and use a moving average like the 50 SMA and a shorter-term 20-period SMA together. If both of these SMAs are moving in the same direction, there is general alignment between those that could be a good trend to follow, either bullish or bearish. Once you have good alignment between the longer-term 50 SMA and the shorter period 20 SMA, you then can look to the strength of that trend. The ADX technical indicator is a good way to identify the strength of the trend or momentum on the charts. If the ADX level on the indicator is greater than 20, the trend momentum is generally very good and you should have a strong trend to trade.

Once you have the trend and the trend strength mapped out, you can look for a good place to get into the trade. Many traders have traded in the right direction but still have a loss because they got into the market at the wrong time. To solve this, it is always a good idea to be patient and wait for a “pullback” or a minor move against the trend, for example, a two or three-bar reversal (meaning 2 or 3 bars moving back against the trend), then, if a confirming bar occurs in the direction of the trend, this may be a very good place to get into the trade. Remember, it is important to wait for the pullback to finish or be over before executing a trade in the direction of overall trend. Sometimes this is referred to as pullback trading. This type of trading is very good, especially when the strength of the trend is high.

If you take a trade counter, or against, the trend you are taking more risk by trading against the overall market momentum. This is why, especially if you are a beginning trader, you look to trade with the trend. This is especially true if the trend is strong. The stronger the trend, the more important it is to trade with the trend, not against the trend, as you can get whipsawed in and out very easily, most of the time at a loss.

In summary, the key to trend trading is understanding the trend and then trading in that direction once you have a good opportunity to enter after a pullback or countertrend move. Wait for the countertrend move to finish, then trade once the market moves back in the direction of the trend.

Leveraged Trading

There are a few very basic business rules or concepts that traders can take advantage of by applying them to their trading business, which may help to make them better or more savvy traders. One of the most widely known and used concepts is using OPM to finance a business or to help it to grow. OPM is short for ‘Other People’s Money’, which is very prevalent throughout the business world, regardless of if we are talking about large multinational corporations or small mom and pop operations. Many companies simply will not have enough cash available on a regular basis to sustain normal operating costs so they get the needed capital in the form of loans, which can be long-term or short-term financing or revolving loans. Financing a business for a longer-term is typically used to fuel the growth of a company to expand its current operations on a much wider scale than where it currently is.

When the business is a trading business, it may not be a great idea to try to borrow money to fund the operation. If the trader is successful, this will not be needed since profits can multiply the size of the operation quickly. But what may be a good idea is to trade on margin. When we trade in a stock trading account using our cash to buy and sell stocks, we are trading in a cash account, which requires us to actually use the cash that is in the account to trade with. When we borrow money or securities to trade, we are trading in a margin account. There are specific financial requirements that must be met for a trader to open and trade in a margin account because the broker will want to know and feel comfortable that if there is a big loss in the account, the trader has the financial ability to add money to the account to cover the losses. When this occurs, it is commonly referred to as a margin call – the trader must make up the losses in cash to cover the broker so the broker does not lose money.

A margin account can be looked at in much the same way a loan or a revolving line of credit can be looked at by companies, as mentioned above. When we trade on margin, we are borrowing from the broker to expand our operation. In this case, to increase our profits and we are paying the broker back at a later time. Just like any business or any type of financing situation, the lender must feel good about the business and any collateral that is offered. Collateral in a trading business could be other issues of currently held stock, cash that is pledged to cover losses, or simply the knowledge based on a credit rating that the trader can and will cover any losses that may occur.

Another basic business concept that we, as traders, should understand is that who actually owns something isn’t always as important as who controls it. This relates to trading when we are selling short and when we are trading options, both of which must be done in a margin account. When we trade options, an option gives us the right to control 100 shares of the underlying stock. We don’t own the stock, but we control it similarly to if we did own it. When we sell short, we are literally borrowing the stock that we don’t own from the broker, we are selling it, and then we are buying it back to pay the broker back the shares, hopefully at a lower price, realizing a profit of the difference between what we sold it for and what we bought it back for. Essentially, the exact opposite of what we do when we buy stock. The fact that, in both of the scenarios, we are using other peoples’ money, in this case, the brokers money, we are afforded the opportunity to grow our trading business with a lot less cash than what would be required if we were purchasing the assets with our own money. A trader that is operating a trading business, as with any other business, can greatly benefit by using a combination of the business’ cash, along with selectively borrowed assets, allowing the company the opportunity to grow exponentially and realize returns that will typically be far greater than if the entire operation were financed with cash.

Exit Strategies for Most Trades

The stock market has been in a nearly unprecedented run over the past several weeks, but how do we know when enough is enough? How do we know when it is time to protect ourselves and possibly just book the unrealized profit that we have and take a break? Unfortunately, there is no perfect time to exit the market. Well, there actually is, but we won’t know when that is until it has already happened. It is certainly possible to get lucky and get out right at the very top of a move but it doesn’t usually happen that way and it really isn’t necessary. There’s no reason to stress out about when to exit the market, as the market will tell you all you need to know.

Often times, when people are trying to determine when to enter the market, they rely heavily upon technical indicators. I am a big believer that most technical indicators are distractions from the truth about what the market is actually doing; the price action is the only thing that will truly tell you where the market is going. I believe that this is also true when determining when to exit the market. I believe that the price action is the best indicator that there is. So if you watch it closely it, will tell you everything you need to know.

It really isn’t that big of a mystery – when you have an open position and the market is making a run, often times the run will contain several candles that are the same color, advancing in the same direction, either up or down. When you see the first opposite colored candle, more times than not, it is a good idea to place a protective stop just below/above that candle. If the market pulls back further and you are stopped out, most of the time you will see that the run has ended and getting out of the market at that point was a good move. If your stop is not breached and the market continues to advance in the direction of your trade, you may see several more advancing candles before the next opposite colored candle is presented. When the next opposite colored candle appears again, move your stop to that new level and continue doing this until you are stopped out. The longer and the more powerful the run is, the better this strategy will work, but it can also work very well on shorter-term moves, especially when the shorter-term move contains larger candles. This trade management process allows us to move the stop on our open positions in the direction of our trades by a pretty good distance. In most cases, with each move, we are protecting more and more of our unrealized profit as the trade progresses. There could be gapping that breaches our stop, taking us to the position at a worse price than what we had planned on, but that isn’t anything that we can control, so there is no need to think much about it. Recognize it as a possibility, but don’t spend much time on it.

Another way to consider managing the exit strategy of an open position is to place a shorter-term moving average on your price chart. I stated above that I’m not much of a fan of using a lot of technical indicators, but shorter-term averages are a pretty good representation of the very recent price action, which can be important. My personal favorite is a 5-period exponential moving average, or 5 EMA. If you place this average on your chart, you will see that many trends do not end until either the first close that is on the opposite side of the 5 EMA or the first opposite colored candle, whose entire range is on the opposite side of the 5 EMA. Once this average is breached with the close or the entire candle range, it is very often an indication that the current move is over or that it may be over very soon. Exiting the trade at that point will work out well more times than not.

Alignment Trading Strategy

When trading Forex, especially on the short-term charts, it can often be wild and unpredictable, as the market moves back and forth, sometimes in very short periods of time. One strategy for helping to trade such a volatile market is what I will refer to as ‘Alignment Trading’.

Identifying Trends

The highest probability trades are generally going to be in the direction of the trend. When first looking at a chart, a new trader might find it a challenge to define the current trend of the market. Many traders are able to analyze a chart and identify the trend or general market direction looking at the price action for that chart; however, the trend for one chart, for example, the 5-minute chart may be very different from the trend on the 1-hour or the 4-hour charts. Successful traders need to become good at looking at various charts and identifying the differences between short-term, intermediate, and longer-term trends. If we look at all of these trends as interconnected, we will be able to identify the best direction to trade in, either long or short, if we can match up all three time trends using short-term, intermediate-term and longer-term charts. Generally, a good rule of thumb is to use the two upper time frames. For example, if we are looking at a 5-minute chart, we would then refer to a 1-hour and then a 4-hour chart to get a picture of the trend on the higher time frames. These trends are all interconnected if we can find alignment. The highest probability trades are going to be when we have general “agreement” of the trend on all three time frames. One of the easiest ways to identify the alignment is to use a 50-period simple moving average (SMA) for short and then look to see is the moving average moving up or down in the same direction on all three charts. For example, if the 50 SMA is moving up on all three time frames, then the alignment for these charts would be bullish and the best direction to trade in would be long. The opposite is true that if the 50 SMA is moving down on all three time frames, the best direction to trade the would be short.

Trade Structure

Once we have all three time frames in “alignment” and moving in the same direction, we need to determine the best way to enter and exit the trade.

One suggestion is to enter the market in the direction of the alignment once the price moves above the most recent high if going long or most recent low if going short. Always use a stop loss order to exit if the trade goes against us. We can set the stop at the most recent low if going long and at the most recent high if going short. Exit the trade at a profit or loss if the price moves against the SMA on any time frame.

This Alignment Trading Strategy is a simple, but very effective, way to trade the Forex market, especially on the short time frames. Test it out and see if you can incorporate it into your trading strategies.

Trading Well

In our article today, I want to spend a few minutes discussing the topic of trading well. This might seem like an obvious thing that we should be doing but it is often times not what we do. Many traders get into the habit of just trading to be trading instead of waiting for the proper setup to happen. Trading to trade means we are less interested in becoming successful and being profitable and more interested in just telling people we trade. Professional traders don’t trade just to trade; their focus is to trade to make money. If we don’t have the same focus we will find ourselves in a situation where we cannot trade because we have lost all of our money.

So in order to trade well there are a few things we can do to help us stay focused. Here are a few things that you should be doing in order to trade well.

  1. Have a trading plan. This should be a fairly detailed document that will tell you when to trade. It will have your setups and triggers to know when to enter based on your rules. Without a well-defined set of rules you are more likely to just trade to trade.
  1. Know you money management. This is critical in keep you focused, as it will help your emotional state be where it needs to be. If you never risk too much you will find that you will be more likely to follow your rules, you will not make impulsive decisions based off of your emotions. You will be in more control and more able to trade well.
  1. Know yourself. As a trader, we need to know who we are and what we can and cannot do. Our trading psychology or our trading mindset will ultimately be what makes us successful or not. We can have the perfect trading plan with the perfect rules using the perfect money management and still not be successful if our mindset is not in the correct place. Knowing that you will follow your rules comes as you begin to develop confidence and consistency in your trading.

Trading well is more than being profitable. There are many traders that have made profits without trading well. Luck is not a substitute for this. Trading well means that we have a well thought out plan and can follow that plan as we have outlined it. Our goal as a trader should be for long term success and not just short term profits.

A trader that trades well will develop into a long-term confident trader who successfully makes money on a consistent basis. As you develop your trading plan, your money management rules and as you begin to know who you are as a trader, you will find that you can trade well. Take some time to evaluate where you stand in relationship to trading well. Then take the time to correct the things you need to improve upon so you can be a long term successful trader.

What is the Forex Market?

There are a lot of very common misconceptions regarding the Forex market and how it differs from the stock market. In general, many people understand at least the basics of the stock market. They may hear stock market reports throughout the day, when the market makes a notable move many news agencies will report on it and they can somewhat relate to it because of mutual fund investing or because of retirement accounts that they may have. What many people don’t understand is what the Forex market even is.

Forex is an acronym for Foreign Exchange, the Foreign Exchange market, or the Forex market, is the market where exchange rates are set between two currencies. This means that when you travel outside of your home country and you go to a bank to exchange your home currency for the currency of the country you are traveling to, the Forex market is where the exchange rate of the two currencies comes from. The Forex market is open and trades for 24 hours per day, 5 days per week. But if you want to visit the Forex market, like you would a stock market or a commodities exchange, you can’t because there is no physical location that houses the Forex market. The Forex market is comprised of large banks and market makers that make up the market; it is an electronic trading network. Regional markets are open at different times around the world, but they overlap to create a seamless trading environment.

The Forex market is open from 5:00 pm US EST, on Sunday evening, with the opening of the Asian trading session, through 5:00 pm US EST on Friday evening, when the NY trading session closes. The chart below shows the open and close of each market throughout the world. There are five 24-hour daily bars each week. The first bar of the week opens with trading in the Asian session, on Sunday at 5:00 pm, and closes after the NY session ends on Monday at 5:00 pm. The second bar of the week opens in Asia, Monday at 5:00pm through NY’s close, Tuesday at 5:00pm etc. The daily bars open and close simultaneously at 5:00 pm US EST.

TRADING TIMES

Time Zone NY Time Open NY Time Close
Asia 5:00 pm 2:00 am
Tokyo 7:00 pm 4:00 am
London 3:00 am 12:00 pm
New York 8:00 am 5:00 pm

 
The Forex market is by far the largest market in the world trading over 5 trillion dollars per day by some accounts. When you compare this to some of the largest stock markets that trade billions of dollars each day, they are dwarfed by the size of the Forex market. When you purchase shares of stock on an open exchange, you watch the stock price go up and down, while in the Forex market you are trading currency pairs. Essentially, one currency is pitted against another, so their values will rise and fall against each other. The rise and fall in the price action of the currency pairs is based on world events and country or economy specific events. Unlike watching a particular stock or industry when trading individual stocks, when you are trading in the Forex market, you are watching the world and, specifically, how the events of the world affect the two currencies that are in the pair that you are watching.

An example of a currency pair is EUR/USD, which is the Euro dollar versus the US dollar. As the EUR strengthens against the USD the pricing of the pair goes up, but as the USD strengthens against the EUR, the price of the pair will drop. Unlike a stock price, where typically we expect the price of the stock to rise as the company performs well, there really isn’t an up or a down in the Forex market. We buy the pair expecting the EUR to strengthen and we sell the pair expecting the USD to strengthen. Essentially, Forex traders doesn’t care which way the price of a pair goes, they just need to be on the right side of whatever move occurs.

Trading in the Forex market is exactly like trading in the stock market in the respect that neither of them should be looked at as a get rich quick scheme and neither of them is easy. It takes time to learn to trade in both markets and it takes dedication to succeed; however, traders can be successful at trading in the Forex market if they develop a good solid trading plan and good methods to trade with.