One of the more popular analytical methods that is used with MT4 that is used to coordinate share trades is based on the Fibonnaci series (each number in this series except one is the product of the preceding two numbers; i.e., 1, 2, 3, 5, 8, 13 & #8230;). This Fibonacci series is used in quantitative trading systems such as MT4 to help traders modify their investments in real-time as the market changes as described further below.
The Fibonacci series can be found throughout nature in the way a pinecone grows when viewed from above or the patterns in a seashell such as the nautilus. Humans have a natural affinity for the Fibonacci series which is also known as the “Golden Ratio” because it provides an aesthetic that is pleasing to humans (Gelet, 2009). Also pleasing to humans is the power of the Fibonacci series to help manage Forex trades. The Fibonacci series is used by Forex traders to develop retracement levels on charts, the specific timing of their entries and exits in the market, an approach that is used with the eFibo trading strategy that buys and sells various sizes of lots depending on the behavior of the market. To accomplish this, the eFibo strategy uses a basic indicator that identifies trends and/or countertrends; eFibos trending function will add additional lot sizes when profit levels increases; conversely, the applications countertrend mode performs the reverse by selling into strength and buying into weakness (Gelet, 2009). The strategy can also be applied as an order entry technique for either a trending or counter trending strategy (Gelet, 2009).
In order to use this function properly, Forex traders have to determine appropriate levels for each new order following the entry of its initial position using a simple trend or countertrend trading strategy. Performed manually, these levels can be determined by analyzing the highest high-low range for the preceding three trading sessions and then adding 20% (Gelet, 2009). Because the Forex market is highly dynamic, trading strategies can take advantage of automated trading systems such as MT4 by setting ranges that will differentiate important movements in the market from transient spikes. Identifying trends or countertrends in the Forex market can be accomplished by using the indicators described in the “Forex Indicators” section below, or Forex traders can formulate the decision to buy or sell based on their experience and their intuitive view of the markets historic performance. Exit strategies using these approaches are also straightforward:
1. A stop loss can be placed on each trade that is one half of the pip level;
2. A total trade take profit can be established that will close the entire trade when a certain profit levels has been achieved or the trader has been stopped out. Many Forex traders take advantage of their practice account feature to experiment with these settings to identify the best way to achieve their investment goals while simultaneously minimizing their risk.
Because traders can be stopped out and their entire trade ended before their profit goal has been reached by automated settings, it is important to manage stops to ensure that the trends identified by the Forex indicators being used do not prevent the full profit goals from being achieved. In many instances, a trade may be stopped out but the price will then continue in the direction that was initially projected, causing the trader to lose out on the additional profits that could be generated. Indeed, managing stop losses effectively represents one of the most salient challenges in Forex trading today (Cofnas, 2003).
It is possible, though, to identify a solid balance in stop losses by taking advantage of the guidance available from the experts at PIPPOINT and their powerful MT4 trading system which is discussed further below.
3- Expert Advisor
While Forex traders do not absolutely require an automated trading system, most experts agree that automating some or all of the functions needed to oversee a Forex trading account is a good idea for a number of reasons. In some cases, Forex traders may want to oversee every possible shift in the market in order in an effort to tweak their trading strategies in response, but the market does not sleep and traders must. Furthermore, the more time Forex traders save by automating as many functions as possible the more time they will have to analyze additional trading opportunities. Both novice and experienced traders can benefit by using an automated trading system because of the wide range of variables that can affect the foreign currency market in hard-to-predict ways. Finally, it is vitally important for committed Forex traders to have a set of rules they can use to guide their trading strategies in a dynamic marketplace where real-time decision making can be difficult or even impossible.
4- Forex Indicators
A number of Forex indicators are available that can be used alone or in combination, with two of the most popular being the Moving Average Convergence/Divergence (MACD), a simple and reliable indicator, and Bollinger Bands, which measure market volatility and provide traders with other useful data. Once again, while these indicators can be plotted manually, trading systems such as MT4 provide traders with the ability to apply these and other market indicators to easily track the performance of their different trading strategies, a feature that is especially useful in traders practice accounts.
FAQ about Forex trading
What is Forex?
The international foreign exchange market is among the largest financial markets in the world for trading foreign currencies.
What is a pip?
“Pip” is an acronym that stands for “percentage in point,” which is the smallest price increment that is used in Forex trading. All Forex prices are quoted to the fourth decimal point except for the Japanese Yen (JPY) which is only quoted to the second decimal point.
What currencies are traded in the Forex market?
Practically any legitimate nations currency is able to be traded using a reputable brokerage firm such as PIPPOINT.
How are currencies defined in Forex?
The Forex system uses a three-letter abbreviation for each currency, with the first two letters representing the name of the country and the last letter indicating the name of the currency.
What are the most commonly traded currencies in the Forex market?
The most commonly traded currencies in the Forex market, referred to as “majors,” are the U.S. Dollar (represented by the acronym “USD”), the Euro (EUR), the Japanese Yen (JPY), the British Pound Sterling (GBP), the Swiss Franc (CHF), the Canadian Dollar (CAD) and the Australian Dollar (AUD). Any currency besides the foregoing is referred to as a “minor” currency.
What are some useful Web sites about Forex?
Interested traders can consult any of the following for additional information:
6. The MT4 application is available for review at http://www.metaquotes.net.
Artis, M. & Weber, A. (2000). The Euro: A challenge and opportunity for financial markets.
About Us. (2010). PIPPoint Forex Brokerage. Retrieved from http://pippoint.net/index.php?option=com_content&view=frontpage&Itemid=75.