Basics of Trading (1) – initial setup and charting

Some inexperienced traders I know in real life have asked me to show them some things about trading. I thought I would add some post here for ease of access. Another reason for doing any of this is because some of the most basic things I have learned are the most powerful and this exercise will get me to re-examine my favourite material.

First of all, if you have never traded anything before then open a demo account at a Broker or CFD/spread betting company if possible where you live (not possible in the United States). I found the SAXO web based system useful.

Metatrader offers an introduction to a powerful technical analysis tool – you could download and open a demo account with FXPRO as they offer MT4.

I would suggest being very wary of all MT4 brokers especially when any money is involved. They are known to actively trade against their customers, even if cheating is involved. There are are applications they can use to spike prices and freeze you if you are winning too much. This is especially true in FX which is the wild west of the trading world. New traders may not be willing to risk enough per trade to use an ECN broker using DMA (Direct Market Access). Since an ECN broker only matches trades between market participants, it cannot trade against the client, an allegation often directed against some unscrupulous retail forex brokers. Because ECN spreads are much narrower than those used by everyday brokers, electronic communication networks brokers charge clients a fixed commission per transaction.

The higher timeframes (daily, 4 Hour, 1 hour) will give you a good idea what is happening at that level but many times a day will look different on the chart than how things really panned out. Market participants who were involved every day and know all the major news driving the market will think differently than longer term players who are looking for larger moves.

This is an example of how the EURJPY Daily chart looks on MT4:

This FX pair was driven from 100 to 145 in just over a year. This represents 4500 tiny price moves which traders are trying to capture. This move is not normal and is the result of some heavy Japanese government involvement to weaken their currency. The move looked like stalling in May 2013 as it does now.

This FX pair was driven from 100 to 145 in just over a year. This represents 4500 tiny price moves which traders are trying to capture. This move is not normal and is the result of some heavy Japanese government involvement to weaken their currency. The move looked like stalling in May 2013 as it does now.

One of the first books I read was “Japanese Candlestick Charting Techniques, Second Edition” by Steve Nison. It is expensive but is worth paying for. You can download an old version here. The book contains good detail but you only need to know a few as some of the combination ones are difficult to master.

candlestick_book

A handy candlestick reference is available on Candlesticker. Be sure to check out all the pages on Basic Candles and Patterns.

Investopedia is also a great reference for traders. Click on the Blogroll links for some more advanced concepts such as Market Profile and Volume profile.

Note. Many pdfs are available at http://piratebay.come.in/torrent/4591541/Trading_books or at Scribd.com – dont overwhelm yourself with too much detail just yet.

Check out 50pips to see some great ways to use Metatrader or even just to see a guy doing some very simple but powerful technical analysis. I recommend watching his Sunday video every week and following on twitter. His advice is fairly unique among traders and he does not push the fact that he provides a paid service also.

The next post will be on “Support and Resistance” followed by “Times to Trade, Patterns and Reversals”.

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