Everything You Need to Know about Forex from How Forex Trading Works Contents Introduction.............................................................................................................................4 The Basics of Forex...............................................................................................................5 The Size of the Forex Market.................................................................................................7 Where Forex Market Currencies Are Traded.........................................................................9 How Forex Market Currencies Are Traded..........................................................................10 The Advantages of Forex Trading........................................................................................12 Currency Pairs Explained....................................................................................................13 Forex Spreads Explained.....................................................................................................15 The Costs of Forex Trading.................................................................................................16 Types of Forex Orders.........................................................................................................18 Forex Margin Trading Explained..........................................................................................20 Forex Micro Accounts and Lots Explained...........................................................................22 Comparing Forex Trading to Stock Trading.........................................................................23 Comparing Forex Trading to Futures Trading......................................................................25 Forex Trading Rollovers Explained......................................................................................27 When the Forex Market Is Most Active................................................................................28 Fundamental Analysis Explained.........................................................................................30 The Movers of the Forex Market..........................................................................................32 Nonfarm Payrolls Explained.................................................................................................34 Consumer Price Index Explained.........................................................................................35 Consumer Confidence Index Explained..............................................................................36 Gross Domestic Product Explained.....................................................................................38 Trade Balances Explained...................................................................................................39 Interest Rates and the US Dollar.........................................................................................40 Nonfarm Payrolls and the US Dollar....................................................................................41 Comparing Fundamental Analysis with Technical Analysis.................................................42 Types of Forex Charts..........................................................................................................44 The Best Types of Forex Charts..........................................................................................46 Time Frames in Forex Trading.............................................................................................48 Technical Charting Indicators in Forex Trading....................................................................50 Support and Resistance in Forex Trading...........................................................................52 Price Channels in Forex Trading..........................................................................................54 Fibonacci Retracements in Forex Trading...........................................................................56 Moving Averages in Forex Trading......................................................................................58 Bollinger Bands Explained...................................................................................................59 Candlestick Chart Information, History and Patterns...........................................................61 Using Candlesticks and Candlestick Patterns.....................................................................63 Important Forex Trading Charting Patterns.........................................................................65 Strong Bullish Reversal Candlestick Patterns.....................................................................67 Moderate Bullish Reversal Candlestick Patterns.................................................................68 Weak Bullish Reversal Candlestick Patterns.......................................................................70 Strong Bearish Reversal Candlestick Patterns....................................................................71 Moderate Bearish Reversal Candlestick Patterns...............................................................73 Weak Bearish Reversal Candlestick Patterns.....................................................................75 Continuation Candlestick Patterns.......................................................................................77 The Head and Shoulders Charting Pattern..........................................................................79 Copyright © 2012 How Forex Trading Works 2 Getting Started Commodity Currencies Explained........................................................................................80 Trading Cross Currencies....................................................................................................81 Trading Synthetic Crosses...................................................................................................82 The Basics of Forex Options................................................................................................83 Money Management in Forex Trading.................................................................................85 Using a Risk/Reward Ratio..................................................................................................87 Using a Forex Trading Plan.................................................................................................88 Choosing a Forex Broker.....................................................................................................89 Trusting Your Forex Broker..................................................................................................91 Choosing a Money Manager................................................................................................92 Forex Trading and Taxes in the US......................................................................................94 Scalping the Forex Market...................................................................................................96 Trading with News Announcements.....................................................................................97 Using a News Trading Strategy...........................................................................................99 Using a Range Trading Strategy........................................................................................100 Using a Swing Trading Strategy.........................................................................................101 Using a Trend Trading Strategy.........................................................................................102 Using a Carry Trading Strategy..........................................................................................104 Creating Your Own Forex Trading System........................................................................106 Conclusion.........................................................................................................................107 Getting Started...................................................................................................................108 Copyright © 2012 How Forex Trading Works 3 Getting Started Introduction Anyone can get rich Forex trading, but if you really want to be successful at trading currencies, you will need to work hard. If you are just starting out, you will have a lot to learn. However, Forex trading can be extremely rewarding, so you should keep at it and never give up. You will need to have both knowledge and experience to succeed in the Forex market. In order to gain knowledge, you will need to study and in order to gain experience, you will need to practice by applying your knowledge to the actual markets. This eBook should help to increase your knowledge of Forex trading. You should really open a Forex trading account of your own as soon as possible though, preferably a demo account to begin with so that you can trade risk-free, as this will allow you to practice as you study. This way you will be able to gain some valuable experience early on. Click here to get started. Success can never be guaranteed, but by reading this eBook and practicing alongside it, you will definitely be able to increase your chances of success in the Forex market. Copyright © 2012 How Forex Trading Works 4 Getting Started The Basics of Forex Whilst you might not yet have heard of Forex, you will most likely have heard of