Forex Market Conditions - How Can You Tell When Market Conditions Change?

You will often hear people in the forex trading community talking about market conditions, so in this article I want to discuss what people actually mean when they use the term 'market conditions' and how they can effect your overall trading strategy.

In it's simplest terms market conditions often refers to the volatility of a particular currency pair. So if a pair is trading in a daily range of around 100 points on average, and suddenly starts trading in a range of 200 points every day, then you can clearly see that market conditions have changed for this pair.

So to get an idea of the latest market conditions for any given pair you can simply open up a daily chart and take a look at the Average True Range (ATR) indicator. If you look at the latest reading and compare it to previous months and years you will soon get an idea of how volatile the markets are at the moment.

This information is important because some systems and robots work better in highly volatile conditions, whilst others are geared up to trade price reversals in narrow ranges, for example. So it really is worth paying attention to this indicator to see when conditions are in your favour.

When talking about forex market conditions, people will also refer to the latest characteristics of a particular pair. For example a pair may be in a long period of consolidation (like the USD/JPY at the moment - trading in a tight range between 80 and 82), so it would be referred to as a ranging pair, or a pair could be in a strong upward or downward trend, in which case it would be referred to as a trending pair.

So the point is that when people talk about market conditions in the forex industry, it can mean different things to different people. Traders with a finance degree may coin the term differently than those with no formal education in trading. However for me it is all about volatility, and this is best determined by looking at the ATR indicator.

FOREX November 22nd: The Last Week’s Trading Activities In Perspective

It was a mixed week for the world’s major stock exchanges last week. In Europe over the course of the week, the FTSE shed 1.1%, closing at 5732.8; the Dax put on 1.6%, ending the week at 6843.6; the CAC also rose by 0.76% to end the session at 3860.2.

The Dow ended the week higher to the tune of 0.1%, finishing the trading session at 11203.6 The Nasdaq ended the week unchanged, closing at 2518.1.

The Nikkei was the star performer last week. It closed up by 3.1% over the course of the week ending trading at 10022.4 as the Yen eased further against the Dollar.

On the currency markets last week, the Dollar had the best of the trading as concerns over the Irish debt crisis persisted. The Dollar was higher against Sterling by 0.27% closing at 1.5989 to the Pound. The Greenback was also stronger against the Euro by 0.27%, to close at 1.3674. The Dollar was higher against the Japanese currency at 83.4357 to the Yen, a gain of 1.6% on the week.

The Euro closed up against the Yen ending at 114.09, regaining 1.3%. The Euro strengthened against Sterling over the course of the week by 0.53%. The close saw one £ buying 1.1693€. The Euro recovered against the other majors over the course of the week as a solution to the Irish debt crisis seemed more likely.

On the commodities market, the price for Brent crude was lower, closing at $84.3 per barrel (for January delivery); a fall of 2.3% over the course of the week’s trading. The value of gold relaxed further, closing at 1351.3 per ounce; representing a loss of 1% over last week’s value.

Make Money Trading Forex

There are proven ways to make money trading Forex and this website is dedicated to showing you what you really need to know to profitably trade the currency market.

Many traders contact me looking for guidance. There are a couple of key points that will help 99% of them... cut losses early, let profits run and stay away from the short time period charts. Sounds simple, but in practice it's tough.

My current focus is on automated trading systems and trading robots. It is almost impossible to manually trade this market efficiently since it operates around the clock for 5 1/2 days every week. Yes, you can trade the daily charts, but that means you will miss out on many of the shorter term moves which are common to currency trading.

The beauty of an automated system is that it will watch for the right setups and execute your plan, night or day. It has been proven that over the longer term, automated systems perform better than manual ones to make money trading Forex.

If you have tried trading robots, or EA's, you have probably been disappointed. There are a lot of lousy ones out there. However, there are also a few solid ones. One such robot recently launched in late September is Forex Crescendo.

I had the chance to pretest this robot and the results are very good. This thing pulls a steady 5% a week from the market!!

Many new traders are overwhelmed by all the information available and don't know how to get started. These automated systems can successfully trade your account, even if you have a very limited knowledge of the Forex market.

I buy almost every trading robot that comes along and put them through a lot of testing. Most of them don't do very well and I usually end up sending them back for a refund. However, sometimes they do what they are supposed to and I put them on an account trading with LOW leverage.

Robots are a great way to make money trading Forex for those that struggle with technical analysis, or traders that can't sit in front of their computers all day and night. You still need to be aware of the market particulars, but automated systems make it much easier for new traders to get started profitably.

Trading Forex is exciting and it can also be very rewarding. You are able to trade any time of the day Monday through Friday and it can be done effectively without being glued to your computer screen.

Over $3 Trillion Daily!

The reality is you need to do a little homework to be successful at this. You can learn how to claim some cash from the $3.2 trillion (according to the latest BIS report) that trade through the

Forex market every trading day, but to make money trading Forex, you need to treat it like a business and invest some of your time to achieve profitable results.

In the end, the results you get will be the product of the time and effort you put in. Do this the right way and it can change your life. If you are looking to get rich quick, Forex can do it, but it can break you just as quickly, so beware.

Typically, 95% of traders who open accounts to trade the currency market will lose all of their "investment". However, with a proper strategy, you can become a member of the successful 5%. Once you learn to make money trading Forex, the world will be a much different place for you.

Got a question you can't find the answer to? Send me a quick email from the "About the Author" page and I'll try to point you in the right direction.

What is Foreign Exchange?

Foreign exchange consists of trading one type of currency for another. Unlike other financial markets, the FX market has no physical location and no central exchange. It operates "over the counter" through a global network of banks, corporations and individuals trading one currency for another. The FX market is the world's largest financial market, operating 24 hours a day with enormous amounts of money traded on a daily basis.

Unlike any other financial market, investors can respond to currency fluctuations caused by economic, political and social events at the time they occur, without having to wait for exchanges to open. Access to modern news services, charting services, 24- hour dealing desks and sophisticated online electronic trading platforms has seen speculation in the FX market explode, particularly for the individual trader.

The currency markets are not new. They've been around for as long as banks have been doing business. What is relatively new is the accessibility of these markets to the individual speculator, particularly the small- to medium-sized trader

A Short History of the Foreign Exchange Trading Market

Foreign exchange markets originally developed to facilitate crossborder trade conducted in different currencies by governments, companies and individuals. While these markets primarily existed to provide for the international movement of money and capital, even the earliest markets had speculators.

Today, an enormous proportion of FX market activity is being driven by speculation, arbitrage and professional dealing, in which currencies are traded like any other commodity.

Traditionally, retail investors' only means of gaining access to the foreign exchange market was through banks that transacted in large amounts of currencies for commercial and investment purposes. Trading volume has increased rapidly over time, especially after exchange rates were allowed to float freely in 1971.

From 1944 until 1971, most of the world's major currencies were pegged to the US dollar under an arrangement called the Bretton Woods Agreement. Participating countries agreed to try and maintain the value of their currency with a narrow margin against the US dollar and a corresponding rate of gold, as needed. These countries were prohibited from devaluing their currencies to gain a foreign trade advantage. Consequently, the foreign exchange market was relatively static.

Trading Margin FX

When trading FX on margin, the dealing prices quoted to you are directly correlated to those prevailing in the interbank foreign currency market. You are, therefore, gaining access to the professional currency market at the wholesale dealing spreads, without being a major corporation, bank or financial institution and without the need for interbank credit lines. A client is provided with two prices: a bid and an offer. This is referred to as the spread and depends upon the size, volatility and the currency being quoted. The quotes are valid only for a short time.

Since the mid 1990s, with the advent of online foreign exchange trading on margin, clients now have the advantage of trading on live streaming prices. This transparency and ease of dealing has accelerated the growth of currency trading speculation and, essentially, given the retail trader access to a huge market for speculation.

Note: CMC Markets is the world pioneer of online margin FX trading. CMC Markets executed the very first online margin FX trade in 1996 and was the driving force behind retail investors accessing global currency trading on interbank spreads, previously only available to major institutions.

Margin FX - The New Frontier

Margin in the context of FX & CFDs
A cash deposit provided by clients as collateral to cover losses (if any) that may result from the client's trading activities.

For many years foreign exchange was a market only accessible by the largest of institutions and a few very wealthy individuals. Margin FX trading, by comparison, has the potential of unlocking this vast market to millions of individual traders.

Control
You, the trader, have control and can choose your level of risk. It is up to you to manage your positions and exposure in the FX markets. It is very important that you actively manage your investment and the risk. Because currency trading involves the use of leverage, risk and potential loss can be magnified.

Summary

• Foreign exchange consists of trading one type of currency for another. Not only is it the world's largest financial market, but unlike any other financial market, investors can respond to currency fluctuations caused by economic, political and social events at the time they occur without having to wait for exchanges to open.
• An enormous proportion of FX market activity is driven by speculation, arbitrage and professional dealing, in which currencies are traded like any other commodity.
• CMC Markets is the world pioneer of online margin FX trading., executing the very first online margin FX trade in 1996 and was the driving force behind retail investors accessing global currency trading on interbank spreads, previously only available to major institutions.