The Foreign Exchange (currency, forex or FX) is the international market for trading foreign currency. It is the largest and most liquid financial market in the world. The preliminary figures for 2007 according to the BIS (Bank for International Settlements) indicate an average daily volume of US$3 trillion. It is a virtual market that has no central physical location. Trading commences on Sunday afternoon and continues around the clock until Friday afternoon.

Currencies are traded in standardized pairs. There are numerous combinations of currency pairs. The six currency pairs listed below, account for more than 80% of the volume and are known as the “majors”. Most currencies are traded against the $US. It is the most actively traded currency. The three most actively traded currency pairs out of the six majors are; the EUR/USD the USD/JPY and the GBP/USD.

The currency listed on the left is the base or lead currency. The currency listed on the right is the counter or quote currency. . The $US is the base currency in certain pairs and the counter currency in other pairs. When the EUR/USD is trending downward; the Euro (EUR) is losing value against the US dollar. Traders will be selling the EUR/USD. When the USD/CHF is trending upward; the $US is gaining value against the Swiss Franc (CHF). Traders will be buying the USD/CHF. The two charts below illustrate these points. *



Chart analysis and technical indicators are useful tools. However, currencies are unique. Their behavior and tendencies differ. Pertinent trading information can be extracted from comparing specific currency pairs. When the $US is the counter currency in one pair and the base currency in the other pair, the two pairs tend to move in opposing directions. The EUR/USD and the USD/CHF have a strong tendency to mirror each other most consistently. The example charts above provide traders an opportunity to sell the EUR/USD and buy the USD/CHF simultaneously.

There are also great opportunities to be gained by observing currency pairs that have the USD in the same position and have a tendency to run parallel.

The GBP/USD and the EUR/USD are two of the most commonly traded currencies. The daily charts above illustrate the movement within the same time period among these two pairs. From 14/06/07 to 23 /07/07 GBP/USD climbed over 960 pips. During the exact same period of time the EUR/USD climbed over 540 pips.

The fundamentals of chart analysis are constant. Understanding the behavioral tendencies of specific pairs and employing comparative techniques adds great value to your armory of trading tools.
The mini account and the standard account are the two types of accounts offered by currency brokers. The mini’s minimum account size is US $300.00. One lot is equal to US $100.00 and one pip is equal to US $1.00. A fifty pip move in the market when trading with one lot in the mini account would yield a US $50.00 profit or loss.

The standard’s minimum account size is US $2000.00. One lot is equal to US $1000.00 and one pip is equal to US $10.00. A fifty pip move in the market when trading with one lot in the standard account would yield a US $500.00 profit or loss.

Similar to other financial instruments, currency charts are available in a variety of time frames. The shortest time frame is a tic chart which shows you every single price movement. The longest time frame is a monthly chart which documents the high and low in monthly segments. The 15 minute chart would document the high and low in 15 minute segments. There are many time frames between the tic chart and the monthly chart. (5 minute, 15 minute, 30 minute 60 minute, 2 hours, 3 hours…)

The purpose of these different time frames is to aid the decision making process of various trading styles. Hypothetically a long-term trader could be consistently looking at the 30 minute 60 minute and longer time frames. He would have no use for the tic or the one minute chart. A dedicated scalper could consistently use the tic and the one minute chart and not look at anything longer than the 15 minute chart.

Bull and bear signals such as double tops and bottoms, head and shoulders and triangle patterns, offer different strengths in movement according to the time frame. A double top on the 60 minute chart will offer a greater downward movement before retracing upward, compared to a double top on the one minute chart. *



This GBP/USD 60 minute chart shows a double top forming at approximately 2.0183 and going down to approximately 2.0022 before turning up to retrace. This represents a 161 pip move. *



This GBP/USD 1 minute chart shows a double top forming at approximately 2.0083 and a third top shortly follows, dropping the price down to approximately 2.0068. This represents a 15 pip move. *

Understanding the fundamentals of chart analysis is critical to your trading success.

* Hypothetical performance results have many inherent limitations. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particularly trading program. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk. Variables such as the ability to adhere to a particular trading program in spite of trading losses as well as maintaining adequate liquidity are material points which can adversely affect actual real trading results.