In our last lesson we learned how to read a currency quote. In today's lesson we are going to continue our discussion on the logistics of trading forex with a look at what an increase or decrease in a currency quote means to us as traders.
Now that we understand how to read a currency quote the next thing that it is important to understand is what an increase or decrease in the quote for a particular currency pair tells us about the value of the currencies which make up that pair. As we discussed in our last lesson, currencies are quoted in pairs or in terms of how much one currency is worth in terms of another currency. When we read a currency quote what we are seeing is how much of the second or counter currency in the pair it takes to buy one of the first or base currency in the pair.
With this in mind if the quote for a particular currency pair increases this means that it now takes more of the counter currency to buy 1 of the base currency. Another way of looking at this is that when the quote for a particular currency pair increases this means that the first or base currency in the pair has strengthened and the second or counter currency in the pair has weakened.
Conversely, when the quote for a particular currency pair decreases this means that it now takes less of the counter currency to buy 1 of the base currency. Another way of looking at this is that when the quote for a particular currency pair decreases this means that the first or base currency in the pair has weakened and the second or counter currency in the pair has strengthened.
Although a simple concept, this is one of the most confusing aspects of trading foreign exchange and something that people still mix up even after years of following the market. From my own experience the best way to think of things is simply that if the rate is increasing this means that the base currency is strengthening which automatically means that the counter currency is weakening. Conversely if the rate is decreasing this means that the base currency is weakening, which automatically means that the counter currency is strengthening.
To help solidify our understanding of forex quote movements lets login to our demo trading platforms and look at a few different currencies pairs on a price chart. If you have not done so already I encourage you to pause this video now and register for a free demo trading account by clicking the link above this video if you are watching on InformedTrades.com or in the description section of this video if you are watching on YouTube.
After logging into your real time demo trading account you should see a button in the upper right hand corner of the trading station that looks like a yellow clock circle and says create market shot over it. Select that button which should bring up a chart preferences window. Select 5 minute there for the timeframe and then click create market shot.
After doing this you should see get a realtime 5 minute chart of the EUR/USD. Lets take the example on this chart of earlier today when the market for the EUR/USD went from xxx to xxx. From the above we should now no that this increase in price means that the EUR has strengthened against the USD during this time period. Conversely if we look at the time period from xxxx to xxxx we can see a decline in price from xxx to xxx. We should now also know that this means that the EUR has weakened against the USD in this example.
The important thing to remember here is that if the price is going up in the quotes window and therefore the chart this means that the base currency is getting stronger and the counter currency is getting weaker. If the price in the chart is going down this means that that the base currency is getting weaker and the counter currency is getting stronger.
Next lets switch the chart to a 5 minute chart of the USD/JPY currency pair. Here we can see that the price for the USD/JPY currency pair has decreased from xxxx to xxxx. As the USD is the base currency in this case this means that the USD has weakened in relation to the JPY. Conversely we can also see that from xxxx to xxx the rate for the USD/JPY currency pair has increased which means that the USD has gotten stronger and the JPY has gotten weaker.
That's our lesson for today. In tomorrow’s lesson we are going to learn about the bid and ask quotes and something which is known as the spread so we hope to see you in that lesson.
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WEEKLY Forex Economic Calendar: 28 Mar Tue
14:00 US- CB Confidence 29 Mar Wed
14:00 US- Pending Homes Sales
14:30 US- EIA Crude 30 Mar Thu
12:30 US- Weekly Jobless
12:30 US- GDP
23:30 JP- CPI 31 Mar Fri
7:55 DE- Jobless
8:30 GB- GDP
9:00 EZ- flash HICP
12:30 US- Core PCE Deflator
14:00 US- final Univ of Mich 2 Apr Sun
00:00 AU/NZ- Clocks "Fall Back"
Forex Market: items driving the market to start the new week:
Event Risk: The fallout from Heathcare fiasco last Friday has started to abate. The new focus is worry about the Trump economic agenda with getting legislative approval a growing issue.
Event Risk: A new Scotland Independence referendum will be considered by the Scottish Parliament today, while the May government will invoke EU Article 50 tomorrow (March 29). Last week's terrorist event could strengthen her hand.
There is a growing perception that the ECB might start to consider stepping back from excessive policy ease. Watch flash HICP data Friday. The March German Ifo Survey (Monday) was considerably stronger than expected and will be noted by the ECB.
Lots to consider. Please comment...
John M. Bland, MBA co-founding Partner, Global-View.com
looking for your first broker or do you need of a new one? There are
more critical things to consider than you might have thought.
We were trading long before there were online brokers. Global-View
has been directly involved with the industry since its infancy. We've
seen everything and are up-to-data with recent regulatory changes.
The Global-View Forex Forum is the hub for currency trading on the web. Founded in 1996, it was the original forex forum and is still the place where forex traders around the globe come 24/7 looking for currency trading ideas, breaking forex news, fx trading rumors, fx flows and more. This is where you can find a full suite of forex trading tools, including a complete fx database, forex chart points, live currency rates, and live fx charts. In addition, there is a forex brokers directory where you can compare forex brokers. There is also a forex brokers hotline where you can ask for help choosing a forex broker that meets your individual fx trading needs. Interact on the same venue to discuss forex trading.
The forex forum is where traders come to discuss the forex market. It is one of the few places where forex traders of all levels of experience, from novice to professionals, interact on the same venue to discuss forex trading. There is also the GVI Forex, which is a private subscription service where professional and experienced currency traders meet in a private forex forum. it is like a virtual forex trading room. This is open to forex traders of all levels of experience to view but only experienced currency tradingprofessionals can post.
Currency trading charts are updated daily using the forex trading ranges posted in the Global-View forex database. You will also find technical indicators on the fx trading charts, e.g. moving averages for currencies such as the EURUSD. This is another forex trading tool provided by Global-View.com.
The forex database can be used to access high, low, close daily forex ranges for key currency pairs, such as the EURUSD, USDJPY, USDCHF, GBPUSD, USDCAD, AUD, NZD and major crosses, including EURJPY, EURGBP, EURCHF, GBPJPY, GBPCHF and CHFJPY. Data for these currency trading pairs dating back to January 1, 1999 can be downloaded to an Excel spreadsheet.
Forex chart points are in a currency trading table that includes; latest fx tradinghigh-low-close range, Bollinger Bands, Fibonacci retracement levels, daily forex pivot points support and resistance levels, average daily forex range, MACD for the different currency trading pairs. You can look on the forex forum for updates when one of the fx trading tools is updated.
Global-View also offers a full fx trading chart gallery that includes fx pairs, such as the EURUSD, commodities, stocks and bonds. In a fx trading world where markets are integrated, the chart gallery is a valuable trading tool. Look for updates on the Forex Forum when the chart gallery is updated.
Global-View.com also offers a forex blog, where articles of interest for currency trading are posted throughout the day. The forex blog articles come from outside sources, including forex brokers research as well as from the professionals at Global-View.com. This forex blog includes the Daily Forex View, Market Chatter and technical forex blog updates. In additional to its real time forex forum, there are also Member Forums available for more in depth forex trading discussions.
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