Charts and Trades: What Next?
You’ve opened your first account with a broker? Great, congratulations! Success is around the corner, it seems: download your trading terminal, open it, and… begin making profits! Stop right there, not that fast. Did you come to this market to make profits, or for your dose of adrenaline while throwing your deposit down the drain? Trading is serious work, that requires skill and patience. Why, you would ask, after all there are so many people who’ve managed to make a profit in such a small period of time? In a manner of speaking, this is true, but do ask those people how they’ve fared in the long run? Luck doesn’t always follow them around, and talking publicly about losses… isn’t always pleasant. This is why the first thing that you have to do is to stop associating trading with easy money, and tune yourself into serious work. This is also true for aggressive advertising campaigns with promises of “becoming a trader in just five minutes”, “earning easily on price fluctuations”, etc.
So, What Should You Begin With?
Don’t hurry too much with viewing videos about successful trading strategies, listening to advice from “gurus”, downloading EAs and indicators. First, you have to learn the terminology of the market, in order to be able to process all of this information. Today, lets dive into what charts and trades are.
After opening your terminal and selecting a currency pair, you will a chart – a visualised representation of how market prices have moved over a certain period of time. On the X axis you will see time and date, and the Y axis represents price. A common representation of price movement are pips. If the current price of 1 Euro is currently 1.09 US Dollars, for example, We will see the following numbers on our chart:
There are two types of quotes here, that are commonly used by Forex brokers – 4 or 5 digits after the decimal point. in both cases the last number is called pips, but make sure you know how many decimals your broker uses, to calculated those pips correctly. Pips are also a common way of calculating profits and losses.
Charts and trades also feature a wide variety of different forms: lines, areas, bars, candles, renkos, etc. We will talk about those different types more in our next articles, as there is quite a lot of detail to cover here.
Opening a Trade
Execution of trades is made in your trading terminal, which is provided by your broker. The most common trading terminal around is Meta Trader 4. Most trading terminals are quite simple and very intuitive, besides brokers often provide educational videos and instructions on how to use them – make sure to review those if you have access to such educational materials.
In order to open a new trade, you need to select the currency pair that you would like to trade on. Once you have the right chart up, you may proceed with opening a trade. When you open a new buy trade, it is called a long trade. If you would like to sell an asset, you open what is called a short trade. In the latter case however, the mechanics are not as simple, since you are selling something you probably don’t have. In this case, the broker “loans” you the asses that you are looking to sell, and then you buy it out, receiving profits based on how much the market price has changed while your trade was open. When opening a new trade you also pay a spread to your broker as commission for its services. In other words, the spread is the difference between the price at which your broker sells and asset, and the price at which you can buy it. This difference is basis for all brokers profits.
Bid (the sell price) – is the highest available price from buyers at which they can purchase an asset. This price is displayed by default on all charts, and short trades are opened at this price. Ask (the buy price) – is the lowest price available at which an asset is available. Long trades are opened at this price. When your trade reaches a certain level with an acceptable profit, you have to close this order, or liquidate it.
Now, you know a little bit more about how Forex charts and trades work, and we hope that this information will be helpful to you when you begin to trade. In our next lesson, we will have a closer look at the different chart types out there.