Forex Trading and Investment

Forex Trading and Investment

Category: Forex

Author: Unknown

Joe DiChiara
Richard Dennen
Kaung Myat Win
Language: English

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Abstract

Trillions of dollars every day go through financial district of New York. Many of the wealthiest people in the United States and the world attribute their fortune being made in the financial markets. After realizing that there is plenty of money to be made, it poses the question how does one learn to trade? While people can be taught terms, indicators, and general knowledge, there is a type of mentality and talent that one needs to have to be a good trader. If one can create a great program or have a great strategy to make money in the financial district, then starting a company and managing money for other people is not far off in their future. The focus of our IQP is learning how to trade in the forex market and seeing how realistic it is to start a company off of what we learned.

Introduction- Forex Trading and Investment

The physical trading of goods and commodities has been around for thousands of years and impacts everyday lives. Back then it was the trading of clothes and food, while today people trade on a wide range of food, clothes, electronics, and much more. No matter where anyone goes, their lives are defined by trading for necessities. From this idea, the formation of the financial district was born. As mankind progressed, so did their systems for trading, and from this, Wall Street was born. These economic markets were created as a central hub for all trades to be made on a large scale for major companies and countries. Foremost, countries around the world depend on these economic markets for stability, growth, and above all else wealth. The modern age and the streamlining of information has brought investments and trading to a personal level as never before. People are able to form jobs and companies from their own homes based off of strong ideas and hard work. This paper will look at how the foreign exchange and stock market can be analyzed and made into profit. While this paper focuses on the foreign exchange market in particular, a good understanding of how the stock market works can provide a trader with a strong fundamental analysis of their own countries relative strength.

Stock markets are the major source for companies to raise money and act as public trading forum for traders. By subdividing companies into multiple shares, it makes it possible for people to gain money off of newly established companies. While some people see this as a gamble, it is merely an investment in a particular idea. By performing proper analysis and research into what the consumer wants and how much they are willing to spend, people can easily invest in a company knowing that they will succeed. The stock market offers a unique service for people to make a fortune by giving money to new companies. While this is a risky business, it is one that has thrived since its creation. The modern age has allowed for the trading between countries on a global scale, which has given rise to a new type of market.

The foreign exchange market, which shall henceforth be referred to as forex market, is a new type of trading system that trades currencies. This is a specialized system that puts two currency pairs together and judges the relative strength between the two. The beauty of this market system is that it allows people with very little money to be able to participate in the financial district. Other markets such as stock, commodities, and futures, requires a large surplus of funds before investing to see any real profit in a reasonable amount of time. However, the risk attached with this market is more in-depth than any other market. The fundamental analysis of the stock market involves looking into the background of companies, while the fundamental analysis of forex requires one to look into the background of countries. This analysis can be much trickier and harder to determine a pattern, which could potentially result in a loss of the initial capital invested. However, similar to any market, one must develop a system which follows some parameters and not just trade blindly. While this market definitely poses more risks than others, it is not at all the same as gambling. With a strong sense of economics and a good strategy using a combination of technical and fundamental analysis, one can be prosperous in this market.

Table of Contents- Forex Trading and Investment

Table of Figures
Figure 1: The effects of interest rate on the economy
Figure 2: Differing the period of an SMA
Figure 3: A simple RC low-pass filter
Figure 4: Bollinger bands
Figure 5: Average Directional Moving Index
Figure 6: Formula for ADX
Figure 7: Relative Strength Index showing when to go for long and when to go for short trading
Figure 8: Formula for RSI
Figure 9: Moving Average Convergence-Divergence showing the negative divergence
Figure 10: Formula for MACD
Figure 11: Stochastic Indicator showing when to go short, when to miss, and false alarm
Figure 12: Formula for FULL Stochastic Indicator
Figure 13: Formula for FAST Stochastic Indicator
Figure 14: Formula for SLOW Stochastic Indicator
Figure 15: A typical head and shoulders pattern after an uptrend
Figure 16: An inverse head and shoulders pattern
Figure 17: Parabolic SAR indicating profitable short and long positions
Figure 18: Formula for Parabolic SAR
Figure 19: Commodity Channel Index
Figure 20: Formula for CCI
Figure 21: Demarker Indicator showing long position and a positive trend
Figure 22: Formula for Demarker Indicator
Figure 23: Alligator Indicator
Figure 24: Fractals indicator showing support and resistance lines
Figure 25: Fractals as trend indicators
Figure 26: Fractals with Alligator indicators
Figure 27: Using the Aroon indicator lines for trend detection
Figure 28: Gator Oscillator with Alligator and Fractals Indicators
Figure 29: Gator Oscillator explained
Figure 30: Currency Spreads from TradeStation
Figure 31: a) Before crossover b) After crossover
Figure 32: a) and b) Example of a false signal crossover
Figure 33: Example price movement of approximately 50 pips
Figure 34: Flow chart for the EMA crossover code
Figure 35: Flow chart for the triple cross detection.
Figure 36: A state-transition diagram for the robot program.
Figure 37: Robot return graph for 2011
Figure 38: The triple crossover indicator.
Figure 39: A traiangle: angles in upper case and sides in lower-case
Figure 40: Performance Statistics of Kaung’s program
Figure 41: Performance Graph of Kaung’s Program
Figure 42: Trading Station Performance Report.
Figure 43: Performance Statistics of Group’s program
Figure 44: Performance Graph of Group’s Program
Figure 45: Testing the Group’s program with 21<degree<41
Figure 46: TradeStation Performance Summary
Figure 47: List of Trades
Figure 48: TradeStation Trade Analysis
Figure 49: Equity Curve of Trades
Figure 50: FOREX.com spreads for currencies
Figure 51: Currency Spreads from Etoro
Figure 52: Market Image of Trade 1
Figure 53: Market Image of Trade 2
Figure 54: Market Image of Trade 3
Figure 55: Market Image of Trade 4

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