Basic Features of Trading in the Forex Market.

Each analytical tool in technical analysis has its own characteristics, there are tools that only serve effectively to predict short-term and long-term trends such as MACD, MA, Bolingerband, Stochastic... there are tools that can tell us the appropriate time to enter or exit the market. That is why technical analysis is the flexible combination of many different analytical tools, not just one specific tool. Each trader in the market sets up for themselves a separate system of analytical tools depending on their level of understanding, analytical ability, risk aversion, and long-term or short-term business goals.

III. Basic characteristics of trading in the foreign exchange market.

1. Currencies traded on the foreign exchange market

Because the goods traded in this market are the currencies of countries. It not only reflects the circulation of the monetary system but also reflects the weaknesses of that economy. Moreover, policy management agencies always use the currency market to regulate the economy by monetary or fiscal policies. Unlike fundamental analysis in the stock market, fundamental analysts in the foreign exchange market must use information systems that reflect the state of the entire economy to make decisions on foreign exchange trading.

2. Business form

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Traders in the foreign exchange market can trade through a brokerage company or directly with their own account opened at a foreign exchange trading company. Due to the characteristics of this market as a global market, it is not necessary to be concentrated in a certain physical location and trading activities can take place anywhere, information is symmetrical, the trading volume is very large, modern technology makes business activities in this market become effective and develop rapidly.

3. Profit in Forex Trading

This is a market with the highest financial leverage with a normal ratio of 1:50; 1:100, or up to 1:200, compared to the stock market where this ratio is 1:1 and 1:2, the Futures market also offers a fairly high ratio of 1:15. Moreover, this is the market with the highest liquidity, exchange rate fluctuations are not controlled or dominated by any financial institution, the cost of each transaction is low and can be traded 24 hours a day. Because of these characteristics, traders can make large profits in a short time that the stock market or any other market cannot meet. Furthermore, the technical analysis method is considered quite effective when applied in this market. At the same time, in normal foreign exchange trading, we only choose one or two currency pairs to trade, so the level of concentration of effort and intelligence for analysis is also more effective than analyzing a portfolio of dozens of stocks as in stock analysis.

4. Risks in Forex Trading

In any investment field, profit always comes with risk. In foreign exchange trading, the risk of loss in trading is very high and may not be suitable for some risk-averse investors. In addition to the risks arising from the trader such as the possibility of incorrect market forecasts leading to losing trading decisions, risks due to poor technical equipment, broken trading systems, we may lose the opportunity to execute a certain buy or sell order... there are other basic and common risks in the foreign exchange market:

a, Exchange rate risk

This is a permanent risk, inherent and characteristic of foreign exchange trading. It originates from the trader's unbalanced foreign exchange position and only occurs when the foreign exchange position is open. For example,

When trading Yen with the original account in US Dollar, if the account is in Yen long status, when the USD/JPY exchange rate increases, we will encounter exchange rate risk, the account at this time will be converted to USD and will incur a loss. Another cause of this type of risk is due to foreign currency supply and demand in the market, international balance of payments, tariff policy, labor productivity, economic and political situation of each country, interest rates between currencies...

b, Interest rate risk

The increase or decrease in the interest rate of the currency pair at the time of the transaction will affect the amount of interest/fees that may be paid to the broker on a daily basis to maintain the trading position.

c, Liquidity risk

It is the risk that the brokerage firm holding the trading account is no longer able to pay when the account holder requests a withdrawal. To check whether the brokerage firm is reputable or not, we can check through the reviews on the website www.nfa.futures.org. Because reputable brokerage firms must be registered through the National Futures Association.

Chapter II. Application of analysis of fluctuations of USD/JPY exchange rate pair in January 2010 in the US market

We can find the above theoretical knowledge in any library, on many websites providing information on foreign exchange trading. But how to apply them depends on the ability to research, analyze and the source of information that the trader grasps. Some websites providing information on the US economy: Bureau of Labor Statistics: www.bls.gov , Federal Reserve: www.federalreserve.gov . The information on these websites is widely published, however, the foreign exchange market is a market that is sensitive to every second, every minute, so following the information release schedule is also a very important thing to be able to grasp the economic situation and make timely trading decisions. We can also find that schedule on many websites: http://www.bls.gov, http://www.fxstreet.com/. In addition to economic information, traders also have to monitor the general situation of the entire economy, political information, natural disasters... which have an indirect impact on the foreign exchange market. All traders in the market do not receive information at the same time, from the same source and not all of them have the same amount of information, so their trading decisions are not the same. This has created market imperfections and therefore the combination of fundamental analysis and technical analysis is very important to get good transactions. Nowadays, with the professional information service of brokerage companies, the above problems are also partly solved by using software to support timely and accurate information provision, and tools applied in technical analysis. To better understand the impact of economic information and technical analysis theory, we will use a combination of these two analysis tools to explain the variables.

movements in the foreign exchange market of the USD and JPY currency pair in January 2010. The United States and Japan are two economic powers in the world, the economies of these two countries play an important role in international trade, so the US dollar and Japanese Yen also hold a leading position in transactions in the foreign exchange market.

I. The US economy in recent years.

The United States is the world's leading economy, so the US dollar has always played a leading role in international trade and accounted for 60% of the total central bank reserves in 2007. Average GDP growth in 2007 reached 2.53%, but by 2008 the financial crisis began to burst due to the mortgage asset bubble that had begun to inflate in 2001 and had become alarming in just a few years. Demand for mortgage securities remained high, but prepayments, defaults, and other disruptions related to financial derivatives caused asset values to decline. In late summer 2007, short-term interest rates began to rise after reaching historic lows, and cracks began to appear as margin and asset values began to plummet, triggering a banking and insurance crisis in just a few months. In 2008, GDP fell sharply to only -1.83%, unemployment rate increased rapidly from 5% in January 2008 to 7.4% in December 2008, and remained high throughout 2009 (10.1% in October 2009). Unemployment rate did not decrease significantly in the first quarter of 2010. With the efforts to save the economy with huge bailout packages of new President Barack Obama, GDP in the third and fourth quarters of 2009 showed signs of positive growth again, increasing GDP for the whole year by 0.25%, but unemployment remained high at 9.7% in the first two months of 2010. Accordingly, retail sales index, consumer and business confidence index, import and export output also decreased sharply, deflation began to appear.

The Great Depression began in March 2009 and lasted until October 2009. Traditionally, the US economy has experienced long periods of prosperity before falling into cyclical crises. These recessions are often triggered by asset bubbles and occurred eight times from 1873 - when the first major economic recession broke out in New York - to 1929. Each recession has been different in severity, the Great Depression of 1929 forced the US to seek measures to reform the banking system and the stock markets.

In the context of the financial crisis in the US affecting the world, major economies are all negatively affected and are also trying to pull their economies out of recession. But in the long term, we must still admit that we are in the development stage of the global economy and especially the development of the Asian region, which also means that in the following years the superiority of the US economy will decrease. However, the US still maintains its important position as the center of the world economy, and foreign exchange traders will also have to pay attention to the fluctuations of the US economy. Especially traders who trade currency pairs with one currency being the US dollar. They are having to evaluate or predict the trend of the dollar's value increasing or decreasing compared to other currencies. They also have to predict the market of speculation on the price of the dollar in the next trading sessions. To address these issues, we can first look at the position of the dollar in the international currency market and assess its strength by looking at the trade-weighted index (TWI), which measures the value of a currency against a basket of currencies with which it has the largest trade volume. If this index falls below 80, it is a bad sign, an unprecedented decline in the value of the dollar in many years. We can also use this TWI chart to plan our future forex trading.

Figure 2.1 USD trading volume

Source: US Federal Reserve

According to 2006 statistics from the Federal Bank of Australia, the trading volume of USD/EUR currency pairs accounted for 38.74% of total EUR transactions, the same for USD/AUD currency pairs accounted for 23.32%, USD/GBP accounted for 21.27%, USD/NZD accounted for 30.94%, USD/CAD accounted for

86.59%, USD/JPY accounts for 60.91%... we can see that the US dollar not only occupies an important position in international trade but also in the foreign exchange market it clearly shows its greatest liquidity. For the above reasons, any trader in the foreign exchange market always considers participating in buying and selling USD. Although in recent years the economic situation has shown signs of decline and especially during the recent crisis, on the one hand, economic indicators show a serious recession and spread to many other countries. On the other hand, economists continuously make arguments against the US dollar, they point out many weaknesses of the dollar and loopholes in the US economy, at the same time give warnings that are not beneficial to the USD and suggest that countries reduce their dependence on the dollar in international trade. These events have kept the foreign exchange market in a state of constant fluctuation. It poses a great risk but also an opportunity.

opportunity for many forex traders looking for short-term profits. To better understand the forex market and find our own strategies, we need to conduct detailed research on short-term and long-term economic statistics to get a comprehensive view of the strength of the currency involved in the transaction and make timely and correct decisions to be successful in this attractive and risky market.

II. Japanese economy in recession.

Japan has held the position of the world's second largest economy for many years and has only recently lost that position, according to the US Federal Reserve's annual economic report, July 2006 China's gross domestic product based on purchasing power parity of the US dollar is second only to the United States. However, that does not mean it has been one of the most successful economies. During the economic bubble period of 1987-1991 Japan made great strides in all economic sectors, this was known as the golden age of luxury cars, expensive food, auctions of exotic art and the rise of designer fashion and expensive jewelry. During this time, housing prices in central areas of the city tripled from 1985-1989 and finally the rapid growth of home loans. In 1989, the Nikkei 225 index reached 39,000 points, which is calculated based on the value of the top 225 stocks listed on the Tokyo Stock Exchange. But by 1990, it had fallen by 39% and by March 2007 it was down to 17,400 points. This was a typical sign and evidence of economic recession, in the 90s the Japanese economy had to go through “The Lost Decade”. From 1995 to 2002, the average annual GDP growth rate in Japan was 1.2%, much lower than countries like the US 3.2%, Canada 3.4%, UK 2.7% and Australia 3.8%. There are many reasons for this stagnation, but the main reason is the decline in investment and consumption.

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