Forex Trader's Digest

The Yield Curve And Its Relevance To The Stockmarket

2007-11-15T11:26:00.001-08:00

CFD traders will often hear the phrase 'yield curve' used in long and short term evaluation of investment trends, and it is seen as important as one barometer for the outlook for the economy, and thus the stockmarket. The curve itself shows the structure of interest rates plotted over different maturities as measured by government bond prices, from the shortest dated bonds, which usually are related to short term interest rates, to long-dated i.e. 30 year plus maturities.

This enables investors firstly to be able to compare the yields offered by short-term, medium-term and long-term bonds. As there is usually a higher risk involved in choosing a longer dated maturity, typically the yield curve should slop upward, but it is the actual slope that is of interest. This also has relevance for forex investors as it reflects one part of longer term currency risk evaluation.

The three shapes of the curve

The yield curve usually takes one of three shapes. If short-term yields are lower than long-term yields, the line of interest rates will slope upwards, and this is seen as normal.

If short-term yields are higher than long-term yields, the line then slopes down (at least at the beginning), and this is referred to as an inverted or negative yield curve.

Occasionally, a flat yield curve reflects hardly any disparity between short-dated and long-dated yields.

What bonds are plotted?

It is very important that only bonds of similar risk are plotted on the curve, as the gap between low and high risk bonds itself is another factor for longer term investors to examine when choosing investments. In the US, the most common type of yield curve plots Treasury securities because they are considered risk-free and are used as a benchmark for determining the yield on other types of higher risk debt. The yield curves are calculated and published by The Wall Street Journal, the Federal Reserve, and a variety of other financial institutions.

In the UK, gilt stocks are used in the same way and it is simple to compile current yield curves from the Financial Times.

The importance of the yield curve

As mentioned above, when the yield curve is positive or sloping upwards, this indicates that investors require a higher rate of return for the added risk of lending money for longer periods of time, which is normal.

If the yield curve shows a steep upwards slope, this indicates to some commentators that investors are looking at strong future economic growth and potentially higher future inflation, which might lead to higher interest rates.

Changes in the shape of the yield curve can also have an impact on portfolio returns by making differently dated bonds more or less valuable relative to other bonds, so analysts and investors need to study yield curves carefully.

If there is a flat curve this generally indicates that investors are unsure about future economic growth and inflation.

The inverted yield curve

This has been quite topical in recent months as inverted yield curves have been seen in many economies after the period of steadily tightening monetary policy up until this summer.

Where there is an inverted yield curve this suggests that investors expect slowing economic growth and potentially lower inflation. The inference here is lower interest rates to stave off possible recession, and this is what we have seen in the US earlier this month when the Federal Reserve lowered rates by 50 basis points.

There have been many studies that have found that inverted yield curves tend to precede recessions, but this may be subject to revision given the prevailing fiat monetary policies in much of the developed world currently.

Yield curve theory

There are three main theories that attempt to explain why yield curves are shaped the way they are, and it is for the long term investor to decide whether these are relevant or superfluous to the prevailing shape of the curve.

The expectations theory states that expectations of rising short-term interest rates are what create a positive yield curve and vice versa.

The liquidity preference hypothesis states that investors always prefer the higher liquidity of short-term debt and therefore any deviance from a positive yield curve will only prove to be a temporary phenomenon.

The segmented market hypothesis states that different investors confine themselves to certain maturity segments, making the yield curve a reflection of prevailing investment policies.

Rupal Patel is the Marketing Manager at JustClick, who are a leading source of Graduate Jobs and Graduate Careers, also offering a Graduate Lifestyles portal with news and reviews on current affairs.

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Forex - Trade The Right Currency Pair

2007-09-27T17:52:00.001-07:00

By Sandy Robinson, J.D.

Neither all currencies nor all currency pairs are created equal. Selecting certain currency pairs over others may give you a better chance at success in the foreign exchange (FOREX) market. This article will help you analyze and navigate the uncertain waters of trying to decide which currency pair(s) will bring you the greatest probability of success in trading.

Is the Pair Liquid?
Liquidity indicates whether there are enough participating buyers and sellers in the marketplace to facilitate the trading transactions with ease. If liquidity is lacking, then a buyer may have a tough time closing out the trading position at or near the desired price. The consideration here is whether the international investment community finds the currency pair interesting and profitable enough to trade and to what extent it is desirable. You must determine whether the currency pair is traded in sufficient volume preferably during all three major sessions constituting the 24-hour trading day. Financial journals and brokers can help you with this information.

How Much Is the Spread?
In the FOREX market, brokers are not paid commissions as a stock broker would receive. Instead, they are paid something called the spread. The spread is the difference between the ask (price at which the broker sells to the investor) and the bid price (price at which the broker buys from the investor) of a currency pair. A currency pair that does not have much liquidity tends to have a much higher spread than one which is widely traded. The less the spread, the more money the investor gets to keep. You should look for a currency pair where the normal spread is not more than two to five pips. Incidentally, during important economic news releases such as the U.S. Non-farm Payroll Report (NFP), the spread on the major currency pairs impacted by the report will usually increases tremendously, sometimes up to twenty-five pips.

Behavior of the Currency Pair
Like children and pets, each currency pair seems to have its own unique personality as expressed in its behavior pattern. For example, the EUR/USD (Euro/U.S. Dollar) tends to be more stable than the GBP/USD (Great British Pound/U.S. Dollar). For the scalper or day trader, more erratic movement in a pair may be preferable to movement which stays the trend. If you like trading the news, it will be beneficial to observe how the currency pair reacts to important economic releases like the U.S. NFP report, when sudden price spikes occur in U.S. Dollar-connected pairs.

Top Two Currency Pairs
Despite its general decline in the past several years, the U.S. greenback continues to generate attention from individual, corporate and institutional traders all over the world. Consequently, when paired with other strong currencies like the pound and the euro, it provides fantastic trading opportunities. Based on the liquidity, volume, international interest and overall stability of the underlying governments, the EUR/USD and the GBP/USD are generally regarded as two of the most desirable pairs for trading. Still, you must decide according to your own trading style, analysis and preference which pair(s) will work best for you.

If you are ready to change your future by stepping into the exciting world of trading FOREX, go to http://www.winningtradersassociation.com for more information. Author Sandy Robinson, J.D. is part of the Winning Traders Association, an educational organization founded by John Beiler, President. The organization consists of a network of committed trainers and motivated traders willing to provide support to those interested in trading foreign exchange. Many of the members work from home.

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Hitting Par - The Canadian Dollar vs The American Dollar

2007-09-27T17:48:00.001-07:00

By Sam G. Smith

In over 30 years, since November 1976, the US dollar and Canadian dollar have not been par until now. As the Canadian economy has been progressing over the years, the US economy seems to have fallen behind with all its turmoil. The war in Iraq has not helped the US economic situation but rather offset the deficit, and in a move to avoid the forecasted economic recession due to the credit crunch, the feds cut interests rates by 0.5 points to 4.75 percent.

The move to cut interest rates to ease the mortgage industry has weakened the US dollar against foreign currency including the Euro, and giving the push for the Canadian dollar to hit parity with the US dollar. One US dollar now buys one Canadian dollar. But the Canadian dollar’s gain isn’t only linked to the US federal interest rate cut, but can also be seen as the Canadian economy has been booming in an upward gain from 2006 with a low inflation rate, and a red hot oil industry.

This rapid progression of the Canadian dollar against the US comes as a shock to some Canadians, who measured the Canadian dollar value at .62 USD only four years ago in 2002, and now hitting par seems too good to be true.

As Jeff Rubin, chief economist and strategist at CIBC World Markets, stated, “the Canadian economy that once used to be the sleepy little resource backwater of the North American economy is certainly turning the tables on its big brother in a hurry."

So what does all this have to do with Canadian and American dealings with each other? Well, for starts there will be an increase in American exports as buying from the American markets will become cheaper for Canadians. Although, vice versa Canadian exports to America will also decrease, as it will simply cost more for Americans to buy Canadian manufactured goods.

The Canadian tourism industry will also suffer, as more American visitors will decline as the dollar parity discourages Americans from shopping in Canada, since the one time savings of up to 40%, due to the dollar value, will no longer be available to Americans.

Although, Canadians will suffer in sales, they will gain in purchasing from American based businesses, and buying cars from the American side is becoming more attractive to some Canadians. As car prices in Canada are much higher than in America, a lot of Canadian shoppers will find drastic savings by traveling south of the border to buy a car. The difference in prices may not be the greatest for all cars, but gaps in some categories such as luxury sports cars, will save a Canadian buyer almost $14,000 on average.

But the high loony will put pressure on Canadian companies that are dependent on exporting to the US, who is also Canada’s largest trading partner. Already, in 2006 there were almost 100,000 job losses in southeastern Ontario, due to the rising Canadian dollar against the US dollar.

Even with such a massive job loss, the Canadian economy is still doing well, as the manufacturing sector loss a total of 289, 000 jobs since 2002, the Canadian economy has created over one million jobs in resources, construction, services, health care, education and financial industries, leaving the national jobless rate at 30-year low.

In contrast the Canadian dollar seems to be stronger over the American for the time being, but only time will tell the future of the American dollar vs. the Canadian. If asked to predict, there is always uncertainty, but given factors such as future interest rate cuts by the Americans, could possibly even lower the US dollar compared to the Canadian, and this could become reality in the next 6-12 months.

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Trading Forex - is EUR-USD Ready to Reverse?

2007-09-27T17:46:00.001-07:00

By Mike Kulej

In light of FED decision to cut interest rates by 0.50% we have witnessed farther weakness in USD. It was most visible in case of CAD and EUR. Canadian Dollar reached parity against it's southern counterpart for the first time in 30 years, while Euro reached an all time high of 1.4100 by the end of the week.

Immediately number of economists are predicting farther decline of USD, citing another rate cut during next FED meeting. This might or might not hold true. Certainly over last few years interest rates seem to have been a primary fundamental reason behind the currency trends. That, however, has not always been the case and might not be much longer.

Extremely strong Euro, especially against USD is not well received in Europe. It makes products from the Union to expensive comparing to their American equivalents. That will most certainly hurt exporters from the continent. Airbus, for one, has already voiced strong concerns and even came up with some numbers of how much more expensive it's getting for them to compete with Boeing. They claim to have no choice, but to outsource a lot work away from Eurozone.

This can not be well received by European politicians. French president, Sarkozy, already publicly called for European Central Bank (ECB) to take similar action. We can only expect this matter to become even more politically sensitive, with more pressure put on ECB to follow in FED footsteps. This should set precedence for other central banks, especially the likes of Australia and New Zealand, which have been expressing concerns over lofty levels of their respective currencies.

Interest rates can easily become secondary fundamental reasons behind Forex trends. Perhaps international trade issues will be the driving factors, like they were in the past. Internal fiscal policies or strength of economies can become primary focus points for fundamental traders. Who knows, perhaps job creation data will be causing the most movements. That, however, will be know only from the perspective of time.

There are also technical factors suggesting possible reversal in EUR-USD trend. If we look at extremely long term charts, we can see that 1.4500 level has proven to be a formidable resistance level before. We must clarify something here. While 1.4100 level is the all time high for Euro, that is only since Euro inception. Prices for the period before common currency was introduced, can be extrapolated by using the old German mark as a proxy. Those charts are readily available.

Looking at monthly charts of (Euro/Mark)-USD, we can see what happened when prices reached 1.4500 level in 1980 and 1992. Both times there was a reversal. Strong one at that. Some most common technical indicators, like MACD, are also pointing to some kind of pull back. Others, like cycles and price swing analysis agree as well.

Neither one of those reasons mentioned above is, by itself, compelling enough to call the end of EUR-USD rally. That said, the confluence of both fundamental and technical reasons at the same time is strongly suggestive that we are close to an important turning point in the market. Taking all that into consideration, how should we call it? EUR-USD at 1.2000 within a year? Certainly not out of the question.

Mike P. Kulej is a Chief Forex Strategist for Spectrum Forex LLC. He specializes in mechanical trading systems as explained on http://www.spectrumforex.com . Spectrum Forex LLC offers numerous services to individual traders. With questions and comments e-mail him at kulej@spectrumforex.com

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Trading Forex - Oil Prices and Canadian Dollar

2007-09-19T12:14:00.000-07:00

By Mike Kulej

Over last couple of years there was a lot of discussion in Forex trading circles about Canadian dollar and oil prices. Why? Canada is major producer of oil and with surging oil prices people have been trying to find a correlation and take advantage of it. Or at least explain it.

Canada doesn't rank at the top of oil producing countries. Many others are bigger. Saudi Arabia, Russia, Kuwait and others. Nonetheless, Canada has been an exporter of crude for a long time and being a neighbor of USA, the biggest oil consumer, raises Canada's stature in the field of this important commodity.

There are huge oil reserves locked in the “black sands” of Alberta. Until recently exploitation of these deposits has not been economically viable. Now, however, with oil prices around 80 US dollars per barrel, production can go on in earnest. We are talking about estimated 300bln barrels reserves. That's 10 times total annual worldwide output. Huge deposits.

This fact has been known for years. Conventional wisdom among Forex traders was that it could be used in their decision making process. Only how? Conventional wisdom has been to go long CAD/JPY if one anticipated rising oil prices. In theory it makes sense. Japan is an importer and Canada an exporter of oil. It should work, right?

Unfortunately, it only works on the broadest of scales. If one has an outlook for many months or even years to come, this particular notion might make sense. Not on any shorter time scale, though. Recent developments are perfect example. Oil has just reached an all time high of 80 dollars while CAD/JPY is still about 700 pips from most recent high. Besides, despite much research and many tries, nobody has demonstrated that either one of these financial instrument is a leading indicator for another. So there is no clear way to take advantage of this correlation on regular bases.

Oil prices are just one of many factors influencing CAD. There are prices of many other commodities , like metals and agricultural products. There is the government spending, unemployment, taxes and interest rates. Entire spectrum of factors. Besides, there are better ways to play oil market. Futures and stocks of oil producers can deliver better returns if one is correct on crude price direction.

Should one really incorporate oil price analysis into Forex trading, there is a better alternative to CAD/JPY. What is it? USD/CAD. That's right. United States is a consumer of virtually all of Canadian oil surplus. These two countries are their respective biggest trade partners. What's more important, price of oil is better correlated to USD/CAD than any other liquid currency pair.

USD/CAD followed crude prices to levels no seen in 30 years. We are sitting at 1.0300 as of of this writing, just a step away from parity. With oil hitting all time high and USD/CAD on a threshold of this critical level, we will soon see just how useful is oil price analysis when applied to Forex, or more precisely, CAD. Next few weeks can give us that answer. So keep an eye on both and decide for yourself- can one be helpful in trading the other.

Mike P. Kulej is a Chief Forex Strategist for Spectrum Forex LLC. He specializes in mechanical trading systems as explained on http://www.spectrumforex.com Spectrum Forex LLC offers numerous services to individual traders. With questions and comments e-mail him at kulej@spectrumforex.com.

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Forex Trading Systems - Avoiding Scams and Finding One For Big Profits

2007-09-18T08:33:00.001-07:00

By Kelly Price

There are lots of forex trading systems you can buy off the self and they will all claim to make you money, but the fact is over 95% of them lose. So how do you spot the good ones from the scams? It’s easy if you know what to look for.

The first thing to look for with any forex trading system is the track record and if you see the disclaimer below be extremely cautious. We will explain what it means in a moment but for now here it is and its required by the CFTC.

“Hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those show”.

If you have read the above and understood it, you will see that vendors can simply make track records up (and they do), as they can use past data and say what they want! So long as they put this disclaimer on the material their covered.

Of course most forex traders simply concentrate on the gains and do realize these track records are actually meaningless.

Anyone can do a track record in hindsight, knowing the closing prices but it’s not so easy in real life – we have to trade forward!

The fact is most of the currency trading systems sold on the net today are never traded at all - there simply done by marketing people and track records are made up to appeal to the greed and naivety of investors.

So the first step is simply to ignore any forex trading system that does not have a real time track record and believe me, you have cut out at least 95% of systems.

You may say well there must be some honest guys out there selling systems?

Yes there are and some simulations do come good (a small minority) but why should you risk you money?

If the vendor hasn’t the confidence to trade neither should you.

Once you have found a real time track record look for the following:

1. It is over a reasonable period of time at least 3 years.

2. Check the drawdown and look for the worst peak to valley drawdown to see if its in line with your risk – reward criteria.

3. Check the logic is revealed so you can have confidence in it

4. Check the support and find out if you are comfortable with the vendor

While a real time track record does not guarantee profits it is a good indication of the potential of the system and if you know how it works and are comfortable with its worst peak to valley drawdown and time to recovery chances re you can follow it with discipline.

Don’t look to make a fortune over night – the best systems will do up to 50% per annum and that will build you fantastic compound gains over time.

If you want bigger growth you will find many simulations offering you more but you know what will happen if you buy it!

Be sensible when buying forex trading systems and remember, all those track records that look to good to be true are! There is no “free lunch” when it comes to make money.

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Forex Education Tips - 5 Steps to Successful Forex Trading

2007-09-14T19:01:00.001-07:00

By Todd Judkins

Close to 95% of all Forex traders will lose money. We're not just talking about novices, either. Whether you trade Forex for a living, as a hobby or just for fun, odds are against your success. That's a simply astonishing fact. However, the remaining 5% of Forex traders somehow manage to break even and there are those lucky few that actually make money in the currency market – consistently!

Like the TV show says … “How’d they do that, anyway?”

That's the million dollar questions, isn’t it? Countless books, seminars and expos have been hosted to answer this very question. That sad fact is that thousands of books have been written and countless seminars and interviews have been conducted in an attempt to answer the magic questions. The reality of the situation is that there is no magic formula; no one single Holy Grail of Forex trading.

So what do the successful traders do that the rest of us have simple not comprehended. They have mastered a process of winning where they combine and customize several factor to produce consistent results. They have mastered the Process of Trading.

The Process of Trading is:

Strategy > Money Management > Self-Mastery

Here are some simple Forex Education tips to help you master the process of forex trading:

Success Tip #1 – You’ve Got To Have a Plan

You must have a written business plan that will detail all aspects of your trading. When are you going to trade, how much to risk, strategies for entries and exits are just o name a few. To become a consistent (profitable) Forex trader you have to plan your trade sand trade your plan.

Simplicity rules! Don’t make this plan too complicated. One sheet of paper for you mission statement and another for your trading plan should suffice. Anything more is probably too complicated.

Success Tip #2 – Focus on Your Personal Psychology

Knowing yourself will allow you to master the discipline necessary to execute high quality trades with solid money management techniques. Lack of discipline is fatal in Forex trading. Go on a personal journey to identify you attitudes towards risk and money. Get intimate with your strengths and weaknesses as a trader and build in to your trading plan strategies to minimize those weaknesses and maximize your strengths.

Different personalities lend to different trading styles. Get familiar with all the different styles and over time you will begin to gravitate towards one particular style. Don’t fight the urge like I did. I insisted I was a day trader, but had only limited results. I found my winning percentages were much higher when I entered swing trades. Guess what’s my bread and butter strategy now!

Success Tip #3 – Be Realistic About Your Expectations

This is a hard one, I know! I am on the internet every day and the amount of advertising is staggering. Brokers are offering free education (fox in the hen house if you ask me), forums of all different trading styles and points of view. Gurus pushing their system as “the one” that will make you the big bucks. How do you get through all that noise?

Let me tell you loud and clear right now – everyone is right and everyone is wrong. You have to make a personal commitment to become a successful trader, find a trading style that works for you and expect a slow and steady approach to wealth building through Forex.

What works for me may not work for you. Expect to go through an exploratory period where you are learning and at the same time exploring yourself as a trader. Keep an open mind and don’t pay attention to all the noise out there.

Success Tip #4 – Exercise Patience

Rome was not built in a day and neither will your trading account. In fact, I tell all of my students that while they are studying to become successful Forex traders they should not look solely at their account balance as an indication of success or failure.

By tracking and increasing your percentage of high quality trades you execute is a far better barometer of your progress than your account balance. Cause and effect rule here. Over time when you increase your probabilities through the execution of high quality trades your account balance will respond accordingly.

Keep the focus on the process and with time your results will blow your mind.

Success Tip #5 - Money Management Is Top Priority

I would rather have a shaky strategy and excellent money management techniques than the other way around. This topic warrants its own blog post to do it justice. Limited your exposure (read “risk”) allows for you to stay in the game and allow the laws of probability to work.

Let’s take a casino for example. They need gamblers to frequent their slot machines to make money. Why? They have a game that has a greater than 50% chance of making money for the house. The more people that play the slots, the greater the casino’s profits.

The casino controls risk by payout tables (always favoring the house!) and increases their probabilities by keeping gamblers at the slot machines (read “free drinks”). As a trader you must limit your risk by committing only 1% - 3% of available capital to a single trade. When you execute enough trades with a high probability strategy you too can clean up like the casinos – but only by staying in the game long term.

In conclusion, Forex trading is not easy. It’s hard work and will test the limits of your patience and perseverance. If anyone tells you otherwise .., buyers beware! It can be a very rewarding and profitable venture if done correctly. In the end it is a profession that requires a learning curve and practical experience, no different than an airline pilot or engineer. Understanding how to approach and learn this game will allow you to reap all the benefits advertised. It is your Forex Education that you will master the Process of Forex Trading.

ABOUT THE AUTHOR: Todd Judkins specializes in teaching real people how to trade the Forex market for long term success by focusing on strategic, mind and money skills. He is a currency trader, educator and success coach to traders. Are you now ready to take action? To begin training with Todd immediate, online Forex trading visit: http://www.forexjourney.com and sign up for his FREE Video Newsletter.

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Hands-Free FOREX Trading for Novices and Professionals

2007-09-14T18:58:00.001-07:00

By Wayne Nash

Since Foreign Currency Trading (FOREX) became available to the public in about 1997 there have been hundreds of managed trading accounts, pooled funds, signal services, and training courses designed to help the average person get access to this lucrative market. The record has been mixed with a lot of casualties along the way.

If you are wanting to get into the FOREX market directly you essentially have three choices:

1. Have someone trade your money for you and relinquish control and pay up to 50% in performance fees. These are either pooled or managed accounts and you can find many on the net. Many people have lost their shirts with such traders and it is very hard to find a trader who is consistent and steady and not trying to get rich over night with your money.

2. Spend thousands of dollars on courses, books, signals, and training and still end up one of the 90% who fail in the first 60-90 days of their trading experience. And IF you happen to be relatively successful then expect to be staring at charts for hours on end and see your stress hormones go into overdrive. Mostly you will be learning about 'directional trading' and hoping that your system will be able to 'beat the market'. Few, however, beat it for long. The road to directional trading is strewn with corpses of traders who did not survive the test of time.

3. Learn to hedge the market using proprietary and largely automated software that have recently been coming onto the market. Hedging, when properly done, can be the safest and most lucrative approach to this market. Greed and fear also play much less a role here because you only need to decide your risk level, your capital investment, and the pairs you will trade. The rest is automatically executed for you.

Having tried all of the above I have found that the safest, least stressful, and least time consuming method is hedging the market using proprietary software.

I have looked at a few such systems but only one stands out above the rest and is the only one really getting the attention of the major brokerages in the US. With over 5000 users in 80 countries as of June '07 and over 70% of these trading with live money (over 35 million USD at last count) it is the system of choice in a world full of time consuming, expensive, and largely dangerous approaches to the FOREX market.

It is also the only way you will ever be able to get 400:1 leverage on accounts up to 1 million USD with 3 large brokerages in the US. And in this kind of trading 400:1 is more profitable AND SAFER than 100:1.

The hedging strategy I use works by reducing risk and volatility by buying currency pairs that traditionally are 'negatively correlated'. The EURUSD and the USDCHF, for example, move in opposite directions 93-98% of the time.

Most 'directional' traders don't hedge because they believe that there is no money to made here and believe gains in one pair are wiped out by losses in the other.

However, with the software I use we can actually DOUBLE our profits by ALWAYS buying low and selling high while earning daily interest (the 'carry trade'). We do this all the while reducing risk and volatility in our accounts.

What is MOST attractive about automated hedging is that it can be managed in about 5-15 minutes per week.

The great thing for most beginners traders is that there are no charts or graphs to read, the system tells you what to do and when to do it.

The system tells you exactly how many lots to buy or sell and always buys low and sells high and provides exact buy and sell points so there is no guesswork involved.

Your funds are in a segregated account with a registered and audited broker who executes the trade and alerts you by text message or email.

Unlike signal services, there is no risk of missing a trading opportunity here and there is no need to monitor trades all day long or run to your computer when trades are triggered.

Because interest is received and paid daily the balance of DAILY interest is paid into your account at 5pm EST every day and triple on Wednesdays.

You do not need any prior trading experience. But, knowledge of the FOREX won't hurt you and you can also put your knowledge to work here to squeeze a little more out of the hedge.

You have 100% control of your risk/reward and 100% control over your money.

In my opinion, if you value your time and mental health, there is no better way to trade the FOREX market. What this system gives you most of all is 'freedom' and the time to enjoy the money that such a system can make for you.

Whether you are a veteran trader tired of spending half your life in front of a monitor or are a novice who has just heard about FOREX for the first time, I recommend you consider hedging the FOREX market to minimize your risk, maximize your returns, and free up your time.

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Why Hedging FOREX is Superior to Directional Trading

2007-09-14T18:55:00.000-07:00

By Wayne Nash

Recently at a convention on FOREX Hedging there were people in the audience who had spent as much as 80,000 or more on trading courses. None of them had any success with trying to predict trends as directional traders. Most lost a lot of money in the process.

Apparently there are about 250,000 FOREX traders. I would guess that 98% of them are directional traders. Yes, 250,000 traders in a 2.3 Trillion/day market while there are 144 Million stock traders in a much smaller market place. The New York stock exchange is about 30 million a day and comes nowhere near the liquidity of the decentralized FOREX market.

So, why so few are hedging the FOREX market? I believe this is mostly because of a lack of a system that consistently works.

Most directional traders with any experience have thought of hedging the market but most come to the conclusion the hedge just cancels itself out over time. So, most just give up on it not knowing how to make it work. But, what if, instead of zeroing out all profits you could actually double your profits with the hedge?

Let's take the EURUSD and the CHFUSD pairs.

These pairs are historically negatively 93-98% of the time. That is when one pair goes up the other goes down, and vice versa, up to 98% of the time. Now, over time these would pretty much just cancel each other out and you would not be left with much of a profit and maybe would even see a slight loss if the hedge was not in your favor.

Now what if you could ALWAYS buy low when one pair went down and sell high when the other correlated pair went up? And when the market corrected do the same in the opposite direction over and over and over again?

This is how I 'trade' the market. Really it is more like 'investing' since I do not look at charts, do no analysis of markets, care very little about fundamentals as long as the hedge is sticking. I also only spend about 5-15 minutes a week resetting my buy and sell limits. The rest is done automatically.

Now, that is the ONE of the ways that I build my equity. The other is daily interest paid at special negotiated rates from some of the biggest brokers in the US and Switzerland. Not all brokers are alike in the rates that they pay even though they are based on the rates set by the respective central banks.

Because the system I use is so consistent and works so well the brokers are not only willing to bend over backwards to give us the best interest rates available they are also willing to give us 400:1 leveraging. Some brokers extend this 400:1 leveraging up to one million dollars. Note that no other system to my knowledge gets this kind of leverage on that kind of money. It is a first in FOREX retail history and there is a good reason why.

Now, at first blush you may think that 400:1 leveraging is increasing our risk. In directional trading it certainly would be putting you in grave danger of losing your capital all that much quicker.

But, in fact, when you hedge the market as we do 400:1 leverage actually DECREASES your risk. Hence, the brokers are quite happy to provide this kind of leverage for this style of trading because it actually reduces the risk of a margin call and it makes the brokers that much more money.

Now, why is 400:1 so important to hedging the market in the way we do it? Well, because of the daily interest!

Let's take an example and say you have $5000 in your trading account and a 10% margin set.

That means you have $500 allocated to the market. If the net interest we receive is 1.11% annually then this would not be a lot of money. We could do better at the bank! ...well maybe...

But, what happens when this $500 is leveraged at 400:1? All of a sudden this 1.11% interest becomes 44% per annum! Now, I am sure you would agree that this is a return worth looking at and that most money managers would sell their mothers for this kind of return!

But, this return does not include the buy low/sell high profits. Add these all together and you have a system that on fairly conservative margin can produce very handsome and consistent profits without risking your shirt and without needing to sit in front of a computer all day and night watching charts until you go cross-eyed.

There is one more way that equity can increase or decrease. That is via the market fluctuations in the hedge. Sometimes the hedge will work in your favor and sometimes it will go against you. When it is in your favor you can see windfall profits beyond the daily interest and buy and selling process. If it goes against you it will cause a pullback in your equity for a period of time.

Compounding is also possible. When your balance and equity increase significantly over time your margin is going down. That means it is getting more conservative and safer if you just let it grow. But, if you want to keep your margin at say 10% then you can reallocate your portfolio and buy more lots which bring more interest and more buy low/sell profits.

Now, if you think that daily interest at 400:1 and 100% winning transactions makes sense what would you think if we could smooth out the fluctuations that give us the big profits and big pullbacks, i.e. volatility?

Well, we could up our margin could we not? We could increase our margin without incurring much more risk and in fact may even be able to reduce it when we hedge the hedge. The net result means more interest, more profit, and less risk while freeing up our time to spend the money we are making instead of ignoring our family stuck to a chart on a screen.

Presently such an enhancement is in testing and may soon to be released to the public if tests are successful. If you want to keep updated on this new development be sure to subscribe to my update list.

By learning how to HEDGE the FOREX you not only increase your profit and reduce your risk. You can also get a life! That to me is the most attractive part of this whole system.

The great thing is it is not difficult to learn either. I personally coach people in the system I use and it usually takes a couple of hours and about 10 minutes a week to monitor before my students are on their own.

If you have any questions feel free to contact me and go to my blog for my free FOREX Primer for 10 short and informative lessons about FOREX in general with some discussion of hedging as well.

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The Yen Carry Trade

2007-09-14T18:49:00.001-07:00

By Mahesh Mohan

Carry of an asset can be defined as the return earned out of just holding an asset if positive or as the cost of holding the asset if negative. Holding commodities is an example of a negative carry unless the market is willing to pay a premium for availability. Carry trade is defined as the spread between borrowing a low carry asset and lending a high carry asset. It is different from arbitrage as arbitrage is the spread earned between similar assets quoting at different levels and is made only till nothing changes.

Therefore, yen carry trade is defined as earning a spread by borrowing low yielding (almost zero) yen and lending a high yielding currency like a US Dollar or a GB Pound. The trader earns a spread between the yields and also from the dynamics in the value of the two currencies. It tends to correlate with global financial and exchange rate stability. This spread so earned can be magnified if the trader leverages this type of trade. It can be further enhanced if the so leveraged bought yen is invested into a still higher yielding stock market. The greed does not end here. The returns can still be enhanced if the cheaply acquired liquidity is invested into a still higher yielding stock market amongst the economies termed as developing economies. This concept has actually been implemented and today there has been such huge liquidity across the globe emanating from a cheap source, Japan. It is estimated that as of early 2007, as much as USD 1 trillion may be staked on the yen carry trade.

Post the dotcom bubble burst in 2000, monetary authorities across the globe had slashed the interest rates to support growth. Where countries like UK and US have tightened the rates, Japan has been a laggard and has still kept a zero interest rate scenario to keep the Japanese exports competitive. This has been helping Japan to support its economy but at the same time it has also created a huge liquidity into the markets, which are now globally interconnected.

Appreciation of the Japanese yen, increase of interest rates in Japan or reducing returns out of the lent currency, stock markets, bonds or real estate will make the carry of the Japanese yen expensive. Further, for a leveraged trader, the cost of this carry will magnify just as his spread earnings had magnified in the earlier case. This will lead to the trader unwinding his carry and thus will make him borrow a higher yielding currency to pay back the lower yielding currency.. Something similar has happened before. Nine years ago, panic in the global financial markets sent the yen surging 20% in less than two months. In May, 2006, the Bank of Japan withdrew excess liquidity by 12.2 trillion yen–equivalent to the Fed taking $200 billion out of excess U.S. liquidity. In the first case, however, the sudden appreciation in the yen worsened the Japanese economy and in the second case, the bank of Japan realized the panic it had triggered and it again started pushing liquidity in the system. This resulted in the stock markets shooting up post May 2006. Therefore, if the unwinding is triggered by the intervention of Japan, it may have to face a trade-off as an unbalanced economy and hence can be corrected but if it is triggered by a global slowdown, it becomes beyond control and may have rippling effects across the globe.

Where, an unwinding of the yen carry trade can have a significant impact on global financial instruments including real estate, the yen carry trade has also been benefiting the global economies for almost a decade. The liquidity so created in the system has actually created a lot of value in stock markets across the globe and there is a lot of Foreign Institutional Investor (FII) activity among the emerging economies. It has also triggered a lot of real growth in these economies.

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Forex Trading Fundamental Analysis - Causes Losses for Most Traders Why?

2007-09-14T18:47:00.000-07:00

By Monica Hendrix

There is no doubt that the supply and demand situation drives currencies and today with the internet we have better fundamental information and news than ever before - so why is it so hard to trade the fundamentals? Let’s take a look at why and how to use fundamentals correctly.

Markets Discount

Today news stories are available in any corner of the globe in a split second at the click of a mouse – and this is the problem as well as the advantage!

The news is discounted in a split second and the markets are then looking to the future – by the time you have acted the news is taken into account.

In times gone by the fundamentals would take longer to spread and you had a window of opportunity to take advantage of them – this no longer exists.

Volatility

Has increased dramatically over the last few years and trading individual news stories is not an option anymore.

Take a look at non-farm payroll and check out the volatility - if you can trade that you’re a better trader than me.

So can you trade the news at all?

The answer is yes and no.

We all know the long term fundamentals drive the longer term trends but this doesn’t help you time your entry.

1. Establishing the Longer Term Trends

You can keep the long term fundamentals in mind and use technical over bought or over sold areas to time your market entry. This is effective for long term trend followers.

2. Spotting Contrary Trades

You can also use the fundamentals to catch big profitable contrary trades.

It’s a known fact that markets currencies drop when the news is most bullish and rally when the fundamentals are most bearish. If a currency has extremely bearish news and fails to go lower or rallies than you may have an important turning point at hand.

The real problem with fundamentals is trying to work out what the participants think of them and how far they have been discounted and in our view you should keep these points in mind when trading:

1. Avoid trading short term news stories such as non-farm payroll and other economic realises.

2. Use long term fundamentals to establish the best trends.

3. Use market reaction to very bullish or bearish markets to look for contrary trades.

Trading the fundamentals is hard when you do so in isolation but as part of an overall forex trading strategy then can help you establish areas of value and also indicate the strength of longer term trends.

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Forex Tips - 5 Simple Ones to Increase Your Profits

2007-09-14T18:45:00.000-07:00

By Monica Hendrix

The forex tips below are all easy to do and all will help you achieve one aim increasing your overall profitability. So here are 5 forex tips for greater profits.

1. Use the Weekly Chart

I am amazed that most traders never bother looking at weekly charts but if you want to separate out “the wood from the trees” the weekly chart gives you a much clearer perspective.

The big trends are clearly visible on the weekly chart and if you are long term trend follower, start with this chart first and you will have a clearer view of support and resistance levels and entry points.

2. Cut Your Trading Frequency

This Forex tip addresses a major problem that most novice traders have – they trade too much.

They think they have to be in the market all the time and chase profits but the fact is, if you cut your trading frequency, you stand a better chance of success. Keep in mind; you only get paid for being right in forex trading - NOT for your effort and how often you trade!

By cutting your trading back, you can concentrate only on the high reward, high odds trades which give the best potential profits.I know traders who only trade a few times a year yet - they make between 120 – 430%! Annually.

Their simply trading the cream of the trades and ignoring the low odds, high risk ones and there are plenty of those.

If you cut your trading, you will probably see your profits soar.

3. Risk More Per Trade

This is directly related to the above point.

If you have a high odds trade take this tip and risk more.

You will read a lot of nonsense on the net about risking 2% per trade and no more.

Well, that’s fine if you are trading 100k but if you’re a small potato trader, trading 10k or less, that’s a maximum of $200!

If you have a small account you need to load up and risk 10 -20% on the high odds trades. Keep in mind if you don’t risk much you won’t make much!

To make meaningful gains you have to take risks – if you don’t like taking risks don’t trade forex.

4. Don’t Diversify

If you are trading a small account don’t diversify!

You need to load up as we have said above and concentrate on one trade only.

Diversification is simply another word for diluting profit potential and is something a small trader should not engage in.

5. Use an Account Profit Target

What s a realistic target to make per annum in forex trading?

You may have your own ideas - but if you made 100% that puts you up there with the best fund managers in the world.

You will often see people look at risk per trade but looking at your account overall and using a profit target is highly effective.

You will often see trades that give you big profits in short periods of time and if they are a substantial – i.e. more than 25% of your 100% bank them.

Have a break and start again.

If you hit your profit target for the year early - decide whether you should trade again at all or at the very least give yourself a deserved break.

The tips above are really saying:

Focus only on the best trades with the best odds, load them up and have a target -if you do the above, chances are you will make bigger profits.

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Trading Forex - Who Makes Money Trading Forex?

2007-09-14T18:43:00.000-07:00

By Mike Kulej

Practically everybody entering trading arena has one objective- to make money. While there are some people who trade for challenge or other “purist” reasons, they are decisive minority. For almost all traders, pulling money out of the markets is a primary motivation.

We have all seen TV infomercials that make it sound so easy. What you need to do is to attend some seminar, purchase a piece of software with some crossing lines or colorful arrows. Just follow these buy and sell signals and you are on your way to untold reaches. Can it really be that simple?

Reality is quite different. There are statistics claiming that 90-95% of traders lose money. How accurate this number is, may be debatable, but what is not, is the fact that more people lose money than make it. These kind of statements often stress they apply to small speculators or beginner traders. This could be understandable. Most people get themselves into trading in a haphazard way. They don't commit enough time to education, follow questionable advice, luck discipline, are insufficiently funded. The list can go on.

Then there are professional traders. Money managers, hedge funds, bank traders, CTA's. How well do they do trading Forex? Logic would dictate this group of traders makes a lot of money. After all they employ best talent, have best market access, use sophisticated trading tools, have best trading terms, certainly are not under capitalized. In other words, these market participants are best positioned for consistent profitability. Strangely enough, that doesn't guarantee superior results.

Barclay, well known financial powerhouse, compiles Barclay's Currency Trader Index (CTI). Data for this index comprises of results from 114 managed money programs, both spot Forex and currency futures. Since 2000 there was only one year when this index gained more than 10%- 11.08% in 2003. Index suggests that money managers as a group have been losing money for last few years. In 2005 results were -1.21%, 2006 witnessed a loss of -0.12%. Returns for 2007 to date are not much more impressive, just 0.89% gain through August. The outlook for the rest of the year is no better. Other indexes tracking currency trading funds show similar results- marginal gains at best.

These results maybe shocking to many people. If the best positioned market participants can't achieve meaningful returns, is it possible at all to extract profits from Forex trading? What chance does a small speculator have if large players don't seem to get anywhere?

Well, smaller traders do have some advantages over large institutions. While every trader should create and stick to his trading plan, he/she is not bound by myriad of rules and limitations that institutional trader must adhere to. For one, leverage. Money managers are not allowed to use large leverage. They may be limited to how big percentage of total funds can put in any one market. Individual trader is not. Most importantly, perhaps, money management companies can not just cash out 100% and sit on the sidelines when things don't go right. Individuals have this luxury, which, at times, maybe the smartest thing to do.

With proper market education and solid trading plan, every market participant can be successful. Outside of extremely short term scalping, where institutions have an edge in cost of trading, disciplined and patient individual can be the one who makes money. On regular basis.

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Forex - 7 Habits of Highly Effective Traders

2007-09-14T18:41:00.000-07:00

By Sandy Robinson, J.D.

In virtually every profession or vocation, there seems to be those who are head and shoulders above the rest. You may be tempted to believe that this seemingly universal truth is a matter of mere happenstance. To the contrary, certain habits can make the difference in your achieving outstanding success or remaining in the clutches of mediocrity. What habits can help to make a highly effective FOREX trader?

1. Continuing to Learn
Foundational to success in any area is getting fundamental knowledge to understand the operational environment. Currency trading is no different in this respect. It is especially critical in this field that traders learn the market, noting its environment, component elements, behavior, trends, risk factors, role players and other idiosyncrasies. Beyond the initial and fundamental learning, an effective trader will seek to broaden his or her horizons with new information and tools to take trading to the next level.

2. Taking Reasonable Risks
The FOREX market is not only fast-moving in comparison to other markets, but it also may involve a higher degree of risk. To the untrained and the greedy, the risk-prone currency market becomes a voracious vacuum yielding disastrous results. However, managing the associated risks with a good trading plan, controlled execution, disciplined trading activity and proper capital preservation techniques can put you on the higher road to profitability.

3. Controlling Emotions
You, like virtually all traders, will eventually suffer a loss, whether large or small. How you handle your losses—and quite frankly, your wins—can make the difference in the success of your overall trading career. A great trader masters his or her emotions, not letting them take over. While emotionalism may tend to quickly manifest in the face of a crisis or near crisis, survival is often made possible by clear, rational and cool thinking. Overreaction throws rationality out the window and may worsen an already bad situation or take you out of the game altogether.

4. Refraining From Indiscriminate Trading
Just because you can trade does not mean you must always be doing so. There are times when it is absolutely necessary to stay clear of the market. You may feel compelled to make a new trade in an attempt to make up losses you have recently suffered. Giving in to this compulsion under the wrong market conditions can lead to rapid ruin. This is one type of overtrading. Another type involves committing more capital to the trade than is reasonable and prudent.

5. Focusing on the Long-term
If you focus only on your short-term losses or wins, you will eventually misunderstand and misjudge the significance of the same. By focusing on the long-term, you give yourself the benefit of a more accurate assessment based on a series of trades over a period of time. It is the long-term results that define whether your career as a trader has been successful or not.

6. Understanding and Using Compounding
Compounding involves reinvesting a portion of your profits in order to grow your capital exponentially. Is compounding as powerful as once attributed by Einstein, who referred to it as the most powerful force in the universe? Whether or not this is true, compounding does indeed work to build profits faster than if you are just trading on a flat amount with each and every trade. It does not take a large rate of return—10% per month, for example—to turn a small amount into a sizable fortune. Aim for consistency.

7. Balancing Trading With Other Activities
All work and no play can lead to boredom at work. Furthermore, trading can become a very lonely workout. Every individual is different in their ability to dedicate time to a single activity. You may be a workaholic or may prefer the hours of leisure. The balanced approach of an effective trader, however, requires you to spend quality time with your family, friends, and yes, even your pets. In the end, you will want to be remembered as a decent and loveable human being, and not just a good trader.

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Forex Trading Strategy - Essential Indicators Six of the Best

2007-09-14T18:40:00.001-07:00

By Kelly Price

If you are devising a Forex trading strategy and using technical analysis you will need some indicators to help you execute your forex trading signals and below, we have outlined six essential indicators that any trader should consider using on their forex charts.

1. Moving Averages

A great back indicator to trend lines for seeing the direction of the trend.

Moving averages should not be used on their own to enter trades but combined with other indictors.

Moving averages in longer term time frames work best and I find the 200 day MA important and also use the 40 day and 18 day MA useful. Never use short term averages as trends need sufficient periods of data to be effective.

2. Bollinger Bands

If you want warnings of trends developing, or a tool to help you sell high volatility to execute trading singnals i.e. open new positions or to lock in profits, then Bollinger bands are ideal.

Like moving averages, this indicator is simply there to show you the opportunity and you should time your entry with other tools.

3. Net Trader Positions

This is simply one of the best tools there is for spotting the big contrary trades and is realized bi-weekly by the CFTC. Although it applies to futures markets, the data can be used for spot currency markets as well.

This tool will help you spit every major trend change in advance.

The reason for this is, it breaks the open interest in speculative and commercial positions.

We don’t have room to explain the full logic here - but in essence speculators are always heavily net long at important market turning points while the commercials ( smart money ) are short.

By looking for divergences in speculative and commercial positions and looking for extremes, you can spot the big turning points coming.

So far we have looked at tools that can alert you to trading opportunities in your forex trading strategy – now, its time to look at some indicators to time entry on your forex charts and we have picked out 3 of the best.

4. Stochastic

George Lane, who developed the indicator, concluded that in an uptrend, prices tend to close near their high, and in a downtrend market, prices tend to close near their low.

This may sound simple, but the stochastic is simply one of the best momentum indicators out there for entering trades and taking profits.

5. Relative strength Index (RSI)

This indictor complements the above indicator perfectly and is another superb indicator to have in your forex trading strategy.

The RSI, as its name implies measures the relative strength of price currently compared to the past and gives you an idea of how strongly a market is trending.

This is one of the most popular momentum indicators in the world and was developed by trading legend, Wells Wilder as is the next indicator

6. Average Directional Movement (ADX)

The ADX is a momentum indicator, which aims to measure the strength of the trend - and attempts to determine if the market is in a trend or not.

The ADX line is a great momentum indicator and will help you trade the strongest trends - and give you advance warning of changes in momentum for profit taking or contrary trades.

So there you have six great technical indicators to incorporate in your forex trading strategy. There are of course others worthy of consideration, but these 6 are the ones I have used for the last 25 years and found them highly effective in my own forex trading systems and think you will to.

Take a look at them and see for yourself – Good trading

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Forex Trading - Scientific Theories of Market Movement for Bigger Profits

2007-09-14T18:38:00.001-07:00

By Kelly Price

Many forex traders look to trade scientifically using the theories of Gann, Elliot and Fibonacci to name but a few – which is best though and how do these theories work?

Let’s find out.

Scientific theories postulate that as human nature is constant.

What has happened in the past will happen again and repeat itself in the future and all you need to do is trade these repetitive patterns – this is really the basis upon which technical analysis is based#.

Scientific theories take it a step further - by saying their theories represent “natural law” and can predict the future.

Forex traders buy these theories in huge numbers and believe them - but they don’t work.

Lets take the theories of Elliot (who died a pauper) and W D Gann (who had to sell courses to make a living) and ignore the fact they couldn’t make money out of their own theories and look at why these theories cannot work for anyone. I have totally ignored Fibonacci, as this is not a financial theory at all but was devised to solve a problem to do with copulation of rabbits in the 12th century!

So why don’t they work?

The answer is obvious:

If there was a scientific theory for market movement we would all know the price in advance and their would be no market! A market moves due to the difference of opinions and is unpredictable.

This really is common sense and trading is really an odds game not a scientific theory but the far out investment crowd can't get enough of these theories and buy into them.

Of course there is another problem with these theories which is never mentioned:

If a theory is scientific then it should be objective and tell you exactly what to do as it is following the law of the market. Check out Elliot wave, it’s supposed to be objective but it's totally subjective!

It’s a scientific law and you have to decide which way prices are going -does that sound scientific to you?

Fibonacci levels are great though, you get specific retracements – try and use them and see how quickly you wipe out your equity! This is simply the dumbest theory of the lot. No disrespect to Leonardo Fibonacci though, he had no idea when he devised the theory in the 12th century it would be hijacked by financial traders!

The fact is these theories appeal to lazy, naive or far out investors and its obvious there is no scientific law that dictates market movement.

If you want to know how markets really move then look at some sensible theories and perhaps the best one to start with is Dow Theory.

Trading forex (or any other financial market for that matter) is simply about trading odds nothing more.

Now the fact you are trading odds doesn’t mean you can’t make a lot of money – you can.

Don’t look for short cuts or think you can cut the risk with scientific theories you cant – you need to do your homework and come up with a theory to help you trade the odds.

If you do this correctly you could soon be building big profits.

Leave the scientific theories to the dreamers and concentrate on the reality of winning.

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Forex Trading Tips

2007-09-14T17:50:00.000-07:00

By John Gaines

Why do hundreds of thousands online traders and investors trade the forex market every day, and how do they make money doing it?

This two-part report clearly and simply details essential tips on how to avoid typical pitfalls and start making more money in your forex trading.

Trade pairs, not currencies - Like any relationship, you have to know both sides. Success or failure in forex trading depends upon being right about both currencies and how they impact one another, not just one.

Knowledge is Power - When starting out trading forex online, it is essential that you understand the basics of this market if you want to make the most of your investments.

The main forex influencer is global news and events. For example, say an ECB statement is released on European interest rates which typically will cause a flurry of activity. Most newcomers react violently to news like this and close their positions and subsequently miss out on some of the best trading opportunities by waiting until the market calms down. The potential in the forex market is in the volatility, not in its tranquility.

Unambitious trading - Many new traders will place very tight orders in order to take very small profits. This is not a sustainable approach because although you may be profitable in the short run (if you are lucky), you risk losing in the longer term as you have to recover the difference between the bid and the ask price before you can make any profit and this is much more difficult when you make small trades than when you make larger ones.

Over-cautious trading - Like the trader who tries to take small incremental profits all the time, the trader who places tight stop losses with a retail forex broker is doomed. As we stated above, you have to give your position a fair chance to demonstrate its ability to produce. If you don't place reasonable stop losses that allow your trade to do so, you will always end up undercutting yourself and losing a small piece of your deposit with every trade.

Independence - If you are new to forex, you will either decide to trade your own money or to have a broker trade it for you. So far, so good. But your risk of losing increases exponentially if you either of these two things:

Interfere with what your broker is doing on your behalf (as his strategy might require a long gestation period);

Seek advice from too many sources - multiple input will only result in multiple losses. Take a position, ride with it and then analyse the outcome - by yourself, for yourself.

Tiny margins - Margin trading is one of the biggest advantages in trading forex as it allows you to trade amounts far larger than the total of your deposits. However, it can also be dangerous to novice traders as it can appeal to the greed factor that destroys many forex traders. The best guideline is to increase your leverage in line with your experience and success.

No strategy - The aim of making money is not a trading strategy. A strategy is your map for how you plan to make money. Your strategy details the approach you are going to take, which currencies you are going to trade and how you will manage your risk. Without a strategy, you may become one of the 90% of new traders that lose their money.

Trading Off-Peak Hours - Professional FX traders, option traders, and hedge funds posses a huge advantage over small retail traders during off-peak hours (between 2200 CET and 1000 CET) as they can hedge their positions and move them around when there is far small trade volume is going through (meaning their risk is smaller). The best advice for trading during off peak hours is simple - don't.

The only way is up/down - When the market is on its way up, the market is on its way up. When the market is going down, the market is going down. That's it. There are many systems which analyse past trends, but none that can accurately predict the future. But if you acknowledge to yourself that all that is happening at any time is that the market is simply moving, you'll be amazed at how hard it is to blame anyone else.

Trade on the news - Most of the really big market moves occur around news time. Trading volume is high and the moves are significant; this means there is no better time to trade than when news is released. This is when the big players adjust their positions and prices change resulting in a serious currency flow.

Exiting Trades - If you place a trade and it's not working out for you, get out. Don't compound your mistake by staying in and hoping for a reversal. If you're in a winning trade, don't talk yourself out of the position because you're bored or want to relieve stress; stress is a natural part of trading; get used to it.

Don't trade too short-term - If you are aiming to make less than 20 points profit, don't undertake the trade. The spread you are trading on will make the odds against you far too high.

Don't be smart - The most successful traders I know keep their trading simple. They don't analyse all day or research historical trends and track web logs and their results are excellent.

Tops and Bottoms - There are no real "bargains" in trading foreign exchange. Trade in the direction the price is going in and you're results will be almost guaranteed to improve.

Ignoring the technicals- Understanding whether the market is over-extended long or short is a key indicator of price action. Spikes occur in the market when it is moving all one way.

Emotional Trading - Without that all-important strategy, you're trades essentially are thoughts only and thoughts are emotions and a very poor foundation for trading. When most of us are upset and emotional, we don't tend to make the wisest decisions. Don't let your emotions sway you.

Confidence - Confidence comes from successful trading. If you lose money early in your trading career it's very difficult to regain it; the trick is not to go off half-cocked; learn the business before you trade. Remember, knowledge is power.

The second and final part of this report clearly and simply details more essential tips on how to avoid the pitfalls and start making more money in your forex trading.

Take it like a man - If you decide to ride a loss, you are simply displaying stupidity and cowardice. It takes guts to accept your loss and wait for tomorrow to try again. Sticking to a bad position ruins lots of traders - permanently. Try to remember that the market often behaves illogically, so don't get commit to any one trade; it's just a trade. One good trade will not make you a trading success; it's ongoing regular performance over months and years that makes a good trader.

Focus - Fantasising about possible profits and then "spending" them before you have realised them is no good. Focus on your current position(s) and place reasonable stop losses at the time you do the trade. Then sit back and enjoy the ride - you have no real control from now on, the market will do what it wants to do.

Don't trust demos - Demo trading often causes new traders to learn bad habits. These bad habits, which can be very dangerous in the long run, come about because you are playing with virtual money. Once you know how your broker's system works, start trading small amounts and only take the risk you can afford to win or lose.

Stick to the strategy - When you make money on a well thought-out strategic trade, don't go and lose half of it next time on a fancy; stick to your strategy and invest profits on the next trade that matches your long-term goals.

Trade today - Most successful day traders are highly focused on what's happening in the short-term, not what may happen over the next month. If you're trading with 40 to 60-point stops focus on what's happening today as the market will probably move too quickly to consider the long-term future. However, the long-term trends are not unimportant; they will not always help you though if you're trading intraday.

The clues are in the details - The bottom line on your account balance doesn't tell the whole story. Consider individual trade details; analyse your losses and the telling losing streaks. Generally, traders that make money without suffering significant daily losses have the best chance of sustaining positive performance in the long term.

Simulated Results - Be very careful and wary about infamous "black box" systems. These so-called trading signal systems do not often explain exactly how the trade signals they generate are produced. Typically, these systems only show their track record of extraordinary results - historical results. Successfully predicting future trade scenarios is altogether more complex. The high-speed algorithmic capabilities of these systems provide significant retrospective trading systems, not ones which will help you trade effectively in the future.

Get to know one cross at a time - Each currency pair is unique, and has a unique way of moving in the marketplace. The forces which cause the pair to move up and down are individual to each cross, so study them and learn from your experience and apply your learning to one cross at a time.

Risk Reward - If you put a 20 point stop and a 50 point profit your chances of winning are probably about 1-3 against you. In fact, given the spread you're trading on, it's more likely to be 1-4. Play the odds the market gives you.

Trading for Wrong Reasons - Don't trade if you are bored, unsure or reacting on a whim. The reason that you are bored in the first place is probably because there is no trade to make in the first place. If you are unsure, it's probably because you can't see the trade to make, so don't make one.

Zen Trading- Even when you have taken a position in the markets, you should try and think as you would if you hadn't taken one. This level of detachment is essential if you want to retain your clarity of mind and avoid succumbing to emotional impulses and therefore increasing the likelihood of incurring losses. To achieve this, you need to cultivate a calm and relaxed outlook. Trade in brief periods of no more than a few hours at a time and accept that once the trade has been made, it's out of your hands.

Determination - Once you have decided to place a trade, stick to it and let it run its course. This means that if your stop loss is close to being triggered, let it trigger. If you move your stop midway through a trade's life, you are more than likely to suffer worse moves against you. Your determination must be show itself when you acknowledge that you got it wrong, so get out.

Short-term Moving Average Crossovers - This is one of the most dangerous trade scenarios for non professional traders. When the short-term moving average crosses the longer-term moving average it only means that the average price in the short run is equal to the average price in the longer run. This is neither a bullish nor bearish indication, so don't fall into the trap of believing it is one.

Stochastic - Another dangerous scenario. When it first signals an exhausted condition that's when the big spike in the "exhausted" currency cross tends to occur. My advice is to buy on the first sign of an overbought cross and then sell on the first sign of an oversold one. This approach means that you'll be with the trend and have successfully identified a positive move that still has some way to go. So if percentage K and percentage D are both crossing 80, then buy! (This is the same on sell side, where you sell at 20).

One cross is all that counts - EURUSD seems to be trading higher, so you buy GBPUSD because it appears not to have moved yet. This is dangerous. Focus on one cross at a time - if EURUSD looks good to you, then just buy EURUSD.

Wrong Broker - A lot of FOREX brokers are in business only to make money from yours. Read forums, blogs and chats around the net to get an unbiased opinion before you choose your broker.

Too bullish - Trading statistics show that 90% of most traders will fail at some point. Being too bullish about your trading aptitude can be fatal to your long-term success. You can always learn more about trading the markets, even if you are currently successful in your trades. Stay modest, and keep your eyes open for new ideas and bad habits you might be falling in to.

Interpret forex news yourself - Learn to read the source documents of forex news and events - don't rely on the interpretations of news media or others.

John Gaines
online trading, currency trading, financial service

A veteran of online trading, John Gaines offers the financial services industry his perspectives and expertise on a variety of trading systems and financial instruments, including forex, CFDs, futures, options and stocks.

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Factors Influencing a Currency Pair Exchange Rate

2007-09-14T17:48:00.001-07:00

By Joshua Kunken

Introduction

The exchange rate refers to the value of the US dollar against the values of currencies of other countries. Such a rate helps determine how much we pay for imported goods and services and how much we receive for what we export, among other things. When the value of the US dollar drops, imports become more expensive, and we tend to reduce the volume of our imports. Simultaneously, other countries will pay LESS for some of our products and that will tend to boost export sales. If imports and exports are a substantial part of a country's economy, as is the case with Canada, the exchange rate plays a particularly important role in our economy. The exchange rate between two countries' currencies is particularly important if the two countries are heavily involved in trade.

What factors affect an exchange rate?

A country's exchange rate is typically affected by the supply and demand for that country's currency in international exchange markets. This is typically known as a floating exchange rate. If demand, for say dollars, exceeds supply, then the value of the dollar will go up. If however, the supply of dollars exceeds demand, then its value will go down. A huge amount of money is bought and sold on international exchange markets for many different currencies.

Several factors influence the supply of, and demand for, a given country's currency.

If INTEREST rates are HIGHER in, say, the US than in other countries, then investors WILL choose to invest in the US, increasing demand for the dollar, provided that the expected rate of inflation is not higher in the US than among our trading partners. If INTEREST rates are LOWER in the US than in other countries, investors will choose NOT to invest in the US, decreasing demand for the dollar.

If the US INFLATION rate is HIGHER, investors are LESS likely to prefer the US -even with higher interest rates- because of the expectation that the value of the dollar will be ERODED by inflation. If our INFLATION rate is LOWER, investors are MORE likely to prefer the US, because there will be NO expectation that the value of the dollar will erode.

Trade balance also has an effect on a country's currency. If world prices for what a country exports rise in comparison with the cost of that country's imports, that country will be earning more for its exports than it pays for its imports. The more demand there will be for that country's currency, the better the deal becomes. If investors are confident that the US economy will be strong, they will be MORE likely to buy American assets, pushing UP the dollar's value. If investors are not so confident that the economy will be strong, they will be LESS likely to buy the country's assets, pushing the dollar's value DOWN.

Joshua Kunken is Chief Currency Analyst for ForeignMarketWatch.com

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The Seven Most Traded Currencies in FOREX

2007-09-14T17:46:00.001-07:00

By Omar Vargas

Currencies are traded in dollar amounts called “lots”. One lot is equal to $1,000, which controls $100,000 in currency. This is what is known as the "margin". You can control $100,000 worth of currency for only 1,000 dollars. This is what is called “High Leverage”.

Currencies are always traded in pairs in the FOREX. The pairs have a unique notation that expresses what currencies are being traded. The symbol for a currency pair will always be in the form ABC/DEF. ABC/DEF is not a real currency pair, it is an example of a symbol for a currency pair. In this example ABC is the symbol for one countries currency and DEF is the symbol for another countries currency.

Here are some of the common symbols used in the Forex:

USD - The US Dollar
EUR - The currency of the European Union "EURO"
GBP - The British Pound
JPN - The Japanese Yen
CHF - The Swiss Franc
AUD - The Australian Dollar
CAD - The Canadian Dollar

There are symbols for other currencies as well, but these are the most commonly traded ones.

A currency can never be traded by itself. So you can not ever trade a EUR by itself. You always need to compare one currency with another currency to make a trade possible.

Some of the common PAIRS are:

EUR/USD Euro / US Dollar
"Euro"

USD/JPY US Dollar / Japanese Yen
"Dollar Yen"

GBP/USD British Pound / US Dollar
"Cable"

USD/CAD US Dollar / Canadian Dollar
"Dollar Canada"

AUD/USD Australian Dollar/US Dollar
"Aussie Dollar"

USD/CHF US Dollar / Swiss Franc
"Swissy"

EUR/JPY Euro / Japanese Yen
"Euro Yen"

The listed currency pairs above look like a fraction. The numerator (top of the fraction or "left" of the / however you want to SEE it) is called the base currency. The denominator (bottom of the fraction or "right" of the /however you want to SEE it) is called the counter currency. When you place an order to buy the EUR/USD, for instance, you are actually buying the EUR and selling the USD. If you were to sell the pair, you would be selling the EUR and buying the USD. So if you buy or sell a currency PAIR, you are buying/selling the base currency. You are always doing the opposite of what you did with to base currency with the counter currency.

If this seems confusing then you're in luck. You can always get by with just thinking of the entire pair as one item. Then you are just buying or selling that one item. Thinking like this will still enable you to place trades. You only need to be aware of the base/counter concept for Fundamental Analysis issues.

So why is it important to know about the base/counter currency? The base/counter currency concept illustrates what is actually taking place in a Forex transaction. Some of you reading this, know that short-selling was restricted in the stock market *(Short-selling is where you sell a stock/currency/option/commodity first and then try to buy it back at a lower price later). But in the FOREX you are always buying one currency (base) and selling another (counter). If you sell the pair you are simply flipping which one you buy and which one you sell. The transaction is essentially the same. This allows you to short-sell with no restrictions.

You want to be able to short-sell with no restrictions so you can make money when the market drops as well as when it rises. The problem with traditional stock market trading is that the market has to go up for you to make money. With FOREX trading you can make money in all directions.

http://www.1-forex.com

Omar Vargas; FOREX Trader and Freelance writer.
http://www.1-forex.com

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Forex Lies And Myths Revealed Are You Being Locked Out Of Successful Forex Daytrading?

2007-09-13T20:43:00.001-07:00

By Alfred Carroll

I just made 1000 pips yesterday daytrading the forex market now let me show you how! Does that statement sound familiar to you. It seems these days if you go online everyone and thier grand mother has an amazing new system for daytrading forex. Before you try any system it is important to know the 4 biggest lies about successful daytrading so you can define what might work best for you and your particular situation.

1. Daytrading forex is just so risky: The simple fact is the longer you expose yourself to any market the longer the timeframe will be for potential profit or loss.There are 3 things any market can do:

Rise, Fall or Stay in a range trading

When you daytrade then you are agreeing to expose yourself in most cases for only hours to a market. There fore if positioned properly you can manage risk just as well as long term speculators perhaps even better because while the forex market is volatile and will take on all the 3 characteristics mentioned above during any timeframe by daytrading often there may be less of a drawback against you. Put simply by limiting your time in the market you don't set around long enough for bad news to get worse. The 80 - 100+ pip stops I am hearing some guys talk about in their system just means they stay longer and have to be willing to take $1000+ loss in order to hope for larger gains long term. I am not saying this is good or bad it is just a matter of taste and finance if you can't take that kind of heat then you might want to cook in a successful daytraders kitchen. I trade a system that allows for only 20 - 30 pip stops and exposes me for no more than 6 hours per completed trade.

2. Forex Daytrading movements are RANDOM: Another lie is that daytrading is so random no one can do it successfully. I don't believe in random events at all and the forex market responds to news, technical analysis and investor sentiment to different degrees in different timeframes. This can on the surface seem random but let me ask you what was the last random place you ended up at on one given day? Probably unless you have been kidnapped lately no answer comes to mind because there is a method and a purpose to everywhere you travel and the same can be said for the forex market in any timeframe.

Some examples are on sick days you stay home from work, on holidays you might sometimes travel a long distance to visit friends and family and on weekends you might take outings or just stay in but none of this is random. What you need is to understand how to spot the different days and how to capitalize on them to find success in daytrading the forex market.

3. forex Daytraders don't make money: I see some traders declaring no one can really make money daytrading forex. There are by most accounts 2 trillion dollars plus changing hands on a daily basis in the forex market. The fact is that in a market 2 parties make an exchange and one of them will leave with profits. Therefore considering the daily volume of trades on the forex market someone is making money and not just the position traders either. Again it is really just a matter of taste and what your definition of Risk v Reward is for you and your financial situation.

The BIGGEST LIE in forex Daytrading

4. The holly grail forex system that works Every day: One of the biggest out right Lies in daytrading is that you can trade a particular currency every day and generate a profit consistently. NO or at least not to my experience you can't and here is why. Suppose you are part of a corporate environment and go in to visit your boss one day. You quickly notice he has spilled coffee on his shirt and the guy who came in before you has ticked him off and you find out someone took his parking spot in passing conversation. However you just read a great new book entitled " how to go in and ask for a raise and get it everytime".

I bet if you try the suggestions in the book that day and even if you execute it to the letter it will most likely not yield the desired results. This is an example of the big day trading lie about a system that you can use every day on the market to pull profits out again and again. The point is that every day is different and with that said you need a system comprised of various sub systems that will be used for different days and that will call you out 70 - 80% of the time because some days the best deffense is simply not being exposed at all.

Now that you know the biggest lies about forex daytrading. The next step is finding out the truth and who is really making money daytrading, Why they make money daytrading and how can you join them in doing so? You need to focus on the picture through the eyes of a successful daytrader and this article is just a small step in getting you on your way.

About the author:
For more information visit at http://www.digital-intuition.com and Download your free copy of forex flows the best forex trading software available using computerized A.I. Developed by Alfred / David Carroll 2 successful, full-time forex speculators now for 4 years plus. Watch some of our videos here:
http://www.youtube.com/view_play_list?p=FE856782219FEDFC

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Jim Rogers: Will the US Dollar Disappear from the World's Stage

2007-09-13T13:42:00.000-07:00

By James Finch

We talked, in a taped telephone interview at his home in Singapore, with Billionaire Jim Rogers, legendary commodities trader, who picked the bottom of the commodities bull market in 1999. With George Soros, Jim Rogers co-founded the Quantum Fund in 1970.

Over the next decade, Quantum Fund grew by more than 3,300 percent. Rogers retired, later a guest professor of finance at the Columbia University Graduate School of Business, and still later circumnavigating the globe to firsthand discover new investment opportunities. He is widely and often quoted in the media about his views on the commodities market. Bestselling author, investment biker, adventure capitalist and widely followed, Jim Rogers talks about what he's now investing in. StockInterview: Is the United States heading toward the same demise as previous colonialists: England, France, Holland, Germany and even previous world powers, such as Spain and Portugal?

Jim Rogers: If all powers, which have risen, have eventually peaked, plateau’ed, and then declined, we of the U.S. certainly have things going on which would indicate that we are. I don’t think anybody would dispute that we are a mature economy and a mature society. Whether we’re still growing or not is another question. I see many factors where we’re overextended financially, overextended geo-politically, and overextended militarily. I would suspect the U.S. is in a plateau phase, and perhaps has even gone over the line and is in a decline, certainly on a relative basis.

StockInterview: Who, then, would replace the U.S.? Russia, India, Japan or China?

Jim Rogers: Not Russia. No, Russia is a disaster spiraling downward into a catastrophe. I see little hope for India replacing anybody. India is more likely to break up into a few countries in the next few decades than it is to become the world power. Japan has serious demographic problems. Japan’s population is in decline for the first time in recorded history. Unless something happens demographically in Japan, Japan is going to have huge problems in the next few decades. They’ve got gigantic internal debt, which somebody’s got to pay off. With a declining population and internal debts rising, I think they’ve got serious problems. The only one I can see on the horizon is China.

StockInterview: What, then, will become of the U.S. dollar?

Jim Rogers: The same thing that happened to sterling; the same thing that happened with the guilder. You know, the guilder used to be a great international currency. The peso used to be a great international currency. You don’t see people using guilders anymore to settle their international debts or finance their wars. They decline and sort of disappear from the world stage. I would certainly get out of the U.S. dollar. It’s already losing its status as the world’s reserve currency, as the world’s medium of exchange. We in the U.S. owe the rest of the world at least eight trillion dollars -- that’s trillion with a T – and it’s increasing at the rate of one trillion U.S. dollars every 15 months. There are serious problems in the U.S. with the U.S. dollar. I wouldn’t own U.S. dollars if I were you.

James Finch contributes to StockInterview.com and other publications. StockInterview’s “Investing in the Great Uranium Bull Market” has become the most popular book ever published for uranium mining stock investors. Visit http://www.stockinterview.com

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Forex Technical Analysis - Do You Really Need It?

2007-09-13T13:08:00.001-07:00

By Sandy Robinson, J.D.

The object of trading in the foreign exchange (FOREX) market, as in any other market, is to maximize profits. Various tools and strategies have been developed for achieving this objective. Traders using indicators to determine how, when and what to trade are said to be relying on “technical analysis”. Can these magical tools help the trader win in every trade executed?

Some of the names given to technical analysis tools like, fibonnaci lines, stochastics, parabolic SAR, bollinger bands, and oscillators give the immediate impression that this type of trading can be intimidating. At first glance, you might even be tempted to think that perhaps an engineering degree is a prerequisite for participation. This, of course, is not accurate. As with most unfamiliar disciplines, all that is really needed is a competent instructor who can motivate students to capture and retain nuggets of knowledge while developing individualized ability to exercise appropriate judgment and requisite skill in a given application. On the slippery road to expertise, an unrelenting commitment to practice that which is learned marks the difference.

It is true that many traders participate quite profitably in the FOREX market without utilizing technical analysis at all. So then, if these tools are not an absolute necessity for making a profit in FOREX, why do some traders insist on spending bundles of cash to sit under the tutelage of a guru who extols the golden virtues of technical trading? Quite frankly, it is a matter of individual taste and preference.

This author is unaware of any credible studies which conclude that technical traders have more successes in FOREX than nontechnical traders. Ultimately, what all traders dream of is the ability to predict the direction of the market with a high degree of accuracy. A crystal ball, however, is typically not one of the trading tools you will find arsenal of serious traders. Rather, tools such as those delineated above will serve at least as a guide in helping you understand how the market has behaved over a certain time frame. You, as the trader, will then come to an eventual decision, based on the tool’s interpretation of the historical movement, about which way the FOREX market may move next.

Due to the generous number of technical analysis tools and the various methods of applying them, it is difficult to say which ones work consistently better then others. They all bring something unique to the table of the trader’s potential success. This certainly is not saying that they are all without fault. Even if the proper steps in the technical analysis are religiously adhered to, losses are inevitable. Such is the nature of the market. Then too, there is something inherently exciting about winning when someone else is losing in the same “zero sum” game. It somehow makes us feel smarter than the next trader.

One effective approach to trading the FOREX market would be to use a combination of technical analysis and fundamental or nontechnical analysis. For example, when an particular economic news report is about to be released, you might weigh the likely impact which the report will have on the price of the currency pair being traded and then consider the application of the indicators in light of the expected impact.

Trading decisions are made like many other decisions, i.e. on the basis of information available. Therefore, it can be generalized that technical traders prefer and have a need for more information on which to base their decisions. To others, however, only basic information—as long as it is substantive and reliable—is all that is needed to make decision on a trade.

Some traders, over a period of time, develop something akin to a sixth sense about trading, allowing them to recognize profitable setups and avoid potential traps. This can be done with or without technical analysis. This sense will result in minimizing the importance of certain external information which may have been previously relied on.

You must remember not to be afraid to allow your trading style and methods to evolve as need be. If it works for you, that is all that matters.

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Why Most Forex Traders Base Their Foreign Currency Trading On Technical Analysis

2007-09-13T13:04:00.001-07:00

By Donald Saunders

Traditionally Forex traders have based their trading decisions on fundamental analysis which looks at both past and present political and economic events to predict future movements in currencies.

Fundamental analysis is not easy and requires the trader to have considerable knowledge of political and economic events and experience in analyzing both. It also requires the trader to work with a hue quantity of data. In addition, there is considerable disagreement amongst traders over just what political and economic data is important when it comes to predicting currency movements and, where agreement does exist, there is still often argument over how much weight each factor in the equation should be given.

Today however traders have the option to abandon fundamental analysis in favor of technical analysis.

Many people believe that technical analysis is nothing more than a modern day extension of fundamental analysis and it is based upon three principles:

First, many things produce movements in currency prices, including political and economic events, but the effect of these forces has already been absorbed into a currency's price at any moment in time. In other words, there is no need to look at the reasons for the movement in a currency price but to simply focus on the price movement itself.

Second, the price of a currency will follow a clearly defined trend which can be seen by examining the patterns which emerge in the market over time.

Third, the price of a currency does not simply follow a trend when looking at historical market data, but will also follow this trend in the future. This principle reflects the technical analyst's view of human psychology and is based upon a belief that past movements in currency prices are the result of the manner in which people have reacted to certain circumstances and that people will continue to react in the same manner, and currencies move in the same way, in the future.

There is often great argument about whether or not technical analysis could possibly work since, in the view of many people, it really does not have any sound basis. However, the truth of the matter is that technical analysis does work. No system can predict currency movements with one hundred percent accuracy but, compared side-by-side, both fundamental and technical analysis do a pretty good job.

Without going into too much detail here (because that would take a very long article all of its own), technical analysis is essentially a computer-based system of analysis which takes historical price data and looks for patterns in that data which can then be presented to the trader in the form of a chart or graph. At the same time the system also looks at a chart or graph of the current price movements of a currency and compares the present pattern of movement with past patterns in order to find a match and thus predict the future direction in which the currency will travel.

Given this picture, it is not too hard to see why younger people who have grown up in today's computer age choose to adopt technical analysis as the basis upon which to make their foreign currency trading decisions.

LearningForexTradingOnline.com provides information on everything from finding a foreign currency exchange rate to the Forex mini account and is the perfect place to learn Forex currency trading online.

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Forex Trading - Which Is Best Fundamental or Technical Analysis?

2007-09-13T12:59:00.000-07:00

By Monica Hendrix

If you are a forex trader, you can either trade via fundamental analysis or technical analysis but which is best? Lets compare the advantages and disadvantages of each.

Fundamental Analysis

Currencies are affected by the fundamentals and these include:

The political situation, strength of the economy, government policy, the interest rate outlook to name just a few.

These are FACTS and the various participants look at them and decide which way prices should go.

The main advantage is:

The direction of the currency is normally in line with the long term fundamentals and this is reflected in currency trends lasting for months or years in line with economic and political cycles.

The main disadvantage is:

The people who look at the fundamentals are NOT making logical judgements they are influenced by the emotions of greed and fear.

We all have the same facts to look at but we all make subjective judgements on what the facts mean.

This means that price spikes are common and these don’t always reflect the fundamentals – Keep in mind it is humans as a collective group that decide price and they do NOT Conform to objective criteria.

To compound the problem we live in a world of instant communications, where the news is discounted in seconds and reflected in the price in a split second.

Now let’s look at technical analysis and why it is the best way for a trader should base his forex strategy upon it.

Forex Technical Analysis

Technical analysis contrary to belief, actually takes into account the fundamentals – it simply assumes that all fundamentals will show up in price action - but it does something more it takes into account the greed and fear of the participants, that motivate the individual participants.

A simple equation for this is:

Fundamentals + Investor Psychology = Price.

Forex technical analysis takes into account both inputs that make up price and they simply look at their forex charts and let them tell them where to execute their trading signals.

The advantages of forex technical analysis are:

It gives you the overall picture, is less time consuming, keeps your emotions out of trading and lets you trade the reality - without having to impose an opinion.

You trade the truth and that is the market price as you see it NOT what you think it should be.

The disadvantage is:

In the way that people use it – Most forex traders think they need to predict but that’s just guessing and hoping and you wont get far doing that!

Technical analysis will work, but only if you view it as a method to put the odds in your favour and act on confirmation of price changes.

For most traders a forex trading system based upon technical analysis is the best way to trade - you just need to be able to understand its advantages and limitations but that won’t stop you making a lot of money if you trade with the odds.

One final point:

They are completely separate forms of analysis and you should not mix the two – you are either a fundamental or technical trader. Our view is you should be the latter if you want to achieve currency trading success over the longer term.

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Forex Trading - Tips For Dealing With Leverage For Big Gains

2007-09-12T18:51:00.000-07:00

By Monica Hendrix

Forex trading is lucrative because you can use leverage and most brokers will allow you to leverage your deposit by 200:1, while it can make you big money it can also see you wiped out quickly.

So how do you use leverage to seek big gains, while at the same time avoiding big losses?

Let’s take a look.

Risk per Trade

Most traders simply think their risk per trade is their expected return – their stop protection but this is rubbish. This is simply a mental guess and what may look on paper like a good risk to reward trade is not.

The fact is traders make calculations that lull them into a false sense of security.

When trading FX start by looking at the volatility of the market and how to deal with it.

Placing Stops

For example there is absolutely no point in placing a stop close when it's within normal volatility for the currency.

Who does this?

Day traders are prime culprits.

They think that if they place a stop just outside the daily range it gives them a good chance of winning, in fact the reverse is true – as volatility can and does take prices anywhere in a day, the risk of them losing is guaranteed over the longer term.

If you are trading you need to have a stop behind a key resistance or support level and if possible on stop close only basis. Daily volatility often carries trades through support and resistance takes out stops and then closes below the level.

Trailing stops

Never be tempted to move them up to quickly to lock in profits.

You need to understand the volatility of the market and keep stops back - way outside of short term normal market pullbacks. Accept that if you are trend following, that you will have to give a big, chunk of your gains back the market when the trend ends.

This won’t matter if your trend following you can’t predict the end of a trend and if you got 70% of every major trend you would make a lot of money.

Cut Your Trading Down

You don’t get rewarded for how often you trade you get rewarded for making money.

The really good trades only come around a few times a year in each currency, so be very selective and when you see these trends - risk as much as you can.

I know traders who make 100% or more on an annulized basis and they trade around six to ten times a year! They do so well becuase they are only interested in the big high odds trades and these only occur ocassionally.

The fact is most traders, trade low odds opportunties to often and lose - don’t fall into this trap.

Leverage can make you a Lot of money but it needs to be handled wisely.

Accept that you have to take calculated risks, trade only when the time is right, follow the trend until it reverses and don’t try and predict when it might end - let the market tell you that.

If you do the above you can use leverage to your advantage.

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Forex Trading - Mindset Secrets of the Millionaire Traders

2007-09-12T18:48:00.001-07:00

By Monica Hendrix

There are many forex traders who make huge profits yet many don’t have a college education and many don’t spent all day trading – what separates them from the rest is their mindset. Trading is a combination of method and mindset and this is what this article is all about.

The key to market success is:

Sound Simple Method + Executed with Discipline = Trading success

If you can’t execute a method with discipline you really have no method in the first place but it’s much harder to do than most traders think.

If you don’t think having the correct mindset is crucial to forex trading success then think about this fact.

100 years ago 90% of traders lost and this figure still remains the same today.

Think about it – this ratio has remained the same despite all the advances in forecasting, software news sources and the internet – the ratio remains the same.

The reason for this is trading success is down mostly to mindset, human nature is constant and it will remain the same in 100 years time – lets look At getting the right mindset in more detail.

2. Work Smart Not Hard

Learning a method is straightforward and anyone can do it as the following example shows.

If you read the story of the “the turtles” ( see our other articles ) you will read how a group of people who had never traded before, learnt to do so in 14 days and went on to make millions. They did this by working smart, NOT hard and only learning what they had to - no filler or information for information sake.

In many jobs you get paid for the effort you put in. When you trade FOREX you earn your reward simply for being right.

In conclusion you dont need to work hard you need to work smart

The key to trading success is to have confidence in what you are doing and your method, this leads to discipline and currency trading success.

3. Confidence

You hear traders talk a lot about discipline being a key to success in currency trading - but you don’t hear them talk so much about confidence but it’s a vital ingredient of trading success.

To have confidence, you need to understand exactly how and why a forex trading strategy works and will continue to work. If you have confidence, you can acquire the key trait that most traders lack.

4. Discipline

Discipline is the key to forex trading success - If you don’t trade your method with discipline – you don’t have a method – PERIOD.

It’s not as easy to trade in a disciplined fashion as many traders believe as when money is on the line trading a method when it suffers a period of losses is hard mentally.

Any trader can learn to trade but not many traders get the correct mindset to succeed and this has been the case throughout trading history. Success Comes From Within

The first reason is that most traders simply cannot accept responsibility for their actions so they try and buy success - but they don’t fully understand why the method works and can’t obtain confidence and discipline and fail.

If you want to become a successful forex trader you have to accept you are totally responsible for what you do and no one else.

Build a simple robust trading system you understand, have confidence in and trade with discipline. It sounds easy, but few traders are prepared to work hard in the right areas and most won’t accept responsibility for their actions.

The result of this is losses – Success comes from within and you can do it if you want to – if you don’t you will probably fail.

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Could the Chinese Cause a Financial Armageddon?

2007-09-12T18:34:00.000-07:00

By Kurt Hartman

The Chinese and US Governments have a few run-ins as of late.

While these two governments have battled from time-to-time over human rights, freedom of speech, and trade deficits, nothing has prepared them for the problems they face now.

It all started earlier this year, when problems with Chinese-made furniture triggered an FTC investigation into manufacturing practices. The FTC quickly moved to the next problem: Dog food was making animals sick. Not just any dog food, mind you, but Chinese dog food tainted with rat poison. This raised the ire of Chinese officials, but they remained relatively calm. After all, what are you to do if your food is killing animals?

After the pet food scare, the FTC hit them with two other investigations: The now-infamous tainted toothpaste and lead-laced Barbies incidents. The backlash was so bad that the owner of a Chinese plant that manufactured the Barbies committed suicide. Mattel is just left with a large black eye, and a recall of 18.5 million toys, along with a large hit to the company balance sheet.

Still, at this point, the Chinese were okay. They didn't like it, but they were holding their peace.

Enter the United Steel Workers and Titan tires. In July of 2007, they proposed a hearing before the FTC, alleging "tire dumping". Basically, USW and Titan said that the Chinese government was over-subsidizing tires that were coming into the USA. How much? Titan said that the freight to ship the tires over cost more than the labor to produce otr tires. The distilled version of the complaint is this: China is selling the tires at the cost of the raw goods.

US based tire companies are complaining that they can't compete with labor costs that are effectively free, and unions are afraid that low overseas labor will hurt their bottom line. Couple that complaint with the passenger tire recall that the US has put into effect, and suddenly, the Red Dragon is breathing fire.

Immediately after the FTC launched a full hearing, the Chinese let their full feelings out into the open.

In early August, at routine trade talks, the Chinese told the US that would consider dumping their open position in US currency onto the open market. How much US currency do the Chinese currently hold?

The answer is a staggering 1.3 trillion USD. The effect of such a measure would be catastrophic for the US and world economies. The result is not hard to imagine, as countries worldwide would drop their reserves of the plummeting USD, with world markets imploding along with US economy.

Upon hearing this, members of the US Senate drafted a resolution introducing prohibitively high tariffs on all Chinese goods. The US has also filed a complaint with the WTO, accusing the Chinese of old-fashioned currency manipulation.

How will all of this play out? For now, it's just two superpowers flexing and feinting. That could change in a matter of minutes.

Should China decide to press the "red button", we could see a financial Armageddon that goes beyond nuclear.

Kurt Hartman is a student of the free markets, and a fan of laissez-faire economics.

In his professional life he has been a cook, project manager for an AV Firm, and currently holds a position as a Web-Designer.

In his spare time, he is an active Digger, and enjoys reading business related books.

His current favorite is "The Black Swan", by Nassim Nicholas Taleb. While he does not claim to fully understand all of its implications, he does understand the gist of it.

His current role as an OTR Prognosticator, comes from involvement with a site he recently designed. You can see his work at http://www.buybigtires.com

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FOREX 101: Make Money with Currency Trading

2007-09-12T14:16:00.000-07:00

By Rich McIver

For those unfamiliar with the term, FOREX (FOReign EXchange market), refers to an international exchange market where currencies are bought and sold. The Foreign Exchange Market that we see today began in the 1970's, when free exchange rates and floating currencies were introduced. In such an environment only participants in the market determine the price of one currency against another, based upon supply and demand for that currency.

FOREX is a somewhat unique market for a number of reasons. Firstly, it is one of the few markets in which it can be said with very few qualifications that it is free of external controls and that it cannot be manipulated. It is also the largest liquid financial market, with trade reaching between 1 and 1.5 trillion US dollars a day. With this much money moving this fast, it is clear why a single investor would find it near impossible to significantly affect the price of a major currency. Furthermore, the liquidity of the market means that unlike some rarely traded stock, traders are able to open and close positions within a few seconds as there are always willing buyers and sellers.

Another somewhat unique characteristic of the FOREX money market is the variance of its participants. Investors find a number of reasons for entering the market, some as longer term hedge investors, while others utilize massive credit lines to seek large short term gains. Interestingly, unlike blue-chip stocks, which are usually most attractive only to the long term investor, the combination of rather constant but small daily fluctuations in currency prices, create an environment which attracts investors with a broad range of strategies.

How FOREX Works

Transactions in foreign currencies are not centralized on an exchange, unlike say the NYSE, and thus take place all over the world via telecommunications. Trade is open 24 hours a day from Sunday afternoon until Friday afternoon (00:00 GMT on Monday to 10:00 pm GMT on Friday). In almost every time zone around the world, there are dealers who will quote all major currencies. After deciding what currency the investor would like to purchase, he or she does so via one of these dealers (some of which can be found online). It is quite common practice for investors to speculate on currency prices by getting a credit line (which are available to those with capital as small as $500), and vastly increase their potential gains and losses. This is called marginal trading.

Marginal Trading

Marginal trading is simply the term used for trading with borrowed capital. It is appealing because of the fact that in FOREX investments can be made without a real money supply. This allows investors to invest much more money with fewer money transfer costs, and open bigger positions with a much smaller amount of actual capital. Thus, one can conduct relatively large transactions, very quickly and cheaply, with a small amount of initial capital. Marginal trading in an exchange market is quantified in lots. The term "lot" refers to approximately $100,000, an amount which can be obtained by putting up as little as 0.5% or $500.

EXAMPLE: You believe that signals in the market are indicating that the British Pound will go up against the US Dollar. You open 1 lot for buying the Pound with a 1% margin at the price of 1.49889 and wait for the exchange rate to climb. At some point in the future, your predictions come true and you decide to sell. You close the position at 1.5050 and earn 61 pips or about $405. Thus, on an initial capital investment of $1,000, you have made over 40% in profits. (Just as an example of how exchange rates change in the course of a day, an average daily change of the Euro (in Dollars) is about 70 to 100 pips.)

When you decide to close a position, the deposit sum that you originally made is returned to you and a calculation of your profits or losses is done. This profit or loss is then credited to your account.

Investment Strategies: Technical Analysis and Fundamental Analysis

The two fundamental strategies in investing in FOREX are Technical Analysis or Fundamental Analysis. Most small and medium sized investors in financial markets use Technical Analysis. This technique stems from the assumption that all information about the market and a particular currency's future fluctuations is found in the price chain. That is to say, that all factors which have an effect on the price have already been considered by the market and are thus reflected in the price. Essentially then, what this type of investor does is base his/her investments upon three fundamental suppositions. These are: that the movement of the market considers all factors, that the movement of prices is purposeful and directly tied to these events, and that history repeats itself. Someone utilizing technical analysis looks at the highest and lowest prices of a currency, the prices of opening and closing, and the volume of transactions. This investor does not try to outsmart the market, or even predict major long term trends, but simply looks at what has happened to that currency in the recent past, and predicts that the small fluctuations will generally continue just as they have before.

A Fundamental Analysis is one which analyzes the current situations in the country of the currency, including such things as its economy, its political situation, and other related rumors. By the numbers, a country's economy depends on a number of quantifiable measurements such as its Central Bank's interest rate, the national unemployment level, tax policy and the rate of inflation. An investor can also anticipate that less quantifiable occurrences, such as political unrest or transition will also have an effect on the market. Before basing all predictions on the factors alone, however, it is important to remember that investors must also keep in mind the expectations and anticipations of market participants. For just as in any stock market, the value of a currency is also based in large part on perceptions of and anticipations about that currency, not solely on its reality.

Make Money with Currency Trading on FOREX

FOREX investing is one of the most potentially rewarding types of investments available. While certainly the risk is great, the ability to conduct marginal trading on FOREX means that potential profits are enormous relative to initial capital investments. Another benefit of FOREX is that its size prevents almost all attempts by others to influence the market for their own gain. So that when investing in foreign currency markets one can feel quite confident that the investment he or she is making has the same opportunity for profit as other investors throughout the world. While investing in FOREX short term requires a certain degree of diligence, investors who utilize a technical analysis can feel relatively confident that their own ability to read the daily fluctuations of the currency market are sufficiently adequate to give them the knowledge necessary to make informed investments.

Rich McIver is a contributing writer for The Forex Blog: Currency Trading News ( http://www.forexblog.org ).

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