forex

A Forex Trader's View Of The Aussie/Gold Relationship

2009-08-05T11:40:00.000-07:00

by Richard Lee (Contact Author | Biography)

The relationships between different financial markets are almost as old as the markets themselves. For example, in many cases when benchmark equities rise, bonds fall. Many traders will watch for correlations like this and try to capitalize on the opportunity. The same types of relationships exist in the global foreign exchange market. Take for instance the closely related tie between the Australian dollar and gold. Due mostly to the fact that Australia remains a major producer of the yellow metal, the correlation is an opportunity that not only exists, but is one that traders on every level can capitalize on. Let's take a look at why this relationship exists, and how you can use it to produce solid gold returns.

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Being Productive Is Key
The U.S. dollar/crude oil relationship exists for one simple reason: the commodity is priced in dollars. However, the same cannot be said about the Aussie correlation. The gold/Australian dollar relationship stems from production. As of 2008, Australia was ranked as the fourth-largest gold producer in the world, coming in behind China, South Africa and the United States. Even though it may not be the largest producer, the "Land Down Under" produces an estimated 225 metric tons of gold per year, according to the consultancy firm GFMS. As a result, it is only natural that the underlying currency of a major commodity producer follows a similar pattern to that commodity. With the ebb and flow of production, the exchange rate will follow supply and demand as money exchanges hands between miner and manufacturer. (For related reading, see Commodity Prices And Currency Movements.)

According to a 2005 GFMS survey, the last time Australia was ranked second in production behind South Africa, gold production in the South Pacific economy was at a height of approximately 263 tons per year. This volume made up a commanding 10.4% of the market. However, steadily but surely, production has been decreasing year over year (YOY), helping to drive prices higher. Ultimately, the shorter supply of gold has helped to create demand for the Australian dollar, which moved in lockstep with the commodity until mid-2008. If an investor or trader had taken advantage of this simple correlation, he or she would have earned an approximate 30% rate of return on the currency price alone (aside from any rollover interest associated with the trade). (For more, see Using Currency Correlations To Your Advantage.)

Capitalizing on the Relationship
Although the macro strategy does work on all levels, it is best suited for portfolios that are set in longer time frames. Traders are not going to see strong correlations on every single day of trading, much like other broader market dynamics. As a result, it's advantageous to cushion the blow of daily volatility and risk through a longer time horizon.

Fundamentally oriented traders will tend to trade one or both instruments, taking trading cues from the other. These cues can be gathered from a list of topics including:

Commodity Reserve Reports
COT Futures Reports
Australian Economic Developments
Interest Rates
Safe Haven Investing

As a result, these trades tend to be longer than day-trade considerations as the portfolio is looking to capture the overall market tone rather than just an intraday pop or drop.

Technically, traders tend to find their cues in technical formations with the hope that corresponding correlations will seep into the related market. Whether the formation is in the gold chart or the Aussie chart, it is better to find one solid formation first, rather than looking for both charts to correlate perfectly. An example of this is clearly seen in the chart examples below.

Figure 1

Source: FX Trek Intellicharts

Figure 2

Source: MetaTrader

As shown in Figure 2, with the market in turmoil and investor deleveraging that was "en vogue" in 2008, traders saw an opportunity to jump on the bandwagon as both Aussie and gold experienced a temporary uptick in price. Already knowing that this would be a blow-off top in an otherwise bearish market, the savvy technical investor could visibly see both assets moving in sync. As a result, technically speaking, a short opportunity shone through as the commodity approached the $905.50 figure, which corresponded with the pivotal 0.8500 figure in the FX market. The double top in gold all but ensured further depression in the Australian dollar/U.S. dollar currency pair. (For more insight, see The Midas Touch For Gold Investors.)

Trying It Out: a Trade Setup
Now let's take a look at a shorter trade setup involving both the Australian dollar and gold.

First, the broad macro picture. Taking a look at Figure 2, we see that gold has taken a hard dive down as investors and traders have deleveraged and sold off riskier assets. Following this move, subsequent consolidation lends to the belief that a turnaround may be lingering in the market. The idea is supported by the likelihood that equity investors will elect to move some money into the safe haven characteristic of the commodity as global benchmark indexes continue to decline in value. (To read more about gold's reputation as a safe haven, see 8 Reasons To Own Gold.)

Figure 3

Source: MetaTrader

We see a similar position developing in the Australian dollar following a spike down to just below the 0.6045 figure, shown in Figure 4 below. At this time, the currency was under extreme pressure as global speculators deemed the Australian dollar a risky currency. Putting these two factors together, portfolio direction is looking to be upward.

Next, we take a look at our charts and apply basic support and resistance techniques. Following our initial trade idea with gold, we first project a textbook channel to our chart as price action has displayed three defining technical points (labeled A, B and C). The gold channel corresponds with a short-term channel developing in the AUD/USD currency pair in Figure 4.

Figure 4

Source: MetaTrader

The combination culminates on December 10, 2008 (Figure 3 Point C). Not only do both assets test the support or lower channel trendline, but we also have a bullish MACD convergence confirming the move higher in the AUD/USD currency pair.

Finally, we place the corresponding entry at the close of the session, 0.6561. The subsequent stop would be placed at the swing low. In this case, that would be the December 5 low of 0.6290, a roughly 271 pip stop. Taking proper risk/reward management into account, we place our target at 0.7103 to give us a 2:1 risk-to-reward ratio. Luckily, the trade takes no longer than a week as the target is triggered on December 18 for a 542 pip profit.

Conclusion
Intermarket strategies like the Australian dollar and gold present ample opportunities for the savvy investor and trader. Whether it's to produce a higher profit/loss ratio or increase overall portfolio returns, market correlations are sure to add value to a market participant's repertoire.

by Richard Lee, (Contact Author | Biography)

Richard Lee is a currency strategist for Online Forex Trading. Employing both fundamental and technical models, Lee has previously been featured on DailyFX.com, Bloomberg, FX Street.com, Yahoo Finance and Trading Markets.com. In analyzing the markets, he draws from an extensive experience trading fixed income and spot currency markets in addition to previous bouts in options, futures and equities.

Forex Minis Shrink Risk Exposure

2009-08-01T11:39:00.000-07:00

by Selwyn Gishen (Contact Author | Biography)

Trading currencies means buying one country's currency while simultaneously selling another country's currency. Every currency trade therefore involves two currencies. The usual size of a currency pair is 100,000 units, known as a "standard lot."

In most cases, beginner traders do not want to stomach the risk that comes with the exposure of a standard lot. As a result, most online forex brokers offer the ability to trade mini lots, which are 10,000 units of the currency rather than 100,000. For a new trader, these mini lots can be an especially effective tool for learning to trade forex. (For background reading, see Getting Started In Forex.)

What is a Pip?
Before one can fully understand the benefits of a mini lot, it is important to review the concept of a pip. A pip is the smallest increment that a currency pair can move. For most currency pairs, a pip is a change in the fourth decimal place of the currency quote. For example, if EUR/USD is quoted at 1.5567 and it moves to 1.5568, it has increased by 1 pip. The value of 1 pip is calculated by the size of the lot that is traded. So, if you buy a standard lot of 100,000 EUR/USD at 1.5567 and it goes to 1.5568, a 1-pip move, then the value of your trade has increased by $10 (or 100,000 x 0.0001). (For more on this, see What is the value of one pip and why are they different between currency pairs?)

If we did the exact same calculation using a mini lot, then we would multiply the 1 pip by the size of a 10,000 mini lot instead of the usual 100,000 lot. So 10,000 x 0.0001 = $1. When you trade a standard lot, the value of the pip is $10, but when trading a mini lot the value of a pip is $1. This is true when the

U.S.

dollar is the second, or quoted, currency in the pair. (For more, see Common Questions About Currency Trading.)

Base Currency Vs. Quote Currency
One other piece of information to remember is that a currency pair is comprised of a base currency, which is the first currency listed in the pair, and the quote currency, which is the second currency listed in the pair. In the case of the EUR/USD, the euro is the base currency and the dollar is the quote currency.

The profit or loss is always expressed in terms of the quote currency. If the currency pair is the GBP/USD, then the base currency is the British pound and the quote currency is the U.S. dollar. For the USD/CAD, the base currency is the U.S. dollar and the quote currency is the Canadian dollar. Why the dollar is listed first in some instances but second in others is just a matter of convention. (For more insight, see the Forex Tutorial: Reading a Quote and Understanding The Jargon.)

The Value of a Pip
The last important point that should be noted before we talk about mini lots specifically is the value of a pip. Suppose you are trading the GBP/JPY; the British pound is the base currency and the Japanese yen is the quote currency. Now in this instance, we have an exception to the fourth decimal place rule for the size of a pip. In the case of the yen, 1 pip is measured in the second decimal place. The yen is the only exception. To calculate the value of the move, if we buy dollars against the yen and the dollar goes up from 103.45 to 103.46, then we have a 1-pip move. Multiplying by the standard lot of 100,000 x 0.01 = 1,000 yen. To bring this back to dollars, you would then divide the 1,000 yen by the dollar rate, let's say it's 103.46, which equals $9.66.

Why Trade Minis?
The real value of trading minis is in the versatility it provides in matching the trade size to an acceptable level of risk. For example, suppose you decide to take a long position in the USD/JPY. Let's assume that your entry point is 103.55 and that you've set your stop-loss order 15 pips away at 103.40. If you have $1,000 in your trading account, the maximum risk you should take in any trade is 3% of your trading capital. Because your capital is $1,000, 3% of your capital is $30. If you are stopped out of this trade and you are trading a mini lot, you will lose $15. But if you are prepared to risk $30, you can actually trade two mini lots and get the power and benefit of some leverage. If you were only trading standard lots, this trade would not be possible because a 15-pip loss, as per this example, would be $150, which is 15% of your $1,000 trading capital. Given a risk tolerance of 3% of the portfolio, this is too much risk for one trade. (For related reading, see Forex Leverage: A Double-Edged Sword.)

Mini lots allow a trader to adjust the amount of effective leverage used in each trade. With mini contracts, you can trade the equivalent of one standard lot by simply trading 10 minis. If you only want to trade a half of a standard lot, you can do so by buying five mini lots.

The Bottom Line
Mini lots provide flexibility that standard lots cannot offer. A mini lot is simply 10% of a standard lot and therefore, by trading in minis you can trade in fractions of a standard lot, anywhere from 1 mini to 10 minis. Mini lots are useful if the natural stop loss for your trade is farther away than the maximum risk you feel comfortable taking. You can simply reduce the risk by decreasing the number of minis until that number would equate to the stop-loss risk. Of course, if your market maker offers you 100:1 leverage, then for an account of $1,000, you can trade up to 10 minis at a time. The number of minis traded should be governed by how much you can lose if your trade goes wrong, which should not exceed 2-3% per trade.

by Selwyn Gishen, (Contact Author | Biography)

Selwyn Gishen is a trader with more than 15 years of experience trading forex and equities for a private equity fund. For the past 35 years, he has also been a student of metaphysics, and has written a book called "Mind: How Changing Your Mind Can Change Your Life!" (2007). Gishen is the founder of FXNewsandViews.Com and the author of a forex trading guide entitled "Trading the Forex Markets: A Foundation Course for Online Traders". The course is designed to provide the trader with all the aspects of Gishen's Fusion Trading Model.

Uncover Forex Profits With The Turn Trade

2009-07-27T11:38:00.000-07:00

by Kathy Lien and Boris Schlossberg (Contact Author | Biography)

Most traders have an extremely hard time trading with the trend. This observation may seem counterintuitive, as the majority of traders claim that trend trading is their preferred approach to the market. However, after analyzing the records of thousands of retail traders, we are convinced the opposite is true. While everyone pays lip service to the idiom of "The trend is your friend", in reality, most traders love to pick tops and bottoms and constantly fade rather than trade with the trend. In this article, we'll cover the turn trade, a setup which allows traders to have their cake and eat it too: buying low and selling high while still trading with the trend. (For related reading, see Inside Day Bollinger Band Turn Trade.)

Turn Trade Basics
The turn trade recognizes the desire of most traders to find turns in the price action (that is to buy low and sell high), but it does so in the overarching framework of trading with the trend. The setup uses multiple time frames, moving averages and Bollinger band "bands" as its tools of entry. (For background reading, see The Basics Of Bollinger Bands.)

Getting Started
We begin by looking at the daily charts to ascertain whether a pair is in a trend, and used a 20-period daily simple moving average to determine the trend. In technical analysis, there are a number tools that can help us diagnose trend, but none is as simple and effective as the 20-period SMA. It includes a full month's worth of data (20 business days) and, as such, it provides us with a very good idea of an average price. Therefore, if price action is above the "average" price, we assume the pair is in an uptrend and vice versa.

Next, we move to the hourly charts to pinpoint our entries. In the turn to trend setup we will only trade in the direction of the trend by buying highly oversold prices in an uptrend and selling highly overbought prices in a downtrend. How will we determine our overbought and oversold extremes? The answer is by using Bollinger band "bands" to help us gauge the price action. Bollinger bands measure price extremes by calculating the standard deviation of price from its 20-period moving average. In the case of hourly charts, we will use Bollinger bands with three standard deviations (3SD) and Bollinger bands with two standard deviations (2SD) to create a set of Bollinger band channels. When price trades in a trend channel, most of the price action will be contained within the Bollinger band "bands" of 2SD and 1SD.

Why do we use the 3SD and 2SD settings in this particular setup? Because the Bollinger band rule applies to price action on the daily scale. In order to properly trade the hourly charts, which are more short term and therefore more volatile, we need to accommodate to those extremes in order to generate the most accurate signals possible. In fact, a good rule of thumb to remember is that traders should increase their Bollinger band values with every decrease in time frame. So, for example, with five-minute charts, traders may want to use Bollinger bands with setting of 3.5SD or even 4SD to focus on only the most oversold or overbought conditions.

Moving back to our setup, after having established the direction of the trend, we now observe the price action on the hourly charts. If price is in an uptrend on the dailies, we watch the hourlies for a turn back to the trend. If price continues to trade between the 3SD and the 2SD lower Bollinger band "bands", we stay away, as it indicates a strong downward momentum.

The beauty of this setup is that it prevents us from guessing the turn prematurely by forcing us to wait until the price action confirms a swing bottom or a swing top. In our example, if the price trades above the 2SD lower Bollinger band on the closing basis, we enter at market using the prior swing low minus five points as the stop. We set our target for the first unit at half the amount of risk; if it is hit, we move the stop to breakeven for the rest of the position. We then look for the second unit to trade up to the upper Bollinger band and exit the position only if the pair closes out of the 3SD-2SD Bollinger band channel, suggesting that the uptrend move is over.

Rules for the Long Trade

On the daily setup, place a 20-period SMA and make sure that the price is above the moving average on a closing basis.
Take only long trades in the direction of the trend.
Move to the hourly charts and place two sets of Bollinger bands on the chart. The first pair of Bollinger bands should be set to 3SD and the second pair should be set to 2SD.
Once the price breaks through and closes above the lower 3SD-2SD Bollinger band channel on an hourly basis, buy at market.
Set stop at swing low minus five points and calculate your risk (Risk = Entry Price - Stop Price). (Traders who want to give the setup a little more room can use swing low minus 10 points as their stop.)
Set a profit target for the first unit at 50% of risk (i.e., if you are risking 40 points on the trade then place a take-profit limit order 20 points above entry.)
Move the stop to breakeven when the first profit target is hit.
Exit the second unit when the price closes below the upper 3SD-2SD Bollinger band channel or at breakeven, whichever comes first.

Rules for the Short Trade

On the daily setup, place a 20-period SMA and make sure that the price is below the moving average on the closing basis.
Take only short trades in the direction of the trend.
Move to the hourly charts and place two sets of Bollinger bands on the chart. The first pair of Bollinger bands should be set to 3SD and the second pair should be set to 2SD.
Once price breaks through and closes above the upper 3SD-2SD Bollinger band channel on an hourly basis, sell at market.
Set a stop at swing low plus five points and calculate your risk (Risk = Entry Price - Stop Price). (traders who want to give the setup a little more room can use swing high plus 10 points as their stop.)
Set profit target for the first unit at 50% of risk (i.e., if you are risking 40 points on the trade, then place a take-profit limit order 20 points above entry).
Move stop to breakeven when the first profit target is hit.
Exit the second unit when price closes above the lower 3SD-2SD Bollinger band channel or at breakeven, whichever comes first.

The Turn Trade In Action
Now let's look at some examples:

Figure 1: Turn to the Trend, EUR/CHF

Source: FXtrek Intellichart

Taking a look at the EUR/CHF daily chart in Figure 1, we see that since the middle of March 2006, EUR/CHF has traded above its 20-day SMA, indicating that it is in a clear uptrend.

Figure 2: Turn to the Trend, EUR/CHF

Source: FXtrek Intellichart

Turning to the hourlies, we wait until the pair breaks out of the lower Bollinger band 3SD-2SD zone to go long at market at 6pm EST on March 15, 2006, at 1.5635 with a stop at 1.5623, risking only 12 points. (Note that EUR/CHF tends to be a very low volatility currency pair providing us with very small risk setups. Because the risk is so small, we may choose to set our target at 100% of risk rather than the usual 50% of risk.)

Regardless of our choice, we are able to take profits at 3am EST on March 16, 2006, at 1.5651, banking 16 points on the first unit. We then move our stop to breakeven on the rest of the position and target the upper Bollinger band. We wait for the price to pierce the upper Bollinger band, trade within it; only when it falls out of the upper Bollinger 3SD-2SD band channel do we exit the rest of the position at 1pm EST on March 16, 2006, at 1.5692, earning 57 points on the second lot. Not bad for a trade on which we risked only 12 points.

Figure 3: Turn to the Trend, USD/CAD

Source: FXtrek Intellichart

The example of USD/CAD shown in Figure 3 and Figure 4 shows a classic turn to trend setup after it establishes an uptrend on March 7, 2006.

Figure 4: Turn to the Trend, USD/CAD

Source: FXtrek Intellichart

We move from the dailies to the hourly charts and wait until the prices recover above the lower Bollinger band, entering a long at market at 11am EST on March 16, 2006, at 1.1524. We place our stop at 1.1505, which is the swing low minus five pips for a miniscule 19-point risk.

At 10pm EST on March 16, 2006, as price makes a burst upward, we sell half the position at 1.1540 and move our stop to breakeven, locking in 16 points of profit. After the price makes another burst higher, we exit at the first hint of weakness, when the hourly candle closes below the 3SD-2SD Bollinger band zone. This occurs at 11am on March 17, 2006, and we close out the rest of our position at 1.1587, for a 63-point profit on the second half of the trade.

Figure 5: Turn to the Trend, GBP/USD

Source: FXtrek Intellichart

The example in Figure 5 shows a short trade. On February 15, 2006, we look at the daily chart and see that the GBP/USD is trading below its 20-day SMA, which indicates that it is in a clear downtrend.

In Figure 6, we turn our attention to the hourly chart and try to enter a high probability short when the price becomes overbought on a shorter-term time frame. We do this by waiting for the GBP/USD to close below the 3SD-2SD upper Bollinger band channel, at which time we sell at market (1.7440) and place our stop at approximately 1.7500, risking 60 points. As per our rules, we cover half the position at 1pm EST when price approaches the 1.7410 level, which is 30 points, or 50% of our risk.

Next, we move our stop at breakeven and hold the position, targeting the lower 3SD Bollinger band. Notice that the downtrend re-establishes itself with a vengeance and the price declines into our zone. We stay in the trade until the price breaks back out of the lower Bollinger band channel, indicating that downward momentum is waning. At 6am on February 16, 2006, we cover the rest of the trade at 1.7338, for a profit of 102 points.

Figure 6: Turn to the Trend, GBP/USD

Source: FXtrek Intellichart

Figure 7 shows another good example of why we always scale out of our positions. On March 15, 2006 USD/CHF is in a downtrend, but the pair begins to trade back up to the 20-period SMA on the dailies. Because we can never be certain beforehand whether this is a retrace or a real turn in the trend, we adhere to the rules of the setup to control our risk.

Figure 7: Turn to the Trend, USD/CHF

Source: FXtrek Intellichart

Looking on the hourly charts in Figure 8, we see that at 1pm EST on March 21, 2006, the price closes below the upper Bollinger band 3SD-2SD level, and we enter a short at market at 1.3021. Our stop is placed five points above the swing high at 1.3042, for total risk of 21 points.

At 6pm EST on March 21, 2006, the price reaches our first target of 1.3008, and we cover one lot for 12 points of profit or approximately 50% of risk. We simultaneously move our stop to breakeven. At this point, the trade begins to move against us, but our breakeven stop insures that we do not lose any money and, in fact, still bank 12 points of profit on the first half of the position.

Figure 8: Turn to the Trend, USD/CHF

Source: FXtrek Intellichart

When The Setup Fails
Finally, let's take a look at an example of a failed setup in Figure 9. Starting on March 3, 2006, the EUR/GBP breaks above the 20-period SMA and establishes an uptrend on the daily charts.

Figure 9: Turn to the Trend, EUR/GBP

Source: FXtrek Intellichart

Using our turn to trend approach, we wait for the pair to make a swing low in the 3SD-2SD Bollinger band zone and then enter long at .6881 at 10am EST on March 14, 2006. The swing low was created at 7am EST that same day at .6878, so we place our stop at .6873, five points below the swing low, risking a total of eight points. Note that the EUR/GBP pair is a very slow-moving cross with very high pip values. A point in the EUR/GBP is worth approximately 175% of a point in EUR/USD, so an eight-point risk in EUR/GBP would translate into a 14-point risk in EUR/USD.

Figure 10: Turn to the Trend, EUR/GBP

Source: FXtrek Intellichart

Initially, the price makes a small rally but then drops to .6873 at noon EST on March 14, 2006, taking out our stop. This turns out to be the exact low of the move, and many traders may find it incredibly frustrating to be taken out of a trade just before it has a chance to turn around and generate profits. Not us, however. We realize that getting stopped on a bottom tick is just a part of trading and will probably happen more times than we care to remember. Far more important is to appreciate the risk management aspect of the trade, which leaves us only with a slight loss of eight points, thus preserving our capital and allowing us to look for other high probability setups.

To truly appreciate the importance of this dynamic, just imagine the following scenario. Instead of a stop loss, we leave the trade open and instead of turning around, it proceeds to drop even further. Before long, we may be looking at a floating loss in hundreds of points - something that would be inordinately more difficult to make up than our initial small eight-point stop.

Conclusion
Most traders love to pick tops and bottoms, rather than trade with the trend. The turn trade allows you to do both by using multiple time frames, moving averages and Bollinger band "bands" as its tools of entry.

The Forex Three-Session System

2009-07-23T11:37:00.000-07:00

by John Kicklighter (Contact Author | Biography)

One of the greatest features of the foreign exchange market is that it is open 24 hours a day. This allows investors from around the world to trade during normal business hours, after work or even in the middle of the night. However, not all times are created equal. Although there is always a market for this most liquid of asset classes, there are times when price action is consistently volatile and periods when it is muted. What's more, different currency pairs exhibit varying activity over certain times of the trading day due to the general demographic of those market participants that are online at the time. In this article, we will cover the major trading sessions, explore what kind of market activity can be expected over the different periods and show how this knowledge can be adapted into a trading plan.

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Breaking A 24-Hour Market Into Manageable Trading Sessions
While a 24-hour market offers a considerable advantage for many institutional and individual traders because it guarantees liquidity and the opportunity to trade at any conceivable time, it also has its drawbacks. Although currencies can be traded any time, a trader can only monitor a position for so long. This means that there will be times of missed opportunities, or worse, when a jump in volatility will lead the spot to move against an established position when the trader isn't around. To minimize this risk, a trader needs to be aware of when the market is typically volatile and decide what times are best for his or her strategy and trading style. (For more, see Trade To Your Taste.)

Traditionally, the market is separated into three sessions during which activity peaks: the Asian; European; and North American sessions. More casually, these three periods are also referred to as the Tokyo, London and New York sessions. These names are used interchangeably as the three cities represent the major financial centers for each of the regions. The markets are most active when these three powerhouses are conducting business as most banks and corporations make their day-to-day transactions and there is a greater concentration of speculators online. Now let's take a closer look at each of these sessions. (For more, see how does the foreign-exchange market trade 24 hours a day?)

Asian Session (Tokyo)
When liquidity is restored to the forex (or, FX) market after the weekend passes, the Asian markets are naturally the first to see action. Unofficially, activity from this part of the world is represented by the Tokyo capital markets, which are live from midnight to 6am Greenwich Mean Time. However, there are many other countries with considerable pull that are present during this period including China, Australia, New Zealand and Russia, among others. Considering how scattered these markets are, it stands to reason that the beginning and end of the Asian session are stretched beyond the standard Tokyo hours. Allowing for these different markets' activity, Asian hours are often considered to run between 11pm and 8am GMT.

European Session (London)
Later in the trading day, just before the Asian trading hours come to a close, the European session takes over in keeping the currency market active. This FX time zone is very dense and includes a number of major financial markets that could stand in as the symbolic capital. However, London ultimately takes the honors in defining the parameters for the European session. Official business hours in London run between 7:30am and 3:30pm GMT. Once again though, this trading period is expanded due to other capital markets' presence (including Germany and France) before the official open in the U.K.; while the end of the session is pushed back as volatility holds until the London fix after the close. Therefore, European hours are typically seen as running from 7am to 4pm GMT.

North American Session (New York)
By the time the North American session comes on line, the Asian markets have already been closed for a number of hours, but the day is only half through for European traders. The Western session is dominated by activity in the U.S. with few contributions from Canada, Mexico and a number of countries in South America. As such, it comes as little surprise that activity in New York City marks the high in volatility and participation for the session. Taking into account the early activity in financial futures, commodity trading and the concentration of economic releases the North American hours unofficially begin at noon GMT. With a considerable gap between the close of the U.S. markets and open of the Asian trading, a lull in liquidity sets the close of New York exchange trading at 8pm GMT as the North American session close.

Session	Major Market	Hours (GMT)
Asian Session	Tokyo	11pm to 8am
European Session	London	7am to 4pm
North American Session	New York	noon to 10pm

Figure 1: Major market session hours

Figure 2: Three-market session overlap

Copyright Ó 2008 Investopedia.com

Measuring Market Activity
Now that we know when the Asian, European and North American sessions are and what markets comprise each, we should discuss how time and participation affect price action for different currencies.

As logic would suggest, a currency is typically most active when its own markets are open. For example, the euro, British pound and Swiss franc see higher volatility on average when the European session is active. This is the case because banks, businesses and traders from any specific country will use their domestic currency in the majority of their foreign exchange transactions. What's more, it is more difficult for a market participant to buy or sell a currency from a region where all the major banks are closed. To illustrate, if a U.S. bank wants to make a multibillion dollar currency exchange for euros, it would likely do so when European banks are online and there is a greater pool of liquidity. Otherwise, large orders in a thin market would result in prices moving away from the ideal entry point as the order is processed.

The above example further highlights another truism for the currency markets: price action is usually greatest when the sessions overlap. When traders, banks and business from two different sessions are online, there are more participants in the market and, therefore, a greater level of liquidity is available. Figure 3 below charts the average hourly range for the seven majors in the two years through 2007. A quick glance at this graph reveals what we would expect - two notable peaks in price action. The first rise in price action occurs around the closing hours of the Asian session and open of the European session (around 7am GMT). Before this peak, the markets in the Far East are carrying currency volatility alone. After the Japanese session closes, there is a clear drop in the ranges for most of the majors as Asian liquidity quickly evaporates and leaves traders in Europe to keep the fires of volatility stoked. (For more, see Getting Started In Forex.)

The second and larger jump in activity is seen when the North American and European sessions converge (between noon and 4pm GMT). This four-hour overlap is far greater than the Asian/European sessions' own union, and volatility clearly benefits from the greater period of liquidity. However, from this period we can see there is another factor at work in driving price action - otherwise there would not be a consistent dip across the majors at 1pm GMT. This particular influence is the presence of fundamental releases. Most of the top market moving indicators for the U.S. cross the wires at either noon or 2pm GMT and thereby boost the average range for those times. And, while the influence of the U.S. data is the clearest example here, fundamentals from other key markets certainly influence price action as well. Another obvious instance of this dynamic is the typical release time for U.K. data (around 8am GMT), which coincides with a sharp peak in GBP/USD activity that goes beyond the Asian/European session overlap and cooling of the other major pairs.

Figure 3: Currency market volatility

Another aspect to take into consideration is that while broad market activity typically follows the same trend as seen across the majors (a peak in volatility during the two session overlaps), each pair is unique depending on its two component currencies and which underlying sessions they belong to. For example, when a pair is made up of two currencies from the same session (let's say USD/CAD), there will likely be a relatively greater level of volatility during that session (the U.S. session) while price action is subsequently more muted during the market's other high points (the Asian/European session overlap).

In contrast, if the pair is a cross made of currencies that are most actively traded during Asian and European hours (like EUR/JPY and GBP/JPY), there will be a greater response to the Asian/European session overlaps and a less dramatic increase in price action during the European/U.S. sessions' concurrence. Of course, the presence of scheduled event risk for each currency will still have a substantial influence on activity regardless of the pair or its components' respective sessions.

Figure 4: A greater response to Asian/European session overlaps is shown in pairs that are actively traded during Asian and European hours.

How To Weave This Into a Trading Strategy
There are few things more important to successful trading than market activity. Even the best strategy could fall apart if it is applied during the wrong session. For long-term or fundamental traders, trying to establish a position during a pair's most active hours could lead to a poor entry price, a missed entry or a trade that counters the strategy's rules. On the other hand, for short-term traders who do not hold a position over night, volatility is vital. (For more, see The Fundamentals Of Forex Fundamentals.)

Conclusion
When trading currencies, a market participant must first determine whether high or low volatility will work best with their personality and trading style. If more substantial price action is desired, trading the session overlaps or typical economic release times may be the preferable option. The next step would be to decide what times are best to trade given the bias for volatility. Following with a desire for high volatility, a trader will then need to determine what time frames are most active for the pair he or she is looking to trade.

When considering the EUR/USD pair, the European/U.S. session crossover will find the most movement. However, there are usually alternatives, and a trader should balance the need for favorable market conditions with physical well-being. If a market participant from the U.S. prefers to trade the active hours for GBP/JPY, he or she will have to wake up very early in the morning to keep up with the market. If this person has a regular day job, this could lead to exhaustion and errors in judgment when trading. A better alternative for this particular trader may be trading during the European/U.S. session overlap, where volatility is still elevated even though Japanese markets are offline.

by John Kicklighter, (Contact Author | Biography)

John Kicklighter is a currency analyst at the world's largest retail forex market maker, Forex Capital Markets LLC in New York. He writes a number of daily, weekly and ad hoc articles for DailyFX.com, FXCM's research branch, covering both fundamental and technical trends in the currency market. He also authors daily reports for FXCM clients highlighting potential range and event risk trades. John has been an active trader since the age of 17 and has traded stocks, financial futures, commodities, spot currency and options on all these instruments for his own account. John graduated with a bachelor's degree in finance and investment from Baruch College in New York.

Trade Forex With A Directional Strategy

2009-07-19T11:36:00.000-07:00

by David Gonzalez,CMT (Contact Author | Biography)

Forex was once a marketplace available only to governments, central banks, commercial and investment banks and other institutional investors like hedge funds. Today, however, there are many venues where just about anyone can trade currencies. These include currency futures, options on futures, PHLX-listed foreign currency options and the largely unregulated over-the-counter (OTC) forex market. Once the forex trader has decided which venue(s) and instrument(s) he or she will trade, it's time to develop a well-conceived trading strategy before putting any trading capital at risk. Successful traders must also predetermine their exit strategies and other risk-management tactics to be used should a trade go against them. Here we look at how to develop a trading strategy for the currency markets based on directional trading.(To review some of the concepts in this piece, check out Basic Concepts For The Forex Market and Common Questions About Currency Trading.)

Develop a Trading Strategy
One way to organize the multitude of potential strategies is to group them into directional and non-directional approaches. Directional trading strategies take net long or short positions in a market, as opposed to nondirectional (market-neutral) strategies. Most investors are familiar with the directional approach; for example, millions of people participate in some form of retirement program, which is basically a long-term portfolio of equity and/or debt securities held long by the investor. Net long strategies are profitable in rising markets, while net short investors should profit in falling markets. Directional strategies can be loosely grouped into the following subcategories:

Trend-following strategies
Moving average crossover systems
Breakout systems
Pattern-recognition strategies

This list is not all-inclusive, as there are many other approaches to trading forex. (For more, read Trading Double Tops And Double Bottoms and Identifying Trending & Range-Bound Currencies.)

Trend-Following Strategies
Trend-following systems create signals for traders to initiate positions once a specific price move has occurred. These systems are based on the technical premise that once a trend has been established, it is more likely to continue rather than reverse. (Read more about trends in the forex market in Trading Trend Or Range?)

Moving-Average (MA) Crossover
The moving average (MA) crossover trading system is one of the most common directional systems in use today. This system uses two MAs. Buy signals are generated when the shorter-term, faster-moving MA crosses over the longer average. This indicates that the near-term price action is accelerating to the upside.

These systems are susceptible to false signals, or "whipsaws". As such, traders should experiment with different time periods and conduct other backtesting before trading.

Figure 1

Source: forex.tradingcharts.com

This crossover system posted a buy signal when the five-day crossed over the 20-day to the upside in March 2008, on the left side of the chart. The position is closed once either a downside crossover occurs (as posted in May, right side of chart), or the trade reaches a predetermined price objective.

Breakout Systems
Breakout systems are extremely easy to develop. They are basically a set of predefined trading rules based on the simple premise that a price move to a new high or low is an indication of a continuing trend. Therefore, the system triggers an action to open a position in the direction of the new high/low.

For example, a breakout system may state that the trader should close all shorts and open a long position if the day's closing price exceeds the high price for the past X days. Part two of the same breakout system will state that the trader must close longs and open a short position if the day's close is below the X day's low print. The secret is to determine how long of a period you'd like to trade. Shorter time periods (faster systems) will detect trending markets faster than slower systems. The drawback is that more whipsaws will occur with faster systems.

Pattern-Recognition Strategies
A thorough discussion of every pattern used by forex traders is obviously beyond the scope of this article. As such, we will look at a few popular continuation patterns used by traders. (For more on charts patterns, read Price Patterns - Part 1.)

Triangles
Triangles can signal trend reversals, but most often they are continuation patterns (meaning that the resolution of the triangle will result in the resumption of the prior trend). There are several different types of triangles, each possessing its own unique characteristics and forecasting implications.

Traders should open positions once the price action breaks out beyond the converging boundaries of the triangle. In this case, the trader will buy the British pound once the price breaks out above the upper boundary near 1.99.

One way to forecast the extent of the resulting move is to measure the distance of the triangle base and add that distance to the level where the breakout occurred (~.04 to ~.05 + 1.99 = 2.04)

Figure 2: Symmetrical pattern at the midpoint of a bullish move

Source: forex.tradingcharts.com

Flags
Flags are continuation or consolidation patterns that usually display a period of back and forth action sloped against the primary trend. Pennants have shown to be extremely reliable. They almost always consolidate the prevailing trend and very rarely signifying a trend reversal. As with triangles, traders should open positions upon a breach of the boundary. Like other continuation patterns, flags often occur near the midpoint of a primary move.

Figure 3: Textbook bullish flag, sloped against the direction of the primary trend

Source: forex.tradingcharts.com

Risk-Management Tactics
There are a number of ways traders can reduce risk and avoid the catastrophic losses that will wipe out trading capital. Traders can set arbitrary points at which they must exit losing positions. They can also place stop orders. Another popular way to trade is to design mechanical trading systems or so-called black-box systems that use an overriding preprogrammed logic to make all trading decisions.

There are several perceived benefits to using mechanical trading systems. One is that the core danger emotions of fear and greed are eliminated from the bulk of your trading. These systems help traders avoid common mistakes such as excessive trading and closing positions prematurely. Another benefit is consistency. All signals are followed because the market conditions required to trigger a signal are detected by the system. Mechanical systems naturally force traders to control losses, since a reversal will arbitrarily trigger a new signal, reversing or closing the open position. (Read more about the effects of excessive trading on your portfolio in Tips For Avoiding Excessive Trading.)

Mechanical systems are only as good as the input data and backtesting conducted before beginning the trading campaign. The simple reality is that there is no perfect way to simulate real market conditions. Eventually, the trader must enter the markets and put real money at risk. You can paper-trade and backtest all you want, but the true test is when you go live.

Parting Words
Traders must always review and evaluate the efficacy of their strategies. Market conditions are constantly changing, and traders must adapt their systems to whatever market conditions they find themselves in.

by David Gonzalez (Contact Author | Biography)

David Gonzalez, CMT, is a Chartered Market Technician based in Orlando, Fla. He serves as the chapter chair for the Market Technicians Association's Florida Region.

Forex Courses Teach Beginners How To Trade

2009-07-14T11:34:00.000-07:00

by David Hunt (Contact Author | Biography)

Investors looking to enter the world of foreign exchange can find themselves frustrated and quickly spiraling downward, losing capital rapidly and optimism even faster. Investing in forex - whether in futures, options or spot - offers great opportunity, but it is a vastly different atmosphere than the equities market. Even the most successful stock traders will fail miserably in forex by treating the markets similarly. Equity markets involve the transfer of ownership, while the currency market is run by pure speculation. But there are solutions to help investors get over the learning curve - trading courses. (Currency trading offers far more flexibility than other markets, but long-term success requires discipline in money management. Learn more in Forex: Money Management Matters.)

What's Out There?
When it comes to forex trading courses, there are two main categories:

Online courses
Individual training

Online courses can be compared to distance learning in a college-level class. An instructor provides PowerPoint presentations, ebooks, trading simulations and so on. A trader will move through the beginner, intermediate and advanced levels that most online courses offer. For a trader with limited foreign exchange knowledge, a course like this can be invaluable. These courses can range from $50 to well into the hundreds of dollars. (If you're a beginner, check out Common Questions About Currency Trading for an overview of basic concepts.)

Individual training is much more specific, and it is advised that a trader have basic forex training before entering. An assigned mentor, typically a successful trader, will go through strategy and risk management but spend the bulk of the time teaching through placing actual trades. Individual training runs between $1,000 and $10,000.

What to Look For
No matter which type of training a trader selects, there are several things he or she should examine prior to signing up:

Reputation of the course: A simple Google search shows roughly two million results for "forex trading courses". To narrow the search, focus on the courses that have solid reputations. There are many scams promising giant returns and instant money (more on this later). Don't believe the hype. A solid training program won't promise anything but useful information and proven strategies. (Read Getting Started In Forex for more on defining a strategy.)

A course's reputation is best gauged by talking with other traders and participating in online forums. The more information you can gather from people who have taken these courses, the more confident you can be that you will make the right choice.

Certification: Good trading courses are certified through a regulatory body or financial institution. In the United States, the most popular regulatory boards that watch over forex brokers and certify courses are:

However, each country has its own regulatory boards, and international courses may be certified by different organizations.

Time/cost: Trading courses can require a solid commitment (if individual mentoring is involved) or can be as flexible as online podcast classes (for internet-based learning). Before choosing a course, carefully examine the time and cost commitments, as they vary widely.

If you don't have several thousand dollars budgeted for one-on-one training, you are probably better off taking an online course. However, if you plan on quitting your job to trade full-time, it would be beneficial to seek professional advice - even at the higher cost. (Read Get Into A Broker Training Program for more information on becoming a broker.)

Staying Away From Scams
"Make 400% returns in a day!" . . . "Guaranteed profits!" . . . "No way to lose!"

These and other catchphrases litter the internet, promising the perfect trading course leading to success. While these sites may be tempting, beginning day traders should steer clear, because any guarantee in the world of foreign exchange is a scam. (Read more about day trading in Would You Profit As A Day Trader?)

According to the Commodity Futures Trading Commission (CFTC) in a May 2008 release, forex scams are on the rise:

"The CFTC has witnessed increasing numbers, and a growing complexity, of financial investment opportunities in recent years, including a sharp rise in foreign currency (forex) trading scams.

The Commodity Futures Modernization Act of 2000 (CFMA) made clear that the CFTC has jurisdiction and authority to investigate and take legal action to close down a wide assortment of unregulated firms offering or selling foreign currency futures and options contracts to the general public."

To ensure a trading course is not a scam, read its terms and conditions carefully, determine whether it promises anything unreasonable and double-check its certification for authenticity. (Find out how to protect yourself and your loved ones from financial fraudsters in Stop Scams In Their Tracks and Avoiding Online Investment Scams.)

Other Ways to Learn How to Trade
While trading courses offer a structured way of learning foreign exchange, they aren't the only option for a beginning trader.

Those who are talented self-learners can take advantage of free options online, such as trading books, free articles, professional strategies and fundamental and technical analysis. Again, even though the information is free, make sure it is from a credible source that has no bias in how or where you trade.

This can be a difficult way to learn, as good information is scattered, but for a trader starting out on a tight budget it can be well worth the time invested.

Conclusion
Before jumping in with the sharks, getting trading advice in the highly volatile forex marketplace should be a top priority. Success in stocks and bonds does not necessarily breed success in currency. Trading courses - either through individual mentoring or online learning - can provide a trader with all the tools for a profitable experience.

For more on this subject, read Basic Concepts For The Forex Market and Forex: Wading Into The Currency Market.

by David Hunt, (Contact Author | Biography)

David J. Hunt serves as an editor for the News & Advance in Lynchburg, Virginia. He also works as a Forex consultant and private day trader with three years of experience in full-time fundamental analysis.

How To Set A Forex Trading Schedule

2009-07-10T11:35:00.000-07:00

by David Hunt (Contact Author | Biography)

Many first-time forex traders hit the market running. They watch various economic calendars and trade voraciously on every release of data, viewing the 24-hours-a-day, five-days-a-week foreign exchange market as a convenient way to trade all day long. Not only can this strategy deplete a trader's reserves quickly, but it can burn out even the most persistent trader. Unlike Wall Street, which runs on normal business hours, the forex market runs on the normal business hours of four different parts of the world and their respective time zones, which means the trading day lasts all day and night.

So what's the alternative to staying up all night long? If traders can gain an understanding of the market hours and set appropriate goals, they will have a much stronger chance at realizing profits within a workable schedule.

Know the Markets
Currency trading is unique because of its hours of operation. The week begins at 6pm EST on Sunday and runs until 4pm on Friday.

But not all hours of the day are equally good for trading. The best time to trade is when the market is most active. When more than one of the four markets are open simultaneously, there will be a heightened trading atmosphere, which means there will be greater fluctuation in currency pairs. When only one market is open, currency pairs tend to get locked in a tight pip spread of roughly 30 pips of movement. Two markets open at once can easily see movement north of 70 pips, particularly when big news is released. (Need a refresher on forex concepts? Common Questions About Currency Trading covers the basics.)

First, here is a brief overview of the four markets (hours in EST):

New York (open 8am to 5pm): According to "Day Trading the Currency Markets" (2005) by Kathy Lien, New York is the second largest forex platform in the world and is watched heavily by foreign investors because the U.S. dollar is involved in 90% of all trades. Movements in the New York Stock Exchange (NYSE) can have an immediate and powerful effect on the dollar. When companies merge and acquisitions are finalized, the dollar can gain or lose value instantly. (Learn one way to predict movements in the NYSE in Which Direction Is The Market Heading?)
Tokyo (open 7pm to 4am): Tokyo takes in the largest bulk of Asian trading, just ahead of Hong Kong and Singapore. It was the first Asian trading center to open. The best currency pairs to aim for (for traders looking for a lot of action) are USD/JPY, GBP/CHF and GBP/JPY. The USD/JPY is an especially good pair to watch when the Tokyo market is the only market open because of the heavy influence the Bank of Japan has over the market. (Learn about this influence in Profiting From Interventions In Forex Markets, and about currency pairs in Using Currency Correlations To Your Advantage.)
Sydney (open 5pm to 2am): Sydney is where the trading day officially begins, and while it is the smallest of the mega-markets, it sees a lot of initial action when the markets reopen on Sunday afternoon because individual traders and financial institutions try to stabilize after all the action that may have happened since Friday afternoon.
London (open 3am to noon): The United Kingdom dominates the currency markets worldwide, and London is its main component. London, known as the trading capital of the world, accounts for roughly 34% of global trading, according to a report by IFS London. The city also has a big impact on currency fluctuations because the Bank of England, which sets interest rates and controls the monetary policy of the GBP, has set up shop in London. Forex trends often originate in London as well, which is a great thing for technical traders to keep in mind. (Learn more about how the central banks impact currency pairs in Interest Rates Matter For Forex Traders.)

Overlaps in Trading
As stated earlier, the best time to trade is when there is an overlap in trading times between open markets. Overlaps equal higher price ranges, resulting in greater opportunities. Here is a closer look at the three overlaps that happen each day:

U.S./London (8am to noon): The heaviest overlap within the markets occurs in the U.S./London markets. According to Kathy Lien, more than 70% of all trades happen when these markets overlap because the U.S. dollar and the euro are the two most popular currencies to trade. If a trader is looking for the most optimal time to trade (when volatility is high), than this would be the ideal time.
Sydney/Tokyo (2am to 4am): This time period is not as volatile as the U.S./London overlap, but it still offers a chance to trade in a period of higher pip fluctuation. The ideal currency pair to aim for in this period is the EUR/JPY pair, as these are the two main currencies influenced.
London/Tokyo (3am to 4am): This overlap sees the least amount of action of the three overlaps because of the time (most U.S.-based traders won't be awake at this time), and the one-hour overlap gives little opportunity to watch large pip changes occur.

(For more in-depth information about what kinds of market activity can be expected in each period, read The Forex Three-Session System.)

News Releases
While understanding the markets and their overlaps can aid a trader in arranging his or her trading schedule, there is one influence that should not be forgotten: the news release.
A big news release has the power to enhance a normally slow trading period. When a major announcement is made regarding economic data - especially when it goes against the predicted forecast - currency can lose or gain value within a matter of seconds.

However, just because dozens of economic releases happen each weekday in all time zones and seemingly affect all currencies, it does not mean a trader needs to be aware of all of them. It is important to prioritize these releases so that the important ones are watched and the lesser ones are simply monitored for surprises. (For more insight, read Trading On News Releases.)

Some of the bigger news releases to watch for include:

For more information on these indicators, read Economic Indicators To Know.

Conclusion
When setting up a trading schedule, it is important to run a strong balance between market overlaps and news releases. Traders looking to enhance profits should aim to trade during more volatile times, while keeping an eye on what economic data is released when. This balance allows part-time and full-time traders the opportunity to set a schedule that gives them peace of mind, knowing that opportunities are not slipping away when they are not watching the markets.

Top 8 Most Tradeable Currencies

2009-07-06T11:33:00.000-07:00

by Richard Lee (Contact Author | Biography)

Although the foreign exchange market is often billed as a banker's game, currencies can sometimes be great diversification for a portfolio that might have hit a bit of a rut. It's a market that can also offer tremendous opportunity when other global forums enter the doldrums. As a result, knowing a little bit about forex, and the fundamentals behind it, can make significant additions to any trader, investor or portfolio manager's arsenal. Let's take a look at eight currencies every trader or investor should know, along with the central banks of their respective nations. (Absolute beginners might consider a trading course. Read Forex Courses Teach Beginners How To Trade for more information.)

1. U.S. Dollar (USD)
Central Bank: Federal Reserve (Fed)
Current Interest Rate Information: http://www.federalreserve.gov/releases/h15/data.htm

The Almighty Dollar
Created in 1913 by the Federal Reserve Act, the Federal Reserve System (also called the Fed) is the central banking body of the

U.S.

The system is itself headed by a chairman and board of governors, with most of the focus being placed on the branch known as the Federal Open Market Committee (FOMC). The FOMC supervises open market operations as well as monetary policy or interest rates.

The current committee is comprised of five of the 12 current Federal Reserve Bank presidents and seven members of the Federal Reserve Board, with the Federal Reserve Bank of New York always serving on the committee. Even though there are 12 voting members, non-members (including additional Fed Bank presidents) are invited to share their views on the current economic situation when the committee meets every six weeks. (For more information on the Federal Reserve, read our Federal Reserve tutorial.)

Sometimes referred to as the greenback, the U.S. dollar (USD) is the home denomination of the world's largest economy, the

United States

. As with any currency, the dollar is supported by economic fundamentals, including gross domestic product, and manufacturing and employment reports. However, the U.S. dollar is also widely influenced by the central bank and any announcements about interest rate policy. The U.S. dollar is a benchmark that trades against other major currencies, especially the euro, Japanese yen and British pound. (For further reading about trading this currency, see Taking Advantage Of A Weak U.S. Dollar.)

2. European Euro (EUR)
Central Bank: European Central Bank (ECB)
Current Interest Rate: http://www.ecb.int/stats/monetary/rates/html/index.en.html

The Dollar's Nemesis
Headquartered in Frankfurt, Germany, the European Central Bank is the central bank of the 15 member countries of the Eurozone. In similar fashion to the United States' FOMC, the ECB has a main body responsible for making monetary policy decisions, the Executive Council, which is composed of five members and headed by a president. The remaining policy heads are chosen with consideration that four of the remaining seats are reserved for the four largest economies in the system, which include Germany, France, Italy and

Spain

. This is to ensure that the largest economies are always represented in the case of a change in administration. The council meets approximately 10 times a year. (Read more about this and other central banks discussed here in Get To Know The Major Central Banks.)

In addition to having jurisdiction over monetary policy, the ECB also holds the right to issue banknotes as it sees fit. Similarly to the Federal Reserve, policy makers can interject at times of bank or system failures. The ECB differs from the Fed in an important area: instead of maximizing employment and maintaining stability of long-term interest rates, the ECB works towards a prime principle of price stability, with secondary commitments to general economic policies. As a result, policymakers will turn their focus to consumer inflation in making key interest rate decisions. (Read more about how central banks control inflation in What Are Central Banks?)

Although the monetary body is somewhat complex, the currency is not. Against the U.S. dollar, the euro (EUR) tends to be a slower currency compared to its colleagues (i.e., the British pound or Australian dollar). On an average day, the base currency can trade between 30-40 pips, with more volatile swings averaging slightly more, at 60 pips wide per day. Another trading consideration is time. Trading in the euro-based pairs can be seen during the London and

U.S.

sessions (which occur from 2am through 11am EST). (Read more about choosing the optimal time to trade in How To Set A Forex Trading Schedule.)

3. Japanese Yen (JPY)
Central Bank: Bank of Japan (BoJ)
Current Interest Rate: http://www.boj.or.jp/en/index.htm

Technically Complex, Fundamentally Simple
Established as far back as 1882, the Bank of Japan serves as the central bank to the world's second largest economy. It governs monetary policy as well as currency issuance, money market operations and data/economic analysis. The main Monetary Policy Board tends to work toward economic stability, constantly exchanging views with the reigning administration, while simultaneously working toward its own independence and transparency. Meeting 12-14 times a year, the governor leads a team of nine policy members, including two appointed deputy governors.

The Japanese yen (JPY) tends to trade under the identity of a carry trade component. Offering a low interest rate, the currency is pitted against higher-yielding currencies, especially the

New Zealand

and Australian dollars and the British pound. As a result, the underlying tends to be very erratic, pushing traders to take technical perspectives on a longer-term basis. Average daily ranges are in the region of 30-40 pips, with extremes as high as 150 pips. To trade this currency with a little bit of a bite, focus on the crossover of London and

U.S.

hours (6am - 11am EST). (Read more about forex carry trades in Currency Carry Trades Deliver.)

4. British Pound (GBP)
Central Bank: Bank of England (BoE)
Current Interest Rate: http://www.bankofengland.co.uk/

The Queen's Currency
As the main governing body in the

United Kingdom

, the Bank of England serves as the monetary equivalent of the Federal Reserve System. In the same fashion, the governing body establishes a committee headed by the governor of the bank. Made up of nine members, the committee includes four external participants (appointed by the Chancellor of Exchequer), a chief economist, director of market operations, committee chief economist and two deputy governors.

Meeting every month of the year, the Monetary Policy Committee (MPC) decides on interest rates and broader monetary policy, with primary considerations of total price stability in the economy. As such, the MPC also has a benchmark of consumer price inflation set at 2%. If this benchmark is compromised, the governor has the responsibility to notify the Chancellor of Exchequer through a letter, one of which came in 2007 as the

U.K.

CPI rose sharply to 3.1%. The release of this letter tends to be a harbinger to markets, as it increases the probability of contractionary monetary policy. (For more on the role of the CPI, read The Consumer Price Index: A Friend To Investors.)

A little bit more volatile than the euro, the British pound (GBP, also sometimes referred to as "pound sterling" or "cable") tends to trade a wider range through the day. With swings that can encompass 100-150 pips, it isn't unusual to see the pound trade as narrowly as 20 pips. Swings in notable cross currencies tend to give this major a volatile nature, with traders focusing on pairs like the British pound/Japanese yen and the British pound/Swiss franc. As a result, the currency can be seen as most volatile through both London and

U.S.

sessions, with minimal movements during Asian hours (5pm - 1am EST). (Read more about currency pairs in Using Currency Correlations To Your Advantage.)

5. Swiss Franc (CHF)
Central Bank: Swiss National Bank (SNB)
Current Interest Rate: http://www.snb.ch/en/iabout/stat/statpub/zidea/id/current_interest_exchange_rates

A Banker's Currency
Different from all other major central banks, the Swiss National Bank is viewed as a governing body with private and public ownership. This belief stems from the fact that the Swiss National Bank is technically a corporation under special regulation. As a result, a little over half of the governing body is owned by the sovereign states of

Switzerland

. It is this arrangement that emphasizes the economic and financial stability policies dictated by the governing board of the SNB. Smaller than most governing bodies, monetary policy decisions are created by three major bank heads who meet on a quarterly basis.

The governing board creates the band (plus or minus 25 basis points) of where the interest rate will reside.

Similar to the euro, the Swiss franc (CHF) hardly makes significant moves in the any of the individual sessions. As a result, look for this particular currency to trade in the average daily range of 35 pips per day. High-frequency volume for this currency is usually pitted for the London session (2am - 8am EST). (For more on the CHF, read Forex: Making Sense Of The Euro/Swiss Franc Relationship.)

6. Canadian Dollar (CAD)
Central Bank: Bank of Canada (BoC)
Current Interest Rate: http://www.bankofcanada.ca/en/rates/interest-look.html

The Loonie
Established by the Bank of Canada Act of 1934, the Bank of Canada serves as the central bank called upon to "focus on the goals of low and stable inflation, a safe and secure currency, financial stability and the efficient management of government funds and public debt." Acting independently, Canada's central bank draws similarities with the Swiss National Bank because it is sometimes treated as a corporation, with the Ministry of Finance directly holding shares. Despite the proximity of the government's interests, it is the responsibility of the governor to promote price stability at an arm's length from the current administration, while simultaneously considering the government's concerns. With an inflationary benchmark of 2-3%, the BoC has tended to remain a shade more hawkish rather than accommodative when it comes to any deviations in prices.

Keeping in touch with major currencies, the Canadian dollar (CAD) tends to trade in similar daily ranges of 30-40 pips. However, one unique aspect about the currency is its relationship with crude oil, as the country remains a major exporter of the commodity. As a result, plenty of traders and investors use this currency as either a hedge against current commodity positions or pure speculation, tracing signals from the oil market. (Read more about the CAD's relationship with oil in Commodity Prices And Currency Movements.)

7. Australian/New Zealand Dollar (AUD/NZD)
Central Bank: Reserve Bank of Australia / Reserve Bank of New Zealand (RBA/RBNZ)
Current Interest Rate: http://www.rba.gov.au/ and http://www.rbnz.govt.nz/

Always A Carry Favorite
Offering one of the higher interest rates in the major global markets, the Reserve Bank of

Australia

has always upheld price stability and economic strength as cornerstones of its long-term plan. Headed by the governor, the bank's board is made up of six members-at-large, in addition to a deputy governor and a secretary of the Treasury. Together, they work toward to target inflation between 2-3%, while meeting nine times throughout the year. In similar fashion, the Reserve Bank of

New Zealand

looks to promote inflation targeting, hoping to maintain a foundation for prices.

Both currencies have been the focus of carry traders, as the Australian and

New Zealand

dollars (AUD and NZD) offer the highest yields of the seven major currencies available on most platforms. As a result, volatility can be experienced in these pairs if a deleveraging effect takes place. Otherwise, the currencies tend to trade in similar averages of 30-40 pips, like other majors. Both currencies also maintain relationships with commodities, most notably silver and gold. (Read more about carry trades and the AUD in Turn To The Carry – A Different Flavor Of The Setup.)

8. South African Rand (ZAR)
Central Bank: South African Reserve Bank (SARB)
Current Interest Rate: http://www.reservebank.co.za/

Emerging Opportunity
Previously modeled on the United Kingdom's Bank of England, the South African Reserve Bank stands as the monetary authority when it comes to

South Africa

. Taking on major responsibilities similar to those of other central banks, the SARB is also known as a creditor in certain situations, a clearing bank and major custodian of gold. Above all else, the central bank is in charge of "the achievement and maintenance of price stability". This also includes intervention in the foreign exchange markets when the situation arises.

Interestingly enough, the South African Reserve Bank remains a wholly owned private entity with more than 600 shareholders that are regulated by owning less than 1% of the total number of outstanding shares. This is to ensure that the interests of the economy precede those of any private individual. To maintain this policy, the governor and 14-member board head the bank's activities and work toward monetary goals. The board meets six times a year.

Seen as relatively volatile, the average daily range of the South African rand (ZAR) can be as high as 1,000 pips. But don't let the wide daily range fool you. When translated into dollar pips, the movements are equivalent to an average day in the British pound, making the currency a great pair to trade against the U.S. dollar (especially when taking into consideration the carry potential). Traders also consider the currency's relationship to gold and platinum. With the economy being a world leader when it comes to exports of both metals, it is only natural to see a correlation similar to that between the CAD and crude oil. As a result, consider the commodities markets in creating opportunities when economic data is scant. (Read more about the rand in The New World Of Emerging Market Currencies.)

Conclusion
As financial markets continue to evolve and grow globally, foreign exchange and currencies will play an increasingly large role in day-to-day transactions. Notional volumes for the market sector are already averaging approximately $3 trillion per day. As a result, whether a conversion for physical trade or a simple portfolio diversification play, currencies continue to offer more opportunities to both the retail and institutional investor.

For more introductory reading on the forex market, check out Getting Started In Forex and Forex Basics: Setting Up An Account.

The Greatest Currency Trades Ever Made

2009-07-02T11:32:00.000-07:00

by Andrew Beattie (Contact Author | Biography)

The foreign exchange (forex) market is the largest market in the world because currency is changing hands whenever goods and services are traded between nations. The sheer size of the transactions going on between nations provides arbitrage opportunities for speculators, because the currency values fluctuate by the minute. Usually these speculators make many trades for small profits, but sometimes a big position is taken up for a huge profit or, when things go wrong, a huge loss. In this article, we'll look at the greatest currency trades ever made.

How the Trades Are Made
First, it is essential to understand how money is made in the forex market. Although some of the techniques are familiar to stock investors, currency trading is a realm of investing in and of itself. A currency trader can make one of four bets on the future value of a currency:

Shorting a currency means that the trader believes that the currency will go down compared to another currency.
Going long means that the trader thinks the currency will increase in value compared to another currency.
The other two bets have to do with the amount of change in either direction - whether the trader thinks it will move a lot or not much at all - and are known by the provocative names of strangle and straddle. (For details on those strategies, read Get A Strong Hold On Profit With Strangles and Straddle Strategy A Simple Approach To Market Neutral.)

Once you're decided on which bet you want to place, there are many ways to take up the position. For example, if you wanted to short the Canadian dollar (CAD), the simplest way would be to take out a loan in Canadian dollars that you will be able to pay back at a discount as the currency devalues (assuming you're correct).

This is much too small and slow for true forex traders, so they use puts, calls, other options and forwards to build up and leverage their positions. It's the leveraging in particular that makes some trades worth millions, and even billions, of dollars. (For more on the mechanics of the forex market, see our Forex Tutorial and Getting Started In Forex.)

No. 3: Andy Krieger Vs. The Kiwi
In 1987, Andy Krieger, a 32-year-old currency trader at Bankers Trust, was carefully watching the currencies that were rallying against the dollar following the Black Monday crash. As investors and companies rushed out of the American dollar and into other currencies that had suffered less damage in the market crash, there were bound to be some currencies that would become fundamentally overvalued, creating a good opportunity for arbitrage. The currency Krieger targeted was the

New Zealand

dollar, also known as the kiwi.

Using the relatively new techniques afforded by options, Krieger took up a short position against the kiwi worth hundreds of millions. In fact, his sell orders were said to exceed the money supply of

New Zealand

. The kiwi dropped sharply as the selling pressure combined with the lack of currency in circulation. It yo-yoed between a 3% and 5% loss while Krieger made millions for his employers.

One part of the legend recounts a worried

New Zealand

government official calling up Krieger's bosses and threatening Bankers Trust to try to get Krieger out of the kiwi. Krieger later left Bankers Trust to go work for George Soros. (For more on how this works, see Trading The Odds With Arbitrage.)

No. 2: Stanley Druckenmiller Bets on the Mark - Twice
Stanley Druckenmiller made millions by making two long bets in the same currency while working as a trader for George Soros' Quantum Fund.

Druckenmiller's first bet came when the Berlin Wall fell. The perceived difficulties of reunification between East and

West Germany

had depressed the German mark to a level that Druckenmiller thought extreme. He initially put a multimillion-dollar bet on a future rally until Soros told him to increase his purchase to 2 billion German marks. Things played out according to plan and the long position came to be worth millions of dollars, helping push the returns of the Quantum Fund over 60%.

Possibly due to the success of his first bet, Druckenmiller also made the German mark an integral part of the greatest currency trade in history. A few years later, while Soros was busy breaking the Bank of England, Druckenmiller was going long in the mark on the assumption that the fallout from his boss's bet would drop the British pound against the mark. Druckenmiller was confident that he and Soros were right and showed this by buying British stocks. He believed that

Britain

would have to slash lending rates, thus stimulating business, and that the cheaper pound would actually mean more exports compared to European rivals. Following this same thinking, Druckenmiller bought German bonds on the expectation that investors would move to bonds as German stocks showed less growth than the British. It was a very complete trade that added considerably to the profits of Soros' main bet against the pound. (Read more about currency devaluation in What Causes A Currency Crisis?)

No. 1: George Soros Vs. The British Pound
The British pound shadowed the German mark leading up to the 1990s even though the two countries were very different economically. Germany was the stronger country despite lingering difficulties from reunification, but

Britain

wanted to keep the value of the pound above 2.7 marks. Attempts to keep to this standard left

Britain

with high interest rates and equally high inflation, but it demanded a fixed rate of 2.7 marks to a pound as a condition of entering the European Exchange Rate Mechanism (ERM). (Learn more about why some countries peg their rates in Floating And Fixed Exchange Rates.)

Many speculators, George Soros chief among them, wondered how long fixed exchange rates could fight market forces, and they began to take up short positions against the pound. Soros borrowed heavily to bet more on a drop in the pound.

Britain

raised its interest rates to double digits to try to attract investors. The government was hoping to alleviate the selling pressure by creating more buying pressure.

Paying out interest costs money, however, and the British government realized that it would lose billions trying to artificially prop up the pound. It withdrew from the ERM and the value of the pound plummeted against the mark. Soros made at least $1 billion off this one trade. For the British government's part, the devaluation of the pound actually helped, as it forced the excess interest and inflation out of the economy, making it an ideal environment for businesses.

A Thankless Job
Any discussion around the top currency trades always revolves around George Soros, because many of these traders have a connection to him and his Quantum Fund. After retiring from active management of his funds to focus on philanthropy, Soros made comments about currency trading that were seen as expressing regret that he made his fortune attacking currencies. It was an odd change for Soros who, like many traders, made money by removing pricing inefficiencies from the market. Britain did lose money because of Soros and he did force the country to swallow the bitter pill of withdrawing from the ERM, but many people also see these drawbacks to the trade as necessary steps that helped

Britain

emerge stronger. If there hadn't been a drop in the pound,

Britain

's economic problems may have dragged on as politicians kept trying to tweak the ERM. (For related reading, see Working Through The Efficient Market Hypothesis.)

Conclusion
A country can benefit from a weak currency as much as from a strong one. With a weak currency, the domestic products and assets become cheaper to international buyers and exports increase. In the same way, domestic sales increase as foreign products go up in price due to the higher cost of importing. There were very likely many people in Britain and

New Zealand

who were pleased when speculators brought down the overvalued currencies. Of course, there were also importers and others who were understandably upset. A currency speculator makes money by forcing a country to face realities it would rather not face. Although it's a dirty job, someone has to do it.

You can learn more about the basics of this market at Common Questions About Currency Trading and Top 8 Most Tradeable Currencies.

by Andrew Beattie, (Contact Author | Biography)

Andrew Beattie is a freelance writer and self-educated investor. He worked for Investopedia as an editor and staff writer before moving to Japan in 2003. Andrew still lives in Japan with his wife, Rie. Since leaving Investopedia, he has continued to study and write about the financial world's tics and charms. Although his interests have been necessarily broad while learning and writing at the same time, perennial favorites include economic history, index funds, Warren Buffett and personal finance. He may also be the only financial writer who can claim to have read "The Encyclopedia of Business and Finance" cover to cover.

9 Tricks Of The Successful Trader

2009-06-30T11:31:00.000-07:00

by Selwyn Gishen (Contact Author | Biography)

For all of its numbers, charts and ratios, trading is more art than science. And just as in artistic endeavors, there is talent involved, but talent will only take you so far. The best traders hone their skills through practice and discipline. They perform self analysis to see what drives their trades and learn how to keep fear and greed out of the equation. In this article we'll look at nine steps a novice trader can use to perfect his or her craft; for the experts out there, you might just find some tips that will help you make smarter, more profitable trades, too.

Step 1. Define your goals and then choose a style of trading that is compatible with those goals. Be sure your personality is a match for the style of trading you choose.

Before you set out on any journey, it is imperative that you have some idea of where your destination is and how you will get there. Consequently, it is imperative that you have clear goals in mind as to what you would like to achieve; you then have to be sure that your trading method is capable of achieving these goals. Each type of trading style requires a different approach and each style has a different risk profile, which requires a different attitude and approach to trade successfully. For example, if you cannot stomach going to sleep with an open position in the market then you might consider day trading. On the other hand, if you have funds that you think will benefit from the appreciation of a trade over a period of some months, then a position trader is what you want to consider becoming. But no matter what style of trading you choose, be sure that your personality fits the style of trading you undertake. A personality mismatch will lead to stress and certain losses. (For more, see Invest With A Thesis.)

Step 2. Choose a broker with whom you feel comfortable but also one who offers a trading platform that is appropriate for your style of trading.

It is important to choose a broker who offers a trading platform that will allow you to do the analysis you require. Choosing a reputable broker is of paramount importance and spending time researching the differences between brokers will be very helpful. You must know each broker's policies and how he or she goes about making a market. For example, trading in the over-the-counter market or spot market is different from trading the exchange-driven markets. In choosing a broker, it is important to read the broker documentation. Know your broker's policies. Also make sure that your broker's trading platform is suitable for the analysis you want to do. For example, if you like to trade off of Fibonacci numbers, be sure the broker's platform can draw Fibonacci lines. A good broker with a poor platform, or a good platform with a poor broker, can be a problem. Make sure you get the best of both.

Step 3. Choose a methodology and then be consistent in its application.

Before you enter any market as a trader, you need to have some idea of how you will make decisions to execute your trades. You must know what information you will need in order to make the appropriate decision about whether to enter or exit a trade. Some people choose to look at the underlying fundamentals of the company or economy, and then use a chart to determine the best time to execute the trade. Others use technical analysis; as a result they will only use charts to time a trade. Remember that fundamentals drive the trend in the long term, whereas chart patterns may offer trading opportunities in the short term. Whichever methodology you choose, remember to be consistent. And be sure your methodology is adaptive. Your system should keep up with the changing dynamics of a market. (For related reading, see What is the difference between fundamental and technical analysis and Blending Technical And Fundamental Analysis.)

Step 4. Choose a longer time frame for direction analysis and a shorter time frame to time entry or exit.

Many traders get confused because of conflicting information that occurs when looking at charts in different time frames. What shows up as a buying opportunity on a weekly chart could, in fact, show up as a sell signal on an intraday chart. Therefore, if you are taking your basic trading direction from a weekly chart and using a daily chart to time entry, be sure to synchronize the two. In other words, if the weekly chart is giving you a buy signal, wait until the daily chart also confirms a buy signal. Keep your timing in sync.

Step 5. Calculate your expectancy.

Expectancy is the formula you use to determine how reliable your system is. You should go back in time and measure all your trades that were winners, versus all your trades that were losers. Then determine how profitable your winning trades were versus how much your losing trades lost.

Take a look at your last 10 trades. If you haven't made actual trades yet, go back on your chart to where your system would have indicated that you should enter and exit a trade. Determine if you would have made a profit or a loss. Write these results down. Total all your winning trades and divide the answer by the number of winning trades you made. Here is the formula:

E= [1+ (W/L)] x P – 1

where:

W = Average Winning Trade
L = Average Losing Trade
P = Percentage Win Ratio

Example:
If you made 10 trades and six of them were winning trades and four were losing trades, your percentage win ratio would be 6/10 or 60%. If your six trades made $2,400, then your average win would be $2,400/6 = $400. If your losses were $1,200, then your average loss would be $1,200/4 = $300. Apply these results to the formula and you get; E= [1+ (400/300)] x 0.6 - 1 = 0.40 or 40%. A positive 40% expectancy means that your system will return you 40 cents per dollar over the long term.

Step 6. Focus on your trades and learn to love small losses.

Once you have funded your account, the most important thing to remember is that your money is at risk. Therefore, your money should not be needed for living or to pay bills etc. Consider your trading money as if it were vacation money. Once the vacation is over your money is spent. Have the same attitude toward trading. This will psychologically prepare you to accept small losses, which is key to managing your risk. By focusing on your trades and accepting small losses rather than constantly counting your equity, you will be much more successful.

Secondly, only leverage your trades to a maximum risk of 2% of your total funds. In other words, if you have $10,000 in your trading account, never let any trade lose more than 2% of the account value, or $200. If your stops are farther away than 2% of your account, trade shorter time frames or decrease the leverage. (For further reading, see Leverage's Double-Edged Sword Need Not Cut Deep.)

Step 7. Build positive feedback loops.

A positive feedback loop is created as a result of a well-executed trade in accordance with your plan. When you plan a trade and then execute it well, you form a positive feedback pattern. Success breeds success, which in turn breeds confidence - especially if the trade is profitable. Even if you take a small loss but do so in accordance with a planned trade, then you will be building a positive feedback loop.

Step 8. Perform weekend analysis.

It is always good to prepare in advance. On the weekend, when the markets are closed, study weekly charts to look for patterns or news that could affect your trade. Perhaps a pattern is making a double top and the pundits and the news is suggesting a market reversal. This is a kind of reflexivity where the pattern could be prompting the pundits while the pundits are reinforcing the pattern. Or the pundits may be telling you that the market is about to explode. Perhaps these are pundits hoping to lure you into the market so that they can sell their positions on increased liquidity. These are the kinds of actions to look for to help you formulate your upcoming trading week. In the cool light of objectivity, you will make your best plans. Wait for your setups and learn to be patient.

If the market does not reach your point of entry, learn to sit on your hands. You might have to wait for the opportunity longer than you anticipated. If you miss a trade, remember that there will always be another. If you have patience and discipline you can become a good trader. (To learn more, see Patience Is A Trader’s Virtue.)

Step 9. Keep a printed record.

Keeping a printed record is one of the best learning tools a trader can have. Print out a chart and list all the reasons for the trade, including the fundamentals that sway your decisions. Mark the chart with your entry and your exit points. Make any relevant comments on the chart. File this record so you can refer to it over and over again. Note the emotional reasons for taking action. Did you panic? Were you too greedy? Were you full of anxiety? Note all these feelings on your record. It is only when you can objectify your trades that you will develop the mental control and discipline to execute according to your system instead of your habits.

Bottom Line
The steps above will lead you to a structured approach to trading and in return should help you become a more refined trader. Trading is an art and the only way to become increasingly proficient is through consistent and disciplined practice. Remember the expression: the harder you practice the luckier you'll get.

What Type Of Forex Trader Are You?

2009-06-25T11:30:00.000-07:00

by Richard Lee (Contact Author | Biography)

What are some things that separate a good trader from a great one? Guts, instincts, intelligence and, most importantly, timing. Just as there are many types of traders, there is an equal number of different time frames that assist traders in developing their ideas and executing their strategies. At the same time, timing also helps market warriors take several things that are outside of a trader's control into account. Some of these items include position leveraging, nuances of different currency pairs, and the effects of scheduled and unscheduled news releases in the market. As a result, timing is always a major consideration when participating in the foreign exchange world, and is a crucial factor that is almost always ignored by novice traders.

Want to bring your trading skills to the next level? Read on to learn more about time frames and how to use them to your advantage.

Common Trader Time frames
In the grander scheme of things, there are plenty of names and designations that traders go by. But when taking time into consideration, traders and strategies tend to fall into three broader and more common categories: day trader, swing trader and position trader.

1. The Day Trader
Let's begin with what seems to be the most appealing of the three designations, the day trader. A day trader will, for a lack of a better definition, trade for the day. These are market participants that will usually avoid holding anything after the session close and will trade in a high-volume fashion.

On a typical day, this short-term trader will generally aim for a quick turnover rate on one or more trades, anywhere from 10- to 100-times the normal transaction size. This is in order to capture more profit from a rather small swing. As a result, traders who work in proprietary shops in this fashion will tend to use shorter time-frame charts, using one-, five-, or 15-minute periods. In addition, day traders tend to rely more on technical trading patterns and volatile pairs to make their profits. Although a long-term fundamental bias can be helpful, these professionals are looking for opportunities in the short term. (For background reading, see Would You Profit As A Day Trader? and Day Trading Strategies For Beginners.)

Figure 1

Source: FX Trek Intellicharts

One such currency pair is the British pound/Japanese yen as shown in Figure 1, above. This pair is considered to be extremely volatile, and is great for short-term traders, as average hourly ranges can be as high as 100 pips. This fact overshadows the 10- to 20-pip ranges in slower moving currency pairs like the euro/U.S. dollar or euro/British pound. (For more on pairs trading, see Common Questions About Currency Trading.)

2. Swing Trader
Taking advantage of a longer time frame, the swing trader will sometimes hold positions for a couple of hours - maybe even days or longer - in order to call a turn in the market. Unlike a day trader, the swing trader is looking to profit from an entry into the market, hoping the change in direction will help his or her position. In this respect, timing is more important in a swing trader's strategy compared to a day trader. However, both traders share the same preference for technical over fundamental analysis. A savvy swing trade will likely take place in a more liquid currency pair like the British pound/U.S. dollar. In the example below (Figure 2), notice how a swing trader would be able to capitalize on the double bottom that followed a precipitous drop in the GBP/USD currency pair. The entry would be placed on a test of support, helping the swing trader to capitalize on a shift in directional trend, netting a two-day profit of 1,400 pips. (To learn more, read The Daily Routine Of A Swing Trader and Introduction To Types Of Trading: Swing Traders.)

Figure 2

Source: FX Trek Intellicharts

3. The Position Trader
Usually the longest time frame of the three, the position trader differs mainly in his or her perspective of the market. Instead of monitoring short-term market movements like the day and swing style, these traders tend to look at a longer term plan. Position strategies span days, weeks, months or even years. As a result, traders will look at technical formations but will more than likely adhere strictly to longer term fundamental models and opportunities. These FX portfolio managers will analyze and consider economic models, governmental decisions and interest rates to make trading decisions. The wide array of considerations will place the position trade in any of the major currencies that are considered liquid. This includes many of the G7 currencies as well as the emerging market favorites.

Additional Considerations
With three different categories of traders, there are also several different factors within these categories that contribute to success. Just knowing the time frame isn't enough. Every trader needs to understand some basic considerations that affect traders on an individual level.

Leverage
Widely considered a double-edged sword, leverage is a day trader's best friend. With the relatively small fluctuations that the currency market offers, a trader without leverage is like a fisherman without a fishing pole. In other words, without the proper tools, a professional is left unable to capitalize on a given opportunity. As a result, a day trader will always consider how much leverage or risk he or she is willing to take on before transacting in any trade. Similarly, a swing trader may also think about his or her risk parameters. Although their positions are sometimes meant for longer term fluctuations, in some situations, the swing trader will have to feel some pain before making any gain on a position. In the example below (Figure 3), notice how there are several points in the downtrend where a swing trader could have capitalized on the Australian dollar/U.S. dollar currency pair. Adding the slow stochastic oscillator, a swing strategy would have attempted to enter into the market at points surrounding each golden cross. However, over the span of two to three days, the trader would have had to withstand some losses before the actual market turn could be called correctly. Magnify these losses with leverage and the final profit/loss would be disastrous without proper risk assessment. (For more insight, see Forex Leverage: A Double-Edged Sword.)

Figure 3

Source: FX Trek Intellicharts

Different Currency Pairs
In addition to leverage, currency pair volatility should also be considered. It's one thing to know how much you may potentially lose per trade, but it's just as important to know how fast your trade can lose. As a result, different time frames will call for different currency pairs. Knowing that the British pound/Japanese yen currency cross sometimes fluctuates 100 pips in an hour may be a great challenge for day traders, but it may not make sense for the swing trader who is trying to take advantage of a change in market direction. For this reason alone, swing traders will want to follow more widely recognized G7 major pairs as they tend to be more liquid than emerging market and cross currencies. For example, the euro/U.S. dollar is preferred over the Australian dollar/Japanese yen for this reason.

News Releases
Finally, traders in all three categories must always be aware of both unscheduled and scheduled news releases and how they affect the market. Whether these releases are economic announcements, central bank press conferences or the occasional surprise rate decision, traders in all three categories will have individual adjustments to make. (For more information, see Trading On News Releases.)

Short-term traders will tend to be the most affected, as losses can be exacerbated while swing trader directional bias will be corrupted. To this effect, some in the market will prefer the comfort of being a position trader. With a longer term perspective, and hopefully a more comprehensive portfolio, the position trader is somewhat filtered by these occurrences as they have already anticipated the temporary price disruption. As long as price continues to conform to the longer term view, position traders are rather shielded as they look ahead to their benchmark targets. A great example of this can be seen on the first Friday of every month in the U.S. non-farm payrolls report. Although short-term players have to deal with choppy and rather volatile trading following each release, the longer-term position player remains relatively sheltered as long as the longer term bias remains unchanged. (For more insight, see What impact does a higher non-farm payroll have on the forex market?)

Figure 4

Source: FX Trek Intellicharts

Which Time Frame Is Right?
Which time frame is right really depends on the trader. Do you thrive in volatile currency pairs? Or do you have other commitments and prefer the sheltered, long-term profitability of a position trade? Fortunately, you don't have to be pigeon-holed into one category. Let's take a look at how different time frames can be combined to produce a profitable market position.

Like a Position Trader
As a position trader, the first thing to analyze is the economy - in this case, in the U.K. Let's assume that given global conditions, the U.K.'s economy will continue to show weakness in line with other countries. Manufacturing is on the downtrend with industrial production as consumer sentiment and spending continue to tick lower. Worsening the situation has been the fact that policymakers continue to use benchmark interest rates to boost liquidity and consumption, which causes the currency to sell off because lower interest rates mean cheaper money. Technically, the longer term picture also looks distressing against the U.S. dollar. Figure 5 shows two death crosses in our oscillators, combined with significant resistance that has already been tested and failed to offer a bearish signal.

Figure 5

Source: FX Trek Intellicharts

Like a Day Trader
After we establish the long-term trend, which in this case would be a continued deleveraging, or sell off, of the British pound, we isolate intraday opportunities that give us the ability to sell into this trend through simple technical analysis (support and resistance). A good strategy for this would be to look for great short opportunities at the London open after the price action has ranged from the Asian session. (For more, see Measuring And Managing Investment Risk.)

Although too easy to believe, this process is widely overlooked for more complex strategies. Traders tend to analyze the longer term picture without assessing their risk when entering into the market, thus taking on more losses than they should. Bringing the action to the short-term charts helps us to see not only what is happening, but also to minimize longer and unnecessary drawdowns.

The Bottom Line
Timeframes are extremely important to any trader. Whether you're a day, swing, or even position trader, time frames are always a critical consideration in an individual's strategy and its implementation. Given its considerations and precautions, the knowledge of time in trading and execution can help every novice trader head toward greatness.

The Myth Of Profit/Loss Ratios

2009-06-21T11:28:00.000-07:00

by Grace Cheng,See Grace's Forex blog at www.gracecheng.com

When trading the forex market or other markets, we are often told of a common money management strategy that requires that the average profit be more than the average loss per trade. It's easy to assume that something that has been so widely advised must be a good thing. However, if we take a deeper look at the relationship between profit and loss, it is clear that the "old," commonly-held ideas may need to be adjusted.

Profit/Loss Ratio
A profit/loss ratio refers to the size of the average profit compared to the size of the average loss per trade. For example, if your expected profit is $900 and your expected loss is $300 for a particular trade, your profit/loss ratio is 3:1 - which is $900 divided by $300.

Many trading books and "gurus" advocate a profit/loss ratio of at least 2:1 or 3:1, which means that for every $200 or $300 you make per trade, your potential loss should be capped at $100. (For related reading, see Limiting Losses.)

At first glance, most people would agree with this recommendation. After all, shouldn't any potential loss be kept as small as possible and any potential profit be as much as possible? The answer is: not always. In fact, this common piece of advice can be misleading, and can cause harm to your trading account.

The blanket advice of having a profit/loss ratio of at least 2:1 or 3:1 per trade is over-simplistic because it does not take into account the practical realities of the forex market (or any other markets), the individual's trading style and the individual's average profitability per trade (APPT) factor, which is also referred to as statistical expectancy.

APPT is Key to Profitability
Average profitability per trade basically refers to the average amount you can expect to win or lose per trade. Most people are so focused on either balancing their profit/loss ratios or on the accuracy of their trading approach that they are unaware that a bigger picture exists: Your trading performance depends largely on your APPT.

This is the formula for average profitability per trade:

Average Profitability Per Trade = (Probability of Win x Average Win) - (Probability of Loss x Average Loss)

Let's explore the APPT of the following hypothetical scenarios:

Scenario A:
Let's say that out of 10 trades you place, you profit on three of them and you realize a loss on seven. Your probability of a win is thus 30% or 0.3, while your probability of loss is 70% or 0.7. Your average winning trade makes $600 and your average loss is $300.

In this scenario, the APPT is:

(0.3 x $600) – (0.7 x $300) = - $30

As you can see, the APPT is a negative number, meaning that for every trade you place, you are likely to lose $30. That's a losing proposition!

Even though the profit/loss ratio is 2:1, this trading approach produces winning trades only 30% of the time, which negates the supposed benefit of having a 2:1 profit/loss ratio. (For related reading, see The Importance Of A Profit/Loss Plan.)

Scenario B:
Now let's explore the APPT of a trading approach that has a profit/loss ratio of 1:3, but has more winning trades than losing ones. Let's say out of the 10 trades you place, you make profit on eight of them, and you realize a loss on two trades.

Here is the APPT:

(0.8 x $100) – (0.2 x $300) = $20

In this case, even though this trading approach has a profit/loss ratio of 1:3, the APPT is positive, which means you can be profitable over time.

Many Ways of Becoming Profitable
When trading the forex market, there is no one-size-fits-all money management or trading approach. Traditional advice, such as making sure your profit is more than your loss per absolute trade, does not have much substantial value in the real trading world unless you have a high probability of realizing a winning trade. What matters is that your APPT comes up positive and that your overall profits are more than your overall losses.

For more forex money management tips, see Money Management Matters.
by Grace Cheng (Contact Author | Biography)

Grace Cheng is a forex trader, creator of the PowerFX Course and author of "7 Winning Strategies for Trading Forex" (2007, Harriman House). This revealing book explains how traders can use various market conditions to their advantage by tailoring a strategy to suit each one. The book is a perfect complement to the PowerFX Course. The PowerFX Course, designed for both new and current traders, teaches tools and trading approaches that combine technicals, fundamentals and the psychology of trading forex. It also includes Grace's proprietary tips and tricks. Grace's works have been published in The Trader's Journal, Technical Analysis of Stocks & Commodities, Smart Investor and other leading trading/investment publications.

Visit her popular forex blog at www.GraceCheng.com.

Why A Dummy Account Is the Forex Traders Best Friend

2009-06-17T11:27:00.000-07:00

To succeed as a Forex trader you will find the use of a dummy account invaluable.

Just like any other investments, you should never start investing in currencies without knowing what you are doing. With a good knowledge of Forex trading, you will be confident that you are on the right road to making some good profits.

As you probably already know, Forex stands for foreign exchange or the simultaneous exchange of a pair of foreign currency to another pair of foreign currency.

Initially you will need to gain knowledge of the Forex market background.
It is important to you find out about the market changes that affect currencies so that you can make the best decisions.

Next you will need to study risk control. It is important that you understand the risks involved in Forex trading. You need not to over invest or be overconfident at the thrill of opportunity of making huge money. Also on this part, you will learn how you will cut potential losses or getting out of a deal before your losses reach and even exceed your limits. It is natural that you will lose money when you start Forex trading. It is the most crucial part of your Forex trading education because it will determine whether you will end up making your way to riches or lose a lot of your money.

One of the best ways to start is to practice Forex transactions using a demo account and virtual money.

Through this way, you will be able to get the grip of your trading account before getting into real trading transactions.

With a Forex demo account, there is no risk involved yet the nature is just as realistic as the real Forex trade. Moreover, your Forex trading education will also let you know whether you are ready to do the real thing or you need more practice. Only then will you be able to start and manage a real Forex trading account.

There are different free sites that allow you to open free Forex demo accounts and download free software to practice your Forex system and trading. There are also free e-books where you can read essential information about the Forex market and its attributes.

It is a good idea to use a dummy account and gain experience from Forex forums until
you are confident that you have a reasonable chance of success.

Free Forex Software For You To Use: Download Free Forex Software

Start Part Time Forex Trading

2009-06-11T11:25:00.000-07:00

Forex trading is one of the most viable options for someone who''s looking at bigger possibilities, bigger profit and greater ease in trading and business. Because of it''s high liquidity and speedy transactions, forex trading is becoming a popular game among players in the field of business and marketing. While it''s traditionally for companies and corporations with big capital and experience in the field, it has also proven itself to be a good venture for a neophyte though what one calls a Mini Forex account or mini forex trading.

Mini Forex Basics

Mini Forex trading is good for people who have just started in the forex market and with not enough funds to open a regular account. It requires a smaller capital compared to regular forex accounts, a minimum of $300. With mini forex trading, you can control a $10,000 currency position.

The key here is leverage. Because of leverage, a trader can trade in a commodity more than the money available in his account. Say with a $250 deposit, one could trade a maximum of 5 mini lots. This kind of leverage is greater than stocks or day trading. Of course, it is recommended to start with a manageable leverage that allows greater flexibility in transactions.

What are the perks of mini forex trading? With just a small stake involved, you get to enjoy free trading platform and benefits that regular forex traders get to enjoy. These would include state-of-the art trading software, charts and resources. With a leverage of 200:1, the trader can trade in a commodity regardless of the amount of money available to him.

Mini forex trading also allows for lesser losses as the contract size is only 1/10th the size of a standard forex account. There is also greater flexibility with regards to customizing trades and minimizing risks. Ideal for those with smaller capital, the trader has a chance of investing in more areas of the market with lesser risk as there is lesser capital to be lost. He need not be hesitant with his transactions as there is lesser capital involved.

With the same freedom enjoyed by regular forex traders, a mini forex trader can trade as many lots as he likes. Although the standard trade size is 10,000 units, you are free to trade as much as 50,000 units or more. In this way, the trader also builds up his confidence in his trading skills at the same time slowly increase his profit and trading position in the market. He gets to manage his money before going for the higher stakes in regular forex trading.

The trader likewise gets to develop a sound trading strategy without getting too emotionally involved in possible losses and profit. For practice, a newbie in forex trading can practice through paper trading. But in the real market, he can start small with mini forex trading. There is lesser capital involved and the practice builds up the trader''s trading gameplan for future explorations in regular, higher stakes forex trading.

An Example

On a regular account, a 25-pip stop loss is equal to a loss of $250. Since a mini forex account is just 1/10th of the standard forex account, this is amounting to $25 only. If you trade in units of 10,000, the trader is given more flexibility in terms of customizing his trades and lessening the risks of loss.

They say that business is for the risk-taker. But if you''re just starting out, it''s wise to be cautious and think about your moves. In the world of foreign trading, mini forex accounts provide the wisest and best option especially for a neophyte. It requires lesser capital, lesser emotional investment, and slowly builds up your skills and confidence as a trader. In a way, it''s a way to prepare the trader for the higher stakes in the more advanced world of foreign trading.

Remember using good Forex software will help you save time.

Free Forex Software For You To Use: Download Free Forex Software

Forex Trading Strategy: Channel Breakout

2009-06-07T11:06:00.000-07:00

Forex Trading Strategy: Channel Breakout The Forex market, which is the largest exchange in the world, capitalizes upon certain trends to yield its traders profit. A popular Forex trading strategy used in profitable Forex trading is commonly referred to as a channel breakout.

Channels in Forex Trading - Channels are lines that are created on a chart to show the range in which a currency has been trading over a certain amount of time. They are extremely easy to produce. By looking at the chart over a time period, you simply draw a line connecting the relative high point trading prices, and another line below it connecting the relative low point trading prices. What you've done is produced a visualization of the trading range that has been occurring over the time period in question, for example six months.

Channel Breakout - When the price of a currency rises above the top channel line, this is an upwards channel break. Conversely, if the price of currency falls below the bottom channel line, this is a down side channel break. Channel breakouts can and do occur on the upside and downside. Through proper Forex training in technical analysis, anyone can use this method to develop a successful currency trading strategy.

It is important to construct the channels properly, as not every crossing of the lines becomes a true breakout. If the channel lines are made improperly, you often see trading outside of this range only to come back inside. That's why it is very important before anyone starts Forex trading to complete a thorough Forex education

Managing Forex Channels Profitably - Once you get the knack of channels, you can start making significant profits. The important thing is to structure your trades with proper stops so that if you do get a false breakout signal, you have an acceptable loss or even perhaps a minimal gain. You'll find that if you're on the right side of a true channel breakout, any of the small losses that you've accumulated will be rapidly wiped out, and you will be sitting on a nice large profit.

Every serious Forex trading investor uses channel breakouts. If you are considering taking part in investing in currency markets, you should take the time to get some Forex training in this strategy and other technical analysis techniques, which will develop the currency strategies that produce successful results. Without putting time and effort on your part to fully understand the risks and rewards that any Forex trading strategy entails, you will not be able to achieve the results that you desire. Indeed, your profit is in your hands.

About the Author:

Andrew Daigle is the creator and author of many successful websites including ForexBoost at http://www.ForexBoost.com and http://www.CashCurve.com for learning profitable online home business opportunities.

The Best Forex Strategy for Consistent Profits

2009-06-02T11:02:00.000-07:00

Some traders prefer the monthly, weekly or daily trade forex strategy. Others consider that the best forex strategy is the intraday trading, and probably none of them is the absolute best.

In reality, there can be profits in any forex strategy as long as you are well aware of the market movers and signals at any given time, and you have a clear understanding of all the elements that support your forex strategy.

Some traders base their forex strategy in long term investments (monthly or weekly positions), while others will build their forex strategy around daily or intradaily positions that might be open no longer than a few hours or even minutes (this traders are known as scalpers).

A long term forex strategy will probably earn you 100 or 200 pips in one trade, but that is probably all you will gain within a month or a week if your forex strategy gravitates around monthly or weekly positions, But on the other hand, a well carried scalping forex strategy can deliver many little 10 or 20 pip trades during a day, meaning that maybe you can total anything between 80 to 160 pips in one day using this forex strategy.

The intraday forex strategy benefits from the fact that the forex market, whether moving up or down within any particular currency pair, will always make small fluctuations that you can profit from using an intraday forex strategy.

Which forex strategy is best for you will depend greatly on your personal investment and risk management style, and also on how much time you can dedicate during the day in order to follow the market trends and spot the right entry points for a profitable trade.

I prefer the intraday forex strategy because of its profitability and because frankly I have some time to spare, but mostly because I have the assistance of a software I discovered a while ago, which places trades by itself based on the market trends occurring both during the day an during the night.

So even when if am not in front of my pc, I can go on trading all day and all night, profiting from of every little window of opportunity to scalp a few pips out of the market. With this approach, my intraday forex strategy delivers about 120 pips daily, which in my particular case means I earn about $3,000 per month with a 5,000 investment.

So the intraday forex strategy can indeed be the most profitable one, but it will demand that you stay very attentive at what is going on within the market on a minute by minute basis, unless of course you have a software that stays on guard while you are busy with your job or anything else that might keep you from continuously analyzing the market trends.

If you are wondering about the software I use to help me with my intraday forex strategy, I will only tell you that it does work and that its called the FAPS.

About the Author

Martina

Successful Forex Day Trading Strategies

2009-05-29T10:59:00.000-07:00

The majority of Forex Trading Systems that are used by beginner traders are focused towards short term trading strategies, which aim to take small risk and promise to pile up massive profits and regular income. So we will look at how to succeed.

The major challenges that Forex day trader face are the following:

There are millions and millions of individuals will all different views, skills, knowledge, who think very differently so what Forex Trading System can predict reliably what will happen in the next minute, next hour or next day?

Lets be honest not one of them can reliably predict this.

From experience this is simply the silliest way to be trading forex, with all of the differences and variables it is impossible to know what is going to happen in the coming minutes, hours, days, and here is why.

Fact: All volatility in short term time frames is random and you cannot get the odds on your side, you can't win long term it is as simple as that!

Most of the forex day trading strategies, systems that have ever been purchased have ever made any really gains, sometimes random luck will see people profit. Most of them show back tests of the past, this is easy to show positive as you already know the outcome and can adjust the test accordingly.

Most of the systems are just incredibly brilliant sales pitches that work on peoples greed, and create a good story like Mary Poppins.

All is not lost you can win Best Forex Broker, but it is not as simple as turning on computer and putting in a program, it does take some skill and knowledge. You need to get the odds stacked in your favor and one strategy to be able to do this is through swing trading or long term trend following. Remember trend is your friend, so if you follow your system it can mean big profits if you have a great forex system and have the knowledge to be able to do it.

Do not make the mistake of day trading or forex scalping, get the right Forex education and trade long term and you can soon be enjoying currency trading success to get more Free Education feel free to visit the CFD FX REPORT they can provide you with valuable education lessons and help you find the Best Forex Broker in the Market.

Happy Trading

About the Author

The CFD FX REPORT is a real time trading tool that offers clients free trading reports, with trading ideas, stock market and forex market education as well helping them with. Also if you are looking for a Forex Broker, then feel free to visit our broker section as we recently reviewed all the forex brokers and have found the best on the market.

Forex Market Education - Simple and Effective Strategies

2009-05-25T10:58:00.000-07:00

Starting out in the Forex world of trading can be quiet daunting. So we have put together some of the most powerful strategies to help your forex trading.

So you are serious about profiting in forex trading, then you need to watch forex trends which are short term.

Here we are going to give you a 3 step simple method which if you use it correctly, will help you catch every superior forex trend and lead you to long-term term currency dealing success.

New and inexperienced traders don't try to follow the trend for forex lengthier term - instead they try forex scalping or day trading hoping to grab short term profit. These methods focus the trader on small moves and they hope to catch small profit however as most short term moves are random, this leads to equity eliminate.

Also make sure you are using the Best Forex Broker

The other alternatives are swing trading and long term forex trend following and this article is all about the latter method. If you look at any forex chart, you will see long-term term trends that last for months or years. These moves can and do yield serious profit - present we will outline a simple method to get them.

Breakouts

By far the best way of catching the serious moves is to use a forex dealing strategy based around breakouts. A breakout is simply a move on a forex chart where a new high or low is made and resistance or support is broken.

It's a fact that most leading moves start from new highs or lows.

While it might appear that you are not buying or selling at the greatest level, you are in terms of the odds of the trend continuing. Most forex traders make the mistake of waiting for the breakout to come back and get in at a better price but these traders never get on board. The grounds for this is if a breakout occurs, then you have a new strong trend and a pullback is not very likely to occur.

Most traders don't buy or sell breakouts and that's exactly why it's such a powerful method.

The only point to keep in mind is a support or resistance which is ruined, should be valid and that means at least 3 points in at least 2 different times frames. The more tests and the greater the spacing between the tests the more valid the level is.

Confirmation

Of course not every breakout keeps and some reverse, these are false and can cause losses. You therefore need to confirm each move. All you need to do to achieve this is to put a few momentum indicators in your forex trading system to confirm your dealing signal.

These indicators give you an estimation of the strength and velocity of price and there are many to choose from. We don't have time to discuss them here (simply look up our other articles) but two of the greatest are - the stochastic and Relative Strength Index RSI

Stops and Targets

Stop points are easy with breakouts - Simply behind the breakout point.

If you have a serious trend then you need to be careful you can milk it, so don't move your stop to soon and keep it outside of normal volatility. If it is a huge move, trailing stops should be held a long-term way back and the 40 day moving average is a good level to use.

You have to keep in mind that when the trend does eventually turn you are going to give some profit back. You don't know when the trend is going to end, so don't predict.

It's ok to give a serious back, as that's the nature of trading forex. Keep in mind if you got 50% of all leading trend you would be very rich. When you are long-term term trend following you have accept giving a bit back and taking dips in open equity as the trend develops - this is noise and does not affect the long term trend.

The above is a simple way to trend watch forex and catch the high odds moves that yield the serious profit. If you are learning forex dealing and want a simple method that is robust and will help you get every major move, then you should base your dealing on the above method.

Now that you have all the winning strategies, you now need to have a winning broker, recently the CFD FX Report has reviewed these brokers and have come up with Best Forex Broker to find out this visit the website or email us support@cfdfxreport.com

About the Author

Why "Follow-Through" Is Imperative For Your Market Position

2009-05-21T10:57:00.000-07:00

Endurance is counted as a high merit in great accomplishments, especially in forex market. Great men frequently advise to be consistent in big changes of market tendencies and "Follow Through" in breakthroughs.

If you have made a price change one day and you get success out of it then you should continue your endeavors in the same route in coming days and this trading movement is called the "Follow Through".

But this kind of breakthrough is not that much simple. Market does not accept big changes frequently. It goes back over those trends present previously in the trade and at the end of the day when all is going to end, forex prices repeat the same trend seen some days before.

Nobody is a faultless and ideal merchant. All the brokers and traders constantly discover a lot about the trading and aim not to repeat their past mistakes and blunders. I can give you many instances about my learning and it all happens when you don't show patience and consistency. When you don't wait and take a great step thinking it would be a huge success, but it is not all what we think.

I was planning about the corn market and had a keen eye on it for a long time. I was waiting and hanging around for the market to show a big change in a persistent downside trend of the prices and counteract it. One day there appeared a little upside move in the corn price but was not near to counteract it. I was out of my workplace for coming days and was unable to meet my broker or the info about the rates. I made a call to my dealer and ordered corn for a buy-stop at a price which was much higher than the downside trend. It did so because I thought if it worked, it would be a very tough change in the price to counteract the constant downside trend and it will indicate an uphill breakthrough in the every day price bar map. That day I had some jinx and blip in my mind which was disapproving my decision and asking me to take time and "follow through" the price tendency to make the price break sure. Next morning the corn's price inclination was high enough to strike my end and made me "in" the market. But it was not for a long time. Corn rates again overturned and threw my corn prices out soon.

The perception after observation is always true. But this mistake taught me the significance of patience and consistency to give the market enough time to indicate follow through movement to make a prospective trading arrangement sure. But a dealer also has some risk of absence and getting advantage of a big price change if he keeps on waiting. But it is more sensible to be cautious and wait for the market to verify the follow through movements in the coming days.

Sometimes market shows a relaxing session in the price movement and then verifies the great changes in the coming days. But mostly the follow through movement is going to come in the next session if expected.

About the Author

ForexCycle.com provides free forex market technical analysis, forex forecast, forex trading courses and trading strategies.

Trend Following Forex - 3 Simple Steps to Catching Big Profits

2009-05-17T10:56:00.000-07:00

If you want to catch the big profits in forex trading you need to trend follow forex trends which are longer term. Here we are going to give you a 3 step simple method which if you use it correctly, will help you catch every major forex trend and lead you to long term currency trading success.

Most novice traders don't bother trying to trend following forex longer term - instead they try forex scalping or day trading. These methods focus the trader on small moves and they hope to catch small profits however as most short term moves are random, this leads to equity wipe out.

The other choices are swing trading and long term forex trend following and this article is all about the latter method. If you look at any forex chart, you will see long term trends that last for months or years. These moves can and do yield big profits - here we will outline a simple method to catch them.

Breakouts

By far the best way of catching the big moves is to use a forex trading strategy based around breakouts. A breakout is simply a move on a forex chart where a new high or low is made and resistance or support is broken.

It's a fact that most major moves start from new highs or lows.

While it might appear that you are not buying or selling at the best level, you are in terms of the odds of the trend continuing. Most forex traders make the mistake of waiting for the breakout to come back and get in at a better price but these traders never get on board. The reason for this is if a breakout occurs, then you have a new strong trend and a pullback is not very likely to occur.

Most traders don't buy or sell breakouts and that's exactly why it's such a powerful method.

The only point to keep in mind is a support or resistance which is broken, should be valid and that means at least 3 points in at least 2 different times frames. The more tests and the wider the spacing between the tests the more valid the level is.

Confirmation

Of course not every breakout continues and some reverse, these are false and can cause losses. You therefore need to confirm each move. All you need to do to achieve this is to put a few momentum indicators in your forex trading system to confirm your trading signal.

These indicators give you an idea of the strength and velocity of price and there are many to choose from. We don't have time to discuss them here (simply look up our other articles) but two of the best are - the stochastic and Relative Strength Index RSI

Stops and Targets

Stop levels are easy with breakouts - Simply behind the breakout point.

If you have a big trend then you need to be careful you can milk it, so don't move your stop to soon and keep it outside of normal volatility. If it is a big move, trailing stops should be held a long way back and the 40 day moving average is a good level to use.

You have to keep in mind that when the trend does eventually turn you are going to give some profit back. You don't know when the trend is going to end, so don't predict.

It's ok to give a big back, as that's the nature of trading forex. Keep in mind if you got 50% of every major trend you would be very rich. When you are long term trend following you have accept giving a bit back and taking dips in open equity as the trend develops - this is noise and does not affect the long term trend.

The above is a simple way to trend follow forex and catch the high odds moves that yield the big profits. If you are learning forex trading and want a simple method that is robust and will help you catch every major move, then you should base your Trading on the above method.

About the Author

Get free essential trading Pdf's on catching the big profits from the big moves and a Best Forex Trading system visit our website at: http://www.forextrendfollowing.com

Forex Profits by buying and selling at the same time?

2009-05-13T10:53:00.000-07:00

This article is one of a series which looks at the advantages and weaknesses of trading using the hedged, grid trading system to trade volatile markets.

We will look at how money can be made by breaking a number of trading truths or principles; * cut your losses and let your profit run and * there is nothing to gained by entering into buy and sell deals at the same time.

The hedged grid trading system uses the principle that one should be able to cash in at a gain no matter which way the market moves. No stops are therefore required at all. The only way this is logically possible is that one would have a buy and sell active at the same time. Most traders will say that that is trading suicide but let's take some to look at this more closely.

Let's say that a trader enters the market with a buy and sell active when a currency is at a level of say 100. The price then moves to 200. The buy will then be positive by 100 and the sell will be negative by 100. At this point we start breaking trading rules. We cash in our positive buy and the gain of 100 goes to our account. The sell is now carrying a loss of -100.

The grid system requires one to make sure that cash in on any movement in the market. To do this one would again enter into a buy and a sell transaction. Now, for convenience, let's assume that the price moves back to level 100.

The second sell has now gone positive by 100 and the second buy is carrying a loss of -100. According to the rules one would cash the sell in and another 100 will be added to your account. That brings the total cashed in at this point to 200.

Now the first sell that remained active has moved from level 200 where it was -100 to level 100 where it is now breaking even.

The 4 transactions added together now magically show a gain:- 1st buy cashed in +100, 2nd sell cashed in +100, 1st sell now breaking even and the 2nd buy is -100. This gives an overall a gain of 100 in total. We can liquidate all the transactions and have some champagne.

There are many, many other market movements that turn this strange buy and sell at the same time� activity into gains. These will be covered in future articles and are covered in a free grid trading course which is available at the expert-4x.com website for those traders whose curiosity has been aroused.

There will be more on the hedged grid trading articles to be issued regularly. Please watch Forex Article Collection for future articles.

About the Author

Mary McArthur is a Trader associated with expert-4x.com. She provides the main input into the page rated Forex Trading Blog forextradeoftheday.com and assists with the educational and trading alert services provided by forextradersupportservices.com. She is considered an expert of the hedged grid system and has co authored a free grid trading course on expert4x.com

THE Secret Weapon For Gaining Wealth

2009-05-07T09:44:00.000-07:00

by: Juanita Bellavance

Copyright 2008 Juanita Bellavance

Recently a friend of mine was talking about all the opportunities that seem to come her way without her even searching for them. For example, someone tells her about a house she can buy as a rental property investment. Next thing you know, someone else tells her about another one. Then, she’s at a spa one day talking to the spa owner and now she’s investing in owning a spa.

What is it that causes such things to happen to one person and not another?
I asked her what the secret was. Can you believe it? The secret was so simple. It was GIVING.

Think about times in your life when you have been in your greatest flow of positive energy. During those times I bet you will remember that you were in a very generous state of mind, giving freely in various aspects.

I once read a Proverb that said, “If you want friends, show yourself friendly.” I now know that the reciprocal effect of everything is the same. If you want money, give money, if you want love, give love, and so on.

The other day, I gave money to an organization when I really didn’t feel like I could afford it. Because I had not used up my 10% tithe amount for the month, I decided I had better keep my financial integrity in tact and give the money. It’s unbelievable in a way, but the next thing I knew I had a check in the mail from previous work I had done and forgotten that I had not been paid. I got a new client in my life coaching business, who called me from having seen some of my work. And, I was able to get into a training program I wanted as a result of the other person’s generosity!

Here is something that may catch your attention. Jennifer is a newly graduated college student who has a heart for health organizations. She joined the Team In Training efforts of the Leukemia and Lymphoma Foundation and is training to run the marathon in San Francisco this year.

What will she get in return?

Some of what she will get is:
Physical fitness.
Encouragement and support from family and friends.
Admiration from people who can imagine how hard that training is.
Fabulous training she can carry with her throughout her life.
Warmth from knowing she has honored a person who is living with and battling Leukemia
More than we can imagine right now.

What will you get in return for going to Jennifer’s Team In Training link http://www.active.com/donations/fundraise_public.cfm?key=tntgaJFedero and giving toward the cause? I don’t know. What I do know is you will be richly rewarded in some unexpected way.

If you want friends, give friendship; if you want love, give love; if you want money, give money.

About the author:
Juanita Bellavance, the author of this article is known for understanding what a client needs to succeed. She can look at what’s missing and lead a client into seeing for themselves their own power over it. Because of this realization of their power, people have a shift in belief level. And that shift ignites them into action! Visit Juanita at: Contact her at: results@assuredsuccesslifecoach.com

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Forex News Trading Tip: How To Trade The FOMC

2009-05-04T10:52:00.000-07:00

The Federal Open Market Committee (FOMC) decision on interest rates is one of the most powerful market movers in the forex market and when the markets move traders trading the news have the opportunity to make money.

The FOMC sets the discount rate or federal funds rate and because interest rates are set higher to induce foreign investment and therefore fight inflation during times of prosperity and lower to increase spending during recessions they are one of the main factors influencing the strength of the dollar.

Economic indicators play a huge role in the forex trading especially for traders who approach the market through fundamental analysis and trade the news. The Federal Open Market Committee (FOMC) interest rate decision is one of the most influential indicators for the US dollar and you can be sure after the news is released there is going to be volatility in the markets and volatility is what traders thrive on.

I have heard many 'traders' say never to trade the news and especially the FOMC. Although the FOMC interest decision is a news event and can fall under the category of through fundamental analysis I am a technician and I believe that charts always price everything in. However I guarantee the market does not know what exactly the Feds comments and decision will be, therefore it is not priced in yet and this will cause the markets to react when they do find out. This is confirmed by the change in price after the decision and the continuation in the days following.

I have been trading the Fed for eight years now and yes I have been burnt in the past and that is exactly how I have come to learn how to trade it properly. The most common pattern to trade the Fed is the whip-saw. But do not be fearful of it, embrace it. Here is how it happens, first there is a large spike one direction (traders come in and follow that direction)followed by a large spike in the opposite direction (those same traders now sell their first position at a loss and reverse their position - this is when I take a position in the direction of the original move)followed by an extended move back in the direction of the original spike (all the emotional trades are left sick to their stomachs) and I am left holding a very nice position setting myself up to capture a larger than average market move.

If this pattern does not play out exactly as outlined I stand on the sidelines and do not trade at all. Because the markets are moving fast in the period following the FOMC interest rate decision I am watching a very short time frame, mainly the one and five minute charts.

About the Author

Jordan Lindsey is a professional trader who's personal forex trading group 'Conquering The Markets' utilizes his forex trading strategies to trade his forex trading systems with sound money management and together work toward helping people all over the world live better lives.

The Stock Trading Plan

2009-04-30T09:43:00.000-07:00

by: Mark Crisp

that discipline contributed more to their success than their trading philosophy itself. Remember that the key to any plan is how well it holds over time.

2. There is no "sure thing", and there is no trading system that is 100% accurate. Your goal, as a trader, is to usethe tools available and try to develop an edge. Base your trades on sound fundamental and technical reasoning,
rather than on hunches and long shots. If you can develop an edge, however small, over time you will be successful.

3. A trader must be able to admit they have made a mistake. Do not become emotionally or financially committed to a losing trade. Avoid the pitfall of becoming emotionally involved with any trade.

4. An investing edge is only part of the equation. A trader should diversify sufficiently so that the growth in equity can be consistent and the likelihood of a catastrophic loss can be diminished. The lower the percentage of a traders' account dedicated to any one trade the greater the chance of the trader being successful.

Even if the trader has a perceived investing edge, it is unwise to run the risk of ruin, and bet it all on one trade. The goal is not only to make money, but also to be able to continue to make money consistently for an
extended period of time. A trader must learn the basic concepts and the importance of money management.

5. Lack of experience in the market causes many traders to make the mistake of taking small profits and letting losses run.

Fundamental trading wisdom dictates the exact opposite. When in a winning trade, be patient and fully capitalize on the success. The trading axiom is, "cut your losses short and let your profits run".

6. A trading system does not have to be difficult, time consuming, complicated and stressful in order to be profitable.

In trading systems, as in many other things in life, simple can be better

7. As a trader, be cautious, and never let greed take control of a winning position.

8. Be aware that declining volume usually indicates the market is not accepting higher or lower prices, and this could indicate a market turn.

9. Learn from your trading mistakes. Never make a trading mistake without asking yourself why.

10. Do not make trading decision based solely on margin requirements, and always trade within your capabilities.

Remain true to your trading plan and follow the trading style that works best for you.

11. Do not trade markets that you don't understand. Trade with confidence and conviction. Trade only with risk capital and be aware of the risk of losing. Divide your capital into 6 equal parts and never risk more than one-tenth of your capital on any one trade.

12. After a long period of success or a period of profitable trades, try to avoid the natural tendency toward increasing your trading activity. Conversely, use self-discipline when a trade goes against your position. Take your loss and wait for another opportunity. Never increase your trading after a loss.

13. Avoid getting into the market because you are anxious from waiting and/or out of the market because you have lost your patience. Never over trade and adhere to your risk management rules

14. Do not make a trading decision to buy just because the price of the stock is low or sell just because the price is high. Never change your position in the market without a good reason that is based on a fundamental or technical rule indicating a change in trend.

15. Trade the most active stocks and refrain from trading the slow moving markets. Trade "at the market" whenever possible and try to avoid a fixed buying and selling price.

16. When the market is moving with your position and you are using a stop loss order, then raise your stop loss so as to lock in your profit. Protect yourself against the possibility of turning a profit into a loss.

17. The "trend is your friend," and never buy and sell if you are insecure of the trend according to your fundamentals and technical rules. If you are in doubt, then exit the market. Only trade when you feel confident with your trading strategies.

18. Trade in five or six different stocks at a time, so as to avoid tying up all of your capital in any single stock.

19. A trader should establish a "surplus account" after a series of successful or winning trades. The goal is to retain the "surplus account" for times of emergency or panic 20. It is difficult to try and guess where the top and bottom of the market is, instead let the market prove its top and bottom.

About the author:
Mark Crisp
The Momentum Stock Trader

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The Very Basics of the Forex Market

2009-04-27T11:17:00.000-07:00

The forex, or foreign exchange, market is a specialized type of market in which types of currency are exchanged for other types of currency. On average, the daily trade within the forex market is more than $1.9 trillion. As the world''s largest financial market, forex involves trading among central banks, large banks, governments, multinational corporations, large banks, and other institutions and markets of a financial nature. Individuals may also participate in the forex market through banks or brokers, though individuals represent only a small fraction of those trading within the market.

The Levels of Forex

Forex is different from the stock market, which provides the same prices to all participants. With forex, the market is actually divided into various levels. The top level is the inter-bank market that consists of the largest banking firms. The spreads of the inter-market usually are not shared with those outside of this exclusive circle. As the spreads work their way down through the levels, the difference between the ask price and the bid actually widens. This is primarily because those within the inter-bank level are capable of guaranteeing larger numbers of transactions and, as such, can demand a better spread.

The level below the inter-bank market is comprised of the smaller investment banks. The next level is made up by multi-national companies that pay employees in various companies as well as some retail forex market makers and large hedge funds.

Forex Trading Characteristics

Within the forex market, there are a number of different rates, or prices, which depend on what is being traded by the market or bank. In addition, there are a number of recognized trading centers within the forex market, with the main centers being in New York, London, Singapore, and Tokyo. In addition, a number of banks throughout the world participate in forex training. With so many markets located throughout the world, the market is literally open 24 hours per day. As such, traders can make trades immediately when events occur that can impact the market.

Interested in investing in the forex market? Read our Investment Guide first!

Source http://www.thefreelibrary.com

Online Forex Trading - Beginners Guide

2009-04-27T11:14:00.000-07:00

When it comes to forex trading, understanding the terminology and the forex trading strategies before you begin is vital. There are many web based companies that provide online forex trading tutorials that revolve around real time forex trading. Using a forex tutorial will give you the beginner knowledge you need to take part in trading forex.

After you have completed your forex tutorial there are some basic forex trading tips that all beginners will find useful. The most important thing to remember when trading forex and the most important forex trading strategy is to remember to always place stop loss orders. Using this strategy in your online forex trading will help to prevent and limit your losses.

The next important step for online forex trading is to take profit orders at the same time as placing your stop loss orders. This is done by using the OCO order function that is available with most online forex trading systems. Take profit orders work on the same basis as the stop loss orders and help to eliminate the risk of locking into a profit too early.

Another beginner''s tip is to use a positive risk/reward ratio. This means that you should choose the amount you are willing to make on your forex trade beforehand and it should be more than or equal to the amount that you are willing to loose. This tip is essential if you want to be successful in your forex trading.

It is important for any forex trading beginner to note that successful online forex trading takes patience and is a long term investment. It takes controlled forex trading along with discipline and patience to make your forex trading profitable. Continued research and forex tutorials and guides will help you to learn more and remember as with all successful ventures; knowledge equals power.

We have made the most comprehensive Forex trading strategies research. Find it only on the Online forex trading strategy planet.

Source http://www.thefreelibrary.com

Beginner Forex Trading Tips

2009-04-27T11:11:00.000-07:00

Forex trading, often called "FX," is the practice of trading currencies for profit A forex trader buys one currency and simultaneously sells another, hoping to realize a profit from any variance in valuation between the two currencies

Forex trading, often called "FX," is the practice of trading currencies for profit. A forex trader buys one currency and simultaneously sells another, hoping to realize a profit from any variance in valuation between the two currencies. Because currencies are the largest market in the world, there are many opportunities to profit. So, how do you learn to trade currencies? Fortunately, there are many excellent free resources that can help you learn forex trading online.

Learning To Trade Currencies Online

In the past, if you wanted to trade currencies, you were forced to buy expensive courses, attend high-priced seminars that often required traveling to other states and purchasing cost-prohibitive computer programs that allowed you to tap into the trading activities of more experienced traders.

Today, all of that has changed. You can learn forex trading from the comfort of your home without spending outrageous amounts of money on courses and seminars. There are several resources online that will not only teach you the fundamentals of trading currencies, but will share basic, intermediate and advanced strategies of trading while showing graphical examples of such strategies to ensure clarity. Further, this information is often offered free.

Watching Other Forex Traders

Many websites that offer free tips and even entire courses on forex trading principles and techniques are run by experienced currency traders. These are men and women who often have years of trading experience and can offer their insights regarding the best forex trading techniques to use in various markets. Some of these experienced traders even conduct free online workshops which allow you to virtually look over their shoulder and watch as they trade in particular markets. Watching these advanced traders is one of the best ways to learn real trading techniques that work in today's currency markets.

Preparing To Trade Currencies Live

Learning in a classroom setting is not the same as conducting live trades. Once you learn the basics of forex trading strategy, you should prepare to do a few live trades. After watching over the shoulders of experienced traders, you should have a good feel of what to expect. Part of learning how to trade currencies involves knowing what signals to watch for in your particular market and staying on top of those signals. If you know these things, you are likely ready to trade forex live.

How To Get Started Trading Forex Online

You only need a few things to begin conducting live currency trades. First, you obviously need a computer with access to the Internet. Second, you need access to an information source that can provide you with real-time signals so you can keep on top of your market. Third, you need a small amount of cash to begin trading. Lastly, you need calm nerves. Though forex trading is potentially very profitable, some people do lose money.

Once you have decided to learn forex trading online, you need to begin learning the basic strategies of trading currencies. After you have mastered the basics, begin learning some of the advanced techniques of forex trading. You can often access this type of information for free online along with clear examples that will help you understand the currency markets. Remember, although there is a high potential for profit, there are significant risks to trading currencies.

Try to learn from the best traders in the world by attending online forex trading workshops. After doing the above, you will likely be ready to start making your first few trades live.

For more Forex Trading information please visit Forex Trading Tips - The Forex Trading website that provides currency trading advice and tips to Beginner Forex Traders.

Source http://www.thefreelibrary.com

Forex Training: What to Look for in a Forex Training Program

2009-04-25T09:41:00.000-07:00

by: Raul Lopez

Should new Forex traders take Forex trading courses or join a Forex training program? Definitely yes; by now you have probably heard that only 5% of traders achieve consistent profitable results when trading the Forex market. The main reason for this is the lack of education. Don’t get me wrong here, taking a Forex training program or a Forex trading course won’t guarantee profitable results, nothing can, but choosing the right Forex training program or Forex trading course will definitely put the odds in your favor.

Before spending any amount of money on any Forex trading course or Forex training program there are some important aspects you need to take in consideration. There are many training programs available, but not every one of them suits the needs of every trader.

The first thing you should be looking in a Forex training program is the content of the material. Unfortunately, most courses or training programs focus or spend most of the time on basic concepts. Though these basic concepts are important, spending most of the course on them won’t help the trader to make consistent results.

The following subjects are what I consider the most important aspects of trading and every training program or trading course should address:

Forex trading basics.
Review basic concepts such as: margin, type of orders, a little background, bid/ask, rollover, etc. You need to make sure you understand every single concept to perfection.

Main drawbacks of Forex traders.
Being aware of the common mistakes made by Forex traders and knowing how to handle them will prevent new traders from making those mistakes.

Technical and fundamental analysis.
These are the two main approaches adopted by Forex traders. Knowing how to properly apply each concept will definitely put the odds in your favor.

The three pillars of Forex trading. I consider that these three subjects have the most impact on every trader trading account.

Forex trading system development.
Having the right system is a must if you want to have consistent profitable results. Having a system that doesn’t fit you will cause a series of problems that will make your trading account vanish away (second guessing the system, not following your system, etc.)

Money management.
This is considered by many successful traders to be the most important single aspect of trading. Money management helps to increase your profits geometrically and at the same time limit your losses (i.e. a good risk reward ratio of about 2:1 will make you money in a Forex trading system that is right only 38% of the time.)

Trading psychology.
Being aware and knowing hot to handle the psychological barriers that affect every trader decision will put the odds in your favor.

Other important aspects every training program should include are:
Developing habits for success (such as discipline patience, taking responsibility of every action, commitment, etc.,) understanding and taking our trading as a business, risk and trade management.

Another important aspect you should take into consideration when choosing a Forex training program is the mechanics of it, getting to know how the training program works.

A good course will have the following:

A live conference room, where you can apply everything learned under live market conditions.

One-on-one feedback, every trader has different needs and requires special attention. For instance a trader wanting to improve the system and requires individual feedback from the instructor about it.

Online trading course, a course that could be accessible through internet. A plus is a course where you are able to access the course at the convenient time for you, so you don’t have to change your lifestyle.

A forum, where members can talk just about everything related to the Forex market and the Forex training program.

Trading the Forex market is no easy task. It requires a lot of hard work. Making the right decision will definitely put the odds in your favor. Take your time when doing your diligence because it is a big and important step in a trader’s trading career.

About the author:
Raul Lopez is a full time Forex trader and founder of a high quality Forex training company.

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Forex Trading: The Perfect Forex Trading System

2009-04-19T09:40:00.000-07:00

by: Raul Lopez

Trading the Forex market has became very popular in the last few years. But how difficult is it to achieve success in the Forex trading arena? Or let me rephrase this question, how many traders achieve consistent profitable results trading the Forex market? Unfortunately very few, only 5% of traders achieve this goal. One of the main reasons of this is because Forex traders focus in the wrong information to make their trading decisions and totally forget about the most important factor: Price behavior.

Most Forex trading systems are made off technical indicators (a moving average (MA) crossover, overbought/oversold conditions in an oscillator, etc.) But what are technical indicators? They are just a series of data points plotted in a chart; these points are derived from a mathematical formula applied to the price of any given currency pair. In other words, it is a chart of price plotted in a different way that helps us see other aspects of price.

There is an important implication on this definition of technical indicators. The fact that the readings obtained from them are based on price action. Take for instance a long MA crossover signal, the price has gone up enough to make the short period MA crossover the long period MA generating a long signal. Most traders see it as “the MA crossover made the price go up,” but it happened the other way around, the MA crossover signal occurred because the price went up. Where I’m trying to get here is that at the end, price behavior dictates how an indicator will act, and this should be taken into consideration on any trading decision made.

Trading decisions based on technical indicators without taking price action into consideration will give us less accurate results. For example, again a long signal generated by a MA crossover as the market approaches an important resistance level. If the price suddenly starts to bounce back off that important level there is no point on taking this signal, price action is telling us the market doesn’t want to go up. Most of the time, under this circumstances, the market will continue to fall down, disregarding the MA crossover.

Don’t get me wrong here, technical indicators are a very important aspect of trading. They help us see certain conditions that are otherwise difficult to see by watching pure price action. But when it comes to pull the trigger, price action incorporation into our Forex trading system will definitely put the odds in our favor, it will generate higher probability trades.

So, how to create a perfect Forex trading system?
First of all, you need to make sure your trading system fits your trading personality; otherwise you will find it hard to follow it. Every trader has different needs and goals, thus there is no system that perfectly fits all traders. You need to make your own research on various trading styles and technical indicators until you find a concept that perfectly works for you. Make sure you know the nature of whatever technical indicator used.

Secondly, incorporate price action into your system. So you only take long signals if the price behavior tells you the market wants to go up, and short signals if the market gives you indication that it will go down.

Third, and most importantly, you need to have the discipline to follow your Forex trading system rigorously. Try it first on a demo account, then move on to a small account and finally when feeling comfortably and being consistent profitable apply your system in a regular account.

About the author:
Raul Lopez is a full time Forex trader and founder of a high quality Forex training company.

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Forex Trading System: Mechanical vs. Discretionary Systems

2009-04-11T09:39:00.000-07:00

by: Raul Lopez

There are basically two types of Forex trading systems, mechanical and discretionary systems. The trading signals that come out of mechanical systems are mainly based off technical analysis applied in a systematic way. On the other hand, discretionary systems use experience, intuition or judgment on entries and exits. But which one produces better results? Or more importantly, which one fits better your trading style? These are the answers we will try to answer on this article.

We will first analyze the pros and cons about each system approach.

Mechanical systems

Advantages
This kind of system can be automated and backtested efficiently.
It has very rigid rules. Either, there is a trade or there isn’t.
Mechanical traders are less susceptible to emotions than discretionary traders.

Disadvantages
Most traders backtest Forex trading systems incorrectly. In order to produce accurate results you need tick data.
The Forex market is always changing. The Forex market (and all markets) has a random component. The market conditions may look similar, but they are never the same.
A system that worked successfully the past year doesn’t necessary mean it will work this year.

Discretionary systems

Advantages
Discretionary systems are easily adaptable to new market conditions.
Trading decisions are based on experience. Traders learn to see which trading signals have higher probability of success.

Disadvantages
They cannot be backtested or automated, since there is always a thought decision to be made.
It takes time to develop the experience required to trade successfully and track trades in a discretionary way. At early stages this can be dangerous.

Now, which approach is better for Forex traders? The one that fits better your personality. For instance, if you are a trader that finds it hard to follow your trading signals, then you are better off using a mechanical system, where your judgment won’t play an important role in your system. You only take the trades that your system signals.

If the psychological barriers that affect every trader (fear, greed, anger, etc.) puts you in unwanted scenarios, you are also better off trading mechanical systems, because you only need to follow what your system is telling you, go short, go long, close a trade. No other decision has to be made.

On the other hand, if you are a disciplined trader, then you are better off using a discretionary system, because discretionary systems adapt to the market conditions and you are able to change your trading conditions as the market changes. For instance, you have a target of 60 pips on a long trade. But the market suddenly starts trending up pretty strongly, then you could move your target to say 100 pips.

Does it mean that trading a discretionary system has no rules? This is absolutely incorrect. Trading discretionary systems means that once a trader finds his/her setup, the trader then decides what to do. But every trader still needs certain rules that need to be followed, such as the size of the position, conditions that have to be met before thinking to get in the market, and so on.

I am a discretionary trader. The main reason I chose a discretionary system is that my trades are based on price behavior, and as you already know, the price behaves similar to the past, but it is never identical, therefore the outcome of every trade is unknown. However, I do have rigid rules on my system, certain conditions have to be met before I even think in getting in a trade. This keeps me out of trouble, once my setup is present and in accordance with the rules I have set, I closely watch the price behavior and finally decide whether it is a good opportunity or not.

Whether you choose to be a discretionary or a mechanical trader there are some important points you should take in consideration:

1. You need to make sure the Forex trading system you are using totally fits your personality. Otherwise you will find yourself outguessing your system.
2. You also need to have some rules and most importantly have the discipline to follow them.
3. Take your time to build the perfect system for you. It’s not easy and requires time and hard work, but at the end, if done correctly, it will give you consistent profitable results.
4. Before going live, try it on a demo account or even on a small account (I will go for the second option, since psychological barriers will be present.)

About the author:
Raul Lopez is a full time Forex trader and founder of a high quality Forex training company.

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Forex Trading Online - 7 Reasons You Should

2009-04-04T09:38:00.000-07:00

by: Keith Thompson

Copyright 2008 Keith Thompson

Forex trading online is a fast way to use your investment capital to it's fullest. The Forex markets offer distinct advantages to the small and large traders alike, making Forex currency trading in many ways preferable to other markets such as stocks, options or traditional futures. Here are seven reasons why you'll want to look into Forex Trading online.

1 - Forex is the largest market.
Forex trading volume of more than 1.9 billion, more than 3 times larger than the equities market and more than 5 times bigger than futures, give Forex traders nearly unlimited liquidity and flexibility.

2 - Forex never sleeps!
You can execute forex trading online 24/7, from 7AM New Zealand time on Monday morning, to 5PM New York time on Friday evening. No waiting for markets to open: they're open all night! This makes Forex trading online a very attractive component that fits easily into your day (or night!)

3 - No Bulls or Bears!
Because Forex trading online involves the buying of one currency while simultaneously selling another, you have an equal opportunity for profit no matter which direction the currency is headed. Another advantage is that there are only around 14 pairs of currencies to trade, as opposed to many thousands of stocks, options and futures.

4 - Forex Trading online offers great leverage!
You can make the most of your investment resources with Forex trading online. Some brokers offer 200:1 margin ratios in your trading accounts. Mini-FX accounts, which can typically be opened with only $200-300, offer 0.5% margin, meaning that $50 in trading capital can control a 10,000 unit currency position. This is why people are flocking to Forex trading online as a way to highly leverage their investments.

5 - Forex prices are predictable.
Currency prices, though volatile, tend to create and follow trends, allowing the technically trained Forex trader to spot and take advantage of many entry and exit points.

6 - Forex trading online is commission free!
That's right! No commissions, no exchange fees or any other hidden fees. This is a very transparent market, and you'll find it very easy to research the currencies and the countries involved. Forex brokers make a small percentage of the bid/ask spread, and that's it. No longer any need to compute commissions and fees when executing a trade.

7 - Forex trading online is instant!
The FX market is astoundingly fast! Your orders are executed, filled and confirmed usually within 1-2 seconds. Since this is all done electronically with no humans involved, there is little to slow it down!

Forex trading online can get you where you want to go quicker and more profitably than any other form of trading. Check it out and see what Forex trading online can do for you!

About the author:
Keith Thompson is the webmaster of a site focusing on the latest Forex news and resources.

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Forex Trading: Great Opportunity or Scam?

2009-03-30T09:37:00.000-07:00

by: Steve Pickering

A lot of interest has been generated recently in FOREX trading, hailed by some as the great new investment opportunity. There are even companies running TV infomercials, offering sure fire systems that will bring massive profits in an easy fashion.

So what is forex? Is it something new? The exchange of currencies is said by some to be the world's second oldest profession and as long as there have been two sovereign states that have issued their own currencies, there has been foreign exchange as a facilitator for trade.

Forex, as foreign exchange has been abbreviated to, has been conducted for centuries and has become a global market with a daily turnover according to a recent Bank for International Settlements survey of $1.9 trillion (billion, billion) per day. Essentially it is a global market place with no physical exchange building where all claims on foreign currencies are settled - between governments, corporations, investors and speculators among others. Banks have traditionally been the middlemen who provide the liquidity to this gigantic market, which incidentally is traded on an almost continuous 24-hour basis.

Then came the Internet and suddenly it became possible for everyone to get a piece of the speculative action. Brokers sprouted up with their electronic trading platforms and high 'leverage'. Essentially the brokers lend clients funds to speculate with, 100:1 or in some cases up to 400:1 ratio, or leverage. This means that $10,000 can 'control' up to $4,000,000 in the market. This is far higher than is possible in the stock market.

Many people have been attracted to the possibilities of earning fast profits from forex. There are often sharp movements that can turn your $10,000 to $20,000 in a matter of minutes. You can also get wiped out, but the lure of a fast buck has turned would-be speculators into out-and-out gamblers.
The Internet has also made it possible for the individual to obtain so-called 'charts', that allow them to do 'technical analysis' on their own PCs. The theory is that price movement patterns repeat themselves, so if you have a system of analysis, you can predict a future move in the market.

This may well be the case, but it does not address the problems of the psychology of trading - the fear and greed that drives many to irrational behaviour. People are often taken in by the seller of a system, often paying $5,000 for a piece of software that shows a green light to buy and a red light to sell. However, they don't tell you how to manage your money.

So speculators lose. It has been estimated that 90% of new investors in forex lose their capital in the first year - an appalling figure. What can one do to avoid being a victim? Well, forex is a business like any other business and planning is required. It is also a profession and as such, adequate training is necessary so that you understand fully what forex trading is all about.

Many are prepared to invest thousands in forex trading without really knowing what it is all about. Just think if franchises were offered in a major hamburger chain without the franchisees having a clue how to run a restaurant or even make the burgers. The failure rate would also probably be 90%!
As with all investing, it is all a matter of risk and reward. Investing in Government securities is considered low risk, therefore they carry the lowest return. Increase the risk (the probability of loss on the investment), the higher an investor is rewarded in terms of return. An individual trading forex decides his own level of risk, which should dictate the level of reward. However, in the hands of an inexperienced trader, the two factors are impossible to reconcile, meaning in stark terms that traders cannot control the risk or the reward levels.

People attracted to forex trading often have an unrealistic expectation of what can be earned. To start with an investment of $5,000 and expect to be making $100,000 a year after the first year is unrealistic. It is not impossible; then again, neither is winning the lottery.
If the parameters for trading are laid down and adhered to combined with knowledge of forex trading, success is possible. It does not take much in the way of 'enhanced' returns to be able to double an investment. 26% per annum is required to double your investment within 3 years.

Who is going to teach you? There are some very good courses available, but these will only give you the theory, in itself very important. The ideal way is to have a mentor, or guide to show you the way.
Getting mentored is a wise move because it makes it possible to draw on the experience of a veteran expert and avoid making the common mistakes that cause the unwary to suffer catastrophic losses. After a while under guidance, a forex trader will gain the experience

The bottom line is that forex is not in itself a scam. There are for sure scam artists who prey on individuals' greed as there are in any other business. If it is approached in a sensible and realistic manner and the trader is prepared to work hard, forex can provide a good living both financially and materially.

About the author:
Steve Pickering is founder and owner of Forex Trader Mentor and has been engaged in the forex markets since 1971.

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Forex Trading

2009-03-25T09:36:00.000-07:00

by: Chris Rohrer

The foreign exchange market, also knows as FOREX, originated in 1973 has become the largest e-currency trade market in the world today. FOREX trading occurs 24 hours a day, 5 days a week. The FOREX market offers a unique trading opportunity to those seeking a substantial profit in a market that trades over 1.2 trillion dollars each day.

FOREX market is primarily traded between central banks, commercial banks, non-banking International Corporation, hedge funds, private investors and speculators. Previously small investors were unable to trade in the FOREX market due to the large deposit required. However until recent years, with the continuing growth of the internet and competition, Forex trading has made it so small investors can now open a FOREX trading account with as little as $250.

There are a few factors as to why FOREX investing is starting to attract more small investors. For one, FOREX can be traded 24 hours a day 5 days a week. Previously trades were placed by phone, the internet has made it possible for traders to monitor their FOREX trading accounts from home and execute trades in real time with the click of a mouse button.

In order to start trading in the FOREX market, one must first open an account with a broker. It is recommended to obtain a list of brokers and do some research before deciding on which broker to deal with. Each broker offers different policies and different spreads on each currency that is traded.

Before trading in FOREX, one must first understand the risk and reward behind

margin trading in FOREX. A margined account can be leveraged, which means trading in FOREX can be done with solely cash or a combination of cash and collateral such as a security deposit. The main risk involved in margin trading is that margin trading tends to inflate loss. In addition the rate of loss and leverage makes FOREX a high risk investment. However, regardless of the downside in margin trading, FOREX is still very profitable as huge gains can be made.

There are plenty of resources on the internet that will discuss trading strategies, emotions and what it takes to become a successful trader. Most of these web sites are going to tell you that emotions play the largest roll in your success as a trader.

About the author:
To learn more about the Forex Trading program visit Forex Investing

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Forex Broker Commissions

2009-03-23T09:35:00.000-07:00

by: Eddie Tobey

Most forex brokers do not charge commissions. GFT Forex Brokers, like other forex brokers, are compensated by revenues from their activities as currency dealers, including proceeds from buying, selling, converting and holding currencies, interest on deposited funds, and rollover fees.

Many may wonder how brokers work without commissions. The forex dealer is like a middleman. Let's consider the case of a bread middleman. He buys bread at a “wholesale” price and he sells it at a “retail” price. So if one is a baker, he can ask the middleman how much he would buy his bread for. Let's say the middleman quotes $1, so he's willing to pay $1 per loaf.

On the other side of the equation, let's say you just finished his last slice of bread, and you needs a new loaf. So you call up the local middleman, and ask him how much he's willing to sell you (a customer) a loaf of bread for. And he quotes the baker $1.25. That sounds reasonable, so you tell him to drop one off for you.

In this example, the bread middleman didn't charge you a commission to either the baker or you, the customer. Instead he bought at one price and sold at another. He will let you buy from him at $1.25, and let you sell to him at $1. So every time the baker has bread to sell, he checks the middleman's sell price. And when you want to buy a loaf of bread, you check the buy price.
In trading, this is known as the “bid” and “ask”. The bid is the price you can sell at, and the ask is the price you can buy at.

Considering forex broker commissions, the forex dealer will let the trader buy from him at 1.1971 and will let the trader sell to him at 1.1967. The difference 0.0004 is known as the spread. And this spread is where the forex “middleman” makes his money.

If the trader were to buy at 1.1971, then the instant the trader buys, he is “down” 0.0004, because if the trader wanted out of the trade, the best price he could sell it for is 1.1967. So as the forex dealer takes varying trades from people, each buying or selling, he can make money from this price gap. Each minimum increment, 0.0001 is referred to as a “pip”. So the spread in this example is 4 pips. In terms of dollars, for a forex contract of $100,000, this transaction would cost you $40 ($100,000 x 0.0004) or 4 pips. So the trader will find that some companies will advertise a spread of 3 pips on some currencies, usually ranging up to five on others. In forex trading, the tighter the spread is, the better.

About the author:
Forex Broker Info provides detailed information on forex brokers, forex trading and market makers, and other forex-related topics. Forex Broker Info is the sister site of Incorporating in Florida Web.

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Forex And Daytrading

2009-03-23T09:34:00.000-07:00

by: Frank Hague

Online trading is great way for serious investors to make money, but inexperienced traders often wind up with big losses. A good set of instructions can minimize the risks and save months of expensive trial-and-error learning.

Day Trading

Day Trading had its heyday during the bull market of the 1990's. All the amateurs have since dropped out, but day trading is still being practiced by professionals. There are fewer opportunities in the current market, but skilled investors can still find them if they know what to look for.

FOREX Trading

The Foreign Exchange Market (FOREX), the world's largest financial exchange market, originated in 1973. It has a daily turnover of currency worth more than $1.2 trillion dollars.

Unlike many other securities, FOREX does not trade on a fixed exchange rate; instead, currencies are traded primarily between central banks, commercial banks, various non-banking international corporations, hedge funds, personal investors and not to forget, speculators. Previously, smaller investors were excluded from FOREX due to the huge amount of deposit involved. This was changed in 1995, and now smaller investors can trade alongside the multi-nationals. As a result, the number of traders within the FOREX market has grown rapidly, and many FOREX courses are appearing to help individual traders increase their skills.

As a matter of fact, it's advisable to take FOREX training even before opening a trading account.
It is vital to know the market mechanics of FOREX, leveraging in FOREX, rollovers and the analysis of the FOREX market. Due to this fact, potential FOREX traders would do well to either enroll in a FOREX training courses or even purchase some books regarding FOREX trading.

There are pros and cons to enrolling into a FOREX course. For beginners a FOREX course is a rapid method of learning the basics of FOREX trading. Not much time is spent on history of the market or arcane economic theories. Often, on-line or phone support from a skilled FOREX trader is available to answer any questions. Also, the information is condensed and practical, often with graphs and charts.

The disadvantage is the price, as courses are more expensive than a paperback from the bookstore. Also,
the course may just teach the approach of the trader who wrote it, and individuals have different trading strategies. The student may grow accustomed to the logic and focus of the teacher without coming to realise that nothing is predictable in the FOREX market, and many different strategies will bring profits in varying market circumstances. Also, knowledge of practical applications may not be enough, as the FOREX is highly unpredictable and there are many external factors, such as political issues, affecting the flow of finances in the market.

The best advice would be to do some background research on the FOREX market first, and then enroll in a course.

About the author:
Frank Hague has always been interested in the Stock Market. - - -

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