GBP/USD Weekly Analysis (May 24-28)

A revised version on the GDP and 5 other events will shake the Pound, now at lower ground. Here’s an outlook for the British events and an updated technical analysis for GBP/USD.

GBP/USD chart with support and resistance lines marked. Click to enlarge:



While the political uncertainty didn’t stay too long, the Pound’s situation is still dire. It’s fate cannot be detached from the fate of the Euro. Contagion also reached Britain. OK, let’s start:

1. Adam Posen talks: Starts speaking on Monday at 17:30 GMT. External BOE MPC Member Adam Posen already moved the Pound several times in the past, and he’ll have a chance to do so in his speech early in the week. Any hints about future rate hikes or the situation of the economy are likely to impact trading.


2. Revised GDP: Published on Tuesday at 8:30 GMT. Britain’s economy is still struggling. According to the initial release, Britain grew by only 0.2% in Q1. This was half of early expectations. The second release is expected to show a better picture – a growth rate of 0.3%. Any result will rock the Pound.


3. BBA Mortgage Approvals: Published on Tuesday at 8:30 GMT, and overshadowed by the GDP release. The British Bankers Association covers two thirds of all British mortgages, and releases this housing figure quite early. After losing the highs of 46K, the figure fell under 34K. It’s now expected to recover and rise to 38.3K.


4. CBI Realized Sales: Published on Thursday at 10:00 GMT. 160 retailers and wholesalers are surveyed for CBI’s important indicator. In the past three months, this number was positive, indicators higher sales volume. A small rise from 13 to 14 is predicted this time.


5. GfK Consumer Confidence: Published on Thursday at 23:00 GMT (midnight UK). Consumers’ pessimism worsened last month, with an unexpected drop to -16 points. 2,000 consumers are expected to show a bit less pessimism this time, with a rise to -15 points.


6. Nationwide HPI: Publication time unknown at the moment. Two straight months of rises have proved that the drop seen in January was a one time glitch. The UK’s second earliest house price report always rocks the markets. Another small rise of 0.5% is expected this time.

GBP/USD Technical Analysis

The British Pound reached fresh lows very early in the week, breaking the technical level of 1.44 and bottomed out only at 1.4230. It then recovered and closed at 1.4450.

The Pound’s range is now between 1.44, the previous major support line, and 1.45, which proved to be a new line of resistance. Note that some lines were added on last week’s outlook.

Looking up, the next line of resistance is at 1.4780, which held GBP/USD for several months. This is a strong line. Above, 1.4975 is a minor resistance line, followed by 1.5130, which worked as support just a few weeks ago. It’s followed by 1.5350, which worked as both support and resistance, and by 1.5520 which wasn’t broken in three months.

Looking down, the fresh 2010 low of 1.4230 is the next immediate support. Stronger support is found at 1.4130, which was a support line in April 2009. Further below, 1.38 also stopped the pair at the beginning of 2009, and is the next line of support. The ultimate support line is 1.35, which is the lowest level seen in over 20 years.

I remain bearish on the Pound.

A serious revision in GDP is necessary for the Pound to recover from the recent blows, but the European troubles will probably continue bringing it down.

GBP/USD Weekly Analysis (May 24-28)

A revised version on the GDP and 5 other events will shake the Pound, now at lower ground. Here’s an outlook for the British events and an updated technical analysis for GBP/USD.

GBP/USD chart with support and resistance lines marked. Click to enlarge:



While the political uncertainty didn’t stay too long, the Pound’s situation is still dire. It’s fate cannot be detached from the fate of the Euro. Contagion also reached Britain. OK, let’s start:

1. Adam Posen talks: Starts speaking on Monday at 17:30 GMT. External BOE MPC Member Adam Posen already moved the Pound several times in the past, and he’ll have a chance to do so in his speech early in the week. Any hints about future rate hikes or the situation of the economy are likely to impact trading.


2. Revised GDP: Published on Tuesday at 8:30 GMT. Britain’s economy is still struggling. According to the initial release, Britain grew by only 0.2% in Q1. This was half of early expectations. The second release is expected to show a better picture – a growth rate of 0.3%. Any result will rock the Pound.


3. BBA Mortgage Approvals: Published on Tuesday at 8:30 GMT, and overshadowed by the GDP release. The British Bankers Association covers two thirds of all British mortgages, and releases this housing figure quite early. After losing the highs of 46K, the figure fell under 34K. It’s now expected to recover and rise to 38.3K.


4. CBI Realized Sales: Published on Thursday at 10:00 GMT. 160 retailers and wholesalers are surveyed for CBI’s important indicator. In the past three months, this number was positive, indicators higher sales volume. A small rise from 13 to 14 is predicted this time.


5. GfK Consumer Confidence: Published on Thursday at 23:00 GMT (midnight UK). Consumers’ pessimism worsened last month, with an unexpected drop to -16 points. 2,000 consumers are expected to show a bit less pessimism this time, with a rise to -15 points.


6. Nationwide HPI: Publication time unknown at the moment. Two straight months of rises have proved that the drop seen in January was a one time glitch. The UK’s second earliest house price report always rocks the markets. Another small rise of 0.5% is expected this time.

GBP/USD Technical Analysis

The British Pound reached fresh lows very early in the week, breaking the technical level of 1.44 and bottomed out only at 1.4230. It then recovered and closed at 1.4450.

The Pound’s range is now between 1.44, the previous major support line, and 1.45, which proved to be a new line of resistance. Note that some lines were added on last week’s outlook.

Looking up, the next line of resistance is at 1.4780, which held GBP/USD for several months. This is a strong line. Above, 1.4975 is a minor resistance line, followed by 1.5130, which worked as support just a few weeks ago. It’s followed by 1.5350, which worked as both support and resistance, and by 1.5520 which wasn’t broken in three months.

Looking down, the fresh 2010 low of 1.4230 is the next immediate support. Stronger support is found at 1.4130, which was a support line in April 2009. Further below, 1.38 also stopped the pair at the beginning of 2009, and is the next line of support. The ultimate support line is 1.35, which is the lowest level seen in over 20 years.

I remain bearish on the Pound.

A serious revision in GDP is necessary for the Pound to recover from the recent blows, but the European troubles will probably continue bringing it down.

EUR/USD Weekly Analysis (May 24-28)

Another intense week ended with a significant recovery for the common currency. Will the recovery continue? Or was it just a temporary correction? Here’s an outlook for the events that will rock the Euro, and an updated technical analysis for EUR/USD.

EUR/USD chart with support and resistance lines marked. Click to enlarge:



The contagious debt problems sent the pair to four year lows, but it managed to end the week higher after the German parliament approved the huge bailout package. This week might be more stable… OK, let’s start:

1. Industrial New Orders: Published on Tuesday at 9:00 GMT. European manufacturers sent mixed signals in recent months. After last month’s nice rise in orders, 1.5%, expectations are for another rise, of 2.3% this time. Learning from the past, a drop won’t be a big surprise.


2. German GfK Consumer Climate: Published on Wednesday at 6:00 GMT. 2,000 German consumers are surveyed for this important indicator. After many months of stability, this indicator finally rose to 3.8 points, showing that consumers feel better about the economic situation. A small drop to 3.7 points is predicted this time. A bigger drop will probably be seen next time – representing the impact of the financial crisis.


3. French Consumer Spending: Published on Wednesday at 6:45 GMT. Also in Europe’s second largest economy, consumers showed growing confidence as their spending rose by 1.2% last time. This is expected to change now, with a drop of 0.5%.


4. NBB Business Climate: Published on Wednesday at 13:00 GMT. This wide survey of 6,000 businesses is highly regarded, despite coming from a small country – Belgium. The score improved to from -3.6 to -2.4 and is expected to edge up to -2.1. The improving negative score means that businesses are now less pessimistic. Also here, a negative change will probably seen next time.


5. German CPI: Published on Thursday. The different German states release their consumer price index throughout the day, building up the preliminary release. Inflation seemed to pick up two months ago, as prices rose by 0.5%, but last month’s drop of 0.1% showed that no big change is coming. A small rise of 0.1% is expected this time.

EUR/USD Technical Analysis

The Euro began the week with a quick deterioration below the “Lehman levels”, 1.2330 and even broke another technical level, 1.22, before making an impressing comeback and closing above 1.2520, at 1.2563.

The current range for the pair is between 1.2520, which held the Euro temporarily before a bigger collapse, and 1.2672, a new line (didn’t appear in last week’s outlook), that was the peak in the past week.

Looking higher, 1.2880 is the next line of resistance, being a significant line of support about one year ago. The next important line of resistance is 1.3114, which held the pair before it fell below 1.30.

Further resistance is found at 1.3267, which also had an important role as a support line. 1.3440 is the next hurdle, but it’s quite far.

Looking down, immediate support can still be found at the 2008 low of 1.2330. This is followed by the round number of 1.22, which worked as a support line back in 2006, and the fresh year-to-date low of 1.2144.

Even lower, the round number of 1.20 provides more support. Stronger support is found at 1.1820, which was a strong support line, and 1.1630, the lowest level since 2003. Low levels indeed.

I remain bearish on EUR/USD.

Despite the fresh optimism from the German approval, the markets are still far from stabilization. The Euro can experience more rounds of downfalls before settling down. Contagious diseases take time to cure.

EUR/USD Weekly Analysis (May 24-28)

Another intense week ended with a significant recovery for the common currency. Will the recovery continue? Or was it just a temporary correction? Here’s an outlook for the events that will rock the Euro, and an updated technical analysis for EUR/USD.

EUR/USD chart with support and resistance lines marked. Click to enlarge:



The contagious debt problems sent the pair to four year lows, but it managed to end the week higher after the German parliament approved the huge bailout package. This week might be more stable… OK, let’s start:

1. Industrial New Orders: Published on Tuesday at 9:00 GMT. European manufacturers sent mixed signals in recent months. After last month’s nice rise in orders, 1.5%, expectations are for another rise, of 2.3% this time. Learning from the past, a drop won’t be a big surprise.


2. German GfK Consumer Climate: Published on Wednesday at 6:00 GMT. 2,000 German consumers are surveyed for this important indicator. After many months of stability, this indicator finally rose to 3.8 points, showing that consumers feel better about the economic situation. A small drop to 3.7 points is predicted this time. A bigger drop will probably be seen next time – representing the impact of the financial crisis.


3. French Consumer Spending: Published on Wednesday at 6:45 GMT. Also in Europe’s second largest economy, consumers showed growing confidence as their spending rose by 1.2% last time. This is expected to change now, with a drop of 0.5%.


4. NBB Business Climate: Published on Wednesday at 13:00 GMT. This wide survey of 6,000 businesses is highly regarded, despite coming from a small country – Belgium. The score improved to from -3.6 to -2.4 and is expected to edge up to -2.1. The improving negative score means that businesses are now less pessimistic. Also here, a negative change will probably seen next time.


5. German CPI: Published on Thursday. The different German states release their consumer price index throughout the day, building up the preliminary release. Inflation seemed to pick up two months ago, as prices rose by 0.5%, but last month’s drop of 0.1% showed that no big change is coming. A small rise of 0.1% is expected this time.

EUR/USD Technical Analysis

The Euro began the week with a quick deterioration below the “Lehman levels”, 1.2330 and even broke another technical level, 1.22, before making an impressing comeback and closing above 1.2520, at 1.2563.

The current range for the pair is between 1.2520, which held the Euro temporarily before a bigger collapse, and 1.2672, a new line (didn’t appear in last week’s outlook), that was the peak in the past week.

Looking higher, 1.2880 is the next line of resistance, being a significant line of support about one year ago. The next important line of resistance is 1.3114, which held the pair before it fell below 1.30.

Further resistance is found at 1.3267, which also had an important role as a support line. 1.3440 is the next hurdle, but it’s quite far.

Looking down, immediate support can still be found at the 2008 low of 1.2330. This is followed by the round number of 1.22, which worked as a support line back in 2006, and the fresh year-to-date low of 1.2144.

Even lower, the round number of 1.20 provides more support. Stronger support is found at 1.1820, which was a strong support line, and 1.1630, the lowest level since 2003. Low levels indeed.

I remain bearish on EUR/USD.

Despite the fresh optimism from the German approval, the markets are still far from stabilization. The Euro can experience more rounds of downfalls before settling down. Contagious diseases take time to cure.

Money Management Strategy in Forex or Stock

This article deals with one of the most important aspects of trading - money management.

Although there are plenty of trading systems and trading strategies with good win/loss ratio, proper money management can change the outcome of the net profit amount for any trading system.

Essentially, money management strategy is a statistical tool to control the risk exposure and profit potential when we enter into a trade; and by applying it, we can control our emotions and lack of plan (the main reason why most of traders lose their money).



The importance of determine a stop-loss

C.O.N.T.R.O.L... When a trader lose control the results are often disastrous. Many traders often enter the market with a profit target, but without a clearly defined protective stop-loss.

With a pre-determined profit target and a pre-determined stop-loss, you know where you will get out if you are wrong and where you will get out if you are right. In other words, you have control.

Diversification - Trade more then one currency pair

When trading more then one currency pair, i.e. EUR/USD, USD/JPY, USD/CHF, GBP/USD atc., each pair would have a different stop-loss and profit target. With multiple currency pairs, each having a different entry and exit points you can smooth your system equity curve so your account draw-downs will be smaller.

Note: It's important that you diversify your orders between currencies that have low correlation.

Case study - Fixed Ratio With Fixed Number of Trades

Money management is the most significant part of any trading system. Our Forex money management strategy is simple to implement, conservative and practical when combined with one of our trading tutorials strategies.

First of all, you should understand the following terms:

Fixed Risk Ratio
Never risk more than 2% of your account size on any single currency pair, if possible, risk less. Plus, never risk more than 10% in any complex of open positions, on any given day. For any given trade you must know how much you will lose if the market goes against you.

Example - According to our money management strategy, you should be risking no more then 2% of you balance per single trade. So, if you start with $1,000 account size you may lose up to $20 in one trade, i.e. If the trade is stopped, you will lose $20 which is 2% of your initial balance.

Please note: You can open up to 5 parallel trades (other pairs), at the same time - max risk = 10% from your initial balance.

Fixed Number of Trades
The "fixed number of trades" parameter derives from the trading system profitable factor, as follows:

Trading System Percent Profitable (no. of winning trades / total no. of trades)	fixed Number of Trades
60%	40
65%	35
70%	30
75%	25
80%	20
85%	15

Forex money management strategy implementation

Now that we have these two parameters (the fixed risk ratio and the fixed number of trades), let's make an example:

• Account size = $2,500


• Fixed Risk Ratio = 2%


• Fixed Number of Trades = 30 (we use trading system with 70% winning trades expectation - see table above).

In this case we can lose up to $50 ($2,500 * 2%) at any given trade for the next 30 actual trades. Then, after 30 trades we will re-calculate our maximum risk amount, i.e., if the new account size is now $3,000, we can afford to lose up to $60 at any given trade for the following 30 trades, and so on.

Basically, we re-calculate the risk amount (based on the fixed risk ratio and account balance) after each fixed number of trades, in this example, 30.

Note: You can adapt this money management strategy to fit smaller or bigger trading accounts, providing you stick to the 2% risk rule.

Forex Intra-Day Trading Strategy

Overview

This forex day trading strategy will focus on one of the best analysis method for forex trading - the use of multiple time frames.

Basically, in this strategy, we will use the longer timeframe (chart #1) to define our support and resistance price levels and the shorter timeframe (chart #2) for our trading entry, stop-loss and exit levels.

Also, for confirmation and momentum measurement we will use slow stochastic oscillator indicator (one of the best momentum indicators).

Forex day trading strategy rules:

1. We use two time frames, long time frame - 4 hour and short time frame - 15 minute.


2. We identify the support and resistance price levels on the longer timeframe a day before.


3. We apply the stochastic indicator in both time frames to determine if we enter long or short position in our next intraday trading.

Case study - Forex (Foreign Exchange) USD/JPY Multiple Time Frame Bar Charts

USD/JPY 4 Hour Bar Chart (Chart #1)



Indicators and Parameters:

Support and Resistance Price Levels (Gray) - we use the swing pivot points of the previous day (yellow rectangle); 116.15,116.27,116.43,116.70 and 116.76.

Slow Stochastic Oscillator (lower window) - we set the stochastic indicator parameters for both time frames, as follow: %K period = 8, %D period = 3, Slowing = 3 (optional).

Forex day trading strategy practical analysis:

Chart #1 displays the 4 hour timeframe for the previous day (14 August).
What we can learn from this chart?

1. Resistance and Support price levels for the next day, our trading day, 15 August.

• 
  
  High = 116.73 (bar 6)


• 
  
  Low = 116.15 (bar 1)


• 
  
  The High of the swing move 0-1 = 116.43 (also the high of 11 August)


• 
  
  The High and Low of the swing move 4-5 = 116.70 (high) and 116.27 (low)

Note: as an opposite from calculated pivot points our price levels are generated from actual swing trading on this day.

2. What type of trading position we will favor the next day; short or long?

As you can see, the stochastic oscillator create diversion with this currency pair price (green line), i.e. the momentum is weakening; plus the stochastic indicates on an overbought situation (above 80 level). So, the next day (15 August), we will try to find conditions to enter a short position.

USD/JPY 15 Minute Bar Chart (Chart #2)



Forex day trading strategy - our trading day, 15 August:

At Chart #2 we can see the previous day - 14 August (yellow rectangle), our support and resistance price levels that we already identify, and the open price of our trading session at 116.62 (bar 1).

Because the open price of this day (116.62) is contained within a support/resistance horizontal channel, 116.43-116.70, and we want to place a short position, we have two options:

1. 
   
   We can enter short at 116.70, when the price retrace toward the resistance line.


2. 
   
   We can enter short at 116.38, when the price penetrate the support line (5 pips to confirm breakout).

In this case, USD/JPY currency price carried out the 116.70 short order (point A). As always, we placed immediately a stop-loss order at 116.81, 5 pips above the upper resistance price level; and a profit target order at 116.43, the next support level (point B).

Forex Day Trading Strategy Implementation

You can implement this forex day trading strategy on any fx currency pair. The mentioned setup and rules can be found almost everyday in the foreign exchange market. Good trading...

Descending Triangle Chart Pattern | Demand Index Indicator

Overview

A Descending Triangle chart pattern is a continues price formation; when combined with a Demand Index Indicator properly, over 75% of our trading positions will be profitable. By definition, the Descending Triangle chart pattern indicate a sell pressure; You can see visually that the sellers sell at lower prices as time progress (A,B and C).

Professional trader will use Demand Index indicator in several ways. I will focus on this indicator ability to predict trend strength, so, if the indicator stays near the level of zero for any length of time (see blue rectangle in chart - lower window) we can anticipate a price breakout.

Case study - NASDAQ-100 Index Tracking Stock ETF (QQQQ) Bar Chart



Indicators and Parameters:
Descending Triangle chart pattern - continues (red) - normally formed in a few week period, and consist from an upper descending resistance line (A-B-C) and support line (2).
Demand Index (red; lower window) - calculated by the change in price and volume alike.

How to use the Descending Triangle chart pattern - practical analysis:

The first step is to recognize we are dealing with Descending Triangle price formation, to do that we must identify:

1. Descending resistance line with two or more reaction points (points A-B-C).


2. Support line (2), horizontal line, with two or more reaction points.

Second, we have to define our profit target by finding the delta between line 1(green) price level and line 2(red) price level. In our case, the delta equal 1.75 points (43.05-41.30). So, line 2(red), the support line, minus the delta equal our profit target at 39.55 (blue line #3).

Point D - This is our entry point.
The short order entry price is 41.05 and our stop-loss order price is 41.55; why?

Very important: we determine our profit target and stop-loss orders with the assistance of mathematical calculations. First, we anticipate a winning ratio of 75%, i.e. we will win with this strategy 3 times out of 4, and second, we want at least 1 to 3 win/loss ratio.

So, we will divide our delta (1.75) by 7 and use the triangle support line(2) as our pivot price level (41.30). Then, we calculate our orders price, 41.30 minus 0.25 = 41.05 as our entry, and 41.30 plus 0.25 = 41.55 as our stop-loss.

Point E - We closed our short position at 39.55 - profit target.

Note: Because descending triangle is a bearish pattern which indicates distribution of money, the combination with Demand Index indicator is a very powerful one.

Descending Triangle Chart Pattern

In order to qualify as a descending pattern, at least two reaction highs are required to form the upper trend line (in our case - three). Also, at least two reaction lows required to form the support horizontal line.

Basically, the trader must see a visual Triangle chart pattern emerging from his price chart.

EUR/USD Daily Technical Forecast(5-May-2010)

The EURUSD continued its bearish momentum yesterday after breakdown from the triangle, bottomed at 1.2981, closed at 1.2988 and keep moving lower around 1.2977 at the time I wrote this comment. The bias is bearish in nearest term targeting 1.2880 - 1.2850 area especially if price continue to push lower and break below 1.2920 support area today. Immediate resistance at 1.3060/50 area. Break above that area could trigger further minor bullish correction testing 1.3130 region but overall the main scenario remains to the downside.

Please click here to see how I applied my technical studies to this pair on the daily chart a few minutes ago"

EUR/USD Daily Technical Forecast(5-May-2010)

The EURUSD continued its bearish momentum yesterday after breakdown from the triangle, bottomed at 1.2981, closed at 1.2988 and keep moving lower around 1.2977 at the time I wrote this comment. The bias is bearish in nearest term targeting 1.2880 - 1.2850 area especially if price continue to push lower and break below 1.2920 support area today. Immediate resistance at 1.3060/50 area. Break above that area could trigger further minor bullish correction testing 1.3130 region but overall the main scenario remains to the downside.

Please click here to see how I applied my technical studies to this pair on the daily chart a few minutes ago"

Essential Elements of a Successful Trader

Courage Under Stressful Conditions When the Outcome is Uncertain

All the foreign exchange trading knowledge in the world is not going to help, unless you have the nerve to buy and sell currencies and put your money at risk. As with the lottery “You gotta be in it to win it”. Trust me when I say that the simple task of hitting the buy or sell key is extremely difficult to do when your own real money is put at risk.

You will feel anxiety, even fear. Here lies the moment of truth. Do you have the courage to be afraid and act anyway? When a fireman runs into a burning building I assume he is afraid but he does it anyway and achieves the desired result. Unless you can overcome or accept your fear and do it anyway, you will not be a successful trader.

However, once you learn to control your fear, it gets easier and easier and in time there is no fear. The opposite reaction can become an issue – you’re overconfident and not focused enough on the risk you're taking.

Both the inability to initiate a trade, or close a losing trade can create serious psychological issues for a trader going forward. By calling attention to these potential stumbling blocks beforehand, you can properly prepare prior to your first real trade and develop good trading habits from day one.

Start by analyzing yourself. Are you the type of person that can control their emotions and flawlessly execute trades, oftentimes under extremely stressful conditions? Are you the type of person who’s overconfident and prone to take more risk than they should? Before your first real trade you need to look inside yourself and get the answers. We can correct any deficiencies before they result in paralysis (not pulling the trigger) or a huge loss (overconfidence). A huge loss can prematurely end your trading career, or prolong your success until you can raise additional capital.

The difficulty doesn’t end with “pulling the trigger”. In fact what comes next is equally or perhaps more difficult. Once you are in the trade the next hurdle is staying in the trade. When trading foreign exchange you exit the trade as soon as possible after entry when it is not working. Most people who have been successful in non-trading ventures find this concept difficult to implement.

For example, real estate tycoons make their fortune riding out the bad times and selling during the boom periods. The problem with trying to adapt a 'hold on until it comes back' strategy in foreign exchange is that most of the time the currencies are in long-term persistent, directional trends and your equity will be wiped out before the currency comes back.

The other side of the coin is staying in a trade that is working. The most common pitfall is closing out a winning position without a valid reason. Once again, fear is the culprit. Your subconscious demons will be scaring you non-stop with questions like “what if news comes out and you wind up with a loss”. The reality is if news comes out in a currency that is going up, the news has a higher probability of being positive than negative (more on why that is so in a later article).

So your fear is just a baseless annoyance. Don’t try and fight the fear. Accept it. Have a laugh about it and then move on to the task at hand, which is determining an exit strategy based on actual price movement. As Garth says in Waynesworld “Live in the now man”. Worrying about what could be is irrational. Studying your chart and determining an objective exit point is reality based and rational.

Another common pitfall is closing a winning position because you are bored with it; its not moving. In Football, after a star running back breaks free for a 50-yard gain, he comes out of the game temporarily for a breather. When he reenters the game he is a serious threat to gain more yards – this is indisputable. So when your position takes a breather after a winning move, the next likely event is further gains – so why close it?

If you can be courageous under fire and strategically patient, foreign exchange trading may be for you. If you’re a natural gunslinger and reckless you will need to tone your act down a notch or two and we can help you make the necessary adjustments. If putting your money at risk makes you a nervous wreck its because you lack the knowledge base to be confident in your decision making.

Patience to Gain Knowledge through Study and Focus

Many new traders believe all you need to profitably trade foreign currencies are charts, technical indicators and a small bankroll. Most of them blow up (lose all their money) within a few weeks or months; some are initially successful and it takes as long as a year before they blow up. A tiny minority with good money management skills, patience, and a market niche go on to be successful traders. Armed with charts, technical indicators, and a small bankroll, the chance of succeeding is probably 500 to 1.

To increase your chances of success to near certainty requires knowledge; acquiring knowledge takes hard work, study, dedication and focus. Compile your knowledge base without taking any shortcuts, thereby assuring a solid foundation to build upon.

Establishing a Comprehensive Forex Strategy..

Forex trading involves a lot more than just pulling up a forex broker’s Web page and funding an account. Traders need to spend some considering just what kind of forex trader they want to be and that means the answer is more than just being a profitable forex trader. Forex trading is all about making money, but almost as important is the methodology a trader uses to obtain those profits. There is more than just one forex strategy out there and traders need to establish exactly which forex strategy is going to work for them before throwing real money at the market.

Some traders will stock to one forex strategy as soon as they identify that it works for them, while others like to tinker among several strategies before deciding on one. Other traders may use a combination of several different forex strategies on a daily basis and that can work, too. Some traders prefer technical analysis where they study chart patterns and indicators. Others are fundamental traders that follow economic news events. And of course, there are several different ways to approach trading. You can be a day-trader, a swing-trader, scalper or long-term investor and so on.

The most important to thing for new forex traders to remember is that a lot of one’s success with forex trading lies with selecting a forex strategy that works for you. You may have a friend that successfully trades forex, but his forex strategy may not work for you. The best forex strategy for you is the one you’re most comfortable with. And remember that no empirical evidence exists to suggest that one forex strategy is superior to another in terms of making pips.

To be sure, the recipe for determining the best forex strategy for you is going to have several ingredients. If you’re a technical trader, you’re going to have learn at least a few of the major chart patterns like the head and shoulders, reverse head and shoulders, double top, double bottom, ascending triangle and descending triangle. You’ll also need to establish what indicators you want to use with your trading (MACD, RSI, Stochastics, etc.)

On the other hand, a fundamental trader might want to pick a few of the major economic news events to trade around because there are simply too many to follow. Perhaps you’ll decide on Federal Reserve interest rate decisions, U.S. and Eurozone unemployment data and U.S. and U.K. GDP news. This gives you plenty of regularly released data points to trade off of without becoming overwhelmed.

The bottom line is selecting your forex strategy on par with selecting a forex broker and deciding on how much money to initially fund your account with. There are plenty of resources all over the Web to help you make your decision and we suggest you explore as many of these avenues as possible before committing to any forex strategy. A little homework at the beginning can save you from some big losses in the end.

How to Limit Your Risk In Forex.

If you’ve traded any security, you’ve heard the old axiom about keeping your losers to a minimum and letting your winners run. The latter part of that expression is self explanatory. Most forex traders know that they don’t want to cut their winning trades. Simply keep moving your stops up as the trade continues to move in your favor and you’ll be on course for locking some nice profits. Cutting losing trades before they turn into disasters is what many traders struggle with when they enter the world of online forex trading. Bailing on any trade, winner or loser, is an emotional thing for traders, especially rookies, but it should be mechanical, not emotional.

Keeping your losses to a minimum is perhaps the most important thing you’ll do on your road to learning forex trading. We’ve all heard the statistic that 90% of all traders fail and that number is so high because many traders don’t know how to keep their losses to a minimum. Minimizing losers is integral the development of any forex trading strategy. And when we say keep your losses small, we’re not necessarily talking about the amount of losing trades you have. We’re talking about the dollar amount of those losers. After all, it’s possible to take 10 forex trades and have seven losers and still end up profitable. Yet, the only way to do this is keep the losses small in dollar terms.

So how does someone that has just taken on learning forex trading go about keeping his losses small? The first thing to do is understand the risk-reward profile of each trade. Let’s say you’re trading a heavily traded pair like the EUR/USD during an especially volatile time, maybe after unemployment data has come out. Here your risk-reward profile maybe a little different than during a calmer market period. If you see that risking $1 to only make $1, that’s not a trade worth taking. Optimal risk-reward would be risking $1 to make at least $2, if not $3.

That’s just one part of the equation, though. Many seasoned forex traders will also set strict risk parameters for each trade they take. For example, a veteran trader that has $10,000 in his forex brokerage account might limit his risk to three percent on every trade. Meaning that if his trade goes against him by $300, he’s out, no questions asked. Think about that for a minute. If you’re trading a standard forex lot where each pip is worth $10 and you’re willing to lose $300 on the trade, that’s 30 pips so you’re giving the trade plenty of room to breath while still being fairly conservative.

There’s no hard and fast rule for how much a forex trader should be willing to lose on a particular trade. If you’ve got $100,000 in your brokerage account, you can be a lot more liberal than you can with $10,000. The point is keeping your losses small is what’s going to keep you in the game.

How to find new pairs for trade...

By nature, traders, forex or otherwise, can be creatures of habit. That is if we find something that works, we stick with it until it stops working. As it pertains to forex trading, this includes the pairs we trade. Many forex traders get into the game and focus on just one or two of the major pairs. This strategy is acceptable for beginners, but as your acumen increases, it might be a good idea to start looking for other pairs to make some pips. Rookie forex traders often focus on the Euro/US dollar (EUR/USD) and maybe one other major pair like the British pound/dollar (GBP/USD), but if you’re going to trade forex, you should be aware all of the opportunities available to you.

Two major pairs that tend to fall under the radar of a lot of forex traders are the Australian dollar/US dollar (AUD/USD) and New Zealand dollar/US dollar (NZD/USD). This is a shame because both the Aussie dollar and New Zealand dollar (also known as the kiwi) are two of most volatile currencies in the market and when traded properly, they can make traders a lot of pips. Your first order of business should be ensuring that your forex broker gives you access to these pairs. Most of the top forex brokers will as these are major pairs, but better to be safe than sorry.

Under current market conditions, the Aussie dollar and kiwi are definitely worth a look. Remember that as global equities rise, particularly US and Chinese stocks, risk appetite in the forex market increases and that means forex investors flee safe-haven currencies like the US dollar, Japanese yen and Swiss franc for riskier, higher-yielding assets like the Aussie dollar and kiwi.

In fact, several currency analysis reports have noted recently that the Aussie dollar is the most fundamentally sound of all the major currencies. Australia’s economy didn’t suffer during the global slowdown at the level that other major economies did and the Reserve Bank of Australia kept interest rates relatively high, which has served to bolster the Aussie dollar’s fortunes. The Aussie dollar is also a great for forex traders to get exposure to gold because as gold prices rise, so does the Aussie dollar because Australia is one of the largest exporters of gold in the world.

The kiwi is also worth watching due to its intense correlation to stock prices. You can bet that if the S&P 500 is making new advances the kiwi is performing well against the US dollar. The kiwi recently touched a year-to-date high against the greenback, but couldn’t hold the gains, but the NZD/USD should still be on your watch list either for a long trade or an easy short if stocks start to retreat. Kiwi also rises with commodities demand, even though New Zealand is not known for production or exports of any one commodity in particular.

The bottom line is if you’re going to trade forex, you should keep all of your options open and with current market conditions conducive to a bull run in the Aussie dollar, that currency should be at the top of your list.

5 Notes for Non-Farm Payrolls Trading..

The release of the American Non-Farm Payrolls is a circus in the forex market. Here are a 5 notes to watch out for in every Non-Farm Payrolls release during the financial crisis:

Note number 5 is the most important one – the knee jerk reaction.

1. New traders – stay away: Trading during this volatile period is very risky. Take a break and enjoy the weekend.


2. Action before the release: Strange moves begin in the markets well before the release at 13:30 GMT. This usually reflects the expectations – expectations which aren’t necessarily met, and they can lead to a counter reaction afterwards. Jittery trading intensifies with the release of the Canadian employment figures, an hour and a half before the American ones.


3. Friday effect: Strong moves in a certain direction – either dollar strength or dollar weakness, can be seen hours after the release, usually in the last hour of the London session – between 16:00 to 17:00 GMT. This is the move that will determine the close of the week, and thus have a real long term effect. This is the full reaction.


4. Technical barriers can be broken – support and resistance lines, uptrend support or downtrend resistance lines can be breached around the release of the NFP. This is usually only temporary – the graph returns to normal after a while, and these lines are respected again.


5. Initial reaction is wrong: the initial reaction to the release is in the wrong direction: the knee jerk reaction is usually “normal”: good data yields dollar strength and bad data yields dollar weakness. This is very temporary! We are still in the global crisis, and the risk factor rules. So, minutes after the “normal” reaction, the risk factor kicks in and eventually the opposite happens: good data yields dollar weakness (risk appetite), while bad data yields dollar strength (risk aversion).

These are my tips. I’ll be happy to hear more.

EUR/USD Candlesticks and Ichimoku Weekly Analysis

EUR/USD Candlesticks and Ichimoku Analysis Last Candlesticks pattern / Time of formation / Trend bias Weekly             Morning star         /   01 Mar 2009     /  Sideways Daily                      Doji                 /   02 Mar 2010     /  Sideways Although the single currency fell again last week to a low of 1.3114 (almost reached our indicated downside target at 1.3110 - 61.8% projection of 1.4580 to 1.3433 measuring from 1.3819) last week, lack of follow through selling suggests minor consolidation would take place this week ahead of the release of key U.S. data and expect recovery to be limited to the Tenkan-Sen (now at 1.3467) and bring retest of said support. Break there would extend the decline from 2009 high of 1.5145 to resumed recent decline from 1.5145 (2009 high) to 1.3080 (1.618 times projection of 1.5145-1.4218 measuring from 1.4580) and possibly the psychological support at 1.3000 but reckon chart support at 1.2885 would hold from here. On the upside, a weekly close above 1.3520/30 would suggest a temporary low has possibly been formed and risk stronger rebound towards resistance at 1.3692 but a weekly close above the Ichimoku cloud bottom (now at 1.3726) is needed to confirm and bring correction to next chart point at 1.3819 and then 1.3890 (38.2% Fibonacci retracement of 1.5145-1.3114) which is likely to hold from here. On the daily chart, despite last week’s resumption of downtrend to another low of 1.3114, as euro has recovered from there partly due to profit-taking and short-covering ahead of U.S. data should bring minor correction towards the Kijun-Sen (now at 1.3403), however, the Ichimoku cloud bottom (now at 1.3542) should hold and bring another decline later. Break of said support would extend downtrend to 1.3080 (1.618 times projection of 1.5145 to 1.4218 measuring from 1.4580) and then test of psychological support at 1.3000. On the upside, only a daily close above the Ichimoku cloud bottom would be the first sign that a temporary low has been formed and bring test of resistance at 1.3692 and once this level is penetrated, this would confirm and then retracement towards next resistance at 1.3819 would follow.