Forex Mechanical Trading

Five No Nonsense Strategies in Forex Trading

2008-07-30T18:53:00.000-07:00

When considering forex trading as a profit making venture, it is important to work out winning strategies beforehand if at all possible.
Making decisions regarding your forex trading and developing a strategy can be seen as your foundation. With your strategy you will optimize your risk with respect to the expected reward, or put the odds in your favor.
Trading strategies should be disciplined and limit risk, while placing you at the most favorable advantage in the market. One strategy is the simple moving away average, which is based on a technical study over twelve periods, with each period fifteen minutes in length. This is a good example of a trading decision that is arrived at through strategy.

A simple Algorithm is used in this strategy. When currency price crosses above the twelfth period, simply move away it is a signal to stop and reverse. In this way a long position will be liquidated and a short position will be established, both using market orders. This system will keep trades always in the market, with either a short position or a long position after the first signal.
Another strategy is of support and resistance levels. This is another technical analysis strategy and derives support and resistance. The idea is that the market tends to trade above support levels and trade below resistance levels. If either a support or a resistance level is broken, then the market will follow through is the direction given.

These levels can be determined by analysis of the chart and assessment of where the chart has encountered unbroken support or resistance in times past.
Anther strategy that many see as exotic is called the balloon strategy.
A balloon option is an option that balloons, or increases in size when triggers are reached. For example, if an investor believes that the dollar will gain strength against the Euro in the near future and is currently trading at 100, the investor will see 110 as being strong resistance, but the investor also believes it will be broken. So, rather than buying straight dollars at 100 for the next six months the investor will purchase at “at the money” balloon call with a 110 trigger and multiple of two. The investor will then own a 100 call in USD110mm. But if the dollar and Euro ever trade at or above 110, the 110 call will double to USD 20mm.
The double bottom is another strategy worth looking at. The double bottom is significant to the short term trader as double bottoms indicate a possible major change in sentiment and trend. The pattern is used on all times frames, and many powerful intraday and long term bull markets are conceived from this setup.
Double bottoms reflect strong support levels. When prices fail to break support in the down trending markets on more than one occasion we see powerful changes of trend. These reversal signals are meaningful. The most common entry point where a trader will open on a double bottom trade is on a move through the high of the two troughs. This high will represent secondary resistance, and when penetrated confirms a price reversal. The stops are placed around the lows of he patters because a move below lows negates the pattern premise.

Forex Definitions, Terms and Acronyms:

Spread - the difference between the lower price (the amount someone or an institution is offering to buy a currency) and the higher price (the amount someone or an institution is asking to sell a currency).
Foreign exchange markets - usually highly liquid because the world's main international banks provide an around-the-clock market.
Pound sterling - GBP, the official currency of the United Kingdom (UK).

Another good potential strategy is the ichimoku chart. These charts are following indicators, which identify support and resistance levels and create trading signals in a way that is similar to moving averages. A big difference however between the two is that the Ichimoku chart lines shift forward in time, creating wider support and resistance zones and decreasing the risk of trading false breakouts. They are calculated using information on trend existence, direction, support and resistance.
The four main lines are:

Turning Line = (Highest High + Lowest Low) / 2, for the past nine days
Standard Line = (Highest High + Lowest Low) / 2, for the past twenty-six days
Leading Span 1 = (Standard Line + Turning Line) / 2, plotted twenty-six days ahead of today
Leading Span 2 = (Highest High + Lowest Low) / 2, for the past fifty days, plotted twenty-six days ahead of today’s date.
Whichever strategy you choose to use, devote as much study as possible to increase your chances of gain and profit.

Non Risky Forex

2008-07-30T12:56:00.000-07:00

The Important Ways To Keep From Losing In The Forex Markets

The idea behind forex trading is of course to make money. However, like any speculative investment, there is a change of loosing money. The same holds true with the stock market and the commodities market, and in business itself. Any investment that has a chance of great gain will also have a certain level of risk. As a forex trader you will want to minimize your chance of risk. Do it in these ways.
Stay informed. Read the news magazines and political events journals. Know what is happening in the world politically.

Have a good understanding of Economics. Take a college econ course if you never have. Read the journals of economics and books by economists like John Maynard Keyes, Kenneth Galbraith and Walter Williams.

Read periodicals like the Wall Street Journal and Business Investors Daily.

Open up a practice demo account and use it before you get into the market.
Have a broker you trust.
Cultivate friendships with other traders who know their stuff.
Look at the historical trends.
Read and study forex charts.
Take a course in forex trading to get your skills up to snuff.
Research forex on the Internet.

And finally, only invest money that you can actually afford to loose if worse comes to worse. Then you won’t be out of the game completely.
Forex trading is not a game for the timid. Jerry Sparks was a Forex trader who did very well for years. He followed all of the rules. His college degree was in history with a minor in political science and he went back and took extra courses in economics and business. Jerry stayed informed. He watched CNN, CNBC, MSNBC and Fox News often.
He went to all the major web sites and read several magazines.
He also spent time with a demo account before he got into the market in a big way.
Jerry was determined to make a killing, and he eventually did.
Jerry also only invested money that he had designated as risk capital. He could still live without it if needed.
Sam Franks, Jerry’s friend, didn’t do as well. Sam never took an economics course in his life and in fact was bored by Economics. He knew nothing of history or politics and didn’t even know who John Maynard Keyes was. Sam took his life savings and invested in forex trading without having spent time practicing with a demo account. He knew nothing of the currencies he was trading, and didn’t know what historical trends were, or what activity was occurring. He knew nothing of inflation, and in the end he lost some of his money. The difference in these two people is important. One was prepared and the other was not prepared. One made money and the other did not. One did his homework and one neglected it. What you can learn from this is that it is better to be prepared.

Forex Definitions, Terms and Acronyms:

Majors - USD/JPY, EUR/USD, USD/CHF, AUD/USD, USD/CAD and GBP/USD.
Fixed currency - a currency that uses a fixed exchange rate as its exchange rate regime.
Canadian dollar - CAD or C$, the unit of currency of Canada.

Forex Training Package

2008-07-30T04:13:00.000-07:00

Training: What a Good Forex Training Program Should Include

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 Forex course will have the following:

A live conference room, to apply everything learned under live market conditions.

One-on-one coaching, 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

Forex Folklore

2008-07-29T11:48:00.000-07:00

One myth that has been spread by various scam artists looking to swindle naïve investors is that trading in the forex market is a low risk proposition.

In fact, trading in currencies can be more risky than trading in equities, as the market for currency is considered “over the counter” (OTC), and is not a highly regulated market such as the New York Stock Exchange or NASDAQ.
Because of this lack of regulation, the market is open to manipulation, which can often leave the small retail investor with huge losses.
As the forex market is not centralized like a large equities market, it can often be difficult to prove that any manipulation has occurred, so investors are not as protected.
In addition, the forex market is open 24 hours a day, except on weekends, and is influenced by events all over the world, so often things can happen internationally that will affect the market while an investor is caught unaware.
The forex market is also typically more volatile than the various equity markets, which can mean huge price fluctuations, which compound the risk to the investor.

A corollary to this myth is that some believe trading on margin is risk-free. When an investor trades on margin, he is borrowing money from the investment brokerage to invest in a market, using what is called leverage. By using this loan, one can keep any profits that are generated by the investment without having to come up with the initial money.
The loan is eventually repaid when the investment is sold. Many traders use this tool extremely well, making much more money than they would earn using only their own money. But this opportunity also involves a substantial risk, in that if the price of the investment goes down substantially, the brokerage may be forced to give the trader a “margin call”. When this happens, the investment is sold automatically to pay back part of the loan, and the investor is left with a bill for the remaining part of the loan that was not repaid. Brokerage houses do this to protect their equity in the loan and to make sure that they get at least part of the amount back.

Another myth that has been circulating is that jobs involving the trading of currencies on the forex market are plentiful and easy to come by. Particularly in ethnic minority neighborhoods, many poor individuals with high aspirations are taken in by advertisements touting highly-paid account executive jobs requiring no experience. In fact, most of these opportunities require the candidate to invest his own money, and that of his friends and family as he tries to recruit others to join in the profits. The job opportunity turns out to be just another way that the trading company scams the individual out of money.

Forex Definitions, Terms and Acronyms:

    * NASDAQ - National Association of Securities Dealers Automated Quotations, a U.S. electronic stock market.
    * Biggest foreign exchange trading centre - London, followed by New York and Tokyo.
    * United States dollar - USD, the official currency of the United States.

While many myths involving trading in the forex market have been circulated regarding the risk level and employment opportunities, the truth is that many people have made a substantial amount of money trading in foreign currencies.
By finding a reputable broker, one can mitigate the risk and still take advantage of one of the most volatile and exciting investment markets in the world.

Five Economical Indicators In Forex Trading

2008-07-29T11:33:00.000-07:00

Forex trading refers to the practice of buying and selling foreign currencies as they rise and fall in value on the global currency market.

Instead of investing in the success of companies, one is investing in the success of the currencies of nations of the world, which is to say that one is investing in the success of the nations themselves. Of course, the economic success is the most important piece in this puzzle, but the economic success of a country is dependent upon a whole lot of things. Here are just the five biggest ones.

The first one is the Gross Domestic Product or GDP of a nation. This concept is not a new one; every American had to do reports at some point during their education that included the GDP of a nation or a region of nations. However, the way that the GDP works might not be as obvious as what the initials of GDP stand for. The GDP affects the strength of a nation’s currency by weakening or strengthening the net production of the country. Regardless of percentage of import and export, the GDP represents the power of the workers’ force of a nation, which is indicative of the working ethic of the inhabitants and the strength of their working power.

Another easily graspable driving force of a nation’s Forex trading power is simply what the current events are in the nation in question. This may seem like an odd factor to influence currency values, but actually it’s perfectly logical that this be an influencing factor for a currency’s value. On a large-scale level, take the devastation of Hurricane Katrina, which obviously affected the US’s currency. However, there does not need to be huge ‘events’ in order to influence Forex trading. A currency’s value is closely linked to the overarching state of affairs in the country of question.

The third factor when it comes to analyzing the value of national currencies is the industrial production report of the nation. This may sound like a repeat of the GDP; the two are actually quite different. While the GDP measures the amount of production, the industrial production report measures the efficiency of what is being produced and included in the GDP. A country that is more efficient will have a better rating on this factor than a country that is not very efficient.

The fourth factor is the consumer price index. The basic idea behind this notion is to find out whether a country is making or losing money with what they are producing. This is a quite logical one; if the country is making money, their rating will be good for Forex. In addition to the cut and dry notion of making or losing money, of course a nation who is making more money on products will score better than a country who is making money, but only a very slight profit margin.

Forex Definitions, Terms and Acronyms:

Central bank - also reserve bank or monetary authority: an entity responsible for the monetary policy of its country, or group of member states such as the EU.
Quant (slang) - a quantitative analyst skilled in Ph.D. level (and above) mathematics and statistical methods.
Interest rates - a vital tool of monetary policy used to control financial variables like investment, inflation, and unemployment.

The last of the top five factors is the retail sales report. This report samples retail across a nation in a variety of domains for purchasing. The idea behind this is to find out what people are spending their money on and just how much they are spending. This samples the economic fortitude of the people who make up the nation in question. If you take an event like September 11th, this example shows that the general spending culture changes in this sort of event. While the GDP may not change and the industrial production efficiency might change only very slightly, retail sales plummet. Go beyond the word ‘retail’--think of automobile sales and plane tickets; these too are part of the retail spending of the nation’s inhabitants.

These five factors together provide a very clear idea of just how a currency is doing by taking a look at these factors in the country whose currency one is considering.

Forex Trading Rules

2008-07-29T10:24:00.000-07:00

Being new to trading in Forex markets can be a little intimidating.

Although many people desire to learn about trading in the Forex, those who begin learning about the trading system find the rules and strategy tactics to be overwhelming at times. While there are rules that you will simply learn along the way, such as price limits and such, there are a few steadfast rules you should know before you make your first move in the Forex market. Use these three rules to help you get started and successfully maneuver throughout the foreign exchange market.

Don’t Over Leverage Your Portfolio

When you are just starting out in the Forex, it can be really easy to get caught up in the leverage of the market. The great thing about leverage is that someone who is not investing as much as other larger traders can play with the “big boys” and potentially makes a good profit. An investor can expect to only need to back their investment up to 4% in most cases. This can get some people in trouble however. When you choose to abuse this system, you can end up with a lot of debt. You should never over leverage your portfolio.

Be responsible when trading and remember that you are trading larger amounts that you probably have in your portfolio. Keeping yourself grounded is the best way to make sure you use the Forex market to your best potential.

Know When to Quit

Another simple rule for trading in the Forex market is to know when to quit. In turn, this can also mean knowing when to let things stay as they are. There are no way around having occasional trades that have a negative impact on your finances. Not every trade you make will be a hugely successful one. If life were fair, this may not be true, but in the foreign exchange market, where things change by the minute, there is no way to guarantee every trade will reap rewards. Keep in mind that even the most seasoned foreign exchange market traders have bad trades. Your ultimate goal in trading in the Forex should be to try to come out with more wins than losses.

To make it easier to come out ahead at the end of the day, you should always know when to fold on a deal. Never let deals that you know are losing simply happen because you are praying something will change or to save your pride. Be sure to get out losing the least amount of money as possible. This is a strategy every great trader uses. Watch your trades closely so you can get out when you should. If you have researched the trade before, you will know what the breaking points likely are and be able to make this decision easily. Knowing when to leave well enough alone, alone, is another thing you must learn. Learn to be patient with your trades, especially if they are not in a negative position.

Forex Definitions, Terms and Acronyms:

Rocket scientist (slang) - a financial consultant with exceptional mathematical and computer programming skills.
Day trading strategies - trend following, playing news, range trading, scalping, technical analysis and covering spreads.
Direct quotation or price quotation - quotes using a country's home currency as the price currency.

Research Trades:

Researching trades beforehand can seem very boring. However, you should never make an order in the Forex market without knowing exactly what you expect to happen. You can look at trends and the history in order to get a better idea of what to expect. If you simply go out into the market with no background on the issues, you will likely lose a lot of money. So, take the time to do a little research before you begin.

Place Stop Loss Orders

You should always be familiar with a stop loss order before you begin trading in the Forex market. The stop loss order is something that should be places right along with your entry order. This type of order protects you from a potential loss getting out of hand. If the market takes a dive, you will be protected with the stop loss order. You must figure out however, before placing the order, at what point you would want to cut your losses. You should always do this way before placing an order. Although you may find that many traders do not utilize the stop loss order process, you will find that the more successful traders use it often.

Forex - Euro climbs further on inflation fears, focus shifting to FOMC

2008-07-26T05:50:00.000-07:00

LONDON - The euro climbed further against the dollar, supported by hawkish comments from European Central Bank board member Lorenzo Bin Smaghi and stronger-than-expected German producer prices. The ECB’s Bin Smaghi wrote in the Financial Times that commodity prices will continue to rise and that further interest rate rises will be needed unless technological developments and wage discipline don’t bring inflation down.

“Experience has shown that if inflation is left to creep up, the cost of bringing it down later will be even higher: the central bank must ultimately act if this is what is needed to maintain price stability,” he wrote.
European Central Bank officials have recently tried to downplay speculation there will be further interest rate hikes after the widely-anticipated one next month. But with inflation in the 15-nation single currency zone showing no sign of abating, markets are now anticipating borrowing costs will be raised at least twice before the end of the year.

This view was strengthened by figures showing producer prices in Germany rose by 1.0 percent in May from April, and were 6.0 percent higher than a year ago. Analysts had expected a 0.8 percent increase month-on-month and an annual rise of 5.7 percent.

“Punchy inflation readings in the euro zone, including this morning’s German PPI data, make it hard for the market to forecast other than at least a couple of rate hikes if the ECB continues to stress its mandate to maintain price stability,” said Daragh Maher, currency strategist at Calyon.

Meanwhile attention is now turning to next week’s U.S. interest rate decision. The Federal Reserve’s Open Market Committee is widely expected to leave borrowing costs on hold, but all eyes will be on the accompanying statement to see whether rates are set to rise in the coming months.

“Expectations that at next week’s FOMC meeting Fed Chairman Bernanke will fuel Fed rate hike expectations, which have been cut back during the week, could lend the dollar a helping hand,” said Antje Praefcke, currency strategist at Commerzbank.

For today though, a lack of data means there is unlikely to be any fundamental changes in currency trades. “With little high profile data due for release from either the euro zone or the U.S., it’s going to be a case of posturing and perhaps trying to book in some profits that will provide the direction ahead of the weekend break,” said Vin Hoston, head of sales trading at SigmaForex LTD.

Elsewhere the pound continued to rise on the back of yesterday’s record retail sales figures. Sales rose 3.5 percent in May from April, the fastest rate of growth since figures began in 1986. The data has prompted speculation the Bank of England may have to raise interest rates despite a slowdown in other parts of the economy as it attempts to bring inflation lower.

The news meant sterling recovered losses triggered after Bank of England governor Mervyn King’s letter to Chancellor of the Exchequer Alistair Darling on Tuesday to explain the rise in CPI inflation above 3.0 percent dampened rate hike expectations.

“As a result, the pound is now edging towards 1.9750 dollars and with the recent rate of appreciation we’ve seen, the question has to be asked once again whether there’s scope to see a return to 2 dollars to the pound,” said Thomson at CMC Markets.