Follow my Commentary on Forex Trading. The aim here is to
Understand; then Make Money.

Finding success learning in Forex Investing is like anything need to put in the time to learn. I'll be laying it out for you as best I can, based on my experience. So come with me...

Archive for February, 2009

The Credit Crisis…how it happened

Why are we in a crisis? What started all this? How do we fix it? Well, it started with housing, and it will end with housing. That sounds really catchy, doesn’t it? It’s something you hear from some economists. It’s also true. The following video is the simplest – easiest to understand – explanation of our current situation. Enjoy…

The Politics of hope…

In the current downturn, confidence is key. There has to be enough of it so everyone can start to go out there and spend and, you know, stimulate the economy.

So, how can confidence be restored when everything has gone to hell? Well, the people who have regular folks THINK have the power have to show that they are doing something about it. Hence the whole stimulus malarkey. At this point, it doesn’t matter too much what is done…just do something; the bigger the better.

Then they have to outline how what they do will make things better. In a recession on the scale we are seeing here, care must be taken when doing this. You see, if they make it seem like everything will be getting better soon, and it doesn’t work out that way, then they are screwed. However, if they are unable to reassure people about the steps being taken, then that is even worse. They are supposed to be able to fix stuff…that’s why they were elected to the positions of power.

It’s about managing expectations. That said, for someone who ran a campaign based on his ability to inspire people (at least partially), the new US President has been something of a wet blanket. Understandably he wants to try to be honest. I get that. The Stimulus has, however, been passed. I do think it’s time for the new messiah US President to fall back on his great ability as an orator. People want to be told things will be alright. Do it already!

Hope has been a recurring theme on my posts here…I’m not stopping now.

Go, Obama!!!

Possibly related posts: (automatically generated)

More on Forex Correlations

Trading in the market does not happen in a vacuum. This mantra applies to all investment markets; the usual suspects like stocks and commodities, but also Forex. There are a variety of events in any given environment that could affect the values items in any of these markets. The phenomenom we are looking at here though has to do with the effects the markets have on each other. Understanding these correlations will help you be more profitable at Forex Trading.

Big Investment people always talk about diversifying your portfolio. The idea is not to put all your eggs in one basket so you can keep going in case on thing doesn’t work out so well. You also hear about hedging. It’s an interesting strategy that involves taking a position in one market that is opposite to one taken in another market to offset any exposure to major risk…in a nutshell. One might look at this and work out that the net result would be zero, but savvy investors obviously expect to get out of the losing position quickly, and stay in the winning position for longer.

All of the above can be applied to the Currency Trading Market. I personally do not have an Account that allows me to invest in stocks or oil, but I can apply the trades I might have made in either of these markets to my Forex Trading. A simple example is the correlation between commodities and Australian Dollar, New Zealand Dollar and the Canadian Dollar. The the case of the Canadian Dollar, rising Oil prices help to increase it’s value against the dollar. This occurs because Canada is one of the World’s largest producers of Oil. It is also the largest supplier of Oil to it’s more popular neighbor, America. When Oil is on the rise, it is good for Canada, as much of Canada’s Economy depends on it. On the other hand, rising Oil prices are not so good for the US, also because much of the US Economy depends on it. Expensive Oil therefore tends to have a negative effect on US Equities. The end result is, you can trade the US Dollar/Canadian Dollar currency pair armed with this information.

One can extend this to other currency pairs. You can do some mixing and matching as well. Rising Gold tends to be good for the Australian Dollar and bad for the US Dollar, so one can buy the Australian Currency against the Dollar under such circumstances. Also, when US Equities are doing well, the Dollar tends to gain on the Japanese Yen because people would sell the Yen for Dollars so they can buy US Based Assets which offer a high rate of Interest than Japan.

The thing to note here is that this correlation is not absolute. There are times when it just won’t hold, when more important factors are at work, such as in a time of Economic strife when predictability in the markets reduces and everyone is afraid. These correlations will often reverse at a moments notice without much warning. This was the case in January 2009, when Gold and the Dollar began to move up at the same time. Some fundamentalists claim that there is no basis for the correlation between the dollar and Gold, for instance. Still, correlations like this can be quite useful. As a Forex Trader, you have to make use of all tools that come your way. I think there are times when it is best to go with the established trends. Like any other situation, the trader has to be constantly vigilant and pay attention to the surroundings. As long as you manage your risks accordingly, you will be able to stay in good shape, regardless of what happens.

Forex Correlations: Re-alignment?

Earlier on this week, I posted a video that talked about trading Gold against the Dollar. The ability to do trades like these is based on on understanding the correlation between Currency Pairs and, in this case, a commodity.

The nature of these correlations in the Marketplace is usually taken for granted for certain periods, with good reason. Understanding correlations can help increase your profits in Forex Trading. For instance, when there are economic issues and investing in Stocks and Assets becomes dicey, a condition that is prevalent now, one can see why Gold would emerge as a champion. It’s just safe, you know?

The thing is, rising Gold prices go hand-in-hand with a weaker Dollar and vice versa, in some way because Gold is priced in Dollars. Here’s an interesting article on that talks about some of the correlations between the Dollar and others.

Since the middle of January, this correlation is reversing. I mean that BOTH Gold and the Dollar are going higher at the same time. Investors, afraid of everything else, seem to believe that their money is still safe with the US Government. This is reasonable, as it would seem that they have done more to fight this recession than anyone else right now. Europe seems to be heading for an Explosion. It was highlighted today that Western European banks (countries like Sweden, Italy, Belgium…the rich folks basically) could be exposed to considerable risk if the poorer Eastern European cousins are unable to handle their debt. If failures start to occur, the Euro will be massacred. I expect the Europeans to do something drastic to try to prevent this, along with the crisis in confidence it would cost.

In any case, investors don’t want any part of that right now. So we have Gold and the Dollar on the march at the same time. You’ll have to forgive me for being unwilling to bet on how long this friendship will last, this time.

Trading Gold against Currencies

Trading currencies involves paying attention to the Economic news, commodities etc. After trading for a while, I got to the point where I realized that I could tell where Gold would go, where oil would go and how these moves might affect currencies. I remember thinking to myself “I wish I had an Account that would allow me to trade Gold or Oil…I could make a killing!”. Well, you can trade commodities by trading the currency pairs they affect the most. This correlation, while not always perfect, can allow you diversify your portfolio while still only trading Currencies.

Here’s a video that explores the idea…

The League of Super Heroes (AKA the G7)

The G7 (or G8. It’s been going back and forth between those two for a while now. In keeping with this indecision, I will interchange these throughout this post) have been meeting in Rome over this weekend. They have said that the World Economy is in a pretty bad state. They think it’s going to remain that way for the rest of the year, at least. A dire assessment of things, if you ask me. However, this in not unique. Everyone else has been saying the same thing. It’s nice to see that we are all on the same page, right?

Well, the G8 claim that they are going to do everything in their power to fight this global recession, or depression, as it is fast becoming. I think this underscores what is different about this particular downturn. It’s the unprecedented level of influence the Governments of the world are unleashing to combat it. It’s also the fact that they are willing to work together on a global scale. This is what gives me hope. It’s why I think we might get out this in better shape than we got in.

It’s in times of adversity that people come together the most. Differences are put aside, old squabbles temporarily suspended as we unite to fight the common enemy (To experience this phenomenom first hand, try saying something disrespectful about the US Army at Baseball game). In this case the enemy is one that threatens to wreak havoc on all of us. It’s nice to see we are all on the same side.

In keeping with this, the G7 have stopped attacking China on it’s “controversial” Currency Policy. The US was initially speaking out against China, trying to get it to revalue it’s currency, which currently is undervalued, as far as most others are concerned. This means that China’s Export industry, for instance, is holding up better than others. In this environment, where the US (and Japan) are hurting, one can see why the US was moaning. That’s out of the window, for now.

The G8 said little about influencing Currency rates though. I guess some people expected that. The conspicuous absence of a statement on this means that any co-ordinated response, currency-wise, will be minimal. All-in-all, like everybody else, they are still trying to figure out how to beat this. There’s a silent hope that it will simply pass way, like a particularly bad storm, or nightmare even.

As always, I am hopeful that it will pass…sooner rather than later.

Forex: The right Information

Being successful as Trader really boils down to two things: Getting the Right information; and making the right trading decisions based on the information received. That’s it.

This goes without saying. One could also argue that it is true for almost everything in life. Take the Military for instance. Deciding the go to war, even in the time of peace, could be justified if the Government can prove that there is information that shows the other side is preparing for an attack. It’s the same with investments and, consequently, Forex trading. That’s why there are Insider Trading laws, to prevent people from using it overly to their advantage.

So, the question is, how do you get the right information – legally – to help you make the right trading decisions? Well, there are different kinds of information to take into account. First, you have data. We’re talking about hard figures here…in the case of the Forex market, exchange rates right now, what they were a certain period ago. This could also take into account other figures that might help determine the direction of a currency pair at that unique moment in time, such as interest rates, Employment numbers etc.

The currency prices – both current and historical – you can get from your Trading Software. The other bits can be gotten from a variety of news sources. Bloomberg news is a good example. Also, you will find that most Brokers provide some sort of news feed that will supply this kind of information as well. This is the sort of news that is not subjective. It will be fact, and therefore the same, regardless of where you get it from.

Once you have all the data, you have to try to understand the possible reactions the currency pairs will have and why. This is the analysis part of things. Some Traders prefer to do fundamental analysis, while others will look to the charts for guidance. I try not to get involved in the arguments about this. I prefer to do both of the above. I listen to the news and check how the Economy is doing etc. Then I go to the charts and finish off my analysis. It is very useful to listen in on what analysts are saying and why. Once again, the news sources will have analysts come on and give their two cents. You will often hear conflicting opinions. This is fine. What you need to pay attention to is the reasons why they believe movements will occur, not just what movements will occur. This will help develop your understanding of the markets.

In my case, I also subscribed to a paid service for a couple of months. It wasn’t necessarily cheap, but it was a good way to learn a bit more detail from experts who might be unwilling to expose all the knowledge they have for free. I learnt from those initial months and began to make decisions myself.

You should also look at how the market is reacting to news as well. Are stocks going higher or lower? What about oil and gold? How do all of these affect the pairs I want to trade? There’s also the Volatility index, which is a measurement of how confident investors are in the markets at the moment.

Once that is done, I finally look at the Charts and do the Technical Analysis using standard tools such as Support and Resistance, and Trend lines. Once again, as a beginner, I took into consideration whatever experts said regarding this until I reached the point where I could do it myself. Even now, I still listen everyday to other trader’s opinions regarding the technicals as well.

Then I make a move, or not, as the case may be.

Falling off the Edge…

The Treasury secretary spoke; then everything went to Hell.

The Investor in this environment is like a scared little kid who is convinced there’s a monster in his wardrobe. He needs to be consoled, encouraged etc, or he is likely to freak out. He needs you to tell convince him that it’s not there. You will need to throw in loads of reasons why he should believe you. You will need to be confident. If you are bullsh*tting, he will smell it, and there’ll be an even more violent reaction.

This is the current state of affairs today. The Secretary wasn’t convincing enough about the current crisis in the US. He seems to have forgotten (maybe he never knew) that he’s dealing with a very smart kid, one that has suffered quite a bit in the last year. This kid is way past being convinced there is no monster in the wardrobe. He has the scars to prove it.

What this kid needs is exact details of how you are going to get him out of that room before the monster eats him completely. I’m talking about documented escape routes and stuff like that. Then he wants details of how you are going keep the monster trapped in the room until it starves. Then he’ll need to see your weapons.

Even all of the above will not guarantee co-operation. Falling short…well you can see what happens.

Hopefully the kid will see – in time – that there is a long term plan in place, and that plan should ultimately lead to the monster being outsmarted.

Here’s hoping…

Standing at the brink?

I have been trading seriously for a number of years now. Maybe not in huge figures; but I have been around long enough to know when we get to this point, however different the circumstances maybe this time.

Everyone’s waiting for Obama’s stimulus. Everyone’s hoping that the Government is convincing enough (unless you’re a forex trader, in which case you don’t really care…you just know things will go one way or the other). That’s what it boils down to. Do I as an investor fell confident enough to take the risks necessary in the marketplace? Am I willing to put my money on the line? Obama and his henchmen (Treasury Secretary, The Fed) will be making all kinds of announcements and speeches tomorrow.

How will people react? Will deliver the psychological goods? If they do, then we might finally see some proper risk appetite return to the market. In this case, the yen should fall, along with the US Dollar. Otherwise, well the downward spiral will simply continue…or plunge sharply. The upward move we had last week (i.e. Others gaining on the Dollar) is still very much in the retracement range for the long-term downward move in play for the Currency pairs involved.

Keep a close watch…

I am a Part-Time Trader

It’s an interesting statement to make, saying that one trades part-time. It means different things to different people. It could mean that one uses an automated system, and only intervenes every now and then to adjust settings. It could also mean that one is a long term trader, and only bothers to check on that trades once a week, or even less. I think a more common interpretation would be someone like me, who has never had any professional training; perhaps works another job fulltime, and “investigates” forex trading in his spare time, mostly in the evenings.

I’d like to clear something else up. I am NOT a professional trader. I have no intention of ever becoming one. I don’t have the time. I still do other things during my day. I get to travel all over the place for free. As long as I’ve got access to a computer that I can check in the evenings a few times a week, I’m good.

I have to admit, this is not what I thought trading would be. My first forays in to the world of Trading came when I was a student in England when I (along with a friend) ran a web development firm (well, we called it that). We were commissioned to build a website and chatroom for a client who was a Stock Day-Trader. I remember walking into his study the first time. He had two big computer screens with charts and data, all of that in real-time. I was amazed. I thought only banks got that kind of information. I could feel the energy in the room. I almost felt like I was on the Trading floor.

He had a formula he used for Technical Analysis, and he asked us to spend a day trying to program his own formula into the software he was using (eSignal, I believe). We failed to do this successfully in the one day we had, as we didn’t really understand the concepts properly, and the website was more important to him at the time. Still, I knew I would be returning to that world. The possibilities seemed endless. Programming my own formula…I knew I was going to be rich.

That’s ultimately why I got into trading; the ability to use my Programming skills to automate my trades and make a ton of cash. That way, I could do other things while my money was working for me. After trying for ages to do this, I eventually took the time to understand a bit more about the Forex Market, and I finally began to get the results. Now, I achieve the goals I had wanted previously, without having to invest a large amount of effort or time.

The point is we all come to the markets hoping to make money investing as little effort and time as possible. This is achievable, once some simple concepts are understood and applied. Anyone can do this. There isn’t that much to it. Maybe there was back in the day, but no more. You do have to apply consistent effort over a period of time though, if you really want to understand Forex Trading.

The other option is to follow a professional trader and trade according to their rules, or maybe get someone’s system and use that. Either of these is not really advisable if you’re a complete newbie, not unless it comes with some training. I think once you’ve got a little bit of knowledge, you can follow one of these guys. It will be possible for you to understand the reasons for the moves they make, and you can make an informed decision whether to follow or not.

Once you’re there, it will be possible to trade profitably without having to spend ages watching price movements and charts.

Business Blog Directory