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Archive for March, 2009

Trading or Investing?

If you are to be successful in arriving at any particular destination, it is not enough to know where the final destination is; you also need to know exactly how to get there. Hence, if you need to get to Mario’s Chip Shop, a map might be handy. That’s not all that there is to it, though. You also need to know what sort of map. You might require a different map if you are going to fly there, or if you are much further away; than if you are driving. Your decision will also be influenced by your resources. Can you afford the flight, or are you going to have to drive all 1500 miles? We can go at this for ages…but I am sure you get the point. You have to know where you are, what resources you have, what sort of person you are; before you can begin your journey to the Chip Shop.

If you wish to make profits off the Markets – e.g. Stocks, Options, Commodities, and Forex, of course – then you need to know exactly how you are going to go about doing that…your approach. In general, you buy an item, hold onto it until it gains in value, then you sell it and make a profit (in Forex Trading, one currency is always on the Buy side, so this still applies). If it is a long term investment, you might never actually sell it. However, the value of the amount you own should still rise in perceived value. This might also take on a slightly different dimension when you try to make profits from the interest you might earn from owning the item in question. There are also dividends that companies pay out if you own their stock. All of these come into play, but the general model still holds.

People see the above goal differently…for different reasons. Some people will buy a company’s stock, and hold onto it indefinitely, through ups and downs etc. Such a person would be an investor. They hold onto the item for a relatively “long” period of time. A trader is more opportunistic. They might buy the same stock, but would sell (or short) it when it’s value goes down, then perhaps buy again if they think it is going back up. Investors tend to be in it for the comparatively long haul; traders, while not necessarily short term players, tend to be more willing to drop the item if the market dictates. The trader tends to be more active. The distinction is quite important, as it can influence how either of them uses the same piece of information.

You see on the Markets everyday in this economy. Some bad news comes out, and the traders sell. They have no attachment to the stocks, they have an attachment to profit. The investors are much more likely to hold on, for whatever reason.

You need to work out what your approach to bring to the whatever market you find yourself trading.

Poor Gordon Brown gets it…

Check out this clip below. This is pretty harsh. Does The British Prime Minister deserve it? I don’t know, but it’s funny as hell

Forex Trading: The Dollar rebounds…violently

Europe is in a world of pain right now. The UK GDP contracted even more than was forecasted by analysts. Today, the German Finance minister made comments about preventing member states from straying away of the Euro Budget rules on spending. He claimed that if member states engaged in excessive spending, it would affect the Euro’s stability. Add that to some bad data, and you have what you see in the Forex chart below on the EUR/USD pair:

chart

So, the Dollar is back in the game. In fact, this shows that the Dollar never left. When it really comes down to it, people still count on the dollar for support. We’ll see where it goes from here.

The Great US Dollar

Timothy Geithner (he’s really becoming a big celebrity these days) was on the telly again. It’s a mark of the amount of confidence he seems to have built up since that fateful day in February when he spoke and the markets crashed. Well…not crashed; but made a big drop all the same.

This time Tim was making some comments about this whole issue of the the US Dollar’s fall from grace, and how there should be a new reserve currency basket of currencies. China threw that out there for everyone to “feel” a couple of days ago. There are those who feel that both The Chairman of the Fed, Ben Bernanke, and Geithner himself are not exactly opposed to the idea. I mean Ben just poured a trillion dollars into the mix. This sort of thing is not exactly dollar-supportive.

Well, today Timmy acknowledged that he would be open to seeing the dollar lose it’s superstar status. What?! Shock, Horror! The markets reacted accordingly, ending what had started out as a pretty good day. The dollar also lost ground to most currencies. Not the Pound though. The brits are in real trouble if Sterling could not gain on the dollar on a day like this. Mr. Geithner then somewhat retracted his earlier comment later on, stating that it was in the United States best interest to have a strong dollar, yada yada yada. Markets (and the dollar) managed to claw back some ground after these comments.

So why all the back and forth? Why the mixed message? Did Geithner get carried away and make the comments by accident? What’s really going on here? And what’s the big deal about the US being the reserve currency of the world anyway? It’s a question of confidence. If the US is not to be a favourite, what does that do to investments and confidence in US based assets? Also, part of this has to do with the US recovering and leading the world out of this recession. Any whiff of fear from the people who should be fixing stuff – namely, Tim Geithner – and investors will run for the hills. In this climate, a poor dollar might ultimately undo everything they are trying to repair in the economy.

There is a general consensus…sort of…that the Dollar will lose it’s status as the dominant reserve currency. The question is when, and to what. THe Euro is a big contender. There’s also this talk of a basket of currencies, including the dollar itself, but also including some of the up and coming currencies from countries like India with good economic growth and potential. There’s much in the dollar’s favour for now, such as the fact that Oil is priced in Dollars. Still, it will happen eventually.

Still nothing major to help us work out whether this is a Bear Market rally or the real thing. There could be more sideways movement until we get some more news…positive or negative. Retail Sales out of England (could be bad) and 4th Quarter GDP are notable. We’ll just have to wait and see.

Bull Market or Bear Market Rally?

They say a picture says a thousand words. That’s also true for the EUR/USD Forex Chart below; except in this case I am not all that sure what those words would be.

Forex Chart

Geithner and his friends came out with more details about they were going to do to fix…you know…everything. It’s funny. I saw Geithner make his initial announcement about the plan a little while back. It was notable. Investors expected substance to go with whatever confidence would be on display. They pretty much got neither. They sure as hell weren’t satisfied. That was not a good day for the markets.

Well, this time, he looked like a different person. You can see why Obama chose him. He knows his stuff. He seemed confident, knowledgeable…there was even a hint of humour there. Mind you, this was coming on the heels of the rally on Wall Street (Bernanke opened the flood gates…). His plan is also clearer, containing more of the aforementioned (and greatly desired) SUBSTANCE. Result – Good day on Wall Street. Bad Day for the Dollar. So, you can see how on the EUR/USD chart above, yesterday’s bar shows that move.

Today, there was some profit-taking, as would be expected after a big move like we saw yesterday. Once again, this is clearly visible above. What does it mean? Are we about to continue the downward trend? We are still very much in that trend. Was this merely a Bear Market Rally, of is this the real deal?

It’s difficult to say. Things just aren’t as clear cut as I would like them. The Fed unleashing a trillion dollars on the World is, in itself, dollar bearish. However, the dollar is still the most trusted currency. It’s status is being challenged, no doubt. China went as far as to call for a new super currency today. That was not enough to stop the rebound today though. If the Feds ploy starts to work really soon, then that would be good for the Dollar, longer term. Europe is still showing cracks. The US is still on the leading edge here.

In October last year, all of this was straight-forward. I made the most money in my Forex trading carreer when the initial Bailout was announced, along with the plan for the auto bailout. All that went to hell and it was literally buy dollars and yen against everything! Simple times. Predictable times. Good times.

I think there will be a cooldown while people wait for news. There are numbers out that will affect the US Dollar and Europe tomorrow. I don’t expect any major moves, but you never know.

Another thing worth mentioning is that Oil has been quietly gaining. How long will it be before we’re up to the levels we had last year? not long enough, if you ask me…

US Dollar fighting back…sort of

I am looking at my Forex Trading charts at the end of what was a pretty amazing week. The dollar has clawed back some ground after the record losses that occurred because of the Fed deciding to print more money…a trillion dollars…to buy up treasuries etc, and therefore free up the purse-strings for everyone. Talk about quantitative easing…

A year ago, hearing a figure like that would have been downright frightening. However, all we’ve heard in the US over the last few months is “Bail Out” and “Budget Deficit” etc. All kinds of crazy figures have been tossed around, so this one doesn’t sound out of place in this environment. That said, it’s still major. Thus, the dollar rightfully lost a lot of ground over the last few days.

Today, there wasn’t much news that affected the Dollar directly. Traders took their profits. People have come to terms with what Fed Chairman Bernanke and his cronies have done. Calm has returned. However, I don’t think it is over yet. It’s hard to find fundamentals to back US Dollar strength in the short term. The long term view is different though. The European Central Bank and others will have to follow the Fed’s actions in some way down the line. When that happens, it will be the dollar gets the upper hand.

You can see him the Dollar sitting in the dark, licking it’s wounds. It looks up and, with an evil smirk on it’s green face, says “I’ll be back!”. Will it really? Well, that’s the joy of trading forex…I really don’t care either way. Dollar up or Dollar down, I still get the crown.

Forgive my poor rhyming skills.

Pop goes the Dollar

The EUR/USD chart below shows what happened to the dollar in the Forex Markets after the Fed announced that it was going to buy up US Treasuries…to the tune of 1 Trillion Dollars.

EURUSD Chart

1 Trillion Dollars…That is some major dough. The US Dollar lost ground across the board, even to the Yen. That highlights an interesting point. In the past, we’ve seen the Yen lose value when confidence is up and Equities gain. In situations like these, the US Dollar would lose value against most other currencies, but gain on the Yen. Yesterday’s case was different. The Fed buying up all treasuries on this scale is bad for the dollars. When a commodity becomes available in large quantities, it loses value. The Fed is going to be printing shedloads of money, so the dollar will lose value.

On the other side of that equation, such an action is actually perceived to be GOOD for the US economy; and good for confidence. So, people tend to invest in high yielding currencies when they have confidence in the markets. The Euro, Aussie Dollar etc. all do well in these conditions. Add to the fact that confidence has been returning (based on that rally we just had), and you have a particularly violent Mortal Kombat finishing move. For non-Mortal Kombat initiates…this is a devastating effect that isn’t likely to reverse easily.

It’s funny how things can change. It was just a couple of days ago when most people still thought the dollar would retain its strength for some time to come, barring some major incident. Voila! Major Incident!!

This is what being decisive means. Bernanke gets points for doing this. This should unplug all the drains. Loans, Credit, everything. This is going all in. Hopefully it works, or else…

So, long term dollar trend anyone? My guess for now is…well, down.

Forex Trading today…frame of reference

There are times when I wish I didn’t have to sleep. I know this is true for everyone at some time or the other, but that doesn’t make me feel any better about it.

It’s like this – when there’s a Global economic upheaval in play (that would be now), it gets harder for forex traders to predict medium to long term direction of a currency pair. So, if you’re the sort of person who trades the daily charts, and stays in a trade for a day or three, then you would have trouble in this market. Take the pairs that the dollar is quoted against e.g. EUR/USD, AUD/USD; we have one day up, when the Equity markets go up, then back down when the markets go down.

The end result is that some forex traders shrink their frame of reference i.e. trade a lower time frame…or at least refer to it more. That might mean going down to 4-Hour and 1-Hour charts. There have been periods in these last months when this was the only way to get any real action in trading Forex. Of course, there is risk with this approach. It’s not really the sort of thing someone learning forex trading might do. However, once you’ve got some experience, it should be fine. It might not be worth the trouble for Forex traders with a lot of dough, but smaller account holders might be able to get a little something. The key is not to devolve into a Day trader, unless that is your area of expertise. Otherwise, it would be a good way to lose all your money.

To my point of being an insomniac…it should be a good way of trying to make some money in this climate…watching the news and charts 24-7 during the Asian session. A lot of the action happens then, when everyone is asleep in the US. Economic news being one of the biggest market movers now, one can get a good idea of market reactions to announcements in the Asian Session and potential direction of currency pairs heading into other sessions etc. Unfortunately, this would take away from the whole “only needing to check your charts for an hour in the evenings”. Plus it would be bad for my heart…and social life.

Sometimes patience is the only way to survive as a trader. No rash decisions. Stick to the strategy. Must avoid coffee…

The Stock rally fizzles…?

EURUSD031609

It seemed like we had 5 days under the belt; then at the end of the day stocks retreated. The fun is over, at least for now. It was a near thing. Most of the day was gone. So close, yet so far. Check out the Forex EUR/USD Chart above. If you look at the bar circled above, you can see the retreat reflected. The correlation between Dollar Strength and Equity weakness still seems firmly in place.

There are some note-worthy news items this week. If more negative news comes out…or even if there is no more positive, then we could be on the way down again. Promises are all well and good, but we need more concrete actions. The G20 didn’t really deliver on that front. It is also clear that we are still in trouble as far as the economy goes.

Watch the Markets…if we go up, the Dollar will continue to fall. If not, then it will be back to business as usual.

Happy Trading

4 days and counting…

This hasn’t happened for over 3 months. 4 days of Stock Market gains in a row. Wow.

Could this be it? Have we hit the bottom? Our we on our way back up?
No one wants to call it. No one wants to jinx it. However, there is reason to be a optimistic. The fundamentals are starting to strengthen; some confidence is returning.

The US Treasury Secretary, having messed up the message the first time he tried to “instill confidence” in the markets, promised to release details of the plan to deal with the Toxic Assets of the US Banks. This is in line with word out of the G20 meeting this weekend.

What does this mean for the Forex Markets? Well, the most obvious thing would be the move away from Risk-averse trades; more investment in higher yielding currencies…at least the few there are left. With most major central banks cutting interest rates during this time, almost all of them have really low rates.

If we go with the trends that have established themselves since this recession thingy got going, we would say that the Dollar and the Yen would be the immediate losers. The fundamentals of the Japanese economy are not good. With confidence returning and Equities gaining, I think it’s pretty safe to say that the Yen is going to go down. The Dollar, on the other hand…well it’s not that certain. There have been instances this year when Equities have done well, and the dollar has done well, or at least not as bad as the Yen. I think with the US seeming like its coming out of this thing might favor the Dollar in the long term, especially if the fear in the markets reduces substantially.

In the short-term though, the other major currencies should get a boost from Equity markets at the expense of the dollar. I don’t expect any major moves upwards for the markets, but we should hopefully be inching our way higher.

It really is time for things to start getting better. We will take this one day at a time.

Happy Trading

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