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“Once bitten, twice shy” resonates pretty strongly with forex traders – most investors, in fact – in the current environment we find ourselves in. Things are starting looking up, in general, but some have been badly burned. This can produce fear, and the unwillingness to open positions. Paralysis, one might call it. However, there are opportunities currently. More and more forex traders have been taking them lately…against the US Dollar.

Just take a look at the Volatility index, courtsey of Yahoo Finance:

Yahoo finance Volatility Index

See how much it has fallen in the last week. That’s fear leaving the market, slowly being replaced by growing confidence. The mood is bullish…enough to allow the market shrug off some bad news.

The effect is evident on our Forex Pairs. EURUSD, GBPUSD, AUDUSD, NZDUSD etc. They are all up. The general consensus at the moment is that they will continue to rise, as long we don’t get any major negative news. However, since we have established previously that this thing is not completely over yet, there will still be some bad news to come. Care is still required.

How much care though? Some longer term traders – along with learner traders – have lost money in this environment. The quote “Nothing ventured, nothing gained” comes to mind. You have to put your money where your mouth is, or you’ll never make progress. The key is MONEY MANAGEMENT. If you ensure that you only risk 2-5% of your account per trade, then chances are that you will have many-an-opportunity to make some profit.

Don’t get greedy, even when things seem good.

Happy trading

Job Losses, Central Banks and Forex Blues

I was in Ottawa, Canada earlier on this year. What struck me the most (aside from the fresh air, and the fact that no one I met actually said “oot and aboot” instead of “out and about”) was the muted reaction to the World Economic crisis. The atmosphere didn’t have that heaviness to it. It seemed like they were fine, and were going to remain so…unless you count the suicidal bellhop at my hotel who tried to convince me that Ottawa was a cr*phole and that I needed to get out before the shadows got me.

This is relevant because today the Canada job report is out. They lost 82,000 jobs, against expectations of 46,000. Unemployment was also up considerably. It seems that Canada is making a late entry into the “we are screwed” category of countries. To be fair, Canada has had it’s fair share of bad news; these items just didn’t have the biggest impact on my Forex Trading.

I mentioned previously that the global economic environment has been a somewhat harsh classroom for people learning about Forex Trading. You want to keep things simple. You want to be able to draw conclusions from established correlations. Consequently, it has been easy to see Oil having a good day, and generally assume that the Canadian Dollar would have a good day as well. This correlation has served well on the USD/CAD Currency Pair, even in this Environment.

Throw in a really crappy national economy in Canada and this is ruined. Oil might have an up-day, stocks might do alright, but bad news out of Canada would mean it would be even less likely that it’s currency would rise as expected.

In other news, the Swiss National Bank started a Global Forex War! Well, not really. They caused the Swiss currency to lose value by selling their own currency. The Swiss Franc has been doing quite well this Economic Crisis. Having a strong currency in this climate is bad for business and trade…exports mainly. That’s why the US Treasury Robot Secretary made comments about China earlier on this year. Low Value currency = Decent money from exports.

The issue here is that Switzerland is part of the European “Community”. Such an action was unexpected, even shocking, because it is blatantly selfish. The rest of the EU will be affected, and not necessarily in a positive way. Still, it’s all about Self-preservation. If, however, the rest of European Union decides to respond in kind…then it could get ugly. Bring on the war!

This highlights a key issue in Forex Trading. NEVER TAKE ANYTHING FOR GRANTED. Stay sharp. Always watch for the change that is coming. That way you won’t suffer too much when it 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.

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