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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.

Tips for successful Forex Trading

Forex trading can be a very profitable business in today’s world, provided you know what you are doing. Like anything worthwhile, it involves some pain. You will almost certainly lose money in the early stages. In fact, you will continue to have losses even when you are an expert. A successful Forex trader is one for whom the total amount of profit eventually outweighs the amount of loss. At the end of the day, Forex trading is based on speculation, which always involves some amount of risk. The key is to ensure that you control those losses. Below, I have discussed 4 tips to become a successful Forex trader.

Having enough capital

Only a small percentage of Forex Traders are actually successful. The exact figure might be difficult to ascertain, but think along the lines of 1 in 10. The successful ones avoid some mistakes that other Forex traders make and try to follow some basic rules. One very important rule you need to remember is to have enough capital in your account when you start trading. Also, it would be wise not to invest money that you cannot afford to lose. There’s no point risking your life savings, if you have them, in trading Forex. On a smaller scale, don’t risk your rent or grocery money. Remember, at the start the chances of some losses are high. Take that into account when funding your account.

Choosing the appropriate currency pairs

Selecting the appropriate Currency Pair to trade is also crucial for a successful Forex trader. Some currency pairs are more volatile in certain conditions while others are stable. Select a pair that is in line with your trading strategy, long term or short term. If your strategy calls for a short-term investment, then you can try more volatile pairs. However, if you are in it for the long haul, or are uncomfortable with rapid changes in prices, then you can choose a pair that is relatively stable. You have to do some research on Currency pairs and their performances in various climates to help make this choice.

Having entry and exit strategies

Every Forex Trading Operation has basic components: the selected currency pair you wish to trade, the required period, an entry point, and exit point. Your Forex Plan should include sound entry and exit strategies in order to minimize the losses and maximize your return on investment. You could also learn to use stop loss and take profit orders placed to your broker as your exit points.

A stop loss is an excellent exit strategy in case the market moves against you. Stop loss orders are placed to the brokers by the Forex traders to withdraw from the market if the market moves against them and they stand to lose a specific amount of money. A stop loss order protects you from huge losses in case something goes wrong. Similarly, in case of a take profit, you will exit the market after making a certain amount of profit. Both of these involve you as a trader setting a target and sticking with it. Sometimes, when in an actual trade, it might be difficult for you to make the required exit from a trade, even when your target has been met. Emotions could come into play, or you might even suddenly have trouble accessing your Software. Pre-setting Stop losses and take Profit orders allow and even force you to keep to your plan.

Sticking to your own strategy

There are numerous articles, e-books, trading systems available in the market that will claim to make you rich, almost overnight. Most of them sound downright convincing and will tell you that you can make a lot of money using their strategies without taking any risk at all. While a few of them may be genuinely good, most of these strategies will only confuse you initially. So, before you try any out on your Account, do the smart thing: test it on a demo account. Be sure of it. Then you can trade with it. Remember, there is no simple short-cut to becoming a successful Forex trader.

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