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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.

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 Day Trading – Strong nerves required

Day trading is a way of trading that generally relates to entering and exiting trades such that all positions are closed off before the end of the trading day. As a style, it refers more to people who are willing to execute multiple trades within a relatively short period, attempting to make money off what more long-term traders would see as fluctuations.

Some seasoned Forex traders prefer this method as opposed to long-term methods for various reasons. There is instant gratification. You can see the results of your efforts in shorter periods. It can be very profitable, particularly if you have a large amount of money in your account. Large institutions engage in this sort of trading quite a bit because they have millions, maybe billions in their accounts. A very small move might earn the small-time trader – i.e. me – only a few hundred dollars. That same “fluctuation” might earn the big boys tens of thousands of dollars or more. It means that you have many more opportunities to open positions and thus, make profits. Unfortunately, it also means you have many more opportunities to lose your money. As with all forms of trading, the trick is managing your money effectively; something that is a lot more difficult when operating in shorter time frames.

One of the obstacles cited by some traders in their case against day trading is the necessity of spending more time in trading mode. This means staring at a computer screen, for most people. It can also mean listening to news, constantly browsing the information websites etc. These traders may be able to overcome the higher risks that Day Trading might entail; they just don’t have the time to do that. This is where an automated system comes in. If any of these traders could “program” his trading system into a Forex Trading Software, then that problem would be solved. In that situation, the trader no longer has to devote all that time. Other tasks can be done. When there is a Buy or Sell signal, the trader can have a quick look at the markets and confirm this by opening the position.

It is also possible to have the software enter and exit trades for you, hence the term “automated”. To use this, the trader would have to have complete trust in his system. Many automated systems are now available from a large variety of traders and gurus. If you feel comfortable enough, you can try one. It’s easy enough to test on a demo account. If you wish to try any of these on a live account, then you should start out using the signals, while you actually enter the trades yourself. They usually have a free trial period, so you can evaluate whether or not you are comfortable using them. That way, if it doesn’t work out, you can get your money back, or just not buy the full product.

As with any of the other trading styles, techniques or whatever you might choose to call them, this one has takers and those who are against it. Some experts argue that it is simply not possible to do any meaningful analysis when operating within such a short time frame. Such a sentiment is understandable. This method of trading, in their opinion, reduces Forex Trading to something more akin to gambling. They would argue rightfully that entering and exiting a trade should not be like throwing dice. There should be a clear strategy in place. This concept is just much more complicated to implement when engaging in day trading. You are also significantly more exposed to price spikes due to news. It can be a wild ride. Adding an automated system to the mix goes even further down the road in that respect.

Regardless of that, there are those who thrive on it. It’s hard to argue with facts and figures. For some people, Day Trading is Forex trading. They wouldn’t have it any other way. In fact, the first fulltime trader I met was a Day trader. He did well, making consistent profits. It’s not for everyone, but that doesn’t mean it can’t be done profitably. Ultimately, you will have to try it yourself to see how it sits with you. Who knows…you might find that you’re a natural born Day trader.

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…

The Pound

It’s taking off…

The Bank of England cut rates today, and the Pound soared. A dedicated bunch of Forex Analysts have been claiming since the end of last year that the sell-off of the British Currency against the Dollar was overdone. The idea is that all the Pound needs is an excuse to start to gain on Dollar and, Voila, up we go.

That’s the thing about upheavals. They mess everything up. It used to be that if the Central Bank of a given Country cut their interest rates, the value of the Currency would decrease. In the case of the US for instance, you wouldn’t stand to gain much as an Investor if you purchased US based items (one way or the other, buying the dollar) if the Interest rates in the US are low. All that’s gone in a climate of fear such as we have now. Now people are worried about which currency is best to invest their money. They’ll go for currencies where the Powers-that-be seem to be doing more to ensure that their Economies get out of this rut faster. What’s an example of doing more? Cutting interest rates…aggressively. This will should help stimulate the Economies. Thus people are more comfortable investing. It can turn around though. For instance, if the rates are cut, but not enough, the opposite could happen and the everyone could fly away. Care has to be taken.

The Euro has not been so lucky in the last couple of days. Everyone still feels like the European Central Bank is unwilling to do enough (i.e. cut rates enough) to stimulate the European Economy. We will need things to go really well in the Equity Markets for the Euro to gain on the Dollar. We will be watching the Jobless Claims numbers out of the US. If they are worse than expected, then people will assume that the Economy here is not getting any better. The Dollar and Japanese yen would rise under such circumstances.

I am not sure about the Pound though. It just seems to want to go back up against the Dollar. You know, to teach it a lesson.

Happy Trading

The Roller Coaster Continues…

How low can we go?

I’ve given up asking that one in current market conditions. The GDP numbers last week weren’t quite as bad as people predicted. Still, they were bad. More importantly, I don’t see anything that necessarily shows that things are getting better…at least not yet. 

What I found rather surprising was the strength of the British Pound. It gained substantially against the dollar, Yen and even the Euro. Once the encouraging statements came out of Barclays, the Pound never looked back. The only thing about this is that 4 out of the 5 news items about the Pound were positive i.e. not as bad as everyone thought they would be. Would you be willing to bet that the same will happen this week? Not too sure about that, mate.

We’re also getting the non-farm payrolls report this week, along with possible interest rate cuts by Australia and possibly the UK. It could be a messy week. Investors are going to be on their toes. It would be dangerous to try to work out the direction things are going. We shall watch how things start out this week, then we’ll decide

Happy Trading

Tuesday’s Trading…

…Or lack thereof.

Too much in the way of news this week. Everyone seems to be waiting for something to push them in one direction or the other. There’s going to be a breakout, and I’m afraid it might still favor the dollar.

Barclays came out to see they didn’t need any money from the British Government to keep things going. This might give the markets a slight boost, but I am not sure it is enough. There were some pretty dismal Consumer Confidence numbers from the US. There’s also more data expected for the rest of this week. All of this might mean that the dollar’s rally against everyone else (except the Yen) continues for some time yet.

I’m sitting this one out…just for today anyway. I’ll be keeping an eye out to see what happens. I’d like to catch the break when it happens…

Happy Trading

The Forex Market…who plays?

The Forex Market is huge. Everyone says that, but it is difficult to understand the sheer scope of it. Over 3 trillion dollars traded everyday. That is an obscene amount of money. it belongs more in the realm of fantasy than in real life. The Forex market is also the largest when we talk about average daily turnover per trader. All this is even more impressive when you factor in the fact that there are more players in the Forex Market than any other in world. So, who are these fellas? Well, we will go over some of the majors.

Let’s start with the Banks. You didn’t think they only did saving and lending, did you? It’s a wonder we still call them banks. They are involved in all kinds of things these days. Banks are one of the major leaguers in Forex. Some banks trade several billions of cold hard cash…well electronically mostly…everyday. They sometimes enter trades for clients, but the bulk of it is self-motivated. Commercial Companies are not quite as affluent as the banks. Nevertheless, they do their fair share. Sometimes, they generate enough volume to impact the direction of exchange rates. Central Banks are quite powerful as members of the Foreign Exchange Market. They have significant abilities to influence currency supply, interest rates etc. Central banks for countries have “ideas” about how much theur currency should be worth. If things go too far against them, they can take some action to try and influence the markets e.g. by using currency reserves to trade in huge volumes to raise the value of a currency. There’s a lot of this “intervention” going on now that we have a global recession. They are a sinister group.

We then have the Investment Management Firms. They basically pool a bunch of client finances together and play the market in some way. They tend to use the Forex Market to gain access to foreign Exchange, perhaps to purchase assets in another country. Since this sort of investment happens a lot, they do contribute significant volume to the trades. Think Bernie Madoff…or maybe not, since it turned out he wasn’t really doing much investing after all. Then you have Retail Forex Brokers. These are the good folks you open your Forex trading Account with, and who take the opposite position to you when you enter a trade. Lovely guys. They vary greatly in size and volume of trade, but together contribute something like 2% to market volume.

Then you have me, the little individual Forex Retail Trader. A mere drop in an ocean. We barely make a dent on volumes. Apparently, 95% of us trade at a loss. However, we are a relentless bunch. Most of us realize that the opportunity to get involved can be leveraged to make good profits. We may not have the volume, but we don’t care. We are the new kid at school, finally given the opportunity to make something of ourselves.

There’s room for everyone here. Just know your place.

  
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