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Forex Trading…unreasonable expectations

My path as a forex trader has been…interesting. Like many others, I was lured in by the prospects of easy money. The way I figured it, next to winning the lottery, Forex trading was the fastest and easiest way to make a mint. All I had to do was program my own system, which was going to be a cinch, because I had the inside track. Hurrah for me! Of course it didn’t work that way.

Many forex traders come in with such unreasonable expectations. There’s nothing really wrong with that. We’re human beings. We live to learn. Us Forex Traders…those of us who have been here a while…we have all learnt painful lessons. It’s like growing up. You put your hands in fire and get burnt. The next time you are more careful. Simple.

The difference here is that anyone – well, almost anyone – that can open a forex account and start trading should be smarter than the average child. So, how come they all still make the same mistakes as the others that have come before? Well, with children, the adults often discourage dangerous behavior. It’s curiousity that gets them into trouble. So, in the cases where they are out there without supervision, they might have to get hurt and learn the hard way.

Well, in the world of Investments and Trading, including Forex, too many of the “adults” don’t discourage harmful behavior. Infact, they actively encourage it. They help to perpertuate the myth that one can take short cuts and get rich. I am sure a few people will get lucky and hit the jackpot with little or no work, but it’s no strategy to base your trading career one. “On-the-job” training is a requirement in Trading, but some pre-education is needed as well.

I suppose we traders have to take some responsibility. If we weren’t all looking for quick money, we wouldn’t fall so easily for the seductive information that is out there. We wouldn’t buy every system that comes out promising riches without any work. We would take more time to learn and grow. We would see the false prophets for what they are. It’s just that things aren’t black and white in real life. Fire burns, so you don’t touch it. But Forex Trading can make you rich. Systems can make you rich. You can’t really tell people not to trade because it’s dangerous. So, the people with the authority…they aren’t really lying when they tell you some of the wonderful things. They underplay the negatives and exaggerate the positives. It’s irresponsible of them, but there you have it.

So, back to the responsbility thingy. Ultimately, your financial destiny is in your hands. You need to test everything that is out there before you trust it. Get some training! If you won’t buy a book, check out Babypips.com. They are great for online information and training.

Happy Trading.

The beginning of the end for the Dollar…in the short term anyway

You know the scene I’m thinking about. The one where a former great leader is surrounded by the same people off of whom’s misery he has derived his wealth and power for a long period of time. Now, he lies there, beaten and bloody. Everyone of them wants a piece of him. The poor guy has no where to go. He might not be responsible for everything that went wrong in their lives, but he’s an easy target now, so he gets it.

That dude is the US Dollar right now. The mighty dollar has benefited quite a bit from all the stuff that’s being going on. Falling Equity prices, poor commodity prices, cheap oil,bad economic news (even the ones in the US)…all round fear. It’s all been good for the Dollar. While we have seen some forex market pairs fight back over the last few weeks, last week was quite important.

A couple of things happened that could signal a more powerful shift in trading sentiment. First of all, you have the job numbers in form of Non-Farm Payrolls. They came in at 539,000 jobs. Now that’s lot, no lie. However, it was significantly less than the 590,000 that experts had estimated. This is good. Very good. We then have the results of the Obama Administration Stress tests which were quite interesting. There has been a lot of debate about these tests. There was skepticism by some about whether they were anything more that a PR stunt to cover up what was really going on. No one was really sure what metric would be used to score these institutions. It just didn’t add up. At the end of the day, the tests turned out alright. Some clarity was brought to bear on the financial system. In fact, the results were pretty much what people expected, in terms of the institutions that need help and those that don’t. No major surprises. It has boosted confidence, and it seems pretty clear that there will be no more major bank failures.

The US Government seems to have a plan on how to tackle the issues with the problem companies. If a company is not viable, then it must be restructured. Think Chrysler. Buy outs, Bankruptcy etc. The options are being used. I think more people (myself included) are fully convinced now that these money-sucking pits (supposed companies) will be allowed to fail if that is what it takes. Companies have been given deadlines to raise certain amounts of money, as proof that they can survice. If they don’t, then further steps will be taken. The Administration is now the strict parent. I am not entirely sure that putting a deadline on a drive for funds will work as intended, but it seems alright to investors…at least for now.

So it was a two-hit combo against the dollar last week. For this week, we have retail sales numbers to look forward to. Those are expected to be better. Mind you, this optimism is of the cautious variety. No one wants to jump the gun. However, it seems like the dollar will keep taking a beating. Commodities are on the rise. Oil is going up. Risk appetite is rising. Investors are starting to walk with a skip in their steps. It’s all good.

So, unless the dollar can make like Popeye and suddenly starting whooping everyone’s ass, I think the dollar will lose more ground. Popeye needs spinach to do his magic. Spinach here would be negativity. We are seeing less and less of that these days.

Happy trading.

Forex Trading strategy: The Undercover Cop or the Detective

Trading over the last 8 months or so has been pretty brutal. Some many ups and downs. No doubt, a substantial amount of new Forex traders have been wiped out. It’s not the sort of climate for the inexperienced…unless you like swimming with sharks…or skydiving.

Seriously, though. There are times during an economic upheaval when you can predict with some accuracy what direction things will go, based on some event, or economic figures. Times like these present an opportunity to make large profits in a short amount of time. Think October last year for instance…the market reaction to the announced auto bailout. Infact, the savvy trader only had to keep betting the dollar against everything to make profits during that period.

This type of almost “no-brainer” trades are not available often though. If you have a long term strategy in place, it becomes a lot harder to get any action when there is so much volatility. It’s at times like these that a lot of newbie traders start to flirt with the dark side. For instance, by moving from trading Daily Charts to Hourly charts, in the hopes of taking some profits from all the noise. Some are can be quite successful at this. However, you invariably have to risk more to trade this way.

It’s like working undercover trying to infiltrate the Mob from the inside, rather than as a detective investigating from the outside. You can do more damage with the former, but it is much more risky. One major mistake could mean disaster. The lather, well it’s not quite as exciting, but you can make steady gains without having to risk your life…well not nearly as much as in the first case.

Sometimes, when things are too wild, you just have to sit back a little. Feel free to try new things every now and then, but always stick to your strategy as much as possible. Stay low on the dice throws.

In keeping with that, we will try to to jump in without proper evaluation this week. There is quite a bit of news expected affecting the major currency pairs. At this point, the potential trade is looking fairly straight-forward. If the news is decent in general (i.e. not as bad as expected), then the dollar will continue to lose steam. I should say that people have started to EXPECT BETTER NEWS. This could mean that bad news might have greater impact than, say, a month or two ago when everyone just thought everything was bad. Will keep you posted.

Happy trading

Economy still headed down?

A somewhat frightening assessment of where the global economy is right now is shown in the video from CNBC below. Bear in mind that the dude’s name is Stephen King. There’s another chap by that name who’s a good story teller!

Things do seem to be getting better though. The Euro, Swiss Franc, Aussie and Canadian Dollar all gained on the Dollar this last few days. I have said that the Risk Aversion trade which we have been seeing might be losing it’s edge though. That means that we can no longer assume that things are getting better simply because the Dollar is losing value. This is especially true as the Yen also gained on the Dollar! Normally, the Yen would lose as well.

The numbers out of Europe this week have been good. Commodities are also doing well. Oil is back above 50 Dollars a barrel. There is hope that we have turned the corner. Maybe Mr. King is just being a killjoy.

Till there is more stability, it is still a trade by the day type scenario. Good news in a particular region will mean up, bad news down.

April, The ECB and The Forex Markets

Last week was not a good one for Euro, against the dollar. It started out quite promising, but went downhill from there…fast. This was more noticeable because other forex currency pairs did alright against the US Currency. Maybe not great, but at least we saw a mix.

The ECB have gotten themselves into a bit of a pickle. How did that happen? It’s quite interesting. Central Banks have characters. The character of a Central Bank is usually a derivative of the people who run it, along with the relative strength of the country’s currency, along with some spice. Well, it is well known that the European Central Bank is generally against dropping Interest rates to very low levels, if they can help it. They responded to this crisis by cutting rates, just like everybody else. However, they responded late. They came along kicking and screaming. Along the way they have often indicated their desire to maintain a strong euro. That desire seemed to stand, even as the pillars collapsed around them.

Well, now we have a rate decision approaching. Things are still not great. In fact, new data seems to indicate the Europe is still in dire straits. They need to do more. To that end The President of the ECB, Trichet, has shown (key here: actually spoken this aloud) a willingness to drop rates lower than 1.0%. This is unprecedented. Finally, they are coming to their senses! Great! Well not quite. You see, another big official also said pretty much the opposite in the news. The unwillingness to drop below 1.0.

What’s going on here? Is El-Presidente losing his grip? Where’s the unity? At least people knew what to expect before this. Now…well now there’s confusion. An incongrous message is put out there. The end result: The Euro is left with a four day losing streak against the dollar. This, when the others such as the pound and Commodity currencies were fighting back. With more negativity expected in the news this week, the ECB fellas will have to get their act together.

Things aren’t all rosy for the others either. The pound, though it fared better than it’s european cousin, also has it’s problems. There was no real news last week. That won’t be an issue this week. There’s plenty to go round. Some of it will be bad, and we will all see that, in spite of the optimism, we are not out of this yet. This should bode well for the US Dollar. Also, a major investment firm has boycotted bets that the Pound will continue gaining against the dollar since the pair failed to close above major resistance just above 1.5000. That will just add to negative pound sentiment.

All in all, it looks like a week for the dollar. Happy trading.

Forex pairs go up, then down, then up…

These days, when I look at my charts and the state of the Forex market, I sometimes laugh at myself. It’s funny because, at some point, I genuinely believed that there was a legitimate argument to be made about fundamental or technical analysis. When I was learning about Forex Trading, I was under the impression I had to choose one. With that in mind, I chose what come naturally to me – technical.

I then spent the next year and a half attempting to test out a string of technical strategies and indicators, attempting to impose my ideas on the markets. Needless to say, I failed; but I learnt…I learnt a lot. That’s one of the most important things about mastering forex trading…or any other skill for that matter. Your student cap needs to be on all the time.

Fast-forward to Today. We’re in an Economic crisis. What stage of the crisis we are in still remains in debate. Whether the Dollar will be strong or weak in the long term…more debate. What is interesting are the ups and downs we see today in US Dollar versus other majors, mostly driven by the performance of the World Equity Markets. It’s still Up Equities, Down Dollar and vice versa.

In my trading framework, the fundamentals drive direction while the technicals set targets. So, for instance, if the Stock Market points higher, we get more risk takers in the market, the EUR/USD currency pair falls as the dollar loses steam. When it gets to the next level of support, traders re-evaluate, perhaps take some profit off the table as they work out whether the momentum will allow a further fall. This is obviously over-simplified, but it’s the general idea.

So, I find the choice of Technical against Fundamental completely removed from me. That is where we still are this April. It could change soon, if things get better, but we all have to pay attention.

Happy Trading

The Euro goes down…along with markets

What’s with the Finance Industry CEOs anyway? I mean things are looking up in general right now. It’s not over yet. I think everyone knows that. However, the numbers we have been getting recently are not nearly as bad as they could be. It seems like the US Administration finally have a fairly good idea what they want to do, for better or worse. Just recently, the IT companies mentioned that they thought we were at a bottom. Happy days…right?

So, what’s the problem with the Wallstreet CEOs? Why all the doom and gloom? I’ll tell you that it is. Uncertainty…for them. Since they accepted the Bailout money, they know they are going to have to account for it some day. No more massive payouts. People will get fired. It’s a new era. They don’t like it. The whole economy could suddenly get better right now and they still wouldn’t like it. They feel like they have been made scape goats. I agree. When things went well, the took the credit and a lot of them got really rich. They twisted, bent…downright discarded the rules. People want blood. The Government will give it to them. Plus, it’s good for votes…

In any case, that might be part of the reason the market has been down for the last few days. That, and some good old fashioned profit-taking. No one is really sure where we are right now, so we all have to exercise care. As I write this, the Dollar is gaining against all the majors, aside from the yen in the Forex Markets. The Fear trade is back in. I traded down to the support on the EUR/USD pair at 1.3200, so I’m out right now. I don’t know that the dollar has enough power to break through that right now. A third day of dollar gains seems to be firmly in the works for now.

Unfortunately, I won’t be able to find out…not tonight anyway. Sleep…the number one problem about Forex Trading. Will wait to see how the market reacts to the news hitting us tomorrow.

Happy trading

Forex Rally cut short

Today, stocks took a pounding for most of the day. Risk aversion is back to the markets in a major way. There’s all kinds of bad news about the performance of – or lack thereof – financial firms. We also have to remember that there were those job numbers at the end of last week. The Markets seemed to shrug that off at the time. I guess this is as good a time as any for a late reaction.

There’s also some fear out there regarding the US Government’s actions. The Treasury secretary and his cronies seem to be more than willing to displace high ranking employees at the companies that they have provided assistance to. I am not too sure everyone is comfrotable with that.

In the forex markets, the reaction today was evident. The Dollar and Yen gained, the others lost. Still, if you look at the EURUSD chart below, you can see that resistance at around 1.3320, a Fibonacci level, held. The Euro seems to be rebounding in the Asian Session this morning (evening, Eastern Time), but I wouldn’t put much stock in it. There are a bunch of economic news items for tomorrow, including the Eurozone’s domestic product, and the Australian RBA will be making a rates announcement tomorrow.

Forex Chart

Best to wait and see…

Forex Markets: Dollar reaches it’s top?

We are now back to asking, yet again, whether the dollar will finally stop gaining on the others. I never expected much from the G20 – more like G18, if you really want to get technical about it; but I’m an easy going type of guy – after their planned meeting this week. It was clear that there were going to be differences between the leaders, not to mention the blame on America for the crisis in the first place.

However, it seemed to yield more than just hot air. They agreed to inject $1 Trillion to help address the Economic crisis. There are details to be worked out, and each country still reserves the right to decide exactly how much stimulation they are willing to put into their own economies; but it was generally unified. The markets loved it. The Dollar…not so much.

Forex traders sold the dollar across the board. A No-brainer really, for professionals and those learning forex trading alike. Today, the latest Job numbers in US were released. 663 thousand people lost their jobs in March. In any other environment, that would be horrible:devastating:unbelievably bad. Today, we have a collective sigh of relief instead. Considering what we have seen recently, that figure was pretty tame.

So, it seems that things are getting better. No need to rush to US based Treasuries. No need to buy Dollars. This recession might not be over by a long shot, but the general idea is that there might now be a light at the end of the tunnel. Yee-hah!!

The Safe Haven play might be over for the US Dollar and Yen. That doesn’t necessarily mean that the dollar is going to fall over completely. It’s just that a correction will now happen. This might mean a bit more analysis of each Dollar currency pair, instead of the general strength/weakness play we have been doing all this time.

Things will get interesting…in a different way. Happy trading.

Central Banks…making moves

The Central Banks of the world are among the biggest players in the Forex markets. They buy and sell their country’s own currency to influence it’s value for the country’s benefit. All of them do this in some way or form. It doesn’t always have the intended effect, and it can also piss off others who are affected by the move.

Take what happened earlier this month. The Swiss Central Bank sold of the Swiss Franc (it’s national currency) in droves to drive down it’s value. Amongst other things, exports were taking a hit because the value of the Franc was strong. This was viewed as an inherently selfish act by the rest of the Europeans on the single currency, the Euro. Devaluing the Swiss Franc (against the Euro) would have the opposite effect on them…stronger Euro, bad for THEIR exports.

There are all sorts of examples, from the US to China, where these Banks do their thing. Here is a video I found that highlights how this works:

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