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.

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.

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…

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.

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.

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…

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

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.

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.

The term “Forex” is short for Foreign Exchange. Each country in the world generally has its own money or currency. Some countries may share the same currency e.g. the Euro is shared by a number of countries in Europe such as Germany, France and Spain. These currencies have to be valued against each other via some mechanism so when goods or services are bought across borders, proper pricing can be done. This valuation is essentially the Exchange rate between currencies. Exchange rates of currency can vary from day to day. They depend on a wide variety of factors such as Interest rates, Geopolitical climate and many others. Forex trading is a platform through which currencies are bought and sold according to their current rates in order to make profit.

The way it works is simple: A Forex trader purchases some amount of a particular currency which they think will rise in value against the currency they are exchanging it with. After a certain period of time, assuming that the rate rises as expected, they sell or re-exchange the previously-bought currency, making a profit. The same thing can be done with selling. So, Forex Trading is based on speculation. The trader does some analysis of market conditions and, based on that, makes an informed “guess” what direction the Exchange rate will go. The difference between Currency Trading and traditional gambling is simply that, with Forex Trading, proper analysis gives you a lot more information so you are able to better determine market direction. If it feels like throwing dice, you are doing it wrong.

Providing a small example of Forex trading will probably help you to have a clearer idea of how this whole system works. Let’s suppose that the Exchange Rate between the Euro and the Dollar is 1.2614 i.e. 1.2614 Dollars buys 1 Euro. Suppose then that, after your preliminary analysis, you conclude that the Euro is going to rise against Dollar. This basically means that, in a certain amount of time, you will need more dollars to buy the same amount of Euros than at the current rate. Please note that estimating this should be another major result of your analysis. It could be a few minutes, or it could be a few months. In this case we’ll assume it will be days. So, you buy €10 at the rate mentioned above spending $12.614 in total.

After a few days, you find that the Euro has indeed risen up in value and that €1 is now equivalent to US$1.30780. You immediately exchange the €10 for $13.078 and earn a profit of $0.464. This amount may look very small, but imagine if you had invested $10,000 instead of $10, your profit would have been a substantial $464. This example neglects the charges and differences that exist between buy and sell prices. It’s just to illustrate the point. Now imagine this sort of transaction on a grand scale. I mean trillions of dollars traded every day, and you start to understand what the Forex Market is.

Forex trading started in 1970s. It was during this time that most world governments switched over to floating exchange rates for their currencies from fixed rates. Previously these governments would peg the exchange rate of a their currency against another one, such as the US Dollar. Many economists promoted floating exchange rates as a far healthier option for the economy of any country, as it ensured a relatively less deterioration of rates due to any kind of shock or the influence of a foreign business cycle.

At present, the forex market is one of the largest markets in the world with a turn-over of more than $3.2 trillion. There are millions of banks, governments, individual forex traders, corporations and other entities trading currencies around the clock. Because the Forex Market is international, someone somewhere is always trading currencies on the market.

There is always a demand for Forex trading. With the rising trend of globalization, people need foreign currencies now more than ever. The revolution in transportation and communication industry has made it possible for people and companies of different countries do business with each other. Taking this into consideration, we find that the Forex Markets offer ample opportunities for people who are willing to learn about forex trading to profit from, provided they arm themselves with the appropriate information first.

After the roller-coaster that was last week, we are beginning another one. For people who are learning forex trading, or are who are new to the Forex markets, it’s been a pretty harsh environment lately. People like me who proclaim to be part-time traders are also getting a good spanking.

Everyone waited expectantly for the Jobs Report out of the US on Friday. Everyone knew it would be bad, so there were no real surprises at the figure of 651,000. The unemployment rate did jump to 8.1% which was a little higher than most people expected though. I think everyone also expected that such figures could not bode well for the Equity markets. This was the case.

What was a little fuzzy was exactly how the Forex Market, particularly the US Dollar, would react to this news. In the recent past, uncertainty and more negative has tended to favor the US Dollar, what with it’s “Haven” status. However, this has not been 100% reliable lately, as more and more news has come out to show that the US is still very much caught in the recession. It’s always been somewhat counter-intuitive that the Dollar should keep gaining, even as the US economy sinks deeper into the recession.

This was something that could no be ignored on Friday, at least not initially. The Dollar lost substantial ground against pretty much everyone. Unfortunately for those who think the Dollar is losing it’s shine, Forex traders quickly realized the error of their ways and bought the Dollar back. The result: The Forex Markets were back to close to where how they begun the day; most gains against the dollar erased.

So we go into this week expecting quite a bit of news out of Europe. Once again, we expect quite some negativity. Consequently, I think the dollar will be back to it’s old ways again.