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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

Forex Trading today…frame of reference

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…

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.

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.

I am a Part-Time Trader

It’s an interesting statement to make, saying that one trades part-time. It means different things to different people. It could mean that one uses an automated system, and only intervenes every now and then to adjust settings. It could also mean that one is a long term trader, and only bothers to check on that trades once a week, or even less. I think a more common interpretation would be someone like me, who has never had any professional training; perhaps works another job fulltime, and “investigates” forex trading in his spare time, mostly in the evenings.

I’d like to clear something else up. I am NOT a professional trader. I have no intention of ever becoming one. I don’t have the time. I still do other things during my day. I get to travel all over the place for free. As long as I’ve got access to a computer that I can check in the evenings a few times a week, I’m good.

I have to admit, this is not what I thought trading would be. My first forays in to the world of Trading came when I was a student in England when I (along with a friend) ran a web development firm (well, we called it that). We were commissioned to build a website and chatroom for a client who was a Stock Day-Trader. I remember walking into his study the first time. He had two big computer screens with charts and data, all of that in real-time. I was amazed. I thought only banks got that kind of information. I could feel the energy in the room. I almost felt like I was on the Trading floor.

He had a formula he used for Technical Analysis, and he asked us to spend a day trying to program his own formula into the software he was using (eSignal, I believe). We failed to do this successfully in the one day we had, as we didn’t really understand the concepts properly, and the website was more important to him at the time. Still, I knew I would be returning to that world. The possibilities seemed endless. Programming my own formula…I knew I was going to be rich.

That’s ultimately why I got into trading; the ability to use my Programming skills to automate my trades and make a ton of cash. That way, I could do other things while my money was working for me. After trying for ages to do this, I eventually took the time to understand a bit more about the Forex Market, and I finally began to get the results. Now, I achieve the goals I had wanted previously, without having to invest a large amount of effort or time.

The point is we all come to the markets hoping to make money investing as little effort and time as possible. This is achievable, once some simple concepts are understood and applied. Anyone can do this. There isn’t that much to it. Maybe there was back in the day, but no more. You do have to apply consistent effort over a period of time though, if you really want to understand Forex Trading.

The other option is to follow a professional trader and trade according to their rules, or maybe get someone’s system and use that. Either of these is not really advisable if you’re a complete newbie, not unless it comes with some training. I think once you’ve got a little bit of knowledge, you can follow one of these guys. It will be possible for you to understand the reasons for the moves they make, and you can make an informed decision whether to follow or not.

Once you’re there, it will be possible to trade profitably without having to spend ages watching price movements and charts.

  
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