It's been a few days since I had the chance to sit down at the blogspot and open up on a few comments. Last weeks' trading was very good to us as we capitalized on the weakening dollar comments by the Fed, and by the anti-dollar reaction to the Durable Goods Orders of Friday.
As I listen to what other traders are saying today, most are inclined to think that the run in the risk currencies is about over for now and due for a strong pullback. And from an overbought point of view, this is certainly true. But always remember, there are two sides to every market. And while some are looking for a retracement, others are looking for a continued advance. How do we tell who is right? The real answer? WE DON'T.
Trying to pick the "right" in the forex is risky business and is what makes most traders real losers. While it behooves us to always be on guard against reversals, and while some traders seem to make a living at trading off of them, I find it much easier to to trade the trend. So I ask you again, "How do we tell who is right?" BOTH ARE.
Markets will always correct...at some point. But you can lose an awful lot of money trying to find that correction point. From my perspective, stay with the trend. Yes, it's true. We will always be losers at the end of the trend. But that is simply the nature of trading. Let's be winners as long as the tend will last. Doing so will mean that,
1.) sometimes we will give back profit when the trend reverses, but we'll still walk away with a good trade;
2.) sometimes, our profit targets will get hit and we are out before the market reverses. In that case we still have our profits, and no harm inflicted;
3.) sometimes, we may enter a trade right at the reversal point and it is a loser from the get go.
However, if we have exercised proper restraint and money mangement, employed suitable stops top protect our capital, and if this is only one of three scenarios, we should easily come out ahead in the end following the trend and not being extreme reversal pickers.
Happy Trading!
Bill
Monday, September 27, 2010
Thursday, September 9, 2010
Forex Changes in the USA
Just a brief entry tonight, as some traders have checked in, having received notices from their brokers about new margin requirements and leverage limits.
There is a simple way around all this. It may seem a bit foreign, but it is perfectly fine.
Many brokers, mine included (FX Solutions), have branches that are outside the US. It is generally just a matter of paperwork to move your account inside the same company to another location.
My accounts are actually in the UK, even though I am in the US. The transfer was simple. I filled out the paperwork, and the broker took care of the rest. My US account was closed and they took my balance and used it to fund the new UK account.
It is still denominated in USD (not Sterling) so there is no change in my balance, or having to recalculate exchange rates.
If your broker does not have a UK office, and you feel constricted by the US requirements into forex financial affairs, give FX Solutions a call. I am not reimbursed by them, I just really like the way they treat me, and the way they handled this transaction for me.
Happy trading,
Bill
There is a simple way around all this. It may seem a bit foreign, but it is perfectly fine.
Many brokers, mine included (FX Solutions), have branches that are outside the US. It is generally just a matter of paperwork to move your account inside the same company to another location.
My accounts are actually in the UK, even though I am in the US. The transfer was simple. I filled out the paperwork, and the broker took care of the rest. My US account was closed and they took my balance and used it to fund the new UK account.
It is still denominated in USD (not Sterling) so there is no change in my balance, or having to recalculate exchange rates.
If your broker does not have a UK office, and you feel constricted by the US requirements into forex financial affairs, give FX Solutions a call. I am not reimbursed by them, I just really like the way they treat me, and the way they handled this transaction for me.
Happy trading,
Bill
Wednesday, August 25, 2010
Forex and the GDP's
Earlier this week in forex news, Germany reported huge numbers in terms of its' GDP. And inasmuch as Germany is the economic engine that powers the EZ, one would be inclined to think that we should look for big numbers out of Europe when its' time to report. At the same time, Germanys' export numbers were huge, but the admin stoutly declared that the economy is more than just exports. HMMM...something sounds a bit fishy there. But until they can show us otherwise, exports is where their action is.
On this side of the pond, we have rapidly deteriorating numbers. Housing down, durable goods down, unemployment up (with new weekly numbers out tomorrow). Think they will be encouraging? I have had my doubts about this latest USD strength being a real flight to safety. After all, gold is off it's high, and not putting in new ones daily. This should indicate that a flight to safety may not be what is happening.
Perhaps it is only a retracement from a technical perspective. We shall see. For now the USD is getting dumped in anticipation that the GDP numbers they will present on Friday will be less than stellar, and may not even reach the forecasts from the Advanced reading. Remember, when it comes to GDP, there is the advanced or 1st reading, the second reading and the final reading. If you are looking at a forex news calendar, they will often be denoted by an A, S or F. And as a rule, they move the markets less with each reading...unless there is a notable departure from the previous reading.
I have a hard time believing that Friday's second reading won't be a disappointment. The real question will be, "How will the market respond?"
Will it see a deteriorating US economy as a sign to succumb to rising fear of an all out depression? Or will the Euro currencies, led by robust Germany, simply take the lead? Will all these austeriy measures be deemed a positive while the US is seen as extending more stimulus insead of tightening it's belt?
These are uncertain times in the forex. The most treacherous trading I've seen in some time. I am thankful for the nice return we've seen this month, more than most interest bearing accounts pay out in a year! And I am encouraged to have so many of you write to me and let me know that you have fared much better than our official numbers. That's great!
Let's continue to be cautious. Nobody ever suffered from being careful. Lastly, for those who wrote in today, and asked what I meant by "making money by standing aside", that is drawn from an old Jesse Livermore quote in his classic trading book, "Reminiscences of a Stock Operator". It's well worth the read. But he says there that he made more money by staying on the sidelines than by jumping in on every trade or price movement. As he finished very, very wealthy, his advice is worth paying attention to!
Happy Trading,
Bill
On this side of the pond, we have rapidly deteriorating numbers. Housing down, durable goods down, unemployment up (with new weekly numbers out tomorrow). Think they will be encouraging? I have had my doubts about this latest USD strength being a real flight to safety. After all, gold is off it's high, and not putting in new ones daily. This should indicate that a flight to safety may not be what is happening.
Perhaps it is only a retracement from a technical perspective. We shall see. For now the USD is getting dumped in anticipation that the GDP numbers they will present on Friday will be less than stellar, and may not even reach the forecasts from the Advanced reading. Remember, when it comes to GDP, there is the advanced or 1st reading, the second reading and the final reading. If you are looking at a forex news calendar, they will often be denoted by an A, S or F. And as a rule, they move the markets less with each reading...unless there is a notable departure from the previous reading.
I have a hard time believing that Friday's second reading won't be a disappointment. The real question will be, "How will the market respond?"
Will it see a deteriorating US economy as a sign to succumb to rising fear of an all out depression? Or will the Euro currencies, led by robust Germany, simply take the lead? Will all these austeriy measures be deemed a positive while the US is seen as extending more stimulus insead of tightening it's belt?
These are uncertain times in the forex. The most treacherous trading I've seen in some time. I am thankful for the nice return we've seen this month, more than most interest bearing accounts pay out in a year! And I am encouraged to have so many of you write to me and let me know that you have fared much better than our official numbers. That's great!
Let's continue to be cautious. Nobody ever suffered from being careful. Lastly, for those who wrote in today, and asked what I meant by "making money by standing aside", that is drawn from an old Jesse Livermore quote in his classic trading book, "Reminiscences of a Stock Operator". It's well worth the read. But he says there that he made more money by staying on the sidelines than by jumping in on every trade or price movement. As he finished very, very wealthy, his advice is worth paying attention to!
Happy Trading,
Bill
Monday, August 23, 2010
Forex and the Steinitz Fractal Breakout Indicator
Some of you followed my suggestion last week, and purchased the Forex indicator from Don Steinitz. I wanted to take a few paragraphs and let you know more fully why I think this particular indicator is well worth your time and money.
Those of you who have been with me for a long time, know that I do not "market stuff" to my clients unless it is my own, or, as in this case, I think it will benefit everybody in the long run. But as I mentioned on Friday, I don't mind at all making an exeption for Don's indicator. Like I told you, I had spent alot of time and money on numerous other courses and setups only to get burned repeatedly. As a novice trader, I was failing to see the big picture, and that the most successful traders ALWAYS use the trend to their advantage. For those of you who signed up to my free list, you may remember that before I directed you to the blog, the very first email lesson was on the determination of trend. Without it, we are like directionless pilgrims trekking through an unremarkeable desert landscape with no way to mark our bearings.
The genius of Don's indicator is first and foremost the algorithm he uses to determine trend. Now I make no claim to being an expert at mathematics, nor do I know the parameters of Don's algothims, but I do know that they are effective. The second part of his indicator is the means by which he measures retracements in the trends. As you know, it's one thing to identify a trend successfully, it's another entirely to be able to gauge a good entry to catch the rest of the wave. The indicator is not perfect, but it is accurate.
One thing that I did find helpful was to lengthen his stop losses. Doing so increased my number of successful trades when I used the indicator. Of course, it is always important to remember, that if you use this for intraday trading (as I have), be sure to shorten your profit targets. Shooting for 100 pips on a 15 minute chart is not wise management. It is true, every 100 pip move begins on a 15 minute chart somewhere, but you shouldn't look for that each time. Look to the most recent swing high or low (depending on whether you are going long or short) and target that point. Get some off the table at that level, and leave the rest run as a free trade.
If you haven't taken advantage of Don's indicator yet, please give it a try. For those of you who are anxious about trading different currencies than the ones I specialize in, this will really fill the bill. Remember, always size your risk properly, never overcommit and never over trade. Even the world's best indicator won't save you from those two mistakes!
If you haven't taken a look at it yet, just follow this link:
http://drwilliam.trader6969.hop.clickbank.net
Happy trading!
Bill
www.thefxtradingmasters.com
Those of you who have been with me for a long time, know that I do not "market stuff" to my clients unless it is my own, or, as in this case, I think it will benefit everybody in the long run. But as I mentioned on Friday, I don't mind at all making an exeption for Don's indicator. Like I told you, I had spent alot of time and money on numerous other courses and setups only to get burned repeatedly. As a novice trader, I was failing to see the big picture, and that the most successful traders ALWAYS use the trend to their advantage. For those of you who signed up to my free list, you may remember that before I directed you to the blog, the very first email lesson was on the determination of trend. Without it, we are like directionless pilgrims trekking through an unremarkeable desert landscape with no way to mark our bearings.
The genius of Don's indicator is first and foremost the algorithm he uses to determine trend. Now I make no claim to being an expert at mathematics, nor do I know the parameters of Don's algothims, but I do know that they are effective. The second part of his indicator is the means by which he measures retracements in the trends. As you know, it's one thing to identify a trend successfully, it's another entirely to be able to gauge a good entry to catch the rest of the wave. The indicator is not perfect, but it is accurate.
One thing that I did find helpful was to lengthen his stop losses. Doing so increased my number of successful trades when I used the indicator. Of course, it is always important to remember, that if you use this for intraday trading (as I have), be sure to shorten your profit targets. Shooting for 100 pips on a 15 minute chart is not wise management. It is true, every 100 pip move begins on a 15 minute chart somewhere, but you shouldn't look for that each time. Look to the most recent swing high or low (depending on whether you are going long or short) and target that point. Get some off the table at that level, and leave the rest run as a free trade.
If you haven't taken advantage of Don's indicator yet, please give it a try. For those of you who are anxious about trading different currencies than the ones I specialize in, this will really fill the bill. Remember, always size your risk properly, never overcommit and never over trade. Even the world's best indicator won't save you from those two mistakes!
If you haven't taken a look at it yet, just follow this link:
http://drwilliam.trader6969.hop.clickbank.net
Happy trading!
Bill
www.thefxtradingmasters.com
Wednesday, August 18, 2010
Forex and Relief Rallies
A relief rally is like the blowing off of a pressure valve. In today's example, we have been watching the pound sterling get sold off with pre monetary policy committee meeting jitters. From its' perch just below 1.5700, it fell 200 pips over several hours to a low just below 1.5500. There seemed to be nobody ready to bid it up, even though there were rumors that there might be a change in the status of the report that would include new language about raising rates. And maybe even a bonus of someone bedsides Andrew Sentance voting for an increase. Had the vote changed from 8-1 to 7-2, we probably would have seen a virtual explosion in the gbp/usd. As it was, we got a massive relief rally of over 150 pips as the longs jumped on and the shorts collected their profits.
But what will happen in the days ahead? Does this big move portend a change for the bulls? Probably not. It is a big move, but when viewed from a distance, we see it currently halting at previous resistance just below 1.5700. Now a couple of 4 hour closes above that level, a pullback to 1.5700, and then a bounce...that would change the outlook dramtically. But without that, we are left into a channel, until we get a move up or down. Currently, we've seen the pair very well bid around 1.5500.
But relief rallies also cause another phenomen, sympathy moves. Particularly in this case we've watched the euro climb higher on the back of the sterling and the swissy has been something of a beneficiary also. As a rule, I don't like to jump onto relief rallies. Mostly because they have several points of resistance that they have to break before they become anything of import. More often than not, I've found myself on the losing end of them. What I would prefer to do is to watch them and look for signs of exhaustion in the rally. Once they appear, the move may be over, plus I can usually get in at a nice price with a smaller stop...that way if the rally isn't over, I've risked very little. The real temptation is to get in too soon. If you try that 3 or 4 times and fail, you've really racked up quite a bit of losing pips, and it's hard to make that back up. So when counter trading relief rallies, be patient on your entry, and jump in small. That'll give you more staying power if it moves against you. Make sure you know where your resistance and support lines are as they often provide the very best entries. Finally, don't be too greedy. Get 20-30 pips and take some off the table. Let a smaller portion ride for that homerun. Also, set your stop to break even, when you take a bit off the table. Then you're home free with a guaranteed profit. Remember, a profit a day keeps the bill collector away!
Happy trading!
Bill
www.thefxtradingmasters.com
But what will happen in the days ahead? Does this big move portend a change for the bulls? Probably not. It is a big move, but when viewed from a distance, we see it currently halting at previous resistance just below 1.5700. Now a couple of 4 hour closes above that level, a pullback to 1.5700, and then a bounce...that would change the outlook dramtically. But without that, we are left into a channel, until we get a move up or down. Currently, we've seen the pair very well bid around 1.5500.
But relief rallies also cause another phenomen, sympathy moves. Particularly in this case we've watched the euro climb higher on the back of the sterling and the swissy has been something of a beneficiary also. As a rule, I don't like to jump onto relief rallies. Mostly because they have several points of resistance that they have to break before they become anything of import. More often than not, I've found myself on the losing end of them. What I would prefer to do is to watch them and look for signs of exhaustion in the rally. Once they appear, the move may be over, plus I can usually get in at a nice price with a smaller stop...that way if the rally isn't over, I've risked very little. The real temptation is to get in too soon. If you try that 3 or 4 times and fail, you've really racked up quite a bit of losing pips, and it's hard to make that back up. So when counter trading relief rallies, be patient on your entry, and jump in small. That'll give you more staying power if it moves against you. Make sure you know where your resistance and support lines are as they often provide the very best entries. Finally, don't be too greedy. Get 20-30 pips and take some off the table. Let a smaller portion ride for that homerun. Also, set your stop to break even, when you take a bit off the table. Then you're home free with a guaranteed profit. Remember, a profit a day keeps the bill collector away!
Happy trading!
Bill
www.thefxtradingmasters.com
Friday, August 13, 2010
Forex and the Stellar Euro GDP
We've all heard the saying that "No news is good news."
But what about this one, "Good news is no news." Something doesn't quite seem to fit. Good news should cause rejoicing, jubilation, cheer and enthusiasm. Today we witnessed great news out of the Eurozone, but nobody clapped. Nobody cheered. Nobody stood up and gave a toast.
The Eurozone was forecasting 2nd quarter avanced growth of+0.7% and a year over year figure of+1.4%. So when the data was released that the 2nd quarter figure was really +1.0% (and the year over year was +1.7%), an astounding 30+% surprise, the euro should have shot through the roof. I've seen similar positive surprises move a currency 200 pips in just hours. But what did we get? Bupkiss. Zero. Zilch. Nada.
What gives? It seems that underneath the surface lies a bubbling uneasiness. A fearful restlessness that perhaps the data isn't what it appears. After all, where is the spending in Europe? Where is the Manufacturing or Industrial production? Where are there any real signs of inflation? And if they really are producing all this stuff, who else in the world is buying it?
I have often bemoaned to you my leariness of government generated reports. Those who have a vested interest in them certainly can influence their release or the way in which they are calculated at the very least. The eurozone is the worlds' second largest economy by some measures, and the largest by others. There is no way that the world's largest economy comes out with a 30% surprise and it doesn't move the markets. Either traders think they are lying (can I see a show of hands?) or the markets are so fearful of other macro debt issues that this tier one data becomes second fiddle.
Either way, we may be in for quite a decline in the currencies. Goldman Sachs has reported that they feel there is a 50/50 chance of a double dip recession here in the US. They are a bit late for the millions who have lost their jobs and remain out of work, but I guess we can welcome them to the party. Nothing like pointing out that there is an 800 pound gorilla in the room. Nevertheless, when GS speaks, the lemmings listen. NOW they are afraid. This could spark another massive US dollar rally like the one that ended '08.
Let's see, 2010 has seen record foreclosures countrywide. We have had more banks fail this year than at the height of the credit crunch. The unemployment rate is still hovering at its highs (and would be higher if the government would actually tally up the people who have quit looking for work altogether...but somehow they aren't worthy of being counted).
Credit debt is down, savings are up, confidence is on the wane...any of this sound like a recovery to you? Hold onto you hats...this could get very interesting!
Have a great weekend!
Bill
www.thefxtradingmasters.com
But what about this one, "Good news is no news." Something doesn't quite seem to fit. Good news should cause rejoicing, jubilation, cheer and enthusiasm. Today we witnessed great news out of the Eurozone, but nobody clapped. Nobody cheered. Nobody stood up and gave a toast.
The Eurozone was forecasting 2nd quarter avanced growth of+0.7% and a year over year figure of+1.4%. So when the data was released that the 2nd quarter figure was really +1.0% (and the year over year was +1.7%), an astounding 30+% surprise, the euro should have shot through the roof. I've seen similar positive surprises move a currency 200 pips in just hours. But what did we get? Bupkiss. Zero. Zilch. Nada.
What gives? It seems that underneath the surface lies a bubbling uneasiness. A fearful restlessness that perhaps the data isn't what it appears. After all, where is the spending in Europe? Where is the Manufacturing or Industrial production? Where are there any real signs of inflation? And if they really are producing all this stuff, who else in the world is buying it?
I have often bemoaned to you my leariness of government generated reports. Those who have a vested interest in them certainly can influence their release or the way in which they are calculated at the very least. The eurozone is the worlds' second largest economy by some measures, and the largest by others. There is no way that the world's largest economy comes out with a 30% surprise and it doesn't move the markets. Either traders think they are lying (can I see a show of hands?) or the markets are so fearful of other macro debt issues that this tier one data becomes second fiddle.
Either way, we may be in for quite a decline in the currencies. Goldman Sachs has reported that they feel there is a 50/50 chance of a double dip recession here in the US. They are a bit late for the millions who have lost their jobs and remain out of work, but I guess we can welcome them to the party. Nothing like pointing out that there is an 800 pound gorilla in the room. Nevertheless, when GS speaks, the lemmings listen. NOW they are afraid. This could spark another massive US dollar rally like the one that ended '08.
Let's see, 2010 has seen record foreclosures countrywide. We have had more banks fail this year than at the height of the credit crunch. The unemployment rate is still hovering at its highs (and would be higher if the government would actually tally up the people who have quit looking for work altogether...but somehow they aren't worthy of being counted).
Credit debt is down, savings are up, confidence is on the wane...any of this sound like a recovery to you? Hold onto you hats...this could get very interesting!
Have a great weekend!
Bill
www.thefxtradingmasters.com
Wednesday, August 11, 2010
Forex after the August FED
Many were looking for some disappointing news from the Fed yesterday, and they delivered. The initial reaction was a dollar sell-off as the Fed offered a dour outlook for the US and global recovery. Not that there isn't a recovery, but it is certainly hard to find. I love governmental euphemisms. In spite of all the stimulus already launched into the world during this depression, inflation rates are not rising. And that was the primary goal. Why? Why would governments want inflation to rise? Isn't that a bad thing? Not in the twisted world of "government-speak". Rising inflation is generally viewed as an indicator that the economy is heating up. Jobs are being created, people are spending and borrowing, asset values are climbing. Of course, when inflation gets too hot, the Fed will attempt to stop it by raising interest rates. This stops borrowing, job creation, and asset price growth. How?
It stops borrowing because people and businesses find it expensive to do so. It stops job creation, because companies cannot borrow at lower rates to expand. No expanding, no hiring. It halts the growth of asset prices, because people can't pay more for an asset plus pay more in interest. It will be one or the other. And since interest rates are out of their control, when they are rising, asset values are falling. This stops, or at least slows, economic growth. So the Fed is looking for some rise in inflation to signal that the economy is lifting. But turning over every rock they can find, the can't find inflation. Nor is all the money given to banks being lent out. This would help inflation rise. But the banks are in worse trouble than most families, and they know it. With falling asset values, they are stuck with under, and non-performing, loans. As more and more homeowners decide they are better off to leave their current mortgages, and "stick it to the man", the banks are truly "stuck". And when businesses go belly up, they don't worry about repaying their loans either. All in all, the recovery is on shaky ground.
Thus, when traders gave further consideration to what is happening, a flight to the dollar became the real answer. Safety. Liquidity. These are what the USD have to offer. Could this become a full fledged double dip? Certainly. Does anybody want to talk about that? Nope. Will the dollar benefit if a double dip occurs? You bet. Stay tuned, and we'll see how all this plays out.
Happy trading,
Bill
www.fxtradingmasters.com
It stops borrowing because people and businesses find it expensive to do so. It stops job creation, because companies cannot borrow at lower rates to expand. No expanding, no hiring. It halts the growth of asset prices, because people can't pay more for an asset plus pay more in interest. It will be one or the other. And since interest rates are out of their control, when they are rising, asset values are falling. This stops, or at least slows, economic growth. So the Fed is looking for some rise in inflation to signal that the economy is lifting. But turning over every rock they can find, the can't find inflation. Nor is all the money given to banks being lent out. This would help inflation rise. But the banks are in worse trouble than most families, and they know it. With falling asset values, they are stuck with under, and non-performing, loans. As more and more homeowners decide they are better off to leave their current mortgages, and "stick it to the man", the banks are truly "stuck". And when businesses go belly up, they don't worry about repaying their loans either. All in all, the recovery is on shaky ground.
Thus, when traders gave further consideration to what is happening, a flight to the dollar became the real answer. Safety. Liquidity. These are what the USD have to offer. Could this become a full fledged double dip? Certainly. Does anybody want to talk about that? Nope. Will the dollar benefit if a double dip occurs? You bet. Stay tuned, and we'll see how all this plays out.
Happy trading,
Bill
www.fxtradingmasters.com
Tuesday, August 10, 2010
Forex and the FOMC
Forex trading around the news is not for the faint of heart. Nor is it for the inexperienced or undisciplined. We have recently seen several big news items that have crossed the wires, that have produced muted responses. this is interesting considering where we currently stand in the make-up of the total retail trader population. More retail traders have closed their accounts in the last 60 days than at any time on record. But just as fast as they have folded up their tents and gone home, new traders have filled their void. These new traders have not seen a volatile news report. Although the recent round of profit taking...250 pips in the sterling in just over 24 hours...is pretty breathtaking.
But perhaps lulled into a false sense of security that there are a lot of "chicken-littles" when it come to news trading, they may be ready to pounce on the announcement today. The recovery, as I have been saying for some time, is not what it has been cracked up to be. Where there are no jobs, there is no recovery. Repeat that to yourself every day, and it will keep your head clear about where the US is headed as an economy. And please remember, Government created jobs DO NOT COUNT. This is why the stimulus failed the first time. Government cannot create jobs. It cannot create wealth. No one can spend their way to riches. Any plan that calls for more spending as the solution is a crock. The more you spend, the deeper in debt you go. You do not get richer. Stimulus, if it is hinted at today or employed in the not too distant future will only hurt the economy in the longer term. Like cocaine to the addict, or alcohol to the drunkard, it will ease the pain for a while, but it only reinforces the fatal spiral. We know this to be a fact.
However, what we don't know is what the market reaction will be. Typically, I would look for the use of stimulus to cause a sell off on that currency. Stimulus means more debt, and it also means a longer period of time until interest rates are raised. this is the death knell for a currency. Therefore, as such, more stimulus should lead to a sell-off for the USD. But these are not normal times. The market may very well respond with a USD rally. Why? Because stimulus gives the "people" money to spend (supposedly). But I'll ask all my American readers, did you get more money to spend form the record breaking amounts of stimulus in 2008? I sure as heck didn't. I wouldn't look for this time to be any different.
But it is the perception that will move the market. if traders feel that the US is finally doing enough to turn the corner, they will begin buying the dollar. And as it has a nice jump start on the move and bounce off of April lows in the USD index, that might really fit the bill. For me, the better part of wisdom says stand aside today.
Happy Trading!
Bill
www.thefxtradingmasters.com
But perhaps lulled into a false sense of security that there are a lot of "chicken-littles" when it come to news trading, they may be ready to pounce on the announcement today. The recovery, as I have been saying for some time, is not what it has been cracked up to be. Where there are no jobs, there is no recovery. Repeat that to yourself every day, and it will keep your head clear about where the US is headed as an economy. And please remember, Government created jobs DO NOT COUNT. This is why the stimulus failed the first time. Government cannot create jobs. It cannot create wealth. No one can spend their way to riches. Any plan that calls for more spending as the solution is a crock. The more you spend, the deeper in debt you go. You do not get richer. Stimulus, if it is hinted at today or employed in the not too distant future will only hurt the economy in the longer term. Like cocaine to the addict, or alcohol to the drunkard, it will ease the pain for a while, but it only reinforces the fatal spiral. We know this to be a fact.
However, what we don't know is what the market reaction will be. Typically, I would look for the use of stimulus to cause a sell off on that currency. Stimulus means more debt, and it also means a longer period of time until interest rates are raised. this is the death knell for a currency. Therefore, as such, more stimulus should lead to a sell-off for the USD. But these are not normal times. The market may very well respond with a USD rally. Why? Because stimulus gives the "people" money to spend (supposedly). But I'll ask all my American readers, did you get more money to spend form the record breaking amounts of stimulus in 2008? I sure as heck didn't. I wouldn't look for this time to be any different.
But it is the perception that will move the market. if traders feel that the US is finally doing enough to turn the corner, they will begin buying the dollar. And as it has a nice jump start on the move and bounce off of April lows in the USD index, that might really fit the bill. For me, the better part of wisdom says stand aside today.
Happy Trading!
Bill
www.thefxtradingmasters.com
Friday, August 6, 2010
Forex and the August NFP
A shock to the system!
Amid prognostications for a better than expected employment report...on hopes that the private sector had done enough hiring to offset the 150 census jobs lost in the government...believing that the stimulus was finally settling in and having it's effect...we get a whopping surprise to the downside with only 70K private hires (versus 90 expected) and -131K jobs (versus the 65K expected).
Recovery? Doesn't look like it here from my view in the cheap seats. In my private alert service this morning I outlined several reason why we could have gotten a strong surprise to the upside in the jobs report today.
1. Planned layoffs fell by nearly 60% from the previous month according to Challenger Gray and Christmas.
2. ADP (the private payroll people) reported an increase of 42K private sector jobs, well above the 19K for last month. Also, as ADP has undershot the private sector hiring from the government report for 7 of the last 10 months, we had a good "bet" that they did it again!
3. The service sector of the ISM data jumped from 53.4 to 54.8, a big move, and the employment index broke above the 50% expansion figure!
So I asked my readers..."does this guarantee an upside surprise in the NFP?" The answer? NOT HARDLY. And not hardly is what we got.
The real question that traders will be asking themselves now is, What does this mean for the "recovery". I have maintained loud and long that I believed this recovery was more shadow than substance. You can't have a recovery without jobs. And while it appeared for a while that the economic jobs engine might be sputtering back to life, the last two months have given us an entirely different picture.
So back to the real question. If the US is not recovering, and it is becoming clearer that China will not take its' place (as it has followed the same failed economic policies), will we be in for another turn down in the depression? Yes, rates will stay low. But that has not helped the stock market with its relatively thin run up. Will the Fed issue more stimulus? How can it not? It shouldn't, but NO ONE there has the backbone to say what needs to be said and do what needs to be done. It is the massive debt, public and private which has brought all this upon us. And the only way out is to work off the debt. And that does not mean by raising taxes on an already overburdened capital system. The very best thing that the government could do, right now, to effect a change, is to bring home all of our soldiers (each one overseas cost more than 1 million dollars per year), cut the federal bureaucracy in half, cut spending by 50% across the board for everything, eliminate the progressive income tax (for starters), and cut 50% of all other taxes and fees, eliminate the multitude of wasteful programs and departments that are NOT mandated by the US Constitution, and stop welfare entirely. Lots of folks think that would lead to riots in the US. And they're right. So we'll have to put some of the savings into law enforcement. But rioting people eventually stop. At some point they have to eat. And in order to eat, they have to get a job. And believe me, when people and corporations are saving under my plan...jobs will explode! There will be plenty of work for any one who wants it. The problem remains that there are plenty of people who DON'T want to work. St Paul offers this government free solution; "If a man doesn't work, he does not eat". Cruel? No. Effective? Yes. Of course, the government may have to have a gun giveaway program so that homeowners can protect themselves. It might be the only government giveaway I would ever support.
Granted, this is a pretty broad outline, and very basic. It requires a tough on crime approach for those who still refuse to work and would rather steal and pillage for a living. The 3 time loser law of the old west would be effectively restored. It means the gov't would live on a fixed income, while the rest of us have the chance to earn as much as we want without being penalized for it.
To make a long rant short, the gov't had better cut the private sector loose if they want to see job creation. Eliminate ALL taxes on business. Only individuals would pay, and everyone would pay an equal amount. Period. This is the only way out from where we are.
All that being said, we are now looking to see if the rest of the world is going to sell off the dollar in the weeks to come, or if fear of another leg down is going to enter the market. Exciting times!
Happy Trading!
Bill
bill@thefxtradingmasters.com
www.thefxtradingmasters.com
Amid prognostications for a better than expected employment report...on hopes that the private sector had done enough hiring to offset the 150 census jobs lost in the government...believing that the stimulus was finally settling in and having it's effect...we get a whopping surprise to the downside with only 70K private hires (versus 90 expected) and -131K jobs (versus the 65K expected).
Recovery? Doesn't look like it here from my view in the cheap seats. In my private alert service this morning I outlined several reason why we could have gotten a strong surprise to the upside in the jobs report today.
1. Planned layoffs fell by nearly 60% from the previous month according to Challenger Gray and Christmas.
2. ADP (the private payroll people) reported an increase of 42K private sector jobs, well above the 19K for last month. Also, as ADP has undershot the private sector hiring from the government report for 7 of the last 10 months, we had a good "bet" that they did it again!
3. The service sector of the ISM data jumped from 53.4 to 54.8, a big move, and the employment index broke above the 50% expansion figure!
So I asked my readers..."does this guarantee an upside surprise in the NFP?" The answer? NOT HARDLY. And not hardly is what we got.
The real question that traders will be asking themselves now is, What does this mean for the "recovery". I have maintained loud and long that I believed this recovery was more shadow than substance. You can't have a recovery without jobs. And while it appeared for a while that the economic jobs engine might be sputtering back to life, the last two months have given us an entirely different picture.
So back to the real question. If the US is not recovering, and it is becoming clearer that China will not take its' place (as it has followed the same failed economic policies), will we be in for another turn down in the depression? Yes, rates will stay low. But that has not helped the stock market with its relatively thin run up. Will the Fed issue more stimulus? How can it not? It shouldn't, but NO ONE there has the backbone to say what needs to be said and do what needs to be done. It is the massive debt, public and private which has brought all this upon us. And the only way out is to work off the debt. And that does not mean by raising taxes on an already overburdened capital system. The very best thing that the government could do, right now, to effect a change, is to bring home all of our soldiers (each one overseas cost more than 1 million dollars per year), cut the federal bureaucracy in half, cut spending by 50% across the board for everything, eliminate the progressive income tax (for starters), and cut 50% of all other taxes and fees, eliminate the multitude of wasteful programs and departments that are NOT mandated by the US Constitution, and stop welfare entirely. Lots of folks think that would lead to riots in the US. And they're right. So we'll have to put some of the savings into law enforcement. But rioting people eventually stop. At some point they have to eat. And in order to eat, they have to get a job. And believe me, when people and corporations are saving under my plan...jobs will explode! There will be plenty of work for any one who wants it. The problem remains that there are plenty of people who DON'T want to work. St Paul offers this government free solution; "If a man doesn't work, he does not eat". Cruel? No. Effective? Yes. Of course, the government may have to have a gun giveaway program so that homeowners can protect themselves. It might be the only government giveaway I would ever support.
Granted, this is a pretty broad outline, and very basic. It requires a tough on crime approach for those who still refuse to work and would rather steal and pillage for a living. The 3 time loser law of the old west would be effectively restored. It means the gov't would live on a fixed income, while the rest of us have the chance to earn as much as we want without being penalized for it.
To make a long rant short, the gov't had better cut the private sector loose if they want to see job creation. Eliminate ALL taxes on business. Only individuals would pay, and everyone would pay an equal amount. Period. This is the only way out from where we are.
All that being said, we are now looking to see if the rest of the world is going to sell off the dollar in the weeks to come, or if fear of another leg down is going to enter the market. Exciting times!
Happy Trading!
Bill
bill@thefxtradingmasters.com
www.thefxtradingmasters.com
Thursday, August 5, 2010
Forex and trading the NFP's
As this is Thursday evening August 5, tomorrow, (the first Friday of the month) will bring us one of the biggest reports that each month has to offer...the Non Farm Payrolls report.
This data will tell us how many jobs were estimated to be lost or gained in the last 30 days. A strong report, will generally send a currency shooting up as traders want to be a part of a strong economy.
A poor report will generally get a currency trashed, as traders fear that there will be no increase in rates coming forth any time soon.
As of this past Wednesday, when the ADP report (the temporary hiring folks), it looked as though there was employment building n the economy. Also the employment portion of this weeks ISM survey was a huge surprise upward and really boded well for this Friday report. However, today, with the unemployment numbers from last week, we were greeted with a nasty surprise, a large unexpected increase in those filing unemployment claims. so now the whole NFP report tomorrow appears to be in doubt.
But we do need to remember this: The NFP is data from the last month. The weekly jobless claims is more recent...just last week. The ISM report also reflects data from last month. In other words we may see a nice pop in the NFP tomorrow based on hiring from the last month. That is speculation only---no prediction.
But either way, we will be prepared. Most of us are already short the euro and sterling, and we'll continue to hold to hold as outlined in the alerts. It is hard to predict what tomorrow my bring in terms of the data, but if you want to trade the release, here is a decent set of parameters to do so.
If the release surprises to the upside,, the dollar is likely to get a real boost. Watch the price action for the first 5-15 minutes after the release. If a clear direction is showing, enter in the direction of the "trend" and see what you can get.
If the release surprises to the downside, do the same thing. Just remember, surprises generally force the price action one way or another, but not always. The euro and sterling are both in multi-week trends, that are actually reversals of longer term bear trends. Both have extended themselves into important resistance areas in terms of Fib numbers. So watching the price action will be paramount before entering.
I should also mention, that there are numbers of good traders who never trade the NFP because of it's volatility. There are many more who don't trade on Friday at all because of its' low liquidity when the rest of the world closes and only New York is open.
Happy Trading!
Bill
bill@thefxtradingmasters.com
www.thefxtradingmasters.com
This data will tell us how many jobs were estimated to be lost or gained in the last 30 days. A strong report, will generally send a currency shooting up as traders want to be a part of a strong economy.
A poor report will generally get a currency trashed, as traders fear that there will be no increase in rates coming forth any time soon.
As of this past Wednesday, when the ADP report (the temporary hiring folks), it looked as though there was employment building n the economy. Also the employment portion of this weeks ISM survey was a huge surprise upward and really boded well for this Friday report. However, today, with the unemployment numbers from last week, we were greeted with a nasty surprise, a large unexpected increase in those filing unemployment claims. so now the whole NFP report tomorrow appears to be in doubt.
But we do need to remember this: The NFP is data from the last month. The weekly jobless claims is more recent...just last week. The ISM report also reflects data from last month. In other words we may see a nice pop in the NFP tomorrow based on hiring from the last month. That is speculation only---no prediction.
But either way, we will be prepared. Most of us are already short the euro and sterling, and we'll continue to hold to hold as outlined in the alerts. It is hard to predict what tomorrow my bring in terms of the data, but if you want to trade the release, here is a decent set of parameters to do so.
If the release surprises to the upside,, the dollar is likely to get a real boost. Watch the price action for the first 5-15 minutes after the release. If a clear direction is showing, enter in the direction of the "trend" and see what you can get.
If the release surprises to the downside, do the same thing. Just remember, surprises generally force the price action one way or another, but not always. The euro and sterling are both in multi-week trends, that are actually reversals of longer term bear trends. Both have extended themselves into important resistance areas in terms of Fib numbers. So watching the price action will be paramount before entering.
I should also mention, that there are numbers of good traders who never trade the NFP because of it's volatility. There are many more who don't trade on Friday at all because of its' low liquidity when the rest of the world closes and only New York is open.
Happy Trading!
Bill
bill@thefxtradingmasters.com
www.thefxtradingmasters.com
Wednesday, August 4, 2010
Forex and Range Trading
We quoted yesterday a statistic that tells us that FX pairs are in a non trending state nearly 65% of the time. That's a lot of range bound pairs. In order to make those periods profitable, a number of traders have tried various schemes of "range trading". What that means is identifying a range, then selling its' tops and buying it's bottoms. When they flash up their charts,you see price action that rolls up and down and looks as reliable as the ocean tides. Even a monkey could profit from this! But let's not jump the gun. Range trading can make you money, but spending the majority of your time looking for ranges and trading potential ones will cost you financially and emotionally. I rarely recommend range trades in the service, and here's why. Although pairs may be range bound for the majority of the time, the ranges do not remain the same. So the challenge is to be able to quickly identify a range, so that you still have time to take advantage of it. After all, if you start trading a range after it has made 3 similar tops and three similar bottoms, you will likely get burned as it will soon abandon those parameters. I find it best to look for particular set-ups that produce ranges, rather than looking for ranges themselves. This weeks action in the sterling has proven to be a good example.
The sterling had been in a multi month downtrend. It hit an extreme price and began to rise. Demonstrating a bullish determination, it broke through daily weekly and fibonacci barriers. But then it got stopped at a major fib retracement...the 68.2. It may have been the technical barrier that halted the advance, but when we calculate in the other factors of the week, we get additional framing for our picture. There's big news coming out this week, a rate announcement. Also we have new Monetary Policy Committee members who want to weigh in and could divide the decisions. Also we have the non farm payrolls due out at the end of the week. All those items working together, can produce something of a stalemate in a currency pair which is what produces the "range". So bumping against a major fib, after several days of one way price action, but having to wait for significant data, these together produce ranges. One should then look for three points to begin trading. In this case the first point would be a swing high, followed by a swing low (point 2) to establish a lower support, then look to sell if the pair has trouble upon reaching the previous swing high. Generally, if I like the set-up, I'll try to get a good sell entry, and aim for a 2/3 drop in the range then exit with a profit. If the pair struggles at the lower end of the range, I'll look for a decent entry and try to get 2/3 on the way up. never shoot for the whole range. It will always disappoint you.
Happy Trading!
Bill
bill@thefxtradingmasters.com
www.thefxtradingmasters.com
The sterling had been in a multi month downtrend. It hit an extreme price and began to rise. Demonstrating a bullish determination, it broke through daily weekly and fibonacci barriers. But then it got stopped at a major fib retracement...the 68.2. It may have been the technical barrier that halted the advance, but when we calculate in the other factors of the week, we get additional framing for our picture. There's big news coming out this week, a rate announcement. Also we have new Monetary Policy Committee members who want to weigh in and could divide the decisions. Also we have the non farm payrolls due out at the end of the week. All those items working together, can produce something of a stalemate in a currency pair which is what produces the "range". So bumping against a major fib, after several days of one way price action, but having to wait for significant data, these together produce ranges. One should then look for three points to begin trading. In this case the first point would be a swing high, followed by a swing low (point 2) to establish a lower support, then look to sell if the pair has trouble upon reaching the previous swing high. Generally, if I like the set-up, I'll try to get a good sell entry, and aim for a 2/3 drop in the range then exit with a profit. If the pair struggles at the lower end of the range, I'll look for a decent entry and try to get 2/3 on the way up. never shoot for the whole range. It will always disappoint you.
Happy Trading!
Bill
bill@thefxtradingmasters.com
www.thefxtradingmasters.com
Tuesday, August 3, 2010
Forex and Overstretching
One of the most reliable features of the FX market is the fact that it rarely stretches too far in any one direction before snapping back. And at the same time there are estimates that say of all the time the market moves, it is only in a trend about 35% of the time. That of course depends on the length of time that you choose to measure. If you look at a current hourly chart of the euro or sterling, you'd swear they are in an uptrend. But a zoom out of a daily chart shows that they are just in a retracement from recent lows in May, to a fairly common Fibonacci retracement area in the 60% range. Also, as we've seen the sterling recently "blow-out" of its' trading channel, one has to wonder if a top isn't being put into place here. It sure feels like it to me. Especially as we reach toward the psychologically important 1.60 level.
But as the currencies stretch themselves, it is essential to remember 2 things. First, that they can continue in one direction mush longer than would be expected, and two, that they can't continue in one direction forever. Trading is the essence of these two things. We endeavor to catch a move going in the direction of the overall trend, but don't want to get into a move too late. Determining this is what makes the profitable traders different from the losers. Always remembering that there is no magic bullet or perfect set-up to make such a determination. Even profitable traders aren't right all the time. sometimes they are only right half of the time. What makes them stand out? They have bigger winners than they do losers, and they are willing to average their trading our over time. Even if we are down the last two months, the previous months were stellar (with he exception of March), and we are still sitting very pretty. The point is, trading requires patience. It requires a mindset that acknowledges losing trades and losing seasons. But it still is able to carry out the game plan.
In the overnight London Session we saw bad news coming out of Switzerland, Europe and London. But that didn't stop the mighty Euro and sterling train. Some of that appears to have settled in today, but the initial reaction was one of sending the currencies higher. Even though the sterling has been pushing the envelope, I am still very bearish on the currency. The amount of Quantitative Easing that they have pushed into their economy is frightening. At some point, everybody has to pay the fiddler. Their day will come, too.
From the fundamental side, oil has pushed into 5 month high territory. While this helped certain of the oil producing currencies like Norway, it did very little for Canada. We can however look to see it have an effect should the price continue to March higher.
Personal spending was up today, just as Big Ben Bernanke hinted at earlier this week. However, I'm not sure where he is getting his data. Unemployment is still a major risk factor for the US, and it is not improving very quickly, if at all. That translates into no rising wages, and no additional spending. Housing is continuing to suffer, meaning that the refinance money folks once spent on themselves has yet to reappear since the credit collapse. This explains why the US GDP missed its' mark. The consumer is credited with being roughly 70 percent of the weight of the GDP measurement. If such a large percentage is faltering, you can be sure that the whole thing will be looking pretty unsteady.
Later this week we will get the "official" numbers of jobs from the US. It is hard to imagine that they will be anything encouraging. We will see if this will continue the US dollar sell-off. or if it sparks a fresh round of fear driven risk aversion.
Happy trading,
Bill
bill@thefxtradingmasters.com
www.thefxtradingmasters.com
But as the currencies stretch themselves, it is essential to remember 2 things. First, that they can continue in one direction mush longer than would be expected, and two, that they can't continue in one direction forever. Trading is the essence of these two things. We endeavor to catch a move going in the direction of the overall trend, but don't want to get into a move too late. Determining this is what makes the profitable traders different from the losers. Always remembering that there is no magic bullet or perfect set-up to make such a determination. Even profitable traders aren't right all the time. sometimes they are only right half of the time. What makes them stand out? They have bigger winners than they do losers, and they are willing to average their trading our over time. Even if we are down the last two months, the previous months were stellar (with he exception of March), and we are still sitting very pretty. The point is, trading requires patience. It requires a mindset that acknowledges losing trades and losing seasons. But it still is able to carry out the game plan.
In the overnight London Session we saw bad news coming out of Switzerland, Europe and London. But that didn't stop the mighty Euro and sterling train. Some of that appears to have settled in today, but the initial reaction was one of sending the currencies higher. Even though the sterling has been pushing the envelope, I am still very bearish on the currency. The amount of Quantitative Easing that they have pushed into their economy is frightening. At some point, everybody has to pay the fiddler. Their day will come, too.
From the fundamental side, oil has pushed into 5 month high territory. While this helped certain of the oil producing currencies like Norway, it did very little for Canada. We can however look to see it have an effect should the price continue to March higher.
Personal spending was up today, just as Big Ben Bernanke hinted at earlier this week. However, I'm not sure where he is getting his data. Unemployment is still a major risk factor for the US, and it is not improving very quickly, if at all. That translates into no rising wages, and no additional spending. Housing is continuing to suffer, meaning that the refinance money folks once spent on themselves has yet to reappear since the credit collapse. This explains why the US GDP missed its' mark. The consumer is credited with being roughly 70 percent of the weight of the GDP measurement. If such a large percentage is faltering, you can be sure that the whole thing will be looking pretty unsteady.
Later this week we will get the "official" numbers of jobs from the US. It is hard to imagine that they will be anything encouraging. We will see if this will continue the US dollar sell-off. or if it sparks a fresh round of fear driven risk aversion.
Happy trading,
Bill
bill@thefxtradingmasters.com
www.thefxtradingmasters.com
Thursday, July 29, 2010
Forex and the US Advanced GDP
It's fairly significant to notice as we prepare for the release of the US GDP that the we had such a surprise form the UK GDP last week. Expecting a reading of +0.6%, the data actually printed at +1.1%, nearly double the forecast.
Leading up to the release, the UK certainly had a mixed bag of fundamental data releases, nothing to make a trader expect that that the GDP would be double expectations. The same could easily be said for the US. Both are drowning in debt. Both are suffering from housing debilitation. Employment seems to be better in the UK, but not so much so that it would warrant such a surprise.
It is important to remember that Government releases are not always what they appear, and we can't always figure out why.
So we watch and wait to see how the data will post in 10 hours or so. But added to that mix is the overall report from the Bank of England, detailing further dovishness ahead. Mixing that with the recent notes from RBNZ, and falling inflation in the commodity block nations, perhaps we are starting to see the currencies beginning to misstep, and their counter move against the dollar coming to an end. Hopefully tomorrow will give us a better idea.
Happy Trading!
Bill
bill@thefxtradingmasters.com
www.thefxtradingmasters.com
Leading up to the release, the UK certainly had a mixed bag of fundamental data releases, nothing to make a trader expect that that the GDP would be double expectations. The same could easily be said for the US. Both are drowning in debt. Both are suffering from housing debilitation. Employment seems to be better in the UK, but not so much so that it would warrant such a surprise.
It is important to remember that Government releases are not always what they appear, and we can't always figure out why.
So we watch and wait to see how the data will post in 10 hours or so. But added to that mix is the overall report from the Bank of England, detailing further dovishness ahead. Mixing that with the recent notes from RBNZ, and falling inflation in the commodity block nations, perhaps we are starting to see the currencies beginning to misstep, and their counter move against the dollar coming to an end. Hopefully tomorrow will give us a better idea.
Happy Trading!
Bill
bill@thefxtradingmasters.com
www.thefxtradingmasters.com
Wednesday, July 28, 2010
Forex News this Week
As previously mentioned, the RBNZ did indeed raise rates from 2.75% to 3.00%. However, the tone of the news conference to follow was exceptionally dovish, and directed traders to consider that going forward the bank was going to be far less likely to raise rates. The falling inflation rates of the commodity block, have signaled that the heralded recovery may not be ready to materialize.
A good deal of risk appetite will hang in the balance with the German Unemployment data to be released later on in the European session. The US dollar failed to inspire any confidence today as the Durables Goods Orders took a hit, failing to meet expectations.
Will this eventually turn attitudes toward risk aversion and US dollar bullishness again? Only time will tell. But if the German figures are a disappointment, there is far more risk to the downside than to the up.
So we'll see what unfolds over the next several hours, and I'll be back tomorrow with a new update.
Happy Trading,
Bill
bill@thefxtradingmasters.com
www.thefxtradingmasters.com
A good deal of risk appetite will hang in the balance with the German Unemployment data to be released later on in the European session. The US dollar failed to inspire any confidence today as the Durables Goods Orders took a hit, failing to meet expectations.
Will this eventually turn attitudes toward risk aversion and US dollar bullishness again? Only time will tell. But if the German figures are a disappointment, there is far more risk to the downside than to the up.
So we'll see what unfolds over the next several hours, and I'll be back tomorrow with a new update.
Happy Trading,
Bill
bill@thefxtradingmasters.com
www.thefxtradingmasters.com
Tuesday, July 27, 2010
Forex and Big Data
Just minutes ago news broke on the wires that the Aussie inflation data was only HALF what was forecast. The pair is currently getting crushed. Expectations for a rate hike were cut in half as well. Given the fact that New Zealand is announcing an interest rate "change" tomorrow around 21:00 GMT, and is widely expected to raise 1/4 of a percent, this could have a real impact. If Aussie inflation is falling, and Canadian inflation is falling, even if there is a rate hike tomorrow, it may very well be the last one for a while. That would make kiwi buyers dry up, and the currency fall sharply.
Tomorrow, we have durable goods orders due up for the US. They are expected to rise from last month, and that was actually revised upward. It is frankly very hard to make a case for rising orders at this point, but one can never tell.
Thursday will bring German unemployment. Given some of the other good news out of Germany, this could be potentially strong and move risk appetite back to the forefront of traders minds. This may be offset by the big dog of the news week on Friday.
Friday will bring the Advanced reading of US GDP. Economists are expecting a drop to 2.5% from 2.7% previously. A surpise one way or another may be really beneficial to the US Dollar.
Keep all these items on your calendar and your radar. They will be moving price action this week.
Happy Trading!
Bill
bil@thefxtradingmasters.com
www.thefxtradingmasters.com
Tomorrow, we have durable goods orders due up for the US. They are expected to rise from last month, and that was actually revised upward. It is frankly very hard to make a case for rising orders at this point, but one can never tell.
Thursday will bring German unemployment. Given some of the other good news out of Germany, this could be potentially strong and move risk appetite back to the forefront of traders minds. This may be offset by the big dog of the news week on Friday.
Friday will bring the Advanced reading of US GDP. Economists are expecting a drop to 2.5% from 2.7% previously. A surpise one way or another may be really beneficial to the US Dollar.
Keep all these items on your calendar and your radar. They will be moving price action this week.
Happy Trading!
Bill
bil@thefxtradingmasters.com
www.thefxtradingmasters.com
Monday, July 26, 2010
Forex and the Euro Stress Tests
Much like the bank stress tests in the USA, the standards for the Eurozone were subjective, lax and led to questionable results at best. Nevertheless, when the US results were released, it immediately supported the markets, inspite of the rather generically positive results.
As I mentioned last week, no Central Bank likes to release sour data, and the oversight board, the Committee of European Banking Supervisors, (CEBS) gave us no surprises. They did not release the time of their findings in advance and the whole world waited with bated breath to see what they would say (except us, of course). Strategically, they chose to release the results after the European markets closed on Friday, knowing that there were only a few hours left in the trading week, and that most of the traders had left their desks for the weekend. This gave an additional several days for traders to examine and mull over what the findings really were.
Here's the skinny, and you make of it what you will. Overall standards were fairly lax as the CEBS was looking for a capital requirement of 6%. To set that in comparison, the Swiss stress tests used a stiffer 8% baseline. Had that been used in Europe, the results would have been disastrous. Also, the seven firms that fall short of the capital requirement of 6% are already supported by the ECB in one way or another, so their threat is muted. Also, the whole purpose of the tests from the beginning was purported to be examining the exposure to a sovereign default, or severe regional crises. In the end, it does not appear that these items were even addressed (would you care to hazard a guess why?).
As it stands now, with the bond rates having very little differential between the two economies of the EZ and USA, the drift will likely be left to the one who has the likelihood of quickest sustainable recovery. Now that is a tough question!
When the tests were finished, the board determined that the total amount of capital that needs to be raised by the under capitalized banks is about 3.5 billion euros. The lowest economist' estimate was 35 billion, ten times as much as officially reported. In this case, I'm betting on the economists.
Also last week, the US reported that the budget deficit was going to be lower than expected. Instead of 1.6 trillion, it will only be 1.47 trillion. Of course, that's up from the 1.4 trillion last year. Sadly, the further out we look, the gloomier the forecasts become. Is America setting itself up for a bang-up recovery? Not with all this debt.
Nevertheless, our counterpart nations are dealing with debt problems that are equally staggering. In a spike of fear, the US dollar will still be the beneficiary, and as the world's reserve currency, we still have the advantage of the fact that economies around the world need US dollars to purchase every commodity which is settled in US dollars (like oil).
We'll keep watching to see if these realities bubble to the surface.
Happy Trading
Bill
bill@thefxtradingmasters.com
www.thefxtradingmasters.com
As I mentioned last week, no Central Bank likes to release sour data, and the oversight board, the Committee of European Banking Supervisors, (CEBS) gave us no surprises. They did not release the time of their findings in advance and the whole world waited with bated breath to see what they would say (except us, of course). Strategically, they chose to release the results after the European markets closed on Friday, knowing that there were only a few hours left in the trading week, and that most of the traders had left their desks for the weekend. This gave an additional several days for traders to examine and mull over what the findings really were.
Here's the skinny, and you make of it what you will. Overall standards were fairly lax as the CEBS was looking for a capital requirement of 6%. To set that in comparison, the Swiss stress tests used a stiffer 8% baseline. Had that been used in Europe, the results would have been disastrous. Also, the seven firms that fall short of the capital requirement of 6% are already supported by the ECB in one way or another, so their threat is muted. Also, the whole purpose of the tests from the beginning was purported to be examining the exposure to a sovereign default, or severe regional crises. In the end, it does not appear that these items were even addressed (would you care to hazard a guess why?).
As it stands now, with the bond rates having very little differential between the two economies of the EZ and USA, the drift will likely be left to the one who has the likelihood of quickest sustainable recovery. Now that is a tough question!
When the tests were finished, the board determined that the total amount of capital that needs to be raised by the under capitalized banks is about 3.5 billion euros. The lowest economist' estimate was 35 billion, ten times as much as officially reported. In this case, I'm betting on the economists.
Also last week, the US reported that the budget deficit was going to be lower than expected. Instead of 1.6 trillion, it will only be 1.47 trillion. Of course, that's up from the 1.4 trillion last year. Sadly, the further out we look, the gloomier the forecasts become. Is America setting itself up for a bang-up recovery? Not with all this debt.
Nevertheless, our counterpart nations are dealing with debt problems that are equally staggering. In a spike of fear, the US dollar will still be the beneficiary, and as the world's reserve currency, we still have the advantage of the fact that economies around the world need US dollars to purchase every commodity which is settled in US dollars (like oil).
We'll keep watching to see if these realities bubble to the surface.
Happy Trading
Bill
bill@thefxtradingmasters.com
www.thefxtradingmasters.com
Friday, July 16, 2010
Forex update 7/16/2010
During the London session we had some bad news for the Euro...it's trade account balance fell into the negative, and the previous month was revised downward. Remember, this means that they imported more than they exported in terms of euros. And this is a bad thing. What did the euro do? It popped up sixty pips! This is again what I was referring to yesterday when I mentioned seasons when even bad news is taken to be good. However, the pair stopped at the big figure of 1.3000, pulled back 50 pips, and has been pausing ever since. Some cracks in the dam? Has the bull finally spent his strength? Who knows? We came close to our stop, and another run up could be detrimental. We'll see.
For those who are in this trade, watch the price action through the end of the day. If we should close higher but not get stopped out, you may want to simply exit the position for the weekend. The reason being is that the euro has had some very large weekend gaps recently, and if it looks like the steam is building underneath it, it could gap open well past our stop. If, on the other hand, it appears to be moving lower, you may feel more comfortable about letting it ride, and we may even get a gap lower opening.
On the sterling side, the break appears to be starting, and we may have gotten in just in time. All these downside moves have been pretty well supported by buyers, but even if we get a move to half of the channel it should take us down to our target. A move to the bottom would be even better. Given the nice turn of events, be sure to move your stop down as recommended in the alert. You may even want to move it down to break even.
As I mentioned in the alert, I will be away next week and correspondence may be limited. I also need to step out of the office later today so I will not be around for the weekly close. If necessary, I'll send out a line or two tomorrow as I expect to be on the road when markets open on Sunday. Otherwise, we'll hold with the existing parameters.
Have a great weekend!
Bill
www.thefxtradingmasters.com
bill@thefxtradingmasters.com
For those who are in this trade, watch the price action through the end of the day. If we should close higher but not get stopped out, you may want to simply exit the position for the weekend. The reason being is that the euro has had some very large weekend gaps recently, and if it looks like the steam is building underneath it, it could gap open well past our stop. If, on the other hand, it appears to be moving lower, you may feel more comfortable about letting it ride, and we may even get a gap lower opening.
On the sterling side, the break appears to be starting, and we may have gotten in just in time. All these downside moves have been pretty well supported by buyers, but even if we get a move to half of the channel it should take us down to our target. A move to the bottom would be even better. Given the nice turn of events, be sure to move your stop down as recommended in the alert. You may even want to move it down to break even.
As I mentioned in the alert, I will be away next week and correspondence may be limited. I also need to step out of the office later today so I will not be around for the weekly close. If necessary, I'll send out a line or two tomorrow as I expect to be on the road when markets open on Sunday. Otherwise, we'll hold with the existing parameters.
Have a great weekend!
Bill
www.thefxtradingmasters.com
bill@thefxtradingmasters.com
Thursday, July 15, 2010
Forex Update 7-/15/2010
There seems no end to the current risk rally, with the market seeming to take everything as good news. There is already revision being done with the Chinese data, reporting that GDP actually came in 0.2% lower than forecast, but that's OK. Even though the world is looking for China's organic growth to pull the rest of the world out of this current slump, the spin is that this failing to miss expectations is good because China was trying to cool their economy. Really? And if that isn't bad enough, we read further spin on the Spanish bond auction this morning. The Auction was "successful" in that they floated enough loans for the month, and therefore, are getting the "approval" of the market that they are fiscally sound. The truth is, first of all that Spain is not fiscally sound, and in order to get their debt sold was required to pay higher rates than last month. Secondly, while the auction may allow them another month of financing, it's just that...financing. Continuing to give debt to a country that cannot pay what it already has, is like giving alcohol to a man suffering from the DT's just to relieve his pain.
I will still contend that the current rally in the Euro and Pound are corrective in nature, and are only part of a longer downtrend. That being said, the run, although very much overdone, may not be quite done yet. We could easily see a rise to 1. 5400 by the time today is over, and if the steam is rising, this could easily carry over the next resistance at 1.5450. Our current stop is at 1.5400, as I honestly estimated that the last rise would be the conclusion of this run. But when markets take bad news and make it good, they have reached a level where nothing is easily predictable.
So although I have a gut feeling we are nearing a top, we can always re-enter when the opportunity presents itself. We have risked 6% on this trade, and made a half percent on a position earlier this week, so it cuts our loss to 5.5%. If I am convincd that a trade is pretty sound, I don't mind risking up to 8%, but at this level, and with the current response to news items, I'm willing to cut this one loose.
If we get signs of weakness before the 1.5400 level, we'll see about entering a third position at this level. But I'll let you know by way of alert.
Stay tuned!
Bill
www.thfxtradingmasters.com
bill@thefxtradingmasters.com
I will still contend that the current rally in the Euro and Pound are corrective in nature, and are only part of a longer downtrend. That being said, the run, although very much overdone, may not be quite done yet. We could easily see a rise to 1. 5400 by the time today is over, and if the steam is rising, this could easily carry over the next resistance at 1.5450. Our current stop is at 1.5400, as I honestly estimated that the last rise would be the conclusion of this run. But when markets take bad news and make it good, they have reached a level where nothing is easily predictable.
So although I have a gut feeling we are nearing a top, we can always re-enter when the opportunity presents itself. We have risked 6% on this trade, and made a half percent on a position earlier this week, so it cuts our loss to 5.5%. If I am convincd that a trade is pretty sound, I don't mind risking up to 8%, but at this level, and with the current response to news items, I'm willing to cut this one loose.
If we get signs of weakness before the 1.5400 level, we'll see about entering a third position at this level. But I'll let you know by way of alert.
Stay tuned!
Bill
www.thfxtradingmasters.com
bill@thefxtradingmasters.com
Wednesday, July 14, 2010
Forex Update 7-14-2010
I wrote to yesterday to one of my friends that I thought if the UK employment data came out strong, that it might propel the usd/gbp higher to 1.5300. It appears we came within 5 pips or so of that target before pulling back. We are now right at the big figure of 1.5200 and hopefully everyone has had a chance to get in on the second entry recommended 12 hours or so ago.
The news during the early London session was positive for the UK. Jobless claims were forecast to fall by 20K, and that was bested (slightly) with a print at 20.8K. The unemployment rate was also slightly better at 7.8% as opposed to 7.9% forecast. The news pushed the pair higher as expected.
On the euro side, news was not quite so ebullient. While the CPI (Consumer Price Index) was flat, the Industrial Production figures were a good bit weaker than expected---missing the 11.4% figure with a release of 9.4%. The euro pulled back and fell below the key level of 1.2700. Some weakness seems inherent in the liquidity leading pair. Meanwhile the RSI has continued to fall as well.
But we'll look to the franc today for our short term trade. Having fallen more than 10 cents in the last month. The drop was stopped by support from back in March. We'll look for a bounce from here.
On the macro perspective, US retail sales fell slightly, -.5% as opposed to -.3 expected. And China's GDP figure which is due out on Thursday with expectations of 3.1%, has been rumored to see a revision down to 2.8%. Should that be true, it may really affect risk appetite.
So let's look forward to the day with the positions we have and see how the market reacts. Remember to keep your leverage as recommended, in case things don't pan out as expected.
The alert will be later tonight than usual, as I am planning dinner with my in-laws this evening, and will most certainly be back at the office rather late.
Happy Trading!
Bill
www.thefxtradingmasters.com
bill@thefxtradingmasters.com
The news during the early London session was positive for the UK. Jobless claims were forecast to fall by 20K, and that was bested (slightly) with a print at 20.8K. The unemployment rate was also slightly better at 7.8% as opposed to 7.9% forecast. The news pushed the pair higher as expected.
On the euro side, news was not quite so ebullient. While the CPI (Consumer Price Index) was flat, the Industrial Production figures were a good bit weaker than expected---missing the 11.4% figure with a release of 9.4%. The euro pulled back and fell below the key level of 1.2700. Some weakness seems inherent in the liquidity leading pair. Meanwhile the RSI has continued to fall as well.
But we'll look to the franc today for our short term trade. Having fallen more than 10 cents in the last month. The drop was stopped by support from back in March. We'll look for a bounce from here.
On the macro perspective, US retail sales fell slightly, -.5% as opposed to -.3 expected. And China's GDP figure which is due out on Thursday with expectations of 3.1%, has been rumored to see a revision down to 2.8%. Should that be true, it may really affect risk appetite.
So let's look forward to the day with the positions we have and see how the market reacts. Remember to keep your leverage as recommended, in case things don't pan out as expected.
The alert will be later tonight than usual, as I am planning dinner with my in-laws this evening, and will most certainly be back at the office rather late.
Happy Trading!
Bill
www.thefxtradingmasters.com
bill@thefxtradingmasters.com
Tuesday, July 13, 2010
Daily Forex Update 7-13-2010
Yesterday's action could not have been more dull, today's action features a gigantic whipsaw!
Let's begin with the euro, which was traveling nicely down to our profit target area, due in large part to a Moody's downgrade of Portugal's debt. Having lowered it 2 notches, the euro came under pressure by increased default fears in the entire region. In theory, the rating agencies timing could not have been worse; making their statement just before a "critical" debt auction by Greece. However, Greece's auction went off without a hitch, with bonds being well bid, and plenty of cover. However, in the longer term scheme of things, we must always be wary of modern debt auctions and the "secret" machinations of central banks. The US could not have covered anywhere near all of it's debt requirements if it weren't for a large group of "undisclosed" bidders. Basically, it appears the Fed comes in on the sly and purchases what the treasury needs to sell, that has not been purchased by others. This is basically printing money to cover the debt. There were rumors about the ECB doing this for the last last Greek auction, and they are already flying around now about this one. Unfortunately as Central Banks are not open to audit, we can have no verification of these facts. But the rationale is pretty condemning.
The last several minutes as I write this have seen stellar moves in the pound and the euro, hopefully everyone was able to get their pound exit in.
So what has caused this massive move in the light of the Euro downgrade? Remember how I said yesterday that inflationary data can move markets? And that while the UK's current inflation reading was above the central bank target that they expected it to continue to fall? WELL, it didn't. The core CPI which was expected to come in at 2.8%, jumped to 3.1%, a very strong increase. In theory, that would lead the BoE (Bank of England) to consider raising it's interest rate in order to fight off inflation. The problem is, how can they possibly raise rates in the middle of a stalled recovery? Remember, the UK economy is no better off than the US or Europe, and could be arguably in worse shape. So how could the Central Bank raise rates now? We all have a pretty good idea of what that would do. Stocks would tank. Bonds would soar, and the US dollar would become the currency of favor as fear grips the heart of the financial world again. Remember, each month as the economies of the world look at their bond auction data, they are holding their breath with their fingers crossed that their interest rates are not going to increase. I'll be honest with you folks, these things are pretty scary. As I've often said, we have never been at a juncture like this in world history. It is entirely possible we could see orchestrated massive defaults by huge economies all at the same time. While I am by nature a currency trader, I would also advise you to have lots of gold, and if you can't afford that, then lots of silver near at hand. Just in case...
On the technical side of things, the GBP is putting in a big divergence on the hourly stochastic, with this latest move higher in price, not going higher on the stochastic indicator. This generally signals more downside ahead. Also, if we fail to trend much higher from here, we may have the 4H head and shoulders formation we were looking for last week. If so, a validation of that pattern would target 1.4675. Tomorrow's UK unemployment report should give us some idea of the next move in the sterling. For now we will continue to hold our first position, and look to enter a second a soon as possible.
The EUR is struggling now to get to 1.2650. We will keep our stop in place, as the downtrend is still intact, and we will look for more fallout from the Portugal downgrade to filter through the market after all the sizzle from the GBP inflation news has gone out.
Drop me a line if you have any questions, and be sure to watch your inbox for another long term entry on the sterling.
Happy Trading!
Bill
www.thefxtradingmasters.com
bill@thefxtradingmasters.com
Let's begin with the euro, which was traveling nicely down to our profit target area, due in large part to a Moody's downgrade of Portugal's debt. Having lowered it 2 notches, the euro came under pressure by increased default fears in the entire region. In theory, the rating agencies timing could not have been worse; making their statement just before a "critical" debt auction by Greece. However, Greece's auction went off without a hitch, with bonds being well bid, and plenty of cover. However, in the longer term scheme of things, we must always be wary of modern debt auctions and the "secret" machinations of central banks. The US could not have covered anywhere near all of it's debt requirements if it weren't for a large group of "undisclosed" bidders. Basically, it appears the Fed comes in on the sly and purchases what the treasury needs to sell, that has not been purchased by others. This is basically printing money to cover the debt. There were rumors about the ECB doing this for the last last Greek auction, and they are already flying around now about this one. Unfortunately as Central Banks are not open to audit, we can have no verification of these facts. But the rationale is pretty condemning.
The last several minutes as I write this have seen stellar moves in the pound and the euro, hopefully everyone was able to get their pound exit in.
So what has caused this massive move in the light of the Euro downgrade? Remember how I said yesterday that inflationary data can move markets? And that while the UK's current inflation reading was above the central bank target that they expected it to continue to fall? WELL, it didn't. The core CPI which was expected to come in at 2.8%, jumped to 3.1%, a very strong increase. In theory, that would lead the BoE (Bank of England) to consider raising it's interest rate in order to fight off inflation. The problem is, how can they possibly raise rates in the middle of a stalled recovery? Remember, the UK economy is no better off than the US or Europe, and could be arguably in worse shape. So how could the Central Bank raise rates now? We all have a pretty good idea of what that would do. Stocks would tank. Bonds would soar, and the US dollar would become the currency of favor as fear grips the heart of the financial world again. Remember, each month as the economies of the world look at their bond auction data, they are holding their breath with their fingers crossed that their interest rates are not going to increase. I'll be honest with you folks, these things are pretty scary. As I've often said, we have never been at a juncture like this in world history. It is entirely possible we could see orchestrated massive defaults by huge economies all at the same time. While I am by nature a currency trader, I would also advise you to have lots of gold, and if you can't afford that, then lots of silver near at hand. Just in case...
On the technical side of things, the GBP is putting in a big divergence on the hourly stochastic, with this latest move higher in price, not going higher on the stochastic indicator. This generally signals more downside ahead. Also, if we fail to trend much higher from here, we may have the 4H head and shoulders formation we were looking for last week. If so, a validation of that pattern would target 1.4675. Tomorrow's UK unemployment report should give us some idea of the next move in the sterling. For now we will continue to hold our first position, and look to enter a second a soon as possible.
The EUR is struggling now to get to 1.2650. We will keep our stop in place, as the downtrend is still intact, and we will look for more fallout from the Portugal downgrade to filter through the market after all the sizzle from the GBP inflation news has gone out.
Drop me a line if you have any questions, and be sure to watch your inbox for another long term entry on the sterling.
Happy Trading!
Bill
www.thefxtradingmasters.com
bill@thefxtradingmasters.com
Monday, July 12, 2010
Forex Weekly Forecast
As a part of the new service, we'll be making our recommendations on the twice daily alerts and posting commentary and market movements over here on the blog. This is not what we'll do longer term, but for now it will suit us just fine.
As we entere our short term trade in the euro, we can see that Friday gave us a bearish outside day. That occurs when a candle or bar on a chart has a close below it's open, and when the body of the candle is larger than the previous one. In this case, it marks a whole days' activity, which generally gives us a more reliable signal. Remember, the longer term the time frame, the more reliable it is for technical analysis.
Also, the euro bumped up against long term resistance on Friday and was unable to pierce it. This give us another clue that some "down time" ought to be ahead. Of course, we won't reveal our proprietary entries and exits here as this is a public forum, but those of you who have gotten your alert today will know what to do!
For our longer term sterling trade, we began a very nice move on Friday and now find ourselves well in the black by about 1%. Remember, by the time this is over, we want to be looking at something in excess of 5% for just a few weeks work. You can't beat that anywhere. But the current account balance for the UK was released earlier today and was nearly double the rate forecast. This is not good. Remember the CAB, is derived from subtracting imports from exports. As a rule, you weant you account balance to be positive, which means that you are exporting (selling) more than you are importing (buying). If not, then as a national economy, you are spending more than you are making, which is never good. However, the sterling fell sharply and then bounced nearly 100 pips after it hit the 200MA on the 4 hour chart.
We should also note that the price fell below the 200MA on the daily chart on Friday...a bearish signal.
For the rest of the day the news calendar is pretty light; we have some news coming out for Canada. But as the week wears on, we have the Consumer Price Index for the UK. AS the index rises, it is generally thought to be indicative of rising inflation. It is the presumption that a central bank will have to raise interest rates, in order to combat rising inflation. That is generally very bullish for a currency. When CPI is falling, defaltion is believed to be on the rise, and no interest rate hike will be forthcoming. That continues to depress a currency. The CPI is expected to be above the target rate of 2% ( and has been for a little while), but no major economy is in a position to raise rates, especially not the UK. However, even though the CPI is above the target rate, the rate is projected to fall on a monthly basis and a yearly one as well. On Wednesday the UK will be releasing it's unemployment figures, which are also expected to fall, and could be a bullish effect on the currency. Wednesday will also bring US Advanced Retail Sales. Traders look to these numbers to see how consumers are spending, and if they are bringing their dollars back into the market. Until they do, it is impossible to expect a real recovery. (Don't hold your breath!) We will also get the minutes of the US Fed Mtg. These can produce quite a bit of volatility as the Fed often comments on the future expectations of the economy.
Thursday will bring us the US PPI (Producer Price Index) another inflation gauge...but again it is expected to fall.
Friday will bring the last in the inflation measures this week in the US CPI or Consumer Price Index, again, no real increases are expected.
That should wrap us up for this morning.
Happy Trading!
Bill
www.thefxtradingmasters.com
bill@thefxtradingmasters.com
As we entere our short term trade in the euro, we can see that Friday gave us a bearish outside day. That occurs when a candle or bar on a chart has a close below it's open, and when the body of the candle is larger than the previous one. In this case, it marks a whole days' activity, which generally gives us a more reliable signal. Remember, the longer term the time frame, the more reliable it is for technical analysis.
Also, the euro bumped up against long term resistance on Friday and was unable to pierce it. This give us another clue that some "down time" ought to be ahead. Of course, we won't reveal our proprietary entries and exits here as this is a public forum, but those of you who have gotten your alert today will know what to do!
For our longer term sterling trade, we began a very nice move on Friday and now find ourselves well in the black by about 1%. Remember, by the time this is over, we want to be looking at something in excess of 5% for just a few weeks work. You can't beat that anywhere. But the current account balance for the UK was released earlier today and was nearly double the rate forecast. This is not good. Remember the CAB, is derived from subtracting imports from exports. As a rule, you weant you account balance to be positive, which means that you are exporting (selling) more than you are importing (buying). If not, then as a national economy, you are spending more than you are making, which is never good. However, the sterling fell sharply and then bounced nearly 100 pips after it hit the 200MA on the 4 hour chart.
We should also note that the price fell below the 200MA on the daily chart on Friday...a bearish signal.
For the rest of the day the news calendar is pretty light; we have some news coming out for Canada. But as the week wears on, we have the Consumer Price Index for the UK. AS the index rises, it is generally thought to be indicative of rising inflation. It is the presumption that a central bank will have to raise interest rates, in order to combat rising inflation. That is generally very bullish for a currency. When CPI is falling, defaltion is believed to be on the rise, and no interest rate hike will be forthcoming. That continues to depress a currency. The CPI is expected to be above the target rate of 2% ( and has been for a little while), but no major economy is in a position to raise rates, especially not the UK. However, even though the CPI is above the target rate, the rate is projected to fall on a monthly basis and a yearly one as well. On Wednesday the UK will be releasing it's unemployment figures, which are also expected to fall, and could be a bullish effect on the currency. Wednesday will also bring US Advanced Retail Sales. Traders look to these numbers to see how consumers are spending, and if they are bringing their dollars back into the market. Until they do, it is impossible to expect a real recovery. (Don't hold your breath!) We will also get the minutes of the US Fed Mtg. These can produce quite a bit of volatility as the Fed often comments on the future expectations of the economy.
Thursday will bring us the US PPI (Producer Price Index) another inflation gauge...but again it is expected to fall.
Friday will bring the last in the inflation measures this week in the US CPI or Consumer Price Index, again, no real increases are expected.
That should wrap us up for this morning.
Happy Trading!
Bill
www.thefxtradingmasters.com
bill@thefxtradingmasters.com
Friday, July 9, 2010
Forex and Mind Tricks
As any trader who's been around the FX block will tell you, the mind is capable of producing terrible distortions of reality, and simply accepting them as real, thus producing bad trades. The fact is, anyone who has had a terrifying nightmare can attest to the same fact. Even after you wake up, and you're shaking and sweating and you're heart is racing...even after you've realized it is just a dream...even after you try to describe it to someone else and it makes no sense...it still produces fear when you envision the images in your minds' eye. Why is that? Because our mind cannot tell the difference between something that is real, and something that we only vividly imagine. Our minds are perfectly capable of accepting alternate realities and making room for them in our present reality.
Such was the case with me in our last blog entry. I usually have a rule about not writing late at night. Last night I broke that, and now I remember why it is a rule. I described for you a situation of relational markets between the franc euro and dollar. And because I was using an inverted chart, my mind accepted an altered view of reality as being true. I said to you that the franc was getting pounded by the dollar, although actually the opposite is true. The dollar has fallen against the franc. Now as the dollar index is at a swing low stochastically speaking, I would look for a rebound against the franc which should dutifully help the US dollar to appreciate against the pound and euro.
But it is not true that the dollar has done that yet. It is the franc that has hit the USD. But simply looking at a variant chart I was re-interpreting the information and it fit right within my paradigm. So we have for ourselves today 2 important lessons.
1. Trading while tired almost always produces disastrous results. (Same holds true for writing.)
2. Always double check. And use caution. I reminded a friend today of something my father used to say, "It's never the new guys at the reptile farm who get bitten by the snakes. They are always the most careful. But the guys who have been around awhile, they are the ones who are statistically the most at risk."
The FX market is like a big snake just waiting to strike the minute you let down your guard. So it pays to be careful.
Now even though my analysis was inverted, my "worldview" is still correct. We have seen resultant weakness in the sterling as it moved down to its sideways channel low earlier today. This has provided support for 8 days running, and we are getting a bounce off of it again right now. But a close below the 1.5080 level should give us the rest of a great short trade.
Trade Cautiously!
Bill
bill@thefxtradingmasters.com
www.thefxtradingmasters.com
Such was the case with me in our last blog entry. I usually have a rule about not writing late at night. Last night I broke that, and now I remember why it is a rule. I described for you a situation of relational markets between the franc euro and dollar. And because I was using an inverted chart, my mind accepted an altered view of reality as being true. I said to you that the franc was getting pounded by the dollar, although actually the opposite is true. The dollar has fallen against the franc. Now as the dollar index is at a swing low stochastically speaking, I would look for a rebound against the franc which should dutifully help the US dollar to appreciate against the pound and euro.
But it is not true that the dollar has done that yet. It is the franc that has hit the USD. But simply looking at a variant chart I was re-interpreting the information and it fit right within my paradigm. So we have for ourselves today 2 important lessons.
1. Trading while tired almost always produces disastrous results. (Same holds true for writing.)
2. Always double check. And use caution. I reminded a friend today of something my father used to say, "It's never the new guys at the reptile farm who get bitten by the snakes. They are always the most careful. But the guys who have been around awhile, they are the ones who are statistically the most at risk."
The FX market is like a big snake just waiting to strike the minute you let down your guard. So it pays to be careful.
Now even though my analysis was inverted, my "worldview" is still correct. We have seen resultant weakness in the sterling as it moved down to its sideways channel low earlier today. This has provided support for 8 days running, and we are getting a bounce off of it again right now. But a close below the 1.5080 level should give us the rest of a great short trade.
Trade Cautiously!
Bill
bill@thefxtradingmasters.com
www.thefxtradingmasters.com
Thursday, July 8, 2010
Forex and Present Correlations
We spent some time yesterday talking about the correlations of various fx currencies to one another. Today, let's look at a present correlation that has an effect on our current trade.
I lump the three Euro currencies together as having an inter-related effect on one another, the Swiss franc, the Euro, and the GB Pound. These generally tend to move in correlations to one another, and certainly against the US dollar.
The euro and sterling have been in a corrective trend against the dollar. They have both now bumped up against the long term down trend resistance line that dates back to the beginning of the year and a little earlier. Both are up against the upper resistance of a channel. However, the Swiss Franc has been taking a beating at the hand of the US dollar. At this point we want to remember the "triangulation" principle. If A is being crushed B, and B is being crushed by C, then A should be obliterated by C. Let's substitute currencies in our little equation to make it clear. If the Euro is being beaten by the Franc, (just look at a eur/chf to see that this is true), and if the Franc is being beaten by the US Dollar (a 12oo pip move in the last month), then the US dollar should be destroying the Euro. If the US mounts it's strength against the single currency as it has against the Franc, the sterling will fall right alongside.
This "triangulation" principal is an important and effective trading tool. it is not infallible, but it has proven itself pretty darn reliable to me.
Happy Trading!
Bill
www.thefxtradingmasters.com
bill@thefxtradingmasters.com
I lump the three Euro currencies together as having an inter-related effect on one another, the Swiss franc, the Euro, and the GB Pound. These generally tend to move in correlations to one another, and certainly against the US dollar.
The euro and sterling have been in a corrective trend against the dollar. They have both now bumped up against the long term down trend resistance line that dates back to the beginning of the year and a little earlier. Both are up against the upper resistance of a channel. However, the Swiss Franc has been taking a beating at the hand of the US dollar. At this point we want to remember the "triangulation" principle. If A is being crushed B, and B is being crushed by C, then A should be obliterated by C. Let's substitute currencies in our little equation to make it clear. If the Euro is being beaten by the Franc, (just look at a eur/chf to see that this is true), and if the Franc is being beaten by the US Dollar (a 12oo pip move in the last month), then the US dollar should be destroying the Euro. If the US mounts it's strength against the single currency as it has against the Franc, the sterling will fall right alongside.
This "triangulation" principal is an important and effective trading tool. it is not infallible, but it has proven itself pretty darn reliable to me.
Happy Trading!
Bill
www.thefxtradingmasters.com
bill@thefxtradingmasters.com
Wednesday, July 7, 2010
Forex and Intermarket Correlations Part 2
It's been several days since I had a chance to post due to the July 4th Holiday (which was a great one here) so I'm glad to be back to the blog.
Today we want to consider a bit further market correlations and the forex, following up on trader Brian's question from a couple weeks back. Today, let's consider the inter markets between forex markets themselves and how they relate to one another.
Among the majors currency pairs, GBP/USD, EUR/USD, CAN/USD, AUS/USD NZD/USD and CHF/USD, there are basically three correlated groupings.
GBP, EUR, and CHF are all considered one family, we'll just label them the European Currencies. CAN, AUS, and NZD are all considered one family, we'll label them the Commodity dollars, or comdolls for short. Lastly, we have the USD which essentially stands alone as the counter part to all these. We don't really need a nickname for it.
As a rule, these will often trade in some relation. When commodities are on a run, especially oil, we see the commdolls making bullish moves. Such a trade fits in fundamentally with their production, and also, as oil is priced in US dollars, when it's price is rising, it usually means that the dollar is weakening. As the US dollar weakens, all these commodity currency dollars tend to strengthen as the counter part to the trade.
On the European side, we see similar action. These three tend to be considered more related to one another. First, we should note that when the dollar index is moving, it is moving primarily against the euro which makes up the lions' share of the index. Thus, US dollar weakens, euro strengthens. US dollar strengthens, euro weakens. It is an inverse relationship, or something like a see-saw. But as we often hear that a rising tide lifts all boats, when the euro is on the move up, frequently the swissy and the sterling move right along beside. This gives added volatility to these three apart from the strict interpretation of their fundamentals.
These two schools also often move together, in sympathy moves against the dollar. So if commodities are strong, it can move the whole lot. If equities are strong, they can move the whole lot. If both are strong together as a result of some news that promotes an idea of economic recovery, they all will move up. In the current, environment one of the wild cards however is this: good news out of the US. Not so long ago, good news from the USA would prompt a US dollar selloff, and a currency run up everywhere else. The rationale being that if the US is going to recover, everyone is going to recover. (And if there was going to be a recovery, everybody wanted to be holding the higher yielding currencies against the dollar.) The reason being is that the US was the primary engine of growth worldwide. They purchased what everyone else produced. But things are somewhat different now in the US. Citizens no longer boast massive amounts of equity in their homes against which they can borrow for every toy and trinket under the sun. The US savings rate is rising. This is the death knell to sales, especially as incomes have been falling due to rising unemployment and underemployment. Even if the US recovers, spending will not return to its previously dizzying heights. Many who were just about to enter into retirement have seen massive amounts of their retirement accounts wiped out, never to be recovered...and with very few years left to work.
Without spending, the rest of the world cannot return to its previous peaks of manufacturing and selling success. So now US good news is debated hotly for it's inferences. Will it be the US who recovers and leads interest rates higher? Will the US be the first to emerge from depression? Will the US's gowth benefit the rest of the world? What should we be buying...the USD or the Euro?
The truth is, no one really knows. We have never been at this juncture in world
history before. No one really knows how to fix the current problems under the current theories of economics. And the truth is, no one can. The current theories do not allow for a place in time where debt is so incredibly massive, that it cannot be repaid. Sure, it was ok for certain 2nd and 3rd world countries to default. Because then all the wealth of the developed countries could be funneled to them by way of "loans" and "aid". Which has actually already happened. But who will spare the mighty US? Or the Eurozone? Or Great Britain? There isn't enough money in all the world to bail them out. This is what I mean when I say we have never been at this juncture before. Basic, non-Keynesian, economics says that after a run up like we've had, the only way out is to write off debt or pay off debt and get it out of the system. But that isn't happening on the governmental scale or Central Bank scale. It is happening in private businesses (the ones which don't get bailed out), and in private families (where foreclosures end the game), these are getting rid of debt. But the governments of the world have just continued to add to it; bailouts and purchases and guaranteed loans of all kinds. Until the governments of the world stop spending to try to create sustainable recovery, no recovery is bound to happen. You can't spend your way to wealth.
As such, the markets move in tandem with greed and fear, what they want, and what they are afraid of. When all is said and done, they are the great correlators, and they are the great market movers.
Happy Trading!
Bill
www.thefxtradingmasters.com
bill@thefxtradingmasters.com
Today we want to consider a bit further market correlations and the forex, following up on trader Brian's question from a couple weeks back. Today, let's consider the inter markets between forex markets themselves and how they relate to one another.
Among the majors currency pairs, GBP/USD, EUR/USD, CAN/USD, AUS/USD NZD/USD and CHF/USD, there are basically three correlated groupings.
GBP, EUR, and CHF are all considered one family, we'll just label them the European Currencies. CAN, AUS, and NZD are all considered one family, we'll label them the Commodity dollars, or comdolls for short. Lastly, we have the USD which essentially stands alone as the counter part to all these. We don't really need a nickname for it.
As a rule, these will often trade in some relation. When commodities are on a run, especially oil, we see the commdolls making bullish moves. Such a trade fits in fundamentally with their production, and also, as oil is priced in US dollars, when it's price is rising, it usually means that the dollar is weakening. As the US dollar weakens, all these commodity currency dollars tend to strengthen as the counter part to the trade.
On the European side, we see similar action. These three tend to be considered more related to one another. First, we should note that when the dollar index is moving, it is moving primarily against the euro which makes up the lions' share of the index. Thus, US dollar weakens, euro strengthens. US dollar strengthens, euro weakens. It is an inverse relationship, or something like a see-saw. But as we often hear that a rising tide lifts all boats, when the euro is on the move up, frequently the swissy and the sterling move right along beside. This gives added volatility to these three apart from the strict interpretation of their fundamentals.
These two schools also often move together, in sympathy moves against the dollar. So if commodities are strong, it can move the whole lot. If equities are strong, they can move the whole lot. If both are strong together as a result of some news that promotes an idea of economic recovery, they all will move up. In the current, environment one of the wild cards however is this: good news out of the US. Not so long ago, good news from the USA would prompt a US dollar selloff, and a currency run up everywhere else. The rationale being that if the US is going to recover, everyone is going to recover. (And if there was going to be a recovery, everybody wanted to be holding the higher yielding currencies against the dollar.) The reason being is that the US was the primary engine of growth worldwide. They purchased what everyone else produced. But things are somewhat different now in the US. Citizens no longer boast massive amounts of equity in their homes against which they can borrow for every toy and trinket under the sun. The US savings rate is rising. This is the death knell to sales, especially as incomes have been falling due to rising unemployment and underemployment. Even if the US recovers, spending will not return to its previously dizzying heights. Many who were just about to enter into retirement have seen massive amounts of their retirement accounts wiped out, never to be recovered...and with very few years left to work.
Without spending, the rest of the world cannot return to its previous peaks of manufacturing and selling success. So now US good news is debated hotly for it's inferences. Will it be the US who recovers and leads interest rates higher? Will the US be the first to emerge from depression? Will the US's gowth benefit the rest of the world? What should we be buying...the USD or the Euro?
The truth is, no one really knows. We have never been at this juncture in world
history before. No one really knows how to fix the current problems under the current theories of economics. And the truth is, no one can. The current theories do not allow for a place in time where debt is so incredibly massive, that it cannot be repaid. Sure, it was ok for certain 2nd and 3rd world countries to default. Because then all the wealth of the developed countries could be funneled to them by way of "loans" and "aid". Which has actually already happened. But who will spare the mighty US? Or the Eurozone? Or Great Britain? There isn't enough money in all the world to bail them out. This is what I mean when I say we have never been at this juncture before. Basic, non-Keynesian, economics says that after a run up like we've had, the only way out is to write off debt or pay off debt and get it out of the system. But that isn't happening on the governmental scale or Central Bank scale. It is happening in private businesses (the ones which don't get bailed out), and in private families (where foreclosures end the game), these are getting rid of debt. But the governments of the world have just continued to add to it; bailouts and purchases and guaranteed loans of all kinds. Until the governments of the world stop spending to try to create sustainable recovery, no recovery is bound to happen. You can't spend your way to wealth.
As such, the markets move in tandem with greed and fear, what they want, and what they are afraid of. When all is said and done, they are the great correlators, and they are the great market movers.
Happy Trading!
Bill
www.thefxtradingmasters.com
bill@thefxtradingmasters.com
Thursday, July 1, 2010
Forex and Stock Correlations
In the age of instantaneous communication, market correlation is more significant now than it ever has been before. In days gone by, often markets stood "alone", or at least the correlations between them were lagging so much that it did not appear that they were very related or interconnected. But no more.
As news zips around the globe, data from China affects the Pacific, European and American markets almost at once. So the question arises, what are the correlations between various markets, and, can we trade them?
If we examine the traditional correlations between stock and currency markets, we should note that the drivers which move them are not the same. Let's start with stocks. They are broadly driven by two factors: interest rates and earnings. Once upon a time, interest rates below 8% were said to propel stocks higher. And once rates fell to that level or lower, traders should begin buying in. With interest so low, every company would be making a profit (of course that dynamic has grossly changed). But nevertheless, low rates generally make for rising stocks. On the other hand, rising rates make for falling stocks. This is the dilemma where US and other policy makers now find themselves. They know rates cannot stay at these absurdly low levels forever. But how can you raise them when they are not stimulating the economy. Such an action would crush anything that's left of the economy.
But when rates do begin to increase, and stocks are falling, as a rule, bonds are going up. As they draw more interest from investors for their higher return, we see they usually move in tandem, or an opposite correlation from stocks or equities.
Currencies act a little more like bonds than they do stocks. If interest rates are falling, the interest by traders in that currency will fall also. Why? Because of a lesser return. As the US is presently setting its rates at .25%, why would I as a currency investor want to buy the USD over the Aussie $ which is paying 4.5%? As a rule, I wouldn't. But we are in the midst of an inverse market relationship. Now the lower paying currency is strengthening because of fear in the market. Fear drives investors to what they perceive as safety and liquidity. Right now, that is the USD.
So the important thing to remember now is that correlations also change. At times, strength in the USD is mirrored in strength in the equities. But during this fearful time, falling US equities have meant a strengthening dollar. On days when counter parties to the dollar were having good equity days, that was good for their currency.
Thus there are correlations, but they appear to be rather short lived for our style of trading. Even as I write this the bottom is dropping out of the S&P which would normally be good for the dollar against the euro and sterling. But the pound is up 250 pips and the euro 150. That is a huge disconnect for what has been happening lately.
So be careful when you hear (especially talking heads on Bloomberg and CNBC or Fox) talking about these correlations or negative correlations. They are not as reliable or as simple as some would lead you to believe. They are interconnected, but apart from long secular trends, they are more like minefields than good trading strategies.
Happy Trading,
Bill
www.thefxtradingmasters.com
bill@thefxtradingmasters.com
As news zips around the globe, data from China affects the Pacific, European and American markets almost at once. So the question arises, what are the correlations between various markets, and, can we trade them?
If we examine the traditional correlations between stock and currency markets, we should note that the drivers which move them are not the same. Let's start with stocks. They are broadly driven by two factors: interest rates and earnings. Once upon a time, interest rates below 8% were said to propel stocks higher. And once rates fell to that level or lower, traders should begin buying in. With interest so low, every company would be making a profit (of course that dynamic has grossly changed). But nevertheless, low rates generally make for rising stocks. On the other hand, rising rates make for falling stocks. This is the dilemma where US and other policy makers now find themselves. They know rates cannot stay at these absurdly low levels forever. But how can you raise them when they are not stimulating the economy. Such an action would crush anything that's left of the economy.
But when rates do begin to increase, and stocks are falling, as a rule, bonds are going up. As they draw more interest from investors for their higher return, we see they usually move in tandem, or an opposite correlation from stocks or equities.
Currencies act a little more like bonds than they do stocks. If interest rates are falling, the interest by traders in that currency will fall also. Why? Because of a lesser return. As the US is presently setting its rates at .25%, why would I as a currency investor want to buy the USD over the Aussie $ which is paying 4.5%? As a rule, I wouldn't. But we are in the midst of an inverse market relationship. Now the lower paying currency is strengthening because of fear in the market. Fear drives investors to what they perceive as safety and liquidity. Right now, that is the USD.
So the important thing to remember now is that correlations also change. At times, strength in the USD is mirrored in strength in the equities. But during this fearful time, falling US equities have meant a strengthening dollar. On days when counter parties to the dollar were having good equity days, that was good for their currency.
Thus there are correlations, but they appear to be rather short lived for our style of trading. Even as I write this the bottom is dropping out of the S&P which would normally be good for the dollar against the euro and sterling. But the pound is up 250 pips and the euro 150. That is a huge disconnect for what has been happening lately.
So be careful when you hear (especially talking heads on Bloomberg and CNBC or Fox) talking about these correlations or negative correlations. They are not as reliable or as simple as some would lead you to believe. They are interconnected, but apart from long secular trends, they are more like minefields than good trading strategies.
Happy Trading,
Bill
www.thefxtradingmasters.com
bill@thefxtradingmasters.com
Wednesday, June 30, 2010
Forex and Middle of the Road Profits
Two things trouble the would be successful forex trader...when to get in, and when to get out. We look at the charts and are tempted to think a certain pair is cheap. But could it get cheaper? Is it cheap just because of the recent downtrend, and is the trend likely to continue when I get on? Should I get on going long, because it is cheap and must turn around soon, or should I get on in the direction of the current trend and ride it lower? These questions plaque a traders entry every day. But if that isn't bad enough, many traders never plan their exits in advance, and so once in, the agonizing starts all over. If it blows through a stop, oh well, just a plain and simple agony there. But what if t starts becoming profitable? Then the pain really begins for some traders. Should I get out now with a small profit? Should I take half of the table and let the other run? What if it runs a long way, and I could've had all that other profit had I left the trade all on? But what if it turns around and reverses and I have left the whole trade on and I lose my profit entirely? It's enough to make a person's head explode (and it will if you let it). This is why it is important to remember that the most important space to conquer, is the space between your ears. The market doesn't even know you exist. Its not out to "get you", though sometimes it seems like it, when it takes out your stops by a couple of pips and then reverses. Or when it just misses exiting you at your profit target only to retrace and give back your trade. The only funky stuff going on in the market is actually in your head. This is why you must get control in there. Set rules. Set targets. Set stops. Realize that when you enter the market, NO ONE knows where it is headed next in the short term. You look for your good entries based on the support and resistance of the trend we talked about yesterday. If your entry is bad and you get stopped, its strictly business. It doesn't mean you're a bad trader. If your system for entries is proven, you just have to know that sometimes you'll take your lumps. Just like that little position we entered in the sterling earlier this week. It was a high probability entry, but the flip side of the coin is that there is some probability it will fail. That one did. But our next one is paying off in spades now.
When I talk about middle of the road profits, or median targets, what I mean is this. All forex currency pairs trade around median ranges over 30-60 day periods. They will overshoot in one direction only to snap back the other way once the market gets too far overextended. When trading for those snap backs, aim for the middle of the price action over the last period. Then get out. Is it likely to continue moving in your direction? Yes. Should you care? No. You have to set boundaries. And learning to set them with profit targets is a real key to maintaining your sanity in this business. Perhaps you prefer using a trailing stop. Great. Then use it, but don't cry over profits lost when the market retraces to take out your stop. Set your goals, and be happy to reach them. Then get out. Leave some profit for somebody else. All traders have to eat. We all have to pay our bills. Once you reach your goal, be satisfied. Remember bulls make money, and bears make money, but pigs get slaughtered. Set your rules, and stick to them!
Happy Trading!
Bill
www.thefxtradingmasters.com
bill@thefxtradingmasters.com
When I talk about middle of the road profits, or median targets, what I mean is this. All forex currency pairs trade around median ranges over 30-60 day periods. They will overshoot in one direction only to snap back the other way once the market gets too far overextended. When trading for those snap backs, aim for the middle of the price action over the last period. Then get out. Is it likely to continue moving in your direction? Yes. Should you care? No. You have to set boundaries. And learning to set them with profit targets is a real key to maintaining your sanity in this business. Perhaps you prefer using a trailing stop. Great. Then use it, but don't cry over profits lost when the market retraces to take out your stop. Set your goals, and be happy to reach them. Then get out. Leave some profit for somebody else. All traders have to eat. We all have to pay our bills. Once you reach your goal, be satisfied. Remember bulls make money, and bears make money, but pigs get slaughtered. Set your rules, and stick to them!
Happy Trading!
Bill
www.thefxtradingmasters.com
bill@thefxtradingmasters.com
Tuesday, June 29, 2010
Forex Trading: Support and Resistance
In the trading of the forex market,w e established early on that the only real way to trade it profitably is with the longer term trend. Trade In the direction of the trend, and become a specialist in one currency. Learn it's movements, it's quiet times, it's volatile news releases...everything you can about it.
But also remember, learning everything you can about a currency and it's actions and reactions isn't a 30 day process. It isn't a 90 day process. Give yourself a year minimum of studying it every day. Certainly use historical charts, but you have to be trading it on a regular basis to get a good feel for the pair. And you have to use real money. Demo accounts only help people think they are good traders. There is no way to account for the real fear and greed that fills a traders heart when his own cash is on the line.
So having established that trading with the trend is the only way to go, the next thing that is crucial to remember is that you don't want to try to get in on the beginning of a trend. It is next to impossible to find when a currency turns a corner (except in hindsight when it looks so easy), so always let your trend establish itself before entering.
Once the trend is underway, the next logical question is that of when and where to enter. For the answer, we will look to support and resistance. If the trend is down, we want to enter at resistance. If it is up, we want to enter at support.
For instance, our recent sterling trade is short, as you can plainly see the direction on any weekly chart of the GBP/USD. Recently we came up to a weekly resistance level. This provides a reasonable place to enter, as the resistance is strong and well established. Where will it go from here? No one knows. That's why you always have a contingency in play. Either a stop loss, an offsetting trade as a hedge, another entry at the next resistance level, something to expand your advantage in the market.
But what is the best kind of support or resistance? And how many are there? Let's see:
Horizontal S/R
Diagonal S/R
Fibonacci S/R
Big Figure S/R
Old Resistance/New support
New Resistance/Old Support
Each of these deserves a decent treatment, and we have talked about some of this before. But it always bears repeating! For slower markets, I prefer horizontal S/R. For faster markets, I prefer angled trendlines. For breakout markets, I like the Fibonacci grids. For profit targets, I like the big figures. All this has come to me over years of trading trial and error. And especially narrowing down my trading to certain pairs. It is no secret that I like the euro, pound and aussie.
Study your support and resistance levels for your preferred currencies. You are nearly guaranteed to fail without this knowledge in your arsenal. But don't simply rely on back testing, that can only do so much. You have to put the trading plan it work in real time in real markets with real money. Just keep your leverage small until you have the experience you need to feel comfortable. Even then, don't get too comfortable. The market is like a pet lion...there's always a ferociousness just below the surface. And if you are careless, it will get you.
Also, remember this as a practical point. Support and resistance is not at a "pip". It's at a range. So if a swing high is established at a certain point, remember that the market may respect that, but will probably only due so within a certain range. If your swing high is 1.5100, and you put a stop loss at 1.5101, you haven't really given the resistance level the respect it deserves. You probably need 25 pips or more, in the case of overshooting for which the market is famous. So don't try to get your S/R down to the pip. A 50 pip range or level is better.
Happy Trading!
Bill
www.thefxtradingmasters.com
bill@thefxtradingmasters.com
But also remember, learning everything you can about a currency and it's actions and reactions isn't a 30 day process. It isn't a 90 day process. Give yourself a year minimum of studying it every day. Certainly use historical charts, but you have to be trading it on a regular basis to get a good feel for the pair. And you have to use real money. Demo accounts only help people think they are good traders. There is no way to account for the real fear and greed that fills a traders heart when his own cash is on the line.
So having established that trading with the trend is the only way to go, the next thing that is crucial to remember is that you don't want to try to get in on the beginning of a trend. It is next to impossible to find when a currency turns a corner (except in hindsight when it looks so easy), so always let your trend establish itself before entering.
Once the trend is underway, the next logical question is that of when and where to enter. For the answer, we will look to support and resistance. If the trend is down, we want to enter at resistance. If it is up, we want to enter at support.
For instance, our recent sterling trade is short, as you can plainly see the direction on any weekly chart of the GBP/USD. Recently we came up to a weekly resistance level. This provides a reasonable place to enter, as the resistance is strong and well established. Where will it go from here? No one knows. That's why you always have a contingency in play. Either a stop loss, an offsetting trade as a hedge, another entry at the next resistance level, something to expand your advantage in the market.
But what is the best kind of support or resistance? And how many are there? Let's see:
Horizontal S/R
Diagonal S/R
Fibonacci S/R
Big Figure S/R
Old Resistance/New support
New Resistance/Old Support
Each of these deserves a decent treatment, and we have talked about some of this before. But it always bears repeating! For slower markets, I prefer horizontal S/R. For faster markets, I prefer angled trendlines. For breakout markets, I like the Fibonacci grids. For profit targets, I like the big figures. All this has come to me over years of trading trial and error. And especially narrowing down my trading to certain pairs. It is no secret that I like the euro, pound and aussie.
Study your support and resistance levels for your preferred currencies. You are nearly guaranteed to fail without this knowledge in your arsenal. But don't simply rely on back testing, that can only do so much. You have to put the trading plan it work in real time in real markets with real money. Just keep your leverage small until you have the experience you need to feel comfortable. Even then, don't get too comfortable. The market is like a pet lion...there's always a ferociousness just below the surface. And if you are careless, it will get you.
Also, remember this as a practical point. Support and resistance is not at a "pip". It's at a range. So if a swing high is established at a certain point, remember that the market may respect that, but will probably only due so within a certain range. If your swing high is 1.5100, and you put a stop loss at 1.5101, you haven't really given the resistance level the respect it deserves. You probably need 25 pips or more, in the case of overshooting for which the market is famous. So don't try to get your S/R down to the pip. A 50 pip range or level is better.
Happy Trading!
Bill
www.thefxtradingmasters.com
bill@thefxtradingmasters.com
Friday, June 25, 2010
Forex and Making a Living
Everybody seems to want to know how to trade these days. Everywhere I go folks want to talk about it, whether I am there in an official capacity or not. While very few understand the concept of foreign currencies, all of them seem to have this same vague idea of people who never work, sit by a computer all day and make it into a money machine laptop ATM.
They associate it with freedom, an easy lifestyle, and unlimited wealth.
But the real truth is, for the 95% of traders who lose their stake in this market, it is hard, frustrating, and impoverishing to whatever extent they fund their accounts. Trading for a living is great, if you like trading. If you like wood working, and think you can augment your wood income with trading money, you're probably on the wrong track. Trading isn't for everyone, and certainly daytrading is for very few. Now the trading we do here at www.thefxtradingmasters.com can be done by almost anyone. But it does mean you have to set aside the time to learn, to read, to execute your trades. Also, making money at forex is a fairly different creature from making a living at it. I have for a long time been a strong advocate of making money and having a source of income besides your trading. Personally, I am a clergyman, and that was my calling in life long before I was a trader. I serve a wonderfully warm, family oriented parish in Baltimore, MD. Will I ever get rich there? Not monetary terms. But I have riches there which will far outlast this life. Nevertheless, I can simply live off of the salary they kindly give me for serving them. That also frees me up for other pursuits. Many of you know I also run a construction business. And I run the mentorship program. And I have my own personal trading. All of these, funnel together to create multiple income streams into a nice living. But I can't be a Rector at Faith Church forever. Nor do I want to run a construction company forever. I can do mentoring for a long time, and look forward to that, and even after my voice has given way and I can no longer preach the Gospel, I can still type and teach by way of the Internet. Only when I am finished with all of these other things will I truly be trading for a living. Only then will it be my sole source of income.
Having another income stream, whether it is a regular 9-5 job, or an Internet business of some sort, also takes the pressure off your trading game. Although I rarely have losing months anymore, when I do, it is not a big deal. I don't want to be trading with scared money. "Scared money always loses". So when you calculate what you need to make a living, another source of income is always helpful.
If however, you are ready to go it alone, and trade only for living, then you must set some realistic goals, and begin with a realistic lump sum.
Starting with your budget, let's assume that you need $5,000 monthly in order to achieve or to maintain your current lifestyle. In order to create that amount out of the forex market, you would need a lump sum of $100,000. It is true that aggressive trading could make more (easily more), but you're retired now. You don't want to spend your whole life at a computer. So a steady process of 5% is fairly reliable if you have practiced for a number of years, and are comfortable around the forex. If you need or want more or less, simply increase or reduce your trading stake.
Also, that should not be the only 100,000 that you have! At that point in your life, you'd like it to make up a portion of your portfolio only. Depending on how much you love trading, and how much you want to do it, will depend on what amount of your resources you want to allocate. But by no means would I put every penny into active trading.
Now if you are a good trader, and an active one, there is nothing more to be done to make 10% over 5% except for a bit more watching and strategizing. At The FX Trading Masters, that's what we shoot for. Some months we don't get it. Other months we get more. But you want a good even keeled approach to this, otherwise you will become the "scared money". A longer term perspective, and lower leverage, will get you much richer, than the other way around.
Trading for a living? It can be done, and it really is possible. But first, ask yourself if that is what you really want.
Happy Trading!
Bill
bill@thefxtradingmasters.com
www.thefxtradingmasters.com
They associate it with freedom, an easy lifestyle, and unlimited wealth.
But the real truth is, for the 95% of traders who lose their stake in this market, it is hard, frustrating, and impoverishing to whatever extent they fund their accounts. Trading for a living is great, if you like trading. If you like wood working, and think you can augment your wood income with trading money, you're probably on the wrong track. Trading isn't for everyone, and certainly daytrading is for very few. Now the trading we do here at www.thefxtradingmasters.com can be done by almost anyone. But it does mean you have to set aside the time to learn, to read, to execute your trades. Also, making money at forex is a fairly different creature from making a living at it. I have for a long time been a strong advocate of making money and having a source of income besides your trading. Personally, I am a clergyman, and that was my calling in life long before I was a trader. I serve a wonderfully warm, family oriented parish in Baltimore, MD. Will I ever get rich there? Not monetary terms. But I have riches there which will far outlast this life. Nevertheless, I can simply live off of the salary they kindly give me for serving them. That also frees me up for other pursuits. Many of you know I also run a construction business. And I run the mentorship program. And I have my own personal trading. All of these, funnel together to create multiple income streams into a nice living. But I can't be a Rector at Faith Church forever. Nor do I want to run a construction company forever. I can do mentoring for a long time, and look forward to that, and even after my voice has given way and I can no longer preach the Gospel, I can still type and teach by way of the Internet. Only when I am finished with all of these other things will I truly be trading for a living. Only then will it be my sole source of income.
Having another income stream, whether it is a regular 9-5 job, or an Internet business of some sort, also takes the pressure off your trading game. Although I rarely have losing months anymore, when I do, it is not a big deal. I don't want to be trading with scared money. "Scared money always loses". So when you calculate what you need to make a living, another source of income is always helpful.
If however, you are ready to go it alone, and trade only for living, then you must set some realistic goals, and begin with a realistic lump sum.
Starting with your budget, let's assume that you need $5,000 monthly in order to achieve or to maintain your current lifestyle. In order to create that amount out of the forex market, you would need a lump sum of $100,000. It is true that aggressive trading could make more (easily more), but you're retired now. You don't want to spend your whole life at a computer. So a steady process of 5% is fairly reliable if you have practiced for a number of years, and are comfortable around the forex. If you need or want more or less, simply increase or reduce your trading stake.
Also, that should not be the only 100,000 that you have! At that point in your life, you'd like it to make up a portion of your portfolio only. Depending on how much you love trading, and how much you want to do it, will depend on what amount of your resources you want to allocate. But by no means would I put every penny into active trading.
Now if you are a good trader, and an active one, there is nothing more to be done to make 10% over 5% except for a bit more watching and strategizing. At The FX Trading Masters, that's what we shoot for. Some months we don't get it. Other months we get more. But you want a good even keeled approach to this, otherwise you will become the "scared money". A longer term perspective, and lower leverage, will get you much richer, than the other way around.
Trading for a living? It can be done, and it really is possible. But first, ask yourself if that is what you really want.
Happy Trading!
Bill
bill@thefxtradingmasters.com
www.thefxtradingmasters.com
Wednesday, June 23, 2010
Forex and the Using The Edge Of Leverage
The definition of leverage means to apply multiplied forced to something. Leverage has the idea of a mechanical advantage of some type...such as in using a lever. "Give me a lever long enough and a fulcrum strong enough and I will move the world." Anybody remember who said that? (Of course, I believe he said it in Greek, so it wasn't exactly like that, and that is also your first clue!)
The science of leverage offers us a few good insights into successful trading. Leverage gives a man an advantage. Whereas, without it, he his limited in his capacity to move large objects, with it, he can moves things many times larger than himself. He can also control the direction the object goes if he does so with some carefulness.
In trading, we always are looking for an advantage. ALWAYS. Trading without an advantage is like rolling a heavy rock uphill. Not only is is amazingly difficult---but it is very likely to return right back down over top of you once you let it go. Most of us have had that experience in trading. If we were on video, I'd ask for a show of hands. But we have taken poor trades, against the trend, or at the end of an exhaustion, only to see the trade start our way, then roll right back over us. Dazed and confused we get up, look at the losses in our account, and scratch our heads in wonder.
Trading good set-ups, like rolling a rock down hill, is far easier. And there is very little chance that he rock will return to run back over you as well. So I repeat, we are always on the lookout for advantages: better risk to reward scenarios, good trends with an entry on a pull back to support or resistance, reliable chart patterns that offer us shorter stops.
But one advantage we always have is the use of leverage. Now in science, we usually figure that the higher the leverage, the better. After all, you can accomplish more work with higher leverage than lower. Right? But that's not what I mean in trading terms. Higher leverage is ALWAYS WORSE. IT IS ALWAYS MORE DANGEROUS. If there were some way I could imprint that on the back of your hands so that when you sit down to the keyboard to begin trading, that would be the first thing you see, I would do it. A man or woman will never allow themselves to become a good trader if they use high leverage. It may work for a time, but will eventually blow up your account. THERE IS NO WAY TO AVOID THAT.
But leverage is helpful, in that it can really assist those getting started, and those who will use it in an advantageous and judicious manner. One of our basic trading rules is that a trader should not leverage his account higher than $1/pip for every $10,000 in account. This is fairly straightforward math. A nice 50 pip move will generate $50 off of a $10,000 account. That is 1/2 of a percent. Multiplied out over a month, that is 10% return monthly. A nice 100 pip move turns into 20% monthly. Of course, we can't do that every day. Sometimes decent set ups aren't there at the times of the alert. Or we miss the trade because it has already started to move before we got to the computer. Other trades are just plain losers, so we are out 50-100 pips. So it is unwise to simply multiply what you can easily make each day over the entire month. One must allow for down and negative days as well.
But be that as it may, low leverage will keep you from blowing our your account. And it will keep you in the game while you keep learning how to make 10-20% monthly. This is entirely possible. And so are even bigger bonanzas. Just a few weeks ago, in my private trading account, I topped 30% in 5 days. That was wonderful, but it should not be my goal. I can guarantee that if I started working for that each week, I would begin to lose money. Why? Because I would quit using my advantage. I would stay in trades too long hoping for a bit more. I would enter questionable trades. I might even be tempted to move my stops to give a trade more "room". Instead, I will just take it as a gift from God, let it add to my balance, and know that a week will come, (which just happened) that I will have a losing week. And I'll need those extra profits to smooth out my profit curve.
So always remember, one of your advantages is that you can trade small. Let it keep you in the game. Let it build your skill. Because good traders are NOT born. They develop. You can develop this skill. But only through the discipline of trading low leverage. After a few years, you can increase it if you like. But keep a close eye on your balance. If it starts to deteriorate, you'll know why. Better be on your toes to change that leverage back!
Happy Trading!
Bill
www.thefxtradingmasters.com
bill@thefxtradingmasters.com
The science of leverage offers us a few good insights into successful trading. Leverage gives a man an advantage. Whereas, without it, he his limited in his capacity to move large objects, with it, he can moves things many times larger than himself. He can also control the direction the object goes if he does so with some carefulness.
In trading, we always are looking for an advantage. ALWAYS. Trading without an advantage is like rolling a heavy rock uphill. Not only is is amazingly difficult---but it is very likely to return right back down over top of you once you let it go. Most of us have had that experience in trading. If we were on video, I'd ask for a show of hands. But we have taken poor trades, against the trend, or at the end of an exhaustion, only to see the trade start our way, then roll right back over us. Dazed and confused we get up, look at the losses in our account, and scratch our heads in wonder.
Trading good set-ups, like rolling a rock down hill, is far easier. And there is very little chance that he rock will return to run back over you as well. So I repeat, we are always on the lookout for advantages: better risk to reward scenarios, good trends with an entry on a pull back to support or resistance, reliable chart patterns that offer us shorter stops.
But one advantage we always have is the use of leverage. Now in science, we usually figure that the higher the leverage, the better. After all, you can accomplish more work with higher leverage than lower. Right? But that's not what I mean in trading terms. Higher leverage is ALWAYS WORSE. IT IS ALWAYS MORE DANGEROUS. If there were some way I could imprint that on the back of your hands so that when you sit down to the keyboard to begin trading, that would be the first thing you see, I would do it. A man or woman will never allow themselves to become a good trader if they use high leverage. It may work for a time, but will eventually blow up your account. THERE IS NO WAY TO AVOID THAT.
But leverage is helpful, in that it can really assist those getting started, and those who will use it in an advantageous and judicious manner. One of our basic trading rules is that a trader should not leverage his account higher than $1/pip for every $10,000 in account. This is fairly straightforward math. A nice 50 pip move will generate $50 off of a $10,000 account. That is 1/2 of a percent. Multiplied out over a month, that is 10% return monthly. A nice 100 pip move turns into 20% monthly. Of course, we can't do that every day. Sometimes decent set ups aren't there at the times of the alert. Or we miss the trade because it has already started to move before we got to the computer. Other trades are just plain losers, so we are out 50-100 pips. So it is unwise to simply multiply what you can easily make each day over the entire month. One must allow for down and negative days as well.
But be that as it may, low leverage will keep you from blowing our your account. And it will keep you in the game while you keep learning how to make 10-20% monthly. This is entirely possible. And so are even bigger bonanzas. Just a few weeks ago, in my private trading account, I topped 30% in 5 days. That was wonderful, but it should not be my goal. I can guarantee that if I started working for that each week, I would begin to lose money. Why? Because I would quit using my advantage. I would stay in trades too long hoping for a bit more. I would enter questionable trades. I might even be tempted to move my stops to give a trade more "room". Instead, I will just take it as a gift from God, let it add to my balance, and know that a week will come, (which just happened) that I will have a losing week. And I'll need those extra profits to smooth out my profit curve.
So always remember, one of your advantages is that you can trade small. Let it keep you in the game. Let it build your skill. Because good traders are NOT born. They develop. You can develop this skill. But only through the discipline of trading low leverage. After a few years, you can increase it if you like. But keep a close eye on your balance. If it starts to deteriorate, you'll know why. Better be on your toes to change that leverage back!
Happy Trading!
Bill
www.thefxtradingmasters.com
bill@thefxtradingmasters.com
Tuesday, June 22, 2010
Forex and Trading Perspectives
It seems I have hardly gotten any writing done this last week, and indeed judging by the entry dates, I am absolutely right. My apologies for being so reclusive, but as many of you know, I was hit with a virus that brought me to my knees.
I rarely get sick, and that is a wonderful blessing. But sometimes we take our blesings for granted. Generally, I might get a little sniffle or slight cough, but this time I got the full treatment: a sore throat that was somethin akin to swallowing shards of glass, a cough that sounded like a herd of small hippos at play and a lack of appetite that cost me 6 pounds. It also cost me something else, we ended up with back to back negative trading weeks. I really hate that! Trading is hard work, and takes loads of concentration. But when a trader feels bad to begin with, then dopes him/her self all up on medicine, it can be a real recipe for disaster. A fuller statement of this idea would be; don't trade while you are drinking heavily, while emotionally upset, or while tired. All those things really affect your judgement. They certainly affected mine.
But that's not really the only perspective that I had in mind for today. As you all know, we are headed into the summer doldrums here in North America, a season of time when trading slows down, ranges often become tighter for days on end, and the waiting can be sometimes painful. But I am a big believer in low intensity trading. As it is, trading is intense enough, after all, your money is on the line. So anything that can be done to reduce the intensity is only going to make it much more enjoyable. And frankly, the more enjoyable your trading is, the more profitable it will be.
But in today's lesson, let's take in hand the persectives that come from the different time frames. As you all should know by now, I am a huge believer in longer term time frames. "The shorter your time frame, the faster you will be parted from your capital."
You must always have enough to trade another day. The longer your time frame, the more time you give yourself, to learn the important lessons of trading. If you blow up your account, you'll never get to the important lessons.
I have often thought of the forex as a herd of traveling elephants. There are several key analogies. Obviously, when they are running through your town you don't want to get in the way. However, if they are traveling the way you are going, you can hop on and get a very fast free ride. And...the best place to observe them, is from a safe distance.
But the problem for many traders is that when they see the dust and hear the noise of all the action in the market, instead of standing back to take a look at the stampede that is going on, they have this sort of innate idea that they will be better able to tell what's happening if they just get a little closer. So they keep shrinking their time frame, getting closer and closer to the noise and the action. But one should use a little common sense. You can only get so close to the stampeding herd before "WHACK!", and you are another casualty of the market.
I say, better to stand back and get the lay of the pack. You'll be able to better see where they are bunching together, where and why they are slowing down, you'll get a better idea of the direction that they are heading. And you won't put yourself at risk. Because after all, the market doesn't really care how close you get. It doesn't really car that you and your account are going to get demolished. It doesn't give anymore thought to you than those raging elephants do. And sadly, your outcome will be the same.
So stand back. The forex market is every bit as dangerous as a stampeding herd. Get your perspective before you get too close. There is a limit as to how close you can view something,before you can't make it out at all. Trying to examine an elephant on a molecular or atomic level will tell you nothing about the dangers you are facing. So it is that viewing the markets on a pip by pip, or 1 minute, or 5 minute chart and so on will provide some fascinating stuff to see, but it will not make you a richer trader. And it could lead to signifacant losses.
Keep everything in perspective!
Bill
www.thefxtradingmasters.com
bill@thefxtradingmasters.com
I rarely get sick, and that is a wonderful blessing. But sometimes we take our blesings for granted. Generally, I might get a little sniffle or slight cough, but this time I got the full treatment: a sore throat that was somethin akin to swallowing shards of glass, a cough that sounded like a herd of small hippos at play and a lack of appetite that cost me 6 pounds. It also cost me something else, we ended up with back to back negative trading weeks. I really hate that! Trading is hard work, and takes loads of concentration. But when a trader feels bad to begin with, then dopes him/her self all up on medicine, it can be a real recipe for disaster. A fuller statement of this idea would be; don't trade while you are drinking heavily, while emotionally upset, or while tired. All those things really affect your judgement. They certainly affected mine.
But that's not really the only perspective that I had in mind for today. As you all know, we are headed into the summer doldrums here in North America, a season of time when trading slows down, ranges often become tighter for days on end, and the waiting can be sometimes painful. But I am a big believer in low intensity trading. As it is, trading is intense enough, after all, your money is on the line. So anything that can be done to reduce the intensity is only going to make it much more enjoyable. And frankly, the more enjoyable your trading is, the more profitable it will be.
But in today's lesson, let's take in hand the persectives that come from the different time frames. As you all should know by now, I am a huge believer in longer term time frames. "The shorter your time frame, the faster you will be parted from your capital."
You must always have enough to trade another day. The longer your time frame, the more time you give yourself, to learn the important lessons of trading. If you blow up your account, you'll never get to the important lessons.
I have often thought of the forex as a herd of traveling elephants. There are several key analogies. Obviously, when they are running through your town you don't want to get in the way. However, if they are traveling the way you are going, you can hop on and get a very fast free ride. And...the best place to observe them, is from a safe distance.
But the problem for many traders is that when they see the dust and hear the noise of all the action in the market, instead of standing back to take a look at the stampede that is going on, they have this sort of innate idea that they will be better able to tell what's happening if they just get a little closer. So they keep shrinking their time frame, getting closer and closer to the noise and the action. But one should use a little common sense. You can only get so close to the stampeding herd before "WHACK!", and you are another casualty of the market.
I say, better to stand back and get the lay of the pack. You'll be able to better see where they are bunching together, where and why they are slowing down, you'll get a better idea of the direction that they are heading. And you won't put yourself at risk. Because after all, the market doesn't really care how close you get. It doesn't really car that you and your account are going to get demolished. It doesn't give anymore thought to you than those raging elephants do. And sadly, your outcome will be the same.
So stand back. The forex market is every bit as dangerous as a stampeding herd. Get your perspective before you get too close. There is a limit as to how close you can view something,before you can't make it out at all. Trying to examine an elephant on a molecular or atomic level will tell you nothing about the dangers you are facing. So it is that viewing the markets on a pip by pip, or 1 minute, or 5 minute chart and so on will provide some fascinating stuff to see, but it will not make you a richer trader. And it could lead to signifacant losses.
Keep everything in perspective!
Bill
www.thefxtradingmasters.com
bill@thefxtradingmasters.com
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