Archive for April, 2009
Review on Thursday 30th of April
Review on 28th of April
What is Forex Trading Forex and how does it work?
Intoduction
Forex or Foreign Exchange is the simultaneous buying of one currency and the selling of another. Currencies are traded in pairs. The Forex Market has more buyers and sellers and daily volume than any other market in the world and takes place in major financial institutions across the globe. The forex market is open 24 hours a day five days a week.
Buying/Selling
In the forex market, currencies are always priced in pairs and all trades result in the simultaneous buying of one currency and the selling of another. The objective of currency trading is to buy the currency that increases in value relative to the one you sold. If you have bought a currency and the price appreciates in value, then you must sell the currency back in order to lock in the profit.
Quoting Conventions
Currencies are quoted in pairs. The first listed currency is known as the base currency and the second is called the counter or quote currency.
Currencies are quoted using five significant numbers, with the last placeholder called a point or a pip
For example a EUR/USD quote 1.1345/1.1350
Like all financial products, forex quotes include a “bid” and “ask” or a —sell“ and a —buy“ price. By quoting both the bid and ask in real time, brokers ensure that traders always receive a fair price on all transactions. As in any traded instrument, there is an immediate cost in establishing a position. This cost will vary between the different brokers and is sometimes called —spread“.
For example, USD/JPY may bid at 131.40 and ask at 131.45, this five-pip spread defines the trader‘s cost, which can be recovered with a favourable currency move in the market.
Margin
The margin is a performance bond, or good faith deposit, to ensure against the total loss of your account. Trade stations have margin management capabilities. In the event that funds in the account fall below margin requirements, the broker‘s dealing desk will close all open positions. This prevents clients’ accounts from falling into a negative balance, even in a
highly volatile, fast moving market.
The new NFA rule requires a minimum 1% margin at all time to maintain an open trade. (Note this may change from time to time so although we use 1% as the example at some stage in the future the margin maybe different. However using similar calculations one can easily calculate the new margins) Some deal stations automatically calculate this according to the
formula and hence the margin requirements are continually varying.
Based on a 1% margin requirement
Example 1: GBP/USD
rate: 1.7442/1.7447
account type: 100 000/lot account
1% leverage: 100 000×0.01 (1%) =1000units
When you are long (buy) GBP/USD, the margin required is:
1.7447 (GBP/USD) x1000 (units of base currency GBP) = USD1744 for each lot.
Some brokers require $1,800 margin for GBP pairs.
Example 2: EUR/USD
rate: 1.2326/1.2331
account type: 100 000/lot account
1% leverage: 100 000×0.01 (1%) =1000units
When you are long (buy) EUR/USD, the margin required is:
1.2331 (EUR/USD) x1000 (units of base currency EUR) = USD1233 for each lot.
Some brokers require $1,300 per lot in margin for EUR based pairs. In general, a margin of $1,300 allows you to control a $100,000 spot currency position. This is an efficient use of trading capital as the leverage in futures and stock markets is much less.
Example 3: Where the USD is the BASE currency, the margin requirement is
USD1000
(ie 1% of 100 000)
When you are long (buy) USD/CAD, USD/CHF etc the margin required is: =
USD1000 for each lot.
Forex Market and Locations
The forex market is a seamless 24 hour market and is open 5 days a week. At 5 pm Sunday, New York time, trading begins as markets open in Sydney and Singapore. At 7 pm the Tokyo market opens, followed by London at 2 am and finally New York at 8 am. (Time is based on New York time) As a trader, this allows you to react to favourable/unfavourable news by trading
immediately. The trading of forex takes place all over the world and is not located in any one central location. Deals are done between a variety of traders, from banks to managed funds to individual traders
Size of the Forex Market
Forex trades approximately US$1.85 trillion a day and is by far the most liquid market in the world. It takes the NY Stock Exchange THREE MONTHS to trade the same USD value as the forex trades each and every day making it the largest and most liquid market in the world. This market can absorb trading volume and transaction sizes that dwarf the capacity of any other
market. If you compare this to the US$30 billion per day futures market, it becomes clear that the futures markets provide only limited liquidity. The forex market is always liquid, meaning positions can be liquidated and stop orders executed without slippage.
Brokers and Market Makers
Market Maker – One that consistently makes two way prices, providing both a bid and an offer. Unlike brokers, market makers trade their capital
Broker – An individual who matches buy and sell orders in return for a commission. The bid and offer prices are those of the market participants and not of the broker.
Currency Pairs
Traders can trade a variety of currency pairs, limited only by which pairs each broker provides. Major currency pairs are typically the USD pairs for example
EURUSD GBPUSD AUDUSD USDJPY USDCHF
Cross currency pairs are pairs which do not involve the USD for example
EURGBP EURJPY GBPJPY EURCHF
EUR= Euro, GBP= Pound, CHF= Swiss Franc, JPY=Yen, AUD= Aussie $
Point/Pip Values
Point/Pip values is the US$ value for each Point/Pip (these are typical values and can vary between the different Brokers and Market Makers)
Regular Mini
Euro = $10 ($1)
Pound= $10 ($1)
Australian Dollar= $10 ($1)
Swiss Franc CHF= $7.60 ($0.76)
Canadian Dollar CAD= $7.30 ($0.73)
Japanese Yen = $8.45 ($0.85)
Major Market Participants
Traders include Governments, Reserve Banks, Large Mutual Funds, Banks,
Companies, Hedge Funds, Individual Traders.
Fundamental or Technical
The two basic approaches to analysing the currency market are Fundamental
Analysis and Technical Analysis. The fundamental analyst concentrates on
the underlying causes of price movements, while the technical analyst
studies the price movements themselves.
Fundamental Analysis
Fundamental analysis focuses on the
economic
social
political
geopolitical forces
These drive supply and demand.
Fundamental analysts look at various macroeconomic indicators such as
economic growth rates,
interest rates,
inflation,
unemployment, etc.
However, there is no single set of beliefs that guide fundamental analysis. There are several theories as to how currencies should be valued. Do not try and analyse the fundamentals unless you are a financial expert. Let the experts do this and follow their lead by reading the charts. Be aware when announcements are due. Sometimes the experts are wrong and get caught by unpredictable actions.
Technical Analysis
Technical analysis focuses on the study of price movements. Historical
currency data is used to forecast the direction of future prices. The premise of technical analysis is that all current market information is already reflected in the price of that currency, therefore, studying price action is all that is required to make informed trading decisions.
The primary tools of the technical analyst are charts. Charts are used to identify trends and patterns in order to find profit opportunities. The most basic concept of technical analysis is that markets have a tendency to trend. Being able to identify trends in their earliest stage of development is the key to technical analysis.
Review on Friday 24th of April
Review on 22nd of April
Review on 21st of April
NEWS: GBP 4:30 AM est CPI
EUR 5:00 AM est German ZEW Economic Sentiment
CAD 9:00 AM est BOC Rate Statement / Overnight Rate
USD 10:00 AM est Treasury Sec. Geithner Speaks
AUD 9:30 PM est CPI
EUR/USD sold off for most of the day and trended down well below the 50 day SMA continuing the steep downtrend that began last week as price made new monthly and new 10 day lows. Price is still obviously very bearish but may need a retracement at some point or a correction to the long side after the 500 pip drop beginning last week. Watch for possible strong support beginning at 1.2800 which represents a cluster of a fib target, weekly pivot, whole number, and bottom of a major trend channel best seen on a long term chart such as a day chart. IF price rallies, the CURRENT fib retracement for THIS week’s high/low are 1.2975 and 1.3000 for light resistance and the fib levels from last week’s high and Monday’s low are at 1.3080 and 1.3140 for stronger potential resistance.
GBP/USD also sold off below the 20 day MA heavily at the beginning of the trading session and for most of the morning with very little pullbacks until the afternoon consolidtion. Price has now triple topped and found strong resistance at the 1.5000 zone which may indicate that the longer term trend is now bearish, combined with late last week’s strong sell off. IF price is to continue to sell off, 1.4466 is the next longter term 62% retracement level and weekly mid-pivot then 1.4360 is a cluster of a fib target, retracement and weekly pivot for the next potential support zones. These levels are also identified by the trade zones on your charts. IF price needs to retrace and rally before continuing the sell off, watch the fib levels of approx. 1.4700-1.4720 and at 1.4783* for possible resistnace levels and a chance to reenter the downtrend if price does manage to bounce.
USD/JPY broked down below and out of a consolidating wedge pattern seen on a daily chart and long term trend line resulting in the big sell off even with the strong USD! Price sold off below the 20 day MA and is above the 50 day MA which may get tested on Tuesday or early this week. Watch for price to rally and retest the previous support level and possibly use it now as resistance. The most recent fib levels which may allow a chance to reenter the breakout and downtrend are 98.46, 98.71 and 98.96. Again, use capture lines as your entry if you choose to take these trades for the safest entry. IF price sells off, watch the 50 day MA which is in approx. the 97.20 area at the time of publishing. Also the net fib retracement of 96.60 is a long term fib retracement level for possible support if this level gets tested on Tuesday.
USD/CHF managed to rally up slightly on low volume and lower volatility but did make new monthly and new 10 day highs. USD had been in conflict with the CHF for most of the day resulting in the difficult trading conditions. Always try to use the strongest pair VS. the weakest for your best trading opportunities. IF price rallies, the next possible resistance is the fib target at 1.1769 and the fib target and monthly pivot of 1.1857.* IF price sells off, 1.1687 was last week’s high and may now be support if tested. Also use the first 3 buy zones on the chart for your most relevant fib levels for potential support.
USD/CAD exploded up today moving 180% of its daily ATR (average true range) as price rallied through last week’s resistnace and highs and over the 20 day MA before finding resistance at a fib retracement and 1.2400 level where price currently is at the time of publishing. PRICE is obviously still very bullish based on the strong USD and weak CAD so use caution taking counter trend trades on such strong trends. Use your FXMM’s and FXPI as a filter when deciding to do so. The next resistance is possibly the next long range fib retracement of 1.2524 and the monthly pivot from 1.2626-1.2650 which may be strong resistance if this level is tested on Tuesday or early this week. The fib retracement levels from last week’s low and Monday’s CURRENT high around 1.2400 which may be SUPPORT are 1.2237, 1.2190* and 1.2140. One of these levels are likely to offer support and a chance to reenter the strong uptrend from Monday’s bullish momentum!
Happy trading 
GBP/JPY breakout 16th april
Today there was one breakout trade with simple technic of GBP/JPY breakout trading i took short on 145.25 on closed m15 candle. I put market order with 50 pips SL and 50 pips take profit. Trere is nice idea to get out with this tool when the blue line cross over the price You can get out. I had to go so i put simply Take Profit and Stop and went out. See chart below nice and easy 50 pips profit.
Review on 20th of April
Breakout trading GBP/JPY
I wanna post here my very simple technic of breaout trading on GBP/JPY. First You should know about trading the cross pair like GBP/JPY is
GBP/USD x USD/JPY = GBP/JPY
so should also look at GBP/USD and USD/JPY. If You want to buy GBP/JPY, you should see strong GBP and a week JPY so GBP/USD should go up and USD/JPY shluod go up then GBP/JPY has to go up a lot.
Let’s talk about system. I trade on 15 minutes chart but i’m using also 30minutes and hourly ploted on my 15 min chart. Also i’m using 4h chart to look for support resistance such as fibs and weelky, montly pivots, highs/lows.
Download indycators from here. Unzip them and put to C:/Program Files/Meta Trader/expert/indycators/. Also You can download from here my template, put it to C:/Program Files/Meta Trader/templates/. Reboot Your trading platform. I’m using FXDD Mt4, platform timing is very important.
Rules to open short position. Reverse it to long trades.
A.Oportunity
1.Start from 4h chart and look for posible support (weekly and montly pivot, big fibs), where the price can reverse and hit Your SL. Avoiding false breakout.
2.Also remended is trading with the main trend on daily and 4h chart.
3.Repeat this process to 15m chart, use daily pivots.
B.Setup
1.QQE(5) crossed to dwonside as You can see below.
2.Price below 5 days SMA and 100 hourly SMA. I’m using an indycator to plot in on m15 chart.
3.SMA 5 and SMA 13 crosed to dwonside 30m chart.
4.If You use the same SL example 30 pips think about TP shoud be minimum of 30 pips. The bigger it is the better(TP/SL)
C.Trade
1.Bar CLOSED below the box
Aditional rules:
1. Always use stop loss
2. If You can’t stay on Your winning trades split it. So You close first half at example +50 pips and drag the second half to example cross the blue line with the price.
P.S. There a lot of stuff that You should know and i don’t wanna post it here for now. If You have any questions post in comment.
The best stop loss with fibonacci trading
Stop Loss
Forex is a highly volatile market. he exchange rate can move 150 points or more in a matter of minutes, especially if there is major announcement or central bank intervention. For example, when Alan Greenspan made a comment and around the same tme the Japanese Government intervened in the market, the affected currencies moved significantly.
One must use a mental stop loss or enter a stop loss or risk losing most or of one’s capital. Immediately entering the “market at order”, a stop loss must be placed. It is a pre-calculated price where you plan to exit the trade if the market moves against you. It forces you to folow an exit strategy getng you out of the market at around the nominated exit price. If possible, it is wise to place the stop loss just above or below a resistance or support line.
A stop loss should never exceed your maximum exposure amounts. One should never increase your stop oss after you have entered a trade and established your stop price.
RISK TO REWARD RAIOS are important and should be calculated.
A risk reward ratio of 1:1.5 is recommended.
Risk. 30 pips to make a profit of 45 pips or risk 40 pips to make 60 pips.
The best location for placing stops is:
15 pips above the last swing high for a SHORT trade and
10 pips below the last swing low for a LONG trade.
An alternative place for a stop loss would be just past the next Fibonacci level, e .g buy at 61.8% retracement and place the stop loss below 78.6% retracement.
It is stl important to apply the above calculations for your risk/reward. If stops exceed the risk/reward calculations, seriously consider not entering the trade.
Moving Stops
It is important to protect your profit. One way is to use a moving stop loss. When the trade becomes profitable, you move the stop loss to reduce your risk.
If the Stop Loss is 40 pips with 1:1.5 risk reward ratio, you are risking 40pips to make 60pips profit.
• When the market moves 10 pips in your favour, move the Stop Loss 10 pips. Your Stop Loss wil now be reduced to 30 pips.
• Continue reducing the stop loss each tme the market moves another 10 pips in your favour. Your stop can eventually be moved to your entry point and give you a “free” trade.
• When the market reaches 75% of your original target for profit, begin progressively tghtening the distance of your stop from the current market price.
• If there is no sign of a market reversal, take off your lmit order and continue to use the moving stop technique to protect profits and ride the trend.
• If there is strong evidence of a market reversal, close your posion with a market order and consider opening a new posion going in the new direction. You wil need plenty of practice to do this lve. We know that after a big rally there is always a consoldation which is basically a retracement to a Fibonacci level.
You need to have a stop that does not folow the market too closely. The noise or whipsaw in the market can be 20 – 30 pips or more and wil take out stops that are too small. It is suggested that stops should be at least 30 to 40 points in most cases, especially in the early part of a trade. However, the best posion for stops is above and below points of resistance or support as mentioned above.