Position Sizing Continued

Last week, I introduced you to position sizing by talking about the marble game I typically play. The game has 20% 10R winners, 70% 1R losers, and 10% 5R losers. It only wins 20% of the time, but the expectancy, because of the 10R winners, is a very healthy 0.8R. I gave you a sample of 30 pulls from the game, shown in the table below. The audience is typically told to decide how much to risk on each pull and we check to see how much equity they have after 30 trades. In fact, the one with the most equity will win a nice prize.

R-Multiples Draw In A Game
-1R	-5R	-1R
-1R	-1R	-1R
-1R	-1R	+10R
-5R	-1R	-1R
-1R	-1R	+10R
+10R	-1R	-1R
-1R	-1R	-1R
-1R	-1R	-5R
-1R	-1R	+10R
+10R	-1R	+10R
+8R	-14R	+30R

In a typical game like this, 1/3 of the audience will go bankrupt (i.e., they won't survive the first five losers or the streak of 12 losses in a row); another 1/3 of the audience will lose money; and the last third will typically have made a huge amount of money – sometimes over a million dollars. And in an audience of say 100 people, except for the 33 or so who are at zero, I'll probably have 67 different equity levels.

So this week, I want to define position sizing; tell you it's purpose, and then tell you a little bit about how to do position sizing. First, what is it? Position sizing is that part of your system that tells you “how much” throughout the course of the trade. And, assuming you have a positive expectancy system, that variable, along with your personal psychology, controls about 90% of the variability of your performance in trading. THAT'S HOW IMPORTANT IT IS. And yet most people totally neglect this variable. Mutual funds, for example, that have to be 95% invested at all times, don't really give it much thought.

What's the purpose of position sizing? I'm currently working on a new book titled, The Definitive Guide to Position Sizing, and the subtitle tells you its purpose. It's how to use position sizing to meet your objectives. Position sizing is that part of your trading system that helps you meet your objectives. Everyone probably has a different objective in trading and there are probably an infinite number of ways you could approach position sizing. It's interesting because even the few people who have written about position sizing get this point wrong. They typically say something like position sizing is designed to help you make as much money as you can without experiencing ruin. But what they are really doing is giving you a general statement about their objectives and thinking that's what position sizing does.

For example, you might have an objective of making as much money as you can, but under no circumstances would you want to drawdown by 20%. Thus, your focus in position sizing will be to not have a 20% drawdown. Someone else might have a goal of making 100% and not having a drawdown of 50%. However, this person would be willing to give up 50% on some years in order to make 100% most years. This person would have a totally different position sizing algorithm.

So let's look at the game. What I recommend for position sizing, until you know your system very well is that you risk about 1% of your equity. That means that on the first trade you risk $1000. Since it is a loser (see Table 1), you'd now risk 1% of the balance or $990, it's also a loser so you'd risk about 1% of what' left or $980. Thus, you'd always be risking about 1% of your equity. The table below shows how that would work out with this particular sample of trades.

Results of Risking 1% in the Game
Equity	1% Risk	R-multiple	New Equity
100,000	1000	-1	99000
99000	990	-1	98010
98010	980.1	-1	97029.9
97029.9	970.299	-5	92178.41
92178.41	921.7841	-1	91256.62
91256.62	912.5662	10	100382.3
100382.3	1003.823	-1	99378.46
99378.46	993.7846	-1	98384.68
98384.68	983.8468	-1	97400.83
97400.83	974.0083	-5	92530.79
92530.79	925.3079	-1	91605.48
91605.48	916.0548	-1	90689.42
90689.42	906.8942	-1	89782.53
89782.53	897.8253	-1	88884.71
88884.71	888.8471	-1	87995.86
87995.86	879.9586	-1	87115.9
87115.9	871.159	-1	86244.74
86244.74	862.4474	-1	85382.29
85382.29	853.8229	-1	84528.47
84528.47	845.2847	-1	83683.19
83683.19	836.8319	-1	82846.35
82846.35	828.4635	-1	82017.89
82017.89	820.1789	10	90219.68
90219.68	902.1968	-1	89317.48
89317.48	893.1748	-1	88424.31
88424.31	884.2431	-1	87540.06
87540.06	875.4006	-5	83163.06
83163.06	831.6306	10	91479.37
91479.37	914.7937	10	100627.3

Notice that because of the drawdowns that came early, you would survive. You have a low equity of about 82,018 after the long losing streak but you are still in the game. And at the end you would come up a little ahead.

You wouldn't win the game because someone who does something incredibly risky, like risking it all on the sixth trade, usually wins the game. But the important point is that you'd survive and your drawdown wouldn't be excessive.

Position sizing is that important and I'd suggest that you take a look at chapter 14 of my book because many people have told me that it turned their trading around, making them winners instead of losers.

Dr. Van K Tharp

Large Round Figures

Many traders, from the individual speculator to the large fund will focus on the large round figures or round numbers when applying their analysis to the Forex market for a number of reasons. Option traders tend to select these price levels whether their exercising American, European, or Exotic options, as well as the placement of protective stop orders.

For that reason, the 'large round figure' such as 1.3100 or 1.3250 tend to carry a greater weight of importance. However this can be deceitful as the market often times will spill over to trade slightly above or below a price level of importance. For that reason we should naturally expect the ultimate highs and lows to rest at times slightly beyond these areas. For example, we can see the following (15-minute) chart, the EURUSD has recently found major turning points very close but not exactly on the 1.3100, 1.3200, and 1.3250 figures respectively. In fact notice, how each turning point was established within 15-pips of a figure. We should suspect the market as it approaches and fails to break beyond a large round figure, even if we cannot take the exact figure literally.

Intermarket Dynamics- Forex Insight on Gold

The price action in Gold has been the focus of deserving attention, yet further insight can be gained from an inter-market perspective.

The usual historical inverse relationship between the USDX, US Dollar Index, and Gold has been out of sync. Both Gold and the dollar have been strengthening. We can see this in the chart below. But this inverse relationship is not likely to last. Is this an omen for a dollar retracement and a Gold sell off?

Another revealing chart shows the relationship between the Yen and Gold. The recent Gold buying has been sourced to be from the TOMOC (The Tokyo Commodity Exchange) as Japanese investors looked to hedge against a very weak Yen. So quite significa

ntly, on the TOMOC exchange, Gold futures went limit down, after 8 days of gain. Is this profit taking or a clue to further Yen strengthening? The fundamentals are beginning to color technical sentiment as a new Tankan Report may reflect business sentiment rising.

A Bloomberg story reports that "The Bank of Japan will say on Dec. 14 that its Tankan confidence index climbed to 23 in the third quarter from 19 in the second, according to the median forecast of 26 economists in a Bloomberg survey." At the same time the Bank of Japan is signaling an end to the zero interest rate policy in Japan which has been a major driver of a weakening Yen.

Let's add to this mix of analysis another factor- China. The Chinese are signaling clearly that they will allow their currency, the Renminbi Yuan, to further strengthen. A stronger Chinese currency means more demand for Japanese goods, and is another positive factor for strengthening Yen.

The inter-market Gold puzzle gets more interesting when you see the Aussie/Yen cross and Gold Patterns. The Aussie has strengthened against the Yen in tandem with the move in Gold.

What can we conclude about the Gold moves from the perspective of currency trading opportunities? The Forex trader need not try to predict where Gold is going, but should be ready for the opportunities to trade the currency pairs in response to what Gold will be doing. An intermarket perspective shows that the Aussie, the Yen, and the AUD/JPY cross provide price extremes that may be about to break. While the majority of Forex traders pay attention to the popular Euro, it may be wise to look east.

Forex Essentials [part 2]

Introduction to Fundamental Analysis

Fundamental analysis refers to the study of the core underlying elements that influence the economy of a particular entity. It is a method of study that attempts to predict price action and market trends by analyzing economic indicators, government policy and societal factors (to name just a few elements) within a business cycle framework. If you think of the financial markets as a big clock, the fundamentals are the gears and springs that move the hands around the face. Anyone walking down the street can look at this clock and tell you what time it is now, but the fundamentalist can tell you how it came to be this time and more importantly, what time (or more precisely, what price) it will be in the future.

There is a tendency to pigeonhole traders into two distinct schools of market analysis - fundamental and technical. Indeed, the first question posed to you after you tell someone that you are a trader is generally "Are you a technician or a fundamentalist?" The reality is that it has become increasingly difficult to be a purist of either persuasion. Fundamentalists need to keep an eye on the various signals derived from the price action on charts, while few technicians can afford to completely ignore impending economic data, critical political decisions or the myriad of societal issues that influence prices.

Bearing in mind that the financial underpinnings of any country, trading bloc or multinational industry takes into account many factors, including social, political and economic influences, staying on top of an extremely fluid fundamental picture can be challenging. At the same time, you'll find that your knowledge and understanding of a dynamic global market will increase immeasurably as you delve further and further into the complexities and subtleties of the fundamentals of the markets.

Fundamental analysis is a very effective way to forecast economic conditions, but not necessarily exact market prices. For example, when analyzing an economist's forecast of the upcoming GDP or employment report, you begin to get a fairly clear picture of the general health of the economy and the forces at work behind it. However, you'll need to come up with a precise method as to how best to translate this information into entry and exit points for a particular trading strategy.

A trader who studies the markets using fundamental analysis will generally create models to formulate a trading strategy. These models typically utilize a host of empirical data and attempt to forecast market behavior and estimate future values or prices by using past values of core economic indicators. This information is then used to derive specific trades that best exploit this information.

Forecasting models are as numerous and varied as the traders and market buffs that create them. Two people can look at the exact same data and come up with two completely different conclusions about how the market will be influenced by it. Therefore is it important that before casting yourself into a particular mold regarding any aspect of market analysis, you study the fundamentals and see how they best fit your trading style and expectations.

Don't succumb to 'paralysis by analysis.' Given the multitude of factors that fall under the heading of "The Fundamentals," there is a distinct danger of information overload. Sometimes traders fall into this trap and are unable to pull the trigger on a trade. This is one of the reasons why many traders turn to technical analysis. To some, technical analysis is seen as a way to transform all of the fundamental factors that influence the markets into one simple tool, prices. However, trading a particular market without knowing a great deal about the exact nature of its underlying elements is like fishing without bait. You might get lucky and snare a few on occasion but it's not the best approach over the long haul.

For forex traders, the fundamentals are everything that makes a country tick. From interest rates and central bank policy to natural disasters, the fundamentals are a dynamic mix of distinct plans, erratic behaviors and unforeseen events. Therefore, it is best to get a handle on the most influential contributors to this diverse mix than it is to formulate a comprehensive list of all "The Fundamentals."

Economic Indicators 101

Economic indicators are snippets of financial and economic data published by various agencies of the government or private sector. These statistics, which are made public on a regularly scheduled basis, help market observers monitor the pulse of the economy. Therefore, they are religiously followed by almost everyone in the financial markets. With so many people poised to react to the same information, economic indicators in general have tremendous potential to generate volume and to move prices in the markets. While on the surface it might seem that an advanced degree in economics would come in handy to analyze and then trade on the glut of information contained in these economic indicators, a few simple guidelines are all that is necessary to track, organize and make trading decisions based on the data.

Know exactly when each economic indicator is due to be released. Keep a calendar on your desk or trading station that contains the date and time when each stat will be made public. You can find these calendars on the N.Y. Federal Reserve Bank Web site using this link http://www.ny.frb.org/, and then by searching for "economic indicators." The same information is also available on many other sources on the Web or from the company you use to execute your trades.

Keeping track of the calendar of economic indicators will also help you make sense out of otherwise unanticipated price action in the market. Consider this scenario: it's Monday morning and the USD has been in a tailspin for three weeks. As such, it's safe to assume that many traders are holding large short USD positions. However, on Friday the employment data for the U.S. is due to be released. It is very likely that with this key piece of economic information soon to be made public, the USD could experience a short-term rally leading up to the data on Friday as traders pare down their short positions. The point here is that economic indicators can effect prices directly (following their release to the public) or indirectly (as traders massage their positions in anticipation of the data.)

Understand what particular aspect of the economy is being revealed in the data. For example, you should know which indicators measure the growth of the economy (GDP) vs. those that measure inflation (PPI, CPI) or employment (non-farm payrolls). After you follow the data for a while, you'll become very familiar with the nuances of each economic indicator and what part of the economy they are measuring.

Not all economic indicators are created equal. Well, they might've been created with equal importance but along the way, some have acquired much greater potential to move the markets than others. Market participants will place higher regard on one stat vs. another depending on the state of the economy.

Know which indicators the markets are keying on. For example, if prices (inflation) are not a crucial issue for a particular country, inflation data will probably not be as keenly anticipated or reacted to by the markets. On the other hand, if economic growth is a vexing problem, changes in employment data or GDP will be eagerly anticipated and could precipitate tremendous volatility following their release.

The data itself is not as important as whether or not it falls within market expectations. Besides knowing when all the data will hit the wires, it is vitally important that you know what economists and other market pundits are forecasting for each indicator. For example, knowing the economic consequences of an unexpected monthly rise of 0.3% in the producer price index (PPI) is not nearly as vital to your short-term trading decisions as it is to know that this month the market was looking for PPI to fall by 0.1%. As mentioned, you should know that PPI measures prices and that an unexpected rise could be a sign of inflation. But analyzing the longer-term ramifications of this unexpected monthly rise in prices can wait until after you've taken advantage of the trading opportunities presented by the data. Once again, market expectations for all economic releases are published on various sources on the Web and you should post these expectations on your calendar along with the release date of the indicator.

Don't get caught up in the headlines. Part of getting a handle on what the market is forecasting for various economic indicators is knowing the key aspects of each indicator. While your macroeconomics professor might have drilled the significance of the unemployment rate into your head, even junior traders can tell you that the headline figure is for amateurs and that the most closely watched detail in the payroll data is the non-farm payrolls figure. Other economic indicators are similar in that the headline figure is not nearly as closely watched as the finer points of the data. PPI for example, measures changes in producer prices. But the stat most closely watched by the markets is PPI, ex-food and energy. Traders know that the food and energy component of the data is much too volatile and subject to revisions on a month-to-month basis to provide an accurate reading on the changes in producer prices.

Speaking of revisions, don't be too quick to pull that trigger should a particular economic indicator fall outside of market expectations. Contained in each new economic indicator released to the public are revisions to previously released data. For example, if durable goods should rise by 0.5% in the current month, while the market is anticipating them to fall, the unexpected rise could be the result of a downward revision to the prior month. Look at revisions to older data because in this case, the previous month's durable goods figure might've been originally reported as a rise of 0.5% but now, along with the new figures, is being revised lower to say a rise of only 0.1% Therefore, the unexpected rise in the current month is likely the result of a downward revision to the previous month's data.

Don't forget that there are two sides to a trade in the foreign exchange market. So, while you might have a great handle on the complete package of economic indicators published in the United States or Europe, most other countries also publish similar economic data. The important thing to remember here is that not all countries are as efficient as the G7 in releasing this information. Once again, if you are going to trade the currency of a particular country, you need to find out the particulars about their economic indicators. As mentioned above, not all of these indicators carry the same weight in the markets and not all of them are as accurate as others. Do your homework and you won't be caught off guard.

General information regarding major economic indicators

When focusing exclusively on the impact that economic indicators have on price action in a particular market, the foreign exchange markets are the most challenging, and therefore, have greatest potential for profits of any market. Obviously, factors other than economic indicators move prices and as such make other markets more or less potentially profitable. But since a currency is a proxy for the country it represents, the economic health of that country is priced into the currency. One very important way to measure the health of an economy is through economic indicators. The challenge comes in diligently keeping track of the nuts and bolts of each country's particular economic information package. Here are a few general comments about economic indicators and some of the more closely watched data.

Most economic indicators can be divided into leading and lagging indicators.

• Leading indicators are economic factors that change before the economy starts to follow a particular pattern or trend. Leading indicators are used to predict changes in the economy.
• Lagging Indicators are economic factors that change after the economy has already begun to follow a particular pattern or trend.

Major Indicators

The Gross Domestic Product (GDP) - The sum of all goods and services produced either by domestic or foreign companies. GDP indicates the pace at which a country's economy is growing (or shrinking) and is considered the broadest indicator of economic output and growth.

Industrial Production - It is a chain-weighted measure of the change in the production of the nation's factories, mines and utilities as well as a measure of their industrial capacity and of how many available resources among factories, utilities and mines are being used (commonly known as capacity utilization). The manufacturing sector accounts for one-quarter of the economy. The capacity utilization rate provides an estimate of how much factory capacity is in use.

Purchasing Managers Index (PMI) - The National Association of Purchasing Managers (NAPM), now called the Institute for Supply Management, releases a monthly composite index of national manufacturing conditions, constructed from data on new orders, production, supplier delivery times, backlogs, inventories, prices, employment, export orders, and import orders. It is divided into manufacturing and non-manufacturing sub-indices.

Producer Price Index (PPI) - The Producer Price Index (PPI) is a measure of price changes in the manufacturing sector. It measures average changes in selling prices received by domestic producers in the manufacturing, mining, agriculture, and electric utility industries for their output. The PPIs most often used for economic analysis are those for finished goods, intermediate goods, and crude goods.

Consumer Price Index (CPI) - The Consumer Price Index (CPI) is a measure of the average price level paid by urban consumers (80% of population) for a fixed basket of goods and services. It reports price changes in over 200 categories. The CPI also includes various user fees and taxes directly associated with the prices of specific goods and services.

Durable Goods - Durable Goods Orders measures new orders placed with domestic manufacturers for immediate and future delivery of factory hard goods. A durable good is defined as a good that lasts an extended period of time (over three years) during which its services are extended.

Employment Cost Index (ECI) - Payroll employment is a measure of the number of jobs in more than 500 industries in all states and 255 metropolitan areas. The employment estimates are based on a survey of larger businesses and counts the number of paid employees working part-time or full-time in the nation's business and government establishments.

Retail Sales - The retail sales report is a measure of the total receipts of retail stores from samples representing all sizes and kinds of business in retail trade throughout the nation. It is the timeliest indicator of broad consumer spending patterns and is adjusted for normal seasonal variation, holidays, and trading-day differences. Retail sales include durable and nondurable merchandise sold, and services and excise taxes incidental to the sale of merchandise. Excluded are sales taxes collected directly from the customer.

Housing Starts - The Housing Starts report measures the number of residential units on which construction is begun each month. A start in construction is defined as the beginning of excavation of the foundation for the building and is comprised primarily of residential housing. Housing is very interest rate sensitive and is one of the first sectors to react to changes in interest rates. Significant reaction of start/permits to changing interest rates signals interest rates are nearing trough or peak. To analyze, focus on the percentage change in levels from the previous month. Report is released around the middle of the following month.

Forex Essentials [part 1]

Understanding Margin

Trading currencies on margin lets you increase your buying power. Here's a simplified example: If you have $2,000 cash in a margin account that allows 100:1 leverage, you could purchase up to $200,000 worth of currency-because you only have to post 1% of the purchase price as collateral. Another way of saying this is that you have $200,000 in buying power.

Benefits of Margin

With more buying power, you can increase your total return on investment with less cash outlay. To be sure, trading on margin magnifies your profits AND your losses.

Here's a hypothetical example that demonstrates the upside of trading on margin:

With a US$5,000 balance in your margin account, you decide that the US Dollar (USD) is undervalued against the Swiss Franc (CHF).

To execute this strategy, you must buy Dollars (simultaneously selling Francs), and then wait for the exchange rate to rise.

The current bid/ask price for USD/CHF is 1.6322/1.6327 (meaning you can buy $1 US for 1.6327 Swiss Francs or sell $1 US for 1.6322)

Your available leverage is 100:1 or 1%. You execute the trade, buying a one lot: buying 100,000 US dollars and selling 163,270 Swiss Francs.

At 100:1 leverage, your initial margin deposit for this trade is $1,000. Your account balance is now $4000.

As you expected, USD/CHF rises to 1.6435/40. You can now sell $1 US for 1.6435 Francs or buy $1 US for 1.6440 Francs. Since you're long dollars (and are short francs), you must now sell dollars and buy back the francs to realize any profit.

You close out the position, selling one lot (selling 100,000 US dollar and receiving 164,350 CHF) Since you originally sold (paid) 163,270 CHF, your profit is 1080 CHF.

To calculate your P&L in terms of US dollars, simply divide 1080 by the current USD/CHF rate of 1.6435. Your profit on this trade is $657.13

Summary

Initial Investment:	$1000
Profit:	$657.13
Return on investment:	65.7%

If you had executed this trade without using leverage, your return on investment would be less than 1%.

Managing a Margin Account

Trading on margin can be a profitable investment strategy, but it's important that you take the time to understand the risks.

• You should make sure you fully understand how your margin account works. Be sure to read the margin agreement between you and your clearing firm. Talk to your account representative if you have any questions.
• The positions in your account could be partially or totally liquidated should the available margin in your account fall below a predetermined threshold.
• You may not receive a margin call before your positions are liquidated.

You should monitor your margin balance on a regular basis and utilize stop-loss orders on every open position to limit downside risk.

Calculating Profit and Loss

For ease of use, most online trading platforms automatically calculate the P&L of a traders' open positions. However, it is useful to understand how this calculation is derived.

To illustrate a typical FX trade, consider the following example.

The current bid/ask price for USD/CHF is 1.6322/1.6327, meaning you can buy $1 US for 1.6327 Swiss Francs or sell $1 US for 1.6322.

Suppose you decide that the US Dollar (USD) is undervalued against the Swiss Franc (CHF). To execute this strategy, you would buy Dollars (simultaneously selling Francs), and then wait for the exchange rate to rise.

So you make the trade: purchasing US$100,000 and selling 163,270 Francs. (Remember, at 1% margin, your initial margin deposit would be $1,000.)

As you expected, USD/CHF rises to 1.6435/40. You can now sell $1 US for 1.6435 Francs or buy $1 US for 1.6440 Francs.

Since you're long dollars (and are short francs), you must now sell dollars and buy back the francs to realize any profit.

You sell US$100,000 at the current USD/CHF rate of 1.6435, and receive 164,350 CHF. Since you originally sold (paid) 163,270 CHF, your profit is 1080 CHF.

To calculate your P&L in terms of US dollars, simply divide 1080 by the current USD/CHF rate of 1.6435.

Total profit = US $657.13

Introduction to Technical Analysis

Technical analysis is a method of forecasting price movements by looking at purely market-generated data. Price data from a particular market is most commonly the type of information analyzed by a technician, though most will also keep a close watch on volume and open interest in futures contracts. The bottom line when utilizing any type of analytical method, technical or otherwise, is to stick to the basics, which are methodologies with a proven track record over a long period. After finding a trading system that works for you, the more esoteric fields of study can then be incorporated into your trading toolbox.

Almost every trader uses some form of technical analysis. Even the most reverent follower of market fundamentals is likely to glance at price charts before executing a trade. At their most basic level, these charts help traders determine ideal entry and exit points for a trade. They provide a visual representation of the historical price action of whatever is being studied. As such, traders can look at a chart and know if they are buying at a fair price (based on the price history of a particular market), selling at a cyclical top or perhaps throwing their capital into a choppy, sideways market. These are just a few market conditions that charts identify for a trader. Depending on their level of sophistication, charts can also help much more advanced studies of the markets.

On the surface, it might appear that technicians ignore the fundamentals of the market while surrounding themselves with charts and data tables. However, a technical trader will tell you that all of the fundamentals are already represented in the price. They are not so much concerned that a natural disaster or an awful inflation number caused a recent spike in prices as much as how that price action fits into a pattern or trend. And much more to the point, how that pattern can be used to predict future prices.

Technical analysis assumes that:

• All market fundamentals are depicted in the actual market data. So the actual market fundamentals and various factors, such as the differing opinions, hopes, fears, and moods of market participants, need not be studied.
• History repeats itself and therefore markets move in fairly predictable, or at least quantifiable, patterns. These patterns, generated by price movement, are called signals. The goal in technical analysis is to uncover the signals given off in a current market by examining past market signals.
• Prices move in trends. Technicians typically do not believe that price fluctuations are random and unpredictable. Prices can move in one of three directions, up, down or sideways. Once a trend in any of these directions is established, it usually will continue for some period.

The building blocks of any technical analysis system include price charts, volume charts, and a host of other mathematical representations of market patterns and behaviors. Most often called studies, these mathematical manipulations of various types of market data are used to determine the strength and sustainability of a particular trend. So, rather than simply relying on price charts to forecast future market values, technicians will also use a variety of other technical tools before entering a trade.

As in all other aspects of trading, be very disciplined when using technical analysis. Too often, a trader will fail to sell or buy into a market even after it has reached a price that his or her technical studies identified as an entry or exit point. This is because it is hard to screen out the fundamental realities that led to the price movement in the first place.

As an example, let's assume you are long USD vs. euro and have established your stop/loss 30 pips away from your entry point. However, if some unforeseen factor is responsible for pushing the USD through your stop/loss level you might be inclined to hold this position just a bit longer in the hopes that it turns back into a winner. It is very hard to make the decision to cut your losses and even harder to resist the temptation to book profits too early on a winning trade. This is called leaving money on the table. A common mistake is to ride a loser too long in the hopes it comes back and to cut a winner way too early. If you use technical analysis to establish entry and exit levels, be very disciplined in following through on your original trading plan.

Price charts

Chart patterns

There are a variety of charts that show price action. The most common are bar charts. Each bar will represent one period of time and that period can be anything from one minute to one month to several years. These charts will show distinct price patterns that develop over time.

Candlestick patterns

Like bar charts patterns, candlestick patterns can be used to forecast the market. Because of their colored bodies, candlesticks provide greater visual detail in their chart patterns than bar charts.

Point & figure patterns

Point and figure patterns are essentially the same patterns found in bar charts but Xs and Os are used to market changes in price direction. In addition, point and figure charts make no use of time scales to indicate the particular day associated with certain price action.

Technical Indicators

Here are a few of the more common types of indicators used in technical analysis:

Trend indicators

Trend is a term used to describe the persistence of price movement in one direction over time. Trends move in three directions: up, down and sideways. Trend indicators smooth variable price data to create a composite of market direction. (Example: Moving Averages, Trend lines)

Strength indicators

Market strength describes the intensity of market opinion with reference to a price by examining the market positions taken by various market participants. Volume or open interest are the basic ingredients of this indicator. Their signals are coincident or leading the market. (Example: Volume)

Volatility indicators

Volatility is a general term used to describe the magnitude, or size, of day-to-day price fluctuations independent of their direction. Generally, changes in volatility tend to lead changes in prices. (Example: Bollinger Bands)

Cycle indicators

A cycle is a term to indicate repeating patterns of market movement, specific to recurrent events, such as seasons, elections, etc. Many markets have a tendency to move in cyclical patterns. Cycle indicators determine the timing of a particular market patterns. (Example: Elliott Wave)

Support/resistance indicators

Support and resistance describes the price levels where markets repeatedly rise or fall and then reverse. This phenomenon is attributed to basic supply and demand. (Example: Trend Lines)

Momentum indicators

Momentum is a general term used to describe the speed at which prices move over a given time period. Momentum indicators determine the strength or weakness of a trend as it progresses over time. Momentum is highest at the beginning of a trend and lowest at trend turning points. Any divergence of directions in price and momentum is a warning of weakness; if price extremes occur with weak momentum, it signals an end of movement in that direction. If momentum is trending strongly and prices are flat, it signals a potential change in price direction. (Example: Stochastic, MACD, RSI)

Forex 1-2-3 Method

This particular technique has been around for a long time and I first saw it used in the futures market. Since then I have seen traders using it on just about every market and when applied well, can give amazingly accurate entry levels.


Lets first start with the basic concept. During the course of any trend, either up or down, the market will form little peaks and valleys. see the chart below:


The problem is, how do you know when to enter the market and where do you get out. This is where the 1-2-3 method comes in. First let's look at a typical 1-2-3 set up:



Nice and simple, but it still doesn't tell us if we should take the trade. For this we add an indictor. You could use just about any indictor with this method but my preferred indictor is MACD with the standard settings of 12,26,9. With the indictor added, it now looks like this:

Now here is where it gets interesting. The rules for the trade are as follows:

Uptrend

1. This works best as a reversal pattern so identify a previous downtrend
2. Wait for the MACD to signal a buy and for the 1-2-3 set up to be in place.
3. As the market pulls back to point 3, the MACD should remain in buy mode or just slightly dip into sell.
4. Place a buy entry order 1 pip above point 2
5. Place a stop loss order 1 pip below point 3
6. Measure the distance between point 2 and 3 and project that forward for your exit.
7. Point 2, should not be lower than point 1

The reverse is true for short trades. As the market progresses you can trail your stop to 1 pip below the most recent low (Valley in an uptrend). You can also use a break in a trend line as an exit.

Some examples:

There are a lot of variations on the 1-2-3 setup but the basic concept is always the same. Try experimenting with it on your favorite time frame.

http://www.actionforex.com

Forex History

The Foreign Exchange market, also referred to as the "Forex" or "FX" market is the largest financial market in the world, with a daily average turnover of US$1.9 trillion — 30 times larger than the combined volume of all U.S. equity markets.
"Foreign Exchange" is the simultaneous buying of one currency and selling of another. Currencies are traded in pairs, for example Euro/US Dollar (EUR/USD) or US Dollar/Japanese Yen (USD/JPY).
There are two reasons to buy and sell currencies. About 5% of daily turnover is from companies and governments that buy or sell products and services in a foreign country or must convert profits made in foreign currencies into their domestic currency. The other 95% is trading for profit, or speculation.
For speculators, the best trading opportunities are with the most commonly traded (and therefore most liquid) currencies, called "the Majors." Today, more than 85% of all daily transactions involve trading of the Majors, which include the US Dollar, Japanese Yen, Euro, British Pound, Swiss Franc, Canadian Dollar and Australian Dollar.
A true 24-hour market, Forex trading begins each day in Sydney, and moves around the globe as the business day begins in each financial center, first to Tokyo, London, and New York. Unlike any other financial market, investors can respond to currency fluctuations caused by economic, social and political events at the time they occur - day or night.
The FX market is considered an Over The Counter (OTC) or 'interbank' market, due to the fact that transactions are conducted between two counterparts over the telephone or via an electronic network. Trading is not centralized on an exchange, as with the stock and futures markets

Focus on the Loonie

While most Forex traders concentrate on the big 4 Major, which include theEUR/USD, USD/CHF, GBP/USD, and USD/JPY, the opportunities presented by other currency pairs should not be overlooked. An emerging example is the USD/CAD.

The "loonie" as it is called, is a classic case where a currency pair reflects theunderlying fundamentals of the economy of that currency. In particular, the recentincrease in prices in the crude oil and the general upward trend in commodity prices has contributed to a strengthening of the Canadian economy. In fact, the Canadian currency is known as a commodity currency, which means it is greatly correlated with commodity prices. This also means that a Forex trader needs to be aware of key commodity price action which are driving factors in determining the direction in MANY currency pairs. It is not an accident that the CRB index has had a strong year and year to date has made a new high 33 times! Commodities, as a sector, are on the rise and this helps the Canadian currency. The current fundamental situation is a classic example of how important fundamentals are to a currency direction. Let's take a closer look.

Recent economic data show that Canada is growing as a result of its role as an exporter of resources and, in fact, a net exporter of oil. Recent estimates on the tar sand oil reserve capabilities project an amount of recoverable oil greater than Saudi Arabia. As crude oil prices increase, the ability to tap these reserves in a cost-effective way will increase. It is logical therefore to see Canada as benefiting from this new era in oil prices. Canada's GDP is reflecting these fundamentals as well. The July Canadian GDP report provides a snapshot of the Canadian economy. The Canadian GDP advanced 0.2% in July following a 0.3% increase in June. The growth in the GDP was concentrated in mining, oil and gas. However, the manufacturing, wholesale trade, and utilities industries declined. It is significant that the key province of Alberta, has experienced labor shortages. In effect, Canada has two economies, a growing western economy based on resources and an older manufacturing and service oriented economy that has less potential for growth.

What does this mean for the Forex trader? The Forex trader, as a result of these fundamental conditions, will be able to see an increase in trading opportunities in the USD/CAD pair. Those traders wanting to play the strength of the Canadian economy should look for selling opportunities and signals. Realizing that prices don't just move in straight lines, there will be periods of retracement where the loonie suffers in value as sentiment for the dollar goes up, and when oil prices sell off.

The recent charts tell the story. We see the USD/CAD pair testing 13 year support, and then retracement, as short term sentiment changes. A technical analysis of the price patterns shows a significant downward channel in this pair. The retracements in this weekly chart correlate with key Fibonacci retracement levels.

This kind of pattern provides ample trading opportunity for buyers and sellers. Let's zoom down to the 4 hour chart.

Trade Forex Using News - 5 Most Watched Indicators

Currencies do not become weaker or stronger randomly. A large portion of a currency's value is based on confidence in the economic strength of the country. Economic strength is judged by certain key indicators that are closely watched in FX trading. When these economic indicators change, the value of a currency will fluctuate. A currency is a proxy for the country it represents and the economic health of that country is priced into the currency.

Fundamental releases have become increasingly important market movers. When focusing on the impact that economic numbers have on price action in the FX market there are 5 indicators that are watched the most because of their potential to generate volume and to move prices in the market.

Why Does Economic News Impact Short-Term Trading?

The data itself is not as important as whether or not it falls within market expectations. Besides knowing when all the data is released, it is vitally important to know what economists are forecasting for each indicator. For example, knowing the economic consequences of an unexpected monthly rise of 0.3% in the Consumer Price Index, the Actual, is not nearly as vital to your short-term trading decisions as it is to know that this month the market was looking for CPI to fall by 0.1%, the Consensus.

Analyzing the longer-term ramifications of an unexpected monthly rise in prices can wait until after you've taken advantage of the short term trading opportunities presented by the data typically within the first thirty minutes following the release. Market expectations for all economic releases are published on our calendar and you should track these expectations along with the release date of the indicator.

Average Pip Ranges

1. Non Farm Payrolls - Unemployment Avg. Move: 124 Pips 2. FOMC Interest Rate Decisions Avg. Move: 74 Pips 3. Trade Balance Avg. Move: 64 Pips 4. CPI - Inflation Avg. Move: 44 Pips 5. Retail sales Avg. Move: 44 Pips * 2004 Data from DailyFX Research

1. Non Farm Payrolls – Unemployment

The unemployment rate is a measure of the strength of the labor market. One of the ways analysts gauge the strength of an economy is by the number of jobs created, and the percentage of workers unable to find jobs. Strong job creation is indicative of economic growth, as companies must increase their workforce in order to meet demand.

Release Schedule: First Friday of the month at 8:30am EST

2. FOMC Interest Rate Decisions

The Federal Open Market sets the discount rate, which is the rate at which the Federal Reserve Bank charges member banks for overnight loans. The rate is set during the FOMC meetings by the regional banks and the Federal Reserve Board.

Release Schedule: 8 meetings scheduled per year. Date is known in advance so check the economic calendar

3. Trade Balance

The balance of trade measures the difference between the value of goods and services that a nation exports and the value of goods and services that it imports. A trade surplus results if the value of exported goods exceeds that of imported goods, whereas a trade deficit exists if imported goods exceed exported goods.

Release Schedule: Generally released around the middle of the second month following the reporting period. Check the economic calendar

4. CPI – Consumer Price Index

The CPI is a key gauge of inflation, as it measures the price of a fixed basket of consumer goods. Higher prices are considered negative for an economy, but since central banks often respond to price inflation by raising interest rates, currencies sometimes respond positively to reports of higher inflation.

Release Schedule: Monthly - around the 13th of each month at 8:30am EST

5. Retail Sales

Retail sales is a measure of the total goods sold by a sampling of retail stores. It is used as a gauge of consumer activity and confidence as higher sales figures would indicate increased economic activity.

Release Schedule: Monthly - around the 11th of each month at 8:30am EST

Is it possible to forecast future Forex movements?

I often hear traders claim that it is impossible to forecast price movement.

I can categorically claim that it is possible, and have considerable success and good accuracy in the process utilizing technical analysis in 100% of my forecasting.

Economists of course laugh at the idea that there can be any other method than applying economic theory.

So how should new, and for that matter experienced traders, formulate their own approach to forecasting future price movements? To be honest it is something personal to each trader. The most important factor they need assess is their own personal skill set. Are they analysts by nature, or are they traders. Each has a completely different mind set and also different abilities in terms of analyzing.

A pure trader is reactive, wants to trade and wants to make quick decisions.
A pure analyst is reflective, ponders decisions but likes to explore different factors that are affecting the market.

Most market participants are a hybrid of the two. Some err on the side of reaction and some err on the side of making sure of their trade, planning the entry and exits.

So how should a new trader decide what he or she should do in terms of analysis?

I am a pure analyst. I include no fundamental factors in my analysis. I am 100% pure technical analysis and I can be no other way since it works well for me. I have been able to forecast approximate targets 6-10 months in the future when the circumstances all work together well. That is how strong technical analysis can be. If an analyst knows what they are doing the advantage that technical analysis has over fundamental analysis is the ability to provide accurate targets, both on retracements and projections. It may also provide good timing.

In that case, do I recommend that all new traders base their trading on technical analysis alone?

Indeed not.

To be able to forecast with technical analysis in this way with a high success ratio requires a deep understanding of price movement, why it does what it does and what happens when it doesn’t move in the way that has been predicted. My method is based around Elliott Wave and a purely personal interpretation of Elliott Wave since I have found the Elliott’s methodology does not really apply to the Forex market, Elliott Wave takes years of practice and use to feel comfortable applying it. I also use time cycles which are also not plain straight forward to apply. If you don’t know what you are doing then you can end up making very bad trades. How long would it take to forecast accurately utilizing 100% technical methodologies? At least 5-10 years depending on the individual’s analytical skills.

So does that imply that new traders should base their trading on fundamental analysis alone?

Indeed not.

I am not a skillful fundamental analyst but I have worked with several and have seen their successes and failures. Certainly they require time to understand the vagaries of the Forex market and how what appear to be understandable and underlying economic factors can apparently fail totally. They can often forecast the underlying direction but what is impossible is to forecast precise levels to enter or exit.

Thus, for the new trader it is important to incorporate both elements into trade decisions. Fundamentals are normally favored because it is easier to conceptualize the concepts. They appear logical while technical analysis does not. It is normally easier for a new trader to become a little more skillful in applying fundamentals in a quicker time than he/she can with technical analysis.

However, the bigger problem for traders is knowing when to enter and where to place stops. The only solution is technical analysis. Since the process of understanding how to use technical analysis will take time it can be useful to subscribe to a technical service. Since probably 80% of traders are not analytical in nature it could be that most traders will find it useful to subscribe to an analytical service permanently and will need to try several services to see which suits their own personal style of trading.

Choosing an analytical service is important. Since there are always several ways a price pattern can develop what a good service must do for you is provide you with guidance to the possible alternatives, the levels that confirm a move and when it breaks down. It is vital to have a firm view of when to enter, why you are entering and when to take profit, or take a loss. Not to have this in your trading strategy will cause you more losses than you need take.

The key to successful and profitable trading is study and that means hard work. It is well know that trading is a stressful profession and that in itself implies that it is not a simple pastime, even for institutional traders who have a wealth of information at hand. However, there is enough information available to private traders these days and for the savvy who do their homework, there are good profits to be made.

Ian Copsey
Global Forex Trading

Making Sense of Forex Broker Stop Loss Policy

Why do on-line Forex brokers guarantee stops at all? The answer is simple; they make a lot of money from it. Only the on-line Forex brokers handle stop loss orders such that a customer?s stop loss order is executed when the level is reached and not breached. In fact, in Forex banking the etiquette is to not fill a stop until 3 points or so breaches the level.

For example, if you leave a stop loss at 1.2150 with a bank, your stop loss order is unlikely to be filled unless the market trades 1.2147 (meaning deals are actually done at that rate); and then the Bank will likely fill your order at 1.2148 or 1.2149. In the on-line brokers if the market trades at 1.2155 and the broker makes the rate 1.2150-53 you?re stopped out at 1.2150.

What?s particularly disturbing is the low trade may actually be 1.2155, even; it is not at all unusual for the on-line broker to "jack in" a low ball rate and "run" the stops; meaning execute the stop loss orders at 1.2150 (buying from customers at 1.2150) and selling to Banks at current market price 1.2155.

This ability to arbitrarily "jack in" off market rates is the cornerstone of broker profitability and clearly explains why brokers that guarantee stops choose to do so. The fact is if the broker didn?t guarantee stops then nobody would leave stops and the lucrative stop running strategy would not exist.

Another benefit of having an order book of stops is the potential to use the stops to offset a wrong market position or to get a right one. Case in point; on August 6th, 2004, as seconds ticked on toward 8:30am and the release of non-farm payroll EURUSD was marching into the mid 1.2060s; one broker jacked in a 1.2032-1.2035 rate.

This clearly off-market rate caused hundreds of customer long EURUSD positions to be stopped out; in effect all the customer long positions became broker long positions. It is unclear whether the broker knew the non-farm payroll number when the off market rate was jacked in but it was a no lose situation for the broker.

As it turned out the EURUSD price was 200 points higher right after the number; so instead of the customers making 200 points the broker made between 210 and 230 points, depending where they bought the customers EURUSD position (where they stopped out the customer).

The bottom line here is that FOREX brokers that routinely do not simultaneously offset their customer transactions with Banks are in effect strictly market makers and as such have a fiduciary responsibility to treat their customers orders fairly and honestly. Just because a customer signed a client agreement that says the broker rate can be different than the market rate does not mean a broker can make a "flash" price for a nano-second and clean house ? take all the customers positions for themselves, regardless of where the market really is.

When a broker that acts primarily as a market maker jacks in an obviously off market price by 30 points and makes millions of dollars by doing so the regulators ? CFTC ? should at least acknowledge that a situation exists. In this case despite hundreds of complaints I have not heard a single word from the CFTC concerning this matter.

I have called many times and have yet to get a response myself. If the public is indeed protected by these brokers being registered CFMs; well where is the protection when we need it. Where is the CFTC on this matter? The question to be raised if this situation is "swept under the rug" is this; Can anyone with adequate capital become a CFM and do what they want ? provided they have the capital? If so, what kind of "business people" is FOREX inviting?

I personally would like a call from the CFTC so I know that the matter is at least being looked into. There is not a single knowledgeable trader, broker, or informed individual that does not realize that a grave injustice has been done here. If the buck does not stop here, I am afraid on-line FOREX trading is doomed.

Jimmy Young

What Moves Forex Rates?

In the currency market, traders buy and sell currencies with the hope of making a profit when the value of the currencies changes in their favor, whether from market news or events that take place around the world. Currencies, just like any other commodity that can be bought or sold, are subject to the laws of supply and demand. When more people want a particular currency, the cost of the currency in terms of other currencies will go up. When demand decreases or people do not want to hold a country’s currency, the value will go down. What factors affect supply and demand for a currency?

Economic Growth

Investors want to be sure that they are investing in a solid economy that is achieving steady growth. Currency traders looking to assess the economic growth of a country will look at unemployment, trade, and GDP data.

What Happens If...

BAD Rise in Unemployment GOOD Fall in Unemployment GOOD Rise in GDP BAD Fall in GDP GOOD Rise in Exports BAD Fall in Exports

Interest Rates

Money tends to follow interest rates. If interest rates go up, money will flow into the country from all over the world as investors seek to capitalize higher returns. To determine whether interest rates will rise or fall, investors pay attention to economic inflation indicators as well as speeches by influential figures. Generally, the timing of interest rate moves are known in advance. They take place after regularly scheduled meetings by the BOE, FED, ECB, BOJ, and other central banks.

What Happens If...

GOOD Rise in Interest Rates BAD Fall in Interest Rates

Trading With The Trend And Consolidation Patterns

The FX-market will develop distinctive trends from time to time, as a result of the underlying fundamental factors which make up each currency within the pair traded. Often times these trends occur as one currency offers a significant higher interest rate, which continues to draw investment capital out of another other currency with significantly lower rates. In the midst of these long term trends, the market may establish a number of consolidation patterns. During these range bound market conditions, it is important to keep in mind, the direction of the prevailing trend, as the market has the tendency to break out of these ranges, in the same direction as the overall trend. We can see the following (daily) chart, the NZDJPY recently broke above an ascending triangle pattern, to continue it's long term trend; to the upside. Therefore, when a clear trend (to the upside) exists, and the market establishes a range bound condition, traders may choose to 'go long' just above support with protective stops placed below support. Short term traders may choose to take profits inside this range, as long term traders may hold on to their position with the anticipation the market will eventually breakout to higher highs. In a down trending market, traders may opt to sell short just below resistance with the same long term outlook in mind. Best of luck in all your trades!!!


Adam Rosen, FX PowerCourse Instructor
FxCM.com

Canadian Dollar: End of Month Trading Anomaly

Did you know that the Canadian dollar has a very unique trading characteristic at the end of every month? According to our statistical analysis, we found that over the past 10 years, USD/CAD tends to fall in the last week of the month with a 95 percent confidence level. A more granular look at the data reveals that this drop is predominately concentrated around the 24th and 25th day of every month. Interested in knowing why this happens?

Settlement of Oil Futures

The trading anomaly in USD/CAD stems from the fact that Canada is one of the world's largest oil producers. Their oil reserves are also second to only Saudi Arabia. Canada is also the top exporter of oil and other petroleum products to the United States, making the US dollar-Canadian dollar exchange rate especially correlated to energy prices and related money flows.

Therefore it is not surprising that the movement of the Canadian dollar is especially sensitive to end-of-month oil contract settlement. It is fairly easy to determine when firms are required to settle outstanding oil contracts and potentially convert US dollars for loonies on a monthly basis. More specifically, it is well-known that oil futures settle in the final week of every month.

Looking at the table below, we see that a 10-year sample of data shows the biggest appreciation in the Canadian dollar against the US dollar happening in the final week of every month. In other words, on average, USDCAD falls 6 points per day in the final week - a result statistically below 0,at a 95% confidence level. Six points is hardly worth getting overly excited about since it is difficult to take advantage of such a small price move on a vague, weekly basis. However when we take a much more granular look of the USDCAD's behavior around specific days of the month, the moves become more substantial.

The chart below shows that the Canadian dollar tends to appreciate the most on the 24th and 25th day of every month, with continued gains into the early days of the month that follows. This dynamic is exactly consistent with settlement on oil futures contracts, as the “notice day” - the first day on which the purchaser may be called upon to take delivery - is typically between the 22nd and the 24th calendar day.

Taking a look at the NYMEX crude oil schedule through 2007, we see an interesting connection between the USDCAD and delivery dates.

Namely, it seems as though the Canadian dollar moves the most following the Notice Day, while the First Delivery Day likewise causes some strong moves in following month. Given that the Notice Day occurs today, August 23rd, it is especially interesting to note that the Canadian dollar has appreciated strongly against yesterday's close.

The chart below shows USDCAD movements through Notice Days from December 2006 to present.

The statistical relationship showed signs of waning through the early months of the year, but it has clearly picked up from June through August. Given such a relationship, it seems clear that the USDCAD stands to continue declines through the short-term - leaving Loonie appreciation probable in upcoming days of trade.

dailyfx.com

Pyramiding: A Risky Strategy

Pyramiding is adding to positions as price moves in the desired trend direction. Pyramiding is a highly aggressive trading strategy suitable only for full-time professional traders who know how to control risks and have the discipline to execute a tested plan consistently. Pyramiding should be executed only according a predetermined and tested method which includes an effective stop loss.

Although pyramiding increases profits if the trend continues as hoped, pyramiding also increases losses if the trend reverses, so risk control is key. Reward/risk tradeoffs quickly turn against the pyramid trader when the price trend reverses. Because adding to positions changes the total cost of the entire position on a per-unit basis toward the last price, a quick reversal to the original entry price can result in a significant loss. And if the price changes direction quickly and steeply, such as on a gap or fast market, it can be impossible or difficult to limit risk according to plan.

The signal to add to positions may be triggered at predetermined price points that confirm the trend direction. Such price points might be based on volatility bands, moving averages, a variety of trendlines, logical chart points, penetration of resistance levels, and so on.

The standard pyramid, which is also known as the scaled-down pyramid or upright pyramid, starts with a large initial position and is followed by predetermined additions that decrease systematically in size as price moves in the indicated trend direction. For example, if the initial entry was for 100 shares, then as price moves to the next predetermined level add 50 more shares, then 25 more at the next level, then 13 more, for a total of 188 shares.

The inverted pyramid, which is also known as the equal amounts pyramid, adds to an initial position in equal share-size increments. For example, if the initial entry was for 100 shares, then as price moves to the next predetermined level add 100 more, then if the price continues 100 more, then 100 more, for a total of 400. Here, however, the average cost per share is much higher, such that a smaller price reversal eliminates all profit. The inverted pyramid offers greater potential reward at the cost of much greater risk, as compared to the standard, scaled-down pyramid.

The reflecting pyramid systematically adds to a position up to a predetermined price level, then it reduces the position systematically as the trend continues, so the reflecting pyramid is not a pure trend following method. If the price does have a major move in the indicated trend direction, the reflecting pyramid would result in less profit than both the standard and inverted pyramids.

The maximum-leverage pyramid keeps on adding maximum size up to the limits of accumulated profits and margin requirements. This is the most aggressive strategy possible, and it offers the maximum potential reward, the maximum potential risk, and the worst reward/risk ratios. This pyramid must be combined with tight exit rules, or else it is a formula for near-certain ruin.

Robert W. Colby
TradingEducation.com

Microsoft bids $44.6bn for Yahoo

(its not aboat forex)

Yahoo's latest results didn't shine - and now Microsoft is bidding for it again, in an attempt to transform itself finally into an online entity

Microsoft has bid $44.6bn (£23bn) for Yahoo, the second-biggest online property behind only Google. The $31-per-share cash-and-stock bid, made after markets closed, is a 61% premium to Yahoo's closing stock price.

The stock graph comparison for the past year with Google tells its own story: Yahoo stock down 40%, Google's pretty much steady despite all the turbulence in the markets and disappointing results last night from the dominant search engine.

If Microsoft succeeds in the bid (which will almost certainly be referred to competition regulators, since it would give Microsoft a huge share of many online markets), it could propel it into pole position online and ready it for the world that its new software architect, Ray Ozzie, anticipates: one where Microsoft has to deliver services to a population online, not statically on desktops running Windows.

Microsoft was reported (in the NY Post) to have approached Yahoo last spring, but that was quickly denied; Yahoo said it wasn't interested.

Since then Terry Semel has left, co-founder Jerry Yang has taken over, and Yahoo has continued (for the 8th quarter in a row) to disappoint Wall Street with its results while promising that better times lay ahead; Yang suggested that would be in 2009. Meanwhile, it laid plans to cut 1,000 staff.

Trading in the Retail Off-Exchange Foreign Currency Market - What Investors Need to Know

National Futures Association is a congressionally authorized self-regulatory organization of the United States futures industry. Its mission is to provide innovative regulatory programs and services that protect investors and ensure market integrity.

NFA has prepared this booklet as part of its continuing public education efforts to provide information to potential investors. The booklet presents an overview of the retail off-exchange foreign currency market and provides other important information that investors need to know before they invest in the off-exchange foreign currency market.

INTRODUCTION

Companies and individuals may speculate in foreign currency exchange rates (commonly referred to as ?forex?), and a number of firms are presently offering off-exchange foreign currencyfutures and options contracts to the public. If you are a retail investor considering participating in this market, you need to fully understand the market and some of its unique features. NFA has prepared this booklet to educate you about off-exchange foreign currency trading.

Like many other investments, off-exchange foreign currency trading carries a high level of risk and may not be suitable for all investors. In fact, you could lose all of your initial investment and may be liable for additional losses. Therefore, you need to understand the risks associated with this product so you may make an informed investment decision.

You should also understand the language of the forex markets before trading in those markets. The glossary in the back of this booklet defines some of the most commonly used terms.

This booklet does not suggest that you should or should not participate in the retail off-exchange foreign currency market. You should make that decision after consulting with your financial advisor and considering your own financial situation and objectives. In that regard, you may find this booklet helpful as one component of the due diligence process that investors are encouraged to undertake before making any investment decisions about the off-exchange foreign currency market.

Finally, the discussion in this booklet assumes you are funding your forex account with US dollars. The principles in this booklet apply to all currencies, however.

What are foreign currency exchange rates?

Foreign currency exchange rates are what it costs to exchange one country?s currency for another country?s currency. For example, if you go to England on vacation, you will have to pay for your hotel,
meals, admissions fees, souvenirs and other expenses in British pounds. Since your money is all in US dollars, you will have to use (sell) some of your dollars to buy British pounds.

Assume you go to your bank before you leave and buy $1,000 worth of British pounds. If you get 565.83 British pounds (?565.83) for your $1,000, each dollar is worth .56583 British pounds. This is the exchange rate for converting dollars to pounds.

If ?565.83 isn?t enough cash for your trip, you will have to exchange more US dollars for pounds while in England. Assume you buy another $1,000 worth of British pounds from a bank in England and get only ?557.02 for your $1,000. The exchange rate for converting dollars to pounds has dropped from .56583 to
.55702. This means that US dollars are worth less compared to the British pound than they were before you left on vacation.

Assume that you have ?100 left when you return home. You go to your bank and use the pounds to buy US dollars. If the bank gives you $179.31, each British pound is worth 1.7931 dollars. This is the exchange rate for converting pounds to dollars.

Theoretically, you can convert the exchange rate for buying a currency to the exchange rate for selling a currency, and vice versa, by dividing 1 by the known rate. For example, if the exchange rate for buying British pounds with US dollars is .56011, the exchange rate for buying US dollars with British pounds is 1.78536 (1 ? .56011= 1.78536). Similarly, if the exchange rate for buying US dollarswith British pounds is 1.78536, the exchange rate for buying British pounds with US dollars is .56011 (1? 1.78536 = .56011). This is how newspapers often report currency exchange rates.

As a practical matter, however, you will not be able to buy and sell the currency at the same price, and you will not receive the price quoted in the newspaper. This is because banks and other market participants make money by selling the currency to customers for more than they paid to buy it and by buying the currency from customers for less than they will receive when they sell it. The difference is called a spread and is discussed later in this booklet.

......

Down full document here.

Source: National Futures Associations

forex reference

1/ Introduction to Forex

1st Forex Trading Academy - Introduction to Forex
Forex - Online Manual for Successful Trading
Forex - Time Zone Chart
Introduction to Forex Trading with TradeStation
Mark McRae - Introduction to Forex
Realtime Forex Online Tutorial
Study Book for Successful Foreign Exchange Dealing
The Forex Market Phenomena
Trading for a Living in the Forex Market

_______________________
2/ Forex Trading Course

#1 Forex Trading Course
10 Rules - How to Make More Money in Forex Trading
Avoiding Mistakes in Forex trading
Forex - Market Quotations, Spread & Volatility
Forex - Study Book for Successful Forex Dealing
Forex Manual - 10 keys to successful trading
Forex Trading - Avoiding Mistakes
FX Power Trading Course
Sure-Fire Forex Trading

_______________________
3/ Forex Trading System

80 Trading Strategies for Forex
Amazing Forex System
Bortucene & Macy - The Day Trade Forex System
Currency Strategy - A Practitioner's Guide To Currency Investing, Hedging & Forecasting
Day Trade Forex System - The ULTIMATE Step-By-Step Guide to Online Currency Trading
Day Trading the Forex Market
Forex - Trade Book
Forex 1-2-3 Method
Forex Report - Predicting Price Action
Forex Sailing
Forex Scalping
Forex Surfing
Forex Systems Research - Practical Fibonacci Methods For Forex Trading 2005
Forex Trading - Power Trading Course (2003)
Forex Trading Strategy
Make the Trend Your Friend in Forex
One More Zero - How to Trade the Forex like a Pro in One Hour

Automated Forex Day Trading

Perks of Automated Forex Day Trading

Are you interested in automated forex day trading? There are many things that you should know about automated forex trading, and this is a great place to learn about it. The idea of automated forex day trading is recently getting more and more popular. Futures exchange was the first to adopt this system and later on, the FX market followed suit and employed automated forex day trading.- EfficiencyThis system is very efficient and successful because of its capability to carry out a deal or a trade - real time. This means that there are no lags and fewer complications when trading and these results to more income generated. Achieving this level of efficiency is very hard to do by manual means especially if the decision to trade or not to trade can only be done in a time window of a few seconds. There are even instances wherein the window of opportunity is just a few milliseconds! There are instances wherein the trader is not in his desk and the opportunity suddenly presents itself, while sometimes a trader will skip deals for a while if he recently came from losing deals. These factors are eliminated by an automated system.- VersatilityAn automated system allows you to trade in diverse fields. It makes it possible for you to trade in varying markets as well as an array of time zones. Many trading models can be used by the trader since the system will be the one managing each trading model. Short term data can be analyzed by the system and this provides you with an advantage since you can use the data analyzed for making decisions based on what is currently happening in the market. Analyzing where the market will go in the next 15 or so minutes is impossible without using an automated forex trading system.- Improved liquidityLiquidity is greatly improved by the use of automated trading systems. This can be deduced by observing the behavior of the futures exchange market after employing an automated forex trading system.- SetbackTraders are foreseeing that a problem may arise when the time comes that all traders will adopt the automated system. The volume of orders may be so great that the existing bandwidth as well as current equipment used may not be able to accommodate this influx of information in real time. Existing systems might be able to carry the load and crash which will result to chaos in the market. As of now, safety controls have been created and set in place to prevent this scenario from happening.- Risk ManagementAnother big issue that concerns forex traders is risk management. Even automated forex trading systems require a risk management tool to ensure that there are no errors while trading. Risk management tools requires that before opening a position, checks should be conducted to ensure that no excessive correlation is present in already existing positions. To be 100% sure that the check is accurate and free of error, the whole system must first be synchronized. But as the technology used in forex trading progresses and evolves, these will no longer be issues to be concerned about.There are even instances wherein the window of opportunity is just a few milliseconds! There are instances wherein the trader is not in his desk and the opportunity suddenly presents itself, while sometimes a trader will skip deals for a while if he recently came from losing deals. These factors are eliminated by an automated system.These are some of the things that you should know about automated forex day trading. The information provided here will give you a better grasp and knowledge about this topic. Hopefully this will be helpful when you are deciding to try this kind of business

How To Increase Forex Profits 100% in 10 Minutes

This simple exercise will increase Forex profits 100% and works for 99% of all short-term FX traders - stop trading so much - widen out your stops - widen out your profit targets - and only trade in the direction of the trend indicated by 4 hour chart.

1) Stop trading so much

Sure there are no commissions but the spreads are HUGE and believe it or not (well you'll believe it after you do the simple exercise below) the spreads are reducing your profits 100%!

2) Widen out your stops

Initial stop loss should be a minimum of 23 points; I use between 23 and 35 point stop losses for short-term trading.

3) Widen out your profit targets

Unless you think a trade can make you 100 points or more don't do it.

4) Only trade in the direction of the 4 hour chart

The real money is made in the direction of the trend

Simple exercise

1) Download all your trades for the year into an excel spreadsheet (if you don't know how to do this ask your broker for help).

2) Determine the dollar value of the spread for each trade.

3) Sum up the total dollar value of all spreads for all trades and add this number it to your current account balance; this is your spread adjusted account balance.

4) Take your spread adjusted current account balance and divide it by your opening balance at beginning of year; the result will be a percentage change.

5) Take your actual current account balance and divide it by your opening balance at beginning of year; the result will be a percentage change.

6) Subtract your spread adjusted year to date percentage change from your actual year to date percentage change.

7) That number should be 100% or more

8) Take the necessary steps as outlined above (1 to 4) and improve your results 100%

Jimmy Young - EURUSDTrader

Trade Using News: Helpful Hints

RefcoFX has compiled a list of the most common questions regarding trading on news. Here is what our trading specialists had to say...

Why are economic events important to currency traders?

A currency is a proxy for the country it represents, therefore the economic health of that country is priced into the currency. Economic indicators measure the health of an economy. The challenge is keeping track of each particular country's economic health.

Know when indicators are due to be released. It is important to keep an eye on the future and knowing which news releases the market deems most important.

Why are some indicators more important than others?

Current market conditions will influence which news the market deems most important. Know which economic indicators are capturing most of the market's attention. When the US is incurring large trade deficits, the market will focus on Trade Balance data. Its news release can catalyze large volume and price movements. Moreover, during an US economic boom with high employment, the market will not focus on unemployment.

Economic conditions can change. Large US Trade Deficits can weaken the US Dollar over time. When the US Dollar is weak the market will shift its focus to inflation. Market watchers will shift focus to CPI and FOMC Interest Rate Decisions in the news.

What is the significance of "actual versus consensus"?

The data itself is not as important as whether or not it falls within market expectations. Know when the data is released in addition to what market forecasters are expecting for each indicator.

Once you know the market expectation for the economic indicator, pay attention if the consensus number is met. A drastic difference between the consensus and actual results can cause price movement.

The consequences of an unexpected monthly rise of 0.3% in the Consumer Price Index, the Actual, is not nearly as important to your short-term trading decisions as it is to know that this month the market was looking for CPI to fall by 0.1%, the Consensus.

Wait until after you've taken advantage of the short term trading opportunities presented by the data, typically within the first thirty minutes following the release, to analyze the longer-term ramifications of an unexpected monthly rise in consumer prices.

Remember that market expectations for all economic releases are published on our economic calendar.

Why should technical traders pay attention to news releases?

Technical analysis will not work when fundamental factors or economic data becomes the main focus of the market as participants become sensitive to any developments. With speculation mounting on the possible outcomes, fundamental news releases like US non-farm payrolls have created situations in the market that do not adhere to technical analysis as volume and volatility spikes. Although the aftermath more than not will once again adhere, the mass speculation that ensues makes sure that traders are scrapping for the best price available in filling their positions rather than applying your everyday moving average or price oscillator.

Trade currency without risking capital - with a FREE practice account with RefcoFX

The Foreign Exchange Market Fact Sheet

The foreign exchange market enables companies, fund managers and banks to buy and sell foreign currencies, if necessary in large amounts. The motivations behind this demand for foreign currency include capital flows arising from trade in goods and services, cross-border investment and loans and speculation on the future level of exchange rates. The sums involved are very large: estimated global turnover in all currencies in April 1998 was $1,490 billion, an increase of 26 percent over the past three years. Deals are typically for amounts between $3 million and $10 million, though much larger transactions are often done.

Foreign exchange trading may be for spot or forward delivery. Generally, spot transactions are undertaken for an actual exchange of currencies (delivery or settlement) two business days later (the value date). Forward transactions involve a delivery date further into the future, possibly as far as a year or more ahead. By buying or selling in the forward market a bank can, on its own behalf or that of a customer, protect the value of anticipated flows of foreign currency, in terms of its domestic currency, from exchange rate volatility.

Unlike some financial markets, the foreign exchange market has no single location - foreign exchange is not dealt across a trading floor. Instead, trading is via telephone and computer links between dealers in different centres and, indeed, different continents. London is the world?s largest foreign exchange centre: average daily turnover is $637 billion. This is approximately the same as the combined level of trading in the United States, Japan and Singapore.

London?s leading position arises partly from the large volume of international financial business generated here - insurance, bonds, shipping, equities, commodities and banking. London also benefits from its geographical location which enables firms located here to trade not only with each other and with firms based in Europe throughout the day, but also with the US and the Far East, whereas their time difference makes it difficult for firms in those two centres to trade with each other. When banks in London begin trading at 8 am they can deal with banks in Tokyo, Hong Kong or Singapore whose trading day is just ending. From about 1 pm onwards, London banks can trade with banks in New York; before they close at 4 pm their counterparties may be in Los Angeles or San Francisco. This is important because the foreign exchange market trades 24 hours a day: 66 percent of trades involving a firm in London are transacted with a counterparty located abroad.

Down full document here.

Source: Bank of England

Fibonacci Forex Trading

How to make money in Foreign Currencies using Fibonacci Retracements and Fibonacci Profit Targets.

How to Handle a Losing Streak

A trader emailed me a while back, asking for some advice on a good money manager for him. He said he was a "lousy trader" and tired of losing money.

I doubt there is one non-rookie trader reading this story who has not experienced at least a small run of poor performance in trading futures. I've said before that most successful veteran traders have more losing trades than winning trades in any given year. The key is maximizing profits on the winning trades and minimizing losses on the losers.

I will also argue that at one point or another in most traders' experiences, they, too, have felt like "lousy traders." I certainly have. (Those who say they have never had a run of poor trading performance or felt "lousy" about a trade or trades are likely either lying or completely out of touch with futures trading reality.)

So what's a trader to do when losses start to pile up and winners become scarce. Here are a few tips that I've picked up over the years from some of the very best traders in the business:

Don't overtrade. If you are trading several markets and not having any success, cut back to trading one or two markets. You can follow fewer trades more closely and document your success or failures more easily. Plus, your trading account won't be drawn down so quickly.

Keep a detailed trading diary. If you keep a good trading diary, you can go back and see if there is a common thread among your losers--and your winners, and possibly make the proper adjustments.

If you are not trading that many markets and still racking up losers, take a break from trading for a while. Gather your thoughts. You may want to "paper trade" for a while to get your confidence back. Then, if you are still losing on paper, you will want to look for other trading methods.

If you are losing money trading, DO NOT (I REPEAT) DO NOT try to make a big home-run-type trade that will get you back to even or the plus side in a hurry. In fact, do just the opposite. Make smaller trades that risk less capital, until your performance starts to turn around and you can resume your normal asset allowances for trades. Successful traders survive the rough waters by hunkering down and being conservative.

Exhibit patience and discipline. I've preached about this before. Are you following a trading plan that you devised before you put on the trade? If not, you should be. You are not shooting from the hip (no exit strategy in place) once a trade gets initiated, are you? If so, that could be part of your problem. On the patience issue, are you impatient? I've talked to successful position traders who may only trade a few times a year, because they wait for what they feel is that "perfect set-up" to occur. If you are a position trader (as opposed to a day trader), you don't have to be "in the market" all the time. Wait for the good trades to develop and don't chase markets.

Be confident. Have faith in your trading methods. And if you don't have faith in your methodology, why don't you? If your methods are really not successful, find something else. Read some of the many books out there by the successful traders, and how they have traded successfully. But be cautious of the person who wants to sell you some so-called successful trading method for big bucks. (See the next item on hard work.)

Work harder. Don't expect to produce winning trades if you are not working very hard at trading. Do you know well the fundamentals of the markets you are trading? Even if you know technicals well, you should have at least a good understanding of a market's fundamentals. Here's an example: Let's say the charts and technical indicators look bullish for corn and it's the day before a major USDA report. Smart traders likely won't initiate a trading position in corn the day before a big government report is out.

In case you're wondering what I told the reader who emailed me and told me was a "lousy" trader, here's what I said: Don't give up just yet. The fact that he admitted he needed some help (before he lost all of his trading assets) is a positive first step. I then told him I would write this feature because there were likely many traders who feel the same way, at times, that he feels, and that there are steps to take on the road to recovery and eventual successful trading.

Jim Wyckoff
TradingEducation.com