What Are Forex Training Programs?

Forex training programs will teach you how to increase your money making potential. Unfortunately, they focus on mainly one profitable FX market technique.

You should really be looking at other educational that can teach you a broad range of trading skills all the way from the basic level to the advanced trader.

The easiest way to engage profitably with currency markets is to take the short term approach. Learn what concepts you can quickly and apply those lessons to start making money. These forex classes will teach you simple, easy ways to trade. If you pay attention, youll be generating income shortly after you start learning the concepts!

The two best courses are Forex Trading Made EZ and 10 Minute Forex Wealth Builder. Both classes have a very simple approach which doesnt waste your valuable time. Learn, apply, and then youll start making money! A class titled Hector Trader is a trend trading specialization course but that class requires more of your time before you are able to turn a profit. The videos you watch for the class are very complicated and you might have to watch each video several times.

Therefore, learn the techniques outlined in the basic classes. They use very different methods of training and if you follow their teachers, your portfolio will be adequately diverse. With a diverse portfolio, you should experience profitability on a monthly basis.

Then, I would attend a class that would educate me fully about the markets so that I would not appear ignorant while learning some of the things in other classes.

If you complete two courses in particular, Fap Winner and Straight Forex, and use their three techniques for the short term and a long term technique in your investments, you will certainly be very profitable.

It all boils down to hard work. If you are ready to get your hands dirty and be prepared to work, there is absolutely no reason as to why you can’t succeed.

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To find out more about trade forex, make sure to check out this website on forex trading machine.

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.

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.

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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

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

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

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.

Forex Education - Forex Discipline the Key to Winning Is Hard To Achieve

The first point you need to understand as part of you forex education is your success will not just depend on your method but your discipline to execute it. Most traders can't and lose and this is because they don't understand that discipline can only be acquired, if you take on traits that are not acceptable in normal society.

Discipline in forex trading means - you have to accept that you are going to need to act in a way that would normally be seen as acceptable in everyday life. People find this hard to do and some explanation will make this clearer.

1. Be a Loner

Man is a pack animal and since stone age times we have sought safety in groups - they make us feel safe, wanted and accepted. In forex trading however if you run with the pack you are going to lose, as 95% of traders do and thats a fact.

When man gets in a group he runs with the herd and the herd is always wrong in forex trading, as you are infleunced by the emotions of the crowd.

You need to be a loner and not listen to others - don't share your opinions with others and don't let others influence you. You're on your own - but that's the best place to be in forex trading and could make you a fortune.

2. Break & Make the Rules

You will hear lots of common wisdoms spouted in forex trading and do you know what?

Most of them are wrong.

This again goes with the fact the majority of traders lose.

In life were used to order:

We stop at red lights, don't drop litter, don't drink and drive etc or we know what the consequences will be - our lives are ordered for us.

Forex trading is different we get to make the rules and they will decide our financial destiny, as there are none to start with.

The forex market is chaos, an all powerful force, moving as when it wants and only it can be right and only the trader can be wrong.

You need to create a set of rules to work with it and earn your living.

You're a bit like the captain of a ship - the ocean is all powerful but you can make a living from it.

You can navigate it correctly and make a living or you can drown the choice is yours.

Most traders cannot take responsibility, cannot make their own rules and follow the herd, news wires gurus, or sure fire trading systems and lose.

3. The Work Ethic Doesn't Apply

In most jobs the more hours you put in the more you get out in terms of reward - not so in forex trading, you only get rewarded for being right and that's it.

You can spend 20 minutes a day or 5 hours - but that will not influence how much money you make.

Many traders work hard but they don't work smart they learn lots of information and lose - others work short periods work smart and win.

4. Most Traders Can't Accept Big Gains

This may sound odd but it's true.

Traders hit a trend and then rather than follow it want to snatch the profit.

Why?

Because they think it's too easy, they haven't put enough effort in and it really won't run on - but it does and they snatch it early, before it gets away.

In many instances they can't believe they can make a huge profit for so little effort or they simply don't have inner confidence in their ability and these traders let huge profits get away all the time.

Spotting big trends is easy, holding them requires huge mental discipline.

So if you learn one thing from your forex education, learn that it is not hard to learn a method but it is hard to learn the discipline to execute a method.

Discipline is hard because it sets us against the market on our own and makes us responsible.

Running with the pack, listening to the news or a guru won't help - you're on your own and most traders simply cant accept this fact.

Of course if you accept the above, take responsibility for your actions and understand yourself, you can earn huge rewards.

source

Start Thinking In Terms of Risk-Reward

One of the cardinal rules of good trading is to always have an exit point before you ever enter into a trade. This is your worse case risk for the trade. It's the point at which you would say, "something's wrong with this trade and I need to get out to preserve my capital."

Most sophisticated traders will have some sort of exit criteria that they like. However, if you are a novice and you just don't know, then I'd recommend 75% of your entry price if you are an equity trader. That is, if you buy a stock a $40, then get out if the stock drops to $30 or below. If you are a futures trader, then calculate the average true range over the last ten days and multiple that result by three. If the contract drops to that level, then you must get out of the position.

Your initial stop defines your initial risk. In the example of our $40 stock, your initial risk is $10 per share and I call this risk 1R (where R stands for risk). And if you know your initial risk, then you can express all of your results in terms of your initial risk.

So let's say that your initial risk is $10 per share. If you make a profit of $40 per share, then you have a gain of 4R. If you have a loss of $15 per share, then you have a 1.5R loss. And losses bigger than 1R will occur when you have a sudden big move against you.

Let's look at a few more. What if the stock goes up to $140, what's your profit in terms of R? Your profit is $100 and your initial risk is $10, so you've made a 10R profit.

It's quite interesting because portfolio managers like to talk about 10 baggers. By a 10-bagger, then mean a stock that they bought at $10 per share that goes up to $100 – in other words a stock that goes up in value 10 times. However, I think a 10R gain in much more useful to think about and much easier to attain.

When our 1R loss was $10 per share, then the stock had to go up by $100 to get a 10R gain. But to fit the portfolio manager's definition of a 10 bagger it would have had to go up 10 times the price you bought it for, going from $40 per share to $400. But what would that $460 gain be in terms of R-multiples when your initial risk was $10? That's right, it would be a 36R gain.

What I'd like you to do before next week is to look at all of your closed trades last year and express them as R-multiples. In other words, what was your initial risk? What was your total gain and loss? What's the ratio of each profit/loss to the initial risk? And if you didn't set your initial risk for your trades last year, then use your average loss as a rough estimate of your initial risk.

Let's look at how 10 trades might be expressed as ratios of the initial risk. Here we have three losses $567, $1333, and $454. The average loss is $785.67, so we'll assume that this was the initial risk. Hopefully, you'll know the initial risk, so you won't have to use the average loss. I call the ratios that we calculate, the R-multiples for the trading system. This information is shown in the table below.

Position	Profit or Loss	R-multiple
1	$678	0.86R
2	$3456	4.40R
3	($567)	- 0.72R
4	$342	0.44R
5	$1234	1.57R
6	$888	1.13R
7	($1333)	-1.70R
8	($454)	-0.58R

When you have a complete R-multiple distribution for your trading system, there are a lot of things you can do with it. But we'll save that for next week's topic.

Van K. Tharp, Ph.D.
TradingEducation.com

The Why Wall Street Doesn't Know About Position Sizing

In the last two tips I've talked about the importance of position sizing. You've learned that:

1. The most important questions you can ask yourself (other than questions about your personal psychology) is what are my objectives and how can I use the "how much" variable to meet my objectives.
2. That position sizing accounts for most of the variability of performance between individuals
3. That many professionals call the "how much" variable asset allocation.

This week I'm going to be a little controversial because I'm going to put forth some rather bold statements.

First, it is possible with small amounts of money and a reasonable trading system to make outstanding rates of return (50-100% or more) through position sizing.

Second, if you have too much money, then you probably cannot achieve these sorts of goals because your activity moves markets.

Third, professionals either don't know this, or don't want to know this, because they have other rules to justify their performance.

Today there are still more mutual funds trading the market than there are stocks on the major exchanges. And the portfolio mangers who trade those mutual funds stress relative performance rather than absolute returns. Thus, they compare themselves to some index such as the S&P 500 and believe they have done well by outperforming that index.

Most mutual funds have to be at least 90% invested so that concepts like stops and position sizing don't mean much to them. Instead, their idea is to buy the major index that they are trying to outperform and by doing manipulations on their assets, try to outperform the market. Most of them cannot do it because of the fees they charge their clients.

However, most mutual funds want you to believe that what's important to success is picking the right stock. You are slammed with that concept on a regular basis by the financial media.

Asset allocation is also thought to be important. I've already shown you that asset allocation, when defined as how much (i.e. position sizing) accounted for 90% of the variability of performance on 82 pension fund managers over a 10 year period. But asset allocation doesn't sound like how much, does it? Instead, it sounds like "how do you select the best asset classes?" And that's what most professionals talk about.

I just looked at a significant book on the topic of asset allocation. The back of the book contained a quote from Jim Cramer (of CNBC fame) saying that this book was a very readable discussion of the most important topic of investment success. But was it? I don't think so because:

• The book did not define asset allocation
• The book had no mention of "how much" or "position sizing"
• Instead the book was a discussion of the potential risk and reward of various asset classes and the variable that might influence those classes in the future.

And I submit to you, based upon my findings that it is through position sizing that you meet your objectives and that position sizing accounts for 90% (or more) of performance variability, selecting the right assets has nothing to do with good performance. And Wall Street doesn't understand this.

In fact, here is a challenge. Give me the names of 10 of the so-called geniuses of Wall Street. My guess is that less than half of them understand the real importance of position sizing. Their success is due to other factors, and they are at risk of losing a lot of money in the future. But that's another story.

Dr. Van K Tharp
TradingEducation.com

On The Sidelines

Newport fighter to compete for title

Newport's Daniel Stewart is set to compete for the Full Contact Fighting Federation Heavyweight Championship Saturday, Jan. 26, against Daniel Krug at Rumble at the Roseland XXXIII in Portland.

Stewart defeated Derrick Russell on Dec. 15 by knockout in 21 seconds to win the Super Heavyweight Championship. Stewart relinquished that belt to fight for the Heavyweight Championship.

Tickets can be purchased at ticketswest.com or by phone at 800-992-TIXX. For more information and the complete fight card visit thefcff.com.

Crab feed planned in Newport

The Newport High School softball team will sponsor a crab feed in the high school's multipurpose room from 4:30 p.m. to 7 p.m. Friday, Feb. 1.

The menu will include one-half crab, donated by local crabbers and processors, a cup of Mo's famous clam chowder, coleslaw, Franz French Bread, dessert and coffee or a choice of Pepsi products.

The cost of the meal will be $7 per person or $22 for a family (immediate family).

Tickets may be purchased from any Newport High softball player, or at the door.

The crab feed is being held in conjunction with the Newport vs. Philomath girls' basketball games. This allows basketball fans to have dinner and then take in an evening of high school basketball.

For further information, contact Newport High School softball coach Mark Schiewe at 265-7382.

Swim team to hold can/bottle drive

The Newport High School swim team is holding a can and bottle drive from 11:30 a.m. to 3:30 p.m. on Sunday, Jan. 27. Drop off bottles and cans at a collection site at the entrance to Newport High School's west campus. The money raised will help pay expenses for the district swimming championships in Astoria on Feb. 8 and 9.

Cheer clinic

Taft High School cheerleaders will teach a youth cheer clinic from 9 a.m. to noon on Saturday, Feb. 2.

This clinic is for children in grades kindergarten through 8th grade. Check-in time is 8:30 a.m. to 9 a.m. The cost is $15 per participant.

Cheerleaders will teach chants, jumps, and a short dance. Participants will receive a free ticket to the Taft High School varsity basketball game, where they will have the opportunity to perform at half time at 7 p.m. on Tuesday, Feb. 5.

Pre-registration is not required. For further information, call Tonia Roberts at Taft High, 996-2115.

Fly fishers set meeting

The Central Coast Fly Fishers normally meet on the second Thursday of each month, however, to avoid conflicting with Valentine's Day, the group's February meeting has been moved to 6 p.m. to 8 p.m. Thursday, Feb. 7, upstairs at the Bayshore Club House in Waldport.

The group will watch fly tying, hold a short business meeting, swap fish stories (the good, the bad and the ugly), share fly fishing ideas, and set up for fly tying for the beginner. All those who have never tied a fly but would like to give it a try are invited to come and participate.

For additional information, contact President Alan Canfield, 563-6976.t