For Professional Currency Traders

August 31, 2006

I just explored an ad on the front page of my site from FXCM regarding their new PropFX division.  It is supposedly for professional traders, has no dealing desk, no requotes, multiple competing rates from 10 banks, no fixed spreads yet no guaranteed fills on stops or limits.  I don't feel like I have either the resources or experience to explore this further.   You can though: 

PROPFX for Professional Traders  

It looks like from this new division, they are also looking for "Traders For Hire."   If you live in the New York City area like I do and have an interest in getting free education and the opportunity to trade FXCM capital, you may want to check it out.  It would seem like a great way to learn the currency market from the professional side of things.  On the downside though, it looks like you would have to financially support yourself until you get to a point where you can actually turn a profit for them, if ever.  

CLICK ON THE TRADERS FOR HIRE LINK from below: 

PROPFX Traders For Hire

Buy The Rumor, Sell The News Part II

August 31, 2006

I've been hearing a lot of the phrase, "Buy the rumor, sell the news." This Wall Street Proverb sounds intelligent and is freely thrown around forum posts everywhere but what is the real meaning of it all.

Often a rumor will circulate about some future news release.  Rumors can quickly start from anywhere such as news articles, forums, and just about any other communication media available. Let's take as an example the New Home Sales report released last week.  The consensus was for New Home Sales to come in at 1105K.

Here are a couple of headlines that could have affected your thoughts on the New Home Sales report:

"Horizon Gloomier for US Economy"

"Analysts Expect Home Sales to Drop by 10% This Year"

"New Home Sales Report Could Put Nail in Dollar Coffin" 

Before the report is released, you're being bombarded with speculative information that only deteriorates your view of the consensus which in this case was 1105K.  Traders acting on rumor start to fill their minds with random numbers typically less than the consensus.  

What Trader's May Be Thinking

"I see tons of for sale signs around my house but nothing under contract.  There's no way the number will come in at 1105K"

"1000K" 

"A real estate broker I talked to said houses are taking 5 months to sell now where last year it only took 4 weeks.  New Home Sales won't be 1105K.  I'm thinking it will be 900K"

"850K"

Before the news is actually released, traders are bidding against the USD based on these wild assumptions.  These rumors alone can beat down the USD.  But once the announcement is released, the facts rarely end up being as bad as the rumors.  Since all of the greatest possibilities have already been priced into the currency pair, the news actually causes the currency pair to "re-price itself" to the facts.  Last week, the actual New Home Sales was 1072K and the USD gained against most of the majors.  It gained because the worst possible news had already been priced in.

Divergence Chart

August 25, 2006

As most of you are aware, divergence can be a good predictor of future price.  I posted a couple of weeks ago the differences between the following types of divergences:

  1. Classic Bullish Divergence
  2. Classic Bearish Divergence
  3. Bearish Hidden Divergence
  4. Bullish Hidden Divergence  

For someone that hasn't been doing this for years and years, it isn't always easy for me to look at a chart and immediately see that a certain type of divergence is evident.  These 4 types of divergences have 4 totally different characteristics and I've been known to make a mistake identifying them.  Therefore, I have created a divergence identification chart PDF complete with charts.  It's only 2 pages and printed in landscape can really help a lot with spotting divergences.  Check it out. 

pdf Forex divergence 25/08/2006,14:53 90.84 Kb

Inside Day and Head & Shoulders

August 24, 2006

UPDATE: It looks like I won't be keeping my eye on this any longer.  The news out of Japan last night (CPI) was not favorable for the Yen as the chances of an interest rate hike later in the year decline.  

I haven't talked much about my trading because there really isn't much going on.  I've got my finger off the trigger and I'm being picky and somewhat cautious with my trades.  I'm up a big 3 pips this week, after making only 17 last week.  I'm not complaining because being up a little is much better than being down. 

I've been trying to study only 3 currency pairs, the GBP/USD, EUR/USD, and USD/JPY over 3 time frames, 60 minute, 240 minute, and Daily.  I just don't want to get overwhelmed by 12 different pairs and 8 different time periods.  It's just too much for a beginner.

I wanted to bring up a trade that I'm waiting on since this is a trading blog and there haven't been many posts in the way of charts lately.  Take a look at the daily chart for the USD/JPY first.

Yen head and shoulder

 

 

 

 

 

 
I've clearly marked the head and the two shoulders.  I'm waiting for a break below the neckline.  In addition, I've drawn 2 parallel lines at 116.83 and 115.90.  This is to indicate the high and low from Tuesday.  Since Tuesday's candle, we've had 2 inside days and another inside day is in the works for  now.  Ideally, I would look to take a short at the break of the low from Tuesday at 115.90 with the thoughts that another 400 pips move down could follow if the head and shoulder pattern holds true.  I'm not saying this will happen tomorrow but I'm keeping my eye on it.

Buy the Rumor, Sell The News

August 24, 2006

WHY DID WE SEE THE EURO/STERLING/YEN decline against the USD?

Here were the consensus figures and actual figures of the economic news reports this morning:

Durable Orders 

Consensus: -.8% Actual: -2.4%

Initial Claims

Consensus: 315K Actual: 313K

New Home Sales 

Consensus: 1105K Actual: 1072K

Looks bad for the USD, right? Wrong.

Here are some reasons stated by members of the Oanda forums:

  1. The bad numbers were expected therefore it was already priced into the market
  2. Fear
  3. Big longs have to take a profit and doing so during the news is a great time due to increased volatility
  4. No reason
  5. The "big guys" don't trade on impulse.  They need more complicated approvals, conference calls, board meetings, red tape, etc.
  6. It's August.  Expect the unexpected.  Wild moves in the summer that just don't make sense are commonplace for this time of the year

Other points:

  • A lower EUR/USD is needed to play the news tomorrow and now we have it.
  • The prior day gives a pretty good indicator of the rumor

So I don't know what is true or not but the simple fact that there ARE so many reasons for something that is expected not happening really puts the markets in perspective.

Occupy Your Time

August 24, 2006

Here is some brain food.  I thought this was interesting.  Supposedly, this IQ test is given during interviews in Japan:

http://www.robmathiowetz.com/  

Economic News Delayed

August 24, 2006

For those of you that are news trading or just interested in keeping up to the minute on any news developments, you know how hard it is to obtain it in real-time.   It isn't so hard if you have the money to subscribe to Bloomberg which will run you in the thousands per month. (http://about.bloomberg.com/contact/sales.html

Most of us don't have the luxury of doing so therefore the alternative is newsstrike.  Newsstrike uses TeamSpeak software to call out news in real-time though I've heard it lags by a couple of seconds.  TeamSpeak became popular in the Gaming world with games such as Medal of Honor where teams could speak to each other while they blew each other up.  The software requires you to configure a connection to Newsstrike with a username and password.  You can get these by subscribing to the service which is FREE at http://newsstrike.com/subscribe.shtml

Some of us again don't have the luxury of listening live to news while we are slaving away at our full-time jobs so another alternative is to go to the government website responsible for the news release and find the URL of the latest news release.  This requires you to constantly hit REFRESH on your browser until the newest release is actually posted.  I've found that sometimes it's within seconds and sometimes within minutes.  For instance, the US Census bureau handles the release of the Durable Goods report so you can go to the URL http://www.census.gov/indicator/www/m3/adv/index.htm and keep refreshing until you see this month's report was updated.

Yet another way of getting the news which is my preferred method when I'm not looking for real-time but looking for it quick, is to get it from Briefing.com.  I find that the news comes through in the same minute that it is released and if there are multiple reports released at a particular time, you can see them all on 1 page.  The calendar can be found at http://www.briefing.com/Investor/Public/MarketAnalysis/Calendars/EconomicCalendar.htm

These are the best ways I've found over the last year of getting economic report data as quick as possible.  If you know of any additional ways, please share.  

Trading the Forex Wave

August 23, 2006

In this months issue of Stocks & Commodities magazine, Raghee Horner writes an article called, "Trading the Forex Wave" which is very similar to her webinars and books.  I did learn some things from the article though which is why I'm mentioning it.  For one thing, I have to commend her for her consistency.  Never has she swayed from her method of trading.  In addition, she keeps everything pretty simple with a touch of technical analysis and discretion.

If you have not read anything from Raghee, I'll explain her main analysis tool which is "The Wave." The wave consists of three lines, the 34 EMA of the high price, the 34 EMA of the low price, and the 34 EMA of the close price.  "The Wave" in the following picture are the 3 pinkish colored lines:

Raghee Horner the Wave

 

 

 

 

This Wave is used primarily as a tool to see if the market is trending or heading sideways.   This article talk mostly about momentum so therefore, what we look for in the Wave are 3 lines that are pointing towards 3 o'clock if the chart was a clock.  In the above example, before the price breaks up at the end of the chart, the Wave shows that the market is sideways.  Raghee trades this in the following way.  

  1. She draws all of her trend lines first before trying to identify any chart pattern such as triangles, pennants, rectangles, wedges, flags, head & shoulders, or rounded tops/bottoms.  She states that drawing first will prevent you from forming a pattern that may be in your mind.  "Look hard enough at the clouds and you'll see a bunny; look hard enough at the charts with a specific pattern in mind and the pattern will appear."
  2. She will then wait for the price to break the upper wave line.  She may go long once the price breaks above this upper wave line but in the above example, there is a trend line that cuts down through the wave.  Therefore, she would wait until the price breaks this trendline.
  3. Once the price breaks the trendline or the upper wave line if no trend line exists, she will then reference the MACD histogram.  She uses this as her confirmation tool.  If the histogram is above 0, she will take the long trade.  If it is below 0, she would not.  She would not wait for the candle to close since she uses the MACD histogram to confirm that the pattern has been pierced.

Here are a couple of other points she makes.

There are 4 market cycles at any given time: 

  1. Accumulation (consolidation)
  2. Distribution (congestion)
  3. Mark up (uptrend)
  4. Mark down (downtrend) 
  • Congestion and consolidation patterns should only be used in sideways markets
  • Exit positions based on significant support or resistance levels

Stop Hunting Strategy

August 22, 2006

Stop hunting is the art of flushing the losing players out of the market and is very common in the FX market.  Large speculative players such as investment banks, hedge funds and money center banks are largely responsible.  Many FX traders claim that brokers are responsible also, creating price spikes that are short-lived and aimed at taking your money.  You can read more about this by another blogger at http://www.forexforays.com/2006/05/so-whats-stop-hunting-exactly.html

For this reason, you should seriously consider placing your stops at "less crowded and more unusual locations." (Boris Schlossberg) 

In a recent article by Schlossberg, he mentions a strategy to take advantage of stop hunting.  It requires a price chart and 1 indicator.  For example, if the price of the EUR/USD is approaching 1.2800 downward, mark lines 15 pips on each side of 1.2800 at 1.2815 and 1.2785.   This 30 pip area is known as the "trade zone."  1.2800 is used as the stop hunting level since these round numbers are where speculators will try to target stops.  The idea here is to quickly ride the momentum for a quick profit.  If you determine with your indicator of choice which direction momentum is going or which direction the trend is going, you would want to trade in this direction.  For this example, let's say that momentum is down and the price is below a moving average.  You would short the EUR/USD at 1.2815 with at least 2 lots with a stop at 1.2830 and an initial target of 1.2800.  If the price continues down and hits 1.2800, close 1 lot.  Set the target of the second lot at 1.2785.  At this point, you have already made 15 pips so your risk now is 0.  If the price continues down to 1.2785, you have made 30 pips on the second lot and 15 pips on the first for a total profit of 45 pips.  If the price did not continue down to 1.2785 and instead retreated back above 1.2815, you would have neither gained nor lost.  

I'm using the above example because it is actually happening as I write this.  The EUR/USD closed at 1.2837 at 7 am this morning on a 15 minute chart.  The 7:45 am candle would have given you an an entry at 1.2815.  By 9:00 am, your first lot would have closed at a 15 pip profit.  Since then the price has made it to within 8 pips of your second target but is now retreating back to the 1.2815 level.  Most likely, you will be stopped out on your second lot for a total P/L of 0.

You can read the full article at http://www.investopedia.com/articles/forex/06/StopHunting.asp  

17 Pips Last Week

August 21, 2006

I have not been posting regularly because I just haven't had the time.  I've said this many times before but this is only temporary and I have not lost my dedication to trading. 

Last week, I only made 1 trade and profited 17 pips.  It's not much but I've been using a new system that has been in the works for a year that pretty much kept me out of the market.  I really don't want to get into much detail about it because I don't know how it will turn out and I'm still trying to see what works and what doesn't.  It's really nothing new; it incorporates moving averages, MACD, RSI, the Ichimoku Cloud, and 3 time frames (60-minute, 240-minute, Daily)  I don't use the Ichimoku as it was designed.  I just use the Cloud.  This is not a system that generates automated signals for me.  It is a lot more discretionary.

So I'll continue to use this going forward and see if I can develop some sense of consistency.  I'll try to come around my blog more regularly as I feel bad when it's neglected.  I hope everyone is doing well. 

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