I’ve been very busy and if you don’t see a lot of posts coming through, that is why. This is temporary until the wave passes. The good thing is that I haven’t stopped trading. I’ve actually been pretty active this month, which is turning out to be quite a good one so far.
I’ve decided to post something from a guest writer. It’s original material specifically written for the Forex Project. Hope you enjoy.
The successful forex trader never loses sight of the big picture. There are hundreds if not thousands of factors that contribute to the strength or weakness of a given currency relative to any other and it is best to avoid getting bogged down in an attempt to wade through this endless swamp of variables. Keeping that in mind, there are certain issues that all forex traders should stay apprised of in order to make the most of their investments. If you make any trades at all involving the US dollar, you had better become a bit of a political junkie.
American politics can affect the dollar in dramatic ways. Every shift in US politics can affect exchange rates, from new legislation and big policy changes to seedy scandals and small shifts inpublic opinion. If you can learn to read the signs, then keeping an eye on the ever-changing political landscape can help you predict which way the dollar is headed. Acquaint yourself with the ins and outs of our government and its political process and you’ll not only become a better citizen, but you might soon be a much richer one as well.
- The never-ending election cycle: Learning to predict whether foreign investors will react positively or negatively to the periodic changes in our government is a difficult task, but gaining such foresight will be well rewarded. The relative suspicion of or confidence in any new administration can cause investors to buy the dollar in bunches or sell it as fast as they can.
- The popularity of the Oval Office: Foreign investors tend to show more confidence in a solid leader of the executive branch and often view a popular president as a strong president. Therefore, the rise and fall of the dollar often tends to be closely connected to the current US president’s rise and fall in the opinion polls.
- Consumer tax cuts: At least in theory, tax cuts or tax rebates should almost always have a bolstering affect on the dollar. Tax cuts are intended to fuel consumer spending and improve the economy, much to the benefit of the dollar. Troubles arise, however, when tax cuts coincide with government expansion and therefore increase the national deficit, a result that can ultimately weaken the dollar.
- Growing government: Speaking of government expansion, the dollar can be adversely affected by the addition of new government programs that draw funds from other allowances in the budget. The relatively recent creation of the Department of Homeland Security and the vast expansion of the Transportation Security Administration are timely examples of how this type of expansion can influence the dollar.
- Credit history: Part of what has kept the dollar so strong for so long has been the US government’s excellent record of not defaulting on its debts. The nation’s increasing deficit has been disturbing the dollar in foreign markets, and if US government’s credit begins to suffer, the dollar will surely head south.
- War: Terrorist attacks can impede economic growth by destroying consumer confidence and curtailing spending. War is expensive and leads to further debt, making foreign investors nervous about the increased risk of default. The dollar can be buoyed by victories and deflated by defeats, so the dollar will be in flux for as long as conflict continues.
Heather Johnson is a freelance finance and economics writer, as well as a regular contributor for CurrencyTrading.net, a site for currency trading and forex trading information. Heather welcomes comments and freelancing job inquiries at email@example.com
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
I'm alive and well, taking some time to feel out my next course of action. During this time, I'm trying to fill my head with as much knowledge as I can but as I approach my sophomore year of trading, I'm stumbling upon the same information. I remember being brand new in the first few weeks or months after I discovered Forex and finding the information overwhelming. There were just so many technical indicators, systems, books, and opinions on trading that I felt like I would never get a handle on it. Things have settled down since then and I think that I'm right in the middle of the most important lessons to learn. These lessons are the less literal ones and are only obtained from diving in to get that all important experience.
Currently I'm performing my trades by discretion and I'm finding that I'm just all over the map. I'll open my charts and start trying to analyze but I never really come to any conclusion on what I should do. I feel frozen when price movement does come and by the time I realize it, the price has shot up or down and I'm sitting there with my finger still on the trigger. For this reason, I'm going to try to develop a more systematic approach. This doesn't mean that I won't remain discretionary but I need to develop a more methodical approach to the market. I'm always experimenting with trading systems and there is one that I've been working on for a while that has some potential. Therefore I am going to start using it more with a combination of discretion. I think doing so will help me develop more discipline and will also help me develop price action experience. Since my system has certain criteria that must be met to enter a trade, if it isn't met, I will see more clearly why it wasn't.
In addition, I must start putting more precedence on post-analyzing my trades whether they were losing or winning. I have done this on and off during the past year but I must be more consistent. I'll find myself so busy after a winning or a losing trade that I'll just forget about it. Usually it's a losing trade so maybe I'm just so concerned with turning that losing feeling into a winning feeling that the past just doesn't seem important anymore. This couldn't be further from the truth so I'm going to try to force myself to evaluate every trade that I've made before I enter into any new trade. How am I ever going to learn from my mistakes if I'm always rushing to the next thing?
TIC data was released at 9 this morning and it was less than
forecasted. Net foreign purchases of long-term securities were
$69.8 billion. The forecast was for 80.2B. I thought that
this would have been bearish for the dollar but the dollar took off
after the release. I scratch my head sometimes and wonder why
what I thought would happen didn't. Either way, I don't care
which direction the price goes because I was waiting for a channel
break either up or down.
The dollar did well overnight and my
long USD/CAD position was up about 70 pips during European session
trading. Ahead of the NY session and the TIC report release,
some of the dollar gains were given back this morning. I had
moved up my stop this morning to 1.1143. I entered at
1.098. The USD/CAD actually hit the .250 fibonacci at 1.1175 and
then bounced off. This is where having multiple lots would have
helped. I was watching 3 fibonacci levels:
.250 = 1.1175 .382=1.1280 .500=1.1374
I had entered with 3 lots, I would have placed a stop order at the .250
for the 1st lot and held on to the other 2. This is all in
hindsight but something I thought about when entering this
position. Either way, when the prices started consolidating a bit
this morning, I was stopped out at 1.1143 for a profit of 45
pips. Should I have held on to the position longer? I don't
know. I didn't want to give back all the gains if the dollar
started to get pounded again. I figure I can go long again on a
break above the
The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced today that total March exports of$114.7 billion and imports of $176.7 billion resulted in a goods and services deficit of $62.0 billion, $3.6 billion less than the $65.6 billion in February, revised. March exports were $2.1 billion more than February exports of $112.5 billion. March imports were $1.5 billion less than February imports of $178.2 billion.
In the future, if you want this report "live", go to the following URL and just keep clicking refresh around 8:30 am EST:
For immediate release
The Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points to 5 percent.
Economic growth has been quite strong so far this year. The
Committee sees growth as likely to moderate to a more sustainable pace,
partly reflecting a gradual cooling of the housing market and the
lagged effects of increases in interest rates and energy prices.
As yet, the run-up in the prices of energy and other commodities
appears to have had only a modest effect on core inflation, ongoing
productivity gains have helped to hold the growth of unit labor costs
in check, and inflation expectations remain contained. Still, possible
increases in resource utilization, in combination with the elevated
prices of energy and other commodities, have the potential to add to
The Committee judges that some further policy firming may yet be
needed to address inflation risks but emphasizes that the extent and
timing of any such firming will depend importantly on the evolution of
the economic outlook as implied by incoming information. In any event,
the Committee will respond to changes in economic prospects as needed
to support the attainment of its objectives.
Voting for the FOMC monetary policy action were: Ben S. Bernanke,
Chairman; Timothy F. Geithner, Vice Chairman; Susan S. Bies; Jack
Guynn; Donald L. Kohn; Randall S.
Kroszner; Jeffrey M. Lacker; Mark W. Olson; Sandra Pianalto; Kevin M.
Warsh; and Janet L. Yellen.
In a related action, the Board of Governors unanimously approved a
25-basis-point increase in the discount rate to 6 percent. In taking
this action, the Board approved the requests submitted by the Boards of
Directors of the Federal Reserve Banks of Boston, New York,
Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis,
Minneapolis, Dallas, and San Francisco.
Check out my updated economic calendar. I have added some additional content based on information obtained from Rob Booker and Boris Schlossberg.
Some of you could not read this so I am attaching a JPEG image file:
I've been trying to keep on top of economic announcements because they are at the core of the Rob Booker channel trading strategy. I've created an Economic Announcement PDF with notes that were modified from material provided by Rob Booker.
According to the calendar, we can expect volatility in the market on Wednesday, Thursday, and Friday this week. Before then, traders may be sitting on their hands waiting for Bernanke's announcement on Wednesday afternoon.
As always, visit http://www.forexproject.com/Forex_Volume to view "Forex Volume"
CAD – No significant changes, VERY BULLISH
CHF – 22,373 less short positions, VERY BEARISH
GBP – Increase of 4,081 short positions, BEARISH
JPY – Increase of 14,161 short positions, BEARISH
EUR – Increase of 3,519 short positions, MIXED to slightly BULLISH
NZD – no significant changes, BULLISH
AUD – increase of 4,899 short positions, MIXED
Tomorrow, the trade balance report is released at 8:30 a.m. EST. It seems like traders are waiting until then to make a move and according to most experts, so should we.
Economic reports such as trade balance can provide some wild swings. Therefore it is wise to wait for the market to demonstrate the sentiment. What are the different phases of trading news?
1. The market will hesitate and form sideways action before the news is released
2. News is released
3. Market reacts
a. If the news is a surprise, the reaction is strong
b. If the news is not a surprise, the reaction will be tempered
You can see the sideways action before the 8:30 announcement.
We could have put 2 orders in, 1 above the upper channel line and 1 below the lower channel line.
1. Buy above 1.1980
2. Sell below 1.1955
Rules of Trading the News:
1. Let the move happen
2. Trade the Reaction
Look what happened at the 8:30 announcement last month:
Breaking above the upper channel, if you went long, you would have profited 40 pips. But what happens afterwards is even more unpredictable. Not only does the pair retrace back to the sideways channel, but it breaks down 60 pips below the lower channel. That is why you must be cognizant of the possibility of wide swings. In this case, if you weren’t greedy, some of the profit from the initial move would be retained.