The Best Investment Advice You Will Never Get

Back in 2004, as Google’s IPO was approaching, investment advisors from major financial institutions were circling Google Headquarters to be the first to offer their investment schemes to hundreds of young employees who would soon become millionaires.  Google hired well known financial professionals to give workshops to their employees to educate them before allowing the vulture’s access.  These financial professionals, such as John Bogle (Vanguard), Burton Malkiel, and Bill Sharpe gave surprising advice.  "Don’t try to beat the market." Invest in mutual fund indexes.  

There’s an article in San Fran Magazine that reports on this story and about the exorbitant fees that managed mutual funds charge which could cost you 50% of what you would have made in a 36-year period.  The best investment advice is to put your money in a low-fee index fund, thereby maximizing your return.  The article is about two years old but definitely worth the read.

The best investment advice you’ll never get

I Have No Problems Opening a Position On Sunday

A couple of weeks ago I started a poll that asked the question, "Which is the first day of week you would consider opening a position?" I am a bit more hesitant opening a position on the first forex trading day of the week than others but if a setup meets my criteria on Sunday, I’ll pull the trigger.   It was no surprise that there were no votes for Wednesday, Thursday, or Friday.  33% voted for Sunday, 46% for Monday, and 20% for Tuesday.   I mentioned when I announced the poll that "from my experience specifically with the GBP/USD… I think the pair moves a lot less on Sunday and Monday compared to the rest of the week.  This may have to do with the fact that there are less economic news releases on these days."  

According to Babypips.com, the best days of the week to trade are Tuesday and Wednesday.  The criteria for determining the "best" is simply that these two days have the widest pip range of all of the other days.  That’s a good enough criteria for me since volatility is what I look for most in my momentum trades.  

Some user comments were:

• I don’t trade on Mondays. I normally use that day to sense the "mood of the market". Then I may consider placing a position on Tuesday or Wednesday.  Also, I try not to trade the day after any major public holidays.
• Research has shown, with regards to forex, that trading days falling between Sunday afternoon forward to Saturday evening are perilous.  (I guess this means that trading any day of the week is perilous or a grave risk)
• It does seem a slightly strange question because if a currency pair is heavily overbought or oversold, I’ll take a position regardless of what day of the week it is.  The more important point, in my opinion, is when important economic data announcements are scheduled. For example, even if there’s a potentially good position to be taken, I will hold off if an important economic data announcement is scheduled in the near future.

Determining the best day of the week or first day of the week you will open a position all depends on the currency pair, the time frame, economic announcements, and most importantly, your own personal experiences of the market.  To a new forex trader, a particular day of the week may seem no different from the others but as you watch the forex market more and more, you should be able to "sense the mood of the market."

Most Visited Forex Websites Back After Two Weeks Off

 

 

 

 

Forex On Top was updated today after I skipped a week of updates.  Therefore there are a lot of changes in the rankings.

The Next Stage In Forex Trading

I want to thank Sam for submitting these questions and giving me something to write about.   I’ve been writing this blog for so long now that sometimes I get writer’s block.  I always welcome and appreciate everyone’s emails and comments so keep them coming.

What do you think will propel you from the stage you are at now to someone who is successfully trading on a full-time basis?

Time and proof.  Proof will take time and will answer the ultimate question, can I make a consistent return month in and month out. I’ve been through the learning cycles of a Forex trader (See Post) and I think I’m somewhere in between stages four and five. 

1. Stage 1 – Unconscious Incompetence
2. Stage 2 – Conscious Incompetence
3. Stage 3 – The Eureka Moment
4. Stage 4 – Conscious Competence
5. Stage 5 – Unconscious Competence

Do you think you have to change how you do things now?

I really can’t see myself doing things much different than I am now.  I’ve come a long way over the last 3 years and even further in the last 4 months.   On the contrary, if I think that I need to change how I do things, I would.  I’m not close-minded and I’m constantly learning so if I stumble upon something new, I’m not going to toss it away.  Having said that, I’m a true believer that keeping things simple is the way to go.  

Will you be successful when you’re less busy with all the trading related things you’re doing? Or do you feel that it’s all going to ultimately lead you to success?

I don’t think so.   I need to stay busy, it’s keeps me motivated.  I do believe though that if I didn’t have a full-time job, it’s possible that I’d be more successful because it would give me more time to pursue other trading-related activities, trading strategies, etc. 

At what point would all that you’re doing be too much or I guess I should say too overwhelming? Is there a certain stop-loss for that?

I think it would become too overwhelming if I came to the realization that I’m not cutting it as a trader.  I need a goal and if I feel like I’m not making any progress at accomplishing that goal, I couldn’t continue.  As long as I feel like this goal is still attainable, I don’t think I’ll be overwhelmed to the point where I’d give up. 

Forex License Plate

 

 

 

 

 

 

 

Want one? 

Picture from Rob Booker’s blog Piptopia. 

The Latest Forex Broker Financial Situation

The December 31st, 2007 FCM report was released from the CFTC and processed on http://www.brokerontop.com today.   Some notable mid-cap Forex brokers who remain in financial shape based on Excess Net Capital are:

1. Oanda’s excess net capital decreased 1.85% from the previous month to 149 million dollars.
2. FXCM’s excess net capital decreased marginally from the previous month to 61 million dollars.
3. Gain Capital (Forex.com) excess net capital decreased almost 2% from the previous month to just over 44 million dollars.

1. Interbank FX excess net capital decreased by over 40% from the previous month to 15.7 million dollars.
2. FX Solutions excess net capital decreased by 49% from the previous month to 13 million dollars.

6 Ways That US Politics Can Affect The Dollar

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.

1. 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.
2. 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.
3. 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.
4. 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.
5. 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.
6. 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 heatherjohnson2323@gmail.com

January 2008 Forex Trading Contest Winners

I realized today that I never announced the winners of the "no-prize" trading contest that concluded at the end of January.  16 traders participated, 7 were profitable, 9 were not.  The total return for all profitable traders was 70.28% compared to a total loss of 255.85% for the 9 losing traders.  Before I announce the top 5 traders, let me define two terms that will be used in the recap and in the trading results on Oanda’s contest page:

Maximum Drawdown: The maximum drawdown of the contestant. The period over which the drawdown is calculated is delimited by the times when contest statistics are computed.

Sharpe ratio: This is often regarded as a measure of risk to reward and attempts to quantify how much risk a user assumes to make their gains. This is measured as the ratio of the average interest free return as compared to the standard deviation of the interest free return. Return periods are delimited by the times when contest statistics are computed.

1. Elskid had a return of 23.74% with a very respectable maximum drawdown of -1.60%.  
2. Davor Babic was close behind the #1 with a return of 21.20% but with a higher maximum drawdown than any other profitable trader at -10.18%.
3. RotcaX had a return of 11.80% and a low maximum drawdown of -1.63%.
4. Forex Project (me) had a return of 6.86% with a maximum drawdown of -4.00%.
5. Uri had a return of 5.37% with a maximum drawdown of -6.16%.   

Congratulations to the winners.  Sorry there were no prizes to make it a little more eventful…

Rate Cuts, the Economy, and the Buck

The February 2008 issue of Currency Trader Magazine was released today.  Highlights include:

•  Understanding the Fed’s Goal
•  The Economy : Thinking through the "R" word
•  Aussie Dollar Trend Analysis
•  The Dollar and Mutual Funds
•  Fundamentals Lead the Chart

Which is the First Day of the Week You Would Consider Opening a Position?

By request from a visitor, I added a poll titled, "Which is the first day of the week you would consider opening a position?" Personally, when trading forex, I have no discrimination against any day of the week.  From my experience specifically with the GBP/USD though, I think the pair moves a lot less on Sunday and Monday compared to the rest of the week.  This may have to do with the fact that there are less economic news releases on these days.  I’m just guessing here… 

If you have an idea for a poll, send me an email at rich@forexproject.com.  To see a list of all current polls, go to Forex Polls. 

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