10:1 Reward Risk
I was checking out HedgeStreet.com a little today to see what they have to offer. They're self described as the first Internet-based, government regulated
market where traders can hedge against or speculate on economic events
and price movements. Just like trading Forex, you can buy or sell contracts by placing bids and offers. The difference is that you trade based on certain events.
Here is a good example. Instead of buying the GBP/USD or selling the GBP/USD, you would answer the following question:
At 8:00 pm EST, will the EUR/USD be above 1.3400?
If you think it will, buy 20 contracts at their stated price of 9.00. If the EUR/USD is above 1.3400 at 8:00 EST, you profit $1820.00. If it isn't, you lose $180.00 (20 contracts x $9.00).
This is a 10:1 reward/risk, is it not?
Right now the EUR/USD is trading at 1.3235 so it would have to move up 165 pips and then close above 1.3400 after 8:00 pm EST. We do have the FOMC at 2:15 pm but I think 165 pips is asking a lot. In addition, just because you put the order in doesn't mean it is going to be filled. In order for the order to fill, another trader has to take the action the opposite way. If he takes your action, he stands to make only $180 for a risk of $1800.
I thought I'd throw this out there. It's hard enough trading forex by buying or selling at a given price but then also having to predict how much it will move in a predetermined time is even more difficult.
Popularity: 1% [?]
FOMC Day
I looked into the past at the price action 12-24 hours prior to an FOMC release and as expected, consolidation appears more times than not. What this means is that I could very well be sidelined until Thursday because I won't attempt to trade the FOMC tomorrow. Of course, I could change my mind if the GBP/USD continues its ascent.
I'm feeling good about sticking to the H-system even with the loss today. The first thing I did when I got home from work today was open up my charts to look for a possible filters that I may be able to incorporate. One such filter that looks promising is divergence between price and MACD. I've heard that in general divergence fails more than it succeeds but my experiences with it have shown that as long as you don't use it as a standalone system, it could be useful.
Popularity: 2% [?]
FOMC Preview
I found just what I was looking for in a preview of the FOMC meeting tomorrow. Being relatively inexperienced in macroeconomic events and their effects on currencies, I wanted someone to give me a general idea of what to expect tomorrow. I know that no one knows exactly what will happen but it helps to put everything in context if we know the possibilities.
According to Richard Lee, Currency Analyst at DailyFX, the 2 most likely scenarios are for Bernanke to:
- raise rates 1/4 point and keep the statement unchanged
- raise rates 1/4 point and continue bias to raise rate
In the event of #1, the outlook is initially dollar bearish because it keeps the market guessing and is generally what most traders are hoping for.
In the event of #2, this will signal that the Fed is committed to raising rates yet again in August thereby creating a dollar bullish situation.
Scenario #3 is of medium likelihood and is for the Fed to raise rates 1/4 point and shift to a neutral stance. This would be bearish for the dollar because the signal here would be that the Fed is done raising rates.
Scenario #4 and #5 are highly unlikely.
#4 is for Fed to raise rates a 1/2 point and move to a neutral stance. This would create a mixed reaction because of a higher than expected rate change but a signal that this would be the final rate increase.
#5 is for the Fed to raise rates a 1/2 point and maintain a hawkish bias. This is highly unlikely yet good to know in the event that it ever does happen. This event would obviously be quite bullish for the dollar.
Another thing of interest in this column are his positioning conclusions which could greatly affect my EUR/JPY position which as of now is still open. He states that if the Fed produces a dollar bullish scenario, the dollar rally would probably be most pronounced versus the NZD, GBP, and JPY. It would be least pronounced versus the EURO. If the Fed produces a dollar bearish scenario, the opposite would be true.
Read the complete article 25bp and then what?
Popularity: 3% [?]
Week 5 Forex Performance
I took a 3 day break from doing anything forex related over the Memorial Day Weekend. Sometimes 3 days isn't even enough time off from this craziness.
My Week 5 performance basically wiped out most of my gains from week 3 and week 4. I had 6 profitable trades, 6 unprofitable trades, and 1 scratch. I lost a total of 69 pips or $619.40. Eventually having a poor risk/reward will come back to bite you.
What am I going to change this week? Not much. I am going to try to let my profits run this week. I don't have much more to say right now about this. I just don't.
The newest Commitment of Traders report from Friday is processes and can be found at http://www.forexproject.com/Forex_Volume/
We have some economic announcement's this week that could be nice market movers, the FOMC meeting minutes released on Wednesday and the always interesting Nonfarm Employment change on Friday.
Popularity: 4% [?]
Top Market Moving Indicators
Like many Mondays, tomorrow probably won't be moved by the very latest economic release because there really aren't with 1 exception. At 9 a.m. tomorrow, the TIC report is released. This report measures demand for US assets and could be yet another nail in the dollar but I'll be watching just to see if this is a report that would move the market in the future. See Kathy Lien's study that puts TIC report at market mover #9 for first 20 minutes after release and #3 for the entire day.
I'm going to be releasing my Economic Release PDF again this week with comments. It looks like Wednesday (US CPI) and Thursday (Bernanke Speaks) are possible US session movers and there are a couple of other important non-US releases like the BOJ Interest Rate Statement on Friday (1 am EST.)
In much of my reading, I stumble upon useful bits of information. There was a study by Kathy Lien, an FXCM strategist, of the top market-moving economic indicators for the Dollar during the first 20 minutes following a release and for the rest of the day. These are ranked from highest average pip range and are only for the EUR/USD. Considering other pairs like the GBP/USD react more to these economic releases, the average pip range would be much higher.
First 20 minutes
- Unemployment (nonfarm payrolls) 124 p
- Interest rates(FOMC) 74 p
- Trade balance 64 p
- CPI 44 p
- Retail sales 43 p
- GDP 43 p
- Current account 43 p
- Durable Goods 39 p
- TIC data 33 p
Daily
- Unemployment 193 p
- Interest rates (FOMC) 140 p
- TIC data 132 p
- Trade balance 129 p
- Current account 127 p
- Durable goods 126 p
- Retail sales 125 p
- CPI 123 p
- GDP 110 p
It is interesting to note how the importance of economic reports actually changes over time. For instance, here is FX Dealer importance of Economic Data as of 1997 and as of 1992.
As of 1997
- Unemployment
- Interest rates
- Inflation
- Trade balance
- GDP
As of 1992
- Trade balance
- Interest rates
- Unemployment
- Inflation
- GDP
Popularity: 3% [?]
