Items Tagged With price

Thanks to Forex2stay for the following comments.  Visit his blog at http://forex2stay.blogspot.com/

I do think it's possible, but I believe money mangement is the key. This needs to be a marathon not a sprint. One thing I've realized is that you can't use the same lot sizes for all of your trades. For example on one trade you might be risking 30 pips and another 20 pips. So if you trade 4 lots on both of them (standard account) you'd be risking $1,200 on one trade and $800 on the other. That's not good money management and it can get you a person in trouble.Here's what I do.....

When I position trade (4hr and daily charts), I won't trade unless I have a 2:1 risk reward ratio. I figure out the proper stop loss for my trade, based on TA. So for this example say that's 40 pips. I then make sure based on TA that I'm comfortable getting at least 80 - 120 pips profit. Once i'm comfortable I put my information into the following formula.

S=(E*R) / (P-X)

S = Size of Trade
E = Account size (Cash)
R = Maximum Risk percentage per trade
P = entry price on the trade
X = pre-determined stop loss or exit price

So let's put in some numbers.....

My account size $10, 000
Entry price on EUR/USD 1.2600
Currently I'll risk 3% of my account on a trade
My pre-determined SL is 1.2560

So how many shares of EUR can we buy with our money management rules??

S=($10,000 * 3%) / (1.2600 - 1.2560)
S = $300 / .40
S= 75,000

Anyway this is the way I do it. I hope it helps...

Forex2stay

The news from the Latin American continent, meanwhile, is good. Mexico recorded increased industrial production while the Brazilian real touched 5-year highs. Argentina’s economy expanded at the fastest in 13 years. Soaring exports and rising consumer spending were the reasons for this. The nation’s economy expanded 9.1 percent in the fourth quarter compared to the same period a year ago.

At the same time inflation for the period doubled to 12.3 percent. Argentina is South America’s second-largest economy. The government is expected to cut spending and freeze wage increases so as to curb inflation. Multinational companies in the country are also being urged to stop price increases.

China, which holds the world’s largest foreign currency reserves, US$853.7 billion, will soon raise the limit on the amount of foreign exchange permitted to be held by businesses and citizens, according to Wu Xiaoling, a deputy central bank governor. The bank has proposed that the Chinese government change its policy on currency reserves. As of now, the public and business units are required to sell most of the foreign exchange they earn abroad to the government, besides being allowed to take only a small amount out of the country. Taipei Times reports:

China is under pressure from the US and other trading partners to ease controls that they say keep the country's currency, the yuan, undervalued and give an unfair price advantage to Chinese exporters at the expense of foreign competitors.

I wanted to do a study on my own between the EUR/USD and interest rate differentials so I gathered all historical interest rate data from 1/1/1999 to present.  What I found was that there was no correlation between the actual differential and the price of the currency pair.  What I did find was the following:

We are in the third cycle of price changes.  What I mean by this is that there was an extended period where the USD gained versus the EURO (Cycle #1) and then an extended period where the EURO gained versus the USD (Cycle #2).  Currently there has been another extended period where the USD has gained versus the EURO (Cycle #3)

Here are my estimates of cycle length:

Cycle #1 - 01/1999 - 05/2001   BULLISH USD (29 months)
Cycle #2 - 05/2001 - 12/2004   BEARISH USD (43 months)
Cycle #3 - 12/2004 - present    BULLISH USD (16 months +)

I found that the most defining point regarding the change of cycle was that it happened right after the interest rate differential between the EURO and USD hit 0%.

Here are the periods of time when the differential hit 0.00%:

5/11/2001
11/10/2004 

As you can see, there is a correlation between the differential being 0% and the change of cycle.  Unfortunately we have limited data since the EURO has only been in existence for the last 7 years or so.

If I was to use this information to predict the future direction of this currency pair, I would have to predict that the USD will remain BULLISH for quite some time to come.  Seeing that the interest rate differential currently is 2.50% and the fact that the Fed may increase rates 2 more times, I cannot foresee this differential decreasing anytime soon.   

I don't know if this study is B.S. or not.  There are many other economic factors that can affect currency prices and I didn't take any of these into consideration such as the US Account Deficit or the Eurozone's slower GDP growth.  In addition, with Iran switching to EURO's for payment of oil, there are other things in play that make it more difficult to predict the future. 

 EUR/USD Interest Rate Diff- Excel (20.50 KB 06.03.2006 11:32) 

An observation from Learn::Forex that may pique your interest.

Euro/JPY has our attention…

Why? 

Notice on a Daily chart we are attempting to push up into the zone of 145.00 although the momentum is clearly beginning to fall off. This is again confirmed with the 120 minute chart as well. This combine with the resistance area we are looking for a short opportunity anywhere from current price up to a retest of the 144.80/145.00 zone. Targets on the short side are 143.00 and if we get a clear break of 143.00 we could have a second target of 142.00. We would look to place a stop up above the 145.00 level.