quarta-feira, 30 de abril de 2008

Non-Farm Payroll Reports as a Major Forex Indicator

The Unemployment Report, also referred to as the Non-Farm Payroll (NFP) Reports, is a major indicator of a country's economic health, and one of the most anticipated economic reports for investors in all markets, including the Forex.

The Unemployment Report may be released at different times for different countries, so make sure to know when this information comes out for whatever nations your currency pair is from. In the United States the Non-Farm Payroll Report is released on the first Friday of every month by the U.S Bureau of Labor Statistics, and often times will affect at least the short term action in the Forex market in regards to the U.S. Dollar.

This report, in the United States, includes roughly 80% of the paid workers in the country and excludes government, farm, and non-profit employees. This report is used as one of the biggest measuring sticks for a country's overall economic health, which logically will affect its currency strength and thus affect the Forex market.

That part is true of any country's non-farm payroll report, is that it is one of the biggest indicators of a nation's overall economic health and will almost always have an impact on investment and trading markets.

The Unemployment/Non-Farm Payroll Report is one of the major five economic reports for each country that traders jump on, the other four being interest rates, consumer price index, trade balance, and retail sales.

Even among all these, the unemployment report often gets the strongest attention, and is considered one of the most accurate economic indicators of a country's overall economic health, which makes sense. The more people who are working, the more currency you have being made and spent in a nation's economy.

You'll want to know when the reports are released. For example, if you are trading the US Dollar and Euro, then you'll need to know that the United States and European Union release different economic indicators on different days, meaning the unemployment report for the United States may come on a different day than the reports from the European Union. If you want to get the maximum information for this currency pair, then you'll want to know the information for both.

The same idea applies to the Japanese Yen, or any currency you're trading. You want to know when all the reports become available so you can stay on top of the current financial news and end up a Forex winner!

terça-feira, 29 de abril de 2008

Reverse Phone Lookup Service

Reverse Phone Lookups !! You now have the resource to track any phone call you receive, get information about the owner of that number, and determine whether it was a call you needed to take, or if it was just another telemarketer trying to waste your time. National Call Registry, visit this web site. This is a great alternative.

The Potential Market Of Day Trading Basic

An individual wishing to trade in currencies does not need a huge amount of money to invest. You can trade from anywhere in the world that has an Internet connection, as many financial bookmakers now have online dealing platforms. Historically, stock trading has been the domain of professional traders.

Some Facts You Should Know In Day Trading:

1. The more faith there is in the trend line, the better it acts as a support for you.
2. According to the day trading system, when there is no good trade opportunity, the day trader makes a pass and stays in cash for that day.
3. The longer the stock stays at a particular level; the better is the day trading signal of support.
4. Day trading stock picks are chosen based on a set of strategies or methodologies, of which the most important are technical analysis, trend analysis, relative strength ranking, fractals and volumes, chart formations, and algorithms.
5. This is an ideal investment opportunity for the investor with a small amount of cash.

Some Benefits Of Day Trading:

1. One advantage of day trading is that you do not need to invest a lot of money to make profits.
2. First of all, it is a safer way for people who do not have a lot of know-how in stock trading; therefore, they can easily follow their stocks during the day and sell them off as soon as they see a rise in the value.
3. Stock market day trading is a great means of making money with a little of gambling.
4. Secondly, day trading allows for lesser speculation as the trader may not see a lot of variation in the values during a span of a day.

Some Tips For Day Trading:

1. The secret of stock market day trading, or any trading for that matter, is to always buy stocks low to sell high.
2. One point to remember in stock market day trading is that there is a limit on the gains from a single share.
3. Be conservative, and do not let the position take control of your account.
4. Day trader should not believe advertising claims, which promise quick and sure profits from day trading.
5. The key with trading is to give yourself a chance, and you really don't with traditional day trading.

The Forex Trading;

Day trading, despite differences in times zones throughout the world, is also popular because the forex market remains open 24 hours a day. Forex Trading generates a volatility of 500 versus 60 to 100 in liquid stocks, and there are no transaction fees or commissions in the trading of currencies. There are many forex-trading companies that can train you for day trading so that your transactions are not reduced to gambling.

Trading Software:

Recognizing good trading software is an easy task, as the basic requirement is that of a data provider which will help you analyze the market before you start online trading. Many traders and investors rely too much on software's used for these purposes, but you do not get a true picture of the market just by using these software's, as there are many factors which constitute a stock market and some of them can only be assessed through skill and experience.

Some Trading Media:

1. While there are many day traders who do their trading using only the computer, there are others who trade using telephone and mobile phones.
2. Computers are the best medium for all kinds of trading, but particularly for day trading.

Day Traders Should Be:

1. Day traders are more particular with buying and selling not the bottom line.
2. In day trading, the trader does not hold stocks until the next day; instead dispose it off by the end of the day.
3. A person is considered a day trader when they can accomplish four or more day trades in a five business day period and has two unmet day trade calls in 90 days.

segunda-feira, 28 de abril de 2008

Forex Trade: Main Drawbacks of a Forex Trader

Why is it that very few traders succeed in the Forex trading environment while the grand majority of traders fail to achieve success? Although there is no hard answer to this question, there are a few things that will put you one step ahead and will definitely put the odds in your favor.

The main purpose of this article is to guide you through some important aspects of Forex trading. But in a different way, instead of telling you what to do or the best way to do it, it will tell you what to avoid. Sometimes it is better to identify the main drawbacks on a discipline and then isolate them so we have the best results at a certain level of development.

The search for the Holy Grail

Many traders spend years and years trying to find the Holy Grail of trading. That magic indicator or set of indicators, only known by a few traders, that will make them rich in a short period of time.

Fact: Well, there is no magic indicator, nor a set of indicators that will make anyone rich in a short period of time. The main reason of this is because market changes, every single moment is unique. Every Forex trading system will fail from time to time. Our work here is to find a Forex trading system that fits our personality as traders, otherwise the trader will find it hard to follow it.

Looking for Easy Money

Unfortunately most traders are attracted to the Forex market for this reason. Mainly because of the publicity showing or rather trying to show how easy is to trade and make money in the Forex market.

Fact: Yes, it is very easy to trade, anyone can do it. It is as hard as one click. But the second part of it isn't that easy. Making money or achieving consistent profitable results is hard. It requires lots of education, patience, discipline, commitment, and this list could go to infinite. In a few words, it is possible to have consistent profitable results, but definitely it is not easy.

Looking for Excitement

Some other traders are attracted to the Forex market or any other financial market because they think it is exciting to be a trader.

Fact: Yes, it is very exciting to trade the Forex market. But if this is the main reason you are still trading the Forex market, sooner or later you will discover the most expensive adventure you have ever known. Do some thinking on it.

Not Using Money Management.

Most traders forget about this important aspect of trading. They think they shouldn't be using money management until they achieve consistent profitable results. They totally forget about the risk side of trading.

Fact: Money management allows your profits to increase geometrically, but also limits your risk on every single trade. Money management tells you how much to risk on each trade. Using money management is a must if you want to achieve your trading goals. By using money management you make sure you are going to be able to trade tomorrow, the next week, month and the following years.

Not Being Psychology Tuned

This is one of the most underestimated subjects when it comes to trading. One of the main principles of financial markets is that the price of each instrument is based on the perception of each individual participant "the crowd." In other words the price of each instrument is determined by the fear, greed, ego and hope of all traders.

Fact: Being aware of all psychological issues that affect the decisions made by traders will definitely put the odds in your favor.

Lack of Education

Education is the base of knowledge on every discipline. As lawyers and doctors require several years of college until they get their degree, Forex traders also require long years of study. It is better to have someone experienced to guide you through your trading, since some information could take you in the wrong path.

Fact: The market teaches us invaluable lessons on every single trade made. The process of education for a Forex trader could take for ever. That's right, we never stop learning. We should be humble about the markets and our knowledge; otherwise the market will prove us wrong.

These are some of the most important barriers every trader faces when trying to trade successfully.

Trading successfully the Forex markets is no easy task, it requires a lot of hard work to do it right, but with the right education, you will put yourself closer to your trading goals.

by Raul Lopez

Forex Money Management by FX Master

Money management is a critical point that shows difference between winners and losers. It was proved that if 100 traders start trading using a system with 60% winning odds, only 5 traders will be in profit at the end of the year. In spite of the 60% winning odds 95% of traders will lose because of their poor money management. Money management is the most significant part of any trading system. Most of traders don't understand how important it is.

It's important to understand the concept of money management and understand the difference between it and trading decisions. Money management represents the amount of money you are going to put on one trade and the risk your going to accept for this trade.

There are different money management strategies. They all aim at preserving your balance from high risk exposure.

First of all, you should understand the following term Core equity
Core equity = Starting balance - Amount in open positions.

If you have a balance of 10,000$ and you enter a trade with 1,000$ then your core equity is 9,000$. If you enter another 1,000$ trade,your core equity will be 8,000$

It's important to understand what's meant by core equity since your money management will depend on this equity.

We will explain here one model of money management that has proved high anual return and limited risk. The standard account that we will be discussing is 100,000$ account with 20:1 leverage . Anyway,you can adapt this strategy to fit smaller or bigger trading accounts.

Money management strategy

Your risk per a trade should never exceed 3% per trade. It's better to adjust your risk to 1% or 2%
We prefer a risk of 1% but if you are confident in your trading system then you can lever your risk up to 3%

1% risk of a 100,000$ account = 1,000$

You should adjust your stop loss so that you never lose more than 1,000$ per a single trade.

If you are a short term trader and you place your stop loss 50 pips below/above your entry point .
50 pips = 1,000$
1 pips = 20$

The size of your trade should be adjusted so that you risk 20$/pip. With 20:1 leverage,your trade size will be 200,000$

If the trade is stopped, you will lose 1,000$ which is 1% of your balance.

This trade will require 10,000$ = 10% of your balance.

If you are a long term trader and you place your stop loss 200 pips below/above your entry point.
200 pips = 1,000$
1 pip = 5$

The size of your trade should be adjusted so that you risk 5$/pip. With 20:1 leverage, your trade size will be 50,000$

If the trade is stopped, you will lose 1,000$ which is 1% of your balance.

This trade will require 2,500$ = 2.5% of your balance.

This's just an example. Your trading balance and leverage provided by your broker may differ from this formula. The most important is to stick to the 1% risk rule. Never risk too much in one trade. It's a fatal mistake when a trader lose 2 or 3 trades in a row, then he will be confident that his next trade will be winning and he may add more money to this trade. This's how you can blow up your account in a short time! A disciplined trader should never let his emotions and greed control his decisions.


Trading one currnecy pair will generate few entry signals. It would be better to diversify your trades between several currencies. If you have 100,000$ balance and you have open position with 10,000$ then your core equity is 90,000$. If you want to enter a second position then you should calculate 1% risk of your core equity not of your starting balance!. Itmeans that the second trade risk should never be more than 900$. If you want to enter a 3rd position and your core equity is 80,000$ then the risk per 3rd trade should not exceed 800$

It's important that you diversify your prders between currencies that have low correlation.

For example, If you have long EUR/USD then you shouldn't long GBP/USD since they have high correlation. If you have long EUR/USD and GBP/USD positions and risking 3% per trade then your risk is 6% since the trades will tend to end in same direction.

If you want to trade both EUR/USD and GBP/USD and your standard position size from your money management is 10,000$ (1% risk rule) then you can trade 5,000$ EUR/USD and 5,000$ GBP/USD. In this way,you will be risking 0.5% on each position.

The Martingale and anti-martingale strategy

It's very important to understand these 2 strategies.

-Martingale rule = increasing your risk when losing !

This's a startegy adopted by gamblers which claims that you should increase the size of you trades when losing. It's applied in gambling in the following way Bet 10$,if you lose bet 20$,if you lose bet 40$,if you lose bet 80$,if you lose bet 160$..etc

This strategy assumes that after 4 or 5 losing trades,your chance to win is bigger so you should add more money to recover your loss! The truth is that the odds are same in spite of your previous loss! If you have 5 losses in a row ,still your odds for 6th bet 50:50! The same fatal mistake can be made by some novice traders. For example,if a trader started with a abalance of 10,000$ and after 4 losing trades (each is 1,000$) his balance is 6000$. The trader will think that he has higher chances of winning the 5th trade then he will increase ths size of his position 4 times to recover his loss. If he lose,his balance will be 2,000$!! He will never recover from 2,000$ to his startiing balance 10,000$. A disciplined trader should never use such gambling method unless he wants to lose his money in a short time.

-Anti-martingale rule = increase your risk when winning& decrease your risk when losing

It means that the trader should adjust the size of his positions according to his new gains or losses.
Example: Trader A starts with a balance of 10,000$. His standard trade size is 1,000$
After 6 months,his balance is 15,000$. He should adjust his trade size to 1,500$

Trader B starts with 10,000$.His standard trade size is 1,000$
After 6 months his balance is 8,000$. He should adjust his trade size to 800$

High return strategy

This strategy is for traders looking for higher return and still preserving their starting balance.

According to your money management rules,you should be risking 1% of you balance. If you start with 10,000$ and your trade size is 1,000$ (Risk 1%) After 1 year,your balance is 15,000$. Now you have your initial balance + 5,000$ profit. You can increase your potential profit by risking more from this profit while restricting your initial balance risk to 1%. For example,you can calcualte your trade in the following pattern:

1% risk 10,000$ (initial balance)+ 5% of 5,000$ (profit)

In this way,you will have more potential for higher returns and on the same time you are still risking 1% of your initial deposit.

domingo, 27 de abril de 2008

Cross-rates, pips, figure

Cross rate and pip - are two of the main terms in Forex market.

Cross-rate is when two currencies are equal which follows from their Forex currency exchange rate according to a Forex rate of the third currency. Pairs of non-US dollar currencies are called "crosses." It's possible to withdraw cross exchange rates for the GPB, EUR, JPY and CHF from the mentioned above major pairs. Exchange rates must be firm in all currencies , otherwise it will be possible to "return trip" and make unrisky benefits.


Assume that the following major exchange rates are known:
EUR/USD = 1.0060/65
GBP/USD = 1.5847/52
USD/JPY = 120.25/30
USD/CHF = 1.4554/59

To calculate GPB/CHF
GBP/USD: Bid: 1.5847 Offer: 1.5852
USD/CHF: 1.4554 1.4559
GBP/USD X USD/CHF = 1.5847 X1.4554 1.5852 X 1.4559

"Pips" is a point, or a minimal currency change. Various instruments, or so-called currency pairs, are quoted with various accuracy, or with different number of characters in their quotations. Most currencies are quoted with the accuracy of 0.0001, but some of them such as yen and its cross-rates - with the accuracy of 0.01. Usually Quotations are given in contracted form because big figures of quotations change quite slowly. It looks like this: EUR 10/15, which means, UR/USD 1.1310/1.1315. When quotations change, for instance, USDJPY=121.44 to USDJPY = 121.45 or GBPUSD = 1.6262 to 1.6263 it means that that the price has changed by 1 point. In the previous examples dollar raised by 1 point comparatively to yen which decreased by 1 point, and pound also raised by 1 point.

The value of one point in US dollars differs both for different currencies and for the same currency with various quotations. The amount of the deal also influences the value of one point. On the whole, the scheme for calculating the value of one point of the currency in US dollars can be demonstrated like this: Value of the point = Amount of deal * Point. This scheme lets you get the results in the quoted currency. If you want to calculate the value of one point back from the quoted currency to US dollars, you should divide the result by ASK (Offer) rate of the quoted currency against US dollars in case if the quoted currency has direct rate, or to multiply by BID rate of the quoted currency against US dollar if the quoted currency has reverse rate.

For example:
There's a position USD 200000, on the market of USDJPY
Accordingly, value of one point = 200000 * 0.01 = JPY 2000
If now the current rate is USDJPY 118.62/68, then value of one point in USD will be 2000/118.68 = USD 16.85
There's a position EUR 300000, on the market of EURGBP
Accordingly, value of one point = 300000 * 0.0001 = GBP 30
If now the current rate is GBPUSD 1.6101/07, then value of one point in USD will be 30*1.6101= USD 48.30
There's a position GBP 100000 on the market of GBPUSD
Accordingly, value of one point = 100000 * 0.0001 = USD 30

Another term is "figure". The scheme mentioned below will demonstrate the connection between pips and figures.

Currencies are quoted using four positions after the decimal point, which means that one pip is 1/10,000 of the currency unit. There is a difference of four pips between "buy" and "sell" in this above example (EUR/USD) but there is no difference in the figures' value.

Here the Japanese yen is not the currency which is quoted. The yen is quoted only two positions after the decimal point because of the high denomination of the yen against the USD, for example, 121.23 - 121.39. So one pip = 1/100 of the Japanese currency unit. If you phone the dealer, he or she will tell you only the values of the pips, being sure that you know both the market situation and the value of the figures. If you are not it's better to figure it out.

sábado, 26 de abril de 2008

Some Day Trading Ideas You Must Learn

Day trading is a style wherein traders either sell all long positions are sold or cover short positions at the end of the trading day. There are many markets for day trading and some of these are currency, stocks, futures and commodities. For simplicity, we associate trading with purchasing a commodity, bringing it home or to our business premises, and then selling it.

Some Facts You Should Know About Day Trading:

1. In day trading, different shares are bound to undergo different resistance and support levels.
2. Day trading systems utilize objective and mechanical criteria to choose the different trades of the market.
3. The day trading signals are the signals acquired when stocks bounce off of support levels or sometimes even off resistance, if required.
4. The stronger faith there is in the trend line, the better it acts as a support for you.
5. Day trading stock picks are selected based on a set of strategies or methodologies, of which the most important are technical analysis, trend analysis, relative strength ranking, fractals and volumes, chart formations, and algorithms.

Some Benefits Of Day Trading:

1. The main advantage of day trading is that one's stock positions are not held beyond the current trading day.
2. Another benefits of day trading is that since the positions are closed at the end of the trading day, any sudden news of events doesn't affect the opening prices of trading.
3. One of the benefits of day trading is that since the positions are closed at the end of the trading day, any sudden news of events doesn't affect the opening prices of trading.
4. It is a safer way for people who do not have a lot of know-how in stock trading; therefore, they can easily follow their stocks during the day and sell them off as soon as they see a rise in the value.

Some Tips For Day Trading:

1. Follow the day trading system rules and standards by remembering the number of open positions.
2. If you plan to invest your money in day trading, see to it you do not put in all your hard earned savings in one go, as this might prove to be quite dangerous for you.
3. According to the day trading system, it is a necessity to always be aware of the share movement and to not make wild decisions based on a margin call from a broker.
4. Do not trust advertising claims that promise fast and guaranteed profits from day trading.
5. You have to work with an experienced day trader, need to learn latest techniques, use latest stock market investment software, subscribe to on-line day trading tutorial and need to devise your own trading plan.

Trading Software:

A number of traders and investors rely too much on software's used for these purposes, but you do not get a true picture of the market just by using these software's, as there are many factors which constitute a stock market and some of them can only be assessed through skills and experience. Trading softwares are not only important but necessary to survive in today's competitive market.

sexta-feira, 25 de abril de 2008

Cashing In On Discounted Loans

When looking for sources of credit in this tight credit market, you might want to take a look at discount payday loans. These types of loans are set up for people who may not be able to get credit under other conventional means either due to bad credit or other factors. You do want to read the loan information provided by the lender that you choose, as the terms can differ across lenders.

Generally, the cash advance (as it is sometimes called) is provided upon verifying employment. Initial loans, for new borrowers, can be discounted payday loans in that they waive the $30 fee associated with the loan. Your credit history will not be checked. The initial loans are sometimes limited to smaller amounts like $300. After you understand the process, you can take out loans for a greater amount, however, it will still be a small loan of up to $600. These types of loans are perfect for emergencies like broken refrigerators and unforeseen medical expenses. They are not recommended for continuous use and there are even limits to how many loans you can withdraw in a year, in some cases.

The loan information given in your agreement will specify repayment terms. Ideally, you should repay the payday loan on the first paycheck cycle after you're taken the loan. This will keep fees down to a minimum. You can then get another loan later, after you're repaid the first. There may be limits on the number of loans you can withdraw in one year. If you want to get another free cash advance (no fee), then some programs will allow you to refer other people to the service and offer you a free loan for the referral. This is another way you can tap discounted loans for future use

How to Win the Forex Battle

Every trading activity is in fact participating in a battle. Winning the battle is a matter of knowledge, skill and experience. If you miss any of those you are going to join the long line of losers. Some says that 95 to 99 percent of the traders are lining up on the loser’s side.

How to win the battle in the currency market? It is easy to answer that question, based on the above approach – prepare yourself for the battle. If you treat currency market activity as a hobby you’ll ultimately lose all investments there. If you treat it as a business you still may loose everything.

The correct approach is: consider each pressing of the Buy/Sell button as entering a battlefield. If you enter it without having a knowledge, skill and experience on how to win, you are destined to fail. You may have some lucky trades in the beginning, though. That, by the way, is the worst case scenario for the rookie in trading.

The earlier you get your “bad” lessons, the better for your overall experience. No mater how good you consider yourself prepared, after demo trading lessons, you have no idea of the forces ruling on the real market.

In fact the worst enemy you are going to face in the very beginning is not hiding behind the walls of the global currency trading centers. Your most dangerous foe is hiding deep inside of you. That enemy is so powerful that you will be amazed how quickly it will wash away all your carefully considered decision.

No one has been able to evade the force of that destructive power. No one can understand or realize that force unless it has been confronted face to face. Start trading with real money and you will face it too. Fear, Greed or Hope are some of the names of that power.

Fear forces you to sell near the bottom and buy near the top. Greed forces you to get out of the market prematurely. Hope will keep in the trade until you loose everything. Fear may save you but hope may wreck you completely. Greed will never make you rich.

It is easy to give advice to trade without emotions and use the logic, only. How you can achieve that if you never have been there. You need to go through that turmoil, pick up your loses due to your emotional decisions and than analyze.

Study all your “bad” trades, because they are the most precious gifts on the way to proficiency in trading. Growing as an experienced trader is possible only after getting your losses in the beginning. Then sit down and carefully study the lessons they brought to you.

One thing traders never want to do is to admit of being wrong. The market is a constantly changing and it demands flexibility in taking decision. That implies monitoring and constantly adjusting, changing your decision and action. When your logical analyzes suggest that you are wrong – get out, quickly.

Once you overcome the emotions, concentrate on developing your signature way of trading. You can start with following different advisors and system and picking from them the things you like. Demo trade and test your ideas until you find the trade system which is matching completely your personality.

Now, you have to go back to emotion in a controlled way. Every time your system suggests a trade look inside you and see how you feel about this trade. You feel bad – discard it. If you feel good – keep it.

Here comes the final step: Looking for the final approval sign before submitting the trade. Here is the time, where the mastership shows up. Your weapon is loaded, the target is clearly seen on the visor and the finger is on the trigger. You have to make that final exhale, get the target over the cross point and shoot it.

How much knowledge, skill, experience and patience you need to build within in order to reach that very final stage of trading proficiency? Only you’ll know that and only you can do it. The rest is just numbers in your bank account.

Building a fortune by trading currency is not a mirage in the desert of live. There are hundreds of trade

quinta-feira, 24 de abril de 2008

Forex Options Market Overview

The forex options market started as an over-the-counter (OTC) financial vehicle for large banks, financial institutions and large international corporations to hedge against foreign currency exposure. Like the forex spot market, the forex options market is considered an "interbank" market. However, with the plethora of real-time financial data and forex option trading software available to most investors through the internet, today's forex option market now includes an increasingly large number of individuals and corporations who are speculating and/or hedging foreign currency exposure via telephone or online forex trading platforms.

Forex option trading has emerged as an alternative investment vehicle for many traders and investors. As an investment tool, forex option trading provides both large and small investors with greater flexibility when determining the appropriate forex trading and hedging strategies to implement.

Most forex options trading is conducted via telephone as there are only a few forex brokers offering online forex option trading platforms.

Forex Option Defined - A forex option is a financial currency contract giving the forex option buyer the right, but not the obligation, to purchase or sell a specific forex spot contract (the underlying) at a specific price (the strike price) on or before a specific date (the expiration date). The amount the forex option buyer pays to the forex option seller for the forex option contract rights is called the forex option "premium."

The Forex Option Buyer - The buyer, or holder, of a foreign currency option has the choice to either sell the foreign currency option contract prior to expiration, or he or she can choose to hold the foreign currency options contract until expiration and exercise his or her right to take a position in the underlying spot foreign currency. The act of exercising the foreign currency option and taking the subsequent underlying position in the foreign currency spot market is known as "assignment" or being "assigned" a spot position.

The only initial financial obligation of the foreign currency option buyer is to pay the premium to the seller up front when the foreign currency option is initially purchased. Once the premium is paid, the foreign currency option holder has no other financial obligation (no margin is required) until the foreign currency option is either offset or expires.

On the expiration date, the call buyer can exercise his or her right to buy the underlying foreign currency spot position at the foreign currency option's strike price, and a put holder can exercise his or her right to sell the underlying foreign currency spot position at the foreign currency option's strike price. Most foreign currency options are not exercised by the buyer, but instead are offset in the market before expiration.

Foreign currency options expires worthless if, at the time the foreign currency option expires, the strike price is "out-of-the-money." In simplest terms, a foreign currency option is "out-of-the-money" if the underlying foreign currency spot price is lower than a foreign currency call option's strike price, or the underlying foreign currency spot price is higher than a put option's strike price. Once a foreign currency option has expired worthless, the foreign currency option contract itself expires and neither the buyer nor the seller have any further obligation to the other party.

The Forex Option Seller - The foreign currency option seller may also be called the "writer" or "grantor" of a foreign currency option contract. The seller of a foreign currency option is contractually obligated to take the opposite underlying foreign currency spot position if the buyer exercises his right. In return for the premium paid by the buyer, the seller assumes the risk of taking a possible adverse position at a later point in time in the foreign currency spot market.

Initially, the foreign currency option seller collects the premium paid by the foreign currency option buyer (the buyer's funds will immediately be transferred into the seller's foreign currency trading account). The foreign currency option seller must have the funds in his or her account to cover the initial margin requirement. If the markets move in a favorable direction for the seller, the seller will not have to post any more funds for his foreign currency options other than the initial margin requirement. However, if the markets move in an unfavorable direction for the foreign currency options seller, the seller may have to post additional funds to his or her foreign currency trading account to keep the balance in the foreign currency trading account above the maintenance margin requirement.

Just like the buyer, the foreign currency option seller has the choice to either offset (buy back) the foreign currency option contract in the options market prior to expiration, or the seller can choose to hold the foreign currency option contract until expiration. If the foreign currency options seller holds the contract until expiration, one of two scenarios will occur: (1) the seller will take the opposite underlying foreign currency spot position if the buyer exercises the option or (2) the seller will simply let the foreign currency option expire worthless (keeping the entire premium) if the strike price is out-of-the-money.

Please note that "puts" and "calls" are separate foreign currency options contracts and are NOT the opposite side of the same transaction. For every put buyer there is a put seller, and for every call buyer there is a call seller. The foreign currency options buyer pays a premium to the foreign currency options seller in every option transaction.

Forex Call Option - A foreign exchange call option gives the foreign exchange options buyer the right, but not the obligation, to purchase a specific foreign exchange spot contract (the underlying) at a specific price (the strike price) on or before a specific date (the expiration date). The amount the foreign exchange option buyer pays to the foreign exchange option seller for the foreign exchange option contract rights is called the option "premium."

Please note that "puts" and "calls" are separate foreign exchange options contracts and are NOT the opposite side of the same transaction. For every foreign exchange put buyer there is a foreign exchange put seller, and for every foreign exchange call buyer there is a foreign exchange call seller. The foreign exchange options buyer pays a premium to the foreign exchange options seller in every option transaction.

The Forex Put Option - A foreign exchange put option gives the foreign exchange options buyer the right, but not the obligation, to sell a specific foreign exchange spot contract (the underlying) at a specific price (the strike price) on or before a specific date (the expiration date). The amount the foreign exchange option buyer pays to the foreign exchange option seller for the foreign exchange option contract rights is called the option "premium."

Please note that "puts" and "calls" are separate foreign exchange options contracts and are NOT the opposite side of the same transaction. For every foreign exchange put buyer there is a foreign exchange put seller, and for every foreign exchange call buyer there is a foreign exchange call seller. The foreign exchange options buyer pays a premium to the foreign exchange options seller in every option transaction.

Plain Vanilla Forex Options - Plain vanilla options generally refer to standard put and call option contracts traded through an exchange (however, in the case of forex option trading, plain vanilla options would refer to the standard, generic forex option contracts that are traded through an over-the-counter (OTC) forex options dealer or clearinghouse). In simplest terms, vanilla forex options would be defined as the buying or selling of a standard forex call option contract or a forex put option contract.

Exotic Forex Options - To understand what makes an exotic forex option "exotic," you must first understand what makes a forex option "non-vanilla." Plain vanilla forex options have a definitive expiration structure, payout structure and payout amount. Exotic forex option contracts may have a change in one or all of the above features of a vanilla forex option. It is important to note that exotic options, since they are often tailored to a specific's investor's needs by an exotic forex options broker, are generally not very liquid, if at all.

Intrinsic & Extrinsic Value - The price of an FX option is calculated into two separate parts, the intrinsic value and the extrinsic (time) value.

The intrinsic value of an FX option is defined as the difference between the strike price and the underlying FX spot contract rate (American Style Options) or the FX forward rate (European Style Options). The intrinsic value represents the actual value of the FX option if exercised. Please note that the intrinsic value must be zero (0) or above - if an FX option has no intrinsic value, then the FX option is simply referred to as having no (or zero) intrinsic value (the intrinsic value is never represented as a negative number). An FX option with no intrinsic value is considered "out-of-the-money," an FX option having intrinsic value is considered "in-the-money," and an FX option with a strike price at, or very close to, the underlying FX spot rate is considered "at-the-money."

The extrinsic value of an FX option is commonly referred to as the "time" value and is defined as the value of an FX option beyond the intrinsic value. A number of factors contribute to the calculation of the extrinsic value including, but not limited to, the volatility of the two spot currencies involved, the time left until expiration, the riskless interest rate of both currencies, the spot price of both currencies and the strike price of the FX option. It is important to note that the extrinsic value of FX options erodes as its expiration nears. An FX option with 60 days left to expiration will be worth more than the same FX option that has only 30 days left to expiration. Because there is more time for the underlying FX spot price to possibly move in a favorable direction, FX options sellers demand (and FX options buyers are willing to pay) a larger premium for the extra amount of time.

Volatility - Volatility is considered the most important factor when pricing forex options and it measures movements in the price of the underlying. High volatility increases the probability that the forex option could expire in-the-money and increases the risk to the forex option seller who, in turn, can demand a larger premium. An increase in volatility causes an increase in the price of both call and put options.

Delta - The delta of a forex option is defined as the change in price of a forex option relative to a change in the underlying forex spot rate. A change in a forex option's delta can be influenced by a change in the underlying forex spot rate, a change in volatility, a change in the riskless interest rate of the underlying spot currencies or simply by the passage of time (nearing of the expiration date).

The delta must always be calculated in a range of zero to one (0-1.0). Generally, the delta of a deep out-of-the-money forex option will be closer to zero, the delta of an at-the-money forex option will be near .5 (the probability of exercise is near 50%) and the delta of deep in-the-money forex options will be closer to 1.0. In simplest terms, the closer a forex option's strike price is relative to the underlying spot forex rate, the higher the delta because it is more sensitive to a change in the underlying rate.

Relative Strength Index and Its Failure-Swing Points

J. Willes Wilder Jr. explains the relative strength index (RSI) in great detail in his book, “New Concepts in Technical Trading Systems“. Over the years, chartists and technicians alike have written volumes about the RSI, which has been categorized as an overbought/oversold indicator. In this article I am going to follow the writing of Wilder and his theory of RSI as it applies to a high-profile issue in both the United States and Canada.

For those who are not familiar with the relative strength index, it is an oscillator, and its values move between 100 and 0. The number of days in a given time period where the stock price is up is compared to the number of days the price is down. Wilder uses 14 days in his studies and this number of trading sessions is still commonly used today. The well-known formula for RSI is as follows:


RS = Average of x days’ up closes / Average of x days’ down closes

Increasing values will be shown with a sharp rising line, moving above the 50 and rising toward 100. Conversely, falling values will see the same line falling toward the 0 value. When the RSI value rises above the 70 value, technicians consider the issue to be overbought. When the RSI value sinks below the 30 value, the issue is thought to be oversold.

Even one step further is the failure swing, a term that Wilder uses to refer to “very strong indications of a market reversal”. Wilder uses failure swings to confirm his buy and sell points, and in the two figures below you can see that failure-swing points clearly do just that.


In the left figure, entitled “Failure Swing: Top”, the high tops out at slightly above the 70 level and then falls off to about 60, which is known as the fail point. Rising again, the RSI value falls short of the 70 mark and thus results in a failure swing, and, as the value then reaches the fail point again, it is known as the failure-swing point, and the sell trigger is pulled. “Failure Swing: Bottom” shows us the exact opposite as the low of 30 is not exceeded after a fail point is established at about the 40 mark. The failure-swing point is established and the buy signal is in place at or about the 40 value.

With that little bit of a background lessen taken care of, let’s have a look at a chart of the Royal Bank of Canada (RY-NYSE) from the period of Jul 31, 2001, to Apr 21 2003.


With the help of the ellipses you can see that on Sept 21, 2001, the RSI value was 20.62 at the close of the trading day, and the Royal Bank’s stock price finished the session at $27.97, which gives an RSI value of 20.62 - this is well below the magical number of 30. Fast forward to Feb 6, 2002, and the RSI value is 30.11 with the stock price at $29.58. Given the perfect vision of hindsight, we can see an investor entering the market at these levels would have been paid quite handsomely over a relatively short period of time; however, let’s take a look at the third set of ellipses, at the $36.20 level on Apr 19, 2002, when the RSI value sat at 78.81.

Is it time to sell? Is the Royal Bank of Canada overbought at the 70 level? Maybe, but then again maybe not. Let’s have a closer look. On Apr 19, 2002, the issue peaked out at 78.81, the highest RSI value in over 12 months, and the stock price closed at $36.20, a fairly large move from the level of about $28.00, which occurred back in late Sept 2001. This is not bad for a big bank that already pays a respectable dividend. To the question of selling, the answer would have been “yes”. Those who hit the sell button that day as the RSI value passed through the 70 level would have had their reaction confirmed later the next week when the high established on the 19th was not exceeded, and thus the failure swing resulted, whereby the sell point appeared again at the $35.50 level on May 3. (See the blue in the chart arrow)

042203_chart2small.gif 042203_chart3small.gif

In the third chart, July 26 is the date of failure swing confirmation as the low set on the 24th was not exceeded, and the stock price headed north one more time. One needs to understand that an issue can continue to fall off the table even after the value drops below 30; furthermore, investors need to confirm that the issue is strong enough to turn the corner and increase in price instead of continuing to lose stock value.

The key to successful trading when using the relative strength index is recognizing failure-swings points. In simpler terms, some have described a failure swing as purely a confirmation of the impending reversal in trend. Another point of interest is the move above and below the centerline of 50. Many technicians will look at a move above 50 as a representation of average gains surpassing average losses and thus of a bullish sentiment in the stock price. Conversely a level below 50 signals a bearish market as average losses have overtaken the average gains.

In the future, as you look very closely at the relative strength index, and before make a trading decision, be sure you recognize the failure-swing points and confirm the potential breakout.

By Investopedia Staff

quarta-feira, 23 de abril de 2008

Forex Channel Breakouts - Riding a Tsunami of Profits

Forex channel breakouts occur anytime that a price, either going high or low, breaks one of the set lines of a channel that is developed through technical analysis.

A channel occurs when two lines are made to show the range of a current market. This can be done whether the market is in trend or in counter-trend. One line represents the high of a current channel, while the bottom line represents the low. The channel is found through technical analysis.

Any time the price of a currency pair rises above the top line, that is an upwards channel break. When the price of a currency pair drops below the bottom line of a channel, that is a downward channel break, also sometimes referred to as a "breakdown" as opposed to a "breakout." The channel breakout in a Forex market can happen either up or down, just as long as it escapes the channel created by your technical analysis.

Not every break in the line becomes a full blown breakout. There are often times when a price may temporarily just break one of the lines, then retreat back into the channel. These are called "false breaks" or "false breakouts."

These can be frustrating because a lot of money can be made in the Forex market off of being in early on a major breakout, so false breakouts tend to get the hopes up before dashing them again, but this is all part of trading Forex. Being on the right side of a true channel breakout is worth all the false alarms you might find along the way.

Besides, if you use your stops correctly, a fake channel breakout shouldn't cost you much, and it may even lead to a very slight profit. It's certainly worth the risk because when you hit the right side of a Forex channel breakout, the profits in some extreme cases can even be hundreds of pips.

A true Forex channel breakout that takes off however, can provide fantastic profits, and is a major reason why technical analysis is used in the market: to try and determine when these channel breakouts are going to occur and to get in the market early can bring good profits.

Channel breakouts can often lead to the forming of another channel, so constant analysis should take place even as the market is in the middle of a breakout in either direction. If you are riding the price up, a trailing stop can be a good idea since reversals can happen rapidly, and sometimes seemingly without warning.

terça-feira, 22 de abril de 2008

Cut Your Losses and Let Your Profits

Did you know that many successful traders win less than 50% of their trades? Yes, top traders know that they can be VERY successful winning only 40% of the time.

¡°How can that be?¡± you ask. Simple, really. They are truly following the old adage of ¡°Cut Your Losses and Let Your Profits Run.¡± Let¡¯s see how this might actually work.

Suppose you had a stock pick, and it hit your stop loss at 98% of your entry price, which gives you a loss. You pick another stock, and again, it hits your stop loss, for another 2% ding to your account. Third time¡¯s the charm, and your stock pick gains 15% before falling back and triggering your trailing stop at 10% above your entry price. In other words, you made 10%.

In this example, you had two losers and one winner for a win/loss percentage of 33%, yet you are ahead by about 6%. You let your profits run and cut your losses short.

It is not easy having more losers than winners, because you can easily find yourself with 5, 10 or even a string of 20 losses in a row. But those numbers are deceptive, because each loss will be fairly small.

Think of it in terms of baseball. A player can have only a fair lifetime batting average and still be a great player if he hits a home run when he finally does connect with the ball.

It takes confidence in yourself as a trader to work a stock trading system that only wins less than half the time. It¡¯s not easy to be wrong most of the time. But that is why the market rewards such a strategy so highly, if it is done right.

In other words, don¡¯t dismiss a system out of hand because it has more losers than winners. As long as the average win is significantly larger than the average loss, you can be very successful with such a system in the long run.

So keep this in mind as you are searching around for the right strategy for you. Many small losses and a few big winners can be much more profitable then a lot of little winners and a few large losses that take it all back and then some.

segunda-feira, 21 de abril de 2008

Forex Market Issues and Risks

The Dollar climbed to a seven-week peak against the Yen and moved further away from a record low versus the Euro on Friday after Citigroup's results sparked hope that the worst of the credit crisis has passed. Lately, troubles at US financial firms have been triggered by weakness in the housing market, but Citigroup's earnings have tempered worries about the sector and boosted risk appetite, supporting Dollar. Citigroup, the largest US bank, posted a quarterly loss of $5.1bio and pretax write-downs of $6bio. Shares in the company rose as investors were appeased by efforts being made to get past its credit problems and drive down costs.

On Friday, EurUsd fell 0.57% on Friday at 1.5815 after posting intraday low 1.5712, its steepest decline in nearly three weeks, well away from a record peak of 1.5983 hit earlier in the week and posting. UsdJpy rose 1.27% to 103.68, after reaching its strongest since late February at 104.65. UsdChf rose to a five-week high at 1.0285 and last traded at 1.0183, up 1.26%, posting its largest daily increase since April 1. GbpUsd rose 0.35% to 1.9977.

Despite the Dollar's gains, analysts cautioned that although US bank earnings this quarter have not been as good as some had expected, there are still indications the credit crisis is far from over. The Euro got a brief boost on remarks by European Central Bank Governing Council member Klaus Liebscher. He said no room exists to cut euro zone interest rates, adding that he is not ruling out tightening in the region. The euro has jumped 8.4% to the Dollar this year on the view European interest rates will stay put at 4% until later this year. The Federal Reserve, on the other hand, is seen cutting rates further from the current 2.25%. More US cuts would help keep euro zone rates significantly above those in the United States, keeping the Euro's yield appeal intact.

Analysts said the market was taking a breather ahead of 1.6000 and market participants said Euro selling would likely be short-lived, as ongoing inflation pressures will prompt the ECB to hold rates at 4% at least through Q3.

Advanced Currency Markets - Forex Issues and Risks

Today Key Issues:

  • 07:15 CHF March Producer Import Price 0.3% vs 0.2% (MoM)
  • 07:15 CHF March Producer Import Price 3.5% vs 3.6% (YoY)
  • 12:30 USD March National Activity Index previous -1.04
  • 12:30 Securities Canadians CAD$ -0.13B previous
  • 12:30 Securities Foreign CAD$ 0.92B previous

The Risk Today:

EurUsd Euro posted a new all time high at 1.5983 last week. Medium term trading range is set between 1.5800 - 1.6000. Strong support hold 1.5528 (23.6% retracement of 1.4311-1.5904 advance). Psychological 1.5000 level marks strong key support before 1.4500 pivot point. Initial resistance hold 1.6000 key level ahead of 1.6200 market target. Initial support hold 1.5511 April 3rd low. Minor resistance holds 1.5957 Friday high.

GbpUsd Cable recovered over 1.9800 last week ending a one month downtrend. Further strength may open the way toward 2.0000 psychological level. Confirmation over 2.0100 major pivot point would set Cable free for more uptrend. Actual trading range is 1.9800 - 2.0000. Renewed pressure below 1.9800 may open the way down to 1.9337 January low and 1.9105 (50% retracement of 1.7049 - 2.1162 advance).

UsdJpy Last week, Dollar strength push up UsdJpy over 102 and open the way up to 105, then 110.10 strong (Trendline) resistance and mid January double top ahead of 111.92 early January high. Fail to overtop 105 will bring back weakness in 100 - 103 consolidation trading range. Minor support holds 102.95 early April high.

UsdChf Market still remains weak below 1.0200. It is currently looking for direction with an ongoing triangle chart figure. Below 1.0000; strong support holds 0.9639 17th March low. Over 1.0000: uptrend would only return with a confirmation over 1.0200 resistances. Early January double top 1.1191 marks strong resistance

1.6200 2.0577 111.92 1.0500
1.6000 2.0447 110.10 1.0285
1.5979 2.0100 105.00 1.0200
1.5810 1.9960 104.00 1.0180
1.5528 1.9650 102.95 1.0000
1.5400 1.9337 100.00 0.9639
1.5000 1.9105 95.74 0.9500
S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot


Disclaimer: This report has been prepared by AC Markets (thereof ACM) and is solely been published for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any currency or any other financial instrument. Views expressed in this report may be subject to change without prior notice and may differ or be contrary to opinions expressed by Salesperson or Traders of ACM at any given time. ACM is under no obligation to update or keep current the information herein, the report should not be regarded by recipients as a substitute for the exercise of their own judgment.

domingo, 20 de abril de 2008

Deadly Forex Mistakes That Assure Failure

Before venturing into your trading journey there are some things you need to be aware of, otherwise you could succeed on your trading adventure, and we don't want that to happen, do we? This Forex training guide will help you track the most costly mistakes Forex traders do.

First of all, make sure you don't have a trading system. Having a trading system might increase the odds of your success. If you have a system, you will have an objective way to get in and out the market. When traders create their trading systems they think objectively since there is no position to be taken at the moment. If there is no position to be taken, there is also no money at risk, if there is no money at risk, we do think objectively and are open to every possibility, thus we are able to find low risk trading opportunities. So make sure you don't have a system and trade based on a randomly approach.

If you have already created your system, then don't follow it, be undisciplined. If you follow your system, there is a possibility that you can profit from the Forex market based on the trading opportunities you have found. If you want to fail on your trading, be sure to be undisciplined.

Don't get educated. Most successful traders are very well educated in the market they trade (stocks, Forex, futures, etc.) If you get educated, you might acquire the knowledge and experience you require to master the Forex market. Don't read about the Forex market, don't enroll into Forex training programs and don't even look at historical charts.

Don't use any money management technique. The purpose of money management is to avoid the risk of ruin, but at the same time it helps you boost your profits, allowing them to grow geometrically. For instance, by using no money management techniques, there is a possibility that in loosing 10 trades in a row you could empty your trading account. On the other hand, by applying simple money management techniques you can avoid it. So make sure, if you want to fail, don't even consider money management.

Forget about psychological issues. You need to get every trade to win. Successful traders know that they don't need to win every trade in order to profit from the market. This is one characteristic that is hard to understand and really apply. Why? Because we are taught, since kids, that any number below 70% is a bad number. In the Forex trading environment, this is not true.

Don't even consider using a Risk-reward (RR) ratio greater than 1-1. If you use a RR ratio of 1-2 (willing to make twice the amount risked in one trade) then you only need a system that is right around 50% to make money. If you use a RR ratio of 1-3 (willing to make three times the amount risked in one trade) then you will need a system that is right around 40% of the time to make money. So make sure to use a RR ratio below 1-1.

By applying every point outlined in this Forex training guide, you will almost assure your failure in your Forex trading journey. Do the opposite, and you will have the possibility to achieve what every trader is looking for: consistent profitable results.

sábado, 19 de abril de 2008

Shorting Stocks Strategy

Shorting a stock is the exact opposite of buying a stock. When you short a stock you are hedging your bets that the stock will go down in price unlike when you buy a stock and believe the price will go up. In order to short a stock you must have a margin account with your brokerage firm. In addition you also have to short individual stocks on an up tick but can short the Exchange Traded Funds (ETF’s) on a down tick. Thus as an investor you have more of an advantage shorting the ETF’s than individual stocks.

Many investors try and short a stock way to early as they believe the stock price is way overvalued. However many times a stock that is overvalued in price may become even more overvalued especially when the stock market is in an extended upward move. The proper time to short a stock is after it has encountered its first strong downward thrust and bounced for a short period of time which sets the stage for a second move to the downside.

Lets look at an example. NTES which made a huge move in 2003 eventually peaked in October of 2003 and then made its first strong downward thrust (points A to B). Notice how NTES then found support near its 200 Day EMA (purple line) and 50% Retracement Level near the $40 level. After finding support near the $40 level NTES then rallied on below normal volume but encountered resistance at its 100 Day EMA (green line) and 38.2% Retracement Level near $48 (point C). This set the stage for a second short opportunity as NTES began to stall out near the $48 level. In this example NTES could have been shorted around the $48 level with a Stop Loss Order placed just above the $50 level just in case NTES broke to the upside instead. During the month of December NTES fell from $48 to $35 a share but did find support just above its 61.8% Retracement Level which was near $34 (point D). Thus investors could have covered their short positions at one of two prices with the first at the 200 Day EMA near $40 and the second near the 61.8% Retracement around the $34.

Thus I believe the best time to short a stock is to wait for it to bounce after it makes its first major thrust downward, after going through an extended upward move, and then try and catch the second move downward. When looking for stocks to short make sure they are exhibiting these three characteristics.

1. The stock has already undergone one significant move downward after making a top.
2. The stock then finds support at a certain Fibonacci Retracement Level or Moving Average and rallies on poor volume.
3. The stock then stalls out near its 38.2%, 50% or 61.8% Fibonacci Retracement Level or Moving Average after rallying.

By following these simple rules investors will have a much higher success rate when attempting to short stocks.

sexta-feira, 18 de abril de 2008

How to Earn Automatic Income with Forex Trading

When it comes to getting detailed automatic income info, people usually tend to compare the pros and cons of the Forex trading with those of stock market trading. You will be glad to know that the investing in currency trading has an array of advantages over the stock market. Perhaps, the biggest advantage is that unlike stock trading, Forex investment allows you to trade twenty hours a day. What is more, in comparison to the stock market, Forex market does not have any physical location where the traders could gather and trade from. It is, in fact, a virtual global trading network that runs continuously - non-stop. This way, it is up to you to set your own schedule for trading. You get plenty of time to meet the other commitments of life while still enjoying the benefits of such investments.

The automatic income info seekers will also be glad to know that this form of trading also gives them the liberty to use leverage. It means that you get the ability to gain control of the enormous amount of money even if you are investing a small amount. For example, if your broker offers you 200:1 leverage, it means that you need to invest only a meager hundred dollars while you get the ability to control twenty thousand dollars. What is more, you also get a chance to use this leverage in a way to increase your profits many-fold. However, you must also be aware of the flip side of the automatic income info, as per which, in case your predictions and calculations go wrong, you may end up suffering huge losses as well. Therefore, you must have the prudence to use the leverage in a proper way, which is something that can only be earned through extensive experience. It is a bitter fact that though most of the successful traders failed initially, they learned from their mistakes.

That is the reason why it is always recommended for you to start with the trading of a demo account first. You must follow a step-by-step approach, which in other terms, may mean a mechanical and systematical approach. Those who are aware of the basic automatic income info know that there are plenty of online Forex brokers who provide the facility of opening a demo account. The demo account is the one where you invest "virtual money". As a result, you get "virtual" profits or "virtual" losses. Nothing is real in this demo trading except the experience that you gain. This can be an excellent way to gain the crucial experience required to succeed in such a venture.

Overall, your awareness of the basic and advanced automatic income info regarding Forex trading is something that will eventually determine your success.

quinta-feira, 17 de abril de 2008

Forex Trading

So what is is Forex trading you may ask? Forex is the exchange you can buy and sell currencies. For example, you might buy British pounds (by exchanging them to the dollars you had), then, after pounds / dollar ratio goes up, you sell pounds and buy dollars again. At the end of this operation you are going to have more dollars, then you had at the beginning.

The Forex market has much higher liquidity, then the stock market, as much more money is being exchanged. Forex is spread between banks all over the planet and as a result it means 24 hour trading.

Unlike stocks, Forex trades are performed with high leverage, usually it is 100. It means that by investing $1000 you can control $100,000, and increase potential profits accordingly. Some brokers provide also so called mini-Forex, where the size of minimum deposit equals $100. It makes possible for individuals to enter this market easily.

The name convention. In Forex, the name of a "symbol" is composed of two parts — one for first currency, and another for the second currency. For example, the symbol usdjpy stands for US dollars (usd) to Japanese yen (jpy).

As with stocks, you can apply tools of the technical analysis to Forex charts. Trader's indexes can be optimized for Forex "symbols", allowing you to find winning strategy.

Example Forex transaction

Assume you have a trading account of $25,000 and you are trading with a 1% margin requirement. The current quote for EUR/USD is 1.3225/28 and you place a market order to buy 1 lot of 100,000 Euros at 1.3228, expecting the euro to rise against the dollar. At the same time you place a stop-loss order at 1.3178 representing a maximum loss of 2% of your account equity if the trade goes against you, 50 pips below your order price, and a limit order at 1.3378, 150 pips above your order price. For this trade, you are risking 50 pips to gain 150 pips, giving you a risk/reward ratio of 1 part risk to 3 parts reward. This means that you only need to be right one third of the time to remain profitable.

The notional value of this trade is $132,280 (100,000 * 1.3228). Your required margin deposit is 1% of the total, which is equal to $1322.80 ($132,280 * 0.01).

As you expected, the Euro strengthens against the dollar and your limit order is reached at 1.3378. The position is closed. Your total profit for this trade is $1500, each pip being worth $10.

There Are Two Types Of Stock, Futures and Forex Traders

Some traders will go through system after system, teacher after teacher, wasting thousands of dollars not only in useless systems but in lost trades before they realize they've been approaching the markets from the wrong standpoint because they've been trying to trade the wrong type of system.

The two types of traders are the mechanical type trader and the discretionary type trader. Therefore, there are two types of trading systems, a mechanical system and a discretionary system. The difference between the two is quite large not only in the way the market and possible trades are analyzed but in the psychological make-up of the trader themselves.

Looking at the analysis side of things first, a mechanical system is a complete set of rules that are set in stone and should never be broken. These aren't the sorts of rules a trader might place on their wall and call the golden rules because they are personal, such as never trade when tired, always eat before trading etc. Mechanical trading system rules are the sorts of rules that would allow you to employ someone to trade your system on your behalf; because they are clear cut and involve absolutely no decision making.

A discretionary system on the other hand involves a decision making process that can range from a check list to economic and fundamental viewpoints. The point is that the trader or investor has a bias or view based on any evidence presented to them and depending on the level at which the trader feels comfortable will gather as much evidence as possible to support this view.

The psychological difference between the two types is the trader themselves, an area that the trader should uncover first before ever attempting to trade. I'm going to use an example of the business franchise model employed by McDonald's to give you an idea of the difference between the two.

Let's say you had a lazy million dollars spare and thought that buying a McDonald's restaurant sounded like a good idea. The most important question you need to ask your self is, once I purchase the restaurant, am I going to be able to allow it to run according to McDonalds strict rules, or am I the sort of person who will want to make changes; am I going to want to do things my way?

In a franchise model, you can't be the sort of person who is entrepreneurial because an entrepreneur by their very nature likes to create, invent, trial things and learn their own way, and the franchiser does not want you changing the system. The perfect franchisee on the other hand has no entrepreneurial skills but makes up for it by being a hard worker willing to follow rules.

And there lies a key difference between a mechanical type trader and a discretionary one. The mechanical trader (if disciplined enough), will make a mechanical trading system work (as long as their resources allow the system to operate efficiently) because there are no decisions to make, and by their very nature they like to avoid decisions.

The discretionary trader on the other hand likes to make decisions; it is part of their psychological make-up. They enjoy the challenge and the process involved very much like an entrepreneur does and so needs a trading system that challenges them to make decisions.

If you are having difficulty in deciding which type you are, some simple questions you can ask yourself is how you feel when you have to make decisions, especially multiple choice questions? If you don't like it you are probably more likely the mechanical type. Another question is how you feel when analyzing, because if it intimidates you then you are definitely more suited to a mechanical approach.

quarta-feira, 16 de abril de 2008

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Risks by the foreign exchange on Forex

The Forex is essentially risk-bearing. By the evaluation of the grade of a possible risk accounted should be the following kinds of it: exchange rate risk, interest rate risk, and credit risk, country risk.

Exchange rate risk. Exchange rate risk is the effect of the continuous shift in the worldwide market supply and demand balance on an outstanding foreign exchange position. For the period it is outstanding, the position will be subject to all the price changes. The most popular measures to cut losses short and ride profitable positions that losses should be kept within manageable limits are the position limit and the loss limit. By the position limitation a maximum amount of a certain currency a trader is allowed to carry at any single time during the regular trading hours is to be established. The loss limit is a measure designed to avoid unsustainable losses made by traders by means of stop-loss levels setting.

Interest rate risk. Interest rate risk refers to the profit and loss generated by fluctuations in the forward spreads, along with forward amount mismatches and maturity gaps among transactions in the foreign exchange book. This risk is pertinent to currency swaps, forward outright, futures, and options (See below). To minimize interest rate risk, one sets limits on the total size of mismatches. A common approach is to separate the mismatches, based on their maturity dates, into up to six months and past six months. All the transactions are entered in computerized systems in order to calculate the positions for all the dates of the delivery, gains and losses. Continuous analysis of the interest rate environment is necessary to forecast any changes that may impact on the outstanding gaps.

Credit risk. Credit risk refers to the possibility that an outstanding currency position may not be repaid as agreed, due to a voluntary or involuntary action by a counter party. In these cases, trading occurs on regulated exchanges, such as the clearinghouse of Chicago. The following forms of credit risk are known:

1. Replacement risk occurs when counterparties of the failed bank find their books are subjected to the danger not to get refunds from the bank, where appropriate accounts became unbalanced.

2. Settlement risk occurs because of the time zones on different continents. Consequently, currencies may be traded at the different price at different times during the trading day. Australian and New Zealand dollars are credited first, then Japanese yen, followed by the European currencies and ending with the U.S. dollar. Therefore, payment may be made to a party that will declare insolvency (or be declared insolvent) immediately after, but prior to executing its own payments.

Therefore in assessing the credit risk, end users must consider not only the market value of their currency portfolios, but also the potential exposure of these portfolios. The potential exposure may be determined through probability analysis over the time to maturity of the outstanding position. The computerized systems currently available are very useful in implementing credit risk policies. Credit lines are easily monitored. In addition, the matching systems introduced in foreign exchange since April 1993 are used by traders for credit policy implementation as well. Traders input the total line of credit for a specific counterparty. During the trading session, the line of credit is automatically adjusted. If the line is fully used, the system will prevent the trader from further dealing with that counterparty. After maturity, the credit line reverts to its original level.

Dictatorship risk. Dictatorship (sovereign) risk refers to the government's interference in the Forex activity. Although theoretically present in all foreign exchange instruments, currency futures are, for all practical purposes, excepted from country risk, because the major currency futures markets are located in the USA. Hence, traders have to realize that kind of the risk and be in state to account possible administrative restrictions.

terça-feira, 15 de abril de 2008

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FOREX Trading Strategy - The Secret of Timing

Once you¡¯ve identified a trading opportunity, the next step is to decide EXACTLY when to buy - and this is where many traders go wrong.

Here we explain how to incorporate better market timing into your FOREX strategy - so that you can make bigger profits.

Most traders time their entry levels incorrectly, so here¡¯s the right way to do it:

Using Support and Resistance Correctly

A basic wisdom of market timing is ¡°buy low, sell high¡± - well, the reality is, if you try this in FOREX trading, you¡¯ll end up losing money. First, let¡¯s define what support and resistance means

A support level is a historical price that traders come in, and buy to ¡°support the market¡± ¨C and the more times it¡¯s tested, the more valid the support will be.

Conversely, a resistance level is a level on the charts that ¡°resisted prices from moving higher¡±- again the more times it¡¯s tested, the more significant it becomes.

Why Buy Low and Sell High doesn¡¯t Work

¡°Buy low, sell high¡± is accepted wisdom by the majority of traders - but this logic is fundamentally flawed - use it in FOREX trading, and you¡¯re asking for trouble. Why? - If you wait for a pullback, you¡¯re going to miss some of the biggest moves.

Think about it - what if a currency starts to trend and doesn¡¯t pullback? (How often have you seen this?) If you¡¯re waiting for a pullback that never comes, you¡¯ll never get in on the trade ¨C and you¡¯ll miss a major opportunity.

You Need to Feel Uncomfortable

When Trading in the FOREX market, you should usually feel uncomfortable (and that¡¯s why most traders don¡¯t make these trades) - as no one likes to buy or sell after the market has started trending - but doing this will make you money.

The fact is, the more comfortable you feel when entering a trade at support, the less likely the trade will be a big winner.

During any given year, most of the big moves in currencies, take place from new MARKET HIGHS with NO pullback.

If you base your FOREX Trading strategy around waiting for a warm comfy entry, at key support, you¡¯re going to miss the biggest and most profitable trades ¨C so step away from the losing majority of traders.

Your FOREX trading strategy should give you a different mindset - most traders ¡°buy low and sell high¡± - so you should ¡°buy high and sell higher¡± ¨C i.e. you should be doing the opposite of what the crowd are doing.

Don¡¯t worry - most traders lose money, and their FOREX Trading strategy is based on the flawed logic we have just discussed - so not doing what they do makes total sense. Therefore, look for breakouts through support and resistance - and sell and buy respectively.

Its Tough Mentally - But it Makes Money!

Sure, it¡¯s hard to do - the majority don¡¯t agree with you - and no one likes to go against the majority. However, it¡¯s the right thing to do, to make your FOREX trading successful. Think about what we¡¯ve just said, and you¡¯ll see it makes logical sense.

Has this Happened to You?

How many times do traders buy into support, and the market breaks support, stops them out and continues to decline. On the other hand, another common scenario is, price never get to support - it simply goes higher - and the trader misses the chance to get in on the trend.

This type of trading is tough mentally - that¡¯s why 90% of traders don¡¯t do it - they want to be comfortable - well being comfortable is great, but you¡¯ll lose money.

Breakouts work, and if you use them in your FOREX Trading strategy, you won¡¯t be comfortable on entry - but you¡¯ll make money - and that will more than compensate.

The way to succeed in FOREX trading is to do what the losing majority don¡¯t do - then you can join the elite 10% of traders who make the big profits - try it and see!

segunda-feira, 14 de abril de 2008

Advantages of the Forex Market

What are the advantages of the Forex Market over other types of investments?

When thinking about various investments, there is one investment vehicle that comes to mind. The Forex or Foreign Currency Market has many advantages over other types of investments. The Forex market is open 24 hrs a day, unlike the regular stock markets. Most investments require a substantial amount of capital before you can take advantage of an investment opportunity. To trade Forex, you only need a small amount of capital. Anyone can enter the market with as little as $300 USD to trade a "mini account", which allows you to trade lots of 10,000 units. One lot of 10,000 units of currency is equal to 1 contract. Each "pip" or move up or down in the currency pair is worth a $1 gain or loss, depending on which side of the market you are on. A standard account gives you control over 100,000 units of currency and a pip is worth $10.

The Forex market is also very liquid. When trading Forex you have full control of your capital.

Many other types of investments require holding your money up for long periods of time. This is a disadvantage because if you need to use the capital it can be difficult to access to it without taking a huge loss. Also, with a small amount of money, you can control

Forex traders can be profitable in bullish or bearish market conditions. Stock market traders need stock prices to rise in order to take a profit. Forex traders can make a profit during up trends and downtrends. Forex Trading can be risky, but with having the ability to have a good system to follow, good money management skills, and possessing self discipline, Forex trading can be a relatively low risk investment.

The Forex market can be traded anytime, anywhere. As long as you have access to a computer, you have the ability to trade the Forex market. An important thing to remember is before jumping into trading currencies, is it wise to practice with "paper money", or "fake money." Most brokers have demo accounts where you can download their trading station and practice real time with fake money. While this is no guarantee of your performance with real money, practicing can give you a huge advantage to become better prepared when you trade with your real, hard earned money. There are also many Forex courses on the internet, just be careful when choosing which ones to purchase.

Online Currency Trading Tutorials

Whether are learning to drive a car or trade in the Forex market you benefit from the experience and knowledge of others. None of us ever really believe that we are an expert at something as soon as we try it for the first time. For this reason, unless you are already maintaining a healthy bank balance trading Forex then you can benefit from a tutorial in Forex trading.

A tutorial in currency trading will help to teach you the basics, and even if you have been trading currencies for a while then you may still learn something new. You see, the Forex market is pretty complex and therefore it can take years to master it. For this reason taking the time to learn as much as possible will save you money in the long run.

Not too long ago it was almost impossible to find anyone offering any kind of training or tutoring in Forex. This was mainly because trading was only open to large corporations and businesses. The situation is completely different nowadays as the Internet boom has opened the doors to individual traders and that has led to a massive increase in the number of courses and tutorials available.

Training can be done online or in a classroom depending on your location and preference. There are so many ¡®learn at home¡¯ courses available now that if you think that is the way to go then all you have to do is pick one. Classroom learning is a little different since you may find yourself having to travel fair distances to get to your nearest course.

Another advantage of an online tutorial is that not only do you get to learn from the comfort of your own home or office but you can also take things at your own pace. The downside however is that there is no teacher for the one to one discussions and explanation (the DVDs or online videos are your teacher) that you may sometime need.

Some online currency trading tutorials come with a money-back guarantee, that is if you do not like their course you can return it for a refund. However, you should look out for those courses which claim to be able to guarantee you a profit. These kind of claims are hard to achieve and should be treated with sketiscm as some courses are no more than scams.

Forex trading requires very quick thinking and decision making. Tutorials cannot teach you that. They can tell you the principles of trading and make you a much better trader for it. However, what it takes is for you to use the knowledge they give you and incorporate it in to your daily trading habits.

Through the help of a course you decision making and speed can definitely be improved but they cannot tell you exactly when to enter or exit a trade. That said, if you take the time to learn everything you can then it will be much easier to call the next market move correctly. You can also look to the help of Forex signal service providers for further security.

Currency trading tutorials can never teach you everything you will ever need to know. No-one can. However, they can help you to make decisions more quickly and with more success, it¡¯s all about how you take the knowledge they give you and what you do with it.

domingo, 13 de abril de 2008

Trading Gaps in the Forex: Not Trendy, But Very Profitable!

Common sense isn't common, more young kids know who's on the "Surreal Life" than know where Mexico is located, and if it's not new, it's not "trendy" or "hip." While this general foolishness seems to have nothing to do with Forex trading, why is it that long effective trading strategies are ignored because they're "simple" or "old?"

Why spend hours a day on an advanced, new fangled, supposedly cutting edge (read: complicated and confusing) trading system when the old "boring" version is profitable?

Isn't profit the point? Isn't it better to be old, boring, and profitable than new, flashy, and questionable? Isn't profit the bottom line here?

Gap trading is nothing new. It's been used in the stock market and in commodities trading for decades, and takes advantage of the difference, or "gap" between the closing price of the day before with the opening price of the next day, but this strategy is ignored in the Forex. Why is that?

Well, gaps rely on a market close, and when the Forex market never closes, it's really hard to get a gap or take advantage of it. In fact, during an entire trading week, there is only one time when using gap trading strategies in the Forex market is even possible! Sunday night at the open is the only time that gap trading Forex is possible.

Boring? For most of us, yeah. Pointless? Oh heck no. While different trading systems are looking for that .5% or that 1% above the 50% mark, some signs and indicators suggest that the Forex gap method is correct over 85% of the time.

No, that's not a typo, and that's not hype. Once a week may be boring, but those numbers make it worth the wait and should have you drooling at the possibilities.

So how do you trade the gaps on the Forex market?

First, understand that there are 3, and ONLY 3, things that the price can do between Friday's close and Sunday's open. They can:

1. Open above Friday's close, which is called "gapping up"
2. Open below Friday's close, which is called "gapping down"
3. Open at the exact same price, meaning there was no gap

There can be large gaps, often referred to as "full gaps" in price, or small gaps, known as "partial gaps." As far as strategy, there's no difference between the two. Good gap trading strategy works for all types of gaps. The one thing to watch out for is gap size. I don't recommend trading a gap unless there is a 15 pip difference, and this strategy is best used with the major currency pairs.

Knowing this, the rule to trading gaps may seem the opposite of what you would expect, but if you want to be right 85% of the time, here's the rule you want to follow: Whatever direction the gap is going, you want to trade the opposite direction.

So if a pair gaps up, sell short, if it gaps down, buy more. This strategy works a stunning amount of the time, and can be the edge in the Forex market that you've been looking for.

sábado, 12 de abril de 2008

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Stock Market Money Management Skills

Let's start by saying: You can't be afraid to take a loss. The investors that are the most successful in the stock market are the people who are willing to lose money.

Having a strategy and/or a specific philosophy is an excellent starting point to investing but it won't mean a thing if you can't manage your money. As I have said a million times: without cash, you can't invest.

Most investors spend far too much time trying to figure out the exact pivot point or perfect entry strategy and too little time on money management. The most important aspect to investing is cutting your losses, 90% of the battle is won by protecting your capital, regardless of the strategy.

Most successful money managers only make money 50-55% of time. This means that successful individual investors are going to be wrong about half the time. Since this is the case, you better be ready to accept your losses and cut them while they are small. By cutting losses quickly and allowing your winners to ride the up-trend, you will consistently finish the year with black ink.

Here are some methods that can help you with money management:

Set a predetermined stop loss (you must know where to cut the loss before it happens ¡°this will help control emotions when the time comes)." A 7-10% stop loss insurance policy is best. Tighten the stop loss range in down markets and loosen the range in strong bull markets.

Establish smaller positions if your account has had a recent losing streak (the losses may be telling you important information such as a critical turning point, it may be time to sell and get out).

If you think you are wrong or if the market is moving against you, cut your position in half ¡°this is the best insurance policy on Wall Street."

If you cut your position in half two times, you will be left with only 25% of the original position ¡°the remaining stock is no longer a big deal as your risk is very low."

If you sell out of a trade prematurely based on a minor correction, you can always reestablish the position again.

Initial position sizing plays a big part in money management ¡°don't take on too big of a position relative to your portfolio size. Novice investors should never use their entire account on one trade no matter how small the account

Know when you would like to get out of a position after a considerable profit has been made. Signs of topping could be a climax run, a spinning top or higher highs on lower volume.

Finally, cut any trade that doesn't act the way you originally analyzed it to act.

With these guidelines, you will be well on your way to solid money management skills that will help you profit in Wall Street year in and year out. Always remember, you are going to take-on losing trades at least half of the time. This is a tough concept to accept for most novice investors but it a fact. If you don't cut losses, you won't be investing for very long as you will run out of cash and the desire to continue to invest.

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