Introduction to Forex trading

I realized that some people might come across this blog and not be familiar with Forex trading, so I created this page to educate them about the subject and its also a good resource for beginners l…

Source: Introduction to Forex trading

Forex Weekly Trading Forecast – 02.25.2013

Forex Weekly Trading Forecast – 02.25.2013 By John Kicklighter, Sr. Currency Strategist ; Christopher Vecchio, Currency Analyst ; David Song, Currency Analyst ; David Rodriguez, Quantitative Strategist ; Ilya Spivak, Currency Strategist ; Renee Mu and Michael Boutros, Currency Strategist

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Dollar Not an Oversold Currency Waiting for Risk Collapse

The US equity market’s have shaken otherwise complacent investors and further sown fear of what a serious risk aversion move could wrought for the financial markets. It would seem a clear read for the greenback should stimulus-backed confidence falter…but is it?

Euro’s Ugly Fundamentals, Italian Election Dent Optimism

The Euro struggled this past week, only outpacing the British Pound and the Canadian Dollar, while losing significant footing versus the Australian Dollar, the Japanese Yen, and the US Dollar.

Japanese Yen at Risk as BoJ Nomination Nears- Fed Testimony on Tap

The Japanese Yen held a narrow range going into the final days of February, but the low-yielding currency remains poised to face increased volatility in the days ahead as the new government plans to announced its nomination to replace Bank of Japan (BoJ) Governor Masaaki Shirakawa.

British Pound Breakdown Looks Like the Real Deal – Here is Why

The British Pound finished the week at fresh multi-year lows against the US Dollar (ticker: USDOLLAR) as a surprising Bank of England vote tally warned that the central bank may soon initiate further Quantitative Easing (QE) and devalue the domestic currency.

Gold Hits $1555 Target- Prices to Range Ahead of Bernanke Testimony

It has been quite the week for gold traders with the precious metal plummeting nearly 2% to trade at $1578 at the close of trade in New York on Friday. Bullion has now triggered all of our targets cited in last week’s gold forecast after a surprisingly hawkish Fed minutes prompted a massive decline that saw prices drop more than $40 in a single session.

Australian Dollar at Risk on Italian Election, US Growth Fears

The Australian Dollar may succumb to the return of market-wide risk aversion as Italy holds a general election while US “sequester” budget cuts loom ahead.

Canadian Dollar Outlook Remains Bearish Ahead of GDP Report

The Canadian dollars weakened against its U.S. counterpart on the week, with USD/CAD hitting 7-month highs, as retail sales in December unexpectedly dropped by the most since 2010. In addition, Canada’s Consumer Price Index inflation for January came in lower-than-expected on both monthly and yearly basis.

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Fibonacci Retracement Levels for Week 02/25–03/01

Fibonacci Retracement Levels for Week 02/25–03/01

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Fibonacci Retracement Levels
Pairs	EUR/USD	GBP/USD	USD/JPY	EUR/JPY	GBP/JPY
100.0%	1.3433	1.5507	94.20	125.88	145.87
61.8%	1.3323	1.5362	93.65	124.49	144.13
50.0%	1.3289	1.5318	93.48	124.06	143.59
38.2%	1.3254	1.5273	93.31	123.63	143.05
23.6%	1.3212	1.5218	93.10	123.10	142.39
0.0%	1.3144	1.5128	92.76	122.24	141.31

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Trading Strategy: the First Two Hours

Trading Strategy: the First Two Hours BY JOSH DIPIETRO

In this article, I will share the framework of my intra-day trading methodology. I will demonstrate how to place five to fifteen round-trip intra-day trades in the first two hours of the market, for each stock you are watching. My intra-day system is based on taking small 15 cent profits on quick reversals after a support/resistance break and is known as “countertrend-reversal trading,” not to be confused with “scalp” trading.

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I will show which stocks trade the best during the first two hours of the market and will demonstrate why trading in 100 share-blocks and using a pay-per-share broker are essential aspects to my approach. You will learn how to trade both “previous” levels and how to recognize “newly forming intra-day” support/resistance levels. Here we are only learning my basic strategy. Please do not try to trade this strategy without being formally trained.

Before this system can be applied you have to acquire the correct stocks. My system requires stocks to be priced between $100-$250. This means the stocks have plenty of volume/liquidity, therefore the stocks offer several intra-day support/resistance levels to trade in the first two hours. Stocks like AMZN, IBM, CRM, and GS are on my personal stock list.

When trading high priced stocks you only need to trade in 100-share blocks for each setup. This is important when trading via a “pay-per-share” broker. You should be paying about .0045 per share; this translates to 45 cents per 100-share trade. With my system you should not be paying more than $1.00 per trade. The only barrier to enter the market (quite literally), is that you will be required to have at least $25,000 in your account to intra-day trade (S.E.C “pattern day trade rule”).

In general, I will go long initially after a support has just broken, and I will short soon after a resistance has just broken. I do not try to predict how far a trend will continue, rather I wait for a trend to exhaust itself, and then I come in for a small profit on the inevitable pullback in price. The main element that allows this system to work consistently is the small profit taken of 15 cents ($15 on a 100-share trade), especially after the price typically runs a full $1-$2 before I enter a trade, therefore, on sheer volatility you gain your 15 cents on the reversal.

I always start by watching the pre-market (8 a.m. to 9:30 a.m.). I gather several previous price levels for my initial S/R. Once the bell rings I am armed with price levels to trade, whether the price travels up or down I have long and short positions to trade in the first two hours.

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After the first five minutes of trading “newly formed” intra-day levels (S/R) start to form, my system shows you how to find and trade these levels. These levels are found by using what’s called the “five candle-stick rule.” Figure 1 demonstrates how intra-day setups occur.

I use the one-minute candle sticks to find intra-day levels and the daily chart to find previous levels. Previous levels include levels found on the daily chart, previous day high/low, and premarket high/low.

For instance, I use the highest and lowest price for certain levels on the daily candle stick chart, and the previous day high/low, and pre-market high/low price levels for the current intra-day’s support/resistance.

If an intra-day level forms I will enter a trade exactly 25 cents past the price level on the initial S/R level breakout (as shown in Figure 1).

• If an intra-day level forms I will enter a trade exactly 25 cents past the price level on the initial S/R level breakout (as shown in Figure 1).

• If a previous level forms I will enter a trade exactly 50 cents past the price level on the initial S/R level breakout.

In Figure 2,

Here is an example of an actual trading session with Amazon (AMZN) from 9:30 a.m. to 11:30 a.m. (12/17/12).

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About the Author

Josh DiPietro (Day Trader Josh) is 34 years old, and has been day-trading stocks for 12 years.He provides mentorship programs for aspiring day traders.

Josh DiPietro is an internationally published author.He has written a book, The Truth About Day Trading Stocks: A Cautionary Tale About Hard Challenges; Learn What It Takes toSucceed.

Josh DiPietro’s other published works nclude articles written for Stocks, Futures, and Options (SFO) magazine.

Day Trader Josh’s website:www.DayTraderJosh.com

Everyone Hates Bonds…. Should You?

Everyone Hates Bonds…. Should You? BY ANDREW THRASHER

There’s little doubt in my mind that going into 2013 one of the most hated asset classes was bonds. With the report from Lipper of massive inflows into equity mutual fund, the largest amount since March 2000, nearly every major Wall Street strategist turning into a bond bear and the likely lack of interest rate activity it’s easy to understand why people have turned sour on bonds. However we have had low interest rates for over four years with the only option for rates to rise, bonds still have performed handsomely. It’s been over 30 years that this current bond bull market has maintained its legs, and various indicators are giving mixed signals for whether or not its run can continue to run.

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There are numerous ways for us to evaluate momentum on a chart. The most popular, and my preferred method, is using the Relative Strength Index (RSI). The most common way to use the RSI is looking for overbought and oversold levels, most commonly at breaks over 70 and under 30. But there is still much that can be gleaned from the action between these two levels. When RSI is repeatedly unable to get to the 70 level when price is advancing it can serve as a warning sign that something might be changing in the character of the price action. Constance Brown wrote in Technical Analysis for the Trading Professional that when a security is in a bull market the RSI will often stay between 90 and 40, a sign that bear are unable to force momentum into a traditional oversold condition. During bear markets, RSI will fluctuate between 10 and 60 as bulls can’t grow their consensus to get momentum to 70. In November the 10-year Treasury’s RSI indicator hit a top at 65 and since then has been unable to break above 50. This ‘momentum bear channel’ that bonds seem to be in could last for weeks or months, in my view it’s preferable to let price lead and dictate our action.

In the bull case for bonds we have Commitment of Traders data giving us a notion that small trades are big fans of the short bond trade. Looking at the weekly COT chart of the 10-year (not shown) we can learn that small traders (often called the ‘dumb money’) is more net short than they were at the short-term bottom in bonds in March ’12 and have taken their net position to the lows last seen in April ’12 – when bond prices hit a low. When looking at COT data we often focus on what the commercial or ‘smart money’ is doing, but just as much can be learned from small traders as they are often wrong when their positions begin to grow as large as they currently are. We’ll see if this time is any different.

Disclaimer: The information contained in this article should not be construed as investment advice, research, or an offer to buy or sell securities. Everything written here is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned.

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About the Author

Andrew Thrasher is an Investment Analyst with The Financial Enhancement Group, a central Indiana-based money management firm. He specializes in technical analysis, focusing on intermarket, mean reversion, and trend analysis based on varying timeframes.

He currently holds the Accredited Wealth Management Advisor and Accredited Asset Management Specialist designations. Andrew is a level three candidate for the Chartered Market Technician® and is a member of the Market Technician Association. He also holds a Series 65 securities license and is registered with World Equity Group. You can learn more at http://www.athrasher.com and follow him on Twitter at @andrewthrasher.

Turning Fundamental Data Into Indicator Trading Clues

Turning Fundamental Data Into Indicator Trading Clues by Darrell Jobman

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Key reports on fundamentals can shake up markets temporarily but can then lead to important clues for potential trading positions based on information provided by indicators.

• Analyzing the latest fundamental reports
• Being prepared to act on indicator clues
• Identifying action points without taking on too much risk

Click here to watch webinar

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About the Author

Formerly Editor-in-Chief of Futures Magazine, Darrell has been writing about financial markets for more than 35 years and has become an acknowledged authority on derivative markets, technical analysis and various trading techniques.

Jobman and his wife, Lynda, live in Wisconsin, and spend a lot of time visiting with a daughter and three grandchildren also in Wisconsin, and a son and granddaughter in Florida.

Help with Pulling Trigger

Help with Pulling Trigger by Van K. Tharp, Ph.D.

Q: I am considering the How to Develop a Winning Trading System Workshop. My issue is not being able to ‘pull the trigger’. I am a value investor and find only 10 ideas a year. I have had a lot of success over 20 years and can cut losses. But I can never take full positions. Is this course for me?

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A: The primary objective of the systems development course is to help traders understand the process of system development so they can create systems on their own or modify other’s systems to fit themselves. It sounds like you have a positive expectancy system already so your issue is not related as much to your system’s performance as to your execution of it as a trader. Fear of pulling the trigger is a psychological issue.

If you are interested in a course to address that issue, the Peak Performance Home Study course can help you understand why you might be sabotaging yourself that way and some possible resolutions. As far as our workshops, nearly the entire Peak Performance 101 workshop helps people address a host of issues that hold back their trading.

Here are some questions to consider regarding the less than full position size issue: Do you know how much this is costing you on an annual basis? Have you tried to resolve the issue already? If so, how? Has it helped at all? How does it affect your feelings about your trading?

Depending on your answers, it may be a huge problem or a very minor one. In either case, let us know how we can help you trade better.

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About the Author

In the unique arena of professional trading coaches and consultants, Van K. Tharp stands out as an international leader in the industry.

Helping others become the best trader or investor that they can be has been Tharp’s mission since 1982.

Dr. Tharp offers unique learning strategies, and his techniques for producing great traders are some of the most effective in the field.

Over the years, Tharp has helped people overcome problems in areas of system development and trading psychology, and success related issues such as self-sabotage. He is the founder and president of the Van Tharp Institute, dedicated to offering high-quality educational products and services for traders and investors around the globe.

While Van Tharp’s expertise is in the area of finance, his mission is to touch people in a way that changes them for the better. In his books, courses and workshops, he uses the financial metaphor to do so.

This Is Not a Slumber Party

This Is Not a Slumber Party by Janice Dorn, M.D., Ph.D.

Most traders come to the markets because they see a way to break from the 9-5 routine. They want to make their own decisions, say” bye bye” to working for the boss man (or woman), set their own time schedules and routines. There is a magnetic attraction to the idea that you can make money, sitting in your pajamas, typing on a keyboard and doing what is called “playing” the markets. Playing at home in pajamas…sounds like a teenage slumber party with lots of fun, doesn’t it?But wait—it can’t be that easy, can it? Of course not. If it was that simple and a sure thing, everyone would not only be doing it, but would be happy, joyous and free. Clearly that is not the case. So why?

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I believe that everyone can attain personal and financial success using his or her own unique ability. Many of you have proven this in life outside the markets. You are successful in real estate, accounting, medicine, engineering, the law, sales, etc. So why are you struggling with the markets and why is this pajama game not working so well?

The answer is really quite simple, and—just like so many secrets—is hidden in plain view. The type of thinking that made you successful in life outside the markets is the mirror image of that in the markets. In “regular” jobs, in the world of real life—there are rules. These rules are set down by other people. Other people make rules and you follow them. If you do not follow the rules, you risk for losing your job or your license. Think of medicine: a doctor must abide by many rules set forth by state medical boards. If they do not, they are warned, disciplined and may have their licenses revoked. The rules are out there and doctors follow them—or don’t (at their own peril and that of their patients.)

Now we come to the markets. Yes- there are rules of trading set by regulators, exchanges and the brokerages, but they really are minimal in the overall scheme of things.

So- who makes the rules for your trading? You do.

Who executes trades based on the rules you make for your trading? You do.

Who tells you if you are right or wrong about the rules you make? Well, the markets tell you but you have to listen and take action. So, once again—it’s about you.

In this type of environment, many people flounder. They are not used to making their own rules, executing them and taking personal responsibility when their rules are shown to be an illusion by the markets.

In the end, your freedom in the markets is solely a property of who you are, what you believe, what you believe that is not true and what you do about it. In most cases, it is the ability to think in probabilities in a counter-intuitive manner that separates the losers from the winners. In other words, the same type of thinking that brought you so much success in the world outside the markets will not bring you success in the markets. Think about this for a second, please. Let it filter in and then try to get your brain around this concept. It is critical to understand this at the deepest level in order for you to move forward as a trader.

Although you may be trading in your pajamas, this is not a slumber party. It’s a daily battle in a long war where you must plan your own strategy and tactics and take complete personal responsibility for what happens to you.

Thanks and Good Trading!

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About the Author

Dr. Janice Dorn is a trader and trading coach. She holds a Ph.D. in Brain Anatomy and an M.D. She is certified by The American Board of Psychiatry and Neurology and The American Board of Addiction Medicine. She has written over 1200 articles on Trading Psychology, Trader Health/Wellness and Trader Longevity. Additionally, she coaches and mentors her fellow traders. She was previously Global Risk Strategist for Ingenieux Consulting, Sydney, Australia. Her first book entitled “Personal Responsibility: The Power Of You “was published in 2008 and she is working on her second book.

Never Stop Learning! Education’s Role in Your Long-Term Trading Success

Never Stop Learning! Education’s Role in Your Long-Term Trading Success by Jim Wyckoff

My first experience in the futures industry was as a young (and nae) reporter working right on the trading floor of the Chicago Mercantile Exchange. It was a unique and very rewarding way to start my career in the fascinating field of markets and trading. I was able to talk face-to-face with floor traders and analysts, and as a reporter got to ask many questions in my quest for knowledge. After my first few weeks of working on the trading floor of the “Merc,” I went home one night and made this bold statement to my wife: “All I need to do is spend a few months studying markets and technical analysis–and then I will begin successfully trading for a living and soon we’ll be rich!” (Now you see why I was a “nae” young reporter!)

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It was not too long after that bold statement that I began to realize trading and analyzing markets is a lot like playing the game of golf. The beginners don’t have any idea how bad they really are! And then, once a few basic skills are understood, the beginners suddenly realize how difficult the task is and how much work lies ahead on the road to success.

That “bold statement” I made was nearly 20 years ago. And, after 20 years of being involved in markets, trading and analysis on a full-time basis–including reading stacks of educational books at night–my hunger for market and trading knowledge is still insatiable. Every day, I am still learning valuable lessons regarding markets and trading.

Futures traders should never abandon their quest for more knowledge about markets and trading. Below are some tips on “continuing education” in futures trading.

DO: Read books on trading and markets. Books are a great (and inexpensive) way to continue to learn about this challenging field. There are many good futures trading books readily available. Check out the http://www.amazon.com website and type in the search words “futures trading” and there will be many good books retrieved.

DON’T: Go out and spend hundreds of dollars (or more) on some mechanical trading “system” that just employs one set of trading parameters. Or, if you do plan on taking the system approach, at least read books and study other materials first–to get as much of a broad background on markets and trading as possible. Remember: More money spent does not necessarily equal more good knowledge acquired.

DO: Search the Internet for websites that offer free research and educational material on trading and markets. It’s surprising and refreshing to see how much free educational material on markets and trading is available on the Internet. The major futures exchanges have major sections of their websites devoted to educational material that is of high quality.

DON’T: Head down a narrower alley of market analysis or a specific trading method without first examining a wide variety of trading methods or market analysis. For example, Elliott Wave theory is a respected field of study. But for beginners to focus only on Elliott Wave without having studied other methods of market analysis and trading limits their scope.

DO: Seek out a mentor who can answer your questions and also give you advice other than just what market to trade. Also, seek a fellow trader with similar experience as you. Sharing ideas and discussing markets with a fellow trader is an enormous benefit.

DON’T: Shell out big bucks for someone who claims they will be your mentor and make you a big winner in futures trading in only a few short weeks or months. The old adage, “If it sounds too good to be true, it probably is” should be heeded in this challenging business.

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About the Author

Jim Wyckoff has been involved with the stock, financial and futures markets for more than 20 years. He was born and raised in Iowa, where he still resides.

When he’s not analyzing markets and educating traders, Wyckoff says he loves adventures, from driving a Jeep across the highest mountain pass in the continental United States to extreme winter camping in the Boundary Waters to hiking in the jungles of South America.

Trend Following: Low Risk Breakout Strategy

Trend Following: Low Risk Breakout Strategy BY ANDREW ABRAHAM

Trend following is a strategy that has been used by traders for decades. Bull markets, bear markets, inflation or deflation–trend following has proven itself. Trend following can be used on stocks, forex or commodities as well as on any time frame.

Trend following with a plan tells you exactly:

• What to buy

• How much to buy
• When to exit with a profit or a loss

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In order to succeed in trading you need an exact plan, risk management and proper trading psychology. Miss one of this attributes your chances of success are lessened.

First, I identify the strongest markets and the weakest markets. This is done by ranking the markets via relative strength or rate of change. Relative strength or rate of change can be found on most trading platforms. This defines the universe in which I am looking for trades. The concept of trend following is based on strong markets to continue and weak markets to continue to weaken.

The next step is to look for a break out trade or break down trade if I can put on a low risk trade. Firstly the concept of a break out trade is based on Richard Donchian who was a trend follower from the 1940s till his death almost 50 years later. The breakout trade was enhanced by the concept of the so-called “Turtle Traders.” It is very simple. Buy the 20 bar high and sell the 10 bar low (You can use any variation of this).

RISK PARAMETERS

However, I will only look to take a break out trade if I can put on a low risk bet. A low risk bet is risking no more than 1% of my account size. For example I have a $100,000 account size I do not want to risk more than $1,000 dollars. In order to determine this 1% risk I measure the distance from the X bar high to the Y bar low. For example if the distance from the X bar high to the Y bar low is 5, I have a $100,000 account size and determine I want to risk 1% I can trade 200 shares.

I have a bias to the long side as those trades can continue without limit, and shorts are limited. As I mentioned earlier, risk management is one of the principles that will keep you in the marathon of trading. In order to survive long term, I also limit my total allocation per sector as well as I limit my total risk on my open trade equity. I always want to trade with the trend. I look at moving average convergence divergence (MACD) and look to go long when it is above the zero line and increasing and vice versa for shorts.

SET-UP

Exemplifying the above is an example of Apple at the end of 2011. Apple on a relative strength basis was one of the strongest stocks. See Figure 1.

GETTING IN

On Dec. 20, 2011 there was a breakout signal at $395 which was a 20 day high. The initial risk was to the 10 day low. You should not risk more than 1% of your account size on any trade. In order to determine how many shares take the difference between the 20 day high and 10 day low and divide it by 1% of your account size to determine.

GETTING OUT

Once the trade started working you would have followed the trade with patience and discipline until you received a signal to exit by a violation of a trailing average true range (ATR) stop. On April 16, 2011 Apple violated the ATR trailing stop and you would have exited.

Trading in this methodology is robust and an extremely powerful of extracting profits out of trending markets.

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About the Author

Andrew Abraham is the author of The Trend Following Bible, published by Wiley.