Sunday, May 14, 2006

Forex correlation

When treading stocks traders can take advantage of volume which is very usefull when trading technically, forex do not have volume, you maybe saw tool which shows volume on charts for example meta trader has such option but it is only diffrence between close and open price, but fortunetly when trading forex, we can use something diffrent and even more usefull then volume, currency correlation.

Most (if not all) currencies pairs are correletated in some level, it is mainly because of Forex structure, in fact it can be called dollar and anti dollar market, face it dollar (despite it is getting weaker and weaker every day) is still the most important currency, so US economic news has impact on all currencies, but that is not even a point.

When trading forex we trade two currencies, let's make it EUR/USD for sake of example, if we predicted it is going up and we are always right :> then what about USD/CHF? If there are US news that move dollar price down, then at the same time when EUR/USD is going up USD/CHF MUST go down, i think it is logical no more explenation needed.

So how to take adventage of currency correlation?

First of all go to and checko out how much and which currencies are the most correleated ones (i can tell you know that it will be EUR/USD and USD/CHF but shhhh check it out by yourself) at the diffrent days diffrent cross pairs can have diffrent correlation value, pick the ones with value about 80 or -80, and remeber to use timescale which is suitable to your trading style, if you trade intraday then it will be stupid to look at 20 day correlation are you with me here?

Second, egzamine the charts. If you choosed XXX/USD, YYY/USD and USD/ZZZ and from your technical analysis it looks like first to will go down and third will go up then ther is very high probability that very strong and quick move in your direction wil occur, enough said.

Now you proboably know what to do, check correlation, check charts and set your positions :)

Friday, May 12, 2006

SilverTrend Indicator

When trading Forex i had a big issue with entry points i though: is retracement confirmed or is it not, is it time to enter or better wait for a while, my Forex entry strategy wasn't good, until i found simple to use SilverTrend Indicator, actually he is not doing a lot but helps me big time, it gives objective entry signals, and ofcourse it works best on trending market

Let's look at the picture. It is ofcourse 4H EUR/USD chart, i drew there two trendlines which form a channel, we have got bullish market no doubt about it.

Now look at blue arrows the ones very close lower trend line are giving very strong LONG signal, you can chceck it by yourself, look arrow in the middle between two trendlines (5th arrow) is giving false signal well may be it was opportunity to make few pips but i wouldn't risk there, on the other hand last signal (last blue arrow) which is nearly on trendline gave more then 160 pips in few hours.

You proboably also see orange arrows but i do not think it is wise going short when market is definitely going long, but when market is going down we ofcourse do the opposite, enter when signal is given by orange arrow.

I know it looks great and you may be thinking "hey, let's write an mechanical expert who will go long and short when signals are given!" this proboably isn't bad idea where market is going up or down, but be aware that when Forex is moving horizontal this mechanical strategy would wipeout your account in no time, because silver trend alert when trend change is confirmed on trading market when confirmation occurs it usually end of the trend.

Now for the price of this indicator ... just kidding it is free and comes in two versions.
Silver Trend standad silver trend indicator
Silver Trend Alert this version of indicator comes with popup and sound alert so you will never miss a trade :) but when using it for more then a week it gets boring so i am not using alerts right now.

Last word of warning, you can also find other indicator with word "trend" in their namess which look better then silver trend and cost more then 100$ dollars, most of them are nothing more then silver trend modified a bit and presented by vertical lines or something equal, do not throw your money on it.

Thursday, May 11, 2006

Marketiva, good or bad?

Proboably everyone heard about Marketiva, the most controversive Forex broker, forum threads about it are like soap opera, but they are not giving any info on this broker, they are just arguments and flame wars, so i decided to put hear my objective review on them.

First of all trading is real business, where big money are made and big money are lost, so when my cash is at risk i would like at least to know who is holding them, Marketiva gives us only their team happy faces (which i couldn't actually find by now so they may be gone) and their first names, needless to say i expectet something more from company holding huge amounts of cash.

You can ofcourse try to contact Marketiva team via their website and ther is another surprise, no contact information, no postal address, no telephones, no fax, no nothing only contact form which is used on personal websites and shouldn't be used by professional company IF it is registred company, i am not sure about that, but i am sure they are not registred in any broker organization.
Marketiva claims to be fully automated company working on the internet, so this may be the reason why they do not give any contact info but that is a poor explenation in my opinion.

I also checked their domain name there is everything ok, domain registred for a long time so they are proboably here to stay, but domain costs only 10$ a year. Well there isn't much more i can say about their domain and hosting everything looks good, there are even some contact information but i didn't checked them out.

There also seems to be a problem with Marketiva support, some people where complaining about it, but i never had a problem with support and this is natural that there always will be someone who is complaining, but keep in mind i am not saying thoose who were/are complaining aren't right it is just impossible to prove who is right.

Now most important part, their treading platform, i have to admit it looks nice, it has many "tabs" which can be drag and droped anywhere you like, charts look fine, fast access to account center, help, chat, alerts and signals, and unfortunetly this are all pros.
Open positions behave funny, i won't tell you what i exactly mean you have to see it by yourself, OpenPositionPrice-CurrentPrice rearly seems to match. Charting software has got a lot of indicators but do not allows to draw on charts (trndlines and Fibonacci).
When we are talking about trading it is important to tell that they allow to trade for as small as 1$, this is the biggest adventage over other brokers.

They accept deposits via e-gold (also bank wirehard and e-bullion but this is off interest to me right now) it is hard to tell if it is good, first of all money transfered via e-gold can be laundred, but many users like to pay by e-gold it is very popular and cheap no commissions. Also Marketiva takes only 8$ commision from withdrawals by e-gold most brokers have at least 20$ (by bank wire and it is actually bank commission but i don't care commission is a commission)

My conclusion is if you have more then 500$ to trade forget about Marketiva there are better brokers, but if you want to start trading or learning how to trade and have small amount of cas between 10$ and 100$ Marketiva is best for you. What about those with money between 100$ and 500$? Well you have to decide by yourself do you have enough information about them, do you think your money will be safe with them and remember that there are at least 2 brokers (besides Marketiva) that allow to trade less then 1 mini lot.

Click here to visit Marketiva.

Wednesday, May 10, 2006

Forex Candles

Lately i sterted to wounder, candles where made for stock market which is open only 8 hours a day, so every daily candle on stock market has it's own meaning it is seperated timeframe, on the other hand Forex is never close (except weekends) so what is the value of Forex daily candle?

My doubts became even bigger when i found out that Steve Nison (world class candlesticks expert) has a seminar on diffrences between Forex and Stock Market candles, so there must be something on it.

Anyway I am not Steve Nison but here is my take on it.

1. Diffrent people can have diffrent candles on their monitors, for example when i see doji, someone on the other side of the globe can see "hammer" or any other candle, why? Anserw is simple no one can tell you when one day on forex market has passed, it can be diffrent hour in Europe, diffrent in America and diffrent in Asia, more over traders in one country can have diffrent candle patterns on their charts, it is very subjective, everything comes down to defined hour of the day when new candle is open.
On the other hand there isn't such problem on the Stock Market everyone has got the same daily candle.

2. I said it before but i will reapeat it here, Forex market do not close, actually it do not have such a thing a session (unless you threat time from monday to friday as a session). On Stock Market yesterday candle has got nothing common with todays candle, hard to belive it but this is the way it is and that is why there are so many gaps on stocks charts, don't get me wrong i am not saying that trend do not exists i'm just saying that daily candles on Stock Market are "self dependent", unlike Forex candles they are almost always close to each other, one cadle close price is next candle open price, it is very common you have to agree.

3. As for gaps, you will hardly see them on Forex, but sometimes they occur, espacially after weekend it looks like "something" had to happen to move open price far away from last close price, on Stock Market it happens daily on Forex weekly, in fact it can be even monthly.

These are my thoughts, but i have got one question for you. What is the point in using candles on 5M charts? They can't even make a simple formation, even if they do it is pointless to use it You proboably saw 5 or more doji in a row on charts less then 5M is there any interpretation for this, each of them means trend reversal? I do not think so.

Forex Trading Strategy: Hedge Hog (GBP/CHF)

This is known Hedge Hog strategy but with diffrent currency pair, diffrent set up, incredibly high returns and drawdown, but i think it is really worth a look.

Here is what to do:
Every day at 24:00 GMT go to your account and put on Hedge Transaction on GBP/CHF or with open price at current level.
Set Take Profit: 20 pips
Set Stop Loss: 450 pips
for both transactions (LONG and SHORT)

I made back tests for last 3 years and this are the results:
leverage 1:10 (starting capital 10 000$, lot size 1 lot)
3 pip spread included in results
system shows average 13,37% monthly return
largest drawdown is 4 100$ which is about 41% of starting capital
Maximum loss in single trade -284 pips

I know that drawdown and maximum loss are very disappointing they are quite high, so you may want to decrease leverage from 1:10 to 1:5 drawdown will be then much more acceptable, but ofcourse avg. return will be only 7% monthly.

If you are interested then go ahead and try this system out with a demo account.
As always email me for spreadsheet with backtest results.

Swing trading vs. Intraday trading

My story. When i started trading forex i thought intraday is the way to go, make few pips close position and make next trade, but i remember one day when i looked at my forex account and saw that i made 20 pips i thought it's great but when i looked at chart i realised that when my take profit was hit, price moved more then 50 pips in my direction, needless to say i felt like a looser despite i made 20 pips, so i started to wounder maybe swing trading is better then intraday...

Well since then it is almost a year now and here is what i have learned about trading Forex intraday and Swing trading.

Let's egzamine Forex Swing Trading.

First of all when we look at any educational chart we can see that most of them are made on 4H or 1D interval, why is that you may ask? The anserw is simple all this technical indicators works best in long intervals, longer the interval is, more accurate indicator will be. We can also look at it from statistical point of view the more data we have, more reliable our tests are.

Trading long term means ofcourse less trades, and less trades means less spread. Face it spread is killer of most profitable intraday strategies, but when "swinging" you don't have to care about spread it if you make between 50 and 150 pips in single trade why care about 2 pip spread?

You don't have to make decisions right on the spot and don't have to click fast to get best price.
Once technical analysis done for 1D chart you have at least one week free of technicals.

Now for disadvantages, sometimees even when trading more then 10 currencies you don't have a single position open for a week or even month, that it is without a doubt bad. We trade Forex to make money not let them sleep and do nothing.

Trading quick currencies may be risky (when you do not set up take profit) i many times saw price moving 70 pips in my direction and then turn around and hit my stop loss in no time. and i couldn't actually do anything about it because i left my trades open, it doesn't matter that my prediction was good stop loss was hit and that is a fact.

More over when stop loss was hit and you have no open trades left there is always this feeling: "i want to get back there, i want to recover" but when swing trading clear GO signals do not happen often.

Now it is time for Forex Intraday Trading

It is somewhat like being a partizant, when opportunity occurs you attack take profit and run, i am not saying it is bad or good, it is just my feeling. Anyway i found out that intraday trading strategies easy to follow i mean you just look at 30M chart identify trend and place transaction, on the other hand when "swinging" you trade longer timeframe trend, it sometimes happens that when yor realize that trend has changed you already lost 10% of your account.

You can trade any day and any time it rarely happens that market is so slow that you can't even make 10 pips from it.

In fact trade signals are very often on 5M chart and unlike swing strading you don't have to worry that your money will be doing nothing at all, your money are working from monday to friday and that's the way it should be.

Ofcourse a lot of signals can mean a lot of transactions, but when you start losing then a lot of transaction means a lot of looses, it is often that when trader takes a loose he want to quickly recover unfortunetly when Intraday trading it almost always means another loose.

Last disadvantage, the biggest enemy when trading intraday is spread even if it small you have to pay a lot of it.

So this is it if you have any comments feel free to post it.

Sunday, May 07, 2006

Forex Trading Strategy: Hedge Hog (EUR/CHF)

I have recently done some reaserch on Forex to find strategy that will be easy to trade no double meaning when it comes to entry points, takes minimum amount of time, and ofcourse is profitable.

Here is what to do:

Every day at 24:00 GMT go to your account and put on Hedge Transaction on EUR/CHF or with open price at current level.
Set Take Profit: 10 pips
Set Stop Loss: 330 pips
for both transactions (LONG and SHORT)

I made back tests for last 3 years and this are the results:
leverage 1:10 (starting capital 10 000$, lot size 1 lot)
3 pip spread included in results
system shows average 4,16% monthly return
largest drawdown is 2 100$ which is about 21% of starting capital
Maximum loss in single trade -129 pips

Now what makes this strategy succesfull, first of all trading time, you put on transaction at the beginning of asian session which is often reanging about 30 pips so we have got higher Stop losses to prevent us from loosing capital, (in fact stop losses could be removed) and small TP to takesome profit.

If you are interested then go ahead and try this system out with a demo account.
Also email me for spreadsheet with backtest results.

Tuesday, May 02, 2006

Today Forex trading results

Today i made 2 intraday trades first one on AUD/USD it was big mistake i lost 17 pips in less then 5 minutes, on the other hand i made 22 pips on LONG EUR/USD.

I suppose EUR/USD will be heading down soon, strong support is at 1.1710 it was already hit once so maybe this currency pair will form double top and it will be good to place SHORT order ther.