Saturday, August 02, 2008

Polish Currency

If you are considering, long term investment, like one or two months than Polish currency might be interesting for you. For the last year it got stronger and stronger. Just checkout the charts below, this are EUR/PLN and USD/PLN, timeframe 1 year, on both charts you can see what i would call quality trend. Line is at 45 degrees, almost no corrections.


Let's start with EUR/PLN, i won't even talk about technical analysis, indicators and so on, you can see what is happening here. Just draw the line wait for minor correction and get into trade. You maybe wondering.

Ok it went down for a year, won't it turn back? This is a good question, i think this trend can end up pretty soon maybe 3 or 4 months, hard to say really. The problem here is that Polish bussiness has a problem with strong PLN against EUR, because a lot of companies export their products to west Europe. With strong Polish currency, their products are actually more expensive and thus less competetive.

The bottom line is, Polish bussinessmen want this trend to stop, and i believe that government will do what they ask for, the question is when?


Now look at USD/PLN chart it looks almost the same as EUR/PLN, so again i won't go into details how to trade it.
Now to answer the same question as earlier, is this trend here to stay? I think it is, because gas price in Poland pretty much depends on gas price in USA. When gas price in USA gets more expensive it also gets more expensive in Poland (and rest of the world btw).

However, if gas price will go up, but at the same time Polish currency would get stronger against dollar, then it won't affect Poland as much as it would without USD/PLN going down.

Now if i got you interested in this form of investment, you will need a broker, which allows to trade Polish currency or at least EUR/PLN and USD/PLN. As far as i am concerned there are not much brokers who allow this. The ones who do are Oanda and maybe SaxoBank however i am not sure of that.

That is not end of the problems, even if you will find broker who allows to trade this pairs, probably spread on them will be somewhere between 20 and 40 pips, so like i said it is only good to trade them if you are looking for long term investment not scalping or even swing trading.

Thursday, July 31, 2008

12 Major currency pairs

Well to be honest there is no such thing as 12 major currency pairs, there are actually about 7 (depends on how you count) major currencies, and well ... many major currency pairs.

So what's with your title, you maybe wondering? Let me justify myself, like i said there is no such thing as 12 major currency pairs, this is my list of currency pairs i like to trade, all my currency pairs are made from major currencies thus the name "12 Major currency pairs", however i do not advice you to use this name in group of professional forex traders, in best case they will get confused ... i do not want to tell what can happen in the worst case here :).

I will give you the list shortly but let me first explain why i choosed this currency pairs. There are few reasons, there are quite big moves on them in short periods of time, small spread, and i find it easy to apply technical analysis to those currency pairs.

Ok here it is:
  • EUR/USD - well obvius, there is not a single trader who does not trade this currency pair
  • GBP/USD - pretty similar pair to EUR/USD however it is quicker, and the moves are about 50% bigger, 150 PIPs daily is not uncommon for this pair.
  • USD/JPY - quite predictible lately, notice that most of the time USD/JPY is bullish it moves slowly up, when there is a correction on this pair, it moves few hundreds pips down in just few days.
  • EUR/JPY - pretty much the same as USD/JPY but moves are less predictible
  • AUD/USD - good alternative where you have no idea where EUR/USD will go, however moves on this pair are smaller then on EUR/USD
  • USD/CAD - pretty predictible, mainly because CAD is highly correlated with oil price, and you know what oil price chart looks like right?
  • USD/CHF - very strong correlation between this pair and EUR/USD
  • EUR/CHF - the same as USD/JPY slowly moves up and then quickly falls down
  • EUR/CAD - high spread, well i do not know i just like to trade, i always find it easy to predict where will it move and how much
  • EUR/GBP - very slow currency pair, however sometimes spread can be low on it
  • EUR/AUD - this is very personal pick, i like to trade, but spread is very high so i only use it for long term trades
  • NZD/USD - yes NZD is not really a major currency, but i like to trade this pair because it has low spread, easy to predict and has weak correlation to any other pair on this list
Well that is all, if you have your own private currency pairs list feel free to share it here in comments section, also i will be happy to answer any of your questions.

Monday, July 28, 2008

Day Trading Forex Currency

Right, day trading today. People are very interested in the concept of day trading. And i think there are at least few reasons for this. Before i will go into details, let's define day trading, what it really is.

On Forex day traders are guys who make a lot of trades (like over 10) in a single. Each of the trade is closed by the end of trader trading session, on Forex it usually means turning your computer off. Note that this is not the same as scalping. The only similarity between scalping and day trading is that, a lot of traders fail there.

Main resaon for this is that traders are tempted with huge profits, when doing day trading people are almost always using huge lavereages, like 100:1, it means buying 10 Lots with 10 000$. I think you can easily see how much one PIP is worth then, yeah it is 100$. It seems great at first, looks like a quick cash, but consider the fact that you only need 100 PIP move in the wrong direction to meet mr. Margin Call.

In reality when you trade on such high leverage it looks like everything is happening with a speed of light, while in fact it all happens with a normal speed, it is this ridiculous leverage that makes things harder.

Next thing you need to consider when you want to do day trading on forex currencies, is that not every broker will be happy with what you are doing, they may close your account or limi your leverage if ... you will start making money. So chose your broker wiseley checkout Forex forums and read brokers reviews make sure they allow day trading.

You may now think, wow day trading is hard. Well in fact it really is harder then you think. I am not saying it cannot be done, i am not saying you cannot earn like 200% a month. I am just saying that success with day trading want happen overnight, if you focus on it and commit to becoming day trading the success will come with time and experience.

Tuesday, February 05, 2008

Standard Deviation Channel

I recently read article about, about standard deviation channel, (which as you may already know is one of my favorite indicators), and I was shocked, although author of this article explained what standard deviation channel is in mathematics but it had very little to do with Forex or any other financial market. Furthermore, I read other articles about standard deviation channels and what I found out is that they all were giving useless information to readers, so here is the right way to use standard deviation channel.

First of all, authors suggest that, when price will reach upper line, it is time to take SHORT position and vice versa, when price will reach lower line you should take LONG position because market is oversold.

This is true only if market is trending. It is quite safe to treat then lower line as support line and upper line as resistance line, and more over (depending on your standard deviation channel settings) 95% of price movement will happen between this two lines, as long as market is trending. The obvious question here is how to tell if Forex is trending, but this question is beyond the scope of this article, at least for now J.

What I like about standard deviation is that it allows to easily determine trend, you just need to draw channel over the selected period of time and that’s it, you have detected trend. However to use this indicator efficiently you need some experience, ideally you should see channel on the chart before you draw any lines on it. If you don’t see it, then do not worry it is all about experience.

How to use correctly Standard Deviation Channel

If market is in uptrend, you should take ONLY long positions, when price will reach lower line. Never take SHORT position in uptrend when the price will reach upper line, that do NOT mean that market is overbought, in uptrend price can easily go waaay over upper line and hit STOP LOSS, of trader who was stupid enough to take SHORT position in bull market.

Obviously, the opposite goes for market in downtrend, do not take long positions on lower line, NEVER.

Most importantly, this indicator is called standard deviation channel and you should use it only with CHANNELS not with any random piece of chart, below is the stock market chart with two correctly drawn channels.

Wednesday, January 30, 2008

Economic Calendar

Earlier, actually in the last post i wrote about importance of knowing what economic data that affect Forex market will be relased and when. This information alone can save you a lot of pain, because, after some key economic indicators are relased, prices in just few minutes can go +200 pips up, and then out of sudden 300 pips down.

This mainly affects day traders or scalpers, and the EUR\USD currency pair. I belive there are many ways you can deal with market moving indicators, but i will list two of my ideas i have came up with:
  • Few minutes before economic data announcement hedge your position.
  • Not all Forex brokers allows to hedge, if yours not, then you can close your position before data release and open a new one after market will "calm down".
And obviously do not make new trades (other then hedges) before economic data announcement.

More over important economic data dictates trend of the market, so you can use it for simple Forex fundamental analysis.

But the most important question here is, where do i get this data and how will i know which is important and which is not? My all time favourite source for economic data is bloomber economic calendar, which you can find here: ECalendar.

I like this calendar because, it places icon next to particular event, which tells me how important this event is, so i do not have to make my own research on every single event.

From my experience i can tell you that, two events responsible for the biggest moves are: Employment situation and FOMC meeting.

7 signs of bad investment

Buying stocks on stock market or taking positions on Forex, often involves great deal of emotions, especially when you invest a lot of money, or you are starting out with trading and you are not comfortable with putting your money on the risk.

When it comes to money emotions are hard to control however, before you make decision to put money into some stocks, you can try to determine if there are any deadly signs of bad investment behind your decision. (For a full article visit ASXNewbie website, i will just list quickly those signs and make my comments on it).

Here they are: 7 signs of bad investment
  1. Research, lack of research is probably one of the greatest mistake you can make, if you make good research, then you can get at least some confidence in your trade, which is important when it goes bad at the beginning.
  2. Hesitation on fundamentals, this mainly applies to stock market, Forex traders rearly have to focus on fundamental data
  3. Buying stocks for long term with no end in mind, it speaks for itself.
  4. Not being aware of important announcements, on Forex it is useful to know when important economic data will be released, such as employment situation which is responsible for a big price changes in short time.
  5. Sometimes investment needs care, especially if you trade long term
  6. It is not a shame to get rid of bad investment or position, this goes back to the do not risk more then 5% of your capital on the single trade.
  7. Doing what everyone else is doing, this is often mistake of unexperienced trader, be your own guru, do not look at other to know what to do, especially if they are losesr.
Mentioned article is more relevent to stock market, so i changed a bit all seven points to make them fit perfectly Forex market.

Sunday, January 27, 2008

Societe Generale reveals how it was duped in trading scam

Do you remember when lately SocGen anounced that junior trader frauded over $70 bilion? That is a lot of cash and this case has to be explained to public opinion and it seems that bank managers and trader which is partly as i belive responsible for such a big loss are trying to do it.

It maybe not article about Forex but, it is about trading, maybe even about great tragedy. We always learn from mistakes, and it is better to learn from someones else mistakes then yours so i advice you to read it.

Here is a short excerpt to encourage you to reading, by the way it is quite long.

"French bank Societe Generale has admitted that a gap in control systems allowed a junior trader to take a $73 billion losing bet on European share prices, but defended its handling of the world's biggest trading scandal.

Prosecutors said the trader, 31-year-old Jerome Kerviel, would remain in custody until Monday after handing himself in on Saturday and was co-operating with a probe into how the bank racked up $7 billion losses on alleged illicit deals.

Kerviel's new lawyer said he had been doing a trader's job by taking on risk and accused the bank of setting him up for a public "lynching" by letting him carry all the blame.

"He has not embezzled anyone, he hasn't taken a cent for himself and he was just doing his job as best he could," Christian Charriere-Bournazel told Reuters."

Read more here Checks by SocGen missed $73 billion wrong-way bet

Forex reserves swell $3.2 bilion

Another interesting article about forex reserves.

"Foreign exchange reserves rose by $3.16 billion in the week ending January 18, 2008 taking the total reserves to a record $284.98 billion. Money market dealers said that the rise in the forex reserves was largely on account of subscription to the IPO of Reliance Energy that closed on January 18.

The public offering is expected to have drawn in large scale funds from foreign institutional investors. During the same week, the BSE’s benchmark index, Sensex, had dipped about 1,000 points to close at 19,700 with most FII selling shares.

The foreign currency assets stood at $276.13 billion while the reserves with IMF was down by $1 million to $433 million, according to the data released by the Reserve Bank of India in its Weekly Statistical report. In the two weeks ended January 18, forex reserves rose by $8.3 billion. For the second consecutive week, the government’s deposits with the Reserve Bank rose."

Read more here Forex reserves swell $3.2 bn on IPO inflows

How forex market should operate

Interesting article at Vanguard, author explains how Forex market should operate. Article is based on proposal for a liberalized foreign exchange market in Nigeria and its economic benefits.

Two most interesting sections selected by author are:
  • How market will operate
  • Payment for import and forex auction
The CBN will consolidate the distributable portion of the dollar earnings monthly (or at worst bimonthly) in arrears. The realizable values will be published in appropriate government bulletins monthly.

3.6.1 The CBN would issue warrants denominated in dollars monthly without fail to each beneficiary of federally derived dollar revenue according to constitutional provisions with regard to sharing of such revenue.

3.6.2 The beneficiary of the dollar warrant (strictly not cash) (federal, state, local governments, statutory agencies etc) will approach their separate bankers with their dollar warrants for conversion of all or part of the dollar warrant into naira for its corporate budgetary obligations which cannot be paid in dollars (since the dollar is not legal tender in Nigeria).

3.6.3 All buying and selling of currencies will be carried out through a bank or any other such denominated financial institution.

The local bank officer on receipt of the request would seek current rate confirmation from its head office before concluding a deal."

Read more here: Dollar allocations

Saturday, January 26, 2008

Amero Revolution?

Recently i was watching movie Zeitgeist. Pretty cool movie if you haven't seen it i advice you to do it. It consists of three parts first is about Christianity and Jesus, second amd third are about America, power and money which interests most i belive.

Anyway, in a part three there is mentioned new currency Amero. Which will be new currency for North America (Canada, USA, Mexico). So it seems that end for our favourite currency pair is neer, and the question is not: will it happen? will USD will be replaced with Amero? but rather when will it happen? From my informations it will be around 2010, but really it is hard to tell.

The best way to replace USD is to make it weaker and weaker which is happening and we can see it on our Forex charts. So maybe it is a good idea to take long term position against dollar?

This is not important. What is important is this. How will new currency affect Forex market? In my opinion not much. It will be a currency as any other currency on Forex, the only problem will be a fact that there will be no history for it.

This means no backtesting, and even no "space" for technical analysis. However these will be problems only for long term traders or swing traders. I guess scalpers will be okay with this because they do not need a lot of data, but i do not know i am not a scalper.

However, what concerns me most is that we will loose three currencies and gain only one new, which happen further again because of Asian union which is getting ready to introduce asian currency (asio?).

Thursday, January 03, 2008

Simple Forex strategies

I havent't recently updated this blog because, i am currently more focused on Stock Market, and system for sports betting which i recently created. When i will finish it, i wil give you link to this system, i suppose it will be free till the end of the season.

Anyway, simple forex strategies, what i mean by that? In my mind these are strategies that are very simple :). I often see guys with super advanced entry strategies. They use MACD, RSI, ADX, 10 different MAs and EMAs, Fibbonaci retracement, Elliot Waves to predict the best entry point.

I think it's funny.

Because often these guys do not realize that actually there are only two types of indicators.
  • Trend following - indicates whatever Market is in up or down trend (MACD for example)
  • Momentum - tells you if Market is overbought or oversold (RSI)
There are also Volume and Volatility indicators but they are not suitable for Forex market. So if you use more then 2 indicators then you can right now narrow your choice down to only two.

How many oscillators do i use? I use none or zero, so in my mind forex strategy with 2 indicators is still complex strategy. Traders often say that you need a lot of indicators to get rid of false signal. But what i found out when i started using many tools was that i got as many signals that i should take LONG position as for SHORT position. So, keep in mind the old saying: sometimes less is more.

After eliminating all oscillators we are left with very simple tools:
  • trend lines, as well as support and resistance levels
  • Fibbonacci retracement
When i trade Forex i also use two other tools the are not as much popular as MACD, RSI but they work for me.
  • Andrews' Pitchfork
  • Standard Deviation Channel
All of them, help me to determine trend, because what forex trading really comes down to is:

Determine trend, but do NOT try to predict future, it is impossible. determine trend based on what you already have on the chart. There are at least three types of trend: up, down, consolidation, i think i already said it, but it is worth repeating over and over.

Determine Take Profit and Stop Loss, GO IN. That's it.

Ok so to sum this up. You can build a very complex strategy or system if it works for you, it didn't work for me at all. But remember, do not underestimate value and importance of very simple tools like trend lines, fibbonacci retracement and standard deviation channels.