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.