Strategy and trading together with Bollinger bands

It is possible to trade with Bollinger bands in the world of Forex too. This indicator helps us to measure the volatility of prices. Bollinger Bands consist of three bands, specifically a higher band, a lower band and a central band. The central band is a simple moving average, normally set at 20 periods.

Bollinger bands are designed to show the traders the concept of what exactly the volatility of the market is. The basic premise of the Bollinger bands is that the price should normally fall within two standard deviations (but these can be customized basing on the market trader experience), or the upper band and the lower one. Therefore, we might have a trend reversal near the upper and lower bands. Since the central line is a moving average which represents the trend of the market, it can be used as support or resistance.

The performance of NZD / JPY during the last few months, shows us how the Bollinger bands with 3 standard deviations from the 20 days average offer traders a great tool to easily take advantage of the existing trading range on the cross. The long trade on the bottom band and the short one on the upper band has been a very profitable trading since now, still including just a single false signal during the last two years.

NZDUSD with Bollinger Bands Indicator

The first chance that the operators have to use this indicator is to identify the potential overbought and oversold levels. The best way to trade with the Bollinger bands, anyway, is to wait for the confirmation of other indicators too, as if prices remain outside of the side bands, we can have a strong tendency or the warning of a reversal.

A concrete example came from AUD / CHF in September 2011. After a dramatic decline to 0.733, the cross has started an upward trend finding a resistance in the upper band at 2 standard deviations from the average at 20 days. The next returning movement found a valuable support in the central average, capable of pushing up AUD / CHF again. At that point the cross began to "walk" on the upper band, leaving marginally from it on several occasions. The short trade of AUD / CHF on the contact with upper band would have been a mistake, while the correct strategy was to wait for an end of the day within the upper band combined with an RSI above 70 points. The dynamics of AUD / CHF during the following days confirmed the correctness of the strategy.

AUDCHF with Bollinger Bands Indicator

Often, after periods of low volatility, breakages of the bands can occur. We must pay attention to this problem when we use this strategy, since the first exit level is often a false one. When the volatility decreases to very low levels, the so-called "squeeze" takes place. An indicator called BandWidth has been created to measure it. Usually, a squeeze occurs when the BandWidth indicator drops to the lowest level of the last six months.

Let’s check now the squeeze in action on USD / CAD at the end of 2007. At this point, the consolidation starts and the resulting trading range narrows considerably. The average flattens out and goes right in the middle of the quotations with the Bollinger bands that flatten towards the average. At this stage, a false signal called "head fake" could happen with the cross going to break a band and then returning on its steps and taking the opposite direction. In this case, the correct operation for USD / CAD was to get a long entry closing above the upper band and a stop loss on the bottom of that session. Applying that kind of trading would have allowed to catch a very important upwards movement.

USDCAD with Bollinger Bands Indicator

There is also the opposite version of Squeeze, or the so-called expansion. In this case there is such a powerful trend at a very high volatility that, for example, in case of an uptrend the lower band diverges from the top pointing downwards.

You can find this article here:
http://www.buzzinforex.com/trading-strategies/strategy-and-trading-together-with-bollinger-bands

Quants: The Alchemists of Wall Street

Quants are the math wizards and computer programmers in the engine room of our global financial system who designed the financial products that almost crashed Wall st. The credit crunch has shown how the global financial system has become increasingly dependent on mathematical models trying to quantify human (economic) behaviour. Now the quants are at the heart of yet another technological revolution in finance: trading at the speed of light.

What are the risks of treating the economy and its markets as a complex machine? Will we be able to keep control of this model-based financial system, or have we created a monster?

A story about greed, fear and randomness from the insides of Wall Street.

http://www.youtube.com/watch?feature=player_embedded&v=ed2FWNWwE3I

you can find this article:http://www.buzzinforex.com/videos/quants-the-alchemists-of-wall-street

Panorama - Banking Crisis - Have they Learned?

"What Happens After Sorry." In 2009 RBS announced the biggest losses in British corporate history. The bankers responsible, including former RBS chief Fred Goodwin, (aka Fred the Shred) apologised publicly for their parts in the banking crisis.

From the RBS workers facing job cuts (announced just hours after the apologies), to the shareholders who have lost their life savings and the taxpayers whose money is now riding on the bank's recovery, Panorama asks the question, "What happens after sorry?" Reporting from Mark Daly.

http://www.youtube.com/watch?feature=player_embedded&v=Baim7T4qYQo

http://www.youtube.com/watch?feature=player_embedded&v=X89EbdeGKXE

Find it here:http://www.buzzinforex.com/videos/panorama-banking-crisis-have-they-learned

Merkel Again Rejects Eurobonds, Says Germany’s Strength is Not Unlimited

The German PM, Angela Merkel, again rejected the idea of issuing common Eurobonds. She held a press conference on Monday which lasted for almost 100 minutes, making comments on different issues. We'll go cover some of those comments in this article.

Merkel once again rejected Eurobonds, saying that there can be no shared debt burden without shared control. She said that the crisis will be solved by "politics" and added that she wants Europe to agree to closer political coordination by the end of this year. Merkel hopes that the fiscal compact will ease investor concerns. Financial markets are worried that Europe can repay its debts, she said.

In comments on the ECB's latest bong buying program, Merkel said that its not up to politicians to determine the size of the ECB's OMT (Outright Monetary Transactions) program. She added that the ECB President Draghi's focus on monetary policy is important and that the Bank mustn't go into fiscal policy. She said that "she will take the ECB's word" that their actions are driven by monetary policy considerations. I find it very hard to believe she actually thinks that. Seems pretty obvious that the ECB just used the "crisis interferes with our monetary policy transmission" line to get cover for intervening in the peripheral bond markets.

The German PM defended the Bundesbank President Weidmann's comments to the media, saying there is nothing wrong with him expressing his views in public. She added that he is concerned and that "we have to solve the crisis in a sustainable way".

Merkel said that they are between 4-5 years into the crisis and that there is "some way to go". She's trying to mix up the 2008 Crisis with the Euro Debt Crisis which started in late 2009/early 2010. In my opinion this is a deflection trick used by some European politicians trying to blame the Crisis on outside factors not on their overspending.

Merkel goes on to say that "her heart bleeds for Greeks facing hardships". But she later says that richer Greeks should "pay their fair share" adding that the government must focus on collecting taxes. This is a gross misrepresentation of the problem. Greece doesn't have a revenue problem, it has a spending program caused by a massive welfare state. But again its politically easier to blame the evil rich people not paying "their fair share" then it is to fix the mess that is the European welfare state.

A European supervisory body for banks is unlikely to be created by year end, she said. But the body must be in place before the ESM (Europe's permanent bailout fund) will be allowed to inject money in struggling banks.

She expressed confidence that the Crisis can be solved but added that overburdening Germany will not help the Euro. "Germany's strength is not unlimited" she said.

Hot news here:
http://www.buzzinforex.com/news/merkel-again-rejects-eurobonds-says-germanyrsquos-strength-is-not-unlimited

Demo account vs real account in forex trading, which one is better, whats the difference

19:10 2012.10.10 As you already know there is lot of debate about the real trading accounts and demo trading accounts. Any attempt to compare these two accounts brings more confusions, they are completely different, they are used for completely different purposes. Before comparing these accounts we need to be aware of what we discuss about and for what purpose we use trading accounts. Well enough for intrudction lets get to the point what I really mean. Lets find out disadvantages and advantages about those accounts. If you are first time or beginner in forex trading and Trading Platform is first time you run it then go for DEMO forex trading account, not for REAL. You need to become familiar with platform, how to trade, how to navigate, basically understand how software / trading platform works. In such case, please write it down, only demo trading account should be used! So you probably got my point, demo trading accounts are for becoming familiar with trading platform itself. Real forex account is for traders and beginner traders, you can still deposit low amount of money like 200 USD, 2000 USD for trading. And you can trade with lot sizes like 0.01, 0.03 - this way you will learn, you will have that feeling that you are really in the forex market, you will feel that you are really trading, you will get a feeling that hey... I am really in the forex market, this is real! Using small lots sizes you will be able to learn with real money - thats big difference comparing to demo account. With demo account you won't loose money, but remember demo account prices can differ with real trading account when executing orders! Notes: 1) Demo accounts are not for learning trading, demo accounts are for learning how software works 2) Real trading accounts are for learning and trading 3) if you are totally beginner, use your trading account with low amount of lots Recommendation: use demo account to understand how software works, use real trading account to learn forex trading. P.S. If you do not know what lots are, search in buzzinforex education section and read articles about it! Interesting forum topic here: http://www.buzzinforex.com/forum/demo-account-vs-real-account-in-forex-trading-which-one-is-better-whats-the-difference-48/1#289

GatewayRigaTo

SNB Rebuffs S&P’s Claims That It’s Responsible for Exacerbating Bond Spreads

As no major economic data was released in the European session today, we'll focus on some Swiss drama instead. Early in the European session the SNB chairman Thomas Jordan delivered a speech titled "Today's challenges from the SNB's perspective". In it, he mainly talked about the EUR/CHF peg and the outlook for the Swiss economy. The Swiss National Bank announced a peg of 1.20 versus the Euro last year in September and has so far been successful in defending the level.

Jordan said that the peg has been effective and added that the it limited the damage to the Swiss economy. He claimed that the EUR/CHF is still too low at 1.20 and 1.21, adding that the Swiss Frank should depreciate over time. The Frank has not depreciated as much as the Bank had forecasted, Jordan said. He added that the Bank still thinks the peg policy remains correct and they stand ready to take further measures.

On the Swiss economy, Jordan forecasts that although growth will be moderate, Switzerland will not fall into a recession, but he did mention that the Swiss labor market may lose momentum. He doesn't see a threat of inflation in "the foreseeable future" and added that the deflation period will end this year.

Jordan also talked about the crisis in Europe. The short term global outlook has worsened in the past few months he said. But the Bank is still positive on the Eurozone, the SNB's baseline scenario is for growth in the Eurozone in 2013. The Chairman added that structural reforms are needed to end the debt crisis. Draghi's bond buying plan has calmed markets and the plan's announcement had positive impact in Switzerland, Jordan said.

Earlier in the day, Standard and Poor's released a report focusing on the SNB. The rating agency claimed that SNB's interventions were responsible for exacerbating the bond spread differentials between Europe's periphery and its core. The Swiss Central Bank covered almost HALF of the 2012 financing requirements of the core (Germany, France, Austria, Netherlands, Finland). In 2011, the Bank only covered 9% of the core's financing needs. The SNB's investments in these countries totaled 80 Billion Euros in the first 7 months of the year, according to S&P.

The rating agency goes on to say that this bond buying is exacerbating the trend of diverging market conditions. The SNB is buying the core's bonds, thereby bringing down their interest rates but this also increases the interest rate spread differential with Europe's periphery. S&P goes on to say that the average interest rate for the core in 2012 was 2.15%, compared with 3.04% in 2011. As Central Banks typically hold bonds until they mature, its unlikely that there will be a reversal of this trend soon. But there could be some pressure on core interest rates if the SNB slows down its bond buying, S&P concludes.

The SNB was quick to reply to the report, saying it contains a fundamental error. The report doesn't account for SNB's deposits with other central banks. The Bank also disputed the 80 Billion dollar number, saying it is unfounded.

Despite Jordan's speech and the back and forth between S&P and the Swiss National Bank, EUR/CHF didn't move much today. The pair is up only 12 pips on the day, trading at 1.2110 at the moment.


Also this article you can find here:
http://www.buzzinforex.com/news/snb-rebuffs-sampprsquos-claims-that-itrsquos-responsible-for-exacerbating-bond-spreads

So who is a great trader?? :)

All the great traders that we have had the pleasure to know and to be around, on exchange floors and on trade desks, had certain repeatable traits that all level traders can learn, or take something from;

1. They possesed empathy and the ability to listen.

2. Faith in their own ability to get things done, if life and in work.

3 They were able to show humility, and a willingness to accept defeat as graciously as accepting success.

4.Desire to work towards, and not to just expect, having more success than defeat.

...more about this you can find:
http://www.buzzinforex.com/forum/who-is-a-great-trader-67

Average Directional Index (ADX) analysing the direction for currency

J. Welles Wilder is the man behind the Average Directional Index (ADX) and he employs it in evaluating the strength of a trend as well as defining the session of range trading. Investors who are seeking on making profitable trades using technical analysis rely on the ADX indicator to aid them determine if the market is trending or ranging, thereby adjusting the indicator’s settings to suit current market sentiments. When traders employ dynamic trading strategy that infuses ADX into them, we tend to see better trading results.

As an oscillator, the ADX bounces off between the 0 and 100 mark, with readings above 60 being quite rate. We can compare the ADX using two levels:

• Readings staying below 20 on the ADX indicates a weak trend;
• Reading moving above 20 on the ADX indicates a strong trend;
• Reading moving pass the 40 mark on the ADX indicates an extreme trend;
• Rising ADX value indicates a trend that’s becoming stronger;
• Falling ADX value indicates a trend that’s becoming weak;
• An uptrend is in place when the +DI is on top of the –DI;
• A downtrend is in place when the –DI is on top of the +DI;
• Trend is said to be changing when the Dis cross.

How to interpret ADX

On our chart the ADX indicator has 2 lines: ADX itself (light sea green), +DI (lime) and –DI (red). You would need to draw a horizontal line at the 20 level. The easiest way to get the horizontal line on the 20.000 mark is to do the following for those using a MT4 platform:

1. Click on the horizontal line on the top tool bar on your MT4 platform.
2. Take your cursor to the indicator window and click inside it, you’ll have the horizontal line placed inside it. To have the line properly aligned on the said horizontal mark, right-click on any space within the indicator window and scroll upward to “Object List” and click on it. Proceed to the horizontal line pop-up window and double click on the "horizontal line", on the pop-up window that shows up, go to the “parameter” tab and change the value to 20. Okay this and proceed to your chart to have the line aligned on the 20.000… Just on spot.

At this point, all ADX readings that are below the 20 suggest a weak and uncertain trend, while the reading above 20 indicates that the trend has gained momentum. The ADX cannot be explained any better, as it allows currency traders determine whether the trend is weak or strong, helping them chose an appropriate strategy to trade with (this could be a strategy that’s based on trend following or one that measures on consolidation in market sessions without ideal price alterations. Another important horizontal line that should be added to the ADX indicator window should be placed on the 40 mark (see procedure above on how this was accurately achieved).

How to trade with ADX

Trading with the ADX should take the following formats below.

1. When the ADX is seen to be traded below the 20 mark, this is a clear signal that there’s no trend or it is a weak one. If you must trade during sessions like this, then you must employ non-trend following strategies, otherwise losses could result to even whip-saws (maybe you could try your hands on channel trading for this purpose).

Average Directional Index (ADX) Uptrend

In this example, the ADX hovered below the 20 horizontal line for a bit. At that time, the EUR/USD experienced a slow trend and soon enough, we saw the ADX surge pass the 40 mark and the EUR/USD broke the top of its range. An extreme uptrend was seen and the pips were made. This looks as simple as can be.

2. In our next example we find the ADX lingering below the 20 horizontal line and started to climb beyond the 40 mark. The significant difference in this case is the we have the –DI above the +DI, signaling a sell signal.

Average Directional Index (ADX) Downtrend

The EUR/USD chart above shows the ADX lingering below the 20 horizontal line and then surged above the 40 mark (signaling an extreme signal). The downtrend below clearly defines this simple strategy that’s built around a single technical indicator (ADX).

GREETINGS

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