Forex trading purpose and styles

For somebody probably would be big surprise to see article with such title. And many most likely will not take it seriously with the attitude: of course to make money! Yes, that would be true, if ...trader would always remember that. If after reading this article at least one trader will stop and think, that will look promising.

All traders started with the dream to become rich and successful, but just few of them have reached that dream. Why? Market is strict and market do not like traders, who ignores market movements. But at the same time market gives them a lot of positive and negative emotions. It is like night club disco, shiny casino and saddest funeral together in one place. Do you really believe that every trader came to the market to make money? No, lots of traders enjoying happy and sad music, sounds of winning and loosing.

There is a big difference between making money and trading. Not many traders realise that. What is the difference between trading and making money? There is a Big difference. We are not psychologists or any sort experts in psychological factors of the traders, but few simple actions will show us what that trader came to the market for: to make money or to have emotional experience.

Traders without trading strategies or plans usually do not make money, but they trade a lot. Guess which category their belong: traders or money makers? You do not need to be an expert to answer that. They are traders. It is just matter of time when they will fund account again. So, if you have not got a structural approach to the market, if you did not prepare trading plan, do not go into the market. Because this is not the way to make money. And remember trading purpose is to make money. If you do not know how to prepare the plan or do not have a trading strategy there is simple advice – educate yourself, create your own trading strategy.

Another traders are completely interesting – this is the traders who know what market is going to do next, at what price market will turn around and how big the next movement will be. Believe us, to make money it is not a major requirement to know where the market will go next. It is enough to know what market is doing right now.. So, to which category you will put traders who predict the market? Answer is – they are traders. They are happy when got it right and they got a lot of excuses if they were wrong. For them market is just a place to show everyone what they are smarter than others.

Third category of traders, not money makers, are those traders who can not stand to be without an open position. Even if market is calm before the holidays. If no position, no emotions. And the reason why they came to the market is just - emotions.

Trading purpose is not just to make money. It is also a job. A profession. A life style. In order to make money you must love market, even when it is not very nice to you. You must do a lot of work preparing plan, correctly assessing market conditions, taking the right decisions and executing your plan. Any job, any skill or profession requires a time to master it. Trading is no exception. Think about it. Line , between just a trader and a money maker is very thin, but it is not easy to cross it.

First step is to find a time to read more about market, about trading strategies and approaches, about technical side of the market. Second step, prepare a trading plan and execute it. Do not get emotional over outcome from that planned trade. And third, make trading process a habit: learning, planning, executing.

Money Management part I

Money management is already described in all possible ways and it is one of the most important aspects of trading in markets. Generally money management exists in all sorts of businesses where money is involved. In fact, every family has some sort of money management, every single person has their own ideas about it. Our business is trading and thus money management takes an important place.

It is important for the trader to have a good strategy, knowledge about the market and every trader must have money management rules. We are not money managers and our rules apply just to us, but we would like to share some ideas, as our practice shows, it could help you avoid premature closure of an account. Everything you will read here is only guidance, not suggestion in any way to follow our rules. You should spend time reading articles of the professional money managers and come up with your own some sort of rules. After that you must apply those rules in any situation, without an exception. Below is just "food" for the brains to think about.

Two main things you should consider while setting down some money management rules for yourself: size of the single transaction and how many instruments you are going to trade at the same time. Also you should consider the market you trade in. This website is for the FOREX market and we are going to talk just about this market.

FOREX is different from the stock or commodity future markets in many ways and we are not going to discuss those differences, but will try to bring your attention to the FOREX market features, concerning money management. In FOREX market we trade currency pairs: 7 of them are considered to be major pairs and rest of them are exotic or crosses with each other. All major pairs are linked with the US dollar, so main thing is to keep in mind is this: despite that there are seven currencies you always trade against one – the US dollar. So if you enter into the market on all those pairs, you are practically have 7 positions in one currency – US dollar. Even if on the screen it looks like there are many positions, the fall or advance of the dollar has a good chance to effect all positions. Do not forget that.

Next, if you trade cross rates, you should again pay attention, how many positions you have with the same currency. This is important as well, because the same currency could affect all your existing positions.

Now let's talk about size of the position. Many professional money managers have percentage rules how much money you should put into one trade and what size of risk you should allow yourself. All that information you can find in the internet and books, and because we are not money managers we are not going to give you that. But instead we will say this: think for yourself how much money you are going to risk on one trade. If you are putting all 100% of your capital, you are not a trader; simply you are gambler and you're better off staying away from FOREX and other markets. If you consider yourself as a trader, you should never ever risk even 50% of your capital on one trade. Think in this way: trader without capital is just an illusion. Allocate your capital in such way, that an open position will let you open another 4 positions and you will not use more than 50% of your capital. So, take your capital, divide it in half and divide one half into five equal parts. That is the maximum size of your one trade.

So, take your capital, divide it in half and divide one half into five equal parts. That is the maximum size of your one trade.

Please continue reading the next part for money management.

Psychology behind support and resistance

Today's technology provides huge amount of information on any subject. All the news in the world could be found instantly on the computer screen, any event is covered not just with the words in articles, but you can see live video streams on the events. Markets events are no exception. Huge River of information is just basically drawing you in the events and before you digested one important piece of news, another is already flashing on the screen. No wonder that confusion occurs so often or interpretation of the news has two completely different sides. Basically, as human beings, we are not capable to sort out all the news, we are not computers. And as for the traders, enormous amount of information is just making things more complicated than it should be opposite.

Sorting out the news and information about the market and choosing ones as useful and others as not, trader has an advantage to make a right trading decision. What to choose and what to ignore? This question should be answered by every individual trader. It depends on the traders approach to the market, what analysis and strategies traders uses. Good choice of the valuable information certainly produces good trading or investing results.

Simple things do not attract anymore trader's eye. Many of the traders are using complicated approach to the market and lots of information is lost in the desire to satisfy just one customer: Trader's Ego. Enormous desire to be better than anybody else or to just simply to look good makes trader to forget purpose of the trading itself and simple things just disappears from the trader's attention. While trading the market is completely based on the trader's psychology, we should always come back to the one thing: we can enter or exit the market, just using available information. We cannot have a trading plan if we do not have information about current situation in the market. So we must have a certain amount of information, but at the same time too much information is just a disaster.

For the technical analysis best information would be SUPPORT and RESISTANCE levels. Those two levels are so simple, that many times are ignored by the traders or, in the events when trader pays attention to them, are taken lightly, without giving required attention those two levels deserve. Support and resistance method maybe is simple, but those levels alone provide huge amount of information about current situation in the market and most importantly it provides clear market's direction. Go with that direction and you will never be wrong.

Support and resistance levels can be used in many different ways, but clear understanding of importance of those two levels, should be very well digested by the trader.

We wish you success in your trading.

After the holidays, things are getting serious

United States: Approaching the Quarterly Earnings and the Macro Data

Next week is going to be a week full of data in the United States. Meanwhile, it will be interesting to see how the political negotiations on the upward review of the debt ceiling will begin to develop, but also the evolution of one of the parameters that the Fed has set in its sights on its monetary policy, that is the inflation. On January 15th, we will be able to know the producer prices (the retail sales on the same day) and on January 16th the consumer prices. Both these parameters had suffered a loss in November, or a symptom of deflation, what the Fed wants avoid at all costs. Also, on January 16th the U.S. will release the data on the net purchases of foreign securities (TIC) and the industrial production in December. Finally, on January 17th, attention to the Phily Fed and on January 18th the consumers confidence.

Opportunities in the UK

If the Euro-zone economic data offer a few ideas (it starts with the industrial production on January 14th and then, on January 16th, the inflation), Great Britain will attract the attention of all traders. On January 15th, the numbers of producer prices and inflation will be released while on January 18th the retail sales.

On the GbpAud cross, the last session correction has created an interesting buying opportunity. At this point, the cyclic deadline at 140 days that has been able to intercept precisely the primary bottoms of GbpAud is approaching. Furthermore, considering the potential formation of a bullish head and shoulder, we think that entering long on these levels is not so risky.

Long on GbpAud at 1.525 stop 1.48

USDZAR, The Volatility Barometer

It is the fifth element of the so-called BRICS, but South Africa, with its own currency, the Rand, always offers many volatility opportunities to traders. In the coming week, January 16th will be a basic day for UsdZar, as the business confidence index (Kagiso) will be released, together with the retail sales, coming back from the previous month -1.7%. But there is another indicator, the sale of vehicles released last week, which makes us not so optimistic on the Rand and that urges us to be bullish on UsdZar during the next few weeks. As we can see from the chart, the correlation between vehicle sales and UsdZar is very high and the current dynamic of the macroeconomic data (here of reverse scale) seems to be very similar to the one in 2006, when the percentage change became negative. As long as there are no signs of improvement on this front, we will remain bullish on UsdZar.

Long on UsdZar at 8.70 stop 8.39

Brics

Coming week full of data for the other components of the BRICS too.
China: Gdp, industrial production and retail sales on January 18th
India: Inflation on January 14th
Brazil: Retail sales on January 15th

Last Trades - Comment

The long entry of EurUsd in area 1.30 is proving to be perfect and now the short oscillators near the oversold should allow EurUsd to head towards 1.349. At the moment, the short indication on UsdJpy is not so lucky, but we believe that the excess of pessimism about Jpy will soon feel its effects in a contrary optics. The reaction of XauUsd, repositioned above 1650, is positive and EurTry is back close to our entry level.

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Strong Volatility in the departure of 2013

Author BuzzInForex

And now attention to the debt ceiling

After the fear for the fiscal cliff the U.S. are now facing to a new political battle related to the debt ceiling. The increase in the maximum level of public debt will be necessary to avoid the default of the United States and this should be of benefit to XAUUSD, historically correlated to the amount of U.S. debt. The only noteworthy macroeconomic data in the coming week will be those related to the U.S. trade balance. Considering our medium term bullish view, the return of EurUsd close to the support of area 1.30 provides us the opportunity to enter long on the cross with target 1.349 (see graph 1)

Trade: long EurUsd at 1.30 stop 1.27

The starting of the electoral year in Europe

While 2012 has been the year in which the ECB has managed to take time, 2013 will be the year of the policy responses from Italy and Germany. In Italy there the political elections will be held in February, while in Germany the election date is scheduled for the autumn. Meanwhile, the ECB meeting is scheduled on January 10th at the same time with the one of the Bank of England.

The most awaited event might be the trend of the Pound. EURGBP historically experiences a very bad first month of the year with an unfavorable seasonality on 9 of the last 10 years. And anyway, a phase of pressure on the supports of area 0.80 for EURGBP is predictable on January, also to cover the difference of the spread between 2 years German and English yields. As we can see from the chart the GER-UK 2 years spread has fallen from September, while EURGBP has risen, a sign that the EURGBP rally of the past few weeks was not reliable.

Focus on the macro data of January 8th to the German factory orders and business confidence in the Euro area.

EURGBP - black level, GDBR2 Index - Red level

Nobody wants to buy JPY anymore?

Japanese elections have strengthened the weakening of JPY formalizing an evident bullish head and shoulder on UsdJpy with theoretical target at 92. Anyway, the rise is not always a straight line and the Adx has now reached a record level at 60, already registered in March 2012 with an overbought above 80 (RSI). Besides, the Cot analysis indicates a remarkable excess of pessimism about Jpy that might lead to a cooling of the rise. Based on these considerations and as the data on the current account deficit of November will be published on January 11th,we will strengthen the short position on UsdJpy at 88 to catch the expected retracement, but also closing the short operation NZDJPY in stop to keep the exposure on the Japanese currency unchanged.

Trade: short UsdJpy at 88 stop 93

Other Macro econimic world data

There are not so many macroeconomics data on next week.
Australia: January 8th deficit trade, January 9th, retail sales, January 10th building permits
China: Inflation January 11th
South Africa: Industrial Production January 10th
Turkey: Industrial production January 8th
Norway: Industrial Production January 8th, inflation January 10th
Sweden: Industrial Production and Inflation January 10th
Mexico: Industrial Production and Inflation January 11th
Czech Republic: Inflation and Unemployment January 9th.

Last Trades - Comment

Gold has kept on falling due to the rise of the American real interest rates. However, for the above mentioned reasons, we still keep the exposure as long. EurTry has not continued its bullish trend that started with the neck line break of 2.35. We suggest to remain long until the signal will not be denied under 2.30.

2013-01-07 07:10:38

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