Non Farm Payrolls – Unemployment.doc

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Non Farm Payrolls – Unemployment.doc

  1. 1. INFO-INFO PENTING TENTANG FOREX 1. Non Farm Payrolls - Unemployment Avg. Move: 124 Pips 2. FOMC Interest Rate Decisions Avg. Move: 74 Pips 3. Trade Balance Avg. Move: 64 Pips 4. CPI - Inflation Avg. Move: 44 Pips 5. Retail sales Avg. Move: 44 Pips 1. Non Farm Payrolls – Unemployment The unemployment rate is a measure of the strength of the labor market. One of the ways analysts gauge the strength of an economy is by the number of jobs created, and the percentage of workers unable to find jobs. Strong job creation is indicative of economic growth, as companies must increase their workforce in order to meet demand. Release Schedule: First Friday of the month at 8:30am EST 2. FOMC Interest Rate Decisions The Federal Open Market sets the discount rate, which is the rate at which the Federal Reserve Bank charges member banks for overnight loans. The rate is set during the FOMC meetings by the regional banks and the Federal Reserve Board. Release Schedule: 8 meetings scheduled per year. Date is known in advance so check the economic calendar 3. Trade Balance The balance of trade measures the difference between the value of goods and services that a nation exports and the value of goods and services that it imports. A trade surplus results if the value of exported goods exceeds that of imported goods, whereas a trade deficit exists if imported goods exceed exported goods. Release Schedule: Generally released around the middle of the second month following the reporting period. Check the economic calendar 4. CPI – Consumer Price Index The CPI is a key gauge of inflation, as it measures the price of a fixed basket of consumer goods. Higher prices are considered negative for an economy, but since central banks often respond to price inflation by raising interest rates, currencies sometimes respond positively to reports of higher inflation. Release Schedule: Monthly - around the 13th of each month at 8:30am EST 5. Retail Sales Retail sales is a measure of the total goods sold by a sampling of retail stores. It is used as a gauge of consumer activity and confidence as higher sales figures would indicate increased economic activity.
  2. 2. Release Schedule: Monthly - around the 11th of each month at 8:30am EST What time frames work best in FX? Intraday Trading Intraday traders will usually hold positions intraday or even as long as overnight. In this instance, they will refer to 5 minute and 10-minute charts. Swing Trading Swing traders, who tend to take their positions and hold for several hours to approximately 4 days, will usually refer to hourly time frames in placing their positions. Position of Long-Term Trading Position of longer term traders, will refer to daily and weekly charts. The weekly charts will establish the longer term perspective and assist in placing entries in the shorter term daily. They tend to hold for longer than 1 day for as long as even a couple of months to a year. Using Multiple Time Frames Another key time frame consideration has to do with a time screen. Here, the trader will refer to a triple or double screen. Considering the former, the trader will rely on the daily for the longer term perspective, while establishing a similar pattern in the intermediate (hourly chart) and short term (10 minutes). If all three frames line up for a short opportunity, the trader will more than likely attempt to capture the shortfall and place a sell. In the event of the double screen, the trader is simply considering one time frame, daily, in establishing the entry in the short term, hourly. Technical analysis pitfalls...when it WON'T work Technical analysis will not work when fundamental factors or economic data becomes the main focus of the market as participants become sensitive to any developments. News Releases With speculation mounting on the possible outcomes, fundamental news releases like US non-farm payrolls have created situations in the market that do not adhere to technical analysis as volume and volatility spikes. Although the aftermath more than not will once again adhere, the mass speculation that ensues makes sure that traders are scrapping for the best price available in filling their positions rather than applying your everyday moving average or price oscillator. Central Bank Intervention Central bank intervention can also throw a "monkey wrench" into the best technical analysis. The Bank of Japan serves as an excellent example. When the Bank of Japan intervenes, the main objective is to not only adjust spot prices but also to make sure speculators are flushed out. As a result, bank officials will place entries in unlikely levels, thereby ultimately establishing a support or resistance level. Once intervention efforts are spotted, volatility once again spikes as speculators will attempt to be captured in a momentum trade and others attempt to exit at the best price available. How many indicators should I follow? Although trading strategies do differ in applications and techniques, smaller traders are able to capture moves on relatively simple indicators. Used individually, the price oscillators have provided the best opportunities, as they are relatively easy to understand. For instance, the RSI will provide great buy and sell signals as it displays reference levels (the 30 for oversold conditions and 70 for overbought conditions). Here, traders can buy or go long once the RSI peeks above the oversold or below the overbought regions. Much in a similar method, the MACD presents buy or sell signals through the crosses between the signal and moving average line. Trading with a Strategy Trading successfully is by no means a simple matter. It requires time, market knowledge and market understanding and a large amount of self restraint. ACM does not manage accounts, nor does it give market advice, that is the job of money managers and introducing brokers. As market professionals, we can however point the novice in the right direction and indicate what are correct trading tactics and considerations and what is total nonsense.
  3. 3. Anyone who says you can consistently make money in foreign exchange markets is being untruthful. Foreign exchange by nature, is a volatile market. The practice of trading it by way of margin increases that volatility exponentially. We are therefore talking about a very 'fast market' which is naturally inconsistent. Following that precept, it is logical to say that in order to make a successful trade, a trader has to take into account technical and fundamental data and make an informed decision based on his perception of market sentiment and market expectation. Timing a trade correctly is probably the most important variable in trading successfully but invariably there will be times where a traders' timing will be off. Don't expect to generate returns on every trade. Let's enumerate what a trader needs to do in order to put the best chances for profitable trades on his side: Trade with money you can afford to lose: Trading fx markets is speculative and can result in loss, it is also exciting, exhilarating and can be addictive. The more you are 'involved with your money' the harder it is to make a clear- headed decision. Money you have earned is precious, but money you need to survive should never be traded. Identify the state of the market: What is the market doing? Is it trending upwards, downwards, is it in a trading range. Is the trend strong or weak, did it begin long ago or does it look like a new trend that's forming. Getting a clear picture of the market situation is laying the groundwork for a successful trade. Determine what time frame you're trading on: Many traders get in the market without thinking when they would like to get out, after all the goal is to make money. This is true but when trading, one must extrapolate in his mind's eye the movement that one expects to happen. Within this extrapolation, resides a price evolution during a certain period of time. Attached to this is the idea of exit price. The importance of this is to mentally put your trade in perspective and although it is clearly impossible to know exactly when you will exit the market, it is important to define from the outset if you'll be 'scalping' (trying to get a few points off the market) trading intra-day, or going longer term. This will also determine what chart period you're looking at. If you trade many times a day, there's no point basing your technical analysis on a daily graph, you'll probably want to analyse 30 minute or hour graphs. Additionally it is important to know the different time periods when various financial centers enter and exit the market as this creates more or less volatility and liquidity and can influence market movements. Time your trade: You can be right about a potential market movement but be too early or too late when you enter the trade. Timing considerations are twofold, an expected market figure like CPI, retail sales or a federal reserve decision can consolidate a movement that's already underway. Timing your move means knowing what's expected and taking into account all considerations before trading. Technical analysis can help you identify when and at what price a move may occur. We will look at technical analysis in more detail later. If in doubt, stay out: If you're unsure about a trade and find you're hesitating, stay on the sidelines. Trade logical transaction sizes: Margin trading allows the fx trader a very large amount of leverage, trading at full margin capacity (in ACM's case 1% or 0.5%) can make for some very large profits or losses on an account. Scaling your trades so that you may re-enter the market or make transactions on other currencies is generally wiser. In short, don't trade amounts that can potentially wipe you out and don't put all your eggs in one basket. ACM offers the same rates regardless of transaction sizes so a customer has nothing to lose by starting small.
  4. 4. Gauge market sentiment: Market sentiment is what most of the market is perceived to be feeling about the market and therefore what it is doing or will do. This is basically about trend. You may have heard the term 'the trend is your friend', this basically means that if you're in the right direction with a strong trend you will make successful trades. This of course is very simplistic, a trend is capable of reversal at any time. Technical and fundamental data can indicate however if the trend has begun long ago and if it is strong or weak. Market expectation: Market expection relates to what most people are expecting as far as upcoming news is concerned. If people are expecting an interest rate to rise and it does, then there usually will not be much of a movement because the information will already have been 'discounted' by the market, alternatively if the adverse happens, markets will usually react violently. Use what other traders use: In a perfect world, every trader would be looking at a 14 day RSI and making trading decisions based on that. If that was the case, when RSI would go under the 30 level, everyone would buy and by consequence the price would rise. Needless to say, the world is not perfect and not all market participants follow the same technical indicators, draw the same trendlines and identify the same support & resistance levels. The great diversity of opinions and techniques used translates directly into price diversity. Traders however have a tendency to use a limited variety of technical tools. The most common are 9 and 14 day RSI, obvious trendlines and support levels, fibonnacci retracement, MACD and 9, 20 & 40 day exponential moving averages. The closer you get to what most traders are looking at, the more precise your estimations will be. The reason for this is simple arithmetic, larger numbers of buyers than sellers at a certain price will move the market up from that price and vice-versa. Tips for Trading the Major Currency Pairs Trading the US dollar opens a whole new market to the potential trader, a market where one can participate in the cyclical nature of the global economies. Wish to diversify away from the US dollar... buy the Euro. Wish for movement in the market... trade the British Pound. Believe that Japanese economy is going to grow... buy Japanese Yen. Geopolitical tensions... buy the Swiss Franc. Trading majors gives you choices. All About the Majors: EUR/USD Making headlines around the globe, the EUR/USD is perhaps the best known pair in the world! For the past 3 years it's been making high after high, but a reversal could send the price plummeting! In the meantime, it provides plenty of trading opportunity as it ranges between extended breakouts. The euro has been called the "anti-dollar" since it is highly sensitive to US data. Because the recovery in the US has been uncertain, the market closely watches developments in the US economy to determine the strength of the recovery. Fears that the US is hitting a "soft patch" in its economic growth generally boost the euro. Though the EUR/USD actively trades 24-hours a day, the most action is concentrated in the time when the US and European banking hours overlap, from 7:00 AM EST to 10:00 AM EST. Of all the majors, this pair best reflects how the US economy is doing compared to the rest of the world. EUR/USD Profile The US economy is dependant on imported oil—so movements in the price of oil tend to impact the value of the dollar!
  5. 5.  Average daily range: 111 pips  Tends to consolidate into wide ranges after sharp trends  Good for: trading in all time frames, depending on strategy RefcoFX Analyst Says: The battle rages on! Dollar bulls have been slugging it out with bears for years in this pair. Watch the US economic data closely and take advantage of uncertainty about US economic recovery by adopting range trading strategies in the absence of a trend. HOT Buttons: What moves EUR/USD? Surprises in US economic releases This pair is hypersensitive to US data and will move when results come as a surprise- especially indicators that measure growth or recovery in the US. Talk of Euro as an alternative reserve currency Because the US dollar is held as a reserve currency by many banks around the world, a diversification into euros would drive the value of the euro up causing a sharp move in the pair. Interest rate differentials As the Fed raises interest rates, money will flow into the US as investors move to capitalize on these higher returns, boosting the value of the dollar. Trade Deficit Because the imbalance of more imports vs. exports has the potential to reduce the value of the dollar in the long run, the market is very concerned with the trade balance in the US. Changes can cause a big shift in the value of the US dollar. Fundamentals to Watch FOMC Rate Decisions Watched closely since any increases in the interest rate automatically bring in foreign capital, increasing the value of the dollar. US Non Farm Payrolls Amid fears of a "jobless recovery," the market has become very sensitive to this indicator, which measures new jobs created in the US. U.S. Current Account... US Trade Balance A measure of how much the US exports compared to how much it imports. To many net imports can drive the value of the dollar down, since more capital is leaving the US and being sold abroad, which drives down the value of the dollar. US TIC Data Treasury Inflow Capital is a measure of how much foreign buying of US securities is happening. This can offset an imbalance of too many imports, since money is coming to the US to purchase goods which drives the value of the dollar back up. US Retail Sales The US economy is largely driven by consumer demand. If this number is unhealthy, it can indicate a decline. FOMC Minutes The breakdown of Federal Open Market Committee meetings. Scoured for any clues about how the Fed perceives the state of the Economy. Since the Fed makes interest rate decisions, insight into their outlook can help the market predict the interest rate outlook. European GDP Gross domestic product. A measurement of output, and more importantly, growth in an economy. European Trade Balance A measure of how much Europe is importing versus how much it exports. Too many imports mean that the currency will get weaker because more Euros are being sold to purchase foreign goods. European CPI Consumer price index, a measure of inflation in Europe. Inflation that is too high or too low may prompt Europe’s central bank to raise or lower interest rates.
  6. 6. ECB Rate Decision Refers to the European Central Bank’s monetary policy. If inflation is too high, the ECB will raise interest rates to slow borrowing and spending. If economic growth is sluggish, lowering interest rates will help boost activity. High interest rates make a currency more attractive. IFO Business Climate Survey Acts as an early indicator for economic development in Germany, which is Europe’s largest economy. Measure of sentiment that is weighted by industry to provide a composite outlook. German Unemployment As Europe’s largest economy, German unemployment is read as a gauge of economic conditions in the Euro zone as a whole. All About the Majors: USD/JPY The USD/JPY is an enigmatic pair that gives a good proxy of US versus Japanese strength. At the same time, the Bank of Japan works to keep the Yen weaker than perhaps it truly is, since a strong Yen would hurt Japan’s export sector by making its products more expensive. Because interest rates in Switzerland are so low, the CHF is also a popular funding currency for carry trades. Because growth in the Swiss economy has been slow for some time, many investors are entering into USD/CHF as a carry trade, making the pair extremely sensitive to any changes in the interest rate outlook for either the US or Switzerland. The USD/JPY is most active at the open of the Asian session (6 PM to 9 PM EST) as well as during the early US trading session (7 AM – 10 AM EST). USD/JPY Profile Watch interest rates and outlooks carefully – the JPY is a funding currency for many carry trades and so it’s hypersensitive to the prospect of a rate change.  Average daily range: 102 pips  Popular funding currency for carry trades since interest rate is so low  Good for: trading in all time frames, depending on strategy RefcoFX Analyst Says: An exciting pair to watch because of all the dramatic factors surrounding it, China, oil, interest rates and official intervention! Japan’s biggest interest is the health of its export sector, so developments that affect this are monitored closely. Keep an eye out for any news regarding the revaluation of the Chinese currency. HOT Buttons: What moves USD/JPY? Chinese Yuan: If China revalues its currency (thereby allowing it to become stronger and closer to its true value) then Japanese exports would be able to compete better in the US and China against Chinese products. If this happens, the Bank of Japan could then stop intervening in the market to keep the Yen weak, which would result in an increase in the value of the Yen Oil prices Japan is highly dependent on imported oil. Higher oil prices can impede both production and growth in Japan as it makes input costs significantly more expensive. Japanese reserve diversification Japan holds large reserves of US securities and currency. A diversification out of dollar only holdings could result in a large sell off in the US dollar, driving the price down. Fundamentals to Watch FOMC Rate Decisions Watched closely since any increases in the interest rate automatically bring in foreign capital, increasing the value of the dollar.
  7. 7. US Non Farm Payrolls Amid fears of a “jobless recovery,” the market has become very sensitive to this indicator, which measures new jobs created in the US. U.S. Current Account... US Trade Balance A measure of how much the US exports compared to how much it imports. To many net imports can drive the value of the dollar down, since more capital is leaving the US and being sold abroad, which drives down the value of the dollar. US TIC Data Treasury Inflow Capital is a measure of how much foreign buying of US securities is happening. This can offset an imbalance of too many imports, since money is coming to the US to purchase goods which drives the value of the dollar back up. US Retail Sales The US economy is largely driven by consumer demand. If this number is unhealthy, it can indicate a decline. FOMC Minutes The breakdown of Federal Open Market Committee meetings. Scoured for any clues about how the Fed perceives the state of the Economy. Since the Fed makes interest rate decisions, insight into their outlook can help the market predict the interest rate outlook. Japanese Inflation A measure of inflation in Japan. Closely monitored because when too high or too low, it can prompt a change in the interest rate outlook of a country. Japanese Consumer Spending A measure of how much Japanese consumers are spending. The Japanese economy is driven primarily by its export sector, but consumer spending is an important gauge of economic activity and prosperity. BoJ Monetary Policy Meeting When Japanese bank officials meet to determine monetary policy. Has direct implications for currency traders since they often hint at whether or not they intend to intervene to protect the Yen from becoming too expensive—hence making their exports more expensive. Japanese Trade Balance Japanese imports vs. exports – the Japanese economy is highly dependent on exports; a drastic change in this number can have implications on the value of the Yen. Japanese Industrial Production A measure of activity in the Japanese manufacturing sector. This acts as a gauge for the level of production and growth in the economy. Tankan Survey A quarterly business survey gives a detailed assessment of Japanese business conditions. The headline number shows the difference between the proportion of optimistic businesses and the proportion of pessimistic businesses. A large positive number means that optimism pervades. All About the Majors: GBP/USD The GBP/USD, also called the cable, is by far the most volatile pair of all the majors. Prone to huge breakouts and dramatic reversals, the pair can move uninterrupted for hundreds of pips, providing multiple opportunities to traders in all time frames. When the US lowered interest rates, the GBP/USD became a hot carry trade – especially when the housing bubble in the UK prompted the Bank of England to raise UK interest rates further. However, this is becoming less the case with every rate hike out of the US – making the pair extremely sensitive to any changes in the interest rate outlook for either country. The volatile pair trades most actively from London open until lunchtime in the UK (around 4:30 AM EST) and then during early US trading session (7AM to 10 AM EST). It can often travel 150-200 pips a day.
  8. 8. GBP/USD Profile Breakouts and reversals in the GBPUSD can be momentous-- active traders are advised to respect their stops!  Average daily range: 156 pips  Most volatile major; can make huge moves in a single day  Good for: trading in all time frames, depending on strategy frames, RefcoFX Analyst Says: One of the most exciting and volatile currencies in the world! Traders focus on interest rate outlooks above all else-- the housing bubble in the UK has provided opportunities as the Bank of England has raised rates to control inflation. HOT Buttons: What moves GBP/USD? Shifts in monetary outlook for the GBP Since the GBP is held by many in carry trades, this pair is very sensitive to any changes in interest rate outlooks. UK housing market The UK housing market is the Bank of England’s top gauge for inflation in the UK. The housing bubble prompted a series of rate hikes, and new developments are closely monitored by the market. US economic data The market is very sensitive to the outlook for the US economy, since recovery has been uncertain. A pickup can have implications for the US interest rate outlook, which could also affect the value of the GBP/USD. Fundamentals to Watch FOMC Rate Decisions Watched closely since any increases in the interest rate automatically bring in foreign capital, increasing the value of the dollar. US Non Farm Payrolls Amid fears of a "jobless recovery," the market has become very sensitive to this indicator, which measures new jobs created in the US. U.S. Current Account... US Trade Balance A measure of how much the US exports compared to how much it imports. Too many net imports can drive the value of the dollar down, since more capital is leaving the US and being sold abroad, which drives down the value of the dollar. US TIC Data Treasury Inflow Capital is a measure of how much foreign buying of US securities is happening. This can offset an imbalance of too many imports, since money is coming to the US to purchase goods which drives the value of the dollar back up. US Retail Sales The US economy is largely driven by consumer demand. If this number is unhealthy, it can indicate a decline. FOMC Minutes The breakdown of Federal Open Market Committee meetings. Scoured for any clues about how the Fed perceives the state of the Economy. Since the Fed makes interest rate decisions, insight into their outlook can help the market predict the interest rate outlook. Bank of England Meeting Meeting at which Bank of England officials set monetary policy and decide whether to change interest rates or leave them the same. UK Housing Prices The UK housing market is the number one gauge of inflation in the United Kingdom. It is closely watched since the Bank of England will raise rates if growth is too high. UK Unemployment The UK economy is closely monitored for any changes. Unemployment is a good general indicator of the health of an economy.
  9. 9. UK Retail Sales figures provide a good indication of... UK Inflation indicators are watched closely as they can... All About the Majors: USD/CHF Known increasingly as the "legacy pair" as trading activity moves from USD/CHF to EUR/CHF, the Swissy is the predominant safe haven currency in the world because of Switzerland’s long history of stability and neutrality. When the markets sense geopolitical turmoil, capital tends to move into Switzerland. Unexpected global events and spikes in the price of gold will create opportunities in this pair. Because interest rates in Switzerland are so low, the CHF is also a popular funding currency for carry trades. Because growth in the Swiss economy has been slow for some time, many investors are entering into USD/CHF as a carry trade, making the pair extremely sensitive to any changes in the interest rate outlook for either the US or Switzerland. USD/CHF is most active during European open hours (3 AM to 4:30 AM EST) through the early US trading session (7AM to 10 AM EST). USD/CHF Profile USD/CHF tends to trade inversely to the EUR/USD, and will trade in a range when EUR/USD is ranging.  Average daily range: 127 pips  Popular funding currency for carry trades since interest rate is so low  Good for: trading during certain times of the day, when Europe and US open RefcoFX Analyst Says: An exciting currency pair, the Swissie is considering one of the major currencies of the world. With its inverse relationship to the euro, traders will trade in lockstep with the Euro zone major. The franc also serves as a safe haven against inflation and has a positive correlation with gold. HOT Buttons: What moves USD/CHF? Geopolitical tension: US-negative developments in the world will cause a move in the pair as investors move funds out of US dollars into "safe-haven" Swiss francs. Gold prices Higher or lower gold prices will cause a corresponding move in the Swiss franc since the Swiss franc is one of the few world currencies that still is partly backed by gold. SNB monetary policy Swiss monetary policy changes could have an effect on the standing of the CHF as a carry trade funding currency. Fundamentals to Watch FOMC Rate Decisions Watched closely since any increases in the interest rate automatically bring in foreign capital, increasing the value of the dollar. US Non Farm Payrolls Amid fears of a "jobless recovery," the market has become very sensitive to this indicator, which measures new jobs created in the US. US Current Account... US Trade Balance A measure of how much the US exports compared to how much it imports. Too many net imports can drive the value of the dollar down, since more capital is leaving the US and being sold abroad, which drives down the value of the dollar.
  10. 10. US TIC Data Treasury Inflow Capital is a measure of how much foreign buying of US securities is happening. This can offset an imbalance of too many imports, since money is coming to the US to purchase goods which drives the value of the dollar back up. US Retail Sales The US economy is largely driven by consumer demand. If this number is unhealthy, it can indicate a decline. FOMC Minutes The breakdown of Federal Open Market Committee meetings. Scoured for any clues about how the Fed perceives the state of the Economy. Since the Fed makes interest rate decisions, insight into their outlook can help the market predict the interest rate outlook. Swiss KoF Leading Indicators A composite of business surveys from various sectors of the economy (industry, retail and wholesale) that is combined to form a leading indicator that aims to project GDP growth approximately 8 months into the future. Swiss CPI Consumer Price Index. A measure of inflation in Switzerland; a significant change may have implications for interest rate policy in Switzerland. Comments from Swiss officials Watched for any indications of change in Swiss monetary policy. Swiss GDP Gross Domestic Product. A measure of growth and productivity in the Swiss economy. SNB Rate Decisions Any changes in the interest rate by the Swiss National Bank has implications for the pair as a carry trade. Guide to the Most Popular Crosses Trading currency crosses opens a whole new side of the currency markets, as different crosses possess different qualities that can suit any style of trading. Some crosses move fast and are extremely volatile with daily ranges that may exceed over 100 pips. While other crosses move relatively slow and exhibit low volatility, which is more suited for novice traders. Another added dimension to trading crosses is the ability to collect substantial amounts of interest (i.e. GBP/JPY, NZD/JPY and other high yielding crosses) as the positive carry created by the interest rate differentials can add to a trader's bottom line P/L. Discover the world beyond the majors where traders can expand their trading horizons. All About the Crosses: EUR/JPY Actively traded 24-hours a day, the EUR/JPY is so popular that it has been called the fifth major! The EUR/JPY mostly trades in wide ranges, providing excellent opportunities for position (medium-term) traders. EUR/JPY generally trades in a range, but when breakouts do happen, Fibonacci levels provide a good estimate of where support/resistance will probably occur. Stochastics are excellent for spotting exit and entry points in a rangebound market. Real support and resistance figures, published daily in the Market News & Charts section, can also be used to pick entry and exit points. EUR/JPY is an excellent gauge for the health of the Japanesse economy versus the European economy. When data comes out that changes the prevailing outlook for either country, the result is usually a dramatic movement in the pair. EUR/JPY Profile EUR/JPY is more sensitive to Japanese data than European data.
  11. 11.  Average daily range: 112 pips  Wide long-term ranges  Good for medium-term traders RefcoFX Analyst Says: This is an excellent cross for position traders. The moves are significant, and advantageous entry and exit points are easy to spot using technical analysis. HOT Buttons: What moves EUR/JPY? European and Japanese economic data This pair often integrates fundamental economic information better than the majors! Bank of Japan intervention The BOJ prevents the Yen from becoming too strong against the dollar. If there is intervention in the USD/JPY, it will create movement for EUR/JPY too. Oil prices Japan is very dependent on exported oil, so a spike in oil prices can cause a marked dip in the Yen. Talk of Japanese reserve diversification The Bank of Japan holds dollar reserves. If reserves are diversified into euros, EUR/JPY could explode as new demand for the euro drives the price up! Fundamentals to Watch European GDP Gross domestic product. A measurement of output, and more importantly, growth in an economy. European trade balance A measure of how much Europe is importing versus how much it exports. Too many imports mean that the currency will get weaker because more Euros are being sold to purchase foreign goods. European CPI Refers to the European Central Bank's monetary policy. If inflation is too high, the ECB will raise interest rates to slow borrowing and spending. If economic growth is sluggish, lowering interest rates will help boost activity. High interest rates make a currency more attractive. ECB rate decision Refers to the European Central Bank's monetary policy. If inflation is too high, the ECB will raise interest rates to slow borrowing and spending. If economic growth is sluggish, lowering interest rates will help boost activity. High interest rates make a currency more attractive. Japanese Inflation A measure of inflation in Japan. Closely monitored because when too high or too low, it can prompt a change in the interest rate outlook of a country. Japanese Consumer Spending A measure of how much Japanese consumers are spending. The Japanese economy is driven primarily by its export sector, but consumer spending is an important gauge of economic activity and prosperity. BoJ Monetary Policy Meeting When Japanese bank officials meet to determine monetary policy. Has direct implications for currency traders since they often hint at whether or not they intend to intervene to protect the Yen from becoming too expensive—hence making their exports more expensive. Japanese Trade Balance Japanese imports vs. exports – the Japanese economy is highly dependent on exports; a drastic change in this number can have implications on the value of the Yen. Japanese Industrial Production A measure of activity in the Japanese manufacturing sector. This acts as a gauge for the level of production and growth in the economy.
  12. 12. Tankan Survey A quarterly business survey gives a detailed assessment of Japanese business conditions. The headline number shows the difference between the proportion of optimistic businesses and the proportion of pessimistic businesses. A large positive number means that optimism pervades. All About the Crosses: EUR/CHF EUR/CHF has far surpassed USD/CHF bin terms in liquidity. EUR/CHF is probably one of the safest currencies pairs to trade because its moves are so orderly. It enjoys high volume, but trades in relatively predictable ranges since the Swiss and Euro zone economies are so closely linked. Since EUR/CHF is primarily a range bound pair, traders can use real support and resistance (available in the Market News & Charts section) to find entry and exit points for their trades. Because the pair tends to range across all time frames, using support and resistance is an effective trading strategy for short and long term traders alike! The pair moves independently only during times of geopolitical tension or risk, when there is an inflow of capital into the Swiss franc, a safe haven currency. Breakouts like this are temporary and generally last 1-2 months. EUR/CHF Profile You can find action in EUR/CHF when USD/CHF liquidity dries up (2 PM EST until London open)  Average daily range: 55 pips  Low volatility and tight daily ranges with occasional breakouts  Good for: short and medium-term range trades RefcoFX Analyst Says: A solid, reliable pair, EUR/CHF is perfect for range traders and busy people who can only look in on their trades once or twice a day! HOT Buttons: What moves EUR/CHF? Gold Since the Swiss franc is partly tied to the value of gold, movements in gold prices will be reflected in this pair. Swiss Economic data Swiss economic data is reflected better in EUR/CHF than in USD/CHF. Geopolitical Event Risks When there is geopolitical tension, buying in the Swiss franc increases since it is a “safe haven” currency, thus pushing the price up. Fundamentals to Watch Swiss KoF Leading Indicators A composite of business surveys from various sectors of the economy (industry, retail and wholesale) that is combined to form a leading indicator that aims to project GDP growth approximately 8 months into the future. Swiss CPI Consumer Price Index. A measure of inflation in Switzerland; a significant change may have implications for interest rate policy in Switzerland. Comments from Swiss officials Watched for any indications of change in Swiss monetary policy. Swiss GDP Gross Domestic Product. A measure of growth and productivity in the Swiss economy. SNB Rate Decisions Any changes in the interest rate by the Swiss National Bank has implications for the pair as a carry trade.
  13. 13. European GDP Gross domestic product. A measurement of output, and more importantly, growth in an economy. European Trade Balance A measure of how much Europe is importing versus how much it exports. Too many imports mean that the currency will get weaker because more Euros are being sold to purchase foreign goods. European CPI Consumer price index, a measure of inflation in Europe. Inflation that is too high or too low may prompt Europe's central bank to raise or lower interest rates. ECB rate decision Refers to the European Central Bank's monetary policy. If inflation is too high, the ECB will raise interest rates to slow borrowing and spending. If economic growth is sluggish, lowering interest rates will help boost activity. High interest rates make a currency more attractive. All About the Crosses: GBP/CHF GBP/CHF experiences a high degree of volatility, and is perfect for traders who like to catch big moves in the market! It is the most popular carry trade in the FX market aside from GBP/JPY. For a pair with high volatility like the GBP/CHF, Fibonacci lines are an excellent way to identify price levels to which the pair will retrace after a big move. Slow stochastics can also reveal potential reversal points – ideal places to enter and exit the market when it is not trending. This pair also tends to hesitate near its 100-day simple moving average. The best time for active traders to trade GBP/CHF is when the US and European sessions overlap, from 8:00 AM EST to 11:00 AM EST; however, moves in this volatile pair can be substantial even intra-day. GBP/CHF Profile GBP/CHF is very volatile- so set your stops wide!  Average daily range: 161 pips  Highly volatile with sweeping ranges  Good for: medium and long-term trades RefcoFX Analyst Says: Personally my favorite pair, it trades wonderfully on technical indicators and makes dramatic (almost epic) moves! If you catch a move upward late in the game, the interest will ensure that you make up for it quickly. HOT Buttons: What moves GBP/CHF? Comments from the Bank of England Since GBP/CHF is a very popular carry trade, changes in the interest rate outlook can significantly affect the value. UK inflation data The Bank of England tightens interest to control inflation, so the market watches inflation data to anticipate upcoming changes. UK growth Growth in the UK is carefully monitored for any signs of a downturn or upturn. Growth can affect inflation, which in turn can affect interest rates. Fundamentals to Watch BoE Meeting Policy statements from the Bank of England. Changes in interest rates will affect this pair since it is a carry trading pair. UK Unemployment Amid fears of a "jobless recovery," the market has become very sensitive to this indicator, which measures new jobs created in the UK.
  14. 14. UK Retail Sales Measure of the level of consumer interest in the UK. Consumer spending is one way to measure robustness and growth in the economy. UK Inflation Inflation is closely watched since it can affect Bank of England interest rate policy. UK Housing Prices The UK interest rate outlook is closely tied to how the housing market is doing; if growth is too little or too great it can affect monetary policy. Swiss KoF Leading Indicators A composite of business surveys from various sectors of the economy (industry, retail and wholesale). It is combined to form a leading indicator that aims to project GDP growth approximately 8 months into the future. Swiss CPI Consumer Price Index. A measure of inflation in Switzerland; a significant change may have implications for interest rate policy in Switzerland. Comments from Swiss officials Watched for any indications of change in Swiss monetary policy. Swiss GDP Gross Domestic Product. A measure of growth and productivity in the Swiss economy. SNB Rate Decisions Any changes in the interest rate by the Swiss National Bank has implications for the pair as a carry trade. All About the Crosses: GBP/JPY Long the most popular carry trade in the market, high volatility in the GBP/JPY makes it an excellent medium-term range trade as well! Highly sensitive to interest rate outlook changes and change in the economy of the UK and Japan, the GBP/JPY can make powerful, sweeping moves. Overall, the pair tends to trade in a range, especially when the UK interest rate outlook is neutral. Movements within these ranges are substantial. The RSI indicator and real support/resistance levels (available in the Market News & Charts section ) are two excellent ways for traders to identify entry and exit points at the tops and bottoms of these ranges. With an average daily range of 172 pips, GBP/JPY offers plenty of opportunitties for traders of all time frames, whether in the short, medium or long-term! GBP/JPY Profile GBP/JPY tends to be quiet during Japan's lunch hour: 10 PM to 11 PM EST.  Average daily range: 172 pips  Extended ranges; breakouts can be explosive  Good for: medium and long-term range trades; long term carry trades RefcoFX Analyst Says: Personally my favorite pair, it trades wonderfully on technical indicators and makes dramatic (almost epic) moves! If you catch a move upward late in the game, the interest will ensure that you make up for it quickly. HOT Buttons: What moves GBP/JPY? Shifts in UK interest rate outlook Since this pair is saturated with carry trades, it is hypersensitive to any potential change in interest rates. Bank of Japan intervention Hints that the BoJ will defend their currency from getting too strong will impact the price.
  15. 15. UK and Japanese economic data Changes in the strength of these economies relative to each other will have an effect on the price of their currency. Fundamentals to Watch BoE Meeting Policy statements from the Bank of England. Changes in interest rates will affect this pair since it is a carry trading pair. UK Unemployment Amid fears of a "jobless recovery," the market has become very sensitive to this indicator, which measures new jobs created in the UK. UK Retail Sales Measure of the level of consumer interest in the UK. Consumer spending is one way to measure robustness and growth in the economy. UK Inflation Inflation is closely watched since it can affect Bank of England interest rate policy. UK Housing Prices The UK interest rate outlook is closely tied to how the housing market is doing; if growth is too little or too great it can affect monetary policy. Japanese Inflation A measure of inflation in Japan. Closely monitored because when too high or too low, it can prompt a change in the interest rate outlook of a country. Japanese Consumer Spending A measure of how much Japanese consumers are spending. The Japanese economy is driven primarily by its export sector, but consumer spending is an important gauge of economic activity and prosperity. BoJ Monetary Policy Meeting When Japanese bank officials meet to determine monetary policy. Has direct implications for currency traders since they often hint at whether or not they intend to intervene to protect the Yen from becoming too expensive—hence making their exports more expensive. Japanese Trade Balance Japanese imports vs. exports – the Japanese economy is highly dependent on exports; a drastic change in this number can have implications on the value of the Yen. Japanese Industrial Production A measure of activity in the Japanese manufacturing sector. This acts as a gauge for the level of production and growth in the economy. Tankan Survey A quarterly business survey assessing Japanese business conditions. The headline number shows the difference between the proportion of optimistic businesses and the proportion of pessimistic businesses. A large positive number means that optimism pervades. All About the Crosses: AUD/JPY AUD/JPY provides opportunities for traders of all time frames, and offers opportunities to traders who love volatility as well as range trading. Because it is held as a carry trade, it is highly sensitive to interest rate outlook changes in both Australia and Japan. When the Australian interest rate outlook is bullish, the pair tends to trend. When the outlook turns neutral, the pair consolidates into a range. During times of range trading, traders can use slow stochastics, and real support and resistance levels (available in the Market News & Charts section) to spot their entry and exit points. AUD/JPY is actively traded during Asian banking hours, when Japanese and Australian banks are open. Since it is most active after US equity markets are closed, the AUD/JPY is an ideal pair for people who want to trade outside of US business hours. AUD/JPY Profile
  16. 16. AUD/JPY is a great pair to trade after US equity markets are closed!  Average daily range: 80 pips  Strong trends interspersed with periods of rangebound trading  Good for: trading in all time frames RefcoFX Analyst Says: This is a great pair for people who want to catch short-term moves during evening hours in the US! When the pair is ranging, it is easy to pick entry and exit levels using support and resistance. HOT Buttons: What moves AUD/JPY? Gold Prices Since Australia exports gold, the value of the AUD is correlated with the price of gold. Oil Prices The Japanese economy is very dependant on imported oil, so changes in the price of oil can affect the value of the Yen. Australian Economic data AUD/JPY is very sensitive to Australian fundamental data. Royal Bank of Australia and Bank of Japan Monetary Policy changes Since the AUD/JPY is a hot carry trade, changes in the interest rate outlook can cause sharp movements in the pair. Fundamentals to Watch Australian Employment Data Measure of employment in Australia. Employment is an important gauge of the health of an economy. Australian GDP Gross Domestic Product. A measure of Australian economic growth. Steady, stable growth levels are ideal for developed nations. Australian CPI Consumer Price Index. A measure of inflation in Australia. Too much or too little inflation could have implications for Australian monetary policy. Australian Retail Sales A measure of health in the retail sector of the economy. Australian Trade Balance Australia is a net exporter, meaning that Australia exports more goods than it imports. Changes in the trade balance can affect the price of Australia's currency. RBA Rate Decision Royal Bank of Australia's decision on the interest rate level. Interest rate changes can have implications for the desirability of the AUDJPY as a carry trade. Japanese Inflation A measure of inflation in Japan. Problematic when it is too low as this indicates little growth in the economy. Japanese Consumer Spending A measure of how much Japanese consumers are spending. The Japanese economy is driven primarily by its export sector, but consumer spending is an important gauge of economic activity and prosperity. BoJ Monetary Policy Meeting When Japanese bank officials meet to determine monetary policy. Has direct implications for currency traders since they often hint at whether or not they intend to intervene to protect the Yen from becoming too expensive—hence making their exports more expensive. Japanese Trade Balance Japanese imports vs. exports – the Japanese economy is highly dependent on exports; a drastic change in this number can have implications on the value of the Yen.
  17. 17. Japanese Industrial Production A measure of activity in the Japanese manufacturing sector. This acts as a gauge for the level of production and growth in the economy. Tankan Survey A quarterly business survey assessing Japanese business conditions. The headline number shows the difference between the proportion of optimistic businesses and the proportion of pessimistic businesses. A large positive number means that optimism pervades. Forex Money Management Money management is a critical point that shows difference between winners and losers. It was proved that if 100 traders start trading using a system with 60% winning odds, only 5 traders will be in profit at the end of the year. In spite of the 60% winning odds 95% of traders will lose because of their poor money management. Money management is the most significant part of any trading system. Most of traders don't understand how important it is. It's important to understand the concept of money management and understand the difference between it and trading decisions. Money management represents the amount of money you are going to put on one trade and the risk your going to accept for this trade. There are different money management strategies. They all aim at preserving your balance from high risk exposure. First of all, you should understand the following term Core equity Core equity = Starting balance - Amount in open positions. If you have a balance of 10,000$ and you enter a trade with 1,000$ then your core equity is 9,000$. If you enter another 1,000$ trade,your core equity will be 8,000$ It's important to understand what's meant by core equity since your money management will depend on this equity. We will explain here one model of money management that has proved high anual return and limited risk. The standard account that we will be discussing is 100,000$ account with 20:1 leverage . Anyway,you can adapt this strategy to fit smaller or bigger trading accounts. Money management strategy Your risk per a trade should never exceed 3% per trade. It's better to adjust your risk to 1% or 2% We prefer a risk of 1% but if you are confident in your trading system then you can lever your risk up to 3% 1% risk of a 100,000$ account = 1,000$ You should adjust your stop loss so that you never lose more than 1,000$ per a single trade. If you are a short term trader and you place your stop loss 50 pips below/above your entry point . 50 pips = 1,000$ 1 pips = 20$ The size of your trade should be adjusted so that you risk 20$/pip. With 20:1 leverage,your trade size will be 200,000$ If the trade is stopped, you will lose 1,000$ which is 1% of your balance. This trade will require 10,000$ = 10% of your balance. If you are a long term trader and you place your stop loss 200 pips below/above your entry point.
  18. 18. 200 pips = 1,000$ 1 pip = 5$ The size of your trade should be adjusted so that you risk 5$/pip. With 20:1 leverage, your trade size will be 50,000$ If the trade is stopped, you will lose 1,000$ which is 1% of your balance. This trade will require 2,500$ = 2.5% of your balance. This's just an example. Your trading balance and leverage provided by your broker may differ from this formula. The most important is to stick to the 1% risk rule. Never risk too much in one trade. It's a fatal mistake when a trader lose 2 or 3 trades in a row, then he will be confident that his next trade will be winning and he may add more money to this trade. This's how you can blow up your account in a short time! A disciplined trader should never let his emotions and greed control his decisions. Diversification Trading one currnecy pair will generate few entry signals. It would be better to diversify your trades between several currencies. If you have 100,000$ balance and you have open position with 10,000$ then your core equity is 90,000$. If you want to enter a second position then you should calculate 1% risk of your core equity not of your starting balance!. Itmeans that the second trade risk should never be more than 900$. If you want to enter a 3rd position and your core equity is 80,000$ then the risk per 3rd trade should not exceed 800$ It's important that you diversify your prders between currencies that have low correlation. For example, If you have long EUR/USD then you shouldn't long GBP/USD since they have high correlation. If you have long EUR/USD and GBP/USD positions and risking 3% per trade then your risk is 6% since the trades will tend to end in same direction. If you want to trade both EUR/USD and GBP/USD and your standard position size from your money management is 10,000$ (1% risk rule) then you can trade 5,000$ EUR/USD and 5,000$ GBP/USD. In this way,you will be risking 0.5% on each position. The Martingale and anti-martingale strategy It's very important to understand these 2 strategies. -Martingale rule = increasing your risk when losing ! This's a startegy adopted by gamblers which claims that you should increase the size of you trades when losing. It's applied in gambling in the following way Bet 10$,if you lose bet 20$,if you lose bet 40$,if you lose bet 80$,if you lose bet 160$..etc This strategy assumes that after 4 or 5 losing trades,your chance to win is bigger so you should add more money to recover your loss! The truth is that the odds are same in spite of your previous loss! If you have 5 losses in a row ,still your odds for 6th bet 50:50! The same fatal mistake can be made by some novice traders. For example,if a trader started with a abalance of 10,000$ and after 4 losing trades (each is 1,000$) his balance is 6000$. The trader will think that he has higher chances of winning the 5th trade then he will increase ths size of his position 4 times to recover his loss. If he lose,his balance will be 2,000$!! He will never recover from 2,000$ to his startiing balance 10,000$. A disciplined trader should never use such gambling method unless he wants to lose his money in a short time. -Anti-martingale rule = increase your risk when winning& decrease your risk when losing It means that the trader should adjust the size of his positions according to his new gains or losses.
  19. 19. Example: Trader A starts with a balance of 10,000$. His standard trade size is 1,000$ After 6 months,his balance is 15,000$. He should adjust his trade size to 1,500$ Trader B starts with 10,000$.His standard trade size is 1,000$ After 6 months his balance is 8,000$. He should adjust his trade size to 800$ High return strategy This strategy is for traders looking for higher return and still preserving their starting balance. According to your money management rules,you should be risking 1% of you balance. If you start with 10,000$ and your trade size is 1,000$ (Risk 1%) After 1 year,your balance is 15,000$. Now you have your initial balance + 5,000$ profit. You can increase your potential profit by risking more from this profit while restricting your initial balance risk to 1%. For example,you can calcualte your trade in the following pattern: 1% risk 10,000$ (initial balance)+ 5% of 5,000$ (profit) In this way,you will have more potential for higher returns and on the same time you are still risking 1% of your initial deposit. Disclaimer: Trading any financial market involves risk. This course and the website www.fxmaster.net and its contents is neither a solicitation nor an offer to Buy/Sell any financial market. The contents of this course are for general information purposes only. The information provided in this course is not intended for distribution to, or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation or which would subject us to any registration requirement within such jurisdiction or country. We reserve the right to change these terms and conditions without notice. Trade Using News: Helpful Hints RefcoFX has compiled a list of the most common questions regarding trading on news. Here is what our trading specialists had to say... Why are economic events important to currency traders? A currency is a proxy for the country it represents, therefore the economic health of that country is priced into the currency. Economic indicators measure the health of an economy. The challenge is keeping track of each particular country's economic health. Know when indicators are due to be released. It is important to keep an eye on the future and knowing which news releases the market deems most important. Why are some indicators more important than others? Current market conditions will influence which news the market deems most important. Know which economic indicators are capturing most of the market's attention. When the US is incurring large trade deficits, the market will focus on Trade Balance data. Its news release can catalyze large volume and price movements. Moreover, during an US economic boom with high employment, the market will not focus on unemployment. Economic conditions can change. Large US Trade Deficits can weaken the US Dollar over time. When the US Dollar is weak the market will shift its focus to inflation. Market watchers will shift focus to CPI and FOMC Interest Rate Decisions in the news. What is the significance of "actual versus consensus"? The data itself is not as important as whether or not it falls within market expectations. Know when the data is released in addition to what market forecasters are expecting for each indicator.
  20. 20. Once you know the market expectation for the economic indicator, pay attention if the consensus number is met. A drastic difference between the consensus and actual results can cause price movement. The consequences of an unexpected monthly rise of 0.3% in the Consumer Price Index, the Actual, is not nearly as important to your short-term trading decisions as it is to know that this month the market was looking for CPI to fall by 0.1%, the Consensus. Wait until after you've taken advantage of the short term trading opportunities presented by the data, typically within the first thirty minutes following the release, to analyze the longer-term ramifications of an unexpected monthly rise in consumer prices. Remember that market expectations for all economic releases are published on our economic calendar. Why should technical traders pay attention to news releases? Technical analysis will not work when fundamental factors or economic data becomes the main focus of the market as participants become sensitive to any developments. With speculation mounting on the possible outcomes, fundamental news releases like US non-farm payrolls have created situations in the market that do not adhere to technical analysis as volume and volatility spikes. Although the aftermath more than not will once again adhere, the mass speculation that ensues makes sure that traders are scrapping for the best price available in filling their positions rather than applying your everyday moving average or price oscillator. What Moves Rates? In the currency market, traders buy and sell currencies with the hope of making a profit when the value of the currencies changes in their favor, whether from market news or events that take place around the world. Currencies, just like any other commodity that can be bought or sold, are subject to the laws of supply and demand. When more people want a particular currency, the cost of the currency in terms of other currencies will go up. When demand decreases or people do not want to hold a country’s currency, the value will go down. What factors affect supply and demand for a currency? Economic Growth Investors want to be sure that they are investing in a solid economy that is achieving steady growth. Currency traders looking to assess the economic growth of a country will look at unemployment, trade, and GDP data. What Happens If... BAD Rise in Unemployment GOOD Fall in Unemployment GOOD Rise in GDP BAD Fall in GDP GOOD Rise in Exports BAD Fall in Exports Interest Rates Money tends to follow interest rates. If interest rates go up, money will flow into the country from all over the world as investors seek to capitalize higher returns. To determine whether interest rates will rise or fall, investors pay attention to economic inflation indicators as well as speeches by influential figures. Generally, the timing of interest rate moves are known in
  21. 21. advance. They take place after regularly scheduled meetings by the BOE, FED, ECB, BOJ, and other central banks. What Happens If... GOOD Rise in Interest Rates BAD Fall in Interest Rates Political Stability Election turmoil, changes of government, high unemployment and international conflict all make investors cautious to put their money in a given country. Investors will watch for major news that comes out of a country. What Happens If... BAD Geo-Political Tensions BAD Natural Disaster BAD Threat of Terrorism Making Sense of FX Broker Stop Loss Policy Why do on-line FX brokers guarantee stops at all? The answer is simple; they make a lot of money from it. Only the on-line FX brokers handle stop loss orders such that a customer’s stop loss order is executed when the level is reached and not breached. In fact, in FX banking the etiquette is to not fill a stop until 3 points or so breaches the level. For example, if you leave a stop loss at 1.2150 with a bank, your stop loss order is unlikely to be filled unless the market trades 1.2147 (meaning deals are actually done at that rate); and then the Bank will likely fill your order at 1.2148 or 1.2149. In the on-line brokers if the market trades at 1.2155 and the broker makes the rate 1.2150-53 you’re stopped out at 1.2150. What’s particularly disturbing is the low trade may actually be 1.2155, even; it is not at all unusual for the on-line broker to "jack in" a low ball rate and "run" the stops; meaning execute the stop loss orders at 1.2150 (buying from customers at 1.2150) and selling to Banks at current market price 1.2155. This ability to arbitrarily "jack in" off market rates is the cornerstone of broker profitability and clearly explains why brokers that guarantee stops choose to do so. The fact is if the broker didn’t guarantee stops then nobody would leave stops and the lucrative stop running strategy would not exist. Another benefit of having an order book of stops is the potential to use the stops to offset a wrong market position or to get a right one. Case in point; on August 6th, 2004, as seconds ticked on toward 8:30am and the release of non-farm payroll EURUSD was marching into the mid 1.2060s; one broker jacked in a 1.2032-1.2035 rate. This clearly off-market rate caused hundreds of customer long EURUSD positions to be stopped out; in effect all the customer long positions became broker long positions. It is unclear whether the broker knew the non-farm payroll number when the off market rate was jacked in but it was a no lose situation for the broker.
  22. 22. As it turned out the EURUSD price was 200 points higher right after the number; so instead of the customers making 200 points the broker made between 210 and 230 points, depending where they bought the customers EURUSD position (where they stopped out the customer). The bottom line here is that FOREX brokers that routinely do not simultaneously offset their customer transactions with Banks are in effect strictly market makers and as such have a fiduciary responsibility to treat their customers orders fairly and honestly. Just because a customer signed a client agreement that says the broker rate can be different than the market rate does not mean a broker can make a "flash" price for a nano-second and clean house – take all the customers positions for themselves, regardless of where the market really is. When a broker that acts primarily as a market maker jacks in an obviously off market price by 30 points and makes millions of dollars by doing so the regulators – CFTC – should at least acknowledge that a situation exists. In this case despite hundreds of complaints I have not heard a single word from the CFTC concerning this matter. I have called many times and have yet to get a response myself. If the public is indeed protected by these brokers being registered CFMs; well where is the protection when we need it. Where is the CFTC on this matter? The question to be raised if this situation is "swept under the rug" is this; Can anyone with adequate capital become a CFM and do what they want – provided they have the capital? If so, what kind of "business people" is FOREX inviting? I personally would like a call from the CFTC so I know that the matter is at least being looked into. There is not a single knowledgeable trader, broker, or informed individual that does not realize that a grave injustice has been done here. If the buck does not stop here, I am afraid on-line FOREX trading is doomed. Introduction This is a guide that tells you, in simple understandable language, how to choose the right charts, read them correctly, and act effectively in the market from what you see on them. Probably most of you have taken a course or studied the use of charts in the past. This should add to that knowledge. Recommendation There are several good charting packages available free. Netdania is what I use. Using charts effectively The default number of periods on these charts is 300. This is a good starting point;  Hourly chart that's about 12 days of data.  15 minute chart its 3 days of data.  5-minute chart it's slightly more than 24 hours of data. You can create multiple "tabs" or "layouts" so that it’s easy to quickly switch between charts or sets of charts. What to look at first 1. Glance at hourly chart to see the big picture. Note significant support and resistance levels within 2% of today’s opening rate. 2. Study the 15 minute chart in great detail noting the following:  Prevailing trend  Current price in relation to the 60 period simple moving average.
  23. 23.  High and low since GMT 00:00  Tops and bottoms during full 3 day time period. How to use the information gathered so far 1. Determine the big picture (for intraday trading). Glancing at the hourly chart will give you the big picture – up or down. If it’s not clear immediately then you’re in a trading range. Lets assume the trend is down. 2. Determine if the 15 minute chart confirms the downtrend indicated by big picture: Current price on 15-minute chart should be below 60 period moving average and the moving average line should be sloping down. If this is so then you have established the direction of the prevailing trend to be down. There are always two trends – a prevailing (major) trend and a minor trend. The minor trend is a reversal of the main trend, which lasts for a short period of time. Minor trends are clearly spotted on 5-minute charts. 3. Determine the current trend (major or minor) from the 5 minute chart: Current price on 5-minute chart is below 60 period moving average and the moving average line is sloping downward – major trend. Current price on 5-minute chart is above 60 period moving average and the moving average line is sloping upward – minor trend. How to trade the information gathered so far At this point you know the following:  Direction of the prevailing trend.  Whether we are currently trading in the direction of the prevailing (major) trend or experiencing a minor trend (reaction to major trend). Possible trade scenarios: 1) Lets assume prevailing (major) trend is down and we are in a minor up-trend. Strategy would be to sell when the current price on 5-minute chart falls below the 60 period moving average and the 60 period moving average line is sloping downward. Why? Because the prevailing trend is reasserting itself and the next move is likely to be down. Is there more we can do? Yes. Look for further confirmation. For example, if the minor trend had stalled for a while and the lows of the past half hour or hour are very close to the 5 minute moving average then selling just below the lows of the past half hour is a better place to enter the market then just below the moving average line. 2) Lets assume prevailing (major) trend is down and 5-minute chart confirms downtrend. Strategy would be to wait for a minor (up trend) trend to appear and reverse before entering the market. The reason for this is that the move is too “mature” at this point and a correction is likely. Since you trade with tight stops you will be stopped out on a reaction. Exception: If market trades through today’s low and/ or low of past three days (these levels will be apparent on the 15 minute chart) further quick downward price action is likely and a short position would be correct. 3) A better strategy assuming prevailing trend down, 5-minute chart down, and just above days lows is to BUY with a tight stop below the day’s low. Your risk is limited and defined and the technical condition (overdone?) is in your favor. Confirmation would be if today’s low was a bit higher than yesterday’s low and the price action indicated a very short-term trading range (1
  24. 24. minute chart) just above today’s low. The thinking here is that buyers are not waiting for a break of today’s or yesterday’s low to buy cheaper; they are concerned they may not see the level. 4) Generally speaking, the safest place to buy is after a sustained significant decline when the bottoms are getting higher. Preferably these bottoms will be hours apart. By the third or forth higher bottom it is clear a bottom is in place and an up-move is coming. As in the example above your risk is limited and defined – a low lower than the last low. 5) The reverse is true in major up-trends. Other chart ideas  There are always two trends to consider – a major trend and a minor trend. The minor trend is a reversal of the major trend, which generally lasts for a short period of time.  Buying above old tops and selling below old bottoms can be excellent entry levels; assuming the move is not overly mature and a nearby reaction unlikely.  When a strong up move is occurring the market should make both higher tops and higher bottoms. The reverse is true for down moves- lower bottoms and lower tops.  Reactions (minor reversals) are smaller when a strong move is occurring. As the reactions begin to increase that is a clear warning signal that the move is losing momentum. When the last reaction exceeds the prior reaction you can assume the trend has changed, at least temporarily.  Higher bottoms always indicate strength, and an up move usually starts from the third or fourth higher bottom. Reverse this rule in a rising market; lower tops…  You will always make the most money by following the major trend although to say you will never trade against the trend means that you will miss a lot of opportunities to make big profits. The rule is: When you are trading against the trend wait until you have a definite indication of a selling or buying point near the top or bottom, where you can place a close stop loss order (risk small amount of capital). The profit target can be a short-term gain to nearby resistance or more.  Consider the normal or average daily range, average price change from open to high and average price change from open to low, in determining your intra-day price targets.  Do not overlook the fact that it requires time for a market to get ready at the bottom before it advances and for selling pressure to work it’s way through at top before a decline. Smaller loses and sideways trading are a sign the trend may be waning in a downtrend. Smaller gains and sideways trading in an up trend.  Fourth time at bottom or top is crucial; next phase of move will soon become clear… be ready.  Oftentimes, when an important support or resistance level is broken a quick move occurs followed by a reaction back to or slightly above support or below resistance. This is a great opportunity to play the break on the “rebound”. Your stop can be super tight. For example, EURUSD important resistance 1.0840 is broken and a quick move to 1.0860, followed by a decline to 1.0835. Buy with a 1.0820 stop. The move back down is natural and takes nothing away from the importance of the breakout. However, EURUSD should not decline significantly below the breakout (breakout 1.0840; EURUSD should not go below 1.0825.  After a prolonged up move when a top has been made there is usually a trading range, followed by a sharp decline. After that, a secondary reaction back near the old highs often occurs. This is because the market gets ahead of itself and a short squeeze occurs. Selling near the old top with a stop above the old top is the safest place to sell.  The third lower top is also a great place to sell.  The same is true in reverse for down moves.  Be careful not to buy near top or sell near bottom within trading ranges. Wait for breakaway (huge profit potential) or play the range.  Whether the market is very active or in a trading range, all indications are more accurate and trustworthier when the market is actively trading. Limitations of charts Scheduled economic announcements that are complete surprises render nearby short-term support and resistance levels meaningless because the basis (all available information) has changed significantly, requiring a price adjustment to reflect the new information. Other support and resistance levels within the normal daily trading range remain valid. For example, on Friday the unemployment number missed the mark by roughly 120,000 jobs. That’s a huge disparity and rendered all nearby resistance levels in the EURUSD meaningless. However, resistance level
  25. 25. 200 points or more from the day’s opening were still meaningful because they represented resistance to a big up move on a given day. Unscheduled or unexpected statements by government officials may render all charts points on a short-term chart meaningless, depending upon the severity of what was said or implied. For example, when Treasury Secretary John Snow hinted that the U.S. had abandoned its strong U.S. dollar policy. Understanding Margin Trading currencies on margin lets you increase your buying power. Here's a simplified example: If you have $2,000 cash in a margin account that allows 100:1 leverage, you could purchase up to $200,000 worth of currency-because you only have to post 1% of the purchase price as collateral. Another way of saying this is that you have $200,000 in buying power. Benefits of Margin With more buying power, you can increase your total return on investment with less cash outlay. To be sure, trading on margin magnifies your profits AND your losses. Here's a hypothetical example that demonstrates the upside of trading on margin: With a US$5,000 balance in your margin account, you decide that the US Dollar (USD) is undervalued against the Swiss Franc (CHF). To execute this strategy, you must buy Dollars (simultaneously selling Francs), and then wait for the exchange rate to rise. The current bid/ask price for USD/CHF is 1.6322/1.6327 (meaning you can buy $1 US for 1.6327 Swiss Francs or sell $1 US for 1.6322) Your available leverage is 100:1 or 1%. You execute the trade, buying a one lot: buying 100,000 US dollars and selling 163,270 Swiss Francs. At 100:1 leverage, your initial margin deposit for this trade is $1,000. Your account balance is now $4000. As you expected, USD/CHF rises to 1.6435/40. You can now sell $1 US for 1.6435 Francs or buy $1 US for 1.6440 Francs. Since you're long dollars (and are short francs), you must now sell dollars and buy back the francs to realize any profit. You close out the position, selling one lot (selling 100,000 US dollar and receiving 164,350 CHF) Since you originally sold (paid) 163,270 CHF, your profit is 1080 CHF. To calculate your P&L in terms of US dollars, simply divide 1080 by the current USD/CHF rate of 1.6435. Your profit on this trade is $657.13 Summary Initial Investment: $1000 Profit: $657.13 Return on investment: 65.7% If you had executed this trade without using leverage, your return on investment would be less than 1%. Managing a Margin Account
  26. 26. Trading on margin can be a profitable investment strategy, but it's important that you take the time to understand the risks.  You should make sure you fully understand how your margin account works. Be sure to read the margin agreement between you and your clearing firm. Talk to your account representative if you have any questions.  The positions in your account could be partially or totally liquidated should the available margin in your account fall below a predetermined threshold.  You may not receive a margin call before your positions are liquidated. You should monitor your margin balance on a regular basis and utilize stop-loss orders on every open position to limit downside risk. Calculating Profit and Loss For ease of use, most online trading platforms automatically calculate the P&L of a traders' open positions. However, it is useful to understand how this calculation is derived. To illustrate a typical FX trade, consider the following example. The current bid/ask price for USD/CHF is 1.6322/1.6327, meaning you can buy $1 US for 1.6327 Swiss Francs or sell $1 US for 1.6322. Suppose you decide that the US Dollar (USD) is undervalued against the Swiss Franc (CHF). To execute this strategy, you would buy Dollars (simultaneously selling Francs), and then wait for the exchange rate to rise. So you make the trade: purchasing US$100,000 and selling 163,270 Francs. (Remember, at 1% margin, your initial margin deposit would be $1,000.) As you expected, USD/CHF rises to 1.6435/40. You can now sell $1 US for 1.6435 Francs or buy $1 US for 1.6440 Francs. Since you're long dollars (and are short francs), you must now sell dollars and buy back the francs to realize any profit. You sell US$100,000 at the current USD/CHF rate of 1.6435, and receive 164,350 CHF. Since you originally sold (paid) 163,270 CHF, your profit is 1080 CHF. To calculate your P&L in terms of US dollars, simply divide 1080 by the current USD/CHF rate of 1.6435. Total profit = US $657.13 Introduction to Technical Analysis Technical analysis is a method of forecasting price movements by looking at purely market- generated data. Price data from a particular market is most commonly the type of information analyzed by a technician, though most will also keep a close watch on volume and open interest in futures contracts. The bottom line when utilizing any type of analytical method, technical or otherwise, is to stick to the basics, which are methodologies with a proven track record over a long period. After finding a trading system that works for you, the more esoteric fields of study can then be incorporated into your trading toolbox. Almost every trader uses some form of technical analysis. Even the most reverent follower of market fundamentals is likely to glance at price charts before executing a trade. At their most basic level, these charts help traders determine ideal entry and exit points for a trade. They provide a visual representation of the historical price action of whatever is being studied. As such, traders can look at a chart and know if they are buying at a fair price (based on the price history of a particular market), selling at a cyclical top or perhaps throwing their capital into a
  27. 27. choppy, sideways market. These are just a few market conditions that charts identify for a trader. Depending on their level of sophistication, charts can also help much more advanced studies of the markets. On the surface, it might appear that technicians ignore the fundamentals of the market while surrounding themselves with charts and data tables. However, a technical trader will tell you that all of the fundamentals are already represented in the price. They are not so much concerned that a natural disaster or an awful inflation number caused a recent spike in prices as much as how that price action fits into a pattern or trend. And much more to the point, how that pattern can be used to predict future prices. Technical analysis assumes that:  All market fundamentals are depicted in the actual market data. So the actual market fundamentals and various factors, such as the differing opinions, hopes, fears, and moods of market participants, need not be studied.  History repeats itself and therefore markets move in fairly predictable, or at least quantifiable, patterns. These patterns, generated by price movement, are called signals. The goal in technical analysis is to uncover the signals given off in a current market by examining past market signals.  Prices move in trends. Technicians typically do not believe that price fluctuations are random and unpredictable. Prices can move in one of three directions, up, down or sideways. Once a trend in any of these directions is established, it usually will continue for some period. The building blocks of any technical analysis system include price charts, volume charts, and a host of other mathematical representations of market patterns and behaviors. Most often called studies, these mathematical manipulations of various types of market data are used to determine the strength and sustainability of a particular trend. So, rather than simply relying on price charts to forecast future market values, technicians will also use a variety of other technical tools before entering a trade. As in all other aspects of trading, be very disciplined when using technical analysis. Too often, a trader will fail to sell or buy into a market even after it has reached a price that his or her technical studies identified as an entry or exit point. This is because it is hard to screen out the fundamental realities that led to the price movement in the first place. As an example, let's assume you are long USD vs. euro and have established your stop/loss 30 pips away from your entry point. However, if some unforeseen factor is responsible for pushing the USD through your stop/loss level you might be inclined to hold this position just a bit longer in the hopes that it turns back into a winner. It is very hard to make the decision to cut your losses and even harder to resist the temptation to book profits too early on a winning trade. This is called leaving money on the table. A common mistake is to ride a loser too long in the hopes it comes back and to cut a winner way too early. If you use technical analysis to establish entry and exit levels, be very disciplined in following through on your original trading plan. Price charts Chart patterns There are a variety of charts that show price action. The most common are bar charts. Each bar will represent one period of time and that period can be anything from one minute to one month to several years. These charts will show distinct price patterns that develop over time. Candlestick patterns Like bar charts patterns, candlestick patterns can be used to forecast the market. Because of their colored bodies, candlesticks provide greater visual detail in their chart patterns than bar charts. Point & figure patterns
  28. 28. Point and figure patterns are essentially the same patterns found in bar charts but Xs and Os are used to market changes in price direction. In addition, point and figure charts make no use of time scales to indicate the particular day associated with certain price action. Technical Indicators Here are a few of the more common types of indicators used in technical analysis: Trend indicators Trend is a term used to describe the persistence of price movement in one direction over time. Trends move in three directions: up, down and sideways. Trend indicators smooth variable price data to create a composite of market direction. (Example: Moving Averages, Trend lines) Strength indicators Market strength describes the intensity of market opinion with reference to a price by examining the market positions taken by various market participants. Volume or open interest are the basic ingredients of this indicator. Their signals are coincident or leading the market. (Example: Volume) Volatility indicators Volatility is a general term used to describe the magnitude, or size, of day-to-day price fluctuations independent of their direction. Generally, changes in volatility tend to lead changes in prices. (Example: Bollinger Bands) Cycle indicators A cycle is a term to indicate repeating patterns of market movement, specific to recurrent events, such as seasons, elections, etc. Many markets have a tendency to move in cyclical patterns. Cycle indicators determine the timing of a particular market patterns. (Example: Elliott Wave) Support/resistance indicators Support and resistance describes the price levels where markets repeatedly rise or fall and then reverse. This phenomenon is attributed to basic supply and demand. (Example: Trend Lines) Momentum indicators Momentum is a general term used to describe the speed at which prices move over a given time period. Momentum indicators determine the strength or weakness of a trend as it progresses over time. Momentum is highest at the beginning of a trend and lowest at trend turning points. Any divergence of directions in price and momentum is a warning of weakness; if price extremes occur with weak momentum, it signals an end of movement in that direction. If momentum is trending strongly and prices are flat, it signals a potential change in price direction. (Example: Stochastic, MACD, RSI) Introduction to Fundamental Analysis Fundamental analysis refers to the study of the core underlying elements that influence the economy of a particular entity. It is a method of study that attempts to predict price action and market trends by analyzing economic indicators, government policy and societal factors (to name just a few elements) within a business cycle framework. If you think of the financial markets as a big clock, the fundamentals are the gears and springs that move the hands around the face. Anyone walking down the street can look at this clock and tell you what time it is now, but the fundamentalist can tell you how it came to be this time and more importantly, what time (or more precisely, what price) it will be in the future.
  29. 29. There is a tendency to pigeonhole traders into two distinct schools of market analysis - fundamental and technical. Indeed, the first question posed to you after you tell someone that you are a trader is generally "Are you a technician or a fundamentalist?" The reality is that it has become increasingly difficult to be a purist of either persuasion. Fundamentalists need to keep an eye on the various signals derived from the price action on charts, while few technicians can afford to completely ignore impending economic data, critical political decisions or the myriad of societal issues that influence prices. Bearing in mind that the financial underpinnings of any country, trading bloc or multinational industry takes into account many factors, including social, political and economic influences, staying on top of an extremely fluid fundamental picture can be challenging. At the same time, you'll find that your knowledge and understanding of a dynamic global market will increase immeasurably as you delve further and further into the complexities and subtleties of the fundamentals of the markets. Fundamental analysis is a very effective way to forecast economic conditions, but not necessarily exact market prices. For example, when analyzing an economist's forecast of the upcoming GDP or employment report, you begin to get a fairly clear picture of the general health of the economy and the forces at work behind it. However, you'll need to come up with a precise method as to how best to translate this information into entry and exit points for a particular trading strategy. A trader who studies the markets using fundamental analysis will generally create models to formulate a trading strategy. These models typically utilize a host of empirical data and attempt to forecast market behavior and estimate future values or prices by using past values of core economic indicators. This information is then used to derive specific trades that best exploit this information. Forecasting models are as numerous and varied as the traders and market buffs that create them. Two people can look at the exact same data and come up with two completely different conclusions about how the market will be influenced by it. Therefore is it important that before casting yourself into a particular mold regarding any aspect of market analysis, you study the fundamentals and see how they best fit your trading style and expectations. Don't succumb to 'paralysis by analysis.' Given the multitude of factors that fall under the heading of "The Fundamentals," there is a distinct danger of information overload. Sometimes traders fall into this trap and are unable to pull the trigger on a trade. This is one of the reasons why many traders turn to technical analysis. To some, technical analysis is seen as a way to transform all of the fundamental factors that influence the markets into one simple tool, prices. However, trading a particular market without knowing a great deal about the exact nature of its underlying elements is like fishing without bait. You might get lucky and snare a few on occasion but it's not the best approach over the long haul. For forex traders, the fundamentals are everything that makes a country tick. From interest rates and central bank policy to natural disasters, the fundamentals are a dynamic mix of distinct plans, erratic behaviors and unforeseen events. Therefore, it is best to get a handle on the most influential contributors to this diverse mix than it is to formulate a comprehensive list of all "The Fundamentals." Economic Indicators 101 Economic indicators are snippets of financial and economic data published by various agencies of the government or private sector. These statistics, which are made public on a regularly scheduled basis, help market observers monitor the pulse of the economy. Therefore, they are religiously followed by almost everyone in the financial markets. With so many people poised to react to the same information, economic indicators in general have tremendous potential to generate volume and to move prices in the markets. While on the surface it might seem that an advanced degree in economics would come in handy to analyze and then trade on the glut of information contained in these economic indicators, a few simple guidelines are all that is necessary to track, organize and make trading decisions based on the data. Know exactly when each economic indicator is due to be released. Keep a calendar on your desk or trading station that contains the date and time when each stat will be made public.
  30. 30. You can find these calendars on the N.Y. Federal Reserve Bank Web site using this link http://www.ny.frb.org/, and then by searching for "economic indicators." The same information is also available on many other sources on the Web or from the company you use to execute your trades. Keeping track of the calendar of economic indicators will also help you make sense out of otherwise unanticipated price action in the market. Consider this scenario: it's Monday morning and the USD has been in a tailspin for three weeks. As such, it's safe to assume that many traders are holding large short USD positions. However, on Friday the employment data for the U.S. is due to be released. It is very likely that with this key piece of economic information soon to be made public, the USD could experience a short-term rally leading up to the data on Friday as traders pare down their short positions. The point here is that economic indicators can effect prices directly (following their release to the public) or indirectly (as traders massage their positions in anticipation of the data.) Understand what particular aspect of the economy is being revealed in the data. For example, you should know which indicators measure the growth of the economy (GDP) vs. those that measure inflation (PPI, CPI) or employment (non-farm payrolls). After you follow the data for a while, you'll become very familiar with the nuances of each economic indicator and what part of the economy they are measuring. Not all economic indicators are created equal. Well, they might've been created with equal importance but along the way, some have acquired much greater potential to move the markets than others. Market participants will place higher regard on one stat vs. another depending on the state of the economy. Know which indicators the markets are keying on. For example, if prices (inflation) are not a crucial issue for a particular country, inflation data will probably not be as keenly anticipated or reacted to by the markets. On the other hand, if economic growth is a vexing problem, changes in employment data or GDP will be eagerly anticipated and could precipitate tremendous volatility following their release. The data itself is not as important as whether or not it falls within market expectations. Besides knowing when all the data will hit the wires, it is vitally important that you know what economists and other market pundits are forecasting for each indicator. For example, knowing the economic consequences of an unexpected monthly rise of 0.3% in the producer price index (PPI) is not nearly as vital to your short-term trading decisions as it is to know that this month the market was looking for PPI to fall by 0.1%. As mentioned, you should know that PPI measures prices and that an unexpected rise could be a sign of inflation. But analyzing the longer-term ramifications of this unexpected monthly rise in prices can wait until after you've taken advantage of the trading opportunities presented by the data. Once again, market expectations for all economic releases are published on various sources on the Web and you should post these expectations on your calendar along with the release date of the indicator. Don't get caught up in the headlines. Part of getting a handle on what the market is forecasting for various economic indicators is knowing the key aspects of each indicator. While your macroeconomics professor might have drilled the significance of the unemployment rate into your head, even junior traders can tell you that the headline figure is for amateurs and that the most closely watched detail in the payroll data is the non-farm payrolls figure. Other economic indicators are similar in that the headline figure is not nearly as closely watched as the finer points of the data. PPI for example, measures changes in producer prices. But the stat most closely watched by the markets is PPI, ex-food and energy. Traders know that the food and energy component of the data is much too volatile and subject to revisions on a month-to- month basis to provide an accurate reading on the changes in producer prices. Speaking of revisions, don't be too quick to pull that trigger should a particular economic indicator fall outside of market expectations. Contained in each new economic indicator released to the public are revisions to previously released data. For example, if durable goods should rise by 0.5% in the current month, while the market is anticipating them to fall, the unexpected rise could be the result of a downward revision to the prior month. Look at revisions to older data because in this case, the previous month's durable goods figure might've been originally reported as a rise of 0.5% but now, along with the new figures, is being revised

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