Category Archives: Guest Bloggers

The Complex Japanese Yen

japanese yen

Trading foreign currencies in the derivative markets is not an easy pie to devour. As a lone individual trader along with many others, you have to compete with well-established banks, trading houses and other financial institutions that have developed years of experience in trading currencies. You cannot hope to make gains while you remain uninformed. To be successful you must benchmark the way operations take place in well-established players of the market.

This means that your fundamental knowledge must cover the basic and major aspects in your analysis; as such big players do it. The knowledge includes current economic data of the country, the effects of dynamic interaction between economies and any other unique elements affecting currencies.

The Japanese Yen is among the eight most traded currencies of the world. These eight currencies account for more than 80% of the global trades. The Bank of Japan, mandated to monitor JPY, faces damning problems when it comes to stabilizing JPY. It has to keep interest rates lower to allow its exports to run, to spur growth and fight deflation and to keep employment figures up.

You need to dig more in to Japanese economy to trade JPY successfully. From being oldest economy in the world to being the leader in electronics, automobile manufacturing and ship construction, Japan still lacks the energy to give it a strong economic growth. For most of the past decade, Japanese economy has lingered at meager growth rates, up to 2% at max and sometimes even contracting. Since the burgeoning economy of China started to overshadow global economy, Japan with its dwindling fertility rates and older workforce has to rely more and more on economic partnership with regional powerhouses such as South Korea.

You also need to understand that many countries around the globe, particularly in Asia, keep large reserves of Japanese Yen to help them in import Japanese goods and meeting trade obligations. That said, Japan generates huge trade surpluses and altogether garners a lot of positive strength for its currency. At the same time, Japanese economy is heavily entangled in domestic debt. Its domestic nature of debt, that does not create alarm bells with the traders; however, it has caused political turmoil in the country.

There are specific elements that drive the demand and supply of the JPY in foreign exchange market. Just like the consumer / business confidence report is released in the USA, the Bank of Japan issues Tankan Report every quarter which explains the Japanese business mood. The Japanese stocks and trading are particularly responsive to this report. Second major driver for JPY is the carry trading carried out by Bank of Japan. The Bank of Japan offers its own currency to traders around the globe, to enable them to benefit from other high yielding currencies, against some premium of course.

Among other important aspects, affecting Japanese stock and currency are the natural disaster the country faces. It has been affected countless times with powerful earthquakes, hurricanes and even tsunamis.

If you are a long-term trader, such fundamental information is beneficial for you. However, even the short-term traders must know, what actually is going on behind a currency when they attempt to explain price bars with technical tools.

Author Bio:

By Free Forex trading – intellitraders.com

The 3 Best Forex Trading Strategies

Hello, I’m Alex writing for fxmarketleaders.com, and today I want to talk about forex trading strategies.

Those who come to financial markets are often blinded by seemingly easy profits. You hear brokers telling you about big opportunities to make fast profits, thousands of dollars per an hour, but in most cases you will find yourself with your pens down and your pockets empty.

True, the forex market carries a great earning potential, and yes, you can make fantastic returns on your investment, however, in order to become a successful trader, you first need to have a trading strategy. In fact more than just one.

Now, the idea of a forex trading strategy might sound a bit intimidating, but in fact it is very simple. Some of the best forex trading strategies are so simple to execute, that anyone can trade according to them, even novices and inexperienced forex traders.

In this post I will introduce you to my favorite trading strategies, those that can also be applied in other markets such as the binary options market. One of the following forex strategies is aimed for more advanced traders, but the others can be used by anyone.

You should always remember that having your own trading strategy is an essential key to success, but is only one of the important factors.

It is time to reveal my favorite forex trading strategies!

1. Trend Trading – ride the next trend:

Ask any big shot Forex trader or investor and they will tell you they most often use the trend trading strategy. Smart, methodical trend trading strategy can lead to magnificent, consistent profits. Why is it so popular? You don’t have to be an expert to witness a massive trend. It is very easy for your eyes to see it on the charts. What are you looking for? You are searching for clear movement of the chart. For example, looking at the chart below, you can see a clear uptrend. This uptrend could have made you huge profits. Nice, isn’t it?

2. Range Trading – support and resistance:

If in Trend trading you wait for a clear upwards trend to appear, with range trading it is almost the opposite. You wait for the reversal to come. Don’t worry, it will be clear in a second. Looking on a chart, such as the Euro/Dollar chart, you will notice that most of the time, the chart moves in ranges, up and down, like waves. It is almost like you can draw 2 clear lines, one that connect the bottoms, like a ‘floor’ and another connecting the tops, like a ceiling. The ups and downs are how forex traders and investors make their fortune. The beauty of this forex strategy is that it relies on repeating patterns that will most likely stay in their ranges. It means that it is relatively easy to identify a trend, and even better, it is easy to spot an entry point, the point in which you jump in and ride it.

I personally really like this forex strategy, and I know that it is the most commonly used strategy by the traders and analysts at fxmarketleaders.com, a leading portal for forex trading strategies.

3. Breakouts Strategy – When support and resistance levels break:

Every range, channel or pattern has to break sometimes, right? Well, this is where the Breakouts strategy comes into action. This great forex trading strategy is very effective due to the fact that you can use very good and simple graphic tools to help you execute this trading strategy. All you need to do is follow a range or a channel, draw support and resistance lines like in the example beneath, wait for the break, and boom! Make some nice profits. This strategy usually involves great opportunities for high profits, but it is a bit more dangerous, as in many cases we witness false breakouts (when prices break the levels but turn back immediately), so you should have a bit of trading experience to know where to place your entries.

If you want to learn more on how to become successful traders you should read the fxmarketleaders.com trading guide, which I considered the most popular forex guide online.

Top 3 Expert Advisor Design Tips

forex robot

Almost nobody turns their first EA into a winning strategy. Like any new task, you’re more than likely going to fumble the first few attempts. It takes time and experience to anticipate design mistakes that may lead to trading losses.

I cannot promise that following this guide will turn your expert advisor into a winning strategy. But, what I can promise is that you’ll be less likely to lose if you following these three simple tips.

Time of Day

The forex market has a personality. Each currency pair also acts somewhat differently from all the others.

We’ve all seen the warnings to never trade the Asian session, but sometimes it makes sense. Australia shares that time zone. It’s one of the most liquid times of day for AUD/JPY.

You shouldn’t avoid sessions just because they are generally bad. On the other hand, you shouldn’t be trading all time sessions either.

Adding time restrictions is one of the simplest and easiest ways to only trade when it makes sense.

Choose the right currency

A strategy is more likely to outperform on one currency over another. So, it makes sense to focus your limited trading capital where it stands the best chance of suceeding.

EAs fall into one of of two categories: range trading or trend trading. Forex pairs fall into the same categories, too. Make sure thee currency pair that you’re trading matches the expert advisor’s style.

The GBP/JPY is among the most notorious trending pairs. The EUR/GBP is a total snoozefest. Trying to trade a trending EA on the EUR/GBP is a surefire loser.

Stop trading so much

Everyone wants a scalper EA. Unless you have a compelling reason to scalp, it’s not a good idea. Trading costs a lot of money.

Consider a strategy that trades 1 standard lot once per weekday. That’s about $20 per trade in spread costs on the EURUSD for most brokers. Multiply that by 260 (the number of trading days per year) and you come out with an annual cost of $5,200. That is a steep hill to overcome.

It makes a lot more sense to kick back and let your expert advisor do what it needs to do.

Conclusion

Trading is hard. Making an EA that earns a profit over the long run is even harder.

My advice is to focus on doing the big things right and worry about the little things later. It may seem obvious, but forcing a trend trading method onto a range bound pair is something many people try. As my old boss loved saying, “Remember the 40,000 foot perspective.”

You have to fit the expert advisor into the general environment. Only once that’s done will you be able to start tweaking the finer details.

Author: Shaun Overton

Shaun Overton writes a forex blog on trading with expert advisors for his company OneStepRemoved.com. The company specializes in building automated trading strategies with a particular emphasis on MetaTrader.

Best Position Sizing Practices

One of the key elements in risk management in Forex is position sizing. It’s a decision you have to make with every trade, and it’s best if it’s consistent. While many traders believe that the most important element of trading is having a good method and applying it, position sizing can be just as critical in determining your success or failure. We’ll start by looking at the simplest scenario, which is placing trades that you don’t scale up on.

There are many ways to complicate position sizing, but there’s no reason to do so. When you put together your trading plan, you need to figure out how much you’re willing to risk on each trade. When you figure this out, note that you’re considering how much money you can lose if a trade goes against you, not how much you can win if you succeed. Always base your position sizing off of worst case scenarios – losing 100% of your investments. New traders regularly make the mistake of risking way too much money on their trades. It is unwise to risk 10-20% or more on a trade, no matter how confident you are. Successful long-term professional FX traders usually risk no more than 2.5% on their trades. Consider 5% an absolute maximum. 2% isn’t a bad amount to risk, either.

Depending on the way your trading platform is structured, you may need to calculate your risk in a particular way each trade. The factors you take into account should include how much money you have in your total trading bankroll, the percentage you’ve chosen, and the distance between your entry and your stop loss. The pip value is a key element too. You can mathematically calculate your position size as follows:

Multiply the amount of money in your bankroll by your risk percentage and then divide that by the number of pips you’re risking (that’s the distance between the entry and stop loss). Then divide that number by the pip value per standard lot. Check whether your platform can do all this for you. Many trading platforms will do the math for you. With Oanda for example, you can choose your stop loss and the amount of money you want to risk, and it will put up the proper position size for you. Alternatively, you can use a free online position size calculator to help manage your positions precisely. Oanda was also used because it offers flexible lot sizes, which is an absolute must if you have a small account. You can’t do standard lot sizes if you only have $1,000 in your trading account. That’d be way too big a percentage for you to risk. Such brokers like Oanda, AGEA and MahiFX let you wager as much or little as you want, even if it’s just a handful of dollars.

Scaling Up

Scaling up, also called averaging up or pyramiding, is another topic that should be discussed. This is where you increase your position size if you’re winning on a trade. There are different practices for doing this; you should test any scaling up method thoroughly before you use it live since it can complicate your risk exposure. The benefits of scaling up are pretty clear; if your position continues to move in the right direction, you can become more profitable. The hardest part of making a good trade is often the beginning, and if you find that you’re in a trend, you may as well try to ride out the trend and get as much as you can out of it.

The drawback of scaling up is that if a position goes against you, it doesn’t need to go clear back to your entry to put you at break even anymore. If you doubled your investment and the price retraces 50%, you’re suddenly at break even, even though you’re not back to your entry. If price does go back to your entry level, you’re suddenly at a loss. If you don’t double your investment but choose some other amount, you have to carefully calculate the rate at which you’ll be losing money should the position reverse. So this is as much a trading style issue as it is an objective one. Some traders find this all too complicated and do better if they stick with a simple position sizing tactic. Others excel with scaling and go on to higher profits.

Setting a Target Profit

While we’ve focused largely on where you set your stop loss to determine your risk, it’s worth pointing out that another way you can ride out your winning trades without scaling is by moving your target profit and your stop loss after the trade is going in your favor. One thing traders will sometimes do is enjoy the benefits of a risk-free trade. A trade becomes risk-free when it goes in your favor and you move your stop loss to break even and push your target profit further out. If the trade continues to go in your favor, you can move the stop loss and target profit again. This locks in a small win, and gives you a chance at a bigger one. If you find out you’ve caught a trend, you can do this indefinitely, chasing larger and larger profits with no additional risk.

Why wouldn’t you do this? Depending on your strategy, it could result in a lot of break-even trades. It’s a more reliable and simpler method of riding out trades than scaling is for many traders though, and just one more idea to consider in regards to position sizing. Everything starts with making sure you don’t risk more than a tiny percentage of your account, but where you take your trades from there doesn’t necessarily need to be limited by your initial stop loss and target profit.

Pros and Cons of Fundamental Forex Trading

Many forex traders are technical traders, but there is a school of thought that says fundamental analysis is the best route. Fundamental analysis is the process of analyzing the market using both qualitative and quantitative factors that take into account economic and political factors.

Fundamental traders are concerned more with how the economy and political landscape shapes the world and affects trading activity. In forex, fundamental traders look at the macro and micro economic factors that affect a nation’s currency to determine the value of that currency relative to another currency. Since fundamental indicators don’t always result in instant market reactions, fundamental traders tend to have a more long-term view of the market.

While there is no shortage of trading software and tools for the technical analyst, fundamental analysts often find that they must put in more manual labor to realize a profit. Is it worth the effort?

The Benefits of Fundamental Analysis

There is a certain kind of romanticism surrounding fundamental analysis. The idea that politics and the economy drive financial decisions means that there’s more than just numbers that move the world along. This lends an artistic element to the process of analysis. Still, fundamental traders do look at numbers including:

  • the measure of overall economic growth for a country.
  • trade and current account balances.
  • interest rates and investment (i.e. bond) yields.
  • political stability.

The measure of economic growth for a nation is often measured by its GDP, but traders will often look at unemployment rates as well. Any decrease in the employment rate is seen as a weakening of the economy. When economies weaken, central banks have a history of lowering interest rates to spur growth. For traders, this means inflation. Inflation destroys the value of a currency causing traders to bet against that currency. If enough traders have the same view of a weak nation, that nation’s currency value could drop.

Trade balance can dramatically affect a nation’s currency. When a country has a trade deficit, it will generally result in a weak currency since that country will have continuous commercial selling of its money.

GDP, or Gross Domestic Product, can foretell a strong or weak nation. If GDP rises, there is an expectation of higher interest rates. These higher rates may be positive for a country. As interest rates rise, borrowers must pay more for their debt. Some businesses will default. Even so, the rising rates curb inflation by reducing the incentive to borrow. By curbing inflation, a currency grows stronger because it is not being devalued as much. Taken to the extreme, a deflationary environment would make a currency grow (sometimes rapidly) in value as fewer currency units become available in the marketplace.

An economy can still grow under high interest rate environments. This growth would be good for the economy, thus signaling a buying opportunity for forex investors.

The Disadvantages of Fundamental Analysis

Some critics of fundamental analysis point out that:

  • fundamental analysis requires a background knowledge of economics and is difficult to understand.
  • fundamental analysis is time consuming.
  • the information unearthed by fundamental analysis is already priced into the market.
  • it fails to give traders objective trading signals.

Economics is not an easy subject to master. There are two basic competing theories of economics: the Keynesian school of economics and the Austrian school. Keynesians believe that economic growth can be achieved through government stimulus. When an economy is sluggish, the central bank can “grease the grooves” by providing an infusion of capital to the market. The market then invests this money thus contributing to a recovery.

The Austrian school holds the opposite view. Instead of government stimulus helping the economy, it plants the seeds of its own destruction. The boom created by an influx of capital is really just a sign of malinvestment waiting to crash. This, according to the Austrians, is why central bank-induced boom periods are always followed by busts.

Many economists study just one theory for their entire life and still never master it enough to predict market trends. For traders, they must be able to pick the correct economic theory and know how it will impact the markets – a tough job at best.

Because of the nature of fundamental analysis, it’s time consuming. While some calculations can be done to assess the health of an economy, much of the analysis is qualitative. In other words, the trader has to know how to interpret the news and political speeches. This could take years of practice not to mention the fact that economic and political news may or may not have an immediate effect on the currency markets.

Many technical traders argue that markets are perfect and that this means that all of the fundamental indicators are already priced into the marketplace. This line of thinking is closely related to the efficient market hypothesis which states that financial markets are not over or undervalued. All relevant information is instantaneously priced into the markets. If that’s true, then fundamental analysis is a waste of time.

Technical traders also believe that fundamental analysis does not give investors the ability to make objective trading goals. Since much of the work is qualitative in nature, fundamental analysts are often perpetual “buy and hold” investors that seek gains over a long period of time. Because there’s no software that tracks historical trends, there’s no data mining. It’s this lack of historical data that accounts for this criticism of fundamental analysis.

Making a Choice

One option that you have open to you is to blend both technical and fundamental analysis into a new trading strategy. You don’t have to choose just one. In fact, an increasing number of traders use technical analysis to spot trends, then use fundamental analysis to confirm the validity of the trend before investing. A combination of the two methods might yield good results and provide flexibility in your trading strategy.

Author Bio:

Guest post contributed by Stacy Pruitt, a freelance forex strategy and finance writer. Stacy writes about advanced trading. Learn more about forex trading.

The Ten Commandments of Forex

Apart from the trading strategy, the successful trader should follow some important rules. As important as the Ten Commandments, the ten rules of Forex which I identified during my experience will (hopefully) help you to keep your account in healthy condition. For those who are not familiar with trading on the financial markets, I recommend reading this article on what Forex is prior to diving in the deep waters.

After you read this article please share with me if you liked it and how it contributed to your trading experience?

The success

“Trade for the success, not for the money”. You should be motivated entirely by achieving success in that particular trade and leave the thoughts of “what will I do with that money after I win”. Human’s mind get easily distracted when thinking about money. That is why the computer programs don’t get distracted when traded, because they don’t know the meaning of money.

The discipline

The most important quality of a trader is the discipline. The key to successful trading is having control over your mind, body and emotions. You can make technical analysis of great use for your trading but without discipline it will be very difficult and almost impossible to make successful trades. Regardless of the fact if you lost or won today, if you are disciplined you can come back tomorrow and trade again.

Know yourself

Before you start trading Forex you should get to know yourself. How do you react under pressure? Are you willing to take the risk? Do you get mad when you think of losing money? If you cannot sleep in case of losing money, then leave the Forex market and rather purchase a shares portfolio with minimum risk. But if you can manage the risk with discipline go for the currency market. It is important to clarify whether you do it just for the game or for the investment. In the first case it is better to visit Las Vegas.

Get rid of your ego

The quickest way to wipe out your account is to allow your ego to dictate your trading decisions. That is why you should not share with your friends what you traded and how much you won or lost. Like this you might be in a position of holding your trade just because you don’t want to get embarrassed in front of your friend. Again, the computers won’t do it because they don’t know the meaning of friends. The only follow the rules of the trade.

Don’t pray

I have literally seen traders praying in front of the monitor while the price is going towards their auto close levels. Remember, the market price is determined by the buyers and seller (on some other factors sometimes). Nobody will help you because it’s a jungle and everybody is against everybody. Follow your stop and limits, stay cool and don’t rely on things such as prays and emotions.

Leave your gains and cut your losses

When the stop order level is reached leave it. Even if the marklet recovers after it don’t get mad but be proud because you have discipline. In this sense, I respect the women traders because when they start losing they run away – this is the best in Forex. Conversely the men hold the losing position until their last breath. Remember to eliminate all emotions, ego and other human qualities. There are only numbers and nothing more than that.

Know when to enter and when to wait

I would say that 80% of the trading process passes in watching the screen and waiting for the best moment to enter or exit the trade. Think of it, the more you trade the greater the chance to make the wrong move. So trade only when you are 100% certain and have checked your technical and fundamental analysis.

Love your winning and losing trades

The losing trades are your best teacher. That is why you should note both winning and losing trades. Like this you will be able to learn from your mistakes and avoid them in the future.

Take a break

After three losing trades you must definitely take a break. Go out and do some sports or just walk in the park away from any screens. You need to calm down and erase all thoughts from your mind. In my opinion, you should also do that after winning trades. People often get too excited about their wins and easily risk all their accounts in a single trade because they feel too certain.

Follow the rules

This is the most important rule of all. Don’t break your rules and you will succeed. What is the sense in having rules and not following them?

You can start today by opening a risk free demo account and test your strategy!

Like this article? Please share it with your friends!

2012 Currency Investment Predictions

Balance of volatility is the key to unlocking profits in the foreign exchange market; too little and your returns are scant, too much and you could get caught out and lose everything.

Recent months have seen extreme swings in the markets with previous safe havens no longer offering sanctuary for investors and economies that promised so much failing to deliver.

New Markets

With global growth so stunted, procuring a return has become increasingly difficult for foreign exchange traders, particularly with the US dollar and euro both struggling to combat the effects of the debt crisis and fiscal weakness. It has become increasingly difficult to trade profitably in developed economies, with many investors turning their attention to emerging markets instead.

Brazil was originally considered as a very viable alternative with its political climate one of the steadiest in Latin America. However, the surge in demand for its currency has led to the government taking active steps to tamper its climb and means that it no longer offers a substantially high yield.

The price of oil has continued to climb in 2011 and remains elevated, with no sign of a retracement. While some developed countries whose economy is strongly linked to the oil, such as the US, may not be the right vehicle of choice, their partners may be worth considering.

Thinking Globally

Canada is a good example and as the United States’ close neighbor, it benefits from close trading links while remaining separate from many of the problems the world’s super-power has experienced. Canada has a huge reserve of minerals and commodities and a stable economy with a much smaller deficit (in 2010 it had a trade balance of just -$8.7 billion), a fact that has led many experts to tip the Canadian dollar as one to watch. It has also retained the top-notch credit rating of AAA.

Another good oil-related currency and also suitable alternative to the Brazilian real could be the Mexican peso. Mexico supplies the second largest amount of crude oil in the world and its economy depends on the commodity. The country has a trade deficit of just $3 billion and a debt equivalent to just 37%.

The Russian Ruble has also drawn a significant amount of attention, with some sources suggesting a pairing with the euro. The Russian economy has a debt equivalent to just 9% of GDP, compared to 63% for the US and has strong commodity exports. The economy is expected to outperform all other nations in Central and Eastern Europe, as well as the Middle East and Africa, with predictions around 5%. The current central bank leaders are also expected to boost foreign exchange by relaxing their tight grip on rates during 2012.

The South Korean won is a currency tipped by some experts, with the country holding a trade surplus, controlled inflation and low debts, equivalent to just 23% of GDP. The country has a strong credit rating with all of the top agencies and is a major exporter.

However, there have also been concerns over the political instability of the country, with the ongoing hostilities with its close neighbor, North Korea always a concern. With the recent death of North Korea’s dictatorial leader, Kim Jong-Il and the subsequent appointment of his youngest and very inexperienced son, Kim Jong-un, there are some uncertainties about whether the fragile balance between the two warring nations will be disturbed. The current uncertainty over the political climate in North Korea may well mean that the South Korean won gains could be capped or short-lived.

Experts in foreign exchange have suggested that 2012 may not be as tumultuous as 2011, but there is no doubt that in order to make a significant gain, emerging markets should be considered. While they attract a much higher level of risk, developed economies, as a general rule, are being thumped much harder by the instability in the global economy and gains could be pared.

The 3 Most Accurate Forex Indicators

There are thousands of indicators that are used to find opportunities in the market and profit from them. However, most of them do not give good signals and will get you in the market late. In this article we will present several indicators which are the most accurate and give the biggest trading edge.

Indicator #1: The Bollinger Bands

The Bollinger Bands were developed 20 years ago by John Bollinger, and were designed to show the volatility of the market on the screen in an easy-to-comprehend manner. They give very good signals and can be used as support\resistance indicators, telling us – before the move occurs – that a reversal is prone to happen. When price touches the lower band it is oversold, and when price touches the upper band it is overbought.

The trading method for the Bollinger Bands is basically to look for price-action support and resistance levels, and confirm them with bounces on the Bollinger Bands themselves. This results in very high win rate and consistent profits.

Indicator #2: The Relative Strength Index (RSI)
The Relative Strength Index was developd 30 years ago by J. Welles Wilder, and is considered a powerful oscillator that also has a predictive edge in the markets. It tells us when the price is overbought\oversold before the trends begin, so we can enter early and have great reward with little risk. The signals it gives are usually very accurate, and if confirmed using the Thomas DeMark mild bounce system it can even reach 70-80% win rate (depending on the timeframe).

It is a very accurate indicator that we highly recommend.

Indicator #3: Simple Moving Average
The Simple Moving Average, or the SMA, is an interesting indicator that most traders do not use in the right way. Most traders use it as a trend-following indicator to enter trades after a trend has been established, however we use it in an entirely different way.

The most accurate and predictive way to use the SMA is in the bounce method: we wait for trend to establish, but instead of randomly entering, we wait for price to retrace to the moving average and bounce off it. Once a reversal signal is given we enter a trade in the direction of the trend with stop loss right below the moving average, thus entering at a tactical point with small stop loss and huge reward.

The 3 indicator described above are the most accurate indicators for trading Forex and stocks, and have proven themselves in countless opportunities.

Michael Wells is a trader and author, that focuses on Forex indicator trading and price-action to generate daily trading income.