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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

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.

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.

Earn profit and do away with debt – Solid reasons to invest in the forex market

With the increasing debt burden of the Americans, an increasingly large number of them are trying to expand their horizons and branch outside to boost the level of income that they make in a month. As the unemployment level is not showing any positive move, the Americans are suffering from lack of income but spiraling debt obligations that they have to pay in a single month. In case you’re suffering from various debt problems and you’re tired of making the credit card payments, you can switch your role as a forex market investor. Investing in the forex market can assure you maximum returns and you need not take help of the professional debt help companies that may charge you fees for providing you with their services.

What happens when you opt for professional debt relief?

When your high interest credit card debts are rising beyond your control, you should get help from a professional debt relief agency but are you aware of the way in which such companies work and how they help you eliminate your debt burden? If you choose a debt consolidation company, the interest rates on your credit cards will be reduced and you can make a single monthly payment towards the program. However, if you want to make the payments on time, you have to make sure that you keep on making the monthly payments on time. When you’re already in debt, how are you supposed to gather the payments? Here comes the option of starting off with passive income that can be achieved through the forex market. Read on to know the reasons to invest in the forex market.

The solid reasons to invest your dollars in the currency market

Forex offers some advantages that you may not get with the other financial assets. If you’re wondering why you should leverage the forex market when there is the stock market, the bonds and the mutual funds? Here are some reasons.

  • Fewer investment choices: If you’re an investor who is investing money to earn returns with which he can pay back high interest debt, your responsibility is more than a normal investor. When you consult a forex broker, he will give you a choice of 20 currency pairs but when you enter the stock market, you may come across thousands of choices. You may suffer from information overload when you enter any other market and this may make you take wrong decision.
  • Trade with leverage: Trading with leverage is another benefit of the forex market and this type of leverage is much greater than what you get in the other financial assets. While you may get 2:1 leverage in the stock market, you can get 500:1 leverage in the forex market. This means that you’ll be able to control a larger amount with a smaller amount of capital.
  • Trade at any time of the day: Another unique feature of the forex market is that the market is open 24 * 7 and you can trade the market at any point of the day. Even if you go abroad for a vacation, you can trade online at any point of the day and this raises your options of making returns.
  • Size and liquidity: The size of the forex market is a big advantage and this is the largest financial market in the world that trades almost $4 trillion in a day. As a large number of players are involved, the places of the trade gets filled up instantaneously.

Therefore, when you’re worried about your rising debts and you have no option to repay them on time, you may become a forex investor. Earn huge returns and use them for credit card debt repayment so that you don’t have to waste your dollars behind the professional companies.

Asia Screeches and the Dollar Zooms

by Jack Crooks
Saturday, December 17, 2011 at 7:30am

Jack Crooks

I find it interesting how complacent many investors still are regarding Asia, China in particular. But I guess if one vests so much time and effort to wave a convincing story, it’s difficult to be objective.

However, a slowdown in Asia is certain. In fact, if you look at the chart below, you can see that one has already begun across emerging markets.

And soon it could turn into an all-out run thanks to falling dollar-liquidity, the euro-zone banking crisis, and the Chinese housing bubble.

There are two key points that could help explain why I say Asia is bound to take a gigantic header; both are tightly linked catalysts for hot money running from the region in a big way.

First, Reuters concluded that the European banking crisis has a negative impact on Asian liquidity and funding …

“It’s not known yet how much Western banks are pulling out of the region. As recently as June 30, their credit into Asia — outside Japan — was still rising, to a record $1.45 trillion. But Japan’s troubled banks cut a quarter of their credit to Southeast Asia between mid-1995 and the start of the Asian financial crisis in mid-1997. It has yet to recover. If European banks did pull out in the same proportion, it would carve roughly $390 billion out of the credit landscape.”

European lenders only account for 2.3 percent of loans to non-banks in emerging Asia, according to the BIS. But they are big lenders to Asian banks. Led by Spain’s BBVA BBVA.MC, and France’s BNP Paribas BNPP.PA, Crédit Agricole CAGR.PA and Société Générale SOGN.PA, they account for 32 percent of Asia’s syndicated lending, according to Citigroup, and 40 percent of syndicated trade finance. Europe thus accounts for 61 percent of foreign loans to non-Japanese Asia, most of it in short, one- to two-year loans.

“The reason is that at least two-thirds of global trade and investment is still conducted in dollars. European banks were raising cheap dollars in the U.S. Aside from HSBC and Standard Chartered, most Asian banks don’t. What they lack in dollar deposits they have to borrow from Western banks. So while their total loan-to-deposit ratios may suggest they can take up their slack, their dollar loans exceed dollar deposits many times over, exposing them to currency fluctuations.”

Second, from the EconoMonitor regarding the precarious position of China’s housing market …

“The first signs of a downturn emerged in August, when China’s top 10 property developers reported unsold inventories totaling RMB 318 billion (US$50 billion), up 46 percent from the previous year. Highly leveraged, with debt-to-asset ratios approaching 65 percent, developers were coming under increasing pressure to liquidate those inventories for cash.

“The fire sale began in October, with several Shanghai developers slashing sale prices on new apartments by 25 percent or more. The discounts sparked angry (and sometimes violent) protests from investors who had previously bought the same units at full price, demanding refunds.

” … According to a central government study, local governments in China depend on land sales for approximately 40 percent of their revenues. The all-purpose answer, whenever doubts are raised about the ability of local governments to repay the loans or bonds that funded various stimulus projects, is that they can always sell more land.

“But when developers stop building, because they are too busy desperately trying to liquidate their existing inventories, they stop buying land.”

Can you say: “Risk bid” and “rising demand for good old U.S. dollars?”

The U.S. Dollar Index Weekly — you’ve seen it in my Money and Markets columns before. Now it’s Zoom-zoom!

The dollar bull story is shaping up nicely!

Best wishes,

Jack