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The Mind of a Trader
Posted on April 30, 2008 in ()The Mind of a Trader
The Beach Ball
Have you ever tried to hold a beach ball under the water? You might be successful for few moments, however it only takes a small change in how you are holding it to make it burst up out of the water, hit you in the face and splash you all over. Sometimes, we as traders try to hold the beach ball under the water. We want the big success, the big win, the huge profits, etc. in a short timeframe. This rarely happens. What are your current trading traits? What do you expect of yourself? Are you open to new ideas? Are you willing to spend the time needed to build the skills and knowledge base needed to reach your goals?
Getting Started in Currency Trading
Posted on April 30, 2008 in ()
Getting Started in Currency Trading
While the Foreign Exchange (FOREX) market can be a very profitable place, you must have a firm understanding of how to operate within this environment if you intend on achieving any success. That’s why you need Getting Started in Currency Trading, Second Edition. This reliable resource—written for both newcomers and those with some FOREX experience—puts trading world currencies in perspective, and shows you exactly what it takes to make it in this field.
Filled with in-depth insights and practical advice, Getting Started in Currency Trading, Second Edition opens with a detailed description of the FOREX market and contains a section of FOREX terms that are clearly defined with examples. It quickly moves on to address some of the most essential elements of currency trading, including:
- · The rapidly expanding and evolving online trading marketplace for spot currencies, generally referred to as retail FOREX
- · The process of initiating and liquidating a live market order
- · The advantages and disadvantages of fundamental and technical analysis
- · The wealth of FOREX products and services now available from third-party vendors
- · The psychology of trading and the stresses that may accompany this endeavor
- · Advanced strategies such as rollovers, hedging, and arbitrage
Dollar - Can the Rally Last Through Jobs Report?
Posted on April 30, 2008 in ()Dollar - Can the Rally Last Through Jobs Report?
The US dollar staged a massive comeback last week as US economic data indicated that, while conditions remain dismal, they aren’t quite as bad as expected. First, the Richmond Fed index “only” fell to 0 from +6, versus expectations of a drop to -1, while existing home sales slipped 2.0 percent. Next, the headline reading of the Commerce Department's durable goods orders report contracted for the third consecutive month during March, due largely to declines in demand for transportation and defense goods. However, the markets took their cue from the durable goods orders excluding transportation reading, as the index surged 1.5 percent and helped to keep the US dollar rally alive.
Will the FOMC, Q1 GDP Bring the Dollar Back to Losing Status?The US dollar staged a massive comeback last week as US economic data indicated that, while conditions remain dismal, they aren’t quite as bad as expected. First, the Richmond Fed index “only” fell to 0 from +6, versus expectations of a drop to -1, while existing home sales slipped 2.0 percent. Next, the headline reading of the Commerce Department's durable goods orders report contracted for the third consecutive month during March, due largely to declines in demand for transportation and defense goods. However, the markets took their cue from the durable goods orders excluding transportation reading, as the index surged 1.5 percent and helped to keep the US dollar rally alive.
Looking ahead to this week, Tuesday’s economic data will likely highlight some of the reasons why traders are ramping up speculation that the country is in midst of a recession. Indeed, the S&P/Case-Schiller index of home prices is likely to fall sharply for the fourteenth consecutive month. Later in the morning, the Conference Board’s consumer confidence index is forecasted to fall to a five year low of 62.0 from 64.5, which won’t be entirely surprising as rocketing food and energy prices combined with the collapse of the US housing sector and tightening credit conditions have sparked widespread pessimism throughout the financial markets. On Wednesday morning, highly anticipated Q1 GDP figures will be released, and a Bloomberg News poll of economists reflects consensus estimates for a 0.3 percent gain. However, these could be rather optimistic expectations, as there is a good possibility that GDP could actually fall negative.
Nevertheless, the market’s response may be muted as the FOMC rate decision will come at 14:15 EST and the Bank is forecasted to cut the fed funds rate by 25bps to 2.00 percent. However, the vote for the March reduction in the fed funds rate had two dissenters, both of whom voted in favor of “less aggressive” policy given upside inflation risks, and futures are now only pricing in a 75 percent chance of a 25bp rate cut and a 25 percent chance of no change in policy. The odds are certainly in favor of more accommodative policy, but if the concurrent policy statement suggests that the FOMC may not cut rates again at their next meeting, the US dollar could actually rally. The latter part of the week will see both ISM Manufacturing and Non-farm Payrolls, though the employment data will likely be the bigger market-mover. NFPs are expected to fall negative for the fourth consecutive month, indicating that consumer spending will continue to deteriorate as record high energy and food prices sap disposable income.
How To Trade This Event Risk
Posted on April 30, 2008 in ()How To Trade This Event Risk
The
GBP/USD has remained in a trading range between 1.9600 to 2.000 for
nearly a month. The upcoming first quarter growth numbers may provide
the impetus to break it free and put it onto its next trend phase. The
economic report is expected to show growth slowed for a consecutive
quarter to 0.4%, bringing the annualized rate to 2.6%, and remaining
below its recent growth trend average of 3%. The housing slump brought
on by the recent credit crisis has started to weigh on consumer
confidence leading to retail sales declining for the first time in
three months. The BoE in an attempt to jump start the housing market
recently infused 50 billion in liquidity into the market., when it
traded treasuries for mortgage back securities. The move brought more
fear than relief as speculation grew that there was more fallout ahead
from the credit crunch. Inflation concerns on the back of record oil
prices have provided support for the Pound as the BoE has been adamant
that price stability remains a focus of theirs. However, growth
prospects have grown dimmer as indicated by the recent CBI
manufacturing survey. The forward looking indicator saw sharp declines
in expectations for orders and output, with 13% more negative responses
than positive. Therefore, the inflation argument may lose its influence
on the cable, leaving it exposed to more downward pressure.
The
negative expectations and recent softening fundamentals leaves the
greatest chance for volatility with a rebound in growth. Although
March’s retail sales declined, they managed to exceed expectations and
were resilient throughout the first quarter. Therefore, the potential
for an upside surprise exists, especially considering that unemployment
has remained firm at 2.5%. With strong GDP readings from both the
quarterly and annual figures, we will look for a five minute green
candle to confirm entry on a long, two lot GBPUSD position. The stop
for both lots will be set either at the nearby swing low or at a
reasonable, fixed distance. The target on the first half of the trade
will equal the distance to the stop, while the second lot’s objective
should be taken on discretion. When the first lot takes profit, the
stop on the second should be moved up to break even to conserve profit.
The
most likely scenario, given the toll the housing slump, rising
inflation and tight credit markets have exacted on the economy, is that
growth slowed. If the GDP numbers cross the wires worse than expected,
we will use the same criteria and strategy setup for a short as we
would for the long, except in reverse.
Hedge Trade Will Protect Long Term AUDUSD Yield Seekers
Posted on April 30, 2008 in ()Hedge Trade Will Protect Long Term AUDUSD Yield Seekers
The upward trajectory in the Australian Dollar has been guided by a trend line established in August of last year. The pair is driven higher by a widening yield differential between the two countries, with the RBA moving to contain inflation with record-high borrowing costs at 7.25% all the while the US Fed pushes on with rate cuts. The Australian economy has begun to slow under weight of hefty monetary tightening, but there are no signs that the RBA will pursue easing in the near term. This suggests the growth in yield spread between the two currencies is set to continue.
Having put in a top at 0.9500, AUDUSD tested there again shortly thereafter with a weaker, shallower run upward. A second rejection prompted a decline in price action to the trend line support level. From there, the pair’s ascent has been more measured, easing gently upward and working through various levels of intermediate resistance. Yesterday’s strong up move was stopped along a downward sloping resistance line formed by recent highs. We see AUDUSD retrace lower from here before the next up leg materializes.
Hedging Strategy
Currency Pair: AUDUSD
Long Term Bias: Bullish
Long Term Position: Holding Long (from 04/01 trend line test)
Short Term Bias: Bearish
Short Term Position: Short below 0.9380, Target 0.9140, Stop-Loss at 0.9480
Traders
looking to protect their existing long AUDUSD position or enter long at
a favorable price may consider a hedge short AUDUSD below 0.9380 with a
target near trend line support at 0.9140. Once the profit target is
hit, we expect the bullish trend to resume. We will maintain a
stop-loss on our hedge position should AUDUSD break out to the upside
prior to the limit being hit. We will set the stop-loss near 0.9480.
When should I use the hedging feature?
Markets hardly ever trade in the same direction for long. Though there are general trends that may unfold for weeks, months and years; there is almost always considerable fluctuation in price during these periods – sometimes leading to significant retracements. There are a few common strategies that traders use to immunize their risk to counter-trend moves while still holding to the long-term trend. One method of reacting to these changing tides is to actively enter and exit a trade on each swing, which requires constant attention and a superior ability to pick tops and bottoms. The other, more passive, strategy is to hold on for the long-term trend through retracements in the belief that the higher trend will reengage. Taking a temporary hedge positions through the counter-trend moves, on the other hand, requires less accuracy in picking tops and bottoms and at the same time lowers the drawdown while increasing the potential for return.