Market Filters Posted by admin , Friday, 18 December 2009 at 18:57, in Labels: Business, Forex

Market filters, in general, are statistical tools indicating possible high-risk trading areas or times. Because of the leverage and pace in FOREX trading, filters can be extremely useful. If a filter prevents you from making a single bad trade, it has paid the cost of having it in your toolbox. Here is a simple example of a useful filter: The Federal Reserve makes routine (and sometimes not so routine) pronouncements at 8:30 A.M. Eastern

Standard Time. The markets those involving the USD often react very violently just after such announcements. Pull up some charts of this time of day and see for yourself. Observe how often the market feints in one direction right after the announcement and then proceeds in the opposite direction soon thereafter. Don’t enter a trade just before a Fed announcement. Do watch the action after an announcement.

After you decide which pairs and crosses you will trade, it is important to develop and keep a calendar of relevant events and announcements for the country in question. Serious traders will also follow general events in that country for clues to news that may impact its currency. Your daily trade plan should include a calendar showing any such scheduled announcements. Not stepping in doo-doo is more important than finding the pot of gold at the end of the rainbow. The pot of gold is always there, but if you lose too much money you will no longer be in the race to find it. Whereas fundamentals may be difficult to use, news is not. News provides important feedback about the market. A market’s reaction to news may yield valuable clues as to the underlying strength or weakness of a currency.

Market Characteristics Posted by admin , Wednesday, 16 December 2009 at 16:53, in Labels: Forex, Strategies

Each market, irrespective of its placement as a specific pair or cross, is a function of the two basic market environment factors directional movement and volatility. A third factor can be added. I call it thickness (T). Thickness refers to the amount of overlap between the high and low price of one trading unit and the next trading unit. The more overlap, the thicker the market is said to be. I very much like and seek thick markets and have had great success trading them both in futures and in FOREX.

Thickness can be measured as the average overlap from one price bar to the next on a chart, averaged over a given period of time. Thick markets are recommended to beginning traders. I simply use high, medium, and low as my labels for eyeballing thickness. The market on the left demonstrates high thickness, the one in the middle is medium thickness, and on the right, low thickness or thin. You can also do something similar for T as for DM and V.

Take raw T to be 0 when there is no overlap and 100 when there is 100 percent overlap, and
break the data into four 25 percent quartiles. An outside day, where both highs are higher and lows are lower, would still be rated simply as 100 percent raw T. Where price bars have little overlap, they are said to run thin. Fast trending markets tend to be thin. Remember you are using the average thickness over the trend or chart you are analyzing. Thickness, fortunately, tends to change slowly, so this is not a major issue.

Technical versus Fundamental Analysis Posted by admin , Tuesday, 15 December 2009 at 19:17, in Labels: Forex, Techniques

Most traders today use technical analysis to trade. This refers to techniques based on price and other objective data that result from market action. The technician’s credo is “Everything is in the market price.” The factors examined in fundamental analysis, such as a country’s income, gross national product, and interest rates certainly drive currency prices in the long run. The problem for the currency trader is, as Keynes said, “In the long run we are all dead.” The FOREX markets are highly leveraged; this is one of their main attractions. You can be correct about a currency pair in the long run, but the leverage may cause a price movement more than ample in degree to take you out of the market before you can profit from being correct about the fundamentals. It is discouraging to be correct in your determination of longterm trend direction for example, “Interest rates will drive the U.S. dollar loweragainst the euro” but lose money because volatility and leverage cause so many short term fluctuations that you are never able to board the long-term trend successfully.

No one denies that fundamentals such as money supply, labor statistics, political events, and many others drive the currency markets. The problem and why most traders use technical analysis is how to interpret them, especially in the short term. Most fundamental information is quantitative but much is not. For example, how does a trader convert an unemployment statistic to a price value? To further complicate matters, there are hundreds of fundamentals that impact
prices, and the matrix of possibilities is astronomical. And some fundamentals such as geopolitical events, are not even quantifiable.

The prices tracked hourly for 30 days on EUR/USD were ultimately driven by a wide range of fundamentals. But how does the trader discern them in advance? Technical analysis allows you to zoom in as close to the markets as you want. In fact, an advantage of technical analysis is the ability to visualize the markets at multiple price levels simultaneously. There is no perfect world, of course. Fundamentalists will counter that the prices you use to do technical analysis are already history by the time you do your calculations, and they have no rational effect on the future prices.

But a simple example will show this concept to be incorrect, at least in theory. It is true that after I enter my order to buy or sell, I have had all the impact on prices that I will have until I enter the opposite order to exit the market. Yet every trader has a propensity to exit the market, once entered, on variable factors of price and time. At what price will I take a profit? At what price will I take a loss? How long am I willing to stay in a trade? These propensities vary from trader to trader, but the aggregate of all propensities creates a push and pull on the market that should, again in theory, be measurable.

All traders have access to market prices; the same cannot be said of fundamentals. There are literally millions of fundamental factors in any given currency, and the relationships among them are in the billions. Someone will almost certainly know a piece of fundamental information before you do. And how do you translate a fundamental like gross domestic product (GDP) to a specific market value or even a specific entry price? To add gasoline to the fire, remember that these relationships are almost certainly nonlinear and are changing rapidly all the time. Fundamental traders conclude that prices have no memory and that only raw fundamental information drives the markets. The following is only a partial list of potential fundamentals for the U.S. dollar (USD). Other countries will have similar lists. Now, don’t you really want to be a technical trader!

Trading Techniques Posted by admin , at 19:02, in Labels: Forex, Techniques

Most traders consider trading techniques the actual tools they use tomake trading decisions as the most important element of trading. The proof is in the pudding; just consider the corpus of information both in print and online that deals with trading techniques. The sheer amount is staggering. As the FOREX market matures, some literature on money management and the soft elements is becoming available, but it is still dwarfed by information available about trading techniques. The demand continues to be for information on trading techniques. That is unfortunate given the importance of the other two elements.

Systems and Black Boxes
Before considering some of the most popular trading techniques or tools, let me briefly discuss systems and black boxes. A system is a self-contained way to make trades. Systems generate specific buy and sell signals. Many FOREX trading systems are available either from broker/dealers or from third-party vendors. They are intended to be complete in and of themselves, although many traders still use them in conjunction with other trading techniques.

Systems typically show outstanding results over historic data, or they would not sell. But the historic data is very often curve fit. This means that the system was developed to fit the data and not the other way around. If that data related to some specific types of markets, such as volatile markets, trading markets, or trending markets, when the music changes the system is bound to fail. Systems have always been popular in all the markets stocks, options, futures, and now FOREX. Not all systems are bad, but they are all opaque and that is always a warning sign.

If you insist on using a system in your trading, be sure you understand which type of market it was build for or around and use it only in those markets. However, determining which type of market the system was built for can be difficult. Many systems provide limited information regarding how they were developed. The best process is to look at charts of the markets vis-à-vis the system’s performance. In which markets did it perform best trading, trending, fast, slow? If the system vendor does not provide at least enough information to do this analysis, beware.

Black boxes are systems for which no information is available. You don’t know how they were built, how they work, or what type of data they were built around. My recommendation regarding black box systems is to stay away from them. The less transparent the tool, the more difficult it is to make adjustments when things go wrong. A black box is the most opaque tool of all. Robots have become popular in the FOREX markets. Usually, these are programs that automatically execute a trading system. In fast-moving markets they are very useful, especially to the professional money manager overseeing dozens or even hundreds of separate accounts. If your available time for trading is limited, you may want to consider using robots.

But if you have so little time to trade that a robot appeals to you, I recommend that you consider a professional money manager to trade your account. There are many money managers with excellent track records, but a discussion is beyond the scope of this book. Seek out a manager who hasperformed well in a variety of markets. It is more important that the manager has done well in a spectrum of market types than in specific pairs or crosses.

Money Management and the Soft Elements Posted by admin , at 06:26, in Labels: Business, Forex

Your third step is to define yourself as a trader. This is a critical step and one most traders accomplish only by default. You will save a great deal of time and avoid much frustration by working through this process as early as possible in your trading career. Too many traders overemphasize the specific tools needed for trading and fail to apply the “know thyself” rule as traders.

What markets do you like to trade? Probably the ones in which you enjoy the greatest success. Analyze those for the characteristics that make them work, and stick to markets with those characteristics. What are your personality traits as they relate to trading? Are you a calm or nervous sort of person, for example? Are you conservative or aggressive?

What are your financial means and goals? Will you be trading an account of $3,000 or $30,000? How much are you really comfortable risking in toto and on any specific trade? What money management ideas are best for you and for the tools in your codex? Are your selections realistic, and do they complement each other? Money management is not about how much money you can make. It’s about avoiding losses. If you stay in the game long enough, you will make money. But if you lose your grubstake, you will not be in the game for that big payoff day.

My mentor, Charles B. Goodman, emphasized this over and over to me. I call it the Belgian Dentist approach. In Europe, Belgian dentists are considered the most conservative of traders. Trade the long term to break even; always consider risk above reward. I know, that doesn’t sound very sexy. But if you break even over and over again, you will eventually win.

The primary money management parameters for all traders are the following:

• Aggregate account drawdown or risk. 
  
• Win-to-loss percentage for specific trades. 
  
• Aggregate percentage of wins to losses. 

Different traders will modulate these parameters in different proportions, but it is important to set your standards up front, be realistic about them, and confirm that they are in agreement with the rest of your codex.

Steps to Strategic Success Posted by admin , Monday, 14 December 2009 at 22:59, in Labels: Business, Forex, Strategies

A codex is very personal and will differ with each trader. The FxCodex method is my personal way of trading. GSIFTS will use it to explore the codex philosophy but offer individual choices for traders who want to go in a different direction. The key is developing a trading codex leading to a process rather than an elements trading approach.

Developing any personal trading codex requires the trader to make a number of initial decisions. These decisions will define your initial trading codex. You can begin with a simple, basic structure and add to it as your experiences in the market dictate. This is just one of the advantages of the codex approach. These decision steps are the transition required to move from a traditional elements approach to a codex-process approach to trading. Too many traders be-
gin without having made these decisions and then make sharp revolutionary changes in strategies as they go along. It is far better to have a codex defined before making any trades and make small, evolutionary adjustments thereafter.

 
The traditional strategies give heavy emphasis to trading tools, often ignoring money management and soft elements such as style, market selection, psychology, and tactics. The codex approach gives equal emphasis to all of them and places them in a process paradigm. The trader may move back and forth between these steps before having fully built a codex. You may find, for example, that you have selected currency pairs inappropriate for your trading style. If so, you may want to go back and consider the selection of currency pairs vis-à-vis that information. The codex approach allows you to weave back and forth without major disruption to your overall trading method.

Forex Trading Strategies Posted by admin , at 22:54, in Labels: Business, Forex, Strategies

To most vendors , illegal strategy is synonymous with merchandising techniques one or supplementary of the a Good Deal Of flavors of value charts or indicators such as oscillators and pathetic aver-ages.illegal in gsifts , illegal strategy refers to the three essential elements that define a trader: merchandising techniques , illegal money management , illegal and the soft elements of market selec-tion , illegal dealer profile , illegal tactics , illegal and psychology.illegal together they compose a trader’s vogue. 

A established merchandising strategy includes a charting technique such as point
And figure or candlestick charts , illegal a number of technical indicators , illegal and perhapsa few other tools the dealer has institute useful in previous merchandising.illegal money management is quintessentially an ad hoc set of rules for limiting losses , illegal maximizing commissions , and entering and exiting a trade.illegal most established strategies rarely consider vogue , illegal or soft elements , illegal in whatsoever depth.illegal established strategies represent a linear approach to merchandising.illegal each strate-gic constituent is disjoin from the other.illegal the elements don’t communicate very deservedly , illegal if at all , illegal with each other.illegal the codex approach , illegal introduced herein , illegal applies a procedure paradigm to the elements and to merchandising. 

There is nothing inherently defective with established strategies and the elements approach. Illegal a heap of vendors are very productive with them.illegal a plethora of Print and online material currently exists for the established dealer. Illegal but let’s look at the facts.illegal the forex market is not unlike other highly leveraged markets , illegal such as options or futures.illegal the statistics are not pretty; almost 90 percent of late vendors loose their basic account deposit in less than six months most of them using established strategies.

I recently attended a forex conference in las vegas. Illegal i observed somebody lecturing on chart succor and resistance points.illegal useful selective Information , illegal to be certain , illegal but probably not in the way the lecturer intended.illegal the vast plurality of established currency vendors volition be looking for the same or almost the same succor and resistance points.illegal the market never cooperates with the majority; if it did , illegal everyone would be a winner and it would soon cease to exist.illegal to the codex dealer , illegal the established succor and resistance points are useful merely to see what other vendors are thinking.illegal the codex dealer volition seek to find the market’s true. Stopping and turning points.