Month: August 2011

5 Trading Myths Busted

In recent years, as Forex has become more popular, a mythology has sprung up around the foreign exchange markets, mostly propagated by people who don’t really understand what they’re talking about – or worse, do understand what they’re talking about and deliberately mislead people. Here are a few of the popular myths busted.

A Successful Strategy is a Complicated One

Whilst it’s true that forex markets are complicated and at any one moment thousands of variables are in play, you don’t have to have a complicated strategy to succeed. Many successful traders use simple, old strategies and make consistent profits…the key is not so much the strategy, but being disciplined and having good money management.

To Make Money with Forex You Have to Predict the Future

This is an overly scientific approach to the markets, there is no way of telling what is going to happen next, so don’t get hung up about predicting the future. The key is to work out a strategy and stick to it, every strategy will give you incorrect signals, the difference between a good strategy and a bad one is simply that a good one will give you a lower percentage of incorrect signals.

If You Can Make Money on the Stock Market You Can in Forex

Whilst the graphs sometimes look the same, and you can often use similar analytical tools, it does not follow that if you are good with stocks you’ll be good with forex trading. The key to both types of trading is knowing your markets, and quite simply, whilst knowledge in stocks might give you a broad background, it doesn’t teach you to deal with 24 hour stock patterns.

I Can Make Profit Whenever I Want Because Forex is 24 hours a Day

Whilst the markets are open all the time, experienced traders will tell you that you’re only likely to make a profit in certain, broad, windows. Whilst you might know a lot about how the markets react during western trading hours, there’s an entirely different set of factors at play when the eastern markets are in full swing, so it’s best to restrict yourself to smaller windows and learn how these react in certain situations.

I Need A Lot of Money to Trade Forex

Forex trading is almost always leveraged in some fashion, so you can trade with very small amounts of capital and get good returns. Of course, this means you can make significant losses without a lot of exposure, but that’s the risk you take when getting involved in forex trading. A large amount of capital is not required.

There are hundreds of other myths around Forex and the more you trade forex, the more you’ll encounter them. Remember that the most important parts of Forex trading are: money management, discipline, and keeping a cool head. Everything else is superfluous.

Article by Clint Starr, cashzilla.co.uk

Aug. 23 (Bloomberg) — Troy Gayeski, senior portfolio manager at Skybridge Capital LLC, talks about hedge fund strategies, including the mortgage-backed securities market. Gayeski speaks with Lisa Murphy on Bloomberg Television’s “Fast Forward.” (Source: Bloomberg)

Stocks jumped as lower than expected new home sales fueled liklihood of a Fed move to calm the markets at it’s meeting on Friday. By the end of the trading session, the Dow was up 2.7%, the Nasdaq jumped neat 4% and the S&P 500 was up 1.3%.

Forex Social Networks: To Join or Not to Join?

In the past few years, social networks have become very big business indeed. Sites such as Facebook, Twitter, and LinkedIn are now some of the most frequently used services on the web, with millions of users the world over logging in daily to connect with friends, colleagues, and business associates. Their massive popularity has led to the establishment of a plethora of more specialised, niche networks designed to connect people who engage in shared activities. The advantages are obvious – they allow people to make contact with other people who are active in their chosen field, wherever they are in the world, and share their experiences and expertise. This can be particularly valuable for investors, as having the right information within reach can make all the difference between making a profit and a loss.

For retail FX traders, there has always been a desire to foster a community where you can learn from other traders and share tips and other crucial information. Before the establishment of forex social networks, online forums served a similar purpose, in that they provided a community where forex traders could communicate with each other. While these forums did contain a lot of useful information, they were intrinsically limited, in that they did not replicate the type of interactions that you might encounter in real social situations. Also, they provided no facility for being selective about the people that you were in communication with, apart from private messaging of course.

One of the main reasons for the popularity of forex social networks among online traders is that retail forex trading is, by its very nature, a solitary activity. Sitting alone at a computer watching news feeds and making trades might well be a very profitable way to spend your time, but it can get a little lonely. Social networks allow traders to meet other people who share their interest in forex trading, so that they can compare notes, give advice, and generally keep each other company while they trade. They bring people together from all over the world that would not have had a chance to meet otherwise. This makes your physical location a lot less important than it might have been a decade or two ago.

Forex social networks have only been with us since 2009, but in that time they have exploded in popularity among retail FX traders. At the moment, forex social networks are limited by bandwidth, but as technology improves you can expect to see more and more features such as video-conferencing and voice communication. You can also expect to see features such as group trading and virtual classrooms taking off in a big way. Many forex networks already offer webinars where experts share their knowledge with retail traders, and members of the network can chip in with questions and advice of their own. These can be an excellent way to increase your knowledge of forex trading, and ask questions of people that you would be unlikely to run into in everyday life. The social networking format enables traders to learn from each other’s mistakes, as well as their successes, and exposes users to lots of different trading styles. Translation technology is another area in which great strides are currently being made, and when it has reached full maturity, you can expect to be able to communicate with traders from all around the world via forex networks, regardless of the language barrier.

There are basically two types of forex social network, those that are provided by forex brokers for the exclusive use of their clients, and those that are open to anyone. Both types have inherent advantages and disadvantages. The main advantage of a non-independent, branded forex network is that all of the members are trading on the same platform, so they can give each other more specific and relevant advice regarding trading through that broker. On the other hand, these networks tend to have far fewer members, and the discussions on these networks are necessarily limited in their scope. Also, there would seem to be something of a conflict of interest on the part of the broker that provides the service, although this issue is not necessarily confined to branded FX networks. In order for an online community to be a success, there has to be a degree of transparency, and while branded communities have to be overseen by someone from the broker in question, in reality they tend to have little or no influence over the content on the network, other than to remove potentially inflammatory material or add their own contributions.

Independent forex social networks have the intrinsic advantage that anyone can join them, which means that they tend to have much higher memberships, giving users a much bigger pool of trading talent to tap into. However, this can be a double-edged sword, in that a larger community is not always a closer community, and it can be harder to forge useful relationships on these sites. Also, while independent networks can, in theory, boast a greater degree of impartiality, the potential for misinformation and covert advertising is in many ways greater.

So should you join a forex social network? The answer depends very much on your personality and your level of involvement in forex trading. If you only plan to make the odd speculative forex trade, and have no desire to communicate with other traders, then it may not be worth your while. However, if you are relatively serious about FX trading, and want to learn as much as you can about it, then it is strongly recommended that you join at least one forex social network. Of course, there is always going to be the danger that you will be given bad advice or a false sense of security in doing so, but if you enter into it with a healthy degree of scepticism, then you have much to gain by joining a wider community of traders.

Article by Clint Starr, cashzilla.co.uk

Trading Psychology – Staying Calm Under Pressure

Whether you are dealing on the Forex market or any of the other financial markets, trading can be a very stressful activity at times. The main problem is that whether a trade goes for you or against you, it can affect your emotions in a profound way, and this can lead to you to behave in an erratic fashion. Needless to say, letting your heart rule your head is rarely an effective trading strategy, but if you get too emotionally involved in what you are doing, it can be difficult not to fall into this trap. If you are making lots of small trades throughout the day, this can magnify this issue, as you might be on a roll one minute, and making a big loss in the next. When things happen quickly like this, it can be very difficult to keep your emotions in check. Even if you have set down a specific trading strategy that you plan to stick to, it can be hard to execute it when you are overwhelmed with emotion.

The ideal state of mind for any forex trader is one of calm and peace, maintaining an objective viewpoint throughout. The mind and body are inextricably linked, and what goes on in your mind can affect your body and vice versa. There are several ways in which you can make changes to your mental state by taking simple physical steps, such as adopting the correct upright posture, breathing deeply, and drinking plenty of water to stay hydrated. All of these steps can lead to a greater feeling of well-being, leaving you better equipped to deal with the emotional rollercoaster of trading.

When your emotions get the better of you, it can have an incredibly negative impact on your trading results. For instance, you might be tempted to take profits as soon as you make them, disregarding your trading plan in the process. Now, if you were only ever making small profits, then this would not necessarily be a bad thing. However, the chances are that you are going to make a few losses as well, so you need profits just to break even, and if you want to make a net profit, your profits have to be larger than your losses. With your emotions running wild, you might be a lot more inclined to take the sure bet rather than letting your profits run, as every small profit provides you with an addictive emotional boost, but this type of trading behaviour is almost guaranteed to make you lose money over the longer term.

By the same token, you shouldn’t let losses send you into a panic either. A few losses in a row can make you feel like everything is going terribly wrong, and this could lead you to make poor decisions or even give up trading altogether. However, most successful trading plans make provision for losses, and even if you lose out on a few trades, it shouldn’t affect your forex trading. If you keep an objective viewpoint throughout, whether you are winning or losing, then you will be far more likely to make a profit in the long term.

One way to counter emotional over-reactions is to have your trading plan in front of you as you trade, as this will remind you of your long-term strategy. Another thing that can help is to enter your stop losses and profits target into your trading platform, so that you do not have to constantly watch currency prices in case they drift beyond affordable loss thresholds. Keeping a constant eye on the market can be a good thing, but it can also be a bad thing, as if you get too involved it can make you anxious, and therefore more likely to make poor trading decisions.

Another thing that some traders do to keep stress levels down is to play a little music in the background. The best type of music for this is soothing instrumental music, such as classical, jazz, or easy listening. Try to avoid music that is loud, abrasive, discordant, or lyrically dense, as these may distract you and place you in the wrong frame of mind for trading. You could also try tidying your trading desk to make more room for yourself. A messy workspace can make you feel more stressed than you otherwise would be, so don’t overlook the setting when you are trading on the forex market.

While you may not have the time or space at work to embark on a programme of meditation, you can use some of the key techniques in order to improve your trading performance. Having a mantra, which is a short phrase that you say to yourself in order to put yourself in a meditative state of mind, can help you to feel calm. While it is best to find one that is personal to you, you should try to find a phrase that calms you down, such as ‘Everything will be fine’ or ‘Give the system a chance to work’.

The aim is to distract your mind away from the causes of stress so that your body can have a chance to recover. If you can distract yourself for long enough that your heart slows to its normal resting pulse rate, then your mind will calm down accordingly. Other activities that can be used to distract and calm you include guitar playing, stretching and even juggling.

Markets are fundamentally unpredictable, so the best chance you have of beating them is to stick to your trading plan, and try to maintain a calm, alert state of mind and body. A stressed trader is much more likely to make poor decisions than a relaxed, objective one, so if you are feeling stressed out, stop trading and get away from your desk for a while. This will help you to maximise your profits and enjoy the experience much more when you come back to it.

Article by Clint Starr, cashzilla.co.uk

Aug. 23 (Bloomberg) — John Hydeskov, chief analyst at Danske Bank A/S in London, discusses the outlook for the Norwegian krone and economy. Hydeskov speaks with Linzie Janis on Bloomberg Television’s “Countdown.” (Source: Bloomberg)

Aug. 23 (Bloomberg) — Adrian Foster, head of financial-market research for Asia at Rabobank Groep NV in Hong Kong, talks about the global economy, financial markets and Federal Reserve monetary policy. Foster speaks with Susan Li, John Dawson, and Zeb Eckert on Bloomberg Television’s “Asia Edge.” (Source: Bloomberg)

The EUR rose as high as 1.45 following a strong PMI surveys but the gains failed to hold after a disappointing ZEW survey and a rise in Greek bond yields reminds investors the European debt crisis is not going anywhere.

PMI surveys for both Germany and the euro zone were above expectations. German manufacturing PMI came in at 52.0 on consensus forecasts of 50.9 and EZ manufacturing dropped to 49.7 from 50.4 on expectations of 49.6. German ZEW sentiment came in on the downside of expectations, falling to -37.6 from -15.1. The EUR rally ran out of steam at the 1.45 level the same time the ZEW survey was released and willing offers stood at the big round number.

Also weighing on the EUR was a rise in Greek 2-year yields to almost 38%, hovering near the all-time high of 40.4%. This highlights the tension that remains in the euro zone given the requests for collateral from some European nations in return for approval of the July 21st amendment to the Greek bailout. The issue could continue to weigh on the euro given Eurobonds are a non-starter according to both Merkel and Sarkozy.

This EUR/USD surged as high as 1.4500 before encountering selling interest and the release of the disappointing German ZEW economic sentiment where the EUR/USD fell back to 1.4440. Initial support is located at 1.4400. Additional support is found at 1.4350 followed by the rising trend line from the July lows at 1.4200. To the upside the pair could be capped between 1.4500 and 1.4540 leading up to Bernanke’s Jackson Hole speech on Friday.

Read more forex trading news on our forex blog.

Several analyses reported on over the past week have generated a buzz around the Norwegian economy. One of the leading summations came from John Hydeskov, a leading analyst at Danske Bank A/S in London, who commented in an interview on Bloomberg TV, on his bank’s expectation to see double-digit growth in Norwegian trade.

The analysis included the recent rebound traders have witnessed in global stocks these past two trading days, highlighting a return to higher yielding assets while traders seek out stores of value to offset potential losses seen on Europe’s regional currencies. With a sudden uptick in stocks Monday, the Swiss franc (CHF) in particular was dropping fast against the Scandinavian kroner, which jumped near 4% on the day.

Other reports from forex analysts have noted the Norwegian krone’s (NOK) ability to act as a hedge against volatility, a relatively safer investment than traditionally high yielding assets when risk appetite is on the rise, and its traditional tracking value against Crude Oil makes its movements somewhat more stable.

Coupled with the forecasts of double-digit trade growth and a solid pace of economic expansion, the Norwegian economy seems to be positioned for serious gains in the months ahead. Forex traders have begun to shift assets in the direction of the NOK and it will be interesting to watch if the currency will shake off its mimicking behavior of oil as the price of crude continues to plummet.

Read more forex trading news on our forex blog.

Data released early Tuesday afternoon from the Canadian economy may prove bearish for the Canadian dollar (CAD) in the days ahead. Though the nominal reading on total retail sales underscored a 0.7% growth for the previous month, the core data, which excludes volatile items such as transportation sales, revealed a 0.1% decline.

The core data tends to have higher impact as it factors out those sales which tend to generate wild swings. The core figures measure the primary factors of consumer spending at the typical retail level and thus impact currency values much more due to their more direct correlation.

Read more forex trading news on our forex blog.