Currency Trading

Forex Trading Machine

2009-01-15T06:20:00.000-08:00

Trading the Forex markets has become one of the most popular activities among people from all walks in life but with the solid interest of gaining financial freedom away from the traditional environments of the office work.

But Forex trading is not always easy. You will need a good amount of knowledge related to how the currency markets behave in order to become a profitable forex trader. It is the dream of every trader to have a forex trading machine that would help them once the time to make a transcendental decision in the markets comes.

Now a days a veteran trader has been spreading the word about an original and quite revolutionary way to trade the forex markets. It is a system based on what is called Price Driven Forex Trading (PDFT).

He claims that this is at last that elusive Forex Trading Machine that has been dreamed by many traders for many years. PDFT is a system based in three trading strategies that are able to produce consistent and systematic profits for the trader that follows PDFT to the letter.

Many veteran traders agree that in order to be successful in the world of forex trading you must be original, innovative and different in your trading systems. And this is the basis of the Forex Trading Machine based on a different approach to currency trading, this is by the use of PDFT which is a method of trading the forex market without using any type of indicators, support or resistance levels, moving averages, pivots, oscillators, fibonacci, trend lines or any other trading tool you can think of. Price Driven Forex Trading only uses the price of the currency pair and a time element. Quite innovative I would say.

In short, the Forex Trading Machine is what every machine should be; this original trading system is 100% mechanical, this means it requires no discretion or interpretation. You will simply have to follow strict rules: if A = B then do C. That’s it.

Developing A Trading Plan

2009-01-08T04:24:00.000-08:00

The importance of a plan
'Fail to plan, plan to fail'

No matter which trading style you decide to pursue, you need an organized trading plan, or you won’t get very far. The difference between making money and losing money in the forex
market can be as simple as trading with a plan or trading without one.

Key component of a trading plan:

1)Determining position size: How large a position will you take for each trade strategy? Position size is half the equation for determining how much money is at stake in each trade.

2)Deciding where to enter the position: Exactly where will you try to open the desired position? What happens if your entry level is not reached?

3)Setting stop-loss and take-profit levels: Exactly where will you exit the position, both if it’s a winning position (take profit) and if it’s a losing position (stop loss)? Stop loss and take-profit levels are the second half of the equation that determines how much money is at stake in each trade.

That's all. Yet, it is so stunning how many traders, experienced and beginner alike, open positions without ever having fully thought through exactly what their game plan is, what they aim for, what they really want.

And no matter how good your trading plan is, it won’t work if you don’t follow it. Sometimes emotions bubble up and distract traders from their trade plans. Other times, an unexpected piece of news or price movement causes traders to abandon their trade strategy in midstream, or mid trade, as the case may be. Either way, when this happens, it’s the same as never having had a trade plan in the first place!

Important guidelines for short-term trading

2009-01-08T04:06:00.000-08:00

5 guidelines that you will need to know when doing short-term trading:

1)Trade only the most liquid currency pairs, such as
EUR/USD, USD/JPY, EUR/GBP, EUR/JPY, and EUR/CHF. The most liquid pairs have the tightest trading spreads and fewer sudden price jumps.

2)Trade only during seasons of peak liquidity and market interest. Consistent liquidity and fluid market interest are essential to short-term trading strategies. Market liquidity is deepest during the European session when Asian and North American trading centers overlap with European time zones — about 2 a.m. to noon Eastern time (ET). Trading in other sessions can leave you with far fewer and less predictable short-term price movements to take advantage of. Hence, it isn't really advisable to trade in other sessions.

3)Focus your trading on only one pair at a time. It’ll also improve your feel for the pair if
that pair is all you’re watching. No worries about any other pairs, you can comfortably focus all your attention on the only an only pair. This will help you yield better results.

4)Preset your default trade size so you don’t have to keep specifying it on each deal. This could say you time.

5)Avoid trading around data releases. Carrying a short term position into a data release is very risky because prices can gap sharply after the release, blowing a short term strategy out of the water. While we can't predict which way we could go, to play safe, avoid trading during data releases.

Choosing Your Trading Style

2009-01-08T03:20:00.000-08:00

Finding the right trading style

We’re frequently asked, “What’s the best way to trade the forex market?” Unfortunately, there is no easy answer. Better put, there is no standard answer — one that applies to everyone. The forex market’s trading characteristics have something to offer every trading style (long-term, medium-term, or shortterm) and approach (technical, fundamental, or a blend). So in terms of deciding what style or approach is best suited to currencies, the starting point is not the forex market itself, but your own individual circumstances and way of thinking.

Things to consider
As with many of life’s endeavors, when it comes to financial-market trading, there are two main resources that people never seem to have enough of: time and money. Deciding how much of each you can devote to currency trading helps to establish how you pursue your trading goals.

If you’re a full-time trader, you have lots of time to devote to market analysis and actually trading the market. But because currencies trade around the clock, you still have to be mindful
of which session you’re trading, and of the daily peaks and troughs of activity and liquidity. Just because the market is always open doesn’t mean it’s necessarily always a good time to trade.

If you have a full-time job, your boss may not appreciate your taking time to catch up on the charts or economic data reports while you’re at work. That means you’ll have to useyour free time to do your market research. Be realistic whenyou think about how much time you’ll be able to devote on a regular basis, keeping in mind family obligations and other personal circumstances.

The idea of currency trading

2009-01-08T03:07:00.000-08:00

Buying and Selling Simultaneously

The biggest mental hurdle facing newcomers to currencies, especially traders familiar with other markets, is getting their head around the idea that each currency trade consists of a simultaneous purchase and sale. In the stock market, for instance, if you buy 100 shares of Google, you own 100 shares and hope to see the price go up. When you want to exit that position, you simply sell what you bought earlier. Easy, right? It is exactly similar to buying something cheap and selling it off when someone offers you a good price.

But in currencies, the purchase of one currency involves the simultaneous sale of another currency. This is the exchange in foreign exchange. To put it another way, if you’re looking for the dollar to go higher, the question is “Higher against what?” The answer is another currency.

Currencies never exist alone, they exist as pairs!
Although the vast majority of currency trading takes place in the dollar pairs, cross-currency pairs serve as an alternative to always trading the U.S. dollar. A cross-currency pair, or cross or crosses for short, is any currency pair that does not include the U.S. dollar. Cross rates are derived from the respective USD pairs but are quoted independently. Crosses enable traders to more directly target trades to specific individual currencies to take advantage of news or events.

For example, your analysis may suggest that the Japanese yen has the worst prospects of all the major currencies going forward, based on interest rates or the economic outlook. To take advantage of this, you’d be looking to sell JPY, but against which other currency? You consider the USD, potentially buying USD/JPY (buying USD/selling JPY) but then you conclude that the USD’s prospects are not much better than the JPY’s

Currencies and Other Financial Markets

2009-01-07T06:25:00.000-08:00

Let’s look at some of the other key financial markets and see what conclusions we can draw for currency trading.

Gold
Gold is commonly viewed as a hedge against inflation, an
alternative to the U.S. dollar, and as a store of value in times of
economic or political uncertainty.

Overall, the gold market is much smaller than the forex market, so if we were gold traders, we’d sooner keep an eye on what’s happening to the dollar, rather than the other way around. With that noted, extreme movements in gold prices tend to attract currency traders’ attention and usually influence the dollar in a mostly inverse fashion.

Oil
The idea is that, because some countries are oil producers, their currencies are positively (or negatively) affected by increases (or decreases) in the price of oil. If the country is an importer of oil (and which countries aren’t today?), the theory goes, its currency will be hurt (or helped) by higher (or lower) oil prices. Correlation studies show no appreciable relationships to that
effect. Hence, we are the above sentence is invalid.

The best way to look at oil is as an inflation input and as a limiting
factor on overall economic growth. The higher the price of oil, the higher inflation is likely to be and the slower an economy is likely to grow. The lower the price of oil, the lower
inflationary pressures are likely (but not necessarily) to be.

Bonds
Fixed-income or bond markets have a more intuitive connection to the forex market because they’re both heavily influenced by interest rate expectations. However, short-term
market dynamics of supply and demand interrupt most attempts to establish a viable link between the two markets on a short-term basis.

Overall, as currency traders, you definitely need to keep an eye on the yields of the benchmark government bonds of the major-currency countries to better monitor the expectations of the interest rate market. Changes in relative interest rates (interest rate differentials) exert a major influence on forex market.

What is a forex market?

2009-01-07T06:06:00.000-08:00

The foreign exchange market — otherwise called the forex market, or simply the FX market — is the most traded financial market in the world.

More than anything else, the forex market is a trader’s market. It’s a market that’s open around the clock six days a week, enabling traders to act on news and events as they happen, to think about how events can cause the market to go up or down. It’s a market where half-billion-dollar trades can be executed in a matter of seconds and may not even move prices noticeably.
Try buying or selling a half billion of anything in another market and see how prices react.

The Figures
Average daily currency trading volumes exceed $2 trillion per day. That's a huge number isn't it? Just imagine the number of 0s there are.

Liquidity
Liquidity refers to the level of market interest — the level of buying and selling volume — available at any given moment for a particular asset or security. The higher the liquidity, or the deeper the market, the faster and easier it is to buy or sell a security.

A Trading Day
The forex market is open and active 24 hours a day from the start of business hours on Monday morning in the Asia-Pacific time zone straight through to the Friday close of business hours in New York. Or in other words, it is always open. At any given moment, depending on the
time zone, dozens of global financial centers — such as Sydney, Tokyo, or London — are open, and currency trading desks in those financial centers are active in the market.

Currency trading never stops, not even a single day, unlike business which have holidays and such. Even though it’s a holiday in Japan, for example, Sydney, Singapore, and Hong Kong may still be open!

Currencies and Other Financial Markets
As much as we like to think of the forex market as the be all
and end all of financial trading markets, it doesn’t exist in a
vacuum. You may even have heard of some these other markets: gold, oil, stocks, and bonds.
There’s a fair amount of noise and misinformation about the supposed interrelationship among these markets and currencies or individual currency pairs. To be sure, you can always find a correlation between two different markets over some period of time, even if it’s only zero(meaning, the two markets aren’t correlated at all). Always keep in mind that all the various financial markets are markets in their own right and function according to their
own internal dynamics based on data, news, positioning, andsentiment. Will markets occasionally overlap and display varying degrees of correlation? Of course, and it’s always
important to be aware of what’s going on in other financial markets. But it’s also essential to view each market in its own perspective and to trade each market individually.