MARKET TRENDS

A trend is a time measurement of the direction in price levels covering different time span. There are many trends, but the three that are most widely followed are:

Primary:

It is between 9 months and 2 years and is a reflection of investor's attitude towards unfolding fundamentals in the business cycle. When the business cycle extended statistically from trough to trough, it is approximately 3-6 years. So it follows that rising and falling primary trends (BULL and BEAR markets) lasts for 1 to 2 years. Since building up takes longer than tearing down, bull markets generally last longer than bear markets.

The primary trend cycle is operative for bonds, equities and commodities. Primary trends also apply to currencies, but since currencies reflect investor's attitudes toward interrelationships among two different economies, the information is calculated differently.

Intermediate:

Anyone who looks at a price chart will notice that prices do not move in a straight line. Primary upswings are often interrupted by several price fluctuations along the way. These countercyclical trends within the confines of a primary bull market are known as intermediate price movements. These price movements can last from 6 weeks to as long as 9 months. These trends sometimes last even longer, but rarely shorter.

It’s important for traders to understand the direction and maturity of a primary trend. Analysis of an intermediate trend is also helpful for improving success rates in trading, as well as for determining when the primary movement may have run its course.

Short term:

Short-term trends typically last from 2 to 4 weeks, and are occasionally shorter or sometimes longer. These short trends interrupt the course of the intermediate cycle, just as the intermediate-term trend interrupts primary price movements. Short-term trends are shown in the market cycle model as a dotted line figures, and they are usually influenced by random news events. They are much more difficult to identify then their intermediate or primary counterparts.

Trend lines:

Technical analysis is built on the assumption that prices trend. Trend lines are an important tool in technical analysis for identifying and confirming a trend. A trend line is a straight line that connects two or more price points and then extends into the future to act as a line of support or resistance. Many of the principles applicable to support and resistance levels can also be applied to trend lines.

It takes two or more points to draw a trend line. The more points used to draw the trend line, the more validity attached to the support or resistance level represented by the trend line. It can sometimes be difficult to find more than 2 points from which to construct a trend line. Even though trend lines are an important component of technical analysis, it is not always possible to draw trend lines on every price chart. Sometimes the lows or highs are simply too different. The general rule in technical analysis is that it takes two points to draw a trend line and the third point confirms the validity.

Ascending trend line:

An ascending trend line has a positive slope and is formed by connecting two of more low points. The second low point must be higher than the first low point for the line to have a positive slope. Ascending trend lines act as supports and indicate that net-demand (demand less supply) is increasing even as the price rises. A rising price combined with increasing demand is very bullish and shows a strong determination from the buyers. As long as prices remain above the trend line, the upside trend is considered solid and intact. A break below the upside trend line indicates that net-demand has weakened and a change in trend.

Descending trend line:

A descending trend line has a negative slope and is formed by connecting two or more high points. The second high must be lower than the first for the line to have a negative slope. Downside trend lines act as resistance and indicate that net-supply (supply less demand) is increasing even as the price declines. A declining price combined with increasing supply is very bearish and shows a strong resolve from the sellers. As long as prices remain below the downside trend line, the downtrend is considered solid and intact. A break above the downside trend line indicates that net-supply is decreasing and a change of trend could be imminent.

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3 Things You Should Include In Your Daily Routine As A Forex Trader

 3 Things You Should Include In Your Daily Routine As A Forex Trader

If you trade the forex markets every single day, you will soon find yourself getting into some kind of routine. I know I did when I used to trade the markets all day long. Nowadays I make time for other things as well, but I still incorporate the same kind of things into my daily routine.

There are three things in particular that I will always try to do at the start of the day, and they are as follows:

1. Check the overnight price action and monitor any open trades
The good thing about trading the 4 hour charts, and using one of my favourite trading methods, is that you don't need to be screen-watching all day long. You can just set your stop loss and your target exit point and let the trade unwind, leaving it to run overnight if necessary.

For that reason it is always important to check the overnight price action when you first switch on your computer in the morning, and monitor any open positions. The overnight price action can often influence your trading plan for the coming day, and you may want to adjust your stop loss and exit point if necessary.

2. Check the long-term trends

Before you start trading, it is always a good idea to take a look at the long-term trends for the various currency pairs that you like to trade. This should give you an idea of which way you should be looking to trade on the shorter time frames.

For example if you are trading the 4 hour chart, then it is always a good idea to look at the price action on the daily chart, identify the current trend and possibly look at some key support and resistance levels.

3. Check which economic data releases are scheduled for the coming day

It is always vitally important that you are aware of any economic data releases that are scheduled for the forthcoming trading day because these can potentially ruin any of your trades in an instant.

The markets don't care about technical patterns, or even support and resistance levels, when a key piece of economic data is released. They simply react to the news, and subsequently there can be some wild swings as a result. In general you don't usually want to have any positions open around the time of one of the more important data announcements.

You can check the economic calendar, which includes the time (and importance) of each data release at Forexpros.com
ForexMarket4you.com

Once you have done these three things, you are good to go. Just make sure that you take a few breaks during the day, and try to get some exercise because sitting at your desk staring at a computer screen all day long is not good for your health.

Source : TheForexArticles

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A Volatile Market: A Blessing or A Curse?

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Volatility is the main feature of the Forex market where trading takes place non- stop throughout the week except for the weekend. It is by far the biggest market on earth and is bigger than all the other markets combined. The daily turnover of the market stands at a figure exceeding four trillion dollars and this will give you an idea as to its trading volume.

This highly volatile market is the arena where millions of traders and investors risk their money in the hope of making a profit. If there was no volatility there would be no trading. In this sense it is truly a blessing that many traders capitalize on. Volatility is brought about by markets that trade erratically swinging between highs and lows. Where there is no market movement in currency prices you will see no volatility and thus no trading will take place in such an environment.

It is fact that the volatility in currency trading moves by pips and a closer look will tell you that this movement is indeed extremely small. This is why leverage is considered as necessary by currency traders, as well as signals. In a highly volatile market losses can be augmented by leverage and at times like this it is best to trade lesser amounts so that losses are also kept to a minimum.

Although a volatile market can be a blessing you should control your trading in such a market. This is easily by using tighter stops so that losses are cut off at the outset. The exact placing of the stop will depend upon the currency pair being traded. Volatile market conditions often tempt traders to invest more than normal in the hope of collecting profits. However, this can be dangerous as the risk faced in a volatile market is higher than at other times. A trader should stick to his planned trading at all times and during times of extreme volatility this is even more essential.

Keeping up with fundamental indicators and news in general will ensure that you know the cause for the high volatility in the Forex market. This knowledge will help you to make better trade decisions in the longer run as you face volatility in the market. When you trade carefully adjusting leverage so as to reduce any potential losses you can still win in a volatile market.

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The Future of Long Term Investing

The future of long term investing is dependent on the long term investor changing their investments beliefs to suit the post economic crisis climate.

Introduction:

The current financial crisis has caused concern that investment objectives have a short horizon and there is more weight on these short term objectives rather than on growth and the creation of value in the long term. Corporations need to know what the long term investment outlook is to enable them to plan for the future. Investors in the long term play a part in having a economically stable environment. While the markets seem to have all the short term capital they need there is doubt about capital in the future.

The Future of Long Term Investing:

An investment is considered long term if it runs for more than ten years. This is more or less in line with a whole business cycle. This means that the asset classes which are perfect for investing in the long term are obviously riskier and are much more liquid than other assets. The class of asset which meets these criteria is venture capital, private equity and strategic stake holdings in private equity. It used to be that the traditional long term capital came from the pension funds and life insurances, however recent imposed constraints have meant that managed funds amounting to $67 trillion can only allocate 25% of the total as long term investments.

Long term investors have more to think about that the short term investor in terms of what their liability profile might be, what are their long term investment values, what is their appetite for risk, the diversification of the portfolio in terms of liquid and illiquid assets and of course how long does it take to make an investment decision.

However there are benefits to long term investing which the short term investor does not have. There are opportunities for higher returns in the long term for the investor or individual corporations. It is also a way of stabilizing the financial markets, kick starting economic growth and bring social benefits to many more people.

For the investor also there are other benefits such as no decision is needed as to whether to buy high or sell low. Costs can be drastically reduced particularly transaction costs and a long term investment does not disturb or cause volatility in the forex markets.

The economic crisis has highlighted the need for long term investors to change their strategy and look at ways in which they can diversify their portfolios efficiently without incurring increased risk. The crisis caused traditional correlations to decline and others to increase which in turn made portfolio management more difficult.

Investment beliefs have been challenged as has risk exposure regarding liquidity and new regulations which are constraining.

However there are signs that long term investors are returning to the long term markets and are seeking investments that have the return they desire but also the risk and volatility profile that suits their new investment beliefs.

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Six Tips for Long Term Investment

The long term investor needs to follow a strategy that is compatible with long term investment success.

A long term investor requires that the investment is safe, that his capital is secure and that there is a reasonable risk free return on the investment. Banks offer a reasonably risk free investment however the interest rate is very low. The Stock market has much higher returns but there is an aspect of risk which deters some investors. For all this the stock market can proffer the long term investor the opportunity to invest with manageable risk and a good return.

Six Tips for Long Term Investment:

A key long term strategy for a long term investor is to diversify their investments into various instruments such as stocks, bonds, and mutual funds. Most investment advisors recommend that not more than 10% of an investment portfolio should have more than one stock or other similar investment. Investments should be spread over geographical areas of the world such as Asia, America, Europe and also emerging markets. In addition several market or industrial sectors should be used so as to avoid the risk of a sector collapsing and a huge lose of capital.

Investors tend to be lone wolves and don’t take advice easily however even though you might not take the advice at least listen to it some of it might make sense. Try and invest in the companies whose products you like. Try to analyze the companies you are interested in and see if you like their business strategies. There are many resources on the internet that can help you understand investments. Also although an investments past performance is no guarantee that in the future it will perform well it can be prudent to choose investments that have been strong performers over the last couple of years.

Another tip is to keep an eye on your investments. Don’t invest and then forget about them. Even if you are investing for the long term you need to make sure that you have investments that are performing as you had expected against the market indices. Don’t be tempted to sell investments that are doing well to take your profit; you are in it for the long term so investments that are doing well should continue to grow. On the other hand investments that are not doing well should be sold and replaced. Remember that it is better to lose a little rather than wait in the hope that the investment will do better when in fact it continues to do badly and you lose more money.

Don’t be tempted to cash in your dividends as the return on an investment is a combination of reinvested dividends and stock appreciation. The yields might seem small but over a period of years they can make a big difference. Part of the analysis of your potential investments is looking at stocks that have a history of regular dividends.

One of the golden rules of investing is that when the market is down then that is the best time to buy stocks and when the stock index market is high its time to sell the stocks that are not performing so well and reinvest the proceeds in other instruments such as bonds or real estate.

Finally as you are investing for the long term it is important that you don’t reduce your funds through unnecessary fees and commissions. Keep your trading down to a minimum so as not to incur fees that reduce your funds. When the markets turn down don’t make the mistake of panic selling. The economy goes in cycles so a market that is down will soon move up again. Always bear in mind that a market that is low presents a buying opportunity.

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Why Investors Fail [ Must Read ]

According to research more than 92% of traders close their accounts within 9 months and never come back trading again. This essentially means one thing – trading is not a get rich quick scheme. Yet, this should not be misinterpreted to mean that it is not a profession for newbies. Even the best traders lose money in their first months in the investment industry, and they made it big because they strived to overcome the challenges and went on to learn from their mistakes. Why then do so many investors fail? Here are a number of reasons:

1.    They trade for a quick buck. While traders can easily make money in the forex market, it can easily disappear. Many traders earn quick money but very few make it big because they do not fully understand how the market works. On the other hand, there are many others who end up broke because they failed to realize that forex trading is all about an properly timed trading strategy.

2.    They don’t have a plan. In any financial market, a trading plan (or strategy) is essential. Before an investor decides to trade real money, they must set specific amounts on capital they want to invest, and how much they are prepared to lose. Unfortunately, so many new traders do not realize the importance of this or they simply couldn’t be bothered.

3.    They don’t use stop losses. Not all trades will go well, and in this case, a trader must know when they can call it quits. By setting up stop losses, traders can prevent additional risk to their account and can limit their losses to a few hundred dollars.

4.    They do not test for entry and exit points. Trading works a lot like firing a missile – you have to test it so you can minimize the casualty. Random buying and selling just wont work.

5.    They get emotional. Most traders who profit in an uptrend will tend to keep their bets on that same position hoping to get a few more dollars. Unfortunately, at a time when information can be transmitted so fast, prices can change in just a few minutes and will cause a $1,000 portfolio to drop in value without notice.

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Capital Management Methods

When trading on Forex, it is necessary to know how to properly place your capital; how to calculate the amount of funds needed to make a trade in order to obtain sufficient earnings; and if it comes to loss, how not to loose your entire deposit.

To achieve these goals, there are special equity management methods (money management techniques):

No equity management methods. Most traders, when opening a position, do not calculate the amount of funds that are being used, estimate potential earnings or potential loss. This is considered to be a technique too, but if the capital is not very large to begin with, several unsuccessful trades will make it completely disappear.

Multiple contracts. Opening several positions on the foreign exchange market on different instruments, for instance, EURUSD and EURGBP, a trader can earn profit if the price moves in the right direction. Earnings can be considerable, losses too though.

Fixed amount. Depending on the amount of funds available, a trader decides how much can be put at risk when opening one or another position. The trader then makes deals not exceeding this amount.

Fixed equity interest rate. This technique is similar to the previous one but there is one small difference: the trader determines the equity interest rate, but not the equity amount.

Establishing correlation between profits and losses. It is necessary to track statistics on all operations (the amount of losses, profits and the correspondence between them). When you see the correlation between them, you can apply what you have learned to your trading.

Equity curve trading. Most people are acquainted with moving averages, which can act like signals for entering the market or leaving it. According to this method, moving averages (long- and short-term) are used to forecast trade results. If the short-term moving average of the equity curve is above the long one, a position can be opened and it will be profitable. If, however, the short-term moving average is below the long one, it is better to wait for a while.

Choosing a particular money management technique of trading on Forex can help you rationally use your money on the market and earn profit. Money management techniques are used for opening positions.

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Forex and World Economic Crisis

World Economic Crisis is a burning issue not only for those dealing with finance but also for all social groups as everyone, one way or another, is influenced by economic cataclysms. Some are afraid of inflation rate and reduction of wages, the others are scared to lose their jobs.
So traders here are not the exception as their work is directly connected with finance and everything that is happening in the world of currency undoubtedly affects the exchange market. That is why, probably, at least once every trader wondered what would happen on Forex if another finance crisis takes place and how the members of the foreign exchange market should react to such major events.
Indeed, the World Economic Crisis leaves its mark on Forex with both positive and negative aftereffects.
Therefore it is very important for every trader to correctly react to financial cataclysms and try to elicit all the benefits out of such situation, still getting the profit.
First of all, there is no need to panic while monitoring a huge flow of world economic news. During the crisis period the amount of such news is getting much bigger than during peaceful periods. As soon as the financial situation loses stability, the currency rates undergo great changes: plummeting of exchange rates becomes a common thing for many national currencies which belong to the countries involved into crisis. While the newspapers headlines as well as on-line publications are full of information about the new world economic events, it becomes more complicated for a trader to deal with such a great amount of information, analyze the conditions in time as well as correctly predict the behavior of currency rates.
Nevertheless, together with the right approach and substitution of emotional breakouts for rational judgments it is possible to change things for the better. A trader can easily benefit from this event and multiply his/her capital while continue working confidently.
There is no need to be afraid of the raised market volatility - better to know how to get money out of it. As Forex trade is based first and foremost on buy and sell operations, the traders risk less to lose their job during the economic crisis.
The tools and methods that exist on the foreign exchange market will always allow to get the profit. If financial crisis involves some currency exchange rates falling, the quotes of other currencies raise automatically, which in case of competent analysis gives an opportunity for a trader to consummate a transaction with a benefit.
Undoubtedly the influence of World Economic Crisis on Forex is tangible. Yet, despite the traders’ disturbing expectations, financial turmoil cannot lead the exchange market to decay.

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Non-News Trading on Forex

Due to permanent improvement of the Internet and communication facilities for traders operating on Forex, the information becomes more accessible. That is why a lot of traders and investors consider that following the fresh news release, reading the analytical reviews and another similar information their chances of profit earning advance essentially. But it is not exactly so:
Staking on news may result in huge financial losses. Why does it happen? Without a detailed consideration of this issue the true cause of this will be hardly understandable. So let us make a close analysis:
Almost every beginning trader supposes that applying to news in trading will certainly turn out to be beneficial, but it is wrong.
The first thing said about news is that they reflect changes taking place in the market in full measure. But as a rule, such assertions are not approved and the currency`s reaction to them mostly differs from the expected one.
Certainly, the leading positions of supply and demand are not passed by in the market, at the same time there is no logics in their movements.
The main reason depreciating the news is the markets. That is why the news trading becomes almost unreal. Thus, knowing in advance when some news will be published and what influence it can put on the market the investors start acting. So when this news is given to public the market reaction can be hardly visible or there will be no any reaction at all, as everything is taken into account by the price. It is also worth paying attention to people`s character and the real picture showing the news "importance" will become clear.
One more reason impacting the trading during the news is human emotions violating a significant nuance in trading - discipline. Similarly, the analytics can be incorrect sometimes. In situations when an opened trade should better be closed the trader does not make it, as an active motion is predicted by analysts to start at that very moment.
At the same time, the news should not be ignored. It is widely known that the market peaks often emerge after the news with positive forecasts, and the lows to the contrary after unpromising news.
It can be concluded that for traders with big capital who operate with major pairs the right decision would be not to run a news trading and to apply to an order trading system instead. Because these news are already recorded by the system. They are also a part of technical analysis which is an irreplaceable component of any well-set trading system

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Strategy 20 pips a day - Make Atleast 400 pips per week

Forex scalping strategy “20 pips a day” enables a trader to gain 20 pips daily, i.e. at least 400 pips a weak.
According to this strategy the given currency pair must move actively during the day and also be as volatile as possible. The GBP/USD and USD/CAD pairs are considered as the best. Trading should begin no earlier than 12.30 GMT due to the volatile movements of American session, provided that this day no breaking news on economy is expected. But in case there is, it is necessary to enter the market after the news release.
A trader is recommended to choose a 30 minute interval setting a standard average Momentum 5 indicator in the trading terminal and 20 SMA moving average.

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A close candle located above the 20 SMA and Momentum indicator fixed above the average level indicate the point of the market entry for further purchase. When the price drops below the moving average and Momentum Indicator is located lower than the average level, it is necessary to open a sell deal. When a deal is open and the price is ready to cross the 20 SMA line, the position should be closed.
Stop loss and Take profit are set on the level of 20 pips. As the interval is quite small, it is possible to use Trailing stop (from 1 pip). As another option, the order can be placed to the zero are when the price has passed 10 pips.
The creators of the strategy believe that the strategy 20 pips a day can be profitable only if each recommendation listed above is observed.
 

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The Prime Time For Daily Forex Trading

Investors and traders can trade currencies worldwide, in any trading zone, 24 hours a day, in today's foreign exchange market. London, Japan and New York top the top three currency traders among the currency dealers. These currencies are being traded 24 hours a day. The only time that currencies stop trading is on Friday when the Japanese market shuts its doors. There is a one day window after Japan closes before Europe steps in on Monday morning to open for business.

The majority of trading comes from banks, brokerages and investment companies. Companies that sell and buy foreign currencies as part of their business, like independent brokers and currency dealers, make up only a small part of the foreign exchange currency trading. The Forex market will continue to develop and grow at a steady pace as more currency traders become aware of the foreign exchange markets potential for earning and raising capital. The Forex market reaches an average daily turnover 30 times higher than any other U.S. market.

Added to the drive for supply and demand, the Forex market presses on as the enormous scope for profit potential among the currency dealers is steadily rising. The Forex market also uses the free floating system that is considered more practical for today's foreign exchange market which can experience a change in the currency rates at an estimated 4.8 seconds. The Forex market is taking on a prodigious role in the country's economy, after developing from connective financial centers to one unified market. Having expanded worldwide, the Forex market is reflecting the constant growth of all international trades and their countries. When you consider the size of the foreign exchange market, it would be important to understand that any transactions that are made with a future trading broker or an independent broker, can lead to more transactions. This can be due to the brokerage businesses as they work to readjust their positions.

Understanding your overall portfolio and its sensitivity to market unpredictability is necessary in order to be an effective day trader. This is especially important when trading foreign exchange currencies, because these currencies are priced in pairs and no single pair will trade completely independently of the others. Gaining an understanding of these correlations and how they can change will help you use them to your advantage to control your portfolio's exposure.

Correlations Defined

There is a reason for the interdependence of foreign currency pairs. For instance, if you were trading the British pound (GBP) against the Japanese yen (JPY) or GBP/JPY pair, then you're trading a type of derivative of the USD/JPY and GBP/USD pairs. Therefore, the GBP/JPY must be slightly correlated to one or both of the other currency pairs. Even so, the interdependence amongst these currencies will stem from more than the fact that they are in pairs. While there are some currencies that will move one right behind the other, the other currency pairs can move in different directions often resulting in a more complex force. In the financial world, correlation is the statistical measure of a relationship between two securities.

Then there is the correlation coefficient that ranges between -1 and +1. The correlation of +1 indicates that two currency pairs can move in the same direction nearly 100% of the time. While the correlations of -1 indicates that two currency pairs are likely to move in the opposite direction 100% of the time. If the correlation is zero, this indicates that the relationships between the currency pairs will be completely at random.

Correlations are not always stable. Correlations change, just as the global economic system and other various factors can change on a daily basis, making the ability to follow the shift in correlations very important. The correlations of today may not be in line with the long-term correlations between any two-currency pairs. This is why it's suggested to take a look at the past six months trailing correlation to provide a more clear perspective on the average relationship between the two currency pairs. This change is the result of a variety of reasons — the most common reasons being a currency pair's predisposition to commodity prices, the diverging monetary policies and unique political and economic circumstances.

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