EUR USD JPY

Forex money management is crucial to your trading success and you need to at all time protect your core equity. This is a simple effective strategy I have used for many years to improve profitability and it works.

If you want to make money in forex, you have a choice of long term trend following and trading the big trends, or trading the over bought – oversold areas via swing trading.

Before we move on forget day trading or scalping it doesn’t work so you have the choice of the above trading methods and this strategy combines them.

I am going to start with an example of my own trading. I am dollar bullish on the euro and got my short in at 1.60 and we have seen a big decline of 500 odd pips. A nice return and I think the euro is going far lower – but we could get a good rally as we are oversold at present. So what am I going to do? Simple…

Put 50% of the trade in the bank and leave 50% in the market.

Ok it could run lower but I am still in the market with 50% and will put another 50% in on the next euro rally when it becomes over bought.

The advantage of this simple money management tool is:

You are following the long term trend and banking along the way using swing trading indicators, taking profits on surges and putting dollar longs back in when the euro becomes overbought.

You are active but still following the long term trend.

Sure 500 pips is nice – but I think the euro is going to trade into the 1.40s, so I want to hold the trend but if things go against me, this strategy allow me to come out with a profit.

This method allows you to take a bit more risk to the stop and remember – most traders can pick direction of trends, what they can’t do is get their stop levels right and get stopped out to soon.

Most traders cannot simply sit on a long term trend and this method allows them to do so and you are always in the market. If you look at any forex chart you will see trends that last for many months and make tens of thousands of dollar and this method will let you tap into them.

50% is the core position 50% is liquidated on surges in your favour and then put back in for full exposure on short term rallies against you.

In the next article I will show you the indicators to use and how to decide when to take profit and when to enter new positions, with this simple but powerful money management technique.

Software applications like Forex Funnel™, and Forex Tracer™ and FAPS or Forex Autopilot Systems™ are actually great tools when it comes to garnering Forex trading information.

In this financial market, the more updated information you harbor, the better chances you have of landing a good sweep of monetary funds. This is essentially why real time updates and displays are crucial in gathering Forex trading information. Any movement can literally make or break a transaction; and for the slow pokes out there, a missed opportunity is very likely never to be regained. It is very fortunate that the introduction of real time updates for Forex trading has been introduced in the Web 2.0 era.

This technology has enticed more people, particularly novice traders and casual investors to take up the online Forex trading challenge. This sudden boom of potential customers has also helped the market considerably, with more investors pouring in money into the system everyday. If you are thinking about joining this financial market, either as a casual investor or a full time trader, it is important to remember that gathering pertinent Forex trading information is not simply about counting pips (percentage in points.) You actually cannot rely on pips alone as a means to ensure profits when it comes to trading currencies.

You need to have a very broad view of the Forex market. Currencies are usually affected by a number of factors, like the political stability of the country from which it is derived; the country’s economic standing according to the major banks of the world; the supply and demand of the currencies being traded off in the Forex market, etc. It is therefore wise to look at your trading practice in a 360° view, as opposed to relying only on the movement of pips. You can start by defining what the “hottest” or most traded currencies are.

In some days, Euro vs. USD may be the ticket to a lot of cash; but there are days when certain exchanges are more profitable, like GBP vs. JPY or CAD vs. AUD or GBP vs. USD. Choosing the hottest currencies to trade is actually the fastest way to earn a respectable profit. Any currency movement, however small, can mean earnings of several thousands of dollars.

Currency movement means the appreciation or depreciation of the value of the money currently being traded off. In the case of Euro vs. USD, we will suppose that the exchange is currently at 1 Euro vs. 1.33615 USD. You have 500 USD in the works. If the Euro depreciates to 1.3361, your $500 can turn to $668… if you sell it at the right moment. Now imagine trading off $2,000. That would be an easy $672.2 gain, making you pot money equals to $2,672.20.

Do you remember when everyone hated the US dollar. Not saying the US dollar is immune to devaluations, the Euro dollar might be risk of falling. Ok all you online currency trading professionals should you go out and short the Euro dollar? Well look at these facts

1.European bank losses from the financial crisis are now estimated to supercede the U.S. banks’ losses.
2.Since the European banks losses are set to increase, how will they be able to lend? Probably not!
3. The IMF projects the European economy is set to contract 4% this year which is worse than the 2.8% contraction for the U.S.
4.Labor protests became more violent and common in Europe ( France)
5. Standard & Poor’s predicted that debt defaults among high-risk European companies would overtake defaults among low-rated U.S. companies.
6.The EU Central was slow to react to the crisis and cut interest rates much slower than the rest of the world. The ECB cut its key interest rate to 1.25% from 4.25% just in the fall. Possibly the only reason the Euro Dollar has not fallen is that’s still well above comparable rates in the U.S. and U.K.
7.The European economy further faces a greater risks due of worsening deterioration because of the deep economic and financial crisises in the formerly communist Eastern European countries.

So taking the fundamental reasons there is good cause for the Eurodollar to fall. So how do you the forex currency trading professional play this? Maybe you are not a professional and need to learn. There exist many forex training programs to learn technical approaches. I am sure many think currency trading is easy…however there are huge risks due to the leverage involved. It is not prudent to purchase any forex software or forex system to trade forex.There is a learning curve. One does not become a doctor with a course. It all takes time and knowledge. Once you have the knowledge…start small.
There are many banks and brokers which offer currency exchange trading. One can also do their forex currency trading via ETFs. Another suggestion is to find a forex broker that are has forex trading online but again…only after you have learned.
Forex currency trading can be profitable but there are risks. Now is a good time to gather some education on trading techniques as potentially the Euro Dollar might experience problems in the future. Good luck with your trading.

www.myinvestorsplace.com

Forex currency trading is becoming increasingly popular as more and more traders want to take their shot at the largest trading market in the world. The lure of nearly $2 trillion in trading going on each and every day is too much for most traders to resist.

So what is the Forex market, and how does currency trading work? Forex is an abbreviated term for foreign exchange market. The Forex is the largest financial market in the entire world, with an average trade volume of nearly two trillion dollars per day. The modern Forex market is what evolved from initial currency trading.

The idea is to use fluctuating currency rates to make money out of money. For example, let’s say you buy one mini lot (1 mini lot = 10,000 currency) of the EUR/USD at a rate of 1.1500. Two days later the markets shift and the EUR/USD is now 1.1525, and so you decide to sell. Using the formula to figure out profits/losses, 1.1525-1.1500 is .0025 * 10,000 (the size of the mini-lot) = $25. In this case, a $100 investment for one mini lot yielded a $25 profit, or 25% in only two days. Not a bad percentage by any count. That’s quite a profit for two days.

This is a simplified example, and as with any trading there is always the chance of loss, but this gives you an idea of what traders are shooting for when investing in Forex currency trading and why the potential for profits is so high. Forex currency trading is conducted using “pairs.”

The reason for this is that to trade Forex you are basically simultaneously buying one of the currencies, while selling the other. If you are selling the EUR/USD pair, then you are selling Euros in order to buy dollars.

Let’s use the earlier pair as an example. If you are trading the Euro versus the US Dollar, your currency pair is EUR/USD. The Euro (EUR) is referred to as the base currency while the US Dollar (USD) is referred to as the cross currency. The base currency is the one you are selling, while the cross currency is the one you are buying.

There always has to be a pair. To buy one currency, you have to do it with another. To sell a currency, you need to get your profits back in another. There must always be two currencies in any Forex currency trading.

The far majority of the Forex trading done in the world takes place between eight currencies: the United States Dollar (USD), Australian Dollar (AUD), Great Britain Pound (GBP), Canadian Dollar (CAD), Swiss Franc (CHF), Japanese Yen (JPY), and the Euro (EUR). Other nations’ currencies may be used, but these are the currencies that are most often used and profited from because they have the most demand and come from the most stable economies.

I hope that gets you started into learning about Forex currency trading, but you should know that you will always need a good proven system to make a profit in this volatile market.

As of mid 2008, the Euro is pounding the dollar into humility. In the battle of the Euro vs Dollar, it is a slaughter. As a result, many people from all over Europe are vacationing in New York, LA, and other cities acros America, looking to buy as much as they can. I say, “better act now because it will not last all that much longer.” This of course is just my opinion. Let me explain why I think the battle of the Euro vs Dollar is going to turn in the near future.

One off the major determining factors that move the two currencies involves the international real interest rate differential between the Federal Reserve and the European Central Bank. This major factor will move in the opposite direction of previous movement over 2008 in the upcoming year. Again, this is just my opinion but for reasons I do not have time to go into, I feel stronlgy about this.

The fiscal position of the US and Euro zone. With the change in the White House and inturn the deescalation of the Iraq War, we will see fiscal position change as we go into 2009 and beyond. This will have a major impact on the strength of the dollar.

Over all, I see the economic slowdown in the US continuing through 2008 but as we move through towards the end of the year I see the dollar strengthening as well as the economy over all.

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We have written several articles on the US Dollar – Euro pair and have been bearish since it failed at 1.60 and it’s piled up a huge gain. So where is the pair going after the big gains in the euro on Friday? Let’s take a look.

Let’s take a look at both the fundamentals and then some technical levels, fundamentals first:

The euros fall from the 1.60 has seen fall down to below 1.40 in a dramatic decline and as we pointed out before:

The euros true value in purchasing terms is about 1.20!

The whole rise in the euro in recent history has been driven purely by interest rate perceptions – with the view the euro would hold the advantage. When this view changed and sentiment shifted, the decline was dramatic.

Interest rates now clearly favour the US dollar and we expect more selling in the euro.

A Short Covering Rally

So we would simply view this rally as a long overdue short covering rally and the fundamentals point to a euro which could, test and break its lows. The euro is deeply oversold and to many weak speculators hold shorts and they need to be shaken out of the market.

Now let’s look at the charts and see where the rally might go.

Pull up a chart of the currency pair and put these indicators on the chart – Bollinger Band, Stochastic and Relative strength Index (RSI). If you don’t know how they work simply look up our other articles, there easy to use and very powerful in giving you clues to future price direction.

Check Resistance and Momentum

On the chart the first resistance is around 1.44 and then 1.45 (the mid average of the Bollinger Band) and Major resistance is at 1.48. Now pull up the RSI and stochastic, these give you the momentum of price -RSI is starting to flatten out after a strong rise and the stochastic is up.

A good way to trade the pair is – you know a short covering rally is underway but the major trend is down, so wait for it to run its course.

Confirmation

A cross in the stochastic supported by the RSI into one of the resistance levels, will indicate a possible end to the relief rally. The key is a cross down on the stochastic with bearish divergence. DONT sell and predict – wait for confirmation that momentum is down into a key level.

This is the first major short covering rally we have seen, so it could be quite spiky and a good way to play it and get limited risk is – to use at or in the money put options with plenty of time to expiry. You can of course play straight forex, with stop closes, behind the key level you sell at.

Is the euro bear market over?

Probably not, the currency still has downside but the sentiment is at a bearish extreme.

We need to see a relief rally and this is occurring right now. We think it will allow another opportunity to sell, for a test of the lows, we shall see.

This article was written on Sunday 14th September 2008.

Forex is the short for foreign exchange (for+ex). Foriegn exchange means foreign currency. That is if the dollar is the currency for you, for an Indian or a Frenchman the dollar would a foriegn currency for him, while the French Franc or the Euro would be his currency.

The interplay between the currencies is known as forex markets trade. Every country deals with another, buying and selling goods and services. And this is paid for in the currency agreed upon. For instance if France were to trade with America, and is selling goods to America, it might prefer the Euro or the Dollar, depending upon the strength of the euro or the dollar. The strength is how many euros would you get for a dollar, or how many dollars you would get for a euro?

Where can you find that currency? You can find it in another country, say China or Japan which have trade surpluses with US, thereby meaning that they have excess dollars which they would wish to put to use to earn even more. it’s a cycle that never ends.

So China and Japan play their stock of dollars in the currencies market, and earn handsomely, again in dollars over a period of time. This is done by Governments, financial institutions and banks, who are authorised to deal in foreign currency trades. The volume of trades in currencies is in excess of trillions of dollars, a whopping amount. Thus even the third decimal digit in quotes carry a high weightage in calculating income from the trade.

Every day the currency values fluctuate. If it exceeds an ‘x’ percentile or goes below that percentile, it is said to appreciate or depreciate respectively. This is a highly skilled game, in which a minor error can lead to a loss of nearly million dollars!

The currencies are denominated by short forms: The US Dollar is USD, the Japanese Yen is JPY, the British Sterling Pound is GBP, the Indian Rupee is INR and the Euro is EUR and so on. Trading takes place between various currencies simultaneously. This is known as arbitrage.

Arbitrage is a technique where you a buy a product at alower price at a different location, and sell it at a higher price elsewhere. The difference between the two markets is the arbitrage you earn. Apply it to the currencies being traded in, and you would have it right.

The currencies that are traded heavily are the US Dollar, the Sterling Pound, the Japanese Yen, and the Euro, because they represent more than 40 per cent of world’s trade.

If you are trading, then unless you are authorised, you have to use a broker, who for a fee would park your funds in a currency, and based on your instructions, and his advice, you can take advantage of the arbitrage. Mind you, you can also lose quite heavily.

Currency traders or what are known as treasury desks in the financial institutions and banks operate throughout day and night, because while part of the world sleeps, the other is awake and there is money to be made. Earlier, this was not so, since telecommunications density was not so high, and one had to wait for the daylight to understand what happened the previous day. Today, however, with banks of computers, internet connectivity, telecommunications ruling the roost, it has made the world a sleepless one at least for those who are into trading generally, what to speak of currency traders!

There are a number of books that explain the intricacies of foreign exchange trades. The best would be of course the study books that grad students in finance use, because they are based on sound academic study. As for the ..made easy books, this author has no comment.