Monday, July 27, 2009

Forex Strategy Outlook: US Dollar Action Bodes Well for Range Systems


Written by David Rodriguez, Quantitative Strategist

Forex markets have remained rangebound as of late, boosting the appeal of currency range trading strategies. Indeed, the Euro/US Dollar currency pair initially looked as if it would break above critical resistance—ending the past month of directionless price action. Yet a US Dollar bounce quickly put an end to a sustained breakout. As a result, we continue to favor Range systems in our forex trading strategies.

We reluctantly shifted our trading biases away from Momentum systems exactly one week ago, and that has worked in our favor. Though Momentum1 and Momentum2 trading signals typically offer superior risk/reward profiles than the Range systems, current market conditions make it especially difficult to pursue trend-based trading strategies. Absent a noteworthy shift in volatility expectations, we will continue to favor systems that do well in low-volatility environments. Namely, Range-based signals and to a lesser degree, very short-term Breakout systems.

Forex Trading 2009 07 06 1 Forex Strategy Outlook: US Dollar Action Bodes Well for Range Systems

Recent market conditions have been especially challenging for trend-following Momentum1 and Momentum2 systems, while Range1 and Range2 systems have put in better performances on choppy price action. We have historically preferred higher-reward Momentum and Breakout systems, but it is clearly frustrating when currencies remain in small ranges for extended periods of time.

In our opinion, risk/reward almost always favors lower probability trend trades. Yet we cannot ignore that volatility expectations remain exceedingly low, and a steady succession of trend trade losses can frustrate even the most seasoned traders. Given such factors, we will favor Range1 and Range2 trades for the time being—treating Momentum and Breakout system trades with caution until we break out of key ranges.

Forex Trading 2009 07 06 2 Forex Strategy Outlook: US Dollar Action Bodes Well for Range Systems

DailyFX+ Market Conditions Outlook

Forex Trading 2009 07 06 3 Forex Strategy Outlook: US Dollar Action Bodes Well for Range Systems

NOTE: Data has once again been changed. Due to the ineffectiveness of the 30-day horizon, we are returning to the original 90-day time horizon.

Definitions

Volatility Percentile – The higher the number, the more likely we are to see strong movements in price. This number tells us where current implied volatility levels stand in relation to the past 90 days of trading. We have found that implied volatilities tend to remain very high or very low for extended periods of time. As such, it is helpful to know where the current implied volatility level stands in relation to its medium-term range.

Trend – This indicator measures trend intensity by telling us where price stands in relation to its 30 trading-day range. A very low number tells us that price is currently at or near monthly lows, while a higher number tells us that we are near the highs. A value at or near 50 percent tells us that we are at the middle of the currency pair’s monthly range.

Range High – 30-day closing high.

Range Low – 30-day closing low.

Last – Current market price.

Strategy – Based on the above criteria, we assign the more likely profitable strategy for any given currency pair. A highly volatile currency pair (Volatility Percentile very high) suggests that we should look to use Breakout strategies. More moderate volatility levels and strong Trend values make Momentum trades more attractive, while the lowest Vol Percentile and Trend indicator figures make Range Trading the more attractive strategy.

HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW.

NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM.
ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES IS MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION.
OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS. Any opinions, news, research, analyses, prices, or other information contained on this website is provided as general market commentary, and does not constitute investment advice. The FXCM group will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance contained in the trading signals, or in any accompanying chart analyses.

73746cabb17 06 1 146x150 Forex Strategy Outlook: US Dollar Action Bodes Well for Range Systems

Forex Strategy Outlook: US Dollar Action Bodes Well for Range Systems

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GBP Forecast Turns Bullish on Major Shift in Forex Positioning


EURUSD Euro Forecast Remains Neutral on Balanced Forex Positioning
USDJPY Forex Traders Remain Heavily Long the USD/JPY – Losses Likely
GBPUSDBritish Pound Forecasts Turned Bullish on Shift in Sentiment
USDCHF Forex Sentiment Gives Little US Dollar/Swiss Franc Bias
USDCAD – Canadian Dollar Forecast Unclear Against US Dollar

The SSI sought a EURUSD rally since 1.26 and was signaling a reversal around 1.60.

GBP Forecast Turns Bullish on Major Shift in Forex Positioning
Historical Charts of Speculative Forex Trading Positioning

GBP Forecast Turns Bullish on Major Shift in Forex Positioning

EURUSDOur forex sentiment-based forecast for the Euro/US Dollar has remained relatively neutral, as trading crowds remain effectively balanced in their positioning on the pair. The ratio of long to short positions in the EURUSD stands at 1.00 as an equal number of traders are long and short the EUR/USD. This has remained unchanged since yesterday, but we do note that longpositions have grown an impressive 24.2 percent since last week. Increasingly EUR/USD-bullish crowd sentiment gives us a modestly bearish contrarian trading bias, but positioning is nowhere near extreme enough to make a forceful prediction. Our sentiment-based forex trading signals are accordingly flat the Euro/US dollar through current price action.

GBP Forecast Turns Bullish on Major Shift in Forex Positioning

USDJPYOur contrarian forex trading strategies continue to sell the US Dollar/Japanese Yencurrency pair, as forex trading crowds remain very bullish the USD/JPY. The ratio of long to shortpositions in the USDJPY stands at 1.54 as nearly 61% of traders are long. Yesterday, the ratio was at 1.67 as 63% of open positions were long. In detail, long positions are 4.0% higher than yesterday and 13.5% stronger since last week. Short positions are 13.2% higher than yesterday and 10.0% weaker since last week. Open interest is 7.5% stronger than yesterday and 36.5% below its monthly average. The SSI is a contrarian indicator and signals more USDJPY losses. Yet a modest pullback in longs weakens the strength of our forecast.

GBP Forecast Turns Bullish on Major Shift in Forex Positioning

GBPUSDOur forex trading strategies recently bought the British Pound against the US Dollar, as a sharp shift in forex sentiment signaled that further gains were likely. The ratio of long to shortpositions in the GBPUSD stands at -1.04 as nearly 51% of traders are short. A net-short bias is a sharp departure from last week, when the majority of traders were aggressively long the pair. Indeed,GBP/USD short positions are 25.2 percent higher overnight and a massive 76.7 percent above levels seen last week. Our SSI is a contrarian indicator, and the sharp drive towards GBP/USD shortpositions signals that further gains are likely.

GBP Forecast Turns Bullish on Major Shift in Forex Positioning

USDCHFOur sentiment-based bias on the USD/CHF remains relatively neutral, as traders sentiment does not point to gains or losses and open interest is well-below its medium-termaverage. The ratio of long to short positions in the USDCHF stands at 1.07 as nearly 52% of traders are long. Yesterday, the ratio was at 1.08 as 52% of open positions were long. In detail, longpositions are 18.3% higher than yesterday and 6.5% stronger since last week. Short positions are 19.3% higher than yesterday and 2.8% stronger since last week. Open interest is 18.8% stronger than yesterday and 28.3% below its monthly average. The SSI is a contrarian indicator and signals more USDCHF losses.

GBP Forecast Turns Bullish on Major Shift in Forex Positioning

USDCAD – The ratio of long to short positions in the USDCAD stands at 1.07 as nearly 52% of traders are long. Yesterday, the ratio was at 1.09 as 52% of open positions were long. In detail, longpositions are 3.1% higher than yesterday and 16.1% stronger since last week. Short positions are 5.2% higher than yesterday and 17.1% stronger since last week. Open interest is 4.1% stronger than yesterday and 40.4% below its monthly average. The SSI is a contrarian indicator and signals more USDCAD losses, but the heavily below-average open interest gives us little faith in these forecasts.

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Friday, July 24, 2009

What Is Forex?






The foreign exchangemarket is the “place” where currencies are traded. Currencies are important to most people around the world, whether they realize it or not, becausecurrencies need to be exchanged in order to conduct foreign trade andbusiness. If you are living in the U.S. and want to buy cheese from France, either you or the company that you buy the cheese from has to pay the French for the cheese in euros (EUR). This means that the U.S. importer would have to exchange the equivalent value of U.S. dollars (USD) into euros. The same goes for traveling. A French tourist in Egypt can’t pay in euros to see the pyramids because it’s not the locally accepted currency. As such, the tourist has to exchange the euros for the local currency, in this case the Egyptian pound, at the current exchange rate.
The need to exchange currencies is the primary reason why the forex market is the largest, most liquid financial market in the world. It dwarfs other markets in size, even the stock market, with an average traded value of around U.S. $2,000 billion per day.
One unique aspect of this international market is that there is no central marketplace for foreign exchange. Rather, currency trading is conducted electronically over-the-counter (OTC), which means that all transactions occur via computer networks between traders around the world, rather than on one centralized exchange. The market is open 24 hours a day, five and a half days a week, and currencies are traded worldwide in the major financial centers of London, New York, Tokyo, Zurich, Frankfurt, Hong Kong, Singapore, Paris and Sydney – across almost every time zone. This means that when the trading day in the U.S. ends, the forex market begins anew in Tokyo and Hong Kong. As such, theforex market can be extremely active any time of the day, with price quotes changing constantly.

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Which types of accounts are available for forex trading?






There are many different types of forexaccounts available to the retail forex trader.
Demo accounts are offered by forex brokers as a way to introduce traders to their software and execution methods.
live account is an account opened by traders with real money deposited in order to start trading for real profit.
Mini accounts, and full accounts are the most common types of funded accounts. Mini accounts are similar to regular trading accounts; however currency is traded in lots of 10,000 rather than 100,000. This allows for lower mandatory initial deposits, and greater customization of risk management.
It is important that the currency trader consider what they want to get out of their account, before deciding on the type to open. Demo accounts, and mini accounts, are great for the retail forex trader to learn a profitable system, and get used to the execution methods of the broker. For the currency speculator that doesn’t want to trade by themselves, a managed account would be better.

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Thursday, July 23, 2009

Forex Currency Trading Useful Information


When you trade in the forex exchange, you’re engaged with foreign stocks, currency and similar varieties of products. The money of one country can be likened to another currency from a different nation to figure the monetary value. The value of that foreign currency is taken into review on every last trade made in the forex stock markets. Many international markets will have control over the altered monetary value their nation brings affecting the money, or currency. People who’re investing their money into the FX market exchange includes many large business organizations, banks foreign administrations and finance businesses.


What are the things that make the forex exchange so different from the US stock market? A trade on the forex market is one that involves at least two countries, and it can take place worldwide. The two countries must be 1, the investor’s country and 2, the place receiving the investment. Most all of the transactions that take place in the forex markets will be qualified through an experienced broker such as a bank.
What are the ingredients of trading in the forex market? The overseas market is comprised of a mixture of financial exchanges amongst nations. Investors in the forex stock market are trading in large volumes and huge amounts of money. Those deeply imbedded in the forex exchange are likely to have companies who are cash businesses or are in businesses where assets are bought and sold quickly. The US market is massive but it is correct to imagine the forex stock market as even more immense than any given single stock market. Forex traders daily twenty-four hours a day and sometimes trading is completed on the weekend, but not all weekends.
You might be surprised at the great number of investors that are involved in forex trading. In 2004 alone, as much as two trillion dollars was the median forex exchange trading volume. This number is massive in trade volume with regards to the amount of daily transactions to take place. Think about how much a trillion dollars really is then double that, and this amount is the average that is traded on any given day on the forex exchange!
The forex market is not something new, as it has been used for over thirty years but with the introduction of computers, and the global web, the forex exchange is growing exponentially as growing numbers of investors become aware of the availability of this trading market. Forex only accounts for about ten percent of the total trades between countries but as the popularity in this market continues to grow so could that number.

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Forex Worldwide Markets


Forex is a buying and selling system also referred to as FX or foreign market exchange. Those concerned in the foreign exchange markets are some of the largest businesses and financial institutions from around the world. They deal in multiple currencies from many nations to produce a balance as some are going to gain money and those who fall down. The basics of forex are similar to the form of dealing found in any country, only much bigger and complex. Forex buying and selling involves individuals, currencies and trades from around the world, between every last country.


Different currency rates happen and change every day so the measure of the dollar on one particular day of trading might be different on the next trading day. Forex trading can be hard to keep track of so you must dedicate yourself to keep an eye out on your funds, especially if you have invested a great amount of them, there is a chance you could lose it all. Primarily, trading in the forex exchange occurs in Tokyo in New Your and in London as well as several other spots around the globe.
The types of currency that are commonly traded are the Swiss franc, the Australian dollar, the British pound, the Japanese yen, the Eurozone euro, and the United States dollar. You can cross-trade currencies and you can intermingle one currency trade to another in order to attain supplemental interest and monetary gains.
The regions included where forex trading will start at one hour then shut down as other markets start to open shop. This is seen also in the stock exchanges from around the world, as different time zones are processing orders while making other transactions during various times. What happens in forex trading in a certain country might create various results in another forex exchange as time zones dictate the opening and closing of forex markets. The exchange rates will be varied between forex exchanges, and brokers and day traders alike will want to know the rate changes for each new day before committing money.
The stock exchange is primarily measured on products, prices, and other factors within businesses that could alter the cost of shares. If someone knows what is going to happen before the general public, it is often known as inside trading, using business secrets to purchase or sell stocks on that information — which is punishable by law. There is very little, if any at all inside information in the markets of forex. The monetary trades, buys and sells are all a part of the forex market but very little is based on business secrets, but much more dependent on the status of the currency, economy of any given country.
Code are given to each type of currency on the forex market exchange so no confusion exists when knowing which currency one is investing with at the time. EUR is the symbol for the euro and the US dollar is known as the USD. The GBP is the British pound and the Japanese yen is known as the JPY. If you want to get involved in the forex market and want to contact a brokerage then you should have no problems finding and online brokerage where you can investigate the type of exchanges and profile ahead of throwing your money down the drain.

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Sunday, July 19, 2009

Forex Special Post


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In finance, a forex swap (or FX swap) is a simultaneous purchase and sale of identical amounts of one currency for another with two different value dates (normally spot to forward).
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In finance, a foreign exchange option (commonly shortened to just FX option or currency option) is a derivative financial instrument where the owner has the right but not the obligation to exchange money denominated in one currency into another currency at a pre-agreed exchange rate on a specified date.
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