Forex

Forex Trading - Trade Strategy Report

2005-10-18T16:54:00.000-07:00

EUR/USD looks like it may finally be ready to breach the significant support in the 1.19 area. After moving down to 1.19 and bouncing back several times, it looks like the market may be setting itself up for new lows. Traders can look to enter a short position on a break below 1.19 with a stop about 20 pips above. Don't enter this trade too soon as there is always the chance that we may try to bounce again. Let the market confirm its direction and be ready to act in the event we begin a new leg in the Euro downtrend.

For those of you who did enter the trade on the EUR/GBP short, you have been rewarded with a market that has gone straight down for the past day and a half. Keep an eye on the .6825 level as that would be the next place where this pair may try to find some support and mount at least a short term rally. Other than that, the trend looks to be firmly in place until further notice.

The Refco Failure

2005-10-14T20:06:00.000-07:00

The failure of a major player in the Forex market has created quite a stir this week. I have been flooded with emails asking about the safety of funds held with various Forex brokerages. First off, let me say that the failure of this company seems to have more to do with the underhanded dealing on an individual than an industry. I see nothing on the horizon that would indicate that what we have seen with Refco could spill over into other Forex brokerages. With that being said, investing in the currency, futures, and options markets can present more risk than depositing your money in your neighborhood bank. As with any investment, you want to place your capital with a firm that will provide both safety of funds and a favorable trading environment. Luckily, these two often go hand in hand. When selecting a brokerage it is extremely important that traders examine the history and stability of the organization. Information should be transparent and easy to find on the company website. Check to ensure that the company is a registered Futures Commission Merchant (FCM) with the Commodity Futures Trading Commission (CFTC) and is a member of the National Futures Association. While it may seem advantageous, you should avoid brokerages offering excessive leverage as they are exposing themselves to significantly more risk (potential insolvency). In addition, keep an eye on where the company is based and be sure that it is a major economic center. Funds held in developing countries or small islands with limited regulation can often be a sign of danger. If you are a trader with a large amount of capital, it might make sense to split it up with up to three brokerage firms to ensure that in the unlikely event that one were to fail. Some top notch Forex brokers even hold insurance policies with major providers that ensure that specifically protect customer funds against failure of service, dishonesty, and forgery. Hopefully none of you held accounts with Refco as they were not a particularly good Forex brokerage to begin with. Should you worry about possible insolvency with your Forex broker? In most cases, no. In the coming weeks as an added service to our readers, I will put together a list of Forex brokers to avoid in the spirit of Jim Cramer's Danger Zone for Forex traders. This will consist of firms that are unworthy of your investment dollars for any number of reasons.

Forex Market News

2005-10-13T12:59:00.000-07:00

Well, no sooner did we post a cut to our long USD position than the dollar got slammed. Proving once again that bulls make money, bears make money and pigs? Oinkety oink oink oink, they get slaughtered. After trimming some of our position at 115.02, the remainder of our position was stopped out at 114.88. We may have given back a little bit of our gain but I'll take a protected 80+ pip move over giving it all back any day. For right now, we'll just ride this one out on the sidelines until the bus shows some signs of losing momentum. One word of caution, before you Euro bulls out there jump on the bandwagon you may want to wait for some follow through for confirmation. We've seen quite a few of these big one day rallies on the way down from 1.36 and until the market proves otherwise, I don't see this as being particularly important as far as a long term reversal is concerned. In fact, I would be shocked if we were able to sustain a move to the upside that clears 1.22. Time will tell.

EUR/GBP continues to rally and push back toward .69. If we do get there, we will begin to accumulate a short position.

Forex Trade Update - Target Price Hit

2005-10-13T08:41:00.000-07:00

USD/JPY has hit our price target of 115.00. While we don't see any imminent signs that the trend is weakening, we are beginning to enter an area of higher risk and thus will trim back on the size of our position to lock in some of our unrealized gains.

EUR/USD is once again challenging the critical support level around 1.19 and continues to see buying come in near that level. It would appear quite evident that at least a few large institutional players have been defending that support for quite some time. If you look at a daily chart of EUR/USD, you will notice that the bounces have been considerably smaller on recent tests of the 1.19 level giving big players less time to sell into strength. If we get back down close to 1.19 a couple more times, it would seem as if a breach of this level of support would be increasingly likely. This could potentially open the door to a move back around the 1.14-1.15 level.

AUD/JPY continues to slowly drift downward on seemingly little volume. This one might start to look attractive for a long position if we can get a little closer to the bottom of the uptrend channel near 85.00. Stay tuned, we always like the opportunity to hold such a high yielding pair....

Forex Trade Update USD/JPY

2005-10-11T11:55:00.000-07:00

As expected, USD/JPY broke out of a nice bull flag pattern to the upside and hit a new high for the year. We may see a little bit of a pullback here but as long as the breakout holds, you should be OK to keep your position. The market seems ready to price in a USD interest rate hike for both the November and December Fed meeting at this point. If this continues, I would expect to see a brief pullback in USD/JPY followed by continued pressure to the upside.

Forex Strategies EUR/USD

2005-10-10T23:32:00.000-07:00

After the expected oversold bounce, we have quickly seen the par reverse back to the downside and it would appear that a retest of the double bottom could be imminent. This time, I would not be at all confident that this level of support would hold. We will take a wait a see stance as a flurry of economic data hits the market this week. Should we continue to push to the downside, look to short EUR/USD on a break below 1.119 with a stop just above 1.1920.

On the flip side, USD/JPY is beginning to rise out of a bull flag on a daily chart and appears that it will at least make an attempt at a breakout. The key number to look for on this one is 114.37. If we can clear this area, I would expect to see 115 in fairly short order.

In other news, EUR/GBP is starting to look a bit toppy. Keep an eye on this one for a possible short.

Forex Trade Update EUR/USD

2005-10-05T21:56:00.000-07:00

As anticipated, we did get a strong bounce off of the support near the July lows at 1.19. Hopefully some of you made a nice profit on the move. We even managed to take out the first overhead resistance at 1.20 on an upward move of 160 pips. The 1.20 level (Just below) would be a good place to put your stop to protect the majority of your gain. It will be interesting over the next couple of days to see if we are able to follow through and continue the move to the upside or if this is simply a reload phase pending a new move to the downside and a break to new lows. One important thing to take note of is that if we do get any kind of follow through to the upside, a significant double bottom will have been put in place at 1.19 and strategies going forward will have to take that into consideration. I try to avoid making personal judgments when evaluating the market but I do believe that as long as the fed is in play and additional interest rate hikes are on the way, it will be difficult for the Euro to mount any kind of long term rally with an ever increasing rate spread. With that being said, we will still let the action of the overall Forex market tell us were to place our bets. For now, protect your gains on the bounce in case it is short lived.

Forex Trade Update AUD/JPY

2005-10-04T20:56:00.000-07:00

Well, within about an hour of the post mentioning that this pair looked like it was due for a pullback we slid straight off a cliff to the tune of 80 pips and counting. I know I can sometimes sound like a broken record when talking about the importance of stop placement and an exit strategy but this is a perfect illustration of why this is such a crucial element of successful Forex trading. The long term trend on this currency pair still looks good but for now it's time to sit back and wait for the market to provide a new entry point.

Forex Trading EUR/USD

2005-10-04T15:41:00.000-07:00

Well, EUR/USD was able to break through some decent support around 1.20 and quickly dropped down to challenge the years low from back in July at 1.19. So far this level has held. It wouldn't surprise me if we get a quick oversold bounce back to around 1.22 before we resume the downtrend. Any significant break below 1.19 within the next 24-48 hours would signal that the Euro selloff is stronger than initially anticipated. If we do break to the downside, you can short the pair on the break with a stop just above 1.19. In the event that we do get a little bounce first, traders can take a long position in here with a stop immediately (5-15 pips) below 1.19. Whichever side you decide to play, keep in mind that your money management strategy is critical here. Place your stops intelligently and you should do just fine regardless of which way we move.

As far as our AUD/JPY trade is concerned, we are sitting on a significant gain from the breakout point and the pair is starting to appear a bit extended. This does not however mean that it will not become further extended. It just means that now is a good time to look at your exit strategy to ensure that you do not give back any significant portion of the gain in the event of a reversal. This one could correct to the downside to the tune of 120 pips without even damaging the uptrend so keep a close eye on it.

Forex Trade Chart Pattern Alert Follow Up

2005-09-30T10:08:00.000-07:00

Here is a visual of the AUD/JPY breakout. A classic example of a cup and handle followed by a powerful move to the upside. We probably won't see much in terms of additional movement here going into the weekend as institutional players begin to check out but now would be a good time to move your stops upward to protect some additional gains.

Currency Trade Status Update

2005-09-30T07:54:00.000-07:00

AUD/JPY strengthened it's breakout move overnight and is starting to look much better. As long as we can clear that last hurdle of the intraday spike high around 86.50 from July (nevermind, just happened as I was composing this post), we should be in the clear for a little while. Pull your stops up a little bit to protect your gains. Aggressive traders can give it 35 pips worth of wiggle room while those of you who are more conservative with your trading capital can cut that to 25 pips.

Forex Trade Status Update

2005-09-29T20:58:00.000-07:00

AUD/JPY has been able to complete the cup and handle and break out to the upside as previously discussed. I have to say that I'm not overly impressed with the strength of the move so at this time, our plan is to keep a tight stop to protect our gain and see what develops.

EUR/USD has continued to hold support but as of yet, still has not shown any indication of a strong move to the upside. For right now, stops will remain just below 1.20. For those traders concerned with protecting some of the 50 pip move to the upside that we have seen over the past several hours, you can consider a trailing stop of about 25-30 pips below the current levels (9:03PM 9-29) but do not be the least bit surprised if you get stopped out as the market continues to test the support around 1.20.

Forex Trade Alert

2005-09-28T10:31:00.000-07:00

The freefall in EUR/USD seems to have run out of gas over the past five days. It has attempted to drift lower and is running into some support at 1.20. Over the past six months, we have seen this pair reverse to the upside from this level on no less that 4 separate occasions. Typically when we see a strong pattern transition into a flat one in combination with an oversold condition, this tends to signal the end of the trend (at least in the short to intermediate term timeframe). You could take a long position in EUR/USD for a fairly low risk trade entry at 1.20-1.2015. Stops should be placed somewhere around 1.1970 to protect your downside just in case we do see another leg to the downside to test the yearly low at 1.19. A bounce to the upside into the area of 1.21-1.22 would seem reasonable in this situation. Here is a daily chart of the pair so you can get a clearer picture of what we are looking at (You can click to enlarge the picture):

Forex Trading Chart Pattern Alert - Visual

2005-09-27T12:12:00.000-07:00

Here is a screen shot cooresponding to the most recent post showing the cup and handle on AUD/JPY. Sometimes is is easier to follow along with my jibberish if you can look at a graphic as it is being discussed. You can click on the enclosed screen capture to enlarge it for a better view.

Forex Trading - Chart Pattern Alert

2005-09-27T11:01:00.000-07:00

Today's discussion will be related to AUD/JPY which is currently in the process of building a text book cup and handle pattern on a daily chart. This is one of the better examples of this that I have seen in quite some time. We go rim to rim at an almost perfect 86.00. If we can get a breakout above these levels, we could see a significant push to the upside to new highs for the year. There is good support in the 84.85 area and that would be an ideal place for a stop as a failure that pushed below this area would negate the pattern. As always, I will offer a few strategies for trading the pattern. You can enter with a buy limit order set just above 86.00 and that way you only enter the trade on a break above 86.00. With this strategy, a stop could be placed just below 84.85 for conservative traders and at 85.40 for more aggressive personalities. Those of you who are a little more trigger happy can start to build your position here by taking say 20% of your intended position size every 10 pips up. Just keep a stop in place below your initial entry point to protect yourself in the event that the pattern does not complete. Remember nothing in this or any market for that matter is ever certain, we can only trade those set ups that have a history of producing results more often than not. Either way, this pair yields an outstanding interest rate spread and you should get a nice return while you hold the position.

USD/JPY trade still looks good. You can follow today's gains upward by pulling your stops up a little along with the market. There is a little risk starting to creep in but nothing that would negate the previous discussion as of yet.

Forex Trading Key Number

2005-09-26T15:41:00.000-07:00

USD/JPY has been steadily back towards the yearly highs of mid July. 113.108 is the number to watch as that was the closing high for the year to date. If we can break out above this old high, it could indicate further strength in the pair going forward. A failure in that area could help to form a significant double top. Since the interest rate spread is now clearly in favor of the dollar, I wouldn't be willing to bet as heavily on a long term failure then a breakout to the upside. There are a few ways to play this scenario. You could work a potential breakout with a buy limit order set just above the intraday high of 113.78 with a stop below the breakout point of 113.10 if you want extra confirmation. Otherwise go straight in on any break above 113.108 with a stop 10-15 pips below with the goal of taking profit at 114. The only caution I'll give you is to keep any eye on relative strength and watch for any possible divergences or extreme overbought conditions that could signal an increase in trade risk. As long as we still look favorable there, you have the green light and can pick up some healthy interest payments along the way.

Forex Trading Platform Review

2005-09-24T16:42:00.000-07:00

Ahhhh, quiet in the Forex market! The weekend has come once again and all of you Forex trading addicts out there will find yourselves looking for alternative entertainment. This weekend, our discussion will focus on a review of Forex Trading platforms. I get countless emails each week asking for my opinion on various trading platforms and brokers. Rather than answer each question individually, I will share my experience and provide some information that will help you select the right Forex trading platform for you. Let me start my mentioning that I am not affiliated with any of the software manufacturers or brokers about to be discussed and do not receive any kickbacks or incentives for touting one over another. With that being said, there are twoForex brokers that I can recommend with confidence. The platform that offers the greatest flexibility is Oanda. They have no minimums for opening an account and allow trading with tight spreads in transaction sizes as small as $1 (virtually unheard of in this business). The platform is very stable and in two years of trading with them has never crashed on me. Another unique feature is their payment of continuous interest. This allows you to be paid interest on spread positive transactions by the second, no need to hold a position for a full 24 hours to enjoy the beefits of an interest payment. They are the only firm in the industry to offer this feature that I am currently aware of. The one drawback is that you need to have a computer system that has a screaming processor and lots of memory in order to be able to handle the trading platform and accomplish other tasks like market research simultaneously. My second favorite is Interactive Brokers. This platform is probably better suited for advanced traders and has a greater breadth of product offerings including futures and options. They also have transaction costs that are very competitive along with a full suite of data analysis features. System reliability gets a grade of A- with very few technical meltdowns or losses of connectivity. Trade executions are lightning fast and slippage is very minimal. My recommendation to everyone is to try a demo account with several service providers and see which one best matches your trading style. One will almost always clearly stand out as the hands down favorite.

Forex Trade Status Update

2005-09-23T09:56:00.000-07:00

Our quick little attempt a catching a bounce in EUR/USD wasn't able to materialize and we were stopped out with a small loss. EUR/USD has since broken down below some key intermediate term support and looks as if it wants to test the June lows of 1.19. We continue to be very oversold in the pair and I would anticipate at least a modest bounce to the upside before we are able to break down to significant new lows. The market has spoken loud and clear and until we have some answers on the future of Germany, don't expect a major move to the upside in the pair. The widening interest rate differential is also undoubtedly influencing the decisions of any large institutional players as it is becoming increasingly costly to bet against the dollar.

Forex Trading Strategies EUR/USD Continued

2005-09-21T17:44:00.000-07:00

Now that we have broken out to the upside as anticipated, we are forming a nice tight bull flag on a five minute chart. As in every market, the main drivers are fear and greed and this is a classic example with concerns building over the hurricane, oil prices/production, interest rates, etc. These are the times when it pays to be a Forex trader!

Forex Trading Strategies EUR/USD

2005-09-21T15:50:00.000-07:00

The EUR/USD has been very news driven as of late and it seems to be poised to continue. The dollar plummeted in the wake of hurricane Katrina only to bounce back while the Euro dropped like a rock after the German elections. The pair is currently forming a huge cup and handle on an hourly chart coming off of a significantly oversold condition and could be poised for a strong breakout if the dollar comes under pressure as a result of the now category five hurricane Rita set to slam into the US gulf coast. A break above 1.2240 is the number to look for. You can enter a long position on any brief pullback here as long as we can stay above 1.22 which would also be a good place for your stop.

Forex Trading Set Up AUD/JPY

2005-09-20T19:19:00.000-07:00

AUD/JPY is currently forming a nice cup and handle on a five minute chart. You can go long with a buy limit order just above 86.00. This is also just about equal to the yearly high for the pair so if we do see a breakout it is likely to be a strong one. As always, keep a tight stop just below the base of the handle in the 85.90 range to protect yourself if we see a false breakout. This is a major resistance point so don't be surprised if it doesn't make it on the first try and has to come back and consolidate a little.

Forex Trading USD/JPY

2005-09-20T11:59:00.000-07:00

USD/JPY is currently building a nice bull flag pattern on a five minute chart. We are a bit overbought here so using a sound money management strategy is critical. You can go long here with a tight stop at 111.83. That way you can ride a breakout and won't stand to loose much on a potential failure.

New Currency Trade EUR/USD

2005-09-20T08:33:00.000-07:00

EUR/USD is currently forming a nice cup and handle on a 5 minute chart. Normally this would signal a potentially strong move to the upside but ahead of the fed announcement, my confidence is lower than it would normally be in such a trade.If you decide to play it, you can enter a long position with a buy limit order on a break above 1.2177 with a tight stop just below the base of the handle at 1.2167.

Currency Trades Update

2005-09-19T20:22:00.000-07:00

Stopped out on that last trade with a 15 pip loss. Proving once again that no matter what the indicators tell us, it is never a good idea to trade against the main long term trend in this pair. We are starting to see some choppy trading ahead of the Tuesday Fed announcement and would anticipate that it would continue. It is our general policy not to trade ahead of a major pending news event so until tomorrow, we will take to the sidelines and let the market establish a solid direction before making any significant moves.

Currency Trades Update

2005-09-16T12:21:00.000-07:00

EUR/USD appears to be attempting to build a double bottom at 1.22. This would be a good entry point for those of you wanting to capture a portion of an oversold bounce back. EUR has just been battered since we first mentioned that it looked like it was in trouble earlier this week. Chances are good that anyone wanting to sell has done so ahead of the weekend so as not to have to pay the interest spread while the market is inactive. You can take a long position with a tight stop just below 1.22 and look for a quick bounce up to around 1.2325-1.2350.

AUD/JPY Currency Trade Update

2005-09-14T11:03:00.000-07:00

AUD/JPY is still looking OK from a technical standpoint but it is beginning to show some signs of weakness. This may be temporary but the prudent thing to do at this time would be to tighten our stop up to 84.70 as we can always re-enter the position a bit lower if the trade set-up is right.

EUR/USD is looking like it wants to break trendline support to the downside and if it continues, we could be heading back to the 1.19-1.21 area. This would be a decent time to enter a short position with a stop around 1.2285. The stop is important here as we will encounter some additional support around 1.2220. Don't look for any huge moves in this pair in the absence of any groundbreaking news. We have a fair amount of resistance above the current level and a fair amount of support below. This could lead to a choppy currency market over the next several days. Perhaps the September 20th Fed minutes and interest rate decision will give the market its next significant sense of direction. Until then the play will be to keep tight stops and avoid whipsaw trades while taking advantage of any opportunities that develop.

Forex Trading AUD/USD Trade Status

2005-09-12T12:48:00.000-07:00

Today's post is in regards to our AUD/JPY trade from August 18th where we went long at 82.80 and planned to hold onto the trade for up to a few weeks to take advantage of the substantial interest payment and profit potential. This trade has been extremely profitable thus far and while showing no real signs of weakness, proper money management theory tells us that now is the time to move our stop up to protect some more of our gains. Today we will move the stop up to 84.50. Remember if we get taken out, we still keep an outstanding profit and can always look to re-enter when the time is right.

EUR/USD is about to encounter some trendline support on a daily chart in the 1.2250-1.2280 area. If we bounce back from the recent decline, it should happen from somewhere around these levels. If we are able to break this area of support to the downside, this is one trade that you will want to stay away from on the long side until the picture improves sometime down the road.

Forex Trading Strategies Update

2005-09-08T20:10:00.000-07:00

EUR/USD is currently forming a nice bull flag on a 5 minute chart. You can play a potential breakout to the upside with a buy limit order at 1.2436. Look for a quick 15-20 pips or more if it goes. This makes for a fairly low risk trade as you will not enter the position if we fail to get above last hours high.

Forex Strategies Update

2005-09-06T13:46:00.000-07:00

As a follow-up to the AUD/JPY trade, we've had a great run and are sitting on a highly profitable trade. It is time to think about tightening up your stops to protect this gain. I'm not suggesting that anyone go out and wholesale sell their position as the yield is very attractive and their are no red flags anywhere in the immediate future. It just makes good sense to lock in a portion of the move with a well placed stop. The 83.95 area would seem like a good place for your stop as we have some decent support not far below current levels.

Our next topic of discussion for today is in regards to EUR/USD which is currently coming into an area of decent support around 1.2445. For those who believe that the recent uptrend in the Euro has some legs left, this would make a good low risk entry point. You can take your long position here with a stop below 1.2445. You risk about 15-20 pips on the downside with a potential upside target of 1.26 or 1.27 (150-200 pips).

Forex Strategies EUR/USD

2005-09-01T17:54:00.000-07:00

I can recall the morning of 9-11 and watching as tragedy unfolded thinking that never again in my lifetime would we witness such a horror. After spending the past several days taking in the aftermath of hurricane Katrina, I realized that sadly I was quite wrong. I urge each and every one of you who has the ability to contribute to the relief effort to do so. If anyone needs assistance in directing their donations to the appropriate place, I will be more than happy to post links to organizations that are heavily involved and need your support.

With that being said, this is a Forex trading blog and there are some significant events unfolding in the FX markets. The most eye catching development of the day has been EUR/USD attempting to break out of a cup and handle pattern on a daily chart. If we can manage to consolidate above the 1.2459 mark for the next few hours and resume our recent uptrend, we could see a breakout target of somewhere between 1.2650 and 1.27. You can play this trade by entering a long position as we ease back toward the 1.2460 area with a stop below the handle edge at 1.2450. This gives you a fairly low risk trade with limited downside potential and a significant profit potential on the upside.

Forex Strategies - AUD/JPY

2005-08-18T13:54:00.000-07:00

AUD/JPY currently entering oversold territory on a daily chart as we approach decent support at the 82.80 level. You can play the bounce on this high yielding pair by taking a long position as we enter this area of support. You can keep a little money on the sideline and double down if we break towards strong support around 81.30. This is not a short term trade like the ones typically posted but rather something that you may hold for between several days and 1-2 weeks depending on market action. For all of you short term currency traders out there, this may be one you want to pass up. For those of you who enjoy a healthy carry trade with a fairly low risk entry point, this one is taylor made for you.

Forex Strategies - USD/JPY

2005-08-17T01:28:00.000-07:00

USD/JPY cross is currently forming a nice head and shoulders pattern on a five minute chart. This could spell trouble for the pair in the short term. You can play the trade by going short with a stop above the right shoulder at 109.95.

Forex Strategies EUR/USD

2005-05-26T10:46:00.000-07:00

As expected, EUR/USD has been steadily working its way in the direction of 1.24. The daily chart is indicating that we are currently entering a significant oversold condition. Fairly significant support begins to come into the picture between 1.2430 and 1.2440. Given the above, I would expect that we would see a healthy bounce off of the support before we are able to make any additional strong moves to the downside. You can play this trade by entering a long EUR position as we move toward 1.2440. I would expect to see a correction to the upside of at least 100 pips to relieve the oversold condition. Keep in mind that this will require that you keep a close eye on your position as we are still in a longer term Euro downtrend/Dollar uptrend and any move to the upside will likely range in duration from a day or two to a week provided that current market fundamentals remain intact.

Forex Strategies Update

2005-05-13T11:48:00.000-07:00

For those of you who took yesterdays suggested trades, you are currently sitting on a profit of about 100 pips in EUR/USD and around 60 in USD/JPY. This would be a good time to tighten up your stops to protect your gains. EUR/USD is currently entering oversold territory on a daily chart and may bounce higher in the short term. USD/JPY is showing another bull flag as of this morning but has been on a tear almost straight up from 104.50. I would not be surprised to see it shoot up to the April highs around 108 and change and then pull back and take a breather.

One quick comment for those of you who have been emailing me to complain about the irregular updates:

This is a free service. I have given out this information at my own free will and I know for a fact, many of you have made a lot of money as a result. Take your money to the bank and then sit back and relax. The market doesn't work around your schedule. If I see something worth talking about, I'll post it. Remember patience is the name of the game. It will be well worth your time to trade only when the odds of a winning trade are in your favor. Sometimes the market just moves in a trendless fashion for a period of time and trading in those conditions is the equivalent of playing the lottery.

Forex Strategies EUR/USD Follow Up

2005-05-12T14:05:00.000-07:00

This mornings trade is still looking healthy as we have now broken the horizontal basing around 1.27 to the downside and quickly saw a drop to 1.2670. Conservative traders can put in a stop just above 1.27 now to protect gains but I still think we may have some room to move to the downside, especially for those of you with a longer term outlook.

Forex Strategies EUR/USD

2005-05-12T08:38:00.000-07:00

The EUR/USD cross just broke major support to the downside at 1.2720. This should clear the way for a continued downward push toward 1.2470 which is where the next significant level of support comes into play. For those of you who have a long term EUR/USD short in place, you should be in good shape to hold your position. Short term traders can look to enter a new short on any rallies. If you are looking to enter a new position, watch the 14-period relative strength number and look to enter your short on any touch of 80 or above and you should be in good shape.

On the flip side, USD/JPY is building a nice bull flag and looks poised to move higher. A breakout above 107.00 should lead to a retest of the 108.90 April highs.

Forex Strategies EUR/USD

2005-05-03T10:23:00.000-07:00

As it turns out, we made the right move by tightening up our stops on the EUR/USD short position and were stopped out with a nice gain. EUR/USD has rallied steadily overnight and is currently showing a bull flag pattern on an hourly chart. This could potentially signal a strong upward move when the Fed statement is released this afternoon. You could play this trade with a buy limit order set just above 1.2905-1.2915 and a preset stop below 1.2880. This gives you a nice risk reward ratio in the event of a strong move to the upside while limiting your downside risk if we get a whipsaw. Remember not to jump the gun, you want to let the market dictate your trades and not your emotions. Let you limit prices determine your entry point on this one as it is quite common to see a false move in one direction or another before the final trend sets up.

Forex Strategies EUR/USD Update

2005-05-02T21:51:00.000-07:00

Friday's trade has worked out nicely so far with a gain of about 50 pips as of this update. It is important that you tighten up your stops at this point to protect your gains ahead of the Fed statement on interest rates tomorrow. Our next key level of support comes in around 1.2730. A significant breach of this level should open the door to further dollar gains through about 1.24. Don't count on this happening immediately as the EUR/USD daily chart is approaching oversold territory and it could attempt a bounce without threatening the intermediate term dollar uptrend. This just may be one of those cases of buy the rumor, sell the news. Only time will tell. For right now, we will keep our open EUR short position with a tight stop to protect gains and look to add to the position on a break below 1.2730.

Forex Strategies - EUR/USD

2005-04-29T10:56:00.000-07:00

The EUR/USD cross is showing a bear flag going in towards the close, it would not be a bit surprising to see it roll over and move lower into the close as volume dries up ahead of the weekend. You can enter the trade as a short with a stop at or just above 128.89 for just about 10-14 pips risk and a nice chance at significant gains if it does in fact move lower. If the trade works out, you may want to look to take profit as it approaches the 1.28 level where some decent support comes into play. Have a great weekend!

Forex Strategies - Update

2005-04-14T11:29:00.000-07:00

As a follow up to yesterdays posting. Each of the currencies failed to complete their cup and handle patterns indicating further weakness ahead. As discussed, we only would have entered the trade with a buy limit order upon completion of the patterns so nobody should be stuck in a losing trade. Those of you who did short AUD/USD on the failure at .7800 are currently sitting on a healthy profit of about 100 pips. Be sure to adjust your stops to protect your gain. We are currently entering a region of modest support here and it wouldn't surprise me if we saw a quick bounce. If we continue with the downtrend without a significant bounce, look to take profit in the .7650 area.

Another potential trade to take a look at is USD/JPY. It is currently approaching a fairly significant resistance level around 108.45. If we can break through this level, we should challenge the recent highs at 108.90 in fairly short order. A good entry point would be a buy limit order at 108.50 with a stop below 108.40.

Forex Strategies - Trading Setups

2005-04-13T10:14:00.000-07:00

EUR/USD and AUD/USD are both attempting to form cup and handle patterns on a five minute chart. As we have seen from past trades, this can be one of the most powerful chart patterns when and if it completes. For AUD/USD you would want to enter the trade with a buy limit order at or slightly above .7802. As always, it is important not to jump the gun and allow the pattern to confirm itself prior to making any trades. With EUR/USD the entry point would be 1.2925. You can enter both trades with a tight predetermined stop of 10-15 pips below your entry point. In the case of AUD/USD, a failure at .7800 would make a nice entry point on a short for aggressive traders. I'll return with an update in the near future to assess the results.

Forex Trading - Strategy Update

2005-04-01T06:22:00.000-08:00

As a follow up to yesterdays discussion, EUR/USD did catch a nice bounce to the upside as we had anticipated but you had to be faster than Doc Holiday on the trigger in order to capture the move. It should be interesting to see if the market continues to move in the pre-employment number trend or if we break through support and resume the dollar rally. This should be viewed as an important intermediate term inflexion point as any sustained break below the 1.2950 area would spell further trouble for the Euro. The wild card in this equation will be oil prices as a renewed spike in crude is likely to put some pressure on the dollar.

Forex Trading - Strategy

2005-03-31T16:31:00.000-08:00

The Forex trading strategy for today will focus on the dollar. EUR/USD has been basing nicely since its big drop from 1.3450 to 1.2850 and looks poised to retrace at least a portion of the move. This may be a good time for Euro longs to make a move after having been forced to the sidelines by the strong dollar rally. There are a couple of ways to play it. You could take a position in the area of this afternoons trading range (1.2960) with a stop below or if you want to wait for some extra confirmation, you could place a buy limit order above 1.3016 which was the spike high for the day. It is essential that stops be kept tight in here as an employment number that comes out in favor of the dollar could easily send us back to the 1.27 January lows in short order. I would suggest stop levels of 1.2950 if you are a conservative trader and 1.29 if you are a little more aggressive. If the dollar rally resumes on the employment data Friday and can break the March 27th low of 1.2858, you can short EUR/USD with confidence through at least the 1.2750 level where the next strong support comes in.

Currency Trading Lessons

2005-03-22T17:14:00.000-08:00

This is a follow up post to the March 16th discussion and is designed to illustrate the importance of waiting for confirmation prior to entering the trade. While it is human nature to anticipate a developing pattern and want to get in early to scoop up an extra percentage point or two on the transaction, doing so can be hazardous to your wealth. Those of you who played the setup as we had suggested by setting a buy limit just above the pattern confirmation level never would have entered the trade and have lived to trade another day. Those who thought that they would outsmart the system and buy ahead of the crowd got crushed and without a stop loss could be down as far as 360 pips as of this posting. The idea behind looking at technicals and finding profitable patterns is to trade with mathematical percentages on your side. We try to identify patterns that have a high probability of resolving in a certain direction. With that being said, no pattern or setup that I have ever seen is 100% without fail so it is critical to trade with predetermined entry points as well as protective stops in case the market moves against you. This is the only way to protect your trading capital and take advantage of the power of compound interest over time. This stuff works, the biggest risk is not the market but the human tendency to make moves that are not well disciplined.

For those of you who are looking for a new currency trade, this will be a critical week for EUR/USD. We are looking heavily oversold and are fast approaching some good support in the 1.30 area from the basing that occurred in January. You can try taking some positions between 1.3025 and 1.3065 to catch a short term bounce and a potential resumption of the Euro uptrend. Keep your stops close below 1.30 as a break of this level to the downside could bring us all the way back to 1.27. In fact, any sustained break below this level should allow you to move to a short position. Hopefully those of you who tend to jump the gun and trade without an exit strategy learned your lesson over the past few days and can avoid a repeat performance.

Forex Strategies EUR/USD Setup

2005-03-16T12:56:00.000-08:00

EUR/USD seems to be setting up into a nice bull flag pattern on the hourly chart. A breakout above 1.3438 would likely set us in motion to the upside once again. You can set a buy limit order just above 1.3438 to catch a renewed upside move while protecting yourself against a consolidation or slight downward fib retracement of last nights move from 1.3295 back above 1.34. Any significant pullback should be considered as a buying opportunity for the Euro as it looks like our next stop should be near the highs set back in December of 2004.

NZD/USD also showing a classic bull flag/pennant formation and should also be able to move nicely to the upside if it can breakout. This could be your trade if you like to collect a little extra yield on the carry.

Forex Trading Update

2005-03-04T08:35:00.000-08:00

We really should be charging for this! Unlike other sites that give worthless strategies that never work, we actually post real results from strategies discussed. This is a follow-up post to yesterdays trade where we took a long position in EUR/USD with a stop placed at a safe distance below 1.31. Here is a chart to illustrate the result:

EUR/USD Chart 02-04-2005

Do intelligent strategies executed with well placed stops to control risk work? Don't take my word for it, the charts speak for themselves.

Forex Trading EUR/USD

2005-03-03T16:23:00.000-08:00

EUR/USD has now made four decent runs at breaking back below 1.31 and has failed each time. With prices remaining close to that level, a low risk strategy here would be to begin building a position that is long EUR with a stop below 1.31. Keep your stop at a safe distance (Maybe 20-25 pips) to prevent a whipsaw on the Friday econimic data. If that continues to be a key level of support for the Euro, we could see a nice bounce to the upside in the not-to-distant future. I would put a price target on the trade of around 1.3160-1.3170 if you are conservative and 1.3250 if you are an agressive trader, this gives you a potential upside of about 50-150 pips in the short term and a potential drawdown of about 25-30 pips if we reverse to the downside. Remember that they key to successful currency trading is not be right every time but to evaluate risk using sound judgments of probability in combination with technical analysis. If the risk-reward ration is in your favor, take the trade and let the market run its course.

Forex Strategies - AUD/USD Strategy Update

2005-03-01T17:17:00.000-08:00

Those of you who were patient and took our advice on how to play the potential failure of AUD/USD as it attempted to break to a new high have been rewarded nicely with a strong pullback of 145 pips as of 6:00PM this evening. Depending on your risk tolerance, you could take profit in the position here and sleep well knowing that you scored a highly successful trade. The more risky play is to let it go for a while with a stop 30 pips or so above current levels. The reason I say that this strategy carries more risk is that a bounce of 40-50 pips here would simply relieve a short term oversold condition without necessarily breaking any major trendlines. Traders should keep their eyes open if prices reverse and make a new run at the .7950 level. We have had many failed attempts and another run at it would indicate that the market is trying to tell us that it eventually wants to go higher.

As a side note traders who are looking for continued weakness in the dollar could look to start taking some probing positions as EUR/USD pulls back rather sluggishly to an area of strong support around 1.31. As always, it is essential to place a well chosen stop just below support.

Forex Strategies - Profitable Chart Patterns

2005-02-15T09:50:00.000-08:00

One of my favorite chart patterns throughout the years has been the cup and handle. It seems to have one of the greatest percentages of successful breakouts and when they do move, they really do take off. A perfect example would be this morning in both the EUR/USD and also the AUD/USD on a five minute chart between about 8:00AM and 10:35AM. I would have posted earlier to give readers a chance to trade the set up if I could have but it just developed too quickly. These patterns are a little bit more rare in the Forex market than they are in the equities markets but they do still represent the same underlying market forces in play. The best way to play a cup and handle in the Forex market is to identify a potential cup and handle set up, check your indicators for an extreme overbought condition so you can be sure that you aren't about to step in front of a bus, and then place a buy limit order 1-2 pips above the high that was made on the right side of the cup. This will allow you to catch any big breakout as it happens without letting your emotions get you in too early. Remember that any pattern is only technically valid if it completes. I suggest two exit strategies for this type of position. A trailing stop can be used to exit the position or a predetermined take profit stop can be placed along with the initial entry depending on your trading style. In the future, I will try to identify some potential setups ahead of time to allow my readers to trade these moves.

Forex Strategies - AUD

2005-02-11T10:55:00.000-08:00

Watch the AUD as it attempts to challenge the highs from late November, 2004 around 79.25-79.49. It has been on an absolute tear over the last week and often times when prices rise at such a steep angle, they are destined to return in similar fashion. Any failure near the 79 level should be seen as an opportunity to enter a short position with a stop above the previous highs. This gives you a trade with fairly limited downside if it does manage to break to new highs and allows you to capture a large move if it fails as it has on the last few attempts to move higher. This morning on a five minute chart, there is a divergence between price action and relative strength indicating that we may be close to a reversal. If we do get it, remember to place your stops when you enter the position and eye 76.25 as a potential price target to exit the position.

Forex Trading Strategies Update

2005-02-07T10:14:00.000-08:00

Those readers who were paying attention and went short EUR/USD on the break below 1.29 as we had suggested have done quite well. As of this mornings trading, you would be sitting on a gain of around 160 pips. The market may bounce a little here over the next few days but we still believe that the path of least resistance for the Euro is down. We will look to add to short positions on any rallies with an eventual price target of 1.24. Last months horizontal consolidation between 1.2950 and 1.3150 should act as good upside resistance and provide good entry points for shorts as prices approach those levels. Any close above 1.3140 would be reason to re-evaluate our positions. For right now, enjoy your profits! Check back with us soon as we plan to add currency trading strategies for additional pairs in the very near future.

Forex Trading Platforms Part 2

2005-02-05T09:28:00.000-08:00

We left off last with a discussion of the role that trading platforms play in your Forex trading strategy. Today, we will continue to look into some important factors that should play a role in your Forex trading platform selection and finish with a recommendation of a few of our favorites. We have already discussed system reliability, trading spreads, and charting packages and now we can move on to some less obvious details.

Slippage occurs when you click to execute a trade in your online trading platform and get filled at a price other than what was intended. This is something that is more common than you would hope even on trading systems that you may have seen advertised in trading publications. You want to avoid slippage at all costs! It will not only dig into your profits but can also shake your confidence in your trading platform. One of the best ways to evaluate the ability of your trading service provider is to open up a free demo or game account and begin placing some trades during a fast market. By this I mean a market in which prices are moving by 10 pips or more during a five minute interval. Carefully note the price quote at which you attempt to execute the trade and then compare it to the fill price to determine how accurate their executions are. This may seem a little monotonous but remember, its your money!

Now lets look at a few of the more popular Forex trading platforms out there starting with Forex.com. This platform is good for beginning Forex Traders and allows you to open an account to trade the Forex mini with leverage as high as 200:1 with just $250. They offer a free demo account with $2000 in trading capital. The problem is that if you loose your $2000, your demo period is over. They provide guaranteed fills on all stop and limit orders and offer your account protection against negative balances. Our main issue with this platform was system reliability. Loss of connectivity with their servers was frequent and frustrating. Their charting package was average at best with periodic outages on the charts as well. Executions were good and consistent however spreads we at or slightly above the average among online Forex trading account providers. Overall, we give this platform three out of five stars.

Tomorrow we will continue this discussion with an in depth look at three more platforms including two of our personal favorites.

Forex Strategies - Choosing the Right Trading Platform

2005-02-01T17:02:00.000-08:00

One of the most important yet often overlooked aspects of successful currency trading is finding the right trading platform. While there are dozens of viable platform options, online currency trading platforms are most certainly not created equally. Each currency traders needs will vary somewhat based upon his or her trading objectives but there are certain features that are important to consider across the board. We have reviewed many of the most popular online platforms and have made note of the benefits and drawbacks associated with each. Before we examine individual programs, we will present an overview of important considerations in selecting an online trading platform.

Quite possibly the most important thing to consider is system reliability. The last thing in the world that you would want is to be on the correct side of a trade only to find out that you are unable to exit your position due to a lost connection of system failure. Sound far fetched? It isn't and it happened to us on a regular basis during our test period with multiple service providers.

Another crucial consideration is the trading spread on major currency pairs. While the broker may advertise "Commission Free" trading, it is important to remember that each pip that you pay in the spread is the equivalent of a broker transaction fee. Always look for the lowest possible spread that you can find in the currency pairs that you plan to trade. The industry standard is often 5 pips but a little shopping around can get you to three or less. Some of the higher quality platforms will even let you enter bids and offers between the posted spread.

Look for a full toolbox. By this we mean access to real time streaming charts and price quotes. Some of the better platforms will even let you execute trades simply by clicking on points within the charting screen. Make sure that any program that you are considering provides real time streaming news and the ability to apply a wide variety of technical studies to both current and historic price data.

Later this week we will continue to look at features to look for when selecting an online currency trading platform and will provide some recommendations based on our own personal experience.

Currency Trading - Key Numbers

2005-01-27T11:55:00.000-08:00

Keep an eye on the 1.29 level for EUR/USD. If it manages to break below 1.29, we could be headed all the way back to the 1.20-1.24 level and creating a new intermediate term uptrend in the dollar. Any solid break of 1.29 to the downside should create and excellent opportunity to short EUR/USD. If we continue to build a good horizontal base at these levels and are able to sustain a rally above 1.33, look for the dollar to continue its weakness and challenge the EUR/USD December highs in the 1.3665-70 area. Remember to always use carefully placed stops to limit downside risk on all of your currency trades. Remember that you never know with complete certainty what the future holds so always cut losing trades off short and let your winners run with well placed stops to protect your gains. As long as you are making smart trades, probabilities will work in your favor over the long term and you should do just fine.

Currency Trading Strategy Lab 2

2005-01-26T13:12:00.000-08:00

We have all seen the price swings of 150-250 pips that seem to come out of nowhere. I know more than a few traders who have watched these wild currency moves take place and had the natural human emotion of greed come into play. That bar on your charting package keeps moving higher and higher and higher and then suddenly you click the button to enter an order, afraid of missing out on more easy money. Well, I have news for you, you missed it! Not only did you miss it but you most likely bought at the very top. Today's strategy lab focuses on whether or not there could be a profitable trade somewhere in these wild swings and how you could take advantage of it. In situations like these, it is very hard to avoid emotion and make a sound trading decision. If we apply some rules and a system, we can take an ugly trade and turn it into a profitable one. How? By doing the exact opposite of what our emotions and quite likely other traders are doing. Remember, it is not your average Joe with a few thousand dollars and a Forex account that creates these huge swings to begin with. These moves are caused by large institutional transactions and central banks from various countries moving money. While their pockets are much deeper than that of an average trader, they too have limits on what they can and can't do. It is extremely rare to see short term moves of more than about 200-250 pips in any currency. Once a move like this has occurred, our goal is to identify it and once a top has been put in, go short to take advantage of the exhaustion and consolidation that typically follows. Here is our trade: After a move of 150-250 pips within an 8 hour period, wait for five consecutive bars on a five minute chart without a new high. Short the currency that has just made the huge move upward with a stop 5 pips above the previous high. These consolidation periods often last anywhere from 4-12 hours and will typically give up anywhere from 30-50 pips along the way. Your exit strategy can be based on a fixed number of pips from your entry point or for more experienced traders, a Fibonacci retracement level is a good target exit point.

Currency Trading Strategy Lab

2005-01-24T13:08:00.000-08:00

This week, we will feature several currency trading strategies designed to help you become a more disciplined and profitable trader. One of the questions that I am constantly being asked is which chart period is best to trade and which one I prefer. The answer to this question can be somewhat complex and is largely dependent on your individual goals as a trader. Any chart period, whether it is 1 minute, 5 minute, hourly, weekly, or monthly can produce excellent trading opportunities. As a general rule, a longer period will be better for identifying long term trends while a shorter period chart will be better suited for identifying potential swing trades and near term overbought and oversold reversals. The next question that inevitably follows is: If I am a short term trader, does that mean I can ignore long period charts? The answer is absolutely not! It is important for every trader to be aware of the big picture before entering into any currency trade. Keep in mind that currency prices tend to move in general long term trends that can last anywhere from six months to three or four years. Therefore, if you plan to make a short term trade in the direction opposite of the long term trend, it is crucial to keep a tighter stop in place than you would if you were trading with the long term trend. If you are looking for a longer term trading opportunity, you can identify the long term trend on a weekly or monthly chart and then drill down to a shorter period chart such as a daily or even an hourly chart to determine an entry point that gives you a high probability of success. The bottom line is that you must remain aware of the big picture prior to placing any currency trade. Start by examining a long term chart and writing down key levels of support and resistance (Previous Highs, Lows and major reversals), then shorten you chart period and repeat this process. Once you have reached the period in which you plan to execute your trade, compare these levels of support and resistance to the current price. You can then place your trade after the price has reversed up or down from a level of support and resistance with a stop order just below the support point that you have identified if trading long or a limit just above the point of resistance if you are trading short. Start doing this on a regular basis and you will be well on your way to becoming a profitable currency trader. Remember, always place your stops immediately when executing a trade and let mathematical probability work in your favor.

Forex Trading - Managing Risk

2005-01-21T09:20:00.000-08:00

Risk Management Tools

With the extra moneymaking power of leverage comes extra risk as well if the proper risk management tools and techniques are not put to use at all times. One of the greatest advantages of trading the Forex market is the ability to set precise "Stop" orders with every trade. This is the single most important factor in controlling risk in the Forex market. You can decide before executing a trade, the exact price at which you will exit the position if the market moves against you. This allows you to limit downside risk while allowing your profits to run when your trade does move in your direction. Unlike the equity markets, Stop orders in the currency markets are executed at the exact price you specify and nearly all reputable trading firms will provide a no slippage guarantee.

Always Use Stop Orders

Prior to entering any trade, you should decide precisely where you will exit on the downside if the market moves against you. Stop orders are your life preserver, Use them EVERY time to protect your trading capital. Where you set your stops depends on your risk tolerance and individual goals. We recommend choosing your stop in terms of a percentage of your invested capital for traders using fundamental analysis and moving averages or lines of support for technical traders. This will be covered in greater depth in chapters to follow. Don't be disappointed if you get stopped out of a trade, it is much better to exit a trade with a loss of 10 pips than a loss of 100, 200, or more. Remember, your stop order is there to protect you, you can always re-enter a trade at a lower price later. The most important thing to remember when a trade doesn't go your way is that you want to make sure that you live to trade another day. You can always let your winners run as long as you'd like so cut your losers off quickly. Once you have set your initial stop order for a trade, be sure to adjust your stop upward to lock in gains when the market moves in your direction.

Limit Orders

Like a stop order, a limit order is a precise price that you will exit a trade but this time on the upside. This can be useful in many scenarios including range bound markets where the price bounces back and fourth between to different levels or to exit a trade just below a key level of resistance. While not for everyone, some traders prefer to pick an exact price target for their trades and exit when the price reaches their target regardless of potential for additional gains.

The Trend is Your Friend

Always remember that in nature, a trend once established is more likely to continue than it is to reverse. Never bet against the trend, this is the fastest way to way for any trader or investor to loose money. I've seen countless traders go broke trying to pick tops and bottoms. The market will change directions when it is ready to change directions and nobody knows exactly where and when that will occur. The currency market moves in trends that can last anywhere from a few days to several years. Trade with the trend and keep your emotions on the sidelines and you will be successful more often than not.

Mechanics of a Currency Trade

2005-01-19T08:01:00.000-08:00

Mechanics of a Trade

Lets take a look at a basic Forex trade to give you a better understanding of how it works.

In this example, we will start with a typical margin account consisting of $3,000 US Dollars.

Based on current market conditions, you believe that the value of the U.S. Dollar will rise against the Japanese Yen.

To execute a trade based on this strategy, you will purchase U.S. Dollars and simultaneously sell Japanese Yen and wait for the exchange rate to rise in your favor. In our example, we will use a hypothetical Bid/Ask quote of 110.75/110.80 meaning that we can buy $1 USD (The Base Currency) for $110.80 Japanese Yen.

The available leverage for this trade is 100:1 or 1%

You execute your trade purchasing 1 lot or $100,000 U.S. Dollars and selling 11,080,000 Japanese Yen.

This trade requires a margin deposit of $1,000 ($100,000 Position X 1%=$1,000)

Over the next 24 hours, as you had thought USD/JPY rises to 111.52/111.57. You can now sell the Dollars that you purchased for 110.80 for 111.52. To close your position and realize your profit, you must now sell your Dollars and repurchase the Yen that you sold when opening the position.

You sell your 1 lot of U.S. Dollars. Upon closing your position, you receive 11,157,000. You originally paid/sold 11,080,00 Yen leaving the difference between 11,157,000-11,080,000 of 77,000 Yen as profit. Dividing the 77,000 Yen by the current exchange rate of 111.52 gives you your profit of $690.45 in U.S. Dollars.

Your trade summary looks like this:

Investment	$ 1,000
Profit	$ 690.45
Return	69.04%
New Account Balance	$3,690.45

Why Trade Forex?

2005-01-18T14:37:00.000-08:00

Why Trade Forex?

Forex Trading Offers Several Advantages

24 Hour Marketplace

Forex trading is a 24-hour marketplace. At any time, day or night, there are active buyers and sellers somewhere in the world trading foreign currencies. Traders can immediately respond to breaking economic news and changing market conditions. Never again will you awaken to find that the stock you just purchased gapped down by 20% in response to a company conference call reporting negative information after the market closed the day before.

Greater Liquidity

With an average trading volume nearly fifty times as large as the New York Stock Exchange, you can be certain that there is always someone willing to take the opposite side of your trade. This results is both a tighter pricing spread (The Difference between the Bid and Ask price) as well as pricing stability.

Access to Leverage

While the equity markets will provide leverage of 2:1 in the form of a margin account if you meet certain requirements of both the brokerage and the SEC, the currency markets can provide leverage of 50:1, 100:1, and even as high as 200:1. This is an extremely powerful moneymaking tool with proper risk controls in place. For example: With 200:1 margin, a trader can control $200,000 in currency with just $1000.

Commission Free

How many times have you had a profitable stock trade only to see your profits whittled away to nearly nothing after your broker takes a commission from both the entry and the exit transaction. How much do you usually pay for a trade? $9.95, $14.95, $29.99, More? Nearly all Foreign Exchange trades are free of commissions or fees meaning that traders can profit from even the smallest of price movements. In addition to the commission free trading, typical pricing spreads are as small as 2-5 Pips (1 Pip= 0.005 US Cents).

Trade Both Long and Short

Profit in both a rising and falling market. In the Forex market, you don't have to worry about whether you can find available shares to borrow in order to take a short position or being stuck paying dividends on an open short position. There are no up-tick rules, and traders may take a short position on any currency at any time without restriction.

No Day Trade Requirements

Forex traders may enter and exit positions as often as they wish without being required to maintain a minimum account balance or limit their number of trades per week as in the equity markets. This gives traders the freedom to take advantage of even the smallest trading opportunities that arise on any given day.

Understanding Forex

2005-01-17T14:49:00.000-08:00

The Foreign Exchange has long been limited to large international banks, import and export companies, hedge funds, and high net worth individuals. While the equity markets have enjoyed exponential growth thanks to the spread of online brokerages and mutual funds, the Foreign Exchange or "FX" market has remained a mystery accessible only to a privileged few. The once exclusive world of Currency trading is now gaining popularity at a rapid pace with the arrival of reputable online trading firms providing access to retail investors.

Forex trading refers to the "exchange of" or simultaneous purchase of one currency and sale of another. Unlike the equity markets where a security such as Intel (INTC) can be bought and sold at any time independent of other securities, Currencies trade in pairs with prices based on the relationship of one currency to another. The most commonly traded pairs referred to as the "Majors" are the Euro, The US Dollar, Japanese Yen, Swiss Franc, British Pound, Australian Dollar, and Canadian Dollar. Approximately 85% of all currency transactions involve the majors making them the most liquid of all trading pairs and therefore the best suited by individual traders and investors.

At first glance, the currency markets can seem confusing or intimidating. One of the most important concepts of the currency market is understanding the structure of the quotes. The most important thing to remember is that the first currency listed in the pair is considered the base currency and its value is always equal to 1. In the following example, we will use the currency pair of US Dollar vs Japanese Yen expressed as USD/JPY. The US Dollar or USD is considered the base currency. The quote will be expressed as a unit of $1 USD per the other currency, in this case the JPY. A quote of USD/JPY of 110.05 would mean that a single US Dollar is equal to 110.05 Japanese Yen. For those of you who have traveled internationally and dealt with the exchange of currency, this concept will be familiar.

Interpreting these relationships is simple when you remember that a rising quote represents an increase in value of the base currency (The currency listed First in the quote) while a falling quote represents a decrease in the value of the base currency as compared to the other currency listed in the pair.

Just as in the equity markets, when viewing a Forex quote you will see two values, one being the "Bid" and the other being the "Offer" which is also commonly referred to as the "Ask". The bid is simply the highest price that a current buyer is willing to pay for the quoted currency at any given time while the offer represents the lowest price that a current seller is willing to accept for the same transaction. The key point to remember is that the offer or ask price is the price at which you can purchase the base currency while the bid is the price that you can sell the base currency at any given time.

This becomes much clearer when you begin to see it in action. Once you participate in some sample trades, it will quickly become second nature.

Currency Trading - Forex

2005-01-17T14:44:00.000-08:00

Fact:

The Foreign Exchange Market is the largest financial market in the world!

With an average daily trading volume of over $1 Trillion, the Foreign Exchange or "Forex" market is easily the largest financial market worldwide. In fact, it is in upwards of thirty times larger that all of the U.S. equity markets combined! The intent of this e-book is to introduce your to the Foreign Exchange market and provide you with the knowledge necessary to profit from both long and short term trends in this exciting marketplace. The information that follows will show you the advantages to trading in the Forex market and provide you with the tools you need to be a successful trader.