Tuesday, December 26, 2006

ICWR

My latest readings .. Forex Trading Strategy - by Quantum Globe Inc.
The system presented is called Impulsive/Corrective Wave Retracement or ICWR in short..

Overall system is impressive.. Your money is well protected and you would hardly fall on the losing site.. But the bad side is, it would be taking forever until you would have your entry signal and you would actually missed out making that few pips.

Also, the exit signal are a little impractical cause you would probably loose a vast amount of pips until you really decide to exit the trade.

Overall system rating is 4/5
p/s: Would be a great system if you know some other exit trading strategies.

If you're interested in reading the ebooks. Go here. Login and pass is: download

Sunday, December 24, 2006

Using Currency Correlations To Your Advantage

Another interesting finds.. For an updated correlation tables go to this link http://fxtrade.oanda.com/currencyCorrelations/index.html

To be an effective trader, understanding your overall portfolio's sensitivity to market volatility is important. But this is particularly so when trading forex. Because currencies are priced in pairs, no single pair trades completely independently of the others. Once you know about these correlations and how they change, you can take advantage of them to control over your portfolio's exposure.
Defining Correlation
The reason for the interdependence of currency pairs is easy to see: if you were trading the British pound against the Japanese yen (GBP/JPY pair), for example, you are actually trading a kind of derivative of the GBP/USD and USD/JPY pairs; therefore, GBP/JPY must be somewhat correlated to one if not both of these other currency pairs. However, the interdependence among currencies stems from more than the simple fact that they are in pairs. While some currency pairs will move in tandem, other currency pairs may move in opposite directions, which is in essence the result of more complex forces. 

Correlation, in the financial world, is the statistical measure of the relationship between two securities. The correlation coefficient ranges between -1 and +1. A correlation of +1 implies that the two currency pairs will move in the same direction 100% of the time. A correlation of -1 implies the two currency pairs will move in the opposite direction 100% of the time. A correlation of zero implies that the relationship between the currency pairs is completely random.

Reading The Correlation Table

With this knowledge of correlations in mind, let's look at the following tables, each showing correlations between the major currency pairs for the month of March 2005.




 

The upper table above shows that over the month of March (one month) EUR/USD and AUD/USD had very strong positive correlation of 0.94. This implies that when the EUR/USD rallies, the AUD/USD will also rally 94% of the time. Over the longer term (three months), though, the correlation is slightly weaker (0.47).

In contrast, the EUR/USD and USD/CHF had a near-perfect negative correlation of -0.99. This implies that 99% of the time, when the EUR/USD rallies, USD/CHF will undergo a selloff. This relationship even holds true over longer periods as the correlation figures remain relatively stable.




Yet correlations do not always remain stable. Take USD/CAD and NZD/USD, for example. With a coefficient of -0.94, they had a strong negative correlation over the past year, but the relationship deteriorated over March 2005 for a number of factors,  including the Reserve Bank of New Zealand's intentions to resume rate hikes, and political instability in Canada.

Correlations Do Change
It is clear then that correlations do change, which makes following the shift in correlations even more important.Sentiment and global economic factors are very dynamic and can even change on a daily basis.Strong correlations today might not be in line with the longer-term correlation between two currency pairs.That is why taking a look at the six-month trailing correlation is also very important.This provides a clearer perspective on the average six-month relationship between the two currency pairs, which tends to be more accurate.Correlations change for a variety of reasons, the most common of which include diverging monetary policies, a certain currency pair’s sensitivity to commodity prices, as well as unique economic and political factors.

Here is a table showing the six-month trailing correlations that EUR/USD shares with other pairs:





Calculating Correlations Yourself
The best way to keep current on the direction and strength of your correlation pairings is to calculate them yourself. This may sound difficult, but it's actually quite simple.

To calculate a simple correlation, just use a spreadsheet, like Microsoft Excel. Many charting packages (even some free ones) allow you to download historical daily currency prices, which you can then transport into Excel. In Excel, just use the correlation function, which is =CORREL(range 1, range 2). The one-year, six-, three- and one-month trailing readings give the most comprehensive view of the similarities and differences in correlation over time; however, you can decide for yourself which or how many of these readings you want to analyze.

Here is the correlation-calculation process reviewed step by step:

  1. Get the pricing data for your two currency pairs; say they are GBP/USD and USD/JPY

  2. Make two individual columns, each labeled with one of these pairs. Then fill in the columns with the past daily prices that occurred for each pair over the time period you are analyzing

  3. At the bottom of the one of the columns, in an empty slot, type in =CORREL(

  4. Highlight all of the data in one of the pricing columns; you should get a range of cells in the formula box.

  5. Type in comma

  6. Repeat steps 3-5 for the other currency

  7. Close the formula so that it looks like =CORREL(A1:A50,B1:B50)

  8. The number that is produced represents the correlation between the two currency pairs

Even though correlations do change, it is not necessary to update your numbers every day, updating once every few weeks or at the very least once a month is generally a good idea.

How To Use It To Manage Exposure
Now that you know how to calculate correlations, it is time to go over how to use them to your advantage.

First, they can help you avoid entering two positions that cancel each other out, For instance, by knowing that EUR/USD and USD/CHF move in opposite directions nearly 100% of time, you would see that having a portfolio of long EUR/USD and long USD/CHF is the same as having virtually no position - this is true because, as the correlation indicates, when the EUR/USD rallies, USD/CHF will undergo a selloff. On the other hand, holding long EUR/USD and long AUD/USD is similar to doubling up on the same position since the correlation is so strong.

Diversification is another factor to consider. Since the EUR/USD and AUD/USD correlation is traditionally not 100% positive, traders can use these two pairs to diversify their risk somewhat while still maintaining a core directional view. For example, to express a bearish outlook on the USD, the trader, instead of buying two lots of the EUR/USD, may buy one lot of the EUR/USD and one lot of the AUD/USD. The imperfect correlation between the two different currency pairs allows for more diversification and marginally lower risk. Furthermore, the central banks of Australia and Europe have different monetary policy biases, so in the event of a dollar rally, the Australian dollar may be less affected than the Euro, or vice versa.

A trader can use also different pip or point values for his or her advantage. Lets consider the EURUSD and USDCHF once again.  They have a near-perfect negative correlation, but the value of a pip move in the EURUSD is $10 for a lot of 100,000 units while the value of a pip move in USDCHF is $8.34 for the same number of units. This implies traders can use USDCHF to hedge EURUSD exposure.

Here's how the hedge would work: say a trader had a portfolio of one short EUR/USD lot of 100,000 units and one short USD/CHF lot of 100,000 units. When the EUR/USD increases by ten pips or points, the trader would be down $100 on the position. However, since USDCHF moves opposite to the EURUSD, the short USDCHF position would be profitable, likely moving close to ten pips higher, up $83.40. This would turn the net loss of the portfolio into minus $16.60 instead of minus $100. Of course, this hedge also means smaller profits in the event of a strong EUR/USD sell-off, but in the worst-case scenario, losses become relatively lower.

Regardless of whether you are looking to diversify your positions or find alternate pairs to leverage your view, it is very important to be aware of the correlation between various currency pairs and their shifting trends. This is powerful knowledge for all professional traders holding more than one currency pair in their trading accounts. Such knowledge helps traders, diversify, hedge or double up on profits.

Summary
To be an effective trader, it is important to understand how different currency pairs move in relation to each other so traders can better understand their exposure. Some currency pairs move in tandem with each other, while others may be polar opposites. Learning about currency correlation helps traders manage their portfolios more appropriately. Regardless of your trading strategy and whether you are looking to diversify your positions or find alternate pairs to leverage your view, it is very important to keep in mind the correlation between various currency pairs and their shifting trends.

By Kathy Lien.

Monday, December 18, 2006

Forex Ebooks

A few books I've been reading about forex these few days which I like to share with others.
  1. Forex Trading With Candlestick And Pattern
    -everything you need to know about candlestick patterns. Highly recomendable.
  2. Forex for Everyone Revised
    -a nice trading system but the system only use the 5 minute bar chart and more likely to give you a late indication. Would be nice if you know other trading method to comfirm your trading decission
  3. How to Trade The Forex like a Pro in One Hour
    - from Peter Bain, the trading system he introduce is pretty good too. But you need to be really good at money management and "exit trade" to fully maximize the profits.
  4. Trading International - Trading For A Living In The Forex Market
    -have'nt finished reading this yet

Go here to download these books. The login and pass is: download

Saturday, December 16, 2006

Trading plan & MMTS

Its been a while since my lost post. Been studying forex real hard.. Below some more good tips Ive learnt through out the weeks.

TRADING PLAN TRADING SENARIOS

1. SET-UP PROCEDURES:

  • Review the daily, hourly, and 15 minute charts for market analysis, and to determine trend direction.
  • Execute all trades off the 5 minute chart, to get a good entry, with limited risk.
  • Tade in the direction of the hourly trend, using the 15 minute chart.
  • Monitor all chart time-frames on a frequent basis, to help determine required action.
  • Wait for a confluence of events. Give trades a higher probability of success, by executing upon a trendline break and/or pivot point breach, confirmed by other indicators, or candle/chart formations.

2. Trading Scenarios:

  • EXECUTE A TRADE, UPON BREACH OF A PIVOT POINT, AFTER THREE CLOSES ON THE 5 MINUTE CHART, CONFIRMED BY AN INDICATOR.
  • EXECUTE A TRADE, UPON A TRENDLINE BREAK, WHEN YOU SEE MACD DIVERGENCE,DURING ANY TIME-FRAME.
  • EXECUTE A TRADE, UPON A TRENDLINE BREAK, WHEN YOU SEE A 1-2-3 M-TOP FORMATION, CONFIRMED BY AN INDICATOR.
  • EXECUTE A TRADE, UPON A TRENDLINE BREAK, WHEN YOU SEE A 1-2-3 W-BOTTOM FORMATION, CON FIRMED BY AN INDICATOR.
  • EXECUTE A TRADE, UPON A TREN DLINE/NECKLINE BREAK, WHEN YOU SEE A HEADS SHOULDERS TOP FORMATION.
  • EXECUTE A TRADE, UPON A TREN DLINE/NECKLINE BREAK, WHEN YOU SEE A HEADS SHOULDERS BOTTOM FORMATION.
  • EXECUTE A TRADE, UPON A TREN DLINE BREAK, WHEN YOU SEE A DOUBLETOP FORMATION, WITH STOCHASTICS OVERBOUGHT.
  • EXECUTE A TRADE, UPON A TRENDLINE BREAK, WHEN YOU SEE A DOUBLE BOTTOM FORMATION, WITH STOCHASTICS OVERSOLD.
  • EXECUTE A TRADE, UPON A TRENDLINE BREAK, WHEN A PIVOT POINT IS BREACHED, VALIDATED BY A TREND INDICATOR.
  • EXECUTE A TRADE, UPON A TRENDLINE BREAK, WHEN YOU SEE MACD NEUTRALIZATION, AFTER A BIG RUN-DOWN, OR RUN-UP IN PRICE.
  • EXECUTE A TRADE, PREFERABLY AFTER A TRENDLINE BREAK, WHEN RAILWAY TRACKS ARE FORMED, AFTER A BIG RUN-DOWN, OR RUN-UP IN PRICE.
  • EXECUTE A TRADE, PREFERABLY AFTER A TRENDLINE BREAK, WHEN A HAMMER IS FORMED, AFTER A BIG RUN-DOWN, OR RUN-UP IN PRICE.

MMTS - Monika Momentum Trading System:
Works best with the GBP/USD pair.

  • Use the 15 min chart for a currency of your choice.
  • Find out the high and the low for the 8:30-9:00 time frame.
  • Then buy when price goes 4 pips above the high, or sell when price goes 4 pips below
  • Do only one trade.
  • Do not buy and sell.
  • Buy OR sell, whichever comes first
  • Do not trade this system, if one of the bars in the specified timeframe is over 50 pips.The market usually breaks after 9 am in the direction in which it will trade most of the day. If it breaks to the high side, expect a day of buying; if it breaks to the low side, expect a day of selling.You can usually grab 20-50 pips by trading this way. Use exit strategies taught in this course. This rule works great on its own but, if you combine other factors such as: reversal candles, trendline break, MACD, you can have a winning trade 95% of the time. I back-tested this rule for every single day of this year, and I trade this system successfully.

Sunday, December 10, 2006

5 Most Watched Indicators

More tips n info in forex..

Trade Currency Using News - 5 Most Watched Indicators

Trade Using News: 5 Most Watched Indicators
Currencies do not become weaker or stronger randomly. A large portion of a currency's value is based on confidence in the economic strength of the country. Economic strength is judged by certain key indicators that are closely watched in FX trading. When these economic indicators change, the value of a currency will fluctuate. A currency is a proxy for the country it represents and the economic health of that country is priced into the currency.
Fundamental releases have become increasingly important market movers. When focusing on the impact that economic numbers have on price action in the FX market there are 5 indicators that are watched the most because of their potential to generate volume and to move prices in the market.
Why Does Economic News Impact Short-Term Trading?
The data itself is not as important as whether or not it falls within market expectations. Besides knowing when all the data is released, it is vitally important to know what economists are forecasting for each indicator. For example, knowing the economic consequences of an unexpected monthly rise of 0.3% in the Consumer Price Index, the Actual, is not nearly as vital to your short-term trading decisions as it is to know that this month the market was looking for CPI to fall by 0.1%, the Consensus.
Analyzing the longer-term ramifications of an unexpected monthly rise in prices can wait until after you've taken advantage of the short term trading opportunities presented by the data typically within the first thirty minutes following the release. Market expectations for all economic releases are published on our calendar and you should track these expectations along with the release date of the indicator.

Average Pip Ranges
1.Non Farm Payrolls - UnemploymentAvg. Move: 124 Pips
2.FOMC Interest Rate DecisionsAvg. Move: 74 Pips
3.Trade BalanceAvg. Move: 64 Pips
4.CPI - InflationAvg. Move: 44 Pips
5.Retail salesAvg. Move: 44 Pips

* 2004 Data from DailyFX Research
1. Non Farm Payrolls – Unemployment
The unemployment rate is a measure of the strength of the labor market. One of the ways analysts gauge the strength of an economy is by the number of jobs created, and the percentage of workers unable to find jobs. Strong job creation is indicative of economic growth, as companies must increase their workforce in order to meet demand.
Release Schedule: First Friday of the month at 8:30am EST
2. FOMC Interest Rate Decisions
The Federal Open Market sets the discount rate, which is the rate at which the Federal Reserve Bank charges member banks for overnight loans. The rate is set during the FOMC meetings by the regional banks and the Federal Reserve Board.
Release Schedule: 8 meetings scheduled per year. Date is known in advance so check the economic calendar
3. Trade Balance
The balance of trade measures the difference between the value of goods and services that a nation exports and the value of goods and services that it imports. A trade surplus results if the value of exported goods exceeds that of imported goods, whereas a trade deficit exists if imported goods exceed exported goods.
Release Schedule: Generally released around the middle of the second month following the reporting period. Check the economic calendar
4. CPI – Consumer Price Index
The CPI is a key gauge of inflation, as it measures the price of a fixed basket of consumer goods. Higher prices are considered negative for an economy, but since central banks often respond to price inflation by raising interest rates, currencies sometimes respond positively to reports of higher inflation.
Release Schedule: Monthly - around the 13th of each month at 8:30am EST
5. Retail Sales
Retail sales is a measure of the total goods sold by a sampling of retail stores. It is used as a gauge of consumer activity and confidence as higher sales figures would indicate increased economic activity.
Release Schedule: Monthly - around the 11th of each month at 8:30am EST

Sunday, December 03, 2006

Trendline Backside Forex Strategy: Getting In At The Optimum Price

As I was googling on Tom DeMark method I found this article which i find it usefull.. So I'm pasting it for later notes.


Knowing how to utilize the power of trendlines as part of your forex strategy can make a big difference to your profits. Getting in at the right level results in more pips which can accumulate steadily.

Two methods of drawing trendlines are:

1. The common sense method. By just running the eye over a candle chart, it is easy to identify a series of lower highs or higher lows. Drawing a trendline across the tops or the bottoms will indicate where price is likely to bounce in the future.

It is not necessary to be obsessive about the trendline having to touch exactly all the highs and lows. In some cases they may touch the bottom of some candle shadows, in other cases, they may touch the bodies of the candles.

2. The Tom DeMark method. Tom DeMark, a highly respected market analyst, suggests connecting the last high with the previous high in a downtrend and extending the line past current price action OR connecting the last low with the previous low in an uptrend and extending the line past current price action.

Highs are candles that have lower candles adjacent to them on the left and right and lows are candles that have higher candles adjacent to them on the right and left.

These trendlines can be regularly updated as new highs and lows are formed.

Many traders enter a trade on the break of a trendline as part of their forex strategy. That works for many.

However, there is a way to use trendlines to ensure an optimum entry point.

Often, not always, price will break a trendline and move away 10 or 20 pips. Then, it comes back to test the backside of that trendline. That’s where you enter the trade.

If the trendline break coincides with your other favorite indicators such as pivot points, Fibonacci calculations, set an entry order for price to take you in when it comes back to test that level.

That way you enter the trade at an optimum level and squeeze even more pips out of the move.

Of course, price may not come back to test the backside of the trendline so your order doesn’t get taken in and you miss the move. No problem. As a trader patience is an essential quality you develop as a part of your forex strategy. You simply wait for the next time!

Michael A. Jones is a writer and webmaster with over 10 years experience who also trades the forex regularly. For screen shots of trade entries using trendlines go to this page:

http://www.vitalstop.com/Forex/forex-strategy-trendline-backside.html

Click here for his advice for absolute beginners:

http://www.vitalstop.com/Forex/learn-to-trade-the-forex.html

Michael has also put together a list of key free resources which he finds invaluable:

http://www.vitalstop.com/Forex/forex-directory-free-resources.html

Article Source: http://EzineArticles.com/?expert=Michael_A._Jones

The good and the bad trading hours

Here are some more trading times, that I find it usefull.. Pls note that all times are Eastern Time (ET hours).

If we allow the 3 am ET hour to be an arbitrary 100 representing the big price moves then:


3 AM

4AM

5AM

6AM

7AM

8AM

9AM

10AM

11AM

NOON

100

41

36

5

27

18

36

45

45

18

1 PM

2 PM

3 PM

4 PM

5 PM

6 PM

7 PM

8 PM

9 PM

10PM

41

5

32

18

23

18

23

14

18

5

11 PM

12 PM

1 AM

9

0

5



The 9 am– pm block moves more than the first three London hours.
2 am ET: Weak
3 am ET: London open hour (EUR/USD) - best hour for price movement.
4 am ET – 5 am ET: ~ 40% of 3 am price movement
6 am ET: Lull
7 am ET: Picks up again
9 am through 1 pm ET: Stronger (more action than 3 am – 5 am)

Summary: 3am - 5am has almost the same number of big price moves as 9 am - 1 pm