Long hiatus

Sorry for the long hiatus guys ... will be tying some loose ends on my side and am gearing towards long term trades as opposed to intraday-scalping.

Trade safely as always :)

Euro Breaks Down on Imminent Double Dip Recession

Posted on June 1, 2010 by Yohay

EUR/USD began a fresh downfall, losing the previous support line and heading down. The market begins digesting the meaning of the austerity programs that flood the continent – a good chance of double dip recession brings the currency down – the high unemployment rate increases the chances of this. Update on the next milestones.

The debt issues have a price – money doesn’t grow on trees. No country is immune to the contagious debt diseases. Spain didn’t exit the recession anyway. Last week, the Spanish parliament hardly passed a harsh austerity program. This was a victory for the government and a relief for investors – the government is in control and the deficit is taken care of. Well, not exactly:

But this has a price – with less government spending, the chances of Spain returning to sustainable growth are slim. Spain is the fourth largest economy in the Euro zone.

Also Greece and Portugal suffer from heavy debt issues. You may say that these are isolated cases and that the stronger countries will grow and pull the zone out of its troubles.

Well, also the strong countries, Germany and France, which are the locomotives of the Euro-zone and also the Euro, are dealing with severe budget cuts. If Germany and France don’t grow – nobody grows. Europe already suffers from a very minimal rate of growth. A return to economic contraction will probably be seen in Q2 of 2010 and further on – a double dip recession.

Germany is currently strong, with another drop in the number of unemployed people – 45,000, much more than the early expectations of 18,000. This follows a surprise last month (67,000). But as aforementioned, Germany cannot carry the Euro-zone all by itself.

The all-European unemployment rate edged up to 10.1%. While this was expected by economists, the high rate is big burden on the Euro as well. Despite economic growth, the unemployment rate continues to be high. With another recession – it can climb even higher.

The Euro pays the price

Euro/Dollar broke below 1.2142 and already reached 1.2120. The move continues. The next barrier for the pair is the round number of 1.20. This wasn’t a technical line of support or resistance in the past – only a psychological number that was quoted lots of times in the news. There’s more room to drop:

The next line of support is already a stronger one – 1.1820 – this was a strong line of support about 4 years ago. The ultimate line of support is at 1.1630 – the lowest level for the common currency since 2003. The Euro will probably stall before breaking down below this line.

If the pair recovers, the next levels of resistance are 1.2331, the “Lehman levels” (2008 lows) and then 1.2460 – which was a technical barrier last week.

Central bank cooperation after the global financial crisis

Video address by Jean-Claude Trichet, President of the European Central Bank,
at the Bank of Korea International Conference 2010,
Seoul, 31 May 2010

Ladies and Gentlemen,

First, let me congratulate the Bank of Korea on its 60th anniversary.

The bank has made essential contributions in Korea’s economic development, the reform of the country’s financial system and its integration into the global financial system. The clear focus on controlling inflation and the strengthened independence further buttressed the role of Bank of Korea in the economy. And recently, the Bank’s timely and decisive measures helped Korea weather the global financial crisis. Hence, there are many reasons to congratulate and wish Bank of Korea a very happy birthday!

* * *

Let me now say a few words about central bank cooperation during and after the crisis, which the Bank of Korea is so closely involved in.

The cooperation among central banks has recently taken numerous forms, such as information sharing and the setting of general standards and rules. Such cooperation has been mainly channelled through the various fora at the Bank for International Settlements (BIS) in Basel. These include the Governors’ Global Economy Meeting and the other committees that meet under the aegis of the BIS as well as the Financial Stability Board. The Global Economy Meeting comprises the esteemed Governor Kim and some 30 other governors from all systemically important economies. It is held every two months in Basel and provides a unique opportunity to discuss the global economic outlook, policy challenges as well as any other topics of mutual interest.

Until January this year, the Global Economy Meeting was primarily concerned with assessing global economic and financial conditions. Since then, it was entrusted with an additional assignment: it now provides guidance to, and formally decides on, issues discussed by the various Basel-based central bank committees. This responsibility had been in the hands of G10 Governors for decades. I have the privilege to chair the Global Economy Meeting and find the frank and in-depth discussions of invaluable importance for my own work and for the central bank community at large.

Central bank cooperation is part of a more general trend that is reshaping global governance, and which has been spurred by the global financial crisis. One distinctive aspect of this crisis has been its originating in industrial economies. Emerging countries have also been severely affected, but as a group remained a source of strength for the world economy. It is therefore not surprising that the crisis has led to even better recognition of their increased economic importance and need for full integration into global governance. The enhanced role of the Global Economy Meeting I just described reflects exactly this recognition.

* * *

Optimal arrangements for global governance are difficult to find. Global governance –like all collective decision-making – always faces a trade-off between efficiency and legitimacy. Therefore, devising institutions for collective decision making is always a delicate balancing act, even more so at the global level.

The international community has identified the G20 as the premier forum for international economic cooperation. The G20 includes 11 emerging economies and Korea holds the presidency this year. The G20 has already been in existence for over a decade. But the main innovation at this point is to set it up as the key forum for strategic global impulse at the level of the leaders, as well as at the level of Ministers of Finance and Governors of central banks. I therefore wish the Korean presidency a successful steering of this body during the course of this year.

* * *

Let me express my profound gratitude to Mr Lee, former Governor of the Bank of Korea, for the fruitful cooperation between our central banks during his tenure, for his contributions to the Global Economy Meeting and, above all, for his friendship.

I would like to once again congratulate Mr Kim on his appointment as new Governor. I am very much looking forward to working with him.

I am confident that we will continue to build on the cordial relations between the Bank of Korea and the ECB, not only in the context of the aforementioned multilateral policy meetings, but also on occasions such as bilateral meetings and the annual Bank of Korea Central Banking Seminar, which ECB staff always find very constructive and enjoyable.

Best wishes from the ECB and, once again: happy birthday!

European Central Bank
Directorate Communications
Press and Information Division
Kaiserstrasse 29, D-60311 Frankfurt am Main
Tel.: +49 69 1344 7455, Fax: +49 69 1344 7404
Internet: http://www.ecb.europa.eu

Reproduction is permitted provided that the source is acknowledged.

Creating a trading plan | Bradley Gareiss | FX360®

Creating a trading plan | Bradley Gareiss | FX360®

Forex Trading involves high risks, with the potential for substantial losses and is not suitable for all persons. Past performance is not necessarily indicative of future results.

A trading plan is a must. I would be will to bet that virtually all successful traders have one. However, most new traders have no plan. In fact, I bet most new traders barely even have actual reasons for entering a trade. Imagine that you are planning to loan money to a new business as an investment. Could you picture yourself lending money to this person if they had no business plan and said they were going to start their business based on "their gut"? Of course a person would never be able to start a business by relying only on their gut. However, plenty of new traders start trading in exactly that manner.

Creating a trading plan is actually relatively easy. There are several core requirements that make up the plan. In my opinion, the main components of a trading plan are:

Trading objective (goals).

What and when to trade.

Money management.

The edge (trading strategy that puts the probabilities in your favor or a long sequence of trades).

Documentation and analysis of the results.

First, we have to define our trading objectives. Why are you trading? What is your end goal? Most new traders have completely unrealistic goals. For instance, a new trader might wan their $10,000 investment turn into $100,000 in their first year. While this is possible, it is highly improbable. These unrealistic expectations kill off a lot of traders before they ever had a chance. I think breaking even in the first year is an admirable goal; many traders do not do that. If a trader makes 20-30% on their initial investment in their first year, that is outstanding.

Next, we have to determine the basic outline of how to get there. What currency pairs (or other financial instruments) will you trade? This sounds simple, but it is easy to get off track by not defining this. I am in favor of utilizing as many pairs as you can comfortably manage, but I would not waste time with illiquid, choppy pairs. Other traders love choppy pairs. It's up to you. You also have to determine when you will trade and how often you will trade. Are you going to be a day trader or hold positions for a longer period of time? Your schedule and responsibilities may have some impact on that. But it is important to define these basic ideas to begin to form some consistency.

Money management is probably the most important aspect of trading. Would you rather have a fund manager who was a great analyst, but used poor money management? Or would you rather have a manager who was an average analyst, but used perfect money management? I think the answer is obvious. Even the best analyst will eventually blow out their account if they don't manage their risk properly. First, you need to determine how much risk capital you have to fund you account. Then you must determine how much you will risk on each trade. Most traders risk 1-3% of their account balance on each trade. This may sound low to the inexperienced, but after you blow our your account while risking too much, you will see why 1-3% is appropriate. It is also important to determine what your minimum risk:reward ratio will be. This could vary based on your overall trading strategy. Then calculate what your break-even winning percentage is. For instance, if your minimum risk:reward ratio is 1:2, you must win one out of three trades to break even.

Along with money management, it is vital to have an "edge". An edge puts the probabilities in your favor and allows you win more than you lose in the long run. Without an edge that makes you money over time, proper money management will only delay the inevitable as your account dwindles. There are many different methods to acquire this edge, but it is important to find one that is compatible with you. Also, back-testing may offer some help in determining an edge, but I think its value is overvalued. I think the true test of an edge is actually using it for future to trades, which will expose flaws in your execution of the strategy that back-testing won't.

The final step is to keep track of your results. I typically have a spreadsheet that has the following fields at the top of the page:

Date

Symbol (e.g.- EUR/USD)

Action (buy or sell)

Lots (how many lots were bought/sold)

Risk (in dollars)

Profit potential (in dollars; you need one column for each profit target you have in your strategy)

Result (profit/loss in dollars)

Equity (account balance after the trade has closed)

Notes (to keep track of anything I want to remember about this trade)

This format makes tracking results very simple. Please notice I track everything in dollars because that is true unit of measure, not pips. This format also makes it very easy to plot your account equity curve on a chart. There are a ton of statistics we can draw from this information that would take too long to write on this feature. However, the biggest perk of tracking your trades is that you look at the big picture. If you don't write down this information, you will weight the past 3 trades very heavily and maybe be able to remember the past 10 trade results (but I doubt it). This spreadsheet will allow you to identify problems with your overall plan and trading strategy so you can fix them.

This is a pretty basic start to having a trading plan. Experienced traders know that many more details are eventually inserted into this template to prevent mistakes and encourage good habits. However, I feel the above is the bare minimum required to developing a viable trading plan.

5 Notes for Non-Farm Payrolls Trading

The release of the American Non-Farm Payrolls is a circus in the forex market. Here are a 5 notes to watch out for in every Non-Farm Payrolls release during the financial crisis:

Note number 5 is the most important one – the knee jerk reaction.

1. New traders – stay away: Trading during this volatile period is very risky. Take a break and enjoy the weekend.
   
   
2. Action before the release: Strange moves begin in the markets well before the release at 13:30 GMT. This usually reflects the expectations – expectations which aren’t necessarily met, and they can lead to a counter reaction afterwards. Jittery trading intensifies with the release of the Canadian employment figures, an hour and a half before the American ones.
   
   
3. Friday effect: Strong moves in a certain direction – either dollar strength or dollar weakness, can be seen hours after the release, usually in the last hour of the London session – between 16:00 to 17:00 GMT. This is the move that will determine the close of the week, and thus have a real long term effect. This is the full reaction.
   
   
4. Technical barriers can be broken – support and resistance lines, uptrend support or downtrend resistance lines can be breached around the release of the NFP. This is usually only temporary – the graph returns to normal after a while, and these lines are respected again.
   
   
5. Initial reaction is wrong: the initial reaction to the release is in the wrong direction: the knee jerk reaction is usually “normal”: good data yields dollar strength and bad data yields dollar weakness. This is very temporary! We are still in the global crisis, and the risk factor rules. So, minutes after the “normal” reaction, the risk factor kicks in and eventually the opposite happens: good data yields dollar weakness (risk appetite), while bad data yields dollar strength (risk aversion).

Original Source

Back to the Drawing Board

The EURUSD did not go as I have thought it would technically due to some factors which may or may have not influenced its current trend:

1. AUD raised interest rates.
2. Oil dealers ditching US dollars
3. Gold hitting a record high
4. Goldman Sachs big bank upgrades
5. People believing that we are on the road to recovery.

So, what's next? I'll have to divorce the thoughts of shorting this pair.

Note to self

Never initiate a trade:

1. When Japan opens.
2. Before 10am (+8GMT).