Hi All,
Today lets find out how come currency pairs always keep circling around the same price range and even if they move on to a larger value, it takes place over a period of 20-30 years and not much sooner. Lets take GBPJPY for example. We all know that pound is a very strong currency, yen is weak, the carry trade stuff is also very strong. So why does the pair simply not shoot up and keep going to 300 or 400 or whatever. The pair has a daily range of about 150 pips and so if the trend is so favorable for the longs, it should be able to reach 300 within 2-3 mnths but that never happens. Why?
The value of a currency depends on the underlying economy. The value of the pound depends on the British economy, the value of the yen depends on the Japanese economy etc. This is the reason why the value of the currency pairs change based on the announcement of various economic news pertaining to each country. Now lets assume that GJ pair shoots upto 300 within this month from its present price of 243. Now assume that a exporter in Britain exports a car part and gets paid say 1000 yen per hour of work put in. So today he would be making around 4 pounds per hour. Next month, when the GJ value increases to 300, he would be making less than 3.5 pounds per hour. If he puts in 100 hrs of work for every car part, it means that he loses 50 pounds on each part that he makes.
This is just one example of a single trader. I am sure that all of you understand that this is a very minute and lame example but this is just to show the effect of an uncorrected rise. So in the above situation, the trader faces huge losses and this is the situation for all exports to Japan from Britain. So the money got by Britain through its trade gets hit to a great extent and this immediately reflects on the British economy and you have losses, slowdown etc. in the next month. When this news releases, everyone understands that the economy is in a downtrend and the value of the pound goes down. On the other side, Japanese exports would get a huge boost as previously, for every pound that he got for his service, the manufacturer would get only 243 yen but now he would start getting 300 yen which would lead to a 20% increase in his profits and this would make the Japanese economy very very strong. This would also get reflected in the economic news of Japan and so next month, the realisation would arrive that British economy is weak and Japan economy is strong and so the price of the currency pair would then automatically correct itself to reflect this change.
This is what is happening to all the USD pairs over the past month. EU went upto 1.36 or 1.36 and GU went upto 2.0 due to excellent economic news from Europe and bad news from USA. Now due to this high change in the value, the British and euro economy could not sustain themselves as they dont get the same returns from the USA (monetarily) like they used to while USA got higher returns due to a cheaper dollar. So this month we see stronger economic news from USA and weaker ones from Europe and we see that the currency pairs then have started adjusting themselves.
Please understand that there are other factors involved like rates, inflation, bank intervention etc. but the above is essentially the basic idea why currency pairs restrict themselves to a specific range over a period of time.
Happy Trading!!
Sunday, June 17, 2007
New Feature added to blog...
Hi All,
With growing number of visitors to the blog, i thought this would be a good time to add a new feature to this blog. You can see this new feature on the right sidebar where we have a chat box. All you have to do is enter ur nickname (it can be anything) and then enter a message for you to chat with me or anyone else on the blog. Please keep your messages as short as possible and your message can be about anything. It can be about what you feel is the trend or your entry point or a question to another user of this blog or a question to me. Whenever i visit my blog, i will surely answer any questions addressed to me. I thought this would be easier for the users than entering any comments for articles.
I really want to make this blog more interactive and so i thought this would be a good way of achieving that. Lets hope that this chat feature would be of good use to all of us.
I would also try and write down as many articles as possible to cater to the needs of our ever increasing audience.
Happy Trading!!
With growing number of visitors to the blog, i thought this would be a good time to add a new feature to this blog. You can see this new feature on the right sidebar where we have a chat box. All you have to do is enter ur nickname (it can be anything) and then enter a message for you to chat with me or anyone else on the blog. Please keep your messages as short as possible and your message can be about anything. It can be about what you feel is the trend or your entry point or a question to another user of this blog or a question to me. Whenever i visit my blog, i will surely answer any questions addressed to me. I thought this would be easier for the users than entering any comments for articles.
I really want to make this blog more interactive and so i thought this would be a good way of achieving that. Lets hope that this chat feature would be of good use to all of us.
I would also try and write down as many articles as possible to cater to the needs of our ever increasing audience.
Happy Trading!!
Saturday, June 16, 2007
How good or bad are brokers??
Hi All,
Now is the time to talk about brokers. I have seen many articles on how big cheats our brokers are, what all they do to take our money and all that. But i did not trust any of these articles. I thought that all these articles were rants of people who lost a lot in trading. I firmly believed that trading depends only on us and how we handle it. But over the last one or two weeks i have also started believing these things.
I do not have experience with lot of brokers. I have had only 2 or 3 brokers over the last 5 years. Since i am going to talk about them, i would not want to name them. Everyone knows that during times of news releases, the brokers suddenly increase the pip spreads. They advertise that their pip spreads are the lowest and all that but without warning they increase the spreads during news catching the traders unawares.
This is the simplest part cos this is something that we expect. Another worse thing is what is called as stop hunting. The brokers look for where people have placed their stops and then make sure that the prices move to take out the majority of the stops even though the actual price would be different. In case of mini accounts and people with no stop losses, they make sure that they move the price so the the account gets closed out. It happened about 2 weeks before for me when my stop loss was hit by one pip (the low for the day according to the broker was 1 pip less than the SL for my long) though the other brokers had much higher lows for that day. You cannot do anything about this. The best way is to have good money management.
Next is the new concept of 'At best' prices. Till a few weeks back, my broker used to give me the price for which i clicked but if the market is volatile and the price moves, he simply throws a message saying that he cant get the price for me and so does not take or close the trade. Lately, my broker has launched a new option called 'At Best' price where he says that if he is not able to get the price for which i clicked, he would get me the next best available price. Theoratically, i have both the options of either choosing to get the price shown or choose the 'at best' option. But i find that always, when i click to buy or sell at the price shown on the screen, it always says that the price has moved (even though i can clearly see that the price remains the same for the next 10 seconds even after the message that the price has moved is shown). When i enquired with the broker about this, he asks me to choose 'at best' option for all trades. In other words, even though i have both options and even though the 'at best' option is something to be used only under highly volatile conbditions, i am indirectly forced to choose the 'at best' option for all my trades.
What does the broker get by me choosing the 'at best' option? Lets say, that my broker says that the spread for GBPJPY is 7 pips...so he takes around 7 pips as charges for every trade of mine. By forcing me to choose the 'at best' option, it means that he can give me any price which in turn means that he can charge me extra 2-3 pips and i can do nothing about it. When the price on screen shows 239.10 and i am forced to choose 'at best' option, he can give the lot at a price of 239.13 and i can do nothing about it. This way the broker makes extra 2-3 pips from every trade.
These are some of the ways brokers make money and i am sure that there are other ways as well. The best way to win against this is to have good money management, have enough money to sustain even huge losses and not try to act too smart or cute. Remember that there are always people who are way smarter and way powerful than us.
Happy Trading!!
Now is the time to talk about brokers. I have seen many articles on how big cheats our brokers are, what all they do to take our money and all that. But i did not trust any of these articles. I thought that all these articles were rants of people who lost a lot in trading. I firmly believed that trading depends only on us and how we handle it. But over the last one or two weeks i have also started believing these things.
I do not have experience with lot of brokers. I have had only 2 or 3 brokers over the last 5 years. Since i am going to talk about them, i would not want to name them. Everyone knows that during times of news releases, the brokers suddenly increase the pip spreads. They advertise that their pip spreads are the lowest and all that but without warning they increase the spreads during news catching the traders unawares.
This is the simplest part cos this is something that we expect. Another worse thing is what is called as stop hunting. The brokers look for where people have placed their stops and then make sure that the prices move to take out the majority of the stops even though the actual price would be different. In case of mini accounts and people with no stop losses, they make sure that they move the price so the the account gets closed out. It happened about 2 weeks before for me when my stop loss was hit by one pip (the low for the day according to the broker was 1 pip less than the SL for my long) though the other brokers had much higher lows for that day. You cannot do anything about this. The best way is to have good money management.
Next is the new concept of 'At best' prices. Till a few weeks back, my broker used to give me the price for which i clicked but if the market is volatile and the price moves, he simply throws a message saying that he cant get the price for me and so does not take or close the trade. Lately, my broker has launched a new option called 'At Best' price where he says that if he is not able to get the price for which i clicked, he would get me the next best available price. Theoratically, i have both the options of either choosing to get the price shown or choose the 'at best' option. But i find that always, when i click to buy or sell at the price shown on the screen, it always says that the price has moved (even though i can clearly see that the price remains the same for the next 10 seconds even after the message that the price has moved is shown). When i enquired with the broker about this, he asks me to choose 'at best' option for all trades. In other words, even though i have both options and even though the 'at best' option is something to be used only under highly volatile conbditions, i am indirectly forced to choose the 'at best' option for all my trades.
What does the broker get by me choosing the 'at best' option? Lets say, that my broker says that the spread for GBPJPY is 7 pips...so he takes around 7 pips as charges for every trade of mine. By forcing me to choose the 'at best' option, it means that he can give me any price which in turn means that he can charge me extra 2-3 pips and i can do nothing about it. When the price on screen shows 239.10 and i am forced to choose 'at best' option, he can give the lot at a price of 239.13 and i can do nothing about it. This way the broker makes extra 2-3 pips from every trade.
These are some of the ways brokers make money and i am sure that there are other ways as well. The best way to win against this is to have good money management, have enough money to sustain even huge losses and not try to act too smart or cute. Remember that there are always people who are way smarter and way powerful than us.
Happy Trading!!
Friday, June 15, 2007
Some random thoughts..
So, finally we have got an answer for the short term direction for the crosses today. With the BOJ deciding to keep that rates unchanged and with the accompanying statements, no one seems too bothered abt the carry trades for now which means that the crosses will keep rising in the short term. So wait for dips, have a look at the fibos, S and R and then buy on dips. Thats the strategy for now for the crosses.
GBPUSD seems to be in a very tight range for the past 2 days which means that it is getting ready for a breakout in either direction sometime soon. With a lot of news getting released from the USA in the next 3-4 hrs, i think we should be having a short term direction for this pair as well. So with that, we will be having a short term direction for all the major pairs by the end of today.
I hope that all of those who visit this blog and who trade live have a trading system in place. It is very important that you have a good trading system in place so that you are successful on a consistent basis. Lack of a trading system may not affect you initially but as time goes on, it will lead to huge losses. As specified before in one of my articles, developing a trading system is quite easy and straightforward.
Throw in some indicators and look for patterns. For me, trading systems are purely about pattern recognition. The better patterns that you see and the better you are at seeing patterns, the more successful you will be. Take any trading system and you will see that it always comes down to the recognition of one pattern or the other. Once u have decided on a good trading system, be disciplined and have enough patience to make sure that you stick to the system at all costs. Good trading is all about money management and discipline. We decide our fate. We decide our success. No one else.
Happy Trading!!
GBPUSD seems to be in a very tight range for the past 2 days which means that it is getting ready for a breakout in either direction sometime soon. With a lot of news getting released from the USA in the next 3-4 hrs, i think we should be having a short term direction for this pair as well. So with that, we will be having a short term direction for all the major pairs by the end of today.
I hope that all of those who visit this blog and who trade live have a trading system in place. It is very important that you have a good trading system in place so that you are successful on a consistent basis. Lack of a trading system may not affect you initially but as time goes on, it will lead to huge losses. As specified before in one of my articles, developing a trading system is quite easy and straightforward.
Throw in some indicators and look for patterns. For me, trading systems are purely about pattern recognition. The better patterns that you see and the better you are at seeing patterns, the more successful you will be. Take any trading system and you will see that it always comes down to the recognition of one pattern or the other. Once u have decided on a good trading system, be disciplined and have enough patience to make sure that you stick to the system at all costs. Good trading is all about money management and discipline. We decide our fate. We decide our success. No one else.
Happy Trading!!
Thursday, June 14, 2007
All the pairs seem to be moving in very tight ranges in the Asian session so far. I suppose they are all waiting for the rate statement from Japan and also the press meet after that. But with a huge amount of data to be realeased from USA later on today, expect lot of volatility as the day wears on. All the crosses seem to be in a confused state of mind not knowing where to go. The statements from Japan would hopefully provide a direction.Below are the supports and resistances for the JPY crosses for today:-
USDJPY - Important support at 122.60. If that is broken, next support is at 122.26 which is a very strong support and the final major support is at 121.85. On the topside, the resistance is at 122.85 and then at 123.20. USDJPY has not moved much from where it was yesterday and so the S and R remains the same.
EURJPY - Important support at 163.30. If that is broken, next support is at 162.55 and the final major support is at 161.80. On the topside, the resistance is at 163.80 and then at 164.25.
GBPJPY - Important support at 242.20. If that is broken, next support is at 241.75 and the final major support is at 241.05. On the topside, the resistance is at 242.80 and then a major resistance at 243.15.
Happy Trading !!!
USDJPY - Important support at 122.60. If that is broken, next support is at 122.26 which is a very strong support and the final major support is at 121.85. On the topside, the resistance is at 122.85 and then at 123.20. USDJPY has not moved much from where it was yesterday and so the S and R remains the same.
EURJPY - Important support at 163.30. If that is broken, next support is at 162.55 and the final major support is at 161.80. On the topside, the resistance is at 163.80 and then at 164.25.
GBPJPY - Important support at 242.20. If that is broken, next support is at 241.75 and the final major support is at 241.05. On the topside, the resistance is at 242.80 and then a major resistance at 243.15.
Happy Trading !!!
Two out of two....Good going so far...
Hi,
Yesterday i had said that EURJPY would go up and it did by about 90-100 pips....now my system says that GBPUSD would go down slowly...lets see...
Pls dont take these calls and trade them yet...I am still in the testing phase and so far have got 2 trades correct out of two. Need to test atleast for 10 trades before we could come to a conclusion...Moreover, I can lose if my system is wrong..I dont want others to lose as well...
Yesterday i had said that EURJPY would go up and it did by about 90-100 pips....now my system says that GBPUSD would go down slowly...lets see...
Pls dont take these calls and trade them yet...I am still in the testing phase and so far have got 2 trades correct out of two. Need to test atleast for 10 trades before we could come to a conclusion...Moreover, I can lose if my system is wrong..I dont want others to lose as well...
Swing and Range Trading
Range trading is process of taking out a few pips of every small move in the price of a share or currency. This works best in a ranging directionless market where the price moves up and down without knowing where to go. It is in such a ranging market that the supports and resistances work very well. The idea behind range trading is to buy (or sell) near a support(or a resistance), wait for it to move up(or down) after hitting the support (or resistance) and thus get a few pips out of this move.
In a ranging market, there will be atleast 3-4 such signals per day per pair. Assuming that you make 5 pips out of every such move, u make 20 pips per pair per day which is pretty good. But what is most important in range trading and something which leads to many traders going broke is the stop loss. Before entering a trade, the trader has to decide whether he is going to range trade or swing trade. The mistake that most traders do is that they start off a trade with the intention of doing a range trade but when it breaks the support(or the resistance), they begin to treat it like a swing trade when actually there is no swing at all.
For thos who don know what swing trade is, it is just a bigger version of range trade where the traders look for 60-100 pip moves, use charts with greater time frames etc. These people lookout for fundamentals(more than what the range traders do), look out for much bigger and stronger supports and resistances and then take a trade hoping to get atleast 60-100 pips out of it...Swing traders get signals maybe once in 1 or 2 days per pair and so they need a greater amount of patience.
Coming back to the mistake made by range traders, they should remember that for range trading, the stop loss should be as minimum as required. When you are looking to make only 5-10 pips out of every signal, the SL should also be corresponding less (maximum 20 pips). Take the trade near the support or resistance and if the trade goes against you and breaks the support or resistance, just come out of it. Accept the fact that you have got it wrong and come out of it. Most range traders get into a trade planning to take 5-10 pips out of it and when they see the trade going against them, they wait and wait and keep seeing the position continue to go against them and after 100 pips loss, they realise their mistake and come out.
Just imagine this. In range trading, if you get 10 pips out of every signal and your SL is 100 pips, it means that you can afford to have only 1 loss out of every 11 trades that you make for you to make a profit. This means that you need to be successful more than 90% of the time which is next to impossible especially in range trading.
So take positions close to supports and resistances and when the trade goes against you and breaks the support and resistance, just accept the fact and come out as soon as possible.
In swing trading, you could afford to have much larger stop losses. As discussed in my article on this blog sometime back, the size of the SL would depend on the pair and also the direction of the trade. Trades in the direction of the trend can afford to have much larger SL than trades made against the trend.
For those who want to know more about SL, please refer my article on this blog which I had posted about SL sometime back.
Happy Trading!!!
In a ranging market, there will be atleast 3-4 such signals per day per pair. Assuming that you make 5 pips out of every such move, u make 20 pips per pair per day which is pretty good. But what is most important in range trading and something which leads to many traders going broke is the stop loss. Before entering a trade, the trader has to decide whether he is going to range trade or swing trade. The mistake that most traders do is that they start off a trade with the intention of doing a range trade but when it breaks the support(or the resistance), they begin to treat it like a swing trade when actually there is no swing at all.
For thos who don know what swing trade is, it is just a bigger version of range trade where the traders look for 60-100 pip moves, use charts with greater time frames etc. These people lookout for fundamentals(more than what the range traders do), look out for much bigger and stronger supports and resistances and then take a trade hoping to get atleast 60-100 pips out of it...Swing traders get signals maybe once in 1 or 2 days per pair and so they need a greater amount of patience.
Coming back to the mistake made by range traders, they should remember that for range trading, the stop loss should be as minimum as required. When you are looking to make only 5-10 pips out of every signal, the SL should also be corresponding less (maximum 20 pips). Take the trade near the support or resistance and if the trade goes against you and breaks the support or resistance, just come out of it. Accept the fact that you have got it wrong and come out of it. Most range traders get into a trade planning to take 5-10 pips out of it and when they see the trade going against them, they wait and wait and keep seeing the position continue to go against them and after 100 pips loss, they realise their mistake and come out.
Just imagine this. In range trading, if you get 10 pips out of every signal and your SL is 100 pips, it means that you can afford to have only 1 loss out of every 11 trades that you make for you to make a profit. This means that you need to be successful more than 90% of the time which is next to impossible especially in range trading.
So take positions close to supports and resistances and when the trade goes against you and breaks the support and resistance, just accept the fact and come out as soon as possible.
In swing trading, you could afford to have much larger stop losses. As discussed in my article on this blog sometime back, the size of the SL would depend on the pair and also the direction of the trade. Trades in the direction of the trend can afford to have much larger SL than trades made against the trend.
For those who want to know more about SL, please refer my article on this blog which I had posted about SL sometime back.
Happy Trading!!!
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