Fundamental And Technical Analysis

Stops Are Not Just For Roads !

Cly Clarence — Tue, 02 Mar 2010 21:20:22 +0000

When the discussion turns to the use of Stop Loss orders, you can be confident that a division will occur between all the participants of the discussion, as they are first divided on whether to use stops, and then those who say we should, are therefore divided again on how to use them in everyday trading.

It is with this understanding that you read this article with an open mind.

If you are of the opinion that stops are not useful in your trading, rest assured that the author of this article respects that opinion, and merely suggesting that stop-loss orders are important to most traders.

The bottom line, the point of this article, is discussing how we can limit our losses. Every trader experiences losses in trading. Find me a trader that says he never loses, and I will show you a mouth spewing forth lies. Stops are one vehicle in achieving a good risk management plan. Properly placed and allowed to work, your trading losses can be limited, while you let those winners reach your objective.

The argument for using stops is really basic and simple. If you speculate that the market is going to move in one direction, and it goes the opposite way, the stop is meant to get you out before your losses grow any larger. If you did your homework, and I stress that you should do so first, and it is of your opinion that the market is to perform in a certain way but does not, at what point would you finally admit to yourself that your initial analysis was incorrect and you should get out and re-evaluate? If you don’t use stops, are you leaving this up to how you FEEL when the market moves against you?

In the past, I personally have experienced the aching feeling of seeing the market move against me, and then when it reaches the price that WOULD have been my stop had I placed one, I would hesitate because I don’t want to take a deliberate loss. Then, in my despair, I would watch it go against me more, and more, and more, and.. …STOP!!!

Well, that is one way to place a stop, but I would not recommend it!

Many will argue that had they placed a stop, they would not have made the profit that they did, when the market finally turned around and went the way they had originally calculated. Yes, this has happened to me as well, and I walked away happy that I did not have a stop in. But this happiness is fleeting and a danger to experience. The win will enforce in you a good feeling for doing the wrong thing. It can turn you into a gambler, one who takes unnecessary risks. I submit that for most who does not use a stop is in essence admitting that he has no clue as to what price against his position constitutes an error. If he had such a clue, he would place a stop at that price. Yet, I must add that this does not apply to all types of trading.

For example, a scalper would not use stops. Why, the time to place and reverse them and so-forth would murder such a trader. He is one that is watching and actively trading the market at such speeds that he isn’t going for long pre-calculated moves. He knows his support and resistance areas and is trading off of those, as well as what he sees the action doing.

Another may be a day trader who is merely taking out chunks from a daily range. The action is usually too quick to calculate those stop areas. And just like the scalper, speed is of the essence. However, as a former day trader turned short term trader, I found myself getting chewed up on several occasions where I should have exited when my anticipated move did not materialize, yet to just watch the market continue to move against me for greater losses. All I can say is, day traders beware!

Now we come down to the problem of placing stops. Where should we place them now that we are convinced that we should use them?

This problem of placing stops seems to stem all the way down to the Municipal level. In the city where I live, they seem to have stops all over my neighborhood. It seems that they don’t have a clue as to where to place their stops either. I imagine that if they were traders, they would over use stops to the point of many losses over time.

There are volumes of books on the subject of trading. But have you ever noticed that when it comes to the subject of stops, they many seem to fall short of stating exactly how they should be placed? Reason may be that there is no exact way to place a stop. Yet, this will not stop the trader in trouble from continually asking the next guru in line, “Where should I place my stop?”

I’m going to share with you some suggestions for stop-loss placement. Of course it won’t be the best for all situations, that will require trial and error on your part. However, for many situations, it should work relatively well.

First, to limit my risk, I trade only on time days. There are various ways to calculate time, each with their own accuracy levels. Those familiar with my work know that I use Fdates (http://FSoftPublishing.com) for my time days. But you are free to use whatever method you choose. As a matter of fact, you don’t even have to use any time days if you don’t want to. That is just my own preference. You can still apply the stop-loss methods to your own way of trading.

The purpose of using time days is to limit my initial risk exposure. I want to get into a trade as early as possible to the beginning of a new move, so I will know where to place my initial stop-loss. Suppose that yesterday was a time day, for example. It made a lower low than the day before. So maybe I believe it is going to put in a short-term bottom. I could just buy into this market the next day, but if I am wrong about the bottom, it is throwing good money away unnecessarily. My solution? Simply to place a BUY STOP order just a tick above the high. If the market fills me the next day, then it must be moving higher and my time day bottom may be correct. If I am not filled, no harm done.

Now, suppose I’m filled. I immediately place my STOP-LOSS a tick below the low of yesterday. Why? Because if it goes lower now, then my bottom isn’t really a bottom, is it? I want to get out cheap! Alas, the STOP-LOSS is there to keep my expectations honest. If I am right, I am filled. If I am wrong, I’m likely not filled. If I’m filled anyway (such as an outside price range day which happen a low percentage of the time), I’m out cheap. See why I value stop-loss orders?

Now, this is just the initial stop-loss, mind you. The hard part is the EXITING of a trade. Some use profit objectives, others exit at the next time day, and some simply trail their stop by some fixed amount. I like to use a couple of other methods instead.

Let’s discuss the first one, shall we?

Say you want to go the longer-term route. You want to milk this trend for all it is worth. You have waited patiently for a weekly bottom to start forming based on some indicators you use (mine would be Wdates). You’ve fine tuned your entry with a time day or some oscillator you like to use. Whatever the method, you are now long with your initial stop-loss placed.

One option is understanding trends. A good bull trend forms a pattern of higher swing bottoms, one after the other. Knowing this, you can keep your stop-loss at the initial location until the market makes its first top and starts to correct. You can make sure you move your stop-loss to breakeven at this point, and wait to see how far it will correct back. Once the correction is completed and price resumes its move up, or even exceeds the first top in price, your stop-loss can then be moved up to just below that first correction bottom. This you can do until stopped-out.

Another option to this approach is to initially keep your stop-loss at least 65% back from the currently highest top from your entry to the beginning of each new up move. A good bull move usually will not retrace more than 62% off any top. If you can identify major corrections based on the degree of bullish waves (requires experience in identifying waves), after the second major correction has completed, you will want to abandon the 65% approach and start tightening your stops to capture more of the last wave or so.

Another approach to stop-losses is using moving averages. There are a few ways to do this. One approach is to plot a 18-day moving average on your chart. Once the value of the 18-day moving average exceeds the price of your initial stop-loss, you would then place your stop-loss just under the 18-day moving average with a few additional points to give the market some leeway (quick dips below the moving average, for example.) You can also experiment with the value of the moving average on the last trend of the same market, to get an idea of its characteristics. Maybe a 13-day or 21-day would suit that particular market better. Only you can decide this.

Another approach is using trend lines. Once the first major correction occurs, you can then draw a pretty reliable trend line and use it as a reference for your stop-loss placement. If you notice the market changing its angle in relation to this trend line (becoming steeper, for example), you may wish to adjust your trend line value accordingly, since most parabolic moves are met with an equally fierce move in the opposite direction, ‘against your position’! Play it smart and anticipate.

I have noticed over the years that each market exhibits a unique behavior in pattern. Some markets trend smoothly most of the time while another jumps all over the place and is very volatile. Experiment with the market you wish to trade and see which approach captures more of the previous moves. It will provide you with excellent clues on how to tackle the future moves as well. What better template could you have than a markets repeatable behavior?

We dealt with a market going up, but just reverse for a market going down. Simple. Now if I only can get the city to remove many of their stops, I’d be a happy camper!

Combining Economic Releases and Technical Indicators

Cly Clarence — Tue, 02 Feb 2010 21:11:18 +0000

Examples of U.S. economic indicators that are clearly tradable, resulting in immediate price adjustment and trading position profits:

MOMENTUM TRADE – GOING WITH THE NEWS
Monthly employment – We focus on the non-farm payroll. Our studies show the number is generally way off the forecast and the resulting U.S. dollar price adjustment over- compensates for the economists’ erroneous estimate (consensus).

The combination of being released on a Friday, being the most basic element in forecasting the state of the economy (no jobs, no money, no spending, bad economy and vise versa), and being the first important economic indicator released each month (first Friday of the month), is why the U.S. dollar consistently has a huge move if the non-payroll number is not close to consensus estimate.

Methodology – First analyze technical picture; be as current as possible; consider all relevant information up to within seconds of number actually being released (GMT 12:30). Pinpoint nearby trade signal entry points. Enter stop loss entry orders, if done stop loss exit orders, and an optimistic take profit order just in case of a huge spike.

Enter orders on both sides of the market, based upon your technical analysis. These orders should be as close to the current price as is practical and the orders should be entered just seconds before the number is released.

It makes sense to put orders on both sides of the market for two reasons.

1) If the number is way off the consensus forecast the corresponding price adjustment move would occur regardless of the technical position of the market (whether traders are long or short).
2) If you have a strong directional view chances are lots of other traders do as well; if your view turns out to be wrong, the move will be huge so why miss it. Remember this is a short-term trade, its entirely possible you will book your 100 points profit in seconds or minutes and then you can think about your directional view, incorporating the new information.

CONTRARIAN TRADE – GOING AGAINST THE NEWS
Durable goods – We focus on the fact that the headline number is generally misleading for two reasons. 1) Usually the detail following the headline explains the reason for an unexpected jump or decline. For example, an unexpected jump is sometimes the purchase of airplanes and the economists miscalculated the timing of “booking” the purchase. 2) The revision to the prior month may completely offset this month’s headline gain. The knee jerk reaction to the immediate headline is an opportunity to buy or sell at a price that would not have been possible had the market not reacted until all the information was digested.

Methodology – First completely analyze the technical picture; the charts, moving averages, fibonachi retracements, and also consider whether the market is likely long or short (technical condition).

Ask the question, “Where can the U.S. dollar go if the number is much better than expected – and do I want to have a position against the very near term trend at that price. If so, enter the limit order, a stop loss, and a take profit.

The take profit is important (stops of course are a given, never enter a trade without a stop) because the next bit of information about the headline number just released may cause a knee jerk reaction the other way; if your in it for a quick trade you may get your profit within seconds. If you were looking for a longer-term trade entry point – you got it.

Like employment, the economist are generally way off the mark on durable goods, making it an excellent vehicle to make money on other unprepared traders reacting instead of approaching the market with a well thought out game plan.

The following is a list of tradable U.S. economic indicators in order of potential profit from trading them in conjunction with fundamentals:

1. Non-Farm Payroll
2. Federal Open Market Committee interest rate change announcement
3. Retail Sales
4. Consumer Confidence
5. ISM Manufacturing Index
6. Gross Domestic Production (GDP)
7. Philadelphia Fed Survey
8. NAPM – Chicago
9. Durable Good
10. Industrial Production and Capacity Utilization
11. Weekly Jobless Claims
12. ISM Non-Manufacturing Index
13. 5-YearNote Announcements
14. 10-Year Note Announcements

These tradable U.S. economic indicators are tradable only if way out of line.

The strategy is to know the consensus; determine what would be extreme and react immediately upon the numbers release. You should have technical points in mind as well as limits of how much above or below the pre-number market price you are willing to deal at to get in the trade. Generally the response is muted however:

* Beige Book
* Housing Starts / Existing Home Sales / New Home Sales
* International Trade / Current Account
* Chain Store Sales
* Consumer Sentiment
* Consumer Price Index / Producer Price Index
* Personal Income and Expenditures
* Business Inventories
* Index of Leading Indicators
* Factory Orders

Many of the following key indicators do not get the press coverage or attention they deserve but smart investors and traders are aware they are coming out and look at them very closely. Oftentimes these less publicized indicators provide important clues of the more publicized indicators. In addition they sometimes provide great trade ideas. They are:

* BTM-UBSW Store Sales / Redbook / Motor Vehicle Sales
* Challenger Job-Cut Report / Help Wanted Index / Employment Cost IndexConsumer Installment Credit
* Construction Spending
* Mortgage Bankers Acceptance of Mortgage Applications
* Wholesale Trade

We track and trade all U.S. economic indicators, in conjunction with the technicals. Our advantage is confidence in a chart point or breakout because we believe in the price action on both a technical and fundamental level.

From experience we also know that most big moves occur after the release of an important economic number. We think this is so because the longer-term traders and companies are paying attention to these numbers and oftentimes decide to open or close big positions based on them. When the long-term players are in the market they unbalance demand and supply creating exaggerated moves that generally persist right through the entire session.

We get in early and try our best to catch as much of the move as we can, knowing that the price change will be much more than should be expected. By doing our homework and visualizing all the possible scenarios beforehand, we act with a game plan, instead of react to price action that appears (but is not based upon the empirical evidence) excessive.

In a nutshell, you will not find us bucking the trend; nor losing money trying to rationalize the extent of the move. Rather you will find us squeezing those last few points out of the trade by holding onto our “overdone” position.

Elliot Wave Analysis

Cly Clarence — Tue, 02 Feb 2010 21:02:01 +0000

The Wave Pattern
Elliott’s main discovery was that market behavior could be identified and measured through a repeating eight wave sequence, consisting of 5 waves that he called “impulsive,” followed by a 3-wave “corrective” sequence.

Impulse waves are labeled numerically 1 through 5, corrective waves are labeled A, B and C, as per the following example:

The above chart also illustrates another of Elliott’s key discoveries, namely that wave patterns themselves subdivide into smaller patterns that trend in the same direction as the wave of one larger size, or, as Elliott termed it, “degree.” In this example, the encircled wave numbers are labeled as Primary waves.

The Primary waves subdivide into a five-wave sequence of Intermediate degree waves, which, in turn, subdivide into a sequence of five Minor degree waves. A three-wave “corrective” sequence then begins from the 1929 market top and ends in July 1932, well below the start of the bull market, a loss of about 90% in the Dow’s value.

Extended Impulse Waves
The above chart of the Dow also illustrates the concept of “extended” waves, which holds that one of the three impulse waves in an Elliott sequence will always be “extended” or longer than the other two, regardless of degree. In Elliott’s original work, he noted that 5th waves were more frequently the extended wave in a sequence. Frost and Prechter in their 1978 book “Elliott Wave Principle,” revised this view to suggest that 3rd waves were more commonly extended, and their view has come to dominate wave labeling. Each of these tendencies is seen in the above chart. Both at Primary and Intermediate degree, the 5th wave extends from 1926-29, and 1928-29, respectively. At the Minor degree level (1928-29) wave 3 is clearly the extended wave. Correctly identifying the extended wave is important in forecasting the depth of the correction to follow.

Differences Between Internal Wave Structures
Frost and Prechter classify internal wave structures as being one of two modes -”motive” or corrective. They use the term “motive” to describe those waves that “impel” the market. Internally, motive waves are always 5-wave structures; corrective waves are always 3-wave structures. In the impulse sequence, therefore, Waves 1, 3 and 5 are motive; Waves 2 and 4 are corrective. This should not be confused with the ABC corrective pattern (discussed below) whose internal waves may subdivide as motive or corrective, depending on the type of correction taking place.

Corrective Wave Patterns
Elliott, Frost and Prechter classified 21 corrective patterns, from simple forms to more complex structures and combinations. Three of the simple patterns, and those which form the building blocks of the more complex structures, are illustrated below. These are corrective patterns following an uptrend. The patterns would be inverted following a downtrend.

Zigzag: Zigzag patterns are sharp declines (or advances in a bear rally) that substantially correct the price level of the previous impulse sequence. Often wave B (the counter-trend wave of the ABC pattern) is the shortest relative to A and C. In zigzag patterns, the sequence may double or triple up until the price correction target is achieved. Zigzags internally subdivide 5-3-5 as follows: Wave A (5-waves, motive), Wave B (3-waves, corrective), Wave C (5-waves, motive).

Flats: Flats are triangular structures that tend to move the market in a what Elliott called a “sidewise” (sideways) pattern. The ABC waves also tend to be equivalent in length. In the flat pattern, wave B will often undo the work of A and frequently tops in the area of the previous wave 5. Because of this action, wave B’s tend to fake-out traders who think the correction is over. Wave C then undoes the work of wave B. There are also variations on the flat correction pattern, which include “expanded” flats (Elliott described them as “irregular”) in which wave B tops well beyond the start of wave A, and wave C is substantially larger than A, generally by 1.618 or 2.618 the length. In a “running” flat, waves A & B are similar to an expanded flat, but wave C is shorter than wave A. Flats internally subdivide 3-3-5 as follows: Wave A (3-waves, corrective), Wave B (3-waves, corrective), Wave C (5-waves, motive).

Triangles: Elliott described two distinct types of triangles: Diagonal and Horizontal. Diagonal triangles are part of ending sequences in a wave pattern, and therefore can occur within a wave 5 or a wave C. According to Elliott, diagonal triangles form when market action has moved “too far, too fast” and represent exhaustion of the trend. The 5th wave of the diagonal will frequently spike sharply above the upper trendline of the triangle in what Elliott called a “throw-over.” A trader should be alert to a diagonal triangle formation, as it signals an impending and sharp trend reversal. Horizontal triangles, on the other hand, are corrective structures. Also called “wedges,” horizontal triangles are identified by drawing parallel trend lines along the peaks and troughs of the wave labels. D and E labels are added to fill out the sequence. In heavily corrective and choppy markets, there can be as many as 11 to 15 waves within the overall horizontal triangle structure. In all cases, the completion of a triangle pattern is normally followed by a sharp “thrust.” The direction of the thrust is determined by the wave pattern in progress. One unique type of triangle, that is related to the family of “irregular flats” is the “Running Triangle,” which was described by Frost and Prechter as one in which Wave B of the triangle exceeds the start of Wave (A). Since Running Triangles are cousins to both flats and horizontal triangles, they are most common to fourth waves and other corrective wave patterns.

Internally, all subwaves in a triangle are “threes”, which tend to overlap. The only exception is a structure identified by Frost and Prechter (though not originally by Elliott) called a “leading diagonal” triangle, which occurs in the first wave position and subdivides 5-3-5-3-5 (like an impulse wave). Unlike an ending diagonal, this structure implies a continuation of the trend. They caution, however, against confusing this with a progression of first and second waves, which is far more common.

Corrective Combination Patterns
In forming more complex corrections, the basic corrective patterns may, and often do, combine to extend the corrective process. Most common is a doubling of the pattern, and less frequently, a tripling. These result in the following types of combinations:

1. Double Zigzags and Triple Zigzags (self-explanatory)
2. Double-Three: The components of a double-three include…

* Flats-Flat
* Flat-Triangle
* Zigzag-Flat
* Zigzag-Triangle

3. Triple-Three: The components of a triple-three include…

* Flat-Flat-Flat
* Flat-Flat-Triangle
* Zigzag-Flat-Triangle
* Zigzag-Flat-Flat

To help clarify the labeling when these combinations occur, Frost and Prechter devised the labels W, X and Y to identify the main sections of a double combination, and W, X, Y and Z for triple combinations.

Rules of Wave Labeling
Correctly labeling waves is at the heart of wave analysis. Incorrect labeling can prove very costly to a trader, and so it is important to observe the rules of labeling. Elliott established three simple rules that, if not observed, will invalidate a wave count:

1. Wave 3 can never be the shortest impulse wave.
2. Wave 2 can never exceed the start of Wave 1.
3. Wave 4 can never overlap Wave 1 (i.e., cross into the same price area).

In addition to these rules, there are guidelines that aid in labeling waves. They are not as inviolate as the rules, and they help in telling you what to look out for. Three of these guidelines include:

Alternation: If Wave 2 is a sharp correction, expect Wave 4 to be a sideways correction.

Conversely, if Wave 2 is sideways, expect Wave 4 to be sharp. More often than not, Wave 4 is sideways, subdividing as either a flat or triangle. In corrections, if Wave A is a simple structure, expect Wave B to be more complex. Wave C may or may not be more complex relative to A.

Depth of Correction: Generally, following impulse wave sequences where Wave 3 is the extended wave (the most common scenario) the subsequent Wave A correction should terminate in the area of Wave 4.

In cases where Wave 5 is the extended wave, either Wave A alone, or the entire correction, will be sharp, and bottom in the area of a Wave 2 of lesser degree. We see an example in the Dow chart above. Note that Primary Wave A terminates right at the area of Minor Wave 2. Wave C may bottom here as well, or just as often in either the Wave 4 area from where the extension began, or it can also erase the entire impulsive rise, as also seen in the above chart of the Dow.

Wave Relationships: Two of the non-extended impulse waves (generally waves 1 & 5) will tend to be equivalent in length and time of formation, or will be related by a Fibonacci ratio (more on that in the next section). Waves 2 & 4 are also similarly related, as are Waves A & C.

There are other guidelines identified by Elliott, Frost and Prechter, and it is important to note that all rules and guidelines operate at all wave degrees, whether intraday or over longer time-spans.

Wave Labels & Degrees
Since all waves subdivide into smaller waves, there is a hierarchy that is used to label wave movement that covers everything from broad expanses of time, to hourly market movement. Elliott developed a labeling method that was slightly revised by Frost and Prechter in their 1978 book. Most important are the wave degrees under study, which include, in descending order:

* Grand Supercycle
* Supercycle
* Cycle
* Primary
* Intermediate
* Minor
* Minute
* Minuette
* Subminuette

At the top of the pyramid are the family of Cycle waves, which can take decades to complete. Primary and Intermediate waves cover shorter periods of years and months. Minor waves and lower reflect daily and intraday market action.

In describing a wave pattern, an Elliottician might say, for example, “the S&P is tracing out a Minor Wave 5 down within an Intermediate Wave (A).” What this would tell the analyst is that the subwaves of Intermediate Wave (A) are about to complete their sequence, and that an Intermediate Wave (B) up (a good, tradable market rally) will begin once (A) bottoms. A series of price targets for a bottom will normally be included in the analysis. Which leads us to the next section in our guide…

Forex Market Outlook on Majors

Cly Clarence — Mon, 01 Feb 2010 12:48:23 +0000

By AceTrader
INTRA-DAY GBP/USD: +1.5915+

Last Update At 01 Feb 2010 09:36 GMT

Despite intra-day marginal weakness to 1.5905, current rebound after the release of much better-than-expected U.K. mfg PMI data suggests an intra-day low has possibly been made n consolidation with upside bias is seen for a minor retrace. to 1.5979.

Buy on dips with stop as indicated, break would bring one more fall to 1.5846/50….

Range Forecast
1.5915 / 1.5955

Resistance/Support
R: 1.5979/1.6018/1.6038
S: 1.5897/1.5812/1.5743

Forex: USD/JPY, consolidating gains above 90.20

Cly Clarence — Mon, 01 Feb 2010 12:39:52 +0000

FXstreet.com (Barcelona) – Dollar recovery from Asian session low at 89.80 has been capped at 90.45 high on early European session, and the pair’s following pullback has held above 90.20.

On the upside, resistance levels lie at 90.45/55 (session high/26 and 28 high), and above here 90.90 (Jan 29 high) and 91.00/15. On the downside, support levels lie at 89.75 session low, and below here, 89.55 (Jan 29 low) and 89.35 (Jan 26 low).

According to the Swiss e Trade Strategy Team, the pair has still some room on the upside, and it could reackh 90.70 on US session: “In an upmove, starting in Asian trading and continuing in early European hours, the dollar reached 90.50 against the yen, priced back a little right now to 90.25. We expect the uptrend to continue, up to levels around 90.70.

Forex: EUR/USD remains calm after hitting 5-week high

Cly Clarence — Mon, 11 Jan 2010 20:59:26 +0000

FXstreet.com (Barcelona) – The EUR/USD is closing out today’s American session trading horizontally in the range between 1.4545 and 1.4505 after establishing a 5-week high at 1.4555 earlier in the European session.

The pound has gained more than 110 pips on the dollar over the course of today’s trading.

The Wells Fargo Research Team points to both the poor US payroll figures released last Friday as well as “firmer than expected 1.1% m/m rise in French industrial production in November” as motives for the euro’s rise.

Nicole Elliott of Mizuho Corporate Bank says “momentum has turned bullish and the Euro is not overbought” while arguing that the pair is now “set to test the 26-day moving average at 1.4561”.

Where The EUR/USD Goes Today

An early attempt by the USD to push higher failed to gather much traction as the European session got underway.

EUR/USD failed to sustain a dip below USD1.4500 despite a EUR negative FT report that Portugal faces the risk of a downgrade. While USD/JPY remains off its overnight lows it continues to struggle to pull back to 92.50. Friday’s US payrolls data proved that the market had got too far ahead of itself with respect to optimism on the US economy.

The slowdown in job losses did slow markedly during Q4 (to a monthly average of -69K from -199K in Q3), but the USD was priced for a return to job creation in December to sustain its view that the Fed is on the cusp of changing its policy stance.

Comments from the Fed’s Bullard in Asian hours that rates would remain low “for quite some time” were another blow to sentiment to the USD. Going forward, the market is likely to come to terms with the outlook that while the worst is likely over for the US economy, 2010 will likely prove to be a tough year for economic growth.

The USD, however, is likely to garner some support from the outlook that the Fed is likely to be out of the starting blocks well ahead of the BoJ and the ECB with respect to rate rises this cycle. Now that payrolls data are out of the way and with this week’s data calendar relatively light attention can be expected to turn towards US earnings session which kicks off today.

Strong Chinese exports data overnight underpinned risk appetite. Exports rose 17.7% y/y in December boosting expectations for economic growth in the region. Chinese lending data was also strong. This will ensure fears remains about the potential for asset price bubbles in China though these fears will be soothed to some extent by measures announced by the State Council aimed at cooling the property market. AUD/USD has clawed its way up to USD0.9319 this morning aided by a rise in job vacancies to a 2.5 year high.

The strong labour market is rekindling expectations that the RBA could hike rates again in Feb. Strong house price data in NZ has helped push the NZD above USD0.7400. USD/CAD, however, has backed off from a test of 1.0250.

Taken from: www.mataf.net & www.fxstreet.com

Upcoming Signals Overview (Jan 11 – Jan 15)

Cly Clarence — Mon, 11 Jan 2010 11:35:48 +0000

By: www.forexpeacearmy.com

This is an overview of the upcoming week. Please refer at here (forexfactory) to see the Calender.

1. Wednesday, January 13th (04:30 New York time) UK: UK Industrial Production.

We have UK Industrial Production coming out. It is expected to read 0.3. Last month it read 0.0.

I recommend trading GBP/USD for this report.

The trigger for this indicator is 2.0. This means that if UK Industrial Production comes out at 2.3 or more, GBP/USD will probably go up by 30 pips or more in the first 45 minutes of the report.

If it comes out at -1.7 or more negative, GBP/USD will probably go down by 30 pips or more in the first 45 minutes of the report.

The reason why I recommend such big trigger is because this is very unreliable report to trade but if such bigger trigger is hit, chances are it will work. Most likely it will be a no trade, however.

We will also have UK Manufacturing Production, both m/m and y/y coming out and UK Industrial Production y/y. If they conflict, I recommend skipping the trade, but most likely they won’t conflict.

Obviously, the bigger the difference between expected and actual numbers, the bigger will be the move.

For example: on October 6th, UK Industrial Production came out at -2.5, versus an expectation of 0.2. GBP/USD went down by around 75 pips.

2. Wednesday, January 13th (19:30 New York time) Australia (!HOT!): Australian Employment Change m/m.

We have Australian Employment Report coming out. It is expected to read 10.2. Last month it read 31.2.

I recommend trading AUD/USD for this report.

The trigger for this indicator is 15. This means that if Australian Employment comes out at 25.2 or more, AUD/USD will probably go up by 40 pips or more in the first 45 minutes of the report. If it comes out at -4.8 or more negative, AUD/USD will probably go down by 40 pips or more in the first 45 minutes of the report.

We will also have Australian Unemployment Report coming out, if it conflicts with the Employment Report, I recommend staying out, but they almost never conflict.

Obviously, the bigger the difference between expected and actual numbers, the bigger will be the move.

For example: on December 09th, Australian Employment came out at 31.2, versus an expectation of 5.0. AUD/USD went up by 60 pips.

3. Thursday, January 14th (08:30 New York time) USA: US Retail Sales.

We have US Core Retail Sales m/m coming out. It is expected to read 0.3. Last month it read 1.2.

I recommend trading USD/JPY for this report.

The trigger for this indicator is 0.7. This means that if US Core Retail Sales m/m comes out at 1.0 or more, USD/JPY will probably go up by 30 pips or more in the first 45 minutes of the report. If it comes out at -0.4 or more negative, USD/JPY will probably go down by 30 pips or more in the first 45 minutes of the report.

We will also have US regular Retail Sales coming out and Import Price Index. You can ignore the Import Price Index, but if regular Retail Sales and core Retail Sales conflict, I recommend staying out.

Obviously, the bigger the difference between expected and actual numbers, the bigger will be the move.

For example: on December 11th, US Core Retail Sales came out at 1.2, versus an expectation of 0.4. USD/JPY went up by 60 pips.

4. Friday, January 15th (08:30 New York time) USA: US CPI.

W will have US CPI m/m coming out. It is expected to read 0.2. Last month it read 0.4.

The trigger for this indicator is 0.6. This means that if US CPI m/m comes out at 0.8 or higher, USD/JPY will probably go up by 30 pips or more in the first 45 minutes of the report. If it comes out at -0.4 or more negative, USD/JPY will probably go down by 30 pips or more in the first 45 minutes of the report. 99.9% chance it will not deviate by at least 0.6, and the reason why I am giving such huge trigger is because I don’t want to trade it but if I don’t list this report, I will get a lot of emails asking why.

Currently, the United States of America is not concerned about inflation at all. CPI used to predict possible interest rate changes in the future, but we know for sure the FED will not cut the rates, and also they will not hike the rates either. Currently, the government if more concerned about unemployment and the growth in general, so they will not hike the rates anytime soon, at least they said so.

So, even if it deviates, it will be kind of random price action. Sure, it may work but if you toss a coin, it may work as well.

If you are disappointed that my signal is basically “stay away”, then keep in mind that part of the business is to know when to enter and when NOT to enter. This is type of the report that used to be really hot and even 0.1 deviation was sufficient to have a nice spike. Not the best call is stay in the bed if you live in the U.S. time zones….

By Crazy Cat at www.forexpeacearmy.com

GBP/USD finds support at 1.5895 after BoE leaves policy unchanged

Cly Clarence — Thu, 07 Jan 2010 13:25:21 +0000

FXstreet.com (Barcelona) – The GBP/USD is trading above 1.5900 level after finding support at 1.5895 in the minutes following the BoE monetary policy release today’s morning.

Cable fell around 165 pips throughout the Asian and European session to find support at 1.5895. Currently the pair is trading around 1.5910/20, 0.65% below today’s opening price action at 1.6017.

The Boe will keep its benchmark record at 0.5%, the lowest level on record for the 11th month in a row, while the budget for its quantitative easing program will remain at GBP 200 billion.

As usual, the Bank has not given any further detail of the meeting, whose minutes are due to be released on January 20.

TJ Marta, chief technical analyst at Marta on the Markets, comments: “Cable (1.5905) is down overnight, continuing to falter after trading to a new high since mid-December Monday. It is testing the bottom of the 1.60-1.68 range that has held for most of the time since June.

Technical support lies at 1.5833 (Dec30 low) and then 1.5708 (Oct low). Resistance lies at 1.6241 (Jan4 high), 1.6411 (Dec 16 high), 1.6878 (Nov16 high) and 1.7043 (Aug high). The strongest correlates over the past two months for GBP/USD have been the DXY (negative), EUR/USD (positive), the S&P (positive) and crude oil (positive).”

Managing emotions

Cly Clarence — Sat, 02 Jan 2010 22:50:44 +0000

«Anyone can get angry – it’s easy. But to be wrathful at the right person, at the desired degree, at the right time, for a particular purpose, and relevant way – that’s the difficulty ».
Aristotle

Really. And the same can be said about the fear and anxiety, repentance and hope, greed and delight, and all the other emotions that are inherent in trading.

Traders often say that they do not want to have any emotions when trading. They say they want to be perfectly calm, like a machine.

Fortunately or unfortunately, the traders, as any drugoye, not machines. Clear all emotions – would destroy the soul and destroy intuition and sixth sense as to eliminate all feelings of joy and laughter.

If you could remove their emotions from the knowledge, you just put them, driven deep inside, where they will manage you without your knowledge. You would be amazed to see how you do things that are not going to do.

Are we hopeless in front of their emotions?

Of course not. Emotions give us information. We can obtain this information and make necessary changes or to take the desired action. We can interpret the emotions in ways that help us. We can reduce the intensity of emotions. We can change one emotion to another.

I like to think of emotions as the energy for movement. Conscious and not conscious thoughts energized. This energy affects our internal and external world. As Carl Jang said: «There can be no transforming of darkness into light and of apathy into movement without emotion». We can use our emotions as a means to advance our trade process. But we must learn to interpret them, guide them and reduce them.

There are three basic ways to change emotions:

First, we can change our emotions by changing the object of our concentration. This brings great results. What we focus, it becomes our reality. We are considering taking the loss, or we see the chance of taking profits?

Second, we can change our emotions by changing our beliefs. Our beliefs act as filters that we see, thus influencing the information that we admit to consciousness. Our beliefs influence the interpretation that we give the facts and events. If we are confident that we will lay down the likelihood in our favor, we will not go mad because of the individual losses, because we are confident that we will make money over time.

Third, we can change our emotions by changing our physiology. This is generally true that breathing, facial expression, body position, tone and pace of voice impact on thoughts and emotions. What is usually not understood – is that the physiology creates thoughts and emotions. If you are trading sitting at the edge of a chair, shoulders ssutuliv, szhav jaw with one’s lips, seized a hand in the mouse, and stifling breath, you’ll worry about what should happen.

The importance of concentration

As mentioned above, on which we concentrate, is extremely important for our emotional state. So, what do you concentrate during a trade is not only the object of your reality, but also your understanding of the actual reality, and therefore affects your interpretation of events and, of course, your emotional state. This in turn affects your behavior. The decisions have an emotional component.
What do you think? You are looking at the possibility of loss? You see the chance of profit?

Those who look only to the possibility of loss, or will hesitate too long at the entrance to the market or pass the deal. If they did enter the market, they take away their profits too quickly.
Those who look only at the probability of profit, can not protect themselves from losses.

You told a story about this deal? You told me a story about trade in general? Your story will affect your concentration. You will look for evidence of the truth of your history. You will have a tendency to underestimate or miss all the contrary evidence.

A particularly effective way to direct your focus is on task. When you ask a question, you set the perception of an object that requires a response and takes the truth question.

You ask, «What if I lose? What if I’m wrong? What if the transaction does not work? »Now see where your imagination should go. It should go to the effects of the loss. You’ll be a bad feeling. You lose your courage. You will fluctuate.

You ask, «that if this deal will bring more profit? What if this deal actually goes to my goal? What if the market will do what I expect? »You make a deal, and will feel confident.

The truth is, a small but: just thinking about winning is not enough. You can exceed the allowable size of the transaction. You can not put the protective stop order. Instead, you should focus on probabilities. Ask yourself, «what is the likelihood? With my methods say I do? » It will keep you up to start ringing. This will force you to act when receiving a signal.

Trade – this balancing act between the extremes. We must focus on profit and loss and balance between them. We must focus on the probability of our methods. We must focus on information that enables us to market. And the only completely reliable information that we receive – it is price action.

Yet, having said all that, really important to look optimistically to the future, even if we accept the validity of current news and market action. What if you could learn to control your concentration, so that your emotional state supports your actions in the trade?

The importance of physiology

The thought affects the body – this is true. More surprisingly, that the body affects the mind. The quickest and most straightforward way to change your emotional state is to change your physiology. Under the physiology I mean the body position, breathing, facial expression, as well as the tone and pace of voice.

We all know that when we are happy, we smile. But how many people understand that when they smile, they are happy? Actors are amazing because of Physiology. Simuliruya sobbing, very soon they find that they actually feel emotions, accompanied by weeping.

People experiencing depression prescribe smiling half an hour a day during their depressive phase. Approximately 80 persons muscles drive the blood into the brain, and the smile it increases blood circulation. Ulybka also alters the level of oxygen and the level of excitation of nerve endings.

What is your physiology when you sell? You sit on the edge of a chair? You are looking askance and compress their jaws? You are a nation seized in the mouse? Does your body tense? As a result of this emotional state will be increased tension and nervousness. Or your shoulders and chest sognulis, you interrupted breathing and your mouth a little bit slightly? This physiology would lead to depression, despondency or despair.

If you find yourself in a negative mental and emotional state during a trade, stand up and change their physiology. Lift the shoulders, raspravte chest, deep breath and talk with them in confidence and a calm tone.

Each of us has the superiority of physiology – physiology, which is associated with creativity and flexibility. This physiology may change due to the situation, and it can also affect the situation.

Think of something that you do easily and confidently. Imagine yourself in this situation. Put yourself in the physiology of the situation. Pay attention to your position, facial expression, breathing, and your voice tone and tempo. Now imagine yourself in the trade and suggest that this is the same physiology.

In the midst of trading, you no doubt will return to its old, sometimes harmful physiology. Once you find it, change it to your physiology superiority. The more you do this, the sooner it will become a habit and your natural physiology.

A simple physiological manipulation is an effective tool to manage its internal state. As a trader your physiology to determine the effect on you. This is not just some lengthy reflection – an important part of your general condition, which affects your thoughts, feelings and actions. Use it for your own success as a trader.

Investment Protection

Cly Clarence — Tue, 02 Jun 2009 09:20:20 +0000

The foreign exchange market is one of the most popular markets for speculation, due to its enormous size, liquidity and tendency for currencies to move in strong trends.

Presumably, these characteristics would enable traders to have tremendous success. However, success has been limited mainly for the reasons described below.

Many traders come with false expectations of the profit potential and lack the discipline required for trading.

Short-term trading is not an amateur’s game and is usually not the path for quick riches. Though currencies may seem exotic or less familiar than traditional markets (i.e. equities, futures, etc.), the rules of finance and simple logic are not suspended.

One cannot hope to make extraordinary gains without taking extraordinary risks. A trading strategy that involves taking a high degree of risk means suffering inconsistent trading performance and often suffering large losses.

Trading currencies is not easy (if it was, everyone would already be a millionaire), and many traders with years of experience still incur periodic losses. One must realize that trading takes time to master and there are absolutely no short cuts to this process.

The most enticing aspect of trading currencies is the high degree of leverage used. Leverage seems very attractive to those who are expecting to turn small amounts of money into large amounts in a short period of time.

However, leverage is a double-edged sword. Just because one lot ($100,000) of currency only requires $1,000 as a minimum margin deposit, it does not mean that a trader with $10,000 in his account should easily be able to trade 10 lots or even 5 lots. One lot is $100,000 and should be treated as a $100,000 investment and not the $1,000 put up as margin.

Most traders analyze the charts correctly and place sensible trades, yet they tend to over leverage themselves (take a position that is too big for their portfolio), and as a consequence, often end up forced to exit a position at the wrong time.

If an account value is $10,000 and the trader places a trade for 1 lot, he is in effect, leveraging himself 10 to 1, which is a very significant level of leverage. Most professional money managers are not allowed to leverage even this high.

Trading in small increments on the account will allow the trader to endure many losing trades without experiencing large monetary losses.

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