Don’t Believe These Forex Myths!
95% of traders lose when trading currencies and they don’t need to – in many cases they believe various myths that are spread by vendors, using hyped advertising copy which appeals to greedy and naive traders to buy courses and forex trading systems, which simply don’t work.
Below you will find the six common myths that cause the bulk of currency traders to lose and if you believe any of them - you will lose too.
1. You should always be in the Market
Many traders love excitement, and their view is, if they are in the market they will catch the big move. Well they may - but chances are they won’t.
The really big trends only come a few times a year in each currency - and you should stay out the market until they come, otherwise you will take losses, as you will be trading low odds trades, with little chance of success.
You don’t earn a reward in currency trading for effort or how often you trade – you earn your reward from being right.
Be selective in your trading and you will see your profits soar.
2. Diversification Reduces Risk
Diversification simply dilutes your profit potential if you have a small currency account.
You catch a big move, and your other trades lose, or give you only marginal profits, reducing your overall profitability.
You need to have confidence to go for the big moves, when they occur, and hit them hard with as much as you can afford.
Currency trading success is all about taking calculated risks when the odds are in your favor.
If the trade looks good, then you need to have the courage and conviction to go for it and risk as much as you can afford.
3. Day Trading Makes Money
This is perhaps the biggest myth in currency trading – Forex day traders DON’T make money!
Many vendors spread this myth, as it makes a good story.
It’s a good story and they make their money from course sales NOT trading.
All short-term volatility is random – prices can and do move anywhere in a day and support and resistance levels are meaningless.
In forex day trading you 100% guaranteed to lose over time as you cant get the odds in your favor – PERIOD.
4. Predicting is the Correct Way to Make Profits
Trying to PREDICT where prices are going to top and bottom will see you lose.
Why?
Because, you are relying on hope and guessing and that’s not a good way to make money in any venture, especially currency trading.
The only way to trade is to wait for the market to CONFIRM a trend is under way, and then execute your trading signal.
You will not buy the bottom or sell the high, but you can’t do that anyway, so there is no point in trying.
By trading with price momentum on your side, you have the odds in your favor.
So Remember:
Don’t predict confirm all your trading signals with momentum before you enter a trade and trade with the odds.
5. Buy Low sell high Is The Best Way To Make Money
This point is related to the above. You cannot do it as you are involved in prediction. Always keep this point in mind:
Most big trends start from new market HIGHS NOT market lows.
So if you fail to trade these moves you will miss a lot of the best moves waiting for pullbacks that never come.
6. Markets Move Scientifically
Again this is related to the myth of predicting currency moves.
You will see many vendors saying they can trade market tops and bottoms with scientific accuracy – RUBBISH!
If markets moved to a scientific theory, we would all know the price in advance and there would be no market!
It’s the difference of opinion and unpredictability of price direction that makes a market – this is common sense.
Despite the above, many Forex traders still believe in scientific theories such as - Elliot Wave and The Fibonacci Number Sequence.
These theories don’t work and never will.
Elliot made no money from his theory and neither will you.
As for the Fibonacci number sequence – This was devised in the 12th century, to solve a problem to do with the copulation of rabbits and has nothing to do with finance.
Leave the above theories to the dreamers and traders who believe it’s easy to make money.
When you trade you are involved in trading odds NOT certainties, don’t believe anyone who tells you otherwise.
7. Markets are the Same Today as they Were Hundreds of Years Ago
No there not!
Trends now are much more volatile than they were even 50 years ago.
Why?
Today, with the Internet, price information and news reaches traders in a split second.
This increases volatility as everyone has the same information at once - and everyone tries to enter and exit the market at the same time.
This was not so even 20 years ago - the trends are still there, but volatility is much higher - traders get the direction of the trend right, but they find themselves stopped out by the volatility of the market and watch as the trade they were stopped out goes on to pile up huge profits.
How often has this happened to you?
It happens to all Forex traders.
Dealing with volatility, is one of the major challenges of any trader wanting to develop a successful Forex trading strategy.
8. You Can Buy Success From Someone Else
You cannot buy success from someone else.
Some vendors can help you but success comes from within.
Even if you follow someone’s advice, always make sure you know the logic it’s based upon.
You need to do this to have the confidence and discipline to stick with your trading plan when you hit a losing period
In conclusion, someone can help you achieve currency trading success but you need to know how and why their methods and not follow them blindly.
The above myths are commonly accepted - avoid them or you will join the majority of traders that lose in currency trading.
Wednesday, January 16, 2008
Forex News - a Tip For Massive Gains and an Opportunity Right Now
The true value is about 80.00 a barrel. Every time sentiment has pushed it up toward the psychological $100.00 we have sold it - look at our other articles.
If you would sold on the last two pops to this level, you will have seen the decline is $20,000 based upon 1 contract.Its only sentiment that drove prices up - greed and fear drove the market NOT Supply and demand.
A CURRENCY TRADE EXAMPLE
Now let's look at a currency that is overbought and a huge profit to be made. The euro against the dollar is the trade. Regular readers again will know that 1.50 is the psychological number that traders want to target. 1.50 is too high just like $100 in crude is. This is simply sentiment driving prices near these levels and the euro will not trade above this level in our view.
The last time it got up we sold (see our other articles) and said it would target 1.46 it did and that's a tidy 600 pips profit. It's up testing the highs again - but the bad news for the dollar is discounted in the price and its now only greed and fear driving the euro. All the arguments you here for dollar weakness are discounted: A 50 bps rate cut, a housing market in trouble, sluggish growth etc and there is no more bad news that's not known.
Now throw into the equation that the euro zone has problems of its own (which traders seem not to bothered about) and you could see a break in the dollars favour. How far?We expect the dollar to trade back to 1.46 and if this level gives way target 1.40 The majority don't agree with us (they didn't in crude either) but we won't let that bother us, were sticking with our euro short view to give us another thumping profit.
When looking for extreme bullish or bearish news to break a price always get confirmation of weakening momentum on your forex charts, so you are trading the reality and not getting in to soon. Will Rogers once said:"I only believe what I read in the papers" He was joking but many traders simply take it as gospel when a news story says the dollar is going to fall into oblivion. Hold your head, look at the facts and if prices gone too far to soon, get ready to trade against the losing herd. Can you do the above? Of course you can - it simply means standing back, examining the facts and then looking for trading signals on your forex charts.
If you would sold on the last two pops to this level, you will have seen the decline is $20,000 based upon 1 contract.Its only sentiment that drove prices up - greed and fear drove the market NOT Supply and demand.
A CURRENCY TRADE EXAMPLE
Now let's look at a currency that is overbought and a huge profit to be made. The euro against the dollar is the trade. Regular readers again will know that 1.50 is the psychological number that traders want to target. 1.50 is too high just like $100 in crude is. This is simply sentiment driving prices near these levels and the euro will not trade above this level in our view.
The last time it got up we sold (see our other articles) and said it would target 1.46 it did and that's a tidy 600 pips profit. It's up testing the highs again - but the bad news for the dollar is discounted in the price and its now only greed and fear driving the euro. All the arguments you here for dollar weakness are discounted: A 50 bps rate cut, a housing market in trouble, sluggish growth etc and there is no more bad news that's not known.
Now throw into the equation that the euro zone has problems of its own (which traders seem not to bothered about) and you could see a break in the dollars favour. How far?We expect the dollar to trade back to 1.46 and if this level gives way target 1.40 The majority don't agree with us (they didn't in crude either) but we won't let that bother us, were sticking with our euro short view to give us another thumping profit.
When looking for extreme bullish or bearish news to break a price always get confirmation of weakening momentum on your forex charts, so you are trading the reality and not getting in to soon. Will Rogers once said:"I only believe what I read in the papers" He was joking but many traders simply take it as gospel when a news story says the dollar is going to fall into oblivion. Hold your head, look at the facts and if prices gone too far to soon, get ready to trade against the losing herd. Can you do the above? Of course you can - it simply means standing back, examining the facts and then looking for trading signals on your forex charts.
Tuesday, January 8, 2008
Key Terms To Stock Market
Market Capitalization
A company's market capitalization (or "market cap") is calculated by taking the number of outstanding shares of stock multiplied by the current price-per-share. It is the amount of money you would have to pay if you bought every share of stock in a company.
The price that an investor pays for a security. This price is important, as it is the main component in calculating the returns achieved by the investor.
For example, if an investor buys XYZ at $35, then this would be the purchase price. When looking at the return on the investment, the investor would compare the purchase price of $35 to the price the investment was sold at or the current market price for XYZ.
Share
Certificates representing ownership in a corporation. Shares are also known as stocks or equities.
P/E Ratio
The P/E ratio is how much money you are paying for $1 of the company's earnings. If a company were currently trading at a P/E of 20, an investor would be paying $20 for $1 of earningsThe P/E looks at the relationship between the stock price and the company's earnings. You calculate the P/E by taking the share price and dividing it by the company's EPS.
In other words, if a company is reporting a profit of $2 per share, and the stock is selling for $20 per share, the P/E ratio is 10 because you are paying ten-times earnings [$20 per share dividend by $2 per share earnings = 10]In general, a high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E. However, the P/E ratio doesn't tell us the whole story itself. It's usually more useful to compare the P/E ratios of one company to other companies in the same industry, or to the market in general, or against the company's own historical P/E.
It would not be useful for investors using the P/E ratio as a basis for their investment to compare the P/E of a technology company (high P/E) to a utility company (low P/E) as each industry has much different growth prospects.
Price / Earnings To Growth - PEG
RatioA ratio used to determine a stock's value while taking into account earnings growth. The calculation is as follows:PEG Ratio = Price to Earnings ratio / Annual EPS GrowthPEG is a widely used indicator of a stock's potential value. It is favored by many over the price/earnings ratio because it also accounts for growth. Similar to the P/E ratio, a lower PEG means that the stock is more undervalued.
Keep in mind that the numbers used are projected and, therefore, can be less accurate. Also, there are many variations using earnings from different time periods (i.e. 1 year vs. 5 year). Be sure to know the exact definition your source is using.
Short Selling
The selling of a security that the seller does not own, or any sale that is completed by the delivery of a security borrowed by the seller. Short sellers assume that they will be able to buy the stock at a lower amount than the price at which they sold short. Selling short is the opposite of going long. That is, short sellers make money if the stock goes down in price.
A company's market capitalization (or "market cap") is calculated by taking the number of outstanding shares of stock multiplied by the current price-per-share. It is the amount of money you would have to pay if you bought every share of stock in a company.
The price that an investor pays for a security. This price is important, as it is the main component in calculating the returns achieved by the investor.
For example, if an investor buys XYZ at $35, then this would be the purchase price. When looking at the return on the investment, the investor would compare the purchase price of $35 to the price the investment was sold at or the current market price for XYZ.
Share
Certificates representing ownership in a corporation. Shares are also known as stocks or equities.
P/E Ratio
The P/E ratio is how much money you are paying for $1 of the company's earnings. If a company were currently trading at a P/E of 20, an investor would be paying $20 for $1 of earningsThe P/E looks at the relationship between the stock price and the company's earnings. You calculate the P/E by taking the share price and dividing it by the company's EPS.
In other words, if a company is reporting a profit of $2 per share, and the stock is selling for $20 per share, the P/E ratio is 10 because you are paying ten-times earnings [$20 per share dividend by $2 per share earnings = 10]In general, a high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E. However, the P/E ratio doesn't tell us the whole story itself. It's usually more useful to compare the P/E ratios of one company to other companies in the same industry, or to the market in general, or against the company's own historical P/E.
It would not be useful for investors using the P/E ratio as a basis for their investment to compare the P/E of a technology company (high P/E) to a utility company (low P/E) as each industry has much different growth prospects.
Price / Earnings To Growth - PEG
RatioA ratio used to determine a stock's value while taking into account earnings growth. The calculation is as follows:PEG Ratio = Price to Earnings ratio / Annual EPS GrowthPEG is a widely used indicator of a stock's potential value. It is favored by many over the price/earnings ratio because it also accounts for growth. Similar to the P/E ratio, a lower PEG means that the stock is more undervalued.
Keep in mind that the numbers used are projected and, therefore, can be less accurate. Also, there are many variations using earnings from different time periods (i.e. 1 year vs. 5 year). Be sure to know the exact definition your source is using.
Short Selling
The selling of a security that the seller does not own, or any sale that is completed by the delivery of a security borrowed by the seller. Short sellers assume that they will be able to buy the stock at a lower amount than the price at which they sold short. Selling short is the opposite of going long. That is, short sellers make money if the stock goes down in price.
Beginner Stock Market Tips
You can handle your new investments in the stock market by getting a good broker who you trust, by reading and studying up about it - which includes learning lots of economic thought or you can dive into it without adequate information and get creamed. And no one wants their beginner stock market to result in them losing lots of money.
The point of this article is to help you to the next level and show you what this amazing subject has to offer.
The unruly is, as rapidly as you beginning your beginner stock market you will be practically bombarded by guidance. You can get ironic hurriedly if you invest here, you can make money practically risk limitless if you buy that book. It is all nonsense. Your beginner stock market is no safer than someone bedside’s stock market and each knows at slightest one self who is an practiced at the stocks and has still full a tremendous dive. No one wants that to transpire, but you're no different from someone besides just because you're just beginning. Don't be a mark. Don't let your beginner stock market front you to pecuniary ruin.
Investment clubs can grant some help with being a beginner in the stock market because they can put you in feel with a group of people who might be more weathered and experienced at investment. That can give you the competitive verge you must, by allowing you to profit from the gear that they already know.
Seminars can also be valuable for your beginner stock market, but memorize there is no wealth without risk. They are regularly gifted wealth without risk at these tutorials, but that is completely bogus any effort involves risk, and your beginner stock market is one of the riskiest of them all, so memorize: a tutorial which promises wealth without risk is perhaps a dodge and should be avoided. Bond to your books of classical and then useful economics, and rapidly you will be investing like a pro. Your beginner stock market will be a bizarre fancy of the previous as you are swept up by ever compounding investments haulage you away to fancy lands of unchecked and unimagined wealth. That is, if you are blessed. But for now, keep fancying, and keep studying, and keep developing your beginner stock market selection.
The point of this article is to help you to the next level and show you what this amazing subject has to offer.
The unruly is, as rapidly as you beginning your beginner stock market you will be practically bombarded by guidance. You can get ironic hurriedly if you invest here, you can make money practically risk limitless if you buy that book. It is all nonsense. Your beginner stock market is no safer than someone bedside’s stock market and each knows at slightest one self who is an practiced at the stocks and has still full a tremendous dive. No one wants that to transpire, but you're no different from someone besides just because you're just beginning. Don't be a mark. Don't let your beginner stock market front you to pecuniary ruin.
Investment clubs can grant some help with being a beginner in the stock market because they can put you in feel with a group of people who might be more weathered and experienced at investment. That can give you the competitive verge you must, by allowing you to profit from the gear that they already know.
Seminars can also be valuable for your beginner stock market, but memorize there is no wealth without risk. They are regularly gifted wealth without risk at these tutorials, but that is completely bogus any effort involves risk, and your beginner stock market is one of the riskiest of them all, so memorize: a tutorial which promises wealth without risk is perhaps a dodge and should be avoided. Bond to your books of classical and then useful economics, and rapidly you will be investing like a pro. Your beginner stock market will be a bizarre fancy of the previous as you are swept up by ever compounding investments haulage you away to fancy lands of unchecked and unimagined wealth. That is, if you are blessed. But for now, keep fancying, and keep studying, and keep developing your beginner stock market selection.
Principles Of Investments In The Stock Market - Part 1 Of 4
People have been asking me lately if they should invest in the Philippine stock market or not. Majority of them also wanted to know how they should start. I am not sure if they are really serious about it. They could just be curious considering that it is all over the news that the stock market's performance is very positive.Investing in the Philippine stock market is not for the faint hearted.
As an investor you must have expectations as to how much you are going to earn for a certain vehicle of investment. Such is expectation is measured in terms of how much your money will grow at a certain period of time. (Most usually this is measured in interest per annum) Because the Philippine Stock market is in its all time high for several months now, people think that they should join the band wagon. They do not even understand the basic principles involved nor do they understand how the stock market works. I am not saying that you should be an economist before you should invest in the stock market.
What you should understand is that you must know the basic principles involved first before you can achieve a level of success in investing in the stock market. Fortunes are made on the Stock market. But take note that huge losses are also incurred. Those who just plunge into the stock market without a grasp of the basic principles of investment end up convincing themselves that the stock market is no good at all, does not make them any money and finally quit after some time.
Before I would even begin to tackle the ins and outs of the how to invest in the Philippine stock market you should first understand the basic principles of investment in order that you might enjoy trading and possibly succeed in the stock market. I will be discussing ten of them. We will discuss the first one here. The other points will be tackled on coming articles. If you wish to see the entire article please visit my blog.
1.) You must realize that the stock market is just another vehicle of investment - There are several investment vehicles where you could place your money. One is not more superior than the other. They have their advantages and disadvantages, but this will not be discussed in depth here.
In economic parlance, the stock market is categorized as belonging to the "Capital Markets." Even in the Capital market category there are different types of investment vehicles. You have several alternatives here. Aside from the stock market, you could place your investment in pension funds, bonds, insurance, real estate, time deposit accounts different types of savings.
It is important to know this because it will help you determine whether or not you should invest in the Stock Market considering that there are other alternative vehicles of investment in the Capital markets.Bear in mind that each vehicle of investment has their own advantages and drawbacks. The secret here is not to place all of your eggs in one basket. Even if most of my investments are in the Capital Markets, I diversified by placing investments in the stock market, bonds through mutual funds, pension, deposits and insurances.
As an investor you must have expectations as to how much you are going to earn for a certain vehicle of investment. Such is expectation is measured in terms of how much your money will grow at a certain period of time. (Most usually this is measured in interest per annum) Because the Philippine Stock market is in its all time high for several months now, people think that they should join the band wagon. They do not even understand the basic principles involved nor do they understand how the stock market works. I am not saying that you should be an economist before you should invest in the stock market.
What you should understand is that you must know the basic principles involved first before you can achieve a level of success in investing in the stock market. Fortunes are made on the Stock market. But take note that huge losses are also incurred. Those who just plunge into the stock market without a grasp of the basic principles of investment end up convincing themselves that the stock market is no good at all, does not make them any money and finally quit after some time.
Before I would even begin to tackle the ins and outs of the how to invest in the Philippine stock market you should first understand the basic principles of investment in order that you might enjoy trading and possibly succeed in the stock market. I will be discussing ten of them. We will discuss the first one here. The other points will be tackled on coming articles. If you wish to see the entire article please visit my blog.
1.) You must realize that the stock market is just another vehicle of investment - There are several investment vehicles where you could place your money. One is not more superior than the other. They have their advantages and disadvantages, but this will not be discussed in depth here.
In economic parlance, the stock market is categorized as belonging to the "Capital Markets." Even in the Capital market category there are different types of investment vehicles. You have several alternatives here. Aside from the stock market, you could place your investment in pension funds, bonds, insurance, real estate, time deposit accounts different types of savings.
It is important to know this because it will help you determine whether or not you should invest in the Stock Market considering that there are other alternative vehicles of investment in the Capital markets.Bear in mind that each vehicle of investment has their own advantages and drawbacks. The secret here is not to place all of your eggs in one basket. Even if most of my investments are in the Capital Markets, I diversified by placing investments in the stock market, bonds through mutual funds, pension, deposits and insurances.
Wednesday, January 2, 2008
Forex Foreign Exchange Spreads
Forex trading is one of the most popular and fastest growing financial trading opportunities. Exchange rates for currencies in the forex market are quoted as 'bid/ask' rates. The difference between the purchase (ask) and the sale (bid) rates is called the 'spread'. Forex spread is one of the most important single parameter to make the difference between a successful and losing trading.
Forex spread is expressed in percentage in point (pip) which is the smallest measure of price move. For example, if the currency pair EUR/USD is trading at 1.3000 and then changes to 1.3020, the pair is said to move by 20 pips. A pip in most currencies is 1/10,000 of an exchange rate, but in USD/JPY, it is 1/100.
The bid/offer spread is the difference between the buying (bid) and selling (offer) price. The ask price is the immediate execution prices for quick buyers or traders and bid price is for quick sellers.
In forex market brokers generally do not charge any commission from you. But they get their money by charging you a spread. As the spread is the difference between the bid price and the ask price for any currency being traded, the broker adds this spread onto the price of the trade and keep it as their fee for service.
Therefore, for you, lower the pips and spreads, higher the forex profits. If the spread is big, you have to pay more when you buy and get less when you sell. Forex spread is charged only on one side of the transaction, usually on the "buy" side of the trades. So, as a forex trader your aim should be to buy low and sale high.
If the quote between EUR/USD is said to be 1.2222/5, the spread equals 3 pips (5-2). Although it seems to be small, forex spread difference of one pip can make significant difference in your profit. You may find the difference to be as high as 25% on your trading costs.
Therefore, we advise you to choose a low spread forex broker. Most brokers offer different spreads for different currencies. For the most popular currency pairs like the EUR/USD or GBP/USD, you get the lowest spreads, while less popular currencies are traded with higher spreads.
The forex trade can also vary with the type of your account and volume of trades. But there are brokers who offer same spread to all accounts and any trade volume. You can even opt for fixed foreign exchange spread, but they are generally higher than floating spreads.
It should always be remembered that spread is the difference between bid prices and ask prices as determined by the free market and therefore can never be guaranteed. Spreads are generally tighter when there is good market liquidity but it widens as liquidity goes down. Find a forex broker, who is honest and transparent with the operations. Make sure there is no hidden spread and the execution is fast and accurate.
Forex spread is expressed in percentage in point (pip) which is the smallest measure of price move. For example, if the currency pair EUR/USD is trading at 1.3000 and then changes to 1.3020, the pair is said to move by 20 pips. A pip in most currencies is 1/10,000 of an exchange rate, but in USD/JPY, it is 1/100.
The bid/offer spread is the difference between the buying (bid) and selling (offer) price. The ask price is the immediate execution prices for quick buyers or traders and bid price is for quick sellers.
In forex market brokers generally do not charge any commission from you. But they get their money by charging you a spread. As the spread is the difference between the bid price and the ask price for any currency being traded, the broker adds this spread onto the price of the trade and keep it as their fee for service.
Therefore, for you, lower the pips and spreads, higher the forex profits. If the spread is big, you have to pay more when you buy and get less when you sell. Forex spread is charged only on one side of the transaction, usually on the "buy" side of the trades. So, as a forex trader your aim should be to buy low and sale high.
If the quote between EUR/USD is said to be 1.2222/5, the spread equals 3 pips (5-2). Although it seems to be small, forex spread difference of one pip can make significant difference in your profit. You may find the difference to be as high as 25% on your trading costs.
Therefore, we advise you to choose a low spread forex broker. Most brokers offer different spreads for different currencies. For the most popular currency pairs like the EUR/USD or GBP/USD, you get the lowest spreads, while less popular currencies are traded with higher spreads.
The forex trade can also vary with the type of your account and volume of trades. But there are brokers who offer same spread to all accounts and any trade volume. You can even opt for fixed foreign exchange spread, but they are generally higher than floating spreads.
It should always be remembered that spread is the difference between bid prices and ask prices as determined by the free market and therefore can never be guaranteed. Spreads are generally tighter when there is good market liquidity but it widens as liquidity goes down. Find a forex broker, who is honest and transparent with the operations. Make sure there is no hidden spread and the execution is fast and accurate.
Spot Forex Trading Part 3: Parallel And Inverse Analysis
This article is Part 3 of a series of 9 articles dedicated to help anyone to trade the foreign exchange.
Very few spot forex traders conduct any form of parallel and inverse analysis of the major pairs and exotics to determine the best way to trade the forex on a day-to-day basis. Even though it would be nearly impossible to trade the forex successfully not knowing where the overall strength and weakness was in the spot forex across multiple pairs.
Lets look at some examples. Many people like to trade the GBP/USD they spend countless hours losing sleep waiting to trade this pair even when no trend or parallel/inverse confirmation is available. Losses occur. They could increase their odds dramatically by setting up some entry rules and examples like the ones shown below.
Only buy the GBP/USD if the GBP/CHF and GBP/JPY are strengthening as well. This would be parallel confirmation on the GBP strengthening across the board.Only buy the GBP/USD if the EUR/USD is strengthening and the USD/CHF is weakening. This would be confirming the entry with two other pairs and across the board weakness in the USD. In either situation you have confirmed the entry with at least two other pairs. Both of these entry rules would include a stop order, and you can enhance the rules further by examining the EUR/GBP for weakness. This is inverse confirmation.
But this is not what traders do. They want to trade the GBP/USD so badly that they manufacture a trade, or the they want to use indicators, or trade the news. This is a mistake and is equivalent to betting or gambling. There is no logic to support the entry, the forex works in a logical way. Lets look at some other examples. Lets say you prefer to hold carry trades and prefer to trade the GBP/JPY, you could set up rules for entry as follows:
Only buy the GBP/JPY if the GBP is strong across the board based on parallel and inverse pairs, or only enter the GBP/JPY if the GBP/USD and USD/JPY are both strengthening somewhat or a lot.
In the second scenario the GBP/JPY will slingshot upward at a very fast pace.Or another scenario is to only buy the GBP/JPY if the EUR/JPY, CHF/JPY and AUD/JPY are all strengthening as well, in this case the USD is not in the picture because of across the board weakness in the JPY. Either way you have confirmed the entry with other pairs.Another example would be to buy the USD/CAD only if the EUR/CAD and AUD/CAD are also strengthening.
Similar rules can be applied to any major or exotic pair and easily monitored upon entry. In the case of the three CAD pairs, if you also do a careful analysis of support and resistance, you can trade the pair with the most potential rather than just trading the USD/CAD.
But this is not what traders do, they get stuck trading the same pair and wind up justifying a trade when a trade is not there. These trade entries are not based on logic they are based on emotional needs. This leads to losses. The forex works in a very logical process and you must let the logic work for you. Stop looking at indicators and start looking at other pairs to support your entries, these are the best indicators available.
Across the board strength and weakness in groups of pairs occurs weekly in the forex. But if you search the internet far and wide you will see that it is rarely and in fact never discussed by traders, analysts, and trade planning services charging hefty monthly fees. People are too busy looking at indicators and absolutely no discussion of the market forces governing the spot forex ever occurs.
It is very rare if nearly non-existent for one forex pair to move strong without other pairs to confirm the move. This is true for any major or exotic pair. If you are stuck trading the same pairs while other pairs and exotics are making strong moves its time to look at all of the pairs every night then pick the best opportunities based on parallel and inverse analysis.
In order to trade the spot forex daily and weekly, you must analyze 15-20 pairs every day to determine the current market forces, this will lead to less entries, more logical entries, and better confirmation of entries when the movement starts. Parallel and inverse analysis is the logic behind the spot forex.
Very few spot forex traders conduct any form of parallel and inverse analysis of the major pairs and exotics to determine the best way to trade the forex on a day-to-day basis. Even though it would be nearly impossible to trade the forex successfully not knowing where the overall strength and weakness was in the spot forex across multiple pairs.
Lets look at some examples. Many people like to trade the GBP/USD they spend countless hours losing sleep waiting to trade this pair even when no trend or parallel/inverse confirmation is available. Losses occur. They could increase their odds dramatically by setting up some entry rules and examples like the ones shown below.
Only buy the GBP/USD if the GBP/CHF and GBP/JPY are strengthening as well. This would be parallel confirmation on the GBP strengthening across the board.Only buy the GBP/USD if the EUR/USD is strengthening and the USD/CHF is weakening. This would be confirming the entry with two other pairs and across the board weakness in the USD. In either situation you have confirmed the entry with at least two other pairs. Both of these entry rules would include a stop order, and you can enhance the rules further by examining the EUR/GBP for weakness. This is inverse confirmation.
But this is not what traders do. They want to trade the GBP/USD so badly that they manufacture a trade, or the they want to use indicators, or trade the news. This is a mistake and is equivalent to betting or gambling. There is no logic to support the entry, the forex works in a logical way. Lets look at some other examples. Lets say you prefer to hold carry trades and prefer to trade the GBP/JPY, you could set up rules for entry as follows:
Only buy the GBP/JPY if the GBP is strong across the board based on parallel and inverse pairs, or only enter the GBP/JPY if the GBP/USD and USD/JPY are both strengthening somewhat or a lot.
In the second scenario the GBP/JPY will slingshot upward at a very fast pace.Or another scenario is to only buy the GBP/JPY if the EUR/JPY, CHF/JPY and AUD/JPY are all strengthening as well, in this case the USD is not in the picture because of across the board weakness in the JPY. Either way you have confirmed the entry with other pairs.Another example would be to buy the USD/CAD only if the EUR/CAD and AUD/CAD are also strengthening.
Similar rules can be applied to any major or exotic pair and easily monitored upon entry. In the case of the three CAD pairs, if you also do a careful analysis of support and resistance, you can trade the pair with the most potential rather than just trading the USD/CAD.
But this is not what traders do, they get stuck trading the same pair and wind up justifying a trade when a trade is not there. These trade entries are not based on logic they are based on emotional needs. This leads to losses. The forex works in a very logical process and you must let the logic work for you. Stop looking at indicators and start looking at other pairs to support your entries, these are the best indicators available.
Across the board strength and weakness in groups of pairs occurs weekly in the forex. But if you search the internet far and wide you will see that it is rarely and in fact never discussed by traders, analysts, and trade planning services charging hefty monthly fees. People are too busy looking at indicators and absolutely no discussion of the market forces governing the spot forex ever occurs.
It is very rare if nearly non-existent for one forex pair to move strong without other pairs to confirm the move. This is true for any major or exotic pair. If you are stuck trading the same pairs while other pairs and exotics are making strong moves its time to look at all of the pairs every night then pick the best opportunities based on parallel and inverse analysis.
In order to trade the spot forex daily and weekly, you must analyze 15-20 pairs every day to determine the current market forces, this will lead to less entries, more logical entries, and better confirmation of entries when the movement starts. Parallel and inverse analysis is the logic behind the spot forex.
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