Euro witnesses Gain, USD plummets against Canadian Dollar

Euro sees rise:

The euro rose from near a three- month low against the dollar since yesterday on speculation German Chancellor Angela Merkel will signal Europe’s largest economy plans to take action to help avert the financial turmoil in the region. Optimism about the stabilization of the European financial system is being seen as helpful to halt the recent steep decline of the euro.

The euro climbed to $1.2589 as of 12:57 p.m. in Tokyo from $1.2530 late in New York yesterday, when it touched $1.2513, the lowest level since Nov. 21.

Europe’s single currency advanced to 117.94 yen from 117.50 yen. The dollar traded at 93.69 yen from 93.79 yen yesterday, when it reached 93.96, the highest level since Jan. 7. The Bank of Japan may today unveil details of a plan to buy corporate debt and extend lending programs in place to prevent a shortage of credit from deepening the nation’s recession, according to a Bloomberg survey.

Bank Results can affect Euro adversely:

Gains in the euro may be tempered by concern European companies will report steeper-than-expected losses stemming from the global financial turmoil.

USD near Peak Versus Canada’s Currency:

Demand for the dollar was tempered by speculation the U.S.’s largest automakers will fail unless they get increased government aid. General Motors Corp. and Chrysler have a 70 percent likelihood of filing for bankruptcy.They are seeking as much as $21.6 billion in additional federal assistance.The Canadian dollar is being seen as emerging with a cyclical growth profile that is as good as or better than that of the U.S. dollar.

U.S. Data:

The Labor Department’s report on producer prices, scheduled for today, may show wholesale prices fell 2.5 percent last month from a year earlier, according to a Bloomberg survey, signaling the world’s largest economy may be heading for a period of sustained deflation. Federal Reserve policy makers lowered their projections for economic growth this year, with most seeing a contraction of 0.5 percent to 1.3 percent, according to minutes of the Federal Open Market Committee meeting Jan. 27-28 released yesterday.

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FOREX-Daily Market Digest

Yen sees gain:
The yen gained in currency trading for a third day against the euro on speculation European banks will reveal increasing losses due to the financial crisis in the region.

Yen strengthened versus 13 of the 16 most-active currencies on concern stock declines will spur investors to sell higher-yielding assets they bought with funds from Japan. The euro traded near a 10-week low against the dollar. The Risk-averse sentiment is being seen as likely to persist. “The yen may be bought.” Traders noted demand for the yen increased after Asian equities fell. The Nikkei 225 Stock Average slipped 1.4 percent and the MSCI Asia- Pacific Index of regional shares weakened 1 percent, prompting investors to reduce holdings of higher-yielding assets.

AUD weakens:
Australia’s currency may slide to as low as 50 U.S. cents as the global recession can drive down commodity prices. The central bank may lower borrowing costs to a record. The global economic collapse, the weakness of commodity prices, the prospect of Australian interest rates going to 2 percent or less and a severe domestic recession suggest the Australian dollar could weaken sharply, accordingly to analysts.

BSE and NSE move upwards:
Indian shares turned positive after opening 1.1 percent lower on Wednesday as investors hunted for bargains in the battered market that had fallen 6.2 percent in the previous two days. Technically, the market had become oversold-so now it is rebounding, remarked an analyst here in Mumbai. By 10:05 a.m. (0435 GMT), the 30-share BSE index was up 0.38 percent at 9,069.26 points, with 21 components rising. The 50-share NSE index was up 0.47 percent at 2,783.60.

Current recession one of the worse:
Alan Greenspan, the former U.S. Federal Reserve Chairman on Tuesday said the current global recession will be the longest and deepest since the 1930s and more government rescue funds will be needed to stabilize the U.S. financial system. In a speech to the Economic Club of New York Greenspan said The U.S. Treasury's Troubled Asset Relief Program (TARP) designed to help bail out banks has been partially successful and that additional funds will be required to stabilize the American banking system and restore normal lending.

News compiled from the Reuters and Bloomberg.

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Asian Currencies Climb This Week on Efforts to Revive Economies

An Asian currency gauge rose for a second week as policy makers stepped up efforts to revive economies reeling from the global recession, raising speculation overseas investors are returning to emerging markets.

The Philippine peso capped the biggest weekly advance in a month. India’s rupee had a second week of gains with an advance of 0.3 percent this week to 48.7250 versus the U.S. currency. Malaysia’s ringgit traded at a one-week high as regional stocks rallied. . Malaysia is prepared to take “radical” steps to boost the economy, the government said on Feb. 5, while the Indonesian rupiah rose 0.3 percent to 11,720 today, paring this week’s decline to 2.4 percent. Indonesia a day earlier cut interest rates for a third straight month. The peso climbed 0.5 percent yesterday to 47.202 per dollar, a weekly gain of 0.4 percent Taiwan will offer tax breaks and subsidized loans to lure local investors back from China, which is increasing export tax rebates for textiles. The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most-active currencies excluding the yen, rose 0.4 percent for the week to 105.10. Elsewhere, The Thai baht fell 0.2 percent on the week to 35 per dollar and Vietnam’s dong was little changed at 17,485.

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World News and Currency Update

EUROPE

The euro traded near a two-month low against since yesterday the dollar on concern the economic slump in Eastern Europe will deepen the recession in the 16-nation currency bloc.The currency may weaken for a second day against the yen on speculation the European Central Bank will signal it plans to cut interest rates again this year, after leaving them unchanged at a meeting today. The Czech koruna approached a two-year low versus the dollar before a government report that may show the trade deficit widened to the most in four years. Russia’s ruble was near an 11-year low after Fitch cut the nation’s debt rating.

ASIA

Indonesia’s central bank is seeking to expand its $6 billion currency swap deal with Japan and add new agreements to bolster the rupiah after foreign-exchange reserves slumped by $10 billion since July.Indonesia, which has similar agreements with China and South Korea for $3 billion each, may also initiate talks with a fourth nation, central bank Governor said, without identifying the country. The rupiah, which fell 16 percent last year, the most in eight years, declined 1 percent to 11,788 against the dollar at 10:19 a.m. in Jakarta.

US
Years of deepening recession in the developed world gnawed at investors on Thursday, after glum earnings from U.S. corporate stalwarts such as Kraft Foods and as the Bank of England looked set to cut record low rates further.As governments worldwide seek measures to ease the pain from the worst financial crisis in decades, the U.S. Senate voted to soften a "Buy American" clause in a $900 billion stimulus plan after President Barack Obama voiced concerns it could spark a trade war.

Excerpts taken from Bloomberg.com.

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Currency Updates for the Day

US dollar
The dollar edged up against a basket of currencies in cautious trade on Wednesday before jobs data in the United States and interest rates decisions by central banks in Europe. The U.S. currency made up for some of its losses the previous day, when an unexpected rebound in housing data and hopes for fresh stimulative economic packages in the United States sapped investor demand for the dollar as a safe haven.
"Investors are basically looking to buy the less-risky yen against other currencies because they are still avoiding risks, though the dollar is the next beneficiary currency, underpinned by prospects for economic stimulus plans," said an analyst at Shinkin Central Bank.
The dollar edged up 0.1 percent to 89.53 yen from late U.S. trading on Tuesday, but Japanese exporters selling of the U.S. currency capped its gains, dealers said. The euro slipped 0.3 percent to $1.2999 and was little changed at 116.34 yen, reported Reuters.

AUD & NZD
Bloomberg reported the Australian and New Zealand dollars rose for a second day as regional stocks gained and government spending worldwide boosted investor appetite for higher-yielding assets. Australia’s currency climbed the most in seven days after a government report showed December retail sales posted the biggest gain in more than eight years. The government yesterday announced a A$42 billion ($27.2 billion) spending package and the central bank cut interest rates to the lowest since 1964 to help the economy avoid a recession.

EURO
The euro fell toward an eight-week low against the dollar before a report that may show retail sales slid for a seventh month, supporting the case for the European Central Bank to cut interest rates.

POUND
The British pound weakened versus the greenback on concern an industry report will show U.K. services shrank at close to the fastest pace in 12 years. The yen may gain for a fifth day versus the dollar on speculation widening credit-market losses will erode corporate earnings, prompting investors to sell higher-yielding assets financed in Japan.

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Yen,AUD,Rupee and Crude Oil Update

YEN
The yen fell, ending three days of gains versus the dollar and euro, after the Bank of Japan said it will buy 1 trillion yen ($11.1 billion) of shares held by financial companies, reviving demand for higher-yielding assets. Japan’s currency dropped from near a one-week high versus the greenback after the central bank said in a statement it will purchase the equities through April 2010 to boost the capital of financial institutions.

AUD
The Australian and New Zealand dollars also ended a three-day losing streak against the yen after the Australian government said it will spend 42 billion AUD ($26.8 billion) to help prevent the economy entering a recession. The Australian dollar gained after the central bank cut interest rates to the lowest since 1964 and the government announced a stimulus package to avoid a recession. New Zealand’s currency rose from near a six-year low.


RUPEE
India’s rupee strengthened the most in a week even as Asian stock gains tempered speculation overseas funds will increase equity sales. The rupee climbed as much as 0.4 percent to 48.7325 a dollar, the strongest intraday since Jan. 19, before trading at 48.775 as of 10:16 a.m. in Mumbai, according to data compiled by Bloomberg. All 10 most-active Asian currencies outside Japan strengthened.

OPEC
Crude oil rose in New York on speculation that OPEC, led by Saudi Arabia, cut its output in January to avoid a supply glut and bolster prices. Production from the Organization of Petroleum Exporting Countries averaged 28.565 million barrels a day last month, down 3.5 percent from December, according to a Bloomberg News survey of oil companies, producers and analysts. A government report yesterday showed U.S. consumer spending fell in December for a record sixth consecutive month, cutting fuel consumption.

The above is compiled news excerpts from Bloomberg.com.

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Japan sees investment opportunities in Asia, US

Japanese companies see plenty of opportunities to make acquisitions and investments in Asia and in environmental business in the United States, the Japan External Trade Organisation JETRO said on Friday.But the strong yen and credit crunch mean investment into Japan is likely to continue falling, Yasuo Hayashi, chairman and CEO of JETRO, which promotes trade and investment between Japan and the rest of the world, told Reuters.Here's the compiled news excerpt from Forexpros.com.
Hayashi said India would offer major investment opportunities because the authorities lacked basic infrastructure.

Japanese companies were also well placed to pick up investment projects in China, especially in the environment sector, he said in an interview.
"Japanese business is looking very eagerly at business in China and sales to China of environmental equipment," he said.

Even in the United States there were opportunities, despite the economic crisis, because the new administration of President Barack Obama wanted to invest in the environment sector, an area of expertise for Japanese firms, he said.

Japanese companies will also look for investment opportunities in Southeast Asia, including plans to construct an industrial corridor linking India and Vietnam, and in commodities-rich countries in Latin America and Africa seeking to develop their resources, he said.
The long-term approach of Japanese business meant it was well placed to exploit opportunities even when commodities and energy prices were low, he said.

"For companies that are cash-rich, strong and able, now is a good opportunity," he said.Because many Japanese companies have relatively strong balance sheets after restructuring following Japan's financial crisis, they are well placed to make foreign acquisitions as well as investments, he said."Many find it a good opportunity to purchase good foreign companies which are in trouble at a reasonable price," he said.

As a result, Japanese foreign direct investment (FDI), which fell 4.7 percent year-on-year in the first 11 months of 2008 to 4.48 trillion yen, could increase this year, he said.
But FDI into Japan would continue to decline, after falling 13.5 percent in the first 11 month of 2008 to 6.43 trillion yen, reducing the outstanding stock of inward investment in the country.Hayashi said investment to Japan was falling because the financial crisis made it difficult for investors to raise capital and the strength of the yen was also a deterrent.

The poor state of the Japanese economy, which suffered a record 9.6 percent fall in industrial output in December, also discouraged inward investment, he said.

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World crises are deepening

Somber figures from Japan,the US and other parts indicate World crisis are deepening. While Japan sank deeper into recession with industrial output tumbling and inflation slipping to almost zero, key U.S. data later on Friday is also expected to mirror the worsening global financial crisis.Here are news excerpts from Forexpros.com.

Japanese economy worsening:
Japan's industrial production fell a record 9.6 percent in December, while annual core inflation slowed to a mere 0.2 percent. Rising unemployment, slowing household spending and no improvement in the industrial outlook added to fears that Japan was flirting with deflation and would post a horror GDP figure in February if exports do not bail it out. Wider Asian stocks were down 1.1 percent, the first daily drop in a week. Those falls followed similar declines on Wall Street after record monthly U.S. unemployment figures.Japanese companies including the Toyota Motor Corp, Sony Corp along with rival Nintendo Co, Ford Motor Co and Eastman Kodak Co, provided daily evidence of how deeply the global crisis was biting, costing governments trillions of dollars and threatening millions of jobs in the company.

More bad news is expected in the United States on Friday:
Economists think the U.S. Commerce Department will say gross domestic product, the broadest measure of U.S. economic activity, shrank at an annualized 5.4 percent in the fourth quarter even as the recession in the US is getting hold. As more jobs and company wealth were lost, Obama railed against "shameful" Wall St bonuses paid to executives at a time when taxpayer money was being used to shore up the crumbling financial system. Four U.S. airlines, led by Continental Airlines Inc, also posted losses, while Boeing Co shares fell 5.9 percent after it said it planned 10,000 job cuts

The picture in Europe is hardly any sunnier:
German unemployment rose almost twice as much as expected in January, euro zone economic sentiment hit a new low, while hundreds of thousands of French workers staged a nationwide strike demanding more was done to protect jobs and wages.

Little appetite:
Australian private sector credit shrank in December for the first time since 1992 as foreign banks cut lending to local companies.
Reserve Bank of Australia figures showed that total credit fell 0.3 percent in December, well below a forecast 0.5 percent rise, fuelling expectations the RBA would announce another hefty interest rate cut next week. Across the Tasman Sea, the once-favored New Zealand dollar fell to another six-year low after the central bank said interest rates would likely have to be cut further, a day after the benchmark rate was slashed by 150 basis points.

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Indicators for Forex Trader

Industrial produce

Industrial production report, as the name suggests is the report based on the production and its changes of factories, industries, utilities and mines across the country. The report also shows the optimization of their utilization- the degree to which their capacities are being used.
Forex Traders who rely on this indicator are mostly concerned about the utility production which is highly volatile because the utilities industries are heavily influenced by changes in weather. Weather changes can cause revisions between the reports which consequently can cause volatility in the currency of the country.


Consumer Price Index
The CPI is the most widely known indicator which measures the consumer good price change over more than 180 different categories. The CPI report is often compared with the export report to find out what profit (or loss) the country is making on its goods and services. Closely related other indicators, which can be helpful to forex traders, can be the purchasing managers index (PMI), the employment cost index (ECI), durable goods report, and the hosing stats.

Exports are always well scrutinized by the forex traders in any case since the export prices often change with any gain or loss on the nation’s currency.

All the above and previously mentioned indicators can prove to be a valuable resource to the forex traders when applied judiciously.

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Placing Order in Forex Trading

Placing the correct order is probably one of the most significant parts of forex trading after deciding upon the right strategy. It is important to understand and put the right orders when we trade.

Limit order
Limit order is used to enter and exit the trades. It refers to the price the forex trader is ready to pay or accept. A buy limit order will be put when the order is placed the below the prevailing market price to state the highest most price the trader is ready to pay. Likewise, the sell limit order placed above the market price and it indicated the lowest price the seller is ready to accept.

When the forex trader already has a long position in the market, he can use the limit order to notify the broker the price at which he wants to sell once the targeted price has been reached. Limit order is also used to tell the broker the price at which the trader wants to make an entry in the market. If XYZ Company is trading at 44.50 and the forex trader wants to buy that at 42.00 then he can put the buy limit order at that rate.

Market Order
Market order informs the broker whether to buy or sell at the prevailing market price. This is most preferred in fast markets movements or while the forex trader wants to guarantee a position and wants to defend against losing a chance. Here the broker tries to buy or sell at the prevailing market price.


Stop loss order
Stop loss is of course the one of the most popular and important orders used. Stop loss order can make the forex trader make a new position, restrict the loss on an open position, to defend a profit. Stop order identifies a rate where an order the trader wants the trade to be executed. Buy stop order will be place over the prevailing market price whereas a sell stop, will obviously, be places under the current market prices.
When the stop order is reached, the order is executed. With a long position, the sell stop order is placed under the market rates to restrict the loss. As the market moves further up the order can be extended to defend the profit. This is referred to as the “trailing stop” order.
The sell stop order can also be used t make an entry into the market with the decline in the market. The buy stop order can be placed over the market rate to start a new position or even to end the current short position. Because the stop order turns out to be the market order, the real fill-in price may exist ahead of the stop price. And, more so in a hasty market.

The next post sees more about some other orders.

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Test the Trading Strategy

Forex trading a few decades back was carried on by veteran traders with just the pencil and paper. And they happened to be some of the most sophisticated traders ever in the history-with no computers or dealing desks. It is here, where the importance of formulating strategy comes into focus. For, that is what most decides whether the trading will be successful.
Some questions must be considered before zeroing in on a given forex strategy for its accuracy, including some of these:
• Is the strategy based on range or the trend.
• If the strategy is range based what can it offer to trade around the trends and vice versa.
• Is the strategy for intraday or planned for longer trading signals.
• If the strategy is for day trading what and how many hours do you need to watch the screen.
• If the strategy is for longer term, what is calculated drawdown in pips.
• Does the strategy have any historical performance on real accounts for more than one year.
• Does the strategy have particular money and risk management rules attached to it.
• What have been the highest and lowest risks to reward ratio of the previous year’s trades.
• Does the strategy have an exit or stop loss for varied market scenarios


Its best never, and I don’t usually say ‘never’, to apply a new strategy on live account unless it has been tested at least over more than a year or has been approved by some expert trader. Expert traders are wise as they have already practiced disciplined trading for a long time before trying anything with the real money. Forex trading can be best treated a science and not a gamble.

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Future spread trading

Future spread trading is by far one of the most lucrative and still the safest way for trading futures. This is sole reason why almost all professional trader use spread to enhance his profits. I think spread trading is especially beneficial to novice traders and traders with small(less than $10,000) or marginal accounts.Four important benefits can be outlined

Easy trading
For novel and experienced traders alike it is easy to detect a trend when using chart formations or indicators. Spreads have the peculiarity to make trends more radically than absolute future contracts. Spreads also trend without the interference or disturbance caused due to computers, scalpers or other market movers.

Small margin
Most spreads have lesser margin requirements allowing traders to put on increased positions. This is an advantage for traders with small accounts, as mentioned above. And it offers great leverage as well.


High return on margin
Every point in spread holds the same price as versus absolute future contracts. There is still amazing difference between the return on margin. Also, we can trade almost 6 times as much spread than future contracts.


Low time needed
A spread need not be watched all day long. No real time data is required either. Spreads can be traded most successful utilizing the data at the end of the day. Spread trading is also excellent thus if you do not/ cannot watch the computer screen all day long.

Futures spread trading has long been being traded by professional traders although it has had a low key profile up till now.

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Spread and Liquidity offered by Forex Brokers

Almost all brokers provide a thin spread for the major liquid pairs. Brokers can be seen to offer a spread of 2 to 3 pips for pairs such as the USD/JPY, EUR/USD, and the GBP/USD USD/CHF respectively. These are some of the most liquid pairs a trader generally focuses on.
Also, most forex brokers do not make a commission on every trade a trader makes. Their profit is based on the bid/ask spread calculated in pips. Like previously mentioned day traders try most to catch the small price fluctuations throughout the day. Profit goals here are smaller compared to a swing trader. For a day trader each pip counts.
Traders usually don't rather can’t afford to, trade with larger spreads because that can lead to the consumption of profit to such an extent where the required risk/reward wont be available. Most forex trading takes place with the more liquid pairs.

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Trading time for day traders

Since forex market operates on a 24 hour basis throughout except on the weekends it is crucial to understand the different currencies behavior. Day traders need to know the “personality” of the currency pairs they are trading. For instance the GBP/USD pair is the most explosive in the early to mid hours of the European session. Day traders often take lead of the rapid price movements of the pair rather than trading any other pair with slow or no activity. The USD/CAD pair is quieter during this time and gains momentum just before the start of the US session. All release of the Non Farm Payroll sees that most currency pairs have a little price range up to discharge time. Most traders do not consider trading during in these prior to announcement hours with plans based on breakouts. Strategies based on range support and resistance will be smarter.

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Formulating a Trading methodology in Forex

Losing in trading is obviously terrifying. It’s important that we don’t judge our trading based on a few trades-be they good or bad. What needs to be understood is that fortunes can be made in forex. It is keeping them that that is necessary. In forex you cannot get different results while doing the same thing. And people do sadly believe that same actions will yield different results.

Successful trading requires that we recognize patterns of beliefs/errors and rectify them at the earliest. Same actions cannot bring different results in forex.
Observation and rationale can help us do that. As such it is rather difficult because the nature of market is at the best random corroborations. And traders will vouch for this because forex market can be seen to apparently punish a good follow while rewarding a bad practice.
In fact in forex market as a trader you can lose for all the right reasons and someone else may win for all wrong reasons. This can be confusing as to what might be right even while it is wrong and vice versa of course. This is sole reason forex trading can be confounding and unsuccessful/unprofitable. This requires that traders adopt a comprehensive trading tactic to become competent traders.


Successful Trading in forex depends a lot on your strategy and method. I always like to emphasize that trading methods in forex needs to be comprehensive.
Discipline is one of the chief attributes of a successful trader. Disciplined traders never trade without a plan. In fact planning the trade is the survival tactic in forex trading and planning is the key to steady capital growth. It is here where the most traders fail. While trading in live markets, novice traders especially, find it hard to practice the same discipline they had while on demo/virtual accounts.


I would like to outline some basic trading methodologies for risk and money management in this next and the coming post. By no means would I say a trader has to use any of these although I really hope them to be helpful to novice traders and hope you may find something worthwhile to incorporate.

The first begins with determining the kind of market you are comfortable trading with. There two major preferences for entering the market. As a trader you can either be a trend follower or counter-trend trader. Or let’s say- a “pro trend” and an “anti trend” trader.
Traders who follow the trend mostly try to catch the long range trends.Sorry again for the blurred pictures.
From the above figure it can seen that the EUR/USD is on the downward trend for about two weeks. Now a pro trend trader would try to enter while he sees a probability of the downward trend continuing. See the trader open a short position on 4th Oct and keeping it open until 15th when there is the sign that trend will continue

A counter trend trader, on the other hand tries to trade the consolidations or range in the market. He won’t just stick to markets that show long term trends. Markets are possible to move in three directions at a given pin of time-up, down, or sideward. An anti trend trader will prefer to trade the up and down movements of sideward (ranging) market.
Here, the anti-trend trader will attempt simple philosophy to buy low and sell high or vice versa –sell high and buy low.

It can be seen above that the trader will short the pair while it reaches a certain high level while long it when it reaches a sure low level/s.
These figures show only a basic or say a rough outline of course. This actually requires the trader has sound technical analysis to back up his forecasting abut the market sentiments. An anti-trend trader tends to rely very much on the support and resistance levels and needs to be prepared to trade opposite the current trend if he thinks trend will witness a retraction or a pull back. Such traders also need to be alert about price breakouts which can threaten their position.

Next up let’s see the trading styles, tools and practice.

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Manage your Risk in Forex

There is one thing that distinguishes Forex Trading from gambling and that is-Money management. Money management in forex is as important as trading itself. In fact, it is the money management that should come first and the actual trading next.
Money management is the same as the “Risk management”. The amount of money invested in a trade is directly related the risk it carries. It is ability to bear the loss in case of a bad trade.

Most trading focuses on only making profit. The real focus should be to “protect the capital invested while making profits”. Unnecessary risks only burn the account with false/ill managed trades. Money management allows us to establish our own system in such a way that will guard the most crucial asset-your investment. Without the capital the game is over.

A few principles can be outlined here.

Trading with enough capital:
There isn’t a worst blunder than giving trading a shot without “sufficient” capital. Sufficient has the connotation of the spare/extra money you may have which you can afford to lose. A trader with restricted capital is not only always looking for cutting losses beyond what is realistic and hence always worried. The is one of sure shot way to fail in trading. In India only we have stories of traders committing suicides because the loss was too heavy to bear. Forex is risky by nature. Trading with the hard earned money will only cause heart burn.


Be disciplined:
Forex trading needs to be extremely disciplined. The word has been used to the extent of it becoming a cliché now. Nonetheless its significance has not lessened. And it needs to be continuously emphasized with being equally difficult to master. A disciplined trader will plan the trade and trade as per the plan. If its one word that separates Successful traders from others-it is Discipline.


Rule of thumb: don’t risk more than 2% of your total capital
How many trades will be successful in a system is never certain. Without money management you can be broke even before you can recover with further successful trades. It will require a new deposit each time. With 1% risk the trade is even more secure. But the key is not to risk any more than 2% of your total equity.


To sum it up
• Discipline saves from any unnecessary losses
• Risk is best minimized to a small percentage of the total capital.
• Use the risk-return ratio where less is more.

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Trading Journals in Forex :Turn your Weaknesses into Strengths

Keeping a trading journal helps a lot as it eventually becomes a valuable self written and analyzed resource. It really helps us better out trade because we have detailed information and can recognize and further eliminate/avoid making previously committed errors again and again.

I cannot over emphasize the importance of keeping a trading journal. One of chief reasons is that you can classify your errors into certain groups like “didn’t stick to the strategy”, changed time frame”, “and went against stop”, “stopped it too soon” etc and then easily identify a short coming in your trading strategy and work in the direction of not repeating it. I always like to focus on a single error and wipe it completely and then get on to the other-eventually mastering your weaknesses.

And then we have such varied options to do the same. It becomes extremely simple with a word doc, Excel spreadsheet,you blog or a thread on the forums. The last one is particularly interesting and useful for novice traders as you can readily share your trading experiences with others.I also like to participate here in other such sites where you can answer other people's queries.

But we cannot find all traders keep a journal. And there’s a reason. Keeping a journal is not hard however it needs “work” and a certain level of consistency. If it aint for that it is rather worthless. The key here again is that it gets better with time. The key to successful trading is to continuously measure, chase and keep it focused. I always like to say that two things in Forex trading can be disastrous- half baked knowledge and half –hearted efforts. Keeping a journal helps fight both.

You can include all the details in your journal
Fundamental and technical trading strategies
A profile of major currency pairs
Trade parameters for different market conditions
What moves the currency market?

With your trading journal you can enter the market with confidence and exit with exits!

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Popular Currency Crosses in Forex

Currency pairs in forex trading exclusive of the USD are commonly termed as cross currency pairs.
Pairs which include the Euro are referred to s the Euro crosses like EUR/JPY and EUR/CHF. Other pairs that do not deal with the euro can simply be called cross rates as the CAD/JPY, GBP? CHF etc.Currency crosses are the next most important pairs in forex after Major currency pairs.

The Yen is fast becoming a favorite due to lower interest rates on it and it trades excellent with NZD. NZD/JPY can let traders be eligible for good day interest fees if the pair is held long.

Trading the EUR/JPY
It is one of the highest traded cross currencies influenced chiefly by the movements of the EUR/USD and USD/JPY. Differential interest rates and growth rates in Japan and the Euro zone are crucial drivers. Oil price again is important as Japan nearly all its oil requirements.


Trading the EUR/GBP
UK’s second largest trading ally is the Euro zone. If you want to trade the British pound, this is one of the pairs you can trade as GBP/USD is affected more by the market outlook of the USD.

Vital points to be considered are the interest rates differences between the Bank of England and that of Europe (ECB). Other related economic data of the two zones with their growth differences is inevitable.


This pair is great for rather novice traders as it’s relatively low on volatility. And can be traded by using and analyzing the technical analysis with the fundamental.


Trading the EUR/CHF
Euro is a major trading associate of the Swiss zone. The pair is attractive currency cross for carry traders as the CHF has rather low interest rates while the largely tech and fundamental perspective supports the pair.
The interest and growth rate differences of the ECB and national Swiss bank and the fundamentals of the concerned zone are imperative.

The pair is characterized by going long on a high yielding (euro) currency against a low yield (CHF). Traders can earn day interest as the rollover fees if hold the pair long.


Trading the NZD/JPY

This pair is always excellent for carry trades as the pair has one of the highest interest rates differences. It also becomes appealing as the currency cross to long on carry trade with the technical and fundamental outlook mostly supporting the rise of NZD/JPY.
Important elements are the interest rate differences between the Bank of Japan and the reserve Bank of New Zealand. As also the fundamentals of both the zones.

The pair can be traded by using the technical and fundamental news reports from the respective zones. Traders can earn rollover fees when holding this pair long.
The pair attractive mostly due to the big differential interest rates between the NZD (7%) and JPY (0.25%).


Trading the GBP/JPY
The pair sees most of action. If its volatility that you are looking for look no further than this pair-it can move 300 pips in a single day.

The interest rate difference between the two concerned banks-that is the Bank of England and that of Japan is important. As also the differential growth rates between the zones. Oil price is very crucial as Japan imports 99% of it oil requirements.
GBP/JPY come across as an extremely volatile cross currency pair and hence is no pair to cut teeth.

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Commodity Pairs in Forex Trading

Continuing from the last post on Major Currency Pairs, lets talk about here the Commodity Pairs.

Three pairs have maximum association with the commodities namely the Australian dollar (AUD), the Canadian dollar (CAD) and the New Zealand dollar (NZD). Of these the AUD/USD and NZD/USD are the pairs very much related with rise and fall in gold price.
And the USD/CAD is the pair benefiting most from any rise in oil prices.

It is always a good idea to consider the associated commodities while trading with the commodities pairs. It assists us greatly in forecasting any movements. Suppose you can see gold continuously rising, then you can think of buying the Australian dollar because it’s highly directly related to gold.


Trading the AUD/USD
Australia is the third largest exporter of gold in the world, hence the apparent high direct Connection of the AUD with this yellow metal. As mentioned above, if gold can be seen to increase in price consistently, it may be good strategy to favour a commodity based currency like the Australian dollar.
Two points are important here:
I find myself reiterating this however if you believe gold prices will continue to rise, then it may be a sound to favour the AUD, because it is around 80% positively related to gold.
As AUD/USD is directly correlated to bullion, I always like to compare the gold charts and AUD/USD to predict further movements. Consider this: If AUD/USD doesn’t break resistance level with gold breaks above a vital resistance level, chances are high that AUD/USD will break above also. Thus gold can be seen to escort the movement of AUD/USD.

Trading the NZD/USD
New Zealand’s economy is related to Australia. Hence the natural very high positive relation between the NZD and AUD. the NZD can be found to have even more positive correlation with gold prices. And this correlation can has been increasing in the recent times with the correlation being as high as 88% in past three years. Here again if you can see gold rising there’s good reason to favour a currency like NZD because with gold rise it is extremely probable to follow suit.
Thus we can find that NZD is very much directly related to gold price and a good strategy may be to buy it when gold is rising.
Comparing the gold charts with NZD/USD helps in forecasting future moves of the pair.



Trading the USD/CAD
This pair is one of the biggest benefactors of the rise in the oil prices. Canada is one of biggest exporter of oil to the US. We can see Canada will have a boost in its economy if the oil price continues to gain. Thus, oil price rise furthers the CAD. The Association between CAD and oil price has been pretty high with sometimes it being as high as 80% in last few years.
You can consider buying the CAD if you can see the oil rise in the future.
Then again, comparing the USD/CAD and the oil charts is helpful in predicting future movements of the Canadian dollar. If you can find the CAD hasn’t broken the resistance level in spite of the oil breaking above a vital level, USD/CAD is mostly likely to break above too. This explains how the movements of USD/CAD are lead by oil price.

Next up we'll see about the popular currency crosses.

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Major currency pairs in Forex Trading

The US dollar serves as the one of the currency for the seven most liquid pairs traded in forex.First fours are the major pairs followed by three commodity pairs. Pairs that include the Euro as also referred to as the currency crosses as the EUR/GBP, EUR/JPY, and EUR/CHF etc.

Let’s see how the four major pairs fare.
EUR/USD
GBP/USD
USD/JPY
USD/CHF





Sorry for blurred pic.You can click on it for better veiwing.

Trading the EUR/USD
The pair is both days traded and swing traded. Since the pair is one of the strongest, advances as well as the new traders invest in it.


Trading decision can be based on analyzing and applying Technical and Fundamental news from the Euro and Us zone. Unexpected economic news release can drive the pair to further ahead in a single direction without any retracements.
Another point to be considered is the comparison between the EUR/USD and USD/CHF.
Euro-USD is mostly inversely correlated to USD/CHF, thus comparing charts for both help in future movement predictions. To illustrate- the EUR/USD is likely to break under the support level if, the USD/CHF breaks above a significant resistance level and the euro USD doesn’t break support level. In a way, USD/CHF seems to escort the movement of EUR/USD.


Trading the GBP/USD
This is third most traded pair in forex. And also one of the most volatile. Novice traders are not advised to trade in this pair until some experience is gained.

News from the UK and US zone assists making trading decision for this pair. The pair is prone to false breakouts. Other factors that affect the pound are, firstly, the difference between the interest rates of the Federal Reserve and the Bank of England. Secondly, high growth in the UK can push the pound further.



Trading the USD/JPY
This pair accounts for the second most traded pair in forex. News from the Asian zone is crucial to make related trading decisions. The USD/JPY often sees sustained breakouts.
Other factors that affect the pair can be the difference of interest rates of the Federal Reserve and the bank of Japan. Any interference of the Japanese government to strengthen the Yen, can worsen the pair



Trading the USD/CHF
It is least traded major pair. As mentioned above this pair is negatively related to EUR/USD.
Traders with moderate experience and of course the learned traders can trade in this pair.
Trading news from US and CHF is relevant. USD/CHF pulls through the geopolitical volatility. Also global stability will mark further movement in this pair.

Most of the pairs are both swing and day traded. While the average spread varies between 2-4 pips for EUR/USD and USD/JPY, for GBP/USD and USD/CHF its 4-5 pips.
Next post sees the personality traits of the commodity pairs.

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