2/8/2009 - forex trading: Elliott waves theory |
The Elliott Waves Principle is a system of empirically derived rules about the amount of
ascending and descending waves during the history of a market movement. This theory postulates that all the market movement consists of cycles containing 8 waves each including five waves in the direction of the trend at one larger scale and three waves against that trend. In a rising market, this five wave/three-wave pattern forms one complete bull market/bear market cycle of eight waves. The five-wave upward movement as a whole is referred to as an impulse wave with sub waves labeled with figures while the three-wave countertrend movement is described as a corrective wave with sub waves labeled with letters (See Figure 5.1).
Amplitudes of the correction waves subordinate certain rules: a second wave may never
retrace more than 100 percent of a first wave (for example, in a bull market, the low of the second wave may not go below the beginning of the first wave); the third wave is never the shortest wave in an impulse sequence, often, it is the longest; a fourth wave can never enter the price range of a first wave (See Figure 5.2) As the illustration shows, waves of any degree in any series can be subdivided and resubdivided into waves of smaller degree or expanded into waves of larger degree. Furthermore, smaller-scale movements link up to create larger-scale movements possessing the same basic form.
Conversely, large-scale movements consist of smaller-scale subdivisions with which they share a geometric similarity. Because these movements link up in increments of five waves and three waves, they generate sequences of numbers that the analyst can use (along with the rules of wave formation) to help identify the current state of pattern development, as shown in Figure 5.3. Extentions. In any given five-wave sequence, a tendency exists for one of the three impulse sub waves (i.e., wave 1, wave 3, or wave 5) to be an extension—an elongated movement, usually with internal subdivisions. At times, these subdivisions are of nearly the same amplitude and duration as the larger degree waves of the main impulse sequence, giving a total count of nine waves of similar size rather than the normal count of five for the main sequence (See Figure 5.4). Extensions can provide a useful guide to the lengths of future waves. Most impulse equences contain extensions in only one of their three impulsive sub waves. Thus, if the first and third waves are of about the same magnitude, the fifth wave probably will be extended, especially if volume during the fifth wave is greater than during the third.
Diagonal Triangles. There are certain patterns resembling known from the technical analysis
theory including two types of triangles, which are to be considered from the Elliott theory position.
The diagonal triangle type 1 occurs only in fifth waves and in С waves, and it signals that the
preceding move has "gone too far, too fast," as Elliott put it. Essentially a rising wedge formation defined by two converging trend lines, type 1 diagonal triangles indicate exhaustion of the larger movement.
Unlike other impulse waves, all of the patterns' sub-waves, including waves 1, 3, and 5, consist of threewave movements, and their fourth waves often enter the price range of their first waves, as shown in Figures 5.5 and 5.6. A rising diagonal triangle type 1 is bearish, because it is usually followed by a sharp decline, at least to the level where the formation began. In contrast, a falling diagonal type 1 is bullish, because an upward thrust usually follows.
The diagonal triangle type 2 occurs even more rarely than type 1. This pattern, found in firstwave or A-wave positions in very rare cases, re sembles a diagonal type 1 in that it is defined by converging trend lines and its first wave and fourth wave overlap, as shown in Figure 5.7. However, it differs significantly from type 1 in that its impulsive sub waves (waves 1, 3, and 5) are normal, five-wave impulse waves, in contrast to the three-wave sub waves of type 1. This is consistent with the message of the type 2 diagonal triangle, which signals continuation of the underlying trend, in contrast to the type 1 's message of termination of the larger trend.
Failures (Truncated Fifths). Elliott used the word failure to describe an impulse pattern in which
the extreme of the fifth wave fails to exceed the extreme of the third wave. Figures 5.8 and 5.9 show examples of failures in bull and bear markets. As the illustrations show, the truncated fifth wave contains the necessary impulsive (i.e., five-wave) substructure to complete the larger movement. However, its failure to surpass the previous impulse wave's extreme signals weakness in the underlying trend, and a sharp reversal usually follows.
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19/7/2009 - MINIMIZING THE RISKS |
There is no way around the risks inherent in trading counter to the prevailing market action. All we can do is reduce the risks as much as possible by using the tools available. Happily, there are ways to do this.
First, always be aware of the longer-term picture. If the market you are planning to trade is in the middle of a strong trend, going against that action is probably one of the quickest ways to lose money. Wait until the momentum starts to ease; this will reduce your chances of getting caught on the wrong side of a breakout.
Further, this is a good time to mention a candlestick caveat: Beware of reversal patterns signaled by candlesticks in a trending market. The bond market is especially notorious for throwing out countertrend candlestick signals during major trends, and I've seen the same in other markets as well. Never look at candles in a vacuum.
So what should we look at in conjunction with candlesticks to lower our risk in the countertrend trades I am suggesting? For one, there's John Bollinger's band width indicator (BWI) as a trend indicator, which can be used by monitoring the area between the upper and lower bands. (I outlined this technique in the November 1994 STOCKS & COMMODITIES.) I like to use the BWI as an indicator of a weakening trend; I want to jump in when the slope of the BWI line starts to decrease. This is the first signal that the trend is petering out, and that at this point countertrend trades are reasonably safe.
There are, of course, other technicals that you can use. Bollinger bands themselves can be helpful, among others.
Select the tool or tools that make you most comfortable.
More important than any additional indicator you could use, however, is your money management strategy. There are many ways you could trade using this methodology, and each has its own advantages and limitations. Cash or futures trading exposes you to the potential for theoretically unlimited risk, requiring tight stops and quick ***cutions. Options could limit your risk, but probably at the cost of requiring larger moves to make them worthwhile. Of course, you may be able to tailor a combination of instruments to suit your needs.
An important factor in determining your risk exposure, and as a result how you trade, is the point at which you cut your losses. Often, there is no second support or resistance level nearby to provide a good stop-loss point, which means you'll have to use your own instinct as a guide. I find it useful to use whatever candlestick shadows there are as a rough guide to how far the market might go against me, thus letting me set reasonably good stops.
One last thing to consider: Where you're going to get out. I use a combination of techniques. Fibonacci retracement levels work fairly well, as do moving averages. I prefer to determine another support or resistance point using real bodies. Unfortunately, there are times when a significant level is not available nearby, forcing me to use other techniques.
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19/7/2009 - TRADING APPLICATIONS |
One of the first uses that many technicians see for this technique is in terms of breakouts, much like in using bars.
The advantage in using real-body highs and lows for support and resistance is that ranges are tighter, allowing entry into a trading position earlier than might otherwise have been the case.
Perhaps the most intriguing part of this new methodology, however, is its usefulness for day trading. Most technicians use candlesticks as a day-end indicator, but this technique gives us a greater degree of depth than is necessary for day trading. Real-body support and resistance allow us to take our analysis into the shorter time frames, which in turn allows us to get better entry points for our longer-term trades.
In my own analysis, I favor trading counter to the prevailing market action when a nearby real-body support or resistance level has been crossed intraday. This means that I recommend selling when the market has broken through very recent real-body resistance, and buying when recent real-body support has been breached. This is my strategy for trading against levels that are only a few days old, and one I recommend mostly for a very short-term position (say, day trading).
Longer-term levels require trading against the approach of a level. Often, in such cases, prices have come from a relatively long way off, and just reaching those key levels is a major achievement. Waiting for a break of support or resistance may mean missing a trade. Positions set under these circumstances can be held for longer time frames, perhaps as long as a week.
In candlestick charting, as in bar charting, the more times a level is touched, the more significant the level becomes.
This is, however, a double-edged sword; if a resistance point is touched or penetrated slightly several times, it becomes more likely that a real breakout is in the offing. The wrong side of a breakout is not where we want to be.
At the same time, however, the more times that a resistance point is touched, the larger the eventual decline is likely to be if the market falls instead of rallying.
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17/7/2009 - Currency pairs |
 The currencies are always traded in pairs. For example, EUR/USD, which means Euro over US dollars, would be a typical pair. In this case, the Euro, being the first currency can be called the base currency. The second currency, by default USD, is called the counter or quote currency.
As mentioned, the first currency is the base, therefore in a pair you can refer the amount of that currency as being the amount required to purchase one unit of the second currency.
So, if you want to buy the currency pair, you have to buy the EURO and sell the USD simultaneously.
On the other hand, if you are looking forward to sell the currency pair, you have to sell the EURO and buy the USD.The most important thing to understand in a currency pair, or more precisely in a Forex transaction, is that you will be selling or buying the same currency.
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17/7/2009 - Benefits of Forex Trading vs. Equity Trading |
• 24 hour trading • Liquidity
• 50:1 Leverage to 400:1 Leverage
• Lower transaction costs
• Equal access to market information
• Profit potential in both rising and falling markets
24-hour trading
The main advantage of the Forex market over the stock market and other exchange-traded instruments is that the Forex market is a true 24-hour market. Whether it’s 6pm or 6am, somewhere in the world there are always buyers and sellers actively trading Forex so that investors can respond to breaking news immediately. In the currency markets, your portfolio won’t be affected by after hours earning reports or analyst conference calls.
Recently, after hours trading has become available for US stocks - with several limitations. These ECNs (Electronic Communication Networks) exist to bring together buyers and sellers when possible. However, there is no guarantee that every trade will be ***cuted, nor at a fair market price. Quite frequently, stock traders must wait until the market opens the following day in order to receive a tighter spread.
Liquidity
With a daily trading volume that is 50 times larger than the New York Stock Exchange, there are always broker/dealers willing to buy or sell currencies in the FX markets. The liquidity of this market, especially that of the major currencies, helps ensure price stability. Investors can always open or close a position, and more importantly, receive a fair market price.
Because of the lower trading volume, investors in the stock market and other exchange-traded markets are more vulnerable to liquidity risk, which results in a wider dealing spread or larger price movements in response to any relatively large transaction.
50:1 Leverage to 400:1 Leverage
Leveraged trading, also called margin trading, allows investors in the Forex market to ***cute trades up to $250,000 with an initial margin of only $5000. However, it is important to remember that while this type of leverage allows investors to maximize their profit potential, the potential for loss is equally great. A more pragmatic margin trade for someone new to the FX markets would be 5:1 or even 10:1, but ultimately depends on the investor’s appetite for risk. On the other hand, a 100:1 leverage would be the foremost suggested margin trading to use for the best risk and reward return.
Lower transaction costs
It is much more cost efficient to invest in the Forex market, in terms of both commissions and transaction fees.
Commissions for stock trades range from a low of $7.95-$29.95 per trade with on-line brokers to over $100 per trade with traditional brokers. Typically, stock commissions are directly related to the level of ******* offered by the broker. For instance, for $7.95, customers receive no access to market information, research or other relevant data. At the high end, traditional brokers offer full access to research, analyst stock recommendations, etc.
In contrast, on-line Forex brokers charge significantly lower commission and transaction fees. Some, like FCStone FX, charge LOW fees, while still offering traders access to all relevant market information.
In general, the width of the spread in a FX transaction is less than 1/10 as wide as a stock transaction, which typically includes a 1/8 wide bid/ask spread. For example, if a broker will buy a stock at $22 and sell at $22.125, the spread equals .006. For a FX trade with a 5 pip wide spread, where the dealer is willing to buy EUR/USD at .9030 and sell at .9035, the spread equals .0005.
Equal access to market information
Professional traders and analysts in the equity market have a definitive competitive advantage by virtue of that fact that they have first access to important corporate information, such as earning estimates and press releases, before it is released to the general public. In contrast, in the Forex market, pertinent information is equally accessible, ensuring that all market participants can take advantage of market-moving news as soon as it becomes available.
Profit potential in both rising and falling markets
In every open FX position, an investor is long in one currency and short the other. A short position is one in which the trader sells a currency in anticipation that it will depreciate. This means that potential exists in a rising as well as a falling FX market. The ability to sell currencies without any limitations is one distinct advantage over equity trading. It is much more difficult to establish a short position in the US equity markets, where the Uptick rule prevents investors from shorting stock unless the immediately preceding trade was equal to or lower than the price of the short sale.
source: http://e-junkie.com/trader-info
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17/7/2009 - Benefits of Trading FX on the Internet |
• Deal directly from live price quotes
• Instantaneous trade ***cution and confirmation
• Fast and efficient ***cution of deals
• Lower transaction costs
• Real-time profit and loss analysis
• Full access to market information
Deal directly from live price quotes
Very few on-line brokers are able to offer their clients real-time bid/ask quotes, which facilitates instantaneous deal ***cution - no missed market opportunities. Real-time prices also allow investors to compare an on-line broker’s dealing spread with that of other pricing *******s, to ensure they are receiving the best possible price on all their Forex transactions.
Many on-line Forex brokers require their clients to request a price before dealing. This is disadvantageous for a number of reasons, primarily because it significantly lengthens the ***cution process from just a few seconds to possibly as long as a minute. In a fast paced market, this could make a significant difference in an investor’s profit potential. Also, some of the more unscrupulous brokers may use the opportunity to look at an investor’s current position. Once they have determined whether the investor is a buyer or a seller, they ‘shade’ the price to increase their own profit on the transaction.
Instantaneous trade ***cution and confirmation
Timing is everything in the fast-paced Forex market. On-line trades are ***cuted and confirmed within seconds, which ensures that traders do not miss market opportunities. Even the incremental extra time it takes to complete a transaction over the phone can mean a big difference in profit potential.
Lower transaction costs
Simply, ***cuting trades electronically reduces manual effort, thereby lowering the costs of doing business. On-line brokers are then able to pass along the savings to their client base.
Real-time profit and loss analysis
The fast-paced nature of the Forex market compels traders to ***cute multiple trades each day. It is vital for each client to have real-time information about their current position in order to make well-informed trading decisions.
Full access to market information
Access to timely and relevant information is critical. Professional traders pay thousands of dollars each month for access to major information providers. However, the very nature of the Internet affords users free access to reliable market information from a variety of sources, including real-time price quotes, international news, government-issued economic indicators and reports, as well as subjective information such as expert commentary and analysis, trader chat forums etc.
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17/7/2009 - Benefits of Online Investing |
 Online trading has caused a major paradigm shift in investing. At the turn of the millennium, there are over 6 million online investment accounts, up from 1.5 million in 1997. As a result, start-up firms now compete directly with financial institutions to serve investors in the new Economy, and the clear winner is the customer. The competition between the brick and mortar institutions and the Internet-based companies has dramatically lowered the costs of investing, and empowered the individual investor to take control of their own investment strategy.
On-line trading will revolutionize the currency markets by making it accessible to the small and medium sized investor. For the first time, these investors have the ability to ***cute transactions of between $100,000 and $10,000,000 at the same prices the Interbank market offers for deals well over $10,000,000. This benefits both those who wish to speculate on the direction of the currency markets for profit, as well as the money manager or corporate treasurer looking to hedge against unwanted exposure to future price fluctuations in the currency markets.
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17/7/2009 - Factors Affecting the Market |
Currency prices are affected by a variety of economic and political conditions, most importantly interest rates, inflation and political stability. Moreover, governments sometimes participate in the Forex market to influence the value of their currencies, either by flooding the market with their domestic currency in an attempt to lower the price, or conversely buying in order to raise the price. This is known as Central Bank intervention. Any of these factors, as well as large market orders, can cause high volatility in currency prices. However, the size and volume of the Forex market makes it impossible for any one entity to «drive» the market for any length of time.
Another factor affecting the market, with an effect as important as the other factors mentioned above, is the news. Once released, the news have a direct outcome on the currency price as per news are always directly related to the economic stability of the market. Here’s a list of channels that will provide you useful information on currency news:
CNBC – USD News
Rob TV – CAD News
Bloomberg TV – EUR News
The Market Hours
The trading begins once the markets are officially open in Tokyo, Japan at 7:00 PM Sunday, New York time.
Afterwards, at 9:00 PM EST, Singapore and Hong Kong opens followed by the European markets in Frankfurt at 2:00 AM and in London at 3:00 AM.When the clock reaches 4:00 AM, the European markets are in the hot spot and Asia just concluded its trading day.Around 8:00 AM on Monday, the US markets opens in New York while Europe is slowly going down. Australia will take the lead around 5:00 PM and when it is 7:00PM again, Tokyo is ready to reopen.
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17/7/2009 - Day-trading overview |
| Day-trading, which was once the exclusive domain of the floor trader, is now fair game for all speculators. Inspired in part by large intraday price swings, instant availability of quotes, affordable high-powered computers and competitive commissions, the new wave of day-trading methods and systems has attracted thousands of traders in recent years. The undeniable thrill of trading within the time span of one day is, however, a double-edged sword: one that can hurt as well as heal. To be successful, a day-trader must have the discipline of a machine, the instincts of a fox, the emotions of a rock, the skills of a surgeon and the patience of a saint. (And a little luck wouldn’t hurt either.) The day trader works more with the emotions along with the fundamental analysis.
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17/7/2009 - Important dates in the Forex History |
Early 20th
Century Only in the 20th century paper money start regular circulation. This happened by force of legislation, the efforts of central banks to manage money supplies, and government control of gold supplies. Within a country, this fiat money is as good as any other form. Internationally, it is not. International trade has always demanded a money standard accepted everywhere. Gold and silver provided such a standard for centuries. An official Gold Standard regulated the value of money for about a century, prior to the start of World War I in 1914.
1929
The dollar has been perceived as more of a has-been, due to the Stock Market Crash and the subsequent Great Depression.
1930
The Bank for International Settlements (BIS) was established in Basel, Switzerland. Its goals were to oversee the financial efforts of the newly independent countries, along with providing monetary relief to countries with temporary balance of payments difficulties.
1931
The Great Depression, combined with the suspension of Gold Standard, created a serious diminution in foreign exchange dealings.
World War II
Before World War II, currencies around the world were quoted against the British Pound. World War II crashed the Pound. The only country unscarred by the war was the US. The US dollar became the prominent currency of the entire world.
1944
The United National Monetary and Financial Conference at Bretton Woods, New Hampshire discussed the financial future of the post-war world. The major Western Industrialized nations agreed to a «pegging» of the US Dollar, which in turn was pegged at $35.00 to the troy ounce of gold. The future was designed to be stable, in part due to the tight governmental controls on currency values. The US dollar became the world’s reserve currency.
1957
The European Economic Community was established.
1967
At the IMF meeting in Rio de Janeiro, the Special Drawing Rights (SDRs) were created. SDRs are international reserve assets created and allocated by the IMF to supplement the existing reserve assets.
1971
The Smithsonian Agreement, reached in Washington, D.C., had a transitional role to the free floating markets. The ranges of currencies fluctuations relative to the US dollar were increased from 1 percent to 4.5 percent band. The range of currencies fluctuating against each other was increased up to 9 percent. As a parallel, the European Economic Community tried to move away from the US dollar block toward the Deutsche Mark block, by designing its own European Monetary System. In the summer of 1971, President Nixon took the United States off the gold standard, and floating exchange rates began to materialize.
1972
West Germany, France, Italy, the Netherlands, Belgium and Luxembourg developed the European Joint Float. Member currencies were allowed to fluctuate within 2.25 percent band (the snake), against each other and 4.5 percent band (the tunnel) against the USD.
1973
The Smithsonian Institution Agreement and the European Joint Float systems collapsed under heavy market pressures. Following the second major devaluation in the US dollar, the fixed-rate mechanism was totally discarded by the US Government and replaced by The Floating Rate.
1978
The International Monetary Fund officially mandated free currency floating.
1979
The European Monetary System was established.
1999
January 1st, 1999, the Euro makes its official appearance within the countries members of the European Union.
2002
January 1st, 2002, the Euro becomes the only currency and replaces all other twelve national currencies within the European Union and Monetary Market: Belgium, Germany, Greece, Spain, France, Ireland, Italy, Luxembourg, Netherlands, Austria, Portugal and Finland.
TODAY
Today, supply and demand for a particular currency, or its relative value, is the driving factors in determining exchange rates. Decreasing obstacles and increasing opportunities, such as the fall of communism and the dramatic growth of the Asian and Latin American economies, have created new opportunities for investors. Increasingly vast amounts of foreign currencies began flowing into other countries banks.
Players in the Forex Market
Central Banks - The national central banks play an important role in the (FOREX) markets. Ultimately, central banks seek to control the money supply and often have official or unofficial target rates for their currencies. As many central banks have very substantial foreign exchange reserves, their intervention power is significant. Among the most important responsibilities of a central bank is the restoration of an orderly market in times of excessive exchange rate volatility and the control of the inflationary impact of a weakening currency.
Frequently, the mere expectation of central bank intervention is sufficient to stabilize a currency, but in case of aggressive intervention the actual impact on the short-term supply/demand balance can lead to the desired moves in exchange rates. If a central bank does not achieve its objectives, the market participants can take on a central bank. The combined resources of the market participants could easily overwhelm any central bank. Several scenarios of this nature were seen in the 1992-93 with the European Exchange Rate Mechanism (ERM) collapse and 1997 throughout South East Asia.Banks - The Interbank market caters to both the majority of commercial turnover as well as enormous amounts of speculative trading. It is not uncommon for a large bank to trade billions of dollars daily. Some of this trading activity is undertaken on behalf of corporate customers, but a banks treasury room also conducts a large amount of trading, where bank dealers are taking their own positions to make the bank profits.
The Interbank market has become increasingly competitive in the last couple of years and the god-like status of top foreign exchange traders has suffered as equity traders are again back in charge. A large part of the banks’ trading with each other is taking place on electronic booking systems that have negatively affected traditional foreign exchange brokers.Interbank Brokers - Until recently, foreign exchange brokers were doing large amounts of business, facilitating Interbank trading and matching anonymous counterparts for comparatively small fees. With the increased use of the Internet, a lot of this business is moving onto more efficient electronic systems that are functioning as a closed circuit for banks only.
The traditional broker box, which lets bank traders and brokers hear market prices, is still seen in most trading rooms, but turnover is noticeably smaller than just a few years ago due to increased use of electronic booking systems.
Commercial Companies - The commercial companies’ international trade exposure is the backbone of the foreign exchange markets. A multinational company has exposure in accounts receivables and payables denominated in foreign currencies.
They can be protected against unfavorable moves with foreign exchange. That is why these markets are in existence. Commercial companies often trade in sizes that are insignificant to short term market moves, however, as the main currency markets can quite easily absorb hundreds of millions of dollars without any big impact. It is also clear that one of the decisive factors determining the long-term direction of a currency’s exchange rate is the overall trade flow. Some multinational companies, whose exposures are not commonly known to the majority of market, can have an unpredictable impact when very large positions are covered.Retail Brokers - The arrival of the Internet has brought us a host of retail brokers. There is a numbered amount of these non-bank brokers offering foreign exchange dealing platforms, analysis, and strategic advice to retail customers. The fact is many banks do not undertake foreign exchange trading for retail customers at all, and do not have the necessary resources or inclination to support retail clients adequately. The *******s of such retail foreign exchange brokers are more similar in nature to stock and mutual fund brokers and typically provide a *******-orientated approach to their clients.
Hedge Funds - Hedge funds have gained a reputation for aggressive currency speculation in recent years. There is no doubt that with the increasing amount of money some of these investment vehicles have under management, the size and liquidity of foreign exchange markets is very appealing. The leverage available in these markets also allows such a fund to speculate with tens of billions at a time. The herd instinct that is very apparent in hedge fund circles was seen in the early 1990’s with George Soros and others squeezing the GBP out of the European Monetary System. It is unlikely, however, that such investments would be successful if the underlying investment strategy was not sound. It is also argued that hedge funds actually perform a beneficial ******* to foreign exchange markets. They are able to exploit economical weakness and to expose a countries unsustainable financial plight, thus forcing realignment to more realistic levels.Investors and Speculators - In all efficient markets, the speculator has an important role taking over the risks that a commercial participant hedges. The boundaries of speculation in the foreign exchange market are unclear, because many of the above mentioned players also have speculative interests, even central banks. The foreign exchange market is popular with investors due to the large amount of leverage that can be obtained and the liquidity with which positions can be entered and exited. Taking advantage of two currencies interest rate differentials is another popular strategy that can be efficiently undertaken in a market with high leverage. We have all seen prices of 30 day forwards, 60 day forwards etc, that is the interest rate difference of the two currencies in exchange rate terms.
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17/7/2009 - The Euromarket |
 A major catalyst to the acceleration of Forex trading was the rapid development of the Eurodollar market; where US dollars are deposited in banks outside the US. Similarly, Euromarkets are those where assets are deposited outside the currency of origin. The Eurodollar market first came into being in the 1950s when Russia’s oil revenue - all in dollars - was deposited outside the US in fear of being frozen by US regulators. That gave rise to a vast offshore pool of dollars outside the control of US authorities. The US government imposed laws to restrict dollar lending to foreigners. Euromarkets were particularly attractive because they had far less regulations and offered higher yields. From the late 1980s onwards, US companies began to borrow offshore, finding Euromarkets a beneficial center for holding excess liquidity, providing short-term loans and financing imports and exports.
London was, and remains the principal offshore market. In the 1980s, it became the key center in the Eurodollar market when British banks began lending dollars as an alternative to pounds in order to maintain their leading position in global finance. London’s convenient geographical location (operating during Asian and American markets) is also instrumental in preserving its dominance in the Euromarket.
source: http://www.forextrue.org
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17/7/2009 - De******ion of the Forex currency market |
The Forex market, established in 1971, was created when floating exchange rates began to materialize. The Forex market is not centralized, like in currency futures or stock markets. Trading occurs over computers and telephones at thousands of locations worldwide.
The Foreign Exchange market, commonly referred as FOREX, is where banks, investors and speculators exchange one currency to another. The largest foreign exchange activity retains the spot exchange (i.e.., immediate) between five major currencies: US Dollar, British Pound, Japanese Yen, Eurodollar and the Swiss Franc.
It is also the largest financial market in the world. In comparison, the US stock market may trade $10 billion in one day, whereas the Forex market will trade up to $2 trillion in one single day. The Forex market is an opened 24 hours a day market where the primary market for currencies is the 24-hour Interbank market. This market follows the sun around the world, moving from the major banking centres of the United States to Australia and New Zealand to the Far East, to Europe and finally back to the Unites States.Until now, professional traders from major international commercial and investment banks have dominated the FX market.
Other market participants range from large multinational corporations, global money managers, registered dealers, international money brokers, and futures and options traders, to private speculators. There are three main reasons to participate in the FX market. One is to facilitate an actual transaction, whereby international corporations convert profits made in foreign currencies into their domestic currency. Corporate treasurers and money managers also enter the FX market in order to hedge against unwanted exposure to future price movements in the currency market. The third and more popular reason is speculation for profit. In fact, today it is estimated that less than 5% of all trading on the FX market is actually facilitating a true commercial transaction.
The FX market is considered an Over The Counter (OTC) or ‘Interbank’ market, due to the fact that transactions are conducted between two counterparts over the telephone or via an electronic network. Trading is not centralized on an exchange, as with the stock and futures markets. A true 24-hour market, Forex trading begins each day in Sydney, and moves around the globe as the business day begins in each financial center, first to Tokyo, London, and New York. Unlike any other financial market, investors can respond to currency fluctuations caused by economic, social and political events at the time they occur - day or night.
History of the ForexMoney, in one form or another, has been used by man for centuries. At first it was mainly Gold or Silver coins. Goods were traded against other goods or against gold. So, the price of gold became a reference point. But as the trading of goods grew between nations, moving quantities of gold around places to settle payments of trade became cumbersome, risky and time consuming. Therefore, a system was sought by which the payment of trades could be settled in the seller’s local currency. But how much of buyer’s local currency should be equal to the seller’s local currency?
The answer was simple. The strength of a country’s currency depended on the amount of gold reserves the country maintained. So, if country A’s gold reserves are double the gold reserves of country B, country A’s currency will be twice in value when exchanged with the currency of country B. This became to be known as The Gold Standard. Around 1880, The Gold Standard was accepted and used worldwide.
During the first WORLD WAR, in order to fulfill the enormous financing needs, paper money was created in quantities that far exceeded the gold reserves. The currencies lost their standard parities and caused a gross distortion in the country’s standing in terms of its foreign liabilities and assets. After the end of the second WORLD WAR the western allied powers attempted to solve the problem at the Bretton Woods Conference in New Hampshire in 1944. In the first three weeks of July 1944, delegates from 45 nations gathered at the United Nations Monetary and Financial Conference in Bretton Woods, New Hampshire. The delegates met to discuss the postwar recovery of Europe as well as a number of monetary issues, such as unstable exchange rates and protectionist trade policies. During the 1930s, many of the world’s major economies had unstable currency exchange rates. As well, many nations used restrictive trade policies. In the early 1940s, the United States and Great Britain developed proposals for the creation of new international financial institutions that would stabilize exchange rates and boost international trade.
There was also a recognized need to organize a recovery of Europe in the hopes of avoiding the problems that arose after the First World War. The delegates at Bretton Woods reached an agreement known as the Bretton Woods Agreement to establish a postwar international monetary system of convertible currencies, fixed exchange rates and free trade. To facilitate these objectives, the agreement created two international institutions: the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (the World Bank). The intention was to provide economic aid for reconstruction of postwar Europe.
An initial loan of $250 million to France in 1947 was the World Bank’s first act. Under the Bretton Woods Exchange System, the currencies of participating nations could be converted into the US dollar at a fixed rate, and foreign central banks could convert the US dollar into gold at a fixed rate. In other words, the US dollar replaced the then dominant British Pound and the parities of the world’s leading currencies were pegged against the US Dollar. The Bretton Woods Agreement was also aimed at preventing currency competition and promoting monetary co-operation among nations. Under the Bretton Woods system, the IMF member countries agreed to a system of exchange rates that could be adjusted within defined parities with the US dollar or, with the agreement of the IMF, changed to correct a fundamental disequilibrium in the balance of payments.
The per value system remained in use from 1946 until the early 1970s. The United States, under President Nixon, retaliated in 1971 by devaluing the dollar and forcing realignment of currencies with the dollar. The leading European economies tried to counter the US move by aligning their currencies in narrow band and then float collectively against the US dollar.
Fortunately, this currency war did not last long and by the first half of the 1970’s leading world economies gave up the fixed exchange rate system for good and floated their currencies in the open market. The idea was to let the market decide the value of a given currency based on the demand and supply of the currency and the economic health of the currency’s nation. This market is popularly known as the International Monetary Market or IMM. This IMM is not a single entity. It is the collection of all financial institutions that have any interest in foreign currencies, all over the world. Banks, Brokerages, Fund Managers, Government Central Banks and sometimes individuals, are just a few examples.
This is very much the present system of exchange of foreign currencies. Although the currency’s value is dependent on the market forces, the central banks still try to keep their currency in a predefined (and highly confidential) fluctuation band. They accomplish this by taking one or more of various steps.
The International Trade Organization that had been planned in the Bretton Woods Agreement could not be realized in the form initially envisaged - the US Congress would not endorse it. Instead, it was created later, in 1947, in the form of the General Agreement on Tariffs and Trade, which was signed by the US and 23 other countries including Canada. The GATT would later become known as the World Trade Organization.
In recent years, the two international institutions created at Bretton Woods the World Bank and the IMF have faced a major challenge in helping debtor nations to get back on stable financial footing.
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16/7/2009 - The Daily Routine. Ten forex system and my forex strategy |
Here’s a daily routine that I’ve used in the forex Strategy: TEN forex system. Some of the most
successful months of my trading career happened when I followed this forex plan.
Up at 3:00 am EST. Check the forex charts.
Ask the following questions:
1. Where did the USD close (5pm EST) yesterday against the majors?
2. What effect will today’s economic reports have, if any, on the forex market?
a. FED interest rate movements
b. ECB decisions
c. Unemployment – Weekly Moving Average above or below 400k?
d. Greenspan speaking?
3. Are we at an all time high or low on the EUR or GBP or CHF? Or:
a. Are they way oversold or overbought? Is it better to not trade today?
4. If I make a trade now, what might go wrong? What’s the most I’ll lose? Gain?
Is the market just dead quiet right now? Moving fast?
5. Is the EUR or GBP moving right now? How far are the pairs from support and
resistance?
I’ve used in the forex Strategy: TEN forex system, here:
http://www.e-junkie.com/trader-info/product/48533.php - Forex Scalping Tested Forex trading Systems $600/Day
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About Me
All about foreign currency trading, Top Trader 2009 about currency online trading, how to forex currency trading simple with programmer, learn.
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