The pivot point and associated support and resistance levels are calculated by using the last trading session’s open, high, low, and close. Since Forex is a 24-hour market, most traders use the New York closing time of 4:00pm EST as the previous day’s close.
The calculation for a pivot point is shown below:
Pivot point (PP) = (High + Low + Close) / 3
Support and resistance levels are then calculated off the pivot point like so:
First level support and resistance:
First support (S1) = (2*PP) – High
First resistance (R1) = (2*PP) – Low
Second level of support and resistance:
Second support (S2) = PP – (High – Low)Second resistance (R2) = PP + (High - Low)
Don’t worry you don’t have to perform these calculations yourself. Your charting software will automatically do it for you and plot it on the chart.
Also keep in mind that some charting software also provides additional pivot point features such as a third support and resistance level and intermediate levels or mid-point levels (levels in between the main pivot point and support and resistance level).
These “extra levels” aren’t as significant as the main five but it doesn’t hurt to pay attention to them
quarta-feira, 13 de fevereiro de 2008
terça-feira, 12 de fevereiro de 2008
Commodity Currencies
What is a commodity currency?
In this crazy trading universe we call the Forex, a commodity currency is a currency whose country's exports are largely comprised of raw materials (precious metals, oil, agriculture, etc.).
There are dozens of countries that fit this description, but the most actively traded currencies are the New Zealand Dollar, Australian Dollar, and the Canadian Dollar. Because their currencies are all called dollars, they are also known as the commodity dollars or "Comdolls" for short.
These three currencies are among the major currency pairs, which mean they have great liquidity and volatility for active trading.
In this crazy trading universe we call the Forex, a commodity currency is a currency whose country's exports are largely comprised of raw materials (precious metals, oil, agriculture, etc.).
There are dozens of countries that fit this description, but the most actively traded currencies are the New Zealand Dollar, Australian Dollar, and the Canadian Dollar. Because their currencies are all called dollars, they are also known as the commodity dollars or "Comdolls" for short.
These three currencies are among the major currency pairs, which mean they have great liquidity and volatility for active trading.
The Carry Trade
Did you know there is a trading system that can make money if price stayed exactly the same for long periods of time?
Well there is and it’s one the most popular ways of making money by many of the biggest and baddest money manager mamajamas in the financial universe!
It's called the Carry Trade.
A carry trade involves borrowing or selling a financial instrument with a low interest rate, then using it to purchase a financial instrument with a higher interest rate. While you are paying the low interest rate on the financial instrument you borrowed/sold, you are collecting higher interest on the financial instrument you purchased. Thus your profit is the money you collect from the interest rate differential. For example:
Let's say you go to a bank and borrow $10,000. Their lending fee is 1% of the $10,000 every year. With that borrowed money, you turn around and purchase a $10,000 bond that pays 5% a year.
What's your profit?
Anyone?
You got it! It's 4% a year! The difference between interest rates!
By now you're probably thinking, "That doesn't sound as exciting or profitable as catching swings in the market." However, when you apply it to the spot forex market, with its higher leverage and daily interest payments, sitting back and watching your account grow daily can get pretty sexy.
Well there is and it’s one the most popular ways of making money by many of the biggest and baddest money manager mamajamas in the financial universe!
It's called the Carry Trade.
A carry trade involves borrowing or selling a financial instrument with a low interest rate, then using it to purchase a financial instrument with a higher interest rate. While you are paying the low interest rate on the financial instrument you borrowed/sold, you are collecting higher interest on the financial instrument you purchased. Thus your profit is the money you collect from the interest rate differential. For example:
Let's say you go to a bank and borrow $10,000. Their lending fee is 1% of the $10,000 every year. With that borrowed money, you turn around and purchase a $10,000 bond that pays 5% a year.
What's your profit?
Anyone?
You got it! It's 4% a year! The difference between interest rates!
By now you're probably thinking, "That doesn't sound as exciting or profitable as catching swings in the market." However, when you apply it to the spot forex market, with its higher leverage and daily interest payments, sitting back and watching your account grow daily can get pretty sexy.
segunda-feira, 11 de fevereiro de 2008
Discovering Your Trading Personality
Forex traders come in many different shapes and sizes. There are male traders, female traders, fat traders, skinny traders, beautiful traders, ugly traders, slow traders, fast traders, professional traders, amateur traders, fur traders … and the list goes on.
Each trader has their own personality, their own personal schedule, their own appetite for risk, their own pain threshold and their own bankroll.
Some traders might have several things in common, but most will be different. The point is each of you are unique. And depending on your personality, personal preferences, and situation, how you trade will be a driving factor in determining your success.
In order to figure out how you should trade, you must first uncover your own “trading personality.” Your trading personality will determine the trading style and method that’s compatible for you.
Trading is not like a t-shirt. There is no one-size-fits-all. There is no single plan for all traders.
I challenge you to perform a self-assessment on your personality, behaviors, beliefs, and mindset. Do you consider yourself disciplined? Are you risk averse or a big risk taker? Are you indecisive or spontaneous? Are you patient or a firecracker? Would you prefer to go bungee jumping or visit a museum? Do you like your martini shaken or stirred?
An excellent way to help you with your self-assessment is to keep a trading journal. It will help you to analyze your thought processes after the trade, and identify your strengths and weaknesses in your trading. Understanding your personality is one thing, but understanding it while you trade is a totally different story. A trading journal allows you to review your wining and losing trades and pinpoint specific reasons on why you won or lose.
Now, before we dive in to the different components of trading styles, let’s look at the profiles of a few traders, their trading personalities, and how it’s affected their lives outside of trading.
Each trader has their own personality, their own personal schedule, their own appetite for risk, their own pain threshold and their own bankroll.
Some traders might have several things in common, but most will be different. The point is each of you are unique. And depending on your personality, personal preferences, and situation, how you trade will be a driving factor in determining your success.
In order to figure out how you should trade, you must first uncover your own “trading personality.” Your trading personality will determine the trading style and method that’s compatible for you.
Trading is not like a t-shirt. There is no one-size-fits-all. There is no single plan for all traders.
I challenge you to perform a self-assessment on your personality, behaviors, beliefs, and mindset. Do you consider yourself disciplined? Are you risk averse or a big risk taker? Are you indecisive or spontaneous? Are you patient or a firecracker? Would you prefer to go bungee jumping or visit a museum? Do you like your martini shaken or stirred?
An excellent way to help you with your self-assessment is to keep a trading journal. It will help you to analyze your thought processes after the trade, and identify your strengths and weaknesses in your trading. Understanding your personality is one thing, but understanding it while you trade is a totally different story. A trading journal allows you to review your wining and losing trades and pinpoint specific reasons on why you won or lose.
Now, before we dive in to the different components of trading styles, let’s look at the profiles of a few traders, their trading personalities, and how it’s affected their lives outside of trading.
sábado, 9 de fevereiro de 2008
Pivot Points
Professional traders and market makers use pivot points to identify important support and resistance levels. Simply put, a pivot point and its support/resistance levels are areas at which the direction of price movement can possibly change.
Pivot points are especially useful to short-term traders who are looking to take advantage of small price movements.
Pivot points can be used by both range-bound traders and breakout traders. Range-bound traders use pivot points to identify reversal points. Breakout traders use pivot points to recognize key levels that need to be broken for a move to be classified as a real deal breakout.
The pivot point and associated support and resistance levels are calculated by using the last trading session’s open, high, low, and close. Since Forex is a 24-hour market, most traders use the New York closing time of 4:00pm EST as the previous day’s close.
The calculation for a pivot point is shown below:
Pivot point (PP) = (High + Low + Close) / 3
Support and resistance levels are then calculated off the pivot point like so:
First level support and resistance:
First support (S1) = (2*PP) – High
First resistance (R1) = (2*PP) – Low
Second level of support and resistance:
Second support (S2) = PP – (High – Low)Second resistance (R2) = PP + (High - Low)
Don’t worry you don’t have to perform these calculations yourself. Your charting software will automatically do it for you and plot it on the chart
Also keep in mind that some charting software also provides additional pivot point features such as a third support and resistance level and intermediate levels or mid-point levels (levels in between the main pivot point and support and resistance level).
Pivot points are especially useful to short-term traders who are looking to take advantage of small price movements.
Pivot points can be used by both range-bound traders and breakout traders. Range-bound traders use pivot points to identify reversal points. Breakout traders use pivot points to recognize key levels that need to be broken for a move to be classified as a real deal breakout.
The pivot point and associated support and resistance levels are calculated by using the last trading session’s open, high, low, and close. Since Forex is a 24-hour market, most traders use the New York closing time of 4:00pm EST as the previous day’s close.
The calculation for a pivot point is shown below:
Pivot point (PP) = (High + Low + Close) / 3
Support and resistance levels are then calculated off the pivot point like so:
First level support and resistance:
First support (S1) = (2*PP) – High
First resistance (R1) = (2*PP) – Low
Second level of support and resistance:
Second support (S2) = PP – (High – Low)Second resistance (R2) = PP + (High - Low)
Don’t worry you don’t have to perform these calculations yourself. Your charting software will automatically do it for you and plot it on the chart
Also keep in mind that some charting software also provides additional pivot point features such as a third support and resistance level and intermediate levels or mid-point levels (levels in between the main pivot point and support and resistance level).
Fundamental Analysis
Forex traders who utilize Fundamental analysis often keep one eye focused on the market and the other on a television set tuned to CNN. They will study the news for information on political climate, international relations, natural disasters and other worldly events in order to determine what might be coming up in the trading arena.
Fundamental factors that many traders use when deciding whether to stay with a trade or sell, besides those already mentioned, include unemployment rates, inflation, fiscal policy changes, and stocks/bonds/money markets. If an Earthquake occurs in India, for example, fundamental analysts will keep a close eye on the impending changes in the value of Indian currency to determine when to buy or sell.
Fundamental analysis studies the causes of market movements. This distinguishes it from technical analysis, which focuses on the effects brought about from those changes. Traders can often use fundamental analysis as a back-up system to confirm whether the market would support a trade that was recommended through technical analysis
Fundamental factors that many traders use when deciding whether to stay with a trade or sell, besides those already mentioned, include unemployment rates, inflation, fiscal policy changes, and stocks/bonds/money markets. If an Earthquake occurs in India, for example, fundamental analysts will keep a close eye on the impending changes in the value of Indian currency to determine when to buy or sell.
Fundamental analysis studies the causes of market movements. This distinguishes it from technical analysis, which focuses on the effects brought about from those changes. Traders can often use fundamental analysis as a back-up system to confirm whether the market would support a trade that was recommended through technical analysis
sexta-feira, 8 de fevereiro de 2008
Be Cool
To become a successful trader, you have to stay rational and emotionally detached.
Many novice traders ride an emotional rollercoaster, feeling on top of the world after a win, but down in the dumps after a loss.
In contrast, most professional traders stay calm and relaxed even after a series of losses. They don't let the natural ups and downs of trading affect them emotionally.
As a winning trader you'll want to do the same - stay composed and as unemotional as possible. We know it can get tough. Even the seasoned trader will lose composure and let emotion take charge. It's a natural thing - many novice traders would start doubting their methods and decisions.
One the other side of the coin, when things are going well, it's normal to feel excited or like a supreme being. Nothing can stop me now, I'm invincible! It's this overconfidence that can certainly lead to problems. Any time things start to go your way, you feel safe, and you think there's a little more room for unnecessary risk. Your euphoric state clouds your judegement and you figure that things can only get better. When times are golden, it's very easy to forget about your plan or process.
This emotional roller coaster most often finds a home with the novice trader.
A novice trader is more likely to risk too much capital during a single trade and risk management goes out the door. If that "big risk" turns successful, blissfulness follows the victory. But with a disastrous loss on that "big risk," the joy transforms into a feeling of utter failure.
The key to curbing, or at least minimizing, your losses is through proper risk management. Smaller loses are definitely easier to stomach than those monster losers.
Remember that trading is not like online poker or gambling - it's a business. And as the person making the decisions, you don't want to run the business on pure emotion. You want to be objective in your decision making. This objectivity will make it easier to examine and consider new trading opportunities as they become available.
So, at the heart of the issue, what can you do to control your emotions? For one, understand that you'll win some and you'll lose some. At times you'll be profitable in your trading, and at other times you won't be. Coming to grasps with this simple fact will definitely help. Second, trade with enough money to allow for a buffer when those losing trades come. Be ready to handle the losses, because they WILL come! That's just how the market works. Third, try not to have a house party after every win. Higher highs are great, but a stretch of losers following your wins will put you into those lower lows. And they're no fun at all.
Emotional stability, matched with proper risk management, is the name of the game. Trading can cause you to become emotional and lose control (and money), but the most successful traders can minimize those peaks and valleys, resulting in a calm and rational trading mind. That kind of mind ultimately leads to increased odds of financial success. Be cool...
Many novice traders ride an emotional rollercoaster, feeling on top of the world after a win, but down in the dumps after a loss.
In contrast, most professional traders stay calm and relaxed even after a series of losses. They don't let the natural ups and downs of trading affect them emotionally.
As a winning trader you'll want to do the same - stay composed and as unemotional as possible. We know it can get tough. Even the seasoned trader will lose composure and let emotion take charge. It's a natural thing - many novice traders would start doubting their methods and decisions.
One the other side of the coin, when things are going well, it's normal to feel excited or like a supreme being. Nothing can stop me now, I'm invincible! It's this overconfidence that can certainly lead to problems. Any time things start to go your way, you feel safe, and you think there's a little more room for unnecessary risk. Your euphoric state clouds your judegement and you figure that things can only get better. When times are golden, it's very easy to forget about your plan or process.
This emotional roller coaster most often finds a home with the novice trader.
A novice trader is more likely to risk too much capital during a single trade and risk management goes out the door. If that "big risk" turns successful, blissfulness follows the victory. But with a disastrous loss on that "big risk," the joy transforms into a feeling of utter failure.
The key to curbing, or at least minimizing, your losses is through proper risk management. Smaller loses are definitely easier to stomach than those monster losers.
Remember that trading is not like online poker or gambling - it's a business. And as the person making the decisions, you don't want to run the business on pure emotion. You want to be objective in your decision making. This objectivity will make it easier to examine and consider new trading opportunities as they become available.
So, at the heart of the issue, what can you do to control your emotions? For one, understand that you'll win some and you'll lose some. At times you'll be profitable in your trading, and at other times you won't be. Coming to grasps with this simple fact will definitely help. Second, trade with enough money to allow for a buffer when those losing trades come. Be ready to handle the losses, because they WILL come! That's just how the market works. Third, try not to have a house party after every win. Higher highs are great, but a stretch of losers following your wins will put you into those lower lows. And they're no fun at all.
Emotional stability, matched with proper risk management, is the name of the game. Trading can cause you to become emotional and lose control (and money), but the most successful traders can minimize those peaks and valleys, resulting in a calm and rational trading mind. That kind of mind ultimately leads to increased odds of financial success. Be cool...
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