Forex Trader Mentor
Newsletter # 8
25th May 2005
Hi! Sorry for
the late publishing of this month's newsletter. I have been busy mentoring
with new clients and have been putting things off far too long. Never mind, I
have some interesting and topical subjects this month. There is a article on the
upcoming French referendum, a review of a professional real-time financial
commentary, analysis and forecasting service, a review of a charting package and
Strategies for a French 'non'
Starting this month's theme of looking at fundamentals instead of relying 100% on technicals, I am presenting you with this topical article. On May 29th, the French will have a referendum to accept or reject the European Unions draft constitution.
To my readers across the Atlantic this may seem all very irrelevant 'So what?' I hear you say or 'I don't understand the issue'. It is important. Every 18 months or so, there is an event in the world that has a profound effect on exchange rates and this could be one. So listen up.
In Europe, we have an economic union, the EU, which started off some 50 years ago as a way of preventing France and Germany going to war with each other in the future. This was by creating a 'common market' initially for iron and coal. Other countries joined up from the outset (there were 6 originally) (France, Belgium, Holland, Luxemburg, (west) Germany and Italy.) SInce then, most European countries have joined, with the notable exception of Switzerland and Norway.
Last year, the former Eastern Bloc countries joined, and it was decided, mainly by the French, that it would be a good idea to make it more of a political union by creating a constitution.
Most countries will have a referendum in the next year to accept of reject the constitution, starting with France next Sunday. Now France is a key member of the EU and the idea of the French rejecting the constitution raises some serious question marks about the direction of the whole project.
Are they against the constitution? Not in principle. So why would they vote no? Because they can't stand their President and the Government for one, the mood is grim in France (they feel it is due to globalisation that unemployment is so high) and they don't want Turkey to join the EU.
As of the present time, polls show that 53% will vote no, with some 30% undecided, so it does not look good!
What are the consequences of a 'no'? First of all, the integration of the economies of the East will be delayed or even put off indefinitely. These countries (among others Poland, Hungary and the Czech Republic) have been quietly working towards converging their economies towards the Euro, so that they can scrap their currencies in favor of the Euro with 10 years. The road is hard and it involves integration of the east and west economies. The biggest export they have to offer is cheap labor, in the form of industries being exported from western Europe, or direct labor, in the form of the migration of workers.
Ha ha, I hear you North Americans laugh - why can't the workers move around? Because this is Europe and the wage differentials are extreme. So the first effect of a no, would be a possible sell off in the Eastern European currencies.
Strategy: buy puts on the Polish Zloty, Czech Koruna and the Hungarian Forint.
The Turkish Lire will also take a hit, as it has been performing better recently because of the chance of Turkish membership.
What about the Euro itself? The European politicians have started coming out and trying to calm things saying that there probably will not be any impact. Typical. The German Deputy Finance Minister Caio Koch-Weser said this on May 22nd, but also said he did not expect a French (and a Dutch, they vote soon too) 'no'. A survey by Merrill Lynch shows that 71% of fund managers expect a no to have a negative impact on the Euro.
Are we witnessing that weakness already? Over the past few weeks, we have seen a weaker Euro against the dollar, though some might say that it is dollar strength. The same against the Yen. Traditionally, with Europe, there is a 'flight to safety' in these cases, namely the Swiss Franc, but we have not seen that yet. However, the Swissy is the first home of choice, so perhaps the option puts should be against the Swiss.
Could a 'yes' vote have the same weakening effect on the Euro? Some commentators say it can, because the French President Chirac is prone to blame others for his country's problems and may try to exert pressure on the ECB Governor, Trichet to lower Euro interest rates thus making the Euro less attractive to invest in.
That doesn't help the average short term trader. If there is a 'no' next Sunday, just stay short Euro and remember a 'yes' is not necessarily bullish. Although the politicians are playing down the consequences, those who were in the market in 1992 when the Danes voted against the Maastricht Treaty will remember the massive movements and disruptions it caused in the forex markets.
The Internet has made trading for the individual possible. The cost of doing business in the forex markets has been reduced considerably in the last few years. Technology has made it possible to trade on streaming prices in a secure environment. Charting tools are available that were only dreamt of by the professionals a generation ago. With the charting systems and the developments in programming and processor power, have come many new studies that can be used by the independent trader. This development has led people to believe that technical analysis is the 'Holy Grail' of trading; all you need is the right system, or combinations of systems, and you can pick money from the floor. Just like alchemy in the previous centuries, there is a kind of hysteria around the subject.
Yes, TA seems to work, so it seems, but how much is coincidence and how much is a self-fulfilling prophecy? For example, if everyone considers a certain level to be support or resistance, does breaking those levels causes everyone to sell or buy (respectively)?
Therefore, fundamental analysis has tended to be overlooked. One of the reasons that good fundamental research and getting the information in real time has not reached the 'give away' levels. This is because research does take the human mind to interpret, therefore is expensive. Another reason could be the delivery. Previously, fundamental research was only available to the professional market via proprietary platforms like Reuters, Bloomberg or Telerate. These systems are still beyond the financial reach of most individuals.
Informa GM is a result of a merger between MMS and MCM, who produced the 'Currency Watch' and 'Currency Market Insight' products, two very respected and well-established providers of real time, financial commentary, analysis and forecasting. They were two of the services that have previously only been available to the select few. Now they are opening up their offering to a broader audience.
Informa Global Markets has a web site (www.informagm.com) designed to give users up to date fundamental and technical analysis on forex and related markets. I say 'related', because if you are going to use fundamental analysis in your decision making process, you must be aware that other markets (oil, stocks, bonds) can and do have an influence on forex rate development.
The company employs ex-market professionals in London, New York, Singapore, Tokyo and Hong Kong. In London they have 12 specialists - equally divided between fundamental analysis, technical analysis and FX options.
The markets covered (in the trial I had) were forex, FX options, Emerging Markets, Sovereign Fixed Income and Credit & Derivatives. However, I will cover the forex part of the service here.
The first page is the front page, where there is a time-ordered list of Foreign Exchange Headlines, the most recent at the top. Also on the front page is an FX briefing, which is a rotating summary of the latest market movements, data and events in each of the 3 main time zones (Asia, Europe and America). Behind the introduction is a more in-depth story.
There is a brief overview of EUR/USD technical analysis, Informa GM considering this pair to be the most important (perhaps for the European audience?) There is a table showing current support and resistance levels.
On the forex menu, there are submenus for Headlines, Market Pulse, Briefings, Market Calendar, Another menu item, with sub menus are: Viewpoint/strategizer, FX fundamentals, Central Banks, Technical Analysis, Chart Room and External Links. We will come back to these later.
The headlines are usually currency specific, and cover the market flows, relevant news and events and main economic releases. The underlying article is reached by clicking on the headline - be it a 'market pulse' type (fundamental) commentary, a more in depth research piece or a technical analysis page link. It is very useful to be able to see, at short notice, an analysis of the numbers, although it is wise to understand the background and expectations before the figures are released.
The briefings page features regional FX summaries for Europe, the Americas and Asia. The session ranges are displayed as well as the latest analysis of the session's events. All levels are checked in the market.
The Market Calendar is very sophisticated; there are not many indicators missing from around the world here! Clicking on one of the items brings up a review of that country's economic data, with analysis of each set.
This menu group has 3 headings: Viewpoint, Fundamental Strategizer, and Technical Strategizer.
Viewpoint is a summary of the week ahead, the key data to look for.
The Fundamental Strategizer is basically a suggested strategy based on fundamental new, compiled by specialists at Informa GM. As you can imagine, the technical strategizer does the same based on Technical factors.
The next menu group is FX Fundamentals. Here you will find a Global FX focus, which takes the most newsworthy item of the day and puts it into an FX perspective. This is updated regularly throughout the day.
On the Long Term forecast page, we are presented with a matrix of forecasts for different instruments in each currency. For example, deposit, bonds, market position, policy, trade with an overall 'score' and a forecast.
This is probably not so interesting to short-term traders, but as Rob Booker said recently on a FXStreet Q+A, good traders are 'big picture' traders. You should know what the longer-term consensus is.
Long Term Bond
Why is this important? One of the
great driving factor of FX rates is bond yields. Lots of money (owned by central
banks), is looking for a home to be parked. It must be safe (i.e. a low risk
investment - government bonds) and the currency ideally will appreciate in
value. There are a lot of factors to be taken into consideration. For example,
why are US 10 year government bond yields at 4.32% whereas 10 year German
government bond yields 3.49%? Because the US government has a huge debt, the
economy is relatively strong (3.8% GDP Q4 growth vs. Euro .2%) and there is risk
premium based on the potential weakness of the US dollar, in turn caused by
massive payments imbalance. However, if US yields rise just a little, US bonds
are considered a good investment, therefore dollars are
As you can see, there are dynamics at play where one market affects another.
FX snapshots. Interesting and relevant currency-specific information is shown here, such as a focus on the central bank activity, and an overview of the next key regional event. There is a table of technical analysis pages for each USD-based currency pair (9 of them).
M&A flows. Making a bit of a comeback, cross-border Mergers and Acquisition flows were very influential at the end of the 90s. Although the amounts may not be impressive, it shows a trend. After all, to a degree, an overseas acquisition is partly a forex play, and there may be more deals in the same direction on the way.
Bond flows. International issues of bonds can also cause capital inflows and outflows. Large companies are often in the market to raise debt, although the issues are almost certainly 'swapped' immediately to another currency and structure. It is finding windows of opportunity. Here, the game is to issue debt in a currency that has rising interest rates and a weakening currency, so it is wise to see what the big guys are doing.
Central Banks, from time to time, intervene in the forex markets to stabilize their currencies. This can be a purchase or sale of a currency in the open market. The Japanese, at the present time, are the most aggressive interventionists. The US FED does not intervene, and it has been a long time since we have seen intervention in the Euro zone, due to a policy of using money supply and interest rates to macro manage the currency. In Europe, Norway has been the most active in the past. The still use the market, but mainly to buy overseas assets for the monster 'petrofund'.
The Central Banks area is very comprehensive with analysis of the policy and actions of all the main central banks. Obviously the ECB, Bank of England, FED and Bank of Japan are included. However, the BoJ area is in Japanese!! (although this only applies to the link through to the BoJ home page)
The technical analysis section is very comprehensive. The first part is a series of composite screens with support, resistance plus a recommendation on what position you should have is provided. These are broken down into currencies vs. USD, key crosses and 'second tier' cross rates, such as CAD/JPY or GBP/NOK. Long Term technical analysis is available in commentary and summary format. If you want to know the daily and annual highs and lows, this is the place. We then drill down to technical analysis of individual currency pairs, 28 of them, with a summary and graphics. Gold and oil are also additionally included here.
The 'Chart Room' has 3 charts for each currency with 5 min, hourly and daily charts, with moving averages and RSI on the daily chart.
Finally there are external links to many countries, where you can find information from the central bank, statistics office, government, research institutes, media (newspapers) and information on the country. Unfortunately, not every country provides information in English. Still, you cannot complain - al the information that you need is here in one place."
The forex service is available for USD 350 per month with a minimum contract period of 1 year. Is this value for money? It depends on how serious you are as a trader and you are in the league where your capital can sustain the profits to pay for such a service. I know from personal experience in the Interbank market that it is vital to have the informed opinion. All in all, you are paying for a 'one stop shop' for all the news analysis, fundamental and technical analysis from a very respected and reliable source.
Special offer for FTM Newsletter subscribers! Contact Informa GM, quoting this Newsletter and the reference "R.Warren, London" and get 20% discount on the first years' subscription!
If you want more information, visit the Informa GM website (www.informagm.com) or contact the company
Informa Global Markets
6th Floor, Phoenix House
18 King William Street
London EC4N 7BP
+44 20 7017 5409
Stop losses with NO slippage unless......
A mail dropped into my in box from Saxo Bank the other day, offering stop losses without slippage. Interested, I looked at the conditions. Anything new? Better? Worse? OK, how do you define 'normal market conditions'. It is very subjective, isn't it? Personally, I wonder what circumstances that would cause the market to go 20 pips spread without having gapped - unless this will become standard practice for brokers. "Figures out - widen the spreads boys-take all the stops out!" I am sure that a broker could afford to offer no slippage if that broker never 'turned' the customer's trade with the house bank. Just take on the trades before the news, widen the spreads to 100 points and trigger all the stops! Great being a broker, isn't it?
This is from the Saxo blurb, but I would think that it is pretty general.
Stop orders are available for the following currency pairs:
EURUSD, GBPUSD, USDCHF, USDCAD, AUDUSD, USDJPY, EURJPY, EURCHF, EURGBP, GBPJPY, GBPCHF
Stop orders are usually used to close positions to limit losses but can also be used to enter the market. Stop orders are used to buy/sell an instrument when the price rises/falls to a specified level (buy above the current price or sell below the current price):
Stop orders to sell are placed below the current market level and are executed when the Bid price hits or breaches the price level specified. (Stop if Bid - Sell, but with no slippage under normal market conditions.)
Stop orders to buy are placed above the current market level and are executed when the Ask price hits or breaches the price level specified. (Stop if Offered - Buy, but with no slippage under normal market conditions.)
Stop orders for 1 unit (1.000.000 of any currency) or less will be filled at exactly the rate you enter except in extraordinarily volatile market conditions.
Example 1 - Stop Order executes
Say that you have bought 1 million US dollars (USD) against Japanese yen (JPY) at 102,00.
You place an order to sell at 101,80 (order type Stop).
When spot USDJPY reaches 101,80-83, the order will be filled at 101,80 (i.e. no slippage).
See also Stop if Offered orders if you want to ensure that you are not stopped out before USDJPY is offered at 101,80 (101,77-80).
Example 2 - Stop Order executes in widened spread
Say that you have bought 1 million US dollars (USD) against Japanese yen (JPY) at 102,00.
You place an order to sell at 101,80 (order type Stop).
Due to the release of important US economical figures, the USDJPY spread widens to 101,70 - 101,90.
The order will
be filled at 101,80 (i.e. no slippage).
Example 3 - Stop order executes with slippage due to extraordinarily volatile market conditions
Say that you have bought 1 million US dollars (USD) against Japanese yen (JPY) at 102,00.
You place an order to sell at 101,80 (order type Stop).
Due to the release of worse than expected US economic figures, USDJPY moves from 102,00 to 101,40 (in other words, the USDJPY price gaps from 102,00 to 101,40).
101,40 being the first price available, the order will be filled at 101,40 (40 pips slippage)
In this case,
the market conditions were too volatile to avoid
I am sure this is no different anywhere else in the market, so the criticsim is not directed particularly at Saxo Bank.
Should you buy an FX charting application?
How times have changed! 20 years ago, electronic charting was for the very few. Computer systems had just started to be able to display graphics and it wasn't until Windows that graphs that looked anything like you could expect on paper were available.
They were extremely expensive and it was nearly impossible to get real-time data. In most case, you had to print the charts to do your own studies. Of studies, there were not so many of. Then came the Internet and graphical user interfaces (GUI's) that allowed graphs to be displayed. Add 'Java' and it was possible to update in real time.
So, you lucky people, you have charting capabilities that were once only dreamed of by professional traders, and in many cases are free. There are sites which provide links to charts, such as livechartsuk.co.uk or forex-markets.com, who have a choice of charts. One of these is from ACT-forex, which is pretty decent for a freebie. FXStreet have a chart application from eSignal.
In addition, if you sign up with a broker, even for a demo account, you will get charts.
The only problem with these free charts is the reliability of the service and the quality of the 'feeds'. Some feeds are taken from a so-called 'multi-source' which amalgamates the quotes from various sources. The problem can be if those sources are quoting variable spreads, which can make the market look more volatile than it really is. You see this often in GBP/CHF.
So, why pay $100 a month for a charting service? Can it give you an edge.
I have looked at FXtrek's IntelliChart™ Desktop recently and I can say that overall, I liked it. You have the feeling that there has been a lot of thought and experience put into the current version.
Some of the features that I liked that are not available on freebies are: (Please tell me if you know of any free charts that have the following feature set).
1. The ability to save your settings on exiting. The worst aspect of free charts is that you have to set up the currency pairs and studies everytime you log in.
2. The ability to set the time zones. It can be confusing if you are in, say, Europe, and have New York (EST) times on your graph-especially after printing them for future reference.
3. Choice of data feed. IntellliChart allows you to take the feed directly from FXCM (help! what happens when figures come out) or Comstock. This allows you to chart currencies that FXCM does not offer, such as the South African Rand.
4. High quality printing. If you are recording your trades, you need to print a chart and have the possibility to annotate the charts by writing and printing text.
5. Technical Indicators. IntellliChart has 31, plus the ability to combine indictors. (Bollinger Bands on RSI??). There is also the facility for customising Fibonaccia studies. I was a bit miffed when I at first could not find a Fibonacci Fan, but this is in the 'custom color' section and not under the drawing menu. (I found that quirky). As a 'freeby' (albeit tied to a demo account), I was totally overwhelmed by the number of studies on GFT's DealBookFX 2 application. I suppose the public demands lots of studies, reinforcing the belief that the more studies you have, the more the chance of success.(wrong!)
6. Time scale and periods. Some freeby charts offer a limited range of time scales and a fixed time period, going back so many minutes or hours. IntellliChart has many and the possibility to set customized time scales.
7. The ability to export data in files and create data links. Now i think that this is a really powerful feature. Again, I am not aware of any 'freebie' charts that have this facility. I like this especially as it assist wuth TradeCraft; it is possible to copy rates into the trade tracker worksheet directly in the case of posting overnight rates. You can also create DDE links to an Excel spreadsheet, therefore trades can be revalued in real time directly in the money management sheet.
IntellliChart Desktop is a stand-alone application, but if you subscribe, you may also use the on-line facilities, handy if you are checking the market away from home.
The charts are presented in good colours, which are fully custmisable. (One of the things I don't like about the 'freebies' is that the lines for, say MA are all the same colour, making it difficult to differentiate between multiple lines).
One of the nice features is the generation of point and figure charts. Some people swear by these charts, which are essentially bar charts with the time element taken out. IntelliChart exports the X and O s to notepad, which means that you have to print the charts and manually draw channel lines, etc.
As I said, a large range of time scales and periods are available, as you would expect.You may also set a custom time period. There are sufficient studies available, as well as Fibonacci, Gann and Cyle line drawing possibilities.'Andrews Pitchfork' is something I will have to research, because I confess that I don't know much about it. However, setting it up requires dexterity with the mouse! There is a built-in pivot calculator and one can also do the normal drawing of lines and inserting annotations. The print quality is pretty good.
You can have many charts open at the same time and there is a feature to switch currency pair on all charts-handy if you are looking for alignments on different time scales.
There is also a scripting tool to generate alerts based on your system of choice or just plain price alerts. Intellisense is a scripting tool that allows you to set alerts, according to your system. If you have IntelliChart running, you will get an e-mail and even an SMS alert to your cell phone. Just what you need for the middle of the night (not!)
Overall, I like IntelliChart.
There are many charting systems around and I guess they all come at a similar
price (approximately $100 per month). The most important feature is that the
feed is reliable (does not go down at critical points) and accurate. One of the
problems novice traders face is getting used to live charts (and prices) after
working with a demo account for a period of time. Therefore, it may be wise to
choose a professional system at the outset.
1234 Summer St. 5th
Stamford, CT 06905
Of rollovers.....(or who is this Tom Next* character anyway?)
One aspect of trading that often confuses is the 'rollover', or the transfer of a position from one day to the next. Although it does not normally affect your trading, it is true that you could take physical delivery of a currency (and have to pay away the counter currency) if you do not have the position 'rolled', or settled and reestablished the next value date.
"Value date" is different from the next business day, in that in the physical forex market, trades in the major currencies are settled 2 business days from the currency business days. If there is a holiday in one of the currencies, this is extended to the following business day.
I enclose a letter from FXCM, as I was concerned that interest was being charged on demo account positions regardless of which way round the position was. Have a look at the last paragraph. The explanation of this is that a position established on Wednesday is for value Friday, therefore to roll the trade means a 'jump' from Friday to Monday, namely three days. Although this is not that much, it can add up and can impact your p&l.
What I noticed in particular was the differentiation between low-leveraged accounts (<50:1) and high-leveraged accounts. Was this only on the demo? I don't think so, otherwise you could conceivably earn a lot of interest by taking a highly leveraged position in a currency pair that does not move that much. FXCM do not make a market in many of those, but if you can find a broker who makes a market in say, HUF (Hungarian Forint) and CHF (Swiss Franc) and will pay the interest on rollovers, then there is money to be earned. Why the HUF? Because they have been gradualy lowering interest rates in Hungary without causing the currency to decline (it is aligned to the Euro) and therefore you can go 'long' forints with relatively little danger BUT be careful regarding the French Referendum on Sunday. Short term interest rates are around 7.25% Why the Swiss? Remarkably low interest rates (.68%) and fairly stable against the Euro.
In theory, with 100:1 leverage, you could run a 'short' CHF/HUF position and
earn according to the following calculation 10 lots (1,000,000/1.2260)=
815,000 (USD value of 10 lots)
* (7.25% -.68%)/360 = $148,70 per day. Keep that up for a year, and you would earn $53,545 for $10,000! Bear in mind, I said 'in theory'; trading spreads also have to be taken into account.
Here is the reply I got from FXCM:
"Thank you for your interest in FXCM. The demo account margin is set to a default level of 1% and that is why you cannot earn interest. However, with a live account you can change the margin to 2% and you can earn interest on your open positions. Conventionally, 5 PM EST is considered the end of the international trading day, so when you hold open positions through 5 PM you have technically held them overnight. As a service to our clients, positions are automatically rolled over every day at 5 PM to prevent physical settlement. When rolling positions overnight, rollover interest is either added or subtracted from your account.
Every currency you buy or sell has a certain overnight interest rate associated with it. The interest amount varies based on the interest rate differential between the two currencies you are buying and selling, and fluctuates day to day with the movement of prices. These rollover rates or swap rates are determined at the Interbank level based on money market rates.
For instance, on any given day, the rollover can be $0.9 per lot for EUR/USD and $14 per lot for GBP/USD. Rollover fees are shown in dollars and are posted in the "INTS columns" of the Simple Dealing Rates Window every day at 3:00 PM EST. For day traders that never hold a position overnight through 5 PM EST, rollover will not affect trading.
The following are a few simple example of how interest rollover can be approximated:
No. of Lots x No. of Units per lot x Yearly Interest Rate Differential / 360 x No. of Days
Transaction: Buy 1 lots of EUR/USD
Opening Price: 1.3400
Position Value: EUR 100,000 or USD 134,000
Yearly Interest Rate Differential: EUR 2.00% - USD 2.25% = -0.25%
Calculation in USD: (134,000 x -0.25% / 360) x 1 = about $0.93 in daily rollover per lot
Transaction: Buy 1 lots of GBP/USD
Opening Price: 1.9100
Position Value: GBP 100,000 or USD 191,000
Yearly Interest Rate Differential: GBP 4.75% - USD 2.25% = 2.5%
Calculation in USD: (191,000 x 2.5% / 360) x 1 = about $13.3 in daily rollover per lot
These examples are approximations and only serve as a guide. Real interest rate charges will differ from these calculations because like the FX market, these interest rates are also quoted as a spread.
At 5:00 PM, funds are automatically subtracted or added to accounts with open positions because of the automatic rollover. For accounts that have a margin requirement of 2% or more, funds are added to the account for positions in which the client is long the currency bearing the higher interest rate. Funds are deducted in the opposite circumstance. For accounts that do not have a 2% margin requirement, the rollover amount is deducted from the account for each position regardless of the account's holdings. Traders who are on 1% and hold overnight positions are doing so using FXCM capital and are therefore charged for this. A 1% margin is intended for day traders that close their position before the end of the day.
Note: For positions that are open on Wednesday and held overnight, the amount added or subtracted to an account as a result of rolling over a position tends to be around three times the usual amount. This "3-Day" rollover accounts for settlement of trades through the weekend period."
*"Tom Next" stands for Tomorrow Next day, meaning the transfer of the position frm tmorrow to the following business day
In this section, I will attempt to answer questions that are put to me in the course of my mentoring, for which I think there is a general interest in knowing the answer. If you have any questions, please contact me at email@example.com
The broker conspiracy
There is a real conspiracy going on - I put trades on only to get stopped out for 30 pips every single time! It is as if the broker is watching what I do and then stops me and all the rest out. The sick thing is that the market then goes in the direction I thought it would for 100 points. What can I do about it?
John, IL, U.S.A
Steve: Oh dear, John! Paranoia is setting in, which is quite common to forex traders. It is that feeling of you versus the market, or even the broker. I would like to make one thing quite clear: The market (or the broker) cannot do you anything. It is your choice whether you are long, short, in or out of the market.
Having said that you are suffering from bad timing. When a former collegue of mine lost money, he always made the excuse "I got my timing wrong"; he was not mistaken. You haven't told me what criteria you have for your entry, but I would advise you to look at Fibonacci retracements. If you are looking at moving averages, the signal you get is 'lagged' behind the actual price developments. This is one of the drawbacks of MA's.
If you look at the chart, I would suspect that you would enter the trade on confirmation of the trend at around 1.2615, only to get stopped out at 1.2645. A better way of approaching this trade would be to use Fibonnacci retracements and enter the trade as a limit order after the price had broken up through the 38% retracement, to catch it IF it came back and continued below the 60 MA trend line. (if the fibonacci lines look a little unconventional, they are - but there is good reason for it). In this case, the stop would have been 1.2662 with an entry at 1.2638. The 1st target of 1.2593 was reached effortlessly (Risk Reward Ratio = 2.16) and the 2nd of 1.2565 was also reached (RRR= 3.33).
(please note that the comments in the following correspondance are the views of the writer (name and address witheld) and not the view of the publisher of this newsletter)
I want to tell you about an
experience I have recently had. I was attracted to a web site offering something
called the Taps e.p. system. It looked very enticing, so I decided to get the
10-day trial for $99. I found out that the 'system' consisted of a
'professional' who gave the trade calls and told me to place limit orders which
for the most part never got executed. The market never reached that point. I had
to wait a long time for the next 'signal'. Of the 10 days, 2 days were holidays.
In total, there were 5 days without trades and on the other 3 days there were 3
trades, 2 of them with losses (40 pips net loss on major currency
The 'pro' recommends 25-30 pip stops and 20 pips first profit target and 15 pips second profit target. I have no idea who this 'professional' is and I asked to talk to him once but that request was refused. I was informed that this facility was for exclusive clients only.
I was offered an account with FXCM at the beginning, but I already have an account.
On one day, there was an economic announcement. 7 hours before this, I was told to put in a sell order, that never got executed and the 1 hour before the announcement, I was told to cancel the order. The announcement was made which was Euro positive and after about an hour, I was given the order to buy 45 pips higher than the then current market. The market had already moved up 100 points before he had given a signal to place the order. The market was retracing and the order could never be executed. The order was cancelled three hours later. So much for their 'never miss a trade' sales line!
The other 'bonus' was a charting tool which froze in volatile markets.
I am only writing to you because I am very disappointed with the 'service' and I wonder if others have had the same experience?
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