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• FX: USD is lower and the market is so far not too impressed by the Paulson/Bernanke Plan.
• Fixed Income: Bunds rallying towards 114. Treasuries still offered. JGB’s seem to have bottomed out.
• Stocks: Most sessions moderately down.
• Commodities: Mostly ranging, but precious metals looking bid.
• In what has reflected the fact that the bank problems are not limited to American Banks, Hong Kong’s Bank of East Asia has now come under the strain of rumors of a bank run, although these rumors have been denied by the authorities and bank management. Hong Kong has not had any bank runs since 1993, the creation year of Hong Kong Monetary Authority.
• In a sign of further trouble to the global liquidity, Chinese banking regulators are speculated to be blocking Chinese domestic banks from lending to US financial Institutions in the inter bank markets. This has however has been denied by the Chinese Authorities.
• Facing a public discontent and resistance by the Congress, Treasury Secretary Paulson has stated his willingness to accept the changes to the rescue package that would ascertain that the bank executives are not unduly compensated within the rescue package and that the government could buy direct equity stakes in the firms being assisted.
• In a congressional hearing yesterday, the Fed Chairman Bernanke has repeated his warning over the serious threats to the financial system and highlighted that the spillover effects from the credit crisis to households and businesses can be already be seen.
• President Bush was later in a speech confirming the message from Bernanke/Paulson. The speech was surprisingly gloomy and compared the current crisis with that of the Great Depression.
• FX: EURUSD blasting higher. Wild discussions about Bernanke/Paulson Plan…
• Fixed Income: 10-year contracts ranging or edging slightly lower. Fed’s Funds Futures indicating a 34% chance of a 35 bps. cut at the 29th of October FOMC meeting.
• Stocks: European session down by around 2%. US down by 3-4%. Asia down by 2%. Nikkei closed.
• A combination of short-expiring ahead of October expiry, USD-weakness and news of higher imports from China have caused the largest single-day rise in crude prices, with the October contract closing at $120.92, or up 16%. At the same time, November contract saw Monday trading close over $110, or up nearly 7%.
• Details in the (so far) $700B Bernanke/Paulson Plan favour Morgan Stanley and Goldman, stories show. Critics state that the plan is far too cheap to have any impact and the real issue has moved from illiquidity to insolvency.
• Precious metals regaining some of the lost ground from the August-September sell-offs and most risk indicators are flashing and beaming. Only EURCHF not responding like it should in this environment (we should see massive unwinding).
• The USD is selling off dramatically. The USD Trade Weighted Index briefly touched the 50% Fibonacci retracement from the bottom in mid-July to the top in mid-September. The rapidly deteriorating US fundamentals and desperate nationalization of bad debt might lead to a break soon. These days, anything can happen…
Trading successfully is not a very simple matter. It requires time, market knowledge and market understanding, a large amount of self restraint and analytical mind.
It is very difficult to make consistently money in foreign exchange markets as they are driven by many factors. Foreign exchange by nature, is a volatile market. The practice of trading it by way of margin increases that volatility exponentially. We are therefore talking about a very 'fast market' which is naturally inconsistent.
Trade with money you can afford to lose: Trading forex markets is speculative and can result in loss, it is also exciting, exhilarating and can be addictive. The more you are 'involved with your money' the harder it is to make a clear-headed decision. Money you have earned is precious, but money you need to survive should never be traded.
If in doubt, stay out: If you're unsure about a trade and find you're hesitating, stay on the sidelines.
Trade logical transaction sizes: Margin trading allows the forex trader a very large amount of leverage, trading at full margin capacity can make for some very large profits or losses on an account. Scaling your trades so that you may re-enter the market or make transactions on other currencies is generally wiser. In short, don't trade amounts that can potentially wipe you out and don't put all your eggs in one basket.
Identify the state of the market: What is the market doing? Is it trending upwards, downwards, is it in a trading range. Is the trend strong or weak, did it begin long ago or does it look like a new trend that's forming. Getting a clear picture of the market situation is laying the groundwork for a successful trade.
Determine what time frame you're trading on: It is important to define from the outset if you'll be 'scalping' (trying to get a few points off the market) trading intra-day, or going longer term. This will also determine what chart period you're looking at. If you trade many times a day, there's no point basing your technical analysis on a daily graph, you'll probably want to analyse 30 minute or hour graphs. Additionally it is important to know the different time periods when various financial centers enter and exit the market as this creates more or less volatility and liquidity and can influence market movements.
Time your trade: You can be right about a potential market movement but be too early or too late when you enter the trade. Timing considerations are twofold, an expected market figure like CPI, retail sales or a federal reserve decision can consolidate a movement that's already underway. Timing your move means knowing what's expected and taking into account all considerations before trading. Technical analysis can help you identify when and at what price a move may occur.
Gauge market sentiment: Market sentiment is what most of the market is perceived to be feeling about the market and therefore what it is doing or will do. This is basically about trend. You may have heard the term 'the trend is your friend', this basically means that if you're in the right direction with a strong trend you will make successful trades. This of course is very simplistic, a trend is capable of reversal at any time. Technical and fundamental data can indicate however if the trend has begun long ago and if it is strong or weak.
Market expectation: Market expection relates to what most people are expecting as far as upcoming news is concerned. If people are expecting an interest rate to rise and it does, then there usually will not be much of a movement because the information will already have been 'discounted' by the market, alternatively if the adverse happens, markets will usually react violently.
Use what other traders use: In a perfect world, every trader would be looking at a 14 day RSI and making trading decisions based on that. If that was the case, when RSI would go under the 30 level, everyone would buy and by consequence the price would rise. Needless to say, the world is not perfect and not all market participants follow the same technical indicators, draw the same trendlines and identify the same support & resistance levels. The great diversity of opinions and techniques used translates directly into price diversity. Traders however have a tendency to use a limited variety of technical tools. The most common are 9 and 14 day RSI, obvious trendlines and support levels, fibonnacci retracement, MACD and 9, 20 & 40 day exponential moving averages. The closer you get to what most traders are looking at, the more precise your estimations will be. The reason for this is simple arithmetic, larger numbers of buyers than sellers at a certain price will move the market up from that price and vice-versa.
• FX: CHF and JPY retreating after the rescue/bailout of AIG and the FOMC decision to keep rates at 2%. USD edging higher.
• Fixed Income: 10-years trading in big ranges, directionless.
• Stocks: US and APAC sessions +1% higher. Europe stock are down by 2-3%.
• Commodities: Crude Oil finally seeing some buying interest. Precious metals are consolidating.
• The markets are enjoying a broad based relief rally from the Fed assistance package that has been granted to AIG, the largest insurer by assets in the US. Considering the large potential implications of a the insurance company’s failure, Federal Reserve has decided to lend AIG $85B in return for a 80% share in the company stock, effectively nationalizing the firm.
• While leaving the policy rates unchanged at 2%, the US central bank can now be observed to focus increasingly on targeted, emergency short-term loans instead. The bank has also changed its general collateral policy, as it now allows securities firms to use stock holdings as loan collateral.
• The general rally in equities and carry trades also looks to extend to crude, with the oil prices rebounding from the steepest decline in 4-yr period. The oil prices have already seen a near 39% drop from the highs reached this year and have so far found support just above the $90 mark.
• FX: EURUSD forcefully rising to 1.4481. USD selling off on the Lehman and Merrill news. CHF and JPY only moderately higher.
• Fixed Income: Treasuries rallying more than a figure. Bunds will follow through today. JGB’s closed.
• Stocks: European session up +2% on Friday, but will gap open lower today. Nikkei closed. ASX down by 1.5%.
• Commodities: Precious metals only slightly higher despite the really weak dollar. Crude Oil trading below $100/bbl for the first time since April.
• Very, very, very negative news from The World of Finance: Barclays walk away from negotiations to take over Lehman (since deal was not Fed/Treasury (sponsored).Lehman now filing for bankruptcy. Make no mistake; there will be tonnes of losing among its counterparties. Financials will bleed this week.
• AIG might seek $40B help from the Fed after horrific losses, according to the WSJ. AIG very susceptible to downgrades.
• Merrill Lynch also under considerable pressure. Now discussing merger with Bank of America.
• FOMC meeting tomorrow. STIR Futures have changed, now indicating a 12% chance of a rate CUT in stead of a hike.
• US Treasury Officials have urged Japanse financial institutions not to dump bonds issued by FNM and FRE on the market. What a desperate move!
• FX: EURUSD dipped to 1.3882 and might look ready for a bounce, but the 50% fibo level at 1.3840 might be “magnetic”.
• Fixed Income: Again large ranges, but no direction in 10- years.
• Stocks: European session down 0.5%, but US and APAC session both around 1% higher.
• Commodities: Gold, Silver and Crude all bouncing cautiously higher from yesterday’s close.
• Q2 GDP releases from Japan overnight show that the country’s economy has contracted at an annualized rate of 3%, with the slowdown rate the steepest since the last recession in 2001. A negative growth figure in Q3 would see the country technically enter a new recession.
• The markets globally are enjoying from a relief rally as speculation has grown that Lehman Brothers would be bought by another financial institution.
• The markets will be keenly observing the US August Retail Sales due out at 12:30 GMT. For the core, autoless figures, the median surveyed forecasts are pointing to a drop of 0.2%, which, if materialized, would be the first negative release in 6 months.
• FX: EURUSD sustains below the 100 weekly SMA currently at 1.4208, but slowly starts to look soft with heavy bids around 1.4050. Carry trades well supported in Asia despite risk aversion in equities.
• Fixed Income: Bunds made a strong comeback yesterday, also supported by weak US home sales and flight to safety. Losing momentum in Asia though with JGB’s on debt issue speculation.
• Stocks: European session generally down 0.5-2.0%, looking to re-establish downturn trend. Ugly day in the US on Lehman worries. Indexes down 2-3.4%. Asia not taking that big a hit on bullish China numbers. Nikkei down 0.4%, Hang Seng 1.6%.
• Commodities: Metals lower with both gold & silver taking out key support levels, however, gold not managing a follow-through. Oil slightly higher in Asia.
• In a move that surprised the markets, OPEC has agreed to an output cut. The change would see the production effectively being curbed by half a million barrels a day. Before the decision, the oil prices had seen 5-month lows, or about 30% below the peak prices of this year. OPEC
had been expected to keep production levels unchanged but has instead taken on a more price defensive posture.
• In overnight trading, the Asian stocks have added to previous session’s losses as weak demand factors are now reinforced by sliding metals prices, hurting the large resource producers.
• As the stock price of Lehman Brothers continued to slide with no result from the talks it had held with Korea Development Bank, the firm has come under growing pressure to find a way out of its troubles. The markets will be keenly observing as the bank will be announcing its Q3 results before the US opening today, a week earlier than planned.
If you have been trading or planning to start and have wiped out an account, don’t be disheartened. I know I pretty much wiped out a trading account when I first started, now I’ve developed a system where I make a consistent 100% annually. You see most of the successful traders we know have loss their entire account at least once before learning from their mistakes and start consistently turning over a profit on an annual (daily, weekly or monthly depending on your trading styles and goals) basis.
1. Don't open a trade just because it is cheap. The only reason to open a position is when the underlying security looks set up to make a decent move.
2. When you open a trade, start looking for signs that you were wrong. If you see them, then get out before your stop loss is executed.
3. Good trading should be boring, like doing the same thing over and over again. If there’s one thing I guarantee in trading, it’s that "thrill seekers" or adrenaline junkies get their accounts grounded into tiny bits and pieces.
4. Always be in control and aware of your own sea of emotions. Every trader’s downfall will come from not being able to control your emotions. If you are screaming at your computer screen, begging your stocks to move in your favor, you have to stop and ask yourself, "Is this rational?" Ease in. Ease out. Keep your stops. Don’t scream and shout.
5. The turning point of when amateur traders turn into professional traders is when they stop searching and hoping for the "next great technical indicator" and start managing their risk on each trade.
6. Trading is simple, but it isn’t easy. If you see yourself having a future in this industry, forget about "hope" and stick to your stop loss.
7. You are buying and trading on the emotions of other traders, not the actual stock. You have to be aware of the human psychology and emotions that constitute trading.
8. Always remember, trading is supposed to be a business. So treat it like one by not letting your emotions get in the way, stick to your stop loss.
9. If you come into trading with the idea of making “big money overnight,” you’re better wake up and smell the coffee. Most accounts have been blown because of this “account killer” mindset.
10. Beware of your number one enemy, yourself! If you start to get too excited, beware! As excitement clouds your judgment, it starts to increases your risk.
I am pallavi..... forex trader and analyst. The only intension to create this blog is to spread my experiences of forex trading.
I have done masters in economics and have applied for Phd. in financial planning. My blog is managed by many of my friends like Somya gabriel, Cozy, Jenny, Fedd, Pinalli, Monika, Melvin, Sandra, Monali.
I like to thank everyone for their support.
