TRADE THE NEWS

DAY TRADING WITH CANDLESTICKS

2008-07-05T03:31:00.001-07:00

When people use the term "day trading", they mean the act of buying and selling a stock within the same day. Day traders seek to make profits by leveraging large amounts of capital to take advantage of small price movements in highly liquid stocks or indexes. Here we look at some common day trading strategies that can be used by retail traders.

Entry Strategies
Certain stocks are ideal candidates for day trading. A typical day trader looks for two things in a stock: liquidity and volatility. Liquidity allows you to enter and exit a stock at a good price (i.e. tight spreads and low slippage). Volatility is simply a measure of the expected daily price range - the range in which a day trader operates. More volatility means greater profit or loss. (To learn more, see Day Trading: An Introduction.)

One day trader favorite is Sun Microsystems (Nasdaq: SUNW). The stock is cheap ($4.38 at the time of writing), liquid (almost 50 million shares traded daily) and very volatile (as can be seen by looking at its chart). This type of stock is ideal for the retail day trader.

Once you know what kind of stocks you are looking for, you need to learn how to identify possible entry points. There are three tools you can use to do this:

Intraday Candlestick Charts - Candles provide a raw analysis of price action.
Level II Quotes/ECN - Level II and ECN provide a look at orders as they happen.
Real-Time News Service - News moves stocks. This tells you when news comes out.

We will look at the intraday candlestick charts and focus on the following three factors:

Candlestick Patterns - Engulfings and dojis
Technical Analysis - Trendlines and triangles
Volume - Increasing or decreasing volume

There are many candlestick setups that we can look for to find an entry point. If properly used, the doji reversal pattern (highlighted in yellow in Figure 1) is one of the most reliable ones.

Figure 1 - Looking at candlesticks - the highlighted doji signals a reversal.

Typically, we will look for a pattern like this with several confirmations:

1. First, we look for a volume spike, which will show us whether traders are supporting the price at this level.Note that this can be either on the doji candle, or on the candles immediately following it.
2. First, we look for a volume , which will show us whether traders are supporting the price at this level. Second, we look for prior support at this price level. For example, the prior low of day (LOD) or high of day (HOD).
3. We look at the Level II situation, which will show us all the open orders and order sizes.

If we follow these three steps, we can determine whether the doji is likely to produce an actual turnaround, and we can take a position if the conditions are favorable. Typically, entry points are found using a combination of these three tools.

Finding a Target
Identifying a price target will depend largely on your trading style. Here is a brief overview of some common day trading strategies:

Strategy	Description
Scalping	Scalping is one of the most popular strategies, and it involves selling almost immediately after a trade becomes profitable. Here the price target is obviously just after profitability is attained.
Fading	Fading involves shorting stocks after rapid moves upwards. This is based on the assumption that (1) they are overbought, (2) early buyers are ready to begin taking profits and (3) existing buyers may be scared out. Although risky, this strategy can be extremely rewarding. Here the price target is when buyers begin stepping in again.
Daily Pivots	This strategy involves profiting from a stock's daily volatility. This is done by attempting to buy at the low of the day (LOD) and sell at the high of the day (HOD). Here the price target is simply at the next sign of a reversal, using the same patterns as above.
Momentum	This strategy usually involves trading on news releases or finding strong trending moves supported by high volume. One type of momentum trader will buy on news releases and ride a trend until it exhibits signs of reversal. The other type will fade the price surge. Here the price target is when volume begins to decrease and bearish candles start appearing.

You can see that, although the entries in day trading strategies typically rely on the same tools used in normal trading, the exits are where the differences occur. In most cases, however, you will be looking to exit when there is decreased interest in the stock (indicated by the Level II/ECN and volume). (For further reading, see Introduction To Types Of Trading: Momentum Traders and Introduction To Types Of Trading: Scalpers.)

Determining a Stop-Loss
When you trade on margin, you are far more vulnerable to sharp price movements than regular traders. Therefore, using stop-losses is crucial when day trading. One strategy is to set two stop losses:

1. A physical stop-loss order placed at a certain price level that suits your risk tolerance. Essentially, this is the most you want to lose.
2. A mental stop-loss set at the point where your entry criteria are violated. This means that if the trade makes an unexpected turn, you'll immediately exit your position.

Retail day traders usually also have another rule: set a maximum loss per day that you can afford (both financially and mentally) to withstand. Whenever you hit this point, take the rest of the day off. Inexperienced traders often feel the need to make up losses before the day is over and end up taking unnecessary risks as a result. (To learn more, see The Stop-Loss Order - Make Sure You Use It.)

Evaluating and Tweaking Performance
Many people get into day trading expecting to make triple digit returns every year with minimal effort. In reality, around 80% of day traders lose money. A recent (January 2005) behavioral finance study of the Taiwanese stock market conducted by professors at the University of Taipei and the University of California suggests that "less than 20% of day traders earn profits net of transaction costs". Most of these people would be better off putting their money on the roulette table than using it for day trading! However, by using a well-defined strategy that you are comfortable trading, you can improve your chances of beating the odds.

How do you evaluate performance? Most day traders evaluate performance not so much by a percentage of gain or loss, but rather by how closely they adhere to their individual strategies. In fact, it is far more important to follow your strategy closely than to try to chase profits. By keeping this mindset, you make it easier to identify where problems exist and how to solve them.

Conclusion
Day trading is a difficult skill to master - well over 50% of those who try it fail. But the techniques described above can help you create a profitable strategy and, with enough practice and consistent performance evaluation, you can greatly improve your chances of beating the statistics.

PIVOT POINTS- HOW TO USE THEM EFFECTIVELY TO MAKE A LOT OF PIPS

2008-07-05T02:55:00.000-07:00

Calculating Pivot Points
By definition, a pivot point is a point of rotation. The prices used to calculate the pivot point are the previous period's high, low and closing prices for a security. These prices are usually taken from a stock's daily charts, but the pivot point can also be calculated using information from hourly charts. Most traders prefer to take the pivots, as well as the support and resistance levels, off of the daily charts and then apply those to the intraday charts (for example, hourly, every 30 minutes or every 15 minutes). If a pivot point is calculated using price information from a shorter time frame, this tends to reduce its accuracy and significance.

The textbook calculation for a pivot point is as follows:

Central Pivot Point (P) = (High + Low + Close) / 3

Support and resistance levels are then calculated off of this pivot point using the following formulas:

First level support and resistance:

First Resistance (R1) = (2*P) - Low

First Support (S1) = (2*P) - High

Likewise, the second level of support and resistance is calculated as follows:

Second Resistance (R2) = P + (R1-S1)

Second Support (S2) = P - (R1- S1)

Calculating two support and resistance levels is common practice, but it's not unusual to derive a third support and resistance level as well. (However, third-level support and resistances are a bit too esoteric to be useful for the purposes of trading strategies.) It's also possible to delve deeper into pivot point analysis - for example, some traders go beyond the traditional support and resistance levels and also track the mid-point between each of those levels.

Applying Pivot Points to the FX Market
Generally speaking, the pivot point is seen as the primary support or resistance level. The following chart is a 30-minute chart of the currency pair GBP/USD with pivot levels calculated using the daily high, low and close prices.

The green line is the pivot point (P).

The red lines are resistance levels (R).

The blue lines are support levels (S).

The yellow lines are mid-points (M).

Figure 1 shows how the pivot line served as support for the GBP/USD for most of the European trading hours. Once U.S. traders joined the market, however, prices began to break higher, with each of the breaks first testing and resisting either the mid-point or the R1 and R2 levels; then the break occurred off of those levels (see areas circled). This chart also shows something that occurs frequently in the FX market, which is that the initial break occurs at a market open. There are three market opens in the FX market: the U.S. open, which occurs at approximately 8am EDT, the European open, which occurs at 2am EDT, and the Asian open which occurs at 7pm EDT.

Figure 1 - This chart shows a common day in the FX market. The price of a major currency pair (GBP/USD) tends to fluctuate between the support and resistance levels identified by the pivot point calculation. The areas circled in the chart are good illustrations of the importance of a break above these levels.

What we also see when trading pivots in the FX market is that the trading range for the session usually occurs between the pivot point and the first support and resistance levels because a multitude of traders play this range. Take a look at Figure 2, a chart of the currency pair USD/JPY. As you can see in the areas circled, prices initially stayed within the pivot point and the first resistance level with the pivot acting as support. Once the pivot was broken, prices moved lower and stayed predominately within the pivot and the first support zone.

Figure 2 - This chart shows an example of the strength of the support and resistance calculated using the pivot calculations.

The Significance of Market Opens
One of the key points to understand when trading pivot points in the FX market is that breaks tend to occur around one of the market opens. The reason for this is the immediate influx of traders entering the market at the same time. These traders go into the office, take a look at how prices traded overnight and what data was released and then adjust their portfolios accordingly. During the quieter time periods, such as between the U.S. close (4pm EDT) and the Asian open (7pm EDT) (and sometimes even throughout the Asian session, which is the quietest trading session), prices may remain confined for hours between the pivot level and either the support or resistance level. This provides the perfect environment for range-bound traders.

Two Strategies Using Pivot Points
Many strategies can be developed using the pivot level as a base, but the accuracy of using pivot lines increases when Japanese candlestick formations can also be identified. For example, if prices traded below the central pivot (P) for most of the session and then made a foray above the pivot while simultaneously creating a reversal formation (such as a shooting star, doji or hanging man), you could sell short in anticipation of the price resuming trading back below the pivot point.

A perfect example of this is shown in Figure 3, a 30-minute USD/CHF chart. USD/CHF had remained range-bound between the first support zone and the pivot level for most of the Asian trading session. When Europe joined the market, traders began taking USD/CHF higher to break above the central pivot. Bulls lost control as the second candle became a doji formation. Prices then began to reverse back below the central pivot to spend the next six hours between the central pivot and the first support zone. Traders watching for this formation could have sold USD/CHF in the candle right after the doji formation to take advantage of at least 80 pips worth of profit between the pivot point and the first level of support.

Figure 3 - This chart shows a pivot point being used in cooperation with a candlestick pattern to predict a trend reversal. Notice how the descent was stopped by the second support level.

Another strategy traders can use is to look for prices to obey the pivot level, therefore validating the level as a solid support or resistance zone. In this type of strategy, you're looking to see the price break the pivot level, reverse and then trend back towards the pivot level. If the price proceeds to drive through the pivot point, this is an indication that the pivot level is not very strong and is therefore less useful as a trading signal. However, if prices hesitate around that level or "validate" it, then the pivot level is much more significant and suggests that the move lower is an actual break, which indicates that there may be a continuation move.

The 15-minute GBP/CHF chart in Figure 4 shows an example of prices "obeying" the pivot line. For the most part, prices were first confined within the mid-point and pivot level. At the European open (2am EDT), GBP/CHF rallied and broke above the pivot level. Prices then retraced back to pivot level, held it and proceeded to rally once again. The level was tested once more right before the U.S. market open (7am EDT), at which point traders should have placed a buy order for GBP/CHF since the pivot level had already proved to be a significant support level. For those traders who did do that, GBP/CHF bounced off the level and rallied once again.

Figure 4 - This is an example of a currency pair "obeying" the support and resistance identified by the pivot point calculation. These levels become more significant the more times the pair tries to break through.

Conclusion
Traders and market makers have been using pivot points for years to determine critical support and/or resistance levels. As the charts above have shown, pivots can be especially popular in the FX market since many currency pairs do tend to fluctuate between these levels. Range-bound traders will enter a buy order near identified levels of support and a sell order when the asset nears the upper resistance. Pivot points also enable trend and breakout traders to spot key levels that need to be broken for a move to qualify as a breakout. Furthermore, these technical indicators can be very useful at market opens.

Having an awareness of where these potential turning points are located is an excellent way for individual investors to become more attuned to market movements and make more educated transaction decisions. Given their ease of calculation, pivot points can also be incorporated into many trading strategies. The flexibility and relative simplicity of pivot points definitely make them a useful addition to your trading toolbox.

NEWS SIGNALS FROM 9TH JUNE TO 13TH JUNE

2008-06-07T04:35:00.000-07:00

EURO IS EXPECTED TO RISE THIS MONTH DUE TO THE EURO 2008 SOCCER EVENT IN AUSTRIA/SWITZERLAND.

THE FOLLOWING SIGNALS ARE IN GMT TIME .
N.B ALL SIGNALS ARE JUST GUIDES NOT ENTRY SIGNALS.ONLY PLACE TRADE IF YOU ARE SURE AND AT YOUR OWN RISK.

MONDAY 8TH
8:30 AM GBP...........PPI INPUT
PREV 2.4 FORECAST 2.6
BUY GBPUSD IF ACTUAL IS 2.8 OR GREATER FOR 30 PIPS
SELL GBPUSD IF ACTUAL IS 2.4 OR LESS FOR 30 PIPS

12:15 PM CAD.................HOUSING STARTS
prev 214 FORECAST 220
BUY USDCAD IF ACTUAL IS 210 OR MORE FOR 20 PIPS
SELL USDCAD IF ACRTUAL IS 230 OR MORE FOR 20 PIPS

NEWS TRADING SIGNALS FOR MON2ND JUNE TO FRIDAY6TH JUNE 2008

2008-05-31T07:15:00.000-07:00

NOTE : ALL TIME ARE IN GMT SO CALCULATE WLL TO GET THE SIGNALS IN YOUR COUNTRY'S TIME............
THESE SIGNALS ARE JUST GUIDES TO TRADE AND YOU ARE RESPONSIBLE FOR ANYTHING THAT HAPPENS TO YOUR TRADE.ITS BETTER YOU TRY THEM ON DEMO BEFORE LIFE.

HAPPY WEEK OF TRADING...

MONDAY 2ND APRIL

GBP: MANUFACTURING PMI TIME 8:30 AM

PREV 51.0, FORE: 51.6

BUY GBPUSD IF ACTUAL IS 51.8 OR MORE FOR 30 PIPS IN THE FIRST HOUR

SELL GBPUSD IF ACTUAL IS 51.4 OR LESS FOR 30 PIS IN THE FIRST HOUR

USD: ISM MANUFACTURING INDEX TIME 2:00 PM

PREV 48.6 FORE 48.6

BUY USDJPY IF ACTUAL IS 48.9 OR MORE FOR 30 PIPS OR MORE IN THE FIRST HOUR

SELL USDJPY IF ACTUAL IS 48.3 OR MORE FOR 30 PIPS

WATCH OUT FOR THE OTHER USD NEWS AS IT COULD AFFECT THE MOVEMENT OF THE DOLLARS

TUESDAY 3^RD APRIL

AUD BUILDING APPROVALS TIME 1:30 AM

AUDUSD> I DID PREFER TO STRADDLE AT THIS POSITION USING YOUR PENDING BUY AND PENDING SELL

CHF CPIm/m TIME 5:45 AM

BUY USDCHF IF ACTUAL IS 0.2 OR MORE FOR 40 PIPS

SELL USDCHF IF ACTUAL IS 0.6 OR MORE FOR 40 PIPS

I PREFER TO STRADDLE HERE TOO

9:00 AM EUR, PPI M/M

BUY EUR USD IF ACTUAL IS 0.8 OR HIGHER FOR 20 PIPS

SELL EURUSD IF ACTUAL IS 0.7 OR LOWER FOR 20 PIPS

2:00 AM USD, FACTORY ORDERS

PREV 1.3% FORECAST 0.0%

BUY USDJPY IF ACTUAL IS 1.0 OR HIGHER FOR 30 PIPS OR MORE

SELL USDJPY IF ACTUAL IS 0.0% OR LOWER FOR 40 PIPS

WEDNESDAY JUNE 4^TH

1:OO AM , AUD ,GDP Q/Q

BUY AUDUSD IF ACTUAL IS 0.6 OR MORE FOR 30 PIPS

SELL AUDUSD IF ACTUAL IS 0.3 OR LESS FOR 40 PIPS

8:30 AM, GBP, SEVICES PMI

BUY GBPUSD IF ACTAUL IS 50.6 OR MORE FOR 30 PIPS

SELL GBPUSD IF ACTUAL IS 50.2 OR LESS FOR 25 PIPS

12:15PM, USD, ADP NONFARM

BUY USDJPY IF ACTUAL IS –20K OR MORE POSITIVE FOR 40 PIPS OR MORE IN THE FIRST 15 MINS

SELL USDJPY IF ACTUAL IS –30K OR MORE NEGATIVE FOR 50 PIPS IN 15 MINS

I PREFER STARDDLING HERE………….

ALSO WATCH OUT FOR THE NONFARM PRODUCTIVITY 15 MINS LATER

BUY USDJPY IF 2.5 OR MORE FOR 30 PIPS

SELL USDJPY IF ACTUAL IS 2.0 OR LESS FOR 30 PIPS

USD, 2:00PM , ISM NON MANUFACTURING COMPOSITE

BUY USDJPY IF ACTUAL IS 52.0 OR MORE FOR 30 PIPS

SELL USDJPY IF ACTUAL IS 50.0 OR LESS FOR 30 PIPS

THURSDAY 5^TH 2008

AUD, 1:00 AM ,TRADE BALANCE

BUY AUDUSD IF ACTAUL IS –1.7B OR MORE

SELL AUD USD IF ACTUAL IS –2.7B OR LESS

DO THAT FOR SOME 30 TO 40 PIPS

CAD, BUILDING PERMITS, 12:30 PM

BUY USD CAD IF ACTUAL IS –4.5 OR MORE NEGATIVE FOR 30 PIPS

SELL USD CAD IF ACTUAL IS 0.4 OR HIGHER FOR 50 PIPS

ALSO WATCHOUT FOR THE UNEMPLOYMENT CLAIMS AT THE SAME TIME

BUY USD IF ACTUAL IS 372 OR LESS FOR 30 PIPS

SELL USDJPY IF ACTUAL IS 374 OR MORE FOR 30 PIPPS

FRIDAY 6^TH

USD , NONFARM EMPLOYMENT CHANGE,12:30 PM

BUY USDJPY IF ACTUAL IS –50K OR MORE POSITIVE FOR 50 PIPS IN THE FIRST 10 MINS

SELL USDJPY IF ACTUAL IS –57k FOR 50 PIPS OR MORE IN THE FIRST 10 MINS

I PREFER STRADDLING BUT ALSO WATCH OUT FOR RELEASES AT THE SAME TIME

THAT’S ALL FOR THIS WEEK, SEE YOU ON MONDAY

HAPPY TRADING

NEWS TRADING SIGNALS FOR MAY 26 TO MAY 30TH, 2008

2008-05-26T06:15:00.000-07:00

MONDAY
No important news on Monday because of the holidays in Europe and The United States of America
TUESDAY
Trades to watch out for today are:

Currency: NZD
News: RBNZ Inflation Expectations q/q
Time:2:00am GMT
Previous:2.7% Forecast 2.8%
Action: Buy Nzd Usd if actual is 2.8% or higer for 30 pips or more in the first hour
Sell Nzd Usd if actual is 2.6% or lower for 30 pips or more in the first hour

Currency: USD
News :New Home Sales
Time : 2:00 pm GMT
Previous:526K Forecast 522K
Action: Buy Usd Jpy if Actual is 528 or more in the first hour for 40 pips or more
Sell Usd jpy if Actual is 522 or less in the first hour for 40 pips
You can trade this on the retracement.Also watch out for the other USD news at almost the same time

WEDNESDAY
Currency:USD
News: Core Durable Goods Orders m/m
Time: 12:30pm GMT
Previous 0.9 ( could later be revised) Forecast -0.4
Action: Buy Usd Jpy if actual is 0.9 or more for 50 pips in the first hour
Sell usd Jpy if actual is -0.4 or less positive for 50 pips in the first hour

THURSDAY
Currency: GBP
NEWS: Nationwide House Prices m/m
TIME; 6:30 AM GGMT
PREVIOUS -1.1% FORECAST -0.5%
ACTION: BUY GBPUSD IF ACTUAL IS -0.4 OR MORE POSITIVE FOR 40 PIPS
SELL GBPUSD IF ACTUAL IS -1.1 OR LESS FOR 30 PIPS

CURRENCY:USD
NEWS:Prelim GDP q/q
TIME: 12:30PM GMT
PREVIOUS 0.6, FORECAST 0.9
ACTION: BUY USDJPY IF ACTUAL IS 0.9 OR MORE FOR 30 PIPS
SELL USDJPY FOR 40 PIPS IF ACTUAL IS 0.6 OR LESS

FRIDAY

NO SERIOUS NEWS I TRADE ON FRIDAY ................WAITING FOR THE UPPER WEEK TO MAKE SOME MONEY FROM THE NON FARM PAYROLL.

Forex News - Why Most Traders Use it in the Wrong Way and Lose!

2008-05-05T10:21:00.000-07:00

It's a fact that today is forex news sources are better than ever and its delivered quicker yet the ratio of losers to winners in forex trading remains the same as it did 50 years ago 95% lose and only 5% lose. The news can be useful but you need to know how to use it.

First let's look at a simple equation:

Forex Fundamentals (supply and demand news) + Investor Psychology = Price

The facts are there for all of us to see but assessing the impact of the news is hard because humans (millions of them) all motivated differently see the facts but they all draw their own personal conclusions from them and that's the price.

If it were easy to trade by following the news then there would be a lot more winners than there actually are. Will Rogers once said:

"I only believe what I see in the papers"

Of course he was making a joke but I am amazed by how many traders think that because a story appears on Reuters or another newswire, they can trade it - you can't.

The fact is that humans always push prices top far up or down, as their emotions come into play and most major tops are formed when the news is most bullish and vice versa in a bear market.

It's a fact that prices generally move in line with the long term fundamentals but prices spike to far from fair value up or down along the way and history shows us these spikes don't last.

You can spot them easily on a forex chart and trade them for profit.

There is a well know saying:

"If you can hold onto your head when everyone around you is losing theirs, you probably haven't heard the news"

In forex trading this means you sit back in a detached fashion and look at your forex charts and when you see a price spike you start to question the news.

For example - the euro spiked to 1.50 recently and everyone said that the dollar was finished - yet its rallied and will probably rally further.

Why?

Because all the news stories have been discounted: Interest rate cuts, the sub prime mortgage crisis, the US will slip into recession etc and things can only get better and people also didn't pay attention to GDP which is robust.

The dollar was simply oversold and rallied, when the news was at its most bearish.

This doesn't just happen in forex, it happens in any market.

I read a great story about oil going to $160.00 dollars a barrel and that $100.00 a barrel was sustainable.

Well - there is no shortage of oil.

Global demand is actually falling and the true value of oil is in the $70 - 80 region. When people said $100 a barrel was a forgone conclusion - it was time to sell.

The fact is we are not creatures of logic, we are creatures of emotion.

Humans are also pack animals, we like to be with the crowd and the news reflects this.

The facts are the crowd never wins.

If you look at a forex chart and you see a piece of bullish news that fails to rally a market or a bearish piece of news that doesn't cause a market to fall - that is telling you to look at your charts and look for a contrary trade.

Forex news can be useful - but not in the way that many traders think.

The above are just a couple of examples, of how you can use forex news ( or any market news) to generate contrary trades, enjoy currency trading success and join the elite winning minority.

Forex Secrets. Delusion No1. Forex Currency Rate and Economic Factors Impact on Exchange Rate

2008-05-05T10:14:00.000-07:00

The delusion conceptually propounds that intraweek and intraday FOREX currency quotes movement is governed by either improvement or by deterioration of the state’s economic situation. But in reality, even in case the actual Forex news are superior to the estimated one, the FOREX quotes up/down movement is of 50/50 probability.

This statement is thoroughly important. Once the job of Forex trader is gambling on FOREX exchange rates differential (FOREX pairs up/down movement), the following is to be realized to obtain faultless profit:

FOREX pairs pricing mechanism (say at point X where you are completing the market analysis)

Factors imparting growth/decline to FOREX rates (up/down from point X).

Thus, having understood the FOREX ratesfactors effective at the extra-exchange (book-maker) FOREX market and the given currency motive factors, a trader must possess distinct knowledge of whether to buy or to sell the given currency pair.

So, what are these factors?

FOREX student suggest unambiguous interpretation of factors responsible for the price formation and the fluctuations there of:

Forex rate constitutes a demand-supply balance for a given goods (currency).

Any violation of this balance, (for instance, in case where the estimated news is in disagreement with the issued official one), results in the FOREX rates reciprocation in chase of a new demand-supply balance. Poor demand brings about decline in a certain currency rate, with a high demand leading to the growth of the latter. The situation continues as long as the currency buy/sell demand comes to balance at another level or at another point.

Referring to the B. Williams (“Trading Chaos 2” Chapter 1 “The market is what you are thinking of it”):

Each world market is dedicated to distribute or share limited amount of something… among those desirous to obtain it most of all. The market affects it by way of finding out and identifying the exact price? Underlying the buyer’/sellers’ power absolute equilibrium point.

The above point is readily established by stock, futures, bonds, FOREX and options markets, be it either via an open auction or by virtue of a computerized facility. Markets spot this point prior to any misbalance being detectable by You or by me or even by traders at the exchange floor.

With this scenario holding true – and it really does – we are in position to jump at certain simple yet important conclusions as regards the information being circulated through the market and enjoying doubtless acceptance”.

Thomas Demark was more laconic in “Technical analysis - an emerging science”:

“Price movement is governed by demand and supply. Should demand exceed supply, there’s a price rally and if visa versa, there’s a price decline. All economists do share these underlying principles”.

Hence, the role of fundamental analysis for FOREX market is readily apparent.

In scholar fiction one will discover roughly the following explanation, persistently wandering from book to book, from site to site and suggesting attaining successful trading at FOREX market by way of scrutinizing the country’s economic fundamental data, viz. by tracking the factors reflective of the country’s economy condition as below:

State economy condition dynamics indicators (GDP, trade & payments balance, current account, industrial production, etc. It is knowledge, that the higher the above indicators – the faster the economic and the currency price growth);

Stock indices, via average arithmetic index of the country’s securities market condition and dynamics. E.g.: 0.3% daily DJI growth in the USA means that this certain day the shares of 30 leading US companies, being pictured by DJU, went 0.3% more expensive. By similarity, DAX30 is the major German index, incorporating the price of shares of the country’s 30 leading companies.

The country’s interest rate, since the higher the rate, the greater number of investors is eager to invest into the country’s economy and hence into national currency strength.

Rate of inflation (the higher the rate, the quicker the National Bank will hike the interest rate). With this assumption, the CPI constitutes a key factor.

Money supply growth in domestic market, which fact brings about the inflation, leading to the interest rate hike.

The country’s gold and currency reserve assets.

Variation dynamics correlation of: balances of payment, trade balance, state budget, gross domestic product (GDP), etc.

Trade and industry dynamics (industrial production, industrial orders, DGO, capacity utilization, retail sales, etc.)

Construction statistics (construction spending, new home sales, housing under construction, building permits, etc.)

Labor statistics (unemployment rate, new jobs, etc.)

Society investigations (consumer confidence, consumer sentiment, purchase managers and service managers sentiment, etc.)

To be considered additionally are the country’s political stability and tranquility (clearly, any political, natural and other cataclysms are sure to turn investors nervous making them withdraw the investments from the country, thus weakening its national currency). And with the currency being the national economy derivative, changes in economic data will inevitably result in the above currency rate movement.

Conclusions:

Progress in economy results in the currency exchange rate rally.

Decrease in economic indicators leads to the national currency rate decline.

To sum it up, critical economic and political news (whose calendar is issued in advance and is familiar to any trader) constitute a standing factor giving rise to misbalance and causing the currency rate fluctuations.

In anticipation of important economic and political news FOREX pair crawl to the rates as inspired by the estimates (“rumored trade”), whereas upon actual news there occurs a pulse motion of FOREX pairs in accordance with the scheme below;

Forex rate grows if actual news are better than the estimated one;

Forex rate declines if actual news are worse than the estimated one.

ARE YOU FAMILIAR WITH THESE ABC BASICS OF STUDYING FOREX?

Do you accept that one can earn money by way of using these basics, known to every trader?

Then why, having absorbed these economic axioms, 90% of Forex traders in the world are losers rather than winners.

Where is the delusion of the above ABC truth, nudging traders towards losses? Let us perform sort of point-by-point analysis.

The currency exchange FOREX market is a book-makers one. It is gambling on rates difference without direct money delivery to the exchange market, except for hedging of traders’ funds by Forex brokers, via buy-sell difference especially during strong trends). Then, www.forexite.com reads: “Trading is performed without actual currencies supply, which fact cuts overheads and enables Forexite to go long and short on the currency” http://www.forexite.com/forexite_advantages/forex_advantages.html.

Comment: Have you ever met any book-makers;

o whose logics was coincident with that of THEIR clients (traders),

o whose stakes were being made in accordance with THEIR technical analysts forecasts, economic laws and common sense?

And what extent of doubt and skepticism should be attached to THEIR free “recommendations”, “advice”, “surveys” and “forecasts”, laid out at THEIR sites through THEIR analysts?

As a regular result, over 90% of the world traders are still loosing their deposits at FOREX each time they follow Thomas Demark stereotype that “All the economists share these underlying principles”.

Comment No.1. In as much as the above underlying principles are 90% contradictory to practice, it gives rise to the following question. Might these “underlying principles, shared by all economists including Thomas Demark” have possibly turned into dogma, alien to life and practice?

Comment No.2. What should a trader lean on: practice or dogma even if supported by great names, provided that the trader is purported at earning money?

FOREX analysts issuing their daily bulky market reviews are not FOREX traders in the overwhelming majority (see detailed discussion below). And on bringing together pairs 1, 2 and 3 there appears certain regularity.

Please, think over A. Elder words, that: “FOREX rates and the fundamental analysis are tied together with a mile-long rope. The fundamental analysis is ultimately decisive. But anything is likely to happen prior to this eventuality”. See http://forum.alpari-idc.ru/viewtopic.php?p=233365&sid=a15db5e24b0eec0a8cf725e2c5cac859).

Another, yet no less renowned trader and analyst, Bill Williams underlines the same mental regularity of an experienced professional trader (level 3 of his trader’s skill rating as per “Trading Chaos 2”): “On attaining level 3 you emerge as a self-provided pro trader. You are always familiar with the market’s basic, usually invisible structure. You no longer need to refer to others’ opinions. You needn’t read “Wall Street Journal”, watch market-oriented TV programs, and subscribe to information bulletins, waste money on information channels”.

Comment: Logically, there is a counter-implication, that if You are eager to become a successful trader, You are to restrict the influence of various surveys and recommendations on yourself even in case they originate from the world famous “Wall Street Journal”, to say nothing of crude gurus in analyst skins who use to know ahead of time where currencies will go.

Forex news is a scheduled issue of fundamental data, which as a rule impairs FOREX rates a sharp pulse of motion. But then, why the currency rates movement vector is only 50% coincident with the ABC truism logics as to where the rate should rush in case of actual news being much better or worse than the estimate. And, please, make an attempt to answer the following question, stirring for every trader: why with the new being worse than expected (say, on US economy), the USD currency would initially fall by 40 pips (news work-off) but in 5 to 10 minutes it would swivel back and would display a 200-point rally, with no account to either the issued news or to common sense.

Below are some examples:

Fig. 1. GBPUSD chart as of April 1, 2005 after the news, positive for the GBP and negative for the US economy.

(Picture you can see on author site )

In March the CIPS manufacturing index amounted to 52.0 (with the previous data revised from 51.8 to 51.6). Oil price in NYC has grown by USD 2.40 up to USD57.70 per bbl (new record of the latest 21 years). Non-farm payrolls in the USA was minimum since last July (previous data revised towards lower values). There has been a decline in the Michigan sentiment index to 92.6 (median estimate was 92.9, with 92.9 previously).

All the US indices faced a fall down. DJI at NYSE has fallen by 99.46 pips (-0.95%) towards closing at 10404.30. NASDAQ declined by 14.42 pips (-0.72%) to 1984.81. S&P500 slipped by 7.67 pips (-0.65%) to 1172.92. 30-yr US Bonds yielded 4.729 (0.037 lower as compared to the previous close). By contrary, FTSE100 has grown by 19.60 pips (+0.40%) to 4914.00.

Now, the question is to certified economists: what will happen to the GBPUSD within one day or even several hours upon publication of these data? You are right, USD should not simply fall down, it should collapse. Powerfully, swiftly. Well, well…

And this time, the same question to experienced traders. By FOREX news headlines You might have guessed that the events are taking place at the Friday American session. Correct. Initially, anyway, the GBPUSD chart will go up by 100 pips (news wok-off), followed by a pullback. Then Forex chart starts a new rally.

It is now to be tracked whether the GBP will breach the latest rally high or not. If affirmative, it will rush up by approximately 160 pips (Elliott wave 1 was 100 pips, while EW 3 is 60% longer). But if the high is not breached? The GBP currency quote will in no way come to a standstill, moreover on Friday afternoon. Hence, - down, to the starting point! And, if breached, similar situation takes shape but the counting is performed in a “down” direction (EW1, being the same 100 pips plus 187 pips from 1.8826 to 1.8759 being EW 3).

The FOREX day trading tactics will be given scrutiny in a separate chapter. A still separate chapter will be dedicated to Friday trade at American session due to its inherent specifics and to strong seemingly inappropriate movement. The movement is, of course, appropriate. To say nothing of Friday. But it will be touched upon later.

Now, getting back to the currency chart. As apparent, the GBPUSD pair movement on Friday, April, 01, 2005 is in no way in conjunction with the US economy fundamental data. Each forex trader can provide from tens to hundreds of similar instances, where the news are of a certain vector, whereas, after a fraudulent rush along the news vector, a currency applies reverse thrust.

Thereafter, the next day, in daily currency surveys, certified economists are sure to explain all to us by way of inventing another undisguised nonsense, like: “in spite of certain data, traders decided that the currency has already worked-off this side”. But! How could this occur on Apr, 01, 2005, provided that the currency has been staying flat in a narrow range in the course of the whole of the European session?

Otherwise, another explanation may emerge, that forex traders were expecting still more inferior news on the US economy… But! By how much more inferior, if according to DJ, the US non-farm payrolls MA was equivalent to 180K, with actual being +110K, estimate being +225K and prior being +243K? And in what manner do these economists count up world traders: by capita, by countries or by the funds, lost by those, who continued staying long in a holy belief in renowned academic scholars postulate of FOREX rates being tied up to countries’ economy statistics.

I wonder if I’ll ever chance to witness legal procedures to be instituted against any of those famous scholars, so that no one would dare claim that fundamental data trigger rate spikes.

The same pertains to economists, writing about the way, hundreds of thousands traders throughout the globe have conspired to conclude that it is time to reverse the trends with absolutely no grounds. Is it really feasible?

Such reading-matter is, but hammering a single question into one’s head: is it lie or is it stupidity of those cooking daily reports for taking traders for a ride, fooling them up and keeping them from the truth, which might be of great avail to them in daily trading. Traders are not a decisive factor, thus rates movement is in no way dependent on their will. Practically in no way.

Wanna check? Negotiate with tens of traders of the trading floor and arrange for a simultaneous entry long on some exotic FOREX pair. In so doing, try to push up either the NZDHKD, or the NZDCAD, or the HKDCAD. No need? I think so. You’ll certainly suffer failure with the above, to say nothing of the EUR, GBP, CHF.

Another example:

Fig.2. GBPUSD movement as of May 13, 2005.

(Picture you can see on author site )

This is an M15 chart of the American session, where the USD pair has grown by over 100 pips from 1.8583 to 1.8481 against the news, negative for the US economy:

Most indices have dropped down: DJI at NYSE – by 49.36 pips (-0.48%) to close at 10140.12; S&P500 – by 5.31 pips (-0.46%) to 1154.05. NASDAQ has grown by 12.92 pips (+0.66%) to1976.80. 30yr US Bonds yielded 4.484 (0.047 drop from previous close)

There is a fall in Michigan sentiment index. In May UMich was 85.3 with med est 90.0 and prior 87.7. So it was worse than the estimate, reaching the low since March, 2003. The index decline was being observed for the fifth month.

The April US export price index was +0.6% with prior of +0.7%.

Below are other similar examples of that same day.

Fig. 3. EURUSD chart as of May 13, 2005.

(Picture you can see on author site )

Hundreds of examples may be offered, where the Forex news vector is opposite to that of the currency movement. Practically, actual news may happen to be superior or inferior to the estimate. FOREX quotes up/down movement is also of 50/50 probability irrespective of the above.