Forex News and Reports

Retail Forex Trading Explained…

A few year ago, Dirk du Toit wrote this book.

Below are some of his ideas, as i can remember them. I hope this will help you to understand better the forex exchange market.

he has a personal trading system, 4×1 and median system.

it’s very important to understand probability.

trading is not a spectator game.

don’t forget that, we traders, are the market

the forex market is a game, a game of chess…

stop further losses

in currency trading, you live in real time, or you don’t live at all.

he believes that you must never forget that in the end forex is only a business where you must have profit.

don’t underestimate your common sense.

don’t use a very high leverage.

Forex exchange market is not a common exchange market.

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Trading the moment of the NFP relaese is hit and miss, trading the momentum of the NFP is a better bet.

The volatility of the 1st Friday of each month that NFP is released is not just down to the number of jobs created, this is a complex release that has four components that Traders must be aware of:

1. The actual number of jobs reported as being created this month; July’s number is expected in at 125k, and is an average of analysts’ figures that range from 300k to 20k. The High to Low difference in opinion is enormous.
2. The revision to the previous month’s number; Probably as important as the new number, the revision can add 50k to the previous amount, and that is what creates the volatility as Traders re-align their previous thoughts on what happened four weeks ago.
3. The Employment Rate; Currently at 4.5% is one of the lowest in the world and has stayed between 4.5-4.6% recently. Any move outside this area would be dramatic
4. Average Hourly Earnings; Looking at coming in around 0.4%, this is the number that the Fed stated was causing it concern as an inflationary read.

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Measures the number of new jobs created in the previous month, excluding the farming industry. A rising trend has a positive effect on the nation’s currency. The number of new jobs being created is one of the most important indicators of the economy’s health because consumer spending, which is highly correlated with labor conditions, makes up a large portion of GDP. This report is the first of the month that relates to labor conditions, making it susceptible to big surprises.

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Each month, excluding January, the Reserve Bank of Australia (RBA) Board meets to set the nation’s short term interest rate (i.e., “cash rate”). The Board announces the decided rate shortly after the meeting, and when there is a change in rates they also releases a statement that contains the economic conditions that effected their decision. A rising trend in interest rates has a positive effect on the nation’s currency. Short term rates are the paramount factor in currency valuation; traders look at most other indicators merely to predict how interest rates may change in the future. High interest rates attract foreigners looking for the best “risk-free” return on their money, which can dramatically increases demand for the nation’s currency. The decision on where to set interest rates depends mostly on inflation. The primary objective of the central bank is to achieve price stability; when inflation rises above an annualized rate of approximately 3%, they will respond by raising interest rates in an attempt to bring prices down.
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How Will The Markets React?
Interest rate announcements are always important for the foreign exchange market. With the Bank of England, this upcoming rate decision will be market moving regardless of whether they decide to raise interest rates or not. After having raised rates in May and then leaving them unchanged in June, the BoE is expected to lift rates from 5.50 to 5.75 percent tomorrow. Of the 60 economists surveyed by Bloomberg, 52 or 87 percent of them are calling for an interest rate hike. This almost unanimous view puts the “surprise” element of the event risk to the downside. Therefore if the Bank of England leaves rates unchanged or raises rates and then issues some very neutral language in their statement, we could see a far larger move in the GBP/USD than if they do exactly what the futures curve is pricing in, which is to raises rates and remain hawkish. According to futures traders, the BoE could bring rates up to 6 percent by the end of the year. The recent movements in the currency, bond and stock markets indicate that British pound and Gilt traders are expecting higher rates while stock traders are not.

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WarRen Buffett is acknowledged by investors around the world as the world’s best investor.

Here are some of his investing secrets :

1. Invest in quality businesses, not stock symbols.
2. Don’t invest for ten minutes if you’re not prepared to invest for ten years.
3. Scan thousands of stocks looking for screaming bargains.
4. Calculate how well management is using the money they have.
5. Stay away from “glitter” stocks.
6. Know what a fat pitch is and what to do with it.
7. Calculate how much money you will make, not whether the stock is undervalued or overvalued according to some academic model.
8. Remove the weeds and water the flowers - not the other way around.
9. Become a conscious investor.

The main economic law of supply and demand is that markets that offer the highest return to investment will attract more investors and capital. These markets are those where the nations offer the highest rates and in this way they will create the most demand for their currencies.

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A good trader should have a plan with specific guidelines.This plan should answer to some of these questions :

• How the market works ?
• What is your purpose ?
• What will you do in order to get to the edge ?
• Are you prepared to have some bad trades ?
• Can you “survive” to the worst scenario ?

This rule holds that the market usually doesn’t act the same way two times in a row.

If a certain type of top or bottom occurred the last time around,it will probably not do so again this time.

The rule of alternation doesn’t tell us exacly what will happen, but tells us what probably won’t.

From Wikipedia, the free encyclopedia

The PMI is a composite index that is based on five major indicators including: new orders, inventory levels, production, supplier deliveries, and the employment environment. Each indicator has a different weight and the data is adjusted for seasonal factors. The Association of Purchasing Managers surveys over 300 purchasing managers nationwide who represent 20 different industries.

A PMI index over 50 indicates that manufacturing is expanding while anything below 50 means that the industry is contracting.

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On balance volume (OBV) is a technical analysis indicator based on a cumulative total volume. Volume on an up day (close higher than previous close) is added and volume on a down day is subtracted.

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Confirmation refers to the comparison of all technical signals and indicators to ensure that most of those indicators are pointing in the same direction and are confirming one another.

Divergence refers to a situation where different technical indicators fail to confirm one another.

Topping patterns are shorter in duration and are more volatile than bottoms.Price changes are more frequent and more violent on tops.

Bottoms have smaller price ranges, but take longerto build.

For this reason it’s easier,less costly and less risky to identify and to trade bottoms.

Volume is more important on the upside.The completion of each pattern should be accompanied by a noticeble increase in volume.

This technique was developed by Edson Gould and is an adaptation of the idea of dividing the trend into thirds.The  difference from the percentage retracement concept is that the speed resistance lines(speedlines) measure the rate of ascent or descent of a trend.

There are three different classifications of trend :

• major
• secondary
• minor

There are three trend directions :

• up
• down
• sideways

What determines the significance of a trendline?

The answer is : the longer it has been intact and the number of times it has been tested.

The more significant the trendline, the more confidence it inspires and the more important is its penetration.

The correct drawing of a trendline should include the entire day’s trading range.

1. The averages discounts everything
2. The market has three trends
3. The averages must confirm each other
4. Volume must confirm the trend

Volume should expand or increase in the direction of the major trend.Dow considered volume a secondary indicator. He based his actual buy and sell signals entirely on closing prices.

Any process appears random and unpredictable to those who don’t understand the rules under which the process operates.

The illussion of randomness gradually disappear as the skill in chart reading improves.

“The sum and tendency of the transactions of the Stock Exchange represent the sum of all Wall Stree’s knowledge of the past,imediate and remote,applied to the discounting of the future.

There’s no need to add to the averages,as some statisticians do,elaborate compilations of commodity price index numbers,bank clearing,fluctuations in exchange,volume of domestic and foreign trades or anything else.Wall Street considers all these things.”(Hammilton-The Stock Market Barometer-Dows Ideas)

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I like this phrase:”The development of rock-solid discipline is among the most challenging endeavors to which a trader can aspire.

The primary reason for failure as a speculator is a lack of disciplined adherence to successful trading and price risk management strategies as opposed to an inability to discover profitable trading methodologies.”