Want To Become A Wolf On Wall Street ? Know These Numbers!

Elite traders are cocky. Felix Dennis perhaps said it best when he said that "Making money is certainly that one addiction I cannot shake." Dennis, like many other successful traders, believes that they will continue to make money. Their confidence comes from knowing the most intricate details about their trading. Remember that as a Forex trader you are a money manager and must keep track of how you are preforming. This can be done by reviewing your trading history and analyzing your trading journal. Thus should be done on a consistent basis. But wait, we still haven't told you what numbers you need to know ! Here are the eight metrics that each trader needs to calculate:

1. Percentage of winning trades(How many trades have you profitably close)?
2. Average Gain/Loss(The average of all winning and losing trades). If your average loss is bigger than your average gain and your winning percentage is not over 60%, you should rethink your trading strategy. 
3. Average Trade Duration(How long do you hold a trade for on average)?
4. Most Profitable Currency Pair(What is your bread and butter pair)? 
5. Drawdown (The percent decline from peak equity to a its trough)?
6. Run-up(Largest win streak in account)? 
7. Drawdown/Run-up Ratio( In dollar terms, how does your worst losing streak compare to your best winning streak)? 
8. Expectancy(Determine whether your system is profitable)? 

Canada's Central Bank Sparks Concern

On January 21, the Canadian dollar (CAD) hit a four-year low against the U.S. dollar (USD) amid concerns over the Bank of Canada and the U.S. Federal Reserve. The CAD broke through the C$1.10 mark, which has long been considered a psychological barrier that can have a drastic effect on future forex trading. However, the CAD did gain slightly before the close of the day in the North American market.

The fall of the CAD was said to originate the night before when the USD unexpected rose after news broke of possible cutbacks in the Federal Reserve’s program designed to stimulate the U.S. economy and domestic investing. No official announcement was ever made, but the article published in the Wall Street Journal stated that the Fed may drop its bond purchases to $65 billion per month from its current monthly purchases of $75 billion.

The reason why the CAD dropped from the news concerning the Fed is that investors are expected to start purchasing U.S. currency instead of Canadian. However, concerns about the Bank of Canada have been in play for some time and may come to a head in only a few days.

Late last year, the Bank of Canada dropped discussions about rate hikes after it had been suggesting they were on the horizon for nearly 18 months. This event immediately caused the CAD to waver on the market, which has appreciated the USD against the pair by more than 6 percent. A full 3 percent of this increase came in January 2014.

The executive director of foreign exchange sales at CIBC World Markets in Toronto, Don Mikolich, has agreed that CAD trading is at a downturn, stating, “The sentiment does continue to be quite firmly against Canada.” Mikolich continued by discussing the fact that the Bank of Canada is comfortable in the weakening of the currency. “It’s hard to say what levels they have in mind, ultimately, but I don’t think we’re there yet,” Mikolich said.

At the close of the trading day on January 21, the CAD was at C$1.0972 against the USD. The last time the currency pair had been this low was in September 2009 when the CAD fell to C$1.1019 against the USD.

The Bank of Canada is due to release two important updates later in the week that may also affect the CAD: its annual Monetary Policy Report and a decision on interest rates. However, interest rates are expected to stay fixed at 1 percent. 

2014 Could Be the Year of the U.S. Dollar

The United States dollar (USD) recently posted gains against the euro and the yen after minutes from the December meeting of the Federal Open Market Committee (FOMC) were released.
The minutes indicate two major developments: First, the U.S. Federal Reserve is on track to reduce its bond purchase program at a gradual pace. Second, the Fed's outlook for the U.S. economy is positive.

The FOMC minutes were released on Wednesday, January 8th. Earlier that day, the closely-watched National Employment Report from payroll technology firm ADP was also positive as it indicated that the private sector closed 2013 by adding 238,000 jobs in December. Forex traders responded quickly to the news, which caused the USD to rise against the euro and the yen by 0.3 percent.

Quite a few forex market analysts believe that scenarios similar to the one above will be more common in the year ahead. As the world's largest economy recovers from the Great American Recession and the global financial crisis, investing in the USD is expected to be a bullish move for the first half of the year.

USD Consensus for 2014
Trading the greenback is something that just about all forex traders get into in their lifetimes. The USD is part of the currency pairs known as the forex majors, which include the EUR/USD and the USD/JPY. The forecast for the euro and the yen in 2014 is not the brightest. In fact, many analysts believe that both the euro and the yen will perform very poorly from January to June.  The EUR/USD seems to even be on a downtrend from the year 2008, continually slipping lower in price than previous years.

The European Union economies are expected to languish over the next few months. The Bank of Japan is expected to flood the market with cash for the purpose of offsetting the immediate effects of a sales tax increase. The U.S. economy, on the other hand is expected to experience a gradual recovery in terms of employment, real estate and consumer spending.

The consensus on the USD index, which is currently at about 81.14, is that it will reach 85 by December 2014. The euro, however, could drop to $1.27 by the end of the year. This is not the first time that analysts are forecasting a significant fall of the euro, but they seem to be a bit more certain this time around.

How To Create A Technical Trading Strategy!

There are several great trading strategies out there. Many traders become mesmerized by the "next great strategy" that they read on a website or  view online. Beginning Forex traders will even spend money looking for an elite strategy. FXConnection wants you to know that building a strategy can be fun, easy and painless! This post will teach you how.

First, look for an entry signal to buy or sell the specific pair that you are making the technical strategy for. It is important that you tailor this strategy for the specific pair and time frame that you are trading because pairs respond differently. The entry signal to buy or sell could be an indicator or price action.

Second, develop money management rules. Risk management is essential for successful trading. Decide where you will place your stop losses and how much capital you will risk every trade.

Third, determine when you want to close a trade. You might have different rules in place for when to close a long trade and when to close a short trade.

Fourth, determine what type of market condition the strategy works well in. For example, Range-Trading Strategies perform poorly in volatile markets, while Trend-Trading Strategies perform poorly in ranging markets.

Fifth, conduct some back testing. Find out what the average winning and losing trade were. Remember that back testing is not always indicative of future performance.

Finally, remember this. It is important to keep your strategy as simple as possible. You should be able to write out your trading strategy so that another trader could follow it without any problems. Happy Trading!

The USD/JPY Continues to Rise, but Can the Trend Continue

This past week has shown a huge positive gain for the USD/JPY pair as there was a very large increase in Core Goods inflation, backing the BoJ's financial measures, only pushing the Yen's value down even further as it continues to fight for that 2% inflation goal and the USD is said to continue higher against the Yen setting record levels and gaining over 20% against the Yen's value.

However, as we look at the USD/JPY chart below, is the dollar looking to go even higher against the Yen?Over the course of just a few days the dollar has made incredible gains, making profits for many traders.

Looking at the chart below  there are several key features that need to be noticed first and foremost.

First, looking at the Bollinger Bands set on this chart, we can see that the last candlestick drawn fell below the first deviation band level, quickly dropping downwards, looking like it found a bit of support at the 104 level before buyers stepped back in and took control of the market.  However, the Bollinger Bands show that this market is looking as though is is very top heavy, with the USD/JPY oscillating between the first and second deviation, and still looking for some sort of support.  This floor may come a bit before the 104 level, as the middle band seems to be near that general vicinity consequently the pair may find a good floor right around where the middle band of the Bollinger Bands rests.   

The interval between the upper bands and lower bands and the middle blue bands indicate the amount of volatility this pair may contain.  The interval between the lower second deviation band and the middle band is much larger than in other parts of the chart, indicating a possibly high level of volatility that this pair may contain.

Notice how wide the band actually is in the most recent areas of the chart which also questions the actual strength of the USD/JPY and whether or not it will hold this level when the markets open on Sunday. This large interval points to a high level of volatility that we see recently with this pair.

Another level that should be noted is the 103.208 level which marked the previous high the market established several months ago and is noted on the chart above by the black horizontal line.  Since as of recently this pair blasted through this 103.208 resistance level and has not really looked to form some sort of support, it may not surprise traders to see a decline to this level in the near future to form a bottom for the continuing push upwards in the future.

Ultimately though, the whereabouts with the pair in the future is unknown, though some factors point upwards while others point to a possible pullback.  However, constantly keeping up with the market is paramount as is analyzing your trades before executing them.  Proper risk mitigation is key in this subject area as the USD/JPY possibly continues higher in the coming days and increases its volatility, becoming overbought and concerning traders. Or this pair may even look to drop down and find support somewhere else, though where exactly is not known.

Managing your risks in any market whether the it continues higher or breaks down is an absolute must for smart trading and lessening your risks you take when investing in currencies.

  

Determine Your Trade Risk Before Placing Your First Trade Of 2014

Every trader has his own tolerance for risk. If you have just picked up Forex in 2014 or are a reoccurring trader who is struggling in the market, smaller lots are recommended. We recommend you start with micro lots or mini lots. When you make profits several weeks in a row, and when you feel comfortable with bigger risks, you can move to bigger lot sizes. As world renowned poet Maya Angelou once said that one is not born with courage. One develops it by doing small courageous things—in the way that if one sets out to pick up a 100-pound bag of rice, one would be advised to start with a five-pound bag, then 10 pounds, then 20 pounds, and so forth, until one builds up enough muscle to lift the 100-pound bag. In some ways courage is needed in trade risk. So it might be awhile until you are ready to trade a standard lot. 

Several factors affect how much of your account size you should be willing to risk. We recommend you risk no more than 2% of your account at first (1% would be better). Risk, in this context does not mean the size of the trade you put on. Rather it is the maximum loss you will tolerate before closing the trade. If you have a $5,000 account, we recommend you hold your losses to $100 per trade. That way, you can lose 50 trades in a row before all your money is gone. You are unlikely to lose more than 5-10 trades in a row, so this should keep you alive for a while. When you have more experience, you can risk a bit more, but at first, keep the losses small. Happy trading in 2014!