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! 

Impact of EU's Credit Rating Downgrade

On Friday, Standard & Poor’s (S&P) downgraded the credit rating of the European Union by one notch, from AAA (its highest rating) to AA+. The S&P believes that the EU’s overall creditworthiness has started to decline as tensions rise during budget negotiations between 28 member states. Credit ratings measure confidence in the group's ability to repay its debt. When S&P lowers its ratings, it means the agency believes it has become harder for a group to repay its debt. This, in turn, can affect a country’s ability to borrow money. Essentially, a lower credit rating translates into a higher interest rate which means its cost more to borrow money!


This is not the only negative news for the eurozone. Growth is expected at 1.1% and the unemployment rate at 12.2% for 2014. Despite the news, price action in the Euro has remained relatively muted. EUR/USD saw a small decline on the weekly chart. A reversal of EUR/USD could be in store if budget negotiations continue to stall.  

Write Out Your Trading Strategy!

Do you ever find yourself altering your trading strategy so that you can enter a trade? If so, ask yourself the following question: Is my strategy written out? Many traders begin live trading in the Forex market without writing out their trading strategy.

Before you begin trading you should comprehensively write out your trading strategy. Any trader should be able to pick up your strategy and easily follow it. When writing out your strategy remember to consider the following things: Time frame trading? Type of market? Win expectancy? Best pairs to trade? Anything pertinent to your strategy.

Writing out your trading strategy will allow you to consistently follow it! Happy Trading!

Struggling Trading Forex? Form A Trading Group!

Most beginning traders in Forex wipe out their account only to never trade again! So how can you avoid this? Start a Forex trading group!  There are four core reasons to start a group:

• To Stay Active in the Market: You can get depressed after a couple of trades that do not work out your way. Meeting with a group will remind you how awesome trading is. You will be able to feed of others success! 
• Improve Your Trading: You will be able to share your trading problems with others who may have overcome the same problem. 
• Focus Your Thinking: Do you ever find yourself getting stopped out of trades only to ask why you got in the trade in the first place? Be accountable to others by explaining your reasoning for getting in a specific trade. 
• Sharing is Caring:  Share strategies with others so that people can give your fresh perspectives on how to improve a strategy. Two heads are better than one. 

Coaching Tip Of The Week: Keep Trading Simple

Do you find yourself moving from strategy to strategy? If so, then maybe you are caught in the cycle of doom that so many traders are caught in. Many traders who are beginners in Forex constantly try new things that they read on the internet, books, Youtube, and magazines. There are searching for that “new thing” that will give them an edge on the market. Many of these traders believe that the more complex a strategy is the more pips they will be able to gain. However, in actual practice, successful Forex trading is relatively simple.

Trading is as much about money management as it is about a particular strategy or set of rules you follow. Bottom line:  A strategy is only as good as its trader.

In order to consistently win, you need to know your system, but more importantly – know yourself. The simpler your strategy is, the more likely you will be to make money with it. Your strategy should have detailed and definite rules for entry and exit. It should also include what pair(s) you will trade, what time of day you will trade, and what profit and draw down you expect.

A Strong Foundation is Key

Many new traders to the markets make the mistake thinking that since they read a few articles on trading and now how to read the prices on a chart that it's time to start trading. It may sound crazy, but the mistake happens more than you may think. This one of the contributing factors to why 90% of people who start trading fail. They think that everything is a get rich quick deal, and they end up forgetting how important it is to EDUCATE yourself in the markets. As an up and coming trader it is important that you develop a strong foundation in education for trading and how to analyze the markets.
The two basic types of analysis for understand and predicting price movements are:

• Fundamental Analysis: In Forex, this type of analysis is used to measure the different contributing factors to supply and demand of these currencies. With stocks you look at the measurements of the company, but in Forex you look at the economic reports of different countries. A few may include GDP, inflation, trade balance, political events and more. Events you may see on the evening news can help you to earn money in the Forex Markets. .
• Technical Analysis: Every chart tells a story, and like many believe that history repeats itself. The technical side of trading involves analyzing price patterns and using charting techniques to create profit opportunities. 

It is important to not only educate yourself, but apply what you learn in sync with a demo account that allows you to trade with "play money." By doing this you will be able to realize how the markets work and at the same time continuing your education. 

Example of Technical Analysis

Dollar Weaker Than Expected Due To Slow Start To US Holiday Season

The amount of of shoppers over the Black Friday weekend saw record highs, however, the amount of spending showed the first decline since 2009. American consumer spending has dropped almost 2.9% this season. What does this mean for the dollar? It does not have the strength that many think it does. This can be seen in the futures prices for the USD. It is in a down trend since the initial spike after Black Friday weekend!

Learn with FXConnection. Coming Soon!

FXConnection offers products & services that allow everyday people to learn how to trade, improve their trading, and stay connected in the Forex Markets through:

• Online Courses
• Coaching Services (1on1 and Group) 
• Social Profiles
• Social Analysis of the Markets
• and more!

 Learn the right way and Stay Connected  to the markets with FXC! Here is just a small part of what is to come. FXConnection coming soon 2014!

Where is the Market?

Are the markets all that randomized?  Some would argue that the markets move cyclically and oscillate essentially between different levels whereas others would argue that the market is based a lot off random movements, some by perception, other movements by different factors indirectly or directly affecting the economy.

The whole idea behind the fundamental and technical analysis is simple: take human emotions out of the equation and there shouldn't be any economic crises.  Sure, markets can get "unpredictable" and theories such as the Random Walk Hypothesis developed by Burton Malkiel at Princeton.  Essentially, he argues that the market is just as predictable in trending as the flipping of a coin.  Heads, well it looks like the market is up today; tails, we're down.  

There are many individuals that believe this theory, as I am sure, part of it is to be believed though are markets truly just all randomized movements?  Try arguing the Random Walk Hypothesis to Ralph Elliot, the creator of the Elliot Wave.

This strategy he developed, a strategy, is based on social behavior and places movements in the market based on this behavior.  It is a very simple strategy, impulse and corrective wave patterns.  Depending on the sequence and the occurrence of these waves, this tells the trader where the market may be residing at during one of the many stages or levels.  Its almost trying to predict the general location of the market, like Heisenburg's uncertainty principle, except for the market since the trader never fully knows where the exact placement of the market is in relation to the waves and when he does seem to know the market movement he doesn't know where it resides on the exact Elliot wave.

Needless to say, the Elliot Wave and similar strategies have been successful numerous times yet still the market has that twinge of uncertainty about it, whether it be the ECB announcing dovish policies for the Euro or the Fed's whole "To taper or not, that is the question."  The market has a certain level of plain, old-fashioned unpredictability to it and especially in highly-volatile, highly-liquid markets there is a larger element of risk that anyone should be aware of.

The markets are completely unpredictable as some would say, yet others would argue right back that not only are the markets sometimes predictable, but during those levels of predictability, profits can be made.  And those that do find accurate predictions, make a nice profit.