From the start of this month, the EUR/CHF has been making lower highs. And, this has resulted to a nice-looking descending triangle pattern. Will price break to the upside or to the downside?

Factors Affecting

The euro has been relatively calm even after the release of the ECB interest rate decision last week. No major economic report is scheduled to be released from the euro zone today, apart from the December’s French Industrial Production report. It is forecasted that the report will come out at -0.3% for the month. The figure came in at 0.5% in November. Because industrial production is regarded as a leading indicator of economic growth, waning production is normally interpreted as bearish for the domestic currency. Later in the week, the only major report that can cause some major movements in the euro is the release of the Q4 2012 Flash GDP on Thursday.

Technical Analysis

As earlier mentioned, technical analysis on the EUR/CHF reveals the pair is trading in a descending triangle pattern. Immediate resistance is found at 1.2300. A break of this could expose 1.2375. On the other hand, immediate support is found at the lower line of the pattern, at 1.2256. A break of this could expose 1.2222.

Forecast

The pair is still trading in the descending channel pattern. Thus, the best case scenario is to wait for it to break out of this pattern, either to the upside or downside, before placing trades according to the technical analysis above.

DISCLOSURE & DISCLAIMER: THE ABOVE IS FOR INFORMATIONAL PURPOSES ONLY AND NOT TO BE CONSTRUED AS SPECIFIC TRADING ADVICE. RESPONSIBILITY FOR TRADE DECISIONS IS SOLELY WITH THE READER.

How Does The STC Work?

By using Exponential Moving Averages (EMA’s) like the ones used by the MACD, the STC adds a cycle component in factoring currency cycle trends. A certain number of days are used in the determination of trend cycles and this is factored into the STC indicator equation. The price is then determined by applying a version of Wilder’s smoothing algorithm. This gives the STC more reliability and accuracy compared to the MACD. The MACD utilizes a 12-period and a 26-period EMA together with a 9-period signal line. On the other hand, the STC uses a 23-period and a 50-period EMA and a cycle component acting as the 10-period cycle line. The STC uses two trigger levels, 25 and 75.

How to Use the STC

To use the STC to make trade decisions, the trader should sell when the line descends below 75 and buy when the line ascends above 25. To further increase accuracy and reliability, Doug Schaff suggests buying when the bar following the trigger bar closes above the high of the trigger bar or sell when the bar following the trigger bar closes below the trigger bar’s low. The bar created simultaneously with the trend cycle’s rising over the 25-mark or descending below the 75-mark is what is referred to as the trigger bar. The STC input parameters are:

1. MAShort: This is the period of fast EMA. It should be lower than MALong and has a default value of 23.
2. MALong: This is the period of the slow EMA. It should be higher than MAShort and has a default value of 50.
3. Cycle component: This is the length of the cycle in the chart periods. The resultant cycle is double the length due to the use of two stochastics in the calculations. The cycle’s default value is 10.

Summary

The STC indicator can appear complicated or confusing when they show a currency as being either oversold or overbought by the straight line signals. To avoid such confusion, it is advisable to wait for more precise signals before making any trading decisions.

KRI Vs RSI

The KRI bears many similarities with the Relative Strength Index (RSI), founded by Welles Wilder. First, they are both considered oscillators and move with a chart up or down with the markets’ fluctuation. However, each oscillator serves a different, distinct trade function and their calculations vary.

Both the KRI and RSI are thought of as leading indicators and are momentum oscillators. They are used to measure the rate of change in currency prices. Their momentum rises with an increase in price and lowers with a decrease in price. The KRI calculates deviation of current currency price from the simple moving average price as a percentage of the moving average.

Traders ideally use it to identify and capitalize on the downside, which indicates that a market is overextended. Simply put, when the deviation rises above the x-axis, it is time for the trader to exit the trade, while it is profitable to enter a trade when the index goes below the x-axis. These are the formulas used to calculate the Simple Moving Average and the KRI:

Simple Moving Average (SMA) = X closing prices over Y periods / No. of Periods
KRI = [(Current Price – Current SMA over 20 periods) / SMA over 10 periods] x 100

One benefit of KRI over RSI is that the KRI indicates a moving average which shows how the market has been performing over a period of time. The RSI is simply a comparison of the up and down closes. In this way, the KRI makes it easier for a trader to point out the exact entry and exit points of a trade.

Both indexes are set at a standard 14 periods and sometimes lower set periods are used for quicker market response while higher periods are used for a more accurate (though slower) market.

Center Line

Both KRI and RSI are referred to as center line indicators due to the x-axis line that determines the longs and shorts, the trends and ranges, and the entry and exit points. KRI acts as an early warning indicator of price behavior though it should be noted that prices may diverge from what is indicated. The rule is for traders to go long when the line is above the x-axis and go short when it is below. The top to the x-axis represents approximately 500 pips while top to bottom is approximately 1000 pips.

Types

Forex charts use two types of KRI indicators. One looks like the RSI and acts the same as the RSI. The second type uses bar graphs and is similar to a stock volume indicator. The trader should buy when the bars reach the top and sell when the bar is at the bottom.

The boost the Pound got for the Olympics has come to an end. Why? There are policy reasons for that. First, Britain has been following what is called fiscal austerity. This has been a bit contrary to what other countries have been doing, which is to spur growth. They are practicing this even though they have been seeing sluggish growth over the last several years.

However, the Bank of England has been using Quantitative Easing to spur the Pound and the economy with varying degrees of success. Bluntly, it has not been able to give the economy the kick it has been hoping for. The bottom line is that we will need more stimulus packages this year, or we will have flat or no growth.

It is conceivable that the Bank of England will follow what it did last year. They will start the process by increasing lending. If that fails to spur along economic growth, then it will lower the prime lending rate. This means a weaker Pound.

There are two essential things that a Forex trader should learn very early in their trading life.

How to Detect a Bad Trade

The most important thing for any business to flourish is to avoid losing capital. In Forex trade, the trader should learn how to detect a bad trade early on before the losses run into big, unmanageable amounts. There are a few pointers a trader can use to detect a bad trade.

1. Is the trade placed too close to a potential reversal point? Check whether a long order is placed at a resistance level or a short order is placed very close to a support level.
2. Reversal candlesticks: Check whether there are bullish reversal candlesticks during a short trade or bearish reversal candlesticks during long trades.
3. Fundamental analysis: Some news items and government policy decisions act to totally change price action on currency pairs and this may result in price actions that run contrary to the expected open position.
4. General behaviour of a currency: If the currency you are trading on a currency pair is losing, check the performance of the traded currency in other currency pairs. If that currency is losing in other pairs, then that is definitely a bad trade.

Exiting a Bad Trade

After recognizing a bad trade, the first emotion that comes to most traders is denial. They end up hoping against all odds that the tide will turn, and the price action will move in the earlier expected direction and the trade will end up in a nice profit. Unfortunately, this is often not the case. Most times, the losses will run and will end up in unmanageably high amounts that the trader was not prepared to absorb.

Therefore, a successful trader must learn to curb all emotion and be practical when assessing bad trades and exiting them. A prudent trader will exit a bad trade manually immediately s/he realizes it is a bad, losing trade. The trader will also avoid judgemental actions that may lead to further losses.

The golden rule is “Never try to immediately recover losses”. Give it time until your emotions give way to more practical thought. Preferably, wait until the next day before trading again. Take that time to assess the extent of the loss and the damage to your Forex capital base. Only attempt to regain your lost capital after ensuring that there are sure banker trade operations, and not before.

Since the beginning of the new year, USD/JPY has been making lower highs and higher lows. As a result, this has led to the formation of a nice looking symmetrical triangle pattern. Will the pair break to the upside or to the downside of this pattern?

Factors Affecting

The performance of the dollar has been improved in the markets by the recent release of the positive December’s NFP report. Statistics showed that there were 155,000 jobs added during the month, topping expectations by 5,000. Furthermore, the U.S. unemployment rate picked up and disappointed the consensus at 7.7% when it came in at 7.8%.

Analysts have pointed out that the greenback has leapt almost 12% in approximately two months, due to expectations that the new Japanese government elected in December would pressure the Bank of Japan to approve a more forceful monetary stimulus approach.

Technical Analysis

As earlier mentioned, technical analysis reveals that the USD/JPY is trading in a symmetrical triangle pattern. If the pair manages to break out of this pattern to the upside, it may encounter resistance at 88.24 before moving higher on break of the level. On the other hand, if the pair manages to break out of this pattern to the downside, it may encounter support at 86.75 before moving lower.

Forecast

Since the pair is currently still stuck in the pattern, the best case scenario would be to wait for it to break out of it before placing trades according the technical analysis above.

DISCLOSURE & DISCLAIMER: THE ABOVE IS FOR INFORMATIONAL PURPOSES ONLY AND NOT TO BE CONSTRUED AS SPECIFIC TRADING ADVICE. RESPONSIBILITY FOR TRADE DECISIONS IS SOLELY WITH THE READER.

Nevertheless, the stability and portfolio diversification the product offers has witnessed assets under management in the international managed futures sector increases from $50 Billion in 2002 to $340 billion during the second quarter of 2012.
The sector has grown to be the largest in the United States, Australia and the UK with a $2.2 trillion hedge fund market.

Aspect Capital of London launched the Aspect Diversified Futures Fund in addition to Colonial First State in March 2012 and the fund has racked up $350 million with a 11.51 per cent return, net of fees, for the year ending June of 2012.
Most people you meet on the street have never heard of managed futures, but this trading aspect is now the largest sector of the hedge fund market. Managed Futures holds a long standing track record of producing diversifying returns, according to Aspect Capital co-founder and chief executive officer Anthony Todd.

Managed Futures firms and investors take a large of small position in futures contracts regarding assets like commodities, bonds, currencies and equities to utilize market trends.
Managed Futures have come into the forefront in recent years due to their agnostic market direction, and are likely to produce stable returns during rising and falling equity markets. The performance is particularly strong in times of financial turmoil. A prime example would be the global financial crisis of 2008.

A good example would be the recent significant uptrend in gold over the last month or so, which has prompted other commodities firms to up their interest in yellow metals. For fast and ongoing assessments of models requires heavy research and focus on development.
Aspect Capital approach is searching for medium-term trends to exploit cost momentum and solely trades the most liquid markets in interest rates, currencies, metals, bonds, agriculture and energy stocks throughout 120 different market.

Managed Futures strategies will produce less than equities in a confident market, but the reduced risk and loss potential in traumatic periods, plus the added portfolio diversification has proven strong sector growth in the last decade.

“The aim is to build a set of trading and risk models. Once we’ve researched the system we should be able to run it in a disciplined fashion across a range of markets 24 hours a day. But from a risk point of view we’re checking constantly to make sure the models are functioning,” said Mr. Todd.

Source: Financial Review.

Steve Spurlock is a Managed Futures broker and copywriter for KIS Futures, Inc. The firm was established in 1987 and has grown to more than 3,000 customers worldwide. Today, the Oklahoma City-based firm has branch offices in Texas, Kansas, Nevada and California.

From experience, we can say that there is no definite time to change from a demo account to a live account. The best approach is to practice and sharpen your strategies until you feel comfortable enough to start live trading. And, you should be cautious not to start demo trading too soon. Some traders quickly start live trading once they make some few profits in a demo account. If you’re not able to make profit consistently in a demo account, then there is no need to start live trading. If you do this, you may blow out your live trading account very fast.

Importantly, when switching from a demo account to a live account, you should do it in stages. You should start with a micro account, then a mini account and finally a regular account. If you switch this way, you can limit your losses and develop the confidence of navigating the markets. The mistake most forex traders make is to shift from a demo account to a live account and trade using high leverage. However, if you shift as in the aforementioned stages, you can greatly reduce your losses and you will eventually find forex trading to be enjoyable.

Before you switch to a real account, you should ensure that you have fully grasped how the forex market operates. Lack of knowledge is one reason why most forex traders fail. As such, you should stay abreast of the happenings of the forex market. And, since the forex market is very dynamic in nature, constant education is key to reaping big profits in this business.

Lastly, before you shift from a demo account to a real account, you should ensure you have a profitable strategy for trading currencies. Trading using a demo account enables you to perfect your strategy before subjecting it to live market conditions. If you’ve a profitable strategy, then you can trade with it in a live account.

Some of the most popular oscillators for Forex traders include the Moving Average Convergence/Divergence (MACD) technical analysis indicator, the Relative Strength Index (RSI) technical momentum indicator, and the Stochastic Oscillator which is also a technical momentum indicator.

The MACD indicator spots changes in a currency price’s strength, momentum, duration, and direction. It is usually calculated from historical data of currency prices, mostly the day’s closing price. A Forex trader should learn to detect even the subtlest of shifts in a currency price’s trend by comparing the differences to the averages.

The Relative Strength Index (RSI) is a technical momentum indicator used for comparing recent currency gains against recent currency losses with the intention to determine which currencies have either been overbought or oversold. RSI is calculated using the following mathematical formula:

RSI = 100 – 100/ (1+RS*)

Where:

RS = the average of x days’ up closes / Average of x days’ down closes

The RSI ranges from 0 to 100 and a currency is said to be overbought immediately the RSI reaches the 70 level. This means that the currency may be getting overvalued and the shrewd trader should exit the trade at that point. In the same way, when the RSI reaches 30, this should be translated to indicate that the currency may be oversold and therefore may be soon undervalued. Experienced traders should know that large shifts in the price action charts of a currency will affect RSI by creating false trade entry and exit points.

Stochastic Oscillator

A stochastic oscillator is a technical momentum indicator that compares a currency pair’s closing price to the pair’s price action over a stipulated time period. To reduce the oscillator’s sensitivity to market movements, one may reduce the time period under consideration or employ a moving average of the result. The stochastic oscillator indicator is calculated using this formula:

%K = 100 [(C – L14) / (H14 – L14)]

                        Where:

C = the most recent closing price

L14 = the lowest of the 14 previous trading sessions

H14 = the highest traded price of the same 14-day period

The stochastic oscillator indicator works on the premise that in upward-trending markets, prices often close the day at points near their high and the reverse is true in downward-trending markets.

GBP/USD is trading on an uptrend

For the fourth time this week, GBP/USD has been climbing the charts like no one’s business. Notably, on its uptrend, the pair has retested its rising trend line a number of times. Currently, it’s testing the trend line. Will it break out of it or bounce off it?

Factors Affecting

The recently released Monetary Policy Committee meeting revealed a very gloomy outlook for the economy of England. The Bank of England has projected poor economic performance and risks to inflation in the next year. In addition, the CBI sales report came in worse than expected, with a reading of 19, far below the forecasted value of 26. Later today, the market is awaiting the retail sales report which may further shape the cable’s price action.

Technical Analysis

As earlier mentioned, technical analysis on the cable reveals it’s trading in an uptrend. If the pair continues with this upward move, it may encounter resistance at 1.6300 before moving higher on break of the level. On the other hand, if the pair convincingly closes below the trend line, it may encounter support at 1.6200 before moving lower on break of the level.

Forecast

GBP/USD is on an uptrend. Thus, traders who were long in it should continue holding on to their positions as long as the bullish pressure is still evident.