Forex World UK

Dow Analysis 81209

m.ayazumer@gmail.com (forex daliy forex world forex online forex info ) — Wed, 16 Sep 2009 11:53:00 +0000

Dow Jones Chart

Back in February I did a number of Dow Jones analysis’ where I predicted the temporary bottom of 7000, it actually went to 6500. Since then we have seen an uptrend, but very important, the uptrend cannot be counted as an impulse. It is a correction and most likely an WXY double zigzag correction.

The prediction in February was a Dow back to 9500-10000 area. That is happening as we speak, we are already at the bottom of the target area and caution is now required for a reverasal. (For a history of the analysis click the “Dow” label bottom right of this webpage.)

February Chart

Current Chart (weekly)

Comment:

Elliott Wave:

With WXY double zigzags we are looking for equality between wave W and wave Y, that would put the dow at 10532.08 a little over the 50% fibonacci retrace from 14217 to 6460.

What you can see here in the longer term is that this is counted as an expanded flat. The top of 14217 is actually a wave B. Even if counted as a wave (5), we would still have the end of wave 1) at 6460.

What you cannot see on this chart is that wave (2) of supercycle degree was rather sharp. Elliott Wave guidelines say that when wave 2 is sharp wave 4 will likely be a sideways correction, a triangle of some form. That means we will be in for a long recession.

Indicators (RSI & MACD):

MACD is turning bullish on the weekly chart by crossing the o (zero) line, it will be interesting to see if it can stay above zero on a downturn. A cross back down will be a vey bearish sign.

Fundaments/News:

Fundamentals are all over the place. Optimism is at a high, giving caution to us contrarians. Best thing is that all economists are falling all over each other to say what kind of recovery this is, u, v, or w recovery. 2/3 says this is a u shaped recovery. Well, we have a “v-shaped” reversal from the 6460 low, but are no way near a recovery yet.

Disclaimer:

This newsletter gives a trade setup for use of the author. This is not trading advise and the author shall not be responsible for trading losses if the reader decides to trade upon the information herein.

Trading, especially currency trading or trading where large leverage positions are used , can and will cause huge losses.

Analysis_091509_gbpusd September 15, 2009

m.ayazumer@gmail.com (forex daliy forex world forex online forex info ) — Wed, 16 Sep 2009 11:45:00 +0000

Trade Notebook

Date: Tuesday, September 15, 2009

Currency Pair : GBP/USD

Outlook: Bullish

Support: Resistance:

1. 6250, 1.6100 1.6750, 1.7250

Elliott Wave:

The move from early July can be counted as an expanding diagonal. These diagonals move in 3’s and we would currently be in wave C of 5.

Classic:

A base is set at 1.61 and again at 1.63. Price looks to test 1.6750 again. Buying the dips is justified, outlook is bullish with MACD crossing up.

News (EST): 8:30am USD Core CPI m/m

Trading Update:

The trade outlook is bullish. Buy the dips and set targets for 1.66, 1.67, 1.70 etc. Stops should be below recent low around 6250.

If you want to take most advantage of this trade, open multiple positions and close out a position when the target hits, leave other open but move the stops into profit area. Watch your Money Management, don't expose more than 3% of your balance at any trade!

Thank you for reading this update.

Disclaimer:

This newsletter gives trade setup information for use of the author. This is not trading advise and the author shall not be responsible for trading losses if the reader decides to trade upon the information herein.

Trading, especially currency trading , can and will cause huge losses.

Analysis 091009 eurusd

m.ayazumer@gmail.com (forex daliy forex world forex online forex info ) — Wed, 16 Sep 2009 11:40:00 +0000

Trade Notebook

Date: Thursday, September 10, 2009

Currency Pair : EUR/USD

Outlook: Bearish

Support: Resistance:

1.45, 1.42 1.46

Elliott Wave:

We are in a wave III of 3 and price is trying to penetrate 1.4619 where a strong 61.8% fibonacci resistance can be found from 1.60 to 1.23. Looking for a correction wave 4. Wave 2 was rather sharp as a guideline wave 4 will be a complex correction. As a ruleprice cannot penetrate 1.44. in that case the price is invalid.

Classic:

MACD crossed high indicating a strong rally ended and looking for a correction, or bigger degree bull flag. We have a higher high indicating that the market wants to go up in the short term at least. Strong resistance at 4619.

Trading Update:

Awaiting the correctional move. Try to buy the dips with stops below 1.44.

Disclaimer:

Trading, especially currency trading , can and will cause huge losses.

Analysis 090909

m.ayazumer@gmail.com (forex daliy forex world forex online forex info ) — Wed, 16 Sep 2009 11:37:00 +0000

Trade Notebook

Date: Wednesday, September 09, 2009

Currency Pair : EUR/JPY

Outlook: Bullish

Support: Resistance:

132.20, 131.00 135.00, 136.00

Elliott Wave:

Wave e of the triangle seems to be completed. Now expecting a 5-wave move to at least 140. Price should break the upper channel and we could reach 155. Price has reached apex and could correct a bit.

Classic:

The resistance line from the downward channel is taken out improving the bullish side somewhat. Price is also trading above the 20MA which now acts as support. MACD is crossing up and RSI reading is improving.

Trading Update:

Light buying is justified with stops below 131.

Disclaimer:

Trading, especially currency trading , can and will cause huge losses.

Analysis 090809

m.ayazumer@gmail.com (forex daliy forex world forex online forex info ) — Wed, 16 Sep 2009 11:31:00 +0000

Trade Notebook

Date: Wednesday, September 08, 2009

Currency Pair : EUR/USD

Outlook: Bullish

Support: Resistance:

1.42, 1.40 1.4450, 1.47

Elliott Wave:

The expanding diagonal is maturing. Target is the top of the channel, 1.47. On this pattern it can overshoot the top of the channel.

Classic:

Massive resistance at 1.44 is taken out and now acting as support. Oulook is longer term bullish.

Currency Pair: EUR/USD

Comment:

Elliott Wave:

We are in a wave iii of 3 and have taken out the 161.8% fibo extension of wave 1. The 261.8% extension is at 1.47. Should see a retest of 161.8% extension in form of a wave iv of 3.

Classic:

A bull flag is forming between 1.4450 and 1.45. The 1.44 resistance should now act as support.

Trading Update:

Long with stops below 1.44. Target 1.47.

Disclaimer:

Trading, especially currency trading , can and will cause huge losses.

analysis 090309ii

m.ayazumer@gmail.com (forex daliy forex world forex online forex info ) — Wed, 16 Sep 2009 11:25:00 +0000

Trade Notebook

Date: Thursday, September 03, 2009

Currency Pair : EUR/USD

Outlook: Bearish

Support: Resistance:

1.42, 1.40 1.4377, 14450

Elliott Wave:

In Elliott wave terms we have just completed another 5 wave move up and on the daily chart we can see a truncation forming. Truncations in diagonal 5th waves are extreme and usualy result in a strong reversal.

Classic:

We are still rangebound between 1.42 and 1.4450. Support at 1.42 is under pressure but seems to be forming a base. Support held under pressure on 4200 yesterday. Wait for a move outside of the range for short term direction.

Indicators:

MACD above zero, still showing open meaning short term bullish potential. Price is above 20MA, which now serves as support.

Trading Update:

Short with stops at 1.44 as soon as price stabalizes from its impulse move up.

Disclaimer:

Trading, especially currency trading , can and will cause huge losses.

Friday, September 11, 2009 Kiwi Breaks Zone

m.ayazumer@gmail.com (forex daliy forex world forex online forex info ) — Fri, 11 Sep 2009 22:45:00 +0000

I've been keeping a watchful eye on the Kiwi and some of us traders may already be in this trade. It's a great looking trend and price has steadily been going up since March 09. Price is above the Value Index, which also confirms that we are in an uptrend. Price has previously broken round number after round number but since mid August it started ranging, a clear sign that the bears and bulls were fighting it out with price not knowing what to do. Yesterday we had a good sized bullish candle allowing the buyers to break above the resistance zone and The Figure.

We're at an interesting point on this pair. As you can see on the chart we have another resistance level looming above which is also at the round number. We should be wary of this and if already in a trade keeping our stop nice and close. Check your favourite indicators and see what they're telling you. You'll see stochastics is showing a false bar on the top, suggesting strength in the uptrend.

It's also worth checking in on the weekly chart - MACD is showing us divergence and we're also at a fib level. We may see consolidation after having such a long run up. It will certainly be interesting to see how this pair develops next week - will it continue up with strength, retest resistance as support before the continuation, or could this still be a fake breakout?

As the weekend approaches, take some time out to celebrate something great in your life - celebration and rewarding yourself is so important along this journey. Also ensure you analyse your trades from this week so you can learn and continue growing.

Enjoy the weekend.

Thursday, September 10, 2009 EURCAD squeeze

m.ayazumer@gmail.com (forex daliy forex world forex online forex info ) — Fri, 11 Sep 2009 22:44:00 +0000

Good evening traders,

A very warm welcome to our newest blogger Sonia. Thank you for your kind words, I am sure you will achieve great trading success and inspire others to attain the same through your contribution.

Tonight's chart is the EURCAD. From the below chart it can be seen that the major trend on this chart is down. Price has been coming into a squeeze recently. The VI has been playing a major part in providing resistance particularly of late. This together with the reversal candlestick (doji) and the RN provide some good indication of a possible reversal/pullback. In addition there is some short term MACD divergence as well. A look at the lower timeframes will likely aid your entry.

Good Trading!

Watchful eye on AUD/CAD

m.ayazumer@gmail.com (forex daliy forex world forex online forex info ) — Fri, 11 Sep 2009 22:41:00 +0000

Good Morning Traders

Before I even begin my contributions to this website I would like to thank Javid and Anne for allowing me this wonderful opportunity. Having been an avid reader of the blogs for the past year, it’s still hard to believe I’m actually here! Trading and most definitely becoming a contributor to this site was something I never would have dreamed possible. But it is.. with sheer determination, commitment and discipline anything is.

I would also like to say a very special thanks to Ash & Bijal who have helped and mentored me so much on this incredible journey. You’re both a true inspiration and I only hope to follow in your footsteps and give something back by helping readers through the blogs.

And not to forget my fellow bloggers, thank you for your commitment with writing these blogs with such commitment and enthusiasm. They’ve really helped me to advance my trading knowledge and understanding of the markets.

Today I’m looking at AUD/CAD. Let’s take a look at the weekly timeframe to start. You can clearly see price is currently in an uptrend. Price crossed above the 200 MA and then retested it as support, potentially giving us the springboard it needs to continue on upwards with the trend. You can see the bullish flag formation, which has also tagged a fib breather level. We’re now approaching a S/R zone and a RN so it will be interesting to see how buyers and sellers react. Note the bullish engulfing candle at the Value Index support suggesting a strong signal for a continuation.

Now let’s take a closer look at the daily chart. You can see price broke the squeeze formation upwards, favouring our edge to the upside. Price found support at the RN and we have a spinning top as our extreme candle at TL support, which is also nearing the Value Index. This is definitely one to keep on the watchlist – will it break through the resistance looming above or will it have a moment of indecision or even reverse? We can see with yesterdays candle there was some indecision in the market, so we may see price lose a little steam.

As we know, the market will do whatever it will do – so we simply need to be patient and neutral and wait for the market to make its move. Think about your edge, choose the appropriate strategy from your dynamic trader toolkit and then most importantly take action. As always please carry out your own analysis.

Here’s to great trading!

Gold fails to break 1000

m.ayazumer@gmail.com (forex daliy forex world forex online forex info ) — Fri, 11 Sep 2009 22:39:00 +0000

Good Evening

Hope you are all having a fabulous week so far. The Swissy and EURGBP have been producing some nice profits.

I mentioned the Gold chart around this time last week. Price has come up to test the 1000 mark went through it but the sellers outweighed the buyers in the market and pushed the price back down. Some tell tale signs were apparent to help us along the way such as the major RN, and reversal candlestick formations in addition to the previous resistance of course.

As always there is still a chance that the buyers may gain dominance and try again to get through this huge psychological barrier as the dollar weakens. For the smart money, the position will be to keep a keen eye to see what the price action reveals and act accordingly.

Good Trading!

Break out for Euro and Swissy

m.ayazumer@gmail.com (forex daliy forex world forex online forex info ) — Fri, 11 Sep 2009 22:37:00 +0000

Good Evening

Today has seen price break previous resistance and support for the Euro and Swissy respectively (charts posted below) after a period of consolidation. What remains to be determined is whether this is a true breakout or not. Price on both charts has broken in the direction of the major trend, and for those with ESLT tools will be able to employ them and have some protection if the momentum does not continue.

Good Trading!

Sunday, September 06, 2009

m.ayazumer@gmail.com (forex daliy forex world forex online forex info ) — Fri, 11 Sep 2009 22:35:00 +0000

Review of the week

Good Evening

Hope you have all had a lovely weekend.

I would like to start by reviewing some of the posts from last week.

The USDJPY (mentioned on the 2nd September) has come close to a double bottom and has had two bullish days. It is not currently showing any signs of breaking the previous low. Once the pullback has completed this chart may be revisited.

The price of Gold made it very close to the 1000 mark and the candle for Friday has produced a doji. It will be interesting to see if the buyers are able to dominate and break the 1000 mark.

The Loonie has produced a double top formation and price retreated down. Of course NFP and Canadian employment news on Friday may be contributory factors towards this move. This chart is now on the watchlist for a break of the low for entry with ESLT.

The EURGBP mentioned on the 31st August has broken downwards although the movement has not been huge. I wrote on the blog that we were looking for a break down, however, price has been moving to the upside in the current minor trend. Price is currently at a Fib breather level measured from the most recent low. It will be interesting to see if this is a pullback before price continues towards the upside continuing the recent minor trend or will break through and resume the current major trend.

A chart that I have not mentioned recently is Silver, which similar to Gold is looking interesting. You will note from the below that price has broken through the trendline and is now testing a strong previous resistance level. Price has tagged the resistance level and retreated but the bar finished green. The recent uptrend has not been entirely smooth however, the retest of the VI has proved the buyers are stronger than the sellers so far. One for the watchlist to see if a breakout is produced so advantage can be taken of this commodity.

The final chart for tonight is the AUDJPY. Price has been in a uptrend and has recently done a pullback, bounced off the trendline support and started to move back up. A trendline resistance has been broken and produced a BOB. Aggressive traders may apply ESLT and enter the trade, conservative traders may wait until the previous resistance has been cleared before entering the opportunity. Either way there is no right or wrong, its up to the individual's intestinal fortitude!

Good Trading!

Friday, September 04, 2009

m.ayazumer@gmail.com (forex daliy forex world forex online forex info ) — Fri, 11 Sep 2009 22:34:00 +0000

NFP Expectation

Good morning traders,

Market analysts forecast a worse than expected NFP report today. That said the expectation is it wont reverse the equity market. Right or wrong, this is a typical sentiment by market analysts.

The expected loss of jobs is values at 223,ooo. Lots of people will lose on gambling on the figure and attempted pricing of the markets today. This is partly due to ego and the need to be right and any wrongs are quite often written off and soon forgotten about.

All Dynamic Traders should remember the discipline that is required and follow the rules given out to you. Javid sent members an email this morning showing the USDZAR and that will provide a guide to structured and disciplined trading where good profits can be made without the high emotion that will be in abundance today.

Wednesday, September 02, 2009

m.ayazumer@gmail.com (forex daliy forex world forex online forex info ) — Fri, 11 Sep 2009 22:19:00 +0000

Good evening Dynamic Traders,

The EURGBP mentioned on Monday is starting to look like it is moving to the downside. Some of you may already be in the trade.

Below are the daily charts for Gold and USDJPY.

Gold has seen a big push up today, price has broken through trendlines and produced a break out. Given that price has found resistance not too far away, it may be worth waiting for the previous resistance levels to be broken before a long entry is taken. Definitely worth putting on the watchlist.

The next chart is the USDJPY. Price has broken through a trendline and is looking bearish. This may be a good opportunity upon the break of the support line on a shorter timframe to keep on the watchlist.

Good Trading!
Bijal Shah

analysis 090309ii Trade Notebook Date: Thursday, September 03, 2009

m.ayazumer@gmail.com (forex daliy forex world forex online forex info ) — Sun, 06 Sep 2009 10:50:00 +0000

Trade Notebook

Date: Thursday, September 03, 2009

Currency Pair : EUR/USD
Outlook: Bearish

Support: Resistance:

1.42, 1.40 1.4377, 14450

Elliott Wave:

Classic:

Indicators:

MACD above zero, still showing open meaning short term bullish potential. Price is above 20MA, which now serves as support.

Trading Update:

Short with stops at 1.44 as soon as price stabalizes from its impulse move up.

Disclaimer:

Trading, especially currency trading , can and will cause huge losses.

Main Players Of Forex

m.ayazumer@gmail.com (forex daliy forex world forex online forex info ) — Mon, 31 Aug 2009 17:35:00 +0000

Ever wondered why US dollars are always occupying the hot seat of base currency. However, there are exceptions for the mention analyses, these constitute of primarily four other major currencies apart from US dollars that act as driving force for the trades operated in forex. Forex has five major currencies against which other currency are generally speculated, these are,

1) US dollars symbolized as USD.

2) EURO symbolized as EURO.

3) Japanese Yen symbolized as JPY.

4) Pound sterling symbolized as GBP.

5) Swiss Frank symbolized as CHF.

These five currencies together syndicate as majors on forex and the other currencies traded against them or for them are called crosses.

Among them US dollar occupies the prime position as more than 80% of the forex trade in the market are speculated against it. New York stock exchange has been trading around 50billion US dollar per day in the forex market and no wonder dollar has become the most sought after currency on the global forex markets.

Hypothetically it can be assumed that the bases for their major role are derived from their financial organization or the inventions and discoveries which have catered to their economic progress. We are all aware of the famous Swiss bank and its might. It is rumored and believed that bank of England holds much of the known gold as its reserves and can influence the stock and forex markets in a wink of an eye. Japanese technology and electronic tycoons have already over taken the world by storm. Ever since the conjunction of European union, the combined currency EURO has emerged as a formidable adversary for other currencies in the forex arena to recon with. Eventually the mighty United Sates of America which is indeed the most powerful nation of the globe and its political head the president, the most influential person known in the present era, US is not only mighty on the military front, but they have evolved as a nation which has capitalized every giant business ventures and opportunities present on our planet.

However, there are still other agencies present which can influence the exchange rate of the majors present in the forex markets. Following is the list of some of these agencies which can prove to be a driving force behind the scenes for a particular currency and can be held directly or indirectly of its upsurge or its upheavals.

1) Central banks and governments: - forex is a huge markets necessitating tremendous amount of money in fact, the foreign exchange market derives its force with the liquid capital. Central banks and government of a country can play an extremely significant role for influencing a particular currency and there by improving their economy. For instance, India can gain tremendous advantage with its foreign exchange reserves of millions of dollars. By having the foreign exchange reserve of a currency even a developing country like India can be a proud faction of the US economy and can have a rampant advantage derived indirectly via the growth of US economy.

2) Banks: - banks are playing a crucial role on the global front by investing millions or billions of dollars into the forex markets to gain monetary increments for their share holders. In other cases their clients may employ banks as brokers for investing huge amount of capital in the forex markets.

3) Funds:- visualizing the upheaval of stock markets all around the globe, many funds have turned their heads towards forex and since time is not a boundation and leverage is also enormous, which can range from 100:1 to 50:1 maximum, not found in the primary stock markets. These funds are investing huge multitudes of capital in the forex markets to gain tremendously out of extreme volatility of the forex market.

4) Corporate:- mammoth business corporate organizations who are done with the primary markets are now moving towards a much volatile forex markets which offers more opportunities for deriving monetary profits.

5) Travel and outsourcing:- another factor which has recently evolved as a guiding hot spot for a a currency exchange rate and determining the literal value for it is the industry of travel and tourism with contemporary modern, technological advancements in the field of transportation there are millions of tourist and business man traveling from one part to the other. The most frequently visited country will achieve an elevated leverage for its currency as it will be frequently exchanged for other currencies. The global competition has given rise to the modest operands of outsourcing. Thousands and millions of US dollars are paid to employees working in the developing nations for MNC’s based in developed countries, these dollars are finally exchanged for the currencies of the developing nations, this has proved as one global trade which has in variable influence over the currencies in pairs meant for exchange.

Privacy Policy

m.ayazumer@gmail.com (forex daliy forex world forex online forex info ) — Mon, 31 Aug 2009 17:31:00 +0000

How To Trade Forex? takes your privacy seriously. This privacy policy describes what personal information we collect and how we use it.
Routine Information Collection

All web servers track basic information about their visitors. This information includes, but is not limited to, IP addresses, browser details, timestamps and referring pages. None of this information can personally identify specific visitors to this site. The information is tracked for routine administration and maintenance purposes.
Cookies and Web Beacons

Where necessary, How To Trade Forex? uses cookies to store information about a visitor's preferences and history in order to better serve the visitor and/or present the visitor with customized content.

Advertising partners and other third parties may also use cookies, scripts and/or web beacons to track visitors to our site in order to display advertisements and other useful information. Such tracking is done directly by the third parties through their own servers and is subject to their own privacy policies.
Controlling Your Privacy

Note that you can change your browser settings to disable cookies if you have privacy concerns. Disabling cookies for all sites is not recommended as it may interfere with your use of some sites. The best option is to disable or enable cookies on a per-site basis. Consult your browser documentation for instructions on how to block cookies and other tracking mechanisms. This list of web browser privacy management links may also be useful.
Contact Information

Concerns or questions about this privacy policy can be directed to http://forexworlduk.blogspot.com for further clarification.

Rool Overs -Where Uk Dominates USA

m.ayazumer@gmail.com (forex daliy forex world forex online forex info ) — Mon, 31 Aug 2009 17:29:00 +0000

Although much of the transactions executed on forex markets are against dollars, which is a currency of United States of America, most of the spot deals are done on London foreign exchange and hence are executed according to GMT which is 21:59 at which 1 business day climaxes any deals done at this eleventh hour are automatically rolled over to the next session which starts at the same price the deals were left at 21:59 the previous day.

Q) What is a spot deal?

A) Spot deal is also known as T+2 deals, it is a deal in which the buyer agrees to take the delivery of the currency in two days after the deal is executed for a particular currency and day.

It is a common practice these days by brokers if you opened a trade and continued to hold it uncertain of converting it to the other currency, then brokers rollover your deal for the next day or for two days. If you wonder why your broker was so considerate, then you should know that your broker charged a nominal fee on your account as rollover fee.

The T+2 formula for rollover comes into practice when you hold your trade at the end of the session and make a spot deal, in two days your deal will be finalized to the rates quoted or held at the time of spot deal. The broker will charge you on the difference between the two prices on the final day which will be either loss or profits incurred by you on your spot deal. For instance, if you opened the trade on Monday, and held your position for a spot deal, then on Wednesday you will have to take the delivery of the currency you made the spot deal for and you will be required to open your deal on the price of spot deal made on Monday. Some brokers charge on the over night basis, while the others charge you for the difference in pips between the spot deal day and the actual deal day.

Rollovers is a common practice in forex markets, to comprehend it we need to take a closer look at our primary stock markets where futures and options has become a general practice. Rollovers on forex and futures on stock markets are some what similar and are operated in a similar fashion. But unlike stock market, where malpractices by gigantic broking firms or organizations yet need to be addressed, forex already has a pre meditated solution. Like stock markets there are huge banks which practice enormous volume of trading in currencies in context with rollovers in order to influence the price band of a particular currency, it is at this time that the federal banks step in to check the bear’s garden. An awkward increment or depreciation in the price band of a currency at an untimely manner is one of the signs where federal banks play their significant role, but as far as dollar which is the currency of America is concerned, the government of United State has led the tide take its time. In other words the US government has left the monetary evaluation of its currency on the sea saw of the market dynamics.

Rollover has become a prudent and an opulent practiced for many organization and individuals who do not wish to take the delivery on the trading session. The reasons may vary according to the essentials and the situation and demand. Sometimes due to lack of funds available as in the case of leverage account, rollover is practiced in order to buy some time to accumulate essential funds requisite for taking the delivery. Another reason for rollover might be speculative in nature and has originated through your tippers who have a confirmed information that the dollars is going to gain grounds in the coming two days, you might be tempted and hold your line for the spot deal and wait for two days only to get a pleasant surprise on the actual day of the deal that dollar indeed has gained grounds. You open the deal at a lower rate (you buy) when the dollar is hitting at all time high.

Rollover is a facility in forex, which is commonly practiced by government, banks and mammoth financial organization. You can do little wonder with leverage accounts in case you rolled over and the tide has turned against you, since a standard forex slot come at around $100000 which is literally a good amount of capital involved for just a single slot and for those who have their financial resources restrained taking the delivery on the second day will be an extremely harsh experience as huge some of liquid capital will be involved and essential.

Rollover should be practiced with extreme caution and after due analysis, as forex is a play ground for two gladiators, one who is skilled in experience and the other who has a lot of financial backing. It is best suggested for novice traders on forex markets to take the delivery at the end of the session rather than wait for the next forex quote for the currency. Since, the global market is filled with extreme volatility, rest assured if you do take the delivery, your price intended for selling and converting into your paramount requisite currency will come by the end of a day or two.

The Best Hours To Trade

m.ayazumer@gmail.com (forex daliy forex world forex online forex info ) — Mon, 31 Aug 2009 17:27:00 +0000

If you want to earn extra cash aside from the cash you earn from your regular job or your business, maybe it’s time to you to enter the financial market. One kind of financial market that made a lot of people earn a lot of money is the Forex market.

Aside from the fact that the Forex market can give you an opportunity to earn a lot of money, you should also know that Forex is the largest and the most liquid financial market in the world with trade exchanges that amounts up to trillions of dollars each day.

Forex also operates 24 hours a day and therefore making it the most liquid market in the world. However, Forex is also a very risky market. Besides that fact that it generated a lot of people to become rich, it also made a lot of people lose large amounts of money. Therefore, you should consider that you should think twice before entering this financial market. You should have enough knowledge and skills before you enter this market. Part of the knowledge that you should know the best time you should enter this very liquid and very large market.

Sure you know how to trade, you know what currency pairs to trade, and you even know how to read charts. Perhaps, you also know one or two strategy when trading in the Forex market. However, you should also consider the fact that because the Forex market operates 24 hours a day, you need to know when you should trade.

Every minute in the Forex market counts. One minute you notice a currency is increasing in value, the next you notice that the same kind of currency you noticed a minute ago is decreasing in value. This is why you should consider the fact that Forex market is a very dynamic market with lots of price oscillations.

Minute by minute events are very important in order for you to be successful. Because of this feature that is found in the Forex market, you, as a Forex trader, can enter the market a number of times a day. This will allow you to earn some profits after every number of trades you do and perhaps maybe even lose one if you made the wrong trading decision.

Firstly, you have to remember that the Forex market beings at Sunday at 5PM EST to Friday at 4PM EST then it beings again at 5PM EST. Trading begins in Forex at New Zealand next at Australia followed by Asia, in the Middle East, Europe and ends in America. The major markets in Forex are London, Tokyo and New York with trading activities the heaviest when major markets overlap.

Basing from the times, you will see that there will always be someone anywhere in the world who is buying and selling currencies. You will see that when one market closes, another market opens. Trading in the Forex market is 24 hours a day.

Forex market transaction volume is always high during the whole day. However, it peaks the highest when the Asian market, the European market and the US market opens at the same time.

These are the trading hours in the Forex market you have to trade in, in order to get the highest possible trades. This are the hours that are also the most profitable.

Here are the open market times that you can use as reference:

• New York – 8am to 4pm EST
• London – 2am to 12nn EST
• Great Britain – 3am to 11am EST
• Tokyo – 8pm to 4am EST
• Australia – 7pm to 3am EST

If you look at the schedule and study it, you will see that there are two instances where two of the major markets overlap on trading hours. These are between 2am and 4am EST with Asian and European markets and 8am to 12pm EST with European and North American.

These are the things you should remember when trading in the Forex market. It is not only important that you know how to trade and know some strategies on Forex trading, But, you should also know when is the best time to trade in this very large and very liquid market.

If you follow all these, you can be sure that you can earn a potentially higher profit than on other trading times

Getting Started

m.ayazumer@gmail.com (forex daliy forex world forex online forex info ) — Mon, 31 Aug 2009 17:25:00 +0000

Step 1. Open a demo account.

You can apply your knowledge in a real-life environment without risking your money.
Demo accounts are used for:

* Developing and testing trading strategies;
* Gaining confidence and familiarity of the trading platform;
* Applying your Risk Management rules to get an understanding of how they work.

Download MetaTrader 4

* Download trading platform. MetaTrader 4 User Guide.
* Open a FREE DEMO account.
* Free MetaTrader 4 for PDAs and for mobile phones.
* Free MetaTrader 4 MultiTerminal for money managers.

We recommend that you open a demo account prior to trading the live markets.
Step 2. Learn to forecast which way a market is expected to trend.

It is up to you what to choose: Fundamental Analysis, Technical Analysis, Elliot Wave theory, Candlesticks, Tomas Demark Theory, Chaos Theory or any other. Whatever you choose try to get as much experience as possible and never stop studying.
Step 3. Develop and test your trading strategy.

As with all trading, timing is critical. Sometimes it is not enough to know which trend prevails in the market. You need to learn how to determine the moment when it is more profitable to open/close a position because the difference in a few minutes can mean the difference between being a winner or a loser.
Step 4. Develop and test your risk management rules.

Follow your rules of risk management and know exactly how much you are ready to commit to the trade. If you do apply risk management rules correctly this could help you to increase your profit and at the same time to limit your losses.
Step 5. Be less emotional.

Try to make rational not emotional decisions. If you follow your emotions you are more inclined to make wrong and therefore unprofitable decisions. Make your trading plans before you open positions. Decide on your objectives, entry and exit points.
Step 6. Open a live account.

Start trading on the live account with a strategy that you've proven to yourself. Analyze your good trades and your bad ones. You can continue to develop your trading skills by testing your trading strategies on your demo account.

Daily Loss Limit Key To Long Term Survival

m.ayazumer@gmail.com (forex daliy forex world forex online forex info ) — Mon, 31 Aug 2009 17:16:00 +0000

Last week, I received an email from a student asking my advice on whether I feel it is good practice to stop trading if one has lost a predefined daily amount.

In his email, he goes on to explain that he had been adhering to a "daily loss limit'' rule for some time. And the days he did lose the prescribed amount, he switched to simulator mode for the remainder of the trading day. Interestingly, he found that once he began his simulated trading, he would often make up his losses, and then some (in monopoly money). He also revealed that on one occasion, he transgressed, and ended up losing more than twice his allotted amount. This in turn caused him such emotional discomfort that it took him some time to get his mind back in the game. Since he was making up his losses after he stopped trading live, he was struggling with the idea that he should continue trading, and deal with the potential of incurring bigger loses.

This brings up several issues that are quite common to traders, particularly neophytes. One is the "could have, would have, and should have" conflict, which is where traders lament what they didn't do, or could have done differently. Quite often - if not forgotten quickly – this conflict can lead traders down the path of impulsive trading and a negative feedback loop that can be hard to squelch.

Similarly, when traders put themselves in a hole early in the trading day, the natural inclination is to want to recover all their losses, which in and of itself is fine. However, for some traders, the eagerness to gain back what they have lost elicits reckless behavior and excessive trading. Ironically, this only ends up exacerbating the loss.

If you've ever been in the aforementioned situation - and who hasn't at some point in their trading career - you know that sound judgment is clouded by the extreme need to get back the money we've lost. Moreover, traders that are only looking to break even after they've lost, more often than not, do just that.

Now, it goes without saying that you will not grow your account very much by breaking even on the majority of your trades; therefore, one should treat every single trade completely independent from the prior; without regard to whether it was a winning or losing trade.

This can only be done by having a rule that defines the maximum loss that can be sustained per trading day. The amount will vary depending on a trader's account size, and more importantly his or her tolerance for risk.

To make my point about how everyone has to have their own personal daily loss limit, when I'm teaching, I often joke that there are some folks in the room, who will lose a thousand bucks on any given day, and not even give it a second thought. Conversely, others will lose the same thousand dollars, and as a result, will have to take a Zoloft (anti-depression drug) to deal with the loss. Nevertheless, setting a daily stop loss is critical to survival in the longer term.

Along the same vein, it is also prudent to have weekly stop losses. One protocol I strictly adhere to is when my daily loss limit is triggered for three consecutive days, I cease my trading activity indefinitely. I take the time to clear my mind, diagnose whatever challenges I might be faced with, and begin the corrective process. Once I feel confident this has been achieved, I resume trading.

All in all, the response I wrote to the student was that having a daily loss limit far outweighs the psychological damage that he would endure if he were to take another big loss. Instead, he should focus on better execution and perhaps more patience.

Let's move on to a completely different topic. In last week's newsletter, I posted a chart of the S&P 500 in which I indicated was trading roughly 33% below its 200-day moving average. I remarked that it was a very rare occurrence, which in the past had preceded sharp rallies. By shear coincidence, the article was posted on Tuesday March 10, the day the S&P had one of its biggest rallies since November. As a result, I received several emails asking me for my prognostication of the market going forward.

The question on everyone's mind is whether Tuesday's rally marked the bottom, or just another bear market rally. The truth is, no one knows for sure, but I will go out on a limb and say that the preponderance of data certainly favors the odds that indeed the market is poised for - what I would deem - a tradable rally.

Let me explain: In the last two weeks, pessimism among investors reached levels that we haven't seen since the market crash of 1987. Furthermore, most so-called overbought–oversold indicators by most measures became grossly oversold. Additionally, company executives (insiders), who are considered by most "the smart money," are busy buying millions of shares in their respective companies. All the while, most investors are fleeing the stock market in droves. The government may also lend a hand in the rally argument, as they are likely to reinstate the uptick rule.

From a technical perspective, in the hourly chart of the ES (E-mini S&P) below, we see a change of trend clearly beginning to emerge.

Figure 1

Lastly, and perhaps the clincher, one of the major business news networks featured an article this week dedicated to showing investors how to profit from inverse EFT's (bear funds). In case you're not familiar with these products, they are closed-end funds that trade just like common stock, and produce gains as the market declines. Go figure, the market is down over 50%, and now they want to help investors with ways to short the market.

These are the primary reasons, in my view, that tilt the probabilities in favor of a short-term recovery for the market.

Until next time, I hope everyone has a profitable week.

If you have questions, comments, or you would like a specific topic covered, please email me at http://forexworlduk.blogspot.com

A Basic Understanding Of Forex Market

m.ayazumer@gmail.com (forex daliy forex world forex online forex info ) — Mon, 31 Aug 2009 17:10:00 +0000

A couple weeks ago I wrote a piece that compared the Spot Forex market to the Forex Futures. It recently dawned on me that the piece was really written to an audience that already has some knowledge of Forex. Today, let's discuss the basics of this very opportunistic market.

The foreign currency (Forex) market is where global exchange rates are derived for everyone including market speculators and end users of currency. People and companies buy and sell currency much like you would buy and sell anything else. Strong economies have strong currencies. When we trade the Forex markets, we are trading economies. Therefore, supply and demand for currency depends on the current and expected perceived health of a country's economy.

Example:

Example:
Company "A"	Company "B"
Strong earnings	Weak earnings
Strong management	Weak management
Strong market share	Weak market share
High Stock Valuation	Low Stock Valuation

Example 2:
Country "A"	Country "B"
Strong economy	Weak economy
Low taxes	High taxes
Growing GDP	Declining GDP
High Currency Valuation	Low Currency Valuation

A Brief History

Foreign Currency (Forex) trading traces its history centuries back before the Babylonians. While they were the ones credited with the first use of paper notes and receipts, forms of currency had existed for quite some time already.

In the beginning, the value of goods and services was expressed in terms of other goods and services, also called "the barter system." Limitations of this system were the catalyst for establishing more generally accepted mediums of exchange. In the early days, primitive economies used items such as teeth, feathers, and stones as means of payment. In time, a more structured value system using Gold and Silver was created. After this came government paper money like we use today. Over the past few decades, foreign exchange trading (Forex) has developed into the world's largest global market. Restrictions on capital flows have been removed in most countries, leaving the market forces free to adjust foreign exchange rates according to their perceived values based on pure supply and demand for currency.
Why Trade Forex

* Leverage – Low capital requirements. Forex traders can start with much smaller amounts of money than you need for Day Trading equities.
* Time – Forex traders can trade when they have time. The Forex market is open and moving 24 hours a day, 5 ½ days a week. Trading occurs in all time zones in the world and can be a part-time or full-time occupation.
* Opportunity – The Forex markets are fantastic trending markets. They are also made up of markets that are not moving in the same direction. This provides rare non–correlated opportunity. Also, traders can profit in up and down trends by buying long or selling short. There are no short-selling rules.

How Does a Trade Work

First off, a "PIP" means Percentage In Points. For example, a move in the Euro vs. Dollar from .9050 to .9051 = 1 PIP. At $10.00 a PIP, let's calculate a trade setup much like we do in the Extended Learning Track (XLT) Forex class. Trading a 1 lot, if we have a protective stop loss that is 10 PIP's away from entry and a target for profit that is 30 PIP's away from entry, we would be risking $100 to make $300, 10 PIP's to make 30, or a 1:3 reward to risk ratio.

The key to getting involved in Forex trading is to first get educated and keep things simple. Next, trade a demo account until your numbers suggest you should trade real money. Once that is accomplished, you can trade mini Spot Forex at $1.00 a PIP. Once your numbers suggest you are doing well, which means you are consistently making at least two or three times what you are losing on each trade along with a decent win/loss ratio, then go to the $10.00 a PIP market and trade your successful plan. Never put your hard-earned money at risk until you are quite certain you have a plan that leads to consistent profits. You will only know this after your education leads to a trading plan that leads to consistent demo and mini Spot Forex trading. From my experience in the trading and trading education world, those who don't think this way typically lose their accounts to those who do.

Have a good day.

How To Trade In Forex

m.ayazumer@gmail.com (forex daliy forex world forex online forex info ) — Mon, 31 Aug 2009 17:07:00 +0000

Okay, so things are rough out there. Bear Stearns, Lehman Brothers, Washington Mutual, American International Group, B&B, Freddy and Fannie and the rest of the gang have all either gone to that Big Vault in the Sky, or are on life support. The proverbial "other shoe" has dropped so many times that we've all lost count – and the carnage isn't yet complete. But just because the world is facing financial Armageddon, and long-term investments are falling apart faster than the New York Mets in September, that doesn't mean your trading account has to suffer. In fact, some traders thrive in this rock 'em, sock 'em environment. Just take a look at the volatility in the Great Britain Pound – U.S. Dollar currency pair (symbol GBP/USD). Note how the candles on the left side of the chart are much bigger than on the right, indicating that the daily range has expanded dramatically. Also, take a look at the Average True Range indicator (ATR), which shows us that the average daily range of GBP/USD over the past 14 trading days now exceeds 300 pips! (See figure 1).

Figure 1: GBP/USD's average daily volatility has risen to over 300 pips. Source: Saxo Bank

This level of volatility hasn't been seen since the year 2000, and the type of wild action it creates will be welcomed by some traders and avoided by others. Here are three key thoughts to help you trade safely and securely during these challenging and historic times.

Nimble – Things are happening quickly out there, and the wide swings in volatility are causing markets to move faster and farther than before. In fact, volatility in the currency markets is at its highest point since the year 2000. What's a trader to do? Traders looking for quick intraday moves need to keep their finger on the trigger at all times – especially when they are already in a trade. The game changes quickly, so be ready for action at a moment's notice. Put your mouse cursor directly above the exit button, and keep your finger poised above the mouse. That way, you'll never be taken by surprise, and you'll always be ready to close your position.

Pip Slip – Prepare for slippage, as fast moving markets may cause some surprising fills. This is a common occurrence in the stock markets, but currency traders have been largely immune to slippage - that is, until the recent spike in volatility changed the game and turned the trading world upside down. How to deal with this problem? Plan ahead and don't be surprised when you get a bad fill; in fact, make it part of your game plan. When performing your calculations, assume that the price you receive for both buys and sells will be slightly worse than you would normally anticipate. Not only will you be prepared for a bad fill, but you may find yourself pleasantly surprised when you get a good one!

Park It - Trading in this fast-paced environment isn't meant for those with a nervous stomach. In fact, many of us would be better served by simply staying out of the trade and watching from the sidelines until the markets settle down. Always remember that part of our jobs as traders is to know when to avoid trading. The truth is you should never feel as if you absolutely have to place a trade, and you should only place trades when you feel that the odds are in your favor. Selectivity is the key; you will make more money from one good trade than you will from ten mediocre trades, so maintain your focus and only take the best trading opportunities.

Question of the Week

Q) Ed, I keep hearing about LIBOR in connection with the bailout but I'm not familiar with this term. Can you please explain what it means and why it is important to traders?

Ed Ponsi) Thank you for your question. LIBOR is short for London Interbank Offered Rate, and it represents the cost of borrowing dollars overnight in London. On September 30th, the last day of the third quarter and the day after the bailout plan first failed to pass through Congress, LIBOR spiked an incredible 431 basis points to 6.88%. Let's think about that for a minute; banks are charging each other an annual rate of 6.88% for overnight loans! They must be pretty frightened to charge such a high rate, perhaps because no bank wants to lend money, only to find out later that the borrower has evaporated.

In a way, you could say that LIBOR is a "fear gauge", and it is telling us right now that banks do not want to lend money to other banks except at ridiculous rates. This is despite the fact that the Fed and other central banks are constantly pumping liquidity into the system, jamming the banks full of cash so that they'll be more willing to lend. Many of the banks are just hoarding this added capital for their own needs instead of lending it out to others, defeating the purpose of the Fed's actions.

Right now we are seeing strength in the U.S. dollar, and that is because the USD tends to perform well when fear is high. But this will pass; fear is a temporary condition, and as bad as it may seem right now, things will eventually get better. When they do, watch out – the bill will come due for this mess, and when it does, it will weigh heavily on the greenback. Enjoy the USD rally while it lasts.

Have a question about Forex trading? Send an email to eponsi@tradingacademy.com and we may use your question in an upcoming newsletter. Until next time, best of luck to you in trading.

Why Investors Fail?

m.ayazumer@gmail.com (forex daliy forex world forex online forex info ) — Mon, 31 Aug 2009 17:05:00 +0000

Like all the children from Lake Wobegon, I am sure all my readers are above-average investors. But I am also sure you have friends who are not, so in this chapter we will look at the reasons why they fail at investing, and how they should analyze funds and determine risk. Hopefully this will give you some ways to help them. I will show you a simple way to put yourself in the top 20% of investors. This should make it easier to go to family reunions and listen to your brother-in-law's stories.

A big part of successful Bull's Eye Investing is simply avoiding the mistakes that the large majority of investors make. I can give you all the techniques, trading tips, fund recommendations, forecasts, and so on; but you must still keep away from the patterns which are typical of failed investors.

What I want to do in this section is give you an "aha!" moment: that insight which helps you understand something about the mysteries of the marketplace. We will look at a number of seemingly random ideas and concepts, and then see what conclusions we can draw. Let's jump in.

Investors Behaving Badly

The Financial Research Corporation released a study prior to the [2001-02] bear market which showed that the average mutual fund's three-year return was 10.92%, while the average investor in those same periods gained only 8.7%. The reason was simple: investors were chasing the hot sectors and funds.

If you study just the last three years, my guess is those numbers will be worse. "The study found that the current average holding period was around 2.9 years for a typical investor, which is significantly shorter than the 5.5-year holding period of just five years ago.

[While the research below is from a few years ago, recent studies show exactly the same, if not worse, results. Investors in general are not getting any better.]

"Many investors are purchasing funds based on past performance, usually when the fund is at or near its peak. For example, $91 billion of new cash flowed into funds just after they experienced their "best performing" quarter. In contrast, only $6.5 billion in new money flowed into funds after their worst performing quarter." (from a newsletter by Dunham and Associates)

I have seen numerous studies similar to the one above. They all show the same thing: that the average investor does not get average performance. Many studies show statistics which are much worse.

The study also showed something I had observed anecdotally, for which there was no evidence. Past performance was a good predictor of future relative performance in the fixed-income markets and international equity (stock) funds, but there was no statistically significant way to rely on past performance in the domestic (US) stock equity mutual funds. I will comment on why I believe this is so later on.

"The oft-repeated legal disclosure that past performance is no guarantee of future results is true at two levels:

1. Absolute returns cannot be guaranteed with any confidence. There is too much variability for each broad asset class over multiple time periods. Stocks in general may provide 5-10% returns during one decade, 10-20% during the next decade, and then return back to the 5-10% range.

2. Absolute rankings also cannot be predicted with any certainty. This is caused by too much relative variability within specific investment objectives. #1 funds can regress to the average or fall far below the average over subsequent periods, replaced by funds that may have had very low rankings at the start. The higher the ranking and the more narrowly you define that ranking (i.e. #1 vs. top-decile [top 10%] vs. top quartile [top 25%] vs. top half), the more unlikely it is that a fund can repeat at that level. It is extremely unlikely to repeat as #1 in an objective with more than a few funds. It is very difficult to repeat in the top decile, challenging to repeat in the top quartile, and roughly a coin toss to repeat in the top half." (Financial Research Center)

This is in line with a study from the National Bureau of Economic Research. Only a very small percentage of companies can show merely above-average earnings growth for 10 years in a row. The percentage is not more than you would expect from simply random circumstances.

The chances of you picking a stock today that will be in the top 25% of all companies every year for the next ten years are 1 in 50 or worse. In fact, the longer a company shows positive earnings growth and outstanding performance, the more likely it is to have an off year. Being on top for an extended period of time is an extremely difficult feat.

Yet, what is the basis for most stock analysts' predictions? Past performance and the optimistic projections of a management that gets compensated with stock options. What CEO will tell you his stock is overpriced? His staff and board will kill him, as their options will be worthless. Analysts make the fatally flawed assumption that because a company has grown 25% a year for five years that it will do so for the next five. The actual results for the last 50 years show the likelihood of that happening is very small.

Tails You Lose, Heads I Win

I cannot recommend highly enough a marvelous book by Nassim Nicholas Taleb, called Fooled by Randomness. The sub-title is "The Hidden Role of Chance in the Markets and in Life." I consider it essential reading for all investors, and would go so far as to say that you should not invest in anything without reading this book. He looks at the role of chance in the marketplace. Taleb is a man who is obsessed with the role of chance, and he gives us a very thorough treatment. He also has a gift for expressing complex statistical problems in a very understandable manner. I intend to read the last half of this book at least once a year to remind me of some of these principles. Let's look at just a few of his thoughts.

Assume you have 10,000 people who flip a coin once a year. After five years, you will have 313 people who have come up with heads five times in a row. If you put suits on them and sit them in glass offices, call them a mutual or a hedge fund, they will be managing a billion dollars. They will absolutely believe they have figured out the secret to investing that all the other losers haven't discerned. Their seven-figure salaries prove it.

The next year, 157 of them will blow up. With my power of analysis, I can predict which one will blow up. It will be the one in which you invest!

Ergodicity

In the mutual fund and hedge fund world, one of the continual issues of reporting returns is something called "survivorship bias." Let's say you start with a universe of 1,000 funds. After five years, only 800 of those funds are still in business. The other 200 had dismal results, were unable to attract money, and simply folded.

If you look at the annual returns of the 800 funds, you get one average number. But if you add in the returns of the 200 failures, the average return is much lower. The databases most statistics are based upon only look at the survivors. This sets up false expectations for investors, as it raises the average.

Taleb gave me an insight for which I will always be grateful. He points out that because of chance and survivorship bias, investors are only likely to find out about the winners. Indeed, who goes around trying to sell you the losers? The likelihood of being shown an investment or a stock which has flipped heads five times in a row are very high. But chances are, that hot investment you are shown is a result of randomness. You are much more likely to have success hunting on your own. The exception, of course, would be my clients. (Note to regulators: that last sentence is a literary device called a weak attempt at humor. It is not meant to be taken literally.)

That brings us to the principle of Ergodicity, "...namely, that time will eliminate the annoying effects of randomness. Looking forward, in spite of the fact that these managers were profitable in the past five years, we expect them to break even in any future time period. They will fare no better than those of the initial cohort who failed earlier in the exercise. Ah, the long term." (Taleb)

Why Investors Fail

While the professionals typically explain their problems in very creative ways, the mistakes that most of us make are much more mundane. First and foremost is chasing performance. Study after study shows the average investor does much worse than the average mutual fund, as they switch from their poorly performing fund to the latest hot fund, just as it turns down.

Mark Finn of Vantage Consulting has spent years analyzing trading systems. He is a consultant to large pension funds and Fortune 500 companies. He is one of the more astute analysts of trading systems, managers, and funds that I know. He has put more start-up managers into business than perhaps anyone in the fund management world. He has a gift for finding new talent and deciding if their "ideas" have investment merit.

He has a team of certifiable mathematical geniuses working for him. They have access to the best pattern-recognition software available. They have run price data through every conceivable program, and come away with this conclusion:

Past performance is not indicative of future results.

Actually, Mark says it more bluntly: Past performance is pretty much worthless when it comes to trying to figure out the future. The best use of past performance is to determine how a manager behaved in a particular set of prior circumstances.

Yet investors read that past performance is not indicative of future results, and then promptly ignore it. It is like reading statements at McDonalds that coffee is hot. We don't pay attention.

Chasing the latest hot fund usually means you are now in a fund that is close to reaching its peak, and will soon top out. Generally that is shortly after you invest.

What do Finn and his team tell us does work? Fundamentals, fundamentals, fundamentals. As they look at scores of managers each year, the common thread for success is how they incorporate some set of fundamental analysis patterns into their systems.

This is consistent with work done by Dr. Gary Hirst, one of my favorite analysts and fund managers. In 1991, he began to look at technical analysis. He spent huge sums on computers and programming, analyzing a variety of technical analysis systems. Let me quote him on the results of his research:

"I had heard about technical analysis and chart patterns, and looking at this stuff I would say, what kind of voodoo is this? I was very, very skeptical that technical analysis had value. So I used the computers to check it out, and what I learned was that there was, in fact, no useful reality there. Statistically and mathematically all these tools -- stochastics, RSI, chart patterns, Elliot Wave, and so on -- just don't work. If you code any of these rigorously into a computer and test them they produce no statistical basis for making money; they're just wishful thinking. But I did find one thing that worked. In fact almost all technical analysis can be reduced to this one thing, though most people don't realize it: the distributions of returns are not normal; they are skewed and have "fat tails." In other words, markets do produce profitable trends. Sure, I found things that work over the short term, systems that work for five or ten years but then fail miserably. Everything you made, you gave back. Over the long term, trends are where the money is."

Becoming a Top 20% Investor

Over very long periods of time, the average stock will grow at about 7% a year, which is GDP growth plus dividends plus inflation. This is logical when you think about it. How could all the companies in the country grow faster than the total economy? Some companies will grow faster than others, of course, but the average will be the above. There are numerous studies which demonstrate this. That means roughly 50% of the companies will outperform the average and 50% will lag.

The same is true for investors. By definition, 50% of you will not achieve the average; 10% of you will do really well; and 1% will get rich through investing. You will be the lucky ones who find Microsoft in 1982. You will tell yourself it was your ability. Most of us assign our good fortune to native skill and our losses to bad luck.

But we all try to be in the top 10%. Oh, how we try. The FRC study cited at the beginning shows how most of us look for success, and then get in, only to have gotten in at the top. In fact, trying to be in the top 10% or 20% is statistically one of the ways we find ourselves getting below-average returns over time. We might be successful for a while, but reversion to the mean will catch up.

Here is the very sad truth. The majority of investors in the top 10-20% in any given period are simply lucky. They have come up with heads five times in a row. Their ship came in. There are some good investors who actually do it with sweat and work, but they are not the majority. Want to make someone angry? Tell a manager that his (or her) fabulous track record appears to be random luck or that they simply caught a wave and rode it. Then duck.

By the way, is it luck or skill when an individual goes to work for a start-up company and is given stock in their 401k which grows at 10,000%? How many individuals work for companies where that didn't happen, or their stock options blew up (Enron)? I happen to lean toward Grace, rather than luck or skill, as an explanation; but this is not a theological treatise.

Read The Millionaire Next Door. Most millionaires make their money in business and/or by saving lots of money and living frugally. Very few make it simply by investing skill alone. Odds are that you will not be that person.

But I can tell you how to get in the top 20%. Or better, I will let FRC tell you, because they do it so well:

"For those who are not satisfied with simply beating the average over any given period, consider this: if an investor can consistently achieve slightly better than average returns each year over a 10-15 year period, then cumulatively over the full period they are likely to do better than roughly 80% or more of their peers. They may never have discovered a fund that ranked #1 over a subsequent one- or three-year period. That "failure," however, is more than offset by their having avoided options that dramatically underperformed. Avoiding short-term underperformance is the key to long-term outperformance.

"For those that are looking to find a new method of discerning the top ten funds for 2002, this study will prove frustrating. There are no magic short-cut solutions, and we urge our readers to abandon the illusive and ultimately counterproductive search for them. For those who are willing to restrain their short-term passions, embrace the virtue of being only slightly better than average, and wait for the benefits of this approach to compound into something much better..."

That's it. You simply have to be only slightly better than average each year to be in the top 20% at the end of the race. It is a whole lot easier to figure out how to do that than chase the top ten funds.

Of course, you could get lucky (or Blessed) and get one of the top ten funds. But recognize it for what it is and thank God (or your luck if you are agnostic) for His blessings.

I should point out that it takes a lot of work to be in the top 50% consistently. But it can be done. I don't see it as much as I would like, but I do see it.

Investing in a stock or a fund should not be like going to Vegas. When you put money with a manager or a fund, you should think as if you are investing in their management company. Ask yourself, "Is this someone I want to be in business with? Do I want him running my company? Does this company have a reasonable business objective? What is their edge that makes me think they will be above average? What is the reason I would think they could discern the difference between randomness and good management?"

When I meet a manager, and all he wants to do is talk about his track record, I find a way to quickly close the conversation. When they tell me they are trying to make the most they can, I head for the door. Maybe they are the real deal, but my experience says the odds are against it.

It's about not settling for being mediocre. Statistics and experience tell us that simply being consistently above average is damn hard work. When a fund is the number one fund, that is random. They had a good run or a good idea and it worked. Are they likely to repeat? No.

But being in the top 50% every year for ten years? That is NOT random. That is skill. That type of consistent solid management is what you should be looking for.

By the way, I mentioned at the beginning that past performance was statistically useful for ascertaining relative performance of certain types of funds like bond funds and international funds. In the fixed-income markets (bonds) everyone is dealing with the same instruments. Funds with lower overhead and skilled traders who aggressively watch their trading costs have an edge. That management skill shows up in consistently above-average relative returns.

Likewise, funds which do well in international investments tend to stay in the top brackets. That is because the skill set for international fund management is rare and the learning cost is high. In that world, local knowledge of the markets clearly adds value.

But in the US stock market, everybody knows everything everybody else does. Past performance is a very bad predictor of future results. If a fund does well in one year, it is possibly because they took some extra risks to do so, and eventually those risks will bite them and their investors. Maybe they were lucky and had two of their biggest holdings really go through the roof. Finding those monster winners is a hard thing to do for several years in a row. Plus, the US stock market is very cyclical, so that what goes up one year or even longer in a bubble market will not do well the next.

Investors Behaving Badly

Gavin McQuill of the Financial Research Center sent me his rather brilliant $5,000 report called "Investors Behaving Badly." He was the author and he did a great job. I read it over one weekend, and refer to it again from time to time.

Earlier we looked at a report which showed that over the last decade investors chased the hot mutual funds. The higher the markets went, the less likely it was that they would buy and hold. Investors consistently bought high and sold low. Investors made significantly less than the average mutual fund did.

McQuill focused on six emotions that cause investors to make these mistakes. You should read these and see whether some of them are familiar.

1. "Fear of Regret - An inability to accept that you've made a wrong decision, which leads to holding onto losers too long or selling winners too soon." This is part of a whole cycle of denial, anxiety, and depression. As with any difficult situation, we first deny there is a problem, and then get anxious as the problem does not go away or gets worse. Then we go into depression because we didn't take action earlier, and hope that something will come along and rescue us from the situation.

2. "Myopic loss aversion (a.k.a. as 'short-sightedness') - A fear of losing money and the subsequent inability to withstand short-term events and maintain a long-term perspective." Basically, this means we attach too much importance to day-to-day events, rather than looking at the big picture. Behavioral psychologists have determined that the fear of loss is the most important emotional factor in investor behavior.

Like investors chasing the latest hot fund, a news story or a bad day in the market becomes enough for the investor to extrapolate the recent event as the new trend which will stretch far into the future. In reality, most events are unimportant, and have little effect on the overall economy.

3. "Cognitive dissonance - The inability to change your opinion after new evidence contradicts your baseline assumption." Dissonance, whether musical or emotional, is uncomfortable. It is often easier to ignore the event or fact producing the dissonance rather than deal with it. We tell ourselves it is not meaningful, and go on our way. This is especially easy if our view is the accepted view. "Herd mentality" is a big force in the market.

4. "Overconfidence - People's tendency to overestimate their abilities relative to individuals possessing greater expertise." Professionals beat amateurs 99% of the time. The other 1% is luck. The famous Clint Eastwood line, "Do you feel lucky, punk? Well, do you?" comes to mind.

In sports, most of us know when we are outclassed. But as investors, we somehow think we can beat the pros, will always be in the top 10%, and any time we win it is because of our skills and good judgement. It is bad luck when we lose.

Commodity brokers know that the best customers are those who strike it rich in their first few trades. They are now convinced they possess the gift or the Holy Grail of trading systems. These are the people who will spend all their money trying to duplicate their initial success, in an effort to validate their obvious abilities. They also generate large commissions for their brokers.

5. "Anchoring - People's tendency to give too much credence to their most recent experience and to show reluctance to adjust their current beliefs." If you believe that NASDAQ stocks are the place to be, that becomes your anchor. No matter what new information comes your way, you are anchored in your belief. Your experience in 1999 shows you were right.

As Lord Keynes said so eloquently when forced to acknowledge a shift in a previous position he had taken, "Sir, the fact have changed, and when the facts change, I change. What do you do, sir?"

We expect the current trend to continue forever, and forget that all trends eventually regress to the mean. That is why investors still plunge into index funds, believing that stocks will go up over the long term. They think long term is two years. They do not understand that it will take years - maybe even a decade - for the process of reversion to the mean to complete its work.

6. "Representativeness - The tendency of people to see patterns within random events." Eric Frye did a great tongue-in-cheek article in The Daily Reckoning, a daily investment letter (www.dailyreckoning.com). He documented that each time Sports Illustrated used a model for the cover of their swimsuit issue who came from a new country that had never been represented on the cover before, the stock market of that country had always risen over a four-year period. This year, it is time to buy Argentinian stocks. Frye evidently did not do a correlation study on the size of the swimsuit against the eventual rise in the market. However, I am sure some statistician with more time on his hands than I do will brave that analysis.

Investors assume that items with a few similar traits are likely to be associated or identical, and start to see a pattern. McQuill gives us an example. Suzy is an English and environmental studies major. Most people, when asked if it is more likely that Suzy will become a librarian or work in the financial services industry, will choose librarian. They will be wrong. There are vastly more workers in the financial industry than there are librarians. Statistically, the probability is that she will work in the financial services industry, even though librarians are likely to be English majors.

I hope you enjoy your week.

Forget The Fundamentals

m.ayazumer@gmail.com (forex daliy forex world forex online forex info ) — Mon, 31 Aug 2009 17:01:00 +0000

I am writing this article on a 20 hour flight back to the States after spending a spectacular week in Singapore. I would first like to thank the staff at Online Trading Academy Singapore for their hospitality and also congratulate them on their work at the Asian Trader and Investor's Conference. I had a unique opportunity while in Singapore to be a guest on CNBC Asia's Cash Flow program. I was asked to weigh in on the technicals of the Asian markets as well as individual stocks (the video clips of the show should be available at http://forexworlduk.blogspot.com soon). I was bombarded with emails from viewers from Australia to Tokyo.

At one point, the anchor of the show, Maura Fogerty, asked me to describe technical analysis which I did. She then asked an interesting question which got me thinking. She asked if technical analysis can be used by itself to analyze the markets. I answered that technical analysis could be used to analyze the markets and individual securities and that I was able to make accurate predictions of future prices on securities I know nothing about. The simple fact is that we do not trade currencies, futures, or companies. We trade people's perceptions of those securities and their emotions. Technical analysis gives us the ability to recognize predictable patterns in those behaviors and therefore minimize our risk and even create profits.

However, after the show, I was thinking about my own trading style. I am a technical trader but I also have a good understanding of the fundamentals of the markets and the economy if not the individual securities I trade. This understanding allows me to anticipate changing perceptions of the masses and how they may be directed to either accumulate or sell off certain positions. I realized that if I was to be a great trader, I cannot forget the fundamentals. The news in the financial arena is currently centered around a possible recession and even stagflation in the US economy. How many of us know what that truly means? More importantly, do you know what sectors or asset classes will have the most risk and therefore should be avoided? Do you know what sectors and asset classes will benefit from the slumping American economy?

I have been fortunate to have studied fundamental analysis and economic theory and it is something I inject into the classes I teach. Nearly all of Online Trading Academy's classes have a portion that focuses on analyzing the markets from a fundamental standpoint. If you do not have a strong background in how the economy works, I suggest you visit your local Online Trading Academy Center and learn. There is a rocky road ahead for the economy both in the US and the world. Let's face it, we live in a global economy and no country will be immune. Even the BRIC countries (Brazil, Russia, India, and China) are feeling the effect. China announced this week they will take measures to fight rampant inflation in their economy. Seems to be more than Big Ben is doing.

So as you plan for your assault on the markets and draw your squiggly lines all over your charts, don't forget to see how you can minimize your risk by understanding the fundamental factors that will drive the global economy. The money you save could be your own!