By Zachary Storella, CountingPips.com

Today, I am very pleased to bring you our second forex interview (1st interview) with Sergey Kamenshikov from IFC Markets. Sergey is currently the Chief Financial Analyst of IFC Markets, a forex brokerage licensed by the British Virgin Islands Financial Services Commission (BVI FSC). In this interview, Sergey gives us his thoughts on forex trading, his preferred trading indicators and the current market climate for traders.

See the latest forex interview below:

Q: As an analyst of IFC Markets you seem to have your pulse on the global markets and the Forex market particularly. What do you feel are the major themes that Forex traders should be paying attention to currently?

A: The principle point that should be remarked is of risk control. Perhaps you are surprised that I am not mentioning fundamental or technical aspects of trading firstly. However an experience of communication with traders and my personal trading experience show that we mostly  neglect the risk and pay more attention to the development of an efficient trading scheme. At the same time, a typical trader should not lose sight of the probability nature of Forex. It means that a market reaction to the same fundamental events differs from time to time and a trader cannot be completely right. He can be only a statistically efficient trader.

I recommend developing personal scheme of strategy testing and risk definition in each trade. Of course it may need some time but you will protect yourself from useless stress. I recommend 1% risk of deposit in each trade for beginners. It is a psychologically comfortable level. However you should define your own permissive risk fraction according to your personal trading scheme eventually. Elementary mathematical self education will help you. Don’t forget to widen your horizon all the time. In any case using of any trend following strategy will permit you 1-2% risk fraction without doubts.

Another remark regards principal fundamental events, like Non Farm Payrolls or central banks statements. I recommend staying out of market for beginners during such releases, especially if you prefer intraday trading. The reason is an extreme volatility of market that may lead to gaps and a liquidity fall. These effects can significantly reduce your profit/loss relation and involve stress again.

Q: With the US Federal Reserve continuing to decrease their QE program, better economic data coming out of the US and participants looking toward interest rates possibly rising next year, what do you feel the US dollar’s future levels may be going forward in the longer term?

A: Since 2008 till 2014 US Gross Domestic Product has raised by 11%. For comparison in the EU this indicator increased only by 4%. For now the US unemployment rate is lower than in 2007 – before recession beginning. Since 2009 it has fallen by 30% while in Europe unemployment stays a basic resistance factor for economy recovering. It has risen by 20% during last 4 years due to collapse of “southern” economies: Greece, Spain and Portugal. It goes without saying that the USA is attractive for investments now more than ever. However gradually the US economy will contribute to the EU recovering due to their close trading relations. I may remind you that Americans started the purchase of European stocks during the Second World War.  For now American investors shall bring their attention to EU because negative basic rates and emissions promise provide cheap loans and high consumption.

For now a highest uncertainty is connected with political factors and a situation in Eastern Ukraine. An expansion of Russian-Ukrainian conflict will prevent “long money” from returning to Europe.  In this case a fast recovery comes impossible and US will stay a “stability island”. If USD index overcomes the level of 82.7 then we definitely will wait for new stage of USD strengthening – until 84.7 is reached.

Q: We have recently seen many geopolitical tensions come about throughout the world from the fighting in Gaza, the Syria-Iraq situations, China and its neighbors in the South China Sea as well as the recent Ukraine-Russia crisis. Do you feel eventually that any particular geopolitical crisis will have a great effect on the Forex markets? What currency or currencies may be most likely to move?

A: Any geopolitical crisis eventually leads to an uncertainty of growth. As a result investors look for more reliable markets and a national currency comes unstable and unattractive. A geopolitical crisis affects most liquid currencies first of all, i.e. currencies of developed economies with diverse market relations: EUR, GBP, CHF, CAD, e.t.c. Why? A firm regulation of the exchange rate is dangerous for a complex market if a problem is caused by policy. That’s why central banks prefer not to interfere until the “red line” is crossed.

Besides a developed economy is closely integrated in the global market and has a highest sensitivity to global changes. That’s why EU reacted rapidly when the financial crisis of 2008 started, while emerging markets like Russian market stayed in stable phase until 2010. As for local conflicts, they contribute to personal spending drop. As a result a national economy comes “frozen” and commodity circulation falls. Eventually it affects an economy of closest partners and starts a domino chain.

Q: Generally on the Forex market, what type of analysis, in your opinion, do you feel is best to help predict future currency movements? (Technical analysis, fundamental, sentiment analysis, combinations, something else?)

A: According to my experience, the Forex market has a statistical behavior. It is caused by market complexity: millions of players and dozens of fundamental factors act at the same time. In other words, you cannot definitely make a perfect forecast, only scenario which has a high probability of realization. At the same time a market has inertia. That’s why if you ask me to choose one type of analysis I will leave the technical analysis for the trend search. It allows you to test your strategy and to define its profitability and risk. At the same time a fundamental analysis allows choosing a correct entrance point, i.e. a time period of possible trend appearance. I recommend using both. Don’t forget about trading volumes analysis as well: this data allows eliminating false trends. You may use futures/options operational volumes in Chicago Mercantile Exchange for evaluation of FX movements.

Q: Do you have any favorite economic indicators or technical indicators that heavily influence your analysis?

A: I should notice that a chart analysis mostly influences my decisions, while indicators only confirm some hypothesis. A trader should use at least one oscillator for correct work in flat market and one trend indicator for trend following. As for me, I prefer Relative Strength Index (RSI) and Parabolic SAR combination. These indicators are understandable for me personally. Unlike other known oscillators, RSI gives preliminary signals before a new trend appearance. However you should make a choice according to your own trading style.

Q: Is there a market outside of currencies do you feel that Forex traders should look at?

A: I would recommend paying attention to stock indexes. These are ready made portfolios which can be used for long term investments. It’s a perfect way to preserve your capital and to diverse the risks. Besides if you prefer a trend following strategy, then commodities are suitable for day trading. In fact this market has no regulation unlike Forex and is liquid at the same time due to huge trading volumes. So you will have a nice opportunity to find your own stable profitable trends.

Q: What advice would you have to someone starting out in a currency trading?

A: Control your greed and fear. The physiological nature of a trader makes this game extremely dangerous for a deposit. Besides it’s not a game. Human nature is a principal enemy of trader. So, control your risk capital and use a stop loss order in every trade.

Q: We are about halfway through 2014. Do you have any thoughts or predictions on what we may see for major themes for the second half of 2014?

A: I expect that geopolitics, not the economy will be the “main hero” of the second half of year. Unfortunately I expect the expansion of the Russian-Ukraine conflict. It will definitely weaken the EU economy eventually and decelerate the recovering. However this is a chance for Asian markets and Japan in particularly. I suppose that they will become especially attractive for investors.

Thank you once again Sergey for taking the time to share your thoughts on forex trading and the financial markets in our latest forex interview.

To find out more about IFC Markets and to read Sergey’s timely market analysis, please visit IFC Markets at www.ifcmarkets.com.