InvestMacro FX

By David Adams

Among the most controversial topics in market theory is the degree and level of randomness present in each daily trading session. There are those that deny the random movement of the market, while others believe that all market movement may be random. The truth probably lies somewhere between these two extreme views.

The human mind has a very difficult time dealing with random events. We are genetically programmed to sort and organize events into patterns that are identifiable. Yet randomness in the market is poorly understood, and competing theories have muddied the waters of true comprehension. In my opinion, there is a high degree of randomness in the market; along with some highly organized behavior that also occurs in the market. With a plethora of studies published in recent years on this topic is difficult to come to a definitive conclusion as to which portion of the e-mini market is random and which portions of the market are finite trends. Let’s face it, any experienced trader has observed the market rocket in one direction without rhyme or reason and found himself scratching his head in confusion.

And it’s that confusion in the e-mini markets that causes so many individual e-mini traders to misinterpret market movement and true trending patterns. From my reading, it is my opinion that about 65% of market movement is random in nature, and about 35% of the market movement is organized behavior. This is a difficult concept, as I have mentioned earlier in this article, for most investors to accept. Things happen for a reason, and we are conditioned to interpret most actions in terms of cause and effect. The market defies these traditional notions and a great deal of testing has shown that at times the market moves in a highly random manner.

So how does that affect us as e-mini traders?

From my viewpoint, I think it is important to identify the trending markets and specifically concentrate on trading the market during the periods that it trends. As I have mentioned, this limits most traders who choose to follow this maxim to trading only about one third of the daily trading session. The rest of the time you may find yourself watching the market ping-pong back and forth in a tight range. Generally speaking, range bound trading is a function of normal market operations of filling and backfilling. I specifically avoid any activity in the markets during these range bound periods or during periods the market forms a channel. This channel behavior is generally called a consolidation period.

If you believe the tenants of my belief, it is not difficult to understand how individuals who engage in over-trading often find themselves on the negative side of their futures account. There are only so many times that the market trends sufficiently to initiate trades that stand a chance of earning a respectable profit. On the other hand, channel trading is typified by false breakouts and false breakdowns, which are frustrating and generally result in a losing trade.

In summary, it is difficult to ignore the vast amount of literature that empirically illustrates the random nature of e-mini markets. On the other hand, there is a good deal of evidence that suggests that the market is not entirely random, and periods of trending are not random behavior but organized movement in the market system. For e-mini traders then, the logical conclusion is to focus your trading efforts on those periods when the market is in a trending pattern and avoiding those periods of time when the market is displaying random behavior caused by normal filling and backfilling from the retail sector.

About the Author

Real Live Trading Doesn’t Lie. Spend several days in my trading room and see if you can benefit from a fresh and unique view on trading e-mini contracts. Sign up for your free trading experience by clicking here

The recent correction of the British pound against the US dollar could probably be a good opportunity for me to go long on the GBPUSD.

The GBPUSD or the Cable as what the people in the FX arena call it rallied strongly from a low of 1.6165 to a high of 1.6600. The pound, however, shed some of its gains after reaching the said high. At present, it is exchanging at around 1.6464 and it seems that there is still some room for it to go lower. I view this correction as temporary. Hence, the pound could bounce right back once it finds a significant support.

The question now is, “Which level is a good entry point?”

To determine this, I got the Fibonacci retracement levels using the 1.6165 swing low and the 1.6600 swing high. So my plan now is to place buy orders at these 3 levels and a stop loss just below the 61.8% Fibonacci retracement level. The presence of a hidden bullish divergence, where the price registers higher lows and the stochastics mark lower lows, suggest a bullish turnaround in prices. I’m just hoping that my long orders get triggered and the price action goes my way. If indeed it does, then I would likely close my position/s at around 1.6550.

More on LaidTrades.com …

By James McKee

The US economy is on the rise and many are taking notice of the fact that US corporations and the stock market are both in extensive recovery. This has had considerable influence on a weak dollar, and allowed it to raise somewhat against the Euro. The USD has had some complications recently, and has fallen sharply against the Euro. This has not been a great time to invest in the USD on the online forex exchange, with the recent boost in US corporate earnings the economy may be on the rise.

The US dollar has never quite recovered since 9/11; however, President Obama’s stimulus money and other measures have helped the USD recover somewhat but it has a long, long way to go. The nation of America is in a tough position without its former production ability, and the added weight of several new burdens including an intervention in Libya. The entire US fiscal picture is not a bleak one; however, the United States has still not made the necessary budget cuts. All of the United States government has been in a deadlock attempting to hammer out a satisfactory budget to no avail. The amount of money trimmed from the US budget is so small that in all likelihood it will have no impact.

The Federal Reserve Bank has committed publicly committed to reinforcing the dollar and aiding the US economy for the foreseeable future. The Federal Reserve Bank aims to do this by keeping interest rates low and allowing debt levels to rise as high as they need to. The support of the Federal Reserve will help investors to feel more at ease when investing in US stocks or the US dollar, because they will both enjoy a slightly more stable environment thanks to the Fed.

Attracting investors is just part of the problem though, there is also the need to fix what has become a very broken budget in the United States. Roads and other items related to infrastructure have been being neglected and as a result commerce, as well as safety have been suffering in the US. The United States economy will only enjoy a temporary and faulty recovery if the budget is not changed significantly, there can be no recovery with the constant debt. The USD on the online forex exchange will continue to experience trouble until the United States government becomes a lot more serious about decreasing their debt.

About the Author

Author is a Forex trader and financial analyst residing in Denver, Colorado. To stay up to date on all the latest developments in the financial world and beyond be sure to check out the online forex trading regularly.

By Taro Hideyoshi

As a trader, I am quite sure that you have heard about automated trading systems. They usually come with big claims of profits in just few clicks to set them up. Have you ever wonder (if you have not been using any) that if they work or not?

In this article, I am going to share you some reasons that will help you answering the question “Do automated trading systems work or not?”

The first reason why automated systems never work is because markets always change. The systems may look good at some periods or some situations but they never work in long run.

Another reason is because the automated systems generally come as black box. Developers do not want you to see what are behind the system. They just claim that you will get big bucks if you buy their systems. Also they will show you the results of the systems based on historical data. That is not enough! The historical performance cannot guarantee the future.

I have always mentioned about complete trading systems. A complete system must consist of rules for entry, exit, stop-loss and money management. Some automated systems may consist of these components but they will still not work if they are black box.

In real trading, you need white box systems that you can tune them to be suitable for market conditions. Furthermore, you have to know what are reasons behind each trade, where and why do you enter a trade, how your exit and stop are placed. How your money is managed.

Think about this, if the developers of the systems can take profits in trading using their systems as they claim, why are they making money by selling their systems? If it was you, do you want to share your secret with others?

The fact is there is no secret in trading. It mostly depends on your mind. Some successful traders use only basic indicators in their trading. Also, traders who are using the same system may get the different results.

So the bottom line is: instead of fully automated trading systems, you better use semi-automated trading systems. Learn and adjust your trading systems then let they gain you profits. However, do not forget to do back-test for the systems before using them.

A benefit of the automated trading system is they execute a trade based on the system. It requires less control of your mind.

About the Author

Taro is an experience trader who trades in stocks, futures, forex. He strongly focuses on technical analysis, trading systems and money management.

If you would like to find more articles on MetaStock Tutorials, MetaStock Formulas, Trading Systems and Money Management. Please go to MetaStock Trading System.

By David Adams

As difficult as it may seem to believe, I have several students in my trading room who have been e-mini trading on simulators for several years. I frequently ask them why they have not moved to real money, and they respond that “they want to completely understand the system before moving to an actual live account.” Of course, the real problem in this equation is fear of failure, and putting off an actual test of their skills is a suitable substitute for dealing with the issue of actually winning and losing. Even the best traders have day that they lose money. I have been in this business for most of my life, and have entire days that end up in the negative column. I don’t enjoy losing, but it is a fact of life. I have even had periods of time where my style was not in tune with the market and I have had losing weeks, and occasionally even a losing month. It doesn’t happen often, and never in recent years, but learning to deal with losing trades is part and parcel of learning to trade.

On the other hand, I like for students to use an e-mini trading simulator for several weeks so that they can learn the features of a trading platform like:

• How to place a trade at a specific price
• How to set up stop loss orders
• How to set up staggered profit targets
• Learn the general operating features of a trading platform
• Place simulated trades to get a feel for how the price action looks on a DOM.

In short, simulators are great places to learn how to operate a trading platform and implement the trading strategies the new student has been learning. But when fear begins to replace the learning feature of a trading simulator, it is my experience that most traders seldom make the transition from simulator to trading actual money. Until traders can make that quantum leap from pretend trading to real trading they are doing themselves a great disservice and would probably be best served spending their time in an avocation more suited to their psychological and emotional parameters. Trading is not for everyone.

So, if you have been e-mini trading on a simulator for more than a year I would have a heart to heart conversation with myself. After a year of learning, you should be able to initiate a good number of winning trades, and experience some losing trades. Each trading experience is a learning moment and in order to learn you have to be an actual participant; extended time spent on a simulator is little more than participating in trading as a spectator. This is something for you to consider and take to heart.

In summary, we have pointed out some excellent benefits associated with simulated trading and pointed out that an extended period spent in simulated trading may not be beneficial to a new trader. It is my opinion that traders should learn to trade on live accounts. In short, get off the sidelines and onto the field of play.

About the Author

Real Live Trading Doesn’t Lie. Spend several days in my trading room and see if you can benefit from a fresh and unique view on trading e-mini contracts. Sign up for your free trading experience by clicking here

A lot of issues have made some great moves yesterday. Don’t fret, though, if you missed yesterday’s ride since the one of Ayala Corporation or AC in the Philippine Stock Exchange will be coming to town soon.

As you can see from the chart above, AC looks to be very much positioned for a journey up north. AC has been on an uptrend since the start of March before it temporarily peaked at PHP 400.00 on April 4. After reaching the said high, it then consolidated into a small descending channel. At present, AC is trading right at the uptrend support. What’s nice about AC’s set-up is that its price action for the last couple of weeks (descending channel) looks to be a part of a bullish flag formation. If this is so and I think it is then AC could aim for its previous high at PHP 424.00 or even more once a breakout happens.

More on LaidTrades.com …

Since last March 17, the New Zealand dollar against the US dollar (NZD/USD) or the Kiwi pair has been trending up as seen at its 4-hour chart above.

If you notice, it’s been heading north in an ascending channel and have gained almost a thousand pips or better said it has increased its value by more than 10% against the US dollar in a month’s duration. Personally, with the Kiwi pair’s sudden upswing, a correction might be expected if it breaks down from the ascending channel. If it does, it could head lower and find some support around the 0.7822 area before it bounces back up or continue its descend. However, as long as the uptrend remains intact, this forex pair will most likely move upward until it encounters some selling pressure at its immediate resistance at 80.38.

More on LaidTrades.com …

It’s been awhile since I posted about the forex market. But guess what? I’m back in the FX trading arena! So as I was scanning through the charts of the major currency, the USDCAD got my attention in a snap!

USDCAD’s recent price action as can be seen in its 4-hour chart above is one of the bread and butter set-ups that I often trade. You see, the US dollar has just rallied against the Canadian dollar or the loonie as some would call it after the USDCAD pair hit a low of 0.9454 last April 21. Notice, however, that its rise was halted by the previous support at around the 0.9550 area. In my opinion, the Canadian dollar appreciate some more against the USD in the near future due to a couple of technical factors. Aside from the previous support-turned-resistance that is blocking the USD’s rise, conditions are also overbought as indicated by the stochastics. Moreover, a presence of a hidden bearish divergence, where the price registers lower lows and the stochastics mark higher highs, suggests a move lower. If it does, then it could revisit its previous low 0.9454.

More on LaidTrades.com …

I hope everyone had a blessed Holy Week and before we end it, let’s tackle the major indices in the US stock market to provide us a technical outlook on the days ahead.

On the canvass is the chart of the Dow Jones Industrial Average (^DJI), NASDAQ Composite Index (^IXIC) and the S&P500 (^GSPC). For those who do now know, these three indices are the benchmark of the US and global stock market so wherever they go, most stock markets follow. As these three indices move in a similar fashion, when one of them goes down, the other two often succeed and vice versa. Try checking their historical data to see the movement. Anyway, as of the moment, they are all moving on a 2-year uptrend and within the uptrend is an 8-month ascending channel. As we look closer, we even see something better and this is the highlight of my post. I want to emphasize the bullish chart pattern that I spotted recently on these three. Yes it’s a bullish chart pattern! The ^DJI could be forming a 2-month ascending triangle pattern while a possible 2-month symmetrical triangle for ^IXIC and ^GSPC. Whatever triangle they may be, the fact that it’s coming from an uptrend more likely means that its poised for an upside breakout. These indices are already testing the triangle’s resistance. Well actually, the ^IXIC seemed to have already broken out but I’ll only be persuaded if the ^DJI and ^GSPC follow through. If all of them convincingly breakout from the said pattern, we could see the ^DJI hit the 13,000 marker, the ^IXIC at 3,000 and the ^GSPC at 1,400. In case things don’t go well for them, the significant support could be the 8-month ascending channel. If the channel breaks down, the 2-year uptrend will be the next significant support.

Above all, as long as the uptrend remains intact, I’m bullish on these 3 indices even if they don’t breakout from the 2-month triangle pattern. In addition to that, they are currently moving above the 50, 100 and 200-day moving averages and the MACD is at the positive territory which even strengthens the bulls. Since the US stock market is often the benchmark of the global stock markets, if they perform outstandingly, our stock market will most likely too.

More on LaidTrades.com …

FX Currency Correlations 29th April

It will come as no surprise that the US dollar is the weakest currency among the majors this past week.  The dollar has had a rough ride of late and the trend has continued.

Forex market currency correlation data for this week shows the Swiss Franc riding high and the dollar dropping to new depths.

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Nick can be found writing at this Forex analysis site.

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The Japanese Yen has seen a sharp drop followed by an equally quick recovery and the Aussie dollar is smoothly trending higher.  The Canadian Dollar is potentially being dragged lower by it’s deeply intertwined relationship with the US and even the rising price of oil is not enough to drive the Canadian economy in isolation.

The Euro has seen a flat end to the week after strong start.  The bias is still to the upside though with weekly forex correlation data supporting a continuation higher.