hr: Currency

We’re back again with candlestick patterns. In this candlestick chart pattern, the market must be in clearly defined uptrend.

Take a look at the picture, can you identify which one the bullish candle is? It’s the first candle. The second one is a bearish candle.

Photo credit: Sirifin

Here you can clearly see the bearish candle engulfing the other candle’s body.

Here, it doesn’t matter what candle size the other one engulfed. Also, you can safely ignore the wicks.

Keep in mind that whenever you see a bearish candle swallowing the bodies of two or three other candles, then that’s a very strong bearish signal. This means that this could be a start of a new bearish trend.

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The Canadian Dollar or the loonie continues to plummet. The declining prices of the country’s natural resource coupled with the credit crunch have exacted a severe blow on Canada’s economy, which made it to actually contract during the most recent month. Now, the Central Bank has made a forecast saying that the economy will see a growth of only 1% in 2008.

Most economists believe that Canadian Monetary Policy will in the near future be lagging behind US policy. This will most definitely be true if the Fed raises interest rates to fight inflation.

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Based on these developments, everyone seems to agree that the loonie is quite overvalued, and will steadily decline over the next few years, falling to a more sustainable level versus the US Dollar.

The loonie will, by the end of December 2008, slide to C$1.05, and to C$1.09 as the 2010 begins, as predicted by forex experts.

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During the last three years, we see that the Chinese yuan has appreciated. Even into the decade that lead to the sudden revaluation of the currency, a staggering amount of speculative money flooded China. From time to time, the Chinese government and the Central bank have attempted to cull quite a number of these inflows by deliberately making it unprofitable for foreigners to invest in China.

We have seen the artificially low interest rates and the one-way convertibility of the currency. Today, as inflation runs at a 10-year high, the Chinese administration is more intent than ever to tighten measures as regards factors that are driving demand.

In essence, what the result is an altered system for governing forex that will improve its foresight regarding entities and businesses that bring capital into China.

When properly done, a lot of the pressure pushing prices skyward, and the Renminbi itself could be relieved. To sum it up, under the old rule, China had a single exchange rate system, where the central bank would announce the value of the Chinese yuan on a daily basis. Today, under the realigned rules, China has a managed float exchange rate system based on supply and demand.

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If you like playing EUR-JPY, then another opportunity to do so is presented before you. This is so, because price action has pulled the pair right where it previously was — the top of the channel.

Now the question is: Will the channeling behavior of the pair continue?

Photo Credit: ArchiM

In this case a simple approach would be to short the top of the channel.

Here are some fundamental analysis factors you must take into consideration: the Japanese core machinery orders, the trade balance as well as the industrial production data of the Eurozone, and of course, the EU decision on interest rates.

One thing though: Will the ECB hold its ground and remain hawkish on inflation, or will they start addressing the issue regarding the economic slowdown?

This looks like the thing to do is short the market with a wide stop in consideration of future data.

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About a couple of weeks or so ago the AUD-USD pair began to form a pattern on the charts that was readily recognized as a rising wedge.

Experienced and veteran traders would agree that a rising wedge pattern, more often than not, tends to indicate bearish tendencies, since in this case sellers would be quite reluctant to let go of their upper range control.

Photo Credit: Maestro_AU

By the way things are going at the moment, with the AUD-USD pair breaking beneath the lower trendline, buyers are, for the time being, out of the market.

Photo Credit: Mr. Wizzard

Just how far will this momentum take the US currency? If, with respect to the US dollar’s current position, and granting that it will remain so for quite a while, then you should take this pattern into consideration, incorporating it into your technical analysis and take a longer term short position.

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In one sweep, the US dollar under the administration of President George Bush has lost 33.8 percent of its value. This is the dollar’s worst performance ever under one administration.

The escalating twin deficits, lackluster economic performance, including the environment of stagflation at present have all contributed to a drastic and unprecedented loss of confidence in the US currency.

Investors in general are pretty optimistic about the thought of a new President taking over administration, come January. They couldn’t care less whether it is Barack Obama or John McCain that will win in the end. They argue that since the dollar seems has touched bottom anyway, the new President stands to preside over a recovery of the dollar.

“We look at the dollar as a brand and any change from Bush will help benefit the dollar,” according to Reuter.

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If you intend to succeed as a currency trader, then this is a very important lesson, so read on. Aren’t you in business because you want to make money? Well, the first thing you need to learn about money is how to manage it. In trading, this is one aspect that is often overlooked. A lot of traders just couldn’t wait to get right into trading without any regard with respect to the size of their account. The only thing they do is try to assess how much they can afford to lose in a single trade and then go ahead and click the “trade” button. In other words, these people are not traders — they’re gamblers!

Photo Credit: Jeb Ro

Without money management rules, trading becomes gambling as you leave almost everything to chance. In this case you are not looking at the long term return in your investment. What you are doing in this case is simply looking for a jackpot. By managing your money well, you not only get protected from huge losses, but you will also end up reaping large gains in the long run!

If you believe that gambling is the only way to succeed in trading, then you are very wrong. Take for example a casino, surely there are a lot of people already who have won jackpots, but how come the casino is still alive and well? The answer is quite simple: While there were many people who won jackpots, there were even more who didn’t. It is from these people who didn’t win that casinos reap huge profits. They know that, using the principles of statistics, in the long run, they will always emerge as the winner — not the gamblers.

So the lesson is clear: be a statistician, not a gambler. This way, you will always be assured of winning.

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A price surge is an indicator of surprise of panic. When these events occur, professional traders take cover and observe. The retail trader also should allow the market digest such shocks. Trading during an announcement or right before, or in the midst of turmoil, will lessen the chance of effectively predicting the probable direction. Technical indicators will be distorted during surge periods.

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You should wait for a confirmation of the new direction and bear in mind that price action will have the tendency of reverting to pre-surge ranges granting that there are no fundamental occurrences.

An example is when the airplane in Queens NY crashed on Nov. 12, all currencies reacted instantly. However, within a short time the surged retraced when the panic died down.

Photo Credit: mike (el madrileño)

To be a successful forex trader, you should not just read the news, you have to analyze the news. A lot of times, some pretty straightforward news releases from government agencies are really public relation tools intended to make a particular point of view or policy popular. Such “news,” if it can in fact be called that, utilizes the forex markets more than any other as a tool to affect the crowd’s investment psychology.

Photo Credit: MShades
This type of media manipulation is not inherently bad. Governments and traders do that all the time. The new forex trader must realize that it is important to read the news in order to assess the underlying meaning of the news.

An example would be when the prime minister of Japan Masajuro Shiokowa was quoted in a news report saying that “an excessive depreciation of the yen should be avoided. But we should make efforts and give consideration to guide the yen lower if it is relatively overvalued.”

So when the government asks in effect, if traders would please slow down the currency’s decline, then this should make you wonder if there is fear instead that the exact opposite will happen. Forex traders should always be on guard. You must not only read the news but also study it with the perspective that, in forex, how the event is reported is just as important as the reported event itself.

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If you’re new to forex, then you should know that there is an ideal mindset, character as well as mental attitude that every forex trader needs to have.

Very few people have this innate personality, and so, if you’re not one of them, then you will have to acquire and nurture this trait so that it becomes like second nature to you.

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As regards your trading, this entails being free of anxiety, fear, despair or regret. At the same time this also involves the ability to stay calm, confident, focused and disciplined despite adverse trading outcomes.

Here are the five keys to developing this ideal forex trading mindset:

1. Trade with a Disciplined Plan - trading entails serious planning, so don’t take it for granted.
2. Good Execution and Good Anticipation - Although anticipation and execution are related, between the two, you are most likely to lose money because of bad execution.
3. Cut Your Losses Early and Let Your Profits Run - this is a fundamental forex trading principle and cannot be violated without dire consequences.
4. Do Not Over Trade - leveraging your trade too much can lead to financial disaster.
5. Do Not Marry Your Trades - stick to your plan as in tip number one. Don’t ever compromise your position.