FXstreet.com Live Sessions Archives

Improving Trading Probabilities through Regression Analysis

Date: August 31, 2005 14:00GMT

Expert: Carley Garner, Currency Analyst Alaron Las Vegas Division

Topics:
- Brief description of the Odds involved in fx trading
- The usefulness of the information provided by regression analysis
- How to run a simple regression analysis using Microsoft excel

Who is Carley Garner?
Carley Garner is a Magna Cum Laude graduate of the University of Las Vegas Nevada, from which she earned a B.S. in Finance & Accounting. At UNLV she was a Dean’s List scholar and was elected to the Golden Key International Honor Society. In 2003 she was one of only 1200 collegians nationwide named to the National Society of Collegiate Scholars. Long fascinated by money and the markets, she previously worked for a stock brokerage, honing her skills at technical analysis. Although relatively new to the industry, Carley has been featured in several national publications including Futures Magazine, Active Trader and Stocks and Commodities.

Speech Material:

FX trading requires patience, skill, dedication and, most of all, luck. As long as traders are still searching for the “Holy Grail”, there will be a constant flow of new and exciting ways to make money in the currency markets. However, experienced traders will tell you that it is easier said than done. The secret to profitable trading is the ability to manage both risk and probabilities.

Traders can improve their understanding of the currency market, as well as the odds of successful trading through statistical analysis. Studies such as correlation and linear regression may provide traders with the background knowledge necessary to make educated speculations on future price movement.

Perhaps the most important analytical tool for examining the relationships between two or more variables is regression analysis. By definition, regression analysis is a statistical technique for developing an equation that describes the relationships between two or more variables. All of this can be done with little effort through Microsoft Excel. In order to give this topic the attention and detail it deserves, it would be necessary to write an entire book. Thus, I will do my best to condense the concept into this short report. However, if you are truly interested in using regression analysis in your trading efforts it is imperative that you do your homework. There are a plethora of books available that will aid your understanding of the topic. Keep in mind, statistical analysis is a multistage process of trial and error, and should be seen as guidance as opposed to a sure fire way to make money.

The simplest case is one in which the two variables are being examined. In the regression equation below, y refers to the dependent variable with the independent or explanatory variable denoted by x. This equation is only valid if the relationship between y and x is believed to be linear. In other words if there is a valid correlation, whether it is positive or negative, the relationship between the two variables can be expressed by the following equation:

y = b0 + b1x

If a graph of all the (x,y) pairs is constructed, then b0 represents the y intercept. This is the point at which the line crosses the vertical (y) axis, and b1 represents the slope of the line. Simply put, the slope represents the relation:

Image:

You are probably wondering what the importance of this is. If we know the starting point, b0, and the slope, b1, and one of the variables, either y or x, we can estimate the fair value of the other. Any discrepancy in the market can be seen as an opportunity due to the natural correlation of the two variables.

Once again, for our purposes it is not necessary to understand the formula that is used to define the relationship between our variables (the slope) or even the starting point (b0). We will leave all of the mathematics up to Microsoft Excel.

Using the same variables and data from our previous session on correlation analysis, we will attempt to define the relationship between the Swiss Franc and the Euro paired against the Dollar.

Once selected, the data is ready to be analyzed for correlation and linear regression. Through Microsoft Excel, a click on the Tools tab will reveal a drop down menu, which will have a Data Analysis option. An “Analysis Tool” window will be displayed allowing you to chose which kind of analysis you are interested in conducting on the data sample. In this case we will chose Regression.

From there you will be prompted to enter an “input range”. In other words, which data would you like to be considered in the analysis? Click and drag your mouse over the data that you would like to be involved in the calculation and press “OK” in the window….Microsoft Excel will do the rest. The result will be a table, providing the correlation coefficient and regression output relative to the data of the chosen currency pairs.

The calculation will produce a table such as the one below, in which the correlation of the variables is measured and can be used to define their relationship. For our purposes, we will keep it simple and only focus on a few key numbers. The digits labeled Multiple R is a measurement of correlation, X Variable 1 represents the slope, b1 , and the y intercept, b1, is labeled intercept.   

SUMMARY OUTPUT
Regression Statistics
Multiple R	0.966772227
R Square	0.934648538
Adjusted R Square	0.934459114
Standard Error	0.849930007
Observations	347

	Coefficients	Standard Error
Intercept	4.551005988	1.109056118
X Variable 1	0.619499711	0.008819319

Armed with this knowledge, a trader can attempt to predict price movement by plugging the current price of one currency into the linear regression formula and solving for the other. For Example, if the Franc is trading at 7947 then according to the model the euro should be at 120.93 as seen below.

79.49 = 4.55 + .6195x
Solve for x, x = 120.93

Obviously, the relationship between these two variables is constantly adjusting to fundamental and technical market pressures. Thus, it is necessary to recalculate the regression from time to time.

As previously mentioned, although these calculations are based on statistics and could improve the odds of success, regression analysis should be used as a tool in conjunction with others. Similarly, the results of the calculation should guide the direction of the trade but not be used as exact targets.

Gaining an "Edge" in Forex Trading

Date: August 30, 2005 14:00GMT

Expert: Edward Ponsi, FXstreet.com FX Educator

Topics:
- What is an Edge?
- The Statistical Edge
- Interest - An Overlooked Edge
- The "Insight" Edge
- The Mental Edge

Who is Edward Ponsi?
Edward Ponsi has been recently appointed new FXstreet.com FX Educator and is the president of FXEducator LLC.

Speech Material:

What is an Edge?
We often hear traders discuss the term ‘edge’, and it is a term that has come to have different meanings for different traders. In the real sense of the word, an “edge” is a statistical advantage, something that puts the odds of success slightly in one’s favor. We will address this, as well as other means that a forex trader can use to gain an advantage.

The Statistical Edge
For instance, in the popular card game called “blackjack” (also known as “21”), the overall odds of the game are very close to 50-50, with an initial advantage or “edge” slightly in favor of the casino. However, a skilled player who understands card-counting techniques can gain the advantage as hands are dealt and cards are eliminated from the deck. By tracking the cards that have already been dealt, the card counter knows which cards remain in the deck, and can therefore gauge the odds as to whether or not he or she will receive a favorable card on the next “hit”. He or she also knows the probability as to whether the dealer’s hidden card is favorable or unfavorable.

Note that the casino sells books that teach players how to gain this edge, yet if a player is caught successfully counting cards, he or she will be escorted out of the casino. Does that make sense? Why would the casino show you how to gain the edge, and then kick you out of the casino once you begin to apply it? The answer is, the casino understands human nature. It knows that most people will not have the discipline to stick with a system, or will use it incorrectly. So, it can freely sell the book knowing that the techniques taught within it are unlikely to be applied correctly.

Please note (and this is very important to understand) that counting the cards correctly does not ensure a successful outcome for each hand, and the card counter does not know which card will be dealt next. The order of the cards in random, and the only thing that the card counter gains is a slight advantage, or “edge” over the casino, not a guarantee of victory.

What good is a slight advantage? Why go through all of this trouble to increase the odds to slightly better than 50-50 in your favor? The fact is that a slight edge can make all of the difference over time. Casinos are built on the entire concept of the slight edge. For example, consider a roulette wheel. The odds are just slightly in the casino’s favor, yet the casino stays open day and night and keeps those roulette wheels spinning around the clock. Consider all of the trouble that the casino goes through to gain a slight edge; it buys the land, obtains the proper licenses, constructs a building, hires employees, advertises constantly, and for what? To gain an edge that is only slightly in their favor? Are they mad? No, the casino companies are not insane. They understand that having just a slight edge can translate into huge rewards over time.

What does this have to do with trading? Everything. First of all, please understand that I am not equating gambling to trading, although there are many traders who truly are gambling in the worst sense of the word. That is because many gamblers, and many traders, are chasing excitement and thrills instead of executing a carefully thought out plan. A good trading plan tilts the odds slightly in the favor of the trader.

What if we believe we have a good plan, but after implementing that plan for a short time we have losses. Does this mean the trading plan is no good or does not work? Let’s go back to the casino and consider how they would handle a similar situation. If the casino loses money on a roulette wheel for the first week or two, will they remove all of the roulette wheels from the casino? Of course not, the casino understands that over time, their edge will manifest itself. The casino is not trying to win every spin of the wheel; it knows that in the long run it will come out ahead, regardless of what occurs on a day-to-day basis. The casino wins because it does not become impatient or emotional and abandon the plan just because it doesn’t work right away.

If we can learn to think like the casino, and exercise patience and discipline, we can succeed in the same manner as the casino. Unfortunately, because many traders have unrealistic expectations regarding the speed with which their edge will manifest itself, they abandon their plan, and with it their edge, at the first sign of difficulty. Now the trader is at the mercy of the market, he or she has surrendered their edge, most likely due to impatience with an unfavorable early result. Successful traders realize that even a good plan often is not immediately successful, and they do not abandon their trading plan at the first sign of trouble. After all, without an edge, there is no reason for the trader to expect to become successful.

Interest – An Overlooked Edge
Often, we can gain an edge by exploiting a component of the market that is frequently overlooked. Let’s take a look at one of the most overlooked edges in trading, something that is unique to forex trading. Forex traders have the opportunity to essentially capture dividends every day. I’m speaking about interest charges and credits. Most of us are familiar with interest charges and credits, but maybe we have not considered what a major difference they can make in our accounts.

If you’re not familiar with how interest payments work, it is simple. Each currency yields a certain amount of interest, as determined by the monetary policy makers of each nation or nations represented by the currency. Policy makers raise these interest rates to try to stimulate growth, and they lower them to slow growth and fight inflation.

For example, the European Central Bank has determined that a two percent rate of interest is currently the appropriate interest rate for countries that use the Euro as their currency. The Monetary Policy Committee has determined that the United Kingdom’s ideal rate is four and one half percent (and has indicated that the rate is likely to fall), and the Federal Open Market Committee has set the current United States benchmark interest rate to three and one half percent (and has indicated that the rate is likely to rise). For a listing of the benchmark interest rates (as of August 21, 2005) of some of the most commonly traded currencies, please see

Image 1.

Click to enlarge:

When we trade a currency pair, we are actually long one currency and short the other currency. Any time we are long any currency pair, we are long the first member of the pair, also known as the base currency, and we are short the second member of the pair, also known as the counter or quote currency.

Many traders don’t give a second thought to paying interest rate charges, and never receive interest rate credits because they are using maximum leverage, for example leverage of one hundred-to-one, two one hundred-to-one, or even higher. Most market makers offer the possibility of earning interest rate credits in exchange for the trader using a lower level of leverage, such as fifty-to-one, yet many of us never consider this possibility. Maybe this is because we feel the interest rate charges and credits are insignificant, but institutional traders and hedge funds often base their entire trading strategy on collecting interest. This type of trade is known as interest rate arbitrage or the “carry trade”.

Now I’m not suggesting that individual traders should focus on carry trades and become long term traders, but I would like you to at least put yourself in a position so that you are not constantly giving interest away. By reducing your leverage slightly you can collect interest on some of your trades, and while it may not seem like much money at first, over time you will see that this has a very positive effect on your profit and loss statement. Let’s see how this might work.

A standard sized lot in forex trading is 100,000 units of currency, however because of the tremendous available leverage we can control one lot of a currency pair with just a fraction of this amount. If we are using leverage of 50-1, we can control one lot of a currency pair with 2000 units of currency. For the purpose of this example we will use $2000 U.S. Dollars to control one lot. We will use the New Zealand Dollar/ Japanese Yen (NZD-JPY) currency pair for our example.

Image 2

Click to enlarge:

As we can see from the trading station (please see Image 2), the New Zealand Dollar/ Japanese Yen (NZD-JPY) currency pair pays interest to those who are long the pair and charges interest to those who are short the pair. Those who are long the pair can collect an average of $12.65 USD every day, and those who are short the pair will pay the same amount. Let’s multiply $12.65 USD by 365, the number of days per year that we can collect interest, and we see that if the trade were to be held for a year, the trader will collect interest in the amount of $4617 USD per lot. Remember, we only had to put up $2000 USD to control each lot traded, so after one year this trader shows a tremendous gain vs. the size of his or her investment, even if the currency pair has not moved in his or her favor.

Another trader who is also long the currency pair, but does not have the proper leverage to collect interest, will pay $4617 per lot USD over the course of a year. Both traders placed the same trade (long NZDJPY), but the trader who collected interest earned $9234 U.S. Dollars ($4617 x 2) per lot more than the trader who paid interest.

If you always pay and never receive interest, take a look at your own account and see how much interest you paid in the past year. Now calculate how much you would have paid or received if you had set your account to a level of leverage that would have allowed you to collect interest. While the amount may seem small on a daily or per-trade basis, over the course of a year interest credits and charges can often make the difference between a profitable year and a losing year.

While we as individuals don’t always see the importance of these interest credits and charges, institutions and hedge funds certainly do understand their significance and often trade in ways specifically designed to capture that interest credit. But traders who work in shorter time frames are also subject to interest charges and credits, so how can short-term traders take advantage of this situation?

One way that short term traders can profit from interest is by considering the interest credits and charges before entering a position. Suppose we have two potential trading opportunities, one that will result in an interest rate credit, and one that will result in an interest rate charge. If all other considerations are equal, in other words if both trading opportunities are of a similar quality and have similar profit potential, we could take the trade that offers interest. While we know that we cannot affect the outcome of any one individual trade, we can at least control the interest factor, which may seem like a small edge but as we learned at the casino, small edges can yield large profits over time.

Another important point about interest credits and charges relates to that day of the week, usually the end of the Wednesday trading day, when the interest credits and charges are normally three times the amount charged or credited on every other trading day. Why does this happen? Interest is charged or credited daily, but is not distributed or collected on the weekend. So we have a three-day period, Friday, Saturday, and Sunday, when interest builds up. This three-days worth of interest would be charged or credited on Monday, except for the fact that in the spot forex market, settlement is pushed back two days, so it is normally credited instead on Wednesday. If one of the countries involved in the currency pair has a bank holiday, we might see a four-day interest payment. We need only hold the currency pair for a few minutes to collect that four-day interest payment.

This is not to say that the entire trade should be based on capturing the interest rate payment, but if for example the Great Britain Pound/ Japanese Yen currency pair is in an uptrend (the yield on the Pound is considerably higher than the yield on the Yen), and the trader sees a good entry point for a long trade, then that three or four day interest payment is the “icing on the cake”. As long as the trade itself makes sense, the additional gains generated by the interest will add to your account balance. Conversely, if the Great Britain Pound/ Japanese Yen currency pair is in a downtrend, and it is just an hour or two before a large interest payment will be charged, then the trader might reject that trade, or at least wait until after the interest charges have occurred before entering the trade.

The “Insight” Edge
It has been said that the definition of insanity is doing the same thing over and over again, and expecting a different result. Trading is the same way; we have to determine what is working and what is not. We need to know the answers to some important questions. For example, which currency pair is your most profitable? Which one is your least profitable? Which types of trades tend to work the best for you? Which trading techniques are the most or least profitable in your trading? What is your level of success for trading breakouts or pullbacks? It’s important to be able to determine what it is we are doing correctly and what we are doing that may be harming our overall results.

One way that we can gain insight into our trading is by keeping a journal. It may seem like a lot of work but once you get into the habit of doing it, it's really very easy and after a while it becomes second nature. A trader who keeps a detailed journal can look back on prior trades and know what is working, what is not working, and which pairs are the most profitable for his or her style of trading.

It’s easy to keep a journal; if you are on your computer and you see a trading opportunity, open up a word document and note the currency pair, the time, the entry point, the location of the stop, and other important information, along with a short explanation of your thoughts at the time of the trade. You can even take a screenshot of your chart and paste it into the word document. Then in the future when you look back and review your trades, you will be able to determine how different situations impact your trading, in both a positive and a negative manner.

When you look back on your past trades, find your number one weak spot and eliminate it. For example, you may find that every time you trade a certain currency pair, you lose money. At least for the time being, stop trading that currency pair. At the same time, examine your successful trades; is there a common denominator? Is there something that works for you on a consistent basis? If there is, then place more emphasis on whatever it is that is working for you.

Another thing that you will notice is that your thought processes will change over time. At some point, you will look back on your old trades and say, “What was I thinking? I would never place that type of trade today!” Once you have reached that point, congratulations will be in order, because you will have witnessed the evolution of your own trading style. You will know your strengths and weaknesses, and you will be able to make the most of your strengths, and reduce the negative effects your weaknesses.

The Mental Edge
Trading is not easy. Even a short losing streak can cause sleepless nights and self-doubt. If we are not able to maintain a positive mental attitude, it becomes much more likely that we will abandon our trading plan and our risk management rules.
When trading becomes difficult, we need to closely examine what it is we are doing. Is our plan a good one? Are we implementing our plan correctly? Do we have the discipline to continue to execute our plans? One more important question to ask is, has this losing streak affected my mental attitude? After all, it’s easy to have a positive attitude when you are winning; but it is inevitable that even the best traders go through difficult times. The great thing about a good mental attitude is that it will have a positive effect not only on your trading, but on other aspects of your life as well. Try to see past short-term difficulties and understand that trading is a marathon, not a sprint.

Recognize that there are traders whose success can serve as an inspiration. For example, consider John Henry, a farmer from the Midwestern United States. As a farmer, Mr. Henry learned to use the futures market to hedge his crops, and eventually he began to trade the markets full time. Now recognized as one of the most successful traders in the world, he is the founder of John W. Henry & Co. the second-largest Commodities Trading Advisor in the U.S. Mr. Henry is also the principal owner of the U.S. championship baseball team, the Boston Red Sox, purchased at a cost of $700 million USD.

Read books that will support you in your work and aid you in your goals, such as the Market Wizards series by Jack Schwager and Success Through a Positive Mental Attitude by W. Clement Stone and Napoleon Hill. Schwager’s books give the reader true insight into the minds of successful traders, while the book by Clement and Hill gives the reader advice on how to become successful in any venture. Books such as these can show us not only what is possible in our profession, but also in many other aspects of our lives.

If a trader applies the edges we discussed today, he or she could see a significant change in his or her trading results. A small edge can make a big difference, and in the long run it can mean the difference between success and failure for a trader.

Live Perspective Broadcast

Date: August 29, 2005 14:00GMT

Expert: Derek Frey, Head Trader of Odom and Frey Futures & Options

Topics:
Market reaction to news!
- This week's data and events
- Key support and resistance for major markets
- Derek's insight on the week inreview and the week to come
- Euro
- Dollar
- Pound Sterling
- Yen
- Dollar
- Pound Sterling
- Yen

Who is Derek Frey?
Derek Frey has been a futures trader since 1989 and is Head Trader and partner at Odom & Frey Futures & Options, a firm that specializes in high probability, defined risk option spread trades for the futures markets. Derek is also co-author of O&F News & Views, a weekly newsletter that is published by several publications and over 20 financial websites including FXStreet.com.

Speech Material:

New Live Perspective Broadcast
FX street.com is proud to bring a NEW informative, analytical, overview of the pre-week Market. We are delighted to have Derek Frey of Odom & Frey Options and Futures as our guest to give a fly on the wall insight to the happenings in the FOREX & Futures market for the coming week.

We hope you enjoy the Live Market Analysis and get up to date tips on how to tackle the week ahead. Bring your thoughts and doubts to the table by participating throughout the session actively and challenge the speaker with your questions, & concern's for the week ahead.

FXStreet.com has spoken with and listened to the needs and wants of thousands of clients and combined with our Live Q&A Sessions hope to erase the fears & woe's of our cliental and bring them up to speed with the latest happenings in the market.

***Please note that this session is not a lecture format chat session. To ensure success, please actively participate throughout, ask REAL time questions, post points of view, queries, doubts and concerns and receive immediate feedback and the opinion of our expert.**

Don’t miss the chance to pick her brains and be well informed for the week to come.

The week ahead 08-29-05
Energy will continue to dominate the news this week with hurricane Katrina becoming a much larger storm than originally expected. This may well be the final blow off in energy before a real correction. Panic buying is very rarely rewarded

Euro:
The Euro should continue to recover this week and should rally back above 125.00 or so by the end of the week. Continued warnings from Mr. Greenspan should keep the US dollar in check.

US Dollar:
The U.S. Dollar should continue to weaken. A strong downward move, however is not expected. Look for continued downward chop rather than a well defined trend.

Swissy:
The Swissy is likely to lead the Euro higher this week. An overall recovery in Europe is becoming more likely while the economic picture in the US continues to worsen.

Pound Sterling:
The Sterling continues to be supportive. Look for the recovery to continue this week. Next upside target for the Pound is 183.00.

Yen:
The Yen continues to drift rather than try and break out like the rest of the currencies. Look for this laggard to continue to be wishy washy in its action this week.

Live market Analysis

Date: August 26, 2005 13:00GMT

Expert: Kathy Lien, Chief Currency Strategist

Topics:
Market reaction to news!
- This week's data and events
- Key support and resistance for major markets
- Kathy's insight on the week inreview and the week to come
Currencies
- Euro
- Dollar
- Pound Sterling
- Yen
- Dollar
- Pound Sterling
- Yen

Who is Kathy Lien?
Kathy Lien is the Chief Currency Strategist at Forex Capital Markets. Kathy is responsible for providing research and analysis for DailyFX, including technical and fundamental research reports, market commentaries and trading strategies. A seasoned FX analyst and trader, prior to joining FXCM, Kathy was an Associate at JPMorgan Chase where she worked in Cross Markets and Foreign Exchange Trading. Kathy has vast experience within the interbank market using both technical and fundamental analysis to trade FX spot and options. She also has experience trading a number of products outside of FX, including interest rate derivatives, bonds, equities, and futures. She has a Bachelors degree in Finance from New York University. Kathy has written for Stocks and Commodities, CBS Market Watch, ActiveTrader, Futures and SFO Magazine. She is frequently quoted on Bloomberg and Reuters and has taught seminars across the country. She has also hosted trader chats on EliteTrader, eSignal, and FXStreet, sharing her expertise in both technical and fundamental analysis.

Speech Material:

New Live Perspective Broadcast
FX street.com is proud to bring a NEW informative, analytical, overview of the pre-week Market. We are delighted to have Kathy Lien, Chief Currency Strategist at FXCM as our guest to give a fly on the wall insight to the happenings in the FOREX market for the coming week.

We hope you enjoy the Live Market Analysis and get up to date tips on how to tackle the week ahead. Bring your thoughts and doubts to the table by participating throughout the session actively and challenge the speaker with your questions, & concern's for the week ahead.

FXStreet.com has spoken with and listened to the needs and wants of thousands of clients and combined with our Live Q&A Sessions hope to erase the fears & woe's of our cliental and bring them up to speed with the latest happenings in the market.

***Please note that this session is not a lecture format chat session. To ensure success, please actively participate throughout, ask REAL time questions, post points of view, queries, doubts and concerns and receive immediate feedback and the opinion of our expert.**

Don’t miss the chance to pick her brains and be well informed for the week to come.

- Market reaction to news! - Durable goods shows signs of trouble ahead for the US. German ZEW survey supports Euro. Oil prices hit new highs as storms brew in Florida

- This week's data and events - Range trading the predominant theme, but Euro gaining strength. Oil and Housing are a big concern going forward. Koizumi announces plans to resign in 9/06

- Key support and resistance for major markets - 1.1950 / 1.22 still the major range in EURUSD

- Kathys insight on the week inreview and the week to come - Next week is NFP! Lots of data scheduled for release around the globe - especially US data, potential for larger moves

Currencies/ Economic indicators
- Euro - Gaining strength; Benefits from positive sentiment, higher oil prices and weaker US data
- Dollar - There's no stopping the Fed but traders looking beyond Fed hikes
- Pound Sterling -Holding Steady but data has been mixed
- Yen - Juggles oil, politics and Nikkei

Using cross-rate analysis in forex

Date: August 23, 2005 14:00GMT

Expert: Igor Belitsky, Analyst of FX-Dealer.com

Topics:
- Introduction to cross-rate analysis
- Cross-rate trend rule
- Using cross-rates in mechanical trading systems

Who is Igor Belitsky?
Igor Belitsky is a specialist in applied mathematics and trading systems development. Since 1996 he has been working as a forex market analyst in a Moscow based financial company.

Speech Material:

1. Introduction to cross-rate analysis
Although cross-rates can be traded independently their values are always linked to based currencies by strong mathematical equation. For example EUR/JPY cross rate at any moment equals EUR/USD * USD/JPY. First impression is that EUR/JPY is just composition of two underlying currency pairs: EUR/USD and USD/JPY, and could not deliver any additional information. But large orders flow for EUR/JPY could effect the rate of EUR or JPY against the dollar. We can also find support/resistance levels or chart patterns inside cross-rate chart that can be used to predict underlying currency pairs movements.

2. Cross-rate trend rule
The rule is simple: Trend on the cross-rate could trigger Zig-Zag style correction of underlying currency pair. This rule can help to predict sharp corrections and take profits prior to market reversal.

Below is USD/JPY and EUR/JPY 4 hours charts. Range phase on EUR/JPY chart was followed by down-trend phase after the price had broken key support level of 134.50 on 31-May 2005. As down-trend continued it finally resulted in reversal of USD/JPY up-trend. First sell signal on USD/JPY was generated when EUR/JPY has broken below 133.00 support, second sell signal on USD/JPY was based on EUR/JPY breaking of 132.00 level.

As we can see down-trend of EUR/JPY resulted in Zig-Zag style correction A-B-C of USD/JPY. After that global up-trend of USD/JPY continued and the price finally rose from 106.50 to 109.50.

Image: Click to enlarge:

Image: Click to enlarge:

3. Using cross-rates in mechanical trading systems
We can use trading signals from cross-rate chart in combination with trading signals from underlying currency pairs. By this rule we open positions only in direction of cross-rate signals. Other signals should be excluded: cross-rate signals are used as additional filter along with standard trend filter.

Below are chart examples with mechanical trading systems based on DMI and Slow Stochastics. We use DMI as trend and SStoch for signals. EUR/JPY trading signals are used to filter out signals on EUR/USD and USD/JPY charts.

We have excluded (filtered them out) 4 signals on EUR/USD chart and 2 signals on USD/JPY chart because they were in conflict with EUR/JPY signals, and marked them with grey color.

The main drawback of this method is that cross-rate signals may be wrong and we'll exclude good signals on base currency chart.

Click image to enlarge:

Click image to enlarge:

Click image to enlarge:

Live Perspective Broadcast

Date: August 22, 2005 14:00GMT

Expert: Derek Frey, Head Trader of Odom & Frey Futures & Options

Topics:
Market reaction to news!
- This week's data and events
- Key support and resistance for major markets
- Derek's insight on the week inreview and the week to come
Currencies
- Euro
- Dollar
- Pound Sterling
- Yen

Who is Derek Frey?
Derek Frey has been a futures trader since 1989 and is Head Trader and partner at Odom & Frey Futures & Options, a firm that specializes in high probability, defined risk option spread trades for the futures markets. Derek is also co-author of O&F News & Views, a weekly newsletter that is published by several publications and over 20 financial websites including FXStreet.com.

Speech Material:

Lets dicuss Market reaction to news!

This week's data and events:
Energy will very much dominate the rest of the markets in the short term. If the bulls can nudge energy to fresh new highs then stocks will fall and currencies will be mixed. If energy takes a break and has a set back that would be good for stock markets and good for foreign currencies against the Dollar.

Euro:
After a very strong pullback the Euro is now poised to resume it’s up trend. 125.00 is the next upside target and could easily be taken out by then end of the week or early next week.

US Dollar:
After a typical “dead cat bounce” the Dollar should turn back lower this week. Fundamentals do not support the Dollar and sooner or later reality always wins out. Watch for the Dollar to make a move back towards 85.00 before Labor Day.

Swissy:
The swissy too is looking to turn back higher. A resumption of the down trend in the Dollar should push this currency back into the mid 80.00’s also by Labor Day.

Pound Sterling:
The Pound has done quite well since the unfortunate events in London a few weeks ago. Unlike it’s European counterparts the Pound has not fallen nearly as much in the face of recent dollar strength. Next upside target for the Pound is 183.00.

Yen:
The Yen continues to drift rather than try and break out like the rest of the currencies. Look for this laggard to continue to be wishy washy this week.

Ask Derek his insight on the week inreview and the week to come?

***Please note that this session is not a lecture format chat session. To ensure success, please actively participate throughout, ask REAL time questions, post points of view, queries, doubts and concerns and receive immediate feedback and the opinion of our expert.**

Currencies/ Economic indicators ****Live discussion ask all your questions Live on the currency pairs and economic indicators for the week ahead.*****

- Euro
- Dollar
- Pound Sterling
- Yen

FX street.com welcomes you to a new informative, analytical, overview of the FOREX Market. We are delighted to have one of our analyst from the FXCM team as our guest to give a fly on the wall insight to the happenings in the FOREX Market for the coming week.

Live market Analysis

Date: August 19, 2005 13:00GMT

Expert: Borris Schlossberg, Chief Currency Strategist at FXCM

Topics:
Market reaction to news!
- This week's data and events
- Key support and resistance for major markets
- Boris's insight on the week inreview and the week to come
Currencies/ Economic indicators
- Euro
- Dollar
- Pound Sterling
- Yen

Who is Borris Schlossberg?
Boris Schlossberg serves as Fundamental Analyst at Forex Capital Markets. He has been an independent trader since 2000. He is also a frequent contributor to SFO Magazine with articles focused on risk management.

Speech Material:

Market reaction to news! In the EUR/USD The Market is now playingtug of war between the favorable interest rate differntials for the dollar versus the continued reserve diversification towards the euro by worlds Central Banks

This week's data and events: Next week brings durable goods in the US which is likely to show a slowdown in demand as oil prices begin to take their toll on the economy whereas in UK and Europe we will be looking at GDP data expeceted to reveal marginal improvement.

Key support and resistance for major markets: Support seems to lie at 2200 and resistance at 2450 as range trading likley to continue for rest of summer.
Boris's insight on the week inreview and the week to come: With most of the worlds dealing desks on vacation, market should remain quiet unless geopoltical events intervene

****Live discussion ask all your questions Live on the currency pairs and economic indicators for the week ahead.*****

***Please note that this session is not a lecture format chat session. To ensure success, please actively participate throughout ask REAL time questions, post points of view, queries,***

Currencies/ Economic indicators
- Euro
- Dollar
- Pound Sterling
- Yen

FX street.com welcomes you to a new informative, analytical, overview of the FOREX Market. We are delighted to have one of our analyst from the FXCM team as our guest to give a fly on the wall insight to the happenings in the FOREX Market for the coming week.

Improving your Trading Strategy

Date: August 18, 2005 14:00GMT

Expert: Muhammad Usman Ghan, Director of Investments UNZforex.com

Topics:
- Dividing your capital
- Extending you profits
- Getting over Psychology
- Developing Trading Record
- Getting Ready for unexpected

Who is Muhammad Usman Ghan?
M. Usman Ghani is Director Investments at UNZforex.com, a trading firm that provides free Forex signals. Usman has been working as currency analyst for over 10 years. Usman has worked with people all around the world helping the to develop suitable trading strategies for them. UNZforex.com comprises of analysts having years of experience of Forex trading and fund management techniques. Each member of UNZforex.com analyst team has over 5 years of trading experience.

Speech Material:

A good and strong trading strategy is the key to success in trading arena. Apart from basic trading tools, some other common sense rule helps in improving any trading strategy. Trading with the trend is important but still there can be instances when market moves the other way and this makes you think in terms of changing you strategy all together. But the thing that required to be changed is not your strategy but the consistency of following the strategy over longer period of time with discipline.

Any trader can be struck with bad luck but what anybody can control is the damage it causes by using a reasonable strategy and enable himself to recover from such position when things go back on track.

There are some important factors other than basic tools that I would like to discuss here;

Dividing your Capital:
Always divide your capital into Risk Money and Backup Money.

Risk Money is the amount you are ready to put on risk right away. The percentage of initial risk money should not exceed more than 1/10th of the original equity.
Backup Money is the amount that comes into play when you loose risk money and then is looking to recover your original equity.

Always understand the risks before starting your trading career. You can loose all of your original equity. So never trade with the money you cannot afford to loose. Always plan you money management strategy very carefully. Never look to put too much upfront and always have enough for backup so that when the trades are going well, you must be in a position to make full use of it. This is only possible if you have a good backup amount.

Never over trade or get carried away when you have a good string of winning trades. Reduce your trading after loss and never increase or double up. Always remember that you should not think in terms of recovering all of your losses in single day or in a single trade.

Never try to average your trades unless you have substantial equity and experience to perform averaging. ONLY average or hedge your position when you have substantial experience in mock trading and know market situations in a better manner. Otherwise you will end up with a number of open and losing trades and might end up loosing all of you equity.

Extending your Profits
The most common error new traders make is that they go for short profits but go through full losses. For example, there are occasions when traders use 2:1 win: loss ratio but they suffer full loss but take usually small profits. This not only disturbs the balance in money management but also creates problems when the account suffers losses and sometimes it is impossible to recover.

Remember if you follow a good trading strategy with discipline, there will times when you will have a string of winning trades and that is the time when you have to make most of it.

You must not only look for reasonable profits but also look to extend your profits as much as you can. The best and most effective way is use of trailing stop. Whenever you get the market direction right along with entry at a reasonable point, you should look for as much extended profit as you can. Figure out what is the target and use trailing stop accordingly.

Never let your profits get into losses. There is always a question about what value or how far trailing shop should be? There are always occasion when you get entry and market direction right but your stop just get filled and you loose all the incentive. Understand what sort of trailing stop to use with each currency pair. Always be disciplined in use of trailing stop and don’t keep changing because once or twice it get filled when you got everything right. You must look for the consistency in the long term.

Always target to cover 1-2 loosing trades through an average winning trade. It will help you to increase your risk margin and add more protection to your account. Don’t exit any trade without a proper reasoning and if you are uncertain about the situation, try to get out on getting any good opportunity.

Getting over Psychology
You biggest enemy during trading can be your mind if you don’t learn to get over your mind. The thing is that there involve lot of mind game in trading. When the position are getting against you, you very easily get hit by fear, similarly in case of positions in small profits, the fear of the position getting into loss gets to you and you might exit immaturely and just target small profits only.

Sometimes the position gets into loss and traders might look to extend stop in hope that it will come back to profit and this cause to end up in extended loss and created imbalance in the trading strategy.

In times of market moving with some volatility or due to some fundamental news, a panic creeps in and you must learn to handle that pressure and panic. This panic sometimes lets to either exiting at wrong point or sometimes even prevents traders entering a good entry point and thus loosing out on a good entry. And to get over that sometimes traders enters at a wrong point and thus getting out of their discipline.

As fear, hope or panic plays an important part, there is another factor which should be overcome and that is greed. Sometime the traders target the profits more than they should look for. Traders should be realistic about their profit target. Traders must not let Greed take over and mislead to aiming for un-realistic profit targets

Developing Trading Record
Not only do the professional but every trader should have a trading record and maintain it properly. The traders should also add comments to their trades for things they find out later that worked or was planned differently but was not executed properly.

This will help them to develop good trading practices and helps traders to figure out which areas or currency pairs they are losing and should avoid or work more. The trading log also helps in discovering the strong points for each trader and focus more on strengths.

The trading log also enables traders to figure out some important values like stops, Profit targets over a longer period of time and establish a long term trading plan and targets.

Once a trader can figure out all his trading weaknesses and strengths, he can work them out and also look for advice which is closer to his trading style and can then guide him in better manner. Only when a trader understands what he is doing, only then he can learn and benefit from other advice.

Trading log can also point out the best currency pair for each trader and he might then look for crosses of those currency pairs if interested in further opportunities.

Getting ready for unexpected
The most important thing in trading is to be always ready for any unexpected condition. A good money management can only cut down losses to a level where it can be covered afterwards.

Traders should always be ready for times when they have long loosing string. Any fundamental news can end up in loosing all trades. The trader should have a good backup strategy to recover from such situations.

Trading is not just about winning; it is also cutting down losses to a bearable level. During times like these, trader requires strong mind setup.

In the end I would like to add that every person has some gifts and it is not necessary that only the expert traders can make money. A starter can be more effective than an experienced person if he develops and adopts a good strategy.

Please feel free to contact me regarding any trading strategy or tool, or to share or discuss any trading thoughts.

Email: mughani@unzforex.com
Web: www.UNZforex.com

Position trading in Forex market - will be a more rewarding experience

Date: August 17, 2005 14:00GMT

Expert: Dr. S. Sivaraman M.Sc., Ph.D., CEO and owner of i-knowindices.com

Topics:
- Understand monthly trend reversal moves
- Trade in line with the trend at ease
- Part time trading
- Market rewards patience
- Position trading strategies - basics

Who is Dr. S. Sivaraman M.Sc., Ph.D.?
Dr. Sivaraman has nine years experience in working with the Forex Market forecast, professional trading training Trading and Portfolio and forex fund Management. He provides professional Forex, Indices and commodity markets analyses using unique proprietary forecast algorithm.

Speech Material:

There are various types of trading, namely – spot or day trading with in the day. Swing trade with in the session, scalp trade or quick with more volume and less spread of profit and position trades with less position with less risk and maximize the reward.

In my 7 years of forex forecast and consultancy services to traders and institutions worlds over, found very few traders have the courage and confidence to do position trading.

One of the reasons I found responsible for it is impulsiveness – emotional approach to market. The general traders’ psychology is to allow the loss to grow without having the mid to cut it when small and close the position quickly when a small profit is seen.

Instead, to get average or net profit in their positions they tend to take more exposure at close ranges - failing to realize the long-term market spread and associated risk - and make distress trades and find the equity erosion.

But, if you aim to be come a professional trader you need to view the market swings as good trading opportunities in your spot and position trades.

Thumb rules: To start with, aim for around 1% exposure of equity in your position trade with 75 pips profit limit. Take limited risk of keeping 75 pips advance hedging order (entry stop) if there is limited equity. Once the position makes 50 pips profit, keep stop at entry and change the limit to 150 pips.

Trail the stop if you are watching the market maintaining 50 pips from it, or you can leave the trade to see the market has closed your position with profit in your absence. In case, when you find the position is not closed and the market moved away, then keep second buy order or take position 150 pips below the original buy position, or 150 pips above the sell position and keep 150 pips limit.

This is what called spread the risk with very limited exposure. If you have the confidence and patience, you will find the trades become more rewarding experience.

Certain conditions: Take position only after the spread between the low and high in the market has become 75 pips or more. You will be mostly find 150 pips limit is filled in a day or two. If there is initial correction, take buy position near the low when the low is not cut for more than 30 min, after the start of the European or US sessions. If there is initial rise take a sell position near the high when the high is not cut for more than 30 min. and keep a limit as mentioned above. Use trailing stop once the profit is seen in the position – the spot trade will be converted to position trade.

Understand monthly trend reversal moves: Take position in Euro or GBP only, average them only by taking additional positions every 150 pips in the same pair.

Using hedging in averaging trades, multiple trades and mixed position trades require frequent monitoring and the trading strategies are explained in our professional Trading training (PTT).

Position trades are to be done with the long-term view of the market. The best position trades could be between the highest and lowest levels formed during monthly trend reversals, capturing the spread of 600-1300 pips profit in single trade.

If you are not able to understand long term market trend, then position trading can be done by keep buy orders for every 150 pips drop in EURO/USD and USD/CHF, or buy order for every 200pips in GBP/USD and USD/YEN and 150 pips limits in those orders. You will witness alternative profit booking during either way swings of monthly market cycles.

Trade in line with the trend at ease: If you avoid taking positions during month beginning and month ends, and take positions mostly during 2-3 weeks inline with the visible market trend, the trades will earn easy money.

Since many traders are addict to trading and get struck with unfavorable positions during trend reversals – i.e. holding a buy position near the high or a sell position near the low for the season.

Then they become more and more panic when the market moves away from them and develop margin call fear and liquidate the position during the next trend reversal. You can reflect and see how you have done many times the trades like that.

For example – some traders opened Euro long position around 1.32 and closed (sell) around 1.19 and later view the rise in euro again to 1.24 recently. So we need to recognize prolonged upward stop hunt moves as upward trend reversal phase and prolonged downward stop hunts and downward trend reversal phase.

Part time trading: Many traders come to market when they are compelled to trade and earn extra money to offset some unexpected debts outside or in the market. There are some who want to invest and maximize the return.

In both conditions they are not able to either focus on the job or the trades. In such a condition position trade will be the real solution. They can easily do directional position trades.

What is that? - Always do trades in other majors as follows –

Sell and buy trades in EURO/USD and GBP/USD - sell every rise of 150 pips with 100 pips limit
Buy and sell trades in USD/CHF and USD/YEN – buy every drop of 150 pips with 100 pips limit

*******You can try these trades in demo platform for 1-2 months and send the results with the details of your trading as feed back to Fxstreet – we will review them in our next Forex Lab session on position trading in the month of Oct 2005. *****

Market rewards patience: once you have learnt position trading –your mindset will get rid off impulsive trading urge and become calm and aim to do leisurely trades. You will never regret of missing any big move of the market, as you know market continue to give good position trade opportunities by the expected –“unexpected swings”.

Position trading strategies – basics:
1. A decent equity size to take at least 5% exposure of the equity in 5 single lot positions in a monthly cycle – i.e. say $10000-15000 in a mini trading platform, or $50,000 –75,000 in a standard platform.
2.Calm mind with least market fear and greed
3.ability to determine the monthly trends of the market
4.recognision and differentiation of the monthly and yearly trend reversal moves
5.focused systematic trading approach without being bothered to hypes- the news, rumor, and data release and data interpretations.
6.Self-confidence and ability to judge the truth in varied commentary, market analyses and projections.
7.Reasoning ability without bias when listening to media – don’t develop bullish or bearish feel and understand that the forex positions are different from the actual economic conditions.
8.understanding the structure and limitations of the market.
9.A clear mind to earn money from market, and not a mere ego satisfaction by making bullish or bearish statements and calls leading to emotional trading.

Thanks for your interest in reading the strategies and concepts - be objective in reviewing the points and do your position trading practice in demo platforms and develop your insight to make your trading less stressful and rewarding.

Looking forward to your results and feedback before our next forex Lab session on position trading…. it will be announced by Fxstreet during Oct, 2005.

Live Market Analysis

Date: August 12, 2005 13:00GMT

Expert: Richard Lee, Currency Strategist at FXCM

Topics:
Market reaction to news!
- This week's data and events
- Key support and resistance for major markets
- Richard's insight on the week inreview and the week to come
Currencies/ Economic indicators
- Euro
- Dollar
- Pound Sterling
- Yen

Who is Richard Lee?
Richard Lee is a Currency Strategist at Forex Capital Markets. Employing both fundamental models and technical analysis applications, Richard contributes regularly to DailyFX, Yahoo Finance and Comtex. Prior to joining the research team, Richard was one of the senior instructors for the FX Power Course, teaching thousands of traders the basics of currency trading, technical analysis and how to implement trading strategies. He has extensive experience in trading the spot currency markets, options and futures. Richard previously traded FX, equity and equity derivatives for a private equity consortium prior to joining FXCM. He holds a BA in Economics as well as a BS in French with an emphasis in International Business from the Pennsylvania State University

Speech Material:

FX street.com is delighted to launch a new informative, analytical, review of the market week.

We are delighted to have the experts from Forex Capital Markets (FXCM) starting with Kathy Lien on board weekly to bring you spontaneous updates on the goings-on in the Forex market, specialising on signals or measures that tell us how the economy is performing & economic indicators.

Weekly meet with the FXCM expert, listen to their thoughts and inside view on the market as they see it.

Today's Topics:
Market Reaction to News:
Majors breakout against the dollar. Japanese yen finally breaks through 111 figure following the postal privatization and improved economic expectations from Bank of Japan. Higher German trade balance offers hope for the euro zone

This week's data and events:
Crude oil hits new all time highs in one week, may crimp overall global demand and add to already existent inflation. UK inflation once again powers pound higher as expectations of further rate cuts dim. European optimism is sparked as higher than expected manufacturing figures are posted

Key support and resistance for major markets
Will yen break below 109 as Euro tests $1.2500

Insight on the week in review and the week to come:
All eyes are on price inflation data

Currencies/Economic Indicators:
Euro- German consumer prices may hint at nascent inflation
Dollar- Greenback traders scrutinize full schedule in gauging further momentum
Pound- Sterling- RICS housing offers insight into housing sector conditions
Yen- Optimistic Japanese data may lend to further yen strength