FXstreet.com Live Sessions Archives

European Session - Range bound trading guide

Expert: Adam Rosen, PowerCourse Instructor at FXCM

Topics to be covered during the session:

-  The FX-market tends
-  Range bound trading strategies
-  Trading range

Summary:
- The FX-market tends to spend a great deal of time in a range bound environment.
- Trading range bound markets allow us to attain a high % of profitable trades, with a greater degree of consistency than trending markets.
- Range bound trading strategies can be applied very easily to short-term trading setups and are ideal for day trading purposes.
- Over the next few years, many traders expect the FX-market to develop quite a few range bound conditions and patterns due to the compression of interest rates spreads around the world.


Who is Adam Rosen?
Adam Rosen has worked for FXCM almost 3-years now, and on Wall st. for about 8-years in a number of capacities including trading: Equities, Options, FX, Fixed Income products, etc.

Currently Adam is the senior PowerCourse Instructor, administering a number of educational products to over 8,000 alumni over the past few years. He has also published a number of articles on www.dailyfx.com including a weekly trading lesson.

Adam has also traveled quite a bit speaking on a seminar circuit for FXCM to groups of traders and investors in settings of 50-600 individuals at a time.

Session Material:

- The FX-market tends to spend a great deal of time in a range bound environment.
- Trading range bound markets allow us to attain a high % of profitable trades, with a greater degree of consistency than trending markets.
- Range bound trading strategies can be applied very easily to short-term trading setups and are ideal for day trading purposes.
- Over the next few years, many traders expect the FX-market to develop quite a few range bound conditions and patterns due to the compression of interest rates spreads around the world.



Power Point Presentation:

Download Trading_Range_Bound_Markets.ppt

Confessions of a Forex Trader - Part VI: Risk vs. Leverage

Expert: Mihai Nichisoiu, Private currency speculator at Mihai Nichisoiu

Topics to be covered during the session:

• Risk approach in higher-stake currency speculations
• Risk in leveraged markets
• Operating on margin

Summary:
- A critical view of financial markets operating on margin
- Flawed public conceptions about risk in leveraged markets
- Personal attempts to accomodate a tight and rigid risk approach in higher-stake currency speculations

Who is Mihai Nichisoiu?
Mihai Nichisoiu started to trade currencies first in the local futures market, then in early 2002 moved to dealing in the wide foreign exchange. Since the beginning of 2004, Mr. Nichisoiu has become mainly engaged in building a personal long-term track record in the sense of posting high rates of return only if at the expense of tight and rigid approaches of risk. Mr. Nichisoiu won the August 2005 edition of a popular global demo trading contest, after constantly achieving top rankings during an 11-month long participation.

As a currency speculator, Mr. Nichisoiu is also actively involved in managing and consulting a small number of long-term private connections.

FXstreet.com has been hosting a short, frequently updated market report signed by Mihai Nichisoiu eversince January 2004. Mr. Nichisoiu can be contacted via his recently established, personal website MihaiNichisoiu.com.

Session Material:

Premise #1:
Advancing generic market forecasts and then assessing their 'accuracy' against an intrinsic technical value is rather an attribute of financial journalism, than one of trading markets on tight margin. After all, you can easily spot financial commentators with decades-long professional careers in their very own business ; spotting profitable speculators that have successfully accommodated tremendous rates of leverage over decades-long periods is, nevertheless, a somehow more difficult enterprise.

One increasingly more popular credo in small retail FX nowadays is mixing a short-shorter-shortest orientation of results with intraday over-trading at enormous rates of leverage and incredibly tight stop-loss orders.

In my view, there exists a reflexive relationship between how the average trader intuitively thinks of accommodating small retail FX, and the parabolic business development exhibited by the small retail FX brokerage industry over the last several years.

Such a credo - combination to many looks like the best, fastest way to achieving those phenomenal rates of return almost each and every public board is talking about. In my way of seeing things, however, the same credo - combination is set beforehand to extinguish a vast segment of speculators, and it undoubtedly does that around the clock.

Then, seriously wounded or even totally quitting players still praise the forecasting abilities and level of market analysis they had reached during their streaks of winners (when most risk vulnerabilities remain hidden since stop-loss orders generally stay out of market reach), whereas associating the blow-ups with weird, de-personalized, unique accidental experiences.

The 'memory' of the small retail FX community, however, is bound to be short. The markets frequently cut through sweeping the speculative community, for then market-ing to heal those many wounds and regenerate enthusiasm.

Premise #2:
I perceive two main premises as the rationale for employing loosely liberal policies of risk (sometimes - many times - 'loosely liberal' being an euphemism for the total lack of a risk approach).

Firstly, many of the risk approaches I have observed at market participants operating on tight margin are unconditionally imported from non-margin trading.

In Jack Schwager's book 'Market Wizards', Michael Steinhardt tells the story of a 'difficult' position he had held for 6 months in the treasury note market. I wonder, how many of those dealing in small retail FX at enormous rates of leverage could hold a 'difficult' bet for even more than just a couple of days (let alone weeks or months).

Secondly, there exists among players an almost mystical fear that the market dealt will execute the protective order attached to a certain position, for then instantly reverse to the direction of the initial bet.

To many market participants, risk is only an immaterial concept. Attaching initial or interim stop-loss orders is viewed as just a traditional 'business obligation'. The 'stop-loss order habit' exists merely on the basis that, traditionally, past generations of traders have used stop-loss orders as well.
In turn, most players always want to deal with what seems to be 'material' - as the direction of their bets and the raw pips measure of their profits.

I, however, hold a different approach. At all times I assume I cannot and will not be right in my own market calls, and that there is always something which can and will go wrong.
I know that I do not know. The stop-loss I attach to a certain position is to me as material as it can be ; not only that it is a material concept, but it is the single most important concept validating or rather denying my eagerness to place or hold a bet. In a way, before anything else, my constant search in the markets is one for notable stop-loss orders.

Premise #3:
Often the way I speculate in the currency markets is read as being one of extremely tight and rigid stop-loss orders. But I think the premise is confused with the effect. The real premise relies in the attempt to keeping the drawdowns extremely tight - both the individual ones, and their aggregate level altogether. That is, I strive to take advantage of what I call the 'good side' of volatility and leverage, whereas constructing and adjusting approaches of risk capable of eluding the 'bad side'.

My incidental experiences have shown me that for most players the natural status is being in the markets, dealing. In my case, it is exactly the opposite - my natural status is being OUT of the market - not dealing, but just performing the simple act of observation. Only at a handful of times I allow myself participating and speculating.

Just like many others, I too view the market as a gigantic chess table, one at which usually there is an agglomeration of opinions and chart movements - however, also a table at which I am not bound to make a move unless precisely when and how I want.

I have the ability to view that 'agglomeration of opinions and chart movements' in rather abstract terms - which of course is no beforehand guarantee for success, but can provide me with an edge at key times. To better explain that, for example, I do not think of a sudden, exquisite increase in volatility of a certain market which I have not speculated as a default in personal forecasting abilities, or a frustrating waste of trading opportunity. In turn, I can view that volatility blowout as a readable change of technical conditions which still may or may not be subject of a further speculation.

Premise #4:
One other premise which I have found to be very popular nowadays is that an increase in the dealing leverage must automatically equate an increase in the risk assumed. A reputable online dictionary explains the word 'aggressive' - in one of its many forms - as 'of or relating to an investment or approach to investing that seeks above-average returns by taking above-average risks'.

I take that the popular conception is higher leverage automatically drives to higher risk. Nonetheless, I believe the player can be 'aggressive' in his or her speculations not necessarily by increasing the amount of risk assumed. It is the core essence of my trading approach which should put me in the position when and where that popular matching equation would not take place.

Premise #5:
For the majority of time, we all tend to look at the same chart pictures, same oscillators, and then employing variations of just the same century-old strategies and tactics. Still, we remain just one parabolic market away from losing it all.

So many traders wishing to become notable players are so totally absorbed into finding ways of how to win, while in my trading years I have been - and still am - more preoccupied about inventing a grail for how to lose.

Premise #6:
Seeing through the ways in which I build an observing interest, in financial markets operating on tight margin I believe trading all comes down to only a handful of moments. Moments when trends actually do turn on a dime. Dealing also when a whole series of criteria, risk- as well as potential reward-related, line up in a sequence of very high confidence. Playing by rules others than the ones generously advertised by the financial media or brokerage industry.

Being in the right place, at the right time, and with the right kind of exposure. Participating - seen as the exception, not the norm.

Are you your own worst enemy?

Expert: Robert Firestone, Analyst & CTA at Alaron

Topics to be covered during the session:

• Monitor your progress
• Honestly evaluate trading execution
• Techniques to reduce emotion

Summary:

The skills successful traders use are not particularly unique or difficult. All can be taught and learned, this has been proven over and over again. If that is the case what really separates traders who succeed and those who fail? Look in the mirror.

Learn simple techniques to reduce emotion from trading, honestly evaluate trading execution, and monitor your progress.

Who is Robert Firestone?
Robert is a broker with Alaron Trading. As a broker he has spent the last four years working with individual traders to improve their trading skills and strategies. Currently he teaches several classes a week for commoditytradingschool.com & sister site fxtradingschool.com covering topics from the basics to technical analysis and system trading.

Benefitting from Commodity FX Boom

Expert: Jes Black, Director of Research at FX Money Trends

Topics to be covered during the session:

• Addditional filters for optimal Commodity FX trading
• Selection and rationale of key commodity currencies
• Why commodity FX is currently attractive

Who is Jes Black?
Jes Black is the hedge fund manager at Black Flag Capital Partners and director of research at FxMoneyTrends.com, a forecasting service dedicated to professional traders. He is also the author of 'Currency Forecasting and Trading Methods', which will hit bookstores this summer.

Session Material:

The Big Picture: Commodity Prices

• Commodity prices adjusted for inflation reached all time lows in 2000.
• The currencies of the countries that produce these commodities also reached all time lows in 2000.
• You can still participate in the commodity boom by purchasing these key commodity currencies.

Inflation Adjusted Commodity Prices

Click on image to enlarge

Market Trends are Cyclical

• Since before the creation of the Federal Reserve there has been a cyclical phenomenon as the economy prefers financial assets to commodities and vice versa.
• Note that stock prices adjusted for commodities are still near all time highs and appear to be rolling over.
• This says four things:
  1) Inflation expectations should rise
  2) Deflation expectations should rise
  3) Currencies linked to financial assets should decline
  4) Currencies linked to commodities should rise

World’s Major Gold Producers

Click on image to enlarge

The Relationship of Oil and USD

• Oil is the most heavily traded commodity in the world.
• Oil is priced in dollars, so countries stockpile USD to purchase oil on the open market.
• A declining dollar will therefore increase the price of oil. But rising oil need not lead to a decline in the dollar.

Currencies that Benefit from Oil

• Our forecast from Barron’s in December 2005 said oil would rally from $30 to $60.
• The peak at $78 this year is not the top. A pullback to $55 is expected followed by a further rally to $80/$100.
• Certain currencies benefit from rising oil prices as demand for a product translates into demand for the currency: CAD, MXN, BRL

**** View All - Power Point Presentation ****
Download CommodityFX.pps

Confessions of a Forex Trader - Part V: Charting the Anomalous - The Harami

Expert: Mihai Nichisoiu, Private currency speculator at Mihai Nichisoiu

Topics to be covered during the session:

• Charts and psychology of the Harami
• The Harami: technical anomaly within solid establishment of trends
• Technical analysis in its purest form

Who is Mihai Nichisoiu?

Mihai Nichisoiu started to trade currencies first in the local futures market, then in early 2002 moved to dealing in the wide foreign exchange. Since the beginning of 2004, Mr. Nichisoiu has become mainly engaged in building a personal long-term track record in the sense of posting high rates of return only if at the expense of tight and rigid approaches of risk. Mr. Nichisoiu won the August 2005 edition of a popular global demo trading contest, after constantly achieving top rankings during an 11-month long participation.

As a currency speculator, Mr. Nichisoiu is also actively involved in managing and consulting a small number of long-term private connections.

FXstreet.com has been hosting a short, frequently updated market report signed by Mihai Nichisoiu eversince January 2004. Mr. Nichisoiu can be contacted via his recently established, personal website MihaiNichisoiu.com.

Session Material:

I look at markets of certain liquidity - including but not limited to currency markets - in ways which are almost purely technical. My effective participation in these markets, however, can be extremely rare and infrequent.

As I was suggesting in the introduction to my latest live appearance here, I manifest a strong interest for markets getting overextended. As a matter of fact, I always seek to find out whether a particular chart event could get 'out of hand', or has already started behaving in an overreacting manner. Stable situations never really appeal to me.

Indeed, I never make an attempt to adapting myself to stable, neutral situations. I feel so much better when conditions become overstretched to the point the market involved begins feeding on its own frenzy.

However, neither a constant interest for making market observations, nor the existence of overextending conditions do not automatically translate into the act of betting. It is not until I am spotting an 'anomalous' element in the otherwise solid establishment of a trend, that I may decide to bet against that trend.

I constantly monitor the markets (charts and the financial media altogether) in search for what I may call 'anomalies'.

I become even more interested when such 'anomalies' - once making themselves readable on charts - are fast in their developing as small, unassuming signs. Alongside the '2B bottom/top' reversals, the appearance of a 'harami' may as well qualify for shaping an 'anomaly' as within the framework described above.

While investigating and illustrating candlestick patterns, the legendary website StockCharts.com defines the 'harami' as follows: 'A two day pattern that has a small body day completely contained within the range of the previous body, and is the opposite color'.

According to Candlesticker.com, a bullish 'harami' pattern is 'characterized by a small white real body contained within a prior relatively long black real body', while a bearish 'harami' pattern is 'a two-candlestick pattern composed of a small black real body contained within a prior relatively long white real body.'

On the 'Western' side of chart pattern analysis, the 'harami' is known as the 'inside bar', which daCharts.com designates as 'a bar which is completely within the range of the preceding bar, i.e. it has a higher low and lower high than the bar immediately before it'.

There as well can be encountered slight variations of the 'harami' pattern - for example, what Far Eastern chart pattern analysis names the 'homing pigeon', or rather the 'harami' could represent the first ingredient in a far more complex chart pattern - for instance, in the 'three inside' candlestick formations, or the '2B' type of reversals.

A real case illustration of a 'harami' is the following snapshot of a weekly chart of the AUD/JPY, on which price behaviour associated with that particular pattern became apparent in June 2004 (copyright: NetDania.com).

CHART: file attached 'audjpy'

More or less recently, some of my most notable currency speculations coincided with the appearance of a 'harami'.

One of those experiences came last year in early October. At the time I was monitoring a steadily descending movement of the EUR/USD, that kept the pair's bears busy for the whole month of September. The pair fell from around 1.2600, to testing the round 1.19 on October 3rd - and I was already in search for speculating counter to that down movement.

The 'harami' of October 4th (daily chart wise) then provided me with a small sign suggesting the selling pressure might have come to a temporary exhaustion, and brought about a decent opportunity to buy in terms of reward versus risk.

The long EUR/USD position I took on October 4th had attached an extremely tight initial stop-loss order - its size was around 20 pips. Almost instantly after taking that long, a remarkable wave of buying erupted all of a sudden, taking the pair almost 300 pips north to testing 1.2200 in just 48 hours - and making my position display an interim ratio of reward / risk of around 15:1 within a remarkably short period of time.
Interestingly (but nonetheless essential to how I perceive very specific events unfolding at very specific times in highly liquid financial markets) - there was not a single economic or otherwise piece of news, major or minor, scheduled or eventually being wired on those two days of October 5th and 6th (following daily chart of the EUR/USD, copyright: NetDania.com).

CHART: file attached 'eurusd'

The day of February 3rd (of current year) presented me with a 'harami' in the EUR/JPY market (daily chart wise), and a decent opportunity to sell this JPY cross with, again, a very tight initial stop-loss (as measured in number of pips).

Just 5 days after the entry, my short position was closed out at an achieved ratio of reward / risk of 7:1 (following daily chart of the EUR/JPY, copyright: NetDania.com).

CHART: file attached 'eurjpy'

A similar 'harami' appearance (again, daily chart wise) could have been observed in another JPY cross, the CAD/JPY, on September 1st (of current year) - and which drove the pair instantly lower, and kept it on bearish grounds over the subsequent days (following daily chart of the CAD/JPY, copyright: NetDania.com).

CHART: file attached 'cadjpy'

One other recent example is the all the more interesting occurence of a 'harami' in the EUR/GBP market on May 18th (of current year).

At that time, during first half of May, I did have some observing interest (although not much) for the down movement that was slowly taking place in the EUR/GBP.

Then, on May 17th the EUR fell terribly versus both the GBP and the CHF. I checked some of the financial media, and it looked like the French Finance Minister had just talked down what particularly during those weeks was considered an un-wanted strengthening of the Euro. On that day, I was ending my daily letter to some private connections writing that although my generic interest for that period was to position myself in one of the main USD markets, actually the very next trading opportunity could surprisingly occur either in the EUR/GBP or a JPY cross.

In the light of that freefall the EUR/GBP saw on May 17th, alongside that French official's statement - well, the 'harami' that would shape the ensuing 24 hours appeared to me as an intriguing anomaly. It was not only that 'harami' gradually becoming apparent in the EUR/GBP (daily chart wise) that was seriously catching my attention - but another one of the Euro's crosses, the EUR/CHF, stamped its daily chart on that same day of May 18th with a '2B bottom' sort of reversal.

Instantly I knew it was time to buy, and buy aggressively. The result of my long EUR/GBP position taken on May 18th, although not spectacular in its raw measure of pips, did provide my model account with an welcome and reasonable capital gain (following daily chart of the EUR/GBP, copyright: NetDania.com).

CHART: file attached 'eurgbp'

I happen to know that many technical analysts across the board rate the 'harami' as rather a low-reliability signal of reversal.

That may indeed be correct on a general note, however there are two very personal premises that I could add to this 'reliability' issue.

Firstly, the chart position and timing of a certain technical sign (including but not limited to a 'harami') relative to the establishment of a trend that sign may be endangering are to me far more important than the signal itself.

The second premise relies on my constant search for unassuming signs, very small, very subtle - which to me has major risk implications once I decide stepping in betting.