Fundamental analysis

Fundamental analysis applied to forex focuses on the overall state of the economy, interest rates, production, earnings etc. 

It sounds scientific and intelligent but... for a Joe Public trader the direct causality remains blurry even if he understands the simple mechanism of the economy. 

Even if you know for instance that a decrease of interest rate devaluate the currency as it makes the investment in that currency due to small interest rate less attractive, that will not help you very much. You will for example still not know if this expected interest rate decrease - that is going to be anounced soon by a national bank - has been already taken account of by the market. In this case that would result most probably in no great price change.  

So in case you cannot come up with a solid forecast by yourself, you will be tempted to listen to the opinion of an expert. But even that does not solve the problem. We have a forex forecast that suggests a causality of an event, e.g.: "Greek debt talks are going to break down" - this will, referred to the opinion of experts, result in a decrease of the EUR. But then the debt in deed talks break down, nontheles nothing happens, unfortunately: EURUSD stagnates. You ask yourself: why is that? The retrospective explanation for the stagnation despite the fruitless debt talks will sound plausible - especially retrospectively. So you learn that the opposite outcome (EUR stagnates) was possible as well, and it occurred.
What I try to explain is, that fundamental analysis can't always show you the future direction of the currency, but nevertheless it can be useful. Take the catastrophy in Fukushima. I claim that Fukushima could have two diferent outcomes for Japanese Yen (although the outcome we had is completely plausible), but then it happened that Yen revaluated. The catastrophy had a huge impact on the forex market and the trend lasted few days. Therefore it was not necessary to predict in the first minutes of Fukushima what this event will do in the forex market, but just observe what is going to happen in the first hours and act appropriately - according to the trend.
I would like to point out, that I do not wait for catastrophies to earn money on them and I am sorry that they happend, but I bear in mind that when they happen, they rock the market.

the right forex broker (part III)

This time I would like to say something about etoro.
I really cannot understand people, who have great confidence in  etoro and recommend it . Let's take a brief look at a pseudo-reports and reviews about  etoro: http://thebestforexbrokers.com/etoro-review. Can advertising be more obvious?!
Mini account, low spreads, instant execution of orders, good education and leverage - and that's it? That makes  etoro  the best?! 
Yeah, yeah. 
The things listed above should be and are usually basics. Every normal broker offers them to their clientel. 
I don't want to say that  etoro  is crap. But, I would like to say, that it is a good marketing machine. Pseudo-bonus here (to get the bonus paid out you have to show some persistence), a challenge with some small prizes there... 
Hmm, to me, etoro  is more a social community like Facebook or Twitter than a real broker. 
For of analysis a trader needs a good software. And  etoro  definately does not have it. The whole interface looks like a page from a comic book. When I trade, the last thing I need is a childish background. 
 etoro never would be my first choice, neither my second nor third...

to be continued...

The right broker (part II)

People who know betfair (world's largest Internet betting exchange) might have heard of tradefair as well. But  tradefair  will very likely never ever reach the popularity of betfair and that for different reasons.


Tradefair offers a very generous bonus: 100 EUR respectively GBP depending of your country of origin. The bonus is really easy to get, the costumer service is fast and usually in different languages, the spreads are really fair and the rollover does not hurt that much. 


But the trading software... You are not able to trade with less than a standard lot (100'000), which means that you will need a great capital stock. If you start with 1'000 EUR seed money opening just one position with stop-loss of 100 pips, that will  put on risk 10% of your funds. 10% - there is no strategy with 10% value at risk for one position.

Besides that, the software of tradefair reminds me very much of a roulette table in a online casion. The software seems to be made for gambling: all these colours (a pink button for going "short" and a violet button for going "long") makes me feel not being taken seriously. Trading is much about making precise analysis and not pressing a button A or B like a monkey. But somehow that is exactly what this software wants me to do: to gamble. In deed, the software has it's indicators and trading tools, but that what it offers is not enough for professional or semi-professional traders as well as for people who have that entitlement.


to be continued...


see also The right forex broker part I

Are traders addicts?

I still remember very well those sunny afternoons with plenty of free time, no tasks... and the awful need to stay at home and stare at the pc sreen for hours, watching the course go up or down - but always in the direction I did not want it to go... 
The more you lose, the hopeless your situation is the more you are comitted to the forex market and the computer screen. You can't move, can't let go, you start to get angry, open new positions in defiance to the injustice that is happening to you now. 
Forex trading can ruin your life. It can't affect your mind, your habits and of course you financial situation in a very negative way. It happens, that after trading daily for a while, you are not able to concentrate on anything else. You feel the need to go and check on stock prices every fifteen minutes... can't read a book or listen people carefully - you are always distracted. And you stop appreciating things you used to like before, forget about your hobbies etc. 
The potencial of addiction in forex trading is enormous. But it all can go well. If you want it to go well, you need strict rules, somebody who looks over your shoulder, a solid social life, things in life you like to do and never would give up and no pressure - forex trading should never ever be a question of life and death! 
But that is not all: First of all everyone who steps into that business should have clear and humble expectations and should be able to say "no" and "it is enough!" Can you do that? 
And can you judge yourself fair? Can you be honest to you? Do you see signs of addiction when they occur?


A Self-Assessment for Trading Addiction

The right forex broker (part I)

When the time has come to choose the right forex broker there are some criterias you should pay attention to.
On the internet there are lot of websites who compare online forex brokers. For example: bestonlineforexbrokers.com


Please, do not get fooled by any promotion or bonus. Usually these "gifts" are bound to some conditions, which makes going for that bonus rather not recommendable. And besides a good and experienced trader does not choose his broker due to bonus, but due to money guarantee, speads, swaps, software etc.


When I was young and unexperienced I gave a shot at plus500. The good thing about plus500 is that I could withdraw my money easily - and that they offer a great choice of currencies, stocks etc. The pros so far. 


The cons: They charge toooo much for overnight positions (rollover) and the "free bonus - no deposit required" is a... joke. For getting 25 Euros cashed out you have to trade 50 mini lots. But the bonus thing is not crucial, important is - at least for the longterm traders - the overnight premium/commission. Example: For EUR/USD the rollover is 0.018% which means, that if you have an open position of 10'000 USD, you will have to pay 1.8 USD each and every night, which is definately almost 2 pips!


To be continued...

Stop Loss Order? Why!

Those who regularly observe the forex market witness from time to time a certain price indecisiveness. This is when the price of a currency pair e. g. is used to go up and down for a period of time and is used to hit a certain price level numerous times. In this situation some people might think: Technically speaking trading is very simple. It's not about buying or selling at the right time, it is all about waiting! Waiting - until the trade runs into the profit zone! And one day it certainliy will - they believe.

The funny thing is that it might work a few times – especially when the market goes throught quiet times. But when something big happens once, something that effects the markets in a heavy way, then forex trading without stop loss is technically speaking suicidal. No one should underestimate trends or overestimate his own resources.

If you had bought GBP/CHF in May 2011, you probably – even with a great money stock respectively with only a small number of open positions – would have run out of money at the end of July - the latest. The downward trend of GBP/CHF was spectacular: from 1.65 in May to 1.18 in September! 

So the most important thing to learn from that experience, some poor and stupid people could have made, is... being patient is all right, but being stubborn is not recommendable. So do not let making the wrong trade eat all your money. Set tight stop loss order due to resistance respectively support levels (technical analysis). So if you are wrong and starting to be in the red - that wrong decision won't cost you that much, even if it still will hurt as hell. The good thing about stop loss is that you get the feedback very soon and, more important, you learn to accept losses!

For most people it seems to be a easy lesson to learn: invest only money you can afford to lose. But the lesson with a stop loss order seems to be a hard one. A single trade mustn't hurt you. If you lose a trade, it should not break your financial neck. Not even a series of losses should bring you close to a margin call. And do not believe that you will have enough discipline to wait for a trade to run into the profit zone when it is around 700 pips in minus. This will ruin many of your days until you resign.

Yes, it is right that you should make the forex trading and each single trade matter to you. And that is why I never would start trading with less than 1- or 2 thousand EUR – only if I were highly bored in my life. That is because little money does not matter that much, especially concerning forex trading where dreams are bigger than anywhere else and because with small money you are tempted to accept more easily its loss! And secondly I never would let one trade that runs  in the wrong direction for weeks, take away the fun in my life. Accept the loss!

One, only one

I admire people who open twenty or more trading positions. If everything goes well, they can potentially make a great profit. If not, well then not... 
The basic rules for long living and profitable trading are simple: 

• Do not risk too much per trade (less than 2% of your money)
• Do not trade too many different currencies, indices, stocks etc. - at least not in the beginning of your trading career.

If you trade only one currency pair e.g. EUR/USD sooner or later you'll get very familiar with the dynimics of that currency pair and will be able to understand what has e.g. a periodical effect on it. You'll know the volatility range on a ordinary day. You will be able as well to better predict what will happen to your currency pair when a war breaks out, economical crises occur (global news) etc.


It is like in real life. If you know something well, you'll know how to master it, will be able to get the most out of it and will  more likely be able to rely on your intuition when this is necessary.  
It is understood that with one currency pair the trading opportunities will be limited, but it is not necessarily a disadvantage. 
So, focus on something and do not waste your energy trying to master many other things at the same time! Better having one happy wife, than five instable funny relationships.

Forex: What is a demo account good for?

Every serious and less serious online broker offers you a demo account where you can safely try trading. It is a nice thing to learn the basics about trading but there are far better possibilities to do that. 
While trading in the demo modus you'll never be able to discover what it feels like when you risk your own money. The stress, the pain, the irrational reactions!
Something that is related to trading with real money is trying to be a signal seller. There are different broker like eToro or different trading signal provider who look for successful traders which in return can earn money by selling their signals to investors. These investors become followers of the top traders and copy their trades paying the top traders a small precentage of their profit or a part of the spread. 


How this exactly work you can read on the particular homepages. Here are some good websites for signal providing

• Ayondo
• Zulutrade

Now you might ask me, how can I as a beginner find people who will copy my trades?! To be honest, in the beginning you will probably not be very  successful with that. But that is not the point. What really matters is that you will learn trading under very competitive circumstances (another people will try to perform well and sell their signals) but without risking your money. If you do well for instance, possible investors will pay attention to you, this will increase the pressure on you and you will find yourself exactly in the situation, in which you will be in, when you sweat and fight for your own money. And if it goes bad and you have a bad performance as a signal provider, you can always start again, without having lost any cent. Because trying to be a signal seller is for free. 

Patience

Day trading can be very exausting and time-consuming! Day trading is all about the right timing. And what sense does it make, when you are tied to your computer and your desk and can't leave the room?! Only a small minority wants to become a professional trader, most people just want to earn little extra money. So the best and healthiest trading is when you trade on special occasions.
In 2011 the stock market was mostly news-driven: Debt crisis, Greece, Italy, Spain, U.S. recession, SNB's intervention, Fukushima... And the markets were very volatile. There wery some good opportunities.


The right strategy for a part time trader is all about being patient and waiting for the long-term trend to make a u-turn. Let's take the German Market Index. Now on December 30th, 2012 the DAX stands at around 5'900 points. We should not forget its 52 week high in Summer at 7'600 and its 52 week low at around 5'000 points in September. The low espacially was a result of the european debt crisis and happened within few weeks! So it was not surprising that there were few good and long pullbacks and the certainty that this down trend would end at one characteristic resistence level.
A good once-in-a-while trader is not in a hurry does not necessarily have to make a living and therefore will wait for a record low or a high (of a certain index, currency or stock) which even the boulevard press would write about. With every new high or low record the chance for a trend change rises. But that logical thinking and the instincts are only one part of that successfull trading the other one is and remains the technical analysis. Never forget the resistence and supportive levels etc. Taking the technical analysis into account it is very likely to find an appropriate market entry than when the index or any stock is in the middle of nowhere. Consolidation phase in the forex market after a catastrophe or long rally can be considered as a good possible time for entry.
So it is advisable to trade (big) only in times after something big and extraordinary happened in the world.
After a financial catastrophy or incredible rally the financial world is shocked/careless for a moment but it will recover/fall after a while.

Do you really want to become a day trader?

I have heard of a friend's friend who earned more than 5'000 Euros on one single day! By trading EUR/USD. Impressive, isn't it?!
What this friend of a friend did not tell was what he did lose the day before and what his trading performance was that same month and year. Talking about forex trading people usually keep their loss a secret.
The same goes for the time and work invested. For how long do trader stare at the computer screens and are nontheless confronted with a loss at the end of the day. Not to mention the stress they have to deal.
I also heard of people who have small trading accounts between 200 and 300 euros and are proud of having made 60 euros within a months or so. Ignoring the sweat, pain and the magin calls of past times! Forgetting that with that money amount one can't get so far. And the funniest thing is when the start to calculate: 60 euros profit make a rate of return of between 20 and 30%. So they think, if I had invested 5'000, I would have had 6'000 now! Yes, in theory and dreams anything is possible!


So that's what I think of when I deposit money into an account of a forex broker. Forex Trading is no fun especially when you trade with your own cash. But don't worry there are in face ways you can have fun with forex without getting hooked on that or lose the quality of your life. 
But please, there is no need to rush, let's go step by step...