Wednesday, May 20, 2009
Forex Economic Indicators
The execution of fundamental analysis in the Forex market is done through the use of economic indicators. These indicators point to the state of some economical factors in the country whose currency you wish to trade with.Economic indicators are published by various sections of the government and private companies. These statistics are analyzed by market investors to predict the direction of the Forex trading market. Forex economic indicators are published at fixed time intervals, and are followed by any serious online Forex trader.Since so many people are tuned to use them, Forex economic indicators have a large impact on prices of currencies of the Forex trading market. Most traders do not use fundamental analysis because economic indicators seem difficult. This however is wrong because following simple guides can help you stay updated with the important Forex economic indicators easily
Starting to use Forex economic indicators
To get started, you should first keep a log of all the important Forex economic indicators' release dates. Keep a log or make a subscription to one of the economic journals, so you'll know the most important factors of that time. If you are trading in JPY, the Forex economic indicators need to be relevant to the currency type, of course.Each economic indicator tells you about a different aspect of the economy, and this should be translated in turn into the predicted movement of the currency price. Make sure you understand which aspect the indicator is about. For example, know that the GDP measures the growth of the economy while the PPI measures inflation. Don't worry, with some experience this will come naturally
The Big Ben strategy
Big Ben is a currency-specific trading strategy designed to capture the first directional intraday move that often occurs within the first few hours after the Frankfurt/London market openings, which begin at approximately 1 a.m. ET. The strategy works best with the British pound/U.S. dollar (GBP/USD) rate.Because this currency rate trades lightly outside of London trading hours, the surge in trading every morning in the U.K. gives it a “Å“real” market opening, which the strategy looks to exploit. Figure 1 shows pound/dollar trading is virtually nonexistent during Asian trading hours. When London opens, however, the pound/dollar accounts for nearly one-quarter of all forex trading. Currency rates with more continuous, 24-hour trading will have less of a distinct open/close as they pass through the different money
Cut Your Losses and Let Your Profits
Did you know that many successful traders win less than 50% of their trades? Yes, top traders know that they can be VERY successful winning only 40% of the time.
How can that be?¡± you ask. Simple, really. They are truly following the old adage of ¡°Cut Your Losses and Let Your Profits Run. Let's see how this might actually work.
Suppose you had a stock pick, and it hit your stop loss at 98% of your entry price, which gives you a loss. You pick another stock, and again, it hits your stop loss, for another 2% ding to your account. Third time¡¯s the charm, and your stock pick gains 15% before falling back and triggering your trailing stop at 10% above your entry price. In other words, you made 10%.
In this example, you had two losers and one winner for a win/loss percentage of 33%, yet you are ahead by about 6%. You let your profits run and cut your losses short.
It is not easy having more losers than winners, because you can easily find yourself with 5, 10 or even a string of 20 losses in a row. But those numbers are deceptive, because each loss will be fairly small.
Think of it in terms of baseball. A player can have only a fair lifetime batting average and still be a great player if he hits a home run when he finally does connect with the ball.
It takes confidence in yourself as a trader to work a stock trading system that only wins less than half the time. It¡¯s not easy to be wrong most of the time. But that is why the market rewards such a strategy so highly, if it is done right.
In other words, don¡¯t dismiss a system out of hand because it has more losers than winners. As long as the average win is significantly larger than the average loss, you can be very successful with such a system in the long run.
So keep this in mind as you are searching around for the right strategy for you. Many small losses and a few big winners can be much more profitable then a lot of little winners and a few large losses that take it all back and then some.
How can that be?¡± you ask. Simple, really. They are truly following the old adage of ¡°Cut Your Losses and Let Your Profits Run. Let's see how this might actually work.
Suppose you had a stock pick, and it hit your stop loss at 98% of your entry price, which gives you a loss. You pick another stock, and again, it hits your stop loss, for another 2% ding to your account. Third time¡¯s the charm, and your stock pick gains 15% before falling back and triggering your trailing stop at 10% above your entry price. In other words, you made 10%.
In this example, you had two losers and one winner for a win/loss percentage of 33%, yet you are ahead by about 6%. You let your profits run and cut your losses short.
It is not easy having more losers than winners, because you can easily find yourself with 5, 10 or even a string of 20 losses in a row. But those numbers are deceptive, because each loss will be fairly small.
Think of it in terms of baseball. A player can have only a fair lifetime batting average and still be a great player if he hits a home run when he finally does connect with the ball.
It takes confidence in yourself as a trader to work a stock trading system that only wins less than half the time. It¡¯s not easy to be wrong most of the time. But that is why the market rewards such a strategy so highly, if it is done right.
In other words, don¡¯t dismiss a system out of hand because it has more losers than winners. As long as the average win is significantly larger than the average loss, you can be very successful with such a system in the long run.
So keep this in mind as you are searching around for the right strategy for you. Many small losses and a few big winners can be much more profitable then a lot of little winners and a few large losses that take it all back and then some.
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