hr: Currency

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Generally, there are three types of forex trading timeframes:

• Long-term;
• short-term or swing; and
• intraday or day-trading.

So which one is the best? There is no best timeframe. It really depends on you and the type of personality that you have.

The long-term timeframe

Long-term traders usually would prefer daily and weekly charts, since these charts establish longer term, allowing them ample time to “catch their breath.”
In this type of trading, we are usually talking about Trades usually talk about timeframes that span from a few weeks to several months or even years!

Advantages of long-term timeframe: the main advantage of this timeframe is you need not watch markets intraday. The fewer number of transactions means that there are less paying of spreads.

Disadvantages:

On the downside, this timeframe is characterized by large swings, requiring large stops. Generally there are only one to a couple of good trades in a year. This timeframe requires a lot of patience. Also, a larger account is required to get on longer term swings plus frequent losing months.

The short-term timeframe

In this type of trading traders usually utilize hourly timeframes, with trades held from many hours to about a week.

Advantages:
A notable advantage of this type of trading is that there are more opportunities for trades, with a less likelihood of losing months. This trading method is also characterized by less reliance on one or a couple of yearly trades.
Disadvantages:

The disadvantage of this type of trading is that there will be higher transaction costs, meaning more spreads to pay, plus the added factor of overnight risk.

Intraday timeframe

This timeframe is characterized by the use of minute charts such as one of five-minute charts. These trades as the name implies are made intraday and exited by market close.

Advantages:
For those who prefer this trading timeframe, there are plenty of trading opportunities coupled with less chance of losing months. Here, overnight risks are virtually non-existent.

Disadvantages:
Just like all other trading systems, this too has its disadvantages. Usually the costs for transactions will be much higher, since you need to pay more spreads. This is also pretty taxing mentally, since the frequency of trading makes it more difficult. Profits are limited by the need to exit at the trading day’s end.

Remember, there is no right or wrong timeframe. It all depends on you.

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A lot of traders aren’t doing too well simply because they have chosen the wrong trading timeframe. So what then is the right timeframe? Well it depends on your personality. If you’re new to currency or forex trading, your tendency would be to make big bucks quick and so you start trading small timeframes, say the one or five minute charts. However, this isn’t always the best approach, since you may have traded the wrong timeframe for your personality.

So, the best way for you to find out which timeframe suits you best is to take it easy at first. Experiment a bit without taking a lot of risk. Try and see if you’re comfortable trading the one hour charts. You will notice that this timeframe is longer, and might suit you just fine and without the feeling that you’re being rushed.

There are people, on the other hand, who find the one hour timeframe too long and too slow. They could never trade that way since they would become very impatient. Traders of this type would be better off trading a ten minute chart, which, because of their personality, allow them mple time to make correct decisions based on their trading plan.

On the other extreme, a world renowned buisnessman and philantrophist by the name of Warren Buffet, wouldn’t understand at all how he can trade a one hour chart. For him this timeframe is too fast. He prefers to trade only daily, weekly, and monthly charts.

To come right to the point, the right timeframe for you depends entirely on your personality. If you’re comfortable with the timeframe you’re trading, then that’s the right timeframe for you.

Don’t think just because you’re nervous, feeling somewhat pressured rfrustrated that you’re trading the wrong timeframe. The reason you’re feeling pressured could be because you are trading real money, and so it’s normal for anyone to feel that way. However, if the reason you feel pressured shouldn’t be because you think things are happening too fast, then you’re trading the wrong timeframe, which will make it difficult for you to make the right decisions.

In the end it’s you alone who can determine what the correct timeframe should be.

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What is every currency trader’s purpose in devising a forex trading system? You might be thinking of an answer that’s very obvious: to make billions of dollars. While no one will argue against having that kind of goal, it’s not going to help you become a successful forex of currency trader.

The reason why you’re creating a trading system is because you want to achieve a couple of very important goals:

• To detect trends as early as possible; and
• to protect you from whipsaws.

If with the aid of your trading system you were able to accomplish both things mentioned above, you will become a successful trader.

 
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What’s difficult about those above-mentioned goals is that they tend to contradict each other. If the main purpose of your trading system is to detect trends early, then you will most likely get a lot of false alarms.

On the other hand, if your system’s main purpose is to avoid whipsaws, then you will most certainly miss a lot of trading opportunities, since your system will be slow to react to trends.

When developing your system, what you need to is balance both of your goals – find a compromise. This way, you will be able to detect trends early, and at the same time you will be able to distinguish the fake from the real signals.

If your system is well balanced and configured as regards your trading goals, then your trading system will help you make a lot of money.

Happy trading!

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Should you buy a ready-made trading system, or should you just make your own? A lot of people claim to know all there is about forex trading systems. And for only a few thousand dollars they offer you the ultimate trading system.

These systems, so they claim, can in a week’s time supposedly generate thousands of pips and never lose. They will even show you the “results” of their perfect system. However, before you go ahead and give him your money in exchange for that “perfect” trading system, slow down; think. While a lot of trading systems like these do in fact work, the problem is that a lot of traders do not have the discipline to follow the rules necessary to make the system work.

Another thing is that instead of acquiring a ready-made system for thousands of dollars, you can create your own system and save the money you were going to use to buy a trading system as capital for your trading account.

Lastly, creating your own system isn’t difficult. What is difficult is following the rules that you’ve created with your system.

There are countless articles that sell systems, but there are hardly any that teaches you how to make your own.

So, when faced with a dilemma whether or not to purchase a ready-made trading system, stop and ask yourself: Will this system work for me? Can I religiously follow the rules set up by the system? If your answer is no, you are much better off devising your own trading system - one that is tailored to your trading style and needs.

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You’re probably familiar with all the available indices, such as the Dow Jones Industrial Average (DJIA), if you have traded stocks. In the same manner and for a similar reason, the US dollar does have an index too. Currency traders have the US Dollar Index (USDX).

The US Dollar Index has as its essential component, a geometric weighted average of a basket of foreign currencies versus the US dollar.

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The USDX works in a very similar way as stock indices in the sense that it provides a general indication of the basket of securities or major world currencies in the case of forex trading.

These major world currencies we’re talking about are:

• Euro (EUR)
• Yen (JPY
• Cable (GBP)
• Loonie (CAD)
• Kronas (SEK)
• Francs (CHF).

The USDX is composed of 6 currencies that involve 17 countries, since there are 12 member countries of the European Union with the addition of Japan, Canada, Great Britain, Switzerland and Sweden.

Although the 17 countries are just a small part of the world, there are, however, a lot of other currencies that very closely follow the US Dollar index. For these reasons, the USDX therefore is an excellent tool for measuring the global strength of the US dollar.

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The key to making money in trading is having the ability of predicting what the next move is in the market. However, this is easier said than done.

Veteran forex traders have long known that if one were to become a successful trader of currencies, he or she should look beyond the world of forex, because currencies are moved by a lot of factors. These factors include supply and demand, politics, interest rates, economic growth, etc.

Economic growth and exports are both directly related to the domestic industry of any country. Therefore it is but natural for these currencies to be closely correlated with the commodity prices. There are three major currencies that are closely linked with commodities: the Australian dollar (AUD), the Canadian dollar (CAD) and the New Zealand dollar (NZD).

Other currencies, such as the Japanses yen (JPY) and the Swiss franc, are also affected by commodity prices, but overall possess a weaker correlation, are the Swiss franc (CHF) and the Japanese yen (JPY). Knowing which and why a currency is correlated with a particular commodity can help traders understand and predict certain movements in the market.

If you think commodity currencies trading is for you, it is best to always keep an eye on oil and gold market movements while the other eye should be glued on the currency market - look how quickly the market responds.

Because there will always be a slightly delayed impact of these movements on the currency market, this usually offers an opportunity to plan a broader movement in the commodity market as against the currency market. The thing is, as a currency trader, it is a great advantage to be well informed about commodity prices and how they affect the movement of currencies.

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Any commodity trader, especially seasoned ones, may find it worthwhile look at currency trading as an alternative to trading commodities.

Why is this so? In general oil, gold and currency have similar outlooks - a surge in one usually also means a surge in the others. Also, traders may an also earn interest if they happen to be on 2 percent or higher margin.

When you trade currencies, you should take interest rates into consideration. To cite an example, a trader who was long CAD/JPY would be able to make nice gains plus up to 3 percent earnings in interest income. The 3 percent estimate comes from Canada’s central bank rate, which is the amount earned, and deducting the 0% rates paid for shorting the Japanese yen.

These rates are unleveraged, meaning that with 10 times leverage, net of any exchange rate changes, there would be that much higher interest income. Please note that leverage will also render the trade riskier - something you should always remember when trading forex.

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Let’s face it - one of the one of the world’s basic necessities is oil. In developed countries, most, if not all, of the people cannot live without it. The rise in oil prices has brought a big boost to oil producers’ pocketbooks. On the other hand, oil consumers have had to pinch pennies and tighten their belts.

Canada as you know is a net oil exporter, in fact it is the 9th largest crude oil producer in the world, and has benefited the most from the oil rally, while Japan, which is a big time oil importer, suffered the most.

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Canada continues to climb up the oil producers’ list, with the steady increase in oil sands production. Did you know that in 2000 Canada even surpassed Saudi Arabia as the most significant oil supplier to the United States?

What isn’t known to many is that the size of the Canadian oil reserve is second only to Saudi Arabia.

The United States and Canada’s geographical proximity coupled with the growing political tension in the Middle East and South America, renders Canada as among the United State’s important source of oil.

However, Canada’s vast oil resources is getting a lot of attention from China, especially after Canada stumbled upon a new oil stash following a reclassification of its Alberta oil sands to the “economically recoverable” category.

This is the reason why the Canadian dollar has become one of the currencies that will benefit the most from an ongoing oil price surge.

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In order to understand why the Japanese currency behaves as it does today we need to take a look at how it reacts to certain market conditions.

Japan is known as an exporting economy, but the country actually exports 99 percent of its oil. This is because Japan lacks domestic energy sources and needs to import a huge amount of oil, natural gas as well as other sources of energy.

In this connection, Japan is particularly vulnerable to changes in oil prices. Japan does not have the flexibility to use other sources of energy such as nuclear power because it also imports a huge amount of uranium for its nuclear power plants.

In the year 2003, Japan’s energy imports soared to 79 percent, with oil supplying 50 percent, coal 17 percent, nuclear power 14 percent, natural gas 14 percent, hydroelectric power 4 percent, and renewable resources at 1.1 percent.

That is why when oil prices surge, the Japanese economy would suffer.

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Between forex markets, there are technical differences in the manner currencies are being quoted. Foreign exchange is always quoted versus the US dollar in forwards or futures markets. Here, the pricing is done according to how much in terms of US dollars is required to buy a unit of the other currency.

In the spot market, however, there are currencies that are quoted versus the US currency, while in others, the US currency is the one being quoted against them. For these reasons, the forwards-futures market and the spot market will not in all cases be parallel to each other.

In the spot market’s case, the British pound is quoted versus the US currency as GBP/USD. This is how the pair would also be quoted in the forwards and futures markets. So, when the British pound gains versus the US currency in the spot market, the pound will also be gaining against the dollar in the forwards and futures markets.

Usually, in the case of the US dollar and the Japanese yen, the dollar would be quoted versus the yen, so that in the spot market the pair would be quoted as USD/JPY.

In the spot if the quote is 115, this means that on US dollar would buy 115 Japanese yen. In the futures market, however, the quote would be (1/115). This means that a Japanese yen will buy .0087 US dollars. Therefore if the spot rate for USD/JPY would increase, this would certainly mean a decline in the value of the Japanese yen because of the surge of the US currency resulting in the Japanese yen buying less US dollars.

On the other hand, when looking at the exchange rate for the U.S. dollar and the Japanese yen, the former is quoted against the latter. In the spot market, the quote would be 115 for example, which means that one U.S. dollar would buy 115 Japanese yen. In the futures market, it would be quoted as (1/115) or .0087, which means that 1 Japanese yen would buy .0087 U.S. dollars. As such, a rise in the USD/JPY spot rate would equate to a decline in the JPY futures rate because the U.S. dollar would have strengthened against the Japanese yen and therefore one Japanese yen would buy less U.S. dollars.