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2011-01-19T09:30:00.000-08:00

Forex: U.S. Dollar Weakness Persists, British Pound At Risk For Reversal

By David Song, Currency Analyst
19 January 2011 13:30 GMT
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Talking Points

* Japanese Yen: Mixed Against Majors
* British Pound: Jobless Claims Weaken For Third Month
* Euro: Portugal Sells EUR 750B in 12-Month Bills
* U.S. Dollar: Housing Starts Slump, Building Permits Surge Higher

The U.S. dollar continued to lose ground against its major counterparts on Wednesday, and the greenback may continue to push lower during the North American trade as the economic docket reinforces a weakened outlook for future growth. The EUR/USD extended the advance from earlier this week to reach a fresh monthly high of 1.3524, but we may see a corrective retracement unfold over the next 24 hours of trading as price action struggles to hold above the 50.0% Fibonacci retracement from the 2009 high to the 2010 low around 1.3500. In turn, the euro-dollar may consolidate going into the end of the week, and the pair may trend sideways ahead of the EU Summit in February as investors weigh the prospects for future policy.

Nevertheless, Portugal auctioned EUR 750B in 12-month bills yielding 4.029%, which compares with the 5.281% offered back in December, and the drop in borrowing costs should help to curb the risk for contagion as European policy makers take unprecedented steps to manage their public finances. However, as the region faces an uneven recovery, the uncertainties surrounding the economic outlook may continue to bear down on the exchange, and the European Central Bank could be forced to delay its exit strategy further as it aims to encourage a sustainable recovery. As European policy makers maintain a lackadaisical approach in addressing the sovereign debt crisis, the euro remains at risk of facing additional headwinds over the coming months,

The British Pound advanced to a high of 1.6036 as the economic docket reinforced an improved outlook for the U.K. economy, and the exchange rate may continue to push higher over the near-term as the recovery gathers pace. Claims for unemployment benefits unexpectedly slipped 4.1K in December amid forecasts for a flat reading, while the claimant count rate held at 4.5% for the seventh consecutive month. As growth and inflation accelerates, the British Pound may continue to retrace the decline from back in November, and the Bank of England may see scope to start normalizing monetary policy later this year as interest rate expectations gather pace. However, the recent rally may taper off over the coming days as the relative strength index approaches overbought territory, and we should see a small reversal in the exchange rate as long as the RSI holds below 70.

As market participants diversify away from the greenback, the U.S. dollar may continue to selloff going into the North American trade, and the recent weakness underlying the reserve currency may carry into February as the fundamental outlook remains clouded with uncertainty. Housing starts in the world’s largest economy slipped 4.3% in December to an annualized pace of 529K amid forecasts for a 0.9% decline, while building permits jumped 16.7% to 635K to mark the biggest advance since June 2008. As the region copes with a depressed housing market, the Fed is widely expected to support the real economy over the medium-term, and the central bank may see scope to expand monetary policy further as growth and inflation remains subdued.

2008-01-13T00:44:00.000-08:00

10 Steps

1) Knowledge Acquisition Great traders are voracious learners. Most professional occupations have a learning curve. Doctors, lawyers, criminals, etc.. often study years to refine their craft. Novice traders often believe they are immune to such time intensive studies. Don't fall prey to such ignorance - study the markets, put in serious chart time, read and learn from those that are winning.
2) Money Management This one is simple. Trading more then 2-5% of your account on any one trade is account suicide. Let's assume you start out trading a $1000.00 mini-account. Your system has a 30 pip stop loss. The maximum you should risk on any one trade is a dollar per pip. The market will forgive a lot of things - bad trades, bad days even bad weeks but without the capital to withstand the drawdown your trading career with be short lived.
3) Simplistic Strategy Have you ever noticed Forex scam sites often provide a unique system that only they have? Additionally - these systems are only known by a hand full of successful traders. Your system should do just the opposite. I use pivot points, psychological levels and trend line breaks because large institutions follow these levels. As a retail trader your goal should be to pick up the pennies in front of the steam rollers. Keep Occam in mind when adopting any trading system. Leave the over complicated systems to the guys at Long Term Capital.
4) Trade During Prime Time One of the biggest benefits of the currency markets is its hours. It's open 24 hours a day 5 days a week. This is great for trend analysis but not for trading. Don't let these extended hours fool you. Only the biggest players trade during the prime hours... so should you. Keep in mind that only 14% of all trades occur outside of non-financial institutions. That's where the retail trader lives. Since we only trade the EURUSD we only trade between 2:00am and 11:00am EST. This time period covers the European open and close, the open of the US session and the overlap between the US session and the European session.
5) Follow Your Trade Plan You don't know where the market is headed. Don't guess. Hope isn't a strategy. Once you adopt a trading strategy that fits your trading style stick to it. Leave your ego at the door when you begin your trading day. This is one of the most difficult things to overcome. The old adage plan your trade and trade your plan is very important. When you trade outside your plan you will lose.
6) Double Your Demo Account Almost every Forex trading platform offers demo accounts. When you can double your demo account you are ready to trade real capital. Additionally - after your double your demo account trade the first few months of you real capital using micro-lots where each pip equals a small dollar amount. This will help ease the emotional impact of trading real capital.
7) Trade with the Trend All those little axiom's about the trend exist for a reason - the trend is your friend... trade with the trend until it bends... trade the trend or lose in the end - you get the idea. These exist for a reason. They are true. Use long term trend analysis to determine market direction. When you trade with the trend your chances of success are greatly enhanced.
8) Set Realistic Expectation What's realistic? If you can return 5-8% a month you are doing great. While this may seem like a relatively small goal very few traders can achieve this month after month. If you set unrealistic goals - say 20% a month you better be sitting beside John Arnold because that's about the only way your going to see that kind of return.
9) Post Trade Analysis When the trading day is over take a few minutes to analyze what happened. Did you follow your trading plan? Was your analysis accurate? Why? Why not? At the end of the week spend some quality time looking over the trades you placed during the previous week. How many trades did you take? Are you over trading? Many traders find it advantageous to keep a journal of their trades and their thought process for taking or not taking the trade. In a very short time you will see patterns emerge that will aide you in fine tuning your trading.
10) Predetermined Profit Targets and Stops Setting your stop loss is a must. Intra-day traders usually use a 20-40 pip stop. After you've adopted a system and spent hours watching the chart you will know where your stop should be. Once you've settled in on a stop never move it. One more time - never move your stop! Remember that capital accumulation is secondary to capital preservation. On the other side of the equation set profit targets prior to entering your trade. Utilizing pivot points will always provide you with realistic profit targets.

2008-01-13T00:42:00.000-08:00

The 5 Steps to becoming a trader

Step One: Unconscious Incompetence.

This is the first step you take when starting to look into trading. you know that its a good way of making money because you've heard so many things about it and heard of so many millionaires. Unfortunately, just like when you first desire to drive a car you think it will be easy - after all, how hard can it be? Price either moves up or down - what's the big secret to that then - lets get cracking!

Unfortunately, just as when you first take your place in front of a steering wheel you find very quickly that you haven't got the first clue about what you're trying to do. You take lots of trades and lots of risks. When you enter a trade it turns against you so you reverse and it turns again .. and again, and again.

You may have initial success, and thats even worse - cos it tells your brain that this really is simple and you start to risk more money.

You try to turn around your losses by doubling up every time you trade. Sometimes you'll get away with it but more often than not you will come away scathed and bruised You are totally oblivious to your incompetence at trading.

This step can last for a week or two of trading but the market is usually swift and you move onth the next stage.

Step Two - Conscious Incompetence

Step two is where you realise that there is more work involved in trading and that you might actually have to work a few things out. You consciously realise that you are an incompetent trader - you don't have the skills or the insight to turn a regular profit.

You now set about buying systems and e-books galore, read websites based everywhere from USA to the Ukraine. and begin your search for the holy grail. During this time you will be a system nomad - you will flick from method to method day by day and week by week never sticking with one long enough to actually see if it does work. Every time you come upon a new indicator you'll be ecstatic that this is the one that will make all the difference.

You will test out automated systems on Metatrader, you'll play with moving averages, Fibonacci lines, support & resistance, Pivots, Fractals, Divergence, DMI, ADX, and a hundred other things all in the vein hope that your 'magic system' starts today. You'll be a top and bottom picker, trying to find the exact point of reversal with your indicators and you'll find yourself chasing losing trades and even adding to them because you are so sure you are right.

You'll go into the live chat room and see other traders making pips and you want to know why it's not you - you'll ask a million questions, some of which are so dumb that looking back you feel a bit silly. You'll then reach the point where you think all the ones who are calling pips after pips are liars - they cant be making that amount because you've studied and you don't make that, you know as much as they do and they must be lying. But they're in there day after day and their account just grows whilst yours falls.

You will be like a teenager - the traders that make money will freely give you advice but you're stubborn and think that you know best - you take no notice and overtrade your account even though everyone says you are mad to - but you know better. You'll consider following the calls that others make but even then it wont work so you try paying for signals from someone else - they don't work for you either.

You might even approach a 'guru' like Rob Booker or someone on a chat board who promises to make you into a trader(usually for a fee of course). Whether the guru is good or not you wont win because there is no replacement for screen time and you still think you know best.

This step can last ages and ages - in fact in reality talking with other traders as well as personal experience confirms that it can easily last well over a year and more nearer 3 years. This is also the step when you are most likely to give up through sheer frustration.

Around 60% of new traders die out in the first 3 months - they give up and this is good - think about it - if trading was easy we would all be millionaires. another 20% keep going for a year and then in desperation take risks guaranteed to blow their account which of course it does.

What may suprise you is that of the remaining 20% all of them will last around 3 years - and they will think they are safe in the water - but even at 3 years only a further 5-10% will continue and go on to actually make money consistently.

By the way - they are real figures, not just some ive picked out of my head - so when you get to 3 years in the game dont think its plain sailing from there.

Iv had many people argue with me about these timescales - funny enough none of them have been trading for more that 3 years - if you think you know better then ask on a board for someone who's been trading 5 years and ask them how long it takes to become fully 100% proficient. Sure i guess there will be exceptions to the rle - but i havent met any yet.

Eventually you do begin to come out of this phase. You've probably committed more time and money than you ever thought you would, lost 2 or 3 loaded accounts and all but given up maybe 3 or 4 times but now its in your blood

One day - im a split second moment you will enter stage 3.

Step 3 - The Eureka Moment

Towards the end of stage two you begin to realise that it's not the system that is making the difference. You realise that its actually possible to make money with a simple moving average and nothing else IF you can get your head and money management right You start to read books on the psychology of trading and identify with the characters portrayed in those books and finally comes the eureka moment.

The eureka moment causes a new connection to be made in your brain. You suddenly realise that neither you, nor anyone else can accurately predict what the market will do in the next ten seconds, never mind the next 20 mins.

Because of this revelation you stop taking any notice of what anyone thinks - what this news item will do, and what that event will do to the markets. You become an individual with your own method of trading

You start to work just one system that you mould to your own way of trading, you're starting to get happy and you define your risk threshold.

You start to take every trade that your 'edge' shows has a good probability of winning with. When the trade turns bad you don't get angry or even because you know in your head that as you couldn't possibly predict it it isn't your fault - as soon as you realise that the trade is bad you close it . The next trade or the one after it or the one after that will have higher odds of success because you know your system works.

You stop looking at trading results from a trade-to-trade perspective and start to look at weekly figures knowing that one bad trade does not a poor system make.

You have realised in an instant that the trading game is about one thing - consistency of your 'edge' and your discipline to take all the trades no matter what as you know the probabilities stack in your favour.

You learn about proper money management and leverage - risk of account etc etc - and this time it actually soaks in and you think back to those who advised the same thing a year ago with a smile. You weren't ready then, but you are now. The eureka moment came the moment that you truly accepted that you cannot predict the market.

Step 4 - Conscious Competence

You are making trades whenever your system tells you to. You take losses just as easily as you take wins You now let your winners run to their conclusion fully accepting the risk and knowing that your system makes more money than it looses and when you're on a loser you close it swiftly with little pain to your account

You are now at a point where you break even most of the time - day in day out, you will have weeks where you make 100 pips and weeks where you lose 100 pips - generally you are breaking even and not losing money. You are now conscious of the fact that you are making calls that are generally good and you are getting respect from other traders as you chat the day away. You still have to work at it and think about your trades but as this continues you begin to make more money than you lose consistently.

You'll start the day on a 20 pip win, take a 35 pip loss and have no feelings that you've given those pips back because you know that it will come back again. You will now begin to make consistent pips week in and week out 25 pips one week, 50 the next and so on.

This lasts about 6 months

Step Five - Unconscious Competence

Now we’re cooking - just like driving a car, every day you get in your seat and trade - you do everything now on an unconscious level. You are running on autopilot. You start to pick the really big trades and getting 200 pips in a day doesnt make you any more excited that getting 1 pips.

You see the newbies in the forum shouting 'go dollar go' as if they are urging on a horse to win in the grand national and you see yourself - but many years ago now.

This is trading utopia - you have mastered your emotions and you are now a trader with a rapidly growing account.

You're a star in the trading chat room and people listen to what you say. You recognise yourself in their questions from about two years ago. You pass on your advice but you know most of it is futile because they're teenagers - some of them will get to where you are - some will do it fast and others will be slower - literally dozens and dozens will never get past stage two, but a few will.

Trading is no longer exciting - in fact it's probably boring you to bits - like everything in life when you get good at it or do it for your job - it gets boring - you're doing your job and that's that.

Finally you grow out of the chat rooms and find a few choice people who you converse with about the markets without being influenced at all.

All the time you are honing your methods to extract the maximum profit from the market without increasing risk. Your method of trading doesnt change - it just gets better - you now have what women call 'intuition'

You can now say with your head held high "I'm a currency trader" but to be honest you dont even bother telling anyone - it's a job like any other.

I hope youve enjoyed reading this journey into a traders mind and that hopefully youve identified with some points in here.

Remember that only 5% will actually make it - but the reason for that isnt ability, its staying power and the ability to change your perceptions and paradigms as new information comes available.

The losers are those who wanted to 'get rich quick' but approached the market and within 6 months put on a pair of blinkers so they couldnt see the obvious - a kind of "this is the way i see it and thats that" scenario - refusing to assimilate new information that changes that perception.

Im happy to tell you that the reason i started trading was because of the 'get rich quick' mindset. Just that now i see it as 'get rich slow'

If youre thinking about giving up i have one piece of advice for you ....

Ask yourself the question "how many years would you go to college if you knew for a fact that there was a million dollars a year job at the end of it?

Take care and good trading to you all.

2007-12-30T19:35:00.000-08:00

Weak New Homes Sales Pushes the US Dollar Lower

By dailyFX

The U.S. Dollar continued to lose ground in the currency market as it fell against nearly all of the majors following data New Home sales which fell to its lowest in more that 12 years. The USD/CHF saw the biggest loss as the pair dropped from to 1.1292 from 1.1391 which represents a 2.2 percent drop on the day. The Euro gained ground against the US dollar for the sixth consecutive trading day while the GBP/USD currency pair hit a high of $2.00, but retraced back to trade within the $1.99 range. The only currency that did not appreciate against the US dollar was the New Zealand dollar which climbed into the 0.77 trading range.

The release of the New Home Sales data by the Commerce Department had a crushing effect as sales unexpectedly fell by 9 percent hitting a 12 year low, indicating that the worse of the credit and housing crisis is yet to be over. The release shed light on the continuing weakness of the housing market as inventory of new homes continue to accumulate with prices on a steady decline, causing growth prospects to be lowered for 2008. New Home Sales have decline by 25.4 percent for the year, and is expected to be the biggest decline since 1963. Amid the disappointing New Home Sales figures, the Chicago Purchasing Managers Index told a different story as it rose above expectation, showing significant accumulation of strength within the manufacturing sector. As a result, we anticipate the housing market to continually deteriorate until it hits rock bottom, and do not expect to see any signs of improvement for the housing industry until then.

The stock markets showed minor gains through a volatile trading session amid negative housing data, with 14 out of the 30 DJIA components declining, led by General Motors Corp losing 3 percent, followed by Citigroup which saw prices decline by 1.2 percent. The S&P500 followed the DJIA by welcoming a 1.35 point advance, bouncing back from the plunge in yesterday’s session which was ignited by the assassination of Pakistan Prime Minister Benazir Bhutto. The stock markets were resilient in today’s session as they struggled with the disappointing fact that the housing market has yet to bottom out, and were able of fight off a second day of decline.

US Treasuries enjoyed a second day of gains as new housing data sent yields plummeting and prices soaring. The past two days of negative data has sent risk adverse investors to seek shelter behind risk free assets as political unrest along with sluggish growth prospects deferred investors from jumping into riskier investments. The confusion and potential danger of the current economic and political situation has caused many to speculate that the Federal Reserve will lean towards another rate cut in January, further helping to increase the demand for US Treasuries. Due to the current economic situation along with the volatile securities market, many investors are moving their funds into the safe haven of US Treasuries, and we expect the trend to linger into the beginning of the 2008.

2007-12-25T08:58:00.000-08:00

Key Themes for 2008 - What do Economists Expect for the New Year?

2008 promises to be another interesting year. With significant variance in the range of forecasts on offer and fast changing perceptions of risk, financial markets could be in for a prolonged period of volatility. Key themes for 2008 include, have central banks averted a massive rise in corporate defaults or will further cash injections be required as losses continue to be disclosed? Will the US housing market recover? Will the UK housing market collapse? Is the UK retail sector in for a tough period? Are we in for another bout of strong M&A activity? Will commodity markets and emerging market equities come off the boil? Are markets too complacent about inflation risk, so will bond yields rise in the major economies? Answers to these questions will become clearer through economic data releases and policy action/ statements as the year unfolds. - Trevor Williams, Chief Economist at Lloyds TSB Financial Markets

Weekly Bank Research Center 12-24-07

Bold Action: Central Banks Likely to Succeed

Bold Action: Central Banks Likely to Succeed
Coordinated central bank actions to ease liquidity strains in money markets in our view will ultimately have significant positive implications for financial markets and the economy. Yet financial markets have yawned at the moves. If we’re right, despite near-term risks, opportunities are emerging in US equity and credit markets. Liquidity pressures emerged here and in Europe from two sources. One is the overhang of uncertainty about the value of collateral and the economic outlook. A second is the reintermediation of the banking system, which still has further to go. Banks and securities firms have become risk averse, hoarding cash and demanding a premium to lend in the interbank market. At the beginning of this week, that premium was running about 100 bp.
Full Story

Euroland - On a knife-edge
Niels-Henrik Bjørn Sørensen, Senior Analyst, Danske Bank
Both the German ifo index and the FLASH PMIs for Euroland fell a little in December after some signs of a renewed rise in November. It is still the clash between relatively strong economic figures and the long shadow of the credit crisis that is affecting business confidence. While actual economic numbers have been fine, albeit with a few exceptions, the credit crisis intensified in November and December, and it is probably this development that has pulled confidence a little further down. The general picture of business confidence is that growth is around or a little above trend . in other words, a situation where the ECB, under normal circumstances, would be close to tightening monetary policy, especially if the inflation risks were as high as they are at present.

Full Story

Key Themes for 2008
Trevor Williams, Chief Economist at Lloyds TSB Financial Markets
2008 promises to be another interesting year. With significant variance in the range of forecasts on offer and fast changing perceptions of risk, financial markets could be in for a prolonged period of volatility. Key themes for 2008 include, have central banks averted a massive rise in corporate defaults or will further cash injections be required as losses continue to be disclosed? Will the US housing market recover? Will the UK housing market collapse? Is the UK retail sector in for a tough period? Are we in for another bout of strong M&A activity? Will commodity markets and emerging market equities come off the boil? Are markets too complacent about inflation risk, so will bond yields rise in the major economies? Answers to these questions will become clearer through economic data releases and policy action/ statements as the year unfolds.

Full Story

2007 a Year to be Remembered: 2008 Looks Murky
Steve Chan, Economist, TD Bank Financial Group
This time of year is chock-full of prognostications on the year ahead. Last week, we stepped into the fray by providing our updated view on how the increasingly murky economic story will unfold in 2008 (see TD Economics’ Quarterly Economic Forecast at www.td.com/economics). In this edition of the Weekly Bottom Line, we take a look back at a year that was – to say the least – memorable. Just as the 1987 stock market crash, the 1998 Russian debt default and 9/11 have gone down in infamy, 2007 will be remembered as the year that the rain of liquidity (much of which was tied to the U.S. sub-prime boom) turned into a drought. The outbreak of the so-called credit crunch this past summer has prompted investors to look at risk through a new lens with enormous implications for the trajectory of prices of bond, equity, commodities and foreign exchange.

Full Story

Eight Things to Watch in 2008
John E. Silvia, Ph.D. Chief Economist, Wachovia
As this tumultuous year draws to a close we thought it appropriate to outline some key themes we see for the coming year. Much of this draws from our Annual Outlook, which is available on our web site. This year is ending with lots of talk about the possibility of recession. The R word first made its way back into the economic discussion back in late February, when Alan Greenspan addressed a group of investors in Japan and stated that he saw a one in three chance of the U.S. economy falling into recession in 2007. By the end of the year, he had upped his odds to a 50-50 chance of a recession in the next year.

Full Story

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J-Chart is an innovative charting and bias-neutral market analysis tool. Based on its proprietary theoretical concept and display of market price action, J-Chart provides a much clearer and unique insight into the market than conventional charting methods. This innovative charting and market analysis tool is designed to visualize market price action that constructs unique price patterns called "Equilibriums". Based on its "non-fixed time frame" concept and "Kinetic Equilibrium" application, J-Chart users are able to forecast markets' future movements with high accuracy.

J-Chart Weekly Newsletter

2007-12-25T01:55:00.000-08:00

How 2007 Changed the Foreign Exchange Market

• ECB President Trichet Voted Financial Time’s Person of the Year
• British Pound Falls to Record Low Against the Euro

How 2007 Changed the Foreign Exchange Market
For the financial markets and the foreign exchange market in particular, 2007 was a year that gave everyone a much needed reality check. Over the past 6 years, the financial markets have become irrationally exuberant. Record low volatilities in the foreign exchange market sparked a vigorous appetite for risk, one that caused money market and state funds, which are suppose to be extremely conservative to be exposed to subprime risk. The hunt for yield and the belief that the good times would continue tempted many managers to look to increase their returns by investing in mortgage backed securities. The availability of cheap and easy money also led many mangers to leverage their bets which escalated their risk. Unfortunately the problems in the subprime sector blew up in 2007 and everyone learned the consequences of taking excess risk, the hard way. The lesson that money managers and investors learned in 2007 is to be more selective with their investments, be less exposed to risky assets and more conservative with leverage. For the foreign exchange market, this will have a direct impact on carry trades. The primary reason why carry trades have thrived over the past few years is because volatility fell to a record low. They have now doubled from their June 2007 levels which means that carry trades will no longer be easy one way bets. The multi-decade highs that we have grown accustomed to will be much more difficult to achieve as everyone becomes more careful with their investments and strive not to repeat the mistakes made in 2007. Also, with the US dollar falling to a record low against the Euro, currencies have become water cooler talk. The general public has become much more aware of how currencies can affect their daily way of life and this is a lesson that will remain with them for the foreseeable future. Countries around the world and the financial markets have become much more intertwined, or in other words globalization has also been taken to another level this past year. Sovereign wealth funds have become a force to be reckoned with. Between the U.A.E, Singapore, Norway, Saudi Arabia, Kuwait and China, there are as much as $2 trillion to spend. Their shopping spree has led to some of the biggest deals this year with the latest being Singapore’s $4.4 billion investment into Merrill Lynch. Saudi Arabia also just announced that they are setting up their fund which is a big reason why we expect this trend to continue. As many of these government funds invest in US financial firms, it will help the US dollar and bring the world much closer together. The FX market is closed on Tuesday and Wednesday. Although there are some housing and manufacturing numbers on Wednesday, there are no major US reports until Thursday.

ECB President Trichet Voted Financial Time’s Person of the Year
The Financial Times voted ECB President Trichet as their Person of the Year and we at DailyFX have always loved Trichet for his candid no nonsense comments on monetary policy. He has never wavered to political pressure and has always tried to prepare the markets months in advance for any potential change to interest rates. As the ripple effects of the US subprime problems caused a major liquidity crisis in the credit markets, the ECB was the first central bank to respond with a massive liquidity injection. According to the FT, for a central bank that is not yet 10 years old, the ultimate compliment was paid when the venerable US Federal Reserve and Bank of England followed suit. Trichet’s reputation was the only one to be enhanced by the latest turmoil. This morning, he continued to remind the markets that the ECB will be focusing on inflation and their desire to contain it will not be distracted by the interest rates cuts from the US and Federal Reserve. When Trichet speaks, we all listen and that says a lot for a central bank who’s credibility has been questioned repeatedly since their inception.

Visit the Euro Currency Room for resources dedicated specifically to the Euro.

British Pound Falls to Record Low Against the Euro
In the fifth consecutive day of weakness, the British pound fell to a record low against the Euro and a 4 month low against the US dollar. With most traders out for the holidays, the trends that began last week have continued well into this week. No one is willing to stick their hand out and start picking a bottom in the British pound this late in the year. Instead many traders are probably happy to end the breakeven and will take this opportunity to collect themselves before start over again in January. As UK economic data continues to show signs of weakness, there are no buyers left in the market. This morning, Hometrack reported 0.3 percent decline in house prices in the month of December, which is the biggest drop in 3 years. They also predict that the number of closings will fall by 17 percent and that prices will rise by just 1 percent next year. The housing market has been the back bone of UK growth for many years and now that this sector of the economy is crumbling, growth could suffer greatly in 2008.

Visit the British Pound Currency Room for resources dedicated specifically to the Euro.

Rally in Stocks Drives the Yen Lower and Australian, New Zealand and Canadian Dollars Higher
Since Friday, the Dow has rallied 300 points and that strength has helped to take the Australian, New Zealand and Canadian dollars higher against both the Japanese Yen and US Dollar. Commodity prices are basically unchanged on the day which indicates that the fluctuations of these currency pairs are largely driven by risk appetite. Of course that too is distorted given the lack of liquidity across the financial markets today. Either way, the Dow and USDJPY are breaking their 100-day SMA which suggests that these gains should continue for the remainder of the week. There are Japanese data scheduled for release Monday and Tuesday night. These reports which include the BSI manufacturing index, the corporate service price index and supermarket sales will not be market moving. Also, the BoJ minutes will simply reinforce what the market knows already, which is that interest rates in Japan will remain low for a very long time.
Visit the Japanese Yen Currency Room for resources dedicated specifically to the Euro.
Tell us what you think on the Canadian dollar Forum.

2007-11-04T18:29:00.001-08:00

GFT Daily Market Commentary
Forex Market Commentary for November 5, 2007 by Cornelius LucaGFT Daily Market Commentary

The dollar fell across the board on Friday despite an exceptional, if unsustainably strong, non-farm payrolls report. The dollar is out of control, so stay short with a tight stop. However, it should first enjoy a temporary reprieve.

Euro/dollar

Euro/dollar rallied on Friday to reach yet a new lifetime high. The pair is very overbought, but stay with it until there is some proof it will go down.

Immediate resistance is seen at 1.4533. Above it, strong resistance is seen at 1.4580. Next resistance is at 1.4665. Distant

Immediate support is at 1.4455. Below 1.4405, euro/dollar still has support at 1.4315. Only a break below 1.4195 would signal a more sustained decline.

Oscillators are rising.

NEAR-TERM: Mixed to slightly higher
MEDIUM-TERM: Bullish
LONG-TERM: Bullish

Dollar/yen

Dollar/yen fell to a three-day low but made little progress. Expect mixed trading to persist.

Initial support comes at 114.20 from a 50-point pivot that targets 113.70 and 114.70. Below 113.20, strong support is at 112.90 from a 50-point pivot that targets 113.40 and 112.40. There is a distant pivot low at 111.60 which is also a 50-point pivot, which targets 112.10 and 111.10.
Above 115.05 there is strong resistance at 115.50 from another 50-point pivot, which targets 115.00 and 116.00.

Oscillators are mixed.

NEAR-TERM: Mixed
MEDIUM-TERM: Slightly bullish
LONG-TERM: Mixed

Sterling/dollar

Sterling/dollar exploded on Friday to a 26 ½-year high of 2.0573. The pair is severely overbought, but hold long positions with a tight stop.

Initial resistance is at 2.0915. The next level is 2.1025.

Immediate support is seen at 2.0840. Next level is at 2.0755.
Oscillators are rising.

NEAR-TERM: Mixed to slightly higher
MEDIUM-TERM: Bullish
LONG-TERM: Bullish

Dollar/Swiss franc

Dollar/Swiss closed the week down after sinking to another over 2 ½-year low of 1.1493. Hold short positions in this oversold pair until there is a confirmed bottom.

Below 1.1493, support is at 1.1455. Below 1.1410, there is support at 1.1365.

Initial resistance is at 1.1590. Above 1.1655, there is resistance at 1.1740.

Oscillators are falling.

NEAR-TERM: Mixed with more downside risk
MEDIUM-TERM: Mixed
LONG-TERM: Bearish

2007-11-02T00:36:00.000-07:00

US Dollar Rebounds, Dow Falls 360 Points: How are Traders Positioned for Payrolls?
- Is the Swiss National Bank Endorsing Carry Trades?
- Australian, New Zealand and Canadian Dollars All Hit By Carry Trade Liquidation

US Dollar Rebounds, Dow Falls 360 Points: How are Traders Positioned for Payrolls?
The US dollar rebounded significantly today partly in reaction to Wednesday’s Federal Reserve interest rate decision and partly in anticipation of tomorrow’s non-farm payrolls report. Once again, bond traders got it right. Yesterday, even though bond yields increased the stock market rallied and the US dollar sold off. The reaction in the equity and currency markets suggested that traders thought the Fed was more dovish than hawkish while the reaction in bonds suggested otherwise. Today, the equity and currency markets have finally caught up with the bond market, with the Dow down over 300 points and the US dollar up across the board. Now that should be the correct reaction given the Fed’s slightly more hawkish leaning yesterday. The combination of strong GDP growth and the prospect for a sizeable increase in payrolls has many journalists calling yesterday’s interest rate cut the last. Economists beg to differ however and Fed fund futures indicate that there is still a greater than 50 percent chance for a December rate cut. In the immediate future, equity and currency traders are both positioned for a strong payrolls report. With the market so divided, NFPs could decide not only who is right, but also whether the US dollar has hit a bottom. The market is currently looking for 82k jobs to have been created in the month of October. However following the sharp increase in the ADP report and the drop in layoffs according to Challenger, the whisper number is far higher (125-130k). If job growth is anywhere near 125k, expect a sharp dollar rally, but if it is below 90k, speculation of a December rate cut will return. The arguments in favor of strong payroll growth far outweigh the arguments supporting weak growth. Not only did private sector payrolls increase materially last month and layoffs dropped, but the Hudson Employment index, Monster.com Employment Index and Help Wanted Ads all jumped. We do not get the service sector ISM report until Monday, which is after payrolls, but the employment component of the manufacturing ISM report hit the highest level since April. The only reasons why payrolls could be weak is the rise in jobless claims and fall in consumer confidence. If the labor market is really recovering, confidence would not be the weakest in 2 years. There are still a lot skeptics out there who do not believe that the US economy has seen its worst and it all boils down to what non-farm payrolls will mean for interest rates. If there is a reason for traders to believe that the Fed will continue to lower interest rates, then the current recovery in the US dollar will turn on a dime. Nothing is certain until we see payrolls and even then we need to watch how the market reacts to it.

Is the Swiss National Bank Endorsing Carry Trades?
The liquidation of carry trades has sent the Swiss franc higher against the US dollar, Euro and British pound, but carry trade related flow may not be the only reason why the Swissie is stronger. After falling to a 21 month low, Swiss manufacturing activity rebounded last month. It is now at 60.7, well within expansionary territory. Tomorrow, consumer prices are due for release and we expect the weakness of the Swiss franc to drive CPI higher, but that may not be enough to prompt the Swiss National Bank to raise interest rates. SNB board member Thomas Jordan said today that even though they remain vigilant on franc weakness, they do not see any signs of the franc stoking inflation and rate differential still favors carry trades. Is Jordan telling the markets that it is ok to keep selling francs for carry trade purposes? Perhaps, but when it comes to central bankers, they have been trained to give as little information in as many words as possible. There was no Eurozone data released this morning, but manufacturing PMI will be due for release tomorrow. We will be using PMI as a leading indicator for German factory orders next week.

Australian, New Zealand and Canadian Dollars All Hit By Carry Trade Liquidation
The Australian, New Zealand and Canadian dollars were hit by US dollar strength, carry trade liquidation and softer commodity prices. Even though we are looking for further appreciation in the commodity currencies over the medium term, today’s move marks a turning point for many of these currencies. The sell-offs have been strong and if non-farm payrolls are as good as we expect, there could be continuation. There will be better opportunities to buy these currencies once they have stabilized. Economic data from Australia was better than expected; retail sales and manufacturing PMI both increased significantly. The trade deficit however widened, but that should take backseat to the other data. Canadian employment will be released tomorrow. After the sharp rise in September, employment growth is expected to slow.
British Pound Hit By Dollar Weakness Not Softer Economic Data
Although it would be easy to say that the weakness in the British pound today was attributed to the softer manufacturing PMI and CBI Distributive Trades report, that is not the case. The pound actually rallied after the numbers even though manufacturing conditions were the slowest in a year and distributive trade, which is a reflection of retail sales dropped from 12 to 10 last month. Construction sector PMI is due for release tomorrow and that is expected to be weak as well, but the price action of the British pound will be determined by US non-farm payrolls and not UK economic data.

Dow Meltdown Leads to Carry Trade Liquidation
With the US stock market falling 360 points, it would be surprising if the Japanese Yen crosses did not melt down today. The correlation between these assets remains strong and we expect further weakness in the Dow to lead to further weakness for carry trades.

2007-09-18T00:24:00.000-07:00

Basic Tenets of the Elliott Wave Principle

“The Wave Principle” is Ralph Nelson Elliott’s discovery that social, or crowd, behavior trends and reverses in recognizable patterns. Using stock market data for the Dow Jones Industrial Average (DJIA) as his main research tool, Elliott discovered that the ever-changing path of stock market prices reveals a structural design that in turn reflects a basic harmony found in nature. From this discovery, he developed a rational system of market analysis.

Under the Wave Principle, every market decision is both produced by meaningful information and produces meaningful information. Each transaction, while at once an effect, enters the fabric of the market and, by communicating transactional data to investors, joins the chain of causes of others’ behavior. This feedback loop is governed by man’s social nature, and since he has such a nature, the process generates forms. As the forms are repetitive, they have predictive value.

Elliott isolated thirteen “waves,” or patterns of directional movement, that recur in markets and are repetitive in form, but are not necessarily repetitive in time or amplitude. He named, defined and illustrated the patterns. He then described how these structures link together to form larger versions of the same patterns, how those in turn are the building blocks for patterns of the next larger size, and so on. His descriptions constitute a set of empirically derived rules and guidelines for interpreting market action. The patterns that naturally occur under the Wave Principle are described below.

The Five Wave Pattern

In markets, progress ultimately takes the form of five waves of a specific structure. Three of these waves, which are labeled 1, 3 and 5, actually effect the directional movement. They are separated by two countertrend interruptions, which are labeled 2 and 4, as shown in Figure 1. The two interruptions are apparently a requisite for overall directional movement to occur.

At any time, the market may be identified as being somewhere in the basic five wave pattern at the largest degree of trend. Because the five wave pattern is the overriding form of market progress, all other patterns are subsumed by it.

Wave Mode

There are two modes of wave development: impulsive and corrective. Impulsive waves have a five wave structure, while corrective waves have a three wave structure or a variation thereof. Impulsive mode is employed by both the five wave pattern of Figure 1 and its same-directional components, i.e., waves 1, 3 and 5. Their structures are called “impulsive” because they powerfully impel the market. Corrective mode is employed by all countertrend interruptions, which include waves 2 and 4 in Figure 1. Their structures are called “corrective” because they can accomplish only a partial retracement, or “correction,” of the progress achieved by any preceding impulsive wave. Thus, the two modes are fundamentally different, both in their roles and in their construction, as will be detailed in an upcoming section.

The Complete Cycle

A five-wave impulse (whose subwaves are denoted by numbers) is followed by a three-wave correction (whose subwaves are denoted by letters) to form a complete cycle of eight waves. The concept of five waves up followed by three waves down is shown in Figure 2. The eight-wave cycle

shown in Figure 2 is a component of a cycle of one degree larger, as shown in Figure 3. As Figure 3 illustrates, each same-direction component of an impulsive wave, and each full cycle component (i.e., waves 1 + 2, or waves 3 + 4) of a cycle, is a smaller version of itself.

It is crucial to understand an essential point: Figure 3 not only illustrates a larger version of Figure 2, it also illustrates Figure 2 itself, in greater detail. In Figure 2, each subwave 1, 3 and 5 is an impulsive wave that will subdivide into a “five,” and each subwave 2 and 4 is a corrective wave that will subdivide into an a, b, c. Waves (1) and (2) in Figure 3, if examined under a “microscope,” would take the same form as waves and . Thus, waves of any degree in any series always subdivide and re-subdivide into waves of lesser degree and simultaneously are components of waves of higher degree. We can use Figure 3 to illustrate two waves, eight waves or thirty-four waves, depending upon the degree to which we are referring.

The Essential Design

Now observe that within the corrective pattern illustrated as wave in Figure 3, waves (a) and (c), which point downward, are composed of five waves: 1, 2, 3, 4 and 5. Similarly, wave (b), which points upward, is composed of three waves: a, b and c. This construction discloses a crucial point: that impulsive waves do not always point upward, and corrective waves do not always point downward. The mode of a wave is greatly determined not by its absolute direction but by its relative direction. Aside from four specific exceptions, which will be discussed later in this booklet, waves divide in impulsive mode (five waves) when trending in the same direction as the wave of one larger degree of which it is a part, and in corrective mode (three waves or a variation) when trending in the opposite direction. Waves (a) and (c) are impulsive, trending in the same direction as wave . Wave (b) is corrective because it corrects wave (a) and is countertrend to wave . In summary, the essential underlying tendency of the Wave Principle is that action in the same direction as the one larger trend develops in five waves, while reaction against the one larger trend develops in three waves, at all degrees of trend.

Neither does Figure 3 imply finality. As before, the termination of yet another eight wave movement (five up and three down) completes a cycle that automatically becomes two subdivisions of the wave of next higher degree. As long as progress continues, the process of building to greater degrees continues. The reverse process of subdividing into lesser degrees apparently continues indefinitely as well. As far as we can determine, then, all waves both have and are component waves.

Variations on the Basic Theme

The Wave Principle would be simple to apply if the basic theme described above were the complete description of market behavior. However, the real world, fortunately or unfortunately, is not so simple. The rest of this chapter fills out the description of how the market behaves in reality.

Wave Degree

All waves may be categorized by relative size, or degree. Elliott discerned nine degrees of waves, from the smallest wiggle on an hourly chart to the largest wave he could assume existed from the data then available. He chose the names listed below to label these degrees, from largest to smallest:

Grand Supercycle
Supercycle
Cycle
Primary
Intermediate
Minor
Minute
Minuette
Subminuette

Cycle waves subdivide into Primary waves that subdivide into Intermediate waves that in turn subdivide into Minor and sub-Minor waves. It is important to understand that these labels refer to specifically identifiable degrees of waves. By using this nomenclature, the analyst can identify precisely the position of a wave in the overall progression of the market, much as longitude and latitude are used to identify a geographical location. To say, “the Dow Jones Industrial Average is in Minute wave v of Minor wave 1 of Intermediate wave (3) of Primary wave of Cycle wave I of Supercycle wave (V) of the current Grand Supercycle” is to identify a specific point along the progression of market history.

When numbering and lettering waves, some scheme such as the one shown below is recommended to differentiate the degrees of waves in the stock market’s progression:
Wave Degree 5s With the Trend 3s Against the Trend
Supercycle (I) (II) (III) (IV) (V) (A) (B) (C)
Cycle I II III IV V A B C
Primary
Intermediate (1) (2) (3) (4) (5) (a) (b) (c)
Minor 1 2 3 4 5 A B C
Minute i ii iii iv v a b c
Minuette 1 2 3 4 5 a b c

2007-09-18T00:17:00.000-07:00

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2007-09-11T19:53:00.000-07:00

Article by Neal Hughes

First, a few words about Fibonacci himself…

Leonardo Pisano (nickname Fibonacci) was a mathematician, born in 1170, in Pisa (now Italy). His father was Guilielmo, of the Bonacci family. His father was a diplomat, as a result Fibonacci was educated in North Africa, where he learned "accounting" and "mathematics".

Fibonacci also contributed to the science of numbers, and introduced the "Fibonacci sequence"

The Fibonacci sequence is the sequence 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, introduced in his work "Liber abaci" in a problem involving the growth of a population of rabbits.

Aside from this sequence of number where every next number is the sum of the proceeding two, 0, 1 (0+1), 2 (1+1), 3 (2+1), 5 (3+2), 8 (5+3), 13 (8+5), etc.

There are the "Fibonacci ratios".. By comparing the relationship between each number, and each alternate number, and even each number to the one four places to the right, we arrive at some fairly consistent ratios.. The important ones are .236, 50, .382, .618, .764, 1.382, 1.618, 2.618, 4.236, and for good measure we include 1.00 ..

It turns out that the ratios are mathematical principles prevalent in nature around us, and is also in man-made objects. There are many interesting, entertaining, and poetic observations about Fibonacci numbers and ratios in the universe (see the reference section below). Fibonacci numbers appear in ancient buildings, in plants, planets, molecules, the dimensions of human bodies, and of course snails… But of what use is all that to the lowly trader?

What really interests you, the application of Fibonacci techniques in the trading environment..

Traders usually study charts! Fibonacci ratios may be applied to the Price scale, and also to the time scale of charts. I study the price scale. My focus here will be on the price scale for now, perhaps in the future I'll add some time-scale studies.

Prices never move in a straight line. Look at any chart, you will see many wiggles, as price advances and retraces.. Stocks, Futures, Forex, all instruments which are liquid, will often retrace in Fibonacci proportions, and advance in Fibonacci proportions. Not always, and not precisely to the penny. But very often, and reasonably close! This happens often enough that profitable trades can result. I will show you some examples below.

I used Fibonacci ratios with a few simple indicators to help determine probable price turning points, optimum entry, exit and stop-loss levels. My complete techniques are available in on-line video seminars, in-person seminars, and via my real-time on-line chat facility. For more details, see the following web page: http://www.surefire-trading.com/fibmaster.html

The application of Fibonacci to trading can be very complex, and take much time and experience to perfect. Many traders enjoy making the process as difficult and as complex as they can tolerate.. I do the opposite, I try to simplify, try to bring clarity.

2007-07-22T20:17:00.000-07:00

Currency swap

A currency swap is a foreign exchange agreement between two parties to exchange a given amount of one currency for another and, after a specified period of time, to give back the original amounts swapped.

Currency swaps can be negotiated for a variety of maturities up to at least 10 years. Unlike a back-to-back loan, a currency swap is not considered to be a loan by United States accounting laws and thus it is not reflected on a company's balance sheet. A swap is considered to be a foreign exchange transaction (short leg) plus an obligation to close the swap (far leg) being a forward contract.

Currency swaps are often combined with interest rate swaps. For example, one company would seek to swap a cash flow for their fixed rate debt denominated in US dollars for a floating-rate debt denominated in Euro. This is especially common in Europe where companies "shop" for the cheapest debt regardless of its denomination and then seek to exchange it for the debt in desired currency.

Overnight index swap

Overnight index swap is an interest rate swap involving the overnight rate being exchanged for some fixed interest rate. Generally short-term, the interest of the overnight rate portion of the swap is compounded and paid at maturity.

An overnight indexed swap (OIS) is a fixed/floating interest rate swap with the floating leg tied to a published index of a daily overnight rate reference. The term ranges from one week to two years (sometimes more). The two parties agree to exchange at maturity, on the agreed notional amount, the difference between interest accrued at the agreed fixed rate and interest accrued through geometric averaging of the floating index rate.

This means that the floating rate calculation replicates the accrual on an amount rolled “P plus I” at the index rate every business day over the term of the swap. If cash can be borrowed by the swap receiver on the same maturity as the swap and at the same rate and lent back every day in the market at the index rate, the cash payoff at maturity will exactly match the swap payout: the OIS acts as a perfect hedge for a cash instrument. Since indices are generally constructed on the basis of the average of actual transactions, the index is generally achievable by borrowers and lenders. Economically, receiving the fixed rate in an OIS is like lending cash. Paying the fixed rate in an OIS is like borrowing cash. Settlement occurs net on the earliest practical date. There is no exchange of principal.

Use

The OIS swap can be used to manage interest rate risk for flexible periods, without taking liquidity risk and with minimum credit risk (hence there is efficient usage of capital). This will lead to deeper and more efficient markets.

Since their introduction in the 1990s, Overnight Indexed Swaps have become a widely-used, highly credit-efficient and liquid derivative in all major currencies. They are used to hedge against, or speculate on, moves in overnight interest rates (both ‘micro’ moves — daily volatility — and, more importantly, ‘macro’ moves driven by central banks, who influence overnight rates directly.

Interest Rate Risk Management
OIS allow the interest rate risk profile of a portfolio to be changed as if by the addition of a cash asset or borrowing but with no use of cash and with minimal use of credit. These features allow much better risk management and separate funding maturity from interest rate duration.

Forex swap

Forex swap is an over the counter short term interest rate derivative instrument. A Forex swap consists of a spot foreign exchange transaction entered into at exactly the same time and for the same quantity as a forward foreign exchange transaction. The forward portion is the reverse of the spot transaction, where the spot purchase is offset by a forward selling. In this way, temporary surplus funds in one currency are for a while swapped into another currency for better use of liquidity. Protects against adverse movements in the forex rate, but favourable moves are renounced.

The fixed rate in this transaction is the forward rate that is locked in by the forward contract. The floating rate will be the overnight rate that is realized on a daily basis by the spot transaction. Typically, the floating side of these trades are indexed to the Overnight Index Swap (OIS) rate. This rate is an average of the rates that are paid based on a survey.

It should not be confused with a currency swap, which is a much rarer, long term transaction, governed by a slightly different set of rules.

In emerging money markets, Forex swaps are usually the first derivative instrument to be traded, ahead of Forward rate agreements.

TRADING RESULTS at GBPJPY

When we backtested at the highest possible level, using GBPJPY (British Pounds/Japanese Yen) on the Daily Chart, at the highest modelling quality available:

10k over the last year became $35,236 (see below)

10k over the last 3 years became $223,643!
*This equates at around 10% a month, the growth of which is compounded.

THIS DOES NOT EVEN INCLUDE THE SWAP!!!! Adding the swap in you can add approximately 25% of the results - with compounding this will create a multiplier effect so results will be considerably higher than stated. The compounding effect of additional equity and larger lots size will in actuality lead to results several times larger than those here stated. So, 10k over 7 years will net you a much more than $5.2 million once the swap is calculated in!

The most important point to consider is that our EA performs very well, without taking the risks that many other EA's are designed to take. Wouldn't you rather have a program that works on all market trends, rather than potentially failing when you least expect it? Another rather important point is that I use and have been using my EA for my own trades and have done quite well!

The system is primarily designed to run on GBPJPY, as it has the highest swap level of all the majors. Similiar results are also obtainable on (and not limited to) GBPCHF. You can run this EA on as many pairs and timeframes as you like, but high chart timeframes (Daily) are always used to determine the trend. To become confident with our software, you first need to do some testing on your end, until you are comfortable enough to begin real trades. If you do not have MetaTrader4 (MT4) platform installed, you will need to download it from one of the brokers that support MT4 (we provide you with a list).

2007-07-22T20:12:00.000-07:00

Interest rate swap

From Wikipedia, the free encyclopedia

In the field of derivatives, a popular form of swap is the interest rate swap, in which one party exchanges a stream of interest for another party's stream. These were originally created to allow multi-national companies to evade exchange controls. Interest rate swaps are normally 'fixed against floating', but can also be 'floating against floating' rate. A single-currency 'fixed against fixed' rate swap would be theoretically possible, but since the entire cash-flow stream can be predicted at the outset there would be no reason to maintain a swap contract as the two parties could just settle for the difference between the present values of the two fixed streams. Because one party would be definitely at a disadvantage in such an exchange, that party would decide not to enter into the deal. Hence, there are no single-currency 'fixed versus fixed' swaps in existence. If there is an exchange of interest rate obligation, then it is termed a liability swap. If there is an exchange of interest income, then it is an asset swap.

Interest rate swaps are often used by companies to alter their exposure to interest-rate fluctuations, by swapping fixed-rate obligations for floating rate obligations, or vice versa. By swapping interest rates, a company is able to alter their interest rate exposures and bring them in line with management's appetite for interest rate risk.

Swaps Basic Forms

A Swap is an agreement to exchange a sequence of cash flows over a period of time in the future in same or different currencies. Mainly used for hedging various interest rate exposures, they are very popular and highly liquid instruments. Although there are hundreds of types of swaps, some of the very basic swap types are

Fixed - Float (Same currency) Party P pays/receives fixed interest in currency A to receive/pay floating rate in currency A indexed to X on a notional N for a tenor T years. For example, you pay fixed 5.32% monthly to receive USD 1M Libor monthly on a notional USD 1 mil for 3 years. Fixed-Float swaps in same currency are used to convert a fixed/floating rate asset/liability to a floating/fixed rate asset/liability. For example, if a company has a fixed rate USD 10 mio loan at 5.3% paid monthly and a floating rate investment of USD 10 mio that returns USD 1M Libor +25 bps monthly, and wants to lockin the profit as they expect the USD 1M Libor to go down, then they may enter into a Fixed-Floating swap where the company pays floating USD 1M Libor+25 bps and receives 5.5% fixed rate, locking in 20bps profit.

Fixed - Float (Different currency) Party P pays/receives fixed interest in currency A to receive/pay floating rate in currency B indexed to X on a notional N at an initial exchange rate of FX for a tenor T years. For example, you pay fixed 5.32% on the USD notional 10 mio quarterly to receive JPY 3M Tibor monthly on a JPY notional 1.2 bio (at an initial exchange rate of USDJPY 120) for 3 years. For Nondeliverable swaps, USD equivalent of JPY interest will be paid/received (as per the Fx rate on the FX fixing date for the interest payment day). Note in this case no initial Exchange of notional takes place unless the Fx fixing date and the swap start date fall in the future. Fixed-Float swaps in different currency are used to convert a fixed/floating rate asset/liability in one currency to a floating/fixed rate asset/liability in a different currency. For example, if a company has a fixed rate USD 10 mio loan at 5.3% paid monthly and a floating rate investment of JPY 1.2 bio that returns JPY 1M Libor +50 bps monthly, and wants to lock in the profit in USD as they expect the JPY 1M Libor to go down or USDJPY to go up(JPY depreciate against USD), then they may enter into a Fixed-Floating swap in different currency where the company pays floating JPY 1M Libor+50 bps and receives 5.6% fixed rate, locking in 30bps profit against the interest rate and the fx exposure.

Float - Float (Same Currency, different index) Party P pays/receives floating interest in currency A Indexed to X to receive/pay floating rate in currency B indexed to Y on a notional N for a tenor T years. For example, you pay JPY 1M Libor monthly to receive JPY 1M Tibor monthly on a notional JPY 1 bio for 3 years.

In this case, company wants to lockin the cost from the spread widening or narrowing. For example, if a company has a floating rate loan at JPY 1M Libor and the company has an investment that returns JPY 1M Tibor+30 bps and currently the JPY 1M Tibor = JPY 1M Libor +10bps. At the moment, this company has a net profir of 40 bps. If the company thinks JPY 1M tibor is going to come down or JPY 1M Libor is going to increase in the future and wants to insulate from this risk, they can enter into a Float float swap in same currency where they pay JPY TIBOR +10 bps and receive JPY LIBOR+35 bps. with this, they have effectively locked in a 35 bps profit instead of running with a current 40 bps gain and index risk. The 5bps difference comes from the swap cost which includes the market expectations of the future rates in these two indices and the bid/offer spread which is the swap commission for the swap dealer.

Float - Float (Different Currency) Party P pays/receives floating interest in currency A Indexed to X to receive/pay floating rate in currency A indexed to Y on a notional N at an initial exchange rate of FX for a tenor T years. For example, you pay floating USD 1M Libor on the USD notional 10 mio quarterly to receive JPY 3M Tibor monthly on a JPY notional 1.2 bio (at an initial exchange rate of USDJPY 120) for 4 years.

To explain the use of this type of swap, consider a US company operating in Japan. To fund their Japanese growth, they need JPY 10 bio. the easiest option for the company is to issue debt in Japan. As the company might be new in the Japanese market with out a well known reputation among the Japanese investors, this can be an expensive option. Added on top of this, the company might not have appropriate Debt Issuance Program in Japan and they might lack sophesticated treasury operation in Japan. To overcone the above problems, it can issue USD debt and convert to JPY in the FX market. Although this option solves the first problem, it introduces two new risks to the company:

1. FX risk. If this if this USDJPY spot goes up at the maturity of the debt, then when the company converts the JPY to USD to pay back its matured debt, it receives less USD and suffers a loss.

2. USD and JPY interest rate risk. If the JPY rates comes down, the return on the investment in Japan might go down and this introduces a interest rate risk component.

The first exposure in the above can be hedged using long dated FX forward contracts but this introduces a new risk where the implied rate from the FX Spot and the FX Forward is a fixed rate but the JPY investment returns a floating rate. Although there are several alternatives to hedge both the exposures effectively without introducing new risks, the easiest and the most cost effective alternative would be to use a Float-Float swap in different currencies. In this, the company raises USD by issuing USD Debt and swaps it to JPY. It receives USD floating rate(so matching the interest payments on the USD Debt) and pays JPY floating rate matching the returns on the JPY investment.

Fixed - Fixed (Different Currency) Party P pays/receives fixed interest in currency A to receive/pay fixed rate in currency B for a term of T years. For example, you pay JPY 1.6% on a JPy notional of 1.2 bio and receive USD 5.36% on the USD equivalent notional of 10 mio at an initial exchange rate of USDJPY 120.

Usage is similar to above but you receive USD fixed rate and pay JPY Fixed rate.

Consider the following illustration in which Party A agrees to pay Party B periodic interest rate payments of LIBOR + 50 bps (0.50 %) in exchange for periodic interest rate payments of 3.00 %. Note that there is no exchange of the principal amounts and that the interest rates are on a "notional" (i.e. imaginary) principal amount. Also note that the interest payments are settled in net (e.g. if LIBOR + 50 bps is 1.20 % then Party A receives 1.80 % and Party B pays 1.80 %). The fixed rate (3.00 % in this example) is referred to as the swap rate.

Trading An interest-rate swap is one of the more common forms of over-the-counter derivatives. It is the most widely used derivative in terms of its outstanding notional amount, but it's not standardized enough and doesn't have the properties to easily change hands in a way that will let it be traded through a futures exchange like an option or a futures contract.

Valuation and Pricing

The present value of a plain vanilla (i.e. fixed rate for floating rate) swap can easily be computed using standard methods of determining the present value of the components. The swap requires from one party a series of payments based on variable rates, which are determined at the agreed dates of each payment. At the time the swap is entered into, only the actual payment rates of the fixed leg are known in the future, but forward rates (derived from the yield curve) are used as an approximation. Each variable rate payment is calculated based on the forward rate for each respective payment date. Using these interest rates leads to a series of cash flows. Each cash flow is discounted by the zero-coupon rate for the date of the payment; this is also sourced from the yield curve data available from the market. Zero-coupon rates are used because these rates are for bonds which pay only one cash flow. The interest rate swap is therefore treated like a series of zero-coupon bonds.

This calculation leads to a PV. The fixed rate offered in the swap is the rate which values the fixed rates payments at the same PV as the variable rate payments using today's forward rates. Therefore, at the time the contract is entered into, there is no advantage to either party, and therefore the swap requires no upfront payment. During the life of the swap, the same valuation technique is used, but since, over time, the forward rates change, the PV of the variable-rate part of the swap will deviate from the unchangeable fixed-rate side of the swap. Therefore, the swap will be an asset to one party and a liability to the other. The way these changes in value are reported is the subject of IAS 39 for jurisdictions following IFRS, and FAS 133 for U.S. GAAP.

Credit Risk

Credit Risk on the swap comes into play if the swap is in the money or not. If one of the parties is in the money, then that party faces credit risk of possible default by another party. This is true for all swaps where there is no exchange of principal.

Marking to Market

The current valuation of securities in a portfolio. Debt Security Traders mostly use this in order to visualize their inventory at a certain time.

Swaps are also traded at a fixed rate as apposed to par. so when the par rate is 3% if the payer wants to pay 3.5% i.e 50Bps over a cash payment is made to compensate for this.

Market Size

The Bank for International Settlements reports that interest rate swaps are the largest component of the global OTC derivative market. The notional amount outstanding as of December 2006 in OTC interest rate swaps was $229.8 trillion, up $60.7 trillion (35.9%) from December 2005. These contracts account for 55.4% of the entire $415 trillion OTC derivative market.

Users

Fannie Mae

Fannie Mae uses interest rate derivatives to, for example, "hedge" its cash flow. The products it uses are pay-fixed swaps, receive-fixed swaps, basis swaps, interest rate cap and swaptions, and forward starting swaps. Its "cash flow hedges" had a notional value of $872 billion at December 31, 2003, while its "fair value hedges" stood at $169 billion (SEC Filings) (2003 10-K page 79). Its "net value" on "a net present value basis, to settle at current market rates all outstanding derivative contracts" was (7,712) million and 8,139 million, which makes a total of 6,633 million when a "purchased options time value" of 8,139 million is added.

What Fannie Mae doesn't want is for example a wide "duration gap" for a long period. If rates turn the opposite way on a duration gap the cash flow from assets and liabilities may not match, resulting in inability to pay the bills on liabilities. It reports the duration gap regularly in its (8-K Regulation FD Disclosure), see earlier 10-K's for charts and more information (Investor Relations: Annual Reports & Proxy Statements). (Dec 1999 - Dec 2002 duration gap) , (2003 gap).

Arbitrage Opportunities

Interest Rate Swaps are very popular due to the arbitrage opportunities they provide. Due to varying levels of creditworthiness in companies, there is often a positive Quality Spread Differential which allows both parties to benefit from an Interest Rate Swap.

The interest rate swap market is closely linked to the Eurodollar futures market which trades at the Chicago Mercantile Exchange.

2007-07-15T23:23:00.000-07:00

some tips here

1. Read both the books by Mark Douglas which cover trading psychology BEFORE you read or do anything else. If you don’t, I’ll say I told you so when you hit a failure barrier and don’t know why.

2. Stop loss policy - you MUST have one and practice, more practice and even more practice at sticking to it. It will not be easy but it is an essential discipline to profitable trading.

3. Trading plan / system. Again, you MUST have one! Then you must practice sticking to it. Do not try and second guess or trade aganst your indicators - wait until they give you a concise signal before acting on it.

4. TRADE WITH THE TREND. DO NOT trade against the hourly trend of the market unless you are VERY certain the market has turned. Check this by watching a long term moving average (say 80 SMA on 15 minute chart)

5. Learn to sit on your hands and not trade! It’s better to wait for good quality trades than take a mediocre one and loose money. A day of no trades is better than a day with one loosing one. If you don’t like the market, just walk away. It will always be there later.

6. Don’t set yourself false targets and expectations. Trading is not an EXACT science and if you do you will only become frustrated by your failure to meet them. Take what the market gives and be satisfied. Greed will kill you as a trader, both mentally and monetarily. .

7. The market is rarely your friend in a trade that goes against you. Cut your losses quickly and accept them as an inherent part of trading. You will not be able to trade without some loosing positions. Manage them well!

8. Try hard not to get out of profitable trades too early. Try operating a trailing stoploss of say 15 to 20 pips behind the trade (on 5minute timeframe) and maximise your good trades by letting them run. Be patient!

9. Ensure you fully understand how to generate and use pivot points and camarilla points on your trading platform. These are crucial decision points for daily trading and you will struggle without them.

10. DO NOT overtrade your account. Read up on money management in trading to make sure you fully understand why this is important and develop a strategy which fits with your personal trading capital. NEVER risk wiping out your account because believe me, it can happen. I’ve done it twice myself!

11. Learn about FIBONACCI levels and how to apply them to your charts.

12. Keep your trading system simple. Do not have too much information on your trading screen. It is unnecessary and will only cause you to be confused and delay you making your trading decisions.

13. Always think in terms of probabilities. Trading is all about thinking in probabilities NOT certainties. You can make all the “right” decisions and the trade still goes against you. This does not make it a “wrong” trade, just one of the many trades you will take which, through probability, are on the “loosing” side of your trading plan. Don’t expect not to have negative trades - they are a necessary part of the plan and cannot be avoided.

14. Ensure that the candle is fully formed on the timeframe you are trading BEFORE you enter your trade. Trade what you see, not what you would like to see.

2007-07-05T05:45:00.000-07:00

Core CPI

United States Consumer Price Index

The U.S. Consumer Price Index is a time series measure of the price level of consumer goods and services. The Bureau of Labor Statistics, which started the statistic in 1919, publishes the CPI on a monthly basis. The CPI is calculated by observing price changes among a wide array of products in urban areas and weighing these price changes by the share of income consumers spend purchasing them. The resulting statistic, measured as of the end of the month for which it is published, serves as one of the most popular measures of United States inflation; however, the CPI focuses on approximating a cost-of-living index not a general price index.

The CPI can be used to track changes in prices of all goods and services purchased for consumption by urban households, i.e., of the consumer basket. User fees (such as water and sewer service) and sales and excise taxes paid by the consumer are also included. Income taxes and investment items (like stocks, bonds, life insurance, and homes) are not included. The index measures inflation faced by consumers who live in urban areas designated by the U.S. Bureau of the Census.

Scope of the CPI

BLS calculates the CPI for two population groups, one consisting only of wage earners and clerical workers and the other consisting of all urban consumers. In addition, a Core CPI, which excludes volatile food and energy prices and a Chained CPI are also widely used measures of consumer inflation.

CPI for Urban Wage Earners and Clerical Workers (CPI-W)

The urban wage earner and clerical worker population consists of consumer units with clerical workers, sales workers, craft workers, operative, service workers, or laborers. More than one half of the consumer unit's income has to be earned from the above occupations, and at least one of the members must be employed for 37 weeks or more in an eligible occupation.The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is a continuation of the historical index that was introduced after World War I for use in wage negotiation. As new uses were developed for the CPI, the need for a broader and more representative index became apparent.

CPI for All Urban Consumers (CPI-U)

The all-urban consumer population consisists of all urban households in Metropolitan Statistical Areas (MSA's) and in urban places of 2,500 inhabitants or more. Nonfarm consumers living in rural areas within MSA's are included, but the index excludes rural consumers and the military and institutional population. The Consumer Price Index for All Urban Consumers (CPI-U) introduced in 1978 is representative of the buying habits of approximately 80 percent of the non-insititutional population of the United States, compared with 32 percent represented in the CPI-W. The methodology for producing the index is the same for both populations.

Core CPI

The core CPI index excludes goods with high price volatility, such as food and energy. This measure of core inflation systematically excludes food and energy prices because, historically, they have been highly volatile and non-systemic. More specifically, food and energy prices are widely thought to be subject to large changes that often fail to persist and do not represent relative price changes. In many instances, large movements in food and energy prices arise because of supply disruptions such as drought or OPEC-led cutbacks in production.

Chained CPI for All Urban Consumers (C-CPI-U)

This index applies to the same target population as the CPI-U. The same raw data are used, but a different formula is employed to calculate average prices. The chained CPI was developed to overcome a shortcoming of the CPI-U series, which does not account for the changes that people make in the composition of goods that they purchase over time, often in response to price changes. The alternative method of the C-CPI-U is intended to capture consumers' behavior as they respond to relative price changes.

History of the CPI

The Consumer Price Index was initiated during World War I, when rapid increases in prices, particularly in shipbuilding centers, made an index essential for calculating cost-of-living adjustments in wages. To provide appropriate weighting patterns for the index, so that it would reflect the relative importance of goods and services purchased in 92 industrial centers in 1917-1919. Periodic collection of prices was started, and, in 1919, the Bureau of Labor Statistics began publication of separate indexes for 32 cities. Regular publication of a national index, the U.S. city average began in 1921, and indexes were estimated back to 1913 using records of food prices.

Because people's buying habits had changed substantially, a new study was made covering expenditures in the years 1934-1936, which provided the basis for a comprehensively revised index introduced in 1940. During World War II, when many commodities were scarce and goods were rationed, the index weights were adjusted temporarily to reflect these shortages. In 1951, the BLS again made interim adjustments, based on surveys of consumer expenditures in seven cities between 1947 and 1949, to reflect the most important effects of immediate postwar changes in buying patterns. The index was again revised in 1953 and 1964.

In 1978, the index was revised to reflect the spending patterns based upon the surveys of consumer expenditures conducted in 1972-1974. A new and expanded 85-area sample was selected based on the 1970 Census of Population. The Point-of-Purchase Survey (POPS) was also introduced. POPS eliminated reliance on outdated secondary sources for screening samples of establishments or outlets where prices are collected. A second, more broadly based CPI for All Urban Consumers, the CPI-U was also introduced. The CPI-U took into account the buying patterns of professional and salaried workers, part-time workers, the self-employed, the unemployed, and retired people, in addition to wage earners and clerical workers.)

Calculating the CPI

The calculation of the CPI involves uses a hybrid methodology that includes both Laspeyres, a fixed-quantity price index, and a geometric mean formula, which approximates for changes in consumption based on substitution. Two sets of indices are used in three stages to produce the overall CPI. The first stage involves elementary indices based the price levels of very similar goods in the same area. These indices are used to produce a set of aggregate indices in the second stage. In the final stage, the aggregate indices are used to calculate the CPI. While the aggregate indices are based on the Laspeyres formula, all but a few of the elementary indices are based on geometric means formulas.

Before 1999, CPI used only Laspeyres indices, measures of the price changes in a fixed market basket of consumption goods and services of constant quantity and quality bought on average by urban consumers, either for all urban consumers (CPI-U) or for urban wage earners and clerical workers (CPI-W). A Laspeyres index is a ratio of the costs of purchasing a set of items of constant quality and constant quantity in two different time periods.

The CPI is calculated using a Laspeyres index computed as:

\Delta P_L = \frac{\sum_{i} p_{i1} q_{i0}}{\sum_{i} p_{i0} q_{i0}},

where ΔPL is the change in price level, pi0 and qi0 refer, respectively, to the price and quantity of each good i in the first period, and pi1 refers to the price of each good i in the second period.

The Laspeyres index systematically overstates inflation because it does not take into account changes in the quantities consumed that may occur as a response to price changes. The Laspeyres formula works under the assumption that consumers always buy the same amount of each good in the market basket, no matter what the price. In contrast, the geometric means price index formula assumes that consumers will always spend the same amount of money on a good and shift the quantity they buy of that good based on the price.

Weights of the CPI

The weight of an item in the CPI is derived from the expenditure on that item as estimated by the Consumer Expenditure Survey. This survey provides data on the average expenditure on selected items, such as white bread, gasoline and so on, that were purchased by the index population during the survey period. In a fixed-weight index such as the CPI, the implicit quantity of any item used in calculating the index remains the same from month to month.

A related concept is the relative importance of an item. The relative importance shows the share of total expenditure that would occur if quantities consumed were unaffected by changes in relative prices and actually remained constant. Although the implicit quantity weights remain fixed, the relative importance changes over time, reflecting average price changes. Items registering a greater than average price increase (or smaller decrease) become relatively more important.

Uses of the CPI

* As an economic indicator. As the most widely used measure of inflation, the CPI is an indicator of the effectiveness of government fiscal and monetary policy. Especially for inflation targeting monetary policy by the Federal Reserve; however, the Federal Reserve System has recently begun favoring the Personal consumption expenditures price index (PCE) over the CPI as a measure of inflation. Business executives, labor leaders, and other private citizens also use the CPI as a guide in making economic decisions.
* As a deflator of other economic series. The CPI and its components are used to adjust other economic series for price change and to translate these series into inflation-free dollars.
* As a means for indexation (i.e. adjusting income payments). Over 2 million workers are covered by collective bargaining agreements which tie wages to the CPI. In the United States, the index affects the income of almost 80 million people as a result of statutory action: 47.8 million Social Security beneficiaries, about 4.1 million military and Federal Civil Service retirees and survivors, and about 22.4 million food stamp recipients. Changes in the CPI also affect the cost of lunches for the 26.7 million children who eat lunch at school. Some private firms and individuals use the CPI to keep rents, royalties, alimony payments and child support payments in line with changing prices. Since 1985, the CPI has been used to adjust the Federal income tax structure to prevent inflation-induced increases in taxes.

2007-07-05T05:38:00.000-07:00

Core PPI

U.S. Producer Price Index

From Wikipedia, the free encyclopedia

The Producer Price Index (PPI) measures average changes in prices received by domestic producers for their output. The PPI was known as the Wholesale Price Index, or WPI, up to 1978. The PPI is one of the oldest continuous systems of statistical data published by the Bureau of Labor Statistics, as well as one of the oldest economic time series compiled by the Federal Government.[1] The origins of the index can be found in an 1891 U.S. Senate resolution authorizing the Senate Committee on Finance to investigate the effects of the tariff laws “upon the imports and exports, the growth, development, production, and prices of agricultural and manufactured articles at home and abroad.

Scope of the Producer Price Index

Most of the data is collected through a systematic sampling of producers in manufacturing, mining, and service industries, and is published monthly by the Bureau of Labor Statistics. Virtually every type of mining and manufacturing industry is currently sampled in the PPI; and a majority of service industries are sampled, with more being constantly added.

Data Source

Respondent participation has been conducted on a voluntary basis from its inception. The cooperation of survey respondents in providing data is absolutely essential if the Bureau is to succeed in performing its responsibilities as mandated by Congress. The Bureau, accordingly, is deeply committed to preserving the confidentiality of all data submitted. The data collected by the Bureau of Labor Statistics is strictly confidential. The Confidential Information Protection and Statistical Efficiency Act of 2002 (Title 5 of Public Law 107-347) protects the confidentiality of the data provided by the respondents.

Classification

The Producer Price Index family of indexes consists of several major classification systems, each with its own structure, history, and uses. However, indexes in all classification systems now draw from the same pool of price information provided to the Bureau by cooperating company reporters. The three most important classification structures are industry, commodity, and stage of processing (SOP).

Industry

The PPI for an industry measures the average change in prices received for an industry’s output sold to another industry. For more than 20 years the PPI used the Standard Industrial Classification (SIC) system to collect and publish data. This system received criticism for its inability to adapt to changes in the United States economy. Consequently, the BLS began in January 2004 to publish the PPI data in accordance with the North American Industry Classification System (NAICS). This system was developed in cooperation with Canada and Mexico, and categorizes producers into industries based on the activity in which they are primarily engaged.

Commodity

The PPI commodity index organizes products by similarity of end use or material composition. This system is unique to the PPI and does not match any other standard coding structure, such as the SIC or the U.N. Standard International Trade Classification (SITC). Historical continuity of index series, the needs of index users, and a variety of ad hoc factors were important in developing the PPI commodity classification.

Stage of Processing

The PPI commodity index regroup commodities according to the class of buyer and the amount of physical processing or assembling the products have undergone. Finished goods are defined as commodities that are ready for sale to the final-demand user—either an individual consumer or a business firm. The category of intermediate materials, supplies, and components consists partly of already processed commodities that still require further processing. Crude materials for further processing are defined as unprocessed commodities not sold directly to consumers

Calculating Index Changes

Movements of price indexes from one month to another usually should be expressed as percent changes, rather than as changes in index points, because the latter are affected by the level of the index in relation to its base period, while the former are not. Each index measures price changes from a reference period defined to equal 100.0. The current standard base period for most commodity-oriented PPI series is 1982, but many indexes that began after 1982 are based on the month of their introduction.

An increase of 20 percent from the base period in the Finished Goods Price Index, for example, is shown as 120.0, which can be expressed in dollars as follows: “Prices received by domestic producers of a systematic sample of finished goods have risen from $100 in 1982 to $120 today.” Likewise, a current index of 133.3 would indicate that prices received by producers of finished goods today are one-third higher than what they were in 1982.

Core PPI

It is defined as the PPI excluding high volatility items, such as energy.

2007-07-04T07:30:00.000-07:00

nothing here...crap

2007-07-01T09:24:00.000-07:00

Trading successfully
Posted in Uncategorized on June 30th, 2007
Trading successfully

Trading successfully is by no means a simple matter. It requires time, market knowledge and market understanding and a large amount of self restraint. ACM does not manage accounts, nor does it give market advice, that is the job of money managers and introducing brokers. As market professionals, we can however point the novice in the right direction and indicate what are correct trading tactics and considerations and what is total nonsense.

Anyone who says you can consistently make money in foreign exchange markets is being untruthful. Foreign exchange by nature, is a volatile market. The practice of trading it by way of margin increases that volatility exponentially. We are therefore talking about a very ‘fast market’ which is naturally inconsistent. Following that precept, it is logical to say that in order to make a successful trade, a trader has to take into account technical and fundamental data and make an informed decision based on his perception of market sentiment and market expectation. Timing a trade correctly is probably the most important variable in trading successfully but invariably there will be times where a traders’ timing will be off. Don’t expect to generate returns on every trade.

Let’s enumerate what a trader needs to do in order to put the best chances for profitable trades on his side:

Trade with money you can afford to lose:
Trading fx markets is speculative and can result in loss, it is also exciting, exhilarating and can be addictive. The more you are ‘involved with your money’ the harder it is to make a clear-headed decision. Money you have earned is precious, but money you need to survive should never be traded.

Identify the state of the market:
What is the market doing? Is it trending upwards, downwards, is it in a trading range. Is the trend strong or weak, did it begin long ago or does it look like a new trend that’s forming. Getting a clear picture of the market situation is laying the groundwork for a successful trade.

Determine what time frame you’re trading on:
Many traders get in the market without thinking when they would like to get out, after all the goal is to make money. This is true but when trading, one must extrapolate in his mind’s eye the movement that one expects to happen. Within this extrapolation, resides a price evolution during a certain period of time. Attached to this is the idea of exit price. The importance of this is to mentally put your trade in perspective and although it is clearly impossible to know exactly when you will exit the market, it is important to define from the outset if you’ll be ’scalping’ (trying to get a few points off the market) trading intra-day, or going longer term. This will also determine what chart period you’re looking at. If you trade many times a day, there’s no point basing your technical analysis on a daily graph, you’ll probably want to analyse 30 minute or hour graphs. Additionally it is important to know the different time periods when various financial centers enter and exit the market as this creates more or less volatility and liquidity and can influence market movements.

Time your trade:
You can be right about a potential market movement but be too early or too late when you enter the trade. Timing considerations are twofold, an expected market figure like CPI, retail sales or a federal reserve decision can consolidate a movement that’s already underway. Timing your move means knowing what’s expected and taking into account all considerations before trading. Technical analysis can help you identify when and at what price a move may occur. We will look at technical analysis in more detail later.

If in doubt, stay out:
If you’re unsure about a trade and find you’re hesitating, stay on the sidelines.

Trade logical transaction sizes:
Margin trading allows the fx trader a very large amount of leverage, trading at full margin capacity (in ACM’s case 1% or 0.5%) can make for some very large profits or losses on an account. Scaling your trades so that you may re-enter the market or make transactions on other currencies is generally wiser. In short, don’t trade amounts that can potentially wipe you out and don’t put all your eggs in one basket. ACM offers the same rates regardless of transaction sizes so a customer has nothing to lose by starting small.

Gauge market sentiment:
Market sentiment is what most of the market is perceived to be feeling about the market and therefore what it is doing or will do. This is basically about trend. You may have heard the term ‘the trend is your friend’, this basically means that if you’re in the right direction with a strong trend you will make successful trades. This of course is very simplistic, a trend is capable of reversal at any time. Technical and fundamental data can indicate however if the trend has begun long ago and if it is strong or weak.

Market expectation:
Market expectation relates to what most people are expecting as far as upcoming news is concerned. If people are expecting an interest rate to rise and it does, then there usually will not be much of a movement because the information will already have been ‘discounted’ by the market, alternatively if the adverse happens, markets will usually react violently.

Use what other traders use:
In a perfect world, every trader would be looking at a 14 day RSI and making trading decisions based on that. If that was the case, when RSI would go under the 30 level, everyone would buy and by consequence the price would rise. Needless to say, the world is not perfect and not all market participants follow the same technical indicators, draw the same trendlines and identify the same support & resistance levels. The great diversity of opinions and techniques used translates directly into price diversity. Traders however have a tendency to use a limited variety of technical tools. The most common are 9 and 14 day RSI, obvious trendlines and support levels, fibonnacci retracement, MACD and 9, 20 & 40 day exponential moving averages. The closer you get to what most traders are looking at, the more precise your estimations will be. The reason for this is simple arithmetic, larger numbers of buyers than sellers at a certain price will move the market up from that price and vice-versa.

2007-06-27T21:07:00.000-07:00

A Different Type of Moving Average Cross by Mark Mc Rae

Virtually every trader has dabbled with or experimented with some sort of moving average. What I want to introduce you to in this lesson is a different sort of moving average cross method, which I have found to be very good at identifying short term trend changes.

As we know a moving average is normally plotted using the close of a bar e.g. if you were plotting a 3 period moving average, then you would add the last three closes and divide the total by three to get a simple moving average.

This is where I want you to think a little differently. I have always been an advocate of taking traditional thinking and changing it around. What if you used the open instead of the close? What if you used the close of one period of a moving average and the open of another?

First, most charting packages will allow you to use the open, high, low or close to plot a moving average.

By rsydnos

In the example below of the daily Forex, I have used a 5 period exponential moving average of the close and a 6 period exponential moving average of the open. As you can see it catches the short term trend changes really nicely.

By rsydnos

In the next example of the 1 hour EUR/USD, you can see that the close/open combination worked really well. Of course you will go through periods of consolidation with any market and any moving average method you use will be whipsawed. To get around this you need some sort of filter or approach that helps you keep out of the low probability trades.

You could use ADX, Stochastic or MACD to help filter the noise but I also like to add a time frame.

By rsydnos

In the next example of the 4 hour GBP/USD you can see that on the 24th September 04 at 4:00 there was a cross of the 5 period exponential moving average of the close above the 6 period exponential moving average of the open. This signal has remained in place until today as I write on the 27th September.

By rsydnos

Although there was a signal on the 4 hour, to help identify even better entry points you can drop down a few time frames to the 30 minute chart. As you can see from the 30 minute chart there have been quite a few crosses of the 5 period exponential moving of the close above or below the 6 period exponential moving average of the open.

By rsydnos

There are lots of ways to trade this but a neat little trick is to wait for the signal on a higher time frame and then drop down a few time frames and wait for a pullback. The first signal after the pullback on the lower time frame is normally a pretty good entry point e.g. If there were a cross up on the large time frame then drop down to a lower time frame and wait for the market to retrace and then give another buy signal (cross up). The opposite is true for short signals.

Once you get the signal on the shorter time frame depending on where support is you can usually place your first stop loss under the nearest support area (valley). If the market begins to make progress you can move your stop so that it trails the market by moving your stop to just under the most recent support area.

In this lesson I have use an exponential moving average but experiment with different types of average such as weighted, smoothed or simple. You can also experiment with different lengths of moving average.

Good Trading

2007-06-27T06:22:00.000-07:00

The truth about Buy and sell signals.

Wrong! The perennial questions are, "Should I buy? Should I sell?" All too many traders focus their efforts on identifying buy and sell signals. In fact, that's what most trading books consist of-some way to find buy and sell signals. Trading systems are usually all about "where to get in."

The research and analysis traders do is geared towards reaching the goal of getting that magic "base line" directive to guide their actions. How ignorant can you be?

Any successful, experienced trader will tell you that although properly identifying buy/sell signals is important, it's not the key to being successful. Instead, the way you manage each trade is what will determine your success.

Traders who take the baseline approach tend to believe that the success of their trading activity is dependent on following the right buy/sell signals at the right time. Clearly, it's important that a trader be able to understand the process of generating signals and to use the methods involved. Realistically though, almost any trader can find a way to generate signals (whether using technical methods already out there, coming up with their own system, or using their platform's automated signal generation tools).

Any successful, experienced trader will tell you that your trade doesn't begin and end with a buy or sell. There's a trade management process involved. For each trade you make, you're making a group of decisions. The way you manage and time those decisions is what will determine the success of your trade.

Let' say two traders get the same signal at the same time and act on it. One's trade may result in profits while the other's results in losses. How is this possible? It can occur because each trader made a different combination of decisions throughout the course of the trade. The decisions might include scaling in and/or out of the trade, using or not using trailing stop losses, setting or not setting profit objectives prior to entry, patience or lack thereof, etc. The trader who made the most effective overall combination of decisions will have the better trade results in the end. Of course, there are times when pure chance, gives the better result to the worst trader.

It's very important to regard trading as a process, and to understand that as a trader your efforts need to be focused on the activity of trading itself, as opposed to getting a quick base line answer. Because there are many things to take into consideration in making your trades successful, it's essential that you educate and train yourself in all the different areas. Learn how to develop better trading plans and analysis methods, and then learn how to apply what you've developed to the process of a making a trade-from the original impulse to enter or stay out of a trade to the control of your thought processes and emotions in managing that trade.

by Joe Ross

2007-06-26T08:07:00.000-07:00

Scalping, when used in reference to trading in securities and commodities, may refer either to a fraudulent form of market manipulation or to a legitimate method of arbitrage of small price gaps created by the bid-ask spread.

Market Manipulation

Scalping in this sense is the practice of purchasing a security for one's own account shortly before recommending that security for long-term investment and then immediately selling the security at a profit upon the rise in the market price following the recommendation. The Supreme Court of the United States has ruled that scalping by an investment adviser operates as a fraud or deceit upon any client or prospective client and is a violation of the Investment Advisers Act of 1940.[1] The prohibition on scalping has been applied against persons who are not registered investment advisers, and it has been ruled that scalping is also a violation of Rule 10b-5 under the Securities Exchange Act of 1934 if the scalper has a relationship of trust and confidence with the persons to whom the recommendation is made.[2] The Securities and Exchange Commission has stated that it is committed to stamping out scalping schemes.

How scalping works

Playing the spread

Scalping is simply playing the spread. Scalpers attempt to act like traditional market makers or specialists. To make the spread means to simply buy at the Bid price and sell at the Ask price, to gain the bid/ask difference. This procedure allows for profit even when the bid and ask don't move at all, as long as there are traders who are willing to take market prices. It normally involves establishing and liquidating a position quickly, usually within minutes to even seconds.

Role

The role of a scalper is actually the role of market makers or specialists who are to maintain the liquidity and order flow of a product of a market.

A market maker is basically a specialized scalper. The volume it trades are many times more than the average individual scalpers. It has sophisticated trading system to monitor its trading activity. However it is bound by strict exchange rules while the individual trader is not. For instance, NASDAQ requires each market maker to post at least one bid and one ask at some price level, so as to maintain a two-sided market for each stock it represents.

Due to role overlapping, a scalper is always competing with the market maker for profits. Unfortunately, the low-end scalper is almost always at a disadvantage due to the following market maker's advantages:

1. superior execution speed as an insider
2. a greater knowledge of trading and the actual market situation due to its information gathering capacity
3. huge amount of capital to backup and support market makers
4. the ability to provide false impression to the market by placing a larger/smaller bid or ask to bluff the trader

Principles

Spreads are bonuses as well as costs

Most worldwide markets operate on a Bid and ask based system. The numerical difference between the bid and ask prices is referred to as the spread between them.

The ask prices are immediate execution (market) prices for quick buyers (ask takers); bid prices for quick sellers (bid takers). If a trade is executed at market prices, closing that trade immediately without queuing would not get you back the amount paid because of the bid/ask difference.

Spread is 2 sides of the same coin. The spread can be viewed as trading bonuses or costs according to different parties and different strategies. On one hand, traders who do NOT wish to queue their order, instead paying the market price, pay the spreads (costs). On the other hand, traders who wish to queue and wait for execution receive the spreads (bonuses). Some day trading strategies attempt to capture the spread as additional, or even the only, profits for successful trades.

Lower exposure, lower risks

Scalpers are only exposed in a relatively short period. They do not hold overnights. As the period one holds decreases, the chances of running into extreme adverse movements, causing huge losses, decreases.

Smaller moves, easier to obtain

A change in price results from imbalance of buying and selling powers. Most of the time within a day, prices stay stable, moving within a small range. This means neither buying nor selling power control the situation. There are only a few times which price moves towards one direction, ie. either buying or selling power controls the situation. It requires bigger imbalances for bigger price changes.

It is what scalpers look for - capturing smaller moves which happen most of the time, as opposed to larger ones.

Large volume, adding profits up

Since the profit obtained per share or contract is very small due to its target of spread, they need to trade large in order to add up the profits. Scalping is not suitable for small-capital traders.

Different Parties and Spreads

Who pays the spreads (costs)

The following traders pay the spreads:

* Momentum traders on technicals - They look for fast movements hinted from quotes, prices and volumes, charts. When a real breakout occurs, price becomes volatile. A sudden rise or fall may occur within any second. They need to get in quick before the price moves out of the base.
* Momentum traders on news - When news break out, the price becomes very volatile as many people watching the news will react at more or less the same time. One needs to take the market prices immediately or the golden opportunities which may vanish after a second or so.
* Cut losses on market prices - The spread becomes a cost if the price moves against the expected direction and the trader wishes to cut losses immediately on market price.

Who receives the spreads (bonuses)

The following traders receive the spreads:

* Individual scalpers - obviously they trade for spreads and can benefit from larger spreads.
* Market makers and specialists - people who provide liquidity place their orders on their market books. Over the course of a single day, a market maker may fill orders for hundreds of thousands or millions of shares.
* Spot Forex (exchanges of foreign currencies) brokers - they do not charge any commissions because they make profits from the bid/ask spread quotes. On July 10 2006, the exchange rate between Euro and United States dollar is 1.2733 at 15:45. The internal (inter-bank dealers) bid/ask price is 1.2732-5/1.2733-5. However the forex brokers or middlemen will not offer the same competitive prices to their clients. Instead they provide their own version of bid and ask quotes, say 1.2728/1.2740, of which their commissions are already "hidden" in it.

Factors affecting Scalping

Liquidity

Liquidity of a market affects the performance of scalping. Each product within the market receives different spread, due to popularity differentials. The more liquid the markets and the products are, the tighter the spreads are. Scalpers like to trade in a more liquid market since they can make thousands of trades a day to add up their small profits offered on each trade.

If they are to trade in less liquid markets, they will try to cover their risks by widening their bid and ask prices.

Volatility

Unlike momentum traders, scalpers like stable or silent products. Imagine if its price does not move all day, scalpers can profit all day simply by placing their orders on the same bid and ask, making hundreds or thousands of trades. They do not need to worry about sudden price changes which kill them unprepared.

Time Frame

Scalpers operate on a very short time frame, looking to profit from market waves that are sometimes too small to be seen even on the one minute chart. This maximizes the number of moves during the day that the scalper can use to make a profit.

Risk Management

Rather than looking for one big trade, the way a swing trader might, the scalper looks for hundreds of small profits throughout the day. In this process the scalper might also take hundreds of small losses during the same time period. For this reason a scalper must have very strict risk management never allowing a loss to accumulate against him.

2007-06-23T21:04:00.000-07:00

Pivot Point Trading

by Mark Mc Rae
Surefire Trading

You are going to love this lesson. Using pivot points as a trading strategy has been around for a long time and was originally used by floor traders. This was a nice simple way for floor traders to have some idea of where the market was heading during the course of the day with only a few simple calculations.

The pivot point is the level at which the market direction changes for the day. Using some simple arithmetic and the previous days high, low and close, a series of points are derived. These points can be critical support and resistance levels. The pivot level, support and resistance levels calculated from that are collectively known as pivot levels.

Every day the market you are following has an open, high, low and a close for the day (some markets like forex are 24 hours but generally use 5pm EST as the open and close). This information basically contains all the data you need to use pivot points.

The reason pivot points are so popular is that they are predictive as opposed to lagging. You use the information of the previous day to calculate potential turning points for the day you are about to trade (present day).

Because so many traders follow pivot points you will often find that the market reacts at these levels. This gives you an opportunity to trade.

If you would rather work the pivot points out by yourself, the formula I use is below:

Resistance 3 = High + 2*(Pivot - Low)
Resistance 2 = Pivot + (R1 - S1)
Resistance 1 = 2 * Pivot - Low
Pivot Point = ( High + Close + Low )/3
Support 1 = 2 * Pivot - High
Support 2 = Pivot - (R1 - S1)
Support 3 = Low - 2*(High - Pivot) As you can see from the above formula, just by having the previous days high, low and close you eventually finish up with 7 points, 3 resistance levels, 3 support levels and the actual pivot point.

If the market opens above the pivot point then the bias for the day is long trades. If the market opens below the pivot point then the bias for the day is for short trades.

The three most important pivot points are R1, S1 and the actual pivot point.

The general idea behind trading pivot points are to look for a reversal or break of R1 or S1. By the time the market reaches R2,R3 or S2,S3 the market will already be overbought or oversold and these levels should be used for exits rather than entries.

A perfect set would be for the market to open above the pivot level and then stall slightly at R1 then go on to R2. You would enter on a break of R1 with a target of R2 and if the market was really strong close half at R2 and target R3 with the remainder of your position.

Unfortunately life is not that simple and we have to deal with each trading day the best way we can. I have picked a day at random from last week and what follows are some ideas on how you could have traded that day using pivot points.

On the 12th August 04 the Euro/Dollar (EUR/USD) had the following:
High - 1.2297
Low - 1.2213
Close - 1.2249

This gave us:

Resistance 3 = 1.2377
Resistance 2 = 1.2337
Resistance 1 = 1.2293
Pivot Point = 1.2253
Support 1 = 1.2209
Support 2 = 1.2169
Support 3 = 1.2125

Have a look at the 5 minute chart below

By rsydnos at 1969-12-31

The green line is the pivot point. The blue lines are resistance levels R1,R2 and R3. The red lines are support levels S1,S2 and S3.

There are loads of ways to trade this day using pivot points but I shall walk you through a few of them and discuss why some are good in certain situations and why some are bad.

The Breakout Trade

At the beginning of the day we were below the pivot point, so our bias is for short trades. A channel formed so you would be looking for a break out of the channel, preferably to the downside. In this type of trade you would have your sell entry order just below the lower channel line with a stop order just above the upper channel line and a target of S1. The problem on this day was that, S1 was very close to the breakout level and there was just not enough meat in the trade (13 pips). This is a good entry technique for you. Just because it was not suitable this day, does not mean it will not be suitable the next day.

By rsydnos at 1969-12-31

The Pullback Trade

This is one of my favorite set ups. The market passes through S1 and then pulls back. An entry order is placed below support, which in this case was the most recent low before the pullback. A stop is then placed above the pullback (the most recent high - peak) and a target set for S2. The problem again, on this day was that the target of S2 was to close, and the market never took out the previous support, which tells us that, the market sentiment is beginning to change.

By rsydnos at 1969-12-31

Breakout of Resistance

As the day progressed, the market started heading back up to S1 and formed a channel (congestion area). This is another good set up for a trade. An entry order is placed just above the upper channel line, with a stop just below the lower channel line and the first target would be the pivot line. If you where trading more than one position, then you would close out half your position as the market approaches the pivot line, tighten your stop and then watch market action at that level. As it happened, the market never stopped and your second target then became R1. This was also easily achieved and I would have closed out the rest of the position at that level.

By rsydnos at 1969-12-31

Advanced

As I mentioned earlier, there are lots of ways to trade with pivot points. A more advanced method is to use the cross of two moving averages as a confirmation of a breakout. You can even use combinations of indicators to help you make a decision. It might be the cross of two averages and also MACD must be in buy mode. Mess around with a few of your favorite indicators but remember the signal is a break of a level and the indicators are just confirmation.

By rsydnos at 1969-12-31

We haven't even got into patterns around pivot levels or failures but that is not the point of this lesson. I just want to introduce another possible way for you to trade.

Good Trading

Best Regards
Mark McRae
Surefire Trading

2007-06-22T23:33:00.000-07:00

10% Of Traders Go Bankrupt

I was thinking about an article I read some time ago that 90% of traders who ever trade lose their account and that 10% actually go bankrupt. If the first number doesn't scare you then the second definitely should.

Why is it then that there is such a large number of traders failing? It is not because they are stupid; in fact most traders have an above average IQ and are above average in most categories such as education and income. So why do they fail?

Lack of trading education!

By education I don't just mean learning how RSI works or drawing lines on a chart. I mean thoroughly educating yourself in all aspects of your chosen profession. Educating yourself on the correct psychological approach to the market! Educating yourself in the correct risk management techniques relative to your account size. Educating yourself in the correct entry and exit
methods for the trading style that suits you.

This, my friend, is where I hope to be of some help. I don't have all the answers nor do I profess to be some kind of guru but I will do my best to point you in the right direction.

Common Misconceptions Of New Traders

They think they can trade consistently with an 80% accuracy.
They think they can turn $1000 into $100,000 in six months.
They think they can predict turning points in their given
markets to within minutes.
They think they can buy a system that is 100% accurate.
They think they will quit their jobs and make a living full
time after a few months of trading.
What's the reason that so many new traders believe that trading is an easy way to make big profits? Propaganda!

We are continually bombarded in magazines, emails and the general media with claims of making astronomical amounts, just by applying the vendor's latest method or system.

Don't get me wrong, there is good stuff out there but the vast majority is not worth the price you pay. At www.surefire-trading.com I also recommend products but I have at least read the ebooks or courses and think they have some value to my subscribers and they all have a refund guarantee.

Fundamentals Of Trading

Trading is not an exact science. You can't do X and get Y every time. It is as much an art as it is anything else. There is no magic formula. Trading is all about probability. It is the art of correctly applying a set of carefully thought out rules and allocating the probability of that event to result in success.

Each trade is an independent event. The market does not remember if you lost or made dollars the last time you traded.

The way you approach the market psychologically has as much to do with your success as any trading plan.

Risk management is crucial if you want to have any hope of becoming a successful trader.

Matching a method of trading with your personality is the only way you will ever feel comfortable in the markets.

An adequately funded account is necessary - not only to be able to take the trades you want, but also so you don't feel every trade is a live or die situation.

The journey to the road of successful trading will make you confront your deepest fears. Your armor on this journey will be confidence, knowledge and belief in yourself that you can achieve your dreams.

Never, equate your success or failure in the markets with who you are as a person!

The Flaw In Our Emotions

As humans we have a natural tendency to try and influence our surroundings and events we take part in. This is one reason we, as a species, have succeeded but it is also one of the fundamental flaws we all have when trying to achieve success as a traders.

As traders we have to realize we have no control over the market and if we accept that then we have to accept that we can not influence the direction of the market.

The problem of course is we have a tendency to try and succeed and when inevitable losses come, it is easy to let those losses effect us emotionally. Becoming euphoric when you hit a winning streak is almost as detrimental as becoming depressed when you have a string of losses.

We as traders have to try and achieve the state of impartiality. We have to accept that we will have losses as readily as we will have wins. Reaching the stage where you can comfortably accept loss in the knowledge that your method of trading will produce profits in the longer term is the state we have to aspire to.

Risk Management

Whenever I think of risk management I always think of an article I read on 925 CTA programs between 1974-1995. It essentially confirmed what I have long held to be true. To summarize the report, of all the CTA's who managed funds, the most consistently profitable were the ones with the best risk management systems.

To trade successfully you have to take a long look at yourself. Ask and answer the following questions.

How much equity do I need to start? How much should I risk on any one trade? Am I undercapitalized?

During the course of these lessons I will do my best to help answer these and other questions.

Entry And Exit

As a trader you will probably fall into two main categories, traders who like to trade the breakout and traders who like to join the trend once established. We could also add congestion traders, reversal type traders and mechanical signal traders but for the vast majority of traders you are going to fall into one of the two categories.

If you are a trend trader, you like to define a trend and then find a way in. This may be with the aid of fibonacci retracement levels, moving averages, Gann or one of the other many indicators available today. Your goal is to enter the trend as early as possible with the least amount of risk.

Breakout traders like to enter the market on the breakout of a previously identified range. This may be support/resistance areas, rectangles, triangles or one of the many other chart patterns. The secret to this type of trading is to determine a valid break.

In future lessons we shall begin to look at the more technical side of trading and how you can apply technical analysis to the markets to increase your probability of success.

Conclusion

During this lesson I have tried to give you a glimpse into the world of trading. I have also taken a slightly negative stance, as I don't want you to get unrealistic expectations of what to expect.

On the more positive side, trading is a fascinating world, which will allow you to really exercise your brain. There is no other arena where you get to play with some of the best minds in the world on a level playing field.

Once mastered, if you can ever use that term then the possibilities are endless. Hopefully I can help you achieve your goals

2007-06-18T20:53:00.000-07:00

Lion of the Desert (Umar al Mukhtar)

Lion of the Desert (Umar al Mukhtar)

Lion of the Desert is the dramatic action epic of the struggle of Omar Mukhtar, leader of the Muslim resistance in North Africa in the 1920's and 30's, against the imperialism of Mussolini and the Italian army. Despite the challenge of overcoming the fascist Italian war machine with only faith and wisdom, the Muslims led by Mukhtar maintained their resistance and refused to be conquered.

Watch Online:
http://video.google.com/videoplay?do...98238&hl=en-GB

We go back in history to 1862 where a young boy of a poor household was born in a town controlled by the Uthmany Khilafa. This young man was brought under the care and tutelage of one of the Shuyookh in his home town when he was at the ripe age of 16 after the death of his father.

He eventually developed a lifestyle of not sleeping more than 3 hours every night in order to get up to pray to Allah at the last third of the night and recite Qur'an until fajr. He memorized the Qur'an (as all knowledgeable people begin their lives) eventually, and was known to have finished his revisions in its entirety every seven days, regardless of the sufferings he encountered in his life.

His courage and wisdom was pronounced, and was an example for people to follow. This was evident on one of his caravan trails to Sudan as a young man. A lion had deterred the people from entering a particular path. Caravans were veered else where for fear of this lion. To distract this lion, people would resort giving it one of their camels, a most prized possession, so they could pass safely. He learned of this lion during the journey, where upon he consequently took it upon himself to face this crisis head on. Unlike other men in the caravan who were dumbstruck by the situation, he carried his shot gun, rode his horse and went after the lion. He came back with the lion's head much to everyone's surprise and due gratitude. This earned him the name "Lion of Cyrenaica."

An upbringing of courage and upright religiosity had a massive effect on him. His character would not only change the course of his tribe, country and people, but also the world of Muslims in the Post Colonial Era.

In his twenties he was known for his maturity beyond his years as well as his wisdom, for he continued to solve tribal disputes. His people listened to him and took his counsel regardless of village or region he found himself in. His manners were known to be great, for he was eloquent, balanced in his speech, and appealing to those who listened. This uniqueness helped him unite the tribes, and later on gather armies to fend off the colonizers.

His thirties was marked by the dawn of the Colonial Era as it began to spread its cancer to the rest of the world. At the time when the world was being ravaged by European nations, this man stood firm for Islam and faced colonizers with his valor. He fought fiercely against the French with a group called Banu Sanus, who would later be known as the Sanusies. For a brief moment, they also fought the British, who were marked by greed and attempted to conquer their land.

As part of a global feast on the so-called less civilized nations, Italy joined the European nations in causing havoc in the southern part of the hemisphere by colonizing North Africa. It was during this time, this man, in his fifties, gathered his forces in the face of an invasion attack against Libya, his homeland.

To pacify his resistance army, the Italians offered him high ranking positions and wealth. In return, they demanded that he surrender and follow their Colonial decree. He responded in a famous quote saying, "I'm not a sweet bite of a meal anyone can swallow. No matter how long they try to change my belief and opinion, Allah is going to let them down."

They then offered him to leave his town to live closer to the ruling party complete with a monthly salary, but he again refused by saying, "No, I will not leave my country until I meet my lord. Death is closer to me than anything, I'm waiting for it by the minute."

This man, whose seventy more years of age had not prevented him from fighting, was the soul of his people's resistance against hopeless odds. He gave his people hope against an army thousands more than his own, equipped with more modern weapons, airplanes and armoury while he and his men starved in the mountains with nothing on their backs but their rifles and horses. After his firm position, as the Ummah is always in need of such legends to lead the people, people gathered around him. He successfully began to strike the Italians where it hurt. He hit firmly, swiftly, and harshly those who thought occupying Muslim lands, oppressing, imprisoning, and torturing Muslims, was going be effortless.

Another man in his nineties named Abu Karayyim, from the Jalu oasis, had fought with him in the deep south. Hunger and disease eventually decimated his people. The Italians soon stepped up operations by burning and pillaging villages. Women, children and the elderly were not spared. During their weakest point, people were gathered and placed in concentration camps.

The Sanusi, Muhammad az-Zaway, who once fought with him against the French, attempted to persuade him to retreat to Egypt with the rest of those who fought against the French. But, this man refused to turn his back on the enemy knowing well that his chances are dim against a force that was swelling by the minute.

When asked why he continued the fight, he stated that he fought for his religion, and he sought no other than to get the occupiers of his lands. As to fighting, he said that was a fard , regardless of the outcome as victory comes from Allah. He used to refuse any peace talks with the colonizers saying we have nothing but to fight the occupying enemies of Allah.

After countless battles, he was wounded and captured alive. He and his men defended themselves until he and one of his companions were left. At last his horse was shot dead under him, causing him to fall to the ground. He was shackled and brought to a city called Suluq, where the Italian military post was established.

This man believed Jihad was ordained upon every able Muslim while his homeland was occupied by the colonizers. With his faith, heroism and courage he earned the respect of even his enemies.

They then offered him to leave his town to live closer to the ruling party complete with a monthly salary, but he again refused by saying, "No, I will not leave my country until I meet my lord. Death is closer to me than anything, I'm waiting for it by the minute."

This man, whose seventy more years of age had not prevented him from fighting, was the soul of his people's resistance against hopeless odds. He gave his people hope against an army thousands more than his own, equipped with more modern weapons, airplanes and armoury while he and his men starved in the mountains with nothing on their backs but their rifles and horses. After his firm position, as the Ummah is always in need of such legends to lead the people, people gathered around him. He successfully began to strike the Italians where it hurt. He hit firmly, swiftly, and harshly those who thought occupying Muslim lands, oppressing, imprisoning, and torturing Muslims, was going be effortless.

Another man in his nineties named Abu Karayyim, from the Jalu oasis, had fought with him in the deep south. Hunger and disease eventually decimated his people. The Italians soon stepped up operations by burning and pillaging villages. Women, children and the elderly were not spared. During their weakest point, people were gathered and placed in concentration camps.

The Sanusi, Muhammad az-Zaway, who once fought with him against the French, attempted to persuade him to retreat to Egypt with the rest of those who fought against the French. But, this man refused to turn his back on the enemy knowing well that his chances are dim against a force that was swelling by the minute.

When asked why he continued the fight, he stated that he fought for his religion, and he sought no other than to get the occupiers of his lands. As to fighting, he said that was a fard , regardless of the outcome as victory comes from Allah. He used to refuse any peace talks with the colonizers saying we have nothing but to fight the occupying enemies of Allah.

After countless battles, he was wounded and captured alive. He and his men defended themselves until he and one of his companions were left. At last his horse was shot dead under him, causing him to fall to the ground. He was shackled and brought to a city called Suluq, where the Italian military post was established.

This man believed Jihad was ordained upon every able Muslim while his homeland was occupied by the colonizers. With his faith, heroism and courage he earned the respect of even his enemies.

When the Italian general made him a final offer to make him their puppet and be allowed to live like the other leaders of his people, he answered, "I shall not cease to fight against thee and thy people until either you leave my country or I leave my life. And I swear by Him who knows whaht is in men's hearts that if my ands were not bound this very moment, I would fight you with my bare hands, old and broken as I am.."

It was then that the Italian general laughed and ordered him to be hung after a frontal saving face act of a mock trial. Even before the court was in session a rope outside the court house hung waiting him.

His hanging took place before hundreds of tribes in 1931. With the intent to scare the Muslims, the Italians did not succeed in doing this. The opposite had taken place. His hanging shook the entire Muslim world, and numerous resistances took place specifically in North Africa.

May Allah raise his position in paradise. Ameen.

The Italians took pictures of him in shackles, surrounded by smiling Italian generals, and those who expressed happiness for his hanging. They did not realize that it is those very same shackles and rope hanging around his neck in the hands of his enemies fighting for the sake of Allah that would become the envy of every true Muslim.

The man, whose mug shot spoke his legacy, is none other than Omar AlMukhtar. His legacy will live until the day of judgement, inshallah. With his blood, he drew the stories of victory, he became a legend of the legends, and a guide for those who wanted to live in honor at a time of humiliation.

The surrendered modernists and disbelieving scholars of his time were not imprisoned nor hung. They died a normal death, possibly even in luxury and wealth, under the protection of the occupying Italians. However, they died and their names died with them. Jahannam is the abode of those who ally themselves with the kuffar colonizers over the Muslims. Omar AlMukhtar lived, and fought hard in the days of his life. He was shackled, imprisoned, then hung. But his legacy lives on and paradise, inshallah, is the resort of the martyrs.

Omar AlMukhtar was attached to Allah, depending on Him, and accepting that which Allah had written for him. He asked Allah to become a martyr and this what he has attained, inshAllah.
Ahmad Jibril

Written in the one third end of the night of Oct. 12, 2004

2007-06-18T00:40:00.000-07:00

Abu Hurairah, radiyallahu 'anhu, reported that the Messenger of Allah, sallallahu 'alayhi wasallam, said:

"Allah the Almighty has said: 'Whosoever acts with enmity towards a closer servant of Mine (wali), I will indeed declare war against him. Nothing endears My servant to Me than doing of what I have made obligatory upon him to do. And My servant continues to draw nearer to Me with supererogatory (nawafil) prayers so that I shall love him. When I love him, I shall be his hearing with which he shall hear, his sight with which he shall see, his hands with which he shall hold, and his feet with which he shall walk. And if he asks (something) of Me, I shall surely give it to him, and if he takes refuge in Me, I shall certainly grant him it.'"

[Al-Bukhari]

background

The translation of the term wali that is mentioned in the hadith is a closer servant (awliya') of Allah or a believer rather than a closer friend. There are many verses in the Qur'an that talk about the concept of wilayah. These verses talk about the qualities or attributes of awliya' and their status in the sight of Allah. In this hadith Allah mentions the status of the wali even before He talks about His attributes. This status is mentioned in the beginning (i.e. Allah will declare war against whoever acts with enmity towards one of His closer servants) and in the end (i.e. Allah will answer their du'a and will give them refuge). This shows the status of awliya' in the sight of Allah. In the middle of the hadith, Allah tells us the qualities of His closer servants.

The hadith also tells us that Allah loves those who are the closer servants to Allah. This is a natural result of what they do. Allah tells us about their actions upon which they deserved to be loved by Allah. We will see that there are two levels of servants of Allah: The first level is those who fulfill the obligations and avoid the prohibitions (muharramat). The second level is those who not only do this but also perform the preferable acts (nawafil).

The concept of wilayah (awliya' Allah) is based on the verses of the Qur'an and this hadith. In the Qur'an there are three verses in Surah Yunus - Ayah 62, 63 and 64.

No doubt verily the awliya' of Allah (the closer servants of Allah) no fear shall come upon them nor shall they grieve. Those who believed and used to fear Allah much, for them are the glad tidings in this life and the Hereafter.

Based on these three verses and this Hadith Qudsi, we can say that the concept of wilayah comprises of the following:

The love of Allah
Fearing of Allah
Belief or faith in Allah and his Messengers
Devotion, honesty, and sincerity
Obedience to Allah and following His instructions - this include performing good deeds. This motif of this obedience is based on fear of Allah, repenting to Allah and submission to His will.

The origin of wilayah is closeness to Allah and the enmity is being far away from the path of Allah. Based on this, the awliya' of Allah are those who are obedient and perform the good deeds which make them closer to Allah. The enemies of Allah, on the other hand, are those who are evil doers. Their ill deeds distance themselves away from Allah and this will make them far from Allah's blessing, support, and love.

lessons

In the first portion of the hadith ("Nothing endears My servant to Me than doing of what I have made obligatory upon him to do. And My servant continues to draw nearer to Me with supererogatory (nawafil) prayers so that I shall love him."), Allah classifies His servants into two categories:

The first category are those who get closer to Allah by fulfilling the obligations and avoiding the prohibitions. This is a moderate level that has been described in the Qur'an as ashab alyameen. This is the minimum level of wilayah. In other words, wilayah is achieved just by fulfilling the obligations and avoiding the prohibitions. This level of wilayah is expected from all believers.

The second category of people are those who are closer to Allah by being competent (al-sabiqeen) in their worship and effort and strive to be close to Allah. This category of people are not satisfied only of performing the obligations and avoiding the prohibitions but they go further by performing the preferable acts. They also avoid the non-preferable acts. Consequently, they will reach the degree of wara' and wilayah that will make Allah love them. Allah mentions this explicitly and that His love will be granted for these competent people.

Some of the early people (salaf) used to say that it is not a big matter whether you love; the biggest matter is to be loved by Allah. If you are loved by Allah, then you are granted with His mercy and blessings. You are going to be granted with His support and guidance.

The Prophet, sallallahu 'alayhi wasallam, used to say the following in his du'a: "O Allah I ask You that You love me and the love of those who love You and to enable me also to love every act and deed that may bring me closer to You". That is the reason why some of the early scholars say that the actions and the worship that are based on the love of Allah will continue and never be depressed or frustrated. Some others say that the one who loves Allah will not get fed up or bored of getting closer to Allah. He never feels that he is bored of doing good deeds and acts that will get him closer to Allah. Other scholars say that for the one who loves Allah, his heart is purified and he always remembers Allah. He always seeks and strives to do good deeds and acts that will get him closer to Allah. He does all of this with pleasure.

The early scholars also say that the one who loves Allah should obey Him, otherwise he is only claiming to love Allah. Scholars say that among the preferable acts (nawafil) that make a person become closer to Allah, is the nawafil al-salawat (the preferable prayers that the Prophet, sallallahu 'alayhi wasallam, used to pray every day). Another thing is the recitation of the Qur'an and listening to it with full attention and understanding. Also part of the preferable acts is the remembrance of Allah where what the tongue says matches with what the heart believes, and the love of other good Muslims who are closer to Allah.

The second portion of this hadith ("When I love him, I shall be his hearing with which he shall hear, his sight with which he shall see, his hands with which he shall hold, and his feet with which he shall walk.") implies that, as Ibn Rajab says, whoever strives, struggles and makes the effort to get closer to Allah by doing the obligations and performing the preferable acts, Allah will get him closer to him, support him, and take him from one level into another until this servant of Allah reaches the degree of Ihsan where this believer will be able to practice muraqabeh. That is he worships Allah as if he sees Him, and his heart will be full with love of Allah.

Not only will Allah grant him love of Allah but he will also be helped to glorify Allah and granted with satisfaction. This will be strengthened by performing the preferable acts until the heart is full of these acts where nothing else will enslave or capture the heart. The heart is fully devoted to Allah. When that status is reached by the believer, the limbs of that servant will act only in accordance to what Allah loves. Then he will be seeing, hearing, and doing what Allah sees, hears and does. He will be walking towards what Allah wants and likes. The early salaf say that he cannot even commit a sin. Ibn Rajab quotes Ali who said that they used to believe that Omar's Satan was so frustrated to do any sin or disobedience. This is one of the secrets or the real fruits of tawhid. This is because "La ilaha illa Allah" means that we should only worship, glorify, obey, and love Allah and fear Him the most. When this realisation of tawhid is achieved, then he says the heart will have no place for anything that may displease Allah. What will be in the heart is only what Allah loves. In this case, that person will never commit a sin or any kind of disobedience. Committing sins takes place only if the person loves what Allah hates or that person hates what Allah loves. It also takes place when self interest is given a priority and dominance over the love of Allah. The result will be that the obligations of the tawhid will not be complete. The person will be led to delay obligations or to commit sins.

The third portion of this hadith ("And if he asks (something) of Me, I shall surely give it to him, and if he takes refuge in Me, I shall certainly grant him it.") Implies that the closer servant of Allah has a special status in the sight of Allah. This special status will lead to that whatever he asks of Allah, Allah will give him and his du'a will be attended to. If he seeks refuge from anything, he will be given that.

In Sunan Al-Imam Al-Nisa'ei, there is one chapter on iste'azeh. There are many hadiths in this chapter that tell us the sayings that the Prophet, sallallahu 'alayhi wasallam, used to say to seek refuge of Allah to be saved from things such as poverty, ignorance, the turmoil of the grave, sadness and depression of this life, and various diseases. The closer servant of Allah is granted to be saved from the above mentioned things and many others. As Muslims we have to realise the importance of this portion of the hadith especially for those who are hearing the hadith for the first time. It is better that we learn from the Prophet, sallallahu 'alayhi wasallam, what to seek refuge of Allah from. We should try to memorise some hadiths which are in the form of du'a. In that way we will be granted the love of Allah and we will be given the status of awliya'. Consequently, we will be granted with the bounty that whatever we ask for, Allah will give us. Moreover, we will be saved from the harms that are mentioned above.

The last thing that we need to point out is the misconception of wilayah. After the early centuries of Islam, this concept has been misunderstood to the extent that there came a time when the attributes of the wali is not what is mentioned in the Qur'an and hadith. It is actually by claims. We look at the person and his attitude and worship of Allah and we are shocked to see a big difference. We are surprised to see that the actions do not match with the Islamic teachings. How, then, can this person be a wali? He is not a closer servant of Allah. The real closer servant of Allah will not abuse wilayah and use it for promotion because it is not what he claims but it is in the heart and love of Allah. This should be corrected because until today some Muslims are still confused about wilayah. Imam Shatibi sets a number of criteria for wilayah or karamah because they are granted only if the person is close to Allah. Awliya'u Allah are shy to claim that they are closer to Allah because this contradicts with the idea of ikhlas (sincerity).

conclusion

We notice that Imam Nawawi brings this hadith which states the main fundamental concepts or principles of Islam in a clear way. By studying this hadith, one comes to know what the concept of wilayah or closeness to Allah means and what he should do. We also know the status of awliya'.

This hadith is a warning to those who may harm believers in general or the closer servants of Allah in particular. Allah declares war against the one who acts with enmity towards His awliya' (closer servants). This is a message to all Muslims and people not to harm others or to be enemies with Allah by harming the believers. That is how the situation will be, if not in this life, it will be in the Hereafter. Moreover, Allah knows better what is in our favour and what is not in our favour. That's why sometimes the closer servants of Allah may ask for something and Allah does not attend to their du'a because the things they may ask for may cause them some harm . But still because of their du'a, there will be the blessings and mercy from Allah in similar situations. The blessings of du'a will be also granted in the Hereafter.

source

2007-06-15T22:08:00.000-07:00

London, Apr 13 (ANI): Had dinosaurs been alive, it could have been possible that the next time you ordered for a chicken leg, the restaurant would have served you a T. Rex steak.
Don't be surprised, for scientists have now discovered that dinosaur proteins are very similar to chicken proteins.
For their study, the team of US researchers compared organic molecules preserved in a 68 million year old T. Rex fossil and compared them to those of living animals.
The dinosaur fossil included a skull, both thighbones and both tibiae (shin bones) unearthed from rocks in the Hell Creek Formation of eastern Montana, US.
Scientists found the protein sequence pattern to be structurally similar to chicken collagen, and there were also similarities with frog and newt protein. Researchers say the proteins are original organic material from the dinosaur's soft tissue, and not contamination.
Mass sepctrometry, a sensitive technique that identifies chemicals by their atomic mass, also revealed that the protein in the bones were similar to chicken proteins.
The T. Rex material contained sequences of amino acids - protein building blocks - typical of collagen, said co-author Mary Schweitzer, from North Carolina State University in Raleigh, US.
Dr. Schweitzer says the findings are important as they shed new light on the evolutionary link between dinosaurs and birds. The findings are also consistent with the idea that birds trace a direct evolutionary line to dinosaurs, she adds.
This apart, the technique could also help reveal evolutionary relationships between other living and extinct organisms, the researchers write in the journal Science.
According to Dr. Schweitzer, the discovery of protein in dinosaur bones is a big surprise - as organic material was not thought to survive this long.
As per the theories of fossilisation, original organic material is not thought to survive as long as this; and finding them in a fossil this old is a genuine surprise, and these are by far the oldest such molecules extracted from fossils.
"It has always been assumed that preservation of [dinosaur bones] does not extend to the cellular and molecular level. The pathways of cellular decay are well known for modern organisms. And extrapolations predict that all organics are going to be gone completely in 100,000 years, maximum," said Dr. Schweitzer.
"The similarity to chickens was exactly what one would expect given the relationship between modern birds and dinosaurs," she added. (ANI)

2007-06-10T22:10:00.000-07:00

Does Forex Make Money?

With a daily turnover estimated at around $1.8 trillion the answer to the question “Does the Forex make money?” is pretty obvious.

The bigger questions is: “For whom?”

With the opportunity for anybody and everybody with a computer and an internet connection to participate in the Forex to make money in recent years, thousands of individuals have had some exposure to the challenges of Forex trading.

Is The Forex A Fool’s Game?

According to some estimates, the vast majority, perhaps as high as 95%, lose money.

Is it a fool’s game, just an elusive dream to trade the Forex to make money to try and achieve financial security?

In view of the high failure rate, it is prudent for anyone who is contemplating entering Forex trading to do their homework first. While the majority fail to make consistent profits from the Forex, a minority do, and some of them make huge profits from the Forex.

The Realistic Mindset

What is the key? A realistic mindset when approaching the Forex, a commitment to learn and get a proper education, and then, application of the knowledge learned in a disciplined way backed up by perseverance!

For an individual who has already had experience trading stocks, or futures, the learning curve may only involve a few months when switching to the foreign exchange market.

For the complete novice the learning period will probably run into years, anywhere from 1 to 3 years according to some estimates.

During this time the novice will have to first get acquainted with the workings of the Forex, learning the terminology, and working with a demo account on a trading platform supplied by an online broker.

Months will need to be spent sitting in front of a computer screen studying candlestick charts, getting acquainted with specific patterns, learning to recognize high probability setups. There is no shortcut for this part of the educational process if you want the Forex to make money for you.

The Most Critical Factor

Then comes the most critical part of all: developing the mental discipline and emotional control necessary for safe trading.

The Forex can be a minefield for anyone who is not in control of their emotions. For a person who has a gambling instinct, the Forex will suck their account dry in a very short time. The Forex is not a game of chance.

Successful trades are the product of careful market analysis, an understanding of how the market moves acquired from months and years of experience, and a strict control of equity management.

Even with all that input, the successful trader will still regularly lose trades. As long as there are a greater number of trades that are successful, the Forex will make money for you.

Make An Informed Decision

If all this sounds overwhelming and a little foreboding, you are getting the picture of what is involved once you start down the road as a Forex trader.

On the other hand, this is a job that can be done from home, with as many hours committed to it as you wish to allow, and in the long term, once the skills have been acquired, the Forex can provide a substantial form of income.

Will the Forex make money for you? That is an individual question and will depend on all the variables discussed above. Do your homework, check out educational materials, examine your current workload and circumstances, be honest about your personality style, and then make an informed decision.

2007-06-08T02:07:00.000-07:00

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2006-08-01T04:10:00.000-07:00

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WHAT IS FOREX

SELF TRADING

The ability to control one's own finances, to enjoy immediate trade execution and confirmation, and to print out a transaction record within seconds—all these factors make online self-trading of stocks a popular and intelligent choice. It's no different with the forex market, except that trading forex is even more efficient than trading stocks and commodities.

For many people, self-trading the forex market is actually much more attractive because it is so much larger than other markets (one day's volume in forex can equal up to 50 day's volume on the New York Stock Exchange) and offers the potential of achieving above-average success rates of 2% to 20% or more in a single month, week, or day with strong risk management.

Self-trading forex is not for everybody, however. Self-trading forex takes time, effort and focus as you learn a new set of skills that can help you be successful. It's not about luck or software or "insider tips"--trading forex is a discipline.

WHY TRADE FOREX

Why should I trade forex?
There are many reasons to invest the necessary time, focus, and money in learning to trade forex: financial gains, of course, but also increased personal freedom and the ability to work how, where and when you choose.

World's largest market, moving trillions of dollars a day
Trade from home, the office, or virtually anywhere in the world
Enjoy 24-hour liquidity in just seconds
Benefit from sustained price trends
Work part- or full-time
Analyze just a few currencies
Trade with a higher success rate in both up and down periods
Enjoy unlimited profit potential when you trade in the correct market direction
Enjoy account security with regulated brokers
Use convenient margin / risk management tools
Forex opportunities are fair- this is the most level playing field of any market
Perfect market for technical analysis
Execute trades online, quickly and easily

HOW FOREX WORKS

How does forex trading work?
It's actually simple. Currencies are traded in pairs. A spot trade is "opened" when you simultaneously buy a block of one currency and sell another. A trade is "closed" when the reverse is done. To earn a profit, you buy low then sell high, or sell high and then buy low. Risk can be set as low as 1% to 5% per trade. Trades take place online or by phone without taking physical delivery of the currencies.

Saturday, May 13, 2006
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