• FX: USD is lower and the market is so far not too impressed by the Paulson/Bernanke Plan.
• Fixed Income: Bunds rallying towards 114. Treasuries still offered. JGB’s seem to have bottomed out.
• Stocks: Most sessions moderately down.
• Commodities: Mostly ranging, but precious metals looking bid.
• In what has reflected the fact that the bank problems are not limited to American Banks, Hong Kong’s Bank of East Asia has now come under the strain of rumors of a bank run, although these rumors have been denied by the authorities and bank management. Hong Kong has not had any bank runs since 1993, the creation year of Hong Kong Monetary Authority.
• In a sign of further trouble to the global liquidity, Chinese banking regulators are speculated to be blocking Chinese domestic banks from lending to US financial Institutions in the inter bank markets. This has however has been denied by the Chinese Authorities.
• Facing a public discontent and resistance by the Congress, Treasury Secretary Paulson has stated his willingness to accept the changes to the rescue package that would ascertain that the bank executives are not unduly compensated within the rescue package and that the government could buy direct equity stakes in the firms being assisted.
• In a congressional hearing yesterday, the Fed Chairman Bernanke has repeated his warning over the serious threats to the financial system and highlighted that the spillover effects from the credit crisis to households and businesses can be already be seen.
• President Bush was later in a speech confirming the message from Bernanke/Paulson. The speech was surprisingly gloomy and compared the current crisis with that of the Great Depression.
• FX: EURUSD blasting higher. Wild discussions about Bernanke/Paulson Plan…
• Fixed Income: 10-year contracts ranging or edging slightly lower. Fed’s Funds Futures indicating a 34% chance of a 35 bps. cut at the 29th of October FOMC meeting.
• Stocks: European session down by around 2%. US down by 3-4%. Asia down by 2%. Nikkei closed.
• A combination of short-expiring ahead of October expiry, USD-weakness and news of higher imports from China have caused the largest single-day rise in crude prices, with the October contract closing at $120.92, or up 16%. At the same time, November contract saw Monday trading close over $110, or up nearly 7%.
• Details in the (so far) $700B Bernanke/Paulson Plan favour Morgan Stanley and Goldman, stories show. Critics state that the plan is far too cheap to have any impact and the real issue has moved from illiquidity to insolvency.
• Precious metals regaining some of the lost ground from the August-September sell-offs and most risk indicators are flashing and beaming. Only EURCHF not responding like it should in this environment (we should see massive unwinding).
• The USD is selling off dramatically. The USD Trade Weighted Index briefly touched the 50% Fibonacci retracement from the bottom in mid-July to the top in mid-September. The rapidly deteriorating US fundamentals and desperate nationalization of bad debt might lead to a break soon. These days, anything can happen…
Trading successfully is not a very simple matter. It requires time, market knowledge and market understanding, a large amount of self restraint and analytical mind.
It is very difficult to make consistently money in foreign exchange markets as they are driven by many factors. 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.
Trade with money you can afford to lose:
Trading forex 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.
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 forex trader a very large amount of leverage, trading at full margin capacity 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.
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:
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.
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 expection 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.
