Trading Psychology

Whatever markets you trade, having the right mindset is critical to your success. I've been mentally preparing myself as we enter into what could be an extremely volatile week/month. The ability to develop a sound trading psychology and to blend that psychology together with your trading method is the key to success. My four guiding principles going into this month are:

1. Wake up early. Be aggressive.

2. Cut your losers short and let your winners run.

3. Uncomfortable with a trade? Get out, because you can always get back in.

4. Don't ever feel you are very good at trading. The second you do, you are dead.

This may seem overly simplistic to you, but the simple aspects of trading are usually the hardest to master. Finally, I've been reading several of Martin J. Pring's books lately, and a quote from one of them really stood out. I've been pondering about why the equity markets are trading at their current levels, given that I believe the market fundamentals currently warrant equity indices at significantly lower prices. In order to understand why equity markets are trading at elevated levels, you must first understand the short, medium, and long term bullish views of market participants. If you put yourself in their place, you will understand the key factors that have the potential to spark a reversal.

"There is no point in bucking the crowd just for the sake of being contrary. Good investors need to rationalize why the crowd might be wrong and what the alternative outcomes are likely to be. These investors therefore have the ability or knack to justify their contrariness." - Martin J. Pring, Investment Psychology Explained


Good luck trading this week and feel free to join us in our Free Live Trade Room.

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RBA Interest Rate Decision - Oct. 2nd

The Royal Bank of Australia is scheduled to announce it's interest rate decision on Tuesday, October 2nd at 12:30 A.M. Their interest rate is currently 3.50%, and the market is pricing in a 60% - 65% chance of a 25 basis point cut (0.25%). Market participants are also pricing in approximately 100 basis points of cuts over the next 12 months.

One of the main considerations in the RBA's interest rate decisions is the economic strength of China, its largest trading partner. Chinese economic data has been weak in the month of August: Industrial production came in at 8.9% versus a previous 9.2% YoY, Foreign Direct Investment came in at -1.4%, and HSBC services PMI fell from 53.1 to 52. In addition, the HSBC Flash Manufacturing PMI for September came in at 47.8 versus a previous of 47.6 (anything below 50 is bad.) Although China has economic problems, the People's Bank of China (PBOC) just recently injected a record amount of cash into their money markets. The PBOC has also stepped up their rhetoric in regards to further stimulating the economy. If the PBOC does stimulate, it will help the Australian economy and be a boost to the Australian Dollar (the Aussie). I do expect the PBOC will stimulate before the end of this year; but only after the regime change takes place.

Australian economic data in the month of August has been weak as well. Employment came in at -8.8K actual, 5.0K exp., 11.7K previous (a downward revision). The unemployment rate actually fell from 5.2% to 5.1%, but that was actually BAD because it was due to a drop in the labor participation rate (65.0% actual, 65.2% previous). The Aussie trade balance also took a hit (-556M actual,  -227M previous). Note: The high exchange rate the Aussie is currently trading at is bad for exports, and Australia is largely an export based economy.

As the economic data in China and Australia has been bad, it definitely gives the RBA scope to cut rates. However, they may decide to hold off and monitor certain issues: the debt crisis in Europe, whether or not the PBOC decides to stimulate, commodity prices, etc. If the RBA decides not to cut interest rates this coming week, I think there's a high probability they will cut interest rates at the following meeting.

Royal Bank of Australia's Website

Forex Traders from Canada

As many Canadian FX traders know, there have been some regulatory issues with forex traders in Canada being serviced by forex brokers in the United States. Currently, Institutional Liquidity (ILQ) is able to accept clients from all provinces in Canada with the exception of the province British Columbia (BC).


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Forex Trading - Market Update

Market Update

The markets rose in the Asian session last night as it was revealed the China had recently injected a record amount of cash into the money markets and rumors about another round of Chinese stimulus starting making the rounds. As some of the European markets opened (2AM candle on an hourly chart) EUR/USD came off of 1.2900 and traded down/sideways until bouncing off of a low of 1.2830 when it was announced during the Spanish budget cut meeting that their cuts had "exceeded the ECB's expectations." 

Why is this important? Because it essentially paves the way for them to request a sovereign bailout. The only reason the Spanish government hasn't already requested a bailout is because of the conditions that would come attached. Market participants inferred from the line: "exceeding the ECB's expectations with these cuts" that conditionality of a bailout was either no longer necessary or no longer a big deal. 

Without listing the countless economic and political that Spain has, (Zerohedge does a nice job of that here) I'll simply say that they didn't fix any of their problems, and that this new round of austerity is going to generate more social unrest. They can pat themselves on the back for some quality jawboning. Their problems will continue to catch up with them and eventually their rising bond yields will force them to request a bailout from the ECB.

Looking Forward

It's possible that the optimism derived from speculation that Spain has temporarily fixed its problems could carry over into the Asian session and drive markets higher. However, tomorrow marks the last trading day of both the month and the quarter, so price action may be very volatile and moves much less predictable.

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Bank of Japan Threatens to Ease

The Bank of Japan (BOJ) is taking its cues from Bernanke and Draghi when it comes to the art of jawboning.

BOJ official Sato:

- BOJ won't hesitate in easing further if risks heighten enough, economy undershoots forecasts even after Sept. easing.

- BOJ says that Government's should work together on overvalued Yen ... says that buying foreign Bonds is one option

- BOJ buying foreign bonds is a viable option, but must take into account legal limits in doing so


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Forex Trading - Market Update

Market Update
The markets sold off yesterday starting with the Aussie, as a Chinese government official made a negative comment about growth: "it should be above 7.0% for the rest of this year." I have little doubt that he will soon be fired. Market participants began focusing on the protests in Spain shortly after, and the US equity markets sold off as risk appetite decreased substantially. Now remember, this sell-off started in the US session yesterday after the European session closed. This gives more scope for negative sentiment to be carried over into the next session. As expected, the European & Asian sessions resulted in a sell off of equities.

Looking forward
What a lot of people don't realize is that the protests in Spain and Greece were/are planned. They should be on everyone's calendar as potential catalysts. Protests in Spain are scheduled to continue today and a massive protest in Greece was scheduled for today. As the media continues to shift attention to the protests, I expect it to affect sentiment in today's US session and cause the equity markets to close in the red.

Timestamped.


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The Greek Budget Shortfall Gets Bigger

Apparently that Greek shortfall is even bigger than the even bigger figure reported in the German press on Monday.

From Eurointelligence:

Spiegel Online and Suddeutsche Zeitung have updates on the Greek budget gap, which is even bigger than previously assumed – around €30bn. This is the accumulated short-fall the troika is expected to identify in its forthcoming report – the amount Greece has to raise, save, restructure, default on, if it wants to make it through the second loan programme. Spiegel writes that the troika will say that the recession has totally counteracted the budgetary savings, while the government has failed to introduce structural reforms.

Spiegel says this leaves three scenarios: getting the €31bn tranche anyway with more leeway for reforms; a new debt restructuring; or… a forced exit. Which, it says, is not an option, politically.

The troika will also state that Greece will not meet the long-term goals of funding the budget without external help from 2015 and a complete return to financial markets in 2020. Suddeutsche says the EU does not want Greece to fail, but it does not want to pay the €30bn either. There was thus a danger that they would shift the responsibility to the ECB.

From ft.com/alphaville
http://ftalphaville.ft.com/blog/2012/09/25/1175661/the-greek-budget-shortfall-gets-bigger/


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End of Year Predictions for EUR/USD

The numbers below are end of the year estimates for EUR/USD from May 21st. The current consensus estimate for EUR/USD at the end of the year was 1.23 (according to Bloomberg about a week ago). There are estimates on opposite ends of the spectrum here, and I think it really comes down to whether or not a Grexit occurs. In case anyone missed the news flash, the Troika report that was due out in early/mid October was "delayed due to possible effects on the global economy before the Presidential elections." It will now be released in November after the election. We know that Greece has not kept their promises concerning budget cuts and if they don't reach an agreement with the Troika in the current negotiations, they may not receive the third tranche of aid. The situation essentially boils down to whether or not the Germans will continue bailing out Greece. It appears that the Obama administration didn't want to risk a global sell-off in equity indexes and pressured their European counterparts to delay the report. This doesn't necessarily mean that a Grexit will occur - just that that Obama administration didn't want to risk it before the election.

Deutsche Bank AG                           $1.30
Citigroup Inc.                                  $1.25
Barclays Plc                                     $1.20
UBS AG                                           $1.15
HSBC Holdings Plc                           $1.44
JPMorgan Chase & Co.                     $1.36
Royal Bank of Scotland Group Plc      $1.33
Credit Suisse Group AG                   $1.27
Morgan Stanley                               $1.19
Goldman Sachs Group Inc.               $1.33

http://www.bloomberg.com/news/2012-05-20/hedge-funds-rebuild-bearish-euro-bets-for-greek-exit-banks-weigh.html


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Foreign Exchange Statistics

The most traded currencies by percentage of daily share as of April 2010 are:

1. United States dollar = 84.9%
2. Euro = 39.1%
3. Japanese yen = 19.0%
4. Pound Sterling = 12.9%
5. Australian dollar = 7.6%
6. Swiss franc = 6.4%
7. Canadian dollar = 5.3%
8. Hong Kong dollar = 2.4%
9. Swedish Krona =2.2%
10. New Zealand = 1.6%

Bank for International Settlements Foreign Exchange Webpage:
http://www.bis.org/publ/rpfxf10t.htm


And below we have the Top 10 currency traders as a percent of overall volume, May 2012

Rank / Name / Market Share
1 Deutsche Bank 14.57%
2 Citi 12.26%
3 Barclays Investment Bank 10.95%
4 UBS AG 10.48%
5 HSBC 6.72%
6 JPMorgan 6.6%
7 Royal Bank of Scotland 5.86%
8 Credit Suisse 4.68%
9 Morgan Stanley 3.52%
10 Goldman Sachs 3.12

http://en.wikipedia.org/wiki/Foreign_exchange_market


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Foreign Exchange: Global FX Turnover Hits $4.9 Trillion a Day

By Peter Garnham - Written for http://www.euromoney.com


Long-term rising trend identified; London remains dominant with 38% share  

A report from TheCityUK indicates that average daily volume in traditional FX market transactions totalled $4.6 trillion in April 2012. When turnover from nontraditional FX derivatives and products was included, that figure rose to $4.9 trillion. Although 5% down on 2011, turnover remains close to record levels.

The UK-based financial and professional services group’s report models the twice-yearly FX turnover releases from leading central banks, as closely as possible following the methodology of the Bank for International Settlements’ (BIS's) comprehensive triennial survey of FX volumes, to reduce any double counting of transactions.

TheCityUK maintains that the volume of FX trading activity remains on a long-term upward trend, notwithstanding the dip in activity in 2009 as the effects of the financial crisis weakened global trade, produced a fall in activity and a wave of deleveraging from international investors.

The group says the long-term upward trend remains intact, given the growing importance of FX as an asset class, the increase in global fund management assets and growth in the use of financial derivatives. In addition, the diverse selection of FX execution venues and the development of electronic platforms has made it easier for retail traders to access the market, the report notes.


Big share

London was the main centre for FX trading, with average daily turnover of traditional FX products totalling $1.86 trillion in April 2012, along with a further $141 billion traded in currency derivatives. That took London’s market share of global FX up to 38%, from 37% in the last biennial BIS survey in 2010. The US was the second-largest centre, with 18% of the global total. Singapore and Japan were the next largest centres with about 5% each. Most of the remainder was accounted for by Germany, Switzerland, Canada, France, Australia and Hong Kong.

Twice as many dollars are traded on the FX market in the UK as in the US, and more than twice as many euros are traded in the UK than in all the eurozone countries combined. That reflects London’s position as Europe’s leading financial centre and the world’s leading international financial centre.

The report notes that around half of European investment activity is conducted in London. About 80% of Europe’s hedge funds are managed in London, which is also Europe’s main centre for FX prime brokerage. Geography plays its part, with trading activity at its highest when leading markets overlap. That produces spikes in trading early in European time and as North American markets open. 

Article URL: http://www.euromoney.com/Article/3089979/Category/16/ChannelPage/8959/Foreign-exchange-Global-FX-turnover-hits-49-trillion-a-day.html


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Trading Psychology and Professionalism

I spent part of today reading through FXGears psychology material. It's a great read and I highly recommend it to any new traders. Below is the introduction.


"Being a professional is, before anything else, a lifestyle and state of mind.

If you need a job title, or account balance to feel "professional", you're in the wrong game. There's nothing wrong about that. Seriously, the majority of people out there will tie their self-esteem (and judge their peers) to this metric. If this is you, and you love the markets/finance, go out and get a job at a brokerage as a sales/account rep, or work for a large company where years of tenure will land you with some VP title and a nice salary, and enjoy life. Don't attach your idea of 'success' to trading results alone, you'll only end up frustrated an in emotional pain (and worse yet, you might sour yourself on the industry as a whole.)

However, if you're not interested in playing the game of life in such a way, and you seek the kind of fulfillment that can only come from taking total control over your actions against humanity's strongest instincts and psychological flaws... then read on, the life of a professional trader might just be a good fit.

"nanos gigantium humeris insidentes"

"...If I have seen a little further it is by standing on the shoulders of Giants" - Isaac Newton (but this ideology stretches far back, well before his time.)

Most things you'll read here have already been published by various authors or mentioned from various sources. I'm not reinventing the wheel here when it comes to trading psychology. Instead, I aim to align select bits of info that I feel showcase the acme of skill in trading and do my best to right the path may traders are current on.

Here's the best part; we're not even going to talk about trading itself right now. No, that's going to be far down the road from here. Right now, we have a much greater challenge ahead of us: We must undo thousands of years of instinct reinforced by your life's experience that lead you to where you are as a human being right now."

You can continuing reading the next section here.

Homepage: http://fxgears.com/index.php


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Forex Trading - Market Update

Market Update
To be perfectly honest, I still don't understand the price action on EUR/USD from 4:00 - 11:00 AM EST. I've spent the day searching for answers, and all that I can come up with is that this madness had something to do with options expiring. The double up and down whipsaws make very little sense from a technical analysis viewpoint. However, it was a "Quad Witching" day, which could account for the irregularities in price action.

Zerohedge:  "Between quarter-end, quad-witching, and the index-rebalancing, activity at the NYSE soared today. More than triple the average of the last few weeks, today's volume was the highest since the US downgrade last August - over 13 months ago - and given the downward pressure in prices into the close it seems more motivated sellers than buyers locking in anticipated Fed/ECB gains." http://www.zerohedge.com/news/quad-witching-day-sends-nyse-volume-soaring-highest-over-year

The increase in participation should cause an increase in volatility levels, and it may also lead to a decline in risk appetite. My favorite way to trade changes in risk appetite is the Australian dollar, because the Royal Bank of Australia (RBA) currently has interest rates set at 3.50%. For those of you who don't regularly trade the Aussie, I recommend visiting the RBA's website: http://www.rba.gov.au/ and reading up on monetary policy. I also recommend this video done by Chris Lori: http://vimeo.com/48913337 I have no official opinion or recommendation as to his trading seminars or courses, but he offers interesting fundamental insights on the Australian economy.


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Forex Trading - Market Update

Market Update

The markets sold off in the Asia and Europe sessions only to rebound in the US session starting with the Philly Fed Manufacturing print coming in better than expected. Actual: -1.9, Forecast: -4.1, Previous: -7.1. The push higher was propelled by rumors of a sovereign Spanish rescue package, negotiations going well between Greece and the Troika, and a possible haircut on some of Greece's debt. In the forex market, one of the key drivers for price is the expectations of participants. Rumors (as baseless as they often turn out to be) can cause expectations to change and result in significant price moves. For my style of trading, the key to playing intra-day swings requires nothing more than understanding expectations and realizing when it may become conducive for a "rumor" to start making the rounds across trading desks.

The market fundamentals in Europe continue to deteriorate, but that doesn't mean the Euro is headed down. Market participant's perception of the Eurozone's stability will have a bigger impact on EUR/USD than the actual fundamentals in the short term. For example, rumor of a haircut on Greek debt doesn't really improve their incredibly bleak economic outlook, but it increases the chance that Greece doesn't exit the Eurozone, and price may rally. In the near future, market participants are looking for encouraging signs that a Grexit won't happen, and that Spain will formally request a sovereign bailout. (Spain doesn't want to have to request a bailout with any conditions attached, so they may try to drive down their rising bond yields with rumors. I don't think that will be effective for very long; but I have no doubt they'll try.)


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FX Market Update

Market Conditions
Equity indices in the US and European session closed slightly down today. Anti-American sentiment across the world rose as protests increased following the release of an anti-islamic film. Tensions heightened between China and Japan as their disagreement over a group of small islands escalated into broad nationalistic anger across both countries. There are also growing concerns that Israel may attack Iran. I personally think that there is a high probability of such an attack occurring before the end of the year.

Looking Forward
When I have a clear picture of where I think the market will go, I will clearly lay it out here for all to read (as I did last Friday.) Currently, I'm not sure where the market will go tomorrow or for the rest of the week. Here are a couple of points to note though:

1. Market participation is continuously increasing at this point. (It was very low this summer) As participation picks up, volatility will increase.

2. I think we are currently over-extended at these prices. That doesn't mean we can't move higher; but I think the more likely scenario is to consolidate or move lower. The market is currently trending upwards though, so I will play any moves to the downside with caution. (dollar based pairs)

3. If we do see moves lower in the currency market (risk off) it will be important to classify what the risk off sentiment is being derived from. If it's the U.S. fiscal cliff, the Iran-Israeli conflict, Anti-American sentiment, any sort of global fears, the China-Japan dispute, or the Chinese Economy, I favor playing risk off derived from the above sources against the Australian dollar and New Zealand dollar to the downside. The demand for these currencies stems from risk appetite trends, as the main reason for buying these currencies is because of the high interest rates in their respective countries. I'm currently playing them against EUR and GBP, and I favor continuing to do so unless we see an substantial increase in "risk off" sentiment derived from Europe. Of course, any risk off behavior can be played against the USD, but playing a high yielding commodity currency against the EUR & GBP is attractive to me at the moment because it somewhat protects against a "risk on" scenario as well - (and because EUR/AUD & GBP AUD tend to trend well.)

4. There's going to be a lot of important information coming out of Japan this week, so I'm trading the Yen pairs with extreme caution. I think it's likely that the BOJ may forcefully intervene in the currency markets so I favor only playing the yen pairs to the upside (yen weakness.)

US Fiscal Cliff

I could write about it, but Tyler Durden has already posted an excellent article on the subject located here: http://www.zerohedge.com/news/goldman-fiscal-cliff-worse-it-gets-better

I expect it to be a prominent theme splashing across media headlines in the near future.


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FX Market Update

The stops above 1.3000 on EUR/USD were taken out in spectacular fashion, as bears who continue to trade solely based on market fundamentals got slaughtered as EUR/USD ran up to 1.3170. As I stated in my last post, there was lots of room for stops to be run today. I'm bearish in the medium term (end of the year), but I will not fail to trade with the trend for as long as it continues up. As traders, we have to trade what is in front of us (unless you plan on holding trades for a considerable length of time.)

From here, I think markets are due for a slight retracement on Monday. Why? Because I think the current moves are overextended (in the very short term). For the last couple of months, Fridays (on average) have been good days for the markets, while the reverse is true for Mondays. (Especially the Monday following a strong day in the markets on Friday). I also think that people who have missed the move up will try and jump into it the first thing on Monday, and will probably have price run down in their faces. In addition, Egan Jones downgraded the United States' debt rating to "AA-" from "AA" - and that brings attention to the fact that the other ratings firms (Moodys, Fitch, S&P) all have negative outlooks on their current ratings.

My strategy is to be patient and wait for a decent sized dip on Monday - which I plan to buy should market conditions warrant it. If you'd like to see exactly what I look for before entering a trade, simply request a free trial of our live trade room for current/live analysis.






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FX Market Update

The Fed delivered opened ended QE3 today announcing 40bln in monthly purchases of mortgage backed securities, an increase of 45bln per month for Operation Twist, and low interest rates moved back to mid 2015.

The market reaction to this news was extremely choppy in EUR/USD as participants began to take large positions in both directions. When the rate decision came out, risk appetite began increasing across the board and about 30 minutes after the announcement, EUR/USD began climbing and briefly touched the 1.3000 level during Bernanke's press conference. The 1.3000 figure is not only psychologically significant, but it also serves as important resistance (previous support from the lows on 2/16, 3/14, 4/16). There are numerous stops above this level running all the way up past 1.3100, and I wouldn't be surprised if they are shortly run.

Let me be clear, I think that this move higher in equity markets is completely unsustainable. There's one big problem with Bernanke giving the markets open ended QE: he can no longer front run a new QE program. Market participants now have clearer expectations about what the Fed will do in the future. Expectations over what measures the ECB can take have also cleared up some. (No doubt all sorts of stimulus rumors will start flying the next time market conditions deteriorate in Europe though.) In terms of sentiment, I don't see what else market participants can look forward to that will result in a sustainable increase in risk appetite. I think attention now shifts to the U.S. fiscal cliff (USD bullish), and the U.S. presidential election (The dominant theme will be the economy = USD bullish).


Let me be clear, I believe that we will begin a trend of dollar strength (EUR/USD down) no later than Monday, Sept. 24th. 


However, I'm not sure whether or not we will get a final spurt up before the markets begin heading down. U.S. Equity Markets are currently hitting multi-year highs and I'm not stepping in front of this incredibly strong move. In my opinion, it's better to be a little late jumping on a trend than to try and call a top.


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FX Market Update

My suspicions about sentiment (posted on Sunday evening) proved to be correct. Please note that I do not expect those reasons to continue driving the markets lower. Now that we've had this temporary correction, as I'm unsure how sentiment will change before the Fed rate decision on Thursday. The German court ruling on the constitutionality of the ESM (and any conditions attached) further complicates sentiment predictions. I do think there will be a substantial run-up in the markets sometime prior to the Fed Rate decision, so I favor buying any substantial dips.


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Forex Trading - Monday, Sept. 10th

Market Update: Monday - Asia Session

On Thursday and Friday we saw a substantial increase in risk appetite. On Friday the EUR/USD daily candlestick opened at 1.2633 and closed at 1.2819, a 186 pip move. I believe the move was mostly derived from reactions to Friday's Non-Farm Payroll numbers. The consensus was for +123K jobs and the actual number came in at +96K, with the previous number revised down to +141K. The market interpreted these numbers as disappointing, and speculation over QE3 increased causing the dollar to sell off.

I think the market is due for a slight correction between now (6:00 P.M. EST) and the end of the U.S. trading session at 4:00 P.M. EST. Here are my reasons:

- I think risk is temporarily overbought. I think risk has plenty of scope to be bid until the Fed rate decision on Thursday, but that a temporary correction is likely. There will likely be a move up a day/session or two before the rate decision, so I favor the correction happening earlier in the week.

- Throughout the summer I have observed the U.S. equity markets (on average) doing well on Fridays, and poorly on Mondays. In my opinion, the fact that we had such a strong move up on Friday increases the chance that we see a correction on Monday.

- The Chinese data released today came in slightly worse than expected (Industrial Production YTD came in at 8.9% versus the consensus estimate of 9.0% and Fixed Asset Investment YTD came in at 20.2% versus the consensus estimate of 20.4%) I believe the upcoming Chinese, Japanese, and Australian data that will continue to trickle in over the next 24 hours will probably come in lower than expected. I would specifically watch out for Japanese GDP and Current account data and Chinese Trade balance and New Yuan Loans data releases. You can check for the data releases here: http://www.forexfactory.com/calendar.php?week=sep9.2012

My Trade: I have shorted EUR/USD at 1.2806 with a stop loss at 1.2840. I think there are stops around and above the 200 SMA and 200 EMA at 1.2840 & 1.2857 respectively. So if price moves in that direction and attempts to flush out stops above the MAs, then I don't want to be holding this trade and will get stopped out at the onset of the stop run. I've set a tentative take profit at 1.2702, because as of right now I don't see further scope for more than a stop run underneath the 1.27 figure before Thursday. I may cover the position prematurely at the end of Monday's U.S. session.




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NFP reports spurs QE3 speculation

Today's Non Farm Payrolls came in today with 96K new jobs added in the month of August. Consensus was for 130K new jobs and the previous number was revised down to 141K. Market participants generally regarded these numbers as dismal and there was an immediate increase in expectations over QE3 (coming sooner rather than later.) As I said before today's US trading session, irrational sentiment is still strong. You have to be careful trading counter trend.

My Trades:

- I watched stops being run out in GBP/USD and took a short position at 1.6030 with a SL at 1.6070. I'll take half of the trade off at 1.6000 or at the end of the day and move the SL to breakeven.

- The second trade I'm looking at is an AUD/USD short; but I want the stops above the 1.0400 figure to get run out. If they get run out today, I'll go short at 1.0420 with a SL at 1.0445 and hold it over the weekend. I like this trade for two reason: first, over the last two days we've had a strong risk rally in the currency markets and I don't see this rally holding over into the Asian/European sessions on Monday. Second, there's Chinese data that's scheduled to be released over the weekend and I'm speculating that it will come in worse than expected.


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Forex Market Irrationality

The market can remain irrational longer then you can remain solvent.

I've noticed a lot of retail forex traders have been shorting the Euro over the last month. They've probably also blown up their account or lost a significant portion of it. Why? Because they've been trading based on the underlying market fundamentals.

Price action does not, nor will it ever, accurately reflect underlying market fundamentals. The sooner you understand this very simple concept, the sooner you can begin to rebuild your account. Moves in the forex market are based on central bank action and investor/trader sentiment more than anything else.

So when you look at the debt crisis in Europe, China coming in for a hard landing, and the fiscal cliff in the United States - don't trade it unless it fits your time horizon. If you typically only hold trades for a couple of days then you need to trade the price action that's in front of you.


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