Casual Forex Trader

This is something that I hear a lot from people. I tell them that I’m a forex trader and that is how I earn a living. Well, the obvious question comes first: What is forex? I simply explain that it stands for foreign exchange and it is the market place of currencies. I just tell them that I trade currencies to make money. In one form or another someone will say, “isn’t that gambling?” The way they view it is that you’re putting money into the market with the hopes of making more money, but there is risk that you can lose it – therefore a gambler.

I don’t think gambling can be defined that simply because that’s essentially what I’m doing. A gambler is a person that puts their money on the line for typically a thrill to begin with. They’re looking for a high as a pay back, so essentially that is what they profit with.

Another point is that a gambler knowing (or unknowingly) gets involved in things that will statistical cause them to lose money. The odds are always against the gambler. People that invest are typically indifferent to their trades and get involved win things that have winning odds for profit.

Am I a forex trader or a gambler? I’m definitely a forex trader. I’m making the most profitable decisions possibly by playing the odds for my benefit. I never get involved in trades that will leave me on the losing end. That’s what separates gamblers and traders.

What if I told you that you could actually make money on a currency that just happens to stay at the same value for a long period of time? You’d probably think I’m crazy, but the truth is that you can use a currency carry trade to profit in this scenario. I want to add first that such a trade is going to appear to fall out of the range of “forex trading”, but this is all about currency and making money. I hope you’re not objecting to your ability to make more money because I’m sure not.

The process is a very simple to understand. Let’s say the the price of the currency will remain the same value over the year. Let’s say you could get a real cheap loan from someone. Maybe you have a 0% interest for the first year on your credit card or you have money you can borrow from your friend at 1% a year. You could very well take that money, turn it into the currency that remains the same and invest it into their bonds that pay 5% a year. Obviously if you’re paying 1% interest on your loan, than you’re making 4% profit a year for doing nothing more than carrying a currency. Hence why they call it a currency carry trade.

This may seem a little ideal. You’re probably thinking “How the hell do I get a low interest loan like that? No banks offer that. My credit card charges 18% interest.” Maybe you haven’t realized it yet, but your broker does margin trading with you. Meaning you put up some cash and they put up a lot of cash for just about 1-2% of your return. That’s cheap money and that is what you should be using.

As you can see, doing a currency carry trade is definitely a profitable thing to do. It will help branch you out of the whole simple minded thinking of most forex traders. As usual, this post is brought to you by Forex Killer. Check it out because it will help your profits.

I decided to start doing weekly summaries. It seems like a lot of the successful blogs out there like to do this kind of thing as well. I know a lot of my readers don’t have the time to hang around my blog reading each post as it is released. Sometimes a post will be on a subject that isn’t something you need to know. For whatever the reason, the summary will allow you to catch up on the weekend on what you missed and give you a brief summary of the posts. This way you don’t have to dig through anything.

Forex Market Hours – You’ve probably been told that this market is 24 hours a day, 5 days week, but that isn’t entirely true. All currencies have their set time for trading and you need to know them. There are also typically two overlapping times for currencies to trade. Knowing these times are important.

Managing Your Forex Money – There are too many forex traders that learn how to make money, than learning how to manage it properly. Sure, anyone can make a good trade, but that doesn’t mean a bad trade can cause you to lose a lot of money.

Understanding Commodity Currencies – Commodity currencies are probably about some of the most misunderstood in this type of trading. Understanding how they work can help you profit.

Forex Trading on News – Start leveraging your money ahead of news, so you can make a quick profit on the currency moves after major announcements.

It is becoming more and more popular to trade forex on the news. We all should recognize that any sort of economic news and government news will have an effect on the price value of a currency. Some of that news is harder to figure than others, so please don’t assume what I’m going to show you as something that is universal. It’s better to stick to the news that you can predict the outcomes of.

I’d also like to point out that things have worked contrary to conventional wisdom during this downturn, so view this post for educational purposes only.

Central Bank Interest Rates

Obviously any news related to the central bank interest rates are going to have an effect on the value of a currency because it is the interest rate that inevitably controls the supply of currency available in the market. And at this point you should know that supply and demand sets the price.

Raising interest rates is a sign that the supply (or at least the growth of the supply) is going to be limited and that should be a good sign for the price of the currency.

Lowering interest rates is a sign that the supply (or at least the growth of the supply) is going to be grown and that should be a good sign that the price of the currency will decrease.

Weekly Jobs Report

Each week (at least in the US) on Thursday morning there are weekly jobs report that shows whether there were jobs made or lost. This is the part that I want to stress has been working opposite during this down turn.

Basically when jobs come in better than expected, it shows that things are going much better than anticipated and the currency should go up. If jobs come in worse than expectation, it shows that things are a lot worse than thought and the currency should go down.

This has been working the opposite and I can only speculate to why that is so. I believe a lot of people have been hanging on to greenbacks when things are bad. Any sign that things might be improving, the money is dumped out the currency and into some other asset class.

I want to talk to you about comdolls, commodity dollars or in other words commodity currencies. There are a lot of forex currencies out there but the commodity currencies are special because they are countries that export a lot of raw materials like oil, silver, gold, minerals, etc. There are many countries that fall under that category, but the most popular are the Australian dollar, Canadian dollar and New Zealand dollar.

It is important to understand “comdolls” because these countries move such a huge amount of oil or precious metals that it can have a huge effect on the value of their dollar based on the value of the commodities.

As you can tell I have been obsessed with the Canadian dollar and it is precisely because Canada is an oil country. You may not be aware of this, but Canada has the second largest oil reserves in the world, second only to Saudi Arabia. This declaration actually happened a few years ago after the oil sands were proven to be obtainable oil source. Canada is also the largest importer of oil into the United States.

What would that tell us about rising oil prices? Obviously a rising oil price would be good for the Canadian dollar and since the US is so dependent on oil, it hurts the US dollar. If oil goes down, it hurts the Canadian dollar and helps the US dollar.

This makes it pretty obvious what you can do to profit from this. Obviously anytime there is an expected move in oil, you should be able to profit from it. War brings oil up and you should generally know which direction. You should also know that oil is expected to continue in an upwards direction, so you get the idea.

One thing is making money in your trades, but learning how to manage your money is very important. I can’t illustrate this enough because people start out in this market trying to make big money and don’t learn how to properly handle their money or even take care of it.

Making money is very easy in this market once you learn how to do it. The problem is that you can easily lose out money on bad trades. Obviously your goal is to limit risk, limit loss and maximize profits. Once you get this down you’re going to be great.

I’m sure you’ve heard of the people that are broke and win the lottery. Within a few years they’re broke again. Why? It’s a management of money. They just buy up things. When they buy a $50k SUV, they don’t really buy it, they get a $600/mth loan to pay back. Eventually they spend all their money on crap and are left with these huge monthly payments.

Most new forex traders do the same thing… sorta.

Here is the first rule for you…

Don’t Risk More Than 1% On A Trade

The need to limit the amount of money into a trade for the sake of consistency and reducing risk. Let’s say 55% of the time you profit from your trades. You can still lose out big if you’re putting 1% in a trade and 5% in another trade.

You want to be able to keep risk at a very low level and keep it consistent.

10-20% of Cash

As you know, when you deposit a $1000 into an account, you can typically trade up to like a $100,000 in the forex market. Putting the entire $100k in the market is bad. One tiny move and your $1000 deposit is gone and so is your trades. When you only use 10-20%, you’re in a much better range that won’t cause you to lose your original deposit in one little movement.

This is just obvious mechanics of the market.

I’m sure you’ve heard someone (including myself) say that you can trade foreign exchange 24 hours a day, 5 days a week. The fact is that it isn’t that simple (I wish it was). Don’t ask me why they do it like this, but each country has their currency open for trades during typical businesses hours in their country.

This means that Japan would be open when you’re in bed. Sometimes this can get confusing, but you should be able to figure this out.

Here are the open and close times in EST (Eastern Standard Time):

Tokyo: 7pm – 4am
London: 3am – 12pm
US: 8am – 5pm

I thought I’d just list the major ones because you should be able to recognize that the Canadian dollar would trade on the same time frame as the US dollar. You should also recognize that the Australian dollar trades somewhere around the Tokyo time. This makes it easier to recognize when to trade.

You’ll also take notice from this that there is over lapping times when currencies are open. Europe and Asia will over lap at a specific time, just as North American and Europe. These over laps are the busiest times because of volume. You’ll probably see more movement at these times.

Now that you know how to trade, you’ll know when to trade now. Good luck and I hope you make great profits.

I thought I’d get a list of some of the posts I really enjoyed sharing with you on this blog. It’s been going for about a year now, so I guess it is important to showcase some of the good ones.

What is the Elliot Wave Theory

The Best Forex Trading Software

Forex Trading Plan

Day Trading With Forex

Critical Forex Trading Decisions

The Forex Roller Coaster

The Top 5 Reasons You Fail At Forex

Top 10 Best Forex Trading Rules

Practice Forex Trading

Stay Organized With a Trading Journal

As you know I’ve been following the Canadian dollar a little more than most people because I have an interest in seeing it low, but I digress. I’m just been watching the US dollar go down the tubes while the Canadian dollar was making a run up to parity.

Just a few days ago the Canadian dollar got up to 0.92US. It had a major drop of 2 cents yesterday. It actually closed somewhere around 0.899US yesterday. Today it is back up slightly over 90 cents. I see that Oil is making a move up and so is the price of Gold.

Obviously since Canada has the 2nd largest oil reserves in the world and contains a huge amount of gold (and other commodities) that this will give the dollar a push.

For Canadians, having a stronger dollar means that they can buy more and that is constituted as a good thing, but there is a lot of issues with this. Many businesses do business with Americans and when there are huge fluctuations between the US dollar and the Canadian dollar over a few months, making profit becomes a very difficult task. If you’re on the wrong side of the coin you’re screwed.

More and more experts are saying that the Canadian dollar and oil have been pushed up much further than they should of been. I’m going to call that there will be a pull back in the Canadian dollar. It’s not going to pull back very far, but it should push back to somewhere in the 80-90 cent range.

Don’t necessarily take my advice, because I’m biased for a Canadian dollar going down.

This is a theory that was created by a smart man named Ralph Nelson Elliott. Basically when the average person and trader look at the market, they see just chaotic trading. Sometimes it goes up and sometimes it goes down. Obviously there is reaction to specific stimuli, but if there is no stimuli, than it’s really hard to predict directions. Ralph noticed that there was some patterns to it and that the behaviors of the market were actually predictable.

Basically he noticed that there would be stimuli that would inevitably lead the market in an upward or downward direction. But you could also break down these movements into waves. When you look at an upward movement, it never goes straight up. It goes up and down a little and back up. It’s much more rigid, but there appears to be a pattern to this.

Take a look at the wave. This is what I mean. But let’s break it down…

1: This is basically the first initial rise on some sort of stimuli. Let’s say it is announcement in the news that is a good thing for whatever currency we are looking at.

2: People that have already had a trade before the initial rise decide that things have gone up far enough to get out and make their profit, so there is a slight sell off.

3: This is the longest part of the wave, but this is when the trading gets picked up by the mainstream and they start getting it. This is the case where your friend tells you there is a good buy in whatever.

4: Again, people sell off to get some of their profits. It’s just that old savings; profits today are better then maybe more profits tomorrow.

5: This is the last part of the movement up where some people try to get in before it’s too late.

This is basically the Elliot Wave Theory in a nutshell. You should be able to take the theory by Ralph Nelson Elliott and apply it to a downward trend too. This is very typical behavior for currencies trades, so start paying attention to it.