Casual Forex Trader

Goldman Sachs is saying that the dollar is going to have a rally. I hope this is true since I have a lot of money held in the US dollar and I need to get it into some much better currencies. The problem I have with taking advice from Goldman Sachs is that they were bailed out by the US government. The fact that they couldn’t properly predict their own economic problems to the point that they should really be in bankruptcy is something that disturbs me. I’m not sure if I’ll act on such advice. I suppose since I hold a lot of assets already in US dollars that I already have that vested interest. Well, I thought I’d let you guys know.

July 27 (Bloomberg) — The dollar may remain weak until the U.S. economy improves, Goldman Sachs Group Inc. said.

“Cyclically, we are not yet in a situation where the undervalued dollar could perform better,” Thomas Stolper, an economist in London, wrote yesterday in a report. “U.S. demand has to grow more strongly, which we do not expect anytime soon. Once foreign investors believe the rebalancing is well on track, we would expect them to gain more confidence in U.S. assets, and the dollar would naturally re-appreciate.”

Goldman Sachs maintained a bet the euro will rise to $1.45. It gained 0.3 percent to $1.4248 as of 7:06 a.m. in London.

This is a break down of the US dollar index, which I find to be a pretty interesting look at the dollar. This may all sound a little over the top if you’re new to forex, but try and pay attention. The information is pretty unique and the educational experience is definitely there.

Outlook on the Dollar

If you’re unfamiliar with what this is about, it isn’t on any macro like economic information. It is a look at behavior patterns in the graphs. There could be a double bottom for the US dollar, which could show a sign that the US dollar should start rising up pretty fast.

The thing that sucks is that the US dollar has been much lower than it is right now, which sort of sucks. It could fall. But it still could bounce off the double bottom and head back up to the 90 range.

It is amazing how right I have become on the Canadian dollar, so I hope you have been investing on the help I’ve been trying to provide. The Canadian dollar was up to about 92 cents American. It’s back down to 86 cents. These are huge moves only over the course of a few weeks. That’s a lot of profit if you’re invested on the right side of the move.

I was calling it here: Has the Canadian Dollar Hit The Ceiling

It’s a trend we will probably experience too since reality is starting to hit the market again. It seemed like the last run we’ve had in the market has been out of touch with reality. People just wanted the market to work, but it really wasn’t. More grim predictions are coming in and oil is starting to sag back down.

When it comes to the Canadian dollar, without any power in oil, there is going to make it go up. Let me say that again, without oil power, it won’t go up.

Oil is going down again. I doubt it will fall as low as we were seeing before, but it’s going down. Until that trends turn, you can bet the Canadian dollar will be weak. Exploit it for your profits.

I thought I could help you out here and tell you why you need a forex trading plan. It amazes me how many people don’t have a plan to begin with. They just try things out when they trade and I suppose that would be fine if your goal is to just learn how trades work, but I’ve found that most people have the goal of making money. Or at least that is my goal. Money is the name of the game in this market and without a profit, you’re just wasting your time. Let me show you why you need a forex trading plan.

Keeps you in the right direction

It is very easy to get off track and get very inconsistent. It’s just the way we are. We tend to be impulsive creatures that will seeing that looks like a good opportunity and go for it, but if we see something else, we’ll go for that too. Making sure you’re going consistently in a certain direction is important. Without that direction, you can’t tell whether you’re going forward, back or in a circle.

All Businesses have plans

Whether you’ve accepted the fact that this is a business or not, you’re in a business. You’re assuming all the risk and you’re putting money on the line. A plan has to exist or you’re just being stupid. Do any other businesses out there function without a plan? Does McDonald’s try to make big profits this year without actually knowing what they’ll do to achieve that? Of course not. This is the real world and you need a plan to help you get to where you want to go.

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.

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 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.