Casual Forex Trader

I told you guys to to watch the Canadian dollar. It just seemed so unnatural with it’s huge fall during the month of October. Just a month or two ago USD=CAD, but now it’s changed. The Canadian dollar was free falling along with the price of oil, but today showed that there is a change in that trend. Oil fell a few dollars, yet the Canadian dollar rallied anyway.

In fact the Canadian dollar rallied 2% on Monday and the belief for this rise is that the drastic fall in October was a little too much.

It’s hard to say what will happen with the Canadian dollar. Like I mentioned in a previous post that the Canadian economy was viewed by the world economic forum as having the soundest banking system in the world.

It’s hard to say which way the Canadian dollar will go. It’s dramatic rise to parity with the US came with the rise in oil prices, but will it fall back down with oil – even though the Canadian economy is supposed to out perform the other G7′s?? It’s hard to say, but it is definitely a currency that will be on the move for quite a while.

This Thursday key economic information will be released and I have a feeling it’ll be bad news, so I expect to see the Canadian currency head back down on Thursday.

A lot of people want to know about a breakout forex strategy and how it works. Well, it’s actually not that sophisticated. I don’t want to bring you down by hearing that. It’s just simple correlated observation. You need to look at potential breakout signs and leverage yourself for a profit.

Like, you’ve noticed that the US dollar has been going up very fast during the month of October and that is definitely a breakout that has happened. You have to go back and look at that instance where the US dollar stopped going down and started going up.

What happened? Identify the characteristics of that moment.

Once you do that, go back and find another similar time for the US dollar where it was bottoming and went back up. Identify the characteristics and take note of the things that happened in both observations.

This means you always have to be on the ball because you want to catch these bottoms and ride the currencies back up for maximum profit. Like I said, it isn’t sophisticated, it just routine stuff. Just start doing it, observe the market and make a smart choice.

Money management in forex is just a fancy way of saying how much risk you’re willing to take in a trade. Not all trades are given and typically the ones with huge profits also have a lot of risk associated with them. This makes managing risk that much more important in forex.

Risk comes into the picture of the likelihood that a trade will perform. The less likely it will perform, the more risk is associated with it. You’re probably wondering… How do I know the likelihood that it will perform? Well, it comes down to historical trends and the forces on the market.

If you see a currency that you hear is going to perform quite well and look at the historical trends, which reveals nothing like that has happened before – you’re getting into something risky. It’s not to say that it couldn’t happen especially in economically unstable times like today, but there’s more risk here.

You’re going to be subject to risk no matter what you do, so you want to stomp the bad side of risk as soon as it raises its head. The best thing you can do is take advantage of stop loss points. Pick something that is reasonable, so you feel you gave a chance for the trade to perform without the risk of losing a significant amount of money.

I find this time for forex to be tough. A lot of people are running to forex to avoid the horrible stock market, but I feel a bit scared with the moves of the US dollar.

Ever since all this financial mess happened, the US dollar has just skyrocketed. It’s an amazing run and I happy for the results of the run – my problem is that it shouldn’t be happening. It’s just simple economics.

The dynamic between the USD/CAD dollar is amazing. It’s such a fast rise in the US dollar compared to the Canadian dollar. It strikes me as odd for a few reasons.

1. The massive injection of US dollars into the economy

The printing presses can’t keep up with the amount of money that is actually needed in the US economy. It’s insane. But thoughts of people running around with wheelbarrows full of money comes to find.

2. Canadian banking system is the best in the world

The Canadian banking system is sound and there has been liquidity added, but nothing compared to what is needed in the US. The Canadian banking system was able to avoid all this stuff because it required people to make down payments and if they couldn’t make a high enough down payment, they had to buy mortgage insurance.

This is where the problem lies for me. The US dollar is rising compared to the Canadian dollar, yet the US treasury & Federal Reserve are throwing money into the economy and the Canadian banking system was sound.

It seems quite illogical to me.

I wanted to talk to you about forex divergence and how you can trade with it. A lot of people want to get in this market, but there is so many little things they have to get down and divergence is one of them. If you can’t profit with this, than you can’t profit at all.

• You need to identify indicators along the chart patterns, trends, resistance and support.
• The misconception is that these indicators can predict future price.
• Indicators are calculated based on price movement, so they’re not following future price.
• When the price for something booms, you’ll find that the indicator booms too – and vice versa.

A lot of people simple don’t have the know how to understand forex divergence and it is sort of sad.

I wanted to take the time to show you how to get started trading forex. This market can be tough and rewarding at the same time. I think the best way to describe it is that it has no mercy. If you know how to use it right – you’re fine, but if you don’t, well you can bet you’re going to have some trouble making money and even holding onto the money you already have.

Getting started will require a few things…

Broker

You’re going to need a broker because there needs to be someone moving around your money for you. You don’t have to get a broker that makes the decisions on your behalf, but just get one that has software for you to trade right from your computer.

There’s thousands of different brokers on the internet ready to compete for your business. That means there can be some great places to go, but also you have to watch out for scams. It’s very easy for a person to setup a website and look like a professional broker – they could very well be some teenager running this out of their basement.

I suggest to always do your homework and check out forex forums. These are communities where actual traders talk and you can see which brokers are good, bad and ugly.

Starting Cash

Getting started trading forex requires a little cash to start with, but the cool thing is that the broker allows you to leverage some of their money – usually 10x or 100x. That means if you put in a $100, they’ll let you trade up to $10,000.

Just a note, they won’t let you lose money. Once your losses approach your original deposit they’ll cut you off. If you’re using a high amount of money, losses can add up quickly.

I wanted to take the time to talk to you about forex stops and how to do them effectively. You have to be able to not lose money. That’s a skill most people don’t go after. They’re more interested in earning money, but they don’t learn how to protect it. It’s a sad state of affairs, but it’s the reality of the forex business and the people looking to get rich.

You have to remember your main priority as a trader. You want to preserve as much trading capital as you can. It’s not bad trades that cause the problems, it’s the ones that bleed us of capital. When it is a bad trade, you know when it’s time to stop. When it’s something that is bleeding, you’re not sure. You know it’s down, but you think to yourself that it might go back up. It might recover.

You need to preserve capital and that means you have to use forex stops. The key to this is being objective. Most people aren’t objective enough. They’re emotionally involved in a trade and they can’t make a good decision in the heat of the trade. You should recognize that, instead of ignoring it.

I’ve found that the best time to implement forex stops is before I make the trade. I decide when I’ve had enough before I buy. All you have to ask yourself is this: “If it goes down, at what point will I sell?” It’s objective and easy to follow.

I wanted to take the time to talk to you about the critical forex trading decisions. You can sum up the biggest problems in society are caused by someones inability to make a decision. That’s what it is all about. Decisions are what count and often people in forex trading don’t have the first clue on what they should be making decisions on.

Cutting Losses

Probably the toughest decision to make. All of us start thinking, “after I sell – it’ll go back up”. Yeah, that could happen, but it really doesn’t happen that often. You need to make decisions fast before you lose out. Cutting your losses is an important part of doing this.

Analyze or Move

Many people get stuck in the analyzing mode, which is basically an inaction or no decision. Analysis is important because if you don’t know what you’re getting into, you could be making a bad trade. Never skimp on the analysis, but eventually you’re going to have to act. Basically, I act when I’ve extracted as much as I can get out of a trade. That’s not to say everything, but there is a point where the remaining information is just useless to the decision.

When to Sell

None of us want to sell when something is going up and making us money. We all know that it won’t go up forever, but while it is rising, it is hard to let go. You need to recognize that the chances of you selling this on the peak are slim to nill. Make a decision of when you’re going to sell and move on.

I’ll be the first to admit that I never really knew what arbitrage meant, but I’ve heard people used it. I don’t think I’m alone in this case, but the definition is surprisingly simple.

Arbitrage means dealing simultaneously in the same product in two markets to take advantage of temporary price distortions with minimal risk.

Forex arbitrage trading is a very effective method for profiting. You’re taking advantage of price differences with very little risk on your part. That’s what most of us want – money without the risk.

The way this works is pretty simple. As you can see from the definition, “two markets”, but you’re thinking – “There’s only one forex market”. You’re right, but we have to think about the price of things and you’ll realize that brokers give different spreads and that allows you to take advantage of different prices in a market.

There are some pretty sophisticated ways of doing this with just one trading account. It involves a lot more attention on your part and you’ll have to monitor. If you look at three currencies; A, B and C, you may notice the following:

A is 2xB
B is 2xC
C is 6xA

They’re all ratios and they make up a perfect breakdown, but what you can catch is that one of the ratios will change before all of them change. Typically you only have a short time to act, but there is a potential for forex arbitrage trading.

This may seem difficult and that is because it is. It requires a lot of attention on your part and you don’t have much time to act – but when you do, you have a low risk profit. I have to say that this is what all traders want.

It’s time to get in on the difference between the US dollar and Canadian dollar. The Canadian dollar was trading at parity this summer, which is extremely high for the Canadian dollar, but it has been in a free fall.

Here’s a clue; the Canadian dollar is highly linked to oil, since Canada has the 2nd largest oil reserves in the world. That may not mean much for you, but while oil is falling, the Canadian dollar will fall. Conversely, if you see a sharp rise is the price of oil, you’re going to see the Canadian dollar move back up again and it will be a strong move.

But it looks like with the world economies slowing and the price of oil literally crashing, even after OPEC cuts production by 1.5 million barrels a day. There is going to be a considerable growth between US dollars and Canadian dollars. The good news is that it is going to be extremely profitable to those that take advantage of it now.

USD/CAD = 1.27

Just a few years ago, the USD/CAD = 1.43. It could fall as low as that and you have some opportunities to take advantage of that if you want too.