Daily Forex News

By Nigel Wallace

Trading is a very long and constant process of learning and improving. If you asked most experienced traders on the process of learning through the years, they would describe it as a journey into the unknown with each trader looking for the ultimate technique to gain. Some tend to focus more on technical aspects such as support and resistance, Moving averages and so on, some use fundamental news to trade, opening when an economic event disappoints or surprises. The technics seem to become more and more complicated combining various factors and adding more and more dimensions to the technic, more numbers more formulas more conditions. It seems that no matter how complicated the technic is, it always comes down to one single thing, getting the direction right. But there is always seem to be some X factor that is missing, it seems that each theory or technique stops working at some point and we are having a difficulty understanding why?

The Wall-Street Journal Experiment

It was one professor that actually dealt with this question, what makes a successful investor? How come most investors eventually yield more or less the same as the broad market? This professor was named Burton Malkiel and his theory was very simple. According to professor Burton Malkiel if you select very randomly stocks and compare your portfolio against an investor over time the performance would be equal. Meaning overtime the investors that trades with knowledge complex theory and instruments will be right about a stock for 50% of the times. This was an astounding and unprecedented statement, an expert and someone who trades randomly eventually have the same 50/50 chance to gain? It was obvious someone will take the challenge and test this bizarre yet incredibly interesting theory. And so in 1988, the famous Wall Street journal took the challenge upon itself. The Journal opened a regular Colum in which the Wall Street Journal reporters selected randomly stocks and competed against 100 market experts. The column lasted for 14 years with no conclusive results, except for maybe a slight advantage towards the experts.

So What Is The X Factor?

It is true that if you examine the a vast amount of investors against a random choice the advantage of their investment over a random choice of 50/50 will be marginal, but at the same time it is clear that there are people that beat the market constantly. People like Warren Buffett, Bill Gross, Jim Rogers even companies like Goldman Sachs. They must have something in common, what is it then? The answer is simple, Risk control. If you examine all successful traders they all make sure the risk they take in each trade is incredibly low versus the potential gain.

Think of it this way how many times did you have a series of successful trades but lost everything in just one stupid trade? Now think, if you can just take that equation and flip it upside down would that be amazing! You could have a series of losing trades but one good trade could boost your profits way above your loses? Guess what? This is what the big players do. Just thinking of it makes you wonder, one right decision can flip your entire status to a gainer. So instead of what you did all this time which is trying to get the direction right you have to first think of the lowest risk you can take for a good return.

Let’s get Practical, How can you trade this?

It turns out that when using this theory in trading it is actually much simpler than the average investment. When you try to decide on your trade first decide what amount you can lose in your trading account and multiply it by several times (more than 5) if after that you still have margin for trading than this is a good amount to risk. Now every time you trade the amount you risk in each trade has to be fixed on this amount. Let say you decided on 500$ than each time you trade you have to risk 500$ no more. Plan the trade you open in such a way that the stop loss you need will never require you to risk more than the 500$ or whatever amount you decided. Once you got your risk fixed it’s time to think how to make your Risk/Reward ratio optimal. Risk reward ratio is the ratio between the gain you made in a specific trade and the amount you risked. The higher the ratio is the better the trade.

If for example you risked 500$ and earned 5,000$ you risk reward ratio is 10/1 meaning you risked 1$ to gain 10$. So for example if you traded in total of 5 trades and you kept that ratio and gained only 1 of the 5 trades it means you lost 4$ but gained 10$ in the last trade. Keeping the ratio on 10/1 however is very hard since the opportunities are rare and literally means you will have to trade in a very low frequency. Most professional traders use a ratio of 3/1 meaning the risk is 1$ to gain 3$.If we go back to the first example it means that if you have risked 500$ the potential should be 1,500$. If in a 10 trades series you got only half right meaning 5 losing  and 5 winning, your balance will be +5000$ a great profit by all means. You still have to have your trading strategy right but always remember the risk management is the base for success.

This news item was republished from eToro Forex news website

Popularity: 2% [?]

In what many investors considered surprising China raised its key lending rate on Saturday. In a rather unusually manner China has decided to on a more to escalate its war against domestic inflation and raise interest rates for the second time this year to 5.81%.Chinese policy makes have lately moved into hawkish mode after data provided by the Chinese Bureau of statistics showed Chinese inflationary pressures reached a recode of two years reading 5.1%.Chinese inflation as a matter effect has been crawling back up since July. However since hiking its benchmark rate back in October the PBOC has insisted in raising the reserve ratio for banks or RRR to cool the heating inflationary pressure. The move broadly failed to clamp down the rising prices and prices continued to rise.

Click here to download the full review

This news item was republished from eToro Forex news website

Popularity: 1% [?]

By Barbara Zigah

The publication of two recent surveys on the U.S. economy summarizes what the indicators have all been pointing out – the U.S. economy is growing slowly but surely.  In November, according to the Conference Board, their measure of key indicators showed a 1.1% rise, the 5^th consecutive month of gains and the largest since March 2010.

The Economic Cycle Research Institute separately confirmed that its measure of future growth struck the highest level in more than seven months.  Growth in the country has been somewhat erratic, and both research institutes acknowledge that; while retail sales has been stronger than expected, there is still a great deal of weakness in the housing sectors, and the high unemployment rates continue to be quite distressing.

The U.S. Commerce Bureau released earlier today their revision to 3^rd quarter GDP (annualized) results, which confirms that the country grew at 2.5%, upward from the 2.5% previously reported, largely attributed to inventory buildup that was higher than expected.  The Commerce Bureau also reported that expenditures for real personal consumption rose 2.4%, significantly higher than the .8% forecast.  Immediately after the GDP revised numbers were released, the U.S. Dollar moved higher, with EUR/USD trading at 1.3126 and USD/CAD at .9993, edging still closer to parity.

Nonetheless, it seems that – though off to a slow start – the Federal Reserve’s $600 billion (plus more if needed) stimulus efforts are working, and the Obama administration tax cuts can only help in the short term, by throwing an additional $858 million of liquidity into the monetary system.

Some economists, including notably, former Federal Reserve Chairman Alan Greenspan, see growth accelerating in 2011, perhaps up to 3.5%, especially given the current momentum.  According to Mr. Greenspan, he believes that the high unemployment rate should start reducing moderately next year.

Copyright 2010 eToro Blog

Related posts:

1. US Economy at 2.5% Growth, Dollar Gains By Barbara Zigah Earlier today, the U.S. Bureau of Economic…
2. US Growth as Expected,Dollar Slips Broadly By Barbara Zigah As economists, analysts and market players have…
3. Reining in China’s Economy and Yuan Strength By Barbara Zigah Recently released data from China showed that…

This news item was republished from eToro Forex news website

Popularity: 1% [?]

2010 was an excellent year for commodity prices, as increased liquidity in the form of central bank bond purchasing programs, put commodity prices on the forefront.  The performance of precious metals complex, including gold and silver and the petroleum markets was solid, creating a surge in investor interest in the commodity sector.

As the year comes to a close, investors who were bullish on gold prices enjoyed an increase of nearly 28%, moving from slightly above 1,080 per ounce to 1,380 per ounce.

In November and December gold prices moved above 1,400 per ounce touching 1,431 per ounce.  A combination of a weak dollar during the majority of 2010, and increased expectation of inflation, drove prices for the yellow metal higher.  Gold prices also were driven by an increased demand for precious metal from Asian countries such as China and India.

Silver prices blasted off in 2010, and are still relatively undervalued when compared to gold prices.  In fact, during the 70′s when prices of gold and silver reached historical inflation adjusted highs prior to this current run-up in prices, the ratio of prices of gold over silver was closer to 20.  Today, with gold near 1,400 and silver near 29, the ratio is near 48.

Silver prices benefited from an increase in liquidity and the drive by the US FOMC to increase inflation.  Silver prices also benefited from increases in manufacturing.  Globally, manufacturing continues to show robust growth, as purchasing managers surveys from the US, Europe, and Asia, are all showing expansion.  The 12 month return on silver prices are more than 80%.

In the petroleum markets, the benchmark crude oil moved higher during 2010 by slightly more than 21%, as a combination of increased liquidity and higher global demand pushed oil prices higher.  Demand in the US, continued to rebound after the slide experienced after the collapse in the US economy during 2009.  Monthly product demand, as reported by the Department of Energy, is up approximately 4%.  Although inventories in the US are still at the higher end of the average range, the trajectory of inventories continue to decline which could be bullish for future prices.

Demand for oil in China and India continues to climb, and as manufacturing continues to be robust, oil prices will likely remain stable. As OPEC has little interest in changing the current output it supplies to the markets.

Related posts:

1. Gold prices continue to move north By Barbara Zigah With the U.S. Dollar slipping ever lower…
2. J.P Investigated For Manipulating Silver On A Grand Scale By Barbara Zigah Earlier this year, it was reported that…
3. Is the gold bubble ready to pop? By Barbara Zigah Last week, the Federal Reserve Bank announced…

This news item was republished from eToro Forex news website

Popularity: 1% [?]

By Barbara Zigah

Spot gold prices have slipped as the year draws to close, and that may have some investors wondering if the recent decline to $1,371.05 per ounce from the record high of $1,431 means the end is near.  For some short term investors perhaps, as attempting to recoup the 4.1% loss of nearly $60 is likely going to be a struggle in thin holiday trading.  But for those investors with a long-term view, they’re looking forward to seeing some additional profits in 2011 because, in spite of the recent decline, gold has grown in value by more than 25% just in this year.

George Soros, the preeminent gold investor and gold financier, who likened gold to a bubble, is one of those with a long-term view.  As Soros sees it, global economic conditions – including deflationary pressures, ultra-low interest rates and inflation fears – are ideal for gold prices to continue to rise.  According to Soros it depends where in the bubble you are, and according to the SEC, the fund that Soros manages recently acquired some 5 million shares worth of iShares Gold Trust.

Of course, not everyone agrees with George Soros (though most do).  Jeremy Siegel, a professor of finance at the Wharton School, says that his research proves that gold – over the long run – has underperformed against other assets, commodities and financial instruments.  He acknowledges, however, that what gold has performed well against is, of course, the U.S. Dollar.  Granted, the greenback has been strengthening in recent days (EUR/USD was at $1.3112), and Treasury yields have improved, but that’s more than likely a factor of fiscal crises elsewhere, than attributable to a robust greenback.  As Siegel views it, the real problem for gold investors – typical retail investors, not institutional investors – is that they won’t be a good judge of when to get out of the market.  According to him, the worth of gold can only be determined by how an investor assesses inflationary fears or the threat of financial ruin.

Given that many global economies have the favorable conditions needed for gold appreciation, i.e. ultra-low interest rates, inflationary fears, deflationary pressures, the conditions remain ideal for gold prices to continue to rise in the long run.

Copyright 2010 eToro Blog

Related posts:

1. Does the recent dip in gold prices herald a bubble bursting? By Barbara Zigah Gold prices finally slipped from their record…
2. Gold prices continue to move north By Barbara Zigah With the U.S. Dollar slipping ever lower…
3. Is the gold bubble ready to pop? By Barbara Zigah Last week, the Federal Reserve Bank announced…

This news item was republished from eToro Forex news website

Popularity: 1% [?]

By Barbara Zigah

According to the U.K. Office for National Statistics, last month the United Kingdom’s net public sector borrowing struck a new record of £23.3 billion.  And that didn’t include the bailout for the banking sector!  Year-on-year, that’s an increase of nearly £6 billion from November 2009.  Analysts and economists, meanwhile, had predicted an improvement to net borrowing, and are pretty much dumbstruck with the news.  For that matter, so were the currency markets; yesterday, Sterling fell hard against both the Euro and the U.S. Dollar, EUR/GBP was 84.94 Pence, a .4% decline, while GBP/USD was at $1.5467, a loss of .3%.

The Pound Sterling fell harder still against the Australian Dollar, a currency based on sound economic fundamentals, dropping to 1.5506 AUD, the lowest price in 25 years.According to the data, the record borrowings were driven by increased spending in the health and defense sectors, as well as higher contributions to the European Union, and according to the Treasury Department, the numbers are “in line” and that cumulative year-end numbers are on track to be about £148.5 billion.  Nonetheless, with a single stroke, November’s dismal figures effectively wiped out all of the reductions in public sector borrowings for the year.  And some analysts want to know exactly how the U.K. government intends to meet the deficit targets they’ve set for themselves in 2011, because, as they see it, the trend may lead to year-end numbers in the £155 billion range.

Also worried about the public sector borrowing, apparently, are investors; yesterday, the yields on 10-year gilts rose 2 basis points, to 3.51%, the premium investors are demanding as their collective risk appetite is diminished (along with their confidence in the U.K. government).  The U.K. government says their economic recovery is key, but many analysts warn that the first quarter of 2011, when the austerity measures finally become effective, will be a true test of their determination to reduce their deficit.

Copyright 2010 eToro Blog

Related posts:

1. U.K. Deficits Still A Threat For Sterling By Barbara Zigah The U.K.’s Office of National Statistics had…
2. U.K. Unemployment Rate Higher than Expected By Barbara Zigah According to the U.K.’s Office of National…
3. U.K. 3rd Quarter GDP Inches Higher As expected by some economic forecasters, the U.K. economy grew…

This news item was republished from eToro Forex news website

Popularity: 1% [?]

By Barbara Zigah

The recently approved Obama administration’s tax cuts and incentives, coupled with the Federal Reserve’s attempts to bolster the American economy through additional quantitative easing measures, appears to be slowly working.  Some better than expected economic indicators are all pointing to an improving economy and an improving outlook, and not just for the United States, but for our neighbors to the north.  Theoretically, an improved economy translates to increases in consumer spending, and that’s important to Canada, as the U.S. is their key trading partner.

In 2011, Canada’s 2.7% economic growth is not expected to be at par with the United State’s growth forecast.  But the Canadian government is content with that, and the divergence of the Bank of Canada’s policy compared to the Federal Reserve’s couldn’t be farther.  While the Federal Reserve is encouraging growth through monetary stimulus and tax cuts, the Bank of Canada will be focusing more on debt reduction and eliminating budget deficits, and there is speculation that an interest rate hike is in the offing for early 2011, which would raise investment potential.

In spite of the Bank of Canada’s shift to fiscal restraint, the consequence of the Federal Reserve’s stimulus measures will be more than enough to grow the Canadian economy.  All of that – both the Federal Reserve and Bank of Canada activity – should effectively boost the Canadian currency and hold it above parity in the long term.  Earlier in the week, the Canadian Dollar rose above parity against the U.S. Dollar, which has happened only a few times this year; it has since slipped back below, USD/CAD was earlier trading at 1.0195.  Given the economic forecasts for both the U.S. and Canada, it’s quite likely that the Canadian Dollar will rise above parity in 2011, and stay there.

Copyright 2010 eToro Blog

Related posts:

1. Canadian Dollar hits Parity with the Greenback By Barbara Zigah The Canadian Dollar today rose against its…
2. Aussie at parity with Dollar; will it be sustainable? By Barbara Zigah The Australian Dollar briefly struck parity with…
3. US Economy at 2.5% Growth, Dollar Gains By Barbara Zigah Earlier today, the U.S. Bureau of Economic…

This news item was republished from eToro Forex news website

Popularity: 1% [?]

By Barbara Zigah

Earlier today, Moody’s, the credit rating agency, warned that Portugal, currently under review, may be in line for a downgrade of their current credit rating, perhaps even by two notches.  They specifically cited high borrowing costs and poor growth prospects as the reasons that they might consider the downgrade.  Moody’s analysts have apparently been busy the past few days, as similar threats to Spain and Greece (again) were recently issued, and just today Belgium and France were on the Moody’s watch list.

The Moody’s warnings had an immediate effect on the Euro, driving it lower against the greenback, with EUR/USD at 1.3182, essentially eliminating the few hours of gains that the common currency had enjoyed after the Chinese government announced its support of E.U. efforts to stabilize the Eurozone.

Now, investors are wondering “who” is next on the Moody’s hit list.  Truly, it appears no public entity is immune from the threat of a downgrade, either.  There’s no doubt that analysts at Moody’s, and indeed all credit rating agencies, are working overtime.  Sluggish growth, budget deficits, rising costs, inflation, etc., all conspire to create economies that struggle to accommodate the basic needs of its citizenry.  Countries throughout the world – Spain, Greece, Portugal, Belgium, France, the U.K., the U.S., etc. – have all faced the relatively unavoidable threat of a credit rating downgrade.  Likewise, some states in the U.S., notably California and Indiana.  Cities and municipalities, too, including Las Vegas, Nevada in the U.S., and Florence, Italy have had their credit rating lowered or are working under the threat of it.

While some credit ratings agencies have been publicly chastised by U.S. Congressman Barney Frank, and been the subject of numerous lawsuits alleging inaccurate assessments, it doesn’t diminish the power the credit agencies yield to influence the markets.  Unfortunately, there continues to be quite a lot of fodder among the world’s struggling economies which will keep Moody’s staff busy for quite some time.

Copyright 2010 eToro Blog

Related posts:

1. The European debt threat The Euro encountered selling pressure today as market fears over…
2. Investors: Spain The Real Reason Behind Debt Fears By Barbara Zigah The Euro continues to be under significant…
3. Is the United States on the way to its own credit crisis? By Barbara Zigah According to Sheila Bair, the Chairwoman of…

This news item was republished from eToro Forex news website

Popularity: 1% [?]

By Barbara Zigah

In a recently published position paper, Jean-Claude Trichet, the president of the European Central Bank, urged the Irish nation to ensure strict compliance with the terms of their E.U./IMF bailout plans.  What is of utmost concern to the ECB is that the rescue package may affect the ECB’s liquidity operations within the Eurozone; to that end, Trichet specifically cited last week’s swap arrangement between the Bank of England and the ECB, which was intended to boost Pound Sterling liquidity for the troubled banking sector in Ireland.

According to the ECB president, Ireland must face up to its problems, which are primarily related to the failed banking sector.Furthermore, the ECB is seriously concerned about some aspects of draft legislation contained in a banking bill going to the Irish Parliament, notably the rights over collateral that may be offered as security against emergency-generated liquidity assistance.

In response to the concerns raised in the position paper, the Irish Minister of Finance declared that it would be inconceivable for legislation to be designed and approved unless the ECB was in full support of it; he further commented that ECB powers would in no way be superseded by any Irish legislation.  Last week, the credit rating of the Irish nation was downgraded by Moody’s credit rating agency, dropping five notches to just barely above junk standing.

What the ECB president would like to see is Eurozone nations working more cohesively, both individually and collectively.  From an individual standpoint, he suggests that they work harder to adhere to their budgets, adding that the current crisis isn’t a “currency crisis” but as a result of the poor budget management.  Trichet stresses that the Euro remains a credible currency.  Nonetheless, pressure on the “credible currency” will remain over the near term, at least through the next few weeks of choppy trading as investors wait for a more substantive response to the Eurozone plan for those countries which may soon need rescuing.  Earlier today, in Asian trading, EUR/USD struck a 2-year low at $1.3125 while EUR/CHF struck a record low at 1.2715 Swiss Francs.

Copyright 2010 eToro Blog

Related posts:

1. The European debt threat The Euro encountered selling pressure today as market fears over…
2. Friday Roundup, Nov 12 By Barbara Zigah With the Federal Reserve no longer the…
3. US Indices End The Week Modestly Higher By Barbara Zigah The U.S. equity markets reacted positively to…

This news item was republished from eToro Forex news website

Popularity: 1% [?]

On Friday afternoon in Washington, D.C., President Obama signed into law the Bush-era tax cuts and incentives bill which moved, seemingly at light speed, through the U.S. Congress earlier in the week, in what was a surprising show of bipartisanship.  Certainly, the newest law of the land was rife with compromises, from both sides of the aisle and both branches of government, yet there remains hope that the new law will help to stimulate the American economy, perhaps in a way that the Fed’s deployment of stimulus isn’t.

Click here to upload PDF review

Related posts:

1. Weekly Market Review December 13, 2010 Legislatures on both sides of the aisles and in all…
2. Market Weekly Review Nov.22 Click here to upload PDF review…
3. Weekly Market Review Dec.6 Click here to upload PDF review…

This news item was republished from eToro Forex news website

Popularity: 1% [?]