5 TIPS FOR TRADING DURING VOLATILE MARKET

Volatility is a measurement of the speed of change of the value of a forex pair. A highly volatile time means that the price shifts up and down more rapidly and by larger amounts than during times of low volatility.Volatility occurs in the forex market especially when a very important news is released, like non-farm payroll, interest rate and so on. These periods of volatility provides traders the best opportunities to make real money from the market and at the same time it is the most risky time to trade forex. Especially to the newbies in forex, making money during news releases is more like a game of chance, because everything happens in a twinkle of an eye. This post is designed to help traders by giving them the necessary tips to maximize their positions during market volatile periods.

The key thing here is that one need to plan his/her trade before time, but how do you make those plans?

• Select your trades before the news releases. Forex market presents plenty of opportunities during these periods, so you need to be selective of the currency pairs you will be trading. Don't try to over trade i.e. placing so many trades across different currencies but select one or two currency pairs you will be trading. This will help you to be more focused in your trade. Personally, during important news releases on the US currency, i prefer trading only one currency pair; EUR/USD or GBP/USD depending on the economic state of the pairing country.

• Reduce your leverage. Volatility period is most the risky period to trade because your stoploss can be reached in a twinkle of an eye without giving you time to make changes. You have to reduce your leverage in trading in such times.

• Be more disciplined in placing your trades. I will say this over and over out of an experience. The trade you placed may be going your direction but don't be beclouded by the emotions of greed. Don't place more excessive trades without checking properly the technicalities involved. Follow the rules of your trade and trade more cautiously.

• Make use of tight stops. In a volatile period, it is possible for a trade to move 70 pips against you and still reverse to 100 pips in your direction. It is better to use tighter stops to cut out trades that are not in your favour and look out for another opportunity to enter your trade.

• Always be prepared to take the bull by the horn. How much is your target? How much can you afford to loose in that trade? You need to get organise and put thesefigures in paper and pen before entering a trade. Be prepared physically, mentally and psychologically.

KEY FUNDAMENTALS AFFECTING USD, EUR & JPY

USD

• Federal Reserve Bank and their governor: the US Central Bank are in charge of making monetary policies in order to achieve stability in the economy. Market experiences a move when the president of the bank is giving a speech. Activities of the Bank has effects on the economy as a whole and should be watched.

• Federal Open Market (FOMC): It is a committee of 12 members which includes president the Fed, members of FOMC; through their voting they makes decision on monetary policy. Like announcement on interest rate.

• Interest rates: Federal fund rates is a the type of interest rate that makes more strong impact in the financial market when it is announced and the most important. Discount rate is the interest rate charged on commercial banks for emergency liquid purposes. The higher the rate of interest, the solid the currency which gives a buying opportunity to traders. Lower interest rate suggests a weakening economy and a sell opportunity for the traders.

• Economic data: like non-farm payroll, CPI, PPI, GDP, housing starts, housing permits, consumer confidence and so on have tremendous impact on the dollar.

• Stock market :popular market indices like Dow jones, Nasdaq, and S&P 500 influence the Dollar. The most influential is the Dow Jones. When these indexes are on the positive territory the dollar will more likely go up but when negative (down) the dollar will go down. The USD has a positive correlation with the US stock market indices. It is called a carry trade.

• Cross rate effects: a currency can be affected by another currency pair . For e.g. when the exchange rate of GBP/CHF is really down due to bad economy indicator affecting pound. There can be effect in GBP/USD when the pound is sold and USD is bought. This situation can occur also with EUR/USD, when the EUR economy is weak, it will be a boost for the dollar making people to buy the USD.

EUR

• Economic and political events in the Euro zone: the countries that made up the EURO ZONE are twelve in number, namely: France, Italy, Germany, Netherland, Belgium, Luxemburg, Spain, Austria, Greece, Finland, Portugal, and Ireland.

• Euro central banks and CB Governor: these central banks are responsible for making monetary policies that will stabilize the economy of countries in this zone. There are selected governor s which their speech can move EUR currency by name: Jean Claude Trichet, Erust Welteke, and Italy respectively. If you have gone through the economy calendars from websites like: Forexfactor.com, you will see at times written, "Trichet speaks" as one of the eco-event. This speech moves the market.

• Correlation: EURO has a negative correlative with CHF meaning that when EUR/USD is up expect USD/CHF to be down.

JPY

• MOF (Ministry Of Finance) is the sole institution which their statements gives an impact on the JPY. They are in charge of foreign exchange policies. They announces the interest rate which has a good move on the currency.

• BOJ: have complete control of monetary policies through their governor. Their speech gives clue on the pace of the economy thereby providing trading opportunities for the traders.

• Stock Market: Nikkei is one of the popular stock market in Japan and has a positive correlation with the JPY.

• Cross rate effects: other currencies like USD, EUR, GBP, also affects the JPY. For example when there is a positive data released on USD, this will cause USDJPY to move in uptrend. This means that as a result of the news released on USD people are selling the JPY at the same time buying Dollar.

CLEAR UNDERSTANDING OF MARKET DIRECTION/MOVEMENT IN FOREX

Being that the essence of this blog site is to relate foreign exchange trading in a more easier way, I will be giving you lay man’s approach for a clearer understanding of the way market moves in the forex market.

Unlike any other financial markets, foreign exchange market is traded in pairs
It is made up of two currencies as a pair which represents the financial instrument. We have 8 major currencies which are: USD, EUR, JPY, GBP, CAD, AUD, CHF and NZD. When you bring two currencies out of this list and join them together, you will have our investment instrument.
USD + EUR = EUR/USD
USD + CHF = USD/CHF
AUD + GBP = GBP/AUD

Having two currencies as our financial security means that, there are two different economies involved in each pair. That is in USD/JPY; we have USD representing the US economy and JPY representing the Japanese economy. In EUR/USD, we have EUR from European economy and USD from US economy. Therefore the market movement of this pair “EUR/USD” is determined by what is happening in the European economy and the US economy as well. That is the economic condition of this two different economies good or bad will determine the direction of the currency. When the economic condition of US economy is bad, it means that the US dollar is weak in this sense you will be selling it and vice versa. The simple general fundamental rule is to buy the stronger currency and sell the weaker currency.

Among the two currencies making a pair, we have the counter currency and base currency. The first currency among the pair is the base currency while the second currency is the counter currency. In the pair EUR/USD for example, the EUR is the base currency while the USD is the counter currency. Also in the pair USD/CHF, USD being the first currency in the pair is the base currency while the CHF is the counter currency.

Understood? I hope so, and then let’s proceed.

When a sell order is issued to your broker to sell a currency pair, it means you are selling the base currency (i.e. the first currency in the pair) and at the same time buying the counter currency. Confused? No need to be, just know that when you place a sell order in your broker’s platform to sell Eur/Usd it means you are selling EUR and at the same time buying USD in exchange. When you place your buying order to buy EUR/USD, you are actually buying EUR being the base currency and at the same time selling USD being the counter currency in that pair.

Bringing this lesson practically, if an economic news is released in US economy signifying that the economy is really in a good shape, As a good forex trader, I will be buying the USD as a stronger currency.
This will be done by placing a sell order on EUR/USD, a buy order on USD/CHF, a buy order on USD/JPY, and sell order on GBP/USD. Understand that when I place a sell

DAILY TECHNICAL TRADE ANALYSIS

Here, technical traders will be receiving a daily technical analysis on EUR/USD, GBP/USD, USD/JPY and USD/CHF. This will be revealing the resistance and support levels from daily and weekly charts represented giving traders the trading ideas they can use for the day.
To learn more on how to trade with the support and resistance levels, check here!

SEPTEMBER 28TH. 2009 ANALYSIS

EUR/USD

The Euro versus Dollar pair was able to form a bearish technical pattern, seen in the image above, with a neckline at 1.4615. We expect the pair to decline on the intraday and short term basis, targeting 1.4360 before extending declines towards 1.4275. The stochastic indicator is showing oversold signs, which may result in a slight upside correction to retest the above mentioned neckline before continuing the expected decline, which will remain as far as 1.4765 is intact. Our opinion is selling the pair from 1.4615 to 1.4500 and stop loss above 1.4705 might be appropriate.

USD/JPY

The USD/JPY pair reached the expected downside target to hit the key support for the downside channel at 88.55, seen in the image above, where we expect the pair to incline on the short term basis towards 94.00; supported by positive signs on momentum indicators. The first resistance, which may be an obstacle for the pair is at 90.30, where a breakout of this level will open the way for today's target at 91.60. This incline remains as far as 88.50 is intact. Our opinion is buying the pair with the breach of 90.30 to 91.60 and stop loss below 89.55 might be appropriate.

USD/CHF

The Dollar versus Swissy pair continued to surge to the upside to touch the key resistance of the minor bullish channel that is taking the pair to the upside on the short term. From the image above, we see a minor resistance level is currently the neckline for a possible bullish technical pattern, which may reverse the pair to the downside in correctional movements to reach 1.0300, before rebounding to the upside and completing the pattern by breaching the 1.0365 level and open the way towards 1.0550. This incline is valid as far as 1.0365 is intact on the four hour charts.

Our opinion is buying the pair from 1.0300 to 1.0450 and stop loss below 1.0205 might be appropriate.

GBP/USD

The 23.6% correction limited further inclines for the pair, where it reversed to the downside to near the 38.2% correction for the bullish wave, seen in the image above. The short and medium term declines may face volatility near the current support at 1.5745, as momentum indicators show the possibility for a slight upside correction towards 1.5870 before reversing back to the downside towards 1.5555, as far as 1.6150 remains intact.

Our opinion is selling the pair from 1.5870 to 1.5745 and stop loss above 1.5940 might be appropriate.

DISCLAIMER

These analyses are for information purposes only. They DO NOT post a BUY or SELL recommendation for any of the financial instruments herein analyzed. The information is obtained from a generally accessible data sources. The forecasts made are based on technical analysis. Ensure a good risk management in carrying all your trades.

...To your trading success!