World Currency Watch: FOREX Market, FOREX Trading BLOG

Why the Pound Could Rise…

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Don’t Bother Picking Tops and Bottoms

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As you know, Forex is one of the most profitable ways to hedge against the dying dollar.

Three Innovations that Make It a Snap (and Much Safer) to Enter the Currency Markets

Just a decade ago, if you wanted to venture into the largest, most liquid market in the world – the foreign currency market – your options were pretty limited.

First you had to be a savvy “online person” with one of those “really fast” DSL or cable Internet connections.

Then you had to open a special account with one of the few infant Forex firms of the day. Plus, there weren’t any decent charting packages, practice trading platforms or customer service desks we take for granted at Forex firms today.

Also, assuming you were successful in your trading, you would have spent a large part of those profits in fees. Back then, the Forex firms didn’t have the incentives they have now to offer the narrowest spreads (and therefore lowest fees) possible.

Basically, it was like jumping in the deep end of the pool blindfolded.

But again, that was 1999.

As technology has advanced over the last 10 years and the world embraced the Internet, demand for access to currency markets began to take off. And with that boom in demand, Forex firms, ETF providers and even the oldest stock exchange in the U.S. have all come forward to make currency investing and trading a much easier, cheaper and ultimately more profitable experience for your average Mom and Pop investor. Here’s just a quick glimpse at the new currency innovations of the 21st century…

The Currency Developments…and Three Easier Ways to Buy Currencies

Technically there is no physical exchange worldwide where currencies trade. There’s no trading floor where professional FX traders yell bid and ask quotes to each other across packed rooms somewhere in London or New York.

Still, financial innovation has found ways to make it easier for you to buy and sell currencies. For example…

Since 1999, Easier Forex Trading: Today Forex platforms are no longer few and far between like they were 10 years ago. Today you can sign on to the Forex platform of your choice. And because there are so many to choose from, they offer competing and very valuable services like practice accounts and tutorials that walk you through the trading process. More importantly, the increased competition has dramatically improved their bid/ask spreads making it even more profitable for you the individual.

Since 2005, Currency Exchange Traded Funds ETFs: Rydex Investments was the first to introduce a currency fund in late 2005. This allowed Forex enthusiasts to take advantage of currency moves without any special needs. You don’t need a margin account, special Forex account, or even any special training. It’s as easy and cheap as buying any other stock. Since then, WisdomTree, ProShares, PowerShares, and more ETF providers have introduced their own. Now you can buy over 25 different currency funds through various providers.

Since 2007, “Stock-like” Currency Options: The nation’s oldest exchange, the Philadelphia Stock Exchange (a.k.a. the Nasdaq OMX) introduced a new kind of currency option in mid-2007. They designed these currency options to mimic stock options as closely as possible. The theory was if you could buy regular stock puts and calls, you could buy these new currency options. Today, you can make long or short bets on 10 different currencies on the Nasdaq OMX with options. To buy them, all you need an options-approved stock account.

The Only Question Left: Are You a Currency Investor or Forex Trader?

Your in-house currency expert Ashish Advani addressed this question this past weekend, as they wrapped up the Offshore Advantage Academy in Los Cabos, Mexico.

Let’s listen in…

“If you’re looking to invest long-term, say 5-10 years, I recommend buying the currency outright. If you’re more of a short-term trader, consider currency options. And if you’re looking at an intermediate time frame of 1-3 years, ETFs are right up your alley. Typically the spot market takes more time and effort… and is best learned in the company of a professional.

Which does he prefer?

“There are better things to life than just foreign currencies – that’s why I play the options market,” he said. “I buy an option and get on with my life.”

“What’s so attractive about currency options?

“First, you have limited risk. You can’t lose more than the premium. Ashish doesn’t get into a trade without having a profit target in mind… so there’s no wishy-washy guessing about when to get-out. And perhaps best of all – options give you the ability to wait for your strategy to come true.”

“It takes about two or three minutes to put on a trade… You can get in for as little as $700 to $1,000 and can make these trades from any stock trading account… and get back to your life.”

To find out more about your own personal currency trading style, take FX University Daily’s special quiz here.

Good Currency Investing,
Kat Von Rohr, Editor
FX University Daily

P.S. Today is your last day to claim your free currency report. After midnight tonight, we will no longer offer Currencies for the Long Run or How Trading Currency Crosses Can Boost Your Forex Profits as gifts to our long-term FX University Daily readers. So please, click below to grab the free report of your choice before it’s too late.

Your Short-Cut to Stronger, More Useful Charts…

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The Most Profitable Corner of Forex…

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Prepare for the Coming Stock Sell-Off with Currencies

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Why Currencies Can Sink on Good News

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Three Secrets to Higher FX Profits In 2010

(Or, My Top 3 FX Profit Signals for Q4)

Those who know me know that I combine fundamentals and technicals to identify the best trading candidates in the foreign-exchange market.

Of course, any Forex trader will tell you that’s easier said than done.

There are about 1,000 different indicators you can monitor to gain insight on your Forex trades from both a technical and fundamental perspective.

In fact, it can all be a little daunting for new traders.

The good news is some indicators are more telling than others, especially depending on the market environment. Right now, there are three indicators you need to be watching to get the quickest and best intel on your trades as we head into 2010.

Indeed, all three of these indicators could be the keys to posting Forex profits in the days and weeks to come…

1. Interest rates – Specifically in Australia!

I’ve been saying for some time that Australia or New Zealand would likely be the first to raise interest rates. As you know, Australia was the first to raise rates recently. Also, the officials at Reserve Bank of Australia are making speeches that are sending smoke signals through the Forex market. The signals show that they are ready to hike rates further in the future.

So more than ever, you want to keep an eye on Australia’s interest rates because they are the FIRST of the G-7 countries to start hiking rates.
They are likely to continue to raise rates.

As rates are raised…even better yet, as traders continue to anticipate rate hikes…money will pour into the Aussie dollar overall. Sure, the Aussie dollar will face some pullbacks along the way but regardless, I would continue to buy.

Right now, you should be treating Australia like a company with good earnings growth. Even if the company faces minor drops in price, the equities experts would continue to buy its stock. Only in this case, the “stock” is the Aussie dollar.

2. Watch Year-Over-Year Inflation

It’s easy to say “watch the Reserve Bank of Australia,” but really that’s only the beginning. To tell when the next central bank is about to raise interest rates next, you need to watch their year-over-year CPI numbers.

Higher inflation means traders have a chance for higher interest rates. After all, the only way central banks can fight inflation is to hike interest rates. As you probably know, traders love higher yields. So as inflation rises and key central banks begin to hike rates, money will pour into currencies with increasing rates over time.

This means you’ll get currency appreciation and more daily rollover interest in your Forex account too!

Right now, I’m continually monitoring the year-over-year inflation for both Australia and New Zealand because both countries have the potential for more rate hikes in the future. You can find these inflation numbers most easily at www.dailyfx.com or www.tradingeconomics.com.

3. Watch the Major Moving Averages on AUD/JPY and AUD/USD

Long-term readers know I love to watch the major moving averages. I monitor both the 50-day simple moving average, and the 100-day simple moving averages for my favorite pairs.

Simple moving averages help you figure out where a currency is heading because that’s when you pinpoint the best entry and exit points.

It’s just like a simple moving average for stocks. It just tracks the average moving price for the currency pair over the last 50 or 100 days. In currencies, this helps you figure out the currency pair trend, so you can trade with it.

Once you’re trading with the trend, you have a higher probability of success. Low probability trades would be shorting an uptrend or buying a pair in a downtrend.

Right now, I’m looking at the simple moving averages for my favorite Australian dollar pairs: the AUD/JPY, and the AUD/USD. I would also recommend watching the New Zealand pairs if inflation starts to head higher.

Find Nice, Timely Entries to Maximize Your Profits!

Your Bullets and Trigger for the Perfect Trade in 2010

Fundamentals tell you what to buy, while technicals give you the specific level of when you should be buying. In my list above, the first two signals tell you what you should be buying, while the moving averages tell you when to buy. That’s just as important.

When a currency pair is in a steep rise, the pair will likely only pull back to the purple 50 SMA on the daily chart. However, when the trend is somewhat mild, it will pull back to the green 100 SMA several times.

I’ve circled many of the buying opportunities on the chart above. This way you can see where the pair started up trending. You can tell when the pair starts to trend upward on the chart because the price climbs above the moving averages and the shorter 50 SMA rises above the 100 SMA.

Following these three profit center indicators can lead your account on to higher heights.

So just to recap: You first follow the fundamentals. Then you follow the trend on the chart that the fundamentals produced. Finally, the technicals (in this case, moving averages) tell you when are better times to be buying than others.

When you combine these profit signals together, you’re going to be more successful than pure fundamental or technical traders.

The fundamental trader knows what to buy but tend to make horrible trades, with sloppy entry and exit points because they don’t know when to buy or sell.

The technical trader knows when they see an uptrend…but they have no idea, which currency pair will likely go up the best and the longest.

But as a student of both fundamentals and technicals, you’re already ahead of the game. Keep this in mind as you’re watching the Aussie and New Zealand dollar in the weeks to come.

Happy Trading!
Sean Hyman, aka Professor FX

EDITOR’S NOTE: After 17 years in the financial markets, Sean has done it all – from equities and commodities trading to educating his fellow industry insiders about the foreign exchange market. Today, he’s also the daily commentator for our Chart of the Day. Five days a week, he explains to traders the easiest and most effective strategies to use Forex charts in their trading. To learn more about Sean and Chart of the Day, click here.

What Other Currency Pairs Will Tell You About Your Trade…

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The Super-Charged Currency Pair…

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