Profitable Forex Indicator - US Dollar Short Futures Index

The long position we initiated on May 17, 2008 using a new technical and fundamental indicator available, is now starting to pay off for us. With the GBP/USD breaking above the 1.9850 level this week, it has put the pair in a technical uptrend with average momentum.

All in all, the The Deutsche Bank US Dollar-Short Futures Index - ($USDDNX.X) has proven to be a useful tool to keep in the traders toolbox. Remember; this indicator shows us the pressure being put on the USD. As the chart climbs upward, more investors are betting the USD will decline in value against major currencies. We can also use this index as an exit indicator for our current trade when it shows an overbought condition.

Our entry was at 1.9475 and we added to our position as the consolidation formed at 1.9540 on Jun 6, 2008. Our stop has always been steady at 1.9361. We are now going to raise our stop to lock in profits and protect our position. We have it set at 1.9580. We will let this trade play out through the current uptrend, adjusting the stop as necessary.

You should now have a good feel for how to conduct a trade using the USD - Short Futures Index as an indicator. If not, feel free to re-read the blog posts beginning May 17, 2008. This indicator should not be your only trigger to execute a trade (fundamentals were working in our favor if you remember earlier posts). Trading Forex is risky and should only be done with funds dedicated for risky investments.

We mentioned in earlier posts about monitoring the major banks foreign currency levels as another trading tool we use, so we will post in later blogs about using just that to exit this current current trade. In the mean time our next few posts will be on aspects of leverage in Forex trading.





Any opinions, news, research, analyses, prices, or other information contained on this website are provided as general market commentary, and do not constitute investment advice. M 5 Forex is not liable for any loss or damage, including without limitation, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. M 5 Forex has taken reasonable measures to ensure the accuracy of the information on the website. The content on this website is subject to change at any time without notice.

Divergence in Indicators Forming

Our pair continued the consolidation pattern as expected last week, using the US Non-Farm Payroll surprise to rebound back to where it started the week at. But of interest to note is even though the pair was flat on the week, the indicator we used to initiate the trade (The Deutsche Bank US Dollar-Short Futures Index - $USDDNX.X) closed higher.

The increase in the number of traders putting money into US Dollar short positions reaffirms that we should still be long in our current trade. The fundamentals for our position were further reinforced with Fridays unemployment jump in the US.

Since we had no technical or fundamental indicators to the contrary, we increased our position slightly on last weeks pull back. Our stop still remains firm at 1.9360, as any break below this level will indicate a potential resumption the down trend. A move above 1.9850 however, will place a higher low and higher high on the daily GBP/USD chart, putting us in a technical short term up trend.

As we stated in the post of 5/25/2008, we are expecting this trade, as well as the summer trading season, to be a wild one. We did mention in last weeks post that we would discuss our research tools we use to keep an eye on the money flow from global tourism. We apologise for the delay, but will get it put together soon. We are double checking to make sure we do not violate any ones copyright before we post.

Any opinions, news, research, analyses, prices, or other information contained on this website are provided as general market commentary, and do not constitute investment advice. M 5 Forex are not liable for any loss or damage, including without limitation, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. M 5 Forex have taken reasonable measures to ensure the accuracy of the information on the website. The content on this website is subject to change at any time without notice.

Consolidaton Continues On GBP/USD

As anticipated, the GBP/USD consolidated around the 1.9750/1.9800 levels in a fairly orderly fashion. The open today was a bit unusual and caught many traders who trade shorter time frames by surprise. Those of us who swing trade were left with no change in our positions.

We are still long on this pair in our current trade. Last week left us with no change in our technical indicators, other than to confirm the consolidation on the short term uptrend we posted last week. We did receive further confirmation that we should be long fundamentally with the release of FXCM's COT data. Their release states:

• "The idea that a double digit big figure low (probably 1,300-1,500 pips) is forming in the GBPUSD is supported by our analysis of COT data. We construct indexes that provide readings between 0 and 100 (with 0 being a bearish extreme that leads to bottoms and 100 being a bullish extreme that leads to tops). Both indexes are at 0 now, indicating that a bearish sentiment extreme has been reached and that the GBPUSD is headed higher. Also, the Composite COT (top line, a combination of speculators and commercials) is at a level that has been reached just twice before. In both instances, the GBPUSD commenced rallies of at least 1,400 pips (within 3-5 months time)."

Our hard stop is currently located at 1.9350 (trade entry was at 1.9475). If the pair should break above 1.9900 we will move our stop up to 1.9650 to guarantee a profitable trade. 1.9900 is a key level since it would break the downtrend line formed on the high of 11/09/2007. Our initial target still remains at the 2.0400 level as we are still a little too early in this trade to generate a strong trend line for support.

We can see the fib retracement levels that we should keep in mind. We are currently bouncing around the 23.6% level. Our next near term target is the 38.2% level of resistance of 2.0035. Breaking this level would be a very bullish signal because it is also the high of the last Elliot wave on 4/21/2008.

With the consolidation underway there is not much to post this week. I will make a mid-week post explaining were to find the money supply numbers that I talked about last week. These are important fundamental indicators to watch, especially before and during summer.

Any opinions, news, research, analyses, prices, or other information contained on this website are provided as general market commentary, and do not constitute investment advice. M 5 Forex is not liable for any loss or damage, including without limitation, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. M 5 Forex has taken reasonable measures to ensure the accuracy of the information on the website. The content on this website is subject to change at any time without notice.

GBP/USD Forex Trade Continues on Dollars Decline

Technically the GBP/USD pair looks like it will attempt to continue its corrective move up as we reported in last weeks Blog. Key levels to watch this week if you are in this trade with us are 1.9599 (a break below would indicate a continuation of the downtrend), and any move above 2.0023 (this would set a higher low and higher high if 1.9599 did not get penetrated). The hard stop should still remain at 1.9361 until a medium term trend establishes.

Elliot wave analysis further points to a decline in the US Dollar across the board.

Analysing the fundamentals, with last weeks news from the Bank of England and the lack of news from the US Fed, we still like the looks of GBP/USD being a strong pair to trade against the dollar. The only fundamental concern we have is with the start of the summer travelling season. Early indications are pointing to a light travel season due to the increases in oil and airline prices. This generally causes a decrease in liquidity in the Forex markets as major banks are not exchanging currencies as much. A decrease in liquidity amplifies any market volatility.

Looks like a wild summer trading season, which should allow for plenty of profitable trades for the retail Forex trader who utilize proper risk management techniques.


Any opinions, news, research, analyses, prices, or other information contained on this website are provided as general market commentary, and do not constitute investment advice. M 5 Forex are not liable for any loss or damage, including without limitation, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. M 5 Forex have taken reasonable measures to ensure the accuracy of the information on the website. The content on this website is subject to change at any time without notice.

Forex USD/GBP Traders Should Prepare Themselves

Forex trading involves analysis at the macroeconomic level. Here we explain a new tool that can be used to help you accurately predict the direction of the US Dollar against other world currencies. Knowing the direction of the dollar will assist you in trading with the trend (before a trend is showing to other traders).

Our Forex analysts have been watching the short money flow into dollar futures slowly dwindle down over the past month. We are now in a technical area on The Deutsche Bank US Dollar-Short Futures Index ($USDDNX.X) that puts us into a bullish position on the USD/GBP pair.

• Price has crossed above 20 day moving average.
  


• MACD is showing a positive long signal.
  


• Price broke above first level of resistance of 150.10.

The last time money flowed into short positions on the USD futures, we saw a corresponding 1000 pip push up in the GBP/USD from 1.94 to 2.04 between Feb 20 and Mar 13, 2008.

We might see some consolidation around these levels on the short futures before an attempt at the second level of resistance at 151.50. A break above that level will leave the final resistance at the all time high of 153.30.

Also keep an eye on the GBP/USD forex chart. The daily chart put in a hammer reversal on May 14, 2008. Any long position should have a stop set just below the low on that day of 1.9361.

Our analyst further caution that with the current technical indicators on the GBP/USD chart, any move up is merely a corrective retracement unless 2.04 is broken to the upside, which would indicate a medium term bullish trend change.

Fundamentally the Bank of England announced it anticipates “No” rate cuts over the next two years as reported on Financial Times. The BOE stated that the US Federal Reserve Bank is known for ambiguity and vagueness.

This leaves the GBP paying 5.0% compared to 2% for the US Federal Reserve. The Forex markets had generally been pricing in an anticipated one or two rate cuts by the BOE by the end of this year alone.

Any opinions, news, research, analyses, prices, or other information contained on this website are provided as general market commentary, and do not constitute investment advice. M 5 Forex/ ForexWebTrader are not liable for any loss or damage, including without limitation, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. M 5 Forex/ ForexWebTrader have taken reasonable measures to ensure the accuracy of the information on the website. The content on this website is subject to change at any time without notice.

Forex Trading Myths (and honest answers)

Forex trading online has become more and more popular in recent years, due in large part to the popularity of stock trading on the internet. But along with this popularity comes the inevitable hype, myths, and at times, complete untruths. While many of these myths are relatively harmless - they do cast doubts on the Forex industry, and some can actually be costly to beginning currency traders as well. Here is the list of the most common Forex myths:

· Forex trading is easy. First the truth. It is easy to start Forex trading and it is easy to buy and sell currencies online. But succeeding and making money is anything but easy. It takes education, time and practice. Of course, there are talented traders that learn very fast, but generally speaking, starting traders should dedicate part of their time to educating themselves, practicing and developing strategies.
· Forex is gambling. This is a myth and is often heard about all forms of trading; whether it’s stocks, bonds, futures, options etc. In reality Forex is the epitome of macro economics in the purest form, even more so than other types of market trading as it deals solely with the performance, structure, and behavior of national or regional economies as a whole, and their interrelationships with each other. If this were true, then all the national economic administrators, advisors, consultants and students are the world’s best gamblers. Rather we are all students of economics, technical analysis, fundamental analysis and psychology.
· Forex is a scam. Forex got some bad press after High Yielding Investment Programs (HYIP’s) started to claim that they earn money on Forex. More recently a firm in New York was shut down and another’s internet trading site dismantled for bilking investors out of millions. Fortunately prison terms have been issued for bringing discredit to a legitimate, regulated and law abiding industry. Actually Forex is a real currency market where anyone can trade for themselves and be responsible for their own decisions, so it's hardly a scam. The only scams you should be afraid of as a Forex trader are scamming brokers and marketers that sell Forex books, sure-fire strategies, trading systems, guaranteed returns or the usual “to good to be true” devices.
· Only the rich can trade Forex. This was true. Now with the fast development of high bandwidth in the common Internet connection, coupled with the financial backing of the largest financial institutions in the world, Forex is now open to everyone. You can start trading with just $1.
· Forex is completely random. Although the short time fluctuations of the Forex market may seem spontaneous and random, this is a complete myth. When you order a trade, there has to be a counter trade to yours. There is nothing random about it. Long term movements of currency pairs are far from random. There is a certain range of probability, but it is not random and can be predicted, controlled and influenced by global, regional and national economics.
· There is a "Holy Grail" in Forex. Some prefer to believe that they can find some strategy that will earn millions and work forever. Unfortunately that belief has no proof. Successful traders are always changing their strategies and adapting them to the current market conditions. Usually even a Forex strategy is something that can't be expressed as a simple set of rules, it must used with flexibility and adjusting to be really profitable. Yes, a Philippine housewife opened a $25 Forex trading account and built it to $2.6 million in three years. She is a phenomenal trader. She studied, practiced, learned and constantly adjusted and executed her trading strategy flawlessly.
· Brokers trade against their clients. In a short, this is both true and false. When you execute a trade there has to be someone executing the exact counter trade at the same time. If there isn’t your broker counters it to cover your trade until they can match the trade in the opposite direction with another trader to minimize their exposure. Remember, Forex brokers make their money from the difference in the currency pair (the spread), and try to keep their exposure to the market minimal for the most part.
· Forex trading is risky. THIS IS NOT A MYTH – THIS IS TRUE. Just as in any form of trading or investing, there are no guarantees and you could lose all the money you invested. While practicing sound risk management techniques prevent this, it could happen. If you open an account with $25, please make sure it is not $25 you need to feed the baby. Also, while I have never heard of anyone losing more than they invested (modern internet trading systems prevent it), technically you could.