Foreign Exchange

New Home Sales

2008-03-31T21:08:00.000-07:00

From Wikipedia, the free encyclopedia

New Home Sales is an economic indicator which records sales of newly constructed residences in the United States of America.

Data source
The United States Census Bureau publishes New Home Sales statistics monthly on their website. Statistics are reported as unadjusted monthly rates and seasonally adjusted annual rates.

Economic significance
Because New Home Sales trigger consumption, they have significant market impact upon release. New Home Sales also serve as a good indicator of economic of economic turning points due to its consumer income sensitivity. Generally, when economic conditions slow down, New Home Sales serves as an early indicator of such a depression.

Limitations
Several cautions apply when interpreting New Home Sales statistics:

New Home Sales statistics exclude any new houses that were not built for immediate sale. For example, in the situation where a purchaser commissions a builder to build a house on a lot that the purchaser already owns, this housing unit would not be included in the statistics. Other construction statistics, such as Permits, Starts and Completions, do include virtually all new residential construction.
New Home Sales are reported as of the month that a customer signs a sales contract or the builder accepts a deposit. The house can be in any stage of construction.
New Home Sales are not reduced to account for sales contracts which are subsequently cancelled by the customer or the builder. However, in those situations where a cancellation occurs, the house is not re-counted upon a subsequent sale to another customer.

FOREX STRATEGY: MACD (Moving Average Convergen Divergen) 1

2008-03-08T07:09:00.000-08:00

From Wikipedia, the free encyclopedia

click to the picture to watch MACD video from "You Tube"

MACD, which stands for Moving Average Convergence / Divergence, is a technical analysis indicator created by Gerald Appel in the 1960s. It shows the difference between a fast and slow exponential moving average (EMA) of closing prices. During the 1980's MACD proved to be a valuable tool for any trader. With the emergence of computerized analysis, it has become highly unreliable in the modern era, and standard MACD based trade execution now produces a greater distribution of losing trades. Some additions have been made to MACD over the years but even with the addition of the MACD histogram, it remains a lagging indicator. It has often been criticized for failing to respond in mild/volatile market conditions. Since the crash of the market in 2000, most strategies no longer recommend using MACD as the primary method of analysis, but instead believe it should be used as a monitoring tool only. It is prone to whipsaw, and if a trader is not careful it is possible that he/she might suffer substantial loss, especially if he/she is on margin or trading options. The standard periods recommended back in the 1960's by Gerald Appel are 12 and 26 days:

MACD = EMA[12] of price- EMA[26] of price

A signal line (or trigger line) is then formed by smoothing this with a further EMA. The standard period for this is 9 days,

Signal = EMA[12] of MACD

The difference between the MACD and the signal line is often calculated and shown not as a line, but a solid block histogram style. This construction was made by Thomas Aspray in 1986. The calculation is simply

histogram = MACD − signal

The example graph above right shows all three of these together. The upper graph is the prices. The lower graph has the MACD line in blue and the signal line in red. The solid white histogram style is the difference between them.
The set of periods for the averages, often written as say 12,26,9, can be varied. Appel and others have experimented with various combinations.

Interpretation

MACD is a trend following indicator, and is designed to identify trend changes. It's generally not recommended for use in ranging market conditions. Three types of trading signals are generated,

MACD line crossing the signal line.

MACD line crossing zero

Divergence between price and MACD levels

Retail forex brokers

2008-03-07T04:15:00.000-08:00

wikipedia

There are two types of retail broker: brokers offering speculative trading and brokers offering physical delivery i.e. the bought currency is delivered to a bank account.

Retail forex brokers or market makers handle a minute fraction of the total volume of the foreign exchange market. According to CNN, one retail broker estimates retail volume at $25–50 billion daily, which is about 2% of the whole market. Retail traders (individuals) are a small fraction of this market and may only participate indirectly through brokers or banks, and might be subject to forex scams

Principles of technical analysis

2008-03-06T03:13:00.000-08:00

Technicians say that a market's price reflects all relevant information, so their analysis looks more at "internals" than at "externals" such as news events. Price action also tends to repeat itself because investors collectively tend toward patterned behavior -- hence technicians' focus on identifiable trends and conditions.

Candlestick layout

2008-03-05T08:14:00.000-08:00

from wikipedia free encyclopedia

Candlesticks are usually composed of the body (black or white), an upper and a lower shadow (wick). The wick illustrates the highest and lowest traded prices of a stock, and the body the opening and closing trades. If the stock went up, the body is white, with the opening price at the bottom of the body and the closing price at the top. If the stock went down, the body is black, with the opening price at the top and the closing price at the bottom. A candlestick need not have either a body or a wick.

Patterns
Simple Patterns
There are multiple forms of candlestick chart patterns, with the simplest depicted at right. Here is a quick overview of their names:

White candlestick - signals uptrend movement (those occur in different lengths; the longer the body, the more significant the price increase)

Black candlestick - signals downtrend movement (those occur in different lengths; the longer the body, the more significant the price decrease)

Long lower shadow - bullish signal (the lower wick must be at least the body's size; the longer the lower wick, the more reliable the signal)

Long upper shadow - bearish signal (the upper wick must be at least the body's size; the longer the upper wick, the more reliable the signal)

Hammer - a bullish pattern during a downtrend (long lower wick and small or no body); Shaven head - a bullish pattern during a downtrend & a bearish pattern during an uptrend (no upper wick); Hanging man - bearish pattern during an uptrend (long lower wick, small or no body; wick has the multiple length of the body.

Inverted hammer - signals bottom reversal, however confirmation must be obtained from next trade (may be either a white or black body); Shaven bottom - signaling bottom reversal, however confirmation must be obtained from next trade (no lower wick); Shooting star - a bearish pattern during an uptrend (small body, long upper wick, small or no lower wick)
Spinning top white - neutral pattern, meaningful in combination with other candlestick patterns

Spinning top black - neutral pattern, meaningful in combination with other candlestick patterns

Doji - neutral pattern, meaningful in combination with other candlestick patterns

Long legged doji - signals a top reversal

Dragonfly doji - signals trend reversal (no upper wick, long lower wick)

Gravestone doji - signals trend reversal (no lower wick, long upper wick)

Marubozu white - dominant bullish trades, continued bullish trend (no upper, no lower wick)

Marubozu black - dominant bearish trades, continued bearish trend (no upper, no lower wick)

Fibonacci analysis

2008-03-03T16:49:00.000-08:00

(john parson)

Fibonacci analysis works with day trading to determine support and resistance levels within the Pivot Point areas as well as helping to forecast the projected ranges. The Fibonacci correction tool can be used as a way to identify if the trend will reverse or if the trend will continue.

Here is how you can put Fibonacci correction levels to good use while integrating them with pivot point support and resistance numbers.

This is a technique that is more in line with what day traders will encounter on a more frequent basis. as a system or rule based trader you need to wait until there is confirmation of a breakdown of either support or a conditional change in prices by a series of lower highs, lower closes than opens lower lows, closes below prior lows and most importantly you want confirmation of a sell signal when the market closes below the low of the doji. The trigger to sell would be on that candles close or the next time periods open, the stop would be placed initially as a stop close only above the high of the doji. Immediately we see instant gratification as prices plunge. But as what can normally occur is an upside correction that takes place, in this example the correction takes form of a consolidation period that lasts nearly one hour and forty five minutes. It is during this indecision period that can create havoc, doubt and uncertainty in which your mind starts to play tricks on you.

This is the consolidation period that generates indecision. At this point you have a good set-up, prices have violated support, resistance has held, there is a high probability pattern that you recognize that generates reliable price action, namely the Low close doji sell signal. But you are faced with these internal forces that may cause you to exit a well defined trade. After all you have a risk factor and a potential reward objective already mapped out. However this consolidation period is creating more and more doubt whether or not you should stay in the trade. Here is when you need to take advantage of the time the market is in the pause period and go to work.

You now have a distinguishable high and a low made. Using the Fibonacci ratios you determine the correction levels. As such you have identified that the 50% and the .618% Fibonacci retracement levels are holding the market down. Armed with this information you will not be surprised or forced to react emotionally when prices rebound but do not penetrate above these levels. As the chart shows, the correction hits the .618% retracement level and almost immediately prices collapse.

The market rewards the disciplined and patient trader, as such Fibonacci correction levels will help you to identify what I consider pattern traps. For the market to finally fall out of bed like it does this period of consolidation attracted buyers and that congestion pattern when it fails to support forces these traders to sell like mad.

Fibonacci

2008-03-03T16:43:00.000-08:00

(From John person)

Leonardo Fibonacci (1170 – 1240) of Pisa, Italy was a thirteenth century mathematician who discovered that there was a relationship with adding numbers together and then the dividing relationship came up with repetitive percentage figures. This was called the Fibonacci summation or “series” numbers. Simply put, they are an infinite series of numbers that adds each number to the previous. An example is 1,2,3, 5,8,13,21,34,55,89,144, 233, 377, 610, 987 and so on. If you take 1 + 2 you get 3, then if you take 2+ 3 you get 5, and if you take 3 + 5 you get 8 and so on.

Fibonacci ratios are numbers derived from the calculations within the Fibonacci series numbers. The most common numbers are .382%, .50%, .618%, .786%, 1.00%, 1.272% and 1.618%. The “Golden ratio” number is often referred to for the number .618% due to the many coincidences that reoccurs with that number. For example 89=+/- .618 of 144, 144 divided by 233 + .618, .382 + .618 = 1.00, .786 = the square root of .618%.

Fibonacci correction- also referred to as a retracement, when a market makes a move from a low to a high, price will have a tendency to pullback, retrace or correct. The percentage of the pullback can be .382%, .50%, .618%, .786% and at times even 100%. When looking for bullish set-ups it makes sense that we want to target buying opportunities especially on pullbacks when the market is in an up-trend. This is when we will use a Fibonacci tool to identify the percentage figure and look for that as a potential support to enter a long position.

Fibonacci extensions - There are times when a pullback can retrace beyond the original starting point and exceed 100 percent of the initial wave or trend. So a Fibonacci extension is essentially a correction that exceeds the low of the initial trend. Technicians will use the 100 percent, 1.272 percent and 1.618 percent ratios to target a pullback level. This state of correction can be considered a double bottom at the 100 percent pullback level, and when we see that correction exceed the low , we see raids on stops. By using the extension tool you may have a great place to place your stops and keep them out of harms way by using the “hidden” or invisible support level as determined by the Fibonacci extension technique.

Fibonacci projections – this is the term referred to as simply determining a potential price objective and is a vital component in Elliot wave theory. It is an excellent confirmation tool to identify potential trend exhaustion turning points. Using the Fibonacci calculator, one can determine a bullish upside objective by measuring the range of the wave or the swing as it is also referred to. Multiply that sum by the corresponding ratios which are .618 percent, 100 percent, 1.618 percent, 2.618 percent and for extreme moves 3.618 percent. In a bullish trend add that figure to the low, which is the correction low and this will give you the projected price objective. This calculator on my website does this for you automatically.

Pivot point calculations

2008-03-02T02:56:00.000-08:00

From Wikipedia, the free encyclopedia

Pivot point calculations are used by security traders to attempt to predict support and resistance levels. They are commonly used in the forex and commodity futures markets. Pivot point analysis is a subset of technical analysis, although it is not as popular or well known as other technical methods.

Pivot points are frequently used by foreign exchange traders as a means to calculate resistance and support levels which are, in turn, used as visual cues to execute trades. Pivot point calculations provide traders with objective visual bench marks which some use to predict price changes, although the validity of these levels is still subject to debate.

the formula of the pivot point is:

PP = (H + L + C)/3
The first resistance level(R1)=(PPx2)-L

The second resistance level (R2)=PP+H-L

The first support level (s1)=(PPx2)-H

The second support level (S2)=PP-H+L

Define a Basic Forex Strategy

2008-03-02T00:16:00.000-08:00

Technical analysis and fundamental analysis are the two basic genres of strategy in the forex market - just like in the equity markets. But technical analysis is by far the most common strategy used by individual forex traders. Here is a brief overview of both forms of analysis and how they apply to forex:

Fundamental Analysis
If you think it's difficult to value one company, try valuing a whole country! Fundamental analysis in the forex market is often very complex, and it's usually used only to predict long-term trends; however, some traders do trade short term strictly on news releases. There are many different fundamental indicators of currency values released at many different times. Here are a few:

• Non-farm Payrolls
• Purchasing Managers Index (PMI)
• Consumer Price Index (CPI)
• Retail Sales
• Durable Goods

Now, these reports are not the only fundamental factors to watch. There are also several meetings from which come quotes and commentary that can affect markets just as much as any report. These meetings are often called to discuss interest rates, inflation, and other issues that affect currency valuations. Even changes in wording when addressing certain issues - the Federal Reserve chairman's comments on interest rates, for example - can cause market volatility. Two important meetings to watch are the Federal Open Market Committee and Humphrey Hawkins Hearings.

Simply reading the reports and examining the commentary can help forex fundamental analysts gain a better understanding of long-term market trends and allow short-term traders to profit from extraordinary happenings. If you choose to follow a fundamental strategy, be sure to keep an economic calendar handy at all times so you know when these reports are released. Your broker may also provide real-time access to such information.

Technical Analysis
Like their counterparts in the equity markets, technical analysts of the forex analyze price trends. The only key difference between technical analysis in forex and technical analysis in equities is the time frame: forex markets are open 24 hours a day. As a result, some forms of technical analysis that factor in time must be modified to work with the 24-hour forex market. These are some of the most common forms of technical analysis used in forex:

• The Elliott Waves
• Fibonacci studies
• Parabolic SAR
• Pivot points

Many technical analysts combine technical studies to make more accurate predictions. (The most common is combining the Fibonacci studies with Elliott Waves.) Others create trading systems to repeatedly locate similar buying and selling conditions.