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Hello all,

From time to time, I will be posting some a system that other coaches may have developed, heard of, or even tested. I want you to take the opportunity and test it yourself and see how it works on a particular pair of your choosing. As a word of caution, I want to point out that there is no guarantee that this particular system works in this type of trading environment but this system may give you an idea on how to set up a system of your own.

Some of you may have seen this system before or it may be new, I would suggest you read it, test it and re-test it and make it your own system. That way you will own it at that point and understand it. I ask one thing, post your findings in the comments section and share with others what you find. That way, others can learn from your findings. Have fun!!!

~ G

CCI and Simple Moving Average (50) System

The Commodity Channel Index (CCI) and Simple Moving Average (SMA) trading system is a simple approach to trading the currency market. The CCI is used to determine the entry point into a trade, while the SMA is used to filter the signals. The management of risk is accomplished by using a 100 pip stop loss. Winning trades are exited with a 100 pip profit.

The system employs a bracket approach to exiting winning and losing trades. Both the profit target and stop loss are 100 pips away from the entry point, which means that the system must achieve a high win/loss ratio in order to be profitable. The following table displays the rules of the system:

Timeframe: Daily Chart

Indicators: CCI (14); SMA (50)

Enter Long: When CCI crosses above -100 and SMA is greater than or equal to yesterday’s SMA value.

Enter Short: When CCI crosses below +100 and SMA is less than or equal to yesterday’s SMA value.

Exit Point: Set profit target of 100 pips.

Stop-loss: Set stop of 100 pips after entry.

Pairs Traded: EUR/USD, USD/JPY, USD/CAD, EUR/JPY

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 * Contributed  by Investools coach Shay Aslett

crystal-ball.jpg Happy New Year! (Well, it’s only 20% gone – we still have 80% of the year) In this article, I’m going to predict your future and forecast exactly what kind of results you’re going to get in the next 12 months. Sylvia Browne, step aside… I’m pretty good at this.

What if I could take out my crystal ball and predict with 99% precision exactly what kind of results you will achieve with your trading & investing by year’s end?

Well, no problem, I can do that.

I would claim that I have some kind of “gift” for this, but to be honest, you and I don’t need to be psychic to make predictions like these.

There are two things you can always count on: (1) Nature’s laws of cause and effect, and (2) human nature.

On that basis, here are my 20 currency trading & investing predictions for the New Year:

shaysworthy1.jpg I PREDICT that if you can reach into your pocket on any day this year and pull out a card or piece of paper with all you’re currency trading & investing goals written on it in vivid detail, the odds are 95 to 1 in favor of you achieving every one of those goals before the year is out.

I PREDICT that if you focus your thoughts, on your goals and how you are going to achieve them, all day long, you will reach your goals so fast this year, it will make your head spin. “What you focus on expands”.

I PREDICT that if you focus your thoughts on investing woes and trading problems and if you think about what you don’t want, all day long, your problems will get worse than ever this year.

I PREDICT that if you made a new year’s resolution, but you didn’t turn it into a specific, written goal with a deadline and a strong reason why you must achieve it, you will freely abandon it the moment the going gets tough.

I PREDICT that if you can tell me all the reasons why achieving your currency trading & investing goals are important to you, you will be motivated from within to stick with it when the going gets tough.

I PREDICT that at times, the going is going to get tough.

I PREDICT that if you can tell me today what your life purpose is and what is your lifelong vision for your currency trading & investing, you will still be as motivated and driven at the end of the year as you were at the beginning.

I PREDICT that if you don’t have long term goals and a “big picture” vision for your life that you will lose your New Year’s enthusiasm and motivation in a matter of months or even weeks.

I PREDICT that the way you see yourself in your mind’s eye today will be an exact reflection of what you see in the P n’ L column at the end of the year.

I PREDICT that if you have a setback that seems to get in the way of you reaching your currency trading & investing goals and you tell yourself  “this is just temporary; this too shall pass,” then it will pass and it won’t set you back.

I PREDICT that if you believe the way you’re trading today, is out of your control and you feel helpless or powerless to change, you won’t even make much of an effort this year.

I PREDICT that if you accept complete responsibility for the way you are trading today and you believe that you have the power to change, that you will take action and keep taking action, even through the tough times.

I PREDICT that if you’re unhappy with your trading and investing and you say, “it’s not my fault” or you blame it on “the market”, central bankers or news, then your currency trading will look pretty much the same at the end of this year as it did on New Year’s day.

I PREDICT that the more you have patience, a long term perspective and the ability to postpone immediate gratification, the more likely you are to be a success one year from now.

I PREDICT that the more you seek the, “perfect trade”, “hot tip” or “the perfect trading product,” the more likely you are to be a failure one year from now.

I PREDICT that you will be tempted by many, high risk, quick-profits this year.

I PREDICT that if you hang out with losers and negative currency traders this year, you will become just like them.

I PREDICT that if you hang out with winners and positive currency traders this year, you will become just like them.

I PREDICT that you will run into more negative currency traders and losers this year than positive traders and winners.

I PREDICT that if you recruit just one currency trading & investing partner that stands behind you and the trading changes you want to make this year, you will double your chances for success. If you surround yourself with numerous trading & investing partners, you will become virtually unstoppable.

So how does your currency trading & investing future look for the year ahead?

Based on my “predictions,” if it doesn’t look as bright as you’d like it to be, then don’t worry, because a prediction is not predestination.

You can’t do anything to change the past, but by changing your thoughts, attitudes and actions in the present moment, the future is yours to create.

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backtoschoolsmall.jpg    One of you wrote in asking me this:

   Thanks for the review of the exotics. I’ve got a question for you: I’ve heard some of these currencies (the HKD, anyway, I believe) being referred to as “pegged” to the US Dollar. I’d appreciate it if you could talk about what this means, and how it might affect trading. I’ve no plans to trade exotics yet, I’m just curious.

 So summed up, what is a currency peg and how does it affect me harvesting vast sums of pips?

 

  Is it just me or is there all sorts of odd-ball stuff like this we hear in the FX world and wonder what it means? Well, let’s roll our sleeves up for a longer than usual post and do another little mini-lesson, more economic in nature, since this requires some explaining.

  • What it is: OK, a pegged currency (AKA “fixed exchange rate”) derives its value from something else: usually another currency or a basket of them, or something else that’s fixed like gold. So the currency’s value rises and falls according to that other thing. For example, many currencies are pegged to the dollar, meaning they rise and fall in value as the dollar does.

  I can think of a couple reasons off-hand why they do this.

  1. One is that the currency which is pegged to something else (like the dollar) represents a small economy. Imagine the harmful effects to that economy if the currency was free floating (not pegged) and somebody manipulated if by buying/selling tons of it, or if a certain element of the economy affected the currency in an unbalanced way.
  2. Some currencies peg to others (again, like the dollar) because they export heavily to the one they peg to and want to be able to continue selling to that country because it is vital to their economy. China does this – imagine the effect on China (which heavily exports, its lifeblood is manufacturing) if the dollar halved in value, and so Americans could only afford half as much goods from China, without a peg.
  • And so this affects me (a trader) …. how, exactly? Well, there’s been lots of talk lately about people abandoning their peg to the dollar because its been dropping in value. If there is a trend in unpegging, of course that will hurt whatever is being unpegged to. Like the buck. It’s been a vicious snowball effect: the dollar goes down, for whatever reason, and then it goes down more because some other governments start saying “whoah, that’s making our currency go down too much, too!”, they dump/threaten to dumb billions of USD, which causes the USD to fall further, making people more antsy yet, etc. etc. you get the picture.

   Soooo, pegs only affect our trades if they are being changed and we’re trading those currencies. News items that such-and-such government is unpegging from the buck with cause a spike down in the buck that day, and contribute the overall trend of dollar selling (for example), and any news of who may be the beneficiary (“forget that crummy dollar, we’re putting more money in the euro now!”) will bump up that other currency.

 

  Think of it all this way: peg-stuff is macroeconomic-stuff, and affects currencies accordingly: more over time than on an hour-by-hour basis. And usually this long-term trend will be reflected on the chart: thus, the glory of technical analysis … simply follow the chart!

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Economic data drive prices when there is a surprise over what is expected. Another surprise is when an accompanying press release or the text in the data itself reveals a posturing by “the man”.

Deborah Solomon in Monday’s Wall Street Journal did a great job giving an example of this. I loved this example.

 

In 1997, he (Former Treasury Secretary Robert Rubin) modified the statement from “a strong dollar is in the U.S. interest” by adding “and the dollar has been strong for some time now.” That signaled the U.S. view that the dollar’s rise had gone far enough.

It simply serves as a good reminder that when data come out, there are often extremely subtle variances that can totally shift the market, and all but the most hard-core of analysts pick up on it. It points to the power of basing decisions on the charts.

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201px-ben_bernanke.jpg Tomorrow the Fed steals the show announcing its latest decision on interest rates. Forex basics recap: high rates are good for the dollar, low bad. Low are good for stocks, and stocks still have a leadership cap on, meaning the more rate cuts the better for most currencies out there (the carry, the higher interest payers.)

Here’s the deal. Stock investors have been halfway in a parallel universe of delusion lately! There’s huge expectations of a 25 basis point cut, perhaps 50. I think with this pressure, there is more risk to the downside. What if the Fed only does .25 and everyone is disappointed there’s no .50? What if the .25 doesn’t even come? It’s always possible .50 comes or there is lots ofhawkish pulpit pounding, but I’m a little leery. We’ll see right?

Sooooo, this is called event risk. It’s like super earnings for a stock, but universal. If you’re up a way in a trade, “being careful” here may mean taking some profit off the table. Some tighten stops, whatever that means (I always keep mine as tight as technically makes sense …)

Otherwise, if you trade longer term (daily) it’s business as usual – there just may be a bigger move than usual one way or the other. If you trade long term watch for a break and follow it till it runs out of steam. And enjoy the show!

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Once again: this week David Settle – a friend and fellow analyst on our site – will be hosting a guided tour on Thursday of the Investools FX site during a 90 minute Open House session. This is a Webex session, so you have the luxury of seeing, hearing and interacting (in the last half hour, David opens it up to questions) with David in real time as he highlights the benefits of the currency market. As David will be using the tools at the FX website he will also be doing some analysis along the way which is sure to help even some of you seasoned vets. Here’s what’s covered:

 

  • Proprietary fundamental tools that’ll give you a quick and simple way to determine a currency’s strength or weakness versus others.
  • Our Powerful charting package including 100+ technical indicators on more than 60 currency pairs at your disposal streaming 24/7.
  • Daily and weekly commentary written by experienced Forex traders.
  • Our interactive educational environment that allows you to learn at your own pace on your own schedule.
  • Other features designed to help you on your path to forex success.

David is very intelligent and has great insight both economically and technically. He’ s a great trader, does some of our trading rooms, and I’ve coached both forex as well as stocks and options with him for years. To register for the event simply go here, and then show up at the right time.

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If you read one thing this week to further your FX education here it is: the latest comments from money manager and commodities guru Jim Rogers. The man is amazing and very highly respected. I read his book Hot Commodities and it was great, the real deal, not some fluff. I’ll add it to our book list above sometime.

Here is the link, courtesy Bloomberg:

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a7Yy4VHfagTQ

Some snippets:

“The U.S. dollar is and has been the world’s reserve currency, the world’s medium of exchange,” he said. “That’s in the process of changing. The pound sterling, which used to be the world’s reserve currency, lost 80 percent of its value, top to bottom, as it went through the whole period of losing its status as the world’s reserve currency.”

Rogers said he remains bullish on commodities because “that’s where the big fortunes are going to be made in the world in the next five, or 10 or 15 years. The current bull market is going to last until sometime between 2014 and 2022.”

The carry trades in yen and francs will “unwind someday,” which will send the currencies “straight up,” Rogers said.

China, growing faster than any other major economy, is “going to be the most important country in the 21st century,” he said. China’s gross domestic product expanded 11.9 percent in the second quarter.

And here is some interesting, related data about the USD, euro and long-term international reserve diversification which I pulled from the IMF’s website (think about this in context of the EUR/USD and the flag break we just watched – we were on this here and here!:

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