ASIA PACIFIC’S FIRST FOREX MAGAZINE

TM

Currency Outlook 2009
Dollar-Yen
A New

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Volume 2, Issue 1

Historic Low In 2009
Gamma Trading Options On Forex Part II
ISSN 1793-8457 MICA(P) 274/04/2008
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Why Choosing A Forex Broker Is So Confusing

So You

Think You Can Trade

How To Trade

A News Breakout

A Declaration Of Independence

Paul Day opens a discussion on how to formulate ideas and trading strategies that suit your desired trading frequency and to employ a stringent risk management regime.CONTENTS 8 FROM THE EDITOR 10 LETTERS TO FOREX JOURNAL TECHNICAL ANALYSIS 10 Chris Capre discusses a breakout strategy to employ when trying to trade Forex news events. YOU THINK YOU CAN TRADE CURRENCY TRADING 18 David Waring leads a discussion answering most of the many questions that are asked when selecting a Forex broker and trading platform. This is a ‘must read’ for anyone trying to separate fact from fiction and find the right place to trade foreign exchange markets. SO. TM HOW TO TRADE A NEWS BREAKOUT PSYCHOLOGY 14 Abdul Khan discusses things that successful traders do to be successful in their trading. A DECLARATION OF INDEPENDENCE 4 JANUARY 2009 . He also looks at things that unsuccessful traders do that can cause them to be unsuccessful. WHY CHOOSING A FOREX BROKER IS SO CONFUSING 24 Traders are constantly bombarded with tips and suggestions in a very sterilized format with the best looking chart used to convey the strategies.

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John Netto continues his series of articles on option trading using a gamma strategy. SCIENCE.S. DOLLAR/YEN … A NEW HISTORIC LOW IN 2009 52 Our regular contributor. In this article. he discusses real world trades in the Japanese yen and gold futures using gamma strategies to compartmentalize risk and yield smoother returns.CONTENTS OPTIONS TRADING 28 GAMMA TRADING OPTIONS ON FOREX – PART II: THE ART. THE OUTLOOK FOR MAJOR CURRENCIES IN 2009 60 UPCOMING EVENTS 61 ECONOMIC EVENTS CALENDAR 62 BROKERAGE FIRMS LISTING  JANUARY 2009 TM . Dar Wong. dollar in the second half of 2008 and its impact on the values of other major currencies and their cross relationships. AND NUANCES OF DYNAMICALLY ADJUSTING EXPOSURE TO THE MARKET. provides his monthly commentary and outlook for the major currency markets as we trade into 2009. MARKET OBSERVATIONS 36 Ed Ponsi provides an outlook for the major currencies as we move into 2009. THE AUSSIE & POUND IN 2008 48 Ian Copsey takes a long-term look from a Fibonacci perspective at the USD/JYP currency pair. 2009 CURRENCY OUTLOOK 42 Peter Pontikis looks back at sharp rally in the value of the U.

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FROM THE EDITOR To Research and Educate
“The quality of a person’s life is in direct proportion to their commitment to excellence, regardless of their chosen field of endeavor.” Vince Lombardi

H

appy New Year and welcome to the January 2009 issue of The Forex Journal!

Publisher & Managing Editor Dickson Yap dickson@forexjournal.com Associate Editor Roger Reimer roger@forexjournal.com Contributors Abdul Khan Dar Wong Ed Ponsi John Netto Peter Pontikis Chris Capre David Waring Ian Copsey Paul Day

This is the time of year that we make holiday resolutions to change our lives, our futures, or our ways of doing things. If you have a list of New Year Resolutions, please reread them and then reread our quote for this month and take the actions necessary to make your resolutions a reality. If you want to become more successful in your trading, consider the methods that you use and how you apply those methods to the markets. Does your trading approach fit your personality? Does it fit the amount of capital you have available to work with? Does your trading fit the market or markets that you are most interested in following? These are often difficult questions to honestly answer. Another thing to consider is that this short list is by no means complete. Time-tested trading rules that are simple often provide the most consistent profits. To enjoy a successful long-term trading career, it is vitally important to have a trading business plan and a systematic trading methodology that incorporates trade entry, trade exit, risk control and money management into a cohesive strategy. At The Forex Journal, it is our goal to deliver a balance of educational material to traders of all types and experience levels. I am sure that you will find each article informative and educational. In this issue: Our regular contributor, Dar Wong shares his views and commentary on the major currency pairs as we trade into a New Year. Abdul Khan discusses things that successful traders do to be successful in their trading. He also looks at things that unsuccessful traders do that can cause them to be unsuccessful. Chris Capre discusses a breakout strategy to employ when trying to trade Forex news events. Ed Ponsi looks at currency pair prospects in 2009. David Waring leads a discussion answering most of the many questions that are asked when selecting a Forex broker and trading platform. Peter Pontikis looks back at sharp rally in the value of the U.S. dollar in the second half of 2008 and its impact on the values of other major currencies and their cross relationships. Ian Copsey takes a long-term look from a Fibonacci perspective at the USD/JYP currency pair. John Netto continues his series of articles on option trading using a gamma strategy. In this article, he discusses real world trades in the Japanese yen and gold futures using gamma strategies.

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Copyright@2008 DPR International Pte Ltd. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the copyright holder. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the authors and the publisher are not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. In commodity trading, as in stock, and mutual fund trading, there can be no assurance of profit. Losses can and do occur. As with any investment, you should carefully consider your suitability to trade and your ability to bear the financial risk of losing your entire investment. It should not be assured that the methods, techniques, or indicators presented in this magazine will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples in this magazine are for educational purposes only. This is not a solicitation for any order to buy and sell. The information contained herein has been obtained from sources believed to be reliable, but cannot be guaranteed as to accuracy of completeness, and is subject to change without notice. The risk of using any trading method rests with the user.

Traders are constantly bombarded with tips and suggestions in a very sterilized format with the best looking chart used to convey the strategies. Paul Day opens a discussion on how to formulate ideas and trading strategies that suit you. Our highly qualified contributors provide valuable assistance by enabling us to provide you a broad range of material. We are always very grateful for their contributions. Each new article presents an opportunity to learn new lessons about the markets and the tools that are used to trade them. I hope The Forex Journal becomes a vital part of your trading education and your personal development. I wish you well in your personal life and in your trading journey. Here’s to Prosperous Trading!

TM

Roger Reimer Associate Editor
LETTERS TO THE EDITOR
The editors of The Forex Journal™ magazine would like to hear from you, our readers. Tell us what you think about the articles we publish. Tell us which people or companies you’d like to see us write about more—or less. Praise us, criticize us, and ask us questions. We regularly publish letters from our readers in the print version of our magazine, reserving the right to edit them for length and clarity. Please include your full name, address and telephone number. Thank you.

Dickson Yap (Managing Editor, The Forex Journal)

8

JANUARY 2009

TECHNICAL ANALYSIS

How to Trade a News Breakout
TM

CHRIS CAPRE

10

JANUARY 2009

We always want to have the 5-minute chart up for this stratJANUARY 2009 TM 11 . Bank of China etc. this phenomenon has drawn speculators interest to trading news events like vultures to an about-to-be-corpse lying in a field. In Forex trading. Figure 1. we recommend that they pick the most significant of all economic events. we limit ourselves to the kings of the economic jungle. traders often gravitate toward news events hoping to capture a portion of the market response. 2) NFP 3) Fed Minutes Meeting Other economic events move the market. European Central Bank. If a trader is going to trade a news event in the Forex markets. C onsidering the effect of news announcements on the markets. Bank of England. we will focus on the breakout method. So. This list would include 1) Announcements from Central Banks such as the Federal Open Market Committee. The methods best employed during such events are a ‘fade’ strategy or ‘breakout’ strategy. For the purposes of this article. It is important to have specific methods when trading such events because of volatility and the unique order flow surrounding them.1 shows the 5-minute EUR/USD chart. but they have significantly less impact and probability to move the markets in such a stark fashion.Chris Capre discusses a breakout strategy to employ when trying to trade Forex news events. which is designed to give us an opportunity to take advantage of the announcement pushing the pair heavily in one direction due to the market response from the economic release.

if the move has made lower lows with each 5-minute candle with the second candle closing outside of the wick of the first candle. We will also want two sets of Bollinger Bands on the chart.5522. The first horizontal line shows our market entry at 1. After 15-minutes.1 – EUR/USD egy. Our first target As you can see.TECHNICAL ANALYSIS Figure 1. we will trade in the direction of the move or breakout. The candle immediately moves sharply in one direction and makes lower lows for the next three candles.2 – AUD/USD 12 JANUARY 2009 TM .5 standard deviation Bollinger band 2) a 1 standard deviation Bollinger band ment is made. 1) 2) a 2. price activity contracts leading up to the news announcement and surges when the news announce- Figure 1.

the trade is exited. Make sure to move the stop to breakeven after the first target is hit and watch for the move outside of the main pocket and into the space between the 1 standard deviation Bollinger bands. wait for three 5-minute candles to close and make sure the second candle closes outside the low/high of the first candle depending in the direction of the breakout. The position exit will be directed by the price action relating to the Bollinger band pocket and either of these two conditions: 1) any candle has 60% of the body between the pair of 1 standard deviation Bollinger bands (Purple lines) or 2) the entire candle exists inside or in between both 1 standard deviation Bollinger bands Then. In conclusion. As you can see. If the Bollinger bands are still pushing in the direction of the breakout and price is contained within them.3 shows our last example using USD/JPY. we will stay short. We will use the space between the 1 and 2. along with building trading systems and risk reduction in trading applications. The profit of 30 pips is taken on the first lot in 10-minutes and then the move fades about 45minutes later causing us to lock in another 32 pips for a 62-pip gain in one hour.2 shows this method with the AUD/USD on the 5-minute chart.9517.Figure 1. Price is well contained leading up to the announcement.3 : USD/JPY is always 30 pips and our initial stop is set at 30 pips. momentum. Chris Capre is the current Fund Manager for White Knight Investments. JANUARY 2009 TM 13 . He is considered to be at the cutting edge of Technical Analysis and is well regarded for his Ichimoku analysis. Bollinger bands.02. 90 pips were locked in on the second lot with 30 pips on the first lot for a total of 120 pips profit within one hour. Our initial 30-pip target is achieved quickly at . Figure 1. Then. Chart 1. From here. the stop is moved to breakeven.9547. The entry is at 105. the pair climbs very quickly with the second candle closing outside the first candle’s wick with the third candle making a higher high. the candle breaks down with the second candle closing outside the first candle’s wick. The second target comes when the price action spills out into the space between the 1 standard deviation Bollinger bands locking in another 26 pips. the Bollinger bands come into effect.5 standard deviation Bollinger bands to act as a pocket or level of exclusion for order flow. particularly using Ichimoku. and the third candle makes a lower low. We will enter the position with two lots. The entry is on the open of the next candle at . He specializes in the technical aspects of trading. pivot and price action models to trade the markets. After hitting the first target. In this case. The profit total for this trade was 56 pips in less than an hour.

PSYCHOLOGY 14 JANUARY 2009 TM So. You Think You Can Trade .

you should be able to follow his recommendations easily. When you find an advisor. the likes of CMC were not registered as non-profit organizations. This threshold should be a percentage. such as 25%. make a New Year’s resolution to find an advisor in 2009. the hard part is to find a good advisor. He also looks at things that unsuccessful traders do that can cause them to be unsuccessful. or even 50%. talk to him about your objectives. I have come across hundreds of individuals who have called themselves traders. and should feel comfortable in asking him questions about a trade with the view to learning from the advisor. and also in terms of trading approach. An old argument used against full-service advice is that online trading allows trades to be executed instantly. avoid placing large improbable bets and always respect the market. I would have myself a very special perfume! In the following pages. He should not be an advisor who is keen to get the account open. JANUARY 2009 If your answer to this question was option a) or b). the biggest argument against using an advisory broker was “Why should I pay them?” or “Look at how much I can save by executing my own trades?” And the corollary should also be highlighted here – do not forget to take into account the hidden charges you are paying with a nil-commission broker. well done.Abdul Khan discusses things that successful traders do to be successful in their trading. how do you answer when they ask what you do? Is your answer? a) b) c) I’m a day trader I trade the markets I’m self-employed ing career. profit targets. they can admit when they have made mistakes. A good advisor will listen to your trading ideas and work as a sounding board for you. someone who believes in money management rather than averaging down into a losing position. or who will not try to get you to trade for the sake of hitting his commission target for the month. If I could bottle those characteristics. the advantages of using an experienced broker far outweigh the negatives. You need to find someone who will not force you into trades. Good traders seek advice. but leaves you to sink or swim once you have been setup with a log in. and discuss what I call your “pain threshold” – the point at which you have lost so much money that you both need to re-evaluate the approach being taken. These days. take a good hard look at yourself. I doubt that you will make it to the 5-year mark of your trad- TM 15 . Most I have seen fail. Good traders see trading as a business – they are looking to get advice from those that have been in the business longer than they have been. look to learn from other good traders. For this reason. but the ones that were successful had some common characteristics. He should ask you about your risk/reward ratio. brokerage has become so competitive that the gap between full-service and nil-advice brokering has become very blurry. 40%. the reasoning behind your ideas and trading methodology. They are making sure they have adequate reserve working capital. Good traders do not broadcast what they do in terms of occupation. you are on your way to becoming a trader. If your answer was c). and they know that the market has a big enough paddle to spank anyone. Otherwise. as opposed to waiting on the phone for the order to be placed. Of course. Introduction When you are at a dinner party or having drinks with friends. There is no such thing as a free lunch and the last time I looked. I have mentioned some of those characteristics for our readers to consider. As a client. You need someone who cares about your money almost as much as you do. Over the years. as opposed to second-guessing. ‘You don’t get somethin’ for nothin’!’ If you have been trading for less than 5 years. For so long.

or books where traders are interviewed. Look to try a few different signals to come up with your trading style. with a dedicated advisor. I know what you are probably saying – “this guy just told me that you don’t get something for nothing. I am not saying that you need to invest the whole $50k. I would be trading with it and using the results to raise trading capital for my own hedge fund. then please ask them if they trade live before you hand over any money. The cost maybe slightly higher than that of a no-advice firm. and now he is saying don’t pay to learn. Particularly. But the number of times I have heard from new clients that they are looking to start with just $5. what markets they like/dislike.” Let me explain. Paper trading has limited use. and I particularly enjoy my roast dinners every week. Another use for the funds set aside for education is to use them to buy books on trading. I would not waste my evenings doing 2-hour introductory sessions. and treated as such. your need for money. I recommend traders use the funds for their trading account. there are probably more trading educators out there than brokers. You want to be able to get into the mind of a successful trader to see how they work under pressure. and there will be no losers because the market will know they are in a position and will move their way. as opposed to using historical data that shows only big winners and small losers. This backs up my thinking about only going to seminars where the presenter trades live. If their methodology is so good. Because they only want to take 15 or 20 pips a day.PSYCHOLOGY This argument no longer holds water. After all of this.000.000 far out numbers the roast dinners I have had over the years. there are so many online resources offering free education I am surprised that educators remain in business. followed by 2-day weekend workshops. most fullservice brokers offer online trading by developing their own trading platforms or through a White Label Partnership with an established online trading firm. why are they not using it to trade? I know that if I had a new whiz-bang trading system that could return 50% every month by just checking a few signals for 30-minutes each day. read plenty of books and have a go at firing a few shots yourself. unless they are trading their methodology live in front of you. you could look to just “dip a toe into the water” to get a feel for opening and holding positions or seeing how it feels to have the market go against you.000 to $10. the advantages far outweigh the drawbacks. coupled with full advice if needed. TM ‘Don’t pay for education’ Okay. they will have about $50. Today. All of this is done as the markets are trading. and most of them are teaching the same thing – Technical Analysis. but as I have detailed. then by all means go for it. These guys will show you how they detect their trading signals. I would not need to trade and could continue to make money off the attendees by charging them a monthly subscription for on-going trading signals. social etc. What about where clients have said if they only trade 2 lots each day. Be big or get out I love my meat.000. Today. A style that is distinctly yours. After a couple of paper losses. If you find someone like Larry Williams who will trade live (not simulated) in front of an audience for several days. if you still think that you need to pay someone to teach you to trade. There is no better way to learn about trading than actually pulling the trigger with live ammunition. you start to lie to yourself about being stopped out or taking an early profit. This gives the client the best of both worlds – instant online trading. The difference is that each put a different slant on it to make it look like they have come up with a new and improved mousetrap. such as Saxo Bank or ACM. books written by successful traders describing their style.000 to start with. they would need to continue paying the monthly fee for at least 12 months to justify that they had not been taken by a charlatan. I always tell my clients two things about educators – first. Additionally. it helps 1 JANUARY 2009 .000 or $10. If I could do that. By having a sizeable account. they are no good. Life is too short for things like that unless I was able to harness the power of good marketing and charge each seminar attendee US$5. how they implement their trading methodologies and how they manage risk. if you are serious about making it in trading. Since each person has paid thousands of dollars. your outside commitments such as family. and what traits you can adopt for your trading. By trading live with real funds. Instead of paying for education. rather than using them to raise the height of your computer monitor! Today. your trading time horizon. the market will just hand them profits on a platter. Why don’t they leave their money under the pillow and each night so the trading fairy can come along and add to it? C’mon folks. but considered a client/customer/ human being. Use these resources first. Be sure to read these books. fitting your personality. you are not just a number. work. and take 15 or 20 pips a day out of the market? At the end of the year. you need at least US$50. or leverage it up fully 200 times. how they find trades.

if you do not show patience in pulling the trigger.khan@tricom. or are stopped out on the high or the low of the day. believing that if the market moves against the position. Stop-loss orders are an essential part of trading. congratulations but tomorrow is another day! If you had a few losses. No matter how many times you read or hear the saying “cut your losses. and if you cannot admit when you are wrong then be assured your opposition will. The good ones do not want to be found. A wise old broker once told me “the market will remain irrational longer than you can remain solvent. larger accounts have more flexibility. Small accounts are constantly worried about the next trade blowing them up. advising beginner and hedge fund clients from all parts of the world.” human psychology works the opposite way. commiserations but tomorrow is another day! Do not let trading get you on a real high. I suggest nothing less than a 40-pip stop-loss in the Forex market. do not cut losses. As you can see. trade a moderate size and who wear the pain when the market is against them. They are careful not to over celebrate the winners. With small accounts. the market will turn around. In some cases. For longer-term trades. and as a result. In these cases. In these cases.” Invariably. big losses happen on a regular basis. year out. charge them heaps. they are happy to stay under the radar and just keep doing their thing. it is highly probable that another day trader will be taking the other side of your trade. I will work what I call a “Stop of Last Resort” that is far away from the market but at a point where if triggered the market is likely to continue for a prolonged time. I could count on one hand. Keep it real.com. For larger traders. It is one of the things I love about trading – you never know what to expect when you turn on the computer screen first thing in the morning. You need the good backup of an advisor.au. looking to add to the position when trend confirmation occurs. but it needs to be based on a sound entry level around support or resistance levels. Trading can be compared to war. I always tell my clients to avoid over-extending. a winning streak can be developed and the account will magically grow exponentially. you need to use them to prolong your trading life and to avoid turning a short-term trade into a long-term investment. They have more time on their side and they can see things more clearly. This is why so many of the good money managers around the world are hard to locate. Similarly. you are forced into closing part of the position because of margin issues. and rarely lose their cool if they get a bad fill. TM Abdul Khan is a Senior Client Advisor with Tricom Securities. In today’s age of the Internet. I will go further into stop-losses in future articles. Believe me. We are reluctant to admit when we are wrong. you need to be fully prepared with all the tools that make a good trader. based on how much you can afford to lose. Over the years. Abdul can be reached at abdul. Humility is the big thing I have seen in good traders over the years. Good traders do not want pats on the back.000) who have succeeded in trading. but do not let it get you so down that you are ready to slit your wrists. and stay humble. as opposed to having to work money-stops. He has been involved in the Forex and futures markets for over 15 years. keep in mind that it could all be taken away today and then some. but you will be back on the sidelines licking your wounds when this happens. and it is best for my clients to be out of the market. JANUARY 2009 17 . If you do not do the tactical homework on your charts. there are more day traders than any other type of trader/investor. and we all hate to lose. I trade smaller.to back you when you are wearing some pain in a position. It also helps you to work wider stops at decent levels. if you won big yesterday. it will eventually come back. Australia. They get clients by word of mouth as opposed to glossy ads in business magazines. and let your profits run. Everyday is a new market. but I tend to be fairly flexible in their use. if you do not try to squeeze every last dollar out of a winning trade. If you had a bad day yesterday. The problem is that it only takes one big loss to wipe out this approach. do not get into too large a position where when and if the market moves against you. We all like to win. the number of traders who started with a small account (less than US$20. For this reason. and you need to have ample trading capital to do battle. particularly those based on fundamental analysis. particularly in Forex. We think that if the 15 to 20 pip winners can be maintained. I rarely use a stop-loss. No one is bigger than the market If you have had a good day. keep in mind that today is a new market and it could all reverse today. It makes sense that if you are a day trader. online trading and leverage of 500 times. That is. and continue to perform well above the average year in. I suggest stop-losses on breakouts or intra-day trades where I am looking for an explosive or small move that will run out of steam over the coming 18 to 24 hours. you need to have some of the traits of great traders. They trade for a few select clients. the guys I have seen make money out of trading are the ones who trade longer-term.

CURRENCY TRADING DAVID WARING Why Choosing A Forex Broker Is So Confusing TM 18 JANUARY 2009 .

The Internet opened up the Forex market to the JANUARY 2009 19 . Message boards are full of horror stories about trading with pretty much every Forex broker out there. the main reason there are so many horror stories about the Forex market.David Waring leads a discussion answering most of the many questions that are asked when selecting a Forex broker and trading platform. In this article. so they can determine which broker is right for them through a process that separates fact from fiction. when compared to equities and futures markets. Before the Internet. we will examine the reasons and try to identify the source of the confusion. This article will help traders develop a checklist. In my opinion. TM I f you have looked around the Internet and/or talked to other Forex traders. the over-the-counter Forex market was pretty much cut off limits to individual traders. This is a ‘must read’ for anyone trying to separate fact from fiction and find the right place to trade foreign exchange markets. you probably know that there is a wide variety of opinions as to which broker is the best to trade with. stems from the lack of regulation that existed (and to some extent still exists today) in the retail Forex market.

CURRENCY TRADING Screen shot – nfa. The retail Forex market came under the jurisdiction of the Commodities Futures Trading Commission (CFTC) with the passing of the Commodity Modernization Act in 2000. or questions on. a firm that is ten times as large but has twice the complaints offers a much better service than the smaller firm receiving half the complaints. Combine this with point #1 and you have people who angrily post site after getting slipped on a trade around a news event for example. you can read about the requirements that firms offering retail Forex trading in the United States have placed on them. Regulation and Financial Stability By walking through how I would evaluate a U.org). the regulatory environment in other countries. 2. There is no question that some of the things that gave the Forex market its bad name still exist today. The National Futures Association is a regulatory service provider for the derivatives markets. the Forex market got its reputation as the ‘Wild West’ of financial markets because many firms took advantage of individuals who came into the ‘new’ market. There is not a lot of experience behind the comments made in forums and on review sites. brokerage firm. In the upper right hand corner of the site. I encourage you to post in the ‘comments’ section on InformedTrades.com.org individual trader. but the regulations designed to protect traders from scams and shady dealing practices were slow to follow in many countries.nfa. I am going to give a framework that traders can use to evaluate the regulatory environment in any country. without the scams that have existed in the past. the best firms tend to be much larger. In my experience. if several firms offer a quality product and service.futures. Retail Forex trading is a relatively new market. The fact that larger firms have 10 times as many clients makes it look like they receive a larger percentage of complaints. there are several firms who offer a quality product and service to Forex traders. instead of understanding that this is the way that the market works. and used their lack of knowledge to rob them blind through shoddy execution and exorbitant fees. The industry body that currently enforces the laws set by the CFTC is the National Futures Association (NFA). As I see it. 3.S. So. The Forex market is over-the-counter and there is a lack of standardization across many of the aspects of trading that are standardized in centralized markets like futures and stocks. why is it not obvious when reviewing all the message boards and review sites where people express their opinions on Forex brokers? In my opinion. but luckily. there are three reasons for this: 1.futures. On the NFA website (www.” If you click this link you can 20 JANUARY 2009 TM . For those who have knowledge of. and still have not caught up today in many cases. Early on. It is currently going through some changes with the recent passing of the farm bill. is a link that says “Broker/Firm Information.

plenty of excess capital to meet current requirements. I strongly encourage you to do your research into what the regulatory environment is in that firm’s country. Unlike other markets. It is important to consider the size of a firm when researching complaints. then my total transaction costs would be 9. The rollover rates for the currency pairs they wish to trade. or considering trading with. and any complaints or actions that the NFA and/ or CFTC has taken against the firm. if any. The last thing that it is important to keep in mind is that the CFTC has recently upped the ‘Net Capital Requirement’ to a minimum of $20.gov enter the name of a firm and see who the owners of the firm are. the CFTC will step in and shut the firm down in order to protect client funds.S. the pip value for each currency pair varies depending on current market rates.13.S. where transaction costs outside of commissions are fairly standard. you can make sure that the necessary protections are in place to protect your capital in the event that the firm you are trading with runs into financial difficulty. Clicking this link gives a report with all the U. On the CFTC web page (www. When analyzing those that do. With this in mind. Futures and Forex firms listed on the left hand side.gov).000. This is important because if the Forex broker you are trading with goes bankrupt. dollar is the second currency in the pair or not.cftc. before they would get into a potentially troubling position. and whether or not the U. There are generally four things that a trader should consider when reviewing the transaction costs of a broker that he or she is considering trading with.000 for all Forex firms to be phased into effect. The large majority of Forex brokers do not charge a commission. Across the top are 2 columns that are important to us. that are charged by the broker.25*2. 2. This number is set by the CFTC to make sure that a firm has enough cash on hand if something goes wrong. but also future requirements. it is important to be sure that the firm you are trading with not only has How to Evaluate Transaction Costs When trading any market. the Forex market is overthe-counter and transaction costs can very widely from broker to broker. the current pip value when trading on a standard account for USD/JPY is $9. TM Screen shot – cftc. So. Commissions. As an example. so you can make sure you are comparing apples to apples. The Spread for the currency pairs that they wish to trade. The first is the column that says “Net Capital Requirement. 4. your account is not protected under current regulations unlike the stock and futures markets. to falling below their “Net Capital Requirement?”” On this same page you should find a column that says “Excess Net “ which gives us the cushion that a firm has.25.5 pips. transaction costs can have a significant effect on returns. The next logical question that many traders will ask is – “How close is the firm they are trading with. The important thing to keep in mind is that while commissions are normally fixed. especially for the active trader. and the current spread with the broker I am looking at is 2. If you are considering opening a Forex account with a nonU. If a firm drops below this requirement. most traders will add the spread for the currency pair that they are trading to the commission to calculate the total transaction cost for the trade. 1. 3. firm.5 + 10 or $33.” which is the amount of funds that a firm is required to have in liquid assets that are easily convertible into cash. you will find a section called “View Financial Data FCMs” on the right side of the page. One thing to keep in mind is that there are many firms with only a few clients who offer Forex trading. JANUARY 2009 21 . if this broker were to charge a $10 commission on top of this. The next web page of interest when researching firms is the CFTC’s financial data page reporting how much capital each of the Forex brokers has.S. By doing so. The quality of the execution on live trades. assuming they will be holding positions past the rollover cut off.

and then multiplying it by the spread. Mobile trading If you have other things that interest you.com are a pretty good indication of who is strong and weak in this area. generally I have found that the demonstration platforms are a fairly accurate representation of the spreads you will see on a live account. it is important to consider the spreads during the timeframe(s) that you will be trading. If the trading platform crashes. If it is ‘round trip. probably the next most important thing to understand is the trading technology and value added services that the firm offers. regulatory environment and transaction costs of the firm they are considering. One thing that is universally important to all traders in terms of trading technology is platform stability. you want to know whether the commission rate a broker is quoting is ‘per side’ or ‘round trip. freezes up or experiences other technological difficulties. 1. From my experience here as well. so do not assume that a firm does not have something. so there is no way to know this for sure. simply add them to the list in order of priority. demonstration accounts are not normally an accurate representation of live execution. this obviously hinders the ability to perform. While this is not very important for active traders who rarely hold positions overnight. I have come up with a list of features that traders can rank in order from highest to lowest priority.’ this would mean there is a $10 commission to open the trade. before checking out the difTM 22 JANUARY 2009 . While many traders like to inquire with a trader who is already trading live with the firm they are considering on this point.’ this means the commission to open and close the trade is $10. in normal market conditions you should be executed without slippage and the prices that you are being quoted should be in line with what other market makers are quoting (which you can see by pulling up their demo accounts). A third factor to consider when evaluating transaction costs is the rollover rates that a firm deducts from your account when you are long a currency with the lower interest rate. I have found that the broker review sections of forums such as Elitetrader. You can calculate the spread in dollars by taking the value of a 1-pip move in the currency that you are analyzing. Once you have a live account.CURRENCY TRADING One last thing to consider on commissions. Ease of use 2. simply because it is not featured on their website. without opening an account and executing some trades. Web based platform versus downloaded platform 7. A second factor to consider when evaluating transaction costs is what the spread is for the currency pairs that you will be trading. If you are being consistently slipped on trades and/or the rates that you are being quoted are consistently off-market. Remember that many firms offer multiple platforms. The last factor that it is important to consider when looking at transaction costs is the execution that you receive on live trades. Outside of platform stability. Trading from charts 5. and a $10 commission to close the trade. Unfortunately. To help each individual trader go about this decision making process in as structured a manner as possible. Trading Technology and Value Added Resources After a trader has an understanding of the financial stability. Advanced order entry 4. whether a firm’s platform is stable or not is pretty straightforward. Platform customization 8. With this in mind. Backtesting 6. it is especially important for traders executing longer-term strategies. then you know there is a problem and can address it accordingly. the message boards (for the reasons I mentioned earlier) are not a good representation of reality in this regard. where the rollover rate can significantly affect the return of their strategy. bringing the total commission for the trade to $20. when you inquire about the commission level. there are as many different priorities traders have for trading technology as there are trading styles and personalities. Clarity of profit and loss report 3. It is important to keep in mind that the spread with many brokers will fluctuate throughout the day based on the liquidity of the currency pair that you are trading. A trader’s platform is his lifeline to the markets. Where quality of trade execution is open to interpretation. and the rate that they pay into your account when you are long a currency bearing the higher interest rate. and the volatility in the market at the time.’ If the commission in the example I just gave were quoted ‘per side.

I have included a list to assist you with this process. Email 3. TM Evaluating Customer Service The retail Forex market is a relatively new market. one of the largest retail Forex trading firms in the world. Charting package options 6. Third-party research 3. JANUARY 2009 23 . From a value added services standpoint. Real-time news 4. The four most common methods to contact a broker’s support staff are: 1.ferent options that are available to you. methods that can be used to contact them. The second thing I would recommend is getting an idea of the hours when those support people are available. there are many different options available depending on which firm you select. to the over 600 employees and 120. Live chat 4. This means that many traders who have experience trading other markets do not have much experience with Forex. 1. Now.000 clients that the firm has today. as platform stability issues are more common here because the technology is newer and mostly proprietary. During his 7 years at FXCM. which had over $20 Million in assets and returned an impressive 32% during the first 11 months of live trading. David gained valuable experience in the foreign exchange market as a Managing Director at Forex Capital Markets LLC (FXCM). David held multiple positions. This should give a pretty good idea of the competency of the support staff and an indication of how they are going to perform when it really matters. David also oversaw FXCM’s managed funds division. we will look at what are in my opinion the last two major factors to consider – customer service and trading desk accessibility.com. which is an online community devoted to helping traders of all experience levels find the quickest path to profitability. you can see the potential for many questions that need to be answered and the importance that a firm has an intelligent staff that is easily accessible to answer those questions. and David Waring is the founder and community host of www. Trading education This discussion should give you a good understanding of the main things to consider from a trading technology and value added resources perspective when choosing a Forex broker. His site does this by organizing all of the best free video and text trading education and news from around the Internet. the first thing that I recommend when evaluating a broker’s customer service is calling and talking to one or two of the people there. In-house research 2. InformedTrades. Forums The last and perhaps most important thing to consider when selecting a Forex broker is to make sure a firm’s trading desk is reachable by telephone in the event of platform failure that may occur either on your end or theirs. Trade signals and recommendations 5. and the launch of its Sentiment Managed Funds Product. With this in mind. Before starting InformedTrades.000 clients. Remember that the Forex market is a 24-hour market. Managed accounts 7. While this is important in any market. When you add to this the fact that much of the market has yet to be standardized. you should have a good understanding of what is important to you as a trader before beginning your search. Telephone 2. helping grow the firm from 15 employees and 2. With this in mind. into one easy to navigate resource. so a firm’s support staff’s ability to perform overnight as well as during your daytime is much more important than in the equities and many futures markets. Ask them to describe their offerings as well as any Forex questions that you may have. it is especially important in the Forex market.

CURRENCY TRADING PAUL DAY A Declaration Of Independence TM 24 JANUARY 2009 .

trading magazines. independent and institutional research and trading portals that offer JANUARY 2009 25 . especially at a time when bond yields remain historically low and equity market returns are in negative territory across the globe. The independent trader has a huge arsenal of weaponry to use in making trading decisions. Paul Day opens a discussion on how to formulate ideas and trading strategies that suit your desired trading frequency and to employ a stringent risk management regime. The rise of the Internet and the surety of high-speed communication lines have opened the markets to new participants and the plethora of online Forex brokerage firms has vastly reduced the sum required to get oneself started and not to mention the narrowing of the bid/offer spreads in the major currency pairs. There are 24-hour financial news channels. TM T here are many reasons for wanting to trade the Forex markets.Traders are constantly bombarded with tips and suggestions in a very sterilized format with the best looking chart used to convey the strategies. blogs.

I recommend that you run at least a 3 to 1 profit/loss ratio – i.5% to 2% a day and a 200:1 leverage on all your capital would see you margin called after a 0. A person bullish on gold who works for buysomebullionoffme. The current financial crisis enveloping the globe is a perfect example of how badly analysts. often risking more than they stand to gain from an individual trade. They may be right. TM • Risk/Reward – Many traders run positions with terrible risk/reward profiles. many trades are entered on an emotional basis with no stop loss in mind. Also. unless your target profit level for a trade is at least 3 times the distance from your entry level as your stop loss Do not do it! By employing a 3:1 strategy – and assuming you run the same risk per trade. they both commented in late summer of 2007 that the sub prime crisis was well contained and would not spill over to the rest of the financial or wider communities. but you might! • Leverage – Many online Forex platforms offer leverage of 200 to 1.000 but that does not mean I am a gambling genius. one is constantly bombarded with tips and suggestions in a very sterilized format where the best looking chart to convey said strategies are predominantly shown. What I would like to recommend are simple rules I employ to gain a level of consistency in my trading that can be directly applied to the Forex markets and are equally relevant to both novice and experienced traders. Bernanke are best placed to guide the economy out of the current predicament. rumoured to be running leverage of around 30 to 1. None of these firms exist in their original forms today. Though not a natural cynic. After all.CURRENCY TRADING both black box construction software and highly sophisticated technical analysis programs. a professor of gaming theory or someone you would wish to take any advice from.com or the analyst from wemakemoneywhenyoubuystocks. I would suggest a maximum leverage employed of 20 to 1. I have a natural distrust of analysts and strategy salespeople that only show the winners – the game just is not like that – as many traders learn at their own expense. GBP/JPY routinely moves 1. Nassim Nicolas Taleb explains both the distortion that luck can have on the perception of one’s ability. Good fortune does not an analyst make. I find it funny how the talk now is of the ‘inevitability’ of the situation from analysts who did not see it coming and their suggestion that Mr. Fooled by Randomness and The Black Swan. do not move your stop further away from your entry level if the trade moves against you. but how can I judge their impartiality? It is the same with any analyst – if you trade on their advice and they are wrong. Define a proportion of your trading capital you are comfortable in taking for each 2 JANUARY 2009 . as a trader.000 margin account can be used to assume a $200. a win ratio of just 25% will protect your trading capital over the long-run. Paulson and Mr. and the fallibility of well-held beliefs – not just in trading but across all disciplines. risk managers and central bankers can get it horribly wrong. One must be able to separate the wheat from the chaff and apply consistent rules and behaviour patterns to stand more than a gambler’s chance of winning. I also may tell you that debt underwritten by AMBAC and MBIA is AAA rated and safe as houses (pardon the pun) – I would have done this had I worked for most global bank credit risk departments or recognised ratings agencies in early 2007. So much information can present a problem of overload that can lead to either trading paralysis or irrational behaviour. I may walk into a Las Vegas casino. This is the path to ruin. Indeed. to be able to formulate ideas and trading strategies that suit your desired trading frequency and to employ a stringent risk management regime. I guess the reasoning behind my tirade is that.com who suggests banking stocks are a screaming buy get short shrift from me. This means a $1. put $10.5% move against you. I have learned to disregard any commentator who suggests the product they are involved in is going up. • Capital deployment – Do not put all your eggs in one basket. Taking such risk is not in the least sensible – do not forget at the start of 2008 there were 5 investment banks on Wall Street. In his highly acclaimed books. It is important to stand on your own.e. it is you who loses money and not them.000 position. traders. The market will not disappear if you get it wrong. It is not my intention to either put you off or to offer some golden panacea to immense fortune.000 on number 17 at a roulette table and walk away with $360.

I offer four broad brush strokes that may stimulate one to try something new. if you have the view the yen will decline. Leverage and Capital Deployment as fundamental in my trading strategy and believe they would assist greatly in the longevity of a trader’s participation in the market. say hourly charts. it is amazing how often this simple strategy effectively captures a huge chunk of the move. TM • Avoid Multicolliniarity – This applies to both technical analysis and in positional trading. levels of Baltic freight etc. your risk reward is in favour of longs near the range bottoms and shorts near the range highs – this sounds like I am teaching you to suck eggs. EUR/JPY. As your tradable capital increases. effective rules and methodologies can help you in your trading life and I see it as a natural step in becoming a successful trader. When markets go into prolonged trends. equity markets. always look at least one timeframe up and one timeframe down from your favoured chart period. I would not risk more than 5% of my trading capital on any one trade. and short-term moving averages of the session highs to cap a decline. RSIs. If using them for negative or positive divergence (the only reason I ever use them) choose one oscillator and stick to it. Do not sell USD/JPY. GBP/JPY. oscillators such as stochastics. while a carry-trade unwind often adversely affects the higher yielding currencies and may lead to pressure on Sterling. are basically the same thing – a first derivative of price – and one should not be used to confirm another. so should your exposure per trade. In trading. I use short-term (3 or 5 session) moving averages of the session lows to underpin a rally. the same trade. He was formerly Manager of Strategic Trading at HSBC Markets in London. In this guise. markets usually look magnificent at the top and awful at the bottom and your friendly analyst will probably be telling you to do the opposite of what is the best trade from a risk perspective. individual commodity prices and the CRB index. Trading the currency markets can be an exciting and rewarding business. But during consolidations. it remains important to track other currency pairs – a sharp move higher in EUR/USD is likely to be cable bullish. b. Try splitting a consolidation zone into 5 horizontal segments looking for a short-term mean reversion trade at the extremities and paring your risk in the central. also monitor hourly or 240-minute charts and weekly charts. If your tradable capital diminishes. In technical analysis. • Expand your Breadth of Analysis – Markets are JANUARY 2009 27 . neutral zone. • Expand your Depth of Analysis – If trading from a technical perspective. b. In trending markets. which is a warning sign that sharp reversals could occur in trending markets. a. If you trade on a shorter timeframe. Choose one currency pair and go with it. I rate Risk/Reward.trade and stick with it. MACD etc. In ranging markets. Setting consistent. AUD/JPY and NZD/ JPY! This combination would equate to 25% of your tradable capital risked on. your position size grows accordingly. my trading mechanism is predominantly technically based. ostensibly. can all affect currency movements and big moves in other markets are often a sign of risk aversion or margin calls. a. obviously interrelated. If you predominantly trade off daily charts. Despite maintaining an overall macro view of long-term market direction. If you trade GBP/USD. • Trending versus Non-Trending markets. also monitor 15-minute and daily charts to see if they tell a different story. Also do not just stop at currencies – yield differentials. deploy 5% or your capital to your overall JPY short. Paul Day is Deputy Head of Research at MIG Investments SA.

TM 28 JANUARY 2009 . Science.OPTIONS TRADING JOHN NETTO Gamma Trading Options on Forex – Part II: The Art. and Nuances of Dynamically Adjusting Exposure to the Market.

which is very deep and filled with tons of intraday volatility.” Gold has been an enigmatic market for gold bulls and bears. A trade that I put on in the yen futures. The USD/JPY market has been a particularly volatile currency cross in the past six months. I could conceivably hedge off my long yen exposure in the S&P 500 futures market. a Commodity Trading Advisor. The idea being the less volatility generated in making a return. there has never been a more important time to understand the importance and consequences of gamma trading options in the market. I synthetically hedge around it in a market having a high inverse correlation. In this article. W ith a once in a lifetime move across all asset classes taking place in the Fall of 2008. he discusses real world trades in the Japanese yen and gold futures using gamma strategies to compartmentalize risk and yield smoother returns. trading at . My meaning here is that “one trade can kill you. really open up the possibilities for a portfolio manager and trader. The yen futures are not as liquid as the S&P and do not have the same flow. as it will take on wild swings and function in an extremely capricious manner. This let me take on a bullish posture in the position and still define my risk. This acumen has never been more important in light of the recent market price action. if the market rallied. a way to take on bullish posture is to put on a bullish calendar spread and build back month long portfolio gamma. in this case the S&P 500 futures to gain a structural edge. or another 35 days of action past the time the October calls were to expire. The October calls sold for 72 ticks had expired worthless and the calls purchased for 145 ticks had risen in value to about 220 ticks. my breakeven was about 9350 and my breakeven on the upside was close to 9900. I build up my exposure on a longer-term basis on the market I have a viewpoint. (traded on the Chicago Mercantile Exchange). This was a slightly different dynamic than the next trade example where we took on a different exposure profile. I am going to delve further into the encyclopedia of potential gamma trading strategies to cover dynamic repair strategies and creative exposure in the market through calendar spreads and calendar butterflies. the more skillful a manager is. It fell to 15-year lows in late October and has maintained a strong correlation with the major global equity indexes. one thing I focus on and convey to investors are innovative ways to better structure positions to achieve superior risk-adjusted returns. when applied with the right amount of trading acumen. such as the yen futures. October 3. I would feel comfortable owning the November 96 yen calls given they did not expire until November 7. It will sell hard in one direcJANUARY 2009 TM 29 . On the downside. As the Chief Investment Strategist for NetBlack Capital. but also how skillfully I manage the risk by measuring the levels of volatility commensurate with the return. was selling the front month yen calls (Oct) that expired on October 3 for a credit of 72 ticks (or $900 a contract) and buying the November calls for 145 ticks (or $1. So.John Netto continues his series of articles on option trading using a gamma strategy. As a result. my performance assessment is not only based on the underlying performance of the accounts I manage. These strategies. as well as take an opinion on volatility and define your risk.* As it turned out in this trade. Even if the stock markets rallied. This move provided some nice profits and I opted to take them and move forward with the month of October. The first article published in the October 2008 issue highlighted some key points and benefits of gamma trading. we can take a 72 tick profit ($900 a contract) from the expired calls and a 70 tick profit ($875) from the calls that still have 35 days left until expiration. In this type of environment. We witnessed record volatility skews between front and subsequent month contracts. It discussed how to implement a strategy to better compartmentalize risk and deliver smoother returns. the yen rallied to close at 9553 (see Chart 2) on Friday. This is one way to play this move using different month options to build a longer-term view versus a shorter-term view. if this position is closed out at this point. (see Chart 1) Meanwhile. I was comfortable with both of these scenarios as I was particularly bearish the equity markets. for a total of $1775 in profit from the trade.9400 during September 19. This position created a debit in the account of $925 per contract. When setting up trades. Then. In this article.825). The next position involves the black mamba of trading vehicles – gold.

I would be able to dynamically manage it from a three-dimensional perspective. As you will see from the options graph below selling the Dec 740 calls brought in a credit of 21. November 20 were sporting an implied volatility reading of 48.330 per unit (see Chart 3). gold had headed into a consolidation phase in the short-term and I thought that late November and December could provide some nice trading opportunities and by fading the short-term positive volatility skew. This would allow me to profit from both the underlying price action I would gain from gamma trading around the position and a relative expansion in volatility from the long volatility exposure (January calls) against my short volatility exposure (February calls).420 for two contracts. the December gold contract was trading at $735 an ounce. The net result of this “calendar butterfly spread” as I affectionately term them is about . $740 is a key spot that gold has used over several years and I felt confident that even if gold were to move outside my short-term profit range over the first four days.10 x 2. When I put this position on. First.OPTIONS TRADING Chart 1 tion appearing that it will never rally. or whatever market viewpoint I take on at the time the December calls expire. there was some nice value. My view at the time and the idea for setting up this trade was to get into some January calls.910. Buying twice the Jan 740 calls (which actually trades off of the February underlying contract) cost 47.10.180 per contract.80. Meaning even if the first four days of the position did not work out and we went above or below. which in reality would give some exposure for the month of December. My strategy and viewpoint behind this position is three fold. The January calls (expiration on December 26) showed implied volatility of 43 and the February calls showed an implied volatility of 41. and selling 1 of the Feb 740 calls took in a credit of 59. I would have another 36 days to go to delta neutral. The second is my viewpoint on the volatility skew between the January and February options would expand as things got going during the above-mentioned timeframe. or a debit of $9. which expired on Thursday.$1. followed by rocketlike ascensions that feel no resistance can contain the shiny stuff. or $2. In such an environment as described in gold. 30 JANUARY 2009 TM . volatility between the ATM (at-the-money) front month calls (December calls had 4 days until expiration). Finally. or $5.

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OPTIONS TRADING Chart 2 Chart 3 32 JANUARY 2009 TM .

what needs to be taken away from this is an alternative approach to financing some of these options trades while still actively managing the risk and not getting hung on a bad position. Should gold hit the $850 level. This level is a place gold had used for most of October and November as a resistance spot that would now offer good support as $750 was a . the shorter you become). My target back on the downside from this key inflection point rested at the level between $750 and $770. (see Chart 4). providing a nice spot for gold to sell down from based on the weekly chart. gold and the rest of the commodity markets pulled back severely offering an opportunity to begin phasing out of the shorts that had been initiated over the previous week until it hit $748 on Friday December 5 on a worse than expected Non-Farm Payrolls number. Then. I went from being net short to delta neutral again and can play the move from there. the more the market goes up the longer you become and the more the market goes down. However by being delta neutral. the potential scenarios are too numerous to cover in this article. being aware of what a key level $750 was. Again. I would get fully short against my long call JANUARY 2009 TM 33 . Friday. However. saw gold rally to $830 and I went short my full position using the Jan 740 calls as a backstop to hedge my shorts. Going forward. saw gold rally nearly $50 per ounce and I began to delta hedge out of some of the long exposure to gold that was developing as a result of the rally higher (remember from the first article that when you are long gamma. This move had the makings to test the $815 to $830 level. I shorted enough of the February underlying gold contracts to put myself in a delta neutral position. I am still working this position and by the time this article is published. or taking on a synthetic put position. November 20. December gold closed at $749 and I squared out the December leg of the position so that I was long twice the number of January calls as I was the February call. meaning I was simply long volatility and looked to play the next move. the January call options will have expired. On Monday. my game plan going forward is to fade a gold move that rallies back above $800 for much less profit objectives than the $50 to $70 experienced on the last sell down. The portfolio posturing based on playing the flow of the market with predefined risk parameters and offsetting your delta of your options depending on your viewpoint is the third dimension of trading. November 24. Such a retest seemed pretty likely in the wake of an environment of deflationary sentiment and technical weakness that has been pervasive across a number of markets. December 1.618 Fibonacci retracement of the move higher over the previous weeks. In a nutshell. a day that I was doing a live trading event at the Las Vegas Traders Expo. The following Monday. On Thursday.Chart 4 Clearly. this encapsulates the mindset behind those who professionally trade options and embrace the art of gamma trading. November 21.

He is the author of “One Shot . Netto used his nine-year US Marine Corps career and travels to the Far East to learn to speak. doing all of this while outperforming the underlying time decay and implied volatility risk that can hasten one’s losses when long gamma. The Forex Traders Expo. Mr. on all of the aforementioned topics. The Traders Expo. Fox Sports Radio Las Vegas. John Netto is Chief Investment Strategist of NetBlack Capital. learn and interact with John as he trades the markets in real time with real positions. Las Vegas and New York City. 2004) and President of One Shot . real working orders. and risk management skills as an avid poker player and sports handicapper. and write Japanese and Chinese. On the other hand. and real money being made and lost in total transparency. Fox Business Channel. The Forex Journal. LLC. allowing him to articulate his vision of trading to an international audience. The trades are two possibilities that these positions could have been handled with and will hopefully open a discussion forum of conceivable ways to manage one’s trades. CME Group. While he loves teaching. Viewers log in to watch.OPTIONS TRADING Chart 5 position. MSN 34 JANUARY 2009 TM . as well as a Market Maker on the US Futures Exchange for the Mini Dollar Dax. I will look to start selling rallies and use the calls as a cushion to reinitiate synthetic put positions again. Mr. if gold cannot muster a rally and heads south.One Kill Trading: Precision Trading through the Use of Technical Analysis” (McGraw-Hill. Interactive Brokers. Netto spends his free time sharpening his intuition. John resides in San Francisco. John’s passion lies in the trading arena and educating the public through a one-of-akind Web show “SniperScope Live! Hedge Fund Trading. Money. www. discipline. Unplugged”.osoktrading. LLC.One Kill Trading. He appears regularly on both Las Vegas and national radio discussing the art of the trading. John is a regular contributor for The Money Show. and many other media outlets. He posts free newsletters and audio blogs at his web site. Stocks and Commodities Magazine. International Securities Exchange. The beauty of options lies in this nuance and subtlety of position management. Hopefully. a Commodity Trading Advisor. ESPN Sports Radio Las Vegas. When not engrossed in the markets. read. odds making and poker. ICE. com.

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MARKET OBSERVATIONS ED PONSI 2009 Currency Outlook 3 JANUARY 2009 TM .

the MPC damaged any possibility of an immediate economic recovery. As a result. In 2009. falling to multi-year lows against the Japanese yen and U. the Australian dollar and other currencies that are better positioned to benefit from the eventual recovery of the world economy. It is amazing how a decade’s worth of gains can be undone in a handful of months. led by Mervyn King. Rather than a look through the rear view mirror. Since rate cuts take months to work their way through an economy. of their ways and cut rates dramatically late in the year.Ed Ponsi provides an outlook for the major currencies as we move into 2009. Look for cable to fall to at least 1. Great Britain Pound The British pound had a terrible year in 2008. TM Source: Saxo Bank JANUARY 2009 37 . but King and company realized the error Figure 1 – GBP/USD forms bear flags in the fall/winter of 2008. I am going to assume that you have not been living in a cave or have been stranded on a desert island for the past twelve months. dollar. inexplicably kept the U. the Bank of England’s Monetary Policy Committee. dollar throughout the second half of 2008. Treasuries in the early months of 2009. as scared money continues to rush into U. I t is that time of year again – the time when traders tally up the gains and losses for the year and plan for the future. Despite an oncoming economic slowdown.S. a support level from early this decade.S. too late. It reached its lowest point against the euro since the inception of that currency in 1999. I am not going to bore you with the details that we are living in a historic time. this proves to be too little.K’s benchmark Bank Rate too high for too long. The British pound fell persistently against the U.4000. but it will lag behind the euro. The downward spiral of the British pound will continue into 2009.S. let’s look ahead to see what 2009 might hold for the currency markets. but that is exactly what has happened (see Figure 2). or write about how volatile the markets have been in 2008. the British pound should begin its long recovery. last visited in early 2002.40 area. forming a series of flag formations as it stair-stepped lower (see Figure 1). the markets voted on this by taking the pound down hard. Where will the pound go from here? A look at the monthly chart shows major support in the 1.

TM Source: Saxo Bank Euro The euro has certainly taken a detour in its quest to become the world’s dominant currency. dollar. if not displace. dollar. However. and as more countries join over time.40. The zloty and koruna lost 21% and 13% respectively versus the euro from July through December. I expect the EUR/USD pair to climb back up to 1.30 against the U.MARKET OBSERVATIONS Figure 2 – GBP/USD approaches old support at 1. the euro appears to have established a base below 1. the euro is still positioned to eventually join. Figure 3 – EUR/USD appears to be forming a bottom. such as the Polish zloty and the Czech koruna. which underscores the advantages of switching to the more stable euro. dollar in 2008.40 in the New Year (see Figure 3).S. Right now.S. dollar as the world’s reserve currency.S. Excessive volatility in 2008 damaged the hopes of those countries to qualify for euro adoption. In Denmark and Sweden. unwinding years of gains. the European Union’s power and influence will increase. despite the recent resurgence of the U.S. support is increasing for euro adoption. Source: Saxo Bank 38 JANUARY 2009 . The euro may have taken a beating versus the U. the U. but it also managed to reach a lifetime high versus the British pound. The euro has been far more stable than some of the independent European currencies. The downtrend appears to have dissolved into a range bound situation and the euro may be poised for a rebound.

the answer is ‘no. Stock and real estate prices in China have fallen sharply. was the darling of the second half of 2008. at that point the bulls should be ready to run (see Figure 4). As long as turmoil reigns in the markets.15 billion AUD (about $2 billion U. dollar.Figure 4 – AUD/USD ranges below resistance at . Beijing has already announced a plan to spend nearly $600 billion over the next two years to help stimulate growth. To bolster its economy. as have producers of coal. One positive for the Australian dollar has been the recent series of interventions by the RBA (Reserve Bank of Australia). Wait for AUD/USD to break above 70 cents.S. These mining companies have been hammered by the collapse in Chinese demand for iron ore and other minerals used in steel. The RBA acted again on November 13 when the Australian dollar hit 63. Treasuries. The current downturn is the sharpest and deepest for China’s steel industry in at least a decade with its output plunging 17% in October. dollar hold on to the huge gains it racked up in 2008? In my opinion. Dollar The U. economic growth in China will decrease to 7. the Australian dollar will be faced with even greater problems.S. aluminum and other base materials used in construction. the RBA denied that it was defending a key level.S. demand for commodities will explode and the Australian dollar will be back on the offensive. Australian mining behemoth BHP Billiton was recently forced to abandon its takeover attempt of rival Rio Tinto due to the unprecedented slide in demand for steel and related products. is it possible that the news is even worse than what we are hearing? If China is in deeper trouble than is currently believed. TM Source: Saxo Bank Australian Dollar Australia is a major supplier of commodities to China.5% in 2009.S.S. cents. The incredible collapse of the credit markets drove money out of equities worldwide and into U. According to the World Bank. U. Much like the euro. This can only spell bad news for Australia. fueling demand for the dollar. While China looms as a headache. it will end someday – will the U. It is sad that China has resorted to the same tactics as the bankrupt West. the U. cents for the first time since April 2003.’ It could be said that the current demand for the U. which steelmakers consume rapidly. The RBA has confirmed it spent a whopping $3. a chief supplier of copper.70.S. another problem for the aussie is the general pullback in commodity prices. and construction has slowed drastically as economic growth has slowed. dollars) buying the Australian dollar in late October as the currency appeared on the verge of falling below 60 U.S. telling the media instead that it was adding liquidity to the currency market. dollar should perform well as risk-averse traders pile into Treasuries. it is a sharp decline from the nearly 12% growth experienced in China in 2007. The question is this – when the credit crisis ends – I know it seems endless but trust me.50 U. dollar is based on panic buyJANUARY 2009 39 . Each time.S. I believe that when the global recession finally ends. along with the Japanese yen. a country that recently hit a speed bump on the road to dynamic growth. While that figure represents a level of growth many countries can only dream about.S. the Australian dollar is forming a bottom and appears to be basing sideways.

who can still qualify for a loan. this will have the effect of creating lower mortgage rates – at least for those in the U. will benefit in the short run. It will damage the industry as a whole.S. The USD Index is nearing a major Fibonacci resistance level near 90.S.S. When the world economy finally awakens from its slumber. the fundamentals of the U.S. Under a capitalist system.S. strong companies gain market share or enter new markets.S. the fundamentals in the U. For example. someone in the United States might be planning to create a new automobile manufacturing company right now.S. bloated company. If the U. It is important to remember that during this period of strength. economy have deteriorated.S. economy have not improved. How to pay for all of this? The answer is simple – print money. dollar right back on the path of weakness that has been so dominant this decade. and postpone the evolution of the American automotive manufacturing sector by putting a band-aid on a painful but important and necessary part of economic history. weak companies are allowed to fail. Since 30-year mortgages key off of 30-year T-Bonds. It would be much easier for such a company to achieve prominence in a market that had been vacated by failed companies such as General Motors. look for the U. Treasury Bonds to push their price higher. and in the vacuum left behind.2% retracement of the downward spiral that began in 2001 (see Figure 5). This will not only happen in the automotive sector. it will squelch potential competition in favor of spending tax dollars to support an inefficient. Perhaps the U.S. which is the 38.S.S. the U.S. forward looking fuel efficient designs and a lean management structure. federal budget deficit to exceed 1 trillion U. ing rather than sound fundamentals and that the panic eventually will end. Bernanke will begin a policy of quantitative easing in 2009 – a fancy way of saying that he will direct the Federal Reserve to purchase 30-year U. money will move out of U. economy for years to come. dollar will pay a hefty price for this orgy of bailouts. government agrees to keep GM alive. the Japanese yen became the heavyweight champion 40 JANUARY 2009 TM Source: Saxo Bank . When it does and traders slowly begin to embrace risk again. Japanese Yen After years of serving as the punching bag of the Forex world. government. This exodus out of Treasuries will put the U. economy. but the policy of bailing out failed companies is going to weaken the U.S.S. borrow more money and raise taxes. Meanwhile. dollars in 2009 alone. Treasuries and into various equity markets around the world. In fact. but potentially in many parts of the U. which is currently seeking a bailout from the U. using state of the art manufacturing techniques. Dollar rally is about to encounter resistance. With soaring debt due to massive bailouts in what is already the world’s largest debtor nation.MARKET OBSERVATIONS Figure 5 – U.S. resulting in lower bond yields.

After years of weakness.of major world currencies in the second half of 2008. how will the Japanese yen perform in 2009? The answer depends on the depth of the global recession and the duration of the bear market in equities. Ian. and those pairs should rise when the stock market recovers. I am glad to say.com Feel more in control during the trading day… THE DAILY FORECASTER The Art of Forecasting… www. For more information. traders must purchase the JPY in order to close the trade. collecting interest on currency trades that involve shorting low-yielding currencies like the yen. Since many carry trades include a short position on the yen. they sell stocks and close carry trades. CNN and Fox Business Network. causing the Japanese currency to surge even higher. TM Ed Ponsi is the President of EdPonsi.edponsi. an attitude among traders that has also served the U. The yen crushed everything in its path. His book. Yen pairs such as EUR/JPY and GBP/JPY fell along with global stock markets in 2008.com and from select distributors worldwide.traders-mind. In other words.com. Ed has advised hedge funds.fx-forecaster.com and FXEducator. traders embrace risk by purchasing stocks and entering carry trades. That is all for now! I wish you all the best in 2009.com JANUARY 2009 41 . dollar well. Ian Copsey provides daily analysis on 7 major currency pairs. Well known for his unique support and resistance levels generated from his adaptation of Elliott Wave. following stock markets to place trades in currency markets. The Daily Forecaster provides thorough analysis of the anticipated direction for the day together with guidance for the counter-direction and medium term analysis.S. is available at http://www. In a normal market. the mighty yen rally should end at the same time the next bull market in stocks is born. institutional traders and individuals of all levels of skill and experience. now spooked by the subprime fiasco. When traders are in a mode of risk aversion.com and from major book retailers. Ed’s DVD series. Forex Patterns and Probabilities. This helps explain why a country can have such a dominant currency even in times of recession.S. email us at info@fxeducator. and soared to a thirteen-year high versus the British pound and a six-year high versus the euro. fxeducator. “I use to think one couldn’t predict short term moves in any market. He is a dynamic public speaker who has appears regularly on CNBC.com Tired of never knowing where to place your entries and stops? Are you always wondering where the market is likely to go next? Are you left scratching your head if the market moves against your expectations? Try “The Daily Forecaster” from veteran currency analyst Ian Copsey… Drawing from 26 years experience in markets and a deep understanding of price development. dollar. An experienced professional trader and money manager. closed their carry trades en masse. has proved me wrong. why did the yen suddenly become so strong? The key phrase for 2008 was risk aversion. Now that we are faced with a global recession. This led to a sudden burst for the yen as traders. Momentum players joined in.” SimonHurt The Trader’s Mind www. FXEducator: Forex Trading with Ed Ponsi is available at www. Savvy currency traders use this correlation. even the resurgent U.

MARKET OBSERVATIONS PETER PONTIKI The Aussie & Pound in 2008 TM 42 JANUARY 2009 .

Indeed. dollar was already ‘super low’ going into banking crisis of September 2008.S. banking system seems counter intuitive and needs some explanation.Peter Pontikis looks back at sharp rally in the value of the U. This is where it becomes apparent that the U. dollar at the same time. JANUARY 2009 43 . dollar happened at a time of profound financial market instability in the U. the U. It was this sharp rally in the value of the U. The Global Background TM An analysis of the Australian dollar’s sharp decline in the September quarter of 2008 must take into context the sharp appreciation of the U. dollar in the second half of 2008 that has primarily impacted the values of other major currencies and their ancillary cross relationships.S.S. dollar in the second half of 2008 and its impact on the values of other major currencies and their cross relationships.) To this end. (Defined here as being at its 40-year lows on a real trade weighted basis. dollar recovery of the past few months has not recouped 25% of its losses incurred during the 2000 to 2008 serial bear market. we need to visit longer timeframes for the value of the U. This rally in the U.S.S. dollar.S. this is technically not enough to confirm that the said bear market has finished. To find the explanation.S.S. This was a move that subsequently stalled as we moved into the end of the 2008 calendar year.

S. As the next chart shows – the AUD/USD rate fall of late 2008 was basically a mirror of the fall in the EUR/USD rate. we can say that the recovery in the U.S. As the following chart shows. enjoys a substantial trade surplus as well as a 44 JANUARY 2009 .S. TM The Result The erstwhile ‘expensive’ euro (trading at record highs in mid 2008) was sold down as it normalised itself against an already oversold U. dollar. On the other hand. What did this mean for the Australian dollar? As a second tier traded currency. That was the case in this move as well. the U. it remains difficult to define the U. dollar. the AUD suffered in late 2008. what most non-Yen The history is still being written about these substantial market moves. dollar rally against the euro and other Anglophone currencies and its fall against the low yielding Japanese yen. we can briefly explain the dichotomy of a U. economic slow down. dollar enjoyed divergent fates against its major counter party pairs – rising strongly against the euro.S.S. while at the same time the yen was bought up against the U. it could be argued that Japan was a beneficiary of the crisis on its capital account. the Japanese yen. In fact. the United Kingdom and European economies were and are far more exposed to both the financial market shocks and the spread of the U. The following euro/yen crossrate chart shows the full impact of this in the extraordinary collapse of the cross. as most currencies did during this period. Further. For its part. like that of most large Asian economies.S. EUR/JPY moved from record highs to decade lows in the space of a month as the euro abruptly returned to earth.MARKET OBSERVATIONS At this point. And so. dollar. the Australian dollar is usually beholden to the movement in the major currency crosses as well the movements in the fearful commodities markets that fell in lock step with the darkening outlook into 2008’s end. high domestic savings ratio and was never immediately exposed to the implications of the global rising cost of credit as a creditor economy. dollar rally of late 2008 as being a uniform run for the U. by virtue of their deeper financial and economic links to the United States banking system and economy.S. dollar at the very least represents partial relief from previously over-sold or ‘cheap’ levels prevailing into 2008. With the volatile backdrop of the credit crunch inspired global financial market crisis.S. while falling sharply at the same time against the Japanese yen.

405551115615 515151 5615 15 15 156 56 515165 1561 651 561 651 56 15 15 15 15 5 151 51 51 551515848488 848 44 84 84 84 88 978484 654 64 84 984 9 984 84 46 548 489 7 4 84 84 87 =7 94 984 97 7 405551115615 515151 5615 15 15 1 515165 1561 651 561 651 56 15 15 15 15 5 151 51 51 551515848488 848 44 84 84 84 84 84 88 978484 654 64 84 984 9 46 548 489 7 4 84 84 87 =7 94 984 97 7 405551115615 515151 5615 15 15 156 56 405551115615 515151 5615 15 15 156 56 515165 1561 651 561 651 56 15 15 15 15 5 151 51 51 551515848488 848 44 84 84 84 88 978484 654 64 84 984 9 984 84 46 548 489 7 4 84 84 87 =7 94 984 97 7 405551115615 515151 5615 15 15 1 515165 1561 651 561 651 56 15 15 15 15 5 151 51 51 551515848488 848 44 84 84 84 84 84 88 978484 654 64 84 984 9 46 548 489 7 4 84 84 87 =7 94 984 97 7 405551115615 515151 5615 15 15 156 56 405551115615 515151 5615 15 15 156 56 515165 1561 651 561 651 56 15 15 15 15 5 151 51 51 551515848488 848 44 84 84 84 88 978484 654 64 84 984 9 984 84 46 548 489 7 4 84 84 87 =7 94 984 97 7 405551115615 515151 5615 15 15 1 515165 1561 651 561 651 56 15 15 15 15 5 151 51 51 551515848488 848 44 84 84 84 84 84 88 978484 654 64 84 984 9 46 548 489 7 4 84 84 87 =7 94 984 97 7 405551115615 515151 5615 15 15 156 56 405551115615 515151 5615 15 15 156 56 515165 1561 651 561 651 56 15 15 15 15 5 151 51 51 551515848488 848 44 84 84 84 88 978484 654 64 84 984 9 984 84 46 548 489 7 4 84 84 87 =7 94 984 97 7 405551115615 515151 5615 15 15 1 515165 1561 651 561 651 56 15 15 15 15 5 151 51 51 551515848488 848 44 84 84 84 84 84 88 978484 654 64 84 984 9 46 548 489 7 4 84 84 87 =7 94 984 97 7 405551115615 515151 5615 15 15 156 56 To advertise to the readers of Call Dennis Yap at (65) 9040 4151 or email at dennis@forexjournal.com 405551115615 515151 5615 15 15 156 56 515165 1561 651 561 651 56 15 15 15 15 5 151 51 51 551515848488 848 44 84 84 84 88 978484 654 64 84 984 9 984 84 46 548 489 7 4 84 84 87 =7 94 984 97 7 405551115615 515151 5615 15 15 1 515165 1561 651 561 651 56 15 15 15 15 5 151 51 51 551515848488 848 44 84 84 84 84 84 88 978484 654 64 84 984 9 46 548 489 7 4 84 84 87 =7 94 984 97 7 405551115615 515151 5615 15 15 156 56 .

on the values of the AUD (among others). dollar cross. the decline in the Australian dollar did not occur in a vacuum and is consistent with pre-crisis correlations as mentioned in past articles of the relationship between the bench mark U. In the context of its recent sharp fall. cent lows to date in a basic waterfall collapse as investors exited the previous carry trade commodity based favourite. the Australian dollar finds itself going into the end of 2008 in a holding range pattern bounded by the extremes of September and October between 60 and 72 U. Falling from above 98 U. the AUD quickly plumbed the decade’s lows in a move reminiscent of the euro. Falling from 25 year highs. cents.S. It was at this low point that the central bank become concerned and entered the market with high profile defensive buying undertaken in an effort to stabilize what had become an unstable market. 4 JANUARY 2009 TM . the Euro/USD. it is an area that it at least finds value in buying. if the Reserve Bank of Australia’s buying of recent weeks suggests.S. The fall was indeed sharper and worse in proportion to those experienced by the other top currencies as the Australian dollar fell to multi-decade lows against the euro and Japanese yen as well hitting decade lows against the Sterling.MARKET OBSERVATIONS Of course. Even the momentum of the September quarter fall is unlikely to be repeated. the AUD dropped to 60 U.S. currencies endured in the face of a substantial short squeeze in the U.S. British pound and a host of first and second tier currency crosses. the holding pattern represents a welcome respite and necessary consolidation that alas may be a little too early to confirm an end to the fall of 2008. dollar’s value. cent highs. As we go to press. Needless to say.S.

As the 25-year look chart implies.S. What does this imply about the prospects for the AUD/ GBP rate? Having fallen to 5 year lows. Falling as it did from ostensibly expensive multi-decade highs in the over 2 U. Currencies that are at/near ostensible cheap levels now at 1 to 2 decade lows.35 band.] The main rationale for such a short hand summary relates to the nexus of declining rally peaks. dollar). that continues to step lower and the lack of an observed range that might suggest a base has even begun to form. Peter Pontikis is an investment management specialist for ANZ Private Bank and has authored a book on Foreign exchange. He is treasurer of the international federation of technical analysts (www.org). this precipitous decline should be read both as value and ranges of the sterling.S. The above opinions are strictly his own. it cannot be said that the decline in the British pound has actually troughed.What about Sterling? The sterling for its part suffered a fate little different from that of the Australian dollar in recent months. dollar and other Anglophone currencies becomes more problematic. TM fundamental and technical realignment of both perceived 47 . Technically. (Mirroring as it does in part the overall short squeeze in the U. dollar range to something like 20-year lows near the 1.30 to 1. dollar rate.S.S. There is better support lying near the 1. before any new trend can be discerned in this volatile cross. In summary. the sharp declines in the Australian dollar and the British pound in the September quarter of 2008 should be taken in the context of both a very sharp squeeze in the value of the then ‘cheap’ U. there is still some leeway for more marginal declines in the value of the sterling to which it has already bounced and taken back something like a 1/3 of its September quarter’s losses. the Australian dollar itself appears to be at the bottom of its range from JANUARY 2009 As both sides of the respective currency equations have alternatively come due for a consolidation in the case of the U.S. Going forward. Once again. U. The suggestion being that some consolidation will now be required of the cross. [The market would need +1.S.65 levels to hint of that.IFTA. dollar (its recent gains) and some like stability in the conversely severely and temporarily oversold commonwealth currencies. the prognosis for both the U. dollar as well the Australian dollar and Sterling’s multi-decade range high/expensive readings of the time.40 area as noted below.

MARKET OBSERVATIONS Dollar/Yen … A New Historic Low in 2009 IAN COPSEY 48 JANUARY 2009 TM .

49 . what of the coming year? Have we seen the full extent of the weakness or will there be more losses to come? In my JANUARY 2009 TM … Ian Copsey takes a longterm look from a Fibonacci perspective at the USD/JYP currency pair. Over the past 10 years. it has oscillated within the range from 101 to 135.I t has been over 14 years since the 79.70 low in Dollar/Yen. This past year has seen the low of this range penetrated and reach within 11 yen of its historic low. So.

70 low finally stalling at 147. it is the latter and indeed. Clearly.51. The decline from the 147. I have been uncertain just how the rally from 79.2%. we need to determine whether the decline is going to move directly lower from current levels (92.65. Since then.25 low is labeled Wave (a).50 at the 50 JANUARY 2009 TM . the direction of the chart has been basically lower during the past 38 years.65.and we can derive a wave equality target in Wave –c. The wonderful nature of Fibonacci has shown through within this triangle. ending at 110. which is shown within the first quartile of the larger red cycle.6% of Wave ^b and the recovery in Wave ^e was exactly 66. The latter scenario implies new historic lows.2% projection at 46.66 and 64.24 levels. we have seen lower lows develop.66. ending at 110. Therefore. For the most part.50 in November 1982. the peak at 110. the two that match are the 63. the decline to Wave ^d was exactly 85. This coming year will see the first bottoming of the same red cycle expected around the end of the 3rd quarter. The implication of this analysis is for quite strong losses over the coming 8 to 10 months. The rally in Wave ^c was exactly 66.66 and 53.66 high down to the 101.MARKET OBSERVATIONS Figure 1 – Monthly USD/JPY chart view. To judge which of these projections is correct.at 64. I suspect that it came in 3 waves and was probably either the start of a flat correction or possibly an expanded flat.24 and a 138. (see Figure 2) Now.74. I feel we have seen a triangular Wave (b) develop. For some time. which imply targets at 63.66 developed.70 to 147.50 high. I take the common relationships of an expanded flat Wave efb at 23. (see Figure 1) Since the 277. the largest correction has been the one that moved from the 79.7% of Wave ^c. This monthly chart extends back to around 1970.7% of Wave ^a. a new historic low appears to be highly likely. However. Since the peak at 277.65 is the end of Wave –b.6% and 38.

ranging from a direct rally in Wave c back into the 101. He provides his popular daily forecast “The Daily Forecaster” through his website www.66… TM JANUARY 2009 51 . but if all this occurs and we see a bounce from 63.24. the 3rd quarter (possibly into the 4th quarter) somewhere around 63. His experiences range from working in the trading rooms at Barclays Bank in London and Hong Kong.46 before the rally. There are a few possibilities here. then the implication from the structure and the major monthly cycle low is for a rally back to 147. Looking at the daily cycles.com.000 readers worldwide have read his book.20 and 89.fx-forecaster. a flat correction which could still see price dip back to 90.00 to 104.43 to 88 once again before recovering to the same area and finally a dip in an expanded flat Wave b at between 87.88 was very swift and given that daily cycles are finding a low around this time. acting as a technical analysis specialist for Dow Jones Telerate in Tokyo where he provided seminars for bank traders and also as the regional manager for technical analysis products in Asia Pacific. I suspect a complex correction.70 low and may dip a little further to around 74. we can see that the correction from the Wave (i) low at 90.66 to 64. Integrated Technical Analysis. Over 4.66-64.24. This is finely balanced but looking at the daily chart. While obviously a much longer timeframe call.00 range.Figure 2 – Cycle projections time of writing) or whether we will a correction to a higher level. This should move down closer to the 79.50 by the middle of June and after a correction in Wave (iv) the final low should arrive by late in Ian Copsey is a veteran technician having begun his career in Foreign Exchange over 25 years ago. I suspect we should reach a peak in Wave (ii) around the end of February and from there the start of Wave (iii) should begin.

MARKET OBSERVATIONS DAR WONG The Outlook for Major Currencies in 2009 52 JANUARY 2009 TM .

the fall of USD/JPY affected many Japanese investors and corporations who shifted their yen profits into offshore swaps. the continual axing of interest rates to stimulate the economies in many developed and emerging countries triggered a massive unwinding of high-yielding currencies against the Japanese yen that literally has been next to nothing among all currency investments.S. Last year from the middle of July through August. the financial crisis that originated with the U.Our regular contributor. provides his monthly commentary and outlook for the major currency markets as we trade into 2009. subprime debacle rolled down the prices of global equity. JANUARY 2009 53 . The unexpected 70% slump in crude oil prices from the record high of USD147 added a double impact to the deflation of these slowed economies. Dar Wong. TM L ast year. institutional funds in addition to the pull caused by the domestic housing slumps and dwindling economic growth. Major European currencies like the euro and the British pound also fell heavily from large exposure in U. At the same time.S.

S. if China were affected with shrinking growth this year. In this first issue of 2009. However. Labor Department reports that citizens on unemployment benefits rose over 4 million at the end of November 2008. it has also become one of the biggest crude oil consumers because of its emerging growth. The Fed Funds rate currently stands at 1% after a series of rate cuts designed to boost the U. Outlook for USD/JPY The Federal Reserve and United States Congress face tough challenges trying to reshape the U. the worst unemployment level since 1993. Since China and India are the two largest industrialized nations in Asia. This could also serve as a general guideline for managing your corporate exposure if you are going to deal with commercial profits in any of these currencies. oil prices may decline further to below USD30 per barrel. equities markets. As China has become a large industrialized country.7 percent. Owing to the impact of the global crisis. Job losses continue to mount with the unemployment rate for November at 6. every country including China has been experiencing a contraction in its exports and domestic demand. it will not be a surprise to see them emerge from this economic rut in 2010 more quickly than other areas. economy with huge financial bailouts. In other words. Last November. the situation may trigger a stagflation in many developing countries. crude oil prices will continue to be a leading indicator of recovery in many economies.MARKET OBSERVATIONS USD/JPY as of December 11. 2008 As we move into 2009. The U. The financial and manufacturing sectors of the economy are deteriorating with more collapse cases that will need to be salvaged. China surpassed Japan to become the larg- 54 JANUARY 2009 TM . The housing crisis still infects the economy with home prices and sale figures both declining. if a surge in crude oil demand is realized too soon as the result of the recovery of Asian economies. Other countries in Asia.S. especially those that are oil producing and rich in commodity-based products will emerge quickly from this rut as well. I would like to give a forecast for some major currencies that might be suitable for your Source: NetDania (2008) investment portfolio.S.

JANUARY 2009 55 .

on its way up.95 support level is broken.S. EUR/USD reached its bottom 5 JANUARY 2009 TM . 2008 and has made a remarkable 50% recovery after reaching a low 90. retail sales and consumer markets deepened its decline. The market began its plunge from a high of 110. government treasury bonds. 2008 est holder of U. if this 90. the European Central Bank cut its refinance rate again by 75 basis points to 2.MARKET OBSERVATIONS EUR/USD as of December 11. It is important to remember that this projection is only Source: NetDania (2008) good if the support at 90. this bottom is a very important level to hold as it might well mark the end of the fall. Theoretically speaking. Although central bank policymakers have been focused on inflation in the early part of 2008 and complaints that the rising euro was hurting exports. Gross Domestic Product for the whole European region shrank 0. During the last quarter of 2008. Short-term market projection (3 months) – In our opinion.S.S.50 and make a channel formation before it eventually climbs higher. Service and manufacturing figures reported by the Royal Bank of Scotland Group PLC were charted at below the expansion benchmark of 50.5 percent. economy for 2009 and deter the export of Japanese products. China unveiled a stimulus plan of 4 trillion yuan (estimated USD580 billion) to support the U. However. The eventual decline of this currency’s value by an estimated 20% has not helped in the increase in the value of current accounts due to the global crisis. Outlook for EUR/USD The Eurozone faces a slump in output. However. it will cast serious doubts for growth in the U. From the technical outlook.00 for this quarter before the market successfully searches for a clear direction.95 is not violated. the market may go lower to attempt the region at 86.66 on August 15. 2008.2 percent in the third quarter of 2008 with much of the market’s pessimism carrying forward into the fourth quarter. the market is likely to trade in the range between 90. Otherwise. In December. we expect the market will hover for a while around 96. From the technical outlook. USD/JPY has been mauled by a selling frenzy caused by a loss of investor confidence.00 before we could see some rebound from there.00 and 100. and prevent further faltering in the American economy.95 on October 24.

Prime Minister Gordon Brown pledged the biggest round of tax cuts and spending increases in the last two decades to counter the recession.1.2549 (December 4. Consumer confidence and spending are still low while frozen credit continues to stall liquidity in markets necessary for purchasing fixed assets. the market is expected to make a long downward correction for this current recovery bull trend that started in October of 2008.4300 probably some time in mid February or March.S.GBP/USD as of December 11.6 billion-pound (USD38. From the bottom gradually scaling up. Short-term projection (3 months) – This market has gathered sufficient bullish sentiment to counter the past frantic selling. making its first decline since 1992. 2008 at 1. S2 – 1. Unfortunately. we would advise traders to abandon all long positions if the market turns south and drives below 1. we expect the market to form another support level in the region of S4 – 1. Thereafter. 2008) and S3 – 1. Outlook for GBP/USD The economy in the United Kingdom is very vulnerable with additional risk coming from U.2328 on October 27. the Chartered Institute of Purchasing and Supply (CIPS) reported a drop in the service index to 40. Nearing the end of 2008. Furthermore.2320. subprime losses and declines of domestic housing prices.2424 (November 20. We would consider that this market has made a good consolidating phase over the year-end and will prepare to move higher for a technical recovery. the market has successfully built another 3 progressive supports at S1 – 1. 2008). it will depend a lot on the speed of recovery and stimulus Source: NetDania (2008) policies in the Eurozone during the middle of this year for the market to decide for a new potential direction. 2008). which was the lowest level on record since 1996.2950 before we see the target above 1. In November for the first time. The Gross Domestic Product (GDP) in the third quarter of 2008 slipped 0. A declaration of a 25. In January. Foreclosures on residential homes rose 12 percent in the third quarter 2008 due to the contraction in the economy and rising unemployment.2389 (November 13. In any unlikely event. 2008 and formed a powerful pincer bottom for reversal thereafter.8 billion) package to be released over coming two years will bring the budget JANUARY 2009 TM 57 .5 percent. we will be unable to forecast into the second quarter until we meet the calendar time-line.

improving the market liquidity and cash flows in financial investments. Otherwise. Outlook for USD/CAD From the technical outlook. the market will gradually recover together with the rising euro value. Some experienced traders spotted an opportunity in EUR/GBP during the last quarter 2008. we need to determine and confirm that the market has bottomed before we start our upward projection for the first quarter 2009.7000 in February.4000 before the selling forces halt and are overtaken by a technical rebound. As an oil-producing country. another round of rate cuts was introduced. we expect the market will reach into the region around 1. 2008 deficit to 118 billion pounds for the 12 months through March 2010. it is logical that the Canadian dollar is strong with the backing of crude oil prices.3000 will be a very difficult. To initiate our study of the British pound.3000. USD/CAD has formed a strong resistance area by making a pincer top formation around 1. Breaking through this resistance at 1. the possibility of further decline in GBP/USD may make an attempt at 1. From the technical outlook. With the current benchmark rate at 2 percent.MARKET OBSERVATIONS USD/CAD as of December 11. In December. USD/ CAD moves inversely to general crude oil prices and the EUR/USD market. If this up trend is projected correctly. it will be very difficult for us to gauge GBP/USD if it acts like a bottomless pit and keeps trying to make new lows after every consolidation phase! Short-term projection (3 months) – If the lowest bottom is assumed to be at 1. 2008. If this happens. GBP/USD has been very tricky. policymakers hope to unlock the credit gridlock and encourage more banks lending to good customers. As we near year-end 2008. It is interesting to note from the weekly chart that USD/CAD began its slide above 1. USD/CAD surged sharply to make a recovery briefly above the 50% retracement.6100 in January 2002 and has never looked back. We expect the market to fall back while moving 58 JANUARY 2009 TM . The market reached its bottom at 0.5500 before mid January followed by a progressive phase of consolidation that will further build into another round of escalation up above 1. when oil prices declined by an estimated 70% from the record high at USD147. Source: NetDania (2008) It is important to take note that the above hypothesis will not be valid if the market penetrates below the low at 1.4477.9058 during early November 2008 and has since rebounded.4477 on December 4.

It is likely the market may even stretch its southward direction to 1. we should expect AUD/USD to rise to about 0.S.8000. thus developing sufficient strength to climb back for a window-dressing rally into the beginning of the New Year.S. Using his PowerWave Trading™ concepts developed since 1998. 2997 at 0. in this case.1000 with the possible recovery of oil prices. central bank demands that the Chinese currency be allowed to appreciate. Short-term projection – If the U.6006 to be the ultimate support level.3%). the U. we predict new flight will move into the cross rates of Chinese yuan. Prior to that. Eventually. However. AUD/USD started its slide last July when the U. Barclays ZW PLC and as a senior floor trader with S. TM Outlook for AUD/USD From technical outlook. This is quite likely since the market has dropped drastically for the last 5 months without making a substantial correction. This was mainly due to the fundamental weakness of major European currencies against the U. especially when GDP growth is projected to be lower in 2009 from the global financial crisis. Despite the European Union and U. This hypothesis will delay if the market goes up further after breaking 1. the USD/CNY has stabilized around 6. Short-term projection (3 months) – If the aforementioned resistance can be protected. we are not able to forecast how low the rate will go as it is new uncharted territory in this market.com JANUARY 2009 59 . Taking the bottom of October 27. the value of the yuan is still very much controlled by People’s Bank of China for fear of overheating the Chinese economy and risking inflationary problems. some new opportunities will be spotted for borrowing cheap Swiss franc (0. In that case.3000. we could be looking at 1. Shearson (Citigroup). We foresee a tight cap of resistance at 7.S. As this current market crisis may take 1 to 2 years to drain out the losses. Dar has groomed many retail and corporate traders to become financially successful in leveraged trading.S.S. Currently. dollar began to strengthen against all Asian currencies.8000 from last July to December. dollar is only temporarily strengthening against the Asian currencies including Chinese yuan. You may read his Forex weekly report by visiting www. dollar has been devaluing against the Dar Wong has 20 year of trading experiences in global derivatives and Forex markets.3700 before the market reverses down. This hypothesis is valid only if the market does not penetrate the ultimate support at 0. Otherwise.S. Summary We foresee a new trend of carry trades will be initiated in markets once the financial crisis gradually settles down late in this year or into 2010. Another valid reason for this scenario is that the market has made a consolidation in November and December without breaking the ultimate support.S. dollar putting an upward pressure in the greenback to hedge against other major Asian currencies. holding on to long positions or trying to pick new long entries could be disastrous as the market will be uncharted territory dating back to 2003.0000 and expect the USD/CNY rate will continue to drop progressively in the long-term outlook with the gradual expansion of the Chinese economy. This has been mainly due to the strengthening of the U. dollar weaken fundamentally against the euro. Outlook for USD/CNY From the technical outlook.B.5%) since it is the next lowest yielding currency to the Japanese yen (0.0300 should the U.6006 in the first quarter.S. besides writing for The Borneo Post and financial magazines. if the U. the U. followed by Bankers Trust. We believe the U. we are talking about swapping from Swiss franc or Japanese yen again. dollar were to slide lower as expected. Of course. His past employment in the financial industry began in 1989 with Bank of America. we forecast the market will track its way back down to the region around 1. he functions as a hedge advisor.into a sideways trend in the first quarter of 2009. coach and seminar speaker while trading his personal account. dollar will continue to weaken when the European currencies start to surge against it after midyear with higher commodity and gold prices. In our opinion.S.S. This could happen within the first quarter 2009 or into the second quarter. dollar weakens against the major Asian currencies as the result of a technical recovery in the EUR/USD. dollar against all major Asian currencies as previously discussed.pwforex.8500 since 2006. the market has formed a reasonably strong consolidation in the last quarter as it strengthened and stabilized in a sideways trend. euro and pound as safe havens to safeguard long-term investments for many corporate portfolios. strengthening Chinese yuan from the top limit of 7.

ATIC events have attracted over 75. Shenzhen and Tokyo. Organiser : Money Show 0 JANUARY 2009 TM . Venue : Pasadena Convention Center.. including securities exchanges. including securities exchanges. Kuala Lumpur. United States. Shenzhen and Tokyo. 2009 The World Money Show Orlando Stock markets and oil set new highs—just as the Fed fights a recession. Ho Chi Minh City. United States. Asia Trader and Investor Convention (ATIC) event has travelled to 7 Asian Cities. Organiser : Traders Expo Jun 6. Kuala Lumpur. 2009 – Mar 15. Venue : The San Francisco Marriott.e. United Arab Emirates. listed companies and other financial services providers. private equity. With participation by over 300 financial services companies. Organiser : By Money Show Feb 21. Venue : The Gaylord Palms Resort. Los Angeles. 2009 – Jun 7. Venue : Marriott Marquis Hotel. United States. 2009 – Aug 2. ATIC events have attracted over 75. commodities and are in search for emerging trends and new strategies. 2009 The Middle East Money Summit With return from traditional markets expected to remain low institutional investors are diversifying into alternative assets to achieve superior returns and reduce risk. 2009 Asia Trader & Investor Convention First launched in 2006. Venue : Suntec City. Bangkok. including securities exchanges. Malaysia Organiser : Nextview Apr 18. Bangkok. Singapore Organiser : Nextview May 17. visit the exhibit hall where you can investigate and testdrive the latest trading tools. Venue : Jumeirah Beach Hotel. 2009 The Money Show San Francisco The Money Show San Francisco is your best opportunity to learn how to manage your portfolio during uncertain economic times. Venue : Hotel Equatorial. 2009 The Traders Expo Los Angeles In this Trader Expo you can take a productive step back from the trading screen and look at the overall markets from a broader perspective. Mumbai. Obtain the best financial advice from top investment gurus—all under one roof. San Francisco.e. Hear from world-class experts in more than 150 workshops on everything from market trends to stocks & ETFs to buy and sell. 2009 Asia Trader & Investor Convention First launched in 2006. Singapore. retail and consumer banks.Feb 7. Singapore. Asia Trader and Investor Convention (ATIC) event has travelled to 7 Asian Cities. Mumbai. 2009 – Apr 19. i. listed companies and other financial services providers. Venue : Kuala Lumpur Convention Centre. New York. asset/fund management firms. 2009 . i. 2009 – May 18. Organiser : Traders Expo Mar 14. Organiser : Arabcom Group Jun 3. Orlando.. securities brokerage firms. listed companies and other financial services providers. With participation by over 300 financial services companies. retail and consumer banks. Today. Singapore. Dubai.000 active traders and serious investors across Asia. 2009 Asia Trader & Investor Convention First launched in 2006.e..UPCOMING EVENTS Feb 4. 2009 – Jun 6. securities brokerage firms. Asia Trader and Investor Convention (ATIC) event has travelled to 7 Asian Cities.000 active traders and serious investors across Asia. Shenzhen and Tokyo. United States. asset/fund management firms. asset/fund management firms. ATIC events have attracted over 75. With participation by over 300 financial services companies. investors has already made allocations into alternatives such as hedge funds. Bangkok. securities brokerage firms.000 active traders and serious investors across Asia. Vietnam Organiser : Nextview Jul 31. Ho Chi Minh City. Ho Chi Minh City. Ho Chi Minh City. 2009 . Only by treating yourself (and your portfolio) to the most in-depth “annual checkup” at The Gaylord Palms Resort in Orlando—can you be confident that you have fully explored all of today’s best investment opportunities— amidst such market wrenching economic transition. Kuala Lumpur. 2009 The New York Traders Expo Acquire the knowledge and tools from expert and fellow traders that will take your skills and profits to new heights. Also. Mumbai. i. retail and consumer banks.Feb 24.

consumer sentiment for Feb US – Feb Empire State Mfg Survey data JN – Dec Tertiary Index UK – CPI data for Jan US .30am Leading indicators 10 am on-manufacturing Employment 8.Dec 2008 Treasury Budget data US – Dec 2008 retail sales data .Dec 2008 factory orders data UK – Dec 2008 industrial production data .ISM Mfg Index data for Jan AU – Import & Export data for Dec 2008 .Jan Leading Indicators data .30am Housing starts 8.Jan unemployment data . 08 .Personal Income and Outlays for Dec 2008 .Nov 2008 Pending Home Sales Index data AU – Nov 2008 retail sales data AU – Import & export data for Nov 2008 US .Import & export prices for Jan .ECONOMIC EVENTS CALENDAR Legend AU = Australia BoE = Bank of England BoJ = Bank of Japan CPI = Consumer price index CPM = Chicago Purchasing Managers CGPI = Corporate goods price indes ECB = European Central Bank EU = European Union FOMC = Federal Open Market Committee GDP = Gross Domestic Product ISM = Institute for supply Management JN = Japan MPC = Monetary Policy Committee PMI = Purchasing managers index NAPM = National Association of Purchasing Managers PPI = Producer price index SK = South Korea JANUARY 2009 1 2 3 4 5 6 US – Construction spending data for Nov 2008 US – Factory orders data for Nov . 2008 US.Nov consumer credit data UK – BOE MPC ends two-days meeting to set interest rates US – Dec 2008 unemployment data US – Dec ISM Mfg Index data 26 27 28 29 US – Dec 2008 existing home sales data Dec 2008 leading indicators data AU – PPI data for Q4.08 .Jan industrial production data EU – Unemployment data for Jan US – Q4. JANUARY 2009 TM 1 .30am sentiment 10 am Chicago Fed national Durable goods 8.Dec business inventories data EU – GDP Q4.Dec 2008 unemployment rate .Durable Goods Orders for Dec 2008 .ILO Unemployment Rate for Dec 2008 US – International trade data for Dec 2008 JN – CGPI (PPI) for Jan AU – employment and unemployment rate for Jan Economic release Release time ( EST) Economic release Release time ( EST) Economic release Release time ( EST) GDP 8.30am Wholesale inventories 10 am activity index 10 am Retail sales 8.Jan new home sales data JN – CPI & CPI Core data for Jan .Consumer Sentiment data for Jan .Productivity and Costs for Q4.Jan industrial production data US – PPI index for Jan .Feb consumer sentiment data . 2008 GDP data .All Industry Index for Nov 2008 6 28 29 30 31 7 8 9 10 11 UK – Merchandise trade data for Dec 2008 UK .Consumer credit data for Dec 2008 20 21 22 23 24 25 26 US – Nov 2008 international trade data .BOJ announcement US – FOMC minutes .30am utilization 9. The Trader’s Journal is not responsible for the accuracy of calendar dates beyond press time.ISM Non-Mfg Index data for Jan UK – BOE MPC ends two-days meeting to set interest rates EU – ECB Governing Council meets to set interest rates US .30am Construction spending 10 am CPI 8.FOMC Meeting Announcement US . 2009 US . 08 Employment Cost Index data .Feb farm prices data 3 4 5 15 16 27 17 18 19 20 21 22 23 24 25 JN .2008 US – Jan consumer confidence data AU – CPI data for Q1.30am Uni of Mic consumer New home sales 10 am Business inventories 8.30am Consumer confidence 10 am report on business 10 am Personal income 8.Claimant Unemployment Rate for Jan .Phil survey data for Jan US – CPI data for Dec .Unemployment data for Jan .Treasury International Capital for Jan EU .30am Existing home sales 10 am Consumer credit 3 pm The information on this page is subject to change.ISM Non-Mfg Index for Dec .CGPI (PPI) data for Dec 2008 EU – ECB Governing Council meets to set interest rates US – Dec 2008 PPI index .Consumer Sentiment data for Jan US – consumer confidence data for Feb US – Existing home sales data for Jan US – Durable good orders data for Jan .Feb Philadelphia Fed Survey data JN – Dec 2008 All Industry Index US – CPI for Jan 30 7 8 9 10 11 12 13 14 31 19 FEBRUARY 2009 1 2 US .Housing Market Index for Jan JN – Jan Merchandise trade data US – Dec 2008 housing starts data JN .RBA announcement EU – PPI data for Dec 2008 AU – Dec retail sales data EU – Dec retail sales data US .Treasury International Capital data for Nov 2008 .Housing start data for Jan .Dec industrial production data US – GDP data for Q4.Business inventories data for Nov 2008 AU – Dec employment & Unemployment data JN .Dec 2008 Industrial Production data .Dec 2008 import & export prices data .Dec 2008 new home sales data JN – CPI data for Dec 2008 .30am Production & capacity CPM report 10 am ECI 8.Farm prices data for Jan 12 13 14 15 16 17 18 US – Retail sales date for Jan .Merchandise Trade for Dec 2008 JN .30am Philadelphia Fed survey 10 am Federal budget 2 pm Trade balance 8.Manufacturing Output for Dec 2008 US .Tertiary Index for Nov 2008 JN – BOJ announcement for Jan US .Dec 2008 construction spending data .Q4.15am Report on business 10 am PPI 8.NAPM-Chicago for Jan .

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