Forex Market Snapshot

Introduction

The facts and figures that will be denoted in this article relate to the foreign exchange market. Much of the information is drawn from the findngs of the 2007 Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity conducted by the Bank for International Settlements (BIS) in April 2007 and released on September 25, 2007. 54 central banks and monetary authorities took part in this survey, collecting information from approximately 1280 market participants.

Summary of this survey by BIS:"The 2007 survey shows an unprecedented rise in activity in traditional foreign exchange markets compared to 2004. Average daily turnover rose to $3.2 trillion in April 2007, an increase of 71% at current exchange rates and 65% at constant exchange rates. Against the background of low levels of financial market volatility and risk aversion, market participants point to a significant expansion in the activity of investor groups including hedge funds, which was partly facilitated by substantial growth in the use of prime brokerage, and retail investors. A marked increase in the levels of technical trading – most notably algorithmic trading – is also likely to have boosted turnover in the spot market." - BIS

Structure

• Decentralized , over-the-counter market, also known as the 'interbank' market
• Main participants: Central Banks, commercial and investment banks, hedge funds, corporations and private speculators
• The free-floating currency system began in the early 1970's and was ratified in 1978
• Online trading trend started in the mid to late 1990's

Source: BIS Triennial Survey 2007

Trading Hours

• 24 hours market . Note: not 24/7 though
• Sunday 5pm EST through Friday 4pm EST.
• Trading starts in New Zealand, followed by Australia, Asia, the Middle East, Europe, and America

Size

• Largest financial market in the world
• $3.5 trillion average daily turnover, equivalent to:
  
• More than 10 times the average daily turnover of global equity markets¹
• More than 35 times the average daily turnover of the NYSE²
• Nearly $500 a day for every man, woman, and child on earth³
• An annual turnover more than 10 times world GDP⁴
  
  
• The spot market accounts for just under one-third of daily turnover

1. About $281 billion - World Federation of Exchanges aggregate 2006
2. About $86 billion - World Federation of Exchanges 2006
3. Based on world population of 6.6 billion - US Census Bureau
4. About $48 trillion - World Bank 2006.

Source: BIS Triennial Survey 2007

Major Markets

• The United States & the United Kingdom markets account for just over 50% of turnover
• Major markets: London, New York, Tokyo
• Trading activity is the heaviest when major markets overlap⁵
• Nearly two-thirds of NY activity occurs in the wee morning hours while European markets are open⁶

5. The Foreign Exchange Market in the United States - NY Federal Reserve
6. The Foreign Exchange Market in the United States - NY Federal Reserve

Average Daily Turnover by Geographic Location

Source: BIS Triennial Survey 2007

Technical Analysis

Commonly used technical indicators:

• Moving averages
• RSI
• Fibonacci retracements
• Stochastics
• MACD
• Momentum
• Bollinger bands
• Pivot point
• Elliott Wave

Currencies

• The US dollar is involved in an overwhelming 80% of all foreign exchange transactions that take place daily , equivalent to over US$2.7 trillion per each single day.

Currency Codes

• USD = US Dollar
• EUR = Euro
• JPY = Japanese Yen
• GBP = British Pound
• CHF = Swiss Franc
• CAD = Canadian Dollar
• AUD = Australian Dollar
• NZD = New Zealand Dollar

Average Daily Turnover by Currency

N.B. Because two currencies are involved in each transaction, the sum of the percentage shares of individual currencies totals 200% instead of 100%.

Source: BIS Triennial Survey 2007

Currency Pairs

• Majors: EUR/USD, USD/JPY, GBP/USD, USD/CHF
• Dollar bloc: USD/CAD, AUD/USD, NZD/USD
• Major crosses: EUR/JPY, EUR/GBP, EUR/CHF

Average Daily Turnover by Currency Pair

Source: BIS Triennial Survey 2007

A Few WORDS ABOUT THE TREND

I think that most of us heard such a saying as “the trend is my friend”. Many of us also had met in Internet and books different opinions as to the sensee of the above saying..

Well, what is the real meaning of it infact?

The real deep meaning and idea of this saying is a simple and clear demand: Always Trade in the direction of the current trend and ignore trading signals directed against the flow of current trend.

Friendly trend will remain friendly generally, while the trader treats him like a friend , not doing any thing against the desire and will of his friend/trend. Do you know friends who would not be disturbed or irritated by your doings against their desire, understanding and will ? Nobody likes such things.

But nevertheless, many of us starting examining charts/tickers etc absolutely forget this simple rule and try to catch the high or low peaks and/or to trade against the trend. This means, that the trader lacks the main thing - discipline. It's very interesting, that the looser, while considering and investigating his own mistakes, often does not see his actual mistake and culprit - trading against the trend.

How can we define the trend ? Very simply - with the help of combination of four Simple Moving Averages (MA). For example, let us take combination of 5/20/40/60 МА.

Usually current trend is defined by looking at Daily chart and this is right. But the traders with small cash amounts may define trend at 4-hour chart and 1-hour chart. As it often happens that in the interests of relatively quick trading the trend may be defined using only 1-hour chart. But we shouldn't forget about the Daily chart, coz if the hourly signal coincides with the daily trend, then there appears a brilliant possibility for a mighty movement along the trend.

But let us return to the above mentioned combination of MAs. So, if МА 40 is above МА60, then the trend is upward and each time when MA5 crosses MA20 upward (that is in compliance with the trend direction), we enter the market. But when MA5 crosses MA20 downward, we use this signal only for closing of previously opened positions.

And vice versa, if МА40 is under МА60, then the trend is downward and now we enter the market only when MA5 crosses MA20 downward, and we use upward crosses of MA5 and MA20 only for closing opened earlier positions. SIMPLE??

Look at the above Chart. The red dots in there at the above chart denote the crosses of MA40 and MA60. Blue and red lines show the places for openeing positions in the trend direction.

I know of traders, who, in the situation alike trying to catch the price peak, opened SELL positions near the blue lines. If the trader opens positions without minimum analysis at least for definition of the current trend, then he would better go to casino and gamble off, where one can always trying to guess right, but never can make a prognosis. There exists an opinion that MAs are lagging behind as an indicator. It’s true, sometimes, but as a trend indicator, they are very good.

Here МА5 - green, МА20 – red. Red dot - place of closing position ( MA5 crosses MA20 downward). Blue dot - place of opening position in the trend direction (MA5 crosses MA20 upwards ).

We have the same at this chart - red dots - places of closing positions, blue dot - place of opening position in the direction of the current trend.

But WHERE should we place a stop-loss ?

If we enter the market just after the cross of M40 and MA60, then the best place for stop would be 2-4 pips beyond the closest peak directed opposite to our market entrance direction. If you agree, of course, with the size of the stop-loss, or if your collateral permits such stop. But if we opened position some time after MA40 and MA60 had been crossed, then the best place would be 2-4 pips beyond MA60, then, a bit worse, but still ok, beyond MA40 and the weakest variant is beyond MA20.

It’s only natural that the combinations of meanings for MAs could be whatever the trader would want , cause nobody can prevent him from performing experiments. Here are some examples of four simple MA combinations : 10/20/60/80 or 8/12/24/48 or you may even use Fibonacci numbers like 8/13/34/55 or 13/21/55/89 etc.

The main idea in the combination of four MA is that the pair with big numbers defines the existence of the current trend and the pair with small numbers permits us to effect relatively quick trades.

Here is one more example of trading with the trend. Upward cross of MA40/60 is designated by two blue dots. Red dots are denoting the places of positions closing after MA5/20 were crossed downward. One blue dot shows the place where the position in the direction of the current trend was opened again after MA5/20 had crossed upwards.

The next chart is the same as above, but along with the aim of comparison it has another combination of four Simple Moving Averages - MA8/13/34/55.

I understand perfectly that all stated above is not a brand new concept or something. But looking at newbies I noted that disregarding the current trend is one of the most often met mistake, which can lead to potential heavy losses. Therefore, the aim of the above material is to remind and emphasise once again about the necessity for checking the trend direction before entering the market.

Good luck!

The yen is appreciating quickly at the moment, or should I say a short period ago. Luckily I was awake and able to scramble around in my account to keep things sane!EDIT: It is still unwinding... now at 102.75 and holding. Oops, now approaching 102 and probably beyond.

I'm still trading the AUDJPY.I've learned that the Dow Jones and the AUDJPY have a correlation based on the fact that people borrow Japanese Yen to invest. You can watch the AUDJPY rise and fall as the Dow rises and falls.Hmm, what else have I learned?I've also learned that I have a tendency to get too heavily invested. I guess I'd be okay if I had a larger capitalization -- assuming I did not

For someone with zero experience and knowledge in the Forex market, getting started in the trading can be an overwhelming task. Various pitfalls, such as huge losses, can discourage even the most experienced trader. Since Forex trading can be a confusing business, you need to follow several guidelines to success.

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In order to learn Forex trading, you need hands-on courses that allow you to experience the market firsthand. Of course, investing money without proper knowledge can lead to disastrous losses, so opening up a demo account should be your next move. With this demo account, you learn Forex trading firsthand because you will be given a pretend balance, which you could use to play around and experience the feel for Forex trading before using real money.
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I just could not resist posting this. It represents a great day of trading the AUDJPY leaving me with both profits and some low priced carry positions. What more could I want?I should note that I stayed with this pair for over 24 hours. The US Jobs report came out during the spikes outside the trend lines.

I've been having a great time spotting trends on the AUDJPY today. Well, of course, I have to point out that trends are good until they change. However, with that out of the way, I've been able to pick up some trends, identify channels, and generally advance my knowledge and confidence quite a bit.Sure, sure, I know, everyone can float in a rising tide, but check the charts today, things have