Forex Crunch Is Your Forex Trading Strategy Going to Win You Riches or Fail Miserably? Here’s How to Know for Sure…

Is Your Forex Trading Strategy Going to Win You Riches or Fail Miserably? Here’s How to Know for Sure…

Posted: 14 Jul 2010 11:21 PM PDT

Guest post from tradeforexfundamentally.com

The need for certainty

You want to know how to win and you want to know for certain that your strategy is going to work. But the market is an inherently uncertain phenomenon. You've probably already heard of the return that your strategy produces, or you've seen multiple examples of it in action by the instructor of the course you got—so why don't you execute it with confidence and instead consider hopping to another system after a few losses?

It's because you need to know for sure. You need hard evidence that it's going to work consistently. So what can you do to make sure?

The good news and the bad news

Bad: There's never certainty in the markets despite the claims of all of the "surefire" strategies and systems sold out there—markets change and we must adapt our strategies to the changes, because systems that worked in the past may not work so well in the future.

Good: Making money trading forex is almost like a coin flip game, where you win $1 if it lands on heads and you lose $1 when it lands on tails. However, if you could do just a few tiny things to make the coin heavier on heads, then you have an edge over your opponent. What's an edge? As Mark Douglas, author of Trading in the Zone defines it: "an edge is nothing more than an indication of a higher probability of one thing occurring over another." If you spot a pattern that usually precedes a price movement and the amount you win is larger than the amount you lose, you have an edge. The problem is, if you don't take this into account, the people who taught you the strategy probably only showed the cases where the strategy worked, and ignored the losers, leading to a belief that the strategy was profitable, when in fact, it didn't have an edge.

What you can do to best prepare yourself for victory on the forex battlefield

1. Make sure that your system has a positive expectancy based on past data. We want to make sure we have an edge as discussed above, right? In order to check that, do the following: First, multiply your winning percentage (e.g. if you win 4/10 trades that's a 40% win rate) by the amount of pips of your average win. Second, multiply your losing percentage by the amount of pips you lose on average. Subtract the second number from the first number. This is your expectancy, or how much you should expect to win on each trade. If that number is not greater than 0 in a sample of at least 30 trades, your system is likely to fail miserably.

2. Make sure that the system makes sense and is based on how the market actually works. Many traders don't achieve forex success because they simply don't know what they're doing. If you want to get good at anything you should focus on really understanding it and mastering it. Make sure there's a real reason for why you take a trade besides just a statistical likelihood of success. For example, I feel comfortable fading a news rally if there wasn't much of a surprise in the economic data and price is approaching yesterday's high, because I know other traders are also realizing the move was nonsense and they're eyeing the resistance level as well. On the other hand, I would be very wary about buying a currency solely because its fast moving average crossed over its slow moving average, because that's just an indication of 2 lines moving and isn't really based on the underlying behavior of the market.

Do these two preparation items before anything else and your confidence will soar as a trader. Furthermore you'll be able to stick with your strategy through the occasional and inevitable losing streaks, knowing that you'll win, instead of playing the losers' game of hopping from system to system.

Kris Matthews http://tradeforexfundamentally.com

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Forex Daily Outlook – July 15 2010

Posted: 14 Jul 2010 02:00 PM PDT

American Federal Reserve nomination vote, US producer price index, US Unemployment Claims and Industrial Production are among the major market moving events. Here is an outlook on today’s busy event schedule.

In the US, American Federal Reserve nomination vote will focus on the appointment of 3 FOMC members. The US Senate will vote on Sarah Bloom Raskin, Peter Diamond and Janet Yellen, in a vote that will shape future decisions for quite a while. If they aren't approved, or if many questions are raised, the dollar could be hurt.

Later in the US, The producer price index in May fell 0.3 percent after dipping 0.1 percent in April. A drop of 0.2 percent is expected now. But at the core level, the PPI gained 0.2 percent in May, matching the rate in April. Another gain of 0.1% is expected now.

More in the US, Unemployment Claims forecasted another small drop to 453K after a surprising decrease to 454K last week. Further improvement below 430K will give a serious boost to the job market.

Industrial Production, the main gauge of industrial activity measuring the output of factories, mines and utilities is forecasted to slow down with industrial output flattening at 0.0% in June, compared with the 1.3% increase in May.

Empire State Manufacturing Index surveying 200 manufacturers is forecasted to reach 18.9 points following the drop from 31.9 to the level of 19 points in April and May however this is still a positive reading.
Capacity Utilization Rate measuring percentage of available resources being utilized by manufacturers, mines, and utilities expected to rise 0.1% to 74.2%.

Finally in the US, Philly Fed Manufacturing Index expected to rise to 11.4 points following a steep drop from 21.4 to 8 points in May.

In Canada, Manufacturing Sales predicted to advance 0.4% from 0.2% in May. Manufacturing sales have risen in 9 of the past 10 months and have been trending upward since the low reached in May 2009.

For more on USD/CAD, read the Canadian dollar forecast.

In Europe, European Central Bank Monthly Bulletin reveals the statistical data that the ECB Governing Board evaluated when making the latest interest rate decision, and provides detailed analysis of current and future economic conditions from the bank’s viewpoint.

For more on the Euro, read the EUR/USD forecast and Casey Stubbs' latest analysis.

In Great Britain, David Miles an external member of the monetary policy committee of the bank of England speaks at the Business Forum in Bristol could determine a rise in interest rates.

Read more about the Pound in the GBP/USD forecast.

In Switzerland, The Swiss ZEW Expectations Survey came in significantly lower, with a 17.5 reading in June on May’s 40.5 reading. Expectations of economic contraction on the back of Euronation austerity measures are cited as cause. A further drop is expected.

In Australia, MI Inflation Expectations fell to 3.4% in the previous quarter from 3.6%. A drop under 3% will weaken the Aussie and New Motor Vehicle Sales predicted a small rise following the sharp drop from 9.0% to -3.0% in May.

For more on the Aussie, read the AUD/USD forecast.

In New Zealand, Consumer Price Index forecasted 0.5% rise in the second quarter following a disappointing 0.4% rise in Q1 when 0.6% was expected.

In Japan, Tertiary Industry Activity measuring change in the total value of services purchased by businesses is foreseen a 0.7% drop following the 2.1% rise in April.

That’s it for today. Happy forex trading!

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