:: NAVIGATION ::
:: RELATED ARTICLES
::
:: ORIGINAL ARTICLES
::
:: CONTRIBUTED ARTICLES
::
|
How to Analyze Currency Movement - A Simple but Powerful
Method
Feature
Article
Avoid Day Trading Your Dollars Down the Drain
Day traders quickly buy and sell stocks during the day, hoping
their stocks will continue climbing or falling in value for the
seconds to minutes they own the stock. This allows them to lock
in quick profits. Day traders usually buy on borrowed money,
hoping that they will reap higher profits through leverage.
Day trading, however, can be highly risky. Most individual
investors don't...
How to Analyze Currency Movement - A Simple
but Powerful Method
When many traders talk about analyzing currency movement,
they tend to focus on two separate methods - fundamental and
technical - but these do NOT give you the market psychology.
Here we outline two powerful tools, that can be used to
analyze currency movement, and work with either the fundamental,
or technical method - and help you to spot the really bid trend
changes.
When analyzing currency movements the following equation
applies:
Supply & Demand Fundamentals + Investor psychology =
Price action
Fundamental analysis does not make any effort to study investor
psychology - whereas technical analysis does so - in terms of
repetitive price patterns. However, technical analysis still
does not predict when a price pattern is at an extreme - it
simply follows market action.
Spotting Market Tops and Bottoms in Advance
What if you knew in advance:
1. What investors were thinking
2. What investors were
doing
In addition, you could spot if they have pushed a trend
too far with the emotions of greed and fear.
How useful would that information be? - You could spot big
potential market tops, or bottoms in advance, and make huge
profits!
That’s, exactly what the two tools can do for you – and
they’re free!
The Importance of Market Psychology
In any investment market, we know that investor psychology
is vitally important when analyzing currency movements - as
investors push prices too far in either direction, as the emotions
of greed and fear come into play.
Investors push prices away from fair value - and then prices
recoil in the other direction.
Ever wondered why big price moves take place when the market
is at its most bullish, or bearish? - This is investor psychology
at work.
So, How can we Measure Investor Psychology?
There are two powerful tools you can use - and they can
help you spot every major top and bottom - yet few traders use
them!
Here are the two tools:
1. The Commitment of Traders Report
This is published bi weekly by the US government and breaks
down the open interest of the US futures markets, (which include
currencies) into three separate groups:
Commercial hedgers – These are savvy traders who are hedging,
not speculating - and they are unaffected by the emotions of
greed and fear.
Large speculators – These are mostly funds, who are trend
following - and always get caught at turning points.
Small speculators – This represents small individual traders
- and they are the worst traders of all, as they are mainly
motivated by the emotions of greed and fear
Profiting from Tracking the Pros
So, what use are these positions? - Commercials are hedging,
and if prices spike too far from fair value, the commercials
will move aggressively the other way - starting a buying frenzy
- and the buying price collapses when they have gone too far.
The Commercials are hedging – so no greed or fear comes
into play - they are just looking at the facts. When you have
an aggressive price move, and commercials trade in the opposite
way to the trend, and the positions of large and small speculators
– then a trend change is imminent.
A Word of Caution
When analysing currency movements with net traders positions,
it is important to only trade extremes. If you watch for these
extremes, and trade with the commercials you can catch the big
turning points.
2. Percent Bullish
This is a good backup tool to the Commitment of Traders
Report, and is a poll of investors; brokers, fund managers,
etc. - Percent bullish expresses their bullishness as a percentage.
Traders in currencies should look for a figure below 20%,
to indicate a market that’s too bearish - and above 80%, for
a market that’s to bullish. When these numbers are hit - look
closely at commercial selling and buying - if they line up,
get ready for a turning point.
Feature
Article
Stock trading and Market Profile
The concept of Market Profile has been promoted most effectively by J. Peter Steidlmayer. In his excellent work 'Mind Over Markets', Steidlmayer explains why he thinks Market Profiling is so unique. I have found it useful myself, of course, and offer here a quick overview in case you find the topic stimulating. Central to Market Profile theory is the concept of the 'Value Area'. This is a...
|
|
