Victor Gann

Every thing in the universe has it is NATURE. So is Forex market. So is each currencies pair in this market. For example, GBP/JPY always moves faster, and it is wave range is longer than other pairs, such as a hundred pips for the duration of a day or even a hour. EUR/GBP in general waves narrowly various pips only within a day. For American, EUR/USD and GBP/USD like to sleep in day and dance at night. AUD/USD and NZD/USD look like twin, they ordinarily act in the same style, if one of they goes north, another one does not like to go south. But EUR/USD and USD/CHF are doomed to be enemy, while one of them flies up like a hydrogen balloon, the counterpart largely will drop like a lead ball. And so on, so on.

Once we find this kind of “Nature of Market”, we may create and figure out galore schemes for peculiar currencies pairs, just follow their nature, predict their moving direction and range. Then we will get our own selling system and system.

In Forex market, numerous professional analysts like to use a kind of method to predict the future. It is so-called “Fundamental Analysis”. Based on this method, they create numerous kinds of schemes to trade Forex. These are systems of prophecy the future price movements of currencies based on economic, political, environmental and other applicable elements and stats that will affect the basic supply and demand of whatsoever underlies the alien currencies.

If you like to try Fundamental Trading, you need learn and perceive a lot of finance knowledge. Actually, not only finance knowledge, you need to be mesmerized at numerous things of this world, including politics, economy, geography, culture, diplomacy, even military affairs. And you need to study the core underlying elements that influence the economy of a queer entity. For example, when the USA’s GDP or employment report is strong, you begin to get a somewhat clear picture: the popular health of America’s economy is good. So the US dollar must be more inviolable than other currencies. But how far may the US dollar go? Fundamental Trading may not answer this question very accurately. You may need to come up with other precise tools as to how best to translate this data into entry and exit points for a queer merchandising strategy.

In finance, a hedge is an investment that is taken out quintessentially to reduce the risk in another investment. Hedging is a scheme designed to minimize exposure to an undesirable business risk, while still permitting the business to net profit from an investment activity.

In FOREX, there are two kinds of similar “hedging” strategies:

1, Buy and Sell the same currencies pair, same lots, same timing. Then let it go. While one of those orders goes north, the counterpart will go south. After the winner takes profit, we may wait for the loser turning around. In a yo-yo market, this method works well.

For example, buy 2 lots GBP/USD at 2.0003, at the same time trade 2 lots GBP/USD at 1.9997. While the rate rises up to 2.0053, we close the buy order and take net income 50 pips. Now, the trade order will draw down around 50 pips. Let’s wait for the rate falling down, it will fall down usually, exceptionally in yo-yo market environment. If the rate drops down to 2.0037, close the trade order, the trade order will lose 40 pips. Does it hurt? No. Don’t forget the 50 pips we have taken at the buy order. Totally, we may get 50-40=10 pips. Furthermore, if the rate keeps falling, let’s say down to 2.0027, we may take 50-30=20 pips, etc.

Some humans would doubt it… doesn’t this “strategy” sound like hedging flat for nothing, just paying double spread? Why bother? Well, they are right, because we forgot mentioning the key point: timing of closing orders. When to close the winning order to set a foundation and when to close the losing order to lock the profit, there are a great deal of tricks inside. Experienced traders use technical analysis accomplishments to determine this critical timing. Believe it or not, those experienced traders say that this method helps them screening untrue signals out.

This kind of “Yo-Yo Hedge” may work at any currencies pair.

2, Buy (or sell) unequal a large total of particular currencies pairs and buy unequal quantities of another kinds of currencies pairs which ordinarily move in the opposite direction. This seems a “Semi-Hedge” marketing strategy. It is formulated based on “Correlation” amidst a heap of peculiar currencies pairs. So it is not suitable for each currencies pair.

Actually, this kind of hedge has another feature: earning SWAP! You earn interest each day on the kept position which may yield up to 50% per year of your full account balance.

There are various pairs may do it. Such as EUR/USD Vs. USD /CHF, GBP/USD Vs. USD/CHF, AUD/USD Vs. NZD/USD, EUR/JPY Vs. CHF/JPY, GBP/JPY Vs. CHF/JPY.

Let’s take the EUR/USD and the CHF/USD pairs.

These pairs are throughout history negatively correlative 93-98% of the time. That is when one pair goes up the other goes down, and vice versa, up to 98% of the time. In a high leverage account (as high as 400:1 or 500:1), you could earn 50% SWAP interest in a year. How? Let’s say you have $5,000 in your account and a 10% danger margin set. If the net interest we receive is 1.25% annually, this 1.25% interest will be enlarged to 50% per annum, by the 400:1 leverage.

And, this return does not include the buy low/sell high profits.

But, if the base of this kind of hedge collapses, it means the “Correlation” does not subsist any more, for example the “Correlation” drops underneath 50% or lower, there will be a disaster.

Some persons call “Arbitrage” as a peril free strategy. But other people call it as a trick which looks like the cat pawing chestnuts from a fire. But in theory, it is danger is minimum in deed. We introduce three types of arbitrage schemes here:

1, Triangle Arbitrage: Searching for two highly fast-moving pairs (like EUR/USD and USD/JPY), the price of a not-so-fast moving pair like EURJPY will have to always be derived by multiplying (or dividing, etc) the fast-moving pairs. So for example, if EUR/USD is 1.4871 and USD/JPY is 108.24, the logical price of EUR/JPY will have to be 1.2 x 120 = 160.96. But at the same time, the real EUR/JPY rate is 160.90. The slower moving pair lags behind the logical price, then net profit probability comes.

In exercise currencies are cited with a bid ask spread, so a merchandiser ought to be careful that he is in truth buying at the cited ask price, and syndication at the cited bid price. Other dealing costs, such as commissions, might also invalidate the evident free lunch.

More pairs:

AUD/CAD CAD/JPY AUD/JPY

AUD/CAD GBP/CAD GBP/AUD

AUD/CAD USD/CAD AUD/USD

AUD/CHF CHF/JPY AUD/JPY

AUD/CHF GBP/CHF GBP/AUD

AUD/CHF USD/CHF AUD/USD

AUD/JPY EUR/JPY EUR/AUD

AUD/JPY GBP/JPY GBP/AUD

AUD/JPY USD/JPY AUD/USD

AUD/USD GBP/USD GBP/AUD

AUD/USD USD/CAD AUD/CAD

AUD/USD USD/CHF AUD/CHF

AUD/USD USD/JPY AUD/JPY

CAD/JPY EUR/JPY EUR/CAD

CAD/JPY GBP/JPY GBP/CAD

CAD/JPY USD/JPY USD/CAD

CHF/JPY EUR/JPY EUR/CHF

CHF/JPY GBP/JPY GBP/CHF

EUR/AUD AUD/CHF EUR/CHF

EUR/AUD AUD/JPY EUR/JPY

EUR/AUD AUD/USD EUR/USD

EUR/AUD GBP/AUD EUR/GBP

EUR/CAD AUD/CAD EUR/AUD

EUR/CAD GBP/CAD EUR/CAD

EUR/CAD USD/CAD EUR/USD

EUR/CHF AUD/CHF EUR/AUD

EUR/CHF GBP/CHF EUR/GBP

EUR/CHF USD/CHF EUR/USD

EUR/GBP GBP/AUD EUR/AUD

EUR/GBP GBP/CAD EUR/CAD

EUR/GBP GBP/CHF EUR/CHF

EUR/GBP GBP/JPY EUR/JPY

EUR/GBP GBP/USD EUR/USD

EUR/JPY GBP/JPY EUR/GBP

EUR/JPY USD/JPY EUR/USD

EUR/USD GBP/USD EUR/GBP

EUR/USD USD/JPY EUR/JPY

GBP/JPY USD/JPY GBP/USD

2, Hedging Arbitrage:

This technique is the safest ever, and the most profitable of all hedging proficiencies while keeping minimal risks. This technique uses the arbitrage of roll over interest rates (SWAP) amidst two brokers.

One broker which compensate or charges roll over interest at end of day, and the other will have to not charge or remunerate this kind of roll over SWAP interest. The main idea in regards to this type of Hedge Arbitrage is to open a position of currency (Fore example, the most eminent SWAP GBP/JPY) at a broker which will recompense you a high interest for each night the position is carried, and to open a reverse of that position for the same currency with the broker that does not charge interest for carrying the trade. This way you will gain the interest or SWAP that is credited to your account, risk-free.

3, Netting Arbitrage:

The main idea behind the system is, using divergences amongst cross rates (such as EUR/USD, GBP/USD, and EUR/GBP) at dissimilar markets.

For example, suppose you had opened the following positions:

buy 1 lot EUR/USD at 1.4867;

sell 1 lot EUR/GBP at 0.7600;

and trade 0.76 lot GBP/USD at 1.9586.

The netting/clearing gives the following results:

Long EUR from the introductory pair and short EUR from the second pair gives zero exposure in EUR.

Long position in GBP from the second pair and short position from the third pair gives zero exposure in GBP.

Short position from the firstborn pair ($148,670.00) in USD and long position from the third pair ($195,860.00*0.76) in USD gives you $183.60 net income without open positions and exposures.
Simple? Not in truth for little traders, may be for those “big brothers” only. Because it is actually hard to play spread, slippage, stop loss hunting or so on games versus brokers.

Carry merchandising is a well known merchandising system which an capitalist sells a sure currency with a comparatively low interest rate and uses the funds to buy a dissimilar currency yielding a higher interest rate. Then this capitalist may make net profit from the divergence of these two interest rates.

JPY is presently considered to be the most standard currency to use as the low interest yielding currency in the carry trade, because it is interest rate is the lowest of the world closely at 0. And GBP is presently considered to be the high yielding currency. So are NZD and AUD.

When we buy these currencies pairs: GBP/JPY, AUD/JPY, GBP/CHF, USD/JPY, or EUR/CHF;

Or sell: EUR/AUD, EUR/GBP, AUD/NZD;

Both actions may yield positive SWAP roll over interest. If combining with a heap of kinds of hedge trading, we may make as high as 100% net income each year and keep the danger low.

The big peril in a carry retail is the uncertainty of interchange rates. Also, these dealings are in general done with a high leverage, so a little motion in interchange rates may result in big losses unless hedged appropriately.

Originally, martingale referred to a class of betting schemes usual in 18th century France. In Forex trading, the system let the merchandiser double his/her order a large total after each loss, so that the initial win would recover all former losses plus win a net profit equivalent to the primary investment. In the example below, you purchased 1 lot EUR/USD at 1.4650. Unfortunately, the rate drops. You play it in martingale way, “double down”, buy two lots, you need the EUR/USD to rally from 1.4630 to 1.4640 to break even. As the price moves lower and you add four lots, you only need it to rally to 1.4625 rather of 1.4640 to break even. The more lots you add, the lower your intermediate entry price. Even altho you may lose 100 pips on the basi lot of the EUR/USD if the price hits 1.4550, you only need the currencies pair to rally to 1.4569 to break even on your entire holdings. Once the rate goes up one more pip, you will win a lot.

EUR/USD Lots Average or Breakeven Price

1.4650 1 1.4650

1.4630 2 1.4640

1.4610 4 1.4625

1.4590 8 1.4605

1.4570 16 1.4588

1.4550 32 1.4569

The Martingale system needs a very rigorous cash management and you must understand that in the beginning cash will be coming slowly, but if you lose the longanimity and raise peril level up to much, you may not hang on to the end to see the turn-around.

The anti-martingale scheme is the opposite of the better known martingale approach. This approach rather increments order lots after wins, while reducing them after a loss. Using an anti-martingale peril management scheme will increase profits for the duration of time periods when a merchandising approach is working well, while mechanically decreasing exposure for the duration of portions of the cycle where marketing is unprofitable. This is believed to decrease the risk of ruin for trading.

Basically the merchant sets a series of entry limit orders X pips from the current price, for example 15 pips. Some experienced traders like to use the Fibonacci Series Numbers (0, 1, 1, 2, 3, 5, 8, 13, …) or Golden Section Numbers to make this grid. Once price hits the level the limit order is executed. Then each 15 pips there is another order at limit price executed. And so on. In a yo-yo market, while the price moves up or down, there always be a heap of limit orders executed. Once the order is taken profit, and the price moves to it is original level again, a new limit order shall be executed again, then repeat the same process. Just open orders and take profits in a set of “grid”. It is simple and easy, but hard to deal with when and how to close all orders, particularly the Stop Loss. Some experts say we do not need stop loss, but will you take the probability to hold your all positions till “Margin Call?”

This refers to the exercise of buying and selling currencies pairs such that all positions will ordinarily be closed within the same Forex the retail day. The day merchandising idea comes from stock market. Day traders speedily buy and trade stocks allround the day in the hope that their stocks will carry on climbing or falling in value for the seconds to minutes they own the stock, permitting them to lock in quick profits. Day marketing is exceedingly hazardous and may result in substantial financial losses in a very short amount of time of time. Under the rules of NYSE and NASD, clients who are deemed “pattern day traders” will have to have at least $25,000 in their accounts and may only trade in margin accounts.

But in Forex market, each one may be a day merchandiser to do day trading. Actually, more than day trading, they may do “scalping”.

Scalping is a retail style where little price gaps produced by the bid-ask spreads are exploited. It ordinarily involves establishing and liquidating a position quickly, ordinarily within minutes or even seconds. It means attempting to get a few points (1~3 pips only, no greed, no long term) off the market each time. This system is based on a fact: approximately 70 to 80% of the time, the market is in a consolidation pattern. What this means is that for the majority of time the market is not making substantial moves. For example, after the USA market is closed and before the Europe market is open, the Forex market have a tendancy to range in a consolidation channel for hours at a time before making another substantial move in one direction. This kind of market conduct pattern is idealisti for Forex scalping. Every time you enter the market, wait 10 or 20 minutes, once you have assorted pips gain then cash it and go.

Scalping has numerous features:

1, Lower exposure, lower risks. Scalpers are only exposed in a comparatively short period.

2, Smaller moves, having little impact to obtain. The normal wave of the market will give you various pips easily.

3, Large volume, adding profits up. Since the earnings received per part or contract is very little due to it is target of spread, they need to trade huge in order to add up the profits. Scalping is not suitable for small-capital traders.

But be careful, not each broker welcomes this kind of scalping strategy. If you scalp it too quick and thin, let’s say you just hit 1 pip each 2 or 3 minutes then run, and repeat it again and again within a day, each day, you ought to feel high, eh? But the broker may be not happy and bans you. You will be kicked out because of your successful scalping!

Using the Bollinger Bands indicator on a chart, we will find each Forex currencies pair is waving in a “band”, or a channel. By finding major help and resistance levels with technical analysis, a Break-Out system merchant will buy this pair at the lower level of aid (bottom of the band/channel) and trade them near resistance (top of the band/channel). Till now there is not a Break-Out yet.

Once the price breaks the upper range line with larger-than-average volume, or the opposite: the price breaks the lower range line with larger-than-average volume, the chance is coming. The idea of this system is that when a currencies pair breaks out of the channel, it commonly experiences a big price motion in the direction of the breakout. So buy it at the price breaks the upper range line and proceed to hold it until the rate has risen a distance comparable to the height of the range. If it goes down instead, stop losses as it penetrates the upper range line. Or, trade it at the price breaks the lower range line, and carry on to hold it until the rate has fallen a distance comparable to the height of the range. If it goes up instead, stop losses as it penetrates the lower range line.

Besides Support and Resistance levels, a great deal of alien interchange traders like to use another indicator to make an analyzation of and predict currency pairs’ price changes, it is so-called: the Pivot Point. To calculate and make an analyzation of pivot is a subset of technical analysis, with this bench mark, traders may locate the rotation point of the trend, and this is very helpful for resolving when and where to buy or sell.

Classical Pivot Point, Support and Resistance Formulas are as follows:

Look at any one chart, the pivot is an intermediate of the former bar’s high, low, and closing prices. In the following formula, “H” represents the former bar’s high, “L” represents the former bar’s low, and “C” represents the former bar’s closing price.

Current Bar’s Pivot Point (P)=Previous Bar’s (H+L+C)/3

First level of help and resistance may be calculated as follows:

First Resistance Level (R1)=(2*P)-L

First Support Level (S1)=(2*P)-H

Likewise, the second level of aid and resistance:

Second Resistance Level (R2)=P+(R1-S1)

Second Support Level (S2)=P-(R1-S1)

Since a lot of currency pairs tend to vacillate amongst Support and Resistance levels, and these levels are calculated based on Pivot points, so when a trend or breakout dealer knows where the pivot point is, it will enable him/her to find out key levels that need to be broken for a move to qualify as a breakout.

The system is invented based on economic news events from around the world. Nearly half of those proclamations have moved the market significantly. Before a huge news is coming, we may buy and trade a lot of currencies pairs at the same time, same lots, set stop loss prices for them. After the news is released, in particular for the huge one, both sides of buy order and trade order will jump significantly. No matter which order is a winner, just let it go. And the loser will hit the Stop Loss, just let it be. The winner’s gain minus the loser’s loss, it is your news syndication profit. For example, Non-Farm Payrolls/Employment Report – The NFP is the most influential news release of each month. It’s declared on the initial Friday of the month at 8:30am EST for the prior month. We may put a buy order and a trade order at market prices for GBP/USD, at 8:29 am EST. Don’t forget, set 30 pips Stop Loss level for them. Wait 2 minutes only, the news is announced, it is a huge one! Then the trade order jumps over 100 pips, and the buy order drops like a brick. The brick hits the Stop Loss and the pain is over. Totally, your gain could be 100-30=70 pips. Quick and easy, cool enough?

It is so simple, just follow the trend. Buy it is the most difficult system because no one may tell you 100% for sure what is the right TREND. Go to look at a on a weekly basis chat of USD/CAD, if you had shorted this pair in September 2001 and held it till September 2007, you know what the trend means.

The most famous trend analysis tool seems the Wave Principle. In the 1930s, Ralph Nelson Elliott ran into that stock market prices trend and reverse in recognizable patterns. Elliott detached five such patterns, or “waves,” that reoccur in market price data.

Another trend analysis guru must be W. D. Gann. In 1908, Gann ran into what he called the “market time factor”, which made him one of the pioneers of technical analysis. To test his new strategy, he opened one account with $300 and one with $150. It turned out to be wildly successful: Gann was capable to make $25,000 net income with his $300 account in only three months; meanwhile, he made $12,000 net income with his $150 account in only 30 days! After his results were verified, he became famous on Wall Street as one of the best forecasters of all time.

Back to the chat of USD/CAD, now, please tell me, how to follow the trend? Will USD/CAD carry on the trend which is going south further to 0.6000, or, another trend going north reversely back to 1.6000?