What Is Market Sentiment (Part I)?

By Ahmad Hassam

Do you see the market as a big mechanical matrix which is devoid of emotions? How do you view the forex market is very important. Most traders have a love hate relationship with the market thinking that the market is either against them or for them.

The truth is that forex market is just the compressed display of emotions. At anyone time the market is emanating the emotions of currency speculators around the world.

You should think of a market as a big living organism. Think that this organism is made up of millions of cells. Each cell is doing its own functions. Each cell also interacts with other cells of the body keeping the living organism alive and kicking around the clock.

Knowing what the market thinks and how it thinks is crucial to trading success. A forex market comprises millions of participants acting out their perceptions and emotions.

Ultimately, you as the trader are dealing with other traders out there in the market whether they are big institutional players or an independent individual trader like you and me. You need to know what the other participants are thinking.

What is the market sentiment? Market sentiment is simply what the majority of the market participants are perceived to be thinking or feeling about the market. Market sentiment is the most important factor that drives the currency markets.

Traders form their opinions based on emotions regarding their strengths or weaknesses relative to other currencies. Traders tend to act based on what they feel and think of certain currencies. Market sentiment explains the current actions of the market as well as the future course of action. Market sentiment sums up to the overall dominating emotions of the market participants.

Market sentiment is primarily based on the sum total of all the traders emotions. These emotions are one of the greatest factors in the determination of the currency pair prices. One important thing you should know: market sentiment is not logical.

Market sentiment is like a fickle lover. It is capable of changing its mind based on new information. This incoming new information can upset the existing emotion. Market sentiment can be bearish, bullish or just plain confused.

If the majority of the market participants want to buy that currency, the market sentiment is bullish. If the majority wants to sell the currency, the market sentiment is deemed to be bearish. When most market participants are unsure of what to do at a particular moment, the sentiments end up being mixed up.

Suppose you can understand what the other traders are thinking and why the market is doing what it is doing. You will be in a better position to plan the entry and exit for your trade. Understanding the current market sentiment is important for you. You can exploit it with an appropriate strategy that can help maximize your trading profits. In Part II of this article we will discuss what factors influence the market sentiment in the short term as well as the long term. - 23226

About the Author:

Mr. Ahmad Hassam is a Harvard University Graduate. He is interested in day trading stocks and currencies. Know Candlestick Patterns. Learn Forex Trading!

Macro Trading the Carry Trade

By Charles Jordan

Macro traders trade virtually everything. They trade stocks, bonds, commodities, and currencies looking for uncorrelated trade ideas with great risk to reward characteristics. Sometimes they will even venture into markets like real estate and even art.

You don't just trade different asset classes but even different strategies within an asset class. If you trade bonds you will have some directional trades on, some spread trades, and some arbitrage trades. All of his is to further diversify your returns stream. You can do the same types of things in every asset class which makes your streams of returns very uncorrelated.

Macro traders have one strategy that most traders never use and that is the currency markets. Long the playground of only banks, currency trading is now available to the masses and is getting better and better. One of the best strategies in currency trading is that of the carry trade.

The carry trade consists of going long a high yielding currency and going short a low yielding currency to fund the trade. You make money in two ways. One is if the initial trade is profitable if the higher yielding currency goes up relative to the low yielder. The other way to earn money is to make money off the carry, or the interest rate differential.

Using leverage you can really juice your returns in the carry trade. For instance if you are earning a three percent yield from the differential then you can earn thirty by being levered up ten times. If you lever up twenty times you will earn sixty percent. While these gains sound great they do come with great risk. You knew this couldn't be that easy.

Nope, simply put juicing things on the way up will kill you on the way down. If volatility is anything but low you will get killed with excessive leverage. Instead you need a good way to track volatility and measure when is a good and a bad time to be in the carry trade.

There are a gazillion ways to measure volatility but some of the best ones are by using an actual volatility index. We have the VIX on the SP500 which is a surprisingly good measure of financial volatility and is suitable for currencies as well. But these days we have some volatility indexes from many of the investment banks which make it far easier to measure currency volatility and back test ideas.

If you are trading the carry trade then you should be using a volatility filter to greatly improve your results. If you are not trading the carry trade then you are also missing out on some great uncorrelated and relatively easy returns. And finally if you are not macro trading then you are missing out. You should be taking advantage of all the opportunities in the world and not just in stocks. - 23226

About the Author:

If you need actionable trading ideas then check out The Macro Trader It is a weekly global macro trading advisory publication with frequent intra-week updates for time-critical analysis and actionable trading ideas.

Can You Learn To Trade Like A Hedge Fund Manager? (Part II)

By Ahmad Hassam

You must have read Part I of how hedge fund managers trade forex. You need to understand that hedge fund managers are always on their nerves edge. They constantly look for strategies that work.

Hedge fund managers want to make good money while always on their guard if things go bad, how to get out of a bad position before it really hurts. You as individual investors also want to bet your own hard earned money in the hope of making capital gains.

Ranging and trending are two primary trading methods. Many hedge fund managers like to follow the trend. Dont forget the saying, Trend is your friend. If you want to become a trend trader, than you need to understand and anticipate trends that may develop in currency pairs. If you want to do range trading, you should understand what best times when currency pairs are ranging and how to do scalping and when.

You also need to decide the time frame that you will trade most. You should decide whether you will use the 5 min charts, 30 min charts, 4 hour charts , daily charts etc and why.

Will you only day trade or hold your position overnight? If you are doing a job, will you trade after hours? What time of trading best suits you? These things should be very clear in your mind before you start trading.

Learning the art of entry and exit is essential for your success. Should it be single entry, single exit? Should it be single entry, multiple exits? Should it be multiple entries, single exit? Should it be multiple entry, multiple exits?

You should learn money management principles in depth. It is good money management principles and their consistent application that will make you survive in the long run. Never ever try to put more than 3% of your equity at stake at one time. Understand how to calculate the reward/risk ratio for each trade. Never trade if the reward/risk ratio is below 3/1

Now, this is the time to take a test drive of the forex system that you have developed by back testing and forward testing. Back testing can be done on Metatrader and other platforms that are freely available online. Forward test your strategies on a demo account using live data.

Open a mini account and try to test it live with a small amount of money. This way you will not lose much money but will be playing against your emotions.

In the end, forex trading is all about developing discipline in yourself and controlling your emotions. You dont get this feeling in demo trading when you know nothing is at stake and you are under no stress of losing your hard earned money.

Get intimate with your strategies. There are two primary types of trading strategies"one that has a high percentage of profitable trades and one that has a high profit factor.

The key here is to know exactly what type of market environment your strategy performs well in and what type of market environment your strategy fails in, because only then will you know when it is time to pull the plug.

Drawdown is very important. Know how much drawdown you can afford. You can establish bench mark figures using a back test for each trading strategy. Decide before you trade, how much drawdown is acceptable before you need to pull the plug out of the trade.

The last step of thinking or trading like a hedge fund manager is self reflection. Oftentimes we become so absorbed with trading that we do not notice the obvious.

This is why it is good to spend some time on a weekly or monthly basis to self reflect on your past trading performance. You need to fix a certain level of pips per day for yourself and keep on tweaking your trading strategies until you reach that figure. - 23226

About the Author:

Mr. Ahmad Hassam is a Harvard University Graduate. He is interested in day trading and swing trading stocks and currencies. Learn Currency Trading. First Trade Your Forex Demo Account!

Big Gains And High Risk Stakes On The Forex

By Vincent Rogers

Looking for a new place to put your money? Have you gotten board with the typical exchanges and their banker's hours? When you are looking for a new way to make your riches, you may want to consider the business of trading foreign currencies. Currency is traded on the Forex, or the foreign exchange market. It is completely different from every other trading market in the world.

Each day on the Forex, trillions of dollars of currency is traded. The Forex does not have a physical location that can be visited. It runs virtually, over networks and servers, all day, every day. You'll never be able to ring the bell on the Forex floor, but you'll be able to complete trades almost nonstop.

The Forex is the largest and most liquid market on the planet. There's no actual building you can walk into to witness the Forex in action. Unlike the stock exchanges in New York and Chicago, the Forex takes place completely in a virtual world. Banks, governments and large corporations trade constantly, all day and night, over the opening and closings of other countries markets. The Forex, itself, is a series of computer networks and systems.

Currency is not like stock. It can fluctuate sharply and for no apparent reason. While no trading market offers complete certainty, with the stock market, there is much less speculation than with the Forex market. The Forex market never closes. It is, because of its lack of a physical base, always open. The markets of the world roll over across time zones and continue to facilitate trades.

There are several factors which play into currency fluctuations. The financial status of a country favors greatly into the determination of market value. Changes in gross domestic product and inflation cause swings in the value of each country's currency.

Forex signals indicate when there may be a change in a currency's value and the Forex robot gets to work, quickly buying or selling your currency. Most bots focus on U. S. And U. K. Currency but there are other programs that are available for more extensive trading. Trades on the Forex occur as the selling of one currency and simultaneous buying of another. The two currencies that are used in any trade are called a cross.

If you're using a good Forex bot, you can expect about a 70% certainty rate on market speculation. Because of the risks involved, typically the biggest investors in the Forex market are banking institutions, national governments and speculation investors. However, anyone can trade on the Forex through a Forex broker. Unlike the big commissions that are paid out to stock brokers, Forex brokers make a flat transaction fee.

Trading the Forex can be a very lucrative move in your investment strategies. It's not for the faint of heart, though. Transactions occur rapidly and never stop. Without the use of a Forex bot, newcomers are strongly discouraged from making high dollar investments.

The Forex is the fastest moving and liquid market in the world. The differences in trading foreign currencies and stocks are enormous and the Forex has no base for most of its fluctuations. If you've got money to spend, there's plenty to be made on the Forex. Whenever you make any financial decision, the pros and cons should be greatly weighed with caution. - 23226

About the Author:

Currency may fluctuate for a variety of reasons, one of which is the current political climate. Learn Forex Online Trading There are other influences as well, including political and social effects. To begin investing on the stock market, you have to have a large investment.

Global Macro and Investing in BRIC's

By Michael Kovner

Brazil, Russia, India, and China are collectively known as the BRIC's. The paper in 2003 by Jim Oneil entitled The Path to 2050 brought the BRIC's to the forefront of emerging market investors. The idea is that by the year 2050 the BRIC nations will be as large and powerful if not more then existing super powers. Based on economic and demographic forces the paper might be right.

Now that these nations have embraced capitalism and started to throw out corruption they are able to better compete for investment capital with other nations. Due to this and the fact that they have huge and growing populations along with large natural resources and you have a good chance for a big move on their way to power and influence.

Brazil has grown up a lot over the last 20 years. Having been called the next growth engine since the seventies it appears as though Brazil has finally figured it out and is building a legitimate economy that has a solid banking system, several industries, and a huge oil industry. Having gotten rid of the majority of its Latin American corruption Brazil is well on its way to becoming a major force in the world economy.

Russia is next and like Brazil has huge oil and gas reserves and resources. In addition to natural resources Russia also has a very educated population with many scientists. The only thing that Russia needs in order to further progress is to fully purge itself of corruption that is fairly rampant in the government, But hey when your leader is a former KGB agent what do you expect? Anyways if they can get past the Putin issue then they will become one of the most powerful economic forces in the world.

The great nation of outsourcing is up next. India long known for things like the Taj Mahal is now known for its large educated and English speaking population. Probably the number one country in the world for tech support outsourcing India is now becoming a legitimate hot bed of technology in its own right. But the thing that really sets India apart is the fact that it has such a large educated population.

The last country on the BRIC list is not last because of potential but instead just for a catchy acronym. In fact if China can manage its growth right it may become the largest economy on earth over the next forty years. China has the people and is rapidly gaining the technological know how to do almost whatever it wants. The only caution is that government does not blow out the flame, but that is looking like a lesser and lesser problem. These nations have loads of potential for not only their citizens but also for global macro investors. - 23226

About the Author:

If you need actionable trading ideas then check out The Macro Trader It is a weekly global macro advisory publication with frequent intra-week updates for time-critical analysis and actionable trading ideas.