2Bull Forex Blog

This post was written on August 2nd!

We may have one more rally but the highs are in and the euro will decline, as the dollar bearish fundamentals have peaked. You don’t need to be clever to see why and work out the potential. Here are all the facts and a potential 700 pip opportunity and that’s a lot of profit!

Many traders think markets some strange force but they don’t they move in line with the long term fundamentals but of course you can’t trade on these, you just know they are going to force the euro lower so we have included the technical levels as well and will indicate under valuation and over valuation for marketing timing purposes.

So why is the era of dollar selling over?

Here are the main reasons:

- Bearish sentiment of investors has peaked
- The market is not just focusing on problems with the dollar but in other countries
- There is a significant improvement in the current account deficit underway
- The Housing market is on the road to recovery and the excess supply should start to decline
- Employment numbers are still poor but coming in better than expected
- Higher yields are needed but the yield disadvantage will narrow as Fed looks to raise rates

The economy still has problems of course but the real key is rates the US has aggressively cut and many other economies have not this leaves plenty of upside potential. While rate rises may not occur in the short term the aggressive cutting is over and the bearish scenario is factored in and the dollar is hammering a base, while the storm clouds gather for the euro.

Euro

Here are the main reasons which point to euro weakness

- Current account balances no longer show the euro is under valued
- In terms of purchasing power parity the euro U.S Dollar rate should be around $1.20
- This shows that the euros rally has really been based on interest rate perceptions
- The ECB will be reluctant to raise rates with economic activity weak
- Labour markets remain tight but economic activity will dictate rate rises

Take the above and what do you have?

The interest rate differential that has driven the euro higher has gone and we will now see a period where the dollar works its way higher.

The Charts

If you check out the weekly chart you will see a clear top in place and the up-sloping trend line which has supported the advance has been penetrated and 1.50 is the initial target. The weekly chart really lets you see the wood from the trees but you need to time off the daily chart.

On the daily chart the resistance is the same as the weekly and we are trading in a range which has been in existence since March. The target at present is the bottom of the range 1.54 and if this gives way 1.50.

We are a little oversold at present but any rallies will get to around 1.57, 1.58 at best and are a sell on falling momentum, if the euro does not rally a close under 1.54 cements the bull argument

Nothing complicated and so far our sale at the pop to the highs is 400 pips up but as with all trends there are more opportunities coming to take advantage of euro weakness and if you can get in then you could enjoy a ride that is very profitable and could see the euro below 1.50 by year end and that’s a lot of profit!

If you are thinking about trading, you need to consider that 95% of traders lose and if you want to win, check that your forex trading strategy contains all the elements below, if it doesn’t you will end up with the vast majority of losers…

1. Your System

Most traders think they can simply take someone else’s system and follow it blindly and don’t question the logic and here are 3 sure fire ways to lose doing this.

a. Following a Forex robot with a simulated track record
b. Following a day trading or forex scalping system
c. Following a scientific system or one that is supposed to predict prices

The above are what the majority of new traders do and they lose.

Your system means one that you understand from top to bottom and can have confidence in and one that you can follow with discipline. You need a system based on sound logic you understand.

Sure you can take elements of other peoples systems but you must understand why it gives you a trading edge.

2. What Edge Does Your System Give You?

Ask yourself this question:

Why should I succeed when 95% of traders lose?

If you can’t give a good reason of why your system, gives you an edge over 95% of losing traders, you simply don’t have one, so continue your forex education until you do.

3. Money Management Rules

Most people think money management is simply placing a stop but it isn’t.

If you believe it is, you are going to lose. If you don’t get your money management right in your strategy you are gong to lose.

You need to have money management strategy for the whole account, you also need to deal with standard deviation of price or volatility, you also need to have reasonable equity to start with and decide leverage on the account.

How many traders start with couple of hundred of bucks, leverage up 100:1 or so and get blown out the water?

The majority, they think money management looks after itself and it doesn’t.

Money management is the base on which your success is built and needs plenty of attention.

4. What Losing Period are You Expecting and Can You be Disciplined?

To win you are going to have to cope with losing periods and forget the rubbish you read online, that these periods don’t last long or you can trade with 90% accuracy - its fantasy.

Even the best systems will lose for weeks on end and you have to have the discipline to keep going, through the losing period until you hit a home run.

Most traders simple cannot do this, throw in the towel early and if they would have hung on they would have been rewarded with profits.

Understand this - if you want to win at forex trading you need to lose to win.

If you cant take execute a trading system with discipline, you don’t have one!

A Road Map to Success

Most traders lose at forex trading because they think its easy or are to lazy to do the basics and the fact is, forex trading is not easy as most traders lose.

Of course for the trader prepared to put effort in to their forex trading strategy, the rewards can be huge or even life changing.

You need a simple system, you can have confidence in and trade with money management and discipline and this is the cornerstone of your success.

f you understand the above you could soon be making big profits in the worlds most exciting and lucrative business opportunity. Work smart, keep it simple and adopt the mindset to win and currency trading success can be yours.

Forex brokers offer great services but many of the services they offer will make most traders lose. Lets examine this in more detail. Here they are in no particular order of importance - they are all important!

Leverage

More traders wipe themselves out because they use to much leverage than any other reason sure you can get up to 400:1 in leverage but on a small account ( and most traders are under $10,000 in retail ) you will see your account blown out the water by normal market volatility.

For a new trader on a small balance no more than 20:1, otherwise you may as well flip a coin.

Deposits

You can trade $50.00 but this is not enough to trade seriously and no trader should consider starting with less than $1,000 and preferably more. If you trade a small balance you are relying on luck and not getting knocked out the market and that’s not a good idea.

If you want to win at forex commit enough money to have a chance and use leverage wisely otherwise your account will be toast.

Demo Account

These are only useful for showing you how the trading platform works and tell you nothing about your potential in real time trading, simply because there is no pressure and trading is a pressure experience.

Research and FREE Guides

Are always used to entice you into trading but really you can get most of what they say for free online. There mostly, cut your losses run your profits, be disciplined etc etc and if you don’t know that before you open a trading account - you should!

Also research they offer daily wont help you either and is the same old technical levels you can see yourself

Choosing a Broker

You only need to choose on 3 criteria

1. Security of your money and make sure they are a broker of high standing
2. Pip spreads the lower the better this is your cost of doing business and needs to be low
3. The reliability of the trading platform and how comfortable you feel with it

Brokers don’t set out to harm you but many of the services they offer can ensure you lose and many traders don’t think anything of putting up 100 dollars and leveraging 400:1. Mostly be traders are not serious about making money and gamble.

If you get the right forex education you can use your broker to make you a lot of money and not get wiped out and believe me the services offered and used wisely, you can make a lot of money.

If you’re new to the world of trading Forex, the quotes can be confusing to you. However, they’re actually pretty simple to read once you know how to approach them.

Let’s take a look at an example of what a Forex rate quote looks like:

EUR/USD = 1.2526

Can you tell what this means? This shows the current foreign exchange rate between the euro and the US dollar.

With any Forex quote, remember that two currencies are going to be quoted. This is because when you trade in Forex, in effect you’re buying one currency and selling a second currency at the same time, or trading them.

Therefore, when you read Forex quotes, the second currency listed is going to be your quote currency, and the first currency listed is going to be your base currency. Forex quotes show us what the relationship in price is between these two currencies.

The exchange rate says how many units of the quote currency you have to pay to get one unit of the base currency.

With the above example, the quote currency is the US dollar; the base currency is the euro. This price quote illustrates how each currency is trading in relation to the other. To buy one unit of a euro, then, you’ll have to sell 1.2526 units of the US dollar.

Is that clear enough? One more thing we need to add to our example is called the “bid/ask spread.”

In Forex trading, no commissions are charged on any trades placed. However, brokers get paid for their work through what’s called the “bid/ask spread.”

So if we add our bid/ask spread to the example given above, it looks like this:

EUR/USD = 1.2526/1.2528

Or, its “shorthand” simplification looks like this:

EUR/USD = 1.2526/8

In the above example, you can see on the right that the last digit is two points higher than the last digit on the left. This is the broker’s “commission.” In other words, brokers make their money by buying currencies for slightly less than they sell them at. Every broker does it; it’s fully legal to work this way. However, the amount of the spread can be different from broker to broker.

Therefore, as a trader, you buy at the bid price, or the first price quoted. You’ll then sell at the ask price, which is the second price quoted. The difference between the prices is called the “spread;” the broker keeps this amount as their profit on the trade.

So for instance, with the above example, you buy at 1.2526 and sell at 1.2528. Two pips, or 0.0002, go to the broker to pay them for executing the trade.

Therefore, the bid/ask spread is simple and straightforward, and easily calculates fees and expenses incurred in trading.

I have taught traders for 20 years and have always told them to study the “turtle” experiment which took a group of traders who had never traded before and turned them into traders who would make hundreds of millions of dollars, after just 14 days study…

The experiment was devised to show that anyone could learn to trade with the right mindset and education and was conducted by world famous trader Richard Dennis.

Dennis got a group together and was careful that he choose people from all walks of life, varying ages and both men and women. The group included an actor, a couple of professional card players, a woman auditor, a boy just leaving school, an actor and a security guard.

This diverse group were then taught a simple trading system.

Dennis taught them a simple system based upon strict money management rules and long term trend following and he didn’t just ask them to follow it. He made sure they had confidence in it, so they knew how and why it worked and gave them rock solid confidence in it.

They started to trade and within 4 years had made $100 million dollars and went on to become legends - so what can you learn from them?

1. It’s a fact anyone can learn to trade and be a success they did it and you can to.
2. Simple trend following systems work and are easy to understand
3. It doesn’t take long to learn and your education sex or age is no barrier
4. You must accept responsibility and learn your system to have confidence

The other point you can learn from them we will dwell on in more detail, because it’s the point where most traders have a problem and that’s with discipline.

Trading is as much about having the right mindset as method and Dennis drilled discipline into them, by giving them all the information and making them learn the system so they would have the confidence to trade through long periods of losses until they hit a home run.

Don’t believe anyone who tells you, you wont lose for weeks or even months at forex trading you will, even the best traders do and you will to. This is why you need discipline to take loss after loss sort term while the market makes you look a fool and preserve your equity with strict money management, until the market breaks in your favour.

If you can learn one thing from the turtle experiment its how important discipline is to a trader.

Its clear the trading system could be understood by anyone - but it needed the right mindset to apply it.

So if you have the right mindset and a simple trading system you can win and focus more on mindset as this is the hard part the system is the easy part. Make this story part of your essential forex education and you will see the potential of forex trading as a vehicle to seek financial freedom and how you can achieve it too.