Trends in Forex – What an Emini Trader Needs to Know (24:42)
Over the last 2 years the collapse of the Euro-zone has been gradually building as a real potential outcome. This is absolutely extraordinary – could you have imagined such a possibility 10 years ago? Even 5 years ago?
Ever since the GFC we have passed “through the looking glass” and norms that have existed for 30 years now have to be questioned. If you don’t your financial wellbeing could be compromised.
Now, more than ever, you need to be aware of the big picture and, in particular, the relative strength of your base trading capital. Is the US Dollar holding it’s value? Are emerging nation currencies appreciating faster? Am I lossing purchasing power by keeping my capital in US Dollars?
This video shows some long term Forex charts and recommends some analytical tools that you can use to track the US Dollar versus the other major currencies.
Trends in Forex – Reader Comments …
“Your latest video was priceless, easy to follow and informative, you rock.” Kevin K.
This feature article and video are part of a comprehensive series on How to Day Trade
Don’t think that following Gold is just for the “Gold Bugs” …
Trading Gold and Silver (24:26)
And now for something a little bit different – we’ve had huge down moves in Silver and Gold this last week (and this last month). Why should you care? After all, you’re an Emini day trader. Well hopefully the video sheds some light on the gold and silver markets and why I watch them.
Gold, Silver and Platinum are closely correlated …
The Gold, Silver and Platinum markets are collectively known as the Precious Metals (or PM) market. Historically, the precious metals were important as currencies but today their jewellery and industrial uses are more significant.
Gold still holds a psychologically very important position as a “store of wealth”, particularly during times of high inflation.
Gold, Silver and Platinum prices are closely correlated and these markets move very tightly together. However, from time-to-time one of the markets will get out of kilter with the others – for example, Platinum had a huge rally in 2008 and Silver fell behind Gold in 2010. But, eventually long term relationships restore themselves and the markets move back in sync.
Gold is not a safe haven during financial panics …
One of the biggest myths believed by the general public is that Gold is a safe haven during financial panics. A quick look at a 35-year chart of Gold versus the S&P500 index shows this to be false.
What you do see is that during periods of intense political uncertainty the price of Gold rises. But during these periods the stock market can still be rising too.
Take 1979, for example, when Gold rose from $1,042 at the beginning of the year to $1,646 by January of 1980 (on a continuous contract basis). During the same time period the S&P500 index rose from 97 to 117. But the political back drop was frightening:
Iranian revolution and US embassy hostage drama in Tehran
Soviet invasion of Afghanistan
Second oil crisis and high inflation
Political turmoil in the UK and election of Margaret Thatcher
As soon as the stock market took a 19% tumble at the beginning of 1980 so did Gold, eventually falling 30% during the whole of 1980.
Gold moves inversely to US Dollar …
The more important relationship to watch is that Gold is inversely correlated to the US Dollar. That makes sense, since Gold is priced in US Dollars and is a store of wealth – if the US Dollar depreciates in value then Gold will rise.
The largest trends in Gold have been a decline since 1980 to the bottom in 2001, followed by a rise since 2001 to the current high now in 2011.
The down trend can be attributed to the long term “taming” of inflation and, by implication, the stabilising of the value of the US Dollar. Between 1990 and 2000 the US economy was on fire – growth was being driven by the Tech boom and money was flooding into the US to chase high economic growth returns. All of this had a negative impact on the price of Gold.
The up trend in Gold started after the “Tech Wreck”, when the US Fed stepped in and lowered interest rates to zero and held them there for a prolonged period of time. In addition, the US Government started deficit spending and financing a series of wars. This caused a huge growth in the money supply and resulting devaluation of the US Dollar.
The price of Gold rose continuously from 2001 until 2011. The peak may have been marked (temporarily) by the battle in Congress to raise the US Government debt ceiling – a sign that the US Government knows it cannot continue to deficit spend indefinitely.
So follow Gold to time moves in/out of US Dollar …
So here’s the crux of it: You can’t just keep your trading capital in US Dollars – you need to keep your trading capital in the strongest possible currency. What’s the point in making Emini points every day, if your profits are being eroded by a depreciating currency?
So here’s what I do. Once or twice a year I move my base trading capital into the strongest major currency I can find.
During mid-2011 I saw the Dollar Index bottoming, so I moved my trading capital out of the Australian Dollar and into the US Dollar. I was too early and missed a nice little rally in the Australian Dollar, but at least I’m well positioned if the stock market weakness continues.
I use the “Better” indicators (plus Commitment of Traders analysis) on Gold, Silver, Euro, Aussie, Pound and Dollar Index to get an overall picture of the strength of the US Dollar. Then if I see the US Dollar weakening I pick the strongest currency.
You might also include the Swiss Franc, Singapore Dollar and Canadian Dollar in this basket, as options for base trading capital.
Summary: Watch long term trends in Gold and Silver
So this is why I keep and eye on the Gold and Silver markets:
Gold rises when there is political unrest and money printing by the Fed
But Gold falls (with the stock market) when a financial crisis actually hits
So Gold is not a safe haven during a financial crisis
Instead, Gold moves inversely to the US Dollar, so …
Use Gold, Silver, Euro, Aussie & Pound complex to time moves in/out of US Dollar
And always try and keep your trading capital in the strongest major currency
Good luck with your Emini trading and remember to keep and eye on the long term trends in Gold and Silver – you don’t have to be a “Gold Bug” to care what Gold and Silver are up to.
This feature article and video are part of a comprehensive series on How to Day Trade
If you’re reading this article via email or RSS reader, then follow this link to view the Forex Charts video on the website. Good luck with your Emini trading next week.
Normally I’m a real purist about trading the Emini – simply put, it’s the perfect trading vehicle. But I’m biased and I think it’s clouded my judgement about Forex.
My typical response is “don’t trade Forex because there’s no volume data”. I need price, volume traded at the bid/ask and average trade size to have a complete view of what’s happening. Price alone or price plus tick count (as a proxy for volume) aren’t enough.
But I’ve been ignoring Forex futures traded on the CME Globex. The video above shows how to use the ‘Better’ indicators for Forex trading.
Quote of the day …
Great email from Petr S., who’s a Forex trader. Here is how he is using the ‘Better’ indicators to trade Forex and his results:
“Barry, I want to express my most sincere thanks for your truly outstanding work and dedication to share your trading research and approach with trading community. I am a full time forex trader with aspirations to increase my trading account allowing me to switch eventually from spot forex to futures to fully utilize the power of your indicators.
Upon detailed study of all the information available on your site, I realized that for forex trading switching from my range bar charts to tick charts, using 3 timeframes for reference and adding the Better Sine Wave would be the most usefull adjustments to my charting set-up. Here is the comparision of several metrics for 8 trading days before charts adjustements and Better Sine Wave installation and 8 days after:
8 days before: 81 trades taken with average 10.1 trades per trading session, 2 profitable days out of 8, daily average 0.03 pips.
8 days after: 73 trades taken with average 9.1 trades per trading session, 7 profitable days out of 8, daily average 13.4 pips.
Talking about dramatic improvement! Barry, once more, thank you very much for your work and I wish you the very best in your trading and personal life.”
This feature article and video are part of a comprehensive series on How to Day Trade
Roller-coaster ride on the Emini during Thursday and more hysteria in the Euro. We're approaching another cyclical turning point in the Euro, so I'm cautiously watching for Amateur activity and a possible bottom to form. Meanwhile on the Emini – are we about to have another go at 1,210?
If you're reading this article via email or RSS reader, then follow this link to view the Forex Charts video on the website.
HIGH DEF VIDEO – MAY TAKE 15 SECONDS TO LOAD
Forex & Emini Charts (8:18)
Here's a link to the Forex Charts, Euro and Market Hysteria article mentioned in the video. I'm looking forward to the end of the week and tomorrow's Emini trading.
First video for 2010 – US Dollar Index, Euro and Gold. These markets are obviously correlated but they also help show the way for equity indices and the Emini.
If you're reading this article via email or RSS reader, then follow this link to view the Forex Charts video on the website.
HIGH DEF VIDEO – MAY TAKE 15 SECONDS TO LOAD
Forex Charts: US Dollar Index, Euro and Gold (10:08)
My broad market theme remains unchanged – bottom in US Dollar has been put in and we should see the reversal of the "risk" trade this year with weakness in Equities and strength in US Treasuries. However, a potential Emini roll over is developing slowly. In the meantime, Emini day trading opportunities abound!
Personal note: Left Biarritz, France, after 3 months. Spent a grueling 3 weeks in freezing London with no trading or Emini-Watch.com updates. Now in Kauai, Hawaii, for 2 months and settling into a routine again.
Time to do an update on the US Dollar and my Forex Charts. I've been waiting for this trend change for weeks, if not months now. You can check out the last Forex Chart update here.
I don't trade Forex because volume data is not available. However, I do make strategic changes to my trading account currency (one of the reasons I use Interactive Brokers) and have now moved 100% into the US Dollar.
The video below shows daily and monthly charts for the US Dollar Index, Euro and Aussie Dollar. Cyclical turns on the highest time frame (in this case monthly) coinciding with "End of Trend" warning signals on the lowest time frame (in this case daily) usually result in high probability reversal points. For this reason I'm now bullish on the US Dollar and bearish on equities.
If you're reading this article via email or RSS reader, then follow this link to view the Forex Charts video on the website.
HIGH DEF VIDEO – MAY TAKE 15 SECONDS TO LOAD
Forex Charts: US Dollar Index, Euro and Aussie $ (6:54)
Housekeeping note: Apologies the website is a little messy at the moment. I'm going through a gradual re-design and still haven't decided where everything should live.
Change of pace in this post with some monthly forex charts and multi-media "candy". Do Gary Shilling, Bob Prechter, Michael Panzner, etc. count as "candy"? Maybe to contrarian traders, like me.
We had S&P500 index weakness this week but US Dollar strength. But all I hear in the media is – "the US Dollar is going to zero and gold is going to the moon". I don't disagree that printing money will eventually devalue it – but most of the printed money is still sitting in reserves held by the banks and has not made it's way into the money supply through greater lending.
I think there's a major difference in time frame being considered and the commentators should be clearer on that. Are they taking a 10-year view? And if so, is that viewpoint helpful to a trader?
Forex Charts
Here is what I'm seeing on my forex charts:
Approaching monthly cyclical turning points, and
"End of Trend" warning signals on daily charts
Forex Charts: US Dollar Index (monthly & daily)
Forex Charts: Euro (monthly & daily)
Forex Charts: Aussie Dollar (monthly & daily)
And now for the multi-media "candy".
Gary Shilling, Economist
Gary Shilling on Forex Charts
Gary Shilling in an interview with Yahoo! Tech Ticker. "I think the Dollar is in for a substantial rally. Two reasons. One, it's a safe haven … and the second thing, everyone's on the same side of the boat." (around 4:25)
By the way, I think Henry Blodget and Aaron Task are THE best financial interviewers in the media. Their questions and comments are always spot on – they know what they're talking about (unlike the pretty bobble heads on the other networks).
Bob Prechter, Elliottian
Bob Prechter on Forex Charts
Bob Prechter, Elliott Wave International, says "I'm very bullish on the dollar. Super. I think it's going to be up for a year or two." (around 4:30)
Michael Panzner, Economist
Michael Panzner on Forex Charts
Michael Panzner is not exactly a US Dollar bull but "In the short run … I sense that we may see a Dollar rally first." (around 5:30)
Karl Denninger, Trader
Karl Denninger on Forex Charts
Lastly, the inimitable Karl Denninger from The Market Ticker. Now Karl has "outrage" – 'nuff said. Good luck with your trading.
The Gold, Silver and Platinum markets are collectively known as the Precious Metals (or PM) market. Historically, the precious metals were important as currencies but today their jewellery and industrial uses are more significant.
One of the biggest myths believed by the general public is that Gold is a safe haven during financial panics. A quick look at a 35-year chart of Gold versus the S&P500 index shows this to be false.
The more important relationship to watch is that Gold is inversely correlated to the US Dollar. That makes sense, since Gold is priced in US Dollars and is a store of wealth – if the US Dollar depreciates in value then Gold will rise.
So here’s the crux of it: You can’t just keep your trading capital in US Dollars – 
