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Introduction I start to be interested at Forex during my PhD thesis when I read with interest some old papers about Hidden Markov Processes in Economy. As part of the thesis I decided to investigated if it was possible to apply this methodology utilized in areas like speech recognition, Macroeconomy, Physics in the FX market .I found some good articles like Stylized facts of financial time series and hidden semi-Markov models written by Bulla. But the objective was to create a HMM model that outperforms simple technical indicators.So I start to built my own HMM model, I ask to Andrea Procaccini a funny and great Matlab programmer to cooperate to do something that could have interest also out of the University walls. Cyclex We call Cyclex the model investigated. I would try to explain with no mathematical formulas some of our results.Cyclex is an exchange rate forecasting model that outperforms a random walk at short horizons and appears to be robust and efficient over different sample spans. So an easy way to translate could be THE MODEL IT IS BETTER THAN TO FLIP A COIN AND DECIDE. Later we would try to answer to the questions How better is our model compared with the flip of a coi…
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Introduction

During the press conference that followed the ECB monetary policy statement of 7 August 2014 the ECB president Mario Draghi made an interesting comment on the value of the Euro currency. As part of his response to the question, “The idea that a lot of economists think that QE was undertaken as an insurance policy against a big shock, and now there’s very little wiggle room if there is such a shock for the ECB with inflation at 0.4 %.” he saidthe fundamentals for a weaker exchange rate are today much better than they were two or three months ago..” Without being too dovish on the day the ECB may have given an important clue on how they would like to see the EUR trade against the major currencies.

This article will be an assessment of the various fundamentals that affect the EUR and how they have fared over the past 3 months or so and the possible outlook for the EUR in the coming months.

EUR exchange rates.

The Euro has weakened against the major currencies in the past 3 months. This situation is depicted by the daily charts of the EURUSD and the EURGBP in fig 1 and fig 2 below.



Fig 1.
Daily chart of EURUSD since 30/04/2014


Fig 2.
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Global Macro Trading
Ranking 7/18
Macro FX interest rates economy
Posted on 16 Aug at 14:36 GMT by AdrianWS
2014, for the most part, has been an interesting albeit quiet year for the FX markets. G10 volatility is the lowest in the post Bretton Woods era. However, while some Global macro firms are struggling, in actual fact, its been a perfect year to trade upon these ideas.

So what is Global macro? - Simply, its looking at the fundamentals of a country or area, and trading based upon the findings. Whether its in the Equity markets, the fixed income world or even in FX. Fundamental analysis is the cornerstone of investing, as has been as long as trading has existed.

Global macro is really considered a strategy, alongside the likes of Equity Long/short, Event drive, Arbitrage, Volatility... So far, this year Macro funds have performed very poorly, averaging -2.83% across the major Hedge funds.

In FX, the key determinant of a currencies value is how central banks act, and their policy. Whether they are hawkish or dovish impacts both the supply and demand for currencies , and simple economics. So far this year, there has been substantial divergences in central bank policy. And if we can correctly predict *where* they are going from here, then trading in FX becomes really simple.

If we …
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Men and women are different and no I’m not just talking about the fun body parts. Men’s brains are 10% larger and men’s and women’s brains are wired differently . We react differently to the same stimuli. Sometimes it feels like we’re a completely different species.

Few things before we go with the article. Not all women (or men) are the same. We are just talking about averages here, the average woman compared to the average men. There can be huge differences between individuals of both sexes. Today, there are women that are high powered CEO and men that are stay at home dads. With that out of the way, let’s start! Since most of us traders are men, I will focus on the guys in this article. Here are the 3 main reasons why thinking like a woman will help your trading!

1. Women Are More Risk Averse


Study after study has shown that women are more risk averse then men. Women shun investment vehicles that are perceived as risky (like stocks or forex) and go for government bonds or bank deposits. Risk aversion has its plusses and minuses. On the plus side, increased risk aversion can help guard against unexpected losses. On the minus side, the unwillingness of women to take risks …
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Us$ - Long or Short?
Ranking 15/18
DXY MrSami Annual Analysis
Posted on 13 Aug at 21:23 GMT by MrSami

The graph above shows the 2013 annual support and resistance levels for US$ index, namely DXY. According to the analysis of the year 2013, 83.50 was a major resistance level. So, there are no monthly closes above that level.

Currently, we are in 81.50 resistance zone and the continuous envelope has been squeezing since 2012. The squeeze indicates a burst. What is the direction of the burst, is the million dolar question. By this writing, I will try to find an answer for the question.


The graphic below presents annual support and resistance levels for US$ indice. As it is clear from the graphic, prices are a little bit higher than resistance level at 81.00. Target resistance in order is 83.50 level. As of August 13, DXY is 81.61. The price difference between resistance levels is paving the way for a 400 pips drop for EUR/USD.





Meanwhile the squeezing envelope signals that US$ indice will rise up to 89.50 level and EURUSD will drop by 1600 pips.


Since we are in 3rd Quarter and enough data has been collected for the annual bar. Assuming that current data is correct and annual bar will be completed as of today. Then, we can forecast price levels for the 2015 annu…
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In this article, I'm going to talk about FX seasonality cycles and how they can improve your trading activity and why it should not be ignored. There is no mystery that the world is full of cycles and we're governed by them and the financial market are not exception of this rule. The majority of traders will either use technical analysis, fundamental analysis or a combination of both. But the seasonality cycles will bring in a new dimension in which you can analyse the market. The time element such as the time of the day, the day of the week, the month of the year could also play a big role in how certain FX pairs may behave. So when you focus your attention purely on price and time without the noise of indicators you may notice that some pattern shows up during certain time and this patterns are known as seasonality. Seasonality are a predictable change in price that repeats every day, week, month, year at the same period in time.

This seasonality cycles will only give you the tendency of an particular currency pair to bottom or top or rally or fall, at certain point in time. The seasonality is just an average so in this regard it's better not to use it in isolation but rather…
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Harmonic trading is based upon the theories that rule natural and universal growth cycles. Fibonacci numeric relationships conduct the cyclical traits of development in many of life's natural growth processes. These relationships can be found all over the place:

  • 0.618 and 1.618 constants are found in the Great Pyramids;
  • The golden ratio in the Parthenon of Athens and the works of Leonardo Da Vinci;
  • Planetary phenomena adhere to these golden proportions (Earth and Venus orbits);
  • Nautilus seashells's chambers possess Fibonacci relationships;
  • Fibonacci sequence of numbers can be found in over 12,000 plants specimens;
  • The human body possesses a variety of ratio measurements;
  • And so on and on and on.


Figure 1. Fibonacci Sequence in the Nautilus Shell

Market prices are defined by the degree of selling and buying, being affected by the greed or fear of the markets participants. Normally, price action moves in cycles, due to both decline and growth. As such, all participants together follow the universal principals as other natural phenomena, displaying a cyclical growth behavior.

The problem while studying harmonics is that one may get lost in the need to understand why these relationships …
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Magic Levels
Ranking 12/18
Magic Levels.

Price levels in most of the trading systems are the starting point for any trades to be made.

Traders are searching for levels, to enter the market depending on the approach, bounce or breakout,
to follow the trend, or against it, with a hope for a trend reversal.



And each trader is using tons of instruments to find this levels, like Fibonacci levels, peaks
and troughs during the specified price cycles, time cycles, Fibonacci cycles, levels confirmed by momentum
indicator, like RSI divergences for example etc...




So basically, there are a lot of ways to search for a levels to trade.

But a lot of traders are leaving aside one of the easiest applicable approaches,
which is giving most fundamentally, psychologically and historically based levels.

I call this approach "The magic levels".



Some traders would recognise it as a round price levels, or sometimes it called "Trading
round numbers". But there is a difference, which makes this approach more significant.
So with a hope that the article will be interesting for everyone, for a professional and for a
newbie, I have decided to write about it.

No matter what your trading approach is, you w
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My Trading Journal
Ranking 13/18
INTRODUCTION

A man who does not plan plans to fail. All of the successful traders have a comprehensive trading strategy with clearly spelt out entry and exit rules and a trading journal for the recording of all trading activities.

In this article I’m going to be sharing on how I have developed my trading journal on Microsoft excel. The journal workbook has three worksheets all containing different information that can be linked at times.

Sheet 1 – Strategy

Having the strategy is one of the fundamental things in forex trading. This sheet does not capture the entry and exit rules but the risk and return objectives. This sheet is essentially divided into two sections, the budget section and the actual section.

Budget section

The budget section has the following columns

Column A – Date:
Record the date that you plan to be trading actively. Days set aside for family vacations and weekends will be excluded from the rows. I usually do the strategy for at least six months. I know of people who do not trade on Mondays and Fridays so these days should be excluded.

Column B – Opening Balance: The first entry in this column is the balance brought forward in the trading …
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There is hardly to find a person, who can argue with the fact, that a novice trader before go to real trading need to study the technical aspects of trading. Need to read a certain amount of literature about trading the FX and other markets. It is necessary, first, because before real trading a beginning trader should know the most simple and banal side of the trade in the financial markets:

-how to make trades in the trading platform;
-how to analyze and interpret candlestick or bar charts and technical indicators;
-how to draw a trend line;
-how to use Fibonacci extension and many more.

In my article I will not talk about this kind of literature. There are many books on this subject, and most of this details trader can get even in the manual to the trading platform. I do not want to say that this kind of literature is quite useless, this is necessary knowledge of course, but this is just the tip of the iceberg. Much more complex and interesting issue is the psychology of the trader. Oh, that's another article about the psychology of trading, it was a hundred times, maybe you say. No, I'm not going to write about the psychology of trading, I just want to share with you th…
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Contrary to what a lot of people think, intuition, discipline and strategy are not the only tools required to become a successful trader. There is also a great need for information about what is going on in the various economies and what is happening around the world. This approach to trading is generally referred to as "Trading using Fundamental Analysis".

There is another school of thought that believes all fundamental data is always represented on the market charts, and as such using the charts alone to trade can be done profitably, without understanding the fundamentals behind a currency trend. This group of traders are commonly referred to as Technical traders.

Personally, I am a technical trader. Most of my trades are taken when my trading strategy gives me a trading signal, so I hardly take time to find out the fundamental information surrounding the currencies. During the month of June 2014, I experienced a loss because I did not factor in the fundamentals that were moving the currency pair. I also took a massive hit in the month of July as I took trades against the United States Dollar, even though the currency was supported by very strong fundamental information. I wa…
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Did you know that a trend will last much longer than what you think and just when you think it is time to go with the trend that you will most probably be wrong?

DO NOT FEAR! HELP IS HERE

I will show you today how to trade a divergence. Happy days!

There are many types of divergences, but today I would like to focus on a divergence which allows one to enter into a long position, using the MACD, price action and two exponential moving averages.

I am not going to get technical about this, so let's keep this in easy-to-use language.

I will keep referring to the chart below so that you can easily visualize what I am talking about. If the chart below is too small, then I suggest that you open the excellent Dukascopy charting package and plot the same chart as I have. There is an excellent manual for the charting package and you can access it here: http://www.dukascopy.com/wiki/

EUR/CAD 4hour (starting April 2014)


These are the tools which you will need:
1. MACD: Fast period: 12, slow period 26 and signal period 9 (closing price);
2. Exponential moving averages: EMA 20 blue (close) and EMA 105 pink (close);
3. Trendlines;
4. Price action.

Steps to follow

1. Draw a si…
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In my previous articles I explained most essential aspects of price action and its relations to: sentiment, risk-to-reward with money management and liquidity dynamics. That is a necessary context, which has to be considered when trading the sequence.

Most notable price moves are in between entry and exit points of the market movers. While traveling towards the ultimate profit taking point, market movers cash out earlier and re-enter at better price. This precautionary profit taking and re-entry actions occur in the process of risk and money management, also it gives opportunity to squeeze more profits out of the same range.

Areas where these precautionary profit taking and re-entry actions happen are displaced in a certain sequence, which pre-defines the future range.

The sequence is based on Fibonacci numbers with added deviations in between. These deviations represent interchanging risk to reward conditions around Fibonacci numbers. Interestingly enough, these deviations most of the times play more important roles when it comes to reversal of the price movement. Probably in part because of the market mowers need to hide their intentions.

If one puts Fibonacci retracements on…
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USD/ZAR - a Good Buy :
Ranking 6/18


Content :


Investing money for a long-term trade is always more secure when one has an edge over the product.

I believe the South African Rand will continue to strongly depreciate over the next 10 years. Living in South Africa, one can see the demise on a daily basis. Here is a little insight into our currency :


Body :

Up to around 1982, the Rand was worth approximately $1.40. Today, it is worth approximately $0.10.

Our GDP hovers around an average of 3.6 % growth per annum with a total previous GDP of 351 Billion USD. We have a population of approximately 49 million. That calculates to around 7 Billion USD per million people. In comparison, the United States Of America has a previous GDP of 16800 Billion USD which equates to approximately 536 Billion USD per million people. Productivity in this country is not good.

Our unemployment rate stands at 25.2%. Only Greece has a higher unemployment rate, at 27.3%. The unemployment rate of the United States Of America is 6.1%. There is a culture amongst many South African’s to share the income, so the quality of nutrition and other educational tools is diluted considerably. I was at the supermarket the other day, around the 1…
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Market is illogical longer than you are solvent.

In this article I will try to give the opinion on the psychology and features of Forex Trading.

Psychology is the most interested and important aspect of Forex trading.

Many of currency traders while in pursuit of the principle of how to trade, what to trade, are leaving behind one of the most important component of successful trading - Psychology.
Market is illogical longer than you’re solvent, I’m sure, that following this rule as the main one will lead traders to stable profits.
While trading the market, I have found a remarkable thing, many will be probably say that I’m wrong, But nevertheless I will remain unconvinced. Trader psychology plays more important role than the trading system.

The forex market is the vast array of information. Understanding it, make the right decisions of what when and how will anything affect a certain currency pair is very very much not easy. I have solved this problem for myself once., and created a rule of Three.

The Rule of Three:

________________________________________________________________________________________________

Trade only 3 currencies.

Meaning that during the week I trade o…
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