6 Forex Observations Everyone Should Know

#1 - Expect pullbacks only 50% of the time on Friday closes (late U.S session) ... these pullbacks typically produce 24~39 pips.

Pretty self explanatory I hope ... Yep, basically you can expect pullbacks only 50% of the time. Whenever the Friday pushes come, they will come fast and furious. Just go along with it for the easy pickins. Any pullbacks will be minimal. As mentioned earlier, they will produce only about 24-39 pips.

#2 - Breaking the 200EMA (15m) and CPP tends to give very strong reliable pushes

If you're watching the 15 minute charts, whenever you see the action breaking through the 200EMA and central pivot point (for the day) simultaneously, be sure to take notice as they will usually result in very strong and reliable pushes. In other words, more easy profits if you would just go along with it.

#3 - Study your biggest losses ... they give clues/lessons

There's something to be learned from every single trade that you take but from my experience, it's the biggest losses that I've incurred that I learnt the most. They give clues to your trading style and personality.

#4 - When I'm tired, I don't trade

This is a no brainer. When you're tired, don't trade because you won't perform well. Enough said.

#5 - When in doubt, please STAY OUT

No one will ever hold a gun to your head and force you to take a trade. So whenever you have doubts about the trade you're about to take, just don't take it and just stay out. That's the best advice I can give.

#6 - Study the longer timeframes over the weekends (Monthly/Weekly 35%, Daily 35%, 4Hr 20%, 1Hr 10%)

Learn to study the longer timeframes and its movements as they will yield the most dividends and payouts for you. Take time to study them over the weekends when the markets are inactive.

It really is my wish and hope that you study and reread over what I've just shared and apply them to your own forex trading journey. All the very very best to you.

Financial performance ratios – return on equity, capital and assets

A company's financial performance ratios will give you an idea of how efficient its management is at making the most of the capital and assets at hand.

Return on equity

A company's return on equity (ROE) helps you gauge its ability to turn money invested in it into profits.

ROE is calculated by dividing a company's net income by its total outstanding equity over that period and multiplying the figure by 100. It is presented as a percentage:

ROE = (Net income/outstanding equity) x 100

For example, a company that made a net profit of £5 million in its first quarter and had £100 million worth of shares outstanding over that period would have made a return on equity of 5% for that quarter.

If the company's ROE is low – even if it has posted record headline profit – it suggests that management is not reinvesting its earnings efficiently.

This could hinder the company's future growth prospects, making its shares less attractive and pushing down their price.

In theory therefore, the higher a company's ROE, the better investment opportunity its shares represent.

Do not take the ROE at face value

There are a number of factors, however, that can distort a company's ROE and these should be considered before you buy or sell shares based on the ratio.

For example, if a company buys back a lot of its shares, this will reduce the value of its outstanding equity and push up its ROE, creating a "buy" signal that might not be justified.

Return on capital employed

A company's return on capital employed (ROCE) is calculated by dividing its earnings before tax and interest (EBIT) by its total capital employed (both outstanding equities and debt). It is expressed as a percentage:

ROCE = (Earnings before tax and interest/total capital employed) x 100

It is similar to return on equity apart from the fact that debt is now added to a company's shareholder equity to reach a "total capital employed" figure. This makes it a slightly better measure of how well a company generates returns from its available capital.

A ROCE figure higher than average borrowing rate is desirable

As a rule of thumb, look for a ROCE that is equal to or higher than a company's average borrowing rate. This suggests that a company is a solid investment, and might encourage you to buy its shares.

A ROCE that is lower than a company's average borrowing rate could put downward pressure on its share price and on shareholder earnings.

For example, if a company has earnings (before tax and interest) of £800,000, debt liabilities of £200,000 and shareholder equity of £5 million (ie total capital employed of £5.2 million), it will have a ROCE of 15.4%.

If its cost of borrowing averages 7%, this company would make a good investment choice, based on its ROCE.

Return on assets

A company's return on assets (ROA) shows you how much money in earnings a company derives from each unit (£1, $1, €1 etc) of assets that it owns. This gives you an idea of how efficient the company is at turning what it owns into profit.

ROA is calculated by dividing a company's net income by its total assets and multiplying this figure by 100. It is expressed as a percentage:

Return on assets = (Net income/total assets) x 100

Different industries have different standards

A high ROA is generally preferable when you are looking for shares to buy.

Different industries tend to have widely differing ROAs, meaning it is not advisable to use this ratio to compare companies in different sectors.

Some industries are by nature more capital intensive than others – telecommunication providers, for example, will need lots of heavy equipment to turn a profit, while an advertising agency relies more on intangible assets like brand or intellectual property.

This means a poorly performing advertising agency could misleadingly appear a better investment based on its ROA than a well performing telecom company.

Compare companies within the same sector

It is best therefore to use this gauge to compare companies in the same sector.

For example, if auto maker A has a net income of £1 million and total assets of £10 million, its ROA would be 10%. If you compare this with auto maker B, its net income of £1 million and total assets of £20 million give it an ROA of 5%.

All things being equal, company A represents the best investment for a shares trader. This is because the company's management is doing a better job of doing what companies are all about – turning capital into profit.

You can also use it to look for performance trends at one company – examining its historical ROA and how it is changing. If it ROA is falling, this could encourage you to short its shares.

Forex Money Management Will Increase Your Profits

Even though you start with 60% winning odds 95% of traders will lose because of their Poor Money Management.

Money management is the most significant part of any trading system. Most of traders don't understand how important it is. 

It's very important for you to understand the concept of money management and trading decisions. Money management represents the amount of money you are going to invest on one trade and the risk your going to accept for this trade. 

There are many, many different money management strategies. Preserving your balance from high risk exposure is the main objective. 

You must understand what the following term means. Core Equity

Core equity = Starting balance - Amount in open positions. 

If you have a balance of $20,000 and you enter a trade with $2,000 then your core equity is $18,000. If you enter another $2,000 trade, your core equity will be $16,000. 

When you trade without sound money management rules, you are in fact gambling with your investment. You are not looking at the long term possible on your investment. Rather you are only looking for that quick high return. Sound money management rules will not only protect your investment, but they will make you very profitable in your investing future. 

People go to Las Vegas, Atlantic City or New Orleans to gamble hoping to win a big jackpot. We all know people who have won and won big. The question might be how are casinos still making money? In the long run, casinos are still profitable because they take in more money from the people that don't win. 

Like attempting to lose weight and working out, money management is something that most traders say they practice Money Management but few truly practice. Money management is unpleasant because it forces traders to constantly monitor their positions and to take necessary losses. It is difficult for most people to do that constantly. 

What is the Percentage Risk Method?

The percentage risk method aims to risk the same percentage of your cash float (not the same trade size) for each trade. 

This method assumes that you are aware of:

1. The stop loss size of the trade

2. The percentage risk (of your unleveraged cash float), that you want to risk per trade.

The percentage risk method states that there will be a given percentage of your cash that is at risk per trade. Before you know what is at risk in a trade you need two bits of information: the stop loss size for that trade, and the percentage risk that you've chosen in your investment program.

Assume that you chose a percentage risk of 4% of your cash float. If your cash float is $10,000, this means that you want to risk 4% of $10,000 per trade, which is $400. So with every trade, the maximum you would be willing to lose would be $400.

With this chosen percentage, it would take you 25 losses in a row before you lose your entire float (25 x 4% = 100%). If your system is a good one, then 25 losses in a row would be highly unlikely.

On the other hand, if the risk chosen was 2%, then it would take 50 rather than 25 losing trades in a row to lose the entire float. The number of losing trades required to lose the float decreases as you increase the percentage risk.

Forex money management is a way of life for the prudent investor. Practice money management and you just might be one of 5 out of 100 that will be in a position to make money from Forex Trading.

Do further research and you might look into one of those amazing automatic Forex Trading Programs.

Short-Term Momentum Scalping in the Forex Market

The Forex market moves fast… very fast. This strategy can help traders focus on, and enter trades in the strongest short-term trends that may be available.

Many traders coming to the Forex market look to day-trade; and by day-trade, most of these traders are thinking of holding trades for a few minutes to a few hours – at most.

The allure of such a strategy is understandable. By not holding positions overnight, the trader can feel an element of control that they may not feel otherwise. By always having a finger on the trigger, the trader can decide to add risk to the trade (to take advantage of the ‘good’ movements), or take risk off (when the market isn’t going your way).

The ‘Finger-trap’ trading strategy was developed to attempt to take advantage of these situations, by focusing on the most important elements of what makes a strong trend a strong trend – and those elements are generally strong, one-sided movement that can push our trades in our favor.
I call this strategy Finger-trap, because I’m of the opinion that short-term trading in the currency markets are very much like the timeless children’s puzzle. In case you don’t remember what finger-traps looked like, I’ve added a picture below:

When a child first finds the finger-trap, they often insert their fingers only to find that that the bamboo weaving prevents them from being able to get out.

It’s only with experience that one realizes that the trick to the finger-trap is to push, not pull. The key is to be relaxed, and feel your way to success; much like short-term trading.

The Trend Chart

Many traders are often puzzled by the shorter-term charts of less than an hourly bar size; and the reasons here are as understandable as the traders initial desire to ‘scalp.’

The reason these short-term charts can often be puzzling is because we are looking at so little information as compared to the longer-term charts, such as 1 day, or 1 week.

So before I ever attempt to scalp in a pair, I first attempt to locate the ‘strongest’ trends that may be amenable for my efforts in the first place, and I will do this by analyzing the Hourly chart, attempting to find the ‘strongest’ trends.

To do this, I use 2 Exponential Moving Averages: The 8, and the 34 period EMA. Below you will see the trend chart with the 2 Moving Averages added.

Created with Marketscope/Trading Station

Many traders using 2 moving averages will look to trade crossovers. And sure, some of those crossovers may have worked out ok on this chart above, but over the long-term, I’ve personally found such a strategy to be undesirable; particularly when trending markets change to ranges, consolidation, or congestion which they will inevitably do.

So I instead focus on stronger elements to constitute a trend; and I want to focus my efforts to the strongest portions of these trends. I will do this by noticing the location of the moving averages; and looking for price agreement before moving on to place entries.

So, if the Fast Moving Average (8 period) is above the Slow Moving Average (34 period), I want to see price above both. The chart below will illustrate this concept.

Created with Marketscope/Trading Station

In the case of bear markets, we’re looking for something similarly reversed.

If the Fast Moving Average is below the Slow Moving Average, I only want to move down to the entry chart when price is below both. The chart below will illustrate further:

Created with Marketscope/Trading Station

Once this criterion is met, I feel comfortable enough to move down to the short-term chart to enter into the trade.

The Entry Chart

While many scalpers want to jump on a five or 15 minute chart and just get started, I’m of the belief that not nearly enough information is available there to make an accurate determination of a currency pairs’ trend, support and resistance, or a flurry of other factors that I want to know before putting my hard-earned money at risk on a trade; and this is why I do the bulk of my technical analysis on the hourly chart.

Once I’m comfortable with that hourly chart, and have a good idea that I might be able to work with a strong trend, I’ll dial down to the five-minute chart.

And with this 5 minute chart – I’ll attempt to employ the age-old principal of ‘buying-low,’ and ‘selling-high.’ This means that I want to see a short-term ‘cheapening’ of price during bullish up-trends; or a short-term movement of price getting more expensive in downtrends.

When the trend-side momentum comes back in the pair – I will look to enter my trade.

To attempt to gauge whether the pair is ‘cheap’ in the short-term, I will, again, draw on the 8 period Moving Average.

On the 5-minute chart, I want to see price move against the moving average (against the trend that I had observed on the one hour chart), so that price may ‘re-load’ before advancing further.

The chart below will illustrate what I’m looking for during a bullish up-trend, when I had seen price above both the fast and slow moving average on the hourly chart.

Created with Marketscope/Trading Station

Notice that not every one of these candles/entries would have preceded a run in the currency pair.

It is absolutely possible for a currency pair to congest/consolidate over an extended period of time before making a move up or down. Traders can handle these situations through lot sizing.

For instance, I can take a stance of looking to enter up to 5 positions. So, for each of the first 5 crosses of the 8 period EMA, I continue to add to my lot.

Or perhaps, I can look to only take the first, place my stop, and wait for the trade to either move in my direction or hit my stop.

This is where much customization can be made with the strategy.

In the case of short positions, we are looking for exactly the opposite occurrence than we had looked at a moment ago.

After we’ve seen that the 8 period EMA is below the 34; and price is trading below both Moving Averages, indicating to me that the trend is clean, strong, and one-sided moving further lower – I will look to open short positions on the 5-minute chart, and I will do this with the 8 period EMA.

Created with Marketscope/Trading Station

Each time price crosses below the 8 period EMA, I have another opportunity to open up a short position.

If you notice the right side of the above chart, you may see that price begins to find support on the 8 period moving average – indicating that we may have a reversal of trend; and that brings us to one of the most beneficial parts of the Finger-Trap trading strategy: Risk Management.

Managing Risk

If we are placing trades on the 5 minute chart, and looking to only take part in strong moves in the direction of the trend we had identified on the hourly chart; we have quite a bit of flexibility in how we want to consider risk.

When placing a long trade, I want to ensure that price remains supported for the duration of my trade. If short-term support is broken, I run the risk of the pair continuing to move against me, further draining my account. To a scalper, this can be extremely dangerous as fast markets can exhaust an account balance very quickly.

By placing my stop at the previous swing-low, I can strike the happy medium of being comfortable with giving the trade some ‘wiggle room,’ to work into profit, while at the same time, allowing myself to exit quickly if the trend reverses.

While price may break support, and come back in my favor – I’m much more worried about the instances when that doesn’t happen. So this swing low (on long positions, swing high on short positions) often functions as my ‘line in the sand’ in the event the position moves against me.

Created with Marketscope/Trading Station

Once again, in the event of short positions, we would be looking at the opposite scenario; looking to place stops just outside of the recent swing-high so that if price reverses the down-trend that we were looking to take part in, we may cut the loss early.

4 High Yielding Junk Bond ETFs

The term "junk bond" does not mean what you might think. When we think of junk, we think of trash - something that, for most people, is useless. It ends up in a landfill never to be seen again. The recycling industry, along with many other companies, find ways to profit from junk. As an investor, you can too.

First, the term has fallen out of favor. More often, "high yield" is how investors characterize these bonds. Most aren't junk at all. In fact, many high-yield bonds are as safe as, or safer than, some of the more volatile stocks that pay a lower dividend, if any at all.

Still, high-yield bonds have more default risk than investment-grade bonds, and that's why using an exchanged traded fund (ETF) to gain exposure to this class of bonds might be the most responsible way to invest. There are numerous ETFs to use.

The iShares High Yield Corporate Bond ETF (ARCA:HYG) holds more than 700 high-yielding bonds and has an expense ratio of 0.5%. Currently the ETF has a 12-month yield of over 6.5%. The fund is weighted heavily toward consumer services, financials and oil and gas issues, making it highly exposed to volatile sectors. With more than 735 bonds in the portfolio, the default risk is largely mitigated, however.

The SPDR Barclays High Yield Bond ETF (ARCA:JNK) is similar to HYG in that it has among its top holdings financials, telecoms and energy companies. The fund owns around 440 high-yield bonds and has an expense ratio of 0.4%.

The 0.1% difference in fees is significant. The fund's 52-week performance is nearly identical to HYGs, and its yield is nearly 6.72%. JNK might be the better choice based on metrics outside of the ETF's performance.

SEE: Junk Bonds: Everything You Need To Know

Another to consider is the SPDR Barclays Short Term High Yield Bond ETF (ARCA:SJNK). Closely related to JNK, this fund invests in high-yield bonds that will mature in less than five years. All of the bonds in the fund are U.S. dollar denominated, removing the currency risk for U.S. investors.

Does shorter maturity affect the performance? First, the expense ratio is 0.4% on this fund that holds about 350 bond issues. Its yield sits at 5.48%. Because SJNK is relatively new compared to JNK and HYG, investors should proceed with caution until it has a multi-year track record of success.

Similar to SJNK, the PIMCO 0-5 Year High Yield Corporate Bond (ARCA:HYS) seeks to capture the performance of the short-maturity, high-yield corporate bond market. Its 319 holdings come at a higher price - 0.55% - but it is currently yielding 4.43%. The fund has outperformed SJNK by about 2% over the past 52 weeks. In this case, the fund may pay back higher expenses with higher performance.

The Bubble

Because of Federal Reserve actions and other economic events, Bloomberg reported that junk bond funds received record inflows back in September. In one week, junk funds reported $3.63 billion in inflows. Junk Bond ETFs received 40% of it.

Facts like these have insiders wondering if a bond bubble has set up. If so, when will it pop, sending prices on these ETFs drastically lower? So far, that shows no sustained sign of taking place - leaving investors confident that their money is safe.

The Bottom Line

As with all market investments, always place two orders. Buy the ETF and then place a stop order to protect against any sudden moves to the downside. Bond ETFs have very low volatility, but placing a stop order is free protection.

As always, use these names as a way to begin researching the high-yield bond ETF market. Do not buy until you understand how these funds work.

6 Killer Tips For Trading Forex Online

Sometimes you need money to make money. An old cliche, to be sure, but it's particularly true when it comes to trading Forex online. But, what was once a marketplace almost exclusively dominated by large investment firms and banks has now become a popular way of making money online for just about anyone willing to take the risk.

Forex trading is, in a nutshell, when you buy one country's currency (i.e. the American dollar) by selling another country's currency (i.e. the British pound). Currently, the U.S. dollar, British pound, the Swiss franc, the Japanese yen, and the euro are the major currencies on the foreign exchange market. Forex trading has become so popular that it has surpassed the New York Stock Exchange as the top financial market worldwide.

If you've never traded Forex online before, you must know what you expect. Following are some helpful tips that will prepare you for a successful experience trading Forex online.

1. Know what you're doing. Before you begin trading Forex online, you must know what you're doing. Go in blindly and you risk losing your money: It's that simple. Learn about trading Forex online by researching the market and the systems successful traders use.

2. Keep it simple. Those who have made good money trading Forex online tend to agree that the best game plan is to keep your trading system simple, especially when you first enter the Forex market.

3. Be willing to take risks. Trading (Forex or otherwise) inherently comes with risk. It's just a fact of the marketplace. Are you willing to take that risk? You may lose money, especially in the beginning. Can you handle that loss? If you're not sure you can deal with losing money, you might not want to trade Forex online.

4. Go slow. As a novice, start slowly trading Forex online. Stick with small amounts of money. Unfortunately, far too many new Forex traders get in over their heads by overleveraging and losing everything.

Of course, when you risk more money, you may also earn a whole lot more, right? The problem is that risk could also lead to the opposite end of the spectrum and cause you to lose much more money. Until you've got some experience trading Forex under your belt, start slowly.

5. Steer clear of day trading. Day trading is simply too big of a risk, mainly because there is no way you can find and access trustworthy market data in such a short time period. Because the odds are against you, steer clear of day trading.

6. Ignore the majority. Instead of jumping on the bandwagon and following other traders' lead, you must be able to go against the majority sometimes. That means you'll be making trades that the majority of traders would never make. Still, that's the key to success. You'll likely discover that you're most successful on those trades that the majority said would never succeed.