Good Luck
Stupidity, gut , emotion and demo accounts....to me these are all intertwined.

You may have gathered by now that what I offer is not a signal service that says "buy this here and sell this there". What I am is a service that offers you the opportunity to take advantage of data and experience crunching to free you up to make a calculated decision on every trade you make. Remember, on any given day, with a lackluster attitude even the smallest trade can wipe you out. Been there, done that, got the T-shirt, and don't want the same to happen to you.

Now back to my first line. There is a role for demo accounts, but I must stress that the one thing that a demo account does not provide for you is the true gut kick that you get when you take a huge loss, or the euphoria you feel with a windfall trade.
Yet these are the two emotions that kill you in the real world.

In my humble opinion you have to be clinical and machine like when trading. As soon as you can come to grips that you must lose sometimes, you will be freed up to take the emotionless, surgical approach to trading.

So where does the demo account come into play if it can't mimic the real world emotion. For me it is quite simple. Apart from being a strategy tester, it is an "emotionless" trainer. Although I try very hard to think of demo money as real money, it is very difficult to do. So if I feel I don't need emotion in the real world, then through practice in demos, I try and limit emotions so I can trade without them live.

Now gut and stupidity play a valid role in demo accounts also. Try not to make this a habit though. On the stupid side, I will often do what I feel is a stupid trade, just to get it out of my system. This could be not taking profit when I should, not stopping out when I should, trading more than I should etc. I need to see that on a turn of a dime the Forex can turn against you. And this reinforces itself and prepares me in my real trading.

Gut is a real problem for traders. How many times have you said, "oh, I knew it", or "I knew I should not have!'? However when you act on your gut 9 times out of 10 you are wrong. Remember you are always right when your gut tells you something and you don't act on it, and always wrong when your gut tells you something and you do act on it!

So what to do? Be disciplined, clinical, don't listen to your gut, do stupid things (only in demos), feel no emotion, and above all stick to your plan. This is what I use demos for.

Loonie is on a pretty good run...be aware of BOC Announcement. As I am in Canada, the word on the street is rates will remain unchanged. Also, remember as oil prices rise so do commodity currencies like the Loonie (Canadian Dollar). They are talking about $100 a barrel oil by the end of the year and the possibility of $1.05can vs the USD. Cable (British pound) goes up when oil does, and the Yen goes down when oil rises.

One of my strategies for the forecasts:

The other day I took the gbp/usd to go up...It then tanked on me about 70 pips for a day or so...I hung on to it as my faith in the forecast tells me it may take a day or two....Woke up today to a 35 pip profit. So I have hung on to it to see what the forecast would say tonight. It says up (strong). So I am holding on to it and have moved my profit to tonights forecast, while keeping a stop on my old profit position. I will try and milk out extra pips while protecting my profits.

Remember, many ways to skin this cat. Protect your profits and go as deep as you can.

G7-- In the something for everyone department the standard G7 communiqué on currencies is one of the best. “We affirm that exchange rates should reflect economic fundamentals. Excess volatility and disorderly movements in exchange rates are undesirable for economic growth. We continue to monitor exchange markets closely and cooperate as appropriate. In emerging economics with large and growing current account surpluses, especially China, it is desirable that their effective exchange rates move so that necessary adjustments will occur”. This is the ‘communiqué ‘as it related to foreign exchange from the last G7 meeting. It is worth quoting in its entirety. We will get a very close version of this on Friday. There is something here for all. “Excessive volatility” satisfies those Europeans who dislike a high Euro and Euro/Yen; China’s mention pleases all manner of trade warriors; “monitor” and “cooperate” keeps the internationalists happy. Every finance minister and politician and can find in the text the appropriate phrase for reference during their news conferences back home, whatever the inclinations of the national audience.




Regards,

Joseph Trevisani
FX Solutions
Chief Market Analyst

Market Directions Sunday, October 14, 2007

• Credit markets amnesia, will the Central Banks put away their knives?
• The Europeans learn to love a strong Euro?
• The G7 meets and meets and meets?

The Week in Review October 8 - October 12

Two weeks of inconclusive movement have left traders looking outside the market for new impetus. If the Federal Reserve now appears much less likely to cut rates at its next meeting October 31, so to does the ECB when it convenes on November 8th. If the EMU economies seem to be defying the third and fourth quarter slowdown anticipated by many just four weeks ago, so the American consumer has hardly paused working and spending. The surmise that the US economy has more to fear from the sub-prime and credit markets has carried the Euro to historic levels against the Dollar, but is it still justified? Is the Euro really leading the way?

Because ECB and BOE rate cut expectations, predicated almost solely on the financial market turmoil which began in August, have diminished as well as that of the Fed, the Dollar has been left no better off. Officials of all three central banks have been at pains to remind the markets of the still extant inflation threat and their own determination to rein it in.

The G7 meeting this coming Friday in Washington will not produce an agreement to support the Dollar. As if to underline this American President George Bush said in a interview with the Wall Street Journal published Friday that a strong dollar policy is the "correct policy", and that the "best way [to value] a currency is through the market".

The basic assumption driving the Euro has been the risk evaluation that the Fed preventive rate cut was substantive, that the US economy courted recession in the coming months and the Fed would be forced to cut again. But so far the evidence has not proved the case. If anything it has pointed the other way with US job growth and consumer spending remaining strong. US GDP expansion could well be above 3.0% in the third and fourth quarters with European growth falling to 2.5% or less. Even in the 2nd quarter the differential between the US and EMU economies was 1.3% in favor of the Americans.

The decisive move of the past two weeks has been the resurgence of the Euro/Yen and the Yen crosses. These currencies thrive in a stable rate environment. If a retreating US economy promised further Fed rates decreases, market judgment would also assign a higher probability to a future ECB reduction. If the ECB was going to cut rates, even if only for precautionary reasons, where would that leave the Euro/Yen? Currency markets are predicting that the August credit market panic is history, that it will not foster a worldwide economic slowdown and that the US economy will emerge largely unscathed. Otherwise the risk averse Yen crosses would not be within a hair of their all time high. The Yen crosses are the bell weather of today's currency markets, not the Euro or even the Dollar.

Central Bank Rate Actions
Bank of Japan leaves the overnight call rate at 0.5%.
Reserve Bank of Australia keeps the cash rate at 6.5%.

The Week in Review October 8 -October 12

United States

The September 18th FOMC vote to cut the Fed Funds rate was unanimous. The minutes cited two reasons for this "prudent action". First was the concern for the impaired functioning of the financial markets, and second was the potential for reduced economic growth from that impact. Perhaps a bit surprisingly the FOMC members disregarded the August Non Farm Payroll numbers of -4,000. They assumed that "employment was probably not as weak as the most recent monthly data had suggested". The committee was right on target as the upward revision of the August number revealed a week ago.

Also from the FOMC minutes was the prescription for rate policy, "future actions would depend on how economic prospects were affected by market developments and other factors". The major economic statistics from this past week do not indicate a serious slowdown in the US economy. Weekly Jobless Claims have continued to decline. Retail Sales were much better than expected and PPI, particularly core PPI without the automobile price reductions, was very active. Clearly there are building price pressures in the consumer goods pipeline.

There are less than three weeks until the next Fed policy committee. This coming week we will see Industrial Production, core CPI and the 'Beige Book'. None of these are likely to convince the Fed that another rate cut is necessary to float the US economy. The 'moderate expansion' term of the last 'Beige Book' is more indicative of an economy poised for increased growth than one slipping. The US economy has been under stress and a cloud of worry since the third quarter of last year. It is important to remember this background when one charts future prospects. All is not as dire as the economic projections tell. Projections are by their nature linear, people and the economy are not. The statistics will tell the story; it behooves traders to listen to exactly what they are saying. Or, to paraphrase John Maynard Keynes, 'If the facts haven't change, why change your mind?"

Despite the greatly reduced expectations for a Fed Funds rate cut at the October 31st Fed meeting the Dollar Index is only 0.5% above its all time September 28th low.

Eurozone

ECB officials deployed their public comments this week promoting the dangers of EMU inflation and the bank's steadfast role in countering it. The commotion among the united currency's finance ministers early in the week when they met, ostensibly to consider the 'strong Euro' came to naught. The ministers could not even agree among themselves that the current Euro level was a problem. Except for France and Italy, none of the other finance ministers appeared to think it was.

Industrial Production recovered nicely in August and the second reading of GDP for the second quarter at 2.5% is one that the ECB can live with, wary as it may be of its effect on inflation. ECB economists consider that GDP rate near the limit for non inflationary growth.

Despite the curious comment from Jean Claude Trichet on Tuesday's that 'the headline M3 number may overstate [its] actual strength', in testimony before the EU parliament, the bank left no doubt that it still considerers inflation the primary threat. "We need further gathering of data but the baseline scenario [good economic growth and potential inflation] is very much confirmed at the present moment", said Mr.Trichet.

Germany

German Finance minister Peer Steinbrueck would rather have a strong Euro than a weak one. "I love a strong Euro", is his now famous formula. And as a finance minister who wouldn't adore a strong currency. It restrains domestic inflation, reduces government financing costs, draws private investment and promotes business efficiency. Hank Paulson, the American Treasury Secretary, and his predecessors have long said the same thing.

United Kingdom

British officials, like their continental counterparts, returned the focus to inflation. There were no hints in the Pre Budget Report of the Bank of England Governor Mervyn King that a rate cut is being considered. As a prescription for financial panic he said that the Monetary Policy Committee (MPC) will not "insulate" the banking sector from the re-pricing of risk. It is not likely he would have made such a comment if he thought there was real chance of returning credit market turmoil.

Chancellor of the Exchequer Alastair Darling reduced the government estimate for 2008 GDP growth forecast to 2.0%, specifically "because of the problems...coming out of America this summer are now affecting economies across the world..." But like King, he was careful not to infer monetary policy from his observation.

The Business and Financial Services sector is the largest industry in Britain, comprising one quarter of the economy and responsible for almost all private sector job growth. Though it has not yet showed in the statistics the financial market events of the past three months must necessarily have negative effects.

Japan

Economic Releases October 8 -October 12

United States

Thursday: the International Trade Balance sank in August to -$57.5 billion almost 2.5% under the median projection of -$59.8 billion; July's deficit was trimmed slightly to -$59.0 from -$59.2 billion. The Euro rose 30 points against the dollar on the release. Imports fell 0.4%, the most in six months; exports rose the identical amount. The 2.4% decline from July to August in the overall deficit came despite a 7.0% hike in the cost of oil imports, the biggest increase in five months. The trade balance is currently benefiting both side of the equation, with a slower US economy importing less and a weak dollar prompting foreign buying from American producers.

Weekly Jobless Claims for the week ending October 6th fell 12,000 to 308,000 substantially more than the expectation of -2,000 and 315,000. The four week moving average slipped to 310,250 continuing the downward trend begun a month ago.

Import Prices jumped 1.0% in September as predicted with a 5.4% rise in petroleum accounting for the entire increase. Non petroleum prices fell 0.2.

Friday: Retail Sales in September at +0.6% doubled estimates, the markets had been looking for +0.3%; August was unrevised at +0.3% but July added 0.1% to +0.6%. Sales ex auto was also better than forecast, +0.4% as opposed to +0.3%; August was unchanged at -0.4%. The Dollar gained 25 points against the Euro on the release but stalled and then reversed at 1.4150.

Most consumption estimates for the third quarter are now north of +3.5%, which should put GDP for the quarter near 3.25%, a very respectable number in the post sub prime world. Analysis of the details of the Retail Sales report varied with the beholder. Some commentators found the overall reading, twice the market expectation, indicative of an unworried consumer and robust spending heading into the holiday season. Others focused on the fact that price inflation in the two strongest selling categories, gasoline and food, accounted for almost all their increase.

The Produce Price Index (PPI) for September jumped 1.1% more than twice the predicted +0.4%. The PPI core (ex food and energy) rose only 0.1%, half the preliminary estimate. Automobile prices are included the PPI core measure and were the reason the core increase was moderate. Car prices fell 1.8% in September and light truck charges dropped 0.5%. Without this drag the core would have risen a much more inflationary 0.3%. Other categories displaying large increases were pharmaceuticals +0.5%, home furniture +0.5% and alcohol +0.6%, this last particularly worrisome heading into the holiday season.

Consumer Sentiment in October, according to the University of Michigan preliminary reading, deflated to 82.0, below the forecast of 84.0 and the lowest result since August 2006, when it was also 82.0.

Eurozone

Thursday: second quarter GDP was unrevised on its second issue at +0.3% for the quarter and +2.5% for the elapsed year. The yearly result for the first quarter was revised up 0.1% to +3.2%; the quarterly figure was unchanged at +0.7%.

Friday: Industrial Production expanded 1.2% in August, much more vigorously than the expected +0.3%. July was adjusted higher by 0.1% to +0.7%. The yearly rate was 4.3% in August; the prediction had been +2.1%; the July rate was +3.7%. EMU planners can now look for Industrial Production to add substantially to GDP growth in the third quarter; it had slowed in the second.

Germany

Monday: Total Manufacturing Orders for August at +1.2% were well under the expectation of +2.0%, but as July was revised up by almost the same amount that August was under, to -6.1% from -7.1%, the effect was moot. The seasonally adjusted Trade Balance for August was +E15.3 billion, less than the +E16.4 billion median projection. Imports rose 5.6%, exports gained 3.0%. In July both had fallen, 2.8% for imports and 0.3% for exports. The overall July number was adjusted to +E16.5 billion from +16.4.

Tuesday: Industrial Production rose 1.7% in August, more than three times the forecast of +0.5%. The growth was led by manufacture of consumer durable goods. July's result gained slightly on revision, to +0.2% from +0.1%.

Wednesday: the German Chamber of Industry and Trade (DIHK) Balance of Business Expectations fell in September to 15 from 24 in August. This trade group polls 25,000 companies each month and calculates this indicator by subtracting the number of those firms whose business expectations to be poor from those firms who judge expectations to be good. "The economic euphoria is over", said DIHK. The trade group also cut its GDP forecast for 2007 to +2.5%, it had been +2.8%.

Thursday: Wholesales prices as recorded by the Federal Statistical Office (FSO) rose 0.9% in September, the highest monthly increase since April of last year. The annual rate was 4.0%; in August the yearly rate was 2.5%.

United Kingdom

Monday: Manufacturing Output in August reached its highest level in six years gaining 0.4% for the month and +0.6% year to year. July's results were -0.3% and +0.8% respectively. Industrial Production rose 0.1% in August, +0.7% on the year; the July statistics were -0.1% monthly and +0.9% yearly. Output Producer Prices jumped 0.1% in September, a +2.7% yearly rate. In August these prices rose 0.1% and 2.5%. Core Output Prices gained 0.2% m/m and 2.2% y/y in September. Input prices rose a dramatic 3.2% in September more than twice the forecast of +1.5%. The yearly rate was +6.4%, also well in advance of the prediction for +4.5%. In August the same 'input' statistics were -0.5% m/m and +0.6% y/y. Soaring crude oil prices were the greatest contributing factor in the input price rise.

Wednesday: British Retail Consortium (BRC) Retail Sales in September were twice as strong as forecast, +3.0% versus +1.5%.; August had registered +1.8%. British consumers seem to be unaffected by the Northern Rock bank rescue by the BOE early in the month.

Thursday: Royal Institute of Chartered Surveyors (RICS) House Price Survey which measures the difference between gainers and losers in house prices exhibited -14.6 in September, nearly three times the -5.0 forecast. The August reading was revised down to -3.3 from -1.8. House buyer inquiries were at the lowest level since 2003.

China

Friday: the Trade balance in September fell 4.3% to +$23.9 from Augusts' +$24.9 billion. Nevertheless, the balance for the first nine months of 2007 was +$185.66 billion an astonishing 69% higher than the same period in 2006.

The Week Ahead October 15 -October 19

United States

Tuesday: Treasury International Capital System (TICS) net long term securities transactions for August at 9:00 ET; July +$19.2 billion. Industrial production for September at 9:15 ET; August +0.2%. Capacity Utilization for September at 9:15 ET; expected 82.2%, August 82.2%. NAHB Housing Market Index for October at 13:00 ET; September 20.

Wednesday: CPI for September at 8:30 ET; August -0.1%, core +0.2%. Housing Starts for September at 8:30 ET; August 1.331 million units. Building Permits for September at 8:30 ET; August 1.322 million units. Federal Reserve Beige Book, September "moderate expansion' in 10 of 12 Federal Reserve districts.

Thursday: Jobless Claims for week ending October 13; prior week -12,000 to 308,000.

Eurozone

Tuesday: ZEW Survey for October at 9:00 GMT; 'Expectations' -20.3 in August, 'Current Conditions' 65.6.

Thursday: Preliminary Trade Balance for August at 9:00 GMT; seasonally adjusted -E0.6 billion, non seasonally adjusted +E4.6 billion in July. Final HICP for September at 9:00 GMT; preliminary +0.1% m/m, +1.7% y/y. Construction Production for August at 9:00 GMT; August 0.0% m/m, +1.7% y/y.

Germany

Tuesday: Final CPI for September at 6:00 GMT; preliminary -0.1% m/m, +1.9% y/y. Final HICP for September at 6:00 GMT; preliminary -0.1% m/m, +2.0% y/y. ZEW Survey for October at 9:00 GMT; September 'Economic Expectations' -18.1, 'Current Conditions' 74.4.

Friday: PPI for September at 6:00 GMT; September 0.1% m/m, +1.0% y/y.

United Kingdom

Sunday: Rightmove House Prices for October at 23:01 GMT; September -2.6% m/m, +9.6% y/y.

Monday: DCLG House Price Index for August at 8:30 GMT; July +12.4% y/y.

Tuesday: Core CPI for September at 8:30 GMT; August +1.8% y/y. HICP for September at 8:30 GMT; August +0.4% m/m, +1.8% y/y.

Wednesday: ILO Unemployment Rate for August at 8:30 GMT; July 5.4%. Average Earning including bonus for August at 8:30 GMT; July +3.5% y/y. BOE minutes for the October 3&4 Monetary Policy Committee meeting.

Thursday: Retail Sales for September at 8:30 GMT; August +0.6% m/m, +4.9% y/y.

Friday: Third quarter GDP, first estimate, at 8:30 GMT; second quarter +0.8% q/q, +3.1% y/y.

Japan

Monday: Consumer Confidence for September at 5:00 GMT; August 44.0. Industrial Output for August at 4:30 GMT; July -0.4%.

Wednesday: Tertiary Index for August at 8:50 GMT; July -0.5%. Revised Leading Index for August at 5:00 GMT; July 72.7, 'Coincident Index' 70.0.

China

No important releases

Joseph Trevisani
FX Solutions
Chief Market Analyst

A week or so ago, a blog post by Mark advised us to try this same experiment:

Trade the four majors, Risk 4% per trade and set S/L 10 pips over/under forecast.

My results from 2nd Oct - 11th Oct thus far are as so:

GBP/USD +94 Pips
EUR/USD +109 Pips
USD/CHF -110 Pips
USD/JPY +115 Pips

Total +208 Pips

Now guys, I don't want to sound like Mark's puppet here, but surely this is solid evidence that one could devise a successful strategy using the forecasts a solid fundamental base.

These results have been achieved using no chart checks and no forecast strength checks, which are tweo parameters I personally check before entering a trade. There are more, but I won't go into that here.

FYI: Here are my own strategy/system results thus far:

Pair: EUR/USD ( I only trade this pair, as I want to keep risk to a minimum!)

Date Range: 16 Aug - 11 Oct

Profit/Loss +396 Pips / +23% of starting bank of $5000.

These results have been achieved using Marks indicators and the forecasts - PERIOD.

They are also very conservative as I have used very specific T/P and S/L points. The results would have been heaps better ( I estimate as much as 100 Pips/ 10%) if I had access to MT4 whilst trading and could use trailing stops to ride trades further into profit. (Due to timezone, I set up my trades at work, as such I use Oanda, who don't support trailing stops!)

If anyone wants my strategy, they are welcome to it, I am happy to share I am absolutely stoked, over 20% in less than two months using a 5% risk per trade. Not sure what else could give me these potential LIFE CHANGING returns.

I am desperate to go live, but not until both Mark and I are happy that it is the right for me to do so. I want to make sure my strategy works over at least a six month period - got just over four months to go.

If anyone wants my strategy, just post on here (with email address) to let me know...

Cheers

Darren

I'm back from a short road trip..hope the Forecasts served you well...

I have been running a little demo for the last couple of weeks to illustrate my philosophy on the dreaded "stop loss". I know I beat this point to death, but I strongly believe it is the key to success using the Forecasts.

Before I describe my demo, lets re-cap my philosophy on stops.

I can not stress enough that each individual has to work within their own comfort level. It is a given that a Forex trader is a risk taker. But do not equate risk with gamble. I hate when anyone compares Forex trading to gambling. That is not to say that many Forex traders are not of the gambling mindset. Many just blindly throwing money at a trade hoping with fingers crossed that they roll their number. If you trade like this, for your own safety, just trade in a demo account until you formulate a calculated strategy on trading in the Forex.

I understand though that many traders feel they really are just throwing luck at trades hoping for a positive outcome. There are so many factors out of your control that influence the price of a currency. And I understand that many of you have looked for the Forecasts to hedge your bets. And it is with this faith and trust that I try to help you through this blog.

There are many reasons why I offered up the Forecasts. And one main one, in a selfish way, is through your success I can be successful also. I have laid my trading strategy out there for anyone to see, and if they like it can emulate or meld into their own style.

But there are limitations that you must understand. My wife hates when I use this expression, (maybe I use it alot)... "You don't have to be a chicken to sell chicken soup" And this is so true when trading Forex. So many people try and become the chicken! Try and think like a banker, act like a mathematician, have the resolve of an economist. How do you do all this and go to work everyday, have time for family etc.
So I am trying to get you to trade with a belief system. Not a system that has you re-inventing the wheel and saying what, how, why, why not etc. But using the wheel (the Forecasts) to simplify your trading. And through this approach, over time, everything will fall into place.
The Forecasts are open to interpretation, and with this inherent flaw, I constantly demonstrate different strategies to try and simplify the process. And the achilles heal in the Forecast is the reckless use of the stop loss. (bet you were wondering where this was going).

You can go back and read my previous blogs about stops. In essence, and I am not advising anyone of you to trade like this, I use money management in the execution of trades, and stop losses to get out of dead situations. And most times the stops are activated psychologically.

The money management is a basic system I use of dividing my account by the amount of deadly trades I can afford to lose. I also use a catastrophic event as a signal that allows me to recoup any hard loss I take. So if I have entered a trade and it went very south on me and pushes me out. I am going to be damn sure the next series of trades will bring my head back above water. And I do this by staying out of the market until a currency establishes a good direction, then I go back in. And I do this by observing the Forecasts.

Now, the one thing I don't want to do is have to start treading water because of the reckless use of stops.

So back to my demo. It played out while I was on the road. I try and think like a new user to the Forecasts and try and create a winning strategy based on limited experience with the Forecasts.

2 weeks ago, I picked a random evening and entered 4 trades based on the Forecasts. I only played the 4 majors. I know that in theory the euro/usd and usd/chf are correlated, and the gbp/usd and usd/jpy are correlated. (In this case meaning that the direction of one has the opposite direction effect on the other. So when the gbp/usd goes up, the usd/jpy goes down and vice versa.) My goal was to either let them all go into profit or cash out when the account was in a significant profit position. I put my profit inside of the the forecast range, and put my stops just outside.

So what happened? 2 of the pairs went into profit and cashed out, the other 2 got stopped out. I wound up losing money.

So then I did the same 4 pairs on a random night last week under the same parameters. But this time, left out the stops. What happened? They all eventually hit profit, even though many of them would have been stopped out.

So the moral of the story? Most times stops will prematurely get hit. Are you playing with fire if you don't use stops? Maybe, but if you monitor your positions, use proper money management, use a stop position based on saving yourself from a catastrophy, when the catastrophic event comes you can ride out the storm.

My theory, my thought, my strategy...not for everyone, but it works for me.

to view account:

http://stockandforexcenter.com/images/demooct11.jpg

There are 2 schools of thought on holding losing positions. And this impacts your trading strategy somewhat. 
1) A trade is not a loser until you close it out
2) The facts are the facts, a trade is what it is at that point in time.

I adhere to both schools (maybe my downfall) and maybe rationalize my positions somewhat. Also, the brokers I use force my way of thinking. Here is how.

One broker, GFT, uses a method of reconciliation that adjusts your account everyday at market close. It rolls over all positions and sells you out and buys back in at the current rate. In the beginning it was a bit confusing, as I would be up or down, and right after the rollover, my positions would be neutral. However my unrealized profit and loss would be different. They use a method that shows your cash (what you started with), floating profit and loss ( your current reality) equity (how much you have to play with) and your unrealized profit and loss (the profit or loss that gets applied every 3 days to your account). A bit confusing for sure, but the bottom line is it treats your account the way the banks trade with one another. You placed an order, and you have to pay up every day.

The other brokers I use, let the profits and losses ride until you close out the positions. (Interbank and One World) Most of you are familiar with this system.

I actually now prefer the first method, as although you will still be holding the currency pair until you close it out, everyday you can take a reality check and face the music in a losing position.

So now back to the psychology of holding onto positions. I use the Forecasts, combined with my Daily Chart set-up along with Event Risk observation to place my trades. I pretty much trade everyday and am looking for profits within my 22 hour Forecast window. I have a tunnel vision with the forecasts as I trust them as I trust the weather. Sometimes I am caught with out an umbrella, but many times the sun comes out to dry my losing trades. And I find that if I panic and run and hide (bail) on a losing trade it soon comes back to profit.

So what is my solution? Realistic timing and flexibility. I buy myself some flexibility by not having all my eggs in one basket and have 3 accounts running. That way if I have to hold onto a position wavering between my psychological stop (my perceived point of no return) and profit (rarely do I accept a "gee, I broke even now get out, mentality) I can still trade in my other accounts. You can do this by dividing your money by 2 or 3 and applying your risk and money management as if you have 1 account.

2 weeks ago I showed a kiwi position I had go from a 120 pip loss to a 25 pip profit. Right now I am holding on to a cable position that was 100 pips behind and has narrowed the gap to 15 pips behind. Many of you would have run from these trades. Not saying I am right, and you are wrong, just my belief system allows me not to panic, observe and make a decision.

By diving into deeper profit with trailing stops, and not killing yourself with exuberant stop losses you can maximize your positions. Yes, it is a game where you can not win every time, but to me it is akin to walking the wrong way up an escalator. If you stop, you go backwards, but by moving a little faster than the forces against you, you eventually make it to the top.

And you move faster by only stopping out of a trade when the hope is gone, not because it goes against you.

Market Directions Sunday, October 7, 2007

• The stoics-the Bank of England and the European Central Bank
• Job growth returns to the US, but not optimism to the Dollar
• The ECB wants a strong dollar but not a strong Euro?

The Week in Review October 1 - October 5

It was status quo in the central bank market this week. The Bank of England, the European Central Bank and the Reserve Bank of Australia all left their base rates unchanged. Only the American Federal Reserve has felt the need to chop rates in this post sub-prime world.

In the immediate aftermath of the recent credit problems the currency markets have placed the onus squarely on the Usd. The States were the source of the original problem and the most likely sufferer from its aftereffects. The Fed September rate cut and the admission it represented for the immediate health of the American economy drove the Usd down and down. The skein did not completely unwind until this past Monday when the Euro reached its lifetime high at 1.4280.

The fears that financial markets would freeze up in credit scarcity brought on by defaults in the sub prime housing and asset backed sectors have subsided. And while another large bank or mortgage company failure would make headlines it is unlikely it would incite the worldwide panic of early August. One of the chief fears in August was the unknown extent of the problem. How much questionable debt was held and how much would come due for refinancing in the following weeks. The period until the end of October was seen as crucial. We are now more than two thirds through that period and the credit markets have returned to normal functioning, if not to entirely normal spreads. The Europeans and the British central bankers, while acknowledging the severity of the credit liquidity situation, have demonstrated their resolve. They judge that their economies do not require preventative medicine. The remaining question is the health of the US economy; it weighs heavily on the dollar.

The situation is similar to that of last December. From October to December the then relatively new housing market collapse was expected to crack the wider US economy and produce a severe slowdown if not recession. The dollar sank against the Euro through the last quarter of the year in anticipation of the economic result. However, the US economy did not falter and the statistics improved throughout December. In January the Dollar gained almost 3.4% against the Euro. The case here is not to predict a Dollar recovery but to underline the fact that the market assumption is not yet proven. The speculative urge that is driving down the Usd is produced by anticipation of events not the events themselves. It may prove to be correct and the American economy may slip to neutral or recession. But the two figure fall in the Euro on Thursday reminds traders of the potential fragility of that assumption.

The difference between the economic views of the ECB and the Fed as expressed in their actions and policy are driving the dollar lower. Both are based on projections of current economic trends that are not yet fully substantiated.

United States

The US economy has not rolled over; it is still growing and creating jobs, the basic value for a consumer economy. But most economic numbers are sliding. Both ISM numbers, manufacturing and services, and factory orders were below forecast. The slowing trends that are evident in most US statistics originated before the credit crisis surfaced. However, there does not seem to be a generalized depiction of weakness, moderating growth is still the order of the day. With the Christmas and Holiday season approaching and the credit crisis behind a return to more buoyant spending is always possible. The main forward looking statistics, the purchasing managers indices and the consumer sentiment numbers were no doubt swayed by the emotional effects of the credit market crisis.

The Fed and Chairman Bernanke should be pleased with the NFP report. Job growth was not unduly affected by the credit liquidity crisis and recession fears are reduced as a consequence. Moderate but not dramatic job growth can support consumer spending without aggravating inflation. And while the three month moving average has been falling steadily all year, from +190,000 in January to +97,300 in the latest month this may help spur productivity and forestall rising labor cost pressures. Average Hourly Earning gained in September and with PCE Core Inflation at only +1.4% there is room for an increase in retail spending.

Eurozone

The ECB program for rate policy is clear and well expressed in the statement accompanying the rate decision. The reference to an "accommodative' rate policy was eliminated and replaced by "upside risks...to price stability". The wording may be different but it is hard to see how the rate stance has changed. Economic "fundamentals...support a favorable outlook for economic activity...on balance risks to the outlook for growth are judged to lie on the downside...[but] these downside risks relate mainly to the potential for a broader impact from the ongoing reappraisal of risk in financial markets..". In brief, except for the financial and credit market problems, the EMU economies are expanding at or above trend, producing a serious future potential for inflation that remains the bank's central concern. By implication, if the credit problems disappear then the bank will have no reason to be other than vigilant against inflation and the governing council will raise rates when and if it deems necessary.

Earlier in the week Jean Claude Trichet, ECB President speaking in Valetta Malta, reminded his audience that the US Treasury and Federal Reserve Bank have historically supported a strong dollar. His point was not to lecture the dignitaries that a strong Euro is good for the EMU economies and that the Europeans should stop complaining, but to remind the US officials of their traditional stance.

On Tuesday French Finance Minister Christine Lagarde had suggested that US Treasury Secretary Henry Paulson should say "loud and clear that a strong dollar is good for the US economy". If a strong Dollar is good for the US economy why wouldn't a strong Euro be good for the EMU economies? Would not all the advantages that a strong currency confers on the US also accrue to the EMU? Are the laws of economics different in the Old world than the New?

Or as one commentator, Barbara Rockefeller of Rockfeller Treasury Services put it, as quoted by Market News International, "the chance of ECB or G7 intervention is nearly zero, especially if it depends on the US participation". The Fed does not appear to be worried about the Dollar and the Treasury is unlikely to be either with exports up over 12%. While the US say "a strong dollar [is in its] best interest", it does nothing to support such a policy. "The real policy is let the markets decide". As for the Euro, the European have long said that they wanted a currency that could compete with the dollar's reserve status, "now let them live with it". No major industrial country predicates its economic, fiscal or monetary policy on exchange rates. The overriding operational factor is the health of the domestic economy; the Europeans are no different.

Japan

The Tankan Survey for the third quarter from the Bank of Japan held ground with large manufacturing firms reporting sentiment the same as in the second quarter, 23. Since GDP contracted 1.2% in that quarter according to the latest government figures the status quo reading was a small victory, reflecting strong demand from non US customers.

Economic Releases October 1 - October 5

United States

Monday: the Institute for Supply Management Survey of Manufacturing for September recorded a decline for the third month in a row at 52.0. This is consistent with a 2.5% growth in manufacturing. The median prediction had been 52.9, the same as the August reading. "Prices Paid' fell to 59.0 from 63.0, "New Orders' to 53.4 from 55.3. Only the result for 'Employment' increased to 51.7 from 51.3.

Tuesday: the Pending Home Sales Index from the National Association of Realtors (NAR) plunged 6.5% in August to 85.5. It is down 21.5% from the same period last year. Pending sales are those where a price between the seller and buyer has been agreed but the sale has not closed. The decline reflects the increased difficulty in mortgage financing for retail home buyers. The Pending Index acts as a leading indicator for 'existing home sales' and promises further weakness in the largest category of home purchase in the US. It also underlines the still lively potential for wider economic impact from the year long decline in the residential housing market.

Wednesday: the Institute for Supply Management Non-Manufacturing Index (ISM) at 54.8 was slightly better than the 54.5 forecast but below the August reading of 55.8. Though this was a bit less than the 56.6 average for the past it is nevertheless indicative of continued moderated growth into the fourth quarter. The 'Employment' Index staged a recovery to 52.7 from 47.9 in August; 'New Orders' fell to 53.4 from 57.0.

Thursday: Factory Orders for August underperformed expectations at -3.3% against the median forecast of -2.8%. It was the largest monthly drop since January when they fell 5.7%. The Euro climbed 50 points immediately after the release.

Friday: Non Farm Payrolls returned to positive territory in September as excepted adding 110,000 jobs. More interestingly the August deficit of -4,000 was erased with the adjustment to +89,000 for the month, most of the addition being in government payrolls. July's number was adjusted higher to +93,000 from +68,000 for a total revision of 118,000 over the two months. The unemployment rate moved 0.1% higher to 4.7%. The three months moving average has almost halved since the beginning of the year: January 180.7, February 159.3, March 142.3, April 129.0, May 162.3, June 127.0, July 117.3, August 83.7, September 97.3. Average Hourly Earning moved up 0.4% for the month, now 4.1% annually, a gain of 0.2% over July and August and slightly better than the average for the past year.

Eurozone

Monday: The final issue for the September PMI manufacturing number was 52.3 as expected and unchanged from the preliminary issue. It is the third monthly decline since June registered 55.6 and the lowest reading since February of last year.

Tuesday: the Produce Price Index gained 0.1% in August as expected, flattening the yearly rate to 1.7% from 1.8% in July. Energy prices ebbed 2.2% in August helping to lower the overall result but prices have since surged higher in September and were the chief cause for the spike to 2.1% in the preliminary HICP rate as reported last week. The ECB is unlikely to take much ease with this number. Unemployment in the EMU was steady at 6.9% in August, the third month in a row that it has sustained the historic low for this series which began in 1993. German unemployment fell to 6.2% from 6.4%; French to 8.6% from 8.7%. The jobless rate in the US is 4.6% and in Japan it is 3.8%.

Wednesday: Retail Sales rose only 0.1% in August, a quarter of the +0.4% forecast. The annual rate was +0.5% as predicted. The July result was revised to +0.4 from +0.1% monthly, and to +1.3% from +0.5%. The Euro was unmoved by the disappointing monthly number, the July adjustment negating the August result.

Germany

Monday: the NTC/BME Manufacturing Purchasing Managers Index (PMI) dropped to 54.9 in September 1.1 points lower than August.

Wednesday: the NTC PMI Report on Services registered a sharp drop to 53.1 in September from the August reading at 59.8. It was the lowest result in more than a year. NTC Economics is a private British economics date and research firm that produces a wide array of data on the economies of 20 of the worlds largest industrial countries.

United Kingdom

Monday: the CIPS/NTC Manufacturing Purchasing Managers Index (PMI) for September fell slightly to 55.1 from 56.1.

Wednesday: Reuters Services PMI for September eased to 56.7 from 57.6, a tad below the 56.8 median forecast and the weakest result in 13 months. "Employment' fell to 51.8 from 43.7 and "Prices Charged" jumped to 53.7 from 53.1. The British Retail Consortium (BRC) Shop Price Index in September gained 0.2% and was 0.4% ahead of last year's prices. Food prices were the main culprit, up 0.6% in September, and 2.7% annually. It was the largest increase since last December. In August the yearly inflation rate for food prices was only 2.1%. Non-food prices sank 0.1% in September, a +0.7% annual rate. The 'final' RBS/NTC Report on Services PMI added 0.2 to 54.2, a substantial drop from the 58.0 reading in August. Nationwide Consumer Confidence rose to 99 in September a major improvement over the 94 reading in August. However, the current relevance of the September score is questionable because 90% of the data was collected before the BOE rescue of Northern Rock.

Japan

Monday: The BOJ Quarterly Tankan Report for the third quarter presented a mixed picture for the Japanese economy. Business confidence at large manufacturing companies remained at 23, as it was in the second quarter but better than the forecast of 21. All other major categories of business confidence recorded losses: 'small manufacturing firms' were 20 against 22 in quarter two; 'large service firms' were 20 versus 22 in the second quarter and 'small service sector firms' categories were -10 as opposed to -7 in the second quarter. Firms were polled for their opinion between August 28th and September 28th.

The Week Ahead October 8 - October 12

United States

Monday: Columbus Day Holiday US markets closed

Tuesday: FOMC minutes at 2:00 ET for the September 18th meeting when the Fed unexpectedly cut rate 0.5%.

Thursday: International Trade Balance for August at 8:30 ET; July -$59.2 billion

Friday: Retail Sales for September at 8:30 ET; August +0.3%. Retail Sales ex Food and Auto for September at 8:30 ET; August -0.4%. Producer Price Index (PPI) September at 8:30 ET; August -1.4%. PPI for September at 8:30 ET; August +0.2%. University of Michigan Consumer Sentiment for October at 10:00 ET; September 83.4.

Eurozone

Thursday: GDP for the second quarter (second issue) at 9:00 GMT; first quarter +0.7% q/q, +3.1% y/y. EU Commission GDP forecast at 9:00 GMT; Q3 2007 +0.3%-0.8%, Q4 2007 +0.2%-0.8%, Q1 2008 +0.2%-0.8%.

Friday: Industrial Production for August at 9:00 GMT; Jul +0.6% m/m, +3.7% y/y.

Germany

Monday: Total manufacturing Orders for August at 10:00 GMT; expected +2.0% m/m, +4.3% y/y. July -7.1% m/m, +6.1% y/y.

Tuesday: Industrial Output for August at 10:00 GMT; expected +0.5% m/m, +3.9% y/y. July +0.1% m/m, +4.4% y/y. Manufacturing Sector Output for August at 10:00 GMT. July +0.2% m/m, +5.7% y/y.

Thursday: Wholesale Prices for September a 6:00 GMT. August +0.5% m/m, +2.5% y/y.

United Kingdom

Monday: Manufacturing Output for August at 8:30 GMT; July -0.3% m/m, +0.6% y/y. Industrial Production for August at 8:30 GMT; July -0.1% m/m, +0.9% y/y.

Wednesday: RICS House Price Survey for September at 23:01 GMT.

Joseph Trevisani
FX Solutions
Chief Market Analyst

Trading with the Forecasts, or for that matter Forex trading in general requires acceptance of risk.

There is a reason why every broker, every Forex Guru, every Forex book comes with a disclaimer. The Forex is fast action, fast paced, brutal and takes no prisoners.
In a previous post I discussed that the minute you put real money in your brokerage account you should accept the possibility you will never see that money again.

Do you think that way in Real Estate, stock trading, mutual funds? Probably not.Yet if there ever was a "boulevard of broken dreams" the Forex paves this boulevard with overwhelmed traders who either never found, or lost their way.

So then why bother? Because the Forex can be tamed if, first and foremost, you push hard, and then even harder.

What do I mean? It is a mindset. You can not be timid or in panic mode when you trade.

When I trade, (and my strategy consists of using the forecasts, visualizing with my Daily Charts, assessing event risks, and then forming a conclusion based on all the chaos that surrounds you when you immerse yourself in the Forex) I assume the responsibility that my trade can go south on me. And at the very least it will bring me some pain before it brings me pleasure. And I enter all of my trades the same way.

Based on the stupid things that I used to do when I was new I have developed rules that I trade by. In fact I can not even relate to the way I used to trade.

So what are these rules you may ask. I'll tell you in a moment .
In the beginning, you will soon learn, if you survive, that you don't know what you do not know. In the beginning you are wrapped up not only in learning the the basics of executing a trade, but charts, graphs, candlesticks, resistance, fibonacci, elliott wave theories, signal services, subscriptions, you name it...Then you place a trade in a demo account, and you watch as one of 3 things happens..nothing, drops like a rock, or shoots like a rocket. And each one of these events will form a different mindset that will linger on with you for a long, long, time.

Say, you make a great profit. Then you fall into this false sense of security where you feel you can do no wrong. Depending on the timing in the market, you may be able to link together a whole series of great trades, and now you are a superstar. Then you go to bed one night thinking how hot you are and wake up to find that some bank makes a surprise interest rate drop or hike, and you get wiped out.

What if your first trade is a dog. Then you are branded with the fear of trading for a long time. And with this fear you make bad trade after bad trade and you slither away into the Forex wastelands.

You have to treat the Forex with a level of respect, and through knowledge gain an edge. You need to learn your broker software, relationships between currency pairs, significant monthly event risks, and where possible have a mentor, as it is very difficult to do this alone.
In demo accounts you need to trade like it is real money and experience getting wiped out, and making windfall profits. And then, with a level head, after you have a reasonable amount of trading time (months, not years) develop a clear thinking disciplined winning strategy . Once this strategy gives you 2 or 3 months straight of profit (no matter how small) then and only then do you use real money.

So my rules.
1) Do not be underfunded when I trade and be able survive a significant pip drop that will not wipe me out
2) Understand that my money, when it is not under my pillow is at risk, no matter how effective your strategy is
3) Accept that a trade will go south sometimes right away but have the conviction to ride it out it .
4) Develop a stop loss strategy that does not stop you out of profitable trades.
5) Milk out maximum profits by using trailing stops once your profit target is hit.
6) Do not feel you always have to have a trade in the market.
7) Do not let trading interfere with your life.
8) Identify when you have done something stupid, and try not to do it again. Really hard to do.

Many of you don't realize this yet, but you have an environment right before your eyes that can eliminate much of the pain in the beginning. Unfortunately we are probably another piece of the clutter that overwhelms. Part of that "you don't know, what you do not know" scenario.

Making money requires an effort and proper mindset when tackling this beast known as the Forex.

Without getting too preachy here, human nature sometimes forces us to take the easy way, which many times leads to failure. Yet, with a little bit of effort in the beginning it actually becomes "easier" to be successful in the Forex.

If you are reading this blog, you have taken an action to sign up for our subscription. Yet, by tracking my page views of both the Forecast and our blog, I am quite surprised to see that 100% of my subscribers do not look at the Forecasts, and maybe 10% read the blog.
It begs the question, "why signup"?

A good friend of the blog has made a few observations on my behalf. At one point he said.."people need to have their hands held and told.."buy this at that price, sell it at that price etc." he also said "anything worth having does not come for free". Made sense to me.

And that is the dilemma I have with the Forecasts. They can be open to interpretation, and until you get out of the Forecast trial period you don't have a vested interest to succeed. It is much "easier" to give up, than it is to develop a strategy.

I have a tight circle of Forex friends who believe, on any given day, they can make a profitable trade. They also accept that with that belief they will have days that they lose.

I have a super strong belief that I can jump in everyday and make money using the Forecasts and the other tools I provide.

But unless you have deep pockets and can afford to lose alot while you jump from one system to another, from one signal system to another, from one "guru" to another, the Forex turns into a heart break. The common ground in these Forex friends is they "believe" in, and understand their trading strategy and are disciplined in their approach.

I am not any different than any one of you, except that I may have experienced the downside of the Forex already. I have gone through the Forex School of hard knocks, have been beaten up, had my morale squashed, but at the end of it all, came to the conclusion that I have the perfect mindset for the Forex.

So how then can you make money with these Forecasts? That is really why you are all here. How can a system that is 79% accurate, be open to interpretation, consistently make you money, while not wipe you out 20% of the time. What you need to do is invest "effort" as your capital in the beginning.

1. Read the "how to" section, and follow the blog.
2. Print out the Forecasts when you receive them.
3. Every day before you receive the Forecasts, highlight the currency pairs that came within 75% of the forecasted target by looking at the daily high and daily low in your broker's software.
4. Learn how to use my Daily Chart Set-up. Although it is not necessary for the Forecasts, it gives you a visual of what is happening with the currency pairs.
5. Stick with the 4 majors. gbp/usd, euro/usd, usd/chf, usd/jpy. Stay away from the higher volatile pairs , gbp/jpy, euro/jpy.
6. For 7 trading days, do not think about winning or losing. Using 4% of your account trade the 4 majors to get a "feel" for the forecasts. Put a take profit at 50% of the favoured direction. Set a stop loss 10 pips outside the range. View the Daily Chart of each pair to get a visual and note any observations you may make between the Forecast and the Chart.
7. Close out any open positions prior to the next day forecast coming out.
8. At the end of the seven days, do an accounting of the results of the currency pairs.
9. Identify the 2 pairs that gave the best results
10. Trade only one of them each day if the strength is at medium strong to strong for another 8 days.

This is how you learn to use the Forecasts. Do not care about winning or losing. Care about observing the behaviour of the pairs.

If you are prepared to do these easy 10 steps during your trial then you will have the necessary foundation to make money using the Forecasts. If you can't make this commitment, this may not be for you.