Trend Analysis

The world of investment is flooded with excellent ideas of growing your money, but you are required to make use of geometrical patterns, diagrams, statistical analysis and other similar tools to reach a definite conclusion for efficient investments. The hugest trading market called forex is also not spared from in-depth study of market trends to earn profits and avert losses. Forex trend lines serve the purpose, as these patterns help to extract most rewarding information and plan your course of action for investing in various currencies.
Usefulness of Forex Trend Lines

The forex trend lines are helpful in introducing the most vital entity required by an investor and this entity is called information. How can one expect to make worthy investment, without adjudging the highs and lows existing in the market? Here is the list of most prominent benefits of forex trend lines:

- These lines help to depict the support and resistance levels, which are of great importance in deciding the sale or purchase of various investments.

- The trend lines help the investors to decide their entry and exit points to the forex trading market.

- These patterns make you familiar about nature of forex market; the sharp turns taken by trends and unwarned movements of different investments.

- In a nutshell, these lines fuel technical analysis of this investment market, which is certainly the most appreciable tool for making an investment.
Important Types of Forex Trend Lines

The forex trend lines are available in different popular forms, as summarized below:

- Simple trend lines consist of straight lines drawn vertically, horizontally as well as diagonally.

- Fibonacci trend lines have gained popularity in recent times and are excellent tools of understanding current market trends in forex trading. There are different variations of these lines in the form of Fibonacci Arc, Fibonacci Fan and Fibonacci Retracement.

- Pivot trend lines are drawn on the basis of fluctuations in the market during previous time frames.

- Speed trend lines are similar to Fibonacci trend lines, with the only replacement of Fibonacci numbers with calculations by thirds.
Drawing and Studying Forex Trend Lines

As you grow old in terms of experience of dealing with forex trading, you are able to play with forex trend lines. But, at the very onset of your investments in the forex market, you are required to seek the guidance of forex market experts in drawing as well as interpreting information from the trend lines. For instance, you must be capable of identifying the situation in advance, if the forex market is expected to move in an opposite direction. It could be a sudden turn and you must catch the signals generated by forex trend lines for this behavior of the market. Thus, initial understanding of these trend lines can provide benefit to an investor for rest of his age of investment.

It is the simplest and most convenient in all the technical analysis to draw a trend line on the forex chart. Upward trend:

Downward trend:

Sideways trend:

The market trend is consisted of three stages:

The first is the initial stage where the market trend is shaped up.

The second one is the developing stage where the trend is strongly kept as it is.

The last one is final stage where the forex market begins to suggest the next new trend on a certain turning point.

You can find the clear trend nearing to the final stage as long as you make use of the moving average, because it is coming later than the market movement. It might be fear that you would buy at the highest or sell at the lowest if you missed capturing the market trend accurately.
Forex Trend Lines Tools

There are many online websites, dedicated to introduce automated tools for drawing forex trend lines. These tools are part of automated software systems, available in large quantity over internet. You must evaluate all these systems on the basis of various factors and finally take a decision of choosing one of these tools. Make sure that you choose a reputed resource for accessing these tools.

For becoming a good player of the game of forex trading, you must consider trend patterns as right game gears. Also, keep your knowledge updated about various methods of drawing forex trend lines and switch over to a new system, if you find it more suitable. At a later stage, you will definitely experience the building up of your knowledgebase for forex trading trends and trend lines.

Central banks

National central banks play an important role in the foreign exchange markets. They try to control the money supply, inflation, and/or interest rates and often have official or unofficial target rates for their currencies. They can use their often substantial foreign exchange reserves to stabilize the market. Milton Friedman argued that the best stabilization strategy would be for central banks to buy when the exchange rate is too low, and to sell when the rate is too high—that is, to trade for a profit based on their more precise information. Nevertheless, the effectiveness of central bank "stabilizing speculation" is doubtful because central banks do not go bankrupt if they make large losses, like other traders would, and there is no convincing evidence that they do make a profit trading.

The mere expectation or rumor of central bank intervention might be enough to stabilize a currency, but aggressive intervention might be used several times each year in countries with a dirty float currency regime. Central banks do not always achieve their objectives. The combined resources of the market can easily overwhelm any central bank. Several scenarios of this nature were seen in the 1992–93 ERM collapse, and in more recent times in Southeast Asia.

Currency Risk

A form of risk that arises from the change in price of one currency against another. Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged.

For example, if you are a U.S. investor and you have stocks in Canada, the return that you will realize is affected by both the change in the price of the stocks and the change in the value of the Canadian dollar against the U.S. dollar. So, if you realize a 15% return in your Canadian stocks but the Canadian dollar depreciates 15% against the U.S. dollar, this will amount to no gain at all.

Academic studies of currency risk suggest - although without absolute certainty - that investors bearing currency risk are not compensated with higher potential returns, meaning it is essentially a needless risk to bear.

Currency Trading Pips and Ticks

A pip is the smallest change of price for any Foreign Currency. The currency quotes appear as numbers with either two or four decimal places. This means that if the Foreign Currency moves up or down, the smallest move is called a "pip". When you trade in Forex, you monitor how the pips rise and drop and this is what determines your investment.

An example of this is if you buy EUR/USD. This pair is quoted four decimal numbers after the point. A pip here is ten thousandth of a Dollar, or 0.0001 of a dollar, meaning 1/100 of a cent. The pip is an abbreviation of "Price Interest Point", and this is why another name used for pips is points.

Even though a pip is only a small amount of money, because your foreign currency trading is usually a leveraged investment, a few pips can mean serious cash fluctuations. Each serious trader needs to know how to calculate the change from pips the actual sums invested, and some online Foreign currency trading agents offer such calculators in their account. You should consider these and other advanced functions when selecting the broker you want to use. Pip value can vary, and is usually $1 in mini accounts or $10 in regular accounts.

An important concept that concerns pips is called The Spread. This is the pip difference between the bid price and the ask price done for the currency trading sum. When you buy Foreign Currency it costs you more than to sell it and this is the spread.

Ticks are the smallest amounts of time that exist between two currency trades. This time frame can be a short time period of a fraction of a second for major currencies, or can also be a time frame of a few hours for less popular currencies. Ticks do not happen in constant intervals, even though the charts used for technical analysisdo use specific time rates such as 4 hours of 15 minutes.

Currency Trading Leverage and the Margin

Leverage is when your invested cash is used to buy or sell foreign currencies that are worth far more that the investment. Simply put,leverage gets you more currency than you pay for.

When you buy\sell a leveraged currency, the sum you invest is called the Margin. The margin is used by your broker as a deposit for the currency you buy or sell.

A Leverage investment works as the following example:

• You buy/sell foreign currencies for $100
• You receive a leverage with a ratio of 100 to 1
• Your investment is now worth $10,000

Foreign currency trading companies have various criterions for opening a margin trading account, and there are different margin accounts availablefor you. usually moving from one to two thousand dollars deposit for each trading day. Upon opening an account the trader gains overwhelming leverage – up to 0.5%! In example - in order to execute a 200,000 dollar transaction you'll need only 1000 dollars in your margin trading account, thus minimizing the personal funds invested in every transaction.

With leverage you not only win big, but lose big - It's very important to remember that a margin account can enlarge your profits as well as your losses. So while you are upscaling your currency trading profits, any losses will also become greater for leveraged foreign currency. If you get a margin call, it means you've lost 75% of your initial investment, and you need to invest more to continue having the leveraged currency.

Leverage allows more people to trade - As a result of the size of the forex market (more than 1.9 trillion dollars each day), most of the trade is being made in $10,000 lots. This could have blocked the small forex traders, who are reluctant to risk such sums, out of the forex market. Fortunately the forex market provides extensive leveraging options that are far better than you can find in any other financial market.

The initial margin requirement is the minimum investment you need to make in a foreign currency trading action. Your margin account is very much like your regular bank, where you can deposit and withdraw your capital. All of the margins accounts are closed at the end of the trading day and all gains and losses are assessed into the end balance. This is called the Rollover.

Cyborg Automated Forex Trading System

This part human - part machine currency trading strategy trades a dozen different Forex strategies with the parameters set by us each and every day! It's very hard to create an automated Forex trading system as markets constantly change so we tell it everyday at what zones to LOOK for Forex currency buys & sells and WHEN to look for counter trend trades!

A computer can not do multi time frame Forex analysis as well as a professional trader can and that's why so many Automated Forex Systems fail miserably as online Forex markets are constantly changing. They just can't adapt, but our Cyborg FX System automatically adapts each day as we read the market and make changes to it!

Euro Optimism (And not just Dollar Pessimism)

According to a recent Merril Lynch (Bank of America) survey, Europe has officially returned to favor among investors. “A net 30% of global portfolio managers see euro-zone equities as undervalued relative to other regions, the highest reading since April 2001. A net 11% are overweight Europe, the first overweight allocation in nearly two years, said Baker.”

The numbers, meanwhile, reflect this perception. Over the last month, investors have poured a net (inflows minus outflows) $2.1 Billion into EU capital markets, an impressive sum when you consider that the figures for Japan and the US were both negative. Meanwhile, stock markets in the region are up by 50%+ since bottoming last March. When you account for currency fluctuations (i.e. Euro appreciation), stock market comparisons between the US and EU start to look pretty lopsided.

According to a WSJ report, there’s no mystery behind the European stock market rally: “Even though prices have risen sharply since March, valuations aren’t stretched. Average price-to-earnings ratios in Europe, on a trailing 12-month basis, are about 16, up from seven back in March, according to Citigroup…On a price-to-book ratio, stocks are trading about 15% below their long-term average, and dividend yields compared to government bond yields are historically still very attractive.”

At this point, you’re probably wondering, “Why the long preamble on European stocks?” Because, it’s easy to forget that there are inherently two sides to every currency pair. In the case of the USD/EUR (the most frequently traded pair in the world), most of the recent commentary has focused exclusively on Dollar-negatives, portraying the dynamic as a depreciation in the Dollar. In this context, it’s easy to forget that the Dollar’s depreciation implies an appreciation in the Euro. Duh?! But seriously, for every Dollar bear, it seems there is at least one Euro bull.

To be fair, those who don’t see much to be excited about in the Euro can be forgiven. After all, the European economy is technically still mired in recession, and isn’t projected to return to growth until 2011. While some of the intangible indicators are improving, others continue to stagnate. “Industrial output in the euro zone is 20% lower than its February 2008 peak, despite some recent improvements.” In addition, the appreciation in the Euro threatens to choke off exports and stifle the recovery before it has a chance to get off the ground.

Speaking of which, the European Central Bank (ECB) will probably hold of on raising rates because of the strong currency. A more valuable Euro keeps inflation in check (via cheap imports). Besides, higher interest rates would attract carry traders hungry for yield, and would make it even more difficult to keep the Euro in check. Many EU monetary officials (including ECB President Jean-Claude Trichet) have already made their concerns about the Euro’s appreciation clear. If they are able to succed in halting its rise, that could make investing in Europe a lot less exciting…