Your Forex Questions Answered

• January 30, 2004
• Dave Floyd

I wanted to take a
moment to thank the readers of this column for providing some great
questions and feedback regarding FX trading. The email list for the beta test
phase is growing at a rapid pace. However, like any new venture there are
always questions. So, over the next few weeks I will devote a portion of a
column to addressing specific emails that I receive regarding FX trading. The
last part of today’s column will review a couple of trades from yesterday and
look to some potential support and resistance levels for today.

What data feed and charting program do you
use? Or is this provided my your broker?

Most of the FX Brokerage firms out there provide
some basic charting packages to their clients. Some are primitive, some are
quite good. It really depends on who you use to execute your trades. I use
E-Signal. I do this for a couple of reasons. First, it integrates in with the
layouts I am already using (do not want multiple platforms open at same time)
and E-Signal has a few add-ons that I like to use for my technical analysis.

What time frame do you use to trade the FX? 5
min, 60 min, daily, etc?

This is purely a matter of preference and what
you feel is most effective. Given that I still do HVT
each morning with stocks, I have gravitated towards using a minimum time frame
of a 60-minute chart. I also rely on daily and weekly charts as well. A
colleague of mine who is the head FX trader at a bank in Boston was a bit
dubious of using charts at much lower time frames.

Do you trade the FX market on a 24 hour
basis? Hold trades overnight with stops?

While the FX market operates 24 hours a day, 5
1/2 days a week it is naturally unhealthy and not feasible to trade round the
clock. This again goes back to my desire to trade off of 60-minute charts and
higher. With this type of an approach I can place my trade, stop loss and
profit target (if applicable) all at once and walk away. Since I base most of
my trades purely on technical levels and my interpretation of the chart pattern
it makes this approach quite feasible.

In addition, like all markets, there are periods
of the day when the price action and liquidity are the most robust. For FX
these periods are the NY opening & London opening. The Asian opening is the
least active of the three, London being the most active. So for night owls,
London provides plenty of action.

I have based my decision purely on the
accessibility to the marketplace. For me, that meant trading the spot market
(FX) versus the futures market. Each trader will have their preferences.
However, my take thus far has been that from a software standpoint as well as
accessibility, the spot market has the edge, you can trade from virtually
anywhere.

^next^

Yesterday provide a wealth of opportunities in
both HVT and FX land. The FOMC decision was still having repercussions
and that translated into some nice volatility. Let’s take a quick look back.

Gold stocks, from an HVT standpoint were quite
active. The Euro and the Dollar Index were quite volatile, as a result there
were a handful of solid trades on the opening. However, as has been the case
for several months now, the morning was really the onyl time that offered the
most robust set-ups. A review of my trades from the last six months clearly
shows that nearly 90% of my HVT income comes from trades on the opening only.
The afternoons are slowly becoming a waste of time. (One other reason I focus
on FX after the opening.)

Naturally the FOMC statement had a profound
impact on the major currency pairs. Just yesterday alone I had entered/exited
three positions and was still holding one as of 6:30 PM PST last night. All of
these trades were based off 60-minute charts and were purely technical set-ups.
They were as follows:

Entry Exit

Short EUR
1.2437 1.2376

Short GBP
1.8215 1.8130

Long GBP
1.81 1.8180

Long AUD
.7598 still open

Looking ahead to today’s session, the question
will be whether or not the Dollar (DXC) will
be able to hold onto its’ recent gains. Remember, 86.50 remains a key support
level, and a breach of that will drive the EUR,
GBP, CHF
and AUD higher. However, before we get
there, there are still some potential areas to keep an eye on.

EUR
resistance at 1.2435 & 1.2480

GBP
support at 1.8150 & 1.8120

Naturally these levels may have been breached or
the trades may have already taken place in the overnight session, but I lay them
out there as an illustration.

As always, I welcome your
comments and questions. If you would like to have your email address added to
my FX Mailing List for actual trade recommendations ahead of my FX
Service through TM in mid-February; simply send me your name and
email address to: aspendave@yahoo.com.

Dave