FXCM/DailyFX Signals and Strategies

Thanks Jason,

Lots of good info on this thread.

Thanks and hope it helps with your trading!

Take a look at the 1 hour chart on GBP/USD. It's now trading at the bottom of the range which began about 3 weeks ago.

http://img411.imageshack.us/img411/7...01112528pm.png

I've seen a lot of false breakouts during the same period, so caution should be used if you think we may see a break. But, SSI positioning has flipped to net long so the retail crowd is happy to continue playing the range. SSI is a contrarian indicator and signals a break to lower levels for GBP/USD. Here's a look at the SSI report released about 30 minutes ago.

http://img88.imageshack.us/img88/144...01113243pm.png

SSI can be found updated twice a day through DailyFX PLUS: http://plus.dailyfx.com

Hi Jason

Does FXCM supply any information as to key FX Option levels and dates?

Thanks
Mike

Hi Mike,

I checked and FXCM does not. The closest thing options related through DailyFX is the FX Options forecast from David Rodriguez http://bit.ly/rIJahG though I have to admit I'm not as familiar with this report.

-Jason

There's been a nice break in the GBP/USD range mentioned yesterday, and next up we have EUR/USD. EUR/USD has played to the range traders favor over the past month, but we're now seeing it test the 1.35000 level again. The DailyFX Plus trading signals just generated a short signal based on the approach near support and the fact that the majority of traders are buying EUR/USD as displayed by SSI. Remember that SSI is a contrarian indicator so it's signalling to do the opposite of what the majority of retail traders are doing. Here's a look at the signal setup and overview posted in DailyFX PLUS.

http://img249.imageshack.us/img249/5...20111140am.png

The Breakout Opportunities system has just sold EURUSD at 1.35122. The system recommends entering this trade at any price between 1.34717 and 1.35448. The signal was issued because the EURUSD has broken its 24-hour low while our Speculative Sentiment Index was at 1.2284, suggesting that the EURUSD may have further to fall. A stop loss has been set at the 24-hour high of 1.36427 and a profit target has been set at the 1 Day ATR level at 1.33502. The system will move the stop to the next 24-hour high every time that 24-hour high is lower than the previous 24-hour high. Breakout Opportunities is a breakout strategy that aims to catch the significant moves that typically happen when currencies break through technical support or resistance. The SSI Breakout strategy tends to work well in volatile market conditions, generally when the DailyFX Volatility Percentage in a pair is above 75%. The volatility in EURUSD at the time of signal is 77%.

Hi Jason

Thanks for the reply regarding options. I found the link very interesting especially the video of the presentation given by David at the expo.

My next query is regarding the volume data on FXCM charts. I understand that FX is decentralised, so my question is basically what are FXCM's sources of volume data and is this volume mainly indicative of retail activity?

Many thanks
Mike

The volume data on the charts actually refers to tick volume. So what you're probably thinking it is, actual retail trading volume, is not what it actually is. I know that some traders use this in their own trading the most popular here on Forex Factory being VSA (Volume Spread Analysis http://www.forexfactory.com/showthread.php?t=241760). Whether tick volume as displayed on the chart is indicative of forex volume as a whole...I couldn't say and not really sure.

The closest indication to FXCM retail volume we release is through the SSI (Speculative Sentiment Index) information. SSI shows net positioning long vs. short, open interest, and daily change in longs and shorts. This data is updated twice a day through DailyFX PLUS and once a week on DailyFX here.

If you're used to watching volume in equities and futures, this probably won't be spot on what you're looking for, but we feel that size of the retail volume going through FXCM makes the SSI tool a good indication of how the retail market as a whole is positioning.

This could be premature for EUR/USD, but a downtrend could be forming. If so, the pair could experience a 100+ retracement and still be within the confines of the downtrend. Here's a look at the 2 hour chart:

http://chart.ly/uploads/rgakht5.png

So, the point here is to mind your entry points and stops if bearish EUR/USD.

In other news, FXCM released a new build of Trading Station Desktop available for download immediately, or you can just wait for the automatic update this weekend. The new features are listed on the FXCM Discussion thread http://www.forexfactory.com/showthre...80#post5132280

In preparation for next week and mutiple bank holidays, you may want to take a look the rollover calendar on DailyFX if you plan to hold positions open for multiple days next week. For example, there's 5X rollover for JPY pairs on Monday, 0 rollover for JPY pairs on Tuesday, 4X rollover for all other non-JPY pairs on Tuesday, and 0 rollover for all pairs on Wednesday.

Forex trading hours will remain the same next week despite the Thanksgiving Day holiday in the US.

Today's Weekly SSI report from DailyFX says the euro is likely to fall to fresh lows. Here's the write-up from DailyFX:

EURUSD – Trading crowds continue to buy the Euro against the US Dollar, giving contrarian signal that the pair may continue lower through upcoming trade. Last week the majority of retail traders had turned net-long the EURUSD for the first time since the pair traded at the 1.3350 mark. Said shift marked an important turn in market sentiment and suggested that the Euro may continue to set fresh lows through the month of November.

The only caveat to said forecasts is that traders have scaled back their EURUSD long positions overnight. Our SSI ratio stands at 1.03 traders long for every one short—virtually neutral as only 51% of traders are long. Yesterday, the same ratio was at 1.45 as 59% of open positions were long. The number of traders long fell 9.0% overnight yet is 34.3% above levels seen last week. All the while, short positions are 28.4% higher than yesterday yet 2.5% weaker since last week.

The fact that crowds remain net-long gives contrarian signal that the EURUSD may continue lower. Yet the overnight moderation in sentiment waters down our calls for shorter-term losses.

http://media.dailyfx.com/illustratio..._Picture_5.png

I'll go into more detail how to read the above chart in case you're new to the SSI indicator. SSI itself shows you the net positioning of FXCM's retail traders for the listed currency pair. The net positioning is plotted onto the above chart as a bar. The bar is green if net positioning is long, and the bar is red if net positioning is short. The bar color will also go from transparent to opaque as the positioning becomes more extreme. So you can see from the above chart that positioning from October through November was net short as indicated by the red bars. Then in November we've seen EUR/USD positioning begin to flip from net short to net long, giving a bearish signal.

The same SSI charts for additional currency pairs can be found here http://www.dailyfx.com/technical_analysis/sentiment/.

EUR/CAD...the better way to play Europe?

David Rodriguez of DailyFX covered this topic yesterday in his weekly forex correlations article specifically mentioning...

The Australian Dollar clearly remains an excellent proxy for moves in stock markets, but what if you want to play the Euro without a “risk” component? In a recent interview on CNBC, Robert Sinche, Head of FX Strategy at RBS Securities, said that the EURCAD remains an attractive proxy for all of what’s going on in the Euro Zone.

If you believe that the European fiscal crisis will worsen, you may want to be short EURCAD. The opposite is also true: material (if unlikely) improvements in Euro Zone crises could push the EURCAD higher.

Sometimes the lack of correlation makes a specific trading security attractive. We agree with Mr. Sinche; the EURCAD seems an attractive play on Euro Zone troubles with little exposure to moves in broader financial
markets.

http://media.dailyfx.com/illustratio..._Picture_1.png

Notice the correlation in the chart above for EUR/CAD versus the S&P500 has been very close to 0 which indicates little to no correlation between the two.

Risk factors for the CAD side will include economic releases for GDP on Wednesday and employment on Friday. Canadian employment last month came out at a shocking -54.0K and expectations are for an increase in the month of November of 17.5K.

Below are two interesting infographics I ran across in the past week, and really who doesn't like infographics.

The first is from the BBC and details how much the selected country owes to banks in other countries. It clues you in on which countries banks hold a significant amount of sovereign debt from the country in question. For example, if you look at the screenshot below Italy is selected and it shows that the majority of Italian sovereign debt is being held by French banks. If Italy defaults, Italian banks could be in trouble.

http://img163.imageshack.us/img163/2...2120111573.png

The interactive infographic can be found here http://www.bbc.co.uk/news/business-15748696 and you can click on each country to find out which other countries hold the majority of their sovereign debt.

The second infographic below is from Spiegel.de and details the size of upcoming bond maturities for France, Italy and Spain. This is important because yields have been increasing for each countries which makes it more expensive to rollover the debt. So looking over the infographic, it will tell you that January 2012 will be the most important month for France, February 2012 will become a stressful time for Italy, and Spain has about the same amounts maturing until April 2012. The infographic can be found here http://www.spiegel.de/international/business/bild-801071-287703.html .

http://img854.imageshack.us/img854/6...s121201120.png

Here are 5 key economic events to watch this week as written by Christopher Vecchio of DailyFX.com

AUD Reserve Bank of Australia Rate Decision: December 6 – 03:30 GMT
The Reserve Bank of Australia will hold its December meeting on Tuesday, where it is expected that the rate will be cut to 4.25from 4.50 percent. At the previous board meeting in November, the RBA decided to cut the key rate to 4.50 percent from 4.75 percent, a level that was unchanged since November 2010. According to the Credit Suisse Overnight Index Swaps, there is an 84.0 percent chance of a 25-basis point rate cut at the central bank meeting on Tuesday. Accordingly, 129.0-basis points are being priced out over the next 12-months, in line with the expectation of a rate cut at the coming meeting. Considering expectations for a cut are so heavy, if the RBA does not budge, the Australian Dollar should find some significant support. The rhetoric in the statement following the meeting is vital.


GBP Bank of England Rate Decision: December 8 – 12:00 GMT
The Bank of England’s Monetary Policy Committee is expected to maintain its key benchmark rate at 0.50 percent at its meeting on Thursday, the same rate held since March 2009. The primary underlying reasonto maintain the rate continues to be the Monetary Policy Committee’s focus on economic growth rather than on reducing inflation, which ticked higher recently.The Overnight Index Swaps suggests rates will be on hold for some time, with a 1.0 percent chance of a rate cut at the meeting on Thursday. It is also important to watch whether or not the Committee expands the central bank’s asset purchase program again – it was increased to £275 billion at the October meeting – a move that would be an extension of quantitative easing, thus weakening the British Pound.


EUR European Central Bank Rate Decision: December 8 – 12:45 GMT
The European Central Bank is expected to cut its key interest rate to 1.00 percent at its meeting on December 8. At the previous ECB meeting in November, the Governing Council, in Mario Draghi’s first meeting as President, cut the key rate to 1.25 percent from 1.50 percent. According to the Credit Suisse Overnight Index Swaps, there is an 81.3 percent chance of a 25-basis point rate cut at the central bank meeting on Tuesday. As Euro-zone growth stalls and increasing pressure brought by the market comes down on periphery nations’ bond markets, Draghi has fielded an increasing number of calls by politicians and market participants alike to ease further, as a way to keep liquidity flowing. In fact, interbank lending has become such a concern that coordinated intervention last week was necessary to prevent the collapse of a major Euro-zone bank (rumored to be Credit Agricole). Save the Euro-zone Summit, this is the most important event of the week.


USD United States U. of Michigan Consumer Confidence (DEC P): December 9 – 14:55 GMT
Consumer confidence in the United States is forecasted to improve slightly in December’s preliminary reading, after rebounding in November back to 64.1. The 65.8 forecasted print comes after a string of better-than-expected data out of the United States suggests that the world’s largest economy might be able to avoid the second leg of a double dip recession, should the Euro-zone manage to stay together. Recent headwinds to confidence in recent weeks have been a deteriorating labor market and volatile oil prices, but with the United States avoiding another downgrade after the debt debate passed in November, confidence is expected to firm.


EUR Euro-zone Leaders’ Summit: December 8 to 9 – --:-- GMT
Just a month after the October summit that was expected to “solve everything,” Euro-zone leaders are back in Brussels to find agreement on how to stem the region’s quickly-spreading debt crisis. German Chancellor Angela Merkel and French President Nicolas Sarkozy are expected to meet on Monday to unify their positions going into the meetings, and it is expected that they will announce that some sort of measures have been agreed upon ahead of the summit. This should lead to a rally in risk-appetite in the short-term, although no new measures will have been set forth, in all likelihood. The key points to take away from the summit are whether or not Eurobonds will be created and/or whether or not the European Central Bank is prepared to step into the bond markets indefinitely going forward. Few outcomes dictate Euro strength going forward, as any form of debt monetization would weigh on the Euro, akin to the Federal Reserve’s quantitative easing policy.

Source: http://www.dailyfx.com/forex/fundamental/article/5_key_events/2011/12/05/Five_Rate_Decisions_Ahead_ECB_Meeting_Euro-zone_Summit_Headline_Week.html

New Extended Forex Trading Hours: Starting this Friday December 9th, FXCM will close trading at approximately 5pm ET (22:00 GMT) giving you an additional hour to place trades and/or manage your risk. Please note that spreads may be wider between 4PM ET and 5PM ET because there are fewer liquidity providers offering prices during that time. Trading will continue to open on Sundays between 5PM and 5:15pm ET.

In other news, even the band Metallica is starting to take note of the euro-zone's debt situation and a possible weakening of the Euro: Overweight in Metal, This Band Tries to Play Tunes in Forex

In a special report released by DailyFX, their analysis of over 12 million trades conducted by FXCM clients worldwide from 2009 and 2010 shows traders are correct more than 50% of the time. Here's a look at the 15 most popular currency pairs traded by FXCM clients and the percentage of trades winning vs. losing.

http://media.dailyfx.com/illustratio...profitable.png

So if traders tend to be right more than half the time, why do most forex traders lose money? Here's the explanation from DailyFX:

The below chart says it all. In blue, it shows the average number of pips traders earned on profitable trades. In red, it shows the average number of pips lost in losing trades. We can now clearly see why traders lose money despite bring right more than half the time. They lose more money or their losing trades than they make on their winning trades.

http://media.dailyfx.com/illustratio...trade_pips.png

Read the rest of the report here: http://www.dailyfx.com/forex/education/trading_tips/daily_trading_lesson/2011/12/08/What_is_the_Number_One_Mistake_Forex_Traders_Make.html

Continuing with last week's article on the characteristics of successful traders, David Rodriguez has written another report on the trading period during which traders have been most successful. The majority of retail forex traders use a range trading strategy. In other words they like to pick tops and bottoms. Here's an excerpt from the article:

When is the Best Time of Day to Trade Forex?

In looking at the trading records of tens of thousands of FXCM clients, as well as talking with even more traders daily via webinars, email, and Twitter, it quickly becomes apparent that most individual forex traders are what are called “range traders”. It also becomes apparent that many of them have trouble being successful in forex because they are trading during the wrong time of day.

Most forex traders should trade during the late US, Asian or early European trading sessions – essentially 2 PM to 6 AM Eastern Time (New York), which is 7 PM to 11 AM UK time.

They should avoid trading during the most active times of the trading day. Why? We’ve seen records for thousands of traders, and we’ve seen what works and what doesn’t. Here is a chart of the profitable trades in FXCM accounts in the 5 most popular pairs, displayed by the hour of day:

http://media.dailyfx.com/illustratio...dy_Chart_3.png

You can see that this generally correlates with the low-volatility trading hours. Traders tend to see the best results during the low volatility Asia Session hours:

http://media.dailyfx.com/illustratio...urly_Moves.png

This is because most individual forex traders use “range trading” strategies – buying oversold currencies near support and selling overbought currencies near resistance. These tend to work well during low volatility times, when support and resistance tends to hold. Range traders can incur significant losses when support or resistance is broken, which happens most often during the more volatile times of day.

Do the Hours that I Trade Matter?

Yes, they matter a lot...

Read the rest of the report here: http://www.dailyfx.com/forex/education/trading_tips/daily_trading_lesson/2011/12/12/When_is_the_Best_Time_of_Day_to_Trade_Forex.html

Extreme trader sentiment has generated a signal within DailyFX PLUS pointing to a possible GBP/USD downtrend. Here's the update from DailyFX PLUS:

The Trend Follower Strategy has just sold GBPUSD at 1.55283. The system recommends entering this trade at any price between 1.5498 and 1.55586. The signal was issued because our Speculative Sentiment Index is extremely negative, with a value of 1.6248. This suggests that the GBPUSD could be trending downwards.The 14-period Average True Range on a daily chart is 0.01212, so the stop loss has been set at 1.56495. This stop loss order is a trailing stop that will move down as the market moves down. There is no profit target for this strategy. We expect to be closed by the stop loss.Trend Follower is a trend trading strategy that aims to buy and hold rising currency pairs and to sell short and hold falling currency pairs. The strategy looks to buy when the Speculative Sentiment Index is below -1.5, and looks to short when it is above +1.5.

Here's a look at the chart showing the entry zone and stop:

GBP/USD
http://img703.imageshack.us/img703/2...2132011122.png

Keep in mind that this signal was generated with a trailing stop rather than a defined limit. The DailyFX PLUS trading signals can be found here https://plus.dailyfx.com by logging in with an FXCM live account username or password.

David Rodriguez has released another article in his series on the characteristics of successful traders. This one is titled "Here is How to Trade Forex Majors like the Euro During Active Hours" http://www.dailyfx.com/forex/education/trading_tips/daily_trading_lesson/2011/12/15/Here_is_How_to_Trade_Forex_Majors_like_the_Euro_During_Active_Hours.html

Summary: North American trading hours tend to be the most difficult to trade in due to the high level of volatility in the market. Breakout trading strategies tend to do relatively well in volatile environments, so if you plan to trade during these times, look to trade breakouts.

Our past research shows that traders could be well-served restricting their trading to less-active trading hours, as general trader profitability tends to improve when markets are less volatile. But what if you can’t trade when it’s quiet? For traders who feel the need to be in the market during the more volatile times, here is some advice about how to do it.

http://media.dailyfx.com/illustratio...dy_Chart_3.png

The chart above emphasizes that FXCM clients tend to do poorly in the 5 most popularly traded pairs during the North American daytime. If we compare these results with measures of volatility, we can see that this poor performance seems directly correlated to sharp price swings, as this time of day tends to be the most volatile. The chart below shows the average hourly moves in pips for the EUR/USD, the most popular currency pair to trade. You can see that traders’ best results coincide with the times of day that have lower volatility, such as the Asia trading session.

http://media.dailyfx.com/illustratio...urly_Moves.png

Our previous article showed that the highly popular Relative Strength Index trading strategy produced significantly better risk-adjusted returns if we limited it to trade exclusively during the least-volatile hours of the trading day, 2 PM to 6 AM Eastern Time (New York).

What Strategy Should I Use to Trade the US Daytime?
As mentioned before, we advise traders to trade during the lower-volatility times of day due to the risks that volatility present, and the better results we see in the range trading strategies that FXCM clients tend to use. Some traders may prefer to trade during the volatile US daytime, however. So, if you’re going to do that, make sure that you use the appropriate strategy at the appropriate time. Do not try to range trade. Instead, do the opposite: trade breakouts.

Read the rest of the report here: http://www.dailyfx.com/forex/education/trading_tips/daily_trading_lesson/2011/12/15/Here_is_How_to_Trade_Forex_Majors_like_the_Euro_During_Active_Hours.html

With traders settling in for the holidays, watch out for increased market volatility to due illiquid market conditions. This will likely be the final post of 2011 and we will continue posting again in earnest the first week of January. For a final trade setup, we look to Ilya Spivak of DailyFX for his EUR/USD trade going into year-end. Ilya has has been short EUR/USD for quite a while and is currently looking to add to the short position on a bounce:

We initially sold EURUSD at 1.3526 and revised our stop-loss to the breakeven level after the pair met our first objective at 1.3144. Prices are now showing a bullish Three Inside Up candlestick pattern above support at a falling trend line connecting key swing lows since November, hinting an upswing is ahead. We maintain a bearish bias and will look at any corrective gains as an opportunity to add to the short position. Initial resistance lines up in the 1.3144-1.3231 region.

http://media.dailyfx.com/illustratio..._Picture_5.png

The rest of Ilya's trade setups can be found here http://www.dailyfx.com/forex/technical/candlesticks/title/2011/12/20/US_Dollar_Year-End_Pullback_to_Yield_Entry_Opportunities_for_2012.html

A reminder that there will be modified holiday trading hours at FXCM for both forex and CFD trading. Here's a look at the forex trading hours:

http://img406.imageshack.us/img406/5...ours2011en.gif

And the CFD trading hours for gold, oil, and stock indices can be found here: http://forexforums.dailyfx.com/order...tml#post983429


Happy Holidays!

Jason