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How Does Forex Market Works?

To understand how forex markets work, one has to understand what exactly constitutes the forex market, the institutional framework that drives this market, and importantly the process of currency price determination.

Foreign exchange market is no different from any other market where buyers and sellers meet to buy or sell a commodity for a specific price. The only difference in forex markets being, it is the “currency” that constitutes the commodity, and the price at which it is exchanged conforms to the foreign exchange rate for that currency at that point in time.

Export earnings of corporations, overseas remittances, and investment flows (direct or borrowed capital) constitute the main sources of foreign exchange. Individuals and entities who receive foreign currency are the primary market suppliers and they may sell foreign currency to licensed exchange dealers who in turn may pass it to other dealers in need of foreign exchange. The Central banks may sell foreign reserves to make market adjustments, and on the other side companies would need to buy this foreign exchange to make overseas payments. This creates a market for foreign exchange wherein a person may sell a currency today and probably emerge as a buyer the very next day.

Forex Market Framework

The biggest foreign exchange markets are in Tokyo, London and New York and they are networked with each other using modern technology creating a seamless interface that transacts currency prices and deals almost instantaneously across the world. The institutional framework that drives the forex markets is perhaps the key to the market itself and comprises the following:

Commercial and Central banks in different countries
Exchange markets and firms that conduct foreign exchange deals
Investment funds
Brokerages and individuals

By transacting with different clients in exchange conversions, commercial banks accumulate a great chunk of forex market needs and are often shared with other banks in interbank dealings. These banks (Union Bank of Switzerland, Swiss Bank Corporation, Deutesche Bank, and Citibank) with daily volume of transactions in billions of dollars greatly influence forex markets. Central Banks as for example the US Federal Reserve influence forex markets by regulating the investment climate and making market interventions and so on.

Exchange Rate

Exchange rate is a market-determined phenomenon. In other words, the exchange rate depends on supply and demand conditions in the market for any particular currency. A currency exchange rate is derived from the ‘spot transactions’ (means foreign exchange trades that are initiated and settled within two business days with the respective exchange) of authorized dealers with the public.

This exchange rate that is reported in the price tickers that you see on your trading screen reflect the cumulative transactions undertaken by the major market makers (namely the institutions) with large value transactions reflecting more on the currency prices than a small value transaction. That’s probably one of the reasons why currency prices keep changing on your screen reflecting the rate at which the major market maker’s i.e. the institutions trade.

Advantages of Forex Over Other Markets

The Forex market offers many advantages, over stock market trading and other forms of investment opportunity. In forex markets financial reasons compel the execution of a forex deal and not commercial considerations. Also as compared to stock markets, exchange markets do not operate out of any specific building.

In forex it is not obligatory to buy a currency to sell it later but it is enough to open buy/sell position for any currency without actually possessing it, unlike stock trading where you are committed to have the full face value of the stock before you can trade for that amount of stock.

Although Forex markets can be volatile at times, it offers an advantage over a declining stock market, in that with proper knowledge of forex markets you could still key into profitable trades. On the contrary, people tend to avoid stock markets when it is in a downward spiral as no one really knows when it would start on an upward trend. In other words forex trades can be made even if the markets were rising or falling.

The profits you could possibly make in stock markets pales into insignificance in comparison to the windfall profits you could be making in forex markets. For example proper leverage alone can make you huge sums in a very short time and that too by making fewer trades.

The limited number of currencies traded in forex markets makes it easier to monitor market trends that relate to those currencies, whereas in the stock market a lot of factors could affect individual stocks, not to mention the innumerable number of stocks (there are several thousand stocks registered in most stock exchanges) that would have to be monitored at any given point in time.

Although it has its own trends and cycles punctuated by high volatility, forex markets don’t fit into the traditional Bull/ Bear market cycle typical of stock trading. That is because currency rates always throw in new intriguing ways of making profit. For example, interest rates do not adversely affect currency markets as it would stock market indices and stocks in general. When interest rates go up, that country’s currency gets strengthened (giving profitable opportunities to the discerning trader) whereas it would depress stock markets in that country and probably cause losses to a stock trader having several open positions.

Comparison of size and liquidity, and market time

It is impossible to quantify the exact amount of money traded in forex markets worldwide since trading is not restricted to one single exchange or location. But several estimates put it between 1-3 trillion US Dollars a day. This is certainly lesser than the volume of stocks traded in all the major stock exchanges around the world and also far less than the gold and forex reserves of the developed world. It also far exceeds the daily volume of foreign trade transactions between different countries. Therefore in terms of size, number of participants and liquidity, forex markets are huge and offer the best opportunities to the investor.

This superior liquidity in forex markets allows traders to open and close positions in a matter of a few seconds or keep that position going on for several years or perhaps indefinitely which is not possible while trading stocks.

Using networked computers, forex trading offers you a world wide market, instantaneously available to you on 24/5 basis from 00:00 GMT on Monday to 10.30 GMT on Friday covering all time zones. When the sun sets in one trading center, it is dawn and the beginning of a trading day somewhere else in the world. On the contrary, stock market in any major country opens at 10 am local time and remains operative till 4p.m local time restricting the possibility of indulging in round the clock trading.

Forex trading is done strictly on your calling. Since forex trading goes on 24 hours a day there is no need to have a fixed schedule, and even if you set one, it’s purely your discretion based on your own trading strategy and of course to your liking.

How Leverage used In Forex Trading

“Leverage” in general terms simply means borrowed funds. Leverage is widely used not just to acquire physical assets like real estate or automobiles, but also to trade financial assets such as equities and foreign exchange (“forex”).

Forex trading by retail investors has grown by leaps and bounds in recent years, thanks to the proliferation of online trading platforms and the availability of cheap credit. The use of leverage in trading is often likened to a double-edged sword, since it magnifies gains and losses. This is more so in the case of forex trading, where high degrees of leverage are the norm. The examples in the next section illustrate how leverage magnifies returns for both profitable and unprofitable trades.

Examples of Forex Leverage

Let’s assume that you are an investor based in the U.S. and have an account with an online forex broker. Your broker provides you the maximum leverage permissible in the U.S. on major currency pairs of 50:1, which means that for every dollar you put up, you can trade $50 of a major currency. You put up $5,000 as margin, which is the collateral or equity in your trading account. This implies that you can put on a maximum of $250,000 ($5,000 x 50) in currency trading positions initially. This amount will obviously fluctuate depending on the profits or losses that you generate from trading. (To keep things simple, we ignore commissions, interest and other charges in these examples.)

Example 1: Long USD / Short Euro. Trade amount = EUR 100,000

Assume you initiated the above trade when the exchange rate was EUR 1 = USD 1.3600 (EUR/USD = 1.36), as you are bearish on the European currency and expect it to decline in the near term.

Leverage: Your leverage in this trade is just over 27:1 (USD 136,000 / USD 5,000 = 27.2, to be exact).

Pip Value: Since the euro is quoted to four places after the decimal, each “pip” or basis point move in the euro is equal to 1 / 100th of 1% or 0.01% of the amount traded of the base currency. The value of each pip is expressed in USD, since this is the counter currency or quote currency. In this case, based on the currency amount traded of EUR 100,000, each pip is worth USD 10. (If the amount traded was EUR 1 million versus the USD, each pip would be worth USD 100.)

Stop-loss: As you are testing the waters with regard to forex trading, you set a tight stop-loss of 50 pips on your long USD / short EUR position. This means that if the stop-loss is triggered, your maximum loss is USD 500.

Profit / Loss: Fortunately, you have beginner’s luck and the euro falls to a level of EUR 1 = USD 1.3400 within a couple of days after you initiated the trade. You close out the position for a profit of 200 pips (1.3600 – 1.3400), which translates to USD 2,000 (200 pips x USD 10 per pip).

Forex Math: In conventional terms, you sold short EUR 100,000 and received USD 136,000 in your opening trade. When you closed the trade, you bought back the euros you had shorted at a cheaper rate of 1.3400, paying USD 134,000 for EUR 100,000. The difference of USD 2,000 represents your gross profit.

Effect of Leverage: By using leverage, you were able to generate a 40% return on your initial investment of USD 5,000. What if you had only traded the USD 5,000 without using any leverage? In that case, you would only have shorted the euro equivalent of USD 5,000 or EUR 3,676.47 (USD 5,000 / 1.3600). The significantly smaller amount of this transaction means that each pip is only worth USD 0.36764. Closing the short euro position at 1.3400 would have therefore resulted in a gross profit of USD 73.53 (200 pips x USD 0.36764 per pip). Using leverage thus magnified your returns by exactly 27.2 times (USD 2,000 / USD 73.53), or the amount of leverage used in the trade.

Example 2: Short USD / Long Japanese Yen. Trade amount = USD 200,000

The 40% gain on your first leveraged forex trade has made you eager to do some more trading. You turn your attention to the Japanese yen (JPY), which is trading at 85 to the USD (USD/JPY = 85). You expect the yen to strengthen versus the USD, so you initiate a short USD / long yen position in the amount of USD 200,000. The success of your first trade has made you willing to trade a larger amount, since you now have USD 7,000 as margin in your account. While this is substantially larger than your first trade, you take comfort from the fact that you are still well within the maximum amount you could trade (based on 50:1 leverage) of USD 350,000.

Leverage: Your leverage ratio for this trade is 28.57 (USD 200,000 / USD 7,000).

Pip Value: The yen is quoted to two places after the decimal, so each pip in this trade is worth 1% of the base currency amount expressed in the quote currency, or 2,000 yen.

Stop-loss: You set a stop-loss on this trade at a level of JPY 87 to the USD, since the yen is quite volatile and you do not want your position to be stopped out by random noise.

Remember, you are long yen and short USD, so you ideally want the yen to appreciate versus the USD, which means that you could close out your short USD position with fewer yen and pocket the difference. But if your stop-loss is triggered, your loss would be substantial: 200 pips x 2,000 yen per pip = JPY 400,000 / 87 = USD 4,597.70.

Profit / Loss: Unfortunately, reports of a new stimulus package unveiled by the Japanese government leads to a swift weakening of the yen, and your stop-loss is triggered a day after you put on the long JPY trade. Your loss in this case is USD 4,597.70 as explained earlier.

Forex Math: In conventional terms, the math looks like this:
Opening position: Short USD 200,000 @ USD 1 = JPY 85, i.e. + JPY 17 million
Closing position: Triggering of stop-loss results in USD 200,000 short position covered @ USD 1 = JPY 87, i.e. – JPY 17.4 million
The difference of JPY 400,000 is your net loss, which at an exchange rate of 87, works out to USD 4,597.70.

Effect of Leverage: In this instance, using leverage magnified your loss, which amounts to about 65.7% of your total margin of USD 7,000. What if you had only shorted USD 7,000 versus the yen (@ USD1 = JPY 85) without using any leverage? The smaller amount of this transaction means that each pip is only worth JPY 70. The stop-loss triggered at 87 would have resulted in a loss of JPY 14,000 (200 pips x JPY 70 per pip). Using leverage thus magnified your loss by exactly 28.57 times (JPY 400,000 / JPY 14,000), or the amount of leverage used in the trade.

Tips When Using Leverage

While the prospect of generating big profits without putting down too much of your own money may be a tempting one, always keep in mind that an excessively high degree of leverage could result in you losing your shirt and much more. A few safety precautions used by professional traders may help mitigate the inherent risks of leveraged forex trading:

Cap Your Losses: If you hope to take big profits someday, you must first learn how to keep your losses small. Cap your losses to within manageable limits before they get out of hand and drastically erode your equity.

Use Strategic Stops: Strategic stops are of utmost importance in the around-the-clock forex market, where you can go to bed and wake up the next day to discover that your position has been adversely affected by a move of a couple hundred pips. Stops can be used not just to ensure that losses are capped, but also to protect profits.

Don’t Get In Over Your Head: Do not try to get out from a losing position by doubling down or averaging down on it. The biggest trading losses have occurred because a rogue trader stuck to his guns and kept adding to a losing position until it became so large, it had to be unwound at a catastrophic loss. The trader’s view may eventually have been right, but it was generally too late to redeem the situation. It's far better to cut your losses and keep your account alive to trade another day, than to be left hoping for an unlikely miracle that will reverse a huge loss.

Use Leverage Appropriate to Your Comfort Level: Using 50:1 leverage means that a 2% adverse move could wipe out all your equity or margin. If you are a relatively cautious investor or trader, use a lower level of leverage that you are comfortable with, perhaps 5:1 or 10:1.

Conclusion
While the high degree of leverage inherent in forex trading magnifies returns and risks, using a few safety precautions used by professional traders may help mitigate these risks.

Treasury Operations Foreign Exchange Challenge



This book shows how trading systems, computer-based models, and other analytical tools can be used to examine financial opportunities and help develop sound investment and hedging decisions. Treasury Operations and the Foreign Exchange Challenge covers global trading activity in foreign exchanges and its effects on the newly revitalized area of corporate treasury operations. Specific topics include the new world of treasury functions; treasury duties in risk management; facing the challenge of global risk; the ways and means of transacting foreign exchange deals; swaps, hedging, and currency management; the rise and fall of currency values; and the importance and likely future of the ECU. Illustrated by numerous examples drawn from the experience of leading financial institutions in the U.S., Japan, and Europe, Treasury Operations and the Foreign Exchange Challenge shows the diverse, sometimes ingenious, and sometimes catastrophic ways these institutions are responding to market challenges, designing new financial products, and using the latest technologies. Treasury Operations and the Foreign Exchange Challenge is an invaluable reference for bankers, pension fund managers, insurance executives, corporate treasurers, and all other financial professionals in treasury, Forex, and securities- or any management decision-maker who wants to fully understand the changes of the 1980s and the challenges of today.

Forex Revolution Insiders Foreign Exchange



Simply and clearly, Forex Revolution reveals everything you need to know to trade Forex hands-on from fundamental and technical trading strategies to the unyielding discipline that's essential to success.

In this book, Peter Rosenstreich brings together insider techniques from all over the industry: Traders, banks, Forex firms, even the National Futures Association. You'll find expert guidance on everything from handling 24/7 markets to profiting from the emergence of China.
Unlike other books, Forex Revolution doesn't require you to subscribe to costly services or purchase expensive tools. Whether you're an individual investor or a money manager new to Forex, this bookgives you all you need: Facts, techniques, resources and above all the insider's edge.

Why Forex has become your #1 profit opportunity
How the currency markets became indispensable to the active investor;
Meet the players, markets, tools, portals, and platforms;
Everything you should know before you get started;
Choose the right FX investments;
Understand currency futures, options, swaps, and more;
Master both fundamental and technical trading strategies and discover why you need to know both;
Gut check: What it takes to win in the Forex markets;
Develop the discipline you need to succeed.

New Trading Systems And Methods : Fourth Edition



As markets evolve, so must the strategies used to trade them. No one understands this more than Perry Kaufman—one of today's most respected futures experts. For more than twenty-five years, traders have turned to Kaufman's classic Trading Systems and Methods for complete information about the latest, most successful indicators, programs, algorithms, and systems. Now, in New Trading Systems and Methods, Fourth Edition, Kaufman thoroughly updates his bestselling guide—adding more systems, more methods, and an extensive array of risk analysis techniques—and shows you the best ways to trade today's futures and equities markets. The companion CD-ROM, which contains TradeStation® code and Excel spreadsheets, has been added to help you electronically implement the systems and methods mentioned throughout the book.

New Trading Systems and Methods, Fourth Edition provides you with a complete understanding of the tools and techniques needed to develop or choose a trading program that is right for you. It begins with a discussion of basic concepts, including definitions, how much data to use, how to create an index, some statistics and probability, and other tools that will be used throughout the book, then moves on to techniques that are most important to trading—identifying the trend and momentum. Other chapters are organized by common grouping so that you can compare the different ways that similar problems have been solved. The systematic approach to charting has been significantly expanded in this edition, showing how various patterns can be compared to other systematic methods, or how techniques such as identifying support and resistance, or channels, can be computerized. Examples include a wide range of futures and stocks.

New Trading Systems and Methods, Fourth Edition doesn't attempt to prove that one system is better than another, because it's impossible to know what will happen in the future or how you will cleverly apply these techniques. Instead, it tries to evaluate the conditions under which certain methods are likely to do better and the situations that will be harmful to specific approaches. By grouping similar systems and techniques together, you'll be able to personally compare the differences and study the results. Seeing how analysts have modified existing ideas can help you decide how to proceed and give you an understanding of why you might choose one path over another. Since no trader can be successful without controlling risk, this edition also includes expanded coverage of portfolio allocation, which will allow you to efficiently balance trading exposure.

As the competition for trading profits gets keener, you need to look for more innovative—and sometimes more extensive—solutions. You need strategies that are different from those of other traders. You need the tools, skills, and awareness that only New Trading Systems and Methods, Fourth Edition can provide.

Hedge Funds see repeat of Yen slide that paid Soros-Bloomberg

Hedge funds are betting on another run of yen weakness, a trade that made money earlier this year for billionaire George Soros, putting them in opposition to economists who see Japan’s currency little changed into 2014.

Futures traders pushed net shorts, or wagers the yen will fall versus the dollar, to the highest since July 2007, according to the Commodity Futures Trading Commission. That contrasts with the median estimate of more than 50 analysts surveyed by Bloomberg, which puts the currency at 102 per dollar at the end of the first quarter of 2014, from 101.47 today.

Japan has resorted to an unprecedented $70 billion of monthly bond purchases since April to depreciate its currency, boost growth and combat deflation. The yen has plunged 15 percent this year, on pace for the biggest drop since 1979.

“Everybody likes dollar-yen higher,” Brad Bechtel, the managing director at Faros Trading LLC in Stamford, Connecticut, said in a Nov. 22 interview. “And everyone has it on.”

The yen fell to as low as 101.92 per dollar yesterday, the weakest level since May, when it slid to a 4 1/2-year low of 103.74. While it gained for the first time in four days today, its decline this year makes it the worst performer after South Africa’s rand among 16 major currencies tracked by Bloomberg.

Soros Profits

Soros, 83, made almost $1 billion from November 2012 to February 2013 on bets the yen would tumble, according to a person close to the billionaire’s family office. Michael Vachon, a spokesman for Soros Fund Management LLC, declined to comment.

Soros’s former chief strategist, Stan Druckenmiller, who made $10 billion with Soros in 1992 from a wager that the Bank of England would be forced to devalue the pound, has also been selling the yen. Druckenmiller, the founder of Duquesne Capital Management LLC, said in a Bloomberg interview in September that his firm is “short some yen,” while being “long some Japanese” stocks.

Fortress Macro Fund, which is run by Michael Novogratz and Adam Levinson, made money trading the yen last year when the currency fell 13 percent. Fortress Macro Funds oversee $3.8 billion. Spokesman Gordon Runte couldn’t be reached for comment.

Signs that the Federal Reserve may reduce its $85 billion a month of bond purchases, which pump money into the economy and debase the dollar, are also driving the yen’s plunge versus the U.S. currency. Minutes of the U.S. central bank’s Oct. 29-30 policy meeting showed that Fed officials expected to reduce their stimulus program “in coming months” as the economy improves.
Inflation Target

Bank of Japan Governor Haruhiko Kuroda said in Tokyo yesterday that the nation’s target of boosting inflation to 2 percent could be reached in the late 2014 or early 2015 fiscal years. Consumer prices have declined 0.1 percent a year over the past 15 years.

Japan’s central bank doubled its monthly bond purchases in April to more than 7 trillion yen ($69 billion). The purchases form part of an economic policy dubbed Abenomics after Prime Minister Shinzo Abe, which as well as banishing crippling deflation aims for a recovery in economic growth.

Net-short positions in Japan’s currency versus the dollar increased for three straight weeks through Nov. 19, data from the Washington-based CFTC show. The number of wagers by hedge funds and other large speculators on a decline in the yen compared with those on a gain increased to 112,216 contracts, up from 95,107 a week earlier.

‘Sure Thing’

Investors should be wary of following the herd, said Alan Ruskin, the New York-based global head of Group of 10 foreign-exchange strategy at Deutsche Bank AG, the world’s biggest currency trader.

“The more it looks like a sure thing, the less it’s a sure thing,” Ruskin said in a Nov. 22 phone interview.

When hedge funds and other futures traders were last this bearish on the yen, in July 2007, it strengthened 3.8 percent, and went on to gain 23 percent the following year, the most since 1987, data compiled by Bloomberg show.

Money is flowing out of Japan, providing headwinds for the currency. Japanese investors bought 349.9 billion yen of foreign bonds during the week ended Nov. 15, according to the Ministry of Finance in Tokyo. That’s the sixth consecutive week of net bond purchases.

The nation’s current-account balance after seasonal adjustment swung to a 125.2 billion-yen deficit in September, a record-low in data stretching back to 1996. The shortfall underscores the drag on the economy from trade deficits exacerbated by swelling energy costs and the yen’s depreciation.

“External accounts have no question deteriorated,” Deutsche Bank’s Ruskin said. “You’ve been having a broader hollowing out of Japanese industry that relates to large foreign-direct investment outflows. You have what was previously the bulwark of yen strength, which is all of a sudden much less constructive.”

For any trader, regardless of the instrument or instruments traded, maximizing reward-to-risk ratio is the most crucial challenge. This is because the average reward-to-risk ratio of all executed trades over a given time period is equal to a trader's profitability over that time.

Normal human emotions push traders in the direction of aiming for a high win ratio and minimal draw downs in their equity curve. Yet while trading profitably in this style is possible, it is usually extremely difficult to achieve with sufficient consistency to meet financial goals. Traders can usually increase their reward-to-risk ratio, and hence their overall profitability, by worrying less about the percentage of winning trades and more about how big the winning trades are when they come. To achieve this, it is necessary to overcome any emotional and financial hurdles that prevent forgetting about the win ratio and equity draw downs. It is easy to give such general advice, but probably much more helpful to focus on the specific actions traders can take to achieve this instead.

Traders should firstly ensure they follow a sound money management strategy. Risking a low percentage of equity on each trade can help to reduce day to day emotional pressure, and allow the account to comfortably weather the inevitable losing streaks when they come. By risking a percentage of equity per trade, traders can ensure that they are betting smaller during losing streaks and bigger during winning streaks. This should make it emotionally easier to pursue higher reward / lower risk trading styles and strategies. Adjusting the position sizes based upon recent volatility, as well as by percentage of equity, can also help.

Secondly, traders can be more selective with their trade entries. Instead of looking for entries that are likely to produce a certain minimal amount of profit and hoping for a runner, entry criteria can be adjusted towards aiming to enter when large moves are more likely. In other words, look to enter when there is a 20% chance of achieving a reward of 10 X risk, rather than when there is a 55% change of achieving 1 X risk.

Thirdly, investigate the best-kept secret weapon for improving reward-to-risk ratios: tightening stop losses! Review past trades and note just how many of the very best trades took off straight away with hardly any draw down. Sometimes it is possible to make a strategy profitable just by halving the stop loss. Get out of the mentality that tells you that a stop loss is there to let your trade be a winner, remember instead that a stop loss is there to limit your losses.

Finally, exit strategies are crucial, and this is obvious. Partial exits at low reward-to-risk multiples should be ruled out. Despite the inevitable retests, it is a superior strategy to move stops to break even when the appropriate moment has been reached.

It is equally obvious that any exit strategy needs to allow for a big runner to be held to a high reward-to-risk multiple before exit. This can be achieved in several ways. Fundamental analysis can be used to determine the likely strength and duration of a continuing trend. The volatility of the instrument over recent months and years can also be used to indicate what sort of pip or point targets are feasible and have the most profitable profile.

Trailing stops, including chandelier stops, can also be useful, especially in combination with time-based exits. Alternatively, trailing stops can be tightened based upon the reward-to-risk multiple already achieved. For example, let the stop give up 75% of the paper profit once 3:1 has been achieved, 50% at 6:1, 25% at 9:1, etc.

Volatility should be factored in to the reward-to-risk, as if the risk is unusually high, it might be better to be satisfied with a relatively conservative profit target for that trade.

To summarize: don't be afraid to be stopped out due to a tight stop (within reason), and don't be afraid to let a small winner turn into a loser. Don't be in a hurry to take profits either!

by Cina Coren

Momentum, Direction, Divergence : William Blau



In this latest volume, technical expert Bill Blau shows you how momentum, direction, and divergence form the basis of most technical indicators and how they can work for you to provide a considerable competitive advantage. Clearly, concisely, and with a minimum of complex mathematics, Blau shows you how to understand and apply them. Integrating the latest financial insights with more than 75 easy-to-follow graphics, Blau describes the uses and limitations of many of today's most notable technical indicators. He then demonstrates a variety of ways in which the principles of momentum, direction, and divergence can be used to create a versatile new set of technical indicators or to improve the effectiveness of the most widely used traditional indicators.

Focusing on the groundbreaking double smoothing concept, which he introduces for the first time in this book, William Blau:
* Develops reliable new momentum indicators based on double smoothing techniques
* Shows how these indicators improve the effectiveness of most popular oscillators, including the RSI, MACD, and stochastic indicators, by solving a host of timing problems
* Combines the standard Welles Wilder techniques with his original True Strength Index to improve the effectiveness of most directional movement indicators
* Introduces new ways of identifying divergence that make implementation simpler than ever
* And much more

MESA And Trading Market Cycles : John Ehlers



In MESA and Trading Market Cycles, Second Edition, MESA pioneer John F. Ehlers returns to reveal more of the inner workings and hidden mechanisms of MESA-the author's well-known and highly respected computerized trading system-and provides both traders and professional speculators with definitive information on using cyclical analysis to create and execute highly profitable forecasting and trading strategies.

This revised and completely updated resource first validates the existence of market cycles by reviewing the history of cycles and the advances in techniques to measure them. It then profiles the basic characteristics of cycles and fully describes moving averages, momentum functions, and indicators from the cyclical perspective. From here, Ehlers focuses on MESA, explaining how it works, how it compares to the Fast Fourier Transformation (FFT), and how traders can use its high-resolution spectral estimates to consistently pinpoint and exploit market cycles and trends.

MESA and Trading Market Cycles, Second Edition also contains new chapters which provide information that makes MESA a much more powerful tool. Topics within these chapters include:
* The Sinewave Indicator
* The Instantaneous Trendline
* Trading Trend Mode and Cycle Mode
* Making standard indicators adaptive:Commodity Channel Indicator (CCI), Relative Strength Indicator (RSI), and Stochastic Indicator
* Developing highly effective automatic trading systems using MESA-measured cycles
* Stock market systems, along with computer code (EasyLanguage) to implement them

Combining MESA, cycles, and technical analysis, this vital guide shows you-whether you're trading in the stock, options, or futures markets-how to boost the probability of establishing successful trades and profitably increase your bottom line. MESA and Trading Market Cycles introduces you to a new way of thinking that will not only lead to highly effective new indicators, but will also provide you with insights into market activity that you would never have imagined.

Rocket Science Traders : John Ehlers



Author John Ehlers sums up his book perfectly in saying, "Truth and science triumph over ignorance and superstition." Rocket Science for Traders adapts digital signal processing techniques from the physical sciences for use in the field of trading. This thorough guide develops unique indicators to view the market from a new perspective and will help you expand the use of traditional indicators to achieve more precise computations.

As one of the first technical analysts to apply digital signal analysis to the markets, Ehlers brings the expertise, knowledge, and vision of this method to light in a way that nobody else can. An introduction to the science of digital signal analysis is quickly followed by an explanation of the two main "modes" of the market: Trend and Cycle, plus what tools to use while trading in these modes. From there, you'll learn about the moving averages most commonly used by traders, properties of momentum functions, and other important aspects of using digital signal processing techniques to trade.

Rocket Science for Traders moves quickly from the basic building blocks to the heart and soul of this technical analysis method. Unique indicators, including Signal-to-Noise Ratio and the Sinewave Indicator, are discussed. Finite Impulse Response (FIR) and Infinite Impulse Response (IIR) filters are thoroughly described. Learn how to generate predictive filters and when to use them for optimum effectiveness.

In his goal to revolutionize the art of trading, John Ehlers has uncovered effective new trading tools by introducing the concept of modern digital signal processing. Whether you're looking for "cookbook" codes to help you begin trading immediately, or new analysis tools such as the Homodyne cycle period measurer and the Instantaneous Trendline, once you've read this groundbreaking book, you'll be able to view the market from a new perspective and profit from it.