Why Demo Account Perpormance Is Often Better Than Real Account Performance?

Over the past several years, the popularity of online currency trading has grown substantially. Each day, online FX brokerage firms attract new investors - each of them lining up with a glint in their eye, lured in by promises of easy money. Most of these companies allow you to sign up for a free demo account which lets you place mock trades using their trading platform to get a feel for the excitement of currency trading. In the casual world of free demo accounts - many young traders find they are able to garner impressive profits without a significant amount of effort. It almost seems too good to be true. But transferring this success from a demo account to a real account is far less common. Why is this? The actual trading platform behaves the exact same way, the market doesn't care whether you're a demo or real trader - so what is different? It's you who has changed. Not your personality, not even your trading style - but the factors that affect you are different.

What is the key factor to trading success?

The search for the "Holy Grail" of trading has been a common theme throughout the history of markets. There are a variety of different techniques. Those whom are inclined towards number crunching and pattern recognition may prefer technical analysis, whereas those more focused on the big picture, logical macro perspective prefer fundamental analysis. Then there are specific methodologies like swing trading, trend following or even more esoteric ideas like the Elliot Wave theory. Which one is best? There are examples of very successful traders using each methodology.

Since most new traders lose money - perhaps the more appropriate question to ask is, "What is the key factor to trading failure?"

Greed and Fear

Trading is an atmosphere rich in the porous emotions of greed and fear. The current price of a given security or financial instrument at any point in time can be thought of as the confluence of greed (bulls) and fear (bears). These two emotions make up the core of humanity itself. When market information is released, trading can be a high intensity experience. Sensing danger, your body releases adrenaline that acts to accentuate both your greed (fight) and your fear (flight). Because these emotions are so strong, they can cause you to act irrationally, ignore your system, stated set of rules or trading plan and to act upon impulse. Indeed, this is a genetically programmed response - but it is often also the trader's downfall, especially when he's playing with much better capitalized, more sophisticated and experienced foes that know how to manipulate those emotions.

When you are a trader - you are always under the influence of at least one of these two emotions, even if you don't have any trades on.

Impact of fear and greed on your trading

If the market's going up and you're in - greed is telling you to buy more and fear is telling you to take your profits while you still can. If it's going down, fear of being wrong makes you hold onto a losing position - and then greed sometimes convinces you to "average down" your position (and buy more) so it'll be easier for you to come back.

If the market's going up and you're not invested - fear is telling you that you're missing out on easy money but it's your greed that causes you to get in just after the greatest increase (just when its about to reverse course). If the market's going down and you're not invested - greed is telling you to get in as the price is cheap, while fear reminds you that you'll miss out on this opportunity if you don't act quickly.

Perhaps if we just felt greed, or just felt fear we would be able to control our emotions a little better. But when both of these little devils whisper into our ears at the same time - it is often impossible not to listen.

The Thrill of Greed

The first time you try FX trading - you will feel the thrill of greed. It is an ecstatic experience, your brain flush with neurotransmitters and your mind giddy with visions of untold riches about to be reaped. Greed is bold, aggressive and incredibly exciting. It can take hold of you both mentally and physically. Just imagine the possibilities!

This greed is what draws us into FX trading in the first place - the dream of easy money and 100:1 or 200:1 margin rates. It inspires us and causes us to forego rational thinking in favour of reckless abandon.

In the movie Wall Street, Gordon Gecko says, "Greed is good", but it is also very dangerous - especially if you are unable to recognize when greed is the one doing the talking. Greed is also one of the most common techniques used to manipulate people. Every get rich quick scheme, promising untold riches for no money down takes advantage of your natural predisposition to throw all logic and sense out the window when greed pays a visit. The argument starts to appear very compelling and you ignore what would otherwise be clear warning signs. Like drunk goggles, greed can mislead you and when you eventually wake up you are often in a very precarious position.

The Fear of Losing

Fear can be equally as dangerous. The most potent and easily manipulated form of fear is your fear of admitting that you are wrong. Fear of having your precious ego bruised. This fear can cause people to do incredibly stupid things. The funny thing about this world is that everyone thinks that they are right. Most people would rather lose thousands of dollars than admit they are wrong. It is easy to feel ashamed of trading losses and live in denial but this is self-destructive behaviour. By denying the problem exists, you fail to take steps address it and only ensure that it will continue in the future.

Demo Trading

Demo trading is a great way to get started in foreign exchange trading. It is identical to real trading, except that you're using "pretend" money. Demo trading allows you to get a taste for what type of events move markets and how they move. It encourages you to learn more about geopolitics, macroeconomics and global finance and these are all incredibly positive things.

Demo trading also introduces you to the rapture of greed. Trading is a means to one of the purest, most raw and potent forms of greed. The whole point of trading is to make money and the more money you make - the stronger the pull of your greed becomes. It is intoxicating and can take complete control of you.

But demo trading does not introduce you to fear. There is no fear when you are demo trading. It is like you have a perpetual get out of jail free card. If you start losing badly on a demo account - simply start a new one. There is no accountability for your trading failures and only recognition of your trading success.

So your demo account does not teach you how to handle the emotion of fear. This emotion is most likely going to lead to your downfall. Greed may get you overextended, but fear will stop you from cutting your losses. You may think that fear of losing money would cause you to cut your losses, but the stronger emotion is fear of being wrong and that causes you to hold on to your losing position - until it's all gone.

There is also the issue of account size. Many demo accounts give you $50,000 to play with. This type of capitalization allows you to buy 5 lots (500K) of EURUSD pretty easily. If goes up 20 pips you've made $1000. Nice one. But when you open your real account - it's more likely that you put $5000 or $10000 in there to begin with. Now you're dealing with a 50K lot, which means you'll take $100 out of a 20-pip movement. But mentally you are used to getting $1000 for that movement so you usually end up risking more. Next thing you know - your 200K position has turned against you 50 pips and you've lost $1000. That's real money you just lost. You can't just start another account.

The capitalization of the demo account is sufficient to sustain losses and still come out on top. But your real account is likely to be undercapitalized and if you're trying to achieve returns similar to what you got on your demo account - you are going to blow up very quickly.

Being honest with yourself

Ultimately, while providing an excellent introduction to FX trading - demo accounts do not accurately predict whether you'll be successful trading real money. Markets are dominated by psychology and often go against what fundamental logic or technical indicators suggest should happen. The single most critical factor in your trading success will be your ability to control your emotions of greed and fear. These emotions cloud your judgment and cause you to trade recklessly. Demo accounts introduce you to the emotion of greed, but by their very nature they are risk free and therefore there is no fear involved. They are also likely to be better capitalized than your real money account, which misleads you with respect to the amount of returns you can expect to earn.

For all of these reasons, demo accounts allow you to avoid being honest with yourself and this is perhaps the most important factor of all. You need to know your edge and your limits and in order to know these - you must be honest with yourself.

This being said, demo accounts are still very entertaining and educational and I highly recommend opening one to anyone who's interested in getting a taste of the exciting world of FX trading. It's a great way to learn more about economics, global politics and yourself.

Trading Psychology: Mistakes in a Trading Environment

When it comes to trading, one of the most neglected subjects are those dealing with trading psychology. Being aware of all psychological factors that affect every trading decision will put the odds in your favor.

Most traders spend days, months and even years trying to find the right system. But having a system is just part of the game. Don’t get us wrong, it is very important to have a system that perfectly suits the trader, but it is as important as having a money management plan, or to understand all psychology barriers that may affect the trader decisions and other issues. In order to succeed in this business, there must be equilibrium between all important aspects of trading.

In the trading environment, when you lose a trade, what is the first idea that pops up in your mind? It would probably be, “There must be something wrong with my system”, or “I knew it, I shouldn’t have taken this trade” (even when your system signaled it). But sometimes we need to dig a little deeper in order to see the nature of our mistake, and then work on it accordingly.

When it comes to trading the Forex market as well as other markets, only 5% of traders achieve the ultimate goal: to be consistent in profits. What is interesting though is that there is just a tiny difference between this 5% of traders and the rest of them. The top 5% grow from mistakes; mistakes are a learning experience, they learn an invaluable lesson on every single mistake made. Deep in their minds, a mistake is one more chance to try it harder and do it better the next time, because they know they might not get a chance the next time. And at the end, this tiny difference becomes THE big difference.

Mistakes in the trading environment

Most of us relate a trading mistake to the outcome (in terms of money) of any given trade. The truth is, a mistake has nothing to do with it, mistakes are made when certain guidelines are not followed. When the rules you trade by are violated. Take for instance the following scenarios:

First scenario: The system signals a trade.
1. Signal taken and trade turns out to be a profitable trade.
Outcome of the trade: Positive, made money.
Experience gained: Its good to follow the system, if I do this consistently the odds will turn in my favor. Confidence is gained in both the trader and the system.
Mistake made: None.

2. Signal taken and trade turns out to be a loosing trade.
Outcome of the trade: Negative, lost money.
Experience gained: It is impossible to win every single trade, a loosing trade is just part of the business; our raw material, we know we can’t get them all right. Even with this lost trade, the trader is proud about himself for following the system. Confidence in the trader is gained.
Mistake made: None.

3. Signal not taken and trade turns out to be a profitable trade.
Outcome of the trade: Neutral.
Experience gained: Frustration, the trader always seems to get in trades that turned out to be loosing trades and let the profitable trades go away. Confidence is lost in the trader self.
Mistake made: Not taking a trade when the system signaled it.

4. Signal not taken and trade turns out to be a loosing trade.
Outcome of the trade: Neutral.
Experience gained: The trader will start to think “hey, I’m better than my system”. Even if the trader doesn't think on it consciously, the trader will rationalize on every signal given by the system because deep in his or her mind, his or her “feeling” is more intelligent than the system itself. From this point on, the trader will try to outguess the system. This mistake has catastrophic effects on our confidence to the system. The confidence on the trader turns into overconfidence.
Mistake made: Not taking a trade when system signaled it

Second Scenario: System does not signal a trade.
1. No trade is taken
Outcome of the trade: Neutral
Experience gained: Good discipline, we only need to take trades when the odds are in our favor, just when the system signals it. Confidence gained in both the trader self and the system.
Mistake made: None

2. A trade is taken, turns out to be a profitable trade.
Outcome of the trade: Positive, made money.
Experience gained: This mistake has the most catastrophic effects in the trader self, the system and most importantly in the trader’s trading career. You will start to think you need no system, you know better from them all. From this point on, you will start to trade based on what you think. Confidence in the system is totally lost. Confidence in the trader self turns into overconfidence.
Mistake made: Take a trade when there was no signal from the system.

3. A trade is taken, turned out to be a loosing trade.
Outcome of the trade: negative, lost money.
Experience gained: The trader will rethink his strategy. The next time, the trader will think it twice before getting in a trade when the system does not signal it. The trader will go “Ok, it is better to get in the market when my system signals it, only those trade have a higher probability of success”. Confidence is gained in the system.
Mistake made: Take a trade when there was no signal from the system

As you can see, there is absolutely no correlation between the outcome of the trade and a mistake. The most catastrophic mistake even has a positive trade outcome, made money, but this could be the beginning of the end of the trader’s career. As we have already stated, mistakes must only be related to the violation of rules a trader trades by.

All these mistakes were directly related to the signals given by a system, but the same is applied when getting out of a trade. There are also mistakes related to following a trading plan. For example, risking more money on a given trade than the amount the trader should have risked and many more.

Most mistakes can be avoided by first having a trading plan. A trading plan includes the system: the criteria we use to get in and out the market, the money management plan: how much we will risk on any given trade, and many other points. Secondly, and most important, we need to have the discipline to follow strictly our plan. We created our plan when no trade was placed on, thus no psychology barriers were up front. So, the only thing we are certain about is that if we follow our plan, the decision taken is on our best interests, and in the long run, these decisions will help us have better results. We don’t have to worry about isolated events, or trades that could had give us better results at first, but then they could have catastrophic results in our trading career.


How to deal with mistakes

There are many possible ways to properly manage mistakes. We will suggest the one that works better for us.

Step one: Belief change.
Every mistake is a learning experience. They all have something valuable to offer. Try to counteract the natural tendency of feeling frustrated and approach mistakes in a positive manner. Instead of yelling to everyone around and feeling disappointed, say to yourself “ok, I did something wrong, what happened? What is it?

Step two: Identify the mistake made.
Define the mistake, find out what caused the mistake, and try as hard as you can to effectively see the nature of that mistake. Finding the mistake nature will prevent you from making the same mistake again. More than often you will find the answer where you less expected. Take for instance a trader that doesn’t follow the system. The reason behind this could be that the trader is afraid of loosing. But then, why is he or she afraid? It could be that the trader is using a system that does not fit him or her, and finds difficult to follow every signal. In this case, as you can see, the nature of the mistake is not in the surface. You need to try as hard as you can to find the real reason of the given mistake.

Step three: Measure the consequences of the mistake.
List the consequences of making that particular mistake, both good and bad. Good consequences are those that make us better traders after dealing with the mistake. Think on all possible reasons you can learn from what happened. For the same example above, what are the consequences of making that mistake? Well, if you don’t follow the system, you will gradually loose confidence in it, and this at the end will put you into trades you don’t really want to be, and out of trades you should be in.

Step four: Take action.
Taking proper action is the last and most important step. In order to learn, you need to change your behavior. Make sure that whatever you do, you become “this-mistake-proof”. By taking action we turn every single mistake into a small part of success in our trading career. Continuing with the same example, redefining the system would be the trader’s final step. The trader would put a system that perfectly fits him or her, so the trader doesn’t find any trouble following it in future signals.


Understanding the fact that the outcome of any trade has nothing to do with a mistake will open your mind to other possibilities, where you will be able to understand the nature of every mistake made. This at the same time will open the doors for your trading career as you work and take proper action on every mistake made.

The process of success is slow, and plenty of times it is attributed to repeated mistakes made and the constant struggle to get past these mistakes, working on them accordingly. How we deal with them will shape our future as a trader, and most importantly as a person.

Controlling Your Emotions

Looking out for number one

When taking part in any market one must be able to control ones emotions; simply put, you must act in your own best interest. There is no place for wishing and hoping in trading. You must be able to realize when you have entered into a losing trade and close it immediately upon recognition of the losing position. Failure to do so will only further damage your ability to make decisions based on technical data. The worst thing that can happen to a trader is to realize that he or she is in a losing trade and not close it only to find that it comes back and makes them money. This will build false expectations and, in essence, shifts responsibility to the market. Do not allow yourself to think, “maybe it will come back” because you will then have crossed from technical trading to wishing and hoping. If it does come back this will encourage further unnecessary risks. You must learn to enjoy taking losses and embrace them. Right now you are probably thinking, “what are you talking about?” Well let me say it could be worse, much worse. There is nothing like building your account on wishing and hopping only to realize that the market is not controlled by your wishes and prayers and it takes back everything you have made in one trade because you “thought” it would come back. Learn to act in your own best interest, if you are in a losing trade close it.

Closing out of losing trades is only one part of acting in your own best interest. What does it matter if you have learned to close losing trades but you are only taking 5 pips per winning trade? Once again it is not in your best interest to take 5 pips when you are risking 15+ pips per trade. I will compare it to a Bass tournament with a big fish prize that pays out 5 levels. Let’s assume that you have been entered as a candidate for the big fish prize. You don’t know how big your fish is in comparison to the others only that it has made it to the top five. In essence you have already won, you can’t lose. You may not get the jackpot but it is money in the bank. With that said would you ever withdraw from the contest? Of course not, that would not be in your best interest. Let’s assume you are in a trade and you are in profit. You, like the fisherman, have already won. So why would you ever forfeit the possibility of getting the Big Fish jackpot. To summarize, traders need to learn to act in their own best interest by cutting losses and letting profits run.

Visualizing Success

Confidence is extremely important when trading; you must be able to visualize yourself being successful. The saying “what we think about comes about” has more truth than you may realize. The power of the mind has been pondered for centuries and affects us in every aspect of our lives. I recently saw a special on television about studies conducted by Hitler during the holocaust. Hitler conducted studies on humans and the power of the mind. The Jews would be lined up to receive a number using a hot brand, they would have to wait in line and hear the screams and smell the burning flesh of there countrymen being branded. Occasionally they would use a very cold brand in place of the usually red hot brand and they found that the pain that was endured was equally agonizing and in some cases even left an unexplainable mark. This is a testimony to the power of the brain; it is a shame that these tactics were used; however, the results are quite amazing. With that said, you must take an active role in goal setting, otherwise, what are you visualizing? You must also visualize yourself making profitable trades. In your mind, break down the criteria in which you base your trading and visualize the market meeting that criteria. See the market bouncing off of your trend line which overlaps a Pivot point and visualize all the steps that you take to confirm each trade such as trend direction, currency volatility, etc. Then, most importantly, visualize the market accomplishing your target.

Losing

Be prepared to lose, it is part of trading. If you carry your losses into the next trade you will dwindle your account away. It goes back to visualizing success; if you carry that loss into the next trade you will subconsciously be visualizing a loss. You must take responsibility for your losses and realize that it’s not the broker’s fault or the market’s fault. The market holds no prejudices; it doesn’t care about your nationality, ethnicity, financial situation, it will take your money either way. The sooner you realize this the better off you will be. People who blame others for their shortcomings tend to revenge trade in order to get back at those who made them lose. However, they need realize it is their own fault, there is no one to get revenge on, and trading again will not accomplish revenge. Accepting responsibility for your losses will greatly cut down on revenge trading. The key to controlling losses is identifying them and immediately closing them. Don’t get married to a trade either. Realize the market has no boundaries and the direction you are trading may be wrong. When you close a loss you are protecting your previous profits and that is why you should embrace your profits as well as your losses. If you can learn to control your losses the wins will take care of themselves. To summarize, you can not carry your losses into the next trade as your subconscious is very powerful. What we think about comes about and if you are trading scared you will ultimately lose. We must envision winning!

Breaking Rules

You must have a set of rules or guideline when trading; however, just having rules is not good enough. You must follow the rules at all times. Many traders see the market jumping around due to some announcement and just enter because the market is moving. In doing this a trader disregards his or her own rules for trading. We must learn to wait for the trade to come to us. There is always another trade just around the corner. In order to follow a set of rules you must be completely aware of each rule in all situations including stops, limits, risk, etc. This will help you to be more mechanical and less emotional in your decision making. I want to reiterate the importance of not wishing and hoping. If you are hoping, then you are not completely prepared for the trade from a technical standpoint and you do not have a good hold on the existing situation. It would be in your best interest to close the trade, cut your losses and prepare yourself for the next opportunity. I would like to talk about one of the main reasons traders break their rules: Greed. Greed will keep an individual from taking profit at his predetermined level in hopes for more. It will also keep him from closing a trade at a loss at the predetermined stop level. Beyond this it will persuade an individual to take profit early which will keep the trader from capturing more potential profit. A trader must learn to plan his trade and trade his plan. If you plan to take profit at 30 pips than do it. If you think it’s going to continue for more profit only stay in if you would be willing to enter if you weren't already in it and make sure you move your stop to break even at a minimum. Another emotion that parallels greed is fear. Fear will keep you in a bad trade and force you out of a good trade. The majority of traders let their losses run and cut their profits short; you must do the opposite. In order to do this you must conquer you fears or you will sabotage your trading. To be a good trader you must conquer your emotions, build a strong self image, stick to a goal plan, embrace your mistakes, learn to relax, and control your anger to minimize revenge trading.

Guide to the Most Popular Crosses

Trading currency crosses opens a whole new side of the currency markets, as different crosses possess different qualities that can suit any style of trading. Some crosses move fast and are extremely volatile with daily ranges that may exceed over 100 pips. While other crosses move relatively slow and exhibit low volatility, which is more suited for novice traders.

Another added dimension to trading crosses is the ability to collect substantial amounts of interest (i.e. GBP/JPY, NZD/JPY and other high yielding crosses) as the positive carry created by the interest rate differentials can add to a trader's bottom line P/L. Discover the world beyond the majors where traders can expand their trading horizons.

EUR/JPY

Actively traded 24-hours a day, the EUR/JPY is so popular that it has been called the fifth major! The EUR/JPY mostly trades in wide ranges, providing excellent opportunities for position (medium-term) traders.

EUR/JPY generally trades in a range, but when breakouts do happen, Fibonacci levels provide a good estimate of where support/resistance will probably occur. Stochastic are excellent for spotting exit and entry points in a range bound market. Real support and resistance figures, published daily in the Market News & Charts section, can also be used to pick entry and exit points.

EUR/JPY is an excellent gauge for the health of the Japanese economy versus the European economy. When data comes out that change the prevailing outlook for either country, the result is usually a dramatic movement in the pair.

EUR/JPY Profile: - EUR/JPY is more sensitive to Japanese data than European data. - Average daily range: 112 pips - Wide long-term ranges - Good for medium-term traders This is an excellent cross for position traders. The moves are significant and advantageous entry and exit points are easy to spot using technical analysis.

What moves EUR/JPY?

European and Japanese economic data. This pair often integrates fundamental economic information better than the majors!

Bank of Japan intervention The BOJ prevents the Yen from becoming too strong against the dollar. If there is intervention in the USD/JPY, it will create movement for EUR/JPY too.

Oil prices Japan is very dependent on exported oil, so a spike in oil prices can cause a marked dip in the Yen.

Talk of Japanese reserve diversification The Bank of Japan holds dollar reserves. If reserves are diversified into euros, EUR/JPY could explode as new demand for the euro drives the price up!

Fundamentals to Watch:

European GDP Gross domestic product - A measurement of output, and more importantly, growth in an economy.

European trade balance - A measure of how much Europe is importing versus how much it exports. Too many imports mean that the currency will get weaker because more Euros are being sold to purchase foreign goods.

European CPI Refers to the European Central Bank's monetary policy. If inflation is too high, the ECB will raise interest rates to slow borrowing and spending. If economic growth is sluggish, lowering interest rates will help boost activity. High interest rates make a currency more attractive.

ECB rate decision Refers to the European Central Bank's monetary policy. If inflation is too high, the ECB will raise interest rates to slow borrowing and spending. If economic growth is sluggish, lowering interest rates will help boost activity. High interest rates make a currency more attractive.

Japanese Inflation A measure of inflation in Japan. Closely monitored because when too high or too low, it can prompt a change in the interest rate outlook of a country.

Japanese Consumer Spending A measure of how much Japanese consumers are spending. The Japanese economy is driven primarily by its export sector, but consumer spending is an important gauge of economic activity and prosperity.

BoJ Monetary Policy Meeting When Japanese bank officials meet to determine monetary policy. Has direct implications for currency traders since they often hint at whether or not they intend to intervene to protect the Yen from becoming too expensive—hence making their exports more expensive.

Japanese Trade Balance Japanese imports vs. exports – the Japanese economy is highly dependent on exports; a drastic change in this number can have implications on the value of the Yen.

Japanese Industrial Production A measure of activity in the Japanese manufacturing sector. This acts as a gauge for the level of production and growth in the economy.

Tankan Survey A quarterly business survey gives a detailed assessment of Japanese business conditions. The headline number shows the difference between the proportion of optimistic businesses and the proportion of pessimistic businesses. A large positive number means that optimism pervades.

EUR/CHF

EUR/CHF has far surpassed USD/CHF bin terms in liquidity. EUR/CHF is probably one of the safest currencies pairs to trade because its moves are so orderly. It enjoys high volume, but trades in relatively predictable ranges since the Swiss and Euro zone economies are so closely linked.

Since EUR/CHF is primarily a range bound pair, traders can use real support and resistance (available in the Market News & Charts section) to find entry and exit points for their trades. Because the pair tends to range across all time frames, using support and resistance is an effective trading strategy for short and long term traders alike!

The pair moves independently only during times of geopolitical tension or risk, when there is an inflow of capital into the Swiss franc, a safe haven currency. Breakouts like this are temporary and generally last 1-2 months.

EUR/CHF Profile: You can find action in EUR/CHF when USD/CHF liquidity dries up (2 PM EST until London open) - Average daily range: 55 pips - Low volatility and tight daily ranges with occasional breakouts - Good for: short and medium-term range trades A solid, reliable pair, EUR/CHF is perfect for range traders and busy people who can only look in on their trades once or twice a day!

What moves EUR/CHF?

GOLD Since the Swiss franc is partly tied to the value of gold; movements in gold prices will be reflected in this pair.

SWISS ECONOMIC DATA Swiss economic data is reflected better in EUR/CHF than in USD/CHF.

GEOPOLITICAL EVENT RISKS When there is geopolitical tension, buying in the Swiss franc increases since it is a “safe haven” currency, thus pushing the price up.

Fundamentals to Watch:

Swiss KoF Leading Indicators A composite of business surveys from various sectors of the economy (industry, retail and wholesale) that is combined to form a leading indicator that aims to project GDP growth approximately 8 months into the future.

Swiss CPI Consumer Price Index. A measure of inflation in Switzerland; a significant change may have implications for interest rate policy in Switzerland.

Comments from Swiss officials Watched for any indications of change in Swiss monetary policy.

Swiss GDP Gross Domestic Product. A measure of growth and productivity in the Swiss economy.

SNB Rate Decisions Any changes in the interest rate by the Swiss National Bank has implications for the pair as a carry trade.

European GDP Gross domestic product. A measurement of output, and more importantly, growth in an economy.

European Trade Balance A measure of how much Europe is importing versus how much it exports. Too many imports mean that the currency will get weaker because more Euros are being sold to purchase foreign goods.

European CPI Consumer price index, a measure of inflation in Europe. Inflation that is too high or too low may prompt Europe's central bank to raise or lower interest rates.

ECB rate decision Refers to the European Central Bank's monetary policy. If inflation is too high, the ECB will raise interest rates to slow borrowing and spending. If economic growth is sluggish, lowering interest rates will help boost activity. High interest rates make a currency more attractive.

GBP/CHF

GBP/CHF experiences a high degree of volatility, and is perfect for traders who like to catch big moves in the market! It is the most popular carry trade in the FX market aside from GBP/JPY.

For a pair with high volatility like the GBP/CHF, Fibonacci lines are an excellent way to identify price levels to which the pair will retrace after a big move. Slow stochastic can also reveal potential reversal points – ideal places to enter and exit the market when it is not trending. This pair also tends to hesitate near its 100-day simple moving average.

The best time for active traders to trade GBP/CHF is when the US and European sessions overlap, from 8:00 AM EST to 11:00 AM EST; however, moves in this volatile pair can be substantial even intra-day.

GBP/CHF Profile - Average daily range: 161 pips - Highly volatile with sweeping ranges - Good for: medium and long-term trades Personally my favorite pair, it trades wonderfully on technical indicators and makes dramatic (almost epic) moves! If you catch a move upward late in the game, the interest will ensure that you make up for it quickly.

What moves GBP/CHF?

Comments from the Bank of England Since GBP/CHF is a very popular carry trade, changes in the interest rate outlook can significantly affect the value.

UK inflation data The Bank of England tightens interest to control inflation, so the market watches inflation data to anticipate upcoming changes.

UK growth Growth in the UK is carefully monitored for any signs of a downturn or upturn. Growth can affect inflation, which in turn can affect interest rates.

Fundamentals to Watch:

BoE Meeting Policy statements from the Bank of England. Changes in interest rates will affect this pair since it is a carry trading pair.

UK Unemployment Amid fears of a "jobless recovery," the market has become very sensitive to this indicator, which measures new jobs created in the UK.

UK Retail Sales Measure of the level of consumer interest in the UK. Consumer spending is one way to measure robustness and growth in the economy.

UK Inflation Inflation is closely watched since it can affect Bank of England interest rate policy.

UK Housing Prices The UK interest rate outlook is closely tied to how the housing market is doing; if growth is too little or too great it can affect monetary policy.

Swiss KoF Leading Indicators A composite of business surveys from various sectors of the economy (industry, retail and wholesale). It is combined to form a leading indicator that aims to project GDP growth approximately 8 months into the future.

Swiss CPI Consumer Price Index. A measure of inflation in Switzerland; a significant change may have implications for interest rate policy in Switzerland.

Comments from Swiss officials Watched for any indications of change in Swiss monetary policy.

Swiss GDP Gross Domestic Product. A measure of growth and productivity in the Swiss economy.

SNB Rate Decisions Any changes in the interest rate by the Swiss National Bank has implications for the pair as a carry trade.

GBP/JPY

Long the most popular carry trade in the market, high volatility in the GBP/JPY makes it an excellent medium-term range trade as well! Highly sensitive to interest rate outlook changes and change in the economy of the UK and Japan, the GBP/JPY can make powerful, sweeping moves.

Overall, the pair tends to trade in a range, especially when the UK interest rate outlook is neutral. Movements within these ranges are substantial. The RSI indicator and real support/resistance levels (available in the Market News & Charts section) are two excellent ways for traders to identify entry and exit points at the tops and bottoms of these ranges.

With an average daily range of 172 pips, GBP/JPY offers plenty of opportunities for traders of all time frames, whether in the short, medium or long-term!

GBP/JPY Profile - GBP/JPY tends to be quiet during Japan's lunch hour: 10 PM to 11 PM EST. - Average daily range: 172 pips - Extended ranges; breakouts can be explosive - Good for: medium and long-term range trades; long term carry trades Personally my favorite pair, it trades wonderfully on technical indicators and makes dramatic (almost epic) moves! If you catch a move upward late in the game, the interest will ensure that you make up for it quickly.

What moves GBP/JPY?

Shifts in UK interest rate outlook Since this pair is saturated with carry trades, it is hypersensitive to any potential change in interest rates.

Bank of Japan intervention Hints that the BoJ will defend their currency from getting too strong will impact the price.

UK and Japanese economic data Changes in the strength of these economies relative to each other will have an effect on the price of their currency.

Fundamentals to Watch:

BoE Meeting Policy statements from the Bank of England. Changes in interest rates will affect this pair since it is a carry trading pair.

UK Unemployment Amid fears of a "jobless recovery," the market has become very sensitive to this indicator, which measures new jobs created in the UK.

UK Retail Sales Measure of the level of consumer interest in the UK. Consumer spending is one way to measure robustness and growth in the economy.

UK Inflation Inflation is closely watched since it can affect Bank of England interest rate policy.

UK Housing Prices The UK interest rate outlook is closely tied to how the housing market is doing; if growth is too little or too great it can affect monetary policy.

Japanese Inflation A measure of inflation in Japan. Closely monitored because when too high or too low, it can prompt a change in the interest rate outlook of a country.

Japanese Consumer Spending A measure of how much Japanese consumers are spending. The Japanese economy is driven primarily by its export sector, but consumer spending is an important gauge of economic activity and prosperity.

BoJ Monetary Policy Meeting When Japanese bank officials meet to determine monetary policy. Has direct implications for currency traders since they often hint at whether or not they intend to intervene to protect the Yen from becoming too expensive—hence making their exports more expensive.

Japanese Trade Balance Japanese imports vs. exports – the Japanese economy is highly dependent on exports; a drastic change in this number can have implications on the value of the Yen.

Japanese Industrial Production A measure of activity in the Japanese manufacturing sector. This acts as a gauge for the level of production and growth in the economy.

Tankan Survey A quarterly business survey assessing Japanese business conditions. The headline number shows the difference between the proportion of optimistic businesses and the proportion of pessimistic businesses. A large positive number means that optimism pervades.

AUD/JPY

AUD/JPY provides opportunities for traders of all time frames, and offers opportunities to traders who love volatility as well as range trading. Because it is held as a carry trade, it is highly sensitive to interest rate outlook changes in both Australia and Japan.

When the Australian interest rate outlook is bullish, the pair tends to trend. When the outlook turns neutral, the pair consolidates into a range. During times of range trading, traders can use slow stochastic, and real support and resistance levels (available in the Market News & Charts section) to spot their entry and exit points.

AUD/JPY is actively traded during Asian banking hours, when Japanese and Australian banks are open. Since it is most active after US equity markets are closed, the AUD/JPY is an ideal pair for people who want to trade outside of US business hours.

AUD/JPY Profile - AUD/JPY is a great pair to trade after US equity markets are closed! - Average daily range: 80 pips - Strong trends interspersed with periods of rangebound trading - Good for: trading in all time frames This is a great pair for people who want to catch short-term moves during evening hours in the US! When the pair is ranging, it is easy to pick entry and exit levels using support and resistance.

What moves AUD/JPY?

Gold Prices Since Australia exports gold, the value of the AUD is correlated with the price of gold.

Oil Prices The Japanese economy is very dependant on imported oil, so changes in the price of oil can affect the value of the Yen.

Australian Economic data AUD/JPY is very sensitive to Australian fundamental data.

Royal Bank of Australia and Bank of Japan Monetary Policy changes Since the AUD/JPY is a hot carry trade, changes in the interest rate outlook can cause sharp movements in the pair.

Fundamentals to Watch:

Australian Employment Data Measure of employment in Australia. Employment is an important gauge of the health of an economy.

Australian GDP Gross Domestic Product. A measure of Australian economic growth. Steady, stable growth levels are ideal for developed nations.

Australian CPI Consumer Price Index. A measure of inflation in Australia. Too much or too little inflation could have implications for Australian monetary policy.

Australian Retail Sales A measure of health in the retail sector of the economy.

Australian Trade Balance Australia is a net exporter, meaning that Australia exports more goods than it imports. Changes in the trade balance can affect the price of Australia's currency.

RBA Rate Decision Royal Bank of Australia's decision on the interest rate level. Interest rate changes can have implications for the desirability of the AUDJPY as a carry trade.

Japanese Inflation A measure of inflation in Japan. Problematic when it is too low as this indicates little growth in the economy.

Japanese Consumer Spending A measure of how much Japanese consumers are spending. The Japanese economy is driven primarily by its export sector, but consumer spending is an important gauge of economic activity and prosperity.

BoJ Monetary Policy Meeting When Japanese bank officials meet to determine monetary policy. Has direct implications for currency traders since they often hint at whether or not they intend to intervene to protect the Yen from becoming too expensive—hence making their exports more expensive.

Japanese Trade Balance Japanese imports vs. exports – the Japanese economy is highly dependent on exports; a drastic change in this number can have implications on the value of the Yen.

Japanese Industrial Production A measure of activity in the Japanese manufacturing sector. This acts as a gauge for the level of production and growth in the economy.

Tankan Survey A quarterly business survey assessing Japanese business conditions. The headline number shows the difference between the proportion of optimistic businesses and the proportion of pessimistic businesses. A large positive number means that optimism pervades.