Access to foreign exchange trading has opened up exciting trading options for the retail trader. You can now trade alongside corporations and institutions in a highly liquid market that is global, traded around the clock, and highly leveraged. Before jumping into this market,
however, we must understand the factors that affect the forex market. With that in mind, STOCKS& COMMODITIES has introduced Forex Focus to better prepare the retail trader to participate in the currency market.
Recycle Your Data
by Patrick S. Nouvion
Apply this tool when you trade forex.
MY job has always been to design new tools for traders, and though I am a trader myself I still find it difficult -- because most everything has already been done, and done repeatedly.
You see, the challenge in my position is to create something that is new and useful. You often see variations of the same concepts and tools. Unfortunately, these are often of no help and no better than the originals. For instance, the moving average convergence/divergence (MACD) indicator was defined with 12- and 26-period exponential moving averages (EMA). People insist on changing the parameters of the averages periods as well as the method and refer to it by a different name. And this is just one example.
TRADING FOREX
Being a foreign exchange trader, my attention is primarily focused on the forex market. Lately, the buzz has been about the Commitment of Traders data (COT). I programmed a few indicators that would read the COT data and import it into the Interbank FX Trader 4 platform. While COT data certainly has its merits, it is something new and useful for the forex trader. I thought we might have overlooked something that was a little more obvious and just as useful, if not better.
As a currency trader, if I were to use some data not directly related to the forex market, my choice would more than likely be oil prices, gold prices, the Nikkei index, and other values that have a proven and direct effect on the currency market. Even the US dollar futures contract data would be useful to have an overview of the dollar's strength and help me trade based on currency pairs.
FIGURE 1: FOUR-HOUR CHART OF GBP/USD (OCTOBER 17? NOVEMBER 1, 2006). Here you see the Data Reader indicator using the gold index daily data from .GOX.
Return to April 2007 Contents
Originally published in the April 2007 issue of Technical Analysis
of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright
2007, Technical Analysis, Inc.