TRADER MAGAZINE

ADAPTIVE
TRADING
SYSTEMS
ICHIMOKU ASIAN
CURRENCIES
KINKO HYO
DISCIPLINE
HOW TO GET IT

women
FINDING YOUR
TRADING STYLE

in trading
THEIR EXPERIENCE. THEIR LIFE. THEIR
S U C C E S S O N T H E F O R E X M A R K ET

OCTOBER - DECEMBER 2010

 LOCMAN
®

ITALY

MONTECRISTO
Movimento meccanico automatico S.I.O. (Scuola Italiana di Orologeria)
o cronografo al quarzo. Titanio e acciaio. Impermeabile fino a 10 atm.

WWW.LOCMAN.IT
L O C M A N S . P. A . - M A R I N A D I C A M P O - I S O L A D ’ E L B A

BOUTIQUES LOCMAN: ● M I L A N O V I A G O N Z A G A , 5 - T E L 0 2 3 6 5 1 2 8 9 3 ● F I R E N Z E V I A T O R N A B U O N I , 7 6 / R - T E L 0 5 5 2 1 1 6 0 5
● BRESCIA CORSO ZANARDELLI, 30 - TEL 030 280055 ● MARINA DI CAMPO PIAZZA G.DA VERRAZZANO,7 - TEL 0565 977734
● P O R T O F E R R A I O C A L ATA M A Z Z I N I , 1 7 - T E L 0 5 6 5 9 1 5 8 9 6 ● P O R T O A Z Z U R R O V I A V I TA L I A N I , 2 0 - T E L 0 5 6 5 9 2 0 3 1 2
● PORTO CER VO VICOLO DEL CER VO - TEL 0789 92425 ● CER VINIA VIA CARREL - TEL 0166 940195

E IN TUTTE LE MIGLIORI GIOIELLERIE


16
05 EDITOR’S NOTE
TECHNICAL ANALYSIS:
11 The art of the chart: Ichimoku
Kinko Hyo. A series of articles,
which teaches the use of the
Ichimuko system and shows
advanced analysis techniques.
FUNDAMENTAL ANALYSIS:
34 Why Invest in Asian
Currencies?: an analysis of Asia’s
strong fundamentals.
STRATEGY:
07 Dicing with the Devil: shows
how the outcomes of rolling the
three dice provide some insight into
the way people make investment
decisions.
WOMEN IN
trading:
Interviews with
Kathy Lien and
Valeria Bednarik,
who share their
experience as
successful Forex
traders, and talk
about their trading
strategies.
40
DON’T FIGHT THE FED
And the Fed is fighting:
An analysis of how the Fed will
drive the USD performance
over the coming months,
having to face critical internal
structure issues.
21 Finding your trading style:
probably the biggest determinant of
your trading success or failure.
48 Risk Me, Risk Me Not? explains
the importance of addressing risk in
trading, especially on an emotional level.
ALGORITHMIC TRADING:
36 Adaptive Trading Systems: learn
how ATS work through practical
examples.
HIGH FREQUENCY TRADING:
30 Interview with Peter Van Kleef.
TRADING PSYCHOLOGY:
52 Discipline: Why you don’t have it,
and How to get it: gives practical tips
on how to become a disciplined trader.
FX TRADER MAGAZINE October - December 2010 
CONTENTs FX
ELEVATED forex
TRADING VOLUME:
BIS’ latest statistical data
about Forex trading volumes
might reveal the tip of
an iceberg and a dynamic
outlook for Forex market
participants.
24
FX MANAGERS:
57 Interview with Jamie Charles,
who talks about GreenWave
Capital’s short term, global, macro
discretionary strategy.
TECHNICAL OUTLOOK:
60 Trends & Targets for Major FX Rates
60 Trends & Targets for Emerging Markets
61 USD/JPY, EUR/CHF, USD/ILS
INTERNATIONAL DATA:
64 FX Spot Monitor
65 Central Bank Rates
66 Economica Data - FX Poll
67 Markets View
68 ECONOMIC CALENDAR
 FX CONTRIBUTORS
Alessandro Balsotti, worked for
several years as market maker of
Italian Lira, Greek Dracma and
Czechoslovak Koruna in JP Morgan.
He was then in charge of the FX
trading desk in Abax Bank and
Caboto. He is currently responsible
in JW Partners for the FX Single
Manager strategies.
Tom Busby is CEO of DTI. His
lifelong career in the markets started
as a money manager with some of
the world’s largest wire houses. He
then moved into the private sector
and started training others about
the global markets. With guest
speaking spots on Bloomberg and
CNBC, he is also the author of
three books, “Winning the Day
Trading Game”, “The Markets Never
Sleep” and “Trade to Win”. Busby
hosts a daily online live trading
room where traders from all over the
globe join him as he covers the daily
action in markets like the Emini, the
Dow and Dax futures, as well as his
personal stock and options picks.
http://dtitrader.com/trading_education_
wedonweb_s.htm
Brian Dolan is a 20 year veteran of
the currency market, having worked
as a senior trader and analyst at some
of the world’s leading international
banks, including Dai-Ichi Kangyo,
Credit Suisse and American Express.
In addition to overseeing fundamental
and technical research at GAIN, Brian
publishes a daily technical analysis
report and weekly macro research
report for the exclusive use of GAIN
Capital clients. Frequently sought
after by the financial press for his
 FX TRADER MAGAZINE October - December 2010
insights into currency movements,
Brian is a frequent guest on CNBC
and Bloomberg TV. Brian has also
published numerous articles on
short-term trading strategies and
risk management in journals such
as Futures, Technical Analysis of
Stocks & Commodities, and SFO. In
the fall of 2007, Brian co-authored
Currency Trading for Dummies, a
sophisticated, educational resource
for traders new to the Forex
markets.
Elite E Services is an electronic
boutique brokerage specializing in
currency trading, intelligence and
technology surrounding foreign
exchange markets. Elite E Services
offers FX trading systems for clients and
investors, FX consulting, technology
and tools for trading, system
development, custom programming,
and FX solutions for businesses. The
company offers it’s Forex blog at
http ://www.eliteforexblog .com
and a forex forum at www.eesfx.com.
ATS forum: http://eesfx.com/portal/14-
fx-systems/164-adaptive-trading-
systems.html; FX Systems Forum:
http://eesfx.com/portal/fx-systems/
Gavin Francis is Managing Director
of Client Portfolio Management at
Pareto. Gavin and his team are the
primary client point of contact on all
matters regarding the management of
Pareto’s Currency Overlay and Alpha
strategies. An expert in the field,
Gavin’s insight in Currency and Risk
Management is frequently featured
in the Pareto’s quarterly newsletters;
which are also published externally in
reputable finance journals worldwide.
Previously, Gavin worked as Head of
Research at Paribas Asset Management
and Assistant Director at County
NatWest Investment Management.
He is an associate member of the CFA
Society of the UK.
Maud Gilson, is communications
and education manager at FXStreet.
com. After working as a journalist
and communications consultant, she
joined the FXStreet.com team where
she now manages the live Webinars
and the education section as well
as media relations. Maud is also
the organizer of the International
Traders Conference, an educational
event that has been held in Barcelona
on a yearly basis since 2007.
Steve Jarvis, has well over 20 years’
experience of providing technical
analysis to FX professionals. Steve
is head of InterpreTA, Tradermade’s
technical analysis service. Fully
annotated Technical commentaries
are provided on Tradermade’s
Maverick charting system. Daily
and intra-day updates are applied
to live charts for a wide range of FX
majors and FX emerging markets.
InterpreTA is also now available via
the Reuters platform. To arrange for
a free trial, please call 020-8313-0992
or e-mail sales@tradermade.com
JW Partners is an independent FX
solution provider, based in Milan,
with a strong FX specific know-how.
JW supports institutional investors
and HNWI in building quality FX
multimanager portfolios, and FX
underlying structures.
(continue on page 6)

Forex for women is catching on fast
Women are getting into trading. It’s a
new market trend. This year alone has
seen eight new investment magazines
published in Japan that cater specifically
to the housewife trader. For a lot of
Japanese housewives, and other young
single working women, the advent of
currency trading online is a serious
business to the tune of an estimated
¥9.1 billion a day.
The stereotype of a male-dominated
market is starting to change. One of the
reasons is that the FX market is open to
all, no matter what your nationality or
gender is. And women seem to find forex
trading particularly attractive because
it is fast to learn, training material and
tools are now both easy to find and easy
to use, and, most importantly, it can be
run from home. Moreover, as you will
read in one of our Women in Trading
interviews, “it never gets boring!”.
From this edition onwards, we will
start publishing a series of interviews
in partnership with FXstreet.com, with
successful female forex traders, who
share their experience in FX. In this
issue, Kathy Lien - a famous name in the
forex industry - explains how she started
trading FX at the age of 18, worked for
some of the biggest banks and brokers,
and spent several years developing her
current trading style and edge. Valeria
Bednarik explains how her dream to
be totally independent and have time
for her children became reality, as she
started trading from home.
Valeria quotes Alexander Elder -
author of Trading for a Living, Come
Into My Trading Room and Entries &
Exits - who finds that the percentage
of successful traders is higher among
women. Why? Some talk about the
importance of instinct on the markets,
others say women are more disciplined,
and their aversion to risk is higher.
For Alexander Elder, one of the main
reasons is that “women traders like to
take profits and focus on avoiding losses
instead of trying to prove themselves
right”.
FX TRADER MAGAZINE October - December 2010 
EDITOR’s note FX
It seems like there is a bright future
for female traders. Stephanie Radkay
is another example of a successful
trader and trainer. She was one of
the 5 women out of 600 men who
was awarded the task to fill orders in
the S&P500 Futures pit, and used to
be called the “TIGR” when she was
working at the CME. In her article
“Risk me, Risk me not?” she insists
on the importance of addressing risk
first in FX.
In this edition we are also
introducing a series of educational
articles about the use of the
Ichimoku Kinko Hyo system, a
popular indicator in Japan, which is
still pretty unknown in the Western
world. And for all traders: women,
men, advanced, professional,
beginners, trading from the Eastern
or Western worlds… you’ll find some
useful hints about how to become
disciplined, and find your trading
style. We also continue focusing
on fundamental analysis with our
expert decrypting of the Bank of
International Settlements’ latest data
about forex trading volumes, as well
as the analysis of the current Fed’s
behavior and its impact on the USD’s
performance over the coming months.
Emmanuelle Girodet
 FX CONTRIBUTORS
(continued from page 4)
Gabor Kovacs is a technical analyst
specialized in Ichimoku Kinko Hyo. As
a qualified journalist with more than
8 years experience, Gabor is the writer
and editor of the Ichimoku World
website, where he provides articles and
video presentations about trading with
the Ichimoku Kinko Hyo charting
system. His weekly analyses of the major
currency pairs, name IWWA, can be on
view on: www.ichimokuworld.com.
Andrew McKay began his career as
cash and securities dealer for the Bank
of New York in Sydney. He moved
to London to work for a Shearson
Lehman Hutton subsidiary where he
progressed rapidly to the position of
Senior Dealer, Futures and Options,
with responsibility for implementing
the hedging strategy of the treasury
department, and trading futures, FX and
options. On his return to Australia, Mr.
McKay launched an asset management
company, Armytage AAM, to apply his
extensive knowledge of the markets. Mr.
McKay is responsible for the trading
system design and management of the
Company and its Segregated Portfolios.
He holds an Australian Financial
Services License with the Australian
Securities & Investment Commission.
www.armytageaam.com
www.asiancurrencyfund.com
Stephanie Radkay, is Vice President
of DTI www.dti-fx.com She first
joined the “rough” pits of the Chicago
Mercantile Exchange as a clerk for
a major International Options and
Futures firm. In 1993 she began her
broker career as the only woman in
 FX TRADER MAGAZINE October - December 2010
the Major Market Index Futures pit.
She also joined her husband, Mike,
after trading hours at the University
of Trading to teach eager learners to
pit trade. By 1995 she was awarded
the task to fill orders in the S&P500
Futures pit. In 1998, Stephanie
left the S&P500 Futures pit and
followed the “Tech Boom” to fill
orders in the NASDAQ100 Futures
pit. After a break from trading she is
happily trading and teaching again.
http://dti-fx.com/dtifx/education.php
Kevin Sollitt is an FX Portfolio
Manager. Previously, he acquired an
extensive FX trading background in
Europe, Asia and North America,
managing three bank trading teams.
Kevin’s longevity in the FX world
has been assisted by a willingness to
embrace a collaborative approach at
all levels. Combining this with his
clear grasp of market dynamics &
by using a wide range of disciplines
has achieved positive results in
many different circumstances and
market conditions over the years.
Jason Stapleton is a professional trader,
educator and entrepreneur with more
than 10 years of experience in the
financial markets. He is the CEO and
head trading coach at 4x Traders Live as
well as a principal partner at Harborsite
Capital. He has been a recurring guest
on “Secrets of Success”, a financial
investment radio program as well as
being called on as a FOREX expert
at SelfDirectedInvestor.com. Jason
has written articles and is a forex news
provider for a variety of Forex websites.
www.4xtraderslive.com
Editor :
Emmanuelle Girodet
editor@fxtradermagazine.com
For advertising,
contact:
ad@fxtradermagazine.com
Webmaster:
Hristo Katzarski
webmaster@fxtradermagazine.com
Graphic design:
Preslav Dobrev
Editorial support:
Jacopo Visetti
Lorenzo Lorenzi
Simon Holmes
Trading carries a high level of risk, and may not be
suitable for all investors. The objective of FX Trader
Magazine is to give readers the tools, training and
information which will help them be better prepared
to trade on the foreign exchange. However, any analysis,
news, research, strategy, or other information contained
on this magazine is provided as general market
information and does not constitute investment advice.
FX Trader Magazine, will not accept liability for any
loss or damage, including without limitation to, any loss
of profit, which may arise directly or indirectly from use
of or reliance on such information.
Subscriptions:
www.fxtradermagazine.com
 STRATEGY FX

“God does not play The outcomes of rolling

dice.” the three dice provide some
insight into the way people
Albert Einstein make investment decisions.

DICING WITH THE DEVIL

FX TRADER MAGAZINE October - December 2010 

 FX STRATEGY

Warren Buffett once challenged

Bill Gates to a game of dice. Gates
immediately became suspicious
when he was offered to choose first
from a selection of unconventionally
numbered dice. After inspection,
he demanded that Buffett should
choose first. In fact Buffett had
tried to trick Gates with a set of
“non-transitive dice”, which had
the property that whichever die is
selected, one of the other dice is
more likely to show a higher number,
when the two are rolled together.
It is relatively straightforward to
number the faces of three six-sided
dice A, B and C so that A beats B, B
beats C and yet C beats A. In order
to develop a feel for this apparent
paradox, it is worth pondering how
this can be done, before reading on.
Of the many solutions, the following
example provides a useful insight.
Suppose we mark all the faces of
C with the number three. We can
beat this with die B, by labelling
four faces with the number four
and two faces with the number two.
Furthermore, we can beat B with die
A, by labelling two faces with the
number five and four faces with the
A B
5 4
5 4
2 4
2 4
2 1
2 1
Fig. 1 Table showing the numbering of the faces of the three dice
number two. But now we find that the amount shown on the upward
C beats A. face of the die, you would have a
A beats B five times in every nine. risk free return of 3.
B beats C two thirds of the time. C
similarly beats A with a probability The outcome of B is negatively
of two thirds. Other solutions can skewed: two thirds of the time you
be found for three or more dice. beat the risk free rate by a small
amount and one third of the time
While this may be a mathematical you lose by rather more. This is
curiosity, it provides some insight similar to a hedge fund that goes
into the way people make investment “short volatility”, by selling options
decisions. Rolling C offers no or, for example, by following the
uncertainty, so you could call this carry trade.
a risk free outcome. If you are paid Rolling A creates a positively skewed
distribution, underperforming two
thirds of the time, but experiencing
C larger gains the rest of the time.
3 This is a bit like buying options or
3 employing strict downside control
3 to go long volatility.
3
The following diagram plots a
3
histogram for the outcomes of
3 rolling each of the three dice,
highlighting the positive skew of

 FX TRADER MAGAZINE October - December 2010

 FX STRATEGY

A and the negative skew of B. Note

that the expected return for all three
dice is 3.
Now consider an investor holding the
risk free asset C, who is considering
taking a leveraged investment in hedge
fund B. This will look very attractive,
as it appears to be consistently beating
the risk free return, especially if the
track record has not yet encountered
one of the rare observations in the
negative tail. In contrast, hedge fund
A looks very unattractive, because it
regularly underperforms the risk free
rate and you may have to wait a long
time for a strong positive return.
strategies of type B that generate short have the same volatility.
This explains the systematic bias of term gains at the cost of occasional
hedge funds to be short volatility and extreme losses. A number of lessons can be drawn
the relative rarity of long volatility from this example. Although making
hedge funds. But the question The paradox arises when comparing A investment decisions involves more
remains, would you prefer to leverage against B. Due to its tight downside than just counting the number of
up on a strategy with regular gains control and the opportunity times one thing outperforms another,
and uncontrolled losses (B) or a of making significant gains, A this tendency does tend to make an
strategy with limited losses but outperforms B more often that B investment more attractive. A track
unpredictable gains (A). In the crisis outperforms A. And this happens record that only ever outperforms
of 2008, the financial community even though the same expected the risk free rate must have been
was systematically biased in favour of return as the risk free rate and both taking risk. The question is when,
rather than if, we will see a sharp
negative return.

The second observation is that

financial returns tend to be
asymmetric. This characteristic is
missed by investors who rely only on
volatility as a risk measure. Option
theory is the field of investment
theory best suited to understanding
and analysing asymmetric returns.
This is something well understood
by Messrs. Buffett and Gates.
Fig. 2 Histogram of the outcomes of rolling the three dice
Gavin Francis

10 FX TRADER MAGAZINE October - December 2010

 TECHNICAL ANALYSIS FX

The art of the chart

Ichimoku Kinko Hyo

Ichimoku Kinko Hyo is a Ichimoku Kinko Hyo was developed to manually backtest the different
multifunctional visual trend by a Japanese economic journalist, calculated formulas. Finally, after
following charting system. It named Goichi Hosoda, whose aim more than twenty years of testing
has been described as ”the king was to create a kind of „all-in-one” and chiseling, Hosoda presented
of indicators” and trading or indicator, allowing deeper analysis the Ichimoku Kinko Hyo charting
analyzing with it is a kind of high- of charts, in a shorter time. The system in his book in 1969, and it
level art. Using Ichimoku, it is development of the system was a rapidly became the most frequently
possible to get the whole picture huge and complex work, as there was used indicator in Japanese trading
of the market, including trend no possibility for doing automated rooms.
direction, the main support/ back tests at that time. Goichi
resistance levels, and exact entry Hosoda started the process before In spite of being popular in Japan,
or exit points. Furthermore it the Second World War, with a large unfortunately it is a kind of over-
helps to define the strength of group of hired students, who had mystified, exotic, and still nearly
a signal. The system can be used
successfully for all markets and on
all time frames, but – like most
indicators - it performs a bit better
on the higher ones. In this first
article we will explain the basics
of analyzing with the Ichimoku
Kinko Hyo charting system and
introduce it in a nutshell. The
aim is to give a basic knowledge
enabling anyone to understand an
Ichimoku report or analysis.

FX TRADER MAGAZINE October - December 2010 11

 FX TECHNICAL ANALYSIS

unknown chart analyzing technique out the essence of the system well. - Chikou Span (Lagging Span) is
in the Western world. The reason However Ichimoku consists of five calculated as current price time-
of the Western trader’s abstinence separated lines and it is necessary to shifted backwards 26 periods. It
could be explained using some cross- use the components together to see is a very special component of the
cultural studies. It is proven, that the whole picture - the equilibrium system, and can be used in many
Japanese people usually consider or the disequilibrium of the market ways. The most common technique
and perceive the whole picture, - at a glance. There is no point is to observe if Chikou Span is above
while Westerners usually pick the about using the lines separately. (bullish sign) or below (bearish
main components and concentrate While doing chart analysis the sign) the price.
only on those. Since Ichimoku is components have to be compared
really a kind of „whole picture” with each other and with the price - Senkou Span A (Faster Span A) is
system, it could be challenging to too. calculated as (Tenkan-sen + Kijun-
learn and use it sen)/2. It forms
properly, and the the unique and
fact that Japanese
are not interested In spite of its popularity in spectacular Kumo
(Cloud) feature
in sharing their
knowledge with
Japan, Ichimoku Kinko Hyo of Ichimoku with
Senkou Span B,
the Western
world (inasmuch
is an over-mystified, exotic, and represents the
possible support
as – among and still nearly unknown and resistance
many others levels of the
- the original technique in the Western world future.
Ichimoku books
and materials have - Senkou Span B
never been translated into English) The lines of the Ichimoku Kinko (Faster Span B) is calculated as
doesn’t make the whole thing Hyo are the following : (Highest High + Lowest Low)/2.
easier. Although the appearance of As I mentioned previously, it forms
the Ichimoku Kinko Hyo system - Tenkan-sen (Conversion line) the Kumo with Senkou Span A,
may look a bit complicated at first is calculated as (Highest High and represents main support and
sight, it is doubtless that learning it + Lowest Low)/2 for the past 9 resistance levels of the future.
is very worthwhile. periods. It represents the strength
of the momentum and generates a The standard settings for the
To be able to analyze (or understand signal if it crosses up (bullish sign) Ichimoku Kinko Hyo indicator are:
an analysis) with Ichimoku Kinko or down (bearish sign) Kijun-sen. 9-26-52. The base number of the
Hyo, the first thing to acquire formula is 26. The common view
is it’s basic terminolog y. In the - Kijun-sen (Standard line) is is that the number 26 represents a
term, Ichimoku Kinko Hyo, calculated as (Highest High + standard Japanese business month
Ichimoku means: one glance, Lowest Low)/2 for the past 26 (including Saturdays), the number 9
Kinko means: equilibrium or periods. It can behave as a strong represents a week and a half, and the
balance, and Hyo means: chart. support or resistance line and number 52 represents two months.
So it could be translated as: ‘One as a key line in predicting trend Some hold different views and
glance equilibrium chart’, or ‘Chart changes, it is less sensitive to minor say that the calculation of Goichi
balance at a glance’. The name brings price movements. Hosoda is based on - among others -

12 FX TRADER MAGAZINE October - December 2010

 TECHNICAL ANALYSIS FX

the Kumo, the bottom line of the

cloud is the first resistance, and
the top of the Cloud is the second
resistance line. The thickness of
the Kumo is very important too,
as it is more difficult for the price
to break through a thick cloud,
than a thin cloud.

2. Tenkan-sen versus Kijun-sen

In the small picture the red line shows the value of the Daily chart’s Kijun-sen support.
It is exactly the same as the bottom line of the Kumo in the H4 chart.
Moon cycles, as the number 26 is the
best approximate number to express
a full Moon cycle, the number 9
represents one and a half quarter
of a Moon cycle, and the number
52 represents a double Moon cycle.
Anyway, the system works best with
these numbers, however it is possible
to use alternative values too.
When creating an analysis with
Ichimoku, it is strongly recommended
to always start from the higher time
frames and proceed with lower time
frames successively. It is easy to notice
that Ichimoku’s components of the
higher time frames have an effect on
the lower time frames. For example,
it is common that the Daily chart’s
Kijun-sen’s value is the exact value of
the 4 hours Senkou Span A or B (the
top or the bottom of the Kumo).
determination is: if price is above
Kumo the overall trend is bullish,
if it is below Kumo, the overall
trend is bearish. The Kumo itself is
a kind of ‘no man’s land’, as it is not
recommended to trade, when the
price is moving in the Cloud. The
top and bottom of the Kumo (the
Senkou Span A and B lines) are very
strong support and resistance lines.
If the price is above the Kumo, the
top line of it acts as a first support,
and the bottom line acts as a second
support. When the price is below
The fact that Tenkan-sen is below
Kijun-sen supports a bearish move,
the opposite of it indicates a bullish
move. It is always recommended
to check the position of the price
versus Tenkan-sen and Kijun-sen
too. If the price moves quickly
and leaves behind Kijun-sen, it
usually turns flat, and, in order
to dissolve the disequilibrium,
it attracts the price back. Then,
they both continue the movement
together.
3. Chikou Span versus price and
Kumo
If Chikou Span is above the price,
the trend is bullish. If it is below the

The following details should always

be determined in a Ichimoku Kinko
Hyo analysis:
Example: After the price breaks out from the Kumo cloud on the down side, it stretches down
1.The position of the price versus a bit too quickly and leaves Kijun-sen behind. The Kijun-sen then turns flat, and attracts the
Kumo price back to dissolve the disequilibrium and create equilibrium. Then both the price and the
The fundamental of trend Kijun-sen continue their way down.

FX TRADER MAGAZINE October - December 2010 13

 FX TECHNICAL ANALYSIS
price, the trend is bearish. If Chikou
Span is above the Kumo, it supports
the bullish movements. If it is below
the Cloud, the bearish movements
are supported. Chikou Span is a great
tool to filter the signals generated
by the other components.
4. The color of the Kumo future
It confirms that the trend is tending
to be bullish or bearish. Light
Kumo indicates a possible uptrend,
a dark Kumo indicates a possible
downtrend. The ‘Kumo twist’, when
Senkou-Span A crosses Senkou-
Span B and the color of the Kumo
changes, indicates a possible change
in the trend.
After getting an overall picture at
a glance, the next step is to look
for exact entry opportunities using
some of the available Ichimoku
trading strategies or methods. The
basic methods are: Tenkan-sen/
Kijun-sen cross, Kumo breakout,
Chikou Span/Price cross. The
advanced methods are based on the
basic ones, with some modification
or with a combination of other tools
(for example Pivot points or index
charts).
14 FX TRADER MAGAZINE October - December 2010
A. Tenkan-sen/Kijun-sen cross
This is the most well-known
Ichimoku trading method. If the
Tenkan-sen crosses up the Kijun-
sen, that is a buy signal. If it crosses
down Kijun-sen, that is a sell signal.
Looking at the previously mentioned
analysis steps, if the price is above
the Kumo (for a long signal), the
signal is strong. If the cross happens
in the Cloud, the signal is neutral.
Finally if it happens below the
Kumo, the long signal is weak. The
Chikou Span should at least be
above the price (for a strong signal
- naturally - it should be above the
Kumo too), and the Kumo future
should support the move too. For a
sell signal, the opposite applies.
B. Kumo breakout
If the price enters into the Cloud
and then brea ks out from it,
that is a Kumo brea kout. Chikou
Span should be on the rig ht side
of the price, and it should brea k
out and close outside the Kumo
as well. The Kumo f uture a lso
has to support the dire ction.
It is a fre quent happening
that, a lthoug h price brea ks out
from the Cloud, Chikou Span
bounces back from the top (or
bottom) line of it, and then the
price moves back into the Cloud
too. This happening is only a
fa ke brea kout, so it is a lways
re commende d to che ck e ver y
line of the Ichimoku system,
and enter into a position only
if a ll the components point in
the same dire ction and support
the move.
C. Chikou Span/Price cross
If Chikou Span crosses up the
price, that is a buy sig na l. If it
crosses down the price, that is a
sell sig n. The Kumo determines
the streng th of the sig na l here
too. A buy sig na l can happen
 TECHNICAL ANALYSIS FX

their stop with the Kijun-sen

line (+buffer) as a trailing stop.
The same applies to the take
profit methods.

After this theoretical summar y

above the Kumo (strong ), in the
Kumo (neutral ) and below the
Kumo (weak). For a sell sign,
the opposite applies here too.
For stop -loss, it is possible
of the Ichimoku Kinko Hyo
charting system, the most
important thing is to put this
knowledg e into practice. From
the next issue of FX Trader
Magazine we will start publishing
to use various techniques, for practical chart analyses and
example the other side of the sharing some of the less known
Kumo (+buffer), the last hig h/ advanced Ichimoku techniques.
low or the last round number.
Many Ichimoku traders move Gabor Kovacs

www.gomarkets.com.au
+61 3 9670 3055

A Product Disclosure Statement and Financial Services Guide for this product is available from GO Markets Pty Ltd and should be considered before deciding to enter into
any derivatives transactions. Derivatives carry a high level of risk to your capital. Only speculate with money you can afford to lose. AFSL 254963 ABN 85 081 864 039
 FX fundamental analysis

“Government’s view of the economy could be summed up in a few short phrases:

If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.”
Ronald Reagan

Don’t fight the Fed… and the Fed is fighting.

Different phases for the Dollar
The last three months have seen
the dollar decline significantly
on a global basis. Declining
expectations for US growth
relative to global growth have
been a key driver.
Over the last 4-5 months we
have been through at least three
distinct phases for the dollar:
• In the first phase (in May and
early June) the dollar gained
because of a flight-to-safety
dynamic. At the time, the US
growth picture looked fairly
robust, and there was plenty of
uncertainty about the outlook
for the eurozone, global growth
and financial market stability.
This combination generated a
strong safe-haven bid for dollars
and indicators of speculative
positioning showed record long
USD positions in the futures
market and elevated skew in
favour of USD calls in the options
market.

16 FX TRADER MAGAZINE October - December 2010

 FUNDAMENTAL ANALYSIS FX

• In the second phase (from early-

June until the first week of August)
the USD weakened as markets
priced in a form of global growth
decoupling. The move happened
globally and involved both
reduced concerns about financial
market stability (less safe-haven
demand for USD) and greater
optimism about global growth
relative to US growth. The USD
move was broad based, with large
moves in EUR , JPY and AUD.
The clear underperformers were
CAD and MXN, due to Canada’s
and Mexico’s close ties to the US
economy.

• In a third phase, after some
significant correction in Dollar
weakness following the August
10th FOMC the USD started
again to lose ground. The macro
picture somehow stabilized
according to some better than
expected economic figures (non-
farm payrolls and retail sales
among others). The driver of the
weakness was then not a growth
problem but the willingness of
policymakers to do ‘whatever it
takes’ (i.e. Quantitative Easing 2)
in case of deflation risks becoming
more concrete. Bernanke, after
disappointing markets on this topic
at the August FOMC (generating
some transitory Dollar strength)
was more accommodating at the
Jackson Hole symposium and
even clearer at the very recent
September FOMC.
The last line of the press release is
being viewed as the most critical:
the Fed is now saying that “the
DXY (Dollar Index) lower > Dollar is getting weaker
Committee will continue to
monitor the economic outlook
and financial developments and
is prepared to provide additional
accommodation if needed to
support the economic recovery
and to return inflation, over
time, to levels consistent with its
mandate”. The same line from the
Aug statement read as follows:
“The Committee will continue to
monitor the economic outlook and
financial developments and will
employ its policy tools as necessary
to promote economic recovery and
price stability”. The addition of
the line “accommodation” is being
viewed as a stronger message from
the Fed that it is leaning towards
further QE, potentially at the Nov
meeting.
Fed behavior will definitely drive
USD performance in the next
few months. And how the Fed
will act is not so easy to predict
since internally voices have been
pointing in different directions
lately.
Just for the sake of tidiness it
might be of help to remind how
the most influental central bank
in the world is managed and which
critical issues the central bank
might face in the not too distant
future.
The Current Structure of the
Federal Reserve System
The Federal Reserve System consists
of a Central Bank in Washington
and twelve Federal Reserve
District (or regional) Banks. The
Central Bank’s authority resides
with the seven member Board of
Governors, one of which serves as
chair (currently Ben Bernanke).

FX TRADER MAGAZINE October - December 2010 17

 FX FUNDAMENTAL ANALYSIS
The Federal Open Market
Committee oversees monetary
policy and is composed of the
seven governors and five of the
district presidents. The president
of the New York district is always
one of the five, and the other four
are rotated among the remaining
eleven.
The chart below gives you a visual
graphic of how the system is
organized.
Note that the seven governors are
appointed by the President and
must be approved by the Senate.
Further, the board of governors
appoints three members to each
of the nine-member boards of
directors of the local districts. In
fact each of the District Banks has
a nine member Board of Directors
along with a bank President.
Currently, the nine member Board
18 FX TRADER MAGAZINE October - December 2010
of Directors at each of the District
Banks consist of three Class A
directors, three Class B directors,
and three Class C directors.
Class A directors are elected by
member banks within the district
and are professional bankers.
Class B directors are also elected
by member banks in the district,
but these are business leaders, not
bankers. Finally, Class C directors
are appointed by the Board of
Governors and are intended to
represent the public interest.
Class B and Class C directors
cannot be officers, directors,
or employees of any bank, and
Class C directors may not be
stockholders of any bank. One
Class C director is selected by the
Board of Governors to serve as
Chair of the Board of Directors.
The Board of Directors selects
the President of each District
Christopher Dodd,
Democratic Connecticut Senator, Chairman
of the Senate Banking Committeepast
interventions (courtesy of Deutsche Bank).
Bank, but the President must be
approved by the Central Bank’s
Board of Governors.
From this structure it is possible
to say that despite having 7 of
12 members of the FOMC (the
Board of Governors) of pure
political nomination, it would be
quite difficult to steer monetary
policy away from some Fed
independence. A Fed governor
is supposed to serve for 14 years,
and the terms are staggered. That
way, no President gets to appoint
more than a few governors and
cannot stack the board in favor
of certain policies. But that
has changed with Obama. Two
nominations by Bush have been
held up for several years, and with
the resignation of Vice-Chairman
Kohn, President Obama now gets
to appoint four governors (three
of them quite soon, likely they are
going to be Peter Diamond, Sarah
Raskin and Janet Yellen, currently
San Francisco Fed President), and
he has almost three years left in
his term. Also there is a proposal
for a law change that could get

through the Congress (‘the Dodd
proposal’ a broader law which
would also strip the Fed of its role
as bank supervisor): the Board of
Directors for each District Bank
would be chosen by the Central
Bank’s Board of Governors (who
are themselves chosen by the
President with the advice and
consent of the Senate). The chair
of the Board of Directors at each
District Bank would be chosen
by the President and confirmed
by the Senate. Also the proposal
would give the President the right
to appoint the president of the
New York District (always a voting
member of FOMC).
If things gets worse and the Fed
struggles to fulfill its mandate
(i.e. price stability and full
employment) it is very likely that
the Federal Reserve will have to
FUNDAMENTAL ANALYSIS FX
fight for its independence in such
a political climate.
Stay tuned. The next FOMC
(November 2nd-3rd) is going to
be an interesting one. Despite
Ben Bernanke being a consensus
builder, we still have several voices
not exactly unanimous in such
a complicated macro situation
where resorting to unconventional
measures is likely to be needed.
After the August 10th decision to
suspend any ‘exit strateg y’ and to
keep the Fed (expanded) balance
sheet unchanged paving the way
for eventual future QE2, the WSJ
( Jon Hilsenrath article) depicted
the FOMC situation this way.
Please note: Bernanke, Kohn (now
retired), Warsh, Tarullo and Duke
are five Fed Governors (all voting
members of FOMC). Three more
FX TRADER MAGAZINE October - December 2010 19
(including Kohn substitute) need
to be appointed, as mentioned
before. Dudley is the New York Fed
President. Rosengren (Boston),
Bullard (St. Louis), Pianalto
(Cleeveland) and Hoenig (Kansas
City) are the 5 rotating (voting in
FOMC) presidents among the 12
regional banks.
While we might look at the
Fed for significant FX drivers
going towards year end, the most
important FX ‘event’ in the last
few weeks, we have to admit, has
been the MOF/BOJ intervention
in USD/JPY.
The facts.
Around 2:00 am BST on
Wednesday September 15th, not
long after the price dipped below
83 for the first time since 1995,
the BOJ started to buy aggressively
USD/JPY. Nikkei reported that
they sold over 2 trillion Yen to
buy Dollars in the biggest single
day intervention since April 10th,
1998 (2.6 trillion Yen) when they
were buying JPY and selling USD.
This is the first intervention since
March 2004. During the previous
episode of intervention, the MOF
began the intervention in January
2003 at Y118. The yen remained
in the Y119-116 range thereafter
until September 2003 while the
MOF continued to intervene,
but the yen appreciation renewed
from mid-September 03 (Dubai
G10), drifting to Y103 level in
April 2004, despite the continuous
massive intervention by the MOF.
The total intervention during
January 2003 – March 2004
 FX FUNDAMENTAL ANALYSIS

accumulated to Y36.3 trillion or

$326 billion (exchange rate at that
time).
How much can the MOF do? There
is a budget rule setting the upper
limit of FX-bill issuance. The
current limit is Y145 trillion, while
the current outstanding is Y110.2
trillion. The MOF can do Y35
trillion of intervention now, but the
government can submit a request
to raise the FX bill limitation to
the Diet, if necessary.

The fact that Yen intervention

didn’t turn the trend the last time
(2002,2003-2004), took a very
long time (and worse levels) on
previous occasions (1993-95 and
1999-00) or hasn’t so far worked
for the Swiss may mean the
Japanese only intend to smooth
the ascent of the Yen. Indeed, the
trinity of co-ordination, divergent
monetary policy and market
volatility that has typically been
needed to turn currency trends
through intervention is clearly
missing , further supporting this
view.
We are skeptical that the tide
could be easily turned without
those conditions. Prevailing flows
are always difficult to stop and
reverse quickly. In the first six
months of 2010 China has been
buying Japanese T-Bills at the
pace of roughly 3.5 billion USD
per month (around 20 times the
pace of the previous five years),
likely diversifying its massive FX
reserves away from the Dollar (and
maybe the Euro).
We see these possible implications.
USD/JPY not reacting quickly - if at all - to past interventions (courtesy of Deutsche Bank).
1) Possibly the Yen will still reach
interference so far. Perhaps, the
an all-time high against the dollar.
seeds of a new Plaza Accord may
The underlying fundamentals of soon be sown, or perhaps, as
low US rates, Japanese current usual, the Euro could take the
account surplus and the absence brunt and be forced to take the
of a valuation extreme are still appreciation. Just a few hours
in place. It’s worth remembering after the inter vention started
that the all-time high in the JPY Jean-Claude Juncker who chairs
reached in early 1995 occurred the Eurozone finance ministers
with the backdrop of inter ventioncriticized the BoJ inter vention
(see chart). saying “Unilateral actions are not
an appropriate way to deal with
2) US mid-term elections are global imbalances.” Criticisms
coming soon. China’s managed are coming from the US Congress
appreciation of the Yuan and as well.
now Japanese inter vention could
raise political tensions in G20. 3) The BoJ is yet another buyer of
With the Yuan heavily managed, US Treasuries – the pressure for
BoE often talking down Sterling , lower bond yields may continue.
SNB inter vention in CHF and This should be supportive of
now MoF/BoJ inter vening in broader carry trades.
JPY, only the Euro and the
Dollar have escaped any policy Alessandro Balsotti

20 FX TRADER MAGAZINE October - December 2010

 STRATEGY FX

Finding Your Trading Style

Trading is all about making much less get around to actually in the first place.
decisions. That seems simple settling on an answer. But the I spent the first dozen of my 20+
and straightfor ward enough, but best traders always do and that’s years in FX as a spot market-
I ’m not referring to the typical how they sur vive year after year, maker and proprietar y trader
‘ buy or sell,’ ‘how much,’ or market after market. Such trading in New York, so I know first-
‘where’-type trading decisions. success is usually attributed to hand the difference between
Instead I ’m talking about the ‘discipline,’ but that raises the a disciplined approach and an
likely biggest undisciplined
trading decision trading style.
you’ll ever make- Like many new or
Deciding exactly aspiring traders,
what kind of I spent my first
trader you want couple of years
to be. How will trading without
you approach an explicit style
the market ? and my results
What timeframe showed it.
will you focus Money made one
on? What month would be
will inform given back the
your trading next, or money
decisions ? In made in the
short, deciding morning would
what trading be coughed up
style you will later that same
pursue will afternoon. It
probably be the was a frustrating
single biggest experience to say
determinant of your trading question “Disciplined to what ?” the least.
success or failure. The answer, I would suggest,
is maintaining a disciplined One thing I was doing right
From my experience, most trading style. But you can’t was monitoring my daily
traders don’t even explicitly achieve that discipline if you P&L and analyzing the
acknowledge this question, don’t settle on your trading style results on a monthly basis,

FX TRADER MAGAZINE October - December 2010 21

 FX STRATEGY
which is something I would
urg e a ll traders to do. It’s
the only way to obje ctively
e va luate your trading results,
a s memories can b e tricky. The
ke y metrics I fo cuse d on were
the number of winning/losing
days and the avera g e win/loss
amount. I wa s winning more
days than I lost ( g o o d ), but my
avera g e loss wa s g reater than
my avera g e win ( bad ). That
pointed me to the solution to
my problems, namely cutting
losses so oner, but it a lso
force d me to re consider my
lack of a defined trading style.
I went on to de velop a more
22 FX TRADER MAGAZINE October - December 2010
explicit trading approach,
writing down explicit do’s and
don’ts to remind myself and
reinforce discipline, and my
results improved significantly.
One simple example : my P&L
ana lysis a lso re vea le d that I wa s
routinely losing money on the
last trading day of each month.
S olution : I stopp e d trading
the la st day of the month, no
matter what wa s happ ening .
There’s no universa l st yle
that fits a ll traders a ll the
time and we a ll have to g o
throug h a pro cess, fre quently
tria l and error, to se e what
works best for each of us. The
ma in comp onents of st yle
that I fo cus on are : trade
timing , trade rationa le, and
trade mana g ement. Persona l
circumstances will frequently
dictate key elements of trading
st yle, such a s trade timing ,
which I use to refer to trade
frequency/duration (e.g . intra-
day/multi- day).
For instan c e , i f y o u have
a f u l l-tim e j o b o uts i d e o f
tra d ing , y o u’re pro b a b l y n o t
g o ing to b e a b l e to watc h
marke ts an d tra d e a c ti ve l y
on an intra - day b a s i s , s o
 STRATEGY FX

you’ll probably want to focus star t p ointing at te chnica ls Trade manag ement, or risk
on a medium to long er-term to rationalize keeping a trade management more accurately,
trading st yle. If you’re still open, even if the fundamental is usually determined by the
determined to pursue short- picture has not played out as economics of your trading
term trading (say, trading expected. Even worse, perhaps, account, which I would
European/London markets in are chartists who re vert to sug g est is the star ting p o int
the Australian for e ver yone.
evening ), it helps S i n c e
to explicitly we’re most
r e c o g n i z e concerne d
your choice to a b o u t
reinforce trading preventing
discipline. In losses, the
this case that first question
means never is ‘what is the
allowing a short- ma ximum loss
term trade to I ’m prep are d
turn into a long - to susta in?’
term trade. Even The se c ond
if it’s a winn er, question is
th e bre a k in ‘where am I
st y l e d i s c ip l in e wrong ?’ The
wi l l ta ke y o u answer to those
away f rom y o ur two questions
c ons c i o us p lan will dictate
into un c har te d your maximum
water s wh ere position size
b a d th ing s can
happ en .
Deciding what trading style you based on your
stop loss. Above
will pursue will probably be the all, vow to stick
For tra d e to your risk
rationale, I focus single biggest determinant of management
on te c hn i ca l vs . plan as an
fundamental your trading success or failure integral part
a p p r o a c h . of your trading
Yo u can us e st yle.
whichever approach you think economic analysis to justif y
works b est for you, but b e a technical trade set-up g one I can’t tell you what approach
clear to yourself as to the basis awr y. My own preference is is b est for you, but I can tel l
of the trade (write it down to blend the two, developing you that not having settled on
in a journa l ) b efore you e ver a directional view based on a a trad ing st yle is no appro ach
op en it up. Once a trade is macro -economic outlook , but at a l l .
entere d , it’s a ll to o common defining entr y/exit based on
for f undamenta l-t yp es to technicals. Brian Dol an

FX TRADER MAGAZINE October - December 2010 23

 FX forex watch

Elevated Trading Volume:

The Tip of an Iceberg ?

C
onsistent with our at individuals, retail investors annua l ne g ative returns in
column in the last and those institutions p erhaps various a sset cla sses .
issue of FX Trader re c ently ne w to the area .
mag azine, we hope to provide Interesting ly, most pric e
some thoug ht-provoking As we are a l l aware, trad itiona l char ts of c ommo d i ties, e qu it y
insig hts and obser vations on financia l markets rema in in ind ic es, c ommercia l rea l
recent developments in the a state of flux with investors estate, residentia l rea l estate,
Forex market primarily targ eted ner vous and tire d of c onsistent mun icip a l and g overnment

24 FX TRADER MAGAZINE October - December 2010


bond yields tell pretty much the
s am e stor y an d don’t g enera l ly
paint a pretty picture for those
s e e king cap i ta l g rowth .
Even th o s e rare yet l ikely
temp orar y su c c ess stories
c o u l d n ow f a c e risk s of their
re sp e c ti ve b u b b les bursting ,
a s wi th cr u d e o il ha lving in
va lu e o ver th e p a st c oup le of
y e ar s . In a s im ilar vein and
d e sp i te c urrent attention to
c er ta in pre c i o us meta ls we se e
a d i stin c t ri s k that the pric e
of gold with its negative carr y
may ultimately prove expensive
f or inve stor s , e sp e cia l ly those
re c entl y invo lve d in the market.
Sim ilarly, the underlying risk
of default by municipa lities in
certain areas may be higher than
is truly re cog nize d g iven the
disposition of many authorities
to run deficits, whether by
choice or not. The point is that
being positione d around crowd
menta lit y can be g reat for a
while until e ver yone has the
same exposure-se e NA SDAQ
euphoria circa year 2000 and
the bullish carr y trade in Forex
up until Aug ust 2008.
Even with this backdrop of
uncerta int y, Forex volume
continues to be propelled higher
and has shattere d pessimistic
FX TRADER MAGAZINE October - December 2010 25
forex watch FX
expectations of contraction that
were generated in the summer of
2008 and have be en overhang ing
the market until re cently, a lbeit
to a lesser deg re e.
To expla in : in Q2 of 2010 over
fifty significant monetary bodies
contribute d their colle ctive
finding s to the eig hth Triennia l
Centra l Bank Sur ve y of Foreig n
Exchang e and Derivatives
Market Activit y with a common
purpose of achieving an accurate
measurement of comprehensive
market data refle cting the size,
shape and dire ction of flow in
the cap ita l markets mentione d
ab ove.
 FX forex watch
The Bank for International
Settlements coordinated the
results from over 1,300 market
entities.
For the first time since inception,
the ‘g lobal foreign exchang e
markets’ categ or y includes all
five currenc y instruments of
Spot, Outrig ht, For wards, Swaps
and Options.
According to our independent
research, many positive surprises
were revealed by the preliminar y
headlines mostly due to much
hig her than expe cte d trading
volumes. If these numbers are
verifie d in November ’s fina l
release of statistica l data by
the B IS, the y may conta in ver y
bullish clues towards a dynamic
outlook for Forex market
participants that were tempere d
during the market meltdowns
in the summer of 2008.
The sur ve y conta ine d a lot of
g ood news se eing a 20% boom
in g loba l turnover since the last
sur ve y in 2007 with the closely-
watche d avera g e da ily turnover
shooting to the $4 trillion
mark .
This relatively mete oric rise
was primarily fe d by a reporte d
and approximate 50% jump in
spot trading to $1.5 trillion per
day from $1 trillion in 2007
(the spot market itself accounts
for a lmost 40% of tota l Forex
transactions).
26 FX TRADER MAGAZINE October - December 2010
Our point about the tip of this
‘iceberg ’ being re vea le d may
be supporte d by a noticeable
increase in trading activit y by
‘other financia l institutions’,
rising 42% to $1.9 trillion
from 3 years a g o. This categ or y
includes non-reporting banks,
various f unds and insurance
companies, sug g esting that
Forex has firmly arrive d on
the radar of these powerf ul
entities.
Furthermore, the volume of
reporting dea lers trading with
such counterparts actua lly
overtook that - among that
same g roup of reporting dea lers
- for the first time.
As we hig hlig hte d in our
pre vious article, Forex is truly
be coming a more g loba lize d
business thanks mostly to
an awareness of the product,
te chnolog ica l advancements,
improvements in he dg ing
efficiencies via competitive
pricing and e volutionar y price
transparenc y.
Emphasizing these aspe cts,
cross-border transactions in the
sur ve y accounte d for 65% of a ll
FX turnover.
The UK increase d its market
share to lead the pack with
a lmost 37%, more than t wice
that of its closest pe er (the US)
at 18%. Austra lia and Canada
a lso increase d respe ctive market
share perhaps due in part to
strong banking systems and
commodit y demand.
Those are a few hig hlig hts
and we awa it the fina l release
in November with interest.
For f urther information, the
BIS provides comprehensive
information on its website citing

sources and detailed statistical
analysis at http ://www.bis.org/
publ/rpf x10.htm
S o what does this mean for the
rema ining few we eks of 2010
and perhaps more importantly
be yond ?
We don’t pretend to know
a lthoug h as we g o to print, the
anniversar y of “Black Monday ”
is looming larg e and it would
be ver y surprising if FX markets
did not at least anticipate some
kind of potentia l e quit y market
panic as we enter October ; if
re cent price action rema ins
consistent we will se e risk-
aversion ta ke hold that results
in purchases of CHF and JP Y
and sa les of ‘risk’ currencies
like AUD, M XN and N ZD.
Should such an outcome not
eventuate we would naturally
expect the reverse of the above
and the same on any equity
market rally, ag ain based on
recent behaviour.
The market’s quandar y over how
to position for a fluctuating
USD will surely be a driving
factor g oing for ward.
One school of thoug ht asks
whether a Dollar can be worth
more than its previous value if
there are more in circulation
as a result of the QE-induced
printing of them.
Conversely, if China and Japan
both continue to need Dollars
in the midst of their respective
reser ve asset diversification, US
10-year yields will continue to
remain pressured lower from
their present level of 2.7%, raising
the issue of deflation once more.
With elevated unemployment
levels in the US this could see
the door opened for more Fed
FX TRADER MAGAZINE October - December 2010 27
forex watch FX
easing , thus causing further bids
in the Treasur y market and a
counter-intuitive demand for
the Greenback amidst falling
yields.
With this and other similarly
strang e market dilemmas in
focus the best polic y we have
found is to react to the markets
once a trend asserts itself, which
can often take weeks or months
to confirm, establishing entr y
and exit parameters around the
trend move.
Howe ver the FX markets behave
rema ins to be se en. We can offer
some discussion points base d
on ane cdota l e vidence and
market g yrations that in any
e vent lead us to belie ve Forex
markets are well positione d to
f urther increase their g rowth,
e ven from what are relatively
ele vate d le vels and reg ardless of
how the stock or bond markets
may perform :
• As the fluctuations and
volatility of 2010 have reminded
us, there are no sure thing s in
FX . That sa id, one aspe ct that
se ems a lmost certa in to be come
an increasing rea lit y is that
currenc y is now being ta ken
more seriously than e ver before
as a re cog nize d asset class
rather than being pre viously
viewed simply as a tool enabling
switching between one product
or reg ion to another (e.g . Stocks
to Bonds, US to Canada).
 FX forex watch
• In an increasing ly fiscally
disciplined and cost-conscious
environment around the world,
participants now realize they are
leaving money on the table if proper
attention is not being devoted to
management of respective Forex
needs and requirements.
• The market remains deep
and liquid at institutional and retail
levels, the latter arguably bolstered
with introduction of NFA/CFTC
regulations in the US designed to
assist and protect new investors.
http://www.nfa.futures.org/
• Technolog y continues
to improve with widespread
availability to real-time pricing
and minimal latency between trade
initiation and conclusion.
• Volume in ‘Emerging
Markets’ is in its infancy compared
to say G-10 currencies. With a
paradigm-shift arguably underway
in established markets we anticipate
strident increases in Asian and Latin
28 FX TRADER MAGAZINE October - December 2010
American market volume as pricing
inefficiencies become minimised,
especially when such factors may
simply exist due to legacy issues.
• We continue to see great
demand for and interest in the
Brazilian Real (BRL) and Mexican
Peso (MXN) despite recent jitters
and weakness. This point may
seem more credible when it seems
clear that the Eurozone panic due
to the Greek crisis earlier in 2010
directly affected these markets to
extreme levels and became the main
catalyst for a global market switch
from a cautiously bullish outlook
to a (perhaps unjustified) bearish
stance. Time will tell, especially
once the political situations in the
southern hemisphere stabilize and
the Eurozone fiscal issues continue
to linger ad when investors see the
potential upside in Latin America.
• Perhaps most compelling
is the simple fact that several years
ago very few investors held foreign
stocks in their portfolios and now
the majority either does, or expects
to do so. Although only a minority
of investors currently includes FX
among their investment products
we feel that in several years’ time
it will be quite normal to have
Euros, Yen, Aussie Dollars and
others keeping company with or
even surpassing holdings of ‘blue
chips’.
The fact that many investors who
were previously unaware of the
uncorrelated potential offered by
Forex are now getting on board
with the idea quite literally speaks
volumes.
We have attended numerous
conferences with industry
colleagues where companies
like ours are seeing a markedly
higher level of interest in the
FX market and we suspect that
correct application of a tactical
and rule-based system applied
to the global currency world
can lead to success, theoretically
reducing overall portfolio risks
for investors wishing to diversif y.
Forex has been around for a long
time and although the concept
is not overly difficult to grasp,
navigation of unfriendly or
peculiar terrain where the rewards
that we speak of are possible
can be tricky without expert
guidance - we highly recommend
research, professional assistance
and appropriate counsel before
leaping into the unknown.
Kevin Sollitt
 











 




 
 

 



























 FX HIGH FREQUENCY TRADING
Peter Van Kleef
Peter Van Kleef, CEO of Lakeview
Arbitrage, is currently leading a series
of High-Frequency Trading Experts
Workshops in London, New York, Dubai,
and Hong Kong. Mr. Van Kleef managed
significant hedge fund type investment
portfolios and quantitative trading
departments for, among others, Cooper
Neff, Salomon Brothers, HypoVereinsbank
and Credit Lyonnais. He has over 15
years of experience in the development
and running of sophisticated automated
trading operations. He is a frequent speaker
FXTM: How did you get into High
Frequency Trading? Can you tell us a
little bit about your background and
experience as a trader?
PVK : During my studies, I was doing
a stint at Salomon Brothers in the
equity derivatives team in Frankfurt,
Germany. We were arbitraging the
index future against its components in
the old IBIS and DTB trading systems,
which were some of the first platforms
for electronic trading. I was also market
making the DAX options. This was in
the early 90s. After finishing my studies
in the US, I started working for Cooper
Neff, which at the time was one of the
leading players in the early days of high
frequency trading. After that I had stints
at DRW and Transoptions. All these
firms were early adopters of electronic
high frequency trading and at that time
leaders in their field. It was immediately
apparent that by having superior
technology you could gain a significant
advantage over your competitors and
30 FX TRADER MAGAZINE October - December 2010
on complex arbitrage strategies with a
focus on volatility arbitrage and high
frequency algorithmic trading. He is also
a well-known consultant to the investment
community with regards to trading, risk
management, operational and strategic
issues.
Peter talks to FX Trader Magazine about
his experience as a trader and explains the
main benefits and
risks involved in High
Frequency Trading. INTERVIEW
that you could generate outsize profits
without outsize risk. After that, I started
working for some larger banks such as
Credit Lyonnais and HVB and helped
them build up their electronic trading
capabilities with the knowledge gained
at the early leaders in the field. So I
pretty much got in at the starting point
of electronic high frequency trading
and never looked back.
The speed race you are seeing now
is just a repetition of what happened
in the late 80s/early 90s when markets
first got electronic and I am sure it will
end in a similar way. There seem to be
cycles in the market.
FXTM: Can you explain what high
frequency traders do and how they
trade?
PVK : Generally traders in this
segment try to analyze the markets
faster than their competitors and
also exploit opportunities faster than
anyone else. There are basically two
distinct segments. The first one is where
people rely mostly on speed to get trades
that, for example, correct mispricing
across different markets. Those trades
are nearly risk free for the fastest and
therefore competition is fierce. The
second segment relies more on a strategic
advantage by looking at the same data
differently or looking at other data such
as news in combination with market
data. Here speed is still very important
but know-how and strategy are at least
equally important. As both approaches
require the analysis of hundreds if not
thousands of securities and their order
books in real time, plus potentially other
types of information, this kind of trading
can’t be done by humans. Computers
do all the analysis and also execute the
trades. The job of the trader is to come
up with the strategies the computers are
supposed to run and to help the IT staff
to implement them. After that, traders are
monitoring the trading and setting the
parameters of the strategies. The trader
 HIGH FREQUENCY TRADING FX

therefore has to be more the responsible the necessary skills and experience certainly from home. Even if you want a state of the
and careful type rather than the aggressive is worthwhile. Making sure that there is no art setup, it doesn’t need to break the bank.
gun slinging type of the past. Some single point of failure and starting small HFT trading has become affordable for
IT background also doesn’t hurt. The and in a controlled environment is also almost anyone.
machine always only trades as good as the important.
trader that designed the strategies and FXTM: What are the most profitable
the IT person that implemented them. FXTM: Why is there such a controversy used HFT strategies?
surrounding HFT in the markets today? PVK : Anything where people look at
FXTM: What are the benefits of HFT PVK : Because it’s always nice to have data that the competition doesn’t look at
for the markets? someone to blame to raise one’s profile, and that look at data differently than other
PVK : HFT certainly ensures that prices especially when most people don’t people. Furthermore simple strategies. The
across venues stay in line. Any significant understand the subject matter. It’s very easy most complex ideas rarely fly.
deviation is arbitraged in split seconds. to point the finger when someone doesn’t
This is of course very valuable, as it ensures have a large lobby group. It’s always been FXTM: Is it true that the winner, in
that differential pricing gets eliminated in fashion to blame people with superior other words, the fastest, takes it all?
fast and people receive fair prices across knowledge and technology for the evils in PVK : On pure speed competition
venues. The second big advantage is that it the world. People are always afraid of thingsyes, unless the fastest is on the toilet or on
makes it easier to provide liquidity to the that are new and that they don’t understand. vacation. Then number 2 has a chance. But
market. If one can adapt prices most leading HFT firms
quicker to changing markets don’t make their money
one is less likely to be taken Analysis of market microstructure because they are the fastest.
advantage off by, for example,
news coming out. Any market
and behavioral finance are areas with Their strategies are smarter
than the ones of their
depends on liquidity. This is a lot of opportunity competitors or slightly more
mostly provided by market aggressive when it counts.
makers. They are also the
early leaders and adopters of HFT as it HFT has been around for around 20 years. FXTM: What is the most important
helps them do their job better. Finally it So if it would be really that bad, it should factor to reach speed: software -
equalizes opportunity. Electronic trading have made the same headlines before. meaning the coding of the algorithms-,
levels the playing field as connections and hardware, or proximity to the order flow?
relationships are far less important than in FXTM: What does it take to get into PVK : If you want to be a serious
voice traded markets. The technology is the high-frequency trading space? contender for the fastest slot these days,
more affordable than ever and small firms PVK : Not much, these days you can get you have to implement things in hardware
can beat large established ones. a brokerage account that gives you an API and plug it directly into the exchange
you can connect to with a minimum deposit with response levels pre-calculated so
FXTM: What are the key risks involved of around 2K USD and you can download that your system does only execute binary
in HFT today? And what should be done an open source engine like Marketcetera comparisons.
to avoid them? for free to get you started. Of course there
PVK : Key risks are basically poor are serious limitations to what you can do FXTM: HFT is an extremely profitable
design of the strategies and infrastructure. with such a low cost setup but it can get you business. Does this come mainly from the
Routinely firms that skip on safety and started on a platform that can grow with fact that HFT computers can see both
don’t do things properly get carried out your skills and needs. Going forward, you some of the order flow and institutional
of the market. Experience has significant will see university students and even people flash orders?
value and getting people involved that have from high school starting in algo trading PVK : No, not really. If you trade via

FX TRADER MAGAZINE October - December 2010 31

 FX HIGH FREQUENCY TRADING

a fast computer you exclude any human and price providers as possible to create the art algo operation from scratch and
from competition. So that’s already your own synthetic central marketplace. how to avoid the main pitfalls. To show
a lot of people. If you then look for FXTM: Will sophisticated retail people options with regards to strategies
small but almost certain edge and scale traders be able to develop HTF forex and systems.
such strategy across many underlyings strategies and models?
and markets you make a lot of money PVK : That’s already happening. In FXTM: What will be the major
with little risk. That’s where the juice is. no other market do retail guys get 400 benefits for those who will attend?
Analysis of market microstructure and to 1 leverage. So that’s very attractive PVK : To get a thorough understanding
behavioral finance are areas with a lot of if you have limited capital, especially of the subject and how to master the
opportunity. Flash orders are only a small as currencies have been very volatile challenges when getting into the game.
piece of the puzzle. recently. For people that are already active in the
field, the courses should also give some
FXTM: How is HFT doing in the FXTM: For a trading system developer, food for thought on how to improve
Forex space? what are the differences between one’s setup.
PVK : Forex has the drawback of very building a high-frequency trading system
few liquid pairs to trade. The liquid and a lower-frequency trading system? FXTM: How do you see HFT evolving
pairs are of course crowded in the future? Do you believe that
by a lot of players. Forex If you want to take maximum most hedge funds and money
is an interesting market managers will incorporate
through the fragmentation advantage, you need to connect HFT strategies into their own
and different time zones. to as many platforms and price trading?
Understanding of market PVK : Not most. It actually
idiosyncrasies and market providers as possible to create your depends on your definition
structure are important. own synthetic central marketplace of HFT. What is medium
frequency trading now was
FXTM: Are there ultra high frequency trading
profitable HFT strategies or players in PVK : If things go wrong, they will 15 years ago. Many institutional investors
the Forex OTC market? most likely go wrong fast and in size. So have a fairly long term horizon and it
PVK : OTC and HFT are a bit of a safety is paramount. That’s not so much will take them a long time to understand
contradiction. If a trade is real OTC, so the case with lower frequency trading as that some high frequency techniques
negotiated over the phone rather than a human could always intervene after the can benefit them greatly. At the moment
a trading system or platform you can’t first one or two bad trades or even before many consider it a fad that will pass and
really call it HFT. the first one, depending on frequency. In therefore don’t engage in the topic. That’s
HFT, that is often not possible. a mistake but then again, the markets are
FXTM: How do you achieve speed usually a means for wealth transfer from
in an OTC market without a central FXTM: During the month of many to few and not the other way round.
exchange? October you will be holding various
PVK : If your definition of OTC is that workshops in London, New York, FXTM: Would you like to give any
of different proprietary bank platform, Dubai and Hong Kong. What is specific advice to anyone considering
of course there is edge as there is always the objective of these workshops? getting into HFT?
one provider that is out on the others. PVK : Mostly to educate people about PVK : Spend enough time learning
Exploiting that is not a very well received the subject matter and dispel some of about the subject. Learning lessons
strategy of course by the price providers. the myths surrounding the topic. Also the hard way by trial and error can be
If you want to take maximum advantage, a main objective is to give people the expensive.
you need to connect to as many platforms necessary information to build a state of
32 FX TRADER MAGAZINE October - December 2010
 FX FUNDAMENTAL ANALYSIS
Why Invest in
Asian Currencies?
W hy Asia? Strong fundamentals.
The best reason of all.
To say that Asia is a good investment destination
may be an understatement based on recent trends.
Certainly, you should take time to consider the many
benefits of investing in the key Asian currencies.
Asian economic growth is being driven by the twin
powerhouses of China and India and the region will
average 8% GDP growth over the next couple of
years. India is planning on 8% growth for next 10
years.
Asian fundamentals are strong – unlike other
countries, there is low public and private debt,
34 FX TRADER MAGAZINE October - December 2010
foreign exchange reserves are positive and many
Asian countries have current account surpluses. By
contrast, post-GFC developed world growth will be
low and slow for some time due to debt and budget
deficit problems.
Historically, equity prices are not expensive. We can
say with confidence that the Emerging Seven (China,
India, Brazil, Russia, Mexico, Indonesia, Turkey)
will be the key drivers of global economic growth
over the coming decade. In fact, Brazil, Russia, India
and China already account for nearly 50% of global
economic growth.
The tide has well and truly turned in terms of the
global economic power. Perhaps it is not surprising
that we are seeing record investor inflows into Asia.
This is having a direct impact on Asian currencies
which are among the strongest globally.
A sian Currencies – the ground floor of the
economic elevator.
Of the many Asian investment options, why Asian
Currencies?
We have identified two key drivers of economic
growth that inexorably lead to increased demand for
infrastructure – urbanisation and demographics.
 FUNDAMENTAL ANALYSIS FX

Cons i d er th i s : 7 b il l ion p e op le l ive in Asia .

Ye t , ur b an i s ati on le vels in E a st Asia are
e xc ep ti ona l l y l ow by internationa l standards .
A s a snap s h o t , the U K ha s an urb an ise d
p op u lati on o f around 90%. Ch ina is at 43%
( ran ke d 1 2 8 th in the world ) and Ind ia is just
2 9 % ( 1 6 1 st ) .

By 2030, China will add more city dwellers than

th e entire US p opu lation ! Ind ia is p lann ing to
sp en d US $ 1 . 5 tril l ion on infra str ucture in the
n e xt 8 y e ar s .

A s we kn ow, s h if ts in p opu lation from r ura l

to ur b an are a s g enerate demand for urb an and
s o c i a l inf ra str u cture. More ro ads ne e d to b e
b u i lt , uti l i ti e s ne e d to b e provide d , housing
d e ve l opm ents and lo ca l amen ities are ne e de d to
supp or t th e m o ve to more de velop e d ways of
l i ving .
factors in favour of Asian currencies. In addition,
lower debts, p ositive current ac c ounts and F X
reser ves mean these currencies are not b eing
‘’de -b a se d’’ by the mone y printing exercise se en
in the West. Most Asian currencies are the tr ue
‘’hard’’ currencies of the next g eneration .

In terms o f d emo g rap h ics, emerg ing markets
show a high number of young people entering the
work f orc e . Th e y are increa sing ly e ducate d and
s ki l l e d an d wi th th is c omes advanc e d p atterns
o f in c om e , sp en d ing and wea lth creation .
There are a small number of funds now available
for investors to take advantage of this changing
of the g uard but we expect that this will become
increasingly popular.

Hi g h er e c on om ic g rowth supp or te d by Andrew McKay

ur b an i s ati on and demo g rap h ic are the ke y
FX TRADER MAGAZINE October - December 2010 35
 FX algorithmic trading
Defining ATS
What are the components of an
Adaptive Trading System? Some
components may include:
• Ability for a system to adapt to
market changes in some form
• Systems that are self-learning
• Master control systems that
monitor multiple sub-systems,
selecting the best system for
the market type
• Dynamic indicators that
derive value based on market
types, or other derivative
indicators
• Should contain some type
of ‘intelligence’.
What ATS is not:
• Static trading rules
• Simple indicator based
system (such as MA
crossover)
ATS need not be automated,
although by necessity they most
likely would be.
36 FX TRADER MAGAZINE October - December 2010
Adaptive Trading Systems
Adaptive Trading Systems (ATS) can mean a lot of
things to traders. Generally, it is an automated trading
system that ‘adapts’ to market changes in some form.
Data about ATS
Trouble with doing any research on
the state of ATS is that traders do
not publicly disclose their trading
methodology, and it is impossible
to track based on their results. For
example, a trader may claim to have
an adaptive system, when in fact it is
really just a SMA crossover, or a trader
placing trades manually. We can always
see their results (at least the broker
or bank carrying their account can
see) – but sometimes even that is not
available. So we are left with reading
either academic papers, which are
usually far disconnected from the real
economic world, or by trusting websites
that they are actually doing what they
claim. In our experience, this is
false more than it is true. For
example, there are 10x – 20x
(magnitude) more websites
promoting winning trading
systems than there are actually
winning trading systems.
This isn’t always dishonesty
– sometimes systems will
work and then stop working,
and webmasters will leave up
the site. Or systems traders
will overstate returns, or
‘cherry pick’ good results not
displaying the 20 accounts
the system blew up. Google
has become the writer and
researcher’s best researching tool;
however, for this application, it will
not be sufficient to conduct any study.

The question about Adaptive
Trading Systems has a deep history in
trading; it is a burning development
question, which is much deeper
than about any individual trading
system or methodology. It is about
the fundamental functioning of
society on this planet. It is about the
evolution of machine systems that
industry by industry, are replacing
human involved processes.
Trading is real-time finance. The
markets are a real-time matrix
mathematically describing planet
earth and human existence. Because
in Capitalism, everything that can be
quantified shows up on companies
balance sheets at some point. Some
things, such as Good Will, and Love,
cannot be quantified, but they still
show up on the balance sheet (we love
Coca-Cola and we buy it, creating an
economic transaction).
The markets are the real-time
allocation of economic, quantifiable
resources. In the most obvious
and crude form,
the commodity
markets determine
the prices of
The question about Adaptive Trading Systems
many goods and is about the evolution of machine systems
services consumed
by consumers that are replacing human involved processes
globally. An
automated trading
system could theoretically affect the
prices of these commodities, they are
engaging in the pricing mechanism
by running their own algorithm to
determine not only the price but
where they feel the price will go
(as ATS are speculative by nature,
they have an inherent forecasting
algorithmic trading
element built into them.) Thus, the
evolution of ATS is the evolution of
markets themselves. As more ATS
are used, markets will become ‘more’
optimal, or to be more precise, the
process of optimization will evolve
itself to become more precise, faster,
and more efficient.
Markets are a constant process of
optimization. Since real ‘optimal’
levels are areas, and not exact
points, markets move (there is no
exact optimal level, in fact each
tick is the close to ‘optimal’ level
for the market).
Therefore, the long term ‘goal’
FX TRADER MAGAZINE October - December 2010 37
FX
of truly intelligent ATS is the
automated, highly calculated, and
optimal distribution of resources
in a global economy connected
electronically through the internet.
The individual ‘goal’ of the ATS
will likely be for speculation and
profit. But in their process of
obtaining profit, how they trade
capital in the markets, will balance
the prices, thus optimizing market
prices, and thus deciding ‘who gets
what’ in the market.
This unintended consequence of
ATS should not be disregarded;
it is the moral high ground
of a sophisticated capitalist
system. While the system does
produce many economic losers,
it also drives growth, innovation,
and speculation, which drives
development of ATS, which drives
the development of an intelligent
systemized allocation of resources.
So while the individual motives,
d e s i r e s ,
and other
emotional
human factors
d r i v i n g
humans to
d e v e l o p
sophisticated
ATS systems,
the operational result is a more
efficient, optimized system.
Of course, factors such as wanton
wealth and resource destruction,
as seen with the recent economic
collapse, may defeat efforts of
ATS.
 FX algorithmic trading

Examples of Adaptive Trading
Systems
- Dynamic Indicators
This is the most common ATS that
many traders use and probably do
not realize what they are using is
adaptive.
- Chandelier Stops
EES employs a plethora of volatility
based parameters that are modified
according to volatility. For example,
when determining lot size, it will
increase as volatility decreases. This
is because when the market is less
volatile, there is less price movement,
which means both less risk and less
opportunity for profit. So, on quiet
days, the system should increase the
lot size to compensate for the lack in
trading opportunity. This can be as
simple as using ATR (Average True
Range) and multiplying it by a value
to determine the lot size.
volatile, trade larger sizes. This is
a ‘smoothing’ function that can be
described as adaptive, because it
adapts to the market.
ATS Evolution
It is not difficult to speculate on the
evolution of ATS. What remains to be
developed and implemented are a wide
variety of intelligent trading systems
that self-adjust based on market
conditions. A global community of
hobby traders has risen from nothing
in several years using the Meta Trader
4 platform. These traders develop
mostly simple rule based systems that
trade automatically. While most of
them are losers, many of them are quite
successful, and several techniques
have surfaced using the MT4 platform
that implement the ATS philosophy.
An article published by the MQL4
Community explains that “it is supposed
that an Expert Advisor having inputs
adjusted to the history will trade to a
profit for the first (rather short) time.
Indirect confirmations of this
suggestion appeared after I
had watched the Automated
Trading Championship 2006.
When the Championship started there
were much more profitable Expert
Advisors than later, when some of
them turned to be noncompetitive.
This is why I suppose the most of those
Expert Advisors that had not come to
the finish were adjusted to the history.
The idea to check this supposition
in practice was born on the Russian

- V Speed

V Speed is an indicator that calculates

volatility based on price ranges over
time. This produces an oscillating
variable, which can be used as a
multiplier for stop loss levels, or
lot sizes. For example, as V Speed
increases, divide the lot size by the
V Speed value (with a normalization
function to smooth the results to
acceptable levels). This creates a
dynamic indicator which could be
said to be an ATS, because it ‘knows’
if the market is more volatile, trade
smaller sizes. If the market is less
38 FX TRADER MAGAZINE October - December 2010
 algorithmic trading FX

forum of this website, in is not an intellig ent system, race to build intelligent automated
the section Ideal Automated it certa inly is not static , is systems for profit, money
Trading System. The main idea more than dynamic , and has management, and fun (some
is to start optimiz ation of an most of the criteria of an ATS. developers clearly do not develop
EA automatically once a day This de velopment is g rowing systems for money). As more
and then analyze the obtained exponentially, as the number of intelligent systems are developed,
optimiz ation results and record MT4 traders has ballooned from it may affect the markets (they
them in the E A’s variables. To tens of thousands to millions may already be affecting the stock
implement market) and the
this idea , we intelligence
decided to ante will be
take the ready- upped, causing
made E x pert other systems
A d v i s o r , to require fine
M A C D tuning and
S a m p l e , updating. The
f rom the process of
M e t aTr a d e r 4 evolution of
C l i e n t these systems
Terminal and will be ongoing;
insert our no system
own function will ever work
of automated without being
optimization constantly
into it. A refined and
bit l ater, the r e t o o l e d .
code of that Automating
automated the refining ,
optimizer was optimization,
ready and No system will ever work without and self-
uploaded in the learning is the
same forum, being constantly refined and retooled goal of any
in the section successful ATS,
Automated but how to do
O ptimizer. After some more worldwide. As brokers do not this is quite difficult.
time, the first confirmations of publish their financia l re cords,
the idea appeared in the branch these statistics are difficult to As ATS evolve, the first system
of Automated Optimizer. Later track. The growth is undeniable. that can self-evolve successfully
on, the optimizer was transformed Combined with accessibility of will dominate the market. For a
into an mqh-librar y for better fast internet conne ctions and system like this, there is virtually
usabilit y.” hig h processing power for a no limit to its potential success.
low price, these factors could
While the automated optimizer contribute to an electronic arms Elite E Services

FX TRADER MAGAZINE October - December 2010 39

 FX WOMEN IN FOREX

Kathy Lien
Interviewed by Maud Gilson

“I truly believe that the more you are

A-conscious of the existence of a glass
ceiling, the more that you will credit
your lack of progress on that and the
more it will become reality”, says Kathy
Lien when asked about the limitations
her female gender could create.

The young woman, aged only 29

years, is Managing Partner of
BKForexAdvisors.com and Director
of Currency Research for GFT
(Global Forex Trading), where she
provides research and analysis. Prior to
joining GFT, Kathy was working with
FXCM, also she was an Associate at
JPMorgan Chase where she worked in
Cross Markets and Foreign Exchange
Trading. Kathy believes her gender
has actually been an advantage in
her fast paced career.

She has vast experience within the

interbank market using both technical
and fundamental analysis to trade
FX spot and options. “Trading
without being aware of the big stories
in the market and the potential event
risk is akin to trading with blinders
on” explains Kathy, who developed
her own fundamental indicators.

In this “Women in Forex” exclusive

interview series from FXstreet.com,
Kathy Lien tells us about her career,
her opinion about being a female in
My gender has helped me
Forex as well as what trading means for
her. Kathy’s answers are direct and far
and made me more recognizable
from any stonewalling tone, as usual.

40 FX TRADER MAGAZINE October - December 2010


MG: When did you start to
work in the Forex market ?
KL : I started in the Forex
market in 1999, straight out of
college at the age of 18. Having
traded equities during the tech
boom, I knew that trading and
not banking was my calling and
so I accepted an offer to work
for JPMorgan in their Trading
department. My first rotation was
in Credit Derivative structuring
which was “the” place to be at that
time and, thank goodness, I didn’t
stay because otherwise I would
have been partially responsible
for the financial crisis!
MG: Where did you move to at
that moment ?
KL : My second rotation was on
the intermarket FX
trading desk where
my FX career began.
I learned about
the FX market and
I love how I can take the biggest
forex trading from
the inside out by
stories in the world and turn
making markets in them into trading opportunities
USD/JPY and the
AUD/USD. Then
JPMorgan merged
with Chase and I moved to the
Proprietary Trading desk where
I traded instruments including
FX spot, options, interest rate
derivatives and equity indices.
There, I learned discipline,
risk control and accountability
because each one of my trades was
scrutinized from start to finish to
ensure that I knew exactly what
WOMEN IN FOREX
I was doing. A few years later, I
moved into the research space
because I wanted to expand my
skill set and share my knowledge.
MG: Then you worked for
FXCM and GFT. What made you
decide to work with GFT ?
KL : GFT gave me a great offer
that included the ability to
expand my footprint in Singapore
and Australia.
MG: Having worked the forex
market from the perspective of
both an institutional player as
well as in the retail market, do you
see any difference in the strategies
and analysis between the two?
KL: Bank traders trade in
very different ways than retail
traders. Usually bank dealers and
propietary traders have the benefit
of seeing flow which they can react
to while retail traders do not.
My analysis and current trading
is very different from my original
trading style at JPMorgan because
I do not have the benefit of flow
and have therefore developed
strategies that are rooted in
FX TRADER MAGAZINE October - December 2010 41
FX
analysis.
MG: What fascinates you in the
Forex market?
KL : What I love the most
about the forex market is that
it never gets boring ! There is
always something going on and
something to trade. I also love
how I can take the biggest stories
in the world and turn them into
trading opportunities.
MG: You are known for a trading
theory that works on a “fusion
of fundamental and technical
analysis” - you use fundamentals to
get into positions and technicals
to follow through and exit ? Can
you tell us how you came upon it ?
KL : It took me a number of
years to develop the
trading style that
I currently employ.
Having
on
worked
developing
automated trading
products in the
past, I know from
experience that
robots do not
work long term. It
is important to have a systematic
way of trading to create discipline
but it is also important to be
dynamic because markets change
on a daily basis. Fundamentals
are extremely important and
trading without being aware of
the big stories in the market and
the potential event risk is akin to
trading with blinders on.
 FX WOMEN IN FOREX
MG: You seem to have knack for
finding useful new fundamental
indicators, like the lesser-known
New Zealand credit card spending
numbers. How do you look for
these?
KL: Yes, my unique edge is
my ability to predict economic
surprises and capitalize on them.
I spent many years creating a
proprietary database of economic
data and their leading indicators.
One of my favorites is the
employment
component
of non-
manufacturing Women should use their gender to their
ISM and Non-
farm payrolls. advantage especially as many banks are
MG: You’ve required to have some degree of balance
met many women
who have seen
great success in
finance and banking. How would
you define the pinnacle of success
for a women in finance?
KL: In the areas of finance and
banking , reaching a VP [Vice-
President] or MD [Managing
Director] level at a bank is
considered the pinnacle of
success for women in finance. I
worked for a female MD and have
plenty of female friends who are
currently VPs at banks.
MG: Do you think many women
run into gender problems in male-
dominated workplaces?
KL: If you act like there is glass
42 FX TRADER MAGAZINE October - December 2010
ceiling in the workplace, there will degree of balance between female
be a glass ceiling. This may sound and male upper management.
harsh, but I truly believe that the
more you are A-conscious of the MG: How do you think women
existence of a glass ceiling , the fare in the competitive world of
more that you will credit your lack finance?
of progress on that and the more it
will become reality. It is all about KL : I think this depends on
perception. the person. Some women may be
more competitive, others more
MG: So you never felt you had cooperative. For example, Raghee
to struggle to find your place and [Horner] and I have a very
recognition from your peers? friendly relationship.
MG: Some
say women have
certain qualities
that make them
better traders
(risk aversion,
patience and
a tendency to
thoroughly
learn before
trading ).Do
KL: At JPMorgan, I worked for you agree?
the youngest ever female Managing
Director in Credit Derivatives who KL : Yes, I completely agree.
broke barriers herself and a glass Boris Schlossberg and I trade
ceiling was never something I even together and he will attest that
considered being a stumbling block I am far more disciplined and
to my career. On the propietary methodical whereas he is more
trading desk, I also worked for instinctive.
another female MD. In many ways,
I feel that my gender has actually
helped me. For example, there PROFILE: Kathy Lien
is a significant amount of male • Current Job: Director of Currency
forex strategists and economists Research at GFT
but only a handful of females. • Career: More than 10 years in the
As a result, my gender makes me FX Market
more recognizable. I believe that • Age: 29
women should use their gender to
their advantage especially as many
banks are required to have some
 WOMEN IN FOREX FX

Valeria Bednarik
Interviewed by Maud Gilson

After 20 years in Accountancy,

Valeria Bednarik left her job
to dedicate herself to trading.
“I had ‘invested’ in what
finally was a Ponzi scheme
that left 11,000 victims in
South America. So I learned
my lessons and decided I could
only be serious about it.” After
a couple of years studying and
teaching through two different
companies in Argentina ,
Valeria decided to trade from
home, where she now raises her
two little daughters.

In this “ Women in Forex” exclusive

interview series from FXstreet.
com, Valeria explains how she
manages to combine trading with
her family but she also shares her
views about the Argentinian’s
economy: “The image the rest of
the world has of us is merciful, it
does not depict the daily reality
at all.”

About differences between genders,

Valeria believes women actually
have qualities – like rigorousness
and humility - that can make
them more successful traders
than men. That being said, she
recognizes that in the end “market I win, I lose, it’s my job...
does not know my gender [or] if I
study or not, if I plan my trading And I love it!
and follow a strateg y or just bet”.

FX TRADER MAGAZINE October - December 2010 43

 FX WOMEN IN FOREX

MG: At the Universidad Catolica Forex school I found in Argentina that to start with this amazing adventure
del Salvador, what made you decide on was not an online school. I preferred my life has ended being.
a career in Accounting? a “real” school, maybe because of our
bonds here with traditions: following MG: Why did you decided to leave
VB: Overall, family tradition. All an internet course is hardly considered those companies?
my grandparents came to this country serious study.
running from WWI in Europe, with I remember that one of the first VB: I guess at some point of my life the
nothing; most of those immigrants things my master told me was that idea of being 100% independent became
had settled a very tough culture of only 4 out of 100 students finish the more than just a dream. I took again my
education as essential for getting a classes. I couldn’t believe it at that chances, leaving both companies (as I left
better future. In my family, the top point. However, as time went by, I the previous one, without anything else
careers were medicine or accounting. saw how all my partners quit because other than myself ) and starting a solo
My godfather is a CPA, and I’ve always of the hard work which was required. career that consists in trading for myself
admired him very much. I guess I felt I still believe that despite the evolution and teaching to others, through my
attracted by the career he had chosen. of the market lately and the growth of FXstreet.com position, but not only. At
Forex around the world, the majority the moment, I have a couple of amazing
MG: How did Forex enter your life? of people that approaches it come traders working side by side with me,
with the idea of making easy money and I’m training one more, that
VB: I have always been interested and becoming rich in a couple of hopefully will complete the frame.
in finance, but up until I was 30, my trades. Of course I’m on the other
life was focused on taxes and cost side and education is for me the core This could be seen as a hard career, but
management, being the I enjoy every minute I dedicate
General Manager of a small to the market; and what I even
technology company, with 40 We learn more from those enjoy more is studying by myself
employees and 3 branches in and sharing my knowledge
Buenos Aires. That took all
l o s i n g t r a d e s t h a n with others. I got my chance
my time! Yet at some point, I from the winning ones to change my life, and I believe
decided to give up that work, that we all deserve it.
and focus on studying again.
Forex was the second choice at that of everything in trading. So after my MG: Now you’ve changed and you’re
time, as I started with stocks. Some education was complete, I stayed at the working from home. Isn’t it too hard to
years before I had “invested” in what school and began teaching myself, as combine work and family?
finally was a Ponzi scheme that left part of the team, focusing on reaching
11,000 victims in South America. So I the English-speaking community. VB: It sounds complicated but it’s
learned my lessons and decided I could actually easy when turned into a daily
only be serious about it and started to MG: From there, you became routine. I used to have an independent
study. involved in MolFX, another Forex office. However, 5 years ago, with a 2-
school based in Argentina... year old girl and a new born at home
MG: How did the opportunity to with the nanny, I asked myself what
work for Trader College LLC come VB: Yes. Mol FX was developed by was the primary goal in life: work or
up? another student of the Trader College. raise my two girls by myself. At that
He asked me to join him in his project, time I was leaving home around
VB: Well, in fact I became a student and truly I’m very thankful to all of 7 am, and coming back 12 hours
of the Trader College, as it was the only them as they gave me the opportunity later. I decided no way my girls were

44 FX TRADER MAGAZINE October - December 2010

 FX WOMEN IN FOREX
going to be raised by someone else: they
are mine, and turn them into women of
value is my responsibility. So I changed
my entire working schedule, and install a
small office at home.
MG: How is your daily schedule and
how do you manage to raise your two
children?
VB: I wake up around 5 am, with
London already opened. I wake up my
family around 7 am, and my husband
takes the girls to school (it’s just 1 block
away, the same English school I went when
I was a kid); at noon, my dad picks them
up, and I wait for them with lunch; we
dedicate 1 hour to eat, review
homework, and then, as they
are bigger now, they go back
to school: they spend 3 hours No one in my family fully
in the afternoon studying
English. By 4 pm, they are
understands what I do !
back home, so we spend
the evening again together, they help
me prepare dinner, we go to the park, or
whatever they want. By 8 pm I dedicated
one more hour to the market watching
Nikkei opening and the tone of the Asian
session opening; then have dinner and
go to bed. No TV in the dining room:
talking and sharing is our goal.
MG: In Argentina, family is a big deal.
Do your parents and cousins understand
what you do?
VB: No one in my family fully
understands what I do! When stocks
slump enough to be on news however, my
closest family members give me a phone
call, to see how I’m doing!!!
One of my brothers is now asking me
how to learn, he is a 39-year old engineer,
46 FX TRADER MAGAZINE October - December 2010
with an amazing career and a great job.
However, he seems to be feeling the need
of being 100% independent. I will give
him a chance, no doubt!
MG: Can you give us your thoughts on
Argentina’s economy?
VB: I sadly have to say that the problem
here is the complete lack of a collective
conscience. I will reserve my personal
opinion on what’s going on in here, and
why we are unable to grow as a nation, but
let me tell you this: while the official data
talks about 12% unemployment rate, we
are closer to 30% in reality. The statistics
department of our current government is
not only well-known as manipulated all
over the world, but this has turned into a
joke. Sub-employment (people working
and making less money than necessary to
live) is above 40%, while more than 60%
of the population lives in poor conditions;
we have no real public health, or public
education: just this winter, 40 schools
have been closed in the Capital Federal,
the Federal district, because they had no
heat, or broken windows had not been
replaced. Away from CF things are even
worst. Taxes are abusive, as they represent
all in all one more than 60% of any
company income... if not more. People
are extremely used to do things “under the
table”; yet the collected money falls into
a black hole, and we still have no doctors
in public hospitals. It’s is a big shame at the
end. The image the rest of the world has
of us is merciful, it does not depict the
daily reality at all.
MG: How would you compare this
situation to the USA and Europe? What
could we learn from it?
VB: There’s no way Europe or the US
- with their deficit issues - are going to
head down to this path. I think it’s above
all cultural. I believe we have nothing to
teach to the world, but much more to
learn.
MG: Let’s talk a bit about trading now...
How did technical analysis enter your
life?
VB: Wow, technical
analysis represented a lot of
WHY along my studying
stage. Why use this tool
and not that one? It was
my biggest problem: in
Forex we have an uncountable number
of tools to use; new ones are created
day after day. I guess we have to come
up against this situation when we are
starters: we try to apply all indicators at
the same time, or start the eternal search
for the perfect one, the Holy Grail. It
took me a couple of years to find out
that it is not the tool, but how we apply
it, and how we understand the behavior
of a pair related to that particular tool.
MG: Tell us about your first big win,
your “ah-ha!” moment.
VB: It could sound weird, yet it was
not the first big win, but the first big loss:
I lost over 2000 dollars in one single trade,
almost 50% of my account at that time.
Believe me, we learn more from those
 WOMEN IN FOREX FX

than from the winning ones. It took me 4 I stick to that, thus I always have an MG: Tell us what you think would
months of extreme discipline to recover extra chart, where I’m testing other stuff. happen in the Forex world if women
most of that capital, and having recovered I guess the day I will stop studying is the become the majority?
it, following a plan and a strategy, that day I’ll be dead. Knowledge is the base
was my happiest moment as a trader. of success, and more than this knowing VB: Well, I can’t picture women
ourselves, our weaknesses and strengths becoming a majority in Forex – remember
MG: What aspects of Technical is fundamental for me. I live in a “macho latino world” - yet I’m
Analysis are the most appealing to you: pretty sure the market does not know my
the visual aspect of price patterns or the MG: As a professional trader and gender. It also ignores if I study or not, if
crowd behavior behind it? experienced teacher, do you think I plan my trading and follow a strategy or just
women are more risk adverse than men? bet, and everything else. I can’t understand
VB: I believe in behavior: crosses have the market behavior fully; not sure the
a certain behavior related, of course, to VB: In his last book called “Come market can understand me either.
the crowd behind it. Market reflects into my trading room”, Dr. Alexander
all, one should never forget that basic Elder says, and I quote him: “I find MG: Do you agree with the idea that
principle of trading. The question here that the percentage of successful women have a tendency to really learn
is how to filter the “all” or thoroughly before trading, while
how to understand it. There men tend to learn something
are so many factors affecting I can’t understand the market partially and attempt to act on it
the market at the same immediately?
time that when you start in behavior fully; not sure the
Forex that you think there market can understand me either VB: I agree 100% with
is no chance of being able to this! Women tend to study
handle all of them. An easy consciously before even
way to understand is doing the inverse traders is higher among women. They approaching a demo account, while men
process: watch price action and that will tend to be less arrogant, and arrogance tend to start experimenting with a real one.
tell you what the market is focusing on. is a deadly sin in trading. The male ego Again as stated above by Dr. Alexander
It’s just a starter trick but it tends to help - that wonderful trait that has been Elder, women focus on avoiding losses
to understand what the dominant forces bringing us wars, riots, and bloodshed and taking profits, more than feeding their
are at the time. since time immemorial - tends to get ego. Like any human, we do have personal
heavily caught up in trading”. goals and success and “fame” are great to
MG: What are your favorite technical He also says that “Women traders our souls, but at least for me, not a priority.
indicators and how do you use them? […] like to take profits and focus on I can’t talk for anyone else.
avoiding losses instead of trying to
VB: I stick to a couple of Moving prove themselves right”. This last
averages, Momentum, CCI and RSI to sentence is the one that describes me PROFILE: Valeria Bednarik
draw my trading map. With those tools, the best. I have done many things in • Current Job: Professional Trader
I have a general technical perspective for my life, enjoyed them all and at the and Expert Advisor for Fxstreet.com
almost any possible time frame as I have end, I’m old enough to understand • Career: 7 years in Forex, 20 years
adjusted some to be triggers, some to be I don’t need to prove anything to in Accountancy.
filters, and I noticed that certain pairs work anyone, and life has punched me • Age: 41
better with some rather than with others. enough times to erase any attempt
That’s my basic frame and I usually add of arrogance. I win, I lose, its my job!
trend lines, or Fibonacci retracements. And I love it!

FX TRADER MAGAZINE October - December 2010 47

 FX WOMEN IN TRADING

Stephanie Radkay

Stephanie Radkay, is known as “TIGR”

to her fellow traders and brokers at the
Chicago Mercantile Exchange and
“Eats Stress for Breakfast” according
to an article published in the Chicago
Tribune. She brings her experience,
knowledge and compassion for trading,
teaching and managing stress to her
clients today.

Stephanie first joined the “rough” pits

of the Chicago Mercantile Exchange
as a clerk for a major International
Options and Futures firm. In 1993
she began her broker career as the
only woman in the Major Market
Index Futures pit. She also joined her
husband, Mike, after trading hours
at the University of Trading to teach
eager learners to pit trade. By 1995 she
was awarded the task to fill orders in
the S&P500 Futures pit. At the time
this pit community had 600 men and
five women. In 1998, Stephanie left
the S&P500 Futures pit and followed
the “Tech Boom” to fill orders in the
NASDAQ100 Futures pit. By 2000,
she decided to take a break from trading
and in 2008 she returned to her love for
the trade. With the use of tools such as
the RDS Risk Calculator©, the RDS
Grid © and the 5 Rule Strategy, which
her husband developed during his
20+ years as a broker and self funded
trader, Stephanie is happily trading
and teaching again. She is currently R isk Me, R isk Me not ?
Vice President of DTI .

48 FX TRADER MAGAZINE October - December 2010


If you are like me, you get dozens of
newsletters in your email inbox daily
and sometimes hourly. I delete most
of them, but hardly ever unsubscribe
because I know one of these days I am
going to need the services of those I
have chosen to subscribe to in the first
place. One in particular caught my eye
recently. It was from the owner of a
yoga studio that opened about a year
ago in Santa Monica, California. I am
interested in following the movement
and decisions of this particular owner
because her business model seems
unusual. She opened her studio and
classes are by donation only. That’s
right-you pay whatever you feel is
appropriate and you can wait until the
class is over to decide what
you want to pay. And, they
video stream live classes, Address your risk first,
on occasion, so that people
all over the world can and the money will come
join. I am watching this
business model to see how
it’s working. It’s actually booming! It
appears she is taking a big risk especially
during this strained economic time,
but I imagine it was quite calculated.
As I was reading her newsletter I got
to the bottom where she signed off
with this quote from Ray Bradbury,
“Living at risk is jumping off the cliff
and building wings on the way down.”
Maybe her business model was not
quite calculated. Maybe she was just
throwing an idea on the wall to see what
stuck. I actually gasped when I read
it. As a business owner I understand
you have to take some risks and some
chances. No risk, no goodies, as we
often say. And, as a trader, of course
you have to take risks. But what made
me gasp was that I was looking at this
quote from an educator’s point of view.
WOMEN IN TRADING
I would never teach my student to
jump off a cliff and build wings on the
way down. You and I both know this
business is built on risk management
(and oftentimes lack thereof ). What
puzzles me, though, is people talk
about risk management like they really
understand it. Like they really have a
handle on it. So tell me why people
continue to blow out? I understand
emotions are a major factor in a trader’s
success or failure, too, but I would like
to address risk first. Address your risk
first, and the money will come.
Recently I had a new client come to
me and say, “I have my risk parameters
set, but I have put $10,000 in my
account so many times that I think
my friend who owns the IB where I
hold my account now has a private jet
with all the money I’ve gone through.”
So we started to talk about his risk
parameters. Most often the daily risk
percentage a trader sets is too high
for him/her to handle emotionally.
Monetarily/mathematically it might
make sense, but personally it doesn’t.
Add to that, the risk they set for
themselves might not be suitable for
the markets they are trading. Consider
what you would feel like if you lost a
$100 bill. Would it make a difference?
Maybe not, but maybe if you lost a
stack of $100 bills, that might sting a
bit. Where does your pain point lie?
It’s important to get to know this. You
must realize, though, being extremely
risk adverse will not work for trading.
FX TRADER MAGAZINE October - December 2010 49
FX
When I first left the trading floor
and tried to trade on my own, I was
extremely risk adverse. I couldn’t even
swallow losing $25 when I was trading
the emini S&P’s. It was ridiculous.
I had to step away and retrain my
thoughts in order to be successful as a
trader.
When I came back to trading my
mentor introduced me to Forex. Today
I believe Forex is the greatest tool I
know to use for training to trade in real
dollars. Note: I am not a big believer
in Sim/Demo trading for months and
months. My philosophy is you need
to get to know your platform which
usually takes a couple of weeks and
then you can start trading real dollars.
You will never trade the
same on the SIM/Demo
as you would with real
money on the line.
I had another new client
come and tell me she had
been Sim/Demo trading
the spot EURUSD for 6 months. I was
appalled. What a waste of time. I asked
her why she was doing this for so long
and she said she was uncomfortable
risking all that money real-time. Again
I sat down and started to talk with her
about her risk parameters, crunched
some numbers and walked her through
the process.
This is what the process looked like:
We looked at the previous day’s chart
of the spot EURUSD. We found
the high was 1.3118 and the low was
1.2974. The range of the day was 144
pips (high minus low). I told her that
was a pretty average day in the spot
currencies. They generally move about
100-200 pips per day. Trading the
professional level ($10/pip/contract)
would have produced a $1,440 loss if
 FX WOMEN IN TRADING

she bought the high and sold the low. $360 of risk over a 30 minute period mortgage. The bank might tell you
Now most people don’t buy the high ($10/pip/contract) we changed it to that you qualify for a larger mortgage
and sell the low all in one trade, they $36 ($1/pip/contract). According to that you can really handle. When you
usually perform somewhere in between. her plan she could risk $125 per trade crunch the numbers and see what you
We just wanted to familiarize ourselves which meant she could actually trade can absorb monthly and compare that
with a worst-case scenario (not taking up to a 3 lot ($36x3=$108). Trading to what the monthly payment will be
into account an unforeseen geopolitical more than a one lot is a very freeing on the loan, you might be shocked.
event that would rock the market). feeling. If you trade a one lot, all you Actually these days banks don’t lend
That calmed her down a bit. I asked can do is get in and get out. If you out too much money, so you might not
the client how many times she found trade more than a one lot you can take have too much to worry about.
herself trading in a day and she said, profit quickly (or loss) and manage the
“A few.” Then we talked about what others as the market moves. Don’t you Additional Commentary from DTI’s
it would look like if she had $10,000 hate when you cover your position and Tom Busby:
in her account and she traded four the market keeps going in the direction Risk is personal and differs for
times a day (I gave her an extra trade). you wanted it to go? With more than everyone no matter what size you
If she was willing to risk are trading – some people
no more than 5% of her should always set risk at
account in any one given your own personal risk
trading day, she could risk
Trading with more than a one lot is tolerance, and not based
$500. In other words she like having more bullets in your gun on your pocketbook. Your
could risk $125 per trade emotional tolerance is what
if she traded four times often determines whether
(1.25% per each trade). That looked a one lot, you can capture that extra or not you will be around tomorrow
reasonable to her. We were building movement. We say this is like “having to make the next trade. For example,
a plan. But what about the movement more bullets in your gun”. You always some millionaires may be able to lose
of the market? Where did that fit back want to have bullets in your gun. But, thousands of dollars in a day while
into the equation? I told her to look at I digress. some could lose $500 and not be able
the market movement over a 30 minute As you can see, risk management, to sleep at night. You need to ask
period of time. We figured out, on if handled properly, can keep you out yourself – where do you fit in? It is
average, it was moving about 36 pips/30 of trouble and on the right side of the crucial to think about the emotional
minutes which was worth $360 per market. Take a look at the market you penalties you incur on yourself and
one contract at the professional level. are trading and see if you are properly determine the comfort level of how
Aha! We had previously figured out capitalized. You may have to start with you feel if a trade went so bad it was
that she could risk $125 per trade and the smaller value ($1/pip/contract), detrimental to your psychological
here we were saying she was going to be but you can learn and grow from there health. I have seen too many times
exposed to $360 worth of risk/reward instead of blowing all your money in where a trader believes he or she can
over a 30 minute time period. This did the beginning. On a side note, your withstand the mathematical risk of a
not add up. I would be stuck on the IB or your FCM will tell you if you trade but folds emotionally when the
Sim/Demo for six months, too, if I was have enough money in your account trade collapses and does not work out
trading this plan. She was desperately according to margin, but don’t be in their favor. So, determine your risk
undercapitalized. misled. Even though you might have tolerance on an emotional rather than
What we decided to do was to look enough to cover margin, do you have mathematical level and be there for the
at this scenario again, but this time we enough to trade more than one time? next trade. Best of luck in trading!
reduced the pip value - the most amazing This situation is similar to the one
thing about Forex! Instead of taking on you encounter when applying for a Stephanie Radkay, Tom Busby
50 FX TRADER MAGAZINE October - December 2010
 FX TRADING PSYCHOLOGY
It’s the “thing”. When you break
it down and cut out all the
noise, all the talk about trading
systems, EAs, psycholog y,
money management and risk
management, what trading really
comes down to is discipline. It’s
the one thing that will make or
break you as a trader. Winning
system? Without discipline you
won’t follow it. Tight spreads?
Without discipline you will still
over trade costing you a fortune
in broker fees. Lightning fast
internet connection with a spit
second new feed? Without
discipline you will constantly
miss good trades due to your own
indecision.
But this is nothing new. Everyone
knows you need discipline to be a
trader. The question is HOW ?
I’ve always believed the best
teaching tools come from real
52 FX TRADER MAGAZINE October - December 2010
DISCIPLINE
Why You Don’t Have It.
And How to Get It.
life. So I want to talk to you for a
little while about something else
in life that takes a great deal of
discipline with roughly the same
success rate as trading…weight
loss.
Nearly everyone reading this
article can identif y with a
waistline that’s become a little…
unflattering. At some point the
sight of yourself as you pass by the
mirror on your way to the shower
becomes too much for even you to
tolerate. What follows is a process
that is all too familiar.
1. Tell friends and family you
are thinking about losing some
weight.
2. Listen to those people giving
you advice about how best to lose
the weight. (Most are overweight
as well.)
3. Get several new books by
current authors covering the
latest strategies for achieving
your goal.
4. Buy a bunch of new stuff like
a blender, vitamin packs, health
foods, new running shoes, exercise
shorts and a g ym membership.
5. Decide to start in a week or
so.
6. In a month, get the credit card
bill for all the stuff you bought
and de cide to g et starte d.
7. R elig iously follow your diet
and exercise prog ram for a f ull
we ek .
8. Start to se e some results.
9. Give yourself a “cheat day ” to
reward yourself.
10. G o rig ht back to your old
eating and exercise habits.
11. Put a ll your weig ht back
on.
This ha s b e en the pro cess for
nearly every dieter in the world
at one point or another. So let’s
ta lk ab out the WH Y. Why is
it so hard to stay discipline d

when dieting ? Let me frame the
scenario differently. Let’s say
you want to lose some weig ht
and you decide you are g oing to
cut out the sweets. NO MORE
SUGAR ! No more soda pop
or candy. No dessert or
treats after meals. On its
surface this seems to be a
ver y simple, rational and
effective plan for losing
some of those unwanted
pounds. How hard do
you think it would be to
follow ?
Most people would say,
“Sure Jason, it sounds
simple. But it’s a lot harder
than it sounds.” True,
but let me add a critical
piece of information.
You’re stranded on a
deserted island. See what
I mean? With no access to
processed sugar it becomes
easy to follow your rules
and stay disciplined.
But let’s chang e our
scenario one last time.
What if you worked at a
pastr y shop ? Not just any
pastr y shop but the kind
of shop that would rival The best teaching tools
Le Grenier a Pain. Ever y
day you show up and create come from real life
some of the most delicious
morsels ever devised.
You g et to smell the aroma
of fresh baked sweets as the
waft throug h the kitchen. The
display cases are lined each day
with ever y conceivable g uilt y
pleasure. Occasionally you poke
TRADING PSYCHOLOGY
your head out only to find the
patrons of the shop enjoying
the fruits of your labor. You
see the look of satisfaction on
their faces as they devour ever y
last bite.
Get the picture ? So how long
do you think you could stay
disciplined and committed
now ?
Traders, your commitment to
FX TRADER MAGAZINE October - December 2010 53
FX
follow your trading plan and
stay disciplined is just like a
commitment to cut out sugar.
The problem is… The FORE X
market is your baker y.
Each and ever y day you
sit down to trade your
commitment to follow
your trading plan will be
tested. You’re on a diet in
a pastr y shop. The market
will seek at ever y turn to
challenge your resolve and
attempt to push you out of
your comfort zone causing
you to make impulsive
emotional decisions rather
than disciplined, planed
ones.
Many people will tell you
it is wrong to look at the
market as a living breathing
entity, “ The market is
not out to get you.” the
saying goes. But I find in
this case that it ser ves the
analog y well. The “market”
is the representation of
ever y trader’s decision at
a specific point in time.
That’s all. But the market
rewards risk and punishes
those that follow the path
of least resistance. This
must be the case in order
for markets to function.
Because of this simple truth
we can deduce that in order
to succeed, we must have the
strength of our convictions since
they will no doubt run contrar y
to many in the market.
 FX TRADING PSYCHOLOGY

Remember 90% of traders you accept no excuses, only In NLP and NAC ( psycholog ical
l o s e m o n e y. If y o u w a n t t o r e s u l t s .” - A r t Turo ck- pro c esses) we actua l ly ca l l th is
be part of the 10%, look at an “anchor ”. You must l itera l ly
what the 90% do, then do the Step one to staying disciplined: chang e your p erc eption of
opposite. Are you truly committed ? rea l it y b efore you wil l tr u ly
If not, you must make that create la sting chang e. Ag a in,
If y o u’r e s t i l l r e a d i n g I ’ v e commitment if you ever expect using the weig ht loss ana lo g y,
ke p t y o u i n s u s p e n s e l o n g to succeed. This first step, while p e op le who u ltimately ach ie ve
enoug h . S o how la sting resu lts
do you stay have shifted their
disciplined rea l it y. Of ten
g iven the th is c omes from
over whelming a do ctor visit
temptation to when the y are
do other wise ? to ld the y have
Discipline is d iab etes . For
an emotional some it c omes
q u a l i t y. To af ter a hear t
have discipline attack , or af ter
means you have a ch ild expresses
fixed yourself c onc ern for
in a course of their wel l b eing .
action and are W h a t e v e r
unwilling to the cata lyst,
deviate from s o m e t h i n g
it. Ha v i n g chang es in the
d i s c i p l i n e ind ividua l at
starts with The market will push you out of a f undamenta l
commitment. le vel that
Ev e n t h i s f i r s t your comfort zone causing you to l itera l ly a lters
step causes their p erc eption
people some make impulsive emotional decisions of the world .
problems.
lot of people
A
rather than disciplined, planed ones Their
rea l it y
ne w
causes
think they are them to vie w
committed but their de cisions
most are not. simple, acts as an anchor to d ifferently and sh if ts their
“ There’s a difference between your trading . The commitment fo cus of what’s imp or tant.
interest and commitment. to succeed is what allows your But if blowing up account after
W h e n y o u’r e i n t e r e s t e d i n mind to focus on a g oal. This is ac c ount do esn’t do the trick ,
doing something , you do it a moving targ et. As one g oal is how do we create th is anchor ?
only when circumstances achieved, a new commitment to I find that a lack of trader
permit. When y o u’r e a new g oal must be set, allowing d iscip l ine is the resu lt of 2
committed to something , you to continue your journey. sp e cific th ing s .

54 FX TRADER MAGAZINE October - December 2010

 TRADING PSYCHOLOGY FX

1. A Lack of direction tr y i n g t o f o l l o w f o r a ny l en g th over the p a st 300 trades af ter

o f ti m e . Fo r th o s e o f y o u w h o ac c ounting for sl ipp a g e and
You simply don’t know what th i n k y o u hav e , l e t m e a s k y o u c omm issions ?
y o u’re d o ing . Th is sounds a a c o up l e o f q u e s ti o n s :
l i ttl e har s h b ut the c o ld hard If your answer includes the
tr uth i s m o st traders simp ly O ver the p a st 300 Trades, words “ab out” or “roug h ly ”
d on’t have the education, •What is the exp e ctanc y of you’re wrong . You shou ld have
understanding and experience to your s ystem? exact fig ures . WH Y ? B e cause
have confidence in what they are •What is the avera g e D D having those fig ures g ives your
do i n g . If y o u’r e m ind someth ing
s tr u g g l i n g to anchor to
w i th d i s c i p l i n e when the g o ing
r i g ht now I g ets toug h .
w o u l d v e nt ur e It provides a
to say you foundation for
r e a l l y q u e s ti o n you to bu ild
if th e r e ’s your trad ing
s o m e t h i n g house on .
y o u’r e m i s s i n g .
Some piece of If you know, for
th e p u z z l e y o u examp le, that
d o n’t y e t hav e . your s ystem
pro duc es 4
2. Lack of/ losing trades in
Un p r o f i t a b l e a row on avera g e
Tr a d i ng Sy s t em and that you
had a ma ximum
This one gets
misunderstood.
Having d iscip l ine star ts of 7 losing
trades in a row
I d o n’t m e a n
to suggest most
with a c omm itment over the samp le
testing p erio d ,
tr a d e r s d o n’t you have a b a se
hav e a w i nn i n g l ine. When that
s y s t e m . W ha t I a m s a y i n g i s g iven your mone y mana g ement 3rd , 4th and 5th losing trade
that most traders don’t K NOW strate g y ? c ome you can have c onfidenc e
i f th e i r s y s t e m i s a w i nn er o r •What is the ma ximum D D ? that if you are d iscip l ine d , the
l o s e r. •What is the avera g e numb er losses wil l so on end . Not on ly
T h e y hav e n e v e r d o n e a ny o f of losing trades ? were you prep are d for th is
th e ha r d w o r k n e c e s s a r y t o •What is the ma ximum numb er drawdown, you were exp e cting
t e s t a n d v e r i f y th e s y s t em th e y of losing trades in a row ? it. You kne w it wou ld c ome.
a r e tr a d i n g . I w o u l d v ent ur e t o •What is the avera g e Risk/ And now that it has, you are
g u e s s tha t m o s t o f y o u r e a d i n g R e ward Profile ? prepared for it mentally.
th i s a r ti c l e hav e n o t t e s t e d •Given your money management
th e s y s t e m y o u a r e c urr entl y s ystem, what wa s the RO I When this happens your rea l it y

FX TRADER MAGAZINE October - December 2010 55

 FX TRADING PSYCHOLOGY

l i tera l l y s h i f ts . You can now 2. L isten to those p e op le g ive tr a d i n g p l a n .

c hang e what kind of effe ct you advic e ab out how b est to 9 . Sta r t t o s e e s o m e r e s u l t s .
y o ur d e c i s i ons have on you trade F O R E X . (Most are losing 1 0 . G e t c o c k y.
em o ti ona l l y b a s e d on how you mone y hand over fist.) 11.Slip back into your old
now view your trading . Instead 3. Buy se vera l ne w b o o k s by habits.
of “winning brings me pleasure current authors c overing the 12.Blow your account out
an d l o s ing bring s me p a in,” latest strate g ies for ach ie ving again.
y o u n ow have a ne w rea l it y : your g o a l .
“ Fo l l owing my The secret
r u l e s bring s m e to gaining
p l e a sure ; not discipline in
f o l l owing my your trading
r u l e s bring s m e is having
p a in .” Th i s i s confidence in
mu c h th e s am e what y o u’r e
way s om e on e doing . That
wh o us e d to comes from
o vere at du e to KNOWING.
a l o ve o f f o o d No t h o p i n g o r
now eats healthy believing but
b e caus e o f a K N OWI N G
l o ve f or th e ir that if you
h e a lth . Th e y follow you
have s h i f te d rules with
what bring s consistenc y and
th em p a in an d discipline that
p l e a sure b a s e d
on h ow th e y
Most traders don’t know if you will achieve
c o ns i stent
vi e w th e worl d .
Ima g in e
their system is a winner or loser
h ow
results.
No w i f you
d i f f erent y o ur d o n’t h a v e a
re su lts wo u l d winning system
have been over the past several 4. D o O K in a demo ac c ount, or any idea how to test the
m onths i f y o u had simp ly de cide to g o l ive. one you have, then we have
applied some if this knowledg e. 5. Blow your ac c ount out in a more to discuss. But that
But alas, you’re trading journey month . will have to wait for another
has g one larg ely the way of the 6. Attend a sem inar, buy a $97 a r t i c l e . Un t i l t h e n I w i s h y o u
90%. See if this sounds familiar. E A that prom ises you m il l ions ever y success in trading and
( No t un l i ke th e d ieter.) wh ile you sle ep, j o in a sig na l in life. Good Luck and Good
ser vic e or a l ive trad ing ro om . Tr a d i n g ,
1 . G e t intere ste d in F O R E X 7. D e cide to g et serious and
and find a chat room where you create a p lan to fo l low.
te l l o th er s o f y o ur interest. 8 . R e l i g i o u s l y f o l l o w y o ur Jason Stapleton

56 FX TRADER MAGAZINE October - December 2010

 FX MANAGERS FX

Jamie Charles
CIO of GreenWave Capital
talks about the company’s short term global macro
discretionary strategy and how he sees himself both as
an artist, a poet and a lover of how numbers dance, and
a blend of mathematician and human behavioral scientist.

Interview by JW Partners for FX Trader Magazine INTERVIEW

Manager Jamie Charles – GreenWave Capital

Strategy flagship
Location Chicago
Assets Under Management 125 million $
Type Global macro
Style Short term

Currencies 90 %

JW: How long have you been
trading foreign exchange for and
what first attracted you to this
industry? Tell us about your career
evolution.
JC: My first exposure to forex
trading began as a college student
in Brussels as a junior in college.
It was fascinating to me that most
people carried several different
currencies in their pockets. I
studied at the University of
Brussels and when I graduated I
was lured into the excitement of
trading global financial markets at
Bank of America on Wall Street.
I started my career as a market
maker in major currencies like the
ancient Deutsche mark and British
pound and soon progressed as a
proprietary trader learning how to twist to the discretionary game
take more defined risk. theory of trading fx.
JW: What do you particularly JW: When was GreenWave
like about your job? Capital born?
JC: Markets change and adapting JC: The basis of my main program
to these changes are lessons in - which is short term global macro
survival. discretionary- is the credibility of
its metrics based on risk reward.
JW: Is FX a unique market? In This has been a philosophy
what trading currencies is different ingrained in me since I started
from trading other financial trading. Any risk I take is born from
instruments? a solid understanding of what are
JC: A market is a market but the key determinants behind any
what makes fx unique is the role idea. I then look for the right trade
central banks play. The incentives location and leverage accordingly
of the largest participants in forex with hard stops attached to every
are not based on profitability and position.
that’s quite a paradox in a world of
fear and greed. This adds a perverse JW: How is the company

FX TRADER MAGAZINE October - December 2010 57

 FX FX MANAGERS
structured today?
JC: I have a plan for growth both
in terms of aum and headcount
internally as a company. Greenwave
currently has 4 full time
associates and I am very
pragmatic about growing
carefully. We are currently
looking to outsource our
trade administration and
compliance.
JW: What are the
key positions in an FX
Management company?
JC: A creative research
team , partners with a
vision of industry trends
to steer the company and
of course a fascinating
portfolio manager.
JW: You are in charge
of the currency program.
How would you describe
your investment strateg y?
JC: The strategies I
created are a hybrid. When
I design trading ideas I
see myself as an artist, a
poet and a lover of how
numbers dance. As a trader
I see myself as a blend of
mathematician and human
Don’t trade anyone’s wealth
behavioral scientist. before you’ve risked your own
JW: Risk, an exciting
yet dangerous word. How do you
manage it?
JC: Risk is a function of leverage
and margin use. We employ hard
defined risk to every open position
and marks to market its position
so that aggregate daily losses are
58 FX TRADER MAGAZINE October - December 2010
contained to normally less than 10
basis points ( 10,000 euros for an
account with a notional value of 10
million euros).
JW: Do you trade less mature
currencies?
JC: One of Greenwave’s
competitive advantages is its
expanded universe of traded
currencies. The flagship strateg y
typically regularly analyzes 25-
35 currencies and how it can best
long the strongest 3 and short the
weakest three currencies. The global
economy has changed dramatically
in the past 20 years yet most
hedge funds and CTAs still
focus on G-3.
JW: How much time do
you allocate to research and
development of existing or
new trading strategies?
JC: Our strategies are
a constantly on-going
process. The greatest edge of
Greenwave is its adaptability
to a rapidly changing world.
JW: What is the average and
maximum leverage you use?
JC: An advantage of
Greenwave’s Flagship strateg y
is its low margin use which
normally requires an average
of 1 percent of any account’s
notional trading level. Margin
use rarely exceeds 3 percent.
JW: How many execution
brokers do you use? How do
you split execution between
electronic and “dear old
voice”?
JC: 90 percent of my trading
takes place on e-platforms
but I still love the vibrations
of trading with the floor.
JW: What kind of historical
data do you use in developing your
strategies? How important is that?
JC: What I think is more relevant
is the accuracy and context of
historical data and how it applies
 FX MANAGERS FX

are a lot of mindless correlations

in vogue that actually compel a lot
of traders to risk other people’s
money.

JW: How does liquidity impact

the efficiency of your strategies?
JC: Have you already explored
to what AUM limit the strategies
would allow you to grow to?
Reliable liquidity is the basis for
quantifying risk. Greenwave’s
leverage and trade location are
inextricably linked to any market’s
liquidity consistency.

JW: At JW we say it’s more

important to plan and know how
to react than forecast. Can you give
us your feeling about the EurUsd
over the next months?
JC: The euro will survive for at
least another year and that’s not
said without deliberation laden
with anxiety. Bernanke wants a
lower dollar and though the euro
may become the second weakest
currency on the globe it will
outperform the greenback. Euro
will be 1.3750 by the summer
of 2011 but the road there will
require a lot of infrastructure
Euro will be 1.3750 by the summer of improvements.

2011 but the road there will require JW: What’s the best advise you
would give to an individual trader
a lot of infrastructure improvements or to a semi-professional trader
who wants to enter the FX fund
to today’s market. For example, if intra=day trade gold versus crude management industry?
comparing the value of precious or should we be comparing gold’s JC: Don’t trade anyone’s wealth
metals against energ y commodities value in the time’s of king Tut vis a vis before you’ve risked your own.
is it more important to understand the cost of camels and goats in 100 Create your own rules and most
100’s of integrated studies how to BC. What I am saying is that there importantly, be yourself.

FX TRADER MAGAZINE October - December 2010 59

 FX TECHNICAL ANALYSIS

Technical outlook

MAJOR TRENDS AND TARGETS FOR THE MAJOR FX RATES

Current level Major trend Major target Trend change level

EUR/USD 1.3050 Sideways 1.3816
USD/JPY 85.75 Down 79.91 & 74.69 97.77
USD/CHF 1.0100 Down .9651 & .9349 1.0435
GBP/USD 1.5650 Sideways 1.5814
USD/CAD 1.0275 Sideways 1.1725
AUD/USD .9400 Up .9847 & 1.0740 .9077
NZD/USD .7275 Sideways .7194
EUR/JPY 112.00 Sideways 12z7.92
EUR/CHF 1.3200 Down 1.2407 & 1.0400 1.4587
EUR/GBP .8350 Sideways .8807
EUR/NOK 7.9600 Sideways 8.3181
EUR/SEK 9.2150 Down 9.0920 & 8.9596 10.2880

MAJOR TRENDS AND TARGETS FOR FX EMERGING MARKETS

Current level Major trend Major target Trend change level

EUR/CZK 24.700 Down 22.925 26.614
EUR/HUF 282.50 Up 301.87 & 317.08 262.89
EUR/PLN 3.9600 Sideways 3.8238 / 4.2454
EUR/RON 4.2600 Up 4.6455 & 4.9363 4.0565
USD/ILS 3.7275 Sideways 3.6634 / 3.9184
USD/RUR 31.000 Sideways 28.603 / 31.946
USD/TRL 1.5000 Sideways 1.4386 / 1.6293
USD/ZAR 7.1200 Down 6.4318 7.1972 / 7.7817

60 FX TRADER MAGAZINE October - December 2010


usd/jpy
U S D / J P Y p e a ke d at 1 2 4 . 1 4 i n Jun e 2 0 0 7 ,
a 4-5 year hig h, then broke down from a
year-long bull channel connecting 109.03
& 115.17 lows to signal a downtrend.
Four d istinct b ear-le g s have o c curre d sinc e
that time, the most recent of which from
94.97 in May of th is year (wh ich marke d
a failed upwards break from the 2 ½ year
bear channel ) has reached levels not seen
for over 15 years, since the recover y from
the April 1995 a l l-time low at 79.91.
The low so far of 82.89 is virtually
spot-on the support line connecting the
D e c em b er 2 0 0 8 an d No vem b er 2 0 0 9 l ow s
at 87.13 & 84.83, but as yet it is too soon
to call a lasting low there. The previous
bear-leg s have lasted 9 months, 4 months
and 7 months, so with the decline from
TECHNICAL ANALYSIS FX
94.97 having lasted 4 months the recent
low does have potential to be a medium-
term turning point, a lthoug h more likely
at this stag e is a partial retracement of
the 94.97 to 82.89 decline to around the
87.95-91.46 area (former support / 50%
retracement of the initial 94.97-87.95
fall ) ahead of a further retreat lasting
several more months.
Below 82.89, the next measured move
target area is beyond the 79.91 all-time
low at around the 74.69-78.36 area . This
marks a 100% extension lower from the
No vem b er 2 0 0 9 -May 2 0 1 0 8 4 . 8 3 - 9 4 . 9 7
r e c o v e r y, 1 0 0 % o f t h e p r e v i o u s 1 0 1 . 4 4 -
84.83 decline measured from the 94.97
lower top, and near the middle of this
band (76.72) it also represents a 38.2%
decline from the 124.14 peak .
FX TRADER MAGAZINE October - December 2010 61
 FX TECHNICAL ANALYSIS
EUR/chf
EUR/CHF re corde d an all-time trade d hig h
at 1.6828 in October 2007, then completed
a choppy multi-month top pattern and beg an
retracing the rise from the September 2001
all-time trade d low at 1.4401. Losses from
the 1.6828 peak breached the base of the 6
year bull channel drawn off hig her lows at
1.4502 & 1.5454, initially reaching 1.5350 in
Ma r c h 2 0 0 8 b e f o r e r e c o v e r i n g t o l e a v e a l o w e r
d o u b l e t o p a t 1 . 6 3 7 6 / 1 . 6 3 6 9 . Fr o m t h e r e
the downtrend g athere d pace, accelerating
throug h 1.4401 to reach a new all-time
trade d low at 1.4322 in October 2008 before
c o r r e c t i n g t o 1 . 5 8 8 1 . Fr e s h l o s s e s s i n c e t h a t
time have accelerated to a succession of new
lows at 1.4002, 1.3074 & 1.2771, followed
by relatively brief corre ctive rallies. EUR/
CHF has lost close to 23.6% of its value
(1.2856), with the 1.2771 low also being
62 FX TRADER MAGAZINE October - December 2010
ver y close to the 100% downwards extension
from the 1.4322-1.5881 October-December
2 0 0 8 r e c o v e r y. Althoug h it is possible
that 1.2771 marks a low for the move, with
MACD remaining entrenche d in bearish
territor y we remain alert to the possibility
of a lower top being left below the recent one
at 1.3920, ideally by 1.3497-1.3582 (50% of
re cent re cover y phase / former intra-rang e
support) ahead of a f urther slide over coming
weeks and months. 1.2407 is our next major
targ et area below 1.2771, this is 100% of the
pre vious 1.4587-1.3074 bear-leg measured
from the 1.3920 lower top. Long er-term,
1.0400 is a possible eventual targ et, marking
a 38.2% decline from the 1.6828 peak . A
foothold over 1.3513-1.3674 then 1.3920-
1.4002 is needed to abort then reverse the
current multi-week bearish bias.

usd/ils
U S D / I L S p e a k e d a t 5 . 0 1 0 1 i n Ju n e 2 0 0 2 ,
with losses from there having built a major
two year base around 4.2790 / 4.2925 from
2003 to 2005 ahead of attempts to resume
the previous long -term rise (our records g o
back to 1993 with an extreme low of 2.6970
a t s t a r t o f t h a t p e r i o d ) . H o w e v e r, a l o w e r
double top was left at 4.7460 / 4.7313 in
No v e m b e r 2 0 0 5 / Fe b r u a r y 2 0 0 6 , a n d t h i s
marks the rig ht shoulder to an 8 year head
and shoulders top pattern. This long -term
reversal pattern was completed in mid
to late 2006 and a two -leg g ed retreat to
3.9238 & 3.2043 in 2007 & 2008 followed,
interrupted by a lower top at 4.3572. A
strong recover y followed, but a lower top
wa s lef t at 4.2775 in April 2009, b elow
the 2007 recover y peak at 4.3572 and
just under the former 2003-2005 double
TECHNICAL ANALYSIS FX
bottom at 4.2790 / 4.2925. Since then
f r e s h l o s s e s t o 3 . 6 6 3 4 i n Ja n u a r y 2 0 1 0
have been followed by a corrective rally to
3.9184 and there are now signs of a further
decline. A move back under the 13 & 52
week moving averag es has occurred, also
breaking the 3.2043-3.6634 uptrend line,
to signal a resumption of the retracement of
t h e 2 0 0 8 - 2 0 0 9 3 . 2 0 4 3 - 4 . 2 7 7 5 r e c o v e r y. A
clean break of resistance-turned-support at
3.6469-3.6634 will point to an impending
brea kdown throug h the 61.8% retracement
at 3.6143, targeting the 3.3043-3.4084
area over coming months. This marks a
100% of the 4.2775-3.6634 decline from
3.9184 and 100% lower from the 3.6634-
3 . 9 1 8 4 r e c o v e r y.
S t e v e Ja r v i s
FX TRADER MAGAZINE October - December 2010 63
 FX INTERNATIONAL DATA

FX SPOT MONITOR
Country Flag USD Spot Last vs USD % Ch 3M % Ch 12M 12mth High 12mth Low

Eurozone EUR= 1.3467 10.6% -7.9 % 1.5987 1.2457

UK GBP= 1.5826 5.1% -0.4 % 2.008 1.3746

Japan JPY= 84.14 -5.0% -6.1% 110.49 87.31

Switzerland CHF= 0.9857 -8.9% -4.5% 1.2241 0.9843

Australia AUD= 0.9590 13.3% 9.9% 0.9787 0.6018

Canada CAD= 1.0235 -3.0% -5.7% 1.2995 0.9832

New Zealand NZD= 0.7337 6.1% 2.5% 0.8097 0.4923

Sweden SEK= 6.797 -12.7% -2.6% 9.2927 5.838

Norway NOK= 5.8631 -9.9% 0.8% 7.2227 4.953

Iceland ISK= 114.21 -11.0% -7.9% 147.55 71.67

Israel ILS= 3.67 -5.4% -2.5% 4.236 3.213

South Africa ZAR= 6.9978 -8.8% -5.8% 11.62 7.2025

Egypt EGP= 5.697 0.1% 3.5% 5.694 5.2825

Saudi Arabia SAR= 3.7501 0.0% 0.0% 3.7685 3.7115

Czech Rep. CZK= 18.263 -13.7% 6.0% 23.438 14.404

Poland PLN= 2.9322 -14.1% 2.2% 3.9003 2.0221

Hungary HUF= 205.82 -12.8% 11.9% 251.64 143.19

Russia RUB= 30.564 -2.5% 1.4% 36.3438 23.1531

Turkey TRY= 1.4755 -7.2% -1.0% 1.806 1.1512

China CNY= 6.6933 -1.5% -2.0% 7.083 6.8108

Hong Kong HKD= 7.7577 -0.4% 0.1% 7.8142 7.7483

Singapore SGD= 1.3222 -5.7% -6.8% 1.5562 1.3476

Taiwan TWD= 31.377 -2.6% -3.2% 35.21 29.996

India INR= 45.03 -3.1% -5.7% 51.96 39.75

South Korea KRW= 1147.7 -5.7% -3.7% 1570.1 973.5

Thailand THB= 30.56 -5.6% -8.9% 36.26 31.04

Malaysia MYR= 3.0881 -4.8% -11.2% 3.726 3.1305

Indonesia IDR= 8950 -1.1% -7.7% 12100 9070

Philippines PHP= 43.885 -5.5% -7.5% 49.94 43.3

Mexico MXN= 12.5303 -2.7% -7.4% 15.555 9.858

Brazil BRL= 1.7103 -5.6% -4.2% 2.511 1.5591

Chile CLP= 486.5 -10.7% -10.5% 682.5 430.6

Venezuela VEB= 2144.6 0.0% 0.0% 2144.6 2144.6

Colombia COP= 1801.8 -6.0% -6.1% 2608.15 1655.9

Levels Date:25-Sep-10 Source: Thomson Reuters

64 FX TRADER MAGAZINE October - December 2010

 INTERNATIONAL DATA FX

CENTRAL BANKS
Country Flag Central Bank Rate Name Actual Previous

USA FED Fed funds 0-0.25 0.25

Eurozone ECB Refi 1.00 1.00

UK BOE Bank Repo 0.50 0.50

Japan BOJ O/N Call 0.10 0.10

Switzerland SNB 3 mth Libor 0.25 0.25

Australia RBA Cash 4.50 4.50

Canada BOC O/N Funding 1.00 0.75

New Zealand RBNZ Cash 3.00 3.00

Sweden Riksbank Repo 0.75 0.50

Norway Norges Bank Depo 2.00 2.00

Iceland CBI Policy 6.25 7.00

Israel BOI Short Term Lending 1.75 1.75

South Africa Reserve Bank Repurchase 6.00 6.50

Egypt CBE O/N Depo 8.25 8.25

Czech Rep. CNB 2 Week Repo 0.75 0.75

Poland NBP 28 Day Intervention 3.50 3.50

Hungary MNB 2 Week Depo 5.25 5.25

Russia CBR Refinancing 7.75 7.75

Turkey TCMB O/N Borrowing 7.00 7.00

China PBC 1 Year Lending 5.31 5.31

Taiwan CBC Discount 1.375 1.375

India RBI Repo 6.00 5.75

South Korea BOK O/N Call 2.25 2.25

Thailand BOT Repo 1.75 1.50

Indonesia BI BI 6.50 6.50

Philippines BSP Repo 4.00 4.00

Mexico BDM Target 4.50 4.50

Brazil BCB Selic 10.75 10.75

Chile CBC MPR 2.50 2.00

Levels Date: 25-Sep-10 Source: Thomson Reuters

FX TRADER MAGAZINE October - December 2010 65

 FX INTERNATIONAL DATA

ECONOMIC DATA
GDP CPI Industrial Production Unemployment
y-o-y y-o-y y-o-y level
USA 2.00 1.10 0.20 9.60
Eurozone 1.90 1.60 0.00 10.00
UK 1.60 3.10 0.30 7.80
Japan 1.10 -1.10 0.30 5.20
Switzerland 3.40 0.30 3.80
Australia 3.30 3.10 5.10
Canada 2.00 1.70 8.10
New Zealand (partecipation) 1.90 68 (partecipation)
Sweden 3.70 0.90 2.90 7.40
Norway 0.10 1.90 0.10 2.90
South Africa 3.00 3.70 7.50 25.30
Czech Rep. 2.40 1.90 5.30 8.60
Poland 3.50 2.00 13.50 11.30
Hungary 1.00 3.70 9.00 11.00
Russia 2.50 0.40 7.00 6.90
China 10.30 3.30 13.90
India 7.40 13.80
Mexico 7.60 0.10 5.40 5.40
Brazil 8.80 0.04 8.70 6.70
Levels Date: 25-Sep-10 Source: Thomson Reuters

FX POLL
3 Month Days since Poll Poll Median Poll Min Poll Max Poll Mean Std Deviation Spot@Poll Date
EurUsd 25 1.25 1.12 1.37 1.248 0.045 1.2798
GbpUsd 25 1.52 1.35 1.65 1.522 0.059 1.5446
AudUsd 25 0.88 0.76 0.93 0.879 0.034 0.9104
UsdJpy 25 86 75 95 86.2 3.6 84.43
UsdChf 25 1.056 0.95 1.13 1.054 0.041 1.0153
UsdCad 25 1.043 0.96 1.15 1.042 0.037 1.0504
EurJpy 25 108 95.2 119.2 107.8 5.7 108.07
EurChf 25 1.318 1.203 1.426 1.314 0.046 1.3002
EurGbp 25 0.819 0.784 0.893 0.82 0.022 0.8283
GbpJpy 25 132 112.5 149.2 131.2 6.9 130.39
1 Year Days since Poll Poll Median Poll Min Poll Max Poll Mean Std Deviation Spot@Poll Date
EurUsd 25 1.225 1 1.38 1.229 0.088 1.2798
GbpUsd 25 1.535 1.29 1.75 1.53 0.096 1.5446
AudUsd 25 0.89 0.7 1.025 0.89 0.063 0.9104
UsdJpy 25 95 82.7 106 93.8 5.7 84.43
UsdChf 25 1.1 0.9 1.25 1.088 0.078 1.0153
UsdCad 25 1.03 0.9 1.2 1.041 0.056 1.0504
EurJpy 25 114.5 90 131.5 115.2 9 108.07
EurChf 25 1.35 1.053 1.485 1.339 0.081 1.3002
EurGbp 25 0.801 0.725 0.895 0.805 0.038 0.8283
GbpJpy 25 144.5 116.8 168 143.1 10.8 130.39
Levels Date: 25-Sep-10 Source: Thomson Reuters

66 FX TRADER MAGAZINE October - December 2010

 INTERNATIONAL DATA FX

MARKETS VIEW
Stock Indices Last % Ch 6M % Ch 12M Commodities Last % Ch 6M % Ch 12M
Gold 1298.35 17.75% 36.38%
MSCI World 1183.03 -0.6 5.4 Silver 21.56 24.99% 40.82%
Dow Jones Ind. 10662.42 0.2 11.9 Brent DTD 79.47 0.65% 18.80%
S&P 500 1124.83 -1.6 9.3 WTI 74.58 -9.20% 15.01%
Nasdaq 100 2023.84 3.7 18.4
Eurostoxx 50 2792.75 -3.8 -1.6 Bonds Last % Ch 6M % Ch 12M
UK FTSE 100 5598.48 -1.4 10.2 5Y Euro 1.553 -0.610 -0.859
Dax 6298.3 4.3 12.4 10Y Euro 2.351 -0.760 -0.903
Cac 40 3782.48 -4.2 0.6 10Y US Treasury 2.607 -1.252 -0.675
FT MIB 20607.72 -9.6 -10.2 30Y US Treasury 3.793 -0.955 -0.236
Swiss SMI 6360.77 -7.5 1.4 10Y UK Gilt 3.04 -0.948 -0.588
Nikkei 225 9471.67 -12.4 -10.2 10Y CH Govt Bond 1.406 -0.518 -0.657
Australia AORD 4651.506 -5.1 -1.2
HK Hang Seng 22119.43 5.3 5.1 Money Markets Last % Ch 6M % Ch 12M
Shanghai Comp. 2591.55 -15.5 -12.7 US 6M Depo 0.4641 0.0222 -0.1747
Singapore StraitT. 3092.68 7.1 15.9 EUR 6M Depo 1.1370 0.1930 0.1190
India BSE30 20045.18 14.9 19.4 GBP 6M Depo 1.0244 0.1450 0.2919
Brazil Bovespa 68794.32 -1.0 13.6 CHF 6M Depo 0.2450 -0.0908 -0.1517
Russia RTSI 1448.67 -1.7 19.8 JPY 6M Depo 0.4288 -0.0200 -0.1175
Levels Date: 25-Sep-10 Source: Thomson Reuters

To advertise on FX Trader Magazine

contact
ad@fxtradermagazine.com

free subscriptions:
www.fxtradermagazine.com

FX TRADER MAGAZINE October - December 2010 67

 FX Economic Calendar
OCTOBER, NOVEMBER, DECEMBER 2010
GMT London Time
October 8:30am USD Building Permits
8:15am USD ADP Non-Farm Employment Change 19 Tue 9:00am CAD BOC Rate Statement
10:00am CAD Ivey PMI 9:00am CAD Overnight Rate
Wed 6
8:30pm AUD Employment Change 20 Wed 4:30am GBP MPC Meeting Minutes
8:30pm AUD Unemployment Rate 4:30am GBP Public Sector Net Borrowing
- GBP Asset Purchase Facility 8:30am USD Unemployment Claims
- GBP MPC Rate Statement 21 Thu 10:00am USD Philly Fed Manufacturing Index
7:00am GBP Official Bank Rate 10:30am CAD BOC Monetary Policy Report
Thu 7 7:45am EUR Minimum Bid Rate 11:15am CAD BOC Press Conference
8:30am CAD Building Permits m/m 4:30am GBP Prelim GDP q/q
8:30am EUR ECB Press Conference 4:30am GBP Retail Sales m/m
22 Fri
8:30am USD Unemployment Claims 7:00am CAD Core CPI m/m
- CNY Trade Balance 8:30am CAD Core Retail Sales m/m
4:30am GBP PPI Input m/m 24 Sun 8:30pm AUD PPI q/q
7:00am CAD Employment Change 25 Mon 10:00am USD Existing Home Sales
7:00am CAD Unemployment Rate 10:00am USD CB Consumer Confidence
Fri 8
8:15am CAD Housing Starts 26 Tue 8:30pm AUD CPI q/q
8:30am USD Non-Farm Employment Change 10:00pm NZD NBNZ Business Confidence
8:30am USD Unemployment Rate 8:30am USD Core Durable Goods Orders m/m
9:55am USD Prelim UoM Consumer Sentiment 10:00am USD New Home Sales
27 Wed
8:30pm AUD Home Loans m/m 4:00pm NZD Official Cash Rate
10 Sun 10:00pm CNY GDP q/y 4:00pm NZD RBNZ Rate Statement
10:00pm CNY Industrial Production y/y - GBP Nationwide HPI m/m
4:30am GBP Manufacturing Production m/m 28 Thu - JPY BOJ Press Conference
12 Tue 10:30am CAD BOC Business Outlook Survey 8:30am USD Unemployment Claims
2:00pm USD FOMC Meeting Minutes - JPY BOJ Press Conference
4:30am GBP Claimant Count Change 5:30am CHF KOF Economic Barometer
13 Wed 29 Fri
5:45pm NZD Retail Sales m/m 8:30am CAD GDP m/m
8:30am CAD Trade Balance 8:30am USD Advance GDP q/q
8:30am USD PPI m/m 31 Sun 9:00pm CNY Manufacturing PMI
14 Thu 8:30am USD Trade Balance
8:30am USD Unemployment Claims November
5:45pm NZD CPI q/q - GBP Halifax HPI m/m
8:30am USD Core CPI m/m 5:30am GBP Manufacturing PMI
15 Fri 8:30am USD Core Retail Sales m/m 10:00am USD ISM Manufacturing PMI
1 Mon
8:30am USD Retail Sales m/m 5:45pm NZD Labor Cost Index q/q
9:00am USD TIC Long-Term Purchases 11:30pm AUD Cash Rate
18 Mon
8:30pm AUD Monetary Policy Meeting Minutes 11:30pm AUD RBA Rate Statement
4:00am EUR German Ifo Business Climate 4:15am CHF Retail Sales y/y
2 tue
19 Tue 4:30am GBP CPI y/y 8:30pm AUD Building Approvals m/m
5:00am EUR German ZEW Economic Sentiment 3 Wed 5:30am GBP Services PMI

68 FX TRADER MAGAZINE October - December 2010

 Economic Calendar FX

8:15am USD ADP Non-Farm Employment Change 7:50pm JPY Prelim GDP q/q
15 Mon
10:00am USD ISM Non-Manufacturing PMI 8:30pm AUD Monetary Policy Meeting Minutes
3:15pm USD FOMC Statement - JPY BOJ Press Conference
3:15pm USD Federal Funds Rate 5:30am GBP CPI y/y
3 Wed
5:45pm NZD Employment Change q/q 16 Tue 6:00am EUR German ZEW Economic Sentiment
5:45pm NZD Unemployment Rate 9:30am USD PPI m/m
8:30pm AUD Retail Sales m/m 10:00am USD TIC Long-Term Purchases
8:30pm AUD Trade Balance 5:30am GBP Claimant Count Change
- GBP Asset Purchase Facility 5:30am GBP MPC Meeting Minutes
17 Wed
- GBP MPC Rate Statement 9:30am USD Building Permits
8:00am GBP Official Bank Rate 9:30am USD Core CPI m/m
8:00am USD Unemployment Claims 5:30am GBP Public Sector Net Borrowing
4 Thu
8:45am EUR Minimum Bid Rate 18 Thu 9:30am USD Unemployment Claims
9:30am EUR ECB Press Conference 11:00am USD Philly Fed Manufacturing Index
10:00am CAD Ivey PMI 19 Fri 5:30am GBP Retail Sales m/m
8:30pm AUD RBA Monetary Policy Statement 22 Mon 10:00pm NZD Inflation Expectations q/q
7:00am CAD Employment Change 5:00am EUR German Ifo Business Climate
7:00am CAD Unemployment Rate 8:00am CAD Core CPI m/m
8:30am CAD Building Permits m/m 23 Tue 9:30am CAD Core Retail Sales m/m
5 Fri
8:30am USD Non-Farm Employment Change 9:30am USD Prelim GDP q/q
8:30am USD Unemployment Rate 11:00am USD Existing Home Sales
10:00am USD Pending Home Sales m/m 9:30am USD Core Durable Goods Orders m/m
7 Sun 8:30pm AUD Home Loans m/m 11:00am USD New Home Sales
5:30am GBP Manufacturing Production m/m 24 Wed
3:00pm USD FOMC Meeting Minutes
9 Tue 9:15am CAD Housing Starts 8:30pm AUD Private Capital Expenditure q/q
4:00pm NZD RBNZ Financial Stability Report 25 Thu 9:30am USD Unemployment Claims
- CNY Trade Balance 5:30am GBP Revised GDP q/q
6:30am GBP BOE Gov King Speaks 26 Fri
6:30am CHF KOF Economic Barometer
6:30am GBP BOE Inflation Report 28 Sun 10:00pm NZD NBNZ Business Confidence
9:30am CAD Trade Balance 29 Mon - GBP Nationwide HPI m/m
10 Wed
9:30am USD Trade Balance 9:30am CAD GDP m/m
8:30pm AUD Employment Change 11:00am USD CB Consumer Confidence
30 Tue
8:30pm AUD Unemployment Rate 8:30pm AUD GDP q/q
10:00pm CNY Industrial Production y/y 9:00pm CNY Manufacturing PMI
11 Thu 9:30am USD Unemployment Claims
3:00am EUR German Prelim GDP q/q December
12 Fri 5:30am GBP PPI Input m/m - GBP Halifax HPI m/m
10:55am USD Prelim UoM Consumer Sentiment 5:30am GBP Manufacturing PMI
1 Wed
14 Sun 5:45pm NZD Retail Sales m/m 9:15am USD ADP Non-Farm Employment Change
9:30am USD Core Retail Sales m/m 11:00am USD ISM Manufacturing PMI
15 Mon 9:30am USD Retail Sales m/m 4:15am CHF Retail Sales y/y
2 Thu
5:45pm NZD PPI Input q/q 8:45am EUR Minimum Bid Rate

FX TRADER MAGAZINE October - December 2010 69

 FX Economic Calendar

9:30am EUR ECB Press Conference 5:30am GBP CPI y/y

9:30am USD Unemployment Claims 6:00am EUR German ZEW Economic Sentiment
11:00am USD Pending Home Sales m/m 9:30am USD Core Retail Sales m/m
2 Thu 8:30pm AUD Building Approvals m/m 14 Tue 9:30am USD PPI m/m
8:30pm AUD Home Loans m/m 9:30am USD Retail Sales m/m
8:30pm AUD Retail Sales m/m 3:15pm USD FOMC Statement
8:30pm AUD Trade Balance 3:15pm USD FOMC Statement
5:30am GBP Services PMI 5:30am GBP Claimant Count Change
8:00am CAD Employment Change 6:00am GBP Inflation Report Hearings
8:00am CAD Unemployment Rate
3 Fri 15 Wed 9:30am USD Core CPI m/m
9:30am USD Non-Farm Employment Change
10:00am USD TIC Long-Term Purchases
9:30am USD Unemployment Rate
10:00am NZD NBNZ Business Confidence
11:00am USD ISM Non-Manufacturing PMI
4:30am CHF Libor Rate
9:30am CAD Building Permits m/m
4:30am CHF SNB Monetary Policy Assessment
11:00am CAD Ivey PMI
6 Mon 4:30am CHF SNB Press Conference
11:30pm AUD Cash Rate 16 Thu
9:30am USD Building Permits
11:30pm AUD RBA Rate Statement
9:30am USD Unemployment Claims
5:30am GBP Manufacturing Production m/m
11:00am USD Philly Fed Manufacturing Index
10:00am CAD BOC Rate Statement
5:30am GBP Current Account
7 Tue 10:00am CAD Overnight Rate 17 Fri
5:30am GBP Retail Sales m/m
8:30pm AUD Employment Change
8:30pm AUD Unemployment Rate Mon 20 8:30pm AUD Monetary Policy Meeting Minutes

4:00pm NZD Official Cash Rate - JPY BOJ Press Conference

8 Wed 4:00pm NZD RBNZ Press Conference 5:00am EUR German Ifo Business Climate

4:00pm NZD RBNZ Rate Statement 21 Tue 8:00am CAD Core CPI m/m
- CNY Trade Balance 9:30am CAD Core Retail Sales m/m
- GBP Asset Purchase Facility 5:45pm NZD Current Account
- GBP MPC Rate Statement 5:30am GBP MPC Meeting Minutes
9 Thu 8:00am GBP Official Bank Rate 22 Wed 11:00am EUR Existing Home Sales
9:15am CAD Housing Starts 5:45pm NZD GDP q/q
9:30am USD Unemployment Claims 9:30am CAD GDP m/m
10:00pm CNY Industrial Production y/y 9:30am USD Core Durable Goods Orders m/m
23 Thu
5:30am GBP PPI Input m/m 9:30am USD Unemployment Claims
9:30am CAD Trade Balance 11:00am USD New Home Sales
10 Fri
9:30am USD Trade Balance 27 Mon - GBP Nationwide HPI m/m
10:55am USD Prelim UoM Consumer Sentiment 28 Tue 10:00am USD CB Consumer Confidence
12 Sun 7:50pm JPY Tankan Manufacturing Index 6:30am CHF KOF Economic Barometer
30 Thu
13 Mon 5:45pm NZD Retail Sales m/m 9:30am USD Unemployment Claims

70 FX TRADER MAGAZINE October - December 2010

 THE NEW Maserati Quattroporte

artwork for connoisseurs.

Maserati Quattroporte S 4,7 litres 430 CV and Quattroporte 4,2 litres 400 CV. V8 engine, PininFarina design.
Combined consumption : 14,7 l/100 km (4,2) - 15,7 l/100 km (4,7) - CO2 emissions : 340 g/km (4,2) - 365 g/km (4,7) - www.maserati.com