What is the purpose of the foreign exchange market, or any trading market for that matter? It seems like a simple question with a simple answer. The purpose is to facilitate exchange, to permit participants to sell and buy commodities, equities or futures and to trade one currency for another. But that simple definition disguises a world of complexity.
If two parties wish to conduct an exchange, of one currency for another or of an equity or bond for a sum of cash the first question is at what price should the transaction take place? In the consumer world, in a supermarket or department store, the price is predetermined by the seller and is rarely changed. The purchaser measures their need for the item against the price asked and makes the decision to buy or not. There is little discussion and no bargaining over the price. The consumer does not say the price will be lower in a few minutes; I will wait until then to make my purchase. Likewise the seller does not normally remove the item from sale expecting the price to rise in a few days. This basic function of price determination or price discovery is essentially different in a trading market. A market transaction differs from a consumer purchase because both the seller and the buyer continually adjust their price expectations to information flowing out from the market to participants and into the market from outside sources.
Market participants, in theory, incorporate all available information into the prices at which they buy and sell. This is called the perfect information assumption of efficient markets theory. Each participant in the market acts as an independent decision maker. Each decision influences the overall market and price level. The market or to be more precise, the price level of a market traded item, is, at any time, the amalgamation of all the price decisions made by all market participants.
On this one topic-- what should the market price be-- the market reflects the decisions of its participants. In foreign exchange markets the decision makers are the traders, all of them, from the smallest retail trader to the largest hedge fund. But how do 1,000 or 10,000 individual decisions, made in ignorance of each other become a market price? How do we know that the price of this mass decision accurately reflects the wishes of 10,000 people?
If three market participants want to buy a commodity at a certain price level and 50 want to sell, the market price for that commodity will fall. But what actually happens? The three bids in the market will be filled but that leaves 47 sellers. If no other bids enter the market the sellers will begin to react to the lack of bids by adjusting their offering prices down, displaying lower and lower prices until buyers enter bids and a trade is made at the new lower level. The sellers and the buyers incorporated the information flowing out of the market, the temporary lack of bids, into their price expectations producing a new price.
A commentator would perhaps say ‘the market fell today ‘. But a market is not an entity. It is only a method for coordinating the decisions of its participants. What occurred is that each participant in the market reacted to the information coming to them from within the market and their combined reaction is the movement in price. It appears to an observer that the ‘market’ traded lower because the thousands of individual decisions that comprise the movement are not given separate life. Only the mass decision, ‘the price’, is represented.
This sense of the decision making power of markets and the ‘market’ as almost a living entity is reflected in the terms we use to describe the price action. We often say’ ‘the market reacted badly to the news’ or ‘the market took profit today’. We personify the market and its behavior. Of course we all know that there is no “market” somewhere below the pavement on Wall Street making the decisions for the stock exchange. But the common use of this ‘market’ shorthand tends to obscure what is the most important psychological point in understanding market behavior. Namely, that the ‘market’ is a picture of the thoughts of its participants, the market is a snapshot; it is a mass mind.
We can remove some of the sense of mystery from the term, “the market” when we remember just who or what ‘the market’ is? The answer is plain enough, to paraphrase the comic strip character Pogo, “we have met the market and he is us’. The logic, analysis and fear that motivate market behavior have their source within the mind and psychology of market participants, that is, within each of its traders.
When analyzing market behavior it is instructive to keep this very simple fact in mind. The market is a mass mind focused on one topic, price. It represents the momentary culmination all of the external and internal inputs that bear on the price of the traded commodity as ranked by the traders in that market. But even if the method by which the market arrives at a decision is obscure, its ingredients are not—they exist in the analysis, outlook aspirations and psychology of each individual trader.
Since the market is a reflection of the minds of its participants and a traders job is to make profits it follows that a trader’s primary task it to match his decision to that of the mass, to anticipate and mimic the decision of the market. There should be no mystery in ‘the market’ even when it thrashes our positions, for the chances are that the operating logic was known to most of traders. Known and rejected by the losing minority of traders but embraced by the majority.
When our trades lose money, whatever the logic of the position, we can be sure we were not alone. But we can equally be sure that we were in the minority. Had we been in the majority the market would have performed as we had anticipated. The market decision process is that simple. It is a matter of putting our assumptions in line with the majority as often as we can. The most effective tool to achieve that is our own empirically tested market psychology. We are the market, if only we can let the mass mind of the market and not our individuality rule our decisions.
The market does not reward iconoclasts.
Joseph Trevisani
Tuesday, July 28, 2009
Thursday, July 23, 2009
Wednesday, July 22, 2009
Market Direction
Since late May the dollar has traded in a limited four figure range against the euro - limited and a bit odd. Good American economic news pushes the dollar down; bad news returns it to favor.
May Non Farm Payrolls, unexpectedly positive, gave the dollar a fainting spell. The June numbers, worse than predicted, revived the greenback. Retail sales figures and consumer confidence have gradually returned from oblivion and the value of the dollar ebbed as they rose.
Risk aversion is the standard explanation. Risk capital, or perhaps it is better to name it capital that is averse to risk, is sequestered in Treasury bills and other dollar denominated safe investments when the economic environment looks, well, risky. The demand for these dollar assets pushes the US currency higher as foreign denominated capital enters the currency markets and is converted to dollars. When economic risk is judged to diminish these funds suddenly pour back out of US Treasuries seeking higher returns. Since those returns are often overseas the dollars are changed for foreign assets and the dollar sinks.
This mechanistic and simplified logic may suffice to explain the weak pro and anti-dollar moves that have played back and forth in the currency since late May. But a larger question looms. Why hasn’t the dollar benefited from the improvement in the US economy? Currency markets, like equities and futures, are discounting machines. They trade now for where their participants think that currencies, stocks or commodities will be at some point in the near future.
The US economic situation compares favorably with that of any of its major currency trading partners. The financial panic has long since dissipated. The banking system is not going to collapse. Present inflation is benign, whatever the real or imagined fears for 2011 and beyond. The Federal Reserve has restrained its essay into overt monetization. At the last FOMC meeting the Reserve Board declined to add to the $300 billion already allotted for Treasury purchases. Perhaps most informative on Fed thinking, the M2 money supply, long neglected, has leveled and even declined a little in May. Last fall and spring as the crisis escalated M2 had jumped at historically unprecedented rates as the Fed pumped liquidity into the economy. But now it seems the Fed has drawn back from the money glut and that can only help to contain future inflation.
One year ago the US unemployment rate was 5.5 %, it is now 9.5%. While such numbers are a serious hardship for workers and businesses they are also a sign of the flexibility of the US labor market. Because American firms operate under relatively few restrictions they are free to use labor as they see fit. US firms can restructure and redeploy resources to meet actual demand. When growth returns US firms are often in a better financial condition to rehire. US unemployment rises faster in a recession but it also falls faster and to a lower level under economic growth. Compare the US employment situation to that of the European Monetary Union (EMU).
EMU unemployment has risen from 7.4% a year ago to 9.5% in June, half the amount of the US increase. In Europe it is far harder for firms to eliminate workers and doing so is far more costly. Thus when the recovery begins there are fewer empty places to fill. Companies remain wedded to resource deployment designed for the last expansion with no guarantee that the new cycle will ask for the same product mix. In comparison US firms are able to meet the new economic situation with a far more flexible outlook.
Many secondary US economic indicators have improved substantially in the past months. Housing is stable, purchasing managers indices have recovered and consumer confidence and retail sales are on the mend. This is not to say that the recession is ended or even ending. But that as a comparative lesson the US is arguably in better shape for recovery than its European competitors. When this improved economic situation is joined to the historical ability of the US economy to work its way out of trouble faster and with more emphasis than any other industrialized economy we have to ask again: Why has the dollar declined?
The answer may lie in Washington and the political and economic agenda of the Obama administration. Currency markets are making their own discount judgments on the potential economic effect of the two major initiatives of the administration: the climate change bill and the creation of a government health service.
Irrespective of the political and policy aims of the two pieces of legislation, and aside from any opinion on the social and environmental desirability of their stated goals, there is no doubt that both will impose huge economic costs on the US economy. For the climate bill the intention is to apply a proper cost to carbon output. The legislation is designed to impose huge new taxes on any users of carbon. Since almost every consumer or industrial product uses carbon somewhere in the production cycle the economic costs will stretch across the entire economy.
The health service bill cannot be funded without raising taxes and will likely incur large additional deficit spending as well. Few economists advise raising taxes in a recession. A further increase in the already vast Federal deficit could well squeeze out much of credit needed for the private economy and raise the cost of credit for all. Both bills, if passed in present form, seem destined to restrict US economic growth and retard recovery from the recession.
American equities have had a strong recent surge as the passage of these bills has become more problematic. The currency markets will soon notice. If the climate bill fails and the universal health care provision is watered down or put off until next year then restraints on the dollar will fall away and it will follow equities higher.
Joseph Trevisani
May Non Farm Payrolls, unexpectedly positive, gave the dollar a fainting spell. The June numbers, worse than predicted, revived the greenback. Retail sales figures and consumer confidence have gradually returned from oblivion and the value of the dollar ebbed as they rose.
Risk aversion is the standard explanation. Risk capital, or perhaps it is better to name it capital that is averse to risk, is sequestered in Treasury bills and other dollar denominated safe investments when the economic environment looks, well, risky. The demand for these dollar assets pushes the US currency higher as foreign denominated capital enters the currency markets and is converted to dollars. When economic risk is judged to diminish these funds suddenly pour back out of US Treasuries seeking higher returns. Since those returns are often overseas the dollars are changed for foreign assets and the dollar sinks.
This mechanistic and simplified logic may suffice to explain the weak pro and anti-dollar moves that have played back and forth in the currency since late May. But a larger question looms. Why hasn’t the dollar benefited from the improvement in the US economy? Currency markets, like equities and futures, are discounting machines. They trade now for where their participants think that currencies, stocks or commodities will be at some point in the near future.
The US economic situation compares favorably with that of any of its major currency trading partners. The financial panic has long since dissipated. The banking system is not going to collapse. Present inflation is benign, whatever the real or imagined fears for 2011 and beyond. The Federal Reserve has restrained its essay into overt monetization. At the last FOMC meeting the Reserve Board declined to add to the $300 billion already allotted for Treasury purchases. Perhaps most informative on Fed thinking, the M2 money supply, long neglected, has leveled and even declined a little in May. Last fall and spring as the crisis escalated M2 had jumped at historically unprecedented rates as the Fed pumped liquidity into the economy. But now it seems the Fed has drawn back from the money glut and that can only help to contain future inflation.
One year ago the US unemployment rate was 5.5 %, it is now 9.5%. While such numbers are a serious hardship for workers and businesses they are also a sign of the flexibility of the US labor market. Because American firms operate under relatively few restrictions they are free to use labor as they see fit. US firms can restructure and redeploy resources to meet actual demand. When growth returns US firms are often in a better financial condition to rehire. US unemployment rises faster in a recession but it also falls faster and to a lower level under economic growth. Compare the US employment situation to that of the European Monetary Union (EMU).
EMU unemployment has risen from 7.4% a year ago to 9.5% in June, half the amount of the US increase. In Europe it is far harder for firms to eliminate workers and doing so is far more costly. Thus when the recovery begins there are fewer empty places to fill. Companies remain wedded to resource deployment designed for the last expansion with no guarantee that the new cycle will ask for the same product mix. In comparison US firms are able to meet the new economic situation with a far more flexible outlook.
Many secondary US economic indicators have improved substantially in the past months. Housing is stable, purchasing managers indices have recovered and consumer confidence and retail sales are on the mend. This is not to say that the recession is ended or even ending. But that as a comparative lesson the US is arguably in better shape for recovery than its European competitors. When this improved economic situation is joined to the historical ability of the US economy to work its way out of trouble faster and with more emphasis than any other industrialized economy we have to ask again: Why has the dollar declined?
The answer may lie in Washington and the political and economic agenda of the Obama administration. Currency markets are making their own discount judgments on the potential economic effect of the two major initiatives of the administration: the climate change bill and the creation of a government health service.
Irrespective of the political and policy aims of the two pieces of legislation, and aside from any opinion on the social and environmental desirability of their stated goals, there is no doubt that both will impose huge economic costs on the US economy. For the climate bill the intention is to apply a proper cost to carbon output. The legislation is designed to impose huge new taxes on any users of carbon. Since almost every consumer or industrial product uses carbon somewhere in the production cycle the economic costs will stretch across the entire economy.
The health service bill cannot be funded without raising taxes and will likely incur large additional deficit spending as well. Few economists advise raising taxes in a recession. A further increase in the already vast Federal deficit could well squeeze out much of credit needed for the private economy and raise the cost of credit for all. Both bills, if passed in present form, seem destined to restrict US economic growth and retard recovery from the recession.
American equities have had a strong recent surge as the passage of these bills has become more problematic. The currency markets will soon notice. If the climate bill fails and the universal health care provision is watered down or put off until next year then restraints on the dollar will fall away and it will follow equities higher.
Joseph Trevisani
Wednesday, July 15, 2009
Market Direction
The origin of the Group of Eight was an invitation from French President Valery Giscard d’Estaing in 1975 to six of the major World War Two combatants to meet at Rambouillet in France. Leaders from West Germany, Great Britain, Italy, the United States, Japan and France attended that first meeting. The impetus to the summit, if not the sole topic, was the first post war economic challenge to the west, the 1973 OPEC oil embargo. In 1976 Canada was invited to join and the group stayed at seven until 1997 when Russia formally became a member.
Although formed a generation after the end of the Second World War, the G-7 represented the dominant nations of the defining event of 20th century history. As with the United Nations for international politics, the G-7 was an attempt to secure the victory of the western economic model. For the first 30 years after the war the only antagonist for the western capitalists had been the political and military threat of the Communists led by the Soviet Union. Until the oil embargo there had not been a serious economic challenge to Western Europe, the United States and Japan.
Why relate this history? The nations of the Second World War consensus that have dominated the world for 60 years are close to bankrupt. Their foreign bankers are now calling the shots; those who pay decide the future.
The abandonment of the climate change issue at the G-8 meeting is an example. Though the global warming agenda is a major part of the domestic political positions of President Obama, Chancellor Merkel, Prime Minister Brown and President Sarkozy the issue was removed from G-8 consideration because China, India and others would not go along. This is perhaps a foretaste of what will happen on every topic in which China and the other BRIC (Brazil, Russia, India, and China) countries have an interest.
China, Russia and India have been very public with their concerns for the long term value of the US Dollar and critical of the effect of American deficit spending. In April, China’s holding of US Treasuries fell for the first time in eleven months. The amount was small, $4 billion and partially offset by a small gain in Hong Kong. But in the charged atmosphere of today’s international economics and in light of US funding needs, the drop was widely noted. From April 2008 until March 2009 the Chinese Government had been steadily acquiring Treasuries; its holding had increased from $502.0 to $767.9, a jump of 53%.
China has also moved to increase the supply and demand for the yuan as an alternative to the dollar by starting limited trade settlement in its currency. On July 6th some firms in five Chinese cities were allowed to begin settling transactions in yuan with companies from Hong Kong, Macau and the ASEAN countries. Non-Chinese banks will be able to obtain yuan from mainland institutions to finance trade.
The Peoples Bank of China (PBOC) has also formulated currency swap agreements with Argentina, Belarus, Hong Kong, Indonesia, Malaysia and South Korea. The PBOC will render yuan to their central banks as needed to pay for imports if these countries are short of the currency.
These moves by the Chinese authorities will not establish the yuan as an international reserve currency. But they will shift some of the trade demand for dollars to yuan. Offered the choice what Asian trading partner of China would not want to remove the volatile and increasingly questioned dollar from their financial equation? The logic is simple and efficient. Why hold reserves in dollars for your China trade and bear the currency risk? Yuan reserves reduce the need for dollars and reduce dollar currency risk.
China has emerged as the engine of growth in Asia and Asian countries are looking to China for the health of their own economies. If yuan settlement becomes the policy of the Chinese Government what trading partner will want to go against Beijing’s wishes and opt for dollar settlement? Considering the size of China’s foreign trade the potential drop in dollar demand could be substantial.
Until now it has been in China's interest to keep the yuan undervalued for trade competition. Since last summer China has effectively re-pegged the yuan to the dollar after three years of gradual appreciation. But that is likely to be a temporary expedient. If China is serious about using the yuan in trade and in permitting outside players, non Chinese players, to hold and store value in yuan, an essential component of a reserve currency, what better way than to resume a gradual appreciation of the currency? For an exporter in Vietnam or Thailand or even Australia, Japan or New Zealand would not an appreciating yuan be a far better option for your China trade capital than the dollar?
Chinese national interest will determine Beijing’s economic policy. But the time is fast approaching when safeguarding her economic development will be far better served by a strong and convertible currency than by a weak yuan priced for export. A strong dollar has been one of Washington’s most effective foreign policy tools for more than 50 years; that fact is not unknown in the Chinese capital.
Joseph Trevisani
Although formed a generation after the end of the Second World War, the G-7 represented the dominant nations of the defining event of 20th century history. As with the United Nations for international politics, the G-7 was an attempt to secure the victory of the western economic model. For the first 30 years after the war the only antagonist for the western capitalists had been the political and military threat of the Communists led by the Soviet Union. Until the oil embargo there had not been a serious economic challenge to Western Europe, the United States and Japan.
Why relate this history? The nations of the Second World War consensus that have dominated the world for 60 years are close to bankrupt. Their foreign bankers are now calling the shots; those who pay decide the future.
The abandonment of the climate change issue at the G-8 meeting is an example. Though the global warming agenda is a major part of the domestic political positions of President Obama, Chancellor Merkel, Prime Minister Brown and President Sarkozy the issue was removed from G-8 consideration because China, India and others would not go along. This is perhaps a foretaste of what will happen on every topic in which China and the other BRIC (Brazil, Russia, India, and China) countries have an interest.
China, Russia and India have been very public with their concerns for the long term value of the US Dollar and critical of the effect of American deficit spending. In April, China’s holding of US Treasuries fell for the first time in eleven months. The amount was small, $4 billion and partially offset by a small gain in Hong Kong. But in the charged atmosphere of today’s international economics and in light of US funding needs, the drop was widely noted. From April 2008 until March 2009 the Chinese Government had been steadily acquiring Treasuries; its holding had increased from $502.0 to $767.9, a jump of 53%.
China has also moved to increase the supply and demand for the yuan as an alternative to the dollar by starting limited trade settlement in its currency. On July 6th some firms in five Chinese cities were allowed to begin settling transactions in yuan with companies from Hong Kong, Macau and the ASEAN countries. Non-Chinese banks will be able to obtain yuan from mainland institutions to finance trade.
The Peoples Bank of China (PBOC) has also formulated currency swap agreements with Argentina, Belarus, Hong Kong, Indonesia, Malaysia and South Korea. The PBOC will render yuan to their central banks as needed to pay for imports if these countries are short of the currency.
These moves by the Chinese authorities will not establish the yuan as an international reserve currency. But they will shift some of the trade demand for dollars to yuan. Offered the choice what Asian trading partner of China would not want to remove the volatile and increasingly questioned dollar from their financial equation? The logic is simple and efficient. Why hold reserves in dollars for your China trade and bear the currency risk? Yuan reserves reduce the need for dollars and reduce dollar currency risk.
China has emerged as the engine of growth in Asia and Asian countries are looking to China for the health of their own economies. If yuan settlement becomes the policy of the Chinese Government what trading partner will want to go against Beijing’s wishes and opt for dollar settlement? Considering the size of China’s foreign trade the potential drop in dollar demand could be substantial.
Until now it has been in China's interest to keep the yuan undervalued for trade competition. Since last summer China has effectively re-pegged the yuan to the dollar after three years of gradual appreciation. But that is likely to be a temporary expedient. If China is serious about using the yuan in trade and in permitting outside players, non Chinese players, to hold and store value in yuan, an essential component of a reserve currency, what better way than to resume a gradual appreciation of the currency? For an exporter in Vietnam or Thailand or even Australia, Japan or New Zealand would not an appreciating yuan be a far better option for your China trade capital than the dollar?
Chinese national interest will determine Beijing’s economic policy. But the time is fast approaching when safeguarding her economic development will be far better served by a strong and convertible currency than by a weak yuan priced for export. A strong dollar has been one of Washington’s most effective foreign policy tools for more than 50 years; that fact is not unknown in the Chinese capital.
Joseph Trevisani
Tuesday, July 7, 2009
The Psychological Utility of Technical Analysis. Market Direction
Technical analysis is sometimes studied as if it contains a grain of secret knowledge or portrays an intrinsic truth about currency movements. Often it is said that a specific chart formation will produce a specific price movement.
Technical analysis does nothing of the sort. A chart is a reflection of past prices, nothing more. In itself a graph cannot predict future price movements. A currency does not trade up of down because of a formation on a chart. It moves because market participants make basic assumptions about future price behavior based on the record of past price action. A charted history of price action is the cumulative story of thousands of trading decisions; it is a record of the past behavior of thousands of individual traders.
Price information is meaningful only because trader’s decisions give it predictive power. A simple proof of the limited forward intelligence of historical price action is the well attested notion that fundamental developments always trump technical analysis. If the Federal Reserve raises rates unexpectedly or the Chinese Government announces it will no longer buy US Treasuries there is no chart formation that has ever existed that will prevent the dollar from rocketing up in the first instance or plummeting in the second.
Technical analysis does not produce price movement. I state the obvious because in the endless attribution of trading cause and effect to ‘the market’ it is easy to lose sight of the actual composition of the market--thousands of individual decision makers. The translation mechanism for technical analysis runs from the information contained in a chart, through the assessment of that information by market participants to the trading behavior of those market participants.
Another way to approach this idea is to ask, just who is the ‘market’ and what is it trying to accomplish every day. It is likely that over 90% of the $3.2 trillion daily volume in the FX market is speculative. That means that everyone in the market from the hedge fund trader with $1 billion under management, to the euro trader on the Deutsche Bank interbank desk to the retail trader in her study, is trying to do exactly the same thing, take home daily trading profits.
Interestingly, the overall worldwide foreign exchange trading volume in 2007, the year of the last survey, increased almost 50% from the prior survey in 2004 of $1.9 trillion daily. The counterparty reporting segment to which retail foreign exchange belongs boosted its share of turnover to 40% from 33% according to Bank for International Settlements in Basel (BIS, 2007) which conducts the tri-annual survey.
To return to my previous point, if every market participant is attempting to do the same thing, namely wring trading profits from the day’s activities, how do they all go about it?
The first thing every trader does, in New York, Tokyo, London and in every land in between is to pull up charts and look for trading opportunities. Every trader looking for profit is judging the same charts. Everyone sees the same price history, and everyone identifies the same potentially profitable chart formations. And, in the absence of other factors, the majority of traders will come to the same trading conclusion based on the observed chart formations.
If euro has been in an up channel for two weeks and is approaching the bottom of the channel most traders looking for an opportunity in euro will bet on the continuance of the up trend and the maintenance of the channel. They will place buy orders just above the floor of the channel. And much of the time the charts will have been proven correct, the euro will indeed bounce from the floor of the channel. But it bounces not because, for instance, the ECB is expected to raise rates at some future date, but because of the fit between the goals, information and assumptions of the market’s traders.
Traders need profits, all charts contain the same information and all traders operate with similar assumptions about market behavior based on chart formations. If enough traders place their buy orders above the bottom of the channel it becomes likely that the euro will bounce off the floor of the channel and continue the upward channel formation, barring external events of course.
There is powerful self-fulfilling logic in technical analysis, it works, because everyone trading believes it will work and makes their trading decisions accordingly. For a retail trader this knowledge is the most accessible and effective trading strategy that exists.
Joseph Trevisani
Technical analysis does nothing of the sort. A chart is a reflection of past prices, nothing more. In itself a graph cannot predict future price movements. A currency does not trade up of down because of a formation on a chart. It moves because market participants make basic assumptions about future price behavior based on the record of past price action. A charted history of price action is the cumulative story of thousands of trading decisions; it is a record of the past behavior of thousands of individual traders.
Price information is meaningful only because trader’s decisions give it predictive power. A simple proof of the limited forward intelligence of historical price action is the well attested notion that fundamental developments always trump technical analysis. If the Federal Reserve raises rates unexpectedly or the Chinese Government announces it will no longer buy US Treasuries there is no chart formation that has ever existed that will prevent the dollar from rocketing up in the first instance or plummeting in the second.
Technical analysis does not produce price movement. I state the obvious because in the endless attribution of trading cause and effect to ‘the market’ it is easy to lose sight of the actual composition of the market--thousands of individual decision makers. The translation mechanism for technical analysis runs from the information contained in a chart, through the assessment of that information by market participants to the trading behavior of those market participants.
Another way to approach this idea is to ask, just who is the ‘market’ and what is it trying to accomplish every day. It is likely that over 90% of the $3.2 trillion daily volume in the FX market is speculative. That means that everyone in the market from the hedge fund trader with $1 billion under management, to the euro trader on the Deutsche Bank interbank desk to the retail trader in her study, is trying to do exactly the same thing, take home daily trading profits.
Interestingly, the overall worldwide foreign exchange trading volume in 2007, the year of the last survey, increased almost 50% from the prior survey in 2004 of $1.9 trillion daily. The counterparty reporting segment to which retail foreign exchange belongs boosted its share of turnover to 40% from 33% according to Bank for International Settlements in Basel (BIS, 2007) which conducts the tri-annual survey.
To return to my previous point, if every market participant is attempting to do the same thing, namely wring trading profits from the day’s activities, how do they all go about it?
The first thing every trader does, in New York, Tokyo, London and in every land in between is to pull up charts and look for trading opportunities. Every trader looking for profit is judging the same charts. Everyone sees the same price history, and everyone identifies the same potentially profitable chart formations. And, in the absence of other factors, the majority of traders will come to the same trading conclusion based on the observed chart formations.
If euro has been in an up channel for two weeks and is approaching the bottom of the channel most traders looking for an opportunity in euro will bet on the continuance of the up trend and the maintenance of the channel. They will place buy orders just above the floor of the channel. And much of the time the charts will have been proven correct, the euro will indeed bounce from the floor of the channel. But it bounces not because, for instance, the ECB is expected to raise rates at some future date, but because of the fit between the goals, information and assumptions of the market’s traders.
Traders need profits, all charts contain the same information and all traders operate with similar assumptions about market behavior based on chart formations. If enough traders place their buy orders above the bottom of the channel it becomes likely that the euro will bounce off the floor of the channel and continue the upward channel formation, barring external events of course.
There is powerful self-fulfilling logic in technical analysis, it works, because everyone trading believes it will work and makes their trading decisions accordingly. For a retail trader this knowledge is the most accessible and effective trading strategy that exists.
Joseph Trevisani
Wednesday, July 1, 2009
Dajjal Baby (Please be carefull)
Thanks to Mazaahir-ul-Uloom
I have received this email numerous times, many know this is NOT dajjal and its merely a poor baby born with medical condition and deformed developments.
Below is a more official answer to this
The ahadith relating to physical features and appearance of Dajjaal are quite clear. The baby shown on the email pictures cannot be Dajjaal because of the following reasons :
1. Dajjaal was present at least from the time of Nabi Sallallahu Alaihi Wasallam. A hadith exaplains the expererience of Tamim al-Daari Radhi Allahu Anhu where he saw Dajjaal chained on an island.
2. Dajjaal has been described in the ahadith as having two eyes. One of them will be blind and one will protrude like a grape.
3. The word “kaafir” will be seen on his forehead.
Medical doctors have further confirmed that the case of the baby, in question, with one eye is actually a physical deformity.
One should be particularly careful about circulating emails of this nature because they cause misconceptions and unnecessary confusion. As Muslims we believe completely in the words of the Prophet Sallallahu Alaihi Wasallam regarding the emergence of Dajjaal. Our faith in this should not hinge upon images or chain emails.
We should further prepare ourselves from falling prey to the deception of Dajjaal, if we live to see him, by following the prescriptions mentioned in the Quran and ahadith.
And Allah knows best.
Courtesy of : Madrasah Mazaahir al-Uloom. For all Shariah related queries contact Mufti Muhammad Abubakr Minty at almazaahir@gmail.com
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