This is a video summary of the Live Forex Trading Room session on October 19, 2007.

Today’s Summary, by Sunil Mangwani:

Just one confirmed trade taken today, but a few interesting points for discussion. Fundamentals are beginning to affect the forex market on a longer term basis - yen crosses, carry trades, interest rates, etc. The Dow Jones is having an effect on the yen crosses, the equity markets getting correlated… All these things have to be kept in a deeper perspective.

But we are technical traders - as soon as we find a setup, and it confirms our technical analysis, we go into a trade. More often than not, this works. We look for higher probability trades, with a greater chance of success.

On the GBP/JPY intraday, one of the favorites among the carry trades, we had a technical pattern of a Bullish Divergence, with price making a low and a lower low, Stochastics making initial low below the 20 level. When your second lower low on the price takes place, your stochastics do not have the momentum to carry forward to the oversold zone. This is a very aggressive divergence, signifying that a change of trend is due and a significant reversal could take place.

We went in with our paramenters for an aggressive trade (which you’ll have to come into the room to find out), which went off very well, quite accurately to our expected target. We closed the trade close to the top, and where the price goes next is not our problem. As I said, we are technical traders. Our price objectives are met, we take the trade, and get out. We increase our equity, and are happy - what more could a trader want?

On the GBP/USD, we did not take a trade, but we had a very similar situation - a Bullish Divergence on the 30 minute charts. The focus is the technical analysis that we follow. Price has an uncanny way of following Fibonacci Ratios. When ever we spot a Regular Divergence like this one, we identify our targets using Fibonacci projections from certain levels that we use regularly in the room.

Price stopped exactly at the 127% fib projection. We have a favorite saying in our room - “tell me fibs don’t work!”. Why does price have to stop exactly here? Believe it or not, more often than not, this is the case. Price will respect your fib levels. Just a point in the passing.

We have been following the USD/JPY for the long term. We were Long on this pair for a while now, and we did take some profits out of this trade earlier, but he market turned around and taken out our stop. As I said before, the fundamentals are beginning to take effect. We have to keep them in perspective for this sort of swing trades. Technical triggers are what is required - but for longer term trades, fundamentals do affect the currencies.

We in our room try to be “complete traders” by keeping our perspective on the fundamentals, following the technicals, approaching the market with a correct trading plan, and following up a trade with the correct money management principles. Only when you incorporate all these factors into your trading do you become a “complete trader”, and that is the point when you begin to succeed. Surprizingly a lot of new traders are not aware or do not bother with such critical ideas.

Let me close this recap with a discussion of the MACD Indicator. As part of our Live Trading Room program, we introduce new topics to our members every week, so that they can be exposed to not just theory, but also practice. If you do a Google search, I’m sure you’ll get a few thousand hits on MACD. But on a deeper perspective, you might ask yourself - what is the best way to use MACD, and in what situations must it be used?

We use the histogram, and compare the peaks and valleys to previous peaks and valleys, to give us an idea about the momentum of price. It is momentum which drives the price. If you can determine the underlying momentum in price, half of your work is done. Just some interesting disucussions and conversations we had based on the MACD histogram.

Enjoy the video!

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