How to know how much a “pip” is worth for any pair!
By Sean Hyman | August 13, 2009
Many times, newer traders ask me how they can find out how much a “pip” is worth for any pair. Some will refer to these as pip “costs”, others will say pip “values”, etc. but it’s all the same thing.
They all want to know, if my pair moves up one increment or down one increment…how many dollars does that equate to?
Here’s the simple answer. It’s automatically calculated for you on your trading station. You can view this on the “Advanced rates” which is the default setting..OR…you can view it on the Simple rates” tab.
See both of them below.
I’ve circled (in each format) where to find the pip cost/value for a pair. Notice that any pair that ends in USD (ex. EUR/USD, GBP/USD, NZD/USD, etc.) all have pip values of $1.00 per standard mini lot. Had this been a micro account, then the pip value would be 10 times less or .10 (10 cents) per pip of movement (since a micro lot is ten times smaller than a standard mini lot).
Remember, that a standard mini lot = 10,000 units of currency and a micro lot = 1,000 units of currency.
So the pairs that end in something other than USD (ex. EUR/CHF, USD/JPY, EUR/AUD, etc.) will have pip values that change slightly over long periods of time.
However, you can easily see what a “pip” is worth in that pair BEFORE you place your trade since it’s conveniently located on your quote screen.
This is important to note because there’s a big difference in EUR/GBP’s pip value of $1.66 and EUR/AUD’s pip value of .84 (84 cents).
So one pip of movement for or against you in EUR/GBP is +/-$1.66. However, in EUR/AUD this same amount of movement is +/-$0.84 (big difference, dollar wise…yet the same amount of pips moved). Click on the charts to enlarge them.
Sean Hyman
P.S. - Want to learn more about fundamentals and technicals? Sign up for an inexpensive, only forex course today and we’ll show you how: http://www.mywealth.com/currency-trading.php
Also, get a free, real time demo trading station here: http://www.fxedu.com/practice-forex-account
Tags: account, AUD, blog, charts, CHF, currency, dollar, dow, EUR, forex, forextrading, gbp, Hyman, jpy, lot, movement, nzd, pair, pips, rate, Sean, Sean Hyman, simple, time, trade, trader, trading station, USD
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Here’s what makes the Carry Trade so great!
By Sean Hyman | August 13, 2009
Many people don’t really get the “carry trade” strategy and why it’s so great. Their focus is on the daily interest and they don’t see themselves getting rich off of the daily interest. However, that’s only ONE of the reasons why traders get into the carry trade.
Think of a carry trade this way. Let’s say you have two banks in the same town. Bank A will offer you 3% in a savings account while Bank B will only offer you 1/2 of 1% (0.50%). Which one are you going to deposit money into?
Now, if you were a betting man or woman…which bank would you bet on having the most “inflows” of deposits? Of course, Bank A…because people aren’t idiots and want to earn the most they can on their money.
Well while the carry trade isn’t a “savings account” by any means…it works off of a similar principle.
Traders and investors alike want to earn the most that they can on their money. After all, the interest earned is the closest thing to a guarantee as you’ll get. So investors look out in the “investing arena” and look to see who has high interest rates when compared to others.
It’s no surprise that investors from all over the world pile into the same, few high yielding currencies.
Look at the chart below and you will see what investors all over the world are looking at. Now which currencies would you look into first? The U.S., Japan?….or Australia and New Zealand? Of course, the latter. Why? Because your mama didn’t raise a dummy and you want to get the highest interest rate possible on your money. Click on the charts below to enlarge them.
Guess what? So does everyone else out there in the world. So it’s no surprise that money flows away from the U.S. and Japan right now and into Australia and New Zealand. They’re moving their money from “low yields” to “high yields”.
So now that we can predict the “long term” flow of money…why not jump in the line now and allow all of the other future buyers of Aussie and New Zealand dollars push up our positions in these same currencies over time.
So if I buy any of these (as of the time of this writing): AUD/USD, AUD/JPY, NZD/USD or NZD/JPY then I can enjoy BOTH the money flow AWAY from the U.S. and Japan and the money flow INTO Australia and New Zealand. By capturing both dynamics…my positions ratchet higher over time WHILE at the same time, I’m earning DAILY interest while I wait for further appreciation in the pair.
When this strategy works: This strategy works when the global economy is coming out of a recession (past the trough of the recession) and in expansionary times when countries are doing good economically.
When the strategy doesn’t work: This strategy doesn’t work when the global economy is about to go into a recession (or for that matter, usually even when it’s just the U.S. going into a recession).
Since expansionary times last longer than recessionary times, the strategy works, more times than not.
When it’s not working….guess what? Short these pairs and you can make money that way.
Sean Hyman
Tags: account, AUD, Aussie, blog, currencies, dollar, economy, forex, forextrading, Hyman, interest, interest rate, interest rates, invest, investor, jpy, money, nzd, pair, recession, Sean, Sean Hyman, ssi, time, trade, trader, U.S., USD
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Dollar’s rally is just about to run out of steam!
By Sean Hyman | August 12, 2009
Even bear markets have rallies. But why would I refer to the dollar’s recent rally as a “bear market rally” and not a rally into a “new trend”? Because there is no technical indication that has surfaced to think otherwise. Click on the chart below to enlarge it.
Several things worth noting on that chart of the U.S. Dollar Index:
The pair is still downtrending as shown by it trading below BOTH the 50 and 200 Simple Moving Averages. Also, the MACD lines are below the zero line (red boxed area) and the Slow Stochastics are just about to go into the “overbought” territory once again as the dollar approaches its 50 day SMA resistance area.
There’s an old Wall St. saying….”trade the trend until it ends”. However, do realize that there are rallies in every bear market (downtrend). These are to be expected. After all, they usually can’t go “straight down”. Therefore, upward corrections are involved…much like the pull backs that happen within an uptrend.
Therefore, there’s no reason to see this as any other thing unless this technical picture changes. So far it has not. So I’ll stick with the trend “until it ends”.
That means, it’s probably better to be a buyer of strong currencies as these dollar rallies happen and start to roll over once again. Two of the top “strong currencies” right now are NZD and AUD…so being a buyer of NZD/USD and AUD/USD after these dollar rallies (which cause pull backs in these pairs) is to be favored until such time that there’s an actual re-emergence of a “dollar uptrend” which I think is a long ways off.
Sean Hyman
www.forextradingblog.com
Tags: AUD, blog, currencies, dollar, dow, downtrend, forex, forextrading, Hyman, index, market, nzd, pair, pairs, Sean, Sean Hyman, time, trade, U.S., uptrend, USD
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New Zealand strength starts to emerge!
By Sean Hyman | August 10, 2009
New Zealand is climbing its way up to the top of the pack of stronger currencies. It has THE highest CPI (year over year) and has the 2nd highest interest rate out there. With the high CPI readings, traders are starting to bet that they will have to hike rates sooner rather than later.
But you can see this NZD strength when you compare it across the board. For instance, NZD/USD’s chart is holding up better than most other dollar pairs, NZD/JPY is holding up better than many yen crosses.
Then when you compare NZD directly with many other pairs, it shows its strength too: EUR/NZD’s downtrend due to NZD strength…AUD/NZD slumping over due to NZD strength,…GBP/NZD breaking lower to on a weaker GBP AND NZD strength.
So whether you’re a position trader (weeks to months), swing trader (days to weeks) or an intraday trader (in and out within the same day typically)…it’s always better to “buy strength” no matter what your holding period.
Therefore, a “technical buy” signal on a NZD pair may be better to take than a technical buy that shows up on a weaker currency.
So while you may look for technical entries…I also want to get you thinking about which currencies may be the best choices to pick from too…when looking for technical entry signals on your charts. Click on the chart to enlarge it.
Sean Hyman
www.forextradingblog.com
Tags: AUD, blog, charts, currencies, currency, dollar, dow, downtrend, EUR, forex, forextrading, gbp, Hyman, interest, interest rate, jpy, lower, new zealand, nzd, pair, Sean, Sean Hyman, technical, trade, trader, Yen
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Don’t be fooled by Friday’s “dollar rally”!
By Sean Hyman | August 9, 2009
The U.S. dollar got a nice “pop” on Friday as a better-than-expected NFP (employment) report came out. However, I call this a “sucker rally” because the dollar’s broad trend has been downward since March (according to the U.S. Dollar Index chart).
Therefore, since the probabilities lie on the side of the trend, it’s best to short the dollar on rallies upward by buying foreign currencies against it: AUD/USD, GBP/USD and NZD/USD being some of the top candidates in my opinion due to them leading the way in their yearly inflation figures. These are likely the countries to have to raise interest rates first and that will only drive more money away from the buck and into these other foreign currencies (which helps the buyers of these pairs).
Another factor that really doesn’t work in the dollar’s favor is the global recovery that’s underway right now. You see, the dollar only ran up when the “sky was falling”. But now that financial markets are stabilizing, that works against the green back and not for it. It does however, work in the favor of currencies that have higher inflation in their economies (vs. the deflationary numbers in the U.S) and it also works in the favor of the higher yielding currencies.
The deflationary Japanese economy is really causing money to pour out of the yen and into these currencies as well, which bodes well for: AUD/JPY, GBP/JPY and NZD/JPY over time.
So keep these pairs on your radar screen. It doesn’t mean that any moment of any day is the time to buy them…but it does mean that they are “fundamentally supported” the most and therefore should be your “top candidates” to consider as your technical entry set-ups occur.
Sean Hyman
www.forextradingblog.com
Tags: AUD, blog, currencies, dollar, dow, economy, forex, forextrading, fundamental, gbp, Hyman, index, interest, interest rate, interest rates, jpy, market, money, nzd, pair, Sean, Sean Hyman, technical, time, trend, U.S., USD, Yen
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Canada’s central bank is “smoking something”!
By Sean Hyman | August 6, 2009
Well, “intervention talk” is in the air again! This time it’s the Bank of Canada!
Why are they so concerned with their currency? Well the USD/CAD exchange rate has dropped from 1.30 to 1.07 (2,700 pips) in mere months (5 months to be exact).
This can wreak havoc upon a company that is trying to figure out how to hedge their currency exposure so that it doesn’t eat into the profits of their business…and the central bank realizes this too.
That’s why Central Bank Governor Carney, together with Finance Minister Flaherty are coming together to attempt to “jaw bone” the currency lower (in other words bring the USD/CAD exchange rate higher).
Canada’s Fed Governor has stated that the gain in the currency is a major risk to economic growth…adding that “he has the flexibility to deal with it”. The Finance Minister backed him up by saying “steps could be taken to dampen the (Canadian) dollar”.
Governor Carney is attempting to lessen the appeal of the loonie by stating that interest rates are likely to remain unchanged through at least the 2nd quarter of 2010.
You see, when you are a Canadian company and you’re trying to hedge against currency fluctuations of 5-10% in a short amount of time, it’s tough. (They really need my services. Hehe!)
Canada’s factory orders have been hit (down 29% since last July) as a result of the strengthening currency. That couldn’t come at a worse time because at the same time you’ve had General Motors and Chrysler shut down Canadian plants, dealers and parts suppliers. Manufacturers have had to fire 221,500 workers as a result.
Couldn’t they intervene? History says they won’t…and if they did, it will backfire!
So the central bank wants a lower Canadian dollar to make it easier on these crucial companies. Will they get it? NO! Oh sure, they may be able to influence the USD/CAD up 300-500 pips…but what is that when the pair has moved 2,700 pips downward and will continue that downtrend?
You see, traders know that the global economy is “on the mend” and as it is recovering, it will consume more oil and other commodities that Canada exports. They also know that the U.S. dollar has been in a broad downtrend since March (according to the U.S. Dollar Index). This broad U.S. dollar sell off isn’t going to change just because the Canadian central bank wants it to.
Oh yeah, but they could go in and “sell Canadian dollars” right? Sure they could…but, it would not be effective and the foreign exchange market would simply laugh at them with the trend and fundamentals going in the favor of the traders and against that of the bank.
Also, traders know that there’s a good chance that the bank is bluffing too. Why? The central bank has abandoned intervention policies ever since 1998. They didn’t intervene when the currency reached a record high in 2007 and or when it’s had its biggest gain since the Korean War during May.
Therefore, there are a ton of years there that the bank did nothing when the currency moved to extremes. So they have no reason to believe that it will be any different this time.
Most of the time, they just “jaw bone” the currency by talking about what they “could” do. However, when push comes to shove, they usually don’t anymore.
They stopped intervening in 1998 because it simply ended up causing even more volatility and ended up making it even more difficult for their exporters to hedge their risks.
If they “talk the pair up”, short the rallies!
Therefore, here’s how I see this playing out on the chart below. Sure, they may “talk the currency up” a few hundred pips or more in the near term. It could happen. However, smart traders are “selling rallies” in the USD/CAD pair because the trend is down and the fundamentals overall, are on the mend. Therefore any bounce upward, is likely to result in another big push downward.
So “shorting rallies” is the flavor of the day, these days.Click on the chart below to enlarge it.
Sean Hyman
www.forextradingblog.com
Tags: blog, cad, commodities, currency, dollar, dow, fed, forextrading, fundamental, fx, Hyman, interest, interest rate, interest rates, lower, market, pips, Sean, Sean Hyman, time, trade, trader, trend, U.S., USD
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How much influence does a government really have over its currency?
By Sean Hyman | August 4, 2009
I’m often asked…”How much influence does a government really have over its currency?”
I say, it has tons to do with it. A government really “sets the tone” for its currency in many respects.
How so? Here are seven major ways that I believe a government greatly influences its currency.
7 Ways a Government Influences its Currency!
They set the tone by the policies that they set. Ex. Sarbanes-Oxley has driven money away from the
They set the tone by what they do with their printing presses. If a government resists the temptation to print tons of money, then it will retain its value. If it “waters it down” by printing tons of it, then it erodes the value of it away.
If it encourages “money inflows” into its country through making products that the outside world wants, it ensures inflows into its currency. If it is a country that is heavily involved mainly in the services sectors and itself is a net importer of goods, then there’s huge likelihood that they are setting their currency up for a fall. This is exactly what we have in the
If a nation stores up monetary surpluses, it provides a better sentiment for investors and causes “inflows” of money very easily. However, if the country has blossoming deficits, it discourages money flows into the country and actually scares some of it away and prevents other “new money” that would like to enter that country from entering due to them being so worried about their ability to repay their debts. Again, a problem of the
The ability of investors to trust a government is another huge one. There is a ton of potential money that COULD go into
What a country does with their interest rates has a HUGE effect upon inflows and outflows in a currency. If interest rates are high and headed higher, it generally encourages money to it as investors seek higher yields on their money. However, if a country holds their rates unusually low, then they’re encouraging outflows. Examples of this right now are the
Governments that are “tax friendly” to residents and especially to corporations are likely to see more inflows than those who aren’t. This is why so many companies are moving away from the
These are seven huge areas that come to mind where a government plays a huge role in influencing their currency, whether they realize it or not…and many times they don’t (because they’re politicians and not savvy investors!
Sean Hyman
Tags: canada, China, commodities, currencies, currency, dollar, dow, EUR, Europe, financial, fx, Hyman, interest, interest rate, investor, Japan, market, money, new zealand, Sean, Sean Hyman, sentiment, ssi, stock, U.S.
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Oil rises above $71 from the $62 area just days ago!
By Sean Hyman | August 3, 2009
Last week we had a huge gain in oil inventories. Now, in theory, that should have held oil lower. However, in reality, the reverse happened.
This tells me that traders are looking to the improvement in GDP numbers lately (particularly that of the U.S.) and how it will effect the demand that’s placed on oil supplies as economies start to actually grow once again (rather than contract).
This has pushed USD/CAD past through what some had thought would be a double bottom. In some of my writings, I’d been cautioning against that thought of a bottom because the fundamentals of many countries have been improving for 3-4 months running now.
So one has to ask themselves…if things are improving and the likelihood for a “return to growth” is around the corner, then what should that do to oil? It should take it higher. Well, that’s bad for the U.S. dollar and at the same time, good for the Canadian dollar since Canada exports tons of oil.
It’s bad for the U.S. dollar because oil is priced in dollars and the two (over time) tend to head in opposite directions. The U.S. Dollar Index has been diving ever since March and its trend is (and has been) downward since then. That trend is unlikely to change.
Therefore, after “dollar rallies” start to fade, they should be shorted (in my opinion) since the main “dollar trend” is downward.
This will likely take USD/CAD back to parity (1.0000) sooner rather than later. It wouldn’t surprise me if we see this reached in the coming weeks to month or two maximum. Click on the chart below to enlarge it.
Don’t try to “catch a falling knife”. Counter trend traders are the food for trend traders. Don’t get caught up in being a counter trend trader and therefore placing the odds against you. Become a “trend trader” and place the odds in your favor.
Sean Hyman
www.forextradingblog.com
Tags: blog, cad, canada, dollar, dow, forex, forextrading, fundamental, Hyman, lower, oil, Sean, Sean Hyman, short, time, trade, trader, trend, U.S., USD
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Which is more important? Trend direction or Support/Resistance?
By Sean Hyman | July 31, 2009
Many traders grapple with this all the time. To me it’s clear. The “trend is the trend” because it continues on and blows through supports in a downtrend and resistances in an uptrend.
A current example of this is AUD/USD. Get ready for the AUD/USD to break higher as the “bottom and top pickers” try to short this pair soon (since they are believers that the resistance will hold). The trend traders will get the last laugh, as the top pickers get caught on the wrong side of the market and have to scramble to cover their losing positions which only “fuels the fire” for the trend trader. Click on the charts to enlarge them.
This is why “top and bottom pickers” almost always give up their money to the trend followers. Oh sure, there’s eventually ONE of these that will ultimately be the true “top or bottom” but in between ..there are tons of places that appear to be the top or bottom and are losing trades. So the odds are skewed against them and skewed towards the trend trader.
See a historical example of this here.
Sean Hyman
www.forextradingblog.com
Tags: AUD, blog, charts, dow, downtrend, forex, forextrading, Hyman, lower, market, money, pair, Sean, Sean Hyman, short, time, trade, trader, trades, uptrend, USD
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How to decide on which currency pair to trade: EUR/USD or GBP/USD
By Sean Hyman | July 30, 2009
Many times, traders wonder “which pair is the better pick”. I say, let the charts decide it for you and take all of the guess work out of it.
Since both the EUR/USD and GBP/USD have the USD in common, their differences are EUR and GBP. So if we got a “dollar move” they’re both going to be affected some. However, the real difference comes in when you directly compare EUR to GBP and see which is the stronger/weaker currency.
You can do this by looking to the EUR/GBP pair. Right now, EUR/GBP is in an obvious downtrend. This can be seen by the red downtrend line below. It can be seen by the declining 50 day simple moving average (SMA). It can also be seen by the MACD being below the zero line and its lines crossing over to the downside. This can also be seen, most recently from it breaking down out of its upward correction (red circled area). Click on the chart below to enlarge it.
Therefore, CLEARLY right now, the stronger of the two is the GBP/USD. So if you feel that these pairs are headed higher, then go with GBP/USD. Right now, GBP/USD’s daily trend is upward, so that would be my pick.
Now if you felt that the trend was downward or turning downward, then you’d pick the “weaker candidate” to pick on which would be EUR/USD (buy strength/short weakness). However, right now, so far their daily trends are still upward as shown by the 50 period simple moving average on their daily charts.
Notice though, how much EUR/USD is struggling and how GBP/USD is starting to pop up higher right now. That’s due to the advantage of buying the stronger candidate. And right now, that’s GBP/USD when you directly compare the two.
You can do this for any pairs. For instance, now if I wanted to see if GBP or AUD were the strongest, I could look to the GBP/AUD pair. This could give me a bias as to whether I’d be better off buying GBP/USD or AUD/USD, for instance.
Currencies are a “comparative/relative” game. In other words, you always want to “rig the fight” with the absolute strongest candidate vs. the absolute weakest candidate and then “bet on that match” by buying the stronger vs. the weaker.
This, coupled with great risk management, will greatly improve your odds of success in trading. In other words, don’t over-leverage your account. You should probably be trading no more than 1 standard mini lot per $2,000-$3,000 in your account OR 1 micro lot per $200 to $300 in your micro account.
Sean Hyman
www.forextradingblog.com
P.S. - Want to learn more about fundamentals and technicals? Sign up for an inexpensive, only forex course today and we’ll show you how: http://www.mywealth.com/currency-trading.php
Also, get a free, real time demo trading station here: http://www.fxedu.com/practice-forex-account
Tags: account, AUD, blog, charts, currencies, currency, dollar, dow, downtrend, EUR, forextrading, gbp, Hyman, lot, pairs, Sean, Sean Hyman, short, simple, ssi, time, trade, trader, USD
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