What is the most stable currency vs. US dollar?

April 22nd, 2009

Do you know what the most stable currency versus the USD is, in the past one year, five year or twenty years?

Of course if you are a currency trader or if you are from that country, it is easy for you to answer. It is a currency which has almost always stayed within a 1% band versus the greenback in the past 20 years.

It is the Hong Kong dollar.

Before I start, note that the Hong Kong Dollar (HKD) dollar is the currency of Hong Kong which is part of China, whilst the Chinese Yuan or Renminbi (RMB) is the currency of mainland China. They do not have the same value (but they are close) and do not follow the same fluctuations.

The HKD’s target rate set by the Hong Kong Monetary Authority has been 7.8 HKD/USD since 1983. And since then, this “pegged rate” has almost never moved away by more than a percent; very rarely was the rate below 7.72. At the time of writing, it is at 7.75. It is always less than 7.8, usually around 7.77.

So who cares?

I care and I hope you too if you are still reading. The point is that if you are here you must be interested in currencies. And what is so special about all pegs is that they are made to be broken. An unbroken peg for 26 years is certainly almost a miracle.

Hong Kong is a relatively small country. It is “bigger” now, indeed it is part of China, but in 1983 it was small and it was not on such friendly terms with its big brother in the North as it is now. No other country, small or big, has been able to maintain a USD peg that long. The Singapore dollar also had a loose peg, but it has been shaken by wild financial crises more than once.

Hong Kong also faced financial crises, and not just the recent one. Do you remember the so-called Asian financial crisis in 1997? Then all the currencies from the “Asian Dragons” collapsed: Singapore, Taiwan and Korea, but not the 4th Dragon, Hong Kong. Other lesser dragons such as Thailand, Indonesia saw their currencies lose as much as 75% of their value against the US dollar.

Malaysia, like Hong Kong, had pegged its currency. But the consequence of the financial meltdown was truly dramatic as the convertibility of the Malaysian Ringgit was suspended, the Prime Minister took drastic measures and sent his successor to jail under accusations of sodomy.

I take off my hat to the courage and determination of the HKMA during all these years. 1998 was particularly tough, as Soros and other hedge funds took positions against HKD, but it never broke. Certainly Hong Kong has and continues to have large currency reserves and abundant wealth, but without its political firmness, it could not have sustained all these emergencies.

If you are interested in making money using forex trading systems, please cross the HKD/USD pair from your list, as the chart is a near perfect flat line. Thank God, there are many other currencies to play with.

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Posted in FOREX | 1 Comment »

What is a trading system?

April 20th, 2009

This website’s name starts with trading systems.

So I thought I would make a short post about what is meant by a trading system if you are new to this type of idea.

I went to dictionary.com and there are 16 definitions for system. The closest one as far as trading systems are concerned is the fifth one:

5. any formulated, regular, or special method or plan of procedure: a system of marking, numbering, or measuring; a winning system at bridge.

It is interesting that the example that they took is a winning system at bridge, because this is exactly what trading systems are all about, winning.

The point is that a system is formulated, so composed of formulas. It is regular, which here means “characterized by fixed principle”. It is a method or plan of procedure or procedures. A trading system is exactly that, i.e. a system applied to making trading decisions.

In the trading world there are three approaches for trading:

  1. Discretionary trading: this is the main form of trading which relies on the belief of the trader; he has the discretion to buy or sell depending on what he thinks; he can base his decision on the news, macro-economic analysis, chart patterns, rumors, etc.
  2. Systematic trading: this form of trading uses trading systems to decide between buying and selling; the computer program is totally in charge of the decision process; such software can be the results of years of research.
  3. Semi-discretionary trading: this type of trading uses a trading system but the human trader can override the system and ultimately make the final decision.

Trading systems were developed to cope with the complexity of modern financial markets and to eliminate emotionality from trading. There are many biases ingrained in human traders, and these have been documented in depth by behavioral finance researchers.

One example is that humans tend to take their profits faster then they take their trading losses. This habit is unconscious but overwhelming in us humans. It is clear that over the long term this bias will be costly. On the other hand, it is possible to program a forex robot trading without this bias. And this is true for all kinds of other biases or traits.

Other reasons for using trading systems (trading bot or trading robots just means that the process is at or near 100% automated) is the speed of our markets; their width as some bots trading the stock market may review thousands of stocks simultaneously; and the repetitive nature of the required analysis.

Last but no least, the main reason for using trading systems is that it is possible to back-test them, i.e. to test their “simulated” performance in the past. So unlike discretionary traders who use their best guess of what the market will do, systematic traders believe in their ability to discover patterns with statistical robustness.

While researching for this post, I came across a similar concept which is a sports betting system. This system in particular has incredible accuracy in specific sports bets applied to NBA basketball and MLB baseball.

Posted in Systems | 3 Comments »

OnlineRadioStations.com Review

April 18th, 2009

Ok,

I said that this blog was about forex trading techniques in my previous post. There will be very few exceptions and here is one. The thing is that I listen to free online radio all the time. Why? Because I love music, but I do not have time to select songs or albums one by one. I’d rather have this done by someone who is even more passionnate with music than me, and this would be a DJ.

Luckily John Chow dot Com, a blog that helps you make money online is giving away plenty of cash through another wild radio contest. The prize pool is $4,000 and it is sponsored by OnlineRadioStations.com, a radio streaming site. So I thought I would share this free radio with you while reviewing them.

Nowadays the Internet revolution includes radio websites which offer a station selection of hundreds of channels including all genres such as punk rock, classical or Hawaiian songs, etc. I used to listen to AOL Radio and live365.com, but the onlineradiostations.com contest is a prefect opportunity for me to review another competing website. And if I like, it I will switch.

First thing first, the design and visuals are great. This is a  very enticing website with a simple menu consisting for the most part of radio genre selections. And this is what we want, no bs. They also have a section with articles, and another one called “Music History” which offers specific music from each of the past five decades.

To test the site effectiveness, I tryed to get a Reggae station. It is very fast to have reggae music in your ears. The menu is direct and quick, leading to a choice of various Reggae stations if this is what you are looking for. I picked “Rasta Reggae Music” from London and I am still listening to it. The sound quality is great.

Each time you start listening to a new channel, there is first a 20 seconds commercial. Yes this is free and you will never get a free radio without commercials, so it is fine.

A nice feature is that you can create a playlist where you keep all your favorite stations for instantaneous access.

Overall my experience with onlineradiostations so far is excellent and I am going to continue listening to their various radio stations, as the selection is wide. My taste as well. Try for yourself, it is free.

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Posted in Internet | No Comments »

Hello world!

April 17th, 2009

Hello to the World Wide Web.

Trading Systems 4 FOREX is born today.

The name of this website makes it very clear what the topic of the content is. Two words. Trading systems and FOREX. FOREX is a well know word which stands for foreign exchange; it means currency exchange or currency trading. This activity is not the oldest profession on earth, usually it is another doctor or something like that…

Seriously as soon as two tribes with different currencies have met, thay had to find a  way to trade and to value their respective currencies with respect to the other. This was the first FOREX trade.  I will write a post about this memorable event later, but my guess is that this occurred in the Middle East about 5000 BC.

Anyway FOREX is a long story. The other word in the domain name is trading systems, two words in fact but they are together to mean one concept used in finance. The definition of a trading system is a quantified systematic method to trade.  A trading system relies on a mathematical equation or equations which dictate how each trade must be executed. Systematically, i.e. the rules are to be followed exactly. Otherwise if human intervention is allowed to make decisions, this is called discretionary trading.

So the primary focus of “tradingsystems4forex” is trading systems applied to forex. But there may be posts purely about FOREX or purely about trading systems.

I have been involved in finance since 1988. And I have intensely focused on trading systems since 1999. I guess I know the FOREX market since at least 1985 when I visited the USA from Europe. I was a student by then and the dollar was very expensive but my friend and me had decided to visit the USA and currency fluctuations were not part of our decision making process. So we had to each live with a total daily budget of $10 for a month. But this is another post as well.

I hope you will enjoy this blog. This will be about one of my main passions, forex trading systems.

Posted in FOREX | 2 Comments »

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