How much money should you start up an account with?

By Sean Hyman | May 18, 2009

I’m often asked the question in our courses….”How much money should I start my account with?” Good question.

Let me give my personal opinion on this.A micro account CAN be started with $25 and a standard mini account CAN be started with $2,000. However, the less you start with, the bigger percentage of your account that you have at risk generally.

So one way you can increase you chances of success is to have a well funded account. Let’s say that you have a 100 pip stop on one lot. That would be a $100 loss in the mini account and a $10 loss in the micro account. Let’s focus on the micro account, since that’s the best place for most beginning traders to start out anyway.

If I have a $25 micro account and lose $10…then I’ve lost 40% of the account balance. However, if that balance were $100, then I’ve lost 10% of my account balance. I’m much more able to recover from a 10% loss than a 40% loss. Emotionally speaking too…it’s easier to handle the loss of 10% than it is for 40%. Now, if I had an account balance of $200, then my loss would be 5%.

This is why I suggest people start micro accounts with at least $500 to $1,000 and start off trading only 1 micro lot at a time. In the end, you’ll be glad you started this way vs. starting with the minimum. Again, this is strictly my opinion as a trader and as an instructor.

Ultimately, it will be your decision as to what you feel is the most prudent thing to do for you. However, a lot of people don’t think about the impact of their “beginning balance” upon their trading and the likelihood of their success and that’s why I bring it up here. Happy trading!

Sean Hyman

GM & Chrysler Dealership Closings won’t bode well for the Dollar!

By Sean Hyman | May 15, 2009

Even though these companies may go into and back out of bankruptcy…GM and Chrysler and the Detroit auto industry in general, just “does not get it”. As Detroit fumbles the ball and gives up even more market share to Japan (Toyota, Honda, Mazda, etc.), it won’t bode well for the U.S. dollar. It’s simply a negative sentiment issue when you see icons of American ingenuity go up in smoke. It’s things like this that will only accelarate the fresh “dollar downtrend” that we’ve just entered.Who could benefit the most? the Anti-dollar (as it’s nicknamed)…which is the euro.

Fundamentals in a Nutshell!

By Sean Hyman | May 15, 2009

Some people avoid fundamentals because they feel they are so complicated. However, the basics are very simple and easy to follow. You just follow the trail.

What’s the trail?Watch what the CPI (Consumer Price Index, which tracks inflation) does, especially on a Year over Year (YoY) basis. If it’s increasing, then central banks will have to address this by hiking interest rates. Increasing rates means that you can earn more money on your currency and money loves “yield”.

So the pattern is: higher CPI over time results in higher interest rates over time. Higher rates attract more money to that currency than a currency that has lower rates. Thus as money pours into that currency (they are buying up the currency), it pushes the currency higher. Therefore, over time…you end up with an appreciating currency that earns higher interest over time.

When do currencies not follow this simple pattern? When the pattern reverses. Slowing economy, can equal lower CPI and lower interest rates and money pouring out of a currency. So when a recession hits or an economic slowdown or a deflationary period hits….this cycle actually reverses. But even then, you know the drill and can profit from it.

Hope you’ve enjoyed this short lesson on fundamentals.

Sean Hyman

The yen is losing strength vs. AUD, NZD and GBP!

By Sean Hyman | May 14, 2009

USD/JPY has a daily head & shoulders pattern that broke below a neck line yesterday (extremely bearish pattern). So the dollar is getting clobbered by the yen. However, AUD/JPY, NZD/JPY and GBP/JPY are doing pretty good this morning after taking a bloodbath yesterday. These yen crosses have been very volatile lately…so lots of opportunity for the shorter term trader. Go where the movement is!

The yen is killing most everything today!

By Sean Hyman | May 13, 2009

Wow, the yen has mounted an assault on just about any currency it’s paired against today. USD/JPY looks to be completing a Head & Shoulders pattern on the daily chart. It also appears to have broken its daily uptrend line with the right shoulder…and heading below the 200 SMA too. So lots of bearish signs for USD/JPY and also most any other yen pair today.

A Tale of Two Traders!

By Sean Hyman | May 13, 2009

Two traders want to climb their way to success two different ways. Mr. Daytrader has a goal of 100 pips, and sets out to place 10 trades of 10 pips apiece in order to accomplish that goal. Mr. Swing Trader has the very same goal of 100 pips, yet sets out to do it in just two trades of 50 pips each.

They both trade the exact same pair: EUR/USDTheir spreads average 2.5 pips (or $2.50 per standard mini lot traded). Both traders reach their goal in this instance.

So what’s the difference?Mr. Daytrader had to incur 10 spread costs (25 pips or $25) in order to make 100 pips or $100. Meanwhile, Mr. Swing Trader paid a spread twice (5 pips or $5) for his trading costs in order to reach his 100 pip goal.

Wonder which trader has the better odds of success over the next year? Mr. Swing Trader…why? The lower your costs before you get into the profit, the more likely you are to actually “make that profit”.

So, I know it seems that everyone “wants” to be a day trader…but maybe they “need” to start off as a Swing Trader first. I hope you’ve enjoyed the “Tale of Two Traders”

Short Term Traders: Get Ready for a Big Breakout Soon!

By Sean Hyman | May 12, 2009

If you look at most daily charts, you will see that we’ve had some narrow trading days the last couple of days. That means that there will be a huge breakout coming soon once again…and it should produce some huge percentage movements on the day when it does. So be on the look out and alert. If you’re there at the right time, you can have a huge gain in a short amount of time. It can be very rewarding if you catch it right. In particular, the “dollar pairs” could be huge movers soon!

Oil and the Euro tend to head in the same direction!

By Sean Hyman | May 12, 2009

Today, I couldn’t help but notice that oil is around $59.50! The bottom was put in at around $33. So we’ve almost doubled off of the lows.

Why do I mention oil? Because oil and the euro tend to travel in the same direction (over time). This also helps to influence the dollar downward.

So in light of the U.S. dollar index breaking its uptrend line and falling below its 200 SMA…and the EUR/USD coming back up above its 200 SMA for the first time in a long time…and oil hitting “new highs”…I’d say it might be best to be a buyer of the euro vs. a short seller of it.

Therefore, look for buy signals in whatever time frame that you choose. We’re re-entering the era of a falling dollar once again. So even if you’re a short term trader, you want to keep that in the back of your mind and trade against the dollar. The best way to do this initially is through the euro (EUR/USD) since it’s where the next biggest pool of liquidity is for investors.

This is why they call it the “anti-dollar”. There’s no currency that has a higher inverse correlation to the dollar than the euro. Therefore, if you get bearish on the dollar, you’re automatically bullish on the euro.

Then once this “dollar downturn” strengthens, being long AUD/USD could be a great viable option as well based off of the superior fundamentals that they have on just about every other country right now

Look for a sizable correction in the yen crosses and dollar pairs!

By Sean Hyman | May 11, 2009

Well, pairs can’t go straight up forever…and so it is with the yen crosses and dollar pairs. Lately, foreign currencies have been rallying hard especially against the yen but also the dollar.

Well, now it’s probably a good time for a sizable correction in the favor of the yen and dollar over the course of the next day to days. However, I’d not suggest counter trend trading…but rather, waiting for the uptrend in these pairs to resume.

Also, remember that the dollar index has broken its uptrend but will likely trade back up to the breakout point before resuming this new downtrend. Therefore, be patient…you’ll retain more profits that way be doing so.

After a sizable correction…AUD/USD, AUD/JPY, EUR/USD, EUR/JPY all may be ready for a good run up. We’ll see!

Hope Makes Sensex Dizzy

Dalal Street witnessed a mad buying scramble after the UPA's victory in the Lok Sabha elections with the benchmark BSE Sensex zooming 2,110.79 points today to touch 14,284.21 points. The dramatic rise of the index over all of just 120 seconds triggered circuit breakers twice, resulting in the halting of the day's trading — first time in India's capital market history — because of a surge. The Sensex soared 17.34 per cent to record its largest single-day gain in 17 years and reach its highest close since September 11, 2008.

The Congress's over-200 tally and the fact that the Left wasn't part of the government buoyed market sentiment — the market had hit the lower circuit-breaker when the UPA first took charge in May 2004 — but experts cautioned retail investors against plunging into equities. "Just last week we had dismal industry output and export data," said a leading fund manager. "The surge is based on the hope and expectation of breakout reforms by the Manmohan Singh government."

The 50-share NSE index leapt 17.74 per cent to 4,323.15. The combined turnover in the cash and the derivatives segment of the BSE and the NSE totaled Rs 3,103 crore compared with normal daily turnover of about Rs 80,000 crore. Most blue chips soared 15-20 per cent and investor wealth shot up by a whopping Rs 361,690 crore (US $ 73.81 billion) to Rs 41.37 lakh crore in just two minutes of trading.

The markets could be witnessing another surge tomorrow as short-sellers (or bears who sell shares without holding any to make profit when prices go down) trapped by the steep rise in prices get desperate to square up their trading positions by buying stocks. Market sources suggest there were open short positions to the tune of Rs 95,000 crore on Monday.

Short-sellers were caught off guard today by the magnitude of the rise and are hoping they get to make up tomorrow.

George Mathew