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Consumer Price Index ( CPI ) is one of the main tools to measure Inflation. Inflation as we know it, is a very vital factor in the fundamental analysis. It defines the decrease in the purchasing power of a currency which may lead to a higher unemployment rate.

The CPI as defined as Bureau of Labor Statistics in the United States of America is “a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.

In order to calculate CPI, there are two basic data types that is needed: price data and weighting data. The price data is acquired by getting a sample of a product on a sales outlet within a sample location on a particular time. The weighting data is an estimate of the shares on the overall expenditure that is within the context of the index.

It has a scheduled released at 8:30 am EST on the 15th of each month, to keeps track on the average changes in the price of a basket of goods and services. Food, Accommodation, Clothes and Services, Transport, Medical Service, Entertainment, Other goods and services are the main categories that belongs to CPI. All of the changes in the price of mentioned categories together with other items are averaged to form the overall CPI. Since it is released annually, the cost of living may also be assessed through it.

Aside from the CPI, it is also essential to look at the “core rate.” It is also known as “Core Inflation” which excludes other products that are prone to price shocks, an unexpected change in the price, which may lead to a false impression to an inflation.

Stephen Stevenson

Forex is measured through charts. It is a virtual representation that reflects the price movement of a quotation within a specific time. There are 2 coordinates that makes up a chart – Price and Time.
The price is shown on the vertical Y- axis while the time is shown in the horizontal X- axis.

The time which is broken down to different time frames may be viewed depending on the trader. The available time frames are usually: 1 month (MN), 1 week (W1), 1 day (D1), 4 hours (H4), 1 hour (H1), 30 minutes (M30), 15 minutes (M15), 5 minutes (M5), 1 minutes (M1), and an individual quoting tick or simply tick which materializes through the form of Bid and Ask.

The time frames are composed of 4 components: Open, Close, High Low

Open – the market price that is formed when the trading period starts.

Close – the market price which is given at the end of the trading period.

High – the highest price that is achieved within the trading period.

Low – the lowest price that was achieved within the trading period.

Chart Types:

Tick Chart – shows the tick movement of a specific currency pair without a specific time frame. It reflects the individual quotes of Bid and Ask prices given by market-maker and is often used to determine the support and resistance level.

Line Chart – it may be easily distinguished through its simple form – Line. Line charts are plotted with the closing price that gives an easier view on technical analysis patterns. But this chart has a downside. The lack of some information, due to the fact that the closing price is reflected in the chart, hinders traders from evaluating the rise and fall of the price within the period.

Bar Chart – are composed of stalk like vertical lines which has a small horizontal line on both sides. The upper end of the stalk is the maximum price achieved within the period. While the lower end of the stalk shows the minimum price within the period. The horizontal line on the left shows the opening price while the right horizontal line is for the closing price. The analysis with the help of this chart is a bit tricky. You have to consider the right line as the open price and the left line as the closing; if the left line is higher than its counterpart then the price has decreased within the period; and vice versa.

Japanese candlesticks – it is the most famous chart and also has the same composition with the bar chart. The only difference is that it is more comfortable to look at when compared to the bar chart. Each candlestick has the same composition with the bar chart’s stalks.

The candlestick has 2 parts; the real body, and the shadow. The real body is depicted by a a vertically inclined rectangle which reflects the opening and closing price of the trading period. If the body is highlighted then it is called a solid real body which means that the closing price is lower than the opening price. A hollow or transparent body signifies that the closing price was higher than the opening.

The shadow depicts the minimum and maximum value achieved within the time period. The upper shadow located at the top of the candlestick shows the maximum value while the lower shadow located at the bottom of the candlestick shows the minimum value.

Stephen Stevenson

In the Tokugawa era, a man named Munehisa Homma, a rice merchant from Sakata, was said to had first incited the idea of Japanese Candlestick which is now used for futures market analysis. It was then used to predict the price of rice in the Ojima Rice market in Osaka.

Later on a man named Steve Nison, a technical analyst, made a study on it which also pave to its graphical representation.

The Japanese Candlestick chart is made up of individual candlesticks that connotes certain actions that the trend may take. Each candlestick is molded up by 4 attributes namely; Open price, Close price, Low price, and lastly High price. A candlestick is made up of a real body and shadow.

The candlesticks comes in different sizes of the body and the shadows that accompanies it. Each type indicates unique behaviors of the market.

Long Body – long body but with a short shadow

Short Body – short body with a short shadow

Marubozu – candlestick without a shadow. It gives a good confirmation signal of an upward or downward trend

Doji – a candlestick that almost have no body. It is a result of the equal opening and closing price.

Long legged doji – a subtype of doji that have a long shadow of the same length. It shows the strength of the bull and bear are equal and a new trend will soon emerge.

Dragonfly doji – another subtype of doji with a long lower shadow that denotes that there is an impending down falling trend.

Grave stone doji – looks like an inverted dragonfly doji that makes an opposite remark – an evident uptrend may soon occur.

Spinning top – a type of doji that posses a long shadow that signifies that uncertainty encompasses the market. The longer the shadow is, the higher the possibility of a new trend formation.

Hammer or Hanging man – also another type of doji whose name depends on the trend that it belongs. It has a medium size body accompanied by a long lower shadow.

Inverted Hammer or Shooting star – the opposite of hammer and hanging man.

There are certain patterns that may be observed when 2 or 3 candlesticks are merged.

Stephen Stevenson

[singlepic id=1029 w=720 h=640 float=]
In Bill Williams’s book, New Trading Dimension: How to Profit from Chaos in Stocks, Bonds, and Commodities, the Alligator was first mentioned. It is a type of strategy based on smoothed moving averages (SMMA) that assist in determining the presence or absence of the trend and as well as its direction.

The Alligator is composed of 3 SMMA:

Alligator’s Jaw’s (blue line) – the longest period line with 13-period smoothed moving average built at the median price (High + Low)/2, then moved into the future by 8 bars.

Alligator’s Teeth (red line) – the middle period line with 8-period smoothed moving average built at the median price (High + Low)/2, then moved into the future by 5 bars.

Alligator’s Lips (green line) – the shortest period line with 5-period smoothed moving average built at the median price (High + Low)/2, then moved into the future by 2 bars.

[singlepic id=1031 w=320 h=240 float=left]Hunting with this creature is dangerous if you’re not careful with it. It could snap you off easily if your analysis did not conform with its  behavior. So the first thing you have to know is how the Alligator behaves.

If all 3 lines (Jaw, Teeth, Lips) are intertwined with each other, then the Alligator is sleeping. The longer it sleeps, the hungrier it gets. But always remember that you shouldn’t bother it when it sleeps, so do not open any trade. When it starts to hunt, that’s the time that you had to make your move.

If the Jaws (blue) are at the bottom, then the Teeth (red) is at the middle, then followed up by the Lips (green)  at the top, it signifies that the trend is going on an upward direction. On the other hand, if the positions are reversed wherein the Jaws (blue) are at the top followed by the Teeth (red) at the middle and Lips (green) is at the bottom then the movement of the trend is downward.

After feeding, the Alligator sleeps again and you have to wait until it wakes up and feed again. Elliot wave traders can work best with the Alligator because it helps to identify the impulse and corrective waves. If the price trades outside the Alligator’s mouth then impulse waves are forming but when it is on the Alligator’s mouth, the corrective waves are forming.

Stephen Stevenson

Money supply is basically the total amount of currency circulating in an economy at a specific time. It involves issued paper money, coins, and other liquid instruments such as funds on checking and savings accounts in the bank.

The value of Money supply is an important macroeconomic indicator because it may impact the economy through price level of goods and services, inflation, and the business cycle. The government or the central bank releases the information annually.

Analyst from both public and private sector carefully monitors it because of its possible effect on the economy. It is controlled through policies, born from careful analysis of economists, regarding interest rates and increase or decrease of the volume of money currently circulating the economy.

The increase of supply most probably lowers the interest rates thus attracting investments, generating jobs in the process, that would most probably land on the hands of the consumers. The more money in the hands of a consumer, the greater the urge to spend. Businesses would then react to this by increasing the rate of production which would walk hand-in-hand with the increase in the demand of labor.

The types of money and its value on the Money supply are categorized in “M”s:

M0 – is the total cash resource circulating the country.

M1 – All the tangible money, such as coins and currency, and the most liquid resources such as demand deposit and traveler’s cheques. M0 + checkable deposits.

M2 – The combination of the previous type and all time-related deposits; savings deposits, and non-institutional money-market funds. M1 + time deposits ( less than $100,000) and other highly liquid savings.

M3 – The broadest measurement of the money. It includes M2 plus time deposits exceeding $100,000, institutional money-market funds, short-terms repurchase agreements, and other larger liquid assets. M2 + large time deposits and deposits above $100,000.

M4 – the sum of all the preceding types.

The degree of importance of these indicators vary from country to country. There are countries like the United States that pay more attention to M2 while M3 outweighs the other types in most European countries. The Great Britain gives more significance to M4.

Stephen Stevenson