I thought that was interesting. Not only did he have the beginning and upcoming years in mind but he also had an “exit strategy” in place as well too.

Well, as with a business, you need to have an exit strategy for every Forex trade too. Many trading systems out there mainly put the emphasis on the entry. (”You need to get in on this trade now!”) But it’s rare that a Forex site describes the exit strategy built into their trading system. But that’s a crucial element of your trade.

Let me explain why with an example.

The other day I saw the Forex account of one trader who started with US$10,000 as his initial balance. In just 30 days, he managed to turn that US$10,000 seed money into US$70,000…and then unfortunately, lost all his gains and closed out the month with US$5,000 (HALF his initial balance).

Can you believe it? He was up sevenfold on his money…and then lost 50% of his initial balance by the end of the month!

He obviously had a great initial strategy with profitable entry points, but he didn’t have an exit strategy to lock in those gains. This is actually pretty easy to do, if you’re not ready with an entry and exit strategy for each trade.
I want you to hang onto your profits when you earn them, so let’s talk strategy…

You Have to Play Both Offense and Defense!

For starters you really need two exit strategies.

You need one offensive and one defensive. Just like a good football team has to be able to play both sides of the game…well, you need to play both sides as a Forex trader.

You better not only know how to make profits (offensive) but also how to protect those profits (defensive).

So let’s talk about the defensive strategy first because it’s really the most important.

A defensive exit strategy is your stop. You place a stop-loss at the point where the market will prove you wrong in your trade. You can also place a stop-loss where you have risked the maximum amount of your account that you are willing to lose on that particular trade.

So one way to do this is to identify areas on the currency chart that show signs of support. Place a stop below that area. That way, if support is broken and a new downtrend emerges, you don’t ride it all the way down and give up your account balance in the process.

Your Stop-Loss Goes Under the Support Line!

However, another approach is not only to analyze this aspect but also to analyze the potential damage to the account percentage too.

So before you place the trade, look at your entry and your stop-loss price. How many pips is the difference between your entry and stop? (You can find this out by looking at any chart.) Once you know the difference in pips, multiply that number by the number of lots that you are considering investing in. How much does that equal in dollars? Ask yourself: Are you willing to risk that much?

If it’s over 1-5% of your account balance, I’d suggest investing in fewer lots.

That’s my best defensive strategy. Check tomorrow’s A-Letter to hear about playing offense.

Source: Why You Need an Exit Strategy for Every Trade

This from The Sovereign Society:

The currency market is bigger than all of the world’s stock markets combined. This market gushes with $4 trillion worth of currencies EACH DAY, 24 hours a day.In times of turmoil, there’s always a safe haven in currencies. The trick is finding it. These opportunities normally don’t pop up on investors’ radar screens because most investors have no idea how to even get a quote or a chart for a currency.

In fact, in these tough times the Japanese yen has been soaring like a rocket and so has the Swiss franc. Savvy hedge fund managers have been buying up the yen as stocks have crumbled. They saved their portfolios (not to mention their jobs) by grabbing this lifeline.

So how can you take the sting out of your portfolio like they do? After all, can the Average Joe get involved with this market or do you need to have billions of dollars under management to gain access?

Well, since the late 1990s, retail investors have had access to the spot forex market. And in the last couple of years, industry leaders have invented more investments to allow stock investors in on the currency game too.

So let’s take a look at some of the easiest ways to get diversified into currencies so that the madness happening to most portfolios never has to happen to you again.

Trade Currencies Through Your PRESENT Stock Brokerage Account

Now you can use currency exchange traded funds (ETFs) to invest in currencies through your current stock brokerage account. And it’s true that many brokers don’t know much about these because they aren’t a focal point of their business.

However, you can use ETFs to buy currencies from many of the world’s major countries.

In fact, you can buy ETFs that track the euro (NYSE:FXE), the British pound (NYSE:FXB), the Japanese yen (NYSE:FXY), the Swiss franc (NYSE:FXF), the Canadian dollar (NYSE:FXC), and the Australian dollar (NYSE:FXA).

In fact, you can even invest in some country’s currencies that aren’t so “major” such as the Swedish krona (NYSE:FXS) and even the Mexican peso (NYSE:FXM).

And the good news is more currency ETFs are coming out all the time.

The best part is that you can invest in them in the very same account that you would use to buy shares of Google (NASDAQ:GOOG), Apple (NASDAQ:AAPL), IBM (NYSE:IBM) or GE (NYSE:GE).

There are only two drawbacks to investing in ETFs. First, ETFs can’t provide the leveraged returns you can earn in the spot Forex market. Also, you have to pay commissions just like a typical stock (on the buy and on the sell side, just like stocks). However, it’s worth noting that the spot forex account doesn’t have commissions on the buy or the sell side.

So if I buy FXY in a Charles Schwab or E*trade account, then I can profit from the yen in a typical stock brokerage account. Then once normalcy resumes in the markets, I could sell the yen position and buy something like the euro or the pound (both tend to do better in good times).

FDIC-Insured Foreign Currency CDs Provide Shelter from the Storm

Another very simple way to invest in this asset class and shield your portfolio is to buy Foreign Currency CDs (yes, you can buy Certificates of Deposits that are denominated in euros, yen, pounds, francs, etc.)

It’s an excellent way to get some of your market exposure away from stocks and into something that can actually counteract your present losses.

So where can you buy a currency CD?

Do you have to send your money to a foreign land and into a foreign bank? Of course not! You can take your U.S. dollars (or other currencies) and buy CDs denominated in another currency through a bank right here in the United States.

EverBank (in Florida) is the only US bank I know of that offers such unique products like this…not only for Americans but for clients from around the world.

And best of all, most of these Foreign Currency CDs are FDIC-insured, so you can rest easy knowing that your deposit is backed by the full faith and credit of the U.S. government.

In fact — just to keep it simple — EverBank offers CDs that focus on a basket of Asian currencies for instance…or yet another than focuses on most other major currencies except the US dollar. That way you can diversify away from the greenback when it’s falling like a rock, or just minimize your exposure to any single currency (including the dollar) for better portfolio stability.

Source: The Two Easiest Ways to Diversify into the “Hidden World” of Currencies Tomorrow

More from Sean:

Let’s look at a 10-year chart of the US dollar index below to illustrate this point.

The Unnoticed Trend: The Buck Finally Breaks Its Six-Year Trend

This will be a hard pill for many currency traders to swallow.

But even the buck has “up” years. While they are few and far between, 2009 will be one of those years. As a matter of fact, it is starting even now. Yet most won’t realize it until it’s too late and it has eaten up most or all of their account!

Any way you look at the above chart, a monumental thing just happened. The US dollar index closed the month above its downtrend line for the first time in SIX years.

That’s huge.

It’s easy to believe everything will continue to rise against the buck forever. But if you’re buying currency pairs in the Forex market, that belief could clean out your account. This stronger dollar tend will be in force for so many months, so it could wipe you out before you know what hit you if you’re not careful.

That means the only ones that will survive are those that realize “quickly” that the dollar is one of the best places to be during that time.

I know it sounds crazy but its going to be the “place to be” and the place to profit in the coming year (and even now)!

Source: The Shocking Dollar Trend of 2009

Where can you run and hide when the market experiences confusion like this? After all, it could be days, (more likely weeks) before the stock market settles down again.

Answer: You dive into a few key risk-adverse investments, including specific currencies, as fast as you possibly can. In fact, I call these investments “rip cord currencies” because you should only buy them when the stock market is skydiving.

First of all, you won’t find a better “rip cord” investment than the Japanese yen. The yen is the ultimate risk-adverse investment. It responds faster and more violently to stock market drops.

The yen has a low interest rate yield, so traders tend to pass this currency up for higher-yielders when markets are calm. But as soon as markets start to drop, traders rush back into the yen, to take whatever interest they can get.

Along with the yen, there’s another low-yielder that tends to prosper during rough economic times. Of course, I’m talking about the “safe haven” currency – the Swiss franc. For years and years, gold partially backed the franc, so traders ran to it as markets sank. Well, even though it’s not backed by gold anymore, traders still run to this low-yielding currency in times of uncertainty…out of habit.

Bottom line: Cling to the low-yielders like the yen and the franc as markets hit the drop zone.

Source: Rip-Cord Currency Plays for a Market Freefall

Then I thought, if my stock buddies only knew what I know now about currency trading, they’d hang up their stock-trading hats and come over to my market.

Let me show you a few advantages of trading currencies over stocks in any kind of market – even a market as bad as this.

When an economy falls on hard times, profits are squeezed. Companies have to lay off workers as growth slows. You can see this miserable outlook reflected in the company’s stock price. Of course this doesn’t just happen to a few companies, it murders entire economic sectors.

Secret Weapon #1: VIX Gives Me the Upper Hand

So as traders all around the globe watch their bottom lines bottom out and their hedge funds blow-up, I’m flat-out loving this market.

Why? I have a secret weapon that lets me profit when markets are sinking, while my stock trading buddies can barely stay afloat with their stocks.

What’s that secret weapon? The Japanese yen. You see, when volatility increases in the markets and stock traders lose their shirts, their loss is my gain. The Japanese yen experiences an uptrend when almost every other asset class (even commodities) is headed downhill.

At times like these, I can pair the yen with almost any currency in the foreign-exchange market and I’ll win. I know the yen thrives off of volatility, so one of my buddies’ strongest tools works even better for me during bear markets.

Stock traders all over the country look to the VIX (Volatility Index) to gauge when the stock market may bottom. They wait until the VIX rises to an extreme level and then they go in and buy. However, I watch the VIX heading higher and I know it’s giving my yen trades another boost.

Then when the VIX appears to peak, and these stock traders are just beginning to make some headway in their trades; all I have to do is reverse my yen trade and I’m still making a killing the whole time. If they only knew it was so easy…

Take a look at the VIX in the chart below, and the Japanese yen price right above it. When the VIX hits extreme levels (above 30 but especially around 35 or higher), the yen starts to peak. At that time, I just reverse my trade and start shorting the yen.

The VIX and the Yen…Traveling Buddies!

As a currency trader, you can buy or short the yen based on what you see using the VIX, their so-called “stock tool.” If you’re a stock trader and you understand the VIX, then you also understand the yen whether you know it or not.

As you can see above, the yen’s run may be almost over because the VIX is showing an extreme reading (i.e. it’s soaring higher). So it may be time to reverse your Japanese yen trades.

Secret Weapon #2: Collect Daily “Dividends” from the Currency Market

But there’s one secret that would REALLY push my stock buddies over the edge if they knew about it. It’s one I use in “up” markets, when stocks are also doing well

Most traders know the S&P 500 hasn’t gone anywhere for a number of years. However, once you take into account these companies’ dividends, then you could have an overall gain even while stocks stay flat.
However, these stocks only pay out dividends on a quarterly basis, while currencies pay out interest on a daily basis. Yes, you read that right…

It’s like getting a dividend daily.

So I have 365 opportunities a year to profit, while my stock buddies get four. If they only knew…

Secret Weapon #3: No Commissions, So There’s Less Fees in Currencies

The third advantage I have over stock traders is my stock buddies have to pay a spread AND a commission for each stock trade, while I ONLY have to pay the spread.

And I pay a smaller spread than they do because I control more currency with less money down and because the currency market has more volume which leads to tighter spreads.

So while my stock buddies are trading in this bear market, losing money on their positions AND paying commissions along the way, I’m earning profits now and paying less in fees.

Let’s say my stock trading buddies and I place the same number of trades each year. My stock buddies pay a measly US$7 per trade (even though many firms charge more). If we both made only 10 trades each month, we’d both have 120 trades over the course of a year.

Now remember that stock traders are charged twice on each trade (when they buy and when they sell). So over the course of the year, my buddies must pay 240 different commissions, costing US$7 each. That’s US$1,680 in commissions. That doesn’t even count how much they also pay in spreads.

What do I pay in commissions for completing those same 120 trades? Nothing! I only pay my much smaller spread all year long.

My stock buddies have to earn that much more in profits before they even break even. So obviously, the deck is stacked in my favor. If they only knew…

You now know my three secret weapons that give me an edge in the currency markets.

And now they’re your edge too.

SEAN HYMAN, Currency Analyst

Source: If My Stock Buddies Only Knew…

This week, Russian President Dmitry Medvedev and Georgian President Mikheil Saakashvili are already planning to sign a peace plan. But still the damage has already been done – particularly to the Russian ruble.

Honestly, what happened to the ruble this week is pretty common during wartimes. So this begs the question: How does a war affect a currency?

Well, as I often say: Money hates instability. There is nothing more unstable and unpredictable than a war where anything can happen. You also never know how long one will last, who will win, and what will be lost along the way.

As an investor, you’re left to suspect the worst. That’s why most investors grab their money and run to safer, more stable countries until the coast is clear.

Russia Declares War and
the Ruble Sinks 4% in 5 Days

To this day, Russia still has a bad reputation for decades of shady dealings. As such, investors never seem to fully trust the Russian markets. If a conflict breaks out, investors rush in and grab their cash even faster than they would another country.

And that’s exactly what happened when Russia declared war on Georgia.

Check out the chart of the U.S. dollar vs. the Russian ruble below. You’ll notice the ruble tanked over 4% in just 5 days after war broke out.

With Leverage, You Can Turn that 4% move into 400% Profits

Now that may not seem like much to you. But you have to remember that small movements in currencies add up to a lot in trading accounts.

Spot Forex accounts are commonly leveraged 100 to 1 or even 200 to 1. So a 4% move can be magnified to equal a 400% to 800% move in just 5 days.

If you bet against the ruble just as the Russians declared war, then you would be sitting on some healthy profits right now. However, if you bought the ruble formerly because it has done well in this “energy/commodity” boom, then you probably watched your account sink into the negative territory over the last few days.

Most trading accounts can’t take 400% to 800% losses on their positions over a five-day period and survive.

So ruble traders really had a wild ride since this began.

Is the War Over Yet?

Let’s suppose for a moment that the war truly is over and things somewhat revert back to normal (a Russian normal anyway). If that happens, then Forex traders will probably see it as a buying opportunity and grab the ruble once again at bargain prices.

However, if the conflict isn’t truly over, or if another one erupts, then you will see the rollercoaster ride begin again.

It takes a strong stomach to invest in the ruble right now. Much of the time it has been a very profitable “one way bet” against the buck since 2003. However, in times like these, you never know what the Russians are going to do.

On the other side of the coin, if you’re pulling money out of Russia, you’d better hide behind another BIG country. So many traders ran to the U.S. dollar since it’s the “Big Brother” that might be able to protect them and their money.

However, other traders chose to run to the “risk adverse” currencies of the Japanese yen and the Swiss franc. Both of these currencies have torn a chunk out of most currencies over these same five days with the exception of the U.S. dollar.

Right now, the buck can’t seem to do anything wrong and is rallying against any currency I have on my screen.

So war really “stirs the pot” because it not only causes money to run away from the country at war but also it has to find a hiding place. That hiding place won’t be the same for every investor. It may be two or three of the other biggest currencies in the market.

Bottom line: Money tends to run for cover at the first sign of conflict and tiptoes back in later after the conflict ends. Something to keep in mind the next time a war breaks out…

SEAN HYMAN, Currency Analyst

Source: Why a War Can Kill a Currency and ‘Also’ Hand You 400% or More

If you’re looking for what stocks to buy, you have over 13,000 publicly traded stocks to choose from right now.

That’s a lot to weed through and it significantly drops your odds of choosing a winner. Even the best of stock pickers don’t always screen for the exact combination of things that you would look for in a stock.

However, in the currency world, there are only eight major currencies: U.S. dollar, euro, British pound, Japanese yen, Swiss franc, Canadian dollar, Australian dollar and the New Zealand dollar. So this makes about seven major pairs when paired against the U.S. dollar.

If you’re trading in the FX market, you could technically also pair these currencies with other currencies besides the U.S. dollar. But even then, you only have 15-30 pairs to choose from – compared to over 13,000 stocks.

In other words, you don’t have to watch thousands of currency pairs, because the pairs are such “macro” instruments.

This makes things simpler. All you have to do is pay attention to the most important data that comes out each day on those eight currencies. The economic announcements for a country can easily be found on an economic calendar at www.dailyfx.com or www.forexfactory.com.

Source: Why Currencies Are Easier to Trade Than Stocks

The greenback was already under pressure as soaring eurozone inflation boosted expectations of an imminent rate hike by the European Central Bank.

As market uncertainty feeds into exchange rate volatility, currency expert Sean Hyman suggests two safe havens in The Offshore A-Letter…

The big name traders are dumping assets into the Swiss franc and gold. Remember when I said the euro gained against almost every currency out there? Well one currency that’s still beating the euro (even in the thought of a Eurozone rate hike) is the Swiss franc.

That’s right. The euro actually lost ground against the Swiss franc in these days of uncertainty. In fact, the Swissie even gained against the euro on the day that Trichet hinted at a rate hike. Normally that would send the euro soaring across the board and it almost did.

Though I couldn’t help but notice on these days where the money was flowing. It never ceases to amaze me. Once, the mighty Swiss franc was backed by gold so it was an obvious safe haven for traders. But today, the Swiss franc is not necessarily “safer” than any other currency.

Yet traders instinctively still run to this currency just as if it were backed by gold in uncertain times. So that’s one of the “safety zones.” Not because it’s one in reality but because it’s still treated as one by traders.

However, you can tell when that confidence and faith erodes where it really goes…the oldest currency in the world, dating back 2,000 years…

That’s right, none other than gold itself. Everything else is a piece of paper backed by confidence/faith in its government.

After reaching over US$1,030 (which was way over done for the moment by the way), gold has pulled back to its 200-day moving average region. That gives gold a healthier shot to launch upward once again in these uncertain times.

So there are your two “safety zones” when money gets scared. Gold is the safety zone in times like these and the Swiss franc is a place where traders instinctively go out of habit.

Should more uncertainty persist (and believe me it could in these days of stagflation), then expect more money flows into the Swiss franc and into gold.