ETFs AND GETTING BACK INTO FOREX

I had the weirdest thing happen to my by chance. After trading in stocks a while, I took a course on trading foreign currencies in what is called "forex" which is short for foreign exchange. I was doing well applying my trend-following practices since currencies trend better than stocks, but I hit a major roadblock. The company I was trading with, RefCo, filed for bankruptcy. Talk about losing a lot of money that I cannot get a hold of any more. It left a sour taste in my mouth and after 18 months of waiting, I finally got the nerve enough again to venture back into forex. To make this story shorter, the EUR/USD was range trading in February. I used my range trading indicator (stochastic) and entered a long contract since the previous trend was up and the pair was in oversold territory. My initial buy point was $1.3051 and it is currently trading at $1.3364. That is a move of 313 pips in a 45 day span. Since each pip is worth $10, those pips have given me a $3130 profit on my initial $2000 investment. I'll try to keep you updated.

Anyway, the other thing I was doing this weekend was playing around and looking at ETFs since ETFs trend better than stocks eventhough they don't make the large quick moves like a stock can. I noticed that in the ETF category, there were ETFs that followed the currency pair much like one would be able to trade the currency. Confusing? I'll bet. There is a lot of terminology in this blog that may overwhelm you. If a trader cannot understand this terminology, I don't believe you would make a good forex trader.

So here are the correlative ETFs to a currency pair:

FXA = AUD/USD. (If FXA moves up, the AUD/USD will rise, too). In fact, in late October, 2006 my indicator crossed over to signal a buy in FXA a couple of days before the signal presented itself in the AUD/USD pair.

FXB = GBP/USD (If FXB moves up, the GBP/USD will rise, too)

FXC = USD/CAD (This one is the exact opposite of the previous two. If the FXC rises, the USD/CAD pair will decline. The reason why is that if the FXC is getting stronger, the CAD is getting stronger and thus the denominator is increasing bringing the USD/CAD down in value.)

FXF = USD/CHF Same scenario as the FXC. If FXF rises the USD/CHF pair wil fall.

If one wishes to track the USD alone, use a USD index. If you want to USD to rise, buy the UUP which stands for USD UP. If you want to dollar to decline, BUY the UDN which stands for USD DowN.

I am going to spit out more ETFs in the next few blogs.

Now let's discuss the most common currency pairs that are traded. They include:
1. EUR/USD
2. USD/JPY
3. GBP/USD
4. USD/CHF
5. AUD/USD
6. USD/CAD
7. NZD/USD
8. AUD/JPY
9. EUR/JPY
10. GBP/JPY

There is also "cross market analysis" meaning that certain currencies are in close correlation with certain markets.

EUR/USD use TNX. If EUR/USD rises, TNX falls (an inverse relationship)
USD/CAD use CRX. If USD/CAD rises, CRX falls (inverse relationship)
USD/CHF use CSR. If USD/CHF rises, CSR falls (inverse relationship)
USD/JPY use NIK. If USD/JPY rises, NIK falls (inverse relationship)
GBP/USD use OIX. If GBP/USD rises, so will GBP/USD (notice this is the only positive relationship between the currency and the market.)

If you are studying ETFs and using them in retirement porfolios, realize that one cannot short a stock in retirement accounts. So if you can't short, BUY a reverse ETF. These reverse ETFs go up in price when the market goes down. Here are the symbols.

QID - the inverse fund of the Nasdaq.
SH, SDS - inverse of the SP-500.
DOG, DXD - inverse of the DJ-30.
TWM - 2x inverse of the Russell 2000.
MYY, MVV - inverse of the MidCap 400.
INP - India
FXI - China
EWZ - Brazil
EWM - Malaysia
EWW - Mexico
EWT - Taiwan
ILF - Latin American
FXP - Ultra short China
EEV - Ultra short Emerging Markets
EWV - Ultrashort Japan
GLD - Gold
OIL - Oil
SLV - Silver

XHB - Homebuilder ETF


DISCLAIMER; this blog is for information only for investors and traders. This is not a recommendation to buy or sell securities, nor an offer to sell securities. The principals are neither stock brokers nor investment advisors and are not acting in any way to influence the purchase of any security.

The information provided is obtained from sources deemed reliable, but is not guaranteed as to its accuracy or completeness. It is possible that the principals my own, buy or sell securities presented. The principals are not liable for any losses or damages, monetary or otherwise, that result from the content of this blog.

Good luck trading.
JD