The anti-Martingale is exactly as the name suggests, the Martingale in reverse, and again it comes out of roulette ‘theory’ – any game where there’s roughly a 50/50 win/lose. Instead of doubling up on your lot size following a losing trade, you double on a successful trade. Continue the doubling and watch the money mount up.

First, with the antimartingale set-up you have to decide when you’re going to stop the madness – because there has to be a stop, the final take-profit from that round of trades or in this case, bets… else the inevitable loss will come. Commonly, 4 successive trades are used as a stop – so that’s 1/16 probability, with everything else equal….

There’s a few added complications with withdrawing a percentage of your equity at certain points in the chain, which is essentially scaling your winners, but that’s the basic scheme.

The plus side
Using this strategy, you have the potential to make a great return from a small starting stake. With all the odds against, as mentioned above. The only logic for applying the system might be in stocks during a sustained bullish market, where successful trades are as guaranteed as they’re ever likely to be.

The minus side
What you aren’t getting are the smaller successful trades, and these tend to be what keeps an account going. You’re committing to slowly and steadily wasting your account, with the possibility that you might get the occasional huge win. So that’s using your head…

In the UK, other indices, for example, Mortgage Approvals, the Halifax House Price Index m/m also play a major part in the fundamental strength of GBP.

Ripple Effect
Unlike the situation a couple of years ago, (when, as always in a bubble, people got a bit silly), home-builders aren’t going to be starting up unless they are fairly confident of the end market and actually selling the units when they’re built.

And it’s not just the construction industry – the ripple effect is all the growth that goes with a new house – household appliances, furnishings all have to be bought, which acts as a multiplier across the wider manufacturing economy – which the markets are going to take notice of… So while commodities such as lumber are maybe most directly affected by Housing data, the ripple effect follows all the way through the economic fundamentals to reach the forex market.

Forex News Indicator
As a news indicator, Housing Starts data are definitely to be kept a close eye on.
In the present circumstances, with volatile markets across the board and the general air of pessimism, for example, Housing Starts figures less disastrous than expected in the forecast will certainly move USD in its pairs – so worth looking out for…

Despite forecasts for a depreciation of the Dollar, many economists are now saying that the negative housing data released from the United States yesterday may actually bolster the USD.

Let’s state the effect in the simplest possible terms.

Bad news for the US economy, lower jobs, lower GDP, leads to lack of confidence
Which leads to a rush towards safe haven currencies…
Which leads to buying USD – because USD is in itself, considered a safe-haven currency…
So bad US news leads to USD going up.

This rush to a safe haven, any safe haven, after every news announcement is creating some weird effects. It flies in the face of logic, well, simple logic anyway – and is a sign of the present dominance of USD

No, I don’t know of any name for this upsidedown, wrong-way-round, echo, reverb effect – but it certainly ought to have a name…

It’s all about safe havens

The USD appears to be the safest investment, as traders are moving en masse to buy into the greenback.

Some people reckon that (if the entry point is right) currencies such as AUD or NZD might turn out to be the better safe havens during the present financial crisis – maybe… CHF has always had a lot to recommend it. And the irony is that while it certainly isn’t borne out with pair prices at their present levels, as a long-term safe haven, the US dollar might not turn out to be that safe a haven after all…

US Dollar dominance
This effect, whatever it’s called, is certainly a sign of the overwhelming domination of the forex trade by the US dollar. From memory, about 85% of the traded volume in the whole forex market, involves the dollar. Structurally, this is always going to bring problems in practice. Excessive dominance? Not for us to say – the situation is as it is, for as long as it stays that way…

If we were serious economists, interested in fundamental analysis for its own sake, the theory of market movements, etc. we probably ought to be worried – but we’re just common, vulgar forex traders, all we do is operate the system for what it is…

But what to call the actual effect? Any ideas?

Please note – I’ve said USD throughout this – not USA, necessarily…

8 levels, 4 of resistance, 4 of support, are produced, using High, Low and Close data for a preceding time period.

R4 = (H – L) x 1.1 / 2 + C
R3 = (H – L) x 1.1 / 4 + C
R2 = (H – L) x 1.1 / 6 + C
R1 = (H – L) x 1.1 / 12 + C

S1 = C – (H – L) x 1.1 / 12
S2 = C – (H – L) x 1.1 / 6
S3 = C – (H – L) x 1.1 / 4
S4 = C – (H – L) x 1.1 / 2

(There are other recipes for the coefficients to be found…)

Usage
The critical levels are the L3 and L4 levels. The standard method is to expect reversal if the price reaches an L3 level, support or resistance. This is then considered a signal to make a trade against the prevailing trend – keeping the L4 level as a stop-loss.

In addition, or alternatively, crossing an L4 level can be used as a signal for definite breakout – therefore going with the trend. The difficulty here is where to place stops…?

Totally unconvinced of their value, and included for the sake of completeness – if you’ve found a system to make Camarilla pivot points work, do let us know…

In the different currency zones, governments or (semi)independent organizations publish CPI figures on a monthly and yearly basis – in the US, it’s the Department of Labor, while in the UK, it’s the Office for National Statistics – where it’s called the Retail Prices Index (RPI).

Remember that it’s domestic statistics, for a “typical urban consumer”, whatever that is – the price of food in supermarkets, the average family shopping basket, not industrial costs.

Underlying CPI
Also sometimes known as the core CPI – meaning the index for all items except those classified as food or energy. These tend to be more volatile than others, subject to more significant rises and falls and also seasonal variations. Consequently the underlying CPI will usually be a better index by which to keep track of longer-term trends. Cars, airfares, clothing & apparel can also be relatively volatile items within the underlying CPI.

Forex News CPI
For example – CPI figures for Sweden are coming out tomorrow, and we’re in a phase of generally decreasing inflation, ie deflation, so CPI m/m is forecast to be -0.7%, compared with the previous month’s figure of -1.3%. If the actual figure is different from the forecast, expect movement in the Swedish krona, for example, in the currency pair SEK/EUR.
Remember, it’s a measure of the underlying strength of a national economy and the difference between expected and actual is where the trading takes place – if you’re new to forex trading, look out for sudden movements in currency prices shortly before, and definitely after, CPI news announcements.

Socialize your Ideas
The slightly frenzied attempts of day-traders to talk up the penny stocks they’ve just loaded into are amusing – for a while. As are the races to get as many off-topic followers as possible, just for the kudos of the numbers. But as soon as I hear bs such as “adding vertical value to a horizontal userbase” that’s when I make my excuses and depart…

Better to impose a little bit of self-discipline, and tweet only when there’s something useful to say – and having said all that, feel free to follow forexperform on Twitter… you’ll get a follow back, seems only fair, having had to read this rant…

We’ve added to a pivot point calculator to our free tools section – at the moment, just for standard (floor) pivot points – the more exotic formulae, De Mark pivots, the Camarilla system, will be following shortly.

There’s 2 ways of using pivot points.

1. Overall market trend analysis: – if the price crosses above the pivot point level, then it’s fair to say the market is in a bullish phase. And vice-versa, price breaks the pivot point level to the downside = bearish.

2. As entry/exit signals: – since the theory is that pivot points are likely support/resistance levels, these can be used as limits on trades placed – eg a conditional order to buy/sell if the price breaks through a given level of resistance/support. Similarly, likely exit points for placing stops- stop-loss orders, or even, just maybe, take profit…

At some point in the wonderful economic cycle that we seem permanently locked in, the good news – the green shoots of recovery – starts to become more important. Now, this is particularly so in the stock and bond markets, but with fundamental analysis in the forex market also. Durable goods orders are one of the important indicators of future industrial production and expenditure.

Durable Goods Orders
This is an old-style picture of the economy – the manufacturing sector. Maybe the markets pay too much attention to it, for old times sake – but if traders pay attention, it becomes important in itself.

The orders for durable goods data give an indication of how busy factories will be in the next few months, as manufacturers begin work to complete orders. So it’s an index not only of consumer confidence, more autos, more white goods, but also the likelihood of increased business investment.

Curing Crises
As is common, (1929 etc) with global downturn is that the financial crisis showed first – bank collapses, bailouts etc. – which obscured the (slightly separate) economic crisis – manufacturing output drops, job losses – which came along afterwards. Probably, the fastest cure for the financial crisis is business, manufacturing upturn – we’re nowhere near that time yet, but now is the time to get in some practice at looking at fundamental manufacturing figures if you want to improve your forex trading performance…

This is a question of news event pressures, time-frames, and indeed, time-zones – if you are able to identify the critical trading periods and look towards sticking to these you’ll have a much better chance of avoiding biting on dubious signals. You’ll also avoid the frustration of staring into a chart during low activity and thinking you have to make a trade sometime – there’s a pip-loser if ever I saw one….

Professionals aren’t like you and me
Large money has different imperatives due to the positions taken up. Although it can be something of an oversimplification, consider the effect of a large trader unloading a position – yep, the pair price would be driven down unfavorably by their own pressure – so in this situation, the large trader will be looking to unload into the face of a relative uptrend, keeping everything in some kind of equilibirium. (And vice-versa in getting out of a short position).

Volume gives an indication, during a trend, of the pressures that may be acting on that trend – in terms of support or resistance and pivot points, large traders will be looking at these just as much as you will – although they might not have the same plan in mind.

Chaos
One other thing – large traders go wrong, perhaps just as much as you or I. They can do things that lead nowhere, make no real sense in retrospect, and we just have to cope with the consequences… good luck…

Let’s say there’s a 50% probability that a currency pair goes up or down (and we’ll ignore the broker’s spread for now…) – spin a coin and make your trade (place your bet) – you win, great, keep going… You lose? Then double your wager and go again…

The principle of the martingale system involves a single initial bet – every time the bet loses, the wager has to be doubled up so that, given the time and opportunity, a single winning trade will recoup all previous losses and put you back into profit. An apparently 100% forex system.

And, fact is, this would work, (in a hypothetically perfect world).

BUT! You need a large account to start with – if you had 10 losing trades in a row, you’re betting 2¹¹ your initial stake – this is grains of rice on a chessboard territory… The problem occurs when a currency keeps on going in one direction, you very rapidly run out of available funds for the new trades. And currency pairs in the forex market do tend to trend.

Leverage isn’t going to help you here – this can only make the situation worse.

You need nerves of steel – psychologically, are you ready to deal with repeatedly doubling your position while you are losing…

Even though the statistics might say that the system is 100% effective – you’re gambling. Ensuing trades have a massively low reward/risk ratio.

You’re gambling – but not as the House. Never a great recipe…

Although – while forex markets do have the broker’s spread, but also one unique advantage for the martingale strategy. Interest rates allow a trader to offset a percentages of their losses with accrued interest income, ie. trade on currency pairs only in the direction of positive carry.

Originating in the eighteenth century, the martingale was popularized by a French mathematician, Paul Pierre Levy. It’s been used in craps, and the 0 and 00 fields on the roulette wheel were introduced to bust the martingale system – unevening the odd versus even or red versus black probabilities away from .50.

If you want to try the martingales system and see what invariably happens, you can – get a free practice account and give it a go.