Last night, China's stock market plunged a whopping 9%, causing a chain reaction throughout Asia, Europe, and this morning, New York.
Major players (institutional money) began selling as the market opened. Before long, the Dow was on its way down. If you were caught in today's stock market sell-off, your long positions would have averaged healthy losses across the board. Very few stocks were left unscathed.
Not a pretty sight. Some folks will be licking their wounds for months to come. In short, a great many traders, including professionals, panicked at the news, with temporary but devastating results.
In contrast, for the most part it was business as usual for the Forex.
You may have heard that currencies are highly sensitive to the news, and that is true. However,
that "news" almost always comes in the form of scheduled economic reports, and a given report usually affects only a small group of currencies. For example, the Bank of England Interest Rate Statement will impact on the British Pound (GBP), causing its cross-currency pairs, Pound/Dollar, Euro/Pound, and Pound/Yen to react to a greater or lesser degree.
The thing is, economic report calendars are available all over the Internet, and almost all Forex traders are familiar with them. Thus, they can plan ahead for "news" that may impact their current positions. They can even plan NOT to trade during the time a news report is scheduled for release. Or, they can plan to trade a currency pair's reaction to the report. In other words, the only thing that is "news" is the difference between the numbers anticipated by the experts and the actual numbers released in the report.
Although most currencies were affected, the currency most strongly influenced by China's stock market debacle was the Japanese Yen, which strengthened against all of its cross currencies, Aussie Dollar/Yen, Swiss/Yen, Euro/Yen, Pound/Yen, and Dollar/Yen.
If you had been trading with Forex Profit Pro, as you will soon see, you would not have been in a long position last night, and you would have been set up for or already in a short position in any or all of those currency pairs (see the chart below).
I would like to illustrate this fact with a true story.
Liesel, our client services manager, began paper trading with Forex Profit Pro in July of 2006. By October, she felt she was ready to go live, and opened a small mini account. She has been trading live for about four months now, and has done remarkably well (
She has more than tripled her original account size: not bad for a beginner, eh?).
Let's take a look at how she did with her Pound/Yen (GBP/JPY) trade that began last night (2/26/07) at around 23:00 EST, and ended today (2/27/07) at around 15:00 EST. For your convenience in following the trade, the numbers in the notes correspond to the numbers on the chart.
1. Any long trade would have been exited by this point,
2. leaving only sell signals as the logical choice.
3. Liesel entered this trade at 236.22,
4. To preserve profit toward the end of her trade, Liesel tightened her stop loss to 30 pips, and stopped out at 231.30.
5. Her total gain on this trade was 492 pips.
Congratulations, Liesel, on a great trade!
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Ken Herbert
CEO, Quantum Research Management Group
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