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First of all I would like to recommend a great document out there - "DB Guide to Exchange-Rate Determination" which was written by Deutsche Bank in 2002 and is overfilled with FX rate determination, forecasting methods which can be used for all short term, mid-term and long term trading. If you haven't read it, look for it, download to your Kindle and take the time. It is worth. :)

In the doc several FX trading strategies are decsribed with reference to many academical writings. One of them - the Forward-Rate Bias strategy. Its results are stunning for longer term FX trading and its sharpe ratio has beaten the S&P500 two times. As the DB says: "This is the bedrock of Deustche Banks's Forward-Rate Bias trading system".

  • Forward Premium and Discount

It is necessary to udnerstand what Forward Premium and Discount is before diving deeper.

Premium - Situation where the spot futures exchange rate, with respect to the domestic currency, is trading at a higher spot exchange rate then it is currently. A forward premium is frequently measured as the difference between the current spot rate and the forward rate, but any expected future exchange rate suffices.

Discount - situation where the domestic current spot exchange rate is trading at a higher level then the current domestic futures spot rate for a maturity period.[1]


        N - represents the maturity of a given forward exchange rate quote
        d - represents the number of days to delivery
        P - is the premium (if positive) or discount (if negative)
        F - is the forward exchange rate
        S - is the current spot exchange rate[2]

  • Forward Bias Strategy - Trading the Bias

"Favorite approach to trading the forward-rate bias is to adopt a diversified strategy to exploit the fact that currencies trading at a forward discount tend to outperform those currencies trading at a forward premium".[3]

The recommendation is "going long the three highest-yielding currencies in the industrial world and going short the three lowest-yielding currencies in the industrial world. Net long/short positions are put on at the beginning of each month and then closed at the end of each month. This process is repeated each month over time". [4]

  • Long Run Track Record for USD-Based Investors

This is truly old backtest and I would be really interested whether it can perform this good in todays market. So if there was a demand for it, I would dive into that ;o) Write a comment if you want to see it.

If you like the article, leave message or like. You can also check some of my latest blogs:

A Journey Through the History of Forex Market Cycle Theories

Trading FX with the RSI


[3][4] Michael R. Rosenberg, David Folkerts-Landau. The Deutsche Bank Guide to Exchange-Rate Determination. 2002, Deutsche Bank.

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How to identify Live Forex Chart Patterns and Market Direction - Tip: Patterns Tend to be true. Price Action Data Translation of the Line. The life cycle of this Currency Pair set out in stages as above so below
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Trillions of dollars can be traded on any given day between millions of investors and interested parties which makes the forex market the most liquid market by far and thus securing it to be the largest market place in the World.
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So, with eyes wide open and the old grey cells fully engaged, just maybe this can help avoid a high speed collision. Looking a little further being the general idea with a safer Forex strategy but it does involve a more complex thought process.
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Trouble is - if you only take say 20 trades in a year and say 12 win and 8 lose and you make £500 every win and only lose £300 every loss - then you can count yourself as a successful trader with a winning strategy.
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Every day trader experiences losses, this is part and parcel to trading. Again, take a balanced approach to positive and negative results. Practise having a default emotional setting of zero. It is nice to celebrate in moderation when everything goes well, however on the flip side there is no need to get annoyed when the trade does not go so well.
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As I realize waiting hours for 100 Forex pips is not really that appealing to Traders who glean that from the market in minutes working from the center of the ripples. In the asia seesion there are many markets the market sequence starting with the antipodeans 600 retail open 630 the suits, 700 , 730, 800, 830, 900 retail chinese, 930 Suits and big news release overnight.
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At the Start of this Millennium, Currency Trading  / FX / Forex was been sold to potential newbie traders as one of the best ways to make your millions from just a small capital base and a few hours of work a week. We had all heard about all the money Hedge Fund and Bank Traders had been making during the 80's and 90's and now with the availability of the world wide web and access to the markets - it was time to get involved.
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Nobody really wants to waste money on their learning journey - but unfortunately it happens to so many newbie traders. They either go to a free seminar and then end up spending $2k or $5K plus on a 2 to 5 day "intense special" seminar that will have them profitable ( not).
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I was going to be writing on another subject for Part three - but I decided to change it after reading some comments on different forums over the weekend and thinking - Why are some traders missing the obvious ?
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We mentioned in part one about the Forex Market really being a "zero - sum" game - that's after the "trade" - ie Brokers / commercial agents etc have had their "spreads and commissions" off traders participating in the market place.
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But if somebody argues the another way round,  and says the figures are just following lines of force in a field, gravitational principles say we are all human beings you see, we are all concentrated on the fact that we are all individually rushing around and doing this and that. What we do not see is that we are equally sucked, and that we move around by all sorts of stimuli  but neither position is adequate, you have to see that our being sucked by all sorts of stimuli, is exactly the same thing, as our apparently, voluntary and deliberate action because we are looking at is not this Newtonian game of billiards, where balls roll because they are hit by cues,
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Fortunately a trader has more than just a few short moments to make up their minds here. Eliminating the Bad straight off the bat and finding those which promise much but do not seem to deliver when actually needed. Therefore and at the very least, research and due diligence should deliver us from evil and instead,
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Forex Tell it Like it is | Part One | The Game

Large Banks want to make Large Profits - expected - but for this to happen it means there will be other participants in the market who will lose out - ie make a loss on their transactions. Sometimes it does not matter - ie If I am buying a villa in Spain at a real knock down price ( say the owner needs a very quick sale ) I am not bothered at paying an extra £1 -3K on the currency transfer on a particular day if I have bought the property at say £20 -50K below market valuation - as I think I have still got a good deal.
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This analysis was previously posted by the Forexmospherians for seven consecutive years as "JBCB for 13 Currency Pairs" at FXstreet/ Forexstreet but will only be posted on this site with the addition of further pairs which now totals 31 Forex Pairs.
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The Trader | Written By Sir Gissachance

The hammer falls and clanks decisively, echoing, sparking, like steel upon steel and the trade is executed. A Traders heart beats on with perfect set up, closely aligned with strict parameters, ready to continue the attack or recoil on a wire. Wrap the profit and then stand down, ready for the next hunt.
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EUR/USD being over bought in 2008 and before any news announcements, rumors or even listening to the emotional and psychological Twins, namely Fear and Greed. However, some traders may have had a mind-set, through various abilities and experiences, to be in a position to see and then prepare for the otherwise, thus avoiding the aforementioned Herd instinct.
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Helpful Hints

Share a Trading Tip, Trick, Knowledge or Technique with the Community. Try to avoid just simply posting a link or video and saying this is great. Explain what makes it great or how this was useful. Sometimes things are simply entertaining but still useful and so explain in detail with diagrams, photos or charts. Descriptions with as many details are always interesting to read and so say what could be useful to know here. Community members are welcome to comment, ask questions or add to a post.

"Keep a Record of the Business or Currency Pair Traded. Reasons why the Trade was taken. When was the Exit. How and why the Trade turned out the way it did"

"It's my pleasure to be part of this forum, which is always different than other places & with a friendly environment. Glad to be in this team"

"Yes, the truth requires neither our belief nor understanding. However to harness truth and apply it for our benefit we must at a minimum allow that it is possible".

"We all know we will never be 100% Accurate with 100% win rate over 100's or 1000's of trades - but as long as your winning pips and money - add up to a lot more than your losing pips and money - then "Bingo" you are successful winning FX trader"

"I figured this was a legitimate break, so I went on the hunt for evidence, so here in succession is the list of clues I used to make my decision:

Rejection of market and weekly pivot at ema confluence.

Complete and broken head and shoulders on 1hr time frame.

Broadening formation on daily with test and rejection of 200 day ma

Bull hinge on daily and Renko stochastic.

Positive momentum on 5min, 1hr, 4hr and daily chart"

"Remember that all models are wrong; the practical question is how wrong do they have to be to not be useful" - George E. P. Box

"Sometimes You Win,

Sometimes you Learn".

"Forex Market analysis relies on two types of analysis much like Stock Markets:

Technical Forex Market Analysis views the data on a chart and considers that the News and Data is built into the Price already (economic, political, social, sentimental and psychological). Various tools and indicators will be used by technical traders, for instance MACD, Bollinger Bands, Moving Averages and more.

Fundamental Forex Market Analysis also uses indicators, for instance reports, Gross Domestic Production (GDP), Retail sales, Consumer spending, Industrial Production, Consumer Price Index, Commodities, Economic Calendars, Balance of Trade levels which could identify Trends between other Nations and more."

"Short rapid bursts and quick glimpses of an entry, trigger activated, trail in place and exit strategy and plan already set. Within a blink of an eye, instinctively the buy/sell button is pushed. The hammer falls and clanks decisively, echoing, sparking, like steel upon steel and the trade is executed. A Traders heart beats on with perfect set up, closely aligned with strict parameters, ready to continue the attack or recoil on a wire. Wrap the profit and then stand down, ready for the next hunt"

"When we are talking about sentiment it is very hard to say that this sentiment will prevail another 6, 9, 13 hours. Sentiment is not a constant line. Main trend is bearish, tech picture on daily is bearish, even intraday neutral. Nobody restrict to play long eur short usd position with the target at 1.12 or even 1.1361, this is every traders individual choice as always"