This analysis of your current situation will also help you, in collaboration with your service provider, to define your new desktop procedures and responsibility matrix (“to be”). You will be able to rely on standardized control procedures, consistent use of performance metrics, automated reports and benefit from reconciliation in order to continue to grow. You can avoid redundant data entry and gain efficiency by leveraging existing data storage tools.

Studying all the aspects of the transition to a new system. In most cases, data conversion and migration can become sources of dissatisfaction and frustration if not carefully thought out before the actual transition phase starts. It is critical to know if the data that will be transmitted to your service provider are clearly understood and match the corresponding fields.

Developing targeted communications. If you work with various service providers across borders and plan to streamline your processes on a regional or global scale, you will have to recover your data by having them transferred to your new provider under optimum conditions. This can be time consuming and impact your new implementation timetable. So, target your communication in order to inform your current providers and anticipate issues that may occur.

Communication, less technical this time, that targets managers and employees will also be necessary. You must make sure that your people can adapt to and benefit from the new organization. What will change in your employees’ daily lives? How will the HR Department be impacted? What stays in and what goes out?

It is to be remembered that transition to HR outsourcing often means transition to new processes and use of new tools such as manager and employee online portals as well as hotlines for employees’ queries. 

Author: Patrick Nolot, Global Program Director, ADP.

While outsourcing accounting and purchasing processes to a service provider takes four months on average, the transition to outsourcing HR can take from 6 to 10 months in each country.

Managing an HR outsourcing project involves taking local legislation into account and making sure the new services are compliant with the relevant legislation. But it also involves making sure that the new processes in place are deployed in a consistent way company-wide. For example: terminations processes today are probably managed differently according to the country. After the outsourcing contract has been implemented, the termination process for each of your HR teams will be the same. This requires gaining knowledge of local practices to converge them into a global design.

On the other hand, accounting and purchasing are often some of the first functions in international companies to be industrialized and centralized in shared service centers in order to be managed globally. When it’s time to outsource them, it is then easier for a provider to literally “lift and shift” those functions, considerably reducing the transition time.

Author: Patrick Nolot, Global Program Director, ADP.

Transition, the step that consists in transferring some of your tasks and processes to a service provider, is often associated with the technical implementation of a new solution. Even if smooth implementation remains a key to success, it is only one aspect of successful transition to HR outsourcing.

Managing the transition involves dealing with three main tasks (or streams) at
the same time:

• Process conversion
• Service implementation
• Change management and communication

These three tasks/streams need to be managed carefully according to proven methodology in each country where you transition to HR outsourcing. But even more challenging is the integration of the human dimension that is related to any international transition project. You want to be sure not o leave critical players on the sidelines.

Author: Patrick Nolot, Global Program Director, ADP. Patrick is Global Program Director and is responsible for leading multi-continent HR Outsourcing transition projects. He has a background in managing large IT-enabled transformation engagements of multinational organizations. He joined ADP in 2008. Patrick immediately took charge of the implementation of MICROSOFT Corporation’s global HR Outsourcing project for 34 countries across Europe and Asia-Pacific. He is based in Paris but and travels extensively throughout these regions.

Corporate globalization initiatives must align with economic reality in tough times.

by Atul Vashistha

As the world faces an economic downturn, many corporations have not yet aligned globalization initiatives to economic reality. I believe that corporate adjustments to economic challenges will also introduce the next phase of maturation in services globalization. Economic challenges will drive leading companies to systemically develop and optimize globalization enterprisewide, leading to a new phase of maturity for global services.

Corporate functions can be located anywhere around the globe, and operating units are likely to be located in distant countries. The combination of technology and globally optimized processes makes the distance transparent. A corporation that leverages this can become flexible, capable of adapting to changing business processes, legal or regulatory requirements, labor requirements, and, most importantly, economic cycles. I call these “futurized corporations.” I have observed that during an economic downturn, smart companies take actions that position them as leaders when the economy recovers. Within each market, a company is either positioned to improve or to fall farther behind. Taking no action is the worst possible choice.

Unlike the last economic downturn, customers and service providers have a deeper understanding about leveraging the global model. The environment is ideal for further evolution and reaching the next level of services globalization. Specifically, companies should be considering the following to prepare for and successfully navigate through upcoming economic challenges.

In an economic downturn or during actions such as budget cuts or spending freezes, a company must reevaluate spending priorities, but in the context of leveraging global operations. Perhaps the most difficult part of any portfolio assessment is establishing a prioritized list of projects. Each business unit will feel that its projects (whether IT, HR, F&A, or other) are the most critical and that the lack of corporate support is impeding its ability to perform. Global leverage and ROI should drive these decisions.

During an economic downturn, the alignment with business should also determine whether the needs are immediate or significant. Some business requirements that seemed critical during times of plenty may become superfluous when facing economic uncertainty. With fewer dollars to fund business support services, the company has less tolerance for waste.

Managing the supply of global services is usually the most complex factor in a portfolio assessment. The supply of services is usually derived from a complex array of internal capabilities, global operations centers, and outsourcing providers. Whether the services are information technology, human resources, financial services, or any other core or contextual service, the supply chain is usually focused on results. Business units usually take corporate services for granted, caring very little for the source or supply chain, but remain focused on results. It is paramount that operations managers continue to manage the entire supply chain to ensure consistent results and optimize the cost of delivery. Managing supply is useless unless demand is understood.

Beginning with demand, executives should benchmark internal operations against industry-leading practices. With a comparison of the overall delivery, executives can determine the root cause of any inefficiency. Whether the service requires reengineering processes, changing organizational structure, renegotiating outsourcing contracts, or bringing services back in-house, executives can begin changing the supply chain. As noted earlier, it is difficult to realize near-term benefits (in the same fiscal year) from strategic changes to the supply chain. Companies should begin immediately to avoid excess expense or change during economically challenged times.

While evaluating the supply chain is usually a transformational solution, improving governance provides incremental benefit to existing services. Just as changes to the supply chain are difficult to realize in the current fiscal year, changes in governance can often yield benefits within weeks. Throughout a portfolio assessment, executives must remain mindful of risks. Some risks can be tolerated and others mitigated, but none should be ignored or overlooked. Portfolio risk should be considered through the process.

As we enter a period of economic uncertainty, it is imperative for companies to reassess their globalization initiatives, re-balance their portfolios and ensure that these initiatives are aligned with current market realities. Organizations that neglect to do so or delay will face mounting financial and operational pressures in the next several years. Those organizations that can manage this transformation effectively, optimize their operational costs, build flexibility into their global services supply chain and fully realize their return on globalization will position themselves to weather the current storm and emerge as stronger competitors.

No longer laggards in the market, EU members show they’ve grown serious about outsourcing. Expect this region to report higher rates of growth than anywhere else on earth.

by Monica Barron

The terms “growth market” and “HRO” have not been associated much in the recent past. The global market has been flat in the last couple of years, and the European HRO market saw limited activity from a deal origination perspective.

However, in the past two years, Europe has become a bright spot in the HRO market, becoming a growth engine for the space. Europe’s share in the global HRO market increased from 20 percent to 30 percent in terms of number of deals in the post-2005 period and is growing at a faster pace than the global or the North American HRO markets.

The 11-year-old, global, multi-process HRO industry has been dominated by North American-headquartered buyers. Of the more than 225 HRO deals signed through the end of 2007, more than 70 percent originated from the region. North America was also the origin of 32 large global deals covering employees on more than one continent.

In comparison, the European HRO market saw limited activity until recently. European organizations have been more conservative than North American counterparts in embracing outsourcing; various legislative and demographic considerations that affect HRO also contributed toward a lower adoption level in the European region.

However, Europe has been experiencing recent increased activity. In terms of Annual Contract Value (ACV), the market grew at a two-year compound annual growth rate of 31 percent to reach $742 million in 2007, compared with just a 13 percent growth rate in North America.

The European market does pose unique considerations and challenges. Europe reflects a mix of languages, cultures, and regulations. Languages across and frequently within countries differ. Some countries (e.g., Germany and France) have a highly regulated labor market, while others (e.g., the U.K., Switzerland) represent a more flexible labor environment. In addition, the cost of operations varies across the region.

From an HRO perspective, we divide the European market broadly into three key regions based on their inherent characteristics that impact HRO adoption: the U.K. and Ireland; Western Europe; and Central and Eastern Europe. It is apparent that the business environment in the U.K. is more conducive to outsourcing.

In fact, it is the origin of more than 45 percent of the HRO deals in Europe to date, representing 74 percent of the market in terms of ACV.

The U.K. market continues to show a steady growth pattern. The healthy expansion in the U.K. is due to a combination of factors, including common language requirements, acceptance of outsourcing, a vibrant supplier landscape, and a relatively favorable labor relations environment. The higher cost of operations in the U.K. only makes the business case all the more compelling from an outsourcing and offshoring perspective. Also, not only has the private sector embraced HRO but the public/government sector sees outsourcing as a way to improve service levels and save costs and is increasingly considering it as a viable option.

Central and Eastern Europe have not seen much activity from a deal origination perspective. However, nations such as Poland, the Czech Republic, Hungary, Romania, and Bulgaria, have become an integral part of suppliers’ strategies, serving as HRO hubs to support the U.K. and Western European operations. Lower costs, multi-language availability, cultural similarity, and time-zone affinity make these locations very attractive from a service delivery perspective. Increased outsourcing in Europe, along with regulatory restrictions on movement of sensitive employee data outside of the EU, has led suppliers to increase their scale of operations.

But in spite of the challenges, some factors positively influence HRO adoption in Europe. These include globalization, changing employee benefits policies, and increased acceptance of global sourcing. As market momentum grows, it attracts new suppliers. In fact, of the 39 multi-process deals signed in the HRO market in 2007, four (10 percent) were signed by Indian-based suppliers.

With the entry of new European-based and offshore suppliers and offerings, European buyers have more options. Depending on their needs (transformational versus cost-saving) and scope (geography, process), they can choose from a range of suppliers that can capably support their requirements. Despite significant differences from their North American counterparts, Europe is now growing more quickly and has clearly transformed from a laggard to an emerging and exciting opportunity.

As the organization representing the HRO industry’s largest HRO practitioners, the Buyers Group is also one of the most important affinity groups.

by LeAnne Andersen, Cynthia DeFidelto

The landscape and nature of HRO arrangements and what organizations expect to achieve have changed dramatically in the few years since largescale engagements have become a viable and effective HR service delivery option. Because HRO is relatively new and offers a compelling option to organizations looking to improve costs, service delivery, and quality, it has attracted a significant amount of attention and interest during the past five years in particular.

In late 2003, more than 30 organizations engaged in largescale HRO deals joined Towers Perrin’s first research study of HRO effectiveness. The study was designed to measure the perceived success of outsourcing arrangements and how effectively they delivered on HR goals, as reported by the outsourced companies themselves. The research, repeated regularly, has shown outsourcing as a service delivery option in transition—capable of achieving service delivery goals in particular areas such as satisfaction, cost, and efficiency, yet falling short in certain transformative aspects such as shifting time to strategic HR activities.

At the outset of the HRO effectiveness research, any organization that participated in the study was subsequently invited to join an informal group of other research participants to discuss their early experiences with outsourcing. These “pioneers,” all of whom managed large-market HRO relationships in which six or more processes were outsourced to the same vendor, initially came together in Philadelphia in May 2004, and the HRO Buyers Group was formed.

The HRO Buyers Group today is a self-managing, self-governing group of individuals responsible for the operations and delivery of HRO arrangements in their organizations. With about 65 active members from 45 organizations, the group meets twice annually to share ideas, report on successes, and address challenges and questions related to their HRO arrangements from a variety of perspectives, including delivery, governance, and outsourcing’s impact on the people within and outside of HR. Meetings feature self-volunteered case studies from participants in all stages of their HRO arrangement, group discussions of universal challenges and innovative ways to address these challenges, review of current HRO trends and research, and guest speakers to provide an outside perspective. The group is counseled on antitrust compliance and is prohibited from discussing contract terms, vendor arrangements, and other topics relative to the financial or contractual terms.

In addition to meeting regularly, the Buyers Group provides “the voice of the buyer” to the  HRO industry and organizations contemplating outsourcing. Members speak regularly on specific topics relative to outsourcing and share both their collective and individual experiences. In the past year, the group has had the opportunity to address audiences in the U.S. and Europe. Members of the group also share responsibility for a regular column in HRO Today and HRO Europe, where they address a particular aspect of the HRO arrangement.

The members of the organization seek to achieve a better understanding and an improved outsourcing experience by sharing their ideas, learning from their peers and providing a supportive network of colleagues responsible for delivering HRO in their own organizations.

To be eligible for membership in the HRO Buyers Group, organizations must meet the following criteria:
• Have a signed HRO deal (does not need to be fully implemented);
• Have 10,000 or more employees;
• Have six or more HR processes outsourced
to the same vendor; and
• Participate in the research study.”

While the organization may decide what level of representative(s) to participate in the Buyers Group, most are at a vice president, director, or other senior level, and all are directly responsible for the operation and success of the HRO arrangement in their organizations. All representatives must also participate in the affiliated HRO effectiveness survey to ensure a consistent approach to the group discussions.

The next HRO Buyers Group Summit will be held in Chicago June 3–4, and a comprehensive agenda is planned. HR buyers who are interested in joining the group and attending the June Summit should contact  Cynthia DeFidelto, LeAnne Andersen (e-mail addresses for DeFidelto and Andersen are provided below),  or Jennifer Ilko (jennifer .ilko@towersperrin.com), HRO Buyers Group program manager.

you Probably do…until outsourcing enters the equation. Then it’s incumbent on the buyer to have a deep and detailed conversation with the provider to clarify respective responsibilities.

by Paul Davies

If there’s an area of HRO we all think is nailed down, it’s probably payroll. After plant protection, medical, and catering, payroll is arguably the most well-developed, bundled HR service.

Payroll is a technology-dominated commodity that has been on the outsourcing circuit for a long time and is understood in relatively standard terms. So much so, that one or two payroll-specific providers are inclined to tell buyers what they’ll get instead of accepting a scope description. And the proffered service is designed to maximize provider performance and return.

Nowadays, when payroll causes problems in outsourcing, it tends to be because a buyer’s all-encompassing view of the activity does not match the standard practice. The phenomenon is compounded in global deals because everyone’s view of payroll activity is understandably determined by his  personal experience. And, while for a good deal of the process the similarities hold true, some peripherals can cause surprises.

For example, the normal practice in Belgium is to have a government-registered intermediary act as the paying agent.

So, some payroll reconciliation activities become entangled with invoicing and accounts. “Not a problem,” say the purists. “Payroll instructs the agent and then washes its hands of the rest.”

Too many similar differences of opinion in a single deal can strain the relationship. In fact, the interface with general accounts for the most part is an area worth nailing down. Sometimes payroll providers want no involvement except for shipping off a file once a month; sometimes it is resolved in a systems interface. However, where buyers want their payroll departments to mix and match account-related data input and reconciliations, the expectation had better be hammered out from the start.

Similarly, insistence on thrashing out scope with respect to time and attendance, payslip printing, and distribution can lower the heat of later exchanges. How payroll gets time and attendance data and who’s responsible for it seems like a no-brainer; but what is obvious to one party may not be to another, and nothing muddies trust more than undeclared assumptions.

There can be a host of things plugging into payroll in addition to time data and payslips, and each one needs the “in or out” and post-outsourcing interface discussion.  Until the explicit, detailed dialogue about assumptions takes place, one can never be sure what each party means by payroll. And because the term is so seductively obvious, this potential disconnect can be overlooked.

Ostensibly without advertising it, internal “payroll departments” manage a constellation of elements that make it possible to pay qualified recipients and support accounts without the organization noticing that it’s being done. Recipients of pay can be pensioners as well as employees. Passing audit and producing valid company accounts are just as important as delivering pay. Ditto for managing quirky deductibles like the purchases at the employee shop or reimbursement for returned purchases.

In comparison, an outsourced scope has the potential to be limited. It doesn’t have to be and often isn’t, but the more commoditized the space becomes, the more attention the buyer must pay to what it’s getting. A provider cares about what it contracted to do and consequently is being paid to do.
Scope is intrinsically caught up with headcount costs, quality, and liabilities. For the buyer, there is the problem of outsourcing a department only to find out half the people have to be retained to do residual work. For the provider, there is the matter of ending up with twice as much work as the people hired. And the Damoclesian duo of quality and liability has to be of concern for a provider taking on myriad peripheral, noncore things for which it won’t be thanked later, especially if it gets them wrong.

For these reasons, buyer optimism regarding the all-encompassing scope of payroll will be tempered by providers trying to box up a clear-cut, standard commodity. And in this regard the provider is being sensibly pragmatic. However, an area where providers forget pragmatism to venture into an imaginary world of their own is system capability. To put it bluntly, the rush toward global payroll has so far outstripped the availability of real-life-tested, single-systems offerings.

The problem with payroll is that, although nailing down things like personnel administration is a priority, everyone already thinks he know what payroll is.

New TUPE revisions extend definition of employee transfer. Offshoring is now more likely to fall under the recent amendments.

by Julian Roskill

One of the difficult issues for organizations sourcing their activities is whether employees will transfer to a new service provider. The issues are complex and remain unclear in some areas, despite detailed scrutiny by national and European courts.

The practical solution is often to carve up the resulting financial risks through indemnities, both at the start and at the end of the sourcing contract. In the U.K., the balance of power in those negotiations may now have shifted as a result of legislation introduced by the U.K. Government in April 2006 amending the 2006 through the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE).

When will TUPE apply?
The previous TUPE test focused on whether there was in the U.K. a transfer of an economic entity that retained its identity. In considering this, it was necessary to look at what happened to the assets of that business (including those made available by the customer), whether the majority of the employees were taken on by the new service provider, and the degree of similarity between the old and new activities. Essentially, if the new service provider continued to provide the same basic services, TUPE would apply. However, this caused problems when customers wanted a change in service levels or divided the services between different countries. This test continues to apply. New to the concept is the “service provision change,” which sits alongside and often overlaps with the previous test.

TUPE now also applies when a customer stops performing the activity, which is then carried out by someone else on the customer’s behalf. It also applies when there is a change of service provider or when the customer takes the activity in-house. For TUPE to apply, all of the following conditions need to be satisfied:

• Immediately before the change, there is an organized group of employees situated in the U.K. whose principal purpose is performing services on behalf of a customer.

• The customer will shift the activity to a service provider beyond either a one-off event or the completion of services of a short-term duration.

• The activities concerned do not consist wholly or mainly of the supply of goods for the customer’s use.

What constitutes an activity is not defined. All that needs to happen for TUPE to apply is that the activities stop being provided by one party and are taken over by another. Activities are likely to be broadly defined to prevent arguments that they are being supplied in such different ways that the economic entity (under the old test) did not retain its identity.

It is now far more likely that employees will transfer under TUPE under the service provision change and, presumably, have to be retrained. Employees will now follow the activities that they have been performing, rather than the assets that they have been using. Under the service provision change, there is no need for any assets to transfer.

What remains unresolved is whether TUPE applies where activities are moving offshore, possibly to more than one country. At the risk of not doing justice to complex arguments, the debate until now has been over whether you looked at the activity at the point of transfer, no matter what happened afterwards, or whether the offshoring was so radical that the activity lost its identity. What the service provision change has done is sharpen that debate because retention of the identity of the activity is no longer relevant. This makes it more likely that TUPE will apply to offshoring. What is still likely to happen, however, is that employees will lose their jobs for economic reasons. The legal debate will then focus on whose reason is it and the commercial debate on who should pick up the costs.

Consequences for HRO Buyers
The U.K. is the only European country that has adopted the concept of the service provision change. As a result, the focus of the debate (if the parties do not want TUPE to apply) will require a careful analysis of whether the grouping of employees spends the bulk of their time in the activity. If they do, they will transfer; if they do not, they will not.

In practice, employers may entice their employees to remain with them and encourage them to opt out of transfers. Moreover, service providers may well take steps to ensure that employees do not spend the bulk of their time working for particular customers. Indeed, the parties may look to impose conditions in their contracts for the supply of services to deal with situations like this, even though there may be cost implications. The alternative is that clients unhappy with the quality of the service may find that the same underperforming employees continue to provide the same services through a new employer.

Momentum of Price
How to use short-term moving averages to measure price momentum—ideally to trade when price and the market are aligned.

Announcements
How to use the calendar to ensure news or other new information being released will not change speed or momentum.

Range
How to trap price using support and resistance of recent price action.

Trend
How to interpret a currency pair’s fair market value compared with current price.

That is a lot of information. Some of it may seem obvious, but there are many subtleties that are not always apparent until you start trading. I encourage you to read or even re-read that article. There is no magic system, secret formula, crystal ball or green/red arrows to help you trade. However, you will learn how to read the market.

‘Smart planning’ will help you understand how the market is behaving so you can adjust your trading to suit current conditions and plan your trades in advance. No guessing. No reacting. Just gathering intelligence and formulating a strategy.

Part I, ‘FOREX Entries’ focused on developing a strategy. This article, ‘FOREX Exits’, will focus on the tactics of implementing that strategy.

At this point, let us assume you have analysed the speed of the market, the momentum of price and aligned both with trend. Are you ready to pull the trigger? No, not yet. Almost. We now have to set up the trade PLAN: Pivots, Limits, Alarms, or Nothing.

Pivot points
Pivot points are a form of support and resistance (S&R). S&R lines can measure price and market in the same way as moving averages do.

In Part 1 we discussed how to trap price in a range by using S&R lines. These lines are very useful, but like most technical analysis they lag behind price action. Pivot points are another form of S&R, but they are a leading indicator.

Pivot points can tell you the possible top or bottom of the trading day many hours in advance. They do not offer support and resistance of price, but of the market. Once again, there is a difference between price action and market activity.

Pit traders, who had to make trading decisions amidst the chaos of trading on an exchange floor, created pivots. They would sit down before the market opened, look at what happened during the last trading day and do some basic calculations. They would look at the high, low and close of yesterday’s trading to predict today’s top or bottom.

These levels became reversal areas, or pivotal zones to keep an eye on. You certainly didn’t want to buy near the top or sell near the bottom. Therefore, traders would write these prices on the back of their order cards. Just before the traders placed their orders, they would check the back of their card to see if now was a logical time to get in or out—not because of emotion, but from doing calculations before the heat of battle.

PP = (High + Low + Close)/3
S1 = (2 x PP) – High
S2 = PP – Range
S3 = S2 – Range
R1 = (2 x PP) – Low
R2 = PP + Range
R3 = R2 + Range

Many professional forex traders are from the commodities, indexes and equities trading world. They were already familiar with trading with pivot points and they brought pivot analysis with them. As a retail forex trader, you may find pivot points extremely useful simply because so many of the big traders, such as bankers and hedge fund managers, use them. Remember, they control the market. Try to do what they do. Let them lead.

Figure 1: Pivot points

The basic pivot points we use (figure 1) are Resistance 1 & 2 and Support 1 & 2. The S and R pivots are separated by the Central Pivot Point. For more accurate entries and exits, we insert Median Pivots between the S, R and Central Pivots.

R2 > M4 > R1 > M3 > CP > M2 > S1 > M1 > S2

Keep it simple. R means resistance and R pivots may hold price down. S means support and S pivots may hold price up. The key ‘Pivot Profit Zones’ are R2 to M4 on up-trending days and S2 to M1 on down-trending days. These zones are areas in which to consider taking profit as well as to stay alert to the possibility of price reversals.

Limits
Every trade needs two limits, one for profit and one for loss. Limits should have nothing to do with greed or fear. Novice traders fear losing money. Professional traders fear losing profits. Either way, fear can be detrimental to our trading. Experienced or not, you will always be working on controlling your emotions. Setting limits with a clear-cut trading plan will help you manage your emotions, just as you control any other risk.

Defensive exits
You never want to hit this limit, but it does happen from time to time. I like to think of it as my ‘fall back position’ when things go wrong. When I am spot trading, my stop loss is always set for 50 pips away. However, as I will show you, I never intend to have my limit triggered.

My stop loss limit exits are an insurance policy. They protect me from catastrophic events, such as an earthquake that knocks out all power and telecommunication lines. If that happens, and I know I cannot contact my broker to manage my open positions, the worst thing that can possibly happen is that I take a 50 pip loss. If you manage your money properly, that should be no big deal at all.

Offensive exits
These can be for profit or for loss. It really doesn’t matter to me. It is simply when I exit my trade. I have no control over the outcome of the trade. But I can control when I come out of the trade. This can happen when moving averages cross or when pivots are hit.

Moving averages exits
I can plan to exit a trade when momentum has changed direction, or, if not, certainly when the market has changed direction. These changes are extremely easy to see. They occur when the short-term or medium-term moving averages cross. They are a signal that the market is not what it used to be and I need to plan on trading in the other direction, or to stay out of trading for a while as the market adjusts.

Figure 2: Euro/US dollar spot

Pivot point exits
Forex is all about the law of averages. If you trade forex long enough, you know that your success never comes down to one trade. You are interested only in trading repeatable patterns than you can anticipate. Sometimes they produce more pips than you expected. Sometimes not. You just split the difference and call it a day.

Pivot points are probably the best example of this. Often you exit your trade in the Pivot Profit Zone and price reverses. Other times it just keeps on going and you have some pips left on the table. A professional trader doesn’t care about that. They take the most pips with the least amount of risk.

Does a Las Vegas casino care if you win a big hand in Black Jack? Not if you keep playing. To the casino, and to a professional trader, success is in the long-term numbers. Profits come from within the law of averages. Any one trade is just not very important, as long as you are doing what you are supposed to be doing—conservatively trading repeatable trades.

Alarms
Paint a mental picture of your trade before you ever trade it. At FX Bootcamp we often wait twenty to sixty minutes for a trade to set up. I do the analysis ahead of time and we discuss it as a group, as it may or may not come to fruition. We rarely have to respond to what the market is doing, because we are not reacting to price action, but planning our trades in advance.

You should be able to visualise your trades. Will price be rejected at resistance? Why is this resistance expected to resist? Is it a reversal pivot point? If so, what would happen next? What would Stochastics do? What would MACD do? Or momentum, or speed?

What will your charts look like when all this comes together? What will make you pull the trigger? If it is a momentum change seen at the cross of the short-term moving averages, then that is your alarm. When you see it, you will recognise it, because you have already visualised it. Pull the trigger! Set your stop loss limit, just in case the worst happens. Then stay in your trade until something changes, like speed or momentum.

Nothing
If you go through all of this planning and you end not trading, have you lost? No, you’ve won! You just avoided a losing trade. If you recognised your trade setup because you took the time to gather intelligence first and then formulate a strategy, then your tactics are quite simple. When price action falls into your little trap, such as the momentum cross after the rejection at resistance, then you execute your plan. You’ll exit your trade for profit or for loss. Either way it was a well-constructed plan.

If price does not fall into your trap and it does break resistance… do nothing. Don’t trade. You clearly have missed something in your analysis. Walk away. Live to trade another day. Just redo your analysis, gather intelligence and formulate a new strategy. Then wait for your new trade plan to give you another opportunity to profit.

Remember, you are not a forex trader. You are a forex profiteer. Focus less on making trades. Focus more on understanding the market’s behaviour so you can find opportunities to profit from its predictability. This means planning your trades in advance, not reacting to price. Stay in control of your trading. Don’t let price action control it.

This article was originally published in the Mar/Apr 08 issue of YourTradingEdge magazine (www.YTEmagazine.com). All rights reserved. © Copyright 2009, MarketSource International Pty Ltd.

1. Diversify your stock. Everyone wants to jump on the bandwagon when a specific sector rises skyward but avoid the temptation. Keep your stock diversified between several sectors. What goes up must come down according to Newton’s Law of Gravity and the same holds true for stocks. During the 1998 and 1999, everyone was hot to buy skyrocketing tech stocks. The public paid huge prices for IPO’s of dot-com stocks after the bubble burst in March of 2000, the stocks plummeted. People that had portfolios of just tech stocks went from millionaires to thousandaires within a few months. A smaller, but similar loss occurred for those heavily invested in the financial sector (e.g credit cards companies and banks) in 2009.

2. Know the fundamentals. You can use the dot-net as a prime example of people buying without investigating the company itself. Thousands of shares on new issue stock, IPOs, sold in the hundreds of dollars for companies whose total value was less than $3,000.

3. Take a profit. If you want to gamble some money with a fast growing sector, don’t forget to cash in your chips occasionally. When your stock portfolio more than doubles, sell half, recoup your investment and let the rest ride. If people did that in the 1990’s most would have seen huge profits. One man turned $10,000 into a half million, only to watch it drop back to less than $10,000. Had he sold along the way, he would never have risen to that height but would have taken a modest $100,000 of profit along the way and never lost half of his original investment.

4. Avoid stock advice from unknown suppliers. Offices across America received mysterious faxes in the middle of the night offer hot stock tips. These often came from people that bought penny stocks and hyped the stock via the fax. The idea was to stir interest in a useless company, increase the price of the stock and then they’d sell their shares, leaving the new investors to ride the rocky road to loss in the stock market.

5. Know the company. Investigate the company’s management, spending and products. Some of the best portfolio managers for specialty funds try the products for the stocks they sell. If it’s stock in a restaurant chain, they eat there. If the stock is for a company that makes a new type of cleaning product, they clean house. When you know the product’s good, know they run a tight ship and have good management, the potential for a bright future increases.

No matter how well you plan, sometimes the market drops. There are methods of making money even in a bear market but for those that don’t want to spend all their time involved reading and planning, diversification is the key. Asset allocation is the key to success for those people. Keep a portion of your money in the stock market and the rest in bonds and fixed income products. The longer you have before you use the money, the more you can put into stocks.