Author: Reddy Shyam Shankar

I am a professional Price Action retail trader and Speculator with expertise in Risk Management, Trade Management, and Hedging.

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Forex Assets

EUR/MXN – Analyzing The Costs Involved While Trading This Exotic Pair

Introduction

Introduction

Introduction

EUR/MXN is the abbreviation for the Euro Area’s euro against the Mexican Peso. It is classified as an exotic-cross currency pair. Here, the EUR is the base currency, and the MXN is the quote currency.

Understanding EUR/MXN

The market value of EURMXN determines the value of MXN that is required to buy one euro. It is quoted as 1 EUR per X MXN. So, if the market price of this pair is 24.4733, then these many units of Mexican pesos are required to buy one EUR.

Spread

The spread is the difference between the bid price and the ask price. These two prices are set by the brokers. The pip difference is through which brokers generate revenue.

ECN: 46 pips | STP: 49 pips

Fees

A fee is simply the commission you pay to the broker on each position you open. There is no fee on STP account models, but a few pips on ECN accounts.

Slippage

Slippage is the difference between the price at which the trader executed the trade and the price he actually got from the broker. This changes based on the volatility of the market and the broker’s execution speed.

Trading Range in EUR/MXN

The amount of money you will win or lose in a given amount of time can be assessed using the trading range table. This is a representation of the minimum, average, and maximum pip movement in a currency pair.

Procedure to assess Pip Ranges

  1. Add the ATR indicator to your chart
  2. Set the period to 1
  3. Add a 200-period SMA to this indicator
  4. Shrink the chart so you can assess a large time period
  5. Select your desired timeframe
  6. Measure the floor level and set this value as the min
  7. Measure the level of the 200-period SMA and set this as the average
  8. Measure the peak levels and set this as Max.

EUR/MXN Cost as a Percent of the Trading Range

The cost of trade varies based on the volatility of the market. This is because the total cost involves slippage and spreads apart from the trading fee. Below is the representation of the cost variation in terms of percentages. The comprehension of it is discussed in the coming sections.

ECN Model Account

Spread = 46 | Slippage = 3 |Trading fee = 3

Total cost = Slippage + Spread + Trading Fee = 3 + 46 + 3 = 52

STP Model Account

Spread = 49 | Slippage = 3 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 3 + 49 + 0 = 52

Trading the EUR/MXN

The EURMXN is a very volatile pair. For instance, the average pip movement on the 1H timeframe is only 335 pips. Note that the higher the volatility, the lower is the cost of the trade. However, this is not an advantage as it is risky to trade highly volatile markets.

Also, the larger/smaller the percentages, the higher/lower are the costs on the trade. So, we can infer that the costs are higher for low volatile markets and high for highly volatile markets.

To reduce your risk, it is recommended to trade when the volatility is around the minimum values. The volatility here is low, and the costs are a little high compared to the average and the maximum values. But, if you’re priority is towards reducing costs, you may trade when the volatility of the market is around the maximum values.

Advantage from Limit orders

When orders are executed as market orders, there is slippage on the trade. But, with limit orders, there is no slippage as such. Only trading fees and the spread will be taken into consideration to calculate the total costs. Hence, this will bring down the cost significantly.

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Forex Course

84. RVI (Relative Vigor Index) & Related Trading Strategies

Introduction

Introduction

Introduction

The Relative Vigor Index is one of the most popular indicators in the technical trading community. ‘John Ehlers’ developed this indicator, and it belongs to the oscillator family. The RVI is typically used to determine the strength of a trend in any given instrument. In a rising market, we generally expect the closing price to be higher than the opening price. Likewise, in a downtrend, we expect the closing price of any instrument to be lower than the opening price.

By comparing the opening price to its closing price, the RVI tries to gauge whether the trend is bullish or bearish. This predictive ability of the indicator makes it a leading indicator in the market. RVI consists of two lines, which are Green and Red in color. The Greenline is the standard moving average line, and the Redline is a 4-period volume weighted moving average. The Red is a trigger line as it provides the trading signal when it crosses above or below the Greenline.

Below how the price chart looks when the Relative Vigor Index is plotted on it.

Trading Strategies Using The RVI Indicator

A low value of the RVI indicates an oversold market, and when the RVI crosses above the signal line, it indicates a buying opportunity. Conversely, a high value indicates an overbought market, and the RVI crossing below the signal line indicates a selling opportunity.

Overbought and Oversold Crossovers

This is one of the basic and quite popular strategies using the RVI indicator. The trading opportunities that are generated in this strategy works well in all types of market conditions. The idea is to go long when the crossover happens at the oversold area and go short when the crossover happens at the overbought area. We must exit our positions when the indicator triggers an opposite signal.

As you can see in the below chart, we have generated a couple of trading opportunities in the USD/CAD Forex pair using the RVI indicator. We must follow all the rules of the strategy to generate an accurate trading signal. Place the stop-loss just below the closing of the recent candle and book the profit when the market gives an opposite signal.

Pairing RVI with RSI Indicator

In this strategy, we have paired the RVI indicator with the RSI indicator to identify accurate trading signals. Both of these indicators belong to the oscillator family, and when combined, they add great value. RSI indicator has only one line, which oscillates between the 70 to 30 levels. When it goes below the 30-level, it means that the market is oversold and above the 70 level means that the market is overbought.

Buy Example

The idea is to go long when both the indicators give a crossover at the oversold area.

The below charts represent a buy signal generated by both of these indicators in the CAD/JPY Forex pair. When both of these indicators line up in one direction, that trade has a very high probability of performing in the anticipated direction, and we must look for deeper targets. In this kind of situation, we can even risk a bigger amount.

Sell Example

The idea is to go short when both the indicators give a crossover at the overbought area.

In the below chart, NZD/USD was in a downtrend. During the pullback, both the indicators aligned in one direction giving us a selling signal. Expect deeper targets and make sure to exit the position when any of the indicators gives an opposite signal at the oversold area.

That’s about the RVI and the trading strategies using this indicator. Try these strategies in a demo account to master them and only then use them in the live market. Cheers.

[wp_quiz id=”67178″]
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Forex Assets

Costs Involved While Trading The EUR/CZK Forex Pair

Introduction

Introduction

Introduction

EUR/CZK is the abbreviation for the Euro Area’s euro against the Czech Koruna. This pair is an exotic-cross currency pair. Here, the EUR is the base currency, and the CZK is the quote currency.

Understanding EUR/CZK

The price of this pair in the exchange market determines the value of CZK equivalent to one euro. It is quoted as 1 EUR per X CZK. So, if the value of this pair is 26.0896, these many Korunas are required to purchase one EUR.

 

Spread

Spread is the difference between the bid and the ask price offered by the broker. This value is different on the ECN account model and STP account model. An approximate value for the two is given below.

ECN: 45 pips | STP: 47 pips

Fees

A fee is another term for the commission of the trade. There is no fee on STP accounts, but a few pips on ECN accounts.

Slippage

Slippage is the difference between the price intended by the trader and the price the trader actually received from the broker.

Trading Range in EUR/CZK

The trading range is the tabular representation of the pip movement of a currency pair in different timeframes. These values are useful for determining the profit that can be generated from a trade before-hand. To find the value, you must multiply the below volatility value with the pip value of this pair.

Procedure to assess Pip Ranges

  1. Add the ATR indicator to your chart
  2. Set the period to 1
  3. Add a 200-period SMA to this indicator
  4. Shrink the chart so you can assess a large time period
  5. Select your desired timeframe
  6. Measure the floor level and set this value as the min
  7. Measure the level of the 200-period SMA and set this as the average
  8. Measure the peak levels and set this as Max.

EUR/CZK Cost as a Percent of the Trading Range

This is the representation of the cost variation of trades for different timeframes and volatilities. The values are obtained by finding the ratio between the total cost and the volatility value and are expressed as a percentage.

ECN Model Account

Spread = 45 | Slippage = 3 |Trading fee = 3

Total cost = Slippage + Spread + Trading Fee = 3 + 45 + 3 = 51

STP Model Account

Spread = 47 | Slippage = 3 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 3 + 47 + 0 = 50

Trading the EUR/CZK

The larger the percentage values, the higher is the cost of the trade. From the above tables, we can see that the values are large in the min column and comparatively smaller in the max column. This means that the costs are high when the volatility of the market is low.

It is neither advisable to trade when the volatility of the market is high, nor when the costs are high. To have a balance between both these factors, it is ideal to trade when the volatility of the pair is in the range of the average values.

Furthermore, to reduce your costs even further, you may place trades using limit orders instead of market orders. In doing so, the slippage will not be included in the calculation of the total costs. And this will bring down the cost of the trades by a decent number. An example of the same is given below.

Spread = 45 | Slippage = 0 |Trading fee = 3

Total cost = Slippage + Spread + Trading Fee = 0 + 45 + 3 = 48

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Forex Course

83. Learning To Trade The Donchain Channel Indicator

Introduction

Introduction

Introduction

The Donchain channel indicator is one of the quite popular technical indicators in the market. It is developed by Richard Donchian in the mid-twentieth century. This indicator consists of three moving average lines calculated by the highest high and lowest low of the last ‘n’ period. The upper Donchian band marks the highest price of the security over the ‘n’ period of time, whereas the lower band of the indicator marks the lowest price of a security over the “n” period of time. The area between the upper and lower band represents the Donchian channel.

If the price action is stable, the Donchian channel stays in a narrow range, and in volatile market conditions, the Donchian channel indicator will be wider. In this way, the Donchian channel is a wonderful indicator to assess the volatility of the market. The upper Donchian band indicates the extent of bullish energy, highlighting the price action achieved a new high in a particular period. Whereas the centerline of the indicator identifies the mean reversion price for a particular period. The bottom line identifies the extent of bearish energy, highlighting the lowest price achieved by the sellers in a fight with the buyers.

Below is how the price chart looks once the Donchain Channel indicator is plotted on to it.

Trading Strategies Using The Donchain Channel Indicator

Scalping Strategy

This strategy is made for traders who prefer to make quick bucks from the market. By following this strategy, we can get a couple of trades in a single trading session. The idea is to go long when the price action hits the lower band and go short when the price hit the upper band. The preferred time frame will be a 5- or 3-minute chart.

The image above represents a couple of buying and selling trading opportunities. Scalping is the easiest way to make quick bucks from the market. When we take a buy or sell trade, and if the price action goes five pip against your entry, we suggest you close the trade and wait for the price action to give another trading opportunity. Book the profit when price action hits the opposite band of the indicator.

Donchain Channel To Trade The Trending Market

If the market is in an uptrend, it is advisable to go only for the buy trades, and if it is in a downtrend, only go for sell trades. In this way, we can filter out false trading opportunities, and by following the trend, we can easily hold our position for longer targets.

Buy Trade

The below image represents two buying opportunities that we have identified in the EUR/NZD pair. We can see that the trend was up, and if we take any of those small sell trades, we will end up on the losing side. So on a higher timeframe, it is advisable to trade with the trend. We have captured the whole buying movement in this Forex pair. This is the easiest and safest way to trade the market using this indicator

Sell Trade

The below image represents a couple of selling opportunities in the CAD/JPY Forex pair. We can scale our positions when the market gives an opportunity to do so. Or, we can close our positions when the opposite signal is triggered. Always wait for the desired signal with patience to trade the market.

The advantage of trading with the trend is that whenever the market gives us the trading opportunity, we can easily hit the trade without worrying much. Another advantage of trading with the trend is that we can go with a smaller stop-loss as the price action spikes very less in a trending market.

These are only a few applications of the Donchain Channel Indicator. You can follow our strategy section to learn many advanced applications of this indicator. Stay tuned to learn many more technical indicators. Cheers!

[wp_quiz id=”67024″]
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Forex Assets

Analyzing The EUR/PLN Exotic Currency Pair

Introduction

Introduction

Introduction

EUR/PLN is the abbreviation for the Euro Area’s euro against the Polish Zloty. This European currency is classified as an exotic-cross currency pair. In this pair, the EUR is the base currency, and the PLN is the quote currency.

Understanding EUR/PLN

The value of this pair simply represents the value of PLN equivalent to one Euro. It is quoted as 1 EUR per X PLN. An example of the same is shown below.

Spread

The spread is a popular terminology used in the forex industry, which is defined as the difference between bid and ask prices in the market. This is not the same on all brokers but varies based on the execution model they use.

ECN: 30 pips | STP: 34 pips

Fees

A Fee is similar to the commission that is paid to the brokers. Fee on ECN accounts is between 5-10 pips, while it is nil for STP accounts.

Slippage

Slippage is the difference between the price wanted by the client and the price they actually received from the broker. There is this difference due to two reasons:

  • Broker’s execution speed
  • Market volatility

Trading Range in EUR/PLN

A trading range is a table that represents the minimum, average, and maximum volatility of the market for various timeframes. With these pip movements from the past, we can determine the profit/loss that can be made from a trade.

Procedure to assess Pip Ranges

  1. Add the ATR indicator to your chart
  2. Set the period to 1
  3. Add a 200-period SMA to this indicator
  4. Shrink the chart so you can assess a large time period
  5. Select your desired timeframe
  6. Measure the floor level and set this value as the min
  7. Measure the level of the 200-period SMA and set this as the average
  8. Measure the peak levels and set this as Max.

EUR/PLN Cost as a Percent of the Trading Range

In calculating the total costs, spread and slippage are variables. These values change as the volatility of the market changes. And below, we have represented the variation of the costs by applying the values from the trading range table.

ECN Model Account

Spread = 30 | Slippage = 3 |Trading fee = 3

Total cost = Slippage + Spread + Trading Fee = 3 + 30 + 3 = 36

STP Model Account

Spread = 34 | Slippage = 3 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 3 + 34 + 0 = 37

Trading the EUR/PLN

Trading the EURPLN is not a hurdle. Though this pair is a major/minor currency pair, its characteristics are similar to that of majors/minors.

Firstly, the spread is around 30 pips, which are lower compared to other exotic-cross currencies involving EUR as the base currency. Secondly, the volatility of this pair is pretty decent. It is neither too high nor too low.

Coming to the above two tables, we can see that the percentage values are large in the min column and gets smaller as we move towards the max column. Since the values in the min column are significant, it is not advisable to trade this pair during low volatility. To have enough volatility with inexpensive costs, one may trade when the volatility is around the average values.

Placing orders through ‘limit’ and ‘stop’ would further decrease the costs. In doing so, the slippage on the trade will be nullified, and this will, in turn, bring down the total costs.

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Forex Fundamental Analysis

What Is Balance Of Trade & What Impact Does It Have On The Forex market?

Introduction

Introduction

Introduction

The Balance Of Trade AKA. BOT is essentially the difference or variance in a nation’s export and import. When understood correctly, this indicator can help us in evaluating the relative robustness of any given economy compared to the other ones. 

Understanding Balance Of Trade

In the simplest of analogies, consider a scenario where a rice seller sells $1000 worth of rice to other grain sellers in the market over a month. Within that month, if he had purchased $800 worth of goods like vegetables, fruits, etc. from the other vendors, his Balance Of Trade would be $200.

Here, in this example, the market is the entire world, and the rice seller is equivalent to a nation. $1000 is the net worth of the exported goods and services that went out of the country, whereas the $800 is the net worth of the imported goods and services that came into the country. In this case, $200 is the trade surplus that the country is having.

Therefore, Balance Of Trade can be considered as a difference between what goes out (exports) and what comes in (imports) over a given time frame. And depending on whether exports or imports are greater, a nation is said to be running a Trade Surplus or Trade Deficit, respectively. Fundamentally, an Export is when a foreign resident or nation purchases an in-country produced good or service, and an Import is when an in-country citizen purchases goods or services from foreign.

How is the Balance Of Trade calculated?

In the previous article, we understood the formula of a country’s current account. That is, Current Account = (Exports – Imports) + Net Income + Net Current Transfers.

In the above formula, (Exports – Imports) is the Balance of Trade.

How Can This Economic Indicator Be Used For Analysis?

Investors can use Balance Of Trade numbers to ascertain whether the overall economic activity of a nation has grown or slowed down concerning the previous month’s/quarter’s/year’s numbers. For example, a country which has seen a trade surplus for let’s say over ten years, and due to some calamities, its exports got hit. The nation might enter into a trade deficit or a reduced trade surplus. Such a relative comparison can help investors to ascertain whether a country’s economy is booming or slowing down.

In an absolute sense, a Trade surplus or Trade deficit, as discussed, cannot tell in entirety. But it will definitely give us a macroeconomic picture of an economy’s health and what the nation has undergone in the present business cycle. Let’s assume a country is a major exporter of oil for which it receives a majority of its income. If the production of oil is doubled, automatically there will be an increase in the demand for that currency worldwide. This will result in an appreciation of that country’s currency.

Not just this, but the Balance Of Trade can also point towards many things like an increase in employment or an oncoming expansion or recession when viewed with correct perspective and analysis.

Impact of Balance Of Trade on Currency

By simply looking at the BOT numbers, we cannot conclude whether a nation is experiencing growth or slow down straight away. Because the Balance Of Trade only projects a partial picture and not the whole picture.

A developing country might want to import more goods and services from abroad, which increases the competition in their respective markets. Thereby they keep the prices and inflation low. During these periods, that country will have a Trade Deficit. To an outsider, it will only look like the country is consuming more than it is producing. So this scenario can be wrongly assumed as the country’s economy is slowing down. But in reality, what if the country is experiencing a trade deficit for the first six months and a trade surplus for the next six months?

Developed nations like the United States and the U.K. have experienced long periods of trade deficits against developing and emerging economies like China and Japan, who have maintained trade surpluses for long times. Hence, the time frame, business cycles, the relative situation with other countries all factor in to give a correct interpretation to the BOT.

But in general, most of the time, an increase in the Balance of Trade number is good for Currency. It is a proportional indicator, meaning. Lower or negative Balance of Trade numbers relative to previous periods signals currency depreciation and vice versa.

Balance of Trade & Balance of Payments

BOT is a major component of a Nation’s BOPs, i.e., Balance Of Payments. Balance Of Payments, ideally, should always equate to zero, giving us a complete account of all things traded in and out of an economy. A nation can have a surplus while having a trade deficit. This happens when other components of Balance Of Payments like Financial Account or Capital Account run into large surpluses.

But in general, countries prefer to have a trade surplus, and it is obvious. A country in net terms receiving a gain or profit for their goods and services would mean that the people of that country will experience higher wealth, and it would automatically result in a higher standard of living. And also, by continually exporting, they would develop a competitive edge in the global market. This would also increase employment within the nation, which, in general, is favorable for the nation. But as said, it is always not necessary for this condition to be true. It depends on what goals the country has in mind for future short term deficits also matters.

Hence Balance Of Trade is one of the important indicators for analysts to ascertain a country’s economic activity and current health of an economy.

Economic Reports

Since the Balance of Trade is about imports and exports, data for the same is publicly available on a monthly basis for all the countries. The reports are released in the United States by the U.S. Bureau of Economic Analysis and the U.S. Census Bureau. The units would be typically in millions of dollars for most reports and for most nations. The popularly used reports are typically seasonally adjusted to give a more accurate report.

Sources of Balance Of Trade

To get the latest information about this economic indicator for the United States, you can refer to this link. To know all the diverse components involved in Balance Of Payments and International Trade, you can refer to this page from The Bureau Of Economic Analysis.

Impact Of ‘BOT’ News Release On The Price Charts

Now that we know the meaning of trade balance and how it affects the economy, we shall extend our discussion and understand how it impacts any of the currencies after the news announcement is made.

As we can see in the below image, the Trade Balance indicator has the least effect on currency (yellow indicator implies the least impact on currency). Hence, this might not cause extreme volatility in the currency pair after the news release. It is still important to understand the effect and look at how we can position ourselves in the market in such scenarios.

For illustration, we have chosen the New Zealand Dollar in our example, and we will analyze the latest’ Trade Balance’ data of the same. The data shows that Trade Balance was increased by 44M as compared to the previous reading, which is said to be positive for the currency. But let us see how the market reacted to this data after the announcement was made.

NZD/JPY | Before The Announcement - (Feb 26th, 2019)

The below chart shows that the overall trend is down, which means the New Zealand dollar is very weak. As said in the above paragraph that changes in Trade Balance of a country do not have much impact on the currency, so better than expected data can only cause a reversal of the trend. However, if the data is retained at previous reading, we can expect a continuation of the downtrend, and volatility will be more on the downside. We will be looking to trade the above currency on the ‘short’ side if the Trade Balance data is bad for the country since even positive data cannot push the currency higher.

NZD/JPY | After The Announcement - (Feb 26th, 2019)

After the news announcement, we see that the price crashed below the moving average, reacting to the not-so-good numbers of Trade Balance for New Zealand. The market participants were expecting much better Trade Balance data, but after seeing that it was increased by mere 44M, they were disappointed and hence sold New Zealand dollars. We can take advantage of this change in volatility by taking risk-free ‘short’ positions in the pair soon after the market falls below the moving average. We can hold on to our trade as long as the price is below the moving average and exit once we see signs of reversal.

GBP/NZD | Before The Announcement - (Feb 26th, 2019)

Here we can see that the New Zealand dollar is on the right-hand side, and since the market is in a downtrend, the currency is strong. In this situation, a risk-free way to trade this pair is by going ‘long’ if the Trade balance numbers are not good for the pair and after trend reversal signals. Since the downtrend is not very strong, we can take ‘short’ positions only if it breaks the recent ‘lows’ and shows signs of trend continuation.

GBP/NZD | After The Announcement - (Feb 26th, 2019)

After the numbers are out, we see the positive reaction for the New Zealand dollar as the numbers were better than last time, but it could not take it lower. Since the data was weak, we can ‘long’ positions in the pair once the price makes a ‘higher low’ after crossing above the moving average.

EUR/NZD | Before The Announcement - (Feb 26th, 2019)

The above chart represents the currency pair of EUR/NZD, which shows similar characteristics as that of the NZD/JPY pair but in reverse as the New Zealand dollar is on the right-hand side. In this pair, the New Zealand dollar is extremely weak, and we also the price is above the moving average showing the strength of the uptrend. Therefore taking’ short’ positions in this pair is not advisable even if the Trade Balance data is good for the New Zealand economy, as it is a less impactful event, and the reversal might not last. A better option would be to go ‘long’ in this pair.

EUR/NZD | After The Announcement - (Feb 26th, 2019)

After the news announcement, we see a red candle, and the price bounces off the moving average, continuing its uptrend. Since the data was not very positive, the market continues its uptrend, and thereby the New Zealand dollar weakens further. This could be the perfect setup for a ‘buy’ since all parameters are in our favor. The volatility here expands on the upside, after the news release.

That’s about the Balance of Trade and its impact on the Forex currency pairs. We just wanted to show how the markets get impacted after the news release. It is always advisable to combine these fundamental factors with technical analysis as well to ace the Forex markets. Cheers.

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Forex Course

82. Using The MACD Indicator To Identify Potential Trading Signals

Introduction

Introduction

Introduction

The MACD indicator was developed by Gerald Appel in the late 1970s. It stands for Moving Average Convergence and Divergence. MACD is quite popular, and it can be considered as one of the safest and most effective momentum indicators in the market. As the name suggests, this indicator is all about the convergence and divergence of the two moving averages. When the moving average moves away from each other, the convergence occurs. Likewise, the divergence occurs when the moving average of the indicator moves towards each other.

MACD fluctuates above and below the zero lines, unlike the RSI indicator that we discussed yesterday. Also, since MACD is an unbound indicator, it is not useful to find out the overbought and oversold market conditions. Instead, traders can look for the signal line crossovers, centerline crossovers, and divergence to trade the market.

The image below represents the MACD indicator on the GBP/USD Forex chart.

How To Trade Using The MACD Indicator?

Signal Line Crossovers

The signal line crossover is one of the most popular trading strategies designed around the MACD indicator. A bullish crossover occurs when the indicator prints a crossover below the zero-line.  Contrarily, A bearish crossover occurs when the MACD prints a crossover above the zero-line.

If you are trading the lower timeframe, these crossovers last for a few hours. But if you are trading the higher timeframe, these crossovers can last a few days or even weeks. In the below chart, we can see a buy and sell signal generated by using the MACD indicator. In simple words, crossover below the zero-line indicates a buying trade, and the crossover above the zero-line indicates a selling trade.

Trade The Zero Line By Following The Trend

When the MACD line goes above the zero-line, it means that the trend of the instrument is gaining strength. When this happens, any buying anticipation will be a good idea. Conversely, when the indicator goes below the zero-line, it indicates a strong downtrend, and going short in the market is a good idea at that point.

If we plan to go long, it is advisable to trade with the trend. In a buy trend, if the MACD line indicates a selling signal, try to ignore that signal and wait for the buy signal. The same applies to the sell-side as well. If we find any breakout or breakdown supporting the MACD signal, that increases the probability of our trade performing in our desired direction.

The below image represents a sell signal by using the MACD indicator. In a downtrend, when the price action broke the major resistance line, we can see a crossover on the MACD indicator below the zero-line. This clearly indicates the gained momentum by the sellers,, and going short from here will be a good idea. Make sure to book the profit when the MACD indicator gives the crossover to the buying side.

MACD Indicator + Double Moving Average

We have learned what Moving Averages are and how to use them on the price charts. In this strategy, we are pairing the MACD indicator with 9-period and 15-period moving averages to identify potential trading signals.

The strategy is to go long when the MACD gives a crossover below the zero-line and the moving averages crossover below the price action. Conversely, go short when the MACD indicator gives the crossover above the zero-line and the moving averages crossover above the price action. It is advisable to use this strategy in healthy market conditions, and the lower period averages work fine for intraday trading only.

As you can see in the below chart, the market was in an uptrend. Using this strategy, we have identified three buying opportunities. All of these three trading opportunities have gives us 70+ pip profit in just two days. As we know that the moving averages act as dynamic support and resistance to price action, it is safe to put the stops just below the moving average indicator and exit our position when any of the indicators give an opposite signal.

That’s about the MACD indicator and how to trade the Forex market using this indicator. If you have any questions, let us know in the comments below. Stay tuned to learn about many more technical indicators in the upcoming sections.

[wp_quiz id=”66874″]
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Forex Assets

Everything About EUR/TRY Forex Currency Pair

Introduction

Introduction

Introduction

EUR/TRY is the abbreviation for the Euro area’s euro against the Turkish Lira. This pair is classified as an exotic-cross currency pair. In this pair, EUR is the base currency, and TRY the quote currency.

Understanding EUR/TRY

The price of this pair determines the value of TRY, which is equivalent to one euro. It is quoted as 1 EUR per X TRY. For example, if the value of this pair is 6.5552, then about 6.5 Turkish Liras are required to purchase one euro.

EUR/TRY Specification

Spread

Spread is simply the difference between the bid price and the ask price in the market. This value is controlled by the brokers. This value varies on the type of execution model used for executing the trades.

Spread on ECN: 40 pips | Spread on STP: 44 pips

Fees

The fee in Forex is similar to the one that is pair to stockbrokers. Note that, there is no fee on STP accounts, but a few pips on ECN accounts.

Slippage

The slippage on a trade is the difference between the price that is demanded by the trader and the price that is actually executed by the broker. Market volatility and the broker’s execution speed are the reasons for slippage to occur.

Trading Range in EUR/TRY

A trading range is the representation of the minimum, average, and the maximum volatility of this pair on the 1H, 4H, 1D, 1W, and 1M timeframe. Using these values, we can assess our profit/loss margin of trade. Hence, this proves to be a helpful risk management tool for all types of traders.

Procedure to assess Pip Ranges

  1. Add the ATR indicator to your chart
  2. Set the period to 1
  3. Add a 200-period SMA to this indicator
  4. Shrink the chart so you can assess a large time period
  5. Select your desired timeframe
  6. Measure the floor level and set this value as the min
  7. Measure the level of the 200-period SMA and set this as the average
  8. Measure the peak levels and set this as Max.

EUR/TRY Cost as a Percent of the Trading Range

With the volatility values obtained from the above table, we can see how the cost varies as the volatility of the market varies. All we did is, got the ratio between the total cost and the volatility values and converted into percentages.

ECN Model Account 

Spread = 40 | Slippage = 3 | Trading fee = 3

Total cost = Spread + Slippage + Trading Fee = 40 + 3 + 3 = 46

STP Model Account

Spread = 44 | Slippage = 3 | Trading fee = 3

Total cost = Spread + Slippage + Trading Fee = 44 + 3 + 0 = 47

The Ideal way to trade the EUR/TRY

The EURTRY is a pair with enough volatility and liquidity. Hence, this makes it simpler to trade this exotic-cross currency.

From the above table, we can see that the percentage values are all within 200%. This means that the costs are low irrespective of the timeframe and volatility you trade.

Digging it a little deeper, the costs are higher when the volatility of the market is low and lower for higher volatilities. However, we cannot ignore the fact that this pair is highly volatile. For example, the maximum volatility on the 1H timeframe is as high as 456. So, traders must be cautious before trading this pair.

When it comes to the best time of the day to trade this pair, it is ideal for entering this pair during those times of the day when the volatility is in between the average values because this will ensure decent volatility as well as low costs.

Furthermore, traders can easily reduce their costs by placing orders as ‘limit’ and ‘stop’ instead of ‘market.’ In doing so, the slippage on the trade will not be considered in the calculation of the total costs. So, in our example, the total cost will reduce by three pips.

Categories
Forex Fundamental Analysis

Comprehending ‘Current Account to GDP Ratio’ Economic Indicator

Introduction

Introduction

Introduction

The Current Account balance represents one half of the nation’s Balance Of Payments. This number typically ranges in billions and trillions. When trying to comprehend such big numbers, a strong understanding of what do these numbers represent in actuality is paramount.

What is the Current Account Balance?

The equations given below represent what Current Account balance is composed of and how it contributes to the nation’s Balance Of Payments

The current account balance is the sum of the Balance Of Trade, Net Income, and Net Current Transfers. Fundamentally, the Balance Of Trade represents the difference between total exports and imports of goods and services for that nation.

Balance Of Trade: The Balance Of Trade is the difference between the revenue generated by export and the expenditure incurred by the imports. A nation that exports more than what it imports is said to be running a trade surplus. Conversely, a country whose imports exceed its exports is said to be running a trade deficit. A country that is having a trade deficit is said to have a negative Balance Of Trade, and a trade surplus country is said to have a positive Balance Of Trade.

Net Income: It represents the income received by a country for its investments in areas like real estate or holding in foreign shares, etc.

Net Current Transfers: The net current transfer represents one-directional transfer between one Nation to another without any equivalent financial item in return. This may take the form of worker remittances, charitable fund transfer, or even relief funds, etc.

All these three components are combined to form what is called the current account balance of a nation.  A country with a negative current account balance is a net borrower from the rest of the world, and that which has a positive current account balance is a net lender to the rest of the world.

For example, the United States, which is running a negative current account balance, indicates that the nation is importing or consuming more than it is exporting or producing, thereby sending trillions of dollars out of the nation in exchange for equivalent goods and services.

Current Account & Capital Account

The Capital Account reflects the opposite of what current account balance shows. If a country is importing commodities by sending out money, it must receive an equivalent amount of money in one form or another from a certain set of sources. The Capital Account reflects those sources.

A country receives capital when its domestic assets are purchased by foreign bodies. The same country also spends money when it purchases foreign assets using domestic currency. The total of these both may result in a positive or negative capital account. A country running a negative current account balance must have, by definition, a positive equivalent capital account as the total of the entire Balance Of Payments should equal to zero.

How is the Current Account Balance to GDP calculated?

The current account balance, which often ranges in billions and trillions, is expressed as a percentage of GDP. The Bureau of Economic Analysis releases the current account balance quarterly, semi-annually, and annually. The World Bank publishes current account balance as a percentage of GDP for all the nations.

Below is the snapshot of the current account balance as a percentage of GDP for the United States published by the World Bank on their official website.

How can the Current Account Balance to GDP be Used for Analysis?

The current account balance is an entire country’s economic figure, and when calculated as a percentage of the Gross Domestic Product GDP, we can draw a lot of conclusions about the current economic situation within the nation.

We have to also keep in mind that simply a negative current account balance or its percentage does not mean that the economy is stagnating nor a positive current account balance indicates a growing economy. The United States has been running in a negative current account balance since 1980.

The current account balance is one part of the Balance Of Payments, and when we look in the absolute sense, we will not be able to assess the nation’s economic situation properly. Instead, if we look at the percentage concerning the previous number, we might be able to know whether the economic conditions have improved or declined concerning earlier periods.

For example, in the US, a $1.1 billion reduction of the current account deficit in the third quarter of 2019 concerning the previous quarter was mainly due to increased income and reduced goods deficits, as mentioned by the Bureau of Economic Analysis.

Impact On The Currency

The Current Account balance reflects the overall economic activity and the revenue circulation in and out of the country. As a percentage of GDP, it can give us a relative comparison on a global scale with other competing nations. In general, it is a proportional indicator. Meaning, an increase in the results in currency appreciation on a relative basis with previous periods and vice-versa.

On a relative basis, the measured changes in the percentages can help us understand which country’s economic activity has grown or contracted. Such macro-economic indicators are very useful for many people. For instance, Governments can take policy decisions or put appropriate pressure or give support to certain businesses, either increase or decrease economic activity.

Traders can also use these indicators to predict currency movement and may decide to invest. Large and unpredictable movements in the current account balance can shake the confidence of investors in either direction, i.e., positively or negatively.

Sources of Current Account Balance to GDP

The United States Bureau of Economic Analysis releases quarterly reports of the Current Account Balance numbers. It can be found here.

Also, the World Bank releases Current Account Balance as a percentage of GDP on its official website for many countries. Those numbers can be found here.

Impact Of ‘CA To GDP’ Announcement On The Price Charts

In this section of the article, we shall see how the Current Account % of GDP will impact the currency and cause a change in the volatility. We will be analyzing the Current Account % of GDP data of New Zealand by observing the changes in the data from previous reading to the current reading.

The Current Account % of GDP data is released every quarter, and thus we will have four readings in a year. The latest data available to us is of the 3rd quarter released in the month of December and the 4th quarter data will be released in March. As we can see below, this indicator has the least impact on the currency (Yellow Implies Least Impact), and we should not expect much volatility after the news announcement.

Below is the Current Account % of GDP of December quarter, which is released by the ‘Statistics New Zealand’ agency, which collects information from people and organizations through censuses and surveys. It is also known as ‘Stats NZ’ and is a government department. The data shows that the Current Account % of GDP was increased by 0.1%, which we will now see what impact it created on the charts.

NZD/CAD | Before The Announcement - (Dec 17th, 2019)

Before the news announcement market is in a clear downtrend and is attempting for a pullback. When we are talking about the impact of the news, we know that since it is a less impactful event, a better than expected result would mean a partial reversal of the trend. If the numbers are not that good for the ‘New Zealand Dollar’ we should expect a continuation of the current trend.

Thus, from a trading point of view, it is better to join the current downtrend if the Current Account % of GDP is maintained somewhere around the previous reading. We should not be going ‘long’ in the market even if the data is good for ‘New Zealand Dollar’ since the impact of the indicator is not high, and then the rally will not last.

NZD/CAD | After The Announcement - (Dec 17th, 2019)

The Current Account % to GDP was increased by 0.1%, which is mildly positive for the New Zealand Dollar. We see the initial reaction of the market where the candle barely closes in green. The volatility witnessed is also very less due to the above-mentioned reason.

Therefore, we can trade this currency pair on the ‘short’ side, after the price goes below the moving average line, which will our confirmation sign for the trend continuation. Since the news outcome was not good for the New Zealand Dollar, the downtrend could continue further, and we should be able to easily make a profit on the downside.

NZD/CHF | Before The Announcement - (Dec 17th, 2019)

  

NZD/CHF | After The Announcement - (Dec 17th, 2019)

The above chart represents the currency pair of NZD/CHF, which shows similar characteristics as that of the NZD/CAD currency pair. In this pair, we can notice that the news release did not even take the price above the moving average line, which means the data is very weak when compared to Swiss Franc. The market became volatile after the news release and took the price down. Thus, this is a much better pair for taking a ‘short’ trade with an amazing risk to reward ratio. We can also continue to hold on to our profits as long as the price is below the moving average.

EUR/NZD | Before The Announcement - (Dec 17th, 2019)

EUR/NZD | After The Announcement - (Dec 17th, 2019)

In this currency pair, the New Zealand Dollar is on the right side, so we see an uptrend illustrating the weakness of the currency. Since the Current Account % of GDP data was slightly positive for the New Zealand Dollar, we see a red candle after the news announcement, but later it was fully overshadowed by the green candle. This means the Current Account numbers were not good enough to take the currency lower.

What we see after the news release is a ‘Bullish Engulfing’ candlestick pattern, which is essentially a trend continuation pattern. Thus, once the price goes above the moving average line, we can enter for’ longs’ in this pair with a stop loss below the red candle and aiming for a new ‘higher high.

That’s about the Current Account To GDP ratio Economic Indicator and its impact on the Forex market. If you have any questions, please let us know in the comments below. All the best.

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Forex Course

81. Learn To Trade Using The ‘RSI’ Indicator

Introduction

Introduction

Introduction

In our previous article, we have learned how to trade the markets using the Bollinger Bands. We hope you have used that indicator in a demo account and got a hang of it. Now, in this course lesson, let’s learn the identification of trading opportunities using a reliable indicator know as RSI.

RSI is one of the most famous indicators used in the Forex and the Stock market. It stands for the ‘Relative Strength Index’ and is developed by an American technical analyst – J. Welles Wilder. This momentum indicator measures the magnitude of the price change to identify the oversold and overbought market conditions.

The RSI indicator consists of a line graph that oscillates between zero and 100 levels. Traditionally, the market is considered overbought when the indicator goes above the 70-level. Likewise, the market is considered oversold when RSI goes below the 30-level. These traditional levels can be adjusted according to different market situations. But if you are a novice trader, it is advisable to go with the default setting of the RSI.

When the market is in an overbought condition, it indicates a sell signal in the currency pair. Likewise, if the market is in an oversold condition, we can expect a reversal to the buy-side. To confirm the buy and sell signals generated by the oversold and overbought market conditions, it is advisable to also look for centerline crossovers.

When the RSI line goes above the 50-level, it means that the strength of the uptrend is increasing, and it is safe to hold our positions up to the 70-level. When the centerline goes below the 50-level, it indicates the weakening in strength and any open sell position until the 30-level is good to hold.

RSI is one of those indicators which is not overlapped with the price action. It stays below the price charts. Below we can see the snippet of how the RSI would look on the charts. The highlighted light purple region marks the 70 and 30 levels, and the moving line in the middle is the RSI line.

How To Trade Using The RSI Indicator

There are various ways to use the RSI indicator to generate consistent signals from the market. You can use this indicator stand-alone, or you can pair it with other indicators and with candlestick patterns for additional confirmation. In this article, let’s learn the traditional way of using the RSI indicator along with RSI divergence and RSI trendline breakout strategies.

Traditional Overbought/Oversold Strategy

In the traditional way, we just hit the Buy when the RSI indicator gives sharp reversal at the oversold area. Contrarily, we go short when the RSI indicator reverses at the overbought area. The image below represents the Buy and Sell trade in the AUD/CAD Forex pair. We must close our positions when the market triggers the opposite signal. Stop-loss can be placed just below the close of the recent candle.

RSI Divergence Strategy

Divergence is when the price action moves into one direction, and the indicator moves in another direction. It essentially means that the indicator does not agree with the price move, and soon a reversal is expected. In other words, RSI divergence is known as a trend reversal indication.

In the below image, price action prints the RSI divergence twice, and both times the market reversed to the opposite side. When the market gives us a reversal, find any candlestick pattern or any reliable indicator to confirm the trading signal generated.

In the below image, we have identified the market divergence twice, and both the times the market reversed. If traded correctly, this strategy will result in high profitable trades.

Trendline Breakout Strategy

RSI trend line breaks out is a quite popular strategy as it is used by most of the professional traders. In the image below, when price action and the RSI indicator breaks the trend line, we can see the market blasting to the north.

Always remember to strictly go long in an uptrend, and go short in a downtrend while using this strategy. Buying must be done when the market is in an overbought condition, and the selling must be done when the market is in an oversold condition.

If you want to confirm the entry, wait for the price action to hold above the breakout line to know that the breakout is valid. Exit your positions when the RSI reaches the opposite market condition.

That’s about RSI and trading strategies using this indicator. Try using this indicator on a demo account today and experiment with the above-given strategies. Let us know if you have any questions in the comments below. Cheers!

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Forex Assets

Exploring The EUR/THB Exotic Currency Pair

Introduction

Introduction

Introduction

EUR/THB is the abbreviation for the Euro area’s euro against the Thai Baht. This pair is classified as an exotic currency pair. In this pair, EUR is the base currency, and THB is the quote currency.

Understanding EUR/THB

The market value of this pair represents the value of THB equivalent to one EUR. It is quoted as 1 EUR per X THB. For example, if the current market price of this pair is 35.345, these many units of THB are required to purchase one euro.

EUR/THB Specification

Spread

The algebraic difference between the bid and the ask price is referred to as the spread. Spread is determined by the brokers and varies based on the execution model they use.

Spread on ECN: 25 pips | Spread on STP: 28 pips

Fee

The fee is simply the commission paid on the trade. However, this fee is levied only on ECN accounts, not STP accounts.

Slippage

When you execute orders by market, the price you receive from the broker is different from the price you trigger your order. This happens solely due to the changes in the market volatility and the speed with which brokers execute the trades.

Trading Range in EUR/THB

The trading range is the representation of the range of pip movement in a currency pair. These pip values help in assessing the profit/loss in a trade, even before opening positions. In the below table, we have included six timeframes, ranging from 1H to 1M.

Procedure to assess Pip Ranges

  1. Add the ATR indicator to your chart
  2. Set the period to 1
  3. Add a 200-period SMA to this indicator
  4. Shrink the chart so you can assess a large time period
  5. Select your desired timeframe
  6. Measure the floor level and set this value as the min
  7. Measure the level of the 200-period SMA and set this as the average
  8. Measure the peak levels and set this as Max.

EUR/THB Cost as a Percent of the Trading Range

The cost as a percent of the trading range is the representation of the cost variation in the trade. The cost varies based on the volatility of the market. Having an idea of the cost variation, we can find our ideal times of day to trade in the market with reduced costs.

ECN Model Account

Spread = 25 | Slippage = 3 | Trading fee = 3

Total cost = Spread + Slippage + Trading Fee = 25 + 3 + 3 = 31

STP Model Account

Spread = 28 | Slippage = 3 | Trading fee = 0

Total cost = Spread + Slippage + Trading Fee = 28 + 3 + 0 = 31

The Ideal way to trade the EUR/THB

Before getting right into it, let’s comprehend the above tables. To analyze the tables, we consider the magnitude of the percentages. The higher the percentages, the higher is the cost of the trade. Conversely, lower percentages imply lower costs.

The costs in the min column are higher compared to the max column. This means that the costs are high when the volatility of the market is low, and the converse holds true as well.

The ideal way to trade this pair is completely dependent on the type of trader you are. For instance, if you are a trader looking for low costs, then you may trade when the volatility is high. Since the majority of the traders need a balance between the two, they may trade when the volatility of the market is somewhere around the average values in the trading range table.

Another simple technique to reduce costs is implementing strategies such that orders are executed using limit orders instead of market orders. In doing so, the slippage will be completely eradicated, and the total costs will be reduced by a decent number.

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Forex Course

80. Indicator Based Trading – Bollinger Bands

Introduction

Introduction

Introduction

In the previous course lessons, we understood the importance, types, and various pros and cons involved in indicator-based trading. From this lesson, let’s start learning some of the most widely used indicators in the market. We will be starting with Bollinger Bands, which is arguably considered as one of the most widely used indicators in the Forex Market.

What are the Bollinger Bands?

They are a technical analysis indicator, which was developed by one of the famous technical trader John Bollinger in the 1980s. This indicator consists of three lines, which are simple moving average (the middle band), an upper and a lower band. In a volatile market, the bands of the indicator expand, and it contracts in tight market conditions.

Most of the traders think that the Bollinger bands indicator is similar to the moving average envelope, but it’s not true, because the calculations of both of the indicators are different. For plotting the upper and lower bands of the Bollinger Bands indicator, the standard deviation is considered. On the other hand, for moving average envelopes, the lines are calculated by taking a fixed percentage.

Bollinger Bands Indicator Plotted on a Forex Price chart

Using The Bollinger Bands Indicator To Take Trades

Most of the market experts and chartists believe that when the price action continuously touches the upper band, it means that the market is in an overbought condition, triggering a sell signal. Conversely, the closer the price action moves towards, the lower band, the more oversold the market is, triggering a buy signal.

This is the most common way to trade the markets using the Bollinger Bands. As much as this is true, we don’t suggest to use this approach to trade the markets where traders just blindly follow this one single rule. As we all know that the trend is our friend, we must first figure out the trend. Then it is advisable to trade only buy opportunities in an uptrend and sell opportunities in a downtrend. This is one of the most reliable ways to identify the trades on any trading timeframe.

The below image represents the buying opportunities on the EUR/CAD 5 min Forex chart. As we can see, the market was in a strong uptrend. We have identified four buying opportunities in just a couple of hours. The chart clearly represents how many times the price action touched the upper band and didn’t drop instantly. This is the reason why most of the professionals use this indicator to trade the market.

Trading Ranges Using The Bollinger Bands

One more crucial applications of the Bollinger Bands indicator is while trading ranges. This is because the bands of the indicator act like dynamic support and resistance levels to the price action. Higher the timeframe we use to trade the ranges, stronger are the bands will be. That is, price relatively respects these brands than the bands in the lower time frames. Many successful traders ace the market by using this strategy alone.

As we can see in the below chart, the market generated three buying and two selling opportunities when the market is ranging. Do not place the buy or sell orders blindly when prices reach the upper or lower level of the consolidation phase. Instead, wait for the prices to hold there for a couple of candles to activate your trades. In the below image, we have activated our trades only when we saw the confirmation candles. In this way, we can filter out whipsaws and false trading signals.

Conclusion

This lesson is an attempt to give you a basic idea of the working of this indicator. There are many more aspects to this, and you will be learning them once you start exploring Bollinger Bands on the price charts. You can refer to this and this articles to get advanced trading strategies using this indicator. Bollinger Bands can also be combined with technical tools like chart patterns and other reliable indicators to generate more accurate trading signals. One such example can be found here. Cheers!

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Forex Assets

Everything You Should Know About The EUR/SEK Forex Pair

Introduction

Introduction

Introduction

EUR/SEK is the abbreviation for the Euro Area’s euro against the Swedish Krona. This exotic-cross currency pair has enough volatility but lacks liquidity. This is the reason this has pretty high spreads. In this pair, EUR is the base currency, and SEK is the quote currency.

Understanding EUR/SEK

The market price of EURSEK as a whole determines the value of SEK that is required to buy one euro. It is quoted as 1 EUR per X SEK. For example, if the value of this pair is 10.5839, then this amount of SEK is required to purchase one EUR.

EUR/SEK Specification

Spread

The difference between the bid price and the ask price is called the spread. This value is different from one ECN and STP accounts. The approximate values of the same are mentioned below.

Spread on ECN: 50 pips | Spread on STP: 55 pips

Fees

The fee is simply the commission paid for the trade. This, too, depends on the type of execution model used by the broker. The fee on ECN accounts is a few pips, while it is nil on STP accounts.

Slippage

The slippage is the difference between the trader’s intended price and the broker’s executed price. There is this difference because orders are executed by the ‘market.’ The two main reasons for slippage to occur include, broker’s execution speed & Market volatility.

Trading Range in EUR/SEK

With the values in the trading range, which depict the pip movement in different timeframes, we can determine the gain or loss that is possible on trade.

These values are obtained by combining the moving average with the average true range indicator. A complete procedure to get it into your charts is given below.

Procedure to assess Pip Ranges

  1. Add the ATR indicator to your chart
  2. Set the period to 1
  3. Add a 200-period SMA to this indicator
  4. Shrink the chart so you can assess a large time period
  5. Select your desired timeframe
  6. Measure the floor level and set this value as the min
  7. Measure the level of the 200-period SMA and set this as the average
  8. Measure the peak levels and set this as Max.

EUR/SEK Cost as a Percent of the Trading Range

Firstly, the total cost is calculated by finding the sum of the spread, slippage, and trading fee. And this cost varies as the volatility of the market changes. Below is a table that represents the cost variation for EURSEK for both ECN and STP accounts.

ECN Model Account 

Spread = 50 | Slippage = 3 | Trading fee = 3

Total cost = Spread + Slippage + Trading Fee = 50 + 3 + 3 = 56

STP Model Account

Spread = 55 | Slippage = 3 | Trading fee = 0

Total cost = Spread + Slippage + Trading Fee = 55 + 3 + 0 = 58

Note: The costs may seem high because of the Spreads. As we know, these Spreads keep changing from time to time. At times we have seen the spreads for this pair being as low as 10. But we have considered the maximum spread to give you the maximum cost percentages.

The Ideal way to trade the EUR/SEK

From the trading range table, we can clearly see that the volatility in this pair is pretty high. However, this does not mean that it cannot be traded.

Coming to the next two tables, the percentage values are within the 600% mark. Note that the higher the value of the percentages, the higher is the cost. The opposite holds true, as well. Since the percentage values are high in the min column, we can conclude that the costs are high when the volatility of the market is low.

Now, to have a balance between the costs and the volatility, one must trade during those times when the volatility of the market is around the average values in the trading range table.

Moreover, there is a way through which we can nullify the slippage on the trade. This can simply be done by placing orders using ‘limit’ instead of ‘market.’ In doing so, the total cost will reduce by a decent amount.

Categories
Forex Fundamental Analysis

How ‘Government Debt to GDP Ratio’ Impacts The Forex Market

‘8765Introduction

‘8765Introduction

‘8765Introduction

Government Debt to GDP is one of the main indicators which points towards the current health of an economy and its probable future monetary prospects. For a long time, analysts have used Government Debt to GDP ratio as one of the reliable indicators in ascertaining a country’s economic health and its resultant country’s currency worth.

What is the Government debt-to-GDP ratio?

The debt-to-GDP is the proportion of a country’s total public debt to its GDP (Gross Domestic Product). In simpler words, it is the ratio of what a country owes to what a country earns. The debt-to-GDP ratio of a country compares its sovereign money owed to its total economic output for the year. Here the output is measured by gross domestic product.

Why is the Government debt-to-GDP ratio important?

When we contrast what a nation owes against what it outputs, the debt-to-GDP ratio assuredly indicates a nation’s potential to repay its dues. The Government debt to GDP in many places is conveyed as a percentage. This ratio can also mean the time required by a nation to repay and close off the owed sum where we assume if GDP is entirety used for its debt repayment.

The Government debt-to-GDP ratio is a beneficial indicator for analysts, economists, investors, and leaders. It enables them to ascertain a country’s potential to repay its owed debt. An excessive debt to GDP ratio tells that the country isn’t generating enough output to be able to repay its debt. A small ratio means there is enough income to pay off the interest on its debt.

To elaborate in layman terms, consider this analogy where a nation is like an employee, and GDP is like his/her income. Financial Institutions will be willing to give a bigger loan if they earn a higher salary. In the same way, investors would come forward to take on a country’s debt if it generates more revenue.

If investors start to lose confidence in repayment by a country, they will tend to expect a higher return in the interest rate for their lent money for the higher defaulting risk. That results in the rise of the country’s cost of debt. It means the debt itself becomes more expensive in the sense that more money goes on in just paying interests only. Such situations can quickly become a financial crisis and thereby resulting in depreciation on their credit score. That will, in turn, impact their money lending capacity and credibility in the future.

How can Government debt-to-GDP ratio be Used for Analysis?

If a Government has spent more in the past than they have received in tax revenues, it means they are injecting more money into the economy than they are withdrawing and vice versa. In general, injections are inflationary and withdrawals deflationary. The higher the percentage of Debt to GDP a Government has, the more they have to spend to maintain inflation or GDP growth or risk defaulting on their debt.

As the debt to GDP ratio increases, Economic growth becomes more dependent on Public Spending. If the Government decides to cut public spending, then this would mean if all things being equal, reduce the debt to GDP ratio and be deflationary. The thing we need to notice here is that a higher debt to GDP ratio means there is more pressure to inflate. The only choices are to deflate (which is not desirable), default on the debt (not desirable), or to inflate further.

Historically 80% level of debt to GDP is usually seen as the trouble zone. The default zone is above 100%, where it means that what country earns is less than what country owes. Interest rate suppression is necessary to keep interest bill on Government debt to a minimum. At levels of 100%+ Debt to GDP Ratio, Governments have no choice but to continue to inflate further.

Impact on Currency

If a country’s debt-to-GDP ratio increases, it often points towards an oncoming recessionary period. When a country’s GDP decelerates during a contraction, it causes federal revenue, in the form of taxes and federal receipts, etc., declining.  This results in currency depreciation. In this type of situation, generally, the government tends to increase its public spending to spur growth in the economy. If this spending produces the desired effect, the recession will waive off. Taxes and federal revenues will again increase, and the debt-to-GDP ratio should accordingly return to normal.

When the entire world’s economy keeps on improving, investors will tolerate a higher exposure on their lent money because they seek higher returns. The returns on U.S. debt will increase as requests for U.S. Debt depreciates. If a particular country’s interest rate returns are higher than usual, we also need to keep in mind the fact that the probable reason for such high rates are either because the nation is already in a lot of debt, so it is very likely to default, and it certainly is in less demand in the market.

The country has to give out larger sums of interest to get them to purchase its bonds and lend their money to the Government. Hence, Investors generally choose developed nations or nations with a proven track record of repayment. In general, a decrease in the Debt to GDP number indicates a growing economy, which ultimately results in strengthening the currency.

Economic Reports

To calculate the debt-to-GDP ratio, we have to know mainly two things: the country’s current owed sum and the country’s generated revenue, i.e., its real Gross Domestic Product. This data is publicly available, and it is released quarterly. The majority of economic analysts, professional traders, look at total overall debt, but some institutions, like the CIA, only consider the total public debt to publish in their publishes.

Sources of Government Debt to GDP

The Research Division of St. Louis FRED is in the top 1% of all economics research departments worldwide. St. Louis Fed publications provide analysis, information, and instruction for the journalists, the general public, and students. These outlets allow us to effectively address economic trends, explore historical trends, and current data for economic policy.

For the United States, we can get a comprehensive analysis of Federal Debt, Total Public Debt, and Total Public Debt as a Percentage of Gross Domestic Product, Federal Surplus or Deficit. All of these details with illustrative historical analysis and many more subcategories of the same can be found in the St. Louis website.

Inflation Rates of some of the major economies can be found below.

United Kingdom | Australia | United States | Switzerland | Euro Area | Canada | Japan 

How ‘Government Debt to GDP Ratio’ News Release Affects The Price Charts?

After understanding the Government Debt to GDP economic indicator, we will now see how a currency is affected after the news announcement is made. To understand the effect, we have chosen ‘Brazilian Real’ as the reference currency, as the data available is appropriate for analyzing the impact made by the news.

The Debt-to-GDP ratio data has the least importance and does not cause much volatility in the currency pair after the news release. This is the reason why most countries do not announce the data every month and review the GDP ratio on a yearly basis. But Brazil is one country where the government releases the data on a monthly basis. Let us analyze the lastest Debt to GDP ratio of Brazil.

The Debt to GDP ratio of Brazil is released by the Brazilian Institute of Geography and Statistics (IBGE), which is the official agency responsible for the collection of various information about Brazil. We see that the Debt to GDP ratio was reduced by a mere 1.5% from the previous January’s ratio. Let us find out how the market reacted to this.

Note: The ‘Brazilian Real’ is an ’emerging currency’ which is not traded in high volumes and hence can appear to be illiquid at times.

USD/BRL | Before The Announcement - (Feb 28th, 2020)

In USD/BRL, the market before the news announcement is in an uptrend showing the weakness of the ‘Brazilian Real.’ The price, just before the data is about to release, has broken the moving average line, which could be a sign of reversal. As we mentioned in the previous section of the article, lower than expected reading is taken as positive for the currency and should strengthen the currency.

Hence if the data is much lower than 55.7%, we can take a ‘short’ trade and expect a trend reversal. In this case, we will also have a confirmation from the MA. Whereas if the data is maintained around the previous reading or increased, it is bad for the currency, and we need to wait for some trend continuation signs to join the uptrend.

USD/BRL | After The Announcement - (Feb 28th, 2020)

After the news announcement is made, traders see that there was not much change in the Debt to GDP ratio, where was it was reduced by just 1.5%. This is the reason why USD/BRL did not collapse, which would strengthen the ‘Brazilian Real.’ The price did go down for a while but later created a spike on the bottom and closed above the opening price.

This spike could be a sign of trend continuation, and one can go ‘long’ in the market with a stop loss below the ‘low’ of the spike and targeting the recent high. We are essentially taking advantage of the increase in volatility after the news announcement.

EUR/BRL | Before The Announcement - (Feb 28th, 2020)

EUR/BRL | After The Announcement - (Feb 28th, 2020)

The EUR/BRL currency pair shows similar characteristics as that of the USD/BRL pair but with a major difference that the price remains below the moving average most of the time. Even though a wonderful rejection is seen at the time of news announcement, it is advised to go ‘long’ in this pair with a smaller position size and taking profit at the earliest. The debt to GDP ratio was not reduced much to create an impact on the pair, which can be seen from the ranging nature of the market after the news release.

GBP/BRL | Before The Announcement - (Feb 28th, 2020)

GBP/BRL | After The Announcement - (Feb 28th, 2020)

In the above chart, we can see that the currency pair is already in a downtrend, showing the strength of the ‘Brazilian Real.’ Since the pair is in a strong downtrend, not so good news for the Brazilian Real would mean no reversal of the current trend. However, this currency pair could prove to be the best pair for trading among all other pairs if the news outcome is positive for the Brazilian Real as we will be trading with the trend.

After the news announcement is made, the market barely goes above the moving average, which means going ‘long’ in this pair can be very risky. Therefore, the only way to trade in such scenarios is when the news outcome is positive for the currency pair on the right-hand side and profit on the downside.

That’s about Government Debt To GDP Ratio and its impact on some of the Forex currency pairs. In case of any queries, let us know in the comments below. Cheers.

Categories
Forex Course

79. Is Indicator Based Trading For You or Not? (Pros & Cons)

Introduction

Introduction

Introduction

In the previous course article, we have briefly discussed the basics of indicator-based trading. We have also understood the different types of indicators. Before considering how to trade using these indicators, let’s see if indicator based trading is for you or not. For that, we will be listing down some of the significant pros and cons involved in indicator-based trading. After going through this article, we will know why we should be using indicators to trade the markets and what we should be cautious about while using these indicators.

Pros of using Technical Indicators

Simplification

As discussed in the previous course article, Indicators mainly present the existing price and volume data on the price charts. For novice traders who have less knowledge of reading this data, can take the help of indicators to understand the price charts in a more precise way. Also, indicators act as a great tool to identify market strength.

For instance, using the Moving Average indicator, the direction of the trend can be found. By using the stochastic indicator, overbought and oversold areas can be found. These cannot be easily identified by the novice traders if not for these indicators.

Swift Decision Making

Since you aren’t entirely aware of most of the indicators, we would like to give you an example of the indicators we have learned till now. If you remember trading Fibonacci levels, we have taken our entries right after the price bounces after touching the respective Fib levels. It is impossible to make such swift decisions in the absence of these indicators. Hence we can say that indicator based trading allows us to make quick decisions comparatively.

Confirmation Tool

Indicators act like an excellent confirmation tool for experienced traders as well. For example, a technical trader identifies a candlestick pattern and wants to take trades based on that pattern. To confirm if the signal provided by the pattern is accurate or not, he can take the help of any technical indicator like RSI or Stochastic. If the indicator supports the signal provided by the pattern, the trader can confidently make trades.

Combination Capability  

Indicators can be combined to understand the market more clearly. For instance, Moving Averages can be combined with Fibonacci levels, and Stochastic can be combined with many other reliable indicators to generate accurate signals. If we wish to, we can even add an end number of indicators, but these additions should able to simplify the price chart rather than making it more complex.

Cons of using Technical Indicators

Unawareness of the complete picture

Novice traders who get used to trading with these indicators can never get an entire background on what’s happening behind the charts. If they get used to this, they can never become a professional technical trader. Also, they won’t be able to identify if the signal generated by the indicator is accurate or not. Hence, it is always crucial to understand why the indicator is moving the way it is so that we can make better trading decisions.

Not for pure price action traders

Price action trading is also a part of technical trading. It is purely based on the price movements of the asset alone. So price action traders might find indicator based trading a bit redundant because they know why the price is moving the way it is moving. Hence we can say that indicators don’t add more value to pure price action traders.

Lag Issue

By now, we know that there are lagging indicators that portray what has already happened in the market. These indicators do add significant value to indicator based trading, but they can’t be completely used to take the trades.

Final Word

These are some of the pros and cons involved in using indicators for trading the markets. So the answer to the question ‘If the Indicator based trading is for you or not?’ is yes. It is for you. But we have to be cautious and understand the entire picture instead of blindly following the indicators. In the upcoming articles, we will start learning how to take trades using various reliable indicators in the market. Cheers!

Categories
Forex Assets

EUR/NOK – Everything You Should Know Before Trading This Currency Pair

Introduction

Introduction

Introduction

EUR/NOK is the abbreviation for the Euro Area’s euro against the Norwegian Krone. This pair is classified as an exotic-cross currency. Here, EUR is the base currency, and NOK is the quote currency.

In this asset article, we shall understand what the value of this pair means, the volatility in different timeframes, the cost variations, and finally, the ideal way to trade this pair.

Understanding EUR/NOK

The value of this pair represents the value of NOK equivalent to one EUR. It is quoted as 1 EUR per X NOK. For example, if the value of this pair is 10.4373, approx. 10 Krones are required to purchase one euro.

EUR/NOK Specification

Spread

The difference between bid and ask prices set by the brokers is referred to as the spread on the trade.

There are two types of trade execution models in forex, namely, ECN and STP. The spread on both vary.

  • Spread on ECN: 55 pips
  • Spread on STP: 57 pips

Fees

For every position you take on your account, you are required to pay some fee for it. This fee is typically between 5-10 pips. Moreover, there is no fee as such in STP accounts.

Slippage

When orders are executed by the market, the trader will not receive the exact price at which he triggered the button. The difference between the actual received price and the triggered price is called the slippage.

Trading Range in EUR/NOK

A Trading range is a tabular representation of the pip movement in a currency pair for different timeframes. Below is the same table for the EURNOK currency pair. From these values, we can assess our profit/loss on a trade beforehand. All you must do is, find the product of the volatility value and the pip value ($0.95).

Procedure to assess Pip Ranges

  1. Add the ATR indicator to your chart
  2. Set the period to 1
  3. Add a 200-period SMA to this indicator
  4. Shrink the chart so you can assess a large time period
  5. Select your desired timeframe
  6. Measure the floor level and set this value as the min
  7. Measure the level of the 200-period SMA and set this as the average
  8. Measure the peak levels and set this as Max.

EUR/NOK Cost as a Percent of the Trading Range

This is an application to the above trading range table. By clubbing these values with the total cost of a trade, we can determine the cost variations for changing volatilities.

ECN Model Account 

Spread = 55 | Slippage = 3 | Trading fee = 3

Total cost = Spread + Slippage + Trading Fee = 55 + 3 + 3 = 61

STP Model Account

Spread = 57 | Slippage = 3 | Trading fee = 0

Total cost = Spread + Slippage + Trading Fee = 57 + 3 + 0 = 60

The Ideal way to trade the EUR/NOK

Trading the EURSEK is similar to trading any other exotic-cross pair. This pair has pretty high volatility with liquidity lesser than major/minor pairs. This is the reason for its spreads to be at 55 pips. Yet, this pair can still be traded.

From the above cost percentage table, we can infer that the magnitudes are large in the min column and small in the max column. This means that the costs are more for low volatilities are less for high volatilities. It is neither preferable to trade during high volatilities nor when the costs are less, for obvious reasons. So, to maintain equilibrium between costs and volatility, it is ideal for entering this pair when the volatility is more or less near the average values in the trading range table.

Another simple way to bring down your costs is by placing orders by ‘limit’ and ‘stop.’ When trades are not executed as market orders, the slippage is cut off. Hence, the total cost is reduced by a decent percentage. An example of the same is given below.

Spread = 55 | Slippage = 0 | Trading fee = 3

Total cost = Spread + Slippage + Trading Fee = 55 + 0 + 3 = 58

Categories
Forex Fundamental Analysis

What Is ‘Inflation Rate’ & Why Is It One Of The Most Important Fundamental Indicators?

Introduction

Introduction

Introduction

Based on the current inflation rate and future monetary policies, we can effectively gauge the current economic situation of a country. Using the Inflation rate data, we can also get an insight into the current currency’s value and in which direction the economy is heading towards. Hence we must look at this key indicator in its depth to solidify our fundamental analysis.

What is Inflation?

In Economics, Inflation is the increase in the prices of goods & services, and the resultant fall in the purchasing power of a currency. What this means, in general, is that when a country experiences Inflation, the prices of the most commonly used goods & services by the citizens of a country increase. Because of this, the average person has to spend more money to buy the same amount of goods which cost less in the previous period.

For instance, if John went to a grocery store to purchase his monthly groceries, and it cost him 100$ in 2018. Next year, i.e., in 2019, John goes to the same store to buy the same set of goods, and it had cost him 105$. Now John either has to remove some items or pay more to make the same purchase. Here John has experienced Inflation of 5%.

What is Inflation Rate?

The percentage increase in the price of goods & services over a period (usually monthly or yearly) is called the Inflation Rate. In our previous example of John, we see we have an inflation rate of 5%.

Inflation Rate is compounding in nature, i.e., it is always calculated with reference to the most recent statistic and not any particular base year or a base inflation rate. For example, if John were to buy the same goods in 2020, if it costs him 110$, then John has experienced 4.54% of Inflation and not 10% inflation.

Why is Inflation Rate important?

Inflation, in general, when kept in check, is good for an economy as it fuels growth. The increase in the prices of common goods and services means people have to compete and work better to earn more to meet their needs. But as in any case, excess or high Inflation can be crippling for an economy.

Because the citizens of the country get poorer when the purchasing power of the currency falls due to a high increase in prices, inflation Rates can be used to gauge the current financial health of an economy and what the citizens of a country are currently experiencing.

How does Inflation Occur?

A general view in the economic sector is that steady Inflation occurs when the money supply in the country outpaces economic growth. It means more currency is being circulated into the economy than its equivalent activity (revenue-generating practices). Inflation occurs mainly due to the rise in prices. But in brief, Inflation can occur due to the following situations:

Demand-Supply Gap: When the demand for a particular good is higher than the supply or production of the same, then there is a natural surge in the price of that good.

Increased Money Supply: When more money is in circulation in the economy, it means an individual has more disposable cash. This increases consumer spending due to a positive future sentiment resulting in increased demand, which ultimately increases the price of goods.

Cost-Push Effect: When the cost of inputs to the process of manufacturing good increases, it coherently increases the overall cost of the finished good. This results in a higher selling price of goods, which ultimately results in Inflation.

Built-In: Built-in inflation happens when there is a sort of feedback loop in the prices of goods and incomes of people. As people demand higher wages to meet the needs, it results in higher prices of goods and services to fund their demand and vice-versa. This adaptive price and wage adjustment automatically feed off each other and result in an increase in prices.

How is Inflation measured?

Based on different sectors, the costs of different sets of goods & services are used to calculate different inflation indexes. However, there are some most commonly used inflation indices in the market, like the Consumer Price Index (CPI) and Producer Price Index (PPI) in the United States.

Consumer Price Index (CPI): The Bureau of Labor Statistics (BLS) surveys the prices of 80,000 consumer items to create the Index and publishes it on a monthly basis. It is a measure of an aggregate price level of most commonly purchased goods and services like food, shelter, clothing, and transportation fares. Service fees like water and sewer service, sales taxes by the urban population, which represent 87% of the US population, are weighted into the percentage, based on their importance in terms of need.

Changes in CPI are used to ascertain the retail-price changes associated with the Cost of Living, and hence it is used widely to assess Inflation in the USA. In this Index, there are many subcategories wherein certain goods are either included or excluded to give a more accurate picture of Inflation in absolute or relative terms. For example, Core CPI strips away food, gas, and oil prices from the equation whose prices are volatile in nature.

Producer Price Index (PPI): It measures the average change in the selling prices received by domestic producers for their output over a period of time (usually monthly). Unlike CPI, which measures retail prices from the viewpoint of end customers who purchase the items, PPI measures the prices at which goods and services are sold to outlets from the manufacturer. PPI measures the first commercial transaction, and hence it does not include the various taxes and service costs that are associated and built into the CPI.

PPI vs. CPI

PPI measures the change in average prices that an initial-producer or manufacturer receives whilst CPI estimates the change in average prices that an end-consumer pays out. The prices received by the producers differ from the prices paid by the end-consumers, on the basis of a variety of factors like taxes, trade, transport cost, and distribution margin, etc.

Sources of Inflation Indexes

The US Bureau of Labor Statistics releases all the above-mentioned indexes here:

Consumer Price Index | Producer Price Index 

Inflation Rates of some of the major economies can be found below.

United Kingdom | Australia | United States | Switzerland | Euro Area | Canada | Japan 

How ”Inflation Rate” News Release Affects The Price Charts?

In this section of the article, we shall find out how the Inflation rate news announcement will impact the US Dollar and notice the change in volatility after the news is released. As discussed above, CPI is a well-known indicator of Inflation as it measures the change in the price of goods and services consumed by households. Therefore, the data which we should be paying attention to is the CPI values and analyze its numbers. We can see that the Inflation Rate does have a high impact on the currency of the respective country.

Below, we can see the month-on-month numbers of CPI, which is released by the US Bureau of Labor Statistics. The data shows that the CPI was increased by 0.1% compared to the previous month, which is exactly what the analysts forecasted.

Now, let’s see how this news release made an impact on the Forex price charts.

USD/JPY | Before The Announcement - (Feb 13th, 2020)

On the chart, we have plotted a 20 ”period” Moving Average to give us a clear direction of the market. From the above chart, it is clear that the US Dollar is in a strong downtrend, which is also evident from the fact that the price remains below the ”Moving Average” throughout. Just before the news announcement, we see a ranging action, which means the market is in a confused state.

Now we have two options with us, one, to ”long” in the market if there is a sudden large movement on the upside and, two, to take advantage of the volatility in either direction by trading in ”options.” We recommend to go with the first option only if you have a large risk appetite, else choose the second option by not having any directional bias. Let us see which of the above options will be suitable after the news announcement is made.

USD/JPY | After The Announcement - (Feb 13th, 2020)

After the CPI numbers are announced, we see that the price does not go up by a lot, and it creates a spike on the top and falls below the moving average. It is very apparent that the news did not create the expected volatility in the above currency pair. From the trading point of view, in the two options discussed above, the first one is completely ruled out as the market did not show a strong bullish sign, and if we had gone with the second option, we would land in no-loss/no-profit situation.

The reason for extremely low volatility after the news announcement can be explained by the fact that the CPI numbers were merely increased by 0.1%. Since an increase in CPI is positive for the US Dollar, the market does not fall much and continues to hover around the same price.

AUD/USD | Before The Announcement - (Feb 13th, 2020)

AUD/USD | After The Announcement - (Feb 13th, 2020)

The above charts represent the currency pair of AUD/USD. Here since the US dollar is on the right side, we should see a red candle after the news release since the CPI data was good for the US dollar. By looking at the reaction of the market, we can say that the volatility did increase after the news announcement, which means AUD/USD proved to be better compared to USD/JPY.

A mere rise in the CPI number was good enough for the currency pair to turn into a downtrend from an uptrend. One can also see that the price goes below the moving average indicator. This means that the Australian Dollar is a very weak pair compared to the US dollar, the reason why the US dollar became so strong after the news release. Hence one can take a ”short” trade in the currency pair after the price breaks the MA line.

NZD/USD | Before The Announcement - (Feb 13th, 2020)

NZD/USD | After The Announcement - (Feb 13th, 2020)

The above charts represent the currency pair of NZD/USD. It shows similar characteristics as that of the AUD/USD pair before and after the news announcement. The CPI data caused the US dollar to strengthen against the New Zealand dollar, where the volatility change can be seen when the market turns into a downtrend.

The CPI data did have a positive impact on the currency pair, but the pair did not collapse. This means the data may not be very positive against the New Zealand dollar, where the price just remains on the MA line after news release and does point to a clear downtrend. Hence, all traders who went ”short” in this pair should look to take profits early in such market conditions as the market can reverse anytime.

That’s about Inflation Rates and its impact on some of the major Forex currency pairs. If you have any queries, please let us know in the comments below. Cheers.

Categories
Forex Basic Strategies

Scaling Positions Using The Pyramid Trading Strategy

Introduction

Introduction

Introduction

You would have heard most of the successful traders and market gurus say ‘let your winning trades run.’ That is very true, but do you know how to do that? You would have probably asked this to yourself many times. In today’s article, let’s understand a strategy that helps you in turning your small trades to big ones using a strategy called Pyramiding.

This Forex Pyramid Strategy helps you in increasing the chances of making consistent returns as a Forex trader. Using this strategy, we can scale our winning position and make the most of the trend. This strategy cannot be used in every market situation. If you do that, it will be the most destructive thing you do to your trading account.

Pyramiding our trades work very well in trending market conditions only. To make consistent returns from the market, we need to buy or sell strategically to add to an existing position. Always remember that when we are right, we must be really right, and when we are wrong, we must cut our trades immediately. The concept of this strategy can be applied to both long and short positions.

We can get a basic idea of the pyramid strategy from the below image. Here, we can see the price action printing brand new higher highs and lower highs continuously. The market is clearly breaking the resistance line and taking that line as a support. Note that the price action must break the resistance line with strong power. The price should also show the sign of holding at the support line.

The key to successful Pyramiding is to have a proper risk to reward ratio in place. That means our risk should never be greater than the reward. So if our target is 50 pips, our stop-loss must not be greater than the 25 pips.

Rules to Trade the Pyramid Strategy

🏁 Pick a market that is in a strong uptrend and wait for the price action to break the significant resistance area. Let the price test that resistance line as support.

🏁 Go long when the market gives you a buy signal. You can even look out for the appearance of any bullish candlestick patterns like Engulfing, Dragonfly, or a Bullish pin bar, etc.

🏁 Let that trade run because the market is in a strong uptrend.

🏁 Then wait for the price to break through the second resistance line and retest it as strong support.

🏁 Notice if the price is holding at the support line, and if it prints any buying candlestick pattern, go long again by extending your buy position. Make sure to trail your stop-loss after taking the second position.

🏁 Repeat the same, and do not forget to place your trailing stop-loss orders just below the entry points.

The same is vice-versa when the market is in a downtrend and when we are going short. By following this, we have built a good amount of buying position with minimum risk involved. Also, as discussed, the key to successful Pyramiding is to maintain proper risk to reward in each of the trades. As a thumb rule, our risk must never be greater than half the potential reward.

Trading The Pyramid Strategy

Market Identification - Strong Uptrend or Downtrend.

The below price chart represents the AUD/CAD Forex pair, which is in a strong uptrend.

To understand the strategy better, let’s consider a $10,000 trading account. In this particular pair, we decided to buy two mini lots on a retest of each of the levels. The take-profit for each trade is varied as per the market conditions, but the stop-loss for each new position should not be more than 15 pips.

Market Entries

In the below chart, we can see the market broke through a resistance level. We have decided to buy 20,000 units right after the price took the broken resistance line as support. In a few hours, we have observed the price action blasting to the north and broke a new resistance level. The price again started to retest the level as new support.

At this point, we decided to buy 20,000 more units. You can see that the buy order 2 in the below chart indicates the second trade, and we have trailed the stop-loss below the second position. We found the trend to be super strong still, so we let this trade to run for the deeper targets.

On the 5th of February, the price again broke through a new resistance level and retests as a support area. By seeing the uptrend’s strength, we have bought another 20,000 units and placed the trailing stop-loss order just below the third position.

We did a lot of buying up until this point and built 80,000 units in one single pair. So the real question by the end of the third position is how much of our money is at risk? Nothing. The worst-case scenario would be us making 10% profit by the end of the third position.

Final Trade Set-Up

In the above chart, we can see the final trade setup of all the three trades we took. By the end of all the three trades, we made a profit of 28 percent. The profits on each of the trades have compounded throughout the process, where the risk in each trade remains the same. Overall, we have generated 12R, 10R, and 6R in the first second and third trades, respectively.

Conclusion

Never forget that the pyramid strategy works very well only in the trending markets. Also, try to avoid using this strategy in volatile markets. Pyramiding is a great way to compound our profits in a winning trade. Knowing when to use and when not to use the pyramid strategy is the crux here. Hence it is advisable to read the different market situations on a demo account first before using this strategy on a live account.

Categories
Forex Course

78. Brief Introduction To Technical Indicators & Indicator Trading

Introduction

Introduction

Introduction

In the past two sections of this course, we have discussed two of the most important tools in Technical Analysis – Fibonacci & Moving Averages. These two are discussed in an elaborated way because you might be using them in conjunction with many of the other reliable indicators in the market. They can be used standalone not just to take trades but also for different other purposes. For instance, Moving Averages can be used to identify the direction of the trend. Likewise, Fibonacci Levels can be used to test the reliability of any support and resistance level.

Since we have completed learning these crucial tools, it’s time for us to extend our learning to understand specific technical tools known as indicators and oscillators. There are many indicators and oscillators in the market. Some are reliable, and some are not. So in the next few course lessons, we will be discussing some of the most credible and reliable indicators. In this lesson, let’s first understand what an Indicator basically is and why it is important to use them in technical analysis.

What is an Indicator?

An indicator is a tool that is used by technical traders and investors to understand the price charts and market conditions. The important purpose of any indicator is to interpret the existing data and accurately forecast the market direction. These indicators are built on various mathematical calculations by market experts.

These days, with the advent of technology, hundreds of indicators can easily be accessed. They are available on most of the charting platforms that we currently use, like MT4 & TradingView. Many of the reliable indicators we have today are a result of extensive research and back-testing. Any technical indicator considers a lot of important data like historical price and volume to predict the future price of an asset.

Indicators are an integral part of technical analysis, and the number of traders who just rely on indicators to take trades is pretty high. Typically, most of the indicators overlay on the price charts to predict the market trend. However, there are indicators that position themselves below the price chart to make users understand the overbought and oversold market conditions.

Oscillators are nothing but range-bound indicators. Which means, an oscillator can range from 0 to100 levels (0 being the floor and 100 being the roof). Essentially, if the price of an asset is at 0, it represents oversold conditions. Likewise, if the asset’s price is at 100, it represents overbought conditions.

Two Types of Indicators

Indicators are classified into two different types – Leading Indicators & Lagging Indicators. As the names pretty much suggest, leading indicators are those that predict the future price direction of any given currency pair. Essentially, these indicators precede the price action and predict the price.

Leading Indicator Examples: RSI (Relative Strength Index), Stochastic Indicator, & Williams %R.

Contrarily, lagging indicators act more like a confirmation tool. They follow the price action and help traders to understand the complex price charts better. One of the best use cases of a lagging indicator could be while testing the trend. We can confirm the trend along with its strength using a lagging indicator.

Lagging Indicator Examples: MACD (Moving Average Convergence & Divergence) & Bollinger Bands.

That’s about a brief introduction to Indicators and Indicator trading. In the next lesson, let’s understand the pros and cons involved in Indicator trading. Once that is done, we can start learning some of the most reliable indicators and how to trade the markets using them. Cheers.

[wp_quiz id=”66227″]

Categories
Forex Assets

Analyzing The Costs Involved While Trading The EUR/DKK Forex Pair

Introduction

Introduction

Introduction

The Euro Area’s euro against the Danish Krone, in short, is written as EURDKK. This is an exotic pair in the forex market. Typically, this pair is traded with low volumes. Here, EUR is the base currency, and DKK is the quote currency.

Understanding EUR/DKK

The current market price in the exchange of this pair depicts the value of Danish Krone equivalent to one euro. It is simply quoted as 1 EUR per X DKK. For example, if the current value of EURDKK is 7.4702, then about 7.5 DKK are required to buy one euro.

EUR/DKK Specification

Spread

In the foreign exchange market, spreads are the primary source through which brokers make money. They set a different price for buying and a different price for selling the same currency pair. This difference is referred to as the spread. This spread varies from broker to broker and also from the type of execution model used.

Spread on ECN: 40 pips | Spread on STP: 42 pips

Fee

This fee is the same fee is paid to the stockbrokers. In other terms, this is the commission that is paid to the broker. The fee on ECN accounts is between 5-10 pips, while it is nil on STP accounts.

Slippage

The difference between the price at which the trader executed the trade and actual executed price is called the slippage on the trade. This happens only on market orders, due to two reasons – Market volatility & Broker’s execution speed

Trading Range in EUR/DKK

As the name partially suggests, the trading range is a range of pip movements in a currency pair in different timeframes. Pip movement is also referred to as the volatility values. These values are extremely helpful in figuring the gain/loss that can be made on a trade.

Procedure to assess Pip Ranges

  1. Add the ATR indicator to your chart
  2. Set the period to 1
  3. Add a 200-period SMA to this indicator
  4. Shrink the chart so you can assess a large time period
  5. Select your desired timeframe
  6. Measure the floor level and set this value as the min
  7. Measure the level of the 200-period SMA and set this as the average
  8. Measure the peak levels and set this as Max.

EUR/DKK Cost as a Percent of the Trading Range

The total cost of the trade is determined by summing up the slippage, spread, and the trading fee. And this cost is not fixed. It varies based on the volatility of the market. Below is the tabular representation of the cost variation, which is signified in percentages.

ECN Model Account

Spread = 40 | Slippage = 3 | Trading fee = 3

Total cost = Spread + Slippage + Trading Fee = 40 + 3 + 3 = 46

STP Model Account

Spread = 42 | Slippage = 3 | Trading fee = 0

Total cost = Spread + Slippage + Trading Fee = 42 + 3 + 0 = 45

Note: The costs may seem significantly high because of the Spreads. As we know, these Spreads keep changing from time to time. At times we have seen the spreads for this pair being as low as 12. But we have considered maximum spread to give you the maximum cost percentages.

The Ideal way to trade the EUR/DKK

Trading the EURDKK is different from trading the major/minor currency pairs. And this can be easily figured out from the percentage values.

From the table, we can infer that the percentage values are extremely high on the 1H, 2H, and 4H timeframes. This means that the costs in these timeframes are super-high. Hence, trading this pair on these lower timeframes is a bad decision.

However, if we look at the next three rows (1D, 1W, and 1M), we can see that the percentage values are significantly lower than the above values. Hence, this makes this pair tradable on the daily, weekly, and monthly timeframes.

Consider the charts of EURDKK on the 1H and the 1D timeframe. On the 1H timeframe chart, we can see that there is barely any movement in the price. Also, volatility is high here.

On the other hand, on the 1D timeframe, there is enough movement in the prices, and the volatility is not very high as well. Hence, making it the ideal timeframe to trade.

Moreover, a simple and effective way to reduce costs is by trading using limit and stop orders instead of market orders. In doing so, the slippage will be completely nullified. Hence, the total cost will significantly reduce.

Categories
Crypto Guides

A Simple Guide To Cryptocurrency Fork & Its Types

Introduction

Introduction

Introduction

We have discussed many topics concerning cryptocurrencies in our previous guides. Some of them are basic, and some belong to the intermediate and advanced category. If you have been following us, you would have realized that we have chronologically structured this Crypto Guide series. Because we want you to get a clear understanding of the entire crypto market from a very basic level. Since we have completed most of the basic concepts, let’s go a bit deeper to understand more complex aspects of this space. In our article today, let’s understand the concept of Forking in cryptocurrencies.

What is a cryptocurrency fork?

You must be aware of the software updates that we keep receiving in our smartphones. These software updates typically fix the reported bugs in the existing software version or may add many other features to it to make it more secure and robust. This applies the same for cryptocurrency networks as well. Every network needs an update, and that update is known as ‘Forks.’

However, this is only one of the reasons why Forking is done. There is another crucial reason behind every blockchain Fork that has happened until now. Before understanding that, let’s understand what a Protocol is. It is essentially a set of rules that must be followed by all the existing nodes in a crypto network. Some of the rules in a protocol include Block Size, Rewards, etc. Now, let’s see the actual purpose of a Fork.

The Purpose?

When a significant part of the existing stakeholders like Miners, Developers, etc. do not agree with the updated protocols, the need for the fork arises. In simple words, when a set of important individuals in the network are not ready to follow the newly updated rules, the entire network is forked, and the process is known as Forking. Once the fork is done, a part of the network follows the new rules, and the other set follows the previously existing rules. Now, let’s understand the different types of Forks that occur in a blockchain.

Types of Forks

There are two types of Forks in the world of cryptocurrencies – Hard Fork & Soft Fork.

🍴 Hard Fork

This kind of fork results in the permanent splitting between the existing blockchain. Meaning, the network is completely divided into two and results in two different cryptocurrencies altogether. In a Hard Fork, the old nodes that resist upgrading won’t be able to process the new transactions or add new blocks to the blockchain.

For instance, let’s say after the upgrade, the new block size is changed from 4 MB to 8 MB. If the new node, which is upgraded, processes a block of 6MB, the old nodes consider them as incompatible and reject the block altogether. Each of these blockchains will have a separate community, and developers altogether. One important thing to remember is that all the transactions for the parent blockchain are copied to both of the newly formed ones. That is, if you were a part of a cryptocurrency’s original blockchain, you would be getting cryptos of newly formed ones as well.

To explain this, we would like to take one best example of a hard fork which is the Bitcoin and Bitcoin Cash. Since Bitcoin is the original blockchain, and the hard fork occurred, if you were holding 10 Bitcoins, once the fork is done, you will be receiving ten coins of Bitcoin cash as well.

🍴 Soft Fork

Unlike hard fork, the old nodes that aren’t updated with the new rules can still process the new transactions and add new blocks to the network. Hence there is no need for dividing the entire network into two different networks. The older nodes can upgrade to the new ones whenever they want to, or they can remain the same way. Also, the transaction history will remain intact until the time of the fork.

The only rule here is that the old nodes must not violate the new rules after the soft fork is done. For instance, let’s say a soft fork is done in a blockchain, and the block size is decreased from 8MB to 4 MB. The older nodes can process new transactions and add newer blocks to the network, which are only of size less than 4 MB. If the older nodes try to add a block that is of 6MB, the new nodes will reject it as the updated rules aren’t followed.

That’s about Forking and types of forks in the world of cryptos. These forks are and will continue to be an integral part of the crypto space as the adoption is increasing with time.

Categories
Forex Fundamental Analysis

Understanding ‘Interest Rate’ & It’s Impact On Various Currency Pairs

Introduction

Introduction

Introduction

Economic indicators measure how strong the economy of a country is. They `can measure specific sectors of the economy, such as housing or manufacturing sector, or they give measurements of the country as a whole, such as GDP or Unemployment. The following article will explain one such crucial economic indicator that drives the value of the currency – Interest Rate.

What is Interest Rate?

The interest rate is a fee we are supposed to pay for the money we borrow from the bank. It is generally expressed in terms of a percentage on the principal amount borrowed. The Bank’s primary source of income comes from the difference in the interest rate they charge to the borrowers and the lenders. They operate and profit from the difference between these rates.

When interest rates are high in a country, banks find it difficult to pass on such rates to consumers as it corresponds to fewer loans and more savings. This reduces spending in people, which will have an impact on the economy. Also, raising the interest rates curbs inflation and thus improves the economy.

Types of Interest Rates

The interest rate is frequently used by money managers while making investment decisions, and they look at different types of rates. The different kinds of Rates are Nominal, Real, and Effective interest rates. These are classified on the basis of critical economic factors that can help investors become smarter consumers and better investors. Let’s understand each of these types below.

Nominal Interest Rate

Nominal Interest Rate is the rate that is stated on a loan or bond. It signifies the actual price which the borrowers need to pay lenders in order to use their money. For example, if the nominal rate on loan is 10%, borrowers can expect to pay $10 of interest for every $100 they borrow from the lenders. This is referred to as the coupon rate because it used to be stamped on coupons that were redeemed by bondholders.

Real Interest Rate

It is named this way because, unlike the Nominal Interest Rate, it considers Inflation to give investors an appropriate measure of the consumer’s buying power. If an annually compounding bond gives an 8% Nominal yield and the inflation rate is 4%, the real rate of interest is only 4%. This can be put in the form of an equation as:

Real Interest Rate = Nominal Interest Rate – Inflation Rate

There are other pieces of information that the above formula provides in addition to the Real Rate. Borrowers and investors make use of this info to make informed financial decisions. They are:

  • When the Inflation Rates are negative, Real Rates exceed Nominal Rates, and the opposite is true when Inflation Rates are favorable.
  • There is one theory that suggests that Inflation Rate moves alongside the Nominal Interest Rate over time. Therefore, investors who have a long time horizon will be able to get investment returns on an Inflation-adjusted basis.
Effective Interest Rate

This type of Interest Rate takes the concept of compounding into account that the investors and borrowers need to be aware of. Let us understand how Effective Interest rate works with an example. If a bond pays 8% annually and compounds semi-annually, an investor who invests $1000 in this bond will receive $40 of interest payments for the first six months and $41.6 of interest for the next six months. In total, the investor gets $81.6 for the year. In this example, the Nominal Rate is 8%, and the Effective Interest Rate is 8.16%.

Economic reports & Frequency of the release 

Federal Open Market Committee (FOMC) members vote on where to set the Target Interest Rate. Later, they release the reports on the same with the actual rate and analysis. The policies of Central Banks also have an impact on the Interest Rates of a country. The Reserve Bank members hold meetings eight times a year and once every six weeks to evaluate the Interest Rates. These economic reports are published on a monthly and quarterly basis, and investors can compare the previous Interest Rates to Current Rates and analyze how they changed over time.

Impact on Currency

Investors are always interested in countries that have the highest Interest Rate, and they are more likely to invest in that economy. The demand for local currency is expected to increase, which leads to an increase in value.

High-Interest Rate means residents of that country get a higher rate of return on the deposit they made in banks and on capital investments. So obviously, investors will invest their capital in countries where they get a higher rate of return for holding their money.

Under normal economic circumstances, when investments increase in a country, the value of the currency appreciates and thus attracting the traders across the world.

Sources of information on Interest Rate

The Interest Rate data of some of the major economies can be found in the below references. The Rates of the respective countries are also available on the Reserve Bank website. However, the FOMC makes an annual report on the Interest rate that can be found here.

Authentic Sources To Find The Info On Interest Rates 

GBP – https://tradingeconomics.com/united-kingdom/interest-rate

AUD – https://tradingeconomics.com/australia/interest-rate

USD – https://tradingeconomics.com/united-states/interest-rate

CHF – https://tradingeconomics.com/switzerland/interest-rate

EUR – https://tradingeconomics.com/euro-area/interest-rate

CAD – https://tradingeconomics.com/canada/interest-rate

NZD – https://tradingeconomics.com/new-zealand/interest-rate

JPY – https://tradingeconomics.com/japan/interest-rate  

Interest Rate is one of the crucial factors that impact the currency of a country. It is especially crucial for traders who prefer taking trades on Fundamental analysis. But it is advised not to trade just based on this fundamental indicator alone. It is always better to combine the fundamental factors with proper technical analysis to get an edge over the market.

How ‘Interest Rate’ News Release Affects The Price Charts?

It is important to understand how the new releases of macroeconomic indicators like interest rates have an impact on the price charts. Below, we have provided some of the examples to demonstrate the impact of Interest Rates news release on various Forex markets. There is a reliable forum where all the government news release date is published, and it is known as Forex Factory.  Here, we can find all the present and historical information regarding most of the fundamental indicators like GDP, Interest Rates, Inflation Rate, etc.

Below we can see a snapshot taken from the Forex Factory website. FOMC (Federal Open Market Committee) is a branch of the Federal Reserve Board that releases the Interest Rate data according to the predetermined frequency. On the right, we can see a legend that indicates the level of impact the Fundamental Indicator has on the corresponding currency.

Below, we can see the latest figures for Interest Rate data released by FOMC. We can see that the rate hasn’t changed from the previous release (both Actual and Previous being 1.75%)

 

Now, let’s see how this news release made an impact on the Forex price charts.

USD/JPY | Before The Announcement - (Jan 29th, 2020 | Just Before 2:00 PM)

From the above chart, it is clear that before the news releases, the market was in a consolidation state (observe the last few candles.) Most of the Fundamental traders and investors must be waiting for the latest Interest Rate numbers. We have also plotted an MA on the chart to identify the market direction, and we can see the MA also being flat before the news release.

USD/JPY | After The Announcement - (Jan 29th, 2020 | Just After 2:00 PM)

Right after the release, we can observe a Bullish candle, which shows the initial reaction to the Interest Rate. It seemed to be positive for the US dollar, but later the market collapsed. The Interest Rates remained unchanged and were maintained the same as before, which should be positive for the US dollar. Hence, we see that initial reaction.

But why did the market collapse after a few minutes? This is because the market was expecting a rise in the interest rates, but FOMC kept a neutral stance and did not raise the rates. This explains the reason why the market fell after the announcement. The MA, too, does not rise exponentially, which shows the weakness of the buyers.

Since the market moved quite violently, later, the news release could prove to be profitable for the option traders who did not have any directional bias. There will be many traders who would want to take advantage of the market volatility right after the news release. So, even before the news is out, they employ various options strategies and make a profit. This requires a high amount of experience and knowledge of options and is not recommended for beginners. Now, let’s quickly see how this new release has impacted some of the other major Forex currency pairs.

USD/CAD | Before The Announcement - (Jan 29th, 2020 | Just Before 2:00 PM)

USD/CAD | After The Announcement - (Jan 29th, 2020 | Just After 2:00 PM)

From the above charts, it is clear that the USD/CAD pair shows similar characteristics as that of our USD/JPY example. The last few candles before the news release portray a bit of consolidation prior to the news release, followed by a spike during the news announcement and then finally a collapse. One can take short trade in this pair and make a profit on the downside. Make sure to combine this with technical analysis for extra confirmation.

 AUD/USD | Before The Announcement - (Jan 29th, 2020 | Just Before 2:00 PM)

AUD/USD | After The Announcement - (Jan 29th, 2020 | Just After 2:00 PM)

Since the US dollar is on the right side in this pair, ideally, we should see a bullish momentum after the news release. We can see that right after the release, the market prints a spike on the downside and forms a ‘hanging man’ pattern, which could be a sign of trend reversal. It can be clearly observed that the news had a significant impact on this pair as it reversed the trend almost completely.

Bottom Line

All we wanted to say is that the major Fundamental Indicators do have a significant impact on the price charts. At times we can see that these news releases can increase the market volatility significantly and even change the direction of the underlying trend. When we combine these Fundamental Factors with the Technical Analysis, we will be able to predict the market accurately and take trades with at most accuracy. Cheers!

We hope you find this article informative. If you have any questions, let us know in the comments below. Cheers!

Categories
Forex Assets

Trading Costs Involved While Trading The EUR/SGD Exotic pair

Introduction

Introduction

Introduction

EUR/SGD is the abbreviation for the Euro area’s euro against the Singapore Dollar. This is one of the most traded exotic currency pairs in the world. In this pair, EUR is the base currency, and SGD is the quote currency.

Understanding EUR/SGD

The price of this pair represents the value of SGD, which is equal to one EUR. It is quoted as 1 EUR per X SGD. For example, if the value of this pair is 1.5552, then about 1.5 Singapore Dollars are required to purchase one euro.

EUR/SGD Specification

Spread

The spread is the difference between the bid and the ask price in the market. These two prices are set by the brokers. And it depends on the type of execution model used by the brokers.

Spread on ECN: 10 pips | Spread on STP: 11 pips

Fees

On ECN accounts, for every position you open, there is some fee involved with it. This is different for different brokers. However, on STP accounts, there is no fee as such.

Slippage

To put it in simple words, slippage is the difference between the trader’s demanded price and price given by the broker. The trader does not get his intended price due to two reasons – Broker’s execution speed & Market volatility

Trading Range in EUR/SGD

With the trading range table, we can assess our gain/loss on a trade in a given timeframe even before we open positions for it. This is done by considering the past volatility of the market.

Now, to determine the profit/loss on a trade, all you must do is, multiply the volatility value with the pip value ($7.25).

Procedure to assess Pip Ranges

  1. Add the ATR indicator to your chart
  2. Set the period to 1
  3. Add a 200-period SMA to this indicator
  4. Shrink the chart so you can assess a large time period
  5. Select your desired timeframe
  6. Measure the floor level and set this value as the min
  7. Measure the level of the 200-period SMA and set this as the average
  8. Measure the peak levels and set this as Max.

EUR/SGD Cost as a Percent of the Trading Range

This is an excellent application to the above volatility table. By considering the pip movement values, we can determine the cost variation of a trade as well. To do so, we find the ratio between the total cost and volatility value and convert it into percentages. Below are the cost variations for ECN and STP accounts models.

ECN Model Account 

Spread = 10 | Slippage = 3 | Trading fee = 3

Total cost = Slippage + Spread + Trading Fee = 3 + 10 + 3

Total cost = 16

STP Model Account

Spread = 11 | Slippage = 3 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 3 + 11 + 0

Total cost = 14

The Ideal way to trade the EUR/SGD

Comprehending the costs : Large/Small percentage -> High/Low costs

From the above the tables and the implications, we can conclude that costs are high when the volatility of the low and high when the volatility is low. And when it comes to the ideal way to trade this pair, conservative traders may trade it during those times when the volatility values are at or above the average values. This will ensure enough volatility as well as affordable costs. And other aggressive traders may trade during any of the extremes.

Also, traders can reduce their total costs by trading using limit orders and stop orders. Unlike the market orders, limit and stop orders do not include slippage on the trade. Hence, this will reduce costs considerably.

Categories
Forex Course

77. Moving Averages – Detailed Summary

Introduction

Introduction

Introduction

In the past few course articles, we have learned a lot about Moving Averages, their purpose, and various applications of this trading tool. So we just wanted to summarize everything we have discussed until now related to Moving Averages. This article will act as a quick guide for you to recall and remember the concepts better.

What Is A Moving Average?

A moving average is a tool that is used by the traders to identify the direction of the trend. It smoothens the price fluctuations by eliminating the temporary noise in the market. This will eventually help us in identifying the actual trend of the market. There are two types of moving averages, and both of them have different purposes. They are Simple Moving Average and Exponential Moving Average. There are different athematic calculations behind these averages, and we don’t have to know about them in detail. However, if you are interested in knowing, you can find the formula behind the averages here.

The length plays a significant role in the usage of a Moving Average. Lenght is nothing but the predetermined period of the moving average. Smaller MAs always reacts swiftly to the price movements where are longer MAs respond slowly to the price. For example, a 10-period MA always reacts quickly compared to a 20 or 30 period moving average.

SMA vs. EMA

Both SMA and EMA have their own applications to them. They can also be combined to produce more reliable trading signals. But those are sophisticated strategies that are used by some of the experienced traders. The basic approach is that the SMA should be used to protect yourself from the fake-outs that are produced by the market. We might miss out on the opportunity of being a part of the early trend, but we will be safe.

Contrarily, Exponential Moving Average quickly predicts the trend and help us in being a part of the early trend. However, it carries the risk of not identifying the fake-outs. Hence one must use these MAs depending on the market situations. We have also discussed the ways through which we can identify the market trend and taking trades using moving averages.

Applying the Moving Average Indicator On The Price Charts

With the advent of technology, most of the Forex charting platforms these days provide advanced MA indicators. MT4 has all of the moving average indicators by default. However, if you want to download a customized MT4 indicator, you can download it here. If you are a TradingView user, you can plot different period MAs on the price charts just by accessing the toolbar and choosing the MA indicator. You can change the period setting before plotting the MA on the charts.

Conclusion

Moving Average is one of the most basic technical tools but is sturdy. The usefulness of this indicator is increased when we use different period moving averages on the same chart. Also, this indicator can be combined with various other technical indicators to improve the reliability of our signals. If you have been following our strategy series, you would have seen us combining moving averages with other technical tools to filter out fake trading signals. That’s about the basics of moving averages and their applications. In the upcoming lessons, we will be learning about various indicators and their use cases. So stay tuned! Cheers.

Categories
Forex Basic Strategies

Trading The New York Breakout Forex Strategy

Introduction

Introduction

Introduction

Forex is a 24 hours market, and it is open five days a week. So there are a hell lot of opportunities this market offers to the traders across the world. However, to make more profits and be successful in this market, we don’t have to trade 24 hours on all the days it is open. On any given day, the Forex market shuts down in some continents and opens in some other continents. This leads to the opening and closing of different Forex sessions.

The two most essential sessions are the New York session and the London session. Most of the traders across the globe prefer trading the New York session because, in this session, instruments often have less spread. Also, the markets are quite volatile during this session, and prominent players prefer making most of the significant trades in this session only. In this article, let’s understand different trading techniques to catch the more notable moves that occur during the opening of the New York Session.

We will also be trading the Forex market when the New York session overlaps with the London session. At this point, the volatility will increase furthermore as it is an overlap of the two biggest Forex sessions. The idea is to trade in the direction of the larger players. For each country, the New York session opens at different times. For instance, if you are trading the Forex market from England, the US Session opens for you at around 13:00 GMT. Likewise, if you are trading the market from India, the US session begins at 18:30 IST.

If you are not sure of the exact time of the opening and closing of different trading sessions, you can follow the below link to accurately identify the opening and closing of the New York session according to your local time.

|Forex Time Zone Converter|

Breakout Trading Strategy

During the New York session, all the major, minor, & exotic currency pairs move very fast. Some traders believe that we must trade the currency pairs according to the corresponding session. For example, in the Asian session, we must trade only AUD, NZD, and JPY. In the London and Frankfurt session, we must only trade GBP, EUR, & CHF. Finally, in the New York session, go for USD and CAD currency pairs.

There might be a valid reason behind this, but this shouldn’t be taken seriously. Currency pairs do not move according to the session. Instead, they move according to market circumstances. So in the New York session, we can choose any pair, but we must follow the below rules in order to trade this session profitably.

  1. Before the opening of the New York session, find a currency pair that is in a strong uptrend.
  2. Price action must be held at the major resistance area.
  3. Wait for the breakout to happen in the New York Session.
  4. Let the price action hold above the breakout.
  5. Go long.
  6. Stop-loss below the breakout line.
  7. Take-profit must be at the next major resistance area.

The same is vice-versa for a currency pair if the market is in a strong downtrend.

Buy Example

In the below image, we can clearly see that the EUR/AUD Forex pair is in a strong uptrend.

We can see the price breaking out at the opening of the US session. This indicates that the big players are ready to take over the market. The price action then holds above the breakout line, and this suggests that the breakout is real. Hence we can anticipate buy trades in this Forex pair.

Entry, Stop-loss & Take-profit

We have gone long in this pair as soon as the prices started to hold above the breakout line. The stop-loss is placed just below the support line. We can go for smaller stops when the price action respects the breakout line as it essentially indicates the opposite party giving up. Overall, it was swing trade, and we book the whole profit at the higher timeframe’s resistance area. This entire trade resulted in 150+ pip profit.

Most of the traders believe if they activate the trade in the New York session, they must close the trade in the New York session only no matter what. That’s just another myth. It is always advisable to milk the markets when there’s an opportunity to do so.

Breakout Trading Using Bollinger Bands

In this strategy, we are going to use the Bollinger Bands to trade the New York session. Bollinger Bands, as most of us know, is a quite popular indicator created by John Bollinger. This indicator consists of three lines, which are named as middle, upper, and lower band. These bands expand and contract according to market volatility. Most importantly, this indicator works very well in all types of market conditions.

The below image represents the NZD/CAD Forex pair, which was in an overall uptrend. The price action breaks the major resistance level at the opening of the New York session on the 11th of February 2020. After the breakout, prices started to hold above the breakout line, which tells that the breakout is real, and any long trade anticipated from here will lead to a fruitful result.

Entry, Stop-loss & Take-profit

In the below image, you can see that we have taken a buy entry in the 2nd half of the New York session. Sometimes, the price action breaks the major S&R level in the morning, and it goes sideways for a while before blasting out in the evening. As professional technical traders, we must trust our analysis and be patient enough even when the market is not going in the anticipated direction. We must always let the price action to tell us what is going to happen next and act accordingly.

So right after the breakout, the momentum of sellers is very weak (can be seen in the above chart). So the stop-loss can be placed just below the breakout line. The take-profit was at the higher timeframe resistance area. At first, prices failed to break the resistance line, and during the second try, prices again failed to go higher. The failed second attempt is a clear indicator to close our winning position. Overall it was a good trade, which gave us nearly 90+ pips in just a couple of hours.

Conclusion

Both of the strategies mentioned above are simple and straightforward. Did you observe that in both of our examples, we didn’t choose USD pairs? Instead, we went for minor pairs, and both of the pairs performed really well in the New York session. This proves that it is not about the currency pair of that particular session. It is about what is happening in that pair. It is critical to follow all the rules first and then make a trading decision. It is always advisable to try these strategies on a Demo account and then use it in the live markets. Happy Trading.

Categories
Forex Assets

Analyzing The USD/BND Forex Currency Pair

Introduction

Introduction

Introduction

USD/BND is the abbreviation for the US Dollar against the Brunei Dollar. Brunei is located on the Asian continent, and this pair is classified as an emerging currency pair. In the USD/BND, USD is the base currency, and BND is the quote currency.

Understanding USD/BND

The market price of this currency pair specifies the value of BND equivalent to one USD. It is quoted as 1 USD per X BND. For example, if the value of this pair is 1.3711, then these many units of the quote currency (BND) are required to purchase one unit of the base currency (USD).

Spread

The difference between the bid and the ask price is called the spread. The spread varies from broker to broker and also by execution model used.

ECN: 5 pips | STP: 8 pips

Fees

A fee is a synonym for commission. This is similar to the one that is paid to the stockbrokers. Below is the fee on ECN and STP brokers.

Fee on ECN – 0 pips | Fee on STP – 5-10 pips

Slippage

The difference between the price requested by you and the price you actually received from the broker is called slippage. There are two reasons for slippage to place:

  • Market volatility
  • Broker’s execution speed

Trading Range in USD/BND

A trading range is a tabular representation of the minimum, average, and the maximum volatility of this currency pair. And these values help in determining the profit/loss of a trade in a given timeframe. Hence, this is a great risk management tool for traders.

Procedure to assess Pip Ranges

  1. Add the ATR indicator to your chart
  2. Set the period to 1
  3. Add a 200-period SMA to this indicator
  4. Shrink the chart so you can assess a large time period
  5. Select your desired timeframe
  6. Measure the floor level and set this value as the min
  7. Measure the level of the 200-period SMA and set this as the average
  8. Measure the peak levels and set this as Max.

USD/BND Cost as a Percent of the Trading Range

The cost as a percent of the trading range is the representation of the cost variation in a trade for different volatilities are timeframes. This variation is represented as a percentage. The magnitude of these percentages depicts the highness and lowness of a trade.

ECN Model Account

Spread = 5 | Slippage = 3 |Trading fee = 3

Total cost = Slippage + Spread + Trading Fee = 3 + 5 + 3 = 11

STP Model Account

Spread = 8 | Slippage = 3 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 3 + 8 + 0 = 11

The Ideal way to trade the USD/BND

Trading the USD/BND is simple. This pair is not so volatile, like the other emerging pairs. Moreover, the spreads are low too.

From the above tables, we can see that the percentage values are pretty high in the minimum column, and comparatively lower in the max column. This means that the costs are high for low volatile markets and low for high volatile markets. So, traders who need high volatility may enjoy low costs. And trades who want to minimize their risk and trade low volatile markets will have to bear higher costs. Finally, traders who need a balance between the two may trade when the volatility of the market is around the average values. This will ensure the equilibrium between volatility and costs.

Moreover, there is a way through which you can cut off the slippage on your trade. Placing orders as limit orders instead of market orders will take away the slippage and bring down the total cost on the trade. So, in our example, the total cost would reduce by three pips.

We hope this article will change the way you trade this currency pair. Happy trading!

Categories
Forex Course

76. Using Moving Average As Dynamic Support & Resistance

Introduction

Introduction

Introduction

In the previous article, we saw how moving averages could be used to find potential trade setups that are essentially based on trend reversal. The next fascinating use of the moving average is that they act as crucial Support and Resistance levels. We know the importance of Support and Resistance levels in technical analysis, and we learned how many indicators can be paired with these levels to generate potential trades.

But in the case of moving averages, this indicator itself acts as a potential support and resistance areas. We need to remember that these levels keep changing as and when the market changes its direction. That is why these levels are known as dynamic support and resistance levels. In this article, let’s understand this concept clearly.

In the below chart, we can see that the market repeatedly takes support at 50-Period EMA and then continues its uptrend.

From the above chart, we can also notice that the price at times is going below the EMA before bouncing off. Also, some times, the price is not precisely touching the EMA. In some cases, it is also possible that the market can just crash downwards without respecting our EMA line.

To overcome this problem, we should plot more than one EMA on the chart and then buy or sell once the price is in the middle of the two moving averages. We can also refer to this as the ‘trading zone.’ Let us see how the above chart will look after plotting another EMA on it.

After plotting 100-period EMA on the chart, we can see the price entering the areas between two MAs before going up and does not even touch the second MA. This means moving averages should never be used as single line support and resistance levels; rather, it is a ‘zone’ from where the market has a high chance of reacting.

When we use the concept of ‘zones,’ we get a clear idea of where to put the ‘stop-loss’ and ‘target.’ For example, the ‘stop-loss’ can be placed below the second MA, and ‘target’ could be the new higher high. When we have such a wide area for our ‘stop-loss,’ there is less chance of us getting stopped out before the trade performs in our favor.

Role Reversal of moving averages as Support and Resistance

Now that we know how moving averages act as support and resistance levels, we need to check if follows all the rules of S&R. One of the most significant rules of S&R is support turning Resistance and vice versa. We shall see if MAs follow that.

Below is a chart that shows how the moving average turns into Resistance after it was previously behaving as support. The yellow-colored arrow marks the point where the price broke through and crashed. Later, it started acting as a dynamic resistance level.

Conclusion

Using moving averages as support and resistance levels can be highly profitable when done with proper trade management. Intraday traders mostly use this technique as they fear of getting stopped out due to spikes. The best part of this application of the moving average is that they’re dynamic, which means we just need to plot them and leave it on the chart. We don’t have to keep looking back to spot support and resistance levels. In the next article, we will summarize all that we have learned about the moving averages. Cheers.

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Categories
Forex Assets

Trading The USD/HRK Forex Currency Pair

Introduction

Introduction

Introduction

USDHRK is the abbreviation for the United States Dollar against the Croatian Kuna. Thw USDHRK is an emerging currency pair. Unlike the major/minor currency pair, this pair has high volatility and low liquidity. The volume is less too. Here, USD is the base currency, and HRK is the quote currency.

Understanding USD/HRK

The value of this pair determines the value of HRK equivalent to one USD. It is simply quoted as 1 USD per X HRK. For example, if the value of this pair is 6.6123, then 6.6123 Kuna is required to buy one US Dollar.

Spread

Spread is the way through which retail brokers make money from their clients. And it is through the difference between the bid price and the ask price in the market. This value is set by the brokers and varies from the type of execution model they use.

ECN: 25 pips | STP: 30 pips

Fees

A fee is basically the commission that you are liable to pay one each trade you make. This is similar to the one that is levied by stockbrokers. However, the fee is charged only by ECN brokers. There is no fee as such in STP accounts.

Slippage

In market orders, when you execute a trade, you don’t get the exact executed price. The actual executed price is different. This difference between the prices is what is known as slippage. Market volatility and the broker’s execution speed are two factors that affect the slippage on the trade.

Trading Range in USD/HRK

The minimum, average, and maximum volatility can be used to determine the risk of a trade. The profit/loss can be simply calculated by multiplying the volatility value with the pip value (per standard lot).

Procedure to assess Pip Ranges

  1. Add the ATR indicator to your chart
  2. Set the period to 1
  3. Add a 200-period SMA to this indicator
  4. Shrink the chart so you can assess a large time period
  5. Select your desired timeframe
  6. Measure the floor level and set this value as the min
  7. Measure the level of the 200-period SMA and set this as the average
  8. Measure the peak levels and set this as Max.

USD/HRK Cost as a Percent of the Trading Range

The total cost of the trade can be found as the sum of spread, slippage, and trading fee. This total cost is variable and is dependent on the volatility of the market. Below is the representation of the variation in the costs for different volatilities and timeframes.

ECN Model Account

Spread = 25 | Slippage = 3 |Trading fee = 3

Total cost = Slippage + Spread + Trading Fee = 3 + 25 + 3 = 31

STP Model Account

Spread = 30 | Slippage = 3 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 3 + 30 + 0 = 33

The Ideal way to trade the USD/HRK

The percentages in the above tables depict how the cost varies on the trade. The higher the value, the higher is the cost of the trade. Similarly, the smaller the percentages, the lower is the costs.

From the above tables, it can be ascertained that the costs are high for low volatilities, as the percentage values are high in the min column. And the costs are lower for high volatilities. So, the ideal way to trade this pair is dependent on the type of trader you are. For instance, a trader who is particular about costs may trade when the volatility of the currency pair is high. The traders who wish to keep a balance between the two may trade during those times when the volatility is around the average values.

Moreover, one may reduce their costs by trading using limit or stop orders instead of market orders. This will cut off the slippage factor on the trade and bring down the total costs pretty much. An example of the same is given below.

Spread = 25 | Slippage = 0 |Trading fee = 3

Total cost = Slippage + Spread + Trading Fee = 0 + 25 + 3 = 28

Categories
Crypto Guides

Have You Heard of Mimblewimble Blockchain Protocol?

Introduction

Introduction

Introduction

We have been discussing many basics of cryptocurrencies and the groundbreaking tech behind them – Blockchain Technology. By now, we know the properties, features, pros, and cons this revolutionary technology possesses. It is evident that more research is being done on continually improving the blockchain technology, which will eventually make the crypto space better. One such innovation in this space is the Mimblewimble protocol. In this guide, let’s briefly understand what this protocol is all about and its successful applications.

What is Mimblewimble?

Mimblewimble is a protocol that has the potential to improve the scalability and privacy of a blockchain. This tech was published in the mid of 2016, and the first successful application of it was in early 2019. This protocol is built on the principles of advanced cryptography known as Elliptic Curve. The main advantage of using this cryptography technique is that it uses relatively smaller keys. Also, a Mimblewimble network doesn’t have any addresses in them and hence taking lesser space in the block.

To put things in perspective, the maximum block size of the Bitcoin network is 4MB. But the block size of a network that runs on Mimblewimble protocol is a mere 400 KB, which is 10% of the Bitcoin block size. But the pros of this protocol are not just confined to the lesser storage capabilities. As the size of a block is small, the scalability of the network increases. Also, the anonymity factor is an additional advantage this protocol offers.

Working of the Mimblewimble Protocol

To clearly understand the working of this protocol and to know how it’s transactions are different from the rudimentary transactions, let’s understand the inputs and outputs involved in a single Bitcoin transaction. In a typical Bitcoin transaction, if you send ten Bitcoins to another person, the network won’t subtract those ten Bitcoins from your account and add those Bitcoins to another person’s account. Instead, the network considers multiple inputs from the older Bitcoin transactions in order to generate an output. This process doesn’t only consume more space but also reduces the transaction speed.

On the contrary, Mimblewimble protocol works more efficiently by eliminating these inputs and outputs. Instead, a multi-signature is used to replace all of the inputs and outputs. In this case, if you want to send 10 Bitcoins to someone, both of you will get a multi-signature key for verifying the transaction. Also, we have mentioned about the elimination of addresses in the Mimblewimble network. This is made possible by including a Blinding Factor. It is used in the encryption of both the inputs and outputs along with the public and private keys of both the parties.

This blinding factor will remain a secret between you and the person you want to send Bitcoin to. This increases the privacy of the transaction you are making as only you, and the receiver knows about the transactions you made.

Bottom Line

Grin and Beam are the two cryptocurrencies that have successfully implemented the Mimblewimble protocol to their respective networks. So we know that these cryptos are incredibly private and scalable as well. Please do your research to understand the properties of this coin better. Innovations like this bring a lot of hope for us and increase the usage of cryptocurrencies in real life.

Fun Fact: The anonymous inventor of the Mimblewimble technology portrayed himself with the name ‘Tom Elvis Judisor,’ which in French translates to ‘Voldemort,’ the famous Harry Potter character. Also, the name Mimblewimble is taken from the Harry Potter series, which means a tongue-tying curse.

Categories
Forex Assets

Analyzing The USD/MAD Forex Currency Pair

Introduction

Introduction

Introduction

USD/MAD is the abbreviation for the US dollar against the Moroccan Dirham. This pair is classified as an emerging currency pair in the forex market. In this pair, USD is the base currency, and MAD is the quote currency. Typically. It is seen that this pair has pretty low volatility and liquidity. However, it can still be traded under certain conditions.

Understanding USD/MAD

The market price of this currency pair determines the value of MAD that is equivalent to one USD. For instance, if the current market price of USD/MAD is 9.5867, then these many Moroccan Dirhams are required to purchase one USD.

Spread

The difference between the bid price and the ask price is referred to as the spread. This is the primary way through which brokers generate revenue. Spread is a variable and is different with different brokers. It also differs based on the execution model used by the broker.

ECN: 35 pips | STP: 40 pips

Fees

The commission paid on each trade is the fee on that trade. Note that, the concept of the fee is only ECN accounts and not STP accounts. The fee on ECN accounts is typically between 5-10 pips.

Slippage

Slippage is the difference between the price intended by the client and the price that is actually executed by the broker. There is this difference due to two reasons:

  • Market’s volatility
  • Broker’s execution speed

Trading Range in USD/MAD

The trading range is the tabular representation of the volatility of the market in different timeframes. These values help in assessing the minimum, average, and maximum profit/loss in six different timeframes.

Procedure to assess Pip Ranges

  1. Add the ATR indicator to your chart
  2. Set the period to 1
  3. Add a 200-period SMA to this indicator
  4. Shrink the chart so you can assess a large time period
  5. Select your desired timeframe
  6. Measure the floor level and set this value as the min
  7. Measure the level of the 200-period SMA and set this as the average
  8. Measure the peak levels and set this as Max.

USD/MAD Cost as a Percent of the Trading Range

The total cost of the trade is calculated by adding up the slippage, spread, and the trading fee. It is not constant but varies based on the volatility of the market. Below are tables that represent how costs vary for different timeframes and volatilities.

ECN Model Account

Spread = 35 | Slippage = 3 |Trading fee = 3

Total cost = Slippage + Spread + Trading Fee = 3 + 35 + 3 = 41

STP Model Account

Spread = 40 | Slippage = 3 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 3 + 40 + 0 = 43

The Ideal way to trade the USD/MAD

Starting off from the trading range table, we can see that the volatility of this pair is quite high. The spread, too, is higher than other emerging pairs. So, it is not really ideal to trade at any time in 24 hours.

When we have a look at the cost percentage tables, we can see that the percentages are high in the minimum column, and low in the max column. This implies that the costs are high during low volatilities, and costs are low during high volatilities. So, the best time to trade this pair is when the volatility is around the average values because this assures decent volatility as well as affordable costs.

Furthermore, the costs can be reduced by placing orders as ‘limit’ instead of ‘market’. In doing so, the slippage on the total costs will be made zero. So, spread and trading fee will be the only factors involved in calculating the total cost.

Categories
Forex Course

75. Using Moving Average Crossovers To Take Trades

Introduction

Introduction

Introduction

In the previous article, we learned how to use the moving average for determining the direction trend. The Moving Average lines not only helps us in identifying the direction of the market but also tells us when a trend is about to end and potentially reverse. In today’s lesson, we will see how the moving averages can be used to enter trades at the reversal of a trend.

The principle of the strategy is to discover the crossover of the two moving averages on the chart. When the moving averages crossover, it is a sign of market reversal halting the existing trend. So at this point, we need to find a suitable ‘entry.’

Moving Average Crossover Strategy

Let us consider an example to explain the above-discussed strategy. Below, we have a daily chart of USD/CHF on which we have plotted the two moving averages (10-Period & 20-period). We can see the market being in a strong downtrend, and it is also confirmed by the two moving averages, where the ‘faster’ MA is below the ‘slower’ MA.

The next step is to find the overlap of ‘faster’ MA with the ‘slower’ MA from above, which is also known as the crossover of MAs. Once the crossover happens, there is a higher chance of the trend reversing. The below chart shows precisely how the crossover takes place, which means the trend can potentially reverse anytime now.

But, we shouldn’t be directly going long soon after the crossover. We need to confirm the trend reversal. A ‘higher low’ after the crossover validates the trend reversal, and this could be the perfect setup for going ‘long’ in this currency pair.

The below chart shows the ‘higher low,’ which is formed exactly after the crossover. Therefore, we now have confirmation from the market, so we can take some risk-free positions.

As we can see, in the below chart, the trade goes in our favor and hits our initial target. However, aggressive traders can aim for a higher ‘take-profit‘ as the new uptrend can reverse the entire downtrend, which is seen on the left-hand side. The reversal is also confirmed by moving averages where the ‘faster’ MA is above the ‘slower’ MA. The stop-loss for this trade is placed below the identified ‘higher low’ with a take-profit at a new high or significant S&R area.

Conclusion

The crossover strategy works beautifully in both volatile and trending markets, but they do not work that well in ranging markets. This is because the crossover takes place multiple times in the ranging market, and this leads to confusion about the market direction. To find high probability trades, one can also combine the strategy with other technical indicators to get additional confirmation of the trend reversal. In the next article, we shall see how moving averages can act as key support and resistance levels.

[wp_quiz id=”65842″]
Categories
Crypto Guides

What Should You Know About Security Token Offering (STO)

Introduction

Introduction

Introduction

In our previous guides, we have understood some of the most important fundraising methods like ICO and IEO. These are the ways through which a crypto start-up can raise funds to bring their idea to a reality. But these two methods have paved the way to the raise of one more offering known as STO. STO stands for Security Token Offering, and the entire process behind it resembles the working of an ICO. So in this article, let’s discuss what STO is, how different it is from an ICO, and the pros involved.

What is an STO?

Just like an ICO, a Security Token Offering is launched as a way to raise capital by selling tokens pegged to a firm. As we see, these tokens do not belong to any Crypto company selling their coins. Instead, STO tokens are related to common securities that are speculated by traders and investors across the world. Anything from Stocks and Bonds to Real-Estate Investment Trusts can be offered to the investors in STOs.

Mainly, when we invest in any security, we are investing in a portion of property or company behind that security. For instance, if we are investing in a stock, we are betting on the company behind it. If the company’s performance is better, our stock price will rise, and we make a profit. Using traditional methods, the purchases are documented on a piece of paper, but in STOs, the purchases are recorded in a blockchain.

STOs can be considered as a fusion between the crypto ICOs and the traditional IPOs as its overlays with both of these fundraising methods. It is important to know that SEOs are heavily regulated compared to the ICOs. This is because ICOs are considered utility tokens, and the essential purpose of these tokens is for the usage as an investment, as per the rules. So the ICO platforms do not have to follow most of the strict regulations while reaching out to a broader public.

On the other hand, STOs can only be offered to qualified investors with specific criteria. The fundamental intention to launch as STO is to offer investable asset contracts that are under the purview of securities law. Hence, compared to an ICO, launching an STO is very hard because of the regulations that are in place.

Pros Involved In SEO Participation

💰 Compliance – As discussed, the STO process is heavily regulated compared to ICOs. This will increase accountability and makes sure the entire process is extra transparent because of the transactions being recorded in a blockchain.

💰 Clarity – By now, we know that real-time companies and properties back the security token that has been purchased in an STO. So there is some clarity in the value of the purchase we have made. However, in an ICO, we won’t be sure of the value a token possesses as it is not backed by any asset.  

💰 Low Costs – Just like an ICO, there’s no question of middlemen while purchasing tokens in an STO. Since the transactions are executed in Smart Contracts, there’s no reliability on lawyers and complicated paperwork, which reduces the costs big time while increasing the execution speed.

💰 Increase in Liquidity – As the security tokens purchased in an STO can easily be traded all the time irrespective of the date, the liquidity of many illiquid assets increases.

That’s about STOs and the pros involved in purchasing these Security Tokens. Please make sure to do your due diligence of what STOs to participate in and what security tokens you must buy. All the best.

Categories
Forex Course

74. Using Moving Averages To Identify The Trend

Introduction

Introduction

Introduction

In the previous lessons, we have understood the two types of Moving Averages and the difference between them. We have also seen which Moving Average should be used in different market conditions and the one that must be preferred most of the time. From this crouse lesson, let’s explore the real-time applications of Moving Averages and how we can find accurate trades using this indicator.

One of the simplest, yet important use of Moving Average is to determine the direction of the trend. This can be done by plotting the indicator on the chart and then deciding the position of candlesticks with respect to the line of Moving Average.

The ideal way of identifying a trend using MA is this – If the price action tends to stay above the moving average line, it usually signals an uptrend. Likewise, if the price action remains below the moving average line, it indicates a downtrend.

This approach of establishing the trend is too simplistic and also has a significant drawback. Let us understand that with the help of an example.

Below is the EUR/USD price chart, and we have added a 10-period MA line to it. According to the rules of MA, since the price is above the MA, we should be going ‘long’ in this currency pair.

Due to a news event, price drops suddenly and closes below the MA (in the below chart). So, this changes our plan, which means now we should be thinking of going ‘short’ in the currency pair. But before we do that, let us see what happens to the price in the next few candles.

The below image shows that the price fakes out and does not continue its downward trend. Hence, if we would have gone short, that would have resulted in the price hitting our stop-loss resulting in a loss. Let’s understand the problem with this setup.

The strategy mentioned above is right, but the problem is that we are using a single period MA line stand-alone and not combining it with any other indicator. The best way to use MA for determining a trend is by plotting an extra Moving Average line on the charts instead of just one. It will give us a clearer idea if the pair is trending up or down depending on the sequence of the MAs.

The best way is to check if the ‘faster’ moving average is above the ‘slower’ moving average for an uptrend, and vice versa for a downtrend. In the below chart, we can see that the ‘faster’ SMA is above the ‘slower’ SMA, and this shows the strength of the uptrend. Also, the fake-outs that happen because of news releases will also have less impact on the indication given by the Moving Averages. Combining this knowledge with trendlines can help us decide if we have to go ‘long’ or ‘short’ in the currency pair.

Conclusion

Moving Averages can be useful for establishing the direction of a trend, but it should never be used stand-alone. If not other indicators, additional moving averages itself can be combined with an existing moving average to decide the direction of the trend. In the next article, we will be discussing how we can enter a trade using moving averages and profit from this indicator.

[wp_quiz id=”65733″]
Categories
Forex Basic Strategies

Making Consistent Profits with ’10 Pips A Day’ Forex Strategy

Introduction

Introduction

Introduction

There is a lot of buzz in the Forex industry about the ten-pip a day strategy. We have seen both experienced and novice traders getting excited about this strategy. So we decided to talk in detail about this topic in today’s article. Some expert traders believe that it’s not possible to make ten-pip consistently in the market, while many others say it is possible.

In reality, it entirely depends on the person’s trading skills, mindset, and experience. Traders need to adapt themselves to the market situations to be successful. Making ten-pip a day is a great way to accumulate wealth in the Forex market, and it is easily possible. All we need is to master our skills to the point where we exactly know when to take a trade and when not to.

Statistics say that it’s not easy to make consistent money in the Forex market, and the losses are a part of the game. This is true to an extent, but if we practice this strategy enough on a simulator, we can easily make ten pips a day no matter what. In this article, let’s understand how to make ten pips per day in the Forex market by using five different buy and sell examples of five trading days in a week.

Trading Strategy For Making 10 Pips A Day

’10 Pips A Day’ – The idea behind this term is to stop trading for the day right after making ten pips that day. Also, it is up to you to follow this idea or not. You can stop trading after making ten pips, or you can ignore that and go for 20, 30, or even 100 pips a day according to the market situation.

But only go ahead if you are 100% confident about the markets. In case of any tiny bit of uncertainty, make sure to exit right after you make ten pips. One critical aspect of this strategy is selecting the currency pairs. One must be professional enough to understand the market situations and pick the pairs where there is a minimum potential of making ten pip profits.

Pairing The Bollinger Bands With The Stochastic Indicator

Rules For Going Long
  1. The market must be in a strong uptrend.
  2. Wait for the price action to slowdown at the lower Bollinger Band.
  3. Let the Stochastic Indicator reverse at the oversold area.
  4. Only go long if the above two rules are satisfied. Also, consider the momentum of the price.
  5. Place the stop-loss just below the lower Bollinger Bands.

Now, to understand how this works, we have taken five different trades for five trading days in the last week of Feb 2020 and have generated 10, 20, and 30 pips in the market successfully. According to this strategy, conservative traders must stop trading after making ten pips for that trading day. But, if you are an aggressive trader, go ahead for bigger targets. Let’s get into the examples.

Monday Trade

The below chart represents a buy trade in EUR/CAD Forex pair. When all the rules mentioned above are met, we took a long position in the New York Session on 24th Feb 2020. Our stop-loss is placed right below the lower Bollinger Band.

We have gone for three different targets according to the market situations and predominant S&R levels. As mentioned, exit the trade as soon as you make ten pips if you are a conservative trader.

Tuesday Trade

For the second day, we have picked the EUR/AUD Forex pair as we identified some potential market moves. We have gone long on this pair in the New York session on 25TH Feb 2020. We can clearly see both the indicators indicating a clear buy signal.

Here, we have gone for the third target and exited the trade as soon as we made 30 pips.

Wednesday Trade

Our third trade was in the EUR/CAD Forex currency pair in the Asian session on 26th Feb 2020. When prices hit the lower Bollinger bands, and the Stochastic indicated the oversold market conditions, we went long on this currency pair.

We would have exited the trade at ten pips, but the market started printing continuous bullish candles, which made us wait for the prices to hit the third target.

Thursday Trade

On the 4th day (27th Feb 2020), we took a long position in the AUD/NZD Forex pair. The entry was at the point where the prices touched the lower Bollinger Band, and the stop-loss is placed just below the recent low.

Since the higher highs were getting continuously printed, we went for the third target and exited the trade as soon as we made 30 pips.

Friday Trade

For the Friday trade, we chose the AUD/NZD Forex pair. We went long in the Asian session on 28th Feb 2020. When both the indicators lined up in one direction, it is a clear indication that the sellers have given up, and now it’s time for buyers to lead the market.

We had exited at the third target even when the market was moving up north.

 Rules For Going Short
  1. The market must be in a strong downtrend.
  2. Wait for the price action to slowdown at the upper Bollinger Band.
  3. Let the Stochastic Indicator reverse at the overbought area.
  4. Only go short if the above two rules are satisfied. Also, consider the momentum of the price.
  5. Place the stop-loss just above the upper Bollinger Band.

Monday Trade

The below chart represents the first sell trade we took in the NZD/JPY Forex pair on the 24th Feb 2020. We went short when the price action hit the upper Bollinger band, and the Stochastic indicated the overbought conditions.

The stop-loss is placed just above the upper Bollinger Band. We have gone for the third target, and the market printed a brand new lower low.

Tuesday Trade

The below image represents the USD/CHF Forex pair. This pair was in an overall downtrend, and on 25th Feb 2020, we have activated the sell trade right after our sell criteria is met.

We can see the market reaching all of our targets in just a couple of hours.

Wednesday Trade

For the third day, we have chosen the USD/CHF Forex pair to identify the sell opportunities on 26th Feb 2020. The entry was at the point where the price action touched the upper Bollinger band, and the stop-loss was just above the upper band.

The reason we place the stop-loss there is because of the bands of the indicator act as a dynamic support resistance level to the price action.

Thursday Trade

The 4th trade belongs to the CAD/JPY Forex pair, and we have activated our sell trades on 27th Feb 2020. We took sell when both of the indicators lined up in one direction, and we booked profit at the third target.

Friday Trade

For the last sell trade, we chose CAD/JPY currency pair. Sell trade was activated on Friday, 28th Feb, in the Asian session. When the Stochastic reached the overbought area and gave a sharp reversal, we saw the price action hitting the upper Bollinger band. This essentially means that the market is ready to go down.

Bottom Line

In almost all of the cases, we have gone for the third target only and make 30 pips profits. The reason behind this is to show you how reliable is the Bollinger Band and Stochastic combination. We are saying this time, and again, please stop trading after making ten pips per day if you are a conservative novice trader. But if you are experienced enough to predict the market, milk as much as you can depending on the market conditions. All the best.

Categories
Forex Assets

Understanding The USD/TWD Forex Currency Pair

Introduction

Introduction

Introduction

USDTWD is the abbreviation for the US dollar against the New Taiwan Dollar. Due to the involvement of Taiwan in this pair, this pair is classified as an Asian emerging currency pair. Here, the US Dollar is the base currency, and the New Taiwan Dollar is the quote currency.

Understanding USD/TWD

The TWD required to purchase one USD is determined by the price on the exchange rate. It is simply quoted as 1 USD per X TWD. For example, if the price of this pair was 25.856, a rounded figure of 26 TW Dollars are needed to buy one US Dollar.

Spread

The spread is a type of fee that is paid to the broker on each trade. The amount to be paid depends on the lot size traded and also the volatility of the market. It is simply the difference between the bid price and the ask price on the exchange board. The bid and ask price is typically different from different brokers. It also varies based on the execution model implemented by the broker.

ECN: 27 pips | STP: 30 pips

Fees

The commission that a broker charges on each of your trade is the fee. This, too, depends on the type of execution model. Note that there is no fee on STP accounts. However, this is covered by higher spreads.

Slippage

In market orders, one does not get the exact price at which they triggered their buy/sell button. It varies due to the market volatility and the broker’s execution speed. This could be in favor of or against the client.

Trading Range in USD/TWD

The trading range is a range of pip movement values in different timeframes. In simple terms, it tells the number of pips the currency pair has moved in a given timeframe. For example, if the minimum volatility value on the 1H timeframe is five pips, then it means that this pair moves at least five pips in about an hour or so. These values can be helpful in figuring the approximate P/L on a trade, even before placing the trade.

Procedure to assess Pip Ranges

  1. Add the ATR indicator to your chart
  2. Set the period to 1
  3. Add a 200-period SMA to this indicator
  4. Shrink the chart so you can assess a large time period
  5. Select your desired timeframe
  6. Measure the floor level and set this value as the min
  7. Measure the level of the 200-period SMA and set this as the average
  8. Measure the peak levels and set this as Max.

USD/TWD Cost as a Percent of the Trading Range

From the above table, one may even determine the total cost variation in trade in different timeframes for different volatilities. With these values, we can, in turn, determine the ideal way to trade this currency pair.

ECN Model Account

Spread = 27 | Slippage = 3 |Trading fee = 3

Total cost = Slippage + Spread + Trading Fee = 3 + 27 + 3 = 33

STP Model Account

Spread = 30 | Slippage = 3 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 3 + 30 + 0 = 33

The Ideal way to trade the USD/TWD

The magnitude of the percentages in the table represents how high or low is the cost of the trade. It is proportional to the cost of the trade. In the below table, we can clearly see that the costs are high in the min column, depicting high costs for lower volatilities. Similarly, low costs for high volatilities.

Also, the costs are pretty high on lower timeframes compared to the higher timeframes. So, this definitely is not the best pair to trade for scalpers. With an investment point of view, it could prove to be the best pair irrespective of the timeframe you’re trading. Talking about a positional trader, it is ideal to trade during those times when the volatility of the market is around the average values.

Another simple way to bring your costs down is by placing limit or stop orders instead of market orders. This considerably brings down the cost of the trade as the slippage in such orders is nil.

Below is an example of the cost percentages when the slippage is made zero.

Spread = 30 | Slippage = 0 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 0 + 30 + 0 = 30

Categories
Forex Course

73. Simple vs. Exponential Moving Average

Introduction

Introduction

Introduction

After having a fair amount of discussion concerning Simple and Exponential Moving Averages, a question that may arise is, which one to use when? Whether SMA gives accurate trading signals, or is it the EMA that is more accurate and reliable than SMA? Let’s try answering these questions in this article.

We mentioned in the previous article that the EMA responds to price action more quickly. So, if we want to determine a short-term trend, EMA is the best way to go. It can undoubtedly help us in catching the early move of a trend and, in fact, profit from it by taking suitable positions in the market. The downside of the EMA is that it gives us the wrong signals during the consolidation periods of the market.

Since the EMA responds very quickly to price movements, we might think that the price has broken out of the range while it could just be a spike. The EMA proves to be too fast, and this is not desirable in such market scenarios.

In the below chart, we see that the market starts to ‘range’ after a retracement of the big downward move. Due to this, the EMA starts moving up, indicating a buy signal. Later, when the last but one candle of the range breaks out above the range, traders might think that the market has reversed, as this is also confirmed by the EMA. In the very next candle, the price makes a long wick at the top of the candle, and the EMA takes a sharp turn on the downside. This is one of the examples where the EMA can give us false signals.

The opposite is true with Simple Moving Average (SMA).

The SMA should be used when we want the moving average to be smooth and respond to price action slower than the real price movement. This characteristic is particularly useful when we are trading longer trading frames, such as daily or weekly. Since SMA responds slowly to price movement, it can possibly save us from such fake outs.

The below chart represents the weekly chart of a Forex currency pair where we can see the SMA moving up even after the occurrence of the spike. Hence the SMA gives an idea of the overall trend by filtering out spikes.

Conclusion

The SMA should be used when we want to protect ourselves from fake-outs and predict the price movement in the longer term. By using SMA, we might miss the opportunity of getting in on the trend early. On the other hand, the EMA is quick to predict the trend, and thus we can be a part of the initial move of the trend. But it carries the risk of getting preoccupied with fake-outs.

The answer to the above question (which one is better?) is that it really depends on the type of trader we are. Our risk appetite, trading time frame, and strategy will influence the type of moving average we should choose. In the upcoming lessons, we will learn how to use moving averages to determine the trend and take a trade. Stay Tuned.

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Forex Assets

Trading Costs Involved While Trading The USD/PHP Forex Pair

Introduction

Introduction

Introduction

USD/PHP is the abbreviation for the US dollar versus the Philippine Peso. Since Philippine is involved in the pair, this classified under the Asian emerging pairs. In this pair, the USD is the base currency and the PHP is the quote currency.

Understanding USD/PHP

The current market price determines the price of PHP that is equivalent to one US dollar. It is simply quoted as 1 USD per X PHP. For example, if the price of this pair was 50.96, then around 51 pesos would be required to buy one US dollar.

Spread

The difference between the bid price and the ask price is referred to as the spread. This value a variable that varies from broker to broker as well as the type of execution model used by the brokers.

ECN: 3 pips | STP: 4 pips

Fees

The fee is a synonym for commission. It is levied on the ECN accounts only and not STP accounts.

Slippage

Slippage is some sort of a fee that is paid only on market orders. Slippage is the pip difference between the trader’s requested price and the price that was given by the broker. There is variation primarily due to two reasons – Market’s volatility & Broker’s execution speed

Trading Range in USD/PHP

Wanting to know how much could be your minimum average and maximum profit/loss of a trade in a given timeframe? Below is a table that will help you with it. With the pip movement values in the table, one can determine their risk on the trade. All you have to do is, multiply the volatility value with the pip value ($19.24). This will yield the value for one standard lot size.

 Procedure to assess Pip Ranges

  1. Add the ATR indicator to your chart
  2. Set the period to 1
  3. Add a 200-period SMA to this indicator
  4. Shrink the chart so you can assess a large time period
  5. Select your desired timeframe
  6. Measure the floor level and set this value as the min
  7. Measure the level of the 200-period SMA and set this as the average
  8. Measure the peak levels and set this as Max.

USD/PHP Cost as a Percent of the Trading Range

Apart from the profit/loss in a trade, we can even determine the cost variation in altering volatilities. To do so, we have taken the ratio between the volatility value and the total cost and represented it as a percentage.

ECN Model Account

Spread =3 | Slippage = 3 |Trading fee = 3

Total cost = Slippage + Spread + Trading Fee = 3 + 3+ 3 = 9

STP Model Account

Spread = 4 | Slippage = 3 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 3 + 4 + 0 = 7

The Ideal way to trade the USD/PHP

Firstly, from the trading range table, we can infer that the volatility of this pair is feeble. But, note that, the small pip movement values do not mean you’ll have to trade large quantities to make a good profit. Since the pip value (per standard lot) is $19.24, even a 0.1 pip will generate $1.924.

Coming to the cost table, the percentages here are too high, especially in the min column. So it is recommended to not trade during low volatilities as It will have high costs. So, to reduce costs, it is ideal to trade when the volatility of the market is on the higher side. As far as the risk involved in highly volatile markets is concerned, you may cut down your lot sizes.

To simplify it even further, you can bring down your costs by executing your trades as limit/stop orders instead of market orders. This eliminates the slippage involved in the calculation of total costs on the trade.

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Forex Basic Strategies

Identifying And Trading The Bullish & Bearish ‘Crab’ Pattern

Introduction

Introduction

Introduction

We have learned the importance of harmonic patterns in our recent Forex strategy articles. Also, we have understood how to identify and trade many of the famous harmonic patterns like Butterfly, Bat, Gartley, etc. In this article, let’s explore one last pattern in the harmonic group – the Crab pattern.

H.M Gartley introduced the Crab pattern in 2001, and Scott Carney added the respective Fib ratios to it. Just like the other harmonic patterns, the ‘Crab’ is also a reversal pattern that is used to identify when the trend of an asset is going to end and potentially reverse. There are both bullish and bearish Crab patterns, and they indicate bullish and bearish reversals in the market, respectively.

Each leg of the Crab pattern is denoted by a letter, and in total, there are five swing points – X, A, B, C, and D. Just like other harmonic patterns, there are different rules to trade the Crab pattern. Only trade this pattern and take positions if all of these rules get validated.

Crab Pattern Rules

XA – In its bearish version, the first leg of the pattern forms when the price of an underlying asset decline sharply from point X to point A. It can be any random bearish move. (vice-versa in the case of bullish)

AB – The AB leg is the counter-trend move to the previous leg and must retrace from the 38.2% to 61.8% of the distance covered by the first leg.

BC – Concerning the BC leg, price action changes its direction and goes down to 38.2% or 88.6% Fibs ratio of the AB leg.

CD – The CD move is the last and most important leg of the Crab pattern. So for printing this leg, the price action again changes its direction and goes to counter-trend to XA. The CD leg reverses between the 161.8% of the XA leg.

To identify the Crab pattern, one must follow all the above rules. Take a long or short position at point D as this is where the Crab pattern completes. Below is the pictographic representation of bullish and bearish crab patterns.

Crab Pattern – Trading Strategies 

Trading The Bullish Crab Pattern

The Crab pattern is quite popular in the market, so the respective tool with embedded Fib ratios is widely available in most of the trading platforms. The images we are using in this article are taken from the TradingView tool. If you are also someone who uses TradingView software, you can find this pattern’s charting tool on a toolbar on the left side.

So, first of all, select the Crab pattern charting tool and follow all the above rules to identify the pattern. Keep in mind that the Fibonacci ratios are incredibly crucial to trade the Crab pattern. If you recognize the pattern on a price chart and if you find the Fibs ratios not matching with the pattern rules, it means that the pattern is invalid. So do not trade that pattern.

Identifying The Pattern

The below image is a four-hour chart of the GBP/USD Forex pair. Overall the market was in a downtrend, but when all the rules of the Crab pattern are met, price action changes direction. As you can see below, XA is any random bullish move. The price action then retraces to 61.8% of the AB leg. Furthermore, the price action goes up again and retraces close to the 38.2% Fib level of the AB leg.

At this stage, price action confirms the three moves of the pattern following all the rules. In the end, the last move of the pattern clears that the Crab pattern was genuine. This move of the pattern is the longest one, and it has reached the 161.8% Fib level of the AB leg.

Entry, Stop-Loss & Take-Profit

As the price action confirms the pattern, we have immediately entered for a buy. If you are a conservative trader, make sure to wait for a couple of bullish confirmation candles to enter the trade.

We have four targets (X, B, C, A) to place the take-profit order in the crab pattern. In the beginning, we planned to book full profit at point A, but when the price crosses point B, the market turned sideways. So we have booked half of our profit at point B and then closed our full positions at point A.

We have seen most of the traders placing their stop-loss way below point D. However, that’s a wrong way to do it because they are risking more because of this simple logic – If the price action breaks point D, it automatically invalidates the pattern. Makes sense? In the above image, we can see that we have placed the stop-loss just below the D point, and overall, it was an 8R trade.

Trading The Bearish Crab Pattern

The below Daily chart represents the EUR/USD Forex pair. We have identified the bearish Crab pattern and plotted the Fib ratios on to the chart. As you can see, the market was in an uptrend. The first leg, which is XA, can be considered as a random bearish move. The AB bullish move reached close to the 38.2% of the XA leg. The third leg, BC, goes in the counter direction and retraces to the 88.6% Fib level of the AB move. The last leg is crucial because our decision making depends on this move alone. We can see the last candle reaching close to the 161.8% level of the AB leg, and this confirms the appearance of the bearish Crab pattern.

Entry, Stop-Loss & Take-Profit

We immediately went short in this Forex pair as soon as the final leg of the pattern closed. For some traders, it might be challenging to take a trade on the face of strong buyers. But when the market follows all the rules of the pattern, you can confidently pull the gun. Furthermore, the bearish candles increase the chance of trade working in our favor. Conservative traders can wait for these confirmations and then take the trade. In the end, price rolls over, and prints a brand new lower low.

We have followed the same rules of risk management as we have done with a bullish Crab pattern. However, we were being optimistic and placed the take-profit order at the higher timeframe’s major resistance area. If the market had started moving sideways, we would have booked our profits either at B or C or A. Stop-loss is placed just above point D, as discussed before.

Conclusion

The Crab patterns appear less frequently compared to other harmonic patterns in the market. But when it does, it often provides a high risk to reward ratio trades. If you are new to this pattern, you need a bit of experience and skill set to identify and trade this pattern on the price chart. Once you master this pattern, new trading opportunities will emerge, which can exponentially grow your trading account. In the end, trade the bearish Crab only when it appears in an uptrend, and trade the bullish Crab only when it appears in a downtrend. Only then the odds of your trades performing increase.

We hope you find this educational article informative. If you have any queries, please let us know in the comments below. Cheers.

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Forex Course

72. Understanding Exponential Moving Average

Introduction

Introduction

Introduction

In the previous course lesson, we understood the first type of Moving Average, which is SMA. We also saw how spikes could distort the SMA. The solution to this distortion is the Exponential Moving Average (EMA); so, let’s discuss this type of MA in our lesson today.

The EMA gives more weightage to the recent change in prices and does not give much importance to previous data. Learning how to calculate and plot EMA on the chart will provide us with a clear understanding of which Moving Average should be used at different times of the market.

We shall take an example to explain the definition of EMA. This example will also show how the EMA overcomes a significant limitation of the SMA. In the below figure, we have plotted a 10-period SMA on the daily chart of a currency pair. Here we have chosen the USD/CHF currency pair as an example.

Since we are calculating the 10 ‘period’ SMA, we need first to note down the closing prices of the last ten periods days. The prices are as follows:

0.97806,0.97986,0.97528,0.97336,0.97536,0.97461,0.97536,0.97829,0.98156,0.97636.

The next step is to add the above-given numbers together and then divide the result by 10. This equals to 9.76804 / 10 = 0.97680. Therefore, the SMA for the last 10 days is 0.97680. The end of the orange SMA line in the above chart points exactly to the price 0.97860.

Now let us consider a case where, on the sixth day, dollar drops drastically due to a news event that was bad for the US economy. If the sixth candle drops to a price around 0.97000 (closing of all other remaining the same) due to the news release, the new SMA will now be calculated as follows:

(0.97806 + 0.97986 + 0.97528 + 0.97336 + 0.97536 + 0.97000 + 0.97536 + 0.97829 + 
0.98156 + 0.97636) / 10 = 0.97654

The resultant SMA is lower than the SMA we had obtained in the previous step. This means when the price dropped on Day 6, it created a notion that the trend is going to reverse, but in reality, it was just a one-time event that was caused by news. We need a mechanism that will filter out these spikes so that we don’t get the wrong idea. This is where EMA comes to our help.

Taking the above example, EMA gives more stress on the recent price movements, such as the closing prices of the last four candles. This means the spike that happened on the sixth day will be of less value and wouldn’t have much effect on the moving average. It is always a smart and better idea to focus on what traders are doing recently rather than what happened long ago. Always remember that the past data is of less significance to us.

The below chart shows the difference between the two moving averages when they are plotted simultaneously.

Notice that the purple line (10-period EMA) appears to be closer to the candles than the orange line (10-period SMA). This means the EMA is more accurate in representing the recent price action, and now we know why. So, the bottom line is to pay attention to the last few candles rather than candles of last week or last month.

Conclusion

That’s about the two types moving averages with their own advantages. The EMA is a better option to use when you are swing trading as it gives precise analysis than SMA due to the reasons mentioned above. EMA, too cannot be used standalone and should be paired with a trading strategy. In the next article, we will discuss the pros and cons of using SMA and EMA.

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Forex Assets

Analyzing The USD/KRW Forex Currency Pair

Introduction

Introduction

Introduction

USDKRW is the abbreviation for the US Dollar against the South Korean Won. This pair comes under the branch of emerging currency pairs. Here, the US Dollar, being on the left, is the base currency, and the KRW is the quote currency.

Understanding USD/KRW

The market price of this determines the value of KRW equivalent to the US $1. It is quoted as 1 USD per X KRW. So, if the market price of USDINR is 1199.70, these many units of the quote currency are required to purchase one unit of the base currency.

Spread

The algebraic difference between the bid price and the ask price is referred to as the spread. This is the primary source through which brokers generate their revenue. The spread varies from broker to broker and also the way through which they execute the trades.

ECN: 24 pips | STP: 25 pips

Fees

A fee is nothing but the commission that you pay to the broker on each trade. It is similar to that one that is paid to stock market brokers. Below is the fee on ECN and STP accounts.

ECN – 5-10 pips | STP – 0 pips

Slippage

Slippage is the variation in the price that was intended by the trade and price that was executed by the broker. Market volatility and the broker’s execution speed are the sole reasons for slippage to occur.

Trading Range in USD/KRW

A trading range is a table of volatility values in different timeframes. It shows the minimum, average, and maximum pip movement in USDKRW.

Procedure to assess Pip Ranges

  1. Add the ATR indicator to your chart
  2. Set the period to 1
  3. Add a 200-period SMA to this indicator
  4. Shrink the chart so you can assess a large time period
  5. Select your desired timeframe
  6. Measure the floor level and set this value as the min
  7. Measure the level of the 200-period SMA and set this as the average
  8. Measure the peak levels and set this as Max.

USD/KRW Cost as a Percent of the Trading Range

This an application to the above range table. Here, we determine the variation in the costs for changing volatility and a set of timeframes. With this, we can figure out the ideal times of the day to enter and exit this currency pair.

ECN Model Account

Spread = 19 | Slippage = 3 |Trading fee = 3

Total cost = Slippage + Spread + Trading Fee = 3 + 24 + 3 = 30

STP Model Account

Spread = 20 | Slippage = 3 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 3 + 25 + 0 = 28

The Ideal way to trade the USD/KRW

Though the Forex market is a 24-hour market, it is not really ideal to trade anytime during the day. This is due to the changes in the costs as the volatility changes.

From the table, we can observe that the cost percentage values are higher in the minimum column and comparatively lower in the maximum column. This means that the costs are high during less volatile markets, and low for highly volatile markets. So, choosing the right time to trade is dependent on the type of trader you are.

For instance, if a trader is concerned about the costs and ignorant of the volatility, then he may trade the market during high volatilities. But, if you’re a trader who’s concerned about both the factors, then you may trade during those times when the volatility of the market is around the average values. This will provide you with decent volatility with pretty low costs as well.

There is another way through which one can lower their cost much more. And this is through taking trades using limit orders instead of market orders. Considering the above-mentioned example, the total cost now would be reduced by three pips.

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Forex Course

71. Basics Of Simple Moving Average

Introduction

Introduction

Introduction

In the previous lesson, we understood the definition of Moving Average, their importance, and the significance of ‘length’ in MAs. We also learned the correct way of choosing the ‘length’ while using Moving Averages. In the upcoming articles, we shall see and understand the different types of moving averages. Let’s start off by learning the first type – Simple Moving Average (SMA).

Simple Moving Average

The SMA is a very simple Moving Average that is calculated by the summation of the last ‘n’ period’s closing prices and then by ‘n.’

Let us understand the above formula with an example.

When we plot 10 ‘period’ SMA on a 1-hour chart, we add the closing prices of the last 10 hours, and then divide it by 10. Similarly to plot a 5 ‘period’ SMA on a 4-hour chart, we need to add the closing prices of the candles in the last 20 hours and then divide that number by 5. These calculations are coded and embedded in the form of indicators. These indicators will be available in almost all of the trading platforms. All we need to do is to pick the indicator from the tools bar and plot them on the charts by selecting the appropriate period and timeframe.

In the below chart, we have potted three different SMAs on the chart. This chart represents the 1-hour time frame of a currency pair. As we see, longer the period of SMA, more it lags behind the price. This explains the reason why the 60 ‘period’ SMA is farther away from the 30 ‘period’ SMA; because the 60-period SMA adds up the last 60 periods and divides it by 60 as mentioned above.

When the period of an SMA is large, it reacts slowly to the price movement. Essential, SMA shows the overall sentiment of the market at any given point in time. However, SMA should always be used to find the direction of the market in the near future but not take trades based on this information alone.

Instead of looking at the current price of the market, we need to have a broader view and predict the direction of the future price movement. Using SMA, we can say if the market is in an uptrend, downtrend, or if it is moving sideways.

One major drawback of SMAs is that they are vulnerable to spikes. So, during the calculations, the prices of the currency pair, which is of no significance (high or low of spike), will be added up and shown by the SMA line. The reason behind less significance to the prices of spikes is because they give false signals, and we might think a new trend is developing, but in reality, it is just a failure of the price.

The below figure shows how the SMA would be when there are too many spikes in the chart. As we can see, the 10 ‘period’ SMA is not uniform and is not able to show the direction of the market in the occurrence of spikes.

Conclusion

The SMA should be plotted to know the market trend when it is not clear. It can also be used to forecast the price movement in the near future. It is very important to combine this indicator with a trading strategy as it can never produce the results when used standalone. In the next lesson, we shall introduce another type of moving average and see how it can solve the issues we face with SMA.

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Forex Course

70 – Introduction To Moving Averages

Introduction

Introduction

Introduction

After understanding various applications of the Fibonacci indicator, it’s time to learn about the next best indicator in technical analysis – Moving Average. MA is one of the most popular indicators in the technical trading community. This indicator, just like the Fibonacci Indicator, has a lot of applications and is commonly used by traders for different reasons.

A moving average smoothens the price movements and its fluctuations by eliminating the ‘noise’ in the market. By doing this, MAs shows us the actual underlying trend. A moving average is computed by taking the average closing price of a currency for the last ‘X’ number of candles. There are many moving averages depending on the number of periods (candles) considered.

Below is how a 5-Period Moving Average looks on the price chart.

One of the primary applications of the Moving Average indicator is to predict future price movements with high accuracy. As we can see in the above chart, the slope of the line determines the potential direction of the market. In this case, it is a clear uptrend.

Every Moving Average has its own level of smoothness. This essentially means how quickly the MA line reacts to the change in price. To make a Moving Average smoother, we can easily do so by choosing the average closing prices of many candles. In simpler words, higher the number of periods chosen, smoother is the Moving Average.

Selecting the appropriate ‘Length’ (Period) of a Moving Average

The ‘length’ of the Moving Average affects how this indicator would look on the chart. When we choose an MA with a shorter length, only a few data points will be included in the calculation of that MA. This results in the line overlapping with almost every candlestick.

The below chart gives a clear idea of a small ‘length’ Moving Average.

The advantage of a smaller length moving average is that every price will have an influence on the line. However, when a moving average of small ‘length’ is chosen, it reduces the usefulness of it, and one might not get an insight into the overall trend.

The longer the length of the moving average, the more data points it ll have. This means every single price movement will not have a significant effect on the MA line. The below chart gives a clear idea of a long ‘length’ moving average.

On the flip side, if too many data points are included, large and vital price fluctuations will never be considered making the MA too smooth. Hence we won’t be able to detect any kind of trend.

Both situations of choosing ‘lengths’ can make it difficult for users to predict the direction of the market in the near future. For this reason, it is crucial to choose the optimal ‘length’ of the Moving Average, and that should be based on our trading time frame and not any random number.

Conclusion

Moving Averages generate important trading signals and especially when two MAs are paired with each other. They give both trend continuation and reversal signals with risk-free trade entries. A simple way of reading the MA line is as follows – A rising MA indicates that the underlying currency pair is in an uptrend. Likewise, a declining MA means that the currency pair is in a downtrend.

In the next article, we will be learning two critical types of moving averages – Simple Moving Average and Exponential Moving Average, along with their applications on the charts. Stay Tuned!

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Categories
Forex Assets

Understanding The USD/INR Forex Currency Pair

Introduction

Introduction

Introduction

USD/INR is the abbreviation for the US Dollar against the Indian Rupee. This Asian pair is classified as an emerging currency pair. Here, the US Dollar is the base currency, and the INR is the quote currency.

Understanding USD/INR

The price in the market determines how much the Indian Rupee worth with respect to the US Dollar is. It is quoted as 1 USD per X INR. So, if the market price of USDINR is 71.46, then around ₹71 is required to purchase $1.

Spread

Spread in foreign exchange, is the difference between the bid and the ask price of the currency pair. This is the primary way through which brokers generate revenue. Spread is typically decided by the brokers itself. And it varies based on the type of execution model implemented by the brokers.

ECN: 19 pips | STP: 20 pips

Fees

Out of the two types of execution models, there is a fee, only on ECN accounts. Typically, there is no fee on STP accounts. However, this is compensated by higher spreads.

Slippage

Slippage is the difference between the price demanded by the user and the price he received by the broker. There is always this difference when orders are executed by the market. There are a couple of reasons for its occurrence.

  • Broker’s execution speed
  • Market’s volatility

Trading Range in USD/INR

The minimum, average, and maximum volatility of the currency pair in different timeframes are represented in the below trading range table. These values help us calculate the profit or loss that can be made in a given amount of time. Hence, this table is a great risk management tool.

 Procedure to assess Pip Ranges

  1. Add the ATR indicator to your chart
  2. Set the period to 1
  3. Add a 200-period SMA to this indicator
  4. Shrink the chart so you can determine a significant period
  5. Select your desired timeframe
  6. Measure the floor level and set this value as the min
  7. Measure the level of the 200-period SMA and set this as the average
  8. Measure the peak levels and set this as Max.

USD/INR Cost as a Percent of the Trading Range

The costs as a percent of the trading range are the representation of the variation of the costs for different volatilities and timeframes. Understanding this cost variation helps in determining the ideal times of the day to trade this currency pair, which shall be discussed in the subsequent sections.

ECN Model Account

Spread = 19 | Slippage = 3 |Trading fee = 3

Total cost = Slippage + Spread + Trading Fee = 3 + 19 + 3 = 25

STP Model Account

Spread = 20 | Slippage = 3 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 3 + 20 + 0 = 23

The Ideal way to trade the USD/INR

Before getting into it, let’s first comprehend the below tables. The greater the values of the percentage, the greater is the cost of the trade. Similarly, the lower the values, the lesser is the total cost of the trade. Also, costs are inversely proportional to the volatility of the market.

From the above tables, we can ascertain that the values are higher in the min column, and gradually increases in the up to the max column. This means that the costs are high when the volatility of the market is low. The costs are neither too high nor too low for average volatility. Hence, if you are a trader who requires moderate volatility and low costs, then you may trade when the volatility of the market is around the average values.

Note: The current volatility of the market can be obtained from the ATR indicator.

There is another way through which one can considerably reduce their costs. By executing trades via limit/stop orders instead of market orders, the slippage on the trade will be waived off from the total costs. This brings down the costs significantly. For example, if the slippage on the trade is five pips, then five pips will be reduced in calculating the total costs on the trade.

Categories
Forex Assets

Analyzing the USD/CNH Forex Currency Pair

Introduction

Introduction

Introduction

USDCNH is the tick symbol for the US Dollar versus the Chinese Yuan. This Asian currency pair is classified as an emerging currency pair. Here, the US Dollar is the base currency, and the CNH is the quote currency.

Understanding USD/CNH

The price of this pair as a whole determines the value of CNH equivalent to one USD. It is quoted as 1 USD per X CNH. For example, if the price of this pair currently is 6.4728, then these many Yuans are required to buy one US Dollar.

Spread

The spread is the difference between the bid price and the ask price of a currency pair. Since the bid and ask price is set by the brokers, spread varies from broker to broker. The approximate spread on ECN and STP accounts is given below.

ECN: 23 pips | STP: 24 pips

Fees

A fee is nothing but the commission that is paid to the broker on each trade. This, too, is different from broker to broker. The fee on STP accounts is nil, while there are few pips of fee for ECN accounts.

Slippage

Slippage is another type of fee which is applied for market orders. It is a pip difference between the price requested by the trader to be executed and the price that is actually given to the trade. There is this difference due to the market’s volatility and the broker’s execution speed.

Trading Range in USD/CNH

With the table given below, one can assess their risk on each trade. This table represents the range of pip values from minimum to maximum for different timeframes. Multiplying this with the value per pip yields the amount one will be risking on their trade.

Procedure to assess Pip Ranges

  1. Add the ATR indicator to your chart
  2. Set the period to 1
  3. Add a 200-period SMA to this indicator
  4. Shrink the chart so you can determine a large period
  5. Select your desired timeframe
  6. Measure the floor level and set this value as the min
  7. Measure the level of the 200-period SMA and set this as the average
  8. Measure the peak levels and set this as Max.

USD/CNH Cost as a Percent of the Trading Range

The trading range values can be used to determine the variation in the costs of the trade for different volatilities as well. Below are two tables (for ECN and STP) that depict how the cost varies as the volatility and timeframes are changed.

ECN Model Account

Spread = 23 | Slippage = 3 |Trading fee = 3

Total cost = Slippage + Spread + Trading Fee = 3 + 23 + 3 = 29

STP Model Account

Spread = 24 | Slippage = 3 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 3 + 24 + 0 = 27

The Ideal way to trade the USD/CNH

This currency pair is a little, unlike the other emerging currency pairs. As in, it has pretty good liquidity and volatility. It is comparable to a cross-currency pair. So, it can be traded in a similar way how to cross currencies are traded.

From the table, we can ascertain that the magnitude of the percentages is higher for lower volatilities and comparatively lower for high volatilities. And the median costs lie in an average column.

If you are a trader who requires low costs, then you will have to bear with the high volatility. Or if you’re a trader who needs low volatility, then you must be able to bear with high costs. Finally, traders who wish to have a balance between the two, then they may trade during those times when the volatility is around the average values (in the trading range table).

Inculcating strategies that require limit order and not market orders can help reduce costs significantly. This is because limit orders do not consider the slippage factor in calculating the total costs. That is, in our example, the total cost of each trade would reduce by three pips.

Categories
Crypto Guides

What Are IEOs & How Are They Better Than ICOs?

Introduction

Introduction

Introduction

In our previous guide, we learned about what an Initial Coin Offering (ICO) is all about. We also discussed that 2017-18 was the golden era of ICOs, where some of the biggest ever ICOs like EOS, Telegram, and Dragon Coin happened. But what happened after that? ICOs took a hard hit after the Chinese government banned them. Also, there was a lot of negativity in this space after many large ICOs turned out to be scams. So it has been challenging for the Crypto startups to raise funds for their companies ever since the downfall of ICOs. This necessity resulted in the invention of a fantastic solution – Initial Exchange Offering (IEO)

Understanding IEO

In an IEO, any crypto company willing to raise funds for their project will approach a credible cryptocurrency exchange. The crypto tokens sales of that particular company will happen on that exchange, and the companies will have to pay a certain amount of fee and a percentage of tokens that got sold during an IEO. The exchange here is acting as a platform for the companies to sell their tokens.

So basically, Initial Exchange Offering works just like how Initial Coin Offering works without the decentralization part. That means, there is Smart Contract functionality in this process. All the transactions are centralized as they are authorized by the exchange in which the tokens are being sold. This is a win-win situation where the crypto companies can have a smooth fundraising process, and the exchanges can make profits by listing new crypto tokens in their platform.

Working of an IEO

In an ICO, people who are interested in purchasing tokens must send their funds to a given smart contract. But since IEO is a centralized process, interested participants must create an account with the exchange that is undertaking an IEO and complete their respective KYC procedures. Then they must deposit their funds in the exchange wallet and purchase the newly issued tokens using those funds. Most of the deposits are accepted in cryptocurrency only.

Top IEOs Till Now

Unless you are absolutely new to the crypto world, you must have heard about the Binance exchange. This exchange is one of the first ones to start the IEO revolution by designing a platform known as Binance Launchpad. The first successful IEO was of BitTorrent, a popular torrent service provider, and it was launched on the Binance Launchpad. BTT (BitTorrent Token) sales created a record in the world of IEOs by raising more than seven million dollars in a mere fifteen minutes. This company was backed by TRON, so this success isn’t a surprise.

If not for IEOs, it would be impossible for a new crypto startup to raise this amount of funds in hours or minutes. One more notable success story of an IEO is also from the Binance Launchpad only. A crypto company known as Fetch has raised about six million dollars and met the target in less than half a minute. After seeing the massive success of Binance Launchpad, many other exchanges have shown keen interest in this space. Let’s see what those exchanges are in the below section.

Top Exchanges That Embrace IEOs

As discussed, it is a potential business for any exchange for conducting IEOs using their platform. So many exchanges have shown great interest in the recent past to conduct IEOs and increase their visibility as well. Some of the top exchanges include Binance (Binance Launchpad), BitMax (BitMax Launchpad), Bittrex (Bittrex Int. IEO), KuCoin (KuCoin Spotlight) and Huobi (Huobi Prime).

IEOs have many pros over ICOs in terms of legality, security, and ease of access. That’s about IEOs; in our upcoming article, let’s discuss another fundraising method known as STO.

Categories
Forex Course

69. Fibonacci Trading – Detailed Summary

Introduction

Introduction

Introduction

In the past eight lessons, we have learned many things about Fibonacci levels and ratios. We have understood various applications of these levels and identified many ways through which we can profit from these levels. In this article, we are going to summarize all the learnings related to Fibonacci. This article acts as a quick recap of what we have understood until now.

Taking a Trade Using Fibonacci Levels

Entering a trade using the Fibonacci levels is pretty straight forward. We have to wait for the price to retrace and reach the appropriate Fib levels. In an uptrend, these Fib levels are 50% and 61.8%. In a downtrend, these levels are 50% and 38.2%. Hence, both 61.8% & 38.2% are known as Golden Fib ratios. Once the price reaches these levels, you can enter a trade after getting a confirmation. A detailed explanation of this can be found in this article.

Pairing Fibonacci Levels With Other Technical Tools

Fibonacci levels can be used stand-alone to enter a trade. But it is always recommended to use other technical tools to be extra sure about your trades. This is because the Fib levels are not foolproof. That means the price may not respect these Fib levels 100% of the time. More about this can be understood here.

So, to be extra affirmative on what you are doing, make sure to combine the fib levels with other reliable indicators. Some of the tools we used to explain this concept are Support & Resistance levels, Trendlines, Candlestick Patterns, etc.

Using Fibonacci Levels For Risk Management

Not just for entires, Fibonacci levels can also be used for managing and exiting a trade. We know how important risk management is in trading. These levels will help us in managing risk and maximizing profit if used correctly. What we are trying to tell here is that Fib levels act as a perfect tool to place our Stop-Loss and Take-Proft orders accurately.

Fibonacci extensions must be used to decide the placement of various Take-Profit levels. To place accurate Stop-Loss, just used the Fib level, which is below the point of entry in an uptrend. Likewise, use the Fib level, which is above the point of entry in a downtrend. For a more detailed explanation, you can refer to the below articles.

Stop-Loss | Take-Profit

Downloading The Fibonacci Indicator

Fibonacci indicators these days are very well designed and readily available in the market for free. Almost all of the trading platforms are equipped with a Fibonacci indicator that can be accessed on to the charts with just a click. If you are using the TradingView platform, a comprehensive Fibonacci indicator is present in the left side panel. If you are a MetaTrader user, there are some default Fib indicators, but the best one is the Auto Fib, which can be downloaded here.

Other Applications Of Fibonacci Levels

The applications of the Fibonacci levels are not confined to the ones discussed above. There are many other places where these ratios & levels are used for various other reasons. For instance, to confirm almost all of the Harmonic patterns, we use Fibonacci levels. An example of one such article can be found here. In this example, we have confirmed the formation of the Butterfly pattern on the price charts by using Fibonacci levels alone. So every technical trader needs to know and learn how to use these levels to have the edge over financial markets.

That’s about Fibonacci levels. If you have any doubts, let us know in the comments below. In the upcoming course lessons, we will be discussing more technical tools like Moving Averages, Indicators, Oscillators, etc. Hence, stay tuned for more informative content.

Categories
Forex Basic Strategies

Identifying & Trading The Bullish & Bearish Gartley Pattern

Introduction

Introduction

Introduction

We have discussed three of the most used Harmonic patterns in the previous strategy articles, and they are AB=CD, Butterfly, and Bat patterns. In today’s article, let’s learn how to trade one of the oldest Harmonic patterns – The Gartley. Trading harmonic patterns is one of the most challenging ways to trade but equally rewarding. There are traders across the world who highly believe in these patterns because of their accuracy in identifying trading signals, and the high RRR trades they offer.

The Gartley is one of the most commonly used harmonic patterns as it works very well on all the timeframes. IT is also one such pattern that frequently appears on the price charts. H.M Gartley introduced this pattern in his book ‘Profits in the Stock Market’ in the year 1935.

This pattern is also known as the Gartley 222 pattern because H.M Gartley introduced this pattern in the 222nd page of his book. There are both bearish and bullish Gartley patterns, and they appear depending on the underlying trend of the market. The Gartley pattern is made up of 5 pivot points; let’s see what these points are in the below section.

5 Pivot Points of The Garley Pattern

Just like other harmonic patterns, H.M Gartley used five letters to distinguish the five separate moves and impulses of the Gartley pattern.

  • The letter X represents the start of the trend.
  • The letter A represents the end of the trend.
  • The letter B represents the first pullback of the trend.
  • The letter C represents the pullback of the pullback.
  • The letter D represents the target of the letter C.

Gartley Pattern Rules

‘X-A’ – This is the very first move of the pattern. The wave XA doesn’t fit any criteria, so it is nothing but a bullish or bearish move in the market.

‘A-B’ – The Second move AB should approximately be at the 61.8% level of the first XA move. So if the XA move is bearish, the AB move should reverse the price action and reach the 61.8% Fib retracement level of the XA.

‘B-C’ – The goal of the BC move is to reverse the AB move. Also, the BC move should end either at 88.6% or 38.2% Fibonacci retracement level of XA.

‘C-D’ – The CD move is the reversal of the BC move. So if the BC move is 38.2% of the AB, CD move should respond at 127.2% level of BC. If BC move is at the 88.6% level of the AB move, the CD move should be at the 161.8% Fib extension level of BC.

‘A-D’ – This is the last but most crucial move of the Gartley pattern. Once the CD move is over, the next step is to measure the AD move. The Last AD move will show us the validity of the Gartley Pattern on the price chart. The pattern is said to be valid if this move takes a retracement approximately at the 78.6% Fib level of the XA move.

Below is the pictographic representation of the Gartley Pattern

 Gartley Pattern Trading Strategy 

Trading The Bullish Gartley Pattern

In the below NZD/USD weekly chart, we can see that the market is in a clear uptrend. We have then found the swing high and swing low, which is marked by the point X & Point A. We then have four swing-high & swing-low points on the price chart that binds together to form the Gartley harmonic pattern.

Always remember that every swing high and low must validate the Fibs ratios of the Gartley pattern. These levels can be approximate as we can never trade the market if we keep waiting for the perfect set-up. There are indicators out there where the Fibonacci levels are present in them by default. We generally use TradingView, and in this charting software, the below-used indicator can be found in the toolbox, which is present on the left-hand side.

Please refer to the marked region in the chart below. The first XA leg is formed just like a random bullish move in the market. The second AB move is a bearish retracement, and it is at the 61.8% Fib level of the XA move. Furthermore, the BC is a bullish move again, and it follows the 88.6% Fib level of the AB move. The CD leg is the last bearish move, and it is respecting the 161.8% Fib level of BC.

Now we have identified the bullish Gartley pattern on the price chart. We can take our long positions as soon as the CD move ends at the 161.8% level. The next and most crucial step of our strategy is to find the potential placement of our stop-loss. The ideal region to place the stop-loss is just below point X. If the price action breaks the point X, it automatically invalidates the Gartley pattern.

However, stop-loss placement depends on what kind of trader you are. Some aggressive traders place stop-losses just below the entry while some use wider stops. We suggest you follow the rules of the strategy and use point X as an ideal stop-loss placement.

B, C & A points can be considered as ideal areas for taking your profits. We suggest you go for higher targets in the case of the formation of a perfect Gartley pattern. Overall, placing a ‘take-profit‘ order depends on your previous trading experience also. Because, if you come across any ideal candlestick patterns in your favor while your trade is performing, you can extend your profits. We can also combine this pattern with other reliable technical indicators to load more positions in our trades.

Trading The Bearish Gartley Pattern

Below is the EUR/GBP four-hour chart in which we have identified the bearish Gartley pattern. In the highlighted region, we can see the formation of the bearish XA leg like a random bearish move. The second leg is AB – a bullish retracement stopping at the 61.8% level of the XA move. Furthermore, the BC move is bearish again, and it respects the 88.6% Fibs level of the AB move. CD is the final bullish move, and it is respecting the 161.8% Fibs level of BC.

As soon as the price action completes the CD move, we can be assured that the Gartley pattern is formed on our price chart. We can also see the formation of a Red confirmation candle indicating us to go short in this Forex pair. We have taken our short positions at point D and placed our stop-loss just above point X.

We have three targets in total, and they are points B, C, and A. Within a few hours, the price action hits the B point, which was our first target. Moreover, the price pulled back at point C, but we were safe in our trade as our stop-loss was placed above point X. Our final target was at point A, which is achieved within four days.

Conclusion

The Gartley pattern is wholly based on mathematical formulas and Fibonacci ratios. Remember to take the trades only when all the mentioned Fib levels are respected. If you have no experience with harmonic patterns, you must master this pattern on a demo account first and then use them on the live markets. We are saying this because it requires a lot of patience and practice to identify and trade these patterns.

We hope you understood how to identify and trade the Gartley Harmonic Pattern. If you have any questions, let us know in the comments below. Cheers!

Categories
Forex Basic Strategies

Trading The Bullish & Bearish Bat Pattern Like A Pro

Introduction

Introduction

Introduction

We have learned the importance of Harmonic patterns in our previous articles. We also understood a couple of interesting harmonic patterns – The Butterfly & AB=CD. In this article, let’s understand what a ‘Bat’ pattern is, and how to make money trading this pattern. The Bat pattern is a part of the Harmonic group, and ‘Scott Carney’ discovered this pattern in the year 2001. Out of all the patterns present in the harmonic group, Bat pattern has the highest accuracy. This pattern can be extremely profitable when traded correctly.

It works very well on all the timeframes but try not to trade it in smaller timeframes because the price in these timeframes tends to reverse quickly. The Bat pattern comes in both bullish and bearish variations and is made up of five swing points X, A, B, C, and D. In a downtrend, the appearance of a bullish Bat pattern indicates a bullish reversal. In an uptrend, the appearance of a bearish Bat pattern indicates a bearish reversal.

One of the critical characteristics of the Bat pattern is the power, speed, and strength of the reversal that occurs after the appearance of this pattern on the price chart. Fibonacci ratios are the core strength of any harmonic pattern, and thanks to the advanced technology for providing the Fibs ratios to the Bat pattern to increase its accuracy.

Bat Pattern Rules

Just like most of the harmonic patterns, the Bat pattern is a four-leg reversal pattern that follows specific Fib ratios. A proper Bat pattern needs to fulfill the below criteria.

‘X-A’ – In its bullish form, the first XA move of the Bat pattern could be any random upward move on the price chart.

‘A-B’ – For a Bat pattern to get validated, the AB leg’s minimum retracement should be 38.2% of XA leg or maximum of 50% Fib levels. Scott Carney suggests that the retracement at 50% Fibs levels increase the accuracy of the signal generated.

‘B-C’ – The BC move can retrace up to a minimum of 38.2% Fib level of AB and a maximum of 88.6%.

‘C-D’ – CD is the last move that confirms the Bat pattern. This move should be at 88.6% Fibs retracement of XA leg, or it should be between 161.8% or 261.8% Fibs extension of the AB leg.

For a bearish Bat pattern, point X should be at a significant high. Conversely, for a bullish Bat pattern, point X should be at a significant low.

Below is the pictographic representation of the Bat Harmonic Chart Pattern.

Bat Pattern Trading Strategy

Trading The Bullish Bat Pattern

In the below USD/CHF four hours chart, we can see the formation of a bullish Bat pattern. These days, on most of the trading platforms, we can find all the harmonic tools which are combined with Fib levels. These tools get extremely handy when we need to quickly confirm the pattern. We use TradingView charts, and the harmonic pattern tool can be found in the left-side toolbar.

Coming to the strategy, our starting point X was at 0.9840 from where the move has started. The price action started to counter the trend from 0.9984. Let’s consider this as our point A, and the XA is nothing but a random bullish move in the market. Now we located our first swing high, so the next step is to count the market wave movement. The AB move retraces at 38.2% of the XA move, and the BC move goes up again and retraces at 88.6% of AB. Furthermore, the market prints the last move of the pattern, which is at 88.6% level of the XA move. So now we have got all the four touch patterns for a bullish Bat pattern on the price chart.

While back-testing, we found the market blasting to the north whenever the CD move finishes at 88.6% level. This is the reason why we took the buy entry as soon as the price-action completes the CD move. Overall it was an excellent risk-reward ratio trade. Also, when the CD move touches the 88.6% Fib level, it always provides a decent risk-reward ratio. The stop-loss is placed below the ‘X,’ and take-profit can either be placed at A or C points.

Trading The Bearish Bat Pattern

Both the bearish and bullish Bat patterns have the same rules. The only difference is that it appears inversely. So in this strategy, let’s trade the bearish Bat pattern with at most accuracy.

In the below NZD/USD daily chart, we have identified a bearish Bat pattern. The very first move has started from point X and ends at point A. This can be considered as a random bearish move. The price action has then reversed back and retraced at 38.2% level of the XA move forming the AB move. The market then goes into the counter direction and forms a BC leg, which is also retraced at 38.2% Fib level of the AB leg. The last leg was the CD move, and it finished close to the 88.6% Fibs level.

These swing highs and lows confirm the formation of a bearish Bat pattern on the price chart. So when the price action prints a bearish confirmation candle, we went short in this pair. Scott Carney described the points B, C and A as the first, second, and third target respectively. We can book profit at any of these points, or we can hold for deeper targets depending on the market situation.

In this particular trade, we didn’t book profits at B or C after seeing the momentum of the price. We were sure that the price could easily reach the last target. The price action did hold at point C for a longer time, which indicates that this trade might not work. Any armature trader would have panicked and closed their trades at breakeven.

But, as mentioned, whenever an ‘almost perfect’ Bat pattern is formed, the trade will definitely work. We must be patient and confident enough to stick to the strategy. Stop-loss placement is crucial, and one thumb rule while trading harmonic patterns is to place the stop-loss just below point X.

Conclusion

In short, harmonic patterns imply that the trends can be subdivided into smaller or larger waves using which the future price direction can be predicted. These harmonic patterns only work if the fibs ratios are aligned with the pattern. Some traders do not believe the authenticity of harmonic patterns, but we assure you that you can trade these patterns confidently. This ends the discussion on the Bat pattern. Remember that this pattern provides accurate entries as well as good RRR trades compared to other harmonic patterns. In the upcoming articles, let’s discuss Gartley and Crab patterns, which are equally important to learn.

We hope you find this article informative. In case of any questions, please let us know in the comments below. Cheers!

Categories
Forex Course

68. Using Fibonacci Retracements To Place Appropriate Stop-Loss

Introduction

Introduction

Introduction

Until now, we have paired the Fibonacci levels with various technical tools to find appropriate trading opportunities. Some of them include support/resistance, trendlines, and even candlestick patterns. In the previous lesson, we also saw how to place appropriate ‘take-profit’ orders to maximize our profits. The uses of the Fibonacci levels do not end here. There is another incredible application of these levels, and that is to find the appropriate ‘stop-loss’ levels. ‘

As a trader, one should always use the ‘Stop-Loss’ orde as they are critical to avoid the risk of bearing huge losses. In some adverse situations, if this order is not used, it would result in a complete drain of trading capital where we can have the risk of losing everything in a single trade. Placing an appropriate stop-loss ensures that we do not expose ourselves to the unbearable risk.

However, placing the stop-loss order randomly might expose us to the risk of getting stopped out very early. So the proper placement of this order is crucial, and it can be hard for traders who aren’t experienced enough. So the Fibonacci tool can be a great help for us in determining accurate stop-loss levels.

Using Fibonacci Levels To Place Appropriate Stop-Loss Orders

In the below chart, we see a big initial move to the upside on which the Fibonacci levels are plotted using the Swing low and Swing high. Using the ‘Fibonacci strategy,’ we can notice a retracement that has reacted fairly well from the 61.8% Fib level, and now if the next candle is green, this could be a confirmation for us to go ‘long.’

We notice in the below chart that the next candle appears to be Green, and now with that confirmation, we can place our ‘buy’ trades with appropriate ‘stop-loss’ and ‘take profit.’ The traditional way of using a stop-loss order is to place it 50 pips away from the point of entry. Most of the novice traders use this method even today. This is said to be a layman’s approach with no suitable reasoning. When we use such methods, there is a high chance of we getting stopped out before the trade moves in our favor.

The below chart shows that how placing a 50 pip stop-loss can prove to be dangerous. We can see the stop-loss getting triggered by the immediate next candle after the entry was made.

Now let’s see how to place the stop-loss order using Fibonacci levels. The strategy is to place the stop-loss at the Fib level, which is below the Fib level from where the retracement reacts and gives a confirmation candle. Taking the above example, since the retracement touched the 61.8% Fib ratio and gave a confirmation candle, the stop-loss will be placed at the 78.6% Fib ratio. This seems to be very simple, yet most traders are not aware of this.

In the above chart, we can see how the price just misses our stop-loss placed at the 78.6 Fib level and later directly went to our take-profit. This shows the precision of stop-loss placement, which was established using the Fibonacci levels.

Conclusion

We must understand that stop-loss determination is a crucial step and has to be calculated mathematically using any reliable technical indicators. Indicators like Fibonacci have a mathematical approach in determining these levels. Make sure to use these levels before going to place your stop-loss levels next and let us know how they have worked for you. Cheers!

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Categories
Crypto Guides

What Is An ICO and What Were The Biggest ICOs Ever?

Introduction

Introduction

Introduction

We have discussed many things cryptocurrencies in our recent guides, which talk about their evolution, properties, pros & cons, etc. We also learned a lot about Bitcoin and some of the other major altcoins. As of Feb 2020, more than five thousand cryptos are prevailing in the market. Have you ever wondered how these cryptos come into existence? The answer to this question is ICO. To understand what ICO, AKA, Initial Coin Offering

Irrespective of its size, every company needs sufficient funds to bring an idea to a reality. In the case of conventional companies, there is a concept known as IPO, which translates to Initial Public Offering. Here, a company would go public after they establish their brand name in the market. ‘Going public’ essentially means selling a part of their company to raise more funds and expand its business across the markets to gain more profits.

What Is An ICO?

Like how IPO is for traditional companies, ICO is for the companies who are willing to raise funds to build a cryptocurrency. There might be various agendas for crypto companies, which we will be discussing in the later parts of this article. But not every random crypto company can have an ICO and raise funds. Companies must make their whitepaper public that has all the technicalities of the coin they are going to launch. They must also mention the amount of money they are willing to raise through this ICO.  Along with this, the complete business plan and the acceptable Fiat or Cryptos should also be clearly mentioned.

Once they release the duration of the ICO, interested people can go through the whitepaper of that company and understand the problem they are willing to solve. If that is making sense, and all the other technicalities interest them, they can participate in the ICO by purchasing tokens of that company. Most of the companies accept both Bitcoin and Ethereum to purchase their tokens. The ultimate goal here is to bet on a company that has enormous growth potential in the cryptocurrency space. If that happens, the money they have invested here can have exponential growth and yield huge profits in the future.

If the funds that are raised meets the goal set by the company, the ICO can be considered to be successful. The companies can use these funds and bring their whitepaper to an actual cryptocurrency. But, if the funds raised don’t meet the goal, we can say that the ICO is a failed attempt, and the collected funds will be returned to the investors. Returning the collected funds is a seamless process because all of these transactions are executed through Smart Contracts. So the entire process of an ICO is decentralized and is not regulated by any central authority.

Notable ICO Success Stories

In the year 2013, the first-ever ICO took place where Mastercoin raised around 500k worth of Bitcoin. Then, the ICO of Ethereum took place, which changed the face of the crypto world forever. Without this particular ICO, the crypto world wouldn’t have been the way we are seeing it today. This record-breaking ICO took place in 2014, where the company has raised $18 million worth of funds. This ICO’s massive success enabled the amazing Ethereum platform to transform from an idea on a paper to reality.

Once the Ethereum platform was live with the revolutionary smart contract feature, ICO token sales have been extremely simplified. This resulted in the formation of some of the biggest ICOs to date. One such ICO which is conducted on the Ethereum platform is DAO. If you are a crypto enthusiast, you must have heard about this crypto. DAO has raised about $150 million worth of Ether in just four weeks.

Some of the biggest ICOs we have ever witnessed include EOS ($4 Billion), Telegram ($1.7 Billion), Dragon Coin ($320 Million) & Huobi ($320 Million). Most of the biggest ICOs like the ones mentioned above, happened in 2017-18. This is considered as a golden age of ICOs. The number of ICOs has reduced significantly, and there could be many reasons for that. Some of them include the fall of the crypto market, regulations from the US Securities Exchange Commission, frauds and scams occurred, etc.

Bottom Line

That’s about ICOs and some of the biggest ICOs ever to take place. We must be extremely cautious while participating in an ICO. Getting to know the founders well, analyzing the whitepaper, understanding the feasibility of the project, etc. is crucial before making your investments. Market experts believe that the ICOs are almost dead, but there are a few promising ICOs that are going to take place in 2020, and most of them can be found here. In the upcoming articles, let’s understand what IEOs and STOs are and how different are from ICOs. Cheers!