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 Basic Strategies

Divergence Trading – MACD Regular Divergence Forex Strategy

Introduction

Introduction

Introduction

MACD regular divergence is a trading strategy that considers the relationship between Moving Average Convergence Divergence and the price.

MACD, a technical indicator, invented by Gerald Appel in 1979. It is very famous among professional and institutional traders; therefore, it can provide a reliable trading opportunity. On the other hand, divergence is a significant concept in trading that happens between the price and oscillator.

In most of the cases, oscillators like MACD or RSI move with the price. However, there is some condition where MACD does not follow the same direction of the price and creates divergence.

What is the MACD Divergence Strategy?

MACD is a Momentum based indicator that shows the correlation between two moving averages. Traders use this indicator in stocks, bonds, and forex trading as a trend continuation and reversal indicator. If you want to become a successful forex trader, MACD would be the best indicator to follow.

If you use a momentum-based strategy, MACD is the best available technical indicator for you. If you trade using the MACD divergence strategy, it will show you the proper entry and exit points.

There are several types of divergence, but in most cases, investors use the following types of divergences:

Hidden Divergence

It happens when the MACD histogram creates divergence with the price. It indicates a minor market reversal and significant trend continuation.

Regular Divergence

It happens when MACD EMA moves to the opposite direction of the price. Regular divergence from a significant support or resistance level indicates a potential market reversal.

In the example below, we can see a naked chart with a MACD indicator.

If you look at the image, you can see several lower lows, and higher highs in the price and MACD EMA also followed the same direction. However, there is some point where the price and MACD did not follow the same direction as indicated in the image below.

This is how divergence forms in the price. It indicates a potential market reversal if it happens from significant support or resistance levels.

Bullish MACD Regular Divergence Trading Strategy

Bullish MACD regular divergence happens when the price of a currency pair moves to the opposite direction of the MACD histogram from a significant support level. Therefore, bullish MACD divergence strategy is considered as the positive divergence signal.

Timeframe

In this trading strategy, there is no specification of the timeframe. However, this trading strategy works well in H1 and H4 timeframe.

Currency Pair

The MACD divergence trading strategy works well in most major and minor currency pairs, including EURUSD, GBPUSD, USDJPY, and AUDUSD.

Location of the Divergence

It is essential to identify the location of the price. In this bullish divergence trading strategy, the price should form the divergence in a critical support level. Any divergence from a random place rather than a vital level would not provide good profitability. Before moving to the entry point, we should find Negative Positive and Negative (NPN) MACD histogram to form.

Entry

After forming the divergence, we should wait for a bearish reversal candlestick to enter the trade. Make sure to enter the trade as soon as the candle closes.

Stop Loss and Take Profit

In the bullish divergence trading strategy, stop loss would be below the reversal candlestick candle with 10-15 pips buffer.

The first take profit level would be based on 1:1 risk: reward, where you should close 50% of the trade and move the stop loss at breakeven. Later on, the 2nd take profit level would be based on near term event level from where the market is expected to show some correction.

However, as part of the trade management, you can extend the take profit level based on the market momentum. If the price shows an impulsive bullish pressure near the resistance level, it may break the level by creating a new high. In that case, you can extend the take profit level if your trade management system allows.

Bearish MACD Regular Divergence Trading Strategy

Bearish MACD regular divergence happens when the price of a currency pair moves to the opposite direction of the MACD histogram from a prominent resistance level. It is also considered as a negative divergence signal.

Timeframe

Similar to the bullish divergence, this trading strategy works well in H1 and H4 timeframe. You can use this trading strategy in all timeframes, but the higher timeframe provides a reliable result. On the other hand, traders often find it challenging to observe the price in daily and weekly timeframes. Therefore, H1 and H4 are ideal for swing traders.

Currency Pair

The bearish MACD divergence trading strategy works well in most major and minor currency pairs, including EURUSD, GBPUSD, USDJPY, and AUDUSD.

Location of the Divergence

It is essential to identify the location of the price. In this bearish regular divergence trading strategy, the divergence should format a significant resistance level. Any divergence from a random place would not provide good profitability.

Before moving to the entry point, we should find Positive Negative Positive (PNP) MACD histogram to form.

Entry

After forming the divergence, we should wait for a bullish reversal candlestick to enter the trade. Make sure to enter the trade as soon as the candle closes.

Stop Loss and Take Profit

In the bullish divergence trading strategy, stop loss would be above the reversal candlestick candle with 10-15 pips buffer.

The first take profit level would be based on 1:1 risk: reward, where you should close 50% of the trade and move the stop loss at breakeven. Later on, the 2nd take profit level would be based on the near term event level.

Summary

Let’s summaries the MACD regular divergence trading strategy:

  • Find the divergence based on NPN and PNP from a significant level.
  • Enter the trade after a reversal candlestick formation.
  • Stop-loss should be below or above the reversal candlestick with 10 to 15 pips buffer.
  • The first take profit would be based on 1:1 risk: reward ratio, and the second take profit would be based on the price action on the next event level.

There are more ways to use divergence as a trading strategy. Besides the divergence formation, you should focus on how the price is approaching a critical level. Any weakness at a significant level would indicate the first impression of market reversal. Later on, the divergence would indicate the final try of the opposite party. Happy Trading!

Categories
Forex Fundamental Analysis

Exploring The ‘GDP From Utilities’ Forex Fundamental Indicator & Its Impact On The Market

Introduction

Introduction

Introduction

The Utility sector is the safe-haven sector for investors during economic slowdowns. The volatility of the Utility Sector is very low compared to any other market, be it currency, stocks, or any other financial market. Understanding the nuances involved with the GDP from the Utility Sector can help us identify money flow patterns during slowdowns and growth periods.

What is GDP from Utilities?

Utility Sector

As per the Bureau of Economic Analysis Department of Commerce: The Utility Sector comprises of industries that provide the following utilities: electricity, natural gas, water, and steam supply, sewage removal. Hence, the Utilities Sector deals with the most necessary commodities for the functioning of modern-day society. It deals with the most indispensable resources.

Functioning of societies without electric power is impossible.

One research even shows if electricity was not available for two weeks, 50% of survey members stated they could not survive. Water, Sewage systems, natural gas are all pillars for conducting our social life. Hence, these basic amenities produce profits; they are part of public service and hence are heavily regulated.

Within the sector itself, specific activities associated with utilities also vary. Electric power includes generation, transmission, and distribution. So some companies may only focus themselves on the sub-categories within the Utility sector.

Water supply includes treatment and distribution. Steam supply includes provision and distribution. Sewage removal consists of the collection, treatment, waste disposal through sewer systems, and sewage treatment facilities.

How can the GDP from Utility numbers be used for analysis?

Utilities generally give its investors stable and consistent dividends. It is relatively less volatile compared to other equity markets. During times of recession, the non-essential goods and services sectors take the worst hit while Utility Sector the least. As utilities are a necessity, their performance is consistent in the long run.

Typically investors buy utilities as long-term holdings for their dividend income and portfolio stability. During recessions, where the Central Authorities cut interest rates to stimulate the economy, investors flock to Utility stocks as a more secure alternative. When economic growth is restored, investors may find better alternatives than utility sectors.

Since this sector is heavily regulated, raising rates to increase revenue for the companies. The infrastructure required to run utility services are expensive and require high capital to maintain and upgrade over time. Hence, Utility providing companies have debts in their balance sheets, taken for maintenance and continuity. Hence, these industries are susceptible to interest rate fluctuations, as interests on their debts vary accordingly.

Consumers also have an impact on the Utility sector. Since many states let consumers choose their utility provider, the competition forces companies to keep competitive prices, that overall decreases their profits. Long-term power purchase agreements or water supply contracts can also incur dent on profits for companies when utility generation costs increase over time.

It is also crucial to know the growth of the Utility Sector is also a function of population and industrialization. Developing economies observe a rise in new factories, and industries would require higher utility services. The contrast in the sector’s economic size would be apparent while contrasting underdeveloped and developed economies.

Capitalization of utility services can lead to monopoly or resource control to private industries to their advantage for profits. Overall, we also must consider that utility services are to be accessible to all classes of people. Hence, regulation by the government is essential to keep it affordable for the lower sections of society.

The regulation also ensures that sustainable development is kept as a priority over profits. As the generation of electricity from fossil fuels like coal, and water supply from underground water, both of which are exhaustible. Therefore, revenue-wise, Utility Sector is not a significant contributor. In the United States, it contributed about 1.6% of value to GDP for the year 2018 and 2019.

Impact on Currency

The GDP from Utilities is a low impact indicator compared to the Broader measures like GDP Growth Rates and Real GDP. GDP from Utilities does not paint the full picture of the economy but tells us the direct contribution of the Utility Sector to the overall GDP. It is useful for long-term investors as a safe-haven during economic slowdowns.

Still, for the International Currency Markets, it does not serve as a useful indicator. It is a proportional and lagging indicator. Higher GDP from Utilities will impact the economy and its currency positively. Contrarily, low GDP from utilities will have a negative impact.

Sources of GDP from Utilities

GDP from Utilities Announcement – Impact due to news release

The Utility sector is an important part of any country as it consists of essential products that are consumed by people daily. Water, gas, electricity are some of the products of the Utility sector. Naturally, they play a vital role in economic and social development. Governments are responsible for ensuring access to service under an accountable regulatory framework.

Utilities are one of the key stakeholders in the economic development team. This industry is also important because all business requires these essential services to operate. Therefore, its contribution to the GDP is increasing year by year. When it comes to fundamental analysis of the currency, investors consider the nominal GDP as an indicator of the economy’s growth.

In today’s example, we will examine the impact of GDP on the value of a currency and see the change in volatility because of its news release. The below image shows the first-quarter GDP data of Hong Kong, where we see a big drop in the value from the previous quarter. Let us find out the reaction of the market to this data.

USD/HKD | Before the announcement

Let us first examine the USD/HKD currency pair to analyze the impact of GDP on the Hong Kong dollar. In the above price chart, it is clear that the market is moving within a ‘range’ where the overall trend is up. Before the news announcement, the price is at the bottom of the ‘range,’ which means there is a high chance of buyers getting active from this point. Aggressive traders can ‘long’ positions as the market is expecting weak GDP data for the first quarter.

USD/HKD | After the announcement

After the news announcement, the price rises by a few pips, and the market moves higher by little. As the GDP data was very bad, the rose higher, which resulted in the weakening of the currency. But this did not bring the kind of weakness and bearishness expected, as the GDP had dropped by more than 5%. This means the new release had the least impact on the currency pair.

EUR/HKD | Before the announcement

EUR/HKD | After the announcement

The above images represent the EUR/HKD currency pair, where we see that before the news announcement, the price has broken out of the small ‘range’ that was formed few hours before the news release. Until the breakout is confirmed, one should not consider buying the currency pair as the news announcement could lower the price and make this a false breakout.

After the news announcement, the market moves lower and volatility increases to the downside, resulting in the Hong Kong dollar’s strengthening. We witness an opposite reaction from the market in this currency pair, where the currency gains strength after the news release. This means the market has already priced in weak GDP data and reacted positively to the GDP data. We recommend using technical indicators to confirm the breakout and then take ‘long’ positions.

AUD/HKD | Before the announcement

AUD/HKD | After the announcement

The above images are that of AUD/HKD dollar, where we see that before the market is moving within a ‘range’ before the news announcement where the price is currently in the middle of the ‘range.’ Another thing we notice is that the overall trend of the market is up, which means we need to be cautious before taking a ‘sell’ trade in the currency pair.

After the news announcement, we see that the price marginally moves higher and closes with a slight amount of bullishness. This means the GDP did not impact the currency pair adversely and minimal effect on the pair. One could take a ‘short’ trade after price moves below the moving average.

Categories
Forex Basic Strategies

Everything About The ‘RSI Rollercoaster’ Forex Trading Strategy

Introduction Sometimes it is best to choose the simplest path of trading. The Relative Strength Index (RSI), invented by Welles Wilder, is one of the oldest and most popular technical analysis tools. If best traders in the world were asked to rank the technical indicators, RSI would certainly be accorded in the top five. It […]

Introduction Sometimes it is best to choose the simplest path of trading. The Relative Strength Index (RSI), invented by Welles Wilder, is one of the oldest and most popular technical analysis tools. If best traders in the world were asked to rank the technical indicators, RSI would certainly be accorded in the top five. It […]

Introduction

Sometimes it is best to choose the simplest path of trading. The Relative Strength Index (RSI), invented by Welles Wilder, is one of the oldest and most popular technical analysis tools. If best traders in the world were asked to rank the technical indicators, RSI would certainly be accorded in the top five. It has the unique ability to measure turns in price by measuring the momentum of the turn, which is impossible by any other technical tool in technical analysis.

The standard RSI setting of 70 and 30 serves as a clear sign of overbought and oversold, respectively. The RSI rollercoaster is a strategy that we have developed to take advantage of these turns in the market. The purpose of RSI rollercoaster is to make money from range-bound currency pairs.

Time Frame

This strategy is suitable for trading on the ‘daily’ time frame. It can also be used on the smaller time frames, but the success rate is not very encouraging.

Indicators

As the name suggests, we will be using the RSI indicator for the strategy. No other indicators will be used. Sime knowledge of price action will be helpful.

Currency Pairs

This strategy applies to all the currency pairs listed on the broker’s platform. If trading on the lower time frame, we need to look for highly liquid currency pairs.

Strategy Concept

The key to the RSI rollercoaster strategy versus the traditional RSI strategy is the way of trading the overbought and oversold levels. Here we look for a reversal candle, which provides a sign of exhaustion before taking the trade. This way, we prevent ourselves from picking the top or bottom of a ‘range’ by waiting for an indicator confirmation.

This strategy works best in a ‘ranging’ market where overbought and oversold signals are far more true indications of change in direction. Furthermore, from experience, we have observed that the setup is much more accurate on the ‘daily’ charts than on the smaller time frames such as the 4 hours or 1 hour.

The primary reason for this difference is that ‘daily’ charts include far more data points into their subset and, therefore, change in momentum tends to be more meaningful on longer time frames. Nevertheless, the disproportionate risk to reward ratio in this setup makes even the shorter time frame trades worth considering. We keep in mind that although the setup will fail more frequently on the shorter time frames, the losses will generally be smaller, keeping the overall risk manageable.

Trade Setup

In order to explain the strategy, we have considered an example of such a trade that was carried out on the USD/CAD pair. As the strategy produces a better result on the ‘daily’ time frame, we will be applying it to the ‘daily’ time frame chart. Let us see the steps to execute the strategy.

Step 1

The first step of the strategy is to open the ‘daily’ (preferable) time frame chart of the desired currency pair. Identify key levels of ‘support’ and ‘resistance.’ A ‘support’ or ‘resistance’ is only valid if the price has reacted off from this area at least twice. If the price has reacted only once, that means a ‘range’ has not yet been established.

The below image shows the clear formation of a ‘range’ where the price has reacted multiple times from the ‘ends.’

Step 2

In this step, we wait for the RSI indicator to cross above the 70 ‘mark ‘when the price is near ‘resistance’ or cross below the 30 marks when the price is near ‘support.’ During this time, the price action of the chart is not of much importance. Once the RSI shows a reading below 70 after crossing it, we will look for ‘sell’ opportunities depending on the price action. Similarly, when the RSI shows a reading above 30 after crossing below it, we will look for ‘buy’ opportunities depending on the price action.

In this case, we can see that the price breaks down below ‘support,’ which is an indication of ‘sell’ as per the theory of support and resistance. But as per our strategy, we will not be looking at the price action in this step, and we will focus only on the RSI indicator.

A few days later, we see that the RSI goes below the 30 ‘mark’ for a moment and starts moving higher. This is our first indication of going ‘long’ in the market.

Step 3

We ‘enter’ for a ‘sell’ when the price moves back into the ‘range’ after the indication from RSI. Similarly, we enter for a ‘buy’ when the price moves back into the ‘range’ after the indication from RSI. This price action indicates a false breakout or breakdown, which is identified rightly with the help of an indicator.

In our case, we are entering ‘long’ in the currency pair after we get a confirmation in the form of a bullish candle, as we can see in the below image.

Step 4

In this step, we determine the ‘stop-loss’ and ‘take-profit‘ levels for the strategy. When executing a ‘long’ trade, the stop-loss will be placed just above the ‘high’ where the price created a false breakout. And when executing a ‘sell’ trade, the ‘stop-loss’ will be placed just below the ‘low’ from where the price created a false breakdown. The ‘take-profit’ depends on the major trend of the market. If we are trading against the trend, it should be kept at 1:1 risk to reward or even a little lesser than that. If the ‘trade’ is taking place with the trend, it can be kept at 1:2 risk to reward.

Strategy Roundup

The RSI rollercoaster strategy is designed to squeeze as much profit as possible out of the turns at ‘support’ and ‘resistance.’ Instead of immediately entering into a position when the market moves into an overbought or oversold zone, the RSI, along with a little bit of price action, keeps us away from the market until we get a confirmation sign of the exhaustion. The RSI rollercoaster is almost always in the market, as long as we see wild moves on either side of the ‘range’ to stop-out traders.

Categories
Crypto Daily Topic Crypto Guides

Here’s What You Need To Know About ChainLink Cryptocurrency

Introduction

Introduction

Introduction

Blockchain has revolutionized the digital industry with its amazing benefits. It has secured the payment methods and has provided people with a brand-new way to trade digitally. There are plenty of crypto platforms that are working on blockchain right now. ChainLink is one such decentralized network that offers real-world data to smart contracts. Link is the cryptocurrency or the digital token of the ChainLink platform, which you can use to pay for the services they offer.

What’s The Issue With Smart Contracts?

Smart contracts are indeed an integral part of the blockchain system, which are basically agreements to evaluate the information entered and execute the conditions. These Smart contracts help in establishing a sense of trust among the traders. The only limitation that smart contracts have right now is the ability to connect with blockchain in a language that both can easily understand. If that limitation has been addressed, the use of smart contracts can be widely enhanced.

Oracle As The Much Needed Solution

Oracle is the ideal solution to all these problems. It is basically a middle software that works as a translator for converting data from the real world to smart contracts and vice versa. Oracles are the recent additions into the blockchain and crypto ecosystem with an aim to bring together off-chain data and on-chain smart contracts. However, there is a loophole that makes oracles less efficient. Centralized oracles will decrease the efficiency of on-chain smart contracts due to the faulty and untrustworthy nature.

How ChainLink Makes a Difference?

ChainLink emerges as a savior in the situation. It is a decentralized oracle network that sources data and information off blockchain and transfers it to blockchain smart contracts. The primary purpose of ChainLink is to minimize the reliability issue with oracles. In a nutshell, ChainLink has found a reliable way to take the information from and for the blockchain in the safest manner.

How Does It Work To Provide More Security?

The ChainLink works by providing data to the purchase in return of the data in a secure way. Purchasers have to select the data, and the providers have to bid on that data. Providers will make a stake of LINK tokens during the bid.

With a view to improving the oracles and data security, ChainLink bought a startup, i.e., TownCrier. The technology of TownCrier helped ChainLink to enhance security with a trusted execution environment.

The Bottom Line

Blockchains are a popular way of securing digital transactions because it uses cryptography to establish security and trust. It is important to understand that each set of blockchain is a universe that needs to be explored. The information transfer in and out of the blockchain can make it vulnerable. To restrict the blockchain from compromising, ChainLink entered the crypto ecosystem as a decentralized oracle network.

Bridging the gap between real-world data and on-chain smart contracts, ChainLink was able to address the pain point. It acts as the middleware between off-chain data and an on-chain smart contract. Today, ChainLink is the most successful and powerful blockchain network that still has the potential to outgrow itself.

Categories
Forex Course

143. Trading Breakouts Using Trend lines

Introduction In our previous course lessons, we saw how to trade breakouts in an effective manner. As we know, Breakout trading is one of the most common ways of trading the financial markets. Most of the other trading tools tend to fail in accurately identifying a trading signal, or they lag a lot in doing […]

Introduction In our previous course lessons, we saw how to trade breakouts in an effective manner. As we know, Breakout trading is one of the most common ways of trading the financial markets. Most of the other trading tools tend to fail in accurately identifying a trading signal, or they lag a lot in doing […]

Introduction

In our previous course lessons, we saw how to trade breakouts in an effective manner. As we know, Breakout trading is one of the most common ways of trading the financial markets. Most of the other trading tools tend to fail in accurately identifying a trading signal, or they lag a lot in doing so. But that’s not the case with breakout trading. If done accurately, it helps traders in making consistent cash from the market.

In this lesson, let’s learn how to trade breakouts using trendlines. Trendlines are one of the simplest tools you can use to trade the breakouts on both lower and higher timeframes.

Trendline and it’s working!

A trend line highlights the ongoing trend by connecting the swing lower highs in an uptrend and swing higher lows in a downtrend. Just like S&R levels, trendlines also signify the appropriate areas to enter the market. The only difference is that support and resistance levels are horizontal areas while trendlines are sloping. Now let’s get to the topic.

Trading Breakouts Using Trendlines

Upward Trendline

An upward trend line connects a swing high to swing low from the lowest point to the highest point in an ongoing trend.

Buy Trade 1

The price chart below represents a trendline Breakout on the daily chart.

 

By looking at the market, it is clear that the sellers had a hard time going down as the buyers continue to give a strong fight. After a couple of months, sellers gave up, and buyers took the show to break above the trend line. The hold above the trendline confirms the buying entry in this pair. After riding the uptrend for a bit, we understood that the buyers got weak. Hence we decided to close our positions at the most recent higher high.

Buy Trade 2

The image below represents a trendline breakout in the CAD/JPY forex pair.

The pair was in a strong uptrend, and during the pullback phase, when the price action broke above the trend line, it indicates that the buyers are ready to lead the market again. The hold above the trendline confirms our buy entry. The original trend was quite strong, so the stop below the trend line was good enough to ride a new trend.

Downward Trendline

Downward trend line connects a swing low to swing high from the highest point in a trend to the lowest point in a trend.

Sell Trade 1

The chart below represents a trendline breakout in the GBP/USD Forex pair.

As we can see, the buying trend was quite strong, and the price action closely followed the trendline. A breakout below the trendline is a clear indication for us to go short in this pair.

Sell Trade 2

The price chart below represents the breakout of a trend line in the GBP/USD Forex pair.

We can see the pullback on a weekly chart, and during the pullback, the price broke below the trendline. This shows that the sellers are desperate to take the price down. After our entry, the price went down and turned sideways. After a few weeks, it again goes down, and we choose to close our trade at the most recent lower low.

This attempt is to give you an understanding of how to trade trendline breakouts in most of the scenarios. In our upcoming lessons, let’s delve deeper into this concept. Cheers!

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Categories
Forex Fundamental Analysis

What Does ‘Exports by Category’ Data Indicate About A Nation’s Economy?

Introduction Export is an essential component of a country’s balance of trade. International trade is the heart of the FOREX market that constitutes the fundamental moves in currency pairs. The imbalance in various country’s balance of trade is offset by equal and opposite volatility in currencies. Hence, understanding the macroeconomic dynamics of trade relations, compositions, […]

Introduction Export is an essential component of a country’s balance of trade. International trade is the heart of the FOREX market that constitutes the fundamental moves in currency pairs. The imbalance in various country’s balance of trade is offset by equal and opposite volatility in currencies. Hence, understanding the macroeconomic dynamics of trade relations, compositions, […]

Introduction

Export is an essential component of a country’s balance of trade. International trade is the heart of the FOREX market that constitutes the fundamental moves in currency pairs. The imbalance in various country’s balance of trade is offset by equal and opposite volatility in currencies. Hence, understanding the macroeconomic dynamics of trade relations, compositions, and how they are tied to currency values can deepen our fundamental analysis.

What are Exports by Category?

Export: It is the sale of domestically produced goods or services to the foreign market. If goods manufactured within the nation are sold to customers outside the country’s borders, it is referred to as an export. On the other hand, imports are the purchase of foreign goods or services by a country. Generally, a country exports a particular commodity because it either efficiently manufactures or is more capable than the importing country.

A country like Canada, which has abundant oil reserves, can export to countries like China, which has a massive demand for its industrial economy. Similarly, China may export electronics to other countries like the United States, as they have a competitive edge in that domain. Exports bring domestic currency into the country in exchange for produced goods and services. Imports bring in goods and services into the country and send out the domestic currency. Hence, countries must maintain a “balance” in its international trade to keep currencies in an equilibrium.

How can the Exports by Category numbers be used for analysis?

If a country’s exports exceed its imports, it is said to have a trade surplus or a positive balance of trade. On the contrary, if a country’s imports exceed its exports, it is said to have a trade deficit or negative balance of trade. Imports signify consumption, and exports signify production. In a perfect world, the trade balance would be zero, meaning a country would produce equal to what it consumes. In reality, the balances are skewed and change from time to time.

When a country exports, it accumulates wealth. Many developing economies like China have increasingly depended on exports for their economic growth. By investing heavily in optimizing its industries and resources, many developing economies could export goods at a lower price to developed economies. A trade surplus (exports exceeding imports) is generally seen as beneficial to the economy. Prolonged periods of trade surplus, drains the international market of that country’s currency, thereby increasing its valuation against other currencies.

When a currency valuation appreciates imports become cheaper as more goods can be procured per unit of currency. In general, a trade surplus is seen as beneficial, but it may not always be the case. For instance, a country might increase its imports of construction materials to develop its cities and state infrastructure. During this time, it may have a trade deficit, but later once the work is done, its exports may improve beyond its previous highs and pay off for the years it maintained a deficit.

Countries export and import in millions and billions of dollars. When a country exports goods, it does so in large quantities, and the corresponding transaction would also be significant. Such transactions amongst countries with different currencies need to be exchanged. Such exchanges in the international FOREX market occurring for fundamental reasons sets off the equilibrium.

By the natural market forces through demand and supply, currencies will come to a new equilibrium. The movement in currency values through such fundamental moves is accompanied by speculative transactions from investors and traders worldwide. Approximately 20% of all FOREX transactions occur for pure fundamental reasons while remaining occurs for speculative purposes.

Understanding the portfolio of exports a country has can help us get a fundamental idea about the underlying goods and service exports that influence currency moves. For instance, Australia depends heavily on Iron Ore exports (approximately 20%). The Iron exported is sold mainly to China and Japan. If business activity in China reduced because of some reason, a decrease in demand would reduce exports for Australia, followed by a corresponding drop in AUD currency value.

The below image depicts how AUD value against USD follows Iron Ore prices. Hence, countries that depend on fewer exports experience higher volatility than countries with a more diverse portfolio of export and imports.

Impact on Currency

The ‘Exports by Category’ is not an economic indicator but is an essential statistic to understand the country’s trade relations. The composition of exports of a country does not vary significantly every month as exports and imports are based on trade agreements and business contracts that generally last years at a stretch. Exports by Category can be used to identify which goods and services are potential influencers for currency volatility. Hence, overall it is an essential requisite for fundamental analysis but not an economic indicator.

Economic Reports

For the United States, the Census Bureau tracks all the import and export statistics on its official website. The international trades categorized based on trade partners and Categories of goods and services are also available.

Sources of Exports by Category

The Census Bureau’s International Trade Data, the Export & Import by Trade Partner, Foreign Trade has all the necessary details. Consolidated reports of Exports by Category for most countries is available on Trading Economics.

Exports by Category News Release – Impact on the Currency Market

We know that Exports is an important fundamental driver of an economy, that can significantly impact a nation’s currency. Digging deep into Exports, we can widen the heading into Exports by Category and Exports by country. In other words, the result of the two is reflected in the Exports data.

Exports by Category, not being an economic indicator, barely has any impact on the currency of an economy. Moreover, the data is based on trade contracts, due to which the numbers do not change often. Nonetheless, let us combine the Export by Category and Exports data to study the volatility change in the currency market.

Exports Report – USD

Exports by Category – United States

According to the reports, the US’s exports dropped by USD 6.6 billion from the previous month, reading USD 144.5 billion in May 2020. Looking at the Exports by Category data, all the top five categories saw a decline in Exports.

EURUSD – Before the Announcement

Below is the price chart of EURUSD on the 4H timeframe. Before the release of the Exports by Category (Exports), we see that the market is consolidating, and there is no clear trend as such. However, the market is slightly leaving lower highs and lower lows, indicating EUR weakness and USD strength.

EURUSD – After the Announcement

On the day of the news release, it is seen that the price showed bullishness in the beginning. However, it got rejected by the sellers by the end of the day.

In the following days, we can see that the market broke out from the consolidation and began to trend north, implying USD weakness and EUR strength. There certainly would be several factors to it, but one of the accountable factors can be the disappointing numbers projected by the Exports.

USDJPY – Before the Announcement

Prior to the release, we can see clearly that the USDJPY market was crashing down. However, it saw bullishness in the last week of June.

USDJPY – After the Announcement

The USDJPY price saw feeble volatility on the day the news was released. In hindsight, the market dropped and continued the predominant downtrend. This indicates that the USDJPY has negatively affected post the Exports by Category numbers.

GBPUSD – Before the Announcement

Before the report on Exports by Category, the GBPUSD market was in an evident downtrend, as represented by the trendline.

GBPUSD – After the Announcement

A day before the numbers were reported, the price aggressively broke above the trendline, indicating a reversal.

When the news released, the price tried going higher but was pushed right back down by the sellers. However, subsequently, the market did change direction and began to trend north.

Thus, it can be concluded that the market did not have an immediate effect on the prices but did have an expected outcome in the short-term. Cheers!

Categories
Forex Basic Strategies

Trading The Most Simple Yet Profitable ‘MACD Combo Strategy’!

Introduction Theoretically, trend trading is easy. All we need to do is keep buying as long as we see the price rising and keep selling as long as we see the price breaking lower. In practice, it is far more difficult to do it. When looking for such opportunities, many questions arise in our minds, […]

Introduction Theoretically, trend trading is easy. All we need to do is keep buying as long as we see the price rising and keep selling as long as we see the price breaking lower. In practice, it is far more difficult to do it. When looking for such opportunities, many questions arise in our minds, […]

Introduction

Theoretically, trend trading is easy. All we need to do is keep buying as long as we see the price rising and keep selling as long as we see the price breaking lower. In practice, it is far more difficult to do it. When looking for such opportunities, many questions arise in our minds, such as:

  • What is the direction of the market?
  • After spotting the trend, how long is the retracement going to last?
  • When is the trend going to end?

The greatest fear for traders is getting into a trend too late. That is, when the trend is coming to an end. Despite these difficulties yet, trend trading is considered to be the least risky and most popular styles of trading. When a trend develops, it can last for hours, days, and even months, depending on the time-frame.

Time Frame

The MACD Combo strategy works well on the 1-hour time frame. After gaining enough experience on the 1-hour time frame, we can also try the strategy on lower time frames.

Indicators

In this strategy, we will be using the following indicators

  1. 50 SMA
  2. 100 SMA
  3. MACD with default settings

Currency Pairs

This strategy applies only to major currency pairs. Some of the preferred pairs are EUR/USD, USD.JPY, GBP/USD, GBP/JPY, and few others. We need to make sure that whichever currency pair we are selecting, it should be fairly liquid.

Strategy Concept

The strategy we have developed answers all of the above questions. It also gives us clear entry and exit signals. This strategy is called the MACD combo. We use two forms of moving averages for the strategy: the 50 simple moving average (SMA) and the 100 SMA. The 50 and 100 input of SMA is suitable for trading on the 1-hour time frame chart. The input will change depending on the time-frame we choose to trade.

The 50 SMA provides a signal for entering a trade, while 100 SMA ensures that we are working in a clear trending market. The main idea of the strategy is that we buy or sell only when the prices cross the moving average in the direction of the trend. The basic concept of the strategy may appear similar to the “momo” strategy but is far more patient and uses longer-term moving averages on hourly charts to capture larger profits.

When this strategy is used on the daily (D) time frame wit the same indicator settings, it gives a larger risk to reward. Hence, this strategy is appropriate for long-term investors and swing traders.

Trade Setup

In order to explain the strategy, we have considered the chart of GBP/USD, where we will be using the strategy on the 1-hour time frame. Here are the steps to execute the MACD combo strategy.

Step 1

The first step of the strategy is to determine the market direction. This means we need to establish the trend of the market. As this is a trend trading strategy, the market must trend in a single direction before we can apply it. In an uptrend, the price should adequately trade above the 50 SMA and 100 SMA for a long period of time. Similarly, for a downtrend, the price should trade below both the SMAs.

In the below image, we see that the market is in a strong uptrend. Hence, we will look for ‘buy’ opportunities.

Step 2

The next step is to wait for a price retracement or a ‘pullback’ to join the trend at this discounted price. We say that the pullback is valid if the price crosses the closest SMA and stays below that SMA at least for a period of4-5 candles. But we need to make sure that the price does not cross below the next SMA. If that happens, the trend gets invalidated, and it may signal a reversal of the trend.

The below image shows that the pullback has crossed the first SMA (50 Period) and has stayed there for more than 5 hours.

Step 3

In this step, we will use the MACD indicator to enter the market. In case of an uptrend, we enter the market for a ‘buy’ as soon as the MACD indicator turns positive. Similarly, in a downtrend, we enter the market for a ‘sell’ when the MACD indicator turns negative. A conservative trader may enter the market after it moves above the SMA.

We can see in the below image that we are going ‘long’ soon after the MACD shows up a green bar. This is an aggressive form of ‘entry’ which requires experience to be able to spot them.

Step 4

In this step, we determine the stop-loss and take-profit for the strategy. Stop-loss is placed below the swing ‘low’ in case of a ‘long’ trade and above the swing’ high’ in case of a ‘short’ trade. Since we are trading with the trend, we will take our profits at the new ‘higher high‘ or ‘lower low’ depending on the momentum of the market. This is the reason behind high risk to reward of trades done using this strategy.

In this case, the risk to reward of the trade is 1:2, which is above the normal range.

Strategy Roundup

Traders implementing the MACD combo strategy should make sure that they only apply the strategy on currency pairs that are typically trending. Also, it is smart to check the crossover’s strength below or above the first moving average. We can also make use of the ADX indicator to check the momentum of the pullback. It is important to check the momentum of the trend and the pullback when trend trading.

Categories
Forex Assets

How Expensive Is It To Trade The NZD/DKK Forex pair?

Introduction NZD is the symbol of the New Zealand dollar, and it is the 10th most traded currency in the Foreign Exchange market. It is the official currency of New Zealand and some other countries like Cook Islands, Niue, the Ross Dependency. Whereas DKK stands for Danish Krone, and it is the official currency of […]

Introduction NZD is the symbol of the New Zealand dollar, and it is the 10th most traded currency in the Foreign Exchange market. It is the official currency of New Zealand and some other countries like Cook Islands, Niue, the Ross Dependency. Whereas DKK stands for Danish Krone, and it is the official currency of […]

Introduction

NZD is the symbol of the New Zealand dollar, and it is the 10th most traded currency in the Foreign Exchange market. It is the official currency of New Zealand and some other countries like Cook Islands, Niue, the Ross Dependency. Whereas DKK stands for Danish Krone, and it is the official currency of Denmark, Greenland, and the Faroe Islands.

The currencies in the Foreign exchange market are traded in pairs. NZD/DKK is the acronym for the New Zealand dollar against the Danish Krone. In this case, the first currency (NZD) is the base currency, and the second (DKK) is the quote currency.

Understanding NZD/DKK

To find the comparative value of one currency in the Forex market, we need another currency to evaluate. If the value of the first(base) currency goes down, the value of the second (quote) currency moves up and vice versa. The market value of NZD/DKK determines the strength of DKK against the NZD. It can be clearly understood as 1 NZD is equal to how much of DKK. So if the exchange price for the pair NZD/DKK is 4.1943, it means we need 4.1943 DKK to buy 1 NZD.

Spread

Forex brokers have two different rates for currency pairs: the bid & ask price. Here the “bid” price at which we can OFFER the base currency, and The “ask” price is at which we can ACQUIRE the base currency. Therefore, the difference between the ask and the bid price is called the spread. Some brokers, instead of charging a split fee for trading, they already have the fees inherent in the spread. Below are the ECN and STP for the pair:

ECN: 15 pips | STP: 20 pips

Fees

When we place any trade, there is some payment/commission we need to pay to the broker. A Fee is simply that payment that we pay to the broker each time we open a position. The fee also fluctuates from the type of broker we use; for instance, there are no charges on STP account models, but a few pips on ECN accounts.

Slippage

The difference between the anticipated and executed price at which the trade is implemented can be termed as Slippage. It can appear at any time but mostly happens when the market is fast-phased and volatile.

Trading Range in NZD/DKK

The trading range is a tabular interpretation of the pip movement in a currency pair for separate timeframes. Using this, we can gauge the risk on a trade for each timeframe. A trading range effectively represents the minimum, average, and maximum pip movement in a currency pair. This can be assessed quickly by using the ATR indicator combined with 200-period SMA.

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.

NZD/DKK Cost as a Percent of the Trading Range

The cost of trade primarily varies on the broker and fluctuates based on the volatility of the market. This is for the reason that the total cost includes Slippage and spreads apart after the trading fee. Following is the description of the cost variation in terms of percentages. The knowledge of it is discussed in the subsequent sections for ECN and STP accounts.

ECN Model Account

Spread = 15 | Slippage = 5 |Trading fee = 8

Total cost = Slippage + Spread + Trading Fee = 5 + 15 + 8 = 28

STP Model Account

Spread = 20 | Slippage = 5 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 5 + 20 + 0 = 25

The Ideal way to trade the NZD/DKK

The NZD/DKK is an exotic currency pair, and the volatility in this pair is moderate. As seen in the range table above, the average pip movement on the 1hour time frame is 68. We must know that the cost of trade declines as the volatility of the pair increases. But this should not be held as an advantage because it is unsafe to trade high volatile markets as the prices rise and fall swiftly.

For instance, in the 1-hour timeframe, the maximum pip range value in this pair is 119 pips, and the minimum pip range value is 20 pips. When we compare the fees for both the pip movements, we find that for 20 pip movement fees is 140.00%, and for a 119 pip movement, the fess is only 23.53%.

So, we can substantiate that the prices are more significant for low volatile markets and high for extremely volatile markets. Hence, we must constantly try to make our entries and exits when the volatility is minimum or average than to that of maximum values. But if your preference is certainly towards decreasing your trading costs, you can trade when the market’s volatility is near the maximum values with optimal risk management.

Categories
Forex Fundamental Analysis

‘Imports by Country’ – How Crucial Is It To Know About This Fundamental Forex Driver?

Introduction Currency values are critical for international trade and vice-versa. The exchange rates are directly influenced by changes in import and export composition, quantity, and prices. The volatility of a currency is directly associated with the country’s import and export relations with other countries. Understanding how international trade affects currencies in the forex market is […]

Introduction Currency values are critical for international trade and vice-versa. The exchange rates are directly influenced by changes in import and export composition, quantity, and prices. The volatility of a currency is directly associated with the country’s import and export relations with other countries. Understanding how international trade affects currencies in the forex market is […]

Introduction

Currency values are critical for international trade and vice-versa. The exchange rates are directly influenced by changes in import and export composition, quantity, and prices. The volatility of a currency is directly associated with the country’s import and export relations with other countries. Understanding how international trade affects currencies in the forex market is paramount for fundamental analysis.

What are Imports by Country?

A country’s trade balance (net exports and imports) is critical for currency valuation. The Balance of Trade refers to the required balance to exist between the total monetary value of a nation’s exports and imports. It is key to currency valuation. When a country exports, domestic currency comes into the country in exchange for the sale of products. When a country imports, the currency goes out in exchange for purchasing goods outside the country. Hence, a balance of exports and imports to maintain a healthy economy.

It is often necessary to understand a nation’s export and import composition to grasp its ties with other countries. Countries’ dependency on goods and services from other nations induces leverage and power for the exporting countries. For example, the United States imports 20% of all its goods from China. If China were to cut-off all its exports to the United States, that would dramatically impact the United States economy and its currency. Hence, the categorization of imports based on country and goods gives us an idea of the underlying relationships between currencies.

United States Imports by Country 

Source: Trading Economics
How can the Imports by Country numbers be used for analysis?

Today’s global world is one that is tightly interconnected and has complex links amongst countries. Understanding trade composition helps us in identifying where to look for volatility. For instance, the United States only imports about 2% of its products from India. If, for some reason, the import prices changed from India in either direction or completely stopped, it would not impact the trade balance significantly.

Hence, categorization based on countries helps us understand the dependencies a particular country has. Heavy dependence on a limited set of countries, especially for primary resources like energy and food, is not suitable for the economy. During times of a natural disaster in the exporting country will affect the dependent countries also.

A country that solely depends on its trade relations with fewer countries is likely to see more volatility in currency valuation. The more diverse the portfolio of a country in terms of its international trade partners, the more robust the currency is. Hence, currencies like the AUD, CAD are more volatile currencies because their exports are heavily dependent on fewer markets, unlike the EUR and USD.

Imports and Exports by country and category of products are equally essential to understand a nation’s currency volatility. For instance, Australia’s heavy dependency on coal and iron ore exports to china and japan induces volatility in AUD currency in correlation with coal and iron ore prices.

The Imports by country is not an economic indicator but is a prerequisite for understanding macroeconomic analysis of currency pairs. Currency valuations are primarily affected by trade relations a country has. It is not frequent for a country to change its import composition by country often, but it has a significant impact on the currency when it does.

Imports form only one half of the equation. Overall to understand the macroeconomic dynamics, both exports and imports have to be taken into account. Also, currency value change has a direct effect on imports and exports. When the Domestic currency appreciates imports are cheaper and profit margin increases for importing companies but hurts exporters as they receive fewer dollars than before. When the domestic currency depreciates, imports get hurt while exporters benefit. Some countries competitively peg their currency lower during export and higher during import. This phenomenon is sometimes referred to as “currency wars.”

Changes in import and export composition as a result of trade agreements or tariffs imposed has a more direct impact on companies that constitute the import and export goods and services. Hence, stock prices of companies are more sensitive to import and export data.

Impact on Currency

Imports categorized based on countries is for segregation and analysis purposes only. It is not an economic indicator in itself. Still, it is essential to understand the existing trade partners of a country to know which currencies are being exchanged for what goods. Imports and Exports both make up the balance of trade, which helps to analyze currency valuation.

Hence, Imports categorized by country are although useful, changes in the composition are necessary for a macroeconomic picture but does not induce volatility in itself. Any change in composition would have already been announced in news reports that would be priced into the market. It is useful at the starting point for establishing currency analysis, but it is neither an economic indicator nor induces any volatility in currencies.

Economic Reports

For the United States, The Census Bureau tracks and consolidates import and export composition on its official website. It releases monthly data ranking countries with which it had exports and imports. It details all the goods and services that are exported or imported from the partner countries.

Sources of Imports by Country

Census Bureau’s Trade highlights reports are available here. We can find a consolidated listing of “Imports by country” of most countries on Trading Economics.

Imports by Country News Release – Impact on Price Charts

Imports by Country is an important piece in analyzing the “Trade” and “Imports” fundamental indicators. It alone is not an economic indicator but is one of the components that make up a fundamental indicator. Precisely, the balance of trade is the economic driver that references the data obtained from Imports and Exports. Extending further, the data from Imports is acquired from factors like Imports by Country and Imports by Category.

Imports by Country alone does not pump up the volatility of the market. Also, the report is released during the release of the Imports data.

Imports Report – Untied States

United States Imports by Country

The USA is the second-largest importer in the world. The imports of the USA are China, the European Union, Euro Area, Canada, Mexico. For the May data, the overall imports dropped from $200.9 billion to $199.1 billion. Imports from China and Canada increased the previous month, but the rest saw a slight decline.

NZDUSD – Before the Announcement

In the below chart of NZDUSD, on the 4H time frame, we can see that the market is in an uptrend. It made a high to 0.65815. Since then, the price has been retracing.

NZDUSD – After the Announcement

On the day of the report announcement, the NZD showed strength, while USD showed weakness. However, the volatility and volume remained average. In the following days, the bullishness remained intact. In fact, after consolidating for a while at the resistance, the price made a new high. Thus, we can conclude that the Imports by Country indirectly did affect the USD price.

AUDUSD – Before the Announcement

From the price chart of AUDUSD, we can see that the price action is similar to that of NZDUSD. Before the announcement of the news, the market was in a strong uptrend.  After making a high to 0.69845, the prices have been pulling back down.

AUDUSD – After the Announcement

During the announcement of the news, the market volatility was unchanged. However, in the subsequent sessions, the market reacted negatively on USD, and the price touched the recent high and even made a higher high. The market perhaps did react as expected to the new, but in the later weeks.

USDCHF – Before the Announcement

Before the announcement of the news, the market was in a pullback phase of a downtrend.

USDCHF – After the Announcement

On the announcement day, the volatility of the market was feeble. The price pushed to the downside but with low volume that is typically seen during the announcement of major news events.

In the following trading days, the predominant downtrend continued where the price made a new low from 0.93828. This down move could be due to several factors; however, there could be a slight effect on the Imports by Country report. Cheers!

Categories
Crypto Guides

Twitter Bitcoin Scams Calls For The Need Of ‘Crypto Scam Awareness’!

Introduction Blockchain and cryptocurrency have changed the way people used to think about making a digital transaction. Blockchain uses cryptography to secure the digital payments made through cryptocurrencies. Over the years, there have been plenty of cryptocurrencies launched that are fueling the crypto world constantly. However, Bitcoin remains a prominent player that is continuously enhancing […]

Introduction Blockchain and cryptocurrency have changed the way people used to think about making a digital transaction. Blockchain uses cryptography to secure the digital payments made through cryptocurrencies. Over the years, there have been plenty of cryptocurrencies launched that are fueling the crypto world constantly. However, Bitcoin remains a prominent player that is continuously enhancing […]

Introduction

Blockchain and cryptocurrency have changed the way people used to think about making a digital transaction. Blockchain uses cryptography to secure the digital payments made through cryptocurrencies. Over the years, there have been plenty of cryptocurrencies launched that are fueling the crypto world constantly. However, Bitcoin remains a prominent player that is continuously enhancing its growth.

With such huge popularity and wide approach comes the vulnerability to scams and fraudulent practices. That’s precisely what happened to Bitcoin traders this year when it fell prey to a humongous Twitter Scam.

An Overview of Twitter Bitcoin Scam

If you have been following the crypto news, you would have already heard and read about the Twitter Bitcoin scam that created a rage in the industry. It happened on 15th July 2020 somewhere around 22:00 UTC when approximately 130 high profile Twitter accounts majorly, including big corporate houses, manufacturing giants, and business persons, were hacked.

These Twitter accounts were compromised by the hackers to promote a Bitcoin scam wherein they asked the users to send Bitcoin to an anonymous crypto wallet as a part of a scam promotion.

What Havoc Did The Scam Tweet Make?

The scammers behind the scandalous Twitter Bitcoin scam first hacked the high-profile Twitter accounts to make people believe in the possible scam. They sent out a typical tweet where they asked the Twitter users to send Bitcoin to a specific wallet to get back their cryptocurrency doubled. Within a few minutes of the tweet, more than 300 transactions were made to the wallet, which equaled around USD 110,000 worth Bitcoin.

Though the scam tweets were removed from the account, it had already created the chaos by sourcing Bitcoin from the users. This recent Twitter Bitcoin scam is now being called as the biggest and the worst crypto hack on social media.

There have been many instances where social media was used to make financial scams, but it is for the first time that a Bitcoin scam of such a colossal scale took place on Twitter. Security experts say that this could have turned into a messy scam, but the scam was brought into light minutes after it was posted that allowed the official to take action at the right time.

How To Safeguard From The Social Media Scams?

Social media scams are considered the most severe ones as it can intensify the situation. Here are a few tips to stay protected from such scams.

  • Increase your awareness regarding social media scams.
  • Try to detect the imposter websites that can pave the way for financial fraud.
  • Fake mobile apps are popular tools for cryptocurrency scammers.
  • Stay away from fake tweets and other social media updates that ask you to make transactions.
  • Scamming emails are also a prominent source of crypto scams. Check the veracity of the email before investing in any cryptocurrency platform.

The Bottom Line

Cryptocurrency scams can be financially detrimental; hence, it is vital to take all the necessary precautions to safeguard your interests from such scams. Recently the Twitter Bitcoin scam created an alarming situation among the crypto traders. Make sure to check the credibility and authenticity of everything before dealing in cryptocurrency.

Categories
Forex Basic Strategies

Heard Of The CCI (Commodity Channel Index) Trading Strategy?

Introduction

Introduction

Introduction

Often in life, taking the right action is the hardest decision to make. The same thing happens in trading as well. Most traders find it extremely difficult to buy at ‘bottom’ and sell at ‘top’ even though from a very early age, we are taught to look for value and buy “cheap.” That is why most traders who proclaim their love for trading with the trend fail to pick tops or bottoms.

While these types of ‘turn’ trades can be very profitable, they sometimes seem like tough tasks as the price can relentlessly trend in one direction, constantly stopping out the bottom and top pickers. Sometimes it is far easier and more comfortable to go with the flow. Yet, most traders are reluctant to buy breakouts for fear of being the last one to the party before prices reverse with a reprisal.

In today’s topic, we will solve the question of “how to trade breakouts confidently and successfully.” The Commodity Channel Index (CCI) Strategy is a setup designed to deal with just such a predicament.

Time Frame

One of the best parts of this strategy is that it works well on all time frames. That means we can use this strategy from very short time frames like 5-minutes to longer time frames such as the 4-hours or daily (D).

Indicators

In this strategy, we will use an indicator that is rarely used in forex. That is the Commodity Channel Index (CCI) indicator, devised by Donald Lambert in 1980 and originally designed to solve engineering problems. The primary focus of CCI is to measure the deviation of the currency pair’s price from its statistical average. As such, CCI is an extremely good measure of momentum that helps us to optimize only the highest probability entries for our setup.

Currency Pairs

This strategy applies to most of the currency pairs listed on the broker’s platform. We need to make that the pair we are choosing is fairly liquid.

Strategy Concept

The CCI is an unbounded oscillator with a reading of 100+ is typically considered to be overbought, and any reading of 100- indicates oversold. For this strategy, we will use these levels as our trigger points and change the CCI interpretation. We will look to buy the currency pair if it makes a new high above 100 and sell if it makes a new low below 100.

In this strategy, we are looking for new peaks or spikes that are likely to take the currency pair higher or lower due to its momentum. The thesis behind this setup is much like a body that will continue to remain in motion until it is hurtled by an external force or slowed down by counter forces. Similarly, new highs and lows in CCI will propel the currency in the further direction of the move until new prices halt the ongoing move.

Trade Setup

In order to illustrate the strategy, we have considered the EUR/JPY currency pair, where we will be applying the strategy on the 1-hour time frame chart.

Step 1

Firstly, open the chart of the desired currency pair and plot the Commodity Channel Index (CCI). Keep the input of the CCI index as 20. Then, mark key technical levels of support and resistance on the chart. For a ‘long’ trade, look for the last ‘high’ made by the CCI indicator and mark it out. That means its value should have crossed +100 during an upward price movement. Similarly, for a ‘short’ trade, look for the last ‘low’ made by the CCI indicator during the downward price movement.

In the below example, we have identified a ‘resistance’ and a ‘high’ that was made by the CCI indicator. Since the ‘high’ is more prominent on the chart, we will look for ‘long’ trades in the currency pair.

Step 2

This step is the most important part of the strategy. Here, we need to wait for the CCI indicator to market a new ‘high’ or new ‘low,’ which is higher than the previously identified ‘high’ or ‘low.’ This indicates a build-up of momentum in the market with the high chance that the market will continue moving strongly in the same direction. In the next step, we will see how to take an ‘entry’ after carrying the previous steps.

In the below image, we can see that the CCI index makes a new ‘high’ at the appearance of a bullish candle. At this moment, the price is exactly at resistance, which means we need to ‘sell’ from here. This is where the strategy comes into the picture.

Step 3

Once the market starts moving in our favor by about five pips, we enter with the appropriate position size. This is an aggressive form of ‘entry’ where we take advantage of the existing momentum. A conservative ‘entry’ would be to wait for a price retracement and enter after receiving a confirmation from the market.

In our example, we are taking an aggressive entry, i.e., at the breakout of the resistance. All traders who will be selling here thinking it as resistance would get trapped. This is the application of the CCI indicator.

Step 4

In this step, we determine the stop-loss and take-profit for the strategy. Stop-loss is placed below the previous ‘low’ in case of a ‘buy’ and above the previous ‘high’ for a ‘sell’ trade. If the ‘high’ or ‘low’ is too far away, it could reduce the risk to reward ratio. In such cases, the stop-loss can be placed 20-25 pips from the entry point. The ‘take-profit’ is set at 1:1 risk to reward.

Strategy Roundup  

If the rules are strictly followed, we may not experience any serious drawdown as we are trading based on market momentum. The key is a high probability, and this is exactly what the ‘CCI strategy’ provides. This strategy exploits the application of the CCI indicator, which is highly underrated in the forex market.

Categories
Forex Fundamental Analysis

Does The ‘Import Prices’ News Announcements Impact The Forex Price Charts?

Introduction Import and exports make up a country’s trade balance that primarily drives currency value and economic growth. The two-way feedback between imports and exchange rates is critical to understand and how the trade balance affects currency value. Understanding changes in import prices can help us deepen our understanding of macroeconomic fundamentals of every country. […]

Introduction Import and exports make up a country’s trade balance that primarily drives currency value and economic growth. The two-way feedback between imports and exchange rates is critical to understand and how the trade balance affects currency value. Understanding changes in import prices can help us deepen our understanding of macroeconomic fundamentals of every country. […]

Introduction

Import and exports make up a country’s trade balance that primarily drives currency value and economic growth. The two-way feedback between imports and exchange rates is critical to understand and how the trade balance affects currency value. Understanding changes in import prices can help us deepen our understanding of macroeconomic fundamentals of every country.

What is Import Prices?

Import prices are the cost at which foreign goods are purchased in the international market. Import prices are measured through import price indexes. Import price indexes measure the change in prices paid for goods imported to the domestic country. The import price index figures for a reference period relate to the prices of goods that have come into the country during the period.

Import prices are essential to a country’s trade balance. A country’s trade balance is the difference between its total exports and imports and is an economy’s major composition.

How can the Import Prices numbers be used for analysis?

The international market always tends to stay in an equilibrium of currencies. When a country’s currency is flooded into the forex market, its relative value falls against other currencies. On the contrary, when a particular currency leaves the international market and goes into the country, the deficit increases its value against other currencies. Hence, excess reduces value, and scarcity increases value.

In this sense, when a country imports goods and services, it does so by paying out or sending out its domestic currency into the international market. When a country exports a good or service, it sends out the product in return for dollars coming into the country. Hence, overall the total worth of exports and imports should be balanced to maintain the currency’s current value.

When a country imports more than it exports, it faces a trade deficit, and as a result, its currency value falls relative to other currencies. When imports exceed exports, it means the country is a net consumer of goods and services in the global economy. It is negatively contributing to global economic growth. When a country exports more than it imports, it faces a trade surplus, and as a result, its currency rises relative to others. When a country is a net exporter or provider, it is contributing positively to global economic growth.

In general, countries prefer to maintain a trade surplus, but may intentionally maintain a trade deficit by importing, to increase their exports and overall economic growth in the future. Countries in today’s modern world have increasingly become dependent on international trade for both imports and exports.

Countries that do not have a competitive edge in specific sectors prefer to import goods and services from other corners of the world where they may be more efficiently produced and are cheaper. Businesses rely on importing raw materials or intermediate goods for producing finished goods and services, or even consumption.

A strong currency will favor imports as more goods can be procured for a unit of currency. Prolonged deficits (imports exceeding exports) devaluate the currency, which is not suitable for the economy. Hence, countries’ central authorities closely monitor the import and export price changes to draw out policies or reforms if needed to ensure a trade balance. In a crude sense, a country’s exports are its income, and imports are its expense. Increasing imports and declining exports ultimately drive a country into a debt trap.

Import prices are useful for negotiating future trade contracts, tracing global price trends for certain goods and services, predicting future prices, and domestic inflation. It is also used to deflate trade statistics published by the government. Import price also helps the central authorities to decide which and how much of a fiscal or monetary lever is to be used to manage exchange rates.

Import prices are especially valued in the bond markets because of its direct impact. As importing prices become too high, it deteriorates the importing company’s profit margin, ultimately decreasing corresponding bond prices. Hence, bond prices decrease when import prices substantially increase. On the other hand, when import prices decrease, the profit margin for companies increases, and correspondingly the bond prices also rise, seeing the increased margin.

Impact on Currency

The currency markets are always focused on macroeconomic indicators and do not focus on indicators that focus on specific parts of the economy. However, import prices affect trade balance, bond markets, and even stock markets. The overall net import and export figures and trade balance reports constitute more precedence than the individual import prices report for the currency markets. Hence, it is a low-impact indicator in the currency markets and can be overlooked for other macroeconomic indicators.

On an absolute basis, significant increases in import prices for prolonged periods, deteriorate currency, and economic growth. In practice, multiple forces act for and against such figures, and import prices alone are insufficient to determine currency’s future direction.

Economic Reports

In the United States, the Bureau of Labor Statistics publishes monthly import prices as part of its “Import/Export Indexes (MXP).” It is released every month around the second week for the previous month on its official website.

Sources of Import Prices

The Bureau of Labor Statistics Import/Export Indexes (MXP) is primarily used. It is also categorized into subtables by End-Use, NAICS (North American Industry Classification System), Harmonized System, and Origin. Consolidated Import prices for most countries is available on Trading Economics. The World Bank also maintains international trade data in terms of import value and export value indexes.

Import Prices – Effect on Price Charts

Import Prices is an important element in understanding the trade balance of an economy. However, it alone cannot affect the economic condition of a nation. It is combined with the Export Prices, and the difference between the two is what makes it vital.

Coming to the currency market, the Import Prices report mildly affects the volatility of a currency. If immediate volatility on the time of release is not observed, it could be reflected in the short term.

Import Prices Report

The below report represents the Import Prices of the US for the month of June. According to the data released on July 15, the Import Prices increased by 1.4% month-on-month, after a decline of 0.8% the previous month. Also, it beat the forecasted value of positive 1.0%.

Historical Impact Prices Report

Impact Level

The US Import Prices released by the US Department of Labor has a moderate impact on the currency market (USD).

USDJPY – Before the Announcement

Below is the price chart of USDJPY on the 15mins time frame. Before the report was released, the market was in a strong downtrend representing USD weakness.

USDJPY – Before the Announcement

When the news was released during the open if the New York session, the trading volume considerably increased, and the price continued to move south. However, later in the session, the prices reversed in favor of USD. This indicates that the market did have an impact on the report.

USDCHF – Before the Announcement

Before the news announcement, the volatility of the market was feeble. The price which was inclined down initially, but had begun to move switch direction during the release of the news.

USDCHF – After the Announcement

When the Import Prices news report was announced, the volatility was moderate in the beginning but reduced later in the day. The price which was showing bullishness prior to the news continued with the same sentiment. Thus, traders can follow their strategy without any hesitation as the news barely induce high volatility.

AUDUSD – Before the Announcement

Before the announcement of the report, the market was in an evident uptrend making higher highs.

AUDUSD – After the Announcement

Right when the report was announced and the North American session began, the market reversed direction from an uptrend to a downtrend. However, the price failed to make a higher high. The volatility increased significantly, which can be seen from the volume indicator.

The Import Prices is an essential indicator in as it is a factor of calculation for fundamental drivers. As we saw, even though this indicator did not really bring in volatility in the market, it indirectly does significantly affect the currency prices when combined with other drivers. Cheers!

Categories
Forex Assets

Asset Analysis – Trading The NZD/SEK Exotic Cross Currency Pair

Introduction NZD/SEK is the acronym for the currency pair New Zealand dollar versus the Swedish Krona. It is marked under the exotic cross-currency pair category. In this pair, NZD will be the base currency, and SEK will be the quote currency. In this article, we shall understand everything about trading this currency pair. Understanding NZD/SEK […]

Introduction NZD/SEK is the acronym for the currency pair New Zealand dollar versus the Swedish Krona. It is marked under the exotic cross-currency pair category. In this pair, NZD will be the base currency, and SEK will be the quote currency. In this article, we shall understand everything about trading this currency pair. Understanding NZD/SEK […]

Introduction

NZD/SEK is the acronym for the currency pair New Zealand dollar versus the Swedish Krona. It is marked under the exotic cross-currency pair category. In this pair, NZD will be the base currency, and SEK will be the quote currency. In this article, we shall understand everything about trading this currency pair.

Understanding NZD/SEK

The price of this pair in the foreign exchange market determines the value of SEK comparable to one NZD. It is quoted as 1 NZD per X SEK. So, if the value of this pair is 5.8296, these many Swedish Kronor (SEK) are required to purchase one NZD.

Spread

Trading the Forex market usually does not involve spending a lot of fees like the Stock market. Here, Forex brokers make profits through spreads. It is nothing but the difference between Bid – Ask prices of an asset. Some broker has the cost inherent into the buy and sell prices of the currency pair; instead of charging a separate fee. Below are the spread values of ECN and STP brokers for the NZD/SEK pair.

ECN: 48 pips | STP: 53 pips

Fees

A Fee is the charges we pay to the stockbroker for executing a particular trade. The fee fluctuates from the type of broker we choose. For example, the fee on the STP accounts is zero, but we can expect a few additional pips on ECN accounts.

Slippage

Slippage is the contrast between the price expected by the trader for execution and the price at which the agent executed the price. There is this variation due to the high market volatility and more passive execution speed.

Trading Range in NZD/SEK

The trading range is used at this point; to measure the volatility of the NZD/SEK pair. The amount of money we will gain or lose in an allotted timeframe can be evaluated using the trading range table. The minimum, average, and maximum pip movement of the currency pair is exemplified in the trading range. This can be evaluated simply by using the ATR indicator combined with 200-period SMA.

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.

NZD/SEK Cost as a Percent of the Trading Range

The rate of trade varies on the stockbroker and fluctuates according to the volatility of the market. This is because the trading cost includes fees, slippage, and the spread. The rate of variation in terms of percentage is given below.

ECN Model Account

Spread = 48 | Slippage = 5 |Trading fee = 8

Total cost = Slippage + Spread + Trading Fee = 5 + 48 + 8 = 61

STP Model Account

Spread = 53 | Slippage = 5 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 5 + 53 + 0 = 58

The Ideal way to trade the NZD/SEK

The NZD/SEK is termed as an exotic-cross currency pair and has a low volatile market. Looking at the pip range table, the average pip movement on the 1H timeframe is 115 pips, which implies high volatility. As we know, the higher the volatility, the smaller will be the cost to implement the trade. Nonetheless, this is not a benefit to trading in a volatile market; it involves higher risk.

For instance, in the 1M time frame, the Maximum pip range value is 1938, and the minimum is 503. When we evaluate the trading fees for both the pip movements, we notice that for 503 pip movement fees is 12.13%, and for the 1938 pip movement, fess is only 3.15%. Therefore, from the above instance, we can determine that trading the NZD/SEK currency pair will be on the expensive side.

Categories
Forex Basic Strategies

Learning To Trade The Forex Market Using ‘Pure Die-Out’ Strategy

Introduction

Introduction

Introduction

Everyone wants to be the hero in the market and claim that they have picked the top or bottom of a currency pair. However, apart from boasting, there is no gain from repetitive selling at every new ‘high’ in hopes that this one would be the final ‘high.’ One of the biggest dangers encountered by novice traders is picking a top or bottom with no logic. The pure die-out is an intraday strategy that picks a top or bottom based upon a strong recovery after an extended move.

Time Frame

As it is an intraday strategy, the highly suitable time frames are 1 hour and 15 minutes.

Indicators

In this strategy, we will be using two indicators. The two indicators are RSI and Bollinger Bands.

Currency Pairs

This strategy works best on major currency pairs only. Among these, the preferred ones are EUR/USD, USD/JPY, GBP/USD, GBP/JPY, and USD/CAD.

Strategy Concept

The strategy looks for intraday fake-outs using three sets of Bollinger bands and the relative strength index (RSI) on the hourly and 15-minute charts. The trade setup is formed when RSI hits either an overbought or oversold level. The market is considered to be overbought when RSI moves above 70, while the market is considered oversold when RSI goes below 30.

This signals a possible reversal in the market and that we can start looking for a trade in the opposite direction. However, rather than just immediately buying or selling in hopes for a trend reversal based solely upon RSI, we add in three sets of Bollinger Bands, to help us identify the point of over-extension. We use three sets of Bollinger Bands because it helps us assess the extremity of the move along with the extent of possible U-turn.

The conventional theory of Bollinger bands suggests buying or selling when prices hit the two bands. In our strategy, we will totally be using three Bollinger bands, and when prices hit the third band on any side, we say that the move is within the 5% small group, which characterizes the move as extreme.

When prices move away from the third standard deviation Bollinger band and move into the zone of first and second Bollinger band, we are confident that the currency pair has hit its extreme point and is moving into a reversal phase.

Finally, we look for one last thing before making an entry: a candle to close fully between the second and first Bollinger Bands. This last step helps us screen out false moves and assures that the previous move was really exhaustion. This is a low-risk and low-return strategy that is suitable for traders who like to scalp the market.

Trade Setup  

To illustrate the strategy, we have considered the USD/JPY currency pair, where we will be applying the 1-hour chart strategy. Here are the steps to execute the strategy.

Step 1

Firstly, open the 1 hour or 15 minutes chart of the desired currency pair. Then plot the Bollinger band and RSI indicator on the chart. We need to plot 3 Bollinger bands with the same ‘period’ but different standard deviations. The first Bollinger band (BB) should have a standard deviation (SD) of 1, the second BB will have SD of 2, and finally, the third BB will have SD of 3. RSI will carry the default settings.

The below image shows the Bollinger band indicator plotted on the USD/JPY currency pair and the RSI on it.

Step 2

If we are looking for an overextended move on the downside, wait for the price to cross below the lower band of the 3SD BB or if we are looking for an overextended move on the upside, wait for the price cross above the upper band of the 3SD BB. Along with this, we need to see that the RSI goes below the 30 ‘mark’ in a down move and moves above the 70 mark in an up move. Both conditions need to be satisfied simultaneously.

In the example since we are looking for a ‘buy’ trade, we have to wait for the price to cross below the lower band of the 3SD BB along with the RSI reading of below 30. The below image shows that the conditions mentioned above are fulfilled.

Step 3

In this step, we wait for a candle to open and close between the 2SD BB and 1SD BB zone. It is important to check that the entire body of the candle is within this zone, and it closes near the lower band of the 1SD BB. This was for a ‘long’ setup. In the case of a ‘short’ trade, the only difference is that the candle should close between the upper band of the 2SD BB and 1SD BB.

In the below image, we can notice a bullish candle that closes well within the required zone, which is a sign of reversal.

Step 4

In this step, we determine the ‘stop-loss’ and ‘take-profit‘ for the strategy. Stop-loss is placed below or above the ‘low’ or ‘high,’ respectively, from where the reversal began. As we are trading against the trend, the ‘take-profit’ is set at 1:1 risk to reward. We will also lock-in some profits when the market starts moving in our favour, to ensure that we don’t lose money if it turns midway.

Strategy Roundup

In this strategy, we combine two technical indicators to identify the market’s top and bottom, without making wild guesses. This means we are determining overextended moves logically and technically. After practising well on the 1-hour chart, we can spot trade setups on the 15 minutes time frame. Since these are counter-trend trades, the probability of success will be less. This strategy is very simple to understand if we have basic knowledge of indicators.

Categories
Forex Fundamental Analysis

Imports by Category – Comprehending This Forex Fundamental Driver!

Introduction Understanding the portfolio of an economy’s exports and imports can help us track down the fundamental moves in currencies. Tracking imports and exports can help speculators ride the fundamental wave of currency value change in their favor. Imports and Exports are critical components of a nation’s trade balance. The deeper our understanding of these […]

Introduction Understanding the portfolio of an economy’s exports and imports can help us track down the fundamental moves in currencies. Tracking imports and exports can help speculators ride the fundamental wave of currency value change in their favor. Imports and Exports are critical components of a nation’s trade balance. The deeper our understanding of these […]

Introduction

Understanding the portfolio of an economy’s exports and imports can help us track down the fundamental moves in currencies. Tracking imports and exports can help speculators ride the fundamental wave of currency value change in their favor. Imports and Exports are critical components of a nation’s trade balance. The deeper our understanding of these dynamics, the better will be our understanding of macroeconomic trends.

What are Imports by Category?

Imports: They are the goods or services purchased that were produced outside the domestic country. Imports are purchased goods or services from foreign markets. Imports are required for many reasons and inherently constitute a nation’s trade balance. In importing, foreign goods or services come into the country while domestic currency goes out into the international market. A country in general imports when it is more efficiently produced or is cheaper in other countries. It may also import when the nation is unable to produce or meet the required demand.

A country will have numerous corporations that would have requirements for foreign goods or services, and hence the country’s valuation of imports would be in millions and billions. Hence, while importing millions and billions of domestic currency goes into foreign markets where currencies are exchanged for various reasons. Suppose a country wants to import goods or services from another country. It generally pays it in the exporting country’s currency. Hence, during export, currency comes into the country, and products go out, and during imports, the currency goes out, and products come in.

How can the Imports by Category numbers be used for analysis?

When a country’s imports exceed its exports, it is said to have a negative trade balance or trade deficit. Based on the geographical location, technological and business setups, different nations will have a competitive edge in different sectors. For instance, countries like Venezuela, Canada, or Middle Eastern countries are naturally sitting on abundant oil reserves. Hence, it will export oil to countries that do not have such reserves.

Companies may often require raw materials that are more cheaply available from other countries. For instance, companies in the United States might import electronic goods from China, which is cheaper. Hence, such companies may put up bulk order imports and trade takes place. Hence, what a country needs it may import and what it produces it can export.

The international market is decentralized and operates through free-market forces that keep economies in natural equilibrium. Currency exchanges can take place for genuine business transactions or speculative purposes also. When exchanges occur for purely business reasons, we call them fundamental moves in the currency pairs. These fundamental moves give currency their volatility along with speculation from investors.

Understanding a country’s Imports by the Category of products can help us track the fundamental moves. When significant transactions related to import or export takes place, it induces volatility into the currencies. During a considerable import, the international market is flooded with importing the country’s currency, and due to supply exceeding demand, the currency value falls.

On the other hand, when a country exports a massive volume of goods, the corresponding transaction would withdraw a large sum of that country’s currency out of the international market. When demand exceeds the supply, the currency value appreciates. Scarcity appreciates value and oversupply reduces value. Hence, a country must maintain a “balance” in its trades, i.e., the monetary value of all its imports and exports should ideally cancel off. In reality, it is not so, and this imbalance in different country’s trade balance gives currencies the volatility which traders are always looking to capture.

Understanding the economy’s portfolio of imports can help policymakers also in identifying exceeding dependencies in other countries. Too much reliance on foreign countries for goods or services is not suitable for the economy. The more a country is dependent on other countries, especially for basic needs like energy and food, the less it has control over its economic growth and currency valuation.

Countries that depend on fewer categories of imports and exports have more concentrated risk in terms of currency volatility. Countries like AUD and NZD show more volatility in general than currencies like USD and EUR because of the diverse portfolio of exports and imports of the latter currencies.

Impact on Currency

Imports by Category of goods or services is not an economic indicator, but it is necessary to facilitate an understanding of international trade balance amongst currencies. It directly does not impact any currency volatility but is a requisite to base trade analysis amongst currency pairs. Changes in imports by Category does not frequently change as most trade agreements are made for multiple years on end. Any changes in trade composition in terms of Category will be priced through leading economic indicators and news releases.

Economic Reports

In the United States, the Census Bureau tracks the import and export data categorized by trade partners and products. The lists are ranked based on trade volume, deficits, and surpluses, etc. Monthly and year-to-date data are two types listed for all its trade partners.

Sources of Imports by Category

We can find the Census Bureau data on its Top Trading Partners. We can find the percentage of statistics consolidated for most countries for imports by Category on Trading Economics.

Imports by Category News Release – Effect on the Price Charts

Both Exports and Imports are fundamental indicators that vaguely impact the forex market. The Imports report is calculated by considering the Imports by Category and Imports by Country. Reliable results are obtained when they are combined. Thus, to analyze the impact of Imports by Category, we shall be taking into account the Imports number as well.

Level of Impact

The Imports by Category report released by the Australian Bureau of Statistic has minimum to negligible impact on the value of the Australian dollar.

Imports data – AUD

The Imports report published on July 02, 2020, stood negative 6%, beating the previous number -10%. Even though the numbers are not up to the mark, they have recovered to a great extent from the previous month’s readings.

From the below chart ranging from 2016 to 2020, the Australian Imports hit a new low to -10% for the May report. However, it shot up 4% higher the following month.

Imports – Australia

Below is the Imports by Category for the top five categories in imports. We can see that four out of five categories saw a drop from the previous report.

AUDUSD – Before the Announcement

Focusing on the left side of the chart, we can see that the market is in an uptrend and is currently consolidating.

AUDUSD – After the Announcement

On the day of the report release, the impact in the volatility of the currency was insignificant. However, later through the month, the Australian dollar got stronger and continued its uptrend. This indicates that, despite the disappointing number overall, the AUD saw strength as the number beat the previous month report by a significant margin.

AUDCAD – Before the Announcement

Before the news released, the market was in a range for an entire month.

AUDCAD – After the Announcement

On the day of the announcement, the market tried to inch above the top of the range but failed. However, in the subsequent trading sessions, volatility picked up, and the price made a higher high. Hence, we can, to an extent, conclude that the AUD had a positive impact on the Imports by Category numbers.

AUDJPY – Before the Announcement

In the below chart of AUD/JPY on the 4H time frame, we can see that the market is in a strong uptrend. It made a high to around 77.000. The prices were in a pullback phase, the whole month of June.

AUDJPY – After the Announcement

On the day of the report announcement, the market barely had any impact in terms of volatility. That said, in the following weeks, the price rallied up to the previous high of 77.000, indicating AUD strength.

Therefore, we can conclude that the Australian dollar had a feeble effect during the news release day but did have a positive impact on the report in the subsequent trading sessions. Cheers!

Categories
Forex Assets

Analyzing the Trading Costs on ‘NZD/CZK’

Introduction NZD/CZK is the abbreviation for the Euro Area’s Euro against the Czech Koruna. This pair is considered an exotic-cross currency pair. Here, the NZD is the base (first) currency, and the CZK is the quote (second) currency. NDZ is the official currency used in New Zealand, while CZK is the native currency of the […]

Introduction NZD/CZK is the abbreviation for the Euro Area’s Euro against the Czech Koruna. This pair is considered an exotic-cross currency pair. Here, the NZD is the base (first) currency, and the CZK is the quote (second) currency. NDZ is the official currency used in New Zealand, while CZK is the native currency of the […]

Introduction

NZD/CZK is the abbreviation for the Euro Area’s Euro against the Czech Koruna. This pair is considered an exotic-cross currency pair. Here, the NZD is the base (first) currency, and the CZK is the quote (second) currency. NDZ is the official currency used in New Zealand, while CZK is the native currency of the Czech Republic.

Understanding NZD/CZK

The price of this pair in the foreign exchange market defines the value of CZK equivalent to one NZD. It is quoted as 1 NZD per X CZK. So, if the value of this pair is 14.8124, these many Korunas are required to purchase one NZD.

Spread

Spread is the mathematical difference between the bid and the asking price offered by the broker. This value is distinct in the ECN account model and STP account model. An approximate value for NZD/CZK pair is given below.

ECN: 43 pips | STP: 48 pips

Fees

The fee is the price/compensation that one pays for the trade. There are no charges on STP accounts, but a few additional pips are levied on ECN accounts.

Slippage

Slippage is a variation between the value proposed by the trader, and the trader indeed received from the broker.

Trading Range in NZD/CZK

The tabular interpretation of the pip movement of a currency pair in separate timeframes is called as the trading range is the. These values are helpful in influencing the profit that can be produced from a trade before-hand. To uncover the value, you must multiply the below volatility price 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.

NZD/CZK Cost as a Percent of the Trading Range

Trading Range is the interpretation of the total price variation of trades for distinct timeframes and volatilities. The values are achieved by discovering the ratio amongst the total price and the volatility value; it is expressed as a percentage.

ECN Model Account

Spread = 43 | Slippage = 5 |Trading fee = 8

Total cost = Slippage + Spread + Trading Fee = 3 + 43 + 8 = 56 

 

STP Model Account

Spread = 48 | Slippage = 5 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 5 + 48 + 0 = 53

Trading the NZD/CZK

The bigger the percentage values, the higher is the price on the trade. From the preceding tables, we can see that the values are sizeable in the min column and relatively less significant in the maximum column. This means that the prices are high when the volatility of the market is low.

It is neither suitable to trade when the market’s volatility is elevated nor when the costs are high. To balance out between both these aspects, it is perfect to trade when the volatility of the pair is in the array of the average values.

Additionally, to decrease your costs even beyond, you may place trades using limit orders as a substitute for market orders. In executing so, the slippage will not be involved in the computation of the total costs. And this will put down the cost of the trades by a sizeable number. An example of the same is given below.

STP Model Account (Using Limit Orders)

Spread = 48 | Slippage = 0 |Trading fee = 0

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

Categories
Forex Course

142. Different Types Of Breakouts & How To Trade them?

Introduction As discussed in the previous lesson, a breakout is the price action that goes above or below a significant level on the price chart. As a breakout trader, we must enter a long position after the price breaks above the resistance, and enter a short position after a price action breaks below the support. […]

Introduction As discussed in the previous lesson, a breakout is the price action that goes above or below a significant level on the price chart. As a breakout trader, we must enter a long position after the price breaks above the resistance, and enter a short position after a price action breaks below the support. […]

Introduction

As discussed in the previous lesson, a breakout is the price action that goes above or below a significant level on the price chart. As a breakout trader, we must enter a long position after the price breaks above the resistance, and enter a short position after a price action breaks below the support. After the breakout, the volatility of the price tends to increase as most of the traders prefer entering the market to ride the upcoming trend.

There are different types of breakouts, such as channel breakout, head and shoulder breakout, triangle breakout, flag pattern breakout, etc. In this lesson, we have shared a few of the breakout strategies that you can use to trade the Forex market effectively.

Resistance Breakout

The below price chart represents a Resistance breakout on the NZD/JPY Forex pair.

It is evident that the market was quite volatile, and after the breakout, it just goes down. So during the breakout, there was no entry. The price action then came back to the resistance area, and we ended up going short in this pair. The take-profit was placed at the most recent lower-low. We chose the most recent lower low because both the parties were strong, and we expected another buying push. You can go for a brand new lower low or higher high as well. Always place the stops just above the support area.

Support Line Breakout

The below charts represent our buy entry in the NZD/JPY Forex pair.

As you can see below, we took a buy entry when the price action broke above the significant support area. Right after our entry, the market just blasted to the north, printing a brand new higher high. The reason why the market moved so much is because of the overall buying trend being super strong.

It is a common perception that support and resistance are just significant levels, but they do not provide good trading opportunities, but this is not true. If we filter out all the bad signals and only trade the S/R signals when the price action is strong enough, those trades often provide an excellent risk to reward ratio trades.

Swing High Breakout

The image below represents a swing high breakout on the daily chart.

  

Swing high Forex strategy is specially developed for the higher timeframe traders. We look for the breakout of the most recent higher high. Most of the time, the higher timeframes takes nearly 2 to 3 months for a complete pullback. So to break the most recent higher high, the price action needs a lot of power in order to print a new higher high.

The moment we get a new higher high, it indicates the strength of the buyers, and we must expect the formation of a brand new higher high. In the below image, we took the trade at the breakout of the higher high, and trade it took nearly two months to hit the take profit.

 

Swing Low Breakout

The image below represents the breakout of the swing low on the AUDCAD Forex pair.

As you can see, we took a sell-entry in this pair when the price action broke the most recent lower low. After our entry, price action didn’t blast to the north. Instead, it goes sideways for a couple of months and finally printed a brand new lower low.

Flag Pattern Breakout

The image below represents the price breaking the Flag pattern in the EUR/CAD Forex pair.

The Flag pattern is the most common and widely used to trade potential breakouts. Basically, the appearance of Flag indicates a trending market situation, and a breakout of the pullback will be a great idea to go for the brand new higher high. As we can see, after our entry at breakout, price action went north and prints a brand new higher high.

Channel Breakout

The image below represents a channel breakout in the GBPUSD Forex pair.

We can see the price struggling to make any significant moves and hence formed a channel. After the buy-side breakout, the price went in the north direction, forming a brand new higher high. While trading channel breakouts, it is good enough to place the stops below the breakout line. Since the breakout line acts as a dynamic support and resistance level, the price it needs an immense amount of power to break that level. So placing our SL-order there, is a great idea.

That’s about different types of breakouts and how to trade them. If you have any questions, please let us know in the comments below. Don’t forget to take the quiz before you go!

[wp_quiz id=”82725″]
Categories
Forex Assets

NZD/PLN – Analyzing This Exotic Forex Currency Pair

Introduction NZD/PLN is the short form of the currency pair New Zealand dollar vs. Polish Zloty. Here, the New Zealand dollar (NZD) is the base currency, and the Polish Zloty (PLN) is the quote currency. In this article, we intend to comprehend everything you need to know about trading this currency. Understanding NZD/PLN The price […]

Introduction NZD/PLN is the short form of the currency pair New Zealand dollar vs. Polish Zloty. Here, the New Zealand dollar (NZD) is the base currency, and the Polish Zloty (PLN) is the quote currency. In this article, we intend to comprehend everything you need to know about trading this currency. Understanding NZD/PLN The price […]

Introduction

NZD/PLN is the short form of the currency pair New Zealand dollar vs. Polish Zloty. Here, the New Zealand dollar (NZD) is the base currency, and the Polish Zloty (PLN) is the quote currency. In this article, we intend to comprehend everything you need to know about trading this currency.

Understanding NZD/PLN

The price of NZD/PLN signifies the value of the Polish Zloty corresponding to one New Zealand Dollar. It is estimated as 1 NZD (New Zealand Dollar) per X PLN (Polish Zloty). So, if the market value of NZD/PLN is 2.4940, these many Polish Zloty are required to buy one NZ dollar.

Spread

The distinction between the ask & bid costs is recognized as the spread. It changes with the implementation model used by the stockbrokers. Further down are the spreads for NZD/PLN currency pairs in both ECN account models & STP account models:

ECN: 30 pips | STP: 35 pips

Fees

There are certain charges levied by the broker to open every spot in the trade. These charges can be referred to as the commission or fees applicable to the trade. Note that these charges are only applicable to the ECN accounts and not on STP accounts. However, a few additional pips are changed on STP account models.

Slippage

Due to high market volatility and the broker’s slow implementation speed, slippage is common. It is a variance in price intended by the trader and price implemented by the broker.

Trading Range in NZD/PLN

The trading range is essentially a tabular interpretation of the pip movement in the NZD/PLN currency pair for distinct timeframes. These figures can be used to ascertain the trader’s risk as it helps us determines the approx. gain/loss that can be incurred 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.

NZD/PLN Cost as a Percent of the Trading Range

The total cost consists of slippage, trading fee, and the spread. This fluctuates with the volatility of the market. Therefore, traders need to place themselves to avoid paying high costs. Below is a table demonstrating the variation in the costs for various values of volatility.

ECN Model Account

Spread = 30 | Slippage = 5 |Trading fee = 8

Total cost = Slippage + Spread + Trading Fee = 5 + 30 + 8 = 43 

 

STP Model Account

Spread = 35 | Slippage = 5 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 5 + 35 + 0 = 40

The Ideal way to trade the NZD/NOK

NZD/PLN is an exotic-cross currency pair. In this case, we can see, the average pip movement in 1hr timeframe is 46, which signifies higher volatility. The smaller the volatility, the higher is the risk, and lesser is the cost of the trade and the other way around. For example, we can see from the trading range that when the pip movement is lesser, the charge is higher, and when the pip movement is higher, the charge is smaller.

To further decrease our costs of trade, the costs can be reduced even more by placing orders as a limit or stop as an alternative to the market orders. In executing so, the slippage will become zero and will lower the total cost of the trade further. In doing so, the slippage will be eliminated from the computation from the total costs. And this will assist us in decreasing the trading cost by a significant margin. An instance of the same is given below using the STP model account.

STP Model Account (Using Limit Orders)

Spread = 35 | Slippage = 0 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 0 + 35 + 0 = 35

Categories
Forex Basic Strategies

Learning To Trade The ‘Order Block’ Forex Strategy

Introduction Order block is a market behavior that indicates order collection from financial institutions and banks. Prominent financial institutes and central banks drive the forex market. Therefore, traders must know what they are doing in the market. When the market builds the order block, it moves like a range where most of the investing decisions happen. […]

Introduction Order block is a market behavior that indicates order collection from financial institutions and banks. Prominent financial institutes and central banks drive the forex market. Therefore, traders must know what they are doing in the market. When the market builds the order block, it moves like a range where most of the investing decisions happen. […]

Introduction

Order block is a market behavior that indicates order collection from financial institutions and banks. Prominent financial institutes and central banks drive the forex market. Therefore, traders must know what they are doing in the market. When the market builds the order block, it moves like a range where most of the investing decisions happen.

The market makes a sharp move towards both upside and downsize once the order building is completed. The key term of the order block trading strategy is that it includes what the institutional traders are doing. As they are the key price driver, any strategy that includes institutional trading might

What is the Order Block?

Financial institutes do not make a sudden investment in any trading instrument. They spend a lot of money on analysis to get the best trading result. Furthermore, they play with the money that is often impossible to arrange by retail traders.

Smart money makes several steps in their trading based on the availability of the price. For example, if a bank wants to buy $100M EURUSD, it will take trade-in three or four steps. In the first step, they will take $20M, in the second step, $50M, and in the third step $30M. The price usually makes a movement when the full quota of $100M completes.

Order block seems like a range, but every range is not an order block. Moreover, we don’t know when and where the smart money moves. Therefore, we will rely on the best location and price action to identify a suitable order block.

Besides the order block, we have to know what the order flow is. Once the price starts a movement from an order block, it provides an order flow towards any direction. Order flow from a higher timeframe indicates a market direction, and we have to find the order block towards the direction of it.

Order Block Trading Strategy

From the above section, we have seen what the institutional order block and order flow is. In this trading strategy, we will use 1 hour- 4 hours or the daily timeframe to enter the trade and weekly timeframe to identify the order flow. Furthermore, we will use the Fibonacci to identify the potential location from where the market is expected to move.

Timeframe

  • One hour to 4 hours to identify the entry-level.
  • Weekly timeframe to measure the order flow.

Currency Pair

The best part of this trading strategy is that it can provide profitable trades in all currency pairs. However, we have done extensive research and found that it works well in all major currency pairs, including EURUSD, GBPUSD, and USDJPY.

Identify the Order Flow

In the weekly timeframe, we will look for the price that tested an order block and moving higher or lower. Once it completes the test and starts the movement will find the direction.

In the image above, we can see that the price moved higher and came back sharply towards the order block with an impulsive bearish pressure but did not break the lowest. After the rejection candle, we will wait for the price to move higher with a candle close. Once the candle closes, we found our weekly order flow.

Later on, we will move to the H4 or daily timeframe and identify the order block to trade towards the direction of the order flow.

Location of the Order Block

Move to the H4 timeframe and draw the Fibonacci retracement from upside to downside. While you draw the Fibonacci level, make sure to draw from the last available price, not more than 200 candles. Furthermore, for a buy trade, draw the Fibonacci from the highest price to the lowest price.

After drawing the Fibonacci level, you should consider order blocks residing below the 50% Fibonacci retracement levels. Any price below the 50% Fibonacci retracement level is the discount price and any price above the 50% retracement level is the premium price.

In the bullish order block trading strategy, you should consider the discount price and, in a bearish order block trading strategy, consider the premium price only.

Entry

Wait for the price to break above or below the order block, win an impulsive bullish or bearish pressure. Later on, the price will make new highs or lows, but you should wait when it comes back to the order block. In most cases, the price will come back to the order block and test the 50% level before making the final movement.

Therefore, if you don’t want to monitor the price, you can take a pending order at a 50% level of the order block. However, the best practice is to enter the trade once it starts moving from the order block with a candle close above or below it.

Stop Loss and Take Profit Level

The stop loss level should be below or above the order block with some buffer. In most of the cases, use 10 or 15 pips buffer to avoid unexpected market behavior.

On the other hand, the ordinary take profit level would be towards the order flow with 1:1 risk: reward ratio. However, the final take profit level is Fibonacci 0%, which is usually the top of the available price in a bullish condition and the bottom of the price in a bearish condition.

Summary

Let’s summaries the order block trading strategy:

  • Identify the weekly order flow and consider the direction.
  • Identify the premium and discount zone level with the Fibonacci retracement levels.
  • Move to H1 to H4 timeframe and find the order block within Fibonacci 50% to 100% levels.
  • The price should move towards the order flow directly from the order block, but it should come down to test the order block again.
  • Enter the trade as soon as the price rejects the order block with a reversal candlestick.

The order block trading strategy is profitable in most of the currency pairs. However, it is essential to keep in mind that the forex market is very uncertain. We, as a trader, anticipate the price, and that’s why we use stop loss. No trading strategy can assure a 100% profit. Although the Order block is a very profitable trading strategy, you should use appropriate trade management and money management rules to avoid unexpected market conditions.

Categories
Crypto Guides

Understanding The Topical Problems In The DeFi Ecosystem

Introduction Decentralized finance or DeFi is a collective term given to a wide range of products and technologies that help manage the finances more innovatively without the interference of the central bank or any financial institution. The decentralized applications that are generally are called DApps built on top blockchain like Ethereum and Bitcoin. The major […]

Introduction Decentralized finance or DeFi is a collective term given to a wide range of products and technologies that help manage the finances more innovatively without the interference of the central bank or any financial institution. The decentralized applications that are generally are called DApps built on top blockchain like Ethereum and Bitcoin. The major […]

Introduction

Decentralized finance or DeFi is a collective term given to a wide range of products and technologies that help manage the finances more innovatively without the interference of the central bank or any financial institution.

The decentralized applications that are generally are called DApps built on top blockchain like Ethereum and Bitcoin. The major highlight of DeFi is that they use smart contracts giving complete control over the finances. It helps in individual savings, payments, or investments, but it also facilitates better and efficient lending, margin trading, market predictions, etc.

With the help of DeFi tools, you can access the services that have any centralized authority. The significant idea behind launching DeFi is to make the entire process safer and more efficient than other traditional financial solutions. Though DeFi is efficient than other financial solutions, some roadblocks are preventing significant issues.

What Are The Major Problems Involved in Decentralized Finance?

Some of the major risks that revolve around DeFi are related to user errors, smart contracts, lack of insurance transparency, price mechanisms, etc. Irrespective of all the advantages DeFi holds, the initiative still remains an infant, making it vulnerable to risks.

Smart Contract Vulnerabilities

One of the significant issues that DeFi is going through is smart contract vulnerabilities. When a contract is released with a flawed code, it can result in fund losses. There have been instances where these particular issues with the smart contract have resulted in compromising blockchain.

User Error

The issue of smart contracts is also connected to an underlying problem of user error. Even if the code seems right, there can be some unexpected issues that can become a hindrance. Due to the user errors, millions of dollars have been lost in the name of DApps.

Internal Governance

Another crucial issue witnessed in DeFi is the internal governance and the external regulations of the assets. There are chances to control who can run and operate the platform. Along with that, the government can anytime issue regulations that can restrict the processes of DeFi.

Other Issues

Other common issues are related to the market unpredictability, lack of insurance, etc. that makes the individuals lose sums of money even if they haven’t made any mistake.

To realize the full potentials of DeFi, is essential to address the issue and find out how it can be managed. It is true that DeFi holds many advantages for the growth of the financial world. It depends on how well you utilize it by eliminating the issues.

The Future of DeFi

Addressing the current underlying issues of DeFi, there have been plenty of solutions that have emerged so far. For instance, Atomic Swaps and pTokens are likely to improve the DeFi and make it increasingly impressive for the finance industry.

The above mentioned were the major hindrances that are blocking the development of DeFi. Different types of solutions are being worked out to cater to the pain points of DeFi. With efficient use of bug bounties, audits, open-source commitments, etc., problems related to smart contracts and errors can become less frequent.

Categories
Forex Fundamental Analysis

What Should You Know About ‘Export Prices’ & Its Relative Impact On The Forex Market

Introduction

Introduction

Introduction

Exports and Imports are vital components of a country’s Trade Balance that directly affects currency value. Careful balancing of export and import prices is necessary for maintaining currency value. Understanding how export prices affect the overall trades, domestic businesses, and ultimately currency value can help us build a more accurate fundamental analysis.

What are Export Prices?

Export prices are the selling price on the products and services to be sold in the international market. It is the price of goods and services that are domestically produced and sold to foreign countries. Hence, it is the prices fixed on goods and services which is intended for sale by the exporter in the overseas market.

In the United States, the Export prices are measured as part of the “U.S. Import and Export Price Index.” Export price and Import price both together form a sort of “net” price that helps us understand whether we are exporting more and gaining, or importing more and losing.

How can the Export Prices numbers be used for analysis?

In today’s modern world, many nations have opened themselves up for international trade. It is quite common for foreign brands to compete with local brands in many countries. Globalization has led to rapid growth for the global economy. Exports and Imports are two essential elements of a country’s trade balance. Imbalance in trade creates a deficit or surplus that directly affects the country’s currency.

Increased exports and reduced imports mean more goods and services go out of the country, and currency comes in. When currency comes in, the foreign demand for currency increases, and thereby currency value goes up. If exports bring more currency into the country than imports send out, the country experiences a trade surplus, which is good for the economy and currency.

Increased import over export indicates more dollars are spent and go out in importing products and services than dollars coming in for the goods sent out. When the international market is flooded with a currency due to increased imports, its currency value falls against other currencies. In such a situation, a country is said to have a trade deficit. Export prices can rise for the following reasons:

Increased production cost

As the manufacturing or cost of the raw materials increases, it eats away the company’s profit margin. To avoid this, companies may translate these increased production costs to the end consumer by pricing their goods higher.

As companies not only have to compete with fellow local businesses, they need to compete with companies from other countries. An increase in prices through production cost inflation may put the country at a disadvantage and lose sales in the international market. Hence, even though export prices increased, the sales volume will decrease negating the effect. It generally does not work in favor of the country and its currency.

Increased demand

As demand for a particular good or service increases, the company may raise its prices to compensate for the limited supply. Price increase as a result of increased demand is always beneficial for the company, country, and currency. Export and import prices are used for many purposes, and some of which are:

  • Based on changes in export and import prices, we can predict future prices and domestic inflation.
  • We can evaluate currency values and exchange rates based on overall exports and imports for a given pair of countries.
  • It can be used as a reference for setting up other trade agreements and price levels.
  • It can also be used for identifying global price trends for any specific product or service.
  • They can be used to deflate or devaluate trade statistics.

Export prices are specifically more critical for developing economies, as through exports, they primarily achieve their growth. Export-led growth has benefitted developing economies to create wealth and developed countries to get goods at much lower prices in the international market.

Change in currency value also affects export and import prices. Weak domestic currency brings in more currency during exports while making it harder to import as they become relatively more expensive. A strong currency hurts exporters while it favors imports as more goods can be purchased per unit of currency.

Hence, we observe countries undergo “trade wars.” Trade war means countries intentionally devalue their currencies during exports and peg it higher during imports in their favor. Such tactics are regularly used by China, and seeing these other countries also do the same. Competitively devaluating or valuating domestic currency higher to make trades favorable to their countries is referred to as a Trade war. Hence, any increase in export price should solely happen through an increase in demand, as that is the only way the economy benefits in the long run.

Impact on Currency

Export prices alone do not provide us with a complete picture of a country’s trade balance. The overall export minus import price is what determines the overall currency value. Hence, for currency markets, the export prices alone do not provide the necessary insight. Therefore, it is a low impact indicator. But on an absolute basis, an increase in export prices is good for the economy and the currency and vice-versa.

Economic Reports

In the United States, the Bureau of Labor Statistics (BLS) publishes monthly export prices as part of its “Import/Export Price Indexes” at 8:30 AM around the middle of the month. It is reported in percentage changes compared to the previous month and is also reported by categorizing based on end-use.

Sources of Export Prices

We can find the Export Price as part of the Import/Export Price Indexes and end-use versions. We can find consolidated statistics on export prices for most countries on Trading Economics.

Export Prices – Impact Due To News Release

Export prices is an important fundamental indicator in analyzing other economic drivers. When it is combined with the Import Prices, the trade balance is obtained, which plays a vital role in the foreign exchange market. The trade balance is also a fundamental indicator that heavily impacts the currency of a country. Thus, traders always keep an eye on the release of the trade balance report.

Coming to Export Prices, it alone does not induce much volatility relative to that of the trade balance. However, since the trade balance is dependent on the Export Prices and Import Prices, traders do keep a watch on these data releases to get insights on the overall output of the trade balance.

Export Prices Report

Before is the latest report on Export Prices, which came out to be 1.4%. The Export Prices were expected to rise by 0.8%, but the actual number beat the forecast.

USDCAD – Before the Announcement

Before the announcement of the Export Prices data for the month of June, we can see that the market was in a fresh downtrend making news lows every step of the way.

USDCAD – After the Announcement

The news was published during the open of the New York session. It is seen that, right on the announcement of the data, the USD prices collapsed against the Canadian dollar. With the release of the report and the open of the New New York market, the market volatility was boosted.

In this case, we see that the market followed the direction of the overall trend. Thus, traders can take advantage of the volatility due to news and market open and trade based on their analysis. However, they should ensure that the report is within the normal range and not an outlier. During abnormal values, a trader may better off stay away from the related currency, and its pairs.

NZDUSD – Before the Announcement

A day before the release of the Export Prices report, the market was in an uptrend, signifying NZD strength and USD weakness.

NZDUSD – After the Announcement

Once the news was out, the volatility of the market remained the same, despite the open of the US market. This clearly implies that NZDUSD was stayed non-impacted with the Export Prices report. However, in the subsequent day, the market reversed its direction from an uptrend to a downtrend.

GBPUSD – Before the Announcement

On the day of the announcement of the data, the market was in a strong bullish movement. And the time of release, the price was trading right at the supply area.

GBPUSD – After the Announcement

Once the board released the report, the price aggressively turned around and shot south. The reason for the down move can be accounted for the supply region, while the increased volatility could be due to the news and the open of the North American markets. Cheers!

Categories
Crypto Guides

Can ‘Discreet Log Contracts’ Potentially Gear Bitcoin for DeFi?

Introduction The term “DeFi” has gained significant popularity in the cryptocurrency space since the beginning of 2020. Over hundreds of projects have already been implemented on Ethereum based on the intersection of blockchain and decentralized financial systems. The appealing ones being collateralized stablecoins and derivatives products. Given that the ecosystem can be feasibly built on […]

Introduction The term “DeFi” has gained significant popularity in the cryptocurrency space since the beginning of 2020. Over hundreds of projects have already been implemented on Ethereum based on the intersection of blockchain and decentralized financial systems. The appealing ones being collateralized stablecoins and derivatives products. Given that the ecosystem can be feasibly built on […]

Introduction

The term “DeFi” has gained significant popularity in the cryptocurrency space since the beginning of 2020. Over hundreds of projects have already been implemented on Ethereum based on the intersection of blockchain and decentralized financial systems. The appealing ones being collateralized stablecoins and derivatives products.

Given that the ecosystem can be feasibly built on a smart contract using Ethereum, the concept of open finance cannot be excluded from Bitcoin. For instance, sidechains like RSK (rootstock) can upgrade their smart contract capabilities, enabling more advanced financial products to build on Bitcoin.

That said, there are some other enthralling ideas on extending the Bitcoin’s structure to more sophisticated financial applications. Out of which, one exciting proposal that is in the talks over a few years is the discreet log contracts.

Bitcoin for DeFi – A Sustainable Approach?

Developers are uncertain about bringing in DeFi applications on Bitcoin. People believe that the reason for its significant value to date is due to its simple, stripped-down reliable design.

Contrariwise, ideas such as the lightning network for Bitcoin has resulted in an entirely new design for it. With the feature of layered scaling, applications can be still be created without hindering the security model of bitcoin’s core protocol.

The success has hence opened doors for exploring applications that help leverage bitcoin without having to compromise on its existing design.

But limitations exist…

The most significant trade-off is the complexity of DeFi applications. RSK could no doubt prove to be a valuable sidechain for Bitcoin, but federated peg sidechain essentially requires trust in controlling the chain.

Additional improvements in the underlying technology can reduce trust even further. The compelling DeFi projects on the Ethereum protocol is not possible to incorporate on Bitcoin’s protocol without compromising trust.

Cutting through the interesting project ideas, let’s get our feet wet to understand and generalize the concept of Discreet Log Contracts.

What are Discreet Log Contracts?

Proposed by Thaddeus Dryja, discreet log contracts are an ecosystem for minimizing the trust in blockchain oracles – assimilating data from external sources to the blockchain. Discreet log contracts pivot using Schnorr signatures to disguise the agreed upon contract information from the oracles.

This creates a scenario where payouts on data (public) are possible between three parties. The advantages of it being better security and flexible contracts without having to compromise on the trust.

Useful Ecosystem?

When applied to DeFi, the two parties can maximize their discreet log contracts and unleash the potential of derivatives, futures, and several other financial instruments. More advanced financial products when knotted to bitcoin, institutional practices like hedging risk on assets can become viable through the Bitcoin’s network. With the reliance on oracle-sourced data for payouts, micro-insurance contracts are possible using the discreet log contracts.

Conclusion

The prevalence of DeFi systems built on the Ethereum is hindering the notion of open financial products for Bitcoin. But considering the robust security model and consensus rules, the Bitcoin network does put forth a captivating medium for decentralized finance. And discreet lot contracts are an appealing tool that can help developers develop a more advanced open finance ecosystem with Bitcoin.

Categories
Forex Fundamental Analysis

Everything About ‘Harmonized Consumer Prices’ Macro Economic Indicator

Introduction Harmonized Index of Consumer Prices (HICP) is the go-to indicator for monitoring inflation statistics in the European Union (EU). Inflation reports are vital for the currency markets, as inflation directly erodes currency value. Hence, domestically and internationally, inflation statistics play equally critical roles in currency valuations. Understanding HICP is mandatory for building fundamental analysis […]

Introduction Harmonized Index of Consumer Prices (HICP) is the go-to indicator for monitoring inflation statistics in the European Union (EU). Inflation reports are vital for the currency markets, as inflation directly erodes currency value. Hence, domestically and internationally, inflation statistics play equally critical roles in currency valuations. Understanding HICP is mandatory for building fundamental analysis […]

Introduction

Harmonized Index of Consumer Prices (HICP) is the go-to indicator for monitoring inflation statistics in the European Union (EU). Inflation reports are vital for the currency markets, as inflation directly erodes currency value. Hence, domestically and internationally, inflation statistics play equally critical roles in currency valuations. Understanding HICP is mandatory for building fundamental analysis related to the European Union countries.

What are Harmonized Consumer Prices?

Harmonized Index of Consumer Prices (HICP)

It is a list of the final price paid by European end-consumer for a basket of commonly used goods and services. Like the United States has the Consumer Price Index (CPI) as a means of regularly measuring inflation levels month over month, the European Union (EU) has HICP. The average change in the price of the selected goods and services gives us a clear idea about the inflation rates in the EU.

The HICP differs from United States CPI because it takes inflation data from each member nation of the European Central Bank (ECB). It is also a weighted index, meaning that goods are given a specific weightage based on demand, or how essential and frequently used by the consumers. The consumer goods basket is derived from data of both rural and urban areas of each member nation.

How can the Harmonized CP numbers be used for analysis?

The Harmonized Index of Consumer Prices (HICP) is measured and given by each of the European Union (EU) member states. European Union is a political and economic union of 27 states located primarily in Europe. It is given out to measure inflation and help the European Central Bank (ECB) to form monetary policies accordingly if required. Every member country’s HICP measures the shifts over time in the prices of the basket of selected goods and services purchased, used, or paid for by households of that nation.

The “commonly used goods and services” include coffee, meat, tobacco, fruits, household appliances, electricity, clothing, pharmaceuticals, cars, and other commonly used products. It is also worth mentioning that the index excludes owner-occupied housing costs.

The HICP is also used for the Monetary Union Index of Consumer Prices (MUICP), an aggregate measure of consumer inflation for all countries of the eurozone. The eurozone represents all countries of the European Union that have incorporated the Eurodollar as their national currency. The primary aim of HICP is to maintain price stability. It defines the stable inflation rate in the euro area as below two percent annually.

Amongst HICP and MUICP, the HICP is a broader measure of inflation, but for trading, traders would prefer MUICP as it tells about the inflation concerning the European Dollar (EUR). The MUICP is calculated by selecting HICP from the eurozone countries only. All the member nations use the same methodology to calculate their respective HICP, enabling them to compare with each other and easily calculate the MUICP directly.

The selected goods and services are updated annually to account for the changes in consumer spending patterns. Each country’s weightage represents its consumption expenditure share in the entire euro area.

Inflation is the fuel that drives the economy. It is a double-edged sword, too much inflation erodes currency value, and citizens become poorer, and too low causes deflation, which slows the economy making money “costly.” A low and steady inflation rate is the only solution to keep the economy growing for capitalist economies.

When inflation rates fall below the long-term averages, the central authorities may use fiscal (government actions, ex: tax cuts) or monetary levers (central bank actions, ex: lower interest rates) to counter deflation and induce inflation. When the inflation rate is above the long-term rate, it is called hyperinflation, and central authorities may intervene and tighten the belt to deflate the economy. They can raise interest rates, increase taxes to deflate the economy to normal levels.

Inflation statistics like the HICP are coincident indicators as they tell us about the current price inflation. They are affected by leading indicators and policymaker’s responses. The HICP is closely watched by economists, central authorities, consumers, and even traders. In the currency markets, relative inflation can help us predict which currency’s value is eroding relatively faster. Inflation also affects the GDP of the country, which is a primary macroeconomic indicator for currency trading.

Impact on Currency

Currency markets emphasize on leading indicators over coincident indicators to always stay a step ahead of market trends. Coincident indicators confirm the trends rather than predict. Due to this, the impact of the HICP indicator in the market is low. For currency traders, MUICP and currency-specific aggregates are more useful than aggregate metrics like HICP to check inflation. Hence, overall, HICP is a low impact coincident indicator that can be overlooked for more country-specific inflation statistics.

Economic Reports

HICP data is published by Eurostat every month. It is the statistical office of the European Union. A brief estimate for the euro is published at the end of the month, followed by the detailed version containing indices of all member states approximately two weeks later. On the Eurostat page, we can find monthly, annual data, a detailed listing of country weights, item weights, prices, etc.

Sources of Harmonized Consumer Prices

We can know more about HICP in detail from the European Central Bank’s official website and the official data on the Eurostat page. We can find the consolidated monthly reports of HICP on Trading Economics.

Harmonized Consumer Prices – Effect on Price Charts

The Harmonized Index of Consumer Prices (HICP) is a coincident indicator. In essence, this indicator does not predict the future price action of currency but is coincident with it. Typically, metrics such as MUICP and other price reports induce volatility in the market. But HICP alone does not increase the volatility of the market.

Impact

The data is exclusive to the European Union and is released by the Federal Statistical Office. The impact of HICP on the currency market is negligible.

Harmonized Consumer Prices Report June

Below is the report of HICP for the month of June released in July. As per the data, the HICP increased from 108.47 to 108.58.

EURUSD – Before the Announcement

Before the announcement of the report, the market was in an uptrend making higher highs and higher lows.

EURUSD – After the Announcement

On the day of the announcement of the report, the prices retraced in the first half of the day and shot north aggressively and made a new higher high during the New York session. On the volumes side, there was feeble volatility in the Asian and European sessions, while it increased with the open of the US markets. That said, the increase in the volatility was not abnormal, which is typically seen during the release of major economic reports.

EURAUD – Before the Announcement

Before the report was released, the market was moving in an inclined channel showing EUR strength.

EURAUD – After the Announcement

After the report came out, the price break through the channeling market and began to trend. By the end of the day, the EURAUD price was up 0.65% from the previous day. This bullishness could perhaps be from the incident HICP report. However, the subsequent day, the market lost all its gains.

EURNZD – Before the Announcement

Prior to the announcement of the report, the market which was consolidating had begun to show mild bullishness.

EURNZD – After the Announcement

On the day the news was announced, the price continued to rise higher and higher for the entire day. In fact, EURNZD outperformed both EURUSD and EURAUD. There would be several factors that could’ve inflated the price, but a moderate effect could be through the positive HICP news. On the volatility side, there was no aggressive rise in volatility. However, the volume significantly increased during the North American session.

Thus, traders can analyze the technical factors of the market and open positions without any hesitation from the HICP report. That said, conservative traders may wait for the reports to be released, and then enter if the report is in favor of their speculated direction.

Categories
Forex Assets

Asset Analysis – Comprehending The NZD/NOK Exotic Forex Pair

Introduction NZD/NOK is the abbreviation for the currency pair New Zealand dollar versus the Norwegian Krone. It is referred to as an exotic cross-currency pair. In this case, NZD is the base currency, and NOK is the quote currency. In this article, we shall learn about everything you need to know about this currency. Comprehending […]

Introduction NZD/NOK is the abbreviation for the currency pair New Zealand dollar versus the Norwegian Krone. It is referred to as an exotic cross-currency pair. In this case, NZD is the base currency, and NOK is the quote currency. In this article, we shall learn about everything you need to know about this currency. Comprehending […]

Introduction

NZD/NOK is the abbreviation for the currency pair New Zealand dollar versus the Norwegian Krone. It is referred to as an exotic cross-currency pair. In this case, NZD is the base currency, and NOK is the quote currency. In this article, we shall learn about everything you need to know about this currency.

Comprehending NZD/NOK

Understanding the value of a currency pair is simple. The value of NZD/NOK verifies the Norwegian Krone that must be paid to buy one New Zealand dollar. It quoted as 1 NZD per X NOK. For instance, if the current value of NZD/NOK is 6.0549, then 6.0549 NOK is required to buy one NZD.

Spread

Spread is the keyway through which stockbrokers make income. The selling price and buying price are different; the distinction between these prices is termed as the spread. It ranges from broker to broker and their implementation type. Below are the spreads for NZD/NOK currency pairs in both ECN & STP account models:

ECN: 20 pips | STP: 25 pips

Fees

For every execution, there is a cost levied by the broker. This cost is also indicated as the commission/fee on a trade. This fee/commission does not apply to STP accounts; however, a few additional pips are charged.

Slippage

Slippage is the difference in the price executed by you and the price you indeed received. It occurs on market orders. Slippage varies on two factors:

  • Market’s volatility
  • Broker’s execution speed

Trading Range in NZD/NOK

The trading range is a tabular description of the pip movement in a currency pair in a variety of timeframes. These values help in evaluating the risk-on trade as it defines the minimum, average, and maximum profit 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.

NZD/NOK Cost as a Percent of the Trading Range

The total cost of the trade shifts/changes based on the volatility of the market; hence we must figure out the instances when the costs are less to place ourselves in the market. The table below exhibits the variation in the costs based on the change in the market’s volatility.

Note: The ratio signifies the relative scale of costs and not the stable costs on the trade.

ECN Model Account

Spread = 20 | Slippage = 5 |Trading fee = 8

Total cost = Slippage + Spread + Trading Fee = 5 + 20 + 8 = 33 

STP Model Account

Spread = 25 | Slippage = 5 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 5 + 25 + 0 = 30

The Ideal way to trade the NZD/NOK

NZD/NOK is an exotic currency pair, and hence we can see, the average pip movement in 1hr timeframe is 120, which indicates higher volatility. The greater the volatility, the higher is the risk, and smaller is the cost of the trade and the other way around. Taking an instance, we can see from the trading range that when the pip movement is smaller, the charge is elevated, and when the pip movement is higher, the charge is lower.

To further decrease our costs of trade, we may place trades using limit orders as an alternative to the market orders. In the below table, we will see the interpretation of the cost percentages when limit orders are applied. As we can see, the slippage is zero. In doing so, the slippage will be excluded from the calculation from the total costs. And this will help us in lowering the trading cost by a sizeable margin. An example of the same is given below.

STP Model Account (Using Limit Orders)

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

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

Categories
Forex Basic Strategies

We Have Simplified The ‘Dolphin Trading Strategy’ For You!

Introduction

Introduction

Introduction

One of the most annoying things for a trader is getting stopped out of a ‘long’ trade on the lowest possible tick, after which the prices reverse and move higher. Likewise, nothing can get more annoying than getting out of a ‘short’ trade on the highest possible tick of the move, after which prices reverse and ultimately move in our direction for profit.

All of us would have experienced this unpleasant reality more than once. We have designed a strategy specifically to take advantage of these spike moves in currencies by carefully getting into a trade by anticipating a reversal.

Traders who like to bank on consistent and small profits might feel this strategy appealing despite experiencing frequent stop-outs. Before going through the strategy and the trade setup, we must understand that while it misses infrequently, but when it misses, the losses can be very large.

Therefore, it is absolutely crucial to honor the stop-loss in these setups because when it fails, it can mutate into a relentless runaway move than could blow up our entire account if we continue to hold on to our trades.

Time Frame

This strategy works well on all time frames above the 1 hour. This strategy cannot be used for scalping as the risk is higher.

Indicators

In this strategy, we will not be using any indicators as it is based on pre-determined rules and price action.

Currency Pairs

This strategy applies to almost all the currencies listed on the broker’s platform. However, illiquid pair should be completely avoided.

Strategy Concept   

The trade setup that is formed using this strategy lies on the assumption that support and resistance points of tops and bottoms exert an influence on price action after they are breached. They act like a magnetic field attracting prices back to these points after a majority of the stops have been triggered. The thesis behind this strategy is that it takes an enormous amount of power to breakout or breakdown from tops or bottoms that are created after an extended move.

In the case of a top, for example, making a new ‘high’ requires not only huge capital and power but also enough momentum to fuel the rally further. By the time it makes a ‘new’ high, much of the momentum has passed, and it is unlikely that we will see a new ‘high.’ Dolphins have a very strong memory, and since this strategy is based on the memory of the price, we have named this strategy as ‘The Dolphin Strategy.’

 Trade Setup

In order to explain the strategy, we have considered the EUR/USD pair, where we will be applying the strategy on the 1-hour time frame. Here is the step-by-step approach to executing the strategy effectively.

Step 1

First, we need to identify a sequence of ‘higher highs’ and ‘higher lows’ on the chart when looking for a ‘short’ trade setup. Similarly, we need to identify a sequence of ‘lower lows’ and ‘lower highs’ when looking for a ‘long’ trade. Then we are required to mark the highest point (‘short’ setup) or the lowest point on the chart (‘long’ setup).

In our case, as will be executing a ‘short’ trade, we have identified a swing ‘high’ on the chart shown in the below image.

Step 2

Assuming that we have calculated our position size, we will ‘sell’ half of our position size at the ‘high,’ which was identified in the previous step. In a ‘long’ setup, we will ‘buy’ half of our position size at the ‘low’ identified previously. If the market is strongly trending upwards or downwards, we have to take a position of size lesser than ‘half.’

We are taking half of our ‘short’ positions at the previous ‘high’ once the market starts moving upwards after a retracement.

Step 3

In this step, we have to measure the distance of the ‘retracement’ or ‘pullback,’ which takes place after the price makes the ‘high’ or ‘low’ that was identified in the first step. Measuring this distance with the help of a measuring tool is crucial as further steps of the strategy are based on this distance.

The below image shows the distance of the ‘pullback’, measured with the help of a vertical pink line.

Step 4

In this step, we need to measure the exact same distance that was measured in the previous step above the ‘high’ in an up move or below the ‘low’ in a down move. In a ‘short’ setup, when the price starts moving above the ‘high,’ we will execute the remaining half of the positions at the half-way mark of this distance. Likewise, in a ‘long’ setup, we will execute the remaining half of our positions at the half-way mark of this distance, when the price starts moving lower.

The below image shows the point on the chart where we have executed the remaining positions.

Step 5

Now that we have entered the market with full position size, we have to set an appropriate stop-loss and take-profit for the trade. The ‘stop-loss’ is placed at the price corresponding to the distance of the ‘pullback’ that was measured in ‘Step-3.’ We take profits at two places in this strategy.

The first ‘take-profit’ is at support turned resistance or resistance turned support line. And the second ‘take-profit’ is at the ‘higher low’ from where the market goes back to the ‘high’ identified in the first step. In a ‘long’ trade, it will be at the ‘lower high’ from where the market goes back to the ‘low’ identified in the first step.

Strategy Roundup

One of the concerns for some traders might have with the ‘Dolphin Strategy’ is its asymmetrical structure and complex rules. Readers with good maths skills and trading experience notice the best of the trade setups using this strategy and harvest high risk-to-reward ratios. Traders need to be very strict with their stop-loss as the market might move in one direction only. However, the strategy works in our favor as it is a high probability setup.

Categories
Forex Fundamental Analysis

The Impact of ‘Youth Unemployment Rate’ News Release On The Forex Price Charts

Introduction Youth unemployment is toxic to economic growth. It has long and short-term impacts on the economy that are concerning. With economies struggling to achieve growth and being vulnerable to the economic crisis, youth unemployment has become a more significant threat to growth than ever. Understanding the root causes and possible solutions to youth unemployment […]

Introduction Youth unemployment is toxic to economic growth. It has long and short-term impacts on the economy that are concerning. With economies struggling to achieve growth and being vulnerable to the economic crisis, youth unemployment has become a more significant threat to growth than ever. Understanding the root causes and possible solutions to youth unemployment […]

Introduction

Youth unemployment is toxic to economic growth. It has long and short-term impacts on the economy that are concerning. With economies struggling to achieve growth and being vulnerable to the economic crisis, youth unemployment has become a more significant threat to growth than ever. Understanding the root causes and possible solutions to youth unemployment can help secure our future economic growth.

What is Youth Unemployment Rate?

Youth Unemployment Rate is the percentage share of the young labor force that is jobless. While the upper and lower limit of age categorizing youth varies across regions, the United Nations categorize people between the age of 15-24. Some countries extend the upper limit to the mid-thirties also.

Youth unemployment is a situation where young people who are actively seeking, willing, and able to work are unable to find a job. Youth unemployment rates generally tend to be higher than the adult rates in all countries across the world. Youth makes up roughly 17% of the world population, and more than 85% of them live in developing countries.

How can the Youth Unemployment Rate date be used for analysis?

Youth Unemployment is caused by many factors, the primary among them being:

Skill Gap

The first and primary root cause of youth unemployment is the gap between the traditional education system and current market skill requirements. The current knowledge acquired through graduation, or any degree is not tailored to the disruptive technological society. With technologies changing so rapidly, the education systems should also be updated to take these changing times into account and provide relevant knowledge.

Employment Regulations

With so many laws protecting employees through labor acts and minimum wage policies, companies are pickier in hiring. Also, companies do not want to invest their earnings into new youth training for months and then reap benefits. Hence, companies are offering part-time jobs or contract hiring work that youth has no choice but to take. During economic downturns, employment protection plans protect employees and leave the contract workers vulnerable. Hence, during economic downturns and downsizing, youths are the first to be laid off.

Public Assistance

Many countries provide income support and assistance initiatives to youth until economic conditions improve. While such programs are good or bad for the youth remains debatable, some say it creates dependence on such programs. Keeping the youth unemployed even longer through such programs will further throw them off the career track.

The effects of youth unemployment are worse than we imagine them to be!
Lost Generation

Unemployed youth are often referred to as the lost generation. They are called so not only for the productivity lost but also for the direct and indirect impact it has on the youth and their families. As the saying goes, “a good start is half-race won,” similarly, a lousy start is also half-race lost. Youth unemployment has said to affect earnings for twenty years.

The hierarchical structure of corporations and late employment of youth puts them on the back seat in the career race, making it very hard for them to catch up with their peers in terms of earnings, position, and skill. Since they have not been able to build up their knowledge and skill during the period of unemployment, there is a substantial decrease in lifetime earnings.

Mental Risk

If a job is hard to find for youth, they often lower their job requirements. More often, they compromise and do jobs that they do not like, and it has an impact on their happiness, job satisfaction, and mental health. It is also reported that unemployed youth are more isolated from the community.

Political unrest

In modern times, political tensions and anti-social behaviors have been attributed to long periods of youth unemployment. The youth who do not have any productive work to engage in are succumbing to such anti-social activities and hooliganisms more, lately.

Increased Public Spending

As more and more youth remain unemployed, benefits payment increase to accommodate the youth. Hence, more of the tax revenues are spent on providing support. Decreased spending inhibits the government from allocating funds where it is needed to assist economic growth.

Decreased Innovation

As youth remains unemployed, the divergent and out-of-box ideas are missed out in the companies. Youth brings energy, dynamism, fresh perspectives onto the table with each passing generation. As innovation decreases, companies die out, thus affecting the economy in the long-run.

Incarceration

An idle mind is the devil’s workshop. If more youth remains unemployed, vulnerability to incarcerating activities increases, youth suicides also rise when unemployment is rampant in youth.

Impact on Currency

The Youth unemployment rate is an economic factor that affects the long-term progress of the economy more severely than the short-term. As seen, it has multi-layered negative impacts in terms of earnings on the youth and also on their families.

For the currency markets, the unemployment rate factors in the youth unemployment rate. Hence, youth unemployment is a low-impact coincident indicator that is more useful for the central authorities to make policy-based decisions.

Economic Reports

In the United States, the Bureau of Labor Statistics (BLS) publishes employment and unemployment statistics in their employment situation report every month. The report classifies it further based on age, sex, industry, etc. It is released on the first Friday at 8:30 AM Eastern Standard Time.

Sources of Youth Unemployment Rate

The United States Bureau of Labor Statistics publishes monthly employment and unemployment reports on its official website. Youth unemployment monthly and annual reports are available. The Organization for Economic Cooperation and Development (OECD) also maintains youth unemployment data on its official website.

Consolidated reports of youth unemployment rates across the world can be found in Trading Economics. World Bank also maintains records of Youth Unemployment Rates.

Youth Unemployment Rate – Impact Due To News Release

Youth Unemployment refers to unemployed persons looking for a job but cannot find the age range defined by the United Nations. This age group currently stands between 15-24 years. Youth unemployment rates tend to higher than the adult rates in almost every country. Forex traders look at general unemployment figures, which are the sum of unemployed persons across all ages and take a currency position based on the numbers. They do not consider the individual components of unemployment data as it does not provide a complete picture.

We will be analyzing be the latest youth unemployment figures of Australia and witness the change in volatility due to the news release. Looking at the below graph, we can say that youth unemployment increased in May by 2% compared to April. Even though the data is not very encouraging, let us determine the market’s reaction to this data.

AUD/USD | Before The Announcement

The above image shows the 15-minute timeframe AUD/USD chart before June 18, 2020. No trends have been established and shows no significant volatility.

AUD/USD | After The Announcement

The above image shows the highlighted candle that represents the news announcement. As the youth unemployment rate came in unfavorable to AUD, there is a significant bearish movement in the pair. The bearish move has happened because of the simultaneous release of the employment change and aggregate unemployment rate reports alongside.  Both the reports underperformed, driving the AUD value further down. The unemployment rate is a high impact indicator and has magnified the effects of youth unemployment figures.

AUD/EUR | Before The Announcement

The above image shows the 15-minute timeframe of AUD/EUR pair where AUD gained momentum till June 18 but only to fall back to its previous normal by 11:00 AM.

AUD/EUR | After The Announcement

The above image highlights the news candle, where we can see the biggest bear candle with the longest down wick throughout the range. The bearish pressures from unemployment rates and employment change have helped put the selling pressure on AUD against EUR.

AUD/JPY | Before The Announcement

The above image is a 15-minute timeframe AUD/JPY chart. No potential trends have started till 11:00 AM of June 18, 2020.

AUD/JPY | After The Announcement

The above image highlights the news candle showing the combined effect of the youth unemployment rate, unemployment rate, and employment change. All three reports did not favor AUD, leading in the biggest bear candle with a long wick showing high sell pressure on AUD against JPY.

Final Words

The charts could be very misleading for novice traders to make them think that the youth unemployment rate has induced such volatility. Unemployment rates and employment changes are closely watched statistics and major indicators. It is essential to understand that all the volatility for AUD against major currencies was induced through the two major indicators and not the youth-unemployment rate.

Even if the youth-unemployment rate had come in favor of AUD, it would have been overshadowed by the bearish sentiment induced from unemployment rates and employment change reports. Hence, the youth unemployment rate is a low-impact indicator that is overlooked for the broader indicators, as mentioned.

Categories
Crypto Guides

How Beneficial Are ‘Watchtowers’ In Diminishing Malicious Activity on Bitcoin LN?

Introduction

Introduction

Introduction

The concept of watchtowers was originated from the Lightning Network (LN) and has improved drastically since its launch as Bitcoin’s Lightning Network seems to be growing at a large scale in the P2P payments system.

What are Watchtowers?

Watchtowers are fundamentally an ecosystem of third parties employed by the users to outsource monitoring the on-chain transactions of their lighting channels.

Watchtowers can be related to “watchdogs” of the Bitcoin blockchain that play the role of identifying and penalizing malicious users for cheating other users within the channel. Precisely, they verify whether a participant in a channel has properly broadcasted a prior channel state. If they find it malicious, they can claim back the funds after closing the LN channel with an invalid state.

Since it is a third-party service, they receive funds from their clients. The clients sometimes outsource the channel monitoring to multiple watchtowers, in case of failure from one. The LN channel users must check the status of correlation between off-chain channels and on-chain activity occasionally. Watchtowers 24/7 keep an eye on the security risk posed by any invalid LN channel, however.

How Exactly do Watchtowers Work? 

In simple terms, watchtowers are third parties that monitor their clients’ Bitcoin blockchain all day long. They check for any ambiguity between on-chain and off-chain channels with invalid states.

Here is a basic flow of how watchtower mechanism functions between two users in a common payment channel.

  • Joe sends a few Bitcoins to Jeff and updates the state channel within their channel.
  • Additionally, Joe sends a hint of the transaction to a watchtower to keep an eye on the transaction without disclosing its contents.
  • Moreover, Joe sends her signature to the watchtower to pre-authorize the channel funds, allowing it to be sent back in case of a channel breach.
  • The watchtower then cross-verifies the hints received from the client (Joe) and the Bitcoin blockchain.
  • If the watchtower identifies a channel breach by Jeff through an invalid state broadcast, a penalty transaction is created using Joe’s signature and finally reverses the channel funds back to him.

Hence, Joe is protected from a channel breach without having to be online as it was taken care of by the watchtowers.

Development and Challenges

The watchtower market is still in the development stage and is yet to be accepted in the mainstream as the lighting network is gradually inching into a more extensive P2P payment system using Bitcoin.

That said, researchers and enthusiasts believe that this field will provide a compelling future for LN watchtowers. We are uncertain how much-biased will users be towards using the watchtower services, but for the security assurances they provide, it is worth to be considered.

The service enabled by watchtowers would undoubtedly take away the abstract of complexity in components from the users, but considerable progress in both time and developments is vital when aiming for high-end features in the lighting network.

In conclusion, the fact that watchtowers present a prospective thinking approach to security risks imposed by the evolving Bitcoin indicates a sustainable ecosystem in the future.

Categories
Forex Basic Strategies

Forex Momentum Trading Using The ‘Momo Strategy’

Introduction Some traders are extremely patient and wait for the perfect setup while others are extremely impatient and need to see a move in the next few minutes or hours or else, they are quick to hit the button for a ‘sell’ or a ‘buy.’ Most of the time, these impatient traders are chasing the […]

Introduction Some traders are extremely patient and wait for the perfect setup while others are extremely impatient and need to see a move in the next few minutes or hours or else, they are quick to hit the button for a ‘sell’ or a ‘buy.’ Most of the time, these impatient traders are chasing the […]

Introduction

Some traders are extremely patient and wait for the perfect setup while others are extremely impatient and need to see a move in the next few minutes or hours or else, they are quick to hit the button for a ‘sell’ or a ‘buy.’ Most of the time, these impatient traders are chasing the market and necessarily take action when the market has already moved in one direction.

In other words, if they see that momentum builds in one direction, they piggyback on the momentum in hopes for an extension move as momentum continues to build. Once the ‘move’ starts showing signs of losing strength, these impatient momentum traders will also be the first to jump the ship.

So, if our strategy is based on momentum, we need to have solid rules for ‘entry’ and ‘exit’ to protect profits. At the same time, we should be able to do trade management to ride as much of the extension move as possible.

In this regard, we have developed a great momentum strategy that we call the ‘Momo’ trading strategy because we look for momentum or momo burst on very short term price charts.

Time Frame

The ‘momo’ trading strategy works well on the 5-minute time frame. This means each candle represents 5 minutes of price movement.

Indicators

We lay two indicators on the chart, the first one of which is 20-period EMA. The second indicator that we use is the MACD histogram. The settings for the MACD histogram is the default, where the first EMA = 12, second EMA = 26, and signal EMA = 9. All of these are based on the closing price of the candle.

Currency Pairs

This strategy applies only to the major currency pairs. Some of these include EUR/USD, USD/JPY, GBP/USD, GBP/JPY, USD/CAD, etc.

Strategy Concept

We use the Exponential Moving Average (EMA) to help us determine the trend of the market. Once the trend has been established, we use the second indicator to gauge the momentum of the move. We essentially wait for a reversal in the market, and then we try to take position only if the momentum supports the reversal move enough to create a large extension burst.

The position is exited in two segments, and the first half helps us lock some gains and ensures that a winner does not turn into a loser. The second ‘take-profit‘ attempts to catch what could become very large with less risk since we have already booked some profits earlier.

Trade Setup

In order to illustrate the strategy, we have considered the chart of EUR/USD, where we shall be applying the strategy to initiate a trade. All the steps will be performed on the 5-minutes time frame.

Step 1

Open a 5-minutes time frame chart of the desired currency pair and plot the 20-period EMA on the chart. Along with this also plot the MACD indicator on the chart. After plotting both the indicators, look for the currency pair to be trading below the 20-period EMA. The MACD histogram should be negative during this time period.

In the below image, we can see that the market is in a strong downtrend, and currently, the price may be overextended to the downside as indicated by the two indicators.

Step 2

Next, we need to wait for the price to cross above the 20-period EMA. When the price crosses the EMA, we need to make sure that the MACD is in the process of crossing from negative to positive or is in the positive territory no longer than 5 bars ago (in case of a downtrend reversal). The fulling of both these criteria together is a very strong sign of a reversal in the market. The two indicators combined together are very useful for identifying reversal in the market.

The below image shows the crossing of the price above the EMA with a single bullish candle, and, at the same time, the histogram also turns positive.

Step 3

We enter the market for a ‘buy’ or ‘sell’ after the market moves at least ten pips above or below the EMA. This is an aggressive form of ‘entry’ which may not be suitable for everyone. The conservative way of taking an ‘entry’ is by waiting for the market to re-test the EMA and then enter at the retracement. But if the momentum is strong, the market might just continue moving higher. In these times, traders who entered aggressively will only make money. It all depends on the nature of the trader.

As we can see in the below image, we have taken an aggressive ‘entry’ in the pair, i.e., exactly at ten pips from the point of crossing of the EMA. The histogram also shows that the momentum is building on the upside.

Step 4

In this step, we will determine the stop-loss and take-profit for the strategy. As mentioned before, the first take-profit is set at 1:1 risk to reward, which ensures we don’t lose money if the market turns around from the middle. The second and final take-profit is set at 1:2 risk to reward, to take advantage of the market momentum, which leads to an extended reversal. The stop-loss is set just a little below or above the EMA, which will be about 10-15 pips. A conservative trader can place the stop-loss below the ‘low’ or above the ‘high’ from where the market reverses.

We can see in the below image that the momentum continues to build on the upside (indicate by histogram), which is why the market moves smoothly to our final take-profit after we enter.

Strategy Roundup

As this is a momentum-based strategy, we can also use trailing stop-loss to capture gains of the new trend. Since liquidity is the basic requirement of the strategy, we recommended using this strategy in pairs like EUR/USD, GBP/USD, USD/JPY, and some other major pairs only. The ‘momo’ trading strategy is a powerful strategy to capture momentum-based reversal moves. However, sometimes it may not work, and it is important to figure out why it failed.

Categories
Forex Assets

Everything About Trading The NZD/RON Forex Exotic Pair

Introduction

Introduction

Introduction

NZD/RON is the acronym for the New Zealand Dollar against the Romanian Leu. It is categorized as an exotic-cross currency pair that usually has a low trading volume. Here, the New Zealand Dollar is the base currency, and the Romanian Leu (on the right) is the quote currency. The RON (Romanian Leu) is the formal currency of Romania, and one RON is further divided into 100 bani.

Understanding NZD/RON

To identify the relative value of one currency, we require another currency to compare. If the base currency’s value comes down, the value of the quote currency goes up and contrariwise. If the market cost of this pair is 2.7393, then this amount of RON is required to buy one unit of NZD.


Spread

Foreign exchange brokers have two separate prices for currency pairs, which are categorized as the ask and bid price. The offering price is the bid price, and the buying price is the asking price. The difference between the bid/ask price is recognized as the spread. The spread is how stockbrokers make their revenue. Below are the spreads for NZD/RON currency pairs in both ECN & STP brokers.

ECN: 35 pips | STP: 40 pips

Fees

A Fee is a payment we pay to the broker each time we open a spot. There is no additional payment charged on STP accounts, but a few extra pips are charged on ECN accounts.

Slippage

Slippage is the difference between the trader’s predicted price and the actual price at which the trade is implemented. It can appear at any given time but often arises when the market is moving fast and is volatile.

Trading Range in NZD/RON

The amount of money we earn or lose in a timeframe can be estimated using the trading range table. It is an example of the minimum, average, and maximum pip movement in a currency pair. This can be measured simply by using the ART indicator with 200-period SMA.

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.

NZD/RON Cost as a Percent of the Trading Range

The cost of trade generally differs on the broker and differs based on the volatility of the market. This is because the total cost also comprises slippage and spreads, excluding the trading fee. Below is the understanding of the cost variation in terms of percentages. The insights of it are discussed in the subsequent sections.

ECN Model Account

Spread = 35 | Slippage = 5 |Trading fee = 8

Total cost = Slippage + Spread + Trading Fee = 5 + 35 + 8 = 48  

 

STP Model Account

Spread = 40 | Slippage = 5 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 5 + 40 + 0 = 45

The Ideal way to trade the NZD/RON

Understanding the above tables is pretty simple. The percentage values are directly relative to the total cost of the trade. It is seen that the percentages are relatively high on the minimum column and vice versa. Now, coming to the best time to enter the market, it is when the volatility of NZD/RON is somewhere near the avg pip movement. Trading in such minutes will guarantee low costs as well as lower liquidity.

Speaking about timeframes, trading in 4H and Daily timeframe would be great, as the cost is manageable, and the trade is also not very time-consuming.

Another simple hack to cut down the cost is by trading using limit/pending orders instead of market orders. This will considerably lower costs on a trade because the slippage on the trade becomes 0. It many cases, the cost lowers by about 50% of the original value when we use limit orders.

Categories
Forex Basic Strategies

Heard Of The ‘Good Morning Asia’ Forex Trading Strategy?

Introduction

Introduction

Introduction

In the previous article, we discussed a strategy that was in the European session. However, there are a fair number of traders who prefer the U.S. session as they feel the market tends to be more exciting and thrilling. These traders consider the Asian session to be boring and quiet most of the time.

Many part-time retail traders based in the United States and Europe miss out on opportunities in European and U.S. sessions because of work and other business commitments. The only time they are left with happens to fall in the apparent boring and quiet Asian session. Therefore, it becomes necessary to come out with a strategy that is exclusively meant for the Asia session.

The strategy we will be going to discuss today is suitable for trading during the early-morning Asian hours. This time period has numerous opportunities for traders in different time zones across the world, whether they are part-time or full-time traders. We hope that the strategy will greet everyone like the bright morning sun.

Time Frame

The good-morning Asia strategy works well on the 4-hour time frame. This means each candle represents one day of price movement.

Indicators

This strategy is based on pure price action, and hence no indicators will be used during the process.

Currency Pairs

This strategy applies only to the AUD/JPY currency pair.

Strategy Concept

Opening hours of the Asian market begin a couple of hours after the U.S. market closes. The Asian market direction tends to take its cue from the previous day’s movement during the U.S. session because the U.S. market is the largest economy of the world, and most of the institutional banks are located in the U.S.

It is observed that when the U.S. market closes with the bullish sentiment, the Asian market usually starts the day bullish. If the U.S. market closes with the bearish sentiment, the Asian market remains bearish throughout the day.

During the early morning Asian hours, the best currency pair to take advantage of this phenomenon is none other than the AUD/JPY, as the Japanese Yen and the Australian dollar are the most active currency during the Asian session.

Looking at the price action, we take an entry right after the U.S. market closes at 05:00 PM. The first requirement of the strategy is that we need a ‘range’ or a ‘channel’ before the U.S. market closes. Depending on the position of the price and where the candle closes before the U.S., we take an entry. There are many rules that we need to follow before we can use the strategy profitably.

Stop-loss is placed above or below the technical levels, which is the easiest part of the strategy. The risk-to-reward ratio for this strategy is anywhere between 1.5 to 2, which is quite good.

Trade Setup

For this strategy, the closing of the 4-hour candle corresponding to 5:00 PM New York time is crucial for the strategy. Here are the steps to execute the strategy.

Step 1

Firstly, we need to identify a ‘range’ or ‘channel’ on the chart of AUD/JPY. This becomes our trading region, where we will be carrying out all the trades. A ‘range’ or ‘channel’ is confirmed only if the price has reacted and reached the other end at least twice after touching the extremes.

We have considered an example of a trade where we will be applying the rules the strategy step by step. The below image shows the 4-hour time frame chart of the AUD/JPY pair, where we identified a ‘channel’ with multiple touches on either side.

Step 2

In this step, we need to pay close attention to the position of the price and the closing of the U.S. market. The most important part of the strategy is looking out for the price action taking place at the end of the range, which should be occurring at the close of the U.S. market. Depending on the signal we get from the market, we will take an appropriate currency pair position.

At the close (U.S.) if the price closes as a bullish candle from the support, we will enter for a ‘buy’ at the opening of the subsequent candle. If the price closes as a bearish candle from the resistance, we will enter for a ‘sell’ at the opening of the subsequent candle.

Step 3

In this step, we take an ‘entry’ with a suitable size and determine the stop-loss and take-profit for the trade. As mentioned earlier, we will enter for a ‘buy’ or ‘sell’ right after the U.S. market closes, and the next candle opens. This ensures that the risk to reward will be higher.

The stop-loss for the trade is placed a few pips below or above the key technical level of support or resistance. To increase the risk to reward ratio, we can also place it just above or below the previous candle. This would require some experience of using the strategy over a long time. The ‘take-profit’ is set at the other end of support or resistance. We can have a larger ‘take-profit’ if we are trading with the trend of the market. The ‘take-profit 1’ ensures that we lock in some profits if the trade goes against us.

Strategy Roundup

This strategy is suitable for traders with little time to trade. Furthermore, it does not require complex market analysis. It does have some strict rules which might reduce the creation of the trade setups. The ‘entry’ time of the trade is fixed at every morning. Since Japan and Australia are the first countries in Asia where markets open, there will be ample liquidity in the market that will allow traders to execute ‘long’ and ‘short’ positions very easily. All the best!

Categories
Forex Assets

How Expensive Is It To Trade The CHF/SAR Forex Exotic Pair?

Introduction

Introduction

Introduction

CHF/SAR is the acronym for the Swiss Franc against the Saudi Riyal. It is classed as an exotic currency pair as it usually has moderate trading volume. In this case, the Swiss Franc (on the left) is the base currency, and the Saudi Riyal (on the right) is the quote currency. The SAR (Saudi Riyal) is the official currency of Saudi Arabia, and one SAR is divided into 100 halalas.

Understanding CHF/SAR

To find out the comparative value of one currency, we require an additional currency to compare. If the base currency’s value goes down, the value of the quote currency moves up and contrariwise. If the market cost of this pair is 4.0742, then this amount of SAR is required to buy one unit of CHF.

Spread

Forex brokers have two distinct prices for currency pairs, which are classified as the bid and ask price. The bid price is the offering price, and ask is the buy price. The distinction between the ask and the bid price is known as the spread. The spread is how brokers make their income. Below are the spreads for CHF/SAR currency pairs in both ECN & STP brokers.

ECN: 9 pips | STP: 14 pips

Fees

A Fee is basically the compensation we pay to the broker each time we execute a spot. There is no compensation charged on STP account models, but a few additional pips are charged on ECN accounts.

Slippage

Slippage refers to the distinction between the trader’s anticipated price and the original price at which the trade is executed. It can occur at any time but often occurs when the market is fast-phased and volatile. Also, sometimes slippage occurs when we place a large number of orders at the same time.

Trading Range in CHF/SAR

The amount of money we will earn or lose in a specific timeframe can be evaluated using the trading range table. It is an illustration of the minimum, average, and maximum pip movement in a currency pair. This can be assessed simply by using the ART indicator with 200-period SMA. 

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.

CHF/SAR Cost as a Percent of the Trading Range

The cost of trade widely varies on the broker and differs based on the volatility of the market. This is because the total cost also includes slippage and spreads, excluding the trading fee. Below is the interpretation of the cost variation in terms of percentages. The understanding of it is discussed in the subsequent sections.

ECN Model Account

Spread = 9 | Slippage = 5 |Trading fee = 8

Total cost = Slippage + Spread + Trading Fee = 5 + 9 + 8 = 22

STP Model Account

Spread = 14 | Slippage = 5 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 5 + 14 + 0 = 19

The ideal way to trade the CHF/SAR

The CHF/SAR is an exotic-cross currency pair, and it is volatile. For example, the average pip movement on the 1H timeframe for this pair is ~37pips. From the earlier tables, it is clear that the higher the volatility, the lower is the cost of the trade. Nevertheless, this is not an added benefit, as it is risky to trade when the markets are incredibly volatile.

Trading in such timeframes will ensure low expenses just as reduced liquidity. It will also involve fewer costs by placing orders using limit/pending orders instead of market orders. This will substantially reduce the total cost with slippage being zero.

STP Model Account (Using Limit Orders)

Spread = 14 | Slippage = 0 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 0 + 14 + 0 = 14

While reading the above tables, if the ratios are larger, more significant are the trade costs. Likewise, if the proportions are small, lower are the costs. This can be inferred as the trading costs are more significant for low volatile markets and smaller for high volatile markets. I hope this article will support you to trade this pair in a much efficient way. Cheers!

Categories
Forex Fundamental Analysis

What Can We Infer From A Country’s Central Bank Balance Sheet?

Introduction

Introduction

Introduction

Banks Balance Sheets are useful to ascertain the financial performance of the banks; this is correlated as an economic indicator when the bank in question is the Central Bank of the nation, for example, The Federal Reserve Bank of the United States. A Bank’s Balance Sheet can help us analyze its financial activities in terms of how much money has gone in and out of the banks and in what form, which can have different consequences on the economy. Hence, Analyzing a Bank’s Balance Sheet is useful for investors and also for our fundamental analysis.

What is Bank’s Balance Sheet?

A Bank’s Balance Sheet is a comprehensive summary of its total assets and liabilities. Assets here refer to financial instruments that BRING-IN revenue and liabilities refer to those for which the Banks need to pay off.  In simpler words, assets are what the bank “OWNS” and liabilities are what a company “OWES.”

Banking is a highly leveraged business. Banks make a profit solely out of the interest they receive on the lent out loans and the interest they pay out on the money deposited into their banks. Depositors would typically be general populations opening a savings account for their income and business firms having current accounts usually to maintain and run their holdings.

A Bank’s Balance Sheet has two important categories that divide the entire data, i.e., Assets and Liabilities. For the common man, liability would be a home loan which takes away a portion of his income and an asset would be the home itself on which he may or may not receive rent.

Assets | The assets of a bank can be the following
Reserves

Banks are to follow mandates as dictated by the Central Banks to maintain a certain amount of their total deposits as reserves, which cannot be used to lend out loans in order to maintain solvency during critical times. This mandate also makes sure banks maintain enough cash to meet the withdrawal demands daily at all times.

Loans

For the common man, a loan would be a liability, but for a bank, it is an asset as it brings in revenue in the form of interest. Banks can give credit to the general public, business firms, or even government through bonds. A loan is one of the primary sources of a bank’s income, and the proportion of loans to deposits can make or break a bank when they do not balance out.

Excess loans and fewer deposits can result in insufficient funds to meet withdrawal needs, and excess deposits can eat away the profit margin as the fewer loans do not generate enough revenue to balance out deposit rate amounts.

Cash

The liquid money that the banks maintain to run everyday operations and to show healthy solvency is the most precious of all assets as they can be traded without any loss of value directly without any lag.

Securities

Banks often purchase securities like the Treasury Bonds for which they receive interests regularly, which adds to their total assets.

Fixed Assets

Banks of decent size and scale often diversify their assets by purchasing fixed assets like real estate or gold deposits, which appreciate over time and match up with inflation and act as alternate forms of their other assets.

Balances at Central Banks

Banks are also required to maintain a certain proportion of balances in Central Banks.

Liabilities | The liabilities of a bank could be the following
Deposits

Money deposited by customers who can be people or business organizations.

Money owed to Other Banks

Banks lend each other money in the interbank market when they are either excess or short of their reserves.

Money owed to Bondholders

People owning bonds of banks receive money from the bank, and this generally includes shares and dividends that banks need to pay out as per bond agreement.

Owner’s Equity

Money that belongs to people who invested during the start of the company and helped it run.

Why Bank’s Balance Sheet?

In our context, we need to see the Central Bank’s Balance Sheet, which tells us what open market operations are being conducted by them, which can give us clues about the money circulation conditions in the economy. Since Money Supply metrics like M0, M1, M2 all originate at the Central Bank of a country, their actions and mandates can have a ripple effect in the entire banking system of the nation.

Hence, Central Banks are at the very heart of the Money Supply of a country. With their operations, they can pull out money from the economy or push new money into the system to ensure a smooth run of the economy.

How can the Balance Sheet numbers be used for analysis?

Central Bank activities have a direct influence on inflation and deflation. The Federal Bank in the United States for the past few years has been an active purchaser of bonds as part of the Quantitative Easing Programme, and this has led to a low-interest-rate environment and inflationary conditions. When the Fed releases money into the system on such large scales, it allows banks to lend more money to people and thereby to stimulate the economy. Withdrawal of money by selling their bonds could result in deflationary conditions likewise.

Besides this, what bonds the Fed purchasing is also important, as they have been continuously buying the government bonds to transfer government debt onto themselves, to help the government-run and be able to pay their interest bills in this low-interest-rate environment.

Impact on Currency

The Central Bank’s Balance sheet as a percentage of GDP is just another form of Government debt to GDP ratio, with the only difference being here the debt is owed to the Central Bank. When the debt of government goes beyond 80%, here the only viable choice is to maintain this inflationary condition and low-interest-rate environment.

A decreasing percentage of balance to GDP indicates a growing economy and strengthening of the currency, and an increasing proportion of the same shows an oncoming recessionary period, which is depreciating for the economy.

Economic Reports

In the United States, the Fed’s Balance Sheets are released on Thursday at 4:30 PM every week. Their balance sheet is included in the Federal Reserve’s H.4.1 statistical release titled, “Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks,” available on the official website.

There are also quarterly reports available for the same, measured as a percentage of GDP in the St. Louis FRED website, which is also a useful tool to monitor the bank’s activity.

Sources of Bank’s Balance Sheets

Below are the official Fed’s Balance Sheet reports – Fed Bal Sheet

Pictorial representation of the same is available in a comprehensive manner in the official website of FRED – FRED – Bal Sheet

Factors affecting Reserve Balances weekly reports can be found here – Thursday Fed Report

The news announcement of this fundamental Forex driver doesn’t have a great impact on the price charts. But we can look at the numbers of Government Debt to GDP ratio as mentioned above to trade the market. Cheers!

Categories
Crypto Guides

Defining Callisto Network & Its Fascinating Features!

Introduction

Introduction

Introduction

Callisto Network is a blockchain-based Ethereum protocol developed by Ethereum Commonwealth, an ETH development team.

The Callisto Network is missioned towards boosting the Ethereum ecosystem by enhancing the methods of smart contract development and implement the experimental protocol. These implemented protocols are incorporated within smart contracts using merged protocol-level config.

The Callisto Network has been developed to use built-in mechanisms like smart contracts, which can be used to implement the vital features of the platform. The network wants to define and standardize the protocol with a governance system, cold staking, and a funding system for development. All these will be based on smart contracts.

In simple terms, the primary goal of the Callisto Network is to create an ecosystem that is self-funded, self-sustaining development, and self-governed. Note that, Callisto Network always creates new enhancements on the protocol level. This is because the ETC community typically has a conservative approach.

Quite some enhancements come from the CLO network when the other ETC development teams acknowledge them. Examples of the same include cold staking protocol and on-chain governance system.

How does Callisto Address Scalability?

A significant issue that Callisto addresses is the scalability of both ETC networks and CLO networks. The team developers realized that it would be time-consuming to discover their mechanism for implementing sidechains and relaying transactions. As an alternative, they are planning towards implementing the cross chain-relation mechanism.

This is a mechanism that can be spotted on third-generation blockchains like EOS and AION. In essence, Callisto will be improving the scalability of ETC and CLO with mechanics that already exist in the market and have proved their effectiveness.

Features on Callisto

Cold Staking

An issue encountered with Ethereum Classic is that the users receive no incentive for holding their coins. With the introduction of “Cold Staking” by Callisto Network, users will now be rewarded with interest in holding CLO tokens. This is possible when users add their tokens into a smart contract for over a month. Apart from that, there are no other requirements, unlike Masternode coins that require running a node.

CLO coin

The Callisto Network has its native currency – CLO token. It is currently listed on BiteBTC, Stocks. Exchange, SimpleSwap, EXRATES, OOOBTC. The list is expected to expand in the coming months.

Mining Pools

CLO tokens can be mined just like ETC is mined. Various pools support the mining of Callisto. The mining pools include clopool.pro, 2miners.com, coinfoundry.org, callisto-pool.com, epool.io, callistopool.org, callistopool.io, solopool.org, clopool.net, clona.ru, minerpool.net, comining.io, mole-pool.net, etc.

Callisto Network Wallets

As Callisto Network is growing at a good pace, presently, several wallets support Callisto. Some of them include Trust Wallet App, Classic Ether Wallet, Guarda Wallet, and coinomi Wallet. One can verify the compatibility of Callisto by checking if it allows exporting your account.

Conclusion

The Callisto Network developed by Ethereum Commonwealth is based on the Ethereum protocol. With this network, Ethereum Commonwealth addresses the issues relating to Ethereum Classic, specifically security and scalability of smart contract ecosystems. Besides, it has a Cold Staking feature, which is compelling to the platform as it encourages the holding of CLO tokens.

Categories
Forex Course

141. Understanding The Concept Of Breakout

Introduction

Introduction

Introduction

A price movement can be considered a breakout when the price clears any critical level on the price chart. These levels can be support/resistance, trend lines, Fibonacci levels, etc. Many professional traders wait for the price to hold above the breakout to take long positions. Conversely, they wait for the price to hold below the breakdown level to take short positions.

When the price confirms that the breakout is valid, volatility tends to increase as the price started to move in the direction of the breakout. The reason why breakout trading is popular among the traders is that it sets the future trend direction. This makes it easier for traders to make consistent profits from the market.

Breakout trading strategy is universal, and we can apply it to the hourly, daily, weekly, or even monthly timeframes. Investors, swing traders, and intraday traders prefer breakout trading the most compared to any other form of trading. The longer price action holds inside the breakout, the stronger breakout we must expect, and also, the longer time the price action moves in that direction.

During the consolidation phase, when the price is preparing to break out in any direction, we will notice a couple of price pattern formations such as channels, triangles, flags, etc. These patterns will give us the clues on which side the breakout may occur—using these signals to enter a trade before the breakout is crucial. But if you are a conventional trader, wait for the price to break above or below the price to take the trade.

Trading Various Breakouts 

Trend Line Breakout
Ascending Trend line Breakout

The below price chart represents an ascending trendline breakout on the NZD/CHF daily Forex chart.

As you can see in the below image, when price action broke below the ascending trend line, it is an indication of sellers stepping into the game. The hold below the trend line confirms the selling entry. We have placed our stop-loss at the previous high and rode the huge downtrend.

Descending Trend line Breakout

The image below represents the breakout of a descending trend line in the GBP/CHF Forex pair.

As you can see below, we took a buy entry when price action went above the trend line and started to hold above. The hold confirms that the buyers are in control, and they are ready to make a brand new higher high. After our entry, price action blasted to the north and printed a brand new higher high. We chose to close our trade at the most recent higher high. The stop-loss order placed just below the trend line is safe enough.

Range Breakout

The price chart below represents a Ranging market in the NZD/JPY Forex pair.

Most of the time, you would have observed traders taking buy/sell trades when the market moves in a range. But in this strategy, let’s trade the market only when the price breaks the range. Just like any other breakout, Range breakout also indicates the winning of one-party over the other.

The hold above the breakout confirms that the range is broken, and it is a good idea to go long. We choose smaller stops because the hold above the range gave additional confirmation.

That’s about breakouts and how to basically trade different breakouts in the market. In the upcoming lessons, we will be going through many of the concepts related to breakouts.

Categories
Forex Assets

Everything About Trading The CHF/THB Forex Exotic Pair

Introduction CHF/THB is the abbreviation for the Swiss Franc against the Thai Baht. It is classified as an exotic-cross currency pair as it usually has a low trading volume. In this case, the Swiss Franc (on the left) is the base currency, and the Thai Baht (on the right) is the quote currency. The THB […]

Introduction CHF/THB is the abbreviation for the Swiss Franc against the Thai Baht. It is classified as an exotic-cross currency pair as it usually has a low trading volume. In this case, the Swiss Franc (on the left) is the base currency, and the Thai Baht (on the right) is the quote currency. The THB […]

Introduction

CHF/THB is the abbreviation for the Swiss Franc against the Thai Baht. It is classified as an exotic-cross currency pair as it usually has a low trading volume. In this case, the Swiss Franc (on the left) is the base currency, and the Thai Baht (on the right) is the quote currency. The THB is the official currency of Thailand, and it is further split up into 100 satangs.

Understanding CHF/THB

The market price of CHF represents the value of THB that is required to purchase one CHF(Swiss Franc). It is quoted as 1 CHF per X THB. If the market cost of this pair is 34.350, then this amount of THB is required to buy one unit of CHF.

Spread

The distinction between the asking price and the offering price is labeled as the spread. ECN and STP account model will have various spread values; The approximate spread values of CHF/THB pair in both the accounts are mentioned below:

ECN: 30 pips | STP: 35 pips

Fees

The fee is the commission that one pays while entering a trade. A few extra pips are charged on ECN accounts, but there is no fee charged on STP accounts.

Slippage

The mathematical difference between the price expected by the trader and the given price by the broker can be termed slippage. Its cost varies on two factors, i.e., the market’s high volatility and broker’s implementation speed.

Trading Range in CHF/THB

The trading range helps us understand the minimum, average, and maximum pip movement in various time frames. These values assist us in determining the risk, which could be caused by trade. The same is in shown in the below table:

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.

CHF/THB Cost as a Percent of the Trading Range

The cost variations in trade can be determined by applying the total cost to the table mentioned below. The cost percentage of the trading range represents the difference in fees on the trade and various time frames for differing volatility.

ECN Model Account

Spread = 30 | Slippage = 5 |Trading fee = 8

Total cost = Slippage + Spread + Trading Fee = 5 + 30 + 8 = 43 

STP Model Account

Spread = 35 | Slippage = 5 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 5 + 35 + 0 = 40

The Ideal way to trade the CHF/THB

The CHF/THB is an exotic-cross currency pair, and this market’s volatility is moderate. For instance, the average pip movement on the 1H timeframe is 51 pips. We should understand the higher the volatility, the lower will be the cost to implement the trade. However, this is not an added advantage as trading in a volatile market means more risk.

For example, in the 1M time frame, the Maximum pip range value is 1984, and the minimum is 310. When we evaluate the trading fees for both the pip movements, we can see that for 310pip movement fess is 13.87%, and for the 1984 pip movement, the fee is only 2.17%. With the mentioned example, we can conclude that trading the CHF/THB currency pair will be comparatively expensive.

Categories
Forex Basic Strategies

Trading ‘Cable’ Using The ‘English Breakfast Tea Strategy’

Introduction

Introduction

Introduction

When traders deal with a particular currency pair for a long time, they start to observe certain characteristics and behavior of that currency pair. Such common behavior could be observed during market opening hours, closing hours, or major news releases. Traders may notice common behavior before and after the holiday season, such as Christmas or New Year.

Day traders enjoy the volatility of the market opening. This could be either Tokyo open, London open, or New York open. Some traders are familiar are with the pattern developed during the Tokyo open while some are comfortable trading the New York open. While some traders like to trade when the market is not extremely volatile, they prefer to trade when the market is quiet and less volatile.

The strategy we will be discussing today is based on the peculiar behavior observed in the GBP/USD currency pair. This behavior is mostly observed during the London opening hours.

Time Frame

The English breakfast tea method works well on the 15-minutes time frame. This means each candle represents 15 minutes of price movement.

Indicators

This strategy is based on pure price action; hence we will not be using any indicators.

Currency Pairs

This strategy applies only to the GBP/USD currency pair.

Strategy Concept

The pattern is observed in GBP/USD before, and after the London market opens in the morning, we have named this strategy an ‘English breakfast tea strategy.’

We have observed that when GBP/USD trends in one direction from 04:15 hours to 8:30 hours London time, it tends to move in the other direction after 8:30 hours. We now compare the closing price of the 15-minute candle that corresponds to 04:15 AM and 08:15 AM London time to determine the direction of the GBP/USD. We then enter the market in the opposite direction at 08:30 AM London time.

For example, if the closing price of the 15-minutes candle at 08:15 hours is lower than the closing price at 04:15 hours, we go long at 08:30 hours. If the closing price of the 15-minutes candle at 08:15 hours is higher than the closing price at 04:15 hours, we go ‘short’ at 08:30 hours.

The stop-loss for the strategy is fixed at 20-30 pips depending on the point of entry on the chart and risk appetite. There are two profit targets for the strategy with risk to reward ratios of 1:1 and 1:2. In other words, the ‘take-profit‘ would be at around 30 pips and 60 pips, respectively.

Trade Setup

Since this strategy is based on the London time zone, we need to make sure that we change the trading platform’s time zone to ‘London.’ If this is not possible, we should know London’s corresponding time opening with respect to our time zone. Let us see the steps required to execute the strategy.

Step 1

In the first step, we mark 04:15 hours and 8:15 hours London time on the chart. Then we look at the difference between the two candles. If the closing price of 8:15 hours is lower than the closing price of 04:15 hours, we then look for buying GBP/USD. On the other hand, if the closing price of 8:15 hours’ candle is higher than the closing price of 04:15 hours’ candle, we will for ‘short’ trades in the currency pair.

In the following example, we see that the market moves lower between 04:15 hours and 8:15 hours London time. The closing price of the latter is below the former. Therefore, we will take a ‘long’ position by executing further steps.

Step 2

In this step, we examine the ‘entry’ part of the strategy. ‘Entry’ is the simplest part of the strategy where we enter the market at the close of the 08:30 hours’ candle. If the difference between the two candles marked in the previous step is negative, we enter for a ‘buy’ at the subsequent candle. If the difference between the two candles is positive, we enter for a ‘sell’ at the subsequent candle.

We can see in the below image that the subsequent candle dropped significantly lower. As per our strategy, we will take a ‘long’ trade at the close of this candle. Let us see what happens later.

Step 3

In this step, we determine the stop-loss and profit targets for the strategy. The stop loss is usually set at 20-30 pips depending on the risk appetite of the trader. However, a technical approach for setting the stop loss is that, if the trade is taking place in the direction of the major trend of the market, we keep a small stop loss. If the trade is taking place against the major trend of the market, we opt for a larger stop loss. The first profit target is at 1:1 risk to reward, and the second one is set at 1:2 risk to reward. If we are trading against the trend, the first ‘take-profit’ ensures that we don’t lose any money even if the market turns around mid-way.

In the below image, we can see that the price hits our final ‘take-profit’ after taking an entry at the close of the red candle. Since the market was in an uptrend, we kept a small stop loss.

Strategy Roundup

This strategy is based on a fixed time period, i.e., during the market opening hours. The rules are simple and specific. Any trader can try out this strategy to benefit from the volatility associated with the market opening. However, the currency pairs will change for other market openings. Since we are not giving much importance to the market trend, we might have some losing trades in the beginning until we become expert in the strategy.

Categories
Crypto Guides

Plasma – The Perfect Solution to Ethereum Congestion?

Introduction

Introduction

Introduction

Plasma is an ongoing development of the Ethereum second-layer scaling solutions. After state channels, Plasma will be the second completely deployed scaling solution on the Ethereum mainnet.

What is Plasma?

Plasma is a structure that facilitates the development of child blockchains using the main Ethereum as an arbitration and trust layer. Plasma is primarily being created to meet the demand for specific uses cases that are unavailable on the current Ethereum network.

Understanding Child Chains

The underlying goal of both plasma and state channels is the same, where they try to divert as much transaction bloat off away from the main Ethereum chain as possible.

In case of disagreements, the child chain state update can be reverted to the Ethereum network. The same applied to cases if a user wants to pause transacting on the child blockchains.

On the features front, child blockchains can digest on varying complexity. They are given the ability to have their consensus algorithms, their block sizes, and confirmation times. Their design is relatively flexible for each application. Moreover, some developers are researching the possibilities of child chains within a child chain, and so on.

How secure is Plasma?

As mentioned, Plasma maximizes the use of the Ethereum network as an arbitration layer. In suspect of a malicious part, users can always regress to the main Ethereum chain as a trusted source.

Another feature is that the main Ethereum blockchain and the child chains are connected via ‘root contracts.’ Root contacts are simply smart contracts on the Ethereum network containing the rules guiding each child chain.

Root Contracts and its Necessity

The most important component in the plasma network is the existence of root contracts. Root contracts as a bridge allow users to seamlessly move between the main Ethereum chain and the child chains. As a matter of fact, all assets must be created through the main Ethereum.

Thus, no malicious activity on the child chain can ever be reverted to the main Ethereum chain. For instance, if a user moves some crypto-collectible tokens onto a child chain, they can anytime withdraw from the child chain and the asset on the main chain, only if the user proves they didn’t spend them.

Drawbacks of Plasma

The only considerable drawback of Plasma is the duration taken for the withdrawal of funds. Plasma users must wait for a predetermined arbitration window that typically lasts 7-14 days, while state channel users can instantly withdraw their assets.

The Prospects

The growing congestion in the Ethereum network leads to the creation of frameworks such as state channels and Plasma, which drastically eased the overcrowding in the network. Plasma will allow users to transact with lower fees and higher throughput and help developers scale their dApps. This, hence, can be an excellent opportunity for Ethereum to reach the masses.

Furthermore, the combination of plasma and state channels can help produce a leveraged product. In fact, the developers are already working on building state channels within the child chains. With this implementation, users will incur significantly less or no fee while transacting in the network. Cheers!

Categories
Forex Fundamental Analysis

What Is ‘Employment Change’ & How Can This Data Be Used For Our Analysis?

Introduction

Introduction

Introduction

Employment statistics are closely watched by the market because of their direct effect on consumer spending. Consumer spending makes up over two-thirds of the country’s GDP for many countries. Hence, understanding Employment Change, its place in the reports, and its impact on market volatility are crucial for building reliable fundamental analysis.

What is Employment Change?

Employment

It is the state of having a paid job. A person is considered employed if it does any work for pay or profit. People who are eligible for employment are between the age of 15 and 64 and are called the working-age population.

Employment Change

Unlike most reports which are reported in percentage or ratios to understand the statistics better, the Employment Change reports the nominal change. Employment Change is the change in the number of jobs added or lost over the previous month.

For example, if there were 20,000 jobs in January, and, in February, the figure was 25,000 jobs, then the Employment change would be +5,000. If the total jobs in February were 10,000 only then the Employment Change would report -10,000. Hence, positive numbers indicate job growth or new jobs added to the economy. Conversely, negative numbers indicate jobs were removed from the economy.

It measures the estimated change in the number of employed people during the previous month, excluding the farming and government industry. Hence, it accounts for the non-farm payroll employees, that are widely used statistics to monitor employment levels.

How can the Employment Change numbers be used for analysis?

Employment is a politically and economically vital statistic in any country. High levels of unemployment threaten social structure, and the ruling party’s governance. There have been incidents in many examples, where high unemployment periods have led to an increased number of crime and suicide death rates. Hence, Central Authorities are politically committed to ensuring low levels of unemployment at all times.

High unemployment is terrible for the economy. As Consumer Spending makes more than 70% of the total Gross Domestic Product for many countries, it is no wonder employment statistics are one of the primary indicators in the currency markets. Employment has a direct effect on Consumer Spending. As more people are employed, more people have disposable cash to meet their needs and discretionary spending. Hence, high employment boosts Consumer Spending, which in turn propels the GDP higher.

High unemployment levels tend to have a ripple effect on the economy, as jobs removed from one sector also tends to induce the same effect on dependent industries, and on a smaller scale on indirectly dependent industries and the overall economy.

For instance, if a car manufacturing company has a slow down in business, and decides to lay off half of its staff, then the company supplying tires to this company will also see reduced demand, leading to the same lay off and reduction in business. Also, indirectly dependent industries like car paint and servicing shops, car perfume selling shops would similarly take a hit. Hence, we see how lay-offs in one sector tend to creep into other sectors as well.

Also, during this cascading effect, there is a definite impact on consumer sentiment as well. A drop in consumer confidence also discourages the spending habits of people, which further impacts consumer spending. Hence, people who are still employed are also affected by unemployment in one or the other way. People generally start saving for a rainy day when employment levels drop, thinking their turn is also around the corner. Generally, industries dealing with luxury and recreation tend to take the worst hit during economic slowdowns and recessions.

Employment Change is a nominal figure that is a little misleading and confusing to correctly analyze the severity of positive or negative numbers as it is a function of the population. A country showing -10,000 jobs lost over the previous month could be ignorable for a country like India or China where the population is vast, and critical for small countries where the population is just in a few million. Hence, people generally prefer the unemployment rate and other percentage metrics to analyze the severity of the country’s employment situation correctly.

Impact on Currency

Even though it is a nominal figure, this report’s earliness gives it an edge over other reports, as traders are always looking to be ahead of the game and beat the market trend before it sets in. Hence, seasoned traders look at the Employment Change reports and analyze them historically to make investment decisions before market trends are set in motion. Hence, there tends to be a lot of market volatility around Employment Change reports.

Employment Change is a coincident and high impact indicator that can generate enough market volatility during significant changes in the reports. It is always best to combine reports with initial jobless claims reports, non-farm payroll statistics to build a broader understanding in the long-term to correctly trade these short and long-term volatilities around the time of report’s releases.

Economic Reports

In the United States, the Bureau of Labor Statistics (BLS) publishes monthly, quarterly, semi-annually, and yearly reports of the Employment change seasonally adjusted figures on its website. The report classifies change in employment as per the major industry sectors.

ADP publishes Employment Change reports on its official website about two days after a month ends. Hence, it is a day or two earlier than other employment situation reports published by BLS. ADP Non-farm employment change is the closely watched statistic before BLS releases its Employment Situation Report later.

Image Credit: U.S. Bureau of Labor Statistics

Sources of Employment Change

We can find the earliest Employment Change report from the ADP employment report.

The United States Bureau of Labor Statistics publishes monthly Employment Change, employment, and unemployment reports on its official website.

We can also find the same indexes and many others with a comprehensive summary and statistics of various categories on the St. Louis FRED.

Consolidated reports of Employment Change of most countries can also be found in Trading Economics.

That’s about ‘Employment Change’ fundamental Forex driver. As mentioned above, the impact of this indicator’s new release on the Forex price charts is minimal. However, if we combine them with other credible employment data like initial jobless claims and non-farm payroll statistics, we can get a broader understanding, which is crucial. Cheers!

Categories
Crypto Guides

Universal Protocol – A Potential Platform to Connect Digital Assets

Introduction

Introduction

Introduction

The Bitcoin blockchain became a success as people realized the power of the decentralized technology. Then came Ethereum, offering many features and abilities in the existing technology. Given the enormous potential of this decentralized technology, it will take platforms like Universal Protocol for blockchain to be widely accepted in society.

The Universal Protocol offers various products and has partnered with well-known firms like Cred, Bitcoin.com, Blockchain at Berkeley, Uphold, and Brave.

The vision of the Universal Protocol

Universal Protocol was created with a vision to connect every possible financial market participant with Cryptocurrencies, be it publicly traded equities worth millions of dollars or merely buying anything from a local departmental store.

Precisely speaking, the Universal Protocol Platform is visioning to attract 100 million new users to the world of Cryptos and facilitate a company or group to make a seamless platform to create digital assets. The goal might seem far-fetched, but present stats show that it has made impressive progress.

Problem and Solution

The Universal Protocol addresses the non-existence of scaled interoperability. The platform allows users instant and seamless transfer of value across various decentralized networks. It mainly provides a common language via which incompatible protocols can ‘reason’ against one another, and at the same time, reduces the time, risk, and cost of exchanging digital assets.

With an advanced architecture for interoperability, the UP platform will allow users to interact with several cryptocurrencies on a single blockchain. The Universal Protocol combines the revolutionary smart contracts and reserve functionality to enable highly secure and convertible proxy tokens through its platform.

Applications and Benefits

As stated by the vision of Universal Protocol, we can affirm that everyone in the financial industry can make use of the platform. Below are some ecosystems where the platform can be employed to make digital assets a part of the everyday financial system.

Financial Institutions

The Universal Protocol tries to solve the custodial challenges that some major financial institutions have faced since the past. The model created by UPP provides single standard compatibility with the help of Proxy Token, which can be used for tokenizing any financial asset. Thus, it will remove the requirement for multiple types of custodial programs, and the institutions will have to print their business logic only once, on Ethereum.

Centralized Exchanges

The process of listing new coins on a centralized exchange is a complex, expensive, and time-consuming process that could take up to months of work. But with the help of the Universal Protocol Platform, centralized exchanges can dramatically streamline the process of listing new cryptocurrencies. With UPP, exchanges will have to add ERC-20 to list proxies representing any digitally tokenized asset.

Innovators

For developers as well, UPP is an excellent tool for innovation. The best part being, developers will only have to deal with one type of network, even if they’re looking to build their blockchain. The Universal Protocol model would ensure system-wide compatibility and also simplify the use of dApps and smart contracts.

Conclusion

The goal of the Universal Protocol is still intact, and apart from that, it has been working on other projects as well. This has hence led to the emergence of new opportunities in the world of blockchain. And we believe that it worth keeping an eye on the further developments on the Universal Protocol Platform.

Categories
Forex Fundamental Analysis

Minimum Wages – Understanding This Macro Economic Indicator

Introduction

Introduction

Introduction

Minimum Wages are essential for protecting citizens and ensuring that everyone gets a fair share of the fruits of the progress made. Minimum Wages act as the foundation for everyone at the entry-level to compete equally to the top. Minimum Wages are used by a majority of the countries across the world. Understanding Minimum Wages and its importance can help us better understand improvement in people’s living standards over time alongside the country’s economic growth.

What are Minimum Wages?

The International Labor Organization (ILO) defines Minimum Wages as “the minimum amount of remuneration that an employer is required to pay wage earners for the work performed during a given period, which cannot be reduced by collective agreement or an individual contract.” It is the least money paid out for work as a wage over a given period. It cannot be lowered by mutual understanding nor through a legal agreement. Hence, it is the lowest remuneration that an employer can give their employees.

The Minimum Wage can be set by a statute, wage board or council, competent authority decision, industrial or labor courts, tribunals, or law enforced collective arguments. Most countries had introduced the Minimum Wages by the end of the twentieth century.

Minimum Wages initially started off to stop exploiting workers in sweatshops (places with unacceptable working conditions, potentially illegal and dangerous). Owners at such places generally had dominion over that workplace and people working. But later on, it became a means to help uplift the lower-income families. Minimum Wages were first incorporated by New Zealand in 1894, followed by many other countries gradually.

How can the Minimum Wage numbers be used for analysis?

Minimum Wages acted as the price floor beneath which a worker may not sell their labor. The purpose of Minimum Wages is to set a barrier to exploiting the labor force through unduly low wages for their work. It will ensure a just and equitable way of distributing the returns on the progress made collectively. It will also ensure people receive the money required to sustain a living and act as legal protection for people who need it.

Minimum Wages are also used as part of a policy to eradicate poverty. It also helps curb inequality amongst employees based on age, sex, or race for the work of equal value done. Minimum Wages also acts as a floor for wage negotiations and collective agreements. Any negotiation always has a legal and reasonable base, only above which all negotiations can take place and shall not fall below it.

The effect of increasing the Minimum Wage had a negligible impact on the employment rate in general. Still, cost-cutting in other sectors and the profitability of the company become vulnerable. Minimum Wage level adjustments are deemed to be made from time to time, meaning whenever the board feels it is needed based on the cost-of-living indices. Most countries adjust their Minimum Wages yearly, some do on a six-month basis, and some do it on a two-year basis.

Inflation and Cost-of-Living fluctuations erode the purchasing and protection power of the Minimum Wage. At such times, unscheduled interventions become essential to keep protecting the labor force.

Fixing Minimum Wage too low defeats the very purpose for which they were set and too high creates a significant impact on employment, worsening the situation. Careful and objective decisions have to be made to set and adjust Minimum Wages periodically as per economic conditions.

Setting too low could constrain consumer spending, which is terrible for the economy as it fuels the GDP. Setting too high could trigger inflation on subsequent levels, hurting exports, decreasing profit margins, and reducing employment.

The ILO deems the following three economic factors to take into account to set Minimum Wages: economic development requirements, productivity levels, and desirability of achieving and maintaining high levels of employment. All the factors are correlated and have to be set to optimize all three economic factors.

The ratio of Minimum to Average Wage is also used to understand wage inequality among laborers within an organization. In developed economies, Minimum Wages generally range 35 to 60 percent of the Median Wage. In developing economies, the percentage is even higher, indicating higher-level workers are relatively underpaid. Minimum Wage at aggregated levels classified based on regions can also help central authorities to identify lagging states or regions, where the standard of living can be improved and economic backwardness eradicated.

Images Credit: International Labour Organization

Impact on Currency

Minimum Wages changes are often annual and do not have an impact on currency markets as it pertains to a particular section of working-class people. Minimum Wage is a low impact lagging indicator and does not deem any importance in the currency markets.

It is useful for central authorities and vulnerable workgroups to raise their living standards and maintain economic equality. When everyone is treated justly in terms of wages, economic growth is not crippled by exploitation and discrimination.

Economic Reports

In the United States, the Department of Labor enforces the Fair Labor Standards Act (FLSA) and sets the Minimum Wage and overtime pay standards. It is enforced by the Department’s Wage and Hour Division. Annual revisions to the same are made and announced, if any.

Sources of Minimum Wages

  • Minimum Wage details set by the Department of Labor is available here.
  • The OECD also maintains the same as Real Minimum Wages.
  • Consolidated reports of Minimum Wages of most countries can be found on Trading Economics.
  • We can find guidelines on setting the Minimum Wage and various nuances associated with it on ILO.

Minimum Wages Announcement – Impact due to news release

The Minimum Wage is an employees’ base rate of pay for ordinary hours worked. It is dependent on the industrial policies that apply to their employment. Employees cannot be paid less than their Minimum Wage, even if they agree to receive it.

Every year, the work commission reviews the minimum wages received by employees in the national workplace system and then submits it to the government’s labor ministry. Looking at the suggestions mentioned, the government increases the minimum wages for workers of the nation. Minimum wages have little impact on the value of a currency as it does not considerably affect the industrial output and the economy.

The below image shows that the weekly wages were increased for Australian employees in 2020. Although the difference is not huge, it still is a positive step taken for the daily wage workers. Looking at the data, we should not expect significant volatility in the currency pairs during the announcement.

AUD/EUR | Before the announcement

In the above image of the AUD/EUR 1-hour timeframe chart, we try to establish potential trading opportunities. The pair has been ranging for the past three days before June 19th, 2020.

AUD/EUR | After the announcement

The above image highlights the news announcement day. It may seem there was a small uptrend that was built was erased in the second half of the day. An increase in the minimum wages in favor of AUD did not break the trend established a few days earlier. The pair continues its range post the announcement day also.

AUD/USD | Before the announcement

The above image highlights the AUD/USD pair a few days before the news announcement day. No trend has been established as of now.

AUD/USD | After the announcement

The above image highlights the news announcement day, and we see a similar pattern to the AUD/EUR. We see it is in the typical volatility range of the AUD/USD. The news announcement did not help AUD break the previous and post ranging trend here also.

AUD/CHF | Before the announcement

The above image is AUD/CHF pair, and here also, no potential trading opportunities are building up until June 19th, 2020.

AUD/CHF | After the announcement

The above image highlights the news announcement, and we see that the news did not move the currency in favor of AUD. The AUD/CHF continued to stay in the same range as before the news release day.

Overall, in all the three scenarios, we see the minimum wage economic indicator despite coming in favor of AUD; the market impact was negligible. The market is aware that it is a low impact indicator and affects only a specific section of the labor force.

Hence, changes in minimum wages of a country do not translate to its currency volatility, as already confirmed through our fundamental analysis. Moreover, it is a yearly statistic, and the corresponding effects of increased minimum wages will be captured through monthly indicators better.

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Forex Basic Strategies

Learning To Trade The GBP/JPY Pair Using The ‘Guppy Burst’ Strategy

Introduction

Introduction

Introduction

After discussing some of the intraday and long-term trading techniques, we will now focus on very mechanical trading strategies. The strategies discussed previously were time-driven, which means each strategy involved several parameters.

This style of trading is suited to newbies because it is purely based on a fixed set of rules and steps. Due to its non-dependence on rules specific time frames, the strategies we will be discussing span over three different categories: scalping, day trading, and position trading.

The first strategy is the guppy burst strategy, which is based on the 5-minute chart. The second strategy is English Breakfast Tea, which is based on the 15 minutes chart, and the third strategy we will talk about is the good morning Asia strategy, which is based on the daily chart.

The guppy burst strategy seeks to exploit trading profits when the market is quiet. One would have observed that the market is least volatile after the U.S. market’s close until the Asian market opens. The forex market is quiet during this time and tends to move gently. However, the market movement during this time is fairly predictable. The market again momentum after the Asian market opens.

Time Frame

The guppy burst strategy works well on the 5-minute time frame. This means each candle represents 5 minutes of price movement.

Indicators

This strategy is based on pure price action; hence, no indicators are required for this strategy.

Currency Pairs

This strategy applies only to the GBP/JPY currency pair.

Strategy Concept

Firstly, we identify a ‘range’ during the window of three hours between the close of the U.S. market and the opening of the Asian market. We are also taking advantage of the volatility that is witnessed when the opening of the Asian market is nearing. We will place a pending buy order at the range’s resistance with a stop loss at the support.

Similarly, we will place a pending sell order at the support of the range with a stop loss at the resistance. This might appear opposite for some traders who are well versed with the support and resistance strategy. The reason behind buying at resistance and selling at support is that, as soon as the Asian market opens, the market starts to trend in the same direction of the current move. This means we are anticipating a breakout or a breakdown of the range.

We will have two take-profit points in this strategy. The first profit target is set at risk to reward ratio of 1:1.5, while the second one is at 1:2 risk to reward. By this, we ensure that we lock in some profits and don’t lose when the trade goes against our favor.

Trade Setup

Since the time zone of the trade very important here, we need to mark the reference candle for the strategy. It is the one that corresponds to 5 PM New York time, which is nothing but the closing time of the U.S. market. As mentioned earlier, the strategy is applicable only to the GBP/JPY currency pair. Here are the steps of the guppy burst strategy.

Step 1

The first step is to open the chart of the GBP/JPY currency pair and then wait for the U.S. market to close. Mark this as the reference candle, and from here, the analysis of the chart begins. We need to analyze the pair on the 5 minutes candlestick chart. The below image shows an example of such a trade setup on the GBP/JPY pair. Here we see that the market is an uptrend and recently has formed a range.

Step 2

Next, we need to identify a ‘range’ where we have at least two points of support and resistance. We have to assure that the market does not start moving in a single direction after the U.S. market closes. If it does, then the strategy is no longer valid. However, the market mostly remains sideways after the U.S. session. Depending on the market’s major trend, we place a limit order at support and resistance. If the major trend of the market is up, we place the ‘buy’ limit at the resistance, and if the major trend is down, we place the ‘sell’ limit at the support.

Step 3

In this step, we do not have to do anything, but just wait for the market to hit our limit orders. At the same time, if our limit order is not triggered, we should leave the market as it is and not chase it. This is an important part of risk management.

In the below image, we see that our ‘buy’ order gets triggered a few minutes after the opening of the Asian market.

Step 4

As mentioned earlier, we have two ‘take-profit’ points for the strategy. The stop-loss placed at support if going ‘long’ in the market and at resistance if going ‘short.’ The first ‘take-profit’ is set at a point where the resultant risk to reward of the trade is 1:1.5. The second ‘take-profit’ is set at 1:2 risk to reward. We lock in some profits at the first profit target, which ensures that we don’t lose money even if the market turns around.

The below image shows how the market continues to move upwards and starts trending after the breakout from the range.

Strategy Roundup

As we are not sure when the breakout will happen, the best way to enter the market is by creating a pending order on the extreme ends of the range. The important part is the identification of the range during the three-hour window between the U.S. market close and Asia market open. Along with that, make sure to place a limit order in the direction of the market.

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Forex Assets

Trading Costs Involved While Trading The ‘CHF/CNY’ Exotic pair

Introduction

Introduction

Introduction

CHF/CNY is the abbreviation for the Swiss Franc against the Chinese Yuan. It is categorized as an exotic-cross currency pair with moderate volatility and low trading volume. Here, the Swiss Franc (on the left) is the base currency, and the Chinese Yuan (on the right) is the quote currency. The Chinese Yuan(CNY) is also known as the Renminbi, which is also the official currency of China.

Understanding CHF/CNY

The market price of CHF represents the value of CNY that is compelled to purchase one CHF. It is quoted as 1 CHF per X CNY. If at all the market price of this pair is 7.5423, then this amount of CNY is required to buy one unit of CHF.  

Spread

The distinction between the asking price and the offering price is termed as the spread. ECN and STP account models will have different spread values. The estimated spread values of CHF/CNY pair in both the accounts are mentioned below:

ECN: 19 pips | STP: 24 pips

Fees

The fee is the commission that one pays for the trade. There is no commission charged on STP accounts, but a few additional pips are charged on ECN accounts.

Slippage

The variation between the trader’s expected price and the executed price offered by the broker is referred to as slippage. Its cost varies on the volatility of the market and the broker’s implementation speed.

Trading Range in CHF/CNY

The trading range is represented in a tabular form to understand the pip movement of a currency pair in different timeframes. These values help us determine the profit, which will be generated from trade. To obtain the worth, you will need to multiply the below pip value with the volatility value.

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.

CHF/CNY Cost as a Percent of the Trading Range

We can ascertain the cost variations in trade by implementing the total cost to the below-mentioned table. The values are achieved by identifying the proportion between total cost and volatility value, and they are represented in the form of a percentage.

ECN Model Account

Spread = 19 | Slippage = 5 |Trading fee = 8

Total cost = Slippage + Spread + Trading Fee = 5 + 19 + 8 = 32

STP Model Account

Spread = 24 | Slippage = 5 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 5 + 24 + 0 = 29

The Ideal way to trade the CHF/CNY

Understanding the above table is very simple. The proportion of the total cost of trade is directly relative to the value. It is seen that the rates are approximately high on the minimum section and the other way around. The perfect time to enter the market might be where CHF/CNY’s volatility is between the average pip movement.

To lower your risk, it is recommended to trade when the volatility is near the minimum levels. In this case, the volatility is low, and the costs are marginally high compared to the average and the max values. But, if your primary worry is on lowering costs, you may trade when the market volatility is close to the maximum values.

Trading in such timeframes will assure low expenses just as smaller liquidity. It will also include fewer costs by placing orders using limit/pending orders instead of market orders. This will substantially reduce the total cost with slippage being zero.

STP Model Account (Using Limit Orders)

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

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

I hope this article will aid you to trade this pair in a much efficient way. Cheers!

Categories
Forex Daily Topic Forex Fundamental Analysis

Understanding ‘Full-Time Employment’ Fundamental Forex Driver

Introduction Full-Time Employment statistical figures are a good measure for long term economic growth. Understanding the difference between part-time and  Full-Time employment and its economic impact can help us better understand the long-term trends in economic growth. What is a Full-Time Employment? Employment It is the state of having paid work. A person is considered […]

Introduction Full-Time Employment statistical figures are a good measure for long term economic growth. Understanding the difference between part-time and  Full-Time employment and its economic impact can help us better understand the long-term trends in economic growth. What is a Full-Time Employment? Employment It is the state of having paid work. A person is considered […]

Introduction

Full-Time Employment statistical figures are a good measure for long term economic growth. Understanding the difference between part-time and  Full-Time employment and its economic impact can help us better understand the long-term trends in economic growth.

What is a Full-Time Employment?

Employment

It is the state of having paid work. A person is considered employed if they do any work for pay or profit. People who are eligible for employment are between the age of 15 and 64 and are called the working-age population.

Full-Time Employment

As such, there is no fixed law defining and differentiating full and part-time employment. Conventionally 40 hours a week has been considered as Full-Time employment, but lately, deviations from this have been observed.

For instance, the United States Bureau of Labor Statistics (BLS) describes 35 hours or more per week as Full-Time employment. Conversely, 1 to 34 hours of work per week is considered part-time employment. The Affordable Care Act (ACA) explains Full-Time employees as those who are working for 30 or more hours a week.

How can the Full-Time Employment numbers be used for analysis?

Distinguishing between the part and Full-Time employment has benefits. Full-Time employment generally has the following benefits over part-time or contract-based employment:

Paid leaves: Full-Time employees are eligible to take leaves or vacation for which there would be no loss of pay. It is generally not applicable to part-time employees. Most part-time employees have a per hour payment. They are paid for the number of hours worked.

Healthcare plans: When an employee spends most of his life working for an organization, it is the company’s responsibility to take care of his health and well being. Full-Time employees enjoy the benefits of healthcare insurance for themselves and their family members as well. Health insurances secure employees against heavy financial losses during health emergencies. Part-time employees don’t generally have those benefits.

Pension plans: Full-Time employees are also given the benefits of retirement plans through pension funds or any other retirement scheme. It financially secures the employee in his/her old age, which is essential. Part-time employees generally do not have any such benefits and usually have to save for retirement themselves.

Job Security: During times of economic slowdown or even worse a recession, companies generally lay off their part-time and contract workforce first. Full-Time employees are their prime assets and generally are managers or professionals in the organization. Hence, Full-Time employees are generally less vulnerable to business and economic cycles.

Part-time employees could also be seasonal and find it hard to get work during off-seasons and are more vulnerable to business cycles.

It is easy to infer that the standard of living of Full-Time employees is generally better than that of their counterparts. As employees feel more financially secure in a Full-Time job, their spending habits would reflect the same. Credit eligibility also is more for Full-Time employees over part-time ones. Hence, in the long run, much of the consumer spending would likely be coming from Full-Time employees.

No one seeks part-time employment voluntarily, and no one wants to sit idle during certain quarters of a year. When companies are making long term progress in their profits rather than short-term gains during particular business cycles, a growth in Full-Time employment could be observed. When businesses are fully established in their sector and are marginally well-off, they opt to hire and retain Full-Time employees more. Otherwise, companies would rely on seasonal hiring and firing strategy only to keep the business running.

Policymakers giving the necessary support and means in terms of infrastructure, financial support, ease of doing business could help organizations to grow faster and offer better employment benefits. As more people from the labor force go into the full-time employment category, fewer people are working as part-time employees overall. When the majority of the labor force is full-time employed, we can expect a robust economy and steady economic growth that is immune to both domestic and international business and economic cycles.

Impact on Currency

Full-Time employment and its other half part-time employment only come into picture when we are trying to assess long-term economic growth and improvements in the citizens’ living standards. Hence, Full-Time employment statistics are more useful to policymakers who are committed to bringing wellbeing to their citizens through meaningful policies.

The currency markets are more concerned with the overall picture and the current business cycle’s impact on the currencies. Hence, Full-Time employment statistics, which are only part of the total labor force, do not move the markets like other employment indicators.

Full-Time employment is a low impact coincident indicator that is more useful for measuring long-term improvements in the quality of people’s lives for investors and policymakers only.

Economic Reports

In the United States, the Bureau of Labor Statistics (BLS) publishes monthly, quarterly, semi-annually, and yearly Employment Situation Reports on its website. The labor force statistics from the Current Population Survey details the nominal values of the full and part-time workers classifying them based on age, sex, race, and ethnicity. Full-Time employment reports are available monthly, quarterly, and annually.

Sources of Full-Time Employment

The United States Bureau of Labor Statistics Current Population Survey details Full and Part-time employment statistics in detail. The United States Bureau of Labor Statistics publishes monthly employment and unemployment reports that are very useful for market analysis. We can also find the same indexes and many others with a comprehensive summary and statistics of various categories on the St. Louis FRED that are relevant for our study. Consolidated reports of Full-Time employment for most countries can be found in Trading Economics.

Full-Time Employment Announcement – Impact due to news release

Full-time employment refers to the number of people working a specified number of hours or more per week at their main job or only job. The number of hours is fixed by the government, who later classify employees in different categories.

Traders and investors worldwide watch the indicator value closely as it tells about a country’s employment situation. For example, in Canada, if a person works 30 hours or more per week, he is considered a full-time Employee. One should expect high volatility in the currency during and after the news release.

The below image shows the employment change in Canada during May. We see that full-time employment increased in Canada by 219.40, which should be positive for the currency. Let us witness the impact of this news release on the Canadian dollar by considering various currency pairs.

CAD/USD | Before the announcement

Let us start with the CAD/USD currency pair to observe the impact of full-time employment change on the Canadian dollar. The above snapshot shows the 15 minutes time-frame chart of the currency pair. The currency has been maintaining a range before the news announcement, and it is only three hours before the release, there seems to be a positive momentum building up for CAD/USD.

CAD/USD | After the announcement

After the news announcement, the price initially moves higher, but this is immediately sold, and the market erases most of the gains. The wick on top of the news candle indicates a strong buy sentiment that is carried over, and momentum continues to build up over the next days. As we can see, despite strong sell at the end-of-the-day positive momentum still built up and the market reached a new high than before the news announcement.

AUD/CAD | Before the announcement

The above image is a snapshot of the AUD/CAD pair on a 15-minute time frame before CAD full employment data release at 12:30 GMT. As we can see before the news announcement, positive momentum was building up, and a downward trend started just hours before the news candle.

AUD/CAD | After the announcement

After the news announcement that came in favor of CAD, AUD/CAD falling momentum increases, and investors lose further confidence in AUD, and a strong sell is seen. That momentum is carried over to the next two days, and the AUD continues to fall against CAD.

CAD/JPY Before the announcement

The above image is a 15-minute time-frame snapshot of CAD/JPY. Before the news announcement, there is no clear uptrend or downtrend.

CAD/JPY After the announcement

It is only after positive news for CAD through full-time employment report the uptrend is further amplified and continues throughout the next few days.

The full-time employment data was able to move currency in favor of CAD against significant currencies after the news announcement confirming the importance of the economic indicator.

Categories
Forex Basic Strategies

Trading The ‘Trend Bouncer Strategy’ Using Appropriate Risk Management Techniques

Introduction The activation of a trend can be from a political decision or an improvement in the GDP of the economy. Some other reasons include the central bank policy announcement and the discovery of new resources. Trends move like waves causing long to short term price movement in both the directions of the market. In […]

Introduction The activation of a trend can be from a political decision or an improvement in the GDP of the economy. Some other reasons include the central bank policy announcement and the discovery of new resources. Trends move like waves causing long to short term price movement in both the directions of the market. In […]

Introduction

The activation of a trend can be from a political decision or an improvement in the GDP of the economy. Some other reasons include the central bank policy announcement and the discovery of new resources. Trends move like waves causing long to short term price movement in both the directions of the market.

In an uptrend, we observe that, at a certain point in time, price pullback, or retrace before continuing with the upward movement. Similarly, in a downtrend, prices retrace upward against the downward movement before continuing their way down again. This ebb-and-flow movement can be frustrating for many new traders because they are not familiar with such market moves and often get stopped out before the market starts to move in their direction later.

Experienced trend traders usually wait for a retracement before taking a trade in the direction of the major trend. This is how the trend bouncer strategy was introduced. The Bollinger band indicator provides an effective way of identifying the up and down movement of a trend.

Since this is a trend trading strategy, we will have more than one profit target. We have two specific profit levels for this strategy.

Time Frame

The trend bouncer strategy works well with the 1-hour and 4-hour time frame chart. This means each candle on the chart represents 1 hour and 4 hours of price movement, respectively.

Indicators

We will use two Bollinger bands with the following settings.

  1. Moving average 12, deviation 2
  2. Moving average 12, deviation 4

One should have a clear understanding of the Bollinger band indicator before using it for this strategy. Refer to our articles on Bollinger bands for an explanation of the indicator.

Currency Pairs

The strategy is suitable for trading in all currency pairs listed on the broker’s platform, including major, minor, and few exotic pairs. However, it is better to trade in highly liquid currency pairs.

Strategy Concept

With the Bollinger band indicator’s help, we can objectively identify the ebb-and-flow movement of a trend. When the price hits the upper band of the first Bollinger band (MA 12, Dev 2), it indicates an upward movement. In this scenario, we prepare to go long in the currency pair. As prices retrace back to the centerline of the Bollinger band (MA 12), a significant retracement has occurred, and it is time to enter for a ‘long.’

Similarly, when prices hit the lower band of the Bollinger Band (MA 12, Dev 2), it indicates a momentum to the downside, and we prepare to go ‘short’ in the currency pair. As prices retrace back to the centerline of the Bollinger band (MA 12), and it is time to enter for a ‘short.’ We will exit our ‘trade’ in two places, which we explain in the coming section of the article.

Trade Setup

In order to illustrate the strategy, we have taken the example of the USD/JPY currency pair on the 4-hour time frame, where we will find a ‘long’ opportunity in the market using the strategy. Here are the steps of the trend bouncer strategy in forex.

Step 1

Firstly, open the chart of a currency pair and plot two Bollinger bands. The moving average of the first Bollinger band is 12, with a standard deviation of 2. Moving average of the second Bollinger band is also 12 but should have a standard deviation of 4. Since it is a trend trading strategy, it is best to use the strategy on the pullback of a new trend. However, it can also be used on a reversal, but the reversal should be confirmed before applying the strategy.

In this example, we see that the market has shown signs of reversal, which could extend on the upside.

Step 2

The next step is to wait for the price to hit the upper band of the first Bollinger band, in case of an uptrend. Similarly, the price should hit the lower band when trading the pullback of a downtrend. This gives us the confirmation that a trend has been established. Now, we need to wait for a retracement of this move before we can enter the trend.

In the below image, we can see that the price exactly touches the upper band of the first Bollinger band (MA 12, Dev 2), and now we will wait for a pullback to join the trend.

Step 3

The next step is to wait for the retracement to touch the Bollinger band’s centerline. The intersection of the price and the centerline is the entry signal for the strategy. An important point to make a note here is that the pullback shouldn’t come in a single candle. This means the pullback should come in multiple candles. The longer it takes, the weaker the pullback. In such cases, the is a higher chance that the trend will continue.

In our example, we are entering for a ‘long’ as soon as the price touches the Bollinger band’s centerline. We also see that the pullback has come in 6 candles, which is desired.  

Step 4

As mentioned earlier, the strategy has two ‘take-profit‘ points. The ‘take-profit’ points are set based on the risk to reward ratio. The first one is at 1:1 RR, and the second one is at 1:2. The reason for the two ‘take-profit’ points is that since we are trading with the trend, the market has the potential to make new ‘highs’ and ‘lows.’

Strategy Roundup

Understanding the trending nature of the market helps us to identify the direction and timing of our entries. The best part of this strategy is that we bank profits in various stages. With a momentum indicator like the Bollinger band, we greatly increase the odds of being profitable in the long run.

Categories
Crypto Guides

Introduction To LApps – The Revolutionary Second-layer Scaling Solutions

Introduction  

Introduction  

Introduction  

Second-layer scaling solutions such as Lightning Network have shown immense potential. One of the most underutilized abilities the second layer scaling solutions is the development of decentralized-like apps. However, Lightning Network Apps or LApps have leveraged this potential to the fullest and developed an extensive decentralized ecosystem that is scalable, versatile, and boasted with valuable features. The decentralized abilities of LApps will help in expanding the applications of cryptocurrencies and eliminate the many existing pitfalls that the landscape is dealing with.

What are LApps?

Lightning Network Apps (LApps) accessibility on the blockchain aims to address two critical points – lack of decentralized platforms and expansive transactions. The lack of decentralized apps is one of the biggest challenges that might impact the cryptocurrency’s future, and the core foundation of LApps is to eliminate this roadblock.

Secondly, LApps are built on the lightning network, which means that they are designed for micro-transactions. These significantly lower the entry barriers, increasing the potentials of LApps.

The existing use cases for Bitcoin are limited to financial activities. LN does not merely widen the application but also provide affordable experiences. Prior to LApps, a majority of cryptocurrency transactions needed to be executed through third-party cryptocurrency exchanges.

However, with LApps, peer-to-peer transactions can be performed efficiently on a large scale. LApps are currently in its early stages, and its capabilities are yet to be explored.

Types of Lightning Apps Available

As of now, there are five prominent types of LApps available including-

Wallets

While it is not ready to be used, HTC is gearing up to release the crypto phone – Exodus, which will be integrated with Lighting Network Hardware.

Integrations

LNCast is an excellent example that signifies Lightning Network capabilities with a specific product like a Lightning Network Podcast.

Bitrefill is another example of amalgamation between the Lightning Network and the retail landscape. LApps allows Bitrefill users to recharge their smartphones using Bitcoin or Litecoin.

CoinMall (now rebranded as Toffee) is another decentralized ecosystem for digital products that allow buyers and sellers to perform transactions through Zcash or Bitcoin. 

Tipping

The LApps have simplified the application of the Lightning network and allowed more people to adopt the same. For instance, Lightning Tip is an effective LApps that is currently in Beta. It basically enables users to create an easy platform for users to accept tips via the Lightning network. Additionally, Tippin.me is another popular tipping LApps that everyone loves to use.

Protocol Services

Protocol services assist innovators and developers in using Lightning Network. For instance, 1ML is a Lightning Network search and analysis engine.

Developer Tools

With the growing innovation, development tools are also becoming more robust. For instance, the WooCommerce plugin is a gateway that accepts lightning payments.

Moreover, Radar Ion also announced the launch of a series of developer tools based on the Lightning Network.

Conclusion

The landscape of cryptocurrency is growing at an exponential rate. But its mainstream adoption will pave the way for prolific opportunities. By facilitating a decentralized ecosystem LApps, is allowing Bitcoin and other cryptocurrencies to be more efficient. It allows users to leverage quick, cheap, and scalable transactions. By extending a seamless transaction experience, LApps holds the potential to expand the potentials of cryptocurrencies across different industries in the coming times.

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Forex Fundamental Analysis

The Impact Of ‘Labor Costs’ Fundamental Driver’s News Release On The Price Charts

Introduction

Introduction

Introduction

Labor Cost is a critical element affecting business profitability and sustainability. Labor costs have a direct feedback effect on inflation rates. Understanding its effect on the labor force, economic growth, and inflation helps understand how market forces act.

What are Labor Costs?

It is defined as the total cost of labor used in a business. It is the sum of all wages paid out to the employees of business by the employer. Labor costs include payroll taxes and employee benefits also. Hence, from a business standpoint, it is part of business expenditure dealing with human resources. It can also be defined as the wages cost paid to workers during an accounting period, including taxes and benefits.

Most often, countries measure Unit Labor Cost, which is the labor compensation for a unit of business value produced. It is also a measure of international competitiveness amongst different labor markets throughout the world. Many companies in the United States have shifted their production plants to countries like Mexico, China, and India, where labor cost is relatively lower than the United States.

Labor costs are broadly categorized into the following two categories:

Direct cost: It is the cost of labor that can be traced to produce. It is the labor cost of employees that produce a product. It is a tangible measure. For example, if forty employees are working on assembling and packing an automobile engine, then the labor cost can be traced to the engine’s sale prices.

Indirect cost: It is the labor cost that cannot be traced to any tangible business produce. For instance, building security does not contribute to business output but ensures the safety of the place. It is generally associated with support labor that maintains business activity.

Businesses price in the labor costs, material charges, and overheads, if any, into the final sales price of the product or service they produce. The final product must factor in all the costs incurred; otherwise, it can hurt the company’s profit margin.

While it is easier to evaluate direct costs, indirect costs are a little trickier to evaluate due to their intangible nature. Undervaluation or overvaluation of costs drives the actual price of products away from correct prices. Undervaluation can force employees to quit for better opportunities. Overvaluation can hurt business profit or translate those prices into the end product. When overvalued products hit markets, they lose out to competition and hurt business. Hence, correctly modeling labor costs is vital for business sustenance.

Labor costs are sometimes also classified as fixed and variable costs. Variable costs change based on the amount of work done or business production. For instance, workers working on the production line can see reduced or increased work during business cycles. In such instances, workers are paid for the hours worked, or the output produced. Fixed costs do not vary over the entire business cycle. For instance, a contract with a maintenance company for a year would be fixed for repairs throughout the year.

How can the Labor Costs numbers be used for analysis?

Labor costs are affected by the following factors:

Labor Availability: The supply and demand for labor will drive labor costs. Lack of availability of the required skilled laborers for a particular business can drive up the labor costs due to demand outweighing supply. Conversely, when the market is saturated, labor costs go down due to market forces.

Workplace Location: The cost of living varies across different regions. Businesses having multiple branches can offer different pay for the same work in different areas due to differences in living costs. Wages are generally high in metropolitan cities and lower in semiurban areas.

Task Complexity: The more complex the work, the more a business pays out for it. The task difficulty drives up the labor cost.

Efficiency and Productivity: Efficiency can improve productivity for the same hours of work and workforce. It can increase business profits that can translate into higher labor wages also.

Worker Unions: Hiring a union member ensures that the wages are above a particular minimum pay set by the union. Unions have control over demand and supply of workers, thereby having the power to negotiate labor wages.

Legislation: With many countries adopting minimum wages, and having dedicated acts and laws to protect labor exploitation, labor costs have a price floor below which it cannot drop.

Employer’s idealogy: Some business owners place more emphasis on its employees and view them as the heart of the business. Such people pay higher wages compared to other businesses that emphasize more on profit.

Labor costs are directly proportional to inflation. As prices rise, the cost of living increases and laborers demand higher wages. When labor costs increase, the profit margin of the company decreases. To avoid a reduction in profits, companies may employ cost-cutting mechanisms or lay-offs to accommodate the new wage hike. A significant increase in labor costs can increase unemployment.

On the flip side, the increased labor cost may translate to the product’s end sale price, giving a feedback loop to price inflation. It continues until market equilibrium is achieved through the open demand and supply market forces.

Impact on Currency

Significant and quick increases in the labor market induce inflation, which is depreciating for the currency. Labor cost in itself does not directly affect the country’s currency worth. It is part of a more extensive system. Labor costs are seen from the business point of view and are associated more with inflation.

Overall, labor costs are low impact lagging indicators that do not have a significant effect on currency market volatility. It is deemed more useful for businesses and policymakers to balance laborer’s well-being and business sustainability.

Economic Reports

In the United States, the Bureau of Labor Statistics releases quarterly “Labor Productivity and Costs” that details the Unit Labor Cost also. The report is released in the following mid of the month for the previous quarter.

Sources of Labor Costs

The BLS Labor Productivity and Costs report contains the Unit Labor Cost reports.

The OECD also maintains data of the Unit Labor Cost data of its member countries.

Consolidated Labor Costs data is also available on Trading Economics for most countries.

Labor Costs Announcement – Impact due to news release

In the previous section of the article, we understood the labor costs economic indicator, which essentially measures the change in the price companies pays for labor, excluding overtime. It is a leading indicator of consumer inflation. High labor costs make workers better off, but they reduce companies’ profits and net cash flow.

Policies that increase labor costs can significantly affect employment and working standards, which has an indirect impact on the overall economy. Since labor costs are a company-specific factor, its impact is primarily felt on the company’s stock price and the stock market.  Hence, currency traders do not give much importance to the official labor costs news release.

In today’s article, we will be analyzing the latest labor costs data of New Zealand that was released in May. In the below image, we can see that labor costs were slightly lower than last time and almost equal to market expectations. Let us find out the market’s reaction to this data.

NZD/USD | Before the announcement

The above image shows the NZD/USD 15-minute timeframe chart right until 22:30 GMT. The news release is at 22:45 GMT. Before the news release, the market has no clear pattern and maintains a range with no clear uptrends or downtrends.

NZD/USD | After the announcement

After the news announcement at 22:45 GMT of labor costs Index quarterly reports, which came a little lower than the forecast, no new trends developed. The pair kept its ranging trend before, during, and after the news release.

NZD/CAD | Before the announcement

The above image is the NZD/CAD 15-minute timeframe chart, and we can see here also there is no clear trend building up throughout the day. The currency pair has been in a ranging trend throughout the timeline.

NZD/CAD | After the announcement

After the news announcement, there seems to be no significant volatility in either direction. The news did not create enough volatility to bring about any trend.

NZD/EUR | Before the announcement

The above chart is the NZD/EUR 15-minute time frame chart, and there have been here also no trends building up before the news announcement. There are no potential trade signals here until now.

NZD/EUR | After the announcement

After the news announcement, there seems to be no volatility around the candle. The pair did not build any momentum after the announcement also.

In conclusion, even though the news announcement came slightly less favorable to the NZD currency, we did not see any downtrends for NZD currency against any other currency. The market ignored the news, and there was no impact significant enough to move the currency in either direction. All of this again firmly establishes our fundamental conclusion that the labor costs economic indicator is a low impact indicator in the currency markets and can be overlooked for the fundamental analysis of currencies.

Categories
Crypto Guides

Different Facets Of The Blockchain Technology

Introduction We have seen many topics related to blockchain explaining different facets of the technology. This article is an attempt to put together the main aspects of the technology and how it has shaped up so far from the invention of bitcoin as the first application of blockchain technology. 🔗 Cryptocurrencies The blockchain journey starts […]

Introduction We have seen many topics related to blockchain explaining different facets of the technology. This article is an attempt to put together the main aspects of the technology and how it has shaped up so far from the invention of bitcoin as the first application of blockchain technology. 🔗 Cryptocurrencies The blockchain journey starts […]

Introduction

We have seen many topics related to blockchain explaining different facets of the technology. This article is an attempt to put together the main aspects of the technology and how it has shaped up so far from the invention of bitcoin as the first application of blockchain technology.

🔗 Cryptocurrencies

The blockchain journey starts with cryptocurrencies. The blockchain technology journey started with the bitcoin platform. The coin is the first cryptocurrency ever, and it changed the course of the finance industry for good. Cryptocurrencies include the properties of cryptography, which result in the property of immutability.

Peer-to-peer networks lead to decentralization, which has become the need of the hour with ever-growing frauds. The cryptocurrency platforms use different consensus algorithms like Proof of Work, Proof of Stake, Delegated Proof of Stake, Proof of Burn, etc., which overcome Byzantine Fault Tolerance issues. People who maintain the network and confirm the transactions are incentivized using the local currency of the platform.

🔗 Cryptocurrencies with enhanced privacy features

Blockchains being transparent, it is easy to find the transactions done by different users in the platform. Hence a few platforms have enhanced privacy features so that the transactions made are not traceable. Coins from the Cryptonote family are a good example. Monero is an excellent example from cryptonote, which uses ring signatures, which obscures the sender and receiver’s address. The amount is also restricted by default.

🔗 Different types of Blockchains

While cryptocurrency platforms have a protocol that they should be open and permissible, it is not a hard and fast rule for blockchain technology. We have permissioned ledgers, which are also called private blockchains. An excellent example of private blockchains is enterprise blockchains like hyperledger platforms.

We also have permissionless ledgers, which are public blockchains. Good examples of permissionless are cryptocurrency platforms. We have hybrid platforms as well, which are a mix of public and private, leveraging the properties of both the platforms wherever required.

🔗 Applications of blockchain other than cryptocurrency

Blockchain technology has made its way to almost all the fields. Healthcare, supply chain, agriculture, energy trading, valuable goods/diamond digitization, shipping industry, trade finance, music, publications, art, gaming, etc. Blockchain being a niche technology, the adoption is still low, but the recent surveys across the industries only prove that they have started implementing the technology or looking to implement at the moment.

🔗 Non-crypto applications on top of cryptocurrency platforms

Ethereum has many DAPPs developed and operating on its platform, but we cannot say that these applications run on cryptocurrency applications. Ethereum is a broad platform with a multitude of smart contracts operating on them serving different purposes. There are applications on the top of the bitcoin platform which convey messages. Protocols like Counterparty, Factum, Colored Coins allows the creation of tokens to denote something with a fraction of bitcoin value.

🔗 Projects to tackle scalability issues

The main drawback of blockchain platforms is scalability, and many projects have been developed to address the same. Segwit, segregation of witness aims to remove the signature from the main block and store it somewhere else to increase the block’s space for more transactions.

We have sidechains that intend to transfer some of the workloads to an adjacent chain, called sidechain, which may or may not run on the same consensus algorithm but are equally secured. The hacking of the main chain doesn’t affect the side chain and vice versa. The sidechains are used to test innovations and implement smart contracts if they are not feasible to run on the leading network.

Conclusion

These are some of the facets to show how blockchain as a technology has grown to address the drawbacks from one stage to another. Many have speculated that the technology is not very much useful and is overhyped. But with all the developments since its inception and all the money being poured into the technology, we can only say that it is here to stay and improve a lot and prove itself for time and again.

Categories
Forex Basic Strategies

Forex Trading Using ‘Commodity Correlation Strategy – 2’

Introduction

Introduction

Introduction

A correlation coefficient is a number that describes the extent to which two instruments are correlated to each other. The number ranges between -1 and +1. This number moves from periods of positive correlation to periods of negative correlation. Located on one end of the scale, +1 is considered a state of the positive correlation between two instruments.

If the number is anywhere between 0 and +1, the two assets are said to move in the same direction, with a certain degree of positive correlation. On the other end of the scale, -1 is considered a state of negative correlation between two instruments. If the number is anywhere between 0 and -1, the two instruments are said to move in the opposite direction, with a certain degree of negative correlation.

The strategy we will be discussing today seeks to exploit the inverse correlation between the dollar index and Gold’s price. According to the World Gold Council, Gold tends to rise when the U.S. dollar falls. It is observed in the past that the correlation coefficient for Gold and the dollar index was between -0.6 and -0.8. This means if the dollar index is up, there is a 60% to 80% chance that gold prices would come down. In contrast, if the dollar index is down, there is a 60% to 80% chance that gold prices would come down. Let us see how the strategy works.

Time Frame

The commodity correlation strategy works well in the Daily (D) time frame. This implies that each candlestick on the chart represents the price movement of one day.

Indicators

We will be using the ATR indicator in the strategy. No other indicators are required for the strategy.

Currency Pairs

There are two charts we need to focus on in this strategy. The first one is the spot Gold or XAU/USD, and the second one is the chart of the dollar index.

Strategy Concept

The dollar index’s price action is used as a reference to initiate a trade on the XAU/USD. Technical levels of support and resistance on the dollar index chart are used to spot long and short trades on XAU/USD. If the price closes below the support on the dollar index chart, a long trade is initiated on the XAU/USD the following day. Similarly, if price closes above resistance on the dollar index chart, a short trade is initiated on the XAU/USD the following day. The risk-to-reward of this trade is 1:2. A bigger target can be achieved by allowing the trade to run its course.

The strategy is very simple for those who have a basic understanding of support and resistance. Another reason behind its popularity is that it does not involve the usage of complex indicators. The trade setups are not formed too often as we are using the daily time frame charts. Hence, a lot of patience is required for the application of the strategy.

Trade Setup

Here are the steps to implement the commodity correlation strategy. In both the instruments, we will be using the daily time frame chart only.

Step 1

The first step of the strategy is to open the dollar index’s daily time frame and mark key areas of support and resistance on the chart. If one is looking for ‘long’ trades, the identification of the support area is crucial. And if one is looking for ‘short’ trades, identification of ‘resistance’ trade is crucial. After marking out of the lines, wait for the price to breakout or breakdown. In case of a breakout, we will look for ‘short’ trades in ‘gold,’ and in case of a breakdown, we will look for ‘long’ trades in ‘gold.’

We have taken an example of a ‘long’ trade where we will be executing the steps of the strategy. In the below image, one can see that the price has broken below the long term support.

Step 2

Next, we open the chart of XAU/USD, where we look for ‘long’ or ‘short’ entry. We enter for a ‘long’ in ‘gold’ on the following day of the dollar index’s break of support. Similarly, we enter for a ‘short’ in ‘gold’ on the following day of the break of resistance in the dollar index. The entry is taken right at the opening candle on the next day.

In our case, we are entering for a ‘long’ in ‘gold’ on the following day since the price had broken the dollar index’s support on the previous day.

Step 3

In this step, we determine the take-profit and stop-loss for the strategy. The stop loss is mathematically calculated where it is placed at the amount obtained after multiplying 2 to the value of the ATR indicator on the previous day. This means if the ATR value is 30, then stop loss will be set 60 points away from the current market price (CMP). The take-profit is extended up to a point where the trade results in a risk to reward ratio of 1:2. As mentioned earlier, since this is a long-term chart, the trade has the potential to give higher returns.

We can see in the below image that trade has almost reached our ‘take-profit’ where this is the current state of the market.

Strategy Roundup

Part II of the commodity correlation strategy seeks to take advantage of the negative correlation between the dollar index and gold prices. Using the dollar index as a reference, we are activating trades on the XAU/USD pair, which is nothing but the price of spot gold.

However, the interest rates announcement by the Federal Reserve will try to keep the inverse relationship between the U.S. dollar and Gold. This strategy is ideal for traders around the world who do not have time to watch the markets on a daily basis. The strategy can also be used to look for investment opportunities in Gold.

Categories
Forex Fundamental Analysis

The Impact Of ‘Long Term Unemployment Rate’ On A Nation’s Economy

Introduction

Introduction

Introduction

The long-term unemployment rate is a killer of economic growth. Its impact on the individual and society as a whole cannot be ignored, particularly in emerging economies. Understanding long-term unemployment trends can help us identify increases and decreases in the dependent economic indicators and their overall impact.

What is Long Term Unemployment Rate?

Long-term unemployment

It occurs when a worker actively seeking employment is unable to find a job for 27 weeks or more. To be included in the statistic, the participant should have actively sought employment in the last four weeks. To be recorded in the statistic, the worker should have been actively seeking employment even after being unemployed for six or more months. Hence, it is probably undercounted as most people do not continuously seek employment for six straight months out of discouragement.

Hence, the long-term unemployment rate is then the percentage share of the labor force that is unemployed for six or more months, given that they have actively sought employment in the last month.

How can the Long Term UR numbers be used for analysis?

Long-term unemployment is majorly caused by cyclical and structural unemployment. Cyclical unemployment occurs due to the natural business cycles that companies go through. Most businesses have specific quarters when business is low, where they might downsize and lay off employees. Seasonal hiring and firing constitute cyclical unemployment. Cyclical unemployment also occurs during economic slowdowns and recessions.

Structural unemployment occurs when unemployed labor skills do not match the available job requirements. Unlike cyclical unemployment, it is not dependent on business cycles. Structural unemployment is more challenging to address than cyclical unemployment. It keeps the unemployment rates high long after the economy’s recovery out of recession. It occurs when business and technology shifts during the time of unemployment make unemployed labor skills outdated.

Long-term cyclical and structural unemployment has a positive feedback effect on each other making things worse. Cyclical unemployment during business slowdowns increases the unemployment rate. When they are unemployed long enough, their skills become outdated and gives rise to structural unemployment. This overall reduces consumer spending for the unemployed and indirectly affects consumer sentiment of the employed. When consumer spending drops, other industries also observe the same cyclical and structural unemployment, spiraling the economy downward.

Long-term unemployment can lead to people working in underpaid jobs or find work not relevant to their skills out of desperation. It reduces economic productivity as skilled laborers are not being utilized for what they know best. Secondly, long-term unemployment places a financial crunch that can have a demoralizing effect on happiness, mental state, and job satisfaction. It is also observed that long unemployment periods tend people to self-isolate from the community. Anti-social behavior and hooliganism are also benefited from long-term unemployment.

While the government gives out unemployment benefits, which may encourage them to hold off to find better paying and more suitable jobs to their skills, it decreases public spending. When the unemployment rates are high, public spending takes a direct hit, crippling the government from spending their revenue on activities that help economic growth. As the government keeps giving out benefits, it has led to a rise in long-term unemployment rates. While benefits are necessary to mitigate financial impact during unemployment, it also tends to increase unemployment duration, which is terrible for economic growth.

As long as long-term unemployment is prevalent, improving the living standards of people is hard to accomplish. People cannot apply for loans or buy a house on a mortgage if they frequently lose jobs and take a long time to find new jobs. Financial insecurity and strained personal finances discourage people from spending and encourage saving for another jobless quarter or two. Long-term unemployment has a severe effect on householders, with only one working individual who provides for the family.

Long-term unemployment is bad for the economy. On the flip side, 50% of the long-term unemployed find a job in six months, and 75% do within a year. Within 18 months, the remaining also does find something or the other if they keep looking.

Chart Credit: OECD

Overall, it is more challenging to reduce long-term unemployment than short-term cyclical unemployment. It is a critical hindrance to achieving high growth rates for any country. The above statistic shows how it is an international issue and not any particular set of countries.

Impact on Currency

Long-term unemployment rates are not as important as unemployment rates, jobless claims, non-farm payroll numbers. As unemployment rates itself include the long and short-term ones, it is not an important economic indicator for currency markets.

Hence, it is a lagging low-impact indicator. It is an inversely proportional indicator, meaning high long-term unemployment is bad for the economy and currency.

Economic Reports

In the United States, The Bureau of Labor Statistics publishes monthly employment and unemployment reports under the Employment Situation Report. Table A-12 in it details the long-term unemployed figures. The figures are seasonally adjusted for month-over-month, and year-over-year comparisons are also provided.

Long-term unemployment reports are also maintained by the Organization for Economic Cooperation and Development (OECD). It defines long-term unemployment if a person is unemployed for 12 or more months.

Sources of Long Term Unemployment Rate

The United States Bureau of Labor Statistics’ Long-term Unemployment data is available here. The Bureau of Labor Statistics publishes monthly employment and unemployment reports on its official website for our analysis. The OECD also maintains long-term unemployment data. Consolidated reports of long-term unemployment rates of most countries can also be found in Trading Economics.

Impact of ‘Long Term Unemployment Rate’ News Release on the Forex Price Charts

The long term unemployment refers to those persons who have been unemployed for more than 52 consecutive weeks. Very long term unemployment rate refers to those persons who have been unemployed for more than 104 consecutive weeks. This data is essential for the government and economists who analyze quarterly and yearly trends of unemployment.

It helps them in understanding the long term employment situation of the country. However, the monthly numbers are significant to the market players when it comes to the forex market. Therefore, the impact of long term unemployment is not realized immediately on the currency pair.

The below image shows the latest long term unemployment data of Australia that was released in February. We can see the unemployment rate was the same compared to the previous year, but there was a reduction in the percentage of the labor force. In the following sections, we will observe the change in volatility due to the news release.

AUD/USD | Before the announcement

The above image is a 1-hour timeframe AUD/USD chart showing the moves from February 25th to March 1st, 2020. The currency has been slowly moving down and picks up a little momentum in its drop-down after February 28th.

AUD/USD | After the announcement

The above image is a snapshot of AUD/USD on the day of long-term unemployment rates in Australia news announcement on February 27th, 2020. The report published by the treasury department of Australia showed lower unemployment rates than the previous year. The favorable figures for AUD did not reflect in the pair’s non-volatility.

AUD/GBP | Before the announcement

The above image is a 1-hour timeframe AUD/GBP chart showing the moves from 25th to February 26th. The currency has not shown any clear down or uptrends till now.

AUD/GBP | After the announcement

The above image highlights the currency pair move throughout the news announcement day. We can see that there was only about a 40-pip maximum move, which is minimal movement and typical for such a pair. The news did not build any rallying up for AUD against GBP.

AUD/EUR | Before the announcement

The above image is a 1-hour timeframe AUD/EUR chart before February 27th, 2020. As we can see, AUD has been losing its value slowly against EUR in the last two days.

AUD/EUR | After the announcement

The above image highlights the news announcement day. We can see that despite the long-term unemployment rates came in favor of AUD, the market ignored and continued selling AUD and purchased EUR. The downward trend before continued during and after the news announcement day without any effect.

In conclusion, as we have seen, the long-term unemployment economic indicator was almost entirely ignored by the market. The market knows it is a lagging indicator, and the effects have already been priced into the market, therefore showing no volatility during the news announcement. Hence, the above trend analysis confirms our fundamental analysis of the economic indicator as a low impact lagging indicator that is overlooked by the currency market.

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Forex Assets

Trading The CHF/MYR Exotic Forex Pair & Comprehending The Costs Involved

Introduction

Introduction

Introduction

CHF/MYR is the abbreviation for the Swiss Franc against the Malaysian Ringgit, and it is considered an exotic currency pair. In this case, the CHF is the base currency, and the MYR is the quote currency. The franc is the official currency of Switzerland and Liechtenstein, while MYR is the official currency of Malaysia.

Understanding CHF/MYR

The market value of CHF/MYR defines MYR’s value that is obliged to buy one franc. It is priced as 1 CHF per X MYR. If the price of the pair is 4.5465 in the market, then these many Malaysian ringgit units are required to buy one CHF.

Spread

The distinction in price between the bid and ask price is determined as Spread. Bid and ask prices are set by the broker. This pip difference is where most of the brokers generate their revenue. Below are the Spread values of CHF/MYR Forex pair in both ECN & STP accounts.

ECN: 44 pips | STP: 49 pips

Fees

The fee is the price you spend on each spot you open with the broker. There is no fee imposed on STP account models, but a few extra pips are charged on ECN accounts.

Slippage

The difference between the price at which, trader implements the trade, and the price he receives from the broker is termed Slippage. This fluctuates based on the broker’s execution speed and the market’s volatility.

Trading Range in CHF/MYR

The total money you will gain or lose in a particular timeframe can be measured utilizing the trading range table. This represents the maximum, average, and minimum 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.

CHF/MYR Cost as a Percent of the Trading Range

The cost of trade alters based on the volatility of the market. This is for the reason that the total cost involves Slippage and spreads apart from the trading fee. Below is the interpretation of the cost variant in terms of percentages. The understanding of it is reviewed in the following sections.

ECN Model Account

Spread = 44 | Slippage = 5 |Trading fee = 8

Total cost = Slippage + Spread + Trading Fee = 5 + 44 +8 = 57

STP Model Account

Spread = 49 | Slippage = 5 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 5 + 49 + 0 = 54

Trading the CHF/MYR

The CHF/MYR is not an extremely volatile currency pair. For instance, the average pip movement on the 1H timeframe is only 84 pips. Note that the elevated the volatility, the smaller is the cost of the trade. However, this cannot be considered a benefit as it is risky to trade extremely volatile markets.

Also, the higher or lesser the percentages, the higher or lower are the costs on the trade. We can conclude that the costs are elevated for low volatile markets and high for extremely volatile markets.

To reduce your risk, it is proposed to trade when the volatility is near the average standards. In this case, the volatility is low, and the costs are slightly high related to the average and the maximum values. But, if your primary concern is on lowering costs, you may trade when the market volatility is near the maximum values.