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

The Most Simple Yet Effective Scalping Strategies You Must Know In 2020

Introduction

Introduction

Introduction

The Forex market consists of are several types of traders. They are broadly classified based on the time frame traded. For example, swing traders use time frames like 1H or 4H, while positional traders analyze the 1D or 1W time frame. Similarly, there are “scalpers” who trade the 1-minute and the 5-minute time frames. Note that scalpers are different from day traders, as they do not consider the 15-minute or 1H time frame for their analysis.

What is Scalping in Forex?

Scalping is a type of real-time technical analysis, where traders make several trades in a small period. Scalping involves entering and exiting from the market within a few minutes and moving on with the subsequent trade. This type of traders aims for tiny profits rather than home runs.

Scalping is usually most popular among forex traders than those trading stocks and commodities. This is because the FX market is the most liquid and volatile market. Thus, traders make use of this benefit by extracting 10-20 from the market in a short time. Since scalping involves making of few pips on a trade, they are traded with big volumes.

Getting Started with Scalping in Forex

Now that we know the basics of Forex scalping, let’s discuss the analytical side of it and then understand some powerful scalping strategies as well.

Timeframe

The ideal time frame to the scalp is either 1-min or 5-mins. However, some traders get an outlook from the 15-min time frame too.

Take Profit and Stop Loss

The most critical part of scalping is to have a take profit and stop loss on every trade. Since you will be using the 1-min time frame, the profit or loss level should be within 5-10 pips. It is risky to keep the TP and SL greater than ten pips when the analysis is based on the 1-min time frame.

Volatility and Liquid

Volatility and liquidity are other vital points of consideration before scalping any market. Forex is indeed the best market to the scalp as it offers the needed volatility and liquidity. However, you must select the right pair to trade because not all currency pairs offer enough market volatility. There are pairs that barely move on the 1-min time frame, and thus traders must end up waiting several minutes on a trade. Hence, it is recommended to trade only major pairs and a few minor pairs.

Spread

Spread plays a major role in scalping as it greatly affects the P/L of the trade. For instance, let’s say the spread on EUR/USD is two pips. The pip value of the pair is $10. If one lot is traded, the expense of the trade would be $20. Now, if a trade yields you four pips, then the net profit would be $40 – $20 = $20. We infer that 50% of the profit gets deducted as a fee. Thus, scalpers always have an eye on the spread.

Forex Scalping Strategies

Scalping strategies are unlike strategies used by swing and positional traders. Scalpers do not wait for several confirmations before entering a trade. Instead, they aggressively enter after a couple of confirmations. Here are some scalping strategies made for non-conservative traders.

Scalping using Moving Average

This scalping strategy, two moving averages – the 5-period MA and the 20-period MA is used applied onto the 3-min charts. Let us understand the strategy with a couple of examples.

Firstly, we must have a look at the overall direction of the market. Note that this strategy is only for trending markets, not ranging markets. In the below chart of AUD/USD on the 3-minute time frame, we see that the market is in a clear downtrend.

Secondly, the five period MA must be below the 20-period MA. When the price action tries to break above five-period MA (yet below the 20-period MA) and falls back into MA, we can open short positions.

The stop-loss must be placed above the high of the candle that broke below five-period MA. One must exit the trade when the price reaches up to 1:1 risk-reward or at a profit of 5 pips.

Scalping using price-volume charts

Indicators are not a must to scalp in forex. Scalping is possible solely using price action concepts. And here is a strategy for the same. This strategy works on a small time frame used on any currency pair. However, we’ll be sticking to the 3-min time frame for all the strategies.

Below is the chart of AUD/USD on the 3-minute time frame. According to the strategy, we can take entry when the market breakthrough a range strongly with high volume. In the below example, we see that the price fiercely broke above the range with high volume too. This is a confirmation that the big buyer is back into the market. Thus, we can take a long position right after the candle closes above the range.

The stop-loss can be placed below the low of the candle that broke through the range and places the take profit at a 1RR ratio. Note that, the stop-loss and take profit must exceed above 10-12 pips.

Scalping using Support and Resistance

Scalping at support and resistance levels is the most popular technique in the forex industry. Yet most traders apply it illogically. Even though the textbook says to buy at the support and sell at resistance, it cannot be applied practically incorporated in the market as there is a pinch of psychology in it. According to this strategy, one must buy at support and sell at resistance only if there is a false breakout prior to it.

Consider the below chart of NZD/CAD on the 3-minute time frame. The gray ray represents the support level. It is seen that the price broke below the support thrice and came right back above it. Thus, one can enter when the price is holding above the resistance post the fake-out. The stop-loss and take-profit for all such trades much be a maximum of 5 pips.

We hope you found these strategies interesting and helpful. If you are an aggressive trader, do try them out and let us know the results in the comment section below.

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Crypto Guides

‘Howey Test’ & The Role It Plays In The Token Ecosystem Of Blockchain?

Introduction

Introduction

Introduction

Blockchain has led to the emergence of the token economy and, thus, new business models. With the help of the token in the business, both the customers and the owners benefit immensely. We have seen two types of token so far, utility and security tokens.

Utility tokens can be compared to loyalty points up to a certain extent while they are much more in the designated environment. Security tokens allow them to own any material/securities in a digital format in a fungible manner. Security tokens allow people to own things in a never before way.

There is a deciding factor that differentiates between security and utility tokens called the Howey test. Utility tokens don’t need any regulatory requirements since it is intended for use in its designated environment only while security tokens represent a real asset in the real-world digitally. Hence security tokens are subject to regulations.

What is the Howey Test?

Howey test is a monumental case handled by the Supreme court of the USA in 1946, which laid foundations to determine whether a particular arrangement involves an investment contract or not. The case was between the SEC and Howey. Two Florida based corporate put up real estate contracts for tracts of land with citrus groves. The defendants came up with an offer where the buyers who bought the land can lease the land back to the defendants who can grow citrus, market them, and make money.

Most of the buyers did lease the land back to the defendants as they weren’t aware of the agriculture. This was deemed illegal by the Securities Exchange Commission (SEC) and sued the defendants. The arrangement was considered illegal as the defendants broke the law by not filing a securities registration statement with SEC. The defendant’s leaseback was indeed determined as security, and this led to a landmark judgment. Hence this was determined as a test whether a particular transaction is an investment contract or not.

A particular investment can be deemed as an investment contract if it fulfills the below criteria.

  1. It a monetary investment
  2. The investment is made in a common enterprise.
  3. There is an expectation of profit from the work of the promoters or third parties.

Even though the original Howey test used the term money later, it has been broadly classified into other investments and assets other than money. One more criterion is considered in determining a particular investment as security. If or if not, an investor has any control over the profits that come from the investor? If not, then the investment is generally considered as a security.

How the law applies to tokens generated based on blockchain technology?

SES guides that if a token clears all the criteria mentioned above, it can be deemed a security token. If it doesn’t follow, then it can be deemed as a utility token. Security tokens usually derive their value from the external, tradable asset. Hence security tokens are subjected to federal rules and regulations.

If the ICO doesn’t follow all the rules and regulations as prescribed, they are subjected to penalties. If followed, they offer a multitude of investment opportunities that were not possible before. If SEC determines any cryptocurrency as a security token, the founders are deemed to register the coin with SEC, and also, the investors should register their holdings with SEC.

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Forex Basic Strategies

What Is ‘Gawk the Talk Strategy’ & How To Trade It Effectively?

Introduction

Introduction

Introduction

Trading the news is one of the best ways to make a profit within a short span of time. This is because volatility is highest during these announcements, and traders look to capitalize on these news releases by analyzing the data and the price movement.

The strategy we will be discussing is amazingly suitable for traders who love the volatility associated with news announcements. One of the biggest advantages of trading the news is accessibility. Today, we can access the news outcome as soon as they are released without any delay.

Many free websites report economic events every day. The one which is widely used by investors and traders is a site called forexfactory.com. This site is user-friendly, and the economic calendar allows us to view the upcoming news at a glance.

The news that has red-coded flags linked to them have the greatest impact on the currency pairs. We will prefer to trade the news events with the highest impact as opposed to the orange or yellow ones because the possibility of large movement is high. Today’s strategy is also based on such news releases.

As the actual and forecasted figures are extremely important for this strategy, we will be watching these numbers very carefully. That is the reason why this strategy is named as ‘Gawk The Talk.’

The top news announcements that cause the greatest moves in the forex market are Interest Rates, Gross Domestic Product (GDP), Employment Change, Trade Balance, Consumer Price Index, Purchasing Manufacturing Index (PMI), and Retail Sales.

Time Frame

Gawk the Talk strategy works well with the 15 minutes and 1-hour candlestick charts. This means each candle on the chart represents 15 minutes or 60 minutes of price movement.

Indicators

No indicators need to be used in this strategy.

Currency Pairs         

The strategy is suitable for trading all currency pairs; however, it is healthier to trade in currency pairs such as the EUR/USD, USD/JPY, GBP/USD, USD/CHF, USD/CAD, AUD/USD, and NZD/USD.

Strategy Concept

The idea of the strategy is simple, where we long on the affected currency when the actual figures are greater than forecasted figures by a minimum factor of 15%. To lower the risk, we focus on news events that are related to the U.S. economy. Which means we will be primarily trading the U.S. dollar either as the base currency or counter currency.

We will use the 15 minutes time frame chart to determine our entries since the news is usually released in 15-minutes intervals. Some common times of news releases include 8 A.M., 9:15 A.M., 10:30 P.M., and 11:45 P.M.

For example, if the Reserve Bank of Australia raises the interest rates, we will go long in AUD/USD. And if the interest rates are lowered, we take a short trade in the pair. For news announcements that affect the United States, it is best to trade in the two most liquid pairs: EUR/USD and USD/JPY. Remember, we go long in the pair if the news outcome is positive for the base currency and ‘short’ in pairs wherever the currency is a counter currency.

Trade Setup

To illustrate the strategy, we will use the Unemployment rate news announcement, which was released on the 2nd of July 2020. As mentioned earlier, we will be dealing with currency pairs involving the U.S. dollar only. Hence, depending on the news data, we will take a suitable position in the EUR/USD pair.

Step 1:

The first t step is to go to the forex factory website and look for news releases that have the highest impact on the currency. The easiest way to find such events is to look for the red-colored flags on the left-hand side of the event. We will not consider any other news results other than red ones.

In this example, we will be analyzing the Unemployment rate data of the United States.

Step 2:

An important point most traders miss out while trading using this strategy is that they trade just based on the numbers. They forget to look at the charts from a technical angle. In this step, we mark the key technical levels on the chart based on the current state of the price.

As we can see in the below image, just before the news announcement, the price is at the resistance area. This means a ‘short’ trade is considered to be less risky than a ‘long’ trade at this point.

Step 3:

This step is the crux of the strategy. In this step, we take an appropriate position in the currency based on the news’s outcome. If the actual numbers are higher than the forecasted numbers, we will go long in that currency. Likewise, if the actual numbers are lesser than the forecasted numbers, we will go ‘short’ in that currency. The difference between actual and forecasted figures should be a minimum of 15% before we can take enter the market.

In our example, we see that the Unemployment rate was better than what was predicted by economists. This means the data is positive for the U.S. dollar, and thus we can expect bullishness in the currency. Therefore, we take a ‘short’ position in EUR/USD soon after the market falls from the resistance.

Step 4:

Stop loss for the strategy is placed just above the news candle, which is technically the right spot for placing the stop loss. The take-profit is also placed at a key technical level, which could be a hurdle for the trade. The risk to reward ratio of trades placed using this strategy is a minimum of 1.5. However, one should book partial profits at the halfway mark in order to lock in some profits.

In this case, the price moved about 60% of our take-profit, where would take some profits off. However, more often than not, the price does hit the take-profit levels.

Strategy Roundup

The strategy we discussed today is mostly for the aggressive traders and people with large risk appetite. In this strategy, we are essentially taking advantage of the volatility and the fundamental factors that affect the currencies. The trade management rules of the strategy ensure that we don’t make huge losses even if the trade does not work completely in our favor. Cheers.

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Crypto Guides

‘Blockchain Coding’ – The Different Programming Languages That Are Being Used!

Introduction

Introduction

Introduction

In the nineties, when the internet was evolving, it sometimes used to take hours to connect to the internet. When the visionaries were betting on the internet that it would change the world, most of them wondered if it has that transforming effect? Now we cannot imagine a world without the internet. The same is going to happen with blockchain. Blockchain is going to create the internet of value. To build that work, we need developers in blockchain, and different languages used in developing the technology.

To understand which languages should be used in blockchain coding, let us see the challenges the tech offer to understand and select a language for development.

✰ Security

If we talk about public blockchains, the code is open source and public. Anyone can check the code, find vulnerabilities, and take away millions in dollars. Hence the development is very slow in general.

✰ Resource Management

Networks grow in size pretty soon, and hence the maintenance should be appropriate. Local queries should be addressed at the earliest.

✰ Performance

The language chosen should be extremely versatile. Blockchain has specific tasks that can be checked parallelly while some cannot. Signature verification can be checked parallelly, while transaction verification should be done to avoid double-spending.

✰ Deterministic behavior

A smart contract should behave in the same way, no matter in which machine you run them. In the same way, a transaction should hold good at any point in time. Hence, they should operate in Isolation. Hence, we should isolate smart contracts and transactions from non-deterministic elements.

Let us see the languages which overcome these challenges below:

C++

The bitcoin blockchain is written in C++. C++ has been developed as an extension of the C language, and it is an object-oriented language (OOP). OOP means, when an object is created with functions and data, it can be called upon for use any number of times further, thus reducing coding time. Let see the features of C++ below, which aides in blockchain coding.

Memory

C++ takes complete control over CPU and memory usage. We have seen that blockchain requires effective resource management and the platform itself to integrate with lots of untrusted endpoints still giving quick service.

Threading

A thread is a set of instructions that can be executed simultaneously. C++ not only supports multithreading but also optimizes single-thread performance. As we discussed before, blockchain needs both parallel and non-parallel tasks to be performed; hence threading functionality helps in this requirement.

Move Semantics

Move Semantics helps in getting copies of particular data only when required. This reduces data redundancy and boosts performance.

Code Isolation

Code isolation is possible in C++ due to its usage of classes. The language itself is so mature that it is frequently updated, which helps use the latest features.

Solidity

The most common language used in Ethereum to write smart contracts is Solidity. Anyone interested in developing DAPPs or get into the ICO games, Solidity, is a must learn. Most of the Ethereum founders contributed to the development of Solidity. Solidity is a slimmed-down language explicitly designed to develop smart contracts with a syntax very similar to Javascript.

Python and Javascript are used as well in blockchain coding as they have the required properties as well. Go Lang, developed by Google, is used as well due to its faster speeds. The need for blockchain developers is very high, and going forward will only increase. Hence, for programmers, if they can learn what blockchain is, they have a high tide to ride and make their name in the blockchain world.

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Forex Course

140. Market Environment – Summary

Introduction

Introduction

Introduction

In a few of the past course lessons, we have discussed some of the most crucial topics related to the Forex market environment. Starting from the ‘state of the market,’ we have understood what trending and ranging markets are. We also have differentiated the concepts of retracements and reversals, which are vital for identifying accurate entries and exits.

One of the most valuable things we have comprehended is to identify ways for spotting potential market reversals. Finally, we understood how professional traders read different market environments and states. The fundamental purpose of this summary article is this – There is a possibility of you understanding these concepts better once you finish all the course lessons in this section.

Hence, this article will focus on summarizing everything we have learned till now regarding the Market Environment.

The Market States

We have discussed the different ways in which the market moves. Essentially, the price action of a particular asset class moves in three different ways.

Trend | Range | Channel

With clear examples, we have discussed how this movement happens and what we should understand when the price moves in a particular direction. More info related to this can be found here.

Trading the Forex market when it is trending!

In this chapter, we have taken you through the concept of trending market. Uptrend and downtrend concepts have been clearly explained. We also have used Indicators like ADX and Moving Averages to trade the trending market accurately. Please go through this to recall those strategies.

What should we do when the market is ranging? 

We have comprehended the various ways of identifying the ranging market. We also used the Support/Resistance strategy & ADX indicator to trade ranges effectively. Once you try trading a ranging market by yourself, the way you read this article will change, and it will all start making sense. Hence, going through it once again now is important.

Retracements & Reversals

In the next couple of articles, we have drawn down clear differences between Retracements and Reversals. Here, we understood what we must do in the situation of a reversal or a retracement. Then, we have moved on to learn how to trade a reversal in the most effective way possible. In this lesson, we have taken the help of Fibonacci Levels to identify potential market reversals and trade them accordingly.

Finally, we ended this course by understanding how most of the professional Forex traders read and trade different market states. We consider this one of the most useful and valuable articles in this course as we have shared some of the most simple yet effective trading techniques. We also used accurate risk management techniques to protect your capital while trading the market using these techniques. You can go through them again here.

We hope these techniques helped you in becoming a better trader. In our upcoming course lessons, we will be understanding Breakouts, Fakeouts, and everything related to these topics. Cheers!

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Forex Basic Strategies

‘Balk the Talk’ Strategy – Combining Fundamentals With Technical Analysis!

Introduction

Introduction

Introduction

Fear is the greatest driving force in humans. We tend to react drastically in times of fear or when they are presented with sudden moves from the market. Fear is an emotion that drives traders around the world to watch out for every news announcement, for fear of missing out on important information. Fear results in fast decisions by traders, which are most of the time taken without thinking.

In the previous article, we mentioned that trading the news is one of the best ways to make a profit in a short period of time. We also mentioned focusing on news events with the highest impact (red flags) on the currency. In today’s strategy, we will be trading the Forex market by looking at news events that have the least impact on the currency and do not have a long-lasting effect on the pair.

Timeframe

Balk the talk strategy works well with the 15-minutes timeframe only. Since we are dealing with small price movements, we will capture those little gains by analyzing the 5 minutes time frame chart.

Indicators

In this strategy, we will not be using any technical indicators.

Currency Pairs

The strategy is suitable for trading in all major currency pairs listed on the broker’s platform. Make sure not to use the strategy on Minor and Exotic currency pairs. Currency pairs such as EUR/USD, USD/JPY, GBP/USD, USD/CHF, USD/CAD, AUD/USD, GBP/JPY, and NZD/USD are highly preferred.

Strategy Concept

Although we are trading based on the news data, this strategy’s concept is very different from the previous strategy. Here we will be taking advantage of the sudden surge in volatility due to the news announcement. The volatility leads to price movement, which is not reliable and mostly false. Hence, we will analyze the charts from a technical point of view and position in the currency pair based on the indications provided by technical analysis.

News events that have orange and yellow flags associated with them are the ones that are not of great importance to traders. Even then, during the news announcement, the volatility gives rise to price movement, mostly not dependable. This means any move in the market created by such news releases does not last for long, and the market continues to move in regular from a few minutes after the news release. We will take advantage of this false movement by combining the market’s current price with that of the key technical levels.

Trade Setup

In order to illustrate the strategy, we will be taking the example of the Final Services PMI news announcement, which was released recently. We will analyze the impact of data PMI on the currency and see how we can take a suitable position in the currency based on the volatility induced in the pair due to the announcement.

Step 1

The first step of the strategy is to look for news events that have an orange or yellow flag linked to them. Note down the date and time of the announcement and open the respective chart. We recommend looking for news announcements of major economies only and trade in currency pairs involving the U.S. dollar.

In our example, we will be considering the impact of Services PMI on the EUR/USD currency pair.

Step 2

In this step, we will mark out the key technical levels on the chart. They could be support, resistance, demand, supply, and some indicator signals. Based on the sign of each technical level, we will take the position accordingly.

We can see in the image below that we have identified two important levels of support and resistance and marked them on the chart.

Step 3

The crux of the strategy is that we wait for the price to reach our key technical levels as a result of the volatility due to the news announcement. Once the price reaches those levels, we will place trades based on our technical analysis and understanding of market psychology. For example, in the below image, we see that due to the Services PMI news release price reaches exactly to our resistance, which we had marked in the previous step. Since the PMI data was slightly better than expectations, it led to bullishness in the currency, thereby taking the price marginally higher.

Since the Services PMI is a low impact event, we cannot afford the market to continuously move higher. This means it will respect key technical levels and follow the major trend of the market. In this case, the trend is down. Therefore, we trigger a ‘short’ trade precisely at the resistance, taking a bearable risk.

Step 4

The next step is to determine stop-loss and take-profit levels for the strategy. Since we are taking an aggressive entry, the stop loss for the trade will be small, resulting in a high risk to reward ratio. The take-profit is pretty much straightforward, where it will be set at the latest obstacle.

In this case, the take-profit is placed at the support of the range, which is ideal for booking profits.

Strategy Roundup

The strategy takes advantage of the market reaction when the actual figures of some news events are not of great importance to traders. Such news announcements only create panic in the market with no confidence. Keep in mind that this requires many things to be assessed before being able to successfully use this strategy over and over again. This means a lot of practice is required to apply in the strategy effectively. Pay attention to news releases which do not hold much ground. All the best!

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Crypto Guides

Understanding The Concept Of Tokenomics

Introduction

Introduction

Introduction

In our previous articles, we have seen a lot about tokens, utility tokens versus security tokens, and how the tokenization has generated different blockchain, business models. As a quick recap, the token represents something in the crypto universe in its designated environment. A token has many roles, features, and purposes of fulfilling in its intended space.

What is Tokenomics?

Tokenomics is formed with two words, token and economics. Tokenomics is the quality of the coin, which influences the people to buy them and thereby shape up the platform accordingly. Any factor which affects the token’s value can be considered to be part of tokenomics. Let us see some of the most important ones below:

🔰 Team

The team behind the project is the first and foremost factor that affects the token in every way possible. It is quite natural for any sensible investor to check the team behind the concept. For any ICO to be successful, the teams play an essential role in the concept of the token and what the token tends to achieve.

🔰 Token Allocation

Token allocation post the ICO is an essential factor as well. Allocation amongst the team members and advisors is essential. The percentage of total coins that the leadership team has retained, how they will be spending those tokens for the project, and the duration they will lock the tokens. People who believe in their project tend to lock the coins for the long term showing their belief in the project.

🔰 Publicity and Branding

The project and token should have appropriate publicity. People should have an idea about what it is, and the closer it is to solving a real-world problem amongst other factors, the interest grows. Hence, the business model is essential too. The community, i.e., people who are already invested, shouldn’t be ignored; as they try to nurture the project in their way, they should be rewarded appropriately. Hence, they act as the brand ambassadors of the project.

🔰 Legal Structure

There have been many scams involved in the ICO’s of the 2017-18 period; they have come under the radar of intense scrutiny. Thus, the project should be under the local government’s rules and regulations wherever it is being developed.

🔰 Types of Tokens

There are different types of tokens to consider apart from security vs. utility tokens we have seen so far. The other necessary type is Layer1 vs. Layer2.

Layer1 generally refers to the platform on which the token is built upon. For example, if you are developing a DAPP in the Ethereum platform, Ethereum is the layer1 platform Ehter works as Layer1 token. The token that you intend to develop and the platform that you develop over the foundation platform is Layer2 and Layer2, accordingly. Though there are widespread attempts to make the two layers independent of each other, no matter how independent they are, they will be affected in case of any hacks on Layer1.

🔰 Token Flow

Token flow is another essential factor that determines the token’s value. Token flow in the Layer1 is determined by how the coins are generated and how the users are incentivized to maintain the platform. Secondly, the developments in the platform to strengthen the network itself. How the tokens are coming and going from the platform, is the environment sustainable or not, are some of the factors involving the token flow.

What makes up a token value?

The coin’s intrinsic value. Well, we consider its intrinsic value to the current value all the time while investing in something. If the intrinsic value is less than the current value, it is mostly advisable to invest. It’s the same with tokens as well. The intrinsic value depends on its credibility and utility of the project.

The second one is obvious, which is nothing, but speculation of the potential investors based on its history. Supply and demand, of course, plays a role as the number of tokens is always capped. Hence if the demand increases than the supply, the value tends to increase naturally.

Tokenomics is pretty vast, and we have covered significant parts involved. This concept is gaining momentum and space slowly; thus, knowing the above concepts before you take a plunge in the crypto investments is very useful in the long run.

Categories
Forex Basic Strategies

Heard Of The ‘Piranha’ Forex Trading Strategy?

Introduction

Introduction

Introduction

The forex market is mostly seen to move in a trend or a range. In the previous article, we discussed the rapid-fire strategy, which works best in a trend. The piranha strategy that we are going to discuss is used in a ranging market.

Everyone would have heard of piranhas. They typically take small bites frequently off their prey until it is totally devoured. A single bite may not cause much harm, but it is the frequency of bites that causes the attack to be deadly. In the same way, the piranha strategy was developed to allow scalpers to bite the market and chew off small profits each time.

This strategy is specifically designed for the GBP/USD currency pair, where it is applied to the 5-minutes time frame chart. On average, one can find over 15 trades in a day using the piranha strategy.

Time Frame

The piranha strategy is useful for trading on the 5-minutes time frame. This means each candlestick on the chart represents 5 minutes of price movement.

Indicators

For this strategy, we use the Bollinger band technical indicator with the following settings.

  1. Period 12, Shift 0
  2. Deviation 2

When prices approach the upper band, the market is considered to be overbought, and when prices approach the lower band, markets tend to consolidate. By setting a higher deviation value, the price volatility will be magnified, and we geta a Bollinger band with wider upper and lower bands.

Currency Pairs

The strategy is designed for the GBP/USD currency pair, which is also referred to as The Cable. However, some other currency pairs in which the strategy can be used include EUR/USD, USD/JPY, and GBP/JPY. Since the strategy takes place in short timeframes it is advisable on highly liquid pairs.

Strategy Concept

We will use the Bollinger band indicator to identify the trading range of GBP/USD, after which we will mimic the nature of the piranhas by defining objective entries for long and short positions. Long trades are initiated when market prices touch the bottom of the band, and short trades are taken when prices touch the upper band.

Piranhas are active in rivers and ponds but not in the rough seas with strong currents and waves. In a somewhat similar way, we avoid trading this strategy at times of major news announcements during the U.S. or London sessions, as such environments reflect rough seas with strong currents and waves. We will analyze the GBP/USD currency pair on the 5-minutes chart to look for long and short trades.

Trade Setup

Step 1

The first step of the strategy is to first look for a range on the chart of GBP/USD. The range can be identified using the Bollinger band strategy. However, we need to apply the concepts of price action for the identification of the range. The essential criterion for a range is that the price should respect the support and resistance levels at least twice. After we have identified the range, we will apply our strategy at the extreme ends of the range to take a suitable position in the pair.

The below image shows an example of the kind range that is required for the strategy.

Step 2

The next step is to wait for the market to hit the lower band of the indicator or upper band of the indicator. At the lower band, we will look for buy opportunities, and likewise, if the price at the upper band, we will look for sell trades.

In this example, we see that the price has approached the lower band, which means there is a high chance that buyers will take the price higher from this point.

Step 3

One should not enter the market soon after the price touches the lower or upper band, which carries a huge risk. We need confirmation from the market before we can take a suitable position. In this step, we look for that confirmation. Once the price closes above the middle line of the Bollinger band indicator, it is a confirmation that the support is respected this time and that the price is heading at least till the range’s resistance.

Step 4

In this step, we determine the take-profit and stop-loss levels for the strategy. We have two take-profit levels – the first take-profit is set at the upper side of the range, a typical place for booking profits. Another method is to hold on to the trades until the market shows signs of reversals, which is when the price falls below the middle line of the Bollinger band.

The stop-loss for this strategy is placed below the support of the range or below the lower band. The trade offers a risk to reward ratio of around 1 to 1.5, which is not bad.

Strategy roundup

In the beginning, we mentioned that the piranhas hunt their prey until it is completely devoured. In a similar way, once the trade hits our stop loss, it means there is nothing left, and we need to look for a new setup.

The triggering of stop loss is an indication that the market is no longer trading in that band, and it has started a new trend. In such cases, wait until the market halts and starts moving in a range. The only difference will be that we will be looking for a trade in the opposite direction with the same rules.

This is an important point and a trick that one can use to navigate themselves in trending markets. As the strategy is developed to trade in a range, one will find few opportunities when the market goes into a strong trend.

Categories
Forex Assets

Trading Costs Involved While Trading The ‘CHF/SEK’ Forex Exotic Pair

Introduction

Introduction

Introduction

The acronym of CHF/SEK is Swiss Franc, paired with the Swedish Krona. In this exotic Forex pair, CHF is the official currency of Switzerland and is also the fifth highly traded currency in the Forex market. In contrast, SEK stands for the Swedish Krona, and it is the official currency of Sweden.

Understanding CHF/SEK

In the Forex market, to ascertain the relative value of one currency, we need an alternate currency to assess. The market value of CHF/SEK helps us to understand the power of SEK versus the CHF. So, if the trade rate for the pair CHF/SEK is 9.8418, it means to buy 1 CHF, we need 9.8418 SEK.

CHF/SEK Specification

Spread

Spread is the variable between the ask-bit price that is set at the exchanges. Below are the spread values of the CHF/SEK currency pair in both ECN & STP accounts. The spread charges for ECN and STP brokers for CHF/SEK are given below.

ECN: 45 | STP: 50

Fees

For every place, a trader enters the broker charges some fee for it. A trader must know that this fee is applicable on ECN accounts only and not on STP accounts.

Slippage

Slippage is the price variation between the trader’s execution and at which the broker implemented the price. The variance is due to high market volatility and slow execution speed.

Trading Range in CHF/SEK

A trading range is the interpretation of the volatility in CHF/SEK in numerous timeframes. The values are attained from the Average True Range indicator. One can use the table as a risk management tool to distinguish the profit/loss that a trader is possessed.

Below is a table explaining the minimum, average, and max volatility (pip movement) on a variety of timeframes.  

 Procedure to assess Pip Ranges

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

CHF/SEK Cost as a Percent of the Trading Range

The entire cost of the trade varies based on the volatility of the market. So, we must find out the instances when the costs are less to place ourselves in the market. Below is a table explaining variation in the costs based on the change in the market volatility.

Note: The percentage costs represent the comparative scale of costs and not the fixed costs on the trade.

ECN Model Account

Spread = 45 | Slippage = 5 | Trading fee = 8

Total cost = Slippage + Spread + Trading Fee = 5 + 45 + 8= 58

STP Model Account

Spread = 50 | Slippage = 5 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 5 + 50 + 0 = 55

The Ideal way to trade the CHF/SEK

The two components a trader should consider while trading any security in the markets are – Volatility & Cost. With the help of the above tables, let us evaluate these two factors to trade the CHF/SEK ideally.

We can see that the pip difference is substantially high among the minimum volatility and the average volatility in every timeframe. For a day trader, the objective is to make revenue from the pip movement of the market. But, if there is barely any pip movement in the price, it becomes difficult to make profits out of the market. Therefore, it is perfect to trade when the volatility is at the average value.

The cost increases as the volatility decline, and they are inversely proportional to each other. In other words, highly volatile markets have the lowest costs. However, it is relatively risky to trade markets with higher volatility though the costs are low. Therefore, to maintain stability among the cost and volatility, traders may discover instances when the volatility is close to the average values or a little above it.

Categories
Crypto Guides

What Should You know About Web 3.0?

Introduction

Introduction

Introduction

World Wide Web, as we know, today has undergone a lot of changes. To dwell on Web 3.0, we need to understand what comprises Web 1.0 and Web 2.0. Web 1.0 is the first integration of the internet in the nineties. The visionary Sir Tim Berners-Lee led us to web 1.0. He wanted to decentralize the information so that there wouldn’t be any third-party intervention to access the information. Let’s look at the previous two versions briefly below:

Web 1.0

Web 1.0 comprises of mostly static information. It can be termed as a worldwide explosion of information or read the only web. Many big companies have come up with read-only websites. Many E-Commerce websites can be termed as Web 1.0 version as an example today. User interaction is very minimalistic.

Web 2.0

Web 2.0 can be termed as the web we know as of today. It is also said web of social media with many video streaming platforms. With the invention of Web 2.0, all of us got access to not only download available content but also to upload the content made by us. It has started becoming two ways, which started revolutionizing many business models. Let us look into Web 3.0 now.

Web 3.0

Web 3.0 is termed as the internet of value, and it has special significance in today’s world. We have already entered web 3.0, and it is not somewhere in the distant future. We consider it as the most advanced of all because it uses Machine Learning, Artificial Intelligence, and Blockchain technologies to offer us the best suit of experience.

One of the daily examples of Web 3.0 usage is when we shop on Amazon or any eCommerce website. Under a product we are looking to buy, there is another section which says people ‘who bought this has bought’ these items or what items people bought after buying this product. This is possible because of AI/ML. The user experience is maximized because of the suggestions.

Web 3.0 allows the acceleration of decentralized finance. We have business models available for many purposes rather than the one in the previous versions, where only big companies were used to make use of them for businesses. User privacy is hampered in a big way with the advent of so many apps and their usage.

Big multi corporations, even though they say that their laws pertaining to data privacy are simple, which prevents them from collecting data is not true in reality. With the advent of DAPPS with blockchain as the underlying technology, no user information can be collected and stored without users’ consent. Web 3.0 is a whole new experience without privacy concerns anymore.

The key technology in shaping up Web 3.0 is termed as blockchain. Blockchain provides the decentralized infrastructure for the internet, which fundamentally changes how the web operates. Blockchain allows a highly secure environment to exchange data generated by billions of IoT devices across the world. The decentralization of data allows users to control data rather than the big corporations controlling them single-handedly.

Conclusion

The big companies have treated us like products by collecting the information in the form of our tastes, need to target and sell their products in return to us. We lost control of our data privacy. Web 3.0 is essentially taking back the control from the corporations to our own hands using the decentralization of data using blockchain technology

Categories
Forex Fundamental Analysis

What Does The ‘GDP Growth Rate’ Forex Driver Say About A Nation’s Economy?

Introduction

Introduction

Introduction

GDP Growth Rate is the most critical fundamental macroeconomic indicator for measuring economic prosperity. It is the number one macroeconomic indicator, and all other leading, coincident, and lagging indicators are all trying to predict what GDP Growth Rate would be. Our fundamental analysis revolves around predicting the growth rate before the GDP Growth Rate reveals it. It is the de facto measure of economic growth for all countries worldwide.

The importance of this economic indicator cannot be understated. GDP Growth Rate figures move the markets like no other, be it the currency or the stock markets. Hence, understanding the significance of this macroeconomic indicator is paramount for traders and investors.

What is the GDP Growth Rate?

Gross Domestic Product

It is a measure of the total economic output of a country. It is the total monetary value of all the goods and services produced within the country regardless of citizenship (resident or foreign national). The commonly used term “size of the economy” refers to this economic indicator. The US is the world’s largest economy, and it means it has the highest nominal GDP or highest economic output.

GDP Growth Rate

GDP Growth Rate is the measure of the rate of economic growth. In other words, it tells the pace at which an economy is growing. Generally, developing or emerging economies like China, India, or Japan will have a higher GDP growth rate than the mature or developed economies like the United States, United Kingdom, etc.

Mathematically, it is the percentage change of Gross Domestic Product with regards to the previous quarter. Although the GDP Growth Rate is reported quarterly, it is annualized for better analysis and comparison. It means that the quarterly GDP is scaled to a year to compare the Growth Rate with the previous year and understand whether the economy is growing faster or slower compared to the previous year. 

The other reason is that the GDP Growth Rate changes according to the business cycle and is usually very high during the last quarter, accounting for holiday shopping from consumers driving up the GDP. Hence, annualizing with seasonal adjustment makes it more accurate for analysis. The Real GDP Growth Rate accounts for inflation and is the most-watched GDP statistic.

The GDP Growth Rate is affected by the four components of the GDP:

A | Consumer Spending: It is also called Personal Consumption. It represents spending associated with the end-consumers or the general population. The Personal Consumption Expenditure reports, Retail Sales, are all different economic indicators representing Consumer Spending. It makes up about 69% of the total GDP in the United States.

B | Business Investment: Economic Output of the Business Sector makes up 18% of the total GDP in the United States. Business Surveys like Purchasing Manager’s Index, Industrial Production, etc. help assess the Business Sector’s contribution to economic output.

C | Government Spending: It involves all the expenditures incurred by the Government to maintain and stimulate economic growth and run its operations. In the United States, significant proportions of Government Spending go to Social Security, Medicare benefits, and Defense Spending. It accounts for 17% of the total economic output for the United States.

D | Net Exports: It is the difference between the total exports and imports. Revenue is generated from exports and depleted from imports. Developing economies will mostly have positive Net Exports as it is an integral part of their revenue generation. The United States has -5% Net Exports of the total GDP, meaning it is a net importer.

How can the GDP Growth Rate numbers be used for analysis?

When the economy is growing or expanding, the GDP Growth Rate is favorable. When the GDP Growth Rate is increasingly positive, businesses, jobs, and personal income all grow followingly. Developing economies grow faster than mature economies (as the developed economies are already more saturated compared to developing ones). It is generally standard for matured economies to peak out at 3-4% GDP Growth Rate and developing economies can have anywhere between 5-20%.

When the economy is slowing or contracting, businesses will halt new investments and plans to avoid deflation. New hiring is also postponed; people will save more than spend to prepare for the oncoming deflationary conditions. The economy comes to a slowdown. The Government intervenes through fiscal and monetary levers to stimulate economic growth and bring it back to normal conditions and maintain the growth rate. Overall, the GDP growth rate tells us the economy’s health.

Impact on Currency

The GDP is a lagging macroeconomic indicator that has high-impact on the market volatility. Investors’ decisions are based on the GDP growth rate. It is a proportional indicator. High GDP Growth Rates are suitable for the economy overall and vice-versa.

Though it is a lagging indicator, it has many implications for the economy. It is the most extensive measure of economic activity and the primary gauge of the economy’s health. GDP Growth Rate comparisons amongst different economies are vital for currency markets, and hence, it has a very high impact on the currency market.

Economic Reports

For the United States, the Bureau of Economic Analysis releases quarterly GDP Growth Rate figures on its official website every quarter. The release schedule is already mentioned on the website and is generally released one month after the quarter ends. 

Major international organizations like the World Bank, International Monetary Fund, OECD, etc. actively maintain track of most countries on their official website: 

Sources of GDP Growth Rate

For the United States, the BEA reports are available here.

The St. Louis FRED keeps track of all the GDP and its related components in one place on its official website. You can find that information in the sources mentioned below.  

GDP & GNP – FRED 

GDP Growth Rate – World Bank

GDP Growth Rate – IMF

Impact of the “GDP Growth Rate” news release on the Forex market

In the previous section of the article, we explained the GDP Growth Rate fundamental indicator and saw how it could be used for gauging the strength of an economy. The GDP Growth Rate indicates how quickly or slowly the economy is growing or shrinking.

It is driven by four components of GDP, the largest being personal consumption expenditures. But economists prefer using real GDP when measuring growth because it is inflation-adjusted. When the economy is improving, the GDP Growth Rate is favorable. If it is contracting, businesses hold off investing in new technologies. If GDP Growth Rate turns, then the country’s economy is in a recession.

In the following section, we will analyze India’s GDP Growth data and observe the change in volatility due to the news announcement. The below image shows the fourth quarter GDP Growth data of India, where there has been a fall in the value compared to the previous quarter. The most critical and highest contributor to the growth of the Indian economy is services. Let us find out the reaction of the market to this data.  

USD/INR | Before the announcement:

We shall start with the USD/INR currency pair to study the impact of GDP Growth Rate on the Indian Rupee. The above image shows the ‘Daily’ time-frame chart of the currency before the news announcement, where we see that the market is moving within a ‘range’ and currently the price seems to have broken out of the ‘range.’ The volatility is high on the upside, indicating that the Indian Rupee is weakening. Depending on the GDP Growth Rate data, we will take a suitable position.  

USD/INR | After the announcement:

After the news announcement, we see a sudden rise in the volatility to the upside. The price moves higher initially, but selling pressure from the top makes the ‘news candle’ to close with a wick on the top. This was a result of the harmful GDP Growth data where there was a reduction in the Growth Rate from last quarter.   

INR/JPY | Before the announcement:

INR/JPY | After the announcement:

The above images represent the INR/JPY currency pair, where it is clear from the first image that the price was moving in a ‘range’ before the announcement, and presently it has broken the ‘support’ with a lot of strength. This is the first sign of weakness in the Indian Rupee that could probably extend. If the price remains below the moving average, a ‘sell’ trade can be initiated.

After the news announcement, the price crashes lower but immediately gets reversed, and the ‘news candle’ closes with a wick on the bottom. The initial reaction was a result of the weak GDP Growth Rate, which lead to the further weakening of the currency. Volatility increased to the downside due to the news announcement, which was on expected lines.

AUD/INR | Before the announcement:

AUD/INR | After the announcement:

The above images are that of AUD/INR currency, where we see before the news announcement, the market is in a downtrend, and currently, the price is at its lowest point. Technically, we should be looking to sell the currency pair after a price retracement to the nearest’ resistance’ level or an appropriate Fibonacci ratio. Therefore, depending on the volatility change due to the news release, we will take a pair.

After the news announcement, the volatility emerges to the upside, and we see a sudden rise in the price that also goes above the moving average. This was a result of the weak GDP Growth Rate that made traders to ‘long’ in the currency pair by selling Indian Rupees. The news release hurts the currency where the weakness persists for a while, but later, the downtrend continues.

We hope you understood the concept of “GDP Growth Rate” and its impact on the Forex price charts after its news release. All the best. Cheers!

Categories
Forex Assets

Analyzing The ‘CHF/AED’ Forex Exotic Pair

Introduction

Introduction

Introduction

CHF/AED is the short form for the Swiss Franc against the United Arab Emirates Dirham. It is considered an exotic currency pair. Currencies are always traded in pairs in the Forex market. The main currency in the pair is considered the base currency, while the sequential one is the quote currency.

Understanding CHF/AED

The market value of CHF/AED determines the value of AED required to buy one Swiss Franc. It is priced as 1 CHF per X AED. Hence, if the market price of this pair is 3.8835, these many United Arab Emirates Dirham units are necessary to buy one CHF.

Spread

The spread is the distinction between the ask-bid price. Mostly, these two prices are set by the stockbrokers. The gap between the pip values is through which brokers generate revenue. Below are the ECN & STP Spread values of CHF/AED pair.

ECN: 19 pips | STP: 24 pips

Fees

The fee is the minimum commission you pay to the broker on every single spot you open. There is no fee to be paid on STP accounts, but a few additional pips on ECN accounts.

Slippage

Slippage is the distinction between the price at which the trader implemented the trade and the original price he got from the broker – this changes based on the volatility of the market and the broker’s implementation speed.

Trading Range in CHF/AED

The trading range table will help you determine the amount of money that you will win or lose in every timeframe. This table signifies the minimum, average, and maximum pip movement in a currency pair.

Procedure to assess Pip Ranges

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

CHF/AED Cost as a Percent of the Trading Range

The price of the trade alters based on the volatility of the market. Hence, the total cost comprises slippage and spreads, excluding from the trading fee. Below is the analysis of the cost difference in terms of percentages.

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

Trading the CHF/AED

The CHF/AED is not a very volatile pair. For example, the average pip movement on the 1H timeframe is only 42 pips. If the volatility is more significant, then the cost of the trade is low. Nevertheless, it involves a higher risk to trade highly volatile markets.

Also, the higher/lesser the proportions, the greater/smaller are the costs on the trade. We can then determine that the costs are higher for low volatile markets and high for highly volatile markets.

To reduce your risk, it is recommended to trade when the volatility is around the minimum values. The volatility here is low, and the costs are slightly high, corresponding to the average and the maximum values. But, if the priority is towards reducing costs, you could trade when the volatility of the market is near the maximum values.

Benefits on Limit orders

For orders that are implemented as market orders, there is slippage applied to the trade. But, with limit orders, there is no slippage valid. Only the spread and the trading fees will be accounted for estimating the total costs. Therefore, this will bring down the cost noticeably.

STP Model Account (Limit Orders)

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

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

Categories
Forex Basic Strategies

Trading The Forex Market Using The ‘Bladerunner Strategy’

Introduction

Introduction

Introduction

Moving averages are an important piece in analyzing the charts. Some traders simply use to determine the direction of the market, while others have solid trading strategies. The Bladerunner strategy is a powerful trading strategy based on the 20-period Exponential Moving Average (EMA). The best part about the strategy is that it can be applied to any time frame and currency pair. This strategy is given the term “Bladerunner” because the 20-period EMA cuts the price action like a blade.

What is the Bladerunner Forex Trading Strategy?

A market trading above the 20-period EMA indicates a bullish bias, while a bearish bias if it is trading below the 20-period EMA. If the price retests the EMA, traders look to long or short.

If the price is trading above the EMA, one can prepare to buy the currency pair once the drops and tests the EMA line and bounces back up. That said, if the market breaks below the 20-EMA, it can be comprehended as the market has switched directions – uptrend to a downtrend. Thus, traders can look for shorting opportunities.

On the flip side, if the price action is evidently below the EMA, traders may consider short selling the pair after the price retraces up to the EMA. However, if the market manages to break through the 20-EMA, it signifies that the buyers have taken charge of the market, and a potential reversal could happen. Thus, traders can catch the new trend after a proper test to the EMA line.

Criteria to trade the Bladerunner Strategy

Before taking an entry using the Bladerunner strategy, two criteria must be satisfied:

  1. Before entering based on the strategy, the price must breakout from a range or should already be in a strong trend.
  2. After the first criterion is satisfied, the price must successfully retest the 20-EMA. If the market is trading above the EMA, the test should be such that the price drops to the EMA, touches it, and reverses in the predominant trend. Finally, if the candle closes above the EMA, it is an indication that the uptrend is still active and intact. A similar concept applies to a downtrend as well.

These two points are vital to consider before attempting to trigger the order. Besides, traders who require more confirmation may trade those setups where the price bouncing off from the EMA is also a strong Support and Resistance level or a pivot point.

Trading the Bladerunner Forex Trading Strategy

The Bladerunner strategy can be traded in several ways, given the concept applied remains the same. Novice traders enter solely based on the EMA, while more professional traders combine this idea with their analysis and then execute their trade. Here are a couple of Bladerunner strategies designed for traders of all suites.

Buy Example

Below is the price chart of GBP/NZD on the Daily time frame with the 20-period EMA applied to it.

Reading the chart from left-most, it is observed that the market has been moving sideways in a range. During mid-May, the market finally broke above the top of the range. Also, the breakout happened such that the price was well above the 20-period EMA.

At the beginning of June, the market pulled back down to the EMA and left two tails at the bottom. This is an indication that the market is preparing to go north. Thus, a trader can go long as the holds for a couple of candles above the EMA.

Placements

Stop loss

The stop-loss must be placed few pips below the top of the range such that it is below the EMA as well.

Take Profit

There is no fixed take profit point for this strategy. However, the trade can be closed when the price drops below the 20-period EMA.

Sell Example

Below is the price chart of EUR/USD on the 4H time frame. Initially, the market was ranging, but later it was pushed down by the sellers. After the breakout, the price retraced and tested the EMA as well as the S&R. When the sellers pushed the market down yet again, it is an indication that the downtrend is going to continue.  Thus, one can prepare to go short at these levels.

Placements

Stop loss

The stop loss can be placed safely above the Support and Resistance and the bottom of the range.

Take Profit

Since there is no reference to the left, there is no fixed take profit. However, traders must liquidate their positions once the market crosses above the 20-period EMA.

Bonus Example

Consider the below price chart of AUD/USD on the Daily timeframe. We see that the overall trend of the market is down. The level 0.68745 represents the most recent Support and Resistance area.

To trade this market, we wait for the price to retrace up to the S&R level (grey ray) before entering the trade. Below is the same chart of AUD/USD on the 4H time frame. The pullback for the massive downtrend began in September. Observe that the price action of the retracement is above the 20-period EMA.

Once the price approaches the Daily S&R, it begins to consolidate, yet above the EMA. Later, as the market slows down, the price aggressively drops below the 20-period EMA. The price then retests the EMA, tries to go above it, but gets drawn down by a bearish candle. Thus, when another bearish candle appears, one can short sell the pair.

Placements

Stop loss

Since the market took a turnaround at the S&R level, the stop loss can be placed right above this level. Besides, one should ensure that the stop loss is above the EMA.

Take Profit

This strategy is basically a trend pullback trade that incorporates the Bladerunner strategy. Thus, the take profit can be placed at the recent lows.

The Bladerunner is a great strategy and helpful to several traders because it blends with any other strategy. Do try this strategy by combining it with your primary strategy and level up your trading skill. Cheers!

Categories
Crypto Guides

How to Audit a Smart Contract?

Introduction

Introduction

Introduction

Smart contracts are a self-executing piece of code, executable when certain predefined conditions are met. Ethereum enabled the birth of smart contracts. Since these contracts are based on blockchain technology, they cannot be changed once implemented.

Hence it is crucial to test them before deploying them accurately, and timely audits ensure the bug is fixed. In our previous articles, we have seen the DAO attack on the Ethereum platform due to which millions of dollars were lost. The Ethereum platform had to be hard forked to mitigate the loss henceforth.

Generally, audits are conducted to check for bug fixes. The audit is targeted in such a way to check for already known targets based on the experience of previous audits. Hence let us see below what kind of smart contract attacks there are.

Smart contract attacks

Race Conditions

Race conditions are a case where events don’t occur in an intended order. It is often required to call external contracts in smart contracts, and thus the possibility of race conditions is very high.

Reentrancy

This is a kind of race condition where one function is repeatedly called before the first function’s invocation is completed. This means making the first function recursive, the exact thing which happened in the DAO attack.

Transaction Ordering Dependence

This is yet another type of race condition where the manipulations can be done in terms of transaction orders. The transactions order can be manipulated and cheated at the expense of other users.

These are some of the types of smart contracts attacks. Let us see below the detailed step by step process of auditing a smart contract.

Steps to audit a smart contract

1️⃣ As in any audit process, the auditing company/group should clarify who they are and their authority to conduct the audit and procedures to be followed, if possible, from a legal perspective.

2️⃣ Audits are conducted on a deployed smart contract or a smart contract ready to be deployed in a blockchain. It is essential that a smart contract without any bugs is to be implemented.

3️⃣ A legal disclaimer, as such, the audit doesn’t provide any legal guarantee but fosters the discussion about the smart contracts bugs, if any, to fix them.

4️⃣ Attacks will be conducted as detailed above and see if they can be successfully implemented on the smart contract being audited.

5️⃣ Report the vulnerabilities and bugs if found any. Some may not seem like a potential threat right now, but they may turn out to be a serious flaw later; they have to be recognized and taken care of.

6️⃣ Contract complexity should be checked. Often complexity leads to mistakes, and the complex code should be thoroughly checked for any potential bugs.

7️⃣ Check how the contract responds to a bug or vulnerability. Contracts behavior in such times is essential to check if there will be any money loss, or the contract execution will stop showing potential issues is to be noted down.

8️⃣ All the security patches should be thoroughly updated so that all the libraries are up to date. The update should act like preventive maintenance.

The steps outlined above are very general in purpose in auditing a smart contract. Depending on the language we use for a smart contract, various steps can be followed. In any language used, these are the necessary steps one can follow before moving further with the in-depth analysis.

Categories
Forex Fundamental Analysis

How The New Announcement Of ‘GDP Per Capita’ Indicator Affects The Forex Market?

Introduction

Introduction

Introduction

GDP per capita is the primary economic indicator in macroeconomics to measure the standard of living and economic prosperity. While GDP indicates the economy’s size in terms of economic output, it does not reveal for what populace the output is divided. Hence, GDP per Capita is more suited to assess the wealthiness of the country’s population. 

Every nation strives to improve its standard-of-living by increasing the wealth of the population beyond just meeting daily needs. Hence, GDP per Capita becomes an important economic indicator for countries’ comparison of how well-off their people are.

What is the GDP per Capita?

GDP 

GDP is the measure of a country’s total economic output. It is the total monetary value of all the goods and services produced within the country regardless of citizenship (resident or foreign national). It is the market value of all the finished goods and services within a nation’s geographical borders for a given period. The period is generally a quarter (3 months) or a year. The commonly used term “size of the economy” refers to this economic indicator. The USA is the world’s largest economy, and it means it has the highest nominal GDP or highest economic output.

GDP Per Capita

It is a metric that is obtained by dividing a country’s GDP by its population count. Here, “per Capita” translates to “per average head” or “for one individual.” Hence, GDP per Capita is the measure of economic output per person. 

If we want to compare GDP per Capita amongst countries, we use the Purchasing Power Parity (PPP). Through PPP measure, we can compare countries on equal terms, as many countries have different currencies, comparing economic output becomes difficult. Hence PPP measures everything in the United States dollar terms, thus creating a base standard for comparison.

How can the GDP per Capita numbers be used for analysis?

Since GDP is the total economic output, countries with lower economic output than other countries may not necessarily be poorer. On the contrary, it could be wealthier. For example, Qatar has only 19 billion US dollars GDP in comparison to the USA, which has 20.54 trillion US dollars. But Qatar is the number one ranked the country as per GDP per Capita. It has 126,898 US Dollars compared to the United States that has only 62,794 US Dollars. Hence, the people of Qatar are wealthier than those in the United States. 

Here, we have to understand GDP per Capita is a function of the population. Higher population results in higher GDP prints but also distributes the GDP amongst more people. Qatar is a prosperous country with sizeable natural oil resources, which is not a labor-intensive task to extract and export. Hence, the high GDP through Crude Oil exports is divided amongst a few populace of 2.7 million people compared to the United States 328 million. The USA is the third most populous country after China and India.

Overall, small and prosperous countries and developed industrial nations tend to have high GDP per Capita. The wealthiest and most impoverished countries are also assessed based on the GDP per Capita as a primary metric.

The income per capita and GDP per Capita are the two most common tools for measuring economic wealth and prosperity. GDP per capita is more popular and widely used as it is more regularly tracked and maintained on a global scale by most countries. It, in turn, helps in ease of calculation, usage, and comparison amongst countries.

It tells us how much economic output is attributed to a citizen. Hence, it is a measure of national wealth. On the other hand, it can also tell us the economic productivity of the people. Productive and talented groups of people will contribute more value to the GDP prints.

GDP per capita is used alongside GDP and other GDP related metrics like the GDP Growth Rate, Real GDP, by policymakers to assess the economic health and take necessary actions to drive the economy in the right direction. When the GDP prints are consequently decreasing for two quarters, Central Authorities intervene through monetary and fiscal levers to counter deflation and stimulate economic growth through inflationary pressures. 

GDP metrics are closely watched by investors (domestic and foreign alike) to make investment decisions. Declining GDP holds off investments from investors, due to decreased confidence and vice-versa.

Impact on Currency

GDP metrics are used in a variety of ways by a variety of people. Economists and Central Authorities primarily use GDP per Capita to understand the economic wellbeing of its people. GDP Growth Rate is primarily used by Traders, Business people, and Investors to make business decisions.

GDP per capita would likely be more useful for Policymakers, and Business people. Business people can use this as a wealth metric and consequently decide the products that would suit the budget of people. The higher the wealth of the individual citizen, the costlier products and services they can afford. Hence, business decisions can also be impacted.

It is a proportional high impact indicator. Fluctuations in the GDP metrics bring a lot of volatility in currency markets. Falling GDP metrics are terrible for the economy, its businesses, consumers, and the Government. GDP impacts everyone. Hence, Central Authorities are committed to maintaining GDP Growth and take the necessary actions to avoid deflation. Businesses also hold off investment decisions in the stagnating economy and vice-versa.

Higher GDP per Capita is good for the currency and the economy and vice-versa. Although for trading decisions, GDP Growth Rate serves as a more relevant metric for comparisons amongst different currency countries. 

Economic Reports

For the United States, the Bureau of Economic Analysis releases quarterly GDP figures from which we can obtain our statistics on its official website every quarter. The release schedule is already mentioned on the website and is generally released one month after the quarter ends. 

Major international organizations like the World Bank, International Monetary Fund, OECD, etc. actively maintain track of GDP figures of most countries on their official website:

Sources of GDP per Capita

For the United States, the BEA reports are available here.

The St. Louis FRED keeps track of all the GDP and its related components in one place on its official website. You can find this information in the below-mentioned sources. 

GDP & GNP – FREGDP per Capita

Real GDP per Capita – FRED

GDP per Capita – World Bank

Impact of the “GDP per Capita” news release on the Forex market

In the above section of the article, we saw the definition of GDP Per Capita and understood how it differs from the nominal GDP. Per Capita GDP is calculated by dividing GDP over the entire population of the country. GDP Per Capita is a universal measure used by most economists to gauge the prosperity of nations.

It provides insight into the economic prosperity and economic development across the globe. Countries with high technological progress see a significant increase in GDP Per Capita. It is also a significant indicator of comparing the economic growth between the two countries. GDP Per Capita if often analyzed alongside GDP. GDP Per Capita considers both the GDP and its population.   

In today’s lesson, we will analyze the impact of GDP on the value of the currency and observe the variation in volatility due to the news announcement. In this regard, we have collected the year-on-year GDP of Japan, where the below image shows the GDP measured in the last fiscal year. Let us find out the reaction of the market to this data.

USD/JPY | Before the announcement:

We shall start with the USD/JPY currency pair to observe the impact of GDP data on the Japanese Yen. We can see in the earlier image that the market is in a downtrend with a large bearish candle visible a few minutes before the news release. As the market is very bearish, we will look to the currency pair after a price retracement to a technically significant level. At this point, we cannot take any position in the market. 

USD/JPY | After the announcement:

After the news announcement, we see that the price moves lower, resulting in further strengthening of the Japanese Yen. As the GDP data was very close to market expectations, traders comprehended this data to be positive for the economy and bought Japanese yen by selling the currency pair. In terms of positioning ourselves in the market, once should not go ‘short’ in the market soon after the news release as this would mean chasing the market, which is very risky.     

NZD/JPY | Before the announcement:

NZD/JPY | After the announcement:

The above images represent the NZD/JPY currency pair, where we see that the market has crashed recently, and the price is at the same level since then. This means there is extreme optimism in the market concerning the Japanese Yen. As the price is meager, we need a pullback before we can take a ‘short’ trade in the currency pair. Until then, we will watch the impact of GDP on the currency.

After the news announcement, the volatility expands on the downside, and the price sharply lower. The market reacted positively to the GDP data since it was measured to be nearly the same as before. This proved to be bullish for the Japanese Yen, where traders bought the currency and took the price lower.   

EUR/JPY | Before the announcement:

EUR/JPY | After the announcement:

The above images are that of EUR/JPY currency pair where we see that again, the market is in a downtrend, but in this pair, we notice a strong bullish candle from the lowest point, which has taken the price higher. This means the Japanese Yen is not as bullish as it was in the above two pairs. Since the market is not expecting a fall in the GDP, aggressive traders can take a ‘short’ position with a strict stop loss.

After the news announcement, the price moves lower and closes with a large bearish candle. This increases the volatility to the downside and strengthens the Japanese yen. Therefore, it clear that the GDP data had a hugely positive impact on all the currency pairs.    

We hope you understood the concept of ‘GDP per Capita’ and how the Forex price charts get affected after its news release. All the best. Cheers!

Categories
Forex Fundamental Analysis

Everything You Should Know About ‘GDP Per Capita PPP’ Macro Economic Indicator

Introduction GDP per Capita PPP is the popular macroeconomic indicator for comparing economic prosperity and wellbeing of its citizens amongst countries, especially those with different currencies. As currencies can be managed lower or higher, GDP per Capita PPP is the most commonly used metric by economists for comparison and analysis. GDP and its related metrics […]

Introduction GDP per Capita PPP is the popular macroeconomic indicator for comparing economic prosperity and wellbeing of its citizens amongst countries, especially those with different currencies. As currencies can be managed lower or higher, GDP per Capita PPP is the most commonly used metric by economists for comparison and analysis. GDP and its related metrics […]

Introduction

GDP per Capita PPP is the popular macroeconomic indicator for comparing economic prosperity and wellbeing of its citizens amongst countries, especially those with different currencies. As currencies can be managed lower or higher, GDP per Capita PPP is the most commonly used metric by economists for comparison and analysis.

GDP and its related metrics are the most important economic indicators for macroeconomic analysis, especially for traders’ fundamental analysis. Hence, it is imperative to understand GDP per Capita PPP to better understand relative economic prosperity in the international market place.

What is GDP Per Capita PPP?

GDP

Gross Domestic Product helps in measuring a country’s total economic output. It is the total monetary value of all the goods and services produced within the country regardless of citizenship (resident or foreign national).

It is the market value of all the finished goods and services within a nation’s geographical borders for a given period. The period is generally a quarter (3 months) or a year.

The commonly used term “size of the economy” refers to this economic indicator. The USA has the world’s largest economy, and it means it has the highest nominal GDP or highest economic output.

GDP Per Capita

It is a metric obtained by dividing a country’s GDP by its population count. Here, “per Capita” translates to “per average head” or “for one individual.” Hence, GDP per Capita is the measure of economic output per person. It tells us how much economic output is attributed to a citizen. Hence, it is a measure of national wealth. On the other hand, it can also tell us the economic productivity of the people.

Purchasing Power Parity (PPP)

It is an economic theory that compares different countries’ purchasing power through a basket of goods common in both countries. By evaluating the cost of a particular good in both countries, the PPP is calculated. For example, comparing the price of 1 gallon of milk in two countries would help us know the purchasing power parity. Parity means a state of being equal, and all things being equal, how much currency is required to procure identical goods in both countries helps understand the purchasing power of that country.

It measures how much a particular set of goods and services cost in each country, instead of the exchange rates that can be manipulated by speculative trading, or central authorities’ intervention.

A wide range of goods and services are taken into account to develop the PPP, and hence the process is complicated, but once generated, the PPP remains mostly constant in the long run.

GDP Per Capita PPP

If we want to compare GDP per Capita amongst countries, we use the Purchasing Power Parity (PPP). Through PPP measure, we can compare countries on equal terms, as many countries have different currencies, comparing economic output becomes difficult. Hence PPP measures everything in the United States dollar terms, thus creating a base standard for comparison.

How can the GDP per Capita PPP numbers be used for analysis?

Using nominal GDP values for economic growth comparisons would be misleading as currencies are often manipulated in favor of countries by the governing agencies. For example, China frequently devaluates currencies to increase their income through exports and offer their goods at a competitive price in the international markets.

Hence, using the GDP per Capita PPP is a more sensible approach as PPP values stay stable over more extended time frames and better understand and analyze economies with different currencies. The below table proves our above analysis.

It is important to understand we use PPP for making a fair comparison, but PPP is not perfect, it has the following limitations:

Taxes: Tax policies differ from country to country and consequently affects the price of goods and services, thereby making the PPP skewed.

Transportation: Goods need not be available across the planet at the same level. The import of goods from the manufacturing site would add to the prices of the goods differently to different countries. 

Tariffs: Governments can intervene to impose tariff barriers for economic reasons like protecting domestic businesses, which may again impact the imported product prices, making it costlier in the concerned country.

Non-Traded Services: Cost of Labor, utility, or equipment costs variation can also induce price differences in the reference goods.

Market Competition: Popularity in particular areas can give companies an edge and enable them to price higher than in other countries. Established reputation can change prices, which varies from its market presence duration. On the international scale, the popularity of a good is not the same across all economies and hence can skew prices.

All the above factors limit PPP in some ways, but PPP is still better than nominal GDP comparisons. So, GDP per Capita PPP may not be perfect, but currently, there is no better metric for economic prosperity comparisons amongst countries.

Impact on Currency

GDP metrics are used in a variety of ways by a variety of people. Economists and Central Authorities primarily use GDP per Capita PPP to understand its people’s economic wellbeing in contrast to other economies. GDP Growth Rate is primarily used by Traders, Business people, and Investors to make business decisions.

GDP per Capita PPP would likely be more useful for Policymakers, and Business people. Business people can use this as a wealth metric and consequently decide the products to suit the budget of people. The higher the wealth of the individual citizen, the costlier products and services they can afford. Hence, business decisions can also be impacted.

The PPP value can be used to base exchange rate fluctuations and identify signs of strengthening or weakening of currencies. 

It is a proportional high impact indicator. Higher GDP per Capita PPP is good for the currency and the economy and vice-versa. Although for trading decisions, GDP Growth Rate serves as a more relevant metric for comparisons amongst different currency countries. Also, GDP per Capita PPP is a yearly statistic and is more relevant for long term investment decisions than short-term currency trading decisions.

Economic Reports

Major international organizations like the World Bank, International Monetary Fund, OECD, etc. actively maintain track of most countries’ GDP figures on their official website. The World Bank maintains the GDP per Capita PPP for most countries. Every three years, the World Bank announces a report comparing the productivity and growth of different countries based on PPP. It is a yearly data.

Sources of GDP per Capita PPP

GDP per Capita PPP – World Bank

GDP per Capita PPP – CIA World Factbook

GDP per Capita PPP – the United States – FRED

We can find a consolidated list of the same here as well.

Impact of the ‘GDP Per Capita PPP’ news release on the price charts 

In the previous section of the article, we understood the definition of GDP based on PPP and how it is different from the nominal GDP. PPP based GDP is converted to international dollars using purchasing power parity rates and divided by the total population. 

Purchasing Power Parity (PPP) between two countries, X and Y, is the ratio of several units from country X’s currency required to purchase in country X. The same quantity of an excellent/service as one unit of country Y’s currency will purchase in country Y. It can be used mostly to compare inflation in two and, to some extent, the economic growth. But the nominal GDP is one that taken into consideration while making investment decisions.

In today’s example, we will observe the impact of GDP on various currency pairs and witness the change in volatility due to the official news release. The below image shows the GDP in the Euro Zone during the fourth quarter, where we see the GDP was as in the previous quarter. Let us find out the reaction of the market. 

EUR/USD | Before the announcement:

We shall start with the EUR/USD currency pair to analyze the impact of GDP on the Euro. It is clear from the preceding illustration that the market is not trending in any direction, which means there is confusion concerning the market trend. Therefore, until we have clarity in the market, it is smart not to take any trade.

EUR/USD | After the announcement:

After the news announcement, the price gets volatile as it moves in both the directions and finally, closes near the opening price. The GDP data did not strengthen or weaken the currency where the ‘news candle’ closed, forming an indecision candlestick pattern. As the news release did not bring about any significant change to the currency pair, one should analyze the currency based on technical indicators.    

EUR/JPY | Before the announcement:

EUR/JPY | After the announcement:

The above images represent the EUR/JPY currency pair, where we see that the overall trend of the market is up, and recently it is has shown signs of reversal before the news announcement. One needs to wait for confirmation before taking a trade as the news event can cause significant changes to the existing chart pattern, resulting in an unnecessary loss. Until the price is below the moving average, the uptrend shall not continue.

After the news announcement, the price initially moves lower, but it gets immediately bought and closes with a wick on the bottom. There is some volatility seen, which eventually takes the market lower. The GDP data came out to be as expected, where it was the same as before. Since there was no improvement in the GDP, we can ascertain that it was negative for the currency.    

EUR/AUD | Before the announcement:

EUR/AUD | After the announcement:

The above images are that of EUR/AUD currency pair, where we see that before the news announcement, the market is in a strong downtrend, and currently, the price is on the verge of continuing the downward move. However, since a significant news announcement is due, there is a possibility that it can change the trend, hence need to take a position based on the impact of the news.

After the news announcement, market shoots up, and volatility increases to the upside. Here we see that the GDP data has a positive impact on the Euro, and the currency strengthens after the news release. Now it is clear that selling the currency pair is no longer valid.

We hope you understood all about the ‘GDP Per Capita PPP.’ Do let us know your thoughts in the comments below. Happy Trading!

Categories
Crypto Guides

What Are Security Tokens & What Is Their Importance?

Introduction

Introduction

Introduction

Security tokens provide the digital ownership of traditionally traded securities. The concept of security tokens is a genuinely revolutionary concept developed by the advent of blockchain. Tokens perform a wide variety of roles, depending on the ecosystem they are used in. Tokens may give voting rights, which may be used as a currency, to be used as a value exchange. The more roles the tokens have, the more useful it can be termed.

People often get confused with cryptocurrencies and tokens. Tokens and cryptocurrencies are fundamentally different. While cryptocurrencies can be used anywhere, I mean, depending on the people/business who accept them as a mode of payment. In contrast, tokens can only be used in the designated environment where they are intended to use. Tokenization, the issue of tokens, is a new concept that came up with the advent of blockchain and created new business models with security and utility tokens.

How are the Security tokens issued?

Security tokens are issued just like how cryptocurrencies are issued using ICO’s. ICO’s are Initial Coin Offerings offered by developers whenever a new DAPP is to be developed. The ICO will have a goal to aim for. Depending on the goal, if the people are interested, based on the platform, the DAPP is developed, they pay the local currency and take the ownership of the tokens. The token gains value depending on the functions, roles, and purposes.

Importance of Security tokens

Security tokens are essential because of the role they play in the securities. Utility tokens need not follow any rules and regulations of the real world since they are used in the intended environment only; everything works as per the rules and regulations formed by the creators. When it comes to security tokens, they are representing something that exists in the real-world in real.

The security tokens are a digital representation of real assets in blockchain so that the transfer of securities will be smooth, verifiable, and, most importantly, to eliminate paper documents. Hence Security tokens should follow all the rules and regulations even when the ICO is conducted, then only it is termed as a success. Therefore these tokens are essential in connecting the real-world assets to the blockchain. The impact of security tokens is as below:

🧾 Credibility

The ICO space is not credible enough at the moment, with a lot of failures. Since the ICO’s of security tokens follow all the existing rules and regulations, people are confident enough to invest in the ICO’s where they are interested instead of thinking about the credibility infrastructure and stuff.

🧾 Reducing the costs associated with traditional finance

In traditional finance, a lot of money is involved in the form of registration when you want to transfer money from one person to another. Lawyers are required, as well. In the case of security tokens, a lot of money can be saved. Smart contracts will even further reduce the complexity involved in the process.

🧾 Execution times

Since no third party is involved, execution times are very less compared to traditional finance.

🧾 Unlimited Market

People from different countries find it extremely difficult to invest in any foreign country. Security tokens ease out this difficult task. Because of this simple reason, investors across the globe can invest without worrying about paper documentation, rules, regulations, and stuff.

🧾 Easier Liquidation

With the available platforms, it will be easy to liquidate your token whenever and wherever required since only the internet is required to liquidate your funds.

Even though the security tokens are less popular than the utility tokens, people will start flocking towards security tokens due to its functionality. Most prominently, it follows all the rules and regulations of the governments; hence these adhere to the credibility of people which utility tokens lack in general.

Categories
Forex Fundamental Analysis

What Is ‘GDP From Public Administration’ Forex Fundamental Driver All About?

Introduction

Introduction

Introduction

Public Administration is a critical aspect that drives overall economic growth. GDP from Public Administration can give us insights into the strength of the current central authorities’ efficiency in governance. Public Administration is the levers to the economic engine, and it can put brakes or accelerate the economy to sink into a recession or propel to economic growth. Hence, understanding Public Administration and its contribution to GDP will help us better understand its role in society’s functioning as a whole.

What is GDP from Public Administration?

Gross Domestic Product

GDP is the measure of a country’s total economic output. It is the total monetary value of all the goods and services produced within the country regardless of citizenship (resident or foreign national).

It is the market value of all the finished goods and services within a nation’s geographical borders for a given period. The period is generally a quarter (3 months) or a year.

The commonly used term “size of the economy” refers to this economic indicator. The USA is the world’s largest economy, and it means it has the highest nominal GDP or highest economic output.

Public Administration

It is the implementation of government policies. Public Administration is a part of every economy. Policies can be either monetary policy or fiscal policy.

Public Administration is concerned with the operations of government that run the nation. It is centered around the structuring of the Government policies and programs and government officials’ conduct to implement the same.

Public Administration’s definition and goals are vast subjects. In our analysis, we will only focus on the economic impact of Public Administration. 

How can the GDP from Public Administration numbers be used for analysis?

An analogy to understand the importance of Public Administration would be if an economy or nation is viewed as a car or engine. Public Administration would be the brake, gear, and acceleration levers. Levers determines whether the car moves forward or backward, and also the pace of movement.

Similarly, Public Administration determines what direction the economy’s growth is going towards and at what rate. Monetary policy is associated with the Central Bank of a nation. Fiscal Policies are associated with the Central Government. 

Officials working as per the Public Administration policies are called Civil Servants, together the Governing body and its policy determine how effectively the opportunities are maximized to satisfy the public demands and lead to overall economic wellbeing.

Policy reforms and effective Administration can reduce economic disparity amongst different classes of people, increase employment, wages, and business prosperity. Government Spending, Tax programs, Outlays, allowances, funding programs are all part of the Government policy. Public Administration determines how effectively such policies are implemented.

Public Administration provides the foundation for economic activity through laws and as a catalyst to economic wellbeing through its services. 

Without firm laws and regulations and active civil servants, the nation is in jeopardy. Weak governance and policy can sink the nation where corruption, political instability, riots, public protests, etc. can creep in. 

Services like transportation, maintaining law and order, road construction, police, jails, tax exemptions, medicare, social security, etc. directly may or may not generate revenue for the government but indirectly helps other sectors to boost overall economic prosperity.

When a nation’s government fails to stimulate the economy, there is a probability that it will continue for its elected period. Hence, International Investors can glean such clues from GDP from Public Administration figures. They can understand the behavioral nuances of the government and its probable impact in the upcoming quarters.

The government impacts the people and the business. On an absolute basis, the government has complete control over the nation for the elected period. It can bring about any policy reforms they see fit. It can help businesses or impede businesses. It can control money flow through the economy, and how much people pay taxes.

It is also essential to perceive that the GDP from Public Administration is only part of the government’s revenue. It assists in the functioning of other sectors through its public services that are not accounted for in the GDP. 

Hence, GDP from Public Administration itself does not tell us the real contribution of Public Administration in growth. The functions of a government span across various sectors and vary from region to region based on the economic region’s requirements.

Impact on Currency

The GDP from Public Administration is a low impact indicator, as the broader measures like Real GDP and GDP Growth Rates are more important for the Currency Markets. 

GDP from Public Administration does not paint the full picture of the economy, but it tells us the effectiveness of the current government and its policies. Still, for the International Currency Markets, it does not serve as a useful indicator.

It is a proportional and lagging indicator. Higher GDP from Public Administration is good for the economy and its currency, and vice-versa.

Economic Reports

For the United States, the Bureau of Economic Analysis releases quarterly GDP figures on its official website every quarter. The release schedule is already mentioned on the website and is generally released one month after the quarter ends.

In the full report, we can extract the GDP from Public Administration figures. We can also go through GDP by Industry to get the Public Administration performance in the report. Below is a sample of the same:

World Bank actively maintains track of GDP by Sector figures of most countries on their official website. Public Sector 

Sources of GDP from Public Administration

For the United States, the BEA reports are available here.

We can use the GDP by Industry to see the government’s contribution to GDP here. 

Different metrics like Public Debt, Expenditure, etc. are all categorically available here.

We can also find GDP from Public Administration for different countries here.

Impact of the ‘GDP From Public Administration’ news release on the price charts 

In the previous section of the article, we understood the importance of Public Administration in an economy and how it impacts economic growth. It plays an essential role in overseeing and shaping new impact market strategies. It is the responsibility of public administrators, whether policymakers or non-profit executives, to make use of the opportunity to ensure that the economy flourishes.

Profound policies are needed to facilitate private-sector investment in socially beneficial concerns. All this is in the hands of public administrators and the government. Therefore, the department has a fair amount of contribution to the GDP and the economy. When it comes to investing based on this information, investors do not make investment decisions based on the contribution from different sectors. They look at the final GDP and take a position in the currency.

In today’s lesson, we will analyze the impact of GDP on different currency pairs and see the volatility created after the news release. The below image shows the first-quarter GDP data of Singapore, where we see a significant drop in the GDP value compared to the previous quarter. Let us find out the reaction of the market to this data. 

USD/SGD  | Before the announcement

 

Let us start with the USD/SGD currency pair, where the above image shows the state of the chart before the news announcement. We see that the market is moving in a small ‘range,’ and just before the release, the price is at the top of the ‘range.’ This means we can expect selling pressure from this point that can take the price lower. However, it is better to take a position based on the volatility caused by the news announcement. 

USD/SGD  | After the announcement:

After the news announcement, we see that the price moves lower, and the market falls considerably. The market reacted oppositely to what was expected as it resulted in the strengthening of the Singapore dollar even though the GDP data was negative. The volatility increased to the downside, and eventually, the market turns into a downtrend.    

SGD/JPY | Before the announcement

SGD/JPY | After the announcement:

The above images are that of the SGD/JPY currency pair, where we see that the price is precisely at the ‘support’ before the news announcement. There is a high chance that the buyers might come back in the market and go ‘long’ in the currency pair. Since economists forecast a lower GDP for this quarter, it is advised not to take a ‘short’ position before the news release.

After the news announcement, the price initially moves higher, but this gets immediately sold into, and the candle closes with a large wick on the top. We witness a fair amount of volatility in the currency, and finally, it gets extended to the downside. One can take a ‘short’ position in the currency after noticing trend continuation patterns in the market and after confirmation from technical indicators.     

GBP/SGD | Before the announcement

GBP/SGD | After the announcement:

The above images represent the GBP/SGD currency pair, where we see that before the news announcement, the market has reversed to the upside, and currently, the price has reacted strongly from the ‘demand’ area. This indicates a high amount of bullishness in the currency pair and weakness in the Singapore dollar since it is on the left-hand side of the currency pair.

After the news announcement, the market falls lower, and the volatility slightly increases to the downside. The Singapore dollar gets more influential after the news release, despite reporting weak GDP data. Thus, we can conclude that there is some confusion in the market and hence it moves in both the directions. Traders should technically analyze and take positions accordingly. 

That’s about ‘GDP From Public Administration’ and its impact on the Forex market after its news release. In case of any questions, let us know in the comments below. Good luck!  

Categories
Forex Basic Strategies

Trading The Rapid Fire Strategy – A Reliable Scalping Technique

Introduction

Introduction

Introduction

In recent times, the scalping style of trading has gained a lot of attraction from all types of traders. These strategies are characterized by high-volume trading, which is designed to enter the market frequently to make just a few pips.

Most scalping strategies are built using indicators that can make it extremely tough for beginners who are new to the markets. This is one of the reasons why scalping is not recommended for new traders. Whichever scalping strategy we use, we need to make sure that the broker’s platform allows us to employ the strategy on the lowest time frames.

The two scalping techniques we will be discussing are – Rapid-fire and Piranha. These strategies are developed on the 1 minute and 5 minutes time frame charts, respectively. These two time-frames provide ample opportunities to enter in and out of the market several times a day.

Although scalping can be exciting, it can lead to fatigue and loss of concentration due to constant monitoring of the markets. Therefore, besides just knowing about the strategy, one should meditate and learn to be away from the markets when not required. Overtrading does not profit all the time.

The rapid-fire strategy has two basic requirements:

Highly liquid currency pair | Lower timeframe

This criterion led to the development of the strategy on the 1-minute time frame chart using the EUR/USD currency pair. With this strategy, one can find around 30 to 40 trading opportunities every day.

Time Frame

The rapid-fire strategy works well with the 1 minute and even 2 minutes time frame charts, where each candlestick represents one minute of price movement.

Indicators

We use two indicators for the rapid-fire strategy with the following settings.

  1. Parabolic SAR – Step size 0.02 | Maximum 0.2
  2. A simple moving average (SMA) with period 50 and apply to close.

Currency Pairs

The strategy is designed specifically for most liquid currency pairs as EUR/USD, GBP/USD, USD/JPY, and a few others. However, the EUR/USD pair is the most preferred pair for the strategy.

Strategy Concept

The rapid-fire is basically a trend trading strategy. So, we will be applying the strategy on the pullback of a major trend. The strategy combines two trend indicators, SMA 60 and Parabolic SAR, with the appropriate setting. The SMA is used to identify the major trend of the market. This means we look to buy the currency pair when the price is above the SMA, and similarly, we look to short the pair when the below the SMA.

The Parabolic SAR is used to give the exact entry signal after identifying the market direction and pattern. Once we identify the direction, when the price moves above or below the parabolic SAR, we take a trade based on the current position of the price. Let us understand this in detail.

Trade Setup

In order to explain the step by step procedure of the strategy, we have considered the EUR/USD currency pair where we will be applying the strategy on the 1-minute time frame chart. It is advised not to switch to a time frame any lower than 1 minute as it is very hectic.

Step 1

Since it is a trend trading strategy, the first step is to identify the major trend of the market and wait for a retracement. If the retracement comes close to the SMA, it is the ideal case of a pullback. The longer the price remains above or below the SMA, the stronger is the trend.

In our example, we see the market is in an uptrend, as shown in the below image, where the price is well above the SMA for a long time.

Step 2

We can see that there are two dotted lines of the parabolic SAR, an upper one, and another is the lower. The next and most crucial step of the strategy is looking for the entry signal. In case of an uptrend, when the price retracement comes in from the highest point, the price is below the parabolic SAR, which means the price is still in its retracement frame. When the price goes above the upper dotted line of the parabolic SAR, it signals a continuation of the trend, and we enter right at the close of the candle above the SAR.

In the below image, we can see how the price crosses the parabolic SAR and signals an upward price movement.

Step 3

This is the final step of the strategy, where we determine our take-profit and stop-loss levels for the strategy. The stop loss is placed below the previous ‘low,’ or in some cases below the second previous low if the previous low is too close. In case of a downtrend, it is above the previous ‘high.’ As the stop loss is not too big, the risk to reward ratio is more than 1 for this strategy. The take-profit is set at 15-20 pips above or below the entry price, depending on ‘long’ or ‘short’ position.

In our case, the risk to reward of the trade was 1.5, where the market moves further above the take-profit point. Since we are trading with the trend, the trade has the potential to move much further, and thus, one can use trailing stop loss to maximize the gains.

Strategy Roundup

The rapid-fire strategy could also give another entry signal during the course of current trade. It is common to encounter consecutive trade signals one after the other, simply because of the low time frame being used. However, it requires a lot of practice before one can spot them. One should know how to manage the trades, especially when the setups come in fast and furious. The rapid-fire strategy works best in trading markets, which requires quick thinking and swift reactions.

Categories
Forex Assets

Asset Analysis – Trading The CHF/BRL Exotic Forex Pair

Introduction

Introduction

Introduction

The abbreviation of CHF/BLR is Swiss Franc, paired with the Brazilian Real. In this pair, CHF is the native currency of Switzerland and is also the fifth vastly traded currency in the Forex market. Likewise, BRL stands for the Brazilian Real, and it is the official currency of Brazil. This is classified as an exotic Forex pair.

Understanding CHF/BRL

In the Forex market, to ascertain the relative value of one currency, we need another currency for comparison. When we buy a currency (recognized as the base currency), we are indirectly selling another currency (known as the quote currency). The market value of CHF/BRL helps us to comprehend the power of BRL against the CHF. So, if the trade rate for the pair CHF/BRL is 5.7715, it means to buy 1 CHF, we need 5.7715 BRL.

CHF/BRL Specification

Spread

Spread is the difference among the bid-ask price that is set at the exchanges. Below are the spread values of the CHF/BRL currency pair in both ECN & STP accounts. The spread charges for ECN and STP brokers for CHF/BRL pair are as follows:

ECN: 24 | STP: 29

Fees

For every spot, a trader enters the stockbroker charges a specific fee for it. Traders must know that this fee is charged only on ECN accounts and does not apply to STP accounts.

Slippage

Slippage is the price distinction between the broker executed price and the trader execution price. The difference is caused due to the market’s high volatility and slow execution speed.

Trading Range in CHF/BRL

A trading range is the explanation of the volatility in CHF/BRL in numerous timeframes. The values are attained from the Average True Range indicator. One can use the table as a risk management tool to distinguish the profit/loss that a trader is possessed.

Below is a table indicating the minimum, average, and max pip movement in several timeframes.

Procedure to assess Pip Ranges

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

CHF/BRL Cost as a Percent of the Trading Range

The total cost of the trade changes based on the volatility of the market, hence we must number out the occasions when the costs are less to place ourselves in the market. The table below displays the variation in the costs based on the change in the market’s volatility.

Note: The ratio represents the relative scale of costs and not the fixed costs on the trade.

ECN Model Account

Spread = 24 | Slippage = 5 | Trading fee = 8

Total cost = Slippage + Spread + Trading Fee = 5 + 24 + 8= 37

STP Model Account

Spread = 29 | Slippage = 5 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 5 + 29 + 0 = 34


The Ideal way to trade the CHF/BRL

With the help of the above tables, let us assess these two factors to the trade the CHF/BRL. Volatility and cost are two elements a trader must consider for trading any security in the Forex market.

In various timeframes, we can see the pip movement being very high between the minimum volatility and the average volatility. As a day trader, the aim is to make profits from the pip variation in the market. It becomes tricky to extract some profits from the market if there are no variations in the pip value.

When the cost goes higher, the volatility of the market decreases. In other words, the market with high volatility have minimal costs. To strike a balance between the volatility and the cost, traders should find an appropriate time when the volatility is close to the average values or slightly about it.

Additionally, traders can also reduce their total costs by placing ‘limit orders’ instead of ‘market orders.’ This will ultimately cut the slippage on the trade and consequently lower the total cost. In the below example, the total cost would decrease by five pips, which is a modest reduction for just altering the type of order execution.

STP Model Account (With Limit Orders)

Total cost = Slippage + Spread + Trading Fee = 0 + 29 + 0 = 29

Categories
Crypto Guides

What Are The Different Business Models Based On Blockchain Technology?

Introduction

Introduction

Introduction

With the invention of bitcoin, Blockchain has become mainstream. Industry experts in almost all industries are exploring Blockchain to change their business models to make use of decentralization to achieve more transparency, thereby gaining more profits. The business model is nothing but how the business is operated to make money ultimately.

With features like immutability, transparency, and decentralization, Blockchain can create ripples in any industry that haven’t seen much change for some decades. Blockchain’s mainstream application has been in finance, which has seen rapid changes though Blockchain hasn’t been implemented to a considerable extent yet.

Implementing Blockchain isn’t an easy task. Hence, one should consider all the available technologies first and implement Blockchain only if any other current technology doesn’t make the same impact of Blockchain if implemented. The technology shouldn’t be useful not only for the business but for the end-users as well.

Let us look at some of the blockchain business models below:

Blockchain as a Service (BaaS)

The days are gone where the businesses try to host everything on their own. Investing in large servers, hiring staff to maintain them is a costly process, and no one wants to do it anymore unless they have large amounts of money to burn. Hence everyone wants to move to the cloud. When it comes to Blockchain, if one has to set up a blockchain network, they must search for blockchain experts who are rare and costly to obtain the talent, if any.

Train your existing staff, which is again time-consuming; hence BaaS plays a vital role in implementing Blockchain in any business. Blockchain as a Service is also provided by cloud providers where a lot of scary backend stuff can be set up and maintained by them while the business can only focus on their business. Large cloud providers like AWS, Microsoft Azure, IBM, Oracle are already offering BaaS services.

Securities

Securities is one of the exact innovational models which didn’t exist before Blockchain. Security tokens offer ownership of an asset. A token can be classified as a security token if a profit is expected from the primary asset linked to the digital asset.

For example, a piece of gold bar say 1kg can be owned by multiple people in the form of security tokens as the price of the gold increases the value of the security token increases and vice versa. If the ICO of such tokens is adequately implemented with all the rules abided, the security tokens have immense opportunities.

Utility Tokens

Whenever we buy some material things, we look at the utility of the material to gauge our satisfaction. Utility tokens do the same thing in the businesses they use. Each utility tokens have a purpose, role, and features in the environment they are used to. In our articles, we have seen DAO’s, which can be accumulated to deserve the voting rights for the DAPPs to be developed.

DAO’s are a perfect example of Utility tokens. Ripple acts as a utility token in the banks involved with the Ripple ecosystem. The tokens can be used as a currency as well in the confined environment. The value of the utility tokens increases depending on the number of roles and purposes it has in the intended environment.

Development Platforms

Development platforms like Ethereum, Hyperledger, Tron play a vital role in the augmentation of blockchain technology. The development of DAPPs on these platforms is secure in implementing the technology as, by default, they offer Blockchain’s fundamental properties. The more DAPP’s in the network, the more influential the platform will be as more people will be using the same.

The deployment of DAPPs in the Ethereum platform needs the payment in terms of Gas, the platform’s local currency, which allows one to use it. In the same way, to use the Neo platform, users have to pay in Gas, the platform’s local currency. Even the DAPPs may collect a nominal fee in terms of Gas again to use the apps, thus improving the functionality continuously.

Categories
Forex Fundamental Analysis

‘GDP From Manufacturing’ – Understanding The Macro Economic Indicator & Its Impact

Introduction

Introduction

Introduction

GDP from Manufacturing is significant for many developing economies. It is their primary driver for economic growth to improve the standard of living and generate wealth. Manufacturing Sector has supported a large share of jobs in the economy. 

Manufacturing Sector has helped many economies to come out of underdeveloped status to developing nation status. Hence, understanding GDP from Manufacturing has varying significance in different countries is suitable for macroeconomic view in the international markets.

What is the GDP from Manufacturing?

Gross Domestic Product

GDP is a basic measure of a country’s total economic output. It is the total monetary value of all the goods and services produced within the country regardless of citizenship (resident or foreign national).

It is the market value of all the finished goods and services within a nation’s geographical borders for a given period. The period is generally a quarter (3 months) or a year. The commonly used term “size of the economy” refers to this economic indicator. The USA has the world’s largest economy, and it means it has the highest nominal GDP or highest economic output.

Manufacturing

It is producing goods for use or sale labor, processing equipment, or machinery. It is a process that could be physical, chemical, or mechanical. The manufacturing sector mainly uses raw materials to make finished goods for consumption by end customers or intermediate goods for other manufacturing industries. For example, a car Manufacturing company could import raw iron ore metal, and process it to produce metal car body parts.

In the lifecycle of a finished good, the Manufacturing comes in as the second stage in the supply chain right after the source of raw materials. The manufacturing sector includes plants, factories, mills, and generally use power-driven machinery in their process. The manufacturing sector can also include small businesses, or home startups like bakeries, candy stores, or custom tailors, etc.

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

Manufacturing is an essential component of GDP. In the United States, it contributed 11.6% of total GDP. Manufactured products make up half of the total United States exports. In the United States alone, the Manufacturing Sector has 12.85 million jobs, about 8.5% of the total workforce. The importance of the Manufacturing Sector is evident from the rapidly developing economies like China, Japan, and India. 

The industrialization has been the main propellent for economic growth in these countries that put them back on the map. With export-led growth, China has primarily used Manufacturing Sectors to achieve growth rates of 10% and above to catch up with the advanced economies like the United Kingdom, and the United States. Manufacturing Sector is a labor-intensive sector, and it requires skilled labor. Despite the advent of modern technologies, equipment, and automated machinery, it still requires skilled laborers to fill the gaps.

Developing economies do not have a competitive edge over the developed economies in the services sector. But they do have the advantage in the Manufacturing and Industrial Sectors due to the availability of cheap labor. The low costs associated with a low standard of living and maintenance attracts business to establish their production centers in such countries. For example, an autoworker in Detroit makes 58 dollars an hour compared to 8 dollars in Mexico.

With an improved standard of living in developed economies like the United States, the cost of labor is high in comparison. It is the primary reason for the decline in the Manufacturing Sector growth in the developed economies for over two decades, paired with rapid growth in developing economies during the same period. 

With many developed economies transitioning more into the services sector, the Manufacturing Sector has lost its fair share in developed economies while developing ones like China have significantly increased their Manufacturing Industry production levels. 

About Thirty percent of the GDP of China comes from the Manufacturing Sector alone. Hence, we can understand that the Manufacturing Sector is the primary source of growth for many developing countries. The above plot shows the increase in Manufacturing Production in China. It is steady and steep growth. The vertical axis is plotted in CNY HML (Chinese Yuan Hundred Millions).

As the countries develop, they start to get involved in the Service sector by investing the wealth generated from the Manufacturing Sector to come on par with developed economies and establish a total equilibrium. But there is a long way to go before all developing economies become developed.

Impact on Currency

The GDP from Manufacturing in itself is not a high impact indicator, as the broader measures like Real GDP and GDP Growth Rates are more important for the Currency Markets. GDP from Manufacturing does not paint the full picture of the economy. It can be an essential tool for the Central Authorities to keep track of Manufacturing Sector performance and its implications to the economy.

As established, the Manufacturing Sector is a significant contributor to economic growth for developing economies. Hence, changes in this sector widely affect the overall economic health, and all the dependent industries therein. It is a proportional and lagging indicator. Higher GDP from Manufacturing is good for the economy and its currency, and vice-versa.

Economic Reports

For the United States, the Bureau of Economic Analysis releases quarterly GDP figures on its official website every quarter. The release schedule is already mentioned on the website and is generally released one month after the quarter ends.

In the full report, we can extract the GDP from Manufacturing figures. We can also go through GDP by Industry to get the Manufacturing Industry performance in the report. The World Bank actively maintains track of GDP by Sector figures of most countries on its official website.

Sources of GDP from Manufacturing

For the United States, the BEA reports are available below: 

World Bank also maintains the Manufacturing Sector’s contribution as a percentage of GDP on its official website, as given below for reference. ‘GDP From Manufacturing’ of various economies can be found here.

Impact of the ‘GDP from Manufacturing’ news release on the price charts

The manufacturing sector is crucial for the development of a country. The growth of machinery output and technological improvements are the main drivers of economic growth. The service sector, too, is dependent on most of the manufactured goods. Manufacturing also revives the economy by creating tens of millions of new jobs, eradicating recession.

Therefore, the manufacturing sector contributes a significant part of the GDP of a country. When we drill down to the fundamental analysis of the currency, investors do not look at the manufacturing sector’s contribution alone but consider the distinct GDP as the leading indicator of economic growth.

For example, we will be analyzing the influence of GDP on various currency pairs and see the impact it makes on the value of a currency. The below image displays the previous and latest GDP in the United Kingdom released in May, where we see a significant drop in the GDP compared to the previous month. Let us find out if the market reacts positively or negatively to the news release.  

GBP/USD | Before the announcement:

We shall start our analysis with the GBP/USD currency pair, where the above image shows the properties of the pair before the news announcement. We can see in the above image that the market is in a downtrend, and recently the price has been moving within a ‘range.’ Since the GDP announcement is a high impact event, we should wait for the news release to clarify the direction of the market.  

GBP/USD | After the announcement:

After the news announcement, we witness a slight amount of volatility in the currency pair where the price initially goes up, and later it closes with a wick on the top. We do not observe the kind of impact that was expected due to the news release may be because the market had already priced in a negative outlook. Since the impact was less, we should look to trade the currency pair based on technical indicators and chart patterns.     

GBP/CAD | Before the announcement:

GBP/CAD | After the announcement:

The above images represent the GBP/CAD currency pair, where we see in the first image that the market seems to be resuming the downtrend after a price retracement to the resistance. Given that the impact of GDP announcement is high, we will look to take a ‘short’ only after confirmation from the market. There is a probability that the market may turn to the upside from this point if the news comes out to be positive for the British Pound.

After the news announcement, we see that the price rises above the moving average, and it closes with some bullishness. Even though the GDP data was fragile, traders bought British Pound and strengthened the currency. One of the reasons could be that the market has factored in the negative expectations, which led to a positive reaction after the news release. One should analyze the pair technically before taking a position in the currency.  

EUR/GBP | Before the announcement:

EUR/GBP | After the announcement:

The above images are of the NZD/GBP currency pair, where we see that the market is in a steady uptrend before the news announcement, signifying the enormous amount of weakness in the British Pound. Ideally, we will be looking to buy the currency pair after a suitable price retracement to the ‘support’ or ‘demand’ area. By the way, we should also not forget that the news release can reverse the trend.

After the news announcement, we see that the market reacts negatively to the news release but positive for the British Pound since it is on the right-hand side of the currency. The volatility slightly increases to the downside, which is evident from bearish ‘news candle.’

That’s about ‘GDP from Manufacturing’ and its influence on the Forex market after its news release. If you have any questions, please let us know in the comments below. Good luck!

Categories
Forex Daily Topic Forex Fundamental Analysis

What Does ‘Gross Fixed Capital Formation’ Economic Indicator Tell About A Nation’s Economy?

Introduction 

Introduction 

Introduction 

Gross Fixed Capital Formation can help us as a leading indicator of economic growth. GFCF figures increase when growth is forecasted, be it for companies, governments, or organizations, etc. Understanding this macroeconomic indicator can help us understand the level of economic activity going on the global scale and forecast the changes in the rate of growth for different economies, as indicated by the Gross Fixed Capital Formation figures.

What is Gross Fixed Capital Formation?

Gross Fixed Capital Formation (GFCF) is a measure of gross net investment into fixed capital goods by companies, governments, and households within the economy for a specific period. It is also called investment in short, or business investment generally.

Capital Goods: These are tangible assets that are used by companies to produce consumer goods and services. In simpler words, it refers to the physical goods required by a company to run its business. For example, a transportation company will have trucks as its capital assets that enable them to run its business and generate revenue. An IT company would have computers that would be its capital assets or goods that help it run its business. Any tangible (or physically quantifiable) good required in assisting the company production is termed as Capital Goods. Hence, Capital Goods can be tools, equipment, raw materials, transportation assets, power supply, etc.

Hence, GFCF is a measure of how much a company invests in acquiring capital assets to maintain or enhance its production capacity and efficiency. Capital Formation is a necessary component for any business or government operation. 

It is called “Gross” because it does not take into account the adjustments to consumption associated with the fixed capital, i.e., depreciation of the fixed capital assets that occur over time due to normal wear and tear. 

GFCF is not a gauge of total investment. It only measures net addition to fixed assets, and all financial assets are excluded along with inventory stocks and other operating costs. Among all these exclusions, the essential exclusion is that of real-estate (land sales and purchases). Real estate transactions only mean that land has been only transferred in ownership from one organization to another and is only included when a new land that did not exist before was created and added into the economy.

How can the Gross Fixed Capital Formation numbers be used for analysis?

As the capital goods wear out over time and a decrease in value, companies that cannot afford new capital goods will observe a reduction in production output. Also, a company that plans on expansion would be required to acquire new capital assets to increase its production capacity.

The difference in the Capital Formation figures for different countries reflects the economic development rate and the catch-up process amongst the compared economies. Higher investment rates into capital goods in less developed economies will lead to improved living standards in the long term on account of accelerated economic growth and improved equipment for the workforce with modern technology. 

GFCF is, in a way, a measure of how much of the revenue is invested back into its growth. The higher the investment into its growth, the more accelerated growth the economy undergoes in the long-run. Of course, when a portion of the revenue goes back into the business itself, it leaves lesser revenue for the shareholders or the business owners in the short run, but it pays off in the long run.

Changes in GFCF is indicative of fluctuations in business activity, business confidence, growth pattern. During economic uncertainty or a recession, business investment is reduced, as decreased revenue is consumed for immediate needs and maintenance operations. On the other side, during times of consistent economic growth and stable market, there is a general increase in GFCF as it is more likely to yield favorable returns in the future. It is less risky to invest in a stable market environment.

The below snapshot of the GFCF for the United States establishes our analysis point above:

Impact on Currency

GFCF is a proportional macroeconomic indicator. It is very suitable for macroeconomic analysis and is more suited to the regional or international level analysis of market conditions. While the increase in the GFCF figures is good for the economy in the long run, it is an especially useful indicator for long term traders and investors. It is not a very reliable measure for short-term currency market volatility assessment.

It is a quarterly report, and hence, other monthly indicators would be more appropriate for traders looking to stay ahead of the fundamental trends. But this GFCF is a leading indicator for companies, or economic growth both and can act as a double-check for our fundamental analysis.

Hence, in the currency markets, the GFCF figures bear low impact due to the frequency of release, and its long-term trend indicative nature makes it a less favorable indicator for day and swing traders.

Economic Reports

The GFCF figures are macroeconomic indicators and are generally available on the official websites of international organizations like the OECD (Organization for Economic Co-operation and Development), World Bank, or IMF (International Monetary Fund). The reports are released quarterly and annually for most countries, as data becomes available from different countries’ respective reporting institutions.

Sources of Gross Fixed Capital Formation

For the United States, the St. Louis FRED maintains the OECD data of GFCF here. 

You can find the GFCF data for all the OECD countries on its official website here.

You can find the GFCF list for various economies in the sources mentioned below. 

GFCF – Trading Economics

GFCF – World Bank

GFCF – United Nations

GFCF – IMF

Impact of the” Gross Fixed Capital Formation” news release on the Forex market

In the above section of the article, we defined the Gross Fixed Capital Formation economic indicator, which estimates the value of acquisitions of new or existing fixed assets by the business sector, governments, and households. When this value is subtracted from the fixed assets, we get the Gross Fixed Capital. Investors around the world consider this indicator to be an essential determinant of the GDP of a country. This value is directly reflected in the GDP as it measures the total assets owned by the government and individuals. 

In today’s article, we will be analyzing the impact of Capital Formation on the value of a currency and watch the change in volatility due to the news announcement. For that purpose, we have collected the previous and latest Capital Formation data of Japan as it is shown in the below image. A higher than expected number is considered to be bullish for the currency while a lower than expected number is considered bearish. Let us find out the reaction of the market to this data.

USD/JPY | Before the announcement:

The first pair we will be reviewing is the USD/JPY currency pair, where the above image shows the characteristics of the price before the news announcement. It is very clear from the chart that the market is in a strong downtrend with no retracement. This means the Japanese Yen is stable, and we might not see price retracement until strength comes back in the U.S. dollar.    

USD/JPY | After the announcement:

After the news announcement, volatility increases to the upside, and the price shows signs of bullishness. Since the Japanese Yen is on the left-hand side in this pair, and increasing price signifies the weakening of the currency. The market reacted negatively to the news release due to the weak numbers. However, we see that weakness does not sustain, and the volatility increases to the downside after a couple of candles.

GBP/JPY | Before the announcement:

GBP/JPY | After the announcement:

The above images are that of the GBP/JPY currency pair, where we see in the first image that the market is in a strong downtrend indicating that the Japanese Yen is stable. As there is a lot of bearishness in the market concerning the British Pound, an ideal trade plan would be to take a ‘short’ trade as the price pulls back to a ‘resistance’ or ‘supply’ area. Until then, we cannot position ourselves in the currency pair. After the news announcement, the price initially moves higher, owing to weak Capital Formations data where there was a reduction in the total assets compared to the previous quarter. Due to the selling pressure witnessed from the top, the weakness in Japanese Yen does sustain, and the ‘news candle’ closes with a wick on the upper side. The market fails to retrace even after the news release, and the price continues to move lower.       

CAD/JPY | Before the announcement:

CAD/JPY | After the announcement:

The above images represent the CAD/JPY currency pair, where the characteristics of the chart appear to be similar to that of the above-discussed pairs. The price is violently moving lower before the news announcement with almost no retracement of any kind. We will be looking to sell the currency pair only if we geta price retracement due to the news release or any other release.

After the news announcement, we see the volatility increases to the upside for some time, and the ‘news candle’ closes with some bullishness. The market goes up as a consequence of the below than expected Capital Formation data where there was a reduction in the Capital Formation during the fourth quarter. Cheers!

Categories
Crypto Guides

‘Decred’ – The First Of Its Kind Autonomous Digital Currency

Introduction

Introduction

Introduction

Decred (DCR) stands for Decentralized Credit and it is an autonomous digital currency. As the name says, it brings decentralized decision-making and governance to the platform in the form of votes from both miners and holders of the coin. The value proposition of this coin is that it is secure, adaptable, and sustainable on its own.

The coin is secure since it uses the combination of proof of work (POW) and Proof of Stake (POS) hybrid consensus mechanism. Hence, it is more expensive in order of magnitude to attack a hybrid model. The adaptable part of the coin is because of the voting rights granted to its miners and holders, providing them their say in the project level decisions. This will prevent hard forks and help in developing technology as we go further.

Lastly, they are sustainable as 10% of each block reward goes to the treasury. This leads to a very flexible model to incentivize the miners/contractors for their work.

How does the hybrid POW/POS work?

🏳️ The first block is mined using standard Proof of Work mechanism.

🏳️ Randomly five validators with a stake in the system are chosen from the pool to validate the block.

🏳️ If three out of the five validators are in consent with the validity of the block, the block gets added to the blockchain.

🏳️ 60% of the reward goes to the block miners, 30% of the reward goes to the validators while 10% of the reward goes to the Decred project treasury.

While the POW mechanism is pretty the same, POS needs some explanation in the context of Decred.

🏳️ People with DCR should buy some tickets to be part of the validators pool in the system

🏳️ For each block, only 20 tickets are allowed, and hence you have to pay some fee if you have to be selected as a validator quicker

🏳️ Once you are selected as a validator, your ticket will be treated as immature until 256 blocks are mined, approximately equal to 20 hours.

🏳️ Once your ticket is entered into the lottery pool, five validators are chosen randomly, and hence one has to wait for their chance. The system is designed in such a way that the chance of a ticket being selected as a validator is 99.5% before its expiry, which is four months in general.

Security

It is estimated that it is nearly 22 times more expensive to hack a hybrid POW/POS consensus mechanism than a pure POW network. Hence the system is very secure.

Governance

As we have already said before, the project level decisions are taken in the form of voting by both miners and holders of the DCR. Decred has never done an ICO or take funds from any private organization. They have created their funds like Dash, with every 10% of block reward going to the treasury. This treasury is maintained via DAO’s, decentralized autonomous organizations, which run on their own. This is how it works.

  • Anyone in the community can propose an improvement proposal for a small fee to avoid any spam.
  • Stakeholders, miners/holders can vote on the projects that they would likely to be received funding
  • Once approved, the funds are released in the form of a decentralized autonomous entity (DAE’s).

Decred is an excellent project due to its governance system. There are thousands of cryptocurrencies, but it’s scarce that any one of them has a good governance mechanism. A suitable governance mechanism ensures the network’s credibility and also forking of any form is avoided. Decred is a highly underrated project which should be recognized for its innovation. Cheers!

Categories
Forex Assets

Examining The Volatility Of CHF/TRY Forex Exotic Pair

Introduction

Introduction

Introduction

The abbreviation of CHF/TRY is Swiss Franc, paired with the Turkish Lira. In this pair, CHF is the official currency of Switzerland and is also the fifth highly traded currency in the Forex Exchange market. In contrast, TRY stands for the Turkish Lira, and it is the official currency of Turkey. This pair is classified as an exotic pair.

Understanding CHF/TRY

In the Foreign exchange market, to determine the relative value of one currency, we need an alternative currency to evaluate. Hence, when we are buying a currency (base) we are simultaneously selling one (the quote currency). The market value of CHF/TRY helps us to understand the power of TRY against the CHF. So, if the trade rate for the pair CHF/TRY is 7.1972, it means to buy 1 CHF, we need 7.1972 TRY.

CHF/TRY Specification

Spread

Spread is the distinction between the ask-bit price that is set at the exchanges. Below are the spread values of the CHF/TRY currency pair in both ECN & STP accounts. The spread charges for ECN and STP brokers for the CHF/TRY pair can be found below.

ECN: 35 pips | STP: 40 pips

Fees

For every position, a trader enters the stockbroker charges some fee for it. Traders must know that this fee is charged only on ECN accounts and not on STP accounts.

Slippage

Slippage is the price difference between the trader’s execution and at which the broker executed the price. The difference is because of the high market volatility and slow execution speed.

Trading Range in CHF/TRY

A trading range is the interpretation of the volatility in CHF/TRY in several timeframes. The values are obtained from the Average True Range indicator. One can use the table as a risk management tool to identify the profit/loss that a trader is possessed.

Below is a table indicating the minimum, average, and max volatility (pip movement) on various timeframes.

Procedure to assess Pip Ranges

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

CHF/TRY Cost as a Percent of the Trading Range

The total cost of the trade fluctuates based on the volatility of the market. So, we must figure out the occasions when the costs are less to place ourselves in the market. Below is a table demonstrating the variant in the costs based on the change in the volatility of the market.

Note: The percentage rates represent the relative scale of costs and not the fixed costs on the trade.

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 CHF/TRY

Volatility and cost are the two components traders take into consideration for trading any security in the market. With the assistance of the above tables, let us evaluate these two factors to trade the CHF/TRY Forex pair.

As we can see, the pip variation is significantly high between the minimum volatility and the average volatility in each timeframe. As a day trader, our aim is to make income from the market’s pip movement. But, if there is hardly any movement in the price, it becomes tricky to make profits from the market. Thus, it is ideal to trade when the volatility is at the average value.

The cost of trade rises as the volatility decrease. They are inversely proportional. In other words, highly volatile markets have minimum costs. Though it is quite risky to trade markets with higher volatility, it can be considered by aggressive traders with optimal money management techniques in place as the costs are low. Hence, to retain a balance among the cost and volatility, traders may find trading occasions when the volatility is near the average values or a little above it.

Categories
Forex Basic Strategies

How To Trade The ‘Higher High Failure’ Countertrend Strategy?

Introduction

Introduction

Introduction

There are millions of strategies out there in the market. Some work exceptionally well, while some fail miserably. Trading successfully is not about knowing several strategies, but about one strategy that works consistently. All professional traders are never in the hunt for trying out different strategies. They have expertise in a single strategy and know when to apply it and when not to.

Here, in this article, we shall be walking you through a simple yet extremely strategy that both day and positional traders can apply. Besides, we will enlighten you on the dos and don’ts of the strategy.

Understanding a Trend

The most evident state of the market is a trend. It is indeed the best state to trade as one can easily bet on the market’s direction. In technical terms, the trend is the state of the market, where the price makes higher-highs/higher-lows or lower-lows/lower-highs.

A trend alone can be of different types – based on the pattern. The above image of a trend is how an ideal trend looks like. However, the number of occurrences of this type of trend is very less. Apart from the ideal trending market, we can have other types of the same state.

Figure 1: In this type, the market breaks about the Support and Resistance (purple line), retraces through the line, and then makes another higher high.

Figure 2: Here, the market makes a HH by breaking about the S&R (purple line), pulls back insignificantly, away from the S&R, and makes a higher high.

Figure 3: The market made HH passing through the S&R, retraced a little, tried to make a higher high, and failed. Later, it retraced more than the previous time, and then successfully made a HH.

What is the ‘Higher High Failure’ Countertrend Strategy?

The “Higher High Failure” countertrend strategy is based on the third figure of the above image. It is named countertrend because the overall trend of the market is up, but the strategy is to take a short position.

According to the strategy, in an uptrend, if the market fails to make a higher high on the very first attempt, then one can prepare to go short on the security.

Logic

In a sequence of higher highs and higher lows, if the market fails to break above the recent HH, it is an indication that the trend is preparing for another push down before heading up. The failure also indicates that the buyers are not strong enough to push the market higher with one retracement. Since the buyers are slowing down, one can swing down from the seller before the market resumes its trend. Note that the length of this south wing depends on the strength difference of the buyers are sellers.

Trading the Higher High Failure Strategy

Consider the below chart of Euro / US Dollar on the 1H time frame. We can see that the market is in an uptrend making higher highs and higher lows.

The most recent higher high made by the market was 1.11834. The market then retraced to 1.1098, tried to make a new high from the previous one, but failed by leaving a wick on the top.

The failure to make a higher high indicates that the buyers are losing momentum, and as a result, the sellers could temporarily take over the market. In addition, the wick on the top at the resistance area signifies the strength of the sellers. Thus, right after the price shoots down at holds below the S&R (grey ray), one can go short on the pair.

Take Profit Placement

Since the buyers shot up from 1.10988 the previous, we can expect a reaction from the same level. Hence, 1.10988 would be the safest level to place the take profit level. If the sellers are strong in momentum, one can ride down until the S&R.

Stop Loss Placement

Stop-loss few pips above the wick can keep you away from getting stopped out. But it is risky to keep the stop loss right above the resistance level.

On the flip side, this strategy will work like a charm on a downtrend as well. For a downtrend, the strategy could be termed as a “Lower Low Failure” countertrend strategy. Let’s take an example of the same and understand how to trade a down-trending market.

In the below chart of GBP/CAD, we can see that the market is in a downtrend, making lower lows and lower highs. Level 1.70006 was the most recent LL. The market retraced to the S&R and tried to make a new LL but failed. During the failure to make a LL, a spinning top candle appeared, which was then followed by a bullish candle to close above the LL level. This confirms that the sellers are have temporarily faded out, and the buyers are going take over the market.

Take Profit Placement

Take profit can be placed at the price where the market tried to make a lower low previously. In this example, the TP would be at the S&R.

Stop Loss Placement

The safest stop loss for this strategy would be right below the price where it failed to make a LL.

Important Points to Note

  • The price should attempt to make a higher high and fail. The strategy cannot be considered for an equal high.
  • After the failure to make HH, the price should hold below the S&R level.
  • The strategy will not work if the price makes HH, holds, and then drops below the S&R.
  • Since it is countertrend trade, make sure to take profits at every hurdle.
  • The stop loss must be above the high of the higher high failure, NOT right at the resistance.

We hope you found the strategy interesting and useful. Do test it out in the live market and let us know the results in the comment section below. Cheers!

Categories
Forex Fundamental Analysis

The Impact Of ‘GDP From Agriculture’ News Announcement On The Forex Price Charts

Introduction

Introduction

Introduction

Economic output from the Agriculture Sector is non-negotiable for the economy. The increasing population must be fed and meet the demands of consumption at all times. Hence, the Central Government is committed to making positive growth in the Agriculture Sector. Agriculture Sector is the primary sector where Government Spending goes.

Since food is an essential commodity, it is an ever-green industry that will never run out of demand. Hence, understanding this sector can help us understand dependent industries’ performance and expenses associated with personal consumption.

What is GDP from Agriculture?

Gross Domestic Product 

GDP is the measure of a country’s total economic output. It is the total monetary value of all the goods and services produced within the country regardless of citizenship (resident or foreign national).

It is the market value of all the finished goods and services within a nation’s geographical borders for a given period. The period is generally a quarter (3 months) or a year.

Agriculture Sector

Also, it accounts for all the activities associated with crop production called the Primary Sector of an economy. From the point of cultivation to end-marketing of the food products all are accounted under the Agriculture Sector. It primarily includes farming, fishing, and forestry.

The quick increase in the world population has put pressure on the Agriculture sector to bring innovations through science and technology to increase crop yield. Agriculture Sector is the primary source of food for a country’s population.

The Agriculture Sector goes beyond farm business and includes farm-related industries like Food Service and Food Manufacturing (Packaged Foods, Processed Foods).

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

The agriculture sector contributes about 6.4% of the World GDP. The most significant contributor to this being China, followed by India. China accounts for 19.49%, and India accounts for 7.39% of total agricultural output. The United States is in third place. 

It is necessary to understand the economic output of Agriculture is a function of population, as China, India, and the USA are ranked in population terms in the same order.

The three sectors of the economy, namely, primary Sector, secondary (Industry) Sector, and tertiary (Service) sector, contribute to the overall GDP. It is common for developed nations to have a high contribution to GDP from the Service Sector. Developing economies like China, Japan would have higher contributions from the Industry Sector. The underdeveloped economies would have Agriculture or Primary Sector as a leading contributor to GDP.

In the United States, the entire Agriculture Sector contributes about 5.4% of the GDP. The farms have only contributed 1% of GDP, and the rest is contributed to by the dependent industries that rely on agricultural input to produce goods. The Food Service, Textiles, Beverages, Processed Foods, Tobacco products, etc. contribute the remaining 4% to the GDP.

11% of the total U.S. employment is accounted for by the Agriculture Sector, which is about 22 million jobs in 2018. Food accounts for 13% expenditure of an average American Household. 

It is essential to understand that food is an essential requirement for conducting our livelihood. Hence, Government Spending first prioritizes the Agriculture Sector and releases benefit programs to assist the sector and maintain and grow its economic output. The society and Government will quickly collapse if the Agriculture Sector slows down, and that is why it is called the “Primary Sector.”

The Government Outlays on Food Programs and Nutrition Assistance exceeds that of any other federal program. Improper management and assistance to the Agriculture Sector can lead to price hikes in the food industry. It would trigger a negative response from the public that could cost them in the next elections. Hence, the Government is committed to assisting the Agriculture Sector at all times, good or bad.

Impact on Currency

GDP from Agriculture in itself is not a high impact indicator, as the broader measures like Real GDP and GDP Growth Rates are more important for the Currency Markets. 

GDP from Agriculture does not paint the full picture of the economy, but can be an essential tool for the Central Authorities to keep track of Agriculture Sector performance. Businesses dependent on Agriculture input may use this data to understand potential business opportunities amongst different countries. Still, for the International Currency Markets, it does not serve as a useful indicator.

It is a proportional and lagging indicator. Higher GDP from Agriculture is good for the economy and its currency, and vice-versa.

Economic Reports

For the United States, the Bureau of Economic Analysis releases quarterly GDP figures on its official website every quarter. The release schedule is already mentioned on the website and is generally released one month after the quarter ends.

In the full report, we can extract the GDP from Agriculture figures. We can also go through GDP by Industry to get the Construction Industry performance in the report. Major international organizations like the World Bank, CIA World Factbook, etc. actively maintain GDP by Sector figures of most countries on their official website.

Sources of GDP from Agriculture

For the United States, the BEA reports are available in the sources mentioned below. 

GDP -BEA | GDP by Industry – BEA | FARM – GDP

The St. Louis FRED keeps track of all the GDP and its related components in one place on its official website here. World Bank also maintains the Agriculture Sector as a percentage of GDP on its official website. We can find GDP sector composition for different countries here. We can find the consolidated list of Agriculture – GDP figures for most countries here.

Impact of the “GDP from Agriculture” news release on the Forex market

The agricultural sector plays an essential role in the process of economic development of a country. It contributes to the economic prosperity of advanced countries, and its role in the economic development of underdeveloped countries is of vital importance. In other words, countries where per capita real income is low, the emphasis is laid on agricultural and other primary industries.

History tells us that agricultural prosperity contributed considerably to the national income and the GDP. When we are talking about the impact of this contribution on the currency, we will have to say that it is least and not of much importance to investors. They look at broader data, which is the GDP, and make decisions based on the reading. 

In today’s example, we will examine the impact of GDP on different currency pairs and observe the volatility due to the news announcement. The below image shows the latest quarter GDP data of Australia, where it was more or less the same as in the quarter. Let us find out the reaction of the market to this news release.

AUD/USD | Before the announcement:

We will first look at the AUD/USD currency pair to observe the impact of GDP on the Australian dollar. In the above image, we see that the market is in an uptrend, and recently the price seems to have retraced the up move. This is an ideal chart pattern for joining the trend, but since a significant news announcement is due, we need to wait to understand the impact it creates on the chart.

AUD/USD | After the announcement:

 

After the news announcement, the market moves higher, where the price rises sharply above the moving average. The bullish ‘news candle’ is a consequence of better than expected GDP data, which was higher by 0.2%. Although it was marginally less than the previous quarter, it turned out to be positive for the currency. This is a confirmation sign of trend continuation where one can expect a new ‘higher high.’      

AUD/JPY | Before the announcement:

AUD/JPY | After the announcement:

The above images represent the AUD/JPY currency pair, where the market moves within a ‘range’ before the news announcement. We also notice an initial reaction from the ‘support’ where the price has moved higher from the ‘low.’ Since economists have forecasted a lower GDP estimate in the fourth quarter, it is not recommended to take a ‘long’ position before the news release.

After the news announcement, we see that the price quickly moves up, and market surges to the upside. As the GDP data was beyond expectations, traders bought Australian dollars and strengthened the currency. Therefore, the news release has a hugely positive impact on the currency pair. In this pair, once needs to be cautious before taking buy trade as the price is at the top of the ‘range.’ 

GBP/AUD | Before the announcement:

GBP/AUD | After the announcement:

The above images are that of GBP/AUD currency pair, where we see that before the news announcement, the market has retraced the downtrend by more than half, indicating that the Australian dollar has gained strength newly. After the occurrence of trend continuation candlestick patterns, it could result in a flawless sell trade. However, there is also a probability that the news release could change the dynamics of the chart.

After the news announcement, market crashes and the price significantly moves lower. As the GDP data was positive for the economy, it leads to bullishness in the Australian dollar resulting in the price fall. One could take a risk-free ‘short’ position at this point, expecting the market to move much lower.

That’s about ‘GDP from Agriculture’ and its impact on the Forex market after its news release. If you have any questions, please let us know in the comments below. Good luck!

Categories
Forex Basic Strategies

Learning To Trade The 123 Pattern Reversal Trading Strategy

Introduction

Introduction

Introduction

Strategies that we discussed in the previous set of articles were based on indicators and price action patterns. We are going into the trading strategies, where we will combine popular candlestick patterns and price action. The next two articles will discuss the 123 patterns as a reversal trading strategy and continuation trading strategy. First, we will look at the 123 pattern as an indicator of the end of a trend and also a market reversal. Hence, it is also known as the 123 top and bottom pattern.

The 123 top and bottom is a very powerful pattern that signals a reversal of a trend. It is also used as a trend continuation pattern, which we will be discussing in detail shortly. First, let us discuss the 123 patterns as a reversal trading strategy.

Time Frame

A fascinating feature of this strategy is that it applies to all time frames starting from 15 minutes to ‘daily.’ Before trying this strategy on extremely small time frames such as the 5 minutes or 1 minute, a lot of experience is required.

Indicators

As mentioned earlier, in this strategy, we will not be using any technical indicators. The only prerequisite of the strategy is to have a clear understanding of the 123 patterns before reading about the strategy.

Currency Pairs

The strategy is suitable for trading in all currency pairs. However, it is suggested to look for the trading opportunities in major and few minor currency pairs only as the patterns are more reliable and evident in these pairs.

Strategy Concept

The strategy begins by identifying three main points. For example, in an uptrend, when the market hits a new high, label that point as 1. We then wait for the price to pull back to a short-term support area. This point is labeled as 2. Finally, when the price moves up to an area between points 2 and 3, we label this as point number 3. We then take an entry at a suitable location, which we will address in the later part of the strategy.

The pattern is complete when the price stays below point 2. The strategy is to sell the currency pair on the break of point 2. The take-profit of the strategy is placed at a point that results in a 1:2 risk-to-reward ratio. The stop loss is put just above point 3, whereas a more conservative stop loss is placed just above the move, in order to maximize the risk to reward. The trader will be able to make this choice by trading the pattern again and again. Let us understand the step by step process of the strategy.

Trade Setup

In order to illustrate the strategy, we have considered the GBP/AUD currency pair, where we will look for ‘short’ trades by identifying the 123 top patterns. In this example, we are applying our strategy on the 15 minutes time frame and during one of the major trading sessions.

Step 1

The first step of the strategy is to look for point 1, which is essentially the highest point of a trend. The criteria for selection of point 1 is that the market should reach it’s previous low or high twice before it starts moving lower or higher.

In our example, we can see that the previous lows have been tested multiple times, and thus we have chosen the highest point as our point number 1.

Step 2

The next step is to mark the point number 2. When the market pulls back to the recent support or resistance area after reacting from point 1, we mark this as point 2. Remember that the price should not only reach that area but also react and move higher (for uptrend) or lower (for downtrend). This confirms the key technical level.

Step 3

The formation of the 123 pattern is complete after identifying the third point. When the market moves in the area between points 1 and 2 and later comes goes back to point 1, the point from where the market reversed becomes our point 3. Now the next step of the strategy is discovering the ‘entry.’

Step 4

In this step, we will be discussing the ‘entry.’ There are two ways of entering the market in this strategy. The first one is an aggressive way to take an entry on a break of point 2, and as the market starts moving in that direction. Traders who are confident about the pattern and have belief in the market can opt for such an ‘entry.’ The second one is a conservative approach where one takes an ‘entry’ at the test of the previous support or resistance. This gives additional confirmation that the market is ready to go in a favorable direction.

In this case, we have entered the market right after point 2 is broken, which is a little aggressive.

Step 5

Finally, we need to determine our stop-loss and take-profit levels for the strategy. The stop loss is placed a little higher than point 3, or if one wants to maximize their risk to reward ratio, he/she can place it at a 50% mark between point 2 and point 3. The take-profit is placed at a point where the resultant risk to reward is at least 1:2. However, if there is a hurdle in between, profits can also be taken at such points.

Strategy Roundup

The 123 pattern is a major trend reversal pattern is one of the best strategies for trend reversals. One can trade using this strategy on any time frame. The strategy is based on the idea that the market is losing momentum in the direction of the major trend and could reverse any moment. The probability of this strategy is high and does not require knowledge of technical indicators.

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Forex Assets

XPT/USD – How Expensive Is It To Trade This Commodity Asset Class?

Introduction

Introduction

Introduction

Platinum is one of the rarest precious metal found in the Earth’s crust. Only a few hundred tons are produced annually. The name Platinum is derived from a Spanish word platina (little silver).

Similar to how other precious metals like Gold and Silver are traded in the exchange market, Platinum is also actively traded in the market. Its ISO code is XPT and is highly traded against the US Dollar with the ticker XPT/USD.

Understanding XPT/USD

Platinum is a precious metal that is measured in troy ounces (Oz). The market price of XPT/USD represents the value of the US Dollar for one troy oz of Platinum. It is quoted as 1 XPT per X USD. For instance, if the current market price of XPT/USD is 814.50, then it means that each oz of Pl is worth 814.50 USD.

XPT/USD Specification

Spread

It is the difference between the bid and the ask prices. The typical spread in Platinum is usually around 700 pips.

Fee

Unlike currency pairs, Platinum is traded as a Contract for difference (CFD). There are three different types of the fee charged for such trades:

  • Commission charge
  • Overnight fee

Thus, the total fee will be,

Total fee = Spread + commission + overnight

For our example, we shall ignore the overnight fee as it completely depends on how long aa trader is willing to hold his positions. So, the revised fee will be,

Total fee = Spread + commission = 700 + 200 = 900 pips

Trading Range in XPT/USD

The trading range is a representation of volatility in the pair for different time frames in a tabular format. It gives the minimum, average, and maximum volatility in the pair for various time frames.

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.

XPT/USD Cost as a Percent of the Trading Range

Cost as a % of the trading range illustrates the variation in the cost of trade by considering the time frame and volatility of the instrument. Mathematically, it is the ratio of the volatility value and the total cost represented in terms of a percentage.

Total fee = Spread + commission = 700 + 200 = 900 pips

Trading the XPT/USD

Platinum is one of the highly traded commodities in the exchange market. But its trading volume is lesser than Gold Spot and Silver Spot. Nonetheless, it has enough volatility and liquidity for retail traders to participate in the market.

Platinum is primarily driven by supply and demand that comes from fundamental factors. These factors are different from that of Gold and Silver, yet some do apply on Pl. When it comes to technical analysis, all the techniques apply that is used in other markets.

As mentioned, Platinum is traded as CFD, and each trade has a commission, overnight, and spread involved in it. This fee is fixed irrespective of the volatility of the market and the time frame traded. But there is a catch here. Even though the fee is fixed, the fee varies relatively. Meaning, a trader aiming high profit must pay the same fee as a trader aiming for small profits. The former is typically a large time frame trader, while the latter is a trader trading relatively smaller time frame.

Since the timeframe is something that cannot be fixed, one can relatively reduce costs by considering the volatility of the market. As the above table evidently depicts, as the volatility increases, the relative fee on the trade decreases. Thus, one must consider trading when the volatility of the pair is at or above the average volatility.

Categories
Forex Basic Strategies

Forex Trading Strategy – Trading The 123 Continuation Pattern

Introduction

Introduction

Introduction

In the previous article, we discussed the 123 patterns as a confirmation sign for the end of a trend. However, while the 123 top and bottom are a great entry method for taking reversal trades, it is observed that most of the time market moves in a trend that requires us to get into the trend in the middle of it. We have heard that ‘the trend is your friend,’ so now we will learn a method to get into a trend using the 123 trend continuation pattern.

The safest trades are the ones that we take in the direction of the major trend. In simple words, if the trend is up, we should be ‘long’ in the market, and if the trend is down, we should be ‘short.’ In fact, it is advised for new traders to always be with the trend and not go for trend reversal trades.

Sometimes, one might miss out on the start of a new trend, for which we need a method to enter the confirmed trend during its progress. In today’s strategy, we will discuss one such method of entering a trending market using the 123 patterns for trend continuation, also called internal 123.

Time Frame

An interesting feature of this strategy is that it can be used on all time frames. One needs to comprehend the strategy very well before trying out this on extremely small time frames, such as 5 minutes or 1 minute.

Indicators

No indicators shall be used in this strategy. However, the Simple Moving Average (SMA) can be used to identify the major market trend.

Currency Pairs

Since the strategy is based on the same 123 reversal pattern that we discussed earlier, the strategy’s parameters will remain the same here as well. Hence, the strategy is suitable for trading in all currency pairs, including major, minor, and few exotic pairs. However, it is advised to trade in the major and minor currency pairs only.

Strategy Concept

The strategy’s basic concept is the continuous identification of 123 points in the direction of the new trend. The initial 123 points are identified in the same way as was identified in the previous section, and subsequently, the same pattern is identified as the trend advances. In this strategy, we will be attempting to catch the trend at the second or third appearance of the pattern. Since we are joining the trend after the move has started and it is in the middle, we cannot expect a large risk to reward ratio. This means the risk to reward of trades using this strategy varies anywhere between 1 to 1.5.

One should be careful while using this strategy for trend trading since most traders end up taking late entries that result in a loss. The strategy cannot be applied when the trend is very much evident on the chart and has reached the end of it. The trader can gauge this through experience and practice. Let us understand the step by step procedure of the strategy with the help of an example.

Trade Setup

In order to explain the strategy, we have considered the GBP/CAD currency pair where will be analyzing the chart on the 4-hour time frame. In this example, we will be looking for ‘short’ trades by identifying a suitable 123 pattern in the currency pair, with the downtrend being our major trend.

Step 1

The first step of this strategy is only a recap of the previous strategy. It involves identifying the reversal of a trend by marking the 3 points and confirming the reversal of the trend. As we can see in the below image, we have marked all the points on the chart and identified the formation of the 123 patterns at the end of an uptrend.

Step 2

This is the crucial step of the strategy, where we only need to repeat the steps that were followed earlier to plot points 1, 2, and 3. The previous lower high or higher low becomes our point 1, the new support or resistance level from where the market reacts becomes 2nd point, and finally, the price that is between new point 2 and 3 from where the market starts moving in the direction of the new trend is the 3rd point.

If we carefully observe, point 3 of the previous step is our new point 1, labeled as 1′ in the below image. The new point 2 is labeled as 2′, and 3′ is our 3rd new point. In the example, we will be entering for a ‘short’ somewhere in the middle of the downtrend and not too late or too early.

Step 3

In this step, we enter the market with appropriate position size and risk evaluation. The entry is the simplest part of the strategy, where we enter the market right at the break of the support or resistance level. This level is nothing but our 2nd point.

Step 4

In this, we determine our take-profit and stop-loss levels for the strategy. As mentioned in the earlier section of the article, the risk to reward ratio will be lower as we are entering the middle of a trend. The stop loss is placed at the 3rd (3′) point, and the take-profit should be at the recent support or demand area that is a hurdle for the down move.

Strategy Roundup

This strategy is only an extension of the previous strategy, where we apply the same rules and steps once again. The difference is that the risk to reward ratio is lower, but we make sure that we are trading with the trend, which puts us in a safer position. Do not apply the strategy again on the same trend.

Categories
Forex Course

139. How Professionals Trade The Different Market States?

Introduction

Introduction

Introduction

In this series of different states of the market, we understood the terminology and the concepts involved. However, in the forex market, if we do not go practical, there is the least use to the concept. In other words, one must understand how to trade in the market, knowing its state. In this final lesson of the series, we shall dive deep into the topic and understand how to apply them in the market.

Trading a Trend

Trading a trending market is the simplest and safest way to trade in the market. This is because, in a trend, it is evident on which party is dominating the market. For example, in an uptrend, it is clear that the buyers are more powerful than sellers. And hence, we look for buying opportunities rather than selling.

In a trend, the market makes higher highs and higher lows. In other words, the market moves in one direction with temporary pullbacks in the opposite direction. These pullbacks (retracements) typically turn around to the original trend direction at the support and resistance levels. So, to trade a trend, we wait for the market to make a higher high / lower low and retrace to the S&R level, before triggering the buy or sell.

Consider the below chart of USD/CAD. The market is in a clear downtrend. The market made a new lower low by breaking below the grey ray. It then retraced back to the S&R area (grey ray) and is currently moving sideways. And this sideways movement in the market has high significance.

After the sellers made a new low, the buyers began to show up. They made it until the S&R level. And the market is currently in a range. As per the definition of a range, we know that there is strength from both the parties. In other words, the buyer who was temporarily dominating the market is slowing down as they are unable to make a higher high. And this price action is happening in the S&R area of the sellers. Therefore, we can conclude that the sellers are here to continue their downtrend.

One can enter when the price is at the top of the range (resistance) or when it starts to fall from the resistance. Placing the stop-loss few pips above the S&R level, and a take profit at the Low, is the safest approach to trade a trend.

Trading a Range

In a range, the market moves between levels – Support and Resistance. In this type of market, there is power from both buyers and sellers. Typically, the market shoots up from the support and drops from the resistance. However, randomly buying at support and selling from resistance is not the right way to trade a range like a professional. To trade a range with high odds in your favor, you must be aware of the overall trend. And you place your bets on the direction of the overall trend.

Consider the below chart of NZD/CAD. We can clearly see that the market is in a range. But, looking from the left, the market is in a strong uptrend, and the price is holding above the S&R level (grey ray). In the current market, we see that the price dropped below the bottom of the range, touched the S&R level, and shot right back up into the range. Thus, confirming that the big buyer is preparing to do the buys.

Since the price strongly reacted off from the S&R level and held above the support of the range, we can prepare to go long on the market. Stop-loss from this trade would be below the S&R level, while the target point would be at the top of the range. In hindsight, the buyers were able to push the market above than the resistance.

This brings us to the end of this series. We hope you found this lesson and the previous chapters interesting and informative. Stay tuned until we release our new set of lessons.

[wp_quiz id=”79656″]
Categories
Forex Fundamental Analysis

Knowing The Significance Of ‘Gross National Product’ Macro Economic Indicator

Introduction

Introduction

Introduction

The two most important metrics of economic growth are the Gross Domestic Product (GDP) and Gross National Product (GNP). Up until 1991 the United States primarily measured its economic growth in terms of the Gross National Product and switched to Gross Domestic Product to make it easy for comparison with other countries, since many other countries were measured through the same.

But in practice, it is always necessary to assess a country’s growth in both the GDP and GNP terms to better understand the overall economic output. Hence, GNP also forms an excellent fundamental indicator of economic growth, almost as important as the GDP.

What is the Gross National Product?

Gross National Product, also called GNP, is the total monetary value of all goods and services produced by the country’s residents and businesses, irrespective of the production location. It means a business earning revenue in a foreign land is included in the domestic country’s GNP. 

Gross National Product defines the economic output based on citizenship, or that country’s native people. Hence, a citizen having an extra income source in any monetary form overseas is factored into the GNP. GNP is higher for countries that have many of their businesses established in a foreign land. Accordingly, any output generated by foreign residents within the country is excluded out from the GNP.

Gross Domestic Product (GDP) v/s Gross National Product (GNP)

It is essential to understand the difference between GDP and GNP during our analysis. GDP and GNP both measure economic output for a given period but differ in how they define the economy’s scope.

Gross Domestic Product is the total value of all goods and services produced by the nation. Here, GDP limits its assessment to the nation’s geographical borders and does not take into account the overseas economic activities of its nationals.

GNP does not restrict itself to the geography of the nation but limits itself in terms of citizenship. GDP does not reflect determinant in nationality. As long as the finished goods and services are within the country’s borders, it is included. On the other hand, GNP will not include any of the domestic borders’ revenue if it is from a foreigner.

The formula for GNP is given as:

GNP = Consumption + Investment + Government + Net Exports + Net Income

In the above equation,

  • Net Exports stands for the difference between the revenue generated from Exports and revenue going out for imports.
  • Net Income stands for the income of domestic residents from overseas or foreign investments minus net income of foreign residents from domestic investments.

The GNP is very indicative of the financial well-being of a country’s nationals and its country-based multinational corporations. From a relative perspective, it does not tell us much about the country’s health, as the GDP does. GNP is a more realistic measure of a country’s Income than its production.

To clarify the role of each metric better, consider the below examples:

Microsoft is the United States-based multinational company. It has a branch in India. The revenue generated from the Microsoft-India branch will be included in the GNP of the United States, but not in India’s GNP. On the other hand, Microsoft-India’s revenue is not included in the GDP of the United States but is included in India’s GDP.

How can the Gross National Product numbers be used for analysis?

It is essential to understand that GNP does not reflect the domestic (geographical basis) conditions well. If a natural disaster were to occur within the United States, then the GNP would not be as affected as the GDP, as the foreign revenue by its residents would not depend on the domestic situations. Hence, GDP is a more accurate measure of economic activity. On the other hand, its citizens’ financial well-being is more accurately measured through GNP than GDP.

GDP is a measure of economic health, while GNP is a measure of a nation’s Real Income. Both are different but related. A country like China, where many companies from other countries have their business has higher GDP than GNP, on the other hand, the United States, which has many of its firms’ production houses outside its land, has higher GNP than its GDP. Significant differences between the GDP and GNP values can be accounted to the openness of the countries to International Trade and Global Markets.

Impact on Currency

The Gross National Product is itself susceptible to the currency and exchange rate. When the currency falls, the Gross National Product increases due to the strengthening of other countries’ currencies where the domestic firms are doing business. The health of the economy is not gauged by the GNP accurately. Currency movements are not as driven by the GNP as they are by the GDP. Hence, it is more critical as a financial indicator than as an economic indicator in our analysis.

It is a lagging and proportional indicator, and hence the impact of the GNP is not as pronounced as the GDP, as all other countries use GDP as their primary measure of economic health. Investors, economists, policymakers, and traders all use GDP primarily over GNP to assess the economy’s current health and direction. Hence, it is a low impact indicator of our fundamental currency analysis.

Economic Reports

For the U.S., the Bureau of Economic Analysis releases quarterly reports of the Gross Domestic Product, which contains the GNP information. The St. Louis FRED consolidates the same data and maintains it on its website.

Sources of Gross National Product

The St. Louis FRED website holds the GNP data that is very easy to access and analyze, and the link is here.

GNP data for various countries can be obtained here

Impact of the “Gross National Product” news release on the Forex market

In the above section of the article, we defined the Gross National Product (GNP) and described the analysis method. We will extend our discussion and understand the impact of the Gross National Product news announcement on the value of a currency. The GNP gives an estimate of the total value of all the final products and services rolled out in a given period utilizing production owned by a country’s residents.

The GNP includes personal consumption expenditures, domestic investment, government expenditure, net exports, and Income from foreign investments. A small distinction between the GNP and GDP is that GDP measures the value of goods and services produced within the country’s borders. In contrast, GNP calculates the value of goods and services produced by the country’s citizens only both domestically and abroad. However, GNP is also one of the most commonly used indicators for measuring the country’s economy.    

In today’s example, we will analyze the impact of the United Kingdom’s GNP on the value of the Great British Pound. The below image shows the GNP in the U.K. during the fourth quarter, which was higher than the third quarter. Let us find out the impact.  

GBP/USD | Before the announcement:

We will begin our discussion with the GBP/USD currency pair to observe the change in volatility after the news announcement. The earlier image shows the state of the chart before the news announcement, where we understand the market is in a strong downtrend, and recently the price seems to be moving upwards. This could be a possible price retracement that could lead to the continuation of the trend and an opportunity. 

GBP/USD | After the announcement:

After the news announcement, the market gets very bullish, and we see a sharp rise in the price. The positive reaction from the market is a result of the upbeat GNP data, which was better than expectations. This brought cheer among the market participants who took the price higher by strengthening the British Pound. We should not take any ‘short’ position until we notice trend continuation patterns in the market.

GBP/CAD| Before the announcement:

GBP/CAD| After the announcement:

The above images represent the GBP/CAD currency pair, where in the first image, we see that the market appears to be moving within a ‘range’ with the price currently at the bottom of the ‘range.’ Before the news announcement, the currency pair is very volatile, suggesting that there is a lot of trading action in this pair. In such high volatile environment, we recommend waiting for the news release and then taking a suitable position in the pair.

After the news announcement, the price suddenly moves higher and volatility expands on the upside. The bullishness in the British Pound is a consequence of the optimistic GNP data, which showed a growth in the economy during the fourth quarter. Since the price is at the bottom of the ‘range,’ one can take ‘long’ in this currency pair with a target until the ‘resistance.’

EUR/GBP | Before the announcement:

EUR/GBP | After the announcement:

The above images are that of the EUR/GBP currency pair, where we see that the market is in a strong uptrend before the news announcement, signifying the enormous amount of strength in the British Pound, since the currency is on the left-hand side of the pair. Depending on the outcome of the news and change in volatility, we will analyze the currency pair accordingly.

After the news announcement, market crashes, so much that the price goes below the moving average. The ‘news candle’ closes, forming a reversal candlestick pattern that could lead to the beginning of a downtrend. The volatility increases to the downside as the GNP data was reasonably good.

We hope you understood what ‘Gross National Product’ is and its impact on the Forex price charts. Cheers!

Categories
Forex Daily Topic Forex Fundamental Analysis

Understanding ‘Retail Sales MoM’ Fundamental Forex Driver

Introduction

Introduction

Introduction

The Month-over-Month Retail Sales figures are one of the closely watched statistics in the financial markets and have a lot of volatility in the markets around these figures. An increase in sales is one of the earliest signs of growth for businesses that can imply a multitude of things for the economy. It is a closely watched high impact leading indicator. Hence, an understanding and analysis of Retail Sales are paramount for our fundamental analysis.

What is Retail Sales Month-over-Month?

Retail Sales

In the purest sense, it is just the dollar amount of purchase of goods and services made by end-consumers for a given period. Here, the period is MoM, which stands for Month-over-Month. It is the sale of durable and non-durable goods at the retail outlets to consumers.

It can also be defined as the purchase of finished goods and services by consumers and businesses. The goods and services have reached the end of the supply chain. The chain generally starts with the manufacturer or provider and ens up at the retailer where the general population or other businesses consume it.

The Retail Sales figures are often presented in two ways: including and excluding auto and gas sales. As the Auto (vehicle purchase) figures and Oil prices fluctuate frequently, the exclusion helps to identify the trends better once the volatile components are removed. The excluded version is called the Core Retail Sales report.

Retail Sales statistic covers the in-store (retail) sales, catalog sales, and out-of-store sales of durable (goods that last more than three years) and non-durable goods (that have short-life span). The major categories include:

Retail Stores have the following categories:

How can the Retail Sales MoM numbers be used for analysis?

The Retail Sales figures provide us a reliable measure of CURRENT economic activity. It is essential to an objective assessment of the need for and impact of a broad range of policy decisions. Hence, the policymakers use this statistic to keep a pulse-check on the economy’s health.

The Retail Sales figures are significant statistics for many as the Consumer Spending makes up 66% of the United States Gross Domestic Product. The remainder is from Government Spending, Business Spending, and Net Exports. It is also essential as it represents the end of the supply chain figures. All the statistics that precede the Retail Sales figures like Inventory Changes or Manufacturing Production figures all lead up to the Retail Sales, which confirms and triggers the next wave in the trend change in the other indicators, in a feedback loop.

In other terms, once Retail Sales figures improve, businesses see an increase in their revenue and correspondingly demand their products, which leads to an increase in their Manufacturing Production figures, and that would later translate to Change in Inventory statistics. So, we see how the Retail-Sales figure operates amongst the economic indicators in a feedback loop cyclical pattern.

Once Retail Sales figures improve, businesses see profits that encourage expansionary plans, that would increase investment in their business, employment, or even wage growth. It is necessary to understand, Sales improve business, once business improves, wage growth or employment increase is a possibility. Hence, the Retail Sales figure is an essential leading macroeconomic indicator for our fundamental analysis.

The US Bureau of Economic Analysis releases quarterly GDP statistics. If the Month-over-Month Retail Sales figures have been influential, then there is a good chance that the GDP print will be higher. The only downside to the Retail Sales figures that we need to be careful of is that it does not account for inflation, and the increase in the Retail Sales figures could also be a by-product of inflation.

To be noted: The Retail Sales figures are seasonal. It generally tends to increase around the holiday season. Hence, care must be taken during analysis that the decline in stats is due to a business slowdown or seasonal effects. In this case, the Retail Sales figures Year-over-Year is also another parameter that we can use to compare the current conditions with the preceding year to understand the growth trend better, as the GDP is also compared with the last year.

Although data is available in the seasonally adjusted format, to account for the seasonal patterns but it does not adjust for inflation. Hence, it is essential for users of the data to check for the seasonally adjusted figures.

Impact on Currency

Retail Sales is a leading macroeconomic high impact indicator. An increase in Retail Sales is the first sign of growth for businesses in monetary terms. Due to a multitude of economic factors that are affected by the Retail Sales figures, the volatility around the release of these figures is generally high.

It is a proportional indicator, meaning that a consistent or significant increase in the Retail Sales figures translates to increased profits for the businesses, indicates reasonable Consumer Confidence and Consumer Spending, and in turn it will also translate to increased employment, and wage growth. It is a cyclical effect that further promotes spending, and business booms and the economy prospers. It translates to higher GDP prints, which is appreciating for the currency.

Low Retail Sales figures are indicative of a slowdown of business, bearish Consumer Sentiment, where consumers are saving more and spending less. It stagnates the businesses, in the worst case, could lead to lay-offs, and ultimately recession. It will translate to lower GDP prints, which is depreciating for the currency.

Economic Reports

In the United States, the Census Bureau publishes monthly reports of the Retail Sales figures on its official website under the section “Monthly Retail Trade.” The report is released at 8:30 AM about two weeks after the reference month (13-15th day of the month). The schedule for the year is already posted on the website for the user’s convenience. The report details the total sales, percentage changes, and also YoY (Year-over-Year) changes.

Sources of Retail Sales MoM

  • The Month-over-Month Retail Sales statistics can be found here
  • Both advance estimates and Retail Sales figures are available in aggregated format in St. Louis FRED website here
  • We can find Retail Sales monthly figures for various countries here

Impact of the ‘Retail Sales – MoM’ news release on the Forex market

In the previous section of the article, we understood the Retail Sales economic indicator and its consequences on the economy. We will take this discussion forward in identifying the impact of Retail Sales on the value of the currency. Retail Sales is an important economic indicator because consumer spending drives much of our country.

When consumers spend more, the economy tends to hum along, whereas if consumers are uncertain about their financial future, they hold off their purchases that lead to the slow down of the economy. The release of Retail Sales numbers is said to have a large impact on the currency, as shown in the below image.

In this section, let’s analyze the Retail Sales data of the Unites States that was gathered in the month of March. The below image shows that there was a big drop in the Retail Sales compared to the previous month indicating a major disruption in the economy. Let’s see how the market reacts to this data.

USD/JPY | Before the announcement

We will start with the USD/JPY currency pair to witness the impact of the news announcement. The above image shows the state of the chart before the news announcement, where we see that the overall trend of the market is up, and currently, the price is on the verge of continuation of the trend. Depending on the impact of the news, we will position ourselves in the currency pair.

USD/JPY |  After the announcement

After the news announcement, there is a surge in the price, and volatility jumps to the upside. Even though the Retail Sales were very poor in the month, the market reaction was opposite to what was expected. After the news release, traders bought US dollars and strengthened the currency much more. The bullish ‘news candle’ shows the impact of the news on the currency. Since the market reacted very positively to the data, we should take a ‘buy’ trade only after a price retracement.

EUR/USD | Before the announcement

EUR/USD | After the announcement

The above images represent the EUR/USD currency pair, where we see that the market is in a significant downtrend indicating the great amount of strength in the US dollar. The price is currently is at its lowest point, which means we need a pullback in the market to join the trend. If the news announcement results in a retracement of the price, this could be taken as an opportunity for taking a ‘short’ trade.

After the news announcement, the market moves lower, and volatility increases to the downside. Although the Retail Sales data was weak, it did not result in weakening of the currency, but rather the US dollar strengthened. This means the news data was not bad enough to turn the markets to the upside. We will still be looking to enter the market only after a price retracement to a key technical level.

USD/CAD | Before the announcement

USD/CAD | After the announcement

The above price charts are of the USD/CAD currency pair, where we see that the market is aggressively moving up with almost no price retracement. This indicates the US Dollar is very strong, or the Canadian dollar is weak. In any case, we will join the trend only if the price retraces to a ‘support’ or ‘demand’ area.

After the news announcement, volatility expands on the upside, and the price closes, forming a bullish ‘news candle.’ Here too, the Retail Sales data has an opposite impact on the currency as the market reacts positively to the data even though the Retail Sales were largely lower in this quarter. It is advised not to chase the market after the news release since it against the rules of risk management.

We hope you understood Retail Sales MoM fundamental Forex driver and the relative impact of its news announcement on the Forex price charts. Cheers!

Categories
Crypto Guides

Some Of The High Profile Crypto Exchange Hacks You Must Know!

Introduction

Introduction

Introduction

Even though cryptocurrencies are secure, crypto exchanges are where hackers target to loot millions of dollars. No matter how big a cryptocurrency is with the hacks we have seen so far, the exchanges will inevitably be subject to hacks at some point in time. Even though it is 2020, almost ten years since the advent of bitcoin, the hacks have never been slowed down. This is why it is always advisable for the crypto investors to hold their assets in their personal wallets instead of storing them with the crypto exchange itself.

Let us look at some of the high-profile cryptocurrency hacks so far:

The Mt.Gox

Mt.Gox, a Japan-based cryptocurrency stock exchange, was the biggest and busiest of exchanges, with 70% of bitcoin transactions from all over the world was going in the platform back then in 2013-14. With cryptocurrency or cryptocurrency exchanges, there were no regulations. There were many loopholes in the company’s management, like there was no VCS, Version Control Software. The VCS mainly stores all the information of all the features, coding set up of a particular version of the software product.

Without proper VCS, we will not know what changes were made when and it would be practically impossible to go back to a particular version of the software if necessary. All the code changes were to be approved by the CEO himself, which is the biggest bottleneck. There was no testing policy; the developers develop code and deploy it without any particular testing, which is a disaster. All these underlying issues led to a massive hack amounting to $473 million worth of bitcoin in 2014, which eventually led to the closure of the exchange permanently.

The DAO Hack

Before the 2019 Hack of Ethereum classic, DAO hack was the major one in the Ethereum platform. DAO, Decentralized Autonomous Organization, is a smart contract that was supposed to revolutionize the platform. The DAO acts as a decentralized venture capital fund for all the future DAPPS getting developed in the platform. Anyone can buy DAO for some ether and gain voting rights for any proposed app developed in the platform.

If one doesn’t wish to vote any further or doesn’t want to contribute to an app they are not interested in, they can opt-out of DAO. The opting-out part is where the hackers aimed and hacked 50 million dollars in 2016. The opting-out function has been made recursive by hackers. Hence instead of returning the funds once, the system kept returning the funds until it was noticed and stopped. Due to this issue, Ethereum was hard forked into Ethereum and Ethereum Classic.

The Bitfinex Hack

The Bitfinex exchange for increasing the security and ease the transactions for the users came up with multi-sig wallets with the collaboration of Bitgo. Multi-signature wallets are such wallets that have multiple keys. One key is owned and stored by the company.  While the owner of the wallet has two keys, he may give one key to his trustworthy friend/relative, so that even he loses his key, he has a backup. Generally, the multi-signature wallets need two keys to operate.

These wallets are hot, and this additional security feature ironically led to the hack. However, there are many theories on how and why the hack happened. Bitfinex rose to limelight and gained the credibility back. $72 million worth of bitcoin was hacked due to which 20% of the value of each bitcoin was eroded.

Later we saw many hacks in different exchanges like Bithumb where $30 million worth of cryptocurrency was stolen. Coinrail was hacked for $37.2 million, BitGrail for $195 million, and Coincheck for $534 million.

Conclusion

While cryptocurrencies are no doubt safe, but one has to do their homework on the exchanges, they are transacting. Always store your cryptocurrency in your own hot/cold wallets. Crypto exchanges will always be targeted if they are doing business for very high value. They should voluntarily show the security measures they are taking to avoid any potential hack. No matter which cryptocurrencies one is trading with, due diligence on the exchange is first and foremost.

Categories
Forex Course

138. How to Identify Potential Market Reversals?

Introduction

Introduction

Introduction

In the previous lesson, we discussed the concept of retracement and reversal. We also understood how they are different from each other. However, just knowing if the terminology will not help in the forex market. Being able to predict if the price is retracing or reversing is the name of the game because this will significantly bring down your losing trades and increase the number of winning trades.

Retracement or Reversal?

In technical analysis, there are several ways to predict if the market is undergoing a retracement or a reversal. Here are some of the ways to differentiate between the two.

Fibonacci Retracement

Fibonacci retracements are very popular in technical analysis space. They are based on a sequence of key numbers identified by Leonardo Fibonacci, a mathematician.

In technical analysis (trading), Fibonacci retracement is drawn by taking two extreme points on a price chart, which results in different levels or ratios – 23.6%, 38.2%, 50%, 61.8%, and 100%. These Fibonacci ratios are used by traders to determine possible support and resistance levels in the market. Typically, these are the level where the price tends to hold and reverse from the current direction. Having that said, the price does not hold at every Fibonacci level. It holds perfectly only when it is combined with the price action on the charts.

Consider the below chart of EURCAD. In the recent chart, we see that the market is in an uptrend. The grey ray represents the support and resistance level. After making a higher high, the price has retraced to the S&R level.

Now the question arises if this retracement is a pullback to the uptrend or a potential reversal. To figure this out, we shall apply the Fibonacci retracement to the chart.

In the below chart, we have incorporated the Fibonacci retracement onto the price chart. If we look at the same S&R level, we see that the price is also holding at the 38% level. Hence, this gives us double confirmation that the market is preparing to head north. And in hindsight, the price does make a higher high.

Market Transition

Traders, especially Price Action traders, study the movement in the prices to determine if the market is preparing for a possible reversal. If a market is going for a reversal, the market gives simple yet effective hints and clues about it. The violation from the definition of a trend is the clue that the market is possibly going to turn around for a reversal.

Let us consider the example of a reversal to the upside. Initially, the market will be in a downtrend, making lower lows and lower highs. But, when it retraces and tries to make a new lower low, it leaves equal low. This becomes our first clue on a market reversal. From the point of the equal low, it rallies up but fails to make a lower high.

Instead, it makes an equal high. These two hints are an indication that the price is not moving according to the definition of a downtrend, and there could be a possible reversal. To confirm the same, we wait for the price to make a higher low. If it does make a higher low, instead of a lower low, we can predict that the market is preparing to head north.

Below is a self-explanatory illustration for the above explanation.

Take the below quiz to check if you have got the concepts correctly. Cheers!

[wp_quiz id=”79321″]
Categories
Forex Basic Strategies

Trading The CAD/JPY Pair Using ‘Commodity Correlation Strategy’

Introduction

Introduction

Introduction

Oil is one of the largest commodities in the world that is traded heavily. The reason for high liquidity is that it is a basic necessity. It is needed to run factories, machinery, ships, and cars. Canada is one of the largest exporters of Oil, and it forms a major part of the total volume of commodities exported. Due to these reasons, Canada is positioned in the world’s top ten oil-producing nations, and as a consequence, it’s economy is severely impacted when oil prices decline. Many traders today predict the movement of the Canadian dollar using the price of Oil.

When oil prices rise, the Canadian dollar tends to strengthen. Similarly, when oil prices are low, the Canadian dollar tends to weaken. Japan, in contrast, is considered as the net importer of Oil. So, when oil prices rise, Japanese yen weakens, and when oil prices drop, Japanese yen strengthens. Many traders are not very comfortable trading Oil due to the volatility it possesses.

An alternate and improvised way trading oil directly would be to utilize knowledge of oil prices to trade the CAD/JPY currency pair. As Canada is the net exporter and Japan is the net importer of oil, oil price becomes a major indicator for the movement of the CAD/JPY currency pair. That is why we have named this strategy a ‘Commodity Correlation Strategy.’ Let us dive into the strategy and explore the steps involved.

Time Frame

The commodity correlation strategy works well with the daily (D) and weekly (W) time frame charts. Swing trading is the most suitable trading style for this strategy as it has a long-term approach to the price. Therefore, the strategy cannot be used for day trading or on 4-hours’ time frame chart.

Indicators

We use just one technical indicator in this strategy, and that is the Average True Range (ATR) to set the stop loss for the trade. We don’t use any other indicator during the application of the strategy. If one is not familiar with the ATR indicator, it is recommended to refer our article on ATR before understanding the strategy.

Currency Pairs

This strategy can be used with CAD/JPY currency pair only, with the movement of oil prices as our leading indicator.

Strategy Concept

The price movement of crude Oil is used as a reference to catch a ‘trade’ in CAD/JPY currency pair. Key levels of support and resistance on the crude oil chart are used to spot long and short opportunities in CAD/JPY pair. If price closes above resistance on the oil chart, a long trade is activated on the CAD/JPY the following day. Similarly, if the price closes below support on the oil chart, a short trade is triggered on the CAD/JPY the following day. The risk to reward of trade taken based on this strategy is a minimum of 1:2, which is above normal. A bigger target can be achieved by allowing the trade to run.

Trade Setup

In order to explain the strategy, we focus on the price chart of crude Oil and CAD/JPY currency pair. We are not concerned with any other forex pair. The strategy can be easily understood by those who have basic knowledge of support and resistance.

Step 1

Firstly, we need to open the chart of crude Oil and then find key levels of support and resistance. After marking support and resistance levels, we wait for a breakout or breakdown of the range. After the breakout happens, make sure that the breakout is real and a faker. A close candle well above the resistance area gives us a confirmation of the breakout, and thus we can expect a continuation of the price in the direction of the breakout.

The below image shows how the breakout should be along with the confirmation candle.

Step 2

Now, we need to open the chart of CAD/JPY currency pair and locate the price on the day when the breakout took place on the oil chart. Since the breakout on the oil chart is above the resistance, we will ‘long’ in CAD/JPY currency pair after a suitable confirmation sign from the market. A bullish candle on the next day is the confirmation signal for going ‘long.’ In a case of a breakdown below the support, a bearish candle in the CAD/JPY pair on the next day of the breakdown is suitable for going ‘short’ in the pair.

In the above example, we see the formation of a bullish candle on the following day, which triggers a ‘buy’ trade. Let us see what happens further.

Step 3

In this step, we determine take-profit and stop-loss levels for our strategy. The stop loss for this strategy is calculated by multiplying the value of ATR by 2. The stop loss is placed by the number of pips obtained after performing the calculation. The take-profit is placed at the price where the risk to reward of the trade will be at least 1:2. However, in most cases, the trade has the potential to provide move higher.

In this example, the risk to reward of the trade was 1.5 as the major trend was down.

Strategy Roundup

Using the Commodity Correlation Strategy, traders can take advantage of the positive correlation between Crude oil prices and the CAD/JPY currency pair. This strategy is especially suitable for traders who want to trade in Oil but do not enjoy the volatility associated with it. This strategy is also suitable for traders who do not have the time to day trade and prefer long-term positions in the pair.

Crude Oil has the highest correlation with CAD and JPY Forex pairs. Hence we have considered these asset classes. You can use this strategy for different Forex pairs depending on which commodities they are correlated with. We hope you found this strategy informative. All the best.

Categories
Forex Basic Strategies Forex Daily Topic

Stop Hunting – The Strategy That Is Used By Most Of The Investment Banks

Introduction

Introduction

Introduction

Currently, there is a strategy that is followed by most investment banks around the world, and that is known as Stop Hunting. It attempts to force some market participants out of their positions by driving an asset’s price to a level where many retail traders set their stop-loss orders. The triggering of many stop losses at once generally leads to high volatility, and this can present opportunities to some smart traders who seek to trade in such an environment.

The fact that the price of a currency pair can experience sharp moves when many stop losses are triggered is exactly why many traders engage in stop hunting. Traders who are aware of this fact and have observed this phenomenon of the market try to make of this opportunity by being patient and conservative. The strategy we will be discussing today takes advantage of this sudden rise in volatility due to what is known as ‘stop-hunting.’

Timeframe

The beauty of this strategy is that it can be employed on all timeframes. However, it is not recommended in extremely small timeframes as there is a lot of noise in those timeframes, which may lead to confusion and misunderstanding. Hence, if one wants to profit greatly from this strategy, he/she should trade in 15 minutes or a higher time frame.

Indicators

We will be using just one technical indicator, and that is ‘Simple Moving Average (SMA)’ with 5 or 10 as it’s period. No other indicators are used in this strategy.

Currency Pairs

The strategy is suitable for trading in all currency pairs, including major, minor, and some exotic pairs. However, illiquid currency pairs should be avoided as the price action patterns are not reliable in these pairs.

Strategy Concept

In this strategy, we will be using the concept of previous highs and lows instead of support and resistance to act as our reference points. This is easy to understand and easier to spot in a chart. We will then anticipate these highs and lows as our support and resistance areas, which could break out of. Lows on a price chart are points where the price found support and started to go up.

In other words, this is a price point where there were ready sellers. When price revisits that area, sell orders get triggered, and the price starts to fall. However, during a breakout scenario, the momentum of the price is so much that it breaks the previous high and continues moving south. The Opposite is true for the breakdown of previous lows.

At times it is seen that even when the previous high or low is broken, the price doesn’t always continue in the direction of the breakout or breakdown. The price immediately retreats and bounces off the high or low. We will call these scenarios as fake-out or ‘stop-loss hunt.’ When price retraces back immediately, there is a high chance that it will continue in the same direction, at least until the latest hurdle. Let us explore the steps of the strategy.

Trade Setup

To explain this strategy, we will consider the EUR/USD currency pair and find a trade that fulfills all the criteria of the strategy. In this example, we will be analyzing the 1-hour time frame chart and look for appropriate price action patterns in the pair.

Step 1

The first step of the strategy is to look for highs and lows from where the market has traveled a fair amount of distance. Spotting for such areas in the direction of the major trend is preferred as the risk is lower in such trade setups. For instance, look for buying opportunities at lows of an uptrend and selling opportunities at the highs of a downtrend. This step is very important from a risk aversion point of view. Thus, one should give a lot of importance to this step of the strategy.

Step 2

The next step is to look for a fake-out price action pattern at the low, marked in the previous step. This is the first confirmation that buyers or sellers have come back into the market, and the banks have cleared out all the strategies that were placed below the low and above the high.

The below image shows how the price goes slightly below the previous low clearing all the stops of retail traders, and the last candle closes with a great amount of bullishness.

Step 3

In this step, we see where we take an entry in the market. We take an entry right after the price starts moving higher or lower and closes above or below the simple moving average (SMA), respectively. Conservative traders can wait for the price to retrace to the SMA and then take an entry while aggressive traders can enter right at the close of the candle.

The arrow mark in the below image shows that the entry is made at the close of the second bullish candle after the fake-out.

Step 4

We have one take-profit and one stop-loss point for this strategy where we take profit at the high or low as we had marked in the first step of the strategy while stop loss is placed below or above the low and high, respectively. If one is trading in the direction of the major trend, he/she can take profits at new highs or lows. However, one needs to be conservative while taking counter-trend trades.

Strategy Roundup

Stop-loss hunts are becoming as common as breakouts. By including this strategy in our trading arsenal, we will have something that we could use when we notice such patterns in the market where other traders are looking for breakouts. In this strategy, we have put a significant amount of stress on price action, which makes this strategy very reliable and consistent. One can use trailing stop-loss to protect their profit even when the target isn’t reached. All the best!

Categories
Forex Course

137. Differentiating between a Retracement and a Reversal

Introduction

Introduction

Introduction

Broadly speaking, there are three states in the market – trend, range, and channel. If we were to go a little more in detail, a market has components like retracement and reversal. Identifying and differentiating between a retracement and reversal is a skill in itself. In this lesson, let’s go and understand what these terms mean and how to differentiate them.

What is Retracement?

Retracement is the terminology usually associated in a trending market. We know that in a trending market, the price moves in one specific direction. For instance, an uptrend is defined as a sequence of higher highs and higher lows. As per the definition of an uptrend, the prices do not keep moving higher and higher continuously.

After trending up to a certain point, the price temporarily moves in the opposite direction. This movement against the original trend is referred to as retracement. Technically, the price action from a higher high to the higher low is called a retracement.

Uptrend Example

Downtrend Example

What is a Reversal?

A reversal can be defined as the overall change in the direction of the market. A market can reverse from an uptrend to a downtrend, or from a downtrend to an uptrend.

Reversal to the Upside

In this type of reversal, initially, the market trends in a downtrend making lower lows and lower highs. Later, the market goes into a transition state where the price typically ranges for a while. In other words, the price stops making lower lows and lows highs. Instead, it makes equal lows or higher lows. Finally, the market starts to trend north by making higher highs and lower lows.

Reversal to the Downside

This reversal happens when the market transits from an uptrend to a downtrend. In an uptrend, the price makes higher highs and higher lows. But, when the trend begins to diminish, the higher highs turn into equal highs, and higher lows start to become equal lows. Finally, when the seller’s pressure comes in, the price begins to make lower lows and lower highs, forming a downtrend. Thus, the complete scenario is referred to as a reversal.

Predicting a possible reversal or retracement in the market is pretty challenging. If you’re stuck in a position and unsure if it is a retracement or a reversal, you may try the following options to manage the trade:

  • Hold onto your positions by keeping the stop loss as it is. If it is a retracement, you can ride the trade, else get stopped if it is a reversal. This is the simplest approach.
  • If you are more inclined towards a reversal than a retracement, then you may close your positions. Based on where the market breaks through, you can look for re-entry. But, you might have to compromise on the risk: reward.
  • You could close the entire position and stay away from the pair and look for other opportunities. This is the safest option possible, especially for conservative traders.
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Categories
Forex Assets

Asset Analysis – Trading The Natural Gas Commodity Asset

Introduction

Introduction

Introduction

Natural gas is a soft commodity that is extensively traded in the market, like Crude Oil. The price changes every moment, as it is publicly traded on an exchange. The price of natural gas is determined by supply and demand in the physical market, as well as the demand and supply from the traders in the online market.

Understanding Natural Gas

Trading natural gas in the online market is speculating the short-term price fluctuations. Buying natural gas is only an electronic transaction and does not mean the physical purchase of the commodity.

There are several ways to trade natural gas in the online market. One of the heavily traded ways is through futures contracts. A futures contract is a contract (agreement) to buy or sell an asset at a future price.

Chicago Mercantile Exchange (CME Group) is the route through which nature gas futures is traded. There are many types of natural gas and its contracts that can be traded. However, the most traded contract is the Henry Hub Natural Gas Futures (NG).

Each contract of NG represents 10,000 million British thermal units (mmBtu). In the futures exchange market, NG fluctuates with a minimum of $0.001. In other words, a $0.001 price movement in NG represents one pip (tick). Like pip value in forex, the tick value of NG is $10. For every tick in price, a trader will see a $10 change in P/L.

Natural Gas Specification

Fees Associated with Natural Gas Futures Trading

There are different types of fees involved while trading natural gas futures. Typically, there are four basic fees that a brokerage charges for every futures contract traded:

  • Exchange/Clearing fees
  • National Futures Association (NFA) fee
  • Data fees
  • Brokerage commissions

The types of the fee listed above are either charged “per side” or “round turn” basis. Also, it varies from broker to broker.

Trading Range in Natural Gas

A trading range represents the price fluctuations in natural gas in different time frames. Similar to pips in currency pairs, the price movement in natural gas is represented in ticks, where each tick is an increment of $0.001.

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 significant period
  5. Select your desired timeframe
  6. Measure the floor level and set this value as the min
  7. Measure the level of the 200-period SMA and set this as the average
  8. Measure the peak levels and set this as Max.

Cost as a Percent of the Trading Range

Cost a percent of the trading range is the depicts the variation in fees on the trade-in different time frames for varying volatility. It is simply the ratio of the total fee and the tick values.

Total fee (per contract) = $50 (5 ticks) [approx. fee]  

Trading the Natural Gas

Natural gas is heavily traded in the futures market. It is a soft commodity like Crude Oil and is quite popular in the commodity space. Traders speculate on natural gas using both fundamental and technical analysis. The fundamentals of NG vary from that of other commodities, while the technical analysis works perfectly the same as any other asset. The fee structure, too, is pretty different from that of currency pairs, as it is mostly traded in the futures market. However, the total fee is more or less the same.

Understanding the fee variation

The fee is something that varies relatively with the change in time frame and volatility traded. In essence, a trader trading the 1H time frame will have to pay relatively more fee than a trader speculating on the 4H. Due to this, the percentage values are higher on the 1H time frame than the 4H time frame.

Likewise, the relative fee is higher when the market volatility is at the minimum values, even though the time frame remains the same. So, to efficiently manage the fee, one must trade during the times when the market volatility is at or above the average values.

Categories
Forex Fundamental Analysis

The Impact Of ‘GDP Constant Prices’ News Announcement On The Forex Market

Introduction

Introduction

Introduction

GDP Constant Prices is the primary indicator used by Government Agencies, Economists, Investors, Traders for year-to-year analysis of economic progress. GDP Constant Prices is the real scorecard for a country’s progress. 

It is a national level indicator and is closely watched by the market. The most important fundamental indicator Real GDP Growth Rate is derived from GDP Constant Prices. Hence, overall it is very critical for us to understand GDP Constant Prices and its nuances for correct interpretation.

What is GDP Constant Prices Indicator?

Gross Domestic Product (GDP) 

GDP is the measure of a country’s total economic output. It is the total monetary value of all the goods and services produced within the country regardless of citizenship (resident or foreign national).

Nominal GDP is also called Current Dollar GDP. It is the market value of all the finished goods and services within a nation’s geographical borders for a given period. The period is generally a quarter (3 months) or a year.

The commonly used term “size of the economy” refers to this economic indicator. USA has the world’s biggest economy, which means it has the highest nominal GDP or highest economic output.

GDP Constant Prices

It is the inflation-adjusted GDP value. It is the total monetary value of all goods and services produced, excluding the effects of inflation in prices. It is also called Real GDP, Constant Dollar GDP, Inflation-Corrected GDP, or only Constant Prices. The raw value of the economic output is called the Nominal GDP, whereas Real GDP accounts for inflation effects and is a more accurate measure of growth.

GDP Constant Prices or Real GDP is obtained by dividing the Nominal GDP with a GDP deflator. The GDP deflator is an inflation measurement from a fixed base year. Real GDP is inflation-adjusted to compare on an as-if basis with the base year GDP. It means GDPs are compared as if the prices remained the same as the base year and see if the GDP has improved due to increased economic activity.

Calculating GDP Deflator is a bit tedious process, that is best left to the experts like the Bureau of Economic Analysis. The Real GDP is made up of the following components and is affected by them:

A) Consumer Spending: It represents spending associated with the end-consumers or the general population. It makes up about 69% of the total GDP in the United States.

B) Business Investment: Economic Output of the Business Sector makes up 18% of the total GDP in the United States. 

C) Government Spending: It involves all the expenditures incurred by the Government to maintain and stimulate economic growth and run its operations. It accounts for 17% of the total economic output for the United States.

D) Net Exports: It is the difference between the total exports and imports. The United States has a -5% Net Exports of the total GDP, meaning it is a net importer.

How can the GDP Constant Prices numbers be used for analysis?

Inflation is the underlying fire that drives capitalist economies. In general, a low inflation rate of 2-3 % a year is good for the economy. A stable inflation rate of 2-3% will stimulate economic growth to achieve a 3-5% annual GDP growth for developed economies.

As prices increase year-over-year, the economic output will also seem inflated even though it is the same as the previous year. Hence, Real GDP is a more accurate measure of scoring the economic output of a country.

Nominal GDP is useful when comparing economic output within a year among different quarters, while it is more sensible to use Real GDP for year-over-year comparison. Policymakers use both Nominal and Constant Prices GDP for economic assessment and implementing policy reforms as deemed necessary.

When inflation is positive (which is the cast most of the time), the GDP Constant Prices will be lesser than Nominal GDP. When there is deflation in the economy (during slowdowns or recessions), the GDP Constant Prices may be higher than the nominal GDP value.

GDP Constant Prices is better for assessing long-term growth, or knowing whether the economy has grown over the previous year or not. With Nominal GDP, it is difficult to tell whether an increase in the figures is due to an expanding economy or just a factor of inflating prices of goods and services.

Impact on Currency

GDP data is essential for almost everyone. Economists use for macroeconomic analysis and Central Bank planning. Policymakers are committed to maintaining a steady Real GDP Growth. Hence, Central Authorities also watch it tightly.

Investors make decisions based on GDP data. Businesses hold their expansion plans based on economic stability and market stability, as indicated by GDP. Traders heavily trade once GDP estimates and actual figures are published.

Hence, overall it is a high impact indicator. It is a proportional macroeconomic indicator, meaning higher GDP Constant Prices are suitable for the overall economy and currency. The opposite also holds. 

Lower Real GDP prints indicate weakening economy, businesses hold hiring or investment plans, spending is reduced, and in extreme cases, it can lead to a recession. All of this leads to currency depreciation.

Economic Reports

In the United States, the Bureau of Economic Analysis publishes quarterly and annual Nominal and Real GDP reports on its official website. It is released almost 30 days after a quarter ends. The schedule of release is available on the website. The headline number is the GDP Constant Prices figure, GDP Growth Rate figure.

Major international organizations like the World Bank, International Monetary Fund, OECD, etc. actively maintain track of most countries’ GDP figures on their official website.

Sources of GDP Constant Prices

For the United States, the BEA reports are available here 

The St. Louis FRED keeps track of all the GDP and its related components in one place on its official website here:

GDP & GNP – FRED

Real GDP – FRED

The World Bank GDP Constant Prices with base year as 2010 in US Dollar terms are available here:

GDP Constant Prices (2010 US$) – World Bank

OECD – GDP Constant Prices and other variants

We can find a consolidated list of most countries’ GDP Constant Prices here.

Impact of the ”GDP Constant Prices” news release on the Forex market

GDP Constant Prices, also known as real GDP, is a measure of GDP that has been adjusted for the price level. Current prices measure the GDP using the actual prices we notice in the economy. Current prices make no adjustments for inflation. However, constant prices adjust to the effects of inflation. Using persistent prices enables us to measure the actual change in the outcome and not just rise due to inflation’s effects. The real GDP is calculated by dividing nominal GDP over a GDP deflator. When nominal is higher than real, inflation is occurring, and when real is higher than nominal, deflation is occurring. Fundamentally speaking, nominal GDP matters to investors when taking a position in currency or the stock market.      In today’s lesson, we will analyze the impact of GDP on various currency pairs by observing the change in volatility before and after the news announcement. For that purpose, we have collected the GDP data of Canada, where the below image shows the month-on-month GDP data released recently. Let us find out the market’s reaction to this data.

USD/CAD | Before the announcement:

We will start with the USD/CAD currency pair to observe the impact of GDP on the Canadian dollar. The above image shows the state of the chart before the news announcement, where we see that the market is in a downtrend, and recently the price has reversed to the upside. Either could result in a reversal of the trend or a continuation of the current trend. The impact of GDP will decide the direction of the market and so our position. 

USD/CAD | After the announcement

After the news announcement, the price drops below the moving average, and the market falls considerably owing to the positive GDP data. Even though there was a decrease in the GDP, it was only a tad bit lower and much around the market expectations. Hence, it proved to be bullish for the Canadian dollar, and the market goes lower. One should confirm the continuation of the trend using technical indicators before taking a ‘short’ trade.

GBP/CAD | Before the announcement:

GBP/CAD | After the announcement:

The above images represent the GBP/CAD currency pair, where we see in the first image that the market has broken out from a downward ‘channel’ and is moving higher and higher from then on. It very likely that the up move will continue further, which makes us wait for a price retracement to take a buy trade. Based on the volatility caused by the news release, we will have a clear idea about the direction of the market.

After the news announcement, volatility slightly increases to the downside, and the market falls by a few pips. The bearish ‘news candle’ is a consequence of the positive GDP data, mostly on expected lines. We need to note that the news release did not change the overall trend of the market, where the uptrend is still intact.    

CAD/CHF | Before the announcement:

CAD/CHF | After the announcement:

The above images are that of CAD/CHF currency pair, where we see that before the news announcement, the market has reversed from an uptrend to a downtrend and is currently on the verge of continuing the downward move. Since the GDP has a high impact on the currency (indicated by the red box), it is advised not to take any position before the news release.

After the news announcement, the price moves higher by a small amount and manages to close on a bullish mark. The GDP data was close to what was expected, it leads to bullishness within a currency, and hence the Canadian dollar gains strength for a short while.

We hope you understood the concept of ‘GDP Constant Prices’ and how the Forex price charts get affected after its news release. All the best. Cheers!

Categories
Forex Basic Strategies

Have You Tried This ‘Power Ranger’ Forex Trading Strategy?

Introduction The forex market either trends or moves in a range. The last strategy was dedicated to trading the range. The strategy we will be discussing today is also based on trading the range. Range strategies are either pure price action based or a combination of both. Oscillators are one of those indicators that are […]

Introduction The forex market either trends or moves in a range. The last strategy was dedicated to trading the range. The strategy we will be discussing today is also based on trading the range. Range strategies are either pure price action based or a combination of both. Oscillators are one of those indicators that are […]

Introduction

The forex market either trends or moves in a range. The last strategy was dedicated to trading the range. The strategy we will be discussing today is also based on trading the range. Range strategies are either pure price action based or a combination of both. Oscillators are one of those indicators that are commonly used in range strategies. This is because oscillators indicate a possible range that the price swings back and forth from.

Some common oscillators are the stochastic and relative strength index (RSI). It has been observed that identifying and trading ranges poses more challenges to traders than identifying trends. After all, ranges become evident only after it is formed.

To make things worse, when a range is formed, and one starts applying the range strategy, price action causes the market to break out or break down of a range again. The power range strategy tries to fill this gap. Let us look at how this can be done through the use of a powerful oscillator.

Time Frame

The power ranger strategy works well with the hourly (H1) or 4-hourly (H4) chart. This means each candle on the chart represents 1 hour or 4 hours of price movement. However, using the strategy on the 15 minutes time frame requires a lot of experience and practice. Hence, all new traders should use the strategy on the recommended time frame only.

Indicators 

We use the Stochastic indicator for this strategy with the following specifications.

%K period = 10 | %D period = 3 | Smooth = 3 | Levels = 20 and 80

The stochastic indicator is an oscillator that measures overbought and oversold conditions in the market.

Currency Pairs

The strategy is suitable for all currency pairs listed on the broker’s platform. However, it is advised to deploy the strategy on major currency pairs as patterns clearly show in these currency pairs. One should avoid trading in exotic or illiquid pairs as apart from unclear patterns, there are other problems associated with trading such pairs.

Strategy Concept

The strategy is based on the concept that the market will form a range after a trend. We use the stochastic indicator to give us an indication of a possible range formation. The current market momentum will tell us if we will go ‘long’ or ‘short’ in the market. If the market moves in an uptrend, we look for buy opportunities in the range where the entry will be determined by the stochastic indicator’s oversold region.

If the market is moving in a downtrend, we look to go short in the range. In this case, the entry is determined by the overbought region of the stochastic. We use the most recent high and low to determine the possible resistance and support of the range. Two of the ‘take-profit’ levels are located within the range, and the third one is located beyond the range in anticipation of a breakout.

Trade Setup

To illustrate the strategy, we shall consider the USD/CAD currency pair and find an appropriate trade using the strategy. Here are the steps to follow to execute the power ranger strategy.

Step-1

The first step is to find a trending market. By trending market, we mean, to look for higher highs and higher lows in case of an uptrend and lower lows and lower highs in a downtrend. Plot a trend line that connects these lows and highs, so that the trend looks eminent. This is the simplest step of the strategy. The below image shows an uptrend visible on the 4-hour time frame chart of the currency pair. Let us understand the further steps of the strategy.

Step-2

The next step is to look for a price retracement to a support area or an area close to the trendline. By doing so, we ensure that we are not chasing the market, which is crucial. Once we find such a retracement, observe the stochastic indicator’s position, and determine %K and %D level of the indicator.

We should look for price retracements where the %K and %D lines cross above the 20 levels indicating the market’s oversold condition. In a downtrend, the lines should cross below the 80 levels, indicating the market’s overbought condition.  The below image shows the crossing of both the lines above the 20 level exactly near the support, indicated by the red dotted line.

Step-3

As the price starts moving higher after reacting from the support line and a rise in the oscillator, we take our entry expecting a higher high in the market. One can notice here that, we enter the market only after we get a confirmation and just based on indicator signal and price level. We can see below that we are executing our ‘long’ trade after confirmation from the market in the form of two green candles, indicated by the brown arrow mark.

Step-4

In this step of the strategy, we determine our take-profit and stop loss. Basically, this strategy has three profit points and a single stop loss. We shall take 50% of our profits at the 50% mark of the range, 40% of the profit at 90% mark of the range and remaining profits at the new ‘high.’ The stop loss for this strategy is placed below the support, which would result in a 1:1 risk to reward ratio.

After looking at the below image, one might think that the trade does not hit our final ‘take-profit,’ but this is just one of many trades that does not result in a breakout. However, in most cases, the market makes a higher high and results in a fully profitable trade. The risk management part of the strategy ensures that even though the price does not hit reach our final target, we can still come out of the trade with no or minimum loss.

Strategy Roundup

This is an amazing strategy that allows us to take a range of trade in the early stages of its formation. Always determine the momentum of the market before looking for support and resistance levels. Giving importance to momentum will put ourselves in an advantageous position and prevents us from blindly trading just based on the signal given by stochastic indicator. Cheers!

Categories
Forex Course

136. Learning To Trade The Ranging Market?

Introduction

Introduction

Introduction

A Range is a state of the market where the prices move back and forth between the upper bound and the lower bound. A ranging market is also referred to as a choppy, sideways, or a flat market. Unlike a trend, the prices do not move in one specific direction for a long time. A range on a time frame, when looked on a smaller time frame, the price trends in one direction for a while, reverses its direction, and trends in the opposite direction.

Understanding Support and Resistance

Knowing support and resistance is an essential concept to understand a range. These two terms form the basis of a range.

Support

In simple words, support is the level in the market where the prices tend to go up. It is the region where the buyers are interested to aggressively buy the security, causing the prices to shoot up. In other words, it is an area where there is a high demand for the currency pair. A level can be regarded as support when the price reacts multiple times (with power) from that area.

Resistance

Resistance is a level in the market where the prices tend to drop. It is the price where sellers are willing to sell or short sell the asset. They prevent the market from going higher from a specific level. Resistance is no different from that of supply.

Resistance can be understood in terms of buyers. It is an area in the market where the buyers are not interested in buying at that price as they find it expensive. Since there is no demand from the buyers, the prices drop. And when it drops to the support area, the buyers show up again. Thus, due to a higher demand than supply at the support region, the prices rise.

The combination of both support and resistance makes a range. For instance, let’s say the market drops to the $5 mark every time it touches the $10 price. Visually, the market is moving sideways, and such a market is referred to as a range. Here, the $5 price is the support level, and the $10 price is the resistance. A similar example of the same is illustrated below.

ADX indicator for ranging markets

The Average Directional Index indicator can be applied to determine if the market is trending or ranging. A value above 25 indicates that the market is in a strong trending state, while a value of less than 25 signifies that the market is in a consolidation (range) state.

Below is the live chart of AUD/CAD on the 4H time frame. Looking at the chart from a bird’s eye perspective, the market started as an uptrend, held for a while, continued with the same trend, and is currently ranging again. In this sequence, we can observe that the ADX was below the 25-mark line when the market was consolidating, and greater than 25 when it was trending upwards.

We hope you found this lesson on ranging markets interesting and informative. In the next lessons, we shall get into more detail and understand concepts like retracements and reversal. Happy learning!

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Categories
Forex Fundamental Analysis

Everything About ‘Changes in Inventories’ Macro Economic Indicator

Introduction

Introduction

Introduction

Changes in Inventories are one of the primary business leading economic indicators that can give us insight into economic prospects for the coming months. Understanding of Inventory Changes and Sales can help us forecast economic growth, which is our primary objective through Fundamental Analysis.

What are Changes in Inventories?

Inventory: It is the stock of goods that retailers, wholesalers, and manufacturers hold with them. Inventory is measured in their appropriate dollar values. Businesses often keep stock of their finished goods when they predict an increase in sales in the coming months so that they are ready to meet the increased demand and can lock in profits.

The Monthly Retail Trade Survey, the Manufacturer’s Shipments, Inventories, and Orders Survey, and the Monthly Wholesale Trade Survey are the primary sources from which Business Inventory is compiled.

At the level of Retail Merchandise, Inventories are measured at cost level at the retailers as per the FIFO (first-in, first-out) method of valuation. At the Wholesalers who distribute goods to retailers, the inventories’ values are added to the business inventories every month. At the manufacturer level, the inventories, whether in raw material, work-in-process or finished, are valued at cost, primarily by the FIFO method of valuation.

How can the Changes in Inventories numbers be used for analysis?

Business owners and retailers have a certain kind of acquaintance with market trends, and due to their years of experience running their business, they know the subtle trends of increase in sales, demand, etc. Hence, Businesses stocking up on inventories is not a joke, as it costs them real money for producing as well as holding the stocks. If they did not forecast an increase, they would not have increased inventories in the first place.

Seasonally Adjusted Inventory Changes can thus act as a leading indicator for the increase in consumer consumption, which is good for business, and the economy. On the other hand, increased inventory figures could also indicate that the sales have fallen, and thus creating an inventory stockpile, which indicates decreased consumer spending, which signals terrible times for the economy are ahead.

Hence, it is often essential to combine Inventory figures with Retail Sales figures to correctly gauge the economic trend. Retail Sales figures indicate actual consumption of goods by consumers and hence is the more accurate figure when compared to Changes in Inventories.

An increase in Manufacturing Production is followed by an increase in Inventory. It is then followed by an increase in Retail Sales. The first two stages, i.e., increase in Manufacturing Production and Inventory Changes, are still forecast, i.e., the rolled dice can turn either way. But Retail Sales is a guaranteed economic indicator, as money comes back into the pockets of retailers and manufacturers.

Hence, the more commonly watched statistic out of the business inventories figures is the Inventory-to Sales Ratio. It is the ratio of Inventory value to Retail Sales figures. It gives us an indication, by how many times the inventories outpace the Retail Sales. The lesser the number, the better.

For example, an Inventory-to-Sales Ratio of 2.5 indicates that there is enough inventory stock to supply 2.5 months of Retail Sales. When the ratio increases, it is an indication that the inventories are increasing in contrast to the sales, which indicates the economy is slowing down. The upcoming Production activity would be reduced until the current Inventory stock starts to deplete off. On the other hand, when the ratio is falling, it is indicative of manufacturers to increase production activity to the oncoming increase in demand.

Inventories are primarily concerned with the Manufacturing Sector, which accounts for 20% of GDP in the United States. It drives a significant portion nonetheless.  An increase in manufacturing activity as a consequence of decreasing ratio figures can add to employment, or even wage growth, which is good for the economy. Increased employment further stimulates Consumer Spending as more people have the cash to spend, which cyclically boosts the economy.

Impact on Currency

Changes in Inventory figures can be leading indicators. If correctly put, way too leading. It means that the changes in inventories are figures at the start of the manufacturing process-consumer purchase lifecycle. The indicator has two-way conclusions to be drawn, as discussed above. Hence, the traders who are not well versed with the industry should use this indicator with caution, as an increase in Inventory can mean slowdown or expected growth both.

Only investors or traders who have a historical perspective of the figures can use this indicator effectively to predict growth months ahead of the market. In general, the market follows Retail Sales and Ratio as reliable metrics, and hence there are significant moves in the market around these figures. Hence, although a leading indicator of economic growth, it is advised to combine it with Retail Sales figures to affirm your assessment of economic activity.

Economic Reports

In the United States, the Bureau of Economic Analysis releases quarterly reports of the GDP, wherein the section of “Key Sources and Assumptions” contains the details of “Changes in Private Inventories.” The BEA publishes quarterly reports on its official website after every quarter. The release dates are also posted on its official website.

The United States Census Bureau maintains the Manufacturing & Trade Inventories on its official website.

Sources of Changes in Inventories

BEA – Gross Domestic Product

The St. Louis FRED website makes the search and analysis of Inventories data from BEA a lot easier. The links are given below

Change in Private Real Inventories – FRED

Change in Private Inventories – FRED

Census Bureau – Inventory

Census Bureau – Shipment, Inventory, and Orders

Inventory data for various countries are available in statistical and list format here.

Impact of the ‘Change in Inventory’ news release on the Forex market

The Change in Inventory measures the value of change in producer-owned inventories between the beginning and the end of the calendar year. For businesses, the build-up of inventories can be a threat. The problem is that these inventories will probably be cut in the future, depressing demand for goods and leading to production cutbacks. In hard times, managers work hard to cut back on inventories. All companies need to be prepared for business cycles, which is driven by inventory swings. Companies must try to reduce their inventories by reevaluating their practices.

In today’s lesson, we will analyze the change in inventory levels of many agricultural commodities, particularly grains, that are produced in a given year and stored or held until they are marketed. The annual value of inventory change represents the gross value of agricultural production. The below image shows the net Change in Inventory from 2017 to 2018 in the agricultural sector of Canada. This value has been estimated for durum wheat, oats, rye, corn, soybean, potatoes, tobacco, and many other commodities. Let us find out how the market responds to this data.

USD/CAD | Before the announcement:

Let us start with the USD/CAD currency pair in order to observe the impact of the Change Inventory on the Canadian dollar. In the above image, we see that the market is in moving within a ‘range,’ and currently, the price is at the top of the ‘range.’ Since the impact of this news event is less on a currency, aggressive traders can take ‘short’ positions with a large stop loss.

USD/CAD | After the announcement:

After the news announcement, the market moves lower, and the price reaches to the moving average. The bearish ‘news candle’ indicates that the Change in Inventory data was positive for the Canadian economy, which resulted in the strengthening of the currency. The close of ‘news candle’ is a confirmation sign of a down move. Thus, one could take a risk-free ‘short’ position soon after the news release.

CAD/JPY | Before the announcement:

CAD/JPY | After the announcement:

The above images represent the CAD/JPY currency pair, where we see that before the news announcement, the market seems to be moving in a ‘channel’ with the price presently is at the bottom of the ‘channel.’ Since the Canadian dollar is on the left-hand side of the currency pair, an upward channel signifies strength in the currency. Therefore, traders who trade channel can buy the currency pair with a stop loss below an appropriate technical level.

After the news announcement, the price moves higher, and volatility expands on the upside. The ‘news candle’ closes with a fair amount of bullishness as a result of better than expected Change in Inventory data. At this point, once could confidently take a ‘long’ position with a target up to the higher end of the ‘channel.’

GBP/CAD | Before the announcement:

GBP/CAD | After the announcement:

The above images are that of GBP/CAD currency pair, where we can see in the first image that the market is in a strong uptrend, which signifies the great amount of weakness in the Canadian dollar. Technically, we should be looking to buy the currency pair after a price retracement to a ‘support’ or ‘demand’ area. Until then, we will be monitoring the impact of the news release.

After the news announcement, volatility slightly increases to the downside, and we witness a fall in the price. However, the Change in Inventory does not have a major on the currency pair where the Canadian dollar strengthens only momentarily. One needs to still wait for a pullback in order to join the uptrend.

That’s about the ‘Change in Inventory’ and the relative impact of its news announcement on the Forex price charts. Let us know if you have doubts regarding the article in the comments below. Cheers!

Categories
Forex Course

135. All About The Trending Market

Introduction

Introduction

Introduction

In the previous chapter, we understood the different states that exist in the market, which were trends, ranges, and channels. In this and the upcoming lessons, we shall go over each one of the types in detail.

What is a Trending Market?

A trending market is the type of market where the prices move in one specific direction. Of course, the prices change the direction temporarily, but the overall direction will still be in one direction.

Since there are two directions in the market, there are two types of trends: one facing upward and the other facing downward. The former is referred to as an uptrend, and the latter is called a downtrend. Having that said, there are some rules and criteria to confirm a market is trending.

How to Identify a Trend?

There are quite a number of ways to identify and confirm a trend. One can use price action patterns or technical indicators to identify if a market is trending.

Price Action pattern

The concept of highs and lows on the price charts is used to determine if the market is trending upwards or downwards.

Uptrend

In an uptrend, the market makes higher highs and higher lows. Multiple sequences of this pattern confirm that the market is trending up.

Downtrend

In a downtrend, the price makes multiple sets of lower lows and lower highs.

ADX Indicator

Another way to determine if a market is trending is by applying the Average Directional Index (ADX) indicator. It was created by J. Welles Wilder, where the indicator has values between ranging between 0 and 100. The magnitude of the value determines the strength of the trend. The larger the number is, the stronger the trend.

Typically, a value greater than 25 indicates that the market is in a strong trend, either uptrend or downtrend. It is a non-directional indicator, where the value is always positive irrespective of the direction.

Note that ADX is a lagging indicator and does not really determine the future of the market. Thus, it cannot be employed for timing your entries and exits.

Moving Average

Simple moving averages can also be used to determine if the market is in a trending state. Add the 7 period, 20 period, and the 65-period MAs on the price chart. When all three MAs compresses and fans out, and if 7 period MA is below the 20-period MA and 20 period MA is below the 65-period MA, then it confirms that the market is in a downtrend.

Conversely, if the 7 period MA is above the 20 period MA and the 20 period MA is above the 65-period MA, then the market is officially in an uptrend.

These were some of the most popular techniques to identify and verify whether the market is trending. However, they are not strategies to trade a trend. Nonetheless, they can be used to give heads up to any trend trading strategies.

[wp_quiz id=”78831″]
Categories
Forex Assets

Analyzing The Costs Involved While Trading The ‘CHF/BGN’ Exotic Pair

Introduction

Introduction

Introduction

CHF/BGN is the abbreviation for the Swiss Franc and the Bulgarian Lev exotic pair. Here, CHF is the base currency, while BGN is the quote currency. The pair as a whole explains the number of units of the quote currency (BGN) that is required to buy a single unit of the base currency (CHF). BGN stands for The Bulgarian Lev, and it is the official currency of Bulgaria.

Understanding CHF/BGN

In the Forex market, we always purchase the base currency while selling the quote currency and vice versa. Here, the market value of CHF/BGN helps us to comprehend the potential of BGN against the CHF. So if the exchange rate of the pair CHF/BGN is 1.8384, it means to buy1 CHF we need 1.8391 BGN.

CHF/BGN Specification

Spread

Spread in exchange is the distinction between the bid-ask price proposed by the broker. It is quantified in terms of pips and fluctuates on the type of account and kind of broker. Below is the spread for the CHF/BGN pair in both ECN & STP accounts.

Spread on ECN: 7 | STP: 12

Fees

Fees are the commission charged by the broker for each trade a trader takes. The fee varies on both types of accounts and brokers. For our analysis, we have maintained the fee flat at five pips.

Slippage

A trader will not get the price that he demands, due to the volatility in the market. The original price varies from the asked price. The difference is termed as slippage. For instance, if a trader performs a trade at 1.8384, the actual price received would be 1.8391. The difference between the two pips is called slippage.

Trading Range in CHF/BGN

The trading range is a tabular interpretation of the min, average, and maximum pip movement in a specific timeframe. Obtaining understanding about this is essential because it helps manage risk and determine the appropriate times of the day to enter-exit a trade with minor costs.

Below is a table representing the minimum, average, and maximum pip movement (volatility) in various timeframes.

Procedure to assess Pip Ranges

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

CHFBGN Cost as a Percent of the Trading Range

The above table illustrates the number of pips the currency pair move in the various timeframe. We will apply these values to identify the cost ratio when the volatility is minimum, average, and maximum. The cost percentage will then help us sort the ideal time of the day to enter the trades.

The understanding of the cost percentage is straightforward. If the percentage is elevated, then the cost is high in that specific timeframe and range. If the percentage is low, then the cost is comparatively low for that timeframe and range. The total cost on every trade is calculated by adding up the spread, slippage, and trading fee.

ECN Model Account

Spread = 7 | Slippage = 5 | Trading fee = 8

Total cost = Slippage + Spread + Trading Fee  = 5 + 7 + 8 = 20

STP Model Account

Spread = 12 | Slippage = 5 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee  = 5 + 12 + 0 = 17

The Ideal way to trade the CHF/BGN

It is not recommended to enter and exit the trade at any time of the day. To manage their trade, a trader must consider various timeframes during the day to reduce both risk and cost of the trade. This is made possible by understanding the above two tables.

In the minimum column, the percentages are generally high. This means the cost is very high when the volatility of the market is low. For example, on the 1H timeframe, when the volatility is three pips, the cost percentage is 666%. This means that one must accept high costs if they enter or exit trades when the volatility is around three pips. Preferably, it is advised to trade when the market’s volatility is above the average.

Additionally, it is considerably better if one trades placing the limit orders instead of market orders, as it invalidates the slippage on the trade. In doing so, the costs of each trade will reduce by approximately 40%.

STP Model Account (Using Limit Orders)

Spread = 12 | Slippage = 0 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 0 + 12 + 0 = 12

Categories
Crypto Guides

‘Cryptokitties’ – The Innovative Blockchain Based Recreational System

Introduction Cryptokitties is a first blockchain-based leisure game created for entertainment. It is developed by Vancouver based blockchain company Axiom Zen on the Ethereum platform. The game was widely recognized by the people in 2017 when it congested the entire Ethereum network due to its popularity. The game uses the concepts of Ethereum smart contracts […]

Introduction Cryptokitties is a first blockchain-based leisure game created for entertainment. It is developed by Vancouver based blockchain company Axiom Zen on the Ethereum platform. The game was widely recognized by the people in 2017 when it congested the entire Ethereum network due to its popularity. The game uses the concepts of Ethereum smart contracts […]

Introduction

Cryptokitties is a first blockchain-based leisure game created for entertainment. It is developed by Vancouver based blockchain company Axiom Zen on the Ethereum platform. The game was widely recognized by the people in 2017 when it congested the entire Ethereum network due to its popularity. The game uses the concepts of Ethereum smart contracts to track the ownership of kitties on the platform.

The gaming platform allows people to purchase, collect, and breed against each other to produce new virtual kitties and sell them as per their traits. People have spent millions of dollars on virtual kitties on the gaming platform. The most expensive crypto kitty sold was for around $1,70,000, which was equivalent to 600 ETH in September 2018.

How does it work?

Cryptokitties was the first-ever commercial application to be introduced on Ethereum. The platform uses the non-fungible token (NFT) or nifty, which is unique to each kitty. NFT’s are unlike cryptocurrencies, which can be exchanged in any way. NFT’s represent the uniqueness of the product associated with it. NFT’s were used in the field of art to secure their uniqueness in the blockchain platform. No one can transfer cryptokitties from one user to another without the owners’ permission, not the creators of the game as well.

People make money by buying the virtual kitties, and as they are allowed to breed them, they breed them with other kitties to gain unique characteristics for the offspring. This is achieved because each virtual kitty carries a unique number and 256-bit distinct genome and different cattributes (attributes for cats, hence cattributes) that can be passed to the next generation, just as we humans do. Any cat has 12 cattributes, eye shape, base color, mouth shape, fur, eye color, optional wild, pattern, environment, purrstige, and secret. These are passable cattributes.

Other cattributes like cool downtime, i.e., time taken to rest after giving birth to the virtual kitty, are not passable and depend on the parents’ maximum generation time. It is generally one higher than the maximum generation time of parents. It is not that easy to breed your kitties, it requires time and patience, and hence the price of the kitty is determined by the best characters it holds.

How to buy Cryptokitties?

Well, it is pretty much straightforward. One should have a browser; chrome works better. A Metamask wallet, and since the platform is based on the Ethereum platform, we should have Ether in our wallet to adopt/buy virtual kitties.

Hence, a user should go to cryptokitties market place and search for the kitty that they may like. If they don’t like any of them that they see, they can go to the Gen0 tab and buy them. Gen0 are the kitties directly created by the smart contracts but not the offspring of any kitties available in the market place. People generally prefer the Gen0 kitties thinking they might have unique characteristics. The breeding of two Gen0 kitties will give birth to the Gen1 kitty.

Once you bought a kitty, you can go to the siring tab for choosing a mate to your kitty and start breeding your kitty to have more virtual kitties. This is how you adapt and sire your kitties.

Gas Consumption

Cryptokitties smart contracts are very gas hungry smart contracts due to the popular demand. At a certain point in time, the demand was so high that a lot of transactions in the Ethereum platform remained unverified for a more extended period due to which Ethereum forced the company to increase the gas prices to confirm the transactions quickly.

Conclusion

While cryptokitties are the first significant leisure and gaming DAPP developed not only in the Ethereum platform but also in the first time, people adopted it pretty quickly. The DAPP also pointed out a significant scalability issue in the Ethereum platform, which should be addressed by the blockchain platform for the adoption of many mainstream platforms.

Categories
Forex Daily Topic Forex Fundamental Analysis

Heard Of Germany’s ‘ZEW Economic Sentiment Index’?

Introduction

Introduction

Introduction

ZEW Economic Sentiment Index is a leading economic indicator that specially focuses on Germany and a few other countries. The correlation of the index with the growth is healthy. Hence, like any other business sentiment index, it is handy for our fundamental analysis to predict near-term economic activity, and identify potential opportunities.

What is the ZEW Economic Sentiment Index?

The ZEW Economic Sentiment Index is a sentiment index compiled out of the ZEW Financial Market Survey.  ZEW stands for Zentrum für Europäische Wirtschaftsforschung, which means the Center for European Economic Research.

ZEW Financial Market Survey

It was introduced in 1991. A survey of about 350 analysts working at banks, insurances, and significant industrial firms are surveyed in a time frame of about two weeks. The proportion of participants from different sectors generally remains constant. It collects the general German sentiment or expectations with regards to the development of six international financial markets, especially Germany.

The panel of financial experts selected for the survey express their near-term expectations of the business cycle growth and progress, inflation rates, short and long term interest rates, stock market, exchange rates, and the oil prices. The survey questions aim to answer the situations in Germany, the USA, Japan, France, Great Britain, Italy, and the Euro-zone as a whole.

The experts are finally asked to assess the profitability of many economic sectors like banks, insurances, trade, construction, vehicle industry, chemistry, electronics, mechanical engineering, utilities, services, telecommunication, and information technology. Each expert forecasts on every category form a fraction that reflects different assumptions in percentages. The score from each individual in percentages are summed together to give an overall sentiment.

The results of this method, when it is applied to forecasted changes in the economic situation in Germany, is known as the “ZEW Indicator of Economic Sentiment.” The ZEW Indicator of Economic Sentiment is obtained from the results of the ZEW Financial Market Survey. It is computed as the difference between the percentage share of analysts that are bullish and those that are bearish towards the German economy in six months.

For instance, if 30% of the survey respondents predict the German economic situation to deteriorate, 20% expect it to remain the same as before, and 50% expect it to improve. The overall score of the survey would be a positive value of 20. It is a bullish reading and suggests that financial experts see positive signs for growth in the medium term.

Note: The IFO Business Climate Index is also a similar survey-based index that is popular in Germany. It is also a monthly report that surveys over 7,000 companies in Germany to obtain business condition sentiment for the near term. It measures business confidence and is also a leading indicator. It is a weighted index, meaning company scores are weighted in based on their contribution to the economy’s revenue.

However, the ZEW panel comprises of financial experts and is more diverse in its area of coverage as it also publishes estimates about other economic zones outside of Germany. IFO is business sentiment, while ZEW is economic sentiment, economic sentiment is a broader gauge, and hence, for our fundamental analysis, it is more useful.

How can the ZEW Sentiment Index numbers be used for analysis?

Sentiment Index in any country or any sector is the leading economic indicators for traders, investors, economists, and policymakers. Since the ZEW Sentiment Index is composed of a panel of financial market experts, people who are well-versed with the economy and business cycles throughout their career, their assessments generally have a strong correlation with actual GDP growth.

As with any sentiment index, the ZEW index also tends to be overly sensitive to changes in the economy, meaning the results sometimes would seem exaggerated but in the right direction. For our analysis, the direction of the economy is essential, and the magnitude can be understood over time with historical data.

Overall, the Economic Sentiment Index is helpful for us to predict the upcoming six-month changes with a good amount of certainty.

Impact on Currency

Market volatility is sensitive to Economic Sentiment Indexes. Significant moves in the index cause volatility in the market. It is a leading indicator. The above picture is a snapshot of ZEW for the past one year.

High Positive Economic Sentiment Index figures translate to improving economic prospects, which will translate to higher GDP prints and currency appreciation. Low or NegativeEconomic Sentiment Index figures translate to possible business slowdowns in the near-term, in extreme cases, even a recession. It will translate to the contracting economy, and lower GDP print, and thereby leading to currency depreciation.

Economic Reports

The ZEW Economic Sentiment Index is released every month on its official website, with insightful comments on different sectors. The IFO reports and ZEW Economic Sentiment Index are the two popular Sentiment Indexes in Germany.

Other companies also publish Economic Sentiment numbers, and IHS Markit Group is one such company that puts out numbers on the international scale for many countries. Internationally, IHS Markit business surveys are popular, but within Germany, ZEW is more popular amongst the traders, investors, policymakers.

Sources of ZEW Economic Sentiment Index

We can monitor the reports on the official website of the ZEW.

We can also go through the Sentiment Index of other countries here.

We can also find the aggregated statistics of all business confidence indexes for various countries here.

Impact of the ”ZEW Economic Sentiment Index” news release on the Forex market

In the previous section of the article, we understood the ZEW Economic Sentiment fundamental indicator, which essentially rates the outlook of an economy for a six-month period. On the index, a level above zero indicates optimism, below indicates pessimism. It is a leading indicator of economic health.

The reading is compiled from a survey of about 350 German institutional investors and analysts. Therefore, it is given a fair amount of importance from investors, especially when analyzing growth in the Eurozone. The ZEW financial market survey covers a number of areas, sectors, and regions which are used to create the ZEW Economic Sentiment.

In this part of the article, we will examine the impact of the ZEW Economic Sentiment indicator on the value of various currencies involving the EUR and witness the change in volatility. For that, we have collected the latest data of ZEW Economic Sentiment, which was published in the month of April. We can see in the below image that the index jumped by a huge margin in April 2020, which was well above market expectations.

EUR/USD | Before the announcement

Let us start with the EUR/USD currency pair to observe the impact of the ZEW Economic Sentiment Indicator on the value of EUR. The above image shows the state of the chart before the news announcement, where we see that the price is in a downtrend, and very recently, the price has formed a ”range.” Just before the news release, the price is at the bottom of the ”range,” so we can expect buyers to come back in the market, initiating some strength in the Euro.

EUR/USD | After the announcement

After the news announcement, market crashes below the ”support” of the ”range” and volatility increases to the downside. Although the ZEW Economic Sentiment was extremely positive for the economy, market participants do not by Euro immediately at the ”news candle,” but instead, we see a rally in the price after the close of ”news candle.” Thus, we witness moderate volatility in the currency pair after the news release.

EUR/CAD | Before the announcement

The above images represent the EUR/CAD currency pair, where, in the first image, we see that the market is in an uptrend signifying strength in the Euro. Currently, the price is at its highest point, crossing the previous ”higher high.” As per the technical analysis, we should wait for price retracement to a ”support” or ”demand” area in order to join the trend. Depending on the impact of the news release, we will position ourselves in the currency.

EUR/CAD | After the announcement

After the news announcement, the price initially falls lower due to volatility, but it does not sustain at that level where the buyers immediately take the price higher. We can see that the market bounces exactly from the moving average and continues to move higher. The market is seen to react oppositely to the ZEW Index at the time of release, but one should not conclude the impact of news from just one candle.

EUR/AUD | Before the announcement

  

EUR/AUD | After the announcement

The above images are that of the EUR/CAD currency pair, where we see that before the news announcement, the market is in a strong uptrend again, signifying the great amount of strength in the Euro. Just before the release, the price appears to be at the ”supply” area, which means we should expect some selling pressure from this point. A breakout trade is possible if the price sufficiently breaks the ”supply” area.

After the news announcement, we witness slight bearishness in the currency but was not large enough to cause a reversal of the trend. We see that the price only hovers at the ”supply” area, with no major impact, which results in a breakout.

That’s about the ‘ZEW Economic Sentiment Index’ and the relative impact of its news announcement on the Forex price charts. Let us know if you have doubts regarding the article in the comments below. Cheers!

Categories
Forex Basic Strategies

Trading The Forex Market Using The ‘Pendulum Strategy’

Introduction

Introduction

Introduction

In the previous set of articles, we developed techniques and strategies using the most important technical analysis indicators. We also discussed how one could enter the market and make the most out of those strategies. In today’s strategy, we shall discuss a technique that will help us to anticipate a range and trade in the later stages of the range formation.

Time Frame

The suitable time frame for this strategy is the hourly (H1) or 4-hourly (H4) chart. This means each candle on the chart represents 1 hour or 4 hours of price movement, respectively. This does not mean one cannot use the strategy on the 15 minutes or daily time frame. The only difference is that it is difficult to spot trading opportunities on those time frames.

Indicators

We will not be using any indicators for this strategy. The strategy is more price action based.

Currency Pairs

One should note that this strategy is suitable for all currency pairs listed on the broker’s platform. However, it is recommended to trade only in the seven major currency pairs, as the patterns are clearer in these currency pairs.

Strategy Concept   

A pendulum in motion swings back and forth because gravity is pulling it back to the normal position every time it swings away from it. The pendulum reaches a maximum height before it starts to fall back. However, if the swinging force is a lot, the string holding the pendulum will be cut, and the pendulum will fly off.

A ranging market acts similarly to the pendulum. Every time prices pull away from the mid-point of the range towards the top or bottom end of the range, market forces pull it back towards the mid-point of the range. However, sometimes when the market gains enough momentum, prices will break the support and resistance of the range and move into a trend.

In this strategy, we wait for the pendulum to reach it’s optimal height and fall before entering the trade. We do this by executing a trade after the prices bounce back at the 10% market from either support or resistance. Our first target is set at 50% of the range, and the second target is set at the 90% mark of the range.

Trade Setup

We used the EUR/USD currency pair to illustrate the strategy, where we will be discussing a ‘long’ trade. Here are the steps to follow in order to execute the pendulum strategy.

Step 1

The first step of the strategy is to look for established levels of resistance turned support. By established, we mean the resistance which has now turned into support should be quite strong. It will be prominent if the breakout happens with strength, or essentially which happens after a news release.  After that, we need to mark our resistance, or ‘high’ from the market retraces to our support. These two important levels are marked in the below figure.

Step 2

The next step is to wait for the price to bounce off from the support area by 10% of the range that is created between the two lines marked. In the above example, the arrow mark points at the 10% value of the range, as shown in the below image. We will be entering the market for a ‘buy’ exactly after this 10% bounce. The stop loss for this strategy is placed somewhere at a price where the resultant risk to reward is 1.

Step 3

The best part of this strategy is that many emphases are put on trade management. In this step of the strategy, we remove 50% of our positions at the 50% mark of the range and 90% of the positions at the 90% mark of the range. In this, we ensure that even if the market reverses from the middle of the range and breaks below the support, we will still be profitable and would not any money even if the price hits our stop loss.

The points of the first and second targets are shown in the below figure, represented by brown dashed lines. One can also see the position of the Stop Loss marked by a brown dashed line.

We can see in the image below that the market finally breaks out and continues its upward momentum. When critical levels of resistance turned support and support turned resistance are found in an uptrend and downtrend respectively, traders can wait for the market to make new ‘highs’ or ‘lows’ and then book their profits.

Strategy Roundup

This strategy is applicable as long as the market is swinging back and forth in the form of a range. However, the main requirement of the strategy is to find strong levels of resistance turned support in an uptrend (preferably) and support turned resistance in a downtrend (preferably). If the breakout or breakdown does not occur with strength, the strategy might not yield the desired result, or the trade might work just a little bit. Although it looks like trading simple support and resistance strategy, establishing key levels at the beginning of the strategy and application of trade management is what makes this strategy different from trading traditional support and resistance.

Point of Caution

Previously, we mentioned to look out for key levels in trending markets, but at the same time, one needs to be cautious while determining these levels. One needs to check if the market is overbought, in case of an uptrend, or oversold, in case of a downtrend. An indicator that can help us determine the overbought and oversold conditions of the market is the Stochastic indicator.

Categories
Forex Course

134. Knowing the State of the Market

Introduction

Introduction

Introduction

Many newcomers and novice traders believe that the market moves in a random direction. They think it is all about the fundamental factors that keep the market going. In reality, the market does move based on fundamental factors, but it doesn’t imply that the prices move in random directions. The prices on the charts move in a specific direction as they are nothing but the past transactions of the big institutional players.

Charts tell a lot about the market environment. It clearly determines who is in control of the market – the buyer or the sellers. Based on this, there are three states of the market:

  • Trend
  • Range
  • Channel

Broadly speaking, in any market, be it Stock, commodity, currency, or cryptocurrency, the prices move only these three states. Let us understand each of them.

Of course, there are several types of chart patterns, but they all fall in one of the types on a bigger picture. All technical traders must have an understanding of the market environment. Whatever be the strategy, it will work applied in the right state of the market. Also, every type of market has its own concepts to trade.

Trend

The most evident type of market is a trending market. At the same time, it is one of the most confusing states to understand. A trending market is a type where the prices make Higher High & Higher Low sequences or Lower Low & Lower High sequences. In other words, in a trending market, the prices make a Higher High / Lower Low, retrace to the Support & Resistance, and continue with the same pattern.

A trending market is a type that can be found in any type of market. That is, even in ranges and channels, trends can be spotted (in a miniature picture).

Based on the direction of the market, we can divide trends into two types –

Uptrend (Bullish) – A market that faces upwards is an uptrend. The price makes Higher Highs and Higher Lows. It is a market where the buyers (bulls) are in control of the market. Note that a Higher High alone cannot be regarded as an uptrend.

Downtrend (Bearish) – A market whose trajectory is downwards is referred to as a downtrend. The price moves by making Lower Lows and Lower Highs. In this market, the sellers (bears) dominate the market.

Range

A ranging market is a type where the price does not create Higher Highs of Lower Lows. Thus, it moves sideways. There is a certain price shoots up and a price where it drops. It moves within these two prices. In this market, both buyers and sellers are strong. For example, if we say the market is ranging between 0.1200 and 0.2400, it means that the buyers are pushing up the market to 0.2400 from 0.1200, while the sellers are hitting it right back down to 0.1200.

Channel

A channel is basically a tilted channel. In other sense, a channel is a trend that is quite weak. In a channel, the price does try to make a Higher Highs or Lower Lows but retraces deeply before going for the next set. In a trend, the market respects the Support & Resistance, but the channel does not.

We hope you were able to get a gist on the states of the market. In the coming article, we shall elaborate on each of the types and understand how to trade them.

[wp_quiz id=”81457″]
Categories
Forex Fundamental Analysis

Did You Know That ‘Internet Speed’ Of A Nation Is Also Considered A Forex Fundamental Driver?

What is Internet Speed?

What is Internet Speed?

What is Internet Speed?

Internet Speed refers to the speed at which data, voice, and video travel long distances. This is achieved with the help of broadband. Broadband refers to the transmission technologies used to transmit the internet. The term is used to describe high-speed and high-bandwidth communication infrastructure. Without broadband, it is not possible to attain high-speed internet at any cost. The common medium of transmission technologies includes coaxial cable, fiber optic cable, and radio waves.

(Source: Statista.com)

Business and Internet Speed  

Companies accessing the internet is nothing new. In the 80s, banks and Wall Street began changing the way they dealt with information. Back then, internet-related tasks were accomplished with the help of a simple modem and dial-up connection. In today’s demand scenario, much faster and reliable systems of internet connection are required. Business owners and IT professionals have a lot to choose from.

High-speed internet leads to greater advantages for companies that rely on cloud-based apps and data. According to the study conducted by an international group, a city with high-speed internet, over a gigabit connection, has an overall healthier economy. The research was carried out by comparing 14 metropolitan areas where more than half the population has access to high-speed internet with that of 40 neighboring cities without high-speed internet.

It was reported that cities that had gigabit connections, like the fiber optics, can support a 1.1% higher gross domestic product than other “slower internet” cities. A 1.1% contribution might soundless, but when this is seen in the context of developed countries that grow a minimum of 1-2% every year, one can estimate how significantly it can impact economic growth. It could mean up to $1.5 billion in the local economy.

Importance of High-Speed Internet

On a global level, increasing internet speeds have the power to transform whole economies. During the keynote speech at Broadband World Forum, Johan Wiberg (Head of Business Unit Network, Ericsson) described that when more and more people begin to have access to high-speed internet and mobile broadband, people will find new ways to conduct the businesses.

High internet speed has the power to spur economic growth by creating efficient systems for businesses and consumers. It opens up opportunities for more advanced online services, smarter utility services, and telecommunication. In healthcare, for instance, innovative mobile applications will be used by nearly 800 million people.

But when it comes to high-speed internet, it is not easy to launch into an area overnight. It takes effort from companies and governments to introduce data and wi-fi connectivity in rural areas. Hence, the positive effects of these new technologies are hard to see right away. As more and more businesses get access to high-speed internet, whole verticals of the economy will transform.

With these effects sounding exciting, one shouldn’t expect higher income levels with the introduction of high-speed internet in our communities. When governments and policymakers fully comprehend the importance of digital highways, it is then we can find drastic changes in the economy in no time.

Countries with Fastest Internet around the World

Taiwan has the fastest internet with an average speed of 85Mbps, followed by Singapore, Jersey, Sweden, and Denmark. While Yemen has the slowest internet in the world with an average speed of just 0.38Mbps. Thirty-seven of the fifty fastest internet countries are located in Europe, with 10 in Asia, 2 in North America, and just 1 in Africa. The global internet speed is getting faster.

The previous year, global average internet speed was 9.1Mbps while this year, the global average is 11.03Mbps, a rise of more than 20%. Generally speaking, countries which have the fastest internet speeds are the ones which are small and developed. The larger & less developed a nation is, the slower will be the internet.

By looking at the present statistics, we can say that there is little change in development, availability, and rollout of faster infrastructure in the bottom half of the ranking compared to the top half.

Below is the avg Internet Speed of different countries in the world (In terms of MBPS)

(Source – Fastmetrics)

Impact on Currency 

Temporary internet shutdown in a high connectivity country is estimated to have a GDP impact per 10 million people per day of $23.5 million on average. The average impact in a medium connectivity country would be an estimated $6.5 million and $0.6 million of GDP, respectively. Therefore, Internet Speed does impact the value of the currency as well. But it does not an immediate impact, rather the effect is felt on a longer-term.

Sources of information on Internet Speed

There are many speed testing websites that calculate internet speed and keep them updated every few minutes. However, this information cannot be found on most of the economic websites as it is a very important economic indicator for traders. The website of telecommunication ministry is also a source of information on the internet and broadband.

Links to Internet Speed information sources

GBP (Sterling) – https://tradingeconomics.com/united-states/internet-speed

AUD – https://tradingeconomics.com/australia/internet-speed

USD – https://tradingeconomics.com/united-states/internet-speed

CAD – https://tradingeconomics.com/canada/internet-speed

JPY – https://tradingeconomics.com/japan/internet-speed

CHF – https://tradingeconomics.com/switzerland/internet-speed

Final Words

Broadband has created new sectors and redefined the old ones. The music industry, for example, after years of declining sales, is growing rapidly after the adoption of digital distribution models. All this is possible only with the help of fast internet. As broadband becomes abundant and faster, everything from retail to government services finds new ways to reinvent themselves, especially in knowledge-based sectors where such speed and efficiency can enhance competitiveness.

Digital infrastructure opens up possibilities for more advanced online services, smarter utility services, e-health, telecommunication, and telepresence. All are dependent on high-speed broadband networks. Hence Internet Speed of a nation pays a key role in determining how advanced the country is in terms of technology as well.

Having that said, the news release of Internet Speed figures for different countries doesn’t really affect the Forex price charts in any way. Hence, technical analysts can ignore this fundamental driver’s news announcements. Cheers!