Category: Forex Trade Types

Articles about the different types of trading styles: Scalping and its techniques, short-term timeframes, intraday trading, swing trading techniques, mid-term trading, and long-term strategies.
 

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Forex Trade Types

Binary Options Warning! Five Risks to Avoid

There are many ways to lose your money in this world but here’s one you haven’t met before: Binary options websites (digital options or fixed-profit options). An innovation that has shown great growth in recent years, but as social trading and managed accounts, is something so new that there is very little information about it.

There are many ways to lose your money in this world but here’s one you haven’t met before: Binary options websites (digital options or fixed-profit options). An innovation that has shown great growth in recent years, but as social trading and managed accounts, is something so new that there is very little information about it.

There are many ways to lose your money in this world but here’s one you haven’t met before: Binary options websites (digital options or fixed-profit options). An innovation that has shown great growth in recent years, but as social trading and managed accounts, is something so new that there is very little information about it.

The sites attract the same kind of people who play online poker and other types of casino games. But somehow they have an aura of being more respectable because they present themselves as a form of investment. Don’t get your hopes up. These are simple, pure gambling sites. It is naturally a matter of time before local authorities sanction them, as well as with the European authorities. Did they promise you that you can live on binary options? then everything you need to know about them.

What are binary options?

Earn 70% in one hour! Limited risk! you simply have to predict the trend and bingo! No experience is needed! Try to google binary options, and that’s what they typically use to sell to you. The material is more focused on attracting speculators who are not careful, than on attracting and teaching prudent and serious traders and investors how and when to use binary options. Like most rational adults, you should stop believing in promises to get rich fast just like you did when you stopped believing in Santa Claus.

The rise of binary options for forex and other instruments has literally been exploited since 2010-12 by the combination of simplicity and its high-profit potential. Then, you can enter a bet (which is really so) on anything that is publicly traded, depending on the website you use. Some sites offer free guides on how to get started with binary options.

Here is a brief summary of the key points you should know to get an idea of binary options as another alternative to lifelong trading in forex, stock exchange, commodities, cryptocurrency, and ETFs. Read on for more information or start trading and see for yourself as the classic CFD trading, not the bets, can make you win a lot of money.

Here are the 5 points you should know about binary options – the most important lessons you will learn.

A Risk-Negative Benefit Ratio

Something common for the trader is to make 75% of what he bets correctly. For example, if a trader places $100 betting on the value of the Eurusd going up, and he hits, he will receive $75 plus his initial investment. If the value of this pair goes down, the trader loses 100% of what he bet.

That means you have to hit 55% of the time not to waste your money and most of the time to try to make money with binary options. The house naturally has an advantage. Binary options work much like a roulette wheel: if your prediction is incorrect, you will lose the entire capital that was risked, but if your bet is correct you get your money plus a profit.

Those who are better able to manage capital and risk will generally be more able to get better risk/benefit ratios with forex and difference contracts, where the risk management rules tell them to bet only when there is at least one risk/benefit ratio of 1:3.

Forex traders and difference contracts can be winners with a small percentage of successful transactions. Negotiating difference contracts is more about how much you can do when you’re right and how little you can lose when you’re wrong using tools like Stop Loss and Take Profit.

It Is Impossible to Know Price Movement In Advance

No one, no matter how much knowledge they have, can consistently predict where a currency pair, stock, or commodity is going to move in a short period of time. Will the gold price go up or down in the next 10 minutes? Unless a major event has just occurred, there is no way to predict that. In order to make money by trading gold, for example, one must understand these 3 things about it:

Do Not Place Orders in Advance

This means you must be ready and waiting if you want to enter a specific point. That is really an inconvenience, and for those who are not always seeing the markets (and who does), that can mean lost opportunities and absolutely no flexibility.

In traditional forex trading and difference contracts, traders are free to decide where and when they can enter the market, how long will they remain in their positions? , and under what conditions they will leave. As a result, the markets have no power over the traders and do not generate any expectations from them.

Most of the merchants (and we speak especially of those who are more novices in the markets) are very unaware of different types of orders such as Market, Stop, Limit, or combo. And commands are like tools: you want the right one to do the job.

The way to do this in a simple way is to use the “limit” type orders that dictate how much you want to pay… always in advance. You get that price or the order doesn’t go through.

A Limited Selection of Instruments

Most binary options brokers do not offer a wide variety of trading instruments like most of the best forex brokers, however, they offer the most popular instruments, which is a problem for some traders.

Binary options brokers offer fewer services. For example, graphics packages, as well as training and mentoring in trading tend to be minimal or non-existent. Binary options traders will need to find their own software for graphics as well as for data analysis in order to make a true technical analysis.

They Are Not Regulated

Finally, these websites are unregulated. No authority is protecting people’s interests. This is a financial Old West. The Financial Conduct Authority (FCA UK) has obliged a permanent veto on the sale of binary options to retail customers to reduce the risk of fraud and prevents the amount of £17 million a year in consumer losses!

Frauds through binary options are under the spotlight of the police. Even the FBI has commented that binary options trading is very dangerous and has classified it as a new form of fraud, here is the FBI’s message and link:

Stock options. It is a fairly common investment term, in general, that one party sells or offers another the opportunity to invest by buying a particular share at a previously agreed price over a period of time. Everything perfectly legal and highly regulated- and if the investor takes advantage of the opportunity and action has a good performance, there is a benefit to be obtained. And if the stock doesn’t perform well, well, the investor knows the risk.

But here is another similar financial term from which the public must take care-binary options.

Binary options fraud is a growing problem, which the FBI is targeting. In 2011, our Cyber Crime Complaints Center (IC3) received 4 complaints-with reported losses of just over $20,000-from victims of binary options fraud. Five years have passed and the IC3 has received hundreds of complaints with millions of dollars in losses reported during 2016. And those numbers only reflect the victims who have reported to IC3-The true extent of fraud, which has victims around the world, is really unknown. Some European countries have reported that complaints about binary options fraud account for 25 percent of all complaints they receive.

So, where does fraud come in? The perpetrators behind many binary options websites, mainly criminals who are in other countries, are only interested in one thing-taking your money. Complaints about your activities usually fall into one of these categories:

They refuse to pay withdrawals to customers or reimburse them. This is usually done by canceling customer withdrawal orders, ignoring customer calls and emails as well as sometimes freezing their accounts and accusing the customer himself of being a fraud.

Identity theft. Representatives of binary options websites may falsely say that the government requires photocopies of your credit cards, passport, license, electricity, water, phone, or other personal data. This information can potentially be used to steal your identity.

Manipulation of trading software. Some of these online platforms may have reconfigured the algorithms they use to make the customer lose, usually distorting prices and payments. For example, if a customer has a successful transaction, the expiration is extended to become a loss.

Fraudulent websites have no scruples about recruiting investors. They post their platforms-usually on social media, trading websites, chat platforms, and spam spam-with the great promise of easy money, low risk, and great customer care. Potential investors also receive cold calls from the trading room, where sellers put a lot of pressure using bank phone numbers to make as many calls as possible to offer a once-in-a-lifetime opportunity.

What is being done to combat binary options fraud? The FBI currently has a number of cases of fraud with binary options, working with sister institutions such as the CFTC and the Securities and Exchange Commission (SEC). And this past January, the bureau organized the 2017 Europol Binary Options Fraud Summit in the Hague, bringing together regulators from North America and Europe to discuss the growing problem of fraud with binary options.

Special Agent Milan Kosanovich, who works for the criminal division of complex financial crimes, was one of the FBI representatives at this meeting.” The summit, he said, “gave us all the opportunity to sit down and talk about what we discovered with regard to our investigations of binary options fraud, where are the challenges? And how can we all work together?”

One of the biggest obstacles facing the authorities, according to Kosanovich, is the fact that fraudsters are sophisticated and have operations in several countries. “So the key to dealing with this type of fraud,” he continues, “is national and international coordination between regulatory agencies, authorities, and the financial industry.”

Another important factor, Kosanovich said, is that the investor is educated and informed. “Investors need to be informed of the great potential for fraud on a binary options website and need to make sure they do a good investigation before they even place the first transaction or bet.” Source: https://www.fbi.gov/news/stories/binary-options-fraud

Did trading become easier or just riskier? First, this kind of thing can easily become an addiction, especially for market addicts. However, although the amounts you bet may be small, the total can quickly be added up if several bets are placed in one day. It won’t take long to get out of control.

Second, no one, no matter how much knowledge they have, can consistently predict what action or raw material will do in a short period of time. Will EUR/USD or GOLD go up or down in the next 10 minutes? No chance of even guessing that. Binary Options traders simply bet on whether the price of an instrument will be up or down a certain point in a specific period of time.

Third, the house definitely has an advantage. Binary options trading works in a similar way to roulette: if your prediction is incorrect, you lose all the capital you put at risk, but if the prediction is correct, you get your money back plus a profit.

If people want to bet, that’s their choice. But we shouldn’t confuse that with investing. In my personal opinion, binary options are most often a fraud, pure and simple.

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Forex Trade Types

Let’s Talk About Scalping In Forex

What is scalping in Forex trading? The perception is that this is a type of trading where a trader enters several trades in a small period of time and closes them in just a few minutes. But this is not the most correct definition. Scalping suggests placing orders a short distance from the opening point. […]

What is scalping in Forex trading? The perception is that this is a type of trading where a trader enters several trades in a small period of time and closes them in just a few minutes. But this is not the most correct definition. Scalping suggests placing orders a short distance from the opening point. […]

What is scalping in Forex trading? The perception is that this is a type of trading where a trader enters several trades in a small period of time and closes them in just a few minutes. But this is not the most correct definition. Scalping suggests placing orders a short distance from the opening point. The trader leaves the trade in a short time, as soon as the price changes at least a few points, including the spread. Even an open transaction based on this principle already refers to scalping. Logically, to make a profit, a trader must make dozens of such transactions in one day, but their number is not that important.

Types of scalping and general examples of strategies:

Scalping in the news. At the time of departure of important news or the publication of economic data, there is a sharp increase in volume and volatility that can last from a few minutes to a few hours. This is the best time for scalpers. There are two ways to operate.

Placing opposite pending orders a few minutes before publishing statistics and removing the order that does not work after publishing. The opening of several short-term trades for directly correlated pairs in the first few minutes after the publication of news in the main trend direction. Making money using such a strategy is quite difficult. The two methods have their advantages and disadvantages, read more about them in this summary.

Types of scalping depending on the time frame chosen:

Pipsing. It is called the most profitable and risky strategy (in terms of profit, the issue is very controversial). Trading takes place in the M1 interval, transactions are carried out in the market for a few minutes. It happens that 1-2 points are enough for the scalper since maximum leverage is used (sometimes up to 1:1000).

Medium-term scalping Suggests a relatively fewer number of open trades, the duration of which is 5-15 minutes. The range is M5. The size of the leverage is determined by the trader.

Conservative scalping. Transactions can last up to 30 minutes, the time frame is M15.

Types of scalping according to technical strategies:

Scalping with analysis of various time frames. Such a strategy is applied when negotiating with the short-term trend. It is possible to invest at almost any time, so classic trend negotiation strategies for time frames per hour will not work there. Such a trend may arise, for example, during a brief pause before the news release, which is quite controversial, judging by the forecasts. Or you can start during a temporary balance of bulls and bears. The essence of the strategy: this type suggests that you identify the beginning of a trend in the H1-H4 range by means of a trend indicator or a confirmation oscillator. Then, analyze the market and look for signals in the M5 timeframe. It will be explained with an example of this strategy later.

Trading based on major currency pairs. The main pair is the pair, through which the scalper makes trading decisions, but carries trading on a correlated pair that is a bit behind. For example, the EUR/USD pair reacts immediately to the publication of US statistics. If EUR/USD and USD/JPY are increasing, then EUR/JPY will also increase.

Intuitive scalping. Considering that a scalper has little time to make decisions, there is a category of traders that use their intuition. They understand the market in such a precise way that they do not need to use any technical indicator.

I will not describe the subdivision by the type of indicator (graph, level analysis, etc.) as it is logical. The rating can be expanded, and I would appreciate it if you, my dear readers, would help me by offering your scalping strategies variants in the comments located at the end of the article.

Rules for successful scalping trading:

There should be no restrictions by the broker to employ such strategies. There should be no restrictions on the offer with respect to the number of open trades and the minimum waiting time.

Instantaneous execution of orders: It depends largely on the broker, liquidity providers, the Internet connection, and the trading platform itself.

Great financial leverage: Professional scalpers work with leverage of 1:500-1:1000, but according to European regulators’ standards, maximum leverage is reduced to 1:50.

The instrument should have the best liquidity.

So what is scalping in trading? I think the answer is clear. Let’s move on to the advantages and disadvantages of strategy.

Advantages of Forex scalping strategies:

Trading should be based on fundamental analysis. Technical indicators are rather used as complementary tools due to price noise in shorter time frames. Although it is not recommended to beginners to negotiate with news, in terms of training and use of simulators, this can be easier and more interesting than technical analysis. It’s all subjective, but I’d say this is a benefit of scalping.

It gives you a chance to do something important for profits. Everything is very relative, but if you consider yourself a professional, scalping trade can generate higher returns compared to daily trading strategies. In scalping, a trader manages to win on almost all price changes in both directions, while in intraday trade, a good part of the profit is “lost” by the existence of setbacks and corrections. Besides, it doesn’t depend on the trend.

Scalping allows for profit when the market is traded unchanged. There are no swap costs (to keep the position open until the next day). I’d say the biggest advantage is training to negotiate scalping. Thanks to high-frequency trading, the trader better understands the moments of entering and leaving the trades, learns to develop intuition, and knows the nature of the market. After mastering scalping which is much more complex, intraday and long-term strategies will seem easier.

Disadvantages of Forex scalping strategies:

Spread. No matter how long your position stays open, the difference will be the same. A scalper takes most of the benefits.

Technical problems. Slippages, delay in execution of orders, platform failure, etc. In scalping, only a second is sometimes important, and a delay can result in a loss that can exceed a small gain.

In scalping, only a second is sometimes important, and a delay can result in a loss that can exceed a small gain.

Market noise. Random price changes, insignificant for long-term periods, can close the order with a stop in short-term periods.

Limited choice. Only liquid currency pairs with moderate volatility are suitable for Forex scalping trading. Exotic pairs are not appropriate.

The problem of precise quotations and broker restrictions. Some companies prohibit scalping or there is a restriction on the minimum waiting time for negotiation.

Stress, you must be constantly focused on the small details. You must control your operations all the time and make your decisions quickly. At any time, a reseller may feel emotionally exhausted and lose concentration. This dilemma could be solved in some way by scripts and robots.

To have profitability in the scalping, it is very necessary to use high leverage, and this significantly increases the risks. But even so, despite all the downsides of scalping trading, scalping is, in the first place, satisfaction and excitement. That’s why many traders like it a lot.

Best currency pairs for scalping:

Knowing how to choose the right instrument of negotiation is very important for scalping, but, in scalping where, you fight for each point, and a sudden change usually translates into losses, its importance is fundamental…

Basic requirements for a better currency pair for scalping:

The narrowest and most floating spread possible. This condition is fair for highly liquid pairs and large transaction volumes: EUR/USD, GBP/USD. If you want to compare differentials for the pairs offered by the different brokers, you can use the data from the MyFxBook portal.

Moderate volatility. Liquidity and volatility have a kind of reverse correlation. It is difficult to buy/sell a currency pair with high volatility. And vice versa, high-liquidity currency pairs have low volatility. It is very important to maintain balance, the volatility calculator can help you to do so. According to the calculator, the best currency pair for scalping is EUR/USD.

For night scalping (flat), you can trade the pair with relatively low volatility USD/CAD, AUD/USD. I want to emphasize that the meaning of the best currency pair for scalping is subjective. Price movements depend as much on external macroeconomic factors as on foreign exchange manipulations by large investors (market makers). Then, depending on the time, the different currency pairs of major currency pairs or cross pairs can become the best for scalping. So, there are some tips on how you can select the best pair for scalping:

You must feel comfortable when you operate. Find your own trading style and the most suitable currency pair, investing all the time you need in training in a demo account.

Be flexible. Today you get positive results by trading in one currency pair, tomorrow, in another currency pair.

Manage foreign exchange risks. In addition to the general rules on the volume of open positions, there is one more rule regarding scalping: you should not open transactions for the two increasing currency pairs at the same time. While it can double your profits, it also doubles your potential risks, as both pairs can be reversed at the same time.

There are no recommendations on the best indicators and technical tools for scalping. Everything is individual here. Someone is satisfied with the standard MT4 indicators, someone installs unique authoring tools. Trading performance does not depend as much on the tools as on the ability to use them.

Forex scalping strategies: practical examples

Scalping requires the trader to be monitoring permanently trades and open positions. The strategies described below are based on technical indicators but are used as complementary tools for intuition and practical experience. Therefore, before you start using these strategies in a real account, practice them over and over again until they are fully automatic. And remember that there are no perfect strategies and the suggested ideas are just the basics. ¡ Don’t be afraid to perform certain experiments by adding something of your own, create something of your own, unique based on this basis!

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Forex Trade Types

Short, Medium or Long Term Trades? Which Is Best?

For anyone interested in Forex trading it is vital to know the correct time frame to invest in and then today we’re gonna talk about it. Is there a better time to invest than another? Is it a matter of taste? First, I want to define each of the deadlines according to our own criteria: […]

For anyone interested in Forex trading it is vital to know the correct time frame to invest in and then today we’re gonna talk about it. Is there a better time to invest than another? Is it a matter of taste? First, I want to define each of the deadlines according to our own criteria: […]

For anyone interested in Forex trading it is vital to know the correct time frame to invest in and then today we’re gonna talk about it. Is there a better time to invest than another? Is it a matter of taste?

First, I want to define each of the deadlines according to our own criteria:

Short term – Operations are opened and closed on the same day or week.

Medium term – Operations can last a few weeks, even a month.

Long term – Operations are opened to be closed within a few years, dividends can be part of the long-term investment strategy.

We need to highlight a number of basic short- and long-term advantages and disadvantages before discussing this issue further:

In Favour of Short Term
  • Low initial capital is needed to achieve significant objectives.
  • Possibility of leveraging without taking significant risks.
  • There is the option of working with compound interest (reinvesting capital on a daily basis).
Against Short Term
  • Find enough time to operate every day for a few hours.
  • Fundamental analysis is useless.
  • Decision-making is much faster and should be very automated, we are very bad at thinking under pressure. (Today automatic trading can supply this and the previous point).
  • The stock market is often either too volatile at the beginning of the session or too quiet for the rest of the day. The currency market is more constant and has trendy and interesting movements most of the day.
In Favour Long Term
  • It offers great tranquility, we have several days to decide what we do.
  • Volume analysis takes on great importance by exposing the next price movements.
Against Long Term
  • Difficulty to get returns with compound interest, reinvestment becomes slower.
  • It is not very appropriate to leverage our money in the long run.
  • We need large initial capital and consequently, the risks in absolute value are much greater.

If you have more arguments against or for the short/long term do not hesitate to comment on them.

After putting forward these arguments I think the solution to the initial question is simple. If you have a small capital but you have time and knowledge it is best to invest in the short term (speculate in full rule) and seek an exponential profit. If what you really have is a large capital, knowledge, and little time, it is surely better to invest in the medium/long term looking for dividends and trends of several months.

Be that as it may, NEVER invest on your own if you do not have before you the experience and knowledge that allow you to invest calmly. Reading newspapers is a ruin, buying “cheap” shares are often expensive, reading forums and posts called, “Menudo pelotazo en tal acción” or “I assure you that the euro will fall” is even less lucrative. I’m sorry, guys, this is a lonely job where you have to form your own system, whether it’s short, medium, or long term. In fact, with creating a system there is not enough, you should have at least 5 or 10 to be able to diversify your operations in a smart way. If you don’t have so many systems, you can always copy free from other traders! 

Another option available is to try to find a way to have your capital well managed and that means not letting your bank invest it.

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Forex Trade Types

Short-Term vs Long-Term Forex Trading: The Comprehensive Guide

There are a lot of different strategies out there including things like scalping, day trading, swing trading, trend trading, and position trading. This can make things quite complicated and hard to work out what strategy and style is best for you. These different styles can be further broken down into two different categories, short-term trading, […]

There are a lot of different strategies out there including things like scalping, day trading, swing trading, trend trading, and position trading. This can make things quite complicated and hard to work out what strategy and style is best for you. These different styles can be further broken down into two different categories, short-term trading, […]

There are a lot of different strategies out there including things like scalping, day trading, swing trading, trend trading, and position trading. This can make things quite complicated and hard to work out what strategy and style is best for you. These different styles can be further broken down into two different categories, short-term trading, and long-term trading. By combining them into these categories it is easier for us to analyse the advantages and disadvantages of both which makes it easier for you to decide which style may be best for you, and that is exactly what we are going to do in this article.

When you started trading you were probably told to think long term, that trading is a long term prospect and that you should not be expecting quick returns, this is true, but it does not mean that each individual trade needs to be long term. So let’s take a look at some of the advantages and disadvantages of trading a short-term strategy. Short-term styles of trading are often seen as scalpers and day traders, both of which do not hold trades for more than a day.

Advantages of short-term trading styles: The first and most obvious advantage is the fact that you will get your money quicker, a short-term style of trading means that you won’t be holding the trades for long, so you will close them quickly and will get your profits quickly. There is also a huge earning potential when it comes to short-term trading, due to trades being closed quickly, you can place many more trades, meaning that you have more potential trades to make a profit on. High volatility currency pairs may make this style very profitable. There is also a limit to the amount of your capital that is at risk when trading, due to not holding trades for a long time, your capital is regularly freed up for more trades, this also means that you won’t be holding your losing trades for a long time either, thus reducing the amount of risk that your account is under at any one time.

Disadvantages of short term trading styles: One issue with opening and closing a lot of trades quickly is that it can become quite costly, in fact, each trade that you make will have a cost, either an omission or a spread cost when you open up a lot, commissions can start to add up and can eat into your profit potential. We mentioned that you can have a lot of profit potential, the other side of the coin are the losses that you can get too. Opening up a lot of trades, if they all start going the wrong way, you can potentially have a lot of trades that have gone rd and which end up as losses. It can also be quite stressful, you will need to maintain concentration when trading, these are not set and forget strategies, you need to sit there concentrating and making decisions pretty much all the time. The other disadvantage is that it takes up a lot of your time, you need to be actively trading, you ain’t place trades and then walk away, you need to be there and you need to be constantly analysing the markets and external factors that may potentially affect the markets.

Examples of short term trading styles include things like support and resistance where you buy and sell on the support and resistance levels, candlestick patterns also fall into this category, things like inside bars, triangles, pennants, and flags can all be used to help work out trades that can be closed within a few minutes to a few hours. So those are the advantages and disadvantages of short-term trading, let’s now take a look at the advantages and disadvantages of longer-term trading styles.

Advantages of long term trading styles: Trading longer-term strategies can actually save you time, what we mean by this is that they are often set and forget strategies, you place a trade on and then can easily walk away and let it do its thing, you do not need to sit there constantly watching the markets. It can also be less stressful, due to the fact that you are not constantly needing to do anything such as watching the charts. You can also take your time with your analysis, there is no rush and no stress in placing it quickly. Each individual trade can be much more profitable than short-term trading style, this means that you can make as much with a single trade as you would with 10 or 20 from a scalping strategy. These sorts of styles are also cheaper, as you are placing fewer trades, you are also spending less on things like commission which can often eat into your profits. It is also far easier to adjust your trades when news events come out or economic data, making it slightly safer and more resilient to market movements.

Disadvantages of long-term trading styles: There are of course disadvantages to this style of trading, firstly you will be waiting for your profits, it can take a long time for trades to close, from a day to months. It also requires a lot of research and analysis, with this style of trading you are often putting on larger size trades, and so you need to make sure that it is right, you need to put in a lot of time and effort into analysing the markets and other various data sources to ensure that you are putting on the right trade. Some strategies that are considered long-term are things like swing trading and position trading, both of these strategies hold onto trades for a long period of time, sometimes even weeks or months.

So those are the advantages and disadvantages of short and long-term staples of trading. Which one is right for you will depend on your own personality and time constraints. There is no harm in trying a number of different styles until you find the one that is right for you. Hopefully, this has given you an insight into the differences between the two, whichever you decide to stick with for a while to ensure whether that style is right for you or not.

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Forex Trade Types

Taking Profit in Forex with Dynamic Stop Losses

Many traders will agree with me that one of the most difficult things in Forex trading is the placement of Stop Loss and the levels of take-off. Much of the educational material for learning foreign exchange is focused on how to find the right spot to place an operation.  While it is true that the […]

Many traders will agree with me that one of the most difficult things in Forex trading is the placement of Stop Loss and the levels of take-off. Much of the educational material for learning foreign exchange is focused on how to find the right spot to place an operation.  While it is true that the […]

Many traders will agree with me that one of the most difficult things in Forex trading is the placement of Stop Loss and the levels of take-off. Much of the educational material for learning foreign exchange is focused on how to find the right spot to place an operation. 

While it is true that the entry point is very important, the management of a good trade -that is, the good use of the Stop Loss and the levels of profit taking, changing these levels appropriately as the operation progresses- is equally important. It is quite possible that, even if you get the tickets right, you will lose money in general. Assuming you have a good entry strategy, how can you exploit it to the fullest? Is there a better or more dynamic methodology than just placing a Stop Loss and profit-taking levels and forgetting? There is, although this may be a challenge as the “place and forget” methods are psychologically easier to implement.

This is as important as the analysis one would make before opening a position. In this article, we present a brief guide on how to make the placement of the Stop Loss and the levels of making profits.

Stop Loss (SL) or stops is defined as an order you say or send to your Broker telling you to limit losses in an open position (or trade). Taking profit (TP) or target price is an order you say or send to your Broker, informing you to close your position or trade when the price reaches a specified price level on the profit. The right place for the Stop Loss and the profit-taking levels are of a static nature. In other words, orders are activated (and their operation is closed) when a security value reaches a specified price level.

Dynamic Stop Loss

It is a good idea to never operate without a hard Stop Loss, for example, that is properly registered on your broker’s platform for execution unless very small position sizes. This is an essential point for controlling risk in Forex operations. Imagine the Trade without a shutdown, which could potentially drain your entire capital. Similarly, imagine that you don’t trade without a target price, which basically exposes your entire account’s equity to market fluctuations.

The Stop Loss can be dynamic, as a way to ensure profits in a transaction that progresses in a profitable way. However, the Stop Loss should be moved only in the direction of reducing losses or blocking profits. This way, a trade with good performance will end up giving benefits. This is of course an excellent way to leave an operation ends with a “natural death,” rather than aiming for profit goals that can be very difficult to predict.

An example of a dynamic stop loss is the Trailing Stop. This can be placed on a certain number of pips or based on the average measure of volatility. This last option is the best. Another example would be to move the Stop Loss level periodically so that it is ahead of the main maximum or minimum or other technical indications. The advantage of this is that the operation is kept alive as long as it performs well. When a long operation begins to break through the key support levels, then this type of Stop Loss is hit and ends the operation. This method is a way to let the winners run and stop the losers in their tracks.

Dynamic Profit Taking (Take Profit)

First of all, it is worth asking why you should use Take Profit in Forex. Many traders usually use them instead of moving the Stop Loss and letting the operation end up that way, for the sole reason that the latter method means they always give up a little floating profit. But why cut a short winner? You might think that the price will be directed only at X level but, what if it actually goes ahead? If you list your last hundred operations, I will almost guarantee that you will see that the use of some kind of Stop Mapping would have generated more profits than even your wisest Take Profit command application. Of course, if your style of negotiation is very short-term, profit-taking orders make more sense. However, if you let winning operations run for days, weeks, or even months, then taking profit really does nothing but exacerbate your fear and greed.

There is a possible compromise. You may want to use dynamic pickups set in locations relatively far from the current price, which could be reached by, for example, a sudden news spike. This could get you some nice benefit at the peak, and allow you to re-enter at a better price when the turbulence passes. This is the most suitable use of Hard Take Profit commands within “non-scalping” negotiating styles.

You can also use the soft profit taking levels if you manage to see the price make a good end long candle. Such candles can often be good points for quick departures and reentry as described above. Note, however, that this tactic requires real skill and experience to be used in Forex markets, being a dangerous path for novice traders.

The Trading of Darwin

Charles Darwin’s theory of evolution suggests that the fittest elements within a species are more likely to survive. We can all see this when we plant plants in a garden. Usually, the baby plants that look stronger and taller are the ones that eventually become the best specimens. Skilled gardeners will remove diseased and weak plants and leave the strong ones to grow and harvest when they begin to die. Profitable forex trading is known as “Darwin trading” can be achieved in exactly the same way, by using a combination of soft and dynamic stop loss plus take-profit orders to effect pruning and harvesting, cutting down losers, and letting the winners keep running. A Stop Loss that results in profits can be called a take-profit order when you think about it.

Case Study

In Darwinist operations, the strongest operations survive, and the weakest artists are sacrificed. We can show how you can improve results using “Darwin trading” techniques using the last three years of the EUR/USD currency pair as a case study. 

Long operations began when a fast exponential moving average crossed a slow simple moving average in the hourly graph, considering that all the higher time frames were also aligned (up to and including the weekly time period). An initial hard Stop Loss equal to the 20-day Average True Range was used.

The results of the tests were very positive: of a total of 573 operations, 53.40% reached a profit equal to the hard stop loss and 25.65% reached a profit equal to five times the hard stop loss, before arriving at the hard stop loss. These results clearly show why it is much more profitable to let the winning operations run.

Now, let’s analyze the number of operations that showed benefit 2 hours after entry. Only 48.31 percent of operations fit this category. However, if you look at all the operations that finally hit five times the hard stop loss, you see that 57.44% of these operations made a profit 2 hours after the entry. Five times the average real range is well beyond the average two-hour volatility, so there is an impulse factor.

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Forex Trade Types

Types of Orders in Forex and the Stock Exchange

While some traders prefer to work with a financial advisor who invests on their behalf, other traders choose to take a ‘do it yourself’ approach, buying and selling their own shares or trading. That’s probably why you’re on the professional trader website. However, as you know if you’ve ever tried to buy shares, there are […]

While some traders prefer to work with a financial advisor who invests on their behalf, other traders choose to take a ‘do it yourself’ approach, buying and selling their own shares or trading. That’s probably why you’re on the professional trader website. However, as you know if you’ve ever tried to buy shares, there are […]

While some traders prefer to work with a financial advisor who invests on their behalf, other traders choose to take a ‘do it yourself’ approach, buying and selling their own shares or trading. That’s probably why you’re on the professional trader website.

However, as you know if you’ve ever tried to buy shares, there are different varieties of stock order types. Some orders are executed immediately; others are executed only at a specific time or price, and others have additional conditions.

The type of order used can make a big difference in the price you pay and the returns you get, so it is important to be familiar with the different types of orders in the financial markets.

Order to the Market

A market order is when an investor to trader requests an execution in the act of the sale or purchase of an asset. While this order guarantees the execution of the order, it does not guarantee the execution price. It will usually be executed at the current purchase (sale) or sale (purchase) price. Investors can give simple or complex market order instructions, which can be accessed by brokers or banks they use to trade.

When executing an order to market, traders have no control over the final price. The execution of the order to market is correlated with the availability of sellers and buyers. Depending on the pace of the financial market, the price sold or paid can vary dramatically from the quoted price. It is also possible to divide market orders. The division of market orders can lead to multiple price points, due to the involvement of several traders in the transaction.

Limited Order

If you want to execute an order at a specific price, you must use a limited order. With a limited order, you will determine a certain price for which you want to buy or sell a value. The order is only executed when it has a buyer or seller who will pay or sell a number of assets for that price.

A limited purchase order is only executed at the limit price or below ( if, below).

Let’s take an example, if a trader wants to buy Apple Inc. for a price not exceeding $200 per share, the investor will make a limited order. Once the share price reaches $200, the order is executed. Although a limited-sale order is similar, it is only executed when the shares reach or exceed the limit price.

Limited sales orders may also have additional requirements such as Fill or Kill (FOK) or All or none’ (AON).

When a FOK is requested, the order is executed immediately or killed completely.

With an AON request, the order is executed or not executed at all. If the order is not complete, the request will remain pending until the order is completed.

This is a brokers’ market makers, that is to say, ALL brokers using Metatrader (that do not tell you stories of liquid suppliers and milongas, at the end of the chain there is a market maker), makes no sense. But I use futures or stocks and ETFs, it is basic in a trading strategy, especially when you make money allocation being CTA. You can’t buy futures from 20 customers and 30 can’t. Can I explain? Or all or none.

GTD (Good till date)

If you want to indicate the amount of time an order remains active, you will want to use a period of validity of the order. For example, a valid daily order (GFD) is an order in which the investor wishes to sell or buy insurance for a certain period of time. Once the trader requests the order, it will expire shortly thereafter during the day. These orders will only be valid during the day they are requested. If current orders are not executed during the day, they are canceled at the end of the trading day.

Investors can also request the cancellation of the order until the deadline is met, which requires certain cancellation criteria to continue indefinitely. Another request option is immediate or a cancel order (IOC) that executes or cancels the order instantly.

Conditional Orders of Exchange

Conditional orders allow investors to set the parameters that trigger execution. These options focus on the movement of prices of securities, forex, CFDs, indices, and other options contracts.

An investor can select trigger values, types of securities, and time limits for the execution of his orders. Now we present some of the most common conditions stock market orders that can be used in trading.

Order Stop Loss

The purpose of a suspension order is to limit the trader’s loss in a transaction. Traders usually apply for “BUY STOP” orders to limit their losses or protect their profits if they have put a short deal. Traders can use a stop-sale order to minimize their loss or protect a profit if they have a SELL STOP.

Some of the most common stop-loss commands include:

Stop Selling Order: The instructions for stop selling orders are to sell at the best available price, once the price falls beyond the stop-loss price.

Purchase Stop Order: Similar to the sale stop order, the purchase stop order is a safeguard to limit a loss. If a trader makes a short, you may want to place a stop purchase order to minimize your loss of earnings.

Trailing stop order: Introducing stop parameters that produce a mobile or drag price is a stop trailing order. Stop Trailing orders can maximize profit when prices increase and decrease significantly loss when prices fall. I don’t like them, but they are.

A purchase order at the market price if touched is an order that requests a purchase at the best available price, or at the “if touched” level. This order is the famous MIT ( Market if Touch) If the price of the value falls at this level, the order will become a market purchase order. While with a market order if touched, the sale occurs when a buyer wants to pay the level of ‘if touched’.

These types of orders are widely used in range break trading, where you enter the market at a high price if a certain value is exceeded. The same but the other way around, but on the short side.

An Order Cancels Other Orders

Investors can use an OCO command when they want to capitalize on one of the two trading options. For example, if an investor wishes to trade shares of ABC at 10 euros per share or shares of XYZ at 50 euros per share, the one who reaches the designated price first will be the one who occurs. Thus, if ABC shares reach 10 euros per share, the order is executed and the order for XYZ shares is canceled.

A bear command is when an investor wishes to send another order once his previous order has been completed. Let’s take an example, if a trader wants to buy ABC shares for 10 euros per share and then wants to place a sales order and make a profit, he would need to complete a two-part order. The first part is a limited order for the purchase of ABC shares at 10 euros per share. The second part would be to sell ABC’s shares at EUR 11 per share. Multiple commands enter the system simultaneously and then run sequentially.

Orders Sensitive to Tick

A tick-sensitive command is an order that is conditional on a tick going up or down. Traders can enter such orders in futures brokers such as Interactive Brokers. An example of this order would be to buy at a downtick at the opening price of the s&P 500 futures.

Conclusion

Before you start trading forex, stocks, futures, or whatever, it’s important to understand the vocabulary of the investment world. Perhaps no jargon is more important than the one surrounding the different types of orders, so I hope I helped you.

Categories
Forex Trade Types

Technical Trader Algorithm Guide Example – Trend Continuation Trades

Trend following strategies is the best method of trading according to research studies. Traders will pick a trading method that is the most comfortable or profitable to their living style and psychology. Therefore, your best method does not have to be trend following. On the other hand, most professional traders believe you can adapt trend […]

Trend following strategies is the best method of trading according to research studies. Traders will pick a trading method that is the most comfortable or profitable to their living style and psychology. Therefore, your best method does not have to be trend following. On the other hand, most professional traders believe you can adapt trend […]

Trend following strategies is the best method of trading according to research studies. Traders will pick a trading method that is the most comfortable or profitable to their living style and psychology. Therefore, your best method does not have to be trend following. On the other hand, most professional traders believe you can adapt trend following strategies to any trader personality type. It is just a matter of how well you improve your psychology part once money management and technicals are in place.

Trends are mostly not consistent and predictable so traders devise ways to have better odds in this environment. Trends can be parabolic, mild, and long, with pullbacks, low and high bases, or switches in momentum. Your trading system will need to have a mechanism to generate a signal to continue following the trend. This article will present one example of how you can implement a ruleset, indicator measurements, and algorithm to have a definitive decision when any of the above trend characteristics manifest. Your systems can take exact values although as every trader has different trading styles, you should adapt it to your preference. 

Prop traders employ a set of indicators and elements to know when to enter a trade –  at the best moment when a trend has started. That trend needs to have momentum. For this purpose, they measure volatility or volume. This trend is confirmed by confirmation indicators we wrote about, and money management tells us how much to risk according to the currency pair or other asset volatility. Other elements also have their roles so we catch the best probability trends once they emerge. But more often than not, our exit indicator can signal us to exit, only to find out the trend just had a pause a day or two, just two candles if we trade on a daily chart. Whatsmore, the trend continues for a week with great momentum.

Now, we can feel we missed out on a dramatic profit, but we have a rule set we do not deviate from. Continuation trades are also rule-based, and since trends are not consistent, continuation trades are common, so common they can even make the majority of the trades we make. Some prop firms take into account higher and lower time frames signals to pinpoint the best entry or exit. Yet, for continuation trades, it is enough to stay on one if it is a daily time frame, since higher time frames, weekly and monthly can have many significant events for a currency. A daily time frame is used in our algorithm example, including the previous articles.

In our MACD indicator article, we gave an example of how the MACD can be used for continuations. However, there are a few rule modifications once we have a trend below or above our baseline element. Additionally, other elements such as the volume filter, are completely ignored. Now you may think you spent so much time on finding and testing the volume indicator only to ignore it now is not a rule you want to implement. If you remember the article we talked about the lagging indicators, you will notice every volume or volatility indicator we know needs data to measure to have a conclusion if the price action is flattening out.

You may rely on chaos theory and look at the charts alone to determine if the market is going into the flat period before any volume indicator signals. These decisions are predictive, it is hard to backtest your decisions like this and they are prone to previous trade success and emotional state. If you use a volume indicator, continuation trades will likely be too late, you will enter a trade once a trend is in a pause or reversal moment. Consequently, we are eliminating the volume filter from our algorithm for continuation trades only. You can backtest this decision if you have better results without it. In our testing, it was always the case. 

The Baseline is our ultimate major trend filter. It tells us where a higher scale momentum direction is. Using a baseline we filter one trade direction, short or long if the price is below or above the baseline at the end of the day trading session. Based on this rule, we enter only the trades in the same direction as the major trend momentum. Clearly, there is a higher probability a trend will push the price more in the same direction than turn around, even though reversals happen and cut a part of our profits from our trades or cause a loss if our take profit levels are not reached. This is what the baseline element is for when we talk about continuation trades. 

In forex trading, it is easy to find certain market conditions that do not fall into our rule book. Such does not happen often if our plan is already developed and tested. However, there is a common condition that may confuse beginner traders if they follow our guides. It is a condition when the exit indicators call for an exit even though the trend confirmation indicators still show the trend is still going on. As mentioned above, we do not blindly ignore the exit indicator or blindly listen to the exit indicator. We create an additional continuation rule that says to enter a continuation only when the confirmation indicators show a new entry signal. This means they have to show a counter-trend signal before a continuation can happen once they generate a trend-following signal again.

If you have a confirmation indicator that also doubles as an exit indicator, then it has to show an exit before a new continuation signal, in this case, it is easier to find continuation trades as the signals are at the same moment. Yet, in most cases, exit indicators act before confirmators, so you need to watch for an alignment. Once you do some continuation trades, it becomes easy to follow the algorithm, even if it may look complicated.

Money management also needs to be adjusted for the continuation, not just the volume. You may notice the ATR money management is always in effect, for all trade types your algorithm shows. You will still use it as described in the previous articles and guides without exception. However, the part that does not include position sizing measures, is ignored. So not only do you ignore the volume for continuations, but also the 1xATR price level (values used in our example) that is past the baseline. Trends that continue are often way past the baseline, so the rule when we enter a trade that prohibits fast movers past the 1xATR range from our baseline does not make sense. Otherwise, we would never have the benefit of continuation trades that happen a lot.

Continuation trades do not have this ATR – baseline rule but it does not mean you should ignore the crisp money management position sizing setup we have described in a separate article. Only when the price cross-closes the baseline we apply the ATR range rule. So we define a trend in the continuation mode only when it never crosses the baseline again but the confirmation indicators show another signal to go. 

Now we can present examples of how we manage these conditions with the simplified system according to some prop traders. Again it is all defined, we do not have to think if the trend is continuing or not, the system covers this situation, all we have to do is follow it. It is easy to backtest and forward test it too. Let’s take the MACD indicator we have used first as it has a few parts combined to generate signals – two moving averages intercrosses and a zero line cross. It is good as an example of a continuation trade idea. In the picture below we see AUDNZD daily chart with the MACD on default settings without the baseline or any other system element. 

The zero-line of the MACD (gray dashed line) is like our baseline, a higher scale major trend gauge. Once both MACD moving averages cross it, this signals that a major trend is starting, the grey vertical line on the chart marks the moment. So this is a short signal, but we have a signal to exit once the faster, blue MACD MA crosses the red one. Both MAs are still below the zero-line telling us this is probably a small correction and we are still in the major downtrend. Soon, we had our first continuation trade, the faster blue MA crossed the red down again, marked by a blue vertical line. An exit signal was generated again and a new continuation until the major trend was over later when both MACD MAs crossed the zero-line at the far right end of the picture.

Some of the continuation signals might be a loss but these are losses we have to take. We do not account for the volume filters here so we have to be careful about these trades and maybe avoid taking them if the forex market overall is not moving much. Such conditions can be assessed with the mentioned $EVZ or VIX Index we wrote about before. Combined, continuation trades capture the biggest part of the major trend, but not all, this is the price we have to pay if we want to control the risks. 

Now, let’s add a baseline and change the main confirmation indicator for the same chart. We are still not going to include other algorithm elements, such as the volume and exit indicators you should have included. For the sake of simplicity, we will use the Chaikin Money Flow indicator for entry and exits, set on the 8 periods. We also include the 20 SMA as the baseline. The Chaikin Money Flow also contains a zero-line, once the signal line crosses it down, it is a trade entry signal. Also, once the line crosses it up, we exit. As in the previous picture, the major trend started once it close-crossed our blue 20 SMA baseline, the moment marked with a gray vertical line. Chaikin Money Flow agreed and we entered the trend. Pay attention to the ATR entry rule here as well as the volume conditions your system should have. Chaikin Money Flow gave us a signal we need to exit for the first time, marked with a red vertical line. This was probably a winner trade if we put our take profit at the 1xATR level.

Three days later, Chaikin Money Flow gave us a short entry signal again, the price level closed below our baseline so this is officially a continuation trade, no ATR-baseline rules apply for trade entry, we do not look at our volume indicator, we just place our usual risk management (position size, take profit and stop-loss orders) according to the ATR levels. A candle later we have an exit signal with a small profit and then Chaikin Money Flow shows to enter once again without exit until a few weeks later. This captured more profits than the MACD even though we now used more sensitive indicator settings. Interestingly, we had another continuation trade that ended in profits until the price close crossed the baseline, marking an end to the major trend and our current trade.

Again, we have not included system elements you should have to cover the most important aspects of the forex market. The examples above are only to demonstrate how to handle trends that more often than not have inconsistent momentums. You should always test how your system performs, including all trade types – continuations, pullbacks, new trend entries, including trade exits, and the trading rulebook. As you may have noticed, reversals are not the trading type for trend-following methods. Hopefully, now you can have a complete system structure you can follow and come back to if you need clarification. Of course, you can add-on to the mentioned example and build your own structure while exploring the world of forex. 

 

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Forex Trade Types

What is the Difference Between Orders, Trades and Positions in Forex?

For someone with very little knowledge of forex or trading as a whole, the terms order, trade, and position all probably sound quite similar and may seem to pretty much be the same thing. However, for those of us that have actually traded before, we know that there are a few differences between them. They […]

For someone with very little knowledge of forex or trading as a whole, the terms order, trade, and position all probably sound quite similar and may seem to pretty much be the same thing. However, for those of us that have actually traded before, we know that there are a few differences between them. They […]

For someone with very little knowledge of forex or trading as a whole, the terms order, trade, and position all probably sound quite similar and may seem to pretty much be the same thing. However, for those of us that have actually traded before, we know that there are a few differences between them. They are, of course, all related to actually putting in a trade, but we are going to be looking at the subtle differences between the three terms in order to ensure that you know exactly what people are talking about when they mention these terms.

Orders

Let’s start with orders. By definition, the term order simply means an authoritative command or instruction, and it is very similar when it comes to trading, as we are simply telling the broker what we want. Simple right? Well not quite, as there are actually a number of different orders that you can make, quite a few in fact and some are a little more complicated than others.

The first type of order is simply a market order. This is basically you telling the broker that you want to put in a trade. For the majority of brokers, this order would then be executed immediately and the trade would be put in at the current market price. This works for both buys and sells.

Then there are pending orders. These are orders that you are putting in but asking the broker to place the trade when it gets to a specific price. There are a number of different order types that fall into the category of pending orders, let’s take a brief look at what they are.

Limit orders are pending orders that can be both sell limits and buy limits. The way that this order works is that we, for example, are wanting to buy but the price is moving downwards. We would put in an order for a price that is below the current value. Once the price reduced down to the level that we have set, a buy trade will be placed. The same works for a sell. We place our order at a price higher than the current value, and the price rises and reaches our order price a sell trade will be placed. These work well when placing them on resistance or support levels where you expect the price to reverse.

To recap: A limit order set as a buy will be at a price lower than the current market price will be executed by the broker at a price equal to or lower than the specified price in the order. A limit order set as a sell will be at a price higher than the current market price and will be executed by the broker at a price equal to or higher than the specified price in the order. 

We then have stop entry pending orders. These work in the same way yet the opposite way at the same time. The stop order is basically a stop on the market. A trade won’t be opened until the price reaches that price and once it does a trade will be opened. So it works in a similar way to the limits, but this time when the markets are moving upwards and they reach the stop entry level, a buy trade will be opened in h hope that the price continues to move in the upwards direction. The same for a sell, you place it below the current price with the hope that it will continue to fall once it reaches the stop limit and the trade opens.

To recap: You would place a buy stop at a price above the current market price. When the price reaches the set level, a buy trade will open. For a sell it is exactly the same, you place a sell stop below the current market value and when the price reaches this level a sell trade will be placed.

Trades

Now let’s look at trades. This is quite a simple one to explain. A trade is simply the act of putting on a buy or sell order and executing it. As soon as the order has been executed, it is now a trade. Trades comprise of both buy and sell trades, but buying when you are expecting the markets to rise and selling when you are expecting the market price to fall. You can place multiple trades at the same time, and depending on the regulation, you can place both buy and sell trades on the same pair at the same time. So in short, a trade is simply an order that has been executed by the broker and is now live.

Positions

Positions are a little more complicated to explain, but they are basically an accumulation of all the open trades at any moment in time. Your position is based on the exposure that you have with any given currency within a market. So let’s assume that we are trading the EUR USD currency pair, and we have a trade of 0.01 lots as a buy trade. That is the equivalent of $1,000 on a buy. We place another 0.01 lot trade which makes out a total 0.02 lots or $2,000. Our position is now $2,000 going long. If we were to place a 0.05 lot sell for $5,000 this would give us 0.02 long and 0.05 short, or a total 0.03 lots short, our position would then be $3,000 short.

Your position is basically an indication of how exposed you are to market movements. The more trades that you have going in one direction the larger your position is on that currency pair and so the more open you are to risk and exposure when the markets move.

That is a little overview of what orders, trades, and positions are when it comes to forex trading. Hopefully, this has given you a little insight into their meaning and may have also cleared up any potential confusion that there may have been regarding these terms. 

Categories
Forex Trade Types

How Many Types of Forex Trading are There?

Even though creating a complete list of forex trading styles is exceptionally difficult, we first need to acknowledge the fact that individual approaches to trading may differ substantially. Some traders will base their strategies on various market conditions and news, whereas others prefer focusing on specific tools that they deem as the most useful to […]

Even though creating a complete list of forex trading styles is exceptionally difficult, we first need to acknowledge the fact that individual approaches to trading may differ substantially. Some traders will base their strategies on various market conditions and news, whereas others prefer focusing on specific tools that they deem as the most useful to […]

Even though creating a complete list of forex trading styles is exceptionally difficult, we first need to acknowledge the fact that individual approaches to trading may differ substantially. Some traders will base their strategies on various market conditions and news, whereas others prefer focusing on specific tools that they deem as the most useful to determine their next move. Today we are going to present different strategies that you may choose to test yourself and attempt to answer the question of how many types of forex trading there are.

Chart Patterns

Chart patterns, which are said to function similarly to Japanese Candlesticks, can be quite useful in trading stocks due to the focus on traders’ sentiment. What traders get from following patterns is the ease of use and the information where the price might go. Some experts advise caution because patterns are typically noticed by a large number of people all over the world, which causes the big banks to react to such concentration. While traders assume that chart patterns are indicative of the price’s direction, it is actually quite the opposite. This strategy is best used when traders decide to go against the flow, as the big banks will take all the orders and then trigger them and whipsaw the price. Traders will know for sure where the price will go only after this majority of traders exit the trade.

Long-term Fundamental Trading

To trade long-term, traders should focus on the central banks whose usual task is to either tackle slow economic growth (i.e. low GDP and high unemployment) or inflation rate (that banks aim to keep under a certain level year after year). Banks often attempt to overcome these issues through the use of monetary policy tools such as cutting interest rates or introducing quantitative easing. To find a perfect match to pair, traders should track the order of events when predicting price movements. When two different central banks announce certain actions that will cause their respective currencies to move in opposite price directions, there is a higher chance that the pair is going to be stable. It is vital, however, to make timely decisions, so it may be wiser to search for opportunities when the central banks have only recently begun moving in the direction of their policies. Besides, traders should also monitor the news from experts and central banks before and during the trade, without letting their immediate online communities affect their thinking. 

Long Swing Trading

Those who already have full-time jobs, plenty of responsibilities in a day, and lack of time to browse for global economy news may find swing trading their ideal option. This particular forex trading style is utilized by traders who aim to profit from price swings. These traders first identify a potential trend and then hold the trade in question for a minimum of two days to a period of a few weeks. To reap benefits from temporary countertrends, traders strive to buy (go long) at swing lows and sell (go short) at swing highs in an uptrend. Since these trades extend to several days or weeks, the use of larger stop losses is increasingly important to address volatility and individual money management plan. Due to numerous fluctuations, such trades may go against the trader during the holding period, which requires that traders be focused on the result, patient, and emotionally under control. Swing trading can be further divided into four subtypes: reversal, retracement, breakouts, and breakdowns that all refer to different changes in the price direction. 

Support/Resistance Lines

Many traders use these lines that provide information on the market and the price. The highest peak the price reaches before pulling back is called resistance, while the lowest point before going back up is support. Traders see the highest point as the surplus of sellers and the lowest drop as that of buyers. Support and resistance are typically traded when the price bounces, i.e. when the price falls towards support or when the price rises towards resistance. Breaks are also frequently traded, so traders often choose to buy when the price breaks up through resistance or sell when the price breaks down through support. Some professionals claim that drawing up these lines leaves much room for variations and that the same information can be accessed by too vast a number of people. Since this concentrated activity easily draws the attention of big banks, the price is often redirected, directly affecting the support and resistance traders.

Scalping

This strategy is an ideal choice for anyone who loves fast-paced trading, finds looking at charts for several hours to be acceptable, and easily makes fast decisions. This technique aims to acquire small amounts of pips as often as possible during the busiest times in a trading day. As such, traders are focused on particularly short gates between the opening and closing of a trade. Traders find this approach attractive due to the fact that the smaller moves occur more often than the larger ones, allowing traders to go over several hundred trades in one day alone without having to think about them the following day. A vast number of small wins, which are achieved through profiting from quick changes of the bid-ask spreads, may quite easily lead to large gains. Traders’ goal is to take advantage of market volatility in this short span of time, opening a position at the ask/bid price only to close it quickly a few points higher or lower. As this technique truly requires a great degree of intense attention, traders need to consider their own personality types, capabilities, and preferences beforehand. 

Buy and Hold

As the name suggests, this strategy entails that a trader buys a currency and holds it for a period of time. Many professionals regard this approach as dangerous and inapplicable to the forex market despite its popularity. The key argument for this point of view lies in the fact that currencies are vastly different from stocks where this technique is used regularly. Buy-and-hold traders show little interest in short-term price movements, using this strategy as a form of passive investment. The focus of these traders’ attention is the fundamental analysis as opposed to technical charts and indicators. As these types of trades may last for several years, traders do need to make a good selection of currency pairs and even take into consideration various long-term fundamental factors described above. As many sources often leave a disclaimer, stating that traders opting for this strategy are doing so at their own risk, traders are warned that strategies like this one are encumbered with a higher degree of risk than some others If applied to cryptocurrencies.

Trend Trading

This trading style has been recognized by most traders are the most useful in generating positive results. As this is a multiple-term strategy, traders take positions at some point in a chart where the trend in question may last for days, weeks, or months depending on the market conditions. In order to get the best results, traders need to think of their risk-reward ratio and include stop-losses in their trades. This type of trading requires that traders develop good-functioning systems they can rely on that can inform them of upcoming trends and protect their investment. While trend trading may test traders’ patience and emotional preparedness, it is a proven method that experts openly praise. 

Naturally, as there are numerous ways to earn a profit, all traders should ask themselves what tool or style they prefer to focus on. There can still never be two identical approaches to trading even if two traders rely on the same strategy because of individual differences. Nonetheless, regardless of the choice of trading strategy, risk management, money management, and trading psychology are vital for any type of trading to provide benefits. 

Categories
Forex Trade Types

Binary Options vs. Forex – Which is the Best?

Both spot forex and binary options are emerging industries with a number of people joining their respective markets every day. Whereas forex seems to be drawing a lot of interest across the globe as of recently, binary options existed over-the-counter for quite a while only to start getting more attention in the past few years. While we know how both markets are tradable online allowing traders to start off with small amounts of capital, there still may be reasons why anyone would prefer one over the other. If you are wondering which one is better, buckle up because today we are going through all advantages and disadvantages of the two financial trading markets.

Both spot forex and binary options are emerging industries with a number of people joining their respective markets every day. Whereas forex seems to be drawing a lot of interest across the globe as of recently, binary options existed over-the-counter for quite a while only to start getting more attention in the past few years. While we know how both markets are tradable online allowing traders to start off with small amounts of capital, there still may be reasons why anyone would prefer one over the other. If you are wondering which one is better, buckle up because today we are going through all advantages and disadvantages of the two financial trading markets.

Both spot forex and binary options are emerging industries with a number of people joining their respective markets every day. Whereas forex seems to be drawing a lot of interest across the globe as of recently, binary options existed over-the-counter for quite a while only to start getting more attention in the past few years. While we know how both markets are tradable online allowing traders to start off with small amounts of capital, there still may be reasons why anyone would prefer one over the other. If you are wondering which one is better, buckle up because today we are going through all advantages and disadvantages of the two financial trading markets.

The binary options market depends on the trader’s choice

Before we start comparing and contrasting, let us first see what we know so far about binary options. This financial product, which is also referred to as all-or-nothing options, digital options, and fixed return options, is essentially based on a prediction that offers the trader a fixed payout. The overall success of any binary options trade depends on whether the outcome matches the trader’s yes/no proposition. The fact that there are only two possible outcomes of such trades, yes or no, also determined the market’s name (binary). Interestingly enough, most binary options trading takes place outside the United States and many outlets used for these purposes have already proved to be fraudulent. While the FBI keeps investigating binary options scams across the world, Facebook has even banned any binary options trading advertisements. Still, the market is said to currently number approximately 90 companies offering binary options trading services.

Forex is limited to currency trading

As opposed to currency trading, binary options trading is increasingly flexible in terms of available markets. Binary options traders have the ability to choose between forex, stock indices, and commodities, among others. Binary options trading begins with a trader’s decision whether an asset’s price, for example, will rise above a specific amount on a particular day and time. If the events unfold as the trader hoped, he/she will get the specified percentage of the agreed-upon stake. Nonetheless, the value returned to the trader also depends on whether the market is in or out of the money. 

Binary options involve no additional costs

While forex allows traders to take a specific position in a trade, binary options trading does not. It does, however, specify a fixed maximum payout, while the risk is tied to the initially invested sum. Although price movement in forex can have quite a significant impact on the trade, profit, and loss in binary options trades are not affected in the same manner. Transaction costs are another point where the two markets differ since binary options trading does not involve any additional transaction costs apart from the money included in the payout or the loss. Forex traders, however, also need to think of a variety of other costs such as the spread or commission.

Forex traders can maximize their profit

Unlike forex, binary options have a predetermined expiry date (point in time) after which the gain or loss is automatically credited/debited to the trader’s account. Some binary options, however, can be closed before expiration, but this usually influences the amount of money a trader will earn in the end. Similarly, some brokers permit traders to delay their expiry time to the next expiry time, which is only plausible when traders increase their investment by a specific percentage. In the forex market, on the contrary, market participants can close their trades at any time except weekends (true for most brokers). Moreover, while in currency trading long trends can be recognized and utilized so that a trader can maximize the profit through the use of specific strategies, binary options traders are limited by the set expiry dates and cannot use margins.

Binary options traders actually have fewer options

Even though both forex and binary options can be traded Monday through Friday, many binary options deals are only available at certain times of the day or the week. Therefore, with binary options, traders may not be able to find the best option even if they have an idea of how the market is going to behave. Furthermore, the strike prices in the binary options market are generally set by the broker, which does make it different from forex. 

The forex market can react unpredictably

While currency trading is prone to volatile and sluggish periods alike, binary options trading is typically unencumbered by volatility regardless of events taking place at the time of the trade. Also, while in forex the market can react quite unpredictably, binary options traders can be at peace knowing that both their maximum risk and maximum reward are already set. In forex, however, the maximum loss may be one’s entire account.

You need to win the majority of binary options trades

Forex trading allows the market participant to set individual profit targets and stop losses so that any trader can make a profit even if they fail to win most of their trades. Nonetheless, if you want to invest in binary options for the long haul, you will probably need to win the majority of the bets. However, since it is a trader’s call to decide on the price’s direction and how high or low it will go, the ultimate risk is unknown.

The binary options margin for errors is small 

Binary options vary in type, so traders can opt for high/low, 60-second options, touch/no-touch options, boundary options, and option builders. Forex also entails a variety of different orders, with buy and sell being the most important ones. Still, despite these similarities, the trader errors can have a carrying impact on the two markets. In binary options trading, the error margin is quite small since there are only two possible actions to take – open and close. In forex trading, however, a trader may forget to set a stop loss or fail to readjust orders, which could lead to a major loss.

Acknowledge and accept the differences

The forex and the binary options markets are quite different and they require traders to understand the existing discrepancies so as to gain success in either of them. Those who have started off with binary trading may need to recognize the importance of developing a stable and tested system along with learning the forex-specific tools. Likewise, experienced forex traders may find binary options to be too different, which is what professional currency traders claim to have felt the first time they interacted with this market as well.

You know the answer

Some forex traders may misunderstand and even underestimate the binary options market as much as binary options traders may find forex to be too risky or volatile. Therefore, the answer to the question in the title lies in you – are you open to learning about a new market? Whatever answer you give and whichever market you opt for, make sure that you do it all the way and that you protect yourself from the risk. Expanding to the binary options market may be a perfect opportunity to increase your income, while for some learning about forex may not be worth it. Although forex may take time to understand and earn a profit, one can become a prop trader and thus ensure affluence. On the other hand, any trader may choose to earn extra income alongside gaining forex education through trading binary options. Either way, traders will surely gain from learning about both because each market comes with its own set of benefits. 

Categories
Forex Trade Types

What is Multiple Time-Frame Forex Trading?

Many beginners only look at the timeframe that they are trading on, without paying attention to bigger timeframes that show the general direction of the market. Multiple time frame trading (MTF) involves considering and analyzing the market in different timeframes in order to get a general idea of what is happening in bigger timeframes, along […]

Many beginners only look at the timeframe that they are trading on, without paying attention to bigger timeframes that show the general direction of the market. Multiple time frame trading (MTF) involves considering and analyzing the market in different timeframes in order to get a general idea of what is happening in bigger timeframes, along […]

Many beginners only look at the timeframe that they are trading on, without paying attention to bigger timeframes that show the general direction of the market. Multiple time frame trading (MTF) involves considering and analyzing the market in different timeframes in order to get a general idea of what is happening in bigger timeframes, along with an idea of where the overall market energy is headed. This more in-depth approach is considered to be the most profitable type of trading by many experts. 

The concept of what makes MTF more successful is pretty straightforward. If you’re only looking at a single timeframe, you’re actually ignoring the more powerful trend, which is where the majority of traders are trading, thus leading you to trade against the trend.  It’s important to remember that larger financial institutions, big banks, and institutional traders place billions of dollars’ worth of trades on higher timeframes, and you’ll see stronger support and resistance levels on those larger timeframes. Therefore, many traders believe that MTF analysis provides the best analysis possible for currency pairs and that it is the best way to set yourself up for success, considering the market’s unpredictability.

MTF Analysis Objectives

MTF has two main objectives:

  • To Increase the Chances of Trade Success

As we mentioned, one of the main reasons why traders adopt MTF analysis is because it is believed to provide the best setup for success. This is because MTF considers different timeframes, including higher timeframes with more traders and big institutions, thus providing us with a better idea of the trend. 

Example 1: (Above GBPAUD H1) The market was in a Down Trend. We drew three possible support and resistance levels to trade it, yet the market did not take them into account, broke them, and moved upwards instead, which is represented by three circles. We then opened the same pair on the daily chart, and it suddenly becomes clear as to what happened. 

Example 2: Initially, we see on the daily chart that EURGBP is in an uptrend. However, the H1 chart shows that it is in a downtrend, meaning that both charts are not aligned. We will need to wait to enter the market until both charts are aligned. Once this happens, we can enter the market with a higher chance of success.  

  • Lowering Your Risk

While MTF offers traders a better chance of success, it can also lower the overall risk you’re taking when entering trades. To do this, traders use two charts. For example:

  • If your trade is set up on the H1 chart, you’ll be able to use the M15 chart for market entry.
  • If your trade is set up on the H4 chart, you’ll be able to use the H1 chart for market entry.

Whenever you’re choosing timeframes, you should remember that the entry chart should ideally be 3-4 times smaller than the initial setup. 

Example: (Above EURGBP H1) We see a trade setup where the market is at a key support level with our SL at 28 pips and our TP level at 33 pips. Our risk to reward (RR) ratio is approximately 1:1. However, on the M15 chart, that same RR ratio becomes 1:3 after our SL becomes 13 pips and our TP level increases to 45 pips. The difference from the M15 chart actually allowed us to lower our risk while increasing our reward by nearly 2.5 times. 

In BMFU, we use MT4 analysis differently, by analyzing the market in three different timeframes:

The Primary Chart

The Primary Chart, also known as the Long-Term Chart, is the first basic chart, which aims to identify the main trend. If we can use it to find out the general direction of the market, then we know which direction to trade in. When analyzing the chart, candles can tell us about market rejection and momentum, which indicates whether we should continue trading or stop to wait for the market to align. 

The Secondary Chart

The Secondary Chart, also known as the setup chart, helps us to find the trade setup AFTER we have determined the direction of the market. For example, the chart might provide us with two possible levels to enter the market, depending on the current market setup.

The Entry Chart

Finally, traders will use the entry chart to reduce risk and increase their possible reward after determining the market direction and finding the setup. Note that you could technically skip this chart and enter the market directly from the secondary chart, although your best bet is to stick with the complete strategy if you’re looking for the best reward. One tip is to use the five-minute chart for entry on H1 levels, but this isn’t recommended to novice traders and is better executed by professionals.

Categories
Forex Trade Types

Scalping Vs. Day Trading: Which is More Profitable?

Asking this kind of question reveals one is trying to start with trading and wants to pick up the right path. Of course, profits are an end means mostly, however, the method how you get them defines you as a trader. Where one trader is profitable with day trading, the other is when scalping. To […]

Asking this kind of question reveals one is trying to start with trading and wants to pick up the right path. Of course, profits are an end means mostly, however, the method how you get them defines you as a trader. Where one trader is profitable with day trading, the other is when scalping. To […]

Asking this kind of question reveals one is trying to start with trading and wants to pick up the right path. Of course, profits are an end means mostly, however, the method how you get them defines you as a trader. Where one trader is profitable with day trading, the other is when scalping. To get the whole scope around this question, we would need to understand what these two strategy categories require out of each trader and other pre-requirements. Later on, we would need to tackle the way you fit in your preferred strategy to your personality and lifestyle, and then answer the question in a simplified way, but with a good punchline for every trader who wants to get something out of this game.

Scalping and day trading are trading strategy categories with an infinite number of variations, but they have something in common. They both involve positioning on forex, equities, crypto, and other markets. Now this is getting complicated, not only we have many strategies, we now have many different markets and also many different approaches. Does one particular strategy, market or approach stand out from others in terms of profitability? Certainly, but it is more about the trader behind the wheel than the strategy itself.

Before all, scalping involves shorter time frames while day trading, or intra-day trading, presumably is about higher time frames up to 4 hours. Scalping is more action-packed while intraday- trading does not have to be, yet it depends on how many positions a trader has across different markets and assets. As you can see, we are adding more and more important variables pointing to the answer to this question is – it depends. This answer does not solve anything, just makes things fuzzier. However, there are paths beginner traders can take to discover what fits them and effectively what is more profitable. 

Scalping strategies can also be applied on higher timeframes, however, these strategies deviate from what is usually considered scalping. They are more a mix of several ideas and are the result of a trader or traders looking for ways to improve on the scalping strategy they started with, all according to their life possibilities. Lower time frames require exhausting attention and it is common for traders who have developed scalping strategies to try to automate them. A robot is faster and does not have emotions that could stay in the trader’s way with this type of trading. If you do not know by now, getting emotional while trading is going to adversely affect your financial balance and your mental balance too. So, we have another variable into the definitive answer to the main question.

Anyways, scalping does not have to be automated and then it requires focus during your trading day. This attention is heavy on your body and mind, you may reach a point of saturation and even health problems regardless if your scalping strategy is working or not. Some scalpers work in a team, where the load and attention are shared, however organizing in such a way also requires traders’ goals alignment. Sometimes, successful trades establish firms and employ a workforce that can follow multiple assignments and the main trader just makes decisions. Scalping also requires certain market conditions and, like every strategy, a lot of research where it is performing the best.

On top of that, since it is usually applied on shorter timeframes, the spreads and commissions are also a factor in how profitable it can be. Therefore, research on broker trading conditions is also one of the priorities when developing scalping strategies. Certain scalpers require no more than 1 or 2 points spread to be effective long term. If we compare scalping and other, higher timeframe strategies, it seems scalping requires additional attention and research to other variables that limit them, yet they may not result in better overall performance than intra-day strategies. 

Since scalping strategies do not involve waiting, they are action-packed and fun, many young traders are attracted to them. It is like a beginner trader seeks to get emotional while experienced have set up systems that block them or just have developed skills to keep emotion at bay when they trade. Therefore, we do not advise developing scalping strategies for beginners unless you want to get into a bad emotional state after one or more accounts are down to zero and learn from this mistake first hand. Experienced traders keep an open mind and can try scalping if they see they can expand to trading ranging markets, but know they do not seek trading thrill, just better performance. 

Moving on to intra-day strategies. Now, this is a very broad category, basically, it only points at a certain time frame below the daily. Telling if these strategies are more profitable than scalping is very misleading. Yet, they are certainly less action-packed and they might allow you some screen away time. Emotions are still in, as the prices move in your favor and out so are your feelings, like a controlled roller coaster by the tides of the markets. So now we may have something cleared out, scalping strategies might be more fun but beginner traders do not have the best of chances and will learn out of mistakes, it is just a matter of how much it is going to cost them. Intra-day strategies may learn them patience, yet they are also going to be costly. 

Beginner traders simply have better chances if they learn from the start what to do and what not. There are many sources about this yet people get attracted to the fun stuff about trading such as strategies. That is why the question above is one of the most popular however it is not leading beginner traders in the right direction. Whatsmore, the internet will keep giving you the popular stuff and you may have trouble finding the right answers. Psychology and Money management topics are not popular, they are boring. Whatever strategy, scalping, or intra-day type, traders do not have a chance without the right mindset and risk/money management. 

Now we have some answers to this vague question, however, let us assume you have these two main trading pillars already developed, should you go with scalping or doing the higher timeframes? Your risk management and psychology are a part of your strategy, they are one tangible and intangible system part. Whatever your strategy type is, it is going to work out, just focus on the two main parts first. Considering strategies outside the risk management and the right mindset is like selecting a weapon to shoot blindfolded. You are going to miss most of the time whatever your choice. If we had to pick one strategy type to go with it would be trend following on the daily timeframe. Simply because trend following strategies have some proven records to perform better and daily timeframe because it eliminates some risks out of trading sessions and noise. 

Lastly, let’s mention one step traders should complete having at least some outlines of what trading style they might like and what their strengths, weaknesses, and traits are. Look out for trading personality tests online, they combine some popular personality assessments like Myers–Briggs and others with trading practices. As a result, your trading will have some weaknesses you need to work on and also strengths that should be exploited with a particular strategy. According to this test, you may try to make one that fits your lifestyle. Now, this journey requires a lot of dedication and work. Consider our other articles about how to start your way up using free resources and guides on various topics. The test result is for you only, and therefore the answer to the question that hopefully sets you on the right path. 

Categories
Forex Trade Types

Scalping Strategy: 10 Pips Daily that Can Burn Your Account

There are many discussions in the world of the foreign exchange market, and for some time there have been about the strategy of scalping in forex of “10 pips a day”. It is a trading strategy that says “get rich quickly” by accumulating only 10 pips each day. Well, we turn to you to inform […]

There are many discussions in the world of the foreign exchange market, and for some time there have been about the strategy of scalping in forex of “10 pips a day”. It is a trading strategy that says “get rich quickly” by accumulating only 10 pips each day. Well, we turn to you to inform […]

There are many discussions in the world of the foreign exchange market, and for some time there have been about the strategy of scalping in forex of “10 pips a day”. It is a trading strategy that says “get rich quickly” by accumulating only 10 pips each day. Well, we turn to you to inform you that not only will it not make you rich, but it will probably ruin your trading account if you give it enough time.

The lure of this system of scalping in forex is the perception that making 10 pips a day can accumulate large fortunes in a relatively short period of time. Because, as those who promote these strategies will tell you, it is easy to achieve this amount every day. But 10 pips each day should be feasible, right? Theoretically, yes. But as we already know, be consistently profitable in the Forex world is not a theoretical effort, but a practical one.

In this article, we will see the controversial question of making only 10 pips in each trading day and why it does not work. Accordingly, you will need to learn a way to set performance goals that include the benefits as well as the risk taken to make those gains. But first, let’s discuss this 10 pips a day forex scalping methodology in greater detail.

What is the strategy of scalping in forex of 10 pips a day?

The idea behind this strategy is to aim for quick gains every day. As the name says, the goal is to achieve a gain of 10 pips every day. This sounds pretty simple, and in theory, it should be. But again, making a profit from the forex market is not theoretical.

Most strategies running around, which point to a small number of pips each day also carry a long stop loss. At least long compared to the potential nominal profit of each setup. This scalping strategy in forex is no exception. This is something distant from what we usually do, which aims at an appropriate risk-benefit of at least 1:2. Most strategies that aim to get 10 pips use a stop loss of 90 pips or larger. In essence, they take a huge risk for a small reward, relying on a high winning transaction ratio. And there lies the problem.

The Attraction

Some traders like strategies like this, and the reason is simple, they produce fast profits and promise high hit percentages. As we all know, winning is fine. Remember how you felt after your last trade winner operation. Or better yet, a series of winning operations. It feels good, doesn’t it?

Don’t feel bad after a victory operation. You do your job to find a favorable setup, which resulted in a profit. However, something is not right when you choose a system just because it induces a feeling of winning more often. Or at least that is the intention of the scalping strategy in forex.

As you can see, becoming a successful Forex trader does not mean winning, it means being consistently profitable. It is very clear that we have a big difference between these two issues. When you choose a trading system that is based on the success rate, you are letting your ego make the decision for you. Your ego wants a trading strategy that gives you that nice “win” feeling.

The logical side of your head wants a trading system that will grow your account. It is also the logical side that knows that it takes a lot of time and practice to become consistently profitable. Your ego wants the profits now and it doesn’t care how much capital he has to risk to get it.

The Disaster

Before we start talking about why the 10 pips a day forex scalping strategy is disastrous, we want to make one thing clear:

We’re not discrediting all scalping strategies. We know some of them to work. But what we are discrediting is the idea that you can target a specific number of pips every day, week, or month and “get rich quickly,” as stated by those who promote these strategies. It is nothing against this particular strategy, we are just using it as an example.

Now, let’s talk about why a strategy like this is dangerous.

Unfavorable risk-benefit ratio: The foundation of a system like 10 pips a day is a high probability of success. Therefore, this means risking a huge amount of pips for a relatively small profit.

Let’s use the example of 10 pips of take profit and 90 pips of stop loss. In order to be in “breakeven” in this strategy, your goal should be reached 90% of the time. That means out of 100 operations, you’d need 90 with winnings.

This is a high and unrealistic hit ratio for any trading strategy. And that would be just to keep the balance, that is, not to lose or win. If you want to make a profit, you need to make more than 90% of the time. Think about it this way: you have 2 consecutive weeks of earnings, achieving your goal of 10 pips each day. Then, for 10 days of trading, you have got 100 pips. At the end of those 10 days, you feel unstoppable.

On the 11th, the disaster hits. Your stop loss is hit, with a loss of 90 pips. So, after 11 days of trading, you make a profit of 10 pips. Demoralized and frustrated, you’re looking for a new strategy that will make you a millionaire. Does that sound familiar? This is the vicious circle in which most traders live and is the reason why using unfavourable risk-benefit ratios can be dangerous for your career as a forex trader.

Expectations that are unrealistic: Any trading system that is based on a fixed number of pips within a specific time period as a goal is a disaster waiting to occur.

Here is why…

The market moves with its own calendar. Every week is different, just like every day, hour and minute is different. A couple of currencies will not give you exactly the same kind of movement day by day or week by week. So why wait for the same amount of profit every day, every day? It just doesn’t make sense.

The market does not follow your calendar. To become a consistently profitable Forex trader must learn to take what the market gives you. This could mean not operating for a day or even a week. To say that a market will move in a way that produces 10 pips of profit every day is completely unrealistic.

The Solution

Let’s show you how to set performance targets that are achievable while taking risk into account. This can be applied to any trading strategy you want. To achieve this, you need to use 2 steps to track your performance. The first step should be your profit percentage. This will be the amount you aim to achieve each month. We recommend starting at some point between 5% and 10%.

This is a realistic expectation and has real value. You know exactly how much it should be equivalent to 5% – 10% based on the size of your account. If you just aim at 400 pips a month, for example, who knows how much each pip is worth? It could be $1 or it could be $10. Using a percentage of profit is setting a performance target with real value.

The second measure needs to take into account the risk. After all, 5% – 10% profit is great, but if you’re risking 20% to make it, that’s not good. For this measure we will use a multiple of “R”. What is this? you will wonder. Simply take your goal profit in pips and divide it by your stop loss also expressed in pips. For example, a target of 300 pips with a stop loss of 100 pips would be 3R.

So, the goal for your second measurement would be to maintain a minimum 2R average for the month. This forces you to look for favorable setups, in which the potential reward is at least twice as risky.

There you have it. Instead of aiming at an arbitrary number of pips per month, it aims at a profit between 5% and 10% per month, while maintaining a minimum average 2R. Now you have a goal that will produce profits while taking into account the risk taken to produce such profits.

That’s what it takes to be a consistently profitable trader.

Conclusion

At the end of the day, “10 pips a day” Forex scalping strategies are not the problem. At least they are not the root of the problem. The problem is the idea that the earnings in the forex market can be programmed into a calendar. Be it 10, 20, or 30 pips a day. The market does not care, nor will it move in a way that produces this kind of profit every day.

The other problem is risking 9 times the potential reward. Becoming profitable consistently is about putting yourself in favorable positions to make money. A setup where the potential loss is 9 times the size of the potential gain is the opposite of favorable.

You could say that this is just our opinion, and you’d be right. But when was the last time you heard a professional forex trader say he had enough surgery for today, because he had reached his goal of 10 pips? Do you think George Soros or Bill Lipschutz operate forex like this? Of course not. In fact here is a verbatim quote from Bill Lipschutz himself:

“For long-term operations, especially when multiple-option structures are at stake and some capital may need to be used, I look for a profit-on-loss ratio of at least 5 to 1.”

This article has not been written to imply that the only way to make a profit from forex is to use a minimum of 2R in each transaction. Or that price action is the only viable trading strategy. As we all know, that is simply not true.

However, this article brings to light that the idea of risking 90 pips to earn 10 and expecting the market to deliver those 10 pips of profit more than 90% of the time is unrealistic. We dare to say… impossible?

Categories
Forex Trade Types

What is a Pending Order in Forex?

What is a pending Forex order? When we start trading in Forex, we use what is known as “market order” to participate. Just click on the button to sell or buy and you’re trading. The market order is telling the broker that he wants to get involved at the best possible price, or what is […]

What is a pending Forex order? When we start trading in Forex, we use what is known as “market order” to participate. Just click on the button to sell or buy and you’re trading. The market order is telling the broker that he wants to get involved at the best possible price, or what is […]

What is a pending Forex order? When we start trading in Forex, we use what is known as “market order” to participate. Just click on the button to sell or buy and you’re trading. The market order is telling the broker that he wants to get involved at the best possible price, or what is known as “market price”. There are no guarantees that you will have the price you see in the box or in the order window, but as Forex is extraordinarily liquid, most of the time it works.

Pending Orders

Pending orders on the foreign exchange market, or in other markets, are a set of instructions that you give to your broker when entering or leaving a position. Sometimes, with more complex trading platforms, you can have several actions in the same order. At its most basic level, it is looking at a scenario in which it is telling the market that it wants to enter or exit a position at an exact price. If the market does not reach that exact price, in this situation nothing will happen. There are several types of orders, but they will analyze the most basic ones that are most likely to be found.

Buy Stops

A purchase stop simply tells the agent that he wants to buy a couple of currencies at a specific price. For example, if you do not have the USD/CAD pair at 1.31, but you acknowledge that you are in the wrong position if the market reaches the level of 1.3180, you place a purchase limit at that price level to protect your account. This means as soon as the market reaches 1.3180, it will buy back the position to close trade and live to fight another day.

Selling Stops

The sales stops, of course, are exactly the opposite. If a price is touched, you want to sell the market, usually to close a position. Using an example of the GBPUSD pair, let’s say you are long at 1.30, and the price has traveled up to the level of 1.33. You want to ensure some profits, so you decide to place a point of sale at 1.3270 just below. If the market returns to the level of 1.3270, you sell your position and flatten the account, at least as long as the transaction is concerned.

Shopping to the Limit

A purchase limit is an order that says you are willing to buy a currency pair at a specific price or higher. A good example is if you want to buy the pair USD/JPY at 111.15, which is now the cheaper price than the market. As the market falls to the level of 111.15, you are only willing to buy it at that specific price, or better. It is possible to fill it at a lower price as is said to be “better”, but this is very strange to happen and always in a situation where there is a big slide during the news event. If your price is not affected, then nothing happens. You will pay 111.05 or less for the position.

Limit of the Sale

Clearly, this is the exact opposite of a limit purchase order, as it is setting a specific price you are looking to sell this pair of currencies. For example, the EURUSD pair is currently traded at the level of 1.1358, and recognizes that the level of 1.12 above is an area of resistance. You’re willing to shorten the market if you get up in that area, and you’re only willing to pay that price. You set a sales limit at that level and can complete your operation at that price or more to take advantage of the “best” part of the transaction.

Why Not Use Market Orders?

Of course, we are all guilty of this, but you should never use market orders if you can help it. This invites a slide that can cause major problems. On many occasions, it is not an alarming concern, but it can happen. And beyond that, if it slips, there’s no recourse. You can’t call your agent and complain about the slip and hope to get a reaction in our favor. With a price limit order in this situation, you have any say in the matter.

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Forex Trade Types

What is a Forex Carry Trade?

Many trading strategies or systems that we are familiar with, are based or based on technical analysis or indicators. Unlike these strategies, Carry Trade is a fundamentally based strategy. Carry trade, also sometimes known as a financial bicycle, is a strategy that allows you to take advantage of the existing differential in interest rates of […]

Many trading strategies or systems that we are familiar with, are based or based on technical analysis or indicators. Unlike these strategies, Carry Trade is a fundamentally based strategy. Carry trade, also sometimes known as a financial bicycle, is a strategy that allows you to take advantage of the existing differential in interest rates of […]

Many trading strategies or systems that we are familiar with, are based or based on technical analysis or indicators. Unlike these strategies, Carry Trade is a fundamentally based strategy. Carry trade, also sometimes known as a financial bicycle, is a strategy that allows you to take advantage of the existing differential in interest rates of two different currencies.

Although it is a fairly short and simple definition we must have very clear a very important concept of fundamental analysis in Forex such as interest rates. As you know, each currency represents the economy of a country as a whole. All right, interest rates are one of the most important fundamental indicators for analyzing the state of a country’s economy and, therefore, the strength or weakness of its currency.

Interest rates generally set the cost of money, that is, the price we pay for using a certain amount of capital for a certain amount of time. It’s very important for you to know, one of the most important economic news stories that are usually published and affect the price of the currency in question is interest rates.

You should not confuse carry trade with financial arbitration. Arbitrage is a strategy that consists of obtaining an economic benefit by taking advantage of the price difference of a financial asset in different markets. And unlike carry trading, in arbitration, the risk is very low.

Foundations of a Carry Trade

As mentioned above, the spread in interest rates between two currencies offers traders and investors the opportunity to win over the long term. The main idea of any carry trade strategy is very simple: the investor finances or borrows a currency with a low-interest rate (weak economy), sells this currency, and buys another with a higher interest rate (strong economy).

Now, how do we know if an economy is strong or weak? There are several factors that affect interest rates, but inflation or inflation prospects is one of the most important. A strong or solid economy has good GDP growth (Gross Domestic Product) and good employment data, if people consume more goods and services, there is greater demand and inflation increases. To control the increase in inflation and keep it within the target range, the Central Bank of that country has to raise interest rates to limit inflation. By raising the interest rate, the country becomes more attractive for attracting foreign investment and this results in the revaluation or strengthening of that country’s currency.

On the contrary, if an economy is weak or grows very little, has poor data on GDP and employment, consumption of goods or services is low and that country cannot afford to have such a strong currency. The central bank must reduce or keep interest rates very low, thus incentivizing credit since it is cheaper for companies to borrow. As a result, investors will want to take their money to another country with better interest rates by making the local currency devalue or weaker.

Watch this because now countries with the current situation have started to lower rates and print money for free and even the US. that can be considered a strong economy has very low-interest rates. Same situation in Europe with the policies of the European Central Bank.

The Objective of the Carry Trade Strategy

The carry trade has a clear objective: to obtain benefits from the spread of interest rates and not from the variation of prices that can be given during the execution of this strategy. Therefore, benefits can be derived from this strategy, although the price of the currencies involved does not vary by a single pip.

However, as traders, we hope that the currency in which we invest will be strengthened so that by exchanging it for the currency we borrow (we finance) the profit obtained will be greater.

Some Disadvantages of the Carry Trade

One of the disadvantages of this strategy, as you may have already thought, is the risk that the currency in which you buy will be devalued. This is largely due to the fact that the most common practice of a carry trade is to finance or borrow from developed countries with strong economies to invest in debt securities (bond market) of emerging countries with higher yields.

Another disadvantage of this strategy is that there is uncertainty about the maintenance of current interest rates in the future. As a long-term strategy, interest rates tend to vary over the course of the year (in fact we are seeing it recently) and although these variations are small the final benefit will depend on these small variations that can be made by the central bank of each country.

A Practical Example of a Carry Trade

One of the main currencies that traders used to enhance carry trade is the Japanese yen because of its very low (near zero or even negative) interest rates. This has changed because currencies with the euro or the dollar already have very low-interest rates as well. Previously, they borrowed the Japanese yen and then bought or invested in assets denominated in dollars, euros, or other currencies of emerging economies.

Let’s imagine now that we want to carry trade and provide the differential between the interest rates of Japan’s economy (with interest rates of 0%) and the economy of an emerging country like Brazil (with interest rates of 7%). The process would be roughly like described below:

-We borrowed 10,000,000 yen at an interest rate of 0%, which means that within a year we would have to pay back 10,000,000 yen.

-We sell the 10,000,000 yen and buy dollars at an exchange rate of 100 yen to the dollar and in this way we get 100,000 dollars.

-We sell the dollars obtained and buy Brazilian real at an exchange rate of R$ 3 per dollar, obtaining R$ 300,000.

-With the Brazilian real we buy bonds or bills of the Brazilian central bank with an annual maturity and an annual yield of 7%. Within a year we will receive 321,000 reais (capital plus interest).

-Now we must pay the initial credit by returning the 10,000,000 Japanese yen we borrowed. Assuming the exchange rates have not changed, we exchange real to dollars and get $107,000. Then we change the dollars into yen and get 10,700,000 yen.

-Finally, we return the 10,000,000 yen of the initial credit and we have 700,000 yen (equivalent to 7,000 dollars) of benefit.

In this way, we have obtained a profit-based exclusively on the deference of interest rates. In this example, we assume that exchange rates remain constant, but what would happen if, for example: does the Japanese yen revalue and after a year go from 100 yen to the dollar to 90 yen to the dollar?

In this case, by exchanging the $107,000 obtained to yen we will receive 9,630,000 yen. We must pay the initial loan of 10,000,000 yen, therefore, we would have a loss of 370,000 Japanese yen that would be equivalent to a loss of 3.7% in the carry trade operation.

Risks Associated with a Carry Trade

As we saw in the example above one of the most important risks for the foreign exchange trader or investor arises when exchange rates do not move in their favor, that is, the currency you borrowed is revalued or the currency is devalued in the money you borrowed was invested.

There is another risk, which is associated with the choice of the asset to invest in since we can invest in the bond market, equity market, or real estate market. In the case of shares or the real estate market, we do not have a guaranteed return and in the case of the fixed income market, there is always the risk of default by the issuer of the bonds.

How to Use Carry Trade in the Forex market to Maximize Profits

In the Forex market when we open a position, we’re basically borrowing one currency, trading it for another, and depositing it. All this happens on a daily basis, so if a trade remains open from 5 pm, New York time, the trader will be paying the overnight interest rate on the borrowed currency and at the same time earning the interest rate on the held currency.

Because each currency pair is made up of two currencies representing two economies with two different interest rates, most of the time there will be a spread in the interest rates of the pair. This difference will result in a net gain or interest payment. Interest is paid in the currency borrowed (sold) and paid in the currency purchased. In this way, each currency pair has an interest payment and an interest charge associated with maintaining the position.

This means that if we buy a currency with a higher interest rate than the borrowed currency (sale), and keep it open after 5 pm, New York time (23:00h Spain), the net interest rate differential will be positive and we will make money with this. Otherwise, if the currency we buy has a lower interest rate than the borrowed currency, the net spread will be negative and we will pay interest to keep that transaction open after 5 pm (New York time).

This interest rate differential that we earn or must pay, you can find it on your trading platform under the name of Swap or Rollover. In the specifications of each currency, we will have a long position swap (buy) and a short position swap (sell).

In order to use this strategy in practice we must take into account the following:

1. Find currency pairs with a positive swap

You can see this information on the website or on your broker’s platform. If you use Metatrader you have it easy, you can see it by right-clicking on the asset in question in “contract specification”.

2. Conducting a favourable swap transaction

Once we have located an opportunity (this is easy) you should not do an operation for no reason. The idea is to make a transaction through a profitable system and also that the swap is favorable to you. The swap will generate a daily plus and in the event that the transaction leaves by stop loss (loss) will be less. And if the operation is profitable it will be greater. It is a plus in our operation.

3. More medium-term long-term vision

Keep in mind that the time in this type of operation is in your favor so keep in mind that these operations are not short-term and are raised to get the juice from them during their duration.

4. Sound risk assessment and capital management

As with any other type of trading system and trades, before you open a trade make sure you know what percentage of the account you can lose. Do not be optimistic because the swap is favorable, the operation can go against you shortly after opening it, and if you have not measured the risk well you can have a bad time.

Conclusion

In conclusion, tell you that carry trade is a strategy based on fundamentals that try to profit from the difference between currency pairs and the interest rates. Therefore, you should be very clear that interest rates are and what fundamental factors affect them.

It is a long-term lake strategy so patience is key to getting the desired results. Despite being a long-term operation, this doesn’t mean you can open an operation and forget about it. It is necessary to monitor interest rates and possible changes in the rates and monetary policies of the central banks of the disputed currencies in such a pair.

Exchange rate risk is a critical factor in the carry trade, which is why this strategy works well in periods of low volatility. On the contrary, you should always bear in mind that carry trade is a high-risk trading strategy in periods of instability such as the current one. However, if the swap significantly affects your operation you can consider the operation to exploit only the positive swap part.

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Forex Trade Types

What is Revenge Trading and Should You Try It?

Revenge trading, it sounds like something you would do to an ex or after the markets have hurt you, and in a sense, that is exactly what it is. Let’s spend some time defining revenge trading and determining whether or not it is right for you. You have probably been told at least a thousand […]

Revenge trading, it sounds like something you would do to an ex or after the markets have hurt you, and in a sense, that is exactly what it is. Let’s spend some time defining revenge trading and determining whether or not it is right for you. You have probably been told at least a thousand […]

Revenge trading, it sounds like something you would do to an ex or after the markets have hurt you, and in a sense, that is exactly what it is. Let’s spend some time defining revenge trading and determining whether or not it is right for you.

You have probably been told at least a thousand times that losses are a part of trading, in fact, they are a rather large part of trading and they are something that you will experience at every stage of your trading career. What’s important is that those that are trading and experiencing these losses are able to deal with, and to deal with them in a way that won’t p[otentially jeopardize all the work that has been done up to that point in their trading lives.

The term revenge trading centres around the inability of accepting a loss, or the idea that you may have been wrong about something, be it your analysis, or from listening to someone else. Those that are not able to accept those losses will take out their frustrations and anger at those losses on their next trades, other being far too aggressive or completely throwing the rules out of the window. The problem with this is that it throws your discipline out, it also removes any positive risk management that you may have been using and any work that had previously gone into it.

So why would you want to use one of these revenge trades? Realistically you would not want to, they often occur at times when you have become frustrated or have had a number of different losses particularly in a row. Let’s imagine that you have made a trade and it has lost, it loses you $50, this has annoyed you and so you decide to make a larger trade to try and win it back. You can see the issues that could be arising here.

There are a number of different ways that revenge trades can manifest, they are often based on the personalities of the person and also the mood, so let’s take a little look at the sorts of revenge trades that they are the damage that they can do to your account and trading mentality.

Overtrading

If you have had a number of losses in a row, then someone who no longer has confidence in thor trading strategy or are getting fed up with waiting for all the entry criteria to be met, or you just do not feel that the strategy is working as well as you were expecting it to. At this stage, you may begin to start opening up more and more trades in the hope of making profits. Of course, in reality, this is only increasing the risk to the account and the trades being opened are far more likely to end up in the negative due to the nature that they are being opened with little regard to the risk management that had previously been put in place.

Larger Trades

Another thing that some people do when they have made a loss is to increase the trade size of the next trade. This is done for the simple reason that they want to win back the money that they just lost. This is a terrine idea and will only lead to a lot of larger losses. What would you do if the next trade loses? Create an even larger one? Some people do this in the hope of getting more money back and recovering any losses, it is not a recommended tactic and not something that you should think about doing. If you make a loss, accept it, and continue with your plan, do not start making larger trades and destroying the risk management of your strategies.

Removing Stop Losses and Take Profits

Another thing that some people do is to remove the stop losses and take profits levels on the trades. This is simply due to the fact that they want to make more money when it goes to profit, and do not want to make any losses. This is bad in two ways, firstly, with no take profits, the trade could easily go into the usual take profit location but then reverse and so nothing would have been taken. With no stop loss, there is no limit to how negative the trade could go and without a stop loss, a single trade could potentially blow an account. Not a tactic that any trader should be doing.

If you are feeling like you want to do any of those things, then you need to take a step back and reevaluate what you are doing. If you are frustrated or stressed, take some time away from mth markets, go out, do some exercise, and clear your mind. You need to have some belief and trust in your trading plan, it has been doing well, so do not let a single loss or two throws you off. Keep your risk management in place and do not throw away all of the work you have done up to this point, the only person that will suffer is you.

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Forex Trade Types

Day Trading Vs. Swing Trading: Which is Better?

Every trader might have individual goals – but we all have the same major goal at the end of the day: making a profit. There are a lot of different strategies and methods that traders use to try to accomplish this goal. Some prefer scalping, naked trading, breakout trading, using pivot points, and so on. […]

Every trader might have individual goals – but we all have the same major goal at the end of the day: making a profit. There are a lot of different strategies and methods that traders use to try to accomplish this goal. Some prefer scalping, naked trading, breakout trading, using pivot points, and so on. […]

Every trader might have individual goals – but we all have the same major goal at the end of the day: making a profit. There are a lot of different strategies and methods that traders use to try to accomplish this goal. Some prefer scalping, naked trading, breakout trading, using pivot points, and so on. Two of the most popular trading methods are day trading and swing trading. While traders using these methods have the shared goal of making profits, they go about this in very different ways. If you’re going to become a trader yourself, you’ll need to know about these popular strategies. 

Day Trading

Day traders make multiple trades per day, and almost always close out every single trade before the end of the day. In order to be considered a day trader, you’d need to make at least four trades per every five days. This trading style requires more attention than some other methods, with many traders becoming professional day traders in lieu of working a regular 9-5 job. This is because you need to actively monitor the market so that you can open and close your trades during the day. Day traders tend to make decisions based off of some of these factors:

  • Price discrepancies
  • Fundamentals
  • Quantitative reasons

As you can see, day traders often consider hard numbers when making decisions. If you want to be a day trader, you’re going to need an impressive account balance. In order to follow the “pattern day trader rule”, you’ll need to maintain a minimum account equity of at least $25,000 each day that you plan to trade. This is probably one of the main disadvantages of day trading, as many traders won’t be able to meet that requirement. You could always trade with less, but it may be difficult to open and close enough trades to truly be considered a day trader, or to make enough profit for a substantial living. 

Swing Trading

Swing trading is essentially the opposite of day trading. It involves buying securities and holding them for longer than a day, oftentimes for days or even weeks before selling. Many swing traders make decisions based off of:

  • Graph patterns 
  • Technical analysis (this involves looking at a price’s past history on charts)
  • Macroeconomics 

Swing traders often look to graphs and technical analysis, although some numbers and other factors can be considered as well. This type of trading doesn’t require as much time and attention as day trading, making it a better option for those that don’t have the time to monitor their trades as often. Swing trading also doesn’t require a large starting deposit, unlike with day trading. One of the downsides to choosing this method is that is can lead to overtrading and it produces less in returns than long-term buy-and-hold investors make. You’re also apt to pay more fees and commissions for holding your trades overnight. 

The Bottom Line

Should you become a day trader or swing trader? Here’s a quick summary to help pinpoint which style is right for you:

  • If you want to be a day trader, you’ll need an account balance of around $25,000. If you can’t possibly come up with this or don’t want to, swing trading is the way to go.
  • Swing traders will wind up paying more fees to their brokerage. 
  • Many day traders trade full time instead of working a regular job, as it requires your attention multiple days a week and trades must be actively monitored. Swing trading is better for those that might work a regular job or whom just don’t have that much time to spend trading in a given day.
  • Day traders typically make decisions based on numbers and fundamentals, while swing traders focus more on graphs and technical analysis. You might already have experience with one of these types of research. 

You might feel drawn to one of these methods, but if you don’t, then that’s okay too. There are a variety of other trading strategies out there and the best thing to do is to familiarize yourself with as many of them as possible. If you do decide to become a day trader or swing trader, we’d highly recommend performing a lot more online research to be sure that you completely understand how to perform the strategy successfully.

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Forex Trade Types

What is Naked Forex Trading?

Naked Forex Trading, also known as price action trading, is the act of trading without using any indicators. Indicators are used to measure certain things about the market to help traders decide whether to enter a trade. Exchange rate, volume, or the open interest of a currency pair are common things that are measured by […]

Naked Forex Trading, also known as price action trading, is the act of trading without using any indicators. Indicators are used to measure certain things about the market to help traders decide whether to enter a trade. Exchange rate, volume, or the open interest of a currency pair are common things that are measured by […]

Naked Forex Trading, also known as price action trading, is the act of trading without using any indicators. Indicators are used to measure certain things about the market to help traders decide whether to enter a trade. Exchange rate, volume, or the open interest of a currency pair are common things that are measured by indicators. Many traders recommend that beginners start with naked trading before learning how to use indicators. 

Naked trading is based on the present market, not past or future performance. Learning price action is key here because it will help traders to figure out which way the market is going to move. Decisions are made solely based on the candlesticks or charts one is looking at. This is a simpler trading strategy and decisions can be made much quicker because there is less data to analyze. Many naked traders use support & resistance levels and trendlines for better confirmation that a trade should be made. It is also important for naked traders to understand market cycles:

  1. Ranging lows
  2. Trending upwards
  3. Ranging highs
  4. Trending downwards

This cycle tends to repeat itself. One common rule is that traders should always trade with the trend, never against it. Of course, you’ll also need a good understanding of candlestick patterns and what they mean before you adopt this strategy. There are two main chart patterns that you should recognize if you’re going to take up naked trading:

  1. Head and Shoulders: This is a common pattern that shows up quite often or about every day. It consists of two shoulders, which are lower highs, and a head, which is the highest point. This pattern suggests that an uptrend is about to reverse into a downtrend or vice versa. If you have an open position, this is a sign that you should sell before the market turns bearish. 
  2. Wedge Patterns (Also known as Triangle patterns): This pattern can signify different things in the market. It is a triangle with one long side followed by prices getting closer and closer together. The other two sides are drawn with trend lines. A breakout occurs when the price gets too close, resulting in either an uptrend or downtrend. 

One key benefit of this type of strategy is that it can help avoid the pesky analysis paralysis, which delays trading decisions because of information overload, resulting in delayed trading decisions, or the inability to decide altogether. Still, this strategy isn’t perfect. Naked trading tends to focus on technical analysis, which involves analyzing charts, without paying much attention to fundamental analysis. Traders still need to watch an economic calendar in case events will affect their trades. It may be more difficult to trade ranging markets with this strategy, although it isn’t impossible. It can also be difficult to recognize certain chart patterns and to get used to trading without indicators if you’ve used them before.

To sum things up, traders should know that naked trading is simply the act of trading without any indicators. Decisions are made by analyzing candlesticks or charts and this method is strongly based on technical analysis. While some traders prefer this simpler strategy, others may feel more confident trading with the help of indicators. All traders should understand how naked trading works before deciding whether this strategy might work for themselves.

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Forex Trade Types

Introduction to Forex Order Types

Prior to jumping into the world of Forex, you’ll want to take some time to learn about the various order types. Below, you’ll find information on the key types of orders that all traders will see in their trading platforms.

Prior to jumping into the world of Forex, you’ll want to take some time to learn about the various order types. Below, you’ll find information on the key types of orders that all traders will see in their trading platforms.

Prior to jumping into the world of Forex, you’ll want to take some time to learn about the various order types. Below, you’ll find information on the key types of orders that all traders will see in their trading platforms.

Market Orders

A market order is the most basic order type and is usually the first type of order that comes to mind. This order is executed at the best price that is available at the time that the order is received.

Limit Order

A limit order is placed to buy or sell at a specified price or at a price that is better than the specified price. A buy limit order is executed at the specified price or lower, while a sell limit order is executed at the specified price or higher. This type of order allows traders to be more precise when entering or exiting a trade. However, these orders will not be executed if the specified price is not met. 

Stop Order

Stop orders, or stop-loss orders, are usually used to limit downside risk when trading. A stop order triggers a market order when a predefined rate is reached. There are two types of stop orders:

  • A buy stop order triggers a market order when the offer price is met.
  • A sell stop order triggers a market order when the bid price is met.

Both the buy stop and sell stop orders are triggered at the best available price depending on liquidity. 

Trailing Stop

A trailing stop order is often used in order to limit risk. This order is set a predefined number of pips away from the market’s current price and will automatically trail your position if the market moves in your favor. If the market moves against you by the number of predefined pips, a market order is triggered, and the stop order will be executed at the next rate that is available depending on liquidity. 

Contingent Order

A contingent order actually combines multiple types of orders to execute against a specific trading strategy. These are the most common types:

  • An if/then order is placed as a set of two orders. If the first order is executed, then the second order becomes a separate order that is not associated with the first. If the first order isn’t triggered, then the second order remains dormant. If either order is canceled, then it will cancel the entire order.
  • With an if/then OCO order, the second order becomes an active and unassociated one-cancels-the-other order if the first order is executed. If the first order is never executed, then the second order remains dormant.  
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Forex Trade Types

Overview of Trend, Reversal, and Counter-Trend Trading

On their path to learning how to trade in the forex market, some traders may need time distinguishing between trend trading and reversal trading. Aside from these two, traders have become aware of counter-trends, which is yet another concept shared and discussed in the forex community. Although even its name contains the word trend, traders […]

On their path to learning how to trade in the forex market, some traders may need time distinguishing between trend trading and reversal trading. Aside from these two, traders have become aware of counter-trends, which is yet another concept shared and discussed in the forex community. Although even its name contains the word trend, traders […]

On their path to learning how to trade in the forex market, some traders may need time distinguishing between trend trading and reversal trading. Aside from these two, traders have become aware of counter-trends, which is yet another concept shared and discussed in the forex community. Although even its name contains the word trend, traders across the world express their concerns not wanting to face the reversals scenario. As a counter-trend always moves against the prevailing trend, the majority believes that the odds of it winning that trade are low. Today we are finally helping you to understand what a counter-trend is and how it can impact a trader’s account.

Traders normally take a look at any currency pair and compare the price on the left end of the chart to the price at this very moment, which helps them conclude whether they are in an uptrend (the price is now higher) or a downtrend (the price is now lower). However, determining whether you are looking at a counter-trend may be a tougher job than it seems at first. If we take into consideration the time frame we are using and how zoomed in or zoomed out we are, we can question whether a precise definition of a counter-trend exists.

If you compare the two images below, you will see the two images of AUD/CAD daily charts taken at the same moment. Based on what we see below, depending on how you look at the chart, any trade you are in can be both a trend and a counter-trend trade. If you observe any YouTube trading videos, you may discover that despite the analysis indicating a downtrend, that particular trade can be perceived completely differently once zoomed out. Therefore, how we decide to look at our charts will inevitably affect the direction a currency pair takes.

Another important factor that traders may sometimes overlook is the involvement of big banks, whose impact on prices is what essentially pushes them up or down. While traders care about whether a pair is trending or not, big banks share no such affection. What they are interested in actually is where the majority of retail traders’ money is headed. By knowing where all the money is going, big banks can move the price in the opposite direction, which is why looking at where the prices were two years ago seems irrelevant.

Traders’ fears about trading properly, i.e. trading with the trend rather than against it, are therefore only a matter of perception. From the big banks’ perspective, and as a matter of fact, counter trading has no role in price movement. What is more, from the viewpoint of a trader, trend and counter-trend can turn out to be the very same thing, further reducing the value of this concept. Based on these facts, why should we then even concern ourselves with counter-trends and their impact?

Since trend traders’ only goal is to discover when a new trend or a continuation of an old trend is about to take place, their main task is to get involved on time and stay in the game for as long as possible. Other pieces of information, such as where a trend is, fall short in terms of importance as long as any such trend is happening. What traders should definitely work on is developing a system which can firstly recognize these trends and get them in a trade under the best possible circumstances.

Naturally, understanding the difference between trends and reversals will further help traders see what is of vital importance for growing a forex trading account. The question of how we can know whether we are not trading reversals any longer is key here as well. Unfortunately, the answer to this is that we will never know in advance. What we will be able to do is make reasonable conclusions with the wisdom of hindsight. If you are entering a trade, at which point will that happen? What every trader is hoping is that the entry happened as early as possible, but we cannot know exactly. Nonetheless, the algorithm you worked to develop, including the indicators you chose and tested, will carry out the task of neither getting us too early in a trade, which is considered as reversal territory.

Moving Average Convergence/Divergence indicator (MACD), which is essentially a two-line indicator, gives out a classic reversal signal when both lines under the zero line cross upward. As reversal trading cannot possibly lead to prosperity long-term, you are better off ignoring signals such as this one. Moreover, if you wait just a little longer, you will be able to see the two lines cross the zero line which is precisely an indication that you have left the reversal territory. Therefore, although we do not have a precise definition of what a counter trade stands for, this example alone should serve as clear guidance on what traders should focus from now on.

Should we then enter a trade the moment we see that things are turning? The answer is no simply because we need to see whether it truly is a reversal or not. Only when an indicator tests whether a reversal was a false one and the price keeps moving in the same direction, will you receive the actual signal to go long or short. Therefore, we cannot truly know when a trend officially started until we reflect on what happened before, which is why we need indicators to show us the way.

As a conclusion, the question of whether you should focus on trends or counter-trends is not really important, unlike the distinction between trends and reversals. What you need to avoid difficulties of trading reversals is a good set of indicators that will get you in a trade right when a trend is happening, be it a continuation of an old trend or an entirely new one. You should, therefore, only worry about entering a trade at the best possible time and having a system that can provide that. All in all, whether you are following a trend completely or moving slightly against it, do not fear to put full risk on that trend as long as your system tells you to go forward.

Categories
Forex Trade Types

Daily Time Frame Swing Trading Specifics

According to one theory and testing results done by professional traders, the daily chart is the best time frame to trade forex. We intend to try to make as much money as we can for the shortest period of time. Some like to trade not more than 20 minutes a day because they believe in […]

According to one theory and testing results done by professional traders, the daily chart is the best time frame to trade forex. We intend to try to make as much money as we can for the shortest period of time. Some like to trade not more than 20 minutes a day because they believe in […]

According to one theory and testing results done by professional traders, the daily chart is the best time frame to trade forex. We intend to try to make as much money as we can for the shortest period of time. Some like to trade not more than 20 minutes a day because they believe in prosperity and freedom. We are choosing to have a well-balanced life and trading carrier alongside other segments of life. You should not strive to be like other people, don’t believe in progress that is supported by any kind of chemical stimulants or long over-caffeinating marathon trade sessions. A group of traders’ long experience and testing out different time frames has concluded that everything works better and much more accurate on the daily time frame. The news events matter a lot less to us and the daily frame allows us to have a bigger perspective of the market. We are choosing not to be slaves to the market. Most importantly, trading forex like this we’re simply making the highest returns possible.

How valuable is our own time? According to the daily timeframe method, we trade the daily chart at 1:40 PM Pacific standard time which is 20 minutes before the close of the daily candle. Making trades at this time is surely not feasible for everyone. For most people in the US who have access to a computer and don’t have jobs that run over this time could be easy to do trades. It is easy typically for people in Europe because it’s right about when people usually go to bed. In places like Australia and Japan, it’s pretty bright and early in the morning so it could be a certain routine to do. In India, people would be sleeping at this time far more often. For those people, it might be very difficult to trade at that time. Depends on the part of the globe, it could be irritating if somebody already has a promising system that works but he can’t endure trading because he can’t really find the best time frame for him. We shouldn’t despair.

We all have the option to approach however we want. There is just going to be times when somebody cannot trade at this 1:40 PM Pacific time. What some of you could try is to be as closest as you can to this Pacific time. The goal should be to gather as much as we possibly can data on that daily candle if we want to reach our indicators properly. After 1:40 PM Pacific, we should have enough data to do trades because we will have almost completed the daily candle to work with. We strongly advise aiming for this strategy. Just to remember that the hour that follows the close of the daily candle is a terrible hour to trade because spreads shoot way up, so we should avoid that hour. But as soon as the Asian session opens right around 3 PM Pacific time the spreads typically go back down to normal. We don’t want to pay attention to that little tinny candle that is just starting and if we are reading our indicators we need to go back to the previous candle. We want to see a candle closed because that’s the way to collect all the data we need. What should we do is read all of our indicators one candle back.

Going further, there is going to be times whereby the time we get a chance to start our trading that price is going to have gotten better or worse than it was back when that daily candle had closed. For example, if we are aiming a long set up in GBP/USD and the candle has closed. It’s two hours later and we’re getting ready to make trades. If the price has gone any down, that is good for us. We could be into the discount and we might get in that trade with confidence. This part is easy. However, let’s say that the GBP/USD since the close of the daily candle has gone 20 pips to the long side. Now we’ll be getting it at 20 pips worse than we would off if we were able to trade a couple of hours earlier when that candle was closing. Here we might be stuck with a bad and a good decision.

Back when the daily candle had closed and triggered all of our indicators and say: ‘OK, we need to go long’. That was our system telling us that we have the ideal price for us to be going long. It is there to tell us the best possible moment to go long or short on any given currency pair. If our system is telling us to go long and the price has already gone 20 pips, we are practically no longer getting the best of it. Best of it was 20 pips ago. The value we once had, has now gone. And so just simply moving straight away and taking one of these trades anyway we might call the fear of missing the trade. Here is important to develop a discipline of not take trades like that anymore. We have one more example, let’s say that the ATR of GBP/USD is 80 pips and is also our take profit point if we would have taken that trade right where the candle was closed, our profit would be 80 pips away. But now technically it is 100 pips away. The price might get to the 80 but it might not get to the 100.

So what happened? We turned a winning trade into a possible non-winning trade. In the end, math could not be in our favor so we might lose more than we win. Turning winning trades into non-winning trades can be a big disadvantage that we need to learn to avoid. But if we understand the concept of a long game and if we are disciplined, we might understand the value we are losing every time we act adventurous. One more approach that we might consider should be to use market orders, it means when we like some price where it stands we are going to tell our market broker to put us in. We recommend market orders as an option to trade if you are not into price levels methods, you have nothing to wait for, just pull the trigger and wait for tomorrow. One more thing that we shouldn’t forget is to set our limit order back to where the price was when that candle closed, in the hopes that price will come back to that level and trigger the order and get us in at the price we were supposed to get in the first place.

If we trade this way we could potentially get all our value back. If the price does not hit our limit order by the same time the next day we should get rid of it or we can set it to cancel by itself on some platforms using the GTD order. This might be a little advanced way around for some people but it’s worth trying. What we want to develop here is the discipline of not taking some trades that are 20,30 or more pips worse than it should have been. We need to build our systems thoroughly and we need to let them work for us. According to professional traders, other people who are in the position to trade 5 or 6 hours before 1:40 Pacific time just don’t have enough data to work with and make decisions. Because of this you guys should make an effort and try to trade in a more friendly time frame. Whichever route you chose to take we wish you all the best. Good things are bound to happen.

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Beginners Forex Education Forex Trade Types

Let’s Discuss Forex Scalping Considerations

You may have been told in the past that trading is a game of probabilities, and this is true when aligning a lot of things into account, what it does not mean however is that placing a lot of small trades quickly will give you the probability of profits. Newer traders are now coming across […]

You may have been told in the past that trading is a game of probabilities, and this is true when aligning a lot of things into account, what it does not mean however is that placing a lot of small trades quickly will give you the probability of profits. Newer traders are now coming across […]

You may have been told in the past that trading is a game of probabilities, and this is true when aligning a lot of things into account, what it does not mean however is that placing a lot of small trades quickly will give you the probability of profits.

Newer traders are now coming across scalping, a method of looking to take just one or two pips out of the markets quickly, usually along some sort of trend or pullback, it can be a powerful strategy, and sometimes trades can stay open for a matter of seconds only. It can also make vast amounts of money, so why aren’t we all doing it? We aren’t all doing it because it takes patience, a lot of risk management and most importantly, it can go horribly, horribly wrong if you do not know what you are doing. So, let’s look at a few things you need to consider before you start scalp trading.

Costs

Each broker that you see will have its own payment structure, some of them have it as an additional spread on the trades, others will charge a commission. You need to know exactly how your broker will be adding these costs to your trade. Scalping is all about taking small profits from lots of trades, if your broker is adding an extra pip on top of the natural spreads and you take a 1 pip profit, then how exactly are you benefiting? In fact, you may be making a small loss, the same can go for commissions, if you are using a broker with an added $10 per lot traded, then it may not be worth it at all, however, if you commission of $2 per lot treaded then it may be far more valuable to scalp with them. Just remember t outlook at both the commission and the spreads, combine the costs to see whether or not it is worth scalping with that broker.

Capital Requirements

How much capital do you have? You find a broker that offers you an entry point of $10, it is fantastic that they are allowing you to open an account with such a small amount and this makes it very accessible. However, you will struggle to have any sort of risk management or money management plans in place with such a small amount. You cannot go into forex thinking you will turn that $10 into $1,000,000 with small trades. Not only will the profits be very small but you also need to think of the margin requirements of trading, you may get to a point where you cannot actually open any more trades due to your margin levels which can also result in blowing (losing all money in an account) an account.

Psychology issues

Traders who trade short term trades can often be under a lot more stress than those that go for longer trades, it is a much more fast-paced affair when scalping, having to quickly analyse, work out positions, place trades and then maintain them. Due to this, you need to ensure that your risk management is pretty solid and consistent before trading any real money, putting on these quick-fire trades can also result in more losses than you may see on a longer-term trading account, but that is a part of scalping, if you cannot handle them, you should not be attempting it.

Strategies

There are a number of different strategies for scalping, some are following trends, some are looking for breakouts, there are plenty of them out there. You need to get one that suits your own style and preferences. If you like trends, there is no point in trying to trade breakouts and vice versa. Finding the strategy along with the indicators that suit your own style is vital, no one has funt reading someone else’s’ strategy.

So those are a few of the considerations to take on board before you start scalping, there is no doubt that it can be profitable. In fact, it can be very profitable and satisfying as the trades are ina nd out quickly, but it takes a lot of practice and if the risk management in place is not solid and consistent, it can also be very expensive.

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Beginners Forex Education Forex Trade Types

Trader’s Guide to MACD Swing Trading

It is common knowledge that traders rely on indicators to trade in the fiat market and the fact that they are so widely used nowadays also goes along with the number of types and varieties of indicators traders have at their disposal. Among thousands of available options, some seem to have caught the attention of […]

It is common knowledge that traders rely on indicators to trade in the fiat market and the fact that they are so widely used nowadays also goes along with the number of types and varieties of indicators traders have at their disposal. Among thousands of available options, some seem to have caught the attention of […]

It is common knowledge that traders rely on indicators to trade in the fiat market and the fact that they are so widely used nowadays also goes along with the number of types and varieties of indicators traders have at their disposal. Among thousands of available options, some seem to have caught the attention of quite a few traders, and today we are going to dive into the topic of Moving Average Convergence/Divergence indicator, or MACD in short, which is a very common tool that forex traders use to follow trends, and learn the secret to earning a secure profit.

Generally praised for its diverse functions, this indicator may easily enchant you with what it offers. Nonetheless, as the existence of MACD’s different versions is often concealed, further obscured by the craze for its alleged abilities documented by various sources, we need to be careful not to get confused. This may, in fact, as well serve as good grounds for finally differentiating between quality and quantity, despite the indicator’s worldwide popularity. If we compare it to another tool we all know of, such as the Swiss army knife, we can immediately come to the conclusion that the bigger is not always the better. The parts that make this multi-tool simply do not reflect any fine quality and, what is more, they frequently fail to achieve their intended purpose, which in this case is to cut, open bottles, and file nails, among others. Compared to other single-purpose tools that efficiently and effectively fulfill these intentions, we cannot but recognize the correlations with the MACD indicator.

If you are wondering whether there is anything positive about this indicator, the answer is yes. As a matter of fact, although not all of its functions appear to serve a greater cause in this line of business, one of them is said to have rendered such a vast number of pips and provided many lucrative trades to various professional traders. However, before determining its most valuable sides, let us first propose a definition and classify it in terms of indicator types: MACD is essentially a two-line indicator based on the principle that once one line crosses the other, traders get the information to go either short or long. This tool is also known for its zero line, which sends out an important signal when the other lines cross over. Most people tend to use it because they can do reversals, which is unfortunately a major stumbling block in building one’s account as well as the opposite of using this indicator’s full potential. On the bright side, MACD also lets its users follow trends, helping traders to see which direction a trend will take. Regardless of this unique trait where both trend trading and reversal trading are made possible, there are still a few more questions requiring additional analysis.

One of the gray areas when it comes to using MACD certainly involves the question of whether this indicator uses a simple moving average (SMA) or an exponential moving average (EMA) for determining lines. Aside from the fact is that both of the two variations exist, traders can also use MT4’s MACD version presented in the image below, which a number of traders criticize for its impractical appearance. Again, traders across the world may have very distinct ideas of how this indicator looks like precisely because there are so many different variations out there. Considering the fact that MACD was initially developed in the 1970s for the purpose of trading stocks, this indicator’s original version cannot fully support the needs of the forex market. Nevertheless, some of the more recent variations were developed specifically for trading currencies, and, in the end, it is the traders’ choice which version they are going to use, be it is an SMA or an EMA one.

Another of the commonly asked questions revolves around histogram (the white vertical lines in the image below) that some professional traders consider as not very functional and useful. Although some traders may certainly make good use of it, histogram actually serves to indicate that the zero line has been crossed when it moves from the positive to the negative, something anyone can see by focusing on the place where the blue line crosses the red one (compare the yellow and the light blue rectangle in the following image). With the ability to remove histograms in some versions, it still does not seem to be the main reason why most traders use this indicator.

As we mentioned before, the preference of those using this indicator is to trade reversals rather than trends, which should not be your goal in trading currencies at all. Despite MACD’s ability to signal some very good trends when the zero line is crossed, we are safe to say that there may be some other apt indicators with the ability to provide equally, if not more, useful information. It is precisely the option to display both the two-line cross and the zero-line cross at the same time that traders should be interested in while searching for the right indicator. Bearing in mind the fact that there are quite a few of such tools similar to MACD, you should strive to find the one you would like to use because it will offer highly accurate signals and thus help you achieve substantial results.

If you look at the image below, you will see the AUD/USD daily chart using the same indicator. However, instead of focusing on the several spots where the red and blue lines cross each other as many traders do, you should actually focus on all the places where the two lines are either above or below the zero line, closely watching that both lines ore on the same side. This is important because, to get the maximum result, you will want to look for some specific information: as, for example, the two lines below the zero line indicate a downtrend, you will be looking for the place where the two lines cross again going downward. If the two lines are above the zero line, you will be naturally looking for the up signals. This approach implies that traders are not calling reversals, but following trends, and what your next step should be is to assess at which point in the chart you can earn the greatest number of pips (with the 100-pip range as your goal), making sure that you pay attention to all the places where the two lines are found on the opposite sides of the zero line.

While MACD can certainly offer this information where you can open continuation trades following the existing trend, you may be better off with some other indicator that can provide the same information. The main rule to follow with any such indicator is to have both lines above zero to be able to go long, ensuring that they have not crossed down at any point, with the opposite being true if you desire to go short. What this does is grants traders the luxury of actually following the existing trending, without the hustle of calling reversals and hoping to get a win somewhere down the line. This tool along with this piece of advice is what helped a number of professional traders become successful because this way you have a real chance to earn a profit. Finally, if you discover an indicator that comes close to your needs and preferences, you can always adjust the settings, rather than use the MACD indicator, and start making some of your biggest trades.

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Beginners Forex Education Forex Trade Types

Swing Trading: Pros and Cons

Swing trading is a type of trading style that involves opening a position and leaving it open for days or weeks so that profits can accumulate. This style is essentially the opposite of day trading, where traders open multiple positions per day and close them before the end of the trading day. Swing trading is […]

Swing trading is a type of trading style that involves opening a position and leaving it open for days or weeks so that profits can accumulate. This style is essentially the opposite of day trading, where traders open multiple positions per day and close them before the end of the trading day. Swing trading is […]

Swing trading is a type of trading style that involves opening a position and leaving it open for days or weeks so that profits can accumulate. This style is essentially the opposite of day trading, where traders open multiple positions per day and close them before the end of the trading day. Swing trading is seen as one of the most popular trading styles and has unique benefits and a few disadvantages that traders should consider. We’ll start with the positives:

PROS

Swing trading does not require your constant attention and allows traders to have a lot more free time than day trading. Once you’ve opened your position, you won’t have to constantly monitor the market. It’s even possible to work a full-time job if you choose this strategy and you aren’t as likely to suffer from burnout as you are with a more time-consuming trading style.

The holding period for trades is longer, meaning that less time is spent searching for trades to enter.

Returns for this type of trading style are usually around 5% – 10%, as long as you are using a good strategy and are fairly knowledgeable about trading.

CONS

Swing trading is risky and can lead to large losses if the market goes against you. If your trade is made in the opposite direction and the market opens with gaps up or gaps down, it can lead you to lose a lot, and even stop losses don’t protect against this problem.

Most brokers charge fees for holding positions overnight and this can really get expensive if you have multiple positions open for days or weeks. Triple swaps are another problem, as they are often charged on Wednesdays to account for the upcoming weekend.

You need to invest a lot of time into learning about the market, especially surrounding technical analysis. You’ll need to be able to read charts, use technical indicators, and so on. Of course, you need a good knowledge of the market in general, but this is still worth pointing out.

The Bottom Line

The pros and cons of swing trading seem to even out, although there’s a lot to consider before you take up this trading style. You need to spend a lot of time learning about the market for starters, and you’ll need a good understanding of technical analysis and need to know how to read charts and use indicators. The bright side is that this style can provide good returns and it doesn’t require you to be glued to your computer screen all hours of the day, so burnout from boredom is less likely. On the downside, losses will occur and can be large if the market goes against you. You’ll also need to pay attention to how much your broker charges for holding positions overnight and when/if triple swaps are charged.

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Beginners Forex Education Forex Trade Types

Reversal Trading vs. Trend Trading: A Different View

While reversals are deemed to be extremely useful in some other forms of trading, some successful forex traders go as far as to say that they could prevent you from becoming a professional in this market. Whether you have vast experience dealing with fiat or you have yet to get to that level in your […]

While reversals are deemed to be extremely useful in some other forms of trading, some successful forex traders go as far as to say that they could prevent you from becoming a professional in this market. Whether you have vast experience dealing with fiat or you have yet to get to that level in your […]

While reversals are deemed to be extremely useful in some other forms of trading, some successful forex traders go as far as to say that they could prevent you from becoming a professional in this market. Whether you have vast experience dealing with fiat or you have yet to get to that level in your trading, you probably understand how crucial having a stable foundation for your trading career is. On one of the key topics for thinking and development in this respect includes the question of what forex is essentially about – reversals or trends. Even if you feel that you already know the answer, you may find some new perspectives and information in today’s discussion, which can help you become a better trader earning a greater profit more quickly. There are essentially two ways to do trade with one being easy and the other one difficult, and today you can learn why this topic is believed to be so vitally important for everyone wishing to reach the pro level.

A number of individuals trying their luck in this market believe that trading reveals is the right approach to discovering lucrative opportunities. Nevertheless, the answer to the question of whether you should be doing reversal trading or trend trading is considered to be the exact opposite of what the majority of forex traders generally do. Most traders, who are either at the beginning of their trading careers or moving from another market to forex, typically rely on the buy low, sell high method, placing their focus on tops and bottoms. This tactic may have even lead to some profitable investments, making you feel that you are on the right track.

Naturally, the odds of choosing the bottom in this thriving market are stacked against anyone attempting to grow their trading strategy based on this approach, which is why, despite some beginner’s luck, it can be severely detrimental to traders from the long-term standpoint. What this essentially means is that one lucky win can instill flawed thinking which can make you put all your eggs in one very unstable basket, waiting on that second win like a slot-machine player hopes for the next winning combination. This can inevitably make you lose focus of your trading account, which can ultimately lead to three most probable scenarios – you can either reach your break-even point, barely earn some profit, or most likely experience a complete downfall at the end of the year.

The reason why so many traders seem to fail at forex trading often lies in the fact that they misinterpret currencies as stocks, commodities, or equities that, unlike fiat currencies, actually have real values. When you think of stocks, you naturally think of assets, balance sheets, and products, which all play a part in determining a stock’s price. Due to a large amount of downright inaccurate and misleading information, terms such as overbought and oversold are frequently incorporated in trading in the forex market while, in reality, they have little to do with currencies. Currencies are simply not affected by the factors which may be relevant for other markets as they are directly influenced by the big banks, which can alter the price whenever and however they want.

The greatest actors, which are nowadays considered to be Citibank, Deutsche Bank, Chase Bank, and HSBC, have the ability to control and move the prices up and down, which only supports the statements provided above. Even with big news events, it is always the big banks that have a final say on the direction and time of every price change, further highlighting the insignificance of individual impact. Interestingly enough, if we look at the comparison between the stock and the spot markets, we can conclude that a large money influx will always determine where the stock prices will go, while the opposite is true for currencies. The big banks have a vast array of information at their disposal, which helps them assess where the money is concentrated and how it should be directed. More often than not, to act in their best interest, these major players decide to take the price the opposite way. What this implies is that the money they take is redistributed into the market, which is essentially how prices go up and down in this market.

While reversal trading is not what most professional traders would recommend doing, it is what allows big banks to manipulate the prices. In reality, whenever there is a currency pair that has been trending down long, it naturally implies that quite a few reversal traders never ceased trying to call reversals all the way down. Interestingly enough, the reversals will not occur until the moment every reversal trader decides to stop. To put theory into practice, we are going to use an example of the USD/JPY pair which really happened a few years ago.

As you can see from the image above, this currency pair experienced quite a long downtrend only to go right back up, which only happened because the money kept going in the opposite direction. The traders in this case would not stop picking the bottoms, which basically left room for banks to keep bringing the price down. To provide additional proof for this statement, we are going to use the sentiment indication available at dailyfx.com, which can help us see the balance of short and long positions of all the traders for the particular asset.

The blue line in the chart stands for all (reversal) traders, whereas the price exemplifies where the money went in reality. As the task the big banks have is to grasp where the money is headed and whether those positions are long or short on any currency pair, we can see at the very onset of this chart how the traders tried to go long when the banks recognized this tendency and decided to go short. However this did not stop traders from attempting to do reversals and they kept going long, and the discrepancy between these traders’ activity and the money’s actual direction is clearly demonstrated by the divergence of the two lines in the chart above. Going further along the chart, we can see how these price whipsaws all the way, which only proves how banks carefully follow each step traders take and do exactly the opposite.

Reversal traders are always on the loss because their money is constantly exploited due to their lack of knowledge or understanding of how trends function. There will always be a vast number of individuals trying to pick tops and bottoms who will actually help the banks secure themselves better. Of course, they will be allowed to have their single occasional wins so as to keep investing more, but these traders will always be losing more and more money because this approach is simply not sustainable and it does not benefit anyone but the big banks. You may try to rely on some indicators, such as Stochastics, RSI, Bollinger Bands, or CCI, hoping that this will help you win the game.

Unfortunately, you will find that even the best reversal tools available at the moment will only do you a disservice as the house always wins. Therefore, in order to make consistent money, you should invest in understanding trends and learning how to interpret market activity. By relying on trends, not reversals, you can actually secure a much more stable profit and save yourself from being another pawn in the big banks’ game, which should altogether be the best motivation for anyone wishing to trade in the forex market.

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Forex Trade Types

Guide to FX Swing Trading Scaling Management

Regardless of what they trade, be it gold, corn, stocks, or forex, all winning traders share one key skill that sets them apart from all the other people testing their luck in their respective markets – the most successful individuals always take a portion of their profit off at some point in each winning trade. […]

Regardless of what they trade, be it gold, corn, stocks, or forex, all winning traders share one key skill that sets them apart from all the other people testing their luck in their respective markets – the most successful individuals always take a portion of their profit off at some point in each winning trade. […]

Regardless of what they trade, be it gold, corn, stocks, or forex, all winning traders share one key skill that sets them apart from all the other people testing their luck in their respective markets – the most successful individuals always take a portion of their profit off at some point in each winning trade. Termed scaling out, such a maneuver is a distinctive feature of all major players who have figured out their priorities, unlike the majority of participants in the market. As a strategy that each forex trader needs to adopt if they desire success and profit, scaling out can truly be perceived as the crossroads that separates two very different futures for each trader entering the market.

Naturally, if you are a beginner, you should first learn about several other topics which will help you understand forex trading better, notably ATR (which is one of the best indicators that can help traders with money management), risk management (which is a prerequisite for scaling out), and ratios (which will prevent you from falling for the same trap as everyone else). What is more, as a beginner, you should strive to look for real examples of people trading, where they explicitly describe each step of the way and test all methods and strategies yourself in a demo trade. Learning how to scale out is therefore a natural next step after learning how to calculate your risk and it is a level-up topic that requires a certain amount of effort on your behalf to adopt knowledge and information about forex beforehand. Due to the fact that scaling out is such a crucial step in developing one’s account and trader portfolio, we are going to discuss why and how you should incorporate this strategy in your trading. Note this guide is specific to technical swing trading strategies applied to the daily timeframe, but it can be applied to similar trading concepts.

The number one reason why anyone should consciously decide to scale out concerns the psychology of trading, which is distinctly different from betting or casino mindset. In fact, you can read quite a few stories about successful traders who had to learn the hard way what they should and should not do. One story even talks about a trader who experienced a lot of luck in the first trade to the extent that this led to some unrealistic expectations and, almost immediately, failure. Deciding not to learn how to scale out is what a blackjack player does when investing $100 to get $1000 only to lose it all at the end of the night. A similar phenomenon was noticeable in the crypto market not long ago, when a great number of traders were so captivated by the market’s tendency to grow that they did not take any profit off, believing that they can earn more profit this may. They failed to grasp the fact that they would still earn quite a big amount of money, pay off their mortgages, buy cars, and have a really great life even if they had reduced the initial amount they had invested. This story exemplifies the mindset of the majority where individuals always exhibit a hunger for more wealth without taking anything off the table.

These people do not understand that any system, regardless of how successful and functioning it may seem at a particular moment, can collapse in no time. Greediness is emotional and the forex trading market leaves no room for emotions and reckless reactions. The trader from the above-mentioned story believed that buying and holding forever is the best strategy, which is, however, a lesson that such traders have to pay a high price for sooner or later. Forex trading requires a calculated and precise approach that is not governed by emotions, and never getting satisfied by the level of your achievement is the exact opposite of the attitude this market can support. If a trader just keeps expecting more, they are inevitably waiting for the price to go down and one’s unwillingness to accept the state of the matter is no different from losing all your money at a poker table.

Withdrawing a certain amount of profit is the safest approach which entails that you have previously set your stop loss. What many traders fail to include here is the necessity to define their win limits as well. Every trader should know when and how to take a portion of their profit and knowing your limits can help you do this effectively. Therefore, you should consistently decide to take half of your profit at a particular point in your trade and run until your exit indicator or your trailing stop tells you otherwise. Any different approach would just make you a statistic or one of many who thought they could outsmart the system. Moreover, if you expect a price to jump from $0,02 to $25, you should know that this an unrealistic expectation and, as some traders have been waiting for this dream to come true for several decades, you may want to give yourself the freedom to learn faster. Funnily enough, even if such a scenario played out, you would probably have to lose so much down the road that no win could ever compensate for the extent of the financial disaster you put yourself through. While the rose-colored glasses cannot get you far, professional traders around the world can.

Since no expert trader enters or exits a trade without scaling out, we should really focus on what has proved to be successful in forex trading and start applying these first in a demo and then in real trades too. To make use of most tips and tools pertaining to scaling out, you are going to need to get acquainted with the ATR indicator, which has become an essential part of most expert’s algorithms. In addition to its multifaceted nature, this indicator helps traders achieve the same results as with the complex method when the ATR is used as the point of taking off half of the trade for each and every currency pair. Nevertheless, to get to this point, each trader needs to already be aware of several other key concepts and strategies.

If you are wondering how to enter a trade, you must know that you should first determine your risk or how much profit are you willing to lose before deciding to exit. This step also includes the question of how much money per pip you are actually putting at risk and ATR can be of great assistance here. Unfortunately, not all brokers automatically scale out at a certain point, so you should know how to use the numbers and information you came by without missing the price hitting your specific mark just because you are sleeping. If ATR is 80 pips, you may want half of your trade off the table at this point, but despite how successful a trade is, if you are away for any reason, any winning trade can go right back down. Since professional trading implies getting most of the winning trades, how can we bypass this annoying step? The key to resolving this issue is (for MT4 platform) in entering two half trades with one closing automatically owing to the take-profit point and the other still running. Therefore, after you enter the two trades, you will immediately insert your stop losses and put in your ATR value as your take profit, on one of them. This strategy will help you preserve half of your trade regardless of the circumstances, while the other one can run as long as necessary.

To see how this approach functions in real trading, you can look at the NZD/CHF dally chart below, which shows the ATR of 60 pips. Based on this value, we can immediately know that the stop-loss point is going to be at 90 pips (1.5xATR) whereas the take-profit point is going to be at 60. The next step would be to calculate the amount of risk, which is generally advised not to exceed 2% of traders’ entire trading accounts on each trade, and to see how much per pip we are in fact risking. The amount per pip, in this case, would be $11.60, which would equal $5.80 once split into two trades. At this point, you should insert all of the necessary information (please see the second image below) and ether your two trades. The only thing a trader should do now is to wait and avoid checking up the trades so as not to make any unnecessary move based on some emotion, e.g. impulsively exiting a trade too soon. By following these steps, you will secure yourself so that some minor losses do not impact you in the long run.

While the beginning of every trade is of vital importance, you should take several other actions the moment the price hits your take-profit level. Primarily, you should move your stop loss (90 in the example) to your break-even or, in other words, to the level you entered in the currency pair in the first place. Once the price has hit the take profit, you can rest assured that the trade in question is a winner and you cannot lose it any longer. The only question here is how much you can benefit from that particular trade. At this point, you should make use of some other tools, such as Heiken Ashi, exit indicators, and trailing stops, among others, to assist with your trade. These tools can be of great help with your second trade for as long as it runs, especially since knowing when to exit is one of the crucial elements of professional trading. No matter how well we use any tool, the time is the sole factor you should consider at this point and the only one which can grant you whether your trade will be a big win or a minor one.

In the stock market, for example, a 10—11% return is considered to be a really good result because it mirrors the stock market average. Should you be able to increase this percentage in time, you will become one of the few elite traders who are able to successfully manage hundreds of thousands to get such returns. If you are considering a specific benchmark to hit, this may as well be a great reference because these trading skills are not only ever-lasting but also in high demand. Warren Buffett for example, one of the most prominent figures on the investment scene in America, makes a 20% return per year and he surely has not achieved such success without continuously using an elaborate approach to trading and knowing how to allocate his funds effectively.

Scaling out, as we can see, is no longer optional once you decide to be good at forex trading or trading in general. You do, however, need to commit yourself to follow this system religiously, without feeling compelled to constantly micromanage your trades. Even if you encounter an unfavorable period or take a loss at some point in your trade, be patient and refrain from reacting impulsively because your stable and consistent approach to trading will even out any transient imbalance in the end. Accompanied by money management skills, scaling out is the one way you can avoid the blackjack scenario and be smart about your finances. The ability to take in all these pieces of information and apply them in a diligent and disciplined manner will only further support the development of a healthy trading mindset.

Learn how to estimate risk and make sure that all your trades are winning in a certain capacity. Rely on ATR in every step of the way and incorporate some additional tools to improve your trading skills whenever possible. If you have already taken the advice, done all necessary calculations, and enter the two trades, it is time to let go, relax, and allow time to run its course. Although this may seem like a great quantity of data, understand that after a while you will be able to make all assessments and enter a trade in as little as 15 minutes. However, whatever you do, never forget to scale out and persistently envision what your final goal in this entire endeavor is.

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Forex Assets Forex Trade Types

Trend Trading With Exotic and Volatile Pairs

Is there really anything to fear when trading exotic currencies and volatile pairs? People tend to approach exotic currencies and volatile currency pairs with a kind of irrational, knee-jerk reaction. They’re either revolted and back away or they’re mysteriously drawn in like a moth circling a porch light. Is this irrationality merited? Does it get […]

Is there really anything to fear when trading exotic currencies and volatile pairs? People tend to approach exotic currencies and volatile currency pairs with a kind of irrational, knee-jerk reaction. They’re either revolted and back away or they’re mysteriously drawn in like a moth circling a porch light. Is this irrationality merited? Does it get […]

Is there really anything to fear when trading exotic currencies and volatile pairs?

People tend to approach exotic currencies and volatile currency pairs with a kind of irrational, knee-jerk reaction. They’re either revolted and back away or they’re mysteriously drawn in like a moth circling a porch light. Is this irrationality merited? Does it get you anywhere? Let’s take a look. To unpack this properly, it’s best to approach these two ‘monsters’ separately – starting with exotic currencies.

Exotic Currency Pairs

So, is it worth trading exotic currency pairs? To the untrained observer, it might look like the short answer is simply ‘no, it isn’t worth it’. But this answer has to come with a disclaimer because, in reality, it depends on two other things. First thing’s first, what do we mean when we say “exotic currency? The problem is that one man’s exotic currency is another man’s daily bread. Ask any two traders what their definition of an exotic currency is and you’ll likely get two different answers because there is no actual definition that everybody sticks to. Some people will quite happily identify a less commonly traded combination of the eight major currencies as being exotic.

Take, for example, the euro-AUD combination. It’s easy to understand why they would think of that as exotic since the EUR-AUD pair is traded very rarely indeed compared to just about any pairing with the dollar that you can think of. Even if you pair the dollar with come currencies outside the major eight, like the Swedish krona or the Mexican peso, you will have a combination that is more frequently traded than euro vs. the Aussie dollar.

A better working definition – and one which we’re going to go with here – might be to say that any combination outside the eight major currencies should be considered exotic. And here’s why. The eight major currencies are all part of a network of developed, first-world economies. This isn’t a judgment call, by the way. We’re not saying here that any one country is better than another – what we’re looking for here is stability in terms of the news cycle and unpredictable fluctuations. The fact of the matter is that if you trade outside the major eight currencies, you run a greater risk of an anomalous news event sending the price spinning off in an unpredictable direction and blowing out your stop/loss.

That is simply bad news if you are a good technical trader. To be clear, it’s actually bad for any forex trader. When you step outside of the major eight currencies, it becomes increasingly difficult to keep on top of the news cycle. Of course, unusual news events are going to pop up from time to time no matter what currency combinations you trade but as you move outside the major eight, they will be both more frequent and more violent.

That is not to say that there isn’t something tempting about trading exotic currencies. Many readers will know that when you take a look at exotic pairs, it can look very exciting. This applies even to the currencies that you will most commonly encounter outside the eight major currencies. These include the Chinese yuan, of course, the Mexican peso, the Swedish krona, the Turkish lira, the Russian rouble, and the Indian rupee. Sometimes a pair with one of these can move thousands of pips at a time. It’s easy to look at a movement like that and say to yourself, “If I could just enter one big trade here for a few thousand pips, I could walk away rich!”

Unfortunately, that’s not how it works. It’s easy to get drawn into easy-looking trades like that but the problem – and it’s a big problem – is that some of these currencies can move very dramatically and with no warning and for no clear reason. A big win can be truly tempting but a big loss has the potential to completely wipe you out. The Chinese yuan is interesting here for a couple of reasons. There is no denying that it is traded against the dollar much more than it used to be. However, while we’re still in the US-China trade war, it is best to steer clear of trading the Chinese yuan. The ongoing trade war introduces too much risk into the equation.

How Does One Approach Trading Exotic Currencies?

Firstly, you should venture beyond the eight major currencies and all of the combinations of them only if you have a sufficient amount of experience. In short, there is not a whole lot of benefit to expanding beyond the 28 currency pairs that the eight major currencies offer unless you have completely mastered these first. If you have only been trading for a couple of years or less even, then you are not ready but, if you have a lot of experience under your belt, then venture a little further by all means. But proceed with caution.

Caution being the watchword here, because another thing you will have to do before you do try your hand at trading exotic currency pairs, is a little risk mitigation. One of the ways you can do this is to select a currency outside the major eight that you feel good about exploring and start testing it on demo mode. Your first step is to backtest it by applying your trading methodologies to it historically. Your next step is to forward test it by demoing it for a few months until you have built up both a good sense of how it behaves – especially in terms of its spread vs. ATR. Forward testing is a good way to iron out the kinks in your risk profile and to minimise any surprises that could crop up.

Where to Begin?

If you are determined to expand beyond trading the eight major currencies and feel ready to do so, your first task will be to identify a good currency to get started with. A good place to start might be the Singapore dollar. There are a few reasons that make SGD a good choice. For starters, in many ways, it behaves in a way that’s similar to the Japanese yen, at least for now. It is less volatile than the Japanese yen but we’ll touch upon volatility later in the article and you’ll see that it isn’t a big problem. As with the yen, the main advantage of SGD is that it is impervious to news events that relate specifically to it.

This means that it essentially acts as a kind of blank canvas for the currency you are pairing it with. In a sense, this releases you from having to worry about two currencies simultaneously and allows you to focus your attention on just one. This is as true for the Japanese yen as it is for SGD. Of course, this is how things are at the moment and how they have been historically. If Singapore were to be plunged into any kind of turmoil, this would change but, for now, it is surprisingly stable. News events just do not affect it at all.

A Note of Caution

The only real alarm bell regarding the Singapore dollar is that it has a high percentage of spread as compared with its ATR. It is, in fact, likely to have a more lopsided spread vs. ATR percentage than most other currencies you will be trading or even looking at right now. However, as we will cover later in this article, that does not necessarily have to be a problem. Particularly if you do your due diligence and backtest and forward test the currency as discussed. So, don’t let the spread vs. ATR percentages scare you off immediately and take a look at the Singapore dollar if you are keen on exploring exotic currencies.

Managing Volatility

Another one of those things that in many cases gives traders the heebie-jeebies, is trading volatile pairs. Fear is almost certainly a big factor. It’s almost as though it’s the word itself – volatility – that causes a lot of that fear. The good news is that that fear is irrational and can be managed and molded into something useful.

Speed-Phobia

Aside from the word volatility sounding scary, there are two main reasons that traders have an aversion to trading volatile pairs. We will tackle both of them here in turn. The first is that volatile pairs of currencies move fast. They move faster than currency combinations you are comfortable with and that, it seems, makes a lot of people back away. The thing is, there is no real reason it should. Understanding the percentages here and using them to your advantage is key. It sounds easy enough, doesn’t it? The thing is, if you understand the percentages then you will understand that trading a currency combination that moves slowly is exactly the same as trading one that moves quickly.

The key is risk profiling. If you are trading a fast pair, you will have to manage the risk by trading less per pip than you would on a slow pair. If you can manage the risk in that way, you should arrive at a situation where you stand to lose the same on a fast pair as you would on a slow pair, if things go south on you and you hit your stop/loss. Of course, you should never trade the same amount per pip on a slow pair of currencies and a fast pair – if you do, your trading problems are bigger than just accounting for volatility. So, to close down the risk of trading a faster pair of currencies, you have to have a good, well-thought-out risk profile in place. If you can do that, then trading fast-moving currencies should be almost the same as trading slower combinations.

Fear of Spreads

The second thing about volatile currencies that gives most traders pause is something we saw earlier with the Singapore dollar. Volatile currencies will have a high spread vs. ATR ratio. The way to combat that is to pull away from your five-minute chart and trade on a longer time-scale like your daily chart. Trading on a daily chart will negate almost all of the effects of spread vs. ATR from volatile currency pairs. If you trade the daily chart, particularly for volatile combinations, you just won’t have to worry about spreads anymore. You will never again look at a currency pair and decide not to trade it because it looks too volatile based on its spread vs. ATR. If you’re looking at it from a five-minute chart perspective, then the high spread vs. low ATR is certainly something you will want to avoid. But don’t forget that it is a hurdle that can be overcome with a different approach. That approach is to go to trade your daily chart.

So by applying the right kind of risk profiling and modifying your trading to take in the daily chart, you can turn the fear of volatile currency pairs into gold. And it won’t be because you overcame your fears like some zen master, through meditation and self-improvement, it will be because you’ve applied smart trading techniques and knowledge to overcome something that was otherwise irrational with a well-considered, methodological approach to a problem.

Time to Recap

Approach exotic currencies with a dose of caution. Make sure you have the experience to know what you are doing and do not trade outside the eight major currencies until you know the risks that go with exotic currency pairs and the knowhow to overcome them. Carefully choose your starting currency and make sure you do your due diligence by properly back and forward testing it thoroughly. Ultimately, if you’ve only been trading for a couple of years, there is no good reason to trade outside the major eight currencies.

Finally, there is no reason to fear volatility. If you approach what initially looks scary with a rational, considered approach, including careful risk profiling and an awareness of when to trade the daily chart, you never need fear volatility ever again.

Categories
Forex Trade Types

What Makes Contracts for Difference (CFD) Trading So Amazing?

Have you considered trading with other markets? There has never been a time quite like this one before where moving on to other markets, such as metals and oil, was more possible and with so much potential to bring you profit. Trading has always been a universal concept. Pre-historic people bartered a variety of goods […]

Have you considered trading with other markets? There has never been a time quite like this one before where moving on to other markets, such as metals and oil, was more possible and with so much potential to bring you profit. Trading has always been a universal concept. Pre-historic people bartered a variety of goods […]

Have you considered trading with other markets? There has never been a time quite like this one before where moving on to other markets, such as metals and oil, was more possible and with so much potential to bring you profit.

Trading has always been a universal concept. Pre-historic people bartered a variety of goods and services, which was a natural modern-day currency predecessor. As the times change, and they change fast, even as close as three decades ago people did not have the same information and tools at their disposal as we do now.

A relatively recent history of trade tells us how substantial quantities of money were required for anyone who desired to trade anything. People used to face quite limiting market rules and, as a result, the talent itself could not be an asset strong enough to even get you to start off in this line of business. Probably due to these past struggles, present-day men or women may be struggling with fears concerning this topic. People probably have an opinion that tens of thousands of dollars are necessary for anyone to start trading on the stock market.

Individuals who happen to have quantities of money necessary to trade more than one stock are, from the perspective of a forex trader, very likely to face severe limitations pursuant to this type of business – from orders which did not get filled to capital gains taxes. Nowadays, most of the issues related to stock trade are not applicable any longer. We are, in fact, witnessing a great momentum where we can do trade without a lot of money. This is not a suggestion to pursue trading without sufficient financial security, but it is an indication that we have the opportunity to experience an unforeseen variety of possibilities in trade.

Owing to CFDs, contracts for difference, we can now trade anything, from sock to indices. Although created a few decades ago, Australians were the first to use it in exchange, first offering it in 2007. CFDs help traders trade prices, not the actual stocks or commodities for example. A person who does not own stock in a company, but is trading its price, is actually earning a profit if the price goes their way and vice versa. Owning alone can be dangerous because if the prices go down, it is questionable whether anyone would be interested in buying a falling stock.

Forex traders, unlike stock traders, always get their orders filled whenever they want due to two reasons. The number one reason is liquidity – there will always be someone to hold the fort. An ECN broker or a dealing desk broker for example will take the other side of the trade. CFDs behave in the same way, taking the other side of the trade.

Now unlike ECN brokers, dealing desk brokers are required to take the other side of all orders, regardless of how successful a trader is. This an amazing opportunity because it implies that your order will be filled each time and that your stop-loss and take-profit points will be honored, wherever you put them. Today, luckily, people need only click one button and insert their numbers to be in a short trade that easily.

While the previously mentioned facts hold, some rare market phenomena (flash crash, large gaps, etc.) might not apply. However, in everyday circumstances, you should not be worrying over the question of whether your order will be accepted or not. The fact that you can short everything easily opens many possibilities. If you are a longer-term trader, for example, and the market goes into recession, which naturally occurs from time to time, you may choose not to do many long trades, which was completely impossible before. In such situations, people really could not short an entire index before or, even if it was possible, it used to be a strenuous process.

Approximately 11 years ago, when the U.S. market went into recession, people had little knowledge of this possibility and very few brokers had any CFDs to offer. Nowadays, this kind of knowledge can be extremely useful in times of recession. Holding precious metals is a perfect example – making a profit during a recession without having to hold great quantities of precious metal is now possible. The only thing you have to do here is to write a stock down or write an entire index down.

There are, however, a few things a trader should be cautious about. There is always a greater power making large financial decisions that impact entire markets. In 2008, only a handful of individuals knew that the market would crash, which was even documents in a movie called Big Short. Even from the perspective of history, recessions have always helped the wealthiest individuals acquire even more. The information concerning the onset of such big changes, and even their direction, is always in the hands of the lucky few decision-makers. Therefore, when everyone is vocal about the necessity to go long on the stock market, that may be the time to do exactly the opposite. In 2008, after everyone was insistent on going long, the market crashed, which should now serve as an invaluable lesson.

Nowadays, luckily, there is a massive quantity of materials online which can help you educate yourself on various topics, especially finance. Social media has made information and knowledge accessible to the extent that we have the opportunity to hear financial statistics and forecasts unlike ever before. With a great number of individuals making podcasts on the probability of the market crashing, listing the numerous reasons supporting their viewpoints, people now understand red flags and truly comprehend the circumstances revolving around the previous recessions. Although financial networks are trying to hide the facts and stop the information from spreading, people have now learned how to recognize warning signs and explain such trends at present.

As opposed to the times of previous recessions, traders are now equipped with important tools such as CFDs. When a recession does happen, this is what will help many people emerge as winners. Until today, there have been quite a few false alarms, pushing people to take actions too soon. Nevertheless, we know now that each one of us has the ability to do something despite the direction the market is heading to. What is more, we can trade on every trading day, an all of this is possible owing to CFDs.

While contacts for difference may not be accessible from all places on this planet, there is a way to go around present limitations. We may not know when the next recession is going to strike, but CFDs are going to be our greatest ally when it does, allowing everyone to have an advantage regardless of the financial status.

If you have a computer or a laptop, you still have the chance to succeed at this. Grow your skills and knowledge and you may come across someone who will find your expertise in trading oil, or anything else, invaluable. There is such an abundance of options nowadays. We can enjoy ways and possibilities in trading which generations before couldn’t, and despite any circumstances become professionals trading large sums of money.