Category: Forex Education

This section holds our Forex Educational library: Our trading library consists of a collection of the most excellent educational articles written by our top market experts. It is primarily focused on those subscribers who aim at initiating or consolidating a professional trading career; that is, for people who take trading seriously. It is our mission to continually enrich our library over time, as well to cover all sorts of useful topics, from foundational to the most advanced ones. We have separate sections for Advanced Forex Education, beginners Forex Education, A daily Forex Topic and a Complete Forex Course.

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Forex Basics

Is Forex Trading Legal in India?

When it comes to forex trading rules and regulations, things can get confusing for traders located in certain countries. Residents of the United States, North Korea, Sudan, and other specific locations often have trouble deciphering whether trading is actually legal in their country, and finding a trading account can be difficult at best for some […]

When it comes to forex trading rules and regulations, things can get confusing for traders located in certain countries. Residents of the United States, North Korea, Sudan, and other specific locations often have trouble deciphering whether trading is actually legal in their country, and finding a trading account can be difficult at best for some […]

When it comes to forex trading rules and regulations, things can get confusing for traders located in certain countries. Residents of the United States, North Korea, Sudan, and other specific locations often have trouble deciphering whether trading is actually legal in their country, and finding a trading account can be difficult at best for some of these traders. For United States traders, this is because trading is legal but there are stricter rules on regulation, meaning that there are fewer brokers to choose from and some brokers won’t give straight answers when asked whether US-based traders are allowed. 

Traders in India also face their own problems when it comes to opening a trading account because of several restrictions that are placed on them. The good news is that trading is legal in India, but you’ll want to keep reading to find out exactly what restrictions are enforced on Indian traders so that you can ensure you’re in compliance with laws and regulations. 

Indian traders are legally allowed to trade forex through certain Indian brokerages via these Indian exchanges:

  • BSE
  • NSE
  • MCX-SX

Note that Indian residents are not allowed to open accounts through International brokerages. You might find an option that allows you to choose India as your country, but be wary. Unregistered brokers sometimes allow traders to open accounts from certain locations, even though it isn’t legal.  

The government also places restrictions on which currency pairs can be traded in India. Traditionally, residents were only allowed to trade cross-pairs that included the Indian Rupee, but three major currency pairs that don’t involve the Rupee were added back in 2015. This is the list of currencies that are supported:

  • USD/EUR
  • USD/JPY
  • USD/GBP
  • USD/INR
  • GBP/INR
  • EUR/INR
  • JPY/INR

Although the list is somewhat short, this doesn’t mean that Indian residents can’t benefit from trading, especially when it comes to the highly liquid pairs USD/EUR, USD/JPY, and USD/GBP. The Reserve Bank of India explains that these restrictions are imposed to help stop Indian residents from losing large amounts of money through trading, but many people also believe that they are hoping to limit currency outflow that would occur when other currencies are traded. 

It’s important to ensure that you do follow these rules, otherwise, you could face a fine or imprisonment for illegal trading activity in India. Keep in mind that trading through international brokers is considered illegal, so you’ll want to ensure that you’ve chosen a broker that complies with the Indian Government’s laws. Know that some brokers do stoop to shady tactics in order to offer illegal accounts, like registering as another type of service that might focus on trading education. You’ll want to avoid these brokers at all costs, as most of them are eventually reported and shut down. 

The Bottom Line

Forex trading is legal in India; however, residents must adhere to the Indian Government’s laws, which require traders to use only registered Indian brokers with any of the legally approved currency pairs. Fortunately, laws have become less strict over time, for example, the currency pairs USD/EUR, USD/GBP, and USD/JPY were added to the list of government-approved trading instruments within the past few years. Hopefully, the RBI will decide to offer more trading instruments and will soften on some of their stricter rules as time goes on, but there is no reason why Indian residents should miss out on trading in the meantime, as long as it is done legally.

Categories
Forex Fundamental Analysis

GBP/NZD Global Macro Analysis – Part 1 & 2

Introduction In this analysis, we will analyze endogenous factors that influence both the UK and New Zealand economies. The analysis will also include exogenous factors that impact the exchange rate between the GBP and the NZD. Ranking Scale We’ll rank the endogenous and exogenous factors on a scale from -10 to +10. The score of […]

Introduction In this analysis, we will analyze endogenous factors that influence both the UK and New Zealand economies. The analysis will also include exogenous factors that impact the exchange rate between the GBP and the NZD. Ranking Scale We’ll rank the endogenous and exogenous factors on a scale from -10 to +10. The score of […]

Introduction

In this analysis, we will analyze endogenous factors that influence both the UK and New Zealand economies. The analysis will also include exogenous factors that impact the exchange rate between the GBP and the NZD.

Ranking Scale

We’ll rank the endogenous and exogenous factors on a scale from -10 to +10.

The score of the endogenous factors will be determined from correlation analysis between the GDP growth rate. If the score is negative, the endogenous factor had a devaluing effect on the domestic currency. Conversely, if the score is positive, the factor led to the appreciation of the domestic currency.

Similarly, we’ll do a correlation analysis between the exogenous factors and the GBP/NZD exchange rate. If the correlation is negative, the factor results in a drop in the exchange rate. If positive, then the exogenous factor increases the exchange rate.

Summary – GBP Endogenous Analysis

A -15 score on Pound’s Endogenous Analysis indicates that this currency has depreciated since the beginning of 2020.

Summary – NZD Endogenous Analysis

A positive 5 indicates that the New Zealand dollar has appreciated since the beginning of this year.

Indicator Score Total State Comment
New Zealand Employment Rate -7 10 66.4% in Q3 2020 The NZ labor market is yet to recover from the economic disruptions of the pandemic
New Zealand Core Consumer Prices 1 10 1054 points in Q3 2020 From Q1 to Q3, inflation has increased by 1 point
New Zealand Industrial Production 5 10 A 3.1% increase in Q3 The NZ industrial sector is rebounding from a 12.1% drop in Q2.
New Zealand Business Confidence 7 10 Was 9.4 in November November showed the first positive reading in ANZ business confidence since August 2018
New Zealand Consumer Spending 5 10 Q3 spending was 41.335 billion NZD. Q3 consumer spending was the highest recorded in 2020. This shows that the domestic demand has recovered beyond the pre-pandemic period
New Zealand Construction Output -4 10 Q2 output dropped by 24.2% The worst decline in construction output in about 18 years. It’s bound to increase as COVID-19 restrictions ease
New Zealand Government Budget Value -2 10 2020 projected deficit of 4.5 billion NZD This would be a drop from a surplus of 7.5 billion NZD in 2019. Attributed to the increase in government spending during the pandemic
TOTAL SCORE 5
  1. New Zealand Employment Rate

The employment rate shows the growth in New Zealand’s labor market. The change in the labor market shows how the economy is performing – especially in the coronavirus pandemic. The labor market shows if the economy is churning out new jobs or if jobs are lost. Thus, the growth of the labor market is a leading indicator of economic growth.

In Q3 2020, New Zealand’s employment rate dropped to 66.4% from 67.1% in Q2 and 67.7% in Q1. This shows that the labor market is yet to recover from the economic shocks of the pandemic. The New Zealand employment rate has a score of -7.

  1. New Zealand Core Consumer Prices

This indicator samples the price changes in a basket of the most commonly purchased goods and services by households. The price changes represent the rate of inflation in the overall economy. Note that the computation of the core consumer prices excludes goods and services whose prices tend to be volatile. It helps avoid seasonal distortions in the index.

In Q3 of 2020, the core consumer prices in New Zealand rose to 1054 points from 1048 in Q2. The index had only increased by 1 point in 2020. Thus, we assign a score of 1.

  1. New Zealand Industrial Production

Industrial production in New Zealand refers to the YoY change in total manufacturing sales. It measures the YoY change in sales volume in the manufacturing sector. A survey of 13 industries across the manufacturing sector is surveyed to derive the YoY manufacturing sales data for the whole sector. Some of these industries include; petroleum and coal products, metal products, machinery, equipment and furniture, and food and beverage. Naturally, expansion in industrial production corresponds to the expansion of the economy.

New Zealand manufacturing sales rose by 3.1% in Q3 2020 from a drop of 12.1%. This is the largest YoY increase in manufacturing sales in three years. It shows that the economy is rebounding. We assign a score of 5.

  1. New Zealand Business Confidence

NZ business confidence is a survey of about 700 businesses. They are polled to establish their expectations about the future business operating environment and economic growth in general. Some aspects surveyed include; activity outlook, employment prospects, capacity utilization, and investment decisions.

In December 2020, the NZ ANZ business confidence rose to 9.4 from -6.9 in November. This shows an increased optimism in NZ businesses since it is the first positive reading since August 2018. Thus, we assign a score of 7.

  1. New Zealand Consumer Spending

This measures the value of the quarterly consumer expenditure in NZ. Changes in consumer expenditure go hand in hand with domestic demand changes in the economy, which drive GDP growth.

In Q3 2020, the NZ consumer spending increased to NZD 41.335 billion from NZD 35.197 billion in Q2. More so, the Q3 consumer spending is more than the NZD 40.04 billion recorded in Q1. Consequently, the NZ consumer spending has a score of 5.

  1. New Zealand Construction Output

This indicator shows the overall change in the value of all construction work done by contractors in NZ. It compares the YoY quarterly change, which helps to show if the economy is expanding or contracting.

In Q2 2020, the NZ construction output dropped by 24.2% compared to the 4.1% drop in Q2. This is the worst drop in over 18 years. Thus, we assign a score of -4.

  1. New Zealand Government Budget Value

This is the difference between the revenues that the NZ government collects and the amount it spends. Deficits arise if the revenues are less than expenditures, while surplus occurs when the revenues exceed expenditure.

In 2019, the NZ government had a budget surplus of NZD 7.5 billion. In 2020, it was projected that the budget would hit a deficit of NZD 4.5 billion. This is due to increased government expenditure to alleviate the pandemic’s economic shocks while revenues have been depressed due to nationwide shutdowns. Thus, we assign a score of -2.

For the exogenous analysis of both of these currencies, you can check our very next article. In case of any queries, let us know in the comments below. Cheers.

Categories
Forex Course

209. Inter Market Analysis At A Glance

Introduction

Introduction

Introduction

Internet analysis is referred to as a method leveraged to analyze markets by assessing the correlation between various categories of assets. This means that the ups and downs happening in one market may or may not impact the other markets. Therefore, a thorough study of their relationships is beneficial to the trader.

Understanding The Basics Of Intermarket Analysis

It works with multiple financial markets and asset classes related to each other to identify strengths or weaknesses. Rather than assessing the asset classes or financial markets individually, Inter-market analysis evaluates different correlated asset classes or financial markets like bonds, stocks, commodities, and currencies. Such analysis expands on looking at each market or asset individually while comparing them with each other.

Correlation Of Intermarket Analysis

Performing an Intermarket analysis is simple as you would need access to only data. And there is no dearth of data in today’s time; you can find them broadly and access them for free. Charting programs and spreadsheets are other things that you need for this analysis. Here you will compare one variable with another in a different data set.

In this analysis, a positive correlation can move up to +10, signifying a positive and ideal correlation between two data sets. Additionally, in a negative or inverse correlation, the value can go as down as -1.0. When the reading comes close to the zero lines, it will reflect that there lacks a discernible correlation among the two samples.

An ideal correlation between two variables for an extended time period is very uncommon. However, analysts generally agree that reading maintained below the -0.7 level or above +0.7 level is quite prominent. This level depicts around a 70% correlation. Moreover, when the correlation changes from positive to negative, it indicates an unstable relationship, which is not ideal for trading.

Please take the quiz below to know if you have got the concepts right. Cheers!

[wp_quiz id=”102178″]
Categories
Beginners Forex Education Forex Basics

Here’s How to Take the Stress Out of Forex Trading

Forex trading can be undeniably stressful at times, especially when the market becomes volatile or if you find yourself on the end of a losing streak. Many traders keep going long after this stress sets in, which leads to poor decision making because of clouded judgment. Eventually, some traders even give up because they just […]

Forex trading can be undeniably stressful at times, especially when the market becomes volatile or if you find yourself on the end of a losing streak. Many traders keep going long after this stress sets in, which leads to poor decision making because of clouded judgment. Eventually, some traders even give up because they just […]

Forex trading can be undeniably stressful at times, especially when the market becomes volatile or if you find yourself on the end of a losing streak. Many traders keep going long after this stress sets in, which leads to poor decision making because of clouded judgment. Eventually, some traders even give up because they just can’t perform well enough under all of this pressure. If you’ve also been feeling tense lately, chances are that it’s affecting your profits more than you realize. The good news is that there are some simple steps you can take to make forex trading less stressful so that you can maximize your profit potential. 

Simplify Your Strategy

Are you currently using a complicated trading strategy or one that confuses you? When it comes to your trading system, simple is actually better. It may seem as though more detailed plans work better because there are more components, but these systems are just really good at stressing traders out and causing confusion. If you use indicators, you may want to cut down on those as well. Having too much information to look at is overwhelming and leads us to overlook the most important things, so you can take it easier on your brain by switching to a simpler trading plan and decluttering your charts by removing less useful indicators. 

Take a Break

Have you ever made a bad decision during a moment when you were feeling completely overwhelmed? Forex traders do this every day – they lose out on a trade and frantically try to regain the money by risking more, they enter a trade they shouldn’t because they can’t think straight, they start pulling out of trades at the wrong time because their brain feels foggy – you get the picture. Instead of forcing yourself to keep going when you’re overwhelmed, simply take a break and step away from your computer or phone screen until you calm down. You might worry that you’re missing out on trading opportunities, but you’ll really be avoiding the urge to make emotional trading mistakes. Then you can come back with a clear head without feeling like you’ve been pushed to your limits.

Try a Relaxing Activity Before Trading

If you’re already tense when you first log into your trading account for the day, the anxiety of trading will likely add to your tension, even if you’re making money. The best thing you can do is to start fresh each day in a great mood, so we suggest finding something that helps you relax beforehand. This could be as simple as drinking a morning cup of coffee or listening to your favorite song. Exercise is another popular option that makes people feel good, so consider yoga, meditation, going for a jog, or some other form of exercise to get those endorphins flowing. 

Trade in a Quiet Place

It isn’t a great idea to trade with any type of distractions. Just think, children running around, dogs barking, loud background noise like a television or someone talking on the phone, a vacuum, or any other type of noise is annoying enough on its own when you’re trying to concentrate. Once you add the high-pressure act of trading to the mix, you’re bound to be left feeling stressed out. In this case, you’ll need to find a quieter environment so that you can fully focus and make the best decisions without having your brain jump from one thing to another. Also, don’t discount small distractions if your house is fairly quiet, as even social media notifications can be a pesky distraction for forex traders that are trying to concentrate. 

Don’t Let Losses Rule You

Nobody is ever going to be happy about losing money, but forex traders need to know that this is going to inevitably happen from time to time. The important thing is that you’re making more than you lose and this can be accomplished even if you have more losing trades than winning ones. Of course, losing one or more trades in a row is still one of the best ways to become stressed while you’re trading. If you want to avoid this, you can start by accepting the fact that everyone loses sometimes, even the best traders out there, and promising that you won’t be too hard on yourself when this happens. Then, consider taking certain measures to reduce the frustration you feel over those losses. For example, you could risk less on each trade so those losses don’t hit so hard. 

Be Confident

If you’re constantly doubting yourself as a forex trader by questioning your abilities in general along with every move you make, you’re always going to be stressed out. In order to be more self-confident, you’ll need to ensure that you can trust your trading strategy and spend time learning more about forex trading. If you aren’t confident with your plan, try testing it on a demo account to reassure yourself that it works or for a sign that you should change things up. If you want to test your own knowledge, try taking online quizzes, and research anything you get wrong. In the end, you’ll be more confident once you enter trades, so you won’t be as likely to pull out too early because you’re doubting yourself.

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Forex Basics

Forex Trading: The Good, the Bad, and the Ugly

Within the last 20 years or so, forex trading has become a popular online financial source that has attracted millions of aspiring traders worldwide. For some, the trading experience is pleasant, and they walk away at the end of each day with a little (or a lot) more money in their pockets. For others, trading […]

Within the last 20 years or so, forex trading has become a popular online financial source that has attracted millions of aspiring traders worldwide. For some, the trading experience is pleasant, and they walk away at the end of each day with a little (or a lot) more money in their pockets. For others, trading […]

Within the last 20 years or so, forex trading has become a popular online financial source that has attracted millions of aspiring traders worldwide. For some, the trading experience is pleasant, and they walk away at the end of each day with a little (or a lot) more money in their pockets. For others, trading doesn’t come as easily. What separates the success stories from the traders that give up and how is it possible that trading can be a savior for some, but a nightmare for others? The truth is that there are good and bad things about trading – and you need to know the differences.

The Good 

Let’s start out with the positive. We’ve got a long list of reasons why forex trading is such an attractive and unique way to make money online. This list covers the very best things about forex trading and will probably help convince you to open a trading account if you’ve been on the fence about it. 

  1. You can make a lot of real money IF you make informed investment decisions.
  2. Opening a trading account is quick and easy – no prequalification or tests needed. 
  3. You don’t have to invest an arm and a leg to open a trading account. In fact, $100 or less is fine. 
  4. You get to work from home, set your own hours, and be your own boss. 
  5. You can choose a trading strategy that doesn’t require a large time investment if you have a busy lifestyle. Most traders also take weekends and holidays off, so that’s an added bonus. 
  6. Trading saves many people from getting second jobs because they can do it along with their real job on their own time. You could even check your trading account during your daily breaks. 
  7. Learning to trade has long-term benefits. One day, you can teach your children to do it and it can help you float through retirement much more easily. If you start young, there’s no doubt you’ll amass much more wealth in your life, so as long as you use a solid trading plan.
  8. Once you start trading, you can decide how much money to risk. Certain risk management precautions are available if you’d like to play it safe with your money, or you can risk more in hopes of a higher return. 
  9. You might be able to get free money from your broker in the form of a welcome bonus, deposit bonus, or some other sort of promotion. 

The Bad

Okay, so trading sounds pretty good so far, but it isn’t for everybody. Let’s go over some of the downsides that affect traders. 

  1. A lot of aspiring traders don’t want to spend the time learning how to trade, so they open an account without the proper knowledge needed to make smart decisions.
  2. There are scammers out there – a little research on your potential broker can save you from this problem, but some beginners don’t know how to spot the brokers you should steer clear of.
  3. If you can only afford to make a small investment, you’ll probably miss out on certain benefits and will be subject to paying higher fees through most brokers. 
  4. You might not make any money – or you could even lose your investment. 
  5. You need to be self-motivated and disciplined if you want to make it as a successful trader.
  6. Many people fall for the illusion that trading is a quick and easy way to make money with little effort. When they realize this isn’t the case, they give up. 

The Ugly

As you can see so far, forex trading has both good and bad qualities. On the bright side, some of the bad aspects of trading can be avoided. For example, if you ensure that you are properly educated before opening your trading account, your chances of success will skyrocket. If you spend time researching each broker that you’re considering and check regulation statuses you will also be able to avoid scammers, using risk-management precautions can ensure that you don’t lose any significant amount of money, and so on. Still, there are some things that can’t be avoided. For example, you may be stuck with an account that charges higher fees because you simply can’t afford to make a larger deposit.  

So, what’s the worst part of forex trading? In our opinion, it’s the fact that so many beginners fail. If you research those statistics, the results are pretty grim, as reports indicate as much as 90% of first time traders lose their deposit and give up from the start. The reason why we hate this so much is because this is completely avoidable, but most beginners just don’t know the insider facts they need to know to avoid making common mistakes, like using too much leverage, overtrading, emotion-based errors, risking too much money, choosing the wrong broker, and etc. This is why it’s so important to ensure that you are properly educated BEFORE you open a trading account or make an investment. If you’ve already jumped in too soon, take a step back and spend more time learning before you resume trading. This is the best way to ensure that you can enjoy all of the benefits of trading without worrying about the ugly parts. 

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Forex Elliott Wave Forex Technical Analysis

Three Things you Ought to Know Before Buying EURUSD

The EURUSD eased the last trading week, losing 1.18%, leaving away from the yearly high at 1.23495 reached on last January 06th. The common currency accumulates losses by 1.14% (YTD), which, added to other market conditions commented in our current analysis, carries us to expect further declines in the following trading sessions.  

The EURUSD eased the last trading week, losing 1.18%, leaving away from the yearly high at 1.23495 reached on last January 06th. The common currency accumulates losses by 1.14% (YTD), which, added to other market conditions commented in our current analysis, carries us to expect further declines in the following trading sessions.  

The EURUSD eased the last trading week, losing 1.18%, leaving away from the yearly high at 1.23495 reached on last January 06th. The common currency accumulates losses by 1.14% (YTD), which, added to other market conditions commented in our current analysis, carries us to expect further declines in the following trading sessions.  

1. Retail Traders Seems to Look for Long Positions

Retail traders tend to place their trades against the primary trend, remaining on the wrong side on most occasions. Regarding this market participant behavior context, retail traders reduced their short positions from 79.77% reached last January 06th to 44% last Friday’s session, as the EURUSD pair accelerated its decline. 

Source: myfxbook.com

Retail traders’ increasing positioning to the long-side carries us to sustain the prospect for further declines in the following trading sessions.

2. The Price Violated its Short-Term Upward Trendline

The big picture of EURUSD illustrated in its daily chart reveals the violation of the secondary trendline plotted in green, corresponding to the last rally developed by the common currency since November 04th from the 1.16025 level, which found resistance on January 06th at 1.23495. This market context leads us to observe that the price could develop a correction proportional to the last rally.

In this regard, the Dow Theory view suggests that EURUSD’s corrective move depth might lie between 33% (1.21030) and 66% (1.18565). Moreover, the price could find support in the long-term upward trendline plotted in blue.

3. Timing and Momentum Oscillator Supports the Elliott Wave View.

The intraday Elliott wave view for the EURUSD pair exposed in the next 4-hour chart shows the completion of an ending diagonal pattern corresponding to wave (v) of Minuette degree labeled in blue and its bearish reaction after its finalization.

Once the common currency topped at 1.23495, the price developed an intraday corrective move subdivided into five internal segments of Subminuette degree identified in green. This five-wave sequence of lesser degree carries us to expect the progress in a potential zigzag pattern (5-3-5). 

On the other hand, the timing and momentum oscillator lead us to observe the first downward sequence’s exhaustion corresponding to wave (a) in blue. In consequence, the common currency should develop a corrective rally corresponding to wave (b). This upward move could hit the zone between 1.21576 and 1.22523.

Once the EURUSD completes its wave (b) in blue, the price action should start its bearish wave (c), which follows an internal structure subdivided into five waves. In this context, the bearish scenario’s invalidation level can be found at the end of wave (v) at 1.23495.

What’s Next?

According to Myfxbook.com’s Community Outlook, 56% of retail EURUSD traders are positioned to the long side. Likewise, the violation of a short-term upward trendline carries to expect further declines in the common currency for the coming trading sessions. Nevertheless, the EURUSD could be at the end of the first segment of a corrective formation. In this context, the price could develop an upward bounce that could reach the zone between 1.21579 and 1.22523. After the bounce conclusion, the common currency could find fresh sellers expecting to join a new downward sequence corresponding to wave (c).

If you are interested in finding trading opportunities using the Elliott Wave Principle, follow our Forex.Academy Educational Section.

Categories
Forex Elliott Wave Forex Market Analysis

Why GBPJPY Plummeted in Friday’s Session?

The GBPJPY cross declined on Friday trading session dragged 0.70% after the price surpassed the psychological barrier of 142, being the highest level reached since early September 2020.

The GBPJPY cross declined on Friday trading session dragged 0.70% after the price surpassed the psychological barrier of 142, being the highest level reached since early September 2020.

The GBPJPY cross declined on Friday trading session dragged 0.70% after the price surpassed the psychological barrier of 142, being the highest level reached since early September 2020.

Technical Overview

The GBPJPY cross drops over 100 pips on the last trading session of the week, accumulating a modest advance of 0.02% (YTD) since the yearly opening.

On the fundamental side, the industrial production in the United Kingdom eased 4.7% (YoY) in November 2020, informed the Office for National Statistics on Friday. The reading is worse than the decline of 4.2% expected by analysts. Likewise, both coronavirus lockdown and the Brexit uncertainty contributed to the decline in the industrial output.

Source: TradingEconomics.com

On the other hand, the doubts in the fourth quarter 2020 earnings season kick-off and the elected U.S. President Biden’s stimulus plan seem not enough to keep fueling the stock market participants’ euphoric sentiment. This context looks fading the record highs in the stock market, boosting the risk-off bias pushing lower the GBPJPY cross.

The big-picture illustrated in the next daily chart shows the price action moving in the extreme bullish sentiment where the cross ended the Friday session unveiling a bearish engulfing pattern, which carries to expect further declines in the coming trading sessions.

Finally, the piercing below the yearly opening level at 140.779 suggests potential declines during the first quarter of 2021.

Technical Outlook

Our previous analysis saw the progress in a complex correction identified as a double-three pattern (3-3-3). Nevertheless, the corrective rally suggests that the GBPJPY moves in a triple-three formation (3-3-3-3-3), which looks in its terminal stage.

The following 4-hour chart shows the completion of a triple-three pattern of Minute degree labeled in black, which moves inside a wave B of Minor degree identified in green since the cross found support at 133.040 touched in last September 22nd.

The internal structure of wave ((z)) in black shows its last corrective leg corresponding to wave (c) in blue, developing an ending diagonal pattern, which seems finished its wave v of Subminuette degree labeled in green. The breakdown of the guideline that connects the end of waves ii with iv carries to support the ending diagonal pattern’s finalization.

On the other hand, the timing indicator exposes the intraday oversold (see the yellow circle), which leads to the conclusion that the GBPJPY cross should develop an upward retracement as a flag pattern before continuing with its potential further decline.

In summary, the GBPJPY cross plummeted in last Friday’s session dragged by the completion of an ending diagonal pattern, which belongs to wave ((z)) of a triple-three formation, where its upper degree sequence corresponds to wave B of Minor degree. Although the news media continue supporting hopes in the stimulus plan for the U.S. economy, the Elliott wave structure showed by the cross unveils a different story.

According to the Elliott wave theory, the price should develop a downward wave C of Minor degree. The timing oscillator also suggests an intraday upward consolidation likely as a flag pattern before continuing its drops.

If you are interested in expanding your knowledge about the Elliott wave theory from the basics to advanced, visit our Forex.Academy Educational Section.

Categories
Forex Market

Are the Markets Ever Actually Wrong? (Hint, It’s Possible)

Price is everything. By observing the pound rally in October, you involuntarily begin to believe in the principles of technical analysis. You’d have to be a medium to understand what Boris Johnson was talking about during his visits to Brussels and Dublin. The talks were not in vain. Referred to as, “tunnel negotiations” they took […]

Price is everything. By observing the pound rally in October, you involuntarily begin to believe in the principles of technical analysis. You’d have to be a medium to understand what Boris Johnson was talking about during his visits to Brussels and Dublin. The talks were not in vain. Referred to as, “tunnel negotiations” they took […]

Price is everything. By observing the pound rally in October, you involuntarily begin to believe in the principles of technical analysis. You’d have to be a medium to understand what Boris Johnson was talking about during his visits to Brussels and Dublin. The talks were not in vain. Referred to as, “tunnel negotiations” they took place behind closed doors and there was hardly any hope of being able to observe the light at the end of the tunnel. However, even extrasensory powers do not guarantee that you become a rich man. Mediums could be the most honest people: the reason is that they never use their powers to win the lottery or win money on Forex.

If he stays too long by the river, sooner or later he’ll be fired. After a series of painful defeats and accusations of having exceeded their authorities, people generally fall into a stupor. But not the current head of Britain’s Cabinet. The idea of becoming the shortest prime minister in the entire history of the United Kingdom was not very seductive. Johnson knew: either you control the situation or the situation will end up controlling you. Critics, especially the most spiteful,  will always get the same answer from him:

– Boris, I think you’re wrong…

– Count again!

Led to a corner, the prime minister found a legal vacuum and common ground with Brussels. True, the game is not won right now, but your position is much better now. Johnson will find it difficult to get a majority in Parliament, as DUP is against the deal as it stands and Labour thinks it is even worse than the Theresa May deal. However, nothing seems impossible for the current prime minister. If he manages to get Britain out of the EU, he will take his place in history:

– Boris, will you accept apologies?

– No, just cash.

Looking at the pound chart, you don’t need to read the news. Its recovery was a clear sign of progress in the Brexit talks and its setback showed that investors were upset about something. They have been discussing the extension of the transitional period and the second referendum where the text of the current agreement with the EU can be presented. The British already tried to divorce the EU in 2016, why shouldn’t they bring the question to a successful end? It’s like in the river in winter. The thinner the ice, the more people want to make sure it’s strong enough.

Donald Trump is also confident that the markets know more than anyone else. The President of the United States knows with certainty that it is a small world. All because of the Chinese! He is talking about progress in US-China relations and is always full of optimism not to accidentally launch the S&P 500 correction. Trump believes the White House needs a strong economy and a strong stock market, while setbacks could make your risk of losing the elections held this 2020 more likely.

So does price really take everything into account? Shouldn’t we read the news and dwell on the peculiarities of fundamental analysis? Should we just look at the graph? If everything were that easy, mediums would make a lot of money on Forex. Certainly, history knows too many examples of the times when markets were wrong. For example, they predicted a recession in the US economy in 10 cases out of 5. Trading is not easy, but it is a very interesting activity!

Categories
Forex Indicators

Using Parabolic SAR With Dynamic Stops Losses

One of the best-known indicators in the Forex market is the Parabolic SAR indicator. This is because it tells us when the momentum is changing, arriving early when the momentum changes can give you a winning advantage. SAR means to “stop and reverse” by definition. However, there is another way to use the Parabolic SAR, […]

One of the best-known indicators in the Forex market is the Parabolic SAR indicator. This is because it tells us when the momentum is changing, arriving early when the momentum changes can give you a winning advantage. SAR means to “stop and reverse” by definition. However, there is another way to use the Parabolic SAR, […]

One of the best-known indicators in the Forex market is the Parabolic SAR indicator. This is because it tells us when the momentum is changing, arriving early when the momentum changes can give you a winning advantage. SAR means to “stop and reverse” by definition. However, there is another way to use the Parabolic SAR, apart from trying to identify trend changes, either in the short or long term, and it is intended to use the indicator as a form of use of dynamic stops loss, either for a partial or total output.

What is the Parabolic SAR?

The Parabolic SAR formula was developed during the boom days of technical analysis in the 70s by Welles Wilder, who is the person who also designed the Relative Force Index (RSI). The relative strength index is pretty much the only Forex indicator that can produce a winning advantage on its own, so it’s worth taking a look at anything written by Welles Wilder.

The algebraic mathematical formula used to calculate the value of the indicator in each candle is complex, so I’m going to explain it in very simple conceptual terms, using for this a long example. When a candle makes a new maximum, the indicator sets a value below that candle. If the candles keep making new maxima, the value of the indicator rises along with the price but is increased proportionally by a factor selected by the user (0.02 is the most common).

The idea is that “time is our enemy” and that the best of any directional movement where we can be is in the part where the momentum keeps increasing. Thus, it is better to use this indicator in commercial trends or in strong directional movements. In fact, Wilder recommends using the Parabolic SAR indicator along with its ADX (Average Directional Index), which is also recognized as probably the best and most useful Forex indicator.

Parabolic SAR and Technical Analysis

Parabolic SAR is an extremely simple “binary” indicator and is often used in forecasting and trading strategies in the following ways:

-Determination of the trend. When a new candle is opened and the indicator prints its point on the other side of the candle from where it was on the previous candle, this indicates a change of trend and a possibility of entry into a trade.

-In determining the trend as indicated above, use the ADX indicator to determine whether the trend is powerful enough to have a justification for a new commercial entry, always in the direction of the trend.

-When a certain number of candles have been making new lows or highs with the indicator point always remaining above or below each candle, use the point price (or one near it) as a manually adjusted stop-loss (i.e., a dynamic stop loss) to signal an exit from a trade.

The Best Way to Use the Parabolic SAR

I think the best use of the Parabolic SAR indicator is like a trailing stop when it comes to operating in a strong directional movement. I don’t think it has a great value to determine when to enter: entering the trend direction in Forex is best determined by the break or, usually, better yet, by moving the signals from triple moving average crosses.

Normally, when operating in strong directional movements, the best benefit profile comes when trying to capture two different movements:

  • The initial short-term momentum movement; and
  • The long-term directional movement that begins at 1.

Trying to capture only movement 1 is usually not very profitable in the long run. A better trading strategy is to take partial gains when movement 1 ends, letting the rest of the position run in the hope that movement 2 will take place. Successfully capturing movement at 1 can give you the “take off” necessary to enter the trade at a good entry price that is sufficient to capture movement 2.

Understanding the Parabolic SAR Formula

You don’t really need to know the actual formula of any technical indicator in order to build a trading strategy, but it’s worth understanding why SAR parabolic points appear. In addition, if you want to create an Excel Parabolic SAR calculation file to build a decision support system for your daily transaction, you would need to know the parabolic SAR formula. However, here is the formula used to calculate the parabolic SAR values:

Sarn + 1 = Sarn + α (EP – Sarn)

In the formula Parabolic SAR, the Sarn is the current period and as +1 indicates, the Sarn + 1 is the value SAR of the next period. During an upward trend, the PE is the highest price on the trend, which would be the highest of most candles or bars on the trend. On the other hand, you can be quite sure that the EP would represent the lowest candle or bar in a downward trend. Since parabolic SAR points only appear above or below the price, it is not a difficult task for you to identify what the PE value represents.

The most important variable in parabolic SAR adjustments is α, which represents the acceleration factor in the formula. When you try to add the parabolic SAR indicator in the graph, your graphics package would normally set the value of α to 0.02.

You see, during an upward or downward trend when the price makes a new high or low, the acceleration factor increases by 0.02. This is why the gaps between the parabolic SAR points become larger during a strong trend and the size of the gaps shrink during a price consolidation. Although the default acceleration factor is set to 0.02, most graphics packages would allow you to change it. Maybe you’re wondering why you need it with the acceleration factor. Well, some stock prices are more volatile than others, and depending on the length of time you choose, optimizing the acceleration factor can actually improve your commercial performance.

For example, in the Tradingsim, it can reproduce the price action with different SAR acceleration factors to find the optimal value and test the market to see if the new value makes a major difference in the generation of parabolic SAR buy signals or Parabolic SAR Sell signals. If you see a positive result, you must customize the SAR formula to fit the share price feature of the share.

Using Parabolic SAR as Trailing Stop

One of the best things about this indicator is that it is extremely easy to use and does not really require any concern on the part of the user with regard to input values. The default values are perfect. One method is simply to manually adjust the stop-loss price to place it a few pips just beyond the indicator point as each new sail opens. A second option may be to wait for the candle to reverse and close beyond the point. This will most likely contribute to you getting better results in the long run.

Remember that your own calculations on any strategy you are using should be moved to the image. Let’s take an example, if you what you expect make a 50% commercial exit at a risk-reward ratio of approximately 2:1, and get an output signal at 0.5:1, which is far from that desired target, you would best ignore the output signal, or maybe move the stop loss to the balance point.

Warning: Only Use With Trending Markets

There are different ways to know for sure if a market is on a trend, but the Parabolic SAR indicator provides good visual aid. If the graph shows that the indicator is changing the point only occasionally, and fairly long chains of consecutive candles with all the points on the same side, then the market is “swinging” enough to give your operation a good chance of making a profit. If the dots are not in a series and are all displayed mixed, then it is a hectic market and it is probably best to avoid it.

Categories
Forex Daily Topic Forex System Design

Trading System design – The pathway to Success

This article outlines the steps needed to find, create, test, and verify a trading system. We have to bear in mind that there is no way to create a forex trading system with an equity curve straight upward. Well, yes, it can be made. I’ve made it, but only optimizing it so much that expecting it to continue performing like this under real trading would be silly. Most trading bots advertise curves like this. If you believe them, your money will be in jeopardy.

This article outlines the steps needed to find, create, test, and verify a trading system. We have to bear in mind that there is no way to create a forex trading system with an equity curve straight upward. Well, yes, it can be made. I’ve made it, but only optimizing it so much that expecting it to continue performing like this under real trading would be silly. Most trading bots advertise curves like this. If you believe them, your money will be in jeopardy.

This article outlines the steps needed to find, create, test, and verify a trading system. We have to bear in mind that there is no way to create a forex trading system with an equity curve straight upward. Well, yes, it can be made. I’ve made it, but only optimizing it so much that expecting it to continue performing like this under real trading would be silly. Most trading bots advertise curves like this. If you believe them, your money will be in jeopardy.

It would be best if you’re proficient in coding on a trading platform such as MT4/5, Ctrader, Tradestation, Multicharts, or Ninjatrader. Not all traders can do it, so we will approach this for anyone willing to create a DIY trading system without programming. It would take longer, but the added benefit is you will learn a lot while doing your testing. This methodology will also create simpler and less prone to over-optimization systems.

The results obtained will vary, and not always will we get sound systems. Of course, we should not expect great, drawdown-free equity curves. But, there is no need for that. We will show you that what is necessary is only long-term profitability.

 

The Idea

 

The first step to creating a trading system is an idea that will provide us with an edge. Among the most basic concepts are,

 

 

  • Breakouts from a range or Fading breakouts from a range

 

  • price above/below a moving average

 

  • Moving average crossovers

 

  • Overbought/oversold conditions using an indicator such as the MACD, the RSI, or the Stochastic

 

 

  • Volatility spikes

 

 

  • Support/resistance levels

 

Please bear in mind that the market already knows all these key concepts. Therefore, their direct application would probably fail.

 

Testing the Idea

The first step to see if the idea has merit is to test it in a historical sample under the market conditions it was supposed to operate. Of course, a trading idea is almost always referring to a market entry, as the concept is supposed to time the market. This entry is usually combined with a stop-loss and a take-profit to create a complete solution.

But, to test the efficacy of the idea, we should forget the stop-loss and take-profit and use a standard exit, be it,

  • After n bars
  • After a percentage profit
  • A random exit.

If you don’t have the means or skills to code, the best solution is closing after a determined number of bars. You can even register the results of closing after 5, 10, and 20 bars, so we test the predicting power at increasing time intervals.

You could also use Tradingview.com to perform the test; therefore, we recommend you open a free account there. The free account gives most of the capabilities of a pro account but is limited to fewer indicators.

There are four kinds of testing:

  • Historical backtest
  • Out‐of‐sample test. Also called forward test
  • Walk‐forward test
  • Real‐time testing

Historical backtest

The Historical backtest is the simplest test. You will need to create a spreadsheet with the required fields and computations.

After defining the rules of the trading idea, you define a start date, for instance, one year ago. For initial testing, it is recommended not to register the trades with spreads and commissions. Just the brute profit.

  1.  Set the desired timeframe and move your chart so that the initial date is near the chart’s right end.
  2. From there, you shift your chart one by one.
  3. When you spot an entry point, you write it down in your trading log:
    1. Trade #
    2. Entry date and time
    3. Trade size: enter one lot
    4. Entry price
    5. Expected stop-loss: use a standard 2 ATR
    6. Expected target: use also 2ATR
    7. Exit price
    8. Exit date and time
    9. Maximum Adverse Excursion: Written down after the trade ended.
    10. Maximum Favorable Excursion: Write down the next pivot point higher/ lower than your exit.
    11. Compute the profit of the transaction.
  4. Continue the test until you reach at least 100 trades.
  5. Compute the statistical figures of your exercise
  6. Average profit: Sum of the profits / N, the number of trades
  7. The standard deviation of the profit = STD (profits)

Optimization

After 100 backtested trades, the developer has enough information to detect the basic mistakes of the strategy. Maybe the entry has a large lag that hurts profits, or, worse, it is too early, thus triggering the stop-loss too often.

We could also spot if the stop-loss can be improved. Maybe it’s too close, so the percent winners are low or too far. The use of the Maximum Adverse Excursion info will surely help in deciding the best placement.

On the profit side, we can use the Maximum Favorable Excursion to check if the system is leaving money on the table. The idea is to adjust the profit target, so most of the trades end close to the MFE level.

Walk-forward Test / Real-time trading

After optimizing the strategy’s main parameters, we could begin a forward test, using a demo account and live market data. We should proceed as if it was a real trade. In this stage, if we use a demo account, you’ll be able to add the costs of the trade: Spread, slippage, and commissions.

This last stage before committing real money should last at least one month, preferably two or three months, during which you should continue detecting errors, improving the strategy, and having a feel of its behavior. In this stage and the coming use with real money, the trader needs to be disciplined and accept all signals the system delivers. You cannot cherry-pick the trades because this introduces a random factor that will change your system’s parameters, so you’re losing information about it.

Changing the parameters of the system

When trading it live for several trades, you may feel you need to optimize your system. This is wrong. Of course, you may adapt the system to the market, but modifying it too often is a mistake. You need to have statistical evidence that something has changed and the system is now underperforming. Therefore, at least 30 trades must occur before doing a change. In fact, since the distribution of results is not normally distributed, it would be optimal to wait for about 60-100 trades for a measure with statistical significance.

Starting light

That means you need to start slow, risking no more than 0.5 percent on every trade, or whatever you consider is small for you. That way, you won’t be affected psychologically, follow the system for the required time to have propper stats, and get a grip on the normal behavior of your strategy.

Categories
Forex Course

208. Using Yuppy (EUR/JPY) As A Leading Indicator For Stocks!

Introduction

Introduction

Introduction

EUR/JPY is among the most popular pairs in the international foreign exchange market. In fact, it indicated approximately 3% of the overall daily transaction. Moreover, it is indicated as the seventh-highest traded currency pairs in the forex market. Both traders and investors can leverage the potentials of the EUR/JPY currency pair as they both carry a high degree of volatility.

Best Time To Trade in EUR/JPY

Although you can trade EUR/JPY at any time of the day, to leverage the most benefit, you must trade when the pair is most volatile. Between 7:30 and 15:30 is the time when the currency pair trade is the busiest.

Factors Impacting EUR/JPY Rate

When it comes to making the most lucrative trade with this pair, it is important to understand what influences its rate.

Prominence Of EUR

Like many modern currencies, the prominent factors that impact the Euro price flow are financial, political, and economic. For instance, many trade decisions regarding the Euro are backed by the European Central Bank’s monthly reports.

These reports can influence the fluctuations in the Euro’s rates, and traders and investors promptly leverage the details as quickly as they are released to determine the flow of the Euro rates.

In economic terms, news releases focusing on employment can also play an important role in the fluctuations of euro rates. These details are easily accessible and offer vital insights into the economic condition of the Euro and the movement of Euro prices.

The Prominence of JPY

Japan’s economy has more factors that play an important role in determining the flow of currency. The basic health of the economy will play a significant role in involving a high rate of export and import trading. One uncommon factor that impacts the flow of the country’s currency is situations such as a natural disaster.

The Right Way To Trade EUR/JPY

In terms of speculative trading, CFDs provide traders and investors with easy access to a plethora of markets. They like to transact with CFDs as derivatives trading implies that buying the actual currency is unnecessary. When trading, investors and traders like to harness technical analysis and assess the EUR/JPY chart. This is done to determine the relationship of the pairing and forecast the highs and lows of the markets.

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Categories
Forex Basics

What You Need to Know About Trading Forex In the U.K.

So, you are currently living in the UK and want to be a forex trader? Great! Wanting to do something is always the first step, and wanting to trade forex opens up a lot of new opportunities for you. You will be joining a large number of people. In fact, there are currently over 400,000 […]

So, you are currently living in the UK and want to be a forex trader? Great! Wanting to do something is always the first step, and wanting to trade forex opens up a lot of new opportunities for you. You will be joining a large number of people. In fact, there are currently over 400,000 […]

So, you are currently living in the UK and want to be a forex trader? Great! Wanting to do something is always the first step, and wanting to trade forex opens up a lot of new opportunities for you. You will be joining a large number of people. In fact, there are currently over 400,000 active online traders in the UK, making it one of the leading financial online trading hubs in the world. If you are from the United Kingdom and starting with forex, you are joining a large community of like minded people with various skills and knowledge available to be shared.

The first thing that you need to do is to get a basic knowledge of what forex actually is. The sad truth is that a lot of people are starting to trade without actually understanding what it is that they are trading or how it actually works, so that is going to be our first port of call here. The interesting fact is that even without doing any reading, you have probably experienced something similar to forex trading at some point in your life, such as when you go on holiday, you are exchanging one currency for another, that in a sense is exactly what trading on the forex markets is.

The main difference to that is that as a trader, you won’t simply be trading just one currency for another like when you go on holiday. Instead, you will be making predictions on what you think the price will be, whether it will go up or go down in relation to another currency. There is a huge selection of currency pairs from majors to minors and then on to exotics (we will look at them briefly later). There is always something to trade and so it is becoming an ever popular thing for people within the UK to do. The good news is that it is highly accessible and you will be able to do it from pretty much any location within the UK where there is an internet connection available.

Why exactly is forex trading good for people in the UK? Simply because it is so accessible. There are all sorts of people trading, from wealthy investors to central banks, to individual traders sat in their bedrooms, there are no limits on who can be trading on the markets, as there are always opportunities available. There is also a wide range of strategies. In fact, there are hundreds of them, loads of forex pairs, tons of different account types to choose from, and in addition to that, you are able to trade from whenever you like.

Another thing that makes it quite accessible, is the fact that the minimum amount of capital required has fallen dramatically over the years. It used to be that you needed at least £10,000 in order to open up an account, but today you can open an account from as little as £1. Of course, you will need a little more than that if you want to be successful, but it just shows you how easy it is to gain access to the global markets of forex trading. You can also trade with leverage, pretty much every retail trader at home does, making profits even more accessible to you.

A lot of people also choose to be a trader, especially those in the UK, in order to help supplement their current income. They don’t necessarily do it in order to quit their job and trade full time (although a lot of people do), they simply do it to make a little extra money on the side. You do need to remember though, that trading the forex markets is not a 100% guarantee of profits. There will be losses and a lot of people actually end up losing all the money that they have put in, so it certainly does come with some risks. Due to the number of traders in the UK, it also shouldn’t come as no surprise that one of the most popular currencies to trade in the GBP.

Many traders within the United Kingdom like to trade there because there are very strict policies put in place to help protect the traders. This makes the UK one of the more trustworthy places to trade from. There are also very flexible tax laws when it comes to trading. As a trader, you will be classed as either a private investor, a self-employed trader, or a speculative trader which is actually completely tax-free. There Are also a huge number of regulated brokers within the UK. In order to function as a broker within the UK, you need to be regulated by the Financial Conduct Authority (FCA) which oversees a lot of the operations of the brokers and that they are adequately protecting their clients.

So you have decided to start trading which is great, but how and where exactly do you begin? Here are a few things that you should do as a starting point for your trading career. Of course, you can do other things, these are just some things that may help you to get a little jump start.

Educate Yourself: It is vital that you get yourself some proper education when it comes to trading, forex and trading as a whole is such a vast beast that you will never be able to learn everything by simply trying. It is one of the things in life that’s actually takes a lot of learning and dedication to truly understand and to become competent at. There are a lot of courses available out there, both free and paid. We would suggest sticking with the free ones just until you realize that you are 100% ready to be a trader. There is no point wasting that little bit of money only to find out that you don’t really like trading at all. A good education on forex is the basic foundation for becoming a successful trader.

Learn Forex Terms: There are a lot of them, including terms like pips, spread, bull markets, bear markets, breakouts, trends, base currency, quote currency, and more. There are hundreds of terms that you will come across. Try to learn the majority of the more frequent ones. You won’t be able to learn all of them, but getting to know the basics will make understanding some of the education or things that people are saying a lot easier. Then as you progress in your career and come across new terms, you can simply look them up as you come across them, but make sure you understand the meaning of at least the most common ones.

Conduct Analysis: Before you start trading, start trying to analyse the markets and the way that they work. The markets are influenced by pretty much everything in the world and they are influenced in different ways. Try taking a look when something comes out on the news to see how it affects the markets. A great way for someone just starting out to gain a little knowledge about the markets is to look at the important influential aspects of the arts and to understand them. Think about things like the trading positions, market sentiment, the Gross Domestic Product (GDP), the current political climate, any social protests or turmoil and more.

Broker Selection: Start thinking about what broker you may want to use. This is a big decision, but the good news is that any selection is not final. If you start with a broker and then later decide to change to a new one, there is no problem with that at all. In fact, a lot of traders jump around multiple brokers at the start until they manage to find one that suits them. You may want to think about joining one that is in and regulated within the United Kingdom, but this is not always necessary. There are some great brokers available from outside the UK that offer different features due to different regulations. What is important is that the one you pick has the features that you need and is right for you.

So those are some of the things that you should be looking to do before you start trading, but how about when you are actually trading? There are of course a number of different tips that we can give you for that too, so we have put together a few small tips and tricks that may help you once you are starting your trading career.

Education, Again: As previously mentioned, only start trading once you have gotten yourself a little forex education. It doesn’t need to be the world’s knowledge of forex, you will never get everything, but at least a basic understanding of how things work.

Study Charts: Learn how to read the charts, each time frame will work a little differently, and each currency pair works slightly differently on the charts. There are hundreds of different patterns to be on the lookout for, so getting an idea of how to read the charts is vital. After all, this is how you are going to be working out when and what to trade.

Using Strategies: When you have worked out what your strategy or trading style is, make sure you stick to it. You will only know if it works and suits you after a longer period of time. There is no point in jumping between different ones every other day, as this will only lead to confusion and lack of direction for your trading.

Using Stop Losses: Make sure you are using stop losses, these are there to protect your account and your sanity. If you do not use them you are potentially going to lose your account with just a single trade, so make sure that you are implementing them into your trading.

Implement Limits: Limit the number of trades that you execute daily. When starting out you will be excited about trading and will want to do as much as you can but you need to slow yourself down. Remember you are new to trading so you need to make sure that each and every trade that you make is right, Trading too much can confuse you and can also cause you to overspend. Trading too much often equates to endangering your account.

Trading Journals: Create and use a trading journal. This is something that you will hear about a lot. Trade journals are a place to write down everything that you are doing, all the trades you make, the reasons behind it, how long you hold the trades, your profit and loss, and more. This journal then gives you a way to analyse your own trading to find your strong and weak points and to ultimately make it a lot easier for you to improve your own trading.

Don’t Overshoot: Be realistic with your trading. Do not go into it thinking that you are going to be making £100,000 in your first month. The fact is that you will most likely lose a bit, as most people do. Be realistic with your expectations while you are in the learning phase.

Trading Buddies: Find someone for support, and do not be afraid to ask for help. The trading community is helpful and will always offer a hand. Find someone that you can get support from, especially when things start to become stressful. It is good to have someone who understands what you are going through can offer some support on how to get through it.

So you have started trading and have made a few trades and know that you need to be able to protect yourself and your account. So let’s work out what we can do in order to help protect your account. One of the most powerful yet hardest things to do in order to manage your risk is to tell yourself to stop, to tell yourself when to take a break. This is a great way of reducing the number of trades that you are making and thus avoiding the pitfall of overtrading. You should also be using stop losses and take profits to ensure that your trades are closing at the right time and that you’re not risking more with each trade than you should be. Create your risk management plan and then stick to it, if you have one and then make sure that you stick to it, any deviation is a danger.

So those are the things that you should and can be doing to get yourself ready to be a trader within the UK. There is a lot of information out there, so take your time, there is no rush to get into it as it will be there for a long time to come, so try not to rush into it. Learn, get the right broker and then practice on a demo account, but if you are choosing this as your next endeavor, then best of luck.

Categories
Forex Technical Analysis

Can Trend Lines Alone Be Used to Make Trade Decisions?

Trend lines are simply lines that are drawn on a chart that when analyzed will give you as a trader an idea of the possible directions of the markets. A trend line is generally drawn over a pivot high and under pivot lows in order to show h prevailing direction of the markets. They are […]

Trend lines are simply lines that are drawn on a chart that when analyzed will give you as a trader an idea of the possible directions of the markets. A trend line is generally drawn over a pivot high and under pivot lows in order to show h prevailing direction of the markets. They are […]

Trend lines are simply lines that are drawn on a chart that when analyzed will give you as a trader an idea of the possible directions of the markets. A trend line is generally drawn over a pivot high and under pivot lows in order to show h prevailing direction of the markets. They are a visual representation of the support and resistance levels for the timeframe that you are looking at, they can show the direction and the speed of the price, and can also be used to help in the aid of working out various different patterns within a chart.

That’s what trend lines are, but what exactly do they show us? Trend lines are one of the most widely used and important tools that many traders use, especially for those into technical analysis. Instead of looking at past results and patterns, people who use trend lines are looking for the current trends in the markets. They will help a technical analyst to determine the current direction of the markets, as well as how quickly the rice is moving in that direction. Many traders believe that the trend is your friend and will trade in the same direction, so they use the trend as an indicator as to which direction to trade in.

Trendlines are pretty easy to use, even for those that are just starting out with trading. They can be drawn onto a chart in a simple way using open, close, high, and low markets. Some traders also like to use more than one trendline, they connect the highs to create an upper line and the lows in order to create a lower line. This will then create a channel that will offer the trader a view of the support and resistance levels. This can then be used to look for breakouts, a situation where the price breaks above or below the upper or lower lines, and this for some is the best opportunity to put on a trade.

There are some limitations to trendlines. The main limitation is that they need to be readjusted as more price data comes in. Keeping the same line when the markets have changed will make the indication that they are providing completely irrelevant to the current situation. So you will need to adjust it each time the prices change. There is also no set place to attach the points to, different traders will use different data points, meaning that each person’s trend lines will be slightly different from each other, which can, in turn, give a completely or slightly altered image of what the markets are doing. If you create a trendline during a period of low volume, as soon as the volume increases it can easily break through the lines, so trend lines are more reliable during times of at reduced average volume.

There are ways to get around the fact that they need to be constantly adjusted. There are some indicators and expert advisors that can help to draw on the lines automatically, these can also then be used to update the lines without any input from yourself. The downside to this is that it will be doing it automatically, so you won’t have much control over where the lines are being drawn. You’ll need to work out whether you want to put the work in and do it manually and accurately to your own likes, or to allow it to happen automatically but understand that the ones may not be in the exact places that you prefer.

So the question now is whether or not you could use trend lines by themselves in order to trade. The answer is both yes and no. Not the most helpful I am sure that you agree. Trend lines offer us a lot of information and can be enough for some people and for certain more simply trading strategies. Using the trendline will give you an indication of the direction that the markets are going, and many traders will only trade in the same direction as the trend. So the indicator does give you an idea of the direction to the trend, but the problem is that it does not give much more information than when used by itself.

You can also use two trend lines, an upper and a lower. This can give you slightly more information. Having both the upper and lower trendlines will create a channel that the price is moving along, and you can use this channel to work out a little more information. If the channel is narrowing or widening will give you a little idea of what the markets are about to do. You can also use those trend lines to look for breakouts. The price should be moving between the channels. Once it breaks out from either the lower or the upper line, then this could indicate that a breakout is about to happen, something that a lot of traders like to trade.

Ultimately, the trend lines are very simple to use but they offer limited information. So you can use them alone in order to analyse the markets and to trade. There may well be some people who are successful at trading this way. Having said that, a lot of traders like to use trend lines along with a number of other indicators, and the trend lines are exactly that, an indicator. They do not give you exact trades to enter, they do not provide you with a whole host of information, just a simple high and low channel. So many traders like to use trendlines along with a number of other indicators which will allow them to better analyse the markets and to work out what may be happening next.

The answer to our question is yes, you can use trendlines alone to trade, but you will be provided with very limited information. Using only trendlines will work with a few basic strategies, but if you want to use a more advanced strategy then you will need to use more than just trend lines to do your analysis.

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Forex Basics

Faux Pas That Are Actually Okay to Make With Your Trading

Much like anything in life, trading offers a lot of variety and so there are a lot of different people doing a lot of different things, meaning that we all have different experiences and abilities. Due to this, there are a lot of things that can be considered a faux pas. Things that traders will […]

Much like anything in life, trading offers a lot of variety and so there are a lot of different people doing a lot of different things, meaning that we all have different experiences and abilities. Due to this, there are a lot of things that can be considered a faux pas. Things that traders will […]

Much like anything in life, trading offers a lot of variety and so there are a lot of different people doing a lot of different things, meaning that we all have different experiences and abilities. Due to this, there are a lot of things that can be considered a faux pas. Things that traders will look back at as embarrassing, things that they probably would like no one to remember, but these things happen and they happen to all of us. The thing is that a lot of them are actually okay to make, regardless of what others may think. They could potentially benefit you and your trading or at least not have the negative effect that some people may presume. So let’s look at some of the faux pas in trading that are actually ok to make.

Blowing An Account

Let’s be honest, the worst thing that can happen to you as a trader is to have your account blow. Many people believe that this means that you are a bad trader, you do not know how to use proper risk management, you do not know how to trade or you are just bad at it. This is completely untrue. In fact, if you look at any successful trader today, we can almost guarantee that the majority of them would have blown their accounts at some point. The question is though, do you think that they are embarrassed by it? Most likely not.

This is simply due to the reason that it is something that nearly everyone will do, those that do not blow accounts simply have not traded for long enough. It will happen, it’s inevitable and it will most likely happen near the start. It can feel embarrassing but it really shouldn’t be. Instead, the blown account should act as a fantastic learning opportunity. They allow you to see exactly what you did wrong and what you can do to help prevent doing anything similar in the future. There is nothing wrong with a blown account (apart from the lost money) and it certainly does not mean that you are a bad trader. Use them. Learn from them and you will most likely not blow another one in the future and you will end up as a much safer trader in the long run.

Not Understanding Something, or Anything

Forex and trading as a whole can be incredibly complicated. There is so much information out there, far too much for any one person to even think about learning all of. In fact, you probably won’t ever learn more than 2% or 3% of what is out there. Due to this, you should never feel embarrassed that you do not understand something or in fact not understanding anything. We have all been in that situation, especially when we first started out as traders. We didn’t know a thing, everything that we read or watched was confusing, all these new words and meanings that we had never heard before.

So you should not feel embarrassed. Everyone has been in the exact same situation. Instead, you should ask what things mean, you should ask how to do things and you should question things that you do not understand. No one will hold this against you, in fact, the trading community is more often than not a very helpful one. People will be willing to help you to understand, they will explain things and help you to understand. Just know that absolutely every trader has been in the same situation and even those at the top of the game will still come across things that they do not understand, they are not embarrassed by that, and neither should you be.

Becoming Stressed

Stress can get the better of a lot of us. It is an emotion that the majority of traders will go through and is completely natural. If you are feeling stressed, do not try and keep it inside. Instead, you need to take action against it, you need to step away and you need to take breaks. Do not feel bad that you are needing to step away from the terminal because you are feeling a little stressed. We all have to do it at some point as do the world’s best traders. They take breaks because things are getting too tense and so should you.

Forgetting Stop Losses

Stop losses are vital for anyone to be trading in a safe way, but when you do something with every single trade. There will of course be times where you may forget to place them, and of course, the time that you forget is the time where the markets go against you and you lose a much larger chunk of your balance than you were planning for. It happens, you know you should be using them and so you feel embarrassed that you lost a lot more simply because you forgot to place it. Do not worry, use that as a learning experience and as you feel bad about it, it is much less likely that you will do something the same again. You need to learn from this mistake, we still do it from time to time. But each time we do it, there is a long period of time where we never forget to place it. Simply because we are remembering the losses that we took before. So do not feel embarrassed that you forgot the stop loss, just use that feeling as a reminder so you do not forget again in the future.

Not Having Enough Money to Trade

Trading can be expensive. It takes money to make money. At times in our lives, other things may come up, a broken boiler, a broken car or a wedding. These things cost money, and you may need to take money out of or even all of the money out of your account in order to pay for these things. Now you have no money to trade, that is fine. The other parts of your life are more important at that point in time, and the forex markets are not going anywhere. If you need to use your trading funds for things then use them. In the future, when you get more money again you can start to trade again. Do not make your life suffer just because you don’t want to be in a position where you cannot trade.

Those are some of the things that people find embarrassing about their trading or the things that they have done. It is important to remember that these things should not embarrass you. We all go through them and millions of people will go through them in the future too. Use them as learning opportunities or simply talk to others, you will discover just how common they actually are.

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Forex Market

Five Ways to Survive and Thrive in Extreme Volatility

Market volatility can be both a blessing and a curse, Many traders out there trade only in the most volatile of conditions, while others get hit pretty hard when it takes them by surprise. The volatility of the markets at what give us our profits as well as our losses, so it is important that […]

Market volatility can be both a blessing and a curse, Many traders out there trade only in the most volatile of conditions, while others get hit pretty hard when it takes them by surprise. The volatility of the markets at what give us our profits as well as our losses, so it is important that […]

Market volatility can be both a blessing and a curse, Many traders out there trade only in the most volatile of conditions, while others get hit pretty hard when it takes them by surprise. The volatility of the markets at what give us our profits as well as our losses, so it is important that we have an understanding of how to control our trading during times of volatility and also how to potentially predict it to help us get through it with as little damage as possible. Volatility has caused a lot of accounts to blow in the past and it will cause a lot more to in the future to, so that is why we are going to look at different ways that you can help prevent it from happening to you.

Limiting Trade Sizes

The first thing that you can do to help protect yourself and your account during these volatile times is to limit your trade sizes. The larger your trades are the more danger you will be putting yourself in. During extreme volatility, the markets can jump up and down in pretty large chunks. This is something that can be pretty deadly when it comes to an account that is using larger trade sizes. So in order to combat this, we need to ensure that we are either using the appropriate trade sizes for our account or if we often use larger ones, to try and reduce them during these times. This will then prevent any larger losses should the markets jump in the opposite direction. It will, of course, reduce any profits should go the right way, but during these extreme times, it is important that you protect your account above all else.

Sit Back and Watch

Sometimes you just need to step back and watch. The markets can be a dangerous place to trade, and knowing when things might be a little too much can be a great trait to have as a trader. Not every situation will merit a trade. In fact, when times are really extreme, it can often be better to simply not trade at all. Why risk what you currently have in order to make a bit more when the conditions are so volatile? Protect what you currently have and sit out the markets this time. You will have plenty of time to make some more profits once things have settled down again. You also need to consider that your trading plan probably didn’t take these extreme conditions into consideration, so you will be kind of trading blind, which is an increased risk in and of itself.

Always Use Stop Losses

When it comes to managing risks, ensuring that you have stop losses in place is vital. You should be using stop losses anyway, as this is an integral part of trading. If you aren’t using them, then you are trading wrong and are putting your account at risk with every single trade. This risk is multiplied tenfold when it comes to volatile conditions. If you are going to be trading during these conditions then you have to have them in place and you have to have them with every single trade that you place. I know we are repeating things, but you should not be placing any trades without a stop loss being in place. Protect your account before you think about making any additional profits.

Monitor the News

Monitor the news. Often, during times of extreme volatility, there is a real-world event that is causing it. This could be something like an economic news release, or it could be a disaster such as an earthquake somewhere in the world. Whatever it is, there will be news about it, and being on top of this and understanding what is going on can give you a big advantage. Normally when there is a lot of volatility, people are jumping in trying to make a quick profit, not really knowing or understanding why the markets are behaving the way that they are. This can be used to your advantage. By understanding what is happening, you are also able to gauge when the sentiment may change, allowing you to trade in that direction and profiting from people trading the current movement. Of course, this comes with risks and you may be potentially trading against the trend. The markets do not always react the way that you would expect, but it can be an advantage to understand what is happening with the news nonetheless.

Diversify Your Portfolio

Something that you probably would have been told at some point is to diversify your portfolio. When it comes to trading forex, this would simply mean that you are trading more than one currency pair. This is a way of helping to protect your account as you are not putting all of your money on a single trade or currency pair. Volatility can of course affect all markets, but it can also be concentrated on certain currencies, meaning that while one pair may be going a little crazy, some of the others may be more stable. This could then mean that you are unable to trade the less volatile pairs while the volatile ones are doing their thing, or it could mean that you can counter some of the risks of the volatile pairs with trades on the more stable ones. Either way, it is good practice to ensure that you are diversifying your portfolio and expanding into more than just the single currency pair.

So those are five of the things that you can do to help you survive the markets when they are going a little crazy with volatility. There are other things that you can do, and your own style of trading will help you to get through it and to better understand what it is that you need to do in order to prevent the risks, but the five things we have mentioned are a good start and are generally relatable for everyone. We wish you the best of luck once the markets start picking up their volatility levels!

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Forex Basics

Top 5 Things You’re Forgetting to Do While Trading Forex

Forex trading is a massive beast, there is so much involved in it, you will be forgiven if you were to forget something. In fact, it is probably expected that you at some point will start to miss things with your trading. No matter how experienced you are and how many years you have been […]

Forex trading is a massive beast, there is so much involved in it, you will be forgiven if you were to forget something. In fact, it is probably expected that you at some point will start to miss things with your trading. No matter how experienced you are and how many years you have been […]

Forex trading is a massive beast, there is so much involved in it, you will be forgiven if you were to forget something. In fact, it is probably expected that you at some point will start to miss things with your trading. No matter how experienced you are and how many years you have been trading, you will make mistakes and you will forget to do things that you otherwise know you should be doing. So let’s take a look at some of the things that people often forget to do even if they have been doing it or are meant to be doing it.

#1 – Placing Stop Losses

Stop losses are a vital part of any strategy. They are designed to be used to protect your account and they prevent you from losing any more of your money than you are intending with each trade. This very important aspect of a trade is unfortunately something that is quite often forgotten. While forgetting things now and then is not normally an issue, when it is something that will prevent you from losing money it can have a very big effect on your overall trading and your profits. A single missed stop loss could have the potential to completely blow your account, so it is vital that we remember to use them. It is easy to miss out yes, but you need to ensure that you place them as they are so important.

#2 – Creating a Trade Journal

A trading journal is a fantastic thing, it allows you to work out exactly what you are doing well and what you need to work on, and it will potentially help you to become a really profitable trader. Yet it remains something that a lot of traders seem to ignore or to forget to fill out. While this won’t have a negative effect on your trading, it will prevent you from improving over time, as you need to use the information that you have written down to work out what you need to change or what you are already doing well. You need to try and remember to write down things like the entry price, the exit price, how long you help the reader, the profit and loss, and pretty much everything that you do. This way you can use that information. A lot of people simply forget to do it, either through actually forgetting or from being too lazy to do it. It’s not the end of the world to forget, but if you want to be a successful trader, then you should certainly try and get it done.

#3 – Withdrawing Funds

This one may seem a little strange to say, but you will be surprised at how many people actually forget to withdraw any of their funds. One of the basic rules of trading forex is that you should be withdrawing your funds until you have at least withdrawn the same amount that you have deposited. This way while you can of course still lose money, you will not lose any of the money that you initially put in. Each month, withdraw your profits until you have withdrawn as much as you have put in. Many people forget to do this and some of them will then go on to lose whatever they have made if they had withdrawn, they would not be out of pocket as they would have taken out everything that they put in. So remember, withdraw a little bit each month. Even if it is not all the profits, a little bit each month will ensure that you do not lose everything that was put in.

#4 – Take Breaks

Trading can be addicting, really addicting, so much so that a lot of traders especially when first starting out actually forget to take breaks. Yes, you heard us right and we have been guilty of this ourselves. Breaks are incredibly important, simply because they allow us to refresh and to clear our minds, they are particularly good when our emotions are starting to come up or even take over. Yet so many people forget to take them. You need to, if you want to be a successful trader then you need to learn how to take breaks and you should be taking them regularly. If you can, take a break every hour or so. Don’t be like us and sit there for hours and hours on end, as this will only lead to burnout and you probably won’t be doing anything for most of that time anyway.

#5 – Adjusting Goals

Goals are fantastic. They are things that we are working towards, things that we wish to achieve at some point in our trading future. Some are short term and others are long term, but there is one thing that a lot of people forget to do, adjust them. When we achieve something, it kind of gets left behind, but it really shouldn’t. Instead, it should be adapted and pushed further forward, this way we still have something to aim towards and to trade towards. If we do not we will lose a lot of our motivation. So when you achieve something, be sure to adjust it so it will then become your next target, this way you will keep motivated and will always have something to work towards.

Those are some of the things that a lot of traders forget to do. Some may seem a little silly to you or some may not actually seem all that important, and that is fine. Not everything matters the same to each person, so you may not want to withdraw where someone else probably should. Are there things that you should be doing but forget? Probably, but once you can recognise that you should be doing something then you will be able to ensure that you are actively doing it in the future.

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Forex Basics

How Technology Is Changing How We Trade Forex

The world is changing, technology is changing and so the way that we trade is also changing based on the new technology that is coming out. It is changing and it will continue to change as the world progresses. 

The world is changing, technology is changing and so the way that we trade is also changing based on the new technology that is coming out. It is changing and it will continue to change as the world progresses. 

The world is changing, technology is changing and so the way that we trade is also changing based on the new technology that is coming out. It is changing and it will continue to change as the world progresses. 

How Forex Used to Be Traded

Do you remember paper? It is a thin sheet of wood that we often use for writing, that is how forex used to be traded in modern times. If we go back even further though, people used to exchange their goods and services for a price that was often represented with things like raw materials or food. The problem with this sort of transaction was that it was hard to decide on what price was actually correct, different people put a different value on different things. Someone who has a lot of ish would value it low, but someone who has none but likes it would value it a lot higher.  It was due to this that early civilisations developed things like commodity money and then eventually they created metal coin and paper currencies, similar to the ones that we still use today.

This development of currencies made the exchange between different countries and nations a lot easier, as it meant that you no longer had to transport one product to a nation and to then transfer the other product back. As time went on into the 17th century, the first forex market was established in Amsterdam, and this allowed for far easier exchanges and transactions between the different global markets. Back then, it was only large organisations or even countries that were able to take part, as well as that, the lack of technology that was available meant that the communication was slow between the nations. This made it hard for traders to get information quickly and therefore harder to reduce the risks involved.

How Is It Traded Today? 

These days things have changed a lot, updates take seconds to get to us, it is far easier to get updates and to find information from pretty much any part of the internet. Things like news events and exchange rates are updated in real-time and are accessible by pretty much anyone. Pretty much anyone is able to trade, brokers are there and available for anyone to sign up with and it only costs you a few dollars to do it, rather than the millions that it used to require. There are far more currencies and assets available to trade and it takes seconds to put a trade on, not to mention that we no longer need to use paper to place the trades, instead we use our computers or phones.

How Did Technology Get Us Here?

Technology has made the world of difference to trading and for those that wish to trade. The first thing s that you no longer need to be there in person. Originally you would have had to of been there in person to make the trade or to at least give the indication that you will make the trade, things then progressed with the telephone, making a call to a broker to put on the trade or to close one. Now though, technology has progressed even further. Now, all we need to do is to log onto our phone or computer and to place the tree using our trading platform. There is no longer a need for any interactions with a person, something that a lot of people like, however, some do prefer the days when they could actually speak to someone to place trades. The rise of those sorts of trading has made it far more accessible and also easier and quicker to place trades.

As technology progresses, the types of platforms that we have are also changing. Previously the platforms used were not user friendly at all, they are designed for function only, you would look at it to see the charts and other information and then would make a call to place a trade. Now, the charts and platforms have been created to be user friendly, with nicer colours, easier to understand user interfaces, and just a lot prettier. While this doesn’t really affect the functionality, it does make it easier to understand which again makes things more accessible for newer traders.

There are also robots and expert advisors available for us to use. Years back there was nothing, you or someone else would have to do all of the analysis themselves by hand. It would take time and it would be hard work, with humans doing the work there is also a lot more potential for human errors. Now though, we have indicators and robots, these can do the analysis for us, in regards to indicators, they can show us various information that it has already sorted through and so only shows the relevant info. Then there are robots that will do pretty much everything for us. They will analyse and then even place the trades for us, meaning that there is very little work for us to do at all.

What Does the Future Hold?

The current state of trading is currently going down the route of automation, so it is expected that things will continue this way. The problem with that is that if everyone is using robots, the markets will ultimately come to a halt. Thankfully there are those that will refuse to use robots and those will be the people keeping it moving. However, robots and indicators will continue to improve and the information that they provide to traders will continue to improve. The improvement of communication technology and the speed that it provides will continue to allow high-frequency traders to make even faster trades. It will also continue to become easier and more accessible to more people and potential traders.

These are just some of the ways that technology is affecting our trading. There have been huge leaps in things like the speeds, the accessibility, and the way that we trade. We went from physically handing over money to pressing a single button in our bedrooms, from needing millions to just needing $10. Technology will continue to improve and with that, so will the way that we trade, some will say for the better, others will say for worse. Only time will tell when the improvements in technology will really take us.

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Forex Fundamental Analysis

GBP/CHF Global Macro Analysis – Part 3

GBP/CHF Exogenous Analysis The UK and Switzerland Current Account Differential A country’s current account shows the sum of its net exports, net secondary income, and net primary income. In this case, the current account differential is the difference between the UK’s current account balance and Switzerland. In international trade, when a country has a current […]

GBP/CHF Exogenous Analysis The UK and Switzerland Current Account Differential A country’s current account shows the sum of its net exports, net secondary income, and net primary income. In this case, the current account differential is the difference between the UK’s current account balance and Switzerland. In international trade, when a country has a current […]

GBP/CHF Exogenous Analysis

  1. The UK and Switzerland Current Account Differential

A country’s current account shows the sum of its net exports, net secondary income, and net primary income. In this case, the current account differential is the difference between the UK’s current account balance and Switzerland.

In international trade, when a country has a current account surplus, it means the value of its exports is higher than imports. Thus, its domestic currency is in higher demand in the forex market. Therefore, if the current account differential is positive, it implies that the UK has a higher current account than Switzerland. We can then expect that the price of the GBP/CHF pair will increase. Conversely, a negative differential would mean that Switzerland has a higher current account than the UK. In this case, the price of the GBP/CHF pair is expected to drop.

Switzerland had a current account surplus of $10.11 billion in the third quarter of 2020, while the UK had a $20.97 billion deficit. The current account differential is -$31.08 billion. Hence a score of -7.

  1. The interest rate differential between the UK and Switzerland

Interest rate differential is the swiss interest rate subtracted from the interest rate in the UK. Forex carry traders use a pair’s interest rate differential to establish whether to buy or short the pair. For GBP/CHF, if the interest rate differential is positive, it means that the UK’s interest rate is higher than in Switzerland. This makes traders and investors go long on the pair; hence, a bullish trend.

Conversely, if the interest rate differential is negative, it means that Switzerland’s interest rate is higher than in the UK. Thus, forex traders will short the GBP/CHF pair; hence, a bearish trend.

The Swiss National Bank has maintained the interest rate at -0.75%, while the UK’s interest rate is 0.1%. Therefore, the GBP/CHF interest rate differential is 0.85%. It has a score of 3.

  1. The differential in GDP growth rate between the UK and Switzerland

GDP growth rate differential is the difference between the economic growth in the UK and Switzerland. A negative differential means that the UK’s economy is expanding faster than that of Switzerland. Consequently, the GBP/CHF pair will adopt a bullish trend. Conversely, if the GDP growth rate differential is negative, the swiss economy is growing faster than that of the UK. Hence, the GBP/CHF pair will adopt a bearish trend.

The UK economy has contracted by 5.8% in the first three quarters of 2020, while the swiss economy has contracted by 1.5%. That means the GDP growth rate differential is -4.3%. We assign a score of -3.

Conclusion

Indicator Score Total State Comment
The UK and Switzerland Current Account Differential -7 10 A differential of – $31.08 Switzerland has a $10.11 billion current account surplus, while the UK has a deficit of $20.97 billion
The interest rate differential between the UK and Switzerland 3 10 0.85% The differential is expected to remain at 0.85% all through 2021
The differential in GDP growth rate between the UK and Switzerland -3 10 -4.30% Switzerland’s economy contracted by 1.5% in the first three quarters of 2020 while the UK by 5.8%
TOTAL SCORE -7

The exogenous analysis of the GBP/CHF pair has a cumulative score of -7. Thus, we can expect a short-term downtrend in the pair.

In technical analysis, GBP/CHF’s weekly price is seen bouncing off from the upper Bollinger band.

We hope you find this analysis informative. Let us know if you have any questions in the comments below. Cheers.

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Forex Fundamental Analysis

GBP/CHF Global Macro Analysis – Part 1 & 2

Introduction The global macro analysis of the GBP/CHF currency pair will involve analysing endogenous and exogenous factors. Endogenous factors drive the domestic GDP growth in the UK and Switzerland. Exogenous factors influence the exchange rate for the currency pair. Ranking Scale The analysis will rank the endogenous and exogenous factors on a scale from -10 […]

Introduction The global macro analysis of the GBP/CHF currency pair will involve analysing endogenous and exogenous factors. Endogenous factors drive the domestic GDP growth in the UK and Switzerland. Exogenous factors influence the exchange rate for the currency pair. Ranking Scale The analysis will rank the endogenous and exogenous factors on a scale from -10 […]

Introduction

The global macro analysis of the GBP/CHF currency pair will involve analysing endogenous and exogenous factors. Endogenous factors drive the domestic GDP growth in the UK and Switzerland. Exogenous factors influence the exchange rate for the currency pair.

Ranking Scale

The analysis will rank the endogenous and exogenous factors on a scale from -10 to +10. The score for endogenous factors will be determined from a correlation analysis with the domestic GDP growth rate. If the score is negative, it means that the endogenous factor has led to the domestic currency depreciation. If positive, it has caused the appreciation of the domestic currency.

The exogenous analysis score is from a correlation analysis with the exchange rate for the GBP/CHF pair. When the score is negative, traders can expect the bearish trend for the pair. If positive, then the pair is expected to have a bullish trend.

Summary – GBP Endogenous Analysis

A -15 score implies that GBP has depreciated since the beginning of 2020.

Summary – CHF Endogenous Analysis

A score of 3 implies that CHF has partially appreciated since the beginning of this year.

Indicator Score Total State Comment
Switzerland Employment Rate -3 10 79.7% in Q3 2020 Slightly below the 80.4% recorded in Q1.
Switzerland Core Consumer Prices 4 10 100.82 points in November Inflation, as measured by the core consumer prices, rose by 0.28 points from January to November
Switzerland Manufacturing Production -2 10 4.7% decrease in Q3 2020 The YoY swiss manufacturing production is recovering
Switzerland Business Confidence 3 10 103.5 in November Swiss KOF Economic Barometer dropped in October and November. The majority of the consecutive drop was driven by private consumption
Switzerland Consumer Spending 5 10 Q3 spending was 91.929 billion CHF Q3 had the highest consumer spending compared to Q1 and Q2.
Switzerland Construction Output -2 10 A 0.4% drop in Q3 2020 Q3 output recovered from the 5% drop in Q2 but is still lower than the 3.1% growth in Q1
Switzerland Government Budget Value -2 10 An expected deficit of 2.2 billion CHF in 2020 Switzerland had a surplus of 8.1 billion CHF in 2019. The projected deficit is on account of aggressive government stimulus program and decreases in revenue due to COVID-19
TOTAL SCORE 3
  1. Switzerland Employment Rate

The Swiss employment rate measures the quarterly change in the percentage of the labour force that is employed. Changes in the number of people employed in the economy are a leading indicator of economic growth. When the economy is expanding, businesses create more job opportunities; hence, higher employment rate. Conversely, a shrinking economy leads to job cuts, which result in a lower employment rate.

In 2020 Q3, the Switzerland employment rate rose to 79.7% from the 6-year lows of 79.1%. Although the Q3 employment rate is lower than the 80.4% recorded in Q1, it shows that the Swiss economy is recovering from the economic shocks of COBID-19. The swiss employment rate scores -3.

  1. Switzerland Core Consumer Prices

Core consumer prices measure the rate of inflation by monitoring the price changes of only a select basket of goods and services. Consumer products with volatile prices are excluded. The rate of inflation is a leading indicator of economic growth. That’s because when inflation rises, it means domestic demand is on the rise, too, hence a higher GDP growth rate. Similarly, a decrease in the inflation rate means domestic demand is depressed, which may be followed by a contracting economy.

In November 2020, the swiss core consumer prices dropped to 100.82 points from 100.89 points in October. However, it is still higher than 100.54 points recorded in January. It has a score of 4.

  1. Switzerland Manufacturing Production

This measures the YoY change in the value of output from the swiss manufacturing sector. This sector plays a significant role in the Swiss economy. Therefore, growth in manufacturing production is accompanied by growth in the labour market and, consequently, the domestic economy’s expansion.

In Q3 of 2020, the YoY swiss manufacturing production dropped by 4.7%. That’s an improvement from the 9.6% drop in Q2. We assign a score of -2.

  1. Switzerland Business Confidence

The KOF Swiss Economic Institute compiles this index. It measures company managers’ optimism based on their perspective of the economy and the growth prospects of their businesses. The business that is surveyed are drawn from multiple sectors in the economy and contains 219 different variables.

In November 2020, the Swiss KOF Economic Barometer dropped to 103.5 from 106.3 in October. This marks the send consecutive month of a drop in the swiss business confidence. Notably, the drop in the index is primarily driven by the manufacturing sector and private consumption. Swiss business confidence has a score of 3.

  1. Switzerland Consumer Spending

This is the value of the total consumption by Swiss households. Domestic consumption is a primary driver of GDP growth. More so, it also an indicator of the performance in the labour market. With a higher rate of employment, disposable income increases, which increases consumer spending.

Swiss consumer spending increased to CHF 91.929 billion in the third quarter of 2020, which is the highest recorded compared to CHF 89.79 billion in Q1 and CHF 82.03 billion in Q2. It has a score of 5.

  1. Switzerland Construction Output

This indicator measures the percentage change in the value paid for construction work in Switzerland. The construction work includes building and engineering works done by public and private companies. Typically, when construction work increases, it is expected to be accompanied by an increase in the employment rate and economic growth.

In the third quarter of 2020, the YoY swiss construction output dropped by 0.4%. That is an improvement compared to the 5% drop in Q2 but still less than the 3.1% growth recorded in Q1. It has a score of -2.

  1. Switzerland General Government Budget Value

This represents the difference between the revenues received by the Swiss government and its expenditures. Government expenditure includes all transfer payments and purchases of goods and services. The general government budget value shows if the Swiss government has a surplus or a deficit. Too much deficit means that the economy is probably not responding to expansionary fiscal policies.

In 2019, the Swiss government had a budget surplus of CHF 8.097 billion. In 2020, the general government budget was expected to hit a deficit of CHF 2.2 billion. This deficit is primarily driven by a significant drop in revenue collection due to COVID-19. It has a score of -2.

In the very next article, you can find the Exogenous analysis of the GBP/CHF currency pair, so make sure to check that out. Cheers.

Categories
Forex Daily Topic Forex System Design

Trading System design – Basic Concepts

In previous articles, we explained the importance of a plan to succeed in Forex and described its general features. In this article, we will describe the concepts that need to be considered when designing a trading system.

In previous articles, we explained the importance of a plan to succeed in Forex and described its general features. In this article, we will describe the concepts that need to be considered when designing a trading system.

In previous articles, we explained the importance of a plan to succeed in Forex and described its general features. In this article, we will describe the concepts that need to be considered when designing a trading system.

A trading strategy is what most traders call a trading system, but it is not. A trading strategy is just a set of loose rules discretionary traders use to trade. A trading system is a set of closed rules used to systematically trade the market, usually through a computer EA, although a disciplined trader could also use it.

Traders, especially novice traders, get emotional and lose money because their emotions interfere and stop making rational decisions in the battle’s heat. Thus, the first thing to avoid is discretionary trading. Please read the article Know the Two Systems Operating inside Your Head. That’s why what we aim to create is a trading system that should be systematically traded.

Price imbalances

There are plenty of criteria to find these imbalances. There are two visual clues we can think of. The first one is a rubber band. The rubber band idea describes the price as if it was a rubber band or spring. When it moves far away from equilibrium, we expect the force to pull it to its center to increase and eventually drive it back to equilibrium.

The second visual clue is looking at the price moving in waves. Since there are numerous traders, their goals set in different timeframes, we can expect waves of different periods and amplitudes. A trend form when the combination of different waves are in sync, and chaotic moves occur when waves desync.

The main idea of a trading system is to find imbalances in the price and profit from it. Essentially, it takes the form of “buy low and sell high,” “sell high to buy back low,” or its variants “buy high sell higher,” “sell low, sell lower.”

The Effect of timeframes and a portfolio in the trading results

In their book Active portfolio management, Grinold and Kahn described the fundamental law of active management. The formula has two variables: The manager’s skill (IC) and the number of investments performed (N).

We could think of IR ( Information Coefficient) as a quality index of the results.

If we analyze the equation, we see that IC measures a trader’s ability to produce profits, since if N is constant, IR grows if IC grows.

But, if we keep the IC constant, we see that IR grows with the number of trades (N).

This explains that a portfolio of assets will be more profitable than only one asset. It also explains why shorter trading timeframes would produce higher results. Of course, with very short timeframes, the trading costs would eat a growing portion of the profits, so there is a limit to how short we could go.

Diversification

Diversification is a key concept to reduce the overall risk in trading. The idea is simple. Let’s say we have a long position the EURUSD with an overall dollar risk of 10 pips. If the dollar moves up and drives the pair southwards, we lose $100 on every lot. If we have an equivalent long position on the USDJPY, we will cover the risk on the EURUSD with the gains on the USDJPY, driving it to zero or, even, being positive overall.

If the assets are uncorrelated and the risk on each trade is similar on all trades, the overall basket’s risk will less than 50% of the sum of all open trades risk.

The profitability rule

Two parameters define the profitability of a system: the percent winners and the reward risk ratio.

The formula that tells the minimum percent winners (P) required with a determined reward/risk ratio (Rwr) for the system to be profitable is:

P > 1 / (1+Rwr) 

Conversely, below is the formula of the minimum reward/risk ratio needed with a determined percent winners figure on a profitable system:

Rwr > (1-P)/P

If you play with the second formula, you will see that at reward/risk ratios below one, the system should grant winners higher than 50 percent. Furthermore, Systems with high reward risk ratios would need less than 50% winners to be profitable.

The conclusion is we must look for systems with high reward/risk ratios to protect us from periods of low winner’s percent.

Assessing the quality of a trading system

There are several methods to measure the quality of a trading system. We propose the use of Van Tharp’s SQN, which is a variation of the chi-square test, a well-known method to evaluate the goodness of a sample against a random distribution. The SQN test is a Chi-square test that is capped to 100 samples so that the length of the sample does not modify its value.

  SQN = 10 x E / STD(E)

Where E is the expected profit on each trade, which is the sum of all profits divided by the number of trades, and the denominator is the standard deviation of E.

But if the sample is less than 100 instead of 10, the multiplier is the square root of N, the number of trades.

SQN = √N x E / STD(E)

Systems below 1 are bad. systems of 1.5 to 2 average, and from 2 to 3 good and over 3 excellent.

Elements of a Trading System

We can decompose a trading system into its several elements, although not all of them need to be present.  We have already discussed this, but let’s describe its basic elements.

A Setup: The setup is a market state where we think there is an imbalance in the price, or a condition we expect can be resolved with a price move, for example, the price reaching a top or a bottom of a channel.

A permissioning filter: This forbids trading under specific market conditions: Low volume, extreme volatility, particular hours or days.

Entries: This the stage that times the market. It can be a breakout, a candlestick pattern, or an indicator signal.

Stop-loss: This defined an invalidation level, under which the trade is likely no longer profitable. This level will limit our losses and save our capital for further trades.

Take-profit: It defines our planned profit. It may be set using support/resistance levels or any other sign the current trade movement is over, such as a reversal signal or the crossover of averages.

Re-entry rule: You may also consider this rule in your findings. For instance, a market failing to do something, for example, continue moving up, may signify it will move down. Thus, you could stop and reverse instead of close the position. Also, if you got out of a position, you could consider re-entry if the market flags a continuation of the previous movement. That way, you could tight your stops keeping most of your profits and reenter instead of loose stops, which may eat a large portion of your hard-earned profits if the market does not recover.

Categories
Forex Course

207. The Affects Of Stock Market On The Foreign Exchange Market

Introduction

Introduction

Introduction

The impact of the stock market on the flow of the forex market is quite significant. In fact, the foreign exchange market reflects the performance of the stock market. For instance, when the US stock market with Dow Jones, or NASDAQ, S&P 500 on the upward showing gains, the similar is likely to happen to the USD pairs in the foreign exchange market.

Rising Stock Market’s Impact

When the stock market is booming, investors from around the world will run to invest their money in the rising stocks of the nation as they are looking to obtain higher returns on the investment. With more investors demanding the currency, its value will increase significantly.

This is because if the investors want to put the money on, say, the US market, they have to convert their local currency into the US dollar. This significantly raises the demand for the dollar, hence makes the forex market perform better.

Falling Stock Market’s Impact

If the stock market is performing badly, the investors are likely to take their money out. This means that the investors will convert the currency back into the domestic ones or invest in some other country or asset. Subsequently, this will decrease the value of the concerned currency. This is something that all economies do in terms of investments.

Decision Making Based On Stock Market’s Performance 

Foreign exchange traders can leverage this information to assess the situation and predict the market. If you assess the stock of a particular currency and witness that they are moving up, then evaluate it against the currency, you will be able to make a prediction.

An increasing stock market will be influencing a boost in the value of the currency of the country. So you can base your trading decision on the same. At the same time, when the stock market is performing inadequately, you can sell the currency of that country. This is because the value of the currency will be falling in the market.

This correlation between the stock market and the foreign market can alter based on the global financial marketplace condition. The financial landscape is interconnected to different elements. Policies of central banks, political events, changes in the environment, everything affects how the trades are performed worldwide. The reason why stock influence forex is because stock includes companies that drive the economy of the country.

We hope you find this course article informative. Please let us know if you have any questions in the comments below. Cheers.

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Categories
Forex Elliott Wave Forex Market Analysis

EURAUD Under Bearish Pressure, What’s ahead?

The EURAUD cross is advancing in its incomplete third wave from a mid-term downward sequence that remains in play. Follow with us on what the Elliott wave theory tells about its next movement.

The EURAUD cross is advancing in its incomplete third wave from a mid-term downward sequence that remains in play. Follow with us on what the Elliott wave theory tells about its next movement.

The EURAUD cross is advancing in its incomplete third wave from a mid-term downward sequence that remains in play. Follow with us on what the Elliott wave theory tells about its next movement.

Technical Overview 

The big picture of the EURAUD cross unveiled in the following 12-hour chart exposes the price action moving in the extreme bearish sentiment zone during the second week of the year. However, both the acceleration and oversold could suggest the exhaustion of the bear market.

The following 12-hour chart exposes the market participants’ sentiment, unfolded by the 90-day high and low range. The figure reveals the institutional activity pushing the cross in the extreme bearish zone and consolidating under the yearly opening price at 1.58763.

On the other hand, the EMA(60) to Close Index recently pierced the -0.0300 level. This reading suggests both the oversold and the exhaustion of its accelerated downtrend identified with the black trend-line.

In this context, the accelerated downward trend-line breakout and the close above yearly opening price should warn about potential recoveries in the EURAUD cross.

Technical Outlook

The short-term Elliott wave outlook for the EURAUD cross unfolded in the 8-hour chart reveals the progress of an incomplete bearish impulsive wave of Minuette degree labeled in blue, suggesting further drops.

The previous chart illustrates the downward sequence that began on October 20th when the cross found fresh sellers at 1.68273 and started a bearish structural series of Minute degree labeled in black, which currently could be in its wave ((c)) or ((iii)). The internal structure seems developing its wave (iii) of Minuette degree identified in blue. 

The wave (iii) potential bearish target can be found between 1.56175 and 1.55359, which coincides with the descending channel’s base-line. Once the price tests the possible target area, the market participants could carry up the EURAUD cross toward the short-term descending channel’s upper line.

Regarding the wave (iv) in blue, considering the alternation principle, as wave (ii) is a simple corrective formation in price and time, wave (iv) should be complex and should last longer than wave (ii).

On the other hand, both the trend indicator and the timing plus momentum oscillator remain, supporting the bearish bias. Each rally could represent an opportunity to add positions to the bearish side.

In summary, the EURAUD cross continues in the extreme bearish sentiment zone advancing in an incomplete downward sequence, which could find support in the potential target zone between 1.56175 and 1.55539. Once the price finds support, the cross could start to bounce toward the upper line of its short-term descending channel. Finally, the bearish scenario analyzed will be invalid if the price soars above 1.60416, corresponding to the end of wave (i) in blue.

Categories
Beginners Forex Education Forex Basics

The Best Advice Forex Trading Advice You’ll Ever Receive

We all like a little bit of advice, don’t we? The entire point of advice is that it allows us to get better, as other people can see the things that we are doing and point out what we need to improve. Of course, not all advice is actually helpful. Some of it will not […]

We all like a little bit of advice, don’t we? The entire point of advice is that it allows us to get better, as other people can see the things that we are doing and point out what we need to improve. Of course, not all advice is actually helpful. Some of it will not […]

We all like a little bit of advice, don’t we? The entire point of advice is that it allows us to get better, as other people can see the things that we are doing and point out what we need to improve. Of course, not all advice is actually helpful. Some of it will not impact our trading but it is still good to hear. Today we are going to be looking at some of the better advice that you could use to help improve your trading. You may already be doing a lot of these things, or you may not be. If you aren’t, try implementing this information into your trading plans to see if they make an improvement.

Use a Demo Account

First off, we must stress how important it is to test your strategies and any changes that you make. This is something that a lot of traders, especially newer ones, simply do not do. They just chuck the changes into their main trades and hope for the best. Those that do test may still do this on a live account. While the trades are smaller, you are still risking your own money on something that you have no idea whether it works or not. So instead, what you need to do is to trade and test any changes that you make, no matter how big or small, on a demo account. This way you are not risking any of your own money on the changes, and if the change makes things a lot worse, you have not lost anything. As soon as you can see that the change is working consistently, only then should you try and implement that change on your live account where your actual money is.

Have a Risk Management Plan

One of the main elements of any trading plan or strategy is the risk management that comes with it. You can set this up before placing a single trade and you should, it will then be used for every trade that you place. The thing is though, that a risk management plan that works at one point, won’t always, and so you will need to be making constant changes and constantly reviewing the plan. Different market conditions may require you to change the locations of your stop losses and take profit levels. It may even cause you to change your risk to reward ratio. That is fine if you need to, just be sure that you are constantly monitoring the levels they are at and what risk management techniques you are using. You never know when they need to change, just remember our first point, test them on a demo account. Never accept your risk management plan as final.

Do Not Blindly Follow Others

A lot of traders will come into forex and simply follow what others are doing or what they say. While it is perfectly fine to get ideas from others or to trade the same as someone else, (some people make a lot of money by doing that) what is not right is to simply follow their trades blind. This means that you do not know why the trade is being put on or what to do if things go wrong. Each trader that you are following will have a reason as to why they have placed the take that they have, you need to know this too. As soon as you trade without knowing, you are risking your money on a blind gamble, and what will you do if things go the wrong way? That trader may not be there to tell you what to do, you will need to work it out, so if you follow blindly, you won’t be able to. Always work out why someone is placing a trade and what the requirements of that trade are before you place it. If you do not know any of these things, then do not place the trade.

Never Trade With Bill Money

The golden rule of anything to do with trading or investing, do not take any more than you can afford to lose. The best way of doing this is to consider any money that you deposit into your broker’s account as lost money, it is lost to you until you withdraw it back to your account. You also need to consider whether you need that money. We have seen countless traders trade with money they cannot afford to lose, money that they needed for food or for rent. They lost it and so cannot afford their rent that month, or even worse, traders that borrow, get into debt for trading and then lose it, leaving them with the debt to pay. If the money you are using will negatively affect your life if you lost it, then you should not be using it to trade at all.

Research EVERYTHING

This leads on from the previous point, you need to research everything, and we mean everything. If you are looking for a broker, research them. Find the one that has the right features that you need, and that has a good reputation of honoring what they are meant to be doing. If you are looking at signals, research them. Look at how they have done previously, the people behind it, everything. Creating a new strategy? You know the drill, you need to research everything that you can about it, the risk management that comes with it, the best trading conditions for it, your own requirements such as time required. Anything you do in trading, you need to research, this is how you get to know what it is that you are doing and why and it is the best way to ensure that the way you are going to do is correct. Do not do anything blind in forex or trading, that will only lead to losses and potential blown accounts.

That is some of the advice that you will hear quite a lot over the internet. It is all fantastic advice that can really help you to become a profitable and successful trader to at least save you some potential headaches down the road, not to mention some of your capital. Whether you already do them or not, take them into consideration next time you plan on trading and think about what you could potentially be doing differently which could help to improve your overall trading.

Categories
Forex Basics

What NOT to Do When Trading Forex For the First Time

Let’s be honest with each other, we have all made some silly mistakes when we do something for the first time. This is certainly true when it comes to forex trading. We have made a number of mistakes and when we look back at them now, we can see how silly some of those mistakes […]

Let’s be honest with each other, we have all made some silly mistakes when we do something for the first time. This is certainly true when it comes to forex trading. We have made a number of mistakes and when we look back at them now, we can see how silly some of those mistakes […]

Let’s be honest with each other, we have all made some silly mistakes when we do something for the first time. This is certainly true when it comes to forex trading. We have made a number of mistakes and when we look back at them now, we can see how silly some of those mistakes were. We also aren’t alone, many people are making the same mistakes that we were back then. They can be easily avoided, but you need to know what they are first. So we are going to be looking at some of the things that traders should not be doing when they first start trading the forex markets.

Trading Too Soon

Many new traders are excited about actually placing their trades. The problem with this excitement is that it means that a lot of traders do not actually learn enough before they decide to place those first trades. They learned the basics, what a trade is, and how to put it on, but that is about where the learning ended before trades have been placed. The problems that you will not be using a proper strategy with proper risk management, and so you are taking a lot of risks by placing trades too soon. Instead, you need to ensure that you know what you are doing. You need to have a strategy in place that will tell you how to place your trades and you need to have risk management in place in order to ensure that your account is protected and that you won’t be losing too much of your account balance with a single trade that goes wrong. Take your time, there is no need to start placing trades as quickly as possible.

Diversifying Too Early

There are a lot of currencies and a lot of assets available to trade, the variety is great and can really help us to be profitable as we can always find something to trade. There are however downsides to it, each and every currency and asset behaves slightly differently and is affected differently to real world events and news events. So there is a lot to learn. What a lot of newer traders do is that they start to pick a lot of assets at once and try to trade them all, this can be really confusing and ultimately overwhelming as you cannot learn about all of them at the same time. Instead, it is always recommended that you take your time to learn a single currency or asset at a time. Learn everything that there is to do with it, master it, and only then should you look at trading another asset. Of course, just one at a time until you learn all that there is about it and then another. Continue like this and it will help to keep you from overwhelming yourself or getting mixed up between a number of different currencies or assets.

Not Continuing to Learn

Forex is ever-evolving. Things are always changing. The markets are always changing and what you need to know is always changing. There is also an incredible amount of information, so much so that not a single person will know everything about everything when it comes to trading. So it is always a mystery why some people think that they do not need to learn anymore, and this is more often than not those that are newer to trading. They have learned their first strategy, they have placed some winning trades and so they believe that they know all that they need to know. You need to keep learning though. Every day you can learn something new, as soon as you stop, the market conditions will change and this will basically throw off anyone that is not learning anymore. They will not know how to adjust in order to match the markets and so they will begin to make losses. One major rule of trading is that you never know everything, you need to always be on the lookout for new things to learn.

Devoting Everything to One Trade

Something that newer traders don’t necessarily take as seriously as long term traders do is risk management. What we see a lot of traders do is to place trades that are far too large for their account size. This can be due to a lack of understanding, or it can be due to the fact that they want to make more money or that they are desperate to make more. Either way, it is not a sensible thing to do and it will ultimately only lead to losses or even completely blown accounts, especially if they are not using the proper risk management techniques in their trades. It is always better to trade too small than too big, at least that way your account will be safe should the markets turn against you.

Trading Too Much

Another thing that a lot of new traders do along with placing trades that are too large is to simply place too many trades. Whether or not someone is using a strategy for their trades, when you begin to place a lot of trades it can only lead to disaster. When we place a trade we use up a little bit of our available margin, as we place more we use more and more up, as we begin to use up a lot of it. It won’t take much for the markets to move against us and for the account to blow. We will also be placing trades that may not be considered as good trades, trades that are on a hunch or that are not in line with any strategies, we need to avoid doing these. More is not always better, you need to place trades that you are more sure of, rather than lots and hoping for more wins than losses.

Not Using Stop Losses

Stop losses are amazing things. These can be set for each trade. When the markets reach that level they will automatically close the trade at a loss. Why would we want to close a loss? To protect our account. If you do not use them, then a single trade could potentially blow an account. The stop losses are there to ensure that we only lose what we are prepared to lose on that single trade. Any more will be prevented which is how a trader remains profitable, by controlling how much they lose with each trade. Yet we see a lot of newer traders trading without them. Maybe they do not know about them or fully understand the importance of them, or some just don’t want to as they do not want to lose. Instead, they hold trades until the markets turn, if they turn. This is dangerous and not something we would recommend. Always use stop losses when trading,with every single trade.

Those are just some of the things that newer traders do not seem to do. There are, of course, other mistakes that are quite common. Consider whether you did or still do some of the things mentioned above. If you do, what do you think you can do to help change this? Try ad work on your trading to take out some of these things that you probably should not be doing.

 

Categories
Forex Basics

The Most Hilarious Complaints We’ve Heard About Forex

There are a lot of people that like to complain about things when it comes to trading. Some of them are genuine complaints, while others are pretty funny to look at and are clearly made up in order to try and justify the reason why they have lost some money or to cover up their […]

There are a lot of people that like to complain about things when it comes to trading. Some of them are genuine complaints, while others are pretty funny to look at and are clearly made up in order to try and justify the reason why they have lost some money or to cover up their […]

There are a lot of people that like to complain about things when it comes to trading. Some of them are genuine complaints, while others are pretty funny to look at and are clearly made up in order to try and justify the reason why they have lost some money or to cover up their misunderstanding of what it is that they are actually doing. Today we are going to be looking at some of the most hilarious complaints that we have heard about trading forex.

“It’s Fake!”

One of the best that we have heard and we have heard it quite a few times is the fact that there are people out here that are claiming that forex trading is fake. That the entire system that we use is fake, something made up by some people in order to take all of our money. That million of traders are all falling for something that isn’t even real. You can probably tell how silly this is, and yet people still complain about it. They complain that forex even exists.

While we can see their point of view when it comes to certain things, like the people promising ridiculous income or the fake brokers, calling the entire industry a trillion dollar industry fake is just a little on the absurd side. Normally when there is enough proof out there to clearly show that something is real, the people claiming it to be fake often stay quiet, but when it comes to forex trading, they like to be vocal, which ultimately just ends up making them a spectacle to be laughed at.

Look on social media, you will constantly see people telling others to stop because it is fake, completely ignoring the fact that the people they are telling to stop are actively trading the thing they are calling fake…

“My Strategy Was Right…The Markets Were Wrong.”

There are some very stubborn people out there, some that seem to think that everything that they do has to be right. This could be a form of narcissism where someone is completely on their own side, they know best and they are right. We see people basically telling us that the strategy that they have used is right, the trade that they put on should be a win, but it ends up losing. Is this their fault, no, a good strategy will still have losses, no matter how good it is, but when you start to blame the markets, saying that the markets are wrong, it just gets silly. The markets are not wrong, they never will be, you are trading the markets, the markets aren’t moving for you If your trade loses, it is not the jets fault, you just put on the wing trade you need to accept that, but that is something that a lot of people do not seem willing to do.

We have seen the complaints of someone asking why the markets didn’t move up. They had placed a trade and it should have gone up. They just couldn’t accept the fact that he did not control the market.

“My broker scammed me!”

We Have to make it clear – for some, this could actually be true. There are some very underhanded brokers out there that are created for the simple reason of taking your money. Yet we see people shouting about being scammed by some of the major brokers, the biggest and most trustworthy brokers. When in reality, they just traded badly and lost their money, but of course it is not their fault, it is the brokers fault, using foul play to take their money. If you are to ask them for evidence of this, the only thing that they can ever show you is their blown account or some losing trades, which only confirms the idea that they traded badly, nothing to do with the broker. They very very rarely have any proof that the broker did wrong, making their excuses and complaints pretty pointless and worthless.

People have complained about brokers calling them up and asking for more money. They have then paid them, only to never see the money again. We are not sure how you can complain about that. If that happened to us, we would be keeping our mouths shut out of embarrassment.

“There is too much info out there.”

There is a lot of information when it comes to forex trading. The good news is that you do not need to learn about all of it. In fact, you probably don’t even need to know even 5% of it in order to be a very successful trader. There is loads of stuff when it comes to trading that we know very little about, that is not a problem. Yet some people come into trading forex thinking that they need to know everything, that if they do not learn it all they won’t be able to be successful. They see all the information that here is and decide that there is too much, complain about it and then leave. Yet they do not want to listen to the answers given to thm which clearly tell them that they don’t need to learn everything, instead they simply want to complain rather than actually giving it a proper go. 

One of the best complaints we’ve read was when someone claimed to have spent hours learning everything they can, but they still didn’t understand what a PIP was. When asked if they had looked it up and they simply answered no, stating that there was too much other information clouding their ability to find the answer. 

“It costs too much.”

Trading forex costs a lot if you lose, that is the simple fact behind it. Some traders are fixated on using just one or two brokers that they may have used before or that were recommended to them, these brokers may require a larger deposit in order to start trading with them, but not all brokers do. There are some very good brokers around that allow you to open up an account for as little as $10, making it very cheap and very accessible. Of course you won’t be able to make much with that amount and it is easy to lose it, so it is recommended to have more, but the opportunity is there and it does not cost much. Some brokers also offer larger than usual commissions or spreads, something that you should avoid, but you can certainly find ones that offer low deposit limits, low spreads and recent commissions. Yes it costs money to trade, and the more money that you have the more you can make, but it is certainly not costing too much to trade at all.

We have seen complaints from people saying they need $10,000 to open an account and that they are being charged $20 per lot traded…The solution is simple. Choose another broker, there are enough of them out there.

Those are some of the complaints that we hear quite a lot. Some of them are legitimate, however, they are more often than not blown vastly out of proportion, to the extent where they just become ridiculous and you can’t do anything but laugh at them. We are sure you have heard some of them and we are sure that you will hear them again, that is just the nature of people and forex trading.

Categories
Forex Basics

Tips for Increasing Your Forex Productivity

Forex trading can take a long time. In fact, in order to place a single trade, it could take you up to a few hours of analysis before you actually place it. That doesn’t sound like the most efficient thing in the world and you would be right, it isn’t. Traders are always looking for […]

Forex trading can take a long time. In fact, in order to place a single trade, it could take you up to a few hours of analysis before you actually place it. That doesn’t sound like the most efficient thing in the world and you would be right, it isn’t. Traders are always looking for […]

Forex trading can take a long time. In fact, in order to place a single trade, it could take you up to a few hours of analysis before you actually place it. That doesn’t sound like the most efficient thing in the world and you would be right, it isn’t. Traders are always looking for things that they can do that will help them to speed up their trading abilities. To improve their productivity and to basically make trading forex quicker and simpler. That is why we are going to be looking at some of the things that you can do that will help speed up your productivity when it comes to forex trading.

Have A Predefined Plan

Having a plan already set out can make things incredibly simple and a lot quicker when it comes to actually placing your trades. This predefined plan basically means that you have your entry requirements already set up, a set of rules that dictate what trades you are going to be putting on and how you are going to put them on. These rules should be set in stone and go inline with your strategy. Having them there clear and simple means that you do not need to think as hard when you are there to place a trade which can increase your productivity as you are no longer needing to work out whether it is a good trade or not, you know whether it is or is not based on whether it matches your rules. If it does, then place the tread, if it does not then do not place it, as it would be a bad trade. Having these rules are paramount for being efficient, as well as profitable.

Remove Any Distractions

Distractions can be a real nightmare for your productivity, not just with forex trading but with pretty much anything that you are doing. Distractions can come from a lot of different sources from the TV, a radio, your phone, internet browsers, or even other people. If there is something around that can distract you, try and get rid of it. This may mean that your trading room is a little bare, and that is fine, as long as it enables you to concentrate on what you are doing. As soon as you start to procrastinate, looking at or doing other things, your productivity will plummet. Avoid this as best as you can. Of course some distractions you cannot avoid, the postman at your door for example, but as long as you control the ones that you are able to, you should be able to keep your productivity high.

Avoid Bad Trades

Productivity is not all about placing trades. You could place 100 trades a day, but this does not mean that you are being productive. All it means is that you are placing a lot of trades. Instead, you should try and focus on placing good trades, trades that are in line with your trading strategy, and trades that will give you the best chances of being profitable. If you simply place random or lots of trades, then there is a good chance that some of them will be losers. As soon as you lose a trade, your overall productivity will decrease. So instead you will want to focus on the good trades, each one will have a better chance of profits, which is your overall goal and the overall measurement of your productivity.

Reward Yourself

There is no better motivator to work hard than a reward, so reward yourself. It will help you to want to keep going and to work harder. If we constantly work and don’t receive anything back, why are we doing it? It will demotivate us, make us not want to bother doing too much which will be detrimental to our overall trading productivity, it will drop if we are not motivated to work. So reward yourself regularly. It doesn’t need to be very large rewards. A little bit of your profits or a nice meal out should be enough. Reward yourself, motivate yourself often and you will see your overall productivity levels rise.

Take Breaks

This may seem to be counter-productive. Taking a break means that you will be away from your computer and away from making trades, but this is not necessarily a bad thing. In fact, it is a good thing and can very easily improve your overall productivity. Taking breaks allows you to refresh both your mind and your body. If we do the same thing over and over for a long period of time we will become bored. We will become tired and we will start to make mistakes. That is why taking breaks is so important, it allows us to remain fresh when we are trading. This freshness means that we are able to concentrate more and will be able to better ensure that we are placing good trades, not to mention the speed at which we can place them will also improve.

Get Plenty of Rest

There is nothing better to refresh us than a good night’s sleep. Your brain needs time to switch off and to recover, not to mention the fact that we have all experienced what it is like to not sleep properly. You are sluggish, make mistakes, and are far more irritable than when we have had a good night’s sleep. This is why it is so important to try and sleep. Along with this, it may be beneficial to choose a trading strategy that does not require you to be up in the middle of the night, one that allows you to take advantage of your bed and to sleep the entire way through the night. If not, then at least try to get a minimum of 6 hours sleep a night, at a minimum to ensure that you are up and alert the next day ready to trade.

Set Alarms

Let’s be honest, we have all had those trading sessions where we are sat at the computer for hours and absolutely nothing happens, there have been no trade opportunities available to us. We can avoid this by simply setting up alarms and alerts. These alerts can let us know when the market conditions are favourable for us and this will enable us to get away from the screen and to avoid wasting time simply sitting there. We can take a break, we can do some laundry, cooking anything rather than simply sitting there doing nothing, and becoming frustrated. These alerts mean that we are only actively trading when the markets are in the right condition, which will also keep our mind free and fresh for when we actually need to place our trades. These Arts can also work forever, meaning that we can set them and they will alert us every time in the future when the conditions are right.

Those are just a few of the things that you can do that will help to ensure that your trading productivity remains high. They will enable you to place far better trades at a much quicker pace, will help you to become profitable, and will enable you to be a better trader overall.

Categories
Beginners Forex Education Forex Basics

To People That Want To Start Forex But Are Afraid To Get Started…

Getting started with new things is often the hardest step, and it is no different when it comes to trading and forex. People can sometimes find it hard to actually place that first trade or to deposit that first bit of money. There are be a number of different things that are stopping you from […]

Getting started with new things is often the hardest step, and it is no different when it comes to trading and forex. People can sometimes find it hard to actually place that first trade or to deposit that first bit of money. There are be a number of different things that are stopping you from […]

Getting started with new things is often the hardest step, and it is no different when it comes to trading and forex. People can sometimes find it hard to actually place that first trade or to deposit that first bit of money. There are be a number of different things that are stopping you from starting, from your anxiety, to simply not liking the risks that are involved. We are going to be looking at some of the reasons why people are afraid of starting the whole trading process. We will also look at some of the things that you can do to try and get that jump-start and to actually start trading.

Jump In

Honestly, it may not sound like the most helpful advice, but sometimes you just need to just jump in with both feet. This doesn’t mean be reckless. Don’t jump in and throw your money about, simply get that first trade placed. Yes, you will need to do some learning beforehand, or analyze the markets for potential trades, but getting that first trade out the way will seriously help with your anxiety about placing those trades. It will also give you an idea and feel of what it is that you are doing and how it actually works first hand rather than just from what you have previously read about.

Use A Demo Account

One way of getting around the fear of putting on some trades is to practice doing it. You can do this on a demo account. The majority of brokers will have this service available to you, all you need to do is to sign up for the demo account. These accounts often have the same features and trading conditions the live accounts so they are perfect for testing out your strategies and just simply getting used to trading. Do not worry about using the demo account for an extended period of time. Use it until you are ready to go live. This could be a week, a month, or even a year for some people, but use it to get used to it until you are confident about how things work and that your strategy is effective.

Use Money You Can Afford to Lose

As with anything when it comes to money, you should only use money that you can afford to lose. What this means is that you need to imagine that any money that you put into the account is automatically lost, imagine that you will never see that money again. How Does this make you feel? If you are just a little annoyed then that is fine, but if you are now worried about being able to pay the rest, or that you are going to have to cut back on things then you should not be trading with this money. If losing it will affect your life, then you need to avoid trading with it at all costs. Only use what you can afford to lose, that is a saying that will be around for as long as money exists.

It’s Complicated, But Not Too Complicated

Trading can be complicated. There is a lot to learn and it can be incredibly overwhelming. In fact, we were in the exact same position at the start of our trading careers. There’s so much info out there that it can make you want to simply give up as it can confuse you as to what it is that you actually need to do. Do not worry if you are in this same situation. Take your time. There is no time limit on how quickly you need to learn things. In fact, you can take as long as you need. Go over one subject at a time, learn what there is to know about it, and then move on to the next. As you begin to learn more and more it will all begin to fall into place and it will start to make sense for you. Of course, there is still a lot to learn, and it is still complicated, but it will start to become clear the more you learn, and the more you begin to understand it.

Too Much Risk Is Involved

For many people, risk is a voodoo word. It is something they do not want to think about and something that they would want to avoid. This is perfectly understandable. Afterall, with risk can come loss, however on the other side, with risk can come rewards. That is why we set up strict risk management plans. These plans outline what we will trade when we will trade it, and how much we will trade. It also tells us the maximum loss that we can have with each trade. If you are worried about putting your money at risk, know that you’ll have these plans in place which will prevent you from losing everything at once. In fact, you can set it up so that you only need to win 25% to 30% of your trades in order to be profitable. This is all done through your risk to reward ratio, which is part of your risk management plan. Ensure that you have this in place before you start trading and you will be in a good position.

Plan Your Trades – Plan Your Losses

Fear and being afraid of something is all about your anticipation that something will go wrong or that something bad is going to happen. In the case of Forex trading, this is often the fact that you can lose some of your money. What we need to do is to plan for these losses. It sounds strange saying that we are going to plan for them, as if we want them. Of course, we don’t, but we know that they are going to happen at some point in the future. The very near future. Losses are a part of trading, all traders experience them, even the best in the world. What they do though, is that they plan for them, they know that the losses are coming and so they limit the damage that they cause. Within our risk management plan, they have their risk to reward ratio that we mentioned before. Those prevent the losses from being too large. Some go for a max 1% loss, which means you can lose nearly 100 trades in a  row before busting out. Others a little more, but that means that even though you have made a loss, it is small, and a single win will bring you back to breakeven or even profit.

We understand that it can be hard to get started. As we mentioned, starting is often the very hardest part of it. Once you have your first trade and you understand what you are doing, those worries and anxieties that you had about trading will fly out the window. You will have confidence, you will know what you are doing and you will be able to trade more and more. It is simply getting started that is hard, but push yourself over that hurdle, and you will be on your way to a new career in forex trading.

Categories
Forex Basics

What I Wish I Knew About Forex Trading A Year Ago

One thing that we can all be sure about, hindsight is a fantastic thing. It allows us to look back at what we have done in the past and to then consider what we maybe could have done differently. While we are not able to change the past, although it would be great if we […]

One thing that we can all be sure about, hindsight is a fantastic thing. It allows us to look back at what we have done in the past and to then consider what we maybe could have done differently. While we are not able to change the past, although it would be great if we […]

One thing that we can all be sure about, hindsight is a fantastic thing. It allows us to look back at what we have done in the past and to then consider what we maybe could have done differently. While we are not able to change the past, although it would be great if we could, we can still learn from it and that is what we will be doing today. Now that we have been in the trading game for quite a few years, we have learned a lot of new things, things that would have been very helpful for us back in the past. So let’s take a look at some of the things that we wish we had known a year ago that most likely would have helped us to be far better traders.

Do Not Trade Too Soon

One thing that we did quite a lot a year ago was to trade too soon. This is not in relation to not having the knowledge, we had already been trading for a bit of time before this so we had an idea of what we were doing. What we did keep doing though is putting on the trades too early, we had a trade lined up, did a little bit of analysis, but then did not wait for the additional confirmations that were needed. Instead, we simply placed the trades. Some went well, some did not, and those that went into a loss were easily avoided if we had just waited to place the trade and we would have seen that the markets went against us. So we simply wish that we had a little more patience when it came to policing out trades.

You Will Be Profitable

This is one quite personal to me. A year ago, I had a lot of doubts. I have a lot of thoughts that I may not be successful and that made me go days or even weeks without actually trading. In the position that I am in now, I am profitable month on month. I just wish that I had known that I was going to be successful. I would have had the motivation to trade every day and the motivation to put in more effort along the way. However, I am happy with the position that I am in now and will not dwell on the lost potential that would have been there.

No Single Strategy Will Always Work

About a year ago I only used a single strategy. It was my go-to strategy and it is what I used pretty much all the time, no matter what the conditions of the markets were. This is something that we know now is not the best way of going about things. In fact, it really held us back and prevented us from making quite a lot of profit. What we know now is that we need to have a number of different strategies in our arsenal if we want to really be successful. It will also allow us to trade better in different market conditions rather than trying to always adapt our single strategy, which can only stretch so far. So we just wish that a year ago we have learned a number of different strategies instead of sticking to just the one.

Use Stop Losses With Every Single Trade

We did use stop losses, just to make that clear, but we did not use them with every single trade. Due to this, we made a few losses that are a little larger than they probably should have been. This ultimately would have saved us a bit of money in the long run. We now know that we need to have the stop loss set on every single trade, every single one, no matter how sure we are around no matter how small or big the trade is. Always have one set, regardless of anything else, it will save you money and the one that you miss could be the one that would have saved your account.

Covid-19 Is Coming

If we take the tragedy out of the Covid-19 pandemic, then the pandemic gave us a lot of opportunities as well as a devastating effect on the world economy. A lot of people lost a lot of money when the markets decided to fall. However, while the stock market collapsed, the forex markets were a little more stable. It was, of course, a lot more volatile but it wasn’t blowing accounts every single day. What it did offer though was a lot of opportunities. As different countries went into lockdown at different times, the markets reacted accordingly. We stood back from the markets as a lot of trades did, but this meant that we missed out on some fantastic chances to make a lot of money.

Some traders took advantage of this. As the UK went into lockdown, they shorted the GBP currency. As the USA went into lockdown they shorted the USD currency, the same for Europe and other countries. As the countries went into lockdown, their economies shrunk which in turn made their currencies a lot weaker. The perfect opportunity to profit from them. There were, of course, still a lot of dangers in the as it was very unpredictable, but there was certainly a lot of money to be made and as it happened. We wished we were involved but didn’t want to take the risk. Now though with hindsight, we still wish we were more involved.

Those are some of the things that we wish we knew a year ago. Some of them would have helped to save us a little bit of our profits by reducing losses, others would have helped us to have made a lot more profit, and some would have just made us a more knowledgeable and consistent trader. Whatever you are doing now, think back to a year ago, were you doing the same things? You were most likely not, some of them yes, but some of them no. We are all developing as time goes on, so while hindsight is good. Looking back at how far you have come is good. Try not to dwell on the past or the mistakes that you have made, look to the future and the successes that you can make in the future.

Categories
Forex Basic Strategies

Undeniable Proof That You Need A Trading Strategy

If you are new to trading or are simply thinking about joining and have spoken to another trader, they most likely would have asked you what strategy you are using. While for many it is quite a straightforward question to answer, for others it is not quite so simple. There are thousands of different strategies […]

If you are new to trading or are simply thinking about joining and have spoken to another trader, they most likely would have asked you what strategy you are using. While for many it is quite a straightforward question to answer, for others it is not quite so simple. There are thousands of different strategies […]

If you are new to trading or are simply thinking about joining and have spoken to another trader, they most likely would have asked you what strategy you are using. While for many it is quite a straightforward question to answer, for others it is not quite so simple. There are thousands of different strategies out there, and some traders even trade a hybrid of more than one strategy at the same time. What is important though, is that you have a strategy, no matter what it is, it is imperative that you have one, and we are going to be looking at why it is so important to have a strategy, no matter what it is.

Gambling Is A Loser’s Game

If we are to trade without a strategy, we are effectively just gambling. There is no other way to describe it. You are taking a wild guess at what the markets will do or you are using a hunch, but that hunch is based on no real facts or figures. Due to this, you are simply placing your bet and hoping that the markets go the right way. The problem with this is that the markets like to move how they want to move and they do not always move in one direction for long enough for a gamble to be effective. What’s worse is that if your first trade losses, you will simply place another trade with no real reason behind that one either. You need to lose a strategy, the strategy gives you rules to follow and ensure that your trades have the best opportunity to profit, rather than simply placing trades and hoping that it is a loser’s game through and through.

Strategies Give You Rules

One of the things that a strategy will give you are rules, house rules are there to ensure that your trades are consistent and that the trades that you are putting on have the best opportunity to be profitable. When we have a strategy in place when we place a trade that is not in line with the rules that we have set out we consider it a bad trade. We are trading outside our strategy and so the profitability factor or risk and reward ratio of that strategy is no longer accurate making it far harder for us to keep track of how well the strategy is doing or how well we are doing as traders as a whole. Once you have set rules, stick with them, this is the best thing that you can do in order to ensure that you remain profitable.

Strategies Give You Stability

The rules that we set out above are there to give us stability. Those are the main reasons behind them, and due to that, using a strategy gives us a lot of stability when it comes to our trading. It makes us consistent in the trades that we are making. It ensures that we are always placing good trades and ultimately it can make our profits and overall capital a lot more stable.

Strategies Protect Us

A major part of any strategy is the risk management that comes with it. The risk management part of strategies are there to help protect your account, they include things like your risk to reward ratio, stop loss locations, and other elements like that. All designed to limit the amount that you can lose with each trade and to ensure that you do not blow your account too quickly. We need to trade with risk management within our strategies, if we don’t, no matter how good a strategy actually is, a single trade can actually cause you to completely blow your account.

Strategies Help You to Focus

One fantastic thing that strategies help us to do is to focus, they help us to avoid distractions and they help us to concentrate on what it is that we need to be doing, rather than looking elsewhere. We know what we are looking for in the markets, and exactly what we need to do. This really helps us to focus on what we are doing which in turn can make us a lot more efficient in our trading.

They Can Save You Time

When you use a trading strategy you will know what you have to do. This will help to save you time from analysing or looking at things in the arts that you certainly don’t need to. Much like when we mentioned keeping focus above, using a strategy can help you to save time as you are focused on what you are doing. It also helps you to avoid some distractions. There have been plenty of times then we have wasted a lot of our time by looking at things that are completely irrelevant to our actual trading, the strategy helps you to avoid doing this. At least not all day like we have been guilty of before, ending up with no trades for the entire day.

They Help You Learn

Many people think that strategies are only there to help us to trade, but they also help us to learn. They help us to better understand why the markets may be moving the way that they are and they help us to better understand the way that we trade. The more strategies that you learn and understand, the more of an understanding of the overall markets you will have. Multiple strategies also give you more of an opportunity to trade in different trading conditions, allowing you to be far more profitable throughout the year than you would using just one or even no strategy at all.

Those are just some of the reasons why you should be using a trading strategy, they can be relay helpful in your trading, your results and overall they are what make us traders, as long as you are using one you should be on a positive step towards being profitable, just try to avoid trading without one, that is simply gqambling and will only lead to losses in the long run.

Categories
Forex Fundamental Analysis

GBP/JPY Global Macro Analysis – Part 3

GBP/JPY Exogenous Analysis The United Kingdom and Japan Current Account Differential The current account data is the most comprehensive measure of a country’s participation in international trade. It is the sum of net exports, net factor income, and net transfer payments. Remember that in the forex market, the value of a country’s fluctuates depending on […]

GBP/JPY Exogenous Analysis The United Kingdom and Japan Current Account Differential The current account data is the most comprehensive measure of a country’s participation in international trade. It is the sum of net exports, net factor income, and net transfer payments. Remember that in the forex market, the value of a country’s fluctuates depending on […]

GBP/JPY Exogenous Analysis

  • The United Kingdom and Japan Current Account Differential

The current account data is the most comprehensive measure of a country’s participation in international trade. It is the sum of net exports, net factor income, and net transfer payments. Remember that in the forex market, the value of a country’s fluctuates depending on its demand. Therefore, when a country has a current surplus account, it means that the demand for its currency is higher, and vice versa.

In this case, the current account differential is the difference between the UK and Japan’s current account balance. If the current account differential is positive, it means that the GBP will appreciate more than JPY hence a bullish GBP/JPY. Conversely, if the current account differential is negative, JPY will appreciate faster than the GBP hence a bearish trend for GBP/JPY.

In Q3 2020, Japan had a current account surplus of $15.4 billion while the UK had a $20.97 billion deficit. Thus, the current account differential between GBP and JPY is – $36.37 billion. Thus, the UK and Japan current account differential have a score of -3.

In the forex market, the interest rate is one of the most closely monitored economic indicators. Suffice to say, traders and investors monitor every other domestic economic indicator to predict the interest rate policy changes. The interest rate differential for the GBP/JPY pair is the difference between the UK’s interest rate and that in Japan.

If the differential is positive, traders and investors can receive better returns by selling the JPY and buying the GBP, hence, bullish GBP/JPY. Conversely, if the interest rate differential is negative, currency traders would prefer to sell the GBP and buy JPY hence, the bearish GBP/JPY pair.

In 2020, the BOE cut interest rates from 0.75% to 0.1%, while the BOJ has maintained an interest rate of -0.1%. Therefore, the GBP/JPY interest rate differential is 0.2%. It has a score of 4.

  • The differential in GDP growth rate between the UK and Japan

The GDP growth rate differential measures the difference between the UK and Japan’s average annual growth rate. This is an effective way of comparing two economies since all economies vary in size and composition.

When the GDP growth rate differential is positive, it means that the UK economy has expanded more than Japan. Hence, the GBP/JPY will be bullish. Conversely, if the differential is negative, Japan’s economy has expanded faster than the UK’s. Hence, the GBP/JPY pair will be bearish.

In the first three quarters of 2020, the UK economy has contracted by 5.8% while Japan contracted by 3.5%. The GDP growth rate differential is -2.3%. Thus, we assign a score of -3.

Conclusion

Indicator Score Total State Comment
The UK and Japan Current Account Differential -3 10 A differential of – $36.37 The UK has a current account deficit of $20.97 billion, while Japan has a surplus of $15.4 billion. This is expected to continue to widen as both economies recover from the pandemic
The interest rate differential between the UK and Japan 4 10 0.20% Both the BOJ and the BOE have no plans to change their monetary policies in the foreseeable future. This means the differential will remain at 0.2% in the short-term
The differential in GDP growth rate between the UK and Japan -3 10 -2.30% The UK economy contracted more than the Japanese economy. As economic recovery progresses, this differential could change
TOTAL SCORE -2

The cumulative score for the exogenous factors is -2. That means that the GBP/JPY pair is set on a bearish trend in the short-term.

Technical analysis of the pair shows the weekly chart attempting to break below the middle Bollinger band.

Categories
Forex Daily Topic Forex System Design

Building a Trading System: Elements of a Trading Plan

Now that we know the importance of having a plan, let’s discuss the necessary components of a trading plan.

Now that we know the importance of having a plan, let’s discuss the necessary components of a trading plan.

Now that we know the importance of having a plan, let’s discuss the necessary components of a trading plan.

A trading plan should consist of at least these elements:

  1. A basket of instruments
  2. A trading system consisting of timeframes, permissioning filter, entry rules, trade management: stop-loss, take profits.
  3. A position sizing methodology
  4. A trading record
  5. Trade-forensics analysis.

In this article, we will provide an overview of these elements.

A basket of Instruments

Every asset has its characteristics, and its market movement differs from others on volatility, liquidity, and ranges. Therefore, professional traders track a limited basket of instruments to trade. A few, even, specialize and trade just one instrument.

 

The best criteria to decide which are best are:

  • Liquidity: It means how much trading volume it moves. Illiquid assets are easy to manipulate, spreads (the difference between the bid and ask prices) are wider, and the trading rules fail more often.
  • Price Action: The instrument should have enough swings in the trading timeframe to merit trading it. Instruments that do not move or move too erratically are prone to failed trades. A security that trends are the best.
  • Familiarity: As said, your trading results improve if you’re familiar with how an asset moves, its usual support and resistance levels, the typical length of swings, and so on.
  • Economic Data: Economic news releases affect the security and trading signals fail at the time of the release. Therefore, it is advisable not to trade it in the vicinity of a news release.

The Trading System

As said in our previous video, financial markets are unbounded territories where each trader needs to set his own rules; otherwise, they will be influenced by his emotions and fail. A trading system is their set of rules that enable them a long-term success.

 

Timeframes

The chosen timeframe should match the availability to trade. A trader with a day job would need to select a daily or a 12-hour timeframe, whereas a full-time trader could use shorter frames, such as 15-min, one, two, or four-hour timeframes.

Similarly to asset selection, the trader must familiarize himself with how his assets move in these timeframes and evaluate the liquidity and range at different times and weekdays to choose the best periods to trade.

Permisioning filter

A permisioning filter is a way to avoid trading under determined circumstances. It can be a filter that allows only trading in the direction of the primary trend or an overbought/oversold sign that should be on for a determined candlestick or pattern formation to be valid.

The key idea of the permisioning filter is to screen the trades and pick the ones with the best odds of success.

Entry rules

Entry rules can be technical or fundamental rules to time the market, although we will focus on technical rules.

 

There are two philosophies regarding entries.

  • Enter on the trend’s weakness

This methodology aims to profit from pullbacks of a primary trend to optimize the price entry. Different indicators and patterns may help time the entry: MA crossovers, Oscillators, or reversal candlestick patterns such as the engulfing pattern or morning star and evening star.

  • Enter on the trend’s strength.

Enter on strength aims to profit from an increasing momentum of the price. We acknowledge the trend’s strength is increasing and recognize the trend will continue for a while. Technical indicators such as the Momentum, RSI, and MACD may help time the entry. Price action patterns, such as range breakouts, are quite useful too.

Trade Management

Trade management is a vital element of any trading system. It is responsible for getting out of unprofitable positions, trails the stops to break-even, and above to optimize profits or close the trade when the target is hit or when a technical signal warns of a trend reversal.

Many top traders value more trade management than entries. The money is won on exits, they say.

Money management should be consistent with the concept of cutting losses short and letting profits run. A sound trading system should present an average reward/risk ratio at least over 1.5, and ideally above 2.

Position sizing

Position sizing is the part of your plan that tells you how much risk you should take on a trade. We have had a complete video section on this subject, which we encourage you to study. To summarize it here, position sizing is the tool to help you reach the trading objectives and put drawdown under the levels that fit you. Finally, proper position sizing enables you to minimize the risk of ruin while optimizing your trading account’s growth.

The trading record / Trade-forensics

The path to improvement is an analysis of past results. Nobody is perfect, and, also, markets aren’t immutable but changing. A trading record is necessary to evaluate your system’s performance, detect and correct weaknesses, such as stops or target placements, errors in timing – too late or too early on a trade, and evaluate how permisioning filters work. Finally, the trading record will help traders know their system’s key parameters: the average profit and its standard deviation, percent winners, and average reward/risk.

Key Elements of the trading record:

The main data you should record on the spreadsheet record are:

  • Entry date/time
  • entry price
  • trade size
  • entry level
  • stop-loss level
  •  $risk of the trade
  • planned take-profit level
  • Exit price
  • Exit date/ time

Other desirable parameters that would help optimize stops and take-profit targets are:

maximum adverse price of the trade if there were no stops.

maximum favorable price of the trade if not considering the take-profit

The first one would help you find better places for the stops, and the second one will show you the best place for the take-profit placement.

Main Parameters:

With the suggested trading record entries, you will be able to measure the key parameters of your system:

Average profit: Total profits/ number of trades

Standard deviation of profits: Use Excel’s Standard Deviation formula

Percent winners: Nr of Winners/ total trades x 100.

Average Reward/ risk:  Sum of Profits / sum of $risk

You may find an example of a trading record in this forex.academy article. Furthermore, since we consider it an essential element to your trading success, we offer you to download our freely available trading log. You are free to adapt it to your taste and needs.

Forensics

After the closure of a trade, you should analyze its quality, regarding execution and goals. A losing trade does not have to be of low quality if executed according to your system’s rules. But it is necessary to determine if you’re acting according to the rules and assess how much of the available profit did you take.

Points to consider

  • Percent of the available profit ( if any)
  • percent of the loss you’ve taken ( if any)
  • Timing: has it been right, too early, or too late?
  • Exit timing: right, too early, or too late?
  • Stop-loss: Can stop-loss settings be improved?
  • Take profit: Can they be improved?
  • Average Reward/risk: is it according to your settings?

Also, after  a determined number of trades/weeks, you should assess:

  • Is the system improving or worsening over time?
  • Losing streaks: are normal for the system you’re using or due to bad stop-loss settings?
  • How many trades could be on profit if you’ve loosened your stops?
  • How much profit could you pocket if your take-profit levels were moved here/there, based on the maximum favorable price data?

 

This ends our overview of the main elements of the trading plan.

Categories
Forex Fundamental Analysis

GBP/JPY Global Macro Analysis – Part 2

JPY Endogenous Analysis Summary An overall score of -13 implies that this currency (JPY) has depreciated since the beginning of this year. Indicator Score Total State Comment Japan Employment Rate -4 10 60.4% in October 2020 The Japanese labor market has shed about 820,000 jobs between January and October 2020 Japan Core Consumer Prices -1 […]

JPY Endogenous Analysis Summary An overall score of -13 implies that this currency (JPY) has depreciated since the beginning of this year. Indicator Score Total State Comment Japan Employment Rate -4 10 60.4% in October 2020 The Japanese labor market has shed about 820,000 jobs between January and October 2020 Japan Core Consumer Prices -1 […]

JPY Endogenous Analysis

Summary

An overall score of -13 implies that this currency (JPY) has depreciated since the beginning of this year.

Indicator Score Total State Comment
Japan Employment Rate -4 10 60.4% in October 2020 The Japanese labor market has shed about 820,000 jobs between January and October 2020
Japan Core Consumer Prices -1 10 101.2 points in November 2020 The index has dropped marginally by 0.8 points in the first 11 months
Japan Manufacturing Production 2 10 3.1% drop in October The decrease in YoY manufacturing production is slowing down
Japan  Business Confidence -2 10 Q4 reading was -10 Businesses are growing increasingly optimistic
Japan Consumer Spending -2 10 Was ¥280.8 trillion in Q3 2020 The increase in Q3 expenditure by households shows that the economy is steadily recovering
Japan Construction Industry Activity -2 10 YoY drop of 6.9% in July 2020 The July drop was the second-worst recorded in over ten years
Japan Government Budget Value -4 10 the budget deficit of ¥308414 in Q2 2020 This is the worst deficit in 20 years. It’s expected to improve as the economy goes back to normal
TOTAL SCORE -13
  • Japan Employment Rate

This indicator shows the number of Japanese nationals employed as a percentage of the entire Japanese working-age population. With this indicator, we can track the Japanese economy’s performance since employment corresponds to the expansion and contraction of the economy.

In October 2020, the Japan employment rate rose to 60.4% from 60.3% in September. Although Japan’s employment rate is higher than in January, the labor market has lost about 820,000 jobs since January. We assign a score of -4.

  • Japan Core Consumer Prices

Core consumer prices measure the inflation rate in Japan based on a select basket of goods. The core consumer prices do not include goods and services with volatile prices. Typically, when inflation rises, it implies that the economy is expanding and the labor market is growing. Conversely, when the index drops, it means that the labor market is shrinking.

In November 2020, Japan Core Consumer Prices dropped to 101.2 points from 101.3 in October. Since January, the index has shed 0.8 points. Thus, it scores a -1.

  • Japan Manufacturing Production

This indicator measures the percentage change in the value of the output in the manufacturing sector. Since the Japanese economy is highly reliant on the manufacturing sector, changes in this indicator can be considered a leading indicator of economic growth.

In October 2020, the YoY manufacturing production in Japan decreased by 3.1% compared to the 9% decrease recorded in September. The October decrease is the slowest since February.  We assign a score of 2.

  • Japan Business Confidence

In Japan, the business confidence index results from a survey of about 1100 large manufacturers with a capital of at least ¥1 billion. The survey evaluates the current industry trends, business conditions within the company and the industry, and expectations for the next quarter and year. The sentiment in Japanese businesses is ranked with an index of a scale from -100 to +100. The negative index shows pessimism, while a positive index shows optimism.

In Q4 of 2020, the Bank of Japan’s Tankan business sentiment index increased to -10 from -27 in Q3. This improvement shows that the economy is potentially recovering from the impact of the COVID-19 pandemic. However, it is still lower than the -8 registered in Q1. Thus, we assign a score of -2.

  • Japan Consumer Spending

It tracks the quarterly value of expenditure by households. In Japan, the consumption expenditure accounts for both the supply-side and demand-side. The supply-side from the survey of family income, while the demand-side is from the expenditure survey. The weighted average of both these estimates represents the final consumption expenditure.

In Q3 2020, the consumer spending in Japan rose to ¥280.8 trillion from ¥268.2 trillion in Q2. However, it is still lower than the consumer spending recorded in Q1. Japan consumer spending scores -4.

  • Japan Construction Industry Activity

This index tracks the YoY changes in the construction industry in Japan. It shows the changes in companies’ monetary value of construction work and billed to the clients. Note that in Japan, the construction industry accounts for about 6% of the total industrial activity. Thus, the construction output index can be a leading indicator of the entire industrial activity. More so, since it is a tertiary industry, it can signal longer-term changes in the GDP.

In July 2020, Japan’s YoY construction output dropped by 6.9%. This drop is the second-worst in over ten years. The worst was recorded in June at -7.9%. The Japan construction industry activity scores -2.

  • Japan Government Budget Value

In Japan, the government budget value evaluates the difference between government revenues and expenditure. This is meant to determine whether there is a government budget surplus or deficit. A budget surplus arises when revenues exceed the expenditure, while a deficit occurs when government expenditure is more than revenues.

In Q2 of 2020, Japan has a government budget deficit of ¥308414. This is the worst deficit recorded in over two decades. Thus, the Japan Government Budget Value has a score of -4.

In the upcoming article, you can find the Exogenous analysis of the GBP/JPY currency pair where we have forecasted its price movements. All the best.

Categories
Forex Fundamental Analysis

GBP/JPY Global Macro Analysis – Part 1

Introduction

Introduction

Introduction

The GBP/JPY pair’s global macro analysis interrogates the endogenous factors that drive the GDP growth in the UK and Japan. The analysis will also cover exogenous factors that affect the exchange rate between the GBP and the JPY.

Ranking Scale

The analysis will use a sliding scale from -10 to +10 to rank the endogenous and exogenous factors’ impact. Endogenous factors impact the value of the domestic currency. Thus, when it is negative, it means that the domestic currency has depreciated. When positive, it means that the domestic currency has increased in value during the period under review. The ranking of the endogenous factors is based on correlation analysis with the domestic GDP.

On the other hand, a positive ranking for the exogenous factors means that the GBP/JPY pair’s price will increase. Conversely, when negative, it means that the price of the pair will drop. This ranking is derived from correlation analysis between the exogenous factors and the GBP/JPY exchange rate fluctuation.

GBP Endogenous Analysis – Summary

A score of -15 implies that GBP has depreciated since the beginning of this year.

Indicator Score Total State Comment
UK Employment Rate -5 10 75.2% in September 2020 Dropped by 1.4% from January to September. The labor market has shed around 551,000 jobs
UK Core Consumer Prices 2 10 109.82 points in November 2020 The UK core consumer prices have increased by 1.82 points since January. Shows that the demand in the domestic economy has not been depressed
UK Factory Orders 3 10 Was -25 in November The CBI trends orders are improving. The -25 recorded in November was the highest since February
UK Business Confidence -2 10 Neutral in Q4 of 2020 UK businesses are still pessimistic about the future operating environment.
UK Consumer Spending -5 10 Was £304.5 billion in Q3 2020 Q3 household expenditure shows domestic demand is recovering from the lows of Q2. Consumer spending is still below the pre-pandemic Q1 levels
UK Construction Output -2 10 YoY drop of 7.5% in October 2020 The construction output is improving, which implies that the UK economy is steadily recovering from the economic disruptions of the pandemic
UK Government Budget Value -6 10 UK public sector net borrowing deficit was £22.3 billion The growing budget deficit is a result of increased government expenditure in the wake of COVID-19 pandemic. Also worsened by reduced revenues due to business disruption
TOTAL SCORE -15
  • United Kingdom Employment Rate

The employment rate shows the percentage of the UK labor market that is actively and gainfully employed. It is a comprehensive representation of the growth in the labor market. Note that the changes in the employment rate measure the changes in the economic activities of a country.

In September 2020, the UK employment rate dropped to 75.2% from 75.3% in August. From January to September 2020, the employment rate has dropped by 1.4%, equivalent to about 551,000 job loss. The UK employment rate scores -5.

  • United Kingdom Core Consumer Prices

This index measures the change in the rate of inflation in the UK by tracking price changes of specific consumer products. The index calculation excludes items whose prices tend to be highly volatile, such as fuel and energy.

In November 2020, the core consumer prices in the UK dropped to 109.82 from 109.9 in October. The index has increased by 1.82 points since January. The UK core consumer prices score 2.

  • United Kingdom Factory Orders

In the UK, the CBI Industrial Trends Orders tracks orders from about 500 companies in 38 sectors of the manufacturing industry. The survey’s components include domestic goods orders, exports, inventory, output prices, and expectations of future investments and output levels. The surveyed manufacturers respond whether the current conditions are normal, above, or below normal. This is used as a leading indicator of industrial production.

In December 2020, the UK CBI trends orders were -25, 15 points up from -40 in November. This is the highest level since February 2020 but still lower than -18 in January. We assign a score of 3.

  • United Kingdom Business Confidence

This index gauges the optimism of businesses operating in the UK. A survey is conducted on 400 small, medium, and large companies to determine their optimism. The survey covers exports, output levels and prices, capacity, order books, inventory, competitiveness in the domestic market,  innovation, and training. The business sentiment is then ranked from -100 to +100, with 0 showing neutrality.

In the fourth quarter of 2020, the UK business confidence was neutral at 0, a slight change from -1 in Q3. It is, however, still below the 23 recorded in Q1. We assign a score of -2.

  • United Kingdom Consumer Spending

Expenditure by households contributes to a significant proportion of the domestic GDP. In the UK, this index tracks quarterly changes in the amount of money spent by households and Non-profit institutions serving households (NPISH). Note that when the economy is performing well, consumer spending is high. Conversely, a poorly performing economy corresponds to low consumer spending.

In Q3 2020, consumer spending in the UK rose to £304.5 billion from £258.3 billion in Q2. However, the Q3 expenditure is still lower than Q1. The UK consumer spending scores -5.

  • United Kingdom Construction Output

This economic indicator tracks the yearly change in the value of work done in the construction sector. The amount of money charged by construction companies in the UK is based on a sample of 8000 companies that employ over 100 employees. Note that in the UK, the construction sector contributes about 6.4% of the GDP.

In October 2020, the UK’s YoY construction output dropped by 7.5%, up for the 10% drop recorded in September. This marks the smallest decrease in the UK’s construction output since the pre-pandemic period. We assign a score of -2.

  • United Kingdom Government Budget Value

This indicator tracks the changes between the government’s revenues and expenditure. When the revenue exceeds the expenditure, it is a surplus and indicates that the economy is expanding. When the deficit is increasing, it means that the government is spending much more than it receives. This poses a threat of overburdening the economy with future debt repayment obligations.

In October 2020, the UK public sector net borrowing deficit was £22.3 billion. This is an improvement from the deficit of £28.6 billion in September. In January 2020, the UK had a surplus of £9.6 billion. Thus, we assign a score of -6.

In the next article, we have discussed the endogenous analysis of JPY currency to see how it has performed in the year’s due course. Make sure to check that out. Cheers.

Categories
Forex Basic Strategies

Three Trade Duration-Based Forex Strategies

In this article, we will analyze the types of existing automated systems according to the duration of the trade. I’ll show you some interesting ideas and teach you how to apply a variety of duration-based Forex strategies.  Scalping Perhaps the most famous method is the so-called scalping, which many of you have already tried. These […]

In this article, we will analyze the types of existing automated systems according to the duration of the trade. I’ll show you some interesting ideas and teach you how to apply a variety of duration-based Forex strategies.  Scalping Perhaps the most famous method is the so-called scalping, which many of you have already tried. These […]

In this article, we will analyze the types of existing automated systems according to the duration of the trade. I’ll show you some interesting ideas and teach you how to apply a variety of duration-based Forex strategies. 

Scalping

Perhaps the most famous method is the so-called scalping, which many of you have already tried. These are really short-term operations. Then the second group is called swing trading, mainly using higher time frames. This is my favorite approach and trading style, I use swing strategies, automated trading systems that make transactions in longer time frames. And the third group, which I also enjoyed working with very much recently, consists of long-term strategies, mainly in daily time frames. We will also consider this group because it has its own advantages that we must not forget.

Scalping is a type of specialized trade taking profits on small price changes, usually shortly after a transaction has been entered and has become profitable. Automated scalping strategies can do dozens of operations during a day and most such trades last only a few minutes. These are very short trades and, therefore, that trading style has its own advantages and disadvantages. Let’s talk about them.

Scalping is a type of trade specializing in taking profits on small price changes, usually shortly after a transaction has been entered and has become profitable As a general rule, scalping strategies are marketed in short time frames using 1-minute candles. So the main advantage is the opportunity to make big profits in a very short time. These automated strategies can be very profitable, but at the same time very risky. Where there is great profit potential, there is also high-risk potential. And, as we said before, scalping has some huge disadvantages.

In general, automated scalping systems are potentially very risky and very sensitive to market conditions. This is because it is almost impossible to perform transactions in a one-minute time frame to simulate with historical accuracy. Then, it is not possible to elaborate an exact subsequent test. We can only backtest a strategy, how it should work in ideal conditions. However, there are situations in the market, when there may be a publication of some important macroeconomic news, for example, that the unemployment rate increased. As a result, the market makes a very strong price movement in a very short time and we may suffer a large slide, something that has not been taken into account in subsequent tests, and that will definitely worsen the results of our strategy.

Where there is great profit potential, there is also high-risk potential. So, in the world of scalping strategies, only one of those unfavorable circumstances can mean that one loss takes ten of our earnings, and this is what we can’t see in our subsequent tests. Therefore, it is very difficult to develop robust scalping strategies, and I personally do not even use them. In the past, I’ve worked with scalping strategies and gotten really good results, but at times, these were due to luck and being in the market at the right time.

The potential benefits can be really huge. However, scalping is so risky and so sensitive that it makes no sense to use it at all. I would not care too much about the complexity of developing such strategies if they are so risky. Here we see big risks that can’t be determined in advance, so if you’re just starting to operate, I don’t recommend scalping.

Swing Strategies

I recommend directing your attention to swing strategies. This is my favorite type of strategy, which is usually marketed in the H1 time frame. In 90% of cases, they will be within one hour, in exceptional cases in M15. If we want to talk about whether to use a time frame of one hour or fifteen minutes, we need to consider the type of strategy. In 90% of cases we will use a time frame of one hour, which has its own advantages, but of course some disadvantages as well.

Therefore, I have chosen it. The main advantage is that it allows you to perform longer operations. Usually, an average trade lasts about 24 hours, it can also take several days, but usually around 24 hours, and it is also one of the factors with which I am satisfied. Such trades are not as sensitive. The number of trades in a month is a maximum of 10, so such a trading style is not as expensive.

Usually, an average trade lasts about 24 hours, it may also take several days. When someone is scalping, they pay a lot of money just for commissions or for spreads. This is not the case with swing strategies, with which you only need to pay commissions for approximately 10 transactions per month. Such a fee is less important and does not have a significant impact on your account.

Of course, swing strategies are not as profitable due to the smaller number of operations that are performed in longer time frames. Therefore, a trader earns less, but with more stability. Because these strategies are not so sensitive, they are not so influenced by the unexpected news of strong market movements. For example, when publishing macroeconomic news, such as the decision of a central bank on rates, unemployment rate, GDP growth, etc. In those moments, we only risk an operation and we are not so afraid of a negative result because it is not a big problem for us. It will not result in a great loss.

Swing strategies help us deal with some difficult situations in the market, and we can also perform backtesting with more accuracy and reliability. This is the main advantage of swing strategies compared to scalping: it is easier to simulate real market conditions for backtests. These strategies, in my opinion, are the perfect combination of the number of trades and stability, and if you’re a beginner, the one-hour window is definitely a good choice.

Position Trading

The third type of strategy is position trading. In general, these are strategies for long-term positions which, in some cases, can be maintained even for a few years. Basically, they are negotiated in daily or even higher time frames. I personally operate all position strategies in the daily time frame, and sometimes very interesting situations and transactions can occur.

The main advantage is that these positioning strategies are very stable, as they are usually used to take long-term trends. To take one example, in the past, we witnessed a crash in the oil market with a price that fell steadily for more than a year, so we could be in this position for a long time.

So position trading can be very stable because we are working with strong trends. I am satisfied with the positioning strategies in the daily time frames. Another advantage is that they can be tested very accurately because economic news has an absolutely minimal impact on their overall results. In many cases, it is only in the short term impact, and from the perspective of the daily time frame, this impact is not something we should fear.

Therefore, we can perform subsequent tests with a very high level of accuracy; however, these positioning strategies generally have lower yields. This third type of strategy has the lowest gains of all these types of strategies. It is necessary to note that position trading gives gains of ten to twenty percent. However, this can be achieved with great stability and can be re-tested with precision.

In addition, these positioning strategies generally work in a wide range of markets, so they can be used to trade indices, commodities, different currency pairs, as well as some exotic currencies such as the Polish Zloty, the Swedish Krona, or the South African Rand. We can do this because it operates on long-term trends, and you can even afford to operate in exotic markets.

This would not be possible when operating in lower time frames and with a greater number of operations; however, positioning strategies are connected with a low frequency of operations and therefore the costs are lower and Therefore, even the high entry costs in trades (usually very high spreads) are secondary due to the duration of our trades.

Categories
Forex Basics

The Seven Deadly Sins of the Forex Trader

Most of us have heard of the biblical seven deadly sins, but few know about the seven deadly sins of Forex. Part of achieving success is knowing what not to do, and these “sins” work to help you understand and avoid potential problems. Without further adieu, let’s get into it! Pride Wow! What a great […]

Most of us have heard of the biblical seven deadly sins, but few know about the seven deadly sins of Forex. Part of achieving success is knowing what not to do, and these “sins” work to help you understand and avoid potential problems. Without further adieu, let’s get into it! Pride Wow! What a great […]

Most of us have heard of the biblical seven deadly sins, but few know about the seven deadly sins of Forex. Part of achieving success is knowing what not to do, and these “sins” work to help you understand and avoid potential problems. Without further adieu, let’s get into it!

Pride

Wow! What a great trading session! There is no one to stop me! Tomorrow I will double my profits! 

Little grasshopper, you’ve had a good day, and yes, you got your positions right, enjoy your joy in moderation, and share with others the reason for those entries, and be aware that tomorrow that euphoria may cloud your vision today. Remember also that the one who calls himself a donkey and who today is crying out, perhaps it will be the genius tomorrow and you will be the one crying out.

Avarice

I’ve achieved my goals, and this looks like it’s going to turn, but there’s another target up there pending, so I’m going to continue with all my positions without partial withdrawal because I’ll gain a lot more.

Small grasshopper, already assures part of your profits, reduces risk situation and leverage, in this way, perhaps you will find opportunity in another market that you can take advantage of.

Sloth

Well, I’ve already won a TrADE today, and although this one I’m looking at now is very clear, I’m going to stOP. tomorrow will be another day.

Little grasshopper, if this new operation is clear, do it! And do it now!, do not leave for tomorrow what you can do today, but not simply by following the proverbs, but because tomorrow may not present you any clear opportunity in the market, And maybe you’ll force an entry of dubious signal, causing you losses in the end.

Gluttony

Today I will catch all of the price movements. Not one will escape me! Today I will recover everything that I’VE lost RECENTLY.

Little grasshopper, that’s called overtrading. It’s not advisable, you’re gonna get obfuscated. You’re gonna spiral into wanting to put a pulse on the market, and this one’s a lot stronger than you.

Envy

Wow! Look at this guy with the big profits. It’s just dumb luck. He has no real idea of how to trade Forex. 

Little grasshopper, congratulate him and share his joy, get in touch with him, maybe there’s something he can teach you. Keep in mind that trading is not only about skills but also about attitudes.

Lust

look how good that XD directive is! Go all out! I would hit with it XD. Wow, look how good that XD support is! Go all out! I would hit with it XD. (This is a joke, By THE WAY!)

More seriously, after a good run, your worst enemies will be overconfidence and self-confidence that can be lethal in trading, as well as excessive leverage. Minimal risk control and uncontrolled GM management can lead to failure.

Anger

they’ll be cursed! They’ve got me going in all directions. I don’t know where to turn any more! And look how stupid they all are, everyone buying! Do you not see that this has to fall?

Little grasshopper, don’t fight the market, the market must be your friend, listen to him, understand him and everything will go smoothly, be receptive, get in tune with him, and don’t get angry. It won’t lead to anything positive, you’ll only aggravate your lack of control. Enjoy trading. And don’t marry any position, after all, they don’t want you forever either.
Categories
Forex Market

What Is the 70/20 Rule in Forex?

Experts believe that 70 percent of market movements occur only during 20 percent of all time. What does the trader need to know about this to maximize the performance of their trades? Have you ever noticed that sometimes when you open a position and enter the market, it seems to freeze? Or, for example, do […]

Experts believe that 70 percent of market movements occur only during 20 percent of all time. What does the trader need to know about this to maximize the performance of their trades? Have you ever noticed that sometimes when you open a position and enter the market, it seems to freeze? Or, for example, do […]

Experts believe that 70 percent of market movements occur only during 20 percent of all time. What does the trader need to know about this to maximize the performance of their trades? Have you ever noticed that sometimes when you open a position and enter the market, it seems to freeze? Or, for example, do you sometimes open your trading platform and note with frustration that the price does not move in the next few hours?

How Do I Catch the Big Market Moves? 

To answer this question, you must first know why these moves even happen. If you have ever asked this question the answer is found in the simple 70/20 Rule. According to experts, almost 70 percent of market movements are manifested in only 20 percent of the time. In other words, large movements do not occur all the time, only at very specific times. Therefore, the trader is not required to sit all day watching the market to take advantage of them. This principle has a very significant implication in Forex trading. Therefore, it is important for currency traders to be aware of how they can apply the 70/20 rule.

Observe the Market at a Specific Time

Take a little time and think about it. If 70 percent of the market movements in the FX occur only 20 percent of the time, then you don’t need to look at the graphs all day. This implies the following: in case a trader wants to capture the widest range of movements of a currency pair, he only needs to concentrate on the market for a specific period of time. That said, you will need to see the main sessions of the Forex market in case you want to do day trading. In fact, some of the sessions bring much more volatility. In addition, they are more likely to generate large market movements.

Price trends may change in different time frames. The first implication of Rule 70/20 is related to day trading operators. However, there is something about this rule that should be known to swing traders. By analyzing a price chart with a high time frame, swing traders can often spot a clear trend. However, a particular time frame trend does not imply that the price will continue to move in the same direction in lower time frames.

Only large movements take place 20 percent of the time in one direction. Because of that, the trader must make sure to enter the market at the right time. To do this in a proper way, you may want to use multiple time frame analysis. This can help you understand where the market is most likely to increase movements. In addition, it can help you capture those changes in the overall market outlook.

Entering the Market At the Right Time

However, the key here is to enter the market in the right place. For example, if we enter one of the limits of a price range, we may suffer an unpleasant surprise and get stuck on the wrong side of the start of a new trend. This is because instead of bouncing in the upper or lower limit of the range, the price can break that range in the opposite direction to our operation and initiate a trend movement. Although many times the breakdowns of ranks are false and the price ends up being returned, this is not always the case, hence one must be careful.

The 70/20 rule should decrease the pressure felt by many traders who believe they should be in front of a screen throughout the day. Well applied, it captures most of the market movements in a small period of time.

An important point is that the trader should make sure not to open a trade in a shorter time frame solely based on a trend in a longer time frame. The location of your entrance matters more than you think.

Categories
Forex Market

The Inflation That Will Never Really Come

The sole objective of the entire Keynesian economy is to generate inflation. That is what the Keynesian shamans call economic growth, inflation. People often don’t understand what inflation means or why it exists and that makes them fall for the generally false belief that inflation makes debts evaporate.

The sole objective of the entire Keynesian economy is to generate inflation. That is what the Keynesian shamans call economic growth, inflation. People often don’t understand what inflation means or why it exists and that makes them fall for the generally false belief that inflation makes debts evaporate.

The sole objective of the entire Keynesian economy is to generate inflation. That is what the Keynesian shamans call economic growth, inflation. People often don’t understand what inflation means or why it exists and that makes them fall for the generally false belief that inflation makes debts evaporate.

This is a crucial point where your incorrect analysis leads to a completely erroneous vision and predictions. I will try to clarify this fundamental error because although it is a rather abstruse and technical matter, it is essential to understand it because on this depends everything that is happening and everything that is going to happen.

The fundamental error comes from blind faith in the power of shamans: the shaman, in the fanciful world of Keynesians, can cause rain whenever he wishes and, therefore, whether it is raining or not, or whether it will rain tomorrow depends only on a certain correlation of political forces between a certain group of pro-rain shamans and another group of anti-rain shamans. If it doesn’t rain, it is because for now, the anti-rain shamans are resisting the pressures they are subjected to by those who want it to rain.

The fact that the yen’s monetary economy has been crushed for 20 years by powerful deflationary forces, incapable of generating any inflation, should, according to the Keynesians, in the face of the group of pro-inflationary shamans, supporters of pressing the red button labeled “INFLATION” There would be certain very powerful groups that have been opposing the push of that button. The problem with this explanation between mythology and gibberish is that these “powerful groups opposed to an inflationary monetary policy in Japan” do not exist.

The explanation is another: if there is no inflation it is because the laws of the economy do not allow it to exist. This button, which allows the Central Bank to trigger inflation “when it is convenient” (when it is convenient for the State), works until it ceases to function and it is precisely this “which stops the inflation button” that marks, as a symptom, the death of a Keynesian economy.

The Keynesian growth model that we have experienced for the past 40 years is an economic farce that simulates creating wealth when what it actually does is consuming (destroying) capital (“capital” in the economic sense). This suicidal escape, analogous to the scene of “more wood, that is war,” in which Marx scrapped the train to feed its wood to the boiler of the locomotive, ends when there is no longer capital that can be consumed. This is what you have to understand, to understand what is happening.

The fact that consumers, businesses, and states appear severely over-indebted is not important, it is only a symptom. The fact that nominal interest rates are capped at their decline with the “zero limits” preventing the big clown from generating negative real rates, is not important, it is just a symptom. The fact that the financial system is deliriously leveraged and severely broken is also only a symptom. The fact that rich countries roll out insane trade deficits with poor countries and rich economies depend on loans from poor countries, that national pension systems are bankrupt and unable to pay pensions, are also symptoms.

All these are just symptoms that the capital that had been progressively consumed has already disappeared. It must be understood that the golden age of wine and roses was not a time of genuine economic prosperity, based on the ability of society to create economic wealth, but was a mirage in which we seemed to be rich because, in an insane orgy of consumption, We were destroying the capital that previous generations took 200 years to accumulate.

It must be understood that large monetary bubbles do not appear by chance, as an accident, or as a social pathology consisting of an epidemic of speculative greed. Monetary bubbles are just an exaggerated version of what a Keynesian economy always does, and in the midst of panic, is to consume capital while generating inflation, money, and unpayable debt. A process based on consuming capital is inherently unsustainable and the more advanced the Keynesian pathology, the less real capital remains in the world and the more gigantic the states have become and their appetite to consume capital (The sole purpose of the Keynesian toy is to satisfy the insatiable appetite of the State and to guarantee its unlimited growth). 

The succession of large-scale monetary bubbles, which condemn large sections of the population to be crushed by debt, always marks the agonizing end of the Keynesian experiments. They are a last flight forward and are characterized by the glamour and splendor of consumer orgies in which the last real savings available are destroyed. (See the “Happy 20s” that preceded the Great Depression)

Bubbles, and in a particular house or land bubbles, are just a terminal episode of a much broader disease called Keynesianism. When, for example, the leverage of Japanese banks soared, it was perfectly foreseeable that they would suffer a housing bubble and when the housing bubble materialized, it was perfectly foreseeable that their economy would collapse amid desperate and futile attempts to “beat the deflation.” The cliché “inflation ends up wiping out debts” is only true in the early stages of Keynesian disease, when “inflation” can take the form of a “wage-price spiral.”

Debtors, whether States, consumers or corporations, have a fixed-rate debt, which means that both the value of that debt and the value of the debt service are fixed in nominal terms. Also, the savings of savers is fixed nominally. A price-wage spiral is a change in the scale of the nominal value of the currency. As the value of the currency shrinks, debts and savings shrink to the same extent. Debtors see their debts evaporate because savers see their savings evaporate. It is a transfer of income from savers to debtors and is part of the general scheme of making the economy present some joy by consuming existing capital. (The real savings are transferred by the State to the debtors who consume it. Then the debts are erased and a new lot of savings can be transferred for consumption)

In the current situation, where wages are falling, and variable mortgage rates and prices are rising, it is obvious that “inflation” will not evaporate any debt. The one who made 1,000, paid a mortgage of 600 and bought a shopping basket for 400. If the mortgage rises to 700, the shopping basket to 450, and the salary is lowered to 900, this wage earner will not have the slightest feeling that “inflation” is helping him pay off his debts.

That these debtors have loans at variable and not fixed rates, that the installments of these mortgages are 60% of wages even when the rates are at 1.25% and that these loans have been granted by banks with leverage of x60, that they obtain a gross margin of 0.4% of those loans that they finance with the saving of some investors in fixed income willing to lend their saving for the 1.25% minus a differential of 0.35%, is not a set of misfortunes that have coincided accidentally. They are all features of the same phenomenon and express the terminal phase of a Keynesian economy based on capital consumption. The various “Band-Aids” that try to alleviate some of these superficial symptoms will not cure the disease because the cause is deeper: it is an explosive growing state that literally devours its subjects.

 

Categories
Forex Psychology

The Fundamentals of Mental Accounting in Forex Trading

The vast majority of agents involved in the financial markets know the term accounting. We also know the different categories within the generic concept: financial accounting, corporate accounting, analytical, management, banking, etc. However, what do we know about Mental Accounting? Have you ever wondered about the internal processes that our minds follow when we open or close a position? Why isn’t it easy for us to close a loss-making operation? Why do we rush to sell the winning trades, even knowing that they can have a favorable path to our position?

The vast majority of agents involved in the financial markets know the term accounting. We also know the different categories within the generic concept: financial accounting, corporate accounting, analytical, management, banking, etc. However, what do we know about Mental Accounting? Have you ever wondered about the internal processes that our minds follow when we open or close a position? Why isn’t it easy for us to close a loss-making operation? Why do we rush to sell the winning trades, even knowing that they can have a favorable path to our position?

The vast majority of agents involved in the financial markets know the term accounting. We also know the different categories within the generic concept: financial accounting, corporate accounting, analytical, management, banking, etc. However, what do we know about Mental Accounting? Have you ever wondered about the internal processes that our minds follow when we open or close a position? Why isn’t it easy for us to close a loss-making operation? Why do we rush to sell the winning trades, even knowing that they can have a favorable path to our position?

In the same way that a company has to identify, evaluate, and record the relevant accounting facts, individuals face the same problem. When an institution provides a service or sells a product it has to record this fact, when we in the market open a position, we open a mental account that will move with the fluctuations of the market even if we do it unconsciously.

Mental accounting seeks answers to questions such as those I have just asked and the purpose of this article is to show that mental accounting influences decision-making whose final outcome is uncertain, that is, the decision under uncertainty, and that its study and knowledge can provide us with greater mental stability to face activities such as investment or trading. Mental accounting is the set of cognitive operations developed by individuals to organize, evaluate, and track financial activities.

Fundamentals of Mental Accounting

Financial accounting is composed of a set of rules that have been codified over the years, can be found in quite a number of textbooks and unfortunately, there is no equivalent of these rules in mental accounting, We can learn them by observing human behavior from which we can infer rules of conduct. In this article we will try to see three components of mental accounting:

– The first refers to how we perceive actual events and how we make decisions based on those events. In the diagram below, the individual or trader is linked to the actual events.

– The second component is the allocation of each activity in your specific mental account. Financial accounting teaches us that there is a classification of expenses and revenues that are within a budget.

– The third component tells us about the frequency with which we evaluate accounts, we can audit our financial accounts annually, monthly, or daily if we consider it, what happens with our mental records? , Do we have enough willpower not to count the money we are earning or losing while we are positioned in the market? In the diagram below would be the return flow of each account to the trader.

A more detailed study of our mental structure shows that it is not advisable to count money in situations that require decision-making under an atmosphere of uncertainty such as poker, black-jack, or trading so that the audit of our accounts should be done with enough time to not affect our decision making, this time-space will be different for each trader, who through a process of trial and error must find its optimal review frequency.

The Profit and Loss Environment

To get us into the decision-making process of each individual, we must infer a utility function that offers us an output value for each of the decisions and thus be able to decide between our range of possibilities in matters such as, When to buy? At what price to buy? How much to buy? For this we will use the function of Kahneman and Tversky which has three essential elements:

– Transactions processed by mental accounting are mainly evaluated one at a time and not in relation to other transactions.

– Both the loss function and the profit function show a decreasing sensitivity, and this implies that the difference between 20 and 30 euros may seem larger than the difference between €1,000 and €1,010.

– Risk aversion. The loss of 100€ causes us more pain than the satisfaction that provides a profit of 100€. The influence that risk aversion has on our minds is considerable, as we shall see later.

Below we will review with some examples the characteristics of the function exposed. Suppose we want to buy a tie and a suit for €10 and €120 respectively, and when we arrive at the store the seller informs us that in the store located 20 kilometers from the store where we are, they have lowered the prices of both products by €5, leaving them at €5 and €115 respectively. Given this circumstance, most people will prefer to travel the distance to benefit from the reduction of the tie but will not do the same for the suit, although the reduction in both cases is the same. In this case, our mental accounting is based on relative rather than absolute perceptions.

The example of the tie and the suit shows us that we are willing to travel a distance to save money on the lowest priced product and not for the same savings on the most expensive product so we infer that the utility that provides the savings is associated with the differences in value and not in the value of the difference. This helps us to model how the individual processes event combinations to maximize their usefulness. We need to know if for two events, X and Y, their joint utility function F(X+Y) is greater than the sum of the individual functions F(X) + F(Y), and the utility function we mentioned earlier would have the following features:

– Separation of earnings.

– Grouping of losses.

– Grouping small losses with larger profits (to overcome risk aversion).

– Separate small gains from larger losses (the profit of a small gain exceeds the profit of reducing a large loss by a small amount).

An example of the first rule is the possibility of winning a pool with a prize of 75,000 euros, against winning two pools of 50,000 and 25,000 euros respectively. According to the work done by Richard H. Thaler, 64% of the surveyed population prefer the second option. The examples for the other rules are as intuitive as the one mentioned. Regarding the second section, we prefer to pay a purchase of 50 € with a credit card in which we will group all the purchases of the month and will be included within the total invoice of supposing 790 € to pay the 50 € in cash at the time of the purchase.

Opening and Closing of Accounts

One of the most useful components for mental accounting trading is the decision when to leave an account open and when to close it. Consider the purchase of 1,000 shares of telephone to 10€, the initial investment is 10,000€ but the value of the same will fluctuate with the movements of the market, producing gains or losses in paper until we sell the securities. The mental accounting of these losses and gains is misleading and depends on the time variable, one of the basic intuitions is that an effective loss produces more pain than a loss on paper and because closing an account with losses produces pain, Mental accounting induces us to delay the decision to close losing trades and to advance the decision to close winning trades to feed our ego.

Decision-Making: Grouping and Past Events

When we think of decision-making processes as a set of events that we can group together or dissociate, we must consider the importance of parenthesis localization in grouping together these events, because the pain produced by a loss is less if we can combine this loss with a higher gain, thus blurring its total effect.

Just as important are past events for decision making, if we are operating in the market and we are going to open a position, the results of past decisions will always affect the mental process of the new position. I would like to focus on the importance of real money, it is not the same to do this test sitting in the living room while we have coffee, that operating in the market while we gamble our savings.

The first question in the survey gives us the vision of how a gain can stimulate us to look for more risk in the same account, a este fenómeno se le denomina ‘house money effect’ o ‘efecto del dinero de la casa’ o ‘efecto del dinero arrebatado al mercado’ y debe su nombre a los jugadores de casino que llaman ‘la casa’ al casino y por consiguiente, The money from the house would be the one they’ve previously taken from the casino. This mental account of our money and that of the casino or financial market is reset to zero every day if we dedicate ourselves to an intraday operation. In this case, we have a clear example of how mental accounting is a problem for our operation since we should treat in the same way the money with which we start the operation of the money taken from the market, that should be treated as our money and not put you at greater risk.

The second conclusion of the study is provided by the second and third questions, past losses do not stimulate the search for risk, unless the new move offers us the possibility of compensating for the previous loss (break-even point), any trader, whether professional or amateur, can corroborate this conclusion through their personal experience.

Conclusion

During the presentation of the examples and works carried out in the field of mental accounting, it has been tried to demonstrate the importance that the processes of mental calculation have in our real operation, starting from the great ignorance that exists on this matter. The more knowledge we have of these processes, the greater our capacity to fight against the market and its greatest enemy, which is within each of us.

The trading industry knows that the mental structure of future traders is right for them to lose money, the difference in lost money between novice traders will be defined by how long it takes the trader to realize that the enemy is at home and that he has to try to change his beliefs, the next thing is to have a good system, a stable rules of money management and above all, being well-capitalized, a lot of discipline and a high dose of patience.

From now on, when you open a position, think about what has been developed in the article and try to decipher the mental registers that are being created while we are in the market and adopt the following rules:

– Avoid counting the money until you have closed the position.

– Treat in the same way the money taken from the money market with which it began to operate (house money effect).

– Never forget the influence that the previous operations have in the decision-making process of the present operations.

– Risk aversion leads us to make the suffering caused by a loss greater than the satisfaction caused by a gain of an amount equivalent to that of the loss.

– Do not be carried away by the illusion of measuring money in relative terms.

– Do not let your ego win the game by delaying the closing of the losing trades and accelerating the winning trades.

Categories
Forex Daily Topic Forex System Design

Building a Trading System: Why do you need a trading plan?

The necessity of a trading system has been discussed many times. Still,  new traders don’t consider it important when, in fact, it is a crucial element.  Could you conceive building a bridge without a project, playing tennis, or chess, with no strategy?

The necessity of a trading system has been discussed many times. Still,  new traders don’t consider it important when, in fact, it is a crucial element.  Could you conceive building a bridge without a project, playing tennis, or chess, with no strategy?

The necessity of a trading system has been discussed many times. Still,  new traders don’t consider it important when, in fact, it is a crucial element.  Could you conceive building a bridge without a project, playing tennis, or chess, with no strategy?

 

 

 

 

 

The trading profession is alike. If you take this business seriously, you’ll need to have a plan. Else, you’ll be in the loser team, in which are 90 percent of traders.

Reasons for a trading plan

1.- The financial markets are not deterministic

A market is a strange place where you cannot predict an outcome. An engineer can design a bridge, knowing that he can predict the bridge’s strength and behavior under heavy loads with proper calculations.  In the financial markets, you don’t have the benefit of an analytical formula to success. All you can expect is a small edge. Not following your plan is comparable to random trading; thus, losing the edge.

2.- Not following a plan weakens you psychologically

When you buy a lottery ticket or play roulette, you’re entering a bounded game. You know the cost of your ticket, the reward associated with a successful bet, and you don’t need to make any other decision. All parameters of the play, including the exit time, are fixed.

The financial markets are different. Everything there is unrestricted. The trader decides when, how much, exit time, stops, and target levels.  With so many parameters, a trader needs to define his rules and stick to them. Otherwise, he will be shattered by his emotions and lose money.

3.- The need to measure

Traders need to record and analyze their trades for many reasons.  The first is the need to analyze their performance and see if it has improved or not. Also, if the system performs as expected or lags its past performance. The most important reason is that traders need to know the strategy’s main parameters: percentage of winners, reward/risk ratio, the average profit and its standard deviation.

A trading plan that fits you

New traders don’t know much about statistics, and trading is about odds and their properties. One of them is streaks. There are winning streaks and losing streaks. The point is, streaks are mathematically linked to the ods of the system.

Let’s think of a system as a loaded coin, in which the odds of a winner can be different from 50 percent. Let’s say the odds of a system is 60 percent instead.  That means there is a 60 percent chance the next trade is a winner, and, consequently, a 40 percent chance it is a loser.

But what are the odds of a loser after a previous losing trade (a two-losing streak)? For the second trade to be a loser, the first one should also be a loser.  So the odds of two consecutive losing trades in a row is 0.4 x 0.4 = 16%. The odds of three successive losers would be 0.4×0.4×0.4 =6.4%, and so on.

The general formula for the probability of a losing streak is

n-losing-Streak = prob_lossn

which is the probability of one loss to the power of n, the size of the losing streak.

What we have shown here is that streaks are inherent to trading. In fact, inherent to any event with uncertainty. Golf pros, football players, and spot teams are subject to streaks, which are entirely expected. Trading systems are no different.

So, what’s the problem?

There are a variety of trading systems. Some, such as the well-established Turtles Trading System, which is trend-following, have less than 38 percent winners, although with average reward/risk ratios over 5. Other systems show over 70 percent success but reward/risk ratios of less than 1.

The odds of a 10-losing streak on the Turtles system, assuming 38% winners or 62% losers, is about 0.84%. That means we can expect ten losers in a row every 120 trades.

On a 70% winner system, the odds for ten losers in a row are one every 200 thousand trades.

The rationale behind the turtle is to lose small and profit big. When a Turtle trader sees they are right, they add to their position, and on and on, following the trend.

People who use the later system are scalpers that jump for the small profit and get our fast before the movement fades.

Nobody is wrong. They trade what best fits their psychology. You need to know your limits, as well. Many wannabe traders move from system to system after only a five-losing streak, discarding a sound strategy when its first perfectly normal streak occurs. Also, most traders use sizes inconsistent with the expected streaks and lose their entire account.

By now, you should have learned the importance of having a plan that fits your psychology and trading tastes.

In the coming article, we will discuss the components of a trading strategy or system. Stay tuned!

Categories
Forex Course

206. The Correlation Between The Stock and Forex Markets

Introduction

Introduction

Introduction

The stock market encompasses individual stocks that create an index or a sector. An active under trader must define an approach to the equity as it differs depending on what she or he trades. When purchasing individual shares of an enterprise, some factors such as voting rights, dividend date, earnings per share, earnings releases, etc., play an important role.

The Relationship Between Forex and Stocks

The primary principles theory behind this is when there is an increase in the equity market rise. The demand for that particular currency also rises, resulting in more fund inflow from international investors. Additionally, it generates higher demand for the specific currency, leading it to rally instead of other foreign currencies.

On the other hand, when a local stock market does not perform well, this confidence lowers, resulting in investors to take their funds and put them somewhere safer and more lucrative.

Currency Correlation

Correlation is referred to as the measurement of the degree to which prices of two things have moved in a similar direction at the same time. For instance, if A and B prices always move up and down in sync, they have a correlation coefficient of 1, which implies an ideal positive correlation.

Contrarily if the value of these things moves simultaneously in the opposite direction, then their correlation coefficient is -1, which signifies a negative correlation.

Example – Correlation between Stock & Forex Markets

If the USA stock market performs well, international investors will sell their local currency to purchase USD-denominated stocks. When the demand for the dollar rises, it experiences an increase in value. In the Foreign exchange market, USD pairs will move in favor of the dollar ( i.e., The EURUSD falling, the USDCAD rising); hence a strong US stock market will favor the value of the US Dollar.

On the other hand, if the USA’s stock market is not performing well, investors will sell their USD-denominated shares and buy stocks or ETFs in places where they can generate more yield. This shows that the economy in the USA is performing badly. Since the demand for the dollar is less, it adversely affects the value of the US dollar.

Possibility Of Negative Correlation

There is also a possibility that the currency market will rise in answer to a volatile stock market. This may happen due to tons of other factors that contribute to currency performance. We will discuss more related to this topic in the upcoming course lessons.

Don’t forget to take the quiz below before you go. Cheers.

[wp_quiz id=”100352″]
Categories
Beginners Forex Education Forex Basics

Top 5 Qualities the Best Forex Traders Tend to Have

If you want to make it to the top as one of the forex industry’s most successful traders, you’ll need to learn to act like one. While being educated is one of the most important steps on the road to success, possessing certain qualities is yet another crucial requirement that can make or break your […]

If you want to make it to the top as one of the forex industry’s most successful traders, you’ll need to learn to act like one. While being educated is one of the most important steps on the road to success, possessing certain qualities is yet another crucial requirement that can make or break your […]

If you want to make it to the top as one of the forex industry’s most successful traders, you’ll need to learn to act like one. While being educated is one of the most important steps on the road to success, possessing certain qualities is yet another crucial requirement that can make or break your trading career. If you’re wondering if you have what it takes, take a look at our list below – and don’t worry if you’re missing any of these qualities because we’re here with tips and tricks just in case.

The Best Traders are Disciplined 

Self-discipline is a major must-have for forex traders. The fact that you get to be your own boss is just the start, considering that you have to make the choice to get up and get online every single day when you could be sleeping in with nobody to answer to but yourself. Self-discipline also comes in when you want to deviate from your trading plan by making mistakes like risking more money than your plan allows, entering a trade without solid evidence you should do so, overtrading, and so on. Traders need to be able to stay focused and follow their trading plan at all times, or else they put themselves at risk of losing money. 

TIP: Here are some of the top tips for practicing self-discipline:

  • Set realistic goals and make a plan to meet them
  • Practice healthy trading habits
  • Hold yourself accountable if you don’t stick to your plan
  • Set a schedule around your most productive times
  • Figure out what your weaknesses are and find ways to overcome them

Patience is Key

There are a lot of ways that patience can benefit forex traders. To start, you’ll need patience when you’re learning to trade. It’s important that you don’t rush out there and open a trading account too quickly, or else you may not be prepared and you could lose a lot of money. Learning everything step-by-step can be a long process and creating a detailed trading plan can take quite a while as well. Once you start trading, patience can help you to avoid making emotion-based decisions, to wait for the right market setups, entering and exiting positions at the proper time, and so on. Many people have claimed that they feel that trading can be boring, therefore, patience comes in handy when things are moving slowly. 

TIP: If you’re generally an impatient person, the first step is realizing that and dealing with some of that anxiety so that it doesn’t spill over into your trading decisions. Try relaxing activities before you trade, like yoga, listening to music, going for a jog, or whatever helps you relax. You can also commit to your trading plan and promise yourself that you will not make trading decisions that don’t fit, even if you’re feeling overly anxious or don’t feel like waiting for the right market setup. 

Being Well-Educated

You can’t become a successful trader without pursuing a well-rounded education of everything that has to do with the forex market. Only learning beginner concepts like terminology, simple facts about the market, and how to use a trading platform just aren’t going to cut it. The best traders invest a lot of time into research and education, even those that have been trading for decades. Some of this time is spent researching more complicated strategies and techniques, watching videos, and participating in discussions with traders that have alternative views, and so on. It’s also important to stay up to date on important news that might affect the market, otherwise, you could be left behind. Successful traders always make time to do these things and never assume that they know everything there is to know about trading. 

TIP: If you want to get a good trading education, you’ll need to be willing to invest time into research. Fortunately, the internet offers a wide variety of educational websites and content like YouTube videos that focus on all types of trading subjects, from beginner materials to trading psychology, strategies, news, and other important material. 

Thinking Realistically 

You can’t expect to take up forex trading with little knowledge of the market and become a millionaire in a week. Having unrealistic goals and expectations can be a huge downfall for beginners because many of them get an idea of the results they want to see and feel discouraged or disinterested once they realize how much time they actually need to put into trading to reach those goals. Successful traders set realistic goals and think rationally when trading decisions need to be made.

TIP: The best way to get yourself into this mindset is to set reachable goals that focus on improving your trading abilities, rather than trying to reach a certain dollar amount. Here are a few examples of realistic goals for beginning traders:

  • To spend a certain amount of time each day learning about forex topics
  • To practice trading on a demo account x hours per week
  • To keep a detailed trading journal and review it often

These are just a few examples of positive goals traders can have that will help with self-improvement. If you set your mind to accomplishing these kinds of goals, you will see increases in the amount of profit you bring home because you’ll be a smarter trader at the end of the day. 

The Ability to Let Losses Go

The unpredictability of the forex market makes it impossible to avoid losing money every now and then. Even the best forex traders lose money at times. Some traders handle these losses much better than others because they understand that it is unavoidable, but other traders have a hard time letting this go. They might feel like they’ve taken a hit to their ego and try to blame others, they may become depressed, or they might begin to risk even more money in an attempt to gain back what they’ve lost. Meanwhile, professional traders aren’t losing any sleep over their losses and they are able to stay level-headed without deviating from their trading plan when this occurs. 

TIP: It’s understandably difficult to lose money, but there are some things you can do if you’re having trouble coping with forex losses. Here are a few ideas that could help:

  • Never risk more money than you’re willing to lose so that losses don’t seem like such a big deal
  • Remember that coming out with some type of profit is still worth celebrating.
  • Review what happened when you lose money and try to diagnose the problem. If it was your fault, think of it as a learning opportunity rather than a personal failure.
  • Don’t beat yourself up over losses. Remind yourself that this happens to every trader in the world.
  • Never succumb to revenge trading – which is the act of risking larger amounts of money to win back money you’ve just lost. 
  • If you feel upset every time you lose money, try risking less on each trade.
Categories
Forex Basics Forex Brokers

Tell-Tale Signs You Need to Get a New Forex Broker

Are you here because your forex broker hasn’t been meeting your expectations lately? If so, then you don’t have to settle. New brokers open their doors every single day and hundreds of options have probably popped up since you first signed up for that old trading account. Finding a new broker can offer multiple benefits, from reduced fees to a wider selection of trading instruments, the chance to make extra money through bonuses, and more. If you’re seriously considering switching, then take a look at our list of tell-tale signs that you need to find a new forex broker.

Are you here because your forex broker hasn’t been meeting your expectations lately? If so, then you don’t have to settle. New brokers open their doors every single day and hundreds of options have probably popped up since you first signed up for that old trading account. Finding a new broker can offer multiple benefits, from reduced fees to a wider selection of trading instruments, the chance to make extra money through bonuses, and more. If you’re seriously considering switching, then take a look at our list of tell-tale signs that you need to find a new forex broker.

Are you here because your forex broker hasn’t been meeting your expectations lately? If so, then you don’t have to settle. New brokers open their doors every single day and hundreds of options have probably popped up since you first signed up for that old trading account. Finding a new broker can offer multiple benefits, from reduced fees to a wider selection of trading instruments, the chance to make extra money through bonuses, and more. If you’re seriously considering switching, then take a look at our list of tell-tale signs that you need to find a new forex broker.

Sign #1: You’re Paying Too Much in Fees

You’re likely paying commissions, spreads, and possibly withdrawal fees for trading through your broker. In some cases, you might not be paying commissions but you’re dealing with a higher spread to make up for it. If you’ve been trading with the same company for some time, you may not have been paying much attention to these fees, but have you compared them to any other brokers lately? If your broker is charging you a spread that is above 1.5 pips on EURUSD, we can almost guarantee that their other prices are too high, which means that you could be walking away with more of your own money in your pocket at the end of the day if you simply switch to a broker with cheaper fees. There’s also a good chance you could find a broker with no withdrawal fees for debit cards versus the 7% fees we’ve seen listed through several brokerages. 

Another thing to watch out for are extra charges, like inactivity fees or account maintenance charges. Some brokers do charge small inactivity fees to clear out balances that are left behind forever, but others charge high fees after about a month of zero trading activity. Account maintenance charges are basically like made-up charges that your cell phone provider would come up with to make a few extra dollars. Now is a good time to check your broker’s terms & conditions to see if any of these fees apply. If so, you might want to switch, especially if you’ve been hit with inactivity fees before. 

Sign #2:LacklusterCustomer Service

When it comes to customer service, a good broker offers flexible hours, quick and convenient contact methods, and polite service representatives. Sadly, you won’t find this available with every broker and you’d have an easier time pulling teeth than getting in touch with an agent through some shadier brokerages. Imagine having an issue where you never received a withdrawal you desperately needed, but you couldn’t get in touch with anyone to find out what happened. Or perhaps you simply get locked out of your account and can’t reset your password, so you’re stuck missing out on trading opportunities for days while you wait for an agent to respond to you. If you haven’t been there before, there’s always a chance that this will affect you in the future. Rudeness is another thing that you shouldn’t have to tolerate and is a sure sign that you’ll do better with another company. 

Sign #3: Limited Trading Opportunities

If you’re a trader that is only interested in currency pairs, then this one might not matter to you as much, as long as your broker offers a good selection of majors, minors, and exotics. However, many traders do look to diversify their trading portfolio over time, even if they started out focusing only on currency pairs. If this is the case for you, then you’ve probably outgrown your forex broker if they don’t offer much in the way of commodities, stocks, or cryptocurrencies. If you’re in this situation, you might want to switch to gain access to a wider diversity of investment options – or you could open a secondary account through another broker and continue to trade currencies on your current account if your broker offers competitive prices. 

Sign #4: An Unsatisfactory Trading Platform

Some brokers offer access to award-winning platforms like MetaTrader 4 and/or 5, or they have their own trading platform for users to trade on. If you’re dealing with a broker that lets you trade on MT4 or MT5, then you already have access to one of the best platforms out there, but don’t hesitate to switch if you don’t personally like those options. If your broker offers their own platform, you’ll need to think about how satisfied you are with the features and tools within it. Does it seem basic? If your trading platform is missing out on all the tech you’re looking for, consider switching. Also, know that more popular brokers are more likely to offer outstanding platforms, while smaller shadier brokers are likely offering up more basic trading platforms. 

Sign #5: Your Broker Is Too Basic

Some brokers have a lot to offer in the way of extra perks, like bonuses and promotional opportunities, a wide selection of assets to choose from, a wide array of educational resources, trading tools like calculators, amazing trading platforms, and etc. Others only offer a basic trading platform with zero resources or extra perks on their site. Obviously, the latter is rather boring when there are so many companies offering so much more out there. If your broker only offers the bare minimum, we highly recommend looking at other options so that you can benefit more from the trading experience.

Categories
Beginners Forex Education Forex Basics

The Ultimate Checklist for First-Time Forex Traders

Congratulations on your decision to become a forex trader! This self-made career path can really open the door to a lot of financial opportunities in your life and might even help you through retirement or hard times later on. You might have had some doubts when you started considering trading as an alternative way to […]

Congratulations on your decision to become a forex trader! This self-made career path can really open the door to a lot of financial opportunities in your life and might even help you through retirement or hard times later on. You might have had some doubts when you started considering trading as an alternative way to […]

Congratulations on your decision to become a forex trader! This self-made career path can really open the door to a lot of financial opportunities in your life and might even help you through retirement or hard times later on. You might have had some doubts when you started considering trading as an alternative way to make extra money, especially if you’ve heard the rumors that most traders fail, but we’re here with good news.

There are guaranteed ways to start off on the path to success, so long as you complete all the necessary steps BEFORE you actually open your very first trading account. If you follow along with our ultimate checklist, we can guarantee that you’ll start off on the right path with an advantage over other beginner traders. 

Start with Beginner Education

If you want to trade, you need to start by educating yourself, or else you won’t know what’s going on. Here’s a list of some of the first things you’ll need to know:

  • Terminology 
  • Factors that affect prices in the forex market and how the market works
  • Information about the different currency pairs and instruments
  • Forex trading sessions and hours
  • Leverage and margin
  • How to manage risk as a beginner
  • Tips for beginners
  • Trading psychology
  • Navigating a trading platform

Of course, there’s a lot more to know, but these are some of the first topics you’ll want to tackle as a beginner so that you can understand more complicated topics later on. If you don’t understand common trading terms like leverage, pip, or spread, then you will be lost once you move on. 

Fortunately, all of this information can be found on the internet for free. You can simply perform a quick Google search for “beginner trading topics” to get started, or head over to YouTube and type the same thing into the search bar if you’d prefer to watch educational videos. Once you think you have beginner education covered, we’d suggest taking some online quizzes to make sure you fully understood all of the content, then you’ll know you’re ready to move on.  

Move On to More Advanced Material

Once you understand beginner related content, you’ll be more prepared to learn about more complicated subjects without becoming frustrated. Here are a few examples of the kind of content you should be looking for:

  • Trading strategies
  • Candlestick patterns
  • Using indicators, signals, EAs
  • Fibonacci tools
  • Reading charts
  • Technical and fundamental analysis

Once again, there’s a lot to learn here, and you’ll want to pay extra attention to content that teaches you how to develop and manage a trading strategy. Reading articles or books that have been written by expert traders is a great way to learn, as you might be able to find trading tips that inspire you. Also, be sure to research multiple types of trading styles and strategies so that you’ll be more knowledgeable when it’s time to develop your trading plan. 

Choose a Forex Broker

At this point, you need to find a broker. This isn’t a decision that should be made with haste, as your choice will affect your entire trading experience. You should know that there are hundreds of options out there, but each broker wasn’t created equally. Here are some things to research and consider when it comes to choosing the broker that is best for you:

  • Deposit minimums and associated account types
  • Fees and charges (spread, commissions, withdrawal fees, inactivity charges, etc.)
  • Available assets (currency pairs, commodities, stocks, cryptocurrency, etc.)
  • Available trading platforms
  • Customer service (hours and contact methods)
  • Extra perks like bonuses and promotions
  • Access to educational resources 
  • Regulation status

It’s a good idea to compare some of your favorite options and always lean towards regulated brokers to keep yourself safe in the event that your broker was to go out of business. One of the best ways to get an idea of whether a broker is trustworthy is to read user reviews online, but make sure these are coming from other websites besides your broker and take some of the bad reviews with a grain of salt, as some traders may blame the broker when they lost money at their own fault. If you can’t find any reviews online, you’re probably looking at a less established broker or possibly a scammer. 

Develop a Trading Plan

One of the biggest beginner mistakes is opening a trading account with no plan. If you don’t know when, why, or what you want to trade, then you’ll be making random moves that don’t make much sense. Fortunately, you should know a lot about different types of trading plans and strategies from step 2, but you might need to do a little more research as you work to develop your plan. This is what your plan will need to cover:

  • How often you will be trading (part-time, full-time, etc.)
  • Rules for entering and exiting trades
  • Factors you’ll look at when deciding to make a trade
  • Goals you want to meet
  • The types of instruments you want to trade
  • How much money you’re willing to invest and risk on each trade
  • Steps you’ll take to limit losses

It’s crucial to ensure that your time schedule will fit with your trading plan. Some plans require a lot more time in front of the computer screen, while others will allow you to remain less active. Remember that you’re setting yourself up for failure if you try to set a plan that requires you to trade during times when you may not be able to or if your plan is too complex for your skill level. Often times, the simplest plans produce the best results. 

Practice on a Demo Account

At this point, you’re almost ready to open your first trading account! You’ve learned beginner and intermediate content, chosen a forex broker and developed a comprehensive trading plan. You’re probably feeling eager to get started, but you don’t want to skip out on using a demo account. This is the most hands-on tool you’ll have used so far and will help you to gauge your preparedness for trading on a real account. 

You’ll want to start by opening a free demo account through your chosen broker’s website (Almost every forex broker offers this option). This will allow you to practice trading under the broker’s current conditions, become more familiar with navigating their trading platform and tools, and most importantly, to test out your trading plan with no financial risk. 

As you practice on your demo account, you should keep a record of each trade just as if you were using a live account. Check for any issues that might need to be addressed so that you can tweak your strategy to perfection before you put any money on the line. Once you have a consistently profitable strategy that works, you can move on with confidence. 

Open Your Trading Account

Congratulations! Once you reach this point, you’ve done everything you need to ensure that you’re starting off on the right path. Your broker will likely ask you for proof of identity and proof of address documents, so you’ll want to be sure to have these handy. Most people simply use a copy of their driver’s license and a utility bill for this step. 

Of course, you should never stop pursuing a trading education along the way, and be sure to keep a detailed trading journal to keep a good record of your profits/losses. Now, get out there and open your first trading account!

Categories
Forex Money Management

How Much Should You Be Spending on Forex Trading?

There’s a lot to figure out once you make the decision to become a forex trader. What broker to use, when and how to trade, and managing risk is just the tip of the iceberg. One question that many beginners actually find themselves struggling with involves figuring out how much money to initially deposit into […]

There’s a lot to figure out once you make the decision to become a forex trader. What broker to use, when and how to trade, and managing risk is just the tip of the iceberg. One question that many beginners actually find themselves struggling with involves figuring out how much money to initially deposit into […]

There’s a lot to figure out once you make the decision to become a forex trader. What broker to use, when and how to trade, and managing risk is just the tip of the iceberg. One question that many beginners actually find themselves struggling with involves figuring out how much money to initially deposit into their trading account and how much they should risk on each trade from there. 

Making an Initial Deposit

There are a few advantages to making both smaller and larger initial deposits. Fortunately, most forex brokers offer different account types that can appeal to traders that are looking to deposit different ranges of money, so you shouldn’t feel pressured to deposit hundreds of dollars if you don’t want to. 

Small Deposits 

Most brokers do offer cheaper account types for beginners, so this is definitely an option if you aren’t comfortable depositing a larger amount of money at first. Plus, you can always go back and deposit more money later on. Here are the perks to making a smaller first deposit of around $10 – $100:

  • You can open a micro/mini/cent account, which allows for smaller lot sizes to be traded, making them good starter accounts.
  • You can test the broker’s deposit methods and conditions without putting a lot of money on the line.
  • If you aren’t comfortable making a bigger deposit, this will allow you to become more familiar with the broker’s conditions so that you can deposit more later on.
  • This is a good way to get started trading with minimal risk and makes opening a trading account more of a realistic option for more timid beginners. 

While a smaller deposit might be a better option for beginners, there are also a few disadvantages to consider:

  • Account types that accept smaller deposits typically come with higher spreads and fees, so you’ll wind up bringing home less of your profits. 
  • Some brokers don’t allow mini/micro/cent account holders to partake in promotional opportunities and you might miss out on other perks.
  • Your small deposit won’t be enough to trade with for a long period of time, meaning that you’ll need to top up your account more often if you run out of funds. 

Large Deposits

Perhaps you’re leaning in the opposite direction and considering that you should make a larger deposit of a few hundred or thousand dollars. As long as you’ve done your research and chosen a trustworthy broker, then this can be a great decision that offers several benefits:

  • Making a larger initial deposit will open the door to better account types that offer tighter spreads and lower commission charges through most brokers.
  • Some brokers offer special perks on these better account types, like fee-free withdrawals, larger bonuses, and more. 
  • Your deposit should provide you with enough money to trade for quite a while without needing to turn around and deposit more money quickly. 

A Quick Tip

There’s one important thing to remember as a trader: you should never deposit more money than you can personally afford. Larger deposits may come with more benefits, however, there’s no reason to put yourself into debt when it’s possible to open a trading account with less than $100 through several online brokers. There is no guarantee you will get that money back, so don’t pull out of money that is meant to be spent on groceries, bills, or other necessities. Having the discipline and financial wisdom to only risk what you can afford is one of many qualities that are necessary if you want to be a successful trader. 

Conclusion: How Much to Risk?

You probably have an idea of whether you’re looking to invest a small or large amount of money at this point, but there’s still another question left to answer: How much will you risk on each trade? This is really more of a personal decision, but there are a few things you should know before you decide:

  • Some of the most common beginner mistakes involve risking too much on each trade, trading with too high of a leverage, and failing to take precautions to minimize risk.
  • The more you risk, the faster you could drain your account, especially in the beginning.
  • Experts actually recommend risking around 1% of your total account balance on each trade. If you have $100 in your trading account, this means you’d only risk $1 per trade. 

Perhaps you wanted to risk a larger amount of money so that you could profit more quickly. One professional tip states that you should calculate the risk you should take based on your confidence in each individual trade. For example, you could stick with the 1% account balance rule on trades that you’re only fairly confident about, but risk slightly more on trades that you feel much more confident about. This will allow you to make slightly larger profits while remaining careful. Of course, this is only a suggestion, so you may want to look for other tips online if you’re looking to do things differently.

At the end of the day, only you can decide how much to deposit and risk based on your personal financial situation. However, there is one rule you should always follow: never invest or risk more money than you’re willing to lose.

Categories
Forex Elliott Wave Forex Market Analysis

Is US Dollar Index Ready for a Rally?

The US Dollar Index reveals exhaustion signals of its bearish trend. A trend that remains in progress since the currency basket topped at 102.992 pm mid-March 2020. Follow with us what signs show the Greenback to expect a rally during the first quarter of the year.

The US Dollar Index reveals exhaustion signals of its bearish trend. A trend that remains in progress since the currency basket topped at 102.992 pm mid-March 2020. Follow with us what signs show the Greenback to expect a rally during the first quarter of the year.

The US Dollar Index reveals exhaustion signals of its bearish trend. A trend that remains in progress since the currency basket topped at 102.992 pm mid-March 2020. Follow with us what signs show the Greenback to expect a rally during the first quarter of the year.

Technical Overview

The big picture of the US Dollar Index (DXY) illustrated in the next weekly chart reveals the downtrend that remains active since the price found fresh sellers at 102.992 in mid-March 2020. The following figure also exposes the market participants’ sentiment represented by the 52-week high and low range.

The previous figure shows the extreme bearish sentiment dominating the big participants’ bias since mid-March 2020. Nevertheless, the long-tailed candlestick corresponding to the last trading week that was closed above the yearly opening, suggests the bearish trend’s exhaustion in progress.

On the other hand, the reading -4.26 observed in the EMA(52) to Close Index suggests the currency basket is oversold; thus, a potential corrective rally could occur in the coming weeks.

The mid-term Elliott wave view of the US Dollar Index exposed in the next 8-hour chart suggests completing an extended third wave of Minute degree labeled in black, when the price found support at 89.209 on January 06th.

Once the price found support, the price started to bounce, developing an incomplete wave (a) of Minuette degree identified in blue, which belongs to wave ((iv)) in black. Finally, the momentum and timing oscillator suggests that the bearish pressure persists, and the current upward movement could correspond to a corrective rally.

Technical Outlook

The mid-term outlook for the US Dollar Index unfolded in the next 8-hour chart shows the incomplete wave ((iv)) in black, which advances in wave (a) identified in blue. In this context, the current climb experienced by the Greenback could be a corrective rally.

According to Elliott Wave theory, the fourth wave in progress could retrace to 50% of wave ((iii)),  and reach 91.205. Likewise, considering that the second wave was a simple correction in terms of price and time, the current fourth wave should be complex in terms of price, time, or both. 

On the other hand, if the price extends beyond 50%, this could indicate weakness in the bearish pressure. If the price action advances above 92.107, the bearish scenario will be invalidated leading us to expect more upward movement.

In summary

The US Dollar Index completed a bearish third wave of Minute degree at 89.209 on January 06th, when it began to bounce, starting an upward corrective rally that remains in progress. The current intraday movement could reach 91.206 where the price could complete its wave (a) of Minuette degree labeled in blue. On the other hand, considering the alternation principle, the current corrective formation, the structure should be complex in terms of price, time, or both. Finally, the bearish scenario’s invalidation level locates at 92.107, corresponding to the end of wave ((i)) in black.

Categories
Beginners Forex Education Forex Basics

These Small Changes Will Make a Huge Difference in Your Profits

It’s no secret that every single forex trader wants to make as much money as possible, otherwise, what’s the point? Even if you’re already bringing in consistent profits, you might be surprised to learn that there are some very simple changes you can make to put more money in your pocket. If you’re a beginner, […]

It’s no secret that every single forex trader wants to make as much money as possible, otherwise, what’s the point? Even if you’re already bringing in consistent profits, you might be surprised to learn that there are some very simple changes you can make to put more money in your pocket. If you’re a beginner, […]

It’s no secret that every single forex trader wants to make as much money as possible, otherwise, what’s the point? Even if you’re already bringing in consistent profits, you might be surprised to learn that there are some very simple changes you can make to put more money in your pocket. If you’re a beginner, this could even be the difference between having a positive or negative profit ratio. Would you put in the effort to make the difference? 

Change #1: Use a Simple Trading System

It might seem like more complicated trading plans bring in more money. After all, these plans seemingly account for more factors and are more technical, so it’s easy to think that they’re better. In reality, simplicity is key to making consistent profits and avoiding all that unnecessary confusion. If you know what you’re doing, you’ll be less stressed and you won’t have to spend as much time in front of your computer screen, so this is definitely a win-win for everyone. If you’re currently using an overcomplicated plan, do yourself a favor and switch to a simpler version.

Change #2: Trade During the Best Times

Did you know that there are certain times when it’s better to trade? The best trading times occur whenever sessions overlap and things tend to heat up towards the middle of the week. Mondays and Friday evenings are slow, and nobody wants to trade on the weekends, so you should give yourself the much needed time off when there aren’t good trading opportunities. Other times to avoid trading? Major holidays and whenever big news is expected to be released. If you trade during the best times and avoid the worst ones, you’ll be able to profit more efficiently without making the mistake of trading in more volatile market environments. 

Change #3: Check Your Broker’s Costs

Whether you recently signed up with a broker or you’ve been using the same one for years, it’s a good idea to go back and check out their rates, then compare them with a few other options. You might find that switching to a new broker will save you a ton of money, plus, several new companies have probably opened up since you opened that old trading account. Say your broker charges a 5% withdrawal fee for withdrawing via card but you’re able to switch to a broker with no withdrawal fees. Or perhaps you could save 0.5% or more on the spread or commission charges. At the end of the day, these small changes will really add up and leave you with more of your money. Another added bonus is that your new broker may offer some extra perks like a deposit bonus that will add to your money when you switch over. 

Change #4: Limit the Pairs you Trade With

Some traders like to trade a variety of assets, which can be profitable, but it might be more helpful to stick with around three pairs so that you don’t have to keep up with as many factors affecting prices across different markets. If you’re able to focus more clearly on what you’re trading, your profits are bound to increase as you’ll avoid missing out on important news or becoming overwhelmed. 

Change #5: Make Smarter Leverage Choices

The more leverage you use, the more money you might make…or lose. If you’re looking to increase your profits, now is a good time to consider the leverage you’ve been using and to think about your profits. If you’ve been losing money, you might want to lower the leverage you’re using, as this will lower the amount of losses you take from losing trades. On the other hand, those that are making consistent profits might want to increase their leverage slightly, as these traders are more likely to benefit from doing so. Every now and then, you can increase your leverage in increments as long as your profits stay consistent. 

Change #6: Be Patient

Some traders have a difficult time sitting around without entering trades, especially after some time has passed. However, you shouldn’t trade for the sake of doing so. If the market isn’t throwing out any good opportunities, simply don’t trade. Otherwise, you run the risk of losing money on a trade when you could have opted not to trade at all. In times like these, remember to stick to your trading plan and know that the market will give you more opportunities later on. 

Change #7: Never Stop Learning

It’s easy to start thinking you know everything you need to once you’ve been trading for a while with consistent profits; however, you should never stop seeking out more trading knowledge. Learning about trading psychology and reading about different or new kinds of strategies are a couple of examples of topics you can look up, but you shouldn’t stop there. The more you know, the more chance you’ll have to increase your profits, and you might even find a better trading system along the way.

Categories
Beginners Forex Education Forex Basics

Top 7 Biggest and Most Embarrassing Forex Blunders

When it comes to forex trading, there are a few factors that can make or break your career. Beginners are very prone to making these mistakes, but even intermediate level traders are susceptible to some of the biggest forex blunders out there. If you’re looking to increase your profit margin while dodging unavoidable mistakes, keep […]

When it comes to forex trading, there are a few factors that can make or break your career. Beginners are very prone to making these mistakes, but even intermediate level traders are susceptible to some of the biggest forex blunders out there. If you’re looking to increase your profit margin while dodging unavoidable mistakes, keep […]

When it comes to forex trading, there are a few factors that can make or break your career. Beginners are very prone to making these mistakes, but even intermediate level traders are susceptible to some of the biggest forex blunders out there. If you’re looking to increase your profit margin while dodging unavoidable mistakes, keep reading. 

Forex Blunder #1: Blindly Trading

When we say refer to blind trading, we mean trading without the proper knowledge needed to make informed decisions. This could stem from opening a trading account too soon without learning all of the components that actually go into trading or failing to keep up with important news and other factors that can affect the forex market. Traders that don’t know what’s happening with the forex market are bound to feel confused and fall behind their colleagues that keep up with world events. Fortunately, you can avoid this mistake by ensuring that you have a proper education and by keeping up with forex news through an economic calendar and other means of acquiring that important information. 

Forex Blunder #2: Risking too Much

From the beginning, forex traders need to work out how much money they can afford to invest in their trading account. From there, it’s crucial to manage that money by deciding how much you are willing to risk on each individual trade and by taking measures to limit your risk, like placing a stop loss. One of the biggest mistakes you can make involves using high leverage amounts, failing to use risk management precautions, and simply risking too much money on each trade. Together, these mistakes can blow through your account balance and leave you feeling defeated, which might even cause you to give up on trading for good. One simple tip is to stick with an average leverage (many experts use a 1:100 ratio) and to risk about 1% of your account balance on each trade. 

Forex Blunder #3: Emotional Trading

Forex trading is often compared to a rollercoaster ride because of the range of emotions that traders can go through. Feelings of anger, frustration, doubt of one’s ability to be a good trader, and panic over the loss of funds are common, especially with traders that don’t have a lot of experience. This leads to irrational decisions and issues like revenge trading, which involves risking too much in an attempt to gain back funds that were lost quickly. Since traders are already feeling the adrenaline and aren’t thinking clearly, these types of measures usually end with even more losses. If this sounds familiar, some of the best tips are to lower the amount you’re risking on each trade so that losses won’t have as much of an impact on you, stick with your trading plan, and take a break when you need to calm down. 

Forex Blunder #4: Choosing the Wrong Broker

There is an overwhelming number of forex brokers out there, each of which offers its own unique conditions and perks. Some traders might not realize just how much goes into choosing a broker, as you need to compare account types, funding methods and fees, leverage options, tradable assets, and more. If you choose the first broker that pops up on your search engine, there’s a good chance that you could have found an option that was better suited for your needs with a little research. It’s also important to know that your choice affects the amount of your profits that wind up in your pocket at the end of the day once broker and withdrawal fees are subtracted.  

Forex Blunder #5: Not Having a Trading Plan

What types of instruments will you trade? How much money will you risk? What type of evidence are you looking for before you enter a trade? At what point do you plan to exit trades? All of these questions and more are addressed in a trading plan. Without one, you’re essentially just making random moves and trading all over the place. Even if you make money with some of these random trades, your history will be so inconsistent that it will be impossible to pin down what is causing you to win or lose money. Meanwhile, trading with an organized plan helps you to know exactly what you’re looking for and you will be able to figure out what is and isn’t working much more easily. 

Forex Blunder #6: No Trading Journal

We mentioned that you might need to review your trading plan at some point in the event that you start losing money or whenever you’re looking to increase your profits. The best way to do this is by keeping a trading journal where you detail each trade you make, why you entered the trade when you did, how much money you made or lost, and etc. Whenever you need to go back and check on something, your journal will serve as a map that shows how well your plan is working, point out issues, and show you what you should keep doing the same. Unfortunately, many beginners never start a journal at all and feel lost when they start losing money because they can’t figure out the problem. Others might start a journal and abandon it after a few entries because they don’t realize how helpful it can be. 

Forex Blunder #7: Setting Unrealistic Goals

When you first opened your trading account, you probably had an idea of how much money you wanted to make. Traders that set realistic goals and accomplish them feel a huge sense of satisfaction, however, having the opposite experience only sets traders up for disappointment. When it comes to trading goals, this is why it is important to have a realistic outlook based on your experience and the amount of money you’ve invested. Rather than focusing on the exact amount of money you want to make in a period of time, you can set short-term and long-term goals that focus on improving your abilities as a trader. You’ll see an increase in profits in return, and you’ll also avoid beating yourself up because you couldn’t meet the unreachable expectations you placed on yourself.

Categories
Forex Fundamental Analysis

EUR/CHF Global Macro Analysis – Part 3

EUR/CHF Exogenous Analysis The EU and Switzerland Current Account to GDP differential The ratio of the current account to GDP helps us determine the level of a country’s participation in the international market. When a country has net exports, it means that it will have a current account surplus; and, the larger the surplus, the […]

EUR/CHF Exogenous Analysis The EU and Switzerland Current Account to GDP differential The ratio of the current account to GDP helps us determine the level of a country’s participation in the international market. When a country has net exports, it means that it will have a current account surplus; and, the larger the surplus, the […]

EUR/CHF Exogenous Analysis

  • The EU and Switzerland Current Account to GDP differential

The ratio of the current account to GDP helps us determine the level of a country’s participation in the international market. When a country has net exports, it means that it will have a current account surplus; and, the larger the surplus, the higher the current account to GDP ratio. Conversely, a country with higher imports than exports; it means it has a current account deficit, and its current account to GDP ratio will be lower.

The domestic currency will be in higher demand in the forex market when a country is a net exporter.

In 2020, the Swiss Current Account to GDP is projected to reach 7.5% and that of the EU 3.4%. Thus, the current account to GDP differential between the EU and Switzerland is -4.1%. That means we should expect that the CHF will be in higher demand than the EUR. Thus, we assign a score of -5.

The interest rate differential for the EUR/CHF pair determines which of these currencies is preferable to investors and carry traders in the forex market. When the interest rate differential is positive, it means that investors will earn more by buying the EUR. Similarly, carry traders will be bullish on the EUR/CHF pair, thus driving the exchange rate higher. A negative interest rate differential implies that the Swiss Franc will be preferable to investors, while carry traders will be bearish on the pair.

The Swiss National Bank has maintained the interest rate at -0.75% throughout 2020, and the ECB interest rate has been at 0%. The interest rate differential for the EUR/CHF pair is 0.75%. We assign a score of 2.

  • The EU and Switzerland GDP Growth Rate differential

The GDP growth differential is the difference between the rate at which the EU and the Swiss economy are growing. This will help us identify which economy is growing faster. A positive GDP growth differential between the EU and Switzerland will result in a higher exchange rate for the EUR/CHF pair. A negative one will lead to a drop in the exchange rate for the pair.

In the first three quarters of 2020, the EU economy has contracted by 2.9% while the Swiss economy contracted by 1.5%. The GDP growth rate differential is -1.4%. We assign a score of -3.

Conclusion

The exogenous factors between the EUR/CHF pair have a score of -6; which implies that the pair can be expected to be on a downtrend in the short term.

As you can see above, the Technical analysis shows that the weekly chart for the EUR/CHF pair has failed to breach the upper Bollinger band successfully and has bounced off of it supporting our fundamental analysis. All the best.

Categories
Beginners Forex Education Forex Basics

Tips for Avoiding Forex Burnout

Has forex trading left you feeling tired, frustrated, and just plain burnt out lately? Some might be under the impression that trading is an easy job. After all, you just sit in front of your computer, make a few trades, and sit back while the money comes in, right? True forex traders know that this […]

Has forex trading left you feeling tired, frustrated, and just plain burnt out lately? Some might be under the impression that trading is an easy job. After all, you just sit in front of your computer, make a few trades, and sit back while the money comes in, right? True forex traders know that this […]

Has forex trading left you feeling tired, frustrated, and just plain burnt out lately? Some might be under the impression that trading is an easy job. After all, you just sit in front of your computer, make a few trades, and sit back while the money comes in, right? True forex traders know that this is far from the truth. The reality is that trading can actually become quite stressful once the constant risk, undesirable market conditions, overtrading, pressures to succeed, and failing to meet your own expectations all set in. Add a string of losses to the mixture and you’ll find yourself with one stressed out trader. 

Experiencing mental burnout is something that nobody wants to deal with, but it can be especially harmful when it happens to forex traders. This is because we need to be awake and alert so that we can make the smartest financial decisions. Once we become tired and frustrated, our cloudy head might lead us to overlook things, enter trades we shouldn’t or leave trades open too long, overtrade, practice revenge trading when we’re losing – you get the picture. Think about the things you were told when it was time to take a test in grammar school. You were advised to get plenty of rest, eat a big breakfast, and show up feeling energized to get the best results. Are you treating yourself the same way as a forex trader? 

Step 1: Recognizing Burnout

Mental burnout is not something that will hit you right off the bat once you start trading. In fact, you might be able to go a long time without experiencing it. This is because it is something that sets in over time once a variety of stressful factors start to pile up on you. Did you know that some of the signs that you’re burnt out can even be physical, rather than only mental? If you want to avoid becoming a total trading zombie, you can start by recognizing the signs and symptoms of mental burnout:

  • You’ve started to deviate from your trading plan and no longer care about your trading rules.
  • You’re experiencing headaches or other physical symptoms like muscle aches or generally just feeling sick with no real explanation.
  • You’re falling into a depression that leaves you tired and unmotivated.
  • You become frustrated at everyone and everything for no real reason, both in everyday life and while trading.
  • You begin to doubt your abilities as a forex trader, even though you’ve been successful before.
  • You just don’t care much about trading anymore and you consider giving up despite past success.

If this sounds familiar, you are probably already dealing with mental burnout as a forex trader. Fortunately, there are some things you can do to get your head back in the game and to overcome those debilitating symptoms.

Step 2:  Take Yourself Back to the Beginning

Do you remember how you felt when you opened your very first trading account? Were you an eager, starry-eyed beginner that had big plans and dreams? Try to take yourself back to those feelings. Think of the way you felt the first time you entered a trade, made money, and when you made your first withdrawal. Over time, trading probably became a habit and you no longer felt the excitement from those little things, but this doesn’t mean that you can’t renew your happiness with trading. Every dollar made is worth celebrating, so give yourself some credit for coming so far and try to soak in the small victories. 

Step 3: Find Other Traders to Confide In

If you’re dealing with trading burnout alone, it only makes it that much more overwhelming. Having other traders to talk to who can say they’ve also been there and give you advice about how they overcame it is a great way to remind yourself that you aren’t the only trader that has experienced this. It can also be reassuring to talk with someone else that has experienced physical symptoms from the stress because you may feel more validated. If you confirm that this is happening to others and they’ve overcome it, then you may feel more confident that you can pull yourself out of the slump too.

If you personally know someone that trades, you should ask them if they’d like to get together and become trading buddies. Don’t worry if you don’t know anyone in person because there are online forums and communities designed just for this purpose. You shouldn’t have an issue finding one (or more) traders that relate to the way your feeling and your trading style. You can probably even find a more experienced trader that will also give you great advice that goes above and beyond dealing with trading burnout. 

Step 4: Relax and Refresh

Whenever you’re dealing with stress from forex trading or anything else going on in your life, the best thing to do is take some time for yourself to unwind. Of course, this looks different for everyone. Some of us would prefer to sleep in or take a nap, relax on the couch, and maybe watch a movie. Others might be more into exercising or partaking in yoga or meditational activities. Sometimes, a night out can really do the trick, so consider treating yourself to a nice dinner, heading to the movies, or doing anything else you find fun. The key is to find something that you really enjoy doing and to do it often enough to keep yourself calm. If you start to feel stressed, simply take a break from trading, unwind, and come back with a clear head and zero frustration. It might seem unproductive to stop trading, but you will find that you get better results because you won’t be making trading decisions out of sheer frustration. 

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Forex Fundamental Analysis

EUR/CHF Global Macro Analysis – Part 1 & 2

Introduction

Introduction

Introduction

In conducting the global macro analysis of the EUR/CHF pair, we’ll focus on endogenous economic factors that contribute to the growth of GDP in the EU and Switzerland. Exogenous factors that influence the exchange rate of the EUR/CHF in the forex market will also be analysed.

Ranking Scale

A sliding scale of -10 to +10 will be used to rank the impact of endogenous and exogenous factors.

The ranking of the endogenous factors will be based on their correlation analysis with the GDP growth rate. A negative score implies that they resulted in the contraction of the economy hence depreciating the domestic currency. A positive score implies that they led in economic expansion hence appreciation of the domestic currency.

The exogenous factors are ranked based on their correlation with the EUR/CHF exchange rate. A positive score means that the pair lead to an increase in the exchange rate, while a negative ranking means that the exchange rate has decreased.

EUR Endogenous Analysis – Summary

The EUR’s endogenous analysis has a score of -3. This implies that the Euro had marginally depreciated in 2020.

CHF Endogenous Analysis – Summary

The change in the level of employment covers the quarterly developments in the labour market in Switzerland. The statistic includes the changes in both fulltime and parttime employment. Typically, changes in employment is a result of changes in business activities.

In Q3 of 2020, 5.08 million people were employed in Switzerland compared to 5.02 million in Q2. The employment level is still below the 5.11 million registered in Q1. We assign a score of -4.

  • Switzerland GDP Deflator

Switzerland GDP deflator is used to calculate the change in real GDP in terms of prices of all goods and services produced within the country. This is a comprehensive measure of inflation compared to measures like CPI and PPI, which only focus on a small portion of the economy.

In Q3 2020, Switzerland GDP deflator rose to 98.8 from 98 in Q2.  Up to Q3, the GDP deflator has increased by 0.8 points. The increase in inflation can be taken as an indicator that the economy is bouncing back from the economic shocks of the coronavirus pandemic. We assign a score of 3.

  • Switzerland Industrial Production

This indicator shows the changes in output for firms operating in the manufacturing, mining, quarrying, and electricity production. Although Switzerland is not heavily dependent on industrial production, it is still an integral part of the economy.

In Q3 2020, the industrial production in Switzerland increased by 5% from a drop of 9% in Q2. The YoY industrial production for Q3 was down 5.1%. For the first three quarters of 2020, the industrial production is down 3.8%. We assign a score of -3.

  • Switzerland Manufacturing PMI

This is an indicator of the economic health of the Swiss manufacturing sector. The purchasing managers are surveyed based in a questionnaire which covers the output in the sector, suppliers’ deliveries, inventories, new orders, prices, and employment. A PMI of above 50 shows that the Swiss manufacturing sector is expanding, while below 50 shows that the sector is contracting.

In November 2020, Switzerland manufacturing PMI rose to 55.2 from 52.3 in October. This is the highest reading since December 2018 and the fourth consecutive month of expansion since July. We assign a score of 7.

  • Switzerland Retail Sales

The retail sales measure the consumption of final goods and services by households in Switzerland. The expenditure by households drives the aggregate demand in the economy, which results in the changes in GDP.

In October 2020, Switzerland retail sales increased by 3.2% from a drop of 3.2% in September. YoY retail sales increased by 3.1% in October from 0.4% in September. Up to October 2020, the average retail sales has increased by 0.84%. We assign a score of 1.

  • Switzerland Consumer Confidence

About 1000 Swiss households are surveyed in January, April, July and October. They are evaluated based on their opinions about the economy, job security, financial status, inflation, and purchases. Consumer confidence tends to be higher when the economy is expanding and low during recessions.

In Q4 2020, the Swiss consumer confidence dropped to -12.8 from 12 in Q3. Although it is higher than it was in Q2 at the height of the pandemic, it is still lower than in Q1. The expectations on households’ financial situation also dropped to -6.6 from -4.2 in Q2. Households were increasingly pessimistic about the labour market and their job security. this can be attributed to the uncertainties that surround the ongoing coronavirus pandemic. We assign a score of -2.

  • Switzerland Government Gross Debt to GDP

This is the total amount that the Swiss government owes to both domestic and international lenders is expressed as a percentage of the GDP. It helps us to understand and evaluate the size of the debt relative to the size of the economy. At below 60%, the government is seen as being able to service its debt obligations and have room to acquire more debt without straining the economy.

In 2019, the Switzerland government gross debt to GDP was 41% same as in 2018. In 2020, it is expected to range between 49% and 51% due to aggressive expenditure to alleviate the shocks of coronavirus pandemic. We assign a score of -1.

In the very next article, you can find the exogenous analysis of the EUR/CHF Forex pair. Please check that and let us know if you have any questions below. Cheers.