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 Elliott Wave Forex Market Analysis

Is the US Dollar Index Finding A Bottom?

Technical Overview

Technical Overview

Technical Overview

The US Dollar Index (DXY) continues bouncing in the extreme bearish sentiment zone, testing the resistance at 90.983. The breakout of this resistance level could lead to expect further upsides in the following trading sessions.

The following figure shows the US Dollar Index in its 8-hour timeframe exposing the mid-term market participants’ sentiment unfolded by the 90-day high and low range, revealing the bearish trend’s exhaustion. In this context, the surpassing of the next resistance at 90.983 could warn about the Greenback recovery, which could boost the price until the next resistance is located at 92.236. Likewise, the exhaustion could imply the consolidation of the bearish trend.

On the other hand, the primary mid-term trend plotted in blue shows the bearish pressure that remains in progress and the current since DXY found resistance at 94.742 on September 25th. Likewise, the secondary trend identified with the accelerated green downward trendline shows a pause of the short-term downtrend started at 94.302 on November 04th. In this context, the pause in progress represented by the rising minor trend could develop a limited rally, which could carry the price to test the precious swing at 91.200 reached on December 09th.

Technical Outlook

The short-term Elliott wave view for DXY exposed in the next 4-hour chart reveals the end of the bearish wave ((iii)) of Minute degree labeled in black and the start of wave ((iv)) of the same degree, suggesting the possibility of a corrective rally, which could take until January 20212.

From the previous chart, we distinguish the start of wave ((iv)) identified in black, which began when DXY found support at 89.73 on December 17th, ending the third wave of Minute degree labeled in black. Likewise, the price action surpassed the short-term downward trendline plotted in green, suggesting the bearish sequence’s exhaustion that began at 94.302 on November 04th.

With the short-term trendline piercing, DXY developed the first segment of a corrective wave of Subminuette degree identified as wave a labeled in green, which found resistance in the supply zone between 91.014 and 91.200. Once topped at 91.018, the Greenback retraced, developing its wave b of the same degree, which found support in the intraday demand zone between 90.262 and 90.059. 

The textbook suggests that the price action should develop a third move identified as wave c in green, which could advance until the next supply zone bounded between 91.412 and 91.580. Once the US Dollar Index completes the third segment, the Greenback will complete the wave (a) of Minuette degree identified in blue corresponding to the first segment of the wave ((iv)) in black.

In summary, the US Dollar Index looks starting to develop the first segment of the fourth wave of Minute degree, suggesting the pause of the primary trend’s downtrend, which could last up until January 2021. In this regard, DXY currently found temporary support at 89.730, and the price could develop a new decline corresponding to the fifth wave of Minute degree. The potential next decline could pierce the previous low, being its potential next bearish target located at 88.864. Finally, if the price action surpasses the invalidation level placed at 92.107, the Greenback could start to show recovery signals, which could carry to expect a bullish reversal move.

Categories
Forex Chart Basics

If EUR/USD Buying is High, Does That Affect the Fluctuation/Swing in the Chart?

The EUR-USD cross is an intriguing one. With a total of 9.6 million traders in the world, approximately 37% of all volume at the global level is held by this currency pair alone. In fact, not only are the EUR and the USD two of the most traded currencies individually but they also comprise the […]

The EUR-USD cross is an intriguing one. With a total of 9.6 million traders in the world, approximately 37% of all volume at the global level is held by this currency pair alone. In fact, not only are the EUR and the USD two of the most traded currencies individually but they also comprise the […]

The EUR-USD cross is an intriguing one. With a total of 9.6 million traders in the world, approximately 37% of all volume at the global level is held by this currency pair alone. In fact, not only are the EUR and the USD two of the most traded currencies individually but they also comprise the most liquid pair.

Traders from all corners of the planet seem to love the EUR-USD because of tighter spreads and less slippage, but this currency pair is, at the same time, the Holy Grail for major players in the market.

There are no Coincidences

Forex is dominated by the Interbank Market, which is used by various financial institutions to trade currencies between themselves. Interestingly enough, 50% of this Interbank Market is controlled by the largest banks.

Out of approximately 25 000 banking institutions existing in the world, Deutsche Bank, Citi, JP Morgan Chase, and HSBC are some of the most prominent. And, you should know that their interest lies where yours does as well – profit.

How come?

Well, big banks love to manipulate the prices. Have you ever noticed how the price suddenly changed when everyone was certain that it would keep on going in the same direction? There’s the catch.

Big banks focus on the concentration of activity and they step in right where most traders are to take the cream off. To be specific, it is not just where traders are in the chart at that moment but where most of them are headed. 

How the Big Banks Interfere

It is unfortunate what sentiment can do. Many traders keep using the same tools and indicators and they, logically, end up losing. We may not know the extent of tools the big banks use to maintain control and insight, but the same information is accessible to everyone through IG Client Sentiment Indicator or FXCM SSI. 

While the big banks have the power to detect market activity, they cannot see your specific order. They can, however, discover if the majority of orders were long or short, based on which they can manipulate the price.

So, the more the orders push the market in a specific direction, the more likely are the banks to interfere and turn everything around.

USD is a Magnet

The choice of currencies can have an equally strong influence on the trade as well. As the USD is always in demand, it is more likely to be always on the big banks’ radar. Any news events concerning the currency will also stir up the market and set the ground for major turbulence.

The USD is, in fact, so prone to react to any news that any tweets of the previous US president, Donald Trump, caused a commotion in the market. Major US economic reports (GDP, employment, producer and consumer price index, retail sales, and trade deficit reports) are also perfect opportunities for the big banks to take their share of traders’ money.

The EUR is specific because the number of reports concerning the currency is higher due to the number of Eurozone member states. Although related economic reports (especially those of France and Germany) are valuable for traders, EUR pairs seem to do well even when they do come out. 

Since any currency combination is determined by both currencies, the EUR-USD (as the most traded and liquid pair) is that more monitored by the big banks.

The big banks’ involvement can be seen in other crosses involving this pair. For example, the EUR-USD pair has historically exhibited a high correlation with the S&P500 as they both involve the US economy. Interestingly enough, these major banking institutions have no significant dominance over precious metals, which typically dictate what will happen with the pair.

Manipulation at its Best

The number of individual orders, as we can see, does not have the power to drive the market. Individual requests cannot affect market movement per se. The only power that can create an imbalance between buying and selling orders is the big banks. 

Anyone trading the EUR-USD can see these sudden changes in prices, which leave behind many unfilled orders on the supply or the demand level. The big banks will use any opportunity to cause such friction to have their orders filled after the price returns to the zone.

These are the reasons why some forex professionals advise beginners to start trading some other currency pairs that are less susceptible to such interferences.

Indicators’ Predicting Power

Many traders use the sentiment to predict future activity in the market, which is a highly volatile and unpredictable tool. While we cannot control the big bank’s involvement, we can limit their impact by not focusing on the number of orders in the market and avoiding circumstances that these major players deem inviting. 

Any indicator is a result-oriented tool that has no power in predicting the future. News will come out and changes will occur in the world, but our task as traders is to adopt the skills that can raise us above the level of sentiment and provide us with stability.

Instead of focusing on the quantity of orders, supply levels, rather strive to determine the overall market direction and evade the banks’ radar as successfully as possible.

Own your Share of Responsibility

It is important to understand also that if big banks ever disappeared, the nature of this market would change entirely. Maybe the volume could change or forex might start to resemble the stock market. That is why it is important to shift the focus from losses and adopt an opportunistic and proactive mindset. How can you take advantage of the big banks’ existence?

The best solution to this challenge is building your own strategy and learning to trust that system. It should help you avoid the patterns the majority of traders keep repeating. This is a classic contrarian trader view of forex.

Trading currencies requires each trader to let go of the herd mentality. You need to become as independent as possible, especially when it comes to heavily monitored and liquid pairs such as EUR-USD. Your best bet is to invest in learning about trading psychology and letting go of the belief that individuals can impact the market.

Knowledge is Power

If you are still unconvinced that sentiment is not your point of reference, at least aim to use credible sources. 

Twitter, for example, offers an excellent pool of information – you can explore updates about IG Client Sentiment Index on DailyFXTeam, learn about more SSI currency pairs on FXCM_MarketData, or discover some invaluable educational materials on www.forex.academy, and build your unique way of trading. 

Finally remember that it is your skillset and toolbox that will allow you to trade the EUR-USD currency pair successfully – not the news, not the orders, and certainly not the sentiment. Use the traders’ sentiment only to see if there is enough “profit space” for you to take that contrarian trade direction. If 90% of traders are long on EUR-USD, it is hardly going to get higher, do not go into the wall. As the flow in the market is directly managed by external factors, you will primarily benefit from having a system in place that will guide you through any potential volatility caused by news events and the big banks. 

 

Categories
Forex Market

Is Market Analysis a Must for Trading?

Imagine that you are a doctor and a patient visits you. Instead of conducting a full check-up, you just put the person on the table and start operating. This doesn’t sound good, does it?

Imagine that you are a doctor and a patient visits you. Instead of conducting a full check-up, you just put the person on the table and start operating. This doesn’t sound good, does it?

Imagine that you are a doctor and a patient visits you. Instead of conducting a full check-up, you just put the person on the table and start operating. This doesn’t sound good, does it?

      …well, neither does trading without any analysis.

The thing is…we may choose between thousands of different ways to start trading, but there are always a few crucial points to consider. We have all heard stories about people who approach trading as if it were gambling. They rely on emotions, luck, and intuition to determine the future of their finances. However, although this method is wrong and dangerous, what do you believe is the missing component?

If you just took a coin and chose the head as a sign to go long and the tail to go short, you would have a 50-50% chance of succeeding, right? Well, it depends. With knowledge of the market and indicators, a developed toolbox, and proper analysis, this ratio would immediately change.

We need to have a clear idea of where we are going to set our take profit and stop loss and what our risk-to-reward ratio is going to be. These points cannot be determined randomly. We need money management to know how to manage any trade, from entry to exit. 

Many professional traders will condemn any vague, unclear approach because, as traders, we can have a much greater chance of winning with the precision and clarity that come with knowledge, analysis, and money management. 

No matter which strategy you apply in trading, money management should come first. Calculate your risk properly and do not let the trade run loose.

Traders may prefer lower or higher time frames, trying to make the most out of the chart analysis. Technical traders are going to rely on different tools to gather information about the market. However, to know whether you should enter a trade or not, you can do the naked chart reading as well and still know exactly what you should do to succeed.

Naked chart traders do not use algorithms but focus on what candlesticks are telling them about current market activity. Although these traders do not use any indicators in this case, they still need a developed skill set to generate wins and limit losses. 

As naked-chart strategy requires traders to interpret price action signals, they need to determine the overall market direction and read various patterns. Indicators may not be relevant in this trading approach, but managing one’s emotions and attitude is as important as in any other trading style.

Some aspects of trading are universal. Whether you are a technical trader or a naked-chart one, you will need to learn to analyze the market and yourself.

We know how the trading world offers abundant possibilities. Needless to say, trading comes with its own set of risks. That is why some affluent people are keen on seeking advice from experienced traders to ensure a good return. Nowadays, we are also seeing a rise in automated trading (i.e. expert advisors or trading robots) that aims to alleviate the entire trading conundrum and achieve profit without breaking a sweat.

With this approach, traders are free of having to manage each step of the trade themselves. They, however, need to invest in this ready-made system and, preferably, consult with a trading manager as well. 

Now, regardless of any easing that comes with purchasing EAs, people still need to understand the strategy that their robot is using. These traders may not be complete or independent, but they must analyze how the EA they chose works.

You may not care about who is running the state or which report is coming out next, but you still have the task of realizing how you are going to manage a new trade. How do you know that something is a signal or not? How are you going to tell if you are in an uptrend or downtrend? Which strategy brings you the best results? The questions may go on and on, and you are the only one who can answer them.

Based on everything we said above, there is no trading without some form of analysis.

To earn a profit, you need to know the key points in your trading, including your maximum risk and potential reward. What is more, earning a sustainable income should also push you towards understanding what triggers you to behave irrationally. For example, your leverage may be too high or too low, but without assessing the whys, you cannot progress any further. Any algorithm you develop can also help your trades run smoothly and prevent future losses.

Some professional technical traders will say how trading is based on three key concepts – money management, trading psychology, and technical analysis.

Now, even if you are not a really big fan of indicators or prefer a different approach, you need to build experience, as it will help you eliminate future mistakes and manage your emotions better. Yet, to get to the point of having a comprehensive perspective of your personality and the market, you still have to carry out thorough testing. 

You need to see in advance if your chosen strategy is going to yield results. And, even if it does, you might react differently once you start investing real money. Try to obtain a 360 vision of everything – the market, your involvement, and any tools you may be using.

This is why, whichever time frame or strategy you are using, you need to backtest, forward test, and real-life test your system. 

Imagine a situation where you finally started making money, but you suddenly, out the blue, take a few really bad losses with the price hitting your stop loss. 

What do you do? 

You must assess what went wrong – was it emotions, technical analysis, or something else. How can you improve your trading without recording what you were doing? The only thing that matters at the end of the day is the bottom line. Compare your total wins and losses and see if there are any loose ends. 

Trading is more about protecting your account from losses than about sole winning.

You can always use a demo account to see how your approach is working out for you. Any trader with experience will advise you to take notes on every trade you take, including all entry and exit points, indicator settings, and other key information concerning the trade.

Personality tests are also an invaluable tool for traders to get the gist of some negative beliefs that are deeply rooted in your subconscious. You do want to know if there is a part of you that is blocking your prosperity and growth. Finally, understand that whichever approach you take, trading is all about analysis, of yourself and what you do.

You are free to make your own selection of your trading style or even entrust a trading robot with your finances, but do not for one second believe in easy money with no involvement on your side.

Your trading is like a flower bud – you need to devote time, effort, and energy to see it grow, and bloom. Sometimes, you will use less water and more fertilizer to accommodate the changing seasons, but you will always be present, monitoring the development from the seed to the full-blossom stage. If you wanted to take yourself to the next level, you might consider attending a florist competition. That is when you would further build your skills and might even learn how to cut and decorate flowers. 

Still, the one thing that connects all the different stages of this process is analysis. Some people are blessed with a green thumb, so they know intuitively what to do to help the flower grow. However, to be an expert, everyone needs to include a detailed assessment of factors affecting their success in their chosen field.

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Forex Basics

10 Incredibly Surprising Stats About Forex Trading

Both aspiring and expert forex traders can benefit from learning informative statistics about the forex market; however, you’ll often find a long list of boring facts and numbers when you look up the subject. We wanted our readers to have the chance to learn something new without feeling bored, so we scoured the internet to […]

Both aspiring and expert forex traders can benefit from learning informative statistics about the forex market; however, you’ll often find a long list of boring facts and numbers when you look up the subject. We wanted our readers to have the chance to learn something new without feeling bored, so we scoured the internet to […]

Both aspiring and expert forex traders can benefit from learning informative statistics about the forex market; however, you’ll often find a long list of boring facts and numbers when you look up the subject. We wanted our readers to have the chance to learn something new without feeling bored, so we scoured the internet to find the most surprising stats about the forex market out there. 

Statistic #1: Only 10% of forex traders succeed

Our first statistic is both depressing and surprising, but the good news is that it isn’t difficult to avoid becoming one of the failed traders we’re speaking of. The majority of this percentage is made up of aspiring traders that either opened a trading account without proper education or with unrealistic expectations. The misconception that forex trading is just a quick way to get rich draws in traders, then they give up quickly when they realize that they may have unrealistic expectations. 

Statistic #2: 51.6% of traders prefer Android smartphones over iPhones

People across the world have been arguing over whether Android or iPhone is better for more than a decade. We’ve heard a lot of arguments supporting the iPhone for all of its unique features; however, iPhone users might be surprised to hear that Android not only sells more phones than Apple, but the smartphone brand is also preferred by forex traders by approximately 14.3%. 

Statistic #3: A Whopping 90% of successful forex traders claim to use expert advisors

An expert advisor is a trading robot that executes trades on behalf of the trader. There are a lot of different types of EAs out there that enter and exit trades based on different principles. Although there are highly profitable trading robot options out there, many traders can be apprehensive about using them because they may fail and also because many EAs cost at least a few hundred dollars, meaning that you’ll be out of a decent chunk of money if you invest in an unprofitable robot. This is why it’s surprising to hear that so many successful traders actually depend on these services. 

Statistic #4: 27% of forex traders are aged between 18 to 32 years old

When you picture a forex trader, your mind might think of someone in their forties or fifties, or maybe even older. However, forex traders are getting started at much younger ages these days. Another 28% of forex traders are between 35 to 44 years old, meaning that younger traders make up more than half of the total forex traders in the world.  

Statistic #5: More than $5 trillion is traded in the forex market each day

It’s surprising enough to hear that an almost unheard of amount of money passes through the forex market every single day, but did you know that forex trading has more money flow through it than the stock market? It can be harder to find exact figures, but price points seem to fall more in the range of billions when you’re looking at the stock market, which gives forex a substantial lead. 

Statistic #6: 41% of all forex transactions occur in the United Kingdom

The most popular currency pair is the United States Dollar, so you might be shocked to learn that almost half of all forex transactions actually occur in the United Kingdom. If you’re wondering how many transactions take place in the United States, the answer is only about 19%. 

Statistic #7: Only 7% of traders have 10 or more years of experience

If you’re feeling like you’re at a disadvantage because you have little experience trading forex, you might be surprised to hear that traders with 1-3 years of experience make up 39% of forex traders, while another 31% have less than one year’s worth of experience. 

Statistic #8: 40% of forex traders choose to trade because they want to be their own boss

The number one reason why people decide to trade comes down to being their own boss, with almost half of all traders claiming this to be their top motivation, even more so than simply making money. Of course, forex does offer a lot of perks that you can’t find with a regular job.

Statistic #9: More than 45% of traders don’t spend money on learning resources

When you become a trader, you can find a lot of resources online for free, but some may believe that the resources you pay for would offer better educational opportunities. This isn’t necessarily the case, as nearly half of all forex traders opted not to pay a cent for any learning resources in the past year. 

Statistic #10: Approximately 89.1% of forex traders are men

You might have assumed that the number of male traders outweighs the number of female traders, but it’s surprising to hear just how much larger that percentage is. Of course, this is a great incentive for aspiring female traders to get out there and even out those stereotypes. 

Categories
Forex Market

Fixed Forex Spreads vs Floating Spreads: Which is Should I Choose?

When you’re searching for a broker, you’ll find many different account types and options when it comes to fees, available assets, funding methods, and so on. One of the major things that traders look at are the spreads offered by various brokers, as the differences in these fees can be large and will make a […]

When you’re searching for a broker, you’ll find many different account types and options when it comes to fees, available assets, funding methods, and so on. One of the major things that traders look at are the spreads offered by various brokers, as the differences in these fees can be large and will make a […]

When you’re searching for a broker, you’ll find many different account types and options when it comes to fees, available assets, funding methods, and so on. One of the major things that traders look at are the spreads offered by various brokers, as the differences in these fees can be large and will make a big impact on the amount of profits that you actually bring home. Brokers generally profit through two different fees – commissions and spreads. The spread is the difference between the bid and ask price on an instrument. For example, on the pair EURUSD, an average spread is around 1.5 pips. 

However, some brokers widen the spread to 2 pips or even higher, which puts clients at a disadvantage. Much like comparing car insurance, traders need to be able to compare the spreads offered on different account types and through different brokers to find the best deal possible. Otherwise, they will lose a great deal of profits to inflated fees when they could have chosen a broker that offered more competitive pricing.

As mentioned above, you want to look for spreads of around 1.5 pips on the pair EURUSD. Don’t expect to see this on every available instrument, as spreads on exotics and some minor currency pairs can climb much higher. If you see a good spread offer, you still aren’t done, as you’ll need to know whether the spread is floating or fixed. 

Floating spreads are more common in the forex market and this means that the difference between the bid and ask price is constantly changing. If a broker advertises floating spreads from 1 pip on a currency pair, you still might see a spread of 1-2 pips or higher for that same pair. Brokers are also likely to charge commission fees if they offer a floating spread. You’ll want to check to see if the broker lists each instrument they offer and the starting spreads for each pair on their website so that you can see the different starting spreads. If a broker advertises starting spreads from 1 pip but doesn’t go into more detail, you should expect to see this on some major currency pairs with higher spreads on other instruments.  

Unlike floating spreads, which constantly change, fixed spreads are set at their exact value and give traders a more solid foundation of knowing exactly what they will pay. The downside with this type of spread is that it is usually higher than the lowest point with a floating spread. For example, if the broker offers floating spreads from 1 pip on EURUSD, you might see a fixed spread of 2 pips or higher for the same pair. Low fixed spreads are advantageous, while higher fixed spreads mean you will wind up paying more money to trade. 

When it comes to deciding which type of spread is better, you’ll have to take a look at each broker’s specific offer. You also might have to look around if you prefer a certain type of spread, as many brokers only offer one type or the other, while some offer different account types with different kinds of spreads. In our opinion, the best kind of spread is fixed, but it must be narrow. If the spread is fixed at a high value, it is usually better to go with a floating spread.

Categories
Forex Basics

You Need to Know These True Pros and Cons of Trading Forex

If you’ve ever considered becoming a forex trader, you have undoubtedly wondered if it would be a lucrative investment. Forex trading has helped many traders to amass a great deal of wealth, while it has caused others to wipe out their investments altogether. There are good and bad aspects to trading and considering those factors […]

If you’ve ever considered becoming a forex trader, you have undoubtedly wondered if it would be a lucrative investment. Forex trading has helped many traders to amass a great deal of wealth, while it has caused others to wipe out their investments altogether. There are good and bad aspects to trading and considering those factors […]

If you’ve ever considered becoming a forex trader, you have undoubtedly wondered if it would be a lucrative investment. Forex trading has helped many traders to amass a great deal of wealth, while it has caused others to wipe out their investments altogether. There are good and bad aspects to trading and considering those factors is important before deciding if trading is something that you should try.

Below, we will start positive with the plus sides of opening a trading account, before moving on to the cons.  

Pros

Flexibility

 Forex traders never have to worry about a stressful boss standing over their shoulder. They get to be their own boss, set their own hours, and work from anywhere with an internet connection. There’s no need to commute to work or even to change out of your pajamas if you don’t want to. You could work from anywhere in the world because traveling is no issue. This is one of the main reasons that many people dream about ditching their desk job to become a forex trader.

You can get a free education

Learning everything you need to be a successful forex trader is right at your fingertips, online for free. The internet is filled with articles, videos, and other resources that can be accessed free of charge. It’s true that this will take some effort on your part, but anyone can accomplish this with a little hard work and determination. Remember that investing time into your forex education is one of the most important things you can do before you get started trading. 

Leverage

Forex traders use leverage to increase the size of their trades. This gives traders with a smaller amount of capital the opportunity to make bigger profits. This is another one of forex trading’s main draws. 

It doesn’t take much to get started

You don’t need much to become a forex trader. Simply sign up with a broker from any device with a working internet connection, make a deposit, and you’re ready! Of course, you’ll want to be well-educated before you start, but even acquiring an education is free. Anyone that puts their mind to it can do this – it doesn’t require having a lot of money already or other difficult steps. 

Cons

You need a starting investment

Just to be clear – you can get started with as little as $5, but this isn’t going to leave much room for trading. Those who can afford to deposit a few thousand (or more) dollars are going to make more significant profits. If you’re just looking to make a little extra cash here and there that shouldn’t be a problem, but those that want to support themselves purely by forex trading need to have a larger investment to start with. Sadly, most of us don’t have $20,000 or in disposable income just so sitting in our bank accounts. This means that it will take a while to work up to making larger profits. 

Trading is risky

Trading involves investing your hard-earned money with no promises that you’re going to see any profits. Or even worse, you could lose it all. In a way, it involves the emotions one would feel with gambling, that trading decisions are less based on chance. Traders consider a variety of factors, like technical or fundamental analysis, which makes their decisions more founded. Still, at the end of the day, nobody can 100% predict the way the market is going to go. 

Leverage

We know that we listed leverage under the pros, but it can also be a con. Many beginners make the mistake of trading with too high of a leverage, which can quickly end your career. Leverage is often referred to as a double-edged sword because it can go both ways. If you’re a beginner, you don’t need to use the highest leverage your broker has available just because you can. Start small and work your way up, or leverage could be your downfall. 

Scammers

Scammers can be avoided if one knows what to look for, but many beginners do fall victim to shady brokerages. Whenever you’re looking at companies, check for regulation, and do further research before you give out any personal information or open an account. Some brokers have impossible withdrawal conditions, have customer support teams that you can rarely get ahold of, and so on. New brokers pop up every single day and only some of those options are legitimate. Choosing a forex broker is not a quick decision, choosing the right one takes thought and comparison.

The Bottom Line

Anyone that is interested can become a forex trader with some know-how and a small investment, but one really needs to consider the pros and cons first. You might make a lot of money, or you could lose everything you invest. The good news is that some of the downsides can be avoided. If you secure a good forex education, research your brokerage before opening an account, use a leverage that suits your skill level, and take risk-management steps, then you’ll be more likely to succeed.

The ultimate downside to Forex trading is the risk involved. Even if you’ve been practicing on a demo account, switching to a live account can feel overwhelming and you might not realize the way that your emotions, slippage, or other live conditions could affect you. If you are willing to put in the work to learn, then we fully recommend opening a trading account, just be sure that you’re investing from your disposable income, not from the money you need to live on or support your family. It can also help to adjust your expectations if you’re starting with a small investment.

Categories
Forex Fundamental Analysis Forex Technical Analysis

Fundamental Analysis Vs Technical Analysis: Know the Differences!

Traders make decisions about when and what to trade based on several different factors. Fundamental and technical analysis are two different methods that one can use to predict what will happen with any given instrument by looking at different types of data. As a forex trader, you’ll need to understand the differences between these key […]

Traders make decisions about when and what to trade based on several different factors. Fundamental and technical analysis are two different methods that one can use to predict what will happen with any given instrument by looking at different types of data. As a forex trader, you’ll need to understand the differences between these key […]

Traders make decisions about when and what to trade based on several different factors. Fundamental and technical analysis are two different methods that one can use to predict what will happen with any given instrument by looking at different types of data. As a forex trader, you’ll need to understand the differences between these key schools of thought so that you can make more informed trading decisions. Both fundamental and technical analysis can give you an edge in the markets, but you’ll need to decide which one sounds the most appealing or consider using both methods. 

Fundamental Analysis

Fundamental analysis aims to measure the intrinsic value of a stock by looking at several different factors about the company. This method considers earnings, outgoing costs, assets, liabilities, the overall business model, the status of those in charge, and many other things about a company in order to get the best idea of where prices will go. Some of these things can be measured in simple numerical terms, while others can’t.

For example, you’ll find statistics and numbers when it comes to things like earning reports but evaluating the company’s business model is more of a personal interpretation. Real-time events can also affect the company evaluation. If a scandal goes down involving a certain company, for example, you can expect its revenue to fall. All of these things are taken into consideration when one measures the intrinsic value of a company through fundamental analysis. 

Technical Analysis

Technical analysts exclusively consider a stock’s price and volume, with no need to calculate extra factors. Traders using this method look at charts in order to identify the history of patterns and trends for an idea of what they will do in the future. Some examples of the most popular forms of technical analysis include simple moving averages, support & resistance, trend lines, and other indicators. There are three main types of technical analysis – bar, candlestick, and line charts. Each of these is created using the same price data but will display the data in different ways. This school of thought believes in the idea that charts are great for predicting the past. 

The Bottom Line

While fundamental and technical analysis both aim to predict where a stock’s price will go, each school of thought uses very different methods to come up with its prediction. Fundamental analysts aim to measure the intrinsic value of a company by taking several factors into account, including hard numbers and some personal interpretation. Technical analysts study charts from the past with the stock’s volume and price being the only information considered. While technical analysts look at more complex information about companies that affect a stock’s price in the present and future, technical analysts study charts from the past to get an idea of where the price will go in the future. Both methods have been proven to be effective, so one would need to personally decide which to use.

Categories
Forex Basics

Why It’s Easier to Succeed with Forex Than You Might Think

Those that decide to pursue forex trading fall into two categories: those that go on to make a profit and continue trading, and those that lose money and quit. While everyone hopes to become one of the traders that finds themselves on the path to success, many people simply don’t realize the simple factors that can make you or break you when it comes to trading in the forex market. First, you need to start by understanding the basics of forex trading. 

Those that decide to pursue forex trading fall into two categories: those that go on to make a profit and continue trading, and those that lose money and quit. While everyone hopes to become one of the traders that finds themselves on the path to success, many people simply don’t realize the simple factors that can make you or break you when it comes to trading in the forex market. First, you need to start by understanding the basics of forex trading. 

Those that decide to pursue forex trading fall into two categories: those that go on to make a profit and continue trading, and those that lose money and quit. While everyone hopes to become one of the traders that finds themselves on the path to success, many people simply don’t realize the simple factors that can make you or break you when it comes to trading in the forex market. First, you need to start by understanding the basics of forex trading. 

An Introduction to Forex Trading

The term forex refers to the foreign exchange market, which is an online global exchange market where people buy and sell different currencies. This includes regular people and professional traders, along with bigger entities like banks, hedge funds, brokers, specific companies, and other high-stakes investors. The value of the currency that people are buying and selling changes based on several different factors, including but not limited to:

  • Interest rates and inflation rates
  • The country’s current debt
  • Unemployment data
  • The housing market
  • Politics
  • Supply & demand
  • Economic factors 

As you can see, the value of each country’s currency is primarily affected by factors that are associated with money, government, and economic data. In order to make informed trading decisions, traders keep up with news events and look at economic calendars for updates that tell them a currency’s value may change. Other methods that are used to decide what currencies to trade include technical and fundamental analysis. 

What Is a Currency Pair?

A currency pair includes two different currencies that are paired against one another. For example, EUR/USD. This means that the (base currency) Euro is being traded against the (counter currency) United States Dollar. This is the most used pair in the world, but there are also several other major, minor, and exotic pairs that can be traded. 

  • Major currency pairs include EUR/USD, USD/JPY, GBP/USD, USD/CHF, AUD/USD, USD/CAD, GBP/EUR, EUR/CHF, EUR/JPY, and the NZD/USD. 
  • Minor currency pairs don’t include the United States Dollar. The most common examples are the British Pound (GBP), the Euro (EUR), and the Yen (JPY). 
  • Exotic currency pairs are made up of one major currency, traded against a currency from a developing country. The Turkish Lira (TRY) is one example of an exotic currency. 

Traders choose which currency pairs to buy or sell based on the change in price with the goal of making a profit. It’s generally considered the safest to trade major currency pairs, while exotic currency pairs can be more volatile and riskier to traders, so be sure to choose wisely. 

Must-Follow Tips for Success

Now that we’ve covered the basics of forex trading, it’s time to dish out some of the most helpful tips that can help you reach long-term success. Simply being aware of this information can help to ensure that you get started on the right foot without falling victim to common trading mistakes. 

  • Choose the Right Broker: There are a lot of choices out there, but you’ll need to do some research to make sure you’re working with a reputable broker. It’s also important to compare account types, fees, funding methods, and other important aspects before you open a trading account. Know that choosing a broker with fewer fees means that more of your profits will wind up in your pocket. 
  • Develop a good trading strategy: There are a lot of different strategies out there that appeal to all kinds of different traders. You’ll need to choose one that fits with your schedule and determine the reasons why you will enter trades, how much money you’re willing to risk, etc.
  • Don’t open an account until you’re ready: You shouldn’t rush to open a trading account until you understand the market and you’ve developed a solid trading plan. Some brokers will even charge you for inactivity if you deposit funds but choose to hold off on trading until you feel ready. Instead, open a demo account for practice. 
  • Try to limit distractions in the place where you plan to trade. Background noise, music, television, conversation, and other noises can cause you to lose your focus. Also, try turning off your phone or at least put it on silent if social media keeps pulling you away from your work.
  • Never risk more than you can afford to lose: Don’t get caught up using extremely high leverage options or risking large amounts on your trades in an effort to make a large profit quickly. It’s better to be safe than sorry when it comes to forex, especially if you’re a beginner. 
  • Don’t enter a trade if there isn’t a good reason to do so: Even if you haven’t entered any trades for the entire day, don’t enter one for the sake of doing it just because you’re bored or feeling unproductive. It’s better to choose not to trade at all with no money lost than it is to enter a trade and lose money you could have spared with patience. 
  • Never stop learning: Even once you have a good understanding of the forex market and strategies, there’s always more to know. Be sure to spend time reading about psychology-related trading material, checking out tips and tricks from other traders, watching educational videos, or anything else that helps to expand on your knowledge as a forex trader.  
  • Keep a trading journal: Trust us, you’re going to refer back to your trading journal more than once, so don’t take the lazy way out on this one. Be sure to log specific details about the trades you take and check on your progress from time to time. 
  • Don’t give up: If you start to lose money, don’t panic and start risking more to make up for it. The best way to handle this is to take a step back and look at your trading journal to see if you can figure out what’s going wrong. If you think your strategy is to blame, try making changes and testing on a demo account before you go back to your live account. Staying calm and figuring out the problem is what separates successful traders from the large percentage of those that give up.
Categories
Forex Fundamental Analysis

EUR/GBP Global Macro Analysis – Part 3

EUR/GBP Exogenous Analysis

EUR/GBP Exogenous Analysis

EUR/GBP Exogenous Analysis

  • The EU and the UK Current Account to GDP differential

This indicator is used to measure how competitive an economy is in the international market. When a country has a higher trade surplus, the current account to GDP ratio is higher. Conversely, if a country has a lower trade surplus or deficit, the ratio is smaller.

Typically, economies with a higher surplus in terms of the balance of trade tend to have more exports than imports. That means that their value on exports is higher than imports, implying that the domestic currency is in high demand in the forex market. Similarly, a running deficit means lower demand for the domestic currency in the forex market since it is a net importer.

In 2020, the EU current account to GDP is expected to hit 3.4% while that of the UK -4%. The differential is 7%. Based on the correlation with the exchange rate of the EUR/GBP pair, we assign a score of 6. That means we expect a bullish trend for the pair.

This helps determine where the most investor capital will flow. Expectedly, investors will direct their capital to the country with a higher interest rate to earn superior returns. In the forex market, traders tend to be bullish when a currency pair has a positive interest rate differential and bearish if it has a negative interest rate differential.

In the EU, the ECB has maintained interest rates at 0%, while the BOE cut interest rates from 0.75% to 0.1%. Therefore, the interest rate differential for the EUR/GBP pair is -0.1%. Based on the correlation with the EUR/GBP exchange rate, we assign a score of -2.

  • The EU and the UK GDP Growth Rate differential

The differential in GDP growth helps to efficiently compare economic growth by eliminating the aspect of the size of different economies.

For the first three quarters of 2020, the EU economy has contracted by 2.9% while the UK has contracted by 6.8%. That makes the GDP growth rate differential between the two economies 3.9%. It means that the EU economy contracted at a slower pace than the UK. Based on the correlation with the EUR/GBP price, we assign a score of 5.

Conclusion

The exogenous analysis of the EUR/GBP pair has a score of 9. This inflationary score means that we can expect a bullish trend for the pair in the short-term.

Our technical analysis shows the pair trading above the 200-period MA. More so, notice that the EUR/GBP pair bounces off the lower Bollinger band crossing above the middle band, supporting our fundamental analysis. Happy  Trading.

Categories
Forex Fundamental Analysis

EUR/GBP Global Macro Analysis – Part 2

GBP Endogenous Analysis – Summary

GBP Endogenous Analysis – Summary

GBP Endogenous Analysis – Summary

The GBP endogenous analysis has a score of -9. We can therefore understand that the GBP has depreciated in 2020.

  • United Kingdom Employment Change

The UK unemployment change measures the changes in the number of people who are above 16 years and employed. This data is a 3-month moving average of the change in employment, which measures a general trend in the labor industry changes, which typically corresponds to fluctuations in the economy.

In the three months to September 2020, the number of employed people in the UK dropped by 164,000. The YoY employment change shows a drop of 247,000 jobs, which is the worst in ten years. Based on correlation analysis, we assign a score of -7.

  • United Kingdom GDP Deflator

The UK GDP deflator is used as a measure of the comprehensive change in inflation. It filters out any nominal price changes in the entirety of the goods and services produced within the UK.

In Q3 of 2020, the UK GDP deflator dropped to 109.12 from 111.9 in Q2 – the highest ever recorded in UK history. The UK GDP deflator has increased by 6.41in 2020. We, therefore, assign a score of 4 based on its correlation with the GDP growth.

  • United Kingdom Industrial Production

This indicator tracks the changes in all the firms operating under the industrial sector in the UK. The manufacturing sector accounts for about 70% of the total industrial output. The major components of the manufacturing sector are food, tobacco, and drinks, which account for 11%. The manufacture of transport equipment and basic metals account for 17%, pharmaceuticals and non-metallic 6% each. Quarrying and mining activities account for 12% of the industrial production, with 10% for oil and gas extraction.

In September 2020, MoM industrial production in the UK rose by 0.5 while YoY dropped by 6.3%. Despite the growth and recovery of industrial activity from the coronavirus pandemic, the output is still 5.6% lower than the pre-pandemic levels. Thus, we assign a score of -3 based on correlation with GDP growth.

  • United Kingdom Manufacturing PMI

This index is a result of a survey of about 600 companies in the industrial sector. It is a composite of new orders, which accounts for 30%, output 25%, employment 20%, deliveries from suppliers 15%, and inventory 10%. When the index is above 50, it shows that the manufacturing sector is expanding. Below 50, the manufacturing sector is expected to contract, which impacts the GDP output.

In November 2020, the UK manufacturing PMI was 55.6 – the highest recorded in three years. This was mainly driven by increased inventories and increased new orders as a result of Brexit. We assign a score of 3 based on correlation with the GDP growth rate.

  • United Kingdom Consumer Spending

Consumer spending in the UK shows the amount of money that households spent on the purchase of goods and services in the retail sector. Note that expenditure by households is among the primary drivers of GDP growth.

In Q3 of 2020, the UK consumer spending rose to £304.5 billion from £258.32 billion in Q2. This increase is attributed to the restriction imposed at the onset of the coronavirus outbreak, resulting in the economic slowdown. It is, however, still lower than the pre-pandemic levels. Thus, we assign a score of -5 based on correlation with the GDP growth rate.

  • United Kingdom Consumer Confidence

In the UK, GfK surveys about 2000 households to establish their opinions about the past and future economic conditions, their financial situation, and prospects of saving. The survey period covers about 12 months into the future, which makes it a leading indicator of consumer spending, and by extension, the overall economy.

In November 2020, the UK consumer confidence dropped to -33 edging closer to yearly lows of -34 registered at the height of the pandemic. We assign a score of -5 based on its correlation with the GDP growth rate.

  • United Kingdom Public Sector Net Debt to GDP

This ratio tracks the indebtedness of the UK economy. Based on the economy out, both domestic and foreign investors use the ratio to determine whether the UK can be able to service its debt obligations in the future comfortably.

In the financial year 2018 – 2019, the UK’s public sector net debt to GDP was 80.8%, down from 82.4%. In 2020, it is expected to hit 100% with a longer-term average of 91%. We assign a score of 4 since the increased net pubic debt managed to avoid a deeper recession in 2020.

In the next article, we have performed the Exogenous analysis of the EUR/GBP pair and concluded what trend to expect in this currency pair in the near future. Cheers.

Categories
Forex Fundamental Analysis

EUR/GBP Global Macro Analysis – Part 1

Introduction

Introduction

Introduction

A global macro analysis attempts to analyze the endogenous factors that influence the value of a country’s domestic currency and exogenous factors that affect how the domestic currency fairs in the forex market. The endogenous analysis will cover fundamental economic factors that drive GDP growth in the UK and the Euro Area. The exogenous factors will analyze the price exchange rate dynamics between the EUR and the GBP.

Ranking Scale

Both the endogenous and the exogenous factors will be ranked on a scale of -10 to +10. A negative ranking for the endogenous factors means that they had a deflationary effect on the domestic currency. A positive ranking implies that they had an inflationary impact. Similarly, a negative score for the exogenous factors means the EUR/GBP is bearish and bullish when the score is positive.

EUR Endogenous Analysis – Summary

The endogenous analysis of the EUR has an overall score of -3. Based on the factors we have analyzed, we can expect that the Euro has marginally depreciated in 2020.

This is a quarterly measurement of the changes in both part-time and full-time employment in the EU. It includes individuals working for profit or pay and those who perform family work unpaid. Changes in employment help put economic growth in perspective since an expanding economy corresponds to increased employment opportunities and a contracting economy leads to job losses.

In the third quarter of 2020, employment in the EU increased by 0.9% compared to the 2.7% drop in Q2. Up to Q3 2020, employment in the EU has dropped by 2.1 %. Based on correlation with GDP, we assign a score of -5.

  • European Union GDP Deflator

The GDP deflator is an in-depth measure of the rate of inflation. It measures the changes in the price levels of all goods and services produced in an economy. Therefore, it is the perfect measure of the changes in real economic activities. i.e., it filters out any nominal changes in price.

In Q3 of 2020, the EU GDP deflator rose to 107.17 from 106.37 in Q2. Cumulatively, the EU GDP deflator in 2020 has increased by 2.45. We assign a score of 3 based on the weak correlation between the inflation rate and GDP.

  • European Union Manufacturing Production

In the EU, manufacturing production accounts for about 80% of the total industrial output. With most EU economies heavily reliant on manufacturing, the sector forms a significant portion of the GDP and the labor market.

In September 2020, the YoY manufacturing production in the EU decreased by 6.1%. This is an improvement from the decline of 6.3% in August. The overall industrial production reduced by 5.8% during the period.

We assign a score of -5 based on its correlation with the GDP.

  • Euro Area Manufacturing PMI

Markit surveys about 3000 manufacturing firms. The Markit manufacturing PMI comprises five indexes: new orders accounting for 30% weight of the index, output 25%, employment 20%, delivery by suppliers 15%, and inventory 10%. The Euro Area manufacturing is seen to be improving when the index is above 50 and contracting when below 50. At 50, the index shows that there is no change in the manufacturing sector.

In November 2020, the IHS Markit Eurozone Manufacturing PMI was 53.8, down from 54.8 registered in October. The October reading was the highest ever recorded in the past two years. Despite the November drop, the manufacturing PMI is still higher than during the pre-pandemic period. We, therefore, assign a score of 5.

  • European Union Retail Sales

Retail Sales measures the change in the value of goods and services purchased by households for final consumption. In the EU, food, drinks, and tobacco contribute to the highest in retail sales – 40%. Furniture and electrical goods account for 11.5%, books and computer equipment 11.4%, clothing and textile 9.2%, fuel 9%, medical and pharmaceuticals 8.9%, non-food products and others 10%.

In October 2020, the MoM EU retail sales increased by 1.5%, while the YoY increased by 4.2%. Based on our correlation analysis with EU GDP, we assign a score of 3.

  • Euro Area Consumer Confidence

The consumer confidence survey in the Euro Area covers about 23,000 households. Their opinions are gauged from issues ranging from economic expectations, financial situation, savings goals, and expenditure plans on households’ goods and services. These responses are aggregated into an index from -100 to 100. Consumer confidence is a leading indicator of household expenditure, which is a primary driver of the GDP.

In November 2020, the Euro Area consumer confidence was -17.6, down from -15.5 in October. It is also the lowest reading since May – primarily because of the new lockdown measures bound to impact the labor market. Based on correlation with GDP, we assign a score of -3.

  • Euro Area Government Debt to GDP

This is meant to gauge whether the government is over-leveraged and if it might run into problems servicing future debt obligations.

The Euro Area Government Debt to GDP dropped from 79.5% in 2018 to 77.6% in 2019. In 2020, it is projected to hit 102% but stabilize around 92% in the long run. Based on correlation with GDP, we assign a score of -1.

In our very next article, we have performed the Endogenous analysis of GBP to see if it has appreciated or depreciated in this year. Make sure to check that and let us know in case of any questions in the comments below. Cheers.

Categories
Forex Course

195. Understanding The U.S. Dollar Index Numbers

Introduction

Introduction

Introduction

The U.S. Dollar Index is a measure of the value of the Dollar in respect to foreign currencies as measured by the respective exchange rates. More than half of the index value of the Dollar is measured against the Euro. The British Pound, the Japanese Yen, the Swedish Krona, the Canadian Dollar, and the Swiss Franc. It is a market on its own as well as an indicator of the U.S. dollar strength on a global level. Moreover, it can also be used as the technical analysis to determine trends of various markets.

How Is The US Dollar Index calculated?

Below is the formula to calculate USDX–

USDX = 50.14348112 × EUR/USD^(-0.576) × USD/JPY^(0.136) × GBP/USD^(-0.119) × USD/CAD^(0.091) × USD/SEK^(0.042) × USD/CHF^(0.036)

Each currency value is multiplied by its weights. When the U.S. dollar is the base currency, this comes at a positive figure. On the other hand, when the U.S. dollar is used as the quoted currency; then this would come as a negative value. Additionally, pounds and euros are only countries where the U.S. dollar is used as the base currency as they are quoted in respect of the Dollar.

How To Interpret the U.S. Dollar Index?

Similar to any currency pair, there is a dedicated chart of the U.S. Dollar Index (USDX). Additionally, the index is calculated five days a week and 24 hours a day. The U.S. Dollar Index measures the value relative to a 100.000 base.

If the index value stands at 120, this means that the U.S. dollar has witnessed 20% appreciations against other currencies in the basket. This simply implies that the U.S. dollar has strengthened in comparison to other currencies. On the other hand, if the index value shows at 70, this implies a depreciation of 30%

Final Thoughts

The U.S. Dollar Index enables traders to monitor the value of the U.S. dollar in comparison to six currencies within the bracket in a single transaction. Moreover, it also assists them to hedge the bets against risks associated with the Dollar. Investors can use this index to hedge the normal movement of currency or speculate.

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Categories
Forex Basic Strategies

Social Trading: What are the Advantages and Disadvantages?

Social trade is a fairly new concept in Forex retail and its popularity has been growing considerably in recent years. Let’s see the pros and cons of this trading modality that is very similar to social networks. The concept that drives social trading, especially in Forex, is that the process offers online traders the opportunity […]

Social trade is a fairly new concept in Forex retail and its popularity has been growing considerably in recent years. Let’s see the pros and cons of this trading modality that is very similar to social networks. The concept that drives social trading, especially in Forex, is that the process offers online traders the opportunity […]

Social trade is a fairly new concept in Forex retail and its popularity has been growing considerably in recent years. Let’s see the pros and cons of this trading modality that is very similar to social networks.

The concept that drives social trading, especially in Forex, is that the process offers online traders the opportunity to obtain information about operations and strategies of other traders and thus use the knowledge and experience of other professionals in combination with their own experience.

Social trading works very much like the most popular social networks, such as Facebook and Twitter, where individuals communicate directly with each other continuously from wherever they are. And, as with other social networks, there are advantages and disadvantages in their use.

Advantages of Social Trading

One of the reasons for the success of social commerce is that it is easy. By monitoring the activity of other traders, novice or intermediate-level operators can base their movements on the professional decisions of more experienced traders; there is no need to conduct its own fundamental or technical analysis. It’s like when you have the answers to a test before the date and even taking a look at the test questions!

With social trading, Forex traders can have an immediate association with many other traders in an environment where it is possible to interact with each other, discuss points of view and then copy the most successful trades. At the same time, the beginner and the more experienced traders can learn how elite operators get to the decisions they make, what strategies they use, and which ones work better than others in their efforts to make profits, while at the same time limiting the risks to your entire portfolio.

Another important advantage of Social Forex Trading is that, when trading as a member of a community rather than as an individual, it is often easier to avoid personal biases that often result in loss of positions. As part of the package, it becomes much easier to observe the change in market activity from a more impartial perspective. For example, a transaction that starts showing losses can trigger emotional reactions in a trader that can often lead to wrong decisions. When operators work together as a unit, it is easier to discuss and analyze market activity as it develops and make more wise decisions.

Finally, the opening to the public of transactions through social trading has made Forex trading no longer an instrument that is normally restricted to the best brokers and multinational banks. And, since all transactions placed on a social trading platform are copied directly, no one can intervene in such transactions, generating more transparency.

Disadvantages of Social Trading

Social trading provides an exchange of information for individual and retail investors. And although this seems an advantage, it can also become a disadvantage. This is because there is only a small number of successful traders in this market, by using social trading networks an operator can follow the wrong trader and end up losing instead of increasing their profits.

Copy Trading represents a greater threat, as even novice traders, without the prior knowledge of Forex, are allowed to replicate the commercial behavior of successful traders. Therefore, they basically become helpless in case the “leader” fails.

The execution of trades, based on collective wisdom, remains an impressive proposition – in the beginning. However, some initial successes might even deny the danger that you will become totally dependent on others. You may be able to generate huge benefits by integrating other ideas into your own game plan. However, there is no guarantee that these strategies will work infallibly in the long term.

Choosing the Right Platform

One of the main disadvantages of social trading is that it is still relatively difficult for an operator to select the right social platform. Etoro, Zulutrade, and Signaltrader, (to name a few) are the main Social trading platforms of Forex. There is no shortage of social platforms and this makes it difficult to choose. And, even though social trading operations are not a scam, there are scam platforms that do not comply with the rules and there are some social trading scammers willing to cheat and an unsuspecting trader can be easily surprised. Some of them even end up claiming that they offer the best signals for you. Therefore, it is very important for you to choose your platform carefully. Choosing the right trading platform is key, but it is complicated, and you need to be informed and alert enough to tell the good from the bad.

Copy Trading represents a greater threat, as even novice traders, without the prior knowledge of Forex, are allowed to replicate the commercial behavior of successful traders. Therefore, they basically become helpless in case the “leader” fails.

We can’t just fall into the hands of dishonest racers. Traders should also be careful when choosing the individuals they want to follow, as there are people with little confidence. Defining several indispensable criteria before opening a trading account helps traders select the best operators to follow from a list that may include hundreds of them.

There are several social trading networks that offer different features, many of which are not fully understood by a novice Forex trader. Some networks reward their operators not only for the benefits they get but also for their low-risk management approach. This makes traders in these types of companies more aware of the risk than operators in other networks that reward only for profit and may encourage risk-taking in the process. This approach might not be a good start for novice operators.

In addition, traders who have just started trading may not fully understand the ramifications of various social trading networks. To take an example, there are social trade networks that place a limit on the amount that a trader can assign to 20 or 30%, which is certainly an advantage as this forces the trader to spread his risk. On the other hand, an operator can be allowed to run a risk of up to 100% in a single operation, and can technically lose everything in a single move.

Future of the Market

Last but not least, the presence of too many traders without prior knowledge is not advisable for the market itself. As in that case, (the market) runs the serious risk of running out of “leaders” in the long run. Only a continuous recycling of ideas will help to prevent a “substantive” future.

In Conclusion

There are advantages and disadvantages in all types of investment and this also applies to social trading. The key to success in any enterprise is knowledge; the more the trader knows about how a particular financial instrument works, the lower the risk you run and your chances of winning will increase substantially.

Categories
Forex Basics

What You Don’t Know About Forex Regulation Could Hurt You

The forex (FX) market is the largest and most liquid market in the world, with around $5.3 billion traded daily. Day trading is the most common among Forex traders, but many of the investors depend on the creation of trading accounts and the execution of their transactions through Forex brokers. There are hundreds of new […]

The forex (FX) market is the largest and most liquid market in the world, with around $5.3 billion traded daily. Day trading is the most common among Forex traders, but many of the investors depend on the creation of trading accounts and the execution of their transactions through Forex brokers. There are hundreds of new […]

The forex (FX) market is the largest and most liquid market in the world, with around $5.3 billion traded daily. Day trading is the most common among Forex traders, but many of the investors depend on the creation of trading accounts and the execution of their transactions through Forex brokers.

There are hundreds of new Forex brokers and brokers constantly opening their doors to the public. This makes it difficult to choose the best broker and leaves traders at the mercy of the broker when we talk about transparency and honesty. The Forex market is huge, but regulation in this market is scarce and there is not a single global body to monitor it 24/7.

There are no specific statistics, but the amount of foreign exchange brokers and binary options working under a regulatory authority is minimal (estimated at 5 percent) and that gives many companies the opportunity to take advantage of their customers and engage in abusive practices without consequences.

The Risk of Non-regulation

For retail forex traders, the biggest disadvantage of most brokers’ lack of regulation of the forex market is illegal activity or outright fraud, as well as losses in a market increasingly dominated by speculative activity and large institutions. After a series of scams related to the forex market during the period 2001-2008, the CFTC to create a specific task force to address the problem, and stringent forex regulations were introduced several years later to protect retail currency traders.

Under the Commodity Trading Act (CEA), the CFTC assumed jurisdiction over leveraged Forex transactions offered to retail clients in the United States. This Act only allows regulated entities to act as counterparties for forex transactions with US retail clients and requires all online US forex brokers to be registered and comply with the strict financial rules applied by the National Futures Association (NFA).

At the institutional level, banks, which are responsible for 95 percent of daily foreign exchange trade, are heavily regulated. The United States Federal Reserve and the United States Department of the Treasury are very attentive to the regulation of the Forex industry and carefully monitor brokers for evidence of manipulation.

Forex Regulation: Why not?

Why is Forex regulation so important? The aim of regulation is to ensure fair and ethical business behaviour. Under the current regulatory contracts, all forex brokers, investment banks, and signal providers are obliged to trade in fair compliance with the regulations and regulations established by the forex regulators or their activities may be considered illegal. These bodies must be registered and authorised in the country where they operate, ensuring that quality control standards are met. Brokerage houses are subject to audits, reviews, and periodic evaluations that force them to maintain industry standards.

In addition, regulated Forex brokers must hold a sufficient amount of funds to be able to execute and complete foreign exchange contracts performed by their clients and also to return clients’ funds in the event of bankruptcy.

If a regulator finds a broker infringing its guidelines, it can use a wide range of powers – criminal, regulatory, and civil  – for the protection of consumers and take action against businesses or individuals that do not meet acceptable standards. It may publish notices that are important to ensure the transparency of the decision taken by the authority and to inform the public, thereby maximizing the deterrent effect of enforcement action.

Some regulators issue alerts about financial services companies and individuals, both abroad and in their local areas. Of course, there can be no guarantee that any action taken by a regulatory agency, such as the FCA in the United Kingdom, translates into a payment or return of funds or securities, even when formal disciplinary action is taken and sanctions are imposed.

Many of the measures taken by regulatory agencies against brokers covered by their authorities may also apply to unregulated brokers in similar situations by police and other enforcement agencies, but its mandate is limited and less likely to be imposed, leaving investors with few resources in the event of fraudulent practices.

Forex regulators work within their own jurisdictions but often work together to search for suspicious activities. In fact, in the European Union, a single Member State licence covers the whole continent.

Over the years, regulators around the world have sought to organize some kind of universal body of regulation. The Mifid (Markets in Financial Instruments) Directive was introduced in the United Kingdom in 2007 and has been the cornerstone of Europe’s financial regulation regime ever since.

The Mifid Regulation is being revised to improve the functioning of financial markets following the financial crisis and to strengthen investor protection. The changes entered into force on 3 January 2017, although discussions are under between the European Commission,  the Council of the European Union, and the European Parliament. The new legislation is called Mifid II and includes a renewed Mifid and a new Financial Instrument Markets Regulation (Mifir).

There are, however, powerful voices working to pressure the wholesale forex market to have a broad regulatory base. The Association of European Financial Markets (AFME), a body in the sector, has spoken out against the strict rules of MIFID II and has recently published a document highlighting “unforeseen consequences” that could lead to excessive regulation of the Forex sector that would not allow brokers to serve their traders comfortably.

Local Approaches

At present, there is still no uniform approach to the global level when it comes to this market. The regulatory industry continues to operate locally with each broker requesting regulation at a chosen location and some organizations being more active than others. In Japan, one of the most active retail foreign exchange markets in the world, the Financial Services Authority (FSA) oversees all markets, including retail trade. The FSA is proactive in regulating retail foreign exchange trading and has reduced several times the maximum leverage that can be used by retail currency traders in recent years. In the UK, where the FCA (formerly the FSA) is the main regulatory body, and in much of continental Europe there are very few limits to the level of leverage offered.

Cysec, the financial regulator of Cyprus, is part of the European Mifid regulation, but it has attracted a number of foreign companies who wish to take advantage of what is seen as light regulation and an easy way to obtain a licence without having to comply with the strict requirements imposed by other European financial regulators.

In Latin America, there is no regulatory agency, and traders are protected by the regulatory authority that regulates the broker, depending on the country from which the broker originates, for this reason, it is very important that if you are going to carry out trading in Latin America, do so only with a broker who is regulated by a globally recognised authority.

Currently, the lack of regulation of the institutional foreign exchange market continues to pose continuing risks for the retail investor, including increased currency volatility and discrepancies in available public information.

Despite the difficulty and cost of brokers to be under an authorized regulatory body, there are many worthwhile brokers who choose to do so and these have to be considered ahead of all others. Traders have a large selection of regulated brokers in their jurisdictions or in other countries and will also find the same features -and more- with regulated brokers as with unregulated brokers.

Categories
Forex Basic Strategies

What Happens When an Asset Tests a Level of Support?

He who lives by the crystal ball will eat shattered glass, said Ray Dalio. The ways to analyze the market are increasing by the day, all for the purpose of giving traders the foundation for trading. The more knowledge one has, the less likely he/she is going to rely on sentiment or intuition. Support and […]

He who lives by the crystal ball will eat shattered glass, said Ray Dalio. The ways to analyze the market are increasing by the day, all for the purpose of giving traders the foundation for trading. The more knowledge one has, the less likely he/she is going to rely on sentiment or intuition. Support and […]

He who lives by the crystal ball will eat shattered glass, said Ray Dalio. The ways to analyze the market are increasing by the day, all for the purpose of giving traders the foundation for trading. The more knowledge one has, the less likely he/she is going to rely on sentiment or intuition.

Support and resistance have emerged as two of the most discussed aspects of technical analysis. The two terms refer to the price levels that traders use in the chart to determine certain patterns. These levels are important because they can stop an asset from getting pushed in a certain direction.

Support and Resistance Differences

Although support and resistance may come in many forms, they can be defined as follows:

Support is a price that has not come down for a while. Such a pause in price movement is triggered by a higher demand or buying interest. Support always occurs where we expect to see a downtrend and where buyers tend to enter the market.

Resistance is an indication that an uptrend may pause for a while owing to a concentration of supply. Resistance also signifies that certain asset experiences difficulty breaking through, which may result in a potential fall. The greater the number of times the index or stock has tried to break through the resistance, the stronger the resistance in question is.

Both support and resistance are confirmations of supply and demand levels that can be identified with the use of trendlines and moving averages.

Supply and Demand vs. Support and Resistance

All support and resistance levels result from supply and demand levels. When the price of an asset drops, demand rises, forming the support line as a result. Conversely, prices increase causing selling interest, which leads to the formation of resistance zones.

Price Movement

Whenever a price reaches support or resistance, it can either bounce back in the opposite direction or break through the price level until it reaches the next support/resistance level. These support and resistance zones can thus serve as potential entry or exit points.

Whether the price bounces off or breaks through the support or resistance lines, traders can always get an idea of the direction towards which the price is heading and have their theory confirmed or refuted promptly.

Should the price move in an unfavorable direction, traders can close the position at a small loss. However, if the price moves to the trader’s benefit, the entire trade can turn out to be quite rewarding. This idea gives birth to many reversal strategies.

Concerns

Now that we understand what happens when an asset tests the support line, we need to address possible problems in trades that use support and resistance as a tool to identify price action. 

First of all, support and resistance levels are one of the key concepts used by technical analysts. As their popularity is undeniable, so is the fact that they can create hotspots in the chart. If your support line is easily created by most market participants, you will surely see the heightened concentration in that area of the chart. And, the more traders rely on the use of support and resistance, the greater the chance that the big banks will step in and manipulate the price.

Secondly, many traders like to use support (and resistance) lines for predicting where the price is going to go. Unfortunately, we cannot know if there will be any reversals or breakthroughs in advance. What we can quite often attract, however, is an uncontrollable and unexpected change in price triggered by an elevated concentration of traders in a specific price level.

Thirdly, there is a rise in the number of social media accounts that claim they know where the right support lines are in the chart. These posts and offers are used as fishing hooks intended to lure people to trade based on the information provided for which the authors receive payment. Do not trust all products you find online just because someone claims to know exactly what you want to hear.

Next, support and resistance do not function equally well in different trading markets. These terms may serve stock or crypto traders much better than currency traders for example. Some brokers’ websites contain information on where support and resistance lines can be found in the chart, but do not forget that these companies earn money when the price moves in the exact opposite direction from where you would want it.

Also, if you use support lines in combination with another similar tool, you may increase your susceptibility to external influence (i.e. large banking institutions). The more you rely on the tools the majority of traders prefer, the greater the chance of your trade being whipsawed.

And, if we see several support lines in the chart, which one are we supposed to use? How do I know that I have chosen the right one? 

Last, if there are variations in the degree of my success, how can I know that support (and resistance) is a reliable tool for sure?

Conclusion

When you test how support and resistance works, make sure to take detailed notes of all of your trades, including the total wins and losses. Sometimes, we get a feeling that something is a great tool just because it once brought us some good results. 

Traders need to feel certain that the tools they use in trading are going to give them consistent results – both in terms of wins and losses. If you get one good win and then take five consecutive losses, your account will suffer. You may have a problem even with fewer losses if they end up cutting your entire account in half. No win can compensate for such a loss percentage, and no tool should be trusted if it leaves room for such scenarios.

What is more, the trading community seems to love support and resistance lines, but the fact that there are very few critical observations of this tool should raise questions. 

If you are a beginner, you should definitely pay attention to the testing phase and record every step diligently. You must know if your support and resistance lines are going to serve you or make your account suffer. 

However, if you find your support (or resistance) lines to provide you with continuous success, there is no reason for you to question their worth any further. If you have good results, you need to keep that skill consistent. Having a hunch could be a skill if you can do it time after time, the lingering question remains: is that talent going to vanish as you change psychologically and physically?

Categories
Beginners Forex Education Forex Basics

How Can I Ensure Long-Term Success in Trading?

As a Forex trader, you will need to pay attention to important points in charts, adjust specific settings, manage your risk, and maximize your returns as a result. The intention here is to show how you can practice long-term sustainable and profitable trading regardless of your market of choice. We truly want you to have the best opportunity no matter how and when you started to trade for the first time, which is why we are delighted to close this topic with special tips that you can apply today. You will probably want to prepare your notebook and take notes so as not to forget any suggestions or ideas you may have.

As a Forex trader, you will need to pay attention to important points in charts, adjust specific settings, manage your risk, and maximize your returns as a result. The intention here is to show how you can practice long-term sustainable and profitable trading regardless of your market of choice. We truly want you to have the best opportunity no matter how and when you started to trade for the first time, which is why we are delighted to close this topic with special tips that you can apply today. You will probably want to prepare your notebook and take notes so as not to forget any suggestions or ideas you may have.

As a Forex trader, you will need to pay attention to important points in charts, adjust specific settings, manage your risk, and maximize your returns as a result. The intention here is to show how you can practice long-term sustainable and profitable trading regardless of your market of choice. We truly want you to have the best opportunity no matter how and when you started to trade for the first time, which is why we are delighted to close this topic with special tips that you can apply today. You will probably want to prepare your notebook and take notes so as not to forget any suggestions or ideas you may have.

What is the worst attitude for long-term success?

I need that money now, many people say. Unfortunately, with this degree of dependency on the result of your trading (i.e. the need to succeed now), you are limiting your vision quite a bit. With this point of view, you do not give yourself the chance to learn steadily and the learning curve is unrealistically steep. Since there is a need to debunk this myth of instant wealth, what you can do instead is set the grounds for trading in the way you will be thankful for in the future.

What is the right mindset for sustainable growth? 

You should find a way to always preserve a portion of your return and reinvest it so that this system starts running on its own. We call this buy and hold strategy that helps traders take steps that will always put the money back into their accounts. This is the one way you can feel secure about your finances down the line.

What if I don’t feel like allocating part of my earnings?

Changing perceptions and creating a new routine is a tough thing to do. Most people are afraid of changes, but the control you may think you have over your life and your finances now is false. If you just trade, you do not have a plan B. Even if you have a regular job and do trading on the side, don’t you feel like you can do more? We want you to do more and to succeed in an easy way, but this will require you to change your views about how money should be managed.

How do I reduce anxiety about making changes in how I perceive trading?

First of all, start playing offense and defense at the same time by not spending all the money you earn. What you never want to do is work hard for a few months and spend it in a matter of a few days or weeks. Reinvesting your money will help you relieve yourself and alleviate that sense of anxiety. If your worries come from the place of wanting to secure your finances in the long term, this is the way to go. The thing is, with this approach, you will never need to worry about individual trades because, even if something falls through, you will always have security. Whenever you enter the market, it is absolutely never too late if you have a buy and hold mentality.

What if I need the money now?

Well, first ask yourself the question of what is the sum that would make you happy. When you will take this money off your account is yours to decide, but you do need to have a clear idea of how much you need to make. If you generally just want to be rich, you are much better off applying the buy and hold strategy.

What are the essential trading rules?

Perfect your system first and then do everything to stop yourself from sabotaging it. This may sound easy, but it is actually one of the greatest hurdles in trading.

How do I start buying and holding?

You first need to have a plan that you will write down. Whatever situation you find yourself in, do not make any changes to it regardless of what is going on in the market. This means that you will not tweak the settings or change the take-profit point as you please even if it gets tough. The best part about this approach is that you will always have more opportunities to earn money trading and any losses will be opportunities for you to improve your system.

What is the best strategy for buying and holding?

In one of the previous articles, we talked about scaling out if you use a swing trading strategy. This is your best money management solution and a secure way to amass a fortune over time. As long as you don’t react impulsively, get suddenly triggered by some external factor, or make decisions based on your emotions, the money you take off the table and reinvest using the scaling out strategies will provide you with the things you need.

How do I differ from the rest?

You will be different if you design a thorough plan first. Then you will choose if you will be in the buyer’s or seller’s market and whether you will go long or short. Shorting may be more difficult in the stock market than with trading ETFs, gold, or commodities for example. You will strive to pick things that can have a limited downside and can hardly go down to zero, such as gold and oil or healthcare and energy stocks and ETFs. Forex traders should test their algorithms to perfection (backtesting, forward testing, and real money application as well) because this will help you outperform most investors and financial advisors. Opt for the monthly or the weekly chart for a more aggressive approach, rather than the daily one. While these are easy to apply, understand that just by scaling out and buying and holding, you are already way ahead of the majority. 

What are the two biggest pieces of advice you can give me?

Firstly, never let yourself be susceptible to the fear of missing out (FOMO) because there is an abundance of opportunities in every market, be it stocks or gold. You can push yourself sporadically in the investment scene, but must never let your emotions guide you while trading. Secondly, always and with whatever amount of money you have, start trading and investing as soon as possible. Make your plan and you will have that bright future of which you keep dreaming.

What is the best order of actions I could use to succeed as a trader?

Since this is the last article on the best position you have, we would like to share a form of a checklist you can return to any time you like.

Thank you for sharing this journey with us. Ensuring the best trading position is a really broad topic, but we strived to be as clear and to the point as possible. Consider reading additional articles on the topics that may be of interest to you because the more you know, the sooner you can apply and test. Finally, please also remember that the sooner you start buying and holding long-term, the better. And, once the shorter-term machine starts running, the world is yours. 

Good luck!

 

Categories
Forex Course

194. Introduction To The US Dollar Index (USDX)

Introduction

Introduction

Introduction

The U.S. dollar index is referred to as a measure of the value of the U.S. dollar, which is relative to the value of a series of currencies that are the most important trading partners of the country. The USDX is similar to other forms of trade-weighted indexes that also use the exchange rates from the leading currencies.

U.S. Dollar Index – A Brief History

In the year 1970, the U.S. Dollar Index switched between 80 and 110. This was the time when the U.S. economy was witnessing recession and rising inflation levels. With the Federal Reserve increasing interest rates to cut inflation, money flowed into the U.S. dollar, resulting in a rise in the USD index. In February 1985, the USD Index hit 164.720; this is the highest it has ever been.

However, this caused significant issues for the U.S. exporters whose goods were no longer competitive internationally. Subsequently, strong actions were taken by the U.S. government to make the currency more competitive, with five nations agreeing to manipulate the U.S. dollar in the forex markets.

This made the Dollar Index dropped by 51% over the course of four years. Since that time, the index has tracked the performance of the economy as well as liquidity flows.

Fundamentals of U.S. Dollar Index

This index is presently calculated by factoring in the exchange rates of six leading world currencies, including Euro (EUR), British Pounds (GBP), Canadian Dollar (CAD), Swiss Franc (CHF), Swedish Krona (SEK), and Japanese Yen (JPY). The biggest component of this index is the EUR, which accounts for approximately 58% of the basket. The weights of the rest of the currencies in the index include –

  • GBP (11.9%)
  • JPY (13.6%)
  • SEK (4.2%)
  • CAD (9.1%)
  • CHF (3.6%)

What Impact The Price Of The USD Index?

The USD Index is primarily impacted by the demand for and the supply of the U.S. Dollar. Related currencies of the baskets are also an important factor. These factors impact the price of each pair of currency in the formula that is being used to calculate the value of the U.S. Dollar’s value. The demand and supply of currencies are determined by monetary policies.

In the upcoming course lessons, we will be learning more about the US Dollar index. So, stay tuned. Please take the quiz below before you go. Cheers.

[wp_quiz id=”97429″]
Categories
Beginners Forex Education Forex Basics

How Many Times Per Day Do Professional Traders Trade?

The forex trading industry is known for 24-hour market access, flexible hours, and many other benefits, but many people avoid trading because they assume that they do not have enough time to dedicate to everything trading entails. Before you decide that your lifestyle simply won’t support a career as a forex trader, you should take […]

The forex trading industry is known for 24-hour market access, flexible hours, and many other benefits, but many people avoid trading because they assume that they do not have enough time to dedicate to everything trading entails. Before you decide that your lifestyle simply won’t support a career as a forex trader, you should take […]

The forex trading industry is known for 24-hour market access, flexible hours, and many other benefits, but many people avoid trading because they assume that they do not have enough time to dedicate to everything trading entails. Before you decide that your lifestyle simply won’t support a career as a forex trader, you should take a look at the three different types of professional traders we’ve outlined and the number of times each trade per day below. The answers just might surprise you!

Swing Traders

Swing traders typically place one or more trades each day and leave them open for a varying amount of time, from several hours to several days. This trading style is considered a short-term to medium-term investment and traders generally use technical analysis to find trading opportunities, sometimes in conjunction with fundamental analysis in order to analyze trends and other data about prices.  

While the exact amount of weekly trades that are put in depends on market conditions, this trading style is considered to be a lower maintenance option as traders can enter positions and then do nothing for longer periods of time. Of course, you’ll still have to keep an eye on important data in order to make smart trading decisions, so you’ll want to invest some time each day or week to take technical and possibly fundamental factors into consideration. 

High-Frequency Trading

As the name suggests, high-frequency traders enter quite a lot of trades per day, sometimes in the hundreds or thousands. It would be impossible for a human to do all of this manually, therefore, algorithms and computer systems are used, with quicker connections being required than those that are typically available to the average trader. This shouldn’t be confused with expert advisors, as these systems work differently. High-frequency trading is most commonly used by larger institutions, like hedge funds and banks. 

Home-based traders that want to practice high-frequency trading without having access to extra technical connections typically place around 20 trades per day manually. This style focuses on making small profits off each trade, which adds up over time. This trading style is best suited for traders that have more time on their hands, as it requires a lot more effort than swing trading. 

Investors

The pattern that investors follow involves holding onto the currency they are trading when it is in an uptrend for weeks or months at a time. In some cases, traders might even hang onto a currency for years! This is because currency pairs typically go through a cycle that lasts 2 to 3 years per trend and investors are looking to capitalize on those moves. 

This trading style requires more patience from the trader, as it can take a long time to reach maximum profitability before you should sell. On the bright side, this is another strategy that doesn’t require constant effort, which means that traders can do it in their spare time or even while working a full-time job. Of course, you’ll want to keep an eye on your trades and pay attention to data that could affect the prices of currency pairs that you are currently holding. 

The Bottom Line

No matter what trading strategy you choose, you’ll need to invest some time into looking at data, reading charts, staying up-to-date on the news, and pouring over other fundamental or technical data in order to make informed trading decisions. If you’re pressed for time, you can always follow a professional strategy like swing trading or investing that does not require a large number of trades to be entered each day. The fact that these traders often hold positions for days, weeks, or years also provides a great deal of flexibility. If you want to go another route, consider high-frequency trading, which involves entering a large number of trades each day in an attempt to make a small profit off each one. This is the most high-maintenance option on our list, but it does offer a good outlook of profitability.

Categories
Beginners Forex Education

These Resources Will Make You a Better Forex Trader

If you’ve recently decided to become a forex trader, there’s a lot you’ll need to know before opening your first trading account. The truth is that there are hundreds of websites and resources that can be accessed (for free) online but some are more helpful than others. If you don’t want to waste your time […]

If you’ve recently decided to become a forex trader, there’s a lot you’ll need to know before opening your first trading account. The truth is that there are hundreds of websites and resources that can be accessed (for free) online but some are more helpful than others. If you don’t want to waste your time […]

If you’ve recently decided to become a forex trader, there’s a lot you’ll need to know before opening your first trading account. The truth is that there are hundreds of websites and resources that can be accessed (for free) online but some are more helpful than others. If you don’t want to waste your time reading pointless articles or surfing websites with incorrect information, you’ve come to the right place. Forex Academy provides thousands of articles, videos, training courses, educational resources, and more – all at no cost to you. But once you’ve seen all that we have to offer, feel free to check out this list of forex resources that can help make you a better Forex trader. 

Demo Accounts

Traders should never downplay the importance of forex demo accounts, as this is the best way to familiarize yourself with a trading platform, practice, test a broker’s conditions, test strategies, and more. Opening a demo account is truly the closest you can get to real trading because accounts mimic the same conditions you’ll find on the broker’s live account, except for the fact that you aren’t risking any real money, as demo accounts allow you to trade with fake currency to gain experience. A demo account is also a great tool to use if you think you’re ready to open your live account but aren’t quite certain, as you will be able to see whether you would be gaining or losing money on a real account. For all of these reasons, we just can’t overlook demo accounts as one of the best hands-on trading resources out there. 

Investopedia

If you’re looking for informational articles, news, a dictionary, updates on trends, popular stocks, personal finance information, broker reviews, training courses, a stock simulator, or anything else that can help you with forex trading, Investopedia is one of the best places to go. If you don’t know where to start, you can scroll down to find featured articles on the website’s homepage, or you could go straight to the Academy section of the website to jump right in with courses and investing resources for beginners and more experienced traders. Having related resources grouped together and organized into categories can help take some of the stress off of forex traders that no longer need to search multiple websites for different information, so don’t forget about this website when you’re looking for forex information.

Bloomberg TV

If you prefer videos or television programs with audio over reading articles or surfing the web for information, Bloomberg TV is a great option. The TV station can be streamed live online and covers important financial information, including breaking news, global business news, live exchange rates, and any type of subject that affects the financial markets. If you tune in, you’ll have the luxury of multitasking, as you can listen out for anything important you need to know while you get ready for work, clean, cook, or perform any other activity. 

The Balance

The Balance is a financial website that offers insight into budgeting, credit cards, banking, investing, taxes, loans, the US economy, and more. While everything on the site isn’t specifically related to forex trading, there are a lot of helpful ideas that can benefit traders, especially when it comes to budgeting, retirement planning, tips for using a financial advisor, stocks, and investment apps. The homepage also features a “Money Snapshot” tool that offers quick information about current mortgage rates, saving rates, credit card interest rates, and more. Overall, this is a great site that covers a broad range of financial topics that can affect forex traders. 

TradingView

TradingView is yet another website that we found to be extremely helpful to forex traders. The site offers live market information updates in real-time on their homepage, news events that are updated every few minutes, crypto ideas, and more. Traders can even sort through different asset categories and find specific need-to-know information related to those categories. For example, under “Stocks”, you can choose from “Top gainers”, “Top losers”, “Overbought”, and more. Another section focuses on harmonic patterns, chart patterns, technical patterns, fundamental analysis, and many other subjects. This really only scratches the surface of the helpful topics you’ll find on the website. In a way, it could even be said that we saved the best website option for last, so be sure to check it out. 

Categories
Forex Basic Strategies

The Absolute BEST Forex Trading Strategies for Beginners

It’s easy for beginner traders to become overwhelmed, which sadly leads many to give up on trading for good before ever really getting started. This can be avoided when beginners have access to simple, easy-to-follow strategies that aren’t overly technical or risky. Below, we will outline some of the best simple trading strategies for beginners: […]

It’s easy for beginner traders to become overwhelmed, which sadly leads many to give up on trading for good before ever really getting started. This can be avoided when beginners have access to simple, easy-to-follow strategies that aren’t overly technical or risky. Below, we will outline some of the best simple trading strategies for beginners: […]

It’s easy for beginner traders to become overwhelmed, which sadly leads many to give up on trading for good before ever really getting started. This can be avoided when beginners have access to simple, easy-to-follow strategies that aren’t overly technical or risky. Below, we will outline some of the best simple trading strategies for beginners:

  • Trailing Stop/Stop Loss Combo Strategy
  • Moving Average Crossover Strategy
  • Breakout Trading Strategy
  • A more detailed 50 Day Breakout Strategy

Trailing Stop/Stop Loss Combo Strategy

This strategy uses stop-loss orders and trailing stops, which ensure that the share will be sold at market price value if it dips to a certain level. Loss-limiting strategies are good for beginners because they can allow traders to get used to trading without risking a larger amount of capital. Trailing stops are also applied through this method to add to the efficiency of the stop loss. 

Traders would combine trailing stop and stop loss together and set those limits based on their maximum risk tolerance. For example, you could set the stop loss at 2% below the current trade price and the trailing stop at 2.5% below the price. If the price increases, the trailing stop will surpass the fixed stop loss and render it obsolete. Note that it can be more difficult to use trailing stops with active trades, due to price fluctuations and volatility. You’ll need to study a stock for several days so that you can set a trailing stop value that will accommodate normal price fluctuations and only catch the true pullback of the price. 

Moving Average Crossover Strategy

This strategy uses a simple moving average (SMA). SMA is a slower price indicator that looks at older data than what is used by most indicators. Usually, a longer SMA is combined with a shorter one. For example, a 25-day SMA might be combined with a 200-day SMA. Information can be compared on charts to indicate bullish or bearish trends and to provide buy or sell signals. 

Moving averages are often used to indicate the overall trend and can be used in combination with a breakout strategy to help do away with signals that don’t match the trend indicated by the moving averages. 

Breakout Trading Strategy

This strategy focuses strongly on trends in the market. Consolidation occurs when the market moves between bands of support and resistance. A breakout occurs when the market moves beyond the boundaries of the consolidation, either to new highs or new lows.  A breakout must occur for a new trend to begin; therefore, breakouts are signals that a new trend has started.

Following this strategy is fairly straightforward, which is why we would recommend it to beginners. Of course, risk management is crucial for the strategy to work with limited losses. One of the Breakout strategy’s downsides is that not every breakout signals a new trend. 

You’ll also need to get a feel for the type of trend you’re entering:

  • A breakout beyond the highest high or the lowest low for a longer period suggests a longer trend. 
  • A breakout for a short period suggests a short-term trend.

Once you learn to identify trends more quickly, you’ll be able to react more quickly and ride the trend earlier in the curve, although this could lead traders to follow shorter-term trends. 

The 50 Day Breakout Trading Strategy 

This strategy evolves around momentum, meaning that when prices are moving strongly in one direction, it is likely that things will continue in this direction. Further movement in the direction of the trend is also considered to be far more likely than any movement against the trend.

When using the Breakout Strategy, traders should focus on the pairs EUR/USD and USD/JPY because these pairs have shown the best reliability through research. Traders will also want to use the Average True Range trading indicator. There are a few other key steps to accomplishment with this strategy:

  1. Monitor the daily chart for the entry signal. A new 50-day high signal that a long trade should be entered, while a low indicates that one should enter a short trade. The trade should be entered immediately once the signal is received. 
  2. Traders should only risk a maximum of 0.25% of their account size per trade. Someone with $2,000 in their account would only risk $5 per trade, which makes this more beginner-friendly.
  3. Tighter stop losses will help to ensure greater profitability.
  4. Two days after the trade entry, move the stop loss to break even if the trade is still open. If the market price is worse than the stop loss, you should close the trade at market price. 
  5. Use an exit strategy that is either based on time or using a trailing stop. Exiting after 8 days has shown the best profitability through research.  

While some beginners may struggle with the exit strategy, you should remember that a time-based exit of around 5-8 days is profitable. This helps to avoid frustration with making mental judgments as well. 

Categories
Forex Basics

Forex Myths that Some People Actually Think are True

As we’ve moved into the 21st century, forex trading has risen in popularity and attracted a growing number of traders from all over the globe. Although we would expect people to have a better understanding of forex thanks to the increased awareness, there’s actually a lot of confusion and several myths surrounding the subject. It […]

As we’ve moved into the 21st century, forex trading has risen in popularity and attracted a growing number of traders from all over the globe. Although we would expect people to have a better understanding of forex thanks to the increased awareness, there’s actually a lot of confusion and several myths surrounding the subject. It […]

As we’ve moved into the 21st century, forex trading has risen in popularity and attracted a growing number of traders from all over the globe. Although we would expect people to have a better understanding of forex thanks to the increased awareness, there’s actually a lot of confusion and several myths surrounding the subject. It can be difficult for new traders to decipher what is and isn’t true, considering that some of these myths are passed around as common knowledge and repeated often. Some of these false beliefs can even cost you to lose money! Below, we will debunk some of the most common myths you’ll hear about trading and shed light on any real facts that inspired them.

Myth #1: Trading is Only for Rich People

We’re more than happy to announce that this statement is actually the opposite of the truth. In fact, many brokers offer trading accounts that can be opened for less than $100. In some cases, brokers will allow you to open an account with $10 or less. So where did the myth that trading was strictly reserved for the rich come from? Those that can afford to make larger deposits can usually open better account types through brokers and there is potential to make more money when you have more money to invest. People also tend to assume that rich people have more resources available to learn to trade, as they can afford to attend college courses or pay for account managers, financial advisors, and training. In reality, you don’t have to have any of these things and everything you need to know can be learned online for free. 

Myth #2: The Risk isn’t Worth it

Just like with any other investment, forex trading does carry a level of risk with no guarantee that you’ll make money. Many people have done so and gave up in the beginning, which likely contributes to the popularity of this rumor. In reality, trading offers a much more structured way to make money because you aren’t blindly rolling the dice and hoping for a win. Your trading decisions are based on real evidence and you can control the amount of money you’re risking on every trade by practicing effective risk management. Keep in mind that your knowledge of the markets and your trading plan also have a big effect on the results you’ll see and that many of the people who say trading isn’t worth it didn’t understand the markets fully or they went in risking way too much money from the start.

Myth #3: Trading More is Better

The concept that entering more trades would give you the opportunity to make more profits seems simple, but this isn’t the way it really works. If you overtrade your account, you run the risk of an overactive account, which is harder to keep up with. You could then become stressed out or anxious and begin making mistakes or forgetting to exit trades. Traders that use too many indicators on their charts often suffer from this problem as well. Keep in mind that some strategies do require trading more, but you should never take on more than you can actively manage. 

Myth #4: Trading is Easy

Brokers have made it extremely easy to sign up for a trading account these days by only asking for a few personal details (like name, email, phone number, address, and country of residence) alongside low deposit requirements. If you want to open a trading account, you can literally do so in minutes. Unfortunately, the simplicity we mentioned leads many beginners to think that trading must be easy since it’s so easy to get started. In reality, you need to invest a lot of time and knowledge into researching various trading topics in order to be truly ready. It’s true that trading is something that most people can do successfully if they invest the proper time and effort into it, but many people believe the misconception that it is a quick and easy way to get rich and aren’t willing to put in the effort needed, so they lose their money and abandon their trading accounts. 

Myth #5: The Forex Market is Rigged Against Traders

Some people believe that you can’t make money trading forex because big banks and governments rig the market, or that brokers change and influence data to make you lose. In reality, the value of a currency is influenced by entities like banks and governments, but this is caused by inflation rates, interest rates, unemployment rates, elections, and other matters that just happen to affect the market. It isn’t actually possible for brokers to rig the market against traders either, as the forex market is too volatile and liquid to be rigged. In some cases, traders lose money at their own fault and want to blame their broker or say that the market is rigged to help their ego, even though this isn’t the case. 

Myth #6: You Need to Constantly Watch the Market

You don’t have to sit around in front of your computer screen 24/7 to be a successful forex trader. In fact, many people manage to work full-time jobs while trading on the side. You do need to spend some time looking at charts and analyzing data, but there are tools out there that can do this for you. For example, you could sign up to receive signals from a trusted signal provider in order to receive messages that tell you when you should enter a trade. Expert Advisors that trade for you are another shortcut that significantly reduces the amount of time you have to spend online looking at data.  

Myth #7: Forex Trading is Just a Big Scam

The idea of trading is scary to some because it involves making an investment through a broker and withdrawing profits later on. They imagine that the broker might keep their funds and refuse to issue their withdrawals for made-up reasons or that they might never respond to them again once funds are requested. It’s true that there are some brokers out there that are scammers, but you can avoid these shady companies altogether by doing research on any company you’re considering and sticking with more popular options that have received online reviews from real traders. It also might help you to rest easy by knowing that many of these brokers are regulated by government agencies that hold them accountable and ensure that traders don’t have to deal with shady tactics.

Categories
Beginners Forex Education Forex Basics

Six Key Mistakes New Traders Make (and How to Avoid Them)

Within the last few decades, trading in the financial markets has seen a sharp increase in popularity, which has led to a boom in the number of newbie traders signing up for trading accounts all over the world. While trading can be a great way to make money from home or even as a full-time […]

Within the last few decades, trading in the financial markets has seen a sharp increase in popularity, which has led to a boom in the number of newbie traders signing up for trading accounts all over the world. While trading can be a great way to make money from home or even as a full-time […]

Within the last few decades, trading in the financial markets has seen a sharp increase in popularity, which has led to a boom in the number of newbie traders signing up for trading accounts all over the world. While trading can be a great way to make money from home or even as a full-time job, many of these beginners start out with no real idea of what they should be doing.

After losing a little bit of money (or blowing their account balance), they feel discouraged and give up. In reality, most of these failed trading attempts can be contributed to common trading mistakes that could have easily been avoided if the novice traders were aware of them. If you don’t want to suffer the same fate, we have good news, as you’ll simply need to read this article so you’ll be aware of these mistakes.  

Mistake #1: Trading Without a Strategy

Ask yourself these questions:

  • “What instruments do I plan to trade?” For example, you might answer something like “Major currency pairs, minors, and some CFD options.” 
  • “What evidence will I look for to tell me to enter a trade?” Some traders might answer that they are looking at fundamental data, while others are looking at technical data or a combination of the two. 
  • “How much am I willing to risk on each trade?” This answer varies based on personal preference; however, a smart choice would be around 1% of your total account balance. 

Your answers might look a lot different than our suggestions, but the point is that you should have some type of answer to these types of questions. If you do, then you’ve been doing your homework and likely have an idea of a trading plan and strategy. If you couldn’t come up with an answer, then you’ll need to develop a plan so that you can start well-prepared. One of the beautiful things about the forex market is that while nothing is guaranteed, traders do have the chance to significantly improve their chances of making money by educating themselves and sticking to their trading plan. One of the biggest mistakes beginners make is opening a trading account with no real plan, which is essentially the same as just gambling. A bit of preparation will go a long way if you simply invest time into your plan and follow it. 

All you’ll need to do is develop a solid trading plan and choose a strategy that will work for you. This will take some research and work, but it is one of the most crucial steps to trading success from the very beginning. 

Mistake #2: Not Testing Your Plan

Once your trading plan and strategy is in place, you may be feeling very eager to jump in and get started trading. Unfortunately, there may be some problems that you didn’t oversee. This can be very costly if you’re trading on a live account and it could even drain your account balance altogether. Many traders reach this point, feel discouraged, and decide to give up before their trading career ever even got a chance to take off. Keep in mind that your plan may sound great on paper, but you still need to test it in a real setting to make sure that it lives up to expectations. 

The good news is that you can avoid this problem by signing up for a free demo account through your broker. You may already know about demo accounts, but if you don’t, you simply need to know that these simulation accounts allow you to practice trading in a live environment while using virtual funds. Since there is no financial risk, you can test your plan to your heart’s content until you’re confident that your strategy is profitable beforehand. 

Mistake #3: Lacking Discipline

If you’ve ever read about trading psychology, you probably have some idea of the ways that emotions can affect our trading decisions. Sadly, some traders skip over this category completely when they’re learning about trading, which leaves them unprepared in the event that their emotions do start to cause problems. Every trader needs to know that feelings of greed, resentment, overconfidence, anxiety, and other emotions can cause you to make avoidable mistakes like risking too much money, deviating from your trading plan, overtrading, and more. If you don’t know this, then it can catch you off guard.

You’ll likely feel some type of emotion at some point, but the best way to avoid this problem is to stay disciplined and remember to always stick to your trading plan. Reading about trading psychology so that you can identify and remedy any related problems is another important step. If you’re ever feeling overly emotional and you can’t calm down, the best thing to do is to take a short break from trading until you feel more level-headed in order to avoid making emotion-driven mistakes. 

Mistake #4: Having Unrealistic Expectations

Whenever someone opens their first trading account, they have some kind of picture in their mind about how things will go. Many beginners start with unrealistic expectations about how much money they’ll make. Oftentimes, this is because those traders have heard about the success of others, possibly even people they know, and they assume that they can reach the same level of profitability from the beginning. In reality, you may be working with a much smaller deposit and you won’t have the experience those investors possess at the beginning, which can lead to disappointment. 

From the beginning, you’ll need to set more realistic goals that focus on positive notes like improving yourself as trading, losing less money each month, sticking to your trading plan, and so on. It isn’t a good idea to set exact monetary goals, as it can be difficult to predict how much money you’ll make due to the market’s unpredictability, especially from the beginning. 

Mistake #5: Not Understanding the Market

All traders need to understand the market and what causes prices to change in order to make smart trading decisions. There’s a lot to learn on the subject, as microeconomics and certain events like elections or pandemics can really shake up the market. Many beginners are in a rush to get started and may briefly glance over this topic before moving on, only to realize that they don’t really know what’s going on once they get started. 

Before you open a trading account, you should spend an ample amount of time researching these topics so that you’ll be more aware of the factors that affect the market. If you’ve already opened an account and you’re confused, consider taking some time off to brush up on your knowledge of these subjects. Some of this knowledge will also be gained through experience as you make trades and live through certain events. 

Mistake #6: Overusing Leverage

Leverage can be both good and bad for traders, as it can help you to make large profits, or it can help you to wipe your account clean when used incorrectly. Many beginners don’t entirely understand leverage and might think that it is best to use the maximum leverage cap offered by their broker to make the most profits. You might make a lot of money doing this, but you’ll likely be risking a lot more money than you’re willing to lose in doing so. 

Start by ensuring that you understand what leverage is and how it works, then you can incorporate leverage limits into your trading plan. Don’t assume that you should use the highest leverage available, especially if it is more than 1:100. As you gain practice over time, you can adjust your plan and trade with higher leverage with a better chance of using it correctly.

Categories
Forex Assets

What is the Best Trading Position? Part V – How to Choose Properly What Assets to Trade

So far, our lessons were quite technical, involving a lot of numbers and calculations. Today, however, we wish to show you how your own participation and involvement can grant you the best trading position. The examples will be based on the forex market, but the rationale of the story transcends to all markets we trade. […]

So far, our lessons were quite technical, involving a lot of numbers and calculations. Today, however, we wish to show you how your own participation and involvement can grant you the best trading position. The examples will be based on the forex market, but the rationale of the story transcends to all markets we trade. […]

So far, our lessons were quite technical, involving a lot of numbers and calculations. Today, however, we wish to show you how your own participation and involvement can grant you the best trading position. The examples will be based on the forex market, but the rationale of the story transcends to all markets we trade.

What are the consequences of trading widely popular currencies?

Most traders will tell you to trade the EUR/USD, USD/JPY/, and GBP/USD. Unfortunately, most people will rarely explain to you how the USD is heavily controlled by the big banks due to its popularity. What this further means is that the market can become pretty volatile and the prices can move suddenly without any logical explanation. Some other currency pairs, such as the NZD/CHF one, may escape the big banks’ attention, which is mainly triggered by a massive influx of orders. In addition, currencies such as the USD are highly susceptible to news events, leaving room for the big banks to manipulate the price in any direction they need to ensure their liquidity. That is why you should be very careful about choosing what you are going to trade in your market of choice and strive to earn as much as you can about potential dangers.

What are the best currencies to trade?

While you can trade any combinations involving the eight major currencies (avoid the USD whenever possible), you should still aim to make more profitable and stable choices. For example, trading the CAD/JPY is better than trading the EUR/USD, but the CAD and the JPY both are affected by USD news to a degree, which means that you can find other options that will prove to be better. It is your job to understand how the currencies you wish to trade work.

The EUR is a great currency to trade because it does not move much when the news on the USD comes out. Moreover, all the news concerning the EUR mainly related to the Eurozone, mitigating its overall impact. The only time traders should pay attention is when the ECB releases news, which still happens rarely and can thus be easily avoided.

The GBP, interestingly, does not correlate with any other currency, which makes it move more often than others do. Like the EUR, the news concerning this currency is easy to notice and avoid.

The CHF appears not to react even to the news it is directly related to. It may, however, react to a lesser degree to the news concerning the EUR. Furthermore, the CHF is one of the easiest currencies to manage because there is almost no erratic movement.

What are the best currency pairs to trade?

The EUR/GBP is one of the most traded currency pairs, but also one of the rare ones that does not involve the USD. Interestingly enough, this pair only accounts for 2% of the market share, which is extremely suitable for avoiding the big banks’ radar. It also gives low ATR, making it one of the least volatile pairs to trade. The EUR/GBP moves slowly, which allows you to set the stop loss and take-profit levels without the two being hit in one day. However, there is no stagnation or choppiness, making it much easier to control in comparison to other currency combinations. Also, the pair isn’t triggered by the US news and, even though both are European currencies, they do not correlate often, so you should not see either of the two gaining strength as the other one is growing weak. 

The GBP/CHF was once the inverse of the EUR/GBP, which thankfully changed after the EUR/CHF crash of 2015. The EUR and the CHF now correlate increasingly less, which allows traders to trade them both without needing to choose between the two. There are many advantages to trading this pair, including the fact that it moves much faster and trends more than the EUR/GBP.

The AUD/NZD is a perfect choice for all traders who tend to avoid volatile markets and heavy news. Both of the currencies that constitute the pair avoid the USD, which immediately takes all the unnecessary drama away. Another important fact is that the AUD and the NZD are both risk-on currencies, which is really important. Currency pairs such as the AUD/JPY, for example, are risk-on/risk-off, which makes it dependent on the stock market. Luckily, the AUD/NZD pair behaves similarly and they do not correlate much.

Additionally, any important news typically comes out early in the trading day, which is ideal for people who trade just before the close of the daily candle. In case of some unfavorable news, this gives these traders almost one whole day to see if the price will correct itself. Most commonly, the price goes back to where it was the previous day, so the news does not need to affect these trades negatively. Because of this pair’s specifics, you can either avoid it in the testing phase or use it as the control currency to see if your system functions at all.

As you can see, just by gathering information on these currencies, their histories, and trading specifics, you can discover how some common facts you read online are not necessarily true. That being said, you must find a way to experience whatever you read in a safe environment (i.e. demo account) and save yourself the pain from making the wrong choices. Whichever market(s) you opt for, make sure that your information collection strategy and research skills are at their best since this is something that will help you build your unique position.

As promised, we are giving you the results of the last problem where you were tasked with applying the scaling out strategy:

Based on the chart, we can see that the ATR is 34.86, which we will round up to 35. Owing to this information, we can calculate our stop-loss and take-profit point (52.5 ≈ 52). If we are dealing with a 50,000 account, our risk equals 1,000, so the pip value is 19.2 in this case. We will make two half trades (9.6 each). After the price hits the take-profit level, we will move the stop loss to the break-even point (the amount you invested in the currency pair in the first place).

We are getting closer and closer to the end of this series, so make sure you follow our next article and complete the story on the best trading position!

Categories
Forex Elliott Wave Forex Market Analysis

AUDNZD: Profiting from its Intraday Triangle Pattern

The AUDNZD cross seems to start a movement in wave 3 of Minor degree labeled in green after completing its second corrective wave of the same degree, which found its bottom at 1.04181 on December 01st.

Technical Overview

The big picture of the AUDNZD cross and under the Elliott Wave perspective and illustrated in the following daily chart reveals the bullish sequence of Minor degree that began last March 09th, when the price pierced the parity level, dropping to 0.99906.

Once the price found fresh buyers, the Oceanic cross climbed in five internal movements of Minute degree, identified in black, until 1.10438, where the cross completed its first wave in green. After this completion, AUDNZD dropped in a complex corrective formation identified as a double-three pattern, which found support at 1.04181 on December 01st. From there, it bounced up to the current levels. 

On the other hand, the breakout of the short-term descending trendline that connects the end of wave ((x)), in black, with the end of wave (b), in blue, suggests the end of the second wave of Minor degree.

Short-term Technical Outlook

The intraday view unfolded in the next 2-hour chart shows the rally that remains in progress since December 01st when the cross found fresh buyers at 1.04181 suggesting further upsides in the following trading sessions.

The previous chart shows the wave (iii) movement of the Minuette degree labeled in blue, which currently looks consolidating its internal structure in a potential running triangle pattern. 

According to the Elliott Wave theory, practically all running triangle patterns tend to be confused with ending diagonals driving retail traders to open trades in the opposite direction to the current trend instead of considering the pattern as a continuation of the trend. Therefore under this scenario, our main bias remains on the bullish side. In this regard, this triangular pattern makes us think that the Oceanic cross might continue extending its movement until the potential target zone between 1.0758 and 1.0816, where the price could complete its third wave, in blue.

In summary, the AUDNZD cross completed its second wave of Minor degree subdivided in a descending three-wave sequence calling for a new upward movement in favor of the first rally, which should follow a five-wave sequence. In this context, the internal structure shows the progress in the third wave of an impulsive wave, which looks consolidating in a running triangle pattern. The potential target of the current rally is located between 1.0758 and 1.0816. On the other hand, the bullish scenario’s invalidation level is set at 1.04181, corresponding to the origin of the current upward sequence.

Categories
Forex Basic Strategies

What is the Best Trading Position? Part IV – How Much Can Traders Win?

We showed how to manage your risk in the last three articles of this series. Today, we are embarking on another journey, teaching you how to manage your money like a professional, wealthy trader. The problem with most traders is that everyone is anxious about how much money they can lose, never thinking about whether there is a win limit too. That is where we are heading in this article – learning about our maximums.

We showed how to manage your risk in the last three articles of this series. Today, we are embarking on another journey, teaching you how to manage your money like a professional, wealthy trader. The problem with most traders is that everyone is anxious about how much money they can lose, never thinking about whether there is a win limit too. That is where we are heading in this article – learning about our maximums.

We showed how to manage your risk in the last three articles of this series. Today, we are embarking on another journey, teaching you how to manage your money like a professional, wealthy trader. The problem with most traders is that everyone is anxious about how much money they can lose, never thinking about whether there is a win limit too. That is where we are heading in this article – learning about our maximums.

Is the More Always the Merrier?

First of all, where does your money come from? Is it from the pure quantity of items you own or what you get to do with them? You may have an abundance of assets with a remarkable track record of winning trades, but what are they worth if they sit there collecting the dust? Think what the wealthiest people do – they always find a way to liquidate their assets because, otherwise, there is no point in any of the efforts made.

When is Enough Actually Enough?

We have all seen quite a few examples of people who seem to lack boundaries. We witness this behavior in casinos when the initial investment gets multiplied several times, but the lucky individual eventually returns home with empty pockets. We get to see such an unbalanced approach in the world of trading as well, having traders stay in trades too long without taking necessary precautions. It usually happens with those impressive trades where you get to buy something for a price that rises well above what anyone could ever expect. The idea of earning in one trade what you get to earn in an entire year is very exciting, isn’t it? Still, it is also very unfortunate to know the statistics of people who fail to ride these winning trades with a sense of precaution too.

How should I manage my wins?

First and foremost, learn how to scale out – take a portion of your trade off the table, put it into your trading account, and keep the rest running accordingly. You can use the ATR indicator to know exactly when you should take the initial profit. For example, if you are a forex trader and the ATR of the currency pair you are trading is 90, you will need 90 pips before you get to take any additional action. 

We will even go one step further and give you the exact formula you can use in trading to manage your trades:

Calculate your risk based on parts 2 &3 of this series.

Divide your risk (number of pips you are risking) into two halves (for MT4 TP partial closing limitation purposes).

Make two half trades with that new number.

Place the stop loss properly on both trades.

Set the ATR where you want to take the initial profit on one of the two trades.

After it closes automatically, move your stop loss to the break-even point (where you entered the trade).

Keep the second trade position running, trends may prolong for days.

How Does Scaling Work in Real Trading?

In the NZD/CHF daily chart below, you can see that the ATR equals 60. This information tells us that the stop loss is going to be 90 (please, read the second article of this series if you do not understand why) and that our take-profit point is going to be 90. After finalizing all risk-related calculations, we also know that the value per pip equals 11.11 for our 50,000 USD account. To scale out, we are going to need to cut this value in half, so we get 5.55. Now we should insert all of the necessary information. The only thing we mustn’t do is check up on the trades all the time because we do want to avoid emotional reactions, urges to make changes, or exit the trades prematurely. 

The moment the price hits your take-profit level, we are going to move our stop loss (90) to the break-even point, knowing that the first half of the trade is a winner you can no longer lose. At this point, you can make use of some other tools, such as Heiken Ashi, exit indicators, and trailing stops, among others, to assist with your trade. These tools can be of great help with your second trade for as long as it runs, especially since knowing when to exit is one of the crucial elements of professional trading. 

What is the Best Return I Can Get?

In the stock market, for example, a 10—11% return per year is considered to be a really good result because it mirrors the stock market average. If you can increase this percentage in time, you will become one of the few elite traders who are able to achieve such returns. If you are considering a specific benchmark to hit, this may as well be a great reference because these trading skills are always in high demand. Warren Buffett for example, one of the most prominent figures on the investment scene in America, makes a 20% return per year while some of the most affluent figures in the forex market willingly give exorbitant amounts of money to their advisors just to get a 13% yearly return.

As usual, we are leaving you with a task that you should complete based on the past few lessons you learned here:

How would you apply the scaling out strategy based on the EUR/USD monthly chart provided below?

What we really want you to know is that this approach helps you know that you are safe and that a portion of your investment is safe too. Many traders never scale out and years may go by before they face the consequences of their actions. You do not have to be the winner only; be a smart winner too. It really doesn’t matter what you trade (gold, corn, stocks, or forex, among others) because all smart traders share this one key skill that is so easy to apply. Accompanied by other trading skills, scaling in and out is the one way you can avoid the casino scenario and ensure the best trading position. Lastly, even if you encounter an unfavorable period or take a loss at some point in your trade, be patient and refrain from reacting impulsively because your stable and consistent approach to trading will even out any transient imbalance in the end. 

Part V to be posted tomorrow. Stay tuned!

Categories
Forex Market

When Can I Trade? Let’s Review Forex Market Trading Sessions & Hours

The Forex Market is open for trading 24 hours a day, five days a week. The market is divided into 4 different sessions depending on the time of day. The daily trading session begins with the Pacific session, before moving on to the Asian, European, and American sessions. Things wrap up on Friday as many […]

The Forex Market is open for trading 24 hours a day, five days a week. The market is divided into 4 different sessions depending on the time of day. The daily trading session begins with the Pacific session, before moving on to the Asian, European, and American sessions. Things wrap up on Friday as many […]

The Forex Market is open for trading 24 hours a day, five days a week. The market is divided into 4 different sessions depending on the time of day. The daily trading session begins with the Pacific session, before moving on to the Asian, European, and American sessions. Things wrap up on Friday as many large financial institutions, banks, and other large investors are out for the weekend. Below, you can view the opening and closing times for each session along with the characteristics that make each session unique. 

Pacific Trading Session

Working hours for forex trading begin once the Pacific sessions open on Monday. The Pacific trading session is based in Sydney and operates from 0:00 to 9:00. This session is known for being the least volatile time to trade and is generally the most peaceful. 

Asian Trading Session

The Asian trading session is based in Tokyo and opens from 2:00 – 3:00 with a closing time between 11:00 and 12:00. Major currency pairs USD, EUR, JPY, and AUD are actively traded during this session.

European Trading Session

Based out of London, the European session opens at 10:00 and closes at 19:00. This session becomes more active after trading begins in London and experiences more of a lull in activity around lunch, before gaining more momentum in the evening. During this time, the market might experience stronger volatility because of the large money turnover. 

American Trading Session

The last trading session of the day is the American session, which opens between 15:00 and 16:00 based in New York. The session wraps up between 0:00 and 1:00. The American session is the most active of the four trading sessions. Important news is released at the beginning of this session and trading becomes more aggressive towards the end of the day, especially on Fridays before the market closes for the weekend. 

* All timeframes are based on Eastern European Time (GMT+2 in winter, GMT+3 in summer)

Categories
Forex Basics

Do You Know the Pros and Cons of Using a Demo Account?

A demo account allows forex traders to become more acquainted with a trading platform and to practice their skills and strategies in a live environment. Since demo accounts use virtual currency instead of real money, traders can use these accounts without taking any financial risk. There are several reasons why beginners and even advanced traders […]

A demo account allows forex traders to become more acquainted with a trading platform and to practice their skills and strategies in a live environment. Since demo accounts use virtual currency instead of real money, traders can use these accounts without taking any financial risk. There are several reasons why beginners and even advanced traders […]

A demo account allows forex traders to become more acquainted with a trading platform and to practice their skills and strategies in a live environment. Since demo accounts use virtual currency instead of real money, traders can use these accounts without taking any financial risk. There are several reasons why beginners and even advanced traders can benefit from these accounts, but there are also some cons that come from trading on them. Below, we will outline both the benefits and disadvantages of demo accounts.

Pros

Demo accounts are great for practice. You can take more risks than you would on a live account and more experienced traders can even use them to practice different strategies. Beginners can track their progress and have a better idea of when they are prepared to make a real investment. You can do all the research you want, but nothing is as practical as trading hands-on with a demo account.

They’re free: Most forex brokers offer demo accounts and it should never cost anything to open one. The reason why brokers provide these free services is that they want their potential clients to come into the market better prepared. Traders are less likely to blow their accounts and give up quickly if they have some practical experience. You’re also more likely to open a real account through the same broker that has provided your demo account, so this is a way for companies to gain future clients. 

You can use them to practice different strategies: The internet is filled with information about different kinds of trading strategies. Some prefer scalping, while others take to swing trading, and there are a whole host of other options out there. You might read an article or watch a video about a strategy you’ve never tested and think that it sounds promising. A demo account is useful in this situation because you can test the new strategy without risking real money.

Opening one is quick and easy: The process of opening a demo account does not involve a headache. Brokers don’t ask for nearly as much information as they would if one were opening a live account. Most require your name, email address, and possibly country. Every now and then you might need to provide a phone number, but not always. One can fill in an account opening form and receive their login details in just a couple of minutes. 

You can use them to test indicators: An indicator signals the best times to enter the market and is helpful when used correctly. Some indicators are available for free, but many providers might ask you to pay for them. The issue is that you never know for sure if the indicator is going to work effectively as many of them can give off false signals or experience other faults. This is why most traders test out promising indicators on demo accounts to see if they are worth investing in.

Demo accounts rarely expire: Most brokers will allow you to trade on your demo account indefinitely. Every once and a while, a brokerage might set a 30-day expiration date or cut off access to that account after so many days of inactivity. If you reach out to support, many brokers will allow you to keep using the same account. If not, you can always open a new demo account in a couple of minutes for free, so you can practice for as long as you want without being forced into opening a live account if you aren’t ready. 

Cons

Demo accounts don’t prepare traders for the emotions related to live trading: When real money is on the line, we can get overly emotional. If you lose big, you might feel a lot of grief or beat yourself up over it. If you’re winning, you’re likely to feel excited, which can lead to other trading problems. Trading psychology is a whole other matter in itself, but it is important to know that demo accounts can’t prepare you for those feelings because real money isn’t on the line. These emotions can come as a shock to traders that aren’t expecting them.

Demo accounts don’t experience delays or slippage: On a live account, traders might see slippage in times of high market volatility or when important finance related news breaks. Slow internet connections can also cause issues with re-quotes. Everything happens faster on a demo account, so traders might not realize that these problems can occur once they switch to a live account.

You might become too used to using a demo account: Some traders never make the switch to a live account for whatever reason, even with good demo trading results. Perhaps they lose interest in trading or don’t want to make a real investment. The issue is that some traders just become too comfortable on the demo account and they continue to trade on it for an extended period of time. If those traders ever do open a live account, they will be more relaxed because of their altered expectations.

Traders handle money differently on a demo account. Sure, you might take your results seriously, but you won’t always make the same moves when real money is involved. What seems like a good move on a demo account might seem too risky if real money is on the line. This can alter one’s perception and change their results on a live account. Another downside is that many demo accounts start you off with an unrealistic amount of money, which also changes the way you trade. 

Final Thoughts

Demo accounts offer several obvious advantages. One can sign up for them easily through most brokers without paying a dime. The accounts can be used to become more familiar with forex trading and to gain practice using different strategies, leverages, account types, indicators, and so on. However, demo accounts do present some dangers that aren’t as well-known. Traders don’t experience the same raw emotions or fear losing money in the same ways when they know that real money isn’t at risk. They also might not realize how re-quotes, slippage, and delayed execution can affect them in a real environment.

When traders aren’t aware of these issues, they might be too relaxed once they start trading on a live account. Those traders are then likely to incur losses because their expectations are off, and this could even cause them to walk away from trading for good. Despite the disadvantages, we highly suggest opening a demo account and taking advantage of their many perks. Traders simply need to be aware of the dangers involved and ensure that they are prepared to deal with the differences once they open a real account.

Categories
Forex Market

Guidance for Trading Forex During Times of Crisis

People generally go about their daily routine without fail, but things change during times of crisis. For example, if the weatherman predicts tornados or even snow in some states, people suddenly go into panic mode and rush out to buy milk, bread, and toilet paper until grocery store shelves are empty. Whenever someone perceives a […]

People generally go about their daily routine without fail, but things change during times of crisis. For example, if the weatherman predicts tornados or even snow in some states, people suddenly go into panic mode and rush out to buy milk, bread, and toilet paper until grocery store shelves are empty. Whenever someone perceives a […]

People generally go about their daily routine without fail, but things change during times of crisis. For example, if the weatherman predicts tornados or even snow in some states, people suddenly go into panic mode and rush out to buy milk, bread, and toilet paper until grocery store shelves are empty. Whenever someone perceives a potential crisis on the horizon, their everyday thought process changes and they begin to go into survival mode.

In some cases, this is for the better, although people often overreact when it comes to small-scale events. Fortunately, we don’t have to deal with crisis mode too often and many of us forget about the frustrations of the last crisis shortly after it’s over. 

In the past, humans went into crisis mode a lot more often and for different reasons, like predators, hunting dangerous wild animals, or because of an incoming attack from a rival tribe. In today’s modern world, most of what we would consider a crisis revolves around the weather, economic, political, and health-related issues. A great example would be the Coronavirus Pandemic, which has inspired a lot of fear, along with hoarding, distrust of the government and in a vaccine, lockdowns, quarantine, and other problems. It would have been nearly impossible to predict what was to come just a few months before the virus began to spread. 

It could be argued that things could have been done to slow down the coronavirus pandemic and to stop it from reaching other countries. Many people believe that the government did not take the virus seriously enough in the beginning, which caused slower and less abrasive actions than what was necessary to stop it. This isn’t that surprising, considering that the modern world has not dealt with such a large pandemic in quite some time. Some scientists and institutions did promote research that suggested this type of thing was possible, but many of us simply weren’t prepared to deal with this crisis. 

Crisis and the Financial Markets

We mentioned how humans operate in two modes: regular everyday life, and crisis mode. It works the same way with the financial markets, as people tend to panic and act differently whenever they perceive a crisis. Since buyers and sellers drive the market, this can cause a lot of issues within the market itself. 

One of the most important things you can do as a trader is to learn to identify whether a potential “crisis” will be small-scale or if it is a world crisis. For example, traders all over the world obviously aren’t going to be worried about a tornado warning in your home state, while a world war would affect things on a global scale. The Cuban Missile Crisis of 1962 and the recent Coronavirus Pandemic are two more examples of world crises that had a large-scale effect on the market. Once you’ve identified which category a crisis falls into, you will need to apply different trading rules depending on what you expect to see with the market.

There are two rules that can be used to help you accurately identify whether a crisis should be considered normal or a world crisis:

  1. Consistent movement in the markets with unnaturally high volatility; declining stock markets; and ranges lasting for some time over their long-term averages are signs of a real-world crisis 
  2. Emotional reactions from traders that result in crashing stock markets are a sign of a real-world crisis that shouldn’t be taken likely

In order to check for the first rule, you can apply the average true range indicator over the long term in order to compare the results to recent daily ranges for the forex, stock, and commodity markets. 

The Bottom Line

Although we don’t have to worry about large-scale crisis too often in the modern world, things can happen quickly and catch us off guard, sending us into full-scale panic mode. As a trader, it’s important to be able to identify just how big of a deal any new crisis might be and whether it is a normal crisis or something that will affect the entire world. This can change the way the market behaves and you’ll need to be prepared and on top of your game to keep up. Remember, even if you believe that a crisis will be widespread, it’s important not to panic and to continue trading with a level head. Always stay up to date on the news and pay attention to what other savvy traders are saying to get a sense of what your peers expect.

Categories
Forex Basic Strategies

Profitable Forex Strategies That Nobody Tells You About

There are a lot of factors that can make or break your chances of success in the forex market, from the amount of money you risk to your general knowledge of what moves the markets, and everything in between. One of the most crucial keys to success is to trade with a solid trading strategy […]

There are a lot of factors that can make or break your chances of success in the forex market, from the amount of money you risk to your general knowledge of what moves the markets, and everything in between. One of the most crucial keys to success is to trade with a solid trading strategy […]

There are a lot of factors that can make or break your chances of success in the forex market, from the amount of money you risk to your general knowledge of what moves the markets, and everything in between. One of the most crucial keys to success is to trade with a solid trading strategy that has been tested and proven to actually bring in profits over a period of time. 

Forex traders typically base their strategies on two different types of data. Fundamental strategies consider economic data and data that is affected by businesses, while technical analysts use indicators and study historical price data. Trading strategies consider data based on their chosen method and then provide traders with techniques that tell them when to enter or exit the market in order to make a profit. Your trading strategy will guide you and ensure that your trading decisions are structured and based on as much fact as possible to increase your chances of making money. 

If you search for trading strategies online, you’ll find a long list of options. The choices can honestly be overwhelming for beginners, as there are so many different factors to consider when choosing a strategy. There is no one-size-fits-all method, as every forex trader has different needs and thinks from a different perspective. So which strategy should you choose? Below, we will break down three of the best trading strategies out there so that you can decide for yourself based on your own personal preferences. Keep in mind that many veteran traders might not tell you about these choices, as many professionals prefer to keep beginners out of the loop when it comes to top-rated trading secrets for success. After all, it is a competitive industry.

Not Sure Which Trading Platform to Use? Try MetaTrader 5

MetaTrader 5, or MT5, is one of the most popular trading platforms out there, right alongside its predecessor MT4.  MetaQuotes developed this platform to offer more financial instruments, trading tools, and resources. Here are a few of the highlights that influence our love for this timeless trading platform:

  • Provides access to a wide variety of forex, stocks, CFDs, and futures
  • Offers a navigable interface with 21 timeframes and 6 pending order types
  • Supports robotic and algorithmic trading
  • Allows hedging and netting
  • Supports 36 technical indicators, 44 analytical objects, and an unlimited number of charts
  • Built-in economic calendar for quick access to important news data
  • Can be accessed through a web browser, desktop version, or on mobile devices and tablets

When compared to other options out there, MT5 truly offers more services and resources to traders, making it a great tool for success if it is incorporated into your trading routine. If you do plan to use it, you can find many video tutorials on YouTube that will teach you how to use the platform efficiently. The best way to use the MT5 platform is to open an account through a broker that offers it so that you can trade on MT5 for free, as licensing fees can be expensive. 

Using Trading Signals

A trading signal is a suggestion to enter a trade that is typically delivered to the trader through a phone or email alert. The suggestions come from expert traders that have personally analyzed the market based on their own ideal sets of data so that you don’t have to. This concept is especially helpful for beginners that may not completely understand the market or for traders that just don’t have the time to sit around analyzing charts and data all day long. Many traders consider signals to be a shortcut to success that takes away from the overall time spent trading, as long as a profitable signal provider has been chosen. 

Experts that create trading signals do so to help other traders, but there is usually a cost of these services. Keep in mind that some signals are free, while most cost money, but you shouldn’t blindly trust every signal provider that’s out there because scammers are involved in the market. Before choosing a provider, you should read online reviews about their services and take a look at their overall reputation, especially if it is a paid provider. 

One-on-One Training Sessions

Some traders overlook the benefits of personal one-on-one training sessions with professionals for a few different reasons. One of the most common reasons is that these sessions usually cost money, although some brokers will offer you free sessions if you make a large enough deposit with them. It’s true that there are many free resources available online, but you should stop to consider some of the benefits of one-on-one training:

  • You’ll be mentored by a veteran trader that knows the market inside and out.
  • You can ask personal questions and receive professional-grade advice.
  • Your coach will teach you basics, market fundamentals, and everything you need to know.
  • Your mentor can suggest profitable trading strategies you might not have heard about once they learn about your personal trading style.
  • You’ll learn to use technical indicators and how to effectively analyze the market for trends and directions.
  • This is one of the best ways to get hands-on practice in a live market environment.
  • You’ll receive tips that can help you to achieve profits on the same level as expert forex traders.

The Bottom Line

If you want to get the same results as a professional trader, you’ll need to trade like one. The three professional-grade strategies we’ve outlined above can help you get off to the right start in the financial markets, as long as you take the time to practice them effectively.

Categories
Forex Fundamental Analysis

NZD/USD Global Macro Analysis – Part 3

NZD/USD Exogenous Analysis

NZD/USD Exogenous Analysis

NZD/USD Exogenous Analysis

To effectively compare the US and the New Zealand economies, we will conduct exogenous analysis using the following fundamental aspects;

  • The US and New Zealand balance of trade difference
  • GDP growth differential in the US and New Zealand
  • The US and New Zealand interest rate differential

The US and New Zealand balance of trade difference

A country’s participation in international trade tends to determine the demand for its domestic currency. If a country is a net exporter, its currency will be in high demand in the forex market, increasing its value against other currencies.

In October 2020, New Zealand’s trade deficit was NZD 500 million compared to the US trade deficit of $63.1 billion. Although New Zealand’s trade deficit is improving, it is still lower than the balance of trade in January. On the other hand, the US trade deficit has been widening throughout the year. The difference between the two countries’ balance of trade is the trade deficit differential. Based on its correlation with the price of the NZD/USD pair, we assign a score of 4.

GDP growth differential in the US and New Zealand

GDP growth differential is the difference between the rate at which the US and New Zealand economies are expanding. It will help to show which economy is growing at a faster pace hence impacting the exchange rate between the two countries. A country whose GDP is expanding faster will enjoy favorable domestic macroeconomic conditions. Hence its currency will appreciate.

In Q3 of 2020, the New Zealand GDP contracted by 12.2% while that of the US expanded by 33.1%. That represents a GDP growth rate differential of 45.3%. If this trend continues, we should expect that the USD will strengthen against the NZD hence a bearish NZD/USD pair.

Based on our correlation analysis, we assign the GDP growth differential between the US and New Zealand a score of -4.

The US and New Zealand interest rate differential

The interest rate differential is the difference between the prevailing interest rates in New Zealand and the US. The country with a higher interest rate tends to attract more capital, inceasing the value of its currency.

At the onset of the coronavirus pandemic, the Reserve Bank of New Zealand cut its official cash rate from 1% to 0.25%. During the same period, the US Federal Reserve cut the interest rate from 1.75% to 0.25%. Presently, the interest rate differential in NZD/USD is 0%.

Based on the correlation with the price of the NZD/USD pair, we assign a score of 1.

Conclusion

The NZD/USD pair has an exogenous score of 1. That means we should expect that the pair will continue on a mild bullish trend in the short-term. Note that this trend is also supported by technical analysis.

As seen in the above 1-week chart, the NZD/USD has successfully breached the upper Bollinger band indicating bullish momentum. This supports our fundamental analysis, as well. All the best.

Categories
Forex Basics

The Top 7 Most Misunderstood Facts About Forex Trading

Despite the fact that there are currently more than 9.6 million forex traders in the world, the topic of forex trading still manages to bring up many myths and misconceptions. Knowing the truth about some of the most common misconceptions out there can really save you money in the long run if you’re a trader. […]

Despite the fact that there are currently more than 9.6 million forex traders in the world, the topic of forex trading still manages to bring up many myths and misconceptions. Knowing the truth about some of the most common misconceptions out there can really save you money in the long run if you’re a trader. […]

Despite the fact that there are currently more than 9.6 million forex traders in the world, the topic of forex trading still manages to bring up many myths and misconceptions. Knowing the truth about some of the most common misconceptions out there can really save you money in the long run if you’re a trader. On the other hand, those that have only considered trading may have chosen not to open a trading account over a simple rumor, while others may jump in with unrealistic expectations. If you want to learn the truth about forex trading, keep reading as we break down the 7 most common misunderstandings about forex trading. 

Misunderstanding #1: Forex is a quick way to get rich.

We can thank several movies, brokers, and sketchy “motivational” forex traders for the misunderstanding that forex trading can make you rich overnight. Oftentimes, people see flashy advertisements that show traders living a luxurious lifestyle and they decide they want that for themselves. In reality, these are just advertising gimmicks meant to capture your attention and draw you in so that the trader can sell you something or to convince you to open an account with a broker. On the bright side, you really can make a lot of money trading forex, but the amount depends on experience, the amount you invest, the market environment, and other factors. If you start trading with a few hundred dollars in your account and little knowledge of the market, it will take a while for you to reach the larger monetary goals you’ve set. 

Misunderstanding #2: Trading is a scam.

While some traders believe forex is a way to get rich quick, others think that the system is rigged and don’t believe you can really make money doing it. Shady unregulated brokers contribute a lot to this misunderstanding, but you also might hear from scorned traders that lost money due to their own error. Those traders then turn around and blame their broker, the market, or something else to help ease their bruised ego, when they probably just weren’t prepared to open their first trading account. As long as you choose a trustworthy broker that is regulated with positive client feedback, you shouldn’t have to worry about any issues. It’s also important to know that there are too many factors affecting the forex market and things move too quickly for there to be any way for your broker to rig the market. 

Misunderstanding #3: More complex strategies are better.

Many traders believe that the more complicated a trading strategy is, the better the results will be. It’s actually fine to stick with a simpler strategy, you just need to take certain matters into account, like price movement, a ranging or trending market, reversal points, and so on. If your trading system is making profits but it isn’t as much as you’d like, start by considering these factors before adding more variables and overcomplicating things. Know that even the best traders usually walk away with only a slightly higher win rate than their loss rate, so you shouldn’t throw an entire trading strategy out the window just because you feel you should be making profits more quickly.

Misunderstanding #4: More trades = more profits.

This is a common belief among forex traders because it makes sense that the more trades you enter, the more chances you would have to make money. The truth is that you can actually make the mistake of overtrading if you do this and you put yourself at more risk of losing money. If you open too many positions at once, you also may have trouble keeping up with everything and you could become overwhelmed, causing you to forget to exit positions and to make more careless decisions. Instead, you should only enter a trade if there is good supporting evidence to do so and be sure that you never open more trades than you can manage. Even if you’re left feeling unproductive, it’s better to avoid trading if there just aren’t any good opportunities in a day. 

Misunderstanding #5: It’s possible to have a 100%-win record.

If you ever hear a trader say that they’ve never lost money or made a mistake while trading, don’t believe them. With the forex market being so volatile, it just isn’t possible to make the right moves every single time, even if you’re an expert trader with a high win rate. It’s also impossible for signal providers or Expert Advisors to trade with 100% accuracy as well, so don’t fall for these false claims. When you do lose, you shouldn’t beat yourself up over it, as the solution is to keep calm and assess what went wrong. If there’s a problem with your strategy or you made a mistake, simply try to learn from it, make any needed changes, and move on.  

Misunderstanding #6: Trading with high leverage provides greater rewards.

There’s an old saying about forex trading that claims, “leverage is a double-edged sword”. This is absolutely true – the higher the leverage you use, the greater the potential for returns; however, it also increases your risk significantly. Many beginners rush out and decide to trade with the highest leverage available through their broker, which can be as high as 1:400, 1:500, or even 1:1000 in some cases. Beginners need to know that many professionals actually prefer the leverage ratio of 1:100 because it provides a good opportunity for investment without an insane financial risk. You’re still free to make your own decisions regarding leverage, just keep these facts in mind if you’re tempted to use a high degree of leverage.

Misunderstanding #7: It’s best to choose a broker that offers 100% bonuses.

Some brokers offer perks in the form of bonuses and promotions to traders that choose to sign up for an account with them. While it’s great to see deposit bonuses and other ways for traders to make extra money, it’s important that you don’t choose a broker solely because they offer this type of deal. There are usually strings attached when it comes to this, like minimum trade requirements before you can withdraw profits, the bonus being nullified if you make a withdrawal before fulfilling certain conditions, and so on. The broker might also offer bad trading conditions in general and use the bonus to draw in traders quickly and to keep you from looking into their terms further. This doesn’t mean that promotional opportunities can’t be a good thing, just that you need to do thorough research anytime this is offered. 

Categories
Forex Fundamental Analysis

NZD/USD Global Macro Analysis – Part 1 & 2

Introduction

Introduction

Introduction

The global macro analysis of the NZD/USD pair will involve the endogenous and exogenous analyses of the US and New Zealand economies. The endogenous analysis will focus on domestic macroeconomic factors that drive the economy. The exogenous analysis will focus on economic indicators that comprehensively compare both the US and New Zealand economies.

Ranking Scale

Both the endogenous and exogenous factors will be ranked on a scale of -10 to +10. A negative ranking for the endogenous means that the factor had a negative impact on either the currency, while a positive ranking had a bullish impact on the currency.

Similarly, when the exogenous factor is negative, it has a bearish impact on the currency pair, while a positive ranking means it had a bullish impact.

Summary – USD Endogenous Analysis

From the above table, a clear deflationary effect can be seen on the USD currency and implies that USD has depreciated in its value since the beginning of 2020. For the complete USD Endogenous Analysis, please check here.

Summary – NZD Endogenous Analysis

The NZD endogenous analysis has a total score of 4. This shows that the NZD appreciated in 2020.

  • New Zealand Inflation Rate

The CPI is the most commonly used measure of inflation in New Zealand. Here are the top categories included in the CPI: Housing with a weight of 24.2%; food and non-alcoholic drinks 18.8%; transportation 15%; recreation 9.4%; alcoholic drinks 7%; clothing, household goods and services, health, and education all have a combined weight of 18.2%.

In September 2020, New Zealand CPI increased by 0.7%. Based on the correlation with the GDP, we assign a score of -1.

  • New Zealand Unemployment Rate

This rate shows the number of New Zealand’s working population out of work and actively looking for gainful employment. As an economic indicator, it can be used to show the economy’s ability to add new jobs to the market.

In Q3 of 2020, the New Zealand unemployment rate increased to 5.3% from 4% in Q2. This shows that the labor market is yet to recover from the economic shocks of the coronavirus pandemic. Based on correlation analysis, we assign a score of -5.

  • New Zealand Manufacturing PMI

This is an index that measures the growth in the manufacturing sector in New Zealand. It is a composite of new orders, employment, inventories, and orders delivered from the manufacturing sector. When the index is above 50, it means that the manufacturing sector in New Zealand is expanding. The sector is seen to be contracting when the index is below 50.

In October 2020, the index declined to 51.7 from 54. However, the index is above the pre-coronavirus levels. That implies the manufacturing sector is recovering swiftly. Based on the correlation analysis with GDP, we assign it a score of 3.

  • New Zealand Business Confidence

In any economy, business confidence goes hand-in-hand with business confidence. In New Zealand, the business confidence index is based on a survey of about 700 businesses. The index is the difference between the number of businesses that anticipate economic improvements and those that expect the economic conditions will decline. The index covers export intentions, profit expectations, employment intentions, activity outlook, and capacity utilization.

In November 2020, the ANZ Business Confidence was -6.9 compared to -15.7 in October. Although in the negative territory, the November reading is the highest since September 2017. This shows that more businesses are becoming optimistic about the future operating environment, mostly thanks to the aggressive expansionary monetary and fiscal policies.

Based on correlation analysis with the GDP, we assign ANZ business confidence a score of 4.

  • New Zealand Retail Sales

In New Zealand, retail sales data is aggregated quarterly. It measures the change in the value of goods and services purchased by households. Remember that consumer expenditure is the main driver of economic growth, which makes the retail sales data a leading indicator of GDP growth.

In Q3 of 2020, the New Zealand retail sales increased by 28% from a drop of 14.6% and 1.2% in Q2 and Q1, respectively. The 28% increase is the largest quarterly increase in 25 years. The YoY retail sales increased by 8.3% in Q3 compared to a 14.2% drop in Q2. Based on our correlation analysis, we assign the New Zealand retail sales a score of 6.

  • New Zealand Consumer Confidence

In New Zealand, consumer confidence tends to correlate with households’ willingness to spend in the economy. The Westpac McDermott Miller Consumer Confidence Index gauges the optimist of New Zealand households regarding the economy. The index covers households’ views on their finances, purchases in the economy, and the overall economy.

A score of above 100 shows an increasing level of optimism, while below 100 shows increasing pessimism.

In Q3 of 2020, the New Zealand consumer confidence index dropped to 95.1 from 97.2 in Q2 and 104.2 in Q1. Q3 reading is the lowest in New Zealand since 2008. Based on its correlation with GDP, we assign a score of -4.

  • New Zealand Government Net Debt to GDP

Gross national Debt to GDP helps both local and foreign creditors gauge a country’s ability to service its debt. This indicator shows the level at which the domestic economy is leveraged. A lower ratio is preferable since it means that the country has a higher GDP compared to its debt. This means that it can be able to access cheap debt in the future.

In the 2018/2019 fiscal year, the New Zealand government debt to GDP dropped to 19% from 19.6% in the 2017/2018 fiscal year. In 2020, the New Zealand government debt to GDP is projected to increase to 27% on account of the government’s aggressive spending to ease the economic pressure from the coronavirus pandemic. Based on correlation analysis with GDP, we assign New Zealand government debt to GDP a score of 1.

In the very next article, let’s analyze the exogenous indicators and forecast if this currency pair seems to be bullish or bearish in the near future.

Categories
Forex Course

193. Summary – Carry Trading

Introduction 

Introduction 

Introduction 

Carry trade involves borrowing or selling of an asset that has a low-interest rate, for the purpose of using the fund proceeds to make another investment with a higher rate of interest. By paying a lower rate of interest on assets and collecting a higher interest rate from another asset, traders make a difference in the interest rate.

Currency Carry Trading – How Does It Work?

In currency carry trading, the trader borrows one currency known as the borrowing fund. And, then they use this fund to purchase another currency. The traders pay low-interest rates on the borrowed currency while collecting a higher interest rate on the purchasing currency. This type of trade gives traders an effective alternative to purchasing low and sell high, which is difficult to do on other trading options. AUD/JPY and NZD/JPY are the most common currency pairs to carry trade.

Opportunities & Risks Involved

The most profitable time to perform a carry trade is when the country’s central banks are increasing or about to raise the interest rate. Low volatility situations are also profitable for these trades as traders are more likely to take more risks. Granted that the value of the currency does not fall, traders are likely to get a good amount.

There is a big risk associated with currency carry trading, primarily because of the uncertainties associated with the exchange rate. When high leverage levels are used in this trade, it implies that even small movement in the exchange rates can result in a substantial loss if the traders fail to hedge their positions properly.

Risk Management 

While lucrative, carry trading comes with its own share of risks. This is because currencies are prone to volatility. Moreover, the negative market sentiment of the traders within the currency market can also have a substantial impact on carry pair currencies. Without improper risk management, traders could end up bearing a high degree of risk. The best way to avoid risk in a carry trade is when the market sentiment and fundamentals support them.

Final Thoughts

If you are looking to invest in a carry trading, the first steps are to select the most lucrative broker vs currency pair combination. The charges of brokers vary significantly across various currencies. Therefore, it is important to ensure that the trade offers an effective risk-adjusted return. Cheers.

Categories
Forex Basics

Is it Possible to Legally Trade Forex in Nigeria?

Forex trading offers attractive perks that draw in traders from all over the world, however, some aspiring traders hit roadblocks when attempting to open a trading account because forex is banned in certain countries. South Korea is a common example of a country that many brokers place on their ban list because it is illegal […]

Forex trading offers attractive perks that draw in traders from all over the world, however, some aspiring traders hit roadblocks when attempting to open a trading account because forex is banned in certain countries. South Korea is a common example of a country that many brokers place on their ban list because it is illegal […]

Forex trading offers attractive perks that draw in traders from all over the world, however, some aspiring traders hit roadblocks when attempting to open a trading account because forex is banned in certain countries. South Korea is a common example of a country that many brokers place on their ban list because it is illegal for residents of the country to open a trading account with foreign brokers.

Traders in the United States often have issues finding brokers that will accept them as well due to strict regulatory requirements. It isn’t possible for traders to lie during the account registration process, due to the fact that brokers require some type of document (like a utility bill) proving that they do live where they claim to. All of these rules and restrictions cause some confusion in the forex community.

If you’re wondering if forex trading is allowed in Nigeria, the quick answer is yes, but there are some things you need to know. Trading is actually becoming quite popular in the country, with more than $1.25 million is being invested in the market daily. 

Nigeria has certain rules in place for its stock market stating that local stocks can’t be raised or lowered by more than 10% of its current value for the day. Unfortunately, forex traders don’t see the same level of protection, as forex trading is not currently regulated in the country. This means that there are no government entities watching over Nigeria-based brokers and holding them to higher standards that can protect clients. Here are a few reasons why this can be an issue:

  • If your unregulated broker goes bankrupt, traders are at risk of losing all the money in their trading account. With regulated brokers, those traders would be entitled to financial compensation.
  • Regulated brokers must comply with rules and regulations, which protect traders from fraud or mistreatment. 

Fortunately, you can simply choose a broker that is regulated and based in another country, even if you are a current resident of Nigeria. If you want to open a trading account, you’ll just need to follow a few quick steps to get started:

  1. Ensure that you have a suitable device with an internet connection, like a computer, a smartphone, tablet, or iPad. If you don’t currently have internet, you’ll want to choose a provider that offers good service. Airtel is known to bring the fastest provider in Nigeria. 
  2. Choose a broker. Now, you’ll need to do some research and invest in a trustworthy broker. Be sure to keep regulation in mind. Your broker doesn’t necessarily have to be regulated, but you’ll be more protected if they are. 
  3. Complete the account verification process. This usually goes fairly quickly, as you’ll be asked some personal details, like name, address, date of birth, etc. You should also be prepared to submit some form of ID and a document that proves you’ve provided the correct address.
  4. Make your first deposit. The amount that you must deposit depends on your broker, as some will take $10 deposits and others set higher requirements of $100 or more. 
  5. Install your trading platform and get ready to trade! The exact platform you’ll be using will also depend on your broker, as some use 3rd party platforms like MT4 and others offer their very own platforms. 

The process of opening a trading account from Nigeria is the same as it is for traders in many other countries all over the world. This is great news for aspiring Nigerian traders that are looking to take advantage of the highly liquid forex market and all of the perks that come with trading. As always, we will remind our readers to get out there and get educated before opening a trading account to avoid losing money at the beginning of your trading career. 

Categories
Forex Basics

Must Follow Facebook Pages for Forex Traders

If we asked you to guess the most popular social media platform in the United States, what would you say? The unsurprising answer is Facebook, which ranks in the number one spot, followed by Instagram and YouTube. In several other countries, the popularity of Facebook can be exceeded by other platforms, but it usually finds […]

If we asked you to guess the most popular social media platform in the United States, what would you say? The unsurprising answer is Facebook, which ranks in the number one spot, followed by Instagram and YouTube. In several other countries, the popularity of Facebook can be exceeded by other platforms, but it usually finds […]

If we asked you to guess the most popular social media platform in the United States, what would you say? The unsurprising answer is Facebook, which ranks in the number one spot, followed by Instagram and YouTube. In several other countries, the popularity of Facebook can be exceeded by other platforms, but it usually finds itself in one of the top three spots with more than 2.7 billion users to date. The platform manages to attract different kinds of people from across the world, both young and old. In fact, most of us already have an active Facebook account. If you don’t, it only takes a few minutes to sign up for one and you will likely find that many of your family members and colleagues already have an account. 

Just like with many other popular social media platforms, you can find many different kinds of pages, businesses, and influencer pages on Facebook. Professional forex traders and pages are no exception. If you actively trade forex, you should definitely follow these top trading pages to get the best trading information delivered straight to your newsfeed:

NewTraderU.com

NewTraderU.com is an education-based Facebook page that shares helpful trading information related to quotes and charts with the goal of helping new forex traders to achieve profitability. If you’re looking for a highly active page to follow with multiple posts per day, this is a great option. The page has attracted more than 32,000 followers and contains links to a website, along with an email address where traders can reach the page’s creator Steve Burnson. If you haven’t heard of him, you should know that he is also the founder of NewTraderU.com and has an active Twitter account. 

Harvard Business Review

You don’t have to attend Harvard (or even take a college course at all) to benefit from following the Harvard Business Review Facebook page. While the page isn’t completely dedicated to forex traders, it does host a lot of information and ideas related to business and economic factors that can affect forex traders worldwide. Some articles that are shared can also benefit traders, for example, the page recently posted an article that explains how to stay focused when working from home, which is a common issue for many traders. This is one of the most popular pages listed in our article, with more than 5 million followers and multiple posts each day. 

MT5 Forum

MT5, short for MetaTrader 5, is one of the most popular trading platforms in the world and is offered as a primary platform by a large number of brokers. The MT5 Forum Facebook page doesn’t only focus on the trading platform, however, as it serves as more of an educational page that posts news articles, hot topics, economic data, and forex humor posts that can serve every kind of trader. 

Warrior Trading

The Warrior Trading Facebook page is followed by more than 175k people who communicate in comments on various posts made daily by the creator. The page is linked to a website that offers paid courses to forex traders; however, you can view lengthy videos directly from the Facebook page for free! Topics focus on education, with an emphasis on profitable strategies and morning shows. This is another page you can quickly follow if you’re looking to add more forex content to your daily news feed.

TradeCiety 

More than 31,000 current and aspiring traders are currently following the TradeCiety Facebook page, which was created to entertain and engage traders by providing information related to trading forex and futures. When we glanced over the page, we found an average of one interesting post per day with recent topics focusing on reward risk ratio, webinar opportunities, making small steps to become a better trader, and so much more. Even though there aren’t a large number of posts per day, this page still posts informative information and could help traders learn something new whenever they are scrolling through Facebook out of boredom. 

Stocktwits

Stocktwits typically posts two or three times daily on their Facebook page, along with offering their own app by the same name with even more content. The page was created for traders and investors to share ideas with one another and often shares both funny and informational videos about trading, articles, and other resources that can help traders make smart investment decisions. 

Trading Legends

Trading Legends Facebook page currently has about 23k followers and is known for posting inspirational trading quotes from top traders like George Soros and Martin Schwartz, trading rules, event discussions, and educational videos. The page is fairly active and offers traders a friendly place to communicate with zero tolerance for bullying. The controlled environment creates a great space for beginners to ask questions and get advice with no judgment from their more experienced counterparts. 

TradingwithRayner

The TradingwithRayner Facebook page was created to share new price action trading techniques and strategies with traders. The creator’s main goal is to educate others on these matters in order to save them from learning hard lessons that result in a loss of funds. With more than 17k likes and at least a few posts per day, this is a moderately active Facebook page that shares interesting ideas and informational articles that can help to improve profits for every kind of trader.

Categories
Forex Elliott Wave Forex Technical Analysis

EURJPY Consolidates Expecting Further Upsides

Technical Overview

Technical Overview

Technical Overview

The EURJPY cross consolidates in the extreme bullish sentiment zone, suggesting a bullish continuation of the strong upward movement developed in early December.

The following daily chart exposes the EURJPY cross developing a consolidation pattern, which looks like a flag pattern bounded between 125.77 and 126.70. According to the chartist analysis, the formation suggests the continuation of the previous movement. In this case, the cross could extend its gains surpassing the next resistance corresponding to the 52-week high located at 127.075.

The mid-term overview for the EURJPY cross reveals its primary trend plotted in blue, supporting a rally that remains in progress since the price confirmed its bottom at 114.397 touched on last May 07th. The secondary trend traced in green and minor trend drawn in black supports the price acceleration, which currently consolidates carrying to expect the bullish continuation for the following trading sessions.

Technical Outlook

The big picture for the EURJPY cross under the Elliott wave perspective unfolded in the next 12-hour chart shows the incomplete corrective rally corresponding to wave ((b)) of Minute degree labeled in black. This corrective rally remains in progress since the price found fresh buyers at 121.617 on last October 29th and could reach new yearly highs.

The upper degree structure of the EURJPY cross illustrated in the previous chart exposes the progress in wave B of Minor degree labeled in green, which began when the cross completed its wave A at 127.075 on last September 01st. Currently, the price advances in its wave ((b)) in black. Likewise, its internal structural series shows the development in the wave (c) of Minuette degree labeled in blue, which at the same time, looks starting to develop the wave v of Suminuette degree identified in green.

In this context, the EURJPY cross could extend its gains toward the potential target zone bounded between 126.96 until 128.08, where the cross could find fresh sellers expecting to drag the price to new lows developing the wave ((c)) in black. 

In this regard, if the price confirms its new bearish leg, the cross could complete the third segment of wave B in green. On the other hand, considering both the alternation principle and the wave ((a)) and ((b)) looks extended in terms of time, the wave ((c)) could be a sharp decline.

In conclusion, the EURJPY cross moves mostly upward in a corrective rally that belongs to wave ((b)), corresponding to the second segment of the upper degree wave B. If the price breaks the sideways consolidation structure developed since early December, the cross could strike the potential target zone between 126.96 and 128.08. Likewise, the invalidation level of the bullish scenario locates at 125.130.

Categories
Forex Market

Why We Don’t Have Reliable Volume Data in the Forex Market?

Professionals who see volume as a prerequisite of success view any lack of volume as an important factor. Traders need volume to know if the trade they are interested in is worth taking. They explain how volume directly affects the chart because it is what moves the market. As volume is changeable – both in […]

Professionals who see volume as a prerequisite of success view any lack of volume as an important factor. Traders need volume to know if the trade they are interested in is worth taking. They explain how volume directly affects the chart because it is what moves the market. As volume is changeable – both in […]

Professionals who see volume as a prerequisite of success view any lack of volume as an important factor. Traders need volume to know if the trade they are interested in is worth taking. They explain how volume directly affects the chart because it is what moves the market. As volume is changeable – both in the sense of the entire forex market and particular currency pairs – we wonder where this volume inconsistency stems from. 

 

Having left the gold standard in the 1960s, most currencies across the globe are no longer backed up by equivalent amounts of hard assets. This left much room for the governments and banks to manipulate the circulation of currencies, increasing the overall money supply. As more money is printed, consumers demand more goods, which results in increased prices. The overall volume of money in the market does not only refer to the cash that circulates in the economy, but the digital money as well (bank accounts), and any changes will have an impact on both. Forceful printing can have terrible consequences like what happened to Zimbabwe, which kept printing more money to the point of its official currency becoming entirely worthless. As money moves, so does the volume we see in the market. For example, in 2019, many noticed how the stock market experienced a long period of prosperity, supported by unprecedented growth levels. As all money flooded into stocks, the market’s expansion triggered historic lows in the spot forex. Such dynamics between the two markets depend on the concentration of money that fluctuates alternately. Volume is affected by other factors as well, such as market condition and geopolitical status, and news.

 

Market volume always changes and, sometimes, the volume can be really low for a longer period of time. When this happens there are a few important rules to remember:

  • Dead markets are normal and happen regardless of your skills and knowledge.
  • Do not push yourself to enter any trades if you are not getting any signals.
  • If you are testing your system now, you may not get much yield because of the state of the market.
  • If you are getting signals to trade, steer clear of the USD (especially if you are a beginner). When the market is sluggish or dead, the big banks will thrive off the USD where most traders are.
  • Take the entire trade-off at your first take profit.
  • Because the volume will return at one point, your volume indicator may not be quick enough to notice the change, so you may miss the first big move.
  • Trade smaller time frames to get quicker results in this period.
  • Prepare yourself for fluctuation volume now and do not expect tailwinds all the time.

 

Volume indicators are believed to be one of the most important constituents of professional traders’ algorithms. Not only do they increase the chance of winning in each trade but they also serve to prevent losses, which is a prerequisite for sustainable success. However, it is important to distinguish between volume and volatility. While we do need volume in the market, we should look for the most volatile or liquid pairs. Indicators such as the ATR are excellent tools for measuring volatility in the market and calculating the risk. The Cboe EuroCurrency Volatility Index also tracks the short-term projected volatility of the EUR/USD exchange rate. While any volatility information can prevent the trader from making the wrong choices, volatility indicators should be used together with a volume indicator to achieve the best results.  

 

The DOM indicator is one of the popular volume indicators in the forex community with an impressive Google search frequency. Based on the brokers’ data, this indicator offers an insight into the price levels with the heaviest volume. Traders often seem impressed with the DOM’s performance, but fail to understand that any dealing desk broker’s information is limited to levels and does not stand for the overall volume. Therefore, this indicator simply cannot help us understand volume or how the market is going to respond. What it can do, however, is hinder our development because everyone can access this information easily. The DOM is easily available on the most popular trading platforms and, due to its popularity, most traders like to use it. Yet the DOM lacks information that we could use for trading consistently. The order concentration levels it represents are not going to be the guiding light for your forex trading. Other assets like crypto have more reliable data from the exchanges about these levels, BTC is a good example with so many positions stacked around the $20k price level. 

 

Volume indicators are key money management and risk management tools, but many of them offer similar information. Therefore, to understand any given data concerning volume, traders need to learn how to read the numbers which they are presented with. So, if any indicator reveals a price that is several pips higher, traders need to be cautious because the information they see is incomplete. We still do not know anything about the type of orders that comprise this volume, whether they are limit or stop orders, or if the majority is entering long or short trades at the time. Traders should also be invested in discovering the predominant percentage of long and short trades because it will help them determine the correlation between volume and the types of trades forex traders are typically entering at the time. The missing information is crucial for understanding volume in the forex market, as numbers alone have no meaning. We still lack the qualitative analysis of the market to understand what is happening.

 

Volume will always oscillate and there is not much we can do to change that. What we can do, however, is approach it in a smart way. Your approach to trading is vital for your overall success, so if you are not prepared mentally or emotionally, your account will suffer no matter the conditions. Traders often think that the higher the volume, the better, but dead markets can also be an excellent opportunity for growth. If we succumb to the challenges and fail to apply money management skills now, we won’t be able to reap the fruits later. What you can always do to improve yourself is to focus your attention on your trading skills and system. Is there anything you can change? How can you improve your algorithm to function even better? Remember to stay on the course and power through by doing what you can and what is best for your trading account. When there are no opportunities for making money, there is abundant room for backtesting and forward testing your algorithm. If you have a strong vision, use the times with no volume to reflect on the lessons and the choices you made in the past. Even if you had big plans to quit your job in a year and devote yourself exclusively to trading currencies, now is not the time to make such changes. Keep your other sources of income and use the time you have wisely, perfecting your system for future success.

 

We may be looking for different tools and methods to obtain volume data, but the focal point of this article is that our attention should be elsewhere. We cannot predict the future and we certainly cannot find one indicator that will do all the work on our behalf. Rather, we should become skillful in combining different indicators to eliminate bad trades, reduce losses, and earn smart money. And, finally, we must bear in mind that times of no volume and no income are also fruitful periods for any individual to become a better and more prosperous trader. 

 

Categories
Forex Risk Management

Best Trading Position Part 3 – Risk in Parallel Trades

If you are reading this article, you must be serious about trading. Did you know that curiosity and eagerness to learn are the two crucial components of being a successful trader in the long term? Since this is our part three discussion on the best trading position, we are continuing our journey of discovery, listing […]

If you are reading this article, you must be serious about trading. Did you know that curiosity and eagerness to learn are the two crucial components of being a successful trader in the long term? Since this is our part three discussion on the best trading position, we are continuing our journey of discovery, listing […]

If you are reading this article, you must be serious about trading. Did you know that curiosity and eagerness to learn are the two crucial components of being a successful trader in the long term? Since this is our part three discussion on the best trading position, we are continuing our journey of discovery, listing proven ways to achieve sustainable success. Now, of course, there can be many different approaches to trading, but here you can learn what actually works. If you happen to be seeing this title for the first time, make sure that you go back and read the story from the beginning, covering parts one and two as well, along with related exercises. 

Last time we talked about effective ways to protect your trades, deepening the story about the risk and introducing the topic of stop losses. What we did not talk about in the previous article is that traders often wonder about exiting trades, fearing that they might miss that one opportunity to preserve their assets. However, you will find that with the right system in place, you should always be notified before a particular trend or favorable period ends, so the price should not even hit your stop loss.

If the price ends up violently moving in a different direction from what you would want to, you still know that you would never lose more than 2% of your account if you set everything up the way we discussed earlier in this series. That is what the ATR indicator we previously talked about is about, helping you manage and adjust to volatile markets regardless of the circumstances. Now, besides general risk and exiting trades, there is another key question to ponder about if you really want to protect your assets.

How many individual trades can I have open at 2%?

When traders read about the 2% instruction, they often fall for the trap of overleveraging, which tends to lead to really bad consequences. To understand where most traders fail, imagine that you entered three trades involving the following currencies: the EUR/AUD long, AUD/USD short, and AUD/CAD short. You assume that by opening three trades at 2% each, you are doing the right thing. Unfortunately, your thinking would be faulty here and you would add more risk instead of controlling it properly. Since there are three trades involving one currency (AUD), you now have a 6% risk in one asset. Therefore, please note down the following rule in your notebook: You can have as many trades running at the same time as you please, but you must never have more than one trade at 2% risk going long or short with the same currency.

What should I do if I am getting several signals for one currency?

There are a few solutions that you can always use in trading if you find yourself in a similar situation. For example, you can choose only one trade to enter. You can either make this choice freely or, if you need reassurance, compare the other two currencies in the pair and measure them against other currencies. So, if you are weighing between the AUD/USD and the AUD/CAD, compare the USD basket and the CAD basket to see which seems to be a better option. 

Aside from this approach, you can also opt for entering both trades but at 1% risk each. This is not only a wise way to control the risk when you have multiple trades open at the same time but also a form of a hedge, as you have one currency against two different ones.

What should I do when I almost get another signal involving the same currency?

First of all, you do not have to necessarily ignore all signals of this type. If you happen to get one signal for a particular pair, followed by something that may turn out to be a signal soon, you can always choose to play smart – enter one trade at 1% and wait to see what will happen with the other pair the following day. With such “almost signals,” it is always wise to give yourself space to gather more facts before you make any decisions.

Should I always enter trades at 1% risk only?

No, by no means should you enter all trades at reduced risk. Overleveraging is as detrimental to your account and development as is being timid. This mindset will not get you far, so make sure that you avoid seeing this as a form of protection because it is will hinder your growth, both in terms of your trading skills and your finances.

Regardless of your market of choice, you must always put your risk under control no matter how many trades you decide to enter. Greed can be a funny thing, especially when we don’t know what situations trigger our hunger for more. To have control over your trades, you must consciously choose to follow a specific rule and do so in a disciplined manner. And, on this note, we are going to end today’s lesson, leaving you with the task of trying out these methods with your demo account as soon as possible.

As we promised, we are offering you the right solution to the problem given in the last article of this series:

RISK = TOTAL ACCOUNT x 2% = 50,263 USD x 2% (0,02) = 1,005.25 ≈ 1,005

ATR = 86

STOP LOSS = ATR x 1.5 = 86 x 1.5 = 129

PIP VALUE = RISK ÷ STOP LOSS = 7.79 ≈ 7.8

Upon the completion of this task, we know that one pip should equal the previously calculated amount, so we can estimate that the unit value is going to be 78,000 (usually 0.78 lots) for the EUR/USD currency pair. 

P.S. Practice note-taking whenever you test a new method or approach in trading and watch for Part IV to follow.

Good luck!

Categories
Forex Basics

Insider Tips & Tricks of the Forex Market

By making the decision to trade in the Fórex currency market, the future John Rockefeller stumbles upon several concepts and definitions that can put him in trouble, as well as new information that will take a lot of time and effort. To shorten the learning path and help beginners make the right choice, I have […]

By making the decision to trade in the Fórex currency market, the future John Rockefeller stumbles upon several concepts and definitions that can put him in trouble, as well as new information that will take a lot of time and effort. To shorten the learning path and help beginners make the right choice, I have […]

By making the decision to trade in the Fórex currency market, the future John Rockefeller stumbles upon several concepts and definitions that can put him in trouble, as well as new information that will take a lot of time and effort. To shorten the learning path and help beginners make the right choice, I have created this brief instruction on the main features and definitions. Success will largely depend on what the first step will be, the important thing is to do it in the right direction.

After selecting the trading account, the next required step is to choose the size of the «leverage», which can be from 1 to 500. Leverage will largely depend on the style of the trader’s trade. Therefore, I recommend you not to be in a hurry and think it over.

What is the Leverage?

Brokers offer their clients various types of «leverage» from 1 to 500. But before you select it, let’s clarify exactly what leverage is. I will try to convey everything to you with simple terminology. Leverage is funds that the company lends to the merchant to finance its operations in the Fórex market in automatic mode, without unnecessary paperwork and delays. The trader can choose the size of the «leverage», where the level of 1 (1:1) will mean the lack of borrowed funds in the account and the level of 500 (1:500), multiplication coefficient of the investor’s own capital.

Example. The merchant has an account with $1000 and using 1:1 leverage will be able to trade in the market only with its own funds. However, using a leverage of 1:500 you will be able to open a $500,000 transaction.

But, we must always be cautious because the more money you have, the greater the responsibility. Using maximum leverage means a slight fluctuation of quotes against your transaction that is able to turn your own funds to zero. Experienced traders typically choose leverage between 1:30 and 1:200. The standard leverage is 1:100 and is the most popular because it makes it easier to calculate the sum of own funds needed for benefits when opening positions. Therefore, if you do not have preferences, I recommend applying this coefficient.

You have already chosen the type of account and the size of the «leverage», but with what tools will you carry out foreign exchange buying and selling operations? When data transmission technologies did not yet exist, commercial operations were conducted by telephone and previously by telegraph. But now we have internet and commercial platforms of different types, including mobile devices and apps with access to a personal Area.

Which Terminal to Choose?

About tastes, there is nothing written and much depends on the preferences of each one. However, I would like to highlight certain peculiarities of the use of commercial platforms.

The trading platform in the Customer Area usually has a set of basic functions that allow you to open and close transactions, monitor the trading account, as well as necessary technical analysis tools to determine the future direction of currencies. It is ideal for beginners who just started the road to financial Olympus. However, you should not expect anything extraordinary from this platform. At the same time, your great advantage would be the ability to operate directly from the Personal Area without the need to install special applications.

Mobile platforms based on iOS and Android suit all those who lead an active life and do not have permanent access to a fixed computer. The terminals are equipped with everything necessary for trade and have a standard set of indicators and technical analysis tools. The big disadvantage of these terminals is the limited physical size of mobile devices, which does not allow you to make a complete analysis of the situation in the market. And this often leads to bad decisions.

Commercial Platforms: MT4 and MT5 or its Online Version?

If you’ve finally thought that the decision to conquer the world of trading and make a successful profit, the MT4 terminal is all you need. Some believe that it is the right instrument for analysis and trade. A huge amount of custom and integrated indicators for the analysis of quotes, the possibility to test your own commercial systems, a simple programming language in which you can sort or write the algorithm, make it stand out as a leading terminal in the Fórex market. A user-friendly interface in different languages that is able to satisfy even the most demanding trader. The MT4 terminal has passed the test of time, it is simple and accurate like a Swiss watch. MT4 is what real professionals choose.

The MT5 terminal received the best from its “big brother”, in this platform you can trade not only in the Fórex market but also open operations with other assets, including trading stocks and futures. The terminal has timeframes called “timeframes” with more advanced features and other advantages. However, the biggest disadvantage of the MT5 terminal is the limited functionality of the custom signs created for its “big brother”.

When you have already chosen the platform on which you will operate, it is time to know some concepts and terms of Fórex, at least to feel like a fish in the water and show off your knowledge to others; Merchants communicate in their own language and unknowingly will not feel comfortable in their “gatherings”.

Commercial Platforms and their Definition

The quotes of the currency pair in the Fórex market: the price of one currency is determined in relation to another currency and is written as a decimal fraction. The quotation, where the currency quoted in the pair is the numerator and the base currency is the denominator, is called “direct”, for example, the EUR/USD pair shows what is the amount of US dollars required to buy a euro.

Another way of representing the exchange rate is the reverse quotation, the exchange rate of the USD/RUB pair (the Russian rouble is determined against the US dollar). Another example of the reverse quote is also the exchange rate of the Japanese yen written as USD/JPY.

There are other types of cross-currency exchange, which do not include the US dollar. The most popular among them are the pairs of EUR/JPY and GBP/JPY, but I do not recommend newbies to start trading with cross exchange rates until they become familiar with the market for major currency pairs.

What is a lot? It is the size of an open position. In the Fórex market, the standard size of a commercial lot is the sum of 100,000 (one hundred thousand dollars, euros, pounds). When opening trades at this value and with the leverage of 100:1 the trader will need a loan of 1000 units of the quoted currency. The usual trading conditions allow you to open transactions of size from 0.01 lots, which with a leverage of 100:1 will be equal to 1000 units and will require loans of only 10 units of the quoted currency.

For example, if we open a position with a volume of 0.01 lots in the EUR/USD currency pair, this position is equal to 1000 euros and will require a deposit of just 10 euros. If we open a transaction with a volume of 0.1 lots in the same pair, this transaction is equal to 100 euros, which is obviously not much. I have given some examples for the trading account in Euros. For accounts in other currencies, it is necessary to convert these values.

What is Pip (Dot)?

In Fórex a PIP is the fifth decimal of a quote. In other words, for the currency pair EUR/USD, which is now quoted at 1.23456, the fifth decimal in the quotation (6) is the pip (percentage point).

What is a swap? It is an interest payment for the move of the open position for the next day. The trader can trade for the same day as much as he wants, but when he decides to move the open position for the next day, he is charged a swap created by the difference between the interest rates in the currency pair, which is due to the use of leveraged funds and a currency other than the nominal value of the account.

Attention: very important! What you have to learn from memory is that in most cases swaps are very harmful.

Swaps can be not only negative but also positive, that is, they can yield profits for traders. The bad news is that most swaps have negative values, another bad news is that the payment for the current move of the open position and for the weekend is charged on the night of Wednesday to Thursday being the triple charge.

Traders, especially beginners, often underestimate swaps by opening their positions. If the trade remains open for an extended period of time, swap hedging can lead to a significant loss of funds. The size of the swap is usually expressed in ticks, and its value can be known in the contract specification.

Thus, for example, on April 30, 2020, the size of the swap in the sale of the pair EUR/USD was -0.483, which means that in the open position with a volume of 1 lot the trader will lose $0.483 each day. However, when buying 1 lot of the same currency pair the size of the swap was already -4.7495 ticks, implying a daily loss of $4.7495. Thus, to keep the position open during the month, the trader’s losses would amount to $142,485, paid for the valued position of 100,000 euros. Swaps are charged at 00:00 according to terminal time. The swap is always charged in the currency that is the denominator (the base currency) in the quotation.

What is the Spread?

A spread is the difference between the purchase price and the selling price of the currency pair, that is, between supply and demand, The size of the spread depends on current market conditions and can vary from 0 to a few dozen points. The more people want to buy and sell the currency pair, the smaller the spread size. You can also find fixed spread quotes set before the currency pair specification.

What is Long and Short in trading? “Long” (long) is a buying position, “go long” means to buy. “Short” (short) is a currency or other asset selling position, “short” involves selling. The platforms came to Fórex from the stock market, where stock prices grow slowly and/or fall sharply. In the Spanish language too, the same terms, “long” and “short”, which mean purchase and sale, are often used.

What is Stop-Loss and Take-Profit?

Stop-loss is a pending order placed by the trader to stop losses automatically. They often call it simply “loss”. “Cutting losses” means closing lost positions. Take-profit is a pending order that the trader places to set the profits. The expression “take profit” means to set the profits.

Margin call (margin call) is one of the most feared concepts by traders. The Margin call is a letter or other signal that the trader receives from the runner when it is necessary to deposit his account. This means that the merchant has lost his funds and is proposed to close the open position or deposit additional funds in his account.

I really wish you didn’t have to resort to this legendary phenomenon. Of course, these are not all concepts and terms of the stock market. He’s still not familiar with the rest, but it’s enough to get him started.

Categories
Forex Elliott Wave Forex Market Analysis

Will 1.24 be the Next EURUSD Yearly High?

The EURUSD pair continues extending its gains after surpass its psychological resistance of $1.22 for the first time since late April 2018. The common currency gained over 9.20% (YTD), encouraged by the US Dollar weakness.

The EURUSD pair continues extending its gains after surpass its psychological resistance of $1.22 for the first time since late April 2018. The common currency gained over 9.20% (YTD), encouraged by the US Dollar weakness.

The EURUSD pair continues extending its gains after surpass its psychological resistance of $1.22 for the first time since late April 2018. The common currency gained over 9.20% (YTD), encouraged by the US Dollar weakness.

Technical Overview

The following daily chart illustrates the long-term market participants’ sentiment unfolded within the 52-week high and low range. The figure shows the progression starting from 1.06359, which corresponds to the lowest level of the year. 

The long-term primary trend identified with the trend-line in blue reveals that bull traders remain the market control since last March 23rd when the price found and confirmed the bottom at 1.06359 after the massive sell-off occurred last mid-February. Moreover, both the secondary trend (green trend-line) and the minor trend (black trend-line) show the bullish acceleration that carries the cross from November 04th when the EURUSD found fresh buyers expecting further upsides. 

On the other hand, although the trend looks mostly bullish, the EMA(60) to close index is moving in its overbought zone; thus, we should be prepared fr the upward movement in progress to end soon. Under this context, the main bias for bulls should change from buy to hold. Also, Bearish traders should expect confirmation signals such as a significative breakdown before placing their short positions.

Technical Overview

The mid-term Elliott wave view of the EURUSD pair exposed in the next 12-hour timeframe chart reveals the price action is reaching its second target level of $1.22575 proposed in our previous analysis. Also, the chart illustrates its progress in an incomplete wave 5 of Minor degree labeled in green.

The lesser degree structure observed in the fifth wave in green shows the progression of the wave ((iii)) of Minute degree labeled in black, which simultaneously appears advancing in its internal fifth wave of Minuette degree identified in blue. The Elliott Wave textbook suggests that, currently, the common currency moves in an extended wave. In this context, once the pair completes its rally, it should start to consolidate in its wave ((iv)) in black. This corrective formation could find support in the demand zone between 1.21061 and 1.20586, which could bring the possibility to join the long-term bullish trend. The potential target for wave 5 in green is $1.2405.

In summary, the EURUSD pair moves in its third wave of Minute degree, which should complete its rally in the coming trading sessions. The next path corresponding to wave ((iv)) in black could drag the price until the demand zone between 1.21061 and 1.20586, where the common currency could start a new rally with a potential target at 1.2405. Finally, the invalidation level of the bullish scenario is $1.19201.

Categories
Forex Market

If You Read Nothing Else Today, Read This Report on the Tobin Tax

The economic crises that have shaken the world economy in recent years have had their origin in the explosion of the famous financial bubbles. The consequences of these economic crises have had a negative impact on the lives of millions of people. This negative impact has served as an argument for advocates of regulation and interventionism to promote policies or regulations that regulate financial markets.

The economic crises that have shaken the world economy in recent years have had their origin in the explosion of the famous financial bubbles. The consequences of these economic crises have had a negative impact on the lives of millions of people. This negative impact has served as an argument for advocates of regulation and interventionism to promote policies or regulations that regulate financial markets.

The economic crises that have shaken the world economy in recent years have had their origin in the explosion of the famous financial bubbles. The consequences of these economic crises have had a negative impact on the lives of millions of people. This negative impact has served as an argument for advocates of regulation and interventionism to promote policies or regulations that regulate financial markets.

That’s why in recent years, you’ve probably heard about the Tobin Tax, but maybe you’re not entirely clear: what is the Tobin Tax? How does it affect? What consequences can it have on my trading? And on my investment? In this article, I will explain what this is all about.

First of all, let’s start with the name, why is it called the Tobin tax? The Tobin tax owes its name to James Tobin, an American Keynesian economist who believed in government intervention in the economy to achieve its stability. He became known, in the early 1970s, for suggesting taxing capital flows. And this proposal is what we now know as the Tobin Tax. End. No, there is more, we continue.

What is the Tobin Tax?

As I was saying, the Tobin tax proposed by James Tobin was to establish a tax rate (tax or collection) of 0.5% on foreign exchange buying and selling operations and thus try to curb speculation after the break-up of the Bretton Woods agreements and the subsequent completion of the Gold Standard.

The original idea of this tax was to raise money at the expense of speculators, pretending to give a social approach to its acceptance. Although in reality, it already sought to curb fluctuations or volatility in the foreign exchange market during the crisis of the 1970s, after abandoning the gold standard during the government of Richard Nixon.

The proposal also envisaged taxing the purchase or sale of shares at a rate of 0,1 % and derivative transactions at a rate of 0,01 %.

Historical Background on the Tobin Tax

The direct and immediate consequence of the application of the Tobin tax in the different countries where it has been implemented has been a drastic decrease in trading volumes and the migration of investors to other markets. Little joke.

With the implementation of the Tobin rate in countries like Sweden, there was a downward movement in the volume of trading of around 50%, in London an 85% drop in the bond market and 98% in the futures market.

In the case of France, investors chose to avoid investing in the shares of the French giants or, failing that, invested in derivative products that replicate the real price, but without being subject to the imposition of the Tobin tax. The volume of the bag rushed quickly and the revenue did not even reach half of what was expected.

The Evolution of the Tobin Tax

During the crisis of the 1990s, anti-globalization movements took up the idea of applying the Tobin tax to increase their social acceptance, renaming it the Robin Hood Tax, making it one of its main demands by using it as a means of earning income for the fight against poverty worldwide.

These mobilizations led to the creation of the Association for the Valuation of Transactions and for Assistance to Citizens (ATTAC) at the end of the 1990s, in order to establish the Tobin tax as a global transaction tax.

The financial crisis, which occurred a decade later, once again targeted the application of a tax that would impact on financial institutions the costs of the crisis, because many of them were rescued with public money.

As a result, the International Monetary Fund (IMF) produced a report in which it renames the Tobin tax as the Financial Transactions Tax (FTT) and extends its scope to the purchase and sale of shares and other financial instruments. However, the conclusion of this report was that the application of this tax was not desirable, for two main reasons:

  1. Institutions could pass on the cost to consumers or final customers.
  2. It had to be applied in a comprehensive manner or else mechanisms could be created to try to evade payment of the tax.

In 2011 the European Commission proposed to the member countries the implementation of an FTT, but it was rejected. Years later, a new Tobin tax was proposed, consisting of a rate between 0.1 % and 0.25 % for the purchase and sale of shares and derivatives of companies with a capitalisation of more than EUR 1 billion, in only 10 countries: Germany, France, Spain, Portugal, Italy, Greece, Belgium, Austria, Slovenia, and Slovakia. But the only ones that applied it unilaterally were: Belgium, Ireland, United Kingdom, France, Greece, and Italy

Tobin Tax in Spain

In the Spanish case, the coalition government of Spain recently approved the implementation of a Tobin rate of 0.2% to the purchase of Spanish shares with a market capitalization of more than one billion euros, that is, all the companies of the Ibex 35 and another important group of companies of the continuous market, among them: Repsol, Santander, Telefónica, CaixaBank, Bankia, Endesa, Enagas, Aperam, Almirall, Corporación Financiera Alba, BME, Ebro Foods, Fluidra, Faes Farma, Catalana Occidente, Gestamp, Logista, NH Hotels, Prosegur Cash, Prosegur, Rovi, Dia, Sacyr, Unicaja.

Each year the Spanish Executive, through the Ministry of Finance, will publish the list of companies that must pay this tax. The publication of this list gives investors the possibility to know in advance which transactions will be affected by this rate and which will not.

Although the regulations state that the tax must be paid or paid by the broker or financial intermediary, as you may be imagining, it is very likely that these will have an impact on the cost of the final customer. These rules exclude from tax capital increases, stock market outflows, derivatives, and debt issues, both public and private.

Due to the difficulty of monitoring all transactions held throughout a session, the application of this levy for intraday was ruled out. However, the levy is maintained for portfolio changes at the close of each session. This is because the calculation of positions at the end of each session is easier, as well as identifying the holders of each type of asset.

The main objective of applying this tax is that the financial institutions that received millions of dollars from the government during the banking crisis, return the favor to society. The Spanish Government’s goal is to raise €850 million annually. We all know it will be lower.

Criticism of the Tobin Tax

One of the main criticisms of the imposition of the Tobin tax is the difficulty of differentiating between speculative and non-speculative capital movements. Many call this tax a mistake that has nothing to do with the original idea proposed by James Tobin and others go further by calling it a populist measure.

Of course, the introduction of the Tobin tax is not to the liking of the financial institutions concerned, such as Bolsa y Mercados Españoles (BME). Those most affected by the measure, fear that again the volume of negotiations that have already shown signs of a continuous fall, I accentuated its decline.

The main players in the Spanish financial market question the effectiveness of the tax to achieve the annual collection target of 850 million euros.

Another criticism is based on the fact that for effective implementation of the Tobin tax, it should be applied in all countries globally, but it is very unlikely that the most important markets will agree with its implementation. This is because in an interconnected and global market, we can easily operate from a country where transactions are not subject to this tax.

How the Tobin Tax Impacts Investors

Although this tax has been sold as a tax on large investors, in practice this tax on financial transactions will mainly be levied on small investors. Normally, the tax criterion used is the location of the broker, that is, the tax would only affect the trader that operated a broker that was in Spain. This criterion has now changed and the financial intermediary will be responsible for settling the tax regardless of the residence of the person or entities involved in the transaction, that is, it does not matter the place of residence of the person who buys the shares or the place where they are traded.

If you’re a long-term investor with few trades, you may not even notice the impact. If you’re a more active investor and you rotate your portfolio on a weekly or monthly basis, you’ll notice it in your annual results.

Investors are likely to start looking at other foreign exchanges and stocks that are exempt from this tax. Although in reality, the great attention of the investor is usually in the U.S. and not in the IBEX 35. However, the application of this tax will make Spanish actions even less attractive if it is not applied in a consensual manner in the rest of the European Union. And yet as I tell you, there’s America.

With the application of the Tobin tax and adding the existing fees, if you invest 1000 euros in the exchange we must add to the current fees 2 euros corresponding to 0.2% of the 1000 euros invested, for a total in fees of 5, EUR 95 representing a 50 % increase in commissions.

According to figures and calculations by Inverco, the application of this tax to equity investment funds will reduce the profitability of these funds by around 7.4% in the next 25 years. In the case of pension plans, it is estimated that the yield will be reduced by 5.6% in 25 years.

In short, the four main consequences that we will probably see will be a drop in the volume of trade, an outflow of capital abroad, a reduction in total tax revenue, and an increase in the interest rate as a solution to make up the profitability of financial institutions.

Again, history will tell us how the Spanish economy will be affected by the application of this tax and who will pay for it in practice.

Alternatives to the Tobin Tax

If as a small investor you want to legally avoid paying the Tobin tax, here are two options:

Invest directly in shares with a capitalization of less than one billion euros. Most companies with a market capitalization of less than one billion euros are listed in the IBEX Small Cap, but you should keep in mind that due to the high volatility of these companies you must have good risk management. You can invest in derivative products exempt from this tax, such as Futures, Options, Warrants, CFDs.

Tobin Rate for Forex and Cryptocurrencies

If you are reading this very possibly because you are a trader, so if you are trading in currencies (Forex) or cryptocurrencies you should not worry. This measure will not affect you. Nor if you trade or invest as we have said in the American market, either through shares, indices, or other instruments outside Spain. Nor if you scalping or intraday operation. Remember that derivatives are not affected by this measure. With all this information we can say that if you are a trader surely this measure will not affect you. Nor if you are an investor who does not invest in IBEX.

Categories
Forex Basic Strategies

Price Action Forex Sniping Strategy: Review & Instructions

The Sniper’s trading strategy is recommended by dozens of bloggers and mentioned within informative resources. Even simple web pages (landing pages) are created for it. The strategy has at least five different versions. It represents a commercial system based on the analysis of the price of an asset without using indicators (Price Action) and the […]

The Sniper’s trading strategy is recommended by dozens of bloggers and mentioned within informative resources. Even simple web pages (landing pages) are created for it. The strategy has at least five different versions. It represents a commercial system based on the analysis of the price of an asset without using indicators (Price Action) and the […]

The Sniper’s trading strategy is recommended by dozens of bloggers and mentioned within informative resources. Even simple web pages (landing pages) are created for it. The strategy has at least five different versions. It represents a commercial system based on the analysis of the price of an asset without using indicators (Price Action) and the definition of local and global levels in different time intervals. The question is: Is it worth buying it and spending your time studying the system? The answer is found in this article.

Sniper Strategy: Everything New is Old?

Tell me, please, how do you evaluate the effectiveness of the indicators of technical analysis that almost at every step are criticized for delays, need for constant optimization, inability to react to force majeure, etc.? Even applying several oscillators on a chart, indicators are likely to give radically opposite signals. And if of the hundreds of existing indicators none are accurate, does it make sense to use them?

«. One of them is the commercial system of «Sniper», which is considered one of the most popular in the commercial sector of the years 2012-2018.

In this article you will learn:

  • What is Price Action technology and what are its strengths?
  • What does the commercial system of «Sniper» represent being one of the options of Price Action? Concept and rules of use.
  • The main tenets of the Sniper strategy, examples, and rules of placement of orders. Advantages and disadvantages of the strategy.
  • A brief analysis of the updated strategy of Sniper X.

Price Action is «price action». The founder of the analysis Charles Dow considered that price contains all the necessary information. Political, economic, and psychological factors are already considered in the action of the price (or movement of price). Everything is already included in the price, which means that you just have to analyze its “behavior”, and so here the technical indicators are impotent due to its lack of flexibility (rapid reaction to market changes).

Price Action’s theory of analysis considers the following moments:

-It is always said that the market is chaotic in the short term, therefore the method is effective in long-term trading in the daily interval.

-The theoretical basis is the formation of behavioral models that take into account the mood of the majority. Here more attention is paid to the psychology of traders who in most cases act in the same way.

-The system operates in the trend market where the trader is offered the possibility to follow the flow of the majority. No point in trading at long flat intervals including swaps

-Price Action instruments are patterns (shapes that are formed in a stable way), resistance, and support levels that have different construction variations (Fibonacci, round levels and etc.). Price Action’s comparative analysis and indicator analysis are described here:

Advantages of Price Action

It allows the combining analysis without indicators with any other commercial system. The patterns can serve as a confirmatory signal for the indicator strategy; through the levels, you can place pending orders. It also takes into account market psychology (collective group behaviour).

Advantages of trade with indicators:

-Gives a relatively precise signal to the opening of operations (the coincidence of several factors).

-Allows the forming of algorithmic commerce.

Disadvantages of Price Action:

-Subjective method of determining patterns and levels.

-It is almost impossible to automate trade, trade advisers are not operable.

Trade disadvantages with indicators:

-There are difficulties with defining the point of closure of operations

-There are problems with combining various commercial systems. For example, the application of several different indicators only increases the number of false signals.

A logical question arises: Will it be possible to apply this strategy to the Price Action system by using the pattern and level building indicators? Share your opinion in the comments.

Forex Sniper Strategy: Trade Principles, Their Advantages, and Disadvantages

Sniper’s trading system is based on the principle of Price Action technique. The idea of the strategy belongs to Pavel Dmitriev who proposed it almost 10 years ago. In the reviews, you can find the comments that it is just another elaborated version of such tactics as «Meat», «Meat-2, and «Alive System». Those interested in these systems can find more information about them and share them in the comments.

Curious fact.

When this strategy came to light, Pavel Dmitriev’s name was little known. But everything changed when dozens of groups were created on social networks, accounts on trading forums, where a massive discussion about tactics began. In the main phase, the cost of the strategy was $300-500. To attract beginners the runners-kitchens and «business coaches» proposed a course on strategy for free or with a big discount, which aroused more interest and caused disturbance. The course was really necessary. The classical trade of levels was so tangled that at first glance it was difficult to understand it. And, perhaps, the best question you can ask yourself would be, what is the reason you need a tactic where there are a multitude of differences in readings and you have to “kill” so long to learn the basics if there are a lot of much simpler technologies? The answer is simple: a well-organized marketing campaign.

Sniper’s tactic partially breaks Action Price’s thesis. It is designed for short intervals of 5 minutes intraday with a short range of earnings in a transaction, therefore to some extent, it can be scalped.

To cast a veil over the classical theory of technical analysis in this strategy, the author made the decision to elaborate his own terms:

-Banking level (BU) is the level at which the previous day’s daily sail is closed. The schedule is GMT (21.00 Moscow time).

-Levels obtained at the minimum and maximum price points of the previous trading day.

-Total impulse (TIU) levels are resistance and support levels that are formed at the upper intervals (М30 – Н4).

-Trends levels of rapid change (URST) are a candle with a long tail in the direction of the trend in a short interval (М5 – М15). In a word, a candle that evidences the breaking of key level and the beginning of reversion.

-Impulse levels (UI) are resistance and support levels that prevent flat in the М5 range.

-Insurance is the closing of a take-profit (profit taking) transaction of 50% equal to stop-loss.

Sniper principles with author terms:

-Trade takes place only in the course of the trend.

-The transaction opens only in short intervals. The main ones are M1 and M5.

-Entry points are searched at the closing ends of the previous trading day, therefore for analysis two graphs are used at once.

-To evaluate the entry points are used bank levels, levels of the end of the previous trading day, where large players perform the maximum amount of transactions.

-The Total Impulse Levels formed in the hour graph are used as a confirmation instrument.

A transaction is closed according to the «Insurance» rule (it is opened with two orders). After receiving winnings of a few points, 50% of the transaction is closed. The size of the winnings until partial closure is equal to stop-loss. If after the partial profit-taking the price turns and the transaction closes at the stop-loss, the trader will end up at the break-even point (breakeven). The target level of winnings is 30-50 points per day from 1-3 transactions.

Step 1. Classical technical analysis imposes a preliminary analysis of the high interval to define the direction of the trend and the area of a conglomeration of sellers /buyers. The author proposes to begin the determination of levels by taking as default the so-called Banking Level, which implies a shift of the schedule for 3 hours until the end of the day regarding 00.00 MSK (since the author is from Russia). According to him, the 21.00 level (MSK) is the critical point at which banking transactions are closed (in order to avoid swap). Since banks are the main market makers and liquidity providers, their transactions can mark a solid price level.

In the pages of an investment forum, I found the results of interesting research. According to her, commercial systems that operate in the intervals from Hi and above are not sensitive to GMT of brokers. In addition, the pattern of formation of the reversion pattern based on the closing price of the previous trading day had already been studied previously in the theory of technical analysis, so the author did not contribute anything new in the analysis:

The rationale of this step is questionable.

Step 2. The banking level is only a baseline while the main limiting levels serve as extremes of the previous trading day.

Here too we must add that there is another term of the strategy – Consolidation Zone. Before you close the trading day to a large part of transactions is closed to save on the swap, the Asian session begins which is characterized by relatively small transaction volumes. Because of the liquidity appears a night zone of consolidation that in reality is flat.

Step 3. Definition of UTI at the upper and UI intervals at the lower. With the impulse level, the author understands a certain range of the price range in a short interval, which is the horizontal movement zone of the price or an ordinary flat.

In the forums they are constantly discussing the definition of consolidation zones and UIs. Many simply do not see the difference between them, and you can understand them in some way. Please note that screenshots are just examples of how the author understands the strategy. The determination of all these zones is subjective!

With the trend level of fast price change, the author understands the classic pattern «pin bar» which represents a candle with a relatively long shadow with respect to other candles in the direction of the trend.

Principle of opening transactions. Sniper’s strategy proposes to take as a starting point the strong limiting levels of the previous trading day that are determined in the upper time intervals. After the extremes of the previous day projected for the next day have been determined on both sides, the consolidation and flat zones are defined in the short intervals, the local impulse levels within the daily extremes are determined.

Options for Opening Transactions

Trend opening. Each transaction is opened in the pin bar at the moment of breaking the impulse levels formed in the consolidation zones in the M1-M5 range in the direction of the daily channel boundaries. This example is in the screenshot above: as soon as the bar pin appears, a short-term transaction has to be opened.

Opening of counter-trend. The transactions are opened in setbacks from the banking or UTI levels, that is, in setbacks from the global daily limits or levels formed by the market makers.

As for the conditions of determining the actual break, there are plenty of options. According to one of the options, the actual break is a bar pin that exceeds the local range (UI) by 4 points. According to another option, a transaction can be opened if the recoil from the upper or lower limit has been more than 15 points (the flat range in the M1-M5 is usually less, therefore this recoil may show the break of the range).

Terms of the transaction closure. The transaction is closed with two orders. The first command closes in the take-profit, which is set from the opening point at the same distance as the stop-loss. In the case of the trend opening (when the local impulse levels of M1 are exceeded) the stop is placed at the level of the ends (shadows) of the range (10-20 points).

In the interval М1 a narrow range is formed (I do not take into account long intervals). The length of the stop (red line) is about 10 points. As soon as the lower limit of the range is broken, a short transaction is opened with two commands (yellow line). The take-profit is equal to the length of the stop (green line).

In the case of counter-trend opening of the transaction (if there is a setback from the UTIs in the long intervals). The exit from the market is similar, the only difference is that when establishing the take-profit it makes sense to orient in the potential flat formations in a short interval.

My observations are as follows:

-The strategy does not work during news publications, that is, at a time when the market is virtually unpredictable and chaotic.

-You must not open transactions within the impulse range.

-You should not trade multiple currency pairs at the same time. Focus on a currency pair.

It’s good to know the theory, but in practice, it’s not easy to monitor all these models without a trained eye. Therefore, I consider this strategy more useful for beginners than for professionals, who already operate successfully with patterns and levels.

It can be said that it is more a successful marketing product, wrapped in a «beautiful packaging» than a «grail». The creators of the system simply copied the classic concepts of technical analysis, combined them with the rules of risk management, and added new terms in the descriptive part (actually, it’s the alphabet of trading but with more complicated and intelligent terms). This gave beginners hope that a really good product would appear on the Fórex market. Then the digital distribution of the strategy with enthusiastic reviews was enough to turn it into a commercial success.

Advantages of Sniper Strategy

Sniper is an excellent simulator for demo accounts that will help you learn how to detect the emerging sailing figures, levels and etc., and follow the rules of risk management (ie, discipline).

This is where your advantages end.

I would not recommend targeting profit only by following the rules of this strategy. Rather, it makes sense to use some principles of the strategy and combine them with indicators.

Disadvantages of Sniper Strategy

This strategy is difficult to understand. The classical theory of trading with levels (it is more often applied as additional) here is so extremely confusing that, logically, it is very difficult to understand it even after having read it several times. Different online resources have their own interpretation of the strategy.

It is virtually impossible to automate the strategy. Manual trading is exceptionally accepted, and since no indicators are used in the strategy it is also not possible to test it in historical charts.

The effectiveness of the strategy grows only in the case of strict compliance with the rules of its operation. The initiative here is sanctioned. However, the same rules are so confusing that each is interpreted in its own way. Therefore, here much depends on the skills and intuition of the merchant.

During the analysis the determination of resistance and support levels, the flat area causes many discrepancies.

The commercial system of «Sniper» is the classic technical analysis with changed terms. They were repeatedly modified by the creators (there are at least 4 elaborated versions of the strategy), although they did not change them in a radical way since all those manipulations were meant to provoke the interest of beginners and maintain the marketing background created. One of these examples is Sniper X.

Sniper Х: Even the Best is Perfectible

It may seem that one can still «extract more» from classical technical analyses, which can also be interpreted in any way. But the creators are not yet ready to sleep on their laurels. In 2018 on the Internet appeared another version called “Sniper X”, which has the following differences:

Medium- and short-term trade tactics were added (the previous version of the trading system had only short-term opening of transactions).

A new algorithm was developed to work with correctional movement to determine the limits of correction zones.

There is possibility to increase the volume of open positions in a strong trend (in the terminology of the creators, it is the entry point of cascade).

Instead of the NI and NTI new term was implemented – the local and global level of imbalance, and the algorithm of its creation was also revised.

The creators assure that in the system is solved the problem of detection of local micro-trends (estimation of price direction in M1-M5). Guidelines for possible price behaviour were also developed when approaching resistance and support levels. Personally, I have not found out if they correspond to reality and if they are about to become the «Grail» or not. Those who have more patience to study them better, please leave comments on their results. I thank you in advance!

Conclusion

Do you propose to buy the Sniper strategy as a unique product? Don’t let them fool you! All of its versions can be found freely accessible and believe me, however well the Sniper system is camouflaged, it’s just one of the versions of the Price Action strategy, where no one can guarantee a successful outcome. Be aware and don’t be in a rush to buy what professional marketers are insistently and convincingly trying to sell you.

Categories
Forex Basic Strategies

Simple Yet Effective Position Trading Strategy

If we look at it a little bit, in recent years, we have seen great trends that were noticed, first, in the JPY in the short term and later, in the recent long-term trend of the USD. Usually, when the market is in these conditions, many Forex traders begin to wonder why they are not […]

If we look at it a little bit, in recent years, we have seen great trends that were noticed, first, in the JPY in the short term and later, in the recent long-term trend of the USD. Usually, when the market is in these conditions, many Forex traders begin to wonder why they are not […]

If we look at it a little bit, in recent years, we have seen great trends that were noticed, first, in the JPY in the short term and later, in the recent long-term trend of the USD. Usually, when the market is in these conditions, many Forex traders begin to wonder why they are not getting the kind of trades where the winners last weeks or even months, gathering thousands of pips of profits in the process. This type of long-term trading is known as position trading or position trading.

Traders accustomed to short-term trading tend to find this style of trading as a major challenge they could hardly meet. It’s a shame that this happens because reality is usually the easiest and most profitable type of trading that retail Forex traders can find. Next in this article, I will describe a trading strategy with fairly simple and easy-to-follow rules, and that uses only a few indicators to try to catch and maintain the longer and stronger forex market trends.

Step 1. Choose the currencies to be traded.

To do this, you need to find out which currencies have been winning in recent months and which have been falling. A good time frame to use for this measurement is about 3 months and if it shows the same direction as the longer-term trend, as for example in the framework of 6 months, that would be a very good sign. A simple way to do this is to set a 12-period RSI and scan weekly charts of the 28 most important currency pairs each weekend. By noticing which currencies are above or below 50 in front of all or almost all of your currency pairs and crosses, you can have an approximation of which pairs should be traded during the following week. The idea, basically, is “buy what’s going up and sell what’s going down”. It’s against intuition, but it works in most cases.

Step 2. Decide that yes and no.

You should now have a maximum of 1-4 currency pairs to trade. You do not need to trade excess pairs.

Step 3. Configure the graphics with the time frames D1, H4, H1, M30, M15, M5, and M1. Set an RSI of 10 periods, the EMA of 5 periods, and the SMA of 10 periods.

You are looking to place operations in the direction of the trend when these indicators align in the same direction as the trend in ALL TIME FRAMES during active market hours. That means having the RSI above the level of 50 for long operations or below that level for short operations. As for moving socks, for most pairs, this would be 8 a.m. to 5 p.m., London time. If both coins are from North America, I could extend this to 5 pm, New York time. If both currencies are from Asia, you can also look for operations during the Tokyo session.

Step 4. Decide what percentage of your account you will risk in each transaction.

Usually, the best thing is, risk less than 1% for each operation. Calculate the amount of money you are going to risk and divide it by the Average True Range (ATR) of the last twenty days of the pair you are going to negotiate. This is the amount you should risk per pip. Keep it that way.

Step 5. Enter the transaction according to point 3) and place a stop loss in the ATR of 20 Days from your ticket price.

Now you should be patient, watch, and wait.

Step 6. If the trade moves quickly against you by about 40 pips and shows no signs of turning around, run the output manually.

If this does not happen, wait a couple of hours and check again at the end of the trading day. If the trade is not showing a positive candle pattern in the desired direction, then exit the trade manually.

Step 7. If the trade is in your favor at the end of the day, then watch and wait for you to go back to your point of entry.

If you don’t bounce back within a few hours of reaching your entry point, quit trading manually.

Step 8. This should continue until your operation reaches the profit level twice that of your stop loss.

At that point, move the stop to break even (also known as deadlock, balance, or break-even).

Step 9. As the trade moves more in your favor, move the stop up under the support or resistance, as appropriate for the direction of your operation.

It will eventually be stopped, but in a good trend, the operation should provide thousands or at least hundreds of pips.

You can be a Positions Trader if:

-You are an independent thinker.

-You are able to ignore popular opinion and make your own educated conclusions as to where the market is headed.

-You have a great understanding of the fundamentals and have good foresight on how they affect your currency pair in the long run.

-You have thick skin and can resist any recoil you face.

-You have the capital to be able to support several hundred pips if the market turns against you.

-You don’t mind waiting for your big reward. Long-term Forex trading can give you from several hundred to several thousand pips. If you are excited to move to 50 pips and already want to leave the trade, consider moving to a short-term trade style.

-You’re extremely patient and calm.

You may NOT be a Position Trader if:

-You will easily be influenced by popular opinions about the markets.

-You don’t have enough knowledge of how they can affect the fundamentals markets in the long run.

-Don’t wait. Even if you are somewhat patient, this may still not be the negotiating style for you. Don’t wait You have to be the ultimate zen master when it comes to this kind of patience!

-You don’t have enough seed money.

-You do not like it when the market goes against you.

-You like to see your results quickly. It may not bother you to wait a few days, but months or even years is too long for you to wait.

Obviously, you should customize this strategy a little according to your preferences. However, whatever you do and whatever you decide, assume you will have a large share of losing operations and spend long periods of time where there will be no operations – which is boring – or where each operation is a loser or ends in a stalemate. There will be moments of frustration and difficult periods. However, you will earn money in the long run, if you follow this type of trading strategy of the forex markets, as you will follow the eternal principles of solid and successful trading.

Finally, to close with a twist, if you really want to develop a trading strategy to make sure your trades are winning, when trading Forex, don’t forget the following:

– Cut soon your operations with losses

– Let your operations run with profit

– Never risk too much in a single operation.

– Set the size of the positions according to the volatility of the market where you are trading.

– Work with the trend.

– Do not worry about taking the first segment of a trend or its duration. What is sufficiently safe and profitable is the middle part.

Categories
Forex Fundamental Analysis

USD/CHF Global Macro Analysis – Part 3

USD/CHF Exogenous Analysis

USD/CHF Exogenous Analysis

USD/CHF Exogenous Analysis

The exogenous analysis covers fundamental indicators that can compare the performance of the US and Swiss economies. Note that this comparison between the two economies is what drives the exchange rate of USD/CHF. They are:

  • US and Swiss interest rate differential
  • The difference in the GDP growth in the US and Switzerland
  • Balance of trade differential

Balance of trade differential

For each country, the balance of trade shows the demand for the domestic currency in the international market. When a country has a surplus of the balance of trade, it means that its currency is in high demand in international trade. The rationale behind this is that when a country exports more than it imports, other countries will need more of that country’s currency to participate in international trade.

The balance of trade differential measures the difference between the balance of trade in Switzerland and the US. If the Swiss balance of trade is higher than that of the US, the USD/CHF pair will be bearish.

In October 2020, Switzerland had a trade surplus of CHF 2.9 billion while the US a deficit of $63.1 billion. Throughout 2020, the US trade deficit has been widening from $37 billion in January, while the Swiss trade surplus has increased from CHF 2.8 billion.

Based on the correlation with the USD/CHF pair, we assign the balance of trade differential a score of -5.

US and Switzerland interest rate differential

Typically, the country with a higher interest rate attracts more foreign capital seeking superior returns. A higher interest rate increases the domestic currency demand, which makes it appreciate in the forex market. More so, forex traders tend to be bullish on the currency with the higher interest rate.

The interest rate by The Swiss National Bank is -0.75% since January 2015. In the US, the federal funds rate is 0.25%. That makes the interest rate differential 1% for the USD/CHF pair.

Based on the correlation analysis with the USD/CHF pair, we assign the interest rate differential a score of 3.

The difference in the GDP growth in the US and Switzerland

A country’s GDP is primarily driven by domestic consumption. Although the GDP size differs in absolute terms, we can compare the US and Swiss GDP in terms of growth rate. An expanding economy is accompanied by appreciating currency. Therefore, if the US growth rate is higher than Switzerland’s, we can expect a bullish trend for the USD/CHF pair.

In Q3 of 2020, the Swiss economy expanded by 7.2% and the US by 33.1%. It means that the US economy is recovering faster than that of Switzerland. We, therefore, assign a score of 2. This implies that the GDP growth rate differential between the US and Switzerland has led to a bullish USD/CHF.

Conclusion

The USD/CHF pair has an exogenous score of -2. This implies that we can expect the pair to continue with its current bearish trend in the near future.

Note that the USD/CHF pair has breached the lower Bollinger band. Therefore, we can expect the downtrend to continue for a while, which supports our fundamental analysis. All the best.

Categories
Forex Fundamental Analysis

USD/CHF Global Macro Analysis – Part 1 & 2

Introduction

Introduction

Introduction

When conducting the global macroeconomic analysis, endogenous and exogenous factors are considered. These analyses can be used to explain the price dynamic of a currency pair. In this case, we will analyze the endogenous factors that drive the economy in the US and Switzerland. We will also analyze the exogenous factors that primarily drives the price of the USD/CHF pair.

Ranking Scale

A sliding scale from -10 to +10 will be sued to ranks the impact of the individual endogenous and exogenous factors on the currency. A negative ranking for the endogenous factors means that they had a depreciating impact on the individual currencies, while a positive ranking means they resulted in currency appreciating.

Similarly, a negative ranking for the exogenous factors implies that they’ve had a bearish impact on the currency pair, while a positive ranking means they’ve had a bullish impact.

Summary of USD Endogenous Analysis

From the above table, we can see a clear deflationary effect on the USD currency and implies that it has depreciated in its value since the beginning of the year. You can find the complete USD Endogenous Analysis here.

Summary of CHF Endogenous Analysis

Overall, the endogenous analysis of CHF has a score of -5. That implies that the CHF is expected to have depreciated marginally in 2020.

  • Switzerland Inflation Rate

The rate of inflation is used to measure the changes in the price of consumer goods in Switzerland over a specified period – usually monthly or yearly. Here are the components of the CPI in Switzerland: Housing and energy, which accounts for 25% of the total CPI weight; 16% for healthcare; Transport accounts for 11%; Food and non-alcoholic drinks 11%; hotel and restaurant services 8%; 4% for Household goods and services; and clothing 3%. Education, communication services, and alcoholic beverages cumulatively account for 7% of the total CPI weight.

In November 2020, the YoY CPI in Switzerland dropped by 0.7%, while the MoM CPI dropped by 0.2%. The fall in prices of the hotel and holiday packages contributed to the drop in the inflation rate. The Switzerland CPI is at the lowest point since January 2018.

Based on our correlation analysis, we assign the Switzerland rate of inflation a score of -3.

  • Switzerland Unemployment Rate

This economic indicator shows the percentage of the total Swiss labor force that is actively seeking a job. Note that not all unemployed portion of the working-age population are seeking employment; so, they are not captured by the unemployment rate.

The unemployment rate can also be used to show the rate at which the economy is adding or cutting job opportunities. This can be used to show economic growth.

In October 2020, the Swiss unemployment rate was 3.2%, down from highs of 3.4% in May, while the employment rate in Q3 2020 was 79.7%. Although it is higher than the 79.1% registered in Q2, it is still significantly lower than the pre-pandemic rate of 80.4%.

The Swiss unemployment rate has a high correlation with the GDP, but since it only increased marginally, we assign it a score of -2.

  • Switzerland Manufacturing PMI

The Swiss procure.ch Manufacturing Purchasing Managers’ Index surveys the executives in the manufacturing sector. The index is a measure of the Swiss manufacturing sector’s performance and serves as a leading indicator for business expectations.

The Manufacturing PMI is an aggregate of five components: new orders, which a weight of  30%, output 25%, employment 20%, supplies 15%, and inventory 10%. The manufacturing sector is expected to expand when the index is above 50 and contract when the index is below 50.

In November 2020, the Swiss procure.ch Manufacturing PMI increased to 55.2, the highest since December 2018. Based on the correlation analysis with the GDP, we assign a score of 7 since it shows a robust expansion.

The Swiss services industry employs over 60% of the working population and accounts for 73% of Switzerland’s GDP. This makes the services PMI a crucial indicator of the overall economy. The Services PMI is obtained through a comprehensive survey of 300 purchasing managers in the services sector to evaluate the changes in business activities.

The survey covers areas such as customer new orders, purchasing, and sales prices, and changes in the employment level.

In November 2020, the Swiss services PMI dropped to 48 from 50.4 in October, primarily attributed to new orders’ contraction. Although it is almost double the 21.4 recorded in April, it is still lower than the 57.3 recorded in January 2020. We, therefore, assign it a score of -4.

  • Switzerland Consumer Confidence

In Switzerland, consumer confidence is used to evaluate households’ opinion on the overall economy and their financial position. Typically, consumer confidence is higher when there is high GDP growth, and the unemployment rate is low.

In the fourth quarter of 2020, the Swiss consumer confidence was -12.8, better than Q2 -39.3. Consumer confidence is used to show the likelihood of how much households will spend in the economy. Hence we assign it a score of -2.

  • Switzerland Government Gross Debt to GDP

The Swiss government debt is the totality of the government’s amount owed to both domestic and foreign lenders. This debt is expressed as a percentage of the GDP o help determine the indebtedness of the economy. Lenders also use this metric to determine if there is a possibility of default by the government. Typically, government debt that is less than 60% of the economy is considered ideal.

In 2019, Switzerland’s government gross debt to GDP was 41%, and it’s projected to hit 49% in 2020 due to increased government expenditure to curb the economic slowdown brought about by the coronavirus pandemic. However, the Swiss government’s gross debt to GDP has been steadily declining since 2004, averaging at around 37%. Based on our correlation analysis and the fact that it has marginally increased in 2020, we assign a score of -1.

Now we know that both USD and CHF have depreciated according to their respective endogenous indicators. Please check our next article to know if this pair is expected to be bullish or bearish in the near future according to their exogenous indicators. Cheers.

Categories
Forex Course

192. Criteria To Carry Trade The Forex Market and Risks Involved

Introduction

Introduction

Introduction

In the previous lesson, we discussed instances when a carry can work, and when it’s bound to fail. But, having this knowledge won’t be of much help if you do not know the best criteria for a currency carry trade and the risks involved.

Criteria to Carry Trade

There are two basic criteria to carry trade the Forex market profitably.

① The interest rate differential between two currency pairs needs to be high with no prospects of reducing in the near term.

② The currency pair that we choose has to be on a bullish trend in favor of the currency with the higher interest rate. The reason for this is to ensure you can remain bullish on the high yielding currency and profit from the interest rate differential for the longest possible time.

Let’s take the example of the AUD/JPY pair. Japan’s interest rate has remained at -0.1%, while in Australia was held at 0.25%. That means the interest rate differential between the AUD/JPY pair has been 0.35%. Therefore, if you were to borrow and sell the JPY to buy the AUD, you’d expect a pay-out of 0.35%. Note that this is the same as going long on the AUD/JPY pair.

In this scenario, going long on AUD/JPY from March 2020 to October 2020 would have earned you over 900 pips. At the same time, you’d be earning an interest rate differential of 0.35%.

Risks Involved In Carry Trading

So far, a carry trade sounds like a risk-free strategy. But, like any other investment, the carry trade has its fair amount of risks – especially when leverage is involved.

Remember, in the previous lesson, we mentioned two conditions for a carry trade to thrive. First, there had to be low volatility in the market. The reason for this is to ensure that your open position is not wiped out due to currency fluctuations before you reap the profits of interest rate differential. Note that using trailing stop orders can help mitigate the risk of price fluctuations in the forex market.

The second condition for a carry trade to thrive was the stable economic conditions that might encourage the hiking of interest rates. If the economic climate is full of uncertainties, like with the ongoing coronavirus pandemic, central banks are more likely to cut interest rates than hike them. Therefore, if extreme interest rate cuts occur while you are in a currency carry trade, it could result in losses. 

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Categories
Forex Market

Insane Volatility: Tips for Trading Forex In a Hyper-Active Market

Sometimes currency markets can become extraordinarily volatile. In fact, any market can, depending on what’s been going on. You can be on a good bullish trend, just so a headliner crosses the wires that turn things upside down, causing massive losses. In this article, I will look at the special challenges when it comes to […]

Sometimes currency markets can become extraordinarily volatile. In fact, any market can, depending on what’s been going on. You can be on a good bullish trend, just so a headliner crosses the wires that turn things upside down, causing massive losses. In this article, I will look at the special challenges when it comes to […]

Sometimes currency markets can become extraordinarily volatile. In fact, any market can, depending on what’s been going on. You can be on a good bullish trend, just so a headliner crosses the wires that turn things upside down, causing massive losses. In this article, I will look at the special challenges when it comes to trading in a volatile market.

First Things First: Managing Your Risk

The first thing you need to do is to pay attention to your risk. In that case, it should be the first thing to pay attention to in any business environment. Ultimately, if you do not manage your risk, you will come out of commercial bankruptcy and lose all your capital trading. That’s always gonna be the first thing that comes to mind when you put money into an investment.

If situations continue to become very volatile, then you are considering a situation where protecting your risk becomes even more important, and then you should consider the size of your trade. For me, one of the most effective ways I’ve found to protect capital trading in a volatile situation is to reduce position. In other words, if you normally trade with 0.5 lots, then you may want to trade with 0.25 lots because of the inherent risk in a market that can move very quickly.

Understand that risk managers will also force professional traders to reduce their position. In this sense, professional traders tend to trade with much less leverage than retail traders. It is not uncommon for a professional trader to use leverage 1:6 instead of the 1:200 that many retail traders will use. Part of this is because the trader who trades professionally has an account with a lot of balance, which sometimes has millions of dollars depending on the situation and/or the bank they are working for. When you earn 5%, it means much more in that account than in a 2000 USD trading account in a volatile market.

The Trend Becomes Even More Important

When trading in a volatile market, the general trend becomes much more important. While volatile markets usually indicate some change in trend, the reality is that the long-term trend tends to be what the market is generally set. With this situation, if you are trading in a volatile market, you can want to trade only in the direction of the longer-term trend, which means you should sit on your hands from time to time. I think at this point, it’s probably best to wait for the bigger money to come in and push in the right direction, in addition to keeping your trading position smaller, because of the potential for losses.

Usually, a lot of volatility comes into the hands of fear and possible occasional traders, but when you look at a Forex card, the vast majority of the time the trend is for years. There are times when things come and go drastically, but overall, I think most of these movements end up being value propositions for those who are willing to jump into the fire. That does not mean that it should do so vigorously, it only means that the long-term trend remains largely valid. However, it must have a “line in the sand” when it comes to the longer-term trend and recognizes that a breakdown below or above that line represents a change.

Once the long-term trend changes, the overall strategy changes when it comes to transactions, but this as a rule should be something based on monthly graphs. Knowing that this could cause a lot of short-term pain, the truth is that over time the long-term trend is reaffirmed most of the time.

Sometimes It’s Best to Stay Out of It

Unless there is some kind of important geopolitical or global event, the reality is that you can almost always find a pair for trading that is much less volatile. Ultimately, many traders marry a particular pair of currencies, without understanding that they all operate the same. In other words, if you are normally a trader of the EUR/USD pair, then perhaps you should look in another market if you have become too volatile. Exactly what prevents you from changing the pair and starting to use the EUR/CHF pair? Just stay away from the too volatile currency pair, because it’s not worth it. At the end of the day, he’s simply trying to make a profit, not become a genius in a particular currency.

Higher Frames of Time

Another thing you can do when things get a little volatile is simply going to higher time frames, which will naturally make you reduce the size of your position. For example, you can usually change the graph per hour and risk something like an average of 50 pips. However, if you are forced to exchange the daily graph, you probably have to risk 100 pips on average. Despite everything, you still want to risk the same amount of money for each trade, so it is advisable to start with a smaller position for the market to work its magic over time. This will force you to focus on a more general overview and pay attention to the overall market attitude rather than the everyday noise.

Turn Off the News

You should be careful when paying too much attention to headlines, as they don’t matter. What matters is where prices go, not what a politician says in Brussels, says Donald Trump, or no one else. The markets are true, and the truth can be found in the prices. Beyond that, when things become too volatile, the analysis is much more likely to be deficient, as even the best analysis of the world can be of very little use after a few hours. You should look at the big picture in these situations and just relax.

Categories
Forex Basic Strategies

The Swap: 20% Yearly Gain Forex Strategy

Recently I came across a seemingly interesting trade strategy aimed at trading futures, but theoretically applicable to Forex trading. The author of this interesting strategy claims that, even with completely objective and direct rules, a “trend tracking” strategy simple and complete operated through a highly diversified group of liquid futures markets has produced an annual […]

Recently I came across a seemingly interesting trade strategy aimed at trading futures, but theoretically applicable to Forex trading. The author of this interesting strategy claims that, even with completely objective and direct rules, a “trend tracking” strategy simple and complete operated through a highly diversified group of liquid futures markets has produced an annual […]

Recently I came across a seemingly interesting trade strategy aimed at trading futures, but theoretically applicable to Forex trading. The author of this interesting strategy claims that, even with completely objective and direct rules, a “trend tracking” strategy simple and complete operated through a highly diversified group of liquid futures markets has produced an annual return of approximately 20% per year over the past two decades, significantly outperforming global exchanges and matching the type of returns produced by hedge funds of professionally managed futures following the trend.

As a professional in the world of Forex, I thoroughly researched that strategy to see what kind of margin it could have historically provided to Forex retail traders. The results are really encouraging because they show perfectly why it can be so complicated for individual traders to exploit margins that exist within markets.

For the sake of full disclosure I will show the rules of the entire strategy:

Risk: The 100-day ATR (Average True Range, or real average range) should be equal to 1 risk unit.

Entrance: long at the end of the day that closes above the highest closing of the last 50 days; bass player at the end of the day that closes below the lowest closing of the last 50 days.

Input Filter: long inputs only when the 50-day SMA (Simple Moving Average or Simple Moving Average) is above the 100-day SMA; short inputs only when the 50-day SMA is below the 100-day SMA.

Departure: You should use a 3-time 100-day ATR trailing stop from the highest price since the operation was opened (for lengths) or the lowest price opened since the operation was opened (for shorts). The final stop must be calculated consistently as a “chandelier stop” and should be a soft stop: an exit is only done when a daily lock is in or beyond the stop loss.

This strategy has been tested against the most liquid and popular Forex spot pair: EUR/USD, for a long and recent period of time (from September 2001 to the end of 2013), using publicly available EUR/USD cash data with daily opening and closing at midnight.

The results show that the strategy gives us a profit margin in EUR/USD during the trial period. More than 366 operations, a total return of 33.85 risk units achieved, giving an average positive hope per operation of 9.25%. This means that the average operation produced a return equal to the risky amount plus an extra 9.25% of that amount. Understanding that the strategy is quite mechanical and that it represents only one instrument within what is traditionally the worst-performing trend tracking asset class (currency pairs), this is not a bad result at all.

However, commissions and fees should be taken into account in determining the return that could have been truly enjoyed. Assuming that trading was carried out by a fund with EUR/USD futures contracts, and that:

-A quarter of the transactions were subject to “roll-over” before the expiry of the contract, causing an additional commission, and that a “round-trip” commission of $20 per transaction had to be paid, and that,

-An account of 10 million dollars was traded with each risk unit equivalent at 1% of the initial position size, then,

-The total return would be equal to $3,385 million, minus 366 operations multiplied by $25 each, representing commissions. This would mean a return reduction of only 0.1%, offering a total return of 33.75%. It could be assumed that if the “roll-over” strategies were very imperfect, there would be several additional losses.

Now imagine yourself in the place of a retail trader with a $10,000 account who wants to operate according to this strategy, using a retail currency broker. Fortunately for this trader, brokerage allows access to some sort of approach to a futures contract that can be negotiated with a very small batch size, as well as trading spot Forex with a very small lot, so there’s no problem with scalability.

The next step is to address some of the likely trading costs for the individual trader who is starting to implement this strategy in the same period in EUR/USD. The first thing we can see is the cost of using Forex in cash:

-Each operation involves a spread of 2.5 pips, and:

-Each position that remains open at the close of New York has an overnight swap cost that varies from one position to another, but roughly equivalent to three-quarters of a pipe for each night.

To simplify things we can do a rough calculation based on pips. The return calculation of 33.85% was based on a gain of 9088 pips. The spread is only 2.5 pips multiplied by the 338 operations, equivalent to 840 pips. The costs of overnight swaps must then be deducted. Our individual trader kept an open trade for 9879 nights, which means 7415 pips. So we are forced to deduct a total of 8277 pips from our total profit of 9068 pips, leaving a net profit of only 821 pips!

With this rough calculation, if we assume that the return is evenly distributed over each pip, this represents an enormously reduced net profit for our retail trader of only 3.09%, compared to the return of 33,85% reached by the $10 million fund we saw earlier.

Our individual trader could have an alternative, which would be to acquire futures contracts for mini synthetics that do not incur overnight swaps charges, but have wider spreads; something like 14 pips per transaction for EUR/USD. Reviewing the numbers and also assuming that a quarter of all trades must be roll-over, our retail trader would face 457 times a commission of 14 pips, equivalent to a deduction of 6422 pips. This would represent a net profit of 2678 pips. Assuming again that all returns are equally distributed on each pip, our retail trader ends up with a net total return of 9.87%. So using mini synthetic futures would have been much more profitable, but that would still mean an annualised total return in the trial period of less than 1% profit per year! On the other hand, this return would be less than a third of the amount enjoyed by the large fund.

Analysis of the Situation

Why are things complicated to our individual trader? There are different reasons and a thorough examination of each of them can help any aspiring retail trader to understand how certain margins can be incurred in the market by a poor choice of broker or execution methods.

Futures contracts are of very high amounts to be available to most individual traders and the size of the position cannot be adequately achieved with amounts of less than several million dollars in a diversified strategy of tracking trend. Mini futures are always a possible solution, but if they are not very liquid, then it is unlikely to present the same trend tracking margin as ordinary futures. Listed Funds (ETF s) are another partial solution, But still, the individual trader will have to pay a spread in order to access a suitable market well above the $20-dollar round-trip commission paid by a major Futures Exchange customer.

This brings us to the issue of spreads. Really, there is no reason why an individual trader should pay more than 1 pip for a round-trip transaction in an instrument like vanilla as in EUR/USD. Brokers who charge more than this really have no valid excuse. It has to be said that spreads in the retail sector have been falling in recent years. Even though this is good news, and if the individual trader we talked about had been assuming 1 pip and not 2.5 pips, this would have increased profitability by only an additional 1.5% and cannot be truly traced back to 2001 under any circumstances.

Derived from all this, we can finally recognize and expose the real culprit of the decrease in profitability: the overnight swap rate, which is widely misunderstood, and therefore worth a detailed examination of it.

Overnight Swap Charges

When you do a Forex trading operation, you are actually borrowing one currency in exchange for another. Therefore, you must logically pay interest on the currency you are borrowing, while receiving a return interest on the currency you have. The truth is that it is very common that there is an interest rate differential between the two currencies, this will mean that you could be either receiving or paying an extra fee for that currency each night, representing the spread, and, of course, the exchange rate is an element, because currencies are rarely at the parity level, that is 1 to 1. On the one occasion, you would not have to pay or receive anything would be if the exchange rates were exactly the same at the time of the rollover (the overnight carry-over or renewal of the overnight position), and there would be no interest rate differential.

This means that sometimes you pay the difference and sometimes you receive it, so in general, this swap is canceled. Unfortunately, it’s not as easy as that because of several variables such as the following:

-Currencies with higher interest rates tend to increase against currencies with lower interest rates, this is why over time they tend to find themselves in longer trades where you will be borrowing the currency at the highest interest rate, Which means he tends to pay more than he gets.

-Retail Foreign exchange brokers pay or charge different rates than foreign exchange brokers customers of a particular pair. Many brokers are very opaque in this and do not even display the applicable rates on their websites, even though the rates can be found within the brokerage feed of any Metatrader 4 platform. It is worth mentioning and stressing that, To be fair, there are different legitimate calculation systems of this charge. But, if you look at the compiled table in myfxbook, which shows a wide range of overnight rates (transaction fees that remain open overnight) charged by some Forex retail brokers, you will get an idea of the tremendous variety that we can find in the market.

In addition to collecting or paying the interest rate differential, some brokers also apply a “management” fee, which can mean that you will get nothing, ¡This happens even at times when the interest rate differential is favorable to you! Ironically, these are the same brokers who charge you for account inactivity, and that is that the fact that management is applicable when rarely operated in the real market is widely questionable. The most common is that the result is usually to stretch the commissions even more to the disadvantage of the customer.

Most traders are highly leveraged, which means they are borrowing most of the currency they are trading. Individual traders tend to forget that one consequence of leverage is that it increases commuting expenses, and this is because you have to pay interest on all money borrowed, not just for the margin they are putting into that particular transaction. Of course, this is an element that is legitimately charged.

The custom of charging an amount for each night to customer holds a position is not only open to abuse, but it can also be an effective way to drastically reduce the odds that a trader can try to move things in their favour by intelligent use of long-term trend trading, which is usually worth it over time if you run it correctly. It could be said that some retail brokers are using widespread ignorance about these charges as a way to add more profits to their balance sheets and that regulatory agencies should take action against these practices.

It could also be said that we cannot expect a market maker to create a market that is systematically damaged by the statistical behaviour of the market in the long term. It could be that many of the differential rates among brokers are reflected by the currencies from which their clients go long or short at any given time. It can be observed that one broker might be offering a better offer than another in one currency pair, but not in another, which seems significantly odd.

A systematic study of this topic would result in a very interesting reading. Meanwhile, a retail trader looking to systematically hold overnight positions (overnight open positions) should make sure that at least you have already thoroughly researched what they offer you when you are looking for a broker and keep in mind that the speed of a price movement in favor of the broker can have a great effect on the profitability of any trend or push strategy that he might be using.

Categories
Forex Market

Trading, HFT and Big Data – Exposing Fake News!

Just as the white SUVs are flooding our streets, “Big Data” seems to be the hot topic. While at first, it doesn’t seem hard to understand, in this article I will try to analyze the meaning of Big Data for a Trader. Generally, “Big Data” is defined as the process of capturing, storing, processing, and […]

Just as the white SUVs are flooding our streets, “Big Data” seems to be the hot topic. While at first, it doesn’t seem hard to understand, in this article I will try to analyze the meaning of Big Data for a Trader. Generally, “Big Data” is defined as the process of capturing, storing, processing, and […]

Just as the white SUVs are flooding our streets, “Big Data” seems to be the hot topic. While at first, it doesn’t seem hard to understand, in this article I will try to analyze the meaning of Big Data for a Trader.

Generally, “Big Data” is defined as the process of capturing, storing, processing, and transforming data into information or decisions, when they meet one of the three “V”; they cover large volumes, require Speed, and involve a variety of types and/or sources.

I prefer to define Big Data as the generalization of the use of a very powerful set of statistical and computational tools that gives us independence in analysis. In addition to the knowledge in my area of action, which allows me to construct hypotheses that I want to try, with “Big Data” I also have the tools to not get stuck with ideas in my head.

According to the Deutsche Börse Group:

“Technological innovations have contributed significantly to greater efficiency in the derivatives market. Through innovations in trade technology, negotiations in the German Eurex are now running much faster than a decade ago and knowing the sharp increase in the volume of operations and the number of quotes. These major improvements have only been possible due to continued investments in IT by derivatives markets and clearinghouses.”

The acceleration of the trading process has also reached the side of Traders. Michael Lewis, author of the book “Moneyball” (which has become known for the movie of the same name starring Brad Pitt) has written a non-fiction book, “Flash Boys”, where he describes the story of how “kids” begin to be able to trade at the fastest possible speed, not to mention near the speed of light. These guys, investing little money and using technology and big data concepts, go to war with the High-Frequency Trading (HFT) companies and the big American banks. I’m looking forward to the movie!

A major HFT-related event took place on May 6, 2010, at the Nasdaq Stock Exchange in New York, in what would become known as the 2010 Flash Crash. At 14:32, New York time, there was an extraordinary drop and rebound in the S&P 500 index. Algorithmic trading programs were chained, first in sales orders by their criteria of stop losses and then they were chained back in purchase orders – something never seen in history – it is estimated that the price variation between minimum and maximum for as little as 36 minutes was a historical record of trillions of American dollars.

I’ve heard all about Big Data, some accurate statements, and some wrong ones. But many have ceased to be true with the evolution of technologies and the very concept of Big Data. The main known barriers to the implementation of Big Data have always been the existing infrastructures in the company, the costs, the time of implementation, and the need for knowledge. With the exception of the first, the other barriers are falling with the new technologies of Big Data.

Big Data is very expensive – False – generated by the large supply of tools and by the adoption of free open source technologies, prices, previously in the sky, have dropped to levels very accessible to all sizes of companies.

It’s a computer thing – False – there has been a major transformation in the programming environments and in the Big Data and Analytics tools, making them more accessible to non-technical people interested in using them in their area of expertise.

Takes a long time to implement – False – new techniques of agile project management and job reuse lead to tempting times of implementation.

The piece that really was missing in this puzzle was training, but since already a couple of years ago, there is a relevant offer of Big Data online courses and masters on the subject.

They always ask me for examples of companies using Big Data. Creating a list of companies always scares me, because the world of Big Data gains followers daily – if I wrote a list, it’s very likely that it was obsolete by the time you’re reading it. In the trading world, there are many banks like Bank of America and JP Morgan involved in HFT. As for Spanish banks, there is very little public information on the use of HFT, however, with all the technology currently available. One would be naive if one thought that these have not raised the use of HFT in the currency arbitration and futures market for some commodities, where they have hedging positions.

In addition to HFT, some funds state that they use alternative information for their purchase and sale decisions. This information may vary but many say they use comments and sentiment analysis in online newspapers, in public CSS and RSS, in blogs, and on Twitter and other social networks. It is unclear exactly what they do, but AQR Capital Management and Two Sigma Investments claim to use Big Data in their investment decisions.

What one has to be clear about is that whatever your strategy, we are competing today with these specialized algorithms AT ALL TIMES.

In practice, in the world of trading, Big Data is providing:

Volume: Big Data shows us the way clearly to expand our strategy. Either to include more companies or portfolios to the existing strategy or to allow the creation of many strategies competing in parallel.

Variety: Big Data is allowed through algorithms to mix price history from Private API (Bloomberg or your broker) and Public API (yahoo finance, google finance) with alternative information such as CSS and RSS readers, Web scrapers, Twitter, and other social networks.

Speed: The combined use of various computing paradigms is making it possible for independent traders or small investment firms to compete for the first time in the HFT war with large banks, as described in the book Flash Boys. An example is the use of data banks in memory, in vector format, and with parallel calculations or distributed in several computers.

And that translates into:

Within a large bank, when you follow the full development flow of a strategy until its implementation, many tasks are done before and after the Trader’s intervention. The Technology Area needs to capture, collect and store the data, the methodology department usually does fundamental analysis or simulations with this data and finally, the data comes to the Trader for the creation of their strategies. When the strategy has already been designed, it is up to the Technology to prepare a prototype for the backtesting of the strategy and finally, the strategy is implemented as an automatic algorithm in production.

Using a multi-use programming language (multi-purpose programming language), for example, Python, a trader can now gradually acquire knowledge and do the work of others.

To give an example of what we are talking about from a practical point of view, within Python the problem of collecting historical price data is transformed into a simple call to the yahoo or google API or other provider using a data read command like DataReader.

The training offered at Big Data is on the rise. The war between paid and free tools has forced traditional companies like SAS and SPSS to liberalize free versions of their software or free courses of their analytics tool.

To conclude, on the one hand, Big Data tools are increasingly accessible and integrated, in the future, you can make use of the most appropriate database for the problem, whether it is structured, unstructured, on disk, in memory or distributed, almost without realizing it. Python is a new player where this homogenization is happening very quickly and it is possible to access, within the same language, several big data tools. My prediction is that languages that do not homogenize run the risk of extinction.

On the other hand, everyone is looking at the world of Analytics. Giants in the software industry are buying Analytics companies as “churros”. That is clear evidence that statistical knowledge will gain more and more relevance and in combination with data tools will be an indispensable weapon in the future, This prediction is also confirmed by all the master’s degrees in Big Data and Analytics that have already been established and are emerging every year.

But the big change is that all of the above can only mean one thing. Big data, currently, is made for the business expert and in our case, for the trader. Big Data was born with computer scientists and has attracted many statisticians. But, the clear thing for me, is that you get much better results if the business expert knows how to drive and fix the car, than the other way around.

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Forex Basics

What Is the True Difference Between Forex and Binary Options?

Today we will focus on trying to respond to a very frequently asked question in the world of trading: What is the difference between binary options and Forex? In the following article, you will find answers to questions such as: What are binary options? How do binary options work? Can you win in binary options? […]

Today we will focus on trying to respond to a very frequently asked question in the world of trading: What is the difference between binary options and Forex? In the following article, you will find answers to questions such as: What are binary options? How do binary options work? Can you win in binary options? […]

Today we will focus on trying to respond to a very frequently asked question in the world of trading: What is the difference between binary options and Forex? In the following article, you will find answers to questions such as: What are binary options? How do binary options work? Can you win in binary options? In addition, I will also share my opinion about what is better and more profitable, Forex, or binary options.

Novelty Instant Benefit

About 10 years ago, most broker companies specializing in stock markets, suddenly, with a single voice, began to proclaim in every corner a new super service, “binary option”. At that time, very few investors could understand what it was, but the thirst for instant profit made this tool very attractive. In those days, no one had a similar offer, because it was, in fact, a home casino, but with constant access and a wallet with an initial minimum. Now enough time has passed and the consumer began to understand that the binary option is not such a brilliant instrument and that it most often leads not to instant gains, but to instant loss. To give your own opinion of this instrument, you need to understand what it is.

What is a Binary Option?

So what exactly is a binary option? If we want to answer this particular question, we have to look at its structure. The name is made up of two words: binary and option. The word “binary” is derived from the concept of “binary model”, a model that has only two variants of an event, or is “yes” or “no”. This model is one of the main ones of the instrument, or win or lose, there are no other options. Now the word is “option”. Everything is much deeper here, this concept is taken as a derivative of the real stock option. A “stock option” is a derivative financial instrument, which is based on the rule of future performance of the contract in the event that a pre-established condition is met.

Therefore, by putting these two concepts together, we get an instrument that works according to the rules of the stock exchange contract and has only two options for the event. In other words, by concluding such a contract, you have either won or lost.

Let’s look at the working mechanism of the binary option based on the most popular parameter of the contract, “high/low” This type of contract means that you have chosen the target price level and the direction of the agreement. For example, we think the EUR/USD currency pair will fall in the next 5 minutes. We select the level from which the calculation will be performed and put the option down. Therefore, if the price in 5 minutes is lower than this level, we will get a benefit, and if it is higher, we will get a loss. We chose the bet size, for example, $50 and go!

The position of our option will look like this, as shown in the chart above. All that is red below is our benefit and all that is up is loss. The main feature that distinguishes such a contract will be the fact that we do not care how many points the price will be higher or lower: our gains or losses are always fixed.

Therefore, it passed 2 minutes after the conclusion of the options contract, and during this time the price was below our reference level. Therefore, the time of our choice is over, we obtained a profit equal to 80-85% of our bet.

Three minutes later, our option was executed, as time has expired (expiration occurred). But unfortunately, the price shot up at the last minute and went above our benchmark, which caused us a loss in the size of our $50 bet. It’s as simple as that. Of course, there are still many different variations in the binary option, but we will talk about them directly compared to the Forex market.

What Is the Main Difference Between Binary Options and Forex?

The comparison of these two types of trading will occur in a number of the most important parameters:

Variety of Contract Types

In Forex there is only one type of contract. No, of course, you can trade with currency pairs, CFDs, commodities, or securities, but these are only variants of the same type of contract: CFD price difference contract (Contract For Difference). You bought a currency pair and its price has increased, you will get the difference between the sales price and the subsequent purchase price.

There are several types of contracts in binary options: this is the most common “high/ low” that we have already seen, is the “touch option”, where you should wait for it to reach a certain level, the “range option”, where you should specify a target price range, and the “ladder option” of higher performance.

Value of Potential Benefit

In Forex, your performance is not limited. Of course, you can limit it to placing fixed orders, but if you’re talking about a simple managed deal, you can generate your profits until you close it yourself at the price you’re interested in. It’s not uncommon for you to make a deal, and literally within a few minutes, the price flies to a lot of points, giving you a much higher profit than you expected.

When trading with binary options, your earnings are always limited by the type of contract selected. And, most importantly, your win can never be greater than your bet. If you put $100, you’ll get, at best, $90. In case you lose, you lose all $100. Yes, there are different options for all contract types, however, in any case, the success ratio will always tend to loss. But distributors of these options are always in profit.

An example of how binary options work cleverly:

-We place a bet, for example on the pair AUD/USD of $1000, at the time of clicking the button “buy” or “sell” instantly the balance deducts the $1000 from the bet.

-If I get the bet right, then I’ll see that the “profit was $1710”, actually it was $710 ($1000, as we remember, was deducted at the time of opening the bet and when I got it right, it came back).

-If I do not get the bet right, then I will see that the “profit was $0”, but the $1000 I have already lost, and in case I fail these funds will be lost.

-It looks great, and in fact, the loss of the same option is always more beneficial.

-In Forex, with the same agreement and the equivalent price movement up or down, the profit/loss will also be the same.

Possibility of Margin Trading

In Forex margin trading has reached perhaps the highest level of development. Forex brokers provide leverage in almost any range, from 1 to 2 to 1 to 1000, and even more. We agree, such a large amount of credit money can provide us almost unlimited opportunities for profit, which is sometimes 1000 times more than our invested capital.

In binary options, there is no such concept as margin trading. Everything is limited only to the notion of bets. If you have $100, then only with this $100 can you trade. This is an absolute disadvantage in modern trading realities.

Easy to Make Deals

Forex is considered the simplest and most modernized trading system among all foreign exchange markets. The transaction system refers to a process that goes from the analysis to the moment your order is placed on the market. There are several trading platforms, some with extended functionality, however, to understand them is not difficult.

In binary options, the settlement system is even easier than in Forex. Essentially, the entire trading agreement is reduced to the choice of a financial instrument, such as an option, run time, and clicking the “buy” or “sell” button. Let us not talk about the effectiveness of such an operation, but about the possibilities that are 50/50.

Duration of Stay in the Agreement

In Forex all contracts are indefinite, and therefore do not have a term of treatment (expiration). This means that when we enter the agreement we can wait the time until the price is not where it was waiting. Yes, there are commissions that can do a lot of damage, but it is no longer in this area.

In binary options all contracts are fixed-term. All options have a very limited lifespan, so, “wait for the storm” as in Forex, will not succeed. This type of contract completely excludes the investment component, leaving us only pure speculation.

Minimum Start-Up Capital

On Forex, this limit is almost erased, and you can start trading, even if you only have $10. But you must understand that the less your initial investment, the more leverage you need to take from your broker, and this increases risks many times over. In binary options, the minimum initial capital is even $1. Then your income will be equal to the minimum. Perhaps, for a person who just wants to get acquainted with these contracts, this is enough.

Conclusion

If we listen to all the questions I’ve told you before, we can make a small summary:

Forex: This is a stock market where, as in the stock market, as in other financial markets, there are laws of supply and demand. Agreements are made at different intervals of time, however, statistics show that transactions at long intervals of time are the most effective and most often yield profits. Forex pays a lot of attention to technical and fundamental analysis. There are a large number of different active transaction management systems, allowing you to benefit even from completely desperate transactions. Competent use of margin trading can increase your investment capital many times, allowing you to make a much greater profit. Of course, success on Forex requires market analysis, trading strategy, expertise, and the use of informational materials. This market cannot be conquered by leaps and bounds. If we want a Forex trader to achieve greed in every trade, you need to train and gain experience.

Binary Options: The binary options market is an over-the-counter market (OTC-market), or rather, it is not a market at all, as binary options brokers are liquidity providers, market makers, and in general, everything they want. In most cases, the quote is only a projection and has nothing to do with the actual price of the asset. And when we talk about “turbo options”, brokers simply draw the quote that is profitable for them in front of the group of their players. In fact, a binary options broker is a bookmaker that spreads what you want to your customers.

The high commission for a profitable transaction makes the popular 50/50 stock ratio absolutely unprofitable, as it will never earn as much as it invested. The benefits of the same option will always be less than a loss. In general, a binary option is a pure casino or addictive gambling that has nothing to do with real trading in the financial markets. Options are a game according to the owner’s rules. You can check the demo account of any binary options broker.

In this article, I have expressed my opinion only, which is supported by the practical experience of developing and implementing various stock exchange contracts. I really like the “real binary option” model, which I consider the best of all stock contracts, but it has nothing to do with the “binary option”. With which instrument to work, the choice is yours. I just want to wish you lots of luck and lots of benefits!