Tag: trading

Categories
Forex Course

46. Analyzing the Forex Market: Sentimental Analysis

Introduction

Introduction

Introduction

Have you come across the saying that 95% of the traders lose money in Forex, and only a handful of 5% succeed? As a matter of fact, this statement is entirely true. Though trading in the Forex market is no different from doing business in the real market, most of the Forex traders find it challenging to succeed in trading. This is because, in the real world business, there is hardly any relation between business and emotions, whereas, the Forex market is closely related to human psychology.

Many traders trade based only on fundamental analysis or technical analysis and ignore the existence of the sentiment involved in trading. This is the reason we have the concept of 95% and 5%.

Why is there sentiment entailed in trading?

To answer this particular question, we’ll have to understand the core basics of trading.

Firstly, what is trading? Trading, according to the textbooks, is the process of buying and selling of products. Or in simple terms, it is the process where a seller sells his products to a buyer, or a buyer buys products from a seller.

Now, the point one must note here is that to buy or sell a product, both parties (buyer and seller) are obligatory. Without a buyer, the existence of a seller is useless, and without a seller, the presence of a buyer is pointless.

And this above concept is the answer to the above question. Let us understand how.

There is an end number of traders trading the Forex market. The logic for buying and selling is the same as the real-world market. That is, a trade cannot be completed without the presence of both parties. For example, if you want to buy a currency pair, then you mandatorily need a seller to sell it to you. And if there are no sellers in the market to sell it at your desired price, then your buy order will remain pending (incomplete).

Broadly speaking, traders can be segregated into two types. The first set of traders includes large banks, hedge funds, mutual funds, and big-time investors who move the market. And the second set comprises small retail traders who do not have the capability (enough capital) to drive the market.

How do big players always win?

Big players are the ones who always win in the market. And they make this possible by bringing in emotions in trading. Let us understand this with an example.

Let’s say a currency pair is in an uptrend from a month. At this point in time, what do you think the whole world is thinking? As obvious as it gets, most retail traders are looking at it as a buy. Now, since everyone (big players and retail traders) are looking to buy, there is no seller to sell it to them. This situation, in turn, creates loads of pending orders in the market. So, the masterminds (big players) start to become the sellers in the market to the retail buyers. And this continuous selling by the big players causes the market to drop pretty drastically.

Seeing this drastic fall in the market, all retail traders who were buying get stopped out, and the rest begin to look it as a sell. And once the retail traders start to sell, the big players buy it from these sellers (retail traders). Hence, from this, the market again starts to head north. This is how big players bring in emotion in the minds of the public, manipulate them in the market.

Finally, we can conclude by saying psychology plays a major rule when it comes to trading in the Forex market. And the sentimental analysis is all about learning more about psychological trading. So in our further lessons, we will be discussing a lot more on these topics.

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Categories
Forex Assets

Understanding The EUR/JPY Asset Class

Introduction

Introduction

Introduction

The Euro area’s euro against the Japanese yen, in short, is termed as EURJPY. This pair, too, like the EURCHF, EURNZD, EURCAD, EURGBP, etc. is a minor or cross currency pair. It is one of the most traded currency pairs in the forex market. Here, the EUR is the base currency, and JPY is the quote currency. The value of this pair is quoted in terms of the quote currency.

Understanding EUR/JPY

This currency pair is precisely quoted as 1 EUR per X JPY. In simple terms, the value determines the units of the quote currency (JPY) required to buy one unit of the base currency (EUR). For example, if the market value of EURJPY is 121.00, it basically means that these many yen are required to purchase one euro.

EUR/JPY Specification

Spread

Spread is the difference between the bid price and the ask price set by the broker. This value is not constant and varies from broker to broker. It also varies on the type of account model.

Spread on ECN model: 0.6

Spread on STP model: 1.5

Fees

Spread is not the only way through which brokers generate their revenue. They charge some fee (commission) on each trade as well. Fees again vary from broker to broker and account model. Typically, there is no fee on an STP account. However, there are a few pips or fees on an ECN account as their spread is lesser than an STP account.

Slippage

Slippage is the difference between the trader’s asked price and the actual price given to him. Two factors majorly affect slippage on a trade; one, the volatility of the market, and two, broker’s execution speed. The slippage is usually within 0.5 to 5 pips. For major currencies, the slippage is much lower.

Trading Range in EUR/JPY

The trading range is the illustration of the minimum, average, and the maximum number of the pips the currency pair has moved in a given time frame. These values help assess the profit/loss potential of a trade. For instance, if the max volatility on the 1H is 10 pips, then one can expect to win or lose a maximum of $92 (10 pip x 9.20 value per pip) in an hour or two.

Procedure to assess Pip Ranges

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

EUR/JPY Cost as a Percent of the Trading Range

In addition to assessing the profit/loss in a timeframe ahead of time, we can use these values in determining the cost variation in different timeframes and volatility as well. The cost as a percent of the trading range tells the min, average, max costs by considering the timeframes and volatility as its variables.

ECN Model Account 

Spread = 0.6 | Slippage = 2 | Trading fee = 1

Total cost = Slippage + Spread + Trading Fee = 2 + 0.6 + 1 = 3.6

STP Model Account

Spread = 1.5 | Slippage = 2 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 2 + 1.5 + 0 = 3.5

The Ideal way to trade the EUR/JPY

Above are the costs of each trade in terms of percentages. Note that they do not represent the actual cost on trade in terms of dollars, but are magnitude values which can be used for comparing with other values. The higher the magnitude of the percentage, the higher is the cost on the trade for that particular timeframe and volatility. From the tables, it can be ascertained that the values are highest on the min column and lowest on the max column. This, in turn, implies that the costs are higher when the volatility is low and vice versa. Talking about the timeframe, the costs are high on the lower timeframes and low on the higher timeframes. So, a day trader may preferably trade on the 2H/4H when the volatility is around the average values. And long-term traders may trade the 1W/1M whatsoever be the volatility of the market.

Furthermore, a trader may reduce their costs by entering and exiting trades using limit order instead of market orders. This will completely erase the slippage on the trade. An example of the same is given below.

Total cost = Spread + trading fee = 0.6 +1 = 1.6

Categories
Chart Patterns

Chart Patterns: Descending Triangle

[caption id="attachment_57098" align="aligncenter" width="3338"] Descending Triangle[/caption]
Descending Triangle
Descending Triangle
[caption id="attachment_57098" align="aligncenter" width="3338"] Descending Triangle[/caption]
Descending Triangle
Descending Triangle

The descending triangle is another version of the many triangle patterns in technical analysis. It is the opposite of the ascending triangle. This pattern is overwhelmingly bearish and is one of the more common bearish continuation patterns. If you’ve read Dahlquist and Kirkpatrick’s Technical Analysis, you will find that this pattern is treated with some considerable positivity. It was one of the best-performing patterns. But there is a caveat to why this is.

Descending Triangle
Descending Triangle

The two trendlines required for the formation of a descending triangle are a flat, horizontal trendline that acts as support with a downward sloping trendline that acts as resistance. Ideally, price should touch both the upper and lower trendlines twice. Volume typically decreases as price gets closer to the apex. Breakouts occur within the final 1/3rd of the pattern. Dahlquist and Kirkpatrick report that increasing volume is actually more favorable for this pattern. The most common breakout is lower at 64% of the time.

I’ve written in prior articles about the dangers of putting to much stock into technical analysis books where the initial testing of patterns and results have been in traditional equity markets (stock markets). I believe that one of the reasons that Dahlquist and Kirkpatrick have reported such powerful and swift moves with a downward breakout is due to the nature of bear moves in equity markets. Because markets like the stock market are exceedingly long-biased, any dramatic drop below crucial support will have an exceedingly more dramatic move when compared to the forex markets – which are primarily range bound. Another factor that may attribute to the overperformance of this pattern in stock markets vs. forex markets is the ease of shorting in forex vs. the stock market.

Sources:

Kirkpatrick, C. D., & Dahlquist, J. R. (2016). Technical analysis: the complete resource for financial market technicians. Upper Saddle River: Financial Times/Prentice Hall.

Bulkowski, T. N. (2013). Visual guide to chart patterns. New York, NY: Bloomberg Press.

Bulkowski, T. N. (2008). Encyclopedia of candlestick charts. Hoboken, NJ: J. Wiley & Sons.

Bulkowski, T. N. (2002). Trading classic chart patterns. New York: Wiley.

Categories
Forex Market Analysis

Daily F.X. Analysis, January 14 – Top Trade Setups In Forex – Eyes on U.S. Inflation!

On the forex front, the U.S. Dollar Index kept trading within a tight range on Monday, closing flat on the day at 97.38. The U.S. government reversed its decision to brand China a currency manipulator. U.S. Treasury Secretary Steven Mnuchin said: “China has made enforceable commitments to refrain from competitive devaluation while promoting transparency and accountability.” China offshore yuan strengthened to the strongest level in six months, with USD/CNH dipping 0.5% to 6.8822.

On the forex front, the U.S. Dollar Index kept trading within a tight range on Monday, closing flat on the day at 97.38. The U.S. government reversed its decision to brand China a currency manipulator. U.S. Treasury Secretary Steven Mnuchin said: “China has made enforceable commitments to refrain from competitive devaluation while promoting transparency and accountability.” China offshore yuan strengthened to the strongest level in six months, with USD/CNH dipping 0.5% to 6.8822.

On the forex front, the U.S. Dollar Index kept trading within a tight range on Monday, closing flat on the day at 97.38. The U.S. government reversed its decision to brand China a currency manipulator. U.S. Treasury Secretary Steven Mnuchin said: “China has made enforceable commitments to refrain from competitive devaluation while promoting transparency and accountability.” China offshore yuan strengthened to the strongest level in six months, with USD/CNH dipping 0.5% to 6.8822.

Economic Events to Watch Today

 

 

EUR/USD – Daily Analysis

The euro rose 0.2% to $1.1135. Dismissals from the 1.1100-15 are aiming at higher marks. The initial point is 1.1152, supported by 1.1167. On Monday, the Euro has traded slightly bullish during the trading session but hasn’t been overly convincing. It seems as if we are yet striving to decide out where the pair is likely to go. 

An unexpectedly weaker figure will likely leave a bearish impact on the greenback, and supporting the EUR/USD pair may cross the range of 1.1150. The U.S. dollar was weak on Friday after the release of the negative wage growth figures for December.

Looking forward, the speeches by FOMC’s E.Rosengren (Boston Fed) and R.Bostic (Atlanta Fed) should keep the attention on the buck later in the N.A. session. Moreover, the traders will closely observe the critical event in the upcoming days, which includes the German GDP and the ECB Accounts on Wednesday and Thursday, as well.

    

Daily Support and Resistance

  • S3 1.1062
  • S2 1.1097
  • S1 1.1115
  • Pivot Point 1.1131
  • R1 1.115
  • R2 1.1166
  • R3 1.12

EUR/USD– Trading Tips

The EUR/USD has traded slightly higher as investors seem to price in weaker CPI sentiments ahead of the news release. The support becomes a resistance level of 1.1145 is holding the pair below this level. We may have a bullish or bearish breakout upon the release of U.S. CPI data during the U.S. session. 

A bullish breakout of 1.1145 can open further room for buying until 1.1208. Conversely, the closing of bearish candles below 1.1145 can drive the selling trend until 1.1100 support. The next support is likely to be found around 1.1075 today.

GBP/USD– Daily Analysis

The British pound lost 0.4% to $1.2987. Official data showed that U.K. Gross Domestic Product (GDP) shrank 0.3% on month in November (flat estimated), and industrial production slid 1.2% (flat expected).

At the GBP front, despite the significant recovery from the 3-week low of 1.2691, the GBP currency trader remained cautious from the bearish risk-sentiment due to increased sentiments of Bank of England’s rate cut as early as this September.

The Bank Of England Governor Carney said last week that there are the chances to deliver a rate cut by 250 basis points. Besides this, the BOE policymaker Vlieghe said during the weekend that if the improvement does not come in the economic data, he will back for a reduction.

Moreover, a series of depressing U.K. key data, including the monthly GDP reduction and a significant drop in the industrial and manufacturing production data, supports the case for the dovish BOE monetary policy stance.

Looking forward, the focus now will shift towards the U.S. inflation data, which is scheduled to release later in the N.A. session at 1330 GMT. Due to the lack of any critical data from U.K. docket traders will keep their eyes on U.S. inflation data and the Sino-US phase-one trade deal.   

Daily Support and Resistance

  • S3 1.2845
  • S2 1.292
  • S1 1.2955
  • Pivot Point 1.2996
  • R1 1.303
  • R2 1.3071
  • R3 1.3147

GBP/USD– Trading Tip

On Tuesday, the GBP/USD continues to trade with bearish bias around 1.2980 after violating the 1.3045 support level. On the 4 hour timeframe, the pair has formed a strong bearish candle which is supporting the bearish trend in GBP/USD. The pair is currently trading in a bearish channel, which is extending resistance around 1.3034 along with support around 1.2906. While the MACD is still staying in the selling zone. I will be looking to take sell trades below 1.3000 today to target 1.2925 and 1.2906. 

 

USD/JPY – Daily Analysis

The USD/JPY climbed 0.4% to 110.01, the highest level since May 22. The USD/JPY currency pair hit the bullish level above the110 handles for the first time since May, mainly due to the fresh optimism surrounding the United States and China trade deal. 

As in result, the traders are selling the safe-have Japanese Yen in the wake of risk-on sentiment in the market. As of writing, the USD/JPY currency is currently trading at 110.08, having hit the high of 110.20. 

During the night, the USD/JPY currency pair strengthened its Asian session gains to a high of 109.94, a high since May 2019, in line with positive risk appetite. 

Meanwhile, the report came that the United States trade representative removed the currency manipulator tag for China, which also helped in increasing the risk-on market sentiment and also boosted the U.S. dollar.

The U.S. two-year Treasury yields increased to 1.585% (from 1.57% and a mild curve steepening allowed ten-year yields to test 1.85% from 1.82%. Fed funds futures indicated a modest (1bp) increase in implied yields across the curve, with the implied terminal rates up to 1.33% in early 2021.

Daily Support and Resistance

  • S3 109.02
  • S2 109.28
  • S1 109.38
  • Pivot Point 109.54
  • R1 109.64
  • R2 109.8
  • R3 110.06

USD/JPY – Trading Tips

The USD/JPY pair has traded in line with the previous forecast as it continues to trade bullish at 110.017 after breaking above 109.600 triple top resistance level.  

On the 4-hour timeframe, the candlestick pattern three while soldiers are likely to extend buying trend until the next resistance level of 110.570. Moreover, the RSI and MACD are still staying in the buying zone. Today, I will be looking for buying trades over 109.84 level with a target of 110.570. 

All the best for today! 

Categories
Forex Price-Action Strategies

An H1 Trading Strategy, A New Arrow in the Quiver

The H1 chart is one of the most traded charts in the Forex market. This is a very consistent chart considering other intraday charts. In today’s article, we are going to learn a strategy to trade on the H1 chart in the Forex market. This is an H1 chart. The price after making a bearish […]

The H1 chart is one of the most traded charts in the Forex market. This is a very consistent chart considering other intraday charts. In today’s article, we are going to learn a strategy to trade on the H1 chart in the Forex market. This is an H1 chart. The price after making a bearish […]

The H1 chart is one of the most traded charts in the Forex market. This is a very consistent chart considering other intraday charts. In today’s article, we are going to learn a strategy to trade on the H1 chart in the Forex market.

This is an H1 chart. The price after making a bearish move seems to have found its support. It produces two consecutive bullish candles. The buyers are to wait for the price to consolidate and create a bullish breakout to go long. On the other hand, the sellers are to wait for a bearish reversal candle and make a bearish breakout to go short on the pair. Let us find out what the price does next.

The chart produces a bearish engulfing candle, which is the strongest bearish reversal candle. The sellers have the upper hand here. A breakout at the level of support is the next thing to take a short entry here.

The price consolidates around the level of support. The level of support becomes double bottom support. A strong battle is going on between the buyers and the sellers. Traders must wait to find the next direction.

It makes an explicit bearish breakout. Admittedly, the sellers have outplayed the buyers. Traders shall get themselves ready to go short on the pair. The question is why they have to get themselves ready. Should not they trigger any entry right after the last candle closes? The answer is no. They must wait for the next candle to close below the breakout candle. This is the trickiest part of this strategy. Traders must wait for one more candle to make a new lower low (in a bearish market).

Here it comes. The next candle comes out as a bearish candle closing well below the breakout candle. An entry may be triggered right after the last candle closes. The stop loss level is easy to be found out. It is above the level where the trend initiates. We see that a red marked take profit level as well. However, the chart does not show that it is a significant level. How do we find this out then? We may set our take profit exactly with a 1:1 risk-reward ratio. It means the length of entry to stop loss equals to the length of entry to take profit in this strategy. Let us find out how the trade goes.

The trade goes well. We will demonstrate more examples of this strategy soon. Meanwhile, let us concentrate on the things to remember.

  1. The trend initiation candle is to be a strong reversal candle.
  2. The breakout is to be very explicit.
  3. The very next candle is to close below (in a bearish market) or close above (in a bullish market).
  4. Take Profit is to be set with no more than 1:1 risk-reward.
Categories
Chart Patterns

Chart Patterns: Pullback and Throwbacks

The most common term people associate with retracements in price that retest prior areas of support or resistance is a pullback. There is another term that goes with pullback, and that is a throwback. Let’s review the differences between these two definitions. Pullback Pullbacks occur after the price has moved lower. Think of any pattern […]

Throwback
Throwback

The most common term people associate with retracements in price that retest prior areas of support or resistance is a pullback. There is another term that goes with pullback, and that is a throwback. Let’s review the differences between these two definitions. Pullback Pullbacks occur after the price has moved lower. Think of any pattern […]

The most common term people associate with retracements in price that retest prior areas of support or resistance is a pullback. There is another term that goes with pullback, and that is a throwback. Let’s review the differences between these two definitions.

Pullback

Pullback
Pullback

Pullbacks occur after the price has moved lower. Think of any pattern or support line that has price breaking out to the downside. When price pulls back up to the price level of the initial break, that is known as a pullback. Pullbacks occur during breakouts lower.

 

Throwback

Throwback
Throwback

Throwbacks occur after the price has moved higher. Think of any pattern or level of resistance that has price breaking out to the upside. When the price is thrown back down to the first level of the break, that is known as a throwback. Throwbacks occur during breakouts higher.

While there are different definitions for retests of breakout zones, know that people will often call throwbacks, pullbacks. In practice, the description itself does not matter as much as you see the behavior that price exhibits after breaking out of support or resistance. The table below identifies the average occurrence rate for a pullback or throwback from the following patterns.

Pattern

 Pullback Rate (%)

Throwback Rate (%)

Ascending Triangle

56

60
Descending Triangle

55

50

Double bottom

 —-

56
Inverse Head-And-Shoulder

—-

57
Head-And-Shoulder

59

—-
Symmetrical Triangle

58

58
Triple Bottom

—-

58

Triple Top

 63

—

 

The table above comes from Thomas Bulkowski’s book, ‘Visual Guide to Chart Patterns.’ His book is part of the Bloomberg Financial Series. Bulkowski is, by far, the authority on the frequency of patterns experiencing pullback and throwbacks. His work focuses extensively on chart patterns. However, there is one problem, and it has nothing to do with his phenomenal work. This is a problem for anyone who focuses primarily on the Forex markets. Why? Because Bulkowski’s work and the broader technical analysis writer/education community focuses primarily on equity markets. This is a big deal because equity markets spend the vast majority of their time in one direction: up. This is especially true over the past decade. Again, this is not a dig towards the truly phenomenal authors and analysts who spend years creating their written work – it’s just a reality of the world we are in. It’s important to understand that the Forex markets, as we know them, are still a relatively new market – especially when compared to the stock market.

If you read Bulkowski’s work or any other work studying the frequency of throwbacks and pullbacks from patterns and support/resistance – I would recommend attributing the same rate of throwbacks to pullbacks in the forex market.

 

Sources:

Bulkowski, T. N. (2013). Visual guide to chart patterns. New York, NY: Bloomberg Press.

Bulkowski, T. N. (2008). Encyclopedia of candlestick charts. Hoboken, NJ: J. Wiley & Sons.

Bulkowski, T. N. (2002). Trading classic chart patterns. New York: Wiley.

Categories
Forex Elliott Wave

How to Start a Wave Analysis – Part 1

The wave analysis begins with a preliminary study of the basic patterns defined by the Elliott Wave Theory. In this educational article, we will view how to start to develop a wave analysis.

The Basic Concept

Glenn Neely, in his work “Mastering Elliott Wave,” introduces the concept “monowave” to describe a basic movement that develops the price within a price chart. However, by convenience, we will use the term “segment” hereafter to identify the basic move.

Waves Identification

The first step is the chart representation on the chart with which the entire wave study will be guided for it. The simplest way is to begin through a daily timeframe.

Concerning the type of chart, this could be a bar chart or a candlestick chart. This election does not be a limitation to advance in the wave analysis. In some cases, the use of a line chart could be useful in identifying structures.

Once chosen the asset to study, we will have to identify the lowest point, and the end of the first movement once identified these movements we identify the point where the move exceeds the end of the first wave.

The following chart corresponds to Copper in its daily range.

From the figure, we distinguish each segment that Copper develops in green, the upward move, and in red the downward movement.

The bullish sequence started in early January 2019, when Copper found buyers at $2.52 per pound. The red metal ended the upward path on April 17th, 2019, at $2.99 per pound.

Alibaba Still Moves Higher

The following example corresponds to Alibaba (NYSE: BABA) in its 2-hour timeframe. The chart exposes the rally developed by the e-commerce giant since October 08th, 2019, when BABA found fresh buyers at $161.92 per share.

Once the price found support at $161.92, BABA started to move upward, building the first segment. We identified this first move as “1” labeled in blue, the section ends at $178.59 on October 17th, when the price reacted retracing the first segment. This drop is identified as “2”.

The third segment is active after the surpass of the end of the first move at $178.59. The third movement finishes at $188.17 per share. From this segment, we distinguish that the third movement is extender than the first segment. In other words, the first upward movement advanced $16.89, while the third progressed $20.10.

However, we observe that the seventh segment rallied $28.17, which is the most significant move developed by the entire bullish sequence that started on October 08th to date.

Conclusion

Wave identification is a first step that allows us to recognize the trend of each market in a specific timeframe. Due to the fractal nature of market movements, this procedure will be valid in any range of time.

Suggested Reading

  • Neely, Glenn. Mastering Elliott Wave: Presenting the Neely Method. Windsor Books. 2nd Edition.
Categories
Forex Market Analysis

Gold’s Sideways Range Remain Intact – Brace for Trade Plan!

The safe-haven-metal prices dropped mainly due to the Asian stocks, which traded higher in the wake of optimism surrounding the United States and China trade war.

The safe-haven-metal prices dropped mainly due to the Asian stocks, which traded higher in the wake of optimism surrounding the United States and China trade war.

The safe-haven-metal prices dropped mainly due to the Asian stocks, which traded higher in the wake of optimism surrounding the United States and China trade war.

As we already mentioned that the gold prices dropped on the day because the United States is expected to sign the on-going phase-one trade deal with China this week.

According to the agreement, China will increase imports from the U.S. in exchange for the stop of the December tariffs on Chinese imports to the U.S. and a partial rollback of some existing tariffs.

At the Iran-US front, the situation in Iran is still active due to people’s rally as its citizens protested for a 2nd-night after the government acknowledged on Saturday that it had mistakenly show down a Ukrainian passenger jet, killing all 176 people on board.

On the other hand, the gold prices got some support from the stable bond prices in the wake of unexpectedly weaker December U.S. payroll growth. That sent the interest lower and giving attraction to the non-yielding gold.

Iran’s statement came only after the U.S., U.K., Canada, and Australia said they know that an Iranian missile hit the plane according to our intelligence, but Iran did not accept it first.

Looking forward, further important U.S. macro is scheduled to release this week and will remain under the trader’s focus to take fresh direction. The U.S. economic docket this week shows the release of the latest consumer inflation figures on Tuesday, and monthly retail sales data is scheduled to release on Thursday.

Daily Support and Resistance

S3 1523.29
S2 1540.25
S1 1551.19
Pivot Point 1557.21
R1 1568.15
R2 1574.17
R3 1591.13

Gold continues to consolidate in the same trading range, which it maintains on Friday. The metal is trading around 1,552 level while it’s current trading range appears to be 1,561 – 1,543.

On Monday’, gold’s most important trading level will be 1,556. Beneath this mark, gold can trade with selling bias unto 1,550 and 1,545. Whereas, an upward breakout of 1,555 can stretch the bullish trend until 1,561. Good luck!

Categories
Forex Daily Topic Forex Videos

The Basics Of Statistical Analysis In Forex Part 3 – Predicting The Future

https://youtu.be/Wwhq8UAG8l0

https://youtu.be/Wwhq8UAG8l0

Why you should Know The Normal Distribution

What is a Distribution

A Distribution comes from our need to measure and qualify objects or items when the potential number of elements is too large to evaluate one by one. It is hardly practical to have a record of all the heights, weights, races, clothes, and shoe sizes of every person. It is impossible to have a record of all possible stock or Forex pairs prices. Of course, we already have a historical record, but we cannot have a record of future prices. But we want and need information about these and other items.

Wouldn’t it be great to have valuable collective information about the properties of the data collection instead of an endless list of prices, heights, or weights?

Histograms

Let’s imagine that we are to record daily price changes from the current open to the previous day open. We could see that some days the price seldom moves while others there are larger and larger movements. Lets only plot ten possible ranges five on the positive side and five on the negative side, from zero to ±0.21, ± 0.2% – ±0.4%, and on toll ±0.8% -±1%. All changes bigger than 1% will be included in the ±0.8% – ±1% range.

We have made a histogram of price changes. It is a very coarse approach to prices, but it shows useful information. We see that it is more common small changes than large changes, for instance.
We could refine it using more bins. This is how it looks using 40 bins.

Using fewer bins, we can perceive the same distribution than using more bins. We lose information, but if we chose the bin distribution appropriately binning is quite convenient.

The Normal Distribution

Karl Friedrick Gauss was thought to discover the Normal Distribution, also called Gaussian Distribution, although 100 years earlier was described by Abraham d Moivre. Still, his discovery remained obscured until after Gauss published it. It is considered the most useful distribution in modeling due to the fact that many phenomena follow the Normal Distribution. Measures of height, weight, intelligence levels closely follow the normal distribution. Also, the Normal Distribution is the limiting form of other distribution types.

The Central Limit Theorem

One of the key statistical applications involving the Gaussian Distribution has to do with how the averages distribute. That is, if we take several random samples of a collection of data, the averages of the samples will approximate to a Normal Distribution, regardless of the distribution of the original data. This is very powerful because it allows us to generalize about future prices from the averages computed using samples of historical data.

Properties of the Normal Distribution

The Mean (M)
The most obvious measure of the Normal Distribution is its Average or Mean.
M = SUM ( All elements ) / N (the number of elements)
The mean tells us the most common value of the distribution. If the distribution were about prices, it would tell us the fair value of the asset.
The Standard Deviation (SD)
The other significative measure of the Normal Distribution is the Standard Deviation. Computing it is a bit more complicated than the average, but it is rather easy as well.
The standard deviation tells us how far from the center, on average, are its elements.

1.- We measure the distance of every individual component (dxi) from the mean
dxi = M – xi

2.- Since the differences may be positive or negative, we square this value to take away the sign, creating a collection of squared differences.
dxi2 = dxi^2

3.- We take the average of the squared differences. The result is called the variance (Var).

Var = SUM( dxi2)/ (N-1)

Wait? Why N-1? Well, that has to do with the fact we are dealing with samples, not the whole population. By dividing by N-1 will make the value less optimistic on short samples. As the sample size grows, the Sample Variance gets closer and closer to the population variance.

4.- We take the square root of the sample variance, and the result is the Standard Deviation

SD = √ Var

Normal Probabilities


 Normal distribution probabilities

Now that we have our data (prices, trade returns, and so forth), we can use the normal distribution to extract useful information.
If the distribution, for instance, were the returns of our strategy, we would arrive at two main values: The average profit and the standard Deviation of the profits. What can that tell us about what to expect from our future returns?
The Normal Distribution is well known, so we have how values are statistically distributed.
We know that 68.2% of the values lie within one SD from the mean, 95.4% of the values lie within 2SD, and 99.7% of them within 3SD.
Let’s say as an exercise that your mean gain is 100 dollars with an SD of 60. What can we expect from our future profits?

We can anticipate that
  • 64% of the time, our returns will lie between 40 and 160 dollars,
  • 13.6% of the time will be between -20 and +40 dollars,
  • 13.6% between 150 and 210 dollars.
  • 2.1% of the time your strategy will lose from 20 to 80 dollars
    but also,
  • 2.1% of the time, you will get from 210 to 270 dollars.

As a caveat, Usually, the distribution of gains and losses is not normally distributed. Therefore we should not expect the percentages shown here. As homework, google about the Chevyshev’s inequality for a more general probability scaling.

Categories
Forex Market Analysis

Daily F.X. Analysis, January 13 – Top Trade Setups In Forex – Stronger Dollar In Play! 

On the forex front, the U.S. dollar eased against other major currencies on Friday, as growth in December nonfarm payrolls missed expectations. The Dollar Index slipped 0.1% on the day to 97.36. The euro gained 0.1% to $1.1122.

On the forex front, the U.S. dollar eased against other major currencies on Friday, as growth in December nonfarm payrolls missed expectations. The Dollar Index slipped 0.1% on the day to 97.36. The euro gained 0.1% to $1.1122.

On the forex front, the U.S. dollar eased against other major currencies on Friday, as growth in December nonfarm payrolls missed expectations. The Dollar Index slipped 0.1% on the day to 97.36. The euro gained 0.1% to $1.1122.

The British pound fell 0.1% to $1.3061. Gertjan Vlieghe, a Bank of England policymaker, said in a Financial Times interview that he would vote for an interest-rate cut this month in case no signs of economic improvement show up after the general election. Later today, U.K. monthly GDP and industrial production for November will be reported (both flat on month expected).

Economic Events to Watch Today

 

 

EUR/USD – Daily Analysis

The EUR/USD currency pair took an active bid mainly due to the greenback weakness on the back of weak jobs data and wage growth figures, which were released on Friday. As of writing, the EUR/USD currency pair is currently trading at 1.1130 and representing 0.10% gains on the day. The pair is consolidating in the range between the 1.1113 – 1.1131. 

The Nonfarm Payrolls data confirmed the economy added 145K jobs in December and disappointed the forecasted figure of 164K additions by a big margin. 

Especially, the average hourly earnings increased by 2.9% year-on-year in December compared to the 3.1% projection. That was the first under 3% figure since July 2018. The weak wage growth almost renewed disinflation concerns, and as a result, the U.S. ten-year treasury yield dropped by 7-basis points to 1.81% on Friday, which continued to add losses on the day and supported EUR/USD currency pair further.

The EUR currency will be likely to continue its recovery rally because of the United States and China trade optimism. The United States Treasury Secretary Steve Munchin told the markets that there would be negotiations regarding phase-two of the US-China trade deal when the Chinese representatives arrive on January 15.

Looking forward, the German Wholesale Price Index for November is scheduled to release at 07:00 GMT. However, the data rarely leave an impact on the markets. Generally, the EUR/USD pair is at the mercy of the action in the treasury yield for now.

Daily Support and Resistance

  • S3 1.1023
  • S2 1.1068
  • S1 1.1094
  • Pivot Point 1.1112
  • R1 1.1138
  • R2 1.1156
  • R3 1.12

EUR/USD– Trading Tips

The EUR/USD is trading sideways as investors didn’t find any solid reason to determine the trend. The EUR/USD pair is trading at 1.1120, below a strong resistance level of 1.1140. The closing of Doji candle below 1.1140 is supporting the bearish bias. 

On the lower side, the EUR/USD has the opportunity to drop until 1.1070. Below this, the next support stays around 1.1040. The MACD is trying to cross below 0 to support the bearish bias, but there’s still no strong bearish fundamental which can push the pair lower. Consider staying bearish below 1.1125 today.

GBP/USD– Daily Analysis

The GBP/USD currency pair is flashing red and continuing its 4-day losing streak mainly due to dovish tone from the Bank of England, and the European Union-Irish uncertainty surrounding the Brexit. Whereas, the pair is still trading bearish despite the greenback’s weakness. As of writing, the GBP/USD currency pair is currently trading at 1.3026 and consolidates in the range between the 1.3026 – 1.3045.

At the Brexit front, the Irish Deputy Prime Minister Simon indicated uncertainty on the United Kingdom Prime Minister Boris Johnson’s deadline of December 31, 2020, for Brexit, which was also supported by the European Union chief Brexit negotiator and European Council President.

On the other hand, a survey led by the Confederation of British Industries (CBI) and the Price Water Cooper (PwC) showed that the business moral amongst the U.K.’s financial firms jumped for the first time in 4-years.

At the USD front, the greenback’s weakness could be attributed to weak employment figures released on Friday as well as the recent decrease in the U.S. Dollar’s demand. Notably, the rising optimism surrounding the United States & China trade front and decreased chances of the United States & Iran war are the reasons behind the risk-on sentiment in the market. 

Apart from this, the stocks in Asia and the S&P 500 Futures are still flashing green while the U.S. ten-year treasury yields show no signs of movement due to the Japanese holiday. It should also be mentioned that Iran recently arrested the United Kingdom’s ambassador to Tehran, and the global leaders do not like it.

Looking forward, the traders will keep their eyes on the U.K.’s November month Industrial Production, Manufacturing Production, monthly GDP and Trade Balance figures. There, a possible contraction in the production numbers to -0.3%, a fall in trade numbers, and no change in the GDP figure of 0.0% is expected, which would keep the pair’s movement under check. 

On the flip side, the Sino-US and Iran-US headlines will remain under the focus because no critical data and events are scheduled from the United States.


Daily Support and Resistance

  • S3 1.2958
  • S2 1.3013
  • S1 1.3038
  • Pivot Point 1.3068
  • R1 1.3093
  • R2 1.3122
  • R3 1.3177

GBP/USD– Trading Tip

The GBP/USD continues to trade with bearish bias around 1.2980 after violating the 1.3045 support level. On the 4 hour timeframe, the pair has formed a strong bearish candle which is supporting the bearish trend in GBP/USD. In addition to this, the UK GDP and Manufacturing figures have also disappointed the market.

The pair is currently trading in a bearish channel, which is extending resistance around 1.3034 along with support around 1.2906. While the MACD is still staying in the selling zone. I will be looking to take sell trades below 1.3000 today to target 1.2925 and 1.2906. 

 

USD/JPY – Daily Analysis

The USD/JPY currency pair hit the bullish track and is trading just above the 100-week average, mainly due to the safe-haven Japanese yen lost ground in the wake of the Sino-US and Iran-US optimism. As of writing, the USD/JPY currency pair is currently trading at 109.64 and representing 0.17% gains on the day, as well as the pair consolidates in the range between the 109.50 – 109.65.

As we already mentioned, the anti-risk Japanese yen is losing ground in Asian trading hours due to risk-on sentiment in the market and pushing USD/JPY higher on the back of positive trade-related news flow. 

At the Sino-US front, the United States and China trade tensions continue to ease. Both countries are ready to sign an official trade deal this week. As well as, the White House Economic Advisor, Larry Kudlow, has said during the weekend that everything depends on the China trade deal. In contrast, the U.S. Treasury Secretary Steve Mnuchin told markets that there would be talks on the phase-two of the US-China trade deal when the Chinese delegates arrive on January 15.

Notably, the USD/JPY currency pair has failed many times to secure a weekly close above the key average since the last week of November. Moreover, the pair may face a hard time to beat a breakout because markets are likely to offer greenback on disinflation concerns. 

At the data front, the data released on Friday showed the average hourly earnings increased by just 2.9% year-on-year in December compared to the 3.1% projection. That was the first below-3% reading since July 2018. 

While the Nonfarm payrolls showed, the economy added 145K jobs in December, missing the expected print of 164K additions by a big margin.

Looking forward, the Sino-US and Iran-US headlines will remain under the focus because of no major data and events scheduled from the United States.

Daily Support and Resistance

  • S3 109.02
  • S2 109.28
  • S1 109.38
  • Pivot Point 109.54
  • R1 109.64
  • R2 109.8
  • R3 110.06

USD/JPY – Trading Tips

The USD/JPY pair is trading bullish around 109.820 after breaking above a resistance level of 109.550. The way USD/JPY has closed three while soldiers on the 4-hour timeframe, which is likely to extend buying trend until the next resistance level of 110.570.  

Leading indicators are massively overbought, and USD/JPY is looking for a reason to trigger bearish retracement. Let’s keep an eye on 110.570 level to capture a sell positon below level. All the best! 

Categories
Forex Videos

Forex Risk VS Sentiment – Bad News For The Pound!

https://youtu.be/d7Q7VU8jX0o

https://youtu.be/d7Q7VU8jX0o

Risk versus Sentiment

Traders interpret technical analysis on their screen charts in many ways, such as price action. But they are always reading between the lines in terms of perceived risk and sentiment, which may have little bearing in the price of a currency pair before an important event.
One such event, as in Example A, is a screenshot of a one hour chart of the GBPUSD pair on the 6th of December 2019. The British people were voting this day on an election, which would have a strong bearing with regard to Britain’s possible exit from the European Union: Brexit.

In the example, we can see that just before exit poll information was released at 10 p.m. GMT, the pair began to fall, was being sold off. This was due to perceived risk That Boris Johnson’s conservative government would not win the election, and therefore allowing labor to potentially win and where their pledges of heavy government borrowing were perceived by the traders as being bad news for the pound.

However, the exit polls indicated that the conservative government would win with a major majority the pound surged to over 1.350. When the dust began to settle, and some profit-taking took place, risk began to unnerve traders, who perceived that although Brexit was likely to happen now, the government might not be able to get all of the necessary laws in place for this to happen within the designated time frame to complete all of these laws and to broker a new trade deal with the European Union by December 2020. Therefore the pound began to fall again.
As a trader, it is imperative that when you see a major political event unfold, such as this one, that you fully understand what is going on at the time of the event, and not just afterwards, because By fully understanding the risks that are involved in such an event it will create an opportunity for you to make money.


However, many traders, in fact, did lose money trading this event because they were not fully appreciative of the risks involved. Not only the GBPUSD pair but also to other currencies, for example, the strength and weakness of the US dollar at the time of the event and also other currencies such as the Yen, Swiss Franc and the Euro, which were also being traded against the pound at this time.

Therefore during technical analysis, while traders depend on technical tools such as the MACD Stochastics and price action, it is imperative that traders are also mindful, and especially when it comes to major political events, with regard to perceived risk and sentiment.

Categories
Forex Course

45. Analyzing the Forex Market – Technical Analysis

A way to analyze the markets other than fundamental analysis is technical analysis. In this lesson, we shall exactly understand what technical analysis is, and also the different techniques to analyze the market using technical analysis.

A way to analyze the markets other than fundamental analysis is technical analysis. In this lesson, we shall exactly understand what technical analysis is, and also the different techniques to analyze the market using technical analysis.

A way to analyze the markets other than fundamental analysis is technical analysis. In this lesson, we shall exactly understand what technical analysis is, and also the different techniques to analyze the market using technical analysis.

What Is Technical Analysis?

In simple terms, technical analysis can be defined as the study of price movements.

Unlike fundamental analysis, where people study the factors which affect the supply and demand of the market, technical analysis involves the study of the historical price movements and the present market condition.

Why should Technical Analysis be used?

Let us answer this question by bringing up an analogy.

The first thing one must understand about the market is that the forex market business is no different from a real-life business.

For instance, let’s say there’s a car dealer and they have been selling one particular car for six months by varying the prices every month. And an illustration of the sales report is given below.

Now, from the above table, can you predict what could be priced in the near future? If yes, then you can consider yourself as a technical analyst, as this is what technical analysts do.

Consider the above table. We can see that initially, the car was priced at $20,000, and 9,000 units of the car were sold. Next month, the owner price reduced by $1,000, and the sales increased by 1,000 units. Seeing this demand in the car, the owner increases the price to $25,000. But, this time the sales drop down to 1,000 units. So, the car owner reduces the price back to $19,000. And he observes that the sales increase from 1,000 to 10,000. Later, he again raises the price to $26,000.

Now, by analyzing the past price movements, we can predict with a high probability that the price will reduce yet again, as the previous time the price came to $25,000, the price dropped drastically. Thus, looking at the price of the car in June, we can see that the price did fall to $15,000.

Therefore, the above example, in a nutshell, is referred to as Technical Analysis.

Switching back to the Forex market, the analysis is done similarly. The only difference being the Forex market involves the trading of currency pairs, and the real market consists of the buying and selling of products.

Hence, from this, we can conclude that a market moves as per the historical price movements. The above example is just to give you a gist of how technical analysis work. There are many more complex ways to accurately predict the market using technical analysis. Price Action traders do their technical analysis using different types of charts (like candlesticks, bars, lines, area, etc.), timeframes, and indicators.

Hence, this brings us to the end of this lesson. In the lessons coming forward, we shall be discussing tons of stuff related to technical analysis. So, stay tuned.

[wp_quiz id=”56618″]
Categories
Forex Assets

Asset Analysis – EUR/NZD Forex Currency Pair

Introduction

Introduction

Introduction

EURNZD is the abbreviation for the Euro area’s euro and the New Zealand dollar. It is classified under the minor/cross currency pairs. In EURNZD, EUR is the base currency pair, and NZD is the quote currency. As a matter of fact, in all currency pairs with euro in it, EUR is the base currency.

Understanding EUR/NZD

The value of this pair defines the New Zealand dollars required to purchase one euro. It is quoted as 1 EUR per X NZD. For example, if the value of value in the market is 1.6650, it implies that to buy one euro, the trader has to pay 1.6650 New Zealand dollars for it.

EUR/NZD Specification

Spread

Spread is a very popular term in the forex industry. This is the way through which the broker makes revenue. Spread is simply the difference between the bid price and the ask price. It differs from the type of account model. The spread on ECN and STP is given below.

ECN: 0.9 | STP: 1.7

Fees

For every position that a trader opens, there is some fee associated with it. And it depends on the type of account model. It is seen that there is no fee on STP accounts and a few pips on ECN accounts.

Slippage

Slippage is the difference between the price the trader had demanded and the actual price the trade was executed. Slippage happens when trades are taken using market orders. Slippage has a significant load on the total cost of the trade. More on this shall be discussed towards the end of this article.

Trading Range in EUR/NZD

A part of the analysis in trading is knowing the volatility of the market. Volatiltiy will give an close idea on the number of pips the currency pair will move in a given timeframe. The trading range depicts the minimum, average, and maximum pip movement in a specified time frame. Below are the values for EUNZD.

Procedure to assess Pip Ranges

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

EUR/NZD Cost as a Percent of the Trading Range

Cost as a percent of the trading range represents the cost percentage that a trader is bearable for each trade they take. The percentage is obtained by finding the ratio between the total cost and volatility. With these percentage values, we come into the conclusion of the best time to enter and exit the market with minimal costs.

ECN Model Account 

Spread = 0.9 | Slippage = 2 | Trading fee = 1

Total cost = Slippage + Spread + Trading Fee = 2 + 0.9 + 1 = 3.9

STP Model Account

Spread = 1.7 | Slippage = 2 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 2 + 1.7 + 0 = 3.7

The Ideal way to trade the EUR/NZD

By analyzing the percentages obtained above, we can find ways to reduce risk and cost on every trade of EURNZD. Firstly, the percentage tells the cost variation for different volatilities in different timeframes. The values are large in the first (Min) column. Meaning, the costs are high in the min column. Also, since this column represents low volatility, it implies that costs are high when the volatility is low and vice versa. In the average column, the costs are neither too high nor too low. And the volatility is under balance as well. Hence, this turns out to be the ideal time to trade in the market.

Moreover, another feasible technique to reduce cost is by placing limit orders. By the use of limit orders, a trader will eradicate the existence of slippage on the trade, and, in turn, reduce the total cost on the trade considerably. An example of the same is given below.

Comparing this table with the previous table, it is evident that the percentages have almost halved. Hence, entering and exiting trades using limit orders can prove to be very advantageous to reduce costs on trade.

Categories
Forex Fibonacci

Fibonacci Confluence Zones

Fibonacci Confluence Zones

Fibonacci Retracements drawn inside boxes
Fibonacci Retracements drawn inside boxes

Fibonacci Confluence Zones

Fibonacci Confluence Zones

If you have not first read my article, ‘You’re still misusing Fibonacci retracements,’ please do so before reading this article. This article will continue where we left off in discussing the new and improved way of drawing accurate and efficient Fibonacci retracements using the Brown Method. I am going to use the same Forex pair that we used in the first article. The purpose of this article is to show you how you can create Fibonacci Confluence Zones to create natural price levels that act as future support and resistance. First, I am going to start my first swing using the March 2001 low and then retracing back to the confirmation swing high in March 1997. See below.

Fibonacci Retracement from low to confirmation lower swing high.
Fibonacci Retracement from low to confirmation lower swing high.

First, I want to know if this retracement is appropriate given how much time has passed – we’re 23 years from the March 1997 high and 19 years from the March 2001 low. Do these Fibonacci retracement levels still work? Do they remain valid? The black vertical line is the start of the retracement, so anything before the retracement is not used, it’s the data afterward that matters. Let’s look.

Fibonacci Retracement - testing of 20 year old retracement range.
Fibonacci Retracement – testing of 20 year old retracement range.

Are these Fibonacci retracement levels we drew still relevant? I would say so. A quick look at A, B, C, and D prove it. Especially for the most recent data at D on the AUDUSD weekly chart – seven-year lows bounce off of the 61.8% Fibonacci retracement level from 20+ years ago! But let’s look at some more Fibonacci retracements made off of other significant swings. Fair warning: there’s going to be several images here.

Fibonacci Retracement 2011 to 2008
Fibonacci Retracement 2011 to 2008

The Fibonacci retracement above is from the swing high in July 2018 to the confirmation swing low in October 2001. Like the previous Fibonacci image, we can see that prices have respected the retracement levels even a decade after the retracements were established. But we’re not done.

Fibonacci Confluence Zones
Fibonacci Confluence Zones

The above image is the first retracement we looked in this article (the same swing low in March 2001) using the same swing low; we draw more retracements to the next confirmation swing lower highs. I’ve drawn two additional Fibonacci retracements in Red and Orange. Notice how some of the Fibonacci retracements occur within proximity of one another. Letter A is shared retracement zones of the 50% and 61.8% of two different retracements. B has a confluence zone of three Fibonacci retracement levels, 50%, 61.8%, and 38.2%. And C has two overlapping retracements of 50% and 38.2%. Now let’s get to the fun part.

The previous image showed three Fibonacci retracement confluence zones at A, B, and C. Those confluence zones were just three of many that will appear on any chart on any time frame. What happens if we draw a series of retracements using major swings as the start point of the Fibonacci retracements and then retrace to the next confirmation swing highs and lows? We’ll get a chart that looks like the one below.

Full Confluence Zones
Full Confluence Zones

I’ve added some other letters to identify more confluence zones. I admit the chart does look like a mess. And it should. Not every Fibonacci retracement to a new confirmation swing high or low will coincide with shared Fibonacci levels, but they frequently do. Once we’ve drawn out a series of retracements, we should see a set of these confluence zones. Now begins the cleanup phase. We’re going to place horizontal lines where there are confluence zones of Fibonacci retracement levels.

Horizontal Lines replace confluence zones.
Horizontal Lines replace confluence zones.

The letters A, B, C, D, and E show where the Fibonacci confluence zones have formed, and are represented by horizontal lines (black) on the chart. Now, you can either delete or hide all of the Fibonacci retracements so that we are left with only the horizontal lines at A, B, C, D, and E.

Just the horizontal lines
Just the horizontal lines

I know that the horizontal line at D represented the most confluence zones on the AUDUSD weekly chart, but it also represented some of the longest-lasting and respected Fibonacci retracement levels. Starting at the horizontal level at D, I draw a box from D down to the major low on the AUDUSD chart. Now, the width of this box doesn’t matter – just the range.

First Box
First Box

After I’ve established that box from D down to the major low, I can remove the horizontal lines. Then I start to copy the box all the way to the top of the range. All I’m doing here is copying and pasting the box so they ‘stack.’

Stacking Boxes
Stacking Boxes

Now comes the cool part. I’m going to treat each box like its own range and place Fibonacci retracements inside each box, moving from bottom to top.

Fibonacci Retracements drawn inside boxes
Fibonacci Retracements drawn inside boxes

No matter how many times I’ve done this, it still blows my mind. But there is probably a lingering question. You’re probably looking at the chart and saying, ok, cool, but there are some massive gaps between these Fibonacci levels. You are correct if you are thinking about this. Now, Connie Brown never wrote about this next part; it’s something I discovered and developed on my own. The approach comes from the idea that markets are fractalized and proportional, so we should be able to break down like zones into smaller ranges. This is especially important and useful for traders who prefer to trade on faster time frames like four-hour or one-hour charts. Using price action that is more recent and relevant, I can draw a Fibonacci retracement from the 50% level at 0.71688 to the start/end of the box at 0.6368.

Intra Fibonacci level retracements
Intra Fibonacci level retracements

Letters a and b on the chart above identify the 50% Fibonacci level and start/end level described in the prior paragraph. The black horizontal lines represent the Fibonacci retracement drawn from a to b. I’ve also switched the chart from a weekly chart to a daily chart. When we see that daily chart, we get a real idea of how powerful the Brown Method of Fibonacci analysis is and how precise the study of these confluence zones can be.

In summary, to utilize the Brown Method, the followings steps are as follows:

  1. Create Fibonacci retracements by using a major swing high/low and drawing to the confirmation swing with a strong bar – not the next extreme high/low.
  2. After identifying Fibonacci confluence zones, place horizontal lines on the major price levels where multiple Fibonacci levels share the same price range.
  3. Delete or hide the Fibonacci levels so that only the horizontal lines are present – make sure you identify which horizontal line had the most powerful collection of Fibonacci levels.
  4. After identifying which horizontal line was the most potent and relevant, determine if it is closer to the all-time high or all-time low. Draw a box or a price range from that horizontal line to the all-time high or low – whichever is closest.
  5. Repeat the boxes by copying the same box and ‘stack’ it to the all-time high/low – the opposite of whichever was used to establish the box/price range.
  6. Draw Fibonacci retracements in the boxes.

 

Sources:

Brown, C. (2010). Fibonacci Analysis: Fibonacci Analysis. Hoboken: Wiley.

Brown, C. (2019). The Thirty-Second Jewell: Thirty Years Behind Market Charts From Price To W.D. Gann Time Cycles. Tyton, NC: Aerodynamic Investments Inc.

 

 

 

Categories
Forex Fibonacci

You’re still using Fibonacci Retracements Incorrectly

You’re still using Fibonacci retracements incorrectly Like any discipline or field of study, Technical Analysis goes through changes. Old theories and approaches are rigorously utilized and tested, new ideas are studied, and advancements in the field occur. And, like any discipline or study, it takes a while for people to adapt to the new way […]

Brown Method: Confirmation higher swing low
Brown Method: Confirmation higher swing low

You’re still using Fibonacci retracements incorrectly Like any discipline or field of study, Technical Analysis goes through changes. Old theories and approaches are rigorously utilized and tested, new ideas are studied, and advancements in the field occur. And, like any discipline or study, it takes a while for people to adapt to the new way […]

You’re still using Fibonacci retracements incorrectly

Like any discipline or field of study, Technical Analysis goes through changes. Old theories and approaches are rigorously utilized and tested, new ideas are studied, and advancements in the field occur. And, like any discipline or study, it takes a while for people to adapt to the new way of doing things. There is a shocking amount of updated theory and application in Technical Analysis that has yet to make its way down to the retail trader and investor – some of it is almost 25+ years old! One of the updates to old application and practice is how we use a tool known as a Fibonacci retracement. For many years, the method has been to draw a retracement from one extreme swing to the next (from swing high to swing low or swing low to swing high). In practice, there are a few incidents where this may work out just fine, but the new and better way shows how much more accurate and useful the update has been.

 

Old vs. New

I want to start off right away by showing you the difference between the old and new methods – I reference the new approach as the Brown Method. The AUDUSD Weekly chart below shows the old way of drawing Fibonacci retracements. With the old process, the Fibonacci retracement is drawn from the extreme swing high on the week of August 5th, 2011, to the extreme swing low on the week of October 31st, 2008. The vertical line delineates the starting point of the retracement, and no data to the left of that vertical line should be used to determine the efficacy of the retracement. It is only the data after the vertical line that is important and relevant.

Fibonacci Retracement: Incorrect
Fibonacci Retracement: Incorrect

Now, contrast the image above with the new Brown method below.

Fibonacci Retracement: Correct
Fibonacci Retracement: Correct

You will observe how much more accurate the Fibonacci retracement levels are on the Brown Method vs. the old method. What changed? Observe the swing low retracement on both charts – they are different. They both start at the same level, but the retracement end for the Brown method is drawn to the swing low on the week of February 6th, 2009. But why? Why do you draw to a seemingly random or ‘off’ swing and not the extreme? The reason for this is based on the writings of W.D. Gann.

 

The Brown Method

I call this new Fibonacci retracement method, the Brown Method, after Connie Brown. It is Connie Brown who discovered this new theory and wrote about it in her 2008 book, Fibonacci Analysis. It is not a very large book, under 200 pages, but it is one of the single most important works in Technical Analysis of the past 15-years. Her discoveries of how confluence zones of Fibonacci retracements dictate the normal rhythm and pulse of the market are truly groundbreaking. But to the first question of why I did not draw the retracement to the extreme low? Connie Brown points out that W.D. Gann made the point that the end of a trend is not established by the extreme high or low – it is the secondary high/low that confirms the change in trend (sometimes known as the confirmation swing). This makes sense because the extreme is very rarely the level where the participants in a market agree that a trend is finished.

So how do we identify what swing to use? How did I identify what candlestick was the confirmation swing low on the weekly AUDUSD chart? Again, this goes back to Brown – but this information is from her penultimate work (her magnum opus in my opinion), The 32nd Jewel. The first chapter of her massive book (it weighs about eight lbs., is three inches thick and nearly 1100 pages long) addresses some of the problems students of hers have had with the application of her updated Fibonacci retracement method. To identify the correct swing to use, we look for the strongest bar. Let’s take a ‘zoomed’ in look at the swing low used on the AUDUSD weekly chart above.

Brown Method: Confirmation higher swing low
Brown Method: Confirmation higher swing low

It will take you some practice to find the swing bar (also, gaps are used, but that is for another article) that would be considered the ‘strong bar.’ What constitutes a strong bar? That can be somewhat subjective, but look at the candlestick that I’ve identified as the strong bar compared to the candlesticks before it and around it. Why did I pick this candlestick? First, it is a bullish engulfing candlestick on the weekly chart. Second, that candlestick rejected any further downside pressure after a consecutive four week period of weekly candlestick closes below the open. Third, the open and low of the candlestick created the support zone for the next five weeks. In a nutshell, the candlestick is massive, its sentiment overwhelmingly one-directional, and the lows of that candlestick were respected. That candlestick was the confirmation swing low because it confirmed the end to lower prices and was the most substantial candlestick before the new uptrend occurred.

 

Side note: Connie Brown also said to look for gaps in the price action as areas to draw the confirmation swing. Finding gaps is a much easier process when looking at traditional markets like the stock market. Forex data can vary from broker to broker as some data providers show gaps, and others do not.

 

The following articles will go into further detail on how to implement more of the Brown Method. I believe that what you will read and learn will be one of the ‘wow’ moments you experience in the study of Technical Analysis. To say that what Connie Brown has discovered is truly amazing is an understatement when we learn about the confluence of Fibonacci zones and how they create the natural price zones that an instrument swings to, it is a truly eye-opening experience.

 

Sources:

Brown, C. (2010). Fibonacci Analysis: Fibonacci Analysis. Hoboken: Wiley.

Brown, C. (2019). The Thirty-Second Jewell: Thirty Years Behind Market Charts From Price To W.D. Gann Time Cycles. Tyton, NC: Aerodynamic Investments Inc.

Categories
Forex Price-Action Strategies

Trading the ABC Pattern

In today’s lesson, we are going to demonstrate an example of an ABC pattern trading on a daily chart. The ABC pattern is one of the most consistent trading patterns in the financial market. It offers an excellent risk-reward as well as a high winning percentage. Let us get started.

In today’s lesson, we are going to demonstrate an example of an ABC pattern trading on a daily chart. The ABC pattern is one of the most consistent trading patterns in the financial market. It offers an excellent risk-reward as well as a high winning percentage. Let us get started.

In today’s lesson, we are going to demonstrate an example of an ABC pattern trading on a daily chart. The ABC pattern is one of the most consistent trading patterns in the financial market. It offers an excellent risk-reward as well as a high winning percentage. Let us get started.

This is a daily chart. The price after being bullish makes a bearish move. The last candle comes out as a doji candle. This is a bullish reversal candle, which is not a strong one. However, look at the level where the price produces the doji candle.

It is a flipped level of support. Technically, the buyers are to wait for a bullish reversal candle to go long around this level. Since this is not a strong bullish reversal candle, the buyers might as well wait for a bullish engulfing candle to go long from here.

Here it comes. This is a bullish engulfing candle closing above the last bearish candle. This means it produces a morning star. The buyers may trigger a long entry right after the last candle closes. This point is known as point C in the ABC chart pattern. Traders shall set their stop loss below the level of support. With take profit, they are to be tricky. The last swing high (or low) often becomes a big factor. Thus, buyers may consider taking a partial profit. Have a look at the chart below.

The price often roams around and even makes a reversal at this point. This point is known as point B. If we take out the 50% profit around this level and let the rest of it run, we give ourselves a chance to win more pips without any risk. If the price produces an ABC pattern, in 70% cases, it makes a new higher high or lower low. Let us find out what happens here.

The price makes a breakout. We have taken out some of our profits. Now, we may consider using a trailing stop setting below the last candle (breakout candle). We must be patient and hold the trade until the price produces a strong bearish reversal candle.

The price heads towards the North with good bullish momentum, and then it produces a bearish reversal candle. It may still head towards the North if it makes a bullish breakout after consolidation. Meanwhile, we may come out with the rest of the trade.

The price pattern is produced in almost all the pairs and in all time frames. It is one of the most common price patterns, which is favorite among the financial traders. To be able to trade and make money out of it, we need to have a lot of back-testing and practice.

Categories
Forex Course

44. Analyzing The Forex Market – Fundamental Analysis

Introduction

Introduction

Introduction

We’ve now come to one of the most exciting topics in this course, which is analyzing the Forex market. Now that we know the history and the working of the Forex market, we’re all set to predict the future of the market. Several types of analyses are used by traders across the world to analyze the  Forex market. However, these analyses can broadly be classified into three types.

In this lesson, and the lessons coming forward, we shall be discussing all these three types of analyses.

Types of Forex market analysis

The three types of forex market analysis are:

  1. Fundamental analysis
  2. Technical analysis
  3. Sentimental analysis

Now, you must be wondering which one of them is best for analyzing the markets. Well, if you look at the most successful professional traders in the industry, they analyze the market by considering all the types. In this lesson, let’s understand the most essential Fundamental Analysis.

Fundamental Analysis

Fundamental analysis, as the name pretty much suggests, is the way of analyzing the market by studying the economic, social, and political forces in the country. These factors are considered because they affect the supply and demand of an asset.

The whole idea of trading using fundamental analysis is by considering the factors that affect the supply and demand of a currency. These factors are technically referred to as fundamental or economic indicators.

The concept behind this type of analysis is straightforward. If a country’s currency or economic outlook is good, then there is a high probability that the currency will show strength in the future and vice-versa.

What are the major economic indicators?

Below are some of the economic indicators which have the power to shift the economic situation of a country.

Interest rates

One of the most popular and important economic indicators are interest rates. There are several types of interest rates, but we will be focusing on the basic form of the interest rates set by the central banks. Central banks are the creators of money. This money is borrowed by private banks. And the percentage (interest) or the principle the private banks pay to central banks for borrowing the money is called a nominal or a base interest rate.

If the central banks wish to boost the economy, they decrease the interest rates. This then stimulates borrowing by both private banks and other individuals. And this, in turn, increases consumption, production, and the overall economy. Lowering the interest rates can be a good way to inflate the economy but can be a poor strategy too. Because in the long term, low-interest rates can over-inflate the economy with cash and create an unbalance in the money supply.

So, to avoid this, central banks increase interest rates. And this increase results in less money in the hands of private banks, businesses, and individuals to play around with.

Inflation

Inflation, as the name pretty much says, is fluctuation in the cost of goods over time. Inflation, too, is a vital indicator for economists and investors to forecast the future economy. Inflation will have a good effect on the economy if done uniformly. But, too much inflation can bring the balance of supply and demand on the tip in favor of the supply. And this eventually will bring down the value of the currency.

Apart from these two, there are many other macroeconomic indicators that traders consider to do their fundamental analysis. Some of them include GDP, PPI, CPI, Unemployment Rate, Government Debt, etc. Indicators like these help the investors & traders in analyzing the market and predicting its future.

This completes the lesson on fundamental analysis. In the next lesson, let us understand the insights about technical analysis. Don’t forget to take the quiz below before moving ahead!

[wp_quiz id=”56601″]
Categories
Forex Assets

Understanding The EUR/AUD Forex Currency Pair

Introduction

Introduction

Introduction

EURAUD is a minor/cross currency pair traded in the forex market. EURAUD is the abbreviation for the euro area’s euro and the Australian dollar. The left currency, EUR is the base currency and the one on the right, AUD is the quote currency. The price of EURAUD basically tells the value of the Australian dollar.

Understanding EUR/AUD

The exchange rate of EURAUD shows the Australian dollars required to purchase one euro. It is quoted as 1EUR per X AUD. For example, if the value of EURAUD is 1.5995, it means that these many units of AUD are to be possessed by the trader to buy one unit of EUR.

EUR/AUD Specification

Spread

Spread is the way through which brokers make money. It is merely the difference between the bid price and the ask price set by the broker. These prices are often different from broker to broker. The spread differs based on the volatility of the market as well. The approximate spread on an ECN account and an STP account is given below.

ECN: 0.9 | STP: 1.7

Fees

For every trade a trader takes, there is some fee associated with it. And this fee is charged only by ECN type brokers. Typically, there is no fee on STP type brokers. The fee range is usually between 6 pips and 10 pips.

Slippage

A trader can place trades using either market order or using a limit order. In the case of market orders, the trader doesn’t get the exact price at which he executed the trade. The real price he received is different. This difference in the price is referred to as slippage.

Trading Range in EUR/AUD

As a professional trader, it is vital to know how many pips the currency pair moves in each timeframe. It gives the trader an idea of how long he must wait for his trade to perform. Traders can also assess their profit/loss in a given time frame. For example, if a trader takes a trade by analyzing the 1H timeframe, and the min market volatility is three pips, then he can expect to win or lose at least $20.91 (3 pips x $6.97 value per pip).

Procedure to assess Pip Ranges

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

EUR/AUD Cost as a Percent of the Trading Range

Apart from knowing the potential profit/loss from the volatility of the market in different timeframes, one can also determine the cost variation by considering the volatility and the timeframe. For this, the ratio between total cost and volatility is taken into account. It is then expressed in terms of percentage. The magnitude of the percentage determines the cost of each trade.

ECN Model Account

Spread = 0.9 | Slippage = 2 | Trading fee = 1

Total cost = Slippage + Spread + Trading Fee = 2 + 0.9 + 1 = 3.9

STP Model Account

Spread = 1.6 | Slippage = 2 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 2 + 1.7 + 0 = 3.7

The Ideal way to trade the EUR/AUD

Now that we’ve got the values from the above table, here is our ideal way to trade the EUR/AUD.

The higher the magnitude of the percentages, the higher is the cost of the trade on that particular timeframe. Comprehending this to the above table, it is seen that the percentages are highest and lowest on the min and max columns, respectively. This, in turn, implies that the costs are high when the volatility of the market is feeble. And the costs are low when the volatility is high. So, it is ideal to trade on any timeframe, given the volatility of the market is above average volatility. This will ensure the fairly high volatility with affordable costs.

Furthermore, the costs can be made much lower by placing limit orders instead of market orders because this will reduce the slippage on the trade to zero. As an example, the cost percentage table is given by ignoring the slippage value.

Thus, comparing the two tables, it is evident that the costs have reduced by 50%.

Categories
Forex Market Analysis

Gold Sideways Session Continues Despite Weak NFP Report! 

Gold prices trimmed down on Friday, after sinking as much as 1% in the prior session, as rising tensions in the Middle East lead traders to shift to riskier assets. The safe-haven-metal prices still flashing red and continue to drop mainly due to risk-on sentiment in the market in the wake of de-escalated US-Iran conflict.

Gold prices trimmed down on Friday, after sinking as much as 1% in the prior session, as rising tensions in the Middle East lead traders to shift to riskier assets. The safe-haven-metal prices still flashing red and continue to drop mainly due to risk-on sentiment in the market in the wake of de-escalated US-Iran conflict.

Gold prices trimmed down on Friday, after sinking as much as 1% in the prior session, as rising tensions in the Middle East lead traders to shift to riskier assets. The safe-haven-metal prices still flashing red and continue to drop mainly due to risk-on sentiment in the market in the wake of de-escalated US-Iran conflict.

As we all well aware that the gold prices hit the high level of $1,611 on Wednesday since 7-year high after Iran shot ballistic missiles at two Iraqi airbases housing U.S. forces. But later, U.S. President Donald Trump gave the sluggish comments regarding impose new economic restrictions on Iran rather than taking any military action against the country. 

Most Asian markets continued to rise on Friday morning as well because trade talks between the U.S. and China continued to move forward according to the plan and will sign the deal on 15 January.

The statement came from China’s Vice Premier Liu He, head of the country’s negotiation team in China-U.S. trade talks, said that he is set to visit Washington next week to sign a trade deal with the U.S.

With this, the U.S. 10-year treasury yields take the bids around 1.865% while S&P 500 Futures marks 0.20% gains to cross 3,280 by the time of writing.


Daily Support and Resistance

  • S3 1481.92
  • S2 1525.03
  • S1 1540.84

Pivot Point 1568.13

  • R1 1583.95
  • R2 1611.24
  • R3 1654.34

Gold traded in line with the prior estimate as it dropped sharply on the breach of 1,552 marks to set a low around 1,538. At the moment, 1,552 is working as a critical trading level. Below this, gold can trade bearish unto 1,542. 

On the upper side, the bullish breakout of 1,552 can encourage buying, but for that, we need a strong reason, and the weaker and expected NFP can be this reason today. In any event, an upward breakout of 1,552 can lead to gold prices towards 1,561. Good luck! 

Categories
Forex Market Analysis

Daily F.X. Analysis, January 10 – Top Trade Setups In Forex -NFP Figures in Highlights! 

The U.S. dollar strengthened for a third straight session on Thursday, ahead of the release of December nonfarm payrolls report due later today. The ICE Dollar Index gained 0.1% on the day to 97.42.

The U.S. dollar strengthened for a third straight session on Thursday, ahead of the release of December nonfarm payrolls report due later today. The ICE Dollar Index gained 0.1% on the day to 97.42.

The U.S. dollar strengthened for a third straight session on Thursday, ahead of the release of December nonfarm payrolls report due later today. The ICE Dollar Index gained 0.1% on the day to 97.42.

The euro was broadly flat at $1.1109. Official data showed that the eurozone’s jobless rate was steady at 7.5% in November as expected, while German industrial production grew 1.1% on the month (+0.8% estimated).

The British pound slipped 0.2% to $1.3069, posting a three-day decline. Bank of England Governor Mark Carney indicated that an interest rate cut may still be possible, saying, “there is a debate at the MPC (monetary policy committee) over the relative merits of near term stimulus to reinforce the expected recovery in U.K. growth and inflation.”

Economic Events to Watch Today

 

 

EUR/USD – Daily Analysis

The EUR/USD currency pair flat near the 1.11 and traders stay on the waiting mode ahead of the U.S. Nonfarm Payrolls report for December, which is scheduled to release at 13:30 GMT. As of writing, the EUR/USD currency pair is currently trading at 1.1109 and consolidates in the narrow range between the 1.1102 – 1.1111.

The currency pair charted a Doji candle Thursday because it marked two-way business and closed on a flat note. The Doji candle represents a lack of clear directional bias or indecision in the market place. 

Moving ahead, the pair may hit the bearish track if the U.S. Nonfarm Payrolls ignore expectations. Moreover, the United States economy expected to have added 164,000 new jobs in December, after increasing 226,000 positions during November. The unemployment rate is expected to remain stable at 305%, along with the participation rate is projected at 63.2%.

Meanwhile, Average Hourly Earnings are rising by 0.3% month-on-month and by 3.1% year-on-year, almost unchanged from the previous month.

According to the forecast, the positive report will likely support the dollar to gain across the board. In that case, EUR/USD will hit the bearish close below 1.1093. Although, in the case of a below-forecast NFP and wage growth figures, the shared currency may find bids, pushing the EUR/USD above 1.1120.

At the USD front, the greenback currency found on the bullish track because the markets await ahead of the NFP report. The U.S. Index is higher for the 3rd-consecutive day, trading back 97.50.

At the Sino-US front, the United States and China will possibly sign a phase one trade deal on January 15. However, any fresh is not coming yet regarding the Sino-US trade deal, but the trader keeps their eyes on January 15 for new impulse.

Looking forward, the Non-Farm Employment Change report is the trader radar, which is due to release at 13:30 GMT. Traders will also keep their focus on the Unemployment rate and Average Hourly Earnings, which are scheduled to release at the same time.



Daily Support and Resistance

  • S3 1.1014
  • S2 1.1067
  • S1 1.1086
  • Pivot Point 1.1121
  • R1 1.114
  • R2 1.1174
  • R3 1.1227

EUR/USD– Trading Tips

The EUR/USD is trading in a bearish mode below a crucial trading level of 1.1130, testing the support next level of 1.1100. This level worked as a support during the previous days, but this time it seems to get violated as the EUR/USD has formed a strong bearish candle. The MACD is trading below 0 levels, which is suggesting odds of the bearish trend continuation for the EUR/USD. 

On the 4 hour chart, the pair had formed a bullish channel that has now been violated at 1.1130 level, and now this can lead the EUR/USD prices towards 1.1077 level. 

GBP/USD– Daily Analysis

The GBP/USD closed at 1.30659 after placing a high of 1.31234 and a low of 1.30130. Overall the movement of GBP/USD remained bearish throughout the day.

The GBP/USD came under pressure after the Bank of England’s governor gave hints for an interest rate cut, and the pair GBP/USD dropped near 1.30 level.

On Thursday, the Governor of Bank of England, Mark Carney, dropped hints that interest rates could be cut soon to boost the British economy. He also warned that the BoE was running low on ways to fight the recession.

He said that the British economy had been sluggish recently, and the inflation was below the bank’s target of 2%. He added that if the weakness in the economy persisted the same, then the central bank could cut interest rates.

His comments put pressure on Britain Pound and sent it near 2-week lowest point against the U.S. dollar on Thursday. Mark Carney, in the previous monetary policy meeting of Bank of England, backed himself from cutting interest rates while 2 of nine policymakers were in favor of cutting rates to 0.5% from 0.75%.

He also said that there were tentative signs of stabilization in the global economy after a slowdown for almost 18 months, while the chances for Britain’s economy to drop still remain because of uncertainty after Boris Johnson’s election victory.

Regarding inflation, he said that the level of interest rates required to keep inflation steady would need to remain low for a prolonged period of time.

On the other hand, the U.S. dollar remained strong on Thursday amid positive job data from the U.S. labor department, which showed that jobless claims during the previous week decreased to 214K from expected 221K and supported U.S. dollar. The strong U.S. dollar added to the downward movement of GBP/USD.

Daily Support and Resistance

  • R3: 1.3296
  • R2: 1.3206
  • R1: 1.3151
  • Pivot Point 1.3116
  • S1: 1.3061
  • S2: 1.3026
  • S3: 1.2936

GBP/USD– Trading Tip

The GBP/USD continues to trade with bearish bias after violating the 1.3045 support level. On the 4 hour chart, the pair has closed a bearish engulfing candle under 1.3045 support level, which is a proof of bearish breakout. Below 1.3045, the GBP/USD has the potential to trade lower until 1.3000 level and even towards 1.2910 support zone. 

The leading indicators, such as RSI and MACD, are also supporting the bearish bias among traders. I will consider taking selling positions below 1.3058 to target 1.3000 today. 

 

USD/JPY – Daily Analysis

The USD/JPY closed at 109.514 after placing a high of 109.580 and a low of 109.010. Overall the movement of USD/JPY remained bullish throughout the day. The safe-haven Yen falls to 2-week lowest point against the U.S. dollar on Thursday amid the de-escalation of tensions between the U.S. & Iran after the targeted killing of Iranian general Qassem Soleimani by U.S. military.

On Wednesday, Iran, in retaliation against its general murder, dropped missiles on Iraqi airbases where U.S. troops were hosted. However, there were no American casualties that led to U.S. President Donald Trump to stop further military action against Iran. 

Instead, Trump announced economic & financial sanctions on Iran in response to Iranian airstrikes. Furthermore, the Iran officials also said that their missile attacks were to conclude the retaliation, and no more attacks will be made from them. Both parties backed from any escalation of military actions, and this gave pressure to safe-haven currencies like Yen.

Weaker Japanese Yen caused the USD/JPY to move in the reverse direction, and the pair moved to its 2-week highest level above 109.5.

On the other hand, the U.S. dollar remained strong across the board on the back of strong economic data and supportive comments from Federal Reserve officials.

At 1:00 GMT, the Consumer Credit from the U.S. Federal Reserve for November was released, which showed a decline to 12.5B from the expected 15.5B and weighed on the U.S. dollar. However, at 18:30 GMT, the Unemployment Claims from the U.S. Department of Labor dropped to 214K from forecasted 221K and supported the U.S. dollar.

   

Daily Support and Resistance

  • S3 106.93
  • S2 107.9
  • S1 108.49
  • Pivot Point 108.87
  • R1 109.46
  • R2 109.84
  • R3 110.81

USD/JPY – Trading Tips

The USD/JPY pair is trading bullish around 109.420 after breaking above a resistance level of 108.950. The way USD/JPY is forming bullish candles shows a strong buying bias among investors. We may see USD/JPY targeting the triple top resistance level around 109.700. 

Leading indicators are massively overbought, and USD/JPY is looking for a reason to trigger bearish retracement. 109.750 can offer this reason today. Let’s keep an eye on this level to capture a sell positon below this today. All the best! 

Categories
Forex Price-Action Strategies

Edged Breakout Lessens Momentum and Chance of Winning

In today’s lesson, we are going to demonstrate an example of the daily-H4 combination trade, where the price produces a reversal candle, but it does not make an explicit breakout. The price heads towards the breakout direction after having more consolidation. It often happens. Thus, we need to get familiar with such price action. Let us get started.

In today’s lesson, we are going to demonstrate an example of the daily-H4 combination trade, where the price produces a reversal candle, but it does not make an explicit breakout. The price heads towards the breakout direction after having more consolidation. It often happens. Thus, we need to get familiar with such price action. Let us get started.

In today’s lesson, we are going to demonstrate an example of the daily-H4 combination trade, where the price produces a reversal candle, but it does not make an explicit breakout. The price heads towards the breakout direction after having more consolidation. It often happens. Thus, we need to get familiar with such price action. Let us get started.

Above, we can observe a daily chart. The last daily candle closes well below the last swing low. This is an explicit breakout. Let us now determine the level where the price may find its next support. The chart shows that the price closes within a swing low. However, the swing low one below may come as the next level of support. Have a look at the chart below.

The price may head towards the South and find its support at the red-marked level as far as the daily chart is concerned. The daily-H4 chart combination traders are to flip over to the H4 chart for the price consolidation and bearish breakout to go short on the pair.

The image above corresponds to the H4 chart. The chart produces a bullish corrective candle. If it produces a bearish candle closing below the last swing low, the sellers may trigger a short entry. Let us proceed to the next chart.

The chart produces a bearish engulfing candle. However, look at the breakout. It is not an explicit breakout. If the candle closed below the level of support with a 15%-25% extra red body, it would be an excellent entry. Nevertheless, it is a strong bearish reversal candle (bearish engulfing). A bearish engulfing candle in a bearish market makes a very strong statement that the sellers are in control on the minor charts. Let us find out what happens next.

The chart produces another bearish candle. Look at the last candle. It comes out as a bullish candle with a long upper shadow. The pair still looks bearish, but the bullish corrective candle goes too far up. It may be because of the bearish reversal candle that we have after the first consolidation. If it closed well below the level of support, it would have been bearish with more momentum. Often the price goes towards the opposite direction and hits the stop loss too in such breakout. Let us find out what happens here.

It goes according to the sellers’ expectations and hits the Take Profit. Here is a question. Would you take such entry next time? I would not blame if you say ‘yes.’ Because such trade may have a 55% chance of winning, however, to be very consistent and keep our confidence at the top level, it is better if we skip such entry.

Categories
Forex Assets

What Should You Know About The EUR/CHF Forex Pair?

Introduction

Introduction

Introduction

EURCHF is the abbreviation for the Euro area’s euro and the Swiss franc. This currency pair is a minor/cross currency pair. Here, EUR is the base currency, and CHF is the quote currency. Trading the EURCHF is commonly called trading the ‘swissie.’

Understanding EUR/CHF

The value of EURCHF determines the number of units of Swiss francs required to purchase one euro. It is quoted as 1 euro per X francs. For example, if the value of 1.3000, it means that one must pay 1.3000 francs to buy one euro.

EUR/CHF Specification

Spread

Spreads are the way by which brokers make their money. There is a separate price to buy a currency pair and a separate price to sell it. To buy, one must refer to the ask price, and to sell, one must refer to the bid price of the currency pair. The difference between these two prices is known as the spread. This spread usually differs from account type. The average spread on ECN and STP model account are as follows:

ECN: 0.9 | STP: 1.6

Fees

The fee is nothing but the commission charged by the broker on a single trade. The fee also varies base on account type.

Fee on STP account: NIL

Fee on ECN account: 1 pip

Note: The fee depends from broker to broker. Here, we have taken the average value by referring to some brokers.

Slippage

Slippage in trading is the difference between the trader’s desired price and the real executed price by the broker. The slippage value depends on two factors:

  • Broker’s execution speed
  • Currency pair’s volatility

Trading Range in EUR/CHF

The trading range in EURCHF is the representation of the minimum, average, and maximum pip movement in different timeframes. These values can be used to assess one’s approximate profit or loss in a given time frame. For example, if the volatility on the 1H timeframe is five pips, then one can expect to be in a profit or loss of $50.25 (5 pips x $10.05 value per pip) in an hour or two.

Procedure to assess Pip Ranges

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

EUR/CHF Cost as a Percent of the Trading Range

Apart from assessing your profit and loss, one can find the best time of the day to enter and exit a trade. For this, another table is inserted that represents costs in terms of percentage. And the magnitude of these percentages determines the range of costs on each trade.

ECN Model Account

Spread = 0.9 | Slippage = 2 | Trading fee = 1

Total cost = Slippage + Spread + Trading Fee = 2 + 0.9 + 1 = 3.9

STP Model Account

Spread = 1.6 | Slippage = 2 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 2 + 1.6 + 0 = 3.6

Comprehending ‘Cost as a percentage of trading range’

Note that the mentioned percentages are a unitless quantity, and we consider only the magnitude of it. If the percentage value is high, then the costs are high. If they’re low, the costs are low too. Relating it to volatility, if the volatility is high, the costs are low and vice versa.

The Ideal way to trade the EUR/CHF

Now that we’ve comprehended what the cost percentages mean, let us determine the best times to trade the EURCHF currency pair. The minimum column of the table has the highest percentages, while the max column has the lowest percentages for each timeframe. It is neither ideal to trade when the volatility is high & costs are low nor when the volatility is low, and the costs are high. The only option left is the average column. The average column consists of the median values for both volatility and costs. Hence, this becomes the most suitable time to enter into this currency pair for trading.

Limit orders and their benefits

Traders usually enter and exit trades using market orders. This is the sole reason for slippage to take place. This has a significant weight on the cost of the trade. However, placing a limit order instead will nullify the slippage on the trade.

The difference in the ‘costs as a percentage of trading range’ when the slippage is made nil is illustrated below.

Categories
Forex Course

43. Steps Involved In Opening A Forex Trading Account

Introduction

Introduction

Introduction

Now that we have enough knowledge about the Forex market, it is time to open a real Forex trading account with a broker. Note that, before opening a real trading account, it is highly recommended to open a demo account first, because this will give us an idea on how the Forex market and the brokers actually work.

Once we decide on the broker with whom we wish to open an account, the process of opening the account is pretty simple and straightforward. Typically, it doesn’t take more than five minutes to create a Forex trading account.

Step by Step procedure to open a Forex Trading Account

  1. Selecting the Account Type
  2. Registration
  3. Activation of the account

1️⃣ Selecting the Account Type

The first step to open a trading account is to choose the type of account we wish to trade-in. That is, we will be given a choice to open a trading account between a personal account and a business account. Back then, traders had to choose whether they wanted to open a standard, mini, or a micros account. But now, such a choice does not exist as brokers allow traders to trade custom lots.

Apart from Personal and Business accounts, some brokers offer ‘managed accounts’ as well. A managed account is a type of trading account where the broker places trades on behalf of their clients, that is, on behalf of the traders like you and me.

Also, Forex brokers these days have customized trading accounts in order to cater to traders with different trading experiences. For instance, Student or Classic account for amateur traders and Professional or VIP account for experienced traders.

2️⃣ Registration

This is the typical paperwork which is done by all the firms. The entire process is digitalized, of course. To register with a broker, one will have to submit a form that might vary from broker to broker. And this form is usually filled on their web page at the time of registering an account with the broker.

List of requirements to register with a Forex broker are:

  • Name
  • Address
  • Email
  • Phone number
  • Birth of date
  • County of citizenship
  • Social security number or Tax ID
  • Employment status

Apart from this, traders are answerable to a few financial questions such as Annual Income, Net worth, Trading experience & Trading motive.

Important: Before completing the registration process with the broker, make sure to know the costs related to all kinds of transactions (bank wire transfer, depositions, withdrawal, etc.), as this could sum to a significant amount of a trader’s account capital.

3️⃣ Activation of the Account

Once the registration process is successful, a trader will receive an update (by email or on the broker’s web portal), which will provide the instructions to fully complete the account activation process. This step is basically for verification. One must produce at least two IDs to get their account activated. One for the proof of residence and the other for the proof of identity.

After all these steps are fulfilled, the trader will receive the final email from the broker with the corresponding username and password. It will also provide the trader with instructions on how to add funds to their account. This completes the account verification & activation process.

Once we log in and fund our accounts, we can start trading the Forex market.

[wp_quiz id=”56318″]
Categories
Forex Price-Action Strategies

It is Better to be Safe than Sorry.

Using Stop Loss is an essential component of trade management. The Forex market gets volatile from time to time. Taking an entry without using Stop Loss may make an account empty. Thus, under no circumstances, we shall take any entry without using Stop Loss. We need to make sure that we set our Stop Loss accordingly, which is neither too tight nor too saggy. In today’s lesson, we are going to demonstrate an example of that.

Using Stop Loss is an essential component of trade management. The Forex market gets volatile from time to time. Taking an entry without using Stop Loss may make an account empty. Thus, under no circumstances, we shall take any entry without using Stop Loss. We need to make sure that we set our Stop Loss accordingly, which is neither too tight nor too saggy. In today’s lesson, we are going to demonstrate an example of that.

Using Stop Loss is an essential component of trade management. The Forex market gets volatile from time to time. Taking an entry without using Stop Loss may make an account empty. Thus, under no circumstances, we shall take any entry without using Stop Loss. We need to make sure that we set our Stop Loss accordingly, which is neither too tight nor too saggy. In today’s lesson, we are going to demonstrate an example of that.

The above chart is a daily chart. We see that the price finds its support and produces a bullish engulfing candle. The candle closes within the last swing high. The daily-H4 combination traders are to flip over to the H4 chart to take a long entry upon consolidation and bullish breakout. Let us have a look at the H4 chart.

The H4 chart looks extremely bullish. The chart produces a morning star right at the support zone and heads towards the North for one more candle. Traders are to keep an eye on the chart for the price consolidation.

The chart produces one more bullish candle. It then consolidates and creates a bullish engulfing candle breaching the last highest high on the chart. This is an ideal price action opportunity to trigger a long entry right after the last candle closes. Traders shall set the stop loss below the level of support, where the engulfing candle bounces.

The next candle comes out as a bearish candle approaching the Stop Loss level. However, if we set the Stop Loss below the support level, we would be safe here. Things do not look as good as we expected. Let us proceed to the next chart.

The next candle comes out as a bullish engulfing candle. Things look much better now. However, we must not miss the fact that the bullish engulfing candle has a bounce right at the Stop Loss level. If we set too tight Stop Loss, we would have to encounter a losing trade here. Instead of making the profit, we would lose money.

It is a debatable issue how far we shall set our Stop Loss. It is not recommended that we should set our Stop Loss too far. However, we shall set our Stop Loss below the level of support/resistance and add some extra pips. For intraday trading on the 5M, 15M, 30M, H1, and H4 chart, to measure the number of extra pips, we may use the spread of that particular pair. Let us assume we are taking a long entry on EURUSD. If the spread is three pips, we may add three extra pips to set our Stop Loss. We must do a lot of back-testing with our favorite pairs to find out the perfect measure for this to be safe with our entries. As they say, “it is better to be safe than sorry.”

 

Categories
Forex Assets

What Should You Know About EUR/GBP Forex Pair Before Trading

Introduction

Introduction

Introduction

EURGBP is the abbreviation for the currency pair Euro area’s euro against the Great Britain pound. This pair, unlike the EURUSD, USDCAD, GBPUSD, USDCHF, etc. is not a major currency pair. This pair is classified under the minor currency pairs and the cross-currency pairs. In EURGBP, EUR is the base currency, and GBP is the quote currency.

Understanding EUR/GBP

The current market price of EURGBP depicts the required number of pounds to purchase one euro. For example, if the value of EURGBP is 0.8527, then one needs to pay 0.8527 pounds to buy one euro.

EUR/GBP Specification

Spread

Spread in trading is the difference between the bid price and the ask price. The spread is not the same on all brokers but depends on the type of account. It also varies depending on the volatility of the market. An average spread on an ECN account and an STP account is shown below.

Spread on ECN: 0.8 | Spread on STP: 1.5

Fees

On trade a trader takes, there is some fee associated with it. Fees, again, depends on the type of account. There is no fee on STP accounts, but few pips on ECN accounts.

Slippage

When a trader executes a using the market order, they don’t really get the price they had intended. There is a small pip difference between the two prices. And this difference between the prices is referred to as slippage. The slippage is usually within 0.5 to 5 pips.

Trading Range in EUR/GBP

Understanding the volatility of the market is essential before opening or closing a position. It shows how much profit or loss a trader will be on a particular timeframe. For example, if the volatility is on the 4H is 10 pips, the trader can expect to gain or lose $1269 (10 pips x 12.69 value per pip) in a matter of about 4 hours.

The table below illustrates the minimum, average, and maximum pip movement on the 1H, 2H, 4H, 1D, 1W, and 1M timeframe.

EUR/GBP PIP RANGES

Procedure to assess Pip Ranges

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

EUR/GBP Cost as a Percent of the Trading Range

An application of the volatility would be the determining of cost on each trade. As in, the ratio between the volatility and the total cost on each trade is calculated and is expressed in terms of percentage. The percentage depicts the cost for a particular timeframe and volatility. The comprehension of it shall be discussed in the subsequent section.

ECN Model Account

Spread = 0.8 | Slippage = 2 | Trading fee = 1

Total cost = Slippage + Spread + Trading Fee = 2 + 0.8 + 1 = 3.8

STP Model Account

Spread = 1.5 | Slippage = 2 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 2 + 1.5 + 0 = 3.5

The ideal way to trade the EUR/GBP

With the above two tables, let us figure out the ideal way to trade this currency pair. Note that the higher the percentage, the higher is the cost on a trade and vice versa. It is evident from the chart that the percentages are highest for the minimum column and lowest for the max column. In other words, the cost is high when the volatility of the market is low, and the cost is low when the volatility is high. So does this mean it is ideal to trade when the volatility is high? Well, that’s not the right approach to it, as trading in high volatility is risky. So, it is ideal to take trades during those times when the volatility is around the average range. Doing that will ensure marginal cost as well as decent cost. For example, a 4H trader must take trades during those occasions when the volatility is around 20 pips.

Note: One can apply the ATR indicator to determine the current volatility of the market.

Another feasible way to reduce costs is by canceling out the slippage cost. Cancel slippage costs can simply be done by placing limit orders. With limit orders, the slippage automatically becomes 0.

The difference in the cost percentage when the slippage goes to zero is illustrated as follows.

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

Categories
Forex Market Analysis

Daily F.X. Analysis, January 8 – Top Trade Setups In Forex – Eyes on Trump’s Speech! 

On the forex front, the U.S. Dollar Index rebounded 0.3% on the day to 96.97 on Tuesday. The USD/JPY dipped 0.4% to 108.00, as U.S.-Iran tensions curbed investors’ risk appetite. This morning, the pair slid further to 107.67, the lowest level since mid-October, following reports that Iran has started attacks on U.S. targets in Iraq.

On the forex front, the U.S. Dollar Index rebounded 0.3% on the day to 96.97 on Tuesday. The USD/JPY dipped 0.4% to 108.00, as U.S.-Iran tensions curbed investors’ risk appetite. This morning, the pair slid further to 107.67, the lowest level since mid-October, following reports that Iran has started attacks on U.S. targets in Iraq.

On the forex front, the U.S. Dollar Index rebounded 0.3% on the day to 96.97 on Tuesday. The USD/JPY dipped 0.4% to 108.00, as U.S.-Iran tensions curbed investors’ risk appetite. This morning, the pair slid further to 107.67, the lowest level since mid-October, following reports that Iran has started attacks on U.S. targets in Iraq.

The Euro dropped 0.4% to $1.1154. Official data showed that the Eurozone’s CPI grew 1.3% on year in December (as expected), while retail sales in November rose 1.0% on the month (+0.7% expected). Later today, German factory orders for November will be released (+0.2% on month expected).

Economic Events to Watch Today

 

EUR/USD – Daily Analysis

The EUR/USD currency pair is representing limited gains, having hit the 5-day average resistance level at 1.1168 and looking to gain ground again mainly due to intensified geopolitical tensions. The EUR/USD pair is trading at 1.1147 and consolidates in the range between the 1.1145 – 1.1169.

The German data is due to come out at 06:00 GMT and expected to show Factory Orders rose by 0.3% month-on-month in November, having dropped by 0.4% in the preceding month. In year-on-year terms, factory orders are anticipated to have slipped by 5.5%. 

On the flip side, the positive reading may support the narrative that the German economy has bottomed out and will likely help the EUR/USD currency pair re-test resistance at 1.1206. The EUR currency will likely face losses if the data drops short of expectations by a significant margin. 

Daily Support and Resistance

  • S3 1.1042
  • S2 1.1101
  • S1 1.1127
  • Pivot Point 1.116
  • R1 1.1186
  • R2 1.1219
  • R3 1.1279

EUR/USD– Trading Tips

The EUR/USD is trading bearish around 1.1132, testing the support level of 1.1130. This level worked as a support during the previous days, the way Euro is forming candles, it seems to violate it pretty soon. On the 4 hour chart, the pair has formed a bullish channel that is keeping the EUR/USD supported near 1.1110. The MACD is just crossing below the 0 levels, which is suggesting odds of the bearish trend in the EUR/USD. At the same time, the bearish engulfing candle on the daily timeframe is adding further bearish bias on the EUR/USD pair. Let’s stay bearish below 1.1160 today. 

GBP/USD– Daily Analysis

The GBP/USD currency pair stay quite and consolidates in the narrow range between the 1.3105 – 1.3040 in the wake of the United States and Iran war fears. The GBP/USD currency pair is trading at 1.3119. Notably, the pair did not show a massive response to the early-day attack by Iran to the U.S.

The GBP traders gave a weak response to the greenback’s weakness amid Iran’s attack on the United States bases in Iraq. Apart from this, the USD dropped later when the United States did not take any action instantly.

As we already mentioned in the previous report that the UK PM Johnson would stick to his Brexit deadline, i.e., the end of 2020. Though, the previous headline suggested that the country will likely push the British leader towards a soft landing. The Bill of Tory leaders is still safe to the reaction of the opposition, mainly due to the clear majority of the ruling Conservatives. 

Although, the opposition Labour Party blamed the United Kingdom Prime Minister Boris Johnson of giving protection to the United States PM Donald Trump regarding the killing of Iran military general.

At the US-Iran war front, the United States President Donald Trump is also ready to speak on Iranian attacks over the U.S. bases in Baghdad and could affect the market’s moves. The U.S. ADP Employment Change and comments from Federal Reserve Governor Lael Brainard can also be the reason behind the pair moves.


Daily Support and Resistance

  • S3 1.2905
  • S2 1.3022
  • S1 1.3066
  • Pivot Point 1.314
  • R1 1.3184
  • R2 1.3257
  • R3 1.3375

GBP/USD– Trading Tip

The GBP/USD is also trading bullish around 1.3185 due to weakness in the U.S. dollar. The recent bullish engulfing candle is suggesting odds of bullish trend continuation in the GBP/USD pair. 

On the higher side, the GBP/USD may find resistance near 1.3185 level today while the support still stays at 1.3060. A bullish breakout of 1.3185 level can extend the bullish trend until 1.3285. Let’s stay bullish above 1.3125 today. 

USD/JPY – Daily Analysis

The USD/JPY currency pair dropped to 108.00, having hit the low of 107.83, mainly due to the risk-off market sentiment in the wake of Iran’s missile attacks on the U.S. airbases in Iraq earlier today. But currently, the USD/JPY currency pair has recovered to 108.50 but failed near the 108.45 due to risk recovery after confirmed that no damages have been seen by the United States President Donald Trump from the Iranian attacks. 

The USD/JPY pair is currently trading at 108.38 and consolidates in the range between the 107.64 – 108.53. More than one dozen missies have been reportedly launched at the Ain Assad Air Base. White House answers that they are aware of the attack, and the U.S. President Trump has been briefed, and he is monitoring the situation.

It is worth to mention that the United States President Donal Trump will make a statement tonight. With this, the U.S. Defense Secretary Esper and U.S. Secretary of State Pompeo have arrived at the White House. On the other hand, Iran’s guards warn the U.S. any aggression against Tehran will get a worse response.

Meanwhile, the market’s risk tone recently weakened with the U.S. 10-year Treasury yields slipping more than seven pips to 1.75%, whereas the S&P 500 Futures are losing more than 1% to 3,200 by the press time.

Looking forward, the traders will now keep their eyes on further progress surrounding the US-Iran tension for fresh direction. At the economic front, Japan’s Consumer Confidence for December and the US ADP Employment Change, an early signal to Friday’s NFP, will be closely observed.

Daily Support and Resistance

  • S3 106.54
  • S2 107.34
  • S1 107.66
  • Pivot Point 108.14
  • R1 108.46
  • R2 108.95
  • R3 109.75

USD/JPY – Trading Tips

The USD/JPY pair is trading bullish around 108.720, which marks 50% Fibonacci retracement on the 240 minutes chart. The pair is pretty much likely to surge higher to complete th2 61.8% Fibonacci retracement at 108.950. 

The MACD is forming bigger histograms than before, which indicates the positive sentiment of traders. Lastly, the 4 hour time has formed three white soldiers pattern, which is likely to keep the USD/JPY bullish today. Consider taking buying trades above 108.500 to target 108.950. 

All the best!

Categories
Forex Daily Topic Forex Price-Action Strategies

Don’t Only Rely on Your Initial Assumption, Dig into It

In today’s article, we are going to demonstrate an example of an entry, which is derived from the daily-H4 chart combination. It is a typical entry once we flip over to the H4 chart. Before flipping over to the H4 chart, there is a good lesson, which may help us in the future. Let us get started.

In today’s article, we are going to demonstrate an example of an entry, which is derived from the daily-H4 chart combination. It is a typical entry once we flip over to the H4 chart. Before flipping over to the H4 chart, there is a good lesson, which may help us in the future. Let us get started.

In today’s article, we are going to demonstrate an example of an entry, which is derived from the daily-H4 chart combination. It is a typical entry once we flip over to the H4 chart. Before flipping over to the H4 chart, there is a good lesson, which may help us in the future. Let us get started.

This is a daily chart. It shows that the price, after having a bounce, heads towards the upside. It finds its resistance and produces a bearish marubozu candle. The combination of the last two candles is also known as track rail. It is a strong bearish signal. Usually, the daily-H4 combination traders may want to flip over to the H4 chart to hunt an entry. However, the level of support seems too adjacent to offer a short entry. In naked eyes, the daily chart shows that there is very little space for the price to travel towards the South. Is it? Let us flip over to the H4 chart and reveal the truth.

This is the H4 chart. It shows that the price is on consolidation, searching for its resistance already. The level of support is far enough to offer some handful of pips to the sellers.

The chart produces a bearish engulfing candle closing below the last swing low. The sellers may trigger a short entry right after the candle closes. Let us not just guess it. Let us measure it by drawing two horizontal lines.

These two lines determine the stop loss and entry-level. The drawn support is far enough to offer excellent risk-reward. If you are not sure, measure it with the tool on the trading platform. The risk-reward is 1:1.5 here. Let us now find out the result.

The price heads towards the level of support and produces a bullish reversal candle as well. The sellers have grabbed some green pips. The consolidation, the signal candle, and the risk-reward are perfect here. Do you remember how it begins, though? The daily chart does not look that appealing at the very outset despite producing an excellent daily bearish reversal candle. In naked eyes, it looks bad. However, once we have flipped over to the H4 chart, it is a different story. It looks very appealing, and in the end, it offers an excellent entry. In the beginning, do not just skip a chart by its outlook. Dig into it. The habit of digging may get you more entries.

Categories
Forex Market Analysis

EUR/JPY Completes 50% Fibo Retracement – 61.8% Mark In Eyes!

The EUR/JPY is trading with a bearish bias at 120.950 areas in the wake of the U.S. Iran trade war. Iran immediately called a parliament to decide whether US troops should remain in Iran soil or not. The parliament voted the US troop withdrawal from Iran, which was criticized by the US.

The EUR/JPY is trading with a bearish bias at 120.950 areas in the wake of the U.S. Iran trade war. Iran immediately called a parliament to decide whether US troops should remain in Iran soil or not. The parliament voted the US troop withdrawal from Iran, which was criticized by the US.

The EUR/JPY is trading with a bearish bias at 120.950 areas in the wake of the U.S. Iran trade war. Iran immediately called a parliament to decide whether US troops should remain in Iran soil or not. The parliament voted the US troop withdrawal from Iran, which was criticized by the US.

The US President Trump said that they had invested billions of dollars in building an airbase in Iran, and they would not leave until Iran pay them back. US army denied the troop withdrawal from Iran.
Iran then announced that it would no longer follow the 2015 nuclear contract with the world powers. According to that provision, Iran was bound to follow the uranium enrichment limits mentioned under the 2015 Nuclear Agreement.

In response to what, US President tweeted that Iran would never become a Nuclear Power. He then said that the US military would attack 52 Iranian Historical values if they make US troops to leave Iran. This has increased the geopolitical tensions throughout the globe and has increased the uncertainty as to which extent these countries could go further.

On the other hand, the FOMC meeting minutes for the December meeting were released on Sunday, which showed that US Fed policymakers were in favor of further easing. However, Federal Reserve has already announced that no further rate cuts would be made in 2020, and the interest rates will remain unchanged throughout the year.


EUR/JPY – Daily Technical Levels

Support Resistance
121.16 121.35
121.06 121.44
120.87 121.64
Pivot Point 121.25

The EUR/JPY pair has already completed 38.2% Fibonacci retracement around 120.950, and it’s now likely to head towards 61.8% Fibo levels. Immediate support is expected to be found around 120.800 level, while the MACD and RSI support the bearish bias. The idea is to trade bearish below 121.005 to complete 61.8% Fibonacci retracement around 120.650 today.

Good luck!

Categories
Forex Daily Topic Forex Videos

How To Succeed In Forex – Why Knowing your Strategy parameters makes sense

https://youtu.be/4sjtMeumna8

https://youtu.be/4sjtMeumna8

 

Why Knowing your Strategy parameters makes sense

Usually, traders’ interest focus on entries. Forecasting seems to them a crucial skill for succeeding in the Forex market, and they think other topics are secondary or even irrelevant. They are deadly wrong. Entries are no more than 10 percent of the success of a trader, while risk management and position sizing are crucial elements that the majority of traders discard as uninteresting. Let us show why risk can be such an exciting topic for people willing to improve in their trading job.

Making sure our strategy is a winner

There are two ways to trade The good one and the bad one. The good one is when the trader fully knows the main parameters of his system or strategy. The bad one is when not.
So, why do we need to know the parameters to be successful? The short answer is that it is
Firstly, to know if the system has an edge (profitable long-term).

Secondly, by knowing the parameters, we will know how much we can risk on each trade.
And thirdly, and no less important, by identifying these parameters, we can more easily define the monetary objectives and overall risk (drawdown).


Good, let’s begin!

The two main parameters of a strategy or system!

To fully identify a strategy, we need just two parameters. The rest of them can be derived from these two with or without the position size. The parameters in question are the percent of winning trades and the Reward-to-risk ratio.
Mathematical Expectancy (ME)
With these two parameters, we can estimate if the system is a winner or a loser using the following simple formula, defining the player’s edge: ME = (1 + A)*P -1

Where P is the probability of winning and A is the amount won. The formula assumes that A is constant since this formula came from gambling. Still, we can very much approximate the results is A is our average winning amount, or even better, the Reward-to Risk Ratio.


As an example let’s assume our system shows 45% winners with a winning amount two times its risk
ME = (1+2)*0.45 -1
ME = 0.35
The mathematical Expectancy (ME) expressed that way, shows the expected return on each trade per dollar risked. In this case, it is 35 cents per dollar risked.

Planning for the monetary objectives
Once we know ME, it is easy to know the daily and weekly returns of the strategy. To do it, another figure we should know, of course, the frequency of trades of the strategy. Let’s assume the strategy is used intraday on four major pairs delivering one trade per pair per day. That means, the system’s daily return (DR) will be 4XME dollars per day per dollar risked, while monthly returns (MR) will be that amount times 20 trading days:

DR = 4 x ME = 4 x 0.35 = 1.4
MR = 20xDR = 20 x 1.4 = 28

Therefore, a trader risking $100 per trade would get $2,800 monthly on average.
That is great! By defining our monthly objectives, once knowing ME and the number of trades the system delivers daily or monthly, we can determine the risk incurred. For example, another bolder trader would like to triple that amount by tripling the risk on each trade. Why not a ten-fold or a hundred-fold risk to aim for 280K monthly income?


Drawdown

That touches the dark side of trading, which is drawdown. Drawdowns are the result of the combination of the probability of losing of the trading system and the amount lost. Drawdowns are unavoidable because a system always shows losing streaks. Therefore, any trader must make sure that streak does not burn his trading account.

The risk of ruin increases as the trade size grows, so there is a rational limit to the size we should trade if we want to keep safe our hard-earned money.
As a basic method to be on the safe side, a trader must first decide how much of his account is willing to accept as drawdown, and from there, use as trade size a percent of the total balance which satisfies that condition of maximum drawdown.

Let’s do an example

Let’s say a trader using the previous strategy will not accept to lose more than 25 percent of his funds. As an approximation to this drawdown, we can think of a losing streak of 10 consecutive trades, an event with 0.35% probability of happening. Which is the trade size suitable to comply with these premises?
Trade Size = MaxDD% / 10
Trade Size = 25% / 10 = 2.5%
That gives us the reasonable trade size for this particular trader. If another trader is not willing to risk more than 10%, then his trade size should be 1%. Once this quantity is known, the trader only has to compute the dollar value by multiplying by the current balance.

Resetting the objectives

Let’s assume the balance is $5,000, then the max risk per trade allowed is $ 125. That means we could expect a monthly return of about $3,500 on the previously discussed strategy for a max drawdown of no more than 25%. If the trader would like to earn $7,000 instead, he should add another $5,000 to the account to guarantee a 25% drawdown or accept a 50% drawdown and risking $250.

Final words

Please, note that this is just an example and that sometimes the trade size is limited by the allowed leverage and other conditions. Also, note that trading the Forex market is risky. Therefore, please start slow. It is better to begin by risking 0.5% and see how your strategy develops and the drawdowns involved.

The first measure you must take is creating a spread-sheet annotating all your trades, including entry, exit, profit/loss, and risk per trade. Then compute your strategy parameters on a weekly basis. This is a serious business, and we should be making our due diligence and keep track of the evolution of our trade system or systems.

Categories
Forex Daily Topic Forex Price-Action Strategies

Significant Levels Must be Counted

Price action traders are to take entry and exit by determining support and resistance on the naked chart. Significant highs and lows are considered to draw support and resistance, which help traders find out stop loss, take profit as well as risk-reward. In today’s article, we are going to demonstrate an example of a level holding the price as support, where the price had a rejection earlier. Let us find out how we are to deal with such levels.

Price action traders are to take entry and exit by determining support and resistance on the naked chart. Significant highs and lows are considered to draw support and resistance, which help traders find out stop loss, take profit as well as risk-reward. In today’s article, we are going to demonstrate an example of a level holding the price as support, where the price had a rejection earlier. Let us find out how we are to deal with such levels.

Price action traders are to take entry and exit by determining support and resistance on the naked chart. Significant highs and lows are considered to draw support and resistance, which help traders find out stop loss, take profit as well as risk-reward. In today’s article, we are going to demonstrate an example of a level holding the price as support, where the price had a rejection earlier. Let us find out how we are to deal with such levels.

This is the daily chart. The price heads towards the North with good bullish momentum. Look at the last candle. It is a strong bearish candle with a long solid bearish body. The daily-H4 chart combination traders may want to flip over to the H4 chart to find short entries.

This is how the H4 chart looks. The price has been bearish. The last candle comes out as an inside bar. If the price consolidates and produces a bearish candle breaching the lowest low, the sellers may go short on the pair. The question is, where do they set their take profit level? Look at the red line, which is drawn right at the point where the price had a rejection earlier. The level of support is further down, but the red-lined level is a significant level, which the sellers must consider before making any selling decision on this chart.

The price produces a bearish engulfing candle breaching the lowest low. It means that the price has found its resistance. The sellers may draw two lines here to identify their stop loss and entry point.

This is how it looks with two drawn lines. The live above is the stop loss level. The price breaches the line and closes below it. Thus, the sellers may trigger a short entry right after the candle closes. Let us proceed to the next chart to find out how the trade goes.

The price heads towards the South with good bearish momentum. Look at the last candle, which comes out as an inside bar. It produces right at the flipped support. This is where the price had a strong rejection earlier. The sellers shall set the take profit right here. Some traders may take out partial profit and use trailing stop loss by making sure that they do not lose even a single penny. Both have pros and cons. However, the matter of fact is they must count such level before making any trading decision. It helps them determine the take profit level, risk-reward, and trade with more winning chances.

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Forex Market Analysis

Daily F.X. Analysis, January 6 – Top Trade Setups In Forex – U.S. Iran Shakes The Market! 

On the forex front, the U.S. Dollar Index was little changed at 96.84 on Friday. Being regarded as a haven-asset, the Japanese yen strengthened against the greenback as geopolitical risks increased. USD/JPY dropped 0.5% to 108.09, the lowest level since mid-October.

On the forex front, the U.S. Dollar Index was little changed at 96.84 on Friday. Being regarded as a haven-asset, the Japanese yen strengthened against the greenback as geopolitical risks increased. USD/JPY dropped 0.5% to 108.09, the lowest level since mid-October.

On the forex front, the U.S. Dollar Index was little changed at 96.84 on Friday. Being regarded as a haven-asset, the Japanese yen strengthened against the greenback as geopolitical risks increased. USD/JPY dropped 0.5% to 108.09, the lowest level since mid-October.

The euro slipped 0.1% to $1.1160. Official data showed that German’s jobless rate was steady at 5.0% in December as expected, while CPI grew 1.5% on year (+1.4% expected). 

Besides, Iran vowed “severe revenge” on the U.S., while President Donald Trump threatened major retaliation on Iran if they do anything.

Economic Events to Watch Today

 EUR/USD – Daily Analysis

The EUR/USD currency pair hit the bullish track mainly due to U.S. Treasury yields, which dropped in the wake of risk-off sentiment. Besides, the greenback is also struggling to gain the ground. The EUR/USD pair is consolidating at 1.1164, consolidating in the range between the 1.1156 – 1.1172. 

The on-going tension between the United States and Iran further intensified during the weekend after Iran’s supreme leader Ayatollah Ali Khamenei’s statement that Iran would take revenge for the U.S. killing of Iranian general Soleimani. The country also announced that it would not follow any restrictions imposed by the 2015 nuclear deal.

On the other hand, the United States President Donald Trump also gave warning regarding retaliation if the Iran attacks on United States personnel or assets.

The yield on the United States ten-year Treasury note dropped to a one-month low of 1.757% in Asia and is currently seen at 1.777% – down ten basis points on the day.

At the data front, the German retail sale for November and final PMI indices for December are scheduled for release. However, these data will likely avoid in the wake of geopolitical development.



Daily Support and Resistance

  • S3 1.1082
  • S2 1.1133
  • S1 1.1153
  • Pivot Point 1.1183
  • R1 1.1203
  • R2 1.1234
  • R3 1.1284

EUR/USD– Trading Tips

On the 2 hour chart, the EUR/USD has tested the support level of 1.1130, which was being extended by the old triangle pattern. The U.S. Iran war sentiments are making EUR/USD weaker and are very likely to drive bullish bias until 1.1200 and 1.1245 level today. 

Speaking about the leading indicators, the RSI and MACD are holding in the buying zone, demonstrating the bullish trend in the EUR/USD pair today. Consider staying bullish until 1.1240 today.

 

GBP/USD– Daily Analysis

The GBP/USD currency pair shifted to bullish track from the two-day losing streak, mainly due to broad-based greenback weakness. As of writing, the GBP/USD is trading at 1.3160.

Just like the EUR/USD, the GBP/USD is also being influenced by the geopolitical tensions. On-going tension between the United States and Iran further intensified during the weekend after Iran’s supreme leader Ayatollah Ali Khamenei’s statement that Iran would take revenge for the U.S. killing of Iranian general Soleimani. The country also announced that it will not follow any restrictions imposed by the 2015 nuclear deal. As a result, the U.S. dollar is getting weaker.

At the Brexit front, the United Kingdoms’ opposition Labour Party will decide the schedule for the election to choose the next leader on Monday. Moreover, it seems like the contender Keir Starmer already accepted the Brexit while Jess Phillips says if Brexit fails, she will likely to rejoin the European Union.

The United Kingdom Prime Minister will meet the Ursula von der Leyen, European Commission President on Wednesday, and will likely discuss the Brexit process ahead. However, the daily mail hints that the senior Tory leaders are supporting Boris Johnson to kick off parallel post-Brexit trade talks with the U.S. to put pressure on the E.U. 


Daily Support and Resistance

  • S3 1.2932
  • S2 1.3047
  • S1 1.3094
  • Pivot Point 1.3163
  • R1 1.321
  • R2 1.3278
  • R3 1.3393

GBP/USD– Trading Tip

The GBP/USD is also trading bullish around 1.3185 due to weakness in the U.S. dollar. The recent bullish engulfing candle is suggesting odds of bullish trend continuation in the GBP/USD pair. 

On the higher side, the GBP/USD may find resistance near 1.3185 level today while the support still stays at 1.3060. A bullish breakout of 1.3185 level can extend the bullish trend until 1.3285. Let’s stay bullish above 1.3125 today. 

USD/JPY – Daily Analysis

The USD/JPY currency pair found on the bearish track due to the risk-off sentiment in the market and a greenback’s weakness. The USD/JPY pair is trading at 108.00 and consolidates in the range between the 107.77 – 108.12.

On the front of main headlines, the on-going tension between the United States and Iran further intensified during the weekend after Iran’s supreme leader Ayatollah Ali Khamenei’s statement that Iran would take revenge for the U.S. killing of Iranian general Soleimani. As a consequence, the markets have turned into risk-off sentiment, boosting demand for safe-haven assets like U.S. treasury, gold, and Japanese yen.

On the other hand, the United States President Donald Trump also gave warning regarding retaliation if Iran attacks the United States personnel or assets. Notably, we can expect further conflicting updates.

The United States’ two-year Treasury yields declined from 1.57% to 1.51%, the lowest since early Nov, ten-year yields from 1.88% to 1.79%. Markets are pricing a near-zero chance of rate cut at the next Fed meeting on January 29 but a terminal rate of 1.28%.

Daily Support and Resistance

  • S3 107.24
  • S2 107.9
  • S1 108.23
  • Pivot Point 108.55
  • R1 108.89
  • R2 109.2
  • R3 109.86

USD/JPY – Trading Tips

The USD/JPY is trading in a bearish channel, which is keeping it support near 107.750 for now. At the same time, the resistance is likely to be found around 108.250. The RSI and MACD are staying above 50 and 0, suggesting a bullish trend in the USD/JPY.

Technically the pair has the potential to drop further until 107.800 level, and violation of this could extend selling until 107.600. All the best!

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Forex Market Analysis

Crude Oil Completes 23.6% Retracement – EIA Report Ahead! 

The WTI crude oil prices continue to increase, mainly due to intensifying tension in the Middle East. The U.S. Crude Oil WTI Futures jumped 2.9% to $62.98 yesterday.

The WTI crude oil prices continue to increase, mainly due to intensifying tension in the Middle East. The U.S. Crude Oil WTI Futures jumped 2.9% to $62.98 yesterday.

The WTI crude oil prices continue to increase, mainly due to intensifying tension in the Middle East. The U.S. Crude Oil WTI Futures jumped 2.9% to $62.98 yesterday.

Reports came from the Middle East that the airstrike killed key Iranian and Iraqi military, and consequently, the tension increased as well as the concerns of crude oil supplies diruption increased too, so that’s why oil markets are hugely supported today.

On the other hand, the WTI crude oil prices gained support from the announcement of the People’s Bank of China that it was cutting the amount of cash that banks must hold in reserve, releasing around 800 billion yuan ($115 billion) in funds to support the slowing Chinese economy.

Meanwhile, the Positive data that showed China’s production activities business confidence rose. President Trump is expected to take a break on being ‘tariff man’ until we get beyond the presidential election in November. Besides this, Trump said a phase one trade deal would be signed on Jan. 15 at the White House.

Meanwhile, the sentiment around the oil markets remains underpinned by the US-China trade deal optimism and declining US crude inventories, as reported by the American Petroleum Institute (API) earlier this week. The API data showed a draw of 7.8M barrels of oil for the week ending Dec. 27.

For now, the WTI barrel now awaits for the weekly US Crude Stocks data due to be published by the Energy Information Administration.


Daily Support and Resistance

Support Resistance
63.09       63.47
62.85       63.6
62.47       63.98
Pivot Point 63.23

The WTI crude oil is holding in the overbought zone at 63.50, having an immediate resistance around 64 and support at 62.75. The U.S. Oil has already completed 23.6% Fibonacci retracement at 63.15. 

In case, the EIA reports another draw in U.S. Oil stocks; we may see further buying in crude oil prices until 65. Alternatively, the oil may extend the bearish trend until 62.75, which marks a 38.2% Fibonacci retracement level. All the best! 

Categories
Forex Market Analysis

Daily F.X. Analysis, January 3 – Top Trade Setups In Forex – FOMC Meeting Minutes Ahead! 

On the forex front, the U.S. Dollar Index rebounded from its six-month low, gaining 0.4% on the day to 96.80. The investor will focus on the Federal Reserve’s latest monetary policy meeting minutes due later in the day. In Asian trading hours, safe-haven demand surged as the U.S. Defense Department confirmed that the U.S. military, “at the direction of the president,” killed Iranian general Qassem Soleimani in an airstrike in Iraq.

On the forex front, the U.S. Dollar Index rebounded from its six-month low, gaining 0.4% on the day to 96.80. The investor will focus on the Federal Reserve’s latest monetary policy meeting minutes due later in the day. In Asian trading hours, safe-haven demand surged as the U.S. Defense Department confirmed that the U.S. military, “at the direction of the president,” killed Iranian general Qassem Soleimani in an airstrike in Iraq.

On the forex front, the U.S. Dollar Index rebounded from its six-month low, gaining 0.4% on the day to 96.80. The investor will focus on the Federal Reserve’s latest monetary policy meeting minutes due later in the day. In Asian trading hours, safe-haven demand surged as the U.S. Defense Department confirmed that the U.S. military, “at the direction of the president,” killed Iranian general Qassem Soleimani in an airstrike in Iraq.

Economic Events to Watch Today

Economic Calendar by TradingView

 

EUR/USD – Daily Analysis

The Euro dropped 0.4% to $1.1171. Later today, German’s December jobless rate (steady at 5.0% expected) and CPI data (+1.4% on-year expected) will be reported. The contracted manufacturing PMI from Germany at the end of 2019 weighed on single currency Euro and dragged the pair EUR/USD below 1.120 on Thursday. 

On the other hand, the U.S. dollar rose today after a week on the release of U.S. initial jobless claims for December. The jobless claims for the previous week were in line with the expectations and supported the U.S. dollar.

The labor market of the United States showed signs of improvement, and American markets reacted positively to renewed hopes of growth in consumer spending. This could mean that the U.S. economy would grow with a moderate rate in 2020.

Meanwhile, the US-China trade deal developments had given some ease to the ongoing global economic slowdown when it was confirmed that the phase-one deal between the world’s two largest economies would be signed in mid –January. The strong U.S. dollar and weak Euro dragged the EUR/USD pair at the start of the New Year.


Daily Support and Resistance

  • R3: 1.1284
  • R2: 1.1234
  • R1: 1.1203
  • Pivot Point 1.1183
  • S1: 1.1153
  • S2: 1.1133
  • S3: 1.1082

EUR/USD– Trading Tips

Technically, the pair is trading at 1.1135, which is very closer to the bearish trendline support area of 1.1125. On the lower side, the EUR/USD is likely to find support around 1.1100 areas, which previously worked as a resistance for the EUR/USD. On the higher side, the EUR/USD may find resistance near 1.1150 and 1.1185 today.  

The RSI and MACD are holding in the bearish zone, suggesting chances of the bearish trend in the EUR/USD pair. Let’s stay bearish below 1.1180 and bullish above 1.1110 today. 

GBP/USD– Daily Analysis

The British pound sank 0.8% to $1.3147, halting a six-day rally. Research firm Markit will release U.K. Construction PMI for December (45.9 expected). However, Boris Johnson has pledged that U.K. would leave E.U. on January 31 and has announced to make his Brexit deal as a law in case no transaction was secured by the end of 2020 with E.U. in terms of trade.

PM Johnson insisted that 11 months period was enough to reach a trade deal with E.U., but critics have argued that the timetable was too tight and could lead to a no-deal Brexit. This has been weighing on British Pound, and hence, GBP/USD started to fell at the start of the New Year.

Meanwhile, the U.S. dollar gained traction in the market after the losses of 6 consecutive days on Thursday. 

The trader’s comeback after the holidays gave strength to the U.S. dollar when they re-entered in the market, and the volume of trades increased. Strong U.S. dollar added in the pressure of GBP/USD and caused the pair to lose its gains from the previous day.

Daily Support and Resistance

  • R3: 1.3393
  • R2: 1.3278
  • R1: 1.321
  • Pivot Point 1.3163
  • S1: 1.3094
  • S2: 1.3047
  • S3: 1.2932

GBP/USD– Trading Tip

Just like the EUR/USD, the GBP/USD pair has also completed a bearish retracement until 1.3045, which marks 61.8% Fibonacci Retracement area. Three black crows on the 2-hour chart are signifying bearish bias among traders. At the moment, the Cable is trading around 1.3050 level, and it may surge a bit above the 1.3045 area to target 1.3150 today. 

USD/JPY – Daily Analysis

The USD/JPY closed at 108.566 after placing a high of 108.864 and a low of 108.210. Overall the trend for USD/JPY remained bearish that day.

At 5:30 GMT, the Annual Challenger Job Cuts form the United States came in as-25.2% in comparison to the previous -16.0%. At 6:30 GMT, the Unemployment Claims for the last week from the United States came in line with the expected 222K. AT 7:45 GMT, the Final Manufacturing PMI for December forms the United States was dropped to 52.4 from the expectations of 52.5 and weighed on the U.S. dollar.

The decline in the Manufacturing activity in the United States at the end of 2019 gave pressure to the U.S. dollar and dragged USD/JPY for 4th consecutive day on Thursday to the level of 108.2.

The US-China trade deal optimism gave strength to the U.S. dollar when it failed to grow the economy of China. In response to what, on Wednesday, the Chinese Central Bank announced that it was diminishing the quantity of cash that all banks need to hold as reserves around $15B. This move from China’s Central Bank was taken to improve the economic condition of the country.

Daily Support and Resistance

  • R3: 109.86
  • R2: 109.2
  • R1: 108.89
  • Pivot Point 108.55
  • S1: 108.23
  • S2: 107.9
  • S3: 107.24

USD/JPY – Trading Tips

The USD/JPY was facing triple bottom support around108.400 level, which has now been violated after the USD/JPY completed 23.6% retracement at 108.700. The USD/JPY pair is trading in a bearish channel, which is likely to keep this pair bearish below 107.900. 

At the moment, the pair may find immediate support near 107.900, and violation of this could extend sell-off until 107.500. While resistance holds around 108.250 today, consider taking sell trades below 108.200 today.

All the best!

Categories
Forex Assets

Understanding The Fundamentals Of USD/JPY Forex Pair

Introduction

Introduction

Introduction

USDJPY is the abbreviation for the currency pair US dollar against the Japanese yen. This currency pair is very liquid and volatile. It is classified as a major currency pair. Here, USD is the base currency, and JPY is the quote currency. The currency pair shows how many JPY are required to purchase one US dollar.

Understanding USD/JPY

The exchange rate of USDJPY represents the units of JPY equivalent to one US dollar. For example, if the value of USDJPY is 109.550, then these many Japanese yen are required to buy one US dollar.

USD/JPY Specification

Spread

Spread is simply the difference between the bid price and the ask price. It depends on the account type. The average spread for ECN and STP account is shown below.

Spread on ECN: 0.5

Spread on STP: 1.2

Fees

The fee is basically the commission charged by the broker on each trade. Typically, the fee on STP accounts is nil, and there is some fee on the ECN account. There is no fixed fee on the ECN account and varies from broker to broker.

Slippage

Slippage is the difference between the price needed by the trader and the real price the trader was executed. Slippage happens when orders are executed as market orders. The slippage is usually within the range of 0.5 to 5 pips.

Trading Range in USD/JPY

The trading range is the representation of the minimum, average, and maximum volatility on a particular timeframe. It shows the range of pips the currency pair moved on a given timeframe. These values prove to be helpful in assessing a trader’s risk and controlling their cost on a trade.

USD/JPY PIP RANGES

Procedure to assess Pip Ranges

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

USD/JPY Cost as a Percent of the Trading Range

Just knowing how many pips the currency pair moved is pointless. To bring it some value, it is clubbed with the total cost to understand how the cost varies based on the volatility of the market. It shows cost and volatility are dependent on each other.

The relation between Cost and Volatility

Cost and volatility are inversely proportional to each other. When the volatility of the market is low, the costs are high; and when the volatility is high, the cost is low. More on this is discussed in the subsequent section.

ECN Model Account

Spread = 0.5 | Slippage = 2 | Trading fee = 1

Total cost = Slippage + Spread + Trading Fee = 2 + 0.5 + 1 = 3.5

STP Model Account

Spread = 1.2 | Slippage = 2 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 2 + 1.2 + 0 = 3.2

The Ideal way to trade the USD/JPY

The above two tables are formed by finding the ratio between the total cost and the volatility. It is then expressed in terms of a percentage. Comprehending the values is simple. It is based on the relation between cost and volatility. If the percentage value is high, then the cost is high for that particular volatility and timeframe. It can be inferred that the min column has the highest values compared to the average and max column. This simply means that the costs are high when the volatility of the market is low. Hence, it is recommended to open/close positions when the volatility is at or above the average mark.

Furthermore, apart from volatility, the cost is heavily affected by the slippage. As mentioned, this happens due to market order executions. Hence, to reduce your cost by up to 50% on each trade, it is recommended to trade using limit orders and not market orders.

Categories
Forex Daily Topic Forex Price-Action Strategies

An Entry Derived From an Unusual Consolidation

Price action traders love to see the price consolidates and makes a breakout towards the trend direction. Consolidation offers better risk-reward as well as a better chance of winning a trade. In today’s lesson, we are going to demonstrate an example of a consolidation, which is rather unusual. Let us proceed.

Price action traders love to see the price consolidates and makes a breakout towards the trend direction. Consolidation offers better risk-reward as well as a better chance of winning a trade. In today’s lesson, we are going to demonstrate an example of a consolidation, which is rather unusual. Let us proceed.

Price action traders love to see the price consolidates and makes a breakout towards the trend direction. Consolidation offers better risk-reward as well as a better chance of winning a trade. In today’s lesson, we are going to demonstrate an example of a consolidation, which is rather unusual. Let us proceed.

This is a daily chart. The chart shows that the price produces a bullish engulfing candle at a flipped level of support. The daily-H4 chart combination traders may flip over to the H4 chart for the price to consolidate and a bullish breakout to go long on the pair. Let us flip over to the H4 chart.

The H4 chart shows that the price heads towards the North by producing bullish candles consecutively. The buyers shall wait for the price to find its support, consolidates, and makes a bullish breakout. Let us proceed to the next chart.

The chart produces another candle, which has a bullish body. In naked eyes, it is a bullish candle, but it is not. It is an Inside bar, which closes within the level of resistance. Let us have a look at the next chart.

The next candle has a little bullish body as well. Many traders may think that the price is still with the bull. Do not get trapped here. The candle closes within the level of resistance again. The price has not found its support yet. However, it has been on a tricky consolidation.

Look at the last candle, which closes above the level of resistance. The price bounces at the level where the first candle (Inside Bar) bounced. Since a bullish engulfing candle breaks the level of resistance, technically traders may trigger a long entry right after the candle closes. Let us proceed to the next chart to find out how the trade goes.

The price keeps heading towards the North for two more candles. As it seems, it may go towards the North further. An unusual consolidation and an explicit breakout seem to work wonderfully well for the buyers here. We usually see that price consolidates by producing bearish candles on a bullish market and vice versa. In this example, we have seen that the price may consolidate by producing inside bars as well. An Inside bar/s may confuse us. It may make us think the price is not on consolidation. Now we know consolidation sometimes may look different. However, it works as well as usual consolidation.

Categories
Forex Elliott Wave

Basic Concepts of Wave Analysis

The Elliott waves reflect the behavior of the masses, which characterizes by repeating itself over time. In this educational article, we will look at the basic concepts of wave analysis.

The Elliott waves reflect the behavior of the masses, which characterizes by repeating itself over time. In this educational article, we will look at the basic concepts of wave analysis.

The Elliott waves reflect the behavior of the masses, which characterizes by repeating itself over time. In this educational article, we will look at the basic concepts of wave analysis.

The Wave Concept

The first step before to start to analyze waves is to understand what a wave is? A wave is a movement that develops a market in terms of price over time. This move has its origin in the imbalance between the buying and selling forces that interact in the market.

Glenn Neely defines a “monowave” as a movement that begins with a variation in the direction of the price. This move ends when the next price variation occurs.

A monowave can have an ascending or descending diagonal direction. The speed with which it occurs in time can vary, but in no way will this be a vertical line.

The movement that develops the price through time can slow down and then gain momentum again. This variation is part of the same wave.

The Psychology of Participants

When a market moves for a large part of the time in the same direction, the interest of public participation tends to increase.

Different information media starts to pay more attention to the same time that the market movement progresses. In this stage, the general public seeks to participate and benefit from that movement. However, when it occurs, market movers tend to start to close their positioning.

R.N. Elliott, through his study, identified specific patterns that tend to repeat over time in different markets. However, these patterns do not have the same dimension; neither happens in the same way in the markets.

On the other hand, as patterns described by Elliott have specific similar characteristics. Its knowledge and identification allow making forecasts about the next movement with a high level of precision.

Types of Waves

There exist two types of basic wave movements; these are:

  • Impulses, that move in a defined direction. Impulsive waves characterize by composed of 5 segments, of which 3 of them move in the same direction of the trend.
  • Corrections move in the opposite direction of the motive movement. Generally, it tends to progress in a sideways sequence. These formations are composed of 3 segments.

Waves Identification

The market moves across time, and each movement developed can be grouped in different time ranges, from seconds to years. Elliott defined degrees and labels to ease the study of any market through time.

When a movement is grouped in a specific timeframe, each move should be considered in terms of the relationship between price and duration of itself over time, and not analyze it in absolute terms either price or time.

Once recognized, the wave to study, the next step is its identification. This stage will require the use of labels in each part of the sequence. Labels are a tool that allows distinguishing both the impulse as the correction and the degree to which it belongs each wave.

When the wave analyst carries on the labeling process, these should be used in waves of similar size and complexity. It means that waves should be identified in the same timeframe and kept proportionality between one and another measure. The labeling process will make it easier to ask where the market is going.

Another aspect to take into consideration is the complexity of waves. In other words, complex structures are the result of a combination of the combination of three or five waves; the result of this combination is the creation of a wave of a higher degree or timeframe.

The figure represents the concepts of wave (or monowave used by Glenn Neely), impulsive and corrective wave and label.

Conclusions

The study of Elliott waves lets us understand the path that a market develops. In this way, the study and the identification of patterns described by R. N. Elliott, allows the wave analyst to answer the question of where the price is and where it possibly goes with a considerably high level of precision.

Both, the use of degrees and the labels are tools that permit maintaining a logical order in the wave analysis.

Finally, when identifying wave patterns, there must be a level of proportionality in the structure being analyzed, that is, there must be consistency in terms of price ranges and time.

Categories
Forex Course

40. Two Different Types Of Spreads In The Forex Market

In the last lesson, we clearly talked about what Spread in forex is and also how it is calculated. In this lesson, we will dig up a little more on the concept of spreads and understand its types.

In the last lesson, we clearly talked about what Spread in forex is and also how it is calculated. In this lesson, we will dig up a little more on the concept of spreads and understand its types.

In the last lesson, we clearly talked about what Spread in forex is and also how it is calculated. In this lesson, we will dig up a little more on the concept of spreads and understand its types.

In Forex, the spread is of two types:

  • Fixed spread
  • Variable/Floating spread

Fixed spreads are typically offered by Dealing Desk brokers, whereas, Variable spreads are offered by No Dealing Desk brokers. Let’s understand both in detail.

Fixed Spreads in Forex

As the name pretty much suggests, Fixed spreads remain the same regardless of the condition of the market. Be it a volatile or non-volatile market, the spread always stays the same.

As mentioned, these spreads are usually offered by Market Makers type of brokers.

Dealing Desk brokers buy a large number of positions from their liquidity providers and then offer these positions to traders (clients). Since the brokers will own these positions, they can control and display the prices to their clients with a fixed spread.

Why choose Fixed Spreads?

  • Fixed spreads do not require a large capital to trade. So, fixed spread brokers offer an alternative for traders who don’t have much cash to begin with.
  • “Fixed” spread itself is an advantage. Fixed spreads make it easy to calculate the transaction costs. And since spreads always remain constant, you will exactly know how much amount you will be paying to the broker for each trade.

Variable Spreads in Forex

Again, as the name suggests, Variable spreads are the spreads that are constantly changing, just like the exchange rates. That is, as and when the bid and ask price changes, the difference between the two changes. This, therefore, changes the spread as well.

This type of spread is offered by Non-Dealing Desk brokers. These brokers obtain the prices from multiple liquidity providers and directly pass on these prices to the traders without the involvement of a dealing desk. This means that NDD brokers do not have control over the spreads. It all depends on the market’s supply and demand and its overall volatility.

As a typical tendency of the market, when there is an economic event, the spreads widen. And same is the case when the market volatility drops.

Advantages of Variable spreads

  • Variable spreads diminish the experience of requotes, where requote is the difference in the price you hit the buy/sell and the price when your order reached the broker. However, this doesn’t mean that you won’t experience slippage.
  • Variable spreads provide transparent pricing, as you will be getting the prices from multiple liquidity providers, which in turn means better prices due to high competition.

If you’re wondering which type of spread you must choose? Well, it completely depends on the type of trader you are. For example, traders with small accounts who trade occasionally can go with a broker that offers fixed spread, whereas, a trader who wants fast execution and also wants to avoid requotes, can look for brokers offering variable spreads.

[wp_quiz id=”54986″]
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Forex Market Analysis

Daily F.X. Analysis, January 2 – Top Trade Setups In Forex – Trading Back to Normal! 

The U.S. dollar weakened against its major pairs on Tuesday. The ICE Dollar Index dropped 0.2% on the day to 96.53. U.S. President Donald Trump announced he would approve the phase one trade deal with China at the White House on January 15. Meanwhile, China’s central bank announced that it would lower the required reserve ratio for commercial banks by 50 basis points from January 6, releasing 800 billion yuan of liquidity into the financial system.

The U.S. dollar weakened against its major pairs on Tuesday. The ICE Dollar Index dropped 0.2% on the day to 96.53. U.S. President Donald Trump announced he would approve the phase one trade deal with China at the White House on January 15. Meanwhile, China’s central bank announced that it would lower the required reserve ratio for commercial banks by 50 basis points from January 6, releasing 800 billion yuan of liquidity into the financial system.

The U.S. dollar weakened against its major pairs on Tuesday. The ICE Dollar Index dropped 0.2% on the day to 96.53. U.S. President Donald Trump announced he would approve the phase one trade deal with China at the White House on January 15. Meanwhile, China’s central bank announced that it would lower the required reserve ratio for commercial banks by 50 basis points from January 6, releasing 800 billion yuan of liquidity into the financial system.

Economic Events to Watch Today

Let’s took at these fundamentals.

 

 

EUR/USD – Daily Analysis

The EUR/USD currency pair hit the biggest-quarter high since the third quarter of 2017, possibly due to the optimism surrounding the United States and China trade deal. As of writing, the EUR/USD currency pair increased by 2.8% in the 4th quarter and currently trading at 1.1213. 

The pair remains above critical Fibonacci level, i.e., 61.8% Fibonacci retracement of June-October declines, at 1.1210 now. Eventually, the currency pair has started 2020 with the bullish sentiment.

The continued optimism surrounding the US-China trade deal and signs of stability in the Eurozone economy support further gains in the EUR currency. 

On the flip side, the latest report from the People’s Bank of China’s (PBOC) regarding stimulating growth is also supportive news for the EUR currency as China is Eurozone’s biggest trading partner. 

People’s Bank of China (PBOC) announced 50 basis points into the Reserve Ratio Requirement (RRR) cut, which is scheduled to deliver on January 5. Besides this, commercial bankers will hold a reserve of 12.5% of their assets from now, while 10.5% for smaller institutions. 


Daily Support and Resistance

  • S3 1.1196
  • S2 1.1205
  • S1 1.1209
  • Pivot Point 1.1213
  • R1 1.1218
  • R2 1.1222
  • R3 1.123

EUR/USD– Trading Tips

On the technical side, the long upper wick attached to Tuesday’s candle is a tell-tale sign of buyer exhaustion. Meanwhile, the 4-hour chart is reporting a bearish divergence of the relative strength index and the MACD histogram. 

 

GBP/USD– Daily Analysis

The GBP/USD currency pair flashing red and dropped to 1.3210, mainly due to the fears of hard Brexit and thin trading conditions. As of writing, the currency pair is currently trading at 1.3221 and consolidates in the range between the 1.3202 – 1.3266. The Cable recently turned into bearish mode from the two-weeks high.

The market’s risk sentiment has recovered due to increasing optimism surrounding the US-China trade deal. However, the greenback recovers at the start of 2020. As a result, the U.S. ten-year treasury yields and stocks are moderately positive.

Whereas the holidays in Japan and New Zealand will keep the market’s sentiment light, all traders will keep their eyes on the trade/Brexit. December’s manufacturing PMI data from the U.S. and the U.K. will also be the key to watch.

If no significant change comes from the UK/US data, a downbeat figure against 47.4 prior and 47.6 expected will likely increase the chances of further rate cuts from the Bank of England (BOE).


Daily Support and Resistance

  • S3 1.3217
  • S2 1.3235
  • S1 1.3244
  • Pivot Point 1.3253
  • R1 1.3262
  • R2 1.3271
  • R3 1.3289

GBP/USD– Trading Tip

On the technical side, the 61.8% Fibonacci retracement of its December 12-23 fall, to around 1.3285, restricts the pair’s immediate upside, which in turn increases the chances of a pullback to 50% and 38.2% Fibonacci retracement levels of 1.3210 and 1.3135 respectively.

The GBP/USD has broken the support mark of 1.3060, and currently, this level is expected to serve as a resistance for the GBP/USD. On the downside, the GBP/USD can exhibit further selling until the next target level of 1.2940.

USD/JPY – Daily Analysis

The USD/JPY currency pair stuck between the range of 108.60 – 108.75 and took some gain due to risk-on sentiment in the wake of the Chinese central bank’s rate cut. Moreover, the optimism surrounding the United States and China trade deal relations also play their role. 

The tensions of the Middle East and holidays in Asia’s major parts continue to limit the market’s reaction because traders are cautious ahead of the key data from China.

It is worth to mention that China’s People’s Bank of China (PBOC) gave an announcement regarding 50 basis points into the Reserve Ratio Requirement (RRR) cut, which is scheduled to deliver on January 5. As well as, major banks will hold a reserve of 12.5% of their assets from now, while 10.5% for smaller institutions. 

Moreover, the announcement came from the PBOC that financial institutions should stop doing the 1-year lending rate as its reference rate while start with the Loan Prime Rate as the base rate beginning January 1.

At the Sino-US front, the United States President Donald Trump’s tweeted about the confirmation of phase-one singing in a ceremony on January 15. Meanwhile, the Republican leader also said that he would later go to China to discuss the phase-2 of the deal. Eventually, the White House Advisor, Peter Navarro, also said that more positive deals with China are coming this 2020.

On the other hand, the market holidays in Japan and New Zealand limit the latest news reaction because the trader waits for the China Caixin Manufacturing PMI data for December. Apart from this, there is another reason behind the lack of smiling welcome to 2020 is the political war between the United States and the Middle East after the Pentagon’s defensive strikes into Iraq and Syria.

At the data front, the data becomes even more critical due to the latest official figures confirms the continued manufacturing recovery. Forecasts suggest 51.7 values against 51.8. Looking forward, the traders will closely follow the U.S. Markit Manufacturing PMI for fresh direction.


Daily Support and Resistance

  • S3 108.48
  • S2 108.61
  • S1 108.69
  • Pivot Point 108.74
  • R1 108.81
  • R2 108.86
  • R3 108.99

USD/JPY – Trading Tips

The USD/JPY was facing triple bottom support near 108.400 level, which has pushed the USD/JPY higher towards a 23.6% retracement level of 108.700. Above this, the pair has the potential to go for 38.2% Fibo levels, which marks 108.900 resistance. 

Below the 108.900 level, we can expect a slight bearish reversal in the USD/JPY currency pairs until 108.600.  

All the best!

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Forex Assets

USD/CHF Currency Pair – Everything You Should Know!

Introduction

Introduction

Introduction

USD/CHF is the abbreviation for the US dollar and the Swiss franc. This pair is a major currency pair. USD is the base currency, while CHF is the quote currency. The pair as a whole tells how many units of the quote currency is needed to purchase one unit of the base currency. Trading USDCHF is as good as saying, trading the ‘Swissie.’

Understanding USD/CHF

The exchange value of USDCHF represents the number of Swiss francs required to buy one US dollar. For example, if the value of USDCHF is 0.9820, to purchase one USD, the trader must pay 0.9820 Swiss francs.

USD/CHF Specification

Spread

Spread in trading is the difference between the bid price and the ask price offered by the broker. It is measured in terms of pips and varies on the type of account and type of broker.

Spread on ECN: 0.8

Spread on STP: 1.6

Fees

There is a small fee or commission charged by the broker for every trade a trader takes. This depends on both types of accounts and broker. For our analysis, we have kept the fee fixed at one pip.

Slippage

Due to volatility in the market, a trader does not usually get the price that he demanded. The actual price differs from the demanded price. This difference is referred to as slippage. For example, if a trader executes a trade at 0.9890, the real price received would be 0.9892. This difference of two pips is known as slippage.

Trading Range in USD/CHF

The trading range is a tabular representation of the minimum, average, and maximum pip movement on a particular timeframe. Having knowledge about this is necessary because it helps in managing risk as well as determining the right times of the day to enter and exit a trade with minimal costs.

Below is a table that depicts the minimum, average, and maximum volatility (pip movement) on different timeframes.

USD/CHF PIP RANGES

Procedure to assess Pip Ranges

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

USD/CHF Cost as a Percent of the Trading Range

The number of pips the currency pair move in each timeframe is shown in the above table. Now, we apply these values to find the cost percentage when the volatility is minimum, average, and max. This cost percentage will then help us filter out the most optimal time of the day to take trades.

The comprehension of the cost percentage is simple. If the percentage is high, then the cost is high for that particular timeframe and range. If the percentage is low, then the cost is relatively low for that timeframe and range.

Note that, the total cost on a single trade is calculated by adding up the spread, slippage, and trading fee.

ECN Model Account

Spread = 0.8 | Slippage = 2 | Trading fee = 1

Total cost = Slippage + Spread + Trading Fee = 2 + 0.8 + 1 = 3.8

STP Model Account

Spread = 1.6 | Slippage = 2 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 2 + 1.6 + 0 = 3.6

The Ideal way to trade the USD/CAD

Entering and exiting trades during any time of the day might not be the smartest move. There are particular times of the day a trader must manage their trade to reduce both risk and cost on the trade. This can be made possible by comprehending the above two tables.

The percentages are highest in the min column. Meaning, the cost is pretty high when the volatility of the market is low. For example, on the 1H timeframe, when the volatility is 2.5 pips, the cost percentage is 152%. This means that one must bear high costs if they open or close trades when the volatility is around 2.5 pips. So, ideally, it is recommended to trade when the market volatility is above the average mark.

Apart from that, it is much better if one trades using the limit orders rather than market orders, as it nullifies the slippage on the trade. In doing so, the costs of each trade will reduce by about 50%.

Categories
Forex Daily Topic Forex Price-Action Strategies

Need the patience to Manage Trade by Taking Partial Profit

Partial profit taking is a handy feature that Forex traders often use. Since the Forex market is very volatile, traders take out a portion of profit and let the rest of the trade run to get them more pips. Traders need to have patience, though, if they want to manage the trade by taking a partial profit. In today’s lesson, we are going to demonstrate an example of partial profit-taking and find out the importance of having patience.

Partial profit taking is a handy feature that Forex traders often use. Since the Forex market is very volatile, traders take out a portion of profit and let the rest of the trade run to get them more pips. Traders need to have patience, though, if they want to manage the trade by taking a partial profit. In today’s lesson, we are going to demonstrate an example of partial profit-taking and find out the importance of having patience.

Partial profit taking is a handy feature that Forex traders often use. Since the Forex market is very volatile, traders take out a portion of profit and let the rest of the trade run to get them more pips. Traders need to have patience, though, if they want to manage the trade by taking a partial profit. In today’s lesson, we are going to demonstrate an example of partial profit-taking and find out the importance of having patience.

This is a daily chart. The price produces a bullish harami right at the level where it bounces earlier. The daily-H4 combination traders are to flip over to the H4 chart to find out long opportunities. Let us flip over to the H4 chart.

The H4 chart looks fantastic for the buyers. The first candle comes out as a bullish engulfing candle followed by another bullish one. The price consolidates and produces a bullish reversal candle as well. The buyers are to wait for an H4 breakout at the resistance to trigger a long entry.

The price comes down to find its support and heads towards the North to make the breakout. Look at the breakout candle, which is a good-looking bullish candle with long lower shadow. The buyers have been waiting for this. It is time to trigger a long entry.

The price keeps heading towards the North after triggering the entry. The last candle comes out as a strong bullish candle, so the buyers let their trade to go along. Let us proceed to the next chart.

The chart produces a bearish reversal candle. The price may go up to the black marked level. It means that the price has enough space to travel and offer a handful of pips. The price may make a bearish move from here as well. What do the buyers do here? They may take out a portion of the profit. They may take out a 50% profit and leave the stop loss where it is. It will allow them grabbing more pips if it keeps going towards the North. If it does not, they will not lose a dime.

The price gets caught within a bullish rectangle. Do not forget that it has been a long time that the buyers were sticking with their trade. They have been very patient. The price still does not make an upside breakout. It might go either way. Let us proceed to the next chart.

At last, it makes a breakout at the first rectangle. It consolidates again with several candles and makes another bullish breakout. Eventually, it hits the level. Traders have grabbed more pips by taking a partial profit. However, we must not miss the part that they are to be extremely patient. Taking a partial profit may help us be more consistent in making a profit, but we now know what we have to put in to do it accordingly.

 

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Forex Assets

What Should You Know About USD/CAD Forex Pair?

Introduction

Introduction

Introduction

USDCAD is the short form for the US dollar against the Canadian dollar. USDCAD, just like the EURUSD, GBPUSD, AUDUSD, etc. is a major currency pair. In this pair, the US dollar is the base currency, and the Canadian dollar is the quote currency. Trading this currency pair is known as trading the “loonie” because it is the name for the Canadian one-dollar coin.

Understanding USD/CAD

The exchange price of USD/CAD is basically the value of 1 USD in terms of CAD. It is quoted as 1 US dollar per X* Canadian dollars. For example, if the value of USDCAD is 1.3300, it means that it takes 1.3300 Canadian dollars to buy one US dollar.

*X is the current market price of USDCAD

USD/CAD Specification

Spread

The difference between the bid price and the ask price mentioned by the broker is the spread. Typically, this differs from the type of account.

Spread on ECN: 0.7

Spread on STP: 1.2

Fees

There is a fee (commission) on every trade a trader takes. This again depends on the type of account registered by the user. There is no fee on the STP account, but a few pips on an ECN account.

Note: We are considering fees in terms of pips, not currency units.

Slippage

Sometimes a trader is executed at a different price from what he had intended. This variation in price is known as slippage. Slippage takes place when orders are executed as a market type, and it depends on the volatility of the currency pair and also the execution speed of the broker.

Trading Range in USD/CAD

Trading analysis is not all about predicting when the prices will rise and fall. Sometimes, even though a trader knows the prices are going to rise/fall, it might not be ideal to jump on the trade without the knowledge of volatility of the market. Volatility range plays a major role in managing the total cost of a trade. Hence, it is vital to know the minimum, average, and maximum pip movement in each timeframe to assess the trading costs.

Below is a table that depicts the minimum, average, and maximum volatility (pip movement) on different timeframes.

USD/CAD PIP RANGES

Procedure to assess Pip Ranges

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

USD/CAD Cost as a Percent of the Trading Range

With the min, average, and max pip movement, the cost range is calculated in terms of percentage. This percentage has no unit and determines if the width of the cost. That is, if the percentage is high, the cost is high for the trade, and if the percentage is low, the cost is low too.

Below are two tables representing the range of cost for an ECN account and an STP account.

ECN Model Account

Spread = 0.7 | Slippage = 2 | Trading fee = 1

Total cost = Slippage + Spread + Trading Fee = 2 + 0.7 + 1 = 3.7

STP Model Account

Spread = 1.2 | Slippage = 2 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 2 + 1.2 + 0 = 3.2

The Ideal way to trade the USD/CAD

As mentioned earlier, the higher the percentage, the higher is the cost for a trade. Applying this idea to the above tables, it can clearly be inferred that the percentages are high on the minimum column. This means that the costs are high when the volatility of the currency pair is very feeble.

Similarly, the costs are considerably low when the volatility is quite high. However, this does not mean that trading during high volatility is the ideal way. This is because the volatility is quite risky to trade volatile markets. Therefore, one must trade during those times of day when the market volatility is around the mentioned average. The costs are decent enough, and the risk is maintained just fine.

Another point of consideration is that costs are reduced significantly when the slippage is made nil. This can be made possible by entering and exiting a trade by placing a pending/limit order instead of executing them by market.

Below is the same cost percentage table after making the slippage value to 0.

Now it is evident from the above table that slippage eats up a significant amount of cost on each trade. Hence, limit orders are the way to go.

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Forex Videos

The Best Forex Pairs To Trade And Why #liquidity

 

 

 

What are the best pairs to trade?

When trading currencies, it is only possible to do so in pairs. And where each currency has a floating exchange rate relative to any other countries’ currency, which is paired against trading purposes. The fact that each currency floats, or falls and rises against the value of another currency, is the reason that foreign exchange trading has grown to be one of the biggest businesses on the planet, with a daily turnover of over 5 trillion dollars.


This volume of money in the system, which is driven by supply and demand, causes the liquidity which is responsible for the continuous fluctuations in exchange rates, and what essentially drives the market. It is also a key factor for traders. Because without it, exchange rates would barely move, and it would be almost impossible to trade from a technical point of view.

And so, if we understand that volume equals liquidity and that this means potential movements in exchange rates, we should essentially be looking for the main currencies that drive the forex market because that is where we will make our money. Technical traders need currency pairs that rise and fall, and not remain flat.


The countries which have the strongest economies are also responsible for having the most significant amount of volume and, therefore, market liquidity in respect of their currencies.
These countries are the United States and its Dollar, Great Britain and its Pound, Australia with its Dollar, the European Union and their Euro, Japan, and its Yen and Switzerland with their Franc. Their respective currencies are known in the industry as the Majors.

In terms of the biggest market segment traded in pairs on a daily basis, it usually follows that the EUR/USD is the most liquid, with over 20% of all transactions, and then the USD/JPY, the GBP/USD and USD/CHF. Of course, this can change depending on supply and demand. And where this varies depending on economic and fundamental events.


Forex Traders look for volatility and price action that is continually moving, and this tends to happen most with the Major currency pairs. Another advantage with trading the Majors is that the spreads, or the difference between the bid and ask price, is typically much smaller with these pairs. And because of the greater volume, it means less slippage, and that means that trading them is easier and more reliable when entering and exiting.

But the most important thing about trading the Major pairs is that they offer a great deal of reliability when it comes to using technical analysis to trade them.
Here at Forex.Academy, we are able to cover all of your educational needs, which will help you get ahead with your trading.

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Forex Videos

Mastering Forex – Trading The Euro US Dollar Pair

https://youtu.be/0uHHOGJH3Ts

https://youtu.be/0uHHOGJH3Ts

 

Trading The Euro US Dollar Pair

 

Of the Forex Major pairs, the EUR/USD has generally been considered the most liquid, with over 20% of all transactions, followed by the USD/JPY, the GBP/USD, and USD/CHF. But this can change, depending on supply and demand.
In fact, the EURUSD pair seems to have dried up considerably in recent months. Where a couple of years ago, it would not have been unusual to see the pair ranging over 150 pips per day. More recently, it has been fairly common to see a sideways range of under 20 pips!


So what on earth is going on with the Euro? It is important to consider all of the economies that make up euroland, the most significant of which is the mighty powerhouse of Germany, which largely props up the smaller nations such as Greece and Italy who have been struggling with their economies over recent years. It is also important to note that Germany has also been struggling with manufacturing output, especially within the car industry, and where it’s gross domestic product has been shrinking and causing its economy to stagnate, although it has been staving off an overall recession. Coupled with this, the uncertainty which has prevailed regarding Brexit, many hedge funds and investment firms, and even central banks will have been reeling over all of the uncertainties that are going on in Euroland and the general decline of global growth. And so they have been standing on the sidelines or trading other assets. It also has to be said that the economist and former President of the European Central Bank between 2011 and 2019, Mario Draghi, had – what the market perceived as – a cautious and somewhat dovish stance towards the Euro area. However, Christine Lagarde, who takes over the role, has been largely welcomed by the financial markets and where some positive light seems to suggest a slight recovery in the economic fortunes of the Euro area, which have to lead to a stronger Euro in recent days.


Brexit still remains a hurdle for Euroland and until the matter is fully resolved the Euro faces a lack of direction and is ripe for some strong moves in either direction, although some large institutions, such as Goldman Sachs, suggest an uptrend to the 1.15 level for the EURUSD is on the cards. We’ll have to wait and see on that one.


But the bottom line is that, when traded with a little extra caution, while waiting for extra volume induced breakouts, the EURUSD pair is still a market favorite among traders and is probably the most reliable pair to trade via technical analysis. At some stage, it is highly likely that Forex volumes, which have generally been lower in the market this year, will return. At which point the EURUSD should see a return to volatility. Here at Forex.Academy, we have some great trade sets up explanations for all the Major pairs in our Forex Video library, and they are all freely available for your educational needs.

Categories
Forex Daily Topic Forex Price-Action Strategies

Do not Mix up, Stick with the Rules

In today’s lesson, we are going to demonstrate an example of an H4 chart offering an entry. The daily-H4 chart combination traders are to keep an eye on the daily chart first. Once the daily chart produces a daily reversal candle from the support/resistance zone, they are to flip over to the H4 chart to take an entry. Today, we are going to do it in another way for a reason. We are going to start monitoring from the H4 chart. Let us start. Soon you will know why I am doing it so.

In today’s lesson, we are going to demonstrate an example of an H4 chart offering an entry. The daily-H4 chart combination traders are to keep an eye on the daily chart first. Once the daily chart produces a daily reversal candle from the support/resistance zone, they are to flip over to the H4 chart to take an entry. Today, we are going to do it in another way for a reason. We are going to start monitoring from the H4 chart. Let us start. Soon you will know why I am doing it so.

In today’s lesson, we are going to demonstrate an example of an H4 chart offering an entry. The daily-H4 chart combination traders are to keep an eye on the daily chart first. Once the daily chart produces a daily reversal candle from the support/resistance zone, they are to flip over to the H4 chart to take an entry. Today, we are going to do it in another way for a reason. We are going to start monitoring from the H4 chart. Let us start. Soon you will know why I am doing it so.

This is the H4 chart, and the red-marked level is daily support. It shows that the price is at the level of support. The last candle comes out as a bearish candle with a long lower shadow. It suggests that the level may produce a bullish reversal soon.

As expected, the chart produces a bullish engulfing candle right at the level of support. A bullish engulfing candle at a support zone has a strong message to send to the buyers that it is their territory.

The price goes towards the North for one more candle. It then has a correction and produces another bullish engulfing candle closing above the resistance. This is an ideal sequence for the price action traders to take a long entry. Let us assume that we do not trigger an entry here and have a look at the next chart.

The price keeps heading towards the North. It means that we have missed an opportunity to make some green pips here. Everything seems perfect, but why we skip taking the entry. Is it a mistake? Is not it? No, it is not a mistake. We shall not take the entry as far as the daily-H4 chart combination chart is concerned. We have started monitoring the chart from the H4 chart today. The daily-H4 chart combination traders are to monitor from the daily chart. Let us have a look at the Daily chart how it looks before flipping over to the first H4 chart here.

You see that the last daily candle comes out as a bearish one. It closes within a level, which has the potential to hold the price as a level of support. However, it has not produced a bullish reversal candle yet. Thus, they shall not flip over to the H4 chart. This is the reason that the daily-H4 chart combination traders may not take the above entry. The H4-H1 chart combination traders may not get an entry here as well since the level of support is not H4 support. The price does not react to the level on the H4 chart in recent times.  It moves towards the North by obeying other trading methods but not according to the price action chart combination trading.

We must be disciplined and must not mix up one strategy with others but stick with the rules. Sticking with the rules is one of the most important factors to be consistent in trading.

Categories
Forex Market Analysis

Daily F.X. Analysis, December 27 – Top Trade Setups In Forex – Weaker Dollar In-Play

On the forex front, the U.S. Dollar Index was little changed at 97.65 in thin holiday trading. The Euro edged up 0.1% to $1.1101, and the British pound gained 0.3% to $1.3001. The USD/JPY climbed 0.2% to 109.54.

On the forex front, the U.S. Dollar Index was little changed at 97.65 in thin holiday trading. The Euro edged up 0.1% to $1.1101, and the British pound gained 0.3% to $1.3001. The USD/JPY climbed 0.2% to 109.54.

On the forex front, the U.S. Dollar Index was little changed at 97.65 in thin holiday trading. The Euro edged up 0.1% to $1.1101, and the British pound gained 0.3% to $1.3001. The USD/JPY climbed 0.2% to 109.54.

The U.S. Labor Department reported that initial jobless claims fell to 222,000 in the week ended December 21 (220k expected) from 235,000 in the prior week. Today, the focus is going to be on the technical side of the market as the economic calendar remains muted. 

Economic Events to Watch Today

Let’s took at these fundamentals.

  

EUR/USD – Daily Analysis

The EUR/USD edged up 0.1% to $1.1101, and the British pound gained 0.3% to $1.3001. The U.S. President Donald Trump said on Tuesday that he and Chinese President Xi Jinping would have a ceremony to sign the phase-one of the trade deal reached earlier this month. 

Mr. Lowe also added that the E.U. was failing, so they rammed the Euro in. He said that Euro was destined to fail and would have collapsed by now if it was not for massive quantitative easing by ECB.

On the other hand, the macroeconomic calendar remained empty on Thursday except for the U.S. jobless claims for the previous week. The U.S. unemployment claims during last week were recorded as 222K, which came in line with the expectations. 

Daily Support and Resistance

  • S3 1.0974
  • S2 1.1031
  • S1 1.1053

Pivot Point 1.1089

  • R1 1.1111
  • R2 1.1146
  • R3   1.1203

EUR/USD– Trading Tips

The EUR/USD is trading with the slightly bearish sentiment, and it’s very likely to test the next support area around 1.1110 on the 4-hour chart. The bearish breakout of this level can trigger further selling until 1.1085. Conversely, the bullish bias can lead the EUR/USD to 1.1125 and 1.1160 resistance levels. Let’s wait for the buy trade above 1.1110 today.  

 

GBP/USD– Daily Analysis

The GBP/USD gained 0.3% to $1.3001. Boris Johnson has announced to make his Brexit deal as law, and in case of not reaching a trade deal with E.U. by the end of next year, then U.K. will leave E.U. without any agreement. However, it was highly unlikely because PM Johnson now holds the majority of the U.K. Parliament. 

The Parliament has already approved his deal for leaving E.U., and there are fewer chances that E.U. & U.K. will not reach a trade deal. Furthermore, PM Johnson has also said that he would make sure the departure of the U.K. from the European Union on January 31.

The British economy has been showing weaknesses for some time, and it is possible that Bank of England would start easing its monetary policy soon, which will drag the GBP/USD pair back from 1.30 level.

In the U.K., the British Banker’s Association will report November finance loans for housing (41.2 billion pounds expected).

Daily Support and Resistance

  • S3 1.2757
  • S2 1.2901
  • S1 1.2955

Pivot Point 1.3044

  • R1 1.3099
  • R2 1.3188
  • R3 1.3331

GBP/USD– Trading Tip

The GBP/USD has broken the support mark of 1.3060, and currently, this level is expected to serve as a resistance for the GBP/USD. On the downside, the GBP/USD can exhibit further selling until the next target level of 1.2940.

The RSI and MACD have now crossed over 50 and 0 zone, suggesting odds of a bullish reversal in the GBP/USD pair. Consider staying bullish above 1.2995 and bearish below 1.3100 today. 

USD/JPY – Daily Analysis

The USD/JPY fell to 109.48. This morning, official data showed that Japan’s jobless rate dropped to 2.2% in November (2.4% expected and in October), while industrial production slid 0.9% on the month (-1.0% expected). Also, retail sales grew 4.5% (+5.0% expected).

The Bank of Japan Governor Haruhiko Kuroda said on Thursday that the central bank would ease its monetary policy further without hesitation if the momentum toward its 2% inflation goal came under threat.

He also offered a brighter view of the global economic outlook and said that the Bank of Japan would not rush to change its current policy for now. After a week after Central bank kept its short term rates target at -0.1% and long-term at 0%, Kuroda said that the trend of Japan’s economy was at moderate growth.

However, the easing of global trade tensions has reduced the chances that the central bank would ease its monetary policy further. Reduction in uncertainties over the US-China trade war has played an essential role in facilitating global economic conditions.

Daily Support and Resistance

  • S3 108.56
  • S2 108.97
  • S1 109.17

Pivot Point 109.38

  • R1 109.58
  • R2 109.8
  • R3 110.21

USD/JPY – Trading Tips

The USD/JPY has already completed the 38.2% Fibonacci retracement around 109.200 level. Now, this level is supporting the safe-haven pair along with an immediate resistance around 109.350. 

The RSI and MACD are suggesting chances of further selling in the USD/JPY pair. The pair may trade bearish below 109.50 to target 109.200 and even below to 108.950 today. 

All the best!

Categories
Forex Economic Indicators Forex Fundamental Analysis

What you should know about Government Debt to GDP

What is the Government Debt to GDP?

What is the Government Debt to GDP?

What is the Government Debt to GDP?

The government Debt-to-GDP ratio is simply the ratio between the country’s total GDP (Gross Domestic Product) to its total debt. It is computed by dividing the total debt the nation has in a particular year to that of the GDP figure for that year.

As it is a ratio, this indicator is represented in percentage. The debt-to-GDP ratio indicates the country’s capability to repay its debts. If the debt-to-GDP ratio of a country is high, it means that the country might struggle to pay back the debt it has incurred. If this ratio is nominally high, then there is a high likelihood that the country is more likely to default on payments and fail to repay the debt. If the debt-to-GDP ratio is low, then the country is in a stable financial position to repay the debt.

This ratio is also useful to help determine the number of years that a country would need in order to pay back the debt if the total GDP is solely dedicated to the repayment. The debt-to-GDP ratio also measures the financial leverage of an economy.

 

What Does the Debt-to-GDP Ratio Tell You?

A financial panic in domestic and international markets is triggered when a country is unable to repay its debt. Governments will strive to lower their debt-to-GDP ratios. However, this can be difficult during periods of unrest or when the country is in an economic recession. When this occurs, governments like to increase borrowing in an attempt to stimulate economic growth.

Some economists adhere to the modern monetary theory (MMT), which argues that sovereign nations that are capable of printing their own money can’t go bankrupt as they can simply print more fiat currency to cover their debts. However, the nations of European Union (EU), who have to rely on the European Central Bank (ECB) to issue euros, do not apply to this rule because they do not control their own monetary policies.

A  recent study by the World Bank found that countries whose debt-to-GDP ratios exceed 77% for extended periods will experience a slowdown in economic growth. It is important to note that every percentage point of debt above this level costs countries 1.7% in economic growth and is even more pronounced in the emerging markets, where each additional percentage point of debt over 64%, annually slows growth by 2%.

Sources of information on ‘Debt to GDP Ratio’ for Major currencies:

In the sources below, there is a lot of information with respect to the Debt to GDP ratio. You can acquaint yourself with the Debt to GDP ratio for the respective country in addition to the historical data related to that country’s Debt to GDP ratio. This graphical representation of the historical Debt to GDP ratio data will leave you with a clearer understanding of how these ratios can change over time.

World Bank – https://datacatalog.worldbank.org/dataset/quarterly-public-sector-debt

GBP (Sterling) – https://tradingeconomics.com/united-kingdom/government-debt-to-gdp

AUD – https://tradingeconomics.com/australia/government-debt-to-gdp

USD – https://tradingeconomics.com/united-states/government-debt-to-gdp

CHF – https://tradingeconomics.com/switzerland/government-debt-to-gdp

EUR – https://tradingeconomics.com/euro-area/government-debt-to-gdp

CAD – https://tradingeconomics.com/canada/government-debt-to-gdp

NZD – https://tradingeconomics.com/new-zealand/government-debt-to-gdp

JPY – https://tradingeconomics.com/japan/government-debt-to-gdp

 

Frequency of release

Public Debt figures are released quarterly by the World Bank and the International Monetary Fund (IMF), therefore, investors and agency ratings are able to compute this ratio on a quarterly basis.

What do traders care about the Debt to GDP ratio and its impact on the currency?

As we already know, the government debt to GDP ratio indicates the ability of a country to repay its debt, and a higher Debt to GDP ratio for an extended period of time means that the country is more likely to get default on its debt. This leads the foreign banks and governments to lend more money to these countries, and they increase their interest rates to mitigate the high risk involved. Aa a result, the economy of the country will slow down when there is a high debt to GDP ratio. A weak economy can indicate that there may be depreciation of that currency. This is why this ratio will be an essential factor for forex traders to consider when they trade on the Forex market.

The bottom line

If a country has a high debt-to-GDP ratio for an extended amount of time, it can indicate a recession as a country’s GDP will go down in a recession. This will also affect the people living in that country as governments tend to increase taxes to keep up the revenue. The lending governments will have more faith in the county to repay their debts if there is a high return on the debt that is borrowed. If there is a high risk involved due to less return on the debt that is acquired, this will question the lenders. Another important factor to consider is that the lending institutions earn a high rate of interest on the debt that is provided, So they won’t mind the country in question not paying back their debt, as the lending country can earn high interest from the debts they have provided.

From a traders’ point of view, it is better to have an overall view on what the country’s debt to GDP ratio is and to forecast if the specific country is likely to repay their debts or default on payments. If this fundamental analysis indicator factor is ignored when doing your due diligence for long term trades, then there is a high probability of the specific currency to depreciate in the long run, if that country defaults on its debt.

 

 

Categories
Forex Assets

What Should You Know About AUD/USD Forex Pair

Firstly, the abbreviation of the AUDUSD currency pair is the Australian dollar and the US dollar. AUDUSD is a major currency pair. It is considered a major pair because it is AUD is paired with the US dollar, and also, this is one of the pairs where a huge volume of trading takes place. In AUDUSD, AUD is the base currency, and USD is the quote currency.

Firstly, the abbreviation of the AUDUSD currency pair is the Australian dollar and the US dollar. AUDUSD is a major currency pair. It is considered a major pair because it is AUD is paired with the US dollar, and also, this is one of the pairs where a huge volume of trading takes place. In AUDUSD, AUD is the base currency, and USD is the quote currency.

Firstly, the abbreviation of the AUDUSD currency pair is the Australian dollar and the US dollar. AUDUSD is a major currency pair. It is considered a major pair because it is AUD is paired with the US dollar, and also, this is one of the pairs where a huge volume of trading takes place. In AUDUSD, AUD is the base currency, and USD is the quote currency.

Understanding AUD/USD

The exchange value of AUDUSD represents the units of USD equivalent to one unit of AUD. In technical terms, it is the value of AUD against USD. For example, if the current market price of AUDUSD is 0.6960, then it means that it takes 0.6960 US dollars to buy 1 Australian dollar. Trading the AUDUSD currency pair is basically trading the Aussie (Australian dollar).

AUD/USD Specification

Spread

Spread is the difference between the bid price and the ask price. The spread usually varies based on account type. The spread on an ECN account and an STP account is as follows:

ECN: 0.7 | STP: 1.4

Fee

There is charged by brokers for every trade a trader takes. However, this depends on the type of forex account. Typically there is a fee in ECN accounts and zero-fee in STP accounts. Also, there is no exact value of fee on a single trade, as it differs from broker to broker.

Slippage

Slippage is the difference between the trader’s requested price and the real executed price. Slippage happens when the volatility of the market is quite high. It happens for market orders. Slippage can be in favor of the trader or against him. If entering and closing of the trade is done by market execution, then slippage happens twice. The slippage is usually between 0.5 and 3 pips. However, it depends on the broker’s execution speed as well.

Trading Range in AUD/USD

There are several timeframes to trade this currency pair. A day trader may pick the 1H, 4H, or the 1D timeframe, while a positional trader may opt for the weekly or the monthly. Apart from analyzing these timeframes, it is also necessary to know the volatility range in each of the timeframes. Knowing the pip movement range in each timeframe, one can assess their risk involved in each trade.

Below is the table, which represents the minimum, average, and maximum pip movement in each timeframe.

Note: The below values are an approximation from the Average True Range (ATR) indicator.

AUD/USD PIP RANGES 

Procedure to assess Pip Ranges

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

This is where the above values are put into play. By considering the volatility range in each timeframe, the cost (fee) for a single trade is measured in terms of a percentage for every mentioned timeframe. The basic idea to this is that the higher the percentage value, the higher is the cost of the trade.

The cost is calculated by considering three variables, namely, slippage, spread, and trading fee. And the sum of these values gives the total cost of each trade.

As mentioned earlier, the cost varies from the type of trading account. So, there will be variation in cost percentages as well.

ECN Model Account

Spread = 0.7 | Slippage = 2 | Trading fee = 1

Total fee = Spread + Slippage + Trading fee = 0.7 + 2 + 1

Total cost = 3.7 (pips)

STP Model Account

Spread = 1.4 | Slippage = 2 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 2 + 1.4 + 0

Total cost = 3.4

The Ideal Timeframe to Trade GBP/USD

The first observation that can be made from the above percentage values is that the minimum column has the highest percentages compared to other columns. This means that the cost is pretty high when the volatility of the market is too low irrespective of the timeframe. Contrarily, the costs are significantly less when the volatility of the market is high (max column). However, it is quite risky to trade when the market volatility is high though the fee is less. So, it is ideal during those times of the day when the market volatility is above average.

Note that volatility is not only one which decides on which is the best timeframe and time of the day to trade. The slippage value equally plays an important role, as well. For instance, if the slippage is made nil and the percentages are calculated, it is seen that the ranges drop down considerably. Hence, it is recommended to enter and exit trades using limit orders and not market orders.

Categories
Forex Elliott Wave

Introduction to Wave Analysis

To think in a scientific and objective method to analyze and forecast using the Elliott Wave Theory could sound impossible. However, Glenn Neely was the first one to develop it. This educational article is the first part of a series dedicated to exposing his contribution towards the Wave Analysis.

To think in a scientific and objective method to analyze and forecast using the Elliott Wave Theory could sound impossible. However, Glenn Neely was the first one to develop it. This educational article is the first part of a series dedicated to exposing his contribution towards the Wave Analysis.

To think about a scientific and objective method to analyze and forecast using the Elliott Wave Theory could sound impossible. However, Glenn Neely was the first one to develop it. This educational article is the first part of a series dedicated to exposing his contribution towards the Wave Analysis.

The Background

The Elliott Wave Principle is part of nature and can be applied to the financial markets as a socio-economic phenomenon. The result of this application is a graphic representation of mass psychology.

The interaction of different market participants reflects prices into identifiable patterns. These patterns tend to repeat across time and allow us to foresee the most likely next movement of the market.

In financial markets, the price does not have an absolute top or bottom. The application of the Elliott Wave can help to determine the time and price where a trend could start or end. The study and analysis of specific patterns or price structures support this analysis once formation ends.

Why the Wave Theory?

The comprehension of the psychology of the masses allows the trader to participate in any financial market. For example, stock markets, commodities, currency market, among others.

Compared with traditional technical analysis, the wave theory is based on the perspective of price behavior over time, not on the identification of a specific pattern, for example, a head and shoulders pattern, double or triple top or bottom, etc.

It should be noted that the wave theory is adaptable over time. Further, although wave patterns repeat over time, there are not two markets that make the same move at the same magnitude.

Pros and Cons

  • Panoramic overview, Wave theory knowledge provides an overview of the market and what should be the most probable next path.
  • To know the psychology of masses and the wave structures allows us to understand the market expectations. Further, it will enable us to identify the phenomena as fear and euphoria.
  • Complexity, the wave theory is probably the most complex method of analysis in its understanding.
  • Flexible mentality, the wave analysis requires to detach from the mass opinion, and comprehend what stage runs the market.
  • Time available to study and apply this method.
  • Indetermination when a price structure is incomplete. However, once the wave pattern is complete, the structure and the potential next move is clear.

Conclusions

The wave theory is a complete method that can represent the psychology of masses in identifiable patterns. This method provides a comprehensive perspective of the market situation and the most likely next move.

The difficulty in the application of wave theory requires not only to learn the basic concepts. It also is fundamental to develop the capacity of abstraction to visualize the movements in progress. This capability increases across time and continuous study of different markets and conditions.

Categories
Forex Assets

Everything You Should Know To Trade The GBP/USD Forex Pair

Introduction

Introduction

Introduction

Currency pairs are classified as major, minor, exotic, etc. Major currencies pairs are those pairs that involve the US dollar as one of the currencies. These currencies typically have high liquidity and volatility. GBPUSD is one such example. It is the currency pair where Great Britain Pound is traded against the US dollar.

In this article, we shall be covering all the basic fundamentals which are essential to know before trading this pair. And before getting into the specifications of this pair, let us first understand what actually the price of GBPUSD signifies.

In GBPUSD, GBP is the base currency, and USD is the quote currency. The value (price) of the pair determines the units of USD required to purchase one unit of GBP. For example, if the current value of GBPUSD is 1.3100, then the trader must possess the US $1.3100 to buy 1 Pound.

GBP/USD Specification

Spread

Spread is simply the difference between the bid price and the ask price. The spread depends on the type of account.

Spread on ECN: 0.7

Spread on STP: 1.3

Fees

Again, the fee depends on the type of account. Typically, there is no fee charged by STP accounts. There is a trading fee on ECN account, which depends from broker to broker.

Slippage

Forex is very liquid and volatile. Hence, this causes slippage. Slippage is the difference between the price requested by the trader and the actual price the trader received. And this depends on the broker’s execution speed and volatility of the market. The slippage in major currency pairs is usually within 0.5 and 5 pips.

Trading Range in GBPUSD

As a trader, it is vital to know the number of pips a currency pair moves in a period of time. This is basically the volatility in the currency pair. And volatility is one of the factors which are helpful in risk management.

The volatility is measured in terms of percentage or pips. For example, if the volatility on the 1H timeframe of GBPUSD is 15 pips, then one can expect to gain or lose $150 (15 pip x $10 per pip) within a time period of few fours.

Below is a table that depicts the minimum, average, and maximum volatility (pip movement) on different timeframes.

EUR/USD PIP RANGES

Procedure to assess Pip Ranges

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

(originally posted in our article here)

GBPUSD Cost as a Percent of the Trading Range

A Forex broker usually levies three type of charges for each trade. They are:

  • Slippage
  • Spread
  • Trading Fee

The sum of all the three costs will generate the total trading cost for one trade.

Total cost = Slippage + Spread + Trading Fee

Note: All costs are in terms of pips.

To bring up an application to the above volatility table, we bind these values with the total cost and find the cost variations (in terms of percentages) on different timeframes. And these percentages prove to be helpful in choosing the right timeframe with minimal costs.

ECN Model Account

Spread = 0.7 | Slippage = 2 | Trading fee = 1

Total cost = Slippage + Spread + Trading Fee = 2 + 0.7 + 1

Total cost = 3.7

STP Model Account

Spread = 1.3 | Slippage = 2 | Trading fee = 0

Total cost = Slippage + Spread + Trading Fee = 2 + 1.3 + 0

Total cost = 3.3

The Ideal Timeframe to Trade GBPUSD

Above are tables that illustrate the cost ranges in terms of percentage. Let us now comprehend the tables and figure out the ideal timeframe to trade this currency pair. From the above table, it is evident that the cost is highest (74% and 66%) in the 1H timeframe when the volatility is low. Hence, it is not ideal to pick the 1H timeframe when the volatility is around 5 pips (minimum).

On the flip side of things, the cost percentages are minimal on the 1M timeframe. Traders with a long term perspective on the market can invest with minimum costs.

Intraday traders, on the other hand, can pick the 1H, 2H, 4H, or the 1D timeframe when the volatility of the market is above average.

Another point to consider is that slippage eats up the costs significantly. So, it is recommended to plan strategies that involve placing of limit orders and not market orders.

As proof, below is a table that clearly shows the reduction in the cost percentages when the slippage is made NIL.

Total cost = Slippage + Spread + Trading fee = 0 + 0.7 + 1

Total cost = 1.7

Comparing these values to the table with slippage=2, it can be ascertained that the cost percentage has reduced by a considerable amount. Hence, all in all, it is ideal to trade by placing limit orders rather than executing at the market price.

Categories
Candlestick patterns Forex Daily Topic

Candlestick Trading Patterns V – The Long Black-bodied Candlestick

In the previous article, We talked about candles with long and white bodies and discovered how such a candle could provide us with very useful information about the hidden properties of the market situation and the psychology of its participants.

In the previous article, We talked about candles with long and white bodies and discovered how such a candle could provide us with very useful information about the hidden properties of the market situation and the psychology of its participants.

In the previous article, We talked about candles with long and white bodies and discovered how such a candle could provide us with very useful information about the hidden properties of the market situation and the psychology of its participants.

Actually, a black body in a currency pair is equivalent to a white body in the reciprocal pair. That is, the black body of the EUR/USD is the white body of the USD/EUR. In any case, in Forex, we can also operate with commodities, energy, or stock CFDs, therefore in this article, we will develop the properties and informative potential offered by the long-black candle bodies.

As we said in the article on long-white candles, the market can be described by two types of movement: impulsive movement and corrective movement. Large black-bodied candles (like the long-white candles) belong to the impulsive movement category, and as such, are indicators of a trend, in this case, a bearish one.

A black body in a topping area

As in the case of the white candle, a long black candle in a topping zone is a clear warning of the trend halt. For the warning to be stronger, the black candle must clearly be longer than the candles that preceded it. A black candle of this kind indicates that the bears have taken control.

Image 1 – The long black-bodied candle appearing after an uptrend.

In the previous image, we can see that the black body erased the gains acquired by the preceding five candlesticks showing a rush of close orders. Then, after the initial selloff, a short recovery but buyers were not able to move the price to new highs.

A long Black-bodied candle confirms resistance

If a top consolidation area appears, and, then, a black body shows up, it is an extra confirmation that the resistance area will hold, and the trend is reversing.

Image 2 – The long black-bodied candle appearing at a resistance level

On the picture above, the price topped and retraced, followed by a recovery touching but not exceeding the previous top close. Then the engulfing black body started up at the same level, but it created an exceedingly large body surpassing the previous retracement low and closing near it. That was the confirmation for bears to push the market down.

The Long Black-bodied candle breaks a support

The break of a support level by a long black candlestick is terrible news for bulls. This situation should be considered more bearish than other less evident breakouts.

Image 3 – The long black-bodied candle breaking support trendline and SMA 50-SMA

In the case of the preceding image, which corresponds to a 2H Euro Stoxx 50 chart, the large-bodied candle not only broke the ascending trend line but, also, the 50-Period SMA. This confirmation is what bears needed to move down the price.

Long Black-bodied Candle as Resistance

The top and open of a long black-bodied candle will act as resistance levels. That situation happens when the price retraces the complete impulse. According to Mr. Nison, it is more typical the retracement to stop near 50% of the candle’s body. In consequence, a typical strategy following the trend is to place a sell-short position at that level with a stop-loss level over the top of the candle.

 

Image 4 – The top of a black-bodied candle as a resistance

Conclusions

A large black body is a clear indication of a bear trend, especially if it appears at previous tops or resistance areas. We should always pay attention to a black body and analyze the implications of it in terms of market sentiment, and also its meaning as a new resistance area. Finally, from the point of view of a price-action trader, large black bodies are an opportunity to open a position with the trend, after waiting for a pullback. Not always the pullback will happen, but when it does, it is a low-risk place to create a short entry.